AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1994
REGISTRATION NO. 33-53179
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
COLLINS & AIKMAN HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3489233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
8320 University Executive Park, Suite 102, Charlotte, North Carolina 28262 Tel.
(704) 548-2350
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
ELIZABETH R. PHILIPP, ESQ.
Executive Vice President, General Counsel and Secretary
COLLINS & AIKMAN HOLDINGS CORPORATION
210 Madison Avenue, 6th Floor
New York, New York 10016
Tel. (212) 578-1331
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT ROSENMAN, ESQ. ROBERT A. PROFUSEK, ESQ.
CRAVATH, SWAINE & MOORE JONES, DAY, REAVIS & POGUE
825 Eighth Avenue 599 Lexington Avenue
New York, New York 10019 New York, New York 10022
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share.............. 28,750,000 $17.00 $488,750,000 $176,466.75
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTES
The prospectus relating to the Common Stock being registered hereby to be
used in connection with a United States offering (the "U.S. Prospectus") is set
forth following this page. The prospectus to be used in a concurrent
international offering (the "International Prospectus") will consist of
alternate pages set forth following the U.S. Prospectus and the balance of the
pages included in the U.S. Prospectus for which no alternatives are provided.
The contents of the U.S. Prospectus and the International Prospectus are
identical except for the front and back pages, the section captioned
"Underwriting" and the additional section under the caption "Certain United
States Tax Consequences to Non-United States Holders" in the International
Prospectus. Alternate pages for the International Prospectus are separately
designated.
Prior to the consummation of the Offerings, Collins & Aikman Holdings
Corporation will be renamed Collins & Aikman Corporation.
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
CROSS-REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS OF THE RESPONSES
TO ITEMS OF FORM S-2
------------------------
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE><CAPTION>
FORM S-2 ITEM LOCATION
NUMBER AND CAPTION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus....................... Forepart of the Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................................ Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds and Consolidation
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of the Capital Stock
10. Interests of Named Experts and Counsel............... *
11. Information with Respect to the Registrant........... Prospectus Summary; Dividends; Selected Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business
12. Incorporation of Certain Information by
Reference.......................................... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
</TABLE>
- ---------------
* Item not applicable or requires a negative response.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 1994
[LOGO] 21,000,000 SHARES
COLLINS & AIKMAN CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
Of the 21,000,000 shares of Common Stock offered, 16,800,000 shares are
being offered hereby in the United States and 4,200,000 shares are being offered
in a concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting". All shares of Common Stock
offered hereby are being issued and sold by the Company.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $12.00 and $14.00. For factors considered in
determining the initial public offering price, as well as a discussion of the
requirement that the initial public offering price be recommended by a qualified
independent underwriter, see "Underwriting".
SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN
THE COMMON STOCK.
The Common Stock will be listed on the New York Stock Exchange under the
symbol "CKC".
---------------------
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.
---------------------
<TABLE><CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY (2)
-------------- ------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 2,520,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters an option for 30 days to purchase up to an additional 630,000
shares at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting".
---------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about , 1994.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
WASSERSTEIN PERELLA SECURITIES, INC.
THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
---------------------
The date of this Prospectus is , 1994.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[INSIDE FRONT COVER]
Automotive
Products
Collins & Aikman is the largest
supplier of interior trim products to
the North American automotive
industry. At least one of the
Company's five major products
(pictured here) is used on 87% of all North
American produced vehicle line.
[PHOTO]
Seat Fabric
[PHOTO]
Headliner fabric Convertible top stacks
and molded headliners
Molded Hood [OUTLINE OF CAR] Molded package shelves
insulator pads Molded floor carpets
[PHOTO]
Accessory floor mats Foam laminated door fabrics
[PHOTO] and carpet trim
Luggage compartment trim [PHOTO]
<PAGE>
["C&A" LOGO] Collins & Aikman
The table below shows all the North American-produced vehicle lines for which
Collins & Aikman supplies at least one of its five major automotive products.
An asterisk identifies recently awarded placements on new or redesigned vehicle
lines or models.
General Motors
Achieva
Aurora*
Beretta
Blazer*
Bonneville
Brougham
Camaro*
Caprice
Cavalier*
Century
Ciera
C-K Truck/10/30
C-K Truck/15/35
Corvette
DeVille/Concours*
Olds '88
Eldorado
Firebird
Grand Am
Grand Prix
LeSabre
Lumina-Van*
Lumina-Car*
Monte Carlo*
Olds '98
Park Avenue
Regal
Riviera*
S-10*
S-10 Blazer
S-15 Jimmy
Safari
Saturn
Seville
Silhouette
Skylark
Sonoma
Chevy Suburban
GMC Suburban
Sunbird*
Supreme*
TransSport
Yukon
Ford
Aerostar
Bronco
Contour*
Cougar
Explorer*
Mustang*
Mystique*
Probe
Quest
Ranger
Taurus
Tempo
Thunderbird
Topaz
Windstar*
<PAGE>
Chrysler
Acclaim
Caravan
Cirrus*
Concord*
Dakota
Daytona
Eagle Talon
Grand Cherokee
Intrepid
LeBaron/J/JX*/LHS*
Mini Ram Van
Neon*
New Yorker LHS*
Plymouth Neon
Ram Van/Ram
Shadow
Spirit
Stratus*
Sundance
Town & Country
T-300 Pickup
Vision*
Voyager
Wagoneer
Transplants
Fuji/Isuzu Legacy
Fuji/Isuzu Passport
Fuji/Isuzu Rodeo
Geo Metro
Geo Prism
Honda Accord*
Honda Civic*
Honda Mini-Van*
Hyundai Elantra
Isuzu Pickup*
Mazda MX-6
Mazda Pickup
Mazda 626
Mitsubishi Eclipse
Mitsubishi Galant
Nissan Pickup
Nissan Sentra
Suzuki Sidekick
Suzuki Swift
Suzuki Tracker
Toyota Avalon*
Toyota Camry
Toyota Corolla
Toyota Pickup*
Volvo 740/760
<PAGE>
------------------------
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
AVAILABLE INFORMATION
Collins & Aikman Corporation (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company may be inspected and copied at public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such materials can be obtained upon written
request from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Company's 15 1/2%
Cumulative Exchangeable Redeemable Preferred Stock, par value $0.01 per share
(the "Merger Preferred Stock"), is listed for trading on the American Stock
Exchange (the "AMEX"). Reports and other information concerning the Company may
also be inspected and copied at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
This Prospectus constitutes a part of a registration statement on Form S-2
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act of
1933 (the "Securities Act") with respect to the Common Stock. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Company and the
Common Stock offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
Prior to the date of this Prospectus, reports and other information were
filed under the Company's former name "Collins & Aikman Holdings Corporation"
and, prior to July 15, 1992, reports and other information were filed under the
name "WCI Holdings Corporation".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which were previously filed by the Company with
the Commission (File No. 1-10218) pursuant to Section 13 of the Exchange Act,
are incorporated herein by reference: the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended January 29, 1994 and the Company's
Quarterly Report on Form 10-Q for the thirteen weeks ended April 30, 1994.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified shall not be deemed to constitute a part of this
Prospectus, except as so modified, and any statement so superseded shall not be
deemed to constitute part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any document incorporated herein by reference
(other than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the documents that this Prospectus incorporates).
Requests for such copies should be directed to Corporate Communications, Collins
& Aikman Corporation, 8320 University Executive Park, Suite 102, Charlotte,
North Carolina 28262 (telephone: (704) 548-2350).
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus or incorporated herein by
reference. The capitalized terms used herein and not otherwise defined have the
meanings ascribed to them elsewhere in this Prospectus. Except where otherwise
indicated, (i) the information in this Prospectus assumes that the
over-allotment options granted to the Underwriters (defined below) are not
exercised, (ii) all references to a year with respect to the Company refer to
the fiscal year of the Company which ends on the last Saturday of January of the
following year, (iii) references to the North American automotive industry
include the U.S. and Canadian markets and products manufactured in Mexico for
export to the U.S. and Canadian markets, (iv) references to the Company include
its direct and indirect subsidiaries and predecessors, as appropriate, and (v)
with respect to market or competitive information, references to the Company as
"a leader" or "one of the leading" manufacturers in a particular product
category mean that the Company is one of the principal manufacturers in that
product category and references to the Company as "the leader," "the largest" or
"the leading" manufacturer in a particular product category mean that the
Company has the largest market share based on dollar sales volume in that
product category.
THE COMPANY
The Company is a leader in each of its three business segments: Automotive
Products, the largest supplier of interior trim products to the North American
automotive industry; Interior Furnishings, the largest manufacturer of
residential upholstery fabrics in the U.S.; and Wallcoverings, the largest
producer of residential wallcoverings in the U.S. Within these three segments,
the Company estimates it holds a number one or number two market share position
in each of its eight major product lines, which together comprised approximately
82% of its 1993 net sales of $1,305.5 million. See "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the risks inherent in the Company's businesses
and the Company's financial performance over the last three years, including its
history of net losses, competitive factors affecting the Company, the Company's
substantial leverage, contingent liabilities and other risks inherent in an
investment in the Common Stock.
AUTOMOTIVE PRODUCTS
Automotive Products, with 1993 net sales of $677.9 million, is a leading
designer and manufacturer of products for automobile OEMs. The segment's primary
products include four major interior trim products--automotive seat fabric,
molded floor carpet, accessory floor mats and luggage compartment trim--and
convertible top stacks. Management believes that Automotive Products offers a
wider variety of interior trim products and has a broader, more uniform
penetration of the OEMs than any of its competitors. Management estimates that
Automotive Products holds a number one or number two market share position in
each of its five major product categories. At least one of the Company's five
major automotive products is used on approximately 87% of all North
American-produced vehicle lines. Management estimates that Automotive Products'
1993 market share in its five major products was approximately 26% at Ford, 40%
at General Motors, 51% at Chrysler and 36% among the Transplants. Management
believes that Automotive Products' size and broad customer penetration
constitute a competitive advantage.
INTERIOR FURNISHINGS
Interior Furnishings, which is comprised of the Decorative Fabrics and
Floorcoverings groups, had 1993 net sales of $407.2 million. Decorative Fabrics,
with 1993 net sales of $313.6 million, is a leading designer and manufacturer of
residential and commercial upholstery fabric in the U.S.
4
<PAGE>
Decorative Fabrics supplies middle to high-end woven fabrics to furniture
manufacturers and fabric distributors. Management estimates that Decorative
Fabrics' share of the U.S. upholstery fabric market is approximately 15%.
Decorative Fabrics' primary division, Mastercraft, is the number one supplier of
flat-woven upholstery fabrics and is also the industry leader in the
fast-growing Jacquard segment of that market. Mastercraft had 1993 net sales of
$268.9 million. Mastercraft's premier design and manufacturing expertise enables
it to offer a significantly greater variety of patterns than any of its
competitors.
Floorcoverings, with 1993 net sales of $93.6 million, is a leading
manufacturer of high-end specified contract carpeting products for institutional
and commercial customers with high-traffic applications. Differentiated from
competitors by its patented Powerbond RS(R) adhesive system and by its products'
durability characteristics, Floorcoverings occupies a leading position within
this niche sector.
WALLCOVERINGS
Wallcoverings, which operates under the name "Imperial", is a leading
manufacturer and distributor of wallcoverings for the residential and commercial
sectors and had 1993 net sales of $220.4 million. Management estimates that in
1993 Imperial had a 22% market share in the larger residential wallcoverings
sector and held the number one market share position in each of this sector's
two primary distribution channels--chains and dealers.
BUSINESS STRATEGY
FOCUS ON HIGH MARKET SHARE PRODUCTS. Management focuses on developing
products that have high market share potential. Management estimates that each
of the Company's eight major product lines holds a number one or number two
market share position. Together these product lines comprised approximately 82%
of the Company's 1993 net sales. These market positions were achieved primarily
through internal growth and reflect a long-term, Company-wide commitment to
excellence in styling, engineering, product development, value-added
manufacturing and customer service.
<TABLE><CAPTION>
1993
NET SALES
(IN 1993 MARKET
PRODUCT LINE MILLIONS) POSITION
- ------------------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Automotive Products
Automotive seat fabric................................................. $ 221.2 #1
Molded floor carpet.................................................... 181.1 2
Accessory floor mats................................................... 73.4 1
Luggage compartment trim............................................... 37.6 2*
Convertible top stacks................................................. 28.2 1
Interior Furnishings
Flat-woven furniture fabrics........................................... 268.9 1
Six-foot commercial carpet............................................. 60.3 1
Wallcoverings (residential).............................................. 196.0 1
------------
Subtotal................................................................. $ 1,066.7
Percent of net sales................................................... 82%
Net sales................................................................ $ 1,305.5
</TABLE>
-------------------------------
* Management believes that the Company and a competitor are tied
for the number two market share position.
MAINTAIN BROAD PRODUCT OFFERINGS TO SUPPORT CUSTOMER BASE. The Company
consistently strives to offer a wide variety of products and to become the
primary supplier to each of its customers.
5
<PAGE>
MAINTAIN LOW-COST POSITION. Management's strategy is to maintain the
Company's low-cost position and flexible manufacturing capabilities in order to
protect operating margins from competitive pricing pressures and economic
downturns, while maximizing the benefits of operating leverage during cyclical
upturns.
MAXIMIZE BENEFITS FROM HIGH OPERATING LEVERAGE. Management believes that
substantial available production capacity and high operating leverage have
enabled the Company to benefit from the recent cyclical upturn in its served
markets. The Company has substantial manufacturing capacity to support further
growth.
OFFER VALUE-ADDED PRODUCTS. A key element of the Company's strategy is to
increase market share and unit selling prices by developing increasingly higher
value-added products through innovations in materials construction, product
design and styling.
MAINTAIN PRODUCT DESIGN AND STYLING LEADERSHIP. Design and styling are key
differentiating factors in consumer purchasing decisions. Management believes
that the Company's product design and styling capabilities are currently an
important competitive advantage and intends to devote resources to maintain the
Company's position in these areas.
CONTINUE TO DELEVERAGE. The Recapitalization is designed to increase
operating and financial flexibility by reducing the Company's indebtedness and
significantly lowering its cost of borrowing. Management expects this financial
deleveraging to be enhanced through the application of operating cash flow
augmented by the use of the Company's net operating loss carryforwards and other
favorable tax attributes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "--Tax
Matters".
HISTORY OF THE COMPANY
The Company was formed in 1988 by Blackstone Capital Partners L.P. and
Wasserstein Perella Partners, L.P. to acquire Wickes Companies, Inc. for
approximately $2.6 billion, including the assumption of indebtedness (the "1988
Acquisition"). Since the 1988 Acquisition, the Company has divested 27
businesses for approximately $1.6 billion. By the end of 1993, the Company had
streamlined its operations into its three existing business segments in which it
enjoys a competitive advantage.
The Company's principal executive offices are located at 8320 University
Executive Park, Suite 102, Charlotte, North Carolina 28262. Its telephone number
at that location is (704) 548-2350.
6
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
U.S. Offering....................... 16,800,000 shares
International Offering.............. 4,200,000 shares
Total........................ 21,000,000 shares
Common Stock to be outstanding after
the Offerings..................... 67,710,900 shares(1)
Use of proceeds..................... The net proceeds to the Company from the Offerings (defined below),
together with borrowings under the New Credit Facilities (defined below)
and available cash of the Company, will be used to effect a defeasance and
redemption, or repayment, of an aggregate of $788.4 million principal
amount of debt and an aggregate of $208.1 million liquidation amount of
preferred stock. See "Use of Proceeds and Consolidation".
Proposed New York Stock Exchange
("NYSE") Symbol................... CKC
</TABLE>
- ---------------
(1) Does not include 6,100,000 shares of Common Stock reserved for issuance
under the Company's stock option plans, including approximately 3,200,000
shares subject to outstanding options. See "Management--The Company's Option
Plans".
The offering of shares of Common Stock initially being offered in the
United States (the "U.S. Offering") and the offering of shares of Common Stock
initially being offered outside the United States (the "International Offering")
are referred to herein collectively as the "Offerings". The closing of the
International Offering is conditioned upon the closing of the U.S. Offering, and
vice versa. See "Underwriting". The Offerings are part of the Recapitalization
(described below).
7
<PAGE>
THE RECAPITALIZATION
The recapitalization (the "Recapitalization") is designed to reduce the
Company's indebtedness, significantly lower interest expense, improve operating
and financial flexibility and provide liquidity for operations and other general
corporate purposes. The Recapitalization involves two principal sources of
capital: (i) the sale of 21,000,000 shares of Common Stock pursuant to the
Offerings and (ii) the establishment of certain new credit facilities (the "New
Credit Facilities"). The proceeds from the New Credit Facilities, together with
the net proceeds from the Offerings and the available cash of the Company, will
be used to effect a defeasance and redemption, or repayment, of virtually all
indebtedness and all preferred stock of the Company and its subsidiaries. See
"New Credit Facilities".
The following table sets forth a summary of the estimated sources and
anticipated uses of funds in the Recapitalization (assuming the Recapitalization
occurs on July 6, 1994):
SOURCES OF FUNDS
<TABLE><CAPTION>
(IN
MILLIONS)
------------
<S> <C>
Sale of Common Stock in the Offerings(1)....................................... $ 258.0
Proceeds from the New Credit Facilities(2)..................................... 704.1
Available cash................................................................. 100.0
------------
Total..................................................................... $ 1,062.1
------------
------------
</TABLE>
USES OF FUNDS
<TABLE>
<S> <C>
Repayment and redemption of long-term debt (including current maturities)(3)... $ 788.4
Redemption of preferred stock.................................................. 208.1
Accrued interest and dividends as of July 6, 1994.............................. 19.7
Redemption premiums............................................................ 13.4
Defeasance costs............................................................... 11.2
Fees and expenses(4)........................................................... 21.3
------------
Total..................................................................... $ 1,062.1
------------
------------
</TABLE>
- ---------------
(1) The net proceeds to the Company from the sale of Common Stock in the
Offerings are computed based on an assumed initial public offering price of
$13.00 per share (the midpoint of the estimated range of the initial public
offering price) less underwriting discounts.
(2) Includes $150 million of proceeds from the sale of an undivided interest in
a pool of receivables under the Receivables Facility. See "New
Credit Facilities".
(3) Does not include $194.2 million of PIK Notes being exchanged for Common
Stock in connection with the consummation of the Offerings.
(4) Includes bank commitment, financial advisory, legal and accounting fees and
other expenses in connection with the Recapitalization, excluding
underwriting discounts.
Following the Offerings, the Partners and their affiliates will
beneficially own or have the right to vote, in the aggregate, 66.1% of the
outstanding Common Stock. See "Principal Stockholders and Certain
Relationships".
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary historical financial data derived from
the Company's Consolidated Financial Statements and operating data for the
periods indicated. All information contained in the following table should be
read in conjunction with "Selected Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED YEAR ENDED
----------------------- ---------------------------------------------------------------
APRIL 30, JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 26, JANUARY 27,
1994 MAY 1, 1993 1994 1993(1) 1992 1991 1990
---------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 390,446 $ 339,043 $ 1,305,517 $ 1,277,500 $ 1,184,316 $ 1,232,403 $ 1,276,442
Gross profit............ $ 100,954 $ 78,948 $ 309,727 $ 299,027 $ 257,499 $ 270,782 $ 262,121
Selling, general and
administrative
expenses................ 55,356 51,872 196,585 218,441 202,690 192,002 209,619
Management equity plan
expense................. 36 -- 26,736 -- -- -- --
Restructuring costs..... -- -- -- 10,000 -- 17,275 --
Goodwill amortization
and write-off......... -- 924 132,630 3,702 3,702 3,798 3,798
---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income
(loss).................. $ 45,562 $ 26,152 $ (46,224) $ 66,884 $ 51,107 $ 57,707 $ 48,704
Interest expense,
net(2).................. 29,061 27,225 111,291 110,867 107,974 106,099 136,292
Income (loss) from
continuing operations
before income taxes..... 15,372 (2,202) (162,048) (48,497) (61,382) (52,907) (92,102)
Income (loss) from
continuing operations
after income taxes...... 12,754 (5,473) (173,325) (45,341) (73,336) (57,386) (92,109)
Income (loss) before
extraordinary items..... 12,754 (9,069) (277,664) (263,658) (89,701) (86,983) (142,913)
Net Income (loss)....... 12,754 (9,069) (277,664) (263,658) (133,810) (57,908) (15,435)
BALANCE SHEET DATA:
Total assets............ $ 934,048 $ 1,143,689 $ 918,825 $ 1,141,434 $ 1,300,304 $ 1,412,790 $ 1,777,339
Long-term debt,
including current
portion................. 922,243 1,003,975 923,554 982,205 941,838 930,065 1,123,325
Redeemable preferred
stock................... 129,454 104,222 122,368 98,602 79,754 69,240 73,711
Stockholder's equity
(deficit)............... (698,148) (434,859) (702,220) (421,460) (130,921) 18,821 81,075
OTHER DATA (FROM
CONTINUING
OPERATIONS):
EBITDA(3)............... $ 56,689 $ 38,801 $ 155,374 $ 118,748 $ 98,708 $ 106,067 $ 97,072
Capital expenditures.... 15,286 7,267 44,923 38,209 38,928 42,885 44,872
Depreciation............ 11,127 11,725 42,232 45,463 43,899 42,532 44,570
</TABLE>
- ---------------
(1) 1992 was a 53-week year.
(2) Excludes amounts related to discontinued operations of $5,749 in the first
quarter of 1993, $18,871 in 1993, $23,010 in 1992, $25,062 in 1991, $33,040
in 1990 and $112,153 in 1989.
(3) EBITDA is operating income plus depreciation and amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. EBITDA reflects the Company's ability to satisfy principal and
interest obligations with respect to its indebtedness and to utilize cash
for other purposes. In addition, certain covenants in the New Credit
Facilities are based upon calculations using EBITDA. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles.
9
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents unaudited summary pro forma financial and
other data that are derived from, and should be read in conjunction with, the
pro forma consolidated financial data included elsewhere in this Prospectus. The
following unaudited summary pro forma financial data illustrate the estimated
effects of the Recapitalization. The unaudited summary pro forma operating data
for the thirteen weeks ended April 30, 1994 and May 1, 1993 and for the year
ended January 29, 1994 present the results of operations of the Company as if
the Recapitalization had occurred as of the beginning of each period presented.
The unaudited summary pro forma financial and other data do not purport to
represent what the Company's results of operations would actually have been if
the Recapitalization had occurred as of the beginning of each period presented,
nor do they purport to project the Company's results of operations for any
future period. See "Unaudited Pro Forma Consolidated Financial Data."
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED YEAR ENDED
----------------------------- JANUARY 29,
APRIL 30, 1994 MAY 1, 1993 1994
--------------- ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 390,446 $ 339,043 $ 1,305,517
Gross profit....................................................... 100,954 78,948 309,727
Selling, general and administrative expenses....................... 54,642 51,122 193,585
Non-recurring charges(1)........................................... -- 924 159,366
--------------- ------------ ------------
Operating income (loss)............................................ 46,312 26,902 (43,224)
Interest expense, net(2)........................................... 7,562 6,540 24,964
Loss on sale of receivables(3)..................................... 3,088 2,632 6,920
--------------- ------------ ------------
Income (loss) from continuing operations before income taxes....... 35,662 17,730 (75,108)
Income taxes(4).................................................... 2,498 3,151 10,797
--------------- ------------ ------------
Income (loss) from continuing operations........................... $ 33,164 $ 14,579 $ (85,905)
--------------- ------------ ------------
--------------- ------------ ------------
OTHER DATA:
Total debt(5)(6)................................................... $ 556,623 (9) (9)
EBITDA(7).......................................................... 57,439 39,551 158,374
Income (loss) from continuing operations per share of common
stock............................................................ .48 .22 (1.27)
Average common shares outstanding(8)............................... 69,656 67,597 67,597
</TABLE>
- ---------------
(1) Includes, for 1993, the write-off and amortization of goodwill of $132,630
and compensation expense of $26,736 related to the 1993 Plan and, for the
thirteen weeks ended May 1, 1993, goodwill amortization of $924.
(2) Reflects adjustments for the elimination of interest expense related to the
defeasance and redemption, repayment or exchange for Common Stock of certain
of the outstanding indebtedness of the Company in connection with the
Offerings and the Recapitalization. See Note (2) to the Unaudited Pro Forma
Consolidated Statements of Operations.
(3) The loss on sale of receivables arises from the sale, on a revolving basis,
of an undivided interest in trade receivables. See Note (3) to the Unaudited
Pro Forma Consolidated Statements of Operations.
(4) Reflects a reduction of state and foreign income taxes due to an
organizational restructuring and to increased borrowings in Canada in
connection with the Recapitalization.
(5) Includes $533,411 of borrowings under the New Credit Facilities and $23,212
of miscellaneous debt.
(6) Excludes $150,000 of off-balance sheet financing provided by the Company's
sale of a participating interest in trade receivables under the terms of the
Receivables Purchase Agreement (see "New Credit Facilities").
(7) EBITDA is operating income plus depreciation and amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. EBITDA reflects the Company's ability to satisfy principal and
interest obligations with respect to its indebtedness and to utilize cash
for other purposes. In addition, certain covenants in the New Credit
Facilities are based upon calculations using EBITDA. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles.
(8) Includes (i) shares currently outstanding, (ii) shares to be issued in the
Offerings, (iii) shares to be issued in exchange for the PIK Notes, and (iv)
the assumed exercise of outstanding stock options, using the treasury
method. Unrecognized compensation on employee stock options is considered as
proceeds in determining the assumed repurchase of shares into treasury.
(9) Pro forma balance sheet data is only required as of April 30, 1994.
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered hereby.
CYCLICALITY OF INDUSTRIES
The Company's business segments are highly cyclical. Downturns in North
American automotive production, consumer spending, commercial and residential
construction and renovation could have a material adverse effect on the Company.
DEPENDENCE ON SIGNIFICANT AUTOMOTIVE CUSTOMERS AND CAR MODELS
The Company's sales are dependent on certain significant customers. Sales
to General Motors Corporation ("General Motors"), Chrysler Corporation
("Chrysler") and Ford Motor Company ("Ford") accounted for approximately 16%,
10% and 8%, respectively, of the Company's 1993 net sales. In addition, certain
of the Company's customers are unionized and have in the past experienced labor
disruptions. The loss of one or more significant customers or a prolonged
disruption in their production could have a material adverse effect on the
Company.
The Company principally competes for new business at the design stage of
new models and upon the redesign of existing models. There can be no assurance
that the Company will continue to be able to obtain such new business or to
improve or maintain its gross margins on such new business. In addition, the
Company may not be able to pass on raw material price increases to its customers
due to pricing pressure from its customers. A decrease in demand for the models
that generate the most sales for the Company, the failure of the Company to
obtain purchase orders for new or redesigned models and pricing pressure from
the major automotive companies could have a material adverse effect on the
Company. See "Business--Automotive Products".
VULNERABILITY TO CHANGES IN CONSUMER TASTES
Consumer tastes in automotive seat fabrics, interior furnishings and
wallcoverings change over time. A shift in consumer preferences away from the
products that the Company produces or has the capability to produce could have a
material adverse effect on the Company.
COMPETITION
The industries in which the Company operates are highly competitive. There
can be no assurance that the Company's products will compete successfully with
those of its competitors. Several competitors are larger and have greater
financial and other resources available to them. There can be no assurance that
the Company will be able to maintain its operating margins if the competitive
environment changes. See "Business".
SUBSTANTIAL LEVERAGE
The Recapitalization is designed to reduce indebtedness, significantly
lower interest expense, improve the Company's operating and financial
flexibility and provide liquidity for operations and other general corporate
purposes. However, the substantial indebtedness of the Company and its
subsidiaries following the Recapitalization could have important consequences to
holders of Common Stock, including the following: (i) the ability of the Company
and its subsidiaries to obtain additional financing in the future to refinance
maturing debt or for working capital, capital expenditures, acquisitions,
general corporate or other purposes could be impaired; (ii) a substantial
portion of the cash flow from operations of the Company and its subsidiaries
must be dedicated to the payment of the principal of and interest on existing
indebtedness, which will have the effect of decreasing the amount available for
working capital, capital expenditures, acquisitions, general
11
<PAGE>
corporate or other purposes; (iii) the Company and its subsidiaries could be
more highly leveraged than certain of their competitors, which may place the
Company and its subsidiaries at a competitive disadvantage; (iv) a significant
portion of the borrowings of the Company and its subsidiaries are expected to be
at variable rates of interest, and consequently the Company and its subsidiaries
will be vulnerable to increases in interest rates; and (v) the high degree of
leverage of the Company and its subsidiaries may make the Company more
vulnerable to economic downturns. After giving effect to the Recapitalization,
the Company will have an aggregate of approximately $577.7 million of
indebtedness outstanding (excluding $150.0 million in off-balance sheet
financing under the Receivables Facility) and unused borrowing
availability of approximately $60.9 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "New Credit Facilities".
LIMITATIONS IMPOSED BY THE NEW CREDIT FACILITIES
The New Credit Facilities are expected to contain a number of restrictive
covenants which, among other things, will limit the ability of the Company and
its subsidiaries to incur other indebtedness, to incur liens and to make certain
restricted payments, and which will require the Company to maintain certain
specified financial ratios. A failure by the Company to maintain such financial
ratios or to comply with the restrictions contained in the New Credit Facilities
could result in a default thereunder, which in turn could result in such
indebtedness being declared immediately due and payable. See "New Credit
Facilities".
HISTORICAL LOSSES
The Company has experienced net losses since its inception. Even though the
Company will be operating with lower interest charges after the
Recapitalization, there can be no assurance as to whether or when the Company's
operations will become profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
CONTROL BY AFFILIATES AND CERTAIN TRANSACTIONS WITH AFFILIATES
After giving effect to the Offerings, Blackstone Capital Partners L.P.
("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP Partners",
and collectively with Blackstone Partners, the "Partners") and their respective
affiliates will beneficially own or have the right to vote 66.1% of the
outstanding Common Stock of the Company. Although the Partners intend to elect
two directors who are neither officers nor employees of the Partners or their
affiliates, the Company's Board of Directors has been, and is expected to
continue to be, comprised entirely of designees of the Partners. As a result,
the Partners and their affiliates will continue to have the ability to determine
the policies of the Company, the persons constituting its management, the
outcome of corporate actions requiring stockholder approval by majority action
and the future direction of the Company.
The Partners and the Company will enter into an Amended and Restated
Stockholders Agreement (the "Stockholders Agreement") relating to governance and
management of the Company, and the Partners will enter into a Voting Agreement
(the "Voting Agreement") relating to voting for nominees affiliated with each
other. The Restated Certificate of Incorporation will provide that a nominating
committee of the Board of Directors consisting of the nonemployee directors will
have exclusive power to nominate directors on behalf of the Board of Directors
and will have exclusive power to fill any vacancies on the Board of Directors.
See "Principal Stockholders and Certain Relationships".
In the past, the Partners and certain of their affiliates (in such
capacity, the "Managers-Advisors") have been paid fees in connection with
management and advisory services performed by the Managers-Advisors for the
Company and its subsidiaries. The Managers-Advisors will continue to be paid
fees in connection with services to be provided in the future. It is anticipated
12
<PAGE>
that each of the Managers-Advisors will receive a $1 million annual monitoring
fee and the reimbursement of expenses from the Company pursuant to the
Stockholders Agreement and that any transaction with affiliates not contemplated
by the Stockholders Agreement will be passed upon by the independent directors.
See "Principal Stockholders and Certain Relationships".
ANTI-TAKEOVER PROVISIONS
The Restated Certificate of Incorporation and the Bylaws of the Company,
which will be effective upon consummation of the Offerings, will contain
provisions which could delay or frustrate the removal of incumbent directors and
could make more difficult a merger, tender offer or proxy contest involving the
Company. The Company will also be subject to provisions of Delaware corporate
law restricting certain business combinations with certain stockholders. See
"Description of the Capital Stock".
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with respect to
hourly employees at seven of its 51 U.S. facilities, its five Canadian
facilities and its three Mexican facilities. Of the Company's 12,000 employees,
approximately 2,200 employees, all of whom are employed in Automotive Products
and Wallcoverings, are covered by such agreements. One such agreement covering
approximately 365 Wallcoverings employees has been extended through July 1994
while negotiations are ongoing, and the remainder of such agreements have terms
of two to five years and expire from 1995 to 1997. The Company has not
experienced any significant labor disruptions during the past five years.
Although management believes that its relationship with the employees covered by
collective bargaining agreements is good, there can be no assurance that the
Company will be able to negotiate new agreements on favorable terms. See
"Business--Employees".
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
The Company is subject to increasingly stringent Federal, state and local
laws and regulations concerning the environment. Changes to environmental laws
and regulations may require the Company to make substantial capital expenditures
and to incur substantial expenses with respect to its ongoing and divested
operations and properties. In addition, the Company has received notices that it
is a potentially responsible party ("PRP") in a number of proceedings for
cleanup of hazardous substances at various sites. The Company may be named as a
PRP at other sites in the future. It is difficult to estimate the total cost of
investigation and remediation due to various factors including incomplete
information regarding particular sites and other PRPs, uncertainty regarding the
extent of environmental problems and the Company's share, if any, of liability
for such problems, the selection of alternative compliance approaches, the
complexity of the environmental laws and regulations and changes in cleanup
standards and techniques. When it has been possible to provide reasonable
estimates of the Company's liability with respect to environmental sites,
provisions have been made in accordance with generally accepted accounting
principles. However, there can be no assurance that the Company has identified
or properly assessed all potential environmental liabilities arising from the
activities or properties of the Company, its present and former subsidiaries and
their corporate predecessors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Environmental Matters".
The Company has significant financial and legal obligations with respect to
certain divested and acquired businesses. In connection with the sale and
acquisition of certain businesses, the Company has indemnified the purchasers
and sellers for certain environmental liabilities, lease obligations and other
matters. In addition, the Company is contingently liable with respect to certain
lease and other obligations assumed by certain purchasers and may be required to
honor such obligations if such purchasers are unable or unwilling to do so. See
"Management's Discussion and
13
<PAGE>
Analysis of Financial Condition and Results of Operations--Environmental
Matters" and Notes 6 and 19 to Consolidated Financial Statements.
PENDING TAX MATTERS
In the course of an examination of the Company's Federal income tax
returns, the Internal Revenue Service ("IRS") has challenged the availability of
$176.6 million of the Company's approximately $434.0 million net operating loss
carryforwards ("NOLs"). The examination is at a preliminary stage and management
believes that the basis for the IRS' position is unclear. Management disputes
the IRS' challenge and believes that substantially all the NOLs should be
available (subject to certain limitations) to offset its income, if any, in the
future. If the IRS were to maintain its position and all or a major portion of
such position were to be upheld in litigation, the amount of NOLs available to
the Company in future years would be materially reduced. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Tax
Matters".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for shares of the
Common Stock. The Common Stock has been approved for listing on the NYSE.
However, there can be no assurance as to the liquidity of any markets that may
develop for the Common Stock or the price at which holders would be able to sell
their Common Stock. The initial public offering price for the Common Stock was
determined by negotiations between the Company and the representatives of the
Underwriters. There can be no assurance that the market price of the
Common Stock after the Offerings will equal or exceed the initial public
offering price. In addition, broad market fluctuations and general economic
and political conditions may adversely affect the market price of the
Common Stock, regardless of the Company's actual performance. For a description
of the factors which were considered in determining the initial public offering
price, see "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALE
Following the Offerings, there will be 46,710,900 shares of Common Stock
outstanding eligible for future sale in the public market (excluding
approximately 3,200,000 shares issuable upon exercise of outstanding options).
No prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of shares of Common Stock for sale will have
on the prevailing market price of Common Stock from time to time. Sales of a
significant number of shares of Common Stock in the public market following the
Offerings could adversely affect the prevailing market price of the Common Stock
and could materially impair the Company's future ability to raise capital
through an offering of equity securities. See "Description of Capital Stock--
Shares Eligible for Future Sale". See "Underwriting" for a description of
agreements by the Company and certain of the existing stockholders of the
Company not to sell shares of Common Stock owned by them for a period of 180
days after the date of this Prospectus without the prior written consent of the
representatives of the Underwriters.
DILUTION
The negative net tangible book value of the Company as of April 30, 1994,
was approximately $458.4 million or $6.77 per share after giving effect to the
Offerings and the Recapitalization (based upon an assumed initial public
offering price of $13.00 per share). Persons purchasing shares of Common Stock
in the Offerings will incur immediate dilution in net tangible book value of
$19.77 per share. See "Dilution".
14
<PAGE>
DIVIDENDS
The Company has not declared or paid cash dividends on Common Stock since
its incorporation in 1988. The Company currently intends to retain future
earnings, if any, to fund the development and growth of its businesses and,
therefore, does not anticipate paying any cash dividends in the near future. The
New Credit Facilities limit the payment of dividends and certain other payments
in respect of equity securities. See "New Credit Facilities". If the Company
does not have sufficient surplus, under Delaware law the Company could be
prohibited from paying any dividends on Common Stock even after the limitations
under the New Credit Facilities no longer apply.
Under applicable Delaware law, dividends on the Common Stock may only be
paid out of the Company's surplus (defined as the excess of the Company's assets
over the sum of its liabilities and the aggregate par value of its stock) or out
of net profits for the fiscal year in which the dividends are declared and/or
the preceding fiscal year. At April 30, 1994, the Company had a negative surplus
based on its historical financial statements and on a pro forma basis, after
giving effect to the Consolidation and the Recapitalization. However, under
Delaware law, a corporation's board of directors may determine the availability
of surplus based on the actual, current value of its assets and liabilities
rather than their historical book values. The Company's Board of Directors has
in the past relied on this non-book, "revaluation" surplus in the payment of
dividends on the Merger Preferred Stock.
DILUTION
The negative net tangible book value of the Company as of April 30, 1994,
was $20.27 per share of Common Stock. Net tangible book value per share is
determined by dividing the number of outstanding shares of Common Stock into the
net tangible book value of the Company (total assets less net intangible assets
less total liabilities and preferred stock). After giving effect to the sale of
the 21,000,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $13.00 per share), the Recapitalization and the
conversion of the PIK Notes into shares of Common Stock, the pro forma negative
net tangible book value of the Company as of April 30, 1994 would have been
$6.77 per share. This represents an immediate increase of $13.50 per share to
existing stockholders and an immediate dilution of $19.77 per share to new
investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 13.00
Net tangible book value per share as of April 30, 1994,
before the Offerings and the Recapitalization...................... $ (20.27)
Increase in net tangible book value per share attributable to new
investors(1)......................................................... 13.50
----------
Pro forma net tangible book value per share after the Offerings and
the Recapitalization................................................. (6.77)
----------
Dilution per share to new investors(2)............................... $ 19.77
----------
----------
</TABLE>
- ---------------
(1) Determined after deducting the underwriting discounts, estimated offering
expenses and effects of the non-recurring charges resulting from the
Recapitalization. See "Unaudited Pro Forma Consolidated Financial Data".
(2) Dilution is determined by subtracting the pro forma net tangible book value
per share after completion of the Offerings from the initial public offering
price paid by a new investor for a share of Common Stock.
15
<PAGE>
USE OF PROCEEDS AND CONSOLIDATION
The net proceeds from the Offerings (estimated to be approximately $258.0
million) will be used, together with $704.1 million of proceeds from the total
available funds of $775 million under the New Credit Facilities, as described
under "New Credit Facilities", and available cash of the Company, to effect a
defeasance and redemption, or repayment, of the indebtedness and preferred stock
described below.
The consummation of the Offerings and the borrowings under the New Credit
Facilities are conditioned upon each other and upon the simultaneous prepayment
or defeasance and irrevocable notice of redemption of the indebtedness and
preferred stock listed below at a total cost of approximately $1,040.8 million,
including interest or dividends accrued to July 6, 1994 and applicable
redemption premiums and defeasance costs, and excluding estimated fees and
expenses of $21.3 million.
The following table sets forth a summary of the estimated sources and
anticipated uses of funds in the Recapitalization (assuming the Recapitalization
occurs on July 6, 1994):
<TABLE><CAPTION>
(IN MILLIONS)
--------------
SOURCES OF FUNDS
<S> <C>
Sale of Common Stock in the Offerings(1)................................... $ 258.0
Proceeds from the New Credit Facilities(2)................................. 704.1
Available cash............................................................. 100.0
--------------
Total................................................................. $ 1,062.1
--------------
--------------
USES OF FUNDS
Repayment of indebtedness outstanding under a subsidiary credit facility... $ 122.6
Defeasance and redemption of:
Merger Preferred Stock.................................................. 162.9
Series A Preferred Stock................................................ 45.1
Intermediate Preferred Stock............................................ 0.1
14% Subordinated PIK Bridge Notes due December 2, 1996 (which were not
exchanged for Common Stock)........................................... 9.7
7 1/2%/10% Debentures due January 31, 2005.............................. 138.7
11 7/8% Debentures due June 1, 2001..................................... 347.4
15% Notes due May 1, 1995............................................... 137.4
11 3/8% Debentures due May 1, 1997...................................... 24.5
Miscellaneous indebtedness.............................................. 8.1
Accrued interest and dividends as of July 6, 1994....................... 19.7
Redemption premiums..................................................... 13.4
Defeasance costs........................................................ 11.2
Fees and expenses(3).................................................... 21.3
--------------
Total................................................................. $ 1,062.1
--------------
--------------
</TABLE>
- ---------------
(1) The net proceeds to the Company from the sale of Common Stock in the
Offerings are computed based on an assumed initial public offering price of
$13.00 per share (the midpoint of the estimated range of the initial public
offering price) less underwriting discounts.
(2) Includes $150 million of proceeds from the sale of an undivided interest in
a pool of receivables under the Receivables Purchase Agreement. See "New
Credit Facilities."
(3) Includes bank commitment, financial advisory, legal and accounting fees and
other expenses incurred in connection with the Recapitalization, but
excludes the underwriting discount.
In connection with the Recapitalization, and prior to the consummation of
the Offerings, Collins & Aikman Holdings II Corporation ("Holdings II"),
currently the sole stockholder of the Company, will be merged into the Company.
Concurrently, Collins & Aikman Group, Inc., the Company's wholly owned
subsidiary ("Group"), will be merged into its wholly owned subsidiary Collins &
Aikman Products Co., formerly called Collins & Aikman Corporation ("C&A Co.").
These mergers are referred to herein as the "Consolidation".
16
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the capitalization of the Company and its
subsidiaries (i) at April 30, 1994 and (ii) as adjusted to give effect to the
Recapitalization and the application of the proceeds of the Offerings as if the
Recapitalization had occurred as of April 30, 1994. This table should be read in
conjunction with the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. See "Use of Proceeds and Consolidation" and
"Unaudited Pro Forma Consolidated Financial Data".
<TABLE><CAPTION>
APRIL 30, 1994
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
<S> <C> <C>
Short-Term Debt.................................................................................... $ 3,043 $ 3,043
Current Portion of Long-Term Debt(1)............................................................... 163,715 3,480
---------- -------------
Total............................................................................................ $ 166,758 $ 6,523
---------- -------------
---------- -------------
Long-Term Debt (excluding current portion)(1)(2):
New Credit Facilities............................................................................ $ -- $ 533,411
Senior Indebtedness.............................................................................. 235,512 16,689
Senior Subordinated Indebtedness................................................................. 301,801 --
Subordinated Indebtedness........................................................................ 22,483 --
PIK Notes........................................................................................ 198,732 --
---------- -------------
Total Long-Term Obligations.................................................................... 758,528 550,100
---------- -------------
Preferred Stock and Redeemable Preferred Stock of Subsidiary(3).................................... 313 --
Redeemable Preferred Stock(3)...................................................................... 129,454 --
Stockholder's Deficit:
Common Stock (35,035 actual shares issued and outstanding, 67,711 shares issued and outstanding
on a pro forma basis)(4)....................................................................... 350 677
Other Paid-In Capital(4)......................................................................... 160,285 601,343
Accumulated Deficit(5)........................................................................... (843,669) (1,029,583)
Foreign Currency Translation Adjustments......................................................... (7,367) (7,367)
Pension Equity Adjustment........................................................................ (7,747) (7,747)
---------- -------------
Total Stockholder's Deficit.................................................................... (698,148) (442,677)
---------- -------------
Total Capitalization............................................................................... $ 190,147 $ 107,423
---------- -------------
---------- -------------
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) Reflects (i) the redemption or repayment of an aggregate book amount of $712,824 of outstanding indebtedness utilizing
the net proceeds of the Offerings, borrowings of $533,411 under the Credit Agreement Facilities and $150,000 of net
proceeds on the sale of a participating interest in receivables and (ii) the exchange of the PIK Notes for Common Stock
as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Debt Extinguished:
Subsidiary Credit Facility..................................................................... $ 127,581
7 1/2%-10% Senior Debentures (face value $138,694 net of discount of $33,063).................. 105,631
11 7/8% Senior Subordinated Debentures (face value $347,414 net of discount of $45,613)........ 301,801
15% Subordinated Notes (face value $137,359 net of discount of $244)........................... 137,115
11 3/8% Subordinated Debentures (face value $24,500 net of discount of $2,017)................. 22,483
PIK Notes ($9,482 redeemed and $189,250 exchanged for Common Stock)............................ 198,732
Miscellaneous Debt............................................................................. 8,731
----------
Debt Extinguished.......................................................................... 902,074
New Credit Facilities............................................................................ (533,411)
----------
Reduction in Outstanding Indebtedness...................................................... $ 368,663
----------
----------
Allocated to:
Current Portion................................................................................ $ 160,235
Long-term Portion.............................................................................. 208,428
----------
$ 368,663
----------
----------
</TABLE>
<TABLE>
<S> <C>
(2) Excludes $150,000 of off-balance sheet financing provided by the Company's sale of receivables under the terms of the
Receivable Purchase Agreement (see "New Credit Facilities").
(3) Reflects the redemption of the 15 1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock (" Intermediate
Preferred Stock") of Group, $2.50 Series A Convertible Preferred Stock ("Series A Preferred Stock") of Group and the
Merger Preferred Stock with an aggregate book value of $129,767 with funds provided by the Offerings and the
Recapitalization.
(4) The as adjusted amounts reflect the issuance of 21,000 shares of Common Stock in connection with the Offerings and the
exchange of the PIK Notes for shares of Common Stock. The increases reflect (i) $252,135 for shares of Common Stock to be
sold in the Offerings, net of discounts and commissions and associated expenses and (ii) $189,250 on exchange of PIK
Notes for shares of Common Stock.
(5) Reflects charges for (i) write-off of deferred debt expense and debt discounts of $92,812, (ii) premiums paid in
connection with the redemption of existing indebtedness in the amount of $9,625, (iii) premiums paid in connection with
the redemption of the Intermediate Preferred Stock of Group, the Series A Preferred Stock of Group and the Merger
Preferred Stock of the Company in the amount of $82,077 and (iv) loss of $1,400 on the sale of a $150,000 participating
interest in trade receivables.
</TABLE>
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth selected consolidated financial information
for the Company at and for the periods indicated. The selected consolidated
financial information for the years ended January 29, 1994, January 30, 1993,
January 25, 1992, January 26, 1991 and January 27, 1990 have been derived from
the Company's consolidated financial statements which have been audited by
Arthur Andersen & Co. The selected consolidated financial information for the
thirteen weeks ended April 30, 1994 and May 1, 1993 have been derived from
unaudited consolidated financial statements, which in the opinion of management,
reflect all adjustments necessary for a fair presentation of such data. The
statement of operations and balance sheet data have been restated to reflect
discontinued operations (see Note 6 to the Consolidated Financial Statements).
As a result of an acquisition in 1991, and the recognition of a cumulative
adjustment in 1991 to adopt the accrual basis of accounting for postretirement
benefits (see Notes 3 and 13 to the Consolidated Financial Statements), the
financial information set forth below is not comparable for the periods
presented and should not be considered indicative of current or future
operations or income. The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED YEAR ENDED
----------------------- --------------------------------------------------
APRIL 30, JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 26,
1994 MAY 1, 1993 1994 1993(1) 1992 1991
---------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Automotive Products(2)................. $ 222,991 $ 174,695 $ 677,867 $ 643,827 $ 610,325 $ 657,404
Interior Furnishings(2)................ 107,129 102,998 407,201 391,778 336,773 339,528
Wallcoverings(2)....................... 60,326 61,350 220,449 241,895 237,218 235,471
---------- ----------- ----------- ----------- ----------- -----------
Total Net Sales...................... $ 390,446 $ 339,043 $ 1,305,517 $ 1,277,500 $ 1,184,316 $ 1,232,403
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Gross profit............................. $ 100,954 $ 78,948 $ 309,727 $ 299,027 $ 257,499 $ 270,782
Selling, general and administrative
expenses............................... 55,356 51,872 196,585 218,441 202,690 192,002
Management equity plan expense........... 36 -- 26,736 -- -- --
Restructuring costs...................... -- -- -- 10,000 -- 17,275
Goodwill amortization and write-off...... -- 924 132,630 3,702 3,702 3,798
---------- ----------- ----------- ----------- ----------- -----------
Operating income (loss).................. $ 45,562 $ 26,152 $ (46,224) $ 66,884 $ 51,107 $ 57,707
Interest expense, net(3)................. 29,061 27,225 111,291 110,867 107,974 106,099
Income (loss) from continuing operations
before income taxes.................... 15,372 (2,202) (162,048) (48,497) (61,382) (52,907)
Income (loss) from continuing operations
after income taxes..................... 12,754 (5,473) (173,325) (45,341) (73,336) (57,386)
Income (loss) before extraordinary
items.................................. 12,754 (9,069) (277,664) (263,658) (89,701) (86,983)
Net Income (loss)........................ 12,754 (9,069) (277,664) (263,658) (133,810) (57,908)
BALANCE SHEET DATA:
Total assets............................. $ 934,048 $ 1,143,689 $ 918,825 $ 1,141,434 $ 1,300,304 $ 1,412,790
Long-term debt, including current
portion................................ 922,243 1,003,975 923,554 982,205 941,838 930,065
Redeemable preferred stock............... 129,454 104,222 122,368 98,602 79,754 69,240
Stockholder's equity (deficit)........... (698,148) (434,859) (702,220) (421,460) (130,921) 18,821
OTHER DATA (FROM CONTINUING OPERATIONS):
EBITDA(4)................................ $ 56,689 $ 38,801 $ 155,374 $ 118,748 $ 98,708 $ 106,067
Capital expenditures..................... 15,286 7,267 44,923 38,209 38,928 42,885
Depreciation............................. 11,127 11,725 42,232 45,463 43,899 42,532
<CAPTION>
<S> <C>
JANUARY 27,
1990
-----------
STATEMENT OF OPERATIONS DATA:
Net sales:
Automotive Products(2)................. $ 661,749
Interior Furnishings(2)................ 358,988
Wallcoverings(2)....................... 255,705
-----------
Total Net Sales...................... $ 1,276,442
-----------
-----------
Gross profit............................. $ 262,121
Selling, general and administrative
expenses............................... 209,619
Management equity plan expense........... --
Restructuring costs...................... --
Goodwill amortization and write-off...... 3,798
-----------
Operating income (loss).................. $ 48,704
Interest expense, net(3)................. 136,292
Income (loss) from continuing operations
before income taxes.................... (92,102)
Income (loss) from continuing operations
after income taxes..................... (92,109)
Income (loss) before extraordinary
items.................................. (142,913)
Net Income (loss)........................ (15,435)
BALANCE SHEET DATA:
Total assets............................. $ 1,777,339
Long-term debt, including current
portion................................ 1,123,325
Redeemable preferred stock............... 73,711
Stockholder's equity (deficit)........... 81,075
OTHER DATA (FROM CONTINUING OPERATIONS):
EBITDA(4)................................ $ 97,072
Capital expenditures..................... 44,872
Depreciation............................. 44,570
</TABLE>
- ---------------
(1) 1992 was a 53-week year.
(2) The Company's business segments have been redefined from those presented in
filings with the Commission prior to April 1994. See Note 18 to the
Consolidated Financial Statements.
(3) Excludes amounts related to discontinued operations of $5,749 in the first
quarter of 1993, $18,871 in 1993, $23,010 in 1992, $25,062 in 1991, $33,040
in 1990 and $112,153 in 1989.
(4) EBITDA is operating income plus depreciation and amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. EBITDA reflects the Company's ability to satisfy principal and
interest obligations with respect to its indebtedness and to utilize cash
for other purposes. In addition, certain covenants in the New Credit
Facilities are based upon calculations using EBITDA. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Statements of Operations for
the year ended January 29, 1994 and for the thirteen week periods ended April
30, 1994 and May 1, 1993, and the Unaudited Pro Forma Consolidated Balance Sheet
as of April 30, 1994 (collectively, the "Pro Forma Statements") were prepared to
illustrate the estimated effects of the Recapitalization. The Unaudited Pro
Forma Consolidated Statements of Operations present the results of operations of
the Company as if the Recapitalization had occurred as of the beginning of each
period presented. The Unaudited Pro Forma Consolidated Balance Sheet as of April
30, 1994 reflects the impact of the Recapitalization as if it had occurred on
that date. The Pro Forma Statements are presented for informational purposes
only and are based on currently available information and upon certain
assumptions that management believes are reasonable under the circumstances. The
Pro Forma Statements and accompanying footnotes should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus. The Pro Forma Statements do not purport
to represent what the Company's financial position or results of operations
would actually have been if the Recapitalization had occurred on April 30, 1994
or as of the beginning of each period presented, or to project the Company's
financial position or results of operations at any future date or for any future
period.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 29, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
AS ADJUSTED FOR
ACTUAL THE RECAPITALIZATION PRO FORMA
-------------- -------------------- --------------
<S> <C> <C> <C>
Net sales........................................................ $ 1,305,517 $ -- $ 1,305,517
-------------- --------------
Cost of goods sold............................................... 995,790 -- 995,790
Selling, general and administrative expenses..................... 196,585 (3,000)(1) 193,585
Goodwill amortization and write-off.............................. 132,630 -- 132,630
Management equity plan expense................................... 26,736 -- 26,736
-------------- -------------------- --------------
Total operating expenses....................................... 1,351,741 (3,000) 1,348,741
Operating income (loss).......................................... (46,224) 3,000 (43,224)
Interest expense, net............................................ 111,291 (86,327)(2) 24,964
Loss on sale of receivables...................................... -- 6,920(3) 6,920
Dividends on preferred stock of subsidiary....................... 4,533 (4,533)(4) --
-------------- -------------------- --------------
Income (loss) from continuing operations before income taxes..... (162,048) 86,940 (75,108)
Income taxes..................................................... 11,277 (480)(5) 10,797
-------------- -------------------- --------------
Loss from continuing operations.................................. (173,325) 87,420 (85,905)
Preferred stock dividends and accretion.......................... 23,723 (23,723)(4) --
-------------- -------------------- --------------
Income (loss) available for common stock......................... $ (197,048) $ 111,143 $ (85,905)
-------------- -------------------- --------------
-------------- -------------------- --------------
Average common shares outstanding................................ 34,921 67,597(6)
Loss from continuing operations per share of common stock........ $ (5.64) $ (1.27)
</TABLE>
The following are included in the Unaudited Pro Forma Consolidated
Statement of Operations for the period:
<TABLE>
<S> <C>
Depreciation........................................................................... $ 42,232
Amortization of deferred debt expense.................................................. 1,929
Fees and discount on initial sale of receivables....................................... 2,038
</TABLE>
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
AS ADJUSTED FOR
ACTUAL THE RECAPITALIZATION PRO FORMA
------------- -------------------- -------------
<S> <C> <C> <C>
Net sales.............................................. $ 390,446 $ -- $ 390,446
------------- -------------
Cost of goods sold..................................... 289,492 -- 289,492
Selling, general and administrative expenses........... 55,356 (750)(1) 54,606
Management equity plan expense......................... 36 -- 36
------------- -------------------- -------------
Total operating expenses............................. 344,884 (750) 344,134
Operating income....................................... 45,562 750 46,312
Interest expense, net.................................. 29,061 (21,499)(2) 7,562
Loss on sale of receivables............................ -- 3,088(3) 3,088
Dividends on preferred stock of subsidiary............. 1,129 (1,129)(4) --
------------- -------------------- -------------
Income from continuing operations before income
taxes.................................................. 15,372 20,290 35,662
Income taxes........................................... 2,618 (120)(5) 2,498
------------- -------------------- -------------
Income from continuing operations...................... 12,754 20,410 33,164
Preferred stock dividends and accretion................ 7,086 (7,086)(4) --
------------- -------------------- -------------
Income available for common stock...................... $ 5,668 $ 27,496 $ 33,164
------------- -------------------- -------------
------------- -------------------- -------------
Average common shares outstanding...................... 36,981 69,656(6)
Income from continuing operations per share of common
stock.................................................. $ .15 $ .48
</TABLE>
The following are included in the Unaudited Pro Forma Consolidated
Statement of Operations for the period:
<TABLE>
<S> <C>
Depreciation................................................................ $ 11,127
Amortization of deferred debt expense....................................... 533
Fees and discount on initial sale of receivables............................ 1,400
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 1, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
AS ADJUSTED FOR
ACTUAL THE RECAPITALIZATION PRO FORMA
------------- -------------------- -------------
<S> <C> <C> <C>
Net sales.............................................. $ 339,043 $ -- $ 339,043
------------- -------------
Cost of goods sold..................................... 260,095 -- 260,095
Selling, general and administrative expenses........... 51,872 (750)(1) 51,122
Goodwill amortization.................................. 924 -- 924
------------- -------------------- -------------
Total operating expenses............................. 312,891 (750) 312,141
Operating income....................................... 26,152 750 26,902
Interest expense, net.................................. 27,225 (20,685)(2) 6,540
Loss on sale of receivables............................ -- 2,632(3) 2,632
Dividends on preferred stock of subsidiary............. 1,129 (1,129)(4) --
------------- -------------------- -------------
Income (loss) from continuing operations before income
taxes.................................................. (2,202) 19,932 17,730
Income taxes........................................... 3,271 (120)(5) 3,151
------------- -------------------- -------------
Income (loss) from continuing operations............... (5,473) 20,052 14,579
Preferred stock dividends and accretion................ 5,620 (5,620)(4) --
------------- -------------------- -------------
Income (loss) available for common stock............... $ (11,093) $ 25,672 $ 14,579
------------- -------------------- -------------
------------- -------------------- -------------
Average common shares outstanding...................... 34,921 67,597(6)
Income (loss) from continuing operations per share of
common stock........................................... $ (.32) $ .22
</TABLE>
The following are included in the Unaudited Pro Forma Consolidated
Statement of Operations for the period:
<TABLE>
<S> <C>
Depreciation................................................................ $ 11,725
Amortization of deferred debt expense....................................... 533
Fees and discount on initial sale of receivables............................ 1,288
</TABLE>
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS ENDED
APRIL 30, 1994 AND MAY 1, 1993, AND THE YEAR ENDED JANUARY 29, 1994
(IN THOUSANDS)
The following adjustments reflect the effects of the Recapitalization:
<TABLE>
<S> <C>
(1) Management and financial advisory fees payable to the Managers-Advisors will be reduced by $3,000 per
annum, or $750 per quarter, effective as of the first quarter commencing after the consummation of the
Offerings in accordance with the Stockholders Agreement.
(2) Assumes the following related to interest expense:
</TABLE>
<TABLE>
<S> <C>
(i) The pro forma adjustments to interest expense consist of the following:
</TABLE>
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED
------------------------------ YEAR ENDED
APRIL 30, 1994 MAY 1, 1993 JANUARY 29, 1994
--------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
(1) Elimination of interest and
deferred debt expense related to
retirement
of debt and conversion
of PIK Notes (net of
interest income of $2,355,
$1,000 and $4,434,
respectively).................... $ (28,772) $ (26,960) $ (110,232)
(2) Interest on borrowings under
Credit Agreement Facilities (net
of interest income of $399, $177
and $986, respectively).......... 6,775 5,777 22,116
(3) Amortization of deferred debt
expense related to Credit
Agreement Facilities............. 498 498 1,789
--------------- ------------- ------------------
Interest expense
adjustment....................... $ (21,499) $ (20,685) $ (86,327)
--------------- ------------- ------------------
--------------- ------------- ------------------
</TABLE>
Net proceeds of $104.0 million from the sale of Kayser-Roth
Corporation ("Kayser-Roth") on January 28, 1994 are being
used to effect the Recapitalization and, for purposes of
calculating pro forma interest expense for the periods ended
May 1, 1993 and January 29, 1994, are assumed to have been
received by the Company on January 31, 1993. On a pro forma
basis as of January 31, 1993, the total amount of cash generated
from the net proceeds of the Offerings, total available borrowings
under the Credit Agreement Facilities and the proceeds from the
Receivables Facility, without giving effect to the net proceeds
from the sale of Kayser-Roth, would have been insufficient to
complete the Recapitalization.
21
<PAGE>
<TABLE>
<S> <C>
(ii) Base interest rates (average LIBOR in effect during the periods) and weighted average credit
spreads shown below have been used in calculating the pro forma interest on borrowings under the
Credit Agreement Facilities.
</TABLE>
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED
------------------------------ YEAR ENDED
APRIL 30, 1994 MAY 1, 1993 JANUARY 29, 1994
--------------- ------------- ------------------
<S> <C> <C> <C>
Base interest rate..................... 3.87% 3.27% 3.35%
Average credit spread.................. 1.75% 1.75% 1.75%
A 0.5% change in the interest rate on the Credit Agreement Facilities would result in
changes to pro forma interest expense of:
Year ended January 29, 1994...................................................$2,265
Thirteen weeks ended April 30, 1994..............................................638
Thirteen weeks ended May 1, 1993.................................................584
As of June 22, 1994, the 90-day LIBOR rate was 4.63%. If this rate had been in effect
during the periods presented, interest expense would have increased by:
Year ended January 29, 1994...................................................$6,229
Thirteen weeks ended April 30, 1994............................................1,091
Thirteen weeks ended May 1, 1993...............................................1,616
</TABLE>
<TABLE>
<S> <C>
(3) The loss on sale of receivables arises from the sale, on a revolving basis, of an undivided
interest in the Company's trade receivables. This loss also includes financing costs computed using
a base interest rate (average LIBOR in effect during the periods) and weighted average credit
spread, as follows:
</TABLE>
<TABLE><CAPTION>
THIRTEEN WEEKS ENDED
------------------------------ YEAR ENDED
APRIL 30, 1994 MAY 1, 1993 JANUARY 29, 1994
--------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Base interest rate............... 3.87% 3.27% 3.35%
Average credit spread............ .63% .63% .63%
A 0.5% change in the interest rate on the Receivables Facility would result in changes to pro
forma loss on sale of receivables of:
Year ended January 29, 1994......................................................$722
Thirteen weeks ended April 30, 1994...............................................296
Thirteen weeks ended May 1, 1993..................................................278
As of June 22, 1994 the base LIBOR rate was 4.63%. If this had been in effect, the loss on the
sale of receivables would have increased by:
Year ended January 29, 1994....................................................$1,985
Thirteen weeks ended April 30, 1994...............................................507
Thirteen weeks ended May 1, 1993..................................................762
</TABLE>
<TABLE>
<S> <C>
(4) Represents the elimination of dividends related to Series A Preferred Stock and the Intermediate
Preferred Stock of Group and amortization of the discount related to the Intermediate Preferred
Stock. All preferred stock will be redeemed as part of the Recapitalization.
</TABLE>
<TABLE>
<S> <C>
(5) Represents a reduction of state and foreign income taxes due to an organizational restructuring and
to increased borrowings in Canada in connection with the Recapitalization.
</TABLE>
<TABLE>
<S> <C>
(6) Includes (i) shares currently outstanding, (ii) shares to be issued in the Offerings, (iii) shares
to be issued in exchange for the PIK Notes and (iv) the assumed exercise of outstanding stock
options, using the treasury method. Unrecognized compensation on employee stock options is
considered as proceeds in the assumed repurchase of shares into treasury.
</TABLE>
Note: The Unaudited Pro Forma Consolidated Statements of Operations do not
include approximately $185,914 of (i) non-recurring charges consisting of,
(x) premiums paid in connection with redemption of existing debt
securities and (y) the write-off of unamortized deferred financing charges
related to the repayment of a subsidiary credit facility and certain
miscellaneous debt and (ii) a reduction of retained earnings and income
available for common stock representing the difference between the
respective redemption prices of the Series A Preferred Stock of Group,
Intermediate Preferred Stock of Group and Merger Preferred Stock in the
aggregate, and their aggregate carrying value.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 1994
(IN THOUSANDS)
<TABLE><CAPTION>
AS ADJUSTED FOR
ACTUAL THE RECAPITALIZATION PRO FORMA
------------ -------------------- --------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 139,282 $ (129,282)(1) $ 10,000
Accounts and notes receivable, net................... 212,708 (150,952)(2) 61,756
Inventories.......................................... 189,709 -- 189,709
Other................................................ 44,832 -- 44,832
------------ -------------------- --------------
Total current assets............................ 586,531 (280,234) 306,297
Property, plant and equipment, net..................... 294,684 -- 294,684
Other assets........................................... 52,833 3,524(3) 56,357
------------ -------------------- --------------
$ 934,048 $ 276,710 $ 657,338
------------ -------------------- --------------
------------ -------------------- --------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Notes payable........................................ $ 3,043 $ -- $ 3,043
Current maturities of long-term debt................. 163,715 (160,235)(4) 3,480
Accounts payable..................................... 78,188 -- 78,188
Accrued expenses..................................... 159,778 (33,751)(5) 126,027
Other................................................ 4,097 -- 4,097
------------ -------------------- --------------
Total current liabilities....................... 408,821 (193,986) 214,835
Long-term debt......................................... 758,528 (208,428) (4) 550,100
Deferred income taxes.................................. 640 -- 640
Other, including postretirement benefit obligation..... 334,440 -- 334,440
Redeemable preferred stock of subsidiary (aggregate
preference in liquidation $129)........................ 132 (132)(6) --
Preferred stock of subsidiary (aggregate preference in
liquidation $45,145)................................... 181 (181)(6) --
Redeemable preferred stock (aggregate preference in
liquidation $162,861).................................. 129,454 (129,454)(6) --
Common stock (150,000 shares authorized, 35,035 shares
issued and outstanding, 67,711 shares issued and
outstanding
on a pro forma basis)................................ 350 327(7) 677
Other paid-in capital.................................. 160,285 441,058(7) 601,343
Accumulated deficit.................................... (843,669) (185,914)(8) (1,029,583)
Foreign currency translation adjustments............... (7,367) -- (7,367)
Pension equity adjustment.............................. (7,747) -- (7,747)
------------ -------------------- --------------
Total common stockholder's deficit.............. (698,148) 255,471 (442,677)
------------ -------------------- --------------
$ 934,048 $ (276,710) $ 657,338
------------ -------------------- --------------
------------ -------------------- --------------
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 1994
(IN THOUSANDS)
The following adjustments reflect the effects of the Recapitalization:
<TABLE>
<S> <C>
(1) Reflects the amount of existing cash to be used in the Recapitalization.
(2) Reflects the sale of a $150,000 participating interest in accounts receivable in connection with the New
Credit Facilities.
(3) Reflects (i) the impact of recording additional deferred debt expense of $15,400 associated with the New
Credit Facilities and (ii) the write-off of $11,876 deferred debt expenses related to the indebtedness
retired.
(4) Reflects (i) the retirement or repayment of an aggregate book amount of $712,824 of outstanding
indebtedness utilizing a portion of the net proceeds of the Offerings and borrowings of $533,411 under
the Credit Agreement Facilities and $150,000 of net proceeds on the sale of a participating interest in
receivables and (ii) the exchange of the PIK Notes for Common Stock as follows:
</TABLE>
<TABLE>
<S> <C>
Debt Extinguished:
Subsidiary credit facility................................................... $ 127,581
7 1/2%-10% Debentures (face value $138,694 net of discount of $33,063)....... 105,631
11 7/8% Debentures (face value $347,414 net of discount of $45,613) 301,801
15% Notes (face value of $137,359 net of discount of $244)................... 137,115
11 3/8% Debentures (face value $24,500 net of discount of $2,017)............ 22,483
14% PIK Notes ($9,482 redeemed and $189,250 exchanged for Common Stock)...... 198,732
Miscellaneous Debt........................................................... 8,731
------------
Debt Extinguished......................................................... 902,074
New Credit Facilities.......................................................... (533,411)
------------
Reduction of Outstanding Indebtedness..................................... $ 368,663
------------
------------
Allocated to:
Current portion.............................................................. $ 160,235
Long-term debt............................................................... 208,428
------------
$ 368,663
------------
------------
</TABLE>
<TABLE>
<S> <C>
(5) Reflects the payment of accrued interest and dividends in the amount of $33,751.
(6) Reflects the redemption of the Intermediate Preferred Stock of Group, Series A Preferred Stock of Group
and the Merger Preferred Stock with an aggregate book value of $129,767 with funds provided by the
Offerings and the Recapitalization.
(7) Reflects the issuance of 21,000 shares of Common Stock in connection with the Offerings and the exchange
of the PIK Notes for shares of Common Stock. Increases reflect (i) $252,135 for shares of Common Stock
to be sold in the Offerings, net of discounts and commissions and associated expenses and (ii) $189,250
on exchange of PIK Notes for 14,558 shares of Common Stock, based on an assumed initial public offering
price of $13.00 per share (the midpoint of the estimated range of the initial public offering price).
(8) Reflects charges for (i) write-off of deferred debt expense and debt discounts of $92,812, (ii) premiums
paid in connection with the redemption of existing indebtedness in the amount of $9,625, (iii) premiums
paid in connection with the redemption of the Intermediate Preferred Stock of Group, the Series A
Preferred Stock of Group and the Merger Preferred Stock of the Company in the amount of $82,077 and (iv)
loss of $1,400 on the sale of a $150,000 participating interest in trade receivables.
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements of the Company and the
notes thereto, included elsewhere in this Prospectus.
GENERAL
After the 1988 Acquisition, the Company implemented a restructuring plan
designed to focus on certain businesses in which it enjoyed a competitive
advantage and to eliminate unnecessary corporate overhead. The Company
accordingly divested 27 business units which in 1988 contributed 73% of net
sales. The aggregate proceeds from these divestitures were approximately $1.6
billion, and enabled the Company to reduce total indebtedness from approximately
$2.2 billion in late 1988 to $927.3 million at the end of 1993. In addition, the
Company reduced and consolidated corporate staffs. Throughout this period, the
Company made substantial investments to enhance the competitive position of its
three continuing business segments and to strengthen its position as a low-cost
producer.
The Company's continuing business segments consist of Automotive Products,
Interior Furnishings and Wallcoverings. The Company's 1993 net sales were
$1,305.5 million, with approximately $677.9 million (51.9%) in Automotive
Products, $407.2 million (31.2%) in Interior Furnishings, and $220.4 million
(16.9%) in Wallcoverings.
The industries in which the Company competes are cyclical. Automotive
Products is influenced by the level of North American vehicle production.
Interior Furnishings is primarily influenced by the level of residential,
institutional and commercial construction and renovation. Wallcoverings is also
influenced by levels of construction and renovation and by trends in home
remodeling.
During 1993, the Company disposed of several businesses and reclassified
one subsidiary as a continuing business. Accordingly, the Company's 1993
financial statements reflect (i) the sale of the Company's Engineering Group,
(ii) the disposition of the Company's Builders Emporium division, (iii) the sale
of Kayser-Roth, and (iv) the decision to retain Dura Convertible Systems
("Dura"). The results of the Engineering Group, Builders Emporium and
Kayser-Roth are classified as discontinued operations for all periods. The
results of Dura are now classified in Automotive Products and prior reporting
periods have been restated to reflect Dura as a continuing operation. As a
result of the foregoing, this discussion is not comparable to the previous
discussions of the Company's operations. See Note 6 to Consolidated Financial
Statements.
The Company reclassified its industry segments during 1993 to realign its
products based on primary customer groups. Businesses related to the automotive
industry which were part of the Company's former Specialty Textiles segment have
been reclassified as Automotive Products. The decorative fabrics and
floorcoverings businesses have been reclassified as Interior Furnishings.
Previously, the floorcovering business was part of the Specialty Textiles
segment. Wallcovering products, which were previously part of the Home
Furnishings segment, have been reclassified as Wallcoverings. Industry segment
information has been restated for the years 1992 and 1991. See Note 18 to the
Consolidated Financial Statements.
Given the current state of the capital markets, the Company believes that
it is in its best interests to restructure the Company's debt and capitalization
by increasing its equity capital and decreasing its interest expense. The
Company believes that the Recapitalization will benefit the Partners by
increasing the value of the Common Stock of the Company.
25
<PAGE>
RESULTS OF OPERATIONS
The Company's operating results were adversely affected by a $129.9 million
goodwill write-off and a $26.7 million management equity plan charge in 1993 and
$10.0 million of restructuring charges in 1992. Operating expenses include these
charges, as well as goodwill amortization expense which will not occur after
1993 because of the write-off.
<TABLE><CAPTION>
YEAR ENDED
THIRTEEN WEEKS ENDED ----------------------------------------
------------------------------ JANUARY 29, JANUARY 30, JANUARY 25,
APRIL 30, 1994 MAY 1, 1993 1994 1993 1992
--------------- ------------- ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 390.4 $ 339.0 $ 1,305.5 $ 1,277.5 $ 1,184.3
Cost of goods sold................ 289.5 260.1 995.8 978.5 926.8
--------------- ------------- ------------ ------------ ------------
Gross profit...................... 100.9 78.9 309.7 299.0 257.5
Selling, general and
administrative expenses........... 55.4 51.9 196.5 218.4 202.7
Non-recurring charges(1).......... -- 0.9 159.4 13.7 3.7
--------------- ------------- ------------ ------------ ------------
Operating income (loss)........... 45.5 26.1 (46.2) 66.9 51.1
Interest expense, net............. (29.0) (27.2) (111.3) (110.9) (108.0)
Dividends on preferred stock
of subsidiary................... (1.1) (1.1) (4.5) (4.5) (4.5)
Income taxes...................... (2.6) (3.3) (11.3) 3.2 (11.9)
--------------- ------------- ------------ ------------ ------------
Income (loss) from continuing
operations...................... $ 12.8 $ (5.5) $ (173.3) $ (45.3) $ (73.3)
--------------- ------------- ------------ ------------ ------------
--------------- ------------- ------------ ------------ ------------
Income (loss) from continuing
operations per share of common
stock............................. $ .15 $ (.32) $ (5.64) $ (1.84) $ (2.55)
--------------- ------------- ------------ ------------ ------------
--------------- ------------- ------------ ------------ ------------
Gross profit percentage........... 25.8% 23.3% 23.7% 23.4% 21.7%
Operating margin percentage....... 11.7% 7.7% (3.5)% 5.2% 4.3%
</TABLE>
- ---------------
(1) Non-recurring charges are:
<TABLE><CAPTION>
YEAR ENDED
THIRTEEN WEEKS ENDED ----------------------------------------
------------------------------ JANUARY 29, JANUARY 30, JANUARY 25,
APRIL 30, 1994 MAY 1, 1993 1994 1993 1992
--------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Management equity plan
expense.................. $ -- $ -- $ 26.7 $ -- $ --
Goodwill write-off and
amortization............. -- 0.9 132.7 3.7 3.7
Restructuring charges...... -- -- -- 10.0 --
--------------- ------------- ------------ ------------ ------------
Total................. $ -- $ 0.9 $ 159.4 $ 13.7 $ 3.7
--------------- ------------- ------------ ------------ ------------
--------------- ------------- ------------ ------------ ------------
</TABLE>
26
<PAGE>
Operating expenses allocated to the Company's three business segments
include the $129.9 million goodwill write-off in 1993 and $10.0 million of
restructuring charges in 1992 as well as goodwill amortization expense which
will not occur after 1993 because of the 1993 goodwill write-off. Management
believes that the segment operating income data presented below are important to
obtaining an understanding of the segments' comparative results in 1993, 1992
and 1991 and in the first quarters of 1994 and 1993.
<TABLE><CAPTION>
AUTOMOTIVE PRODUCTS INTERIOR FURNISHINGS WALLCOVERINGS
------------------------------------- ------------------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
------------------------------------- ------------------------------------- ------------------------
JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 29 JANUARY 30,
1994 1993 1992 1994 1993 1992 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $677.9 $643.8 $610.3 $407.2 $391.8 $336.8 $220.4 $241.9
Cost of goods sold....... 555.4 532.1 505.8 294.7 282.5 248.9 145.7 163.8
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross margin............. 122.5 111.7 104.5 112.5 109.3 87.9 74.7 78.1
Selling, general and
administrative
expenses............... 54.9 57.1 47.0 68.0 70.8 58.7 62.1 66.1
Goodwill amortization,
write-off and other
non-recurring
charges(1)............. 69.9 1.9 1.9 32.3 0.9 0.9 30.5 10.9
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment operating income
(loss)(2).............. $(2.3) $52.7 $55.6 $12.2 $37.6 $28.3 $(17.9) $1.1
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross margin
percentages............ 18.1% 17.3% 17.1% 27.6% 27.9% 26.0% 33.9% 32.3%
Operating margin
percentages............ (0.3)% 8.2% 9.1% 3.0% 9.6% 8.4% (8.1 )% 0.5%
<CAPTION>
<S> <C>
JANUARY 25,
1992
-----------
Net sales................ $237.2
Cost of goods sold....... 172.2
-----------
Gross margin............. 65.0
Selling, general and
administrative
expenses............... 70.3
Goodwill amortization,
write-off and other
non-recurring
charges(1)............. 0.9
-----------
Segment operating income
(loss)(2).............. $(6.2)
-----------
-----------
Gross margin
percentages............ 27.4%
Operating margin
percentages............ (2.6 )%
</TABLE>
- ---------------
(1) Goodwill amortization and write-off and other non-recurring charges include:
<TABLE><CAPTION>
AUTOMOTIVE PRODUCTS INTERIOR FURNISHINGS WALLCOVERINGS
------------------------------------- ------------------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
------------------------------------- ------------------------------------- ------------------------
JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 29, JANUARY 30, JANUARY 25, JANUARY 29, JANUARY 30,
1994 1993 1992 1994 1993 1992 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Goodwill
amortization and
write-off........ $69.9 $1.9 $1.9 $32.3 $0.9 $0.9 $30.5 $0.9
Restructuring
charges.......... -- -- -- -- -- -- -- 10.0
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total............ $69.9 $1.9 $1.9 $32.3 $0.9 $0.9 $30.5 $10.9
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C>
JANAURY 25,
1992
-----------
Goodwill
amortization and
write-off........ $0.9
Restructuring
charges.......... --
-----------
Total............ $0.9
-----------
-----------
</TABLE>
(2) Excludes $38.3 million, $24.5 million and $26.7 million of unallocated
corporate expense in 1993, 1992 and 1991, respectively. See Note 18 to
Consolidated Financial Statements.
<TABLE><CAPTION>
AUTOMOTIVE PRODUCTS INTERIOR FURNISHINGS WALLCOVERINGS
---------------------- ---------------------- -----------
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED THIRTEEN
WEEKS ENDED
---------------------- ---------------------- -----------
APRIL 30, MAY 1, APRIL 30, MAY 1, APRIL 30,
1994 1993 1994 1993 1994
----------- --------- ----------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... $223.0 $174.7 $107.1 $103.0 $60.3
Cost of goods sold................................................. 174.8 143.5 75.3 75.4 39.4
----------- --------- ----------- --------- -----------
Gross margin....................................................... 48.2 31.2 31.8 27.6 20.9
Selling, general and administrative expenses....................... 12.8 14.2 18.1 17.6 15.8
Goodwill amortization.............................................. -- 0.5 -- 0.2 --
----------- --------- ----------- --------- -----------
Segment operating income(1)........................................ $35.4 $16.5 $13.7 $9.8 $5.1
----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- -----------
Gross margin percentages........................................... 21.6% 17.9% 29.7% 26.8% 34.7%
Operating margin percentages....................................... 15.9% 9.4% 12.8% 9.5% 8.5%
<CAPTION>
<S> <C>
MAY 1, 1993
-----------
Net sales.......................................................... $61.3
Cost of goods sold................................................. 41.3
-----------
Gross margin....................................................... 20.0
Selling, general and administrative expenses....................... 15.6
Goodwill amortization.............................................. 0.2
-----------
Segment operating income(1)........................................ $4.2
-----------
-----------
Gross margin percentages........................................... 32.6%
Operating margin percentages....................................... 6.9%
</TABLE>
- ---------------
(1) Excludes $8.6 million and $4.5 million of unallocated corporate expenses in
the thirteen weeks ended April 30, 1994 and May 1, 1993, respectively.
27
<PAGE>
FIRST QUARTER OF 1994 COMPARED TO FIRST QUARTER OF 1993
NET SALES. Net sales increased 15.2% to $390.4 million in the first quarter
of 1994 from $339.0 million in the corresponding period of 1993. The overall
increase in net sales reflected improvement in Automotive Products and Interior
Furnishings offset by a decrease in net sales at Wallcoverings.
Automotive Products' net sales increased 27.6% in the first quarter of 1994
to $223.0 million as compared to $174.7 million in the first quarter of 1993.
Approximately 45% of the increase is due to a 12.0% increase in North American
auto build as compared to the first quarter of 1993. The remaining net sales
increase was due primarily to a 175% increase in net sales of the Company's
convertible top stacks.
Interior Furnishings' net sales increased 4.0% in the first quarter of 1994
to $107.1 million as compared to $103.0 million in the first quarter of 1993 as
a result of increases at both the Decorative Fabrics and Floorcoverings groups.
Net sales of the Decorative Fabrics group increased as a result of a 2.9%
increase in average selling price at the Mastercraft division, reflecting a
shift to higher priced Jacquard fabrics. Floorcoverings' net sales increased
9.1% to $22.9 million as a result of increased installations.
Wallcoverings' net sales decreased 1.7% in the first quarter of 1994 to
$60.3 million as compared to $61.3 million in the first quarter of 1993 due to
sluggish demand by chain stores, which was partially offset by modest growth in
independent retailer ("dealer") business. Management believes that the growth in
dealer business reflects benefits of the initiative begun in late 1993 to
increase product offerings.
GROSS MARGIN AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Automotive
Products' gross margin increased to 21.6% in the first quarter of 1994 from
17.9% in the first quarter of 1993. Of this 3.7% improvement, 1.9% was due to
the absorption of fixed costs over a greater sales volume and 0.7% was due to
improved labor and materials yields. Selling, general and administrative
expenses as a percent of net sales decreased from 8.1% to 5.7% due primarily to
the absorption of fixed costs over a greater sales volume. Approximately 0.6% of
such decrease was due to reduced product development expenses and administrative
overhead.
Interior Furnishings' gross margin increased to 29.7% in the first quarter
of 1994 from 26.8% in the first quarter of 1993. Of this 2.9% improvement, 1.0%
was due to manufacturing cost improvements and the remainder was principally due
to increased sales of higher priced Jacquard fabrics. Selling, general and
administrative expenses remained flat relative to sales.
Wallcoverings' gross margin increased to 34.7% in the first quarter of 1994
from 32.6% in the first quarter of 1993. Of this 2.1% increase, 1.7% was due to
improved absorption of fixed manufacturing costs resulting from increased
production for new product lines and the remainder was principally due to
reduced line closeout costs. Selling, general and administrative expenses
remained flat but increased as a percent of net sales to 26.2% from 25.4%,
reflecting the 1.7% reduction of sales volume.
TOTAL OPERATING EXPENSES. Total operating expenses were $344.9 million and
$312.9 million in the first quarter of 1994 and the first quarter of 1993,
respectively, including $8.6 million and $4.5 million of unallocated corporate
expenses, respectively. Unallocated corporate expenses in the first quarter of
1994 include $3.2 million of expenses incurred for the performance of services
by Blackstone Partners and $2.8 million for the performance of services by WP
Partners in connection with the Company's review of refinancing and other
strategic alternatives as well as certain other advisory services. Operating
expenses allocated to the Company's three business segments totaled $336.3
million or 86.1% of sales in the first quarter of 1994 compared to $308.4
million or 91.0% of sales in the first quarter of 1993. This 4.9 percentage
point improvement is primarily the
28
<PAGE>
result of the allocation of fixed costs over a larger sales volume, improved
manufacturing productivity and continuing cost reduction initiatives at both the
operating and corporate level. Operating expenses in the first quarter of 1993
included $0.9 million of goodwill amortization.
INTEREST EXPENSE. Interest expense allocated to continuing operations, net
of interest income of $2.4 million in the first quarter of 1994 and $1.0 million
in the first quarter of 1993, increased to $29.1 million during the first
quarter of 1994 compared to $27.2 million in the first quarter of 1993. Interest
expense, including amounts allocated to discontinued operations in 1993 and
excluding interest income, decreased to $31.4 million during the first quarter
of 1994 compared to $34.0 million in the first quarter of 1993. The decrease in
interest expense was due primarily to a decrease in the Company's average
borrowings.
INCOME TAXES. In the first quarter of 1994 income taxes of $2.6 million
consisted of foreign and state taxes. This amount compared to a foreign and
state tax provision of $3.3 million in the first quarter of 1993.
DISCONTINUED OPERATIONS. The Company's loss from discontinued operations,
including losses on disposals of $2.2 million, was $3.6 million for the first
quarter of 1993.
NET INCOME. The combined effect of the foregoing resulted in net income of
$12.8 million in the first quarter of 1994 compared to a net loss of $9.1
million in the first quarter of 1993.
1993 COMPARED TO 1992
NET SALES. Net sales increased 2.2% to $1,305.5 million in 1993 (a 52-week
year) from $1,277.5 million in 1992 (a 53-week year). The overall increase in
net sales reflected improvement in Automotive Products and Interior Furnishings,
offset by a decrease in net sales at Wallcoverings.
Automotive Products' net sales increased 5.3% in 1993 to $677.9 million.
Net sales growth increased, primarily during the second half of 1993, due to a
number of factors. First, the net sales growth appears to reflect cyclical
trends. Since late 1993, U.S. light vehicle sales have accelerated, reflecting
what management believes to be a cyclical upturn. See "Business--Automotive
Products--Industry". Second, in recent years, foreign manufacturers have shifted
production from off-shore auto plants to newly built or expanded Transplant
facilities located in North America. As a consequence, North American production
has risen faster than retail sales. The Company has benefitted from this trend.
Third, the Company won placement of its products on a number of new and
redesigned vehicle lines in 1993. For example, the Company was awarded the
automotive fabric order for the Ford Explorer and displaced one of its bodycloth
competitors on the General Motors "W" and "N" body lines. Fourth, the average
sales content per vehicle of the five principal automotive products produced by
the Company increased in 1993 as it has in each of the last five years. (See
"Business--Automotive Products--Automotive Products Segment Growth Strategy").
In 1993, the Company continued to benefit from this trend. For example, in 1993
General Motors' Cadillac division began using the Company's technically advanced
"foam-in-place" carpet system, which provides significant acoustical benefits
and sells at a significantly higher price than traditional molded floor carpet.
These factors were offset by decreased demand for products for certain key
models in the second quarter due to customers' production downtime during model
changeovers.
Interior Furnishings' net sales increased 3.9% in 1993 to $407.2 million.
The increase in net sales was attributable to an increase in U.S. upholstered
furniture shipments in 1993 and increased sales of the Company's patented
Powerbond RS(R) floorcovering products. Net sales increased by 5.6% at both
Mastercraft, which represents 66.0% of Interior Furnishings' sales, and
Floorcoverings, due largely to volume increases. These sales increases were
offset by decrease s in net sales of the lower-end woven velvet product line and
the Greeff product line.
29
<PAGE>
Wallcoverings' net sales decreased 8.9% in 1993 to $220.4 million. The
decrease in sales was due primarily to the consolidation of certain product
distribution channels and to a reduction in shelf space and market share due to
Wallcoverings' downsizing program. In the fourth quarter, management responded
to these reduced sales by aggressively rebuilding dealer shelf space. As a
result, sample book placements in the dealer market increased.
GROSS MARGIN AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Automotive
Products' gross margin increased to 18.1% in 1993 from 17.3% in 1992 as a result
of improved product mix mainly due to new fabric placements and as a result of
improved absorption of fixed manufacturing costs over a larger sales volume.
Selling, general and administrative expenses as a percent of net sales decreased
to 8.1% in 1993 from 8.9% in 1992. Of this 0.8% decrease, 0.5% was due to the
absorption of fixed costs over a greater sales volume with the remainder
relating principally to cost reductions from reduced product development
activities.
Interior Furnishings' gross margin decreased to 27.6% in 1993 from 27.9% in
1992 due to price deterioration in the lower-end woven velvet product line of
the Decorative Fabrics group. Selling, general and administrative expenses as a
percent of net sales decreased to 16.7% from 18.1% primarily due to cost
reduction initiatives aimed at streamlining marketing efforts in the Greeff
product line.
Wallcoverings' gross margin increased to 33.9% in 1993 from 32.3% in 1992
as a result of manufacturing cost reduction initiatives aimed at improving
product quality and streamlining production processes. Selling, general and
administrative expenses were reduced by 1.8% of net sales due to the elimination
of outside information systems processing. An 8.9% reduction in net sales
resulted in an increase in selling, general, and administrative expenses as a
percent of net sales to 28.2% from 27.3%.
TOTAL OPERATING EXPENSES. Total operating expenses were $1,351.7 million
and $1,210.6 million in 1993 and 1992, respectively, including $38.3 million
($26.7 million of which was a one-time charge related to the 1993 Plan) and
$24.5 million of unallocated corporate expenses, respectively. Operating
expenses allocated to the Company's three business segments totaled $1,313.5
million and $1,186.1 million in 1993 and 1992, respectively. These operating
expenses in 1993 included certain non-recurring charges relating to the
write-off of goodwill in the amount of $129.9 million in the quarter ended
October 30, 1993 and goodwill amortization of $2.8 million for the nine months
prior to the write-off of goodwill. Operating expenses in 1992 included $10.0
million of charges relating to Wallcoverings' downsizing program and $3.7
million of goodwill amortization. See Notes 4 and 5 to the Consolidated
Financial Statements.
INTEREST EXPENSE. Interest expense allocated to continuing operations, net
of interest income of $4.4 million in 1993 and $4.0 million in 1992, increased
to $111.3 million during 1993 compared to $110.9 million in 1992. Interest
expense, including amounts allocated to discontinued operations and excluding
interest income, decreased to $135.1 million during 1993 compared to $138.3
million in 1992. The decrease in interest expense was due to the additional week
in 1992 and a reduction in the Company's weighted average interest rate.
INCOME TAXES. In 1993 income taxes of $11.3 million consisted of foreign
and state taxes. This amount compares with a 1992 tax benefit of $3.2 million
which was comprised of a foreign and state tax provision of $3.5 million offset
by a Federal tax benefit of approximately $6.7 million.
DISCONTINUED OPERATIONS. The Company's loss from discontinued operations
was $104.3 million for 1993 and $218.3 million for 1992, including losses on
disposals of $99.6 million and $168.0 million, respectively.
The 1993 loss is primarily attributable to the $125.5 million additional
charge arising from the Company's determination as of the end of the second
quarter of 1993 that it would be unable to sell Builders Emporium as an ongoing
entity. This was offset by a $28.1 million gain on the sale of
30
<PAGE>
Kayser-Roth. The 1992 loss reflected primarily the expected losses on the
anticipated disposition of Builders Emporium.
NET INCOME. The combined effect of the foregoing resulted in a net loss of
$277.7 million in 1993 compared to a net loss of $263.7 million in the prior
year.
1992 COMPARED TO 1991
NET SALES. Net sales increased 7.9% to $1,277.5 million in 1992 (a 53-week
year) from $1,184.3 million in 1991 (a 52-week year).
Automotive Products net sales increased 5.5% to $643.8 million in 1992 from
$610.3 million in 1991, reflecting the impact of a modest increase in the North
American vehicle build as well as an improvement in Automotive Products' product
mix. The molded carpet product line experienced the largest net sales increase.
Interior Furnishings net sales increased 16.3% to $391.8 million in 1992
from $336.8 million in 1991 principally due to two factors. First, 1992 net
sales reflected the full year impact of the acquisition of Doblin, a
manufacturer of high-end Jacquard fabric, in the third quarter of 1991, as well
as substantial incremental sales volume from the full utilization of excess
manufacturing capacity acquired with Doblin. Second, Floorcoverings' net sales
increased 17.7%, which was primarily attributable to restyled product offerings
in the six foot roll product line.
Wallcoverings net sales increased 2.0% to $241.9 million in 1992 from
$237.2 million in 1991. The net sales increase reflected a combination of two
offsetting factors. During the first quarter of 1992, the Company benefited from
the increase in industry demand for wallcoverings. However, this increase was
offset by reduced sales due primarily to Wallcoverings' efforts during 1992 to
consolidate certain product distribution channels and its downsizing program.
GROSS MARGIN AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Automotive
Products' gross margin improved slightly due to greater fixed cost absorption
because of the 5.5% increase in sales volume in 1992. Selling, general and
administrative expenses, as a percent of net sales, increased to 8.9% in 1992
from 7.7% in 1991 due to increased product development and marketing activities.
Interior Furnishings' gross margin improved to 27.9% from 26.0% due to
improved Decorative Fabrics product mix related to the Doblin acquisition and
due to improved Floorcoverings product mix related to restyled product offerings
in the six foot roll product line. Selling, general and administrative expenses
as a percent of net sales increased to 18.1% from 17.4% due to product
development activities in Decorative Fabrics.
Wallcoverings' gross margin increased to 32.3% in 1992 from 27.4% in 1991
due to manufacturing material cost reduction. Selling, general and
administrative expenses decreased as a percent of net sales to 27.3% in 1992
from 29.6% in 1991, due to reduced sample book program costs.
TOTAL OPERATING EXPENSES. Total operating expenses were $1,210.6 million
and $1,133.2 million in 1992 and 1991, respectively, including $24.5 million and
$26.7 million of unallocated corporate expense. Operating expenses allocated to
the Company's three business segments totaled $1,186.1 million and $1,106.5
million in 1992 and 1991, respectively. Operating expenses in 1992 included
$10.0 million of restructuring costs.
RESTRUCTURING CHARGES. In 1992, the Company reevaluated the distribution
methods as well as certain manufacturing and product lines in Wallcoverings.
This reevaluation resulted in a restructuring charge of $10.0 million for the
closure of certain manufacturing facilities. Of this amount, $2.7 million
related to asset writedowns and $7.3 million related to the consolidation of
Wallcoverings' operations.
31
<PAGE>
INTEREST EXPENSE. Interest expense for continuing operations, net of
interest income of $4.0 million in 1992 and $7.3 million in 1991, increased to
$110.9 million during 1992 compared to $108.0 million in 1991. Interest expense,
including amounts allocated to discontinued operations and excluding interest
income, decreased to $138.3 million during 1992 compared to $141.5 million in
1991 principally as a result of the reduction in the Company's weighted average
cost of borrowings.
INCOME TAXES. The Company's 1992 tax benefit of $3.2 million includes a
foreign and state tax provision of $3.5 million, offset by a Federal tax benefit
of approximately $6.7 million. In 1991, income taxes of $12.0 million consisted
of foreign and state taxes of $11.7 million and Federal income taxes of $0.3
million.
DISCONTINUED OPERATIONS. As previously discussed, loss from discontinued
operations, net of taxes and including loss on disposals, was $218.3 million in
1992 compared to the loss from discontinued operations of $16.4 million in 1991.
The 1992 loss reflected primarily the expected loss on the anticipated sale of
Builders Emporium. The 1991 loss was attributable to the discontinuation of the
remaining businesses of Wickes Manufacturing.
EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING. Loss on early retirement of
indebtedness, net of taxes, was $1.8 million in 1991. See Note 11 to the
Consolidated Financial Statements.
The cumulative effect on prior years of the change in accounting for
postretirement benefits other than pensions was $42.3 million in 1991. See Note
13 to the Consolidated Financial Statements.
NET INCOME. The combined effect of the foregoing resulted in a net loss of
$263.7 million in 1992 compared to a net loss of $133.8 million in 1991.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1994, the Company and its subsidiaries had cash and cash
equivalents totaling $139.3 million compared to $81.4 million and $83.7 million
at January 29, 1994 and January 30, 1993, respectively. Included in cash and
cash equivalents at April 30, 1994 was $135.3 million held by Group. The
increase in the Company's cash balance is principally due to the receipt of the
cash proceeds of $71.2 million from the payment of the Kayser-Roth note referred
to below. The Company's principal sources of funds are cash generated from
continuing operating activities and borrowings under bank credit facilities. Net
cash provided by the operating activities of its continuing operations was $22.9
million in 1993 and $16.6 million for the quarter ended April 30, 1994. C&A Co.
had $59.5 million of borrowing availability under a credit facility at April 30,
1994. Based on financial covenants in that credit facility, approximately $42
million could be paid to Group as a dividend. The Company's Canadian
subsidiaries had $8.1 million of borrowing availability under a bank demand line
of credit at April 30, 1994. Restrictions on the payment of dividends contained
in various debt agreements of Group prevented the payment of dividends by Group
to the Company in 1993 and 1992. See Note 11 to Consolidated Financial
Statements.
During 1993, the Company sold Kayser-Roth for approximately $170 million,
including a $70 million note. The Company's Engineering Group, which was
discontinued in 1992, was sold during 1993 for approximately $51 million.
Additionally, the Company has nearly completed the disposition of the real
estate, inventory and other assets of its Builders Emporium home improvement
retail chain, which the Company discontinued at the end of 1992. During 1993,
the Company used cash from the aforementioned sources and new borrowings of
$76.1 million to repay $179.9 million of outstanding indebtedness. On April 27,
1994, the Kayser-Roth note was paid with accrued interest. The Kayser-Roth sale
is subject to post-closing purchase price adjustments.
At April 30, 1994, outstanding long-term indebtedness (substantially all of
which will be defeased and redeemed, or repaid, in connection with the
Recapitalization) amounted to $922.2 million (including current portion of
$163.7 million) at varying interest rates between 5% and 15% per annum. At
January 29, 1994, $512.3 million of debt was due within the succeeding five year
32
<PAGE>
period. See Note 11 to Consolidated Financial Statements. Cash interest paid
during the thirteen weeks ended April 30, 1994 and May 1,1993 was $8.5 million
and $14.7 million, respectively, and during 1993, 1992 and 1991 was $101.5
million, $105.0 million and $120.6 million, respectively.
The Company's principal uses of funds for the next several years will be to
fund principal and interest payments on its indebtedness, net working capital
increases and capital expenditures. The Company makes capital expenditures on a
recurring basis for replacement and improvements. As of April 30, 1994, the
Company had approximately $43.0 million in outstanding capital commitments.
During 1994, the Company anticipates capital expenditures will aggregate
approximately $80 million as compared to $44.9 million, $38.2 million and $38.9
million during 1993, 1992 and 1991, respectively. This increase is due primarily
to the planned acquisition of additional machinery and equipment at Decorative
Fabrics' Mastercraft division as part of an $85 million five-year capital
investment plan that was initiated this year for the purpose of expanding
production capacity at Mastercraft to accommodate anticipated growth (see
"Business--Decorative Fabrics--Mastercraft Growth Plan"). Secondarily, this
increase is due to the planned completion of an Automotive Products facility in
Mexico for approximately $6.0 million. The Company's capital expenditures in
future years will depend upon demand for the Company's products and changes in
technology. The Company currently estimates that capital expenditures in 1995
will exceed $60 million.
The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
has indemnified the purchasers and sellers for certain environmental
liabilities, lease obligations and other matters. In addition, the Company is
contingently liable with respect to certain lease and other obligations assumed
by certain purchasers and may be required to honor such obligations if such
purchasers are unable or unwilling to do so. Management anticipates that the net
cash requirements of its discontinued operations will be approximately $20.9
million during 1994. However, because the requirements of the Company's
discontinued operations are largely a function of contingencies, it is possible
that the actual net cash requirements of the Company's discontinued operations
could differ materially from management's estimates. Management believes that
the Company's needs relating to discontinued operations can be adequately funded
in 1994 by net cash provided by operating activities from continuing operations
and by additional borrowings under the New Credit Facilities. The Company's NOLs
and unused Federal tax credits may minimize the cash requirement for Federal
income taxes during certain future periods. See "--Tax Matters".
In connection with the Recapitalization, the Company will effect a
defeasance and redemption, or repayment, of all its outstanding indebtedness and
preferred stock, other than (i) $23.6 million of mortgage and other debt which
will remain outstanding and (ii) $203.9 million of PIK Notes, of which
approximately $9.7 million will be redeemed and approximately $194.2 million
will be exchanged for Common Stock of the Company. These amounts are inclusive
of $12.1 million of accrued PIK interest from January 29, 1994 through July 6,
1994. See "Use of Proceeds and Consolidation".
In connection with the Recapitalization, the Company will also enter into
the New Credit Facilities, which will consist of (i) the Closing Date Term Loan
Facility (defined below) in an aggregate principal amount of $450 million with a
term of eight years, (ii) the Delayed Draw Term Loan Facility (defined below) in
an aggregate principal amount of $25 million with a term of eight years, (iii)
the Revolving Facility (defined below) in an aggregate principal amount of up to
$150 million with a term of seven years and (iv) the Receivables Facility
(defined below) in an aggregate amount of up to $150 million with a term of
seven years. These facilities will include various restrictive covenants
including maintenance of EBITDA and interest coverage ratios, leverage and
liquidity tests and various other restrictive covenants which are typical for
such facilities. See "New Credit Facilities".
33
<PAGE>
The Company does not believe that inflation has had a material impact on
sales or income during the three years ended January 29, 1994.
After the Recapitalization, the Company will have approximately $60.9
million available and undrawn under the New Credit Facilities. Management
believes that cash flow from operations and funds available under the New Credit
Facilities will be sufficient to fund the Company's long-and short-term
liquidity requirements, including working capital, capital expenditures and debt
service requirements.
TAX MATTERS
As of January 29, 1994, the Company had NOLs of approximately $434.0
million for Federal income tax purposes, which expire over the period from 1996
to 2008. The Company also has unused Federal tax credits of approximately $18.9
million, $11.9 million of which expire during 1994 to 2003. The Company
anticipates that additional Federal income tax deductions of approximately $37.7
million will be generated during 1994 as a result of write-offs of unamortized
debt discounts and deferred financing costs relating to debt repaid in
connection with the Recapitalization. In addition, the Company estimates that it
will generate tax deductions of approximately $75.4 million in connection with
the ultimate disposition of assets and liabilities of its discontinued
businesses during the period 1994 to 1996, which were previously accrued for
financial reporting purposes prior to January 29, 1994. The Company anticipates
that utilization of these NOLs, tax credits and deductions will result in
minimal Federal income taxes until these NOLs and tax credits are exhausted.
Approximately $134.0 million of the Company's NOLs and $11.9 million of the
Company's unused Federal tax credits may be used only against the income and
apportioned tax liability of the specific corporate entity that generated such
losses or credits or its successors. After giving effect to the Consolidation,
such NOLs and credits may be used against the income and apportioned tax
liability of C&A Co., which the Company believes will have sufficient taxable
income and apportioned tax liability to fully use such NOLs and tax credits. The
Recapitalization will not constitute a "change in control" that would result in
annual limitations on the Company's use of its NOLs and unused tax credits.
However, future sales of Common Stock by the Company or the Partners, or changes
in the composition of the Partners, could constitute such a "change in control".
Management cannot predict whether such a "change in control" will occur. If such
a change of control were to occur, the resulting annual limitations on the use
of NOLs and tax credits will depend on the value of the equity of the Company
and the amount of "built-in gain" or "built-in loss" in the Company's assets at
the time of the "change in control", which cannot be known at this time.
In the course of an examination of the Company's Federal income tax
returns, the IRS has challenged the availability of $176.6 million of the
Company's approximately $434.0 million of NOLs. The examination is at a
preliminary stage and management believes that the basis for the IRS' position
is unclear. Management disputes the IRS' challenge and believes that
substantially all the NOLs should be available (subject to the potential
limitations noted above) to offset its income, if any, in the future. If the IRS
were to maintain its position and all or a major portion of such position were
to be upheld in litigation, the amount of NOLs available to the Company in
future years would be materially reduced.
ENVIRONMENTAL MATTERS
The Company is subject to increasingly stringent Federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and otherwise related to on-site and
off-site soil and groundwater contamination. The Company's management believes
that it has obtained, and is in material compliance with, all material
environmental permits and approvals necessary to conduct its various businesses.
Environmental compliance costs for continuing businesses currently are accounted
for as normal operating expenses or capital
34
<PAGE>
expenditures of such business units. In the opinion of management, based on the
facts presently known to it, such environmental compliance costs will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a PRP in a number of proceedings.
The Company may be named as a PRP at other sites in the future, including with
respect to divested and acquired businesses. It is a normal risk of operating a
manufacturing business that liability may be incurred for investigating and
remediating on-site and off-site contamination. The Company is currently engaged
in investigation or remediation at certain sites. In estimating the total cost
of investigation and remediation, the Company has considered, among other
things, the Company's prior experience in remediating contaminated sites,
remediation efforts by other parties, data released by the EPA, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and the likelihood that other parties which have
been named as PRPs will have the financial resources to fulfill their
obligations at sites where they and the Company may be jointly and severally
liable. Under the scheme of joint and several liability, the Company could be
liable for the full costs of investigation and remediation even if additional
parties are found to be responsible under the applicable laws. It is difficult
to estimate the total cost of investigation and remediation due to various
factors including incomplete information regarding particular sites and other
PRP's, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. Excluding sites at which the Company's
participation is anticipated to be de minimis or otherwise insignificant or
where the Company is being indemnified by a third party for the liability, there
are 15 sites where the Company is participating in the investigation or
remediation of the site, either directly or through financial contribution, and
nine additional sites where the Company is alleged to be responsible for costs
of investigation or remediation. The Company's current estimate of its liability
for these 24 sites is approximately $29.5 million. As of January 29, 1994, the
Company has established reserves of approximately $30.8 million for the
estimated future costs related to all its known environmental sites. In the
opinion of management, based on the facts presently known to it, the
environmental costs and contingencies will not have a material adverse effect on
the Company's consolidated financial condition or results of operations.
However, there can be no assurance that the Company has identified or properly
assessed all potential environmental liability arising from the activities or
properties of the Company, its present and former subsidiaries and their
corporate predecessors. See "Item 3. Legal Proceedings--Environmental
Proceedings" incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 29, 1994.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial
information for 1994, 1993 and 1992. In the opinion of management, this
information has been prepared on the same basis as the information in the
Consolidated Financial Statements and includes normal recurring adjustments
which management considers necessary for a fair presentation of the information
shown when read in conjunction with the Consolidated Financial Statements,
including the notes thereto, appearing
35
<PAGE>
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of results for the entire year or for any future period.
<TABLE><CAPTION>
1994 1993 1992
--------- ------------------------------------------ --------------------------------------------
FIRST FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER(1)
--------- --------- --------- --------- --------- --------- --------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 390.4 $ 339.0 $ 289.7 $ 334.6 $ 342.2 $ 319.5 $ 319.7 $ 314.9 $ 323.4
Gross profit........... 101.0 79.0 61.2 84.4 85.1 72.6 74.1 70.8 81.6
Operating income
(loss)(2)............ 45.6(3) 26.2 10.6 (96.4)(4) 13.4(5) 20.2 18.1 19.2 9.4(6)
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) The fourth quarter of 1992 includes fourteen weeks.
(2) Includes $0.9 million of goodwill amortization through the third quarter of 1993.
(3) Operating income for the first quarter of 1994 includes $6.0 million of operating expenses for services
performed by Blackstone Partners and WP Partners in connection with the Company's review of refinancing and
strategic alternatives, as well as certain other advisory services.
(4) Operating loss for the third quarter of 1993 includes a $129.9 million write-off of goodwill.
(5) Operating income for the fourth quarter of 1993 includes a $26.7 million charge for the 1993 Plan. See Notes
5 and 15 to the Consolidated Financial Statements.
(6) Operating income for the fourth quarter of 1992 reflects a $10.0 million restructuring charge.
</TABLE>
For a discussion of the operating results for the first quarter of 1994,
see "--First Quarter of 1994 Compared to First Quarter of 1993."
The first quarter of 1993 reflects increased net sales from Automotive
Products which followed an increase in automotive industry unit sales (a trend
which began in the fourth quarter of 1992) and increased net sales from the
Mastercraft division of Interior Furnishings. This increase was offset by a
modest net sales decline at Wallcoverings. Gross profit margin increased
slightly reflecting margin improvement across all business segments. Net sales
in the second quarter of 1993 declined 9.4% from the same period in 1992,
reflecting sales declines across all business segments, particularly at
Automotive Products and Wallcoverings. The decline at Automotive Products was
primarily due to decreased demand for product during model changeovers of
certain key models including the Chrysler C/Y body and the Honda Accord.
Wallcoverings' net sales declined partly as a result of its downsizing and the
reduction in sample book placements. Gross margin declined during the second
quarter of 1993 compared to the second quarter of 1992 primarily as a result of
a lower absorption of fixed costs due to lower sales volumes.
Net sales in the third quarter of 1993 increased by 6.3% versus the prior
year due to increased net sales at Automotive Products and Interior Furnishings
offset by a net sales decline at Wallcoverings. Despite a downturn in the
automotive build, Automotive Products net sales increased due to the completion
of changeovers at Honda, strong orders for the segment's Jacquard automotive
seat fabric and the initiation of model year 1994 Ford Mustang production.
Interior Furnishings' net sales increased reflecting general improvements in the
retail furniture market. Company wide gross profit margin increased 2.7
percentage points, reflecting improved margins across all segments, particularly
Wallcoverings due to the fixed cost reductions associated with the previously
discussed downsizing. Net sales in the thirteen-week fourth quarter of 1993
increased 5.8% over the fourteen-week fourth quarter of 1992. Net sales
increased at both Automotive Products and Interior Furnishings, offset by
further net sales declines at Wallcoverings. Automotive Products net sales
outpaced the automotive build, reflecting continued strong demand for bodycloth
and the ramp-up of the 1994 model Ford Mustang, which uses Dura's convertible
top systems.
36
<PAGE>
BUSINESS
The Company is a leader in each of its three business segments: Automotive
Products, the largest supplier of interior trim products to the North American
automotive industry; Interior Furnishings, the largest manufacturer of
residential upholstery fabrics in the U.S.; and Wallcoverings, the largest
producer of residential wallcoverings in the U.S. Within these three segments,
the Company estimates it holds a number one or number two market share position
in each of its eight major product lines which together comprised approximately
82% of 1993 net sales of $1,305.5 million. With respect to market or competitive
information, references to the Company as "a leader" or "one of the leading"
manufacturers in a particular product category mean that the Company is one of
the principal manufacturers in that product category and references to the
Company as "the leader," "the largest" or "the leading" manufacturer in a
particular product category mean that the Company has the largest market share
based on dollar sales volume in that product category. See "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the risks inherent in the Company's businesses
and the Company's financial performance over the last three years, including its
history of net losses, competitive factors affecting the Company, the Company's
substantial leverage, contingent liabilities and other risks inherent in an
investment in Common Stock.
COLLINS & AIKMAN CORPORATION
AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
AUTOMOTIVE INTERIOR
PRODUCTS FURNISHINGS WALLCOVERINGS
. AUTOMOTIVE SEAT FABRIC
. RESIDENTIAL AND COMMERICAL
WALLCOVERINGS
. MOLDED FLOOR CARPETS
. ACCESSORY FLOOR MATS
. LUGGAGE COMPARTMENT TRIM
DECORATIVE
FABRICS FLOORCOVERINGS
. CONVERTIBLE TOP STACKS
. SIX-FOOT CARPET
. MODULAR CARPET TILE
</TABLE>
<TABLE>
<S> <C> <C> <C>
MASTERCRAFT CAVEL GREEFF WARNER
. FLAT-WOVEN . VELVETS . PRINTS . PRINTS
JACQUARDS AND
DOBBIES
</TABLE>
See Note 18 to the Consolidated Financial Statements for financial information
with respect to the three segments for each of the last three fiscal years.
37
<PAGE>
BUSINESS STRATEGY
Management believes the Company is well-positioned to achieve continued
growth in each of its three segments as a result of its pursuit of the following
strategic objectives:
FOCUS ON HIGH MARKET SHARE PRODUCTS. Management focuses on developing
products that have high market share potential. Management estimates that each
of the Company's eight major product lines holds a number one or number two
market share position. Together these product lines comprised approximately 82%
of the Company's 1993 net sales. These market positions were achieved primarily
through internal growth and reflect a long-term, Company-wide commitment to
excellence in styling, engineering, product development, value-added
manufacturing and customer service.
The table below sets forth management's estimates of the Company's 1993
market share positions in its eight major product lines.
<TABLE><CAPTION>
1993 1993 MARKET
NET SALES SHARE
Product Line (MILLIONS) POSITION
- -------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Automotive Products
Automotive Seat Fabric................................................... $ 221.2 #1
Molded Floor Carpets..................................................... 181.1 2
Accessory Floor Mats..................................................... 73.4 1
Luggage Compartment Trim................................................. 37.6 2*
Convertible Top Stacks................................................... 28.2 1
Interior Furnishings
Flat-woven Furniture Fabrics............................................. 268.9 1
Six-foot Commercial Carpet............................................... 60.3 1
Wallcoverings (Residential)................................................ 196.0 1
-----------
Subtotal................................................................... $ 1,066.7
Percent of net sales..................................................... 82%
Net sales.................................................................. $ 1,305.5
</TABLE>
-------------------------------
* Management believes that the Company and a competitor are tied
for the number two market share position.
MAINTAIN BROAD PRODUCT OFFERINGS TO SUPPORT CUSTOMER BASE. The Company
consistently strives to offer a wide variety of products and to become the
primary supplier to each of its customers. The breadth and variety of fabrics
and styles offered by Decorative Fabrics supports the Company's goal of being
the primary supplier to its customers. Wallcoverings has manufacturing
capabilities in all types of printing technologies, utilizes a vast library of
designs and color concepts and supports the most extensive dealer network in the
industry, selling to approximately 15,000 dealers and most of the leading retail
chains in the country.
Automotive Products offers a wide variety of interior trim products and
thereby maintains a broader, more uniform sales penetration at foreign owned
North American automotive production and assembly facilities ("Transplants") and
U.S. automotive original equipment manufacturers (together with Transplants,
"OEMs") than any of its competitors. Management estimates that for 1993
Automotive Products' overall share in its five major automotive product lines
was 26% at Ford Motor, 40% at General Motors and 51% at Chrysler, and that its
share was 36% among the Transplants.
38
<PAGE>
MAINTAIN LOW-COST POSITION. Management's strategy is to maintain the
Company's low-cost position and flexible manufacturing capabilities in order to
protect operating margins from competitive pricing pressures and economic
downturns, while maximizing the benefit from cyclical upturns. The Company
established its low-cost position through a systematic long-term focus on
improving materials yields and labor productivity and reducing overhead
expenses. These initiatives helped offset the impact of volume declines on
operating margins during the recent economic recession and position the Company
to take full advantage of industry upturns.
MAXIMIZE BENEFITS FROM HIGH OPERATING LEVERAGE. Management believes that
substantial available production capacity and high operating leverage have
enabled the Company to benefit from the recent cyclical upturn in its served
markets. In addition, the Company has substantial available manufacturing
capacity to support further growth.
Over the past several years, the Company has made considerable investments
in product development, MIS upgrades and other areas of capital improvement. The
Company does not currently anticipate the need to make significant capital
expenditures to expand capacity to meet cyclical increases in demand, with the
exception of an $85 million five-year capacity expansion program planned for the
Mastercraft division of Interior Furnishings. Future capital expenditures are
currently targeted primarily toward further cost reduction and modernization.
Recently, sales and production volumes have been increasing rapidly in the
Company's served markets. During the second half of 1993, the seasonally
adjusted annual rate of U.S. light vehicle sales was 14% higher than during the
1991 recession lows, and the seasonally adjusted annual rate of U.S. furniture
sales for the second half of 1993 was 19% higher than in 1991. If the current
upward trends in the Company's businesses continue, management believes that the
Company may continue to achieve higher capacity utilization rates, which
generally result in higher operating margins.
OFFER VALUE-ADDED PRODUCTS. A key element of the Company's strategy is to
increase market share and unit selling prices by developing increasingly higher
value-added products through innovations in materials construction, product
design and styling. The Company produces virtually no inventory or commodity
type products other than in Wallcoverings. The Company recently developed the
"Top-in-a-Box" convertible top assembly, enabling the Company to capture
substantial additional materials and assembly value in its unit selling price by
shipping a fully-assembled module directly to the OEMs. Previously, convertible
top systems were assembled on high-cost OEM assembly lines or in specialty
conversion shops. In recent years, through these and other innovations, the
Company has realized higher unit sales prices.
MAINTAIN PRODUCT DESIGN AND STYLING LEADERSHIP. Design and styling are key
differentiating factors in consumer purchasing decisions. Management believes
that the Company's product styling and design capabilities are currently an
important competitive advantage and intends to devote resources to maintain the
Company's position in these areas. The Decorative Fabrics group introduces more
than twice as many designs each year as its largest competitors and has a design
library built by such well known designers as Wesley Mancini, Carl Miller and
Stanley King. Similarly, Wallcoverings has a leading in-house design staff and
also licenses designs from industry leaders such as Laura Ashley, Mario Buatta
and Clarence House. Automotive Products operates a technical design center with
state-of-the-art, computer-aided design/computer-aided manufacturing ("CAD/CAM")
systems.
CONTINUE TO DELEVERAGE. The Recapitalization is designed to increase
operating and financial flexibility by reducing the Company's indebtedness and
significantly lowering its cost of borrowing, thereby freeing more cash for debt
repayment, continued reinvestment in the Company's businesses and the pursuit of
niche acquisitions. Management expects this financial deleveraging to be
39
<PAGE>
enhanced through the application of operating cash flow augmented by the use of
the Company's NOLs, which management believes will total approximately $434.0
million, and by other favorable tax attributes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "--Tax Matters".
COMPLETE STRATEGIC RESTRUCTURING OF WALLCOVERINGS. In late 1993, a newly
installed management team instituted a restructuring plan at Wallcoverings
designed to rebuild the segment's product offerings, to increase its sample book
introduction rate through aggressive marketing and design and to improve
utilization of its extensive distribution network and manufacturing
capabilities. Management is also expanding Wallcoverings' quick-ship and
in-stock programs and enhancing its order processing systems. Management
believes that the results of the restructuring are becoming evident in the
segment's financial results, as the operating income margin increased to 8.5% in
the first quarter of 1994 from a 6.9% operating income margin in the first
quarter of 1993.
AUTOMOTIVE PRODUCTS
GENERAL
The Company is a leading designer and manufacturer of automotive products
with 1993 net sales of $677.9 million. Automotive Products supplies four major
interior trim products--automotive seat fabric ("bodycloth"), molded floor
carpets, accessory floor mats and luggage compartment trim--and convertible top
stacks. Management estimates that Automotive Products holds a number one or
number two market share position in each of its five major product categories.
At least one of its five major automotive products is used on approximately 87%
of all North American-produced vehicle lines. Automotive Products has supplied
interior trim products to the automotive industry for over 60 years. Management
estimates that the total market for Automotive Products' five major product
lines in 1993 was approximately $1.4 billion. Accordingly, management believes
that Automotive Products' 1993 sales of $541.5 million in these product lines
represents a market share of approximately 37%. While some interior trim
suppliers have sales volumes equivalent to or greater than that of the Company
in a single product line, management believes that the Company sells a wider
variety of interior trim products, has products on more vehicle lines and has a
broader, more uniform sales penetration at the OEMs than any of its competitors.
INDUSTRY
Automotive industry demand historically has been influenced by both
cyclical factors and long-term growth trends. Since nearly all of the historic
growth in the stock of light vehicles has been associated with increases in the
driving age population and real per capita income, the Company anticipates that
the fleet of light vehicles will continue to grow at rates consistent with these
factors.
Vehicle replacement demand is significantly influenced by the overall
health of the economy and consumer confidence generally. Management believes
that light vehicle sales may also be influenced by scrappage rates and the
average fleet age. Currently, the average age of the U.S. passenger car fleet is
at a modern high of nearly 8.0 years per vehicle compared to 7.1 years in the
early 1980's and to 6.3 years in 1970. This trend may give rise to replacement
demand for the aging vehicles still in use.
Annual new car and truck sales historically have been cyclical. In the most
recent cycle, U.S. light vehicle sales declined from an average of 15.4 million
units per year in 1986-1988 to a low of 12.3 million units in 1991. Since late
1993, however, U.S. light vehicles sales have accelerated. In the first quarter
of 1994, U.S. light vehicles sold at a 15.6 million annualized rate, a level 27%
higher than during the lowpoint of 1991.
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In 1993, approximately 95% of Automotive Product's sales related to North
American-produced vehicles rather than imported units. In recent years, the
share of retail sales accounted for by North American-produced vehicles has
risen from a low of approximately 72% in 1987 to approximately 78% in 1991 and
to approximately 84% in 1993. This trend reflects the shift of production by
foreign manufacturers from off-shore auto plants to Transplant facilities
located in North America. Based on announced production schedules, management
anticipates that the three largest traditional vehicle importers, Toyota, Honda
and Nissan, will build approximately 60% of their combined North American sales
volume in Transplant facilities during the current calendar year compared to
approximately 49% in 1992 and to approximately 10% in 1986. As a consequence of
the increased share of import "nameplates" produced in Transplant facilities,
North American production has risen faster than retail sales. Between 1991 and
1993, for example, North American production increased by 22% compared to a 13%
increase in U.S. light vehicle sales during the same period. Management believes
this trend provides the Company with additional sales opportunities. In 1993,
the Company sold nearly $100 million of its major auto product lines to
Transplants, with its business spread among virtually all such assembly plants
then in production.
PRODUCTS
Automotive Products manufactures five principal products: automotive seat
fabric, molded floor carpets, accessory floor mats, luggage compartment trim and
convertible top stacks. Automotive Products also produces a variety of other
automotive and nonautomotive products. The following table sets forth Automotive
Products' net sales by product line for the past three years.
<TABLE><CAPTION>
1991 1992 1993
---------------------- ----------------------- ----------------------
% OF % OF % OF
NET TOTAL NET TOTAL NET TOTAL
PRODUCT LINE SALES SALES SALES SALES SALES SALES
- ------------------------------------------- ----------- --------- ------------ --------- ----------- ---------
(IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive Seat Fabric..................... $ 188.3 30.8% $ 191.1 29.7% $ 221.2 32.6%
Molded Floor Carpets....................... 161.9 26.5 173.1 26.9 181.1 26.7
Accessory Floor Mats....................... 73.0 12.0 79.9 12.4 73.4 10.8
Luggage Compartment Trim................... 25.4 4.2 26.8 4.2 37.6 5.6
Convertible Top Stacks..................... 19.9 3.3 20.8 3.2 28.2 4.2
Other...................................... 141.8 23.2 152.1 23.6 136.4 20.1
----------- --------- ------------ --------- ----------- ---------
Total................................. $ 610.3 100.0% $ 643.8 100.0% $ 677.9 100.0%
----------- --------- ------------ --------- ----------- ---------
----------- --------- ------------ --------- ----------- ---------
</TABLE>
AUTOMOTIVE SEAT FABRIC. Automotive Products manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. Automotive Products also
laminates foam to bodycloth. Management believes that in 1993 Automotive
Products was the largest supplier of bodycloth to OEMs with net sales and
estimated market share of $221.2 million and 38%, respectively.
MOLDED FLOOR CARPETS. Molded floor carpets includes polyethylene,
barrier-backed and molded urethane underlay carpet. Management believes that in
1993 Automotive Products was the second largest producer of molded floor carpets
with net sales and estimated market share of $181.1 million and 35%,
respectively. In the Company's automotive molded floor product line, it has
developed a "foam-in-place" process to provide floor carpeting with enhanced
acoustical and fit characteristics, resulting in a substantial gain in unit
selling prices.
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ACCESSORY FLOOR MATS. Automotive Products produces carpeted automotive
accessory floor mats for both North American produced vehicles and imported
vehicles. In 1993, management estimates that approximately 63% of all vehicles
produced in North America included accessory mats as original equipment.
Management believes that in 1993 Automotive Products was the market leader in
this product line with net sales of $58.1 million, representing approximately
47% of all mats sold to OEMs. In addition, in 1993 Automotive Products sold
approximately $15.3 million of accessory mats to vehicle importers.
LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece
molded trunk systems and assemblies, wheelhouse covers, seatbacks, tireboard
covers, center pan mats and other trunk trim products. Management believes that
in 1993 Automotive Products was tied with another competitor as the second
largest supplier of luggage compartment trim to OEMs with net sales and
estimated market share of $37.6 million and 25%, respectively.
CONVERTIBLE TOP STACKS. Automotive Products designs, manufactures and
distributes convertible top stacks through Dura. Management believes that in
1993 Dura was the market leader in convertible top stacks with net sales and
estimated market share of approximately $28.2 million and 75%, respectively. In
October 1993, Dura began shipping its "Top-in-a-Box" product for Ford's
redesigned Mustang vehicle.
OTHER. Automotive Products also produces a variety of other auto products,
including die cuts for automotive interior trim applications, convertible power
train units, headliner fabric, molded package shelves, molded hood insulator
pads, foam laminated door fabrics and carpet trim and roll goods for export and
domestic consumption. Small volumes of certain products, such as residential
floor mats, casket and tie linings and sliver knits, are sold to other
commercial and industrial markets.
AUTOMOTIVE PRODUCTS SEGMENT GROWTH STRATEGY
The Company's business objective is to achieve strong growth in sales and
earnings through a three-pronged approach. First, the Company pursues
innovations in styling, materials construction and product performance, which
add value and revenue yield to its products. Second, the Company seeks to obtain
increased product placements on OEM vehicle lines. Third, the Company intends to
capitalize on an industry-wide increase in interior trim content per vehicle.
First, Automotive Products seeks to increase market share and selling
prices through product innovation. For example, the Company recently developed a
new, distinctive Jacquard velvet fabric which provides OEMs with a diversity of
pattern and color not available in traditional plain velours. Management
believes this new fabric will generate a significantly higher sales content per
vehicle than the traditional velours it will replace. To date, the Company has
been awarded 20 vehicle line placements for its new Jacquard velvet.
Second, the Company has succeeded in capitalizing on its deep OEM
relationship network to win product placements on new vehicle lines in addition
to increasing placements on lines currently supplied by the Company. In the case
of the new Ford Mustang, which was launched in model year 1994, the Company is
supplying all five of its major products, resulting in an average sales content
of approximately $400 per Mustang produced.
The Company's strategy is to focus its substantial styling, engineering and
product development capabilities on the design phase of new vehicle lines and on
each OEM's model changeover cycle. Typically, car and truck model lines are
replaced or substantially redesigned at four to eight year intervals. The
Company's experience has been, with few exceptions, that business awarded on
such new or redesigned model lines has been retained until the next changeover.
Over the last several years, the Company has been successful in placing one
or more of its products on new or redesigned OEM vehicle lines. The Company has
won product placements on
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23 new or redesigned North American vehicle lines, some of which have multiple
models, launched in model year 1994 or scheduled for launch over the next 18
months. The Company supplies three or more products to 10 of the 23 new or
redesigned vehicle lines. Six of the 23 lines use all four major interior trim
products. Two of the 23 use all five of the Company's major automotive products.
Third, the Company intends to capitalize on certain industry trends. In
recent years, OEMs have sought to differentiate their vehicles by strengthening
their consumer appeal through the increased use of interior trim. As a
consequence, the average sales content per vehicle of the five principal
automotive products produced by the Company has increased each year over the
last five years. Management estimates that in 1988 the total North American OEM
market for its five major products was $1.2 billion, resulting in an average
interior trim sales content for the market of $89 per vehicle. By 1993,
according to management estimates, OEM purchases of these products had increased
to $105 per vehicle, representing a 3.3% per year compound growth rate. This
trend has been accelerated by the growing popularity of mini vans and sports
utility vehicles in the light truck category. Because of their size, these
vehicles generally use more interior trim than traditional passenger vehicles.
In addition, automobile manufacturers are upgrading the interiors of these
vehicles by using higher-value fabrics, carpet and other trim materials than
were used previously in such vehicles.
This continuing upgrade of interior trim and convertible applications is
enabling the Company to achieve strong gains in its sales content per North
American vehicle produced. In 1993, its net sales of automotive products to
North American OEMs totalled $568 million, reflecting an average sales content
per North American-produced vehicle of approximately $43.
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The table below shows all the North American-produced
vehicle lines for which Automotive Products supplies at
least one of its five major products. An asterisk identifies
recently awarded placements on new or redesigned vehicle
lines or models.
Vehicle Lies Supplied
COMPANY MODELS
- ------------ -----------------------------------------------------------------
General Achieva C-K Truck/10/30 Lumina-Car* Seville
Motors Aurora* C-K Truck/15/35 Monte Carlo* Silhouette
Beretta Corvette Olds '98 Skylark
Blazer* Deville/Concours* Park Avenue Sonoma
Bonneville Olds '88 Regal Chevy Suburban
Brougham Eldorado Riviera * GMC Suburban
Camaro * Firebird S-10* Sunbird *
Caprice Grand Am S-10 Blazer Supreme*
Cavalier* Grand Prix S-15 Jimmy TransSport
Century LeSabre Safari Yukon
Ciera Lumina-Van * Saturn
Ford
Aerostar Explorer * Quest Thunderbird
Bronco Mustang * Ranger Topaz
Contour * Mystique * Taurus Windstar *
Cougar Probe Tempo
Chrysler
Acclaim Grand Cherokee Plymouth Neon T-300 Pickup
Caravan Intrepid Ram Van/Ram Vision *
Cirrus* LeBaron/J/JX* Shadow Voyager
Concord * LHS * Spirit Wagoneer
Dakota Mini Ram Van Stratus*
Daytona Neon * Sundance
Eagle Talon New Yorker Town & Country
LHS *
Transplants
Fuji/Isuzu Honda Accord* Mitsubishi Suzuki Swift
Legacy Honda Civic * Eclipse Suzuki Tracker
Fuji/Isuzu Honda Mini-Van* Mitsubishi Toyota Avalon*
Passport Hyundai Elantra Galant Toyota Camry
Fuji/Isuzu Isuzu Pickup * Nissan Pickup Toyota Corolla
Rodeo Mazda MX-6 Nissan Sentra Toyota Pickup*
Geo Metro Mazda Pickup Suzuki Sidekick Volvo 740 / 760
Geo Prism Mazda 626
Broad OEM Penetration
Management believes that the Company is strategically well-positioned to
capitalize on the auto industry's current upturn due to its broad product
offering coupled with its high penetration of every North American OEM. In
recent years, the Company has broadened and balanced its sales base by means of
additional placements with the Transplants. Consequently, in 1993, the Company's
net sales to Transplants amounted to $72 per vehicle at Toyota, $60 per vehicle
at Honda, $75 per vehicle at AAI (Ford/Mazda) and $64 per vehicle at SIA
(Subaru/Isuzu), compared to $41 per vehicle at General Motors, historically its
largest customer.
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Net sales by customer for 1993 are set forth below (in millions):
<TABLE><CAPTION>
1993
------------------------
% OF
NET SALES NET SALES
----------- -----------
<S> <C> <C>
General Motors...................................................... $ 210.2 31.0%
Chrysler............................................................ 130.1 19.2
Ford................................................................ 102.4 15.1
Transplants......................................................... 111.1 16.4
Other............................................................... 124.1 18.3
----------- -----------
Net Sales...................................................... $ 677.9 100.0%
----------- -----------
----------- -----------
</TABLE>
VALUE-ADDED MANUFACTURING AND QUALITY
Most OEMs require deliveries on a "just-in-time" ("JIT") basis to meet
precise production schedules. The most stringent requirement demands
color-sequenced JIT delivery of parts within four hours. To meet these
requirements, the Company has instituted a JIT manufacturing process to
complement its customers' manufacturing processes, thereby minimizing
inventories and administrative and materials handling costs and simplifying the
production process for both the Company and the OEMs.
