SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 27, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from________to_______
Commission File Number 1-10218
COLLINS & AIKMAN CORPORATION
A Delaware Corporation (IRS Employer Identification
No. 13-3489233)
701 McCullough Drive
Charlotte, North Carolina 28262
Telephone (704) 547-8500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
As of May 10, 1999, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,932,264 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
QUARTER ENDED
----------------------------
MARCH 27, MARCH 28,
1999 1998
---------- ----------
<S> <C> <C>
Net sales..................................................... $ 478,337 $ 478,140
---------- ----------
Cost of goods sold............................................ 407,749 399,408
Selling, general and administrative expenses.................. 40,755 39,219
---------- ----------
448,504 438,627
---------- ----------
Operating income.............................................. 29,833 39,513
Interest expense, net......................................... 21,815 20,479
Loss on sale of receivables................................... 1,311 1,624
Other expense................................................. 2,177 240
---------- ----------
Income before income taxes.................................... 4,530 17,170
Income taxes.................................................. 2,214 8,492
---------- ----------
Income before cumulative effect of a change in
accounting principle........................................ 2,316 8,678
Cumulative effect of change in accounting principle,
net of income taxes of $5,083............................... (8,850) -
---------- ----------
Net income (loss)............................................. $ (6,534) $ 8,678
========== ==========
Net income (loss) per basic and diluted common share:
Income before cumulative effect of a change
in accounting principle................................... $ 0.04 $ 0.13
Cumulative effect of a change in
accounting principle...................................... (0.14) -
---------- ----------
Net income (loss)........................................... $ (0.10) $ 0.13
========== ==========
Average common shares outstanding:
Basic....................................................... 61,992 65,701
========== ==========
Diluted..................................................... 62,351 66,571
========== ==========
</TABLE>
1-1
<PAGE>
<TABLE>
<CAPTION>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 27, DECEMBER 26,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 34,475 $ 23,755
Accounts and other receivables, net.................. 250,119 237,645
Inventories.......................................... 141,706 152,840
Other................................................ 93,721 96,156
------------- ------------
Total current assets............................... 520,021 510,396
Property, plant and equipment, net..................... 440,193 447,121
Deferred tax assets.................................... 76,971 70,632
Goodwill, net.......................................... 261,275 264,138
Other assets........................................... 87,621 89,924
------------- ------------
$ 1,386,081 $ 1,382,211
============= ============
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings................................ $ 12,940 $ 10,954
Current maturities of long-term debt................. 20,451 19,942
Accounts payable..................................... 156,642 169,808
Accrued expenses..................................... 169,883 143,302
------------- ------------
Total current liabilities.......................... 359,916 344,006
Long-term debt......................................... 851,681 846,107
Other, including post retirement benefit obligation.... 275,272 271,869
Commitments and contingencies..........................
Common stock (150,000 shares authorized, 70,521 shares
issued and 61,932 shares outstanding at March 27,
1999 and 70,521 shares issued and 62,182 outstanding
at December 26, 1998)................................ 705 705
Other paid-in capital.................................. 585,284 585,401
Accumulated deficit.................................... (593,431) (580,666)
Accumulated other comprehensive loss................... (30,329) (23,427)
Treasury stock, at cost (8,589 shares at March 27, 1999
and 8,339 shares at December 26, 1998)............... (63,017) (61,784)
------------- ------------
Total common stockholders' deficit................. (100,788) (79,771)
------------- ------------
$ 1,386,081 $ 1,382,211
============= ============
</TABLE>
1-2
<PAGE>
<TABLE>
<CAPTION>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
QUARTER ENDED
--------------------------
MARCH 27, MARCH 28,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations..................... $ 2,316 $ 8,678
Adjustments to derive cash flow from continuing
operating activities:
Deferred income tax expense (benefit)............. (1,193) 4,298
Depreciation and leasehold amortization........... 14,167 14,220
Amortization of goodwill.......................... 1,749 1,773
Amortization of other assets...................... 1,316 1,844
Decrease in accounts and notes receivable......... (20,775) (6,839)
Increase (decrease) in inventories................ 11,134 (8,929)
Increase (decrease) in accounts payable........... (13,166) 1,949
Increase in interest payable...................... 14,131 13,544
Other, net........................................ 1,885 (7,391)
------------ ------------
Net cash provided by continuing operating
activities.................................. 11,564 23,147
------------ ------------
Cash used in Wallcoverings discontinued operations.... - (15,052)
Cash used in other discontinued operations............ (1,683) (3,001)
------------ ------------
Net cash used in discontinued operations........ (1,683) (18,053)
------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment............ (12,534) (26,732)
Sales of property, plant and equipment................ 2,441 3,738
Proceeds from disposition of discontinued
operations.......................................... - 71,200
Acquisition of businesses, net of cash acquired....... - (19,236)
Other, net............................................ 2,074 (2,109)
------------ ------------
Net cash provided by (used in) investing
activities.................................. (8,019) 26,861
------------ ------------
FINANCING ACTIVITIES
Repayment of long-term debt........................... (4,589) (20,688)
Proceeds from (reduction of) participating interest
in accounts receivable.............................. 8,300 (1,000)
Net borrowings (repayments) on revolving credit
facilities.......................................... 9,500 (10,000)
Increase (decrease) on short-term borrowings.......... 2,151 (7,023)
Purchase of treasury stock, net....................... (1,233) (2,064)
Dividends paid........................................ (6,193) -
Other, net............................................ 922 (318)
------------ ------------
Net cash provided by (used in) financing
activities.................................. 8,858 (41,093)
------------ ------------
Net increase (decrease) in cash and cash equivalents.. 10,720 (9,138)
Cash and cash equivalents at beginning of period...... 23,755 24,004
------------ ------------
Cash and cash equivalents at end of period............ $ 34,475 $ 14,866
============ ============
</TABLE>
1-3
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION:
Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman
Holdings Corporation) is a Delaware corporation. As of March 27, 1999,
Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella
Partners L.P. ("WP Partners") and their respective affiliates collectively own
approximately 87% of the common stock of the Company (the "Common Stock").
The Company conducts all of its operating activities through its
wholly-owned Collins & Aikman Products Co. ("C&A Products") subsidiary.
B. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. In the opinion of management, the accompanying
condensed consolidated financial statements reflect all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of
financial position and results of operations. Certain prior year items have been
reclassified to conform with the fiscal 1999 presentation. Results of operations
for interim periods are not necessarily indicative of results for the full year.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Collins & Aikman Corporation Annual Report
on Form 10-K for the fiscal year ended December 26, 1998.
C. ACQUISITIONS:
The Company entered into a joint venture agreement to manufacture
plastic trim products in the United Kingdom with Kigass Automotive Group
("Kigass") in October 1997 in which the Company and Kigass each owned 50% of the
joint venture. The Company acquired Kigass on February 2, 1998. The purchase
price for the acquisition was approximately $25.2 million. Kigass has been
renamed Collins & Aikman Plastics (UK) Limited ("C&A Plastics UK"). Under the
terms of the purchase agreement, the Company assumed effective control of C&A
Plastics UK on January 1, 1998. Goodwill resulting from the acquisition was
approximately $15.0 million.
D. INTEREST RATE AND FOREIGN CURRENCY PROTECTION PROGRAMS:
During April 1997, the Company entered into a two year interest rate
swap agreement in which the Company effectively exchanged $27 million of 11-1/2%
fixed rate debt for floating rate debt at six month LIBOR plus a 4.72% margin.
In connection with this swap agreement, the Company also limited its interest
rate exposure on $27 million of notional principal amount by entering into an
8.50% cap on LIBOR. Payments to be received, if any, as a result of these
agreements are accrued as an adjustment to interest expense. During the quarters
ended March 27, 1999 and March 28, 1998, this agreement resulted in reductions
in interest expense of approximately $102 thousand and $65 thousand,
respectively. These agreements expired in April, 1999.
The primary purpose of the Company's foreign currency hedging activities
is to protect against the volatility associated with intercompany funding
arrangements, third party loans and foreign currency purchase and sale
transactions. The Company's policies prescribe the range of allowable hedging
activity. The Company primarily utilizes forward exchange contracts and
purchased options with durations of generally less than 12 months. The Company
has in place forward exchange contracts denominated in multiple currencies that
will mature during fiscal 1999. These contracts, which aggregated a U.S. dollar
equivalent of $114.2 million at March 27, 1999, are to manage the currency
volatility associated with purchase and sale transactions. The fair value of
these contracts approximated the contract value at March 27, 1999.
During 1998 and 1999, the Company purchased option contracts with a
notional amount of $85.4 million, giving the Company the right to purchase U.S.
dollars for use by its Canadian operations. These contracts expire periodically
through 1999. The premium associated with these contracts of approximately $1.5
million is being amortized over the contracts' terms.
1-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
E. INVENTORIES:
Inventory balances are summarized below (in thousands):
March 27, December 26,
1999 1998
--------- ---------
Raw materials.................. $ 72,074 $ 79,285
Work in process................ 29,210 32,408
Finished goods................. 40,422 41,147
--------- ---------
$ 141,706 $ 152,840
========= =========
F. GOODWILL
Goodwill, representing the excess of purchase price over the fair value
of net assets of the acquired entities, is being amortized on a straight-line
basis over a period of forty years. Amortization of goodwill applicable to
continuing operations was $1.7 million and $1.8 million for the quarters ended
March 27, 1999 and March 28, 1998, respectively. Accumulated amortization at
March 27, 1999 was $19.6 million. The carrying value of goodwill at an
enterprise level is reviewed periodically based on the non-discounted cash flows
and pretax income of the entities acquired over the remaining amortization
periods. Should this review indicate that the goodwill balance will not be
recoverable, the Company's carrying value of the goodwill will be reduced. At
March 27, 1999, the Company believes the recorded value of its goodwill of
$261.3 million is fully recoverable.
G. LONG-TERM DEBT:
On May 28, 1998, the Company entered into new credit facilities
consisting of: (i) a senior secured term loan facility in the principal amount
of $100 million payable in quarterly installments until final maturity on
December 31, 2003 (the "Term Loan A Facility"); (ii) a senior secured term loan
facility in the principal amount of $125 million payable in quarterly
installments until final maturity on June 30, 2005 (the "Term Loan B Facility"
and, together with the Term Loan A Facility, the "Term Loan Facilities") and
(iii) a senior secured revolving credit facility in an aggregate principal
amount of up to $250 million terminating on December 31, 2003, of which $60
million (or the equivalent thereof in Canadian dollars) is available to two of
the Company's Canadian subsidiaries ("the Canadian Borrowers") and of which up
to $50 million is available as a letter of credit facility (the "Revolving
Credit Facility", and together with the Term Loan Facilities, the "Credit
Agreement Facilities"). In addition, the Credit Agreement Facilities include a
provision for a Term Loan C credit facility (the "Term Loan C Facility") of up
to $150 million in loan borrowings having amortization and interest rate terms
to be agreed upon between the Company and the applicable lenders who may supply
commitments at such time as the Term Loan C Facility may be utilized. The
Company has received a commitment, subject to certain conditions, to utilize the
Term Loan C Facility for a principal amount of $100 million. The proceeds from
the Term Loan C Facility are expected to be used to reduce outstanding amounts
under the Revolving Credit Facility and for general corporate purposes,
including payment of a special dividend to shareholders of approximately $44
million, or $0.71 per share, after the Term Loan C Facility closes. Contingent
upon such closing, the Company's Board of Directors is expected to declare the
dividend, which would be payable in late May.
At March 27, 1999, the Company had outstanding $96.3 million on the Term
Loan A Facility, $125.0 million on the Term Loan B Facility and $154.9 million
under the Revolving Credit Facility (including $58.9 million borrowed by the
Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
covenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities and
are generally similar to the covenants and ratios contained in the Company's
previous bank credit facilities. Effective March 8, 1999, the Company, in view
of the decreased sales of automotive fabrics and the General Motors strike which
occurred in June and July 1998, obtained an amendment to the Credit Agreement
Facilities primarily in order to modify the covenants relating to interest
coverage and leverage ratios. The amendment resulted generally in an increase in
the interest rates charged under the Credit Agreement Facilities. The amendment
increased the Company's effective borrowing rate under the Credit Agreement
Facilities by 0.58% at March 27, 1999.
1-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility, as amended March 8, 1999,
bears interest at a per annum rate equal to the Company's choice of (i) The
Chase Manhattan Bank's ("Chase's") Alternate Base Rate (which is the highest of
Chase's announced prime rate, the Federal Funds Rate plus .5% and Chase's base
certificate of deposit rate plus 1.00%) plus a margin (the "ABR/Canadian Prime
Rate Margin") ranging from .25% to 1.25% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as
selected by the Company, plus a margin (the "LIBOR/BA Margin") ranging from
1.25% to 2.25%. Margins, which are subject to adjustment based on changes in the
Company's ratio of funded debt to EBITDA (i.e., earnings before interest, taxes,
depreciation, amortization and other non-cash charges) were 2.25% and 1.25% in
the case of the the LIBOR/BA Margin and the ABR/Canadian Prime Rate Margin,
respectively, on March 27, 1999. Canadian-dollar denominated indebtedness
incurred by the Canadian Borrowers under the Revolving Credit Facility bears
interest at a per annum rate equal to the Canadian Borrowers' choice of (i) the
Canadian Prime Rate (which is the greater of Chase's prime rate for Canadian
dollar-denominated loans in Canada and the Canadian dollar-denominated one month
bankers' acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate Margin or
(ii) the bill of exchange rate ("Bankers' Acceptance" or "BA") denominated in
Canadian dollars for one, two, three or six months plus the LIBOR/BA Margin.
Indebtedness under the Term Loan B Facility as amended March 8, 1999 bears
interest at a per annum rate equal to the Company's choice of (i) Chase's
Alternate Base Rate (as described above) plus a margin ranging from 1.25% to
1.75% (the "Tranche B ABR Margin") or (ii) LIBOR of one, two, three, or six
months, as selected by the Company, plus a margin ranging from 2.25% to 2.75%
(the "Tranche B LIBOR Margin"). The Tranche B ABR Margin and the Tranche B LIBOR
Margin were 1.75% and 2.75%, respectively, at March 27, 1999. The Company
currently estimates that the Term Loan C Facility will bear interest at LIBOR
plus 3.25%.
In addition, under the Credit Agreement Facilities, C&A Products is
generally prohibited from paying dividends or making other distributions to the
Company except to the extent necessary to allow the Company to (w) pay taxes and
ordinary expenses, (x) make permitted repurchases of shares or options, (y) make
permitted investments in finance, foreign or acquired subsidiaries and (z) pay
permitted dividends. The Company is permitted to pay dividends and repurchase
shares of the Company (i) in any fiscal year in an aggregate amount up to $12
million and (ii) if certain financial ratios are satisfied, for the period from
April 28, 1996 through the last day of the Company's most recently ended fiscal
quarter in an aggregate amount equal to 50% of the Company's cumulative
consolidated net income for that period and, in addition, is permitted to pay
dividends and repurchase shares in amounts representing net proceeds from the
sale of the Company's Imperial Wallcoverings, Inc., subsidiary
("Wallcoverings"). The Company's obligations under the Credit Agreement
Facilities are secured by a pledge of stock of C&A Products and its significant
subsidiaries and certain intercompany indebtedness.
At March 27, 1999, the scheduled maturities of long-term debt are as
follows (in thousands):
Remainder of fiscal year 1999 $ 15,650
Fiscal year 2000 23,875
Fiscal year 2001 113,167
Fiscal year 2002 28,889
Fiscal year 2003 24,300
Later years 666,251
--------
$872,132
========
1-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
H. FACILITY CLOSING COSTS:
In connection with the acquisition of JPS Automotive L.P. ("JPS
Automotive"), the Company has eliminated certain redundant sales and
administrative functions and closed one manufacturing facility in 1997, a second
facility in January 1998, and a third facility in June 1998. The Company is
currently in the process of relocating certain manufacturing processes from a
JPS Automotive facility to an existing C&A Products facility.
These actions affected approximately 640 employees. Total costs accrued
for the shutdown of facilities and severance and other personnel costs were $2.7
million and $7.7 million, respectively.
The components of the reserves for the relocation and facility closures,
which are expected to be completed during the third quarter of fiscal 1999, are
as follows (in thousands):
<TABLE>
<CAPTION>
Original Changes In Remaining
Reserve Reserve Reserve
------------ -------------- ------------
<S> <C> <C> <C>
Anticipated expenditures to close and dispose of
idled facilities............................... $ 2,746 $ (2,746) $ -
Anticipated severance benefits.................... 7,655 (6,508) 1,147
------------ -------------- ------------
$ 10,401 $ (9,254) $ 1,147
============ ============== ============
</TABLE>
I. DISCONTINUED OPERATIONS:
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners for a purchase price of $71.9 million and an
option for 6.7% of the common stock of the purchaser (which includes
Wallcoverings and the former wallcovering and vinyl units of Borden, Inc.)
outstanding as of the closing date. The proceeds were used to repay long-term
debt. In connection with the sale, the Company recorded a loss of approximately
$21.1 million, net of an estimated income tax benefit in the third quarter of
1997 to adjust the recorded value to the expected proceeds. Accordingly, no gain
or loss was recognized at the sale date.