In response to OEM-mandated price reductions, the Company has implemented
value analysis and value engineering programs to reduce costs. Management has
established a standardized format for monitoring cost of nonconformance
throughout the Company.
In addition, OEMs expect suppliers to take on increased design and
engineering responsibilities. The Company's participation with customers in the
early phase of product design and engineering enables it to improve the quality
of its products as well as to meet its customers' cost targets and design
service requirements. The Company has made substantial investments in product
technology and product design capability to support its products and to provide
its customers with value-added engineering and design services. For example, the
Company operates a technical design center with state-of-the-art,
computer-aided-design/computer-aided-manufacturing ("CAD/CAM") systems.
Automotive Products' CAD systems are linked to the design and engineering
systems of its principal customers. These systems enable the Company to simulate
numerous three-dimensional designs for rapid submission to customers, thereby
increasing customer service and lowering development costs.
The Company's goal is to continue to manufacture its products to meet the
exacting standards of its customers. The Company has been recognized as a
quality supplier to the automotive industry as evidenced by numerous awards from
virtually all OEM's, including the Transplants.
ACQUISITIONS/STRATEGIC ALLIANCES
The Company pursues niche acquisitions and strategic alliances that would
further serve to broaden the Company's customer base and products. In 1993, the
Company acquired a Mexican-based molded floor carpet manufacturer and began
construction of a new facility in Mexico to take advantage of opportunities in
the Mexican market.
COMPETITION
The automotive supply business is highly competitive. The primary
competitors in molded floor carpet are Masland Corporation and JPS Automotive
Products Corp. The primary competitor in bodycloth is Milliken & Company. In
accessory floor mats, the Company competes primarily against Pretty Products
Company. Automotive Products' primary competition in luggage compartment trim is
Masland Corporation and Gates Corporation. In convertible top stacks, Automotive
Products competes primarily against American Sunroof Corporation.
FACILITIES
Automotive Products has 28 manufacturing facilities located in the U.S.,
Canada and Mexico. Approximately 90% of the total square footage of these
facilities is owned and the remainder is leased. Many facilities are
strategically located to provide JIT inventory delivery to the Company's
customers. Capacity at any plant depends, among other things, on the product
produced, the processes and equipment used and tooling. This varies
periodically, depending on demand and shifts in production between plants. The
Company currently estimates that its Automotive Products
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<PAGE>
plants generally operate at between 50% and 100% of capacity on a six-day basis.
The Company's capacity utilization in this segment is generally in line with its
past experience in similar economic situations, and the Company believes that
its existing facilities are sufficient to meet both this segment's existing
needs and its anticipated growth requirements. The Company does not anticipate
any circumstances that would render its facilities inadequate for its projected
needs.
The following list provides certain information regarding the Automotive
Products' manufacturing facilities:
<TABLE><CAPTION>
SQUARE
FOOTAGE OWNED/
LOCATION (000) LEASED FUNCTION
- --------------------------------- ----------- --------- ----------------------------------------------------------
<S> <C> <C> <C>
Farmville, NC.................... 508 Owned Knit Manufacturing
Roxboro, NC(*)................... 545 Owned Auto Upholstery--Dyeing and Finishing
Roxboro, NC(*)................... 330 Owned Auto Upholstery--Weaving
Roxboro, NC(*)................... 137 Owned Auto Upholstery--Knitting
Roxboro, NC(*)................... 67 Owned Auto Upholstery--Warehouse
Albemarle, NC.................... 585 Owned Auto Carpet Tufting/Finishing
Old Fort, NC..................... 375 Owned Auto Carpet Molding
Old Fort, NC..................... 60 Owned Mold Manufacturing
Clinton, OK...................... 158 Owned Auto Carpet Molding
Salisbury, NC.................... 106 Owned Die Cut/Sewing
Troy, NC......................... 98 Owned Non-Woven Carpet
Troy, NC......................... 153 Owned Yarn Spinning Mill
Norwood, NC...................... 275 Owned Yarn Spinning Mill
St. Clair, MI.................... 100 Owned Auto Carpet Molding
Canton, OH....................... 146 Owned Manufacturing--Rubber/Mats
Holmesville, OH.................. 84 Owned Manufacturing--Mats
Ravenna, OH...................... 204 Owned Manufacturing--Rubber
Zanesville, OH................... 599 Owned Manufacturing--Mats
Farnham, Quebec.................. 266 Owned Auto Carpet--Tufting and Finishing/Non-Woven
Lacolle, Quebec.................. 107 Owned Auto Carpet--Molding
Ingersoll, Ontario............... 104 Owned Auto Carpet--Molding
Elmira, Ontario.................. 133 Owned Sliver Knit Carpet Manufacturing
Queretaro, Mexico................ 93 Owned Auto Carpet--Molding
-----------
Total Owned............... 5,233
-----------
Farmville, NC.................... 138 Leased Warehouse
Roxboro, NC(*)................... 88 Leased Warehouse
Roxboro, NC...................... 42 Leased Warehouse
Barberton, OH.................... 41 Leased Manufacturing--Mats
Orange, CA....................... 10 Leased Warehouse
Adrian, MI(East)................. 155 Leased Convertible Tops--Manufacturing
Adrian, MI(West)................. 34 Leased Convertible Tops--Engineering
Plymouth, MI..................... 16 Leased Convertible Tops--Manufacturing
Bloomfield Hills, MI............. 8 Leased Sales Office
Vallejo, Mexico.................. 102 Leased Auto Carpet--Molding
Monterrey, Mexico................ 35 Leased Non-Woven Carpet
-----------
Total Leased.............. 669
-----------
Total..................... 5,902
-----------
-----------
</TABLE>
- ---------------
(*) Also utilized by Decorative Fabrics.
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<PAGE>
INTERIOR FURNISHINGS
Interior Furnishings designs and manufactures residential and commercial
upholstery fabrics through its Decorative Fabrics group and high-end specified
contract floorcoverings through its Floorcoverings group. In 1993, Interior
Furnishings had net sales of $407.2 million. Net sales by products are set forth
below (in millions):
<TABLE><CAPTION>
1991 1992 1993
------------------------ ------------------------ ------------------------
% OF % OF % OF
PRODUCT LINE NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Decorative Fabrics
Flat-Woven.................................. $ 214.5 63.7% $ 254.7 65.0% $ 268.9 66.0%
Other....................................... 47.0 14.0 48.5 12.4 44.7 11.0
Floorcoverings................................ 75.3 22.3 88.6 22.6 93.6 23.0
----------- ----------- ----------- ----------- ----------- -----------
Net sales................................... $ 336.8 100.0% $ 391.8 100.0% $ 407.2 100.0%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
DECORATIVE FABRICS
GENERAL. Interior Furnishings' Decorative Fabrics group is the largest
designer and manufacturer of upholstery fabrics in the U.S., with 1993 net sales
of $313.6 million. Management estimates that its share of the U.S. upholstery
fabric market is approximately 15%, based on data published in the May 1994
edition of Furniture Today, a leading trade publication. Decorative Fabrics
strives to be the preferred supplier of middle-to high-end flat-woven upholstery
fabrics to furniture manufacturers and fabric distributors. This group's primary
division, Mastercraft, is the leading manufacturer of flat-woven upholstery
fabrics and had 1993 net sales of $268.9 million. Management believes that
Mastercraft has substantially more Jacquard looms and styling capacity dedicated
to upholstery fabrics, and offers more patterns (approximately 13,000) in a
greater range of price points than any of its competitors. The breadth and size
of Mastercraft's manufacturing and design capabilities provide it with
exceptional flexibility to respond to changing customer demands and to develop
innovative product offerings.
INDUSTRY. The three primary types of upholstery fabric are flat-wovens,
velvets and prints. Based upon published industry estimates, management believes
that flat-woven fabrics were the fastest growing sector in the upholstery
fabrics industry over the last five years and accounted for approximately 53% of
the estimated $1.7 billion upholstery fabric industry in 1993. Flat-woven
fabrics are made in two major styles: Jacquard, which is produced on high-speed
computerized looms capable of weaving and knitting intricate designs into the
fabric, and Dobby, a plain fabric produced on standard looms.
Demand for upholstery fabric generally varies with economic conditions,
particularly sales of new and existing homes, and is directly associated with
sales of upholstered furniture at the retail level. After a period of slow
growth during the 1991 recession, the dollar value of U.S. upholstered furniture
shipments (including both fabric and leather) increased by 7.4% in 1992 and
13.4% in 1993, according to the American Furniture Manufacturers Association. In
the first quarter of 1994, according to that source, U.S. upholstered furniture
shipments increased by 7.8% as compared to the corresponding period for the
prior year. Mastercraft is currently operating at approximately 100% capacity.
In order to accommodate anticipated growth, the Company recently initiated a
plan to invest $85 million in Mastercraft between 1994 and 1998. See
"--Mastercraft Growth Plan".
Management believes there are three significant trends within the U.S.
furniture marketplace that have affected and may continue to affect Decorative
Fabrics. First, fabric design is being increasingly used by residential
furniture manufacturers as a differentiating characteristic for their products.
Jacquard fabric has become increasingly popular due to its incorporation of
intricate designs. A proliferation of Jacquard patterns and styles has been made
possible by recent
47
<PAGE>
technological developments in the electronic Jacquard loom, which has made the
rapid introduction of new designs significantly less expensive.
Second, the consolidation in both the furniture manufacturing and retailing
industries has resulted in fewer and larger buyers of upholstery fabrics. These
manufacturers and retailers generally are interested in purchasing fabrics from
suppliers that can provide a broad spectrum of their fabric requirements. The
wide range of products offered by Decorative Fabrics enables it to be a primary
supplier to the majority of its customers.
Third, management believes that furniture manufacturers and retailers are
shifting from item-by-item selling to complete room presentations, thus creating
a demand for furniture fabric suppliers that offer a broad array of coordinating
fabrics.
Management believes that Decorative Fabrics is well positioned to benefit
from these trends because it is one of the few industry participants able to
deliver the breadth of styles and quantity of fabrics needed to satisfy the
increasing demands of furniture manufacturers and retailers.
STYLE AND DESIGN. Management believes that the continued development of
superior product designs and styles is the most critical strategic objective of
Decorative Fabrics. The pattern and style of a particular fabric are considered
to be strong influences in the purchasing decision of consumers. Decorative
Fabrics utilizes a combination of in-house design studios, independent signature
designers and consultants to create innovative product designs and styles
utilizing CAD technology. Its product design flexibility also enables Decorative
Fabrics to offer custom fabric designs to its largest customers. Decorative
Fabrics creates approximately 2,000 new designs and styles per year,
substantially more than any of its competitors.
PRODUCTS. Decorative Fabrics' four operating divisions are Mastercraft,
Cavel, Warner and Greeff. Mastercraft and Cavel design and manufacture
Jacquards, velvets and other woven fabrics for the furniture, interior design,
commercial, recreational vehicle and industrial markets. Greeff and Warner
design and distribute high-end designer fabrics to interior designers and
specialty retailers in the U.S. and the U.K., respectively.
MASTERCRAFT DIVISION. Mastercraft is Decorative Fabrics' largest division.
Mastercraft focuses on the medium-to-upper price range, and its products had an
average wholesale price per yard of $6.38 in 1993. Management estimates that
Mastercraft's share of the U.S. flat-woven upholstery fabric market is
approximately 22%, based on data published in the May 1994 edition of Furniture
Today. Over the last ten years, Mastercraft's net sales grew at a compound
annual rate of approximately 14%. Mastercraft serves the diverse furniture
industry through the following four separate product lines which emphasize
different styles and price points:
Mastercraft Fabrics is the largest of the four product lines offered by the
Mastercraft division, currently offering approximately 8,000 designs. Management
believes that this Jacquard product line is the most diverse in style. The
principal product offerings range from a wholesale price of $3.50 to $12.00 per
yard.
Home Fabrics is a leading line of traditionally styled Jacquard fabrics.
The design focus is on the middle-to-upper wholesale price ranges of $5.50 to
$14.00 per yard and is under the direction of Wesley Mancini Studios, a
world-renowned designer of classic, formal and traditional styles. The products
are known for their color, quality and innovation. Mancini designs fabrics
exclusively for the Home Fabrics product line and the Greeff division. Mancini's
15-person design staff creates approximately 500 designs per year for Home
Fabrics.
Doblin is a Jacquard product line renowned for its natural fibers and
elegant designs and constructions. It is targeted at the upper-end of the
market. Doblin's studio consists of twelve design professionals (both in-house
and external) who create approximately 300 designs annually.
Mastercraft Contract serves the wall panel, wallcovering and office seating
markets and the product line features approximately 50 Jacquard fabric designs
annually. The eight-member design
48
<PAGE>
team focuses on Jacquard yarn-dyed and patterned fabrics, which management
believes to be an increasingly favored fabric in the wall panel, wallcovering
and office seating markets.
MASTERCRAFT GROWTH PLAN. Management's strategy is to continually shift its
product mix toward higher price ranges and to increase its manufacturing
capacity in the fast growing Jacquard market. Due to the resulting high sales
volumes, Mastercraft has experienced a "sold-out" order position for nearly
every quarter during the last five years. Its capacity utilization rate has
consistently averaged nearly 100% on a six-day basis. In order to accommodate
anticipated growth, the Company recently initiated a plan to invest $85 million
in Mastercraft between 1994 and 1998. Investment is targeted toward the purchase
of high-speed looms to increase capacity and productivity, new electronic
Jacquard heads to reduce pattern changeover times, and computer monitoring
systems to provide information about the manufacturing processes and to improve
quality, productivity and capacity.
Following the anticipated completion of the Company's current capital
investment plan in 1998, management expects that Mastercraft's production
capacity will have been materially enlarged, and that up to 75% of its weaving
equipment will consist of the latest generation, high-speed Jacquard looms with
electronic heads. Management anticipates that this program will result in higher
labor productivity, reduced materials loss, lower overhead expense and higher
volumes of finished product than presently achieved.
Consistently high capacity utilization rates, as well as demand for
higher-priced products, have also enabled Mastercraft to gradually shift its
product mix toward the higher price ranges, further enhancing operating profit.
The average wholesale price per yard for its fabrics has increased from $5.58 in
1989 to $6.38 in 1993.
OTHER DECORATIVE FABRICS DIVISIONS. With 1993 net sales of $39.6 million,
the Cavel division is a leading manufacturer of velvets. Cavel manufactures both
Dobby and Jacquard velvets. Cavel manufactures fabrics for home furnishings,
recreational vehicles and specialized industrial products such as paint rollers.
Cavel's 13-person design staff produces approximately 250 designs annually for
these markets. The two smaller divisions of Decorative Fabrics, Greeff and
Warner, supply the interior design and specialty retailer markets in the U.S.
and the U.K., respectively.
CUSTOMERS. Decorative Fabrics is a primary supplier to virtually all major
furniture manufacturers in the U.S., including La-Z-Boy, Ethan Allen,
Thomasville, Flexsteel, Bassett, Broyhill, Baker, Henredon, Rowe and Robert
Allen. Due to the breadth of its product offerings, strong design capabilities
and superior customer service, the Company has developed close relationships
with many of Decorative Fabrics' over 1,000 customers.
Nearly all of Decorative Fabrics' products are made to customer order. This
reduces the amount of raw materials and finished goods inventory required and
greatly reduces product returns, thereby improving profit margins.
CUSTOMER SERVICE. Decorative Fabrics invests significant capital resources
in customer service technology. Key service-related objectives include providing
custom-tailored design capabilities to large customers, reducing lead time for
orders and providing consistent, on-time delivery.
To enhance customer satisfaction, Decorative Fabrics began implementation
of a computerized material requirements' inventory system, MRP II, in 1992.
Implementation of the MRP II system has significantly improved inventory control
and enabled the Company to reduce manufacturing lead times. The completion of
the MRP II project in 1993 also provided significant enhancements to Decorative
Fabrics' electronic data interchange ("EDI") systems. The improved use and
availability of EDI allows customers to place orders faster and significantly
reduces order processing time.
MARKETING AND SALES. Fabrics are sold domestically by 31 commissioned sales
representatives who exclusively represent the Mastercraft and Cavel divisions of
Decorative Fabrics. The Mastercraft and Cavel divisions maintain showrooms in
seven key locations throughout the United
49
<PAGE>
States. Products are presented in collections which suggest a complete room
environment using the Company's diverse mix of fabrics.
Mastercraft's 1993 export sales were $30.5 million, or 11.3% of its net
sales. Export sales have increased at a compound annual growth rate of 30% since
1988. All export fabrics are sold through commissioned sales representatives and
agents in key countries. Major export regions include the United Kingdom,
Scandinavia, Europe, the Middle East, Australia, New Zealand, the Far East,
Canada and South America.
MANUFACTURING. Decorative Fabrics invests significant capital resources to
upgrade manufacturing facilities and continually improve productivity.
Management believes that continued commitment to technological improvements is
essential to remain competitive in the decorative fabrics business. All plants
typically operate on a six-day, three-shift schedule and operate an adjustable
schedule on the seventh day in order to balance production and customer demand.
COMPETITION. The U.S. upholstery fabrics market is highly competitive.
Manufacturers compete on the basis of design, quality, price and customer
service. Decorative Fabrics' primary competitors include Quaker Fabric
Corporation, Culp, Inc., Joan Fabrics Corp. and the Burlington House Upholstery
Division of Burlington Industries, Inc.
FACILITIES. Mastercraft owns and operates four weaving plants and one
finishing plant in North Carolina. Cavel shares manufacturing capacity with
Automotive Products at three plants in Roxboro, North Carolina. Greeff and
Warner are designers and distributors, subcontracting all manufacturing. During
the last three years, the Company's capacity utilization in the Mastercraft
division of the Decorative Fabrics group has consistently averaged nearly 100%
on a six-day basis. The Company believes that its existing facilities are
sufficient to meet the Decorative Fabrics group's existing needs and, after
taking into account Mastercraft's five-year capital investment plan (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources"), anticipated growth requirements.
Assuming the completion of Mastercraft's five-year capital investment plan, the
Company does not anticipate any circumstances that would render its Decorative
Fabrics facilities inadequate for its projected needs.
FLOORCOVERINGS
GENERAL. The Floorcoverings group of the Interior Furnishings segment is a
leading producer of high-end specified contract carpeting products for
institutional and commercial customers. In 1993, net sales were $93.6 million.
Floorcoverings differentiates itself from its competitors in part by its
patented Powerbond RS(R) adhesive system and by its products' durability
characteristics. It is currently the largest manufacturer of six-foot wide rolls
and the third-largest supplier of modular carpet tiles in the U.S.
Floorcoverings produces virtually no product for inventory or for commodity
markets.
Since 1990, Floorcoverings has repositioned its product offerings, shedding
those products in which it lacked either a low-cost position or proprietary
product advantage. By focusing on areas of competitive advantage, Floorcoverings
has prospered, notwithstanding a significant downturn in commercial construction
and renovation, and increased its average selling price per square yard by over
13%.
Management believes that Floorcoverings' niche market position in the high
performance specified sector, differentiated value-added products and
proprietary patented technology provide it with a competitive advantage.
INDUSTRY. Management estimates that 70% of the Company's floorcoverings
business is based on renovation rather than new construction projects.
Historically, renovation activity has been significantly less cyclical than new
construction. Also, approximately 60% of Floorcoverings 1993 net sales were to
institutional customers such as government, healthcare and education
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facilities rather than to commercial market customers. Management believes that
government, healthcare and educational customers are stable, growth sectors, as
illustrated by the fact that new construction spending in these areas has
increased by 7% per year since 1987. As a result of these two factors, sales of
six-foot wide rolls and modular carpet tiles have doubled since 1987 while the
U.S. commercial construction market has been flat.
PRODUCTS. Floorcoverings' key competitive advantage is in its patented
Powerbond RS(R) adhesive technology, which has 14 years of patent protection
remaining. Because the Powerbond RS(R) system uses a peel-and-stick adhesive as
opposed to a wet adhesive, it permits the installation of floorcoverings
directly on floor surfaces, including existing carpeting, with substantially
reduced labor costs and without the fumes of conventional wet adhesives. This
allows for less disruptive and less time-consuming installation and, for this
reason, is particularly attractive to institutions such as schools and
hospitals. By contrast, conventional carpet installation requires a more costly
and disruptive removal of old carpet and a curing period for the wet adhesive
before the facility can be returned to use. In addition to reducing installation
downtime for customers to as little as one day, management believes
Floorcoverings' product exhibits demonstrably superior durability and cleaning
characteristics ideally suited for high-traffic areas such as airline terminals
and customers such as Discovery Zone and Blockbuster.
COMPETITION. The commercial carpet industry is highly competitive, and
several of Floorcoverings' competitors have substantially greater commercial
carpet sales in the commodity segments of the industry, segments in which
Floorcoverings does not compete. Floorcoverings' niche products have demanding
specifications and generally cannot be manufactured using the equipment which
currently supplies most of the industry's commodity products. The Company's
primary competitors are Interface, Milliken & Company, Mohawk Industries and
Shaw Industries.
FACILITIES. Floorcoverings owns and operates four facilities in Dalton,
Georgia. The Company currently estimates that Floorcoverings' plants operate at
between 35% and 80% of capacity on a six-day basis. The Company's capacity
utilization in the Floorcoverings group is generally in line with its past
experience in similar economic situations, and the Company believes that its
existing facilities are sufficient to meet both this group's existing needs and
its anticipated growth requirements. The Company does not anticipate any
circumstances that would render its Floorcoverings facilities inadequate for its
projected needs.
WALLCOVERINGS
GENERAL
Wallcoverings, which operates under the name "Imperial", had 1993 net sales
of $220.4 million. It is a leading manufacturer and distributor of a full range
of wallcoverings for the residential and commercial sectors of the wallcoverings
market. Management estimates that in 1993 Imperial had a 22% market share in the
larger residential wallcoverings sector and held the number one market share
position in each of this sector's two primary distribution channels--chains and
dealers. It is the only producer of wallcoverings in the U.S. that is fully
integrated from paper production through design and distribution. In addition,
management believes that Imperial has a competitive advantage due to its
extensive in-house design expertise and licensing arrangements, its low cost,
vertically-integrated manufacturing capability and its advanced customer
ordering and service network.
INDUSTRY
The wallcoverings industry experienced significant and consistent growth
from the early 1980s through 1987. This growth resulted in part from increases
in new construction starts and existing home sales which peaked in 1986-87. In
addition, a one-time surge in demand created a new industry-wide layer of
inventory as a result of the rapid growth of large in-stock retailers. Between
1983 and 1987, the industry's physical shipment volume increased from 137
million to 200 million
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rolls of wallpaper per year, a 9.9% annual growth rate. Between 1987 and 1990,
the industry underwent a contraction, with volume declining dramatically from
200 million rolls in 1987 to 174 million rolls in 1990, a 4.5% annual decline.
This resulted from a slowdown in the overall economy, particularly in the
housing market, coupled with a reduction in inventory by over-stocked retailers.
From 1991 to 1993, the industry's physical shipment volumes increased at a
compound annual growth rate of 3.0%.
Management estimates that in 1993, total sales for the U.S. wallcovering
market were approximately $1.1 billion on a wholesale basis. The wallcoverings
market can generally be divided into the residential and commercial sectors. The
residential sector is the larger of the two sectors, with estimated total 1993
U.S. sales of $748.0 million. The two primary distribution channels within the
residential sector are dealers and retail chains.
STRATEGIC RESTRUCTURING
The industry contraction of the late 1980s and early 1990s left Imperial
with unutilized manufacturing capacity, an oversized distribution network and
excess product offerings. Between 1989 and 1992, Imperial implemented a
comprehensive downsizing program designed to bring Imperial's high fixed-cost
structure into better alignment with the changed industry environment. Imperial
closed 22 showrooms and 12 warehouses and reduced fixed costs by approximately
10%. Imperial also substantially reduced the annual introduction rate of new
collections and virtually eliminated its use of independent distributors in
favor of exclusive captive distribution. This restructuring program improved
manufacturing efficiencies, but it adversely affected sales and led to a
reduction in shelf space and market share. As a result, Imperial's sales
declined during 1992 and into 1993, despite what management now believes to have
been a moderate upturn in industry conditions.
A new management team installed in February 1993 determined that the
reduction in new collections had been too severe. Accordingly, in late 1993,
management instituted a second restructuring program to bolster its new product
introduction rate through aggressive product design efforts. This product line
renewal led to 62 collections being introduced in 1993 and 70 collections being
planned for introduction in 1994, compared to 45 in 1992. Management is also
broadening its selection of in-stock programs and improving its order
fulfillment capabilities. For example, in 1993 Imperial introduced a guaranteed
shipment program on 15 of its best selling collections. Through the program
called "On Time Or On Us", free product is offered to dealers for orders
unfilled within 48 hours. The number of collections covered by this program was
increased to 26 in the first quarter of 1994. Imperial also implemented a number
of other MIS and service initiatives designed to enhance customer service and
distribution.
In 1994, Imperial is implementing a plan to improve sales momentum in the
chain store channel, including a tripling of its product development budget for
the national chains, consolidating order entry and customer service activities
under dedicated national account teams, developing innovative product/packaging
approaches for warehouse clubs, and broadening its product offerings with newly
licensed products such as borders featuring National Hockey League and National
Collegiate Athletic Association logos and insignias.
PRODUCT
Management believes Imperial has maintained its market position due to its
competitive edge in color and design. Its in-house studio of approximately 35
artists represents a major strategic investment by Imperial which is
supplemented by an active licensing program under which Imperial licenses proven
designs from well-known designers. Imperial is continuously introducing new
designs and color concepts that supplement its already vast library.
Imperial offers a large number of well-known brand names, including
Imperial, United, Sterling Prints, Katzenbach & Warren, Greeff, Albert Van Luit
and Plexus. In addition to these in-house brands, Imperial licenses a number of
well-known brand names, including Gear, Laura Ashley,
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Pfaltzgraff, Croscill, Mario Buatta, David and Dash, Louis Nichole, Clarence
House and Carlton Varney, for which it converts home furnishing designs into
wallcovering designs. Imperial also distributes the lines of John Wilman, Great
Britain's largest wallcoverings designer and manufacturer. Imperial's products
sell at the retail level from $5 per single roll to more than $100 per single
roll, with most products selling in the $8 to $14 range.
In recent years, there has been increasing demand for wallcoverings
coordinated with decorative accessories such as window treatments, bedding,
upholstery fabric and other textile products. To satisfy this demand from
upscale home furnishings customers, Imperial provides fabrics, which it
generally purchases outside the Company, that are coordinated with its
wallcovering designs. Some of these fabrics are supplied by the Mastercraft and
Greeff divisions of the Company.
CUSTOMERS
Dealers and chains account for the largest portion of Imperial's customer
base. Management believes that the Company has the leading share in each of
these channels. Management believes that Imperial has the most extensive dealer
network in the U.S., selling to approximately 15,000 dealers. Imperial also
sells to many of the leading chains in the country, including Home Depot, Lowes,
Sears, Sherwin Williams and Target.
MANUFACTURING
Imperial is the only manufacturer of wallcoverings that is vertically
integrated from paper production to the design and distribution of finished
wallcoverings. Management estimates that Imperial accounts for approximately 30%
of wallpaper manufacturing capacity in North America. Imperial's objective is to
be the lowest cost manufacturer in the industry. In pursuit of this objective,
Imperial has completed several manufacturing efficiency programs over the past
several years, including significantly reducing the set up times in gravure
printing through implementation of single-minute-exchange-of-die techniques.
COMPETITION
As a result of the recent economic downturn in the wallcoverings industry,
many weaker competitors withdrew from the U.S. wallcoverings market. In
addition, further contraction is expected to occur as sales of wallcoverings
shift to chain stores, which along with other retailers prefer working with
fewer, larger suppliers. Imperial is well positioned to benefit from these
developments.
Competition in the wallcoverings industry is based on design, price and
customer service. Imperial's principal competitors are Borden, GenCorp, F.S.
Schumacher and Seabrook Wallcoverings.
FACILITIES
Imperial owns and operates five manufacturing facilities in the United
States and three in Canada, as well as three distribution centers in the United
States. The Company currently estimates that its Wallcoverings facilities that
produce surface print paper generally operate at approximately 35% of capacity
on a five-day basis and its facilities that produce gravure paper generally
operate between approximately 80% and 100% of capacity on a five-day basis. The
Company's capacity utilization in this segment is generally in line with its
past experience in similar economic situations, and the Company believes that
its existing facilities are sufficient to meet both this segment's existing
needs and its anticipated growth requirements. The Company does not anticipate
any circumstances that would render its Wallcoverings facilities inadequate for
its projected needs.
EMPLOYEES
As of January 29, 1994, the Company's subsidiaries employed approximately
12,000 persons on a full-time or full-time equivalent basis. Approximately 2,200
of such employees are represented by labor unions. Management believes that the
Company's relations with its employees and with the unions that represent
certain of them are good. See "Risk Factors--Collective Bargaining Agreements".
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
As of the consummation of the Offerings and giving effect to the
Recapitalization, the executive officers and directors of the Company, and their
ages as of April 10, 1994, will be as follows:
<TABLE><CAPTION>
NAME AGE POSITIONS
- ------------------------------------ ----------- ---------------------------------------------------------------------
<S> <C> <C>
Thomas E. Hannah.................... 55 Chief Executive Officer and Director
William J. Brucchieri............... 51 President of Imperial Wallcoverings
John D. Moose....................... 57 President of North American Auto Group
Harry F. Schoen III................. 58 President of Mastercraft Division
Elizabeth R. Philipp................ 37 Executive Vice President, General Counsel and Secretary
Mark O. Remissong................... 41 Senior Vice President and Chief Financial Officer
Paul W. Meeks....................... 41 Vice President and Treasurer
David A. Stockman................... 47 Co-Chairman of the Board of Directors
Bruce Wasserstein................... 46 Co-Chairman of the Board of Directors
James R. Birle...................... 58 Director
John P. McNicholas.................. 31 Vice Chairman
Stephen A. Schwarzman............... 47 Director
Randall J. Weisenburger............. 35 Vice Chairman and Director
W. Townsend Ziebold, Jr............. 32 Director
</TABLE>
Set forth below is certain information about each of the Company's
executive officers and directors. Unless otherwise indicated, positions listed
are with the Company. Following the Offerings, the Company expects to elect two
additional directors who are not affiliated with the Company or the Partners.
Pursuant to the Restated Certificate of Incorporation, the Board of Directors
will be classified into three classes consisting of three directors each. Each
class of directors of the Company will be elected at an annual meeting of
stockholders on staggered three-year terms, such that only one class of
directors will be elected each year. See "Description of the Capital
Stock--Anti-takeover Provisions".
THOMAS E. HANNAH. Chief Executive Officer of the Company as of the
consummation of the Offerings. President and Chief Executive Officer of the
Collins & Aikman Textile and Wallcoverings Group from November 1991 to
consummation of the Offerings, and named an executive officer of the Company in
April 1993. President and Chief Executive Officer of the Collins & Aikman
Textile Group from February 1989 to November 1991. President of Milliken &
Company's Finished Apparel Division prior to that.
WILLIAM J. BRUCCHIERI. President of Imperial Wallcoverings since February
1993 and named an executive officer of the Company in April 1994. Executive Vice
President of Imperial from March 1992 to January 1993. Executive Vice President
of the Mastercraft division from January 1990 to February 1992. Vice President,
Operations of the Mastercraft division from August 1989 to January 1990. Mr.
Brucchieri joined a wholly-owned subsidiary of the Company in 1988.
JOHN D. MOOSE. President of the North American Auto Group since June 1989,
and named an executive officer of the Company in April 1994. Mr. Moose joined a
wholly-owned subsidiary of the Company in 1960.
HARRY F. SCHOEN III. President of the Mastercraft division since January
1993 and named an executive officer of the Company in April 1994. Executive Vice
President and Chief Operating Officer of the Mastercraft division from April
1992 to December 1992. General Manager of Milliken & Company's Greige Fine Goods
Group prior to that.
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ELIZABETH R. PHILIPP. Executive Vice President, General Counsel and
Secretary of the Company since April 1994. Vice President, General Counsel and
Secretary of the Company from April 1993 to April 1994. Vice President and
General Counsel from September 1990 to April 1993. Prior to that, associated
with the law firm of Cravath, Swaine & Moore.
MARK O. REMISSONG. Senior Vice President and Chief Financial Officer of the
Company as of the consummation of the Offerings. Since December 1993, Senior
Vice President and Chief Financial Officer of a wholly-owned subsidiary of the
Company and an executive officer of the Company. Vice President of Finance for
Burlington Industries from 1989 until December 1993.
PAUL W. MEEKS. Vice President and Treasurer of the Company since September
1992. Assistant Treasurer of the Company from April 1988 to September 1992. Mr.
Meeks joined a wholly-owned subsidiary of the Company in 1982.
DAVID A. STOCKMAN. Co-Chairman of the Board of Directors of the Company
since July 1993 and a Director of the Company since October 1988. General
Partner of Blackstone Group Holdings L.P. (the "Blackstone Group") since 1988.
Mr. Stockman is also a director of Edward J. DeBartolo Corporation.
BRUCE WASSERSTEIN. Co-Chairman of the Board of Directors of the Company
since June 1992. Chief Executive Officer and Chairman or President of
Wasserstein Perella Group, Inc. ("WP Group") since 1988 and Chairman and Chief
Executive Officer of Wasserstein Perella Management Partners, Inc. ("WP
Management") since June 1992. Mr. Wasserstein is also Chairman of the Board of
Maybelline, Inc.
JAMES R. BIRLE. A Director of the Company since 1988 and Co-Chairman of the
Board of Directors of the Company from October 1988 until July 1993. General
Partner of the Blackstone Group since 1988. Mr. Birle is also a director of
Connecticut Mutual Life Insurance Co., Great Lakes Dredge & Dock Corporation,
and Transtar, Inc.
JOHN P. MCNICHOLAS. Vice Chairman of the Company since April 1994. Deputy
Chairman of the Company from July 1992 to April 1994. Vice President of the
Blackstone Group since January 1992; Associate of the Blackstone Group from
November 1990 to December 1991; Associate, Merchant Banking Group--Merrill Lynch
Capital Markets from August 1989 to November 1990.
STEPHEN A. SCHWARZMAN. A Director of the Company since October 1988 and
President of the Company from its inception to consummation of the Offerings.
Co-Founding Partner of the Blackstone Group and President and Chief Executive
Officer of The Blackstone Group L.P. ("Blackstone") since 1985. Mr. Schwarzman
is also a director of Great Lakes Dredge & Dock Corporation and Transtar, Inc.
RANDALL J. WEISENBURGER. Vice Chairman of the Company since April 1994 and
a Director of the Company since 1989. Deputy Chairman of the Company from July
1992 until April 1994. Managing Director of Wasserstein Perella & Co., Inc.
("WP&Co.") since December 1993; Director of WP&Co. from December 1992 to
December 1993; Vice President of WP&Co. from December 1989 to December 1992;
Associate of WP&Co. from 1988 to December 1989. Mr. Weisenburger is also Vice
Chairman of the Board of Maybelline, Inc. and Chairman of the Yardley Lentheric
Group.
W. TOWNSEND ZIEBOLD, JR. Director of the Company since December 1992.
Director of WP&Co. since December 1993; Vice President of WP&Co. from December
1991 to December 1993; Associate of WP&Co. from 1988 to December 1991. Mr.
Ziebold is also a director of Maybelline, Inc.
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<PAGE>
COMPENSATION OF DIRECTORS
Effective upon consummation of the Offerings, each director (or the Partner
who designates such director to the Board of Directors) will receive an annual
fee of $40,000, payable quarterly.
In July 1992, C&A Co. entered into an employment agreement with Mr. Hannah,
which was amended as of February 1994. The agreement, as amended, provides for
an initial base salary of $525,000 and participation in any executive bonus plan
of C&A Co., with a target bonus of 75% of base salary then in effect up to a
maximum of 150% of base salary. Under the executive bonus plan currently in
effect, Mr. Hannah is to receive the target bonus with respect to any fiscal
year in which the Company achieves all the goals set by the Company's Board of
Directors or an appropriate committee thereof for such year. Financial goals for
the current fiscal year relate to earnings before interest and taxes. The
executive bonus plan may change at any time. The agreement expires January 31,
1997, with automatic one-year renewals thereafter unless C&A Co. notifies Mr.
Hannah prior to that time of its intention to terminate the agreement. In the
event of involuntary termination for reasons other than cause and other than a
change of control, the agreement provides for severance benefits equal to Mr.
Hannah's base salary then in effect for a period of one year from the
termination date plus any unpaid cash bonus for the prior year and a pro rata
portion of any bonus he would have received had he been employed for the entire
year. C&A Co. also entered into a letter agreement with Mr. Hannah in May 1991
pursuant to which Mr. Hannah is entitled to receive an amount equal to two times
his base salary then in effect in the event his employment is terminated within
three months prior to or one year following a change of control (as defined) of
C&A Co.. In 1993, Mr. Hannah received a base salary of $415,000, a cash bonus of
$783,960, and payouts under the Equity Share Plan referred to below and other
compensation aggregating $2,339,388.
THE COMPANY'S OPTION PLANS
In 1988, Group implemented the Wickes Equity Share Plan (the "Equity Share
Plan") for the purposes of attracting, retaining and motivating key employees of
Group and its subsidiaries. In October 1993, the Equity Share Plan was
terminated in accordance with its terms. Concurrently, Group announced its
intention to implement a new stock option plan. Accordingly, the Company created
a special purpose 1993 Employee Stock Option Plan (the "1993 Plan") to provide
for the one-time award of options to purchase shares of Common Stock to active
key employees in recognition of their prior service. In addition, the 1994
Employee Stock Option Plan (the "1994 Plan") was created as a successor to the
1993 Plan to facilitate future awards of Options to key employees and to
consultants. The term "Option" as used herein refers to either a NQSO or an ISO
(each as defined below), as the case may be.
Each of the Company's stock option plans is administered, and options
thereunder are granted, by a duly authorized committee (the "Committee") of the
Board of Directors (the members of which shall be disinterested (as defined in
Rule 16b-3 under the Exchange Act), unless otherwise determined by the Board),
or by the Board if there is no such committee.
Based on the midpoint of the estimated initial public offering price range,
the estimated fair market value of a share of Common Stock underlying an Option
as of June 27, 1994 was $13.00.
1993 EMPLOYEE STOCK OPTION PLAN
The Company adopted the 1993 Plan effective January 28, 1994 (the
"Effective Date of the 1993 Plan").
SHARES SUBJECT TO OPTIONS. The 1993 Plan authorizes the issuance of up to
3,119,466 shares of Common Stock (with no more than 1,000,000 shares to any
employee in any calender year) upon the exercise of non-qualified stock options
("NQSOs") granted to certain key employees of the
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<PAGE>
Company. Key employees are those active executive officers and other valuable
employees of the Company that are selected by the Committee to participate in
the 1993 Plan. Under the 1993 Plan no Options may be granted after December 31,
1995.
OPTIONS. Options issued pursuant to the 1993 Plan will be exercisable at
such price, not less than the par value of the Common Stock purchasable
thereunder, as may be fixed by the Committee. Shares of Common Stock purchased
pursuant to the exercise of Options shall be paid for at the time of exercise as
follows: (i) in cash or by check, bank draft or money order; (ii) if the Common
Stock is traded on a national securities exchange, through the delivery of
instructions to a broker to deliver the purchase price; or (iii) on other terms
acceptable to the Committee (which may include payment by transfer of shares
owned by the participant for at least six months or the surrender of Options).
Options granted under the 1993 Plan are subject to restrictions on transfer
and exercise. No Option granted under the 1993 Plan may be exercised prior to
the earlier of the closing of a Public Offering (as defined in the 1993 Plan) or
the expiration of two years from the Effective Date of the 1993 Plan, subject to
acceleration in the event of a Change in Control of the Company (as defined in
the 1993 Plan) and subject to the authority of the Committee to permit earlier
exercise in its sole discretion. The Committee may set a schedule of
exerciseability with regard to each Option grant, subject to acceleration in the
event of a Change in Control of the Company. Also, no Option may be exercisable
after the expiration of ten years from the date of its grant. Moreover, no
Option may be transferred, assigned, pledged or hypothecated in any way except
by will or under applicable laws of descent and distribution. Shares of Common
Stock purchased upon exercise of an Option ("Shares") may not be transferred for
a period of two years following the initial Public Offering of the Company, or
such shorter time as the Committee may in its sole discretion determine.
In consideration of the grant of Options, an employee shall be required to
agree not to engage, without the written consent of the Committee, in any
Competitive Activity (as defined in the 1993 Plan) during the participant's
employment by the Company and, in the event any Options shall vest, for a period
of one year following termination of employment. Options that were exercisable
upon a participant's termination of employment by the Company other than for
cause remain exercisable following such termination for a period of: (a) one
year, in the case of death or disability, (b) 90 days, in the case of retirement
or termination by the Company other than for cause and (c) in all other
instances, 30 days following such termination, in each case subject to extension
by the Committee. Except as otherwise determined by the Committee, Options that
were not exercisable at the time of a participant's termination of employment by
the Company shall automatically be canceled upon such termination. The Committee
has the discretion under the 1993 Plan to impose in a participant's Option
Agreement such other conditions, limitations and restrictions as it determines
are appropriate in its sole discretion, including any waivers of rights which a
participant may have.
The 1993 Plan provides for the Committee to have the right to make
appropriate adjustments in the number and kind of securities receivable upon the
exercise of Options or the exercise price in the event of a stock split, stock
dividend, merger, consolidation, reorganization, spinoff, partial or complete
liquidation or other similar changes in the capital structure or other corporate
transactions. The 1993 Plan also gives the Committee the option to terminate all
outstanding Options effective upon the consummation of a merger or consolidation
in which the Company is not the surviving entity or of any other transaction
that results in the acquisition of substantially all of the Company's
outstanding Common Stock by a single person or entity or by a group of persons
and/or entities acting in concert, or upon the consummation of the sale or
transfer of all of the Company's assets (any such event an "Acquisition Event"),
subject to the right of participants to exercise all outstanding Options prior
to the effective date of the Acquisition Event.
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As of the date hereof, Options for approximately 3,000,000 Shares granted
to approximately 60 employees are outstanding. At the date the 1993 Plan was
adopted, approximately 65 employees were eligible to participate in the 1993
Plan.
1994 EMPLOYEE STOCK OPTION PLAN
The Company adopted the 1994 Plan effective April 15, 1994 (the "Effective
Date of the 1994 Plan").
SHARES SUBJECT TO OPTIONS. The 1994 Plan authorizes the issuance of up to
2,980,534 shares of Common Stock (with no more than 1,000,000 shares to any
employee or consultant in any calender year, with any unused portion thereof
carried forward) upon the exercise of Incentive Stock Options ("ISOs") and NQSOs
granted to certain key employees and NQSOs granted to executive consultants of
the Company. Key employees are those active executive officers or other valuable
employees of the Company that are selected by the Committee to participate in
the 1994 Plan. Executive consultants are those executive-level consultants of
the Company that are selected by the Committee to participate in the 1994 Plan.
No Options may be granted after ten years from the Effective Date of the 1994
Plan.
OPTIONS. In the case of ISOs, the exercise price of an Option may not be
less than 100% of the Fair Market Value (as defined in the 1994 Plan) of a share
of Common Stock at the time of grant (or 110% of such Fair Market Value if the
grantee owns more than 10% of the shares of Common Stock outstanding at the time
of grant (a "Ten Percent Shareholder")). NQSOs issued pursuant to the 1994 Plan
will be exercisable at such price, not less than the Fair Market Value of a
share of Common Stock at the time of grant, as may be fixed by the Committee,
provided, that, prior to the initial Public Offering of the Company, Options may
be issued with an exercise price below the Fair Market Value of a share of
Common Stock at the time of the grant. Shares purchased pursuant to the exercise
of Options shall be paid for at the time of exercise as follows: (i) in cash or
by check, bank draft or money order; (ii) if the Shares are traded on a national
securities exchange, through the delivery of instructions to a broker to deliver
the purchase price; or (iii) on other terms acceptable to the Committee (which
may include payment by transfer of shares owned by the participant for at least
six months or the surrender of Options).
Options granted under the 1994 Plan are subject to restrictions on transfer
and exercise. No Option granted under the 1994 Plan may be exercised prior to
the earlier of the closing of a Public Offering (as defined in the 1994 Plan) or
the expiration of five years from the Effective Date of the 1994 Plan, subject
to acceleration in the event of a Change in Control of the Company (as defined
in the 1994 Plan) and subject to the authority of the Committee to permit
earlier exercise in its sole discretion. In addition, the Committee may set a
schedule of exerciseability with regard to each Option grant, subject to
acceleration in the event of a Change in Control of the Company. Also, no Option
may be exercisable after the expiration of ten years from the date of its grant
(or five years, in the case of ISOs granted to a Ten Percent Shareholder).
Moreover, no Option may be transferred, assigned, pledged or hypothecated in any
way except by will or under applicable laws of descent and distribution. Shares
of Common Stock purchased upon exercise of an Option may not be transferred for
a period of two years following the initial Public Offering of the Company, or
such shorter time as the Committee may in its sole discretion determine.
In consideration of the grant of Options, each employee will be required to
agree not to engage, without the written consent of the Committee, in any
Competitive Activity (as defined in the 1994 Plan) during the participant's
employment by the Company, and in the event any Options shall vest, for a period
of one year following termination of employment. Options that were exercisable
upon a participant's termination of employment or consultancy by the Company
other than for cause remain exercisable following such termination for a period
of: (a) one year, in the case of death or disability, (b) 90 days, in the case
of retirement or termination other than for cause and (c) in all
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other instances, 30 days following such termination, in each case subject to
extension by the Committee. Except as otherwise determined by the Committee,
Options that were not exercisable at the time of a participant's termination of
employment or consultancy by the Company shall automatically be canceled upon
such termination. The Committee has the discretion under the 1994 Plan to impose
in a participant's Option Agreement such other conditions, limitations and
restrictions as it determines are appropriate in its sole discretion, including
any waivers of rights which a participant may have.
The 1994 Plan provides for the Committee to have the right to make
appropriate adjustments in the number and kind of securities receivable upon the
exercise of Options or the exercise price in the event of a stock split, stock
dividend, merger, consolidation, reorganization, spinoff, partial or complete
liquidation or other similar changes in the capital structure or other corporate
transactions. The 1994 Plan also gives the Committee the option to terminate all
outstanding Options effective upon the consummation of a merger or consolidation
in which the Company is not the surviving entity or of any other transaction
that results in the acquisition of substantially all of the Company's
outstanding Common Stock by a single person or entity or by a group of persons
and/or entities acting in concert, or upon the consummation of the sale or
transfer of all of the Company's assets (any such event an "Acquisition Event"),
subject to the right of participants to exercise all outstanding Options prior
to the effective date of the Acquisition Event.
As of the date hereof, Options for approximately 200,000 Shares granted to
seven employees are outstanding, leaving Options for approximately 2,800,000
Shares available for grant to employees and consultants in the future. At the
date the 1994 Plan was adopted, approximately 500 employees were eligible to
participate in the 1994 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under Federal income tax law as currently in effect, neither ISOs nor NQSOs
require an optionee to recognize income at the time of grant. However, upon the
exercise of a NQSO, the optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the Common Stock over the
aggregate exercise price. With respect to an ISO, no income is recognized by the
optionee in connection with the exercise, although the excess of the fair market
value of the Common Stock at exercise over the aggregate exercise price results
in alternative minimum taxable income which is used in determining for the
optionee alternative minimum tax liability. The optionee will be subject to
taxation at the time Shares acquired upon the exercise of an ISO are sold. If
the sale occurs at least two years after the date the ISO was granted and at
least one year after the date it was exercised, the optionee generally will
recognize capital gain in an amount equal to the excess of the proceeds of the
sale over the aggregate exercise price of the Shares sold. If the optionee
disposes of such Shares within two years of the date an Option was granted or
within one year of receipt of the Shares pursuant to the exercise of an ISO, the
optionee will recognize ordinary income, in an amount equal to the excess of the
fair market value of the Shares on the date of the exercise over the exercise
price. The excess, if any, of the amount realized upon disposition of such
Shares over the fair market value of the Shares on the date of exercise will be
long or short term capital gain, depending upon the holding period of the
Shares, providing the optionee holds the shares as a capital asset at the time
of disposition. If such disposition of the Shares by the optionee within two
years of the date of grant of the Option is a sale or exchange with respect to
which a loss (if sustained) would be recognized by the optionee, then the amount
which is includable in the gross income of the optionee shall not exceed the
excess (if any) of the amount realized on the sale or exchange over the adjusted
basis of such Shares.
The Company's tax consequences will also depend upon whether an option is
an ISO or a NQSO. In the case of a NQSO, the Company will be entitled, subject
to the possible application of Sections 162(m) and 280G of the Code as discussed
below, to a deduction in connection with the
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optionee's exercise in an amount equal to the income recognized by the optionee,
provided that the Company complies with applicable withholding tax requirements,
if any. If the Option is an ISO, however, the Company will not be entitled to a
deduction if the optionee satisfies holding period requirements and recognizes
capital gain. If those requirements are not satisfied, the Company will be
entitled to a deduction corresponding to the ordinary income recognized by the
optionee, subject to the possible application of Section 162(m) of the Code as
discussed below. Section 162(m) of the Code denies a deduction to any
corporation, whose common shares are publicly held, for compensation paid to
certain covered employees in a taxable year to the extent that such compensation
exceeds $1 million. Covered employees are a company's chief executive officer on
the last day of the taxable year and any other individual whose compensation is
required to be reported to shareholders under the Exchange Act by reason of
being among the four highest compensated officers in office at the end of the
taxable year. The amount of ordinary income recognized by an optionee in the
year of exercise (or in the case of an ISO, disqualifying sale) is considered in
determining whether a covered employee's compensation exceeds $1 million.
Compensation paid under certain qualified performance based compensation
arrangements, which provide for compensation based on preestablished performance
goals established by a compensation committee that is comprised solely of two or
more outside directors and which is disclosed to, and approved by, the majority
of the company's shareholders, is not considered in determining whether a
covered employee's compensation exceeds $1 million. The legislative history to
Section 162(m) and the proposed regulations recently issued under Section 162(m)
provide that compensation attributable to options which provide for an exercise
price less than the fair market value of the underlying shares on the date of
grant ("discount options") will not be treated as paid pursuant to a qualified
performance based compensation arrangement. The proposed regulations generally
provide, although the matter is not entirely clear, that option plans (and any
options issued thereunder) that were adopted prior to the time a company
publicly offers its common equity securities will not be subject to the Section
162(m) limitation, provided such plan is adequately disclosed by the company in
a prospectus issued in connection with a public offering of common equity
securities. Since the 1993 Plan and the 1994 Plan were adopted prior to the
effective date of the Registration Statement of which this Prospectus is a part,
the 1993 Plan and the 1994 Plan (and any options issued thereunder) may be
exempt from the application of Section 162(m). The Company intends to review
this issue (including any additional guidance which may hereafter be issued by
the Internal Revenue Service or the courts) at the time any employee exercises
options, the compensation element of which, when combined with other
compensation received by such employee during the taxable year, exceeds $1
million, and consider whether and to what extent the 1993 Plan and the 1994 Plan
and the options at issue are subject to the Section 162(m) limitation.
If there is an acceleration of the exercisability of Options upon a change
of ownership or control of the Company or a change in the ownership of a
substantial portion of the assets of the Company (within the meaning of Section
280G of the Code), all or a portion of the income realized by the optionee (from
the exercise of Options and from any other payments made to the optionee by the
Company) may constitute "excess parachute payments" under Section 280G. The
optionee receiving excess parachute payments incurs an excise tax of 20% of the
amount of the payments in excess of the employee's average annual compensation
for the five calendar years preceding the year of the event causing the
acceleration and the Company is not entitled to a deduction for such excess
amounts.
NEW PLAN BENEFITS
The table below shows Options that have been granted or will be granted
prior to the consummation of the Offerings under the 1993 Plan and the 1994 Plan
to (i) any Named Executive Officer (as defined below), (ii) any executive
officer who is a member of the continuing management group and who is not a
Named Executive Officer, (iii) all current executive officers as a group and
(iv) all employees, including all current officers who are not executive
officers, as a group. The term
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"Named Executive Officer" is defined for these purposes to include (i) Mr.
Stockman and Mr. Wasserstein, the Company's Co-Chairmen of the Board, Mr.
Schwarzman, the Company's President prior to the consummation of the Offerings,
Mr. Birle, the Company's former Co-Chairman of the Board, and two former
executive officers who would have been among the Company's four most highly
compensated executive officers but for the fact that they were not serving as
executive officers at the end of the fiscal year ended January 29, 1994, none of
whom has been granted any Options, and (ii) the Company's four most highly
compensated executive officers who were serving as executive officers at the end
of the fiscal year ended January 29, 1994 and whose total annual salary and
bonus exceeded $100,000.
EMPLOYEE STOCK OPTION GRANTS
<TABLE><CAPTION>
NUMBER OF
PER SHARE SHARES
EXERCISE UNDERLYING EXPIRATION
NAME AND POSITION AFTER THE OFFERINGS PRICE OPTIONS DATE PLAN
- ------------------------------------------------------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
Thomas E. Hannah............................................. $ 3.99 841,230 (1) 1993
Chief Executive Officer 8.26 140,205 (1) 1993
William J. Brucchieri........................................ 3.99 77,184 (1) 1993
President of Imperial Wallcoverings 8.26 61,757 (1) 1993
John D. Moose................................................ 3.99 146,555 (1) 1993
President of North American Auto Group 8.26 50,074 (1) 1993
Harry F. Schoen III.......................................... 3.99 97,998 (1) 1993
President of Mastercraft Division 8.26 66,007 (1) 1993
Elizabeth R. Philipp......................................... 3.99 83,508 (1) 1993
Executive Vice President, General Counsel and Secretary 8.26 8,345 (1) 1993
Mark O. Remissong............................................ 4.43 44,735 (2) 1994
Senior Vice President and Chief Financial Officer 8.26 33,267 (2) 1994
Paul W. Meeks................................................ 3.99 11,403 (1) 1993
Vice President and Treasurer
Executive Group--1993 Plan................................... 3.99 1,257,878 (1) 1993
8.26 326,388 (1) 1993
Executive Group--1994 Plan................................... 4.43 44,735 (2) 1994
8.26 33,267 (2) 1994
Non-Executive Employee Group--1993 Plan...................... 3.99 1,292,465 (1) 1993
4.43 67,261 (1) 1993
8.26 92,220 (1) 1993
Non-Executive Employee Group--1994 Plan...................... 4.43 76,507 (2) 1994
8.26 15,125 (2) 1994
</TABLE>
- ---------------
(1) January 28, 2004
(2) April 15, 2004
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<PAGE>
PRINCIPAL STOCKHOLDERS
AND CERTAIN RELATIONSHIPS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the existing holders of
Common Stock in excess of 5% after giving effect to the Recapitalization
(including the exchange by Blackstone Partners and WP Partners of $94.8 million
and $99.4 million, respectively, of the PIK Notes of the Company held by them
for shares of Common Stock), (i) before the Offerings and (ii) as adjusted to
give effect to the Offerings. All information with respect to beneficial
ownership has been furnished by the respective stockholder. Unless otherwise
indicated below, after the Offerings the persons named below have sole voting
and investment power with respect to the number of shares set forth opposite
their names.
<TABLE><CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE OFFERINGS AFTER THE OFFERINGS
------------------------------- --------------------------------
NAME AND ADDRESS
OF SELLING STOCKHOLDER NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Blackstone Capital 21,588,745 46.2% 21,588,745 31.9%
Partners L.P.(1)(2)
118 North Bedford Road
Suite 300
Mount Kisco, NY 10549
Wasserstein Perella 23,136,462 49.5% 23,136,462 34.2%
Partners, L.P.(3)
31 West 52nd Street
New York, NY 10019
</TABLE>
- ---------------
(1) Includes 1,197,374 shares of Common Stock owned of record by Blackstone
Family Investment Partnership II L.P. and 105,241 shares of Common Stock
owned of record by Blackstone Advisory Directors Partnership L.P., each an
affiliate of Blackstone Partners. Blackstone Partners possesses an
irrevocable proxy to vote these shares.
(2) Blackstone Partners is a Delaware limited partnership formed for the purpose
of, among other things, (i) committing capital to facilitate corporate
restructurings, leveraged buyouts, bridge financings and other investments
and (ii) capitalizing affiliates which will engage in investment and
merchant banking activities. The sole general partner of Blackstone Partners
is Blackstone Management Associates L.P. ("Blackstone Associates"), a
Delaware limited partnership whose general partners include Messrs. Birle,
Schwarzman and Stockman. At present, the business of Blackstone Associates
consists of performing the function of, and serving as, the general partner
of certain limited partnerships, including Blackstone Partners. Messrs.
Birle, Schwarzman and Stockman are also general partners of Blackstone
Management.
(3) WP Partners is a Delaware limited partnership, the general partner of which
is WP Management. Mr. Wasserstein is Chairman and Chief Executive Officer of
WP Management and WP Group. WP Partners was formed by WP Group for the
purpose of participating in merchant banking activities, including
committing capital to the organization and consummation of leveraged buyout
transactions. WP Management and WP Group are both Delaware corporations. WP
Management is engaged in managing WP Partners. WP Group is an international
private advisory and merchant banking firm. The principal subsidiary of WP
Group is WP & Co., an international investment banking firm.
Prior to the consummation of the Recapitalization, each of Blackstone
Partners and WP Partners beneficially owns, through Holdings II, 50% of the
outstanding voting Common Stock of the Company. After consummation of the
Recapitalization and the issuance of shares of Common Stock in the Offerings,
each of Blackstone Partners and its affiliates and WP Partners will beneficially
own 31.9% and 34.2%, respectively, of the outstanding Common Stock and will be
in a position to control the Company. It is also expected that the Partners and
their respective affiliates may in the future act in various capacities in
connection with transactions to which the Company is a party.
In each of 1993 and 1994, Group paid each of the Managers-Advisors an
annual operating management fee of $1 million. Group also has paid each of the
Managers-Advisors an annual
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management and financial advisory services fee of $1.5 million, paid quarterly
in advance. Group also has reimbursed the Managers-Advisors for out-of-pocket
expenses in connection with their management services. Following the
consummation of the Recapitalization, the annual operating management fee and
the annual management and financial advisory services fee will no longer be
payable, and the Managers-Advisors will not be required to refund any portion of
such fees already paid at the time of the Recapitalization.
Since the beginning of 1993, in connection with the divestiture of the
Engineering Group, Group has paid divestiture fees (i) to Blackstone Management
Partners L.P., an affiliate of Blackstone ("Blackstone Management") in the
amount of approximately $512,500 and (ii) to WP&Co. and WP Partners in an
aggregate amount of $512,500. Since the beginning of 1993, in connection with
the consummation of two credit agreements by Kayser-Roth, Group has paid fees
(i) to Blackstone Management in the amount of $375,000 and (ii) to WP&Co. and WP
Partners in an aggregate amount of $375,000. Since the beginning of 1993, Group
has paid $1,394,000 to each of the Managers-Advisors in connection with the
divestiture of Kayser-Roth.
In September 1993, Blackstone entered into an agreement with Group to
provide advisory services and assistance in connection with the sale or
disposition by Group of its Builders Emporium division. The agreement provides
for reimbursement of out-of-pocket expenses plus payment of fees to be paid by
Group to Blackstone of (i) $100,000 per month, commencing with the month ending
September 25, 1993 and ending with the month ending January 29, 1994 and (ii)
$100,000 for the quarter commencing January 30, 1994 and ending April 30, 1994.
Since the beginning of 1993, Group has paid $600,000 under this agreement. In
addition, Blackstone negotiated with Arkaid Incorporated, a real estate
consultant ("Arkaid"), to receive 20% of the incentive fees payable to Arkaid by
Group in connection with the resolution of lease liabilities of Builders
Emporium. Since the beginning of fiscal 1993, no such incentive fees have been
accrued or paid to Arkaid.
The Board of Directors of Group has authorized the investment by Group from
time to time of amounts not to exceed $5 million in a short-term investment fund
to which BlackRock Financial Management L.P. serves as investment advisor.
BlackRock Financial Management L.P., an affiliate of Blackstone, charges annual
management fees equal to 0.3% of the amount invested, plus nominal out-of-pocket
expenses. Since the beginning of 1993, Group has paid to BlackRock Financial
Management L.P. fees of approximately $13,000.
During the first quarter of 1994, the Company incurred expenses of $2.5
million for services performed by Blackstone Partners and WP Partners in
connection with a comprehensive review of the Company's liabilities associated
with discontinued operations, including surplus real estate, postretirement and
workers compensation liabilities. During the first quarter of 1994, the Company
incurred expenses of $3.25 million for services performed by Blackstone Partners
and $2.75 million for services performed by WP Partners in connection with the
Company's review of refinancing and strategic alternatives as well as certain
other advisory services.
It is anticipated that each of the Managers-Advisors will receive a $1
million annual monitoring fee and the reimbursement of expenses from the Company
pursuant to the Stockholders Agreement, which will be effective as of the
consummation of the Recapitalization, and that any transaction with affiliates
not contemplated by the Stockholders Agreement will be passed upon by the
independent directors.
Pursuant to the Stockholders Agreement, each Partner and the Company has a
right of first refusal with regard to sales of Common Stock by each Partner
(with certain exceptions). Each Partner also has the right to sell along with
the other (with certain exceptions). The Prudential Insurance Company of America
and certain of its affiliates, which upon consummation of the Offerings will own
approximately 1,588,555 shares of Common Stock, have certain rights to
participate in any sale by Blackstone Partners.
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<PAGE>
The Stockholders Agreement provides that each Partner has the right to
require the Company to effect up to five (but no more than two in any
twelve-month period) registration statements covering sales of Common Stock by
such Partner. All expenses of such demand registration shall be paid by the
Company, except for underwriting commissions and certain other expenses which
shall be paid by the selling Partner. Each Partner also has unlimited rights to
"piggyback" on any Company registration or a demand registration of the other
Partner. No demand registration may be requested prior to January 1, 1995,
unless waived by the Company.
The Restated Certificate of Incorporation will provide that a nominating
committee of the Board of Directors consisting of the nonemployee directors will
have exclusive power to nominate directors on behalf of the Board of Directors
and will have exclusive power to fill any vacancies on the Board of Directors.
Under certain circumstances, such as resignation of a director, the Company is
required to replace the director with an individual affiliated with the same
Partner as the former director.
Pursuant to the Voting Agreement, each Partner will be obligated to vote
for nominees to the Board of Directors that are affiliated with the other
Partner (and in certain circumstances its transferee).
NEW CREDIT FACILITIES
The Company has entered into a new credit agreement (the "New Credit
Agreement") with Chemical Bank ("Chemical") and the lenders named therein, and a
receivables transfer and servicing agreement (the "Receivables Transfer
Agreement") with Chemical, providing for the New Credit Facilities in an
aggregate amount of $775 million.
The New Credit Facilities will consist of (i) an eight-year senior secured
term loan facility (the "Closing Date Term Loan Facility") in an aggregate
principal amount of $450 million, which will be drawn in full on the Closing
Date, (ii) an eight-year senior secured term loan facility (the "Delayed Draw
Term Loan Facility") in an aggregate principal amount of $25 million, which may
be drawn in full or in part on or prior to the first anniversary of the Closing
Date, (iii) a seven-year senior secured revolving credit facility (the
"Revolving Facility", together with the Closing Date Term Loan Facility and the
Delayed Draw Term Loan Facility, the "Credit Agreement Facilities") in an
aggregate principal amount of up to $150 million and (iv) a seven-year
receivables facility (the "Receivables Facility") in an aggregate amount of up
to $150 million.
The proceeds of loans under the Closing Date Term Loan Facility will be
used by the Company, together with the net proceeds of the Offerings, borrowings
under the Revolving Facility, proceeds of loans under the Delayed Draw Term Loan
Facility, proceeds of the Receivables Facility and the Company's existing cash,
to refinance existing indebtedness and preferred stock of the Company and
certain of its subsidiaries. See "Use of Proceeds and Consolidation". Borrowings
may be effected under the Delayed Draw Term Loan Facility during the one-year
period following the date of the inital funding under the Credit Agreement
Facilities (the "Closing Date"). The proceeds of loans under the Delayed Draw
Term Loan Facility (other than as set forth in the first sentence of this
paragraph) will be used by the Company (i) if the Company establishes an ESOP
following the completion of the Offerings, to finance purchases of shares by
such ESOP or (ii) to finance acquisitions permitted by the terms of the New
Credit Agreement. The proceeds of loans under the Revolving Facility (other than
as set forth in the first sentence of this paragraph) will be used by the
Company for general corporate purposes, including working capital and
acquisitions.
CREDIT AGREEMENT FACILITIES
The Company's wholly-owned subsidiary, C&A Co., is the borrower (the
"Borrower") under the Credit Agreement Facilities, although a portion of the
Closing Date Term Loan Facility will be available for loans to a Canadian
subsidiary of the Borrower. Loans outstanding under the Credit Agreement
Facilities will bear interest, which will be due quarterly, at a rate equal to
the Borrower's choice of (i) Chemical's Alternate Base Rate (which is the
highest of Chemical's announced prime rate, the Federal Funds Rate plus 1/2% and
Chemical's base certificate of deposit rate plus 1%)
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<PAGE>
("ABR") plus the ABR Margin per annum or (ii) the offered rates for Eurodollar
deposits for one, two, three, six, nine, or twelve months (as selected by the
Borrower) appearing on page 3750 (or any successor page) of the Dow Jones
Telerate Screen as of 11:00 am, London time, on the day that is two business
days prior to the first day of the applicable interest period ("LIBOR") plus the
LIBOR Margin per annum. Pursuant to the terms of the New Credit Agreement, the
"ABR Margin" initially will be 3/4% and the "LIBOR Margin" initially will be 1
3/4%. Such margins will be subject to step-downs in certain circumstances and
will increase by 1/4% over the margins then in effect on the fifth anniversary
of the Closing Date.
Loans under the Closing Date Term Loan Facility will amortize on an equal
quarterly basis in annual amounts equal to (i) $25 million in the second year
following the Closing Date, (ii) $45 million in the third year following the
Closing Date, (iii) $65 million in the fourth year following the Closing Date,
(iv) $75 million in the fifth year following the Closing Date and (v) $80
million in the sixth, seventh and eighth years following the Closing Date. Loans
under the Delayed Draw Term Loan Facility will amortize on an equal quarterly
basis in annual amounts, which are ratably based on the annual payments of the
Closing Date Term Loan Facility. The Revolving Facility will mature on the
seventh anniversary of the Closing Date. In addition, the New Credit Agreement
provides for mandatory prepayments of the Credit Agreement Facilities with
certain excess cash flow of the Company, net cash proceeds of certain asset
sales or other dispositions by the Company and its subsidiaries, net cash
proceeds of sale/leaseback transactions, net cash proceeds of certain issuances
of debt obligations and net cash proceeds received by the Company in connection
with loans to the ESOP. Mandatory prepayments will be applied pro rata across
remaining scheduled maturities. Loans under the Credit Agreement Facilities will
be voluntarily prepayable by the Borrower at any time without penalty. Voluntary
prepayments will be applied against the most current scheduled maturities.
The Credit Agreement Facilities are guaranteed by the Company and each
existing and subsequently acquired or organized United States subsidiary of the
Company (other than certain unrestricted subsidiaries and, except for loans to
the Canadian subsidiary, the Borrower) subject to certain exceptions. The Credit
Agreement Facilities and the Guarantees are secured by a first priority pledge
of all the capital stock of the Borrower and each subsidiary (other than certain
unrestricted subsidiaries) of the Borrower (or, in the case of any foreign
subsidiary, 65% of the capital stock of such subsidiary) and certain
intercompany indebtedness.
The New Credit Agreement contains certain conditions precedent to the
Credit Agreement Facilities, including without limitation the following
conditions: (i) consummation of the Recapitalization simultaneously with the
Closing, (ii) receipt by the Company of at least $250,000,000 in gross cash
proceeds in connection with the Offerings, (iii) after giving effect to the
Recapitalization, the Company and its subsidiaries having no obligations for
borrowed money other than loans under the New Credit Agreement and industrial
revenue bonds and other debt in an aggregate amount not to exceed $23,000,000,
(iv) satisfaction of the conditions precedent under the Receivables Facility,
(v) receipt by the Lenders of certain audited and pro forma consolidated
financial statements for the Company and its subsidiaries for the fiscal years
ended January 29, 1994 and January 30, 1993, (vi) the Lenders' satisfaction
(a) that the Company will have sufficient sources of funds to effect the
Recapitalization and pay related fees and expenses, (b) with the Company's
tax position, (c) with the amount and nature of the Company's and its
subsidiaries' environmental and employee health and safety exposures, (d)
with the sufficiency of the amount available under the Revolving Facility to
meet the ongoing working capital requirements of the Company and the Borrower
following the Recapitalization and (e) with all material legal, tax and
accounting matters relating to the Recapitalization, (vii) the Administrative
Agent's reasonable satisfaction with the Company's cash management procedures,
(viii) receipt of all requisite governmental and third party approvals and
(ix) absence of outstanding material litigation.
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<PAGE>
The New Credit Agreement contains various restrictive covenants typical for
facilities and transactions of this type (with customary qualifications and
exceptions), including limitations on indebtedness of the Company and its
subsidiaries, limitations on dividends and on redemptions and repurchases of
capital stock; limitations on prepayments, redemptions and repurchases of debt;
limitations on liens and sale/leaseback transactions; limitations on loans and
investments; limitations on capital expenditures; a prohibition on the Company's
direct ownership of any subsidiary other than C&A Co. or certain unrestricted
subsidiaries; limitations on mergers, acquisitions and asset sales; limitations
on transactions with affiliates and stockholders; limitations on fundamental
changes in business conducted; limitations on the amendment of debt and other
material agreements and licenses. In addition to the foregoing, the New Credit
Agreement contains covenants requiring the Company and its subsidiaries to
maintain a minimum EBITDA level, a minimum ratio of EBITDA to cash interest
expense, a maximum ratio of indebtedness to EBITDA and a minimum ratio of
current assets to current liabilities, in each case tested at the end of each
fiscal quarter of the Company. Based upon pro forma results for the quarter
ended April 30, 1994 and the pro forma balance sheet as of April 30, 1994, the
Company is currently in compliance with all covenants in the New Credit
Agreement, and the Company has no reason to expect that it will not continue to
remain in compliance for the term of the New Credit Agreement. The Company does
not anticipate that such covenants will materially impact the Company's ability
to operate its business in the manner in which it is presently conducted.
The New Credit Agreement also contains various events of default typical
for facilities and transactions of this type (with customary qualifications and
exceptions), including nonpayment of principal or interest; violation of
covenants; material breaches of representations and warranties; cross default
and cross acceleration; bankruptcy; material undischarged judgments; certain
ERISA events; invalidity of security documents; invalidity of subordination
provisions; and Change in Control. "Change In Control" is defined in the New
Credit Agreement to require (a) a majority of the board of directors of the
Company to be comprised of Continuing Directors (defined as any director of the
Company who either (x) was a member of the board of directors on the Closing
Date or (y) after the Closing Date became a member of the board of directors and
whose election was approved by a vote of a majority of the Continuing Directors
then on the board of directors of the Company), (b) that no person or group
(other than WP Partners, Blackstone Partners and additional designated persons)
beneficially own, directly or indirectly, shares representing more than 25% of
the aggregate ordinary voting power represented by the outstanding capital stock
of the Company at any time that WP Partners, Blackstone Partners and additional
designated persons do not beneficially own, free and clear of liens and claims,
shares representing at least 50% of the aggregate ordinary voting power
represented by the outstanding capital stock of the Company, and (c) that the
Company maintain direct ownership of the Borrower, free of liens and claims.
In addition to the foregoing, the New Credit Agreement contains other
miscellaneous provisions, including provisions concerning (i) assignments by
lenders, (ii) indemnification by the Borrower of each lender from and against
any losses, claims or other expenses and (iii) payment by the Borrower of
certain fees and expenses of the lenders and their respective advisors and
consultants.
RECEIVABLES FACILITY
In connection with establishing the Receivables Facility, C&A Co. has
formed and capitalized a wholly owned, bankruptcy-remote subsidiary (the
"Receivables Company"). The Receivables Company will purchase, on a revolving
basis, all trade receivables generated by certain subsidiaries of the Company
(such subsidiaries, the "Sellers"). The Receivables Company will purchase such
receivables from the Sellers pursuant to a receivables sale agreement (the
"Receivables Sale Agreement"), at purchase prices equal to the face amount of
such receivables less a discount
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factor to reflect collection risks, finance costs and similar matters. The
Receivables Company will finance its initial purchase of receivables in part
with the initial capital contribution received from C&A Co. and in part through
the Receivables Transfer Agreement entered into with Chemical and, if Chemical
elects at any time, a syndicate of financial institutions (together with
Chemical, the "Buyers"). Ongoing purchases of receivables by the Receivables
Company will be financed in part from collections in respect of receivables, in
part with new purchases made by the Buyers, in part through the issuance of
subordinated promissory notes to the Sellers or C&A Co., in part with additional
capital contributions from C&A Co. and in part through offsets against certain
repurchase obligations of the Sellers to the Receivables Company.
The purchases by the Buyers of interests in the receivables under the
Receivables Facility will be made with limited recourse and at an initial
interest cost to the Receivables Company equal to, at the Receivables Company's
election, LIBOR plus 5/8% per annum or ABR. The Buyers' interest in receivables
of up to $150 million will be an undivided senior interest in all receivables
owned by the Receivables Company. The Receivables Company will retain a
subordinated interest in the receivables that will vary from time to time. If at
any point in time the Sellers generate insufficient receivables, or the
character of the receivables purchased by the Receivables Company do not satisfy
customary eligibility criteria (such as no bankruptcy, no delinquency and no
excessive concentration levels), the investment of the Buyers may be less than
$150 million.
The proceeds received by the Receivables Company from purchases by the
Buyers pursuant to the Receivables Transfer Agreement will be dividended or
distributed from time to time to C&A Co. to be used on the Closing Date in
connection with financing the Recapitalization and thereafter for working
capital purposes.
The Receivables Sale Agreement contains certain restrictions on the Sellers
customary for facilities of this type, including but not limited to limitations
on liens on the Sellers' receivables; limitations on modifications of the terms
of the Sellers' receivables; limitations on changes from historical credit and
collection practices; and limitations on changes in payment instructions. The
Sellers will continue to service the receivables (including all billing and
collection activities) and will receive a customary servicing fee from the
Receivables Company for providing such services. C&A Co. will act as a master
servicer, overseeing the servicing activities of the Sellers.
The Receivables Transfer Agreement contains certain restrictions customary
for facilities of this type, but will restrict the Receivables Company only. In
addition, the Board of Directors of the Receivables Company will include at all
times at least one independent director not affiliated with the Company.
The Receivables Transfer Agreement also contains certain conditions
precedent customary for facilities of this type, including the satisfaction or
waiver of all conditions precedent to the Credit Agreement Facilities;
Chemical's satisfaction with the arrangements for the collection of receivables;
Chemical's satisfaction with the original purchase of receivables by the
Receivables Company and Chemical's receipt of an agreed-upon procedures letter
of the Receivables Company's independent accountants.
The commitments under the Receivables Facility will terminate on the
earlier of (i) seven years following the date of the initial purchases by the
Buyers thereunder and (ii) upon the occurrence of certain termination events,
including but not limited to nonpayment of amounts when due; violation of
covenants; bankruptcy; change in control of the Receivables Company; material
judgments; and invalidity of the Receivables Transfer Agreement.
The Company anticipates that the Receivables Facility will be replaced by a
similar facility under which the Receivables Company will issue asset-backed
commercial paper, medium-term notes or other securities. If the Receivables
Facility has not then been replaced, the interest rate on the Receivables
Facility will increase to a rate equal to the then-applicable rate on the Credit
Agreement Facilities 270 days after the date of the initial purchases by the
Buyers thereunder.
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK
The authorized capital stock of the Company consists of 150 million shares
of Common Stock, par value $.01 per share, and 16 million shares of Preferred
Stock, par value $.01 per share. Reference is made to the Restated Certificate
of Incorporation and Bylaws which are included as exhibits to the Registration
Statement of which this Prospectus forms a part (the "Restated Certificate of
Incorporation" and "Bylaws", respectively) for a more complete description of
the capital stock of the Company. See "Principal Stockholders and Certain
Relationships" for a description of certain rights and restrictions relating to
the capital stock of the Company.
COMMON STOCK
Subject to the rights of holders of Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board. See "Dividends". Holders of Common Stock are
entitled to one vote per share on all matters on which the holders of Common
Stock are entitled to vote. Because holders of Common Stock do not have
cumulative voting rights, the holders of the majority of the shares of Common
Stock represented at a meeting can select all the directors. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share ratably in all assets of the Company available for
distribution to the holders of the Common Stock.
Upon full payment of the purchase price therefor, shares of Common Stock
will not be liable to further calls or assessments by the Company. There are no
preemptive rights for the Common Stock in the Restated Certificate of
Incorporation.
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina.
PREFERRED STOCK
At April 30, 1994, the Company had outstanding approximately 6,514,000
shares of Merger Preferred Stock. All of the shares of Merger Preferred Stock
will be redeemed in connection with the consummation of the Recapitalization.
Pursuant to the Restated Certificate of Incorporation of the Company, the
Board is authorized, subject to any limitations prescribed by law, to provide
for the issuance of the shares of Preferred Stock in series and to establish
from time to time the number of shares to be included in each such series and to
fix the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because the
Board has the power to establish the preferences and rights of each series, it
may afford the holders of any Preferred Stock preferences, powers and rights
(including voting rights) senior to the rights of the holders of Common Stock.
No shares of Preferred Stock will be outstanding following the consummation of
the Recapitalization, and the Company has no present intention to issue such
shares. The issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
67,710,900 shares of Common Stock (70,860,900 shares if the Underwriters'
over-allotment options are exercised in full). Of these shares, the 21,000,000
shares sold in the Offerings (24,150,000 shares if the Underwriters'
over-allotment options are exercised in full) will be freely tradeable without
68
<PAGE>
restriction or further registration under the Securities Act except for shares
purchased by "affiliates" of the Company, as such term is defined in Rule 144
under the Securities Act (which may generally be sold only in compliance with
Rule 144 or Rule 701 under the Securities Act or pursuant to a subsequent
registration). Upon completion of the Offerings, 46,710,900 shares of Common
Stock outstanding upon completion of the Offerings will be deemed "restricted
securities" as defined in Rule 144 under the Securities Act and may not be
resold without registration under the Securities Act or pursuant to an exemption
from such registration, including exemptions provided by Rule 144 under the
Securities Act. Of the 46,710,900 shares of "restricted" Common Stock referred
to above, 1,985,693 shares are held by investors who may sell such shares after
the completion of the Offerings without limitation under Rule 144. With respect
to registration rights of certain investors, see "Principal Stockholders and
Certain Relationships."
In general, Rule 144 provides that, subject to its provisions and other
applicable Federal and state securities law requirements, any person (or persons
whose shares are aggregated), including any person who may be deemed an
"affiliate" of the Company, who has beneficially owned "restricted securities"
for at least two years is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class or the average weekly trading volume of the
same class during the four calendar weeks preceding the sale. A person who is
not deemed to have been an "affiliate" of the Company at any time during the 90
days preceding the sale and who has beneficially owned "restricted securities"
for at least three years is entitled to sell such shares under Rule 144 without
regard to any of the limitations described above.
The holders of 44,725,207 shares of Common Stock have agreed that they will
not offer, sell or otherwise dispose of any shares for a period of 180 days from
the date of this Prospectus without the prior written consent of the
representatives of the Underwriters. If such consent is given, the Company will
make a public announcement thereof. See "Underwriting."
ANTI-TAKEOVER PROVISIONS
The Restated Certificate of Incorporation and the Bylaws of the Company
contain certain provisions that may delay, defer or prevent a change in control
of the Company and make removal of management more difficult. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the Board and in the policies formulated by the Board and to
discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. The provisions are designed to
reduce the vulnerability of the Company to an unsolicited proposal for a
takeover of the Company that does not contemplate the acquisition of all its
outstanding shares or an unsolicited proposal for the restructuring or sale of
all or part of the Company. The provisions also are intended to discourage
certain tactics that may be used in proxy fights.
Set forth below is a description of such provisions in the Restated
Certificate of Incorporation and the Bylaws.
The Restated Certificate of Incorporation may be amended only by the
affirmative vote of the holders of 66 2/3% or more of the combined voting power
of the then outstanding shares of voting stock, voting together as a single
class. In addition, such a vote is required for the Company to effect (i) any
merger or consolidation of the Company, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or substantially all the
assets of the Company, or (iii) the adoption of any plan or proposal for the
liquidation, dissolution, spinoff, splitup, splitoff, or winding up of the
affairs of the Company.
69
<PAGE>
Pursuant to the Restated Certificate of Incorporation, the Board will be
divided into three classes serving staggered three-year terms. Directors can be
removed from office only for cause and only by the affirmative vote of the
holders of a majority of the combined voting power of the then outstanding
shares of voting stock, voting together as a single class. The Nominating
Committee, consisting of the nonemployee directors, will have exclusive power to
nominate directors on behalf of the Board of Directors and will have exclusive
power to fill any newly created directorships or any other vacancies on the
Board of Directors. Under certain circumstances, such as resignation of a
director, the Company is required to replace the director with an individual
affiliated with the same Partner as the former director. The Restated
Certificate of Incorporation provides that the number of directors, which shall
not exceed nine, will be fixed by, or in the manner provided in, the Bylaws. The
Bylaws provide that the whole Board will consist of such number of members,
which shall not exceed nine, as fixed from time to time by the Board.
Accordingly a stockholder could be delayed from obtaining majority
representation on the Board.
The Bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Nominating Committee, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice as to any such stockholder nomination or other proposal must be received
by the Company with respect to annual meetings not less than 90 nor more than
120 days prior to the anniversary of the immediately preceding annual meeting
and must contain certain specified information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.
Subject to the terms of any Preferred Stock, any action required or
permitted to be taken by the stockholders of the Company may be taken only at a
duly called annual or special meeting of stockholders and may not be taken by
written consent without a meeting. Special meetings of the stockholders may be
called only by the Chairman or one of the Co-Chairmen of the Board or a majority
of the entire Board, and the business transacted at any special meeting will be
confined to the matters specified in the notice of meeting.
The foregoing provisions, together with the ability of the Board to issue
Preferred Stock without further stockholder action, could delay or frustrate the
removal of incumbent directors or the assumption of control by the holder of a
large block of the Company's Common Stock even if such removal or assumption
would be beneficial, in the short term, to stockholders of the Company. The
provisions could also discourage or make more difficult a merger, tender offer
or proxy contest even if such event would be favorable to the interests of
stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of Delaware General Corporate Law ("DGCL") prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock), from engaging in a
"business combination" (as defined in Section 203) with a publicly held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested
70
<PAGE>
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder. The provisions of Section
203 will apply to the Company upon the consummation of the Offerings and may
have the effect of delaying, deferring or preventing a change of control of the
Company. Blackstone Partners and WP Partners will be interested stockholders
following consummation of the Offerings; however, Section 203 will not apply to
them because Holdings II has held in excess of 15% of the Company's outstanding
voting stock for more than three years and because the Board of Directors of the
Company has approved the acquisition by Blackstone Partners and WP Partners of a
direct ownership interest in the Company in connection with the
Recapitalization.
DIRECTORS' LIABILITY AND INDEMNIFICATION
The Restated Certificate of Incorporation contains a provision which
eliminates the personal liability of the Company's directors for monetary
damages resulting from breaches of their fiduciary duty to the fullest extent
permitted by the DGCL. Under the DGCL, the Company may not eliminate directors'
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the DGCL or any transaction from which the
director derived an improper personal benefit. This provision also has no effect
on the ability of stockholders to seek equitable relief, such as an injunction,
that may be available to redress a breach of fiduciary duty, even though such
stockholders could not seek monetary damages from the directors for such breach.
The Bylaws contain provisions requiring, subject to certain procedures, the
indemnification of the Company's directors and officers to the fullest extent
permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary, and provide for the mandatory
advancement of litigation expenses incurred in defense of a claim upon the
receipt by the Company of any undertaking required by law. The Board of
Directors of the Company is further authorized, in its discretion, to provide
such rights to employees and agents of the Company. In addition, the Company may
enter into indemnification agreements with its directors and executive officers
that generally provide for similar rights to indemnification and advancement of
expenses. Management believes that these provisions are necessary to attract and
retain qualified persons as directors and officers.
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Wasserstein Perella Securities, Inc. and
The Nikko Securities Co. International, Inc., are acting as representatives, has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE><CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ----------------------------------------------------------------------------- --------------
<S> <C>
Goldman, Sachs & Co..........................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................
Wasserstein Perella Securities, Inc..........................................
The Nikko Securities Co.
International, Inc.........................................................
--------------
Total........................................................... 16,800,000
--------------
--------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 4,200,000 shares of Common Stock in an international offering outside the
United States. The initial public offering price and aggregate underwriting
discounts and commissions per share for the two offerings are identical. The
closing of the offering made hereby is a condition to the closing of the
International Offering, and vice versa. The representatives of the International
Underwriters are Goldman Sachs International, Merrill Lynch International
Limited, Wasserstein Perella Securities, Inc. and Nikko Europe Plc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain
72
<PAGE>
exceptions, it will offer, sell or deliver the shares of Common Stock, directly
or indirectly, only in the United States of America (including the States and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (i) any individual who is a
resident of the United States or (ii) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase is
located in the United States. Each of the International Underwriters has agreed
pursuant to the Agreement Between that, as a part of the distribution of the
shares offered as a part of the International Offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b) to
any person who it believes intends to reoffer, resell or deliver the shares in
the United States or to any U.S. persons, and (ii) cause any dealer to whom it
may sell such shares at any concession to agree to observe a similar
restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any share so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
2,520,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their overallotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
16,800,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
630,000 additional shares of Common Stock.
The Company and the Partners have agreed, during the period beginning from
the date of this Prospectus and continuing to and including the date 180
calendar days after the date of the Prospectus, not to offer, sell, contract to
sell or otherwise dispose of any securities of the Company (other than pursuant
to employee stock option plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus) which are substantially similar to the shares of the Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of the Common Stock, without the prior written consent of
the representatives, except for the shares of Common Stock offered in common
with the concurrent U.S. and International Offerings. The Company has informed
the representatives of the Underwriters that, if such consent is given, the
Company will make a public announcement thereof.
At the Company's request, the Underwriters have reserved up to 210,000
shares of Common Stock for sale at the initial public offering price to
officers, directors, employees and certain other persons associated with the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent that these persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered hereby.
The provisions of Schedule E to the By-Laws of the National Association of
Securities Dealers, Inc. apply to the offering because Wasserstein Perella
Securities, Inc. may be deemed to be an affiliate of the Company for purposes of
Schedule E. In addition, The Nikko Securities Co. International, Inc. ("Nikko")
may be deemed to be an affiliate of the Company for purposes of
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<PAGE>
Schedule E because affiliates of Nikko have limited partnership interests in an
affiliate of Blackstone Partners, which presently owns or has the power to vote
50.0% of the Common Stock. See "Principal Stockholders and Certain
Relationships". Accordingly, the initial public offering price can be no higher
than that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Goldman, Sachs & Co. has served
in such role and has recommended a price in compliance with the requirements of
Schedule E. Goldman, Sachs & Co. in its role as qualified independent
underwriter has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part. The representatives of the U.S.
Underwriters have informed the Company that the U.S. Underwriters do not intend
to confirm sales to any account over which they exercise discretionary
authority, except in accordance with the provisions of Schedule E.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price was negotiated among the Company and
the representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, was the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
The Common Stock has been approved for listing on the New York Stock
Exchange. In order to meet one of the requirements for listing the Common Stock
on the New York Stock Exchange, the U.S. Underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Affiliates of Wasserstein Perella Securities, Inc. will serve on the Board
of Directors and on the Nominating Committee, which is empowered to nominate
persons for election to the Board of Directors and exclusively empowered to fill
any newly created directorships or any other vacancies on the Board of
Directors. See "Principal Stockholders and Certain Relationships." Messrs.
Wasserstein, Weisenburger and Ziebold are currently serving as directors of the
Company. See "Management".
From time to time, Goldman, Sachs & Co. has provided financial advisory
services to Blackstone Partners with respect to matters unrelated to the
Company, for which Goldman, Sachs & Co. has received customary fees in the
ordinary course of business. From time to time, each of Merrill Lynch & Co. and
Wasserstein Perella Securities, Inc. has provided financial advisory services to
certain affiliates of the Partners, with respect to matters unrelated to the
Company, for which each has received customary fees in the ordinary course of
business.
In addition, in 1992 Merrill Lynch & Co. and Wasserstein Perella & Co.,
Inc., an affiliate of Wasserstein Perella Securities, Inc., each provided
financial advisory services relating to the solicitation by Group of consents
from the holders of Group's 11 7/8% Senior Subordinated Debentures due 2001, for
which each received fees of approximately $300,000. In 1991, Wasserstein Perella
Securities, Inc. received fees of approximately $400,000 in connection with
repurchases by the Company on the open market of certain securities of the
Company. For further information with respect to financial advisory and other
services provided and the fees received by and the ownership interests of
certain affiliates of Wasserstein Perella Securities, Inc., see "Principal
Stockholders and Certain Relationships".
74
<PAGE>
LEGAL OPINIONS
The validity of the Common Stock will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York, and for the Underwriters by Jones,
Day, Reavis & Pogue, New York, New York. From time to time, Jones, Day, Reavis &
Pogue provides legal services to the Company and other entities in which the
Partners have an interest.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the reports of said firm and
upon the authority of said firm as experts in accounting and auditing.
75
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES (TO BE RENAMED COLLINS &
AIKMAN CORPORATION):
As of April 30, 1994 (unaudited), January 29, 1994, and January 30, 1993,
and for the thirteen weeks ended April 30, 1994 (unaudited) and May 1, 1993
(unaudited) and for the fiscal years ended January 29, 1994, January 30, 1993,
and January 25, 1992:
<TABLE>
<S> <C>
Report of Independent Public Accountants......................................................... F-2
Consolidated Statements of Operations............................................................ F-3
Consolidated Balance Sheets...................................................................... F-4
Consolidated Statements of Other Paid-in Capital................................................. F-5
Consolidated Statements of Accumulated Deficit................................................... F-5
Consolidated Statements of Cash Flows............................................................ F-6
Notes to Consolidated Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Collins & Aikman Holdings Corporation:
We have audited the accompanying consolidated balance sheets of
Collins & Aikman Holdings Corporation (a Delaware corporation) and
subsidiaries as of January 29, 1994 and January 30, 1993, and the
related consolidated statements of operations, other paid-in capital,
accumulated deficit and cash flows for each of the three fiscal years
in the period ended January 29, 1994. These financial statements are
the responsibility of the Company'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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Collins & Aikman Holdings Corporation and subsidiaries as of January
29, 1994 and January 30, 1993, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended
January 29, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 3 and 13 to the Consolidated Financial
Statements, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" in the fiscal year ended January 25, 1992.
ARTHUR ANDERSEN & CO.
Charlotte, North Carolina
April 27, 1994
F-2
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------------
APRIL 30, MAY 1, JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1994 1993 1992
----------- ----------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 390,446 $ 339,043 $ 1,305,517 $ 1,277,500 $ 1,184,316
----------- ----------- ------------- ------------- -------------
Cost of goods sold......................... 289,492 260,095 995,790 978,473 926,817
Selling, general and administrative
expenses................................. 55,356 51,872 196,585 218,441 202,690
Management equity plan expense............. 36 -- 26,736 -- --
Restructuring costs........................ -- -- -- 10,000 --
Goodwill amortization and write-off........ -- 924 132,630 3,702 3,702
----------- ----------- ------------- ------------- -------------
344,884 312,891 1,351,741 1,210,616 1,133,209
----------- ----------- ------------- ------------- -------------
Operating income (loss).................... 45,562 26,152 (46,224) 66,884 51,107
Interest expense, net of interest income of
$2,355, $1,000, $4,434, $4,012 and
$7,299................................... 29,061 27,225 111,291 110,867 107,974
Dividends on preferred stock of
subsidiary............................... 1,129 1,129 4,533 4,514 4,515
----------- ----------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes...................... 15,372 (2,202) (162,048) (48,497) (61,382)
Income taxes (benefit)..................... 2,618 3,271 11,277 (3,156) 11,954
----------- ----------- ------------- ------------- -------------
Income (loss) from continuing operations... 12,754 (5,473) (173,325) (45,341) (73,336)
Discontinued operations:
Income (loss) from operations, net of
income taxes of $0, $570, $584, $5,700
and $2,951............................ -- (1,359) (4,775) (50,317) 3,635
Loss on disposals, net of income tax
benefit of $0, $0, $344, $0 and $0.... -- (2,237) (99,564) (168,000) (20,000)
----------- ----------- ------------- ------------- -------------
Income (loss) before extraordinary items... 12,754 (9,069) (277,664) (263,658) (89,701)
Extraordinary loss on early retirement of
debt, net of income taxes of $0.......... -- -- -- -- (1,793)
Cumulative effect on prior years (to
January 26, 1991) of change in accounting
principle, net of income taxes of $0..... -- -- -- -- (42,316)
----------- ----------- ------------- ------------- -------------
Net income (loss).......................... $ 12,754 $ (9,069) $ (277,664) $ (263,658) $ (133,810)
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
Income (loss) available to common
shareholders............................. $ 5,668 $ (14,689) $ (301,387) $ (282,506) $ (149,617)
Per common share:
Continuing operations.................... $ .15 $ (.32) $ (5.64) $ (1.84) $ (2.55)
Discontinued operations.................. -- (.10) (2.99) (6.25) (.47)
Extraordinary item....................... -- -- -- -- (.05)
Cumulative effect of accounting change... -- -- -- -- (1.22)
----------- ----------- ------------- ------------- -------------
Net income (loss)........................ $ .15 $ (.42) $ (8.63) $ (8.09) $ (4.28)
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
Average shares outstanding................. 36,981 34,921 34,921 34,921 34,921
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-3
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 139,282 $ 81,373 $ 83,688
Accounts and notes receivable, net................................ 212,708 200,368 164,655
Inventories....................................................... 189,709 176,062 165,864
Receivable from sale of business.................................. -- 70,000 --
Net assets of discontinued operations............................. -- -- 190,177
Other............................................................. 44,832 48,397 23,131
------------ ------------ --------------
Total current assets......................................... 586,531 576,200 627,515
Property, plant and equipment, net.................................. 294,684 292,600 292,434
Goodwill............................................................ -- -- 132,630
Other assets........................................................ 52,833 50,025 88,855
------------ ------------ --------------
$ 934,048 $ 918,825 $ 1,141,434
------------ ------------ --------------
------------ ------------ --------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Notes payable..................................................... $ 3,043 $ 3,789 $ 9,067
Current maturities of long-term debt.............................. 163,715 25,895 61,287
Accounts payable.................................................. 78,188 85,591 75,996
Accrued expenses.................................................. 159,778 142,351 169,002
Other............................................................. 4,097 2,671 343
------------ ------------ --------------
Total current liabilities.................................... 408,821 260,297 315,695
Long-term debt...................................................... 758,528 897,659 920,918
Deferred income taxes............................................... 640 640 4,823
Other, including postretirement benefit obligation.................. 334,440 339,768 222,510
Commitments and contingencies (Note 19).............................
Redeemable preferred stock of subsidiary (aggregate preference in
liquidation $129)................................................. 132 132 165
Preferred stock of subsidiary (aggregate preference in liquidation
$45,145).......................................................... 181 181 181
Redeemable preferred stock (aggregate preference in liquidation
$162,861)......................................................... 129,454 122,368 98,602
Common stock (150,000 shares authorized, 35,035 shares issued and
outstanding)...................................................... 350 350 350
Other paid-in capital............................................... 160,285 160,249 133,513
Accumulated deficit................................................. (843,669) (849,337) (547,950)
Foreign currency translation adjustments............................ (7,367) (5,735) (4,870)
Pension equity adjustment........................................... (7,747) (7,747) (2,503)
------------ ------------ --------------
Total common stockholder's deficit........................... (698,148) (702,220) (421,460)
------------ ------------ --------------
$ 934,048 $ 918,825 $ 1,141,434
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-4
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
CONSOLIDATED STATEMENTS OF OTHER PAID-IN CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN FISCAL YEAR ENDED
WEEKS ENDED ----------------------------------------
APRIL 30, JANUARY 29, JANUARY 30, JANUARY 25,
1994 1994 1993 1992
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period.......................... $ 160,249 $ 133,513 $ 133,733 $ 133,108
Management equity plan.................................. 36 26,736 -- --
Other................................................... -- -- (220) 625
------------ ------------ ------------ ------------
Balance at end of period................................ $ 160,285 $ 160,249 $ 133,513 $ 133,733
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT
(IN THOUSANDS)
THIRTEEN FISCAL YEAR ENDED
WEEKS ENDED ----------------------------------------
APRIL 30, JANUARY 29, JANUARY 30, JANUARY 25,
1994 1994 1993 1992
------------ ------------ ------------ ------------
(UNAUDITED)
Balance at beginning of period......................... $ (849,337) $ (547,950) $ (265,444) $ (115,827)
Net income (loss)...................................... 12,754 (277,664) (263,658) (133,810)
Redeemable preferred stock dividends................... (6,072) (22,107) (18,988) (17,167)
Accretion of difference between redemption value and
fair value at date of issuance of redeemable
preferred stock...................................... (1,014) (1,616) 140 1,360
------------ ------------ ------------ ------------
Balance at end of period............................... $ (843,669) $ (849,337) $ (547,950) $ (265,444)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-5
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED FISCAL YEAR ENDED
---------------------- ----------------------------------------
APRIL 30, MAY 1, JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1994 1993 1992
---------- ---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations........... $ 12,754 $ (5,473) $ (173,325) $ (45,341) $ (73,336)
Adjustments to derive cash flow from continuing
operating activities:
Goodwill write-off............................... -- -- 129,854 -- --
Management equity plan expense................... 36 -- 26,736 -- --
Restructuring costs.............................. -- -- -- 10,000 --
Depreciation and amortization.................... 13,461 15,807 58,037 62,273 61,222
Increase in accounts and notes receivable........ (12,340) (24,747) (32,982) (149) (7,166)
Decrease (increase) in inventories............... (13,647) 689 (6,952) 4,308 23,936
Increase (decrease) in accounts payable.......... (7,403) 626 14,145 130 (2,874)
Other, net....................................... 23,758 12,438 7,398 (6,456) (16,737)
---------- ---------- ------------ ------------ ------------
Net cash provided by (used in) continuing
operating activities...................... 16,619 (660) 22,911 24,765 (14,955)
---------- ---------- ------------ ------------ ------------
Loss from discontinued operations.................. -- (3,596) (104,339) (218,317) (16,365)
Adjustments to derive cash flow from discontinued
operating activities:
Loss on disposals................................ -- 2,237 99,564 168,000 20,000
Depreciation and amortization.................... -- 5,249 17,337 22,559 22,919
Net change in receivables, inventory and
accounts payable............................... -- (14,854) 70,162 24,163 5,634
Other, net....................................... (8,540) (26,806) (150,141) (9,863) (18,653)
---------- ---------- ------------ ------------ ------------
Net cash provided by (used in) discontinued
operating activities...................... (8,540) (37,770) (67,417) (13,458) 13,535
---------- ---------- ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment......... (15,286) (7,267) (56,278) (54,181) (61,899)
Sales of property, plant and equipment............. 4,519 815 22,710 10,347 7,522
Proceeds from businesses sold...................... 67,212 49,243 148,743 -- 5,598
Other, net......................................... 3,769 (2,659) 43,983 9,223 27,444
---------- ---------- ------------ ------------ ------------
Net cash provided by (used in) investing
activities................................ 60,214 40,132 159,158 (34,611) (21,335)
---------- ---------- ------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of long-term debt......................... 1,037 36,689 76,135 60,128 157,587
Reduction of long-term debt........................ (10,335) (23,800) (179,861) (54,376) (180,841)
Short-term borrowings (repayments), net............ (821) (6,300) (5,899) 3,554 (1,057)
Other, net......................................... (265) (6,990) (7,342) (2,918) (7,046)
---------- ---------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ (10,384) (401) (116,967) 6,388 (31,357)
---------- ---------- ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents... 57,909 1,301 (2,315) (16,916) (54,112)
Cash and cash equivalents at beginning of period... 81,373 83,688 83,688 100,604 154,716
---------- ---------- ------------ ------------ ------------
Cash and cash equivalents at end of period......... $ 139,282 $ 84,989 $ 81,373 $ 83,688 $ 100,604
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-6
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITION:
Collins & Aikman Holdings Corporation (the "Company") (formerly WCI
Holdings Corporation) is a Delaware corporation and a wholly-owned subsidiary of
Collins & Aikman Holdings II Corporation ("Holdings II") (formerly WCI Holdings
II Corporation), a corporation jointly owned by Blackstone Capital Partners L.P.
("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP Partners")
(both of which are Delaware limited partnerships), and their respective
affiliates. The Company was formed on September 21, 1988 to acquire all the
outstanding common stock of Collins & Aikman Group, Inc. ("Group") (formerly
Wickes Companies, Inc.). On April 13, 1989, Group became a wholly-owned
subsidiary of the Company. The acquisition of Group has been accounted for as a
purchase and the results of operations have been included from the effective
date of the acquisition.
2. INITIAL PUBLIC OFFERING AND RECAPITALIZATION:
The Company plans to proceed with initial public offerings ("Offerings") of
21.0 million shares of common stock at an initial public offering price of
between $12.00 and $14.00 per share. The net proceeds to the Company together
with borrowings under certain new credit facilities aggregating $775 million and
available cash will be used to effect a defeasance and redemption or repayment
of certain indebtedness and preferred stock of the Company and certain of its
subsidiaries. In addition, at the expected time of the Offerings (assumed to be
July 6, 1994 at an initial public offering price of $13.00 per share) all but
approximately $9.7 million of the Company's Subordinated PIK Notes will be
exchanged for shares of Common Stock. After the Offerings and Recapitalization,
it is expected that approximately 67.7 million shares of Common Stock will be
outstanding (before the exercise of any outstanding stock options). In
connection with the Offerings and Recapitalization, Holdings II, currently the
sole stockholder of the Company, will be merged into the Company. Concurrently,
Group will be merged into its wholly-owned subsidiary, Collins & Aikman
Corporation ("C&A Co."). The Company intends to change its name from Collins &
Aikman Holdings Corporation to Collins & Aikman Corporation and C&A Co. will
change its name to Collins & Aikman Products Co.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR--The fiscal year of the Company ends on the last Saturday of
January. Fiscal 1993 and fiscal 1991 were the 52-week years which ended on
January 29, 1994 and January 25, 1992, respectively. Fiscal 1992 was the 53-week
year which ended on January 30, 1993.
INTERIM FINANCIAL PRESENTATION--The financial statements as of April 30,
1994 and for the thirteen weeks ended April 30, 1994 and May 1, 1993 are
unaudited. In the opinion of management, the unaudited financial statements as
of April 30, 1994 and for the thirteen weeks ended April 30, 1994 and May 1,
1993 reflect all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of financial position and results of
operations. Results of operations for interim periods are not necessarily
indicative of results for the full year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE--Effective as of the
beginning of fiscal 1991, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"). SFAS 106 requires accrual, during the period in which
eligible employees render service, of the expected cost of providing these
benefits to an employee and the employee's beneficiaries and covered dependents.
The Company has recorded the cumulative effect at January 26, 1991, net of tax
of $0, of $42.3 million as of the beginning of fiscal 1991.
F-7
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
CONSOLIDATION--The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany items have
been eliminated in consolidation.
INCOME TAXES--During fiscal 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting
Standards No. 96, of the same title, which the Company previously followed to
account for income taxes. The adoption of SFAS 109 did not impact the Company's
financial position or results of operations. (See also Note 16.)
FOREIGN CURRENCY TRANSLATION--Foreign currency accounts are translated in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS 52"). SFAS 52 generally provides that the assets
and liabilities of foreign operations be translated at the current exchange
rates as of the end of the accounting period and that revenues and expenses be
translated using average exchange rates. The resulting translation adjustment
arising from foreign currency translation is accumulated as a separate component
of stockholder's equity. Translation adjustments during fiscal 1993, 1992 and
1991 were ($865,000), ($5.8 million) and ($1.9 million), respectively.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three months
or less. Included in cash and cash equivalents at January 29, 1994 is $69.8
million held by Group and $8.6 million held by C&A Co.
INVENTORIES--Inventories are valued at the lower of cost or market, but not
in excess of net realizable value. Cost is determined on the first-in, first-out
basis.
INSURANCE DEPOSITS--Other current assets at January 29, 1994 include $22.8
million which is on deposit with an Insurer to cover the self-insured portion of
the Company's workers compensation, automotive and general liabilities. The
Company's reserves for these claims are determined based upon actuarial analyses
and aggregated $36.5 million at January 29, 1994, $10.6 million of which is
classified in current liabilities.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Provisions for depreciation are primarily computed on a straight-line
basis over the estimated useful lives of the assets, presently ranging from 3 to
40 years. Leasehold improvements are amortized over the lesser of the lease term
or the estimated useful lives of the improvements.
Management's policy is to continually review whether there have been any
significant and permanent downturns in the industries in which the Company
operates, loss of a majority of customers, introduction of substitute products
and the current and expected future results of operations in assessing the
recoverability of property, plant and equipment and other long-lived assets.
When the foregoing considerations suggest that a long-term deterioration in the
Company's operations has occurred, management evaluates its long-lived assets
for impairment using its forecasted business unit results to determine whether
the cost of such assets can be recovered through future operations. Further, net
asset costs are also reduced, if required, to net realizable value at the time a
disposition is planned.
GOODWILL--Until the write-off of goodwill as of October 30, 1993, goodwill
was being amortized by the straight-line method over 40 years. Amortization
applicable to continuing operations was $2.8 million, $3.7 million and $3.7
million for fiscal 1993, 1992 and 1991, respectively. Accumulated amortization
was $16.3 million at January 30, 1993. (See also Note 4.)
F-8
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
ENVIRONMENT--Accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. Accruals for environmental liabilities are generally
included in the balance sheet as other noncurrent liabilities at undiscounted
amounts and exclude claims for recoveries from insurance or other third parties.
Accruals for insurance or other third party recoveries for environmental
liabilities are recorded when it is probable that the recovery will be realized.
INCOME (LOSS) PER COMMON SHARE--Income (loss) per common share is based on
the weighted average number of shares outstanding during each period and the
assumed exercise of all employee stock options less the number of treasury
shares assumed to be purchased from the proceeds, including applicable
compensation expense, using the assumed initial public offering price of $13.00
per share. Income (loss) per common share data is also adjusted for dividends
and accretion requirements on redeemable preferred stock.
RECLASSIFICATIONS--Certain reclassifications have been made to the fiscal
1992 and 1991 statements of operations and statements of cash flows and to the
January 30, 1993 balance sheet to conform to the fiscal 1993 presentation.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" and certain other accounting
pronouncements which are not yet effective. The adoption of these pronouncements
will not have a material effect on the Company's consolidated financial
condition or results of operations.
4. GOODWILL:
At October 30, 1993, before giving effect to the write-off described below,
the Company had $129.9 million of goodwill which arose as a result of the
acquisition of Group in December 1988. The substantial losses of Builders
Emporium and the inability to sell the Builders Emporium chain as an ongoing
entity left the Company with materially higher leverage and interest costs than
previously anticipated. The inability of the Company to sell its Dura
Convertible Systems division ("Dura") at an acceptable price along with the sale
of Kayser-Roth Corporation ("Kayser-Roth") at a price and on terms that were
worse than management's prior expectations of value were additional adverse
factors. Prior to the end of the third quarter, management explored debt
recapitalization alternatives and the possibility of raising new equity capital.
The indications from the financial community at that time were that a debt
recapitalization was not likely to significantly reduce the Company's interest
burden and that raising new equity capital to deleverage the Company was not
feasible at that time. Although management of the Company, based on the facts
known to it at October 30, 1993, was expecting both cyclical and long-term
improvement in the results of operations, an analysis suggested that, given the
Company's capital structure, a deterioration of the financial condition of the
Company had occurred. As a result, the Company forecasted its operating results
forward 35 years, which approximated the remaining amortization period of the
Company's goodwill at October 30, 1993, to determine whether cumulative net
income would be sufficient to recover the goodwill. At October 30, 1993,
management believed that the projected future results were the most likely
scenario given the Company's capital structure at that time. In spite of the
fact that the results reflected in the forecasts showed improvement over the
historical results achieved during the past few years, the result was a
cumulative net loss. Accordingly, the Company wrote off its remaining goodwill
balance of $129.9 million during the third quarter ended October 30, 1993.
F-9
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. GOODWILL:--(CONTINUED)
In early 1994, the Company is again exploring the feasibility of a debt
recapitalization and an initial public equity offering. (See Note 2.) The
holders of $182.7 million of PIK Notes as of January 29, 1994 have now agreed,
at the option of the Company exercisable prior to September 15, 1994, to
exchange those Notes for shares of Common Stock (which will be restricted stock
within the meaning of rule 144 of the Securities Act), subject to certain
conditions including an initial public equity offering by the Company. Due to
this agreement, to improvements in the Company's performance based largely on
accelerating North American auto build rates and to increasing receptivity to
cyclical industries in the equity markets, the Company's financial advisers have
indicated that a debt recapitalization and initial public equity offering may be
feasible in fiscal 1994. If a refinancing or initial public equity offering is
not accomplished during fiscal 1994, the Company expects that it will have
adequate liquidity to meet cash requirements through the end of fiscal 1994 and
into fiscal 1995. Beyond that, the Company expects that it will require
alternative financings or asset sales to meet its cash requirements.
5. RESTRUCTURING COSTS:
During fiscal 1992, the Company incurred certain identifiable costs in
connection with the restructuring of Wallcoverings. The restructuring costs,
aggregating $10 million, principally related to the closure of certain
manufacturing and distribution facilities.
6. DISCONTINUED OPERATIONS:
During fiscal 1991, Group reclassified the remaining businesses of Wickes
Manufacturing Company consisting of its Dura, Bumper and H. Koch & Sons ("H.
Koch") divisions as discontinued operations. In July 1992, Group sold its Bumper
and H. Koch divisions. As of the end of fiscal 1992, Group reclassified Builders
Emporium and the Engineering Group as discontinued operations. Group recorded a
loss on disposal of discontinued operations of $168 million in the fourth
quarter of fiscal 1992 principally to provide for the expected loss on the sale
of Builders Emporium. In March 1993, the Engineering Group was sold for
approximately $51 million.
As of the end of the second quarter of fiscal 1993, the Company determined
that it would be unable to sell Builders Emporium as an ongoing entity. The
Company recorded an additional loss on disposal of discontinued operations of
$125.5 million principally to (i) provide additional reserves for the
significant reduction in estimated proceeds from disposition and other costs in
connection with the sale or disposition of Builders Emporium's inventory, real
estate and other assets, (ii) provide for employee severance and other costs and
(iii) realize a previously unrecognized loss as a result of the decision to
retain Dura. Builders Emporium's inventory was sold during the third and fourth
quarters of fiscal 1993 and substantially all accounts receivable and accounts
payable balances were settled as of January 29, 1994. Remaining assets and
liabilities of Builders Emporium relate primarily to real estate and insurance
liabilities which continue to be liquidated.
Kayser-Roth was reclassified as a discontinued operation at the end of the
third fiscal quarter ended October 30, 1993 and was sold on January 28, 1994 for
a total price of $170 million (subject to post-closing purchase price
adjustment). A portion of the proceeds was used to repay $66 million of
borrowings under a Kayser-Roth credit facility. In connection with the sale,
Group received a 90-day $70 million senior unsecured bridge note from the
purchaser which was paid with accrued interest on April 27, 1994. The gain on
disposal of $28.1 million in the fourth quarter relates to the sale of
Kayser-Roth.
The results of Builders Emporium, Kayser-Roth, the Engineering Group,
Bumper and H. Koch are classified as discontinued operations for all periods
presented. At the end of the second fiscal
F-10
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DISCONTINUED OPERATIONS:--(CONTINUED)
quarter ended July 31, 1993, Group decided to retain the Dura business. The
results of Dura are now classified in the Automotive Products segment and prior
reporting periods have been restated to reflect Dura as a continuing operation.
Summarized statements of operations for periods prior to units being
classified as discontinued operations follow (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ --------------
<S> <C> <C> <C>
Sales............................................................... $ 274,297 $ 977,098 $ 1,042,377
Costs and expenses, other than interest............................. 268,083 998,705 1,010,729
Interest expense.................................................... 10,405 23,010 25,062
------------ ------------ --------------
Income (loss) before income taxes................................... (4,191) (44,617) 6,586
Income taxes........................................................ 584 5,700 2,951
------------ ------------ --------------
Income (loss) from discontinued operations.......................... $ (4,775) $ (50,317) $ 3,635
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The above summarized results include Builders Emporium and the Engineering
Group through January 30, 1993 and Kayser-Roth through the third quarter ended
October 30, 1993 (the respective dates at which these businesses were
reclassified as discontinued operations). The summarized statement of operations
for fiscal 1991 also includes Bumper and H. Koch through their date of sale.
Sales of Builders Emporium in fiscal 1993 aggregated approximately $410 million
and sales of Kayser-Roth for the fourth quarter of fiscal 1993 aggregated
approximately $95 million. Interest expense of $13.1 million (including $5.5
million of interest expense which was reserved for Builders Emporium and
Kayser-Roth), $19.7 million and $22.1 million during fiscal 1993, 1992 and 1991,
respectively, has been allocated to discontinued operations based upon the ratio
of net book value of discontinued operations (including reserves for loss on
disposal) to Group's consolidated invested capital. Interest expense incurred by
Builders Emporium and Kayser-Roth subsequent to their reclassification as
discontinued operations aggregated $2.2 million. Such amounts were charged to
discontinued operations reserves. Interest allocated to discontinued operations
was $5.0 million for the quarter ended May 1, 1993. No interest was allocated to
discontinued operations in the quarter ended April 30, 1994.
In October 1993, Group received $35.1 million from Wickes Lumber Company in
exchange for a Wickes Lumber Company promissory note and warrant that Group had
received in partial consideration for the sale of Wickes Lumber Company in 1988.
The Company incurred fees to Blackstone Partners and WP Partners for
services related to divestitures aggregating $4.3 million and $500,000 during
fiscal 1993 and 1992, respectively. Amounts in fiscal 1993 related principally
to divestiture fees on the sales of Kayser-Roth and the Engineering Group, and
advisory services in connection with the sale of Builders Emporium's inventory,
real estate and other assets. Fees incurred during the first quarter of 1994
included $100,000 to Blackstone Partners for advisory services in connection
with the sale of Builders Emporium's inventory, real estate and other assets. In
addition, during the first quarter of 1994 the Company incurred expenses of $2.5
million for services performed by Blackstone Partners and WP Partners in
connection with a comprehensive review of the Company's liabilities associated
with discontinued operations, including surplus real estate, postretirement and
workers compensation liabilities.
The majority of Builders Emporium's leased properties have been assigned to
third parties. In addition, Group has assigned leases in connection with the
divestiture of Kayser-Roth, the Engineering Group, Wickes Manufacturing Company
and other divested businesses. Although
F-11
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DISCONTINUED OPERATIONS:--(CONTINUED)
Group has obtained releases from the lessors of certain properties, Group
remains contingently liable under most of the leases. Group's future liability
for these leases, in management's opinion, based on the facts presently known to
it, will not have a material effect on the Company's consolidated financial
condition or future results of operations.
7. ACCOUNTS AND NOTES RECEIVABLE, NET:
Accounts and notes receivable, net, are summarized below (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts and notes receivable.................... $ 219,811 $ 207,439 $ 171,403
Less allowance for doubtful accounts............. (7,103) (7,071) (6,748)
------------ ------------ ------------
$ 212,708 $ 200,368 $ 164,655
------------ ------------ ------------
------------ ------------ ------------
8. INVENTORIES:
Inventory balances are summarized below (in thousands):
APRIL 30, JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ ------------
(UNAUDITED)
Raw materials.................................... $ 73,592 $ 70,762 $ 62,663
Work in process.................................. 27,038 24,739 26,121
Finished goods................................... 89,079 80,561 77,080
------------ ------------ ------------
$ 189,709 $ 176,062 $ 165,864
------------ ------------ ------------
------------ ------------ ------------
9. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net, are summarized below (in thousands):
APRIL 30, JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ ------------
(UNAUDITED)
Land and improvements............................ $ 28,320 $ 28,347 $ 20,747
Buildings........................................ 108,891 109,275 115,406
Machinery and equipment.......................... 371,652 372,208 332,946
Leasehold improvements........................... 1,897 1,421 1,431
Construction in progress......................... 35,127 21,863 20,733
------------ ------------ ------------
545,887 533,114 491,263
Less accumulated depreciation and amortization... (251,203) (240,514) (198,829)
------------ ------------ ------------
$ 294,684 $ 292,600 $ 292,434
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation and amortization expense of property, plant and equipment
applicable to continuing operations was $11.1 million and $11.7 million for the
thirteen weeks ended April 30, 1994 and May 1, 1993, respectively, and $42.2
million, $45.5 million and $43.9 million for fiscal 1993, 1992 and 1991,
respectively.
F-12
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and employee benefits.................... $ 34,273 $ 42,063 $ 39,633
Interest......................................... 33,029 19,242 24,107
Insurance........................................ 17,100 15,152 25,122
Other............................................ 75,376 65,894 80,140
------------ ------------ ------------
$ 159,778 $ 142,351 $ 169,002
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
11. LONG-TERM DEBT:
Long-term debt is summarized below (in thousands):
<TABLE>
<CAPTION>
APRIL 30 JANUARY 29, JANUARY 30,
1994 1994 1993
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Senior indebtedness of Group and its subsidiaries:
Mortgage notes...................................................... $ 1,324 $ 1,464 $ 1,841
Notes payable to banks.............................................. 7,344 7,595 7,891
Notes payable to others............................................. 8,674 8,266 4,744
C&A Co. credit facility, average interest rate of 5.6%, 5.5% and
5.3%.............................................................. 127,581 137,129 191,155
Debentures due 2005, interest rate 7 1/2% through January 31, 1994,
and 10% thereafter................................................ 138,694 138,694 138,694
Sinking fund debentures due 1994, interest rate 12%................. -- -- 40,982
Industrial revenue bonds due through 2006, interest rates from 5% to
7 5/8%............................................................ 11,558 11,648 12,754
Unamortized debt discount........................................... (33,063) (33,397) (38,833)
------------ ------------ ------------
262,112 271,399 359,228
------------ ------------ ------------
Senior subordinated indebtedness of Group:
Senior subordinated debentures due 2001, interest rate 11 7/8%...... 347,414 347,414 347,414
Unamortized debt discount........................................... (45,613) (46,532) (49,840)
------------ ------------ ------------
301,801 300,882 297,574
------------ ------------ ------------
Subordinated indebtedness of Group:
Subordinated notes due 1995, interest rate 15%...................... 137,359 137,359 137,359
Subordinated debentures due 1997, interest rate 11 3/8%............. 24,500 24,500 24,500
Unamortized debt discount........................................... (2,261) (2,446) (3,131)
------------ ------------ ------------
159,598 159,413 158,728
------------ ------------ ------------
Indebtedness of the Company:
Subordinated PIK Notes due December 2, 1996, replacement notes
issuable at option of Company through maturity date of December
1998, interest rate 14%.......................................... 198,732 191,860 166,675
------------ ------------ ------------
Total debt............................................................ 922,243 923,554 982,205
Less current maturities............................................... (163,715) (25,895) (61,287)
------------ ------------ ------------
$ 758,528 $ 897,659 $ 920,918
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-13
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:--(CONTINUED)
Group's C&A Co. subsidiary consummated a $225 million credit agreement with
a syndicate of banks on May 22, 1991 that expires on May 15, 1998 (the "C&A Co.
Credit Agreement"). During fiscal 1991, C&A Co. borrowed $152 million under the
C&A Co. Credit Agreement. Out of these borrowings, $120 million was paid to
Group as a dividend to be used for general corporate purposes. During fiscal
1992, C&A Co. paid Group dividends aggregating $110 million, borrowed an
additional $56.0 million and made principal repayments under the C&A Co. Credit
Agreement of $10.3 million. During fiscal 1993, C&A Co. paid Group dividends
aggregating $30 million, borrowed an additional $17.0 million and made principal
repayments under the C&A Co. Credit Agreement of $71.0 million. Availability
under the C&A Co. Credit Agreement is determined monthly based upon C&A Co.'s
receivables balance. The C&A Co. Credit Agreement permits C&A Co. to pay
additional dividends to Group only if C&A Co. satisfies a minimum liquidity
requirement of $25 million and then limits the amount of total dividends to $175
million plus 90% (or 100% if certain specified ratios are met) of C&A Co.'s net
income (excluding the impact of SFAS 106) subsequent to April 27, 1991. As of
January 29, 1994, an additional $54.8 million was available to C&A Co. under the
C&A Co. Credit Agreement. Although as of that date approximately $56 million of
additional dividends could be paid to Group under the dividend restrictions in
the C&A Co. Credit Agreement, other financial covenants in the C&A Co. Credit
Agreement would limit the amount of dividends to approximately $47 million. As
of April 30, 1994 dividends under the C&A Co. Credit Agreement were limited to
approximately $42 million. C&A Co. and its subsidiaries are separate corporate
entities and the assets of C&A Co. and its subsidiaries are available first and
foremost to satisfy the claims of the creditors of C&A Co. and such
subsidiaries. At January 29, 1994, receivables and fixed assets pledged as
collateral under the C&A Co. Credit Agreement aggregated approximately $168
million and $104 million, respectively.
On March 12, 1993, Kayser-Roth and a bank consummated a $40 million credit
agreement. Kayser-Roth initially borrowed $35 million under the credit agreement
of which $26 million was paid to Group as a dividend. On May 27, 1993,
Kayser-Roth completed a $75 million credit facility (the "Kayser-Roth Credit
Agreement") with a group of banks to replace the $40 million credit agreement
and, on July 6, 1993, Kayser-Roth paid an additional dividend of $26 million to
Group. Group used approximately $41 million of the proceeds from the original
and the replacement Kayser-Roth credit facilities to redeem all of its
outstanding 12% Sinking Fund Debentures due January 31, 1994 on July 7, 1993.
Group repaid the outstanding borrowings under the Kayser-Roth Credit Agreement
of $66 million with a portion of the cash proceeds from the sale of Kayser-Roth.
There are limitations on the payment of dividends contained in various debt
agreements of Group. Currently, the most restrictive of such limitations is
contained in the indenture, as amended, (the "11 7/8% Indenture") governing the
11 7/8% Senior Subordinated Debentures due 2001 (the "11 7/8% Securities").
Since January 26, 1991, no additional dividends could be paid to the Company
under such indenture. Under these provisions as of January 29, 1994, Group would
have needed to earn an additional $866 million of consolidated net income (as
defined in the 11 7/8% Indenture) in order to eliminate the deficit in its
dividend capacity (assuming no change in the other factors used to determine
Group's dividend capacity).
Under the terms of the 11 7/8% Indenture, Group is required to redeem $138
million aggregate principal amount of 11 7/8% Securities on each June 1 from
1993 through 2000 ("Mandatory Redemptions") and to repay the remaining
outstanding 11 7/8% Securities at maturity on June 1, 2001. Under the terms of
the 11 7/8% Indenture, if Adjusted Net Worth (as such term is defined in the
F-14
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:--(CONTINUED)
11 7/8% Indenture) is equal to or less than $700 million on the last day of any
fiscal quarter (the "Minimum Equity Test"), Group would be required to begin on
the last day of the second fiscal quarter thereafter (unless the Minimum Equity
Test is satisfied at the end of the intervening fiscal quarter) semi-annual
redemptions ("Accelerated Redemptions") of $138 million aggregate principal
amount of 11 7/8% Securities until all the 11 7/8% Securities are redeemed or
until the Minimum Equity Test is again satisfied. Group can reduce its
obligation to make any cash Mandatory Redemption or Accelerated Redemption
payment through the application of previously redeemed or purchased and canceled
11 7/8% Securities as permitted by the 11 7/8% Indenture. Group has previously
delivered for cancellation $1,033 million in aggregate principal amount of 11
7/8% Securities, which are available for such purpose. Group satisfied the
Minimum Equity Test at the end of fiscal 1993. On that date, Adjusted Net Worth
was $753.7 million. If Group had not satisfied the Minimum Equity Test at that
date and did not subsequently satisfy such test, the first cash redemption
payment (after giving effect to credits for previously acquired 11 7/8%
Securities) would be required at the end of the fiscal quarter ending January
1997. By comparison, if Group continues to satisfy the Minimum Equity Test at
all times or cures any failure of such test prior to any accelerated cash
redemption payment becoming due, no cash redemption payment will be required
until June 1, 2000.
All the consolidated long-term debt of the Company other than the
Subordinated PIK Notes is debt of Group and its subsidiaries. At January 29,
1994, Blackstone Partners and WP Partners were holders of approximately $89.2
million and $93.5 million, respectively, of the Company's Subordinated PIK
Notes, including accrued interest. The remainder of the Subordinated PIK Notes
outstanding aggregated approximately $9.2 million at January 29, 1994. At April
30, 1994, Blackstone Partners and WP Partners were holders of approximately
$92.4 million and $96.9 million, respectively, of the Subordinated PIK Bridge
Notes. The Subordinated PIK Notes mature December 2, 1996, unless extended by
the holders. The Company anticipates that, at least if certain debt of Group
continues to be outstanding or is refinanced with similarly restrictive debt,
the Company will not have sufficient cash to pay the Subordinated PIK Notes in
cash at maturity in 1996 and, unless such maturity is extended by the holders,
the Company will issue replacement notes as permitted by the terms of the
Subordinated PIK Notes. If issued, each replacement note will mature December 8,
1998, with sinking fund payments equal to one-third of the outstanding principal
amount due December 1996 and 1997. The Company's ability to satisfy the sinking
fund payments and the final payment at maturity of the replacement notes, if
issued, will depend on the availability of cash at the Company. The Company
anticipates that, at least if certain debt of Group continues to be outstanding
or is refinanced with similarly restrictive debt, the Company will not have
sufficient cash to satisfy the sinking fund payments or the final payment at
maturity of the replacement notes, if issued, unless the sinking fund and final
maturity dates are extended by the holders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" elsewhere herein. The
Company is not permitted to pay cash dividends on the common stock of the
Company until payment in full of the Subordinated PIK Notes, unless waived by
the holders. The Company may purchase or redeem shares of its common stock so
long as the aggregate equity investment in the common stock of the Company is at
least $75 million.
In April 1994, WP Partners and Blackstone Partners agreed, at the option of
the Company exercisable prior to September 15, 1994, to exchange the
Subordinated PIK Notes held by them for
F-15
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:--(CONTINUED)
shares of Common Stock, subject to certain conditions including an initial
public equity offering by the Company.
During the first quarter of 1994, the Company incurred expenses of $2.75
million for services performed by WP Partners and $3.25 million for services
performed by Blackstone Partners in connection with the Company's review of
refinancing and strategic alternatives as well as certain other advisory
services. These fees are included in "selling, general and administrative
expenses".
The 11 3/8% subordinated debentures of Group become callable on May 1,
1995. The remaining indebtedness of Group is callable at various premiums at
Group's option.
Debt discount applicable to securities issued by Group is based on the
present values of amounts to be paid determined at market interest rates in
effect at the time the Company acquired Group.
Maturities of long-term debt during each of the five fiscal years
subsequent to January 29, 1994 are $25.9 million, $170.9 million, $127.2
million, $103.8 million and $84.5 million, respectively. Total interest paid by
the Company on all indebtedness was $101.5 million, $105.0 million and $120.6
million for fiscal 1993, 1992 and 1991, respectively.
12. LONG-TERM LEASES AND LEASE COMMITMENTS:
Group is lessee under various long-term operating leases for land and
buildings for periods up to forty years. The majority of these leases contain
renewal provisions. In addition, Group leases transportation, operating and
administrative equipment for periods ranging from one to ten years.
At January 29, 1994, future minimum lease payments under operating leases
are as follows (in thousands):
FISCAL YEAR ENDING
- ----------------------------------
January 1995...................... $ 16,568
January 1996...................... 12,520
January 1997...................... 9,165
January 1998...................... 4,128
January 1999...................... 1,143
Later years....................... 2,171
----------
$ 45,695
----------
----------
Rental expense of continuing operations under operating leases was $19.2
million, $19.0 million and $15.4 million for fiscal 1993, 1992 and 1991,
respectively. Obligations under capital leases are not significant.
13. EMPLOYEE BENEFIT PLANS:
Subsidiaries of the Company have in effect defined benefit pension plans
covering substantially all employees who meet eligibility requirements. Plan
benefits are generally based on years of service and employee's compensation
during their years of employment. Funding of retirement costs for these plans
complies with the minimum funding requirements specified by the Employee
F-16
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
Retirement Income Security Act. Assets of the pension plans are held in a Master
Trust which invests primarily in equity and fixed income securities.
Net periodic pension cost of continuing operations for fiscal 1993, 1992
and 1991 include the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service cost.......................................................... $ 5,232 $ 5,313 $ 5,240
Interest cost on projected benefit obligation and
service cost........................................................ 6,843 6,220 5,947
Actual return on assets............................................... (6,334) 746 (13,771)
Net amortization and deferral......................................... (1,836) (9,298) 5,869
------------ ------------ ------------
$ 3,905 $ 2,981 $ 3,285
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at January 29, 1994 and
January 30, 1993 (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, 1994 JANUARY 30, 1993
---------------------------- ----------------------------
PLANS FOR WHICH PLANS FOR WHICH
---------------------------- ----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $ (21,352) $ (82,248) $ (15,096) $ (76,493)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Accumulated benefit obligation......................... $ (22,214) $ (86,450) $ (15,580) $ (80,023)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation........................... $ (24,317) $ (89,433) $ (17,314) $ (82,658)
Plan assets at fair value............................ 24,761 66,794 20,089 72,929
------------- ------------- ------------- -------------
Projected benefit obligation less than (in excess of)
plan assets............................................ 444 (22,639) 2,775 (9,729)
Unrecognized net loss.................................... 1,855 20,431 147 19,489
Prior service cost not yet recognized in net periodic
pension cost........................................... 416 (9,208) 441 (14,336)
Adjustment required to recognize minimum liability....... -- (7,841) -- (2,639)
------------- ------------- ------------- -------------
Pension asset (pension liability) recognized in the
consolidated balance sheets............................ $ 2,715 $ (19,257) $ 3,363 $ (7,215)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7% and 8% at January 29, 1994 and January 30,
1993, respectively. The expected rate of increase in future compensation levels
is 4% and 5.5% and the expected long-term rate of return on plan assets is 9%
and 10% in fiscal 1993 and 1992, respectively.
The provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87") require companies with any
plans that have an unfunded accumulated benefit obligation to recognize an
additional minimum pension liability, an offsetting intangible pension asset
and, in certain situations, a contra-equity balance. In accordance with the
provisions
F-17
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
of SFAS 87, the consolidated balance sheets at January 29, 1994 and January 30,
1993 include an intangible pension asset of $94,000 and $136,000; an additional
minimum pension liability of $7.8 million and $2.6 million; and a contra-equity
balance of $7.7 million and $2.5 million, respectively.