Losses incurred by Wallcoverings from April 1996 (the date of
Wallcoverings' discontinuance) to the date of sale were charged to the Company's
existing discontinued operations reserves. The Wallcoverings operating losses
were in excess of management's forecasted expectations as of the date of
discontinuance but within previously established accruals.
J. RELATED PARTY TRANSACTIONS:
Under the Amended and Restated Stockholders' Agreement among the
Company, C&A Products, Blackstone Partners and WP Partners, the Company pays
Blackstone Partners and WP Partners, or their respective affiliates, each an
annual monitoring fee of $1.0 million, which is payable quarterly.
On March 13, 1998, the Company completed the sale of Wallcoverings to an
affiliate of Blackstone Partners. See Note I. The Company incurred fees and
expenses for services performed by WP Partners, or its affiliates, in connection
with the sale of Wallcoverings, totaling approximately $0.7 million.
K. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
The Company's continuing operations primarily supply automotive interior
systems - textile and plastic trim, acoustics and convertible top systems - to
the global automotive industry.
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North America
Automotive Interior Systems, to be headquartered in the Detroit metro area, and
Europe Automotive Interior Systems, to be headquartered in Germany. As part of
the Reorganization, the Company also established the Specialty Automotive
Products division, which includes the Company's automotive fabrics and Dura
Convertible Systems businesses. The
1-7
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Company's reportable segments reflect these newly established divisions.
Financial data for all periods has been presented on this basis. North America
Automotive Interior Systems and Europe Automotive Interior Systems include the
following product groups: molded floor carpet, luggage compartment trim,
acoustical products, accessory floormats and plastic-based interior systems. The
Specialty Automotive Products division includes automotive fabrics and
convertible top systems. The three divisions also produce other automotive and
non-automotive products.
The Company evaluates performance based on profit or loss from
operations before interest expense, foreign exchange gains and loses, loss on
sale of receivables, other income and expense, and income taxes.
Information about the Company's divisions is presented below (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended March 27, 1999
-----------------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive Other
Interior Systems Interior Systems Products (a) Total
---------------- ---------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
External revenues................ $ 283,612 $ 81,867 $ 112,858 $ - $ 478,337
Inter-segment revenues........... 22,760 7,283 8,772 - 38,815
Depreciation and amortization.... 9,271 3,944 3,768 249 17,232
Operating income (loss).......... 18,744 884 10,947 (742) 29,833
Total assets..................... 782,468 258,936 263,344 81,333 1,386,081
Capital expenditures............. 7,050 3,144 1,282 1,058 12,534
<CAPTION>
Quarter Ended March 28, 1998
-----------------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive Other
Interior Systems Interior Systems Products (a) Total
---------------- ---------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
External revenues................ $ 273,269 $ 85,914 $ 118,957 $ - $ 478,140
Inter-segment revenues........... 23,235 5,742 8,640 - 37,617
Depreciation and amortization.... 8,791 4,699 3,793 554 17,837
Operating income................. 27,263 2,501 9,501 248 39,513
Total assets..................... 763,381 235,625 285,815 37,386 1,322,207
Capital expenditures............. 13,484 4,340 5,662 3,246 26,732
</TABLE>
(a) Other includes the Company's discontinued operations and non-operating
units.
Sales for the Company's primary product groups are as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
March 27, March 28,
1999 1998
--------------- -------------
<S> <C> <C>
Molded floor carpet........................................ $ 114,162 $ 105,352
Luggage compartment trim................................... 24,084 25,829
Acoustical products........................................ 56,008 53,699
Accessory floormats........................................ 39,965 39,606
Plastic-based interior trim systems........................ 101,122 108,877
Automotive fabrics......................................... 64,998 73,116
Convertible top systems.................................... 33,428 30,830
Other...................................................... 44,570 40,831
--------------- -------------
Total...................................................... $ 478,337 $ 478,140
=============== =============
</TABLE>
1-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company performs periodic credit evaluations of its customers'
financial condition and, although the Company does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days, and credit losses have
consistently been within management's expectations and are provided for in the
consolidated financial statements.
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
Quarter Ended
---------------------
March 27, March 28,
1999 1998
--------- ---------
General Motors Corporation...................... 31.4% 31.8%
Ford Motor Company.............................. 18.6% 13.5%
DaimlerChrysler A.G............................. 18.8% 17.6%
Information about the Company's continuing operations in different
geographic areas is presented below (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 27, 1999 Quarter Ended March 28, 1998
---------------------------- ----------------------------
Long-Lived Long-Lived
Net Sales Assets Net Sales Assets
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
United States................... $ 271,899 $ 443,948 $ 274,423 $ 437,895
Canada.......................... 94,764 189,979 95,399 186,381
Mexico.......................... 29,807 16,834 22,404 15,024
United Kingdom.................. 32,552 59,401 38,424 54,349
Other (a)....................... 49,315 78,927 47,490 76,801
----------- ----------- ---------- ------------
Consolidated.................... $ 478,337 $ 789,089 $ 478,140 $ 770,450
=========== =========== ========== ============
</TABLE>
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and the
Netherlands.
L. COMMITMENTS AND CONTINGENCIES:
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." 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 results of operations.
See also "PART I - FINANCIAL INFORMATION, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
C&A Products has assigned leases related to real and personal property
of divested businesses. Although C&A Products has obtained releases from the
lessors of certain of these properties, C&A Products remains contingently liable
under most of the leases. C&A Products' 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 results of
operations.
1-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
M. COMMON STOCKHOLDERS' DEFICIT:
Total comprehensive income (loss) for the quarters ended March 27, 1999
and March 28, 1998 was $(13.4) million and $13.1 million, respectively. Activity
in the common stockholders' deficit since December 26, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated
Current Year Other Other
Comprehensive Accumulated Comprehensive Common Paid-in Treasury
Income(Loss) Total Deficit Loss Stock Capital Stock
------------ --------- --------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26,
1998..................... $ (79,771) $ (580,666) $ (23,427) $ 705 $585,401 $ (61,784)
Comprehensive income (loss):
Net income................ $ (6,534) (6,534) (6,534) - - - -
Other comprehensive
income, net of tax:
Foreign currency
translations adjustments. (6,916) (6,916) - (6,916) - - -
Pension equity adjustment.. 14 14 - 14 - - -
----------
$ (13,436)
==========
Purchase of treasury stock
(285 shares)............... (1,554) - - - - (1,554)
Exercise of stock options
(35 shares)................ 166 (38) - - (117) 321
Dividend...................... (6,193) (6,193) - - - -
--------- ---------- --------- ------ -------- ---------
Balance at March 27, 1999...... $(100,788) $ (593,431) $ (30,329) $ 705 $585,284 $ (63,017)
========= ========== ========= ====== ======== =========
</TABLE>
The accumulated balances and current period activity for each component
of Accumulated Other Comprehensive Loss are as follows (in thousands):
<TABLE>
Foreign Currency Pension Accumulated Other
Translation Equity Comprehensive
Adjustments Adjustment Loss
------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance at December 26, 1998................. $ (21,554) $ (1,873) $ (23,427)
Current period change........................ (6,916) 14 (6,902)
------------------- ------------------- ------------------
Balance at March 27, 1999.................... $ (28,470) $ (1,859) $ (30,329)
=================== =================== ===================
</TABLE>
On February 10, 1999, the Company declared a special dividend of
approximately $6.2 million, representing $0.10 per share on all outstanding
shares of common stock held by stockholders of record as of the close of
business on February 22, 1999. The dividend was paid on March 1, 1999. The
dividend reduced the amount authorized by the Company's Board of Directors for
the Company's 1999 share repurchase program from $25 million to approximately
$19 million.
N. SIGNIFICANT SUBSIDIARY:
The Company conducts all of its operating activities through its
wholly-owned subsidiary, C&A Products. The following represents summarized
consolidated financial information of C&A Products and its subsidiaries for the
following periods (in thousands):
For the Quarter Ended
-----------------------
March 27, March 28,
1999 1998
--------- ----------
Net sales................................... $ 478,337 $ 478,140
Gross margin................................ 70,588 77,222
Income from continuing operations........... 2,475 8,510
Net income (loss)........................... (6,375) 8,510
1-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 27, December 26,
1999 1998
----------- ------------
Current assets.............................. $ 520,017 $ 510,303
Noncurrent assets........................... 866,040 871,815
Current liabilities......................... 359,916 343,807
Noncurrent liabilities...................... 1,124,371 1,115,394
Separate financial statements of C&A Products are not presented because
they would not be material to the holders of any debt securities of C&A Products
that have been or may be issued, there being no material differences between the
financial statements of C&A Products and the Company. The absence of separate
financial statements of C&A Products is also based upon the fact that any debt
of C&A Products issued, and the assumption that any debt to be issued, under the
Registration Statement on Form S-3 filed by the Company and C&A Products
(Registration No. 33-62665) is or will be fully and unconditionally guaranteed
by the Company.
O. NEWLY ISSUED ACCOUNTING STANDARDS:
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
provides guidance on the accounting for the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998 and should be applied to
internal-use computer software costs incurred in those fiscal years for all
projects, including those projects in progress upon initial application. The
Company adopted SOP 98-1 on December 27, 1998. The adoption of this standard did
not have a material impact on its consolidated financial position or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires that all non-governmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. The Company adopted SOP 98-5 on
December 27, 1998. The initial impact of adopting SOP 98-5 resulted in a charge
of approximately $8.8 million, net of income taxes of $5.1 million, which has
been reflected as a cumulative effect of a change in accounting principle in the
accompanying consolidated statement of operations for the quarter ended March
27, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results of the hedged item in the income statement, and
requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement SFAS No. 133 as of the beginning of any
fiscal quarter after issuance. SFAS No. 133 cannot be applied retroactively. The
Company is currently analyzing the impact of adoption of SFAS No. 133. The
adoption of SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
1-11
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
NEW CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On April 22, 1999, the Company announced that the Company's Board of
Directors had elected Thomas E. Evans as the Company's new Chief Executive
Officer. Mr. Evans replaces Thomas E. Hannah, who is retiring from the Company.
Mr. Evans was also elected a director and Chairman of the Company's Board of
Directors, replacing David A. Stockman, Senior Managing Director of The
Blackstone Group, and Bruce R. Barnes, Managing Director of Wasserstein Perella
& Co., Inc. Mr. Stockman and Mr. Barnes previously served as Co-Chairmen of the
Company and will continue to serve as directors. Mr. Evans, 48 years old, was
formerly President of Tenneco Automotive, a subsidiary of Tenneco, Inc. Prior to
that, Mr. Evans held several management positions, the last being Senior Vice
President of Operations, at Case Corporation, another subsidiary of Tenneco,
Inc.
DIVIDEND
On March 1, 1999, the Company paid a special dividend of approximately
$6.2 million, representing $0.10 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on February 22,
1999. The dividend reduced the amount authorized by the Company's Board of
Directors for the Company's 1999 share repurchase program from $25 million to
approximately $19 million. The Company anticipates that another special dividend
will be paid in late May as described below.
TERM LOAN C FACILITY
The Company has received a commitment, subject to certain conditions,
from its lenders to fund a senior term loan facility in the principal amount of
$100 million payable in quarterly installments through 2005 (the "Term Loan C
Facility") and expects to close on the facility during May 1999. The Term Loan C
Facility was provided for, but not committed to, in the Company's renegotiated
credit facilities obtained in May 1998. The Company anticipates using a portion
of the proceeds to pay a special dividend of approximately $44 million, or $0.71
per share, expected to be declared by the Company's Board of Directors once the
Term Loan C Facility closes. The dividend would be payable in late May. The
remaining proceeds of the Term Loan C Facility are expected to be used to repay
amounts outstanding under the Company's revolving credit facility and for
general corporate purposes.
REORGANIZATION
On February 10, 1999, the Company announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses into two divisions: North America
Automotive Interior Systems, to be headquartered in the Detroit metro area, and
Europe Automotive Interior Systems, to be headquartered in Germany. The
Reorganization is designed to enable the Company to more effectively respond to
the automotive manufacturers' demand for interior trim systems and more
sophisticated components. As part of the Reorganization, the Company also
established the Specialty Automotive Products division, which includes the
Company's automotive fabrics and convertible systems businesses.
The Company had previously announced that it anticipated incurring a
restructuring charge of approximately $8 to $9 million in the first quarter of
fiscal 1999. However, in connection with the change in the Company's Chief
Executive Officer and the Company's operating results in the first quarter, the
Company has delayed certain aspects of the Reorganization. Mr. Evans is in the
process of reviewing the Reorganization plan with the executive management of
the Company. The Company currently expects to take the previously anticipated
restructuring charge before the end of the 1999 fiscal year. The amount of the
restructuring charge has not been finalized and may exceed the Company's
original estimates.
GENERAL
The Company is a global supplier of automotive interior systems,
including textile and plastic trim, acoustics and convertible top systems.
The automotive supply industry in which the Company operates is cyclical
and is influenced by the level of North American and European vehicle
production. Management believes the long-term trends in the design and
manufacture of automotive products include increased use of plastic components,
increased sourcing of interior systems and
1-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
increased reliance of automotive manufacturers on fewer suppliers, utilizing
primarily those suppliers who can provide comprehensive engineering and design
capabilities. The Company anticipates the reduction in the supply chain could
result in integration whereby the complete interior of an automobile is
co-designed and developed by suppliers who will also manufacture, deliver and
potentially install interior systems. As a result of these trends, the Company
has initiated the Reorganization discussed above.
RESULTS OF OPERATIONS
The Company operates three divisions, with seven primary product lines.
Certain prior year product line sales data has been reclassified to conform with
reporting of the Company's three divisions created in the Reorganization. For
additional information regarding the Company's divisions, see Note K to the
Company's condensed consolidated financial statements.
THE DIVISIONS
NORTH AMERICA AUTOMOTIVE INTERIOR SYSTEMS
NET SALES: Net sales for the North America Automotive Interior Systems division
increased 3.8% to $283.6 million in the first quarter of 1999, up $10.3 million
from the first quarter of 1998. This increase is partly due to the Company's
acquisition of the remaining 50% interest in Industrias Enjema, S.A. de C.V.
("Enjema"), a carpet systems manufacturer located in Mexico, in August 1998.
Enjema generated sales of $1.6 million during the first quarter of 1999. Sales
for the division's product lines are discussed below:
MOLDED FLOOR CARPET: Molded floor carpet sales for the division
increased 6.0% to $101.3 million in the first quarter of 1999, up $5.8 million
from the first quarter of 1998. The sales increase is due primarily to higher
sales to the Acura TL, Dodge Durango and Ford Explorer models, offset by
decreased sales to the Honda Accord. In addition, Enjema contributed $1.2
million to the sales increase.
ACOUSTICAL PRODUCTS: Acoustical products sales for the division
increased 24.6% to $28.3 million in the first quarter of 1999, up $5.6 million
from the first quarter of 1998. This increase is due primarily to higher sales
to the Ford Windstar, Chrysler Breeze/Cirrus and Mercedes M-Class sport utility
vehicle, offset by lower sales to the Ford Escort/Tracer.
LUGGAGE COMPARTMENT TRIM: Luggage compartment trim sales for the
division decreased 25.0% to $14.5 million in the first quarter of 1999, down
$4.8 million from the first quarter of 1998. The decrease is due primarily to
lower sales to the Chrysler Breeze/Cirrus and the Cadillac Seville, offset by
increased sales to the Dodge Durango.
ACCESSORY FLOORMATS: Accessory floormat sales for the division decreased
11.1% to $35.2 million in the first quarter of 1999, down $4.4 million from the
first quarter of 1998. The decrease is due primarily to lower sales to the Dodge
Neon, Honda Accord and Subaru Legacy, offset by increased sales to the Volvo
S80.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: Plastic-based interior trim sales
for the division increased 4.1% to $80.6 million in the first quarter of 1999,
up $3.2 million from the first quarter of 1998. The increase is due primarily to
increased sales to the General Motors Sierra/Silverado and Oldsmobile Alero,
offset by decreased sales to the General Motors CK Truck.
OTHER: The North America Automotive Interior Systems division had sales
of other automotive and non-automotive products of $23.6 million and $18.6
million in the quarters ended March 27, 1999 and March 28, 1998, respectively.
OPERATING INCOME: Operating income for the division decreased 31.2% to $18.7
million in the first quarter of 1999, down $8.5 million from the first quarter
of 1998. The decrease is due primarily to changes in sales mix and price
discounts at several of the division's operations and product launch costs at
the division's plastics operations. As a percentage of sales, operating margins
were 6.6% and 10.0% in the first quarters of 1999 and 1998, respectively.
1-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
EUROPE AUTOMOTIVE INTERIOR SYSTEMS
NET SALES: Net sales for the Europe Automotive Interior Systems division
decreased 4.7% to $81.9 million in the first quarter of 1999, down $4.0 million
from the first quarter of 1998. The decrease is primarily due to decreased sales
of plastic-based interior trim systems and acoustical products to Rover and Ford
in the United Kingdom. This decrease was offset by increased sales generated
from the Company's June 1998 acquisition of Collins & Aikman Automotive
Floormats Europe, B.V. ("C&A Floormats Europe", formerly named Pepers Beheer,
B.V.), an automotive accessory floormats manufacturer located in the
Netherlands, which generated sales of $4.8 million in the first quarter of 1999.