Subsidiaries of the Company sponsor defined contribution plans covering
employees who meet eligibility requirements. Subsidiary contributions are based
on a formula as specified in the plan agreements. Contributions related to
continuing operations were $4.7 million, $4.0 million and $3.4 million for
fiscal 1993, 1992 and 1991, respectively.
Subsidiaries of the Company have provided postretirement life, health and
medical coverage for certain retirees under plans currently in effect. Many of
the subsidiaries' domestic employees may be eligible for benefits if they reach
retirement age while still employed by the Company.
Effective as of the beginning of fiscal 1991, the Company adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The Statement requires that costs
of such benefits be accrued as a form of deferred compensation earned during the
period that employees render service, rather than the previously permitted
practice of accounting for such costs as incurred. The Company has elected to
recognize the cumulative effect of this change in accounting principle as of the
beginning of fiscal 1991.
The following table sets forth the amount included in the Company's
consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................................... $ 48,559 $ 56,497
Fully eligible active plan participants............................................ 12,425 13,145
Other active plan participants..................................................... 13,845 26,366
Unrecognized prior service gain from plan amendments............................... 23,764 --
Unrecognized net gain.............................................................. 7,408 8,869
------------ ------------
Total postretirement benefit obligation......................................... $ 106,001 $ 104,877
------------ ------------
------------ ------------
</TABLE>
Net periodic postretirement benefit cost of continuing operations,
determined on the accrual basis, included the following components (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service cost--benefits attributed to service during the year.......... $ 2,131 $ 2,168 $ 2,066
Interest cost on accumulated postretirement benefit obligation........ 4,385 6,865 6,574
Amortization of unrecognized net gain................................. (200) -- --
------------ ------------ ------------
Net periodic postretirement benefit cost.............................. $ 6,316 $ 9,033 $ 8,640
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-18
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7% at January 29, 1994 and 8% at January
30, 1993. The plans are unfunded.
For measurement purposes, a 14% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal 1993; the rate was
assumed to decrease 1% per year to 6% for fiscal 2001 and remain at that level
thereafter. The health care cost trend rate assumption has an impact on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of January 29, 1994 by $878,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $103,000.
Effective April 1, 1994, the Company amended the postretirement benefit
plan which covers substantially all of the eligible current and retired
employees of the Company's continuing operations. Pursuant to the amendment, the
Company's obligation for future inflation of health care costs will be limited
to 6% per year through March 31, 1998. Subsequent to March 1998, the Company
will not provide coverage for inflation in healthcare costs.
14. COMMON STOCK AND PREFERRED STOCK:
At January 29, 1994 and January 30, 1993, 1,000 shares of $1.00 par value
common stock were authorized, issued and outstanding. The Company's Certificate
of Incorporation was amended on April 27, 1994 to authorize 150 million shares
of common stock, to reduce the par value of the common stock from $1.00 to $.01
per share and to authorize a 35,035 for 1 stock split of all outstanding shares
of common stock. The stock split was effective April 27, 1994. In connection
therewith, the common stock and other paid-in capital accounts were adjusted for
all periods to reflect the effect of the stock split.
In connection with the 1989 merger of a wholly owned subsidiary of the
Company into Group, approximately 4,250,000 shares of 15 1/2% Cumulative
Exchangeable Redeemable Preferred Stock ("Merger Preferred Stock"), par value
$.01 (authorized 16,000,000 shares), were issued. In addition, approximately
6,500 shares of Merger Preferred Stock may be issued upon exchange of
outstanding shares of Group's 15 1/2% Junior Cumulative Exchangeable Redeemable
Preferred Stock ("Intermediate Preferred Stock"), at the holder's option. Each
share of preferred stock has a liquidation preference of $25. To the extent the
Company shall have funds legally available therefor, the preferred stock is
required to be fully redeemed on April 13, 1999 at its liquidation preference
per share together with all accrued and unpaid dividends, whether or not
declared. Each share is exchangeable, at the Company's option, for 15 1/2%
subordinated debentures with a principal amount equal to the liquidation
preference of the shares being exchanged (plus accrued and unpaid dividends).
Dividends on the Merger Preferred Stock are payable quarterly and dividends
accruing on or prior to February 1, 1995 may be paid, at the option of the
Company, in cash (at the rate of $3.875 per year) or in additional shares of
Merger Preferred Stock (at the rate of .04 shares for each $1 of dividends not
paid in cash). Dividends accruing after February 1, 1995 may be paid only in
cash. To date, all dividends have been paid in additional shares of Merger
Preferred Stock and at April 30, 1994, January 29, 1994 and January 30, 1993
approximately 6,514,000, 6,268,000 and 5,183,000 shares, respectively, were
outstanding. Since January 25,
F-19
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMON STOCK AND PREFERRED STOCK:--(CONTINUED)
1992, and as of January 29, 1994, and April 30, 1994, total liabilities of the
Company exceeded total assets based on its balance sheet and therefore, under
Delaware law, the payment of dividends on the Merger Preferred Stock required a
determination by the Board of Directors, based on a current valuation of the
Company's assets and liabilities, that adequate surplus exists under Delaware
law for the purpose of paying dividends. The Board of Directors made that
determination with respect to the dividend paid May 2, 1994, but it is not
possible to predict whether or not such a determination will be able to be made
with respect to future dividends. In addition, the Company's ability to pay cash
dividends on the Merger Preferred Stock will depend on the availability of cash
at the Company. As discussed in Note 11, since January 26, 1991, no additional
cash dividends to the Company have been permitted under the most restrictive
provisions in the existing debt agreements of Group, and the Company does not
expect Group to be permitted to pay dividends during fiscal 1994 or in the
foreseeable future beyond fiscal 1994, at least so long as the 11 7/8%
Securities are outstanding. Even if the 11 7/8% Securities are refinanced, there
can be no assurance that any new debt would not contain similarly restrictive
covenants. Dividends accrued during the thirteen weeks ended April 30, 1994 and
during fiscal 1993, 1992 and 1991, including accretion for difference between
redemption value and fair value at date of issuance, aggregated approximately
$7.1 million, $23.7 million, $18.8 million and $15.8 million, respectively.
At April 30, 1994, January 29, 1994 and January 30, 1993, 30,000,000 shares
of $.10 par value preferred stock of Group were authorized and approximately
1,806,000 shares of convertible preferred stock, Series A were outstanding. Each
share of Series A preferred stock of Group, which has an annual dividend of
$2.50 per share, is convertible into 0.50 shares of Merger Preferred Stock of
the Company, subject to subsequent adjustment pursuant to its terms.
15. STOCK OPTION PLANS:
Effective on January 28, 1994, the Company adopted the 1993 Employee Stock
Option Plan ("1993 Plan") for certain key employees. The 1993 Plan was created
for the special purpose of rewarding key employees for the appreciation earned
through prior service under the Company's previous equity share plan that was
terminated on October 29, 1993. Effective on January 28, 1994, the Company
granted options to acquire approximately 3.1 million shares of the Common Stock
at an average exercise price of $4.57 per share. The majority of these options
vest 40% in June 1995 with the remaining shares vesting in June 1996. In
connection with the adoption of this plan, the Company recorded a charge of
$26.7 million for management equity plan expense.
In addition, effective in April 1994 the 1994 Employee Stock Option Plan
("1994 Plan") was adopted as a successor to the 1993 Plan to facilitate awards
to key employees and to consultants. The 1994 Plan authorizes the issuance of up
to 2,980,534 shares of Common Stock and provides that no options may be granted
after 10 years from the effective date of this plan. Options for approximately
170,000 shares of Common Stock at an average exercise price of $5.52 per share
were granted in April 1994. Management equity plan expense of $1.6 million will
be recognized as the options ratably vest over the next three years, $36,000 of
which was recognized in the first quarter of 1994.
As of April 30, 1994, employee stock options for a total of approximately
3.2 million shares were outstanding and subject to future vesting.
Upon a change of control, as defined, all of the above options become fully
vested and exercisable.
F-20
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES:
During the first quarter of fiscal 1992, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting
Standards No. 96, of the same title, which the Company previously followed to
account for income taxes. The adoption of SFAS 109 did not impact the Company's
financial position or results of operations.
Deferred income taxes are provided for the temporary differences between
the financial reporting and tax basis of the Company's assets and liabilities.
The components of the net deferred tax liability as of January 29, 1994 and
January 30, 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax assets:
Employee benefits including postretirement benefits................................ $ 69,358 $ 68,825
Net operating loss carryforwards................................................... 151,913 91,817
Investment tax credit carryforwards................................................ 11,900 14,567
Alternative minimum tax credits.................................................... 7,000 9,523
Other liabilities and reserves..................................................... 130,056 133,586
Valuation allowance................................................................ (296,624) (248,224)
------------ ------------
Total deferred tax asset...................................................... 73,603 70,094
------------ ------------
Deferred tax liabilities:
Property, plant and equipment...................................................... 51,258 50,213
Unamortized debt discount.......................................................... 22,985 24,704
------------ ------------
Total deferred tax liability.................................................. 74,243 74,917
------------ ------------
Net deferred tax liability........................................................... $ 640 $ 4,823
------------ ------------
------------ ------------
</TABLE>
The valuation allowances of $296.6 million at January 29, 1994 and $248.2
million at January 30, 1993 were established because, in the Company's
assessment, it was uncertain whether the net deferred tax assets would be
realized.
The provisions for income taxes applicable to continuing operations for
fiscal 1993, 1992 and 1991 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal............................................................. $ -- $ (6,677) $ 315
State and local..................................................... 6,462 4,896 5,470
Foreign............................................................. 7,697 5,739 2,193
------------ ------------ ------------
14,159 3,958 7,978
------------ ------------ ------------
Deferred
State and local..................................................... (16) (5,936) 3,339
Foreign............................................................. (2,866) (1,178) 637
------------ ------------ ------------
(2,882) (7,114) 3,976
------------ ------------ ------------
Income taxes (benefit)........................................... $ 11,277 $ (3,156) $ 11,954
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-21
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES:--(CONTINUED)
Domestic and foreign components of income (loss) from continuing operations
before income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Domestic.............................................................. $ (172,183) $ (60,966) $ (69,454)
Foreign............................................................... 10,135 12,469 8,072
------------ ------------ ------------
$ (162,048) $ (48,497) $ (61,382)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A reconciliation between income taxes computed at the statutory Federal
rate (35% for fiscal 1993 and 34% for fiscal 1992 and 1991) and the provisions
for income taxes applicable to continuing operations is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Amount at statutory Federal rate....................................... $ (56,717) $ (16,489) $ (20,870)
State and local income taxes, net of Federal income tax benefit........ 6,229 (2,893) 5,814
Foreign tax more than Federal tax at statutory rate.................... 1,284 321 86
Amortization and write-off of goodwill................................. 46,421 1,258 1,368
Valuation allowance.................................................... 16,095 15,103 --
Net operating loss generated........................................... -- -- 26,146
Other.................................................................. (2,035) (456) (590)
------------ ------------ ------------
Income taxes (benefit)............................................... $ 11,277 $ (3,156) $ 11,954
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In addition, the valuation allowance was increased by $38.4 million in
fiscal 1993 and $79.0 million in fiscal 1992 to offset deferred tax assets
arising from the losses of discontinued operations.
At January 29, 1994, the Company had the following tax attribute
carryforwards available for Federal income tax purposes (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
------------ -------------
<S> <C> <C>
Net operating losses--regular tax
Preacquisition, subject to limitations............................................. $ 134,000 1996-2003
Postacquisition, unrestricted...................................................... 300,000 2006-2008
------------
$ 434,000
------------
------------
Net operating losses--alternative minimum tax
Preacquisition, subject to limitations............................................. $ 118,000 1996-2002
Postacquisition, unrestricted...................................................... 236,000 2006-2008
------------
$ 354,000
------------
------------
Investment tax and other credits
Preacquisition, subject to limitations............................................. $ 11,900 1994-2003
------------
------------
Alternative minimum tax credits...................................................... $ 7,000 No limit
------------
------------
</TABLE>
F-22
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES:--(CONTINUED)
The regular tax net operating loss carryforwards include amounts related to
Kayser-Roth and subsidiaries for preacquisition regular tax purposes, subject to
limitations, of $35 million and postacquisition regular tax purposes,
unrestricted, of $62 million. Alternative minimum tax net operating loss
carryovers include amounts related to Kayser-Roth and subsidiaries of $33
million for preacquisition alternative minimum tax purposes, subject to
limitations, and $51 million for postacquisition alternative minimum tax
purposes, unrestricted. Although the sale agreement provides that an election
will be made (under Section 338(h)(10) of the Internal Revenue Code) to treat
the sale as an asset sale for Federal income tax purposes, there are provisions
whereby the purchaser of Kayser-Roth and the Company can reevaluate this
decision. If the purchaser and the Company mutually agree to treat the
transaction as a stock sale rather than an asset sale, the net operating losses
related to Kayser-Roth and subsidiaries will be transferred from the Company to
the purchaser.
The Internal Revenue Service has examined the returns of C&A Co. and its
subsidiaries for the last three fiscal years prior to its acquisition by Group
in December 1986. Certain adjustments were agreed to and the effect of those
adjustments, principally reductions to the net operating loss carryforwards and
investment tax credit carryforwards, are reflected in the amounts discussed
above. In the course of an examination of the Company's Federal income tax
returns for fiscal 1988 and 1989, the IRS has challenged the availability of
$176.6 million of the Company's approximately $434.0 million of current NOLs.
The examination is at a preliminary stage and management believes that the basis
for the IRS' position is unclear. Management disputes the IRS' challenge and
believes that substantially all of the NOLs should be available (subject to
certain limitations) to offset its income, if any, in the future. If the IRS
were to maintain its position and all or a major portion of such position were
to be upheld in litigation, the amount of the NOLs available to the Company in
future years would be materially reduced.
The Company has entered into a tax sharing agreement with Group and its
subsidiaries. The tax sharing agreement provides for payments to (from) the
Company for utilization of the Company's tax losses by Group and its
subsidiaries. The agreement provides for tax sharing payments calculated in
accordance with Federal tax regulations. Tax sharing payments received from
Group during fiscal 1993, 1992 and 1991 were $0, $4.5 million and $7.2 million,
respectively. The Company's tax sharing payable to Group of $8.8 million at
January 29, 1994 and the related fiscal 1992 tax sharing benefit result from the
utilization of tax loss carrybacks. This payable to Group is currently expected
to be settled through offset against future years tax sharing receivable
amounts.
Income taxes paid, net of refunds, were $3.3 million, $16.8 million and
$19.0 million for fiscal 1993, 1992 and 1991, respectively.
F-23
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, AND ACCOUNTS
PAYABLE-- The carrying amount approximates fair value because of the short
maturity of these instruments.
RECEIVABLE FROM SALE OF BUSINESS AND LONG-TERM INVESTMENTS--Fair value
approximates carrying value.
LONG-TERM DEBT--The fair value of Group's publicly-traded long-term debt is
based upon the quoted market price of the issues. The fair value of the
remaining long-term debt of the Company approximates the carrying value.
PREFERRED STOCK--The fair value of the Company's redeemable preferred stock
and the Series A Preferred Stock of Group is based upon the quoted market price.
The fair value of the redeemable preferred stock of Group approximates the
carrying value.
The estimated fair values of the Company's financial instruments are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, 1994 JANUARY 30, 1993
---------------------------- --------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED
AMOUNT VALUE AMOUNT FAIR VALUE
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Receivable from sale of business........................ $ 70,000 $ 70,000 $ -- $ --
Long-term investments................................... 1,046 1,046 29,344 29,344
Long-term debt.......................................... 923,554 1,017,927 982,205 997,450
Preferred stock......................................... 122,681 161,200 98,948 75,650
</TABLE>
18. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:
The Company reclassified its industry segments during 1993 to realign its
products based on primary customer groups. Businesses related to the automotive
industry which were part of Specialty Textiles have been renamed Automotive
Products. The decorative fabrics and floorcoverings businesses have been
reclassified as Interior Furnishings. Previously, the floorcovering business was
part of the Specialty Textiles segment. Wallcovering products which were
previously part of the Home Furnishings segment have been renamed Wallcoverings.
Industry segment information has been restated for fiscal 1992 and 1991.
For fiscal 1993, 1992 and 1991, sales to General Motors Corporation
approximated 16.1%, 15.3% and 17.2%, respectively, and sales to Chrysler
Corporation approximated 10.0%, 10.2% and 8.3%, respectively, of total
consolidated sales. These sales were part of the Automotive Products segment.
F-24
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:--(CONTINUED)
Information about the Company's segments for fiscal 1993, 1992 and 1991
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING DEPRECIATION
FISCAL YEAR ENDED NET INCOME AND CAPITAL
JANUARY 29, 1994 SALES (LOSS)(B) AMORTIZATION(E) ASSETS(B) EXPENDITURES
- ------------------------------------- -------------- ----------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Automotive Products.................. $ 677,867 $ (2,261) $ 25,873 $ 379,637 $ 29,208
Interior Furnishings................. 407,201 12,175 12,521 226,417 11,768
Wallcoverings........................ 220,449 (17,856) 6,229 125,387 3,751
-------------- ----------- -------------- -------------- --------------
1,305,517 (7,942)(c) 44,623 731,441 44,727
Corporate items...................... -- (38,282)(d) 384 187,384 196
-------------- ----------- -------------- -------------- --------------
1,305,517 (46,224) 45,007 918,825 44,923
Discontinued operations.............. -- -- 16,340 -- 11,355
-------------- ----------- -------------- -------------- --------------
$ 1,305,517 $ (46,224) $ 61,347 $ 918,825 $ 56,278
-------------- ----------- -------------- -------------- --------------
-------------- ----------- -------------- -------------- --------------
OPERATING DEPRECIATION
FISCAL YEAR ENDED NET INCOME AND CAPITAL
JANUARY 30, 1993(A) SALES (LOSS)(B) AMORTIZATION(E) ASSETS(B) EXPENDITURES
- ------------------------------------- -------------- ----------- -------------- -------------- --------------
Automotive Products.................. $ 643,827 $ 52,684 $ 29,419 $ 403,148 $ 20,563
Interior Furnishings................. 391,778 37,520 13,003 240,292 14,295
Wallcoverings........................ 241,895 1,141 6,545 170,516 3,045
-------------- ----------- -------------- -------------- --------------
1,277,500 91,345(c) 48,967 813,956 37,903
Corporate items...................... -- (24,461)(d) 198 137,301 306
-------------- ----------- -------------- -------------- --------------
1,277,500 66,884 49,165 951,257 38,209
Discontinued operations.............. -- -- 22,541 190,177 15,972
-------------- ----------- -------------- -------------- --------------
$ 1,277,500 $ 66,884 $ 71,706 $ 1,141,434 $ 54,181
-------------- ----------- -------------- -------------- --------------
-------------- ----------- -------------- -------------- --------------
OPERATING DEPRECIATION
FISCAL YEAR ENDED NET INCOME AND CAPITAL
JANUARY 25, 1992 SALES (LOSS)(B) AMORTIZATION(E) ASSETS(B) EXPENDITURES
- ----------------------------------- -------------- ----------- -------------- -------------- --------------
Automotive Products................ $ 610,325 $ 55,598 $ 26,843 $ 421,958 $ 24,220
Interior Furnishings............... 336,773 28,278 13,915 241,980 9,519
Wallcoverings...................... 237,218 (6,088) 6,628 196,238 5,093
-------------- ----------- -------------- -------------- --------------
1,184,316 77,788 47,386 860,176 38,832
Corporate items.................... -- (26,681)(d) 215 131,467 96
-------------- ----------- -------------- -------------- --------------
1,184,316 51,107 47,601 991,643 38,928
Discontinued operations............ -- -- 22,915 308,661 22,971
-------------- ----------- -------------- -------------- --------------
$ 1,184,316 $ 51,107 $ 70,516 $ 1,300,304 $ 61,899
-------------- ----------- -------------- -------------- --------------
-------------- ----------- -------------- -------------- --------------
- ---------------
</TABLE>
<TABLE>
<S> <C>
(a) The fiscal year ended January 30, 1993 included fifty-three weeks.
(b) Operating income is determined by deducting all operating expenses, including restructuring costs, goodwill
write-off and other costs, from revenues. Operating expenses do not include interest expense. Assets of the
business segments at January 30, 1993 and January 25, 1992 include goodwill. Operating income reflects
related amortization.
(Footnotes continued on following page)
</TABLE>
F-25
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:--(CONTINUED)
(Footnotes continued from preceding page)
<TABLE>
<S> <C>
(c) The segment operating loss of $7.9 million in 1993 includes the write-off of goodwill of $129.9 million;
$68.4 million of which is included in the $2.3 million operating loss of the Automotive Products segment;
$31.6 million of which is included in the $12.2 million operating income of the Interior Furnishings segment,
and $29.9 million of which is included in the $17.9 million operating loss of the Wallcovering segment.
Segment operating income in 1992 includes restructuring costs of $10.0 million which relate to the
wallcoverings business.
(d) Corporate items in fiscal 1993 include $26.7 million of management equity plan expense. Corporate items in
fiscal 1993, 1992 and 1991 each include operating management and advisory fees to affiliates of the Company
of $5.0 million.
(e) Depreciation and amortization excludes the amortization of deferred financing costs and debt discount which
do not impact operating income.
</TABLE>
19. COMMITMENTS AND CONTINGENCIES:
During 1991, a Fifth Consolidated Amended Complaint was filed in In re Ivan
F. Boesky Securities Litigation, involving numerous class actions and individual
claims against a variety of defendants including Group. Among other things, this
complaint asserts claims on behalf of certain of Group's former preferred
stockholders alleging a conspiracy to manipulate the price of stock in 1986 for
the purpose of triggering a redemption of certain outstanding preferred stock of
Group. In 1992, Advanced Development & Engineering Centre ("ADEC"), a division
of an indirect subsidiary of the Company, filed arbitration demands against the
Pakistan Ordnance Factories Board ("POF") concerning ADEC's installation of a
munitions facility for POF. POF filed arbitration counterclaims alleging that
ADEC's alleged breach of contract caused POF to lose its entire investment in
the munitions facility.
The ultimate outcome of the legal proceedings to which the Company is a
party will not, in the opinion of the Company's management based on the facts
presently known to it, have a material effect on the Company's consolidated
financial condition or future results of operations.
In 1988, the Federal government filed suit in the U.S. District Court for
the District of Rhode Island against the Company's former Kayser-Roth subsidiary
and others in connection with a Superfund site in Rhode Island. The District
Court held Kayser-Roth liable under CERCLA for all past and future response
costs. By Amended Administrative Order issued June 4, 1991, the EPA directed
Kayser-Roth to implement the remedies set forth in its Record of Decision issued
September 18, 1990. Since the beginning of fiscal 1990 to date, Kayser-Roth has
paid approximately $2.9 million for past response costs, prejudgment interest
and remediation. Kayser-Roth is in the process of complying with the remainder
of the order. The Company has agreed to indemnify Kayser-Roth with respect to
this matter.
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
It is a normal risk of operating a manufacturing business that liability may be
incurred for investigating and remediating on-site and off-site contamination.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the
F-26
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
EPA, the professional judgment of the Company's environmental experts, outside
environmental specialists and other experts, and the likelihood that other
parties which have been named as PRPs will have the financial resources to
fulfill their obligations at sites where they and the Company may be jointly and
severally liable. Under the scheme of joint and several liability, the Company
could be liable for the full costs of investigation and remediation even if
additional parties are found to be responsible under the applicable laws. It is
difficult to estimate the total cost of investigation and remediation due to
various factors including incomplete information regarding particular sites and
other PRP's, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. Where it is probable that an environmental
liability has been incurred and the amount of loss can be reasonably estimated
within a range, the Company selects as the best estimate of the liability an
estimate at the high end of the range based upon all information available to
the Company, including the professional judgment of the Company's environmental
experts, outside environmental specialists and other experts. Excluding sites at
which the Company's participation is anticipated to be de minimis or otherwise
insignificant or where the Company is being indemnified by a third party for the
liability, there are 15 sites where the Company is participating in the
investigation or remediation of the site either directly or through financial
contribution, and nine additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. The Company's current
estimate of its liability for these 24 sites is $29.5 million. As of January 29,
1994, the Company has established reserves of approximately $30.8 million for
the estimated future costs related to all its known environmental sites. In the
opinion of management, based on the facts presently known to it, the
environmental costs and contingencies will not have a material adverse effect on
the Company's consolidated financial condition or results of operations.
However, there can be no assurance that the Company has identified or properly
assessed all potential environmental liability arising from the activities or
properties of the Company, its present and former subsidiaries and their
corporate predecessors.
The Company is subject to increasingly stringent Federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and certain other damages related to
on-site and off-site soil and groundwater contamination. The Company's
management believes that it has obtained, and is in material compliance with,
all material environmental permits and approvals necessary to conduct its
various businesses. Environmental compliance costs for continuing businesses
currently are accounted for as normal operating expenses or capital expenditures
of such business units. In the opinion of management, based on the facts
presently known to it, such environmental compliance costs will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
F-27
<PAGE>
COLLINS & AIKMAN HOLDINGS CORPORATION AND SUBSIDIARIES
(TO BE RENAMED COLLINS & AIKMAN CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for fiscal 1994, 1993 and 1992 follows
(in thousands):
<TABLE>
<CAPTION>
INCOME FROM
CONTINUING OPERATIONS
--------------------------
BEFORE AFTER INCOME
FISCAL YEAR ENDING JANUARY 28, 1995 NET SALES GROSS PROFIT INCOME TAXES TAXES NET INCOME
- --------------------------------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
First Quarter.......................... $ 390,446 $ 100,954 $ 15,372 $ 12,754 $ 12,754
-------------- ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------
LOSS FROM
CONTINUING OPERATIONS
--------------------------
BEFORE AFTER INCOME NET INCOME
FISCAL YEAR ENDED JANUARY 29, 1994 NET SALES GROSS PROFIT INCOME TAXES TAXES (LOSS)
- --------------------------------------- -------------- ------------ ------------ ------------ ------------
First Quarter.......................... $ 339,043 $ 78,948 $ (2,202) $ (5,473) $ (9,069)
Second Quarter......................... 289,694 61,230 (18,343) (20,628) (149,430)
Third Quarter.......................... 334,629 84,445 (125,725) (129,821) (129,871)
Fourth Quarter......................... 342,151 85,104 (15,778) (17,403) 10,706
-------------- ------------ ------------ ------------ ------------
$ 1,305,517 $ 309,727 $ (162,048) $ (173,325) $ (277,664)
-------------- ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------
LOSS FROM
CONTINUING OPERATIONS
--------------------------
BEFORE AFTER INCOME
FISCAL YEAR ENDED JANUARY 30, 1993 NET SALES GROSS PROFIT INCOME TAXES TAXES NET LOSS
- --------------------------------------- -------------- ------------ ------------ ------------ ------------
First Quarter.......................... $ 319,488 $ 72,564 $ (8,507) $ (11,385) $ (17,655)
Second Quarter......................... 319,713 74,081 (9,846) (12,524) (17,059)
Third Quarter.......................... 314,873 70,819 (9,380) (7,452) (16,723)
Fourth Quarter (a)..................... 323,426 81,563 (20,764) (13,980) (212,221)
-------------- ------------ ------------ ------------ ------------
$ 1,277,500 $ 299,027 $ (48,497) $ (45,341) $ (263,658)
-------------- ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------
</TABLE>
- ---------------
(a) The fourth quarter of fiscal 1992 included fourteen weeks.
The quarterly financial data above has been restated to reflect Kayser-Roth
as a discontinued operation and Dura as a continuing operation.
The third quarter of 1993 has been restated to exclude a restructuring
charge of $24.0 million that was previously recorded in error and the fourth
quarter of 1993 has been restated to exclude the previously reported reversal
of this charge. The Company previously reported income (loss) from continuing
operations before income taxes, income (loss) from continuing operations after
income taxes and net income (loss) for the thirteen weeks ended October 30, 1993
of ($149.7) million, ($153.8) million and ($153.9) million, respectively, and
$8.2 million, $6.6 million and $34.7 million for the thirteen weeks ended
January 29, 1994, respectively.
Loss from continuing operations before income taxes in the third quarter of
fiscal 1993 includes the write-off of goodwill of $129.9 million. The fourth
quarter of fiscal 1993 includes management equity plan expense of $26.7 million.
Net loss in fiscal 1993 includes provisions for loss (gain) on disposal of
discontinued operations of $2.2 million, $125.4 million and ($28.1) million in
the first, second and fourth quarters, respectively. Loss from continuing
operations before income taxes in fiscal 1992 includes restructuring costs of
$10.0 million in the fourth quarter. Net loss in fiscal 1992 includes provision
for loss on disposal of discontinued operations of $168.0 million in the fourth
quarter.
The Company's operations are not subject to significant seasonal
influences.
F-28
<PAGE>
[INSIDE BACK COVER]
[PHOTO]
Interior Furnishings
Decorative Fabrics: Collins & Aikman manufactures a broad collection of
upholstery for the furniture industry, offering the largest selection of
styles and constructions. The Mastercraft Division is the number one
supplier of flat-woven upholstery fabrics and is also the industry leader in
the fast-growing Jacquard segment of the market. [PHOTO]
Floorcoverings: The Company's
patented Powerbound RS(REGISTERED SYMBOL) carpet
products feature an
exclusive peel and stick
adhesive system. These products
are designed for heavy traffic
applications such as schools,
hospitals, airline terminals
and public buildings.
Wallcoverings [PHOTO]
Built on the Imperial name,
Collins & Aikman is the largest
residential wallcovering
manufacturer in the U.S.,
with a wide selection of designs
and constructions. Collections
feature the efforts of
imperial's in-house studio
and those of well-known
designers.
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
-----------
Available Information.............................. 3
Incorporation of Certain Documents
by Reference..................................... 3
Prospectus Summary................................. 4
Risk Factors....................................... 11
Dividends.......................................... 15
Dilution........................................... 15
Use of Proceeds and Consolidation.................. 16
Capitalization..................................... 17
Selected Financial Data............................ 18
Unaudited Pro Forma Consolidated Financial Data.... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........................ 25
Business........................................... 37
Management......................................... 54
Principal Stockholders and Certain Relationships... 62
New Credit Facilities.............................. 64
Description of the Capital Stock................... 68
Underwriting....................................... 72
Legal Opinions..................................... 75
Experts............................................ 75
Index to Financial Statements...................... F-1
------------------------
UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER 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.
================================================================================
- --------------------------------------------------------------------------------
21,000,000 SHARES
COLLINS & AIKMAN
CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[LOGO]
------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
WASSERSTEIN PERELLA
SECURITIES, INC.
THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JUNE 27, 1994
[LOGO] 21,000,000 SHARES
COLLINS & AIKMAN CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
Of the 21,000,000 shares of Common Stock offered, 4,200,000 shares are
being offered hereby in an international offering outside the United States and
16,800,000 shares are being offered in a concurrent United States offering. The
initial public offering price and the aggregate underwriting discount per share
will be identical for both Offerings. See "Underwriting". All shares of Common
Stock offered hereby are being issued and sold by the Company.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share of Common Stock will be between $12.00 and $14.00. For factors
considered in determining the initial public offering price, as well as a
discussion of the requirement that the initial public offering price be
recommended by a qualified independent underwriter, see "Underwriting".
SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN
THE COMMON STOCK.
The Common Stock will be listed on the New York Stock Exchange under the
symbol "CKC".
---------------------
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.
---------------------
<TABLE><CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the International Underwriters an option for 30 days
to purchase up to an additional 630,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the U.S. Underwriters
an option for 30 days to purchase up to an additional 2,520,000 shares at
the initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such options are exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Company will be $ , $ and $ ,
respectively. See "Underwriting".
---------------------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York, on or about , 1994.
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL LIMITED
WASSERSTEIN PERELLA SECURITIES, INC.
NIKKO EUROPE PLC
---------------------
The date of this Prospectus is , 1994.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
This is a general discussion of certain U.S. Federal income and estate tax
consequences of the ownership and disposition of Common Stock by a non-U.S.
holder. A "non-U.S. holder" is a person or entity that, for U.S. Federal income
tax purposes, is a non-resident alien individual or a foreign corporation
partnership, estate or trust. An individual may be deemed to be a resident of
the United States in several circumstances, including being present in the
United States on at least 31 days in the calendar year and for an aggregate of
183 days taken into account during the three-year period ending with the current
calendar year. For purposes of this determination, all of the days present in
the United States during the current year, one-third of the days present during
the immediately preceding year, and one-sixth of the days present during the
second preceding year are taken into account. Resident aliens are subject to
U.S. Federal tax as if they were U.S. citizens and residents.
This discussion is based on the U.S. Internal Revenue Code of 1986 and
administrative and judicial interpretations as of the date hereof, all of which
may be changed. This discussion does not address all the aspects of U.S. Federal
income and estate taxation that may be relevant to non-U.S. holders in light of
their particular circumstances. Nor does it address tax consequences under the
laws of any U.S. state, municipality or other taxing jurisdiction or under the
laws of any country other than the United States.
Prospective holders should consult their own tax advisors about the
particular tax consequences to them of holding and disposing of Common Stock.
DIVIDENDS
Generally, dividends paid to a non-U.S. holder of Common Stock that are not
effectively connected with the holder's conduct of a trade or business within
the United States (or attributable to a U.S. permanent establishment of the
holder, if an income tax treaty applies) will be subject to Federal withholding
tax at a 30% rate or such lower rate as may be specified by an applicable income
tax treaty. Under current U.S. Treasury regulations, such dividends paid to an
address outside the United States in a foreign country may be presumed to be
paid to a resident of such country for purposes of the withholding tax. Under
current interpretation of U.S. Treasury regulations, unless the payor has
knowledge to the contrary the same presumption applies to determine the
applicability of a reduced rate of withholding under a U.S. tax treaty. Thus,
non-U.S. holders receiving dividends at addresses outside the United States are
not currently required to file forms with the United States Internal Revenue
Service (the "IRS") in order to obtain the benefit of an applicable treaty rate.
If there is excess withholding on a person eligible for a treaty benefit, the
person can file for a refund with the IRS.
Under U.S. Treasury regulations which were proposed in 1984 but are not
currently in effect, to claim the benefits of a tax treaty a non-U.S. holder of
Common Stock would have to file certain forms accompanied by statements from a
competent authority of the country of his residence attesting to the holder's
eligibility to claim treaty benefits.
Generally, upon the filing of a Form 4224 by a non-U.S. holder with the
Company, no withholding is required on dividends that are effectively connected
with the non-U.S. holders's conduct of a trade or business within the United
States. Instead, the effectively connected dividends are subject to tax at rates
applicable to U.S. citizens and U.S. corporations. Effectively connected
dividends received by a non-U.S. corporation may be subject to an additional
"branch profits tax" at a 30% rate (or a lower rate under an applicable income
tax treaty) when such dividends are deemed repatriated from the United States.
72
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
GAIN ON DISPOSITION OF COMMON STOCK
Generally, a non-U.S. holder will not be subject to U.S. Federal income tax
on gain realized from a sale or other disposition of Common Stock unless (i) the
gain is effectively connected with the holder's conduct of a U.S. trade or
business and is attributable to such holder's office or other fixed place of
business within the United States, (ii) the Company is (or has been within the
preceding five years) a "U.S. real property holding corporation," or (iii) in
the case of a non-U.S. holder who is a non-resident alien individual and holds
Common Stock as a capital asset, such holder is present in the United States for
183 or more days during the taxable year of sale and either (a) such holder's
"tax home" for U.S. federal income tax purposes is within the United States or
(b) the gain is attributable to such holder's office or other fixed place of
business within the United States and no treaty exemption applies. The Company
is not, has at no time been, and does not anticipate becoming, a "U.S. real
property holding corporation." Any gain subject to U.S. Federal income tax will
be taxed under the regime applicable to U.S. citizens and U.S. corporations.
Non-U.S. corporations might be subject to the "branch profits tax" regime as
well.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make such reports available to tax authorities in the
recipient's country of residence. No further information reporting and no backup
withholding is required with respect to dividends paid on Common Stock to a
non-U.S. holder at an address outside the United States.
If the proceeds of a disposition of Common Stock are paid over by or
through a U.S. office of a broker, the payment is subject to information
reporting and possible backup withholding at a flat 31% rate unless the
disposing holder certifies as to his name, address and non-U.S. status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the United States through a non-U.S.
office of a non-U.S. broker. However, U.S. information reporting requirements
(but not backup withholding) will apply to a payment of disposition proceeds
outside the United States if (A) the payment is made through an office outside
the United States of a broker that either (i) is a U.S. person, (ii) derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) is a "controlled foreign corporation" for
United States Federal income tax purposes, (B) the broker fails to maintain
documentary evidence that the holder is a non-U.S. holder and that certain
conditions are met, and (C) the holder fails to establish that it otherwise is
entitled to an exemption.
Backup withholding is not an additional tax. Rather, the 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.
FEDERAL ESTATE TAXES
Common Stock held at death by an individual who is neither a citizen nor a
resident of the United States for U.S. Federal estate tax purposes will be
subject to U.S. Federal estate tax, unless an applicable estate tax treaty
provides otherwise. Estates of nonresident aliens are generally allowed a
statutory credit which is the equivalent of an exclusion of $60,000 of assets
from the U.S. estate tax. Tax treaties may permit a larger credit.
73
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the International Underwriters named
below, and each of such International Underwriters, for whom Goldman Sachs
International, Merrill Lynch International Limited, Wasserstein Perella
Securities, Inc. and The Nikko Europe, Co. Plc are acting as representatives,
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite its name below:
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- --------------------------------------------------------- ------------
[S] [C]
Goldman Sachs International..............................
Merrill Lynch International Limited......................
Wasserstein Perella Securities, Inc......................
Nikko Europe Plc.........................................
------------
Total..................................... 4,200,000
------------
------------
Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 16,800,000 shares
of Common Stock in a U.S. offering in the United States. The initial public
offering price and aggregate underwriting discounts and commissions per share
for the two offerings are identical. The closing of the International Offering
made hereby is a condition to the closing of the U.S. Offering, and vice versa.
The representatives of the U.S. Underwriters are Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Wasserstein Perella Securities, Inc.
and The Nikko Securities Co. International, Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
International Underwriters has agreed that, as a part of the distribution of the
shares offered hereby and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction. The term
U.S. person shall mean, for purposes of this paragraph: (a) any individual who
is a resident of the United States or (b) any corporation,
74
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
partnership or other entity organized in or under the laws of the United States
or any political subdivision thereof and whose office most directly involved
with the purchase is located in the United States. Each of the U.S. Underwriters
named herein has agreed pursuant to the Agreement Between that, as a part of the
distribution of the shares offered as a part of the U.S. Offering, and subject
to certain exceptions, it will only offer, sell or deliver shares of Common
Stock, directly or indirectly, in the United States and to U.S. persons.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 630,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the International Underwriters exercise their
over-allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 4,200,000 shares of Common Stock offered. The
Company has granted the U.S. Underwriters a similar option to purchase up to an
aggregate of 2,520,000 additional shares of Common Stock.
The Company and the Partners have agreed, during the period beginning from
the date of this Prospectus and continuing to and including the date 180
calendar days after the date of the Prospectus, not to offer, sell, contract to
sell or otherwise dispose of any securities of the Company (other than pursuant
to employee stock option plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus) which are substantially similar to the shares of Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of the Common Stock without the prior written consent of
the representatives, except for the shares of Common Stock offered in connection
with the concurrent U.S. and International Offerings. The Company has informed
the representatives of the Underwriters that, if such consent is given, the
Company will make a public announcement thereof.
Each International Underwriter has also agreed that (a) it has not offered
or sold, and will not offer or sell, in the United Kingdom, by means of any
document, any shares of Common Stock other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent, or in circumstances which do not constitute an offer to the public within
the meaning of the Companies Act 1985 of Great Britain, (b) it has complied, and
will comply with, all applicable provisions of the Financial Services Act of
1986 of Great Britain with respect to anything done by it in relation to the
shares of Common Stock in, from or otherwise involving the United Kingdom, and
(c) it has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of the
shares of Common Stock to a person who is of a kind described in Article 9(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988 (as amended) of Great Britain or is a person to whom the document may
otherwise lawfully be issued or passed on.
Buyers of shares of Common Stock offered hereby may be required to pay
stamp taxes and other charges in accordance with the laws and practice of the
country of purchase in addition to the initial public offering price.
At the Company's request, the Underwriters have reserved up to 210,000
shares of Common Stock for sale at the initial public offering price to
officers, directors, employees and certain other persons associated with the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent that these persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered hereby.
75
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
The provisions of Schedule E to the By-Laws of the National Association of
Securities Dealers, Inc. apply to the offering because Wasserstein Perella
Securities, Inc. may be deemed to be an affiliate of the Company for purposes of
Schedule E. In addition, Nikko Europe Plc ("Nikko") could be deemed to be an
affiliate of the Company for purposes of Schedule E because affiliates of Nikko
have limited partnership interests in an affiliate of Blackstone Partners, which
presently owns or has the power to vote 50.0% of the Common Stock. See
"Principal Stockholders and Certain Relationships". Accordingly, the initial
public offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Goldman, Sachs & Co. has served in such role and has recommended a
price in compliance with the requirements of Schedule E. Goldman, Sachs & Co. in
its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
The representatives of the U.S. Underwriters have informed the Company that the
U.S. Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority, except in accordance with the provisions of
Schedule E.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price was negotiated among the Company and
the representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, was the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
Application has been made to list the Common Stock on the New York Stock
Exchange. In order to meet one of the requirements for listing the Common Stock
on the New York Stock Exchange, the U.S. Underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Affiliates of Wasserstein Perella Securities, Inc. will serve on the Board
of Directors and on the Nominating Committee, which is empowered to nominate
persons for election to the Board of Directors and exclusively empowered to fill
any newly created directorships or any other vacancies on the Board of
Directors. See "Principal Stockholders and Certain Relationships". Messrs.
Wasserstein, Weisenburger and Ziebold are currently serving as directors of the
Company. See "Management".
From time to time, Goldman, Sachs & Co. has provided financial advisory
services to Blackstone Partners with respect to matters unrelated to the
Company, for which Goldman, Sachs & Co. has received customary fees in the
ordinary course of business. From time to time, each of Merrill Lynch & Co. and
Wasserstein Perella Securities, Inc. has provided financial advisory services to
certain affiliates of the Partners, with respect to matters unrelated to the
Company, for which each has received customary fees in the ordinary course of
business.
In addition, in 1992 Merrill Lynch & Co. and WP & Co. each provided
financial advisory services relating to the solicitation by Group of consents
from the holders of Group's 11 7/8% Senior Subordinated Debentures due 2001, for
which each received fees of $300,000. In 1991, Wasserstein Perella Securities,
Inc. received fees of approximately $400,000 in connection with repurchases by
the Company on the open market of certain securities of the Company. For further
information with respect to financial advisory and other services provided and
the fees received by and the ownership interests of certain affiliates of
Wasserstein Perella Securities, Inc., see "Principal Stockholders and Certain
Relationships".
76
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
LEGAL OPINIONS
The validity of the Common Stock will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York, and for the Underwriters by Jones,
Day, Reavis & Pogue, New York, New York. From time to time, Jones, Day, Reavis &
Pogue provides legal services to the Company and other entities in which the
Partners have an interest.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the reports of said firm and
upon the authority of said firm as experts in accounting and auditing.
77
<PAGE>
[ALTERNATIVE WRAP FOR INTERNATIONAL PROSPECTUS]
================================================================================
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
-----------
Available Information.............................. 3
Incorporation of Certain Documents
by Reference..................................... 3
Prospectus Summary................................. 4
Risk Factors....................................... 11
Dividends.......................................... 15
Dilution........................................... 15
Use of Proceeds and Consolidation.................. 16
Capitalization..................................... 17
Selected Financial Data............................ 18
Unaudited Pro Forma Consolidated Financial Data.... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........................ 25
Business........................................... 37
Management......................................... 54
Principal Stockholders and Certain Relationships... 62
New Credit Facilities.............................. 64
Description of the Capital Stock................... 68
Certain United States Tax Consequences to
Non-United States Holders.......................... 72
Underwriting....................................... 74
Legal Opinions..................................... 77
Experts............................................ 77
Index to Financial Statements...................... F-1
------------------------
UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER 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.
================================================================================
- --------------------------------------------------------------------------------
21,000,000 SHARES
COLLINS & AIKMAN
CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[LOGO]
------------------------
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL LIMITED
WASSERSTEIN PERELLA SECURITIES, INC.
NIKKO EUROPE PLC
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Company in
connection with the issuance and distribution of the securities being
registered, other than underwriting compensation and subject to further
contingencies:
SEC Registration Fee....................................... $ 176,466.75
NASD Filing Fee............................................ 30,500.00
NYSE Listing Fee........................................... 319,100.00
Legal Fees and Expenses.................................... 350,000.00
Transfer Agent and Registrar Fee........................... 2,000.00
Blue Sky Fees and Expenses................................. 10,000.00
Accounting Fees and Expenses............................... 250,000.00
Printing and Engraving Expenses............................ 250,000.00
Miscellaneous.............................................. 5,000.00
-----------------
Total.................................................... $ 1,393,066.75
-----------------
-----------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware (the "DGCL")
authorizes the Company to indemnify each director and officer of the Company
against expenses (including attorney's fees, judgments, fines and amounts paid
in settlement) actually and reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceedings in which
he is involved by reason of the fact that he is or was a director or officer of
the Company or is or was serving as a director, officer, employee or agent of
another corporation or organization at the request of the Company, provided that
he acted in good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, provided he had no reasonable cause to believed
that his conduct was unlawful. The determination whether a director or officer
has met the applicable standard of conduct may be made by (1) the Board of
Directors by vote of a quorum consisting of directors who were not parties to
such action, suit or proceedings, or (2) if such a quorum is not obtainable, or
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel, in a written opinion, or (3) by the stockholders.
Indemnification is mandatory in any instance in which the director or officer is
successful on the merits or otherwise in the defense of any proceeding or any
claim, issue or matter thereof. If the legal proceeding, however, is by or in
the right of the Company, Section 145 provides that the director or officer may
not be indemnified in respect to any claim, issue or matter as to which he shall
have been adjudged to be liable to the Company unless a court determines
otherwise. Section 145 also authorizes the payment of expenses incurred in
defense of any proceeding in advance of its final disposition upon the receipt
by the Company of an undertaking of the director or officer to repay the amounts
so advanced if it is ultimately determined that he is not entitled to indemnity.
It further provides that the power to indemnify includes the power to indemnify
persons who served as directors and officers of Holdings II prior to its merger
into the Company, as well as persons who cease to be directors or officers of
the Company.
Article Eighth of the Restated Certificate, provides that, to the fullest
extent permitted by the DGCL, as now or hereafter in effect, no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for any breach of his fiduciary duty as a director. However,
under Section 102(b)(7) of the DGCL, a director cannot be absolved from
liability (1) for any breach of his duty of loyalty to the Company or its
stockholders, (2) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the
II-1
<PAGE>
law, (3) under Section 174 of the DGCL, or (4) for any transaction from which
the director derived an improper personal benefit.
Article VIII of the Company's By-Laws, a copy of which is filed as Exhibit
4.2, provides that any person made a party to, threatened to be made a party to,
or otherwise involved in, any action, suit or proceeding by reason of the fact
that he is or was a director or officer of the Company or is or was a director,
officer, employee or agent of any corporation for which he served as such at the
request of the Company (including service with respect to employee benefit
plans), shall be indemnified by the Company to the fullest extent authorized by
the DGCL against all expenses, including attorneys' fees, reasonably incurred by
him in connection therewith except for expenses incurred in connection with
certain proceedings (or parts thereof) initiated by the indemnitee. Such right
of indemnification includes the right to be paid, in advance, all expenses
incurred in connection with the defense of a proceeding (upon receipt of any
required undertaking) and grants to an indemnitee the right to bring suit to
enforce the rights to indemnification and to the advancement of expenses
provided in Article VIII. The rights to indemnification and to the advancement
of expenses provided therein shall not be deemed exclusive of any other rights
to which such director or officer may be entitled apart from the indemnification
provisions of said Article VIII of the Company's By-Laws. Additionally, the
Company intends to maintain directors and officers liability insurance that
insures the directors and officers of the Company against any expense, liability
or loss to the extent such insurance is available at prices the Company
determines are reasonable.
ITEM 16. EXHIBITS.
(a) Exhibits. See Exhibit Index on page E-1.
(b) Financial Statement Schedules. See Index to Financial Statement
Schedules on page S-1.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment to
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 27th day of
June 1994.
COLLINS & AIKMAN
HOLDINGS CORPORATION
By: /s/ DAVID A. STOCKMAN
..................................
David A. Stockman
Co-Chairman of the
Board of Directors
By: /s/ BRUCE WASSERSTEIN
..................................
Bruce Wasserstein
Co-Chairman of the Board
of Directors
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE><CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Co-Chairman of the Board of Directors June 27, 1994
..............................................
David A. Stockman
* Co-Chairman of the Board of Directors June 27, 1994
..............................................
Bruce Wasserstein
* President and Director June 27, 1994
.............................................. (Principal Executive Officer)
Stephen A. Schwarzman
* Principal Financial and Accounting June 27, 1994
.............................................. Officer
David J. McKittrick
/s/ RANDALL J. WEISENBURGER Vice Chairman and Director June 27, 1994
..............................................
Randall J. Weisenburger
* Director June 27, 1994
..............................................
James R. Birle
* Director June 27, 1994
..............................................
W. Townsend Ziebold, Jr.
*By: /s/ RANDALL J. WEISENBURGER
..............................................
Randall J. Weisenburger
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Please note that in the following description of exhibits, the title of any
document entered into, or filing made, prior to July 15, 1992 reflects the name
of the entity a party thereto or filing, as the case may be, at such time.
Accordingly, documents and filings described below may refer to WCI Holdings II
Corporation, WCI Holdings Corporation or Wickes Companies, Inc., if such
documents and filings were made prior to July 15, 1992.
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
+1.1 Form of Underwriting Agreement (U.S. Version).
+1.2 Form of Underwriting Agreement (International Version).
4.1 Certificate of Incorporation of the Company, as amended, is hereby incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Registration No. 33-53321) filed April 28, 1994.
4.2 By-laws of the Company is hereby incorporated by reference to Exhibit 3.1 to the Company's
Report on Form 10-Q for the fiscal quarter ended April 30, 1994.
4.3 Specimen Stock Certificate for the Common Stock.
4.4 Indenture dated as of May 1, 1985, pursuant to which 11 3/8% Usable Subordinated
Debentures due 1997 of Collins & Aikman Group, Inc. (formerly named Wickes Companies,
Inc.) were issued is hereby incorporated by reference to Exhibit 4(f) of Wickes
Companies, Inc.'s Current Report on Form 8-K dated May 21, 1985 (SEC File No. 1-6761).
+4.5 Form of New Credit Agreement to be entered into by Collins & Aikman Products Co. (formerly
Collins & Aikman Corporation) and a syndicate of banks and other financial institutions
for whom Chemical Bank will act as agent.
+4.6 Form of Restated Certificate of Incorporation of the Company
4.7 Form of Restated By-laws of the Company
+4.8 Form of Stockholders Agreement among the Company, Collins & Aikman Group, Inc., Blackstone
Capital Partners L.P. and Wasserstein Perella Partners L.P.
5. Opinion of Cravath, Swaine & Moore as to the legality of the shares being issued.
10.1 Employment Agreements dated as of June 16, 1989 between Wickes Companies, Inc. and certain
executive officers are hereby incorporated by reference to Exhibit 10.1 of Wickes
Companies, Inc. Form 10-K for the fiscal year ended January 27, 1990.
10.2 First Amendment to Employment Agreements dated as of March 20, 1990 between Wickes
Companies, Inc. and certain executive officers is hereby incorporated by reference to
Exhibit 10.2 of Wickes Companies, Inc.'s Form 10-K for the fiscal year ended January 27,
1990.
10.3 Employment Agreement dated as of July 18, 1990 between Wickes Companies, Inc. and an
executive officer is hereby incorporated by reference to Exhibit 10.3 of Wickes
Companies, Inc. Form 10-K for the fiscal year ended January 26, 1991.
10.4 Agreement dated as of March 23, 1992 between Collins & Aikman Group, Inc. and an executive
officer is hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman Holdings
Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.
</TABLE>
E-1
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
10.5 First Amendment to Agreement, dated as of April 4, 1994 between Collins & Aikman Group,
Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.14 of
Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended
January 29, 1994.
10.6 Letter Agreement dated as of May 16, 1991 and Employment Agreement dated as of July 22,
1992 between Collins & Aikman Corporation and an executive officer are hereby
incorporated by reference to Exhibit 10.7 of Collins & Aikman Holdings Corporation's
report on Form 10-K for the fiscal year ended January 30, 1993.
10.7 First Amendment to Employment Agreement dated as of February 24, 1994 between Collins &
Aikman Corporation and an executive officer.
10.8 Employment Agreement dated as of May 1, 1991 between Kayser-Roth Corporation and an
executive officer is hereby incorporated by reference to Exhibit 10.8 of Collins &
Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30,
1993.
10.9 First Amendment to Employment Agreement dated as of May 1, 1991 between Kayser-Roth
Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.9
of Collins & Aikman Holdings Corporation's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1993.
10.10 Letter Agreement dated as of August 12, 1992 between Collins & Aikman Group, Inc. and an
executive officer is hereby incorporated by reference to Exhibit 10.9 of Collins &
Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30,
1993.
10.11 Agreement dated as of February 25, 1993 and First Amendment dated as of March 29, 1993
between Collins & Aikman Group, Inc. and a former executive officer are hereby
incorporated by reference to Exhibit 10.10 of Collins & Aikman Holdings Corporation's
Report on Form 10-K for the fiscal year ended January 30, 1993.
10.12 1993 Employee Stock Option Plan.
10.13 1994 Employee Stock Option Plan.
10.14 Letter Agreements dated as of May 16, 1991 between Collins & Aikman Corporation and
certain executive officers.
10.15 Employment Agreement dated as of April 27, 1992 between Collins & Aikman Corporation and
an executive officer.
10.16 Employment Agreement dated as of March 1, 1993 between Imperial Wallcoverings, Inc. and an
executive officer.
10.17 Employment Agreement dated as of October 1, 1993 between Collins & Aikman Corporation and
an executive officer.
10.18 Warrant Agreement dated as of January 8, 1994 by and between Collins & Aikman Group, Inc.
and Legwear Acquisition corporation is hereby incorporated by reference to Exhibit 10.20
of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended
January 29, 1994.
10.19 Acquisition Agreement dated as of November 22, 1993 as amended and restated as of January
28, 1994, among Collins & Aikman Group, Inc., Kayser-Roth Corporation and Legwear
Acquisition Corporation is hereby incorporated by reference to Exhibit 2.1 of Collins &
Aikman Holdings Corporation's Current Report on Form 8-K dated February 10, 1994.
+10.20 Form of Receivables Sale Agreement among the Company, Collins & Aikman Products Co.
(formerly Collins & Aikman Corporation), WCA Canada, Inc., Imperial Wallcoverings
(Canada), Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura
Acquisition Corp., each of the other subsidiaries of Collins & Aikman Products Co. from
time to time parties thereto and C&A Receivables Company.
</TABLE>
E-2
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
+10.21 Form of Receivables Transfer and Servicing Agreement among C&A Receivables Company,
Collins & Aikman Products Co. (formerly Collins & Aikman Corporation), each of the
subsidiaries of Collins & Aikman Products Co. from time to time parties thereto, the
several financial institutions from time to time parties thereto and Chemical Bank.
+10.22 Collins & Aikman Corporation 1994 Executive Incentive Compensation Plan
+11. Computation of Earnings Per Share.
21. Subsidiaries.
23.1 Consent of Cravath, Swaine & Moore is contained in Exhibit 5.
+23.2 Consent of Arthur Andersen & Co.
24. Power of attorney (contained in the signature section of this Registration Statement).
+99 Voting Agreement between Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P.
</TABLE>
- ---------------
+ Filed herewith.
E-3
Collins & Aikman Corporation
Common Stock
(par value $0.01 per share)
Underwriting Agreement
(U.S. Version)
June , 1994
--
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Wasserstein Perella Securities, Inc.
The Nikko Securities Co. International, Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Dear Sirs:
Collins & Aikman Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 16,800,000 shares (the "Firm Shares") of Common Stock, par value $0.01 per
share ("Stock"), of the Company, and, at the election of the Underwriters, up to
2,520,000 additional shares (the "Optional Shares") of Stock. The Firm Shares
and the Optional Shares which the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "Shares".
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 4,830,000
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
Merrill Lynch International Limited, Wasserstein Perella Securities, Inc. and
Nikko Europe Plc are acting as lead managers. Anything herein or therein to the
contrary notwithstanding, the respective closings under this Agreement and the
International Underwriting Agreement are hereby expressly made conditional on
one another. The Underwriters hereunder and the International Underwriters are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein,
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be
<PAGE>
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the
U.S. and the international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement in respect of the Firm Shares and the
Optional Shares has been filed with the Securities and Exchange Commission
(the "Commission"); such registration statement and any post-effective
amendment thereto, each in the form heretofore delivered to you, and,
excluding exhibits thereto but including all documents incorporated by
reference in the prospectus contained therein, to you for each of the other
Underwriters, have been declared effective by the Commission in such form;
no other document with respect to such registration statement or document
incorporated by reference therein has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended (the "Act"), is
hereinafter called a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and including
(i) the information contained in the form of final prospectus filed with
the Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be
part of the registration statement at the time it was declared effective
and (ii) the documents incorporated by reference in the prospectus
contained in the registration statement at the time such part of the
registration statement became effective, each as amended at the time such
part of the registration statement became effective, are hereinafter
collectively called the "Registration Statement"; such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus"; and any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the Act, as of the date of such Preliminary Prospectus or Prospectus,
as the case may be);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(iii) The documents incorporated by reference in the Prospectus, when
they were filed with the Commission, conformed in all material respects to
the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided,
-2-
<PAGE>
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity, results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully paid
and non-assessable; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable. Except for certain preferred shares
which will be redeemed prior to the sale of Stock contemplated hereby, all
such shares of capital stock of each subsidiary of the Company are owned
beneficially and of record by the Company or one of its subsidiaries, free
and clear of all liens, encumbrances, equities or claims (other than such
of the foregoing as arise under the Credit Agreements);
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder and under the International Underwriting Agreement
have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein and therein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(x) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and the
compliance by the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation of the
-3-
<PAGE>
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except for such conflicts,
breaches or violations which, individually or in the aggregate, would not
have a material adverse effect on the general affairs, management,
financial position, business prospects, stockholders' equity or results of
operations of the Company and its subsidiaries (a "Material Adverse
Effect"), nor will such action result in any violation of the provisions of
the Certificate of Incorporation or By-Laws of the Company or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement and the International
-4-
<PAGE>
Underwriting Agreement, except the registration under the Act of the Shares
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in violation
of its charter or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, loan agreement or note or any material contract, lease
or other instrument to which it is a party or by which it or any of them or
their properties may be bound;
(xii) The statements made in the Prospectus under the caption
"Description of Capital Stock" insofar as they purport to constitute a
summary of the terms of the Stock, under the caption "Certain United States
Tax Consequences to Non-United States Holders," and under the captions "The
New Credit Facilities" and "Underwriting", insofar as they describe the
provisions of the matters therein described, are accurate and fair
summaries;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiv) The Credit Agreement, dated as of the date of this Agreement,
among the Company and the banks party thereto (the "Credit Agreement"), has
been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable in accordance
with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equitable principles; and
immediately prior to or simultaneously with the First Time of Delivery the
Company will consummate the borrowing of not less than $ million of
---
borrowings pursuant to the Credit Agreement (the "Term Borrowings") and
effect the other transactions described under the caption "Use of Proceeds
and Consolidation" in the Prospectus;
(xv) The transactions described under the caption "Use of Proceeds
and Consolidation" in the Prospectus (the "Transactions"), including,
without limitation, the merger of Collins & Aikman Holdings II Corporation
("Holdings II") with and into the Company (the "Holdings II Merger") and
the merger of Collins & Aikman Group, Inc. ("Group") with and into Collins
& Aikman Corporation (the "Group Merger", and collectively with the
Holdings II Merger, the "Consolidation"), have been duly authorized, will
be consummated simultaneously with the First Time of Delivery and, assuming
the consummation of the sale of the Firm Shares pursuant to this Agreement
and the International Underwriting Agreement, the consummation of the Term
Borrowings and the application of the net proceeds of the foregoing as
described under the caption "Use of Proceeds and Consolidation" in the
Prospectus, the consummation of the Transactions will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except for such conflicts,
breaches or violations which, individually or in the aggregate, would not
have a Material Adverse Effect, nor will such action result in any
violation of the provisions of the respective Certificate of Incorporation
or By-laws of the Company, or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
consummation of the Transactions, except for the filing of certificates of
merger in accordance with Delaware law;
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(xvi) The Company and its subsidiaries have filed all federal or
state income or franchise tax returns required to be filed and have paid
all taxes shown thereon as due (except taxes being contested in good faith
as to which adequate provisions have been made to the extent required by
generally accepted accounting principles ("GAAP")), and there is no
material tax deficiency which has been or might reasonably be expected to
be asserted against the Company or any of its subsidiaries (except such of
the foregoing as have been adequately provided for on the books of the
Company and its subsidiaries);
(xvii) Neither the Company, any of its subsidiaries, any predecessor
of any of the foregoing nor, to the knowledge of the Company, any entity as
to which any of the foregoing has any indemnity or similar obligation has
authorized or conducted or has knowledge of the generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product (including crude oil
or any fraction thereof), natural gas, liquefied gas or synthetic gas
defined or regulated under any environmental law (collectively, "Hazardous
Materials") on, in or under any real property leased, owned, used, operated
or by any means controlled by the Company or any subsidiary (the "Real
Property") which, in the case of any of the foregoing, is required to be
disclosed (directly or by incorporation by reference) in the Prospectus, or
in any of the Company's filings required under the Exchange Act, and which
is not so disclosed in accordance with such requirements; the Real Property
and the Company's, each subsidiary's and, to the knowledge of the Company,
each such other entity's, as the case may be, operations are in compliance
in all material respects with all federal, state and local laws,
ordinances, rules and regulations relating to health, safety and the
environment (collectively, "Environmental Laws"), and the Company, each
subsidiary and, to the knowledge of the Company, each such other entity has
all licenses, permits and authorizations required to be had under any
Environmental Law, and is and has operated in compliance therewith, except
for such of the foregoing as, individually or in the aggregate, would not
have a Material Adverse Effect; except as described in the Prospectus,
neither the Company, any of its subsidiaries nor, to the knowledge of the
Company, any such other entity has received any written or oral notice from
any governmental entity or third party, and there is no pending or, to the
best knowledge of the Company or any subsidiary, threatened, and, to the
knowledge of the Company or any subsidiary there are no circumstances with
respect to the Real Property or the operations of the Company or its
subsidiaries that could reasonably be anticipated to form the basis of, any
claim, litigation or any administrative agency proceeding that: (1) alleges
a violation of any Environmental Laws by the Company or any subsidiary, (2)
alleges the Company, any subsidiary or any predecessor of any of the
foregoing nor any entity as to which any of the foregoing has any indemnity
or similar obligation is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Sec.Sec. 9601, et seq. or any state superfund law, (3) alleges possible
contamination of the environment by the Company or any
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<PAGE>
subsidiary, or (4) alleges possible contamination of the Real Property,
except for such of the foregoing as, individually or in the aggregate,
would not have a Material Adverse Effect;
(xviii) No labor dispute with the employees of, or representatives of
employees of, the Company or any of its subsidiaries exists or, to the
knowledge of the Company or any of its subsidiaries, is imminent, and the
Company is not aware of any existing or reasonably foreseeable labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors which, in any such case, might be expected to
result in any Material Adverse Effect;
(xix) The Company and its subsidiaries each owns or possesses, or can
acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know how (including trade secrets and other
unpatented and unpatentable proprietary or confidential information,
systems or procedures), trade marks, service marks and trade names
presently employed by it in connection with the business now operated by
them, and neither the Company nor any subsidiary has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in any
Material Adverse Effect;
(xx) There are no transactions with affiliates, as defined in Rule
405 under the Act, which are required to be disclosed in a Prospectus that
are not fairly disclosed therein;
(xxi) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and neither the Company nor any affiliated
entity is directly or indirectly controlled by or acting on behalf of any
person that is such a company or trust;
(xxii) The Shares have been approved for listing on the New York
Stock Exchange (the "Exchange"), subject only to official notice of
issuance, under the symbol "CKC";
(xxiii) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075 of Florida Statutes (Chapter 92-198,
Laws of Florida); and
(xxiv) Arthur Andersen & Co., who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Holdings II represents and warrants to, and agrees with, each of the
Underwriters that the Holdings II Merger has been duly authorized, and the
consummation thereof will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Holdings II or any of its subsidiaries is a party or by
which Holdings II or any of its subsidiaries is bound or to which any of the
property or assets of Holdings II or any of its subsidiaries is subject, nor
will such action result in any violation of the provisions of the respective
Certificates of Incorporation or By-laws of Holdings II or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Holdings II or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the consummation of the Holdings II Merger, except for the filing
of certificates of merger in accordance with Delaware law.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $............, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters
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shall exercise the election to purchase Optional Shares as provided below, the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares which all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 2,520,000 Optional Shares, at the purchase price per share
set forth in the immediately preceding paragraph, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of such
notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company, in New York Clearing House funds,
all at the offices of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New
York, New York 10022, or at such other place as shall be agreed upon by the
Company and you. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, 9:30 a.m., New York City time, on June ...., 1994 or
such other time and date as you and the Company may agree upon in writing, and,
with respect to the Optional Shares, 9:30 a.m., New York City time, on the date
specified by you in the written notice given by you of the Underwriters'
election to purchase such Optional Shares, or such other time and date as you
and the Company may agree upon in writing. Such time and date for delivery of
the Firm Shares is herein called the "First Time of Delivery". Such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery". Such certificates will be made
available for checking and packaging at least twenty-four hours prior to each
Time of Delivery at the office of Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when the Registration
Statement, or any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus, of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration
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<PAGE>
Statement or Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the delivery
of a prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering or
sale of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including at the option of the Company Rule 158
under the Act);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 calendar days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder or under the International Underwriting Agreement, any securities of
the Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for or that
represent the right to receive the Shares or any such substantially similar
securities (other than pursuant to employee stock option plans existing on, or
upon the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement) without your prior written
consent;
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed and (ii) such
additional information concerning the business and financial condition of the
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Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis
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<PAGE>
to the extent the accounts of the Company and its subsidiaries are consolidated
in reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in the
manner specified in the Prospectus under the caption "Use of Proceeds and the
Consolidation"; and
(i) To use its best efforts to list, subject to notice of issuance, the
Shares on the Exchange.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreements, the Blue Sky Memorandum
and any other documents in connection with the offering, purchase, sale and
delivery of the Shares; (iii) all expenses in connection with the qualification
of the Shares for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) the filing fees incident to securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the sale
of the Shares; (v) the cost of preparing stock certificates; (vi) the cost and
charges of any transfer agent or registrar; and (vii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, Section 8 and Section 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; no stop order suspending the effectiveness of the Registration Statement
or any part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Jones, Day, Reavis & Pogue, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (iii), (v) and (vi)
of subsection (c) below, as well as such other matters relating to the
transactions contemplated hereby as you may request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Cravath, Swaine & Moore, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus;
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(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable;
(iii) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(iv) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement and
the International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(v) The statements made in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute
summaries of the terms of the Stock, under the caption "Certain United
States Tax Consequences to Non-United States Holders", insofar as they
purport to describe the material tax consequences of an investment in
Common Stock, and under the caption "The New Credit Facilities",
insofar as they describe the provisions of the documents therein
described, fairly summarize the matters therein described;
(vi) Although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those covered by
their opinion in subsection (v) of this Section 7(c), they have no
reason to believe that the Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) do not comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder
(including, without limitation, requirements thereunder relating to
the filing of any amendment to the Registration Statement); and they
have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that, as
of its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to make
the statements therein, in light of the circumstances in which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(vii) The Consolidation has been duly and validly effected in
accordance with the General Corporation Law of the State of Delaware;
and
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(viii) The Credit Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforceability of creditors rights
generally and to general equitable principles.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States;
(d) Elizabeth R. Philipp, General Counsel of the Company, shall have
furnished to you her written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel; provided that such counsel
shall state that she believes that such local counsel is qualified to
render an opinion of the nature of the opinions on which she has
relied);
(iv) Each significant subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable
and are owned beneficially and of record by the Company or one of its
subsidiaries, free and clear of all liens, encumbrances, equities or
claims other than those arising under the Credit Agreements (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel; provided that such counsel
shall state that she believes that such local counsel is qualified to
render an opinion of the nature of the opinions on which she has
relied);
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
which such counsel has reasonable cause to believe would individually
or in the aggregate have a material adverse effect on the consolidated
financial position, stockholder's equity or results of operations of
the Company and its subsidiaries; and, to such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
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<PAGE>
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, which would have a Material Adverse Effect; nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-Laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) Neither the Company nor any of its significant
subsidiaries is in violation of its charter or in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, loan
agreement or note or material contract, lease or other instrument
known to such counsel to which it is a party or by which it or any of
them or their properties may be bound;
(ix) The documents incorporated by reference in the Prospectus
(other than the financial statements and related schedules therein, as
to which such counsel need express no opinion), when they were filed
with the Commission, complied as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations of
the Commission thereunder; and she has no reason to believe that any
of such documents, when such documents were so filed, contained an
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such documents
were so filed, not misleading; and
(x) Although she does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, she has no reason to believe
that the Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
does not comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder
(including, without limitation, requirements thereunder relating to
the filing of any amendment to the Registration Statement); and she
has no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that, as
of its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to make
the statements therein, in light of the circumstances in which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and she does
not know of any contracts or other
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<PAGE>
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be incorporated by reference
into the Prospectus or required to be described in the Registration
Statement or the Prospectus which are not filed or incorporated by
reference or described as required.
In rendering such opinion, such counsel may state that she expresses no
opinion as to the laws of any jurisdiction outside the United States, and, in
respect of certain matters of fact, she may rely upon certificates of officers
of the Company or its subsidiaries;
(e) At 10:00 a.m., New York City time, on the effective date of the
Registration Statement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each Time of
Delivery, Arthur Andersen & Co. shall have furnished to you a letter or letters,
dated the respective date of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in Clause (i) or
(ii), is in your judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's existing or proposed debt securities or
preferred stock by any "nationally recognized statistical rating organization,"
as that term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its rating of
any of the Company's debt securities or preferred stock;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the Exchange; (ii) a suspension or material limitation in trading
in the securities of the Company or any of its subsidiaries on the American
Stock Exchange; (iii) a general moratorium on commercial banking activities in
New York declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war if the effect of
any such event specified in this Clause (iv) in your judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) The Shares to be sold by the Company at such Time of Delivery shall
have been duly listed, subject to notice of issuance, on the Exchange;
(j) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each principal stockholder of the Company to the
effect that, except in connection with the transactions described in the
Prospectus under the caption "Use of Proceeds and Consolidation", from the date
hereof and continuing to and including the date 180 calendar days after the date
of the Prospectus, such stockholder will not, directly or indirectly, offer,
sell, contract to sell or otherwise dispose of any shares of Stock or securities
of the Company that are substantially similar to the Stock, including but not
limited to any securities that are convertible into or exchangeable for or that
represent the right to receive shares of Stock or any such substantially similar
securities (other than pursuant to employee stock option plans
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<PAGE>
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement) without your prior
written consent;
(k) The Consolidation shall have been effected as described in the
Prospectus;
(l) There shall not have occurred or be continuing any default or
breach under the Credit Agreement and immediately prior to the First Time of
Delivery (A) there shall be no non-compliance or failure to satisfy any
condition to borrowing under the Credit Agreement other than the sale of the
Shares hereunder and (B) the Company shall have consummated the Term Borrowings
and effected the other transactions referenced under the caption "Use of
Proceeds and Consolidation" in the Prospectus; and
(m) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company, satisfactory
to you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of their respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of this
Section, and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through you expressly for use
therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that
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<PAGE>
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(which shall not, except with the consent of the indemnified party, be counsel
to the indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Shares purchased under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11 (f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company within the meaning of the Act.
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<PAGE>
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled (but shall not have an
obligation) to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such Shares, or
the Company notifies you that it has so arranged for the purchase of such
Shares, you or the Company shall have the right to postpone such Time of
Delivery for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees to
file promptly any amendments to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company except for the expenses to be borne by
the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Section 6 and Section 8 hereof; but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Section 6 and Section 8 hereof.
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<PAGE>
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., at 85 Broad Street, New York, N.Y. 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company, or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (U.S. Version), the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
Collins & Aikman Corporation
By:....................................
Name:
Title:
Collins & Aikman Holdings II Corporation
By:....................................
Name:
Title:
Accepted as of the date hereof
at New York, New York:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Wasserstein Perella Securities, Inc.
The Nikko Securities Co. International, Inc.
By: ...........................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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<PAGE>
SCHEDULE I
Number of Optional
Total Number Shares to be
of Firm Purchased if
Shares to be Maximum Option
Underwriter Purchased Exercised
----------- --------- ---------
Goldman, Sachs & Co . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . .
Wasserstein Perella Securities,
Inc. . . . . . . . . . . . . . . . .
The Nikko Securities Co.
International, Inc. . . . . . . . . .
Total . . . . . . . . . . 16,800,000 2,520,000
========== =========
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the
effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of
the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements, any
supplementary financial information and schedules and pro
forma financial information examined by them and included or
incorporated by reference in the Registration Statement or
the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act or
the Exchange Act, as applicable, and the related rules and
regulations thereunder; and they have made a review in
accordance with standards established by the American
Institute of Certified Public Accountants of the
consolidated interim financial statements, selected
financial data, pro forma financial information and
condensed financial statements derived from audited
financial statements of the Company for the periods
specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives");
(iii) The unaudited selected financial information
with respect to the consolidated results of operations and
financial position of the Company for the five most recent
fiscal years included in the Prospectus and included or
incorporated by reference in Item 6 of the Company's Annual
Report on Form 10-K for the most recent fiscal year agrees
with the corresponding amounts in the audited consolidated
financial statements for such five fiscal years which were
included or incorporated by reference in the Company's
Annual Reports on Form 10-K for such fiscal years;
(iv) On the basis of limited procedures, not
constituting an examination in accordance with generally
accepted auditing standards, consisting of a reading of the
unaudited financial statements and other information
referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial
statements included or incorporated by reference in the
Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting
matters and such other inquiries and procedures as are
customarily made or carried out by such firm in connection
with public offerings and sales of equity securities (such
inquiries and procedures to be specified in such letter),
nothing came to their attention that caused them to believe
that:
(A) the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included or
incorporated by reference in the Company's Quarterly
Reports on Form 10-Q incorporated by reference in the
Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of
the Exchange Act as it applies to Form 10-Q and the
related published rules and regulations thereunder or
are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with the basis for the audited consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included or
incorporated by reference in the Company's Annual
Report on Form 10-K for the most recent fiscal year;
<PAGE>
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not
agree with the corresponding items in the unaudited
consolidated financial statements from which such data
and items were derived, and any such unaudited data and
items were not determined on a basis substantially
consistent with the basis for the corresponding amounts
in the audited consolidated financial statements
included or incorporated by reference in the Company's
Annual Report on Form 10-K for the most recent fiscal
year;
<PAGE>
(C) the unaudited financial statements which were
not included in the Prospectus but from which were
derived the unaudited condensed financial statements
referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the
basis for the audited financial statements included or
incorporated by reference in the Company's Annual
Report on Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated
condensed financial statements included or incorporated
by reference in the Prospectus do not comply as to form
in all material respects with the applicable accounting
requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments
have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been
any changes in the consolidated capital stock (other
than issuances of capital stock upon exercise of
options and stock appreciation rights which were
outstanding on the date of the latest balance sheet
included or incorporated by reference in the
Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or net
assets or other items specified by the Representatives,
or any increases in any items specified by the
Representatives, in each case as compared with amounts
shown in the latest balance sheet included or
incorporated by reference in the Prospectus, except in
each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest
financial statements included or incorporated by
reference in the Prospectus to the specified date
referred to in Clause (E), there were any decreases in
consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income
or other items specified by the Representatives, or any
increases in any items specified by the
Representatives, in each case as compared with the
comparable period of the preceding year and with any
other period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(v) In addition to the examination referred to in
their reports included or incorporated by reference in the
Prospectus and the limited procedure, inspection of minute
books, inquiries and other procedures referred to in
paragraphs (iii) and (iv) above, they have carried out
certain specified procedures, not constituting an
examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which
are derived from the general accounting records of the
Company and its subsidiaries which appear in the Prospectus
and have compared certain of such amounts, percentages and
financial information with the accounting records of the
Company and its subsidiaries and have found them to be in
agreement.
Collins & Aikman Corporation
Common Stock
(par value $.01 per share)
----------------
Underwriting Agreement
(International Version)
June __, 1994
Goldman Sachs International,
Merrill Lynch International Limited
Wasserstein Perella Securities, Inc.
Nikko Europe Plc
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International
8-10 New Fetter Lane,
London EC4A 1DB, England
Dear Sirs:
Collins & Aikman Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 4,200,000 shares (the "Firm Shares"), par value $.01 per share
("Stock"), of the Company, and, at the election of the Underwriters, up to
630,000 additional shares (the "Optional Shares") of Stock. The Firm Shares
and the Optional Shares which the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "Shares".
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto
(the "U.S. Underwriting Agreement"), providing for the sale by the Company of
up to a total of 19,320,000 shares of Stock (the "U.S. Shares"), including
the over allotment option thereunder, through arrangements with certain
underwriters in the United States (the "U.S. Underwriters"), for whom
Goldman, Sachs & Co., Merrill Lynch & Co., Wasserstein Perella Securities,
Inc. and The Nikko Securities Co. International, Inc. are acting as
representatives. Anything herein or therein to the contrary notwithstanding,
the respective closings under this Agreement and the U.S. Underwriting
Agreement are hereby expressly made conditional on one another. The
Underwriters hereunder and the U.S. Underwriters are simultaneously entering
into an Agreement between U.S. and International Underwriting Syndicates (the
"Agreement between the Syndicates") which provides, among other things, for
the transfer of shares of Stock between the two syndicates and for
consultation by the Lead Managers hereunder with Goldman, Sachs & Co. prior
to exercising the rights of the Underwriters under Section 7 hereof. Two
forms of prospectus are to be used in connection with the offering and sale
of shares of Stock contemplated by the foregoing, one relating
<PAGE>
to the Shares hereunder and the other relating to the U.S. Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11
herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the U.S. Underwriting Agreement,
and references herein to any prospectus whether in preliminary or final form,
and whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying
the same, references (whether in these precise words or their equivalent) in
the incorporated provisions to the "Underwriters" shall be to the
Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as
just defined, to "this Agreement" (meaning therein the U.S. Underwriting
Agreement) shall be to this Agreement (except where this Agreement is already
referred to or as the context may otherwise require) and to the
representatives of the Underwriters or to Goldman, Sachs & Co. shall be to
the addressees of this Agreement and to Goldman Sachs International ("GSI"),
and, in general, all such provisions and defined terms shall be applied
mutatis mutandis as if the incorporated provisions were set forth in full
herein having regard to their context in this Agreement as opposed to the
U.S. Underwriting Agreement.
1. The Company and Collins & Aikman Holdings II Corporation, a Delaware
corporation ("Holdings II"), hereby make to the Underwriters the same
respective representations, warranties and agreements as are set forth in
Section 1 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $........, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) as set forth opposite
the name of such Underwriter in Schedule I hereto and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to
each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share
set forth in clause (a) of this Section 2, that portion of the number of
Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of
which is the maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum number of the
Optional Shares which all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants, severally and not jointly, to the
Underwriters the right to purchase at their election up to 630,000 Optional
Shares, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares.
Any such election to purchase Optional Shares may be exercised only by
written notice from you to the Company, given within a period of 30 calendar
days after the date of this Agreement and setting forth the aggregate number
of Optional Shares to be purchased and the date on which such Optional Shares
are to be delivered, as determined by you but in no event earlier than the
First Time of Delivery (as defined in Section 4 hereof) or, unless you and
the Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement
among Underwriters (International Version) and Selling Agreements, which have
been previously submitted to the Company by you. Each Underwriter hereby
makes to and with
2
<PAGE>
the Company the representations and agreements of such Underwriter as a
member of the selling group contained in Sections 3(d) and 3(e) of the form
of Selling Agreement.
4. Certificates in definitive form for the Shares to be purchased by
each Underwriter hereunder, and in such denominations and registered in such
names as GSI may request upon at least forty-eight hours' prior notice to the
Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company and the Custodian, as their
interests may appear, in New York Clearing House funds, all at the offices of
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022,
or at such other place as shall be agreed upon by the Company and you. The
time and date of such delivery and payment shall be, with respect to the Firm
Shares, 9:30 a.m., New York City time, on ...................., 1994 or such
other time and date as you, the Company and the Selling Stockholders may
agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m.,
New York City time, on the date specified by you in the written notice given
by you of the Underwriters' election to purchase such Optional Shares, or at
such other time and date as you and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time
of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery." Such certificates will be made available for checking
and packaging at least twenty four hours prior to each Time of Delivery at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York
10004.
5. The Company hereby makes with the Underwriters the same agreements
as are set forth in Section 5 of the U.S. Underwriting Agreement, which
Section is incorporated herein by this reference.
6. The Company and the Underwriters hereby agree with respect to
certain expenses on the same terms as are set forth in Section 6 of the
U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
7. Subject to the provisions of the Agreement between, the obligations
of the Underwriters hereunder shall be subject, in their discretion, at each
Time of Delivery to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have
performed all of their respective obligations hereunder theretofore to be
performed, and additional conditions identical to those set forth in Section
7 of the U.S. Underwriting Agreement, which Section is incorporated herein by
this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through GSI expressly
for use therein.
3
<PAGE>
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through GSI expressly for use therein; and will reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under such subsection. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations.The relative benefits
received by the Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations
4
<PAGE>
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company (including any person who, with his consent, is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery,
you may in your discretion arrange for you or another party or other parties
to purchase such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such Shares, you or
the Company shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the Prospectus which
in your opinion may thereby be made necessary. The term "Underwriter" as used
in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to purchase
the number of shares which such Underwriter agreed to purchase hereunder at
such Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares
which such Underwriter agreed to purchase hereunder) of the Shares of such
defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time
5
<PAGE>
of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company,
except for the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter
from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set
forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or
on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling person of the Company,
and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except
as provided in Section 6 and Section 8 hereof; but, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided
herein, the Company will reimburse the Underwriters through GSI for all
out-of-pocket expenses approved in writing by GSI, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Section 6 and Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by GSI on behalf of you as the representatives of
the Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to the Underwriters in care of GSI, Peterborough
Court, 133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital
Markets, Telex No. 94012165, facsimile transmission No. (071) 774-1550; and
if to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: Secretary; provided, however, that any notice to an
Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by GSI upon
request. Any such statements, requests, notices or agreements shall take
effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Section 8 and Section 10 hereof, the officers and directors of the Company
and each person who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, United States of America.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
6
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us eight counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters
and the Company. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in
a form of Agreement among Underwriters (International Version), the form of
which shall be furnished to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
Collins & Aikman Corporation
By:..................................
Name:
Title:
Collins & Aikman Holdings II Corporation
By:..................................
Name:
Title:
Accepted as of the date hereof at
New York, New York:
Goldman Sachs International
Merrill Lynch International Limited
Wasserstein Perella Securities, Inc.
Nikko Europe Plc
By: Goldman Sachs International
By:..........................................
(Attorney-in-fact)
On behalf of each of the Underwriters
7
<PAGE>
SCHEDULE I
Number of
Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- --------------
Goldman Sachs International . . . . . . .
Merrill Lynch International Limited . . .
Wasserstein Perella Securities, Inc . . .
Nikko Europe Plc . . . . . . . . . . . .
Total 4,200,000 630,000
========= =======
8
Execution Copy
--------------
=================================================================
CREDIT AGREEMENT
Dated as of June 22, 1994
Among
COLLINS & AIKMAN PRODUCTS CO.,
as Borrower,
WCA CANADA INC.,
as Canadian Borrower,
COLLINS & AIKMAN CORPORATION,
as Guarantor,
THE LENDERS NAMED HEREIN,
CONTINENTAL BANK, N.A.,
NATIONSBANK, N.A.,
as Managing Agents,
And
CHEMICAL BANK,
as Administrative Agent
=================================================================
<PAGE>
TABLE OF CONTENTS
Article Section Page
I. DEFINITIONS
SECTION 1.01. Defined Terms. . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . 19
II. THE CREDITS
SECTION 2.01. Commitments. . . . . . . . . . . . . . 20
SECTION 2.02. Loans . . . . . . . . . . . . . . . . 22
SECTION 2.03. Notice of Borrowings . . . . . . . . . 23
SECTION 2.04. Notes; Repayment of Loans . . . . . . 24
SECTION 2.05. Fees. . . . . . . . . . . . . . . . . 24
SECTION 2.06. Interest on Loans . . . . . . . . . . 25
SECTION 2.07. Default Interest . . . . . . . . . . . 25
SECTION 2.08. Alternate Rate of Interest . . . . . . 26
SECTION 2.09. Termination and Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.10. Conversion and Continuation of
Delayed Draw Term,
Term and Canadian Term Borrowings . . . 26
SECTION 2.11. Repayment of Term and Delayed Draw
Term Borrowings . . . . . . . . . . . . . . . . . . 28
SECTION 2.12. Prepayment . . . . . . . . . . . . . . 28
SECTION 2.13. Reserve Requirements; Change in
Circumstances . . . . . . . . . . . . . . . . . . . 30
SECTION 2.14. Change in Legality . . . . . . . . . . 31
SECTION 2.15. Indemnity . . . . . . . . . . . . . . 31
SECTION 2.16. Pro Rata Treatment . . . . . . . . . . 32
SECTION 2.17. Payments . . . . . . . . . . . . . . . 32
SECTION 2.18. Taxes . . . . . . . . . . . . . . . . 32
SECTION 2.19. Issuance of Letters of Credit . . . . 35
SECTION 2.20. Participations; Unconditional
Obligations . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.21. Letter of Credit Fee . . . . . . . . . 36
SECTION 2.22. Agreement To Repay Letter of Credit
Disbursements . . . . . . . . . . . . . . . . . . . 36
SECTION 2.23. Letter of Credit Operations . . . . . 37
SECTION 2.24. Cash Collateralization . . . . . . . . 37
SECTION 2.25. Termination and Reduction of Letter
of Credit Commitment . . . . . . . . . . . . . . . 37
III. REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization, Corporate Powers . . . . 38
SECTION 3.02. Authorization . . . . . . . . . . . . 38
SECTION 3.03. Enforceability . . . . . . . . . . . . 38
SECTION 3.04. Recapitalization . . . . . . . . . . . 39
SECTION 3.05. Use of Proceeds . . . . . . . . . . . 39
SECTION 3.06. Federal Reserve Regulations . . . . . 39
i
<PAGE>
Article Section Page
SECTION 3.07. Capitalization of the Borrower and
Holdings . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.08. Pledge Agreement . . . . . . . . . . . 40
SECTION 3.09. Financial Statements . . . . . . . . . 40
SECTION 3.10. No Material Adverse Change . . . . . . 40
SECTION 3.11. Title to Properties; Possession
Under Leases . . . . . . . . . . . . . . . . . . . 40
SECTION 3.12. Subsidiaries . . . . . . . . . . . . . 41
SECTION 3.13. Litigation; Compliance with Laws . . . 41
SECTION 3.14. Agreements . . . . . . . . . . . . . . 41
SECTION 3.15. Investment Company Act . . . . . . . . 41
SECTION 3.16. Public Utility Holding Company Act . . 41
SECTION 3.17. Tax Returns . . . . . . . . . . . . . 42
SECTION 3.18. No Material Misstatements . . . . . . 42
SECTION 3.19. Employee Benefit Plans . . . . . . . . 42
SECTION 3.20. Labor Matters . . . . . . . . . . . . 43
SECTION 3.21. Environmental Matters . . . . . . . . 43
SECTION 3.22. Solvency . . . . . . . . . . . . . . . 44
SECTION 3.23. Absence of Certain Restrictions . . . 44
SECTION 3.24. No Foreign Assets Control Regula-
tion Violation . . . . . . . . . . . . . . . . . . 45
SECTION 3.25. Insurance . . . . . . . . . . . . . . 45
SECTION 3.26. Certain Other Representations . . . . 45
IV. CONDITIONS
SECTION 4.01. All Credit Events . . . . . . . . . . 45
SECTION 4.02. First Borrowing . . . . . . . . . . . 46
V. AFFIRMATIVE COVENANTS
SECTION 5.01. Existence; Businesses and Proper-
ties . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.02. Insurance . . . . . . . . . . . . . . 50
SECTION 5.03. Taxes . . . . . . . . . . . . . . . . 50
SECTION 5.04. Financial Statements, Reports,
Amendments, etc. . . . . . . . . . . . . . . . . . 50
SECTION 5.05. Litigation and Other Notices . . . . . 52
SECTION 5.06. ERISA . . . . . . . . . . . . . . . . 52
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections . . . . . . . . . . . . 52
SECTION 5.08. Use of Proceeds . . . . . . . . . . . 52
SECTION 5.09. Further Assurances . . . . . . . . . . 53
SECTION 5.10. Change in Ownership . . . . . . . . . 53
SECTION 5.11. Fiscal Year; Accounting . . . . . . . 53
SECTION 5.12. Dividends . . . . . . . . . . . . . . 53
SECTION 5.13. Rate Protection Agreements . . . . . . 54
SECTION 5.14. Corporate Separateness . . . . . . . . 54
SECTION 5.15. Business of Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . 54
VI. NEGATIVE COVENANTS
SECTION 6.01. Indebtedness . . . . . . . . . . . . . 54
ii
<PAGE>
Article Section Page
SECTION 6.02. Dividends and Distributions . . . . . 56
SECTION 6.03. Capital Expenditures . . . . . . . . . 57
SECTION 6.04. Liens . . . . . . . . . . . . . . . . 57
SECTION 6.05. Priority of Loan Payments . . . . . . 59
SECTION 6.06. Sale and Lease-Back Transactions . . . 60
SECTION 6.07. Investments, Loans and Advances . . . 60
SECTION 6.08. Mergers, Consolidations, Sales of
Assets and Acquisitions . . . . . . . . . . . . . . 61
SECTION 6.09. Transactions with Affiliates and
Stockholders . . . . . . . . . . . . . . . . . . . 62
SECTION 6.10. Subordinated Indebtedness . . . . . . 62
SECTION 6.11. Amendment of Constitutive Docu-
ments; Change in Corporate Structure . . . . . . . 63
SECTION 6.12. Business of Holdings and Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . 63
SECTION 6.13. Restrictive Agreements . . . . . . . . 63
SECTION 6.14. Interest Coverage Ratio . . . . . . . 63
SECTION 6.15. EBITDA . . . . . . . . . . . . . . . . 63
SECTION 6.16. Leverage Ratio . . . . . . . . . . . . 63
SECTION 6.17. Current Ratio . . . . . . . . . . . . 64
SECTION 6.18. Tax Sharing . . . . . . . . . . . . . 64
SECTION 6.19. Significant Subsidiaries . . . . . . . 64
SECTION 6.20. Inactive Subsidiaries . . . . . . . . 64
VII. EVENTS OF DEFAULT
VIII. THE ADMINISTRATIVE AGENT
IX. MISCELLANEOUS
SECTION 9.01. Notices . . . . . . . . . . . . . . . 69
SECTION 9.02. Survival of Agreement . . . . . . . . 69
SECTION 9.03. Binding Effect . . . . . . . . . . . . 70
SECTION 9.04. Successors and Assigns . . . . . . . . 70
SECTION 9.05. Expenses; Indemnity . . . . . . . . . 72
SECTION 9.06. Right of Setoff; Sharing . . . . . . . 73
SECTION 9.07. Applicable Law . . . . . . . . . . . . 74
SECTION 9.08. Waivers; Amendment . . . . . . . . . . 74
SECTION 9.09. Interest Rate Limitation . . . . . . . 75
SECTION 9.10. Entire Agreement . . . . . . . . . . . 75
SECTION 9.11. Waiver of Jury Trial . . . . . . . . . 75
SECTION 9.12. Severability . . . . . . . . . . . . . 75
SECTION 9.13. Counterparts . . . . . . . . . . . . . 75
SECTION 9.14. Headings . . . . . . . . . . . . . . . 75
SECTION 9.15. Jurisdiction; Consent to Service of
Process . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 9.16. Conversion of Currencies . . . . . . . 76
SECTION 9.17. Confidentiality . . . . . . . . . . . 76
iii
<PAGE>
Exhibits
Exhibit A-1Revolving Credit Note
Exhibit A-2Delayed Draw Term Note
Exhibit A-3Term Note
Exhibit A-4Swingline Note
Exhibit A-5Canadian Term Note
Exhibit A-6Intercompany Note
Exhibit BAssignment and Acceptance
Exhibit CAdministrative Questionnaire
Exhibit DForm of Guarantee Agreement
Exhibit EForm of Pledge Agreement
Exhibit FForm of Opinion of Cravath, Swaine & Moore,
Elizabeth R. Philipp, Esq. and Stikeman, Elliott
Exhibit G
Form of Compliance Certificate
Exhibit H
Form of Intercreditor Agreement
Schedules
1.01(A) Applicable Margin
1.01(B) Applicable Prepayment Percentage
1.01(C) Additional Designated Persons
1.01(D) Subordination Terms
2.01 Commitments
2.11(a) Term Loan Amortization Schedule; Canadian Term Loan
Amortization Schedule
3.07(b)(1)Holdings Common Stock By Designated Persons
3.07(b)(2)Options and Rights Regarding Holdings
Capital Stock
3.12(a) Subsidiaries of Holdings
3.12(b) Outstanding Commitments Relating to Capital Stock
3.17 Tax Matters
4.02(o) Indebtedness to be repaid on Closing Date
6.01 Existing Indebtedness
6.04 Existing Liens
6.07 Existing Investments
iv
<PAGE>
CREDIT AGREEMENT dated as of June 22, 1994, among
COLLINS & AIKMAN PRODUCTS CO., a Delaware corporation
(the "Borrower"), WCA CANADA INC., a Canadian corporation
(the "Canadian Borrower"), COLLINS & AIKMAN CORPORATION,
a Delaware corporation ("Holdings"), the financial
institutions listed in Schedule 2.01 hereto (the
"Lenders"), and CHEMICAL BANK, a New York banking
corporation ("Chemical"), as administrative agent for the
Lenders and the Issuing Banks (in such capacity, the
"Administrative Agent").
The Borrower has requested the Lenders to extend credit in
order to enable (a) the Borrower, subject to the terms and
conditions of this Agreement, to borrow (i) on a term basis, on
the Closing Date (as defined herein), an aggregate principal
amount not in excess of $405,000,000, (ii) on a term basis, at
any time during the Delayed Draw Availability Period (as defined
herein), an aggregate principal amount not in excess of
$25,000,000 and (iii) on a revolving basis, at any time and from
time to time prior to the Revolving Credit Maturity Date (as
defined herein), an aggregate principal amount at any time
outstanding not in excess of $150,000,000 and (b) the Canadian
Borrower, subject to the terms and conditions of this Agreement,
to borrow on a term basis, on the Closing Date, an aggregate
principal amount not in excess of $45,000,000. The Borrower also
has requested the Issuing Banks to issue letters of credit for
the account of the Borrower (with the exposure on such letters of
credit being limited to $50,000,000 and resulting in a reduction
to the availability of borrowings on a revolving basis). The
proceeds of such borrowings and such letters of credit are to be
used as described herein. The Lenders are willing to extend such
credit to the Borrower and the Canadian Borrower on the terms and
subject to the conditions set forth herein.
Accordingly, the Borrower, the Canadian Borrower, Holdings,
the Lenders, the Issuing Banks and the Administrative Agent agree
as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms. In addition to the terms
defined above, as used in this Agreement the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR
Loans.
"ABR Canadian Term Loan" shall mean any Canadian Term
Loan bearing interest at a rate determined by reference to
the Alternate Base Rate in accordance with the provisions of
Article II.
<PAGE>
2
"ABR Delayed Draw Term Loan" shall mean any Delayed Draw
Term Loan bearing interest at a rate determined by reference
to the Alternate Base Rate in accordance with the provisions
of Article II.
"ABR Loan" shall mean any ABR Term Loan, ABR Delayed Draw
Term Loan, ABR Revolving Loan, ABR Canadian Term Loan or
Swingline Loan.
"ABR Revolving Loan" shall mean any Revolving Loan
bearing interest at a rate determined by reference to the
Alternate Base Rate in accordance with the provisions of
Article II.
"ABR Term Loan" shall mean any Term Loan bearing interest
at a rate determined by reference to the Alternate Base Rate
in accordance with the provisions of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest
rate per annum (rounded upwards, if necessary, to the next
1/16 of 1%) equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves.
For purposes hereof, (a) if at least two offered rates for
deposits in dollars for a period comparable to the
applicable Interest Period appear on page 3750 (or any
successor page) of the Dow Jones Telerate Screen as of 11:00
a.m., London time, on the day that is two Business Days
prior to the first day of such Interest Period, the term
"LIBO Rate" shall mean the arithmetic mean of all such
offered rates and (b) if fewer than two such offered rates
so appear on page 3750 (or any successor page) of the Dow
Jones Telerate Screen, the term "LIBO Rate" shall mean the
rate (rounded upwards, if necessary, to the next 1/16 of 1%)
at which dollar deposits approximately equal in principal
amount to Chemical's portion (or, if Chemical shall not have
any portion, the portion of the Lender having the largest
applicable Type of Loan) of the applicable Eurodollar
Borrowing and for a period comparable to the applicable
Interest Period are offered to Chemical's office in which
its eurodollar operations in respect of eurodollar loans are
being conducted in immediately available funds in the
eurodollar market at approximately 11:00 a.m., New York
time, on the day that is two Business Days prior to the
first day of such Interest Period.
"Administrative Questionnaire" shall mean an
Administrative Questionnaire substantially in the form of
Exhibit C.
"Affiliate" shall mean, when used with respect to a
specified person, another person that directly, or indi-
rectly through one or more intermediaries, Controls or is
<PAGE>
3
Controlled by or is under common Control with the person
specified.
"Agency Fees" shall have the meaning assigned to such
term in Section 2.05(c).
"Agents" shall mean the collective reference to the
Administrative Agent and the Managing Agents.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of
1%) equal to the greatest of (a) the Prime Rate in effect on
such day, (b) the Base CD Rate in effect on such day plus 1%
and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall
mean the rate of interest per annum publicly announced from
time to time by Chemical as its prime rate in effect at its
principal office in New York City; each change in the Prime
Rate shall be effective on the date such change is publicly
announced as being effective. "Base CD Rate" shall mean the
sum of (a) the product of (i) the Three-Month Secondary CD
Rate and (ii) Statutory Reserves and (b) the Assessment
Rate. "Three-Month Secondary CD Rate" shall mean, for any
day, the secondary market rate for three-month certificates
of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board,
be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such
rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major
money center banks in New York City received at
approximately 10:00 a.m., New York City time, on such day
(or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. "Federal
Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected
by it. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate or both for
any reason, including the inability or failure of the
<PAGE>
4
Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate
shall be determined without regard to clause (b) or (c), or
both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Base CD Rate or
the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate, the Base CD
Rate or the Federal Funds Effective Rate, respectively.
"Applicable Level" shall mean at any time the highest of
Level I, Level II, Level III and Level IV in effect
determined in accordance with Schedule 1.01(A).
"Applicable Margin" means (i) for any date on or after
the Closing Date to but excluding the first day of the
second full fiscal quarter commencing after the Closing
Date, with respect to Eurodollar Loans, 1-3/4%, and with
respect to ABR Loans, 3/4 of 1%, and (ii) for any date on or
after the first day of the second full fiscal quarter
commencing after the Closing Date, with respect to any
Eurodollar Loans or ABR Loans, as the case may be, the
applicable margin set forth on Schedule 1.01(A) opposite the
Applicable Level, in each case as of the last day of the
Borrower's fiscal quarter most recently ended as of such
date. Notwithstanding anything herein to the contrary, from
and after the fifth anniversary of the Closing Date the
Applicable Margin shall be 1/4 of 1% higher than the rate
otherwise determined pursuant to this definition.
"Applicable Percentage" shall mean, with respect to any
Revolving Lender, the percentage of the aggregate Revolving
Credit Commitments represented by such Revolving Lender's
Revolving Credit Commitment.
"Applicable Prepayment Percentage" shall mean at any time
75% or, if the Applicable Level is higher than Level I, the
percentage set forth in Part I of Schedule 1.01(B) opposite
the Applicable Level in effect at such time.
Notwithstanding the foregoing, if the Term Loans and
Canadian Term Loans have been repaid in the amounts set
forth in Part II of Schedule 1.01(B), the Applicable
Prepayment Percentage shall be the percentage set forth in
Part I of Schedule 1.01(B) opposite the Applicable Level
determined by increasing the current Applicable Level by the
number of additional Levels set forth opposite such amount
of Term Loans and Canadian Term Loans so repaid in Part II
of Schedule 1.01(B).
"Assessment Rate" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%)
most recently estimated by the Administrative Agent as the
then current net annual assessment rate that will be
<PAGE>
5
employed in determining amounts payable by Chemical to the
Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time
deposits made in dollars at Chemical's domestic offices.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and
accepted by the Administrative Agent, substantially in the
form of Exhibit B or such other form as shall be approved by
the Administrative Agent.
"Blackstone" shall mean Blackstone Capital Partners L.P.,
a Delaware limited partnership.
"Blackstone Entities" shall mean Blackstone, Blackstone
Group, Blackstone Management Partners, L.P., Blackstone
Management Associates, L.P. or any of their Affiliates.
"Blackstone Group" shall mean The Blackstone Group L.P.,
a Delaware limited partnership.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States (or any successor).
"Borrower Common Stock" shall have the meaning assigned
to that term in Section 3.07(a).
"Borrowing" shall mean a group of Loans of a single Type
made to the Borrower or the Canadian Borrower on a single
date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which
is a Saturday, Sunday or legal holiday in the State of New
York) on which banks are open for business in New York City;
provided, however, that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Canadian Term Borrowing" shall mean a Borrowing
comprised of Canadian Term Loans.
"Canadian Term Loan Commitment" shall mean, with respect
to each Lender, the commitment, if any, of such Lender to
make Canadian Term Loans hereunder as set forth in Schedule
2.01, as the same may be reduced from time to time pursuant
to Section 2.09.
"Canadian Term Loan Maturity Date" shall mean the eighth
anniversary of the Closing Date.
"Canadian Term Loan Repayment Date" shall have the
meaning assigned to such term in Section 2.11.
<PAGE>
6
"Canadian Term Loans" shall mean the term loans made to
the Canadian Borrower pursuant to Section 2.01(e). Each
Canadian Term Loan shall be a Eurodollar Canadian Term Loan
or an ABR Canadian Term Loan.
"Canadian Term Note" shall mean a promissory note of the
Canadian Borrower, substantially in the form of Exhibit A-5,
evidencing Canadian Term Loans.
"Capital Expenditures" shall mean, for any person in any
period, the aggregate amount of all capital expenditures of
such person during such period (but not including Permitted
Business Acquisitions). For the purposes hereof, the amount
of any Capital Expenditure shall not include (i) an amount
equal to that portion of the proceeds received upon any
sale, transfer or other disposition of assets or properties
pursuant to Section 6.08(a), (g) or (i) which is applied to
the purchase of replacement assets or properties used for
the same purpose as the assets or properties disposed of
within 12 months of the receipt thereof, (ii) expenditures
that are accounted for as capital expenditures of such
person and that actually are paid for by a third party
(excluding Holdings or any subsidiary thereof) and for which
neither Holdings nor any subsidiary thereof has provided or
is required to provide, directly or indirectly, any
consideration to such third party or any other person
(whether before, during or after such period), (iii) the
book value of any asset owned by such person prior to or
during such period to the extent that such book value is
included as a capital expenditure during such period as a
result of such person reusing or beginning to reuse such
asset during such period without a corresponding expenditure
actually having been made in such period, provided that any
expenditure necessary in order to permit such asset to be
reused shall be included as a Capital Expenditure during the
period that such expenditure actually is made or (iv)
expenditures of insurance proceeds or condemnation awards
received in connection with the loss, damage, destruction or
condemnation of property of Holdings or its subsidiaries.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts
under any lease of (or other arrangement conveying the right
to use) real or personal property, or a combination thereof,
which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such
person under GAAP and, for the purposes hereof, the amount
of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with
GAAP.
"Cash Interest Expense" shall mean Interest Expense paid
or required to be paid in cash (but excluding any
<PAGE>
7
amortization of debt discounts and fees included in the
calculation of Interest Expense).
A "Change in Control" shall be deemed to have occurred if
(a) Holdings shall cease to directly own, beneficially and
of record, free and clear of any and all Liens (other than
Liens in favor of the Collateral Agent pursuant to the
Pledge Agreement), 100% of the issued and outstanding
capital stock of the Borrower; (b) any person or group
(within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on the date hereof) (other
than (i) any Designated Person or (ii) any combination of
Designated Persons) shall own beneficially, directly or
indirectly, shares representing more than 25% of the
aggregate ordinary voting power represented by the issued
and outstanding capital stock of Holdings at a time when
Designated Persons or any combination of Designated Persons
do not own, beneficially, free and clear of Liens, shares
representing at least 50% of the aggregate ordinary voting
power represented by the issued and outstanding capital
stock of Holdings; or (c) the Continuing Directors shall
cease to occupy a majority of the seats (excluding vacant
seats) on the Board of Directors of Holdings. For purposes
of clause (b) of this definition, the term "Designated
Person" shall be deemed to include any other holder or
holders of shares of Holdings having ordinary voting power
if any Blackstone Entity or WP Entity shall hold the
irrevocable general proxy of each such holder in respect of
the shares held by such holder.
"Charges" shall have the meaning assigned to that term in
Section 9.09.
"Closing Date" shall mean the date on which the first
Loan is made pursuant to this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral Agent" shall mean Chemical, as Collateral
Agent under the Pledge Agreement and the Guarantee
Agreement.
"Commitment" shall mean, with respect to any Lender, such
Lender's Term Loan Commitment, Delayed Draw Term Loan
Commitment, Swingline Loan Commitment, Canadian Term Loan
Commitment and Revolving Credit Commitment.
"Commitment Fee" shall have the meaning assigned to such
term in Section 2.05(a).
"Compliance Certificate" shall have the meaning assigned
to such term in Section 5.04(c).
<PAGE>
8
"Contaminants" means those substances which are regulated
by or form the basis of liability under any Environmental
Law, including asbestos, polychlorinated biphenyls,
Hazardous Materials, pollutants or solid wastes.
"Continuing Directors" shall mean the collective
reference to (i) all members of the Board of Directors of
Holdings who have held office continuously since the Closing
Date and (ii) all members of the Board of Directors of
Holdings who assumed office after the Closing Date and whose
election and nomination for election by Holdings'
shareholders was approved by a vote of a majority of the
then Continuing Directors.
"Control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of
the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Agreement Creditors" shall mean the
Administrative Agent, the Issuing Banks and the Lenders.
"Current Assets" shall mean, with respect to any person
at any date, the consolidated aggregate amount of all assets
of such person which would be classified as current assets
at such date, other than cash and cash equivalents.
"Current Liabilities" shall mean, with respect to any
person at any date, the consolidated aggregate amount of all
liabilities of such person (including tax and other proper
accruals) which would be classified as current liabilities
at such date, other than (without duplication) (i) the
current portion of long-term debt, (ii) accruals of Interest
Expense (excluding Interest Expense which is due and unpaid)
and losses or expenses on the sale of receivables to the
Finance Subsidiary, (iii) Revolving Loans classified as
current, (iv) accruals of transaction costs resulting from
the Recapitalization Transactions and (v) accruals of any
costs or expenses related to severance or termination of
employees accrued prior to the date hereof.
"Current Ratio" shall mean, with respect to Holdings on
any date, the ratio of (a) Current Assets plus (without
duplication) the accounts receivable owned by any Finance
Subsidiary to (b) Current Liabilities.
"Default" shall mean any event or condition which upon
notice, lapse of time or both would constitute an Event of
Default.
<PAGE>
9
"Delayed Draw Availability Period" shall mean the period
from and including the Closing Date to and including the
first anniversary of the Closing Date.
"Delayed Draw Borrowing" shall mean a Borrowing comprised
of Delayed Draw Term Loans.
"Delayed Draw Term Loan Commitment" shall mean, with
respect to each Lender, the commitment, if any, of such
Lender to make Delayed Draw Term Loans hereunder as set
forth in Schedule 2.01, as the same may be reduced from time
to time pursuant to Section 2.09.
"Delayed Draw Term Loan Maturity Date" shall mean the
eighth anniversary of the Closing Date.
"Delayed Draw Term Loan Repayment Date" shall have the
meaning assigned to such term in Section 2.11.
"Delayed Draw Term Loans" shall mean the delayed draw
term loans made to the Borrower pursuant to Section 2.01(b).
Each Delayed Draw Term Loan shall be a Eurodollar Delayed
Draw Term Loan or an ABR Delayed Draw Term Loan.
"Delayed Draw Term Note" shall mean a promissory note of
the Borrower, substantially in the form of Exhibit A-2,
evidencing Delayed Draw Term Loans.
"Designated Persons" shall mean any one or more of the
Blackstone Entities, the WP Entities and the persons listed
on Schedule 1.01(C).
"Dividend Condition" shall mean that the Applicable Level
is at least Level II and the outstanding principal amount of
the Term Loans and Canadian Term Loans is less than
$350,000,000.
"dollars" or "$" shall mean lawful money of the United
States of America. All Loans and Letters of Credit shall be
denominated in dollars and all payment obligations of the
Borrower and the Canadian Borrower under the Loan Documents
shall be in dollars.
"Domestic Restricted Subsidiary" means any Restricted
Subsidiary incorporated or organized under the laws of the
United States of America or any state thereof at least 90%
of the capital stock of which is owned directly or
indirectly by the Borrower.
"EBITDA" shall mean, without duplication, for any fiscal
period, the sum of the amounts for such fiscal period of (i)
Net Income, (ii) provision for taxes based on income, (iii)
depreciation expense, (iv) total interest expense (whether
shown as interest expense or as loss and expenses on sales
<PAGE>
10
of receivables), (v) amortization expense and (vi) other
non-cash items reducing Net Income, all as determined on a
consolidated basis for Holdings and its Restricted
Subsidiaries in conformity with GAAP.
"Environmental Claim" means any written accusation,
allegation, notice of violation, claim, demand, order,
directive, cost recovery action or proceeding by any
Governmental Authority or, if any Responsible Officer of
Holdings has knowledge of it, by any person for damages,
injunctive or equitable relief, personal injury (including
sickness, disease or death), remedial action costs, tangible
or intangible property damage, damage to the environment or
natural resources, nuisance, pollution, contamination or
other adverse effects on the environment, or for fines,
penalties or restrictions, resulting from or based upon (i)
the existence, or the continuation of the existence, of a
Release (including sudden or non-sudden, accidental or
non-accidental Releases) of, or exposure to, any Contaminant
or odor, (ii) the presence, use, handling, transportation,
storage, treatment or the disposal of Contaminants in
connection with the operation of the facilities to which
such Release relates or (iii) the violation or alleged
violation of any Environmental Law.
"Environmental Law" means any and all applicable
treaties, laws, regulations, enforceable requirements,
binding determinations, orders, decrees, judgments,
injunctions, permits, approvals, authorizations, licenses,
variances, permissions, notices or binding agreements
issued, promulgated or entered by any Governmental
Authority, relating to the environment, preservation or
reclamation of natural resources or to the management,
Release or threatened Release of Contaminants or noxious
odor, including the Hazardous Materials Transportation Act,
49 U.S.C. Sec.Sec. 1801 et seq., Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986,
42 U.S.C. Sec.Sec. 9601 et seq., Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of
1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. Sec.Sec. 6901, et seq., Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
Sec.Sec. 1251 et seq., Clean Air Act of 1970, as amended 42.
U.S.C. Sec.Sec. 7401 et seq., Toxic Substances Control Act of
1976, 15 U.S.C. Sec.Sec. 2601 et seq., Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Sec.Sec. 11001 et
seq., National Environmental Policy Act of 1975, 42 U.S.C.
Sec.Sec. 4321 et seq., Safe Drinking Water Act of 1974, as
amended, 42 U.S.C. Sec.Sec. 300(f) et seq., and any similar or
implementing state or foreign law, and all amendments or
regulations promulgated thereunder.
<PAGE>
11
"Environmental Permit" means any permit, approval,
authorization, license, variance, or permission required
from any Governmental Authority pursuant to any applicable
Environmental Law.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended from time
to time.
"ERISA Affiliate" with respect to any person shall mean
any trade or business (whether or not incorporated) that is
a member of a group of which such person is a member and
which is treated as a single employer under Section 414 of
the Code.
"ESOP" shall mean any employee stock ownership plan to be
established by the Borrower or a subsidiary Guarantor
thereof to make the ESOP Investment.
"ESOP Investment" shall mean the issuance and sale of
shares of Holdings Common Stock to, or the purchase of
shares of Holdings Common Stock in open market or privately
negotiated transactions by, the ESOP from time to time.
"ESOP Loans" shall mean a loan or loans to be made from
time to time by the Borrower to the ESOP in an aggregate
amount not to exceed $25,000,000, solely to enable the ESOP
to effect the ESOP Investment.
"Eurodollar Borrowing" shall mean a Borrowing comprised
of Eurodollar Loans.
"Eurodollar Canadian Term Loan" shall mean any Canadian
Term Loan bearing interest at a rate determined by reference
to the Adjusted LIBO Rate in accordance with the provisions
of Article II.
"Eurodollar Delayed Draw Term Loan" shall mean any
Delayed Draw Term Loan bearing interest at a rate determined
by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Term Loan,
Eurodollar Delayed Draw Term Loan, Eurodollar Canadian Term
Loan or Eurodollar Revolving Loan.
"Eurodollar Revolving Loan" shall mean any Revolving Loan
bearing interest at a rate determined by reference to the
Adjusted LIBO Rate in accordance with the provisions of
Article II.
"Eurodollar Term Loan" shall mean any Term Loan bearing
interest at a rate determined by reference to the Adjusted
LIBO Rate in accordance with the provisions of Article II.
<PAGE>
12
"Event of Default" shall have the meaning assigned to
such term in Article VII.
"Excess Cash Flow" shall mean for any period (i) the Net
Income for such period plus (minus) (ii) the amount of
depreciation, depletion, amortization of intangibles,
deferred taxes, accreted and zero coupon bond interest and
other noncash expenses (revenues) which, pursuant to GAAP,
were deducted (added) in determining such Net Income minus
(plus) (iii) additions (reductions, other than reductions
attributable solely to Specified Asset Sales) to working
capital for such period (i.e., the increase or decrease in
Current Assets of Holdings and the Restricted Subsidiaries
minus Current Liabilities of Holdings and the Restricted
Subsidiaries from the beginning to the end of such period,
as adjusted to exclude reductions attributable solely to
Specified Asset Sales) minus (iv) the amount of Capital
Expenditures for such period paid by Holdings and the
Restricted Subsidiaries in cash from funds other than from
the proceeds of Borrowings minus (v) the sum of (a)
scheduled Term Loan, Canadian Term Loan and Delayed Draw
Term Loan repayments made during such period pursuant to
Section 2.11, (b) optional prepayments of the Term Loans,
the Canadian Term Loans and the Delayed Draw Term Loans made
during such period pursuant to Section 2.12(a) and (c)
Revolving Loan repayments made during such period that were
required to be made as a result of voluntary reductions of
the Revolving Commitment pursuant to Section 2.09(b) minus
(vi) scheduled mandatory payments of principal of
Indebtedness of Holdings and the Restricted Subsidiaries
other than the Loans made during such period minus (vii)
fees and expenses paid in cash in connection with the
Recapitalization Transactions to the extent not deducted in
determining Net Income and provided that such amounts are
paid from reserves established therefor by the Borrower on
the Closing Date minus (viii) amounts paid in cash for
liabilities relating to discontinued operations which were
discontinued prior to the Closing Date to the extent not
deducted in determining Net Income, provided that such
amounts are paid from reserves established by the Borrower
for such liabilities prior to the Closing Date.
"Executive Officer" of any corporation shall mean the
president, any senior vice president or any vice president
of such person.
"Existing Credit Agreement" shall mean the Credit
Agreement dated as of May 15, 1991, as amended, among the
Borrower and certain of its subsidiaries and the financial
institutions named therein.
"Fees" shall mean the Agency Fees, the Participation
Fees, the Fronting Fees, the Commitment Fees and the Letter
of Credit Fees.
<PAGE>
13
"Finance Subsidiary" shall mean any wholly-owned
subsidiary of the Borrower that is formed for the sole
purpose of engaging in Permitted Receivables Financings.
"Financial Officer" of any corporation shall mean the
chief financial officer, Senior Vice President-Finance and
Accounting, Vice President-Finance, Controller, or Treasurer
of such corporation.
"Fronting Fees" shall have the meaning assigned to such
term in Section 2.05(d).
"Funded Debt" shall mean, as applied to any person, all
Indebtedness for borrowed money (including, without
limitation, Capital Lease Obligations and unreimbursed
drawings under letters of credit) or evidenced by a note,
bond, debenture or similar instrument of that person (it
being understood that all Loans shall at all times
constitute "Funded Debt" for all purposes hereunder).
"GAAP" shall mean United States generally accepted
accounting principles.
"Governmental Authority" shall mean any international,
Federal, state, regional, local or foreign court or
governmental agency, authority, instrumentality or
regulatory body.
"Guarantors" shall mean Holdings and each Restricted
Subsidiary (other than Inactive Subsidiaries) incorporated
or organized under the laws of the United States or any
State thereof.
"Guarantee" of or by any person shall mean (i) any
obligation, contingent or otherwise, of such person guaran-
teeing or having the economic effect of guaranteeing any
Indebtedness of any other person (the "primary obligor") in
any manner, whether directly or indirectly, and including
any obligation of such person, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness (whether arising by virtue
of partnership arrangements, by agreement to keep well, to
purchase assets, goods, securities or services, to take-
or-pay or otherwise) or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of
such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness, (c) to
maintain working capital, equity capital or other financial
statement conditions or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness or
(d) entered into for the purpose of assuring in any other
manner the holders of such Indebtedness of the payment
thereof or to protect such holders against loss in respect
<PAGE>
14
thereof (in whole or in part), or (ii) any Lien on any
assets of such person securing any Indebtedness of any other
person, whether or not such Indebtedness is assumed by such
person; provided, however, that the term Guarantee shall not
include endorsements for collection or deposit, in either
case in the ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement
substantially in the form attached as Exhibit D, as amended
and in effect from time to time.
"Hazardous Materials" means all explosive or regulated
radioactive materials or substances, hazardous or toxic
wastes or substances, petroleum (including crude oil or any
fraction thereof) or petroleum distillates, asbestos or
material containing asbestos and all materials regulated
pursuant to any Environmental Law, including materials
listed in 49 C.F.R. Section 172.101 and materials defined as
hazardous pursuant to Section 101(14) of the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended.
"Holdings Common Stock" shall mean the Common Stock, par
value $.01 per Share, of Holdings.
"Holdings Underwriting Agreement" shall mean the
Underwriting Agreement to be entered into among Holdings and
Goldman, Sachs & Co., Merrill Lynch & Co., Wasserstein
Perella Securities, Inc. and The Nikko Securities Co., as
Representatives of the several underwriters listed therein,
relating to the Public Offering, in substantially the form
filed with the Securities and Exchange Commission prior to
the date of this Agreement or in such other form as shall be
satisfactory to the Agents.
"Inactive Subsidiary" shall mean the Restricted
Subsidiaries listed as Inactive Subsidiaries on Schedule
3.12(a) and which Restricted Subsidiaries (i) individually
and in the aggregate have no material net assets and (ii) do
not engage in any operating activity (other than payroll or
the leasing of immaterial property).
"Indebtedness" of any person shall mean, without
duplication, (a) all indebtedness of such person for
borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities
incurred in the ordinary course of business), (b) any other
indebtedness of such person which is evidenced by a note,
bond, debenture or similar instrument, (c) all Capital Lease
Obligations of such person, (d) all obligations of such
person in respect of bankers' acceptances issued or created
for the account of such person, (e) all Indebtedness of
others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise,
<PAGE>
15
to be secured by) any Lien on any property owned or acquired
by such person even though such person has not assumed or
otherwise become liable for the payment thereof, (f) all
obligations of such person in respect of Interest Rate
Agreements which, in accordance with the definition of
Interest Rate Agreement, constitute (or would upon early
termination constitute) Indebtedness and (g) all Guarantees
by such person of Indebtedness of others. The Indebtedness
of any person shall include the Indebtedness of any
partnership in which such person is a general partner;
provided that, if the sole asset of such person is its
general partnership interest in such partnership, the amount
of such Indebtedness shall be deemed equal to the value of
such general partnership interest and the amount of any
Indebtedness in respect of any Guarantee of such partnership
Indebtedness shall be limited to the same extent as such
Guarantee may be limited.
"Indemnitee" shall have the meaning assigned to that term
in Section 9.05(b).
"Intercompany Loan" shall mean a loan made by any
subsidiary of the Borrower to the Borrower or any Domestic
Restricted Subsidiary or by any Restricted Subsidiary to any
Domestic Restricted Subsidiary, evidenced by an Intercompany
Note pledged pursuant to the Pledge Agreement in the case of
such loans from any such person to another such person
aggregating more than $10,000,000.
"Intercreditor Agreement" shall mean the Master
Collateral and Intercreditor Agreement substantially in the
form attached as Exhibit H, as amended in effect from time
to time.
"Intercompany Note" shall mean an intercompany note
evidencing Indebtedness owed by the Borrower or any of its
wholly-owned subsidiaries to the Borrower or any of its
wholly-owned subsidiaries and pledged pursuant to the Pledge
Agreement in accordance with Section 6.01(d), in
substantially the form of Exhibit A-6 annexed hereto.
"Interest Coverage Ratio" shall mean, for any period of
four (or, if less, the number of full fiscal quarters ending
after the Closing Date) consecutive fiscal quarters, the
ratio of (a) EBITDA on a consolidated basis for such period
to (b) the sum of Cash Interest Expense of Holdings and the
Restricted Subsidiaries on a consolidated basis for such
period and losses or expenses on the sale of receivables to
the Finance Subsidiary.
"Interest Expense" shall mean, with respect to any person
for any period, the gross interest expense of such person
for such period determined on a consolidated basis in
accordance with GAAP consistently applied, including (a) the
<PAGE>
16
amortization of debt discounts, (b) the amortization of all
fees (including fees with respect to interest rate protec-
tion agreements) payable in connection with the incurrence
of Indebtedness to the extent included in interest expense
and (c) the portion of any payments or accruals with respect
to Capital Lease Obligations allocable to interest expense,
net of all interest income for such period (except for pur-
poses of the definition of Cash Interest Expense, in which
case only interest income paid or required to be paid in
cash shall be netted against cash interest expense). For
purposes of the foregoing, gross interest expense shall be
determined after giving effect to any net payments made or
received by such person with respect to interest rate pro-
tection agreements entered into as a hedge against interest
rate exposure.
"Interest Payment Date" shall mean, (a)(i) with respect
to any Eurodollar Loan, the last day of the Interest Period
applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that
would have been an Interest Payment Date had successive
Interest Periods of three months' duration been applicable
to such Borrowing, and, in addition, the date of any
prepayment, refinancing or conversion of such Borrowing with
or to a Borrowing of a different Type and (ii) with respect
to any ABR Loan or Swingline Loan, the last day of each
March, June, September and December, commencing September
30, 1994 and (b) the Revolving Credit Maturity Date, the
Delayed Draw Term Loan Maturity Date, the Canadian Term Loan
Maturity Date or the Term Loan Maturity Date, as applicable.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such
Borrowing or on the last day of the immediately preceding
Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or,
if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 (or, subject
to availability (as determined by all applicable Lenders), 9
or 12) months thereafter, as the Borrower or the Canadian
Borrower, as the case may be, may elect and (b) as to any
ABR Borrowing or Swingline Loan, the period commencing on
the date of such Borrowing or Loan or on the last day of the
immediately preceding Interest Period applicable to such
Borrowing or Loan, as the case may be, and ending on the
earliest of (i) the next succeeding March 31, June 30,
September 30 or December 31, (ii) the Revolving Credit
Maturity Date, the Delayed Draw Term Loan Maturity Date, the
Canadian Term Loan Maturity Date or the Term Loan Maturity
Date, as applicable, and (iii) the date such Borrowing is
converted to a Borrowing of a different Type in accordance
with Section 2.10 or repaid or prepaid in accordance with
Section 2.01(d), 2.11 or 2.12; provided, however, that if
<PAGE>
17
any Interest Period would end on a day other than a Business
Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall
in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such
Interest Period.
"Interest Rate Agreement" shall mean any interest rate
swap agreement, interest rate cap agreement, interest rate
collar agreement, currency hedge agreement or other similar
agreement or arrangement designed to protect the Borrower or
any of its Restricted Subsidiaries against fluctuations in
interest rates or currency exchange rates; provided that the
calculation of payments for early termination shall be made
on a reasonable basis in accordance with customary industry
practices; provided further that all obligations to make
such payments for early termination (guaranteed or
unguaranteed) shall, to the extent matured, constitute
Indebtedness.
"Issuing Bank" shall mean, with respect to any Letter of
Credit, the Revolving Lender which has agreed to issue such
Letter of Credit.
"Letter of Credit" shall mean any letter of credit issued
by an Issuing Bank pursuant to Section 2.19(a).
"Letter of Credit Commitment" shall mean $50,000,000, as
the same may be reduced from time to time pursuant to
Section 2.25.
"Letter of Credit Disbursement" shall mean a payment or
disbursement made by an Issuing Bank pursuant to a Letter of
Credit.
"Letter of Credit Exposure" shall mean at any time the
sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit and (b) the aggregate amount of all Letter
of Credit Disbursements not yet reimbursed by the Borrower
as provided in Section 2.22.
"Letter of Credit Fee" shall have the meaning assigned to
such term in Section 2.21.
<PAGE>
18
"Leverage Ratio" shall mean, with respect to Holdings and
the Restricted Subsidiaries on any date, the ratio of (a)
Funded Debt of Holdings and the Restricted Subsidiaries as
of such date to (b) the product of (i) EBITDA for the period
of twelve (or, if less, the number of full consecutive
fiscal months ending after the Closing Date) consecutive
fiscal months then ended and (ii) twelve divided by the
number of months in such period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge
or security interest in or on such asset, (b) the interest
of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relat-
ing to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with
respect to such securities.
"Loans" shall mean the Revolving Loans, the Delayed Draw
Term Loans, the Swingline Loans, the Canadian Term Loans and
the Term Loans.
"Loan Documents" shall mean this Agreement and the Notes,
the Letters of Credit (and any instrument or document
executed by the Borrower relating to any Letter of Credit),
the Pledge Agreement, the Guarantee Agreement and, if and
when executed and delivered, the Intercreditor Agreement.
"Managing Agents" shall mean NationsBank, N.A. and
Continental Bank, N.A.
"Margin Stock" shall have the meaning assigned to such
term under Regulation U.
"Material Adverse Effect" shall mean (a) a materially
adverse effect on the business, assets, properties,
operations or financial condition of Holdings and the
Restricted Subsidiaries, taken as a whole, (b) a material
impairment of the ability of Holdings or any Subsidiary of
Holdings to perform any of its material obligations under
any Loan Document to which it is or will be a party or to
consummate the Recapitalization Transactions or (c) an
impairment of the validity or enforceability of, or material
impairment of the rights, remedies or benefits available to
the Credit Agreement Creditors under, any Loan Document.
"Maximum Rate" shall have the meaning assigned to such
term in Section 9.09.
"Multiemployer Plan" with respect to any person shall
mean a multiemployer plan as defined in Section 4001(a)(3)
of ERISA to which such person or any ERISA Affiliate of such
person (other than one considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the
<PAGE>
19
Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
"Net Income" shall mean, for any fiscal period, the net
income (or loss) of Holdings and its Restricted Subsidiaries
and the Finance Subsidiary on a consolidated basis for such
fiscal period taken as a single accounting period determined
in conformity with GAAP; provided that there shall be
excluded (i) the income (or loss) of any Unrestricted
Subsidiary (other than the Finance Subsidiary) or any person
(other than a Restricted Subsidiary) in which any other
person (other than Holdings or any of the Restricted
Subsidiaries) has a joint interest, but shall include the
amount of dividends or other distributions (including return
of capital or any other cash receipt in respect of ownership
or beneficial interest) actually paid to Holdings or any of
the Restricted Subsidiaries by such Unrestricted Subsidiary
or such person during such period, (ii) the income (or loss)
of any person accrued prior to the date it becomes a
Restricted Subsidiary of Holdings or is merged into or
consolidated with Holdings or any of the Restricted
Subsidiaries or that person's assets are acquired by
Holdings or any of the Restricted Subsidiaries and (iii) the
income of any Restricted Subsidiary of Holdings to the
extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that
income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation
after tax gains or losses attributable to Specified Asset
Sales; provided further, that, solely for the purposes of
determining EBITDA, there shall be excluded any charges,
losses, fees or expenses to Net Income incurred in
connection with the consummation of the Recapitalization
Transactions.
"Net Proceeds" shall mean with respect to any sale,
transfer or other disposition (including by casualty, loss
or condemnation) of any assets or properties or any other
Prepayment Event (a "Proceeds Transaction") (i) the gross
amount of any cash paid to or received by Holdings or any of
the Restricted Subsidiaries in respect of such Proceeds
Transaction (including insurance proceeds, condemnation
awards and payments from time to time in respect of
installment obligations, if applicable), less (ii) the
amount, if any, of (a) Holdings' good faith best estimate of
all taxes attributable to such Proceeds Transaction which it
in good faith expects to be paid in the taxable year in
which such Proceeds Transaction shall occur or in the next
taxable year, (b) reasonable and customary fees, discounts,
commissions, costs and other expenses (other than those
payable to Holdings or any Affiliate of Holdings, except
that Blackstone and WP and their respective Affiliates may
<PAGE>
20
receive customary fees on terms no less favorable to
Holdings or any of the Restricted Subsidiaries than would be
obtained in a comparable arm's-length transaction for acting
as financial advisor in connection with such Proceeds
Transaction) which are incurred in connection with such
Proceeds Transaction and are payable by Holdings or any of
the Restricted Subsidiaries and (c) in the case of a
Proceeds Transaction that is a sale, transfer or other
disposition of assets or properties, proceeds required to
discharge Liens in respect of such assets or properties
permitted by Section 6.04; provided, however, that Net
Proceeds shall not include (1) any amount that otherwise
would constitute Net Proceeds to the extent such amount is
excluded from the definition of the term "Capital
Expenditures" pursuant to clause (i) or (iv) of the second
sentence thereof; or (2) any amount being reserved for
application as contemplated in clause (i) or (iv) of such
second sentence, except that in the event any amount so
reserved is not in fact so applied or contractually
committed to be applied within the permitted 12-month
period, such amount shall be deemed for all purposes
(including the definition of Excess Cash Flow and Section
2.12(f)) to be Net Proceeds of a Proceeds Transaction
received upon such Proceeds Transaction.
"Notes" shall mean the Term Notes, the Delayed Draw Term
Notes, the Canadian Term Notes, the Swingline Note and the
Revolving Credit Notes.