Sales for the division's product lines are discussed below:
MOLDED FLOOR CARPET: Molded floor carpet sales for the division
increased 31.0% to $12.8 million in the first quarter of 1999, up $3.0 million
from the first quarter of 1998. The increase is due primarily to increased sales
to Rover and Chrysler, offset by decreased sales to the Chrysler Voyager minivan
and the Toyota Avensis/Carina.
ACOUSTICAL PRODUCTS: Acoustical product sales for the division decreased
10.6% to $27.7 million in the first quarter of 1999, down $3.3 million from the
first quarter of 1998. The decrease is due primarily to decreased sales on
several Ford and Rover models in the United Kingdom. Management currently
expects sales to Ford and Rover to continue at decreased levels for the
remainder of fiscal 1999.
LUGGAGE COMPARTMENT TRIM: Luggage compartment trim sales for the
division increased 48.1% to $9.5 million in the first quarter of 1999, up $3.1
million from the first quarter of 1998. The increase is due primarily to
increased sales to Volvo in Belgium.
ACCESSORY FLOORMATS: C&A Floormats Europe, acquired in June 1998,
generated sales of $4.8 million in the first quarter of 1999. The Company did
not have accessory floormat operations in Europe prior to the acquisition of C&A
Floormats Europe.
PLASTIC-BASED INTERIOR TRIM SYSTEMS: Plastic-based interior trim systems
sales for the division decreased 34.8% to $20.1 million in the first quarter of
1999, down $11.0 million from the first quarter of 1998. The decrease is due
primarily to decreased sales to Ford and Rover in the United Kingdom. Management
currently expects sales to Ford and Rover to continue at decreased levels for
the remainder of fiscal 1999.
OTHER: The division had sales of other automotive and non-automotive
products of $6.5 million and $7.2 million in the first quarters of 1999 and
1998, respectively.
OPERATING INCOME: Operating income for the division decreased to $0.9 million in
the first quarter of 1999, from $2.5 million in the first quarter of 1998. As a
percentage of sales, operating margin was 1.1% and 2.9% for the first quarters
of 1999 and 1998, respectively. The decrease is due primarily to unfavorable
manufacturing variances resulting from decreased sales volumes principally at
the division's operations located in the United Kingdom. In addition, selling,
general and administrative expenses increased in the first quarter of 1999 due
to costs associated with systems upgrades and Year 2000 compliance efforts.
SPECIALTY AUTOMOTIVE PRODUCTS
NET SALES: Net sales for the Specialty Automotive Products division decreased
5.1% to $112.9 million in the first quarter of 1999, down $6.1 million from the
first quarter of 1998. The decrease is primarily due to lower automotive fabrics
sales. Sales for the division's product lines are discussed below:
AUTOMOTIVE FABRICS: Automotive fabrics sales (including seat fabric
("bodycloth") and headliner fabric) decreased 11.1% to $65.0 million in the
first quarter of 1999, down $8.1 million from the first quarter of 1998. The
decrease is due primarily to the continued demand for leather seating
applications, which management does not expect to abate for the forseeable
future. In addition, the division experienced decreased sales to the General
Motors CK Truck series and the Chrysler Stratus, offset by increased sales to
the Ford Windstar and Honda Civic.
CONVERTIBLE TOP SYSTEMS: Convertible top systems sales increased 8.4% to
$33.4 million in the first quarter of 1999, up $2.6 million from the first
quarter of 1998. This increase is due primarily to increased sales to the
Chrysler Sebring, offset by lower sales to the Chevrolet Corvette.
1-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OTHER: The division had sales of other automotive and non-automotive
products in the first quarters of 1999 and 1998 of $14.4 million and $15.0
million, respectively.
OPERATING INCOME: Operating income for the division increased 15.2% to
$10.9 million in the first quarter of 1999, up $1.4 million from the first
quarter of 1998. The increase is primarily due to favorable changes in sales mix
at the division's convertible top systems operations, offset by unfavorable
manufacturing variances due to lower sales volumes at the division's fabrics
operations. In addition, selling, general and administrative expenses decreased
due to cost-cutting efforts at the division's fabrics operations. As a
percentage of sales, operating margins were 9.7% and 8.0% in 1999 and 1998,
respectively.
THE COMPANY AS A WHOLE
NET SALES: Net sales for the Company for the first quarter of 1999 were $478.3
million, compared to $478.1 million for the first quarter of 1998. Approximately
19% of the Company's sales in the first quarter of 1999 were attributable to
products utilized outside North America, compared to approximately 20% in the
first quarter of 1998. The Company's North American content per build was
approximately $87 in the first quarter of 1999, compared to an average of $89
for the 1998 fiscal year. The Company's European content per build was
approximately $16 for the first quarter of 1999, compared to an average of $17
for the 1998 fiscal year.
GROSS MARGIN: Gross margin for the Company was 14.8% for the first quarter of
1999, compared to 16.5% for the first quarter of 1998. The decrease is primarily
attributable to changes in sales mix, price discounts and product launch costs
at the Company's North America Automotive Interior Systems division and lower
sales volumes at the Company's Europe Automotive Interior Systems division,
offset by favorable sales mix changes at the Company's Specialty Automotive
Products division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 3.9% to $40.8 million in the first quarter of
1999, up $1.5 million from the first quarter of 1998. The increase is due in
part to the Company's acquisitions of Enjema and C&A Floormats Europe, which had
combined selling, general and administrative expenses of $0.8 million in the
first quarter of 1999. In addition, selling, general and administrative expenses
increased due to costs associated with systems upgrades and Year 2000 compliance
efforts, offset by cost-cutting efforts at the Company's Specialty Automotive
Products division. As a percentage of sales, selling, general and administrative
expenses were 8.5% and 8.2% in the first quarters of 1999 and 1998,
respectively.
INTEREST EXPENSE: Interest expense, net of interest income of $0.8 million and
$0.7 million in the first quarters of 1999 and 1998, respectively, increased
6.5% to $21.8 million in the first quarter of 1999, up $1.3 million from the
first quarter of 1998. The increase is due to a higher outstanding debt balance
during the first quarter of 1999.
LOSS ON SALE OF RECEIVABLES: The Company sells on a continuous basis, through
its Carcorp subsidiary, interests in a pool of accounts receivable. In
connection with the receivables sales, a loss of $1.3 million was recognized in
the first quarter of 1999, compared to a loss of $1.6 million in the first
quarter of 1998. The decrease in the loss on the sale of receivables is due to a
lower interest rate on the receivables facility during the first quarter of
1999.
OTHER EXPENSE: Other expense increased to $2.2 million in the first quarter of
1999, compared to $0.2 million in the first quarter of 1998. The increase is
primarily due to foreign currency losses of $1.5 million incurred in the first
quarter of 1999 related to fluctuations in the Mexican peso.
INCOME TAXES: The Company recognized a provision of $2.2 million in the first
quarter of 1999, compared to a provision of $8.5 million in the first quarter of
1998. The Company's effective tax rate for the first quarter of 1999 was 48.9%,
compared to 49.5% in the first quarter of 1998.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: The Company adopted the
provisions of Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") at the beginning of the first quarter of 1999.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs and requires that all nongovernmental entities expense the
costs of start-up activities as these costs are incurred instead of being
capitalized and amortized. The initial impact of adopting SOP 98-5 resulted in a
charge of $8.8 million, net of income taxes of $5.1 million.
1-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NET INCOME (LOSS): The combined effect of the foregoing resulted in a net loss
of $6.5 million in the first quarter of 1999, compared to net income of $8.7
million in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$34.5 million and $23.8 million at March 27, 1999 and December 26, 1998,
respectively. The Company had a total of $81.3 million of borrowing availability
under its credit arrangements as of March 27, 1999. Availability as of March 27,
1999 under the revolving credit facility has been reduced by outstanding letters
of credit of $22.1 million. The total was comprised of $73.1 million under the
revolving credit facility (including $1.1 million available to the Canadian
Borrowers, as hereinafter defined), approximately $8.1 million under bank demand
lines of credit in Austria, Canada and the United Kingdom and $0.1 million
available under the Receivables Facility as hereinafter defined.
On May 28, 1998, the Company entered into new credit facilities
consisting of: (i) a senior secured term loan facility in the principal amount
of $100 million payable in quarterly installments until final maturity on
December 31, 2003 (the "Term Loan A Facility"); (ii) a senior secured term loan
facility in the principal amount of $125 million payable in quarterly
installments until final maturity on June 30, 2005 (the "Term Loan B Facility"
and, together with the Term Loan A Facility, the "Term Loan Facilities"); and
(iii) a senior secured revolving credit facility in an aggregate principal
amount of up to $250 million terminating on December 31, 2003, of which $60
million (or the equivalent thereof in Canadian dollars) is available to two of
the Company's Canadian subsidiaries (the "Canadian Borrowers"), and of which up
to $50 million is available as a letter of credit facility (the "Revolving
Credit Facility" and together with the Term Loan Facilities, the "Credit
Agreement Facilities"). In addition, the Company has received a commitment,
subject to certain conditions, to utilize the Term Loan C Facility which is
provided for in the Credit Agreement Facilities in a principal amount of $100
million. The Company currently expects to close on the Term Loan C Facility in
May, 1999. The proceeds from the Term Loan C Facility will be used to repay
amounts outstanding on the Revolving Credit Facility and for general corporate
purposes, including payment of a special dividend to shareholders of
approximately $44 million, or $0.71 per share, expected to be declared once the
Term Loan C Facility closes. The dividend would be payable in late May. The
Credit Agreement Facilities (including the Term Loan C Facility, if utilized)
replace and refinance the Company's previously outstanding bank credit
facilities, including the facilities entered into in June 1994 and December 1995
and amended and restated in June 1996 and those entered into by the Company in
connection with the acquisition of JPS Automotive in December 1996
(collectively, the "Replaced Facilities").
At March 27, 1999, the Company had outstanding $96.3 million under the
Term Loan A Facility, $125.0 million under the Term Loan B Facility, and $154.9
million under the Revolving Credit facility (including $58.9 million borrowed by
the Canadian Borrowers).
The Credit Agreement Facilities, which are guaranteed by the Company and
its U.S. subsidiaries (subject to certain exceptions), contain restrictive
convenants including maintenance of interest coverage and leverage ratios and
various other restrictive covenants which are customary for such facilities.
Effective March 8, 1999, the Company, in view of the decreased sales of
automotive fabrics and the General Motors strike which occurred in June and July
of 1998, obtained an amendment to the Credit Agreement Facilities primarily in
order to modify the covenants relating to interest coverage and leverage ratios.
The amendment resulted generally in an increase in the interest rates charged
under the Credit Agreement Facilities. The amendment increased the Company's
effective borrowing rate under the Credit Agreement Facilities by 0.58% at March
27, 1999. In addition, under the Credit Agreement Facilities, C&A Products is
generally prohibited from paying dividends or making other distributions to the
Company except to the extent necessary to allow the Company to (w) pay taxes and
ordinary expenses, (x) make permitted repurchases of shares or options, (y) make
permitted investments in finance, foreign or acquired subsidiaries and (z) pay
permitted dividends. The Company is permitted to pay dividends and repurchase
shares of the Company (i) in any fiscal year in an aggregate amount up to $12
million and (ii) if certain financial ratios are satisfied, for the period from
April 28, 1996 through the last day of the Company's most recently ended fiscal
quarter, in an aggregate amount equal to 50% of the Company's cumulative
consolidated net income for that period and, in addition, is permitted to pay
dividends and repurchase shares in amounts representing net proceeds from the
sale of the Company's Imperial Wallcoverings, Inc. subsidiary ("Wallcoverings").
The Company's obligations under the Credit Agreement Facilities are secured by a
pledge of the stock of C&A Products and its significant subsidiaries and certain
intercompany indebtedness.
On June 10, 1996, C&A Products issued $400 million principal amount of
11-1/2% Subordinated Notes due 2006 (the "Subordinated Notes"). The Subordinated
Notes are guaranteed by the Company. The indenture governing the Subordinated
Notes generally prohibits the Company, C&A Products and any Restricted
Subsidiary (as defined) from
1-16
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
making certain payments and investments (generally, dividends and distributions
on their capital stock; repurchases or redemptions of their capital stock;
repayment prior to maturity of debt subordinated to the Subordinated Notes; and
investments (other than permitted investments)) ("Restricted Payments") if (i)
there is a default under the Subordinated Notes or (ii) after giving pro forma
effect to the Restricted Payment, C&A Products could not incur at least $1.00 of
additional indebtedness under the indenture's general test for the incurrence of
indebtedness, which is a specified ratio (currently 2.25 to 1) of cash flow to
interest expense or (iii) the aggregate of all such Restricted Payments from the
issue date exceeds a specified threshold (based, generally, on 50% of cumulative
consolidated net income since the quarter in which the issue date occurred plus
100% of the net proceeds of capital contributions to C&A Products from stock
issuances by the Company). These prohibitions are subject to a number of
significant exceptions, including dividends to stockholders of the Company or
stock repurchases not exceeding $10 million in any fiscal year or $20 million in
the aggregate until the maturity of the Subordinated Notes, dividends to
stockholders of the Company of the net available proceeds from the sale of
Wallcoverings and dividends to the Company to permit it to pay its operating and
administrative expenses. The Subordinated Notes indenture also contains other
restrictive covenants (including, among others, limitations on the incurrence of
indebtedness, asset dispositions and transactions with affiliates) which are
customary for such securities. These covenants are also subject to a number of
significant exceptions. The Company does not currently meet the Subordinated
Notes indenture's general test for the incurrence of indebtedness, and does not
expect to meet such test during the remainder of 1999. However, the Company
expects all its borrowing needs for the foreseeable future to be allowed under
exceptions for permitted indebtedness in the indenture.
The indenture governing the JPS Automotive 11-1/8% Senior Notes due 2001
(the "JPS Automotive Senior Notes") generally prohibits JPS Automotive from
making certain restricted payments and investments (generally, dividends and
distributions on its equity interests; purchases or redemptions of its equity
interests; purchases of any indebtedness subordinated to the JPS Automotive
Senior Notes; and investments other than as permitted) ("JPS Automotive
Restricted Payments") unless (i) there is no default under the JPS Automotive
Senior Notes indenture; (ii) after giving pro forma effect to the JPS Automotive
Restricted Payment, JPS Automotive would be permitted to incur at least $1.00 of
additional indebtedness under the indenture's general test for the incurrence of
indebtedness, which is a specified ratio (currently 2.5 to 1.0) of cashflow to
interest expense, and (iii) the aggregate of all JPS Automotive Restricted
Payments from the issue date is less than a specified threshold (based,
generally, on 50% of JPS Automotive's cumulative consolidated net income since
the issue date plus 100% of the aggregate net cash proceeds of the issuance by
JPS Automotive of certain equity and convertible debt securities and cash
contributions to JPS Automotive) (the "JPS Automotive Restricted Payments
Tests"). These conditions were satisfied immediately following the closing of
the JPS Automotive Acquisition and as of March 27, 1999. The JPS Automotive
Restricted Payments Tests are subject to a number of significant exceptions. The
indenture governing the JPS Automotive Senior Notes also contains other
restrictive covenants (including, among others, limitations on the incurrence of
indebtedness and issuance of preferred stock, asset dispositions and
transactions with affiliates including the Company and C&A Products) which are
customary for such securities. These covenants are also subject to a number of
significant exceptions. As of March 27, 1999, JPS Automotive had approximately
$88.0 million of indebtedness outstanding (including a premium of $2.0 million)
related to the JPS Automotive Senior Notes. The Company is operating JPS
Automotive as a restricted subsidiary under the Credit Agreement Facilities and
the indenture governing the Subordinated Notes.
On March 31, 1995, C&A Products entered, through the Trust formed by
Carcorp, Inc., ("Carcorp"), a wholly-owned, bankruptcy remote subsidiary of C&A
Products, into a receivables facility (the "Receivables Facility"), comprised of
(i) term certificates, which were issued on March 31, 1995, in an aggregate face
amount of $110 million and have a term of five years and (ii) variable funding
certificates, which represent revolving commitments of up to an aggregate of $75
million and have a term of five years. Carcorp purchases on a revolving basis
and transfers to the Trust virtually all trade receivables generated by C&A
Products and certain of its subsidiaries (the "Sellers") in the United States
and Canada. The certificates represent the right to receive payments generated
by the receivables held by the Trust.
As a result of the Company's divestiture of its non-automotive
businesses, the trust was required to redeem certain of the outstanding term
certificates. As of March 27, 1999, $50 million of the term certificates
remained outstanding. Availability under the variable funding certificates at
any time depends primarily on the amount of receivables generated by the Sellers
from sales to the automotive industry, the rate of collection on those
receivables and other characteristics of those receivables which affect their
eligibility (such as the bankruptcy or downgrading below investment grade of the
obligor, delinquency and excessive concentration). Based on these criteria, at
March 27, 1999 the maximum amount available under the variable funding
certificates was $72.9 million, of which $0.1 million was unutilized.
The proceeds received by Carcorp from collections on receivables, after
the payment of expenses and amounts due on the certificates, are used to
purchase new receivables from the Sellers. Collections on receivables are
required
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
to remain in the Trust if at any time the Trust does not contain sufficient
eligible receivables to support the outstanding certificates. The Receivables
Facility contains certain other restrictions on Carcorp (including maintenance
of $25 million net worth) and on the Sellers (including limitations on liens on
receivables, modifications of the terms of receivables, and changes in credit
and collection practices) customary for facilities of this type. The commitments
under the Receivables Facility are subject to termination prior to their term
upon the occurrence of certain events, including payment defaults, breach of
covenants, bankruptcy, insufficient eligible receivables to support the
outstanding certificates, default by C&A Products in servicing the receivables
and, in the case of the variable funding certificates, failure of the
receivables to satisfy certain performance criteria. The scheduled amortization
of the Receivables Facility begins December 25, 1999. The Company is currently
reviewing proposals to replace this facility.
The Company has a master equipment lease agreement for a maximum of $50
million of machinery and equipment. At March 27, 1999, the Company had $20.0
million of potential availability under this master lease for future machinery
and equipment requirements of the Company subject to the lessor's approval. In
the quarter ended March 27, 1999, the Company made lease payments relating to
continuing operations of approximately $1.4 million for machinery and equipment
sold and leased back under this master lease. The Company expects lease payments
for continuing operations under this master lease to be $4.4 million during the
remainder of fiscal 1999.
The Company's principal sources of funds are cash generated from
continuing operating activities, borrowings under the Credit Agreement
Facilities and the sale of receivables under the Receivables Facility. Net cash
provided by the continuing operating activities of the Company was $11.6 million
for the first quarter of 1999.
The Company's principal uses of funds from operating activities and
borrowings for the next several years are expected to be to fund interest and
principal payments on its indebtedness, net working capital increases, income
taxes, costs associated with the Company's previously divested businesses and
capital expenditures. At March 27, 1999, the Company had total outstanding
indebtedness of $872.1 million (excluding approximately $22.1 million of
outstanding letters of credit) at an average interest rate of 9.5% per annum. Of
the total outstanding indebtedness, $776.1 million relates to the Credit
Agreement Facilities and the Subordinated Notes.
The Company's Board of Directors authorized the expenditure of up to $25
million in 1999 to repurchase shares of the Company's Common Stock at
management's discretion. This amount was reduced by the approximately $6.2
million special dividend paid on March 1, 1999 and is expected to be reduced to
$2.2 million in connection with the special dividend anticipated to be payable
in late May, as described above. The Company believes it has sufficient
liquidity under its existing credit arrangements to effect the repurchase
program. The Company spent approximately $1.3 million to repurchase shares
during the first quarter of 1999.
Indebtedness under the Term Loan A Facility and U.S. dollar-denominated
indebtedness under the Revolving Credit Facility as amended March 8, 1999 bears
interest at a per annum rate equal to the Company's choice of (i) The Chase
Manhattan Bank's ("Chase's") Alternate Base Rate (which is the highest of
Chase's announced prime rate, the Federal Funds Rate plus .5% and Chase's base
certificate of deposit rate plus 1%) plus a margin (the "ABR/Canadian Prime Rate
Margin") ranging from .25% to 1.25% or (ii) the offered rates for Eurodollar
deposits ("LIBOR") of one, two, three, six, nine or twelve months, as selected
by the Company, plus a margin (the "LIBOR/BA Margin") ranging from 1.25% to
2.25%. Margins, which are subject to adjustment based on changes in the
Company's ratio of funded debt to EBITDA (i.e., earnings before interest, taxes,
depreciation, amortization and other non-cash charges) were 2.25% in the case of
the LIBOR/BA Margin and 1.25% in the case of the ABR/Canadian Prime Rate Margin
on March 27, 1999. Canadian-dollar denominated indebtedness incurred by the
Canadian Borrowers under the Revolving Credit Facility bears interest at a per
annum rate equal to the Canadian Borrowers' choice of (i) the Canadian Prime
Rate (which is the greater of Chase's prime rate for Canadian dollar-denominated
loans in Canada and the Canadian dollar-denominated one month bankers'
acceptance rate plus 1.00%) plus the ABR/Canadian Prime Rate Margin or (ii) the
bill of exchange rate ("Bankers' Acceptance" or "BA") denominated in Canadian
dollars for one, two, three or six months plus the LIBOR/BA Margin. Indebtedness
under the Term Loan B Facility as amended March 8, 1999 bears interest at a per
annum rate equal to the Company's choice of (i) Chase's Alternate Base Rate (as
described above) plus a margin ranging from 1.25% to 1.75% (the "Tranche B ABR
Margin") or (ii) LIBOR of one, two, three, or six months, as selected by the
Company, plus a margin ranging from 2.25% to 2.75% (the "Tranche B LIBOR
Margin"). The Tranche B ABR Margin and the Tranche B LIBOR Margin, were 1.75%
and 2.75%, respectively, at March 27, 1999. The weighted average interest rate
on the Credit Agreement Facilities was 7.4% at March 27, 1999. The Company
currently estimates that the Term Loan C Facility will bear interest at LIBOR
plus 3.25%. The weighted average interest rate on the sold interests under the
Receivables Facility at March 27, 1999 was 5.8%. Under the Receivables Facility,
the term certificates bear interest at an average rate equal to one month LIBOR
plus .34% annum and the variable funding certificates bear interest, at
Carcorp's option, at LIBOR plus .40% per annum or a prime rate. The Subordinated
Notes bear interest at 11.5% per annum. The JPS Automotive Senior Notes bear
interest at a rate of 11.125% per annum.
1-18
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Cash interest paid was $8.1 million and $7.1 million for the quarters ended
March 27, 1999 and March 28, 1998, respectively.
Due to the variable interest rates under the Credit Agreement Facilities
and the Receivables Facility, the Company is sensitive to increases in interest
rates. Accordingly, during April 1997, the Company entered into a two year
interest rate swap agreement in which the Company effectively exchanged $27.0
million of 11 1/2% fixed rate debt for floating rate debt at six month LIBOR
plus a 4.72% margin. In connection with this swap agreement, the Company also
limited its interest rate exposure on $27.0 million of notional principal amount
by entering into an 8.50% cap on LIBOR. These agreements expired in April, 1999.
Based upon amounts outstanding at March 27, 1999 a .5% increase in each of LIBOR
and Canadian bankers' acceptance rates (4.9% and 5.0%, respectively, at March
27, 1999) would impact interest costs by approximately $1.9 million annually on
the Credit Agreement Facilities and $0.1 million annually on the Receivables
Facility. During April 1997, the Company entered into an agreement to limit its
foreign currency exposure related to $45.0 million of US dollar denominated
borrowings of a Canadian subsidiary. The agreement swapped LIBOR based interest
rates for the Canadian bankers' acceptance rates and fixed the exchange rate for
the principal balance upon maturation. This agreement was terminated on June 1,
1998 as a result of the repayment of the Canadian term loan. The term loan
balance was repaid in conjunction with the refinancing and replacement of the
Replaced Facilities.
The current maturities of long-term debt primarily consist of the
current portion of the Credit Agreement Facilities, vendor financing, an
industrial revenue bond and other miscellaneous debt. The maturities of
long-term debt of the Company's continuing operations during the remainder of
1999 and for 2000, 2001, 2002 and 2003 are $15.7 million, $23.9 million, $113.2
million and $28.9 million and $24.3 million, respectively. The JPS Automotive
Senior Notes will mature in 2001. In addition, the Credit Agreement Facilities
provide for mandatory prepayments of the Term Loan A and Term Loan B Facilities
with certain excess cash flow of the Company, net cash proceeds of certain asset
sales or other dispositions by the Company, net cash proceeds of certain
sale/leaseback transactions and net cash proceeds of certain issuances of debt
obligations. The indenture governing the Subordinated Notes provides that in the
event of certain asset dispositions, C&A Products must apply net proceeds (to
the extent not reinvested in the business) first to repay Senior Indebtedness
(as defined, which includes the Credit Agreement Facilities) and then, to the
extent of remaining net proceeds, to make an offer to purchase outstanding
Subordinated Notes at 100% of their principal amount plus accrued interest. C&A
Products must also make an offer to purchase outstanding Subordinated Notes at
101% of their principal amount plus accrued interest if a Change in Control (as
defined) of the Company occurs. In addition, the indenture governing the JPS
Automotive Senior Notes requires JPS Automotive to apply the net proceeds from
the sale of assets of JPS Automotive to offer to purchase JPS Automotive Senior
Notes, to the extent not applied within 270 days of such asset sale to an
investment in capital expenditures or other long term tangible assets of JPS
Automotive, to permanently reduce senior indebtedness of JPS Automotive or to
purchase JPS Automotive Senior Notes in the open market
The Company makes capital expenditures on a recurring basis for
replacements and improvements. As of March 27, 1999, the Company's continuing
operations had approximately $17.6 million in outstanding capital expenditure
commitments. The Company currently anticipates that its capital expenditures for
continuing operations for fiscal 1999 will be in the range of $80 million to $90
million, a portion of which may be financed through leasing. The Company's
capital expenditures in future years will depend upon demand for the Company's
products and changes in technology.
The Company is sensitive to price movements in its raw material supply
base. During the first quarter of 1999, prices for most of the Company's primary
raw materials remained constant with price levels at December 26, 1998. While
the Company may not be able to pass on future raw material price increases to
its customers, it believes that a significant portion of the increased cost can
be offset by continued results of its value engineering/value analysis and cost
improvement programs and by continued reductions in the cost of nonconformance.
After Wallcoverings was classified as a discontinued operation in April
1996, Wallcoverings continued to experience sales declines. From April 1996
through October 1997, the Company expended approximately $67.1 million to fund
operations, working capital and capital expenditures and to replace receivables
previously sold to Carcorp. Of these amounts, $21.0 million represents
repayments of intercompany amounts owed to Wallcoverings. From November 1, 1997
through its disposition in March 1998, the Company expended approximately $19.9
million principally to fund Wallcoverings' operations, working capital and
capital expenditure requirements. Of this amount, approximately $13.9 million
was added to the base purchase price of $58 million provided in the sales
agreement and was paid by the purchaser as part of the final purchase price.
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
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 currently anticipates that the net cash
requirements of its discontinued operations will be approximately $17.7 million
for the remainder of fiscal 1999. However, because of 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 cash needs relating to discontinued operations can
be provided by operating activities from continuing operations and by borrowings
under its credit facilities.
TAX MATTERS
At December 26, 1998, the Company had outstanding net operating loss
carryforwards ("NOLs") of approximately $219.2 million for Federal income tax
purposes. Substantially all of these NOLs expire over the period from 2008 to
2018. The Company also has unused Federal tax credits of approximately $13.3
million, $1.1 million of which expire during the period 1999 to 2006.
Approximately $19.8 million of the Company's NOLs and $1.1 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. Future sales of common stock by the Company
or its principal shareholders, or changes in the composition of its principal
shareholders, could constitute a "change in control" that would result in annual
limitations on the Company's use of its NOLs and unused tax credits. Management
cannot predict whether such a "change in control" will occur. If such a "change
in control" were to occur, the resulting annual limitations on the use of NOLs
and tax credits would 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.
ENVIRONMENTAL MATTERS
The Company is subject to 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
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, except for certain costs
incurred at acquired locations. Environmental compliance costs relating to
conditions existing at the time the locations were acquired are generally
charged to reserves established in purchase accounting. 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 future 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 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.
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 United States Environmental Protection Agency, 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 theory 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
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 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. As of March 27, 1999, 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 24 sites where the Company is participating
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<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
in the investigation or remediation of the site, either directly or through
financial contribution, and 8 additional sites where the Company is alleged to
be responsible for costs of investigation or remediation. As of March 27, 1999,
the Company's estimate of its liability for these 32 sites is approximately
$24.0 million. As of March 27, 1999, the Company has established reserves of
approximately $38.4 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
future 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.
IMPACT OF YEAR 2000 COMPLIANCE
The Company has developed a comprehensive plan intended to address Year
2000 issues (the "Year 2000 Plan"). The Year 2000 Plan includes the acceleration
of the Company's Business Systems Integration Plan (the "BSIP Plan"), initiated
in connection with the Company's 1996 acquisitions to create common
manufacturing, financial reporting and cost control information systems
throughout the Company as a whole. The BSIP Plan, which affects essentially all
the Company's locations worldwide, involves new installations of hardware and
software at acquired operations and upgrades to hardware and software at
pre-existing locations.
As part of the Year 2000 Plan, the Company has selected a team of
managers and outside consultants to identify, evaluate and implement a timetable
aimed at bringing all of the Company's critical business systems and
applications into Year 2000 compliance prior to December 31, 1999. The Year 2000
Plan addresses the Company's information technology and non-information
technology and categorizes them into the following areas which are vulnerable to
Year 2000 risk: (i) business computer systems, including financial, human
resources, purchasing, manufacturing and sales and marketing systems; (ii)
manufacturing, warehousing and servicing equipment, including shop floor
controls; (iii) technical infrastructure, including local area networks,
mainframes and communication systems; (iv) end-user computing, including
personal computers; (v) suppliers, agents and service providers, including
systems which interface with customers; (vi) environmental operations, including
fire, security, emission and waste controls and elevators; and (vii) dedicated
research and development facilities, including CAD/CAE/CAM systems and product
testing systems.
The Company has evaluated the state of readiness of each area vulnerable
to Year 2000 risk using the following definitions:
Inventory - Systems are being surveyed and documented regarding
compliance
Remediation - Strategies are being implemented to modify or
replace affected hardware and software
Testing - Systems are being tested by Company employees or third
party consultants
Complete - Systems are Year 2000 compliant
Currently, the Company estimates that a majority of its locations are
progressing through the Remediation or Testing phases for each area of Year 2000
risk.
The Company intends for all of its systems in North America and Europe
to become Year 2000 compliant during 1999. The Company is in the process of
finalizing formal contingency plans for each location. These contingency plans
include, among other things, the following: (i) establishing back-up production
capacities within the Company to shift the manufacturing of similar products
between plants if a plant should be unable to complete its scheduled production
requirements; (ii) carrying extra inventory of raw materials and finished goods
to cover production requirements if critical suppliers indicate that they will
not be Year 2000 compliant in a timely manner; and (iii) maintaining offline
documentation of production schedules, releases and inventory levels. The
Company has not yet quantified the costs associated with these contingency
plans.
The Company currently anticipates that the total cost of its Year 2000
plan, including approximately $21 million of costs associated with the BSIP Plan
but excluding costs associated with contingency plans, will be approximately $25
million. Included in this estimate is approximately $6 million of salaries and
other payroll costs of Company employees to the extent that they have devoted a
portion of their time to the project. Approximately $16 million of these costs
have been incurred through March 27, 1999 including approximately $4 million of
salaries and other payroll costs. The Company has been expensing and
capitalizing the costs to complete the Year 2000 Plan in accordance with
appropriate
1-21
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONCLUDED)
accounting policies. The Company is funding the expenditures related to the Year
2000 Plan with cash flow from operations and borrowings under the Credit
Agreement Facilities.
Due to the general uncertainty inherent in the Year 2000 process at this
stage, it is difficult for the Company to determine a reasonable likely Year
2000 worst case scenario. One possible scenario would be the failure of the
Company's key suppliers to become compliant. To mitigate the risk of this, the
Company is in the process of assessing responses to questionnaires previously
issued to its suppliers and visiting certain of these suppliers to assess their
Year 2000 readiness. This process is expected to continue over the next several
months. As discussed above, the Company is incorporating the responses received
from the suppliers in formulating contingency plans. Due to the number of
suppliers that the Company deals with, the Company is unable to make a
meaningful estimate of the revenue that would be lost in the event such a
scenario was realized.
The Company's Year 2000 efforts are ongoing and its overall plan, as
well as the consideration of contingency plans, will continue to evolve as new
information becomes available. The Company currently anticipates that, with the
modifications discussed above, the Year 2000 issue should not pose significant
operational problems for the Company. However, if such modifications are not
made, or are not completed timely, or if contingency plans fail, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Success of the Year 2000 plan may to some extent depend on the availability of
outside consultants as well as establishing reliable telecommunication links
with the Company's operations in Canada, Europe and Mexico. Further, there is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
The cost of the Company's Year 2000 Plan and the dates by which the
Company believes it will be Year 2000 compliant are based on management's
current best estimates, which were derived based on numerous assumptions of
future events, some of which are beyond the control of the Company, including
the continued availability of certain resources, third party modification plans
and other factors. There can be no guarantee, however, that these estimates will
be achieved, and actual results could differ materially from those anticipated.
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which, to the extent they
are not historical fact, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking
statements involve risks and uncertainties. The forward-looking statements in
this Report on Form 10-Q are intended to be subject to the safe harbor
protection provided by the Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this Report on Form 10-Q include industry-based factors such as possible
declines in the North American and European automobile and light truck build,
labor strikes at the Company's major customers, changes in consumer preferences,
dependence on significant automotive customers, the level of competition in the
automotive supply industry, pricing pressure from automotive customers and Year
2000 compliance issues, as well as factors more specific to the Company, such as
the substantial leverage of the Company and its subsidiaries, limitations
imposed by the Company's debt facilities and changes made in connection with the
integration of operations acquired by the Company. The Company's divisions may
also be affected by changes in the popularity of particular car models or the
loss of programs on particular car models. For a discussion of certain of these
and other important factors which may affect the Company's operations, products
and markets, see the Company's Securities and Exchange filings, including
without limitation "BUSINESS" in the Company's Annual Report or Form 10-K for
the fiscal year ended December 26, 1998 (the "10-K") and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
10-K and above in this Form 10-Q and also see the Company's other filings with
the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For the period ended March 27, 1999, the Company did not experience any
material changes in market risk disclosure that affect the quantitative and
qualitative disclosures presented in the 10-K.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in legal proceedings involving
the Company or its subsidiaries since those reported in the Company's Report on
Form 10-K for fiscal year ended December 26, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Please note that in the following description of exhibits, the title of
any document entered into, or filing made, prior to July 7, 1994 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 Collins & Aikman
Holdings Corporation, Collins & Aikman Group, Inc. or Wickes Companies, Inc., if
such documents and filings were made prior to July 7, 1994.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 - Restated Certificate of Incorporation of Collins & Aikman Corporation
is hereby incorporated by reference to Exhibit 4.1 of Collins &
Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended
July 30, 1994.