"Obligations" shall mean all obligations defined as
"Guaranteed Obligations" in the Guarantee Agreement and
"Secured Obligations" in the Pledge Agreement in each case
owing by the Borrower, the Canadian Borrower and the other
Guarantors, or any of them, as the context may require, to
any Credit Agreement Creditor.
"Operating Lease" shall mean a lease which is not
required to be accounted for or classified as a capital
lease under GAAP. The "amount" of any Operating Lease shall
be the amount that, if such Operating Lease were accounted
for as a Capital Lease Obligation, would be recorded as a
liability in accordance with GAAP.
"Other Taxes" shall have the meaning assigned to such
term in Section 2.18.
"Overallotment Option" shall mean the option granted to
the underwriters in connection with the Public Offering
pursuant to which the underwriters may elect to purchase
pursuant to the Holdings Underwriting Agreement up to
3,750,000 additional shares of Holdings Common Stock to
cover overallotments.
<PAGE>
21
"Participation Fees" shall have the meaning assigned to
such term in Section 2.05(b).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation referred to and defined in ERISA (or any such
successor).
"Permitted Acquisition Indebtedness" shall mean
Indebtedness of the Borrower permitted by Section 6.01(l).
"Permitted Business Acquisitions" shall mean acquisitions
of all or substantially all of the assets of, or shares or
other equity interests in, a person or division or line of
business of a person engaged in the same business as
Holdings and the Restricted Subsidiaries or in a related
business if immediately after giving effect thereto: (i) no
Default or Event of Default shall have occurred and be
continuing, (ii) all transactions related thereto shall be
consummated in accordance with applicable laws, (iii) at
least 90% of the outstanding capital stock or other
ownership interests of any acquired or newly formed
corporation or other entity must be owned directly by the
Borrower or a Domestic Restricted Subsidiary and such
corporation or entity shall become a Restricted Subsidiary
and a Guarantor and execute a counterpart to the Guarantee
Agreement, and all capital stock or other equity interest
created or acquired in connection with such acquisition
shall be duly and validly pledged to the Collateral Agent
for the ratable benefit of the Lenders, and (iv) (A)
Holdings shall be in compliance, on a pro forma basis, with
the covenants contained in Sections 6.14, 6.16 and 6.17
recomputed as at the last day of the most recently ended
fiscal quarter of Holdings, and the Borrower shall have
delivered to the Administrative Agent an officers'
certificate to such effect, together with all relevant
financial information for such acquired corporation, entity
or assets, and (B) the acquired corporation or entity shall
not be liable for any Indebtedness (except for Indebtedness
permitted by Section 6.01 and the Guarantee Agreement). For
purposes of Section 6, any Restricted Subsidiary satisfying
the requirements of clause (iii) above shall be deemed to be
a "wholly owned subsidiary".
"Permitted Debt Redemption Price" shall have the meaning
ascribed thereto in Section 5.08(a).
<PAGE>
22
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by,
the United States of America (or by any agency thereof to
the extent such obligations are backed by the full faith and
credit of the United States of America), in each case
maturing within one year from the date of acquisition
thereof;
(b) marketable general obligations issued by any state
of the United States of America or any political subdivision
of any such state or any public instrumentality thereof
maturing within six months from the date of acquisition
thereof and, at the time of acquisition, having one of the
two highest ratings generally obtainable from either
Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.;
(c) investments in commercial paper maturing no more
than six months from the date of acquisition thereof and
having, at such date of acquisition, a credit rating of A-1
or higher from Standard & Poor's Ratings Group or P-1 or
higher from Moody's Investors Service, Inc.;
(d) investments in domestic and Eurodollar certificates
of deposit, banker's acceptances and time deposits maturing
within six months from the date of acquisition thereof
issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by (w) any domestic
office of any commercial bank organized or licensed under
the laws of the United States of America or any State
thereof which has a combined capital and surplus and
undivided profits of not less than $500,000,000, (x) any
Lender, (y) any branch of any Lender or any commercial bank
organized under the laws of the United Kingdom, Canada,
France or Japan having combined capital, surplus and
undivided profits (less any undivided losses) of not less
than $500,000,000 or (z) other than in the case of banker's
acceptances, any domestic commercial bank whose deposits are
guaranteed by the Federal Deposit Insurance Corporation (or
any successor) and with whom deposits maintained by Holdings
or any of its subsidiaries do not exceed the amount so
guaranteed; and
(e) investments in money market funds or other mutual
funds that invest in the types of Permitted Investments
described in clauses (a) through (d) above.
"Permitted Preferred Stock Redemption Price" shall have
the meaning ascribed thereto in Section 5.08(a).
"Permitted Receivables Financing" shall mean any sale by
the Borrower or a Restricted Subsidiary of accounts
<PAGE>
23
receivable to a Finance Subsidiary in a true sale
transaction with customary limited recourse based upon the
collectibility of the receivables sold and the corresponding
sale or pledge of such accounts receivable (or an interest
therein) by the Finance Subsidiary, in each case without any
Guarantee by Holdings or any other subsidiary thereof;
provided, however, that the terms, conditions and structure
(including the legal and organizational structure of the
Finance Subsidiary and the restrictions imposed on its
activities) of and the documentation incident to such
transactions must be reasonably acceptable to the
Administrative Agent.
"Permitted Subordinated Indebtedness" shall mean
unsecured subordinated indebtedness of the Borrower or
Holdings having no amortization of principal and a scheduled
final maturity no earlier than June 30, 2003 and having
subordination terms at least as favorable to the Lenders as
set forth on Schedule 1.01(D) and other terms and conditions
(including, covenants, events of default, interest rate) as
shall be reasonably satisfactory to the Required Lenders in
the exercise of their sole discretion.
"Permitted Tax Payment" means for any taxable year of the
Borrower in which it joins in filing a consolidated federal
income tax return with Holdings, a payment by the Borrower
to Holdings in an amount not in excess of the amount
required to be paid by the Borrower under the Tax Sharing
Agreement, dated as of November 1, 1989, between Holdings
and the Borrower, as in effect on the date hereof, as
amended solely to reflect the mergers described in clauses
(iii) of the definition of Recapitalization Transactions;
provided that within 20 days of receipt of such payment
Holdings applies the amount thereof to satisfy such tax
liability or its obligations under the Tax Sharing
Agreement.
"person" shall mean any natural person, corporation,
business trust, joint venture, association, company,
partnership or government, or any agency or political
subdivision thereof.
"Plan" with respect to any person shall mean any pension
plan (other than a Multiemployer Plan) subject to the
provisions of Title IV of ERISA or Section 412 of the Code
which is maintained for employees of such person or any
ERISA Affiliate of such person.
"Pledge Agreement" shall mean the Pledge Agreement
substantially in the form of Exhibit E, as amended and in
effect from time to time.
"Pledged Securities" shall have the meaning assigned to
such term in the Pledge Agreement.
<PAGE>
24
"Preliminary Prospectus" shall mean the preliminary
prospectus of Holdings dated June 2, 1994, filed with the
Securities and Exchange Commission in connection with the
Public Offering, as amended or supplemented from time to
time.
"Prepayment Event" shall mean (i) any Specified Asset
Sale, (ii) any Sale and Lease-Back Transaction deemed to be
a Prepayment Event pursuant to Section 6.06, and (iii) the
incurrence by Holdings or any Restricted Subsidiary of any
Indebtedness (other than Indebtedness permitted by Section
6.01), provided, however, that for purposes of Section
2.12(e) (a) a Prepayment Event shall not be deemed to occur
until the aggregate Net Proceeds from Prepayment Events not
yet applied pursuant to Section 2.12(e) by reason of this
proviso equals or exceeds $5,000,000, at which time a
Prepayment Event shall, except as set forth in clause (b)
below, be deemed to occur having Net Proceeds equal to the
aggregate Net Proceeds from Prepayment Events not yet so
applied and (b) with respect to Specified Asset Sales, a
Prepayment Event shall be deemed to occur only with respect
to that portion of the Net Proceeds thereof required to be
repaid pursuant to Section 6.08(i).
"Public Offering" shall mean the underwritten public
offering of shares of Holdings Common Stock contemplated by
the Preliminary Prospectus.
"Purchase Money Indebtedness" shall mean Indebtedness
incurred for capital expenditures, which may be secured in
compliance with Section 6.04(i).
"Recapitalization Transactions" shall mean:
(i) the execution, delivery and performance of each
Loan Document;
(ii) the borrowings under this Agreement and the
issuance of Letters of Credit pursuant to this Agreement;
(iii) the merger of Collins & Aikman Holdings II
Corporation into Holdings with Holdings as the surviving
corporation and the merger of Collins & Aikman Group,
Inc. into Collins & Aikman Corporation with the Borrower
as the surviving corporation;
(iv) the grant of security interests and other Liens
pursuant to the Pledge Agreement;
(v) the conversion of approximately $191,500,000 of
the 14% Subordinated Pay-in-Kind Bridge Notes of Holdings
(the "Holdings Subordinated PIK Notes") held by WP and
Blackstone to Holdings Common Stock and the conversion to
Holdings Common Stock or redemption of the remaining
<PAGE>
25
approximately $9,400,000 of Holdings Subordinated PIK
Notes;
(vi) the issuance and sale of Holdings Common Stock
pursuant to the Holdings Underwriting Agreement;
(vii) the consummation of the Public Offering and the
sale, if any, of Holdings Common Stock pursuant to the
Overallotment Option, all as contemplated by the
Preliminary Prospectus and the consummation of the other
transactions contemplated by the Preliminary Prospectus;
(viii) the entering into a Permitted Receivables
Financing providing commitments of at least $150,000,000
and the initial funding thereunder;
(ix) the repayment in full of all amounts owed under
and in respect of the Existing Credit Agreement, the
release of all Liens in respect thereof and the
termination of the Existing Credit Agreement;
(x) irrevocable notice of the redemption of all
outstanding shares of preferred stock of Holdings and the
Borrower shall have been given to each holder of
preferred stock of Holdings and the Borrower at an
aggregate redemption price not greater than the Permitted
Preferred Stock Redemption Price;
(xi) the redemption or defeasance of all public senior
and subordinated debt of Holdings, the Borrower and their
subsidiaries set forth on Schedule 4.02(o) at a
redemption price not greater than the Permitted Debt
Redemption Price; and
(xii) the consummation of the other transactions
contemplated by the Loan Documents, the Preliminary
Prospectus and the Holdings Underwriting Agreement.
"Register" shall have the meaning given such term in
Section 9.04(d).
Regulation D" shall mean Regulation D of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation T" shall mean Regulation T of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
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26
"Regulation U" shall mean Regulation U of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching, emanation or migration in, into, onto or through
the environment (including ambient air, surface water,
ground water, land surface, subsurface strata or workplace),
including the movement of any Contaminant through or in the
air, soil, surface water or ground water.
"Remedial Action" means (i) "remedial action" as such
term is defined in 42 U.S.C. Section 9601(24) and (ii) all
other actions required or voluntarily undertaken to (x)
clean up, remove, treat, abate or in any other way address
any Contaminant in the environment or workplace, (y) prevent
the Release or threat of Release, or minimize the further
Release of any Contaminant so it does not migrate or
endanger or threaten to endanger public health or welfare of
the environment or workplace, or (z) perform studies and
investigations in connection with (x) or (y) above.
"Reportable Event" shall mean any reportable event as
defined in Section 4043(b) of ERISA or the regulations
issued thereunder with respect to a Plan (other than a Plan
maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code).
"Required Lenders" shall mean, at any time, Lenders with
Loans (other than Swingline Loans), Letter of Credit
Exposure and unused Commitments representing at least a
majority of the sum of the aggregate principal amount of the
Loans (other than Swingline Loans) outstanding, the
aggregate amount of the Letter of Credit Exposure and unused
Commitments at such time.
"Responsible Officer" of any corporation shall mean any
Executive Officer or Financial Officer of such corporation
and any other officer or similar official thereof
responsible for the administration of the obligations of
such corporation in respect of this Agreement. Unless the
context otherwise requires, Responsible Officer shall mean a
Responsible Officer of Holdings.
"Restricted Subsidiary" shall mean each Subsidiary in
existence as of the Closing Date and any direct or indirect
Subsidiary formed or acquired after the Closing Date, in
each case, other than Unrestricted Subsidiaries.
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27
"Revolving Credit Borrowing" shall mean a Borrowing
comprised of Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to
each Lender, the commitment, if any, of such Lender to make
Revolving Loans hereunder as set forth in Schedule 2.01, as
the same may be reduced from time to time pursuant to
Section 2.09.
"Revolving Credit Maturity Date" shall mean the seventh
anniversary of the Closing Date.
"Revolving Credit Note" shall mean a promissory note of
the Borrower, substantially in the form of Exhibit A-1,
evidencing Revolving Loans.
"Revolving Lender" shall mean any Lender with a Revolving
Credit Commitment.
"Revolving Loans" shall mean the revolving loans made to
the Borrower pursuant to Section 2.01(c). Each Revolving
Loan shall be a Eurodollar Revolving Loan or an ABR
Revolving Loan.
"Sale and Lease-Back Transaction" shall have the meaning
assigned to that term in Section 6.06.
"Secured Parties" shall mean the Credit Agreement
Creditors and any holders, if any, of any Permitted
Acquisition Indebtedness which have executed and delivered
to the Collateral Agent an Acknowledgement to the
Intercreditor Agreement in the form of Exhibit A thereto.
"Significant Subsidiary" shall mean the Borrower, the
Canadian Borrower and any subsidiary of Holdings that at the
date of any determination (i) accounts for 5% or more of the
consolidated assets of Holdings, (ii) has accounted for 5%
or more of the consolidated EBITDA of Holdings for each of
the two consecutive periods of four fiscal quarters
immediately preceding the date of determination or (iii) has
been designated by the Borrower in writing to the
Administrative Agent as a Significant Subsidiary.
"Specified Asset Sale" shall mean any sale, lease,
transfer, assignment or other disposition of assets,
business units or property of Holdings or any of its
subsidiaries for Net Proceeds in excess of $100,000 in any
transaction or series of related transactions described in
paragraph (i) of Section 6.08.
"Statutory Reserves" shall mean a fraction (expressed as
a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate
of the maximum reserve percentages (including any marginal,
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28
special, emergency or supplemental reserves) expressed as a
decimal established by the Board and any other banking
authority to which the Administrative Agent is subject (a)
with respect to the Base CD Rate (as such term is used in
the definition of "Alternate Base Rate"), for new negotiable
nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months, and (b) with
respect to the Adjusted LIBO Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to
such reserve requirements without benefit of or credit for
proration, exemptions or offsets which may be available from
time to time to any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve
percentage.
"subsidiary" shall mean, with respect to any person
(herein referred to as the "parent"), any corporation,
partnership, association or other business entity (a) of
which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary
voting power or more than 50% of the general partnership
interests are, at the time any determination is being made,
owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise Controlled, by the parent
or one or more subsidiaries of the parent or by the parent
and one or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of Holdings.
"Swingline Lender" shall mean Chemical, in its capacity
as Swingline Lender hereunder and under the other Loan
Documents.
"Swingline Loan Commitment" shall mean the commitment of
the Swingline Lender to make Swingline Loans as set forth in
Section 2.01(d).
"Swingline Loans" shall mean the swingline loans made by
the Swingline Lender to the Borrower pursuant to
Section 2.01(d).
"Swingline Note" shall mean a promissory note of the
Borrower, substantially in the form of Exhibit A-4,
evidencing the Swingline Loans.
"Taxes" shall have the meaning assigned to such term in
Section 2.18.
"Term Borrowing" shall mean a Borrowing comprised of Term
Loans.
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29
"Term Loan Commitment" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make Term
Loans hereunder as set forth in Schedule 2.01, as the same
may be reduced from time to time pursuant to Section 2.09.
"Term Loan Maturity Date" shall mean the 30th quarterly
anniversary of the Closing Date.
"Term Loan Repayment Date" shall have the meaning
assigned to such term in Section 2.11.
"Term Loans" shall mean the term loans made to the
Borrower pursuant to Section 2.01(a). Each Term Loan shall
be a Eurodollar Term Loan or an ABR Term Loan.
"Term Note" shall mean a promissory note of the Borrower,
substantially in the form of Exhibit A-3, evidencing Term
Loans.
"Total Indebtedness" shall mean, without duplication, all
outstanding Indebtedness of Holdings and its subsidiaries,
on a consolidated basis.
"Transactions" shall have the meanings assigned to such
term in Section 3.02.
"Type", when used in respect of any Loan or Borrowing,
shall refer to the Rate by reference to which interest on
such Loan or on the Loans comprising such Borrowing is
determined. For purposes hereof, "Rate" shall include the
Adjusted LIBO Rate and the Alternate Base Rate.
"UCC" shall mean the Uniform Commercial Code of New York.
"Unrestricted Subsidiary" shall mean (i) each Finance
Subsidiary, Collins & Aikman de Mexico, S.A. de C.V. and
Warner Fabrics plc, (ii) any Subsidiary of Holdings (other
than the Borrower) none of the Capital Stock or other
ownership interest of which is owned by the Borrower or any
of its Subsidiaries, provided that Holdings has notified the
Administrative Agent of its acquisition or creation of such
Subsidiary and its ownership interest therein concurrently
with such acquisition or creation and the intended purposes
of such Subsidiary and (iii) any Subsidiary of an
Unrestricted Subsidiary. Each Unrestricted Subsidiary,
other than a non-U.S. Unrestricted Subsidiary, shall have
entered into the existing Tax Sharing Agreement with
Holdings and the Borrower (or another tax sharing agreement
containing terms which, in the reasonable judgment of the
Administrative Agent, are customary in similar circumstances
to provide an appropriate allocation of tax liabilities and
benefits).
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30
The Unrestricted Subsidiaries shall be capitalized
solely from the following sources: (a) any Investment in
such Unrestricted Subsidiary by any Person other than
Holdings and the Restricted Subsidiaries; (b) Indebtedness
issued by such Unrestricted Subsidiary, or proceeds thereof;
(c) capital stock of any Unrestricted Subsidiary, or
proceeds thereof; (d) capital stock of Holdings issued by
Holdings after the Closing Date, or proceeds thereof; and
(e) Investments permitted to be made in Unrestricted
Subsidiaries pursuant to Section 6.07(l).
"Withdrawal Liability" shall mean liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
"WP" shall mean Wasserstein Perella Partners, L.P.
"WP Entities" shall mean WP, WPMP or any of their
Affiliates.
"WPMP" shall mean Wasserstein Perella Management
Partners, Inc.
SECTION 1.02. Terms Generally. The definitions in Section
1.01 shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation". All
references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. For all purposes of this Agreement
(other than preparation of the financial statements to be
delivered pursuant to Section 5.04), all terms of an accounting
or financial nature shall be construed in accordance with GAAP,
as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing Holdings'
audited financial statements for its fiscal year ended
January 29, 1994 referred to in Section 3.09.
<PAGE>
31
ARTICLE II.
THE CREDITS
SECTION 2.01. Commitments. (a) Subject to the terms and
conditions and relying upon the representations and warranties
set forth herein, each Lender with a Term Loan Commitment agrees,
severally and not jointly, to make a Term Loan to the Borrower on
the Closing Date in a principal amount not to exceed its Term
Loan Commitment set forth opposite its name in Schedule 2.01, as
the same may be reduced from time to time pursuant to Section
2.09. Amounts paid or prepaid in respect of Term Loans may not
be reborrowed.
(b) Subject to the terms and conditions and relying upon
the representations and warranties set forth herein, each Lender
with a Delayed Draw Term Loan Commitment agrees, severally and
not jointly, to make Delayed Draw Term Loans to the Borrower at
any time and from time to time during the Delayed Draw
Availability Period or until the earlier termination of its
Delayed Draw Term Loan Commitment in accordance with the terms
hereof, in an aggregate principal amount not to exceed its
Delayed Draw Term Loan Commitment set forth opposite its name in
Schedule 2.01, as the same may be reduced from time to time
pursuant to Section 2.09. Amounts paid or prepaid in respect of
Delayed Draw Term Loans may not be reborrowed.
(c) Subject to the terms and conditions and relying upon
the representations and warranties set forth herein, each
Revolving Lender agrees, severally and not jointly, to make
Revolving Loans to the Borrower, at any time and from time to
time on or after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the
Revolving Credit Commitment of such Lender in accordance with the
terms hereof, in an aggregate principal amount at any time
outstanding not to exceed the excess of (i) its Revolving Credit
Commitment set forth opposite its name in Schedule 2.01, as the
same may be reduced from time to time pursuant to Section 2.09,
minus (ii) its Applicable Percentage of the Letter of Credit
Exposure and Swingline Loans at such time. Within the foregoing
limits, the Borrower may borrow, pay or prepay and reborrow
Revolving Loans on or after the Closing Date and prior to the
Revolving Credit Maturity Date, subject to the terms, conditions
and limitations set forth herein. As provided in Section 2.19,
up to $50,000,000 of the Revolving Credit Commitment may be
utilized for the issuance of Letters of Credit.
(d) (i) The Swingline Lender hereby agrees, subject to
the limitations set forth below with respect to the maximum
amount of Swingline Loans permitted to be outstanding from time
to time, to make a portion of the Revolving Credit Commitments
available to the Borrower from time to time during the period
from the Closing Date through and excluding the earlier of
Revolving Credit Maturity Date and the termination of the
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32
Revolving Credit Commitments in an aggregate principal amount not
to exceed the Swingline Loan Commitment, by making Swingline
Loans to the Borrower. Swingline Loans may be made
notwithstanding the fact that such Swingline Loans, when
aggregated with the Swingline Lender's outstanding Revolving
Loans and outstanding Swingline Loans, may exceed the Swingline
Lender's Revolving Credit Commitment. The Swingline Lender's
commitment to make Swingline Loans to the Borrower pursuant to
this Section 2.01(d) is herein called its "Swingline Loan
Commitment." The original amount of the Swingline Lender's
Swingline Loan Commitment is $10,000,000. The Swingline Lender's
Swingline Loan Commitment shall expire on the date the Revolving
Credit Commitments are terminated and all Swingline Loans and all
other amounts owed hereunder with respect to Swingline Loans
shall be paid in full no later than that date. Amounts borrowed
under this Section 2.01(d) may be repaid and reborrowed to but
excluding the date of termination of the Revolving Credit
Commitments.
(ii) In no event shall (a) the aggregate principal amount
of Swingline Loans outstanding at any time exceed the aggregate
Swingline Loan Commitment in effect at such time, (b) the
aggregate principal amount of Revolving Loans and Swingline Loans
outstanding at any time exceed the Revolving Credit Commitments
as reduced by the aggregate Letter of Credit Exposure at such
time or (c) the aggregate Swingline Loan Commitment exceed at any
time the aggregate Revolving Loan Commitments in effect at such
time. Swingline Loans may only be made as ABR Loans.
(iii) With respect to any Swingline Loans which have not
been voluntarily prepaid by the Borrower, the Swingline Lender
(by request to the Administrative Agent) or Administrative Agent
at any time may, on one Business Day's notice, require each
Lender, including the Swingline Lender, and each Lender hereby
agrees, subject to the provisions of this Section 2.01(d), to
make a Revolving Loan (which shall be funded as an ABR Loan) in
an amount equal to such Lender's Applicable Percentage of the
amount of the Swingline Loans ("Refunded Swingline Loans")
outstanding on the date notice is given which Swingline Lender
requests the Lenders to prepay; provided that so long as no
Default or Event of Default shall have occurred and be
continuing, Lenders shall not be required to make such Revolving
Loans if the aggregate principal amount of Swingline Loans
outstanding as of any Tuesday of each week (or the first Business
Day occurring after any such Tuesday if such Tuesday is not a
Business Day) is less than $1,000,000.
(iv) In the case of Revolving Loans made by Lenders other
than the Swingline Lender under the immediately preceding
paragraph (iii), each such Lender shall make the amount of its
Revolving Loan available to the Administrative Agent, in same day
funds, at the office of the Administrative Agent located at 270
Park Avenue, New York, New York, not later than 1:00 P.M. (New
York time) on the Business Day next succeeding the date such
<PAGE>
33
notice is given. The proceeds of such Revolving Loans shall be
immediately delivered to the Swingline Lender (and not to the
Borrower) and applied to repay the Refunded Swingline Loans. On
the day such Revolving Loans are made, the Swingline Lender's
Applicable Percentage of the Refunded Swingline Loans shall be
deemed to be paid with the proceeds of a Revolving Loan made by
the Swingline Lender and such portion of Swingline Loans deemed
to be so paid shall no longer be outstanding as Swingline Loans
and shall be outstanding as Revolving Loans of Lenders. The
Borrower authorizes the Administrative Agent and the Swingline
Lender to charge the Borrower's account with Administrative Agent
(up to the amount available in such account) in order to pay
immediately to the Swingline Lender the amount of such Refunded
Swingline Loans to the extent amounts received from Lenders,
including amounts deemed to be received from the Swingline
Lender, are not sufficient to repay in full such Refunded
Swingline Loans. If any portion of any such amount paid (or
deemed to be paid) to the Swingline Lender should be recovered by
or on behalf of the Borrower from the Swingline Lender in
bankruptcy, by assignment for the benefit of creditors or
otherwise, the loss of the amount so recovered shall be ratably
shared among all Lenders in the manner contemplated by Section
9.06(b). Subject to the proviso contained in the first sentence
of the preceding paragraph and to the compliance by the Swingline
Lender with the provisions of Section 2.01(d)(vii), each Lender's
obligation to make the Revolving Loans referred to in this
paragraph shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i)
any setoff, counterclaim, recoupment, defense or other right
which such Lender may have against the Swingline Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of an Event of Default or a Default;
(iii) any adverse change in the condition (financial or
otherwise) of Holdings or any of its subsidiaries; (iv) any
breach of this Agreement by Holdings, the Borrower or any other
Lender; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
Nothing in this Section 2.01(d) shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder
or to prejudice any rights that the Borrower may have against any
Lender as a result of any default by such Lender hereunder.
(v) A copy of each notice given by the Swingline Lender
or the Administrative Agent pursuant to this Section 2.01(d)
shall be promptly delivered by the Swingline Lender to the
Administrative Agent and the Borrower. Upon the making of a
Revolving Loan by a Lender pursuant to this Section 2.01(d), the
amount so funded shall no longer be owed in respect of Swingline
Loans.
(vi) If as a result of any bankruptcy or similar
proceeding, Revolving Loans are not made pursuant to this Section
2.01(d) sufficient to repay any amounts owed to the Swingline
Lender as a result of a nonpayment of outstanding Swingline
<PAGE>
34
Loans, each Lender agrees to purchase, and shall be deemed to
have purchased, a participation in such outstanding Swingline
Loans in an amount equal to its Applicable Percentage of the
unpaid amount together with accrued interest thereon. Upon one
Business Day's notice from the Swingline Lender, each Lender
shall deliver to the Swingline Lender an amount equal to its
respective participation in same day funds at the office of the
Swingline Lender in New York, New York. In order to evidence
such participation each Lender agrees to enter into a
participation agreement at the request of the Swingline Lender in
form and substance reasonably satisfactory to all parties. In
the event any Lender fails to make available to the Swingline
Lender the amount of such Lender's participation as provided in
this Section 2.01(d), the Swingline Lender shall be entitled to
recover such amount on demand from such Lender together with
interest at the customary rate set by the Swingline Lender for
correction of errors among banks in New York City for one
Business Day and thereafter at the Alternate Base Rate plus the
Applicable Margin then in effect.
(vii) Notwithstanding anything herein to the contrary, the
Swingline Lender shall not make any Swingline Loans after the
occurrence and during the continuation of a Default or Event of
Default of which it is aware unless the Required Lenders have
consented thereto.
(e) Subject to the terms and conditions and relying upon
the representations and warranties set forth herein, each Lender
with a Canadian Term Loan Commitment agrees, severally and not
jointly, to make a Canadian Term Loan to the Canadian Borrower on
the Closing Date in a principal amount not to exceed its Canadian
Term Loan Commitment set forth opposite its name in Schedule
2.01, as the same may be reduced from time to time pursuant to
Section 2.09. Amounts paid or prepaid in respect of Canadian
Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part
of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective Term Loan Commitments, Delayed
Draw Term Loan Commitments, Revolving Credit Commitments,
Canadian Term Loan Commitments or Swingline Commitment, as the
case may be; provided, however, that the failure of any Lender to
make any Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other
Lender to make any Loan required to be made by such other
Lender). The Loans comprising each ABR Borrowing shall be in an
aggregate principal amount which is an integral multiple of
$1,000,000 (or, in the case of Swingline Loans, $500,000) and not
less than $5,000,000 (or, in the case of Swingline Loans,
$500,000) (or an aggregate principal amount equal to the
remaining balance of the Term Loan Commitments, Canadian Term
Loan Commitments, Delayed Draw Term Loan Commitments or Revolving
Credit Commitments, as the case may be); provided that the
<PAGE>
35
aggregate amount of any Loans comprising a Eurodollar Borrowing
shall be subject to a minimum principal amount of $5,000,000 and
shall be an integral multiple of $1,000,000.
(b) Each Borrowing shall be comprised of ABR Loans, or
(except in the case of Swingline Loans) Eurodollar Loans, as the
Borrower or the Canadian Borrower, as the case may be, may
request pursuant to Section 2.03. Each Lender may at its option
fulfill its Commitment with respect to any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the Borrower or the
Canadian Borrower, as the case may be, to repay such Loan in
accordance with the terms of this Agreement and the applicable
Note. Borrowings of more than one Type may be outstanding at the
same time; provided, however, that (except in the case of
Swingline Loans) the Borrower or the Canadian Borrower, as the
case may be, shall not be entitled to request any Borrowing
which, if made, would result in an aggregate of more than 15
separate Loans of any Lender being outstanding hereunder at any
one time. For purposes of the foregoing, Loans having different
Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Loans.
(c) Subject to paragraph (e) below, each Lender shall make
a Loan in the amount of its pro rata portion, as determined under
Section 2.16, of each Borrowing hereunder on the proposed date
thereof by wire transfer of immediately available funds to the
Administrative Agent in New York, New York, not later than 11:00
a.m., New York City time, and the Administrative Agent shall
credit the amounts so received to the general deposit account of
the Borrower or the Canadian Borrower, as the case may be, with
the Administrative Agent or, if a Borrowing shall not occur on
such date because any condition precedent herein specified shall
not have been met, return the amounts so received to the
respective Lenders. Unless the Administrative Agent shall have
received notice from a Lender prior to the date of any Borrowing
that such Lender will not make available to the Administrative
Agent such Lender's portion of such Borrowing, the Administrative
Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent
may, in reliance upon such assumption, make available to the
Borrower or the Canadian Borrower, as the case may be, on such
date a corresponding amount. If and to the extent that such
Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower or the
Canadian Borrower, as the case may be, severally agree to repay
to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower or
the Canadian Borrower, as the case may be, until the date such
amount is repaid by either the Borrower or the Canadian Borrower,
as the case may be, or such Lender to the Administrative Agent at
<PAGE>
36
(i) in the case of the Borrower or the Canadian Borrower, the
interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds
Effective Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount together with the applicable
interest thereon, such amount shall constitute such Lender's Loan
as part of such Borrowing for purposes of this Agreement and the
Borrower's or the Canadian Borrower's obligations under the
preceding sentence shall terminate. If the Borrower or the
Canadian Borrower, as the case may be, shall repay to the
Administrative Agent such corresponding amount together with the
applicable interest thereon, then such amount shall not
constitute a Loan hereunder and the Borrower or the Canadian
Borrower shall have no further obligations hereunder in respect
thereof.
(d) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request any Revolving
Credit Borrowing if the Interest Period requested with respect
thereto would end after the Revolving Credit Maturity Date.
(e) The Borrower may refinance all or any part of any
Revolving Credit Borrowing with a Revolving Credit Borrowing of
the same or a different Type, subject to the conditions and
limitations set forth in this Agreement. Any Revolving Credit
Borrowing or part thereof so refinanced shall be deemed to be
repaid or prepaid in accordance with Section 2.04 or 2.12, as
applicable, with the proceeds of a new Revolving Credit
Borrowing, and the proceeds of the new Revolving Credit
Borrowing, to the extent they do not exceed the principal amount
of the Revolving Credit Borrowing being refinanced, shall not be
paid by the Lenders to the Administrative Agent or by the
Administrative Agent to the Borrower pursuant to paragraph (c)
above.
(f) If the Administrative Agent has not received from the
Borrower the payment required by Section 2.22(a) by 12:00 noon,
New York City time, on the date on which an Issuing Bank has
notified the Borrower and the Administrative Agent that payment
of a draft presented under any Letter of Credit will be made (or
such later time permitted by Section 2.22(a)), as provided in
Section 2.22, the Administrative Agent will promptly notify such
Issuing Bank and each Revolving Lender of the Letter of Credit
Disbursement and, in the case of each such Lender, its Applicable
Percentage of such Letter of Credit Disbursement. Each Revolving
Lender (other than the applicable Issuing Bank) will pay to the
Administrative Agent not later than 2:00 p.m., New York City
time, on such date (or, if payment by the Borrower is not
required until after 11:00 a.m., New York City time, on such
date, by 10:00 a.m. on the immediately following Business Day)
such Lender's Applicable Percentage of such Letter of Credit
Disbursement, which the Administrative Agent will promptly pay to
such Issuing Bank. The Administrative Agent will promptly remit
to each Revolving Lender its Applicable Percentage of any amounts
<PAGE>
37
subsequently received by the Administrative Agent from the
Borrower in respect of such Letter of Credit Disbursement.
SECTION 2.03. Notice of Borrowings. The Borrower or the
Canadian Borrower, as the case may be, shall give the
Administrative Agent written notice (or telephone notice promptly
confirmed in writing) (a) in the case of a Eurodollar Borrowing,
not later than 12:00 noon, New York City time, three Business
Days before a proposed borrowing and (b) in the case of an ABR
Borrowing, not later than 12:00 noon, New York City time, one
Business Day before a proposed borrowing. Such notice shall be
irrevocable and shall in each case refer to this Agreement and
specify (i) whether the Borrowing then being requested is to be a
Term Borrowing, a Delayed Draw Borrowing, a Canadian Term
Borrowing or a Revolving Credit Borrowing, and whether such
Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing;
(ii) the date of such Borrowing (which shall be a Business Day)
and the amount thereof; and (iii) if such Borrowing is to be a
Eurodollar Borrowing, the Interest Period with respect thereto.
If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the Borrower or
the Canadian Borrower, as the case may be, shall be deemed to
have selected an Interest Period of one month's duration. If the
Borrower shall not have given notice in accordance with this
Section 2.03 of its election to refinance a Revolving Credit
Borrowing prior to the end of the Interest Period in effect for
such Borrowing, then the Borrower shall (unless such Borrowing is
repaid at the end of such Interest Period) be deemed to have
given notice of an election to refinance such Borrowing with an
ABR Borrowing. The Administrative Agent shall promptly advise
the Lenders of any notice given pursuant to this Section 2.03 and
of each Lender's portion of the requested Borrowing.
SECTION 2.04. Notes; Repayment of Loans. (a) The Borrower
hereby unconditionally promises to pay to the Administrative
Agent for the account of each Lender (i) the then unpaid
principal amount of each Revolving Loan and Swingline Loan of
such Lender on the Revolving Credit Maturity Date (or such
earlier date on which the Revolving Loans and Swing Line Loans
become due and payable pursuant to Article VII), and (ii) the
principal amount of the Term Loan and Delayed Draw Term Loan of
such Lender, in 26 and 28 consecutive quarterly installments,
respectively, payable on each quarterly anniversary of the
Closing Date, commencing on the fifth quarterly anniversary of
the Closing Date in accordance with Section 2.11 (or the then
unpaid principal amount of such Term Loan and Delayed Draw Term
Loan, on the date that the Term Loans and the Delayed Draw Term
Loans become due and payable pursuant to Article VII). The
Canadian Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the principal
amount of the Canadian Term Loan of such Lender, in 3 consecutive
quarterly installments, payable on each quarterly anniversary of
<PAGE>
38
the Closing Date, commencing on the 30th quarterly anniversary of
the Closing Date (or the then unpaid principal amount of such
Canadian Term Loan on the date that the Canadian Term Loans
become due and payable pursuant to Article VII). Each of the
Borrower and the Canadian Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans made to it
from time to time outstanding from the date hereof until payment
in full thereof at the rates per annum, and on the dates, set
forth in Section 2.06.
(b) Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of
the Borrower and the Canadian Borrower to such Lender resulting
from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender
from time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to Section 9.04(d), and a subaccount therein for each
Lender, in which shall be recorded (i) the amount of each
Revolving Credit Loan, Swingline Loan, Delayed Draw Term Loan,
Canadian Term Loan and Term Loan made hereunder, the Type thereof
and each Interest Period applicable thereto, (ii) the amount of
any principal or interest due and payable or to become due and
payable from the Borrower or the Canadian Borrower to each Lender
hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower or the Canadian
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of
each Lender maintained pursuant to Section 2.04(b) shall, to the
extent permitted by applicable law, be prima facie evidence of
the existence and amounts of the obligations of the Borrower and
the Canadian Borrower therein recorded; provided, however, that
the failure of any Lender or the Administrative Agent to maintain
the Register or any such account, or any error therein, shall not
in any manner affect the obligation of the Borrower or the
Canadian Borrower to repay (with applicable interest) the Loans
made to the Borrower or the Canadian Borrower by such Lender in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and
deliver to such Lender (i) a Revolving Credit Note with
appropriate insertions as to date and principal amount, and/or
(ii) a Delayed Draw Term Note with appropriate insertions as to
date and principal amount, and/or (iii) a Term Note with
appropriate insertions as to date and principal amount, and/or
(iv) in the case of the Swingline Lender, a Swingline Note with
appropriate insertions as to date and principal amount. The
Canadian Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Canadian Borrower will
execute and deliver to such Lender a Canadian Term Note with
appropriate insertions as to date and principal amount.
<PAGE>
39
SECTION 2.05. Fees. (a) The Borrower agrees to pay to
each Lender, through the Administrative Agent, on the Closing
Date, thereafter on the last day of March, June, September and
December in each year, and on the date on which the Commitment of
such Lender shall be terminated as provided herein, a commitment
fee (a "Commitment Fee") of 1/2 of 1% per annum on the average
daily unused amount of the Term Loan Commitment, the Canadian
Term Loan Commitment and the Revolving Commitment of such Lender,
and 5/8 (or, prior to the Closing Date, 1/2) of 1% per annum on
the average daily unused amount of the Delayed Draw Term Loan
Commitment of such Lender, in each case during the preceding
quarter (or shorter period ending with the Closing Date, the
Revolving Credit Maturity Date or the date on which the
Commitment of such Lender shall be terminated). All Commitment
Fees shall be computed on the basis of the actual number of days
elapsed in a year of 365 or 366 days. For purposes of
calculating any Lender's Commitment Fee, the outstanding
Swingline Loans during the period for which such Lender's
Commitment Fee is calculated shall be deemed to be zero. The
Commitment Fee due to each Lender commenced on an allocation date
agreed to among such Lender, the Borrower and Chemical, or, if
later, the date such entity becomes a Lender pursuant to Section
9.04, and shall cease to accrue on the date on which the
Commitment of such Lender shall be terminated as provided herein.
(b) The Borrower agrees to pay to the Lenders, through
the Administrative Agent, on the Closing Date, the participation
fees (the "Participation Fees") in the amounts previously agreed
to be payable to the Lenders.
(c) The Borrower agrees to pay to the Administrative
Agent, for its own account, on the Closing Date and thereafter at
the times previously agreed, the fees (the "Agency Fees") in the
amounts previously agreed to be payable to the Administrative
Agent for its own account in accordance with the fee letter
between Chemical and Holdings.
(d) The Borrower agrees to pay to each Issuing Bank, for
its own account, a fronting fee for each Letter of Credit issued
by such Issuing Bank, in the amount agreed upon between the
Borrower and such Issuing Bank, payable as agreed to by the
Borrower and such Issuing Bank for such Letter of Credit, and
negotiation, amendment, issuing, payment and other customary fees
(collectively, the "Fronting Fees") in the amounts separately
agreed to by such Issuing Bank and the Borrower.
(e) All Fees shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for
distribution, if and as appropriate, among the Lenders or to the
applicable Issuing Banks, as the case may be. Once paid, none of
the Fees shall be refundable under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the
provisions of Section 2.07, the Loans comprising each ABR
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40
Borrowing and Swingline Loans shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when determined by reference to
the Prime Rate and over a year of 360 days at all other times) at
a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin.
(b) Subject to the provisions of Section 2.07, the Loans
comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over
a year of 360 days) at a rate per annum equal to the Adjusted
LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Margin.
(c) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan and as otherwise provided
in this Agreement. The applicable Alternate Base Rate and
Adjusted LIBO Rate for each Interest Period or day within an
Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive
absent manifest error.
(d) For purposes of the Interest Act (Canada) (i) whenever
any interest or fee under this Agreement with respect to the
Canadian Term Loan Commitments, or credit extended thereunder, is
calculated using a rate based on a year of 360 days, such rate
determined pursuant to such calculation, when expressed as an
annual rate, is equivalent to (x) the applicable rate based on a
year of 360 days multiplied by (y) the actual number of days in
the calendar year in which the period for which such interest or
fee is payable (or compounded) ends, and (z) divided by 360 and
(ii) the principle of deemed reinvestment of interest does not
apply to any such interest calculation under this Agreement, and
(iii) the rates of interest stipulated in this Agreement are
intended to be nominal rates and not effective rates or yields.
SECTION 2.07. Default Interest. If the Borrower or the
Canadian Borrower, as the case may be, shall default in the
payment of the principal of or interest on any Loan or any other
amount becoming due hereunder, by acceleration or otherwise, the
Borrower or the Canadian Borrower, as the case may be, shall on
demand from time to time pay interest, to the extent permitted by
law, on such defaulted amount up to (but not including) the date
of actual payment (after as well as before judgment) at a rate
per annum (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be, when
determined by reference to the Prime Rate and over a year of 360
days at all other times) equal to the Alternate Base Rate plus
the Applicable Margin plus 2% per annum.
<PAGE>
41
SECTION 2.08. Alternate Rate of Interest. In the event,
and on each occasion, that on the day two Business Days prior to
the commencement of any Interest Period for a Eurodollar
Borrowing the Administrative Agent shall have determined that
dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the interbank
eurodollar market, or that the rates at which such dollar
deposits are being offered will not adequately and fairly reflect
the cost to any Lender of making or maintaining its Eurodollar
Loan during such Interest Period, or that reasonable means do not
exist for ascertaining the Adjusted LIBO Rate, the Administrative
Agent shall, as soon as practicable thereafter, give written or
telex or telecopy notice of such determination to the Borrower,
the Canadian Borrower and the Lenders. In the event of any such
determination, any request by the Borrower or the Canadian
Borrower, as the case may be, for a Eurodollar Borrowing pursuant
to Section 2.03 or 2.10 shall, until the Administrative Agent
shall have advised the Borrower, the Canadian Borrower and the
Lenders that the circumstances giving rise to such notice no
longer exist, be deemed to be a request for an ABR Borrowing.
Each determination by the Administrative Agent hereunder shall be
conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments.
(a) All Commitments shall automatically terminate at 5:00 p.m.,
New York City time, on September 15, 1994, unless the Closing
Date occurs on or prior to such date. The Term Loan Commitments
and the Canadian Term Loan Commitments shall be automatically
terminated at 5:00 p.m., New York City time, on the Closing Date.
The Delayed Draw Term Loan Commitments shall be automatically
terminated at 5:00 p.m., New York City time, on the last day of
the Delayed Draw Availability Period. The Revolving Credit
Commitments shall be automatically terminated on the Revolving
Credit Maturity Date. The Letter of Credit Commitment shall be
automatically terminated at 5:00 p.m., New York City time, on the
date that is five Business Days prior to the Revolving Credit
Maturity Date.
(b) Upon at least three Business Days' prior irrevocable
written notice to the Administrative Agent, the Borrower or the
Canadian Borrower, as the case may be, may at any time in whole
permanently terminate, or from time to time in part permanently
reduce, any of the Term Loan Commitments, the Delayed Draw Term
Loan Commitments, the Canadian Term Loan Commitments or the
Revolving Credit Commitments; provided, however, that (i) each
partial reduction of any such Commitments shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of
$5,000,000 and (ii) the Revolving Credit Commitments shall not be
reduced to an amount which is less than the Letter of Credit
Exposure and the outstanding Revolving Credit Loans and Swingline
Loans at such time.
(c) Each reduction in the Commitments hereunder shall be
made ratably among the applicable Lenders in accordance with
<PAGE>
42
their respective applicable Commitments. The Borrower shall pay
to the Administrative Agent for the account of the applicable
Lenders, on the date of each termination or reduction, the
Commitment Fees on the amount of the Commitments so terminated or
reduced accrued through the date of such termination or
reduction.
SECTION 2.10. Conversion and Continuation of Delayed Draw
Term, Term and Canadian Term Borrowings. The Borrower or the
Canadian Borrower, as the case may be, shall have the right at
any time upon prior irrevocable notice to the Administrative
Agent (i) not later than 12:00 (noon), New York City time, one
Business Day prior to conversion, to convert any Eurodollar Term
Borrowing into an ABR Term Borrowing, or to convert any
Eurodollar Delayed Draw Term Borrowing into an ABR Delayed Draw
Term Borrowing, or to convert any Eurodollar Canadian Term
Borrowing into an ABR Canadian Term Borrowing, (ii) not later
than 10:00 a.m., New York City time, three Business Days prior to
conversion or continuation, to convert any ABR Term Borrowing
into a Eurodollar Term Borrowing, or convert any ABR Delayed Draw
Term Borrowing into a Eurodollar Delayed Draw Term Borrowing, or
convert any ABR Canadian Term Borrowing to a Eurodollar Canadian
Term Borrowing or to continue any Eurodollar Term Borrowing or
Eurodollar Delayed Draw Term Borrowing or Eurodollar Canadian
Term Borrowing as a Eurodollar Term Borrowing or Eurodollar
Delayed Draw Term Borrowing or Eurodollar Canadian Term
Borrowing, as applicable, for an additional Interest Period and
(iii) not later than 10:00 a.m., New York City time, three
Business Days prior to conversion, to convert the Interest Period
with respect to any Eurodollar Term Borrowing or Eurodollar
Delayed Draw Term Borrowing or Eurodollar Canadian Term Borrowing
to another permissible Interest Period, subject to the following
conditions:
(a) each conversion or continuation shall be made pro
rata among the applicable Lenders in accordance with the
respective principal amounts of the Loans comprising the
converted or continued Borrowing;
(b) if less than all the outstanding principal amount
of any Borrowing shall be converted or continued, the
aggregate principal amount of such Borrowing converted or
continued shall be an integral multiple of $1,000,000 and
not less than $5,000,000; provided that the aggregate
principal amount of each Eurodollar Borrowing resulting from
any such conversion or continuation shall not be less than
$5,000,000 and shall be an integral multiple of $1,000,000;
(c) each conversion shall be effected by each
applicable Lender by such Lender converting its applicable
Loan (or portion thereof), and accrued interest on a Loan
(or portion thereof) being converted shall be paid by the
Borrower or the Canadian Borrower, as the case may be, at
the time of conversion;
<PAGE>
43
(d) if any Eurodollar Borrowing is converted at a time
other than the end of the Interest Period applicable
thereto, the Borrower shall pay, upon demand, any amounts
due to the applicable Lenders pursuant to Section 2.15;
(e) any portion of a Borrowing maturing or required to
be repaid in less than one month may not be converted into
or continued as a Eurodollar Borrowing;
(f) any portion of a Eurodollar Borrowing which cannot
be converted into or continued as a Eurodollar Borrowing by
reason of clause (e) above shall be automatically converted
at the end of the Interest Period in effect for such
Borrowing into an ABR Borrowing;
(g) no Interest Period may be selected for any
Eurodollar Borrowing that would end later than a Term Loan
Repayment Date, Canadian Term Loan Repayment Date or Delayed
Draw Term Loan Repayment Date, as applicable, occurring on
or after the first day of such Interest Period if, after
giving effect to such selection, the aggregate outstanding
amount of (i) the Eurodollar Term Borrowings, the Eurodollar
Canadian Term Borrowings or the Eurodollar Delayed Draw Term
Borrowings, as the case may be, with Interest Periods ending
on or prior to such Term Loan Repayment Date, Canadian Term
Loan Repayment Date or Delayed Draw Term Loan Repayment Date
and (ii) the ABR Term Borrowings, ABR Canadian Term
Borrowings or ABR Delayed Draw Term Borrowings, as the case
may be, would not be at least equal to the principal amount
of Term Borrowings, Canadian Term Borrowings or Delayed Draw
Borrowings to be paid on such Term Loan Repayment Date,
Canadian Term Loan Repayment Date or Delayed Draw Term Loan
Repayment Date; and
(h) a Borrowing may not be converted into or continued
as a Eurodollar Borrowing if a Default or an Event of
Default has occurred and is continuing and the Required
Lenders have determined such conversion or continuation is
not appropriate.
Each notice pursuant to this Section 2.10 shall be
irrevocable and shall refer to this Agreement and specify (i) the
identity and amount of the Borrowing that the Borrower or the
Canadian Borrower, as the case may be, requests be converted or
continued, (ii) whether such Borrowing is to be converted to or
continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if
such notice requests a conversion, the date of such conversion
(which shall be a Business Day) and (iv) if such Borrowing is to
be converted to or continued as a Eurodollar Borrowing, the
Interest Period with respect thereto. If no Interest Period is
specified in any such notice with respect to any conversion to or
continuation as a Eurodollar Borrowing, the Borrower shall be
deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall promptly advise the
<PAGE>
44
other Lenders of any notice given pursuant to this Section 2.10
and of each Lender's portion of any converted or continued
Borrowing. If the Borrower or the Canadian Borrower, as the case
may be, shall not have given notice in accordance with this
Section 2.10 to continue any Borrowing into a subsequent Interest
Period (and shall not otherwise have given notice in accordance
with this Section 2.10 to convert such Borrowing), such Borrowing
shall, at the end of the Interest Period applicable thereto
(unless repaid pursuant to the terms hereof), automatically be
continued into a new Interest Period as an ABR Borrowing.
SECTION 2.11. Repayment of Term and Delayed Draw Term
Borrowings. (a) The Term Borrowings shall be payable as to
principal in such number of consecutive installments, payable on
such dates (each a "Term Loan Repayment Date") and in such
amounts as set forth on Schedule 2.11(a), based upon the
aggregate principal amount of Term Loans advanced on the Closing
Date.
(b) The Delayed Draw Term Borrowings shall be payable as
to principal on each Term Loan Repayment Date and Canadian Term
Loan Repayment Date (each a "Delayed Draw Term Loan Repayment
Date") and in such amounts (expressed as a percentage of the
aggregate principal amount of Delayed Draw Term Borrowings
outstanding on the last day of the Delayed Draw Availability
Period) equal to the same percentage as the percentage of the
original aggregate Term Loans and Canadian Term Loans required to
be repaid on such Delayed Draw Term Loan Repayment Date.
(c) The Canadian Term Borrowings shall be payable as to
principal in such number of consecutive installments, payable on
such dates (each a "Canadian Term Loan Repayment Date") and in
such amounts as set forth on Schedule 2.11(a), based upon the
aggregate principal amount of Canadian Term Loans advanced on the
Closing Date.
(d) To the extent not previously paid, all Term Borrowings
shall be due and payable on the Term Loan Maturity Date, all
Canadian Term Borrowings shall be due and payable on the Canadian
Term Loan Maturity Date and all Delayed Draw Term Borrowings
shall be due and payable on the Delayed Draw Term Loan Maturity
Date. Each payment of Eurodollar Term Borrowings, Canadian
Eurodollar Term Borrowings or Delayed Draw Eurodollar Term
Borrowings repaid pursuant to this Section 2.11 shall be
accompanied by accrued interest on the principal amount paid to
but excluding the date of payment.
SECTION 2.12. Prepayment. (a) The Borrower or the
Canadian Borrower, as the case may be, shall have the right at
any time and from time to time to prepay any Borrowing, in whole
or in part, upon, in the case of Eurodollar Borrowings, at least
three Business Days', and in the case of ABR Borrowings, at least
one Business Day's, prior written notice (or telephone notice
promptly confirmed by written notice) to the Administrative
<PAGE>
45
Agent; provided, however, that (i) each partial prepayment (other
than of a Swingline Loan) of ABR Loans shall be in a minimum
principal amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and of Eurodollar Loans shall be in
a minimum principal amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof and (ii) any prepayment by the
Borrower (other than of a Revolving Credit Borrowing or Swingline
Loan) shall be applied to the Term Loans and the Delayed Draw
Term Loans ratably according to the respective outstanding
principal amounts thereof.
(b) On the date of any termination or reduction of the
Revolving Credit Commitments pursuant to Section 2.09, the
Borrower shall pay or prepay so much of, first, the Swingline
Loans and, second, the Revolving Credit Borrowings as shall be
necessary in order that the aggregate principal amount of the
Revolving Loans and Swingline Loans outstanding will not exceed
the excess, if any, of (i) the aggregate Revolving Credit
Commitments after giving effect to such termination or reduction,
minus (ii) the Letter of Credit Exposure at the time.
(c) The Borrower and the Canadian Borrower shall prepay
the Borrowings at the times and in the amounts required pursuant
to Section 2.12(e) and 2.12(f). Each prepayment of the
Borrowings required to be made pursuant to Section 2.12(e) and
2.12(f) shall be applied, first, to prepay in full outstanding
Term Borrowings and Delayed Draw Borrowings pro rata in
accordance with the respective outstanding principal amounts of
such Borrowings and, second, to prepay in full outstanding
Canadian Term Borrowings.
(d) The Borrower's and the Canadian Borrower's prepayment
obligations under any paragraph of this Section 2.12 shall be in
addition to, and shall not be discharged by the performance of,
its obligations under any other such paragraph. Each notice of
prepayment shall specify the prepayment date and the principal
amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower or the
Canadian Borrower, as the case may be, to prepay such Borrowing
by the amount stated therein on the date stated therein. All
prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments
under this Section 2.12 shall be accompanied by accrued interest
on the principal amount being prepaid to the date of payment.
(e) In the event and on each occasion that a Prepayment
Event occurs, the Borrower or the Canadian Borrower, as the case
may be, shall apply an amount equal to the Applicable Prepayment
Percentage of the Net Proceeds therefrom to prepay the Loans in
accordance with this Section 2.12(e) and Section 2.12(g) below.
Substantially simultaneously with (and in any event not later
than the Business Day next following) the occurrence of a
Prepayment Event, the Borrower or the Canadian Borrower, as the
case may be, shall pay to the Administrative Agent (for
<PAGE>
46
application to the prepayment of Loans in accordance with Section
2.12(g)) an amount equal to the Applicable Prepayment Percentage
of the Net Proceeds from such Prepayment Event.
(f) Not later than 90 days after the end of each fiscal
year, the Borrower or the Canadian Borrower, as the case may be,
shall pay to the Administrative Agent (for application to the
prepayment of Loans in accordance with Section 2.12(g)) an amount
equal to the Applicable Prepayment Percentage (as of the last day
for the fiscal year for which Excess Cash Flow is calculated) of
the amount of the Excess Cash Flow for such fiscal year.
(g) Each prepayment of principal of the Term Borrowings
or the Delayed Draw Term Borrowings pursuant to this Section 2.12
shall be applied to reduce scheduled payments of principal of the
applicable Borrowings due under paragraph (a) or (b), as
applicable, of Section 2.11 after the date of such prepayment pro
rata in accordance with the remaining scheduled amount of each
such payment; provided, however, that in the case of any
prepayment of the Term Borrowings and the Delayed Draw Term
Borrowings pursuant to Section 2.12(c) that is required pursuant
to Section 2.12(f) or pursuant to Section 2.12(a), the principal
amount of such prepayment shall be applied to reduce scheduled
payments of principal due under Section 2.11 after the date of
such prepayment in the chronological order of maturity. Each
prepayment of principal of the Canadian Term Borrowings pursuant
to this Section 2.12 shall be applied to reduce scheduled
payments of principal of the Canadian Term Borrowings due under
paragraph (c) of Section 2.11 after the date of such prepayment
pro rata in accordance with the remaining scheduled amount of
each such payment; provided, however, that in the case of any
prepayment of the Canadian Term Borrowings pursuant to Section
2.12(c) that is required pursuant to Section 2.12(f) or pursuant
to Section 2.12(a), the principal amount of such prepayment shall
be applied to reduce scheduled payments of principal due under
Section 2.11 after the date of such prepayment in the
chronological order of maturity.
(h) Notwithstanding anything herein to the contrary, the
Canadian Borrower shall not have any mandatory obligation under
this Section 2.12 (i) to prepay any Canadian Term Loans until
such time as the Delayed Draw Term Loans and Term Loans have been
repaid in full or (ii) to prepay more than 25% of the original
principal amount of the Canadian Term Loans prior to the fifth
anniversary of the Closing Date. Any mandatory prepayment of the
Canadian Term Loans which would be made but for the provisions of
clause (ii) of the preceding sentence shall be due and payable on
the first Business Day following the fifth anniversary of the
Closing Date.
(i) In the event the amount of any prepayment required to
be made above shall exceed the aggregate principal amount of the
applicable outstanding ABR Loans (the amount of any such excess
being called the "Excess Amount"), the Borrower or the Canadian
<PAGE>
47
Borrower, as the case may be, shall have the right, in lieu of
making such prepayment in full, to prepay all the outstanding
applicable ABR Loans and to deposit an amount equal to the Excess
Amount with the Collateral Agent in a cash collateral account
maintained (pursuant to documentation satisfactory to the
Administrative Agent) by and in the sole dominion and control of
the Collateral Agent. Any amounts so deposited shall be held by
the Collateral Agent as collateral for the Obligations and
applied to the prepayment of the applicable Eurodollar Loans at
the end of the current Interest Periods applicable thereto. On
any Business Day on which (x) collected amounts remain on deposit
in or to the credit of such cash collateral account after giving
effect to the payments made on such day pursuant to this Section
2.12(i) and (y) the Borrower or the Canadian Borrower, as the
case may be, shall have delivered to the Collateral Agent a
written request or a telephonic request (which shall be promptly
confirmed in writing) that such remaining collected amounts be
invested in the Permitted Investments specified in such request,
the Collateral Agent shall use its reasonable efforts to invest
such remaining collected amounts in such Permitted Investments;
provided, however, that the Collateral Agent shall have
continuous dominion and full control over any such investments
(and over any interest that accrues thereon) to the same extent
that it has dominion and control over such cash collateral
account and no Permitted Investment shall mature after the end of
the Interest Period for which it is to be applied. Neither the
Borrower nor the Canadian Borrower shall have the right to
withdraw any amount from such cash collateral account until the
applicable Eurodollar Loans and accrued interest thereon are paid
in full or if a Default or Event of Default then exists or would
result.
SECTION 2.13. Reserve Requirements; Change in
Circumstances. (a) Notwithstanding any other provision herein,
if after the date of this Agreement any change in applicable law
or regulation or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to any Lender or
any Issuing Bank in respect of any Letter of Credit or of the
principal of or interest on any Eurodollar Loan made by such
Lender or any Fees or other amounts payable hereunder (other than
changes in respect of (i) taxes imposed on the overall net income
of such Lender or such Issuing Bank by the jurisdiction in which
such Lender or such Issuing Bank has its principal office or by
any political subdivision or taxing authority therein and (ii)
any Taxes described in Section 2.18), or shall impose, modify or
deem applicable any reserve, special deposit or similar
requirement against assets or deposits with or for the account of
or credit extended by or, in the case of the Letters of Credit,
participated in by such Lender (except any such reserve
requirement which is reflected in the Adjusted LIBO Rate) or such
Issuing Bank or shall impose on such Lender or such Issuing Bank
or the interbank eurodollar market any other condition affecting
<PAGE>
48
this Agreement, any Letter of Credit (or any participation with
respect thereto), the Letter of Credit Exposure, the Letter of
Credit Commitment or Eurodollar Loans made by such Lender, and
the result of any of the foregoing shall be to increase the cost
to such Lender or such Issuing Bank of making or maintaining the
Letter of Credit Exposure, the Letter of Credit Commitment or any
Eurodollar Loan (or, in the case of such Issuing Bank, of making
any payment or maintaining the Letter of Credit Commitment) or to
reduce the amount of any sum received or receivable by such
Lender or such Issuing Bank hereunder or under the Notes (whether
of principal, interest or otherwise) by an amount deemed by such
Lender or such Issuing Bank to be material, then the Borrower
will pay to such Lender or such Issuing Bank upon demand such
additional amount or amounts as will compensate such Lender or
such Issuing Bank for such additional costs incurred or reduction
suffered.
(b) If any Lender or Issuing Bank shall have determined
that the adoption after the date hereof of any law, rule,
regulation or guideline regarding capital adequacy, or any change
after the date hereof in any of the foregoing or in the
interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance
by any Lender (or any lending office of such Lender) or Issuing
Bank or any Lender's or Issuing Bank's holding company with any
request or directive regarding capital adequacy (whether or not
having the force of law) made or issued after the date hereof by
any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such
Lender's or Issuing Bank's capital or on the capital of such
Lender's or Issuing Bank's holding company, if any, as a
consequence of this Agreement or its obligations pursuant hereto
to a level below that which such Lender or Issuing Bank or such
Lender's or Issuing Bank's holding company would have achieved
but for such adoption, change or compliance (taking into
consideration such Lender's or Issuing Bank's policies and the
policies of such Lender's or Issuing Bank's holding company with
respect to capital adequacy) by an amount deemed by such Lender
or Issuing Bank to be material, then from time to time the
Borrower shall pay to such Lender or Issuing Bank such additional
amount or amounts as will compensate such Lender or Issuing Bank
or such Lender's or Issuing Bank's holding company for any such
reduction suffered.
(c) A certificate of each Lender or Issuing Bank setting
forth such amount or amounts as shall be necessary to compensate
such Lender or Issuing Bank or its holding company as specified
in paragraph (a) or (b) above, as the case may be, shall be
delivered to the Borrower through the Administrative Agent and
shall be conclusive absent manifest error. The Borrower shall
pay each Lender or Issuing Bank the amount shown as due on any
such certificate delivered by it within 10 days after its receipt
of the same.
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49
(d) In the event any Lender or Issuing Bank delivers a
notice pursuant to paragraph (e) below, the Borrower may require,
at the Borrower's expense and subject to Section 2.15, such
Lender or Issuing Bank to assign, at par plus accrued interest
and fees, without recourse (in accordance with Section 9.04) all
its interests, rights and obligations hereunder (including, in
the case of a Lender, all of its Commitment and the Loans at the
time owing to it and its Notes and participations in Letters of
Credit held by it and its obligations to acquire such
participations) to a financial institution specified by the
Borrower provided that (i) such assignment shall not conflict
with or violate any law, rule or regulation or order of any court
or other Governmental Authority, (ii) the Borrower shall have
received the written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, to such assignment,
(iii) the Borrower shall have paid to the assigning Lender or
Issuing Bank all monies accrued and owing hereunder to it
(including pursuant to this Section) and (iv) in the case of a
required assignment by an Issuing Bank, all outstanding Letters
of Credit issued by such Issuing Bank shall be canceled and
returned to such Issuing Bank.
(e) Promptly after any Lender or Issuing Bank has
determined, in its sole judgment, that it will make a request for
increased compensation pursuant to this Section, such Lender or
Issuing Bank will notify the Borrower thereof. Failure on the
part of any Lender or Issuing Bank so to notify the Borrower or
to demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such
Lender's or Issuing Bank's right to demand compensation with
respect to such period or any other period; provided that the
Borrower shall not be under any obligation to compensate any
Lender or Issuing Bank under Section 2.13(b) with respect to
increased costs or reductions with respect to any period prior to
the date that is six months prior to such request if such Lender
or the Issuing Bank knew or could reasonably have been expected
to be aware of the circumstances giving rise to such increased
costs or reductions and of the fact that such circumstances would
in fact result in such increased costs or reduction; provided,
further, that, the foregoing limitation shall not apply to any
increased costs or reductions arising out of the retroactive
application of any law, regulation, rule, guideline or directive
as aforesaid within such six month period. The protection of
this Section shall be available to each Lender and Issuing Bank
regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other
change or condition which shall have occurred or been imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein, if the adoption of or any change in any
law or regulation or in the interpretation thereof by any
Governmental Authority charged with the administration or
interpretation thereof shall make it unlawful for any Lender to
<PAGE>
50
make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar
Loan, then, by written notice to the Borrower and to the
Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder, whereupon any request by the
Borrower for a Eurodollar Borrowing shall, as to such Lender
only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made
by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR
Loans as of the effective date of such notice as provided in
paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or
(ii) above, all payments and prepayments of principal which would
otherwise have been applied to repay the Eurodollar Loans that
would have been made by such Lender or the converted Eurodollar
Loans of such Lender shall instead be applied to repay the ABR
Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice to the
Borrower by any Lender shall be effective as to each Eurodollar
Loan, if lawful, on the last day of the Interest Period currently
applicable to such Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt by the Borrower.
SECTION 2.15. Indemnity. The Borrower shall indemnify each
Lender against any loss or expense (other than taxes) which such
Lender may sustain or incur as a consequence of (a) any failure
by the Borrower or the Canadian Borrower to fulfill on the date
of any Borrowing or proposed Borrowing hereunder the applicable
conditions set forth in Article IV, (b) any failure by the
Borrower or the Canadian Borrower to borrow or to refinance,
convert or continue any Loan hereunder after irrevocable notice
of such Borrowing, refinancing, conversion or continuation has
been given pursuant to Section 2.03 or 2.10, (c) any payment,
prepayment or conversion of a Eurodollar Loan required by any
other provision of this Agreement or otherwise made or deemed
made on a date other than the last day of the Interest Period
applicable thereto, (d) any default in payment or prepayment of
the principal amount of any Loan or any part thereof or interest
accrued thereon, as and when due and payable (at the due date
thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (e) the occurrence of any
Event of Default, including, in each such case, any loss or
reasonable expense sustained or incurred or to be sustained or
incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a
Eurodollar Loan. Such loss or reasonable expense shall exclude
<PAGE>
51
loss of margin hereunder but shall include an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i)
its cost of obtaining the funds for the Loan being paid, prepaid,
converted or not borrowed, converted or continued (assumed to be
the Adjusted LIBO Rate applicable thereto) for the period from
the date of such payment, prepayment, conversion or failure to
borrow, convert or continue to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow,
convert or continue, the Interest Period for such Loan which
would have commenced on the date of such failure) over (ii) the
amount of interest (as reasonably determined by such Lender) that
would be realized by such Lender in reemploying the funds so
paid, prepaid, converted or not borrowed, converted or continued
for such period or Interest Period, as the case may be. A
certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section
(and the reasons therefor) shall be delivered to the Borrower
through the Administrative Agent and shall be conclusive absent
manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required under
Section 2.14, each Borrowing, each payment or prepayment of
principal of any Borrowing, each payment of interest on the
Loans, each payment of the Commitment Fees or Letter of Credit
Fees, each reduction of the Term Loan Commitments, the Delayed
Draw Term Loan Commitments, the Canadian Term Loan Commitments or
the Revolving Credit Commitments and each refinancing of any
Borrowing with, conversion of any Borrowing to or continuation of
any Borrowing as a Borrowing of any Type shall be allocated
(except in the case of Swingline Loans) pro rata among the
Lenders in accordance with their respective applicable
Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts
of their applicable outstanding Loans). Each Lender agrees that
in computing such Lender's portion of any Borrowing to be made
hereunder, the Administrative Agent may, in its discretion, round
each Lender's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole
dollar amount.
SECTION 2.17. Payments. (a) Each of the Borrower and the
Canadian Borrower shall make each payment without set-off or
counterclaim (including principal of or interest on any Borrowing
or any Fees or other amounts) required to be made by it hereunder
and under any other Loan Document not later than 12:00 noon, New
York City time, on the date when due in dollars to the
Administrative Agent at its offices at 270 Park Avenue, New York,
New York, Attention of Wholesale Loan Services, in immediately
available funds, for credit to Chemical Bank, ABA Number
021000128, Account Number 323-5-02059.
(b) Whenever any payment (including principal of or
interest on any Borrowing or any Fees or other amounts) hereunder
or under any other Loan Document shall become due, or otherwise
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52
would occur, on a day that is not a Business Day, such payment
may be made on the next succeeding Business Day (except in the
case of payment of principal of a Eurodollar Borrowing if the
effect of such extension would be to extend such payment into the
next succeeding month, in which event such payment shall be due
on the immediately preceding Business Day), and such extension of
time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by the
Borrower and the Canadian Borrower to the Administrative Agent,
the Issuing Banks or the Lenders hereunder or under the other
Loan Documents shall be made, in accordance with Section 2.17
free and clear of and without deduction for any and all present
or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding
(i) in the case of each Lender, each Issuing Bank and the
Administrative Agent, taxes that would not be imposed but for a
connection between such Lender, such Issuing Bank or the
Administrative Agent (as the case may be) and the jurisdiction
imposing such tax, other than a connection arising solely by
virtue of the activities of such Lender, such Issuing Bank or the
Administrative Agent (as the case may be) pursuant to or in
respect of this Agreement or under any other Loan Document,
including, without limitation, entering into, lending money or
extending credit pursuant to, receiving payments under, or
enforcing, this Agreement or any other Loan Document, and (ii) in
the case of each Lender, each Issuing Bank and the Administrative
Agent, any United States withholding taxes payable with respect
to payments hereunder or under the other Loan Documents under
laws (including, without limitation, any statute, treaty, ruling,
determination or regulation) in effect on the Initial Date (as
hereinafter defined) for such Lender, such Issuing Bank or the
Administrative Agent, as the case may be, but not excluding any
United States withholding taxes payable solely as a result of any
change in such laws occurring after the Initial Date (all such
non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). For purposes of this Section 2.18, the term "Initial
Date" shall mean (i) in the case of the Administrative Agent, any
Issuing Bank or any Lender, the date on which such person became
a party to this Agreement and (ii) in the case of any assignment
including any assignment by a Lender or an Issuing Bank to a new
lending office, the date of such assignment. If any Taxes shall
be required by law to be deducted from or in respect of any sum
payable hereunder or under any other Loan Document to any Lender,
any Issuing Bank or the Administrative Agent (i) the sum payable
by the Borrower or the Canadian Borrower, as the case may be,
shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to
additional sums payable under this Section 2.18) such Lender,
such Issuing Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower or the
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53
Canadian Borrower, as the case may be, shall make such
deductions and (iii) the Borrower or the Canadian Borrower, as
the case may be, shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law. The Borrower and the Canadian Borrower shall
not, however, be required to pay any amounts pursuant to clause
(i) of the preceding sentence to any Lender, any Issuing Bank or
the Administrative Agent (in the case of payments to be made by
the Borrower) not organized under the laws of the United States
of America or a state thereof (or, in the case of payments to be
made by the Canadian Borrower, not organized under the laws of
Canada) if such Lender, such Issuing Bank or the Administrative
Agent fails to comply with the requirements of paragraphs (f) or
(g), as the case may be, and paragraph (h) of this Section 2.18.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as
"Other Taxes").
(c) The Borrower will indemnify each Lender, each Issuing
Bank and the Administrative Agent for the full amount of Taxes
and Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.18) paid
by such Lender, such Issuing Bank or the Administrative Agent, as
the case may be, and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto whether
or not such Taxes or Other Taxes were correctly or legally
asserted. Such indemnification shall be made within 10 days
after the date any Lender, any Issuing Bank or the Administrative
Agent, as the case may be, makes written demand therefor. If a
Lender, an Issuing Bank or the Administrative Agent shall become
aware that it is entitled to receive a refund or is reasonably
requested by the Borrower to pursue a claim for a refund in
respect of Taxes or Other Taxes, it shall promptly notify the
Borrower of the availability of such refund (unless instructed to
pursue a claim by the Borrower) and shall, within 30 days after
receipt of a request by the Borrower, pursue or timely claim such
refund at the Borrower's expense. If any Lender, any Issuing
Bank or the Administrative Agent receives a refund in respect of
any Taxes or Other Taxes for which such Lender, such Issuing Bank
or the Administrative Agent has received payment from the
Borrower hereunder, it shall promptly notify the Borrower of such
refund and shall, within 30 days after receipt of a request by
the Borrower (or promptly upon receipt, if the Borrower has
requested application for such refund pursuant hereto), repay
such refund (plus any interest received) to the Borrower,
provided that the Borrower, upon the request of such Lender, such
Issuing Bank or the Administrative Agent, agrees to return such
refund (plus any penalties, interest or other charges required to
be paid) to such Lender, such Issuing Bank or the Administrative
<PAGE>
54
Agent in the event such Lender, such Issuing Bank or the
Administrative Agent is required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes
or Other Taxes withheld by the Borrower or the Canadian Borrower,
as the case may be, in respect of any payment to any Lender, any
Issuing Bank or the Administrative Agent, the Borrower or the
Canadian Borrower, as the case may be, will furnish to the
Administrative Agent, at its address referred to in Schedule
2.01, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations
contained in this Section 2.18 shall survive the payment in full
of principal and interest hereunder and the termination of the
Commitments.
(f) In the case of any Borrowing by the Borrower, this
paragraph (f) shall apply. Each Lender, each Issuing Bank and
the Administrative Agent that is not organized under the laws of
the United States of America or a state thereof agrees that at
least 10 days prior to the first Interest Payment Date following
the Initial Date in respect of such Issuing Bank or such Lender,
it will deliver to the Borrower and the Administrative Agent (if
appropriate) two duly completed copies of either (i) United
States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, certifying in each case that
the Issuing Bank or such Lender or the Administrative Agent, as
the case may be, is entitled to receive payments under this
Agreement and the Notes payable to it without deduction or
withholding of any United States federal income taxes and backup
withholding taxes or is entitled to receive such payments at a
reduced rate pursuant to a treaty provision or (ii) in the case
of a Lender that is not a "bank" within the meaning of Section
881(c)(3) of the Code, United States Internal Revenue Service
Form W-8 or successor applicable form and a statement from such
Lender certifying to the fact that interest payable to it
hereunder (A) will not be described in Section 871(h)(3)(A) or
Section 881(c)(3)(A), (B) or (C) of the Code and (B) will not be
effectively connected with a trade or business carried on in the
United States by such Lender. Each Lender, each Issuing Bank and
the Administrative Agent required to deliver to the Borrower and
the Administrative Agent a Form 1001, 4224 or W-8 pursuant to the
preceding sentence further undertakes to deliver to the Borrower
and the Administrative Agent (if appropriate) two further copies
of Form 1001, 4224 or W-8, or successor forms, or other similar
manner of certification and such extensions or renewals thereof
as may reasonably be requested by the Borrower and, in the case
where a Form W-8 has been delivered, a further statement
certifying to the fact set forth in clause (B) of the preceding
sentence (i) at the times reasonably requested by the Borrower,
(ii) after the occurrence of an event requiring a change in the
most recent form or statement previously delivered by it to the
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55
Borrower or (iii) in the case of Form 1001, 4224 or W-8, on or
before the date that any such form expires or becomes obsolete,
and, in the case of Form 1001 or 4224, certifying that such
Issuing Bank or such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United
States federal income taxes and backup withholding taxes or is
entitled to receive such payments at a reduced rate pursuant to a
treaty provision, unless such Issuing Bank or such Lender advises
the Borrower that it is unable lawfully to provide such forms and
other certifications and notifies the Borrower to such effect.
Unless the Borrower and the Administrative Agent have received
forms, certificates and other documents satisfactory to them
indicating that payments hereunder or under or in respect of the
Notes or the Letters of Credit to or for any Issuing Bank or
Lender not incorporated under the laws of the United States or a
state thereof are not subject to United States withholding tax or
are subject to such tax at a rate reduced by an applicable tax
treaty, the Borrower or the Administrative Agent shall withhold
such taxes from such payments at the applicable statutory rate.
(g) In the event the Canadian Borrower is required to pay
additional amounts pursuant to this Section 2.18, this paragraph
(g) shall apply. Each Lender, each Issuing Bank and the
Administrative Agent that is not incorporated within or under the
laws of Canada and that is claiming such additional amounts
agrees that within a reasonable period of time following the
request of the Canadian Borrower, it will, to the extent it is
legally entitled to a reduction in the rate of or exemption from
Canadian withholding taxes, deliver to the Canadian Borrower and
the Administrative Agent (if appropriate) any form or document
required under the laws, regulations, official interpretations or
treaties enacted by, made or entered into with Canada properly
completed and duly executed by such Issuing Bank, such Lender or
Administrative Agent establishing that any payments hereunder are
exempt from Canadian withholding tax or subject to a reduced rate
of Canadian withholding tax, as the case may be; provided that,
in the sole determination of such Lender, such Issuing Bank or
the Administrative Agent, such form or document shall not be
otherwise disadvantageous to such Lender, such Issuing Bank or
the Administrative Agent.
(h) Any Issuing Bank and any Lender claiming any
additional amounts payable pursuant to this Section 2.18 shall
use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document requested by
the Borrower or the Canadian Borrower to change the jurisdiction
of its applicable lending office if the making of such a filing
or change would avoid the need for or reduce the amount of any
such additional amounts which may thereafter accrue and would
not, in the sole determination of such Issuing Bank or such
Lender, be otherwise disadvantageous to such Issuing Bank or such
Lender.
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56
SECTION 2.19. Issuance of Letters of Credit.
(a) Each Issuing Bank agrees, upon the terms and subject
to the conditions herein set forth, to issue Letters of Credit,
in a form reasonably acceptable to the Administrative Agent and
such Issuing Bank, appropriately completed, for the account of
the Borrower, at any time and from time to time on and after the
Closing Date until the earlier of the date five Business Days
prior to the Revolving Credit Maturity Date and the termination
of the Letter of Credit Commitment in accordance with the terms
hereof; provided, however, that any Letter of Credit shall be
issued by an Issuing Bank only if, and each request by the
Borrower for the issuance of any Letter of Credit shall be deemed
a representation and warranty of the Borrower that, immediately
following the issuance of any such Letter of Credit, (i) the
Letter of Credit Exposure shall not exceed the Letter of Credit
Commitment in effect at the time and (ii) the sum of the Letter
of Credit Exposure and the aggregate principal amount of
outstanding Revolving Loans and Swingline Loans shall not exceed
the aggregate Revolving Credit Commitments in effect at the time.
In determining whether the issuance of a Letter of Credit will
comply with clauses (i) and (ii) of the preceding sentence, each
Issuing Bank may rely conclusively on information obtained from
the Administrative Agent regarding the aggregate principal amount
of outstanding Revolving Loans and the aggregate Revolving Credit
Commitments, Letter of Credit Exposure and Swingline Loans.
(b) Each Letter of Credit shall expire no later than the
fifth Business Day preceding the Revolving Credit Maturity Date,
unless such Letter of Credit expires by its terms on an earlier
date. Each Letter of Credit shall provide for payments of
drawings in dollars. Each Letter of Credit shall reduce
availability under the Revolving Credit Commitments.
(c) Each issuance of any Letter of Credit shall be made on
at least three Business Days' prior written notice from the
Borrower to the applicable Issuing Bank and the Administrative
Agent (which shall give prompt notice thereof to each Revolving
Lender) specifying the date of issuance, the date on which such
Letter of Credit is to expire (which shall not be later than the
earlier of (i) the fifth Business Day preceding the Revolving
Credit Maturity Date and (ii) subject to extension, two years
after the date of any such Letter of Credit), the amount of such
Letter of Credit, the name and address of the beneficiary of such
Letter of Credit and such other information as may be necessary
or desirable to complete such Letter of Credit. Such Issuing
Bank will give the Administrative Agent and the Administrative
Agent shall give each Revolving Lender prompt notice of the
issuance and amount of each Letter of Credit and the expiration
of each Letter of Credit.
(d) No Issuing bank shall be required to issue a Letter of
Credit unless it has agreed with the Borrower upon the Fronting
Fees to be paid by the Borrower in connection with such Letter of
<PAGE>
57
Credit and the form of such Letter of Credit is reasonably
acceptable to such Issuing Bank.
(e) Holdings has identified to the Administrative Agent
certain letters of credit aggregating not more than $11,000,000
(the "Existing Letters of Credit") which were issued for the account
of Holdings or certain of its subsidiaries prior to the Closing
Date by financial institutions which are Lenders under
this Agreement. The parties hereto wish to treat the Existing
Letters of Credit as if they had been issued under this
Agreement. Therefore, the Existing Letters of Credit shall
be deemed to be Letters of Credit issued on the Closing Date
for all purposed of this Agreement, including, without
limitation, Section 2.20. The Borrower agrees to take any
action reasonably requested by the applicable Issuing Bank
(including delivering new letter of credit applications) in
order to implement this paragraph (e) and make the Borrower
the account party of record for the Existing Letters of Credit.
SECTION 2.20. Participations; Unconditional Obligations.
(a) By the issuance of a Letter of Credit and without any
further action on the part of the applicable Issuing Bank or the
Revolving Lenders in respect thereof, each Issuing Bank hereby
grants to each Revolving Lender, and each Revolving Lender hereby
agrees to acquire from such Issuing Bank, a participation in such
Letter of Credit equal to such Revolving Lender's Applicable
Percentage of the face amount of such Letter of Credit, effective
upon the issuance of such Letter of Credit. In consideration and
in furtherance of the foregoing, each Revolving Lender hereby
absolutely and unconditionally agrees to pay to the
Administrative Agent, for the account of such Issuing Bank, in
accordance with Section 2.02(f), such Revolving Lender's
Applicable Percentage of each Letter of Credit Disbursement made
by such Issuing Bank; provided, however, that the Revolving
Lenders shall not be obligated to make any such payment to an
Issuing Bank with respect to any wrongful payment or disbursement
made as a result of the gross negligence or willful misconduct of
such Issuing Bank in determining whether documents presented in
connection with such Letter of Credit Disbursement conform to the
requirements of the applicable Letter of Credit.
(b) Each Revolving Lender acknowledges and agrees that its
obligation to acquire participations pursuant to paragraph (a) in
respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including
the occurrence and continuance of an Event of Default or Default
hereunder, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever other than
in the case of any wrongful payment made as a result of the gross
negligence or willful misconduct of the Issuing Bank in
determining whether documents presented in connection with such
Letter of Credit conform to the requirements of the applicable
Letter of Credit.
SECTION 2.21. Letter of Credit Fee. The Borrower agrees to
pay to the Administrative Agent for the account of the Revolving
Lenders for each calendar quarter (or shorter period commencing
with the Closing Date or ending with the first date on which the
Letter of Credit Commitment shall have expired or been terminated
and there shall be no outstanding Letters of Credit) a fee (the
"Letter of Credit Fee") on the average daily amount of the
outstanding Letters of Credit at a per annum rate equal to the
Applicable Margin at such time for Eurodollar Borrowings;
provided that with respect to any Letter of Credit as to which
the Borrower has failed to make a payment required by Section
2.22, interest calculated at the rate set forth in Section 2.07
from the date such payment was due through the date such payment
is made shall be paid by the Borrower in lieu of the Letter of
Credit Fee on the date such payment is made. The Letter of
Credit Fee shall be computed on the basis of the actual number of
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58
days elapsed over a year of 360 days. The Administrative Agent
agrees to disburse to each Revolving Lender its pro rata portion
of such Letter of Credit Fee promptly upon receipt. The Letter
of Credit Fee shall be paid in arrears on the last day of March,
June, September and December of each year and on the Revolving
Credit Maturity Date (or the first date on which the Letter of
Credit Commitment shall have expired or been terminated and there
shall be no outstanding Letters of Credit, if earlier),
commencing on the first such date following the Closing Date.
Once paid the Letter of Credit Fee paid or payable shall not be
refundable in any circumstances whatsoever, absent manifest
error.
SECTION 2.22. Agreement To Repay Letter of Credit
Disbursements. (a) If an Issuing Bank shall pay any draft
presented under a Letter of Credit, the Borrower shall pay to the
Administrative Agent, on behalf of such Issuing Bank, an amount
equal to the amount of such draft before 11:00 a.m., New York
City time, on the Business Day on which such Issuing Bank shall
have notified the Borrower that payment of such draft will be
made (or such later time as is not later than one hour after the
Borrower shall have received such notice or, if the Borrower
shall have received such notice later than 4:00 p.m., New York
City time, on any Business Day, not later than 10:00 a.m., New
York City time, on the immediately following Business Day). The
Administrative Agent will promptly pay any such amounts received
by it to such Issuing Bank.
(b) The Borrower's obligation to repay each Issuing Bank
for payments and disbursements made by such Issuing Bank under
the outstanding Letters of Credit shall be absolute,
unconditional and irrevocable under any and all circumstances and
irrespective of:
(i) any lack of validity or enforceability of any Letter
of Credit;
(ii) the existence of any claim, setoff, defense or other
right which the Borrower or any other person may at any time
have against the beneficiary under any Letter of Credit, any
Issuing Bank, the Administrative Agent or any Lender (other
than the defense of payment in accordance with the terms of
this Agreement or a defense based on the gross negligence or
wilful misconduct of any Issuing Bank) or any other person
in connection with this Agreement or any other agreement or
transaction;
(iii) any draft or other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; provided that payment
by an Issuing Bank under such Letter of Credit against
presentation of such draft or document shall not have
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59
constituted gross negligence or wilful misconduct of such
Issuing Bank;
(iv) payment by an Issuing Bank under a Letter of Credit
against presentation of a draft or other document which does
not comply with the terms of such Letter of Credit; provided
that such payment shall not have constituted gross
negligence or wilful misconduct of such Issuing Bank; and
(v) any other circumstance or event whatsoever, whether
or not similar to any of the foregoing; provided that such
other circumstance or event shall not have been the result
of gross negligence or wilful misconduct of the applicable
Issuing Bank.
It is understood that in making any payment under a Letter
of Credit (x) each Issuing Bank's exclusive reliance on the
documents presented to it under such Letter of Credit as to any
and all matters set forth therein, including reliance on the
amount of any draft presented under such Letter of Credit,
whether or not the amount due to the beneficiary equals the
amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in
any respect, if such document on its face appears to be in order,
and whether or not any other statement or any other document
presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or
untrue in any respect whatsoever and (y) any noncompliance in any
immaterial respect of the documents presented under a Letter of
Credit with the terms thereof shall, in each case, not be deemed
willful misconduct or gross negligence of such Issuing Bank.
SECTION 2.23. Letter of Credit Operations. Each Issuing
Bank shall, promptly following its receipt thereof, examine all
documents purporting to represent a demand for payment under an
outstanding Letter of Credit to ascertain that the same appear on
their face to be in substantial conformity with the terms and
conditions of such outstanding Letter of Credit. Such Issuing
Bank shall (i) as promptly as possible after such demand for
payment give oral notification, confirmed by telecopy, to the
Administrative Agent and the Borrower of such demand for payment
and (ii) as promptly as possible after such Issuing Bank
determines whether such demand for payment was in accordance with
the terms and conditions of such outstanding Letter of Credit,
give notice in the same manner to the Administrative Agent and
the Borrower as to such determination and as to whether such
Issuing Bank has made or will make a Letter of Credit
Disbursement thereunder, provided that the failure to give such
notices shall not relieve the Borrower of its obligation to
reimburse such Issuing Bank with respect to any such Letter of
Credit Disbursement, and the Administrative Agent shall promptly
give each Revolving Lender notice thereof.
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60
SECTION 2.24. Cash Collateralization. If any Event of
Default shall occur and be continuing, the Borrower shall, on the
Business Day it receives notice from the Administrative Agent or
the Required Lenders therefor, deposit in an account with the
Collateral Agent, for the benefit of the Lenders, an amount in
cash equal to its Letter of Credit Exposure as of such date.
Such deposit shall be held by the Collateral Agent as collateral
for the payment and performance of the Obligations. So long as
such Event of Default is continuing, the Collateral Agent shall
have exclusive dominion and control, including the exclusive
right of withdrawal, over such account. Other than any interest
earned on the investment of such deposits in Permitted
Investments, which investments shall be made at the option and
sole discretion of the Collateral Agent, such deposits shall not
bear interest. Interest or profits, if any, on such investments
shall accumulate in such account. Moneys in such account shall
automatically be applied by the Collateral Agent to reimburse the
applicable Issuing Bank and the Revolving Lenders for Letter of
Credit Disbursements and, if the maturity of the Loans has been
accelerated, to satisfy the Obligations. All remaining amounts
on deposit shall be returned to the Borrower within three
Business Days after all Events of Default have been cured or
waived.
SECTION 2.25. Termination and Reduction of Letter of Credit
Commitment. (a) Notwithstanding any other provision hereof, in
the event that any restrictions or limitations are imposed upon
or determined or held to be applicable to any Issuing Bank, any
Revolving Lender or the Borrower by, under or pursuant to any law
or regulation (Federal, state or local) now or hereafter in
effect or by reason of any interpretation thereof by any court or
Governmental Authority (including any interpretation by the
Comptroller of the Currency as to the applicability of 12 U.S.C.
Sec. 84 or any substitute statute, as now or hereafter in effect, to
the transactions contemplated hereby), which would prevent such
Revolving Lender from legally incurring liability under or in
connection with a Letter of Credit issued or to be issued
pursuant hereto, then such Revolving Lender shall give prompt
written notice thereof to the Administrative Agent (which shall
notify the Borrower, each Issuing Bank and each other Revolving
Lender thereof as soon as reasonably practicable), whereupon the
obligation of each Issuing Bank to issue additional Letters of
Credit pursuant hereto shall be reduced by the Applicable
Percentage of such Revolving Lender (and, as to any Letter of
Credit thereafter issued, the Applicable Percentages of the other
Revolving Lenders shall be determined as though such Revolving
Lender does not have a Revolving Credit Commitment) until the
Administrative Agent shall be advised that such event is no
longer continuing or until such Revolving Lender shall have
assigned its Commitment pursuant to the provisions of this
Agreement.
(b) The Borrower may permanently terminate, or from time
to time in part permanently reduce, the Letter of Credit
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61
Commitment, in each case upon at least three Business Days' prior
written or telex notice to the Administrative Agent; provided
that the Letter of Credit Commitment shall not be reduced to an
amount that is less than the Letter of Credit Exposure at the
time.
(c) In the event that the Revolving Credit Commitments are
at any time reduced pursuant to Section 2.09 to an amount that is
less than the Letter of Credit Commitment, the Letter of Credit
Commitment shall be permanently reduced to an amount equal to the
Revolving Credit Commitments.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Each of Holdings, the Canadian Borrower and the Borrower
represents and warrants to each of the Lenders and each Issuing
Bank that:
SECTION 3.01. Organization, Corporate Powers. Each of
Holdings and each Restricted Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, (ii) has all
requisite corporate power and authority, and all material
licenses, permits, franchises, consents and approvals, to own or
lease its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (iii) is qualified and
in good standing as a foreign corporation to do business in every
jurisdiction where such qualification is necessary, except where
the failure so to qualify would not have a Material Adverse
Effect and (iv) has the corporate power and authority to execute,
deliver and perform each of the Loan Documents and each agreement
or instrument contemplated hereby or thereby to which it is or
will be a party. None of Holdings or any Restricted Subsidiary
of Holdings has any assets or business, or is a party to any
material contract within the meaning of Item 6.01(b)(10) of
Regulation S-K of the Securities and Exchange Commission, other
than as disclosed or referred to in the registration statement of
which the Preliminary Prospectus is a part or as contemplated
hereby and thereby.
SECTION 3.02. Authorization. The execution, delivery and
performance of each of the Loan Documents, the borrowings
hereunder and the consummation of the Recapitalization
Transactions and the other transactions contemplated by any of
the foregoing (collectively, the "Transactions") (i) have been
duly authorized by all requisite corporate and, if required,
stockholder action and (ii) will not (x) violate (A) any
provision of law, statute, rule or regulation (including, without
limitation, Regulations G, T, U and X) or the certificate of
incorporation or by-laws (or similar governing documents) of any
of Holdings and the Restricted Subsidiaries, (B) any applicable
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62
order of any court or any rule, regulation or order of any
Governmental Authority or (C) any indenture, certificate of
designation for preferred stock, agreement or other instrument to
which any of Holdings or any Restricted Subsidiary is a party or
by which any of them or any of their property is bound, (y) be in
conflict with, result in a breach of or constitute (with notice
or lapse of time or both) a default under any such indenture,
agreement or other instrument where any such conflict, violation,
breach or default referred to in clause (ii)(x) or (ii)(y) of
this Section, individually or in the aggregate, would have a
Material Adverse Effect or (z) result in the creation or imposi-
tion of any Lien upon any property or assets of Holdings or any
subsidiary of Holdings, except for Liens created by the Pledge
Agreement.
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by each of Holdings, the Canadian Borrower
and the Borrower and constitutes, and each other Loan Document
when executed and delivered by any of Holdings, the Borrower, the
Canadian Borrower or the Subsidiary Guarantors that is or is to
be a party thereto will constitute, a legal, valid and binding
obligation of such party enforceable against such party in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting creditors' rights generally and
except as enforceability may be limited by general principles of
equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 3.04. Recapitalization. (a) All consents and
approvals of, filings and registrations with, and other actions
in respect of, all Governmental Authorities required in order to
make or consummate the Recapitalization Transactions have been
obtained, given, filed or taken and are in full force and effect,
other than (i) filings and other actions required pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and
the respective rules and regulations thereunder, and filings and
other actions required pursuant to state securities or blue sky
laws, in each case to the extent that such filings and other
actions are not required to have been made or taken prior to the
date hereof, and (ii) any such consents, approvals, filings or
other actions, the failure to obtain or make which could not
reasonably be expected to result in a Material Adverse Effect.
(b) The Preliminary Prospectus at the time of its
dissemination to the public did not and on the Closing Date will
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are
made, not misleading. Copies of the Preliminary Prospectus have
been delivered to the Lenders.
(c) The final prospectus filed with the Securities and
Exchange Commission in connection with the Public Offering and
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63
any amendments or supplements thereto will not at the time of its
dissemination to the public or on the Closing Date contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not
misleading. Copies of such final prospectus and any amendments
or supplements thereto will be delivered to the Lenders promptly
following the time they are made available to the public or filed
with the Securities and Exchange Commission.
SECTION 3.05. Use of Proceeds. The Borrower and the
Canadian Borrower will use the proceeds of the Loans only for the
purposes set forth in Section 5.08.
SECTION 3.06. Federal Reserve Regulations. (a) None of
Holdings or any subsidiary of Holdings is engaged principally, or
as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying Margin Stock.
(b) The making of the Loans hereunder and the use of the
proceeds thereof as contemplated hereby and the other
Transactions will not violate or be inconsistent with the
provisions of the Regulations of the Board, including Regulations
G, T, U and X.
SECTION 3.07. Capitalization of the Borrower and Holdings.
(a) The authorized capital stock of the Borrower consists of
2,000 shares of common stock, par value $1.00 per share
("Borrower Common Stock"), of which 1,000 shares will be issued
and outstanding as of the Closing Date (after giving effect to
the Recapitalization Transactions). All such outstanding shares
of Borrower Common Stock are fully paid and nonassessable and, on
and after the Closing Date (after giving effect to the
Recapitalization Transactions), will be owned beneficially and of
record by Holdings and, on and after the Closing Date, shall be
free and clear of all Liens and encumbrances whatsoever (other
than the Lien of the Pledge Agreement). Except for the Pledge
Agreement, there are no outstanding subscriptions, options,
warrants, calls, rights (including preemptive rights) or other
agreements or commitments of any nature relating to any capital
stock of the Borrower.
(b) The authorized capital stock of Holdings consists of
(i) 150,000,000 shares of Holdings Common Stock, of which
approximately 66,710,900 shares will be issued and outstanding as
of the Closing Date (assuming no exercise of the Overallotment
Option) and (ii) 16,000,000 shares of preferred stock, par value
$0.01 per share, of which no shares will be outstanding as of the
Closing Date (after giving effect to the Recapitalization
Transactions). On the Closing Date, all such outstanding shares
of Holdings Common Stock will be fully paid and nonassessable.
On the Closing Date, after giving effect to the Recapitalization
Transactions (but assuming no exercise of the Overallotment
Option), each Designated Person (or group of Designated Persons)
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64
will be the owner, beneficially and of record, of the number of
shares of Holdings Common Stock specified on Schedule 3.07(b)(1).
Except as provided in Schedule 3.07(b)(2) hereto, neither
Holdings nor any Subsidiary is a party to any outstanding
subscriptions, options, warrants, calls, rights (including
preemptive rights) or other agreements or commitments (other than
stock options granted to employees, consultants or directors and
directors' qualifying shares) of any nature relating to any
capital stock of Holdings.
(c) The authorized capital stock of the Canadian Borrower
consists of an unlimited number of common shares without par
value ("Canadian Borrower Common Stock"), of which 3,694 shares
will be issued and outstanding as of the Closing Date and an
unlimited number of 5% non-cumulative, redeemable preferred
shares, without par value, no shares of which will be issued and
outstanding as of the Closing Date. All such outstanding shares
of Canadian Borrower Common Stock are fully paid and nonass-
essable and, on and after the Closing Date, will be owned
directly or indirectly, beneficially and of record by the
Borrower and, on and after the Closing Date, shall be free and
clear of all Liens and encumbrances whatsoever.
SECTION 3.08. Pledge Agreement. The security interests
created in favor of the Collateral Agent, for the benefit of the
Lenders, under the Pledge Agreement will at all times constitute
first-priority, perfected security interests in the Pledged
Securities, and such Pledged Securities will be subject to no
Liens or security interests of any other person. No filings or
recordings are or will be required in order to perfect the
security interests in the Pledged Securities created under the
Pledge Agreement.
SECTION 3.09. Financial Statements. (a) (i) Holdings has
heretofore furnished to each of the Lenders consolidated balance
sheets and consolidated statements of income and cash flow of
Holdings and its consolidated subsidiaries as of and for the
fiscal years ended January 29, 1994 and January 30, 1993,
certified by Arthur Andersen & Co., independent public
accountants for Holdings and (ii) Holdings has heretofore
furnished to each of the Lenders consolidated balance sheets and
consolidated statements of income and cash flow of Holdings and
its consolidated subsidiaries as of and for the thirteen weeks
ended April 30, 1994. Such balance sheets and statements of
income and cash flows present fairly the financial condition and
results of operations of Holdings and its consolidated
subsidiaries on a consolidated basis as of the dates and for the
periods indicated. Except as disclosed in the Preliminary
Prospectus, neither Holdings nor any of its Subsidiaries had, at
the date of the most recent balance sheet referred to above, any
material Guarantee, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not
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65
reflected in the foregoing statements or in the notes thereto.
The financial statements referred to in this Section 3.09(a) have
been prepared in accordance with GAAP applied on a consistent
basis.
(b) The pro forma consolidated balance sheet of Holdings
as of April 30, 1994 included in the Preliminary Prospectus is
the unaudited consolidated balance sheet of Holdings as of such
date, adjusted to give effect (as if such events had occurred on
such date) to all the Recapitalization Transactions and other
identified pro forma adjustments set forth in the Preliminary
Prospectus, including the payment of all fees and expenses
expected to be incurred in connection therewith (as estimated at
the time of the preparation of such balance sheet), based upon
the assumptions specified therein. Such pro forma consolidated
balance sheet presents fairly, on a pro forma basis, the
consolidated financial position of Holdings as of such date
assuming that the events specified in the preceding sentence had
actually occurred or are true, as the case may be, on such date
and has been prepared based upon reasonable assumptions and in
accordance with GAAP applied on a consistent basis.
SECTION 3.10. No Material Adverse Change. There has been
no material adverse change in the business, properties, assets,
operations or financial condition of Holdings and its Restricted
Subsidiaries, taken as a whole, since January 29, 1994.
SECTION 3.11. Title to Properties; Possession Under Leases.
(a) Each of Holdings, the Borrower and the Significant
Subsidiaries has good and marketable title to, or valid leasehold
interests in, or easements on or other limited property interests
in, all their respective material properties and assets, except
for minor defects in title and limitations on property interests
that do not interfere with their respective ability to conduct
their respective business as currently conducted or to utilize
such properties and assets for their intended purposes. All such
material properties and assets are free and clear of Liens, other
than Liens expressly permitted by Section 6.04.
(b) Each of Holdings, the Borrower and the Significant
Subsidiaries has complied with all obligations under all material
leases to which it is a party, except where the failure to comply
would not have a Material Adverse Effect, and all such leases are
in full force and effect, except leases in respect of which the
failure to be in full force and effect would not have a Material
Adverse Effect. Each of Holdings, the Borrower and the
Significant Subsidiaries enjoys peaceful and undisturbed
possession under all such material leases.
(c) Each of Holdings, the Borrower and the Significant
Subsidiaries owns or possesses, or could obtain ownership or
possession of, on terms not materially adverse to it, all
patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect thereto necessary for the
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present conduct of its business, without any known conflict with
the rights of others, and free from any burdensome restrictions,
except where such conflicts and restrictions would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.12. Subsidiaries. (a) Schedule 3.12(a) sets
forth as of the Closing Date a list of all Subsidiaries of
Holdings and the percentage ownership interest of Holdings
therein and whether such Subsidiaries are Significant
Subsidiaries.
(b) There are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other
than stock options granted to employees, consultants or directors
and directors' qualifying shares) of any nature relating to any
capital stock of any subsidiary of Holdings, except for the
Pledge Agreement or as provided in Schedule 3.12(b).
SECTION 3.13. Litigation; Compliance with Laws. (a)
Except as described in the registration statement of which the
Preliminary Prospectus is a part, there are not any actions,
suits or proceedings at law or in equity or by or before any
court or Governmental Authority now pending or, to the knowledge
of Holdings, the Borrower or the Canadian Borrower, threatened
against or affecting Holdings or any of its subsidiaries or any
property or rights of Holdings or any of its subsidiaries as to
which there is a reasonable possibility of an adverse
determination and which (i) if adversely determined, could
individually or in the aggregate result in a Material Adverse
Effect or (ii) involve the Loan Documents or (iii) if adversely
determined could materially adversely affect the Recapitalization
Transactions.
(b) None of Holdings or any of its Subsidiaries is in
default with respect to any law, order, judgment, writ,
injunction, decree, rule or regulation of any Governmental
Authority where such default could have a Material Adverse
Effect. The Borrowings hereunder, the use of the proceeds
thereof as described in Section 5.08 and the other
Recapitalization Transactions will not violate any applicable law
or regulation or violate or be prohibited by any judgment, writ,
injunction, decree or order of any court or Governmental
Authority or subject Holdings or any of its subsidiaries to any
civil or criminal penalty or fine.
SECTION 3.14. Agreements. (a) None of Holdings or any of
its Subsidiaries is a party to any agreement or instrument or
subject to any corporate restriction that has resulted or could
reasonably be expected to result in a Material Adverse Effect.
(b) None of Holdings or any of its Subsidiaries is in
default in any manner under any provision of any indenture or
other agreement or instrument evidencing Indebtedness or any
other material agreement or instrument to which it is a party or
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by which it or any of its properties or assets are or may be
bound, in either case where such default could result in a
Material Adverse Effect. After giving effect to the
Recapitalization Transactions, no Default or Event of Default
shall have occurred and be continuing.
SECTION 3.15. Investment Company Act. None of Holdings or
any of its Subsidiaries is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 3.16. Public Utility Holding Company Act. None of
Holdings or any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
SECTION 3.17. Tax Returns. Each of Holdings and its
Subsidiaries has filed or caused to be filed all Federal, and all
material state and local, tax returns required to have been filed
by it and has paid or caused to be paid all taxes shown thereon
to be due and payable, and any assessments in excess of
$2,000,000 in the aggregate received by it, except taxes that are
being contested in accordance with Section 5.03 and taxes,
assessments, charges, levies or claims in respect of property
taxes for property that Holdings or one of its Subsidiaries has
determined to abandon where the sole recourse for such tax,
assessment, charge, levy or claim is to such property. Each of
Holdings and its Subsidiaries has paid in full or made adequate
provision (in accordance with GAAP) for the payment of all taxes
due with respect to the periods ending on or before January 29,
1994, which taxes, if not paid or adequately provided for, would
have a Material Adverse Effect. The tax returns of Holdings and
its Subsidiaries have been examined by relevant Federal tax
authorities for all periods through January 26, 1985, and all
deficiencies asserted as a result of such examinations have been
paid. Except as set forth on Schedule 3.17 or in the Preliminary
Prospectus, as of the Closing Date, with respect to each of
Holdings and its Subsidiaries, (i) no material claims are being
asserted in writing with respect to any taxes, (ii) no presently
effective waivers or extensions of statutes of limitation with
respect to taxes have been given or requested, (iii) no tax
returns are being examined by, and no written notification of
intention to examine has been received from, the Internal Revenue
Service or any other taxing authority and (iv) no currently
pending issues have been raised in writing by the Internal
Revenue Service or any other taxing authority. For purposes
hereof, "taxes" shall mean any present or future tax, levy,
impost, duty, charge, assessment or fee of any nature (including
interest, penalties and additions thereto) that is imposed by any
Governmental Authority.
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SECTION 3.18. No Material Misstatements. (a) The
information, reports, financial statements, exhibits and sched-
ules furnished by or on behalf of Holdings or any of its
Subsidiaries or Affiliates to the Administrative Agent or any
Lender in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto (including the
Preliminary Prospectus), when taken as a whole, did not contain,
and as they may be amended, supplemented or modified from time to
time, will not contain, as of the Closing Date any material
misstatement of fact and did not omit, and as they may be
amended, supplemented or modified from time to time, will not
omit, to state as of the Closing Date any material fact necessary
to make the statements therein, in the light of the circumstances
under which they were, are or will be made, not materially
misleading in their presentation of the Recapitalization
Transactions or of Holdings and its Subsidiaries taken as a
whole.
(b) All financial projections concerning Holdings and its
Subsidiaries that are or have been made available to the
Administrative Agent or any Lender by Holdings or any of its
Subsidiaries or Affiliates, unless otherwise disclosed, have been
or will be prepared in good faith based upon assumptions believed
by Holdings and the Borrower to be reasonable.
SECTION 3.19. Employee Benefit Plans. Each of Holdings and
the Restricted Subsidiaries and each of their ERISA Affiliates is
in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published
interpretations thereunder except for such noncompliance which
would not be expected to result in a Material Adverse Effect. No
Reportable Event has occurred as to which Holdings or any of the
Restricted Subsidiaries or any of their ERISA Affiliates was
required to file a report with the PBGC, other than reports for
which the 30 day notice requirement is waived, reports that have
been filed and reports the failure of which to file would not
result in a Material Adverse Effect and as of the Closing Date,
the present value of all benefit liabilities under each Plan of
Holdings and the Restricted Subsidiaries or any of their ERISA
Affiliates (on a termination basis and based on those assumptions
used to fund such Plan) did not, as of the last annual valuation
report applicable thereto, exceed by more than $7,500,000 the
value of the assets of such Plan. None of Holdings or any of the
Restricted Subsidiaries or any of their ERISA Affiliates has
incurred or could reasonably be expected to incur any Withdrawal
Liability that could result in a Material Adverse Effect. None
of Holdings or any of the Restricted Subsidiaries or any of their
ERISA Affiliates has received any notification that any
Multiemployer Plan is in reorganization or has been terminated
within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted
or could reasonably be expected to result, through increases in
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the contributions required to be made to such Plan or otherwise,
in a Material Adverse Effect.
SECTION 3.20. Labor Matters. There are no strikes against
Holdings or any of its Subsidiaries pending, other than any
strikes which, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
The hours worked and payment made to employees of Holdings and
each of its Subsidiaries have not been in violation in any
material respect of the Fair Labor Standards Act or any other
applicable law dealing with such matters. All material payments
due from Holdings or any of its Subsidiaries, or for which any
claim may be made against Holdings or any of its Subsidiaries, on
account of wages and employee health and welfare insurance and
other benefits have been paid or accrued as a liability on the
books of Holdings or such subsidiary to the extent required by
GAAP. The consummation of the Recapitalization Transactions will
not give rise to a right of termination or right of renegotiation
on the part of any union under any collective bargaining
agreement to which Holdings or any of its Subsidiaries (or any
predecessor) is a party or by which Holdings or any of its
subsidiaries (or any predecessor) is bound, other than collective
bargaining agreements which, individually or in the aggregate,
are not material to Holdings and its Subsidiaries taken as a
whole.
SECTION 3.21. Environmental Matters. (a) Except as
disclosed in writing to the Administrative Agent, each Lender and
the Issuing Bank prior to the date of this Agreement, which
disclosed matters individually and in the aggregate are not
reasonably expected by Holdings or the Borrower to have a
Material Adverse Effect, (i) Holdings and each of its
Subsidiaries has complied in all respects with all applicable
Federal, state, local and other statutes, ordinances, orders,
judgments, rulings and regulations relating to environmental
pollution or to environmental regulation or control, except to
the extent of any failure so to comply which alone and together
with other such failures is not reasonably expected to result in
a Material Adverse Effect; (ii) none of Holdings or any
Subsidiary of Holdings has received notice of any failure so to
comply which alone or together with other such failures is
reasonably expected to result in a Material Adverse Effect; and
(iii) none of Holdings or any of its Subsidiaries manages,
transports or stores any hazardous wastes, hazardous substances,
hazardous materials, toxic substances or toxic pollutants, as
those terms are used in the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Compensation and
Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substance Control Act, the Clean Air Act or the Clean Water
Act, in violation of any applicable regulations promulgated
pursuant thereto or of any other applicable law where such
violation is reasonably likely to result, individually or
together with other violations, in a Material Adverse Effect.
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(b) Except with respect to matters that, individually and
in the aggregate, Holdings and the Borrower reasonably believe
would not have a Material Adverse Effect, as of the Closing Date:
(i) the operations of Holdings and each of its Subsidiaries
comply in all respects with all Environmental Laws and, to the
knowledge of Holdings, the Canadian Borrower or the Borrower
after inquiry, no conditions exist (including at properties
leased or subleased to third persons) which would subject
Holdings or its Subsidiaries to damages, liabilities, penalties,
injunctive relief or clean-up costs under any Environmental Law
or which require or are reasonably likely to require any Remedial
Action under any Environmental Law; (ii) each of Holdings and its
Subsidiaries has obtained all Environmental Permits necessary for
its operation or required by any Environmental Law, and all such
Environmental Permits are in good standing, and none of Holdings
or its Subsidiaries has been cited by a Governmental Authority
for violating any terms or conditions of such Environmental
Permits within the five-year period prior to the Closing Date;
(iii) none of Holdings or its Subsidiaries is subject or a party
to any Environmental Claim; (iv) with respect to present
facilities and operations, none of Holdings or its Subsidiaries,
or, to the knowledge of Holdings, the Canadian Borrower or the
Borrower, any predecessor of such persons, is subject to any
outstanding written order or agreement with any Governmental
Authority or private party respecting (A) any Environmental Law,
(B) any Remedial Action under any Environmental Law, or (C) any
Environmental Claim; (v) to the knowledge of Holdings, the
Canadian Borrower or the Borrower, none of the operations of any
of Holdings or its Subsidiaries is the subject of any
investigation by a Governmental Authority evaluating whether any
Remedial Action under any Environmental Law is needed; (vi) none
of Holdings or its Subsidiaries or, to the knowledge of Holdings,
the Canadian Borrower or the Borrower, any predecessor of such
persons has filed any notice under any Environmental Law
indicating past or present treatment, storage or disposal of a
hazardous waste as defined under 40 C.F.R. Parts 260 through 270
(in effect as of the Closing Date) or any state equivalent, or
reporting a Release of a Contaminant; (vii) to the knowledge of
Holdings, the Canadian Borrower or the Borrower except as
permitted under any Environmental Law, none of Holdings or its
Subsidiaries has experienced a Release of any Contaminant, and
there has been no voluntary disposal, use, storage, recycling or
treatment on, under or at any property of such person (or in
tanks or other facilities thereon) of any Contaminant which, if
known to be present on such property, or present in soils or
groundwater, would require Remedial Action under any
Environmental Law; and (viii) no Lien in favor of any
Governmental Authority for (A) any liability under any
Environmental Law or (B) damages arising from or costs incurred
by such Governmental Authority in response to a Release of a
Contaminant into the environment has been recorded with respect
to any property of Holdings or any of its Subsidiaries. For
purposes of this Section 3.21(b), "knowledge" means the actual
knowledge of any Responsible Officer of Holdings or any
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71
Restricted Subsidiary, any officer of Holdings or any Restricted
Subsidiary with responsibility for environmental compliance, or
any plant or facilities manager with responsibility for overall
management of such plant or facility of Holdings or any of its
Subsidiaries.
(c) Each of Holdings and its Subsidiaries reasonably
believes that Holdings and its Subsidiaries on a consolidated
basis have made adequate provision (in accordance with GAAP) for
all damages, liabilities, penalties or costs that they reasonably
expect to incur in connection with any Environmental Claim or any
Remedial Action existing or, to the knowledge of Holdings or the
Borrower, reasonably anticipated as of the date of this
Agreement.
SECTION 3.22. Solvency. (a) The fair salable value of the
assets of each of the Borrower and, as of the Closing Date, the
Canadian Borrower exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Borrower and, as of the
Closing Date, the Canadian Borrower, respectively, as they
mature. The assets of each of the Borrower and, as of the
Closing Date, the Canadian Borrower do not constitute
unreasonably small capital to carry out its business as conducted
or as proposed to be conducted. Neither the Borrower nor, as of
the Closing Date, the Canadian Borrower intends to, or believes
that it will, incur debts beyond its ability to pay such debts as
they mature (taking into account the Recapitalization
Transactions but assuming that the Overallotment Option is not
exercised).
(b) Upon consummation of the Recapitalization
Transactions (irrespective of whether the Overallotment Option is
exercised), the fair salable value of the assets of each of the
Borrower and its subsidiaries taken as a whole and, as of the
Closing Date, of the Canadian Borrower and its subsidiaries taken
as a whole will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Borrower and its
subsidiaries and, as of the Closing Date, of the Canadian
Borrower and its subsidiaries, respectively.
(c) The assets of each of the Borrower and its sub-
sidiaries taken as a whole and, as of the Closing Date, the
Canadian Borrower and its subsidiaries taken as a whole do not,
and upon consummation of the Recapitalization Transactions (but
assuming that the Overallotment Option is not exercised) will
not, constitute unreasonably small capital for the Borrower and
its subsidiaries and, as of the Closing Date, the Canadian
Borrower and its subsidiaries, respectively, to carry out their
respective businesses as now conducted and as proposed to be
conducted including the capital needs of the Borrower and its
subsidiaries and, as of the Closing Date, the Canadian Borrower
and its subsidiaries taking into account the particular capital
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72
requirements of the business conducted by the Borrower and each
of its subsidiaries, and projected capital requirements and
capital availability thereof.
(d) Neither the Borrower nor, as of the Closing Date,
the Canadian Borrower intends to, or intends to permit any of its
subsidiaries to, incur debts beyond their respective ability to
pay such debts as they mature, taking into account the timing and
amounts of cash to be received by the Borrower and each of such
subsidiaries, and of amounts to be payable on or in respect of
debt of the Borrower and each of such subsidiaries.
SECTION 3.23. Absence of Certain Restrictions. No
indenture, certificate of designation for preferred stock,
agreement or other instrument to which Holdings or any Restricted
Subsidiary is a party will prohibit or materially restrain, or
have the effect of prohibiting or materially restraining, or
imposing materially adverse conditions upon, the incurrence of
Indebtedness, the granting of Liens, the provision of Guarantees
or the payment of dividends by subsidiaries of Holdings except
for restrictions (a) on the granting of Liens on assets that are
encumbered by Liens permitted under clause (a), (b), (i), (k),
(l) or (r) of Section 6.04, to the extent that such restrictions
apply only to the assets so encumbered and are imposed by the
agreements under which such Liens were granted or (b) contained
in agreements relating to Indebtedness not in excess of
$10,000,000 in the aggregate.
SECTION 3.24. No Foreign Assets Control Regulation
Violation. None of the Recapitalization Transactions will result
in a violation of any of the foreign assets control regulations
of the United States Treasury Department, 31 C.F.R., Subtitle B,
Chapter V, as amended (including the Foreign Assets Control
Regulations, the Transaction Control Regulations, the Cuban
Assets Control Regulations, the Foreign Funds Control
Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the South African
Transactions Regulations, the Libyan Sanctions Regulations, the
Soviet Gold Coin Regulations, the Panamanian Transactions
Regulations, the Kuwaiti Assets Control Regulations and the Iraqi
Sanctions Regulations contained in said Chapter V), or any ruling
issued thereunder or any enabling legislation or Presidential
Executive Order granting authority therefor, nor will the
proceeds of the Loans be used by the Borrower in a manner that
would violate any thereof.
SECTION 3.25. Insurance. Each of Holdings and the
Restricted Subsidiaries carries and maintains with respect to its
insurable properties insurance (including self insurance) with
financially sound and reputable insurers of the types, to such
extent and against such risks as is customary with companies in
the same or similar businesses, including fire and other risks
insured against by extended coverage and public liability
insurance against claims for personal injury or death or property
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73
damages occurring upon, in, about or in connection with the use
of any properties owned, occupied or controlled by it.
SECTION 3.26. Certain Other Representations. All
representations and warranties contained in any other Loan
Document and made by any of Holdings or any of its Subsidiaries
are true and correct as of the date made or deemed to have been
made.
ARTICLE IV.
CONDITIONS
The obligations of the Lenders to make Loans hereunder and
the obligation of the Issuing Bank to issue Letters of Credit
hereunder are subject to the satisfaction of the following
conditions:
SECTION 4.01. All Credit Events. On the date of each
Borrowing, other than a Borrowing in which Revolving Credit Loans
are refinanced with new Revolving Credit Loans (without any
increase in the aggregate principal amount of Revolving Credit
Loans outstanding) as contemplated by Section 2.02(e), and on the
date of each issuance or renewal of a Letter of Credit:
(a) The Administrative Agent shall have received a
notice of such Borrowing as required by Section 2.03, or the
Administrative Agent and the applicable Issuing Bank shall
have received a notice regarding the issuance or renewal of
such Letter of Credit as required by Section 2.19(c), as
applicable.
(b) The representations and warranties set forth in
each Loan Document shall be true and correct in all material
respects on and as of the date of such Borrowing, issuance
or renewal with the same effect as though made on and as of
such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such
Borrowing, issuance or renewal no Event of Default or
Default shall have occurred and be continuing.
(d) If such Borrowing is of Delayed Draw Term Loans (i)
the gross proceeds received by Holdings from the Public
Offering (after giving effect to the arrangements described
in Section 4.02(s)) shall have been as described in Section
4.02(c), and (ii) if the proceeds of such Borrowing will be
used to fund an ESOP Loan, the Agents shall be reasonably
satisfied with the loan documentation executed in connection
therewith (which loan documentation shall provide that the
ESOP shall, to the extent permitted by law, repay the ESOP
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74
Loan upon receipt by the ESOP of cash distributions in
respect of the ESOP Investment).
Each Borrowing and each issuance or renewal of a Letter of Credit
shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters
specified in paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Borrowing. On the Closing Date (except
as provided in paragraph (c) below):
(a) Each Lender, if it so requests in accordance with
subsection 2.04(e), shall have received a duly executed
Revolving Credit Note, Delayed Draw Term Note and Term Note
and the Swingline Lender, if it so requests in accordance
with subsection 2.04(e), shall have received a Swingline
Note, in each case, complying with the provisions of Section
2.04. Each Lender, if it so requests in accordance with
subsection 2.04(a), shall have received a duly executed
Canadian Term Note, complying with the provisions of Section
2.04.
(b) The Administrative Agent shall have received all
Fees and other amounts due and payable on or prior to the
Closing Date, including reimbursement of any out-of-pocket
expenses referred to in Section 9.05 (to the extent that
notice thereof is given to the Borrower prior to the Closing
Date).
(c) The issuance by Holdings of its Common Stock in the
Public Offering for aggregate gross proceeds of not less
than $250,000,000 (which may include up to $30,000,000 of
gross proceeds received by Holdings after the Closing Date
as described in paragraph (q) of Article VII) shall have
occurred or shall occur simultaneously with the initial
Borrowing hereunder. The Lenders shall have received copies
of the Holdings Underwriting Agreement and the Agents shall
be satisfied with the terms and conditions thereof.
(d) The Administrative Agent shall have received the
favorable written opinions of (i) Cravath, Swaine & Moore,
special counsel for Holdings and its subsidiaries, (ii)
Elizabeth R. Philipp, Esq., general counsel for Holdings and
its subsidiaries, and (iii) Stikeman, Elliott special
Canadian Counsel for the Canadian Borrower, each dated the
Closing Date and addressed to the Lenders, and in form and
substance satisfactory to the Administrative Agent and
covering the matters set forth in Exhibit F. In addition,
the Administrative Agent shall have received the favorable
written opinions of such local counsel (including Canadian
counsel) with respect to legal matters relating hereto as
the Administrative Agent may reasonably have requested, in
such form and to such effect as shall be satisfactory to the
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75
Lenders and to Simpson Thacher & Bartlett, special counsel
for the Administrative Agent.
(e) The Administrative Agent shall have received (i) a
copy of the certificate or articles of incorporation,
including all amendments thereto, of each of the Borrower,
the Canadian Borrower and each Guarantor, certified as of a
recent date by the Secretary of State of the state of its
organization (or, in the case of the Canadian Borrower, the
Ministry of Consumer and Commercial Relations of the
Province of Ontario), and a certificate as to the good
standing of each of the Borrower, the Canadian Borrower and
each Guarantor as of a recent date, from such Secretary of
State (or, in the case of the Canadian Borrower, the
Ministry of Consumer and Commercial Relations of the
Province of Ontario); (ii) a certificate of the Secretary or
Assistant Secretary of each of the Borrower, the Canadian
Borrower and each Guarantor dated the Closing Date and
certifying (A) that attached thereto is a true and complete
copy of the by-laws of such entity as in effect on the
Closing Date and at all times since a date prior to the date
of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions
duly adopted by the Board of Directors of such entity
authorizing the execution, delivery and performance of the
Loan Documents to which it is a party, the granting of the
Liens thereunder and, in the case of the Borrower and the
Canadian Borrower, the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and
are in full force and effect, (C) that the certificate or
articles of incorporation of such entity have not been
amended since the date of the last amendment thereto shown
on the certificate of good standing furnished pursuant to
clause (i) above, and (D) as to the incumbency and specimen
signature of each officer executing any Loan Document or any
other document delivered in connection herewith on behalf of
such entity; (iii) a certificate of another officer as to
the incumbency and specimen signature of the Secretary or
Assistant Secretary executing the certificate pursuant to
(ii) above; (iv) a certificate or equivalent documentation
from the Secretary of State of each state (or, in the case
of the Canadian Borrower, the Ministry of Consumer and
Commercial Relations of the Province of Ontario and the
Inspector General of Financial Institutions of the Province
of Quebec) in which any of the Borrower , the Canadian
Borrower or the Guarantors conducts material business or
owns material assets as to the qualification of such entity
to do business and its good standing in such state; and (v)
such other documents as the Lenders or their counsel or
Simpson Thacher & Bartlett, special counsel for the
Administrative Agent, may reasonably request.
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76
(f) The Administrative Agent shall have received a
certificate, dated the Closing Date and signed by a
Financial Officer of Holdings and the Borrower, confirming
compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01 and those set forth
in paragraphs (c), (h), (k), (l), (m), (n), and (o) of this
Section 4.02 (disregarding, for this purpose, the provisions
of any such paragraph that refer to the satisfaction of the
Administrative Agent, its counsel or the Lenders with any
matter).
(g) The Pledge Agreement shall have been duly executed
by Holdings and each Restricted Subsidiary listed therein
and delivered to the Collateral Agent and shall be in full
force and effect, all outstanding shares of capital stock of
the Borrower and each domestic subsidiary thereof, 65% of
the outstanding shares of capital stock of each foreign
subsidiary owned directly by the Borrower or a domestic
subsidiary of the Borrower and all inter-company obligations
in excess of $10,000,000 held by Holdings, the Borrower or
any subsidiary of the Borrower and evidenced by notes, bonds
or other instruments shall have been duly and validly
pledged to the Collateral Agent for the benefit of the
Secured Parties and certificates representing all such
shares and the instruments representing all such obligations
shall be in the actual possession of the Collateral Agent.
(h) A Permitted Receivables Financing providing
commitments of at least $150,000,000 shall have become
effective and the initial funding thereunder shall have been
consummated.
(i) The Collateral Agent shall have received each
document (including Uniform Commercial Code financing
statements) required by law or reasonably requested by the
Collateral Agent to be filed, registered or recorded in
order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid, legal and perfected
first priority security interest in or lien on the
Collateral that is the subject of the Pledge Agreement.
(j) The Guarantee Agreement shall have been duly
executed by Holdings and each other Guarantor and delivered
to the Collateral Agent and shall be in full force and
effect on such date.
(k) Except as contemplated by the Recapitalization
Transactions, there shall not have occurred any material
change in the capitalization (whether in debt or equity),
corporate structure or assets of Holdings or any of its
subsidiaries, or any changes in the certificate of
incorporation or by-laws of Holdings or any of its
Subsidiaries.
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77
(l) The Recapitalization Transactions, including the
extensions of credit (including in particular the incurrence
of the Loans), Guarantees, Liens and ability to make
dividend payments contemplated hereby (including the
unsubordinated ranking of all obligations under the Loan
Documents and the Liens created by the Pledge Agreement),
and the consummation of the Public Offering and repayment,
redemption or defeasance of the Indebtedness and preferred
stock contemplated by the Recapitalization Transactions and
the Preliminary Prospectus, shall have been approved or
exempted by all requisite Governmental Authorities, and all
such approvals or exemptions, including any conditions
imposed thereby, shall be in form and substance acceptable
to the Required Lenders in their sole discretion. No action
shall have been taken by any Governmental Authority which
restrains or prevents or seeks to restrain or prevent, or
imposes or seeks to impose materially adverse conditions
upon, any of the Recapitalization Transactions. Without
limiting the generality of the foregoing, the Required
Lenders shall be satisfied, in their sole discretion, that
all governmental approvals have been obtained which, if not
obtained, could render the obligations to the Lenders under
the Loan Documents either void or voidable or subordinate
them to other claims or obligations or could impair or
subject to subordination the security interests of, or the
exercise of remedies by, the Lenders.
(m) No action, suit, litigation or similar proceeding
at law or in equity or by or before any court or
Governmental Authority shall exist or, in the case of
litigation by a Governmental Authority, be threatened, with
respect to any of the Recapitalization Transactions which
would in the reasonable opinion of the Required Lenders be
likely to have a Material Adverse Effect.
(n) The exchange of at least $191,400,000 principal
amount (including all amounts owned by the WP Entities and
the Blackstone Entities) of Holdings' 14% Subordinated Pay-
in-Kind Bridge Notes for shares of Holdings Common Stock
shall have occurred or shall occur simultaneously with the
initial Borrowing hereunder.
(o) Holdings and the Borrower shall, on a basis that is
reasonably satisfactory to the Administrative Agent and is
substantially contemporaneous with the first Borrowing
hereunder on the Closing Date (i)(A) have repaid in full the
principal of and accrued interest on all loans and other
amounts outstanding under the Existing Credit Agreement, (B)
have terminated the Existing Credit Agreement and all
commitments thereunder and (C) have obtained the release and
termination (or assignment to the Collateral Agent) of all
liens securing obligations thereunder (including the
execution, delivery and filing of all necessary releases and
termination or assignment statements, in form and substance
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satisfactory to the Administrative Agent), (ii)(A) have
called all outstanding shares of Holdings preferred stock
for redemption at an aggregate redemption price not to
exceed the Permitted Preferred Stock Redemption Price at the
earliest practical date following the Closing Date, (B) have
deposited with the Collateral Agent on the Closing Date,
pursuant to arrangements satisfactory to the Administrative
Agent, an amount equal to such redemption price in order to
provide for payment of such redemption price and (C) have
made arrangements satisfactory to the Administrative Agent
for the cancellation of all such shares when so redeemed and
(iii)(A) have called all outstanding Indebtedness of
Holdings and its subsidiaries listed on Schedule 4.02(o) for
redemption at an aggregate redemption price not to exceed
the Permitted Debt Redemption Price at the earliest
practical date following the Closing Date, (B) have
deposited with the trustees for such Indebtedness or the
Collateral Agent, acting as trustee, and on competitive
terms on the Closing Date, pursuant to arrangements
satisfactory to the Administrative Agent, an amount equal to
the redemption price in order to provide for payment of such
redemption price and (C) have made arrangements satisfactory
to the Administrative Agent for the cancellation of all such
Indebtedness when so redeemed.
(p) The Closing Date shall occur prior to September 15,
1994.
(q) The Agents shall be satisfied that the Revolving
Credit Commitments will be sufficient to fund the ongoing
working capital requirements of the Borrower and the other
Restricted Subsidiaries.
(r) Each Lender and the Administrative Agent shall have
received the pro forma consolidated balance sheet of
Holdings described in Section 3.09(b) and the same shall be
satisfactory to the Required Lenders.
(s) The Administrative Agent shall have received copies
of arrangements in form and substance satisfactory to it and
Simpson Thacher & Bartlett, special counsel for the
Administrative Agent, between Holdings and the Selling
Stockholders (as defined in the Preliminary Prospectus)
providing that, if Holdings raises less than $300,000,000 in
gross proceeds from the issuance of common stock in the
Public Offering and the Overallotment Option is exercised,
the Selling Stockholders will assign (without cost to
Holdings) to Holdings their obligation to deliver to the
underwriters pursuant to the Holdings Underwriting
Agreement, and the related right to receive payment
therefor, shares of Holdings Common Stock, so that after
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giving effect thereto Holdings will have received the lesser
of (A) the amount of net proceeds attributable to gross
Public Offering proceeds of $300,000,000 and (B) the
aggregate net proceeds from the Public Offering (including
the Overallotment Option but excluding the proceeds of up to
5,000,000 shares of Holdings Common Stock which may be sold
by the Selling Stockholders (other than pursuant to the
Overallotment Option)), and such arrangements shall be in
full force and effect.
(t) The Administrative Agent shall be reasonably
satisfied with the existing cash management procedures for
Holdings and its subsidiaries and the proposed cash
management procedures for Holdings and its subsidiaries
following the Closing Date.
(u) All aspects of the structure and documentation of
the Recapitalization Transactions and all corporate and
other proceedings taken or to be taken in connection
therewith and all documents incidental thereto shall be
reasonably satisfactory in form and substance to the
Administrative Agent and to Simpson Thacher & Bartlett,
special counsel for the Administrative Agent, and each
Lender shall have received copies of all such documents as
such Lender, acting through the Administrative Agent, may
reasonably request. All legal matters incident to this
Agreement and the borrowings hereunder shall be reasonably
satisfactory to the Agents and to Simpson Thacher &
Bartlett, special counsel for the Administrative Agent.
Each of Holdings, the Borrower and the Canadian Borrower
hereby directs its counsel referred to in clause (d) above to
deliver the opinions to be delivered by such counsel pursuant to
such paragraph, it being understood that the Lenders will and may
rely thereon.
ARTICLE V.