3.2 - By-laws of Collins & Aikman Corporation, as amended, are hereby
incorporated by reference to Exhibit 3.2 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January
27, 1996.
3.3 - Certificate of Elimination of Cumulative Exchangeable Redeemable
Preferred Stock of Collins & Aikman Corporation is hereby
incorporated by reference to Exhibit 3.3 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended
October 28, 1995.
4.1 - Specimen Stock Certificate for the Common Stock is hereby
incorporated by reference to Exhibit 4.3 of Amendment No. 3 to
Collins & Aikman Holdings Corporation's Registration Statement on
Form S-2 (Registration No. 33-53179) filed June 21, 1994.
4.2 - Indenture, dated as of June 1, 1996, between Collins & Aikman
Products Co., Collins & Aikman Corporation and First Union National
Bank of North Carolina, as Trustee, is hereby incorporated by
reference to Exhibit 4.2 of Collins & Aikman Corporation's Report on
Form 10-Q for the fiscal quarter ended April 27, 1996.
4.3 - First Supplemental Indenture dated as of June 1, 1996, between
Collins & Aikman Products Co., Collins & Aikman Corporation and First
Union National Bank of North Carolina, as Trustee, is hereby
incorporated by reference to Exhibit 4.3 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended April
27, 1996.
4.4 - Credit Agreement, dated as of May 28, 1998, among Collins & Aikman
Products Co., as Borrower, Collins & Aikman Canada, Inc. and Collins
& Aikman Plastics, Ltd., as Canadian Borrowers, Collins & Aikman
Corporation, as Guarantor, the lenders named therein, Bank of America
N.T.S.A., as Documentation Agent, The Chase Manhattan Bank, as
Administrative Agent, and The Chase Manhattan Bank of Canada, as
Canadian Administrative Agent, is hereby incorporated by reference to
Exhibit 4.4 of Collins & Aikman Corporation's Report on Form 10-Q for
the fiscal quarter ended June 27, 1998.
4.5 - Waiver dated as of October 27, 1998 under the Credit Agreement dated
as of May 28, 1998, among Collins & Aikman Products Co., Collins &
Aikman Canada, Inc. and Collins & Aikman Plastics, Ltd., as Canadian
Borrowers, Collins & Aikman Corporation, as Guarantor, the Lender
Parties thereto, Bank of America, N.T.S.A., as Documentation Agent,
The Chase Manhattan Bank, as Administrative Agent, and The Chase
Manhattan Bank of Canada, as Canadian Administrative Agent is hereby
incorporated by reference to Exhibit 4.5 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended
September 26, 1998.
II-1
<PAGE>
PART II - OTHER INFORMATION
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.6 - Waiver dated as of December 22, 1998, under the Credit Agreement
dated as of May 28, 1998, among Collins & Aikman Products Co.,
Collins & Aikman Canada, Inc. and Collins & Aikman Corporation, as
Guarantor, the Lender Parties thereto, Bank of America, N.T.S.A., as
Documentation Agent, The chase Manhattan Bank, as Administrative
Agent, and The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent, is hereby incorporated by reference to Exhibit
4.6 of Collins & Aikman Corporation's Report on 10-K for the fiscal
year ended December 26, 1998.
4.7 - Amendment and Waiver dated as of March 8, 1999, among Collins &
Aikman Products Co., Collins & Aikman Canada, Inc., Collins & Aikman
Plastics Ltd., Collins & Aikman Corporation, as Guarantor, the Lender
Parties thereto, Bank of America N.T.S.A., as Documentation Agent,
The Chase Manhattan Bank, as Administrative Agent, and The Chase
Manhattan Bank of Canada, as Canadian Administrative Agent is hereby
incorporated by reference to Exhibit 4.7 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended December
26, 1998.
4.8 - Indenture dated as of June 28, 1994, between JPS Automotive Products
Corp., as Issuer, JPS Automotive L.P., as Guarantor and Shawmut Bank
Connecticut, N.A., as Trustee, is hereby incorporated by reference to
Exhibit 4.2 of JPS Automotive Corp.'s Registration Statement on Form
S-1, Registration No. 33-75510.
4.9 - First Supplemental Indenture, dated as of October 5, 1994, between
JPS Automotive Products Corp. and JPS Automotive L.P., as
Co-Obligors, and Shawmut Bank Connecticut, N.A., as Trustee is hereby
incorporated by reference to Exhibit 4.48A of JPA Automotive L.P's
and JPA Automotive Products Corp.'s Report on Form 10-Q for the
fiscal quarter ended October 2, 1994
Collins & Aikman Corporation agrees to furnish to the Commission upon
request in accordance with Item 601 (b)(4) (iii) (A) of Regulation
S-K copies of instruments defining the rights of holders of long-term
debt of Collins & Aikman Corporation or any of its subsidiaries,
which debt does not exceed 10% of the total assets of Collins &
Aikman Corporation and its subsidiaries on a consolidated basis.
10.1 - Amended and Restated Stockholders Agreement dated as of June 29, 1994
among the Company, Collins & Aikman Group, Inc., Blackstone Capital
Partners L.P. and Wasserstein Perella Partners, L.P. is hereby
incorporated by reference to Exhibit 10.1 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January
28, 1995.
10.2 - 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.'s Report on Form
10-K for the fiscal year ended January 30, 1991.
10.3 - Employment Agreement dated as of July 22, 1992 between Collins &
Aikman Corporation and an executive officer is 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.
10.4 - First Amendment to Employment Agreement dated as of February 24, 1994
between Collins & Aikman Corporation and an executive officer is
hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman
Holdings Corporation's Registration Statement on Form S-2
(Registration No. 33-53179) filed April 19, 1994.
10.5 - Second Amendment, dated as of October 3, 1996, to the Employment
Agreement, dated as of July 22, 1992, as amended, between Collins &
Aikman Products Co. and an executive officer is hereby incorporated
by reference to Exhibit 10.26 of Collins & Aikman Corporation's
Report on Form 10-Q for the fiscal quarter ended October 26, 1996.
10.6 - Third Amendment dated as of August 1, 1997, to the Employment
Agreement dated as of July 22, 1992, as amended, between the
Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.35 of Collins & Aikman Corporation's Report
on Form 10-Q for the fiscal quarter ended September 27, 1997.
10.7 - Letter Agreement dated as of March 23, 1999 with an executive officer
is hereby incorporated by reference to Exhibit 10.7 of Collins &
Aikman Corporation's Report on Form 10-K for the fiscal year ended
December 26, 1998.
II-2
<PAGE>
PART II - OTHER INFORMATION
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.8 - Amended and Restated Employment Agreement dated as of January 20,
1999 between Collins & Aikman Products Co. and an executive officer
is hereby incorporated by reference to Exhibit 10.8 of Collins &
Aikman Corporation's Report on Form 10-K for the fiscal year ended
December 26, 1998.
10.9 - Employment Agreement dated as of January 20, 1999 between Collins &
Aikman Products Co. and an executive officer is hereby incorporated
by reference to Exhibit 10.9 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 26, 1998.
10.10 - Employment Agreement dated as of April 22, 1999 between Collins &
Aikman Corporation and an executive officer.
10.11 - Employment and Retention Agreement dated as of January 1, 1999
between Collins & Aikman Corporation and an executive officer.
10.12 - Collins & Aikman Corporation 1998 Executive Incentive Compensation
Plan is hereby incorporated by reference to Exhibit 10.10 of Collins
& Aikman Corporation's Report on Form 10-K for the fiscal year ended
December 26, 1998.
10.13 - Collins & Aikman Corporation Supplemental Retirement Income Plan is
hereby incorporated by reference to Exhibit 10.23 of Amendment No. 5
to Collins & Aikman Holdings Corporation's Registration Statement on
Form S-2 (Registration No. 33-53179) filed July 6, 1994.
10.14 - Amendment to Collins & Aikman Corporation Supplemental Retirement
Income Plan is hereby incorporated by reference to Exhibit 10.12 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal
year ended December 26, 1998.
10.15 - 1993 Employee Stock Option Plan, as amended and restated, is hereby
incorporated by reference to Exhibit 10.13 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended April
29, 1995.
10.16 - 1994 Employee Stock Option Plan, as amended and restated through
April 12, 1999.
10.17 - 1994 Directors Stock Option Plan, as amended and restated, is hereby
incorporated by reference to Exhibit 10.15 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended December
26, 1998.
10.18 - Excess Benefit Plan of Collins & Aikman Corporation is hereby
incorporated by reference to Exhibit 10.25 of Collins & Aikman
Corporation's Report on Form 10-K for the fiscal year ended January
28, 1995.
10.19 - Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.17 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 27, 1997.
10.20 - Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.18 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 27, 1997.
10.21 - Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.19 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 27, 1997.
10.22 - Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.20 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended December 27, 1997.
10.23 - Change in control agreement dated March 17, 1998 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.22 of Collins & Aikman Corporation's report
on Form 10-Q for the fiscal quarter ended March 28, 1998.
II-3
<PAGE>
PART II - OTHER INFORMATION
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.24 - Lease, executed as of the 1st day of June 1987, between Dura
Corporation and Dura Acquisition Corp. is hereby incorporated by
reference to Exhibit 10.24 of Amendment No. 5 to Collins & Aikman
Holdings Corporation's Registration Statement on Form S-2
(Registration No. 33-53179) filed July 6, 1994.
10.25 - Amended and Restated Receivables Sale Agreement dated as of March 30,
1995 among Collins & Aikman Products Co., Ack-Ti-Lining, Inc., WCA
Canada Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura
Convertible Systems Inc., each of the other subsidiaries of Collins &
Aikman Products Co. from time to time parties thereto and Carcorp,
Inc. is hereby incorporated by reference to Exhibit 10.18 of Collins
& Aikman Corporation's Report on Form 10-K to the fiscal year ended
January 28, 1995.
10.26 - Servicing Agreement, dated as of March 30, 1995, among Carcorp, Inc.,
Collins & Aikman Products Co., as Master Servicer, each of the
subsidiaries of Collins & Aikman Products Co. from time to time
parties thereto and Chemical Bank, as Trustee is hereby incorporated
by reference to Exhibit 10.19 of Collins & Aikman Corporation's
Report on Form 10-K to the fiscal year ended January 28, 1995.
10.27 - Pooling Agreement, dated as of March 30, 1995, among Carcorp, Inc.,
Collins & Aikman Products Co., as Master Servicer and Chemical Bank,
as Trustee, is hereby incorporated by reference to Exhibit 10.20 of
Collins & Aikman Corporation's Report on Form 10-K to the fiscal year
ended January 28, 1995.
10.28 - Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp,
Inc., Collins & Aikman Products Co., as Master Servicer and Chemical
Bank, as Trustee, is hereby incorporated by reference to Exhibit
10.21 of Collins & Aikman Corporation's Report on Form 10-K to the
fiscal year ended January 28, 1995.
10.29 - Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp,
Inc., Collins & Aikman Products Co., as Master Servicer, the Initial
Purchasers parties thereto, Societe Generale, as Agent for the
Purchasers and Chemical Bank, as Trustee is hereby incorporated by
reference to Exhibit 10.22 of Collins & Aikman Corporation's Report
on Form 10-K to the fiscal year ended January 28, 1995.
10.30 - Amendment No. 1, dated September 5, 1995, among Carcorp, Inc., as
Company, Collins & Aikman Products Co., as Master Servicer, and
Chemical Bank, as Trustee, to the Pooling Agreement, dated as of
March 30, 1995, among the Company, the Master Servicer and Trustee is
hereby incorporated by reference to Exhibit 10.2 of Collins & Aikman
Corporation's Report on Form 10-Q for the fiscal quarter ended July
29, 1995.
10.31 - Amendment No. 2, dated October 25, 1995, among Carcorp, Inc., as
Company, Collins & Aikman Products Co., as Master Servicer, and
Chemical Bank, as Trustee, to the Pooling Agreement, dated as of
March 30, 1995, among the Company, the Master Servicer and the
Trustee is hereby incorporated by reference to Exhibit 10.2 of
Collins & Aikman Corporation's Report on Form 10-Q for the fiscal
quarter ended October 28, 1995.
10.32 - Amendment No. 1, dated February 29, 1996, to the Series 1995-1
Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins
& Aikman Products Co., as Master Servicer, and Chemical Bank, as
Trustee, is hereby incorporated by reference to Exhibit 10.20 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal
year ended January 27, 1996.
10.33 - Amendment No. 1, dated February 29, 1996, to the Series 1995-2
Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins
& Aikman Products Co., as Master Servicer, Societe Generale, as
agent, and Chemical Bank, as Trustee, is hereby incorporated by
reference to Exhibit 10.21 of Collins & Aikman Corporation's Report
on Form 10-K for the fiscal year ended January 27, 1996.
10.34 - Master Equipment Lease Agreement dated as of September 30, 1994,
between NationsBanc Leasing Corporation of North Carolina and Collins
& Aikman Products Co. is hereby incorporated by reference to Exhibit
10.27 of Collins & Aikman Corporation's Report on Form 10-Q for the
fiscal quarter ended October 29, 1994.
10.35 - Asset Purchase Agreement dated as of June 30, 1997 by and between JPS
Automotive L.P. and Safety Components International, Inc. is hereby
incorporated by reference to Exhibit 2.1 of JPS Automotive L.P.'s and
JPS Automotive Products Corp.'s Current Report on Form 8-K dated July
24, 1997.
10.36 - Closing Agreement dated July 24, 1997 between JPS Automotive L.P.,
Safety Components International, Inc. and Safety Components Fabric
Technologies, Inc. is hereby incorporated by reference to Exhibit 2.2
of
II-4
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
JPS Automotive L.P.'s and JPS Automotive Products Corp.'s Current
Report on Form 8-K dated July 24, 1997.
10.37 - Amended and Restated Acquisition Agreement dated as of November 4,
1997 and amended and restated as of March 9, 1998, among Collins &
Aikman Products Co., Imperial Wallcoverings Inc. and BDPI Holdings
Corporation is hereby incorporated by reference to Exhibit 2.4 of
Collins & Aikman Corporation's Report on Form 10-K for the fiscal
year ended December 27, 1997.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule.
99 - Voting Agreement between Blackstone Capital Partners L.P. and
Wasserstein Perella Partners, L.P. is hereby incorporated by
reference to Exhibit 99 of Amendment No. 4 to Collins & Aikman
Holdings Corporation's Registration Statement on Form S-2
(Registration No. 33-53179) filed June 27, 1994.
(B) REPORTS ON FORM 8-K
During the quarter for which this Report on Form 10-Q is being filed, the
Company filed no reports on Form 8-K.
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 10, 1999
COLLINS & AIKMAN CORPORATION
(Registrant)
By: /s/ J. Michael Stepp
----------------------
J. Michael Stepp
Chief Financial Officer and
Executive Vice President
(On behalf of the Registrant and
as Principal Financial and
Accounting Officer)
<TABLE>
<CAPTION>
Exhibit 11
Collins & Aikman Corporation
Computation of Earnings Per Share
In thousands, except per share data
(Unaudited)
Quarter Ended
--------------------------
March 27, March 28,
1999 1998
------------ -----------
<S> <C> <C>
Average shares outstanding during the period.................................... 61,992 65,701
------------ -----------
Incremental shares under stock options computed under the
treasury stock method using the average market price of
issuer's stock during the period.............................................. 359 870
------------ -----------
Total shares for diluted EPS................................................ 62,351 66,571
============ ===========
Income before cumulative effect of a change in
accounting principle.......................................................... $ 2,316 $ 8,678
Cumulative effect of change in accounting principle,
net of income taxes of $5,083................................................. (8,850) -
------------ -----------
Net income (loss)............................................................... $ (6,534) $ 8,678
============ ===========
Net income (loss) per basic and diluted common share:
Income before cumulative effect of a change in
accounting principle $ 0.04 $ 0.13
Cumulative effect of a change in
accounting principle........................................................ (0.14) -
------------ -----------
Net income (loss)............................................................... $ (0.10) $ 0.13
============ ===========
</TABLE>
AGREEMENT, dated as of April 22, 1999 between Collins & Aikman
Corporation, a Delaware corporation (the "Company"), Collins & Aikman Products
Co., a Delaware corporation ("Products"), and Thomas E. Evans (the "Executive").
WHEREAS the Company desires to cause its subsidiary, Products, to employ
the Executive and to enter into an agreement embodying the terms of such
employment; and
WHEREAS the Executive has accepted such employment and desires to enter
into such agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to cause Products to employ, and Products
agrees to employ, the Executive, and the Executive hereby accepts such
employment, for a period commencing April 22, 1999 (the "Commencement Date"),
and ending April 22, 2002; provided, however, that this Agreement will be
automatically renewed and the term extended for additional one-year periods
commencing on April 22, 2002 and on each anniversary date thereafter, unless
Products or the Executive provides 90 days' prior written notice before the end
of the initial term or any renewal term.
2. DUTIES. During the term of this Agreement, the Executive shall be
employed as Chief Executive Officer of the Company and shall perform such
services for the Company and its subsidiaries as may be assigned to him from
time to time by the Board of Directors of the Company. The Executive shall be a
director of the Company and shall serve as Chairman of the Board of Directors of
the Company, subject to the corporate actions required by the Restated
Certificate of Incorporation and By-laws of the Company. The Executive shall
devote his full time and attention to the affairs of the Company and his duties
as Chief Executive Officer and Chairman of the Board.
<PAGE>
When his employment hereunder terminates, the Executive shall resign from all
positions he holds as a director of the Company and any subsidiary of the
Company and as a member of any committee established by the Board of Directors
of the Company or any such subsidiary.
3. SALARY, BONUSES, OPTIONS
3.1 SALARY. Products shall pay the Executive a base salary at an annual
rate of $700,000 during the term of his employment pursuant to this Agreement.
The base salary may be increased in the sole discretion of the Compensation
Board. As used herein, the term "Compensation Board" means the Board of
Directors of the Company or one or more appropriate committees thereof, which to
the extent of the matters within its jurisdiction may include a committee
intended to preserve the deductibility of compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended ("Section 162(m)").
3.2 ANNUAL BONUSES. The Executive shall be entitled to a bonus in the
amount of $575,000 in respect of fiscal 1999 in lieu of participation in any
bonus plan of the Company or any of its subsidiaries; provided, however, that
the Compensation Board may, in its complete discretion, provide a greater bonus
based upon performance. With respect to each fiscal year of the Company
thereafter that the Executive is employed hereunder, the Executive shall
participate in the bonus plan of the Company or Products established for that
year generally for the Company's executive officers or a parallel plan
established for purposes of preserving the deductibility of the Executive's
compensation under Section 162(m). The Executive's target bonus with respect to
each such fiscal year shall be 100% of his annual base salary and his maximum
bonus with respect to each such fiscal year shall be 200% of his annual base
salary. The Compensation Board shall have complete authority to determine goals
and performance. The bonus plan in which the Executive participates subsequent
to the 1999 fiscal year is intended to comply in all respects with the exemption
for performance-based compensation under Section 162(m) including, without
limitation, being subject to the approval of a majority of the Company's
shareholders. Bonuses shall be paid in March following the fiscal year to which
they relate.
2
<PAGE>
3.3 SIGNING BONUS. The Executive shall receive an $850,000 signing bonus
(the "Signing Bonus"), payable as follows: $325,000 shall be payable promptly
after the Commencement Date and $175,000 shall be payable, subject to Sections
3.5, 6.2(a) and 6.2(b), on each of the first three annual anniversaries of the
Commencement Date; provided, however, that if the Executive's employment is
terminated by the Company for Cause (as defined in Section 6.2(d)) or the
Executive breaches this Agreement, the Executive's right to any unpaid portion
of the Signing Bonus shall be forfeited.
3.4 OPTIONS.
(a) Effective on the Commencement Date, the Executive shall be
granted options under the Company's 1994 Employee Stock Option Plan for
1,200,000 shares (subject to the last sentence of this paragraph (a)) which
shall vest, subject to Sections 3.5, 6.2(a) and 6.2(b), to the extent of 1/3 on
each of the first three annual anniversaries of the Commencement Date so long as
with respect to each such vesting date, the employment of the Executive has not
been terminated by the Executive without Good Reason (as defined in Section 6.1)
or been terminated by Products for Cause prior to such date; provided, however,
that such grant of options is conditional upon approval of the 1994 Employee
Stock Option Plan by a majority of the Company's shareholders (the Company
hereby agreeing to request such approval at the year 2000 annual meeting or at a
special meeting called for such purpose in the event of a Change of Control
prior to such year 2000 annual meeting). The options shall have an exercise
price per share equal to the greater of (x) the closing price for the Company's
Common Stock on the New York Stock Exchange on the date of grant and (y) the
average closing price for the Company's Common Stock on the New York Stock
Exchange over the last 30 trading days ending March 31, 1999. Any vested options
shall be exercisable until the earlier of (i) 180 days after the termination of
the Executive's employment with Products hereunder and (ii) the expiration of
the options. Except as expressly modified hereby, all the terms of the 1994
Employee Stock Option Plan shall apply. If clause (x) applies, then the number
of options shall be equal to 1,200,000, multiplied by the ratio of clause (x) to
clause (y), rounded up to the nearest whole number.
3
<PAGE>
(b) Notwithstanding Section 3.4(a), Executive will be eligible
to participate in any option grants generally made available to executives of
the Company.
3.5 CHANGE OF CONTROL. Upon a Change of Control (as defined herein), (i)
any options granted to the Executive pursuant to Section 3.4 shall become 100%
vested and immediately exercisable, subject to the shareholder approval referred
to in Section 3.4, (ii) Section 3.6 shall become inapplicable, (iii) the
Executive shall be immediately and fully vested in all benefits under the SRIP
(as defined herein) and (iv) any unpaid portion of the Signing Bonus shall be
paid immediately. For this purpose, a "Change of Control" shall have the same
meaning as in the 1994 Employee Stock Option Plan except substituting "50%" for
"80%" in each place it appears.
3.6 LOCK-UP. Subject to Sections 3.5, 6.2(a) and 6.2(b), the Executive
shall not in any three month period sell more than 60,000 shares of the
Company's Common Stock or in any one-year period sell more than 180,000 shares
of the Company's Common Stock, in each case whether acquired through the
exercise of stock options or otherwise, without the prior approval of the Board
of Directors of the Company.
3.7 NO FIDUCIARY DUTY. The Company and its subsidiaries and affiliates and
directors, officers and stockholders thereof shall not have any fiduciary duty
to the Executive or incur any liability to the Executive on account of any
action taken or omitted to be taken with respect to the business and operations
of the Company and its subsidiaries and affiliates, notwithstanding the fact
that such action or omission may adversely affect the amounts that the Executive
may receive in respect of his compensation or otherwise.
3.8 WITHHOLDING. The Executive agrees that Products may deduct and
withhold from compensation payments the amounts Products in good faith believes
are required to be deducted and withheld under the provisions of any statute,
law, regulation or ordinance heretofore or hereafter enacted.
4
<PAGE>
3.9 COMPENSATION FOR SERVICES. The Executive's compensation under this
Agreement shall be compensation for the Executive's services to the Company and
its subsidiaries in all capacities and, except as expressly provided in this
Agreement, the Executive shall not be entitled to any salary, bonus, severance,
benefits, equity, perquisites or other compensation of any kind as a result of
his services to the Company and its subsidiaries.
4. BENEFITS.
4.1 SRIP. The Executive will participate in the Products Supplemental
Retirement Income Plan (the "SRIP") and will receive additional credited service
thereunder in accordance with Annex A hereto. The Executive will provide
Products with a copy of the supplemental employee retirement plan from his
former employer (the "Forfeited SRIP"). If the annual income target expressed as
a percentage of total annual compensation under the SRIP is less than the
comparable percentage under the Forfeited SRIP for any given years of service,
the percentage of total annual compensation applicable to the Executive under
the SRIP will be adjusted upwards to match that under the Forfeited SRIP;
provided, however, that such upward adjustment shall not exceed five percentage
points. Except as expressly modified in this Agreement and in Annex A hereto,
the terms of the SRIP shall apply to the Executive.
4.2 OTHER BENEFITS AND PERQUISITES. The Executive shall be entitled during
his period of employment hereunder to participate in such pension and benefit
plans and to such perquisites as are generally made available to executives of
the Company, subject to the terms of such plans and this Agreement, including
the benefits and perquisites described on Annex A hereto. No payments made or
awards granted to the Executive under this Agreement, other than the base salary
provided for in Section 3.1, shall be treated as "compensation" for any purpose
under any benefit plan of the Company or any of its subsidiaries in which the
Executive participates, except as otherwise expressly provided in such plan.
5. EXPENSES. Products shall reimburse the Executive for all reasonable
business expenses reasonably incurred by the Executive in connection with the
performance of his duties
5
<PAGE>
hereunder and for temporary living expenses for up to three months, provided
that the Executive furnishes to Products adequate records or other evidence
respecting such expenditures in accordance with Products' policy.
6. TERMINATION OF EMPLOYMENT
6.1 GOOD REASON; VOLUNTARY TERMINATION. The Executive may terminate his
employment with Products at any time upon one month's prior notice for Good
Reason. As used herein, the term "Good Reason" means a demotion in the
Executive's position or a significant reduction in his responsibilities (other
than as a result of a sale or other disposition of assets of the Company). In
the event the Executive terminates his employment with Products for Good Reason,
such termination shall be deemed a termination of Executive's employment by
Products without Cause for purposes of Section 6.2(b). In the event the
Executive terminates his employment with Products without Good Reason, such
termination (unless it occurs within six months following a Change of Control)
shall be considered a breach of this Agreement and (i) as liquidated damages,
the Executive shall forfeit his rights to any unpaid portion of the Signing
Bonus and (ii) Products shall pay the Executive his unpaid base salary under
Section 3.1 accrued to the date on which his employment terminates (the
"Termination Date") and the amount of any earned but unpaid bonus under Section
3.2.
6.2 INVOLUNTARY TERMINATION.
(a) The Executive's employment with Products shall automatically
terminate upon the Executive's death or, unless the Board of Directors of the
Company in its sole discretion shall otherwise elect, at the end of any
consecutive three-month period during which the Executive is physically or
mentally disabled (measured from the first date on which the Executive is absent
from work due to such disability to the same date in the third succeeding
calendar month, or, if there is no such date or such date is not a business day,
the next succeeding business day) or at the end of such shorter periods
aggregating three months in any twelve month period during which the Executive
is physically or mentally disabled. In the event the Executive's employment with
Products is terminated due to the Executive's death or physical or mental
disability, (i) Products shall pay to
6
<PAGE>
the Executive or, if applicable, his estate or legal representative (or other
beneficiary designated in writing by the Executive) (A) any unpaid portion of
the Signing Bonus, (B) any earned but unpaid bonus under Section 3.2, (C) any
unpaid base salary under Section 3.1 accrued to the Termination Date, (D) an
amount equal to one times his base salary in effect on the Termination Date, and
(E) a ratable portion of the annual bonus that the Executive would have earned,
based on actual performance results, for the current fiscal year; (ii) one year
after the Termination Date, Section 3.6 shall become inapplicable; and (iii)
with regard to any portion of the options granted to the Executive pursuant to
Section 3.4 that, but for such termination of employment, would have become
vested and immediately exercisable (subject to the shareholder approval referred
to in Section 3.4) on the next anniversary of the Commencement Date, a ratable
part of such option portion shall become vested and immediately exercisable
based upon the period of service that has elapsed since the immediately
preceding anniversary of the Commencement Date, or, in the absence of such
anniversary, the Commencement Date.
(b) Products may at any time without advance notice terminate the
Executive's employment with Products without Cause (as hereinafter defined). In
the event Products terminates the Executive's employment hereunder without Cause
prior to the expiration of the term of employment under Section 1, (i) Products
shall be obligated to pay the Executive his base salary in effect on the
Termination Date for a two-year period following the Termination Date plus (A)
if such termination occurs during fiscal 1999, two times $575,000, (B) if such
termination occurs during fiscal 2000, two times the average of (1) the Target
Bonus for fiscal year 2000, and (2) the greater of $575,000 and the actual bonus
for fiscal 1999, and (C) for fiscal 2001 and thereafter, two times the average
of the Target Bonus for the current fiscal year and the Executive's actual bonus
for the most recently completed fiscal year; (ii) any unpaid portion of the
Signing Bonus shall be paid immediately; (iii) any options granted to the
Executive pursuant to Section 3.4 shall become 100% vested and immediately
exercisable, subject to the shareholder approval referred to in Section 3.4;
(iv) the Company shall be obligated to pay a pro rata portion of $575,000 or the
Target Bonus for the current fiscal year; (v) the Executive shall be immediately
and fully vested in all benefits under the SRIP; and (vi) one year after the
Termination Date, Section 3.6 shall become inapplicable. The amount due to the
Executive pursuant to paragraph (b)(i) shall be paid, at the sole discretion of
the
7
<PAGE>
Compensation Board at the Termination Date, either in a lump sum or on a
periodic basis in accordance with normal pay practice, but in no event over a
period in excess of one year. If the Executive terminates his employment within
six months following a Change of Control, such termination shall be deemed a
termination without Cause for the purposes of this Section 6.2(b).
(c) Products may at any time without notice terminate the
Executive's employment with Products for Cause. In the event the Executive's
employment with Products is terminated for Cause, the Executive shall receive
the same amount that would be payable under Section 6.1 if the Executive had
terminated without Good Reason
(d) As used herein, the term "Cause" means (i) fraud or
misappropriation with respect to the business of the Company or any of its
subsidiaries or intentional damage to the property or business of the Company or
any of its subsidiaries, (ii) failure by the Executive to work in his capacity
as Chief Executive Officer and Chairman of the Board of the Company on a
full-time basis at the headquarters of the Company (or such other locations as
may from time to time be appropriate), (iii) malfeasance or misfeasance or
breach of fiduciary duty or representation to the Company, its subsidiaries or
its stockholders, (iv) willful failure to act in accordance with any specific
lawful instructions of a majority of the Board of Directors of the Company, (v)
conviction of the Executive of a felony or a crime involving moral turpitude or
(vi) inaccuracy or breach of the Executive's representations and covenants set
forth in Section 7 hereof.
7. REPRESENTATIONS AND COVENANTS OF THE EXECUTIVE.
7.1 NO VIOLATION. The Executive represents and warrants that he has not
disclosed and will not disclose any confidential information or trade secrets
concerning his former employer to the Company or its subsidiaries or any
directors or officers thereof, and that he can perform his duties for the
Company and Products without disclosing or using any such confidential
information or trade secrets. Executive covenants and agrees that he will not
use any confidential information or trade secrets concerning any former employer
or its subsidiary in violation of any obligations to such former employer during
the term of his employment with Products.
8
<PAGE>
7.2 NO CONFLICTS. The Executive represents and warrants that the terms of
this Agreement do not conflict with any other agreement, written or oral, to
which the Executive is a party or by which the Executive is bound, including,
without limitation, any noncompetition agreement for the benefit of any former
employer.
7.3 CONDUCT. The Executive will at all times refrain from taking any
action or making any statements, written or oral, which are intended to or do
disparage the goodwill or reputation of the Company or any of its subsidiaries
or affiliates or any directors or officers thereof or which could adversely
affect the morale of employees of the Company and its affiliates.
7.4 PERFORMANCE OF DUTIES. The Executive agrees that during the term of
his employment under this Agreement and the Additional Term (as defined below),
the Executive shall not compete with the Company or its subsidiaries in any way
whatsoever. Without limiting the generality of the foregoing, the Executive
shall not, during the term of his employment under this Agreement and during the
Additional Term, directly or indirectly (whether for compensation or otherwise),
alone or as an agent, principal, partner, officer, employee, trustee, director,
shareholder or in any other capacity, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or furnish
any capital to, or be connected in any manner with or provide any services as a
consultant for any business which competes with the business of the Company or
its subsidiaries as such business may be conducted from time to time; provided,
however, that notwithstanding the foregoing, nothing contained in this Agreement
shall be deemed to preclude the Executive from owning not more than 2% of the
publicly traded securities of any entity which is in competition with the
business of the Company or its subsidiaries. The "Additional Term" shall mean a
period of one year after the Termination Date.
7.5 COMPANY INFORMATION. The Executive agrees that so long as he is
employed by Products and following any termination of this employment the
Executive will keep confidential all confidential information and trade secrets
of the Company or any of its subsidiaries or affiliates and will not disclose
such information to any person without the prior approval of the Board of
Directors of the Company or use such information for any purpose other than in
the course
9
<PAGE>
of fulfilling his duties of employment with Products pursuant to this Agreement.
It is understood that for purposes of this Agreement the term "confidential
information" is to be construed broadly to include all material nonpublic or
proprietary information. Upon the termination of this Agreement, or the earlier
request of Products, the Executive shall return any documents, records, data,
books or materials of the Company or its subsidiaries or affiliates in his
possession or control and any of his workpapers containing confidential
information or trade secrets of the Company or its subsidiaries or affiliates.
7.6 COOPERATION. The Executive shall promptly notify Products of any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), in which he may be involved, whether as an actual or potential
party or witness or otherwise, or with respect to which he may receive requests
for information, by reason of his future, present or past association with the
Company or any of its subsidiaries or affiliates. The Executive shall cooperate
fully with the Company and its subsidiaries and affiliates in connection with
any Proceeding at no expense to the Company or any of its subsidiaries or
affiliates other than the reimbursement of the Executive's reasonable
out-of-pocket expenses. The Executive shall not disclose any confidential or
privileged information in connection with any Proceeding without the consent of
Products and shall give prompt notice to Products of any request therefor,
except as required by law, or by the order of any court of competent
jurisdiction or any governmental agency or instrumentality.