AFFIRMATIVE COVENANTS
Each of Holdings, the Canadian Borrower and the Borrower
covenants and agrees that from and after the Closing Date, so
long as this Agreement or any Letter of Credit shall remain in
effect or the principal of or interest on any Loan, any Fees or
any other expenses or amounts payable under or in respect of any
Loan Document or Letter of Credit shall be unpaid, unless the
Required Lenders shall otherwise consent in writing, Holdings,
the Canadian Borrower and the Borrower will, and will cause each
of the Restricted Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a)
Do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence, except as
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otherwise expressly permitted under Section 6.08 and except for
the liquidation or dissolution of Restricted Subsidiaries (other
than Significant Subsidiaries) if the assets of such corporations
to the extent they exceed estimated liabilities are acquired by a
wholly owned Restricted Subsidiary in such liquidation or
dissolution; provided that Subsidiaries which are Guarantors may
not be liquidated into Subsidiaries that are not Guarantors and
domestic Subsidiaries may not be liquidated into foreign
Subsidiaries.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the
rights, licenses, permits, franchises, authorizations, patents,
copyrights, trademarks and trade names material to the conduct of
its business; comply in all material respects with all applicable
laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted; and at all
times maintain and preserve all property material to the conduct
of such business and keep such property in good repair, working
order and condition and from time to time make, or cause to be
made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the
business carried on in connection therewith, if any, may be
properly conducted at all times.
(c) Without limiting the generality of the provisions of
Section 5.01(b), each of Holdings, the Canadian Borrower and the
Borrower shall (i)(A) undertake reasonable efforts to comply, and
to cause each Subsidiary to comply, in all material respects with
all Environmental Laws and any order, decree or similar
requirements of any Governmental Authority concerning (1) a
material violation of any Environmental Law, (2) a financial
contribution by Holdings or any of its Subsidiaries under any
Environmental Law or (3) a Remedial Action by or on the part of
Holdings or any of its Subsidiaries under any Environmental Law
and (B) undertake reasonable efforts to remedy and to cause each
of its Subsidiaries to remedy, as soon as reasonably practicable,
any material violation of Environmental Laws, except in any case
that compliance or remedy shall not be required insofar as any
failure to undertake such efforts cannot reasonably be expected
by Holdings, the Canadian Borrower or the Borrower to have a
Material Adverse Effect, or so long as (x) the validity of the
same shall be contested diligently and in good faith, (y) the
subject property does not contain a material plant or other
facility or shall then be in no danger of being sold, forfeited
or lost pursuant to such contest and (z) reserves have been
established in accordance with GAAP by Holdings or such
subsidiary in connection therewith; and (ii) undertake reasonable
efforts to require and to cause each of its subsidiaries to
require, to the extent practicable and appropriate, that a lease
for any renewing or new tenant contain terms substantially
equivalent to those of clause (i) above.
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SECTION 5.02. Insurance. Keep its insurable properties
insured (including through self-insurance) at all times by
financially sound and reputable insurers in such amounts as shall
be customary for similar businesses and maintain such other
insurance, of such types, to such extent and against such risks,
as is customary with companies in the same or similar businesses,
including insurance against fire and other risks insured against
by extended coverage and public liability insurance against
claims for personal injury or death or property damage occurring
upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other
insurance as may be required by law.
SECTION 5.03. Taxes. Pay and discharge promptly all taxes,
assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its property, before
the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise
which, if unpaid, might give rise to a Lien upon such properties
or any part thereof; provided, however, that such payment and
discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as (a) the validity or
amount thereof shall be contested in good faith by appropriate
proceedings and Holdings or any Restricted Subsidiary, as
applicable, shall set aside on its books adequate reserves as
required by GAAP with respect thereto, (b) such tax, assessment,
charge, levy or claim is in respect of property taxes for
property that Holdings or one of the Restricted Subsidiaries has
determined to abandon and the sole recourse for such tax,
assessment, charge, levy or claim is to such property or (c) the
amount of such taxes assessments, charges, levies and claims and
interest and penalties thereon does not exceed $1,000,000 in the
aggregate.
SECTION 5.04. Financial Statements, Reports, Amendments,
etc. In the case of Holdings, furnish to each Credit Agreement
Creditor:
(a) within 90 (or, in the case of clause (ii) below,
105) days after the end of each fiscal year (x) consolidated
balance sheets and related statements of income and cash
flows, showing the consolidated financial condition of each
of (i) Holdings and its Subsidiaries and (ii) Holdings and
the Restricted Subsidiaries, in each case as of the close of
such fiscal year and the results of their operations during
such year, audited in the case of clause (i) above by Arthur
Andersen & Co. or other independent public accountants of
recognized national standing (who shall be reasonably
acceptable to the Administrative Agent) and accompanied by
(1) in the case of clause (i), an opinion of such
accountants (which shall not be qualified in any material
respect) to the effect that such consolidated financial
statements fairly present the financial condition and
results of operations of Holdings and its consolidated
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subsidiaries and Holdings and the Restricted Subsidiaries,
respectively, in accordance with GAAP and (2) a certificate
of a Financial Officer certifying that such consolidated
financial statements fairly present the financial condition
and results of operations of Holdings and its consolidated
subsidiaries and Holdings and the Restricted Subsidiaries,
respectively, in accordance with GAAP consistently applied
(except as disclosed in such certificate, in reasonable
detail, which detail shall be reasonably acceptable to the
Administrative Agent) and (y) a statement of stockholders'
equity of Holdings, presented on a basis consistent with the
financial statements furnished pursuant to clause (x) above,
and certified by one of Holdings' Financial Officers as
fairly presenting the stockholders' equity of Holdings in
accordance with GAAP consistently applied (except as
disclosed in such certificate in reasonable detail, which
detail shall be reasonably acceptable to the Administrative
Agent);
(b) within 45 (or, in the case of clause (ii) below,
60) days after the end of each of the first three fiscal
quarters of each fiscal year, the consolidated balance
sheets and related statements of income and cash flows,
showing the consolidated financial condition of each of (i)
Holdings and its Subsidiaries and (ii) Holdings and the
Restricted Subsidiaries, in each case as of the close of
such fiscal quarter and the results of their operations
during such fiscal quarter and the then elapsed portion of
the fiscal year, together with the balance sheets and
related statements of income and cash flows as of the
corresponding dates and for the corresponding periods in the
prior year, all certified by one of its Financial Officers
as fairly presenting the consolidated financial condition
and results of operations of Holdings and its consolidated
subsidiaries and Holdings and the Restricted Subsidiaries,
respectively, in accordance with GAAP (other than the
absence of footnotes in accordance with GAAP) consistently
applied (except as disclosed in such certificate in
reasonable detail, which detail shall be reasonably
acceptable to the Administrative Agent), subject to normal
year-end audit adjustments;
(c) concurrently with any delivery of financial
statements under (a) or (b) above, a certificate (a
"Compliance Certificate") of the accounting firm or
Financial Officer (which certificate shall be in the form of
Exhibit G if delivered by a Financial Officer) opining on or
certifying such statements (which certificate, when
furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) (i) certifying that no Default or Event of
Default has occurred or, if such Default or Event of Default
has occurred, specifying the nature and extent thereof and
any corrective action taken or proposed to be taken with
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83
respect thereto and (ii) setting forth computations in
reasonable detail (which detail shall be reasonably
satisfactory to the Administrative Agent) demonstrating
compliance with the covenants contained in Sections 6.14,
6.15, 6.16 and 6.17 and showing the Applicable Level;
(d) if, as a result of any change in accounting
principles and policies from those as in effect on the date
of this Agreement, the consolidated financial statements of
Holdings and the Subsidiaries or Holdings and the Restricted
Subsidiaries, as the case may be, delivered pursuant to
clauses (a) and (b) above will differ in any material
respect from the consolidated financial statements that
would have been delivered pursuant to such clauses had no
such change in accounting principles and policies been made,
then, together with the first delivery of financial
statements pursuant to clauses (a) and (b) above following
such change, a schedule prepared by a Financial Officer
reconciling such changes to what the financial statements
would have been without such changes;
(e) promptly after the same become publicly available,
copies of all periodic reports and proxy statements and, to
the extent requested by the Administrative Agent, any other
materials filed by Holdings or any of its Subsidiaries with
the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any Governmental Authority
succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or
distributed to its shareholders generally, as the case may
be;
(f) within 90 days after the beginning of each fiscal
year, a copy of the annual income and capital expenditure
budget for such fiscal year;
(g) promptly, from time to time, such other information
regarding the operations, business affairs and financial
condition of Holdings or any of its Restricted Subsidiaries,
or compliance with the terms of any Loan Document, as any
Credit Agreement Creditor, acting through the Administrative
Agent, may reasonably request;
(h) promptly, a copy of any amendment or waiver of any
provisions of any agreement which amendment or waiver is
described in Section 6.10 or 6.11;
(i) promptly following the creation or acquisition of
any Subsidiary, a certificate from a Responsible Officer,
identifying such new Subsidiary and the ownership interest
of Holdings and its Subsidiaries therein; and promptly
following any Investment in an Unrestricted Subsidiary, a
description of such Investment and the amount thereof;
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84
(j) if requested by the Administrative Agent, within
105 days following the end of any fiscal year of any
Unrestricted Subsidiary, a balance sheet and related
statements of income and cash flow for such Unrestricted
Subsidiary at the end of and for such fiscal year; and
(k) promptly, a copy of all reports submitted in
connection with any interim or special audit made by
independent accountants of the books of Holdings or any of
its Subsidiaries.
SECTION 5.05. Litigation and Other Notices. Furnish to
each Credit Agreement Creditor prompt written notice of the
following:
(a) any Default or Event of Default, specifying the
nature and extent thereof and the corrective action (if any)
proposed to be taken with respect thereto;
(b) the filing or commencement of any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against Holdings or any Subsidiary
in respect of which there is a reasonable possibility of an
adverse determination and which, if adversely determined,
could reasonably be expected to result in a Material Adverse
Effect; and
(c) any development specific to Holdings and its
Subsidiaries and not otherwise publicly disclosed known to a
Responsible Officer that has resulted in, or could
reasonably be anticipated to result in, a Material Adverse
Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects
with the applicable provisions of ERISA and (b) furnish to each
Credit Agreement Creditor (i) as soon as possible, and in any
event within 30 days after any Responsible Officer of the
Borrower, any Guarantor or any ERISA Affiliate of any of them
knows or has reason to know that any Reportable Event has
occurred that alone or together with any other Reportable Event
could reasonably be expected to result in liability of the
Borrower, any Guarantor or any of their ERISA Affiliates to the
PBGC in an aggregate amount exceeding $10,000,000, a statement of
a Financial Officer setting forth details as to such Reportable
Event and the action proposed to be taken with respect thereto,
together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after any Responsible
Officer learns of receipt thereof, a copy of any notice the
Borrower or any Guarantor or any of their ERISA Affiliates may
receive from the PBGC relating to the intention of the PBGC to
terminate any Plan or Plans (other than a Plan maintained by any
of their ERISA Affiliates which is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Section 414 of the
Code) or to appoint a trustee to administer any Plan or Plans,
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85
(iii) within 20 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code a notice of failure to
make a required installment or other payment with respect to a
Plan, a statement of a Financial Officer setting forth details as
to such failure and the action proposed to be taken with respect
thereto, together with a copy of such notice given to the PBGC
and (iv) promptly after any Responsible Officer learns thereof
and in any event within 30 days after receipt thereof by the
Borrower, any Guarantor or any ERISA Affiliate from the sponsor
of a Multiemployer Plan, a copy of each notice received by the
Borrower, any Guarantor or such ERISA Affiliate concerning (A)
the imposition of Withdrawal Liability or (B) a determination
that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, in each case within the meaning of Title IV of
ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with
GAAP and permit any persons designated by the Administrative
Agent (or, during the continuance of an Event of Default, any
Lender) to visit and inspect the financial records and the
properties of Holdings or any Restricted Subsidiary at reasonable
times, upon reasonable notice and as often as reasonably
requested and to make extracts from and copies of such financial
records, and permit any persons designated by the Administrative
Agent (or, during the continuance of an Event of Default, any
Lender) to discuss the affairs, finances and condition of
Holdings or any Restricted Subsidiary with the officers thereof
and independent accountants therefor (subject to reasonable
requirements of confidentiality, including requirements imposed
by law or by contract).
SECTION 5.08. Use of Proceeds. (a) Use the proceeds of
the Term Loans, the Canadian Term Loans and the Public Offering
solely (i) to repay the principal of and accrued interest on all
loans and all other amounts outstanding under the Existing Credit
Agreement, (ii) to redeem Holdings, Group and Borrower
outstanding preferred stock at an aggregate redemption price not
greater than its face value plus any premium payable upon
redemption plus accrued and unpaid dividends to the date of
redemption (the "Permitted Preferred Stock Redemption Price"),
which is approximately $220,000,000 as of June 30, 1994, (iii) to
redeem or defease outstanding Indebtedness of Holdings and its
Subsidiaries listed on Schedule 4.02(o) at an aggregate
redemption price not greater than the principal amount thereof
plus accrued and unpaid interest to the date of redemption plus
any required redemption premium (the "Permitted Debt Redemption
Price"), which is approximately $821,000,000 as of June 30, 1994
(excluding the Holdings Subordinated PIK Notes to be converted to
Holdings Common Stock) and (iv) to fund transaction costs related
to the Recapitalization Transactions.
(b) Use the proceeds of Delayed Draw Term Loans solely (i)
to make ESOP Loans, (ii) to the extent not used to make ESOP
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Loans, to finance Permitted Business Acquisitions and (iii) for
the purposes described in clause (a) above.
(c) Use the proceeds of Revolving Loans made on the
Closing Date solely for the purposes set forth in Section 5.08(a)
and thereafter for general corporate purposes (including to make
Permitted Business Acquisitions).
(d) Use Letters of Credit solely for general corporate
purposes in the ordinary course of business of the Borrower and
its subsidiaries.
(e) Use the proceeds of the Canadian Term Loans only to
pay a dividend to the Borrower, which proceeds will be used for
the purposes described in clause (a) above.
SECTION 5.09. Further Assurances. Execute any and all
further documents, financing statements, agreements and
instruments, and take all further action (including filing UCC
financing statements, mortgages and deeds of trust), which may be
required under applicable law, or which the Collateral Agent may
reasonably request, in order to effectuate the transactions
contemplated by the Loan Documents, in order to release the
security interests securing obligations in respect of the
Existing Credit Agreement and in order to grant, preserve,
protect and perfect the validity and first priority (subject to
Liens permitted by Section 6.04) of the security interests
created or intended to be created pursuant to the Pledge
Agreement. In addition, from time to time, Holdings and the
Restricted Subsidiaries will, at their cost and expense, subject
to the obtaining of any required regulatory authorizations (which
Holdings and Borrower agree to use their best efforts to obtain)
promptly secure the Obligations by causing the following to
occur: (i) promptly upon creating or acquiring any additional
subsidiary, the stock of such subsidiary will (unless such
subsidiary is a subsidiary of an Unrestricted Subsidiary) be
pledged pursuant to the Pledge Agreement, provided that no more
than 65% of the capital stock of any foreign subsidiary shall be
required to be pledged pursuant to this Section 5.09, and (ii)
such subsidiary will (unless such subsidiary is an Unrestricted
Subsidiary or a foreign subsidiary) become a party to the
Guarantee Agreement. All such security interests and Liens will
be created under the Pledge Agreement and other security
agreements and other instruments and documents in form and
substance reasonably satisfactory to the Collateral Agent, and
Holdings and the Restricted Subsidiaries shall deliver or cause
to be delivered to the Administrative Agent all such instruments
and documents (including legal opinions and lien searches) as the
Required Lenders shall reasonably request to evidence compliance
with this Section 5.09. Holdings and the Restricted Subsidiaries
agree to provide such evidence as the Administrative Agent shall
reasonably request as to the perfection and priority status of
each such security interest and Lien.
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SECTION 5.10. Change in Ownership. In the case of
Holdings, own directly at all times, legally and beneficially,
100% of the capital stock of the Borrower, free of Liens except
Liens in favor of the Collateral Agent; and, in the case of
Borrower, own (a) directly at all times, legally and
beneficially, 100% of the capital stock of the Finance Subsidiary
free of Liens except Liens in favor of the Collateral Agent and
(b) directly or indirectly at all times, legally and
beneficially, 100% of the capital stock of the Canadian Borrower
free of Liens except Liens, if any, in favor of the Collateral
Agent.
SECTION 5.11. Fiscal Year; Accounting. In the case of each
of Holdings and its subsidiaries, cause its respective fiscal
year to end on the last Saturday in January.
SECTION 5.12. Dividends. In the case of the Borrower,
permit its subsidiaries to pay dividends and cause such dividends
to be paid to the extent required to pay the monetary
Obligations.
SECTION 5.13. Rate Protection Agreements. As promptly as
practicable and in any event within 90 days after the Closing
Date, enter into, and thereafter maintain in effect, one or more
interest rate protection agreements (including interest rate
swaps, caps, collars and other interest rate hedging
transactions) with any of the Lenders or other financial
institutions reasonably satisfactory to the Administrative Agent,
the effect of which shall be to limit for at least two years the
interest payable by the Borrower in connection with Indebtedness
under this Agreement having an aggregate outstanding principal
amount not less than an amount equal to 40% of the aggregate
principal amount of the Loans projected to be outstanding during
such period on terms and conditions reasonably acceptable, taking
into account current market conditions, to the Administrative
Agent and deliver evidence of the execution and delivery thereof
to the Administrative Agent.
SECTION 5.14. Corporate Separateness. Cause the
management, business and affairs of each of Holdings and the
Subsidiaries to be conducted in such a manner so that each of
Holdings and the Unrestricted Subsidiaries will be perceived as a
legal entity separate and distinct from each other and the
Restricted Subsidiaries.
SECTION 5.15. Business of Restricted Subsidiaries. Cause
all of the business and activities of the Restricted Subsidiaries
to be performed and conducted by the Borrower and Restricted
Subsidiaries which are subsidiaries of the Borrower.
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ARTICLE VI.
NEGATIVE COVENANTS
Each of Holdings, the Canadian Borrower and the Borrower
covenants and agrees that from and after the Closing Date, so
long as this Agreement or any Letter of Credit shall remain in
effect or any monetary Obligation shall be unpaid, unless the
Required Lenders shall otherwise consent in writing, Holdings,
the Canadian Borrower and the Borrower will not, and will not
cause or permit any Restricted Subsidiary to:
SECTION 6.01. Indebtedness. Incur, create, assume or
permit to exist any Indebtedness, except:
(a) Indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money in an amount not to exceed
$23,000,000 under agreements existing on the date of this
Agreement and set forth in Schedule 6.01 and other
Indebtedness existing on the Closing Date, but not any
extensions, renewals or refinancings of such Indebtedness
except (i) renewals and extensions expressly provided for in
the agreements evidencing any such Indebtedness as the same
are in effect on the date of this Agreement and (ii)
refinancings and extensions of any such Indebtedness if the
interest rate with respect thereto and other terms thereof
are no less favorable than the Indebtedness being refinanced
or extended and the average life to maturity thereof is
greater than or equal to the Indebtedness being refinanced
or extended (provided that such Indebtedness permitted under
clause (i) or clause (ii) above shall not be (A)
Indebtedness of an obligor that was not an obligor with
respect to the Indebtedness being extended, renewed or
refinanced, (B) in a principal amount which exceeds the
Indebtedness being renewed, extended or refinanced or (C)
incurred, created or assumed if any Default or Event of
Default has occurred and is continuing or would result
therefrom);
(b) Indebtedness of the Borrower consisting of
contingent liabilities arising from indemnities and other
contractual obligations of the Borrower existing on the date
hereof from the sale of properties prior to the date hereof
by Holdings and the Borrower and their predecessors;
(c) So long as immediately after giving effect to the
incurrence thereof: (i) no Default or Event of Default
shall have occurred and be continuing and (ii) the
outstanding principal amount of the Term Loans and Canadian
Term Loans is less than $350,000,000, Permitted Subordinated
Indebtedness;
(d) Indebtedness of (i) the Borrower to any subsidiary
of the Borrower evidenced, if the amount of such
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Indebtedness exceeds $10,000,000, by an Intercompany Note
pledged to the Collateral Agent under the Pledge Agreement,
(ii) any Domestic Restricted Subsidiary to the Borrower
evidenced, if the amount of such Indebtedness exceeds
$10,000,000, by an Intercompany Note pledged to the
Collateral Agent under the Pledge Agreement and (iii) any
Domestic Restricted Subsidiary to any other Restricted
Subsidiary evidenced, if the amount of such Indebtedness
exceeds $10,000,000, by an Intercompany Note pledged to the
Collateral Agent under the Pledge Agreement; provided that
no Indebtedness may be incurred under this paragraph (d) by
any subsidiary of the Borrower that is not a Guarantor;
(e) Capital Lease Obligations and Purchase Money
Indebtedness incurred by the Borrower prior to or within 270
days after a Capital Expenditure permitted under Section
6.03 in order to finance such Capital Expenditure, and
extensions, renewals and refinancings thereof if the
interest rate with respect thereto and other terms thereof
are no less favorable than the Indebtedness being refinanced
and the average life to maturity thereof is greater than or
equal to the Indebtedness being refinanced (provided that
such Indebtedness shall not be (A) Indebtedness of an
obligor that was not an obligor with respect to the
Indebtedness being extended, renewed or refinanced, (B) in a
principal amount which exceeds the Indebtedness being
renewed, extended or refinanced or (C) incurred, created or
assumed if any Default or Event of Default has occurred and
is continuing or would result therefrom);
(f) Capital Lease Obligations incurred by the Borrower
or any Restricted Subsidiary in respect of any Sale and
Leaseback Transaction that is permitted under Section 6.06;
(g) Indebtedness of the Borrower and its subsidiaries
in the nature of Interest Rate Agreements and other interest
rate and foreign currency hedging transactions entered into
in order to fix the effective rate of interest, or to hedge
against currency fluctuations, on the Loans and other
Indebtedness (it being understood that such transactions
shall be entered into for business purposes and not for the
purpose of speculation);
(h) Indebtedness of a Domestic Restricted Subsidiary
which represents the assumption by such Domestic Restricted
Subsidiary of Indebtedness of a Restricted Subsidiary in
connection with the merger of such Restricted Subsidiary
with or into the assuming Domestic Restricted Subsidiary or
the purchase of all or substantially all the assets of such
other Restricted Subsidiary;
(i) Indebtedness of the Restricted Subsidiaries in
respect of performance bonds, bid bonds, appeal bonds,
bankers acceptances, letters of credit and surety bonds
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provided in the ordinary course of business, and any
extension, renewal or refinancing thereof to the extent not
provided to secure the repayment of other Indebtedness and
to the extent that the amount of refinancing Indebtedness is
not greater than the amount of Indebtedness being
refinanced;
(j) Indebtedness arising from the honoring by a bank or
other financial institutions of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business; provided that such Indebtedness is
extinguished within two Business Days of its incurrence;
(k) Indebtedness of a Restricted Subsidiary acquired
after the date hereof and Indebtedness of a corporation
merged or consolidated with or into a Restricted Subsidiary
after the date hereof, which Indebtedness exists at the time
of such acquisition, merger or consolidation and is not
created in contemplation of such event and such acquisition,
merger or consolidation is permitted by this Agreement,
provided that the aggregate principal amount of Indebtedness
under this clause (k) shall not exceed $50,000,000;
(l) Indebtedness of the Borrower incurred after the
date hereof, which Indebtedness is created or incurred at
the time of any Permitted Business Acquisition to finance
such acquisition; provided that the aggregate principal
amount of Indebtedness which may be created or incurred
under this paragraph (l) together with Indebtedness
permitted by paragraph (k) above shall not exceed
$150,000,000;
(m) Indebtedness owed to (including obligations in
respect of letters of credit for the benefit of) any person
providing worker's compensation, health, disability or other
employee benefits, property, casualty, liability or other
insurance to Holdings or any Subsidiary, pursuant to
reimbursement or indemnification obligations to such person;
(n) (i) Indebtedness represented by the Loans, the
Letters of Credit and the Guarantees thereof by the
Guarantors pursuant to the Guarantee Agreement and (ii)
Indebtedness represented by the Guarantees of Indebtedness
permitted under clause (l) above by the Guarantors pursuant
to the Guarantee Agreement;
(o) other Capital Lease Obligations of the Restricted
Subsidiaries in an aggregate principal amount at any time
outstanding not in excess of $10,000,000;
(p) other unsecured Indebtedness of the Borrower and
the Canadian Borrower in an aggregate principal amount at
any time outstanding not in excess of $40,000,000 and
unsecured Guarantees by the Borrower of any Indebtedness of
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the Canadian Borrower incurred in accordance with this
clause (p);
(q) other Indebtedness of the Borrower together with
Indebtedness listed on Schedule 6.01 (as such Indebtedness
may be refinanced as permitted by Section 6.01(a)) in an
aggregate principal amount outstanding at any time not to
exceed $35,000,000; and
(r) all premium (if any), interest (including
post-petition interest), fees, expenses, indemnities,
charges and additional or contingent interest on obligations
described in clauses (a) through (q) above.
SECTION 6.02. Dividends and Distributions. Declare or pay,
directly or indirectly, any dividend or make any other
distribution (by reduction of capital or otherwise), whether in
cash, property, securities or a combination thereof, with respect
to any shares of its capital stock (other than dividends and
distributions on Holdings Common Stock payable solely by the
issuance of additional shares of Holdings Common Stock) or
directly or indirectly redeem, purchase, retire or otherwise
acquire for value (or permit any Restricted Subsidiary to
purchase or acquire) any shares of any class of its capital stock
or any option, warrant or other right to acquire shares of such
stock or set aside any amount for any such purpose; provided,
however, that:
(a) the foregoing shall not prohibit the Recapi-
talization Transactions;
(b) any Subsidiary may declare and pay dividends or make
other distributions to the Borrower or to wholly owned
Restricted Subsidiaries;
(c) if at the time thereof and after giving effect
thereto no Default or Event of Default shall have occurred
and be continuing, Holdings may, commencing with the fifth
full fiscal quarter following the Closing Date, pay
dividends in cash on its common stock or any preferred stock
in any fiscal quarter in an amount not to exceed $3,000,000;
(d) if at the time thereof and after giving effect
thereto no Default or Event of Default shall have occurred
and be continuing and the Dividend Condition shall have been
met, Holdings may pay dividends in cash on its common stock
or any preferred stock in any fiscal year in an amount not
to exceed in the aggregate 25% of Net Income for the prior
fiscal year less the amount of dividends paid in such
current fiscal year pursuant to clause (c) above;
(e) if at the time thereof and after giving effect
thereto no Default or Event of Default shall have occurred
and be continuing, Holdings may repurchase director's
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qualifying shares of Holdings and capital stock of Holdings
and options therefor of employees and directors of Holdings
and the Restricted Subsidiaries provided that (i) no such
repurchase may be made unless Holdings is obligated to do so
at the time of repurchase pursuant to contractual agreements
between Holdings and the applicable officer or director and
(ii) the aggregate amount paid by Holdings in connection
with such repurchases at any time shall not exceed
$3,000,000 plus the aggregate amount (but only to the extent
such amount is simultaneously contributed by Holdings to the
Borrower) received by Holdings from the sale or issuance of
its capital stock or options therefor to officers and
directors of Holdings and the Restricted Subsidiaries after
the Closing Date;
(f) the Borrower may pay dividends or make other
distributions to Holdings in amounts sufficient to allow
Holdings to pay (i) expenses incurred in connection with the
Recapitalization Transactions, Permitted Tax Payments and
state and local taxes and other governmental charges, and
administrative and routine expenses required to be paid by
Holdings in the ordinary course of its business, (ii) the
dividends and other amounts contemplated by clauses (c) and
(d) above; provided that such dividends pursuant to clause
(ii) are used by Holdings for such purposes within 20 days
of the receipt of such dividends by Holdings, (iii) the
repurchase price for the capital stock and options therefor
of Holdings contemplated by clause (e) above provided that
such dividends pursuant to clause (iii) are used by Holdings
for such purpose within 20 days of the receipt of such
dividends by Holdings and (iv) the amount of any Investment
in an Unrestricted Subsidiary if the Borrower and the
Restricted Subsidiaries could have made such Investment in
Unrestricted Subsidiaries pursuant to Section 6.07 (l) (but
on the assumption that the Borrower could otherwise invest
in such Unrestricted Subsidiary); provided that such
dividends pursuant to clause (iv) are used by Holdings for
such purpose within 20 days of receipt of such dividends by
Holdings; provided further that no dividend may be paid to
Holdings pursuant to clause (ii) or (iii) or (iv) if at the
time of such dividend or after giving effect thereto a
Default or Event of Default shall have occurred and be
continuing; and
(g) the foregoing shall not prohibit the ESOP
Investment.
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SECTION 6.03. Capital Expenditures. Permit Capital
Expenditures of the Restricted Subsidiaries on a consolidated
basis during any calendar year to be greater than the amount set
forth below for such year:
Calendar Year Amount
1994 $85,000,000
1995 85,000,000
1996 80,000,000
1997 80,000,000
1998 80,000,000
1999 80,000,000
2000 80,000,000
2001 80,000,000
2002 80,000,000
provided, however, that (i) to the extent Capital Expenditures
made in any year are less than the amount set forth above
opposite such year, Restricted Subsidiaries shall be permitted to
carry forward the unused amount to the succeeding calendar years
so long as such aggregate Capital Expenditures in any fiscal year
do not exceed $130,000,000; and (ii) Capital Expenditures may not
be made by Holdings.
SECTION 6.04. Liens. Create, incur, assume or permit to
exist any Lien on any property or assets (including stock or
other securities) now owned or hereafter acquired by it or on any
income or rights in respect of any thereof, except:
(a) Liens on property or assets of the Restricted
Subsidiaries existing on the date of this Agreement and, in
the case of Liens securing Indebtedness for borrowed money,
set forth in Schedule 6.04; provided that such Liens shall
secure only those obligations which they secure on such date
(and extensions, renewals and refinancings of such
obligations permitted by Section 6.01(a)) and do not
subsequently apply to any other property or assets of
Holdings or any Restricted Subsidiary;
(b) any Lien on any property or asset used by a
Restricted Subsidiary in the ordinary course of business,
which Lien existed prior to the acquisition thereof by such
subsidiary; provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition and
(ii) such Lien does not apply to any other property or
assets of any other Restricted Subsidiary;
(c) any Lien on any property or asset of a Restricted
Subsidiary securing Indebtedness permitted by Section
6.01(k), provided that such Lien does not apply to any other
property or assets of Holdings or any Restricted Subsidiary
not securing such Indebtedness at the date of acquisition of
such property or asset;
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94
(d) Liens for taxes, assessments or other governmental
charges or levies not yet due, or which are for less than
$1,000,000 in the aggregate, or which are being contested in
compliance with Section 5.03 or for property taxes for
property that the Borrower or one of its Restricted
Subsidiaries has determined to abandon if the sole recourse
for such tax, assessment, charge, levy or claim is to such
property;
(e) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in
the ordinary course of business and securing obligations
which are not due or which are being contested in good faith
by appropriate proceedings and in respect of which, if
applicable, Holdings or the relevant Restricted Subsidiary
shall have set aside on its books reserves in accordance
with GAAP;
(f) pledges and deposits made in the ordinary course of
business in compliance with the Federal Employers Liability
Act or any other workmen's compensation, unemployment insur-
ance and other social security laws or regulations and
deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(g) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than
Capital Lease Obligations), statutory obligations, surety
and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, trackage rights,
leases (other than Capital Lease Obligations), licenses,
special assessments, rights-of-way, restrictions on use of
real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not
substantial in amount and do not materially detract from the
value of the property subject thereto or interfere in any
material respect with the ordinary conduct of the business
of any Restricted Subsidiary;
(i) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in
the case of improvements, constructed) by any Restricted
Subsidiary (including without limitation, the interests of
vendors and lessors under conditional sale and title
retention agreements); provided that (i) such security
interests secure Indebtedness permitted by Section 6.01,
(ii) such security interests are incurred, and the
Indebtedness secured thereby is created, within 270 days
after such acquisition (or construction), (iii) the
Indebtedness secured thereby does not exceed 100% of the
cost of such real property, improvements or equipment at the
time of such acquisition (or construction), (iv) such
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95
expenditures are Capital Expenditures permitted under
Section 6.03 and (v) such security interests do not apply to
any other property or assets of any Restricted Subsidiary
(other than to accessions to such real property,
improvements or equipment and provided that individual
financings of equipment provided by a single lender may be
cross-collateralized to other financings of equipment
provided solely by such lender);
(j) Liens created in favor of the Collateral Agent for
the benefit of the Secured Parties;
(k) Liens securing reimbursement obligations in respect
of commercial letters of credit permitted under Section 6.01
and covering the goods (or the documents of title in respect
of such goods) financed by such letters of credit;
(l) Liens arising out of capitalized or operating lease
transactions permitted under Section 6.06, so long as such
Liens (i) attach only to the property sold in such
transaction and any accessions thereto and (ii) do not
interfere with the business of Holdings and the Restricted
Subsidiaries in any material respect;
(m) any Lien on assets of a person securing
Indebtedness of such person permitted by Section 6.01(q);
(n) any Lien arising by operation of law pursuant to
Section 107(1) of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sec. 9607(l), or
pursuant to analogous state law, for costs or damages which
are not yet due (by virtue of a written demand for payment
by a Governmental Authority) or which are being contested in
compliance with Section 5.03, or on property that a
Restricted Subsidiary has determined to abandon if the sole
recourse for such costs or damages is to such property,
provided that the liability of Holdings and the Restricted
Subsidiaries with respect to the matter giving rise to such
Lien shall not, in the reasonable estimate of the Borrower
(in light of all attendant circumstances, including the
likelihood of contribution by third parties), exceed
$7,500,000;
(o) any leases or subleases to other persons of
properties or assets owned or leased by a Restricted
Subsidiary;
(p) Liens consisting of interests of lessors under
capital leases permitted by Section 6.01;
(q) Liens securing judgements for the payment of money
in an aggregate amount not in excess of $7,500,000 (to the
extent not covered by insurance) which judgements shall not
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96
be undischarged or stayed for a period of more than 30
consecutive days;
(r) the replacement, extension or renewal of any Lien
permitted by clause (b), (c) or (i) above, provided that
such replacement, extension or renewal Lien shall not cover
any property other than the property that was subject to
such Lien prior to such replacement, extension or renewal
and provided further that the Indebtedness and other
obligations secured by such replacement, extension or
renewal Lien are permitted by this Agreement; and
(s) other Liens with respect to property or assets not
constituting collateral for the Obligations with an
aggregate fair market value of not more than $25,000,000 at
any time.
SECTION 6.05. Priority of Loan Payments. (a) Until the
Commitments have been terminated and the Obligations have been
indefeasibly paid in full, directly or indirectly, make any
payment, retirement, repurchase or redemption on account of the
principal of any Permitted Subordinated Indebtedness or directly
or indirectly prepay any Permitted Subordinated Indebtedness
prior to the stated maturity date of such Permitted Subordinated
Indebtedness, make any payment or prepayment of any Permitted
Subordinated Indebtedness which would violate the terms of this
Agreement or of such Permitted Subordinated Indebtedness, any
agreement or document evidencing, related to or securing the
payment or performance of the Permitted Subordinated Indebtedness
or any subordination agreement applicable to such Permitted
Subordinated Indebtedness.
(b) Until the Commitments have been terminated and the
Obligations have been indefeasibly paid in full, repay any Funded
Debt of Holdings and the Restricted Subsidiaries except:
(i) the Obligations;
(ii) payments of Funded Debt made in conformity with the
regularly scheduled maturity thereof or mandatory prepayment
provisions thereof;
(iii) if no Default or Event of Default has occurred and
is continuing or would result therefrom, refinancings
permitted by Section 6.01;
(iv) if no Default or Event of Default has occurred and
is continuing or would result therefrom, prepayments by a
Restricted Subsidiary of its Funded Debt acquired in
connection with a Permitted Business Acquisition; and
(v) if no Default or Event of Default has occurred and
is continuing or would result therefrom, prepayments of up
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97
to $10,000,000 in the aggregate of other Funded Debt of the
Restricted Subsidiaries.
SECTION 6.06. Sale and Lease-Back Transactions. Enter into
any arrangement, directly or indirectly, with any person whereby
Holdings or any Restricted Subsidiary shall sell or transfer any
property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or
lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being
sold or transferred (a "Sale and Lease-Back Transaction"), other
than any Sale and Lease-Back Transaction which involves a sale by
the Borrower or a Restricted Subsidiary solely for cash con-
sideration on terms not less favorable than would prevail in an
arms'-length transaction and which (a) results in a Capital Lease
Obligation or an Operating Lease, in either case entered into to
finance a Capital Expenditure permitted by Section 6.03
consisting of the initial acquisition by such subsidiary of the
property sold or transferred in such Sale and Lease-Back
Transaction, provided that such Sale and Lease-Back Transaction
occurs within 270 days after such acquisition or (b) results in a
Capital Lease Obligation or an Operating Lease entered into for
any other purpose (provided that any such Sale and Lease-Back
Transaction in reliance upon this clause (b) shall be deemed to
be a Prepayment Event).
SECTION 6.07. Investments, Loans and Advances. Purchase,
hold or acquire any capital stock, evidences of indebtedness or
other securities of, make or permit to exist any loans or
advances to, or make or permit to exist any investment or any
other interest in (collectively, an "Investment"), any other
person, except:
(a) Permitted Investments and Investments that were
Permitted Investments when made;
(b) Investments by Holdings in the Borrower and
Investments by a Restricted Subsidiary in another Domestic
Restricted Subsidiary;
(c) Investments arising out of the receipt by the
Borrower of noncash consideration for the sale of assets
permitted under Section 6.08 provided that such
consideration (if the stated amount or value thereof is in
excess of $1,000,000) is pledged upon receipt pursuant to
the Pledge Agreement;
(d) Intercompany Loans permitted to be incurred as
Indebtedness under Section 6.01(d);
(e) Investments by a wholly-owned Restricted Subsidiary
constituting Permitted Business Acquisitions;
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(f) (i) loans and advances to employees of any
Restricted Subsidiary not to exceed $300,000 at any time
outstanding to any one employee and not to exceed $2,000,000
in the aggregate at any time outstanding and (ii) advances
of payroll payments and expenses to employees in the
ordinary course of business;
(g) accounts receivable arising and trade credit
granted in the ordinary course of business and any
securities received in satisfaction or partial satisfaction
thereof from financially troubled account debtors to the
extent reasonably necessary in order to prevent or limit
loss;
(h) an Investment by the Borrower or any of the
Restricted Subsidiaries in any Finance Subsidiary that the
Borrower is incorporating, but only to the extent necessary
to incorporate such Finance Subsidiary and acquire its
capital stock and subordinated indebtedness in connection
with sales of receivables, all with the minimum
capitalization necessary;
(i) investments, other than investments listed in
clauses (a) through (h) of this Section, existing on the
Closing Date and set forth on Schedule 6.07;
(j) the ESOP Loans;
(k) Investments the sole consideration for which by
Holdings and the Restricted Subsidiaries is capital stock of
Holdings provided that, after giving effect thereto, no
Default or Event of Default under paragraph (m) of Article
VII shall have occurred;
(l) if no Default or Event of Default exists
immediately before or after giving effect to such
Investment, other Investments, including joint ventures,
currency hedges and Investments in Unrestricted
Subsidiaries, provided that (i) the consideration for
Investments other than Investments in Unrestricted
Subsidiaries (whether cash or property, as valued at the
time of such Investment) does not exceed (net of any return
representing return of capital of (but not return on) any
such Investment) at any time $75,000,000 in the aggregate
less one half of the amount of all Investments pursuant to
clause (ii) below in Unrestricted Subsidiaries and (ii) the
consideration for Investments in Unrestricted Subsidiaries
(whether cash or property, as valued at the time of such
Investment) does not exceed (net of any return representing
return of capital of (but not return on) any such
Investment) at any time $50,000,000 in the aggregate; and
(m) Investments resulting from pledges and deposits
referred to in Section 6.04(f).
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None of Holdings and the Restricted Subsidiaries may make any
Investment in Unrestricted Subsidiaries except as described in
the definition of "Unrestricted Subsidiaries" set forth in
Section 1.01.
SECTION 6.08. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other person,
or permit any other person to merge into or consolidate with it,
or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any part of
its assets (whether now owned or hereafter acquired) or any
capital stock of any subsidiary, or purchase, lease or otherwise
acquire (in one transaction or a series of transactions) all or
any substantial part of the assets of any other person, except
that this Section 6.08 shall not prohibit:
(a) the purchase and sale of property and assets in the
ordinary course of business by any Restricted Subsidiary;
(b) Sale and Lease-Back Transactions permitted by
Section 6.06;
(c) Permitted Business Acquisitions;
(d) sales, leases or transfers from one Restricted
Subsidiary of the Borrower to the Borrower or to a Domestic
Restricted Subsidiary;
(e) sales, leases or other dispositions of (i)
inventory of the Restricted Subsidiaries determined by the
Board of Directors of the Borrower to be no longer useful or
necessary in the operation of the businesses of the
Restricted Subsidiaries and (ii) assets of operations that
were discontinued prior to the Closing Date;
(f) any Permitted Receivables Financing;
(g) sales, leases or other dispositions of equipment or
real property of the Restricted Subsidiaries determined by
the Board of Directors of the Borrower to be no longer
useful or necessary in the operation of the business of the
Restricted Subsidiaries, provided that the Net Proceeds
thereof in excess of $1,000,000 shall be used to prepay the
Term Loans, Delayed Draw Term Loans and the Canadian Term
Loans in accordance with Section 2.12(e) or used to purchase
replacement assets or properties used for the same purpose
as the equipment or real property disposed of within 12
months of the receipt thereof;
(h) any Restricted Subsidiary may merge with any other
Restricted Subsidiary, provided that (i) at the time of and
immediately after giving effect to any such merger no
Default or Event of Default shall have occurred, (ii) the
Borrower shall be the surviving corporation of any merger
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involving the Borrower, and the Canadian Borrower shall be
the surviving corporation of any merger involving the
Canadian Borrower and (iii) no Restricted Subsidiary
organized under the laws of a jurisdiction outside the
United States may merge with a Domestic Restricted
Subsidiary unless the Domestic Restricted Subsidiary is the
surviving corporation; and
(i) the Restricted Subsidiaries may sell or otherwise
dispose of assets having a fair market value, for all such
transactions, not in excess of 25% of the fair market value
as determined by the Board of Directors of the Borrower of
the assets of the Restricted Subsidiaries at the Closing
Date, provided that (i) each such sale shall be for a
consideration determined in good faith by the Board of
Directors of the Borrower to be at least equal to the fair
market value (if any) of the asset sold, (ii) the aggregate
amount of all noncash consideration included in such sale
proceeds may not exceed 15% of the fair market value of the
aggregate amount of all such sale proceeds; provided,
however, that obligations of the type referred to in clauses
(a) and (b) of the definition of "Permitted Investments"
(without regard to the maturity or the credit rating
thereof) shall not be deemed non-cash proceeds if such
obligations are promptly sold for cash and the proceeds of
such sale are included in the calculation of Net Proceeds
from such sale, (iii) the aggregate Net Proceeds of all such
sales and dispositions under this clause (i) in excess of
$50,000,000 are applied to repay the Term Loans, the
Canadian Term Loans and the Delayed Draw Term Loans in
accordance with Section 2.12(e) and the first $50,000,000
of such aggregate Net Proceeds are either applied to the
purchase of assets or properties used in the business of the
Borrower and its Restricted Subsidiaries as permitted by
Section 6.12 within 12 months of the receipt thereof or are
applied to repay the Term Loans, the Canadian Term Loans and
the Delayed Draw Term Loans in accordance with Section
2.12(e) and (iv) no Default or Event of Default shall have
occurred and be continuing immediately prior to or after
such sale. Upon receipt by Holdings or any Restricted
Subsidiary of Net Proceeds of any Specified Asset Sale
occurring after the Closing Date, Borrower shall promptly
deliver a certificate of a Responsible Officer to the
Administrative Agent setting forth the amount of the Net
Proceeds which Borrower expects to reinvest in replacement
assets or property during the subsequent 12-month period
which are not required to be applied to the repayment of the
Term Loans, the Canadian Term Loans and the Delayed Draw
Term Loans. On the first anniversary of the receipt of such
Net Proceeds, Borrower shall (i) deliver a certificate of a
Responsible Officer to the Administrative Agent certifying
as to the amount and use of such Net Proceeds actually
reinvested in replacement assets or property during the
preceding 12-month period and (ii) deliver to the
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Administrative Agent, for application in accordance with
Section 2.12(e), an amount equal to the remaining uninvested
Net Proceeds; and
(j) Investments permitted by Section 6.07.
SECTION 6.09. Transactions with Affiliates and
Stockholders. Sell or transfer any property or assets to, or
purchase or acquire any property or assets of, or otherwise
engage in any other transactions with, any of its Affiliates
(including Unrestricted Subsidiaries but excluding Domestic
Restricted Subsidiaries) or any known holder of 10% or more of
any class of capital stock of Holdings or any Unrestricted
Subsidiary, except that Holdings or any of the Restricted
Subsidiaries may engage in any of the foregoing transactions at
prices and on terms and conditions not less favorable to each
than would prevail on an arm's-length basis from unrelated third
parties; provided that Holdings and the Restricted Subsidiaries
may not pay any fees to an Affiliate (including an Unrestricted
Subsidiary) for the provision of financial or advisory services
if after giving effect thereto a Default or Event of Default
shall have occurred and is continuing.
SECTION 6.10. Subordinated Indebtedness. Amend or modify
any instruments, agreements or documents evidencing or related to
any Permitted Subordinated Indebtedness, unless, in the judgement
of the Required Lenders, any such amendment or modification does
not substantially affect either the rights or security interests
granted to the Credit Agreement Creditors or the Collateral Agent
or the first and superior position of the Obligations owed to the
Credit Agreement Creditors relative to the second and inferior
position of the holders of the notes or other instruments
evidencing the Permitted Subordinated Indebtedness (without
limiting the generality of the foregoing, it is understood that
any increase in interest, fees or other amounts payable in
connection therewith, or any amendment that imposes additional
covenants or events of default or makes more restrictive the
covenants or events of default contained therein, shall require
the consent of the Required Lenders).
SECTION 6.11. Amendment of Constitutive Documents; Change
in Corporate Structure. (i) Permit any amendment or
modification to be made to the certificate of incorporation or
By-laws of Holdings or of any Restricted Subsidiary if such
amendment or modification is materially adverse to the interests
of the Lenders or (ii) permit any Restricted Subsidiary to issue
any capital stock or other equity interest to any person other
than the Borrower or its wholly owned subsidiaries.
SECTION 6.12. Business of Holdings and Restricted
Subsidiaries. (a) Engage at any time in any business or business
activity other than the business currently conducted by it and
business activities reasonably incidental or related thereto or
(b) fail to maintain and operate such business in substantially
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the manner in which it is presently conducted and operated (other
than as contemplated herein) if such failure would materially
adversely affect the Credit Agreement Creditors; provided,
however, that the activities of Holdings shall be limited to (i)
the ownership of the stock of the Borrower together with
activities directly related thereto, (ii) the ownership of the
stock of Unrestricted Subsidiaries described in clause (ii) of
the definition of such term set forth in Section 1.01 together
with activities directly related thereto, (iii) performance of
its obligations under the Loans Documents and (iv) actions
required by law to maintain its status as a public company.
SECTION 6.13. Restrictive Agreements. Enter into any
indenture, agreement, instrument or other arrangement which,
directly or indirectly, prohibits or restrains, or has the effect
of prohibiting or restraining, or imposes materially adverse
conditions upon, the granting of Liens, the provision of
Guarantees or the payment of dividends or the making of loans or
advances or transfers of property or assets by Holdings or any of
the Restricted Subsidiaries other than restrictions (i) on the
granting of Liens on assets that are encumbered by Liens
permitted under clauses (b), (i), (k), (l) or (r) of Section 6.04
or (ii) contained in agreements relating to Indebtedness not in
excess of $10,000,000 in the aggregate.
SECTION 6.14. Interest Coverage Ratio. In the case of
Holdings, permit the Interest Coverage Ratio for any period of
four (or, if less, the number of full fiscal quarters ending
after the Closing Date) consecutive fiscal quarters to be less
than the ratio set forth below opposite the period which includes
the last day of such period of consecutive fiscal quarters:
Period: Amount:
August 1, 1994 - April 30, 19953.00 to 1.00
May 1, 1995 - January 31, 19963.25 to 1.00
February 1, 1996 - January 31, 19973.75 to 1.00
February 1, 1997 - January 31, 19984.25 to 1.00
Thereafter 4.75 to 1.00
SECTION 6.15. EBITDA. In the case of Holdings, until such
time as $175,000,000 of the Term Loans and Canadian Term Loans
have permanently and irrevocably been repaid, permit its EBITDA
for any fiscal year to be less than $175,000,000.
SECTION 6.16. Leverage Ratio. In the case of Holdings,
permit the Leverage Ratio as of the last day of any fiscal
quarter occurring during any period set forth below to be greater
than the ratio set forth below for such period:
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Quarter Ending:Ratio:
October 31, 1994 3.75 to 1.00
January 31, 1995 3.50 to 1.00
April 30, 1995 3.50 to 1.00
July 31, 1995 3.50 to 1.00
October 31, 1995 3.25 to 1.00
January 31, 1996 3.25 to 1.00
February 1, 1996 - January 31, 19973.00 to 1.00
February 1, 1997 - January 31, 19982.75 to 1.00
February 1, 1998 - January 31, 19992.50 to 1.00
Thereafter 2.25 to 1.00
SECTION 6.17. Current Ratio. In the case of Holdings,
permit the Current Ratio to be less than 1.25:1.00 on the last
day of any fiscal quarter.
SECTION 6.18. Tax Sharing. File or consent to the filing of
any consolidated income tax return with any person (other than
Holdings, the Restricted Subsidiaries and Unrestricted
Subsidiaries that have entered into the existing Tax Sharing
Agreements).
SECTION 6.19. Significant Subsidiaries. Permit the
Significant Subsidiaries to account for less than 85% of the
consolidated assets of Holdings at any time or 90% of the
consolidated EBITDA of Holdings for any two consecutive periods
of four fiscal quarters.
SECTION 6.20. Inactive Subsidiaries. Permit any Inactive
Subsidiary, at any time, to fail to satisfy any of the criteria
set forth in the definition of Inactive Subsidiary in Section
1.01.
ARTICLE VII.
EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made
in any Loan Document, or any representation, warranty,
statement or information contained in any report, cer-
tificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall
prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any
principal of any Loan when and as the same shall become due
and payable, whether at the due date thereof or at a date
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fixed for prepayment thereof or by acceleration thereof or
otherwise;
(c) default shall be made in the payment of any
interest on any Loan or reimbursement of any Letter of
Credit Disbursement or any Fee or any other amount (other
than an amount referred to in (b) above) due under any Loan
Document, when and as the same shall become due and payable,
and such default shall continue unremedied for a period of
five Business Days;
(d) default shall be made in the due observance or
performance by the Borrower, the Canadian Borrower or
Holdings or any subsidiary thereof of any covenant,
condition or agreement contained in Section 2.12(e),
5.01(a), 5.05(a), 5.08 or 5.10 or in Article VI;
(e) default shall be made in the due observance or
performance by the Borrower, the Canadian Borrower or
Holdings or subsidiary thereof of any covenant, condition or
agreement contained in any Loan Document (other than those
specified in (b), (c) or (d) above) and such default shall
continue unremedied for a period of 30 days in the case of
Sections 5.01(b), 5.02, 5.09 and 5.13 and 15 days in the
case of all others, in each case after notice thereof from
the Administrative Agent or any Lender to Holdings, the
Canadian Borrower or the Borrower;
(f) Holdings, any Restricted Subsidiary or any
Significant Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of
Indebtedness having an aggregate principal or notional
amount in excess of $7,500,000, when and as the same shall
become due and payable, or (ii) fail to observe or perform
any other term, covenant, condition or agreement contained
in any agreements or instruments evidencing or governing any
Indebtedness having an aggregate principal amount in excess
of $7,500,000 if the effect of any failure referred to in
this clause (ii) is to cause, or to permit the holder or
holders of such Indebtedness or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to
its stated maturity; or a termination event or comparable
event shall occur under the documents governing the
Permitted Receivables Financing entitling the persons
financing the receivables owned by the Finance Subsidiary to
stop funding the purchase of receivables of all sellers of
receivables to the Finance Subsidiary;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower
or Holdings or any Significant Subsidiary, or of a
substantial part of the property or assets of the Borrower
or Holdings or any Significant Subsidiary, under Title 11 of
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105
the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law or comparable
foreign law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for
the Borrower or Holdings or any Significant Subsidiary or
for a substantial part of the property or assets of the
Borrower or Holdings or any Significant Subsidiary or (iii)
the winding-up or liquidation of the Borrower or Holdings or
any Significant Subsidiary; and such proceeding or petition
shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;
(h) the Borrower or Holdings or any Significant
Subsidiary shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency,
receivership or similar law or comparable foreign law, (ii)
consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing
of any petition described in (g) above, (iii) apply for or
consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for
the Borrower or Holdings or any Significant Subsidiary or
for a substantial part of the property or assets of the
Borrower or Holdings or any Significant Subsidiary, (iv)
file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become
unable, admit in writing its inability or fail generally to
pay its debts as they become due or (vii) take any action
for the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in
an aggregate amount in excess of $7,500,000 (to the extent
not covered by insurance) shall be rendered against
Holdings, any Restricted Subsidiary or any Significant
Subsidiary or any combination thereof and the same shall
remain undischarged or stayed for a period of 30 consecutive
days during which execution shall not be effectively stayed,
or any action shall be legally taken by a judgment creditor
to levy upon assets or properties of Holdings or any
Restricted Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a
failure to make a required installment or other payment
(within the meaning of Section 412(n)(1) of the Code), shall
have occurred with respect to any Plan or Plans that
reasonably could be expected to result in liability of the
Borrower, any Guarantor or any of their ERISA Affiliates to
the PBGC or to a Plan in an aggregate amount exceeding
$5,000,000 and, within 30 days after the reporting of any
such Reportable Event to the Administrative Agent or after
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106
the receipt by the Administrative Agent of the statement
required pursuant to Section 5.06(b)(iii), the
Administrative Agent shall have notified the Borrower in
writing that (i) the Required Lenders have made a
determination that, on the basis of such Reportable Event or
Reportable Events or the failure to make a required payment,
there are reasonable grounds (A) for the termination of such
Plan or Plans by the PBGC, (B) for the appointment by the
appropriate United States District Court of a trustee to
administer such Plan or Plans or (C) for the imposition of a
lien in favor of a Plan and (ii) as a result thereof an
Event of Default exists hereunder; or a trustee shall be
appointed by a United States District Court to administer
any such Plan or Plans; or the PBGC shall institute
proceedings to terminate any Plan or Plans;
(k) (i) the Borrower, any Guarantor or any of their
ERISA Affiliates shall have been notified by the sponsor of
a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan, (ii) the Borrower, any
Guarantor or such ERISA Affiliate does not have reasonable
grounds for contesting such Withdrawal Liability or is not
in fact contesting such Withdrawal Liability in a timely and
appropriate manner and (iii) the amount of the Withdrawal
Liability specified in such notice, when aggregated with all
other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the
date or dates of such notification), exceeds $7,500,000 or
requires payments exceeding $7,500,000 in any year;
(l) the Borrower, any Guarantor or any of their ERISA
Affiliates shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such
reorganization or termination the aggregate annual
contributions of the Borrower, the Guarantors and their
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have
been or will be increased over the amounts required to be
contributed to such Multiemployer Plans for their most
recently completed plan years by an amount exceeding
$7,500,000;
(m) there shall have occurred a Change in Control;
(n) (i) any Loan Document shall for any reason be
asserted by Holdings or any of its subsidiaries not to be a
legal, valid and binding obligation of the respective
parties thereto, (ii) any security interest or Lien
purported to be created by the Pledge Agreement and to
extend to assets which are not immaterial to Holdings and
its subsidiaries on a consolidated basis shall for any
reason (except to the extent resulting from the negligent or
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107
wilful failure of the Collateral Agent to retain possession
of the applicable collateral) cease to be, or any security
interest or Lien purported to be created by the Pledge
Agreement and to extend to any assets of Holdings or its
subsidiaries shall for any reason be asserted by Holdings or
any of its subsidiaries not to be, a valid, first priority
perfected security interest (subject to no Liens other than
Liens not prohibited by any applicable provision of the Loan
Documents) in such collateral (other than cash proceeds
which are not identifiable proceeds) or (iii) the
Obligations and the guarantees thereof pursuant to the
Guarantee Agreement shall cease to constitute senior
indebtedness under the subordination provisions of any
document or instrument evidencing any Permitted Subordinated
Indebtedness or such subordination provisions shall be
invalidated or otherwise cease to be a legal, valid and
binding obligation of the parties thereto, enforceable in
accordance with its terms;
(o) any Selling Stockholder shall fail to comply with
any provision of the arrangements described in Section
4.02(s);
(p) the Finance Subsidiary shall engage in any business
or activity other than the purchase of receivables from the
Restricted Subsidiaries and the sale of such receivables and
activities incidental thereto; or
(q) on or prior to the date which is 35 days after the
Closing Date Holdings shall not have received as gross
proceeds ("Additional Gross Proceeds") from the sale of
Holdings Common Stock after the Closing Date to Blackstone
and WP or to other persons an amount equal to the excess, if
any, of (i) $250,000,000 over (ii) the aggregate gross
proceeds from the issuance by Holdings of its Common Stock
in the Public Offering (with the result that the gross
proceeds received by Holdings from the issuance of its
Common Stock in the Public Offering and the Additional Gross
Proceeds equal at least $250,000,000);
then, and in every such event (other than an event with respect
to the Borrower or the Canadian Borrower described in paragraph
(g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at
the request of the Required Lenders, shall, by notice to the
Borrower and the Canadian Borrower, take either or both of the
following actions, at the same or different times: (i) terminate
forthwith the Commitments and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrower and the
Canadian Borrower accrued hereunder and under any other Loan
Document, shall become forthwith due and payable, without
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108
presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived by the Borrower and the
Canadian Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding; and in any event with
respect to the Borrower or the Canadian Borrower described in
paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrower and the Canadian
Borrower accrued hereunder and under any other Loan Document,
shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Borrower and the Canadian
Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding.
ARTICLE VIII.
THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this
Agreement, Chemical Bank is hereby appointed to act as
Administrative Agent and Collateral Agent on behalf of the
Lenders and the Issuing Banks. Each of the Lenders, and each
subsequent holder of any Note by its acceptance thereof, and each
Issuing Bank hereby irrevocably authorizes the Administrative
Agent to take such actions on behalf of such Lender or holder or
the Issuing Bank, as applicable, and to exercise such powers as
are specifically delegated to the Administrative Agent by the
terms and provisions hereof and of the other Loan Documents
(including the power to execute and deliver the Intercreditor
Agreement if and when requested to do so by any holders of any
Permitted Acquisition Indebtedness), together with such actions
and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the
Lenders and the Issuing Banks, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders all
payments of principal of and interest on the Loans and all other
amounts due to the Lenders hereunder, and promptly to distribute
to each Lender its proper share of each payment so received; (b)
to give notice on behalf of each of the Lenders to the Borrower
or the Canadian Borrower of any Event of Default specified in
this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and
(c) to distribute to each Lender and Issuing Bank copies of all
notices, financial statements and other materials delivered by
the Borrower or the Canadian Borrower pursuant to this Agreement
as received by the Administrative Agent. In acting as Collateral
Agent Chemical Bank shall be entitled to the rights and benefits,
and subject to the obligations, set forth for the Administrative
Agent under this Article VII, mutatis mutandis, which Article is
hereby incorporated by reference, mutatis mutandis, in each of
the Guarantee Agreement and the Pledge Agreement.
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109
Neither the Administrative Agent nor any Issuing Bank nor
any of their respective affiliates, directors, officers,
employees or agents shall be liable as such for any action taken
or omitted by any of them except for its or his own gross
negligence or wilful misconduct, or be responsible for any
statement, warranty or representation herein or the contents of
any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or
observance by the Borrower or the Canadian Borrower or any
Guarantor of any of the terms, conditions, covenants or
agreements contained in any Loan Documents. The Administrative
Agent shall not be responsible to the Lenders or the holders of
the Notes or the Issuing Bank for the due execution (other than
by the Administrative Agent), genuineness, validity,
enforceability (other than against the Administrative Agent) or
effectiveness of this Agreement, the Notes or any other Loan
Documents or other instruments or agreements. The Administrative
Agent may deem and treat the payee of any Note as the owner
thereof for all purposes hereof until it shall have received from
the payee of such Note notice, given as provided herein, of the
transfer thereof in compliance with Section 9.04. The
Administrative Agent shall in all cases be fully protected in
acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders (and the Issuing
Banks, with respect to Letters of Credit) and, except as
otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the
Lenders and each subsequent holder of any Note and the Issuing
Banks. The Administrative Agent shall, in the absence of
knowledge to the contrary, be entitled to rely on any instrument
or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or
persons. Neither the Administrative Agent nor the Issuing Banks
nor any of their respective directors, officers, employees or
agents shall have any responsibility to the Borrower or the
Canadian Borrower on account of the failure of or delay in
performance or breach by any Lender (or, in the case of the
Administrative Agent, by any Issuing Bank) of any of its
obligations hereunder or to any Lender (or, in the case of the
Administrative Agent, to any Issuing Bank) on account of the
failure of or delay in performance or breach by any other Lender
or the Borrower, the Canadian Borrower or any Guarantor of any of
their respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of the
Administrative Agent and each Issuing Bank may execute any and
all duties hereunder by or through agents or affiliates and shall
be entitled to rely upon the advice of legal counsel selected by
it with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that neither the
Administrative Agent nor any Issuing Bank shall be under any duty
to take any discretionary action permitted to be taken by it
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110
pursuant to the provisions of this Agreement unless it shall be
requested in writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent
may resign at any time by notifying the Lenders, the Issuing
Bank, the Canadian Borrower and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint
a successor, with the consent of the Borrower (not to be
unreasonably withheld). If no successor shall have been so
appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, with the consent of the Borrower
(not to be unreasonably withheld), which shall be a bank with an
office in New York, New York, having a combined capital and
surplus of at least $500,000,000 or an Affiliate of any such bank
which is also a bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Administrative
Agent and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After the
Administrative Agent's resignation hereunder, the provisions of
this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Administrative Agent.
With respect to the Loans made by it hereunder and the Notes
issued to it and the Letter of Credit
participations acquired by it, each of the Administrative Agent
and each Issuing Bank in its individual capacity and not as
Administrative Agent or Issuing Bank, as the case may be, shall
have the same rights and powers as any other Lender and may
exercise the same as though it were not the Administrative Agent
or an Issuing Bank, as the case may be, and the Administrative
Agent and its Affiliates and each Issuing Bank and its Affiliates
may accept deposits from, lend money to and generally engage in
any kind of business with the Borrower, the Canadian Borrower or
any subsidiary or other Affiliate thereof as if it were not the
Administrative Agent or an Issuing Bank, as the case may be.
Each Lender recognizes that applicable laws, rules,
regulations or guidelines of Governmental Authorities may require
the Administrative Agent to determine whether the transactions
contemplated hereby should be classified as "highly leveraged" or
assigned any similar or successor classification, and that such
determination may be binding upon the other Lenders. Each Lender
understands that any such determination shall be made solely by
the Administrative Agent based upon such factors (which may
include, without limitation, the Administrative Agent's internal
policies and prevailing market practices) as the Administrative
Agent shall deem relevant and agrees that the Administrative
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111
Agent shall have no liability for the consequences of any such
determination.
Each Lender agrees (i) to reimburse each of the
Administrative Agent and, if such Lender is a Revolving Lender,
each Issuing Bank, on demand, in the amount of its pro rata share
(based on its Commitments hereunder or its Revolving Credit
Commitment, if any, in the case of reimbursement of any Issuing
Bank) of any reasonable expenses incurred for the benefit of the
Lenders by the Administrative Agent or, if applicable, such
Issuing Bank, including counsel fees and compensation of agents
and employees paid for services rendered on behalf of the
Lenders, which shall not have been reimbursed by the Borrower and
(ii) to indemnify and hold harmless each of the Administrative
Agent and, if such Lender is a Revolving Lender, each Issuing
Bank and any of their respective directors, officers, employees
or agents, on demand, in the amount of such pro rata share, from
and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in its capacity as
the Administrative Agent or an Issuing Bank, as the case may be,
or any of them in any way relating to or arising out of this
Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other
Loan Document, to the extent the same shall not have been
reimbursed by the Borrower or the Canadian Borrower; provided
that no Lender shall be liable to the Administrative Agent or any
Issuing Bank for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or
wilful misconduct of the Administrative Agent or such Issuing
Bank, as the case may be, or any of their directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent, any Issuing Bank
or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance
upon the Administrative Agent, any Issuing Bank or any other
Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this
Agreement or any other Loan Document, any related agreement or
any document furnished hereunder or thereunder.
The Managing Agents shall have no rights or duties except as
expressly set forth in this Agreement. The Lead Managers shall
have no rights or duties under the Loan Documents.
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112
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telex or
telecopy, as follows:
(a) if to Holdings or to the Borrower, to it at 701
McCullough Drive, Charlotte, North Carolina 28262, Attention
of Chief Financial Officer (Telecopy No. 704-548-2330) with
copies to 210 Madison Avenue, 6th Floor, New York, New York
10016, Attention of General Counsel (Telecopy No.
212-578-1269);
(b) if to the Canadian Borrower, to it at 150 Collins
Street, Farnham, Quebec, J2N 2R6, Canada, Attention
Controller (Telecopy No. 514-293-6657) with copies to the
Borrower, Attention of Chief Financial Officer (Telecopy No.
704-548-2330) and Elizabeth R. Phillipp (Telecopy No. 212-
578-1269);
(c) if to the Administrative Agent, to it at 270 Park
Avenue (10th Floor), New York, New York 10017, Attention of
Susan Kjorlien (Telecopy No. 212-270-3277);
(d) if to a Lender, to it at its address (or telecopy
number) set forth in Schedule 2.01 or in the Assignment and
Acceptance pursuant to which such Lender shall have become a
party hereto.
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed
to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telex or telecopy, or on the
date five Business Days after dispatch by certified or registered
mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in
accordance with the latest unrevoked direction from such party
given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Borrower,
the Canadian Borrower and the Guarantors herein and in the
certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans,
and the execution and delivery to the Lenders of the Notes
evidencing such Loans, and the issuance of the Letters of Credit,
regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee
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113
or any other amount payable under this Agreement or any other
Loan Document is outstanding and unpaid and so long as the
Commitments have not been terminated. Without prejudice to the
survival of any other agreements contained herein,
indemnification and reimbursement obligations contained herein
(including pursuant to Sections 2.13, 2.15 and 9.05) shall
survive the payment in full of the principal and interest
hereunder and the termination of the Commitments or this
Agreement.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower, the
Canadian Borrower, Holdings and the Administrative Agent and when
the Administrative Agent shall have received copies hereof which,
when taken together, bear the signatures of each Lender, and
thereafter shall be binding upon and inure to the benefit of the
Borrower, Holdings, each Issuing Bank, the Administrative Agent
and each Lender and their respective successors and assigns,
except that none of the Borrower, the Canadian Borrower or
Holdings shall have the right to assign its rights hereunder or
any interest herein without the prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in
this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of the Borrower, the Canadian Borrower, Holdings, the
Administrative Agent, the Issuing Banks or the Lenders that are
contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or
a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment and the
Loans at the time owing to it and the Notes and participations in
Letters of Credit held by it, it being understood that Lenders
shall not be required to assign pro rata amounts of their
Revolving Credit Commitments, Delayed Draw Term Commitments,
Canadian Term Commitments and Term Commitments); provided,
however, that (i) except in the case of an assignment to a Lender
or an Affiliate of such Lender, the Borrower and the
Administrative Agent must give their prior written consent to
such assignment (which consents shall not be unreasonably
withheld or delayed), (ii) after giving effect to such
assignment, the aggregate amount of the Loans owing to, and the
Letter of Credit Exposure and unused Commitments of, the assignee
and its Affiliates and of the assignor (unless the assignor
ceases to be a Lender) and its Affiliates shall not be less than
10/625ths of the sum of the aggregate amount of outstanding
Loans, the Letter of Credit Exposure and the unused Commitments
at such time, (iii) the parties to each such assignment shall
execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with the Note or Notes subject to such
assignment and a processing and recordation fee of $3,500 and
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(iv) the assignee, if it shall not be a Lender, shall deliver to
the Administrative Agent an Administrative Questionnaire. Upon
acceptance and recording pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least
five Business Days after the execution thereof unless agreed
otherwise by the Administrative Agent, (A) the assignee
thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and (B)
the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.13, 2.15,
2.18 and 9.05, as well as to any Fees accrued for its account and
not yet paid).
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each
other and the other parties hereto as follows: (i) such assigning
Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse
claim and that its Term Loan Commitment, Delayed Draw Term Loan
Commitment, Canadian Term Commitment and Revolving Credit
Commitment, and the outstanding balances of its Term Loans,
Delayed Draw Term Loans, Canadian Term Loans and Revolving Loans,
in each case without giving effect to assignments thereof which
have not become effective, are as set forth in such Assignment
and Acceptance, (ii) except as set forth in (i) above, such
assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document
or any other instrument or document furnished pursuant hereto, or
the financial condition of the Borrower, the Canadian Borrower or
any Guarantor or the performance or observance by the Borrower,
the Canadian Borrower or any Guarantor of any of its obligations
under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such
assignee represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance; (iv) such assignee
confirms that it has received copies of this Agreement, together
with copies of the most recent financial statements delivered
pursuant to this Agreement and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and
Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, any Issuing Bank, such
assigning Lender or any other Lender and based on such documents
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115
and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under this Agreement as
are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance
with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its address
referred to in subsection 9.01 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each
Lender from time to time. The Administrative Agent shall
separately record the names and addresses of each Lender that
holds Notes in the Register. The Administrative Agent shall also
record the amount of the Commitments of, and the aggregate
principal amount of Loans owing to, and the Letter of Credit
Exposure of, such Lender in the Register. The entries in the
Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Canadian Borrower, the Administrative Agent
and the Lenders shall treat each person whose name is recorded in
the Register as the owner of the Notes, the Commitments and the
Loans and Letter of Credit Exposures recorded therein for all
purposes of this Agreement. The Register shall be available for
inspection by the Borrower, the Canadian Borrower the Issuing
Bank and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee
together with the Note or Notes subject to such assignment, an
Administrative Questionnaire completed in respect of the assignee
(unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) above
and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give
prompt notice thereof to the Lenders. Within five Business Days
after receipt of notice, the Borrower or the Canadian Borrower,
as the case may be, at its own expense, shall execute and deliver
to the Administrative Agent, in exchange for the surrendered Note
or Notes, a new Note or Notes to the order of such assignee in a
principal amount equal to the applicable Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Commitment, a new Note to the order of such
assigning Lender in a principal amount equal to the applicable
Commitment retained by it. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal
amount of such surrendered Note; such new Notes shall be dated
<PAGE>
116
the date of the surrendered Notes which they replace and shall
otherwise be in substantially the form of Exhibit A-1, A-2, A-3,
A-4 or A-5 hereto, as appropriate. Canceled Notes shall be
returned to the Borrower or the Canadian Borrower, as the case
may be. Notwithstanding anything to the contrary contained
herein, no assignment under Section 9.04(b) of any rights or
obligations under or in respect of the Notes or Loans evidenced
by the Notes shall be effective unless and until the
Administrative Agent shall have recorded such assignment in the
Register. The Administrative Agent shall record the name of the
transferor, the name of the transferee, and the amount of the
transfer in the Register after receipt of all documents required
pursuant to this Section 9.04, including, without limitation, the
Notes being assigned in connection with such transfer, and such
other documents as the Administrative Agent may reasonably
request.
(f) Each Lender may without the consent of the Borrower,
the Canadian Borrower, any Issuing Bank or the Administrative
Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the
Loans owing to it and the Notes and participations in Letters of
Credit held by it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the
benefit of the cost protection provisions contained in Sections
2.13, 2.15, 2.18 and 9.06(a) to the same extent as if they were
Lenders, provided, that no such participating bank or entity
shall be entitled to receive any greater amount pursuant to such
Sections than a Lender would have been entitled to receive in
respect of the amount of the participation sold by such Lender to
such participating bank or entity had no sale occurred, and (iv)
the Borrower, the Canadian Borrower, the Administrative Agent,
the Issuing Banks and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such
Lender shall retain the sole right to enforce the obligations of
the Borrower or the Canadian Borrower, as the case may be,
relating to the Loans and participations in Letters of Credit and
to approve any amendment, modification or waiver of any provision
of this Agreement or any other Loan Document (other than
amendments, modifications or waivers decreasing any fees payable
hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending any final maturity
date, in each case in respect of an Obligation in which the
relevant participating bank or entity is participating, or
releasing all or substantially all of the Pledged Securities or
any Guarantor from the Guarantee Agreement unless all or
substantially all of the capital stock of such subsidiary is sold
in a transaction permitted by this Agreement). Each Lender will
disclose the identity of its participants to the Borrower and
<PAGE>
117
Administrative Agent if requested by the Borrower or the
Administrative Agent.
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this Section 9.04, disclose to the
assignee or participant or proposed assignee or participant any
information relating to the Borrower or the Canadian Borrower
furnished to such Lender by or on behalf of the Borrower or the
Canadian Borrower; provided that, prior to any such disclosure,
each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or
participant shall agree to be bound by Section 9.17.
(h) Any Lender may at any time assign all or any portion
of its rights under this Agreement and the Notes issued to it to
a Federal Reserve Bank; provided that no such assignment shall
release a Lender from any of its obligations hereunder.
(i) None of the Borrower, Holdings or the Canadian
Borrower shall assign or delegate any of its rights or duties
hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees
to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent in connection with the preparation of this
Agreement and the other Loan Documents, or by the Administrative
Agent in connection with the syndication of the Commitments or
the administration of this Agreement, or in connection with any
amendments, modifications or waivers of the provisions hereof or
thereof (whether or not the transactions hereby contemplated
shall be consummated) or incurred by the Administrative Agent or
any Lender in connection with the enforcement or protection of
their rights in connection with this Agreement and the other Loan
Documents or in connection with the Loans made or the Notes
issued hereunder, including the reasonable fees, charges and
disbursements of Simpson Thacher & Bartlett, counsel for the
Administrative Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and
disbursements of any other counsel (including the reasonable
allocated costs of internal counsel if a Lender elects to use
internal counsel in lieu of outside counsel) for the
Administrative Agent, any Issuing Bank or any Lender (but no more
than one such counsel for any Lender).
(b) The Borrower agrees to indemnify the Administrative
Agent, each Issuing Bank, each Lender and each of their
respective directors, officers, employees and agents (each such
person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel
fees, charges and disbursements, incurred by or asserted against
any Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this Agreement or any
<PAGE>
118
other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their
respective obligations thereunder or the consummation of the
Recapitalization Transactions and the other transactions
contemplated thereby, (ii) the use of the proceeds of the Loans
or the use of any Letter of Credit or (iii) any claim,
litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to
have resulted from the gross negligence or wilful misconduct of
such Indemnitee (treating, for this purpose only, any Lender and
its directors, officers, employees and agents as a single
Indemnitee). Subject to and without limiting the generality of
the foregoing sentence, the Borrower agrees to indemnify each
Indemnitee against, and hold each Indemnitee harmless from, any
Environmental Claim, and any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel or
consultant fees, charges and disbursements, incurred by or
asserted against any Indemnitee (and arising out of, or in any
way connected with or as a result of, any of the events described
in clause (i), (ii) or (iii) of the preceding sentence) arising
out of, in any way connected with, or as a result of (i) any
Environmental Claim, (ii) any violation of any Environmental Law,
or (iii) any act, omission, event or circumstance (including the
actual, proposed or threatened, release, removal, disposition,
discharge or transportation, storage, holding, existence,
generation, processing, abatement, handling or presence on, into,
from or under any present, past or future property of Holdings or
any of its subsidiaries of any Contaminant), regardless of
whether the act, omission, event or circumstance constituted a
violation of Environmental Law at the time of its existence or
occurrence; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such Environmental
Claim is, or such, losses, claims, damages, liabilities or
related expenses are, determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or wilful misconduct of such Indemnitee
or any of its employers, officers, directors, employees or
agents.
(c) The Borrower shall be entitled to assume the defense
of any action for which indemnification is sought hereunder with
counsel of its choice at its expense (in which case the Borrower
shall not thereafter be responsible for the fees and expenses of
any separate counsel retained by an Indemnitee except as set
forth below); provided, however, that such counsel shall be
reasonably satisfactory to each such Indemnitee. Notwithstanding
the Borrower's election to assume the defense of such action,
each Indemnitee shall have the right to employ separate counsel
and to participate in the defense of such action, and the
Borrower shall bear the reasonable fees, costs, and expenses of
<PAGE>
119
such separate counsel, if (i) the use of counsel chosen by the
Borrower to represent such Indemnitee would present such counsel
with a conflict of interest; (ii) the actual or potential
defendants in, or targets of, any such action include both the
Borrower and such Indemnitee and such Indemnitee shall have
reasonably concluded that there may be legal defenses available
to it that are different from or additional to those available to
the Borrower (in which case the Borrower shall not have the right
to assume the defense or such action on behalf of such
Indemnitee); (iii) the Borrower shall not have employed counsel
reasonably satisfactory to such Indemnitee to represent it within
a reasonable time after notice of the institution of such action;
or (iv) the Borrower shall authorize such Indemnitee to employ
separate counsel at the Borrower's expense. The Borrower will
not be liable under this Agreement for any amount paid by an
Indemnitee to settle any claims or actions if the settlement is
entered into without the Borrower's consent, which consent may
not be withheld unless such settlement is unreasonable in light
of such claims or actions against, and defenses available to,
such Indemnitee.
(d) Holdings, the Canadian Borrower and the Borrower shall
not, and shall not permit any of their subsidiaries to, bring any
demand, claim, cost recovery or other action they may now or
hereafter have against any Indemnitee resulting from any
Environmental Claim; provided that this paragraph (d) shall not,
as to any Indemnitee, apply to the extent that such Environmental
Claim has been determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee or any of its
employers, directors, officers, employees or agents.
(e) Notwithstanding anything to the contrary in this
Section 9.05, this Section 9.05 shall not apply to taxes, it
being understood that the Borrower's only obligations with
respect to taxes shall arise under Sections 2.13 and 2.18 and
Section 19 of the Guarantee Agreement.
(f) The provisions of this Section 9.05 shall remain
operative and in full force and effect regardless of the
expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the
Obligations, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent,
any Issuing Bank or any Lender. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff; Sharing. (a) If an Event
of Default shall have occurred and be continuing, each Lender
(including each Issuing Bank) is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other
<PAGE>
120
indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower or the Canadian Borrower
against any of and all the obligations of the Borrower or the
Canadian Borrower now or hereafter existing under this Agreement
and other Loan Documents held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this
Agreement or such other Loan Document and although such
obligations may be unmatured. The rights of each Lender under
this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
(b) If any Lender (a "benefitted Lender") shall at any
time receive any payment of all or part of its Loans or interest
in Letters of Credit, or interest thereon, then due, or receive
any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in paragraph (g) or (h) of Article VII, or
otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of
such other Lender's Loans and interests in Letters of Credit, or
interest thereon, then due, such benefitted Lender shall purchase
for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loans and interests in
Letters of Credit, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter
recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the
extent of such recovery, but without interest.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay
of the Administrative Agent, the Issuing Bank or any Lender in
exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or power.
The rights and remedies of the Administrative Agent, the Issuing
Banks and the Lenders hereunder and under the other Loan
Documents are cumulative and are not exclusive of any rights or
remedies which they would otherwise have. No waiver of any
provision of this Agreement or any other Loan Document or consent
to any departure by the Borrower, the Canadian Borrower or
Holdings therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or
<PAGE>
121
demand on the Borrower, the Canadian Borrower or Holdings in any
case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrower, the Canadian
Borrower and the Required Lenders; provided, however, that no
such agreement shall (i) decrease the principal amount of, or
extend the final maturity of, or waive or excuse any such payment
or any part thereof, or decrease the rate of interest on any Loan
or any Letter of Credit Disbursement, without the prior written
consent of each Lender affected thereby, (ii) extend any Term
Loan Repayment Date or Delayed Draw Term Loan Repayment Date or
Canadian Term Loan Repayment Date (other than, in each case,
final maturity) or any other date on which principal of the Loans
is due, or extend any date on which payment of interest on any
Loan or reimbursement of any Letter of Credit Disbursement is
due, without the prior written consent of (A) in the case of Term
Loans, Canadian Term Loans or Delayed Draw Terms Loans, Lenders
with Term Loans, Canadian Term Loans or Delayed Draw Term Loans,
as the case may be, representing at least 80% of the aggregate
principal amount of the Term Loans, Canadian Term Loans and
Delayed Draw Term Loans then outstanding or (B) in the case of
Loans under the Revolving Credit Commitments and Letter of Credit
Disbursements, Lenders with Revolving Credit Commitments
representing at least 80% of the aggregate Revolving Credit
Commitments then in effect, (iii) increase or extend the
Commitment or decrease the Commitment Fees or Letter of Credit
Fees or other fees of any Lender without the prior written
consent of such Lender, or (iv) amend or modify the provisions of
Section 2.09(c) or 2.16, the provisions of this Section or the
definition of "Required Lenders", or release substantially all
the Pledged Securities from the Lien of the Pledge Agreement or
release any Guarantor from the Guarantee Agreement unless all or
substantially all of the capital stock of such subsidiary is sold
in a transaction permitted by this Agreement, without the prior
written consent of each Lender or (v) waive, amend or modify paragraph
(q) of Article VII without the prior written consent of each Lender;
provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent
or the Issuing Banks hereunder without the prior written consent of
the Administrative Agent or the Issuing Banks acting as such at the
effective date of such agreement, as the case may be. Each Lender
and each holder of a Note shall be bound by any waiver, amendment or
modification authorized by this Section regardless of whether its Note
shall have been marked to make reference thereto, and any consent by
any Lender or holder of a Note pursuant to this Section shall
bind any person subsequently acquiring a Note from it, whether or
not such Note shall have been so marked.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein or in the Notes to the contrary, if at any time
the applicable interest rate, together with all fees and charges
which are treated as interest under applicable law (collectively
<PAGE>
122
the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the "Maximum Rate") which may be
contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest
payable under the Note held by such Lender, together with all
Charges payable to such Lender, shall be limited to the Maximum
Rate, provided that such excess amount shall be paid to such
Lender on the subsequent payment dates to the extent not
exceeding the legal limitation.
SECTION 9.10. Entire Agreement. This Agreement, the other
Loan Documents and the agreements regarding certain Fees referred
to herein constitute the entire contract between the parties
relative to the subject matter hereof. Any previous agreement
among or representations from the parties with respect to the
subject matter hereof is superseded by this Agreement and the
other Loan Documents. Nothing in this Agreement or in the other
Loan Documents, expressed or implied, is intended to confer upon
any party other than the parties hereto and thereto any rights,
remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
SECTION 9.11. Waiver of Jury Trial. Each party hereto
hereby waives, to the fullest extent permitted by applicable law,
any right it may have to a trial by jury in respect of any
litigation directly or indirectly arising out of, under or in
connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no
representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto
have been induced to enter into this Agreement and the other Loan
Documents, as applicable, by, among other things, the mutual
waivers and certifications in this Section 9.11.
SECTION 9.12. Severability. In the event any one or more
of the provisions contained in this Agreement or in any other
Loan Document should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in
any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute
but one contract, and shall become effective as provided in
Section 9.03.
<PAGE>
123
SECTION 9.14. Headings. Article and Section headings and
the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process.
(a) Each of the Borrower, the Canadian Borrower and Holdings
hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York
State court or Federal court of the United States of America
sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Agreement or the other Loan Documents, or for recognition
or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by
law, in such Federal court. Each of the parties hereto 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. Nothing in
this Agreement shall affect any right that any Lender may
otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or
Holdings or their properties in the courts of any jurisdiction.
(b) Each of the Borrower, the Canadian Borrower and
Holdings hereby irrevocably and unconditionally waives, to the
fullest extent they may legally and effectively do so, any
objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or
relating to this Agreement or the other Loan Documents in any New
York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section
9.01. Nothing in this Agreement will affect the right of any
party to this Agreement to serve process in any other manner
permitted by law.
SECTION 9.16. Conversion of Currencies. (a) If, for the
purpose of obtaining judgment in any court, it is necessary to
convert a sum due hereunder or under any other Loan Document in
dollars into another currency, the parties hereto agree, to the
fullest extent that they may legally and effectively do so, that
the rate of exchange used shall be that at which in accordance
with normal banking procedures the Administrative Agent could
purchase dollars with such other currency in New York, New York,
on the Business Day immediately preceding the day on which final
judgment is given.
<PAGE>
124
(b) The obligation of each of the Borrower and the
Canadian Borrower in respect of any sum due to the Administrative
Agent, any Lender or any Issuing Bank hereunder or under any
other Loan Document in US dollars shall, to the extent permitted
by applicable law, notwithstanding any judgment in a currency
other than US dollars, be discharged only to the extent that on
the Business Day following receipt of any sum adjudged to be so
due in the judgment currency the Administrative Agent, such
Lender or such Issuing Bank may in accordance with normal banking
procedures purchase US dollars in the amount originally due to
the Administrative Agent, such Lender or such Issuing Bank with
the judgment currency. If the amount of US dollars so purchased
is less than the sum originally due to the Administrative Agent,
such Lender or such Issuing Bank, the Borrower agrees, as a
separate obligation and notwithstanding any such judgment, to
indemnify the Administrative Agent, such Lender or such Issuing
Bank against the resulting loss.
SECTION 9.17. Confidentiality. Each of the Lenders, the
Issuing Banks and the Administrative Agent agrees that it shall
maintain in confidence any information relating to the Borrower
and the Canadian Borrower furnished to it by or on behalf of the
Borrower or the Canadian Borrower (other than information that
(x) has become generally available to the public other than as a
result of a disclosure by such party, (y) has been independently
developed by such party without violating this Section or (z) was
available to such party from a third party having, to such
party's knowledge, no obligation of confidentiality to the
Borrower or the Canadian Borrower) and shall not reveal the same
other than (i) to its directors, officers, employees and advisors
with a need to know and (ii) as contemplated by Section 9.04(g),
except: (a) to the extent necessary to comply with law or any
legal process or the requirements of any Governmental Authority
or of any securities exchange on which securities of the
disclosing party or any Affiliate of the disclosing party are
listed or traded, (b) as part of normal reporting or review
procedures to Governmental Authorities or its parent companies,
Affiliates or auditors and (c) in order to enforce its rights
under any Loan Document in a legal proceeding.
IN WITNESS WHEREOF, the Borrower, the Canadian Borrower
Holdings, the Administrative Agent, and the Lenders have caused
this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
COLLINS & AIKMAN PRODUCTS CO.
by
--------------------------
Name:
Title:
<PAGE>
125
COLLINS & AIKMAN CORPORATION
by
--------------------------
Name:
Title:
WCA CANADA INC.
by
---------------------------
Name:
Title:
CHEMICAL BANK, as
Administrative Agent
and Collateral Agent and as
a Lender
by
--------------------------
Name:
Title:
CONTINENTAL BANK, N.A., as
Managing Agent
and as a Lender
by
--------------------------
Name:
Title:
<PAGE>
126
NATIONSBANK, N.A., as Managing
Agent
and as a Lender
by
--------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
& SAVINGS
ASSOCIATION, as Lead Manager
and as a Lender
by
--------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, as Lead Manager and
as a Lender
by
--------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LTD.,
as Lead Manager and as a
Lender
by
--------------------------
Name:
Title:
<PAGE>
127
THE LONG-TERM CREDIT BANK OF
JAPAN,
LTD., as Lead Manager and as
a Lender
by
--------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Lead Manager and as a
Lender
by
--------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON,
as a Lender
by
--------------------------
Name:
Title:
BANK OF SCOTLAND, as a Lender
by
--------------------------
Name:
Title:
THE BANK OF TOKYO TRUST
COMPANY,
as a Lender
by
--------------------------
Name:
Title:
<PAGE>
128
BANQUE PARIBAS, as a Lender
by
--------------------------
Name:
Title:
BARCLAYS BANK PLC, as a Lender
by
--------------------------
Name:
Title:
BRANCH BANKING AND TRUST
COMPANY,
as a Lender
by
--------------------------
Name:
Title:
CIBC Inc., as a Lender
by
--------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET
DE
L'UNION EUROPEENE, as a
Lender
by
--------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
as a Lender
by
--------------------------
Name:
Title:
<PAGE>
129
SOCIETE GENERALE, as a Lender
by
--------------------------
Name:
Title:
SOCIETY NATIONAL BANK, as a
Lender
by
--------------------------
Name:
Title:
THE TRAVELERS INSURANCE
COMPANY,
as a Lender
by
--------------------------
Name:
Title:
THE TRAVELERS INDEMNITY
COMPANY
by
--------------------------
Name:
Title:
WACHOVIA BANK OF NORTH
CAROLINA,
N.A., as a Lender
by
--------------------------
Name:
Title:
WELLS FARGO BANK, as a Lender
by
--------------------------
Name:
Title:
<PAGE>
130
VAN KAMPEN MERRIT PRIME RATE
INCOME
TRUST, as a Lender
by
--------------------------
Name:
Title:
ARAB BANKING CORPORATION, as a
Lender
by
--------------------------
Name:
Title:
BANK OF IRELAND
Cayman Branch, as a Lender
by
--------------------------
Name:
Title:
THE BANK OF NEW YORK, as a
Lender
by
--------------------------
Name:
Title:
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
<PAGE>
131
CRESTAR BANK, as a Lender
by
--------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH
CAROLINA, as a Lender
by
--------------------------
Name:
Title:
FUJI BANK, as a Lender
by
--------------------------
Name:
Title:
GIROCREDIT BANK, as a Lender
by
--------------------------
Name:
Title:
MIDLAND BANK, as a Lender
by
--------------------------
Name:
Title:
THE MITSUBISHI TRUST AND
BANKING
CORPORATION, as a Lender
by
--------------------------
Name:
Title:
<PAGE>
132
NATIONAL CITY BANK, as a
Lender
by
--------------------------
Name:
Title:
NBD BANK, N.A., as a Lender
by
--------------------------
Name:
Title:
THE SUMITOMO TRUST & BANKING
CO., LTD.
New York Branch, as a Lender
by
--------------------------
Name:
Title:
UNITED STATES NATIONAL BANK OF
OREGON, as a
Lender
by
--------------------------
Name:
Title:
THE YASUDA TRUST & BANKING
CO., LTD.,
as a Lender
by
--------------------------
Name:
Title:
CRESCENT/MACH 1 PARTNERS, L.P.
By its General Partner
CRESCENT MACH 1 G.P.
CORPORATION
<PAGE>
133
By its attorney-in-fact
CRESCENT CAPITAL CORPORATION
by
--------------------------
Name:
Title:
<PAGE>
SCHEDULE 1.01(A) TO
CREDIT AGREEMENT
Applicable Margin
Eurodollar
Ratios Loan Margin ABR Loan Margin
------ --------------- ---------------
Leverage Ratio 1-3/4% 3/4% of 1%
greater than 2.75:1
or
Interest Coverage
Ratio less than 4.00
("Level I")
Leverage Ratio less 1-1/2% 1/2 of 1%
than or equal to
2.75:1
and
Interest Coverage
Ratio greater than
or equal to 4.00
("Level II")
Leverage Ratio less 1-1/4% 1/4 of 1%
than or equal to
2.25:1
and
Interest Coverage
Ratio greater than
5.75:1 ("Level III")
Leverage Ratio less 1% 0%
than or equal to
2.00:1
and
Interest Coverage
Ratio greater than
or equal to 6.75:1
("Level IV")
For purposes of the foregoing, the Applicable Margin for any
date shall be determined by reference to the Leverage Ratio
and Interest Coverage Ratio as of the last day of the
Borrower's fiscal quarter most recently ended as of such date
and any change in the Applicable Margin shall become
effective upon the delivery to the Administrative Agent of a
certificate of a Responsible Officer of the Borrower (which
certificate may be delivered prior to delivery of the
relevant financial statements) with respect to the financial
statements to be delivered, pursuant to Section 5.04 for the
<PAGE>
2
most recently ended fiscal quarter (a) setting forth in
reasonable detail the calculation of the Interest Coverage
Ratio and Leverage Ratio for and at the end of such fiscal
quarter and (b) stating that the signer has reviewed the
terms of this Agreement and other Loan Documents and has
made, or caused to be made under his or her supervision, a
review in reasonable detail of the transactions and condition
of Holdings and its Subsidiaries during the accounting
period, and that the signer does not have knowledge of the
existence as at the date of such officers' certificate of any
Event of Default or Default and shall apply (i) to ABR Loans
outstanding on such delivery date or made on and after such
delivery date and (ii) to Eurodollar Loans made on and after
such delivery date; provided, however, that if the proceeds
of such Loans are used to finance a Permitted Business
Acquisition, and either the Leverage Ratio or Interest
Coverage Ratio, after giving effect to such Permitted
Business Acquisition on a pro forma basis, would result in a
change in the Applicable Margin, such change shall become
effective for all purposes simultaneously with the making of
such Loans and shall apply (i) to ABR Loans outstanding on
such date or made on or after such date and (ii) to
Eurodollar Loans made on or after such date. It is
understood that the foregoing certificate of a Responsible
Officer shall be permitted to be delivered prior to, but in
no event later than, the time of the actual delivery of the
financial statements required to be delivered pursuant to
Section 5.04. Notwithstanding the foregoing, at any time
during which the Borrower has failed to deliver the
Compliance Certificate with respect to a fiscal quarter
following the date the delivery thereof is due, the Leverage
Ratio and Interest Coverage Ratio shall be deemed, solely for
the purposes of this definition, to be greater than 2.75:1
and less than 4.00:1, respectively, until such time as
Borrower shall deliver such Compliance Certificate.
<PAGE>
SCHEDULE 1.01(B) TO
CREDIT AGREEMENT
Applicable Prepayment Percentage
Part I
Applicable Prepayment
Applicable Level Percentage
---------------- ------------------------
Level I 75%
Level II 50%
Level III 25%
Level IV 10%
Part II
Notwithstanding the foregoing, if the principal of the Term Loans
and Canadian Term Loans is permanently repaid in the amounts set
forth below, the Applicable Prepayment Percentage shall be based
on the current Applicable Level increased by the number of
additional Levels set forth below (but not above Applicable Level
IV):
Aggregate Term Loans
and Canadian Term Number of Additional
Loans Repaid Levels
-------------------- --------------------
$150,000,000 1
225,000,000 2
325,000,000 3
<PAGE>
SCHEDULE 2.11(a) TO
CREDIT AGREEMENT
Term Loan Amortization Schedule
Term Loan Repayment Date Aggregate
---------
Repayment
---------
Quarterly Anniversary of Closing Date
-------------------------------------
5 $ 6,250,000
6 6,250,000
7 6,250,000
8 6,250,000
9 11,250,000
10 11,250,000
11 11,250,000
12 11,250,000
13 16,250,000
14 16,250,000
15 16,250,000
16 16,250,000
17 18,750,000
18 18,750,000
19 18,750,000
20 18,750,000
21 20,000,000
22 20,000,000
23 20,000,000
24 20,000,000
25 20,000,000
26 20,000,000
27 20,000,000
28 20,000,000
29 20,000,000
30 15,000,000
Canadian Term Loan Amortization Schedule
Canadian Term Loan Repayment Date Aggregate
Quarterly Anniversary of Closing Date Repayment
------------------------------------- ---------
30 5,000,000
31 20,000,000
32 20,000,000
EXHIBIT 4.6
RESTATED CERTIFICATE OF INCORPORATION
of
COLLINS & AIKMAN CORPORATION
Under Section 245 of the General Corporation Law
------------------------------------------------
of the State of Delaware
------------------------
This Restated Certificate of Incorporation of
Collins & Aikman Corporation (originally incorporated under
the name WCI Holdings Corporation) amends and restates such
corporation's Certificate of Incorporation, as amended,
which was originally filed with the Secretary of State of
the State of Delaware on September 21, 1988, and was duly
adopted in the manner and by the vote prescribed by
Section 242, in accordance with the provisions of
Section 245 and Section 228 of the General Corporation Law
of the State of Delaware.
FIRST: The name of the Corporation is Collins &
Aikman Corporation (the "Corporation").
SECOND: The address of the registered office of
the Corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, in the City of Dover, County of Kent.
The name of the registered agent at such registered office
is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to
engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock
which the Corporation shall have authority to issue is
166,000,000, consisting of:
(a) 150,000,000 shares of Common Stock, par value
$0.01 per share, which shall be designated "Common Stock".
Each share of Common Stock shall be entitled to one vote per
share; and
(b) 16,000,000 shares of Preferred Stock, par
value $0.01 per share ("Preferred Stock"). The Board of
Directors of the Corporation is hereby expressly authorized
to provide for the issuance of shares of Preferred Stock in
one or more series, by resolution or resolutions and by
<PAGE>
2
filing a certificate pursuant to the applicable laws of the
State of Delaware (any such certificate a "Preferred Stock
Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of
each series and the qualifications, limitations or
restrictions thereof. Before any shares of any such series
are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, the provisions of the shares
thereof including, but not limited to, the following:
(1) the distinctive designation of such series,
the number of shares to constitute such series and the
stated value thereof if different from the par value
thereof;
(2) whether the shares of such series shall have
voting rights, in addition to any voting rights
provided by law, and, if so, the terms of such voting
rights, which may be general or limited;
(3) the dividends, if any, payable on such
series, whether any such dividends shall be cumulative,
and, if so, from what dates, the conditions and dates
upon which such dividends shall be payable, the
preference or relation which such dividends shall bear
to the dividends payable on any shares of stock of any
other class or any other series of this class;
(4) whether the shares of such series shall be
subject to redemption by the Corporation and, if so,
the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of
such series upon, and the rights of the holders of such
series in, the voluntary or involuntary liquidation,
dissolution or winding-up, or upon any distribution of
the assets, of the Corporation;
(6) whether the shares of such series shall be
subject to the operation of a retirement or sinking
fund and, if so, the extent to and manner in which any
such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms
and provisions relative to the operation thereof;
<PAGE>
3
(7) whether the shares of such series shall be
convertible into, or exchangeable for, shares of stock
of any other class or any other series of this class or
any other securities and, if so, the price or prices or
the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other
terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to
be effective while any shares of such series are
outstanding upon the payment of dividends or the making
of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of,
the Common Stock or shares of stock of any other class
or any other series of this class;
(9) the conditions or restrictions, if any, upon
the creation of indebtedness of the Corporation or upon
the issue of any additional stock, including additional
shares of such series or of any other series of this
class or of any other class; and
(10) any other powers, preferences and relative,
participating, optional and other special rights, and
any qualifications, limitations and restrictions
thereof.
The powers, preferences and relative, partici-
pating, optional and other special rights of each series of
Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any
and all other series at any time outstanding. All shares of
any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that
shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be
cumulative.
* * * *
Rights, Preferences, Privileges and Restrictions
------------------------------------------------
of 15-1/2% Cumulative Exchangeable Redeemable
---------------------------------------------
Preferred Stock
---------------
RESOLVED that, pursuant to authority conferred
upon the Board of Directors by the Certificate of
Incorporation of the Company, as amended (hereinafter
called the "Certificate of Incorporation"), the Board
<PAGE>
4
of Directors hereby provides for the issuance of a
series of Preferred Stock (as such term is defined in
the Certificate of Incorporation) of the Company to
consist of 16,000,000 shares, and fixes the powers,
designation, preferences and relative, participating,
optional or other rights, and the qualifications,
limitations or restrictions of the shares of such
series of Preferred Stock, in addition to those set
forth in the Certificate of Incorporation, as follows:
1. Designation. There is hereby designated
------------
a series of Preferred Stock known as the 15 1/2%
Cumulative Exchangeable Redeemable Preferred
Stock, par value $0.01 per share (the "Merger
Preferred Stock"), consisting of 16,000,000
shares, issuable by the Company pursuant to
authority granted to the Board of Directors in
Article FOURTH of the Certificate of Incorpora-
tion, which authorizes the issuance of Preferred
Stock having such rights and other terms as may be
determined by the Board of Directors.
2. Rank. The Merger Preferred Stock shall,
-----
with respect to dividend rights and rights on
liquidation, winding-up and dissolution of the
Company, rank senior to the Company's Common
Stock, and to all other classes and series of
stock of the Company now or hereafter authorized,
issued or outstanding, other than any stock of the
Company ranking senior to or pari passu with the
---- -----
Merger Preferred Stock as to dividend rights or
rights upon liquidation, winding-up or dissolution
of the Company either authorized after the date
hereof in compliance with paragraph 10(c)(i) or
issued after the date hereof in compliance with
paragraph (10)(c)(i) (the Common Stock and such
other classes and series of stock collectively
referred to herein as the "Junior Securities").
The Merger Preferred Stock shall be subject to the
creation of such senior stock, such pari passu
---- -----
stock and Junior Securities to the extent not
expressly prohibited by this Certificate.
3. Dividends. (a) The holders of shares of
----------
the Merger Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of
Directors of the Company and out of the assets of
the Company available for the payment of dividends
<PAGE>
5
under the provisions of the General Corporation
Law of the State of Delaware, dividends payable at
the rate of $3.875 per share per annum (subject to
increase as provided below). Such dividends shall
be payable quarterly on the first day of February,
May, August, and November in each year (each of
such dates a "Dividend Payment Date") commencing
with the later of (i) August 1, 1989 and (ii) the
first such date after the time the merger of WCI
Acquisition Corporation, a Delaware corporation,
into Wickes Companies, Inc., a Delaware
corporation ("Wickes"), shall become effective
(the "Merger Effective Time"); except that if such
first day is not a business day then such
dividends shall be payable on the next succeeding
business day. (As used herein, the term "business
day" shall mean any day except a Saturday, a
Sunday or a day on which banking institutions are
authorized or required by law to close in the City
of New York.) Dividends on each share of Merger
Preferred Stock shall begin to accrue and be
cumulative on outstanding shares of the Merger
Preferred Stock (whether or not in any quarterly
period there shall be assets of the Company
legally available for the payment of such
dividends) from and including the date of initial
issuance of such share. The amount of any
dividends "accrued" on any share of Merger
Preferred Stock at any Dividend Payment Date shall
be deemed to be the amount of any unpaid dividends
accumulated thereon to and excluding such Dividend
Payment Date, whether or not earned or declared,
and the amount of dividends "accrued" on any share
of Merger Preferred Stock at any date other than a
Dividend Payment Date shall be calculated as the
amount of any unpaid dividends accumulated to and
excluding the last preceding Dividend Payment
Date, whether or not earned or declared, plus an
amount calculated on the basis of the annual
dividend rate for the period from and including
such last preceding Dividend Payment Date to and
excluding the date as of which the calculation is
made.
All dividends on the Merger Preferred Stock
shall be computed on the basis of the number of
days elapsed in a 360-day year consisting of
12 months of 30 days each. Such dividends shall
<PAGE>
6
be paid to the holders of record of shares of the
Merger Preferred Stock as they appear on the stock
register of the Company on such date as shall be
fixed by the Board of Directors of the Company;
provided, however, that such date shall not be
-------- -------
less than 10 days nor more than 60 days prior to
the date of payment.
Dividend arrearage for any past dividend
periods may be declared and paid at any time to
holders of record on such date as may be fixed by
the Board of Directors of the Company; provided,
--------
however, that such date shall not be less than
-------
10 days nor more than 60 days prior to the date of
payment.
(b) All dividends on the Merger Preferred
Stock shall be payable in cash, except that
dividend payments with respect to quarterly
dividends accruing on or prior to February 1, 1995
(whenever such dividends are actually paid), may
be paid in whole or in part in additional shares
of the Merger Preferred Stock if the Board of
Directors of the Company so directs. All such
dividends paid in additional shares of Merger
Preferred Stock shall be paid at a rate of
0.04 shares of Merger Preferred Stock for each $1
of such dividends not paid in cash. The issuance
of Merger Preferred Stock at the prescribed rate
shall constitute full payment of the portion of
such dividends payable in kind. Except as
described below with respect to fractional shares
of Merger Preferred Stock, all dividends paid with
respect to shares of the Merger Preferred Stock,
whether and to the extent in cash or in kind,
shall be paid pro rata to the holders entitled
thereto. No interest or sum of money in lieu of
interest or additional shares of Merger Preferred
Stock shall be payable in respect of any
accumulated unpaid dividends on the Merger
Preferred Stock (whether such unpaid dividends are
subsequently paid in kind or in cash).
(c) Only whole shares of Merger Preferred
Stock will be issued upon the payment of dividends
in kind on the Merger Preferred Stock. In lieu of
the fractional portion of the aggregate number of
shares of Merger Preferred Stock otherwise payable
<PAGE>
7
to a record holder of Merger Preferred Stock at
any time as dividends in kind ("Fractional
Shares"), such record holder will receive a
payment in cash equal to such record holder's
proportionate interest in the net proceeds from
the sale or sales in the open market of the
aggregate of all Fractional Shares otherwise
payable as a dividend. Such sale or sales shall
be effected promptly after the record date fixed
for determining the holders entitled to payment of
the dividend.
(d) (i) Holders of shares of the Merger
Preferred Stock shall be entitled to receive the
dividends provided for in paragraph 3(a) in
preference to and in priority over any dividends
upon any of the Junior Securities.
(ii) The Company shall not (x) declare,
pay or set apart funds for payment of any
cash dividends on shares of Common Stock or
any other shares of Junior Securities,
(y) purchase, redeem or otherwise retire any
Junior Securities or warrants, rights or
options exercisable for shares of Junior
Securities (and shall not set apart funds for
such payment with respect thereto), or
(z) make any distributions with respect to
Junior Securities or any warrants, rights or
options exercisable for any Junior Securities
(except dividends or distributions on shares
of Junior Securities in shares of any Junior
Securities), unless (I) full cumulative
dividends on the Merger Preferred Stock shall
have been paid prior to, or shall be paid
concurrently with, the time of such
declaration, payment, setting apart,
purchase, redemption, retirement or
distribution for each Dividend Payment Date
on or prior to such time and (II) any
redemption required to have been made on or
prior to such time pursuant to paragraph 4(b)
and, if such time is on or after the
10th anniversary of the Merger Effective
Time, the redemption of Merger Preferred
Stock set forth in paragraph 4(a) shall have
been made prior to, or shall be made
concurrently with, such time (it being
<PAGE>
8
understood that the failure of the Company to
effect such a redemption as a result of the
absence of assets legally available therefor
shall not constitute compliance with this
clause (II)).
(iii) Notwithstanding anything contained
in this Certificate to the contrary, no
dividends on shares of the Merger Preferred
Stock shall be declared by the Board of
Directors of the Company or paid or set apart
for payment by the Company at such time as
the terms and provisions of any contract or
other agreement of the Company or any of its
subsidiaries entered into or assumed at or
prior to the Merger Effective Time, or any
refinancings (including multiple
refinancings) of such contracts or
agreements, prohibit such declaration,
payment or setting apart for payment or
provide that such declaration, payment or
setting apart for payment would constitute a
breach thereof or a default thereunder;
provided, however, that nothing contained in
-------- -------
this Certificate shall in any way or under
any circumstances be construed or deemed to
require the Board of Directors of the Company
to declare or the Company to set apart for
payment any dividends on shares of the Merger
Preferred Stock, whether or not permitted by
any of such agreements. The failure of the
Board of Directors of the Company to declare
a dividend in reliance upon the immediately
preceding sentence shall not be construed or
deemed to prevent the accrual of such
undeclared dividend.
(e) Subject to the foregoing provisions of
this paragraph 3 and to the provisions of para-
graph 9, the Board of Directors may declare, and
the Company may pay, make or set apart for
payment, dividends and other distributions on, and
the Company may purchase, redeem or otherwise
retire, any Junior Securities or any warrants,
rights or options exercisable for shares of Junior
Securities, and the holders of shares of Merger
Preferred Stock shall not be entitled to share
therein.
<PAGE>
9
(f) If, at any time on or after the second
anniversary of the Merger Effective Time, the
Affiliated Common Equity Interest shall be less
than $75,000,000, from and after such time the
dividend rate for all outstanding Merger Preferred
Stock shall be increased to $3.9375 per share per
annum. "Affiliated Common Equity Interest" means
from time to time the amount of the aggregate of
all equity contributions to WCI Holdings II
Corporation, a Delaware corporation ("Parent"), on
or before such time by Blackstone Capital Partners
L.P., a Delaware limited partnership, or any
successor thereto ("Blackstone Partners"),
Wasserstein, Perella Partners, L.P., a Delaware
limited partnership, or any successor thereto ("WP
Partners"), and all owners of a limited
partnership interest in, or employees of
Blackstone Partners or WP Partners who had co-
investment rights or a similar opportunity to
invest in investments made by Blackstone Partners
or WP Partners at the time of their equity
contribution to Parent (Blackstone Partners, WP
Partners and all such persons who on or before
such time shall have made such equity
contributions, or any successor thereto,
collectively, the "Affiliated Investors") minus
any amounts received by Affiliated Investors as
dividends on, redemptions of or sales of equity
interests in Parent (other than sales by an
Affiliated Investor to another Affiliated
Investor), it being understood that payments to an
Affiliated Investor of amounts characterized for
this purpose by Parent (in its sole discretion and
notwithstanding the characterization of such
payments for any other purpose) as fees or
expenses shall not constitute dividends. As used
in this Certificate, a "Person" shall include any
individual, corporation, partnership, joint
venture, association, joint-stock company, trust,
unincorporated organization or government or
political subdivision thereof. The Company will
by first-class mail send to each record holder a
written notice of any such change in the dividend
rate on the Merger Preferred Stock within 15 days
of such change.
4. Scheduled Redemption. (a) Subject to
---------------------
the Company having funds legally available
<PAGE>
10
therefor, the Company shall be obligated to redeem
all outstanding shares of Merger Preferred Stock
on the 10th anniversary of the Merger Effective
Time. Such redemption of shares of Merger
Preferred Stock pursuant to this paragraph 4(a)
shall be at a redemption price equal to the
Liquidation Preference (as defined below) per
share together with accrued but unpaid dividends
(whether or not declared) through the date fixed
for redemption.
(b) To the extent the Company shall have
funds legally available therefor, if at any time
prior to the second anniversary of the Merger
Effective Time, the Affiliate Common Equity
Interest is less than $75,000,000, the Company
will be obligated within 45 days (or the next
following business day if the 45th following day
is not a business day) to set apart out of funds
legally available therefor, funds sufficient to
redeem all shares of Merger Preferred Stock then
outstanding. Such a redemption shall be at the
Optional Redemption Price (as defined below) plus
all accrued and unpaid dividends (whether or not
declared) to the date fixed for redemption.
(c) If the funds of the Company legally
available for any redemption pursuant to this
paragraph 4 at the redemption date are
insufficient to redeem such Merger Preferred
Stock, funds to the extent legally available for
the purpose will be used to redeem the number of
shares of Merger Preferred Stock that legally may
be redeemed. If the Company at any time shall
fail to discharge any obligation to redeem shares
of Merger Preferred Stock pursuant to this
paragraph 4, such obligation shall be discharged
as soon as the Company is able to do so.
5. Optional Redemption. All or any part of
--------------------
the Merger Preferred Stock may be redeemed by the
Company at its election at any time and from time
to time in whole or in part, by resolution of the
Board of Directors, at a cash price per share
equal to the sum of (i) the Optional Redemption
Price plus (ii) any accrued and unpaid dividends
thereon, whether or not declared, to the date
fixed for the redemption; provided, however, that,
-------- -------
<PAGE>
11
if and when any quarterly dividend shall have
accrued on the Merger Preferred Stock and shall
not have been paid or declared and a sufficient
sum set apart for payment for any Dividend Payment
Date on or prior to the date fixed for redemption,
the Company may not redeem any shares of the
Merger Preferred Stock unless all shares of the
Merger Preferred Stock then outstanding are
redeemed. The Optional Redemption Price shall
equal for redemptions with a date fixed for
redemption (a) that is on or prior to the first
anniversary of the Merger Effective Time, 101% of
the Liquidation Preference per share, (b) after
the first anniversary of the Merger Effective Time
to and including the second anniversary of the
Merger Effective Time, 101.5% of the Liquidation
Preference per share, and (c) thereafter, 102% of
the Liquidation Preference per share.
6. Selection of the Merger Preferred Stock
---------------------------------------
To Be Redeemed. If fewer than all the outstanding
---------------
shares of the Merger Preferred Stock not
previously called for redemption or exchange are
to be redeemed pursuant to paragraph 5, the Board
of Directors of the Company shall select the
shares of the Merger Preferred Stock to be
redeemed from outstanding shares not previously
called for redemption by lot or pro rata as
determined by the Board of Directors of the
Company, in its sole discretion; provided,
--------
however, that the Board of Directors of the
-------
Company may in selecting shares for redemption
choose to redeem all shares of Merger Preferred
Stock held by holders of a number of such shares
not to exceed 99 as may be specified by the Board
of Directors (with all other shares to be
redeemed, if any, so selected by lot or pro rata).
7. Notice of Redemption. At least 30 days
---------------------
but not more than 60 days prior to the date fixed
for any redemption of shares of the Merger
Preferred Stock, written notice of such redemption
shall be mailed to each holder of record of shares
of Merger Preferred Stock to be redeemed at the
address shown on the stock transfer books of the
Company or, if no such address appears or is
given, at the place where the principal executive
office of the Company is located; provided,
--------
<PAGE>
12
however, that no failure to give such notice or
-------
any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such
redemption. Each such notice shall specify
(i) the number of shares to be redeemed from such
holder, (ii) the numbers of the certificates of
the shares being redeemed, (iii) the date fixed
for redemption, (iv) the redemption price, (v) the
place or places at which payment may be obtained,
(vi) the provision of this Certificate pursuant to
which the shares are to be redeemed and (vii) that
dividends on the shares to be redeemed shall cease
to accrue on the date fixed for such redemption.
8. Status of Shares of Merger Preferred
------------------------------------
Stock upon Redemption. (a) Upon due surrender of
----------------------
the certificates for any shares of Merger
Preferred Stock to be redeemed, such shares of
Merger Preferred Stock shall be redeemed by the
Company at the applicable redemption price. In
case fewer than all the shares of Merger Preferred
Stock represented by any such certificate are
redeemed, a new certificate or certificates shall
be issued representing the unredeemed shares of
Merger Preferred Stock without cost to the holder
thereof. Unless there shall have been a default
in payment of the redemption price, from and after
any date fixed for redemption, dividends on the
shares of Merger Preferred Stock so called for
redemption shall cease to accrue, such shares of
Merger Preferred Stock shall no longer be deemed
to be outstanding and shall not have the status of
shares of Merger Preferred Stock and all rights of
the holders thereof as stockholders of the Company
(except the right to receive from the Company the
redemption price without interest) shall cease
with respect to such shares. From and after any
date fixed for redemption, shares of the Merger
Preferred Stock redeemed by the Company shall be
restored to the status of authorized but unissued
shares of Preferred Stock, without designation as
to series until such shares are once more
designated as part of a particular series by the
Board of Directors of the Company.
(b) If at any time the Company shall have
irrevocably deposited in trust with a trustee for
the benefit of the holders of all shares of Merger
<PAGE>
13
Preferred Stock money or direct noncallable
obligations of the United States maturing as to
principal and interest in such amounts and at such
times as are sufficient to pay all future
dividends on all shares of Merger Preferred Stock
at the scheduled Dividend Payment Dates through
the 10th anniversary of the Merger Effective Time
(or any earlier date duly fixed for an optional
redemption thereof), and the redemption price
thereof, then, from and after the date on which
such provision has been made, such Merger
Preferred Stock shall no longer be deemed to be
outstanding except for purposes of accruals of
quarterly dividends and shall not have the status
of shares of Merger Preferred Stock, and all
rights of the holders thereof as stockholders of
the Company (except the right to receive from the
Company quarterly dividends and the applicable
redemption price without interest) shall cease
with respect to such shares. Without limiting the
foregoing, any shares deemed not to be outstanding
pursuant to this paragraph 8(b) shall not be
subject to the provisions of paragraphs 3(f) and
4(b).
(c) All moneys so deposited with or held by
such trustee which remain unclaimed by the holders
of shares of Merger Preferred Stock 730 days after
the date such moneys are payable to holders of
shares of such Merger Preferred Stock shall be
paid by such trustee to the Company, and
thereafter the holders of such shares of Merger
Preferred Stock shall look only to the Company for
payment.
9. Liquidation, Dissolution or Winding-
------------------------------------
Up. In the event of any voluntary or involuntary
---
liquidation, dissolution or winding-up of the
Company, holders of the Merger Preferred Stock
shall be entitled to be paid out of the assets of
the Company available for distribution to its
stockholders, whether from capital, surplus or
earnings, an amount in cash equal to $25.00 per
share (the "Liquidation Preference") plus any
accrued and unpaid dividends to the date fixed for
liquidation, dissolution or winding-up, whether or
not declared, before any distribution is made on
any Junior Securities, including the Common Stock.
<PAGE>
14
If upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the
assets of the Company available for distribution
to holders of the Merger Preferred Stock shall be
insufficient to pay the holders of outstanding
Merger Preferred Stock the full amounts to which
they shall be entitled under this paragraph 9, the
holders of the Merger Preferred Stock shall share
equally and ratably in any distribution of assets
of the Company in proportion to the full amount to
which they would otherwise be respectively
entitled. After payment of the full amount of
Liquidation Preference to which they are entitled
plus all accrued and unpaid dividends, whether or
not declared, the holders of the Merger Preferred
Stock shall not be entitled to any further
participation in any distribution of assets of the
Company. However, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of
all or any part of the property or assets of the
Company, nor the consolidation or merger or other
business combination of the Company with or into
any other corporation or corporations, shall be
deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of the
Company, unless such voluntary sale, conveyance,
exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding-up of
the Company.
10. Voting Rights. (a) The holders of
--------------
shares of Merger Preferred Stock shall not be
entitled to any voting rights except as expressly
provided in this paragraph 10 or as otherwise
provided by law.
(b) (i) If at any time or times dividends
payable on the then outstanding Merger Preferred
Stock shall be in arrears and unpaid in an
aggregate amount equal to the amount of five
consecutive quarterly dividends on the then
outstanding Merger Preferred Stock, the then
number of directors constituting the Board of
Directors of the Company, without further action,
shall be increased by two and the holders of
Merger Preferred Stock shall have the exclusive
right, voting separately as a class, to elect the
<PAGE>
15
directors of the Company to fill such newly
created directorships, the remaining directors to
be elected by the other class or classes of stock
entitled to vote therefor, at each meeting of
stockholders held for the purpose of electing
directors.
(ii) Whenever such voting right shall
have vested, such right may be initially
exercised at a special meeting of the holders
of Merger Preferred Stock called as
hereinafter provided, at any annual meeting
of stockholders held for the purpose of
electing directors or by the written consent
of the holders of Merger Preferred Stock
pursuant to Section 228 of the General
Corporation Law of the State of Delaware.
Such voting right shall continue until such
time as all cumulative dividends on Merger
Preferred Stock accrued through the latest
Dividend Payment Date on or before such time
shall have been paid in full, at which time
such voting right of the holders of Merger
Preferred Stock shall terminate, but such
voting right shall again vest in the event of
each and every subsequent arrearage in
dividends in the requisite amount as
described above.
(iii) At any time when such voting right
shall have vested in the holders of Merger
Preferred Stock and if such right shall not
already have been initially exercised, a
proper officer of the Company shall, upon the
written request of any holder of record of
Merger Preferred Stock then outstanding, call
a special meeting of holders of Merger
Preferred Stock; provided, however, no such
-------- -------
special meeting shall be called during a
period within 90 days immediately preceding
the date fixed for the next annual meeting of
stockholders. Such meeting shall be held at
the earliest practicable date upon the notice
required for annual meetings of stockholders.
Any holder of Merger Preferred Stock which
would be entitled to vote at such meeting
shall have access to the stock books of the
Company for the purpose of causing a meeting
<PAGE>
16
of stockholders to be called pursuant to the
provisions of this paragraph 10(b)(iii).
(iv) At any meeting at which the holders
of Merger Preferred Stock shall have the
right to elect directors as provided in this
paragraph 10(b), the presence in person or by
proxy of the holders of at least a majority
of the then outstanding shares of Merger
Preferred Stock shall be required and be
sufficient to constitute a quorum. At any
such meeting or adjournment thereof, the
absence of a quorum of the holders of Merger
Preferred Stock shall not prevent the
election of directors other than those to be
elected by the holders of Merger Preferred
Stock and the absence of a quorum or quorums
of the holders of capital stock entitled to
elect such other directors shall not prevent
the election of directors to be elected by
the holders of Merger Preferred Stock.
(v) For so long as the aforesaid voting
rights are vested in the holders of Merger
Preferred Stock, the term of office of all
directors elected by the holders of Merger
Preferred Stock shall terminate upon the
election of their successors by the holders
of Merger Preferred Stock; provided, however,
-------- -------
that any director who shall have been elected
by holders of the Merger Preferred Stock may
be removed at any time, either with or
without cause, only by the affirmative vote
of the holders of record of a majority of the
outstanding shares of the Merger Preferred
Stock at a duly called stockholders meeting.
Upon any termination of such voting rights in
accordance with paragraph 10(b)(ii), the term
of office of all directors elected by the
holders of Merger Preferred Stock shall
thereupon terminate and upon such termination
the number of directors constituting the
Board of Directors shall, without further
action, be reduced by two.
(vi) In case of any vacancy occurring
among the directors so elected by holders of
Merger Preferred Stock, the remaining
<PAGE>
17
director who shall have been so elected may
appoint a successor to hold office for the
unexpired term of the director whose place
shall be vacant. If both directors so
elected by the holders of Merger Preferred
Stock shall cease to serve as directors
before their terms shall expire, the holders
of Merger Preferred Stock then outstanding
may, in the manner provided in
paragraph 10(b)(ii), elect successors to hold
office for the unexpired terms of the
directors whose places shall be vacant.
(c) (i) Subject to paragraph 10(c)(ii), so
long as any shares of Merger Preferred Stock are
outstanding, the Company will not, without the
affirmative vote, or the written consent pursuant
to Section 228 of the General Corporation Law of
the State of Delaware, of the holders of at least
the Required Majority of the outstanding shares of
Merger Preferred Stock (or such greater number as
may be required by law), voting separately as a
class:
(I) increase the authorized number
of shares of Merger Preferred Stock or
create, authorize or issue any class or
series of stock of the Company (other
than the shares of the Merger Preferred
Stock) ranking pari passu with the
---- -----
Merger Preferred Stock as to dividend
rights or rights upon liquidation,
winding-up or dissolution of the
Company;
(II) make any amendment, alteration
or repeal of any of the provisions of
the Certificate of Incorporation or of
any certificate amendatory thereof or
supplemental thereto so as to change the
terms of the Merger Preferred Stock to
affect adversely the rights, powers,
preferences or privileges of the Merger
Preferred Stock; or
(III) create, authorize or issue any
class or series of stock of the Company
ranking senior to the Merger Preferred
<PAGE>
18
Stock as to dividend rights or rights
upon liquidation, winding-up or
dissolution of the Company.
The "Required Majority" for any action
referred to in clause (II) and (III) shall be
two-thirds, and for any other action referred
to in this paragraph 10(c)(i) shall be a
simple majority.
(ii) Notwithstanding paragraph 10(a) or
paragraph 10(c)(i), holders of the Merger
Preferred Stock will have no voting rights in
connection with a merger or consolidation of
the Company with or into Wickes, as the
surviving corporation in the merger referred
to above, in which the Merger Preferred Stock
is converted into stock of Wickes with
substantially the same terms as those set
forth in this Certificate (as determined in
good faith by the Board of Directors of the
Company).
(d) In connection with any matter on which
holders of the Merger Preferred Stock are entitled
to vote including, without limitation, the
election of directors as set forth in this
paragraph 10 or any matter on which the holders of
the Merger Preferred Stock are entitled to vote as
a class or otherwise pursuant to the General
Corporation Law of the State of Delaware or the
provisions of the Certificate of Incorporation of
the Company, each holder of the Merger Preferred
Stock shall be entitled to one vote for each share
of Merger Preferred Stock held by such holder.
11. Exchange Provisions. (a) On any
--------------------
Dividend Payment Date, the Company, at its sole
option, may require the exchange of all or any
part of the shares of the Merger Preferred Stock
then outstanding for the Company's 15 1/2% Junior
Subordinated Exchange Debentures (the "Exchange
Debentures") on the notice set forth below.
Holders of record of outstanding shares of the
Merger Preferred Stock as they appear on the stock
register of the Company at the close of business
on the record date for such exchange shall be
entitled to receive Exchange Debentures having a
<PAGE>
19
principal amount equal to the sum of the
Liquidation Preference plus any accrued and unpaid
dividends, whether or not declared, on the Merger
Preferred Stock to the date of such exchange in
exchange for each share of Merger Preferred Stock
held by them. At the time of such exchange (an
"Exchange Date"), the rights of the holders of the
Merger Preferred Stock then outstanding as
stockholders of the Company shall cease (except
for the right to receive the Exchange Debentures)
and the persons entitled to receive the Exchange
Debentures issuable upon exchange shall be treated
for all purposes as the holders of record of such
Exchange Debentures. In the event such exchange
would result in the issuance of any Exchange
Debenture in a principal amount which is less than
$1,000 or which is not an integral multiple of
$1,000 (such principal amount less than $1,000 or
the difference between such principal amount and
the highest integral multiple of $1,000 that is
less than such principal amount, as the case may
be, being hereinafter referred to as a "Fractional
Principal Amount"), each holder of Merger
Preferred Stock otherwise entitled to a Fractional
Principal Amount shall be entitled to receive a
cash payment in lieu thereof equal to such
holder's proportionate interest in the net
proceeds by the Company or any agent appointed for
the purpose from the sale or sales on the open
market of the aggregate amount of such Exchange
Debentures. The person or persons entitled to
receive the Exchange Debentures issuable upon
exchange shall be treated for all purposes as the
registered holder or holders of such Exchange
Debentures as of the related Exchange Date. The
Exchange Debentures will be issued under an
Indenture (the "Indenture") between the Company
and United States Trust Company of New York, as
trustee, substantially in the form filed as an
Exhibit to the Company's and Wickes' Registration
Statement on Form S-4 as filed with the Securities
and Exchange Commission (File No. 33-27143), as
amended pursuant to the terms of the Indenture.
When no Exchange Debentures are outstanding, the
Indenture may be changed as may be required by
law, stock exchange rules or usage, or as may
otherwise be agreed to by the Company and holders
of a majority of the then outstanding shares of
<PAGE>
20
Merger Preferred Stock. The Exchange Debentures
shall have the terms and benefits provided in the
Indenture.
(b) If fewer than all the outstanding shares
of the Merger Preferred Stock are to be exchanged,
the Board of Directors of the Company shall select
the shares of the Merger Preferred Stock to be
exchanged from the outstanding shares by lot or
pro rata as determined by the Board of Directors
of the Company, in their sole discretion;
provided, however, that the Board of Directors of
-------- -------
the Company may in selecting shares to be
exchanged choose to exchange all shares of the
Merger Preferred Stock held by holders of a number
of such shares not to exceed 100 as may be
specified by the Board of Directors.
(c) At least 30 days but not more than
60 days prior to the Exchange Date, written notice
of such exchange shall be mailed to each holder of
record of shares of the Merger Preferred Stock to
be exchanged at the address shown on the stock
transfer books of the Company or, if no such
address appears or is given, at the place where
the principal executive office of the Company is
located; provided, however, that no failure to
-------- -------
give such notice or any defect therein or in the
mailing thereof shall affect the validity of the
proceedings for such exchange. Each such notice
shall specify (i) the number of shares of Merger
Preferred Stock to be received in the exchange
from such holder, (ii) the numbers of the
certificates of the shares of Merger Preferred
Stock being exchanged, (iii) the principal amount
of Exchange Debentures to be issued in exchange
for such shares, (iv) the Exchange Date, (v) the
place or places at which the shares of the Merger
Preferred Stock shall be exchanged for Exchange
Debentures and (vi) that dividends on the shares
to be exchanged shall cease to accrue on the
Exchange Date.
(d) Upon surrender of the certificates for
any of the Merger Preferred Stock so exchanged,
such shares of Merger Preferred Stock shall be
exchanged by the Company at the required exchange
rate. In case fewer than all the shares of Merger
<PAGE>
21
Preferred Stock represented by any such
certificate are exchanged, a new certificate or
certificates shall be issued representing the
unexchanged shares of Merger Preferred Stock
without cost to the holder thereof. From and
after the Exchange Date, dividends on the shares
of the Merger Preferred Stock so called for
exchange shall cease to accrue, such shares of
Merger Preferred Stock shall no longer be deemed
to be outstanding and shall not have the status of
shares of Merger Preferred Stock, and all rights
of the holders thereof as stockholders of the
Company (except the right to receive from the
Company the Exchange Debentures upon exchange and
the right to receive cash payments in lieu of
Fractional Principal Amounts) shall cease with
respect to such shares. From and after the
related Exchange Date, shares of Merger Preferred
Stock exchanged for the Exchange Debentures shall
be restored to the status of authorized but
unissued shares of Preferred Stock, without
designation as to series until such shares are
once more designated as part of a particular
series by the Board of Directors of the Company.
FIFTH: (a) The business of the Corporation shall
be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by statute or
by this Certificate of Incorporation. The number of
directors of the Corporation shall be fixed by, or in the
manner provided in, the By-laws of the Corporation;
provided, however, that such number of directors shall not
-------- -------
exceed nine. The directors of the Corporation, other than
those who may be elected pursuant to any Preferred Stock
Designation, shall be divided into three classes (Class I,
Class II and Class III), with the term of office of one
class expiring each year. Each class shall consist, as
nearly as may be possible, of one-third of the total number
of directors constituting the entire Board of Directors.
The membership of each class initially shall be as set forth
in a resolution adopted by the Board of Directors of the
Corporation on or prior to June 30, 1994 (the "Effective
Date"). The initial term of Class I directors shall expire
at the first annual meeting of stockholders following the
Effective Date; the initial term of Class II directors shall
expire at the second annual meeting of stockholders
following the Effective Date; and the initial term of Class
III directors shall expire at the third annual meeting of
<PAGE>
22
stockholders following the Effective Date. At each annual
meeting of stockholders, each class of directors whose term
shall then expire shall be elected to hold office for a
three year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes
so as to maintain the number of directors in each class as
nearly equal as possible, but in no case shall a decrease in
the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual
meeting for the year in which such director's term expires
and until such director's successor shall be elected and
shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from
office.
(b) There shall be a nominating committee of the
Board of Directors (the "Nominating Committee") consisting
of all directors serving on the Board of Directors,
excluding directors that are salaried employees of the
Corporation. The Nominating Committee shall be authorized
to nominate, by a majority vote thereof and subject only to
the restrictions set forth in this paragraph (b) of this
Article FIFTH, persons for election to the Board of
Directors at any annual meeting of stockholders or at any
special meeting of stockholders called for the purpose of
electing directors; provided, however, that if the
-------- -------
Nominating Committee does not nominate a person by majority
vote with respect to any directorship to be voted upon at
such meeting and the incumbent director holding such
directorship is affiliated with Blackstone Capital Partners
L.P. ("Blackstone Partners"), Wasserstein Perella Partners,
L.P. ("WP Partners") or a Transferee (as defined in Section
3.01 of that certain Voting Agreement dated as of June 29,
1994 between Blackstone Partners and WP Partners, as the
same may be amended from time to time) of either, in lieu of
any Nominating Committee nomination, the Corporation shall
place in nomination the name of the incumbent director or a
similarly affiliated person designated by the party with
whom such incumbent director is affiliated (i.e., Blackstone
----
Partners, WP Partners or a Transferee, as the case may be)
for election to the Board of Directors at such meeting, and
the Corporation shall nominate no other person for election
to such director position. For purposes of the preceding
sentence and paragraph (d) of this Article FIFTH, a person
shall be affiliated with Blackstone Partners, WP Partners or
a Transferee if such person is a general partner, limited
partner, director or officer of such entity or any affiliate
of such entity or is otherwise an "affiliate" of such entity
<PAGE>
23
as defined in the rules and regulations under the Securities
Act of 1933. Except as provided herein, the Board of
Directors, or any committee thereof, shall not be authorized
to nominate persons for election to the Board of Directors.
(c) Unless and except to the extent that the By-
laws of the Corporation shall so require, the election of
directors of the Corporation need not be by written ballot.
(d) Newly created directorships resulting from
any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or removal from
office shall be filled solely by the Nominating Committee,
by a majority vote thereof, and not by the stockholders;
provided, however, that if a vacancy in the Board of
-------- -------
Directors results from the death, resignation, retirement,
disqualification or removal from office of a director
affiliated with (as defined in paragraph (b) of this Article
FIFTH) Blackstone Partners, WP Partners or a Transferee
(excluding, however, a resignation by a director affiliated
with Blackstone Partners or WP Partners pursuant to Section
3.01 of the Voting Agreement referred to in paragraph (b) of
this Article FIFTH), such vacancy shall automatically be
filled with a similarly affiliated person designated by the
party with whom such incumbent director was affiliated
(i.e., Blackstone Partners, WP Partners or a Transferee, as
----
the case may be), such affiliation being a qualification for
election to such directorship. Any director elected to fill
a newly created directorship or any vacancy on the Board of
Directors resulting from death, resignation, retirement,
disqualification or removal from office, shall hold office
for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been
elected and qualified. Directors shall continue in office
until others are chosen and qualified in their stead.
(e) Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of Preferred
Stock issued by the Corporation, if any, shall have the
right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the
terms of the applicable resolution or resolutions of the
Board of Directors adopted pursuant to Article FOURTH.
<PAGE>
24
(f) Any director or the entire Board of Directors
of the Corporation may be removed from office only for cause
and only by the affirmative vote of the holders of a
majority of the shares of capital stock of the Corporation
then entitled to vote in the election of such director or
directors. For purposes of this paragraph and to the extent
permitted by law, "cause" shall be limited to (i) action by
a director involving wilful malfeasance, which conduct has a
material adverse effect on the Corporation, (ii) conviction
of a director of a felony or (iii) the wilful and continuous
failure of a director substantially to perform such director's
duties to the Corporation (including any such failure resulting
from incapacity due to physical or mental illness).
(g) In furtherance and not in limitation of the
powers conferred upon it by law, the Board of Directors is
expressly authorized to adopt, alter, amend or repeal any
provision of the By-laws of the Corporation (including,
without limitation, By-laws governing the conduct of, and
the matters which may properly be brought before, meetings
of the stockholders and By-laws specifying the manner and
extent to which prior notice shall be given of the
submission of proposals to be submitted at any meeting of
stockholders or of nominations of elections of directors to
be held at any such meeting) by the vote of a majority of
the entire Board of Directors.
(h) In addition to the powers and authorities
herein or by statute expressly conferred upon it, the Board
of Directors may exercise all such powers and do all such
acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the
laws of the State of Delaware, this Restated Certificate of
Incorporation and the By-laws of the Corporation; provided,
--------
however, that no By-laws hereafter adopted by the
-------
stockholders shall invalidate any prior act of the directors
which would have been valid if such By-laws had not been
adopted.
SIXTH: Any action required or permitted to be
taken by the stockholders of the Corporation may be effected
only at a duly called annual or special meeting of such
stockholders and may not be effected by consent in writing
by such stockholders. Except as otherwise provided by any
Preferred Stock Designation, special meetings of
stockholders for any purpose or purposes may be called only
by the Chairman or a Co-Chairman of the Board, if there be
one, or by resolution of the Board of Directors, acting by
<PAGE>
25
not less than a majority of the entire Board, and the power
of stockholders to call a special meeting is specifically
denied. No business shall be transacted and no corporate
action shall be taken at a special meeting of stockholders
other than that stated in the notice of such meeting.
SEVENTH: (a) In addition to any requirements of
law and any other provision of this Restated Certificate of
Incorporation or any resolution or resolutions of the Board
of Directors adopted pursuant to Article FOURTH of this
Restated Certificate of Incorporation (and notwithstanding
the fact that a lesser percentage may be specified by law,
this Restated Certificate of Incorporation or any such
resolution or resolutions), a Business Combination (as
hereinafter defined) shall require the affirmative vote of
the holders of 66-2/3% or more of the combined voting power
of the then outstanding shares of Voting Stock, voting
together as a single class.
(b) For the purposes of this Article SEVENTH,
"Business Combination" shall mean:
(1) any merger or consolidation of the
Corporation (whether or not the Corporation is the
surviving corporation);
(2) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of related transactions) of all or substantially
all the assets of the Corporation;
(3) the adoption of any plan or proposal for the
liquidation, dissolution, spinoff, splitup, splitoff,
or winding up of the affairs of the Corporation
(whether voluntary or involuntary); or
(4) any agreement, contract or other arrangement
providing for any of the transactions described in this
definition of Business Combination.
EIGHTH: To the fullest extent that the General
Corporation Law of the State of Delaware as it exists on the
date hereof or as it may hereafter be amended permits the
limitation or elimination of the liability of directors, no
director of the Corporation shall be liable to the Corpora-
tion or its stockholders for monetary damages for breach of
fiduciary duty as a director. No amendment to or repeal of
this Article EIGHTH shall apply to or have any effect on the
liability or alleged liability of any director of the
<PAGE>
26
Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
NINTH: The Corporation reserves the right at any
time and from time to time to amend, alter or repeal any
provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by
law. In addition to any requirements of law and any other
provision of this Restated Certificate of Incorporation or
any resolution or resolutions of the Board of Directors
adopted pursuant to Article FOURTH of this Restated Certifi-
cate of Incorporation (and notwithstanding the fact that a
lesser percentage may be specified by law, this Restated
Certificate of Incorporation or any such resolution or
resolutions), the affirmative vote of the holders of 66-2/3%
or more of the combined voting power of the then outstanding
shares of Voting Stock, voting together as a single class,
shall be required to adopt, amend, alter or repeal any
provision of this Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused
this Restated Certificate of Incorporation to be signed in
the name and on behalf of the Corporation, and attested to,
by the duly elected officers of the Corporation as indicated
below this [ ] day of [ ], 1994.
COLLINS & AIKMAN CORPORATION
by
________________________
Name:
Title:
Attest:
____________________________
Name:
Title:
EXHIBIT 4.8
============================================================
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
among
BLACKSTONE CAPITAL PARTNERS L.P.,
WASSERSTEIN PERELLA PARTNERS, L.P.,
COLLINS & AIKMAN CORPORATION
and
COLLINS & AIKMAN GROUP, INC.
_________________________________________
Dated as of June 29, 1994
_________________________________________
============================================================
<PAGE>
[Draft--6/20/94]
AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, dated as of June 29, 1994, among
BLACKSTONE CAPITAL PARTNERS L.P., a Delaware
limited partnership ("BCP"), WASSERSTEIN
PERELLA PARTNERS, L.P., a Delaware limited
partnership ("WPP"), COLLINS & AIKMAN
CORPORATION, a Delaware corporation (the
"Company"), and COLLINS & AIKMAN GROUP, INC.,
a Delaware corporation ("Group").
WHEREAS BCP, WPP, the Company (as the surviving
corporation from a merger between Collins & Aikman Holdings
Corporation, a Delaware corporation, and Collins & Aikman
Holdings II Corporation, a Delaware corporation, pursuant to
the Recapitalization (as such term is defined in the
Registration Statement on Form S-2 initially filed by the
Company on April 19, 1994, as such Registration Statement
may be amended from time to time)) and Group are parties to
a Stockholders Agreement dated as of December 6, 1988, as
amended by Amendment No. 1 dated as of May 1, 1992 (the
"Stockholders Agreement");
WHEREAS BCP and WPP (or their affiliates) are
entitled to certain fees for the provision of services to
the Company and Group (or their subsidiaries) pursuant to
the Stockholders Agreement and pursuant to an agreement
ratified September 5, 1990 (the "Management and Retainer
Agreement");
WHEREAS in connection with the Recapitalization,
BCP and WPP have agreed (subject to, and effective only
upon, the consummation of the Recapitalization) to reduce
the fees required by the Stockholders Agreement and the
Management and Retainer Agreement; and
WHEREAS the parties to the Stockholders Agreement
wish to otherwise amend the Stockholders Agreement and
restate it in its entirety (subject to, and effective only
upon, the consummation of the Recapitalization).
<PAGE>
2
NOW, THEREFORE, in consideration of the premises
and the covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Certain Definitions. As used in
-------------------
this Agreement, the following terms shall have the meanings
specified below:
"Affiliate" shall mean, when used with respect to
any person, any other person which directly or indirectly
beneficially owns or controls 25% or more of the total
voting power of shares of capital stock of such person hav-
ing the right to vote for directors under ordinary circum-
stances, any person controlling, controlled by or under com-
mon control with any such person (within the meaning of
Rule 405 of the Securities Act), and any director or
executive officer of any such person. "Affiliate" shall in
any event include, when used with respect to WPP,
Wasserstein Perella Co., Inc., Wasserstein Perella Group,
Inc. and Wasserstein Perella Management Partners, Inc. and,
when used with respect to BCP, The Blackstone Group L.P. and
Blackstone Group Holdings L.P.
"Common Stock" shall mean the capital stock of the
Company having the right to vote for directors under
ordinary circumstances.
"Demanding Party" shall mean either BCP or WPP or
both, or any transferee of BCP's or WPP's rights under
Section 3.01 hereof, which party has properly given notice
that it is seeking demand registration pursuant to
Section 3.01 hereof.
"Holder" shall mean BCP and WPP and any person who
becomes a party to this Agreement pursuant to Section 2.03
or 2.04 hereof so long as such person remains the beneficial
owner of Common Stock.
"HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
"Piggyback Party" shall mean either BCP or WPP or
both, or any transferee of BCP's or WPP's rights under
<PAGE>
3
Section 3.02 hereof, which party has properly given notice
that it is seeking piggyback registration pursuant to
Section 3.02 hereof.
"Registration Right Party" shall mean any
Demanding Party and any Piggyback Party.
"Registration Shares" shall mean (a) the shares of
Common Stock held by BCP or WPP or Affiliates of BCP or WPP
immediately following the Recapitalization, (b) any shares of
Common Stock acquired by BCP or WPP or Affiliates of BCP or WPP
subsequent to the Recapitalization, and (c) any shares of Common
Stock or other securities issued or issuable with respect to any
such Common Stock (set forth in clauses (a) and (b) above) by
way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Securities Act" shall mean the Securities Act of
1933, as from time to time amended.
SECTION 1.02. Additional Definitions. Other
-----------------------
capitalized terms not defined in Section 1.01 hereof are
defined in the following Sections:
Term Section
---- -------
Additional Services 4.02
Affiliate Transfer Agreement 2.04(a)
Affiliate Transferee 2.04(a)
BCP Parties
Company Parties
Company Securities 3.04
Demanding Party 3.01
Demand Registration 3.01
Former Fees 4.01
Group Parties
Holder Offeree 2.05(a)
Company Parties
Company Securities 3.04
Management and Retainer Agreement Recitals
Monitoring Fee 4.01
Offered Shares 2.05(a)
Offering Price 2.06(b)
Offering Terms 2.06(b)
Offeror 2.05(a)
Offer Terms 2.05(a)
Piggyback Registration 3.02(a)
Proposed Purchaser 2.06(b)
<PAGE>
4
Purchase Offer 2.06(b)
Recapitalization Recitals
Refusal Offeree 2.05(a)
Registration Statement 3.10(a)
Selling Holder 2.06(b)
Stockholders Agreement Recitals
Tag-Along Stockholder 2.06(b)
Third Party Offeree 2.05(a)
Transfer 2.03
Transfer Agreement 2.03
WPP Parties
ARTICLE II
Restrictions on Transfer
------------------------
SECTION 2.01. General Restrictions. Each Holder
---------------------
agrees that it shall not, directly or indirectly, offer,
sell, assign, transfer, grant a participation in, pledge, or
create, incur or assume any encumbrance with respect to or
otherwise dispose of, any Common Stock (or solicit any
offers to buy or otherwise acquire, or take a pledge, of any
Common Stock) except (i) in compliance with this Agreement
and with all applicable federal, state and foreign
securities laws, (ii) after having given written notice to
the Company as set forth in this Agreement or, if no notice
is otherwise required by the applicable provisions of this
Agreement, after having given at least three business days
prior written notice to the Company, and (iii) when
requested by the Company, with a written opinion of counsel
(which opinion shall be reasonably satisfactory in form and
substance to the Company) that an exemption from
registration under the Securities Act is available and that
the proposed transaction would not violate applicable
securities laws.
SECTION 2.02. Legends. Each certificate
--------
evidencing outstanding Common Stock that is issued to any
Holder shall bear a legend in substantially the following
form so long as the restrictions set forth in the legend are
applicable to such Common Stock:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), OR BY THE SECURITIES REGULATORY AUTHORITY OF
ANY STATE OF THE UNITED STATES OR BY ANY SUCH AUTHORITY
IN CANADA OR ANY PROVINCE OF CANADA OR OF ANY OTHER
<PAGE>
5
JURISDICTION. NO REGISTRATION OF TRANSFER OF SUCH
SECURITIES SHALL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
REGISTRATION OF THE SECURITIES UNDER THE SECURITIES
LAWS OF ANY APPLICABLE JURISDICTIONS OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND THE SECURITIES LAWS OF ANY APPLICABLE
JURISDICTIONS.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER
RESTRICTIONS AS SET FORTH IN THE AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT, DATED AS OF JUNE 29, 1994, AS
SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, COPIES
OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH
SECURITIES SHALL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN
COMPLIED WITH.
When either paragraph of the preceding legend ceases to
apply to any Common Stock and upon the request of the holder
of such Common Stock, the Company shall issue a new
certificate or certificates to such holder without the
inapplicable portions of such legend in exchange for the
certificate or certificates held by such holder.
SECTION 2.03. Agreements to be Bound. Each
-----------------------
Holder agrees that it shall not (except as required by law),
directly or indirectly, sell, assign, transfer, grant a
participation in or pledge (each, to "Transfer") any Common
Stock to any transferee if following such Transfer such
transferee and its Affiliates, if any, will be the
beneficial owner or owners of in aggregate 10% or more of
the then outstanding shares of Common Stock or a member of a
group, within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, that is such an owner,
provided, however, that the foregoing restriction shall not
-------- -------
apply to any Transfer to a transferee where the transferee
has, prior to such Transfer, executed a Transfer Agreement,
substantially in the form attached hereto as Exhibit A,
which shall cause such transferee to be bound by the
obligations of this Agreement as a Holder (yet not receive
the benefits of this Agreement except as expressly
transferred in such Transfer Agreement pursuant to a
provision of this Agreement allowing such transfer), a copy
of which Transfer Agreement shall be maintained on file with
<PAGE>
6
the Secretary of the Company and shall include the address
of such transferee to which notices hereunder shall be sent.
Each such Transfer Agreement shall become effective upon its
execution by the transferee of the Common Stock (and shall
not require the signature or consent of any other Holder)
and delivery to all the parties hereto.
SECTION 2.04. Transfers to Affiliates, General
--------------------------------
Partners and Limited Partners. (a) Each of BCP and WPP may
-----------------------------
Transfer any Common Stock held by it, in whole or in part,
to any of its Affiliates without incurring any obligations
pursuant to Sections 2.05 or 2.06 hereof, provided that
prior to any such Transfer such Affiliate of BCP or WPP (an
"Affiliate Transferee"), shall execute and deliver to the
parties hereto (i) an Affiliate Transfer Agreement,
substantially in the Form attached hereto as Exhibit B,
which shall cause such Affiliate Transferee to be bound by
the obligations of, and enjoy the benefits of, this
Agreement as a successor to BCP or WPP, respectively, with
such Affiliate Transfer Agreement becoming effective upon
its execution by the Affiliate Transferee and delivery to
all the parties hereto and (ii) an irrevocable proxy
granting to BCP, in the case of an Affiliate Transferee of
BCP, or to WPP, in the case of an Affiliate Transferee of
WPP, all voting rights with respect to the Common Stock so
transferred. Such Affiliate Transferee shall also agree
that it shall not cease to be an Affiliate of BCP or WPP,
as the case may be, unless prior to the time such Affiliate
Transferee ceases to be an Affiliate of BCP or WPP, such
Affiliate Transferee transfers to BCP or WPP, as the case
may be, or to an Affiliate thereof designated by BCP or WPP,
as the case may be, who has become bound by the terms of
this Agreement pursuant to this Section 2.04, all shares of
Common Stock owned by such Affiliate Transferee, and BCP and
WPP hereby agree to cause such Affiliate Transferee prior to
the time it ceases to be an Affiliate of BCP or WPP to so
transfer such Common Stock.
(b) Each of BCP and WPP may Transfer any Common
Stock held by it, in whole or in part, to any of its or its
Affiliates' limited partners that is not an Affiliate of BCP
or WPP (a "Partner Transferee") without incurring any
obligations pursuant to Sections 2.05 or 2.06 hereof,
provided that if, following any Transfer pursuant to this
Section 2.04(b), any Partner Transferee combined with its
Affiliates, if any, will be the beneficial owner or owners
of in aggregate 10% or more of the then outstanding shares
<PAGE>
7
of Common Stock, such Partner Transferee shall enter into a
Transferee Agreement as provided in Section 2.03 hereof.
SECTION 2.05. Right of First Refusal. (a) In the
----------------------
event that any Holder (the "Offeror") shall have made an
offer to, or shall have an offer from, a third party (the
"Third Party Offeree") to sell or otherwise transfer shares
of Common Stock owned by such Holder in one transaction or
from time to time in a series of transactions (except in a
registered public offering or pursuant to Rule 144 under the
Securities Act), the Holder Offeree (as defined below) and
the Company shall have a right of first refusal with respect
to such Common Stock as set forth below. Prior to such sale
or transfer of shares of Common Stock to the Third Party
Offeree, the Offeror shall offer such Common Stock (the
"Offered Shares") for purchase by BCP, in the case of WPP
and Affiliates or transferees of WPP, or by WPP, in the case
of BCP and Affiliates or transferees of BCP (the "Holder
Offeree"), as hereinafter provided by notifying the Holder
Offeree in writing of such offer, setting forth the terms
and conditions of sale and the price at which the Offeror
proposes to sell the Offered Shares (the "Offer Terms") and
the identity of the Third Party Offeree (with a copy of such
notice given to the Company concurrently with such notice to
the Holder Offeree). The giving of such notice shall
constitute an offer by the Offeror, irrevocable during the
20-day period referred to in and subject to the terms of
this Section 2.05, to sell to the Holder Offeree the Offered
Shares on the Offer Terms. The Holder Offeree shall have a
period of 20 days after the receipt of such notice from the
Offeror in which to notify the Offeror in writing that it
(or any of its Affiliates) elects to purchase the Offered
Shares upon the Offer Terms. If the Holder Offeree (or any
of its Affiliates) elects to purchase the Offered Shares, it
shall give irrevocable notice of such election to the
Offeror within such 20-day period. If the Holder Offeree
does not give notice to the Offeror within such 20-day
period or at any time during such 20-day period the Holder
Offeree gives notice that it does not elect to purchase the
Offered Shares, the Offeror shall offer the Offered Shares
for purchase by the Company (together with the Holder
Offeree, the "Refusal Offerees") by notifying the Company in
writing of such offer, setting forth the Offer Terms and the
identity of the Third Party Offeree. The giving of notice
shall constitute an offer by the Offeror, irrevocable during
the 10 days following the Company's receipt of such notice,
to sell to the Company the Offered Shares on the Offer
Terms. During such 10-day period, the Company may
<PAGE>
8
irrevocably notify the Offeror in writing that it (or any of
its Affiliates other than BCP and WPP) elects to purchase
the Offered Shares upon the Offer Terms. If the Company
does not give notice to the Offeror within such 10-day
period or at any time during such 10-day period the Company
gives notice that it does not elect to purchase the Offered
Shares, the Offeror shall be free to sell the Offered Shares
to the Third Party Offeree on the Offer Terms (or, if there
has been a material change in the facts considered by the
Offeror and the Third Party Offeree in arriving at the Offer
Terms, at a price which is at least 90% of the offered price
and upon terms which are at least as favorable to the
Offeror as the Offer Terms) provided that (i) such sale to
the Third Party Offeree shall be consummated within 45 days
after the 10-day period referred to above and (ii) the
Offeror shall furnish to the Refusal Offerees (x) a
certificate of an officer of the Offeror specifying the
price and other material terms of sale to the Third Party
Offeree, (y) a written instrument of the Third Party Offeree
pursuant to which the Third Party Offeree represents and
warrants that it is acquiring the Offered Shares for its own
account and not for purposes of distribution thereof and
(z) a Transfer Agreement of the Third Party Offeree pursuant
to Section 2.03 hereof in which the Third Party Offeree
agrees to be bound by the obligations of this Agreement;
provided, however, that clause (ii)(z) of this Section
-------- -------
2.05(a) shall apply only if, following such sale of Offered
Shares, the Third Party Offeree and its Affiliates will be
the beneficial owner or owners of in the aggregate 10% or
more of the then outstanding shares of Common Stock or a
member of a group, within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, that is such an owner.
(b) In the event that a Refusal Offeree (or any
of its Affiliates) elects to purchase the Offered Shares
pursuant to paragraph (a) of this Section 2.05, the Offeror
(including any Tag-Along Stockholders selling pursuant to
Section 2.06 hereof) shall be obligated to sell to such
Refusal Offeree (or its Affiliates), and such Refusal
Offeree (or its Affiliates) shall be obligated to purchase
from the Offeror (and Tag-Along Stockholders), the Offered
Shares upon the Offer Terms. The written notice of election
given to the Offeror pursuant to paragraph (a) of this
Section 2.05 shall specify the place and date (not later
than the later of 45 days from the date such notice is given
and the expiration of any applicable waiting period under
the HSR Act) for the closing of such purchase. At the
closing of a purchase of Offered Shares hereunder, the
<PAGE>
9
Refusal Offeree (or its Affiliates) shall pay to the Offeror
(and Tag-Along Stockholders) the purchase price for all the
Offered Shares in accordance with paragraph (a) of this
Section 2.05 and the Offeror (and Tag-Along Stockholders)
will deliver or cause to be delivered to the Refusal Offeree
(or its Affiliates) a certificate or certificates
representing the Offered Shares, duly endorsed or
accompanied by appropriate stock powers duly executed in
blank and a certificate containing the representation
described in clause (iii) of the next sentence. The
obligation of the Offeror (and Tag-Along Stockholders) to
deliver the Offered Shares and the Refusal Offeree (or its
Affiliates) to purchase the Offered Shares at such closing
shall be subject only to the conditions that (i) no
preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or
commission shall be in effect which would prohibit such sale
and delivery, (ii) any applicable waiting period under the
HSR Act shall have expired and any other applicable
governmental approvals and clearances shall have been
obtained and (iii) with respect to the obligation of the
Refusal Offeree (or its Affiliates), the Offeror shall
deliver to the Refusal Offeree (or its Affiliates) a
representation in form and substance reasonably satisfactory
to the Refusal Offeree (or its Affiliates) that the Offeror
(and Tag-Along Stockholders) has good and marketable title
to the Offered Shares, free and clear of all liens, claims,
encumbrances and security interests, and that the Offeror
(and Tag-Along Stockholders) has full right, power and
authority to effect such sale.
(c) A Holder shall be entitled to rights under
this Section 2.05 only so long as such Holder (combined with
its Affiliates) beneficially owns 8% or more of the then
outstanding shares of Common Stock.
SECTION 2.06. Tag-Along Rights. (a) Anything in
-----------------
this Agreement to the contrary notwithstanding, if any
Holder or group of Holders proposes, in a single transaction
or from time to time in a group of related transactions, to
sell or otherwise dispose of an amount of Common Stock equal
to 5% or more of the shares of Common Stock then outstanding
(other than (a) to an Affiliate of such Holder(s), (b) in a
registered public offering or (c) pursuant to Rule 144 of
the Securities Act), such Holder(s) shall refrain from
effecting such transaction(s) unless, prior to the
consummation thereof, BCP and WPP (and their Affiliates)
<PAGE>
10
shall have been afforded the opportunity to join in such
transfer as provided in clause (b) of this Section 2.06.
(b) Prior to the consummation of any transaction
subject to this Section 2.06, the Holder or Holders that
propose(s) to sell shares of Common Stock in a transaction
or series of related transactions (the "Selling Holder")
shall offer (the "Purchase Offer") in writing to BCP and WPP
(collectively with the Affiliates of BCP and WPP, the
"Tag-Along Stockholders") the option, exercisable by written
notice to such Selling Holder within 15 days after receipt
of the Purchase Offer, to require the Selling Holder to
arrange for the proposed purchaser or purchasers (the
"Proposed Purchaser") to purchase at the same time as the
purchase from the Selling Holder, the number of shares
described below at the price per share (the "Offering
Price") at which and on the terms and conditions (the
"Offering Terms") on which the Proposed Purchaser purchases
the shares of Common Stock of the Selling Holder. If any of
the Tag-Along Stockholders shall so elect, the Selling
Holder shall arrange for the Proposed Purchaser to purchase
the total number of shares of Common Stock as originally
agreed upon between the Selling Holder and the Proposed
Purchaser but from both the Selling Holder and the Tag-Along
Stockholder, pro rata in the proportion to each such
seller's total beneficial ownership of Common Stock
immediately prior to the Purchase Offer, provided, however,
-------- -------
that the Tag-Along Stockholder may elect, in its original
written notice to the Selling Holder, to sell an amount of
Common Stock less than such pro rata amount. In the event
that a sale or other transfer subject to this Section 2.06
is to be made, the Selling Holder shall notify the Proposed
Purchaser that the sale or other transfer is subject to this
Section 2.06 and shall ensure that no sale or other transfer
is consummated without first complying with this Section
2.06.
(c) A Holder shall be entitled to rights under
this Section 2.06 only so long as such Holder (combined with
its Affiliates) beneficially owns 4% or more of the then
outstanding shares of Common Stock.
SECTION 2.07. Prohibition on Encumbrance. No
--------------------------
Holder shall pledge, hypothecate or grant a security
interest in any of the shares of Common Stock held by it;
provided, however, that a Holder may pledge, hypothecate or
-------- -------
grant a security interest in such shares to a lender if such
lender agrees in writing to be bound by the terms of this
<PAGE>
11
Agreement (and acknowledges that it shall not receive any of
the rights granted to Holders under this Agreement) and such
lender is not granted any voting rights prior to
foreclosure.
ARTICLE III
Registration Rights
-------------------
SECTION 3.01. Demand Registrations. At any time
---------------------
following the Recapitalization, the Company shall, upon the
written demand of BCP or WPP (the "Demanding Party"), use
its best efforts to effect the registration (a "Demand
Registration") under the Securities Act of such number of
Registration Shares then beneficially owned by the Demanding
Party and its Affiliates as shall be indicated in a written
demand by the Demanding Party sent to the Company and to the
other Holders, if any, with demand rights pursuant to this
Section 3.01; provided, however, that as to each of BCP and
-------- -------
WPP (a) the Company shall be obligated to effect a total of
no more than five Demand Registrations, with no more than
two such Demand Registrations in any twelve month period,
with the first such Demand Registration occurring no earlier
than January 1, 1995 (unless this date restriction is waived
by the Company); (b) the Company shall not be obligated to
effect a Demand Registration unless the total number of
shares of Common Stock proposed to be registered by such
Demanding Party equals (x) at least 5% of the total number
of Registration Shares held by such Demanding Party
immediately following the Recapitalization or (y) all of
such Demanding Party's Common Stock, (c) if a registration
pursuant to this Section 3.01 involves an underwritten
offering and the managing underwriter advises the Company
that, in the opinion of such managing underwriter, the
number of Registration Shares proposed to be included in
such registration would have a material adverse effect on
the success of the offering, then the Company will include
in such registration only the number of Registration Shares
requested to be included in such registration that, in the
opinion of such managing underwriter, can be successfully
sold, (d) a Demand Registration shall not count as such
until it has become effective, except that if, after it has
become effective, the offering of Registration Shares
pursuant to such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC
or any other governmental authority, such registration shall
be deemed not to have been effected unless such stop order,
<PAGE>
12
injunction or other order or requirement shall subsequently
have been vacated or otherwise removed. Upon receipt of the
Demanding Party's written demand and subject to Section 3.04
hereof, the Company shall expeditiously effect the
registration under the Securities Act of the Registration
Shares and use its best efforts to have such registration
become and remain effective as provided in Section 3.10.
The Demanding Party, together with any other party
participating in the Demand Registration pursuant to
Section 3.02 hereof (unless such other party is registering
less than 80% of the amount of Registration Shares being
registered by the Demanding Party), shall have the right to
select the managing underwriter for a Demand Registration.
SECTION 3.02. Piggyback Registrations. (a) If
------------------------
the Company proposes to register, or is caused to register
pursuant to a demand registration, any Common Stock under
the Securities Act for sale for cash (otherwise than in
connection with the registration of Common Stock issuable
pursuant to an employee or director stock option, stock
purchase or similar plan or pursuant to a merger, exchange
offer or a transaction of the type specified in Rule 145(a)
under the Securities Act), the Company shall give BCP and
WPP notice of such proposed registration at least 15 days
prior to the filing of a registration statement. At the
written request of BCP or WPP delivered to the Company
within 10 days after the receipt of the notice from the
Company, which request shall state the number of
Registration Shares that such party wishes to sell or
distribute publicly under the registration statement pro-
posed to be filed by the Company, the Company shall use its
best efforts to register under the Securities Act such
Registration Shares, and to cause such registration (a
"Piggyback Registration") to become and remain effective as
provided in Section 3.10. In a piggyback registration
pursuant to this Section 3.02 (other than a piggyback
registration on a Demand Registration), the managing
underwriter shall be selected by the Company in consultation
with the Piggyback Party or Piggyback Parties, as the case
may be.
(b) If a Piggyback Registration is an under-
written primary registration on behalf of the Company, and
the managing underwriters thereof advise the Company in
writing that in their opinion the number of shares of Common
Stock requested to be included in the registration exceeds
the number which can be sold in the offering, the Company
shall include in the registration (i) first, the Common
<PAGE>
13
Stock the Company proposes to sell and (ii) second, the
Registration Shares that BCP or WPP propose to sell divided
pro rata between BCP and WPP based on the total beneficial
ownership of Common Stock of each of BCP and WPP,
respectively, at the time notice is given to the Company by
such managing underwriters. Any Piggyback Party shall be
given prompt notice by the Company of any such cutback.
(c) If a Piggyback Registration is an under-
written secondary registration on behalf of a Demanding
Party and the managing underwriters thereof advise the
Company in writing that in their opinion the number of
shares of Common Stock requested to be included in the
registration exceeds the number which can be sold in the
offering, the Company shall include in the registration (i)
first, a pro rata amount of each of BCP and WPP's
Registration Shares, based on the total beneficial ownership
of Common Stock of each of BCP and WPP, respectively, at the
time notice is given to the Company by such managing
underwriters, until one such party has had all shares so
demanded included and (ii) second, the Registration Shares
of the other party, if any. Any Piggyback Party shall be
given prompt notice by the Company of any such cutback. In
the event the Company subsequently desires to participate in
such a registration of securities, the Company shall include
in the registration (A) first, the Registration Shares BCP
and WPP propose to sell and (B) second, the Common Stock
that the Company proposes to sell.
SECTION 3.03. Lock-up. Each Holder hereby agrees
--------
that, in connection with any public offering effected
pursuant to this Article III, such Holder will, if so
requested by the managing underwriter of such offering,
enter into a customary lock-up agreement not to transfer any
Common Stock held by it for a period of up to 90 days
following such offering (such lock-up agreement in form and
substance acceptable to such managing underwriter).
SECTION 3.04. The Company's Right to Delay Demand
-----------------------------------
Registration. The Company shall not be obligated to file a
-------------
registration statement relating to any Demand Registration
pursuant to Section 3.01 hereof if counsel to the Company
renders an opinion, in form and substance reasonably
satisfactory to the Demanding Party, to the effect that
registration is not required for the proposed transfer of
Registration Shares or if a post-effective amendment to an
existing registration statement would be sufficient for such
proposed transfer (and the Company files such a post-
<PAGE>
14
effective amendment to effect the proposed transfer). The
Company may delay filing the registration statement relating
to any Demand Registration pursuant to Section 3.01 hereof
for not more than 60 days if (i) in the case of an
underwritten offering, the Company has filed, or has taken
substantial steps toward filing, a registration statement
relating to any of the Company's securities (the "Company
Securities"), and the managing underwriter is of the opinion
that the filing of a registration statement with respect to
the Demand Registration would adversely affect the offering
by the Company of Company Securities, or (ii) the Board of
Directors of the Company determines in good faith, by
resolution, that the filing of a registration statement
would, if not so deferred, materially and adversely affect a
then proposed or pending financial project, acquisition,
merger or corporate reorganization.
SECTION 3.05. Indemnification by the Company. In
-------------------------------
the event of any registration of any Registration Shares
under the Securities Act, the Company shall, and hereby
does, indemnify and hold harmless each Registration Rights
Party, its directors and officers, each other person who
participates as an underwriter in the offering or sale of
such Registration Shares and each other person, if any, who
controls such Registration Rights Party or any such
underwriter within the meaning of Section 15 of the Securi-
ties Act against any losses, claims, damages or liabilities,
joint or several, to which such Registration Rights Party or
any such director or officer or underwriter or controlling
person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under
which the Registration Shares were registered under the
Securities Act, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and
the Company shall reimburse each Registration Rights Party,
and each such director, officer, underwriter and controlling
person for any legal or any other expenses reasonably
incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that the Company shall not be
-------- -------
<PAGE>
15
liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with
written information about a Registration Rights Party
furnished to the Company through an instrument duly executed
by or on behalf of such Registration Rights Party,
specifically stating that it is for use in the preparation
thereof; and provided further, however, that the Company
----------------- -------
shall not be liable to any person who participates as an
underwriter in the offering or sale of Registration Shares
or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case
to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense
arises out of such person's failure to send or give a copy
of the final prospectus, as the same may be then
supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale
of Registration Shares to such person if such statement or
omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of a Registration
Rights Party or any such director, officer or controlling
person and shall survive the transfer of the Registration
Shares by such Registration Rights Party.
SECTION 3.06. Indemnification by the Registration
-----------------------------------
Rights Party. The Company may require, as a condition to
-------------
including any Registration Shares in any registration
statement filed pursuant to Section 3.01 or 3.02, that the
Company shall have received an undertaking reasonably
satisfactory to it from the Registration Rights Party to
indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 3.05) the Company, each
director of the Company, each officer of the Company signing
such registration statement and each other person, if any,
who controls the Company within the meaning of Section 15 of
the Securities Act with respect to any untrue statement or
alleged untrue statement of any material fact in such
registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein or any
amendment or supplement thereto, or omission to state
therein a material fact required to be stated therein or
<PAGE>
16
necessary to make the statements therein in light of the
circumstances in which they were made not misleading, if
such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and
in conformity with written information about the
Registration Rights Party as a shareholder of the Company
furnished to the Company through an instrument duly executed
by the Registration Rights Party specifically stating that
it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any
such director, officer or controlling person and shall
survive the transfer by the seller of the securities of the
Company being registered.
SECTION 3.07. Notices of Claims, etc. Promptly
-----------------------
after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim
referred to in Section 3.05 or 3.06, such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, give notice to the latter of the
commencement of such action; provided, however, that the
-------- -------
failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obli-
gations under Section 3.05 or 3.06, except to the extent
that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist or the
indemnified party may have defenses not available to the
indemnifying party in respect of such claim, the indemnify-
ing party shall be entitled to participate in and to assume
the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnify-
ing party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for
any settlement of any action or proceeding effected without
its written consent. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
<PAGE>
17
claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
SECTION 3.08. Other Indemnification. Indemnifi-
----------------------
cation similar to that specified in Section 3.05 and 3.06
hereof (with appropriate modifications) shall be given by
the Company and the Registration Rights Party with respect
to any required registration or other qualification of
Registration Shares under any Federal or state law or
regulation of any Governmental Authority other than the
Securities Act.
SECTION 3.09. Indemnification Payments. The
-------------------------
indemnification required by this Article III shall be made
by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
SECTION 3.10. Registration Covenants of the
-----------------------------
Company. In the event that any Registration Shares of the
--------
Registration Rights Party are to be registered pursuant to
Section 3.01 or 3.02 hereof, the Company covenants and
agrees that it shall use its best efforts to effect the
registration and cooperate in the sale of the Registration
Shares to be registered and shall as expeditiously as
possible:
(a) (i) prepare and file with the SEC a registra-
tion statement with respect to the Registration Shares
(as well as any necessary amendments or supplements
thereto) (a "Registration Statement") and (ii) use its
best efforts to cause the Registration Statement to
become effective;
(b) prior to the filing described above in Section
3.10(a), furnish to the Registration Rights Party
copies of the Registration Statement and any amendments
or supplements thereto and any prospectus forming a
part thereof, which documents shall be subject to the
review of counsel for the Registration Rights Party
(but not approval of such counsel except with respect
to any statement in the Registration Statement which
relates to the Registration Rights Party);
(c) notify the Registration Rights Party, promptly
after the Company shall receive notice thereof, of the
time when the Registration Statement becomes effective
or when any amendment or supplement or any prospectus
<PAGE>
18
forming a part of the Registration Statement has been
filed;
(d) notify the Registration Rights Party promptly
of any request by the SEC for the amending or
supplementing of the Registration Statement or
prospectus or for additional information;
(e) (i) advise the Registration Rights Party after
the Company shall receive notice or otherwise obtain
knowledge of the issuance of any order by the SEC
suspending the effectiveness of the Registration
Statement or any amendment thereto or of the initiation
or threatening of any proceeding for that purpose and
(ii) promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal
promptly if a stop order should be issued;
(f) (i) prepare and file with the SEC such amend-
ments and supplements to the Registration Statement and
the prospectus forming a part thereof as may be neces-
sary to keep the Registration Statement effective for
the lesser of (A) a period of time necessary to permit
the Registration Rights Party to dispose of all its
Registration Shares and (B) 30 days and (ii) comply
with the provisions of the Securities Act with respect
to the disposition of all Registration Shares covered
by the Registration Statement during such period in
accordance with the intended methods of disposition by
the Registration Rights Party set forth in the
Registration Statement;
(g) furnish to the Registration Rights Party such
number of copies of the Registration Statement, each
amendment and supplement thereto, the prospectus
included in the Registration Statement (including each
preliminary prospectus) and such other documents as the
Registration Rights Party may reasonably request in
order to facilitate the disposition of the Registration
Shares owned by the Registration Rights Party;
(h) use its best efforts to register or qualify
such Registration Shares under such other securities or
blue sky laws of such jurisdictions as determined by
the underwriters after consultation with the Company
and the Registration Rights Party and do any and all
other acts and things which may be reasonably necessary
or advisable to enable the Registration Rights Party to
<PAGE>
19
consummate the disposition in such jurisdictions of the
Registration Shares (provided that the Company shall
--------
not be required to (i) qualify generally to do business
in any jurisdiction in which it would not otherwise be
required to qualify but for this Section 3.10(h), (ii)
subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such
jurisdiction);
(i) notify the Registration Rights Party, at any
time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening
of any event as a result of which the Registration
Statement would contain an untrue statement of a
material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, and, at the request
of the Registration Rights Party, prepare a supplement
or amendment to the Registration Statement so that the
Registration Statement shall not, to the Company's
knowledge, contain an untrue statement of a material
fact or omit to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading;
(j) if the Common Stock is not then listed on a
securities exchange, and if the NASD is reasonably
likely to permit the reporting of the Common Stock on
NASDAQ, use its best efforts, consistent with the then-
current corporate structure of the Company, to
facilitate the reporting of the Common Stock on NASDAQ;
(k) provide a transfer agent and registrar, which
may be a single entity, for all the Registration Shares
not later than the effective date of the Registration
Statement;
(l) enter into such customary agreements (includ-
ing an underwriting agreement in customary form) and
take all such other action, if any, as the Registration
Rights Party or the underwriters shall reasonably
request in order to expedite or facilitate the
disposition of the Registration Shares pursuant to this
Article III;
(m) (i) make available for inspection by the
Registration Rights Party, any underwriter
participating in any disposition pursuant to the
<PAGE>
20
Registration Statement and any attorney, accountant or
other agent retained by the Registration Rights Party
or any such underwriter all relevant financial and
other records, pertinent corporate documents and
properties of the Company and (ii) cause the Company's
officers, directors and employees to supply all
relevant information reasonably requested by the
Registration Rights Party or any such underwriter,
attorney, accountant or agent in connection with the
Registration Statement;
(n) use its best efforts to cause the Registration
Shares covered by the Registration Statement to be
registered with or approved by such other Governmental
Authorities as may be necessary to enable the
Registration Rights Party to consummate the disposition
of such Registration Shares; and
(o) cause the Company's independent public
accountants to provide a comfort letter in customary
form and covering such matters of the type customarily
covered by comfort letters.
SECTION 3.11. Shelf Registrations. If a
--------------------
Demanding Party shall demand a shelf registration pursuant
to paragraph (a) of this Section 3.01 or a Piggyback Party
shall piggyback on a shelf registration pursuant to Section
3.02 hereof, such Demanding Party or Piggyback Party shall
have 30 days from the time such shelf registration is
declared effective by the Securities and Exchange Commission
to distribute all Registration Shares so registered.
SECTION 3.12. Expenses. In connection with any
---------
Demand Registration pursuant to Section 3.01, the Company
shall pay all registration, filing and NASD fees, all fees
and out-of-pocket expenses of complying with securities or
blue sky laws, all word processing, duplicating and printing
expenses, all messenger and delivery expenses, the
reasonable fees and disbursements of the Company's
independent public accountants for services required because
of the Demand Registration (including the expenses of
comfort letters required for the Demand Registration) and
any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities. In any registration,
(i) the Registration Rights Party shall pay for its own
underwriting discounts and commissions and transfer taxes
and (ii) each of the Company and the Registration Rights
Party shall pay for its own counsel.
<PAGE>
21
SECTION 3.13. Assignment of Registration
--------------------------
Rights. BCP and WPP may assign their rights under this
-------
Article III in whole or in part to anyone to whom BCP or
WPP, respectively, sells, transfers or assigns any of the
Registration Shares (other than in sales pursuant to Rule
144 under the Securities Act or a registered public sale);
provided, however, that no assignment shall increase the
-------- -------
Company's obligations to effect registrations or pay
expenses thereof.
SECTION 3.14. Other Registration Rights. The
--------------------------
Company shall not grant any right of registration under the
Securities Act relating to any of its securities to any
person other than BCP, WPP or an assignee of BCP or WPP
unless BCP and WPP shall be entitled to have included in any
piggyback registration pursuant to such grant a number of
Registration Shares requested by BCP and WPP to be so
included representing at least 30% of such offering prior to
the inclusion of any securities requested to be registered
by the persons entitled to any such registration rights.
SECTION 3.15. Rule 144. So long as the Company
---------
is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall take all
actions reasonably necessary to enable BCP and WPP to sell
the Registration Shares without registration under the
Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC, including filing on
a timely basis all reports required to be filed by the
Company by the Exchange Act. Upon the request of BCP or
WPP, the Company shall deliver to BCP or WPP a written
statement as to whether it has complied with such
requirements.
ARTICLE IV
Fees and Other Payments
-----------------------
SECTION 4.01. Monitoring Fee. Following the
---------------
consummation of the Recapitalization, Group (or any of its
subsidiaries or affiliates, on Group's behalf) shall pay an
annual monitoring fee of $1,000,000 per year to each of BCP
and WPP (the "Monitoring Fee"). Following the consummation
of the Recapitalization, the annual operating management fee
<PAGE>
22
set forth in Section 6.4 of the Stockholders Agreement and
the Management and Retainer Services Fee set forth in the
Management and Retainer Agreement (collectively, the "Former
Fees") shall no longer be payable (although BCP and WPP or
their affiliates shall not be required to refund any portion
of the Former Fees already paid at the time of the
Recapitalization). The Monitoring Fee shall be payable in
quarterly installments at the beginning of each quarter
commencing after the consummation of the Recapitalization.
In consideration of the Monitoring Fee, each of BCP and WPP
shall provide personnel to monitor the management of the
Company and its subsidiaries, including Group. Such
personnel shall not receive any separate compensation for
such services except as provided herein, but such personnel
(or BCP or WPP on their behalf) shall be entitled to
reimbursement of their reasonable out-of-pocket expenses in
connection therewith, including travel expenses, and shall
provide documentation of such expenses to the Company upon
request.
SECTION 4.02. Other Fees Not Precluded.
-------------------------
Notwithstanding the foregoing, nothing contained herein
shall preclude BCP and WPP or their Affiliates from
receiving fees in addition to the Monitoring Fee; provided
that any such fees shall be for services ("Additional
Services") in addition to providing personnel to monitor the
management of the Company and its subsidiaries. Additional
Services may include, but are not limited to, services in
connection with transactions such as acquisitions,
divestitures, the negotiation of credit agreements or
amendments thereto, sales and dispositions of assets or
subsidiaries, public or private offerings of debt or equity
securities, work-outs and other traditional or nontradi-
tional investment banking, consultant or management
services.
SECTION 4.03. Compensation of Directors. Each
--------------------------
director of the Company and Group who is not a full-time
employee thereof shall receive reimbursement of out-of-
pocket expenses incurred in connection with attendance at
meetings of, and other activities relating to, serving on
the Boards of Directors and any committees thereof.
Following the Recapitalization, a director's fee of $40,000
per year, payable quarterly, for each such director shall be
paid to each such director unless and to the extent that WPP
or BCP shall notify the Company or Group that it should
receive the director's fees for the directors that it has
the right to designate to the Boards of Directors of the
<PAGE>
23
Company and Group. Nothing contained herein shall preclude
the Boards of Directors of the Company or Group from
increasing director's fees or authorizing director's stock
options or additional director's fees.
SECTION 4.04. Accrual of Payments. To the extent
--------------------
that the payment of any of the fees, expenses or other
compensation provided for in this Agreement is not timely
made, such fees, expenses or other compensation shall be
accrued, together with interest thereon at the rate of
interest announced publicly in New York, New York, from time
to time by Citibank, N.A., as its base rate and shall be
paid as soon as practicable.
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Amendment and Restatement of the
--------------------------------
Stockholders Agreement; Complete Agreement. Subject to, and
-------------------------------------------
effective only upon, the consummation of the
Recapitalization, this Agreement shall constitute an
amendment and restatement of the Stockholders Agreement.
This Agreement constitutes the entire agreement and
understanding among the parties hereto with respect to the
matters referred to herein and supersedes all prior
agreements and understandings among the parties hereto with
respect to the matters referred to herein, including,
without limitation, the Stockholders Agreement and the
Management and Retainer Agreement.
SECTION 5.02. No Inconsistent Agreements.
---------------------------
Neither the Company nor any of its subsidiaries shall, and
BCP and WPP shall not permit the Company or any of its
subsidiaries to, enter into any agreement inconsistent with
the terms of this Agreement.
SECTION 5.03. Amendment. Except as otherwise
----------
expressly provided herein, this Agreement may not be
amended, modified or supplemented and no waivers of or
consents to departures from the provisions hereof may be
given unless consented to in writing by each of the parties
hereto.
SECTION 5.04. Notices. All notices, statements,
--------
instructions or other documents provided for herein shall be
in writing and shall be either transmitted by facsimile or
<PAGE>
24
delivered either personally or by mailing the same in a
sealed envelope, first-class mail, postage prepaid and
either certified or registered, return receipt requested,
addressed as follows:
For notices and communications to the Company or
Group:
210 Madison Avenue
New York, NY 10016
Attention: Elizabeth R. Philipp, Esq.
and
8320 University Executive Park
Suite 102
Charlotte, NC 28262
Attention: Corporate Counsel
For notices and communications to BCP:
118 North Bedford Road
Suite 300
Mount Kisco, New York 10549
Attention: Mr. David A. Stockman
For notices and communications to WPP:
31 West 52nd Street
New York, New York 10019
Attention: Mr. Randall J. Weisenburger
Each party, by written notice given to the other parties in
accordance with this Section 5.04, may change the address to
which notices, statements, instructions or other documents
are to be sent to such party. All notices, statements,
instructions and other documents hereunder shall be deemed
to have been given on the earlier of the date of actual or
facsimile delivery and three days after the date of mailing,
except that notice of a change of address shall be effective
only upon actual delivery.
<PAGE>
25
SECTION 5.05. Successors; Assigns. The terms and
--------------------
conditions of this Agreement shall be binding on and inure
to the benefit of the respective successors and permitted
assigns of the parties hereto.
SECTION 5.06. Counterparts. This Agreement may
-------------
be executed by the parties hereto in any number of
counterparts, each of which shall be deemed to be an
original, but all of which shall together constitute one and
the same instrument.
SECTION 5.07. Severability. The invalidity,
-------------
illegality or unenforceability of any provision of this
Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement or such provision in any
other jurisdiction, it being the intent of the parties
hereto that all rights and obligations of the parties hereto
under this Agreement shall be enforceable to the fullest
extent permitted by law.
SECTION 5.08. Headings. The section headings
---------
herein are for convenience of reference only and in no way
define, limit or extend the scope or intent of this
Agreement or any provisions hereof.
SECTION 5.09. Applicable Law. The laws of the
---------------
State of Delaware shall govern this Agreement, regardless of
the laws that might be applied under applicable principles
of conflicts of laws.
SECTION 5.10. Term of the Agreement. This
----------------------
Agreement shall become effective only upon consummation of
the Recapitalization and shall expire 10 years after the
date hereof unless extended by the parties hereto.
SECTION 5.11. No Third-Party Beneficiaries. This
-----------------------------
Agreement is intended to be solely for the benefit of the
parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 5.12. Specific Performance. Each party
---------------------
hereto acknowledges that its failure to comply with the
provisions of this Agreement will result in irreparable and
continuing damage to the other parties hereto for which
there will be no adequate remedies at law and that, in the
<PAGE>
26
event of a failure of any party hereto to comply with the
terms of this Agreement, the other parties hereto shall be
entitled to injunctive relief, without the necessity of
proving actual damages and without being required to post a
bond or other security, and to such other and further relief
as may be proper and necessary to ensure compliance with the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year first above
written.
BLACKSTONE CAPITAL PARTNERS, L.P.,
by BLACKSTONE MANAGEMENT
PARTNERS, L.P., its general
partner,
by
----------------------------
Name:
Title:
WASSERSTEIN PERELLA PARTNERS, L.P.,
by WASSERSTEIN PERELLA MANAGEMENT
PARTNERS, INC., its general
partner,
by
---------------------------
-
Name:
Title:
COLLINS & AIKMAN CORPORATION,
by
-------------------------------
Name:
Title:
COLLINS & AIKMAN GROUP, INC.,
by
-------------------------------
Name:
Title:
EXECUTION COPY
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CARCO, INC.
----------------------
RECEIVABLES SALE AGREEMENT
----------------------
Dated as of June 23, 1994
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1 Purchase and Sale of Receivables . . . . . . . . . . . . 2
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . 3
2.3 Payment of Purchase Price . . . . . . . . . . . . . . . . 3
2.4 No Repurchase . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Rebates, Adjustments, Returns and Reductions;
Modifications . . . . . . . . . . . . . . . . . . . . . 5
2.6 Limited Repurchase Obligation . . . . . . . . . . . . . . 6
2.7 Obligations Unaffected . . . . . . . . . . . . . . . . . 7
2.8 Certain Charges . . . . . . . . . . . . . . . . . . . . . 7
2.9 Certain Allocations . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
3.1 Conditions Precedent to the Company's Initial Purchase of
Receivables . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Conditions Precedent to All the Company's Purchases of
Receivables . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Conditions Precedent to Sellers' Obligations . . . . . . 9
3.4 Conditions Precedent to the Addition of a Seller . . . . 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Sellers Relating to
the Sellers . . . . . . . . . . . . . . . . . . . . . . 11
(a) Organization, Corporate Powers . . . . . . . . . . 11
(b) Authorization . . . . . . . . . . . . . . . . . . 12
(c) Enforceability . . . . . . . . . . . . . . . . . . 12
(d) Capitalization . . . . . . . . . . . . . . . . . . 12
-i-
<PAGE>
Page
----
(e) Litigation; Compliance with Laws . . . . . . . . . 12
(f) Agreements . . . . . . . . . . . . . . . . . . . . 13
(g) Tax Returns . . . . . . . . . . . . . . . . . . 13
(h) No Material Misstatements . . . . . . . . . . . . 14
(i) Employee Benefit Plans . . . . . . . . . . . . . . 14
(j) Solvency . . . . . . . . . . . . . . . . . . . . . 15
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(l) Indebtedness to Company. . . . . . . . . . . . . . 15
(m) Lockboxes. . . . . . . . . . . . . . . . . . . . . 15
(n) Filings . . . . . . . . . . . . . . . . . . . . . 15
(o) Receivables Documents . . . . . . . . . . . . . . 16
4.2 Representations and Warranties of the Sellers Relating to
the Agreement and the Receivables . . . . . . . . . . . 16
ARTICLE V
AFFIRMATIVE COVENANTS
5.1 Certificates; Other Information . . . . . . . . . . . . . 18
5.2 Compliance with Laws, etc. . . . . . . . . . . . . . . . 18
5.3 Preservation of Corporate Existence . . . . . . . . . . . 18
5.4 Visitation Rights . . . . . . . . . . . . . . . . . . . . 18
5.5 Keeping of Records and Books of Account . . . . . . . . . 19
5.6 Location of Records . . . . . . . . . . . . . . . . . . . 19
5.7 Computer Files . . . . . . . . . . . . . . . . . . . . . 19
5.8 Policies . . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Taxes; ERISA . . . . . . . . . . . . . . . . . . . . . . 20
5.10 Collections . . . . . . . . . . . . . . . . . . . . . . 21
5.11 Lockbox Agreements; Lockbox Accounts . . . . . . . . . . 21
5.12 Furnishing Copies, etc . . . . . . . . . . . . . . . . . 21
5.13 Obligations with Respect to Obligors and Receivables . . 22
5.14 Responsibilities of the Sellers . . . . . . . . . . . . 22
5.15 Further Action . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VI
NEGATIVE COVENANTS
6.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Extension or Amendment of Receivables . . . . . . . . . . 25
6.3 Change in Payment Instructions to Obligors . . . . . . . 25
6.4 Change in Name . . . . . . . . . . . . . . . . . . . . . 25
6.5 Modification of Ledger . . . . . . . . . . . . . . . . . 25
6.6 Business of the Sellers . . . . . . . . . . . . . . . . . 25
6.7 Accounting of Purchases . . . . . . . . . . . . . . . . . 25
6.8 Chattel Paper . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Ineligible Receivables . . . . . . . . . . . . . . . . . 26
ARTICLE VII
-ii-
<PAGE>
Page
----
PURCHASE TERMINATION EVENTS . . . . . . . . 26
ARTICLE VIII
THE SUBORDINATED NOTES
8.1 Subordinated Notes . . . . . . . . . . . . . . . . . . . 28
8.2 Restrictions on Transfer of Subordinated Notes . . . . . 29
ARTICLE IX
MISCELLANEOUS
9.1 Further Assurances . . . . . . . . . . . . . . . . . . . 29
9.2 Payments . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Costs and Expenses . . . . . . . . . . . . . . . . . . . 29
9.4 Successors and Assigns . . . . . . . . . . . . . . . . . 30
9.5 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 31
9.6 No Waiver; Cumulative Remedies . . . . . . . . . . . . . 31
9.7 Amendments and Waivers . . . . . . . . . . . . . . . . . 31
9.8 Severability . . . . . . . . . . . . . . . . . . . . . . 31
9.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . 32
9.11 Construction of Agreement as Security Agreement . . . . 32
9.12 Waivers of Jury Trial . . . . . . . . . . . . . . . . . 32
9.13 Jurisdiction; Consent to Service of Process . . . . . . 33
9.14 Addition of Sellers . . . . . . . . . . . . . . . . . . 33
9.15 Optional Termination of Seller . . . . . . . . . . . . . 34
9.16 No Bankruptcy Petition . . . . . . . . . . . . . . . . . 35
9.17 Termination . . . . . . . . . . . . . . . . . . . . . . 35
9.18 Confidentiality . . . . . . . . . . . . . . . . . . . . 36
ANNEX X Definitions
SCHEDULES
1 Locations of Chief Executive Offices; Locations of
Books and Records
2 Lockboxes
3 Discounted Percentage
4 Tax Matters
EXHIBITS
A Form of U.S. Dollar Subordinated Note
B Form of Canadian Dollar Subordinated Note
C Form of Additional Seller Supplement
-iii-
<PAGE>
RECEIVABLES SALE AGREEMENT, dated as of June 23, 1994,
among Collins & Aikman Products Co., a Delaware corporation ("C&A
Products"), Collins and Aikman Corporation, WCA Canada, Inc.,
Imperial Wallcoverings (Canada), Inc., Imperial Wallcoverings, Inc.,
The Akro Corporation, Dura Acquisition Corp. and each of the other
subsidiaries of C&A Products from time to time parties hereto (each
of the foregoing, a "Seller"), C&A Products, as Master Servicer (in
such capacity, the "Master Servicer"), and Carco, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, in the ordinary course of business, each
Seller generates accounts receivable; and
WHEREAS, each Seller desires to sell to the Company,
and the Company is willing to purchase from such Seller, all of
such Seller's right, title and interest in, to and under the
Receivables (as defined herein) now existing or hereafter created
and the rights of such Seller in, to and under all Related
Property (as so defined) related thereto;
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized terms used in this
-------------
Agreement shall have the respective meanings assigned to such
terms in Annex X hereto unless otherwise defined herein.
1.2 Other Definitional Provisions. (a) The words
-----------------------------
"hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
article, section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
(b) As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms
relating to the Sellers and the Company, unless otherwise defined
herein, shall have the respective meanings given to them under
generally accepted accounting principles.
(c) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
<PAGE>
2
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1 Purchase and Sale of Receivables. (a) By
--------------------------------
execution of this Agreement, each of the Sellers does hereby
sell, transfer, assign, set over and otherwise convey, without
recourse (except as expressly provided herein), to the Company,
on the Effective Date, all Receivables owned by the Sellers at
the close of business on the Effective Date and all Related
Property in respect of such Receivables. Subject to Article VII,
as of each Payment Date, each of the Sellers does hereby sell,
transfer, assign, set over and otherwise convey, without recourse
(except as expressly provided herein), to the Company, all of its
right, title and interest in, to and under all Receivables owned
by the Sellers at the close of business on such Payment Date and
not theretofore conveyed to the Company and all Related Property
in respect of such Receivables. The foregoing sale, transfer,
assignment, set-over and conveyance and any subsequent sales,
transfers, assignments, set-overs and conveyances do not
constitute, and are not intended to result in, the creation or an
assumption by the Company or any other Person of any obligation
of the Sellers in connection with the Receivables or under any
agreement or instrument relating thereto, including any
obligation to any Obligor.
(b) On the Effective Date and on the date of creation
of each newly created Receivable, all of the applicable Seller's
right, title and interest in and to (i) in the case of the
Effective Date, all existing Receivables and Related Property in
respect of such Receivables and (ii) in the case of each such
date of creation, all such newly created Receivables and all
Related Property in respect of such Receivables shall be
immediately and automatically sold, assigned, transferred and
conveyed to the Company pursuant to paragraph (a) above without
any further action by such Seller or any other Person. If any
Seller shall not have received payment from the Company of the
Purchase Price for any newly created Receivable on the Payment
Date therefor in accordance with the terms of subsection 2.3(c),
such newly created Receivable and the Related Property with
respect thereto shall, upon receipt of notice from the applicable
Seller of such failure to receive payment, immediately and
automatically be sold, assigned, transferred and reconveyed by
the Company to such Seller without any further action by the
Company or any other Person.
(c) In connection with the foregoing conveyances, each
Seller agrees to record and file, or cause to be recorded and
filed, at its own expense, financing statements (and continuation
statements with respect to such financing statements when
applicable), and any other similar instruments, with respect to
the Receivables and Related Property now existing and hereafter
<PAGE>
3
acquired by the Company from the Sellers meeting the requirements
of applicable law in such manner and in such jurisdictions as are
necessary to perfect the purchases of the Receivables and Related
Property by the Company from the Sellers, and to deliver evidence
of such filings to the Company on or prior to the Effective Date.
The parties hereto intend that the transfer of Receivables
effected by this Agreement be sales.
(d) In connection with the foregoing conveyances, each
Seller agrees at its own expense, as agent of the Company, that
it will (i) indicate or cause to be indicated on the computer
files and other listings relating to the Receivables that all
Receivables and Related Property have been sold to the Company
and that the Company has sold an interest therein and has granted
a security interest in the Company's retained interest therein
and (ii) deliver or cause to be delivered to the Company computer
files, microfiche lists or typed or printed lists containing true
and complete lists of all such Receivables, identified by Obligor
and by the Receivables balance as of June 15, 1994.
2.2 Purchase Price. The amount payable by the Company
--------------
to a Seller (the "Purchase Price") for newly created Receivables
and Related Property on any Payment Date under this Agreement
shall be equal to the product of (a) the aggregate outstanding
Principal Amount of such Receivables as set forth in the
applicable Daily Report and (b) the Discounted Percentage with
respect to such Seller. To the extent the Purchase Price of any
Receivable is denominated in Canadian Dollars, the Dollar
equivalent of such Purchase Price shall be equal to the Canadian
Exchange Percentage thereof.
2.3 Payment of Purchase Price. (a) Upon fulfillment
-------------------------
of the conditions set forth in Article III, the Purchase Price
for Receivables and the Related Property shall be paid or
provided for in the manner provided below on each day for which a
Daily Report is prepared and delivered to the Company (each such
day, a "Payment Date"). Each Seller hereby appoints the Master
Servicer as its agent to receive payment of the Purchase Price
for Receivables sold by it to the Company and hereby authorizes
the Company to make all payments due to such Seller directly to,
or as directed by, the Master Servicer. The Master Servicer
hereby accepts and agrees to such appointment.
(b) The Purchase Price for Receivables and the Related
Property with respect thereto purchased by the Company on the
Effective Date from each Seller shall be paid by the Company as
follows:
(i) in cash from the net proceeds of the sale of an
interest in such Purchased Receivables by the Company to
other Persons; and
<PAGE>
4
(ii) in cash from the proceeds of capital contributed
by C&A Products to the Company in respect of its equity
interest in the Company.
(c) The Purchase Price for Receivables and the Related
Property with respect thereto purchased by the Company on any
Payment Date after the Effective Date shall be paid by the
Company on such Payment Date as follows:
(i) by netting the amount of any Seller Adjustment
Payments or Seller Repurchase Payments pursuant to
subsection 2.5 or 2.6 against such Purchase Price;
(ii) to the extent available for such purpose, in cash
from Collections; it being understood that Canadian Dollar
cash Collections shall be applied solely to the Purchase
Price of Canadian Dollar denominated Receivables;
(iii) to the extent available for such purpose, in cash
from the net proceeds of the sale of an interest in such
Purchased Receivables by the Company to other Persons;
(iv) at the option of the Company, by means of an
addition to the principal amount of the Canadian Dollar
Subordinated Note or U.S. Dollar Subordinated Note, as
appropriate in accordance with this subsection, in an
aggregate amount equal to the remaining portion of the
Purchase Price; provided, however, that the Company may pay
-------- -------
by means of additions to the principal amount of either
Subordinated Note only if, at the time of such payment and
after giving effect thereto, the fair market value of its
assets, including any beneficial interests or indebtedness
of a trust and all Receivables and Related Property it owns,
after giving effect for this purpose to any Adjustments with
respect to the Purchased Receivables or any participation
interest therein sold to the Banks under the Receivables
Transfer Agreement, is greater than the amount of its
liabilities including its liabilities on the Subordinated
Notes and in respect of the Purchase Discount Amounts and
all fees payable under the Receivables Transfer Agreement.
Any such addition to the principal amount of the
Subordinated Notes shall be allocated among the Sellers by
the Master Servicer provided, however, that additions to the
-------- -------
principal amount of the Canadian Dollar Subordinated Note
may only be made to evidence the purchase price of
Receivables denominated in Canadian Dollars and additions to
the U.S. Dollar Subordinated Note may only be made to
evidence the purchase price of Receivables denominated in
Dollars. The Master Servicer may evidence such payments by
means of additions to the principal amount of the
appropriate Subordinated Note by recording the date and
amount thereof on the books and records of the Master
Servicer or the Sellers or on the grid attached to such
Subordinated Note; provided that the failure to make any
<PAGE>
5
such recordation or any error in such grid shall not
adversely affect any Seller's rights; and
(v) in cash from the proceeds of capital contributed
by C&A Products to the Company in respect of its equity
interest in the Company.
(d) The Master Servicer may allocate among the Sellers
the payment of the Purchase Price for Receivables and any amounts
netted therefrom pursuant to subsection 2.3(c)(i). The Company
shall be entitled to pay all amounts in respect of the Purchase
Price of Receivables to an account of the Master Servicer without
regard to whether or how such payments are allocated by the
Master Servicer to the Sellers. All payments under this
Agreement (i) to the extent such payments are made in Canadian
Dollars, shall be made on the date specified therefor in Canadian
Dollars in same day funds or by check, as the Master Servicer
shall elect, (ii) in all other cases, shall be made on the date
specified therefor in Dollars in same day funds or by check, as
the Master Servicer shall elect, (iii) in all cases, shall be
made not later than 3:00 p.m (New York City time) and (iv) shall
be made (x) if to any Seller, to the bank account for such Seller
designated in writing by the Master Servicer to the Company and
(y) if to the Master Servicer, to the bank account designated in
writing by the Master Servicer to the Company.
(e) Whenever any payment to be made under this
Agreement shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding
Business Day. Amounts not paid when due in accordance with the
terms of this Agreement shall bear interest at a rate equal at
all times to the ABR plus the Applicable ABR Margin plus 2%,
---- ----
payable on demand.
2.4 No Repurchase. Except to the extent expressly set
-------------
forth herein, no Seller shall have any right or obligation under
this Agreement, by implication or otherwise, to repurchase from
the Company any Purchased Receivables or Related Property or to
rescind or otherwise retroactively effect any purchase of any
Purchased Receivables or Related Property after the Payment Date
relating thereto.
2.5 Rebates, Adjustments, Returns and Reductions;
---------------------------------------------
Modifications. From time to time a Seller may make Adjustments
-------------
to Receivables in accordance with this subsection 2.5 and
subsection 6.2. The Sellers, jointly and severally, agree to pay
to the Company, on the Payment Date immediately succeeding the
date of the grant of any Adjustment (regardless of which Seller
shall have granted such Adjustment), the amount of any such
Adjustment (a "Seller Adjustment Payment"); provided, that, prior
--------
to any Purchase Termination Event, any such payments to the
Company shall be netted against the Purchase Price of newly
created Receivables in accordance with subsection 2.3(c)(i). An
"Adjustment" shall mean any rebate, discount, refund or
<PAGE>
6
adjustment (including, without limitation, as a result of the
application of any special or other discounts or any
reconciliations) of any Receivable, the amount owing for any
returns (including, without limitation, as a result of the return
of any stale goods) or cancellations and the amount of any other
reduction of any payment under any Receivable in each case
granted or made by the applicable Seller to the related Obligor,
provided, that, an "Adjustment" does not include any Charge-Off.
--------
The amount of any Adjustment shall be set forth on the first
Daily Report prepared after the date of the grant thereof.
2.6 Limited Repurchase Obligation. In the event that
-----------------------------
any of the representations or warranties contained in subsection
4.2 in respect of any Receivable shall be or have been incorrect
in any material respect as of the date made or deemed made, or
any Eligible Receivable shall become subject to any defense,
dispute, offset or counterclaim of any kind (other than as
expressly permitted by this Agreement) or any Seller shall breach
any covenant contained in subsection 5.2, 5.8, 6.1, 6.2, 6.3,
6.4, 6.5, 6.8 or 6.9 with respect to any Receivable (each of the
foregoing events or circumstances, a "Repurchase Event"), such
Receivable shall cease to be an Eligible Receivable on the date
on which such Repurchase Event occurs. In addition, if any
Repurchase Event shall occur with respect to any Receivable, then
the Sellers, jointly and severally, agree to pay to the Company
an amount (the "Repurchase Amount") equal to the Purchase Price
of such Receivable (whether the Company paid such Purchase Price
in cash or otherwise) less Collections received by the Company in
respect of such Receivable, regardless of which Seller shall have
been responsible for such Repurchase Event, such payment to occur
on the 30th day after the day such Repurchase Event becomes known
(or should have become known with due diligence) to any Seller
(except that if such 30th day is not a Business Day, such payment
shall be made on the Business Day immediately succeeding such
30th day) unless such Repurchase Event shall have been cured on
or before such 30th day; provided, that, prior to the occurrence
--------
of any Purchase Termination Event, any such payments to the
Company shall be netted against the Purchase Price of newly
created Receivables in accordance with subsection 2.3(c)(i). Any
payment by any Seller pursuant to this subsection 2.6 is referred
to as a "Seller Repurchase Payment". If, on or prior to such
30th day (or the Business Day immediately succeeding such 30th
day, as applicable), any Seller shall so reacquire any such
Receivable, then
the Company shall have no further remedy against the Sellers in
respect of the Repurchase Event with respect to such reacquired
Receivable. Upon a Seller Repurchase Payment, the Company shall
automatically and without further action be deemed to sell,
transfer, assign, set over and otherwise convey to the applicable
Seller, without recourse, representation or warranty, all the
right, title and interest of the Company in, to and under such
Receivable and the Related Property with respect thereto. The
Company shall execute such documents and instruments of transfer
or assignment and take such other actions as shall reasonably be
<PAGE>
7
requested by such Seller to effect the conveyance of such
Receivable pursuant to this section 2.6.
2.7 Obligations Unaffected. The obligations of the
----------------------
Sellers to the Company under this Agreement shall not be affected
by reason of any invalidity, illegality or irregularity of any
Receivable or any sale of a Receivable.
2.8 Certain Charges. Each of the Sellers and the
---------------
Company agrees that late charge revenue, reversals of discounts,
other fees and charges and other similar items, whenever created,
accrued in respect of Purchased Receivables shall be the property
of the Company notwithstanding the occurrence of an Early
Termination, and all Collections with respect thereto shall
continue to be allocated and treated as Collections in respect of
Purchased Receivables.
2.9 Certain Allocations. Each of the Sellers hereby
-------------------
agrees that, following the occurrence of an Early Termination in
respect of any Seller, all Collections and other proceeds
received in respect of Receivables generated by such Seller shall
be applied first, to pay the outstanding Principal Amount of
-----
Purchased Receivables (as of the date of such Early Termination)
of the Obligor to whom such Collections are attributable until
such Purchased Receivables are paid in full and, second, to such
------
Seller to pay Receivables of such Obligor not sold to the
Company; provided, however, that notwithstanding the foregoing,
-------- -------
if any such Seller can attribute a Collection to a specific
Obligor and a specific Receivable, then such Collection shall be
applied to pay such Receivable of such Obligor.
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
3.1 Conditions Precedent to the Company's Initial
---------------------------------------------
Purchase of Receivables. The obligation of the Company to
-----------------------
purchase the Receivables and the Related Property hereunder on
the Effective Date from any Seller is subject to the conditions
precedent, which may be waived by the Company, that (a) each of
the Sale Documents shall be in full force and effect and (b) the
conditions set forth below shall have been satisfied on or before
the Effective Date:
(i) the Company shall have received copies of duly
adopted resolutions of the Board of Directors of each Seller
as in effect on the Effective Date and in form and substance
reasonably satisfactory to the Company, authorizing this
Agreement, the documents to be delivered by such Seller
hereunder and the transactions contemplated hereby,
certified by the Secretary or Assistant Secretary of such
Seller;
<PAGE>
8
(ii) the Company shall have received duly executed
certificates of the Secretary or an Assistant Secretary of
each Seller, dated the Effective Date and in form and
substance reasonably satisfactory to the Company, certifying
the names and true signatures of the officers authorized on
behalf of such Seller to sign this Agreement and any
instruments or documents in connection with this Agreement;
(iii) each Seller shall have filed and recorded, at its
own expense, UCC-1 financing statements (and other similar
instruments) with respect to the Receivables and the Related
Property in such manner and in such jurisdictions as are
necessary or desirable to perfect the Company's ownership
interest thereof under the Uniform Commercial Code (or any
other similar law) and delivered evidence of such filings to
the Company on or prior to the Effective Date; and all other
action necessary or desirable, in the reasonable judgment of
the Company, to perfect the Company's ownership of the
Receivables shall have been duly taken;
(iv) each Seller shall have delivered to the Company a
microfiche, typed or printed list or other tangible evidence
reasonably acceptable to the Company showing as of a date no
later than five Business Days preceding the Effective Date,
the Obligors whose Receivables are to be transferred to the
Company on the Effective Date and the balance of the
Receivables with respect to each such Obligor as of such
preceding date; and
(v) the Company shall have received reports of UCC-1
and other searches of the Sellers with respect to the
Receivables and the Related Property reflecting the absence
of Liens thereon, except Liens created in connection with
the sale by the Company of an interest in the Purchased
Receivables and except for Liens as to which the Company has
received Uniform Commercial Code termination statements to
be filed on or prior to the Effective Date.
3.2 Conditions Precedent to All the Company's
-----------------------------------------
Purchases of Receivables. The obligation of the Company to pay a
------------------------
Seller for any Receivable and the Related Property with respect
thereto on each Payment Date (including the Effective Date) shall
be subject to the further conditions precedent, which may be
waived by the Company, that on such Payment Date:
(a) the following statements shall be true (and the
acceptance by such Seller of the Purchase Price for any
Receivables on any Payment Date shall constitute a
representation and warranty by such Seller that on such
Payment Date such statements are true):
(i) the representations and warranties of such
Seller contained in subsections 4.1 and 4.2 shall be
true and correct in all material respects on and as of
<PAGE>
9
such Payment Date as though made on and as of such
date, except insofar as such representations and
warranties are expressly made only as of another date;
and
(ii) no Purchase Termination Event or Incipient
Purchase Termination Event shall have occurred and be
continuing; and
(iii) there has been no material adverse change
since the date of this Agreement in the collectibility
of the Receivables (other than due to a change in the
creditworthiness of the Obligors);
(b) the Company shall be satisfied that such Seller's
systems, procedures and record-keeping relating to the
Purchased Receivables are in all material respects
sufficient and satisfactory in order to permit the purchase
and administration of the Purchased Receivables in
accordance with the terms and intent of this Agreement (it
being understood and agreed that as of the date hereof, the
Sellers' systems, procedures and record-keeping relating to
the Receivables are in all material respects sufficient and
satisfactory);
(c) the Company shall have received payment in full of
all amounts for which payment is due from such Seller
pursuant to subsection 2.5, 2.6 or 9.3;
(d) the Company shall have received such other
approvals, opinions or documents as the Company may
reasonably request; and
(e) such Seller shall have complied with all of its
covenants in all material respects and satisfied all of its
obligations in all material respects under this Agreement
required to be complied with or satisfied as of such date;
provided, however, that the failure of any Seller to satisfy any
-------- -------
of the foregoing conditions shall not prevent such Seller from
subsequently selling Receivables upon satisfaction of all such
conditions or exercising its rights under subsection 2.1(b).
3.3 Conditions Precedent to Sellers' Obligations.
--------------------------------------------
(a) The obligations of each Seller on the Effective Date shall
be subject to the conditions precedent that such Seller shall
have received on or before the Effective Date the following, each
dated the Effective Date and in form and substance satisfactory
to such Seller:
(i) a copy of duly adopted resolutions of the Board of
Directors of the Company authorizing this Agreement, the
documents to be delivered by the Company hereunder and the
<PAGE>
10
transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of the Company; and
(ii) a duly executed certificate of the Secretary or
Assistant Secretary of the Company certifying the names and
true signatures of the officers authorized on its behalf to
sign this Agreement and the other documents to be delivered
by it hereunder.
(b) The obligations of each Seller on each Payment
Date shall be subject to the condition precedent that no
Termination Event set forth in paragraph (f) of Article IX of the
Receivables Transfer Agreement shall have occurred and be
continuing.
3.4 Conditions Precedent to the Addition of a Seller.
------------------------------------------------
No Subsidiary of C&A Products approved by the Company as an
additional Seller pursuant to subsection 9.14 shall be added as a
Seller hereunder unless the conditions set forth below shall have
been satisfied on or before the date designated for the addition
of such Seller (the "Seller Addition Date"):
(i) the Company shall have received an Additional
Seller Supplement substantially in the form of Exhibit C
hereto, duly executed and delivered by such Seller;
(ii) the Company shall have received copies of duly
adopted resolutions of the Board of Directors of such Seller
as in effect on the related Seller Addition Date and in form
and substance reasonably satisfactory to the Company,
authorizing this Agreement, the documents to be delivered by
such Seller hereunder and the transactions contemplated
hereby, certified by the Secretary or Assistant Secretary of
such Seller;
(iii) the Company shall have received duly executed
certificates of the Secretary or an Assistant Secretary of
such Seller dated the related Seller Addition Date and in
form and substance reasonably satisfactory to the Company,
certifying the names and true signatures of the officers
authorized on behalf of such Seller to sign the Additional
Seller Supplement or any instruments or documents in
connection with this Agreement;
(iv) a Lockbox Account with respect to Receivables to
be sold by such Seller shall have been established in the
name of the Company;
(v) such Seller shall have filed and recorded, at its
own expense, UCC-1 financing statements (and other similar
instruments) with respect to the Receivables and the Related
Property in such manner and in such jurisdictions as are
necessary or desirable to perfect the Company's ownership
interest thereof under the Uniform Commercial Code (or any
<PAGE>
11
other similar law) and delivered evidence of such filings to
the Company on or prior to the date hereof; and all other
action necessary or desirable, in the opinion of the
Company, to perfect the Company's ownership of the
Receivables shall have been duly taken;
(vi) such Seller shall have delivered to the Company a
microfiche, a typed or printed list or other tangible
evidence reasonably acceptable to the Company showing as of
a date acceptable to the Company prior to the related Seller
Addition Date the Obligors whose Receivables are to be
transferred to the Company and the balance of the
Receivables with respect to each such Obligor as of such
date; and
(vii) the Company shall have received reports of UCC-1
and other searches of such Seller with respect to the
Receivables and the Related Property reflecting the absence
of Liens thereon, except Liens created in connection with
the sale by the Company of an interest in the Purchased
Receivables and except for Liens as to which the Company has
received Uniform Commercial Code termination statements to
be filed on or prior to the related Seller Addition Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Sellers
---------------------------------------------
Relating to the Sellers. Each Seller hereby represents and
-----------------------
warrants to the Company on the Effective Date and on each Payment
Date that:
(a) Organization, Corporate Powers. It (i) is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated, (ii) has all requisite corporate power and
authority, and all material licenses, permits, franchises,
consents and approvals, to own or lease its property and
assets and to carry on its business as now conducted and as
proposed to be conducted, (iii) is qualified and in good
standing as a foreign corporation to do business in every
jurisdiction where such qualification is necessary, except
where the failure so to qualify would not have a Material
Adverse Effect and (iv) has the corporate power and
authority to execute, deliver and perform this Agreement and
each of the other Sale Documents to which it is a party and
each other agreement or instrument contemplated hereby or
thereby to which it is or will be a party. It does not have
any assets or business, nor is it a party to any material
contract within the meaning of Item 6.01(b)(10) of
Regulation S-K of the Securities and Exchange Commission,
other than as disclosed or referred to in the registration
<PAGE>
12
statement of which the Preliminary Prospectus is a part or
as contemplated hereby and thereby.
(b) Authorization. The execution, delivery and
performance by it of this Agreement and each of the other
Sale Documents to which it is a party, the sale of
Receivables by it hereunder and the consummation of the
other transactions contemplated by any of the foregoing
(collectively, the "Sale Transactions") (i) have been duly
authorized by all requisite corporate and, if required,
stockholder action and (ii) will not (x) violate (A) any
provision of law, statute, rule or regulation (including,
without limitation, Regulations G, T, U and X) or the
certificate of incorporation or by-laws (or similar
governing documents) of such Seller, (B) any applicable
order of any court or any rule, regulation or order of any
Governmental Authority or (C) any indenture, certificate of
designation for preferred stock, agreement or other
instrument to which such Seller is a party or by which it or
any of its property is bound, (y) be in conflict with,
result in a breach of or constitute (with notice or lapse of
time or both) a default under any such indenture, agreement
or other instrument where any such conflict, violation,
breach or default referred to in clause (ii)(x) or (ii)(y)
of this subsection, individually or in the aggregate, would
have a Material Adverse Effect or (z) result in the creation
or imposition of any Lien upon any of its property or
assets, except for Liens created under this Agreement and
Liens created in connection with the sale by the Company of
an interest in the Receivables.
(c) Enforceability. Each of this Agreement and each
of the other Sale Documents to which it is a party has been
duly executed and delivered by such Seller and constitutes a
legal, valid and binding obligation of such Seller
enforceable against it in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting
creditors' rights generally and except as enforceability may
be limited by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
(d) Capitalization. All of its Capital Stock is owned
directly or indirectly by C&A Products.
(e) Litigation; Compliance with Laws. (1) Except as
described in the registration statement of which the
Preliminary Prospectus is a part, there are not any actions,
suits or proceedings at law or in equity or by or before any
court or Governmental Authority now pending or, to the
knowledge of such Seller, threatened against or affecting
such Seller or any of its property or rights as to which
there is a reasonable possibility of an adverse
<PAGE>
13
determination and which (i) if adversely determined, could
individually or in the aggregate result in a Material
Adverse Effect or (ii) involve the Transaction Documents or
(iii) if adversely determined, could materially adversely
affect the Sale Transactions.
(2) It is not in default with respect to any law,
order, judgment, writ, injunction, decree, rule or
regulation of any Governmental Authority where such default
could have a Material Adverse Effect. The sales hereunder
and the use of the proceeds thereof will not violate any
applicable law or regulation or violate or be prohibited by
any judgment, writ, injunction, decree or order of any court
or Governmental Authority or subject such Seller to any
civil or criminal penalty or fine. No Purchase Termination
Event or Incipient Purchase Termination Event has occurred
and is continuing.
(f) Agreements. (1) It is not a party to any
agreement or instrument or subject to any corporate
restriction that has resulted or could reasonably be
expected to result in a Material Adverse Effect.
(2) It is not in default in any manner under any
provision of any indenture or other agreement or instrument
evidencing Indebtedness or any other material agreement or
instrument to which it is a party or by which it or any of
its properties or assets are or may be bound, in either case
where such default could result in a Material Adverse
Effect.
(g) Tax Returns. It has filed or caused to be filed
all Federal, and all material state, local and foreign, tax
returns required to have been filed by it and has paid or
caused to be paid all taxes shown thereon to be due and
payable, and any assessments in excess of $2,000,000 in the
aggregate received by it, except taxes the amount or
validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on its
books and taxes, assessments, charges, levies or claims in
respect of property taxes for property that it has
determined to abandon where the sole recourse for such tax,
assessment, charge, levy or claim is to such property. It
has paid in full or made adequate provision (in accordance
with GAAP) for the payment of all taxes due with respect to
the periods ending on or before January 29, 1994, which
taxes, if not paid or adequately provided for, would have a
Material Adverse Effect. The tax returns of such Seller
have been examined by relevant Federal tax authorities for
all periods through January 26, 1985, and all deficiencies
asserted as a result of such examinations have been paid.
Except as set forth on Schedule 4, as of the Effective Date,
with respect to such Seller, (i) no material claims are
<PAGE>
14
being asserted in writing with respect to any taxes, (ii) no
presently effective waivers or extensions of statutes of
limitation with respect to taxes have been given or
requested, (iii) no tax returns are being examined by, and
no written notification of intention to examine has been
received from, the Internal Revenue Service or any other
taxing authority and (iv) no currently pending issues have
been raised in writing by the Internal Revenue Service or
any other taxing authority. For purposes of this paragraph,
"taxes" shall mean any present or future tax, levy, impost,
duty, charge, assessment or fee of any nature (including
interest, penalties and additions thereto) that is imposed
by any Governmental Authority.
(h) No Material Misstatements. (1) The information,
reports, financial statements, exhibits and schedules
furnished by or on behalf of such Seller to the Company in
connection with the negotiation of any Sale Document or
included therein or delivered pursuant thereto did not
contain and will not contain as of the Effective Date any
material misstatement of fact and did not omit and will not
omit to state as of the Effective Date any material fact
necessary to make the statements therein, in the light of
the circumstances under which they were, are or will be
made, not materially misleading in their presentation of the
Sale Transactions or such Seller.
(2) As of the Effective Date, there are no facts
relating to such Seller known or which, after reasonable
inquiry, would be known by it that have not been disclosed
to the Company in writing which could have a Material
Adverse Effect.
(i) Employee Benefit Plans. Each of such Seller and
each of its ERISA Affiliates is in compliance in all
material respects with the applicable provisions of ERISA
and the regulations and published interpretations thereunder
except for such noncompliance which would not be expected to
result in a Material Adverse Effect. No Reportable Event
has occurred as to which such Seller or any of its ERISA
Affiliates was required to file a report with the PBGC,
other than reports for which the 30 day notice requirement
is waived, reports that have been filed and reports the
failure of which to file would not result in a Material
Adverse Effect and, as of the Effective Date, the present
value of all benefit liabilities under each Plan of such
Seller or any of its ERISA Affiliates (on a termination
basis and based on those assumptions used to fund such Plan)
did not, as of the last annual valuation report applicable
thereto, exceed by more than $7,500,000 the value of the
assets of such Plan. None of such Seller or any of its
ERISA Affiliates has incurred or could reasonably be
expected to incur any Withdrawal Liability that could result
in a Material Adverse Effect. None of such Seller or any of
<PAGE>
15
its ERISA Affiliates has received any notification that any
Multiemployer Plan is in reorganization or has been termi-
nated within the meaning of Title IV of ERISA, and no
Multiemployer Plan is reasonably expected to be in reorgan-
ization or to be terminated where such reorganization or
termination has resulted or could reasonably be expected to
result, through increases in the contributions required to
be made to such Plan or otherwise, in a Material Adverse
Effect.
(j) Solvency. The fair salable value of the assets of
such Seller exceeds the amount that will be required to be
paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of such
Seller. The assets of such Seller do not constitute
unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. Such Seller does
not intend to, or believe that it will, incur debts beyond
its ability to pay such debts as they mature (taking into
account the Recapitalization Transactions but assuming that
the Overallotment Option is not exercised).
(k) Absence of Certain Restrictions. No indenture,
certificate of designation for preferred stock, agreement or
other instrument to which such Seller or any of its
Subsidiaries is a party will prohibit or materially
restrain, or have the effect of prohibiting or materially
restraining, or imposing materially adverse conditions upon,
the sale of Receivables or the granting of Liens thereon.
(l) Indebtedness to Company. Immediately prior to
consummation of the transactions contemplated hereby on the
Effective Date, it had no outstanding Indebtedness to the
Company.
(m) Lockboxes. Set forth in Schedule 2 is a complete
and accurate description as of the Effective Date of each
Lockbox Account currently maintained by such Seller. Each
of the Lockbox Agreements, once entered into, shall be the
legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as
such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity).
(n) Filings. On or prior to the Effective Date, all
filings and other acts necessary or advisable (including but
not limited to all filings and other acts necessary or
advisable under the Uniform Commercial Code of each relevant
jurisdiction) have been made or performed in order to grant
<PAGE>
16
the Company a first priority perfected ownership interest in
respect of all Receivables.
(o) Receivables Documents. Upon the delivery, if any,
by such Seller to the Company of licenses, rights, computer
programs, related materials, computer tapes, disks,
cassettes and data relating to the administration of the
Purchased Receivables pursuant to subsection 5.15(d)(5), the
Company shall have been furnished with all materials and
data necessary to permit immediate collection of the
Purchased Receivables without the participation of any
Seller in such collection.
4.2 Representations and Warranties of the Sellers
---------------------------------------------
Relating to the Agreement and the Receivables. Each Seller
---------------------------------------------
hereby represents and warrants to the Company on the Effective
Date and on each Payment Date that with respect to the
Receivables being paid for as of such date:
(a) Receivables Description. The microfiche, printed
or typed list or computer file delivered pursuant to
subsection 3.1(b)(iv) is an accurate and complete listing in
all material respects of all its Receivables as of June 15,
1994 and the information contained therein with respect to
the identity of such Receivables is true and correct in all
material respects as of such date.
(b) Eligible Receivable. Each Receivable sold by it
hereunder and included as an Eligible Receivable in the
calculation of Applicable Eligible Receivables Percentage
will be, on and as of the date of such inclusion, an
Eligible Receivable. The aggregate outstanding Principal
Amount of Receivables sold by it on any Payment Date is
correctly set forth on the Seller Daily Report with respect
to such Seller and with respect to such Payment Date. The
aggregate outstanding Adjusted Principal Amount of
Receivables denominated in Canadian Dollars and sold by it
on any Payment Date is correctly set forth on the Seller
Daily Report with respect to such Seller and with respect to
such Payment Date.
(c) Title; No Liens. Other than with respect to
Receivables which such Seller states in writing (in the
applicable Seller Daily Report or otherwise) are not
Eligible Receivables on such date, such Seller is the sole
legal and beneficial owner of its Receivables, and upon the
sale of each Receivable of such Seller, the Company will
become the sole legal and beneficial owner of such
Receivable, free and clear of any Liens (except for Liens
granted by such Seller in favor of the Company and the
interest in such Purchased Receivables sold and the security
interest therein granted by the Company to other Persons and
except for Liens which are released on or prior to the
Effective Date), and no effective financing statement or
<PAGE>
17
other instrument similar in effect covering all or any part
of such Purchased Receivable, Related Property or
Collections with respect thereto will at such time be on
file against such Seller in any filing or recording office
except such as have been filed in favor of the Company in
accordance with this Agreement.
(d) Governmental Consents. Other than with respect to
Receivables which such Seller states in writing (in the
applicable Seller Daily Report or otherwise) are not
Eligible Receivables on such date, all consents, licenses,
approvals or authorizations of or registrations or
declarations with any Governmental Authority required to be
obtained, effected or given by the Company in connection
with the conveyance of each Receivable pursuant to the
Receivables Transfer Agreement have been duly obtained,
effected or given and are in full force and effect.
(e) Compliance With Laws. Other than with respect to
Receivables which such Seller states in writing (in the
applicable Seller Daily Report or otherwise) are not
Eligible Receivables on such date, all laws, statutes, rules
and regulations (including, without limitation, usury laws),
applicable at the related Payment Date to any of the
Receivables have been duly complied with by such Seller
except to the extent any failure to so comply could not
affect the validity or collectibility of such Receivable.
(f) No Set-Off. Other than with respect to
Receivables which such Seller states in writing (in the
applicable Seller Daily Report or otherwise) are not
Eligible Receivables on such date, the Receivables are not
subject to any defense, dispute, offset or counterclaim,
whether arising out of the transactions represented by the
Receivables or independently thereof and whether arising out
of any assertion by any Obligor that its obligations in
respect of any Receivable are, or may be, payable to a third
party, instead of the owner of such Receivable, or
otherwise.
(g) Chief Executive Office. The chief executive
office of such Seller is listed opposite its name on
Schedule 1, which office is the place where such Person is
"located" for the purposes of Section 9-103(3)(d) of the
Uniform Commercial Code of the State of New York, and the
offices of such Seller where such Seller keeps its records
concerning the Receivables are also listed in said Schedule
opposite its name.
(h) Absence of Changes. As of the related Payment
Date, there has not been since the date of this Agreement
any material adverse change in the ability of such Seller,
acting as the Servicer, to perform its obligations hereunder
or under the Receivables Transfer Agreement.
<PAGE>
18
ARTICLE V
AFFIRMATIVE COVENANTS
Each Seller hereby agrees that, so long as there are any
amounts outstanding with respect to Purchased Receivables
previously sold by such Seller to the Company or until an Early
Termination with respect to such Seller, whichever is later, such
Seller or the Master Servicer on behalf of such Seller shall:
5.1 Certificates; Other Information. Furnish to the
-------------------------------
Company:
(a) not later than 90 days after the end of each
fiscal year and not later than 45 days after the end of each
of the first three fiscal quarters of each fiscal year, a
certificate of a Responsible Officer of the Master Servicer
stating that, to the best of such Officer's knowledge, such
Seller during such period has observed or performed all of
its covenants and other agreements, and satisfied every
condition, contained in the Sale Documents to which it is a
party to be observed, performed or satisfied by it, and that
such Officer has obtained no knowledge of any Purchase
Termination Event or Incipient Purchase Termination Event
except as specified in such certificate; and
(b) promptly, such additional financial and other
information as the Company may from time to time reasonably
request.
5.2 Compliance with Laws, etc. Comply in all material
--------------------------
respects with its Certificate of Incorporation and by-laws and
all laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted, applicable
to the Purchased Receivables, except to the extent that failure
to comply therewith could not materially adversely affect the
rights of the Company in the Purchased Receivables or the
collectibility or validity thereof. Each Seller will comply, in
all material respects, with its obligations under contracts with
Obligors relating to the Purchased Receivables except to the
extent such compliance would result in a violation of a laws,
rules, regulations and orders of any Governmental Authority.
5.3 Preservation of Corporate Existence. Do or cause
-----------------------------------
to be done all things necessary to preserve, renew and keep in
full force and effect its legal existence and maintain such legal
existence separate from that of the Company, provided that any
--------
Seller may be merged or consolidated with or into any other
Seller or C&A Products.
5.4 Visitation Rights. At any reasonable time during
-----------------
normal business hours and from time to time, in each case upon
reasonable notice to such Seller and the Master Servicer, permit
(i) the Company, or any of its agents or representatives, (A) to
<PAGE>
19
examine and make copies of and abstracts from the records, books
of account and documents (including computer tapes and disks) of
each Seller relating to the Purchased Receivables hereunder and
(B) following the termination of the appointment of C&A Products
as Master Servicer or of such Seller as Servicer with respect to
the Purchased Receivables, to be present at the offices and
properties of such Seller to administer and control the
collection of amounts owing on the Purchased Receivables and (ii)
the Company, or any of its agents or representatives, to visit
the properties of such Seller for the purpose of examining such
records, books of account and documents, and to discuss the
affairs, finances and accounts of such Seller relating to the
Purchased Receivables or such Seller's performance hereunder with
any of its officers or directors and with its independent
certified public accountants (subject to any requirements of
confidentiality imposed by law or contract).
5.5 Keeping of Records and Books of Account. Maintain
---------------------------------------
and implement, or cause to be maintained or implemented,
administrative and operating procedures reasonably necessary or
advisable for the collection of amounts owing on all Purchased
Receivables, and, until any delivery to the Company, keep and
maintain, or cause to be kept and maintained, all documents,
books, records and other information reasonably necessary or
advisable for the collection of amounts owing on all such
Purchased Receivables and the Related Property with respect
thereto.
5.6 Location of Records. Keep its chief place of
-------------------
business and chief executive office, and the offices where it
keeps the records concerning the Purchased Receivables (and all
original documents relating thereto) at the locations referred to
for it on Schedule 1 hereto or, upon 30 days' prior written
notice to the Company, at such other locations in a jurisdiction
where all action required by subsection 5.15(a) shall have been
taken and completed and be in full force and effect.
5.7 Computer Files. At its own cost and expense,
--------------
retain the ledger used by such Seller as a master record of the
Obligors and retain copies of all documents relating to each
Obligor as custodian and agent for the Company and other Persons
with interests in the Purchased Receivables and mark the computer
tape or other physical records of the Purchased Receivables to
the effect that interests in the Purchased Receivables existing
with respect to the Obligors listed thereon have been sold to the
Company.
5.8 Policies. Perform its obligations in accordance
--------
with and comply in all material respects with the Policies and
the Company Policies and neither change nor modify the Policies
or the Company Policies in any material respect, except with the
prior written consent of the Company or if such changes are
necessary under any law, rule, regulation or order of any
Governmental Authority applicable to it; it being understood that
<PAGE>
20
material changes to the Policies and the Company Policies shall
include, without limitation, changes to the timing of Charge-Offs
of Receivables and changes to the creditworthiness criteria used
in determining whether to extend credit to a Person and in
determining the amount of such credit to extend.
5.9 Taxes; ERISA. (a) Pay and discharge promptly all
------------
taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default,
as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might give rise to a Lien upon such
properties or any part thereof; provided, however, that such
-------- -------
payment and discharge shall not be required with respect to any
such tax, assessment, charge, levy or claim so long as (i) the
validity or amount thereof shall be contested in good faith by
appropriate proceedings and Holdings or such Seller, as
applicable, shall set aside on its books adequate reserves as
required by GAAP with respect thereto, (ii) such tax, assessment,
charge, levy or claim is in respect of property taxes for
property that such Seller has determined to abandon and the sole
recourse for such tax, assessment, charge, levy or claim is to
such property or (iii) the amount of such taxes assessments,
charges, levies and claims and interest and penalties thereon
does not exceed $1,000,000 in the aggregate for the Master
Servicer and all Sellers taken as a whole.
(b) (i) Comply in all material respects with the
applicable provisions of ERISA and (ii) furnish to the Company
(w) as soon as possible, and in any event within 30 days after
any Responsible Officer of such Seller or any ERISA Affiliate of
such Seller knows or has reason to know that any Reportable Event
has occurred that alone or together with any other Reportable
Event could reasonably be expected to result in liability of the
Master Servicer, such Seller or any of their ERISA Affiliates to
the PBGC in an aggregate amount exceeding $10,000,000, a
statement of a Financial Officer setting forth details as to such
Reportable Event and the action proposed to be taken with respect
thereto, together with a copy of the notice, if any, of such
Reportable Event given to the PBGC, (x) promptly after any
Responsible Officer learns of receipt thereof, a copy of any
notice such Seller or any of its ERISA Affiliates may receive
from the PBGC relating to the intention of the PBGC to terminate
any Plan or Plans (other than a Plan maintained by any of their
ERISA Affiliates which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or
to appoint a trustee to administer any Plan or Plans, (y) within
20 days after the due date for filing with the PBGC pursuant to
Section 412(n) of the Code a notice of failure to make a required
installment or other payment with respect to a Plan, a statement
of a Financial Officer setting forth details as to such failure
and the action proposed to be taken with respect thereto,
together with a copy of such notice given to the PBGC and (z)
promptly after any Responsible Officer learns thereof and in any
<PAGE>
21
event within 30 days after receipt thereof by such Seller or any
ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy
of each notice received by such Seller or such ERISA Affiliate
concerning (I) the imposition of Withdrawal Liability or (II) a
determination that a Multiemployer Plan is, or is expected to be,
terminated or in reorganization, in each case within the meaning
of Title IV of ERISA.
5.10 Collections. Use its best efforts to cause any
-----------
Obligor which currently pays its Receivables by checks mailed to
such Seller to make future payments in respect of Receivables to
a Lockbox Account or by wire transfer to the Collection Account,
provided, that, prior to an Incipient Purchase Termination Event
--------
or a Purchase Termination Event, no Seller shall be obliged to
make any such request of any such Obligor if such Seller
determines in its reasonable judgment that such request could be
detrimental to its ongoing business relationship with such
Obligor.
5.11 Lockbox Agreements; Lockbox Accounts. Within 60
------------------------------------
days of the Effective Date,
(a) if such Seller has not established a Lockbox
Account on the Effective Date, it shall establish one and
enter into a Lockbox Agreement with respect thereto;
(b) if such Seller shall not have entered into a
Lockbox Agreement with respect to any existing Lockbox
Account on the Effective Date, it shall enter into such a
Lockbox Agreement.
5.12 Furnishing Copies, etc. Furnish to the Company:
-----------------------
(a) within two Business Days of the Company's request,
but no more than once each month, a certificate of the chief
financial officer of such Seller or of the Master Servicer
on behalf of such Seller certifying, as of the date thereof,
to the best knowledge of such officer, that no Purchase
Termination Event has occurred and is continuing, and
setting forth the computations used by the chief financial
officer of such Seller in making such determination or if
one has so occurred specifying the nature and extent thereof
and any corrective action taken or proposed to be taken with
respect thereto;
(b) promptly upon obtaining knowledge of the
occurrence of any Purchase Termination Event or Incipient
Purchase Termination Event, written notice thereof;
(c) promptly following request therefor, such other
information, documents, records or reports regarding or with
respect to the Purchased Receivables of the applicable
Seller, as the Company may from time to time reasonably
request;
<PAGE>
22
(d) promptly upon obtaining knowledge of the
occurrence thereof, written notice of any event of default
or default under any other Sale Document;
(e) promptly upon obtaining knowledge of the
occurrence thereof, written notice of any development that
has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect; and
(f) promptly upon determining that any Purchased
Receivable designated as an Eligible Receivable on the
applicable Daily Report or Settlement Statement was not an
Eligible Receivable as of the date provided therefor,
written notice of such determination.
5.13 Obligations with Respect to Obligors and
----------------------------------------
Receivables. Take all actions on its part reasonably necessary
-----------
to maintain in full force and effect its material rights under
all contracts relating to the Purchased Receivables.
5.14 Responsibilities of the Sellers. Notwithstanding
-------------------------------
anything herein to the contrary, (i) each Seller shall perform or
cause to be performed all its obligations under the Policies and
the Company Policies related to the Purchased Receivables to the
same extent as if such Purchased Receivables had not been
transferred to the Company hereunder, (ii) the exercise by the
Company of any of its rights hereunder shall not relieve any
Seller of its obligations with respect to such Purchased
Receivables and (iii) except as provided by law, the Company
shall not have any obligation or liability with respect to any
Purchased Receivables, nor shall the Company be obligated to
perform any of the obligations or duties of any Seller
thereunder.
5.15 Further Action. In addition to the foregoing:
--------------
(a) Each Seller agrees that from time to time, at its
expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that
may be necessary or desirable in such Seller's reasonable
judgment or that the Company may reasonably request, in
order to protect or more fully evidence the Company's right,
title and interest in the Purchased Receivables, or to
enable the Company to exercise or enforce any of its rights
in respect thereof. Without limiting the generality of the
foregoing, each Seller will upon the request of the Company
(A) execute and file such financing or continuation
statements, or amendments thereto, and such other
instruments or notices, as may be necessary or, in the
opinion of the Company, advisable, (B) indicate on its books
and records that the Purchased Receivables have been
purchased by the Company and that the Company has sold an
interest therein and has granted a security interest therein
in the Company's retained interest, and provide to the
<PAGE>
23
Company, upon request, copies of any such records, and (C)
obtain the agreement of any Person having a Lien on any
Receivables owned by any Seller (other than any Lien created
or imposed hereunder or any Lien expressly permitted
pursuant to subsection 6.1) to release such Lien upon the
purchase of any such Receivables by the Company.
(b) Each Seller hereby irrevocably authorizes the
Company to file one or more financing or continuation
statements (and other similar instruments), and amendments
thereto, relative to all or any part of the Purchased
Receivables and the Related Property sold or to be sold by
such Seller without the signature of such Seller to the
extent permitted by applicable law.
(c) If any Seller fails to perform any of its
agreements or obligations under this Agreement, the Company
may (but shall not be required to) perform, or cause
performance of, such agreements or obligations, and the
expenses of the Company incurred in connection therewith
shall be payable by such Seller as provided in subsection
9.3.
(d) Each Seller agrees that, upon the occurrence and
during the continuation of a Purchase Termination Event,
Incipient Purchase Termination Event or a Servicer Event of
Default:
(1) the Company (and its assignees) shall have
the right at any time to notify, or require that any
Seller at such Seller's expense notify, the respective
Obligors of the Company's ownership of the Purchased
Receivables and may direct that payment of all amounts
due or to become due under the Purchased Receivables be
made directly to the Company or its designee;
(2) the Company (and its assignees) shall have
the right to (x) sue for collection on any Purchased
Receivables or (y) sell any Purchased Receivables to
any Person for a price that is acceptable to the
Company. If required by the terms of Section 9-504 or
9-505 of the Uniform Commercial Code, the Company (and
its assignees) may offer to sell any Purchased
Receivable to any Person, together, at its option, with
all other Purchased Receivables created by the same
Obligor. Any Purchased Receivable sold hereunder shall
cease to be a Receivable for all purposes under this
Agreement as of the effective date of such sale;
(3) each Seller shall, upon the Company's written
request and at such Seller's expense, (x) assemble all
such Seller's documents, instruments and other records
(including credit files and computer tapes or disks)
that (1) evidence or will evidence or record
<PAGE>
24
Receivables sold by such Seller and (2) are otherwise
necessary or desirable to effect Collections of such
Purchased Receivables (collectively, the "Documents")
and (y) deliver the Documents to the Company or its
designee at a place designated by the Company. In
recognition of each Seller's need to have access to any
Documents which may be transferred to the Company
hereunder, whether as a result of its continuing
business relationship with any Obligor for Receivables
purchased hereunder or as a result of its
responsibilities as Servicer, the Company hereby grants
to the applicable Seller an irrevocable license to
access the Documents transferred by such Seller to
Company and to access any such transferred computer
software in connection with any activity arising in the
ordinary course of such Seller's business or in
performance of such Seller's duties as Servicer,
provided that such Seller shall not disrupt or
otherwise interfere with the Company's use of and
access to the Documents and its computer software
during such license period;
(4) each Seller hereby irrevocably authorizes the
Company or its designee to take any and all steps in
such Seller's name necessary or desirable, in the
reasonable opinion of the Company, to collect all
amounts due under the Purchased Receivables, including
endorsing such Seller's name on checks and other
instruments representing Collections, enforcing the
Purchased Receivables and exercising all rights and
remedies in respect thereof; and
(5) upon written request of the Company, each
Seller will (x) deliver to the Company or a party
designated by the Company all licenses, rights,
computer programs, related material, computer tapes,
disks, cassettes and data necessary to the immediate
collection of the Purchased Receivables by the Company,
with or without the participation of any Seller
(excluding software licenses which by their terms are
not permitted to be so delivered, provided, that such
Seller shall use its best efforts to obtain the consent
of the relevant licensor to such delivery) and (y) make
such arrangements with respect to the collection of the
Purchased Receivables as may be reasonably required by
the Company.
ARTICLE VI
NEGATIVE COVENANTS
Each Seller hereby agrees that, so long as there are
any amounts outstanding with respect to Purchased Receivables
previously sold by such Seller to the Company or until an Early
<PAGE>
25
Termination with respect to such Seller, whichever is later, such
Seller shall not, directly or indirectly:
6.1 Liens. Except as otherwise expressly herein
-----
provided, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Lien upon
or with respect to, any Receivables or Related Property, or
assign any right to receive proceeds in respect thereof except
------
for Liens created or imposed hereunder or under the Receivables
Transfer Agreement.
6.2 Extension or Amendment of Receivables. Extend,
-------------------------------------
make any Adjustment to, rescind, cancel, amend or otherwise
modify, or attempt or purport to extend, amend or otherwise
modify, the terms of any Purchased Receivables, except (i) in
accordance with the terms of the Policies and the Company
Policies, (ii) as required by any Requirement of Law, (iii) in
the case of Adjustments, upon making an Adjustment Payment
pursuant to subsection 2.5, or (iv) with the consent of the
Company, provided that the applicable Servicer may cause
--------
Receivables to become Charge-Offs.
6.3 Change in Payment Instructions to Obligors.
------------------------------------------
Instruct any Obligor of any Purchased Receivables to make any
payments with respect to any Receivables other than in accordance
with its current practices with respect to such Obligor; provided
--------
that, in accordance with subsection 5.10, it may instruct any
Obligor to make such payments to a Lockbox Account or by wire
transfer to the Collection Account.
6.4 Change in Name. Change its name, identity or
--------------
corporate structure in any manner which would or might make any
financing statement or continuation statement (or other similar
instrument) relating to this Agreement seriously misleading
within the meaning of Section 9-402(7) of the Uniform Commercial
Code (or any other similar law) without 30 days' prior written
notice to the Company.
6.5 Modification of Ledger. Delete or otherwise
----------------------
modify the marking on the ledger referred to in subsection 5.7.
6.6 Business of the Sellers. (a) Engage at any time
-----------------------
in any business or business activity other than the business
currently conducted by it and business activities reasonably
incidental thereto or (b) fail to maintain and operate such
business in substantially the manner in which it is presently
conducted and operated if such failure would materially adversely
affect the interests of the Company under the Transaction
Documents.
6.7 Accounting of Purchases. Prepare any financial
-----------------------
statements which shall account for the transactions contemplated
hereby (other than capital contributions and the Subordinated
Notes) in any manner other than as sales of the Purchased
<PAGE>
26
Receivables by such Seller to the Company or in any other respect
account for or treat the transactions contemplated hereby
(including for accounting purposes and, where taxes are not
consolidated, for tax reporting purposes, except as required by
law) (other than capital contributions and the Subordinated
Notes) in any manner other than as sales of the Purchased
Receivables by such Seller to the Company.
6.8 Chattel Paper. Not take any action to cause any
-------------
Receivable to be evidenced by any instrument (as defined in the
Uniform Commercial Code as in effect in the State of New York)
except in connection with the enforcement or collection of a
Receivable.
6.9 Ineligible Receivables. Without the prior written
----------------------
approval of the Company, take any action to cause, or which would
permit, an Eligible Receivable to cease to be an Eligible
Receivable, except as otherwise expressly provided by this
Agreement.
ARTICLE VII
PURCHASE TERMINATION EVENTS
If any of the following events (herein called "Purchase
Termination Events") shall have occurred and be continuing:
(a) any Seller shall fail (i) to pay any amount due
pursuant to subsection 2.6 in accordance with the provisions
thereof and such failure shall continue unremedied for a
period of five days from the earlier of (A) the date any
officer of such Seller obtains knowledge of such default and
(B) the date such Seller receives notice of such default
from the Company or (ii) to pay any other amount required to
be paid by such Seller hereunder within two Business Days of
the date when due; or
(b) any Seller shall fail to observe or perform any
covenant or agreement applicable to it contained in
subsection 5.6, 5.7, 5.12 or 5.15(a), provided no such
--------
failure shall constitute a Purchase Termination Event under
this paragraph (b) unless such default shall continue
unremedied for 10 consecutive days; or
(c) any Seller shall fail to observe or perform any
covenant or agreement applicable to it contained in
subsection 5.2, 5.8, 6.1, 6.2, 6.3, 6.4, 6.5, 6.8 or 6.9;
provided that a Purchase Termination Event shall not be
--------
deemed to have occurred under this paragraph (c) based upon
a failure to observe a covenant contained in subsection 5.2,
5.8, 6.1, 6.2, 6.3, 6.4, 6.5, 6.8 or 6.9 if the Sellers
shall have complied with the provisions of subsection 2.6 in
respect thereof; or
<PAGE>
27
(d) any Seller shall fail to observe or perform any
covenant or agreement applicable to it contained herein
(other than as specified in paragraph (a), (b) or (c) of
this Article VII), provided that no such failure shall
--------
constitute a Purchase Termination Event under this paragraph
(d) unless such default shall continue unremedied for a
period of 30 consecutive days from the earlier of (A) the
date any Responsible Officer of such Seller obtains
knowledge of such default and (B) the date such Seller
receives notice of such default from the Company; or
(e) any representation, warranty, certification or
statement made or deemed made by any Seller in this
Agreement or in any statement, record, certificate,
financial statement or other document delivered pursuant to
this Agreement shall prove to have been false or misleading
in any material respect on or as of the date made or deemed
made, provided, that a Purchase Termination Event shall not
--------
be deemed to have occurred under this paragraph (e) based
upon a breach of any representation or warranty set forth in
subsection 4.2 if the Sellers shall have complied with the
provisions of subsection 2.6 in respect thereof; or
(f) (i) an involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of
competent jurisdiction seeking (x) relief in respect of any
Seller or of a substantial part of the property or assets of
any Seller under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or
similar law, (y) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for
any Seller or for a substantial part of the property or
assets of any Seller or (z) the winding-up or liquidation of
any Seller; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; or (ii) any
Seller shall (t) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (u) consent to the institution
of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in
clause (f)(i) above, (v) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for such Seller or for a
substantial part of the property or assets of such Seller,
(w) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (x) make a
general assignment for the benefit of creditors, (y) become
unable, admit in writing its inability or fail generally to
pay its debts as they become due or (z) take any action for
the purpose of effecting any of the foregoing; or
<PAGE>
28
(g) there shall have occurred a Termination Event
under the Receivables Transfer Agreement or the Commitments
shall have terminated thereunder;
then, (x) in the case of any Purchase Termination Event described
in paragraph (f) above with respect to any Seller, automatically
the obligation of the Company to purchase Receivables from such
Seller shall thereupon terminate without notice of any kind,
which is hereby waived by the Sellers and (y) in the case of any
Purchase Termination Event, so long as such Purchase Termination
Event shall be continuing, the Company may terminate its
obligation to purchase Receivables from any or all of the Sellers
by written notice to each such Seller (any termination pursuant
to clause (x) or (y) of this Article VII which affects a Seller
is herein called an "Early Termination" with respect to such
Seller).
ARTICLE VIII
THE SUBORDINATED NOTES
8.1 Subordinated Notes. On the Effective Date, the
------------------
Company shall issue to the Sellers (i) a subordinated note
substantially in the form of Exhibit A (the "U.S. Dollar
Subordinated Note") and (ii) a subordinated note substantially in
the form of Exhibit B (the "Canadian Dollar Subordinated Note";
each, a "Subordinated Note" and collectively, the "Subordinated
Notes"). The aggregate principal amount of the Subordinated
Notes at any time shall be equal to the difference between (a)
the aggregate principal amount on the issuance thereof and each
addition to the principal amount of each Subordinated Note with
respect to each Seller pursuant to the terms of subsection 2.3
minus (b) the aggregate amount of all payments made in respect of
-----
the principal of the Subordinated Notes. All payments made in
respect of the Subordinated Notes shall be allocated among the
Sellers by the Master Servicer. Each Seller's interest in the
Subordinated Notes shall equal the sum of each addition thereto
allocated to such Seller pursuant to subsection 2.3(c) less the
sum of each repayment thereof allocated to such Seller. Interest
on the principal amount of each Subordinated Note shall accrue on
the last day of each fiscal month of the Sellers at the ABR from
and including the Effective Date and shall be paid on each
Settlement Date with respect to amounts accrued and not paid as
of the last day of the preceding Settlement Period and/or the
maturity date thereof provided, however, that accrued interest on
-------- -------
a Subordinated Note which is not so paid may be added to the
principal amount of such Subordinated Note. Principal not prepaid
pursuant to the terms hereof and of the other Sale Documents
shall be payable on the maturity date thereof. Default in the
payment of principal or interest under either Subordinated Note
shall not constitute a default or event of default or a Purchase
Termination Event hereunder or a Termination Event under the
Receivables Transfer Agreement.
<PAGE>
29
8.2 Restrictions on Transfer of Subordinated Notes.
----------------------------------------------
Neither any Subordinated Note, nor any right of any Seller to
receive payments thereunder, shall be assigned, transferred,
exchanged, pledged, hypothecated, participated or otherwise
conveyed; provided, however, that any Seller may pledge its
-------- -------
rights to receive payments under either Subordinated Note to the
lenders under the Credit Agreement subject to the conditions that
the Collateral Agent and any present or future holder or
beneficiary of such right to receive payments under a
Subordinated Note agrees, in its capacity as such, to be bound by
all the terms and conditions of this Agreement, including without
limitation, subsection 9.16 hereof.
ARTICLE IX
MISCELLANEOUS
9.1 Further Assurances. (a) Each Seller agrees, from
------------------
time to time, to do and perform any and all acts and to execute
any and all further instruments reasonably required or requested
by the Company more fully to effect the purposes of this
Agreement and the sales of the Receivables hereunder, including,
without limitation, the execution of any financing statements or
continuation statements (and other similar instruments) relating
to the Receivables for filing under the provisions of the Uniform
Commercial Code, or any similar law, of any applicable
jurisdiction.
(b) From time to time at the request of a Seller, the
Company shall deliver to such Seller such documents, assignments,
releases and instruments of termination as such Seller may
reasonably request to evidence the reconveyance by the Company to
such Seller of a Receivable pursuant to the terms of subsection
2.1(b) or 2.6, provided that the Company shall have been paid all
--------
amounts due thereunder; and the Company and the Master Servicer
shall take such action as such Seller may reasonably request, at
the expense of such Seller, to assure that any such Receivable,
the Related Property with respect thereto and the proceeds
thereof do not remain commingled with Collections hereunder.
9.2 Payments. Each cash payment to be made by any of
--------
the Company or the Sellers hereunder shall be made on the
required payment date and in immediately available funds at the
office of the payee set forth below its signature hereto or to
such other office as may be specified by either party in a notice
to the other party hereto and (x) with respect to payments on
account of Receivables denominated in Canadian Dollars, in
Canadian Dollars except to the extent provided otherwise in
Article II hereof and (ii) in all other cases, in Dollars.
9.3 Costs and Expenses. The Sellers, jointly and
------------------
severally, agree (a) to pay or reimburse the Company for all its
out-of-pocket costs and expenses incurred in connection with the
<PAGE>
30
preparation and execution of, and any amendment, supplement or
modification to, this Agreement, the other Sale Documents and any
other documents prepared in connection herewith and therewith,
the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation,
all reasonable and documented fees and disbursements of counsel,
(b) to pay or reimburse the Company for all its costs and
expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement and any of the
other Related Documents, including, without limitation, the
reasonable fees and disbursements of counsel to the Company, (c)
to pay, indemnify, and hold the Company harmless from, any and
all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise
and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of,
this Agreement and any such other documents and (d) to pay,
indemnify, and hold the Company harmless from and against any and
all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever (i) which may at any time be
imposed on, incurred by or asserted against the Company in any
way relating to or arising out of this Agreement or the
transactions contemplated hereby or in connection herewith or any
action taken or omitted by the Company under or in connection
with any of the foregoing (all such other liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements being herein called
"Indemnified Liabilities") or (ii) which would not have been
imposed on, incurred by or asserted against the Company but for
its having purchased the Receivables hereunder, provided, that
--------
such indemnity shall not be available to the extent that such
losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence
or wilful misconduct of the Company, and provided, further, that
-------- -------
the Sellers shall have no obligation under this subsection 9.3 to
the Company with respect to Indemnified Liabilities arising from
(i) any action taken, or omitted to be taken, by a Servicer which
is not an Affiliate of the Sellers, (ii) any Eligible Receivable
which becomes a Charge-Off as a result of non-payment by the
Obligor with respect thereto or (iii) any action taken by the
Banks or the Company at the direction of the Administrative Agent
in collecting from an Obligor. The agreements in this subsection
shall survive the collection of all Receivables, the termination
of this Agreement and the payment of all amounts payable
hereunder.
9.4 Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the Sellers and the
Company and their respective successors (whether by merger,
<PAGE>
31
consolidation or otherwise) and assigns. Except as expressly
permitted pursuant to subsections 8.2 and 8.4, each Seller agrees
that it will not assign or transfer all or any portion of its
rights or obligations hereunder without the prior written consent
of the Company. The Sellers acknowledge that the Company shall
assign all of its rights hereunder to the Banks and, after the
termination of the Receivables Transfer Agreement, to another
entity or entities (each, a "Subsequent Financing Party") buying
an interest in the Receivables. Each Seller consents to such
assignment and agrees that the Administrative Agent and the
Banks, to the extent provided in the Receivables Transfer
Agreement, and each Subsequent Financing Party to the extent
provided in the documents to which it is a party, shall be
entitled to enforce the terms of this Agreement and the rights
(including, without limitation, the right to grant or withhold
any consent or waiver) of the Company directly against such
Seller, whether or not a Purchase Termination Event or a
Termination Event has occurred. Each Seller further agrees that,
in respect of its obligations hereunder, it will act at the
direction of and in accordance with all requests and instructions
from the Administrative Agent or such Subsequent Financing Party,
as the case may be, until all amounts due to the Banks or such
Subsequent Financing Party, as the case may be, are paid in full.
Each of the Administrative Agent and each such Subsequent
Financing Party shall have the rights of third-party
beneficiaries under this Agreement.
9.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
9.6 No Waiver; Cumulative Remedies. No failure to
------------------------------
exercise and no delay in exercising, on the part of the Company,
any right, remedy, power or privilege hereunder, shall operate as
a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of
any rights, remedies, powers and privileges provided by law.
9.7 Amendments and Waivers. Neither this Agreement
----------------------
nor any terms hereof may be amended, supplemented or modified
except in a writing signed by the Company and any affected
Seller.
9.8 Severability. Any provision of this Agreement
------------
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
<PAGE>
32
9.9 Notices. All notices, requests and demands to or
-------
upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made
when delivered by hand, or three days after being deposited in
the mail, postage prepaid, or, in the case of telecopy notice,
when received, addressed as follows in the case of the Company
and C&A Products, and as set forth on Schedule 1 hereof in the
case of the Sellers, or to such other address as may be hereafter
notified by the respective parties hereto:
The Company: Carco, Inc.
______________________________
______________________________
Attention:
Telecopy:
C&A Products: Collins & Aikman Products Co.
701 McCullough Drive
Charlotte, North Carolina 28262
Attention: Mark Remissong
Telecopy: 704-548-2330
9.10 Counterparts. This Agreement may be executed by
------------
one or more of the parties to this Agreement on any number of
separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company.
9.11 Construction of Agreement as Security Agreement.
-----------------------------------------------
(a) The parties to this Agreement intend that the transactions
contemplated hereby shall be, and shall be treated as, a purchase
by the Company and a sale by the applicable Seller of the
Purchased Receivables and Related Property with respect thereto
and not as a lending transaction. If, however, notwithstanding
the intent of the parties, such transactions are deemed to be
loans, each Seller hereby grants to the Company a first priority
security interest in all of such Seller's right, title and
interest in and to the Receivables and the Related Property now
existing and hereafter created, all monies due or to become due
and all amounts received with respect thereto, including, without
limitation, Recoveries, and all "proceeds" thereof, to secure all
such Seller's obligations hereunder.
(b) This Agreement shall constitute a security
agreement under applicable law.
9.12 Waivers of Jury Trial. Each party hereto hereby
---------------------
waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect of any litigation
directly or indirectly arising out of, under or in connection
with this Agreement or any of the other Sale Documents. Each
<PAGE>
33
party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or
otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Sale
Documents, as applicable, by, among other things, the mutual
waivers and certifications in this subsection 9.12.
9.13 Jurisdiction; Consent to Service of Process. (a)
-------------------------------------------
Each party hereto hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of
any New York State court or Federal court of the United States of
America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Sale Documents, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties
hereto 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. Nothing in this Agreement shall affect any
right that the Company may otherwise have to bring any action or
proceeding relating to this Agreement or the other Sale Documents
against any Seller or its properties in the courts of any
jurisdiction.
(b) Each party hereto hereby irrevocably and
unconditionally waives, to the fullest extent they may legally
and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the
other Sale Documents in any New York State or Federal court.
Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in
subsection 9.9. Nothing in this Agreement will affect the right
of any party to this Agreement to serve process in any other
manner permitted by law.
9.14 Addition of Sellers. Subject to subsection 3.4
-------------------
hereof, subsection 8.22 of the Receivables Transfer Agreement and
the terms and conditions of this subsection 9.14, from time to
time one or more additional Subsidiaries of C&A Products may
become Sellers hereunder and parties hereto. If any such
Subsidiary wishes to become an additional Seller, it shall submit
a request to such effect in writing to the Company. The Company,
<PAGE>
34
in its sole and absolute discretion, may agree to or deny any
such request, provided that, if the Company shall have failed to
--------
respond to any such request within 30 days after receipt thereof,
such request shall be deemed to have been denied. If the Company
shall have agreed to any such request, such Subsidiary shall
become an additional Seller hereunder and a party hereto on the
related Seller Addition Date upon satisfaction of the conditions
set forth in subsection 3.4.
9.15 Optional Termination of Seller. (a) Any Seller
------------------------------
may be terminated as a Seller hereunder on the date such Seller
ceases to be a wholly owned direct or indirect Subsidiary of C&A
Products, provided (i) that the aggregate outstanding Adjusted
--------
Principal Amount of Purchased Receivables sold by all Sellers
which so cease to be wholly owned Subsidiaries at such time
(together with the aggregate outstanding Adjusted Principal
Amount of Purchased Receivables sold by all Sellers which have
been terminated pursuant to this subsection 9.15 within the
preceding 90 days) shall not exceed 10% of the aggregate
outstanding Adjusted Principal Amount of all Purchased
Receivables and (ii) that no Purchase Termination Event or
Incipient Purchase Termination Event has occurred and is
continuing, or would result as a result thereof. From and after
the date any such Seller ceases to be a wholly owned Subsidiary
of C&A Products, the Company shall cease buying Receivables and
Related Property from such Seller. Each such Seller shall be
released as a Seller party hereto for all purposes and shall
cease to be a party hereto on the date on which there are no
amounts outstanding with respect to Purchased Receivables
previously sold by such Seller to the Company, whether such
amounts have been repurchased, collected or written off in
accordance with the Policies and the Company Policies. Prior to
such date, such Seller shall be obligated to perform its
servicing and other obligations hereunder and under the
Transaction Documents to which it is a party with respect to
Purchased Receivables previously sold by such Seller to the
Company, including, without limitation, its obligation to deposit
Collections into the appropriate Lockboxes.
(b) From time to time the Sellers, or the Master
Servicer on behalf of the Sellers, may request in writing that
the Company designate one or more Sellers as Sellers that shall
cease to be parties to this Agreement; provided that no Purchase
--------
Termination Event or Incipient Purchase Termination Event has
occurred and is continuing, or would result as a result thereof.
Any such request shall specify the minimum aggregate Adjusted
Principal Amount of outstanding Purchased Receivables to have
been sold by the Sellers to be so designated by the Company. The
Company, in its sole and absolute discretion (subject to
subsection 8.23 of the Receivables Transfer Agreement), shall,
within 45 days of receipt of such request, select the Sellers to
be so terminated, provided that the aggregate Adjusted Principal
--------
Amount of outstanding Purchased Receivables previously sold by
such Sellers shall be substantially equal to the Adjusted
<PAGE>
35
Principal Amount specified in such request. Promptly after
receipt of any such designation by the Company, the Sellers shall
either (i) elect not to terminate such designated Sellers or (ii)
select a date, which date shall not be later than 30 days after
the date of receipt of such designation, as the "Sale Termination
Date" for such designated Sellers. From and after such date, the
Company shall cease buying Receivables and Related Property from
such Sellers. Each such Seller shall be released as a Seller
hereunder and a party hereto for all purposes and shall cease to
be a party hereto on the date on which there are no amounts
outstanding with respect to Purchased Receivables previously sold
by such Seller to the Company, whether such amounts have been
repurchased in the manner provided in clause (a) above, collected
or written off in accordance with the Policies and the Company
Policies. Prior to such date, such Seller shall be obligated to
perform its servicing and other obligations hereunder and under
the Related Documents with respect to Purchased Receivables
previously sold by such Seller to the Company, including, without
limitation, its obligation to deposit Collections into the
appropriate Lockboxes.
(c) A terminated Seller shall have no obligation to
repurchase any Receivables other than Receivables previously sold
by it to the Company which are subject to a Repurchase Event.
9.16 No Bankruptcy Petition. Each Seller and C&A
----------------------
Products by entering into this Agreement, and any present or
future holder of a Subordinated Note, by its acceptance thereof,
covenants and agrees that, prior to the date which is one year
and one day after the date of termination of this Agreement
pursuant to subsection 9.17, it will not institute against, or
join any other Person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any federal
or state bankruptcy or similar law.
9.17 Termination. This Agreement will terminate at
-----------
such time as (a) the commitment of the Company to purchase
Receivables from all Sellers hereunder shall have terminated and
(b) all Receivables purchased hereunder have been collected, and
the proceeds thereof turned over to the Company and all other
amounts owing to the Company hereunder shall have been paid in
full or, if Receivables sold hereunder have not been collected
such Receivables have become Defaulted Receivables and the
Company shall have completed its collection efforts in respect
thereto; provided, however, that the indemnities of the Sellers
-------- -------
to the Company set forth in this Agreement shall survive such
termination and provided, further, that, to the extent any
-------- -------
amounts remain due and owing to the Company hereunder, the
Company shall remain entitled to receive any collections on
Receivables sold hereunder which have become Defaulted
Receivables after it shall have completed its collection efforts
in respect thereof.
<PAGE>
36
9.18 Confidentiality. The Company agrees that it
---------------
shall maintain in confidence any information relating to any
Seller furnished to it by or on behalf of such Seller (other than
information that (x) has become generally available to the public
other than as a result of a disclosure by such party, (y) has
been independently developed by such party without violating this
subsection 9.18 or (z) was available to such party from a third
party having, to such party's knowledge, no obligation of
confidentiality to such Seller) and shall not reveal the same
other than to its directors, officers, employees and advisors
with a need to know except: (a) to the extent necessary to
comply with law or any legal process or the requirements of any
Governmental Authority or of any securities exchange on which
securities of the disclosing party or any Affiliate of the
<PAGE>
37
disclosing party are listed or traded, (b) as part of normal
reporting or review procedures to Governmental Authorities or its
parent companies, Affiliates or auditors, (c) in order to enforce
its rights under any Sale Document in a legal proceeding and (d)
in connection with the collection of any Purchased Receivable or
the exercise of any remedy hereunder or under the Receivables
Transfer Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, all as of the day and year first above written.
COLLINS & AIKMAN PRODUCTS CO., as Master
Servicer
By:_________________________
Title:
CARCO, INC.
By:_________________________
Title:
The Sellers:
-----------
COLLINS & AIKMAN PRODUCTS CO.
By:_________________________
Title:
COLLINS & AIKMAN CORPORATION
By:_________________________
Title:
WCA CANADA, INC.
By:_________________________
Title:
<PAGE>
38
IMPERIAL WALLCOVERINGS (CANADA), INC.
By:_________________________
Title:
IMPERIAL WALLCOVERINGS, INC.
By:_________________________
Title:
THE AKRO CORPORATION
By:_________________________
Title:
DURA ACQUISITION CORP.
By:________________________
Title:
<PAGE>
SCHEDULE 1
----------
LOCATIONS OF CHIEF EXECUTIVE OFFICES;
LOCATIONS OF BOOKS AND RECORDS
------------------------------
<PAGE>
SCHEDULE 2
----------
LOCKBOXES
---------
<PAGE>
SCHEDULE 3
----------
DISCOUNTED PERCENTAGE
---------------------
The Discounted Percentage applicable to the Receivables purchased on any
date from any Seller shall equal the percentage obtained from the
following formula:
100% - (A + B + C + D)
all determined by the Company as of the related Payment Date,
Where
A = Adjusted Loss Reserve Percentage, which as of such Payment Date
will equal the ratio obtained by dividing (a) Charge-Offs (net of
recoveries in respect of Charge-Offs) with respect to such Seller
during the twelve-fiscal-month period immediately preceding the
Settlement Date most recently preceding such Payment Date by (b)
four times the aggregate amount of Collections during the three-
fiscal-month period immediately preceding the Settlement Date most
recently preceding such Payment Date with respect to Receivables
originated by such Seller.
B = Adjusted Yield Reserve Percentage, which as of such Payment Date
will equal the amount obtained by dividing (a) the product of (i)
1.5, (ii) Days Sales Outstanding and (iii) the Adjusted Discount
Rate by (b) 360.