7.7 COMPLIANCE WITH POLICIES. During his employment hereunder, the
Executive shall comply with all insider trading and other policies of the
Company and its subsidiaries and all applicable laws. The Executive may hold
positions with or serve on the boards of directors of unaffiliated corporations
only if the Board of Directors of the Company consents.
8. RELEASE. Notwithstanding anything to the contrary contained herein,
Products shall not be obligated to pay the Executive any amount pursuant to
Section 6.1 in the event Executive terminates his employment for Good Reason or
any amount pursuant to Section 6.2(b) hereof and any options held by Executive
shall not be exercisable after the termination of the
10
<PAGE>
Executive's employment hereunder unless the Executive executes and delivers to
Products a release, dated the date of his termination of employment, to the
effect that: for good and valuable consideration, the Executive unconditionally
releases and covenants not to sue the Company and its subsidiaries and
affiliates and directors, officers, employees and stockholders thereof, from any
and all claims, liabilities and obligation of any nature pertaining to
termination of employment other than those explicitly provided for by this
Agreement including, without limitation, any claims arising out of alleged legal
restrictions on Products' rights to terminate its employees, such as any implied
contract of employment or termination contrary to public policy or to laws
prohibiting discrimination (including, without limitation, the Age
Discrimination in Employment Act); and containing such other provisions as the
Company may request to effect the purposes of the foregoing release.
9. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
Each of the parties hereby waives any right such party may have to a trial by
jury. The parties hereto agree that the language of this Agreement shall be
construed neutrally and not strictly for or against either of the parties.
10. ENTIRE AGREEMENT AND SURVIVORSHIP. This Agreement constitutes the
entire agreement and understanding between the parties hereto with respect to
the matters referred to herein and supersedes all prior agreements and
understandings between the parties hereto or their affiliates with respect to
the matters referred to herein. The representations, warranties and covenants of
the Executive contained in all parts of Section 7, and the release provided for
in Section 8, shall survive expiration or termination of this Agreement by
either party.
11. NOTICE. Any written notice required to be given by one party to the
other party hereunder shall be deemed effective if mailed by certified or
registered mail:
To the Company: c/o Blackstone Capital Partners L.P.
345 Park Avenue
New York, NY 10154
Attention: David A. Stockman
11
<PAGE>
Wasserstein Perella & Company., Inc.
31 West 52nd Street
New York, NY 10019
Attention: Dr. Bruce R. Barnes
To the Executive: Thomas E. Evans
1275 Arbor Lane
Lake Forest, Illinois 60045
or such other address as may be stated in notice given under this Section 11.
12. SEVERABILITY. The invalidity, illegality or enforceability 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. Without
limiting the foregoing, the covenants of the Executive set forth in Sections 7.4
and 7.5, respectively, constitute agreements independent of any other provisions
of this Agreement and the Executive acknowledges that his failure to comply with
the provisions of Sections 7.4 and 7.5 will result in irreparable and continuing
damage for which there will be no adequate remedy at law and that, in the event
of a failure of the Executive so to comply, Products shall be entitled, without
the necessity of proving actual damages or securing or posting any bond, to
injunctive relief in addition to all other remedies which may otherwise be
available to Products and to such other and further relief as may be proper and
necessary to ensure compliance with the provisions of Sections 7.4 and 7.5. If
any covenants contained in Section 7.4 shall be deemed to be invalid, illegal or
unenforceable as written by reason of the extent, duration or geographical scope
thereof, or otherwise, the determining body or authority making such
determination shall be empowered to reduce such covenants so as to be
enforceable to the greatest extent possible and, as so reduced, such covenants
shall then be deemed to be rewritten and enforced as reduced.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their personal representatives, and, in
the case of the Company and Products, their successors and assigns, and Sections
3.7 and 8 shall also inure to the benefit of
12
<PAGE>
the other persons and entities identified therein. Except as otherwise expressly
provided herein, the Executive shall not, without the prior written consent of
Products, transfer, assign, convey, pledge or encumber this Agreement or any
interest under this Agreement. The Executive understands that pursuant to loan
agreements to which the Company is a party, the business of the Company is
restricted to ownership of stock and certain other limited activities and
accordingly the obligations of the Company under this Agreement will be carried
out by Products. The Executive understands that the assignment of this Agreement
or any benefits hereof or obligations hereunder by the Company to any
significant subsidiary, or to any purchaser of all or a substantial portion of
the assets of the Company, and the employment of the Executive by such
subsidiary or by any such purchaser or by any successor of the Company in a
merger or consolidation, shall not be deemed a termination of the Executive's
employment for purposes of Section 6.2 or otherwise.
14. AMENDMENT. This Agreement may be amended or canceled only by an
instrument in writing duly executed and delivered by each party to this
Agreement.
15. HEADINGS. Headings contained in this Agreement are for convenience
only and shall not limit this Agreement or affect the interpretation thereof.
16. MISCELLANEOUS. In executing this Agreement, the Executive has not
relied upon any statement, representation or promise, whether written or oral,
of the Company or any of its subsidiaries or affiliates, or of any
representative or attorney for the Company or any of its subsidiaries or
affiliates, except for statements expressly set forth in this Agreement.
17. EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective as of
the date hereof.
18. REIMBURSEMENT OF LEGAL FEES. Products shall reimburse the Executive
for half of the reasonable legal fees incurred by him in connection with his
review and negotiation of this Agreement, provided that such reimbursement does
not exceed $5,000.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
/s/ Thomas E. Evans
-----------------------------
Thomas E. Evans
COLLINS & AIKMAN CORPORATION
By: /s/ Bruce Barnes
-----------------------------
Bruce Barnes
By: /s/ David A. Stockman
-----------------------------
David A. Stockman
COLLINS & AIKMAN PRODUCTS
CO.
By: /s/ Bruce Barnes
-----------------------------
Bruce Barnes
By: /s/ David A. Stockman
-----------------------------
David A. Stockman
14
<PAGE>
Annex A
Executive Benefits
Supplemental Retirement Income Plan (SRIP) - The Executive is eligible for a
supplemental retirement income benefit which provides 25.7 to 60% of Total
Annual Compensation (Base Salary and average of final three years bonus). The
supplemental retirement benefit is offset by any payments from profit sharing,
social security, Pension Account Plan or any of the Excess Pension Benefit
Plans.
The Executive will be credited with past service accrued under the Tenneco
Executive Retirement Plan which will provide a Benefit Accrual amount of 31.2%
on the first day of employment under the SRIP. All benefits accrued after the
Commencement Date will be according to the Plan Schedule shown in Attachment A.
Additionally, subject to Sections 3.5 and 6.2(b) of the Agreement, the Executive
will be immediately and fully vested in all SRIP benefits on the third
anniversary of the Commencement Date.
Executive Medical Reimbursement Plan - The Executive is provided up to $3,500
per year to pay for any expenses not normally covered under the Company
Medical/Dental Plans. For example, any deductibles or co-insurance not covered
under the Plan.
Executive Life Insurance Plan - The Executive is provided a group-term life
insurance benefit equal to 3 1/2 times the annual salary.
Executive Retiree Medical Plan - The Executive and their spouse are provided a
lifetime benefit of up to $1,000,000 under the Company Medical Plan. Executive
must be vested under the terms of Supplemental Retirement Income Plan for
eligibility under the Retiree Medical Plan.
Executive Retiree Life Insurance Plan - The Executive is provided a retiree life
insurance benefit equal to one times the annual salary in effect at retirement.
Executive must be vested under the terms of the Supplemental Retirement Income
Plan for eligibility under the Retiree Life Insurance Plan.
Executive Perquisites
Club Membership - Executive is provided a membership to a country club including
reasonable reimbursement of the initiation fee, and monthly dues and ongoing
assessments.
Luncheon Club - Executive is provided a membership to a luncheon club including
reimbursement of the initiation fee, and monthly dues and ongoing assessments.
Company Automobile - Executive is provided a company automobile with a value of
$38,000 to $42,000. Some discretion is allowed regarding the value and model of
the automobile for the
<PAGE>
Executive within the current Policy. The annualized imputed value for personal
use of the Executive's Company automobile will be grossed-up in accordance with
C&A Policy.
Company Plane - Executive will be entitled to personal use of the Company plane.
The annualized imputed value for such personal use will be grossed-up in
accordance with C&A Policy, but such gross-up allowance will not exceed $25,000
per year.
Benefits
Group Medical -
Blue Cross/Blue Shield Traditional Medical Plan - Provides up to 80%
reimbursement after satisfaction of a $200 individual or $400 family
deductible. The Plan has an annual out-of-pocket maximum of $1,000 per
individual or $2,000 per family. Employees are required to make a
contribution for coverage.
Blue Cross/Blue Shield Managed Care Plan - Provides access to a Preferred
Provider Organization (PPO) and up to 100% reimbursement for office visits
with a $15 co-payment. Other services are reimbursed at 80% after
satisfaction of a $200 individual or $400 family deductible. The Plan has
an annual out-of-pocket maximum of $1,000 per individual or $2,000 per
family. Employees are required to make a contribution for coverage.
Blue Cross/Blue Shield Health Maintenance Organization (HMO) - Provides
access to the Blue Cross/Blue Shield HMO which generally provides 100%
reimbursement along with a $10 co-payment for office visits. Employees are
required to make a contribution for coverage.
Group Dental -
Basic Dental Plan - Provides 50% or 100% reimbursement based upon the
class of service up to $750 per year. There is no deductible required for
any class of service and orthodontia benefits are not available. Employees
are required to make a contribution for coverage.
Optional Dental Plan - Provides 50%, 80% or 100% reimbursement based upon
the class of service up to $1,000 per year. There is a $50 annual
deductible per covered individual for Basic and Major Services.
Orthodontia coverage is provided after a $50 deductible up to a $1,000
maximum benefit. Employees are required to make a contribution for
coverage.
Group Vision - Provides a maximum calendar year benefit of $50 to $250 based
upon the type of expense incurred. Employees are required to make a contribution
for coverage.
Basic Accidental Death & Dismemberment Insurance - Employees are provided 1 1/2
times the annual salary in the event of an accident that results in a loss of
life.
Optional Term Life Insurance - Employees are eligible to purchase from one to
five times their annual salary and the cost is based upon their age and amount
of insurance elected.
<PAGE>
Optional Family Term Life Insurance - Employees are eligible to purchase family
term life insurance in the amount of $5,000 for the spouse and $1,500 for each
covered child.
Optional Family Accidental Death & Dismemberment Insurance - Employees are
eligible to purchase 50% of the employees optional AD&D coverage for the spouse
and 10% of the employee's optional AD&D coverage for each covered child.
Optional Accidental Death & Dismemberment Insurance - Employees are eligible to
purchase from one to three times their annual salary up to $500,000 and the cost
is based upon the amount of insurance elected.
Business Travel Accident Insurance - Employees are provided a benefit of three
times the annual salary up to $1,250,000 in the event of accidental death while
traveling on Company business.
Short-term Disability Insurance - Employees are eligible for up to 90 days of
full pay in a 12 month period in the event of illness or injury. This coverage
is provided at no cost to the employee.
Long-term Disability Insurance - Employees are eligible to purchase coverage
that will provide a benefit of 66_% of their monthly salary up to $11,111 in the
event of disability.
Employee is required to pay $.25 per $100 of coverage per month.
Retirement Income Security Plan
Pension Account Plan - The Company provides a Cash Balance Pension Plan which
provides monthly pay credits of 2.5% to 10% of pay based upon age and/or service
subject to certain social security offsets. Additionally, employee will earn
interest credits from 5% to 12% of the account balance and all Company
contributions are subject to five-year cliff vesting.
Shadow Retirement Income Plan - The Company provides a Shadow Pension Account
Plan that will provide eligible participants subject to various Internal Revenue
Service earnings limitations an opportunity to continue accrual of Pension Plan
benefits. Company contributions are subject to five-year cliff vesting.
Savings Account Plan - Effective July 1, 1999 Collins & Aikman will introduce a
new Company Match of $.70/$1 for the first 3% of compensation and $.50/$1 for
the next 3% of compensation. Employees will have access to eight Mutual Funds
provided by J.P. Morgan/American Century, Collins & Aikman stock and an
individual brokerage account window.
All Company contributions are subject to five-year cliff vesting.
Shadow Savings Account Plan - Employees can elect to contribute to the Shadow
Savings Account Plan in the event the Internal Revenue Service $10,000 limit or
any other taxing/testing limits are reached. Employees will continue to receive
the Company Match on contributions to the Shadow Savings Account Plan. For
vesting purposes only, Executive will receive service credit for the period
commencing June 1, 1995, and ending on the Commencement Date.
<PAGE>
Additional Benefits such as Tuition Reimbursement, Matching Grants, Scholarships
and Employee Assistance Plan are provided.
<PAGE>
Attachment A
Supplemental Retirement Income Plan
Benefit Accrual
==================== ============================================
Years of Service % of Participating Employee's
Total Annual Compensation
==================== ============================================
1 25.7%
2 27.6
3 29.4
4 31.2
5 33
6 34.8
7 36.6
8 38.4
9 40.2
10 42
11 43.8
12 45.6
13 47.4
14 49.2
15 51
16 52.8
17 54.6
18 56.4
19 58.2
20 or more 60
-------------------- -------------------------------------------
EMPLOYMENT AND RETENTION AGREEMENT
THE EMPLOYMENT AND RETENTION AGREEMENT (the "Agreement") is made and
entered into as of January 1, 1999, by and between COLLINS & AIKMAN CORPORATION,
a Delaware corporation (the "Company"), and J. MICHAEL STEPP ("Employee").
WITNESSETH
WHEREAS, Employee is currently employed by the Company; and
WHEREAS the Company wishes to retain Employee's services by providing
Employee with the benefits set forth in this Agreement.
NOW, THEREFORE, in consideration of the Employee's continued employment
and the mutual agreements contained herein, the parties agree as follows:
1. Term of Employment. The Company hereby agrees to continue to employ
Employee, and Employee hereby accepts employment, for a period commencing on the
date hereof and ending December 31, 1999, subject to the terms and conditions of
this Agreement.
2. Position of Employment. During the term of Employee's employment
hereunder, Employee shall be employed in the position of Executive Vice
President and Chief Financial Officer or Executive Vice President responsible
for the reorganization of the Company and the consolidation of its divisions.
Employee shall perform such services for the Company and its subsidiaries as may
be assigned to him from time to time by (i) the Chief Executive Officer of the
Company (the "CEO") (ii) the Board of Directors of the Company or (iii) by the
Co-Chairmen. Employee shall devote his full time and attention to the affairs of
the Company
<PAGE>
and its subsidiaries and his duties in such positions. Employee's compensation
under this Agreement shall be compensation for Employee's services to the
Company and its subsidiaries in all such positions and, except as expressly
provided herein, Employee shall not be entitled to any salary, bonus, benefit or
other compensation as a result of his services to the Company and its
subsidiaries.
3. Compensation and Benefits.
3.1 Base Salary. The Company shall pay Employee a base salary at an
annual rate of not less than $300,000 during the term of his employment
hereunder. Such amount shall be reviewed on a periodic basis by CEO and the
Board of Directors of the Company or an appropriate committee thereof (the
Company's Board of Directors or such committee being referred to herein as the
"Compensation Board"). During the term of Employee's employment hereunder the
Company may not decrease Employee's base salary below the amount set forth in
this Section 3.1.
3.2 Bonus Plans.
(a) During the term of Employee's employment hereunder, Employee shall
be eligible to participate in the Company's annual Executive Incentive
Compensation Plan (the "EIC Plan") in accordance with the applicable provisions
of the EIC Plan. The standard bonus for Employee under the EIC Plan shall not be
less than fifty percent of Employee's base salary.
(b) For the 1999 fiscal year of the Company only, the Company shall pay
a one-time Transition Bonus to Employee. The amount of the Transition Bonus paid
shall depend upon the achievement of targets related to the Company's transition
plan. The standard amount of the Transition Bonus shall be one hundred percent
of Employee's base salary.
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<PAGE>
(c) Notwithstanding anything to the contrary contained herein or in the
EIC Plan, (i) Employee shall not be entitled to receive any cash bonus in
respect of any fiscal year if Employee's employment with the Company is
voluntarily terminated by Employee or if the Company terminates Employee's
employment with the Company for Cause (as defined in Section 5.2(d)), in either
event, prior to the last day of such fiscal year and (ii) if Employee is
employed hereunder for less than the whole of any fiscal year for any reason
other than a voluntary termination by Employee or a termination for Cause by the
Company, Employee shall be entitled to receive, in lieu of any bonus under
Sections 3.2(a) and 3.2(b) for such year, a pro rata portion (based on the
number of months of such fiscal year during which Employee was actually employed
hereunder over 12) of any such bonus.
3.3 Equity Plans.
(a) During the term of Employee's employment hereunder, Employee shall
be eligible to participate in and receive awards under the Collins & Aikman
Corporation Stock Option Plan and any other incentive equity compensation
plan(s) that might be adopted by the Company at a level and pursuant to such
terms and conditions as shall be determined by the Board of Directors of the
Company or its delegate, it its sole discretion.
(b) Upon the execution of this Agreement by Employee, subject to Section
18, Employee shall be granted an option to purchase 50,000 shares of the common
stock of the Company. The exercise price shall be the fair market value of the
common stock of the Company on the date this Agreement is executed by Employee.
The option shall become exercisable in full on December 31, 1999; provided,
however that if the employment of Employee is terminated in a manner so as to
entitle Employee to benefits under Section 5.2(b), the option shall become
immediately exercisable in full. The grant of the option shall be made
-3-
<PAGE>
pursuant to, and subject to the terms, conditions and restrictions set forth in,
the Collins & Aikman Corporation Stock Option Plan. The definitive terms of the
grant of the option shall be set forth in a written agreement no later than ten
business days after the date this Agreement is executed by Employee.
3.4 Other Benefits. Employee shall be eligible to participate during his
period of employment hereunder in all employee benefit programs of the Company
from time to time generally in effect for executive officers of the Company,
which currently include pension and other retirement plans, a profit sharing
plan, group life insurance, medical/dental insurance, sick leave, holidays and
long-term disability; provided, however, that the provisions of (i) Section
3.2(a) shall apply in lieu of any bonus plan of the Company or any of its
subsidiaries and (ii) Section 5 shall apply in lieu of any severance policy of
the Company or any of its subsidiaries. During the term of Employee's employment
hereunder, the Company shall not decrease the benefits available to Employee
pursuant to this Section 3.4 unless such reduction in the level of benefits is
generally applicable to senior executives of the Company.
3.5 Withholding. Employee agrees that the Company may deduct and
withhold from compensation payments the amounts the Company in good faith
believes are required to be deducted and withheld under the provisions of any
statute, law, regulation or ordinance heretofore or hereafter enacted.
4. Business Expenses. The Company shall reimburse Employee for all
reasonable expenses incurred by him in connection with the conduct of business
for the Company and its subsidiaries, including, without limitation, all
reasonable travel expenses incurred by Employee in connection with any travel by
Employee on business trips. Employee shall furnish receipts for such expenses in
accordance with the Company's policies.
-4-
<PAGE>
5. Termination of Employment.
5.1 Voluntary Termination. Employee may terminate his employment with
the Company at any time. In the event Employee terminates such employment
voluntarily, upon such termination the Company shall pay Employee his unpaid
base salary under Section 3.1 accrued to the date on which his employment
terminates (the "Termination Date") and any unpaid cash bonus for the prior
fiscal year that Employee may be entitled to receive pursuant to Section 3.2(a)
or Section 3.2(b), and no other salary, bonus, benefits or other compensation
other than accrued and vested benefits under employee benefit plans sponsored by
the Company.
5.2 Involuntary Termination.
(a) Employee's employment with the Company shall automatically
terminate upon Employee's death or, unless the Board of Directors of the Company
in its sole discretion shall otherwise elect, Employee's physical or mental
disability for any consecutive six-month period (measured from the first date on
which Employee is absent from work due to such disability to the same date in
the sixth succeeding calendar month, or, if there is no such date or such date
is not a business day, the next succeeding business day) or for shorter periods
aggregating six months in any twelve month period. In the event Employee's
employment with the Company is terminated due to Employee's death or physical or
mental disability, the Company shall pay to Employee or, if applicable, his
estate or legal representative (i) his unpaid base salary under Section 3.1
accrued to the Termination Date plus (ii) an amount equal to one year's base
salary plus (iii) any unpaid cash bonus for the prior fiscal year or the current
fiscal year that Employee may be entitled to receive pursuant to Section 3.2,
and no other salary, bonus, benefits or other compensation. The amount due to
Employee pursuant to this paragraph (a) shall be paid, at the sole election of
Employee or, if applicable, his estate or legal representative, at the time of
-5-
<PAGE>
termination, either in a lump sum or in a reasonable number of equal annual
installments to be specified by Employee or, if applicable, Employee's estate or
legal representative at the Termination Date.
(b) Unless the employment of Employee has been previously terminated
under Section 5.1, 5.2(a) or 5.2(c), on the earlier of (i) December 31, 1999;
(ii) the involuntary termination of Employee's employment with the Company by
the Company for any reason other than Employee's death or disability or
termination for Cause; (iii) the violation by the Company of Section 3.1 or 3.4
by reducing Employee's base salary or by materially reducing Employee's level of
benefits (unless such reduction in the level of benefits is generally applicable
to senior executives of the Company); (iv) the suffering by Employee, without
Employee's consent, of a significant change that is in violation of any term or
condition of his employment as set forth in Section 2 which is not remedied
within 10 calendar days after receipt by the Company of written notice from
Employee of such change or (v) the involuntary relocation of Employee to any
office or location more than thirty miles from the office or location at which
Employee is currently located or the material increase in Employee's travel
requirements (except to the extent such increase is attributable to a relocation
of the Company's headquarters); then, subject to Sections 6 and 7, this
Agreement shall terminate and the Company shall be obligated to pay or provide
Employee (I) his unpaid base salary under Section 3.1 accrued to December 31,
1999; (II) an amount equal to one times his base salary under Section 3.1; (III)
any unpaid cash bonus for 1999 that Employee may be entitled to receive pursuant
to Sections 3.2(a) and 3.2(b); (IV) continued coverage under the Company's
executive level health benefit plans for the two-year period following
Employee's Termination Date; (V) full vesting of Employee's benefits under all
retirement plans maintained by the Company and its affiliates other than the
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Supplemental Retirement Income Plan and (VI) full vesting of all outstanding
options granted to Employee under the Company's incentive equity compensation
plans and an extension of the period during which Employee may exercise said
options until the earlier of (A) the original expiration date of said options or
(B) one year after Employee's Termination Date. The provision of benefits under
Section 5.2(b)(IV) shall be reduced to the extent comparable benefits are
actually received by the Employee from another employer during the two-year
benefit continuation period; any such benefits actually received by the Employee
shall be reported by the Employee to the Company.
(c) The Company may at any time without notice terminate Employee's
employment with the Company for Cause. In the event Employee's employment with
the Company is terminated for Cause, Employee shall receive his unpaid base
salary under Section 3.1 accrued to the Termination Date and no other salary,
bonus, benefits or other compensation, including, without limitation, any unpaid
cash bonus for the prior fiscal year that Employee would otherwise be entitled
to receive pursuant to Section 3.2.
(d) As used herein, the term "Cause" means (i) fraud or misappropriation
with respect to any business of the Company or intentional material damage to
any property or business of the Company or an affiliate of the Company, (ii)
wilful failure by Employee to perform his duties and responsibilities and to
carry out his authority, (iii) wilful malfeasance or misfeasance or breach of
fiduciary duty or representation to the Company or its owners or an affiliate of
the Company, (iv) wilful failure to act in accordance with any specific lawful
instructions of the CEO or a majority of the Board of Directors of the Company
or (v) conviction of Employee of a felony.
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<PAGE>
(e) Upon the termination of his employment with the Company, Employee
shall resign from any position he may hold as a director of the Company or any
subsidiary of the Company or as a member of any committee established by the
Board of Directors of the Company or any subsidiary.
5.3 Payment of Severance Benefits; Delivery of General Release. The
amount due to Employee pursuant to Section 5.2(b) shall be paid no later than 30
days after the Termination Date in a lump sum. Notwithstanding the foregoing,
the Company shall not be obligated to pay Employee any amount pursuant to
Section 5.2(b) unless Employee executes and delivers to the Company a release of
the parties set forth in Section 7 hereof, such release to be dated as of the
Termination Date and in the form attached as Exhibit A hereto.
5.4 Coordination of Agreements. If Employee should become entitled to
benefits under both this Agreement and Employee's Change in Control Agreement,
dated March 17, 1998 (the "Change in Control Agreement"), Section 6 of the
Change in Control Agreement shall apply; provided, however, (i) any amount that
Employee shall become entitled to receive under Section 3.2(b) of this Agreement
shall not reduce the payment due to Employee under Section 2 of, or any other
benefit under, the Change in Control Agreement, and (ii) all other cash payments
and benefits provided under this Agreement that are described by Section 6 of
the Change in Control Agreement shall be taken into account under Section 6 of
the Change in Control Agreement, including, without limitation, subject to
clause (i), the payments and benefits listed in Sections 5.2(b)(I) through
5.2(b)(VI) of this Agreement.
6. Representations and Covenants of Employee.
6.1 Conduct. Employee shall at all times refrain from taking any action
or making any statements, written or oral, which are intended to or do disparage
the goodwill or reputation
-8-
<PAGE>
of the Company or any of its subsidiaries or affiliates or any directors or
officers thereof or which could adversely affect the morale of employees of the
Company and its affiliates.
6.2 Non-Competition.
(a) Employee agrees that (i) in the event of any voluntary termination
by Employee or any involuntary termination for Cause of Employee's employment by
the Company, for the longer of one year after the Termination Date and the
expiration of the term of employment then in effect under Section 1 and (ii) in
any event, until the expiration of the term of employment then in effect under
Section 1, he shall not accept employment with, or render consulting or other
advisory services to, any of the companies listed on Exhibit B hereto, or to any
of their affiliates.
(b) Notwithstanding paragraph (a) of this Section 6.2, nothing in this
Agreement shall prohibit or penalize the ownership by Employee of the shares of
a business that are registered under Section 12 of the Securities Exchange Act
of 1934 and constitute, together with all such shares owned by any immediate
family member or affiliate of, or person acting in concert with, Employee, less
than 2% of the outstanding registered shares of such business.
6.3 Company Information. Employee agrees that, so long as he is employed
by the Company and following any termination of his employment (whether or not
the restrictions of Section 6.2 are or continue to be applicable), Employee
shall keep confidential all confidential information and trade secrets of the
Company or any of its subsidiaries or affiliates and shall not disclose such
information to any person without the prior approval of the Board of Directors
of the Company or use such information for any purpose other than in the course
of fulfilling his duties of employment with the Company pursuant to this
Agreement. Upon the termination of this Agreement, or the earlier request of the
Company, Employee shall return any documents, records, data, books or materials
of the Company or its subsidiaries or affiliates in his possession
-9-
<PAGE>
or control and any of his workpapers containing confidential information or
trade secrets of the Company or its subsidiaries or affiliates. It is understood
that for purposes of this Agreement the term "confidential information" is to be
construed broadly to include all material nonpublic or proprietary information.
This Section 6.3 shall survive any termination of this Agreement.
6.4 Cooperation. Employee shall promptly notify the Company of any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), in which he may be involved, whether as an actual or potential
party or witness or otherwise, or with respect to which he may receive requests
for information, by reason of his future, present or past association with the
Company or any of its subsidiaries or affiliates. Employee shall cooperate fully
with the Company and its subsidiaries and affiliates in connection with any
Proceeding at no expense to the Company or any of its subsidiaries or affiliates
other than the reimbursement of Employee's reasonable out-of-pocket expenses.
This Section 6.4 shall survive any termination of this Agreement. Employee shall
not disclose any confidential or privileged information in connection with any
Proceeding without the consent of the Company and shall give prompt notice to
the Company of any request therefor.
7. Release. In consideration of the compensation continuance available
in certain events pursuant to this Agreement, Employee unconditionally releases
the Company and its subsidiaries and affiliates and directors, officers,
employees and stockholders thereof, from any and all claims, liabilities and
obligations of any nature pertaining to the terms of his employment or the
termination of his employment other than those explicitly provided for by this
Agreement including, without limitation, any claims arising out of alleged legal
restrictions on the Company's rights to terminate its employees, such as any
termination contrary to public policy or
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to laws prohibiting discrimination (including, without limitation, the Age
Discrimination in Employment Act).
8. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
Each of the parties hereby waives any right such party may have to a trial by
jury. The parties agree that the language of this Agreement shall be construed
neutrally and not strictly for or against either of the parties.
9. Entire Agreement. This Agreement and the Change in Control Agreement
constitute the entire agreement and understanding between the parties hereto
with respect to the matters referred to herein and in the Change in Control
Agreement and supersede all prior agreements and understandings between Employee
and the Company or any affiliate of the Company with respect to the employment
of Employee and any other matters referred to herein and in the Change in
Control Agreement.
10. Notice. Any written notice required to be given by one party to the
other party hereunder shall be deemed effective if mailed by registered mail:
To the Company at:
Collins & Aikman Corporation
701 McCullough Drive
P.O. Box 32655
Charlotte, North Carolina 28232
Attn: Chief Executive Officer
To Employee at:
Mr. J. Michael Stepp
7021 Old Dairy Lane
Charlotte, North Carolina 28211
or such other address as may be stated in notice given under this Section 10.
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<PAGE>
11. Severability; Enforceability. 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. The parties recognize that the services to be rendered under this Agreement
by Employee are special, unique and extraordinary in character, and that in the
event of the breach by employee of the terms and conditions of this Agreement to
be performed by him, then the Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages or such other relief deemed
appropriate, or to enforce the specific performance by Employee or to enjoin
Employee from violating any of the terms of this Agreement. Without limiting the
foregoing, the covenants of Employee set forth in Section 6.1 and 6.2 constitute
an agreement independent of any other provisions of this Agreement and Employee
acknowledges that his failure to comply with the provisions of Section 6.1 and
6.2 will result in irreparable and continuing damage for which there will be no
adequate remedy at law and that, in the event of a failure of Employee so to
comply, the Company shall be entitled, without the necessity of proving actual
damages or securing or posting any bond, to injunctive relief in addition to all
other remedies which may otherwise be available to the Company and to such other
and further relief as may be proper and necessary to ensure compliance with the
provisions of Section 6.1 and 6.2. If any covenants contained in Section 6.1 and
6.2 shall be deemed to be invalid, illegal or unenforceable as written by reason
of the extent, duration or geographical scope thereof, or otherwise, the
determining body or authority making such determination shall be empowered to
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<PAGE>
reduce such covenants so as to be enforceable to the greatest extent possible
and, as so reduced, such covenants shall then be deemed to be rewritten and
enforced as reduced.
12. Arbitration. Subject to the provisions of Section 11, any dispute
between Employee and the Company arising out of this Agreement or the
performance or nonperformance hereof shall, upon the demand of a party, be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and the provisions of this
Section. The arbitration shall be conducted in Charlotte, North Carolina, by a
panel of three neutral arbitrators selected in accordance with such Commercial
Arbitration Rules. In conducting the arbitration and rendering their award, the
arbitrators shall give effect to the terms of this Agreement, including the
choice of applicable law, shall give effect to any other agreement of the
parties relating to the conduct of the arbitration and shall give affect to
applicable statutes of limitations. The costs of the arbitration, including the
fees and expenses of the arbitrators and of the American Arbitration
Association, shall be allocated between Employee and the Company as, and in such
proportions as, the arbitrators shall determine to be just and equitable, which
determination shall be set forth in the award. Judgment upon the award of the
arbitrators may be entered by any court of competent jurisdiction.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their personal representatives,
and, in the case of the Company, its successors and assigns, and Section 7 shall
also inure to the benefit of the other persons and entities identified therein;
provided, however, that Employee shall not, without the prior written consent of
the Company, transfer, assign, convey, pledge or encumber this Agreement or any
interest under this Agreement. Employee understands that the assignment of this
Agreement or any benefits hereof or obligations hereunder by the Company to any
related entity of the
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<PAGE>
Company or to any purchaser at all or a substantial portion of the assets or
stock of the Company, and the employment of Employee by any related entity of
the Company or any such purchaser or by any successor of the Company in a merger
or consolidation, shall not be deemed a termination of Employee's employment for
purposes of Section 5.2 or otherwise. If any of the Company's obligations under
this Agreement are expressly assumed any related entity of the Company or by any
purchaser of all or a substantial portion of the assets or stock of the Company,
the Company shall be released from such obligations.
14. Amendment. This Agreement may be amended or canceled only by an
instrument in writing duly executed and delivered by each party to this
Agreement.
15. Headings. Headings contained in this Agreement are for convenience
only and shall not limit this Agreement or affect the interpretation thereof.
16. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective as provided in Section 18 hereof.
17. Miscellaneous. In executing this Agreement, Employee has not relied
upon any statement, representation or promise, whether written or oral, of the
Company or any of its subsidiaries or affiliates, or of any representative or
attorney for the Company or any of its subsidiaries or affiliates, except for
statements expressly set forth in this Agreement. Each of the parties has read
this Agreement carefully, with the assistance of legal counsel selected by such
party, and knows and understands the contents hereof and thereof, including,
without limitation, in the case of Employee the release set forth in Section 7
hereof.
18. Effective Date of Agreement. Employee acknowledges that he was
advised that he had a period of 21 calendar days in which to consider and
execute this Agreement. Employee
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<PAGE>
further acknowledges and understands that he has seven calendar days from the
date on which he executes this Agreement to revoke it. Accordingly, this
Agreement shall not become effective or enforceable until the revocation period
has expired. To the extent that it has not otherwise done so, the Company hereby
advises Employee to consult with an attorney prior to executing this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
EMPLOYEE:
/s/ J. Michael Stepp
----------------------------
J. Michael Stepp
COMPANY:
COLLINS & AIKMAN CORPORATION
By: /s/ Thomas E. Hannah
---------------------------
Thomas E. Hannah
President & Chief Executive
Officer
APPROVED:
/s/ D. Stockman
---------------------------
D. Stockman, Director
/s/ B. Barnes
---------------------------
B. Barnes, Director
/s/ T. Hannah
---------------------------
T. Hannah, Director
<PAGE>
EXHIBIT A
RELEASE (the "Release") dated as of April 20, 1999, by J. Michael