C = Servicing Reserve Percentage.
D = Processing Expense Reserve Percentage, which will equal 1/2% and
reflects the cost of the Company's overhead, including costs of
processing the purchase of Receivables and other normal operating
costs and a reasonable profit margin.
None of the elements of the above-referenced formula, in respect of any
purchase of Receivables, will be adjusted following the related Payment
Date.
"Adjusted Discount Rate" means as of such Payment Date the sum of (a)
the weighted average of (i) the weighted average rate of interest
payable to the Banks or any Subsequent Financing Party with respect to
the outstanding Participating Interest and (ii) the rate of interest
payable to the Sellers with respect to the outstanding principal amount
of the Subordinated Notes as such rates are in effect as at the end of
the fiscal month immediately preceding the Settlement Date most recent
to such Payment Date and (iii) an assumed return on the shareholders'
equity in the Company at a rate to be determined from time to time by
the Master Servicer and (b) the amount obtained by dividing (i) the
aggregate amount of fees (other than the Monthly Servicing Fee) accrued
with respect to the Receivables Transfer Agreement during the fiscal
month immediately preceding the Settlement Date most recent to such
Payment Date by (ii) the average outstanding Adjusted Principal Amount
of the Receivables during such fiscal month.
<PAGE>
2
With respect to each calculation set forth above with respect to a
Settlement Date, such calculation as calculated on each Settlement
Statement Date and included in the applicable Settlement Statement shall
remain in effect from and including the related Settlement Date to but
excluding the following Statement Date.
<PAGE>
SCHEDULE 4
----------
TAX MATTERS
-----------
EXECUTION COPY
==================================================================
CARCO, INC.
COLLINS & AIKMAN PRODUCTS CO.,
as Master Servicer
----------------------
RECEIVABLES TRANSFER AND SERVICING AGREEMENT
----------------------
Dated as of June 23, 1994
CHEMICAL BANK,
as Administrative Agent
==================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
Definitions . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . 1
ARTICLE II
Acquisition and Transfer of Participating Interest . 2
2.1 Acquisition and Transfer of Participating
Interest . . . . . . . . . . . . . . . . . . . . 2
2.2 Payment for Initial Transfer of a Participating
Interest and any Increase in Net Investment . . . 4
2.3 Acquisition and Transfer Procedure . . . . . . . 4
2.4 Commitment Fees . . . . . . . . . . . . . . . . . 5
2.5 Fee and Purchase Discount Amount Calculations . . 5
2.6 Interest on Overdue Payments . . . . . . . . . . 5
2.7 Establishment of Accounts; Allocation of
Collections; Reinvestment of Principal
Collections . . . . . . . . . . . . . . . . . . . 6
2.8 Payments; Pro Rata Treatment . . . . . . . . . . 9
2.9 Netting of Payments . . . . . . . . . . . . . . . 9
2.10 Termination or Reduction of Commitment . . . . . 10
2.11 Optional Retransfer; Reduction of Net
Investment . . . . . . . . . . . . . . . . . . . 10
2.12 Mandatory Reductions in Net Investment . . . . . 10
ARTICLE III
Increased Costs . . . . . . . . . . 12
3.1 Illegality . . . . . . . . . . . . . . . . . . . 12
3.2 Indemnity . . . . . . . . . . . . . . . . . . . . 12
3.3 Requirements of Law . . . . . . . . . . . . . . . 13
3.4 Inability to Determine Eurodollar Rate . . . . . 14
3.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
Termination . . . . . . . . . . . 18
4.1 Termination . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V
Covenants, Representations and Warranties . . . 18
-i-
<PAGE>
Page
----
5.1 Representations and Warranties of the Company
Relating to the Company . . . . . . . . . . . . . . . 18
(a) Organization; Corporate Powers . . . . . . . . . 18
(b) Authorization . . . . . . . . . . . . . . . . . . 19
(c) Enforceability . . . . . . . . . . . . 19
(d) Consents . . . . . . . . . . . . . . . . . . . . 19
(e) Litigation, etc . . . . . . . . . . . . . . . . . 19
(f) No Default, etc . . . . . . . . . . . . . . . . . 20
(g) Ownership of Property; Liens . . . . . . . . . . 20
(h) Investment Company Act; Other Regulations . . . . 20
(i) Taxes . . . . . . . . . . . . . . . . . . . . . . 20
(j) Ownership; Subsidiaries . . . . . . . . . . . . . 21
(k) Accuracy and Completeness of Information . . . . 21
(l) Pro Forma Balance Sheet . . . . . . . . . . . . . 21
(m) No Material Adverse Change . . . . . . . . . . . 21
(n) Solvency . . . . . . . . . . . . . . . . . . 21
(o) Employee Benefit Plans . . . . . . . . . . . 22
5.2 Representations and Warranties of the Company
Relating to this Agreement and the Receivables . 22
5.3 Retransfer Obligation . . . . . . . . . . . . . . 24
5.4 Obligations Unaffected . . . . . . . . . . . . . 24
ARTICLE VI
Conditions to Effectiveness/Transfers/Reinvestments . 25
6.1 Effective Date . . . . . . . . . . . . . . . . . 25
6.2 Condition to each Increase in Net Investment . . 27
ARTICLE VII
Affirmative Covenants . . . . . . . . 28
7.1 Financial Statements . . . . . . . . . . . . . . 28
7.2 Certificates; Other Information . . . . . . . . . 29
7.3 Existence; Businesses and Properties; Insurance;
Receivables . . . . . . . . . . . . . . . . . . . 29
7.4 Taxes . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Inspection of Property; Books and Records;
Discussions . . . . . . . . . . . . . . . . . . . 30
7.6 Notices . . . . . . . . . . . . . . . . . . . . . 30
7.7 ERISA . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Use of Proceeds . . . . . . . . . . . . . . . . . 31
7.9 Separate Corporate Existence . . . . . . . . . . 31
7.10 Facility Rating . . . . . . . . . . . . . . . . 31
7.11 Lockbox Agreements . . . . . . . . . . . . . . . 31
7.12 Eligible Letters of Credit . . . . . . . . . . . 32
7.13 Company Policies . . . . . . . . . . . . . . . . 32
ARTICLE VIII
Negative Covenants . . . . . . . . . 32
8.1 Accounting of Transfers . . . . . . . . . . . . . 32
8.2 Limitation on Indebtedness . . . . . . . . . . . 32
-ii-
<PAGE>
Page
----
8.3 Limitation on Liens . . . . . . . . . . . . . . . 32
8.4 Limitation on Guarantees . . . . . . . . . . . . 32
8.5 Limitation on Fundamental Changes . . . . . . . . 33
8.6 Limitation on Sale of Assets . . . . . . . . . . 33
8.7 Limitation on Dividends and Payments on
Subordinated Notes . . . . . . . . . . . . . . . 33
8.8 Business of the Company . . . . . . . . . . . . . 33
8.9 Limitation on Investments, Loans and Advances . . 33
8.10 Limitation on Sales and Leasebacks . . . . . . . 33
8.11 Transactions with Affiliates . . . . . . . . . . 33
8.12 Capital Stock . . . . . . . . . . . . . . . . . 34
8.13 Amendments . . . . . . . . . . . . . . . . . . . 34
8.14 Receivables Sale Agreement, etc . . . . . . . . 34
8.15 Policies . . . . . . . . . . . . . . . . . . . . 34
8.16 No Powers of Attorney . . . . . . . . . . . . . 34
8.17 Receivables Not To Be Evidenced by Promissory
Notes . . . . . . . . . . . . . . . . . . . . . . 34
8.18 Ownership of Assets and Property . . . . . . . . 34
8.19 Rescission or Cancellation . . . . . . . . . . . 35
8.20 Ineligible Receivables . . . . . . . . . . . . . 35
8.21 Offices . . . . . . . . . . . . . . . . . . . . 35
8.22 Addition of Sellers . . . . . . . . . . . . . . 35
8.23 Optional Termination of Seller . . . . . . . . . 35
8.24 Operating Expenses . . . . . . . . . . . . . . . 35
ARTICLE IX
Events of Termination . . . . . . . . 35
ARTICLE X
The Administrative Agent . . . . . . . 39
10.1 Appointment . . . . . . . . . . . . . . . . . . 39
10.2 Delegation of Duties . . . . . . . . . . . . . . 40
10.3 Exculpatory Provisions . . . . . . . . . . . . 40
10.4 Reliance by the Administrative Agent . . . . . . 40
10.5 Notice of Default or Termination Event . . . . . 41
10.6 Non-Reliance on the Administrative Agent and
Other Banks . . . . . . . . . . . . . . . . . . . 41
10.7 Indemnification . . . . . . . . . . . . . . . . 41
10.8 The Administrative Agent in Its Individual
Capacity . . . . . . . . . . . . . . . . . . . . 42
10.9 Successor Administrative Agent . . . . . . . . . 42
ARTICLE XI
Miscellaneous . . . . . . . . . . 42
11.1 Further Assurances . . . . . . . . . . . . . . . 42
11.2 Payments . . . . . . . . . . . . . . . . . . . . 43
11.3 Costs and Expenses . . . . . . . . . . . . . . . 43
11.4 Successors and Assigns; Participations;
Acquiring Banks . . . . . . . . . . . . . . . . . 44
-iii-
<PAGE>
Page
----
11.5 GOVERNING LAW . . . . . . . . . . . . . . . . . 46
11.6 No Waiver; Cumulative Remedies . . . . . . . . . 46
11.7 Amendments and Waivers . . . . . . . . . . . . . 47
11.8 Severability . . . . . . . . . . . . . . . . . . 47
11.9 Notices . . . . . . . . . . . . . . . . . . . . 47
11.10 Counterparts . . . . . . . . . . . . . . . . . 48
11.11 Construction of Agreement as Security
Agreement . . . . . . . . . . . . . . . . . . . . 48
11.12 Adjustments; Set-off . . . . . . . . . . . . . 49
11.13 Jurisdiction; Consent to Service of Process . . 49
11.14 Acknowledgements . . . . . . . . . . . . . . . 50
11.15 Waiver of Jury Trial . . . . . . . . . . . . . 50
11.16 Confidentiality . . . . . . . . . . . . . . . . 50
11.17 No Bankruptcy Petition . . . . . . . . . . . . 51
11.18 Tax Treatment . . . . . . . . . . . . . . . . . 51
11.19 No Action by Banks . . . . . . . . . . . . . . 51
ARTICLE XII
Servicing
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1 Servicing . . . . . . . . . . . . . . . . . . . 51
12.2 Collections by the Servicers . . . . . . . . . . 55
12.3 Maintenance of Records . . . . . . . . . . . . . 57
12.4 Rebates, Adjustments, Returns and Reductions;
Modifications . . . . . . . . . . . . . . . . . . 58
12.5 Daily Reports; Settlement Statements . . . . . . 58
12.6 Representations, Warranties and Covenants of
the Servicers . . . . . . . . . . . . . . . . . . 60
12.7 Acquisition Obligation . . . . . . . . . . . . . 65
12.8 Obligations Unaffected . . . . . . . . . . . . . 66
12.9 Addition of Servicers . . . . . . . . . . . . . 67
12.10 Optional Termination of Servicers . . . . . . . 67
12.11 Interest on Overdue Payments . . . . . . . . . 67
12.12 Servicer Events of Defaults . . . . . . . . . . 67
12.13 Audit . . . . . . . . . . . . . . . . . . . . . 69
ANNEX X Definitions
SCHEDULES
1 Names, Addresses and Commitments of Banks
2 Location of Chief Executive Offices; Location of
Books and Records
3 Lockboxes
4 Transactions with Affiliates
5 Contractual Obligations
6 Local Counsel
7 Certain Procedures
EXHIBITS
A Form of Assignment and Acceptance
B Form of Lockbox Agreement
C Form of Subordination Agreement
D-1 Form of Opinion of Cravath, Swaine & Moore (Corporate)
D-2 Form of Opinion of Cravath, Swaine & Moore (Bankruptcy)
D-3 Form of Opinion of Elizabeth R. Philipp, Esq.,
general counsel of Collins & Aikman Corporation
D-4 Form of Opinion of Stikeman, Elliott, special
Canadian counsel
D-5 Form of Opinion of Local Counsel
E Form of Settlement Statement
F Form of Additional Servicer Supplement
G Form of Responsible Officer's Certificate as to
Solvency, etc.
H Form of Daily Report
I Form of Receivables Sale Agreement
-iv-
<PAGE>
RECEIVABLES TRANSFER AND SERVICING AGREEMENT, dated as of
June 23, 1994, among CARCO, INC., a Delaware corporation (the
"Company"), COLLINS & AIKMAN PRODUCTS CO., a Delaware corporation
("C&A Products"), as master servicer (in such capacity, the "Master
Servicer"), C&A Products and each of the subsidiaries of C&A
Products from time to time parties hereto, in their capacities as
servicers of receivables (in such capacities, the "Servicers"), the
several financial institutions from time to time parties to this
Agreement (the "Banks") and CHEMICAL BANK, a New York banking
corporation, as administrative agent for the Banks.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company desires to assign and transfer to
the Banks, and the Banks desire to acquire a Participating Interest
(as hereinafter defined) in, all the Company's right, title and
interest in, to and under the Receivables (as hereinafter defined)
now existing or hereafter created and in the rights of the Company
in, to and under all other Related Property (as hereinafter
defined);
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants herein contained, the parties hereto agree as
follows:
ARTICLE I
Definitions
1.1 Defined Terms. Capitalized terms used in this
-------------
Agreement shall have the respective meanings assigned to such terms
in Annex X hereto unless otherwise defined herein.
1.2 Other Definitional Provisions. (a) The words
-----------------------------
"hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and article,
section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified.
(b) As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms
relating to C&A Products and its Subsidiaries, unless otherwise
defined herein, shall have the respective meanings given to them
under GAAP.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such
terms.
<PAGE>
2
ARTICLE II
Acquisition and Transfer of Participating Interest
2.1 Acquisition and Transfer of Participating Interest.
--------------------------------------------------
(a) By execution of this Agreement and subject to the terms and
conditions contained herein, the Company does hereby sell,
transfer, assign, set over and otherwise convey, without recourse
(except as expressly provided herein), to the Banks on the
Effective Date and from time to time during the Commitment Period,
and each Bank hereby severally agrees to acquire from the Company
on the Effective Date and from time to time during the Commitment
Period, a Participating Interest (up to the maximum amount
specified in subsection 2.3) in all right, title and interest of
the Company in, to and under the following, whether now owned or
hereafter acquired (collectively, with the property described in
subsections 2.1(b) and 2.1(c), the "Pooled Property"):
(i) all Receivables;
(ii) (A) all goods, if any, relating to the sale which
gave rise to any Receivable;
(B) all other security interests or liens and
property subject thereto from time to time purporting to
secure payment of any Receivable, whether pursuant to the
contract related to such Receivable or otherwise,
together with all financing statements or similar
instruments signed by an Obligor describing any
collateral securing such Receivable;
(C) all guarantees, insurance and other agreements
or arrangements of whatever character from time to time
supporting or securing payment of any Receivable whether
pursuant to the contract related to such Receivable or
otherwise; and
(D) all rights (including rescission, replevin or
reclamation) relating to any Receivable or arising
therefrom;
(iii) all monies due or to become due with respect to
the foregoing, including, without limitation, all Recoveries;
and
(iv) all proceeds of the foregoing, including, without
limitation, whatever is received upon the sale, exchange,
collection or other disposition of the foregoing or proceeds
thereof (the items described in clauses (ii), (iii) and (iv),
collectively, the "Related Property").
(b) The Company hereby assigns to the Administrative
Agent, for the benefit of the Banks, and grants to the
Administrative Agent, for the benefit of the Banks, a security
interest in, all its right, title and interest in, to and under the
<PAGE>
3
Receivables Sale Agreement, including (i) all rights of the Company
to receive moneys due and to become due under or pursuant to such
agreement, whether payable as fees, expenses, costs or otherwise,
(ii) all rights of the Company to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to such
agreement, (iii) claims of the Company for damages arising out of
or for breach of or default under such agreement, (iv) the right of
the Company to amend, waive or terminate such agreement, to perform
thereunder and to compel performance and otherwise exercise all
remedies thereunder and (v) all other rights, remedies, powers,
privileges and claims of the Company under or in connection with
such agreement (whether arising pursuant to such agreement or
otherwise available to the Company at law or in equity), including
the rights of the Company to enforce such agreement and to give or
withhold any and all consents, requests, notices, directions,
approvals, extensions or waivers under or in connection therewith
(the Pooled Property described in this sentence being referred to
herein as the "Transferred Agreement").
(c) In addition, to secure the obligations of the
Company hereunder, the Company hereby grants to the Administrative
Agent, for the benefit of the Banks, a security interest in all
right, title and interest of the Company in, to and under the
following, whether now owned or hereafter acquired:
(i) all equipment in all its forms, wherever located,
now or hereafter existing (including all software, data bases,
materials, books, records, magnetic tapes, disks and cassettes
relating to the Receivables and all other equipment in which
information concerning the Receivables is stored), and all
parts thereof and accessions thereto (any and all such
equipment, parts and accessions being the "Equipment");
(ii) all the following (the "Accounts"):
(A) each Concentration Account and each Lockbox
Account, all funds and other evidences of payment held
therein and all certificates and instruments, if any,
from time to time representing or evidencing any of such
Accounts or any funds and other evidences of payment held
therein;
(B) any operating account or other accounts of the
Company, all funds held therein and all certificates and
instruments, if any, from time to time representing or
evidencing any such operating account or any funds held
therein;
(C) all Cash Equivalents and all certificates and
instruments from time to time representing or evidencing
the Cash Equivalents;
(D) all notes, certificates of deposit and other
instruments from time to time hereafter delivered to, or
otherwise possessed by, the Administrative Agent for and
<PAGE>
4
on behalf of the Company in substitution for or in
addition to any of the then existing Accounts; and
(E) all interest, dividends, cash, instruments and
other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for
any and all of the then existing Accounts; and
(iii) all proceeds of or payments in respect of any and
all of the foregoing (including proceeds that constitute
property of the types described in clauses (i) and (ii) above
and including Collections) and, to the extent not otherwise
included, all payments under insurance (whether or not the
Administrative Agent is the loss payee in respect thereof), or
any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the Pooled
Property.
2.2 Payment for Initial Transfer of a Participating
-----------------------------------------------
Interest and any Increase in Net Investment. The undivided
-------------------------------------------
participating interest of the Banks in the Receivables and the
Related Property (the "Participating Interest"; a Bank's Commitment
Percentage of such Participating Interest shall equal such Bank's
"Participating Interest") shall equal, at any date of determination
thereof, the Net Investment at such date. The Company shall notify
the Banks of the amount of the initial transfer and assignment of a
Participating Interest or any request for an Increase in Net
Investment pursuant to subsection 2.3. The amount which the Banks
shall pay for such initial transfer and assignment or Increase in
Net Investment shall equal the amount of such initial transfer and
assignment or Increase in Net Investment, as the case may be.
After receipt by the Administrative Agent of the notice required by
subsection 2.3(a) from the Company, the Administrative Agent shall
promptly provide notice (which may be telephonic but shall be
confirmed in writing) to each Bank of the Closing Date and of the
portion of the Participating Interest or the Increase in Net
Investment allocable to such Bank on such Closing Date. Amounts
payable to the Company in respect of the initial transfer and
assignment of a Participating Interest or any Increase in Net
Investment on such Closing Date shall be obtained by the
Administrative Agent from the Banks and paid by the Administrative
Agent to the Company in accordance with the provisions of
subsection 2.8(a).
2.3 Acquisition and Transfer Procedure. (a) Subject to
----------------------------------
subsections 2.3(b) and 6.2, the initial transfer and assignment of
a Participating Interest or an Increase in Net Investment of the
Banks shall occur, upon notice from the Company, on the Effective
Date and on any Business Day during the Commitment Period (each
date on which the initial transfer and assignment of a
Participating Interest in the Receivables or an Increase in Net
Investment of the Banks occurs hereunder being herein referred to
as the "Closing Date" applicable to such transfer and assignment or
such increase, as the case may be) and shall take place at the
office of the Administrative Agent or such other place as may be
<PAGE>
5
mutually agreed upon, provided that the Company shall have given
--------
the Administrative Agent irrevocable notice (effective upon
receipt) of such request no later than (i) if the initial transfer
and assignment of a Participating Interest or the Increase in Net
Investment on such date is to be priced solely with reference to
ABR, 12:00 Noon (New York City time) one Business Day prior to such
Closing Date or (ii) if all or a portion of the initial transfer
and assignment of a Participating Interest or the Increase in Net
Investment is to be allocated to a Fixed Tranche, 12:00 Noon (New
York City time) three Business Days prior to such Closing Date,
provided, further, that the provisions of this subsection 2.3 shall
-------- -------
not restrict the allocations of Collections pursuant to subsection
2.7. Such notice shall state (i) the Closing Date, (ii) the amount
of the initial transfer and assignment of a Participating Interest
or the Increase in Net Investment, as the case may be, for the
proposed transaction, (iii) what portion thereof will be allocated
to a Fixed Tranche and/or the Floating Tranche and (iv) if any
portion thereof is to be allocated to a Fixed Tranche, the length
of the Transfer Period therefor.
(b) Each Bank shall have no obligation to acquire a
Participating Interest or to increase its pro rata share of the Net
--- ----
Investment on any Closing Date hereunder:
(1) unless, in the case of an Increase in Net
Investment, the Increase in Net Investment on such Closing
Date is equal to at least $500,000 or an integral multiple
thereof;
(2) to the extent that, after giving effect to (A) in
the case of the initial transfer and assignment of a
Participating Interest, such transfer, and (B) in the case of
an Increase in Net Investment, such Increase in Net Investment
on such date, the Net Investment would exceed the Maximum
Transfer Amount; or
(3) if the Commitments of the Banks have terminated
pursuant to Article IX.
The initial transfer and assignment of the Participating Interest
or an Increase in Net Investment allocable to the Banks as a group
shall be allocated to each Bank according to the Commitment
Percentage of such Bank.
2.4 Commitment Fees. The Company agrees to pay to the
---------------
Administrative Agent, for the account of the Banks, a commitment
fee (the "Commitment Fee") for the Commitment Period, computed at
the rate of 3/8ths of 1% per annum on the average daily excess of
the Maximum Commitment over the Net Investment for each day during
the period for which such Commitment Fee is payable. Commitment
Fees shall be payable in arrears on each Settlement Date for the
relevant Settlement Period.
2.5 Fee and Purchase Discount Amount Calculations. (a)
---------------------------------------------
Calculations of per annum rates under this Agreement shall be made
<PAGE>
6
on the basis of a 360-day year for actual days elapsed, except that
Commitment Fees and Purchase Discount Amounts on the Floating
Tranche determined by reference to the Prime Rate shall be
calculated on the basis of a 365- (or 366-, as the case may be) day
year. Each determination of the Eurodollar Rate hereunder by the
Administrative Agent shall be conclusive and binding upon each of
the parties hereto in the absence of manifest error. Any change in
the Purchase Discount Amount resulting from a change in ABR or
Statutory Reserves shall become effective as of the opening of
business on the day on which such change is announced.
(b) Anything contained in this Agreement to the contrary
notwithstanding, (i) the portion of the Net Investment allocable to
any Fixed Tranche must be an amount equal to $10,000,000 or an
integral multiple of $1,000,000 in excess thereof, (ii) no more
than ten Fixed Tranches shall be outstanding at any one time, and
(iii) after the occurrence and during the continuance of any
Termination Event, at the end of the related Transfer Period all of
the Net Investment allocated to any Fixed Tranche shall be
reallocated to the Floating Tranche.
2.6 Interest on Overdue Payments. If any amount
----------------------------
payable by the Company to the Banks or the Administrative Agent
hereunder, whether on account of fees or expenses or on account of
amounts collected by the Company or amounts payable by the Company
pursuant to Article III or subsection 5.3, or otherwise, is not
paid by the Company or otherwise on the relevant Settlement Date or
other relevant date, such amount shall be payable together with
interest, payable on demand, for each day from such Settlement Date
or other relevant date, as the case may be, until such amount is
paid in full at a rate per annum equal to the ABR plus the
----
Applicable ABR Margin plus 2%.
----
2.7 Establishment of Accounts; Allocation of
----------------------------------------
Collections; Reinvestment of Principal Collections.
--------------------------------------------------
(a) (i) The Administrative Agent shall establish and
maintain in the name of the Administrative Agent (x) with Chemical
one account in the United States (the "U.S. Concentration
Account"), (y) with a financial institution acceptable to the
Administrative Agent one account in Canada for the purpose of
receiving certain Collections in U.S. Dollars (the "Canada/U.S.
Dollar Concentration Account") and (z) with a financial institution
acceptable to the Administrative Agent one account in Canada for
the purpose of receiving Collections in Canadian Dollars (the
"Canada/Canadian Dollar Concentration Account"). Collections
deposited into each Lockbox Account will be transferred to the
relevant Concentration Account as set forth in Article XII (either
directly or through an intermediate Lockbox Account at the same
Lockbox Bank); provided that Collections may, at the option of the
--------
applicable Obligor, be deposited directly into the relevant
Concentration Account by wire transfer from an account of such
Obligor to the Concentration Account or by means of transfer
through the Automated Clearing House System, as set forth in
Article XII. All Collections otherwise received by any Servicer,
<PAGE>
7
the Master Servicer or the Company shall be deposited by it either
to a Lockbox Account or through the Automated Clearing House System
into the relevant Concentration Account as set forth in Article
XII. The Administrative Agent shall have sole and exclusive
dominion over and control of each Concentration Account and the
Company, the Servicers and the Master Servicer shall not have any
dominion over or control of any such account.
(ii) Amounts deposited in any Concentration Account
shall be invested by the Administrative Agent as directed by the
Master Servicer in Cash Equivalents maturing not later than the
next Business Day.
(iii) Any earnings (net of losses and investment expenses)
on such invested funds in any Concentration Account ("Investment
Earnings") will be treated as Collections and retained therein.
(iv) Neither the Company nor the Master Servicer nor any
Servicer nor any Person claiming by, through or under the Company,
any Servicer or the Master Servicer shall have any right, title or
interest in, or any control over the use of, or any right to
withdraw moneys from, any Concentration Account, except the right
to give directions for investments of amounts on deposit therein as
expressly provided for in paragraph (ii) above.
(b) Prior to the commencement of an Amortization Period,
the Collections, Retransfer Payments, Servicer Transfer Payments
and Adjustment Payments deposited in the Concentration Accounts
(collectively, "Receivables Proceeds") shall be applied by the
Administrative Agent on each Business Day, as follows:
(i) first, if such Business Day is a Settlement Date, to
the payment of the Monthly Servicing Fee of any Servicer that
is not an Affiliate of the Company, the Master Servicer or any
Seller;
(ii) second, on each Purchase Discount Amount Payment
Date occurring during the period commencing on the date of the
first transfer and assignment of the Participating Interest in
Receivables and Related Property pursuant to subsection 2.3(a)
and ending on the date on which the Net Investment is equal to
zero and the Commitments of the Banks have terminated, to the
payment in arrears of accrued Purchase Discount Amount on such
Business Day to the Banks in respect of the Participating
Interest;
(iii) third, to the payment of (x) the Commitment Fees
and (y) any other amounts, if any, accrued and payable on such
Business Day to the Administrative Agent and the Banks in
respect of the Participating Interest;
(iv) fourth, to the payments, if any, required by
subsection 2.12 (Mandatory Reductions in Net Investment) on
such Business Day;
<PAGE>
8
(v) fifth, to the payment of the Company's indemnity
obligations hereunder and, then, to the Company's operating
account for the payment of the operating expenses of the
Company incurred or reserved for on such Business Day,
provided that the aggregate amounts paid to the Company's
--------
operating account pursuant to this clause (v) shall not
exceed, for any fiscal year of the Company, $250,000;
(vi) sixth, if such Business Day is a Settlement Date,
to the payment of the Monthly Servicing Fee of any Servicer
that is an Affiliate of the Company, the Master Servicer or
any Seller;
(vii) seventh, to the Company to enable the Company to
acquire Receivables from the Sellers pursuant to the
Receivables Sale Agreement in the aggregate amount specified
in the applicable Daily Report, provided that the Company may
--------
elect to (A) retain all or any portion of such amounts in the
Concentration Accounts and (B) on the next Reduction Date, if
the Company shall have given the Administrative Agent
irrevocable notice in accordance with subsection 2.11(b), have
all or any portion of such amounts remitted to the Banks on
such Reduction Date and have the Net Investment reduced
accordingly (subject to the payment by the Company of any
amounts required pursuant to subsection 3.2);
(viii) eighth, at the Company's option and subject to
the terms of this Agreement and the Subordinated Notes, to
make payments on account of the Subordinated Notes, in the
aggregate amount specified in the applicable Daily Report;
(ix) ninth, to the extent such expenses are not paid
pursuant to clause (v) above, to the Company's operating
account for the payment of the operating expenses of the
Company incurred or reserved for such Business Day; and
(x) tenth, at the Company's option and subject to the
terms of this Agreement, to the Company to enable the Company
to make payments on account of Restricted Payments in the
aggregate amount specified in the applicable Daily Report, so
long as the outstanding principal amount of the Subordinated
Notes shall be zero at the time of such payment and all
accrued interest thereon shall have been paid in full;
provided, that (I) in no event shall any Receivables Proceeds be
--------
distributed from the Concentration Accounts with respect to clauses
(iii)(y) and (iv)-(x) above on the first or second Business Day
next preceding any Purchase Discount Amount Payment Date or
Settlement Date to the extent the amount remaining in the U.S.
Concentration Account would be less than the aggregate of the
amounts referred to in clauses (i), (ii) and (iii)(x) above payable
on such Purchase Discount Amount Payment Date or Settlement Date;
(II) in no event shall any Receivables Proceeds be distributed from
the Concentration Accounts with respect to clauses (iv)-(x) above
to the extent such distribution would necessitate a payment under
<PAGE>
9
subsection 2.12; (III) in no event shall any Receivables Proceeds
be distributed from the Concentration Accounts with respect to
clauses (vii)-(x) above (other than a distribution in accordance
with the proviso in clause (vii)), if a Potential Termination Event
of a type set forth in subsection 9(b)(ii) has occurred and is
continuing; (IV) in no event shall any Receivables Proceeds be
distributed from the Concentration Accounts with respect to clauses
(viii)-(x) above if a Termination Event shall have occurred and be
continuing or would occur as a result of such payment; and (V)
Receivables Proceeds shall first be distributed out of the U.S.
Concentration Account and the Canada/U.S. Dollar Concentration
Account before any distributions are made out of the
Canada/Canadian Dollar Concentration Account (except in the case of
distributions to be applied to make payments in Canadian Dollars,
which shall instead be distributed out of the Canada/Canadian
Dollar Concentration Account so long as all obligations having a
prior claim to Receivables Proceeds have been paid in full).
(c) During any Amortization Period, all Receivables
Proceeds shall be applied by the Administrative Agent as follows:
(i) first, (x) to the payment of Monthly Servicing Fees of any
Servicer that is not an Affiliate of the Company, the Master
Servicer or any Seller and (y) to the payment of the reasonable
operating expenses of the Company and (to the extent approved by
the Required Banks) any Servicer that is an Affiliate of the
Company, the Master Servicer or any Seller, (ii) second, to the
payment to each Bank of its Commitment Percentage of such
Receivables Proceeds until such time as the Net Investment and
Purchase Discount Amounts thereon and the payment of all other
amounts that are payable to the Administrative Agent and its
Affiliates and the Banks shall have been paid in full and (iii)
after such time as the Net Investment and Purchase Discount Amounts
thereon and all other amounts that are due and payable to the
Administrative Agent and the Banks shall have been paid in full,
the remainder to the Company.
(d) The Master Servicer shall as soon as possible after
receipt of any Collections and other proceeds determine whether or
not they are with respect to Purchased Receivables and shall as
soon as possible notify the Administrative Agent of such
determination. The Administrative Agent shall as soon as possible
thereafter transfer any Collections that are not with respect to
Purchased Receivables from the relevant Concentration Account to
the Master Servicer for payment to the applicable Person, provided,
--------
that with respect to any Collections for which the Administrative
Agent has not been provided such a determination by the Master
Servicer by the end of the Business Day five Business Days from the
date of receipt thereof, such Collections shall be deemed to be
Collections with respect to Purchased Receivables and no other
Person shall have any rights therein except to the extent provided
in applicable state laws governing the laws of restitution and
mistake. Notwithstanding the foregoing, during any Amortization
Period the Administrative Agent shall apply all cash collections
and other proceeds received in respect of an Obligor with respect
to all Receivables of such Obligor first, to pay the outstanding
-----
<PAGE>
10
principal balance of Purchased Receivables (on the date of such
notification) of such Obligor until Purchased Receivables with
respect to such Obligor are paid in full and second, amounts in
------
excess thereof shall be paid to the Master Servicer for payment to
the Person legally entitled thereto to pay the outstanding
principal balance of all remaining Receivables with respect to such
Obligor. The Master Servicer agrees that in making each such
determination with respect to Collections and other proceeds, the
Master Servicer represents and warrants at such time, to the best
of the Master Servicer's knowledge, that such determination is true
and correct.
2.8 Payments; Pro Rata Treatment. (a) Not later than
----------------------------
11:00 a.m. (New York City time) on each date on which the Banks are
notified to remit payments to the Administrative Agent or as the
Administrative Agent shall direct on account of any Increase in Net
Investment, each Bank shall make available to the Administrative
Agent or as the Administrative Agent shall direct an amount in
immediately available funds equal to the amount of such remittance
calculated as provided herein. The Administrative Agent shall
credit the proceeds of such payments in a timely manner in
accordance with the instructions of the Company.
(b) Unless the Administrative Agent shall have been
notified in writing by any Bank prior to a Closing Date that such
Bank will not make the amount which would constitute its portion of
the Participating Interest or Increase in Net Investment on such
date available to the Administrative Agent, the Administrative
Agent may assume that such Bank has made such amount available to
the Administrative Agent on such Closing Date, and the
Administrative Agent may, in reliance upon such assumption, make
available to the Company, a corresponding amount. If such amount
is made available to the Administrative Agent on a date after such
Closing Date, such Bank shall pay to the Administrative Agent on
demand an amount equal to the product of (i) the daily average
Federal Funds Effective Rate during such period, times (ii) the
amount of such Bank's portion of the Participating Interest or
Increase in Net Investment, times (iii) a fraction the numerator of
which is the number of days that elapse from and including such
Closing Date to the date on which such Bank's funds shall have
become immediately available to the Administrative Agent and the
denominator of which is 360. A certificate of the Administrative
Agent submitted to any Bank with respect to any amounts owing under
this subsection 2.8(b) shall be conclusive, absent manifest error.
If such Bank's portion of the Participating Interest or Increase in
Net Investment is not in fact made available to the Administrative
Agent by such Bank within three Business Days of such Closing Date,
the Administrative Agent shall be entitled to recover such amount
with interest thereon at a per annum rate equal to the ABR plus the
Applicable ABR Margin, on demand, from the Company. No provision
contained in this subsection 2.8(b) shall prejudice any rights of
the Company against any Bank.
(c) Except where an amount is payable to a particular
Bank, the amount of such collections and amounts paid allocable to
<PAGE>
11
the Banks to be remitted to each Bank shall be such Bank's
Commitment Percentage of the aggregate amount thereof allocable to
the Banks.
2.9 Netting of Payments. Anything contained in this
-------------------
Agreement to the contrary notwithstanding, the Administrative Agent
may, in its sole discretion, net any amounts the Administrative
Agent is required to make available to the Company on any day
pursuant to subsection 2.7(b) or any other subsection of this
Agreement against any amounts the Administrative Agent is required
to make available to the Banks on such day pursuant to subsection
2.7(b) or any other provision of this Agreement.
2.10 Termination or Reduction of Commitment. The
--------------------------------------
Company may on any Settlement Date, upon three Business Days' prior
written notice to the Administrative Agent (effective upon
receipt), (i) terminate the Banks' Commitments hereunder or
(ii) reduce the Maximum Commitment hereunder in an amount equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof;
provided, that the Maximum Commitment may not be reduced below the
--------
Net Investment. After receipt by the Administrative Agent of any
such notice from the Company, the Administrative Agent shall
promptly provide a copy of such notice to each Bank. Upon any such
reduction, the Commitment of each Bank shall be reduced pro rata
--- ----
according to the Commitment Percentage of such Bank. Upon any such
termination or reduction as aforesaid, the Maximum Commitment of
the Banks shall terminate or be reduced, as the case may be. Any
such termination shall not in any way affect the Company's
obligations under Article III hereof. Once terminated or reduced,
the Commitments of the Banks cannot be reinstated unless otherwise
agreed in writing by all of the Banks.
2.11 Optional Retransfer; Reduction of Net Investment.
------------------------------------------------
(a) On any Settlement Date during the Amortization Period on which
the Net Investment equals 10% or less of the Net Investment as of
the first day of the Amortization Period, the Company shall have
the option, exercisable upon three Business Days' prior notice to
the Administrative Agent (effective upon receipt), to acquire the
Banks' total Participating Interest at a transfer price equal to
the Net Investment plus all accrued and unpaid fees (including
without limitation, Purchase Discount Amounts) to the date of such
transfer plus any amounts payable pursuant to subsections 3.2 and
3.3. After receipt by the Administrative Agent of any such notice
from the Company, the Administrative Agent shall promptly provide a
copy of such notice to each Bank.
(b) The Company may, in accordance with subsection
2.7(b)(vii), reduce the Net Investment on any date (a "Reduction
Date") which is a Business Day, without premium or penalty (other
than amounts payable pursuant to subsection 3.2), upon at least
three Business Days' irrevocable notice to the Administrative
Agent, in the case of reductions in the Net Investment that are
part of any Fixed Tranche, and one Business Day's irrevocable
notice to the Administrative Agent, in the case of reductions in
the Net Investment that are part of the Floating Tranche,
<PAGE>
12
specifying (a) the Tranches to be reduced, (b) the date and amount
of such reduction and (c) if such reduction is of a combination of
Fixed Tranche amounts and Floating Tranche amounts, the amount of
reduction allocable to each (and, with respect to such Fixed
Tranche, each Tranche thereof). Upon receipt of any such notice,
the Administrative Agent will promptly notify each Bank thereof.
If any such notice is given, amounts on deposit in the
Concentration Accounts shall be applied pursuant to subsection
2.7(b)(vii) on the date specified therein. Each reduction of the
Net Investment pursuant to this subsection 2.11(b) shall be in an
amount equal to the lesser of (x) a whole multiple of $1,000,000
and (y) the Net Investment then outstanding.
2.12 Mandatory Reductions in Net Investment. (a) On
--------------------------------------
any Business Day on which the Net Investment exceeds the Maximum
Transfer Amount (except to the extent Excess Application Amounts in
respect of such excess are being held in a cash collateral account
pursuant to subsection 2.12(c)), all Receivables Proceeds shall be
applied on such Business Day to reduce the Net Investment (and the
Purchase Discount Amounts accrued on the portion thereof so repaid)
in such amount as shall be necessary so that after giving effect to
such payment there shall be no such excess and, to the extent such
Receivables Proceeds are not sufficient to pay such excess (and the
Purchase Discount Amount accrued thereon) on such Business Day, all
subsequent Receivables Proceeds shall be applied to pay such excess
(and the Purchase Discount Amounts accrued thereon) until so paid.
(b) Notwithstanding anything to the contrary set forth
in this Agreement, any mandatory reduction hereunder shall be
applied, unless the Administrative Agent receives instructions from
the Company otherwise, (i) first, to the Floating Tranche, (ii)
second, to any Fixed Tranche the then applicable Transfer Period
with respect to which ends on the date of the relevant payment and
(iii) third, unless otherwise directed by the Company pursuant to
subsection 2.12(c), to the other Fixed Tranches as selected by the
Administrative Agent in its sole discretion, provided that, in any
--------
event, the Company shall pay such amounts, if any, required by
subsection 3.2.
(c) In the event the amount of any mandatory reduction
required to be made on any date pursuant to this subsection 2.12
shall exceed the aggregate of the amounts described in clauses (i)
and (ii) of paragraph (b) above with respect to such date (the
amount of any such excess being called the "Excess Application
------------------
Amount"), the Company shall have the right, in lieu of making such
------
reduction in full, to first apply such reduction in the manner
contemplated by said clauses (i) and (ii) and to deposit an amount
equal to the Excess Application Amount with the Administrative
Agent in a cash collateral account maintained (pursuant to
documentation satisfactory to the Administrative Agent) by and in
the sole dominion and control of the Administrative Agent. Any
amounts so deposited shall be held by the Administrative Agent as
collateral for the obligations of the Company hereunder and applied
to the reduction of the applicable Fixed Tranches at the end of the
current Transfer Periods applicable thereto. On any Business Day
<PAGE>
13
on which (x) collected amounts remain on deposit in or to the
credit of such cash collateral account after giving effect to the
payments made on such day pursuant to this paragraph (c) and (y)
the Company shall have delivered to the Administrative Agent a
written request or a telephonic request (which shall be promptly
confirmed in writing) that such remaining collected amounts be
invested in the Cash Equivalents specified in such request, the
Administrative Agent shall use its reasonable efforts to invest
such remaining collected amounts in such Cash Equivalents;
provided, that the Administrative Agent shall have continuous
--------
dominion and full control over any such investments (and over any
interest that accrues thereon) to the same extent that it has
dominion and control over such cash collateral account and no Cash
Equivalent shall mature after the end of the Transfer Period for
which it is to be applied. Unless a Termination Event or Potential
Termination Event then exists or would result, the Company shall
have the right to withdraw any amount from such cash collateral
account if (i) the applicable Fixed Tranches have been reduced to
zero and accrued Purchase Discount Amount thereon has been paid in
full or (ii) the Net Investment has otherwise ceased to exceed the
Maximum Transfer Amount.
(d) All payments under this subsection 2.12 shall be
subject to subsection 3.2 but otherwise without premium or penalty.
All payments in reduction of the Net Investment under this
subsection 2.12 shall be accompanied by the Purchase Discount
Amounts on the amount being paid accrued to the date of payment.
ARTICLE III
Increased Costs
3.1 Illegality. (a) Notwithstanding any other
----------
provision herein, if the adoption of or any change in any law or
regulation or in the interpretation thereof by any Governmental
Authority charged with the administration or interpretation thereof
shall make it unlawful for any Bank to purchase or maintain a
Eurodollar Participating Interest as contemplated by this Agreement
or to give effect to its obligations as contemplated hereby with
respect to any portion of the Net Investment allocated to any Fixed
Tranche, then, by written notice to the Company and to the
Administrative Agent, such Bank may:
(i) declare that a Eurodollar Participating Interest
will not thereafter be purchased or maintained by such Bank
hereunder, whereupon any request by the Company for a
Eurodollar Participating Interest shall, as to such Bank only,
be deemed a request for an ABR Participating Interest unless
such declaration shall be subsequently withdrawn; and
(ii) require that the outstanding Eurodollar
Participating Interest of such Bank be converted to an ABR
Participating Interest, in which event such Eurodollar
Participating Interest shall be automatically converted to an
<PAGE>
14
ABR Participating Interest as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Bank shall exercise its rights under clause (i) or
(ii) above, all payments which would otherwise have been applied to
reduce the Eurodollar Participating Interest that would have been
held by such Bank or the converted Eurodollar Participating
Interest of such Bank shall instead be applied to reduce the ABR
Participating Interest made by such Bank in lieu of, or resulting
from the conversion of, such Eurodollar Participating Interest.
(b) For purposes of this subsection 3.1, a notice to the
Company by any Bank shall be effective as to each Fixed Tranche, if
lawful, on the last day of the Transfer Period currently applicable
to such Fixed Tranche; in all other cases such notice shall be
effective on the date of receipt by the Company.
3.2 Indemnity. The Company shall indemnify each Bank
---------
against any loss or expense (other than taxes) which such Bank may
sustain or incur as a consequence of (a) any failure by the Company
to fulfill on the date of any Increase in Net Investment or
proposed Increase in Net Investment hereunder the applicable
conditions set forth in Article VI, (b) any failure by the Company
to effectuate an Increase in Net Investment or to convert or
continue any Fixed Tranche or Floating Tranche hereunder after
irrevocable notice of such increase, conversion or continuation has
been given pursuant hereto, (c) any reduction or conversion of a
Fixed Tranche required by any other provision of this Agreement or
otherwise made or deemed made on a date other than the last day of
the Transfer Period applicable thereto, (d) any default in
reduction in respect of the Net Investment or any part thereof or
the payment of Purchase Discount Amount accrued thereon, as and
when such reduction is required or such amount is due and payable,
as the case may be, or (e) the occurrence of any Termination Event,
including, in each such case, any loss or reasonable expense
sustained or incurred or to be sustained or incurred in liquidating
or employing deposits from third parties acquired to effect or
maintain any Participating Interest or any part thereof as a
Eurodollar Participating Interest. Such loss or reasonable expense
shall exclude loss of margin hereunder but shall include an amount
equal to the excess, if any, as reasonably determined by such Bank,
of (i) its cost of obtaining the funds for the Participating
Interest being reduced, converted or not transferred, converted or
continued (assumed to be the Eurodollar Rate applicable thereto)
for the period from the date of such reduction, conversion or
failure to transfer, convert or continue to the last day of the
Transfer Period for such Eurodollar Participating Interest (or, in
the case of a failure to transfer, convert or continue, the
Transfer Period for such Eurodollar Participating Interest which
would have commenced on the date of such failure) over (ii) the
amount of interest (as reasonably determined by such Bank) that
would be realized by such Bank in reemploying the funds in an
amount equal to the amount of such reduction or conversion or the
amount not transferred, converted or continued for such period or
Transfer Period, as the case may be. A certificate of any Bank
<PAGE>
15
setting forth any amount or amounts which such Bank is entitled to
receive pursuant to this subsection 3.2 (and the reasons therefor)
shall be delivered to the Company through the Administrative Agent
and shall be conclusive absent manifest error.
3.3 Requirements of Law. (a) Notwithstanding any
-------------------
other provision herein, if after the date of this Agreement any
change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with
the interpretation or administration thereof (whether or not having
the force of law) shall change the basis of taxation of payments to
any Bank in respect of the Eurodollar Participating Interest of
such Bank or any fees or other amounts payable hereunder (other
than changes in respect of (i) taxes imposed on the overall net
income of such Bank by the jurisdiction in which such Bank has its
principal office or by any political subdivision or taxing
authority therein and (ii) any Taxes described in subsection 3.5),
or shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets or deposits with or
for the account of or credit extended by such Bank (except any such
reserve requirement which is reflected in the Eurodollar Rate) or
shall impose on such Bank or the interbank eurodollar market any
other condition affecting this Agreement or the Eurodollar
Participating Interest of such Bank, and the result of any of the
foregoing shall be to increase the cost to such Bank of purchasing
or maintaining its Eurodollar Participating Interest or to reduce
the amount of any sum received or receivable by such Bank hereunder
(whether in repayment of the Net Investment, payment of any
Purchase Discount Amount or otherwise) by an amount deemed by such
Bank to be material, then the Company will pay to such Bank upon
demand such additional amount or amounts as will compensate such
Bank for such additional costs incurred or reduction suffered.
(b) If any Bank shall have determined that the adoption
after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy, or any change after the date hereof in
any of the foregoing or in the interpretation or administration of
any of the foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any purchasing office of
such Bank) or any Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the
force of law) made or issued after the date hereof by any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital or on
the capital of such Bank's holding company, if any, as a
consequence of this Agreement or its obligations pursuant hereto to
a level below that which such Bank or such Bank's holding company
would have achieved but for such adoption, change or compliance
(taking into consideration such Bank's policies and the policies of
such Bank's holding company with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time
the Company shall pay to such Bank such additional amount or
amounts as will compensate such Bank or such Bank's holding company
for any such reduction suffered.
<PAGE>
16
(c) A certificate of each Bank setting forth such amount
or amounts as shall be necessary to compensate such Bank or its
holding company as specified in paragraph (a) or (b) above, as the
case may be, shall be delivered to the Company and shall be
conclusive absent manifest error. The Company shall pay each Bank
the amount shown as due on any such certificate delivered by it
within 10 days after its receipt of the same.
(d) In the event any Bank delivers a notice pursuant to
paragraph (e) below, the Company may require, at the Company's
expense and subject to subsection 3.2, such Bank to assign, at par
plus accrued Purchase Discount Amount and fees, without recourse
(in accordance with subsection 11.4) all its interests, rights and
obligations hereunder (including all of its Commitment and the
Participating Interests at the time held by it) to a financial
institution specified by the Company provided that (i) such
assignment shall not conflict with or violate any law, rule or
regulation or order of any court or other Governmental Authority,
(ii) the Company shall have received the written consent of the
Administrative Agent, which consent shall not unreasonably be
withheld, to such assignment and (iii) the Company shall have paid
to the assigning Bank all monies accrued and owing hereunder to it
(including pursuant to this subsection 3.3).
(e) Promptly after any Bank has determined, in its sole
judgment, that it will make a request for increased compensation
pursuant to this subsection 3.3, such Bank will notify the Company
thereof. Failure on the part of any Bank so to notify the Company
or to demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such
Bank's right to demand compensation with respect to such period or
any other period; provided that the Company shall not be under any
--------
obligation to compensate any Bank under subsection 3.3(b) with
respect to increased costs or reductions with respect to any period
prior to the date that is six months prior to such request if such
Bank knew or could reasonably have been expected to be aware of the
circumstances giving rise to such increased costs or reductions and
of the fact that such circumstances would in fact result in such
increased costs or reduction; provided, further, that, the
-------- -------
foregoing limitation shall not apply to any increased costs or
reductions arising out of the retroactive application of any law,
regulation, rule, guideline or directive as aforesaid within such
six month period. The protection of this subsection 3.3 shall be
available to each Bank regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or
been imposed.
3.4 Inability to Determine Eurodollar Rate. In the
--------------------------------------
event, and on each occasion, that on the day two Business Days
prior to the commencement of any Transfer Period for a Fixed
Tranche the Administrative Agent shall have determined that dollar
deposits, in the respective amounts of the portion of each Bank's
Eurodollar Participating Interest comprising such Fixed Tranche,
<PAGE>
17
are not generally available in the interbank eurodollar market, or
that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to any Bank of
purchasing or maintaining its Eurodollar Participating Interest
during such Transfer Period, or that reasonable means do not exist
for ascertaining the Eurodollar Rate, the Administrative Agent
shall, as soon as practicable thereafter, give written or telex
notice of such determination to the Company and the Banks. If such
notice is given, the Purchase Discount Amount applicable to that
portion of the Net Investment that was to be allocated to a Fixed
Tranche shall be determined by reference to the ABR. Until such
notice has been withdrawn by the Administrative Agent, no further
Eurodollar Rate elections shall be made. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest
error.
3.5 Taxes. (a) Any and all payments by the Company,
-----
any Servicer or the Master Servicer (each, a "Tax Indemnifying
Party") to the Administrative Agent or the Banks hereunder shall be
made, in accordance with subsection 2.8, free and clear of and
without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding (i) in the case of each Bank and
the Administrative Agent, taxes that would not be imposed but for a
connection between such Bank or the Administrative Agent (as the
case may be) and the jurisdiction imposing such tax, other than a
connection arising solely by virtue of the activities of such Bank
or the Administrative Agent (as the case may be) pursuant to or in
respect of this Agreement, including, without limitation, entering
into, making purchases pursuant to, receiving payments under, or
enforcing, this Agreement, and (ii) in the case of each Bank and
the Administrative Agent, any United States withholding taxes
payable with respect to payments hereunder under laws (including,
without limitation, any statute, treaty, ruling, determination or
regulation) in effect on the Initial Date (as hereinafter defined)
for such Bank or the Administrative Agent, as the case may be, but
not excluding any United States withholding taxes payable solely as
a result of any change in such laws occurring after the Initial
Date (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). For purposes of this subsection 3.5, the term
"Initial Date" shall mean (i) in the case of the Administrative
Agent or any Bank, the date on which such Person became a party to
this Agreement and (ii) in the case of any assignment including any
assignment by a Bank to a new purchasing office, the date of such
assignment. If any Taxes shall be required by law to be deducted
from or in respect of any sum payable hereunder to any Bank or the
Administrative Agent (i) the sum payable by the relevant Tax
Indemnifying Party shall be increased as may be necessary so that
after making all required deductions (including deductions
applicable to additional sums payable under this subsection 3.5)
such Bank or the Administrative Agent (as the case may be) receives
an amount equal to the sum it would have received had no such
deductions been made, (ii) the relevant Tax Indemnifying Party
shall make such deductions and (iii) the relevant Tax Indemnifying
<PAGE>
18
Party shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. No
Tax Indemnifying Party shall, however, be required to pay any
amounts pursuant to clause (i) of the preceding sentence to any
Bank or the Administrative Agent not organized under the laws of
the United States of America or a state thereof if such Bank or the
Administrative Agent fails to comply with the requirements of
paragraphs (f) or (g), as the case may be, and paragraph (h) of
this subsection 3.5.
(b) In addition, the Company agrees to pay any present
or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from the
execution, delivery or registration of, or otherwise with respect
to, this Agreement (hereinafter referred to as "Other Taxes").
(c) Each Tax Indemnifying Party will indemnify each Bank
and the Administrative Agent for the full amount of Taxes and Other
Taxes (including any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this subsection 3.5) paid by
such Bank or the Administrative Agent, as the case may be, and any
liability (including penalties, interest and expenses) arising
therefrom or with respect thereto whether or not such Taxes or
Other Taxes were correctly or legally asserted. Such
indemnification shall be made within 10 days after the date any
Bank or the Administrative Agent, as the case may be, makes written
demand therefor. If a Bank or the Administrative Agent shall
become aware that it is entitled to receive a refund or is
reasonably requested by the relevant Tax Indemnifying Party to
pursue a claim for a refund in respect of Taxes or Other Taxes, it
shall promptly notify such Tax Indemnifying Party of the
availability of such refund (unless instructed to pursue a claim by
such Tax Indemnifying Party) and shall, within 30 days after
receipt of a request by such Tax Indemnifying Party, pursue or
timely claim such refund at such Tax Indemnifying Party's expense.
If any Bank or the Administrative Agent receives a refund in
respect of any Taxes or Other Taxes for which such Bank or the
Administrative Agent has received payment from any Tax Indemnifying
Party hereunder, it shall promptly notify such Tax Indemnifying
Party of such refund and shall, within 30 days after receipt of a
request by such Tax Indemnifying Party (or promptly upon receipt,
if such Tax Indemnifying Party has requested application for such
refund pursuant hereto), repay such refund (plus any interest
received) to such Tax Indemnifying Party, provided that such Tax
Indemnifying Party, upon the request of such Bank or the
Administrative Agent, agrees to return such refund (plus any
penalties, interest or other charges required to be paid) to such
Bank or the Administrative Agent in the event such Bank or the
Administrative Agent is required to repay such refund.
(d) Within 30 days after the date of any payment of
Taxes or Other Taxes withheld by any Tax Indemnifying Party in
respect of any payment to any Bank or the Administrative Agent,
such Tax Indemnifying Party will furnish to the Administrative
<PAGE>
19
Agent, at its address referred to in subsection 11.2, the original
or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations
contained in this subsection 3.5 shall survive the termination of
this Agreement.
(f) This paragraph (f) shall apply to cases where the
Tax Indemnifying Party is a U.S. Person (within the meaning of the
Code). Each of each Bank and the Administrative Agent that is not
organized under the laws of the United States of America or a state
thereof agrees that at least 10 days prior to the first Purchase
Discount Amount Payment Date following the Initial Date in respect
of such Bank, it will deliver to the Company and the Administrative
Agent (if appropriate) two duly completed copies of either (i)
United States Internal Revenue Service Form 1001 or 4224 or
successor applicable form, as the case may be, certifying in each
case that such Bank or the Administrative Agent, as the case may
be, is entitled to receive payments under this Agreement payable to
it without deduction or withholding of any United States federal
income taxes and backup withholding taxes or is entitled to receive
such payments at a reduced rate pursuant to a treaty provision or
(ii) in the case of a Bank that is not a "bank" within the meaning
of Section 881(c)(3) of the Code, United States Internal Revenue
Service Form W-8 or successor applicable form and a statement from
such Bank certifying to the fact that interest payable to it
hereunder (A) will not be described in Section 871(h)(3)(A) or
Section 881(c)(3)(A), (B) or (C) of the Code and (B) will not be
effectively connected with a trade or business carried on in the
United States by such Bank. Each of each Bank and the
Administrative Agent required to deliver to the Company and the
Administrative Agent a Form 1001, 4224 or W-8 pursuant to the
preceding sentence further undertakes to deliver to the Company and
the Administrative Agent (if appropriate) two further copies of
Form 1001, 4224 or W-8, or successor forms, or other similar manner
of certification and such extensions or renewals thereof as may
reasonably be requested by the Company and, in the case where a
Form W-8 has been delivered, a further statement certifying to the
fact set forth in clause (B) of the preceding sentence (i) at the
times reasonably requested by the Company, (ii) after the
occurrence of an event requiring a change in the most recent form
or statement previously delivered by it to the Company or (iii) in
the case of Form 1001, 4224 or W-8, on or before the date that any
such form expires or becomes obsolete, and, in the case of Form
1001 or 4224, certifying that such Bank is entitled to receive
payments under this Agreement without deduction or withholding of
any United States federal income taxes and backup withholding taxes
or is entitled to receive such payments at a reduced rate pursuant
to a treaty provision, unless such Bank advises the Company that it
is unable lawfully to provide such forms and other certifications
and notifies the Company to such effect. Unless the Company and
the Administrative Agent have received forms, certificates and
other documents satisfactory to them indicating that payments
hereunder to or for any Bank not incorporated under the laws of the
<PAGE>
20
United States or a state thereof are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the relevant Tax Indemnifying Party or the
Administrative Agent, as the case may be, shall withhold such taxes
from such payments at the applicable statutory rate.
(g) This paragraph (g) shall apply to cases where the
Tax Indemnifying Party is incorporated in or under the laws of
Canada. Each Bank and the Administrative Agent that is not
incorporated within or under the laws of Canada and that is
claiming such additional amounts agrees that within a reasonable
period of time following the request of the relevant Tax
Indemnifying Party, it will, to the extent it is legally entitled
to a reduction in the rate of or exemption from Canadian
withholding taxes, deliver to the such Tax Indemnifying Party and
the Administrative Agent (if appropriate) any form or document
required under the laws, regulations, official interpretations or
treaties enacted by, made or entered into with Canada properly
completed and duly executed by such Bank or Administrative Agent
establishing that any payments hereunder are exempt from Canadian
withholding tax or subject to a reduced rate of Canadian
withholding tax, as the case may be; provided that, in the sole
determination of such Bank or the Administrative Agent, such form
or document shall not be otherwise disadvantageous to such Bank or
the Administrative Agent.
(h) Any Bank claiming any additional amounts payable
pursuant to this subsection 3.5 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any
certificate or document requested by the relevant Tax Indemnifying
Party or to change the jurisdiction of its applicable purchasing
office if the making of such a filing or change would avoid the
need for or reduce the amount of any such additional amounts which
may thereafter accrue and would not, in the sole determination of
such Bank, be otherwise disadvantageous to such Bank.
ARTICLE IV
Termination
4.1 Termination. This Agreement will terminate at such
-----------
time after the expiration of the Commitment Period when the Net
Investment has been reduced to zero and all other amounts owing to
the Banks and the Administrative Agent hereunder shall have been
paid in full; provided, however, that the indemnities of the
-------- -------
Company, the Servicers and the Master Servicer to the Banks and the
Administrative Agent set forth in this Agreement (including those
set forth in Article III) shall survive such termination. Upon (i)
the expiration of the Commitment Period and (ii) the reduction of
the Net Investment to zero and the payment in full of all other
amounts owing to the Banks and the Administrative Agent hereunder,
the Administrative Agent shall, at the expense of the Company,
execute such Uniform Commercial Code termination statements and
such other documents, and take such other actions, as the Company
<PAGE>
21
may reasonably request to evidence the termination of the ownership
interest of the Banks in the Receivables and the payment of all
amounts owing pursuant to and in connection with this Agreement.
ARTICLE V
Covenants, Representations and Warranties
5.1 Representations and Warranties of the Company
---------------------------------------------
Relating to the Company. The Company hereby represents and
-----------------------
warrants to the Administrative Agent and the Banks, (x) as of the
Effective Date, and (y) with respect to an Increase in Net
Investment, as of the related Closing Date, unless, in either case,
such representation or warranty expressly relates only to a prior
date, that:
(a) Organization; Corporate Powers. The Company (i) is
------------------------------
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated,
(ii) has all requisite corporate power and authority, and all
material licenses, permits, franchises, consents and approvals, to
own or lease its property and assets and to carry on its business
as now conducted and as proposed to be conducted, (iii) is
qualified and in good standing as a foreign corporation to do
business in every jurisdiction where such qualification is
necessary, except where the failure so to qualify would not have a
Material Adverse Effect and (iv) has the corporate power and
authority to execute, deliver and perform each of the Transaction
Documents and each agreement or instrument contemplated hereby or
thereby to which it is or will be a party.
(b) Authorization. The execution, delivery and
-------------
performance of each of the Transaction Documents to which the
Company is a party, the assignment and transfer of the
Participating Interests hereunder and the consummation of the other
transactions contemplated by any of the foregoing (collectively,
the "Transactions") (i) have been duly authorized by all requisite
corporate and, if required, stockholder action and (ii) will not
(x) violate (A) any provision of law, statute, rule or regulation
(including, without limitation, Regulations G, T, U and X) or the
certificate of incorporation or by-laws (or similar governing
documents) of the Company, (B) any applicable order of any court or
any rule, regulation or order of any Governmental Authority or (C)
any indenture, certificate of designation for preferred stock,
agreement or other instrument to which the Company is a party or by
which the Company or any of its property is bound, (y) be in
conflict with, result in a breach of or constitute (with notice or
lapse of time or both) a default under any such indenture,
agreement or other instrument where any such conflict, violation,
breach or default referred to in clause (ii)(x) or (ii)(y) of this
subsection 5.1(b), individually or in the aggregate, would have a
Material Adverse Effect or (z) result in the creation or imposition
<PAGE>
22
of any Lien upon any property or assets of the Company, except for
Liens created by this Agreement.
(c) Enforceability. This Agreement has been duly
--------------
executed and delivered by the Company and constitutes, and each
other Transaction Document if and when executed and delivered by
the Company will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability
may be limited by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity
or at law).
(d) Consents. All consents and approvals of, filings
--------
and registrations with, and other actions in respect of, all
Governmental Authorities required in order to make or consummate
the Transactions have been obtained, given, filed or taken and are
in full force and effect, other than any such consents, approvals,
filings or other actions, the failure to obtain or make which could
not reasonably be expected to result in a Material Adverse Effect.
(e) Litigation, etc. (i) There are not any actions,
---------------
suits or proceedings at law or in equity or by or before any court
or Governmental Authority now pending or, to the knowledge of the
Company, threatened against or affecting the Company or any
property or rights of the Company as to which there is a reasonable
possibility of an adverse determination and which (x) if adversely
determined, could individually or in the aggregate result in a
Material Adverse Effect or (y) involve the Transaction Documents or
(z) if adversely determined could materially adversely affect the
Transactions.
(ii) The Company is not in default with respect to any
law, order, judgment, writ, injunction, decree, rule or regulation
of any Governmental Authority where such default could have a
Material Adverse Effect. The assignment and transfer of the
Participating Interests hereunder, the use of the proceeds thereof
and the other Transactions will not violate any applicable law or
regulation or violate or be prohibited by any judgment, writ,
injunction, decree or order of any court or Governmental Authority
or subject the Company to any civil or criminal penalty or fine.
(f) No Default, etc. (i) The Company is not a party to
---------------
any agreement or instrument or subject to any corporate restriction
that has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(ii) No indenture, certificate of designation for
preferred stock, agreement or other instrument to which the Company
is a party will prohibit or materially restrain, or have the effect
of prohibiting or materially restraining, or imposing materially
adverse conditions upon, the consummation of any of the
Transactions.
<PAGE>
23
(iii) The Company is not in default in any manner under
any provision of any indenture or other agreement or instrument
evidencing Indebtedness or any other material agreement or
instrument to which it is a party or by which it or any of its
properties or assets are or may be bound, in either case where such
default could result in a Material Adverse Effect. After giving
effect to the Transactions, no Termination Event or Potential
Termination Event shall have occurred and be continuing.
(g) Ownership of Property; Liens. The Company has good
----------------------------
and marketable title to, or valid leasehold interests in, or
easements on or other limited property interests in, all its
material properties and assets, except for minor defects in title
and limitations on property interests that do not interfere with
its ability to conduct its business as currently conducted or to
utilize such properties and assets for their intended purposes.
All such material properties and assets are free and clear of
Liens, other than Liens expressly permitted by subsection 8.3.
(h) Investment Company Act; Other Regulations. (i) The
-----------------------------------------
Company is not an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
(ii) The Company is not a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(iii) The Company is not engaged principally, or as one
of its important activities, in the business of extending credit
for the purpose of purchasing or carrying Margin Stock.
(iv) The assignment and transfer of the Participating
Interests hereunder and the use of the proceeds thereof and the
other Transactions will not violate or be inconsistent with the
provisions of the Regulations of the Board, including Regulations
G, T, U and X.
(i) Taxes. The Company has filed or caused to be filed
-----
all Federal, and all material state and local, tax returns required
to have been filed by it and has paid or caused to be paid all
taxes shown thereon to be due and payable, and any assessments
received by it, except taxes that are being contested in accordance
with subsection 7.4. For purposes of this paragraph, "taxes" shall
mean any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and
additions thereto) that is imposed by any Governmental Authority.
(j) Ownership; Subsidiaries. All the issued and
-----------------------
outstanding capital stock of the Company is owned, legally and
beneficially, by C&A Products. The Company has no Subsidiaries.
<PAGE>
24
(k) Accuracy and Completeness of Information. The
----------------------------------------
information, reports, financial statements, exhibits and schedules
furnished by or on behalf of the Company to the Administrative
Agent or any Bank in connection with the negotiation of any
Transaction Document or included therein or delivered pursuant
thereto, when taken as a whole, did not contain, and as they may be
amended, supplemented or modified from time to time, will not
contain, as of the Effective Date any material misstatement of fact
and did not omit, and as they may be amended, supplemented or
modified from time to time, will not omit, to state as of the
Effective Date any material fact necessary to make the statements
therein, in the light of the circumstances under which they were,
are or will be made, not materially misleading in their
presentation of the Transactions or of the Company.
(l) Pro Forma Balance Sheet. The Company has heretofore
-----------------------
furnished to the Administrative Agent and each of the Banks its pro
forma balance sheet after giving effect to the transactions to take
place on the Effective Date. Such balance sheet (i) was prepared
in good faith on the basis of reasonable assumptions and (ii)
discloses all material liabilities, direct or contingent, of the
Company as of the date thereof.
(m) No Material Adverse Change. There has been no
--------------------------
material adverse change in the business, properties, assets,
operations or financial condition of the Company (after giving
effect to the Transactions contemplated to occur on or prior to the
Effective Date pursuant to the Transaction Documents) since the
date of the pro forma balance sheet referred to in paragraph (l)
above.
(n) Solvency. (i) The fair salable value of the assets
--------
of the Company exceeds the amount that will be required to be paid
on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company. After giving
effect to the Transactions to occur on the Effective Date or such
Closing Date, as applicable, the fair salable value of the assets
of the Company will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company.
(ii) The assets of the Company do not constitute unreasonably
small capital to carry out its business as conducted or as proposed
to be conducted. After giving effect to the Transactions to occur
on the Effective Date or such Closing Date, as applicable, the
assets of the Company will not constitute unreasonably small
capital for the Company to carry out its business as now conducted
and as proposed to be conducted, including the capital needs of the
Company taking into account the particular capital requirements of
the business conducted by it and projected capital requirements and
capital availability thereof.
(iii) The Company does not intend to incur debts beyond its
ability to pay such debts as they mature, taking into account the
<PAGE>
25
timing and amounts of cash to be received by the Company and of
amounts to be payable on or in respect of debt of the Company.
(o) Employee Benefit Plans. The Company and each of its
----------------------
ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the regulations and published
interpretations thereunder except for such noncompliance which
would not be expected to result in a Material Adverse Effect. No
Reportable Event has occurred as to which the Company or any of its
ERISA Affiliates was required to file a report with the PBGC, other
than reports for which the 30 day notice requirement is waived,
reports that have been filed and reports the failure of which to
file would not result in a Material Adverse Effect and, as of the
Effective Date, the present value of all benefit liabilities under
each Plan of the Company or any of its ERISA Affiliates (on a
termination basis and based on those assumptions used to fund such
Plan) did not, as of the last annual valuation report applicable
thereto, exceed by more than $7,500,000 the value of the assets of
such Plan. None of the Company or any of its ERISA Affiliates has
incurred or could reasonably be expected to incur any Withdrawal
Liability that could result in a Material Adverse Effect. None of
the Company or any of its ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or
has been terminated within the meaning of Title IV of ERISA, and no
Multiemployer Plan is reasonably expected to be in reorganization
or to be terminated where such reorganization or termination has
resulted or could reasonably be expected to result, through
increases in the contributions required to be made to such Plan or
otherwise, in a Material Adverse Effect.
The representations and warranties set forth in this
subsection 5.1 shall survive the initial transfer of a
Participating Interest and any Increase in the Net Investment.
Upon discovery by the Company, any Bank or the Administrative Agent
of a breach of any of the foregoing representations and warranties,
the Person discovering such breach shall give prompt written notice
to such other Persons.
5.2 Representations and Warranties of the Company
---------------------------------------------
Relating to this Agreement and the Receivables. The Company hereby
----------------------------------------------
represents and warrants to the Administrative Agent and the Banks,
(x) as of the Effective Date, and (y) with respect to an Increase
in Net Investment, as of the related Closing Date, unless, in
either case, such representation or warranty expressly relates only
to a prior date, that:
(a) The document or computer file delivered pursuant to
subsection 6.1(j) is an accurate and complete listing in all
material respects of all the Receivables as of the date set
forth therein and the information contained therein with
respect to the identity of such Receivables is true and
correct in all material respects as of such date. As of such
date, the aggregate amount of Eligible Receivables is as set
forth on such document or file.
<PAGE>
26
(b) The Company has not sold, assigned or transferred,
or granted any existing Lien on, the Receivables or any of the
other Pooled Property, or any interest therein, to any Person,
except the Banks hereunder.
(c) Other than with respect to Receivables which the
Company shall have stated in writing (in the Daily Report or
otherwise) on the Closing Date therefor are not Eligible
Receivables on such date, with respect to each Receivable, all
consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority
required to be obtained, effected or given by the Company in
connection with the conveyance of such Receivable to the Banks
have been duly obtained, effected or given and are in full
force and effect.
(d) This Agreement effects a valid transfer and
assignment to the Banks of an undivided, participating
ownership interest in all right, title and interest of the
Company in the Receivables, the Related Property and the
proceeds thereof, including Recoveries relating thereto, or,
if this Agreement does not effect a transfer and assignment of
such an ownership interest, it effects a grant of a "security
interest" (as defined in the Uniform Commercial Code as in
effect in the State of New York) in such property to the
Banks, which, in the case of existing Receivables, the Related
Property and the proceeds thereof, is enforceable upon
execution and delivery of this Agreement, and which will be
enforceable with respect to such Receivables hereafter created
and the proceeds thereof upon such creation. On or prior to
the initial Closing Date, all filings and other acts necessary
or advisable (including but not limited to all filings and
other acts necessary or advisable under the Uniform Commercial
Code of each relevant jurisdiction) have been made or
performed in order to grant the Banks a first priority
perfected ownership interest in respect of all Receivables and
Related Property. On the Effective Date and, in the case of
the Receivables hereafter created and the proceeds thereof,
upon the creation thereof, the Banks shall have a first
priority perfected ownership or security interest in such
property.
(e) This Agreement effects a grant of a "security
interest" (as defined in the Uniform Commercial Code as in
effect in the State of New York) in all of the Equipment, the
Transferred Agreement and the Accounts to the Banks, which, in
the case of such property and the proceeds thereof existing as
of the date hereof, is enforceable upon execution and delivery
of this Agreement, and which will be enforceable with respect
to such property hereafter created and the proceeds thereof
upon such creation. On or prior to the initial Closing Date,
all filings and other acts necessary or advisable (including
but not limited to all filings and other acts necessary or
advisable under the Uniform Commercial Code of each relevant
jurisdiction) have been made or performed in order to grant
<PAGE>
27
the Banks a first priority perfected ownership interest in
respect of all such property. On the Effective Date and, in
the case of such property hereafter created and the proceeds
thereof, upon the creation thereof, the Banks shall have a
first priority perfected ownership or security interest in
such property.
(f) The chief executive office of the Company is listed
on Schedule 2, which office is the place where the Company is
"located" for the purposes of Section 9-103(3)(d) of the
Uniform Commercial Code of the State in which such office is
located, and the offices at which the Company keeps its
records concerning the Receivables are also listed on said
Schedule.
(g) No Termination Event or Potential Termination Event
has occurred and is continuing.
(h) Each Receivable that is included by the Company in
its determination of the aggregate Adjusted Principal Amount
of all Eligible Receivables shall be a Receivable with respect
to which all of the criteria contained in the definition of
"Eligible Receivable" hereunder are satisfied.
The representations and warranties set forth in this
subsection 5.2 shall survive the initial transfer of a
Participating Interest and any Increase in Net Investment. Upon
discovery by the Company, any Bank or the Administrative Agent or
of a breach of any of the foregoing representations and warranties,
the Person discovering such breach shall give prompt written notice
to such other Persons.
5.3 Retransfer Obligation. (a) In the event of any
---------------------
breach of any of the representations or warranties of the Company
contained in subsection 5.2(d), (e), (f) or (h), then upon the
earlier to occur of the discovery of such event by the Company, or
receipt by the Company of written notice of such event given by the
Administrative Agent, the outstanding Principal Amount of
Receivables shall be reduced by the Principal Amount of Receivables
as to which such representations and warranties were breached;
provided, however, that (i) prior to the Amortization Period, to
-------- -------
the extent that such a reduction would cause the Invested
Percentage to be more than the Maximum Invested Percentage, the
Company agrees to acquire such Receivables and any Related Property
with respect thereto on the terms and conditions set forth in
paragraph (b) below and (ii) during the Amortization Period, the
Company agrees to acquire such Receivables and any Related Property
with respect thereto on the terms and conditions set forth in
paragraph (b) below.
(b) If any breach of a representation or warranty which
necessitates the Company's reacquisition of a Receivable pursuant
to paragraph (a) above remains uncured on the date which is 30 days
after discovery or notice of such breach, the Company shall acquire
such Receivable and any Related Property with respect thereto by
<PAGE>
28
depositing into the relevant Concentration Account in immediately
available funds on such 30th day (or, if such day is not a Business
Day, on the next succeeding Business Day, an amount equal to (i)
prior to an Amortization Period, the lesser of (A) the amount
necessary to cause the Invested Percentage to equal the Maximum
Invested Percentage and (B) the Principal Amount of such Receivable
or (ii) during an Amortization Period, the Principal Amount of such
Receivables (in either case, a "Retransfer Payment"). Upon deposit
of the Retransfer Payment, the Banks shall automatically and
without further action be deemed to transfer, assign, set-over and
otherwise convey to the Company, free and clear of any Lien created
by the Banks but otherwise without recourse, representation or
warranty, all the right, title and interest of the Banks in and to
such Receivable, all Related Property with respect thereto, all
monies due or to become due with respect thereto and all proceeds
thereof; and such reacquired Receivable shall be treated by the
Banks as collected in full as of the date on which it was
transferred. The Administrative Agent shall execute such documents
and instruments of transfer or assignment and take such other
actions as shall reasonably be requested by the Company to effect
the conveyance of such Receivables pursuant to this subsection 5.3.
The obligation to reacquire any Receivable shall constitute the
sole remedy respecting any breach of the representations,
warranties and covenants set forth in subsection 5.2(d), (e), (f)
or (h) with respect to such Receivables available to Banks or the
Administrative Agent on behalf of the Banks.
5.4 Obligations Unaffected. The obligations of the
----------------------
Company to the Administrative Agent and the Banks under this
Agreement shall not be affected by reason of any invalidity,
illegality or irregularity of any Receivable or any transfer and
assignment of a Receivable.
ARTICLE VI
Conditions to Effectiveness/Transfers/Reinvestments
6.1 Effective Date. This Agreement shall become
--------------
effective on the date (the "Effective Date") on which each of the
following conditions precedent are either (x) satisfied or (y)
waived by the Required Banks:
(a) The Company, each Servicer and the Master Servicer
shall have delivered to the Administrative Agent, with a copy
for each Bank, (i) a copy of the certificate or articles of
incorporation, including all amendments thereto, of such
Person, certified as of a recent date by the Secretary of
State of the state of incorporation thereof, and such
certificate or articles shall be in form and substance
satisfactory to the Administrative Agent, and a certificate as
to the good standing of such Person as of a recent date, from
such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of such Person dated the Effective Date
and certifying (A) that attached thereto is a true and
<PAGE>
29
complete copy of the Bylaws of such Person as in effect on the
Effective Date and at all times since a date prior to the date
of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions in
form and substance satisfactory to the Administrative Agent
and duly adopted by the Board of Directors of such Person
authorizing the execution, delivery and performance of the
Transaction Documents to which such Person is a party and the
transactions contemplated thereby, and that such resolutions
have not been modified, rescinded or amended and are in full
force and effect, (C) that the certificate or articles of
incorporation of such Person has not been amended since the
date of the last amendment thereto shown on the certificate of
good standing furnished pursuant to clause (i) above and (D)
as to the incumbency and specimen signature of each officer
executing any Transaction Document or any other document
delivered in connection herewith or therewith on behalf of
such Person; and (iii) a certificate of another officer as to
the incumbency and specimen signature of the Secretary or
Assistant Secretary executing the certificate pursuant to
clause (ii) above.
(b) There shall have been delivered to the
Administrative Agent, with a copy for each Bank, the written
opinions of (i) Cravath, Swaine & Moore, special counsel for
the Company, the Servicers and the Master Servicer, in
substantially the forms of Exhibits D-1 and D-2, (ii)
Elizabeth R. Philipp, Esq., general counsel of Collins &
Aikman Corporation, in substantially the form of Exhibit D-3,
(iii) Stikeman, Elliott, special Canadian counsel, in
substantially the form of Exhibit D-4, and (iv) each local
state counsel listed on Schedule 6, in substantially the form
of Exhibit D-5, in each case addressed to the Administrative
Agent and the Banks, dated the Effective Date, and in form and
substance satisfactory to the Administrative Agent, and such
additional opinions, if any, as may be reasonably requested by
the Administrative Agent.
(c) Appropriate financing statements relating to the
Receivables shall have been executed and delivered and shall
be in proper form for filing in each appropriate filing office
in the jurisdiction in which the Company maintains its
principal executive office.
(d) The Administrative Agent shall have received search
reports satisfactory to the Administrative Agent dated a date
reasonably near to the Effective Date, listing all effective
financing statements which name the Company as debtor and
which are filed in the jurisdictions in which filings were
made pursuant to paragraph (c) above, together with copies of
such other financing statements or notices of assignment (none
of which shall cover any Receivables unless a corresponding
termination statement has been delivered to the Administrative
Agent).
<PAGE>
30
(e) There shall have been delivered to the
Administrative Agent search reports acceptable to the
Administrative Agent dated a date reasonably near the
Effective Date confirming the absence of any tax lien and
judgment lien filings made against the Company or any of its
assets in any filing office in any jurisdiction where filings
were made pursuant to paragraph (c) above.
(f) The Administrative Agent shall have received a
certificate from the Company, dated the Effective Date and
signed by one of its Responsible Officers, in form and
substance satisfactory to the Administrative Agent, confirming
compliance with the conditions precedent set forth in
subsection 6.2.
(g) The Administrative Agent shall have received all
fees and other amounts due and payable on or prior to the
Effective Date.
(h) The Administrative Agent shall have received (i) a
copy of the Receivables Sale Agreement, duly executed on
behalf of C&A Products, each of the Sellers and the Company
and (ii) the Subordination Agreement, duly executed on behalf
of each of C&A Products, each of the Sellers and the Company.
(i) The initial funding under the Credit Agreement shall
have occurred or shall occur simultaneously with the initial
purchase under this Agreement.
(j) The Administrative Agent shall have received a
microfiche or other tangible evidence, as certified by a
Responsible Officer of the Company, acceptable to the
Administrative Agent, showing as of a date acceptable to the
Administrative Agent prior to the Effective Date the Obligors
whose Receivables have been transferred to the Company and the
balance of the Receivables with respect to each such Obligor
as of such date.
(k) A Responsible Officer of the Company shall have
certified that all conditions to the obligations of the
Company and each of the Sellers under the Receivables Sale
Agreement shall have been satisfied in all respects (or waived
by the Required Banks).
(l) The Administrative Agent shall have received an
agreed-upon procedures letter relating to historical financial
information with respect to the Receivables from independent
auditors satisfactory to the Administrative Agent.
(m) The Administrative Agent shall have received, as
certified by a Responsible Officer of the Company, copies of
(i) the written Policies, or, to the extent that the credit
and collection policies of the Sellers are not in written form
at the Effective Date, a written description of the historical
credit and collection practices of the Sellers and proposed
<PAGE>
31
practices for the Company, in each case in form and substance
acceptable to the Administrative Agent and (ii) the Company
Policies.
(n) The Administrative Agent shall have received
licenses or contingent licenses, or the Administrative Agent
shall otherwise be satisfied with its ability, to use any
computer programs, material tapes, disks, cassettes and data
necessary or advisable to permit the collection of the
Receivables by a Servicer without the participation of any
Seller or the Company.
(o) The Administrative Agent shall have reviewed the
computer programs, material, data and back-up plans of the
Sellers required for the collection of Receivables and shall
be satisfied that the foregoing, including the procedures of
the Sellers for the preparation, storage and retrieval
thereof, are sufficient to permit (i) the Company or the
Administrative Agent to collect the Receivables with or
without the participation of the Sellers or any servicer and
(ii) a third-party servicer to collect the Receivables with or
without the participation of the Sellers or the Company.
(p) The composition of the Company's Board of Directors
(including the independent director) shall be reasonably
acceptable to the Administrative Agent.
(q) The Administrative Agent shall have received the pro
forma opening balance sheet for the Company referred to in
subsection 5.1(l).
(r) The Administrative Agent shall have received a
certificate dated the Effective Date and signed by a
Responsible Officer of the Company, substantially in the form
of Exhibit G, to the effect that the Company will be solvent
after giving effect to the transactions occurring on the
Effective Date.
6.2 Condition to each Increase in Net Investment. The
--------------------------------------------
obligations of the Banks to increase the Net Investment on any
Closing Date is subject to the conditions that:
(a) no Termination Event or Potential Termination Event
shall have occurred and then be continuing, and no such
Termination Event or Potential Termination Event shall occur
as a result of the proposed Increase in Net Investment on such
Closing Date;
(b) the representations and warranties of the Company
set forth in Article V shall be true and correct in all
material respects on and as of such Closing Date;
(c) the representations and warranties of the Servicers
and the Master Servicer set forth in Article XII shall be true
<PAGE>
32
and correct in all material respects on and as of such Closing
Date; and
(d) the Administrative Agent shall have timely received
all notices, statements and certificates relating to such
Closing Date required by subsections 2.3 and 12.5.
Each Increase in Net Investment on any Closing Date shall
constitute a representation and warranty by the Company that the
conditions to the transfer thereof on such Closing Date, as the
case may be, have been satisfied.
ARTICLE VII
Affirmative Covenants
The Company hereby agrees that, unless and until this
Agreement is terminated pursuant to subsection 4.1, the Company
shall:
7.1 Financial Statements. Furnish to each Bank:
--------------------
(a) as soon as available, but in any event within
90 days after the end of each fiscal year of the Company, a
copy of the balance sheet of the Company as at the end of such
year and the related statements of income and retained
earnings and cash flows for such year, setting forth in each
case (beginning with the financial statements delivered for
the 1995 fiscal year) in comparative form the figures for the
previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of
the scope of the audit, by Arthur Andersen & Co. or other
independent certified public accountants of nationally
recognized standing reasonably acceptable to the
Administrative Agent; and
(b) as soon as available, but in any event not later
than 45 days after the end of each of the first three
quarterly periods of each fiscal year of the Company, the
unaudited balance sheet of the Company as at the end of such
quarter and the related unaudited statements of income and
retained earnings and cash flows of the Company for such
quarter and the portion of the fiscal year through the end of
such quarter, setting forth in each case, with respect to any
such financial statements covering any fiscal quarter
commencing after the first anniversary of the Effective Date,
in comparative form the figures for the corresponding quarter
and portion of the previous year, certified by a Responsible
Officer of the Company as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all
material respects and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
<PAGE>
33
reflected therein and with prior periods (except as approved by
such accountants or Responsible Officer, as the case may be, and
disclosed therein).
7.2 Certificates; Other Information. Furnish to each
-------------------------------
Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsection 7.1(a), a certificate of
the independent certified public accountants reporting on such
financial statements stating that in making the examination
necessary therefor no knowledge was obtained of any
Termination Event or Potential Termination Event, except as
specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) or (b), a
certificate of a Responsible Officer of the Company stating
that, to the best of such Responsible Officer's knowledge, the
Company during such period has observed or performed all of
its covenants and other agreements, and satisfied every
condition, contained in the Transaction Documents to which it
is a party to be observed, performed or satisfied by it, and
that such Responsible Officer has obtained no knowledge of any
Termination Event or Potential Termination Event, except as
specified in such certificate; and
(c) promptly, such additional financial and other
information as any Bank may from time to time reasonably
request by written notice to the Company (through the
Administrative Agent).
7.3 Existence; Businesses and Properties; Insurance;
------------------------------------------------
Receivables. (a) Do or cause to be done all things necessary to
-----------
preserve, renew and keep in full force and effect its legal
existence.
(b) Do or cause to be done all things necessary to
obtain, preserve, renew, extend and keep in full force and effect
the rights, licenses, permits, franchises, authorizations, patents,
copyrights, trademarks and trade names material to the conduct of
its business; comply in all material respects with all applicable
laws, rules, regulations and orders of any Governmental Authority,
whether now in effect or hereafter enacted; and at all times
maintain and preserve all property material to the conduct of such
business and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried
on in connection therewith, if any, may be properly conducted at
all times.
(c) Keep its insurable properties insured (including
through self-insurance) at all times by financially sound and
reputable insurers in such amounts as shall be customary for
<PAGE>
34
similar businesses and maintain such other insurance, of such
types, to such extent and against such risks, as is customary with
companies in the same or similar businesses; and maintain such
other insurance as may be required by law.
(d) Defend the right, title and interest of the Banks
in, to and under the Receivables and the other Pooled Property,
whether now existing or hereafter created, against all claims of
third parties claiming through or under the Company, the Sellers,
the Master Servicer or the Servicers.
(e) Duly fulfill all material obligations on its part to
be fulfilled under or in connection with each Receivable and do
nothing that could reasonably be expected to impair the rights of
the Banks in any Receivable.
7.4 Taxes. Pay and discharge promptly all taxes,
-----
assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its property, before
the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise which,
if unpaid, might give rise to a Lien upon such properties or any
part thereof; provided, however, that such payment and discharge
-------- -------
shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as (a) the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the
Company shall set aside on its books adequate reserves as required
by GAAP with respect thereto, (b) such tax, assessment, charge,
levy or claim is in respect of property taxes for property that the
Company has determined to abandon and the sole recourse for such
tax, assessment, charge, levy or claim is to such property or (c)
the amount of such taxes assessments, charges, levies and claims
and interest and penalties thereon does not exceed $1,000,000 in
the aggregate.
7.5 Inspection of Property; Books and Records;
------------------------------------------
Discussions. Maintain all financial records in accordance with
-----------
GAAP and permit any Persons designated by the Administrative Agent
(or, during the continuance of any Termination Event, any Bank) to
visit and inspect the financial records and the properties of the
Company at reasonable times, upon reasonable notice and as often as
reasonably requested and to make extracts from and copies of such
financial records, and permit any Persons designated by the
Administrative Agent (or, during the continuance of any Termination
Event, any Bank) to discuss the affairs, finances and condition of
the Company with the officers thereof and independent accountants
therefor (subject to reasonable requirements of confidentiality,
including requirements imposed by law or by contract).
7.6 Notices. Promptly give notice to the Administrative
-------
Agent and each Bank of:
(a) the occurrence of any Termination Event, Potential
Termination Event, Servicer Default or Servicer Event of
Default, specifying the nature and extent thereof and the
<PAGE>
35
corrective action (if any) proposed to be taken with respect
thereto;
(b) any Lien not permitted by subsection 8.3 on any
Receivable or any other Pooled Property other than the
conveyances and Liens hereunder and under the Receivables Sale
Agreement;
(c) the filing or commencement of any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Company in respect of
which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
and
(d) any development known to a Responsible Officer of
the Company that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect.
7.7 ERISA. (a) Comply in all material respects with
-----
the applicable provisions of ERISA and (b) furnish to the
Administrative Agent and each Bank (i) as soon as possible, and in
any event within 30 days after any Responsible Officer of the
Company or any ERISA Affiliate of any of them knows or has reason
to know that any Reportable Event has occurred that alone or
together with any other Reportable Event could reasonably be
expected to result in liability of the Company or any of its ERISA
Affiliates to the PBGC in an aggregate amount exceeding
$10,000,000, a statement of a Responsible Officer of the Company
setting forth details as to such Reportable Event and the action
proposed to be taken with respect thereto, together with a copy of
the notice, if any, of such Reportable Event given to the PBGC,
(ii) promptly after any Responsible Officer of the Company learns
of receipt thereof, a copy of any notice the Company or any of its
ERISA Affiliates may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Plans (other than a
Plan maintained by any of their ERISA Affiliates which is
considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of Section 414 of the Code) or to appoint a trustee to
administer any Plan or Plans, (iii) within 20 days after the due
date for filing with the PBGC pursuant to Section 412(n) of the
Code a notice of failure to make a required installment or other
payment with respect to a Plan, a statement of a Responsible
Officer of the Company setting forth details as to such failure and
the action proposed to be taken with respect thereto, together with
a copy of such notice given to the PBGC and (iv) promptly after any
Responsible Officer of the Company learns thereof and in any event
within 30 days after receipt thereof by the Company or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of each
notice received by the Company or such ERISA Affiliate concerning
(A) the imposition of Withdrawal Liability or (B) a determination
that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, in each case within the meaning of Title IV of
ERISA.
<PAGE>
36
7.8 Use of Proceeds. The Company shall use the proceeds
---------------
of the initial transfer and assignment of the Participating
Interest only to acquire all the Receivables owned by the Sellers
on the date of such transfer and assignment and to pay fees and
expenses pursuant to the Transaction Documents. The Company shall
use the proceeds of any Increases in Net Investment (a) to acquire
Receivables from the Sellers pursuant to the Receivables Sale
Agreement in an amount not to exceed the aggregate amount specified
in the applicable Daily Report, (b) to pay operating expenses of
the Company, (c) to make payments on account of the Subordinated
Notes in the aggregate amount specified in the applicable Daily
Report, and (d) to make payments on account of Restricted Payments
in the aggregate amount specified in the applicable Daily Report.
7.9 Separate Corporate Existence. The Company shall at
----------------------------
all times comply with the procedures set forth in Schedule 7
hereto.
7.10 Facility Rating. Promptly upon request of the
---------------
Administrative Agent, at the expense of the Company, cause the
receivables purchase facility created by this Agreement to be rated
by S&P or another nationally recognized rating agency designated by
the Administrative Agent.
7.11 Lockbox Agreements. Within 60 days after the
------------------
Effective Date, deliver to the Administrative Agent one or more
confirmations that the Lockbox Accounts, in the name of the
Company, have been established in accordance with the terms of this
Agreement and deliver to the Administrative Agent an executed
Lockbox Agreement from each of the Lockbox Banks.
7.12 Eligible Letters of Credit. (a) Submit to the
--------------------------
relevant issuing bank all documentation necessary to effect a
drawing under any Eligible Letter of Credit immediately upon the
occurrence of any event entitling the Company to receive any
payment thereunder and (b) cause such payment to be deposited
directly into the U.S. Concentration Account.
7.13 Company Policies. Amend, supplement or otherwise
----------------
modify in any material respect (or permit to be amended,
supplemented or otherwise modified in any material respect) the
Company Policies or vary (or permit to be varied) the
implementation of the Company Policies other than (a) with the
consent of the Required Banks and (b) changes that are required by
applicable law; provided, that material changes to the Company
--------
Policies shall include, without limitation, changes to the timing
of Charge-Offs of Receivables.
ARTICLE VIII
Negative Covenants
<PAGE>
37
The Company hereby agrees that, unless and until this
Agreement is terminated pursuant to subsection 4.1, the Company
shall not directly or indirectly:
8.1 Accounting of Transfers. Prepare any financial
-----------------------
statements which shall account for the transactions contemplated
hereby (other than capital contributions contemplated hereby) in
any manner other than as sales of participating interests in the
Purchased Receivables by the Company to the Banks or in any other
respect account for or treat the transactions contemplated hereby
(including for financial accounting purposes, except as required by
law) (other than capital contributions and loans from Affiliates
contemplated hereby) in any manner other than as assignments and
transfers of participating interests in the Purchased Receivables
by the Company to the Banks, provided however that this subsection
-------- -------
8.1 shall not apply for any tax or tax accounting purposes.
8.2 Limitation on Indebtedness. Create, incur, assume
--------------------------
or suffer to exist any Indebtedness, except: (a) Indebtedness
evidenced by the Subordinated Notes; (b) Indebtedness representing
fees, expenses and indemnities payable pursuant to and in
accordance with the Transaction Documents; and (c) Indebtedness for
services supplied or furnished to the Company in an amount not to
exceed $50,000 at any time outstanding.
8.3 Limitation on Liens. Create, incur, assume or
-------------------
suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except for (a)
Liens created pursuant to this Agreement and (b) Liens for taxes
not yet due or which are being contested in good faith by
appropriate proceedings provided that adequate reserves with
--------
respect thereto are maintained on the books of the Company in
conformity with GAAP.
8.4 Limitation on Guarantees. Create, incur, assume or
------------------------
suffer to exist any obligation constituting a Guarantee.
8.5 Limitation on Fundamental Changes. Enter into any
---------------------------------
merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of, all
or substantially all of its property, business or assets, or make
any material change in its present method of conducting business,
other than the assignments and transfers to the Banks contemplated
hereby.
8.6 Limitation on Sale of Assets. Convey, sell, lease,
----------------------------
assign, transfer or otherwise dispose of any of its property,
business or assets (including, without limitation, receivables and
leasehold interests), whether now owned or hereafter acquired,
other than (a) the assignments and transfers contemplated hereby
and (b) sales or other dispositions of property with an aggregate
book value not exceeding $10,000 in any period of twelve
consecutive fiscal months.
<PAGE>
38
8.7 Limitation on Dividends and Payments on Subordinated
----------------------------------------------------
Notes. Declare or pay any dividend on, or make any payment on
-----
account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the
Company, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Company (such
declarations, payments, setting apart, purchases, redemptions,
defeasances, retirements, acquisitions and distributions being
herein called "Restricted Payments"), or make, directly or
indirectly, payments in any form in respect of the Subordinated
Notes except that, so long as no Termination Event or Potential
Termination Event shall have occurred and be continuing or would
result therefrom, the Company may (a) make payments on the
Subordinated Notes and (b) make Restricted Payments, each pursuant
to subsection 2.7.
8.8 Business of the Company. Engage at any time in any
-----------------------
business or business activity other than the acquisition of
Receivables pursuant to the Receivables Sale Agreement, the
assignments and transfers hereunder and the other transactions
contemplated by the Transaction Documents, and any activity
incidental to the foregoing and necessary or convenient to
accomplish the foregoing, or enter into or be a party to any
agreement or instrument other than in connection with the
foregoing, except those agreements or instruments set forth on
Schedule 5.
8.9 Limitation on Investments, Loans and Advances. Make
---------------------------------------------
any advance, loan, extension of credit or capital contribution to,
or purchase any stock, bonds, notes, debentures or other securities
of or any assets constituting a business unit of, or make any other
investment in, any Person, except for the Receivables and the other
Pooled Property.
8.10 Limitation on Sales and Leasebacks. Enter into any
----------------------------------
arrangement with any Person providing for the leasing by the
Company of real or personal property which has been or is to be
sold or transferred by the Company to such Person or to any other
Person to whom funds have been or are to be advanced by such Person
on the security of such property or rental obligations of the
Company.
8.11 Transactions with Affiliates. Sell or transfer any
----------------------------
property or assets to, or purchase or acquire any property or
assets from, or otherwise engage in any other transactions with,
any of its Affiliates except (a) as expressly contemplated by the
Transaction Documents; (b) as disclosed on Schedule 4; or (c) with
the unanimous approval or ratification of the Board of Directors of
the Company upon fair and reasonable terms no less favorable to the
Company than it could reasonably expect to obtain in a comparable
arm's length transaction with a Person which is not an Affiliate.
<PAGE>
39
8.12 Capital Stock. Issue any Capital Stock to any
-------------
Person or permit any of its Capital Stock to be transferred to any
Person, except pursuant to the Pledge Agreement.
8.13 Amendments. Amend (or permit to be amended) its
----------
Certificate of Incorporation.
8.14 Receivables Sale Agreement, etc. Amend, supplement
-------------------------------
or otherwise modify (or permit to be amended, supplemented or
otherwise modified) the Receivables Sale Agreement or any of the
other Transaction Documents or give any consent or waiver to any
Seller thereunder, provided that, with respect to any Lockbox
--------
Agreement, the Company shall be permitted to amend, supplement or
otherwise modify any such Lockbox Agreement so long as (a) such
amendment, supplement or modification could not be reasonably
expected to have a Material Adverse Effect and (b) the
Administrative Agent shall have received a substantially final
draft of such amendment, supplement or modification at least five
Business Days prior to the effective date thereof.
8.15 Policies. Amend, supplement or otherwise modify in
--------
any material respect (or permit to be amended, supplemented or
otherwise modified in any material respect) the Policies or the
Company Policies or vary the implementation of the Policies or the
Company Policies other than (a) with the consent of the Required
Banks and (b) changes that are required by applicable law;
provided, that material changes to the Policies and the Company
--------
Policies shall include, without limitation, changes to the timing
of Charge-Offs of Receivables and changes to the creditworthiness
criteria used in determining whether to extend credit to a Person
and in determining the amount of such credit to extend.
8.16 No Powers of Attorney. Grant any powers of
---------------------
attorney to any Person for any purposes except (a) for the purpose
of permitting any Person to perform any ministerial functions on
behalf of the Company that are not prohibited by or inconsistent
with the terms of the Transaction Documents; (b) to the
Administrative Agent in connection herewith; or (c) as expressly
permitted by the Transaction Documents.
8.17 Receivables Not To Be Evidenced by Promissory
---------------------------------------------
Notes. Take any action to cause any Receivable to be evidenced by
-----
any "instrument" (as defined in the Uniform Commercial Code (or any
similar law) as in effect in any state in which the Company's or
any Seller's chief executive offices or books and records relating
to such Receivable are located) other than as expressly
contemplated by the Policies.
8.18 Ownership of Assets and Property. Own or lease any
--------------------------------
material tangible assets other than as expressly contemplated
pursuant to the terms of this Agreement and the other Transaction
Documents, or own or lease any facilities or incur, create, assume
or permit to exist any lease obligations other than arms' length
lease obligations to Affiliates or third parties in respect of
office space, equipment and computer time.
<PAGE>
40
8.19 Rescission or Cancellation. Rescind or cancel any
--------------------------
Receivable or modify or extend any term or provision of any thereof
without the prior written consent of the Required Banks, except (a)
in the ordinary course of its business and consistent with the
Policies and the Company Policies or (b) as required by any
Requirement of Law, provided that the Company may cause Receivables
--------
to become Charge-Offs and may allow Sellers to make Adjustments in
accordance with subsection 2.5 of the Receivables Sale Agreement.
8.20 Ineligible Receivables. Without the prior written
----------------------
approval of the Required Banks, take any action to cause, or which
would permit, an Eligible Receivable to cease to be an Eligible
Receivable, except as otherwise expressly provided for in this
Agreement.
8.21 Offices. (a) Move outside the state where such
-------
office is now located the location of its chief executive office or
of any of the offices where it keeps its records with respect to
the Receivables without (i) 30 days' prior written notice to the
Administrative Agent and (ii) taking all actions reasonably
requested by the Administrative Agent (including but not limited to
all filings and other acts necessary or advisable under the Uniform
Commercial Code of each relevant jurisdiction) in order to continue
the Banks' first priority perfected ownership interest in all
Receivables now owned or hereafter created or (b) fail to give the
Administrative Agent prompt notice of a change within the state
where such office is now located of the location of its chief
executive office or any office where it keeps its records with
respect to the Receivables.
8.22 Addition of Sellers. Agree to the addition of any
-------------------
Subsidiary as an additional Seller pursuant to subsection 9.14 of
the Receivables Sale Agreement unless (a) the Required Banks have
approved such addition in writing and (b) such Subsidiary shall
have been simultaneously added as a Servicer party hereto pursuant
to subsection 12.9 hereof.
8.23 Optional Termination of Seller. Designate any
------------------------------
Seller as a Seller to be terminated as a Seller pursuant to
subsection 9.15(b) of the Receivables Sale Agreement unless (a) the
Required Banks have approved such designation in writing and (b) if
such Seller is a Servicer hereunder, such Seller shall have been
terminated as a Servicer pursuant to subsection 12.10 hereof.
8.24 Operating Expenses. Incur or otherwise become
------------------
liable for operating expenses other than expenses for office space,
equipment, personnel, office supplies, computer time, services of
third party professionals and other reasonable overhead expenses.
<PAGE>
41
ARTICLE IX
Events of Termination
If any of the following events (herein called
"Termination Events") shall have occurred and be continuing:
(a) the Company shall fail to deliver any Daily Report
or any Settlement Statement conforming in all material
respects to the requirements of subsection 12.5 and such
failure shall continue for two consecutive Business Days after
the Administrative Agent shall have delivered notice thereof
to the Company, provided that if a Force Majeure Delay shall
--------
have occurred with respect to any Servicer or the Master
Servicer, as the case may be, (i) in the case of such an event
with respect to a Servicer, the failure of any Daily Report or
Settlement Statement to contain information with respect to
the Receivables serviced by such Servicer or (ii) in the case
of such an event with respect to the Master Servicer, the
failure of the Company to deliver any Daily Report or
Settlement Statement, shall not, in either case, constitute a
Termination Event unless such failure continues for longer
than the lesser of (x) ten consecutive Business Days and (y)
the length of such Force Majeure Delay (or, if greater, two
Business Days) after the Administrative Agent shall have
delivered notice of such failure to the Company;
(b) the Company shall fail to pay, or the Banks or the
Administrative Agent shall not be paid, any amount (i)
required to be paid hereunder in respect of reduction of the
Net Investment when due or (ii) required to be paid in respect
of Purchase Discount Amounts, any other amounts payable to the
Banks or Administrative Agent or any payment reflected in any
Daily Report or Settlement Statement as being required to be
made by the Company, in any case, with respect to this clause
(ii), within five Business Days after the date when due;
(c) default shall be made in the due observance or
performance by the Company of any covenant, condition or
agreement contained in subsection 7.3(a), 7.6(a) or 7.8 or in
Article VIII;
(d) the Company shall fail to observe or perform any
covenant or agreement applicable to it contained herein (other
than as specified in paragraph (a), (b) or (c) of this Article
IX), provided that no such failure shall constitute a
--------
Termination Event under this paragraph (d) unless such failure
shall continue unremedied for a period of 30 consecutive days
in the case of subsection 7.3(b) or 7.3(c) and 15 consecutive
days in the case of all others, in each case after notice
thereof from the Administrative Agent or the Required Banks to
the Company;
(e) any representation, warranty, certification or
statement made or deemed made by the Company in this Agreement
<PAGE>
42
or in any Settlement Statement or other certificate, financial
statement or other document delivered pursuant to this
Agreement shall prove to have been false or misleading in any
material respect on or as of the date made or deemed made;
provided that a Termination Event shall not be deemed to have
--------
occurred under this paragraph (e) based upon a breach of a
representation or warranty contained in subsection 5.2(d),
(e), (f) or (h) if the Company shall have complied with the
provisions of subsection 5.3(b) in respect thereof;
(f) (i) an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of competent
jurisdiction seeking (A) relief in respect of the Company, or
of a substantial part of its property or assets, under Title
11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (B) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or for a substantial part of
its property or assets or (C) the winding-up or liquidation of
the Company; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; or (ii) the
Company shall (A) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or
similar law, (B) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or
the filing of any petition described in clause (i) above, (C)
apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar
official for the Company or for a substantial part of its
property or assets, (D) file an answer admitting the material
allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of
creditors, (F) become unable, admit in writing its inability
or fail generally to pay its debts as they become due or (G)
take any action for the purpose of effecting any of the
foregoing;
(g) Holdings or any Restricted Subsidiary or any
Significant Subsidiary (as each such term is defined in the
Credit Agreement as in effect on the Effective Date) shall (i)
fail to pay any principal or interest, regardless of amount,
due in respect of Indebtedness having an aggregate principal
or notional amount in excess of $7,500,000, when and as the
same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement
contained in any agreements or instruments evidencing or
governing any Indebtedness having an aggregate principal
amount in excess of $7,500,000 if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or
<PAGE>
43
their behalf to cause, such Indebtedness to become due prior
to its stated maturity;
(h) (i) a Reportable Event or Reportable Events, or a
failure to make a required installment or other payment
(within the meaning of Section 412(n)(1) of the Code), shall
have occurred with respect to any Plan or Plans that
reasonably could be expected to result in liability of the
Company or any of its ERISA Affiliates to the PBGC or to a
Plan in an aggregate amount exceeding $5,000,000 and, within
30 days after the reporting of any such Reportable Event to
the Administrative Agent or after the receipt by the
Administrative Agent of the statement required pursuant to
Section 7.7(b)(iii), the Administrative Agent shall have
notified the Company in writing that (x) the Required Banks
have made a determination that, on the basis of such
Reportable Event or Reportable Events or the failure to make a
required payment, there are reasonable grounds (A) for the
termination of such Plan or Plans by the PBGC, (B) for the
appointment by the appropriate United States District Court of
a trustee to administer such Plan or Plans or (C) for the
imposition of a lien in favor of a Plan and (y) as a result
thereof a Termination Event exists hereunder; or a trustee
shall be appointed by a United States District Court to
administer any such Plan or Plans; or the PBGC shall institute
proceedings to terminate any Plan or Plans; or (ii) (x) the
Company or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan, (y)
the Company or such ERISA Affiliate does not have reasonable
grounds for contesting such Withdrawal Liability or is not in
fact contesting such Withdrawal Liability in a timely and
appropriate manner and (z) the amount of the Withdrawal
Liability specified in such notice, when aggregated with all
other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the
date or dates of such notification), exceeds $7,500,000 or
requires payments exceeding $7,500,000 in any year; or (iii)
the Company or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, if solely
as a result of such reorganization or termination the
aggregate annual contributions of the Company and its ERISA
Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been
or will be increased over the amounts required to be
contributed to such Multiemployer Plans for their most
recently completed plan years by an amount exceeding
$7,500,000;
(i) there shall have occurred a Change in Control;
(j) (i) one or more judgments for the payment of money
in an aggregate amount in excess of $250,000 (to the extent
<PAGE>
44
not covered by insurance) shall be rendered against the
Company and the same shall remain undischarged or stayed for a
period of 30 consecutive days during which execution shall not
be effectively stayed, or any action shall be legally taken by
a judgment creditor to levy upon assets or properties of the
Company to enforce any such judgment or (ii) one or more
judgments for the payment of money in an aggregate amount in
excess of $7,500,000 (to the extent not covered by insurance)
shall be rendered against Holdings or any Restricted
Subsidiary or any Significant Subsidiary (as each such term is
defined in the Credit Agreement as in effect on the Effective
Date) or any combination thereof and the same shall remain
undischarged or stayed for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to levy
upon assets or properties of Holdings or any Restricted
Subsidiary to enforce any such judgment;
(k) any material provision of the Transaction Documents
shall not be in full force and effect, enforceable in
accordance with its terms, or the Company, a Seller, a
Servicer or the Master Servicer, or any Affiliate of any of
the foregoing, shall so assert in writing;
(l) the Participating Interest shall for any reason
cease to be a valid and perfected first priority undivided
participating interest in the Receivables;
(m) the Company shall have become an "investment
company" under the Investment Company Act of 1940;
(n) a Purchase Termination Event shall have occurred and
be continuing under the Receivables Sale Agreement;
(o) the Company shall fail to pay the Purchase Price for
any newly created Receivable when due pursuant to subsection
2.3 of the Receivables Sale Agreement (including, without
limitation, by application of any restrictions in such
subsection); provided that no such failure shall constitute a
--------
Termination Event under this paragraph (o) unless such failure
shall continue for five consecutive Business Days;
(p) a Servicer Event of Default shall have occurred and
be continuing;
(q) at the end of any fiscal month, the Loss to
Liquidation Ratio exceeds 5%;
(r) the ratio (expressed as a percentage) of (i) the
aggregate Adjusted Principal Amount of all Receivables that
are more than 60 days past due at the end of any fiscal month
(and are not Defaulted Receivables) to (ii) the aggregate
Adjusted Principal Amount of all Receivables (which are not
Defaulted Receivables) at the end of such fiscal month exceeds
10%;
<PAGE>
45
(s) at the end of any fiscal month, Days Sales
Outstanding with respect to such fiscal month exceeds 75 days;
or
(t) the Net Investment exceeds the Maximum Transfer
Amount on the second Business Day following any Settlement
Date, after giving effect to the calculation of the Required
Reserve Percentage on such Settlement Date, and after
application of Collections and all other payments and amounts
to reduce the Net Investment to and including such second
Business Day (except to the extent Excess Application Amounts
in respect of such excess are being held in a cash collateral
account pursuant to subsection 2.12(c));
then, (x) if such event is (I) a Termination Event described in
paragraph (f) above or (II) a Termination Event described in
paragraph (n) above resulting from a Purchase Termination Event
described in paragraph (f) of Article VII of the Receivables Sale
Agreement, automatically the Commitment Period shall thereupon
terminate without notice of any kind, which is hereby waived by the
Company and (y) if such event is any other Termination Event, so
long as such Termination Event shall be continuing, with the
consent of the Required Banks the Administrative Agent may, or upon
the request of the Required Banks the Administrative Agent shall,
by notice to the Company terminate the Commitment Period.
ARTICLE X
The Administrative Agent
10.1 Appointment. Each Bank hereby irrevocably
-----------
designates and appoints the Administrative Agent as the agent of
such Bank under this Agreement and each Bank irrevocably authorizes
the Administrative Agent, as the agent for such Bank, to take such
action on its behalf under the provisions of this Agreement and to
exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this
Agreement, together with such other powers as are reasonably
incidental thereto, including, but not limited to, the signing by
the Administrative Agent, as agent for the Banks, of any financing
statements related to the Receivables. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary
relationship with any Bank, the Company, any Servicer or the Master
Servicer, and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Administrative Agent.
Each Bank acknowledges and consents to Chemical Bank's acting as
administrative agent for the lenders under the Credit Agreement and
the documents delivered pursuant thereto.
10.2 Delegation of Duties. The Administrative Agent may
--------------------
execute any of its duties under this Agreement by or through agents
<PAGE>
46
or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
10.3 Exculpatory Provisions. Neither the
----------------------
Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or the transactions
contemplated hereby or thereby (except for its or such Person's own
gross negligence or willful misconduct), (ii) responsible in any
manner to any party hereto for any recitals, statements,
representations or warranties made by the Company, any Servicer,
the Master Servicer or any of the Banks or any officer thereof
contained in this Agreement, or in any certificate, report,
statement or other document referred to or provided for in, or
received by the Administrative Agent under or in connection with
this Agreement or the transactions contemplated hereby or thereby
or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or (iii) for any
failure of the Company, any Servicer, the Master Servicer, or any
of the Banks to perform their respective obligations hereunder.
The Administrative Agent shall not be under any obligation to any
party hereto to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions
of, this Agreement or to inspect the properties, books or records
of the Company, any Servicer, the Master Servicer or any of the
Banks.
10.4 Reliance by the Administrative Agent. The
------------------------------------
Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without
limitation, counsel to any of the Banks and counsel to the Company,
any Servicer or the Master Servicer), independent accountants and
other experts selected by the Administrative Agent, as the case may
be. The Administrative Agent shall be fully justified in failing
or refusing to take any action under this Agreement unless it shall
first receive such advice or concurrence of the Banks as it deems
appropriate or it shall first be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such
action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this
Agreement in accordance with a request of the Banks entitled to
give such a request hereunder, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all
the Banks.
<PAGE>
47
10.5 Notice of Default or Termination Event. The
--------------------------------------
Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any default or Termination Event
hereunder unless the Administrative Agent has received notice from
a Bank, the Company, any Servicer or the Master Servicer referring
to this Agreement, describing such default or Termination Event and
stating that such notice is a "notice of default" or a "notice of
Termination Event", as the case may be. In the event that the
Administrative Agent receives such a notice, the Administrative
Agent shall give promptly notice thereof to the Banks and to the
Company. The Administrative Agent shall take such action with
respect to such default or Termination Event as shall be reasonably
directed by the Required Banks, provided that unless and until the
--------
Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such
default or Termination Event as it shall deem advisable in the best
interests of the Banks.
10.6 Non-Reliance on the Administrative Agent and Other
--------------------------------------------------
Banks. Each Bank hereby expressly acknowledges that neither the
-----
Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the
affairs of the Company, any Servicer or the Master Servicer, shall
be deemed to constitute any representation or warranty by the
Administrative Agent to any Bank. Each Bank hereby represents to
the Administrative Agent that it has, independently and without
reliance upon the Administrative Agent or any other Bank, and based
on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business,
operations, property and financial and other condition and
creditworthiness of the Company, the Servicers and the Master
Servicer and made its own decision to acquire a Participating
Interest hereunder and enter into this Agreement. Each Bank hereby
also represents that it will, independently and without reliance
upon the Administrative Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own appraisals and decisions in taking or not
taking action under this Agreement, and to make such investigation
as it deems necessary to inform itself as to the business,
operations, property and financial and other condition and
creditworthiness of the Company, the Servicers and the Master
Servicer. Except for notices, reports and other documents
expressly required to be furnished to the Banks by the
Administrative Agent hereunder, the Administrative Agent shall not
have any duty or responsibility to provide any Bank with any
information concerning the business, operations, property,
condition (financial or otherwise), prospects or creditworthiness
of the Company, any Servicer or the Master Servicer which may come
into the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or
affiliates.
<PAGE>
48
10.7 Indemnification. Each Bank hereby agrees to
---------------
indemnify the Administrative Agent in its capacity as such (to the
extent not reimbursed by the Company and without limiting the
obligation of the Company to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought under this subsection 10.7, from and
against any and all Indemnified Liabilities which may at any time
(including without limitation at any time following the termination
of the commitment of the Banks to increase their Participating
Interest hereunder) be imposed on, incurred by or asserted against
the Administrative Agent in any way relating to or arising out of
this Agreement, or any documents contemplated by or referred to
herein or the transactions contemplated hereby or any action taken
or omitted by the Administrative Agent under or in connection with
any of the foregoing, provided that no Bank shall be liable for the
--------
payment of any portion of such Indemnified Liabilities resulting
from the Administrative Agent's gross negligence or willful
misconduct. The agreements in this subsection 10.7 shall survive
the termination of the commitments of the Banks to acquire a
Participating Interest hereunder, the collection of all
Receivables, the termination of this Agreement and the payment of
all amounts payable hereunder.
10.8 The Administrative Agent in Its Individual
------------------------------------------
Capacity. The Administrative Agent and its affiliates may make
--------
loans to, accept deposits from and generally engage in any kind of
business with the Company, the Servicers, the Master Servicer or
any of their affiliates as though the Administrative Agent were not
the Administrative Agent. With respect to any Participating
Interests purchased or maintained by it under this Agreement, the
Administrative Agent shall have the same rights and powers
hereunder as any Bank and may exercise the same as though it were
not the Administrative Agent, and the term "Bank" shall include the
Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. Subject to the
------------------------------
appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by
notifying the Banks and the Company. Upon any such resignation,
the Required Banks shall have the right to appoint a successor,
with the consent of the Company (not to be unreasonably withheld).
If no successor shall have been so appointed by the Required Banks
and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Banks,
appoint a successor Administrative Agent, with the consent of the
Company (not to be unreasonably withheld), which shall be a bank
with an office in New York, New York, having a combined capital and
surplus of at least $500,000,000 or an Affiliate of any such bank
which is also a bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor
shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the
retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After the Administrative Agent's
<PAGE>
49
resignation hereunder, the provisions of this Article X and of
subsection 11.3 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was
acting as Administrative Agent.
ARTICLE XI
Miscellaneous
11.1 Further Assurances. Each of the Company, the
------------------
Servicers and the Master Servicer agrees, from time to time, to do
and perform any and all acts and to execute any and all further
instruments reasonably required or requested by the Administrative
Agent at the request of any Bank more fully to effect the purposes
of this Agreement and the assignments and transfers of the
Participating Interest hereunder, including, without limitation,
the execution of any financing statements or continuation
statements relating to the Receivables for filing under the
provisions of the Uniform Commercial Code, or any similar law, of
any applicable jurisdiction.
11.2 Payments. Each payment to be made by any of the
--------
Banks, the Company, any of the Servicers or the Master Servicer
hereunder shall be made on the required payment date in Dollars and
in immediately available funds at the office of the Administrative
Agent located at 270 Park Avenue, New York, New York 10017 or to
such other office as may be specified by the Administrative Agent
in a notice to the Company, the Servicers, the Master Servicer and
the Banks.
11.3 Costs and Expenses. (a) The Company agrees to pay
------------------
all reasonable out-of-pocket expenses incurred by the
Administrative Agent in connection with the preparation of this
Agreement and the other Transaction Documents, or by the
Administrative Agent in connection with the syndication of the
Commitments or the administration of this Agreement, or in
connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the
Administrative Agent or any Bank in connection with the enforcement
or protection of their rights in connection with this Agreement and
the other Transaction Documents or in connection with the purchases
made hereunder, including the reasonable fees, charges and
disbursements of Simpson Thacher & Bartlett, counsel for the
Administrative Agent, and, in connection with any such enforcement
or protection, the reasonable fees, charges and disbursements of
any other counsel (including the reasonable allocated costs of
internal counsel if a Bank elects to use internal counsel in lieu
of outside counsel) for the Administrative Agent or any Bank (but
no more than one such counsel for any Bank).
(b) The Company agrees to indemnify the Administrative
Agent, each Bank and each of their respective directors, officers,
employees and agents (each such Person being called an
<PAGE>
50
"Indemnitee") against, and to hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, charges and
disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i)
the execution or delivery of this Agreement or any other
Transaction Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective
obligations thereunder or the consummation of the Transactions and
the other transactions contemplated thereby, (ii) the use of the
proceeds of the initial transfer and assignment of the
Participating Interest and of any Increases in Net Investment or
(iii) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any Indemni-
tee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (i) are determined by a court of
competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such
Indemnitee (treating, for this purpose only, any Bank and its
directors, officers, employees and agents as a single Indemnitee)
or (ii) arise from (x) any Receivable which becomes a Charge-Off as
a result of non-payment by the Obligor with respect thereto, (y)
any action taken, or omitted to be taken, by any Servicer which is
not an Affiliate of C&A Products, or (z) any action taken by the
Banks in collecting from an Obligor.
(c) The Company shall be entitled to assume the defense
of any action for which indemnification is sought hereunder with
counsel of its choice at its expense (in which case the Company
shall not thereafter be responsible for the fees and expenses of
any separate counsel retained by an Indemnitee except as set forth
below); provided, however, that such counsel shall be reasonably
-------- -------
satisfactory to each such Indemnitee. Notwithstanding the
Company's election to assume the defense of such action, each
Indemnitee shall have the right to employ separate counsel and to
participate in the defense of such action, and the Company shall
bear the reasonable fees, costs, and expenses of such separate
counsel, if (i) the use of counsel chosen by the Company to
represent such Indemnitee would present such counsel with a
conflict of interest; (ii) the actual or potential defendants in,
or targets of, any such action include both the Company and such
Indemnitee and such Indemnitee shall have reasonably concluded that
there may be legal defenses available to it that are different from
or additional to those available to the Company (in which case the
Company shall not have the right to assume the defense or such
action on behalf of such Indemnitee); (iii) the Company shall not
have employed counsel reasonably satisfactory to such Indemnitee to
represent it within a reasonable time after notice of the
institution of such action; or (iv) the Company shall authorize
such Indemnitee to employ separate counsel at the Company's
expense. The Company will not be liable under this Agreement for
any amount paid by an Indemnitee to settle any claims or actions if
the settlement is entered into without the Company's consent, which
consent may not be withheld unless such settlement is unreasonable
<PAGE>
51
in light of such claims or actions against, and defenses available
to, such Indemnitee.
(d) Notwithstanding anything to the contrary in this
subsection 11.3, this subsection 11.3 shall not apply to taxes, it
being understood that the Company's only obligations with respect
to taxes shall arise under subsections 3.3 and 3.5.
(e) The provisions of this subsection 11.3 shall remain
operative and in full force and effect regardless of the expiration
of the term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of all or any portion of the Net
Investment, the invalidity or unenforceability of any term or
provision of this Agreement or any other Transaction Document, or
any investigation made by or on behalf of the Administrative Agent
or any Bank. All amounts due under this subsection 11.3 shall be
payable on written demand therefor.
11.4 Successors and Assigns; Participations; Acquiring
-------------------------------------------------
Banks. (a) The provisions of this Agreement shall be binding upon
-----
and inure to the benefit of the Company, the Banks, the Master
Servicer, the Servicers, the Administrative Agent and their
respective successors and assigns, except that the Company, the
Servicers and the Master Servicer may not assign or transfer any of
its or their rights or obligations under this Agreement without the
prior written consent of each Bank.
(b) Any Bank may, in the ordinary course of its business
and in accordance with applicable law, at any time sell to one or
more banks or other entities ("Participants") a participation in
the Participating Interest of such Bank, any Commitment of such
Bank or any other interests of such Bank hereunder. In the event
of any such sale by a Bank of a participation to a Participant,
such Bank's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Bank shall remain
solely responsible for the performance thereof, and the Company,
the Master Servicer, the Servicers and the Administrative Agent
shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this
Agreement. The Company, the Servicers, and the Master Servicer
agree that if amounts outstanding under this Agreement are due or
unpaid, each Participant shall be deemed to have the right of
setoff in respect of its participation in amounts owing under this
Agreement to the same extent and subject to the same terms and
conditions as if the amount of its participation were owing
directly to it as a Bank under this Agreement, provided that such
--------
right of setoff shall be subject to the obligation of such
Participant to share with the Banks, and the Banks agree to share
with such Participant, as provided in subsection 11.12. The
Company also agrees that each Participant shall be entitled to the
benefits of subsections 3.2, 3.3 and 3.5 with respect to its
Participating Interest; provided that, in the case of subsection
--------
3.5, such Participant shall have complied with the requirements of
said subsection and provided further that no Participant shall be
-------- -------
entitled to receive any greater amount pursuant to such subsections
<PAGE>
52
than the transferor Bank would have been entitled to receive in
respect of the amount of the participation transferred by such
transferor Bank to such Participant had no such transfer occurred.
Each Bank will disclose the identity of its participants to the
Company and Administrative Agent if requested by the Company or the
Administrative Agent.
(c) Each Bank agrees that any agreement between such
Bank and any Participant in respect of any participation shall not
restrict such Bank's right to agree to any amendment, supplement or
modification to this Agreement or any of the Transaction Documents
except (i) to extend the Scheduled Termination Date, or increase
the amount of such Bank's Commitment, or change the definition of
"Maximum Invested Percentage" so as to permit the Maximum Invested
Percentage to exceed 83%, or reduce the rate or extend the time of
payment of any Purchase Discount Amount or Commitment Fee, in each
case to the extent such Participant is directly affected thereby
and (ii) to release any substantial portion of the Pooled Property
(other than pursuant to subsection 5.3 or 12.7).
(d) Any Bank may, in the ordinary course of its business
and in accordance with applicable law, at any time sell (x) to any
Bank or any Lender (as defined in the Credit Agreement) or any
affiliate thereof, and (y) with the consent of the Company and the
Administrative Agent (which in each case shall not be unreasonably
withheld or delayed), to one or more additional financial
institutions ("Acquiring Banks") all or any part of its rights and
obligations under this Agreement pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit A, executed by
such Acquiring Bank and such transferor Bank (and, in the case of a
Acquiring Bank that is not then a Bank or a Lender (as defined in
the Credit Agreement) or an affiliate thereof, by the
Administrative Agent and the Company) and delivered to the
Administrative Agent for its acceptance and recording in the
register, provided that the Commitment transferred pursuant to any
--------
such sale to a Acquiring Bank shall be in an amount not less than
the lesser of $5,000,000 and the amount of such transferor Bank's
Commitment, unless (i) otherwise agreed by the Company or (ii) the
assignment is to any Bank or any Lender (as defined in the Credit
Agreement) or any affiliate thereof. Upon such execution,
delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the
Acquiring Bank thereunder shall be a party hereto, shall be subject
to the requirements of subsections 3.5(f) and (g) and, to the
extent provided in such Assignment and Acceptance, shall have the
rights and obligations of a Bank hereunder with a Commitment
Percentage as set forth therein, and (y) the assigning Bank
thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Bank's rights and obligations
under this Agreement, such assigning Bank shall cease to be a party
hereto).
<PAGE>
53
(e) The Administrative Agent shall maintain at its
address referred to in subsection 11.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the Participating Interests
owing to, each Bank from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the
Company, the Servicers, the Master Servicer, the Administrative
Agent and the Banks may treat each Person whose name is recorded in
the Register as the owner of the Participating Interests recorded
therein for all purposes of this Agreement. The Register shall be
available for inspection by the Company, the Servicers, the Master
Servicer or any Bank at any reasonable time and from time to time
upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and a Acquiring Bank (and, in the
case of a Acquiring Bank that is not then a Bank or an affiliate
thereof, by the Administrative Agent and the Company) together with
payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information
contained therein in the Register and give notice of such
acceptance and recordation to the Banks and the Company.
(g) Subject to subsection 11.16, the Master Servicer,
each Servicer and the Company authorize each Bank to disclose to
any Participant or Acquiring Bank (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Bank's possession concerning such Servicer, the Master Servicer,
the Company or any of its or their Affiliates which has been
delivered to such Bank by or on behalf of such Servicer, the Master
Servicer, the Company or such Affiliate in connection with such
Bank's credit evaluation of such Servicer, the Master Servicer or
the Company.
11.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
11.6 No Waiver; Cumulative Remedies. No failure to
------------------------------
exercise and no delay in exercising, on the part of the
Administrative Agent or the Banks, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
11.7 Amendments and Waivers. Neither this Agreement nor
----------------------
any terms hereof may be amended, supplemented or modified except in
<PAGE>
54
accordance with the provisions of this subsection 11.7. The
Required Banks may, or, with the written consent of the Required
Banks, the Administrative Agent may, from time to time, (a) enter
into with the Company, the Master Servicer and the Servicers
written amendments, supplements or modifications hereto for the
purpose of adding any provisions to this Agreement or changing in
any manner the rights of the Banks, the Company, the Servicers or
the Master Servicer hereunder or (b) waive, on such terms and
conditions as the Required Banks or the Administrative Agent, as
the case may be, may specify in such instrument, any of the
requirements of this Agreement or any default or Termination Event
and its consequences; provided, however, that no such waiver and no
-------- -------
such amendment, supplement or modification shall (i) extend the
Scheduled Termination Date; or reduce the rate or extend the time
of payment of any Purchase Discount Amount or Commitment Fee; or
extend the time of payment of any mandatory reduction of the Net
Investment; or modify subsection 2.12 so that the fact that the Net
Investment exceeds the Maximum Transfer Amount does not necessitate
a mandatory reduction in the Net Investment; or change the
definition of "Maximum Invested Percentage" so as to permit the
Maximum Invested Percentage to exceed 83%; or increase the amount
of any Bank's Commitment; or amend, modify or waive any provision
of this subsection 11.7; or reduce the percentage specified in the
definition of Required Banks; or consent to the assignment or
transfer by the Company, any Servicer or the Master Servicer of any
of their respective rights and obligations under this Agreement
(except in accordance with Article XII); or release any substantial
portion of the Pooled Property (other than pursuant to subsection
5.3 or 12.7); in each case without the written consent of each Bank
directly affected thereby or (ii) amend, modify or waive any
provision of Article X without the written consent of the
Administrative Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Banks
and shall be binding upon the Company, the Servicers, the Master
Servicer, the Banks, the Administrative Agent and all future
holders of a Participating Interest. In the case of any waiver,
the Company, the Servicers, the Master Servicer, the Banks and the
Administrative Agent shall be restored to their former position and
rights hereunder, any default or Termination Event waived shall be
deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other default or Termination Event, or
impair any right consequent thereon.
11.8 Severability. Any provision of this Agreement
------------
which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent such prohibition
or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
11.9 Notices. All notices, requests and demands to or
-------
upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made
<PAGE>
55
when delivered by hand, or three days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Company and the
Administrative Agent, as set forth under their signatures on the
signature pages hereof (in the case of the Master Servicer and the
Servicers) and as set forth on Schedule 1 hereto (in the case of
the Banks), or to such other address as may be hereafter notified
by the respective parties hereto:
The Company: Carco, Inc.
________________________________
________________________________
Attention:
Telecopy No.:
The Administrative Agent: Chemical Bank Agency Services
140 East 45th Street
New York, New York 10017
Attention: James Morgan
Telecopy: 212-622-0002
with a copy to: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Suzanne Kjorlien
Telecopy: 212-972-0009
provided that any notice, request or demand to or upon the
--------
Administrative Agent or the Banks pursuant to subsections 2.3,
2.7, 2.8, 2.10, 2.11 and 2.12 shall not be effective until
received.
11.10 Counterparts. This Agreement may be executed by
------------
one or more of the parties to this Agreement on any number of
separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company and
the Administrative Agent.
11.11 Construction of Agreement as Security Agreement.
-----------------------------------------------
(a) It is the intent of the parties that the transactions
contemplated herein constitute assignments and transfers of the
Receivables and the Related Property with respect thereto to the
Banks. If, however, such transactions are deemed to be loans,
the Company hereby grants to the Administrative Agent, for the
benefit of the Banks, a first priority security interest in all
of the Company's right, title and interest in and to (i) the
Receivables and the Related Property now existing and hereafter
created, all monies due or to become due and all amounts received
with respect thereto, (ii) the Receivables Sale Agreement and
(iii) all "proceeds" of any of the foregoing, including, without
limitation, whatever is received upon the sale, exchange,
<PAGE>
56
collection or other disposition of the foregoing or any proceeds
thereof, to secure all the Company's obligations hereunder.
(b) Each Servicer hereby grants to the Administrative
Agent on behalf of the Banks a first priority security interest
in all of the Servicer's right, title and interest in, to and
under its records relating to the Receivables and Related
Property serviced by it to secure all of the Company's
obligations hereunder.
(c) This Agreement shall constitute a security
agreement under applicable law.
11.12 Adjustments; Set-off. (a) If any Bank (a
--------------------
"benefitted Bank") shall at any time receive any payment of all
or part of its Participating Interest of the Net Investment, or
any Purchase Discount Amount in respect thereof, or receive any
collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in paragraph (f) of Article IX, or
otherwise) in a greater proportion than any such payment to and
collateral received by any other Bank, if any, in respect of such
other Bank's Participating Interest of the Net Investment, or any
Purchase Discount Amount in respect thereof, such benefitted Bank
shall acquire for cash from the other Banks such portion of each
such other Bank's Participating Interest of the Net Investment,
or shall provide such other Banks with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to
cause such benefitted Bank to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Banks; provided, however, that if all or any portion of such
-------- -------
excess payment or benefits is thereafter recovered from such
benefitted Bank, such acquisition shall be rescinded, and the
transfer price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the
Banks provided by law, each Bank shall have the right, without
prior notice to the Company, any such notice being expressly
waived by the Company to the extent permitted by applicable law,
upon any amount, other than amounts in respect of the principal
amount of the Net Investment and the Purchase Discount Amounts
with respect thereto, becoming due and payable by the Company
hereunder (whether at the stated maturity, by acceleration or
otherwise) to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured,
at any time held or owing by such Bank or any branch or agency
thereof to or for the credit or the account of the Company. Each
Bank agrees promptly to notify the Company and the Administrative
Agent after any such set-off and application made by such Bank,
provided that the failure to give such notice shall not affect
--------
the validity of such set-off and application.
<PAGE>
57
11.13 Jurisdiction; Consent to Service of Process.
-------------------------------------------
(a) Each of the Company, the Master Servicer and each Servicer
hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York
State court or Federal court of the United States of America
sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Agreement or the other Transaction Documents, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties
hereto 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. Nothing in this Agreement shall affect any
right that the Administrative Agent or any Bank may otherwise
have to bring any action or proceeding relating to this Agreement
or the other Transaction Documents against the Company, the
Master Servicer or any Servicer or their properties in the courts
of any jurisdiction.
(b) Each of the Company, the Master Servicer and each
Servicer hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or
relating to this Agreement or the other Transaction Documents in
any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
subsection 11.9. Nothing in this Agreement will affect the right
of any party to this Agreement to serve process in any other
manner permitted by law.
11.14 Acknowledgements. Each of the Company, the
----------------
Master Servicer and each Servicer hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other
Transaction Documents to which it is a party;
(b) neither the Administrative Agent nor any Bank has
any fiduciary relationship with or duty to the Company, the
Master Servicer or any Servicer arising out of or in
connection with this Agreement or any of the other
Transaction Documents, and the relationship between the
Administrative Agent and the Banks, on one hand, and the
Company, on the other hand, in connection herewith or
<PAGE>
58
therewith is solely that of purchaser/creditor and
seller/debtor; and
(c) no joint venture is created hereby or by the other
Transaction Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Banks or among
the Company, the Master Servicer or any Servicer and the
Banks.
11.15 Waiver of Jury Trial. Each party hereto hereby
--------------------
waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect of any litigation
directly or indirectly arising out of, under or in connection
with this Agreement or any of the other Transaction Documents.
Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or
otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Transaction
Documents, as applicable, by, among other things, the mutual
waivers and certifications in this subsection 11.15.
11.16 Confidentiality. Each of the Banks and the
---------------
Administrative Agent agrees that it shall maintain in confidence
any information relating to the Company, the Master Servicer or
any Servicer furnished to it by or on behalf of the Company, the
Master Servicer or any Servicer (other than information that (x)
has become generally available to the public other than as a
result of a disclosure by such party, (y) has been independently
developed by such party without violating this subsection 11.16
or (z) was available to such party from a third party having, to
such party's knowledge, no obligation of confidentiality to the
Company, the Master Servicer or such Servicer, as the case may
be) and shall not reveal the same other than (i) to its
directors, officers, employees and advisors with a need to know
and (ii) as contemplated by subsection 11.4(g), except: (a) to
the extent necessary to comply with law or any legal process or
the requirements of any Governmental Authority or of any
securities exchange on which securities of the disclosing party
or any Affiliate of the disclosing party are listed or traded,
(b) as part of normal reporting or review procedures to
Governmental Authorities or its parent companies, Affiliates or
auditors and (c) in order to enforce its rights under any
Transaction Document in a legal proceeding.
11.17 No Bankruptcy Petition. Each Servicer, the
----------------------
Master Servicer, each Bank and the Administrative Agent covenants
and agrees that, prior to the date which is one year and one day
after the date of termination of this Agreement pursuant to
subsection 4.1, it will not institute against, or join any other
Person in instituting against, the Company any bankruptcy,
reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any federal or state
bankruptcy or similar law.
<PAGE>
59
11.18 Tax Treatment. (a) The execution and delivery
-------------
of this Agreement shall constitute an acknowledgement by the
Banks, the Administrative Agent, the Company, the Master Servicer
and each Servicer that they do not intend to establish (for
Federal tax purposes) an association taxable as a corporation.
The powers granted and obligations undertaken in this Agreement
shall be construed so as to further such intent.
(b) It is the intent of the Company and the Banks
that, for federal, state and local income and franchise tax
purposes, the Participating Interest will be indebtedness of the
Company secured by the Pooled Property. The Company and the
Banks agree to treat the Company as the owner of the Pooled
Property and the Participating Interest as indebtedness of the
Company secured by the Pooled Property and the Purchase Discount
Amount as interest for federal, state and local income and
franchise tax purposes (including for reporting purposes), except
as otherwise required by law or any tax authorities. This
subsection 11.18 shall survive the termination of this Agreement
and shall be binding on all Transferees.
11.19 No Action by Banks. Each of the Banks and the
------------------
Administrative Agent hereby agrees that, until the occurrence of
a Purchase Termination Event, an Incipient Purchase Termination
Event or a Servicer Event of Default, the Banks will not
exercise, or otherwise direct the Administrative Agent to
exercise on their behalf, the rights of the Company pursuant to
subsection 5.15(d) of the Receivables Sale Agreement.
ARTICLE XII
Servicing
12.1 Servicing. (a) Appointment of Servicers. The
--------- ------------------------
Banks and the Company hereby appoint (i) the Servicers as their
agents to service and administer the Receivables originated by
such Persons in their capacities as Sellers and (ii) C&A Products
as their agent to coordinate the servicing of the Receivables by
the Servicers. Each of the Servicers and the Master Servicer
hereby consents to such appointment and agrees to service and
administer the Receivables in accordance with the terms and
conditions contained herein. The Company hereby appoints the
Master Servicer, and the Master Servicer hereby consents to such
appointment, to take any actions on behalf of the Company which
by the terms hereof have been delegated to the Master Servicer
and any further actions incidental thereto. The Company and the
Master Servicer may agree, in accordance with subsection 8.11,
that the Master Servicer may perform on behalf of the Company
certain of the Company's obligations under the Transaction
Documents. Prior to the occurrence of a Complete Servicing
Transfer, on each Settlement Date, the Servicers and the Master
Servicer shall receive the Monthly Servicing Fee for performing
their functions as Servicers and Master Servicer hereunder as
provided in subsection 2.7.
<PAGE>
60
(b) Collection Procedures. (i) Each Collection shall
---------------------
be deposited into a Lockbox Account and shall be transferred from
such Lockbox Account (either directly or through an intermediate
Lockbox Account (an "Intermediate Lockbox Account") at the same
Lockbox Bank) to the relevant Concentration Account at least as
often as once each day that is a business day for the applicable
Lockbox Bank and for Chemical, such transfer from such Lockbox
Account and from any such Intermediate Lockbox Account, in each
case, to be commenced in any event by 1:00 p.m. (New York City
time) on the business day following such day of deposit; provided
--------
that Collections may, at the option of the applicable Obligor, be
deposited directly into the relevant Concentration Account by
wire transfer from an account of such Obligor to the
Concentration Account or by means of transfer through the
Automated Clearing House System. Each of the Company, the Master
Servicer and each Servicer acknowledges and agrees that it shall
not have any right to withdraw any funds or any remittance
advisements or payment invoices on deposit in any Concentration
Account or any Lockbox Account except as otherwise expressly
provided in this Agreement or in the Lockbox Agreements; provided
--------
however that until the date which is 60 days after the Effective
-------
Date (at which time a Lockbox Account in the name of the Company
shall have been established, as required hereunder), the
Servicers set forth on Schedule 3 which do not have, as of the
Effective Date, a Lockbox Account in place, shall be allowed to
continue to receive and deposit Collections in the same manner in
which such Servicer receives and deposits Collections as of the
Effective Date.
(ii) All Collections otherwise received by any
Servicer, the Master Servicer or the Company shall be deposited
by it either to a Lockbox Account or through the Automated
Clearing House System into the relevant Concentration Account as
soon as possible after receipt thereof, such transfer to commence
in no event later than the Business Day after such receipt.
(iii) Each of the Company, the Master Servicer and
each Servicer represents, warrants, covenants and agrees that all
Collections shall be collected, processed and deposited pursuant
to, and in accordance with, the terms of this Agreement.
(iv) The Company represents, warrants, covenants and
agrees that it shall not make or maintain any deposits in any
bank account, deposit account or trust account with any financial
institution other than the Lockbox Accounts and the Concentration
Accounts as provided for by this Agreement and other than one
operating account funded solely with amounts disbursed as
operating expenses pursuant to subsection 2.7. The Company shall
provide the Administrative Agent with the account number and
location of such account, and any other information as the
Administrative Agent may reasonably request with respect thereto.
The Company represents, warrants, covenants and agrees that it
shall have no bank accounts, deposit accounts or trust accounts
other than the Lockbox Accounts and the Concentration Accounts
and such operating account. The Company represents, warrants,
<PAGE>
61
covenants and agrees that no new bank accounts or deposit
accounts will be established unless and until the Company has
received the prior written consent of the Administrative Agent.
(v) Each of the Company, the Master Servicer and each
Servicer represents, warrants, covenants and agrees that no
location other than the Lockbox Accounts, and, with respect to
wire transfers, the Concentration Accounts, has been established
for the deposit of Collections; provided however that until the
-------- -------
date which is 60 days after the Effective Date (at which time a
Lockbox Account in the name of the Company shall have been
established, as required hereunder), the Servicers set forth on
Schedule 3 which do not have, as of the Effective Date, a Lockbox
Account in place, shall be allowed to continue to receive and
deposit Collections in the same manner in which such Servicer
receives and deposits Collections as of the Effective Date. Each
of the Company, the Master Servicer and each Servicer represents,
warrants, covenants and agrees that no new location for the
deposit of Collections will be established unless and until the
Company has received the prior written consent of the
Administrative Agent.
(vi) The Company agrees to pay all fees for the
services of the Lockbox Banks.
(vii) Notwithstanding anything to the contrary in this
Agreement, all Receivables Proceeds shall be deposited (directly
or through a Lockbox Account in the case of Collections) into the
U.S. Concentration Account; except that Receivables Proceeds in
respect of any Receivable as to which the Obligor and/or the
Seller is organized or located in Canada may instead be deposited
(directly or through a Lockbox Account in the case of
Collections) into the Canada/Canadian Dollar Concentration
Account (in the case of Receivables denominated in Canadian
Dollars) or the Canada/U.S. Dollar Concentration Account (in the
case of Receivables denominated in U.S. Dollars).
(c) Lockbox Accounts. Within 60 days after the
----------------
Effective Date, the Company shall deliver to the Administrative
Agent fully executed letter agreements in substantially the form
of Exhibit B (the "Lockbox Agreements") from each Lockbox Bank,
(x) with such changes as to which the Administrative Agent
reasonably consents or (y) in such form as the Lockbox Bank party
thereto requires in the ordinary course of its business for
transactions of a type similar to those contemplated by this
Agreement.
(i) The Company shall instruct, or cause the Servicers
to instruct, each Lockbox Bank to transfer at least as often as
once each day that is a business day for such Lockbox Bank and
for Chemical and in any event by 1:00 p.m. (New York City time)
on the business day following each such day of deposit, via the
Automated Clearing House System, all available funds on deposit
in any Lockbox Account on such day to the relevant Concentration
Account (either directly or through an Intermediate Lockbox
<PAGE>
62
Account) along with (unless otherwise provided in the related
Lockbox Agreement) any remittance advisements or payment invoices
on deposit therein.
(ii) In the event the Company (with the consent of the
Administrative Agent) or any Servicer or any Lockbox Bank shall,
after the date hereof, terminate the Lockbox Agreement with
respect to the maintenance of any Lockbox Account with any
Lockbox Bank for any reason, or, in the event (A) a Termination
Event or Potential Termination Event shall occur and be
continuing or (B) there has been a failure by any Lockbox Bank to
perform any of its material obligations under the applicable
Lockbox Agreement and such failure could have a Material Adverse
Effect on the Banks' interest in any Receivables or the
Administrative Agent's or the Banks' rights, or ability to
exercise any remedies, under this Agreement, if the
Administrative Agent shall demand such termination, the Company
agrees to notify, or cause the responsible Servicer to notify
(and, if the Company or such Servicer fails to so notify, the
Company irrevocably grants the Administrative Agent the authority
to notify) all Obligors that were depositing Collections into
such terminated Lockbox Account or Lockbox Bank to make all
future deposits to another Lockbox Bank with which the Company
has a Lockbox Agreement that has not been terminated by the
Company, by such Lockbox Bank or by demand from the
Administrative Agent; provided, however, that, if the
-------- -------
Administrative Agent shall demand termination of any Lockbox
Accounts of the Company with all Lockbox Banks, the Company
agrees to notify, or cause the responsible Servicer to notify
(and, if the Company or such Servicer fails to so notify, the
Company irrevocably grants the Administrative Agent the authority
to notify) all Obligors to make all future payments directly to
the relevant Concentration Account or any other account
designated by the Administrative Agent.
(iii) The Company represents, warrants, covenants and
agrees that (x) upon execution of a Lockbox Agreement with
respect thereto the Administrative Agent will be authorized to
receive mail delivered to any Lockbox Bank with respect to any
Lockbox Account and (y) within 60 days after the Effective Date,
a form of standing delivery order shall have been filed by the
Company with the United States Postal Service authorizing the
Administrative Agent to receive mail delivered to Lockbox Banks
with respect to any Lockbox Account.
(iv) The Administrative Agent shall have sole and
exclusive dominion over and control of each Lockbox Account and
the Company and the Servicer shall not have any dominion over or
control of any Lockbox Account, other than the right to authorize
transfers to the Concentration Accounts (and to any Intermediate
Lockbox Account) as set forth herein and pursuant to the terms
hereof.
(v) Each of the Company, the Master Servicer and each
Servicer agrees that the Administrative Agent shall have the
<PAGE>
63
unconditional right at any time, whether or not a Termination
Event or Potential Termination Event has occurred, (i) to
instruct any Lockbox Bank to transfer, via the Automated Clearing
House System, all available funds on deposit in any Lockbox
Account to the relevant Concentration Account or (ii) to instruct
any Lockbox Bank to thereafter transfer automatically at least as
often as once each day that is a business day for such Lockbox
Bank and for Chemical and in any event at the opening of business
on the business day following each such day of deposit, via the
Automated Clearing House System, all available funds on deposit
in any Lockbox Account to the relevant Concentration Account
along with any remittance advisements or payment invoices on
deposit therein. Any such instructions may be revoked only upon
the written direction of the Administrative Agent.
(d) The Administrative Agent shall treat all
collections received by it or deposited in any Concentration
Account as "Collections" for purposes of this Agreement as of the
Business Day Received (as defined in the immediately succeeding
sentence). As used herein, the term "Business Day Received"
shall mean (i) if funds are otherwise deposited in the
Concentration Account by 1:00 p.m. (New York City time), such day
of deposit and (ii) if funds are deposited in the Concentration
Account after 1:00 p.m. (New York City time), the Business Day
next following such day of deposit.
12.2 Collections by the Servicers. (a) Each
----------------------------
Servicer will, at its cost and expense and as agent for the Banks
and the Company, use its best efforts to collect, consistent with
its past practices, as and when the same becomes due, the amount
owing on each Receivable for which it is the Servicer. No
Servicer will make any material changes that deviate from the
Policies or the Company Policies in its administrative, servicing
and collection systems without the prior written approval of the
Required Banks. In the event of default under any Receivable,
the responsible Servicer shall have the power and authority, on
behalf of the Banks and the Company, to take such action in
respect of such Receivable as such Servicer may reasonably deem
advisable. In the enforcement or collection of any Receivable,
each Servicer shall be entitled to sue thereon in (i) its own
name, (ii) if, but only if, the Administrative Agent consents in
writing, as agent of the Banks, or (iii) if, but only if, the
Company consents in writing, as agent for the Company. In no
event shall any Servicer or the Master Servicer be entitled to
take any action which would make the Administrative Agent or any
of the Banks or the Company a party to any litigation without the
express prior written consent of the Administrative Agent or each
such Bank or the Company, as the case may be.
(b) The Master Servicer and the Servicers which are
Affiliates of the Company, jointly and severally, agree to defend
and indemnify the Banks and the Administrative Agent against all
reasonable costs, expenses, claims and liabilities in respect of
any action taken by the Master Servicer or any Servicer which is
an Affiliate of the Company arising out of its collection or
<PAGE>
64
servicing efforts and relative to any Receivable or relative to
any failure of compliance of any Receivable with the provisions
of any law or regulation, whether Federal, state, local or
foreign, applicable thereto (including, without limitation, any
usury law). Each Master Servicer or Servicer which is not an
Affiliate of the Company agrees to defend and indemnify the Banks
and the Administrative Agent and the Company and the Sellers
against all reasonable costs, expenses, claims and liabilities in
respect of any action taken by such Servicer or such Master
Servicer, as the case may be, relative to any Receivable, or
arising out of any failure of compliance of any Receivable with
the provisions of any law or regulation, whether Federal, state,
local or foreign, applicable thereto (including, without
limitation, any usury law). The Administrative Agent and the
Banks shall have no obligation to, and unless and until the
occurrence of an event described in clause (i) or (ii) of the
second sentence of subsection 12.2(d) neither the Administrative
Agent nor the Banks shall, take any action or commence any legal
proceedings to realize upon any Receivable (including, without
limitation, any Defaulted Receivable) or to enforce any of their
rights or remedies with respect thereto. Notwithstanding
anything to the contrary contained in this subsection 12.2(b),
neither the Master Servicer nor any Servicer shall be obligated
to indemnify or otherwise hold any Person harmless with respect
to any losses arising from the nonpayment of any Receivable by or
on behalf of the related Obligor.
(c) The Servicers, the Master Servicer and the Company
each hereby irrevocably grant to the Administrative Agent an
irrevocable power of attorney, with full power of substitution,
coupled with an interest, to take in the name of the Master
Servicer, such Servicer or the Company or in its own name at any
time after the occurrence of a Complete Servicing Transfer all
steps necessary or advisable to endorse, negotiate or otherwise
realize on any writing or other right of any kind held or owned
by the Master Servicer, such Servicer or the Company or
transmitted to or received by the Administrative Agent as payment
on account or otherwise in respect of any Receivable.
(d) Upon the occurrence and during the continuance of
any Servicer Event of Default, the Administrative Agent shall, at
the request of the Required Banks, by giving two Business Days'
notice in writing to the Master Servicer (a "Transfer Notice"),
terminate any or all Servicer or Master Servicer administrative,
servicing and collection functions provided for herein as to any
or all of the Servicers and the Master Servicer (the termination
of all such functions with respect to all Servicers and the
Master Servicer being referred to as a "Complete Servicing
Transfer" and any other such termination being referred to as a
"Partial Servicing Transfer"). Upon the occurrence of either a
Partial Servicing Transfer or a Complete Servicing Transfer,
without limitation, (i) a designee of the Required Banks (for
purposes of paragraphs (d) through (e) of this subsection 12.2,
the term "Substitute Servicer" means such designee, as
appropriate) shall administer the administrative, servicing and
<PAGE>
65
collection functions of each terminated Servicer (each, a
"Transferring Servicer") (in the case of a Partial Servicing
Transfer) or all Servicers and the Master Servicer (in the case
of a Complete Servicing Transfer) in any manner it deems fit
(which may include notifying any Obligor of the assignment to the
Banks of the interest in the affected Receivables and/or
directing any Obligor to make all payments in respect of the
affected Receivables in the name of the Substitute Servicer),
provided that the Substitute Servicer shall furnish or cause to
--------
be furnished to the Company such information as such Company
needs to perform its obligations under this Agreement, and the
Company may, without independent investigation, rely on such
information for all purposes of this Agreement and (ii) the
Company, each Transferring Servicer (in the case of a Partial
Servicing Transfer) or each Servicer and the Master Servicer (in
the case of a Complete Servicing Transfer) shall, at its own
expense, (x) if so requested by the Substitute Servicer, endorse
each instrument, if any, evidencing any Receivable to the
Substitute Servicer in such manner as the Substitute Servicer
shall reasonably direct and (y) perform, or cause to be performed
by any Person involved in administrative, servicing or collection
functions on behalf of or under the direction of each
Transferring Servicer (in the case of a Partial Servicing
Transfer) or each Servicer and the Master Servicer (in the case
of a Complete Servicing Transfer) or the Company, any and all
acts, any and all documents as, in each case, may be reasonably
requested by the Substitute Servicer in order to effect the
purposes of this Agreement and the transfer and assignment of the
Participating Interest and to perfect and protect the ownership
interest of the Banks in the Receivables and the Related
Property. Each Servicer agrees to serve as a Substitute Servicer
if so designated by the Required Banks at any time and from time
to time. Upon the occurrence of a Partial Servicing Transfer or
a Complete Servicing Transfer, each Transferring Servicer (in the
case of a Partial Servicing Transfer) or each Servicer and the
Master Servicer (in the case of a Complete Servicing Transfer)
shall promptly transfer its electronic records relating to its
Receivables to the Substitute Servicer in such electronic form as
the Substitute Servicer may reasonably request and shall promptly
transfer to the Substitute Servicer all other records,
correspondence and documents necessary for the continued
servicing of such Receivables in the manner and at such times as
the Substitute Servicer shall reasonably request; provided that
--------
to the extent that such Transferring Servicer or such Servicer
and the Master Servicer, as the case may be, is required to have,
as a result of a continuing relationship with the related
Obligors, access to any such records in respect of its
Receivables, the Substitute Servicer shall allow such
Transferring Servicer or such Servicer and the Master Servicer,
as the case may be, to have reasonable access to such records
upon reasonable advance notice and so long as such access shall
not disrupt or otherwise interfere with the Substitute Servicer's
use of such records in performing its duties hereunder.
<PAGE>
66
(e) Each Transferring Servicer (in the case of a
Partial Servicing Transfer) or each Servicer and the Master
Servicer (in the case of a Complete Servicing Transfer) and the
Company shall each execute and deliver such additional documents
and shall take such further action as the Substitute Servicer may
reasonably request to effect or evidence the transfer of
servicing and shall execute and deliver to the Substitute
Servicer such powers-of-attorney (in addition to the power of
attorney provided for in subsection 12.2(c)) as may be necessary
or appropriate to enable the Substitute Servicer, on behalf of
the Banks, to endorse for payment any check, draft or other
instrument delivered in payment of any amount under or in respect
of an affected Receivable. If, at any time when the provisions
of subsection 12.1(c) shall have become operative, any Servicer,
the Master Servicer or the Company receives any cash or checks,
drafts or other instruments for the payment of money on account
or otherwise in respect of the Purchased Receivables, such
Servicer, the Master Servicer or the Company shall segregate such
cash and other items, hold such cash and other items in trust for
the benefit of the Banks and cause such cash and other items
(properly endorsed, where required, so that such items may be
collected by the Substitute Servicer) to be transmitted or
delivered to the Substitute Servicer for deposit in the relevant
Concentration Account within one Business Day after the date any
such cash or other item shall have been identified and segregated
by such Servicer, the Master Servicer or the Company as being on
account of a Purchased Receivable.
12.3 Maintenance of Records. Each Servicer and the
----------------------
Master Servicer will hold in trust for the Banks at the office of
such Servicer or Master Servicer set forth in Schedule 2 such
books of account and other records as it currently maintains for
its own purposes in the ordinary course of its business, provided
--------
that, as of the date which is three months following the
Effective Date, such books of account and other records shall be
in a form reasonably satisfactory to the Administrative Agent to
determine at any time the status of the Receivables and all
collections and payments in respect thereof (including, without
limitation, an ability to recreate records evidencing Receivables
in the event of the destruction of the originals thereof). The
Administrative Agent may at any time and from time to time upon
reasonable prior notice during the regular business hours of any
Servicer or the Master Servicer inspect, audit, check and make
abstracts from the books, accounts, records, or other papers of
such Servicer or the Master Servicer pertaining to the
Receivables. From time to time upon the written request of the
Administrative Agent, which request shall be promptly made upon a
request therefor to the Administrative Agent by any Bank, each
Servicer or the Master Servicer, at its own expense, will as
promptly as is practicable deliver to the Administrative Agent a
schedule of the Receivables indicating as to each Receivables
information as to the Obligor thereon, the unpaid balance
thereof, the amount and delinquency of any Receivable that is
past due and such other information as the Administrative Agent
may reasonably request. Upon the written request of the
<PAGE>
67
Administrative Agent, which request may only be made at any time
after a Partial Servicing Transfer or a Complete Servicing
Transfer, each terminated Servicer and the Master Servicer, at
its own expense, will deliver to the Administrative Agent, or to
any agent selected by the Administrative Agent, any records
pertaining thereto and evidence thereof as the Administrative
Agent may deem necessary to enable it to enforce the Banks'
rights thereunder; provided that to the extent that such
--------
terminated Servicer or the Master Servicer is required to have,
as a result of a continuing relationship with the related
Obligors, access to any such records in respect of its
Receivables, the Administrative Agent (or the agent selected by
it) shall allow such terminated Servicer or the Master Servicer
to have reasonable access to such records upon reasonable advance
notice and so long as such access shall not disrupt or otherwise
interfere with the Administrative Agent's (or its agent's) use of
such records in performing its duties hereunder. Upon the
expiration of the Commitment Period, the reduction of the Net
Investment to zero and the payment in full of all amounts owing
to the Banks and the Administrative Agent hereunder, the
Administrative Agent will promptly return to the Servicers and
the Master Servicer any such records delivered to the
Administrative Agent or its agent.
12.4 Rebates, Adjustments, Returns and Reductions;
---------------------------------------------
Modifications. From time to time a Servicer may make Adjustments
-------------
to Receivables in accordance with subsection 12.6(p). If the
Master Servicer or any Servicer makes any Adjustment, then, in
any such case, the amount of Receivables will be automatically
reduced by the principal amount of such Adjustment. Any
Adjustment shall be made on the Business Day on which such
adjustment obligation arises or is identified. In addition, if,
after giving effect to any such Adjustment, the Invested
Percentage would exceed the Maximum Invested Percentage, the
Company shall pay to the Administrative Agent, for the account of
the Banks, an amount equal to the lesser of (i) the dollar amount
of such Adjustment and (ii) the amount necessary to cause the
Invested Percentage to equal the Maximum Invested Percentage (the
amount of each such payment is referred to herein as an
"Adjustment Payment"). Such Adjustment Payment shall be treated
as a Collection and shall be distributed in accordance with the
applicable provisions of subsection 2.7.
12.5 Daily Reports; Settlement Statements. (a) (i)
------------------------------------
On each Business Day the Master Servicer will prepare a written
report (the "Daily Report") in the form of Exhibit H, with such
changes as may be agreed upon by the Administrative Agent and the
Master Servicer, setting forth for the second preceding Business
Day (the "Reporting Day") total Collections, the estimated amount
of Receivables and Eligible Receivables created, and such other
information as the Administrative Agent may request. The Master
Servicer shall complete such Daily Report and deliver it to the
Administrative Agent prior to 12:00 Noon (New York City time) on
the second Business Day following the Reporting Day. Each Daily
<PAGE>
68
Report shall be transmitted by telecopy to the Administrative
Agent at the telecopy number specified in subsection 11.9.
(ii) On each Business Day, each Servicer shall provide
the Master Servicer with a written report (a "Seller Daily
Report") with respect to the Receivables serviced by such
Servicer, in a form to be agreed upon by such Servicer and the
Master Servicer, which report shall contain such information as
the Master Servicer shall need or otherwise request in order to
complete the Daily Report.
(b) (i) Not later than two Business Days prior to
each Settlement Date until the Participating Interest of the
Banks in the Receivables has been reduced to zero and the
Commitments of the Banks hereunder have been terminated, the
Master Servicer shall submit to the Administrative Agent a
statement (hereinafter, a "Settlement Statement"), substantially
in the form attached hereto as Exhibit E or such other form as
may be acceptable to the Administrative Agent. Promptly upon
receipt thereof, the Administrative Agent shall forward a copy of
each Settlement Statement to each Bank.
(ii) Not later than three Business Days prior to each
Settlement Date, each Servicer shall provide the Master Servicer
with a written report (a "Seller Settlement Statement") with
respect to the Receivables serviced by such Servicer, in a form
to be agreed upon by such Servicer and the Master Servicer, which
report shall contain such information as the Master Servicer
shall need or otherwise request in order to complete the
Settlement Statement.
(c) (i) Within 45 days after the end of each fiscal
quarter of C&A Products, the Master Servicer will deliver to the
Administrative Agent and each Bank a certificate of a Responsible
Officer of the Master Servicer stating that (a) a review of the
activities of the Master Servicer and each Servicer and its
performance hereunder during such fiscal quarter was made under
the supervision of such Responsible Officer, (b) to the best
knowledge of such Responsible Officer, based on such review, the
Master Servicer and each Servicer has accurately and correctly
performed its obligations hereunder in all material respects
throughout such quarter, or, if there has been a material default
in the performance of any such obligation, specifying the nature
and status of each such default and (c) to the best knowledge of
such Responsible Officer, based on such review, each Daily Report
and Settlement Statement was accurate and correct in all material
respects, except as specified in such certificate.
(ii) In connection with the annual audit of the Master
Servicer referred to in subsection 12.6(s)(i) and at the
Administrative Agent's prior request therefor, within 90 days
after the end of each fiscal year of C&A Products, the Master
Servicer shall cause a firm of independent certified public
accountants (who may also render other services to the Master
Servicer, the Servicers and the Company) to deliver to the
<PAGE>
69
Administrative Agent and each Bank a report of examination to the
effect that such firm has examined the activities of the Master
Servicer and each Servicer with respect to the Receivables and
its performance hereunder during such fiscal year and that such
examination included tests relating to Receivables serviced and
such other auditing procedures as such firm considered necessary
under the circumstances and, except as described in such report,
disclosed no material exceptions or errors in the records
relating to the Receivables serviced and its material performance
hereunder that, in such firm's opinion, are required to be
reported by such firm.
12.6 Representations, Warranties and Covenants of the
------------------------------------------------
Servicers. Each Servicer and the Master Servicer hereby makes
---------
the following representations, warranties and covenants to the
Banks and the Administrative Agent:
(a) Organization; Corporate Powers. Such Person (i)
------------------------------
is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it
is incorporated, (ii) has all requisite corporate power and
authority, and all material licenses, permits, franchises,
consents and approvals, to own or lease its property and
assets and to carry on its business as now conducted and as
proposed to be conducted, (iii) is duly qualified to do
business and is in good standing as a foreign corporation
(or is exempt from such requirements) and has obtained all
necessary licenses and approvals in each jurisdiction in
which the servicing of the Receivables as required by this
Agreement requires such qualification except where the
failure to so qualify or obtain licenses or approvals would
not have a Material Adverse Effect and (iv) has the
corporate power and authority to execute, deliver and
perform this Agreement.
(b) Authorization. The execution, delivery and
-------------
performance by such Person of this Agreement and the
consummation of the other Transactions (i) have been duly
authorized by all requisite corporate and, if required,
stockholder action and (ii) will not (x) violate (A) any
provision of law, statute, rule or regulation (including,
without limitation, Regulations G, T, U and X) or the
certificate of incorporation or by-laws (or similar
governing documents) of such Person, (B) any applicable
order of any court or any rule, regulation or order of any
Governmental Authority or (C) any indenture, certificate of
designation for preferred stock, agreement or other
instrument to which such Person is a party or by which such
Person or any of its property is bound, (y) be in conflict
with, result in a breach of or constitute (with notice or
lapse of time or both) a default under any such indenture,
agreement or other instrument where any such conflict,
violation, breach or default referred to in clause (ii)(x)
or (ii)(y) of this subsection 12.6(b), individually or in
the aggregate, would have a Material Adverse Effect or (z)
<PAGE>
70
result in the creation or imposition of any Lien upon any
property or assets of the such Person.
(c) Enforceability. This Agreement has been duly
--------------
executed and delivered by such Person and constitutes a
legal, valid and binding obligation of such Person
enforceable against such Person in accordance with its
terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and
except as enforceability may be limited by general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(d) Litigation, etc. (i) There are not any actions,
---------------
suits or proceedings at law or in equity or by or before any
court or Governmental Authority now pending or, to the
knowledge of such Person, threatened against or affecting
such Person or any property or rights of such Person as to
which there is a reasonable possibility of an adverse
determination and which (x) if adversely determined, could
individually or in the aggregate result in a Material
Adverse Effect or (y) involve the Transaction Documents or
(z) if adversely determined could materially adversely
affect the Transactions.
(ii) Such Person is not in default with respect to any
law, order, judgment, writ, injunction, decree, rule or
regulation of any Governmental Authority where such default
could have a Material Adverse Effect. The Transactions will
not violate any applicable law or regulation or violate or
be prohibited by any judgment, writ, injunction, decree or
order of any court or Governmental Authority or subject such
Person to any civil or criminal penalty or fine.
(e) Taxes. Such Person and each of its Subsidiaries
-----
has filed or caused to be filed all Federal, and material
state, local and foreign, tax returns required to have been
filed by it and has paid or caused to be paid all taxes
shown thereon to be due and payable, and any assessments
received by it, except taxes that are being contested in
good faith by appropriate proceedings and such Person or
such Subsidiary, as the case may be, shall set aside on its
books adequate reserves as required by GAAP with respect
thereto. For purposes of this paragraph, "taxes" shall mean
any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any
Governmental Authority.
(f) Consents. All consents and approvals of, filings
--------
and registrations with, and other actions in respect of, all
Governmental Authorities required in order to make or
consummate the Transactions have been obtained, given, filed
<PAGE>
71
or taken and are in full force and effect, other than any
such consents, approvals, filings or other actions, the
failure to obtain or make which could not reasonably be
expected to result in a Material Adverse Effect.
(g) Compliance with Requirements of Law. Such Person
-----------------------------------
(i) shall duly satisfy all obligations on its part to be
fulfilled under or in connection with the servicing and
collection of the Receivables, (ii) will maintain in effect
all qualifications required under Requirements of Law in
order to properly service the Receivables and (iii) will
comply in all respects with all Requirements of Law in
connection with servicing the Receivables, except, in each
case, where such conduct could not have a Material Adverse
Effect.
(h) Agreement to Cooperate. The Master Servicer shall
----------------------
from time to time and at any time provide, and shall cause
its Subsidiaries to provide, information with respect to the
business, operations, properties and financial matters of
the Master Servicer and such Subsidiaries to the Company,
its officers, employees, agents and professional advisers in
connection with the replacement or refinancing, in whole or
in part, of this Agreement and the other Transaction
Documents with a new receivables financing facility in which
ownership interests in, or notes, commercial paper,
certificates or other debt instruments secured by, the
Receivables shall be sold in one or more public offerings,
private placements or otherwise (such facility, the
"Replacement Facility"), and the Master Servicer shall
otherwise cooperate with, and cause its Subsidiaries to
cooperate with, the Company and such officers, employees,
agents and professional advisers in the negotiation,
development, preparation and execution of, such Replacement
Facility.
(i) Protection of Banks' Rights. Such Person shall
---------------------------
take no action, nor omit to take any action, which act or
omission would substantially impair the rights of Banks in
the Receivables, nor shall it reschedule, revise or defer
payments due on any Receivable except in accordance with the
Policies and the Company Policies or except as otherwise
expressly permitted by this Agreement; provided, that such
--------
Person shall have no obligation to the Banks or the
Administrative Agent under this paragraph (i) in respect of
Receivables which become Charge-Offs as a result of non-
payment by the Obligor with respect thereto.
(j) Security Interest. Except for the conveyance
-----------------
hereunder and under the Receivables Sale Agreement, such
Person will not sell, pledge, assign or transfer to any
other Person, or grant, create, incur, assume or suffer to
exist any Lien on any Receivable or other Pooled Property
transferred and assigned to the Banks, whether now existing
or hereafter created, or any interest therein, and such
<PAGE>
72
Person shall defend the right, title and interest of the
Banks in, to and under any Receivable or other Pooled
Property transferred and assigned to the Banks, whether now
existing or hereafter created, against all claims of third
parties claiming through or under such Person, the Master
Servicer or any Seller.
(k) Location of Offices. The chief executive office
-------------------
of each Servicer and the Master Servicer is listed on
Schedule 2, which office is the place where such Person is
"located" for the purposes of Section 9-103(3)(d) of the
Uniform Commercial Code of the State of New York, and the
offices of each Servicer and the Master Servicer where such
Servicer and the Master Servicer keeps its records
concerning the Receivables are also listed in said Schedule.
Such Person (i) will not move outside the State listed on
Schedule 2 under the heading "Chief Executive Office" the
location of its chief executive office or outside of the
State listed on Schedule 2 under the heading "Offices Where
Records Kept" the location of any of the offices where it
keeps its records with respect to the Receivables without 30
days' prior written notice to the Administrative Agent and
(ii) will promptly take all actions reasonably required
(including but not limited to all filings and other acts
necessary or advisable under the Uniform Commercial Code of
each relevant jurisdiction) in order to continue the first
priority perfected ownership interest of the Banks in all
Receivables and other Pooled Property now owned or hereafter
created. Such Person will give the Administrative Agent
prompt notice of a change within the State listed on
Schedule 2 of the location of its chief executive office or
of a change within the State listed on Schedule 2 of the
location of any office where it keeps its records with
respect to the Receivables and the other Pooled Property.
(l) No Adverse Change. There has not been since the
-----------------
date of this Agreement any material adverse change in the
ability of such Person to perform its obligations under
Article XII of this Agreement.
(m) Lockboxes and other Payment Methods. Listed on
-----------------------------------
Schedule 3 is each Lockbox Account to which, as of the
initial Closing Date, the Obligors have been directed to
remit payments on account of the Receivables, except to the
extent that any of the Servicers, in the normal course of
their business and consistent with past practices, have
directed such Obligors to remit payments by (i) delivering
cash, a check or other instrument to or in care of the
Person delivering goods to such Obligor, (ii) a wire
transfer of such funds directly to the relevant
Concentration Account or (iii) delivering a check to the
business offices, agents or officers of such Servicer.
Neither the Master Servicer nor any Servicer shall (i) add
or terminate any bank as a bank at which a Lockbox Account
is maintained, (ii) add or terminate any such Lockbox
<PAGE>
73
Account at any such bank or (iii) make any change in its
instructions to any Obligor regarding payments to be made to
any such bank or Lockbox Account; provided, that a Servicer
--------
may at any time change its instructions to Obligors so as to
require such Obligors to make payments to a different
Lockbox Account, so long as such Servicer has previously
delivered to the Administrative Agent an executed Lockbox
Agreement in form and substance reasonably satisfactory to
the Administrative Agent regarding such Lockbox Account.
(n) Reports. The information with respect to the
-------
Receivables serviced by such Person contained in each
Settlement Statement will be true and correct in all
material respects as of the date of such Settlement
Statement.
(o) Instruments. Such Person will not take any action
-----------
to cause any Receivable to be evidenced by any instrument
(other than an instrument which constitutes chattel paper)
(as each such term is defined in the Uniform Commercial Code
as in effect in the State of New York) except in connection
with the enforcement or collection of a Receivable.
(p) Extension of Receivables; Amendment of Policies.
-----------------------------------------------
Extend, make any Adjustment to, rescind, cancel, amend or
otherwise modify, or attempt or purport to extend, amend or
otherwise modify, the terms of any Purchased Receivables,
except (i) in accordance with the terms of the Policies and
the Company Policies, (ii) as required by any Requirement of
Law, (iii) in the case of Adjustments, upon making an
Adjustment Payment pursuant to subsection 12.4 or (iv) with
the consent of the Required Banks, provided the Servicers
may cause Receivables to become Charge-Offs. Neither the
Servicers nor the Master Servicer shall amend or otherwise
modify or waive any term or condition of the Policies or the
Company Policies except in accordance with subsection 5.8 of
the Receivables Sale Agreement.
(q) Ineligible Receivables. Without the prior written
----------------------
approval of the Required Banks, such Person shall not take
any action to cause, or which would permit, an Eligible
Receivable to cease to be an Eligible Receivable, except as
expressly permitted in this Agreement.
(r) Notices. Such Person will give written notice to
-------
the Administrative Agent and each Bank promptly upon
obtaining knowledge of (i) the occurrence of any Termination
Event, Potential Termination Event, Servicer Default or
Servicer Event of Default (which notice shall specify what,
if any, action will be taken with respect thereto) and (ii)
a breach of any of the representations and warranties of the
Company set forth in Article V.
(s) Financial Statements. The Master Servicer shall
--------------------
furnish to each Bank:
<PAGE>
74
(i) as soon as available, but in any event within
90 days after the end of each fiscal year of the Master
Servicer, a copy of the consolidated balance sheet of
the Master Servicer and its consolidated Subsidiaries
as at the end of such year and the related consolidated
statements of income, shareholders' equity and retained
earnings and cash flows for such year, setting forth
the comparative amounts for the previous year and
certified without a "going concern" or like
qualification or exception, or scope limitation, by
Arthur Andersen & Co. or other independent certified
public accountants of nationally recognized standing
reasonably acceptable to the Administrative Agent;
(ii) as soon as available, but in any event not
later than 45 days after the end of each of the first
three quarterly periods of each fiscal year of the
Master Servicer, the unaudited consolidated balance
sheet of the Master Servicer and its consolidated
Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of income,
shareholders' equity and retained earnings and cash
flows of the Master Servicer and its consolidated
Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting
forth the comparative amounts for the corresponding
quarter and portion of the previous year, certified by
a Responsible Officer of the Master Servicer as being
fairly stated in all material respects (subject to
normal year-end audit adjustments); and
(iii) as soon as available, but in any event not
later than 45 days after the end of each month in each
fiscal year of the Master Servicer, the unaudited
consolidated balance sheet of the Master Servicer and
its consolidated Subsidiaries as at the end of such
month and the related unaudited consolidated statements
of income, shareholders' equity and retained earnings
and cash flows of the Master Servicer and its
consolidated Subsidiaries for such month and the
portion of the fiscal year through the end of such
month, setting forth the comparative amounts for the
corresponding month of the previous year, certified by
a Responsible Officer of the Master Servicer as being
fairly stated in all material respects (subject to
normal year-end audit adjustments);
all such financial statements shall be complete and correct
in all material respects and shall be prepared in reasonable
detail and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior
periods (except as approved by such accountants or
Responsible Officer, as the case may be, and disclosed
therein) except that the monthly financial statements
provided pursuant to clause (iii) shall only be consistent
<PAGE>
75
with GAAP in all material respects and that the monthly
financial statements provided pursuant to clause (iii) shall
not be required to include footnotes.
(t) Certificates; Other Information. The Master
-------------------------------
Servicer shall furnish to each Bank:
(i) concurrently with the delivery of the
financial statements referred to in clause (s)(i), a
certificate of the independent certified public
accountants reporting on such financial statements
stating that in making the examination necessary
therefor no knowledge was obtained of any Servicer
Default or Servicer Event of Default, except as
specified in such certificate;
(ii) concurrently with the delivery of the
financial statements referred to in clause (s)(i) and
(ii), a certificate of a Responsible Officer of the
Master Servicer stating that, to the best of such
Responsible Officer's knowledge, each Transaction Party
during such period has observed or performed all of its
covenants and other agreements, and satisfied every
condition, contained in the Transaction Documents to
which it is a party to be observed, performed or
satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Servicer Default or
Servicer Event of Default except as specified in such
certificate.
(u) Separate Corporate Existence of the Company. The
-------------------------------------------
Master Servicer shall cause the Company to comply with the
provisions of subsection 7.9. Neither the Master Servicer
nor any Servicer shall take any action, or omit to take any
action, which is inconsistent with the provisions thereof.
The Master Servicer shall not assign, pledge, transfer or
otherwise dispose of the Capital Stock of the Company other
than pursuant to the terms of the Pledge Agreement.
Each of the Master Servicer and each Servicer agrees and
acknowledges that each of the representations and warranties
contained in this subsection 12.6 shall be deemed to have been
made by the Master Servicer or such Servicer, as the case may be,
(x) as of the Effective Date, and (y) with respect to an Increase
in Net Investment, as of the related Closing Date, unless, in
either case, such representation or warranty expressly relates
only to a prior date.
12.7 Acquisition Obligation. (a) In the event of any
----------------------
breach of any of the representations, warranties or covenants of
the Master Servicer or any Servicer which is an Affiliate of the
Company contained in subsection 12.6(g), (i), (j), (k), (p) or
(q), then upon the earlier to occur of the discovery of such
event by a Responsible Officer of such Person, or receipt by such
Person of written notice of such event given by the
<PAGE>
76
Administrative Agent, the outstanding Principal Amount of
Receivables shall be reduced by the Principal Amount of such
Receivables in respect of which such representation or warranty
was incorrect or such covenant was breached; provided, however,
-------- -------
that (i) prior to the Amortization Period, to the extent that
such a reduction would cause the Invested Percentage to be more
than the Maximum Invested Percentage, the Master Servicer and the
Servicers which are Affiliates of the Company, jointly and
severally, agree to acquire such Receivable and any Related
Property with respect thereto on the terms and conditions set
forth in paragraph (b) below and (ii) during the Amortization
Period, the Master Servicer and the Servicers which are
Affiliates of the Company, jointly and severally, agree
(regardless of which such Servicer or Master Servicer shall have
been responsible for such breach) to acquire such Receivable and
any Related Property with respect thereto on the terms and
conditions set forth in paragraph (b) below. In the event of any
breach of any of the representations, warranties or covenants of
the Master Servicer or any Servicer which is not an Affiliate of
the Company contained in subsection 12.6(g), (i), (j), (k), (p)
or (q), then upon the earlier to occur of the discovery of such
event by such Person, or receipt by such Person of written notice
of such event given by the Administrative Agent, the outstanding
Principal Amount of Receivables shall be reduced by the Principal
Amount of such Receivables in respect of which such
representation or warranty was incorrect or such covenant was
breached upon the deposit by the Master Servicer or such Servicer
(which deposit the Master Servicer or such Servicer hereby agrees
to make) into the relevant Concentration Account in immediately
available funds an amount equal to the Principal Amount of such
Receivable (together with payments pursuant to paragraph (b),
"Servicer Transfer Payments").
(b) If any breach of a representation, warranty or
covenant by a Servicer or the Master Servicer which is an
Affiliate of the Company which necessitates the acquisition of a
Receivable by the Master Servicer and the Servicers pursuant to
paragraph (a) remains uncured on the day which is 30 days after
discovery or notice of such breach, the Master Servicer and such
Servicers shall acquire such Receivable and any Related Property
with respect thereto by depositing into the relevant
Concentration Account in immediately available funds on such 30th
day (or, if such day is not a Business Day, the immediately
succeeding Business Day, an amount equal to (i) prior to an
Amortization Period, the lesser of (A) the amount necessary to
cause the Invested Percentage to equal the Maximum Invested
Percentage and (B) the Principal Amount of such Receivable or
(ii) during an Amortization Period, the Principal Amount of such
Receivable (also, a "Servicer Transfer Payment"). Upon deposit
of the Servicer Transfer Payment, the Banks shall automatically
and without further action be deemed to sell, transfer, assign,
set-over and otherwise convey to such Person, free and clear of
any Lien created by the Banks but otherwise without recourse,
representation or warranty, all the right, title and interest of
the Banks in and to such Receivable, and all Related Property
<PAGE>
77
with respect thereto; and such retransferred Receivable shall be
treated by the Banks as collected in full as of the date on which
it was transferred. The Administrative Agent shall execute such
documents and instruments of transfer or assignment and take such
other actions as shall reasonably be requested by the Master
Servicer to effect the conveyance of such Receivables pursuant to
this subsection 12.7. The obligation to acquire any Receivable
shall constitute the sole remedy respecting any breach of the
representations, warranties and covenants set forth in subsection
12.6(g), (i), (j), (k), (p) or (q) with respect to such
Receivables available to Banks or the Administrative Agent on
behalf of the Banks.
12.8 Obligations Unaffected. The obligations of the
----------------------
Master Servicer, each Servicer and the Company to the
Administrative Agent and the Banks under this Agreement shall not
be affected by reason of any invalidity, illegality or
irregularity of any Receivable or any transfer and assignment of
a Receivable.
12.9 Addition of Servicers. Subject to the terms and
---------------------
conditions hereof, from time to time one or more Subsidiaries of
C&A Products which the Required Banks have approved as additional
Sellers pursuant to subsection 8.22 shall become additional
Servicers parties hereto upon (a) execution by each such
Subsidiary of an Additional Servicer Supplement and (b)
satisfaction of all conditions precedent set forth in subsection
3.4 of the Receivables Sale Agreement to such Subsidiary becoming
an additional Seller.
12.10 Optional Termination of Servicers. Any Servicer
---------------------------------
which is terminated as a Seller pursuant to subsection 9.15 of
the Receivables Sale Agreement shall be released as a Servicer
party hereto and shall cease to be a party hereto on the date it
ceases to be a party to the Receivables Sale Agreement.
12.11 Interest on Overdue Payments. If any amount
----------------------------
payable by the Servicers or the Master Servicer to the Banks or
the Administrative Agent hereunder, whether on account of fees or
expenses or on account of amounts collected by the Servicers or
the Master Servicer or amounts payable pursuant to subsection
12.4 or 12.7, or otherwise, is not paid by such Servicer or the
Master Servicer, as the case may be, on the relevant Settlement
Date or other relevant date, such amount shall be payable
together with interest for each day from such Settlement Date or
other relevant date, as the case may be, until such amount is
paid in full at a rate per annum equal to ABR plus the Applicable
----
ABR Margin plus 2%.
----
12.12 Servicer Events of Defaults. If any of the
---------------------------
following events (herein called "Servicer Events Of Default")
shall have occurred and be continuing:
(a) any Servicer or the Master Servicer, as the case
may be, (1) shall fail to deliver any Daily Report or any
<PAGE>
78
Settlement Statement conforming in all material respects to
the requirements of subsection 12.5 and such failure shall
continue unremedied for two consecutive Business Days after
the Administrative Agent shall have delivered notice thereof
to such Servicer or the Master Servicer, as the case may be,
provided that if a Force Majeure Delay shall have occurred
--------
with respect to any Servicer or the Master Servicer, as the
case may be, (i) in the case of such an event with respect
to a Servicer, the failure of any Daily Report or Settlement
Statement to contain information with respect to the
Receivables serviced by such Servicer or (ii) in the case of
such an event with respect to the Master Servicer, the
failure of the Master Servicer to deliver any Daily Report
or Settlement Statement, shall not constitute, in either
case, a Servicer Event of Default unless such failure
continues for longer than the lesser of (x) ten consecutive
Business Days and (y) the length of such Force Majeure Delay
(or, if greater, two Business Days) after the Administrative
Agent shall have delivered notice of such failure to the
Company, or (2) shall fail to make any payment reflected in
such Daily Report or Settlement Statement as being required
to be made by it thereunder on the date such report or
statement is delivered;
(b) any Servicer or the Master Servicer, as the case
may be, shall fail to pay any amount required to be paid by
it hereunder (other than those specified in paragraph (a) of
this subsection 12.12) within five Business Days after the
date when due;
(c) any Servicer or the Master Servicer, as the case
may be, shall fail to observe or perform any covenant or
agreement applicable to it contained herein (other than as
specified in subsections (a) and (b) of this subsection
12.12), provided that, except in the case of any failure to
--------
observe or perform any covenant contained in subsection
12.6(r)(i), no such failure shall constitute a Servicer
Event of Default under this paragraph (c) unless such
failure shall continue unremedied for a period of 30
consecutive days after notice thereof from the
Administrative Agent, the Required Banks or the Company;
provided that a Servicer Event of Default shall not be
--------
deemed to have occurred under this paragraph (c) based upon
a breach of a representation, warranty or covenant contained
in subsection 12.6(g), (i), (j), (k), (p) or (q) if the
Servicers and Master Servicer shall have complied with the
provisions of subsection 12.7 with respect thereto;
(d) any representation, warranty, certification or
statement made or deemed made by any Servicer or the Master
Servicer, as the case may be, in this Agreement or in any
Settlement Statement or other certificate, financial
statement or other document delivered pursuant to this
Agreement shall prove to have been false or misleading in
any material respect on or as of the date made or deemed
<PAGE>
79
made; provided that a Servicer Event of Default shall not be
--------
deemed to have occurred under this paragraph (d) based upon
a breach of a representation, warranty or covenant contained
in subsection 12.6(g), (i), (j), (k), (p) or (q) if the
Servicers and Master Servicer shall have complied with the
provisions of subsection 12.7 with respect thereto;
(e) (i) an involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of
competent jurisdiction seeking (A) relief in respect of any
Servicer or the Master Servicer, as the case may be, or of a
substantial part of its property or assets, under Title 11
of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (B) the appointment
of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the any Servicer or the Master
Servicer, as the case may be, or for a substantial part of
its property or assets or (C) the winding-up or liquidation
of the any Servicer or the Master Servicer, as the case may
be; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; or (ii) any
Servicer or the Master Servicer, as the case may be, shall
(A) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or
similar law, (B) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding
or the filing of any petition described in clause (i) above,
(C) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar
official for such Servicer or the Master Servicer, as the
case may be, or for a substantial part of its property or
assets, (D) file an answer admitting the material
allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of
creditors, (F) become unable, admit in writing its inability
or fail generally to pay its debts as they become due or (G)
take any action for the purpose of effecting any of the
foregoing; or
(f) a Purchase Termination Event shall have occurred
and be continuing under the Receivables Sale Agreement;
then, in any such event, so long as such Servicer Event of
Default shall be continuing, with the consent of the Required
Banks the Administrative Agent or the Company may, or upon the
request of the Required Banks the Administrative Agent or the
Company shall, terminate the rights of any or all of the
Servicers and the Master Servicer in accordance with subsection
12.2(d) by notice to each such Servicer and/or the Master
Servicer, as the case may be.
<PAGE>
80
12.13 Audit. Upon the earlier of (a) the date which
-----
is 270 days after the Effective Date and (b) the date on which
C&A Products shall have determined not to pursue the replacement
or refinancing, in whole, of this Agreement and the other
Transaction Documents with a Replacement Facility, the
Administrative Agent, at the expense of C&A Products, may select
and engage a third party to audit the Receivables and all
computer programs, material and data of the Sellers required for
the collection of Receivables by the Company. C&A Products
hereby agrees to give the Administrative Agent prompt written
notice of any determination referred to in clause (b) of the
preceding sentence.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, all as of the day and year first above written.
CARCO, INC.
By:_________________________
Title:
COLLINS & AIKMAN PRODUCTS CO.,
as Master Servicer
By:_________________________
Title:
Address for Notices:
701 McCullough Drive
Charlotte, North Carolina 28262
Attention: Mark Remissong
Telecopy: 704-548-2330
CHEMICAL BANK, as Administrative Agent
and as a Bank
By:_________________________
Title:
<PAGE>
81
The Servicers:
--------------
COLLINS & AIKMAN CORPORATION
By:_________________________
Title:
Address for Notices:
________________________________
________________________________
COLLINS & AIKMAN PRODUCTS CO., as
Servicer for itself and for Ack-Ti-
Lining, Inc. and The Akro Corporation
By:_________________________
Title:
Address for Notices:
________________________________
________________________________
DURA ACQUISITION CORP.
By:_________________________
Title:
Address for Notices:
________________________________
________________________________
IMPERIAL WALLCOVERINGS, INC.
By:_________________________
Title:
Address for Notices:
________________________________
________________________________
IMPERIAL WALLCOVERINGS (CANADA), INC.
By:_________________________
Title:
Address for Notices:
________________________________
________________________________
WCA CANADA, INC.
By:_________________________
Title:
<PAGE>
82
Address for Notices:
________________________________
________________________________
<PAGE>
SCHEDULE 1
----------
NAMES, ADDRESSES AND COMMITMENTS OF BANKS
-----------------------------------------
Commitment
----------
CHEMICAL BANK . . . . . . . . . . . . . . . . . . . $150,000,000
270 Park Avenue
New York, New York 10017
Attention:
Telecopy No.:
<PAGE>
SCHEDULE 2
----------
LOCATIONS OF CHIEF EXECUTIVE OFFICES;
LOCATIONS OF BOOKS AND RECORDS
------------------------------
Location of Offices
Seller State of Chief Executive Where
Incorporation Office Records are
Kept
Ack-Ti-Lining, Inc.
The Akro
Corporation
Collins & Aikman
Corporation
Collins & Aikman
Products Co.
Dura Acquisition
Corp.
Imperial
Wallcoverings,
Inc.
Imperial
Wallcoverings
(Canada), Inc.
WCA Canada, Inc.
<PAGE>
SCHEDULE 3
----------
LOCKBOXES
---------
Account No.
Seller Bank (including
------ ---- Lockbox No.)
---------------
Ack-Ti-Lining, Inc.
The Akro Corporation
Collins & Aikman
Corporation
Collins & Aikman
Products Co.
Dura Acquisition
Corp.
Imperial
Wallcoverings, Inc.
Imperial
Wallcoverings
(Canada), Inc.
WCA Canada, Inc.
<PAGE>
SCHEDULE 4
----------
TRANSACTIONS WITH AFFILIATES
----------------------------
<PAGE>
SCHEDULE 5
----------
CONTRACTUAL OBLIGATIONS
-----------------------
<PAGE>
SCHEDULE 6
----------
LOCAL COUNSEL
-------------
State Counsel
----- -------
<PAGE>
ANNEX X
"ABR": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof, "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by
Chemical as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as
being effective. "Base CD Rate" shall mean the sum of (a)
the product of (i) the Three-Month Secondary CD Rate and
(ii) Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such
day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published
in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day,
the average of the secondary market quotations for
three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 a.m.,
New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by
the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing
selected by it. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average
of the quotations for the day of such transactions received
by the Administrative Agent from three Federal funds brokers
of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative
Agent to obtain sufficient quotations in accordance with the
terms thereof, the ABR shall be determined without regard to
clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving
rise to such inability no longer exist. Any change in the
ABR due to a change in the Prime Rate, the Base CD Rate or
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2
the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate, the Base CD
Rate or the Federal Funds Effective Rate, respectively.
"ABR Participating Interest": with respect to any
Bank, that portion of its Participating Interest in the
Receivables with respect to which the Purchase Discount
Amount is determined by reference to the ABR.
"Accounts": as defined in subsection 2.1(c)(ii) of the
Receivables Transfer Agreement.
"Acquiring Banks": as defined in subsection 11.4(d) of
the Receivables Transfer Agreement.
"Additional Seller Supplement": an instrument
substantially in the form of Exhibit C to the Receivables
Sale Agreement by which a Subsidiary of C&A Products becomes
a Seller party to the Receivables Sale Agreement.
"Additional Servicer Supplement": an instrument
substantially in the form of Exhibit F to the Receivables
Transfer Agreement by which a Subsidiary of C&A Products
becomes a Servicer party to the Receivables Transfer
Agreement.
"Adjusted Principal Amount": (a) in the case of any
Receivable denominated in U.S. Dollars, the Principal Amount
in respect thereof and (b) in the case of any Receivable
denominated in Canadian Dollars, the Canadian Exchange
Percentage of the Principal Amount in respect thereof.
"Adjustment": as defined in subsection 2.5 of the
Receivables Sale Agreement.
"Adjustment Payment": as defined in subsection 12.4 of
the Receivables Transfer Agreement.
"Administrative Agent": Chemical, together with its
affiliates, as the arranger of the Commitments and as the
agent for the Banks under the Receivables Transfer
Agreement.
"Affiliate": as to any Person, any other Person that
directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with
the Person specified.
"Aggregate Eligible Receivables": the excess of (a)
the Applicable Eligible Receivables Percentage of the
aggregate outstanding Adjusted Principal Amount of all
Receivables over (b) the aggregate Excess Amounts with
----
respect to all Obligors.
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3
"Agreement": the agreement wherein such term is used,
as the same may from time to time be amended, supplemented
or otherwise modified.
"Amortization Period": the period commencing after the
end of the Commitment Period and ending with the termination
of the Receivables Transfer Agreement pursuant to subsection
4.1 thereof.
"Applicable ABR Margin": (a) prior to the 270th day
after the Effective Date, 0% and (b) on and after such 270th
day, the "Applicable Margin" with respect to "ABR Loans" (as
each such term is defined in the Credit Agreement),
determined in accordance with the provisions of the Credit
Agreement as in effect on the Effective Date.
"Applicable Eligible Receivables Percentage": at any
date of determination, a fraction (expressed as a
percentage) equal to (a) the aggregate Adjusted Principal
Amount of all Eligible Receivables determined pursuant to
the most recent Settlement Statement divided by (b) the
----------
aggregate Adjusted Principal Amount of all outstanding
Receivables generated by the Sellers determined pursuant to
such Settlement Statement.
"Applicable Eurodollar Margin": (a) prior to the 270th
day after the Effective Date, 0.625% and (b) on and after
such 270th day, the "Applicable Margin" with respect to
"Eurodollar Loans" (as each such term is defined in the
Credit Agreement), determined in accordance with the
provisions of the Credit Agreement as in effect on the
Effective Date.
"Applicable Obligor Percentage": with respect to any
Obligor, (a) 7.5%, in the case of any such Obligor having a
long-term senior unsecured debt rating of at least A- from
S&P or A3 from Moody's or a short-term deposit or commercial
paper rating of at least A-1 from S&P or P-1 from Moody's,
provided, that in the case of General Motors Corporation,
--------
Chrysler Corporation, Ford Motor Company and Honda Motor
Co., the Applicable Obligor Percentage shall instead be
17.0% so long as such Obligor maintains a short-term deposit
or commercial paper rating of at least A-2 from S&P or P-2
from Moody's; (b) 5.0%, in the case of any such Obligor (not
described in clause (a) above) having a long-term senior
unsecured debt rating of at least BBB- from S&P or Baa3 from
Moody's or a short-term deposit or commercial paper rating
of at least A-3 from S&P or P-3 from Moody's; or (c) 2.0%,
in the case of any other such Obligor.
"Assessment Rate": for any date, the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%)
most recently estimated by the Administrative Agent as the
then current net annual assessment rate that will be
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4
employed in determining amounts payable by Chemical to the
Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time
deposits made in dollars at Chemical's domestic offices.
"Average Default Ratio": for any Settlement Period, a
percentage equal to (a) the sum of the Default Ratios for
such Settlement Period and each of the two preceding
Settlement Periods divided by (b) 3.
----------
"Average Dilution Ratio": with respect to any
Settlement Period, a fraction (a) the numerator of which is
the aggregate amount of Dilutive Credits which are incurred
with respect to the Receivables during the twelve-month
period ended on the last day of such Settlement Period and
(b) the denominator of which is the aggregate Adjusted
Principal Amount of Receivables generated by the Sellers
during the twelve-month period ended on the last day of such
Settlement Period.
"Bank": each financial institution listed on Schedule
1 to the Receivables Transfer Agreement and each financial
institution to which an assignment has been made pursuant to
the terms of the Receivables Transfer Agreement, and any
successor of the foregoing.
"benefitted Bank": as defined in subsection 11.12 of
the Receivables Transfer Agreement.
"Board": the Board of Governors of the Federal Reserve
System and any successor thereto.
"Business Day": any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York)
on which banks are open for business in New York City;
provided, however, that, when used in connection with any
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Fixed Tranche or the determination of any Eurodollar Rate,
the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the
London interbank market.
"Business Day Received": as defined in subsection
12.1(d) of the Receivables Transfer Agreement.
"C&A Products": Collins & Aikman Products Co., a
Delaware corporation.
"Canada/Canadian Dollar Concentration Account": as
defined in subsection 2.7(a) of the Receivables Transfer
Agreement.
"Canada/U.S. Dollar Concentration Account": as defined
in subsection 2.7(a) of the Receivables Transfer Agreement.
<PAGE>
5
"Canadian Dollars": dollars in lawful currency of
Canada.
"Canadian Dollar Subordinated Note": as defined in
subsection 8.1 of the Receivables Sale Agreement.
"Canadian Exchange Percentage": at any date, the rate
at which Canadian Dollars may be exchanged into Dollars
(expressed as the percentage of Dollars per Canadian
Dollar), determined by reference to the relevant Bloomberg
currency page. In the event that such rate does not appear
on any Bloomberg currency page, the "Canadian Exchange
Percentage" shall be determined by reference to such other
publicly available service for displaying exchange rates
with respect to Canadian Dollars as may be selected by the
Administrative Agent.
"Capital Lease Obligations": with respect to any
Person, the obligations of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combina-
tion thereof, which obligations are required to be classi-
fied and accounted for as capital leases on a balance sheet
of such Person under GAAP and, for the purposes hereof, the
amount of such obligations at any time shall be the capital-
ized amount thereof at such time determined in accordance
with GAAP.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation)
and any and all warrants, options or other rights to
purchase or acquire any of the foregoing.
"Cash Equivalents": book-entry securities, negotiable
instruments or securities represented by instruments in
bearer or registered form which evidence:
(a) direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of
America;
(b) demand deposits, time deposits or certificates of
deposit of any depository institution or trust company
incorporated under the laws of the United States of America
or any state thereof (or any domestic branch of a foreign
bank) and subject to supervision and examination by Federal
or State banking or depository institution authorities;
provided, that at the time of the investment or contractual
--------
commitment to invest therein the commercial paper or other
short-term unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a
Person other than such depository institution or trust
<PAGE>
6
company) thereof shall have a credit rating from each of the
Rating Agencies in the highest investment category granted
thereby;
(c) commercial paper having, at the time of the
investment or contractual commitment to invest therein, a
rating of A-1 from S&P or of P-1 from Moody's;
(d) investments in money market funds having a rating
from each of the Rating Agencies in the highest investment
category granted thereby;
(e) demand deposits, time deposits and certificates of
deposit which are fully insured by the Federal Deposit
Insurance Corporation;
(f) bankers' acceptances issued by any depository
institution or trust company referred to in clause (b)
above;
(g) repurchase obligations with respect to any
security that is a direct obligation of, or fully guaranteed
by, the United States of America or any agency or
instrumentality thereof the obligations of which are backed
by the full faith and credit of the United States of
America, in either case entered into with (i) a depository
institution or trust company (acting as principal) described
in clause (b) above or (ii) so long as the Company takes
actual or constructive possession of each security subject
to such repurchase obligations, a depository institution or
trust company the deposits of which are insured by the
Federal Deposit Insurance Corporation; or
(h) any other investment permitted by Moody's and S&P
for short-term investment of funds supporting securities
with a rating of A1/P1 or better.
"Change in Control": (a) any "Change in Control"
under the Credit Agreement (as such term is defined
therein on the Effective Date), (b) except upon the
exercise by the Collateral Agent of any of its remedies
in accordance with the terms of the Pledge Agreement
(as in effect on the Effective Date), the Company shall
at any time not be a direct wholly owned Subsidiary of
C&A Products or (c) except as permitted pursuant to
subsection 9.15 of the Receivables Sale Agreement and
subsection 12.10 of the Receivables Transfer Agreement,
any Seller or Servicer (other than C&A Products) shall
at any time not be wholly owned, either directly or
indirectly, by C&A Products.
"Charge-Offs": with respect to the Receivables
originated by any Seller, for any period, the aggregate
amount of such Receivables that are written off, or should
<PAGE>
7
be written off, during such period as uncollectible in
accordance with the Company Policies.
"Chemical": Chemical Bank, a New York banking
corporation.
"Closing Date": as defined in subsection 2.3(a) of the
Receivables Transfer Agreement.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral Agent": as defined in the Credit
Agreement.
"Collections": all cash collections and other cash
proceeds received in respect of Receivables and Related
Property including, without limitation, Seller Repurchase
Payments and Seller Adjustment Payments and any Investment
Earnings.
"Commitment": of each Bank, the amount set forth
opposite the name of such Bank on Schedule 1 to the
Receivables Transfer Agreement, as such amount may be
changed pursuant to subsection 2.10 or 11.4 of the
Receivables Transfer Agreement.
"Commitment Fee": as defined in subsection 2.4 of the
Receivables Transfer Agreement.
"Commitment Percentage": as to any Bank, (a) on or
prior to the termination of the Commitments, the percentage
equivalent of a fraction the numerator of which is the
Commitment of such Bank and the denominator of which is the
Maximum Commitment and (b) thereafter, the percentage
equivalent of a fraction the numerator of which is the
Commitment of such Bank immediately prior to such
termination and the denominator of which is the Maximum
Commitment immediately prior to such termination.
"Commitment Period": the period from and including the
Effective Date, up to but not including the first to occur
of (a) the Scheduled Termination Date, (b) any termination
of the Commitments pursuant to Article IX of the Receivables
Transfer Agreement and (c) termination (but not reduction)
of the Commitments pursuant to subsection 2.10 of the
Receivables Transfer Agreement.
"Company": Carco, Inc., a Delaware corporation.
"Company Policies": the written policies of the
Company with respect to Charge-Offs and Write-Offs of
Receivables.
<PAGE>
8
"Complete Servicing Transfer": as defined in
subsection 12.2(d) of the Receivables Transfer Agreement.
"Concentration Accounts": the collective reference to
the U.S. Concentration Account, the Canada/U.S. Dollar
Concentration Account and the Canada/Canadian Dollar
Concentration Account.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is
bound.
"Control": the possession, directly or indirectly, of
the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of
voting securities, by contract or otherwise, and
"Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Agreement": the Credit Agreement dated as of
June 22, 1994 among the Credit Agreement Borrower, WCA
Canada, Inc., as Canadian Borrower, Collins & Aikman
Corporation, as Guarantor, the Lenders named therein,
Continental Bank, N.A. and NationsBank, N.A., as Managing
Agents, and Chemical Bank, as Administrative Agent, as
amended, supplemented or otherwise modified from time to
time.
"Credit Agreement Borrower": C&A Products Co.
"Daily Report": as defined in subsection 12.5(a) of
the Receivables Transfer Agreement.
"Days Sales Outstanding": as of any day, the product
of (a) 91 and (b) the amount obtained by dividing (i) the
difference between (x) the aggregate Adjusted Principal
Amount of the Receivables and (y) the aggregate bad debt
reserve of the Sellers, in each case as at the end of the
fiscal month immediately preceding the most recent
Settlement Date, by (ii) aggregate net sales of the Sellers
for the three-fiscal-month period immediately preceding the
most recent Settlement Date.
"Defaulted Receivable": any Receivable which has been
charged off, or should have been charged off, by the related
Servicer as uncollectible in accordance with the Policies of
such Servicer and the Company Policies.
"Default Ratio": (a) with respect to any Settlement
Period ending on or before April 30, 1994, a fraction (i)
the numerator of which is the aggregate Adjusted Principal
Amount of Receivables which first became 60 to 89 days past
<PAGE>
9
due as of the last day of such month and (ii) the
denominator of which is the aggregate Adjusted Principal
Amount of Receivables generated by the Sellers during the
fourth preceding Settlement Period and (b) with respect to
any Settlement Period ending on any date thereafter, a
fraction (i) the numerator of which is the aggregate
Adjusted Principal Amount of Receivables which first became
90 to 119 days past due as of the last day of such month and
(ii) the denominator of which is the aggregate Adjusted
Principal Amount of Receivables generated by the Sellers
during the fifth preceding Settlement Period.
"Dilution Reserve Ratio": as of any day, the
percentage equivalent, determined pursuant to the most
recent Settlement Statement, of the product of (x) the sum
-------
of clauses (i) and (ii) below and (y) clause (iii) below:
(i) (A) 2.0 times (B) the Average Dilution Ratio for
the most recently ended Settlement Period;
(ii) the product of (A)(x) the highest Peak Dilution
Ratio during the period of 12 fiscal months ended on the
last day of the most recently ended Settlement Period minus
-----
(y) the amount determined pursuant to clause (i)(B) of this
definition and (B) the amount determined pursuant to clause
(A)(x) above divided by the amount determined pursuant to
-------
clause (A)(y) above; and
(iii) (A) the aggregate Adjusted Principal Amount of
Receivables generated by the Sellers during the most
recently ended Settlement Period divided by (B) the
-------
aggregate Adjusted Principal Amount of Eligible Receivables
on the last day of such Settlement Period.
"Dilutive Credits": for any period, the aggregate
amount of discount expense, rebates, refunds, billing error
expense, credits against Receivables and other adjustments
or allowances in respect of Receivables permitted or
incurred by the Seller or Servicer with respect thereto
during such period.
"Discount Rate": as of any day, the sum of (a) the
weighted average Purchase Discount Amount rate in effect
with respect to the Participating Interest as at the end of
the fiscal month immediately preceding the most recent
Settlement Date and (b) the amount obtained by dividing (i)
--------
the aggregate amount of fees (other than the Monthly
Servicing Fee and the Purchase Discount Amount) accrued with
respect to the Participating Interest during the fiscal
month immediately preceding the most recent Settlement Date
by (ii) the average dailyNet Investment during such fiscal month.
"Discounted Percentage": as defined in Schedule 3 to
the Receivables Sale Agreement.
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10
"Documents": as defined in subsection 5.15(d)(3) of
the Receivables Sale Agreement.
"Dollars", "U.S. Dollars" and "$": dollars in lawful
currency of the United States of America.
"Early Termination": as defined in Article VII of the
Receivables Sale Agreement.
"Effective Date": as defined in subsection 6.1 of the
Receivables Transfer Agreement.
"Eligible Letter of Credit": any irrevocable direct
pay or standby letter of credit (a) issued in favor of the
Company by (i) any Bank or (ii) any commercial bank that (x)
has combined capital and surplus of not less than
$500,000,000 and (y) has (or the holding company parent of
which has) a long-term senior unsecured debt rating of at
least A from S&P or at least A2 from Moody's and (b) which
permits the Company to draw, upon notice to the issuing
bank, an amount equal to the entire face amount of any
Receivable supported thereby, in Dollars payable by the
issuing bank in the United States, no later than 90 days
after the original invoice date with respect to such
Receivable.
"Eligible Obligor": each Obligor that satisfies each
of the following eligibility criteria:
(a) it is not organized or located (within the
meaning of Section 9-103(3)(d) of the New York Uniform
Commercial Code) in a jurisdiction other than the
United States; provided, however, that (i) Receivables
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which have Obligors organized or located in Canada or
which are Japanese Obligors or (ii) Receivables which
have Obligors not otherwise described in clause (i)
above which are located (within the meaning of Section
9-103(3)(d) of the New York Uniform Commercial Code)
outside the United States shall be excluded from this
clause (a) if (x) in the case of clauses (i) and (ii)
above, such Receivables would otherwise be Eligible
Receivables and (y) in the case of clause (ii) above,
(1) such Receivables are supported by an Eligible
Letter of Credit and (2) the aggregate Adjusted
Principal Amount of all such Receivables does not
exceed 15% of the Adjusted Principal Amount of the
Eligible Receivables;
(b) it is not a direct or indirect Subsidiary of
Holdings;
(c) it is not a domestic or foreign government or
any agency, department, or instrumentality thereof;
provided, however, that up to 3% of the aggregate
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<PAGE>
11
Adjusted Principal Amount of the Eligible Receivables
may be owing by the United States government or any
agency, department or instrumentality thereof; and
(d) it is not the subject of any reorganization,
bankruptcy, receivership, custodianship or insolvency,
unless the payment of Receivables from such Obligor is
secured in a manner satisfactory to the Administrative
Agent or, if such Receivables arise subsequent to a
decree or order for relief under the Bankruptcy Reform
Act of 1978, as amended, with respect to such Obligor,
the Administrative Agent shall have determined that
timely payment and collection of such Receivables will
not be impaired.
"Eligible Receivable": as of any date, each Receivable
in existence as of such date that is not subject to a
Repurchase Event and (i) which the Administrative Agent
determines, in its commercially reasonable judgment, to be
an "Eligible Receivable" or (ii) that satisfies each of the
following eligibility criteria:
(a) the Company has lawful title to such
Receivable, free and clear of all Liens other than the
security interest in favor of the Banks;
(b) the Banks have a Lien on such Receivable,
which Lien is legal, valid, binding, perfected and
first priority under the Uniform Commercial Code or
other applicable law;
(c) the Company has the full and unqualified
right to assign and grant a Lien on such Receivable to
the Banks;
(d) such Receivable is payable in Dollars in the
United States or Canada and is a legal, valid, binding
and enforceable obligation of the Obligor under such
Receivable; provided, however, that Receivables having
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an aggregate Adjusted Principal Amount equal to no more
than 10% of the aggregate Adjusted Principal Amount of
all Eligible Receivables may be payable in Canadian
dollars in the United States or Canada;
(e) such Receivable is not subject to any bona
----
fide dispute, setoff, counterclaim or other claim or
----
defense on the part of the related Obligor denying
liability under such Receivable in whole or in part;
provided, however, that any such Receivable shall
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constitute an Eligible Receivable to the extent it is
not subject to any such dispute, setoff, counterclaim
or other claim or defense;
<PAGE>
12
(f) such Receivable is evidenced by an invoice
rendered to the related Obligor and is not evidenced by
any "instrument" or "chattel paper", as such terms are
defined in the Uniform Commercial Code;
(g) such Receivable is a bona fide Receivable
---- ----
which arose in the ordinary course of business, and
with respect to which,
(i) in the case of a Receivable arising from
the sale of goods, such goods have been shipped or
delivered to and accepted by the Obligor, such
Receivable was created as a result of a sale on an
absolute basis and not on a consignment, approval
or sale-and-return basis and all other actions
have been taken necessary to create a binding
obligation on the part of the Obligor for such
Receivable, and
(ii) in the case of a Receivable relating to
the sale of services, such services have been
performed or completed and accepted by the Obligor
and all other actions have been taken necessary to
create a binding obligation on the part of the
Obligor;
(h) the Obligor with respect to such Receivable
is an Eligible Obligor;
(i) such Receivable is not outstanding more than
90 days past the original invoice date with respect
thereto (which date, for all purposes of eligibility,
shall not be later than the shipment date of the goods
giving rise to such Receivable); provided, however,
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that Receivables of Imperial Wallcoverings, Inc. and
Imperial Wallcoverings (Canada), Inc. (not to exceed an
aggregate Adjusted Principal Amount of $12,500,000) may
be outstanding for up to, but not in excess of, 120
days past such original invoice date;
(j) payment with respect to such Receivable, if
by check, has not been returned for insufficient funds;
(k) such Receivable has not been placed with an
attorney for collection;
(l) such Receivable, to the extent it represents
a consumer credit card receivable, conforms to all
federal and state consumer protection laws;
(m) if such Receivable represents a consumer
credit card receivable, the outstanding balance of such
Receivable does not reflect more than two arrearages;
and
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13
(n) such Receivable has such other
characteristics or criteria as the Administrative
Agent, in its reasonable discretion, may specify in
writing to the Company.
"Equipment": as defined in subsection 2.1(c)(i) of the
Receivables Transfer Agreement.
"ERISA": the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate": with respect to any Person, any
trade or business (whether or not incorporated) that is a
member of a group of which such Person is a member and which
is treated as a single employer under Section 414 of the
Code.
"Eurodollar Participating Interest": with respect to
any Bank, that portion of its Participating Interest in the
Receivables with respect to which the Purchase Discount
Amount is determined by reference to the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during
each Transfer Period pertaining to a Fixed Tranche, a rate
per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the product of (a) the Eurodollar Base Rate
in effect for such Transfer Period and (b) Statutory
Reserves. For purposes hereof, (a) if at least two offered
rates for deposits in dollars for a period comparable to the
applicable Transfer Period appear on page 3750 (or any
successor page) of the Dow Jones Telerate Screen as of 11:00
a.m., London time, on the day that is two Business Days
prior to the first day of such Transfer Period, the term
"Eurodollar Base Rate" shall mean the arithmetic mean of all
such offered rates and (b) if fewer than two such offered
rates so appear on page 3750 (or any successor page) of the
Dow Jones Telerate Screen, the term "Eurodollar Base Rate"
shall mean the rate (rounded upwards, if necessary, to the
next 1/16 of 1%) at which dollar deposits approximately
equal in principal amount to Chemical's portion of the
applicable Fixed Tranche and for a period comparable to the
applicable Transfer Period are offered to Chemical's office
in which its relevant eurodollar operations are being
conducted in immediately available funds in the eurodollar
market at approximately 11:00 a.m., New York time, on the
day that is two Business Days prior to the first day of such
Transfer Period.
"Excess Amount": at any time, with respect to any
Obligor, the excess (if any) of (a) the aggregate
outstanding Adjusted Principal Amount of the Eligible
Receivables owing by such Obligor over (b) the Applicable
----
Obligor Percentage of the aggregate outstanding Adjusted
Principal Amount of all Eligible Receivables; provided, that
--------
<PAGE>
14
the Excess Amount of each Obligor shall be deemed to be zero
until the first Settlement Date subsequent to the 270th day
after the Effective Date.
"Excess Application Amount": as defined in subsection
2.12(c) of the Receivables Transfer Agreement.
"Facility Amount": $150,000,000.
"Financial Officer": of any corporation, the chief
financial officer, Senior Vice President-Finance and
Accounting, Vice President-Finance, Controller, or Treasurer
of such corporation.
"Fixed Tranche": a portion of the Net Investment on
which the rate at which the Purchase Discount Amount accrues
is based upon the Eurodollar Rate.
"Floating Tranche": that portion of the Net Investment
not allocated to a Fixed Tranche and the Purchase Discount
Amount in respect of which is based upon the ABR.
"Force Majeure Delay": with respect to any Servicer or
the Master Servicer, any cause or event which is beyond the
control and not due to the negligence of such Servicer or
the Master Servicer, as the case may be, which delays,
prevents or prohibits such Person's delivery of Seller Daily
Reports or Daily Reports and/or Seller Settlement Statements
or Settlement Statements, as the case may be, including,
without limitation, computer, electrical and mechanical
failures, acts of God or the elements and fire; provided
--------
that no such cause or event shall be deemed to be a Force
Majeure Delay unless the affected Servicer or Master
Servicer shall have given the Company and the Administrative
Agent written notice thereof as soon as possible after the
beginning of such delay.
"GAAP": generally accepted accounting principles in
the United States of America as in effect from time to time.
"Governmental Authority": any international, Federal,
state, regional, local or foreign court or governmental
agency, authority, instrumentality or regulatory body.
"Guarantee": of or by any Person, shall mean (a) any
obligation, contingent or otherwise, of such Person guaran-
teeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and including
any obligation of such Person, direct or indirect, (i) to
purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness (whether arising by virtue
of partnership arrangements, by agreement to keep well, to
purchase assets, goods, securities or services, to take-
<PAGE>
15
or-pay or otherwise) or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of
such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness, (iii) to
maintain working capital, equity capital or other financial
statement conditions or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness or
(iv) entered into for the purpose of assuring in any other
manner the holders of such Indebtedness of the payment
thereof or to protect such holders against loss in respect
thereof (in whole or in part), or (b) any Lien on any assets
of such Person securing any Indebtedness of any other
Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the term Guarantee shall not
-------- -------
include endorsements for collection or deposit, in either
case in the ordinary course of business.
"Holdings": Collins & Aikman Corporation, a Delaware
corporation.
"Incipient Purchase Termination Event": any condition
or act specified in Article VII of the Receivables Sale
Agreement that, with the giving of notice or the lapse of
time or both, would become a Purchase Termination Event.
"Increase in Net Investment": for any applicable
Closing Date, the Dollar amount by which the Net Investment
of the Banks is being increased on such Closing Date.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which
is evidenced by a note, bond, debenture or similar
instrument, (c) all Capital Lease Obligations of such
Person, (d) all obligations of such Person in respect of
acceptances issued or created for the account of such
Person, (e) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any
property owned or acquired by such Person even though such
Person has not assumed or otherwise become liable for the
payment thereof, (f) all obligations of such Person in
respect of interest rate protection agreements, foreign
currency exchange agreements or other interest or exchange
rate hedging arrangements and (g) all Guarantees by such
Person of Indebtedness of others. The Indebtedness of any
Person shall include the Indebtedness of any partnership in
which such Person is a general partner; provided that, if
--------
the sole asset of such Person is its general partnership
interest in such partnership, the amount of such
<PAGE>
16
Indebtedness shall be deemed equal to the value of such
general partnership interest and the amount of any
Indebtedness in respect of any Guarantee of such partnership
Indebtedness shall be limited to the same extent as such
Guarantee may be limited.
"Indemnified Liabilities": as defined in subsection
9.3 of the Receivables Sale Agreement.
"Indemnitee": as defined in subsection 11.3 of the
Receivables Transfer Agreement.
"Intermediate Lockbox Account": as defined in
subsection 12.1(b) of the Receivables Transfer Agreement.
"Invested Percentage": a fraction the numerator of
which is Net Investment and the denominator of which is
Aggregate Eligible Receivables.
"Investment Earnings": as defined in subsection
2.7(a)(iii) of the Receivables Transfer Agreement.
"Japanese Obligor": any of Fuji Heavy Industries,
Inc., Toyota Motor Co., Honda Motor Co., Ltd., Toyota Tsusho
Corp., or Kotobakiya Fronte Co., Inc.
"Lien": with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security
interest in or on such asset, (b) the interest of a vendor
or a lessor under any conditional sale agreement, capital
lease or title retention agreement relating to such asset
and (c) in the case of securities, any purchase option, call
or similar right of a third party with respect to such
securities.
"Lockbox Account" means each blocked deposit account
identified by number and name of bank on Schedule 3 to the
Receivables Transfer Agreement, including the box identified
by location and number on such Schedule 3, and any
replacements therefor or additions thereto which are
acceptable to the Administrative Agent.
"Lockbox Agreement" means a lockbox agreement in form
and substance satisfactory to the Administrative Agent, as
the same may be amended, supplemented or otherwise modified
from time to time in accordance with subsection 8.14 of the
Receivables Transfer Agreement.
"Lockbox Bank" means each bank listed on Schedule 3,
and any replacements therefor or additions thereto agreed to
in writing by the Administrative Agent.
<PAGE>
17
"Loss Reserve Ratio": as of any day thereafter, the
percentage equivalent, determined pursuant to the most
recent Settlement Statement, of the product of:
(i) the highest Average Default Ratio during the period
of twelve consecutive fiscal months ended on the last day of
the most recently ended Settlement Period; and
(ii) (A) the aggregate Adjusted Principal Amount of
Receivables generated by the Sellers during the 3.5
preceding Settlement Periods divided by the outstanding
-------
Adjusted Principal Amount of Eligible Receivables as of the
last day of the preceding Settlement Period; and
(iii) 2.0.
"Loss to Liquidation Ratio": a ratio (expressed as a
percentage), as of the last day of any fiscal month, equal
to (a) the difference, if any, between (i) the aggregate
reduction in the outstanding Adjusted Principal Amount of
all Receivables as a result of Write-Offs during the
immediately preceding twelve-fiscal-month period and (ii)
the aggregate amount of Recoveries during such twelve-
fiscal-month period, divided by (b) four times the aggregate
----------
amount of Collections during the immediately preceding
three-fiscal-month period.
"Margin Stock": as defined in Regulation U.
"Master Servicer": C&A Products, in its capacity as
Master Servicer under the Receivables Transfer Agreement.
"Material Adverse Effect": (a) with respect to the
Master Servicer, any Servicer or any Seller, (i) a materi-
ally adverse effect on the business, assets, properties,
operations or financial condition of C&A Products and its
Subsidiaries, taken as a whole, (ii) a material impairment
of the ability of the Master Servicer, any Servicer or any
Seller to perform any of its material obligations under any
Transaction Document to which it is or will be a party or to
consummate the Transactions or the Sale Transactions or
(iii) an impairment of the validity or enforceability of, or
a material impairment of the rights, remedies or benefits
available to the Administrative Agent or the Banks under,
any Transaction Document or (b) with respect to the Company,
(i) a materially adverse effect on the business, assets,
properties, operations or financial condition of the
Company, (ii) a material impairment of the ability of the
Company to perform any of its material obligations under any
Transaction Document to which it is or will be a party or to
consummate the Transactions or the Sale Transactions or
(iii) an impairment of the validity or enforceability of, or
a material impairment of the rights, remedies or benefits
<PAGE>
18
available to the Administrative Agent or the Banks under,
any Transaction Document.
"Maximum Commitment": $150,000,000, as such amount may
be reduced pursuant to subsection 2.10 of the Receivables
Transfer Agreement.
"Maximum Invested Percentage": at a particular date,
100% minus the greater of (a) 17% and (b) the Required
-----
Reserve Percentage.
"Maximum Transfer Amount": at a particular date, the
lesser of (a) the Maximum Commitment at such date and (b)
the product of (i) the Maximum Invested Percentage at such
date and (ii) Aggregate Eligible Receivables (which, for
purposes of this definition, shall not include a Seller from
which the Company has ceased purchasing Receivables pursuant
to subsection 9.15 of the Receivables Sale Agreement and
shall not include, from the date which is 30 days after the
date of any such termination, a Seller with respect to which
the Company has terminated its obligation to acquire
Receivables pursuant to Article VII of the Receivables Sale
Agreement) as of the close of business on the Business Day
preceding such date.
"Monthly Servicing Fee": for each Settlement Period,
the product of (a) the number of days in such period, (b) 1%
and (c) the average daily principal balance of Purchased
Receivables during such period divided by 365.
"Moody's": Moody's Investors Service, Inc. and its
successors.
"Multiemployer Plan": with respect to any Person, a
multiemployer plan as defined in Section 4001(a)(3) of ERISA
to which such Person or any ERISA Affiliate of such Person
(other than one considered an ERISA Affiliate only pursuant
to subsection (m) or (o) of Section 414 of the Code) is
making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Net Investment": at any time, the excess, if any, of
(a) the aggregate of the amount paid by the Banks pursuant
to subsections 2.2 and 2.3 of the Receivables Transfer
Agreement over (b) the aggregate amount of Collections
----
distributed to the Banks in repayment of the Net Investment
pursuant to the Receivables Transfer Agreement.
"Obligor": with respect to any Receivable, the Person
or Persons obligated to make payments with respect to such
Receivable, including any guarantor thereof.
<PAGE>
19
"Overallotment Option": as defined in the Credit
Agreement.
"Partial Servicing Transfer": as defined in subsection
12.2(d) of the Receivables Transfer Agreement.
"Participants": as defined in subsection 11.4(b) of
the Receivables Transfer Agreement.
"Participating Interest": as defined in subsection 2.2
of the Receivables Transfer Agreement.
"Payment Date": as defined in subsection 2.3(a) of the
Receivables Sale Agreement.
"PBGC": the Pension Benefit Guaranty Corporation
referred to and defined in ERISA (or any successor).
"Peak Dilution Ratio": with respect to any Settlement
Period, a fraction (a) the numerator of which is the
aggregate amount of Dilutive Credits which are incurred with
respect to the Receivables during the two-month period ended
on the last day of such Settlement Period and (b) the
denominator of which is the aggregate Adjusted Principal
Amount of Receivables generated by the Sellers during the
two-month period ended on the last day of such Settlement
Period.
"Person": any natural person, corporation, business
trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
"Plan": with respect to any Person, any pension plan
(other than a Multiemployer Plan) subject to the provisions
of Title IV of ERISA or Section 412 of the Code which is
maintained for employees of such Person or any ERISA
Affiliate of such Person.
"Pledge Agreement": the Pledge Agreement referred to
in the Credit Agreement.
"Policies": with respect to any Seller which has set
forth its credit and collection policies in writing, such
written credit and collection policies as they have been
applied by such Seller in the ordinary course of its
business prior to the Effective Date and, with respect to
any Seller which has not set forth its credit and collection
policies in writing, its credit and collection policies as
in effect and applied by such Seller in the ordinary course
of its business prior to the Effective Date, in each case as
the same may be amended, supplemented or otherwise modified
from time to time in accordance with the Receivables
Transfer Agreement and the Receivables Sale Agreement.
<PAGE>
20
"Pooled Property": as defined in subsection 2.1(a) of
the Receivables Transfer Agreement.
"Potential Termination Event": any Termination Event
and any event or condition that upon notice, lapse of time
or both would constitute a Termination Event.
"Preliminary Prospectus": the preliminary prospectus
of Holdings dated June 2, 1994, filed with the Securities
and Exchange Commission in connection with the underwritten
public offering of shares of common stock, par value $.01
per share, of Holdings, as amended or supplemented from time
to time.
"Principal Amount": with respect to any Receivable,
the amount due thereunder (expressed in U.S. Dollars or
Canadian Dollars, as the case may be), net of any available
prompt payment discount, volume discount or other
promotional discount or rebate.
"Purchase Discount Amount": a purchase discount which
(a) accrues to the Banks in respect of the Participating
Interest; (b) is payable in arrears on each Purchase
Discount Amount Payment Date (both prior to and after the
commencement of the Amortization Period) occurring during
the period commencing on the date of the first transfer and
assignment of the Participating Interest in Receivables and
Related Property pursuant to subsection 2.3(a) of the
Receivables Transfer Agreement and ending on the date on
which the Net Investment is equal to zero and the
Commitments of the Banks have terminated; and (c) is
calculated at a rate per annum equal to: (i) in respect of
that portion of the Net Investment allocated to any Fixed
Tranche, the sum of the Eurodollar Rate with respect thereto
plus the Applicable Eurodollar Margin and (ii) in respect of
----
that portion of the Net Investment not allocated to any
Fixed Tranche, the sum of the ABR in effect from time to
time during the period for which payment is made plus the
----
Applicable ABR Margin.
"Purchase Discount Amount Payment Date": (a) as to the
Floating Tranche, each Settlement Date, (b) as to any Fixed
Tranche having a Transfer Period of one, two or three
months, the last day of such Transfer Period, (c) as to any
Fixed Tranche having a Transfer Period longer than three
months, each day which is three months, or a whole multiple
thereof, after the first day of such Transfer Period, and
the last day of such Transfer Period and (d) as to any
Tranche, any date on which the principal portion of the Net
Investment represented thereby is paid, prepaid or is
otherwise due (by mandatory prepayment, acceleration or
otherwise).
<PAGE>
21
"Purchase Price": as defined in subsection 2.2 of the
Receivables Sale Agreement.
"Purchase Termination Event": as defined in Article
VII of the Receivables Sale Agreement.
"Purchased Receivable": any Receivable sold to the
Company by any Seller pursuant to, and in accordance with
the terms of, the Receivables Sale Agreement and not resold
to such Seller pursuant to subsection 2.1(b) or 2.6 thereof.
"Rating Agencies": Moody's and S&P.
"Recapitalization Transactions": as defined in the
Credit Agreement.
"Receivables": the indebtedness and payment
obligations of any Person to a Seller arising from a sale of
merchandise or services by such Seller, including, without
limitation, any right to payment for goods sold or leased or
for services rendered, and including the right of payment of
any interest, sales taxes, finance charges, returned check
or late charges and other obligations of such Person with
respect thereto.
"Receivables Sale Agreement": the Receivables Sale
Agreement, dated as of June 23, 1994, among the Sellers, the
Master Servicer and the Company, as buyer, as amended,
supplemented or otherwise modified from time to time.
"Receivables Transfer Agreement": the Receivables
Transfer and Servicing Agreement, dated as of June 23, 1994,
among the Company, as seller, the Master Servicer, the
Servicers, the Banks and the Administrative Agent, as
amended, supplemented or otherwise modified from time to
time.
"Recoveries": amounts collected in respect of
Defaulted Receivables.
"Reduction Date": as defined in subsection 2.11(b) of
the Receivables Transfer Agreement.
"Register": as defined in subsection 11.4(e) of the
Receivables Transfer Agreement.
"Regulation G, T, U or X": Regulation G, T, U or X,
respectively, of the Board as from time to time in effect
and all official rulings and interpretations thereunder or
thereof.
"Related Property": as defined in subsection
2.1(a)(iv) of the Receivables Transfer Agreement.
<PAGE>
22
"Replacement Facility": as defined in subsection 12.6
of the Receivables Transfer Agreement.
"Reportable Event": any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued
thereunder with respect to a Plan (other than a Plan
maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code).
"Reporting Day": as defined in subsection 12.5 of the
Receivables Transfer Agreement.
"Repurchase Amount": as defined in subsection 2.6 of
the Receivables Sale Agreement.
"Repurchase Event": as defined in subsection 2.6 of
the Receivables Sale Agreement.
"Required Banks": Banks having Commitment Percentages
the sum of which, in the aggregate, is equal to or exceeds
51%.
"Required Reserve Percentage": as of any day, the sum,
expressed as a percentage, of (a) the Loss Reserve Ratio,
(b) the Dilution Reserve Ratio, (c) the Yield Reserve Ratio
and (d) the Servicing Reserve Ratio.
"Requirement of Law": as to any Person, any law,
treaty, rule or regulation or determination of an arbitrator
or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is
subject.
"Responsible Officer": with respect to any Person, the
chief executive officer, the president, any senior vice
president or any vice president of such Person or, with
respect to financial matters, the chief financial officer,
Senior Vice President-Finance and Accounting, Vice
President-Finance, Controller, or Treasurer of such Person.
"Restricted Payments": as defined in subsection 8.7 of
the Receivables Transfer Agreement.
"Retransfer Payment": as defined in subsection 5.3(b)
of the Receivables Transfer Agreement.
"S&P": Standard & Poor's Ratings Group and its
successors.
"Sale Documents": the Receivables Sale Agreement, the
Subordinated Notes and the Subordination Agreement.
<PAGE>
23
"Sale Termination Date": as defined in subsection
9.15(b) of the Receivables Sale Agreement.
"Sale Transactions": as defined in subsection 4.1(b)
of the Receivables Sale Agreement.
"Scheduled Termination Date": the seventh anniversary
of the Effective Date.
"Seller Addition Date": as defined in subsection 3.4
of the Receivables Sale Agreement.
"Seller Adjustment Payment": as defined in subsection
2.5 of the Receivables Sale Agreement.
"Seller Daily Report": as defined in subsection
12.5(a) of the Receivables Transfer Agreement.
"Seller Repurchase Payment": as defined in subsection
2.6 of the Receivables Sale Agreement.
"Seller Settlement Statement": as defined in
subsection 12.5(b) of the Receivables Transfer Agreement.
"Sellers": as defined in the preamble to the
Receivables Sale Agreement.
"Servicer Default": any Servicer Event of Default and
any event or condition that upon notice, lapse of time or
both would constitute a Servicer Event of Default.
"Servicer Event of Default": as defined in subsection
12.12 of the Receivables Transfer Agreement.
"Servicer Transfer Payment": as defined in subsection
12.7 of the Receivables Transfer Agreement.
"Servicers": each Seller party to the Receivables
Transfer Agreement in its capacity as a servicer (excluding
any such Sellers which have been terminated as Servicers in
accordance with the provisions of the Receivables Transfer
Agreement) together with any other Person which has been
added as a Servicer in accordance with the provisions of the
Receivables Transfer Agreement, in their capacities as
servicers under the Receivables Transfer Agreement.
"Servicing Reserve Percentage": as of any day, 0.5%.
"Settlement Date": with respect to any fiscal month,
the day that is 22 calendar days following the last day of
such fiscal month (or if such 22nd calendar day is not a
Business Day, the next succeeding Business Day).
"Settlement Period": each fiscal month.
<PAGE>
24
"Settlement Statement": as defined in subsection
12.5(b) of the Receivables Transfer Agreement.
"Settlement Statement Date": with respect to any
fiscal month for which a Settlement Statement is required to
be prepared, the day that is 20 calendar days following the
last day of such fiscal month (or, if such 20th calendar day
is not a Business Day, the next succeeding Business Day).
"Single Employer Plan": any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Statutory Reserves": a fraction (expressed as a
decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate
of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a
decimal established by the Board and any other banking
authority to which the Administrative Agent is subject (a)
with respect to the Base CD Rate (as such term is used in
the definition of "ABR"), for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities
approximately equal to three months, and (b) with respect to
the Eurodollar Rate, for Eurocurrency Liabilities (as
defined in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such
Regulation D. Fixed Tranches shall be deemed to constitute
Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration,
exemptions or offsets which may be available from time to
time to any Bank under such Regulation D. Statutory
Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Subordinated Notes": as defined in subsection 8.1 of
the Receivables Sale Agreement.
"Subordination Agreement": the Subordination
Agreement, dated as of June 23, 1994 among the Sellers, the
Master Servicer, the Company and the Administrative Agent,
as amended, supplemented or otherwise modified from time to
time.
"Subsequent Financing Party": as defined in subsection
9.4 of the Receivables Sale Agreement.
"Subsidiary": with respect to any Person (herein
referred to as the "parent"), any corporation, partnership,
association or other business entity (a) of which securities
or other ownership interests representing more than 50% of
the equity or more than 50% of the ordinary voting power or
more than 50% of the general partnership interests are, at
the time any determination is being made, owned, controlled
or held, or (b) which is, at the time any determination is
<PAGE>
25
made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Substitute Servicer": as defined in subsection
12.2(d) of the Receivables Transfer Agreement.
"Termination Event": as defined in Article IX of the
Receivables Transfer Agreement.
"Tranches": the collective reference to the Floating
Tranche and the Fixed Tranches.
"Transaction Documents": the Receivables Transfer
Agreement, the Receivables Sale Agreement, the Subordination
Agreement and the Lockbox Agreements.
"Transaction Parties": the Company, the Master
Servicer, the Sellers and the Servicers.
"Transactions": as defined in subsection 5.1(b) of the
Receivables Transfer Agreement.
"Transfer Notice": as defined in subsection 12.2(d) of
the Receivables Transfer Agreement.
"Transfer Period": with respect to any portion of the
Net Investment allocated to a Fixed Tranche:
(a) initially, the period commencing on the
Closing Date or conversion date, as the case may be,
with respect to such Fixed Tranche and ending one, two,
three or six months thereafter, as selected by the
Company in its notice of Closing Date or notice of
conversion, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the
last day of the next preceding Transfer Period
applicable to such Fixed Tranche and ending one, two,
three or six months thereafter, as selected by the
Company by irrevocable notice to the Administrative
Agent not less than three Business Days prior to the
last day of the then current Transfer Period with
respect thereto;
provided that, all of the foregoing provisions relating to
--------
Transfer Periods are subject to the following:
(1) if any Transfer Period would otherwise end on
a day that is not a Business Day, such Transfer Period
shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry
such Transfer Period into another calendar month in
<PAGE>
26
which event such Transfer Period shall end on the
immediately preceding Business Day;
(2) any Transfer Period that would otherwise
extend beyond the Scheduled Termination Date shall end
on the Scheduled Termination Date; and
(3) any Transfer Period that begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the
calendar month at the end of such Transfer Period)
shall end on the last Business Day of a calendar month.
"Transferee": as defined in subsection 11.4(g) of the
Receivables Transfer Agreement.
"Transferred Agreement": as defined in subsection
2.1(b) of the Receivables Transfer Agreement.
"Transferring Servicer": as defined in subsection
12.2(d) of the Receivables Transfer Agreement.
"U.S. Concentration Account": as defined in subsection
2.7(a) of the Receivables Transfer Agreement.
"U.S. Dollar Subordinated Note": as defined in
subsection 8.1 of the Receivables Sale Agreement.
"Withdrawal Liability": liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan, as such terms are defined in Part I
of Subtitle E of Title IV of ERISA.
"Write-Offs": with respect to any Seller, for any
period, the aggregate amount of Receivables that are written
off during such period as uncollectible in accordance with
the Company Policies.
"Yield Reserve Ratio": as of any day, the amount as of
such day obtained by dividing (a) the product of (i) 1.75,
--------
(ii) Days Sales Outstanding as of the Settlement Date
immediately preceding such day and (iii) the Discount Rate
in effect as of the Settlement Date immediately preceding
such day by (b) 360.
LOGO
Collins & Aikman Corporation
1994 EXECUTIVE INCENTIVE
COMPENSATION PLAN
June 17, 1994
<PAGE>
Collins & Aikman Corporation
1994 EXECUTIVE INCENTIVE COMPENSATION PLAN
ARTICLE 1. Introduction: Plan Summary and Objectives
------------------------------------------------------
1.1 Plan Summary. The Collins & Aikman Corporation (the
"Company") 1994 Executive Incentive Compensation Plan (the
"Plan") establishes the annual (fiscal year) bonus program
for key employees ("Participants") who are in a position to
have an impact on the attainment of the goals of the
Company, and the Company's operating divisions. The Plan
provides for substantial awards to Participants whose unit
meets or exceeds the specified performance goal.
The bonuses of Participants in the 1994 Plan will be based
primarily on one financial measure: Earnings Before Interest and
Taxes ("EBIT") of the Participant's unit. Threshold, Target and
Maximum performance goals will be established for this financial
measure. These goals shall be associated, respectively, with
lowest, expected and maximum bonus levels for each measure.
Awards are determined by assigning each Participant a "Target
Bonus" or expected bonus level that is equal to a specified
percent of base salary. The bonus actually paid to the
Participant will be based on the extent to which the performance
of his or her unit meets or exceeds the predetermined goals, and
on the Participant's performance relative to other Plan
Participants. The maximum bonus payable shall be equal to 225%
of the Target Bonus.
1.2 Plan Objectives. The Plan objectives are:
a. to motivate key employees to achieve and exceed the
specified financial objectives,
b. to maintain management's focus on the importance of
earnings,
c. to encourage management to balance the longer term needs of
the business with shorter term requirements, and
d. to attract and retain the quality and quantity of key
employees required to successfully manage the Company's
business.
ARTICLE 2. Plan Definitions
----------------------------
2.1 "Base Salary" means the annual base rate of pay, exclusive
-----------
of bonuses, long term incentive awards, benefits, car
allowances, awards under this Plan and any other non-salary
items, as in effect for a Participant on the last day of the
calendar year ending in the Plan Year for which an incentive
award is made.
1
<PAGE>
2.2 "Board" means the Board of Directors of the Company.
-----
2.3 "Cause" means
-----
a. fraud, misappropriation or gross misconduct with respect to
any business of the Company or an affiliate of the Company
or intentional material damage to any property or business,
or the reputation, of the Company or an affiliate of the
Company,
b. willful failure by a Participant to perform his/her duties
and responsibilities and to carry out his/her authority,
c. willful malfeasance or misfeasance or breach of duty or
representation to the Company or an affiliate of the
Company,
d. willful failure to act in accordance with any specific
lawful instructions of a majority of the Board of Directors
of the Company, or breach of any written agreement between
Participant and the Company or an affiliate of the Company,
or
e. conviction of a Participant of a felony.
2.4 "Committee" shall mean the Compensation Committee of the
---------
Board of Directors of the Company or any parent company,
whose members are determined and appointed by the Board or
by the Board of Directors of any parent company in their
sole discretion.
2.5 "Company" shall mean Collins & Aikman Corporation.
-------
2.6 "Division" means an operating division of the Company for
--------
which EBIT performance goals are established and approved by
the Committee and the President and CEO.
2.7 "Earnings Before Interest and Taxes" ("EBIT") means earnings
----------------------------------
before interest and taxes (including imputed interest and
taxes) as determined by the Company in accordance with
generally accepted accounting principles.
2.8 "Effective Date" means January 30, 1994.
--------------
2.9 "Maximum Performance Goal" means the highest level of
------------------------
performance specified for the EBIT financial measure.
Performance at (and above) this level is associated with the
maximum level of bonus payouts for each measure.
2.10 "Participant" means a key executive or staff person
-----------
designated as being eligible for an award under the Plan.
2
<PAGE>
2.11 "Plan Year" means the 1994 fiscal year ending January 28,
---------
1995.
2.12 "Target Bonus" means a specified percentage of a
------------
Participant's Base Salary as determined pursuant to the
provisions of the Plan.
2.13 "Target Performance Goal" is the expected level of
-----------------------
performance established for the EBIT financial performance
measure based on the Company's and, where applicable,
Division's budget and other considerations. This level of
performance is associated with the Target Bonus level of
bonus payouts.
2.14 "Threshold Performance Goal" is the lowest acceptable level
--------------------------
of performance specified for the EBIT financial performance
measure. This level of performance is associated with the
lowest level of bonus payouts.
ARTICLE 3. Eligible Executives
------------------------------
3.1 Eligible Executives. Key executives and staff of the
Company and Divisions are eligible to be named Participants
in the Plan for the Plan Year. Generally, only those
executives and staff whose potential contributions are
deemed to be important to the success of the Company or
Division in achieving its objectives will be designated as
Participants. The designation of eligible executives shall
be the responsibility of the Vice President - Human
Resources and President and CEO of the Company. See Article
5 regarding Participant selection.
ARTICLE 4. Setting Performance Goals
--------------------------------------
4.1 Budgets and Performance Goals
The annual budget of the Company shall form the initial basis for
setting financial performance goals.
Threshold, Target and Maximum EBIT Performance Goals will be
established for the Company and each Division. Threshold and
Maximum goals may or may not be pre-determined based on a fixed
percent of the Target goal.
The final determination of goals shall be subject to the approval
of the Committee, in their sole discretion.
4.2 Performance Goal Setting Process
a. Performance Goal Recommendations: Upon finalization of
---------------------------------
the Company's budget, the President and CEO shall
submit recommended Threshold, Target and Maximum EBIT
Performance Goals and any interim goals.
3
<PAGE>
b. Performance Goal Approval: Final approval of the
--------------------------
performance goals shall be the responsibility of the
Committee. It is contemplated that such goals, once
set, will not change for any reason during the fiscal
year. The Committee may, in its sole discretion, alter
or amend these goals if deemed necessary or
appropriate.
ARTICLE 5. Selecting Plan Participants; Assigning Target Bonuses
----------------------------------------------------------------
5.1 Participant Selection.
The President and CEO and each Division head (as
appropriate) shall recommend as a Plan Participant any
executive or key employee whose potential contributions to
his/her unit's performance are considered important to the
success of their unit. Such recommendations are subject to
the Plan and the final approval of the Vice President -
Human Resources and President and CEO.
a. Eligible Group. The group of eligible employees
---------------
shall include, but not be limited to, senior
executives and their direct reports at the Company
staff level, Division heads and senior management of
the Divisions and their direct reports. Key
employees below these levels may be included.
b. Approval. No employee shall become a participant in
---------
the Plan, nor shall Plan participation be discussed
with an employee, until approval is received in writing
from the Vice President - Human Resources.
5.2 Assignment of Target Bonuses
a. Target Bonus Guidelines The Vice President - Human
-----------------------
Resources and the President and CEO have the
responsibility to assign and recommend a Target Bonus
for each Participant. The recommended Target Bonus,
will take into account the Participant's: a) position
relative to those of other Participants, b) anticipated
contribution to the organization's performance and c)
external competitive bonus rates for similar positions
in similar industries.
b. Target Bonus Changes. From time to time, due primarily
--------------------
to changes in position, it may be necessary to modify
an assigned Target Bonus. The Vice President - Human
Resources and President and CEO shall have the
authority to make such modifications subject to the
terms of this Plan.
4
<PAGE>
5.3 Communication of Performance Goals, Participant Eligibility and
Target Bonuses
The Vice President - Human Resources has the responsibility
to communicate to each Participant his or her unit's
performance goals, Participant eligibility and Participant
Target Bonus, provided: a) the necessary approvals have been
obtained before any communication takes place, b) any
communication regarding the Target Bonus, written or
otherwise, is fully consistent with this Plan, c) it is
clear that the recommendation for program participation and
bonus eligibility is not a guarantee of payment or amount,
and d) a Participant be provided a copy of this Plan upon
request.
ARTICLE 6. Granting Participant Bonuses
----------------------------------------
6.1 Introduction
Bonuses based on EBIT performance will be paid only if the
Participant's unit (i.e., Division or Company, as appropriate)
hits its EBIT Threshold. It is not necessary for the Company to
achieve its EBIT threshold for a Division to receive a bonus
based on EBIT.
All bonuses are subject to the final approval of the Committee.
6.2 EBIT Bonus Calculation. When the EBIT bonus is determined,
it is calculated as a percent of the Target Bonus per the
following schedule:
Company/Division EBIT
Performance Level Achieved: Threshold Target Maximum
--------- ------ -------
Payout as a % of Target Bonus 50% 100% 225%
In addition, the Committee may establish interim EBIT performance
levels. Straight line interpolation is used between Threshold
and Target, between Target and Maximum, and between any interim
EBIT performance levels (if established) to determine the
calculated payout.
6.3 Bonus Recommendations, Approvals and Distribution
a. Bonus Recommendations. The President & CEO shall, as soon as
---------------------
possible following the determination of year-end results,
submit to the Committee a list of recommendations for all
Plan Participants for actual bonus awards. In determining
bonus awards, the President and CEO may, in his sole
discretion, use other factors -- such as cash flow, etc. -- in
determining the level of achievement of the financial
performance measure. Where a recommended award is different
than a calculated award, the variance should be noted.
5
<PAGE>
In arriving at the recommended awards, the Vice President -
Human Resources shall work with each Division head in
considering the Participants' Target Bonus levels, the
calculated awards based on actual EBIT performance, and the
Participants' relative contributions to the unit's
performance. The Division head has, therefore, the
discretion to modify individual calculated awards to account
for different performance levels. If one individual's award
is modified upward, however, other awards have to be
adjusted downward such that the net change of all
modifications is $0. In other words, the sum of all awards
---
calculated must stay the same regardless of any changes in
individual awards.
----------
Subject to the other provisions hereof, in no event shall a
Participant who is eligible for a calculated award have
his/her award reduced below 75% of the award as calculated.
Recommendations for Company staff shall normally be based
entirely on the actual performance of the Company as a
whole.
b. Final Approval. The Committee shall have final approval of
---------------
Company and Division operating results to be used in bonus
calculations and the timing, and amount of all bonus
payments.
c. Bonus Distribution. Final approval by the Committee shall
------------------
authorize the President and CEO to make bonus grants as
approved. The Vice President - Human Resources shall effect
the payment of the bonus as soon as is administratively
practicable once the bonuses are approved.
ARTICLE 7. Plan Administration
--------------------------------
7.1 Administrative Responsibilities
a. Overall Plan administration shall be the responsibility of
the Committee who shall have absolute and final discretion
regarding interpretation of Plan and sole authority to make
all decisions with respect to Plan.
b. The Committee shall have the authority to, at their
discretion, approve all performance goals, actual
performance results, recommended bonuses, Plan
interpretations and modifications and to take any and all
other actions at any time they deem necessary or appropriate
for the administration of the Plan.
c. Responsibility for plan implementation and operation has
been delegated by the Committee to the President and CEO and
the Vice President - Human Resources who shall have the
responsibility for:
1. approving Participant rosters and Participant Target
Bonuses,
2. ensuring that performance goals are submitted, reviewed
and approved on a timely basis;
6
<PAGE>
3. ensuring that year-end results and recommended bonuses
for all eligible Participants are submitted, reviewed
and approved on a timely basis; and
4. maintaining appropriate records with respect to
performance goals, eligible Participants, Target
Bonuses, actual awards, all necessary written approvals
and other records as appropriate.
7.2 Award Payments
a. Payment of awards shall be made on or before April 1 of
the year immediately following the year for which the
performance goals have been set.
b. In the event of a change of assignment or transfer that
would result in a change of Target Bonus during the course
of the year, the participant's bonus calculation shall be
determined by mutual agreement with the Division head, the
President and CEO and the Vice President - Human Resources.
c. If a person is not on the payroll at the end of the fiscal
year, a bonus will not be paid regardless of length of
service or reason for termination except as noted herein.
Exceptions may be made by the Vice President - Human
Resources and the President and CEO in their sole discretion
for terminations prior to the end of the fiscal year due to
death, total and permanent disability (as defined by the
applicable disability plan(s)), and Early or Normal
Retirement (as defined by the applicable retirement
plan(s)). An exception may also be made for employees on
approved leaves of absence. A pro rata bonus based on the
executive's contributions to his/her objectives may be
payable under these circumstances. In the event of the
death of a Participant, the Participant's beneficiaries
shall be entitled to the awards, if any, to which the
Participant would have otherwise been entitled.
An additional exception may be made in the event of the sale
of a unit. In such cases, the Committee may, in its sole
discretion, award discretionary bonuses based on performance
to date. The sale of a unit does not necessarily entitle a
Plan participant to a bonus under this Plan.
d. A former Plan Participant who is not on the payroll when
awards are distributed (approximately April 1) but who was
on the payroll at the end of the fiscal year, shall
generally be entitled to a bonus, subject to the terms of
this Plan.
e. An employee discharged for Cause, as defined above, shall
forfeit any and all rights to a bonus under this Plan, even
if the employee is on the payroll at the end of the fiscal
year.
7
<PAGE>
7.3 General Provisions
a. The Plan is intended to constitute an "unfunded" plan for
the incentive compensation of a select group of key
management employees of the Company and its Divisions.
b. Neither the Plan nor any action taken under the Plan shall
be construed as:
1) giving any employee any right to be retained in the
employ of the Company, or Division.
2) affecting the right of the above-mentioned entities to
terminate the employment of any individual at any
time for any reason; or
3) interfering with the rights created under any separate
written employment or severance agreement.
c. Should the provisions of a Participant's employment contract
not be consistent with the provisions of the Plan, the
provisions of the employment contract shall control.
d. The Committee may alter, amend or terminate the Plan at any
time or from time to time.
e. Neither the Board nor the Committee, nor the Company nor any
Division, nor any officers, directors or employees shall
have any liability to any Participant (or his/her
beneficiaries) under the Plan or otherwise on account of any
action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations
of such entities notwithstanding the fact that any such
action or inaction in any way whatsoever may adversely
affect the value of any awards, rights or benefits of a
Participant (or his/her beneficiaries) under the Plan.
Unless the Participant specifies otherwise in writing to the
Committee, beneficiaries, for the purposes of this Plan,
shall mean the beneficiaries identified by the Participant
for his/her qualified pension or retirement plan(s).
f. The Plan and all actions taken pursuant to the Plan shall be
governed by, and construed in accordance with, the internal
laws of the State of New York.
g. The invalidity or unenforceability of any one or more
provisions of the Plan shall not affect the validity or
enforceability of any other provisions of the Plan, which
shall remain in full force and effect.
h. Correspondence regarding this Plan should be sent to the
Vice President - Human Resources, Collins & Aikman
Corporation, Post Office Box 32665, Charlotte, NC 28232.
8
EXHIBIT 11
COLLINS & AIKMAN HOLDINGS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE><CAPTION>
FISCAL YEAR ENDED
----------------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Shares outstanding.................................................... 35,035 35,035 35,035
------------ ------------ ------------
------------ ------------ ------------
Shares issued upon exercise of options
1993 Plan........................................................... 3,036 3,036 3,036
1994 Plan........................................................... 170 170 170
------------ ------------ ------------
3,206 3,206 3,206
------------ ------------ ------------
------------ ------------ ------------
Proceeds from exercise of options
1993 Plan........................................................... $ 13,875 $ 13,875 $ 13,875
1994 Plan........................................................... 937 937 937
------------ ------------ ------------
14,812 14,812 14,812
------------ ------------ ------------
Applicable compensation expense:
1993 Plan........................................................... 26,736 26,736 26,736
1994 Plan........................................................... 1,608 1,608 1,608
------------ ------------ ------------
28,344 28,344 28,344
------------ ------------ ------------
Amount available to buy back shares................................... $ 43,156 $ 43,156 $ 43,156
------------ ------------ ------------
------------ ------------ ------------
Per share price.................................................... $ 13.00 $ 13.00 $ 13.00
------------ ------------ ------------
------------ ------------ ------------
Shares repurchased under Treasury Stock Method...................... (3,320) (3,320) (3,320)
------------ ------------ ------------
Decrease in total shares.............................................. (114) (114) (114)
------------ ------------ ------------
Total shares for EPS............................................. 34,921 34,921 34,921
------------ ------------ ------------
------------ ------------ ------------
Loss Applicable to Common Shareholders
Continuing operations(1)............................................ $ (197,048) $ (64,189) $ (89,143)
Discontinued operations............................................. (104,339) (218,317) (16,365)
Extraordinary items................................................. -- -- (1,793)
Cumulative effect of accounting change.............................. -- -- (42,316)
------------ ------------ ------------
Net Loss......................................................... $ (301,387) $ (282,506) $ (149,617)
------------ ------------ ------------
------------ ------------ ------------
Loss Per Common Share
Continuing operations............................................... $ (5.64) $ (1.84) $ (2.55)
Discontinued operations............................................. (2.99) (6.25) (.47)
Extraordinary item.................................................. -- -- (.05)
Cumulative effect of accounting change.............................. -- -- (1.21)
------------ ------------ ------------
Net Loss......................................................... $ (8.63) $ (8.09) $ (4.28)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ---------------
Notes:
(1) Loss from continuing operations has been adjusted for dividends and
accretion requirements on redeemable preferred stock of $23,723, $18,848 and
$15,807 for fiscal years 1993, 1992 and 1991 respectively.
(2) Primary and fully diluted earnings per share are the same in each year since
the per share price ($13.00) is applicable to both calculations in each
year.
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN & CO.
Charlotte, North Carolina,
June 27, 1994.
EXHIBIT 99
VOTING AGREEMENT, dated as of June 29,
1994, between BLACKSTONE CAPITAL PARTNERS
L.P., a Delaware limited partnership ("BCP"),
and WASSERSTEIN PERELLA PARTNERS, L.P., a
Delaware limited partnership ("WPP").
WHEREAS BCP, WPP, Collins & Aikman Corporation
(the "Company") and Collins & Aikman Group, Inc. have
entered into an Amended and Restated Stockholders Agreement
dated as of the date hereof (the "Amended and Restated
Stockholders Agreement"); and
WHEREAS BCP and WPP deem it in their best
interests to enter into this Agreement to further set forth
their respective rights and obligations to each other with
respect to the shares of Common Stock of the Company owned
by them.
NOW THEREFORE, in consideration of the premises
and the covenants and agreements contained herein, the
parties hereto agree as follow:
ARTICLE I
Definitions
-----------
SECTION 1.01. Certain Definitions. Definitions
--------------------
used herein but not defined shall have the meanings given
such terms in the Amended and Restated Stockholders
Agreement.
ARTICLE II
Voting
------
SECTION 2.01. Compliance With the Terms Hereof.
---------------------------------
During the term of this Agreement, each of BCP and WPP shall
vote all shares of Common Stock (including shares of Common
Stock hereafter acquired) owned or controlled by it, or by
any of its Affiliates over which it exercises control
(collectively, "Controlled Shares"), at any regular or
special meeting of stockholders of the Company or, to the
extent permitted by the Certificate of Incorporation of the
Company and By-laws of the Company (the "Charter
Documents"), in any written consent executed in lieu of such
<PAGE>
2
a meeting of stockholders, and each of BCP and WPP shall
take all further actions necessary to give effect to the
provisions of this Agreement including ensuring that the
Charter Documents do not at any time conflict with the
provisions of this Agreement.
SECTION 2.02. Certificate of Incorporation; By-
---------------------------------
laws; Directors. (a) During the term of this Agreement the
----------------
Board of Directors of the Company shall consist of nine and
only nine directors, plus any additional directors to which
holders of any class of preferred stock of the Company
become entitled to elect pursuant to the terms of such
preferred stock.
(b) Pursuant to the Charter Documents, the Board
of Directors of the Company is divided into three classes.
BCP and WPP agree to vote or cause to be voted their
respective Controlled Shares of Common Stock, and shall take
all other actions necessary, to ensure that the Board of
Directors of the Company shall consist of the following
members as soon as practicable following the
Recapitalization: (A) Stephen A. Schwarzman, Bruce
Wasserstein and the Chief Executive Officer nominee, Thomas
E. Hannah, in the case of Class I, (B) James R. Birle,
W. Townsend Ziebold, Jr. and a person who meets the New York
Stock Exchange requirements with respect to independent
directors (an "Independent Nominee"), in the case of
Class II, and (C) David A. Stockman, Randall J. Weisenburger
and another Independent Nominee, in the case of Class III.
Each such director in Class I shall serve for an initial
term ending on the date of the Annual Meeting of
stockholders (the "Annual Meeting") held in 1995, each such
director in Class II shall serve for an initial term ending
on the date of the Annual Meeting held in 1996 and each such
director in Class III shall serve for an initial term ending
on the date of the Annual Meeting held in 1997.
SECTION 2.03. Obligation to Vote. During the
-------------------
term of this Agreement, each of BCP and WPP (the "first
party") shall vote or cause to be voted its respective
Controlled Shares in any election of members of the Board of
Directors of the Company for all nominees who are affiliated
with the other party or with any Transferee of the other
party (as the term Transferee is defined in Section 3.01),
provided that the number of nominees who are affiliated with
the other party or any Transferee of the other party,
together with the number of incumbent directors not up for
election who are affiliated with the other party or any
Transferee of the other party, does not exceed the lesser of
<PAGE>
3
(i) the maximum number of directors affiliated with the
other party that were members of the Board of Directors at
any one time and (ii) the maximum number of director seats
with respect to which the other party and any Transferee of
the other party have Voting Rights after a transfer pursuant
to Section 3.01 (the lesser of (i) and (ii) being referred
to as the "Maximum Number"). BCP or WPP shall have no
obligation to vote or cause to be voted any shares of Common
Stock for any nominee affiliated with the other party
pursuant to this Section 2.03 at any time that either:
(x) the other party, together with its Affiliates,
owns or controls the votes with respect to an amount of
Common Stock that is less than both (i) 25% of the
amount of Common Stock owned or controlled by the first
party, together with its Affiliates, and (ii) 4% of the
amount of Common Stock then issued and outstanding, or
(y) the other party or any Transferee of the other
party or any Affiliate of either thereof (or any person
acting with any of the foregoing as a group, within the
meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934) has submitted a proposal to stockholders
that, if successful, would result in the number of
incumbent directors that either (i) are affiliated with
such other party or Transferee or, without duplication,
(ii) were elected as a result of a stockholder proposal
of such other party or Transferee, exceeding in the
aggregate the Maximum Number.
BCP or WPP shall have no obligation to vote or cause to be
voted any shares of Common Stock for any Transferee of the
other party pursuant to this Section 2.03 at any time that
either:
(x) such Transferee, together with its Affiliates,
owns or controls the votes with respect to an amount of
Common Stock that is less than both (i) 25% of the
amount of Common Stock owned or controlled by the first
party, together with its Affiliates, and (ii) 4% of the
amount of Common Stock then issued and outstanding, or
(y) the other party or any Transferee of the other
party or any Affiliate of either thereof (or any person
acting with any of the foregoing as a group, within the
meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934) has submitted a proposal to stockholders
that, if successful, would result in the number of
incumbent directors that either (i) are affiliated with
<PAGE>
4
such other party or Transfereee or, without
duplication, (ii) were elected as a result of a
stockholder proposal of such other party or Transferee,
exceeding in the aggregate the Maximum Number.
The obligation to vote set forth in this Section 2.03 shall
apply to any election of members of the Board of Directors
of the Company, regardless of whether the nominees
affiliated with any party (or any Transferee) were nominated
by the Nominating Committee of the Board of Directors of the
Company or by a stockholder pursuant to any then-applicable
provisions with respect to nominations of persons as
directors of the Company.
ARTICLE III
Assignment
----------
SECTION 3.01. Assignment. The right of each of
-----------
BCP and WPP to have the other party to this Agreement vote
for its affiliated nominees pursuant to Section 2.03 hereof
(the "Voting Rights") shall not be transferable to any third
party other than to an Affiliate of BCP or WPP,
respectively, to whom Common Stock is transferred in
compliance with Section 2.04 of the Amended and Restated
Stockholders Agreement; provided, however, that if BCP or
-------- -------
WPP (in such capacity, the "Transferor") at a time that it,
together with its Affiliates, owns or controls shares of
Common Stock representing more than 50% of the shares of
Common Stock owned or controlled by it, together with its
Affiliates, immediately following the Recapitalization
(through the date that is five days after the last day on
which over-allotment options can be exercised) sells shares
of Common Stock to a third party (the "Transferee") and in
connection with such sale a director affiliated with the
Transferor resigns, then the Transferor may assign to the
Transferee Voting Rights with respect to the remaining
director seats filled by affiliates of the Transferor
immediately prior to the sale, such that the Transferor and
the Transferee, collectively, have immediately after the
sale Voting Rights with respect to one fewer nominee than
the Transferor had immediately prior to the sale, provided,
--------
further, however, that the Transferee shall, prior to such
------- -------
transfer, agree in writing, in form and substance reasonably
satisfactory to the non-transferring party, to be bound by
the obligations of this Agreement (as if such Transferee
were the transferring party) and fully comply with the
provisions of this Agreement with respect to the voting of
<PAGE>
5
any Common Stock owned or controlled by such Transferee, or
by any of its Affiliates over which it exercises control (as
if such Transferee were the transferring party).
ARTICLE IV
Miscellaneous
-------------
SECTION 4.01. Amendment. Except as otherwise
----------
expressly provided herein, this Agreement may not be
amended, modified or supplemented and no waivers of or
consents to departures from the provisions hereof may be
given unless agreed to in writing by the parties hereto.
SECTION 4.02. Successors; Assigns. The terms and
--------------------
conditions of this Agreement shall be binding on and inure
to the benefit of the respective successors and permitted
assigns (such assignment pursuant to Article III hereof) of
the parties hereto.
SECTION 4.03. Counterparts. This Agreement may
-------------
be executed by the parties hereto in any number of
counterparts, each of which shall be deemed to be an
original, but all of which shall together constitute one and
the same instrument.
SECTION 4.04. Severability. The invalidity,
-------------
illegality or unenforceability of any provision of this
Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement or such provision in any
other jurisdiction, it being the intent of the parties
hereto that all rights and obligations of the parties hereto
under this Agreement shall be enforceable to the fullest
extent permitted by law.
SECTION 4.05. Headings. The section headings
---------
herein are for convenience of reference only and in no way
define, limit or extend the scope or intent of this
Agreement or any provisions hereof.
SECTION 4.06. Applicable Law. The laws of the
---------------
State of Delaware shall govern this Agreement, regardless of
the laws that might be applied under applicable principles
of conflicts of laws.
<PAGE>
6
SECTION 4.07. Term of the Agreement. This
----------------------
Agreement shall become effective only upon consummation of
the Recapitalization and shall expire 10 years after the
date hereof unless extended by the parties hereto.
SECTION 4.08. No Third-Party Beneficiaries. This
-----------------------------
Agreement is intended to be solely for the benefit of the
parties hereto and their respective successors and permitted
assigns (such assignment being pursuant to Article III
hereof) and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 4.09. Specific Performance. Each party
---------------------
hereto acknowledges that its failure to comply with the
provisions of this Agreement will result in irreparable and
continuing damage to the other party hereto for which there
will be no adequate remedies at law and that, in the event
of a failure of a party hereto to comply with the terms of
this Agreement, the other party hereto shall be entitled to
injunctive relief, without the necessity of proving actual
damages and without being required to post a bond or other
security, and to such other and further relief as may be
<PAGE>
7
proper and necessary to ensure compliance with the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year first above
written.
BLACKSTONE CAPITAL PARTNERS, L.P.,
by BLACKSTONE MANAGEMENT
PARTNERS, L.P., its general partner,
by
----------------------------
Name:
Title:
WASSERSTEIN PERELLA PARTNERS, L.P.,
by WASSERSTEIN PERELLA MANAGEMENT
PARTNERS, INC., its general partner,
by
----------------------------
Name:
Title:
<PAGE>
APPENDIX A
GRAPHIC AND IMAGE MATERIALS
Photographic material, see inside front and
back covers for narrative description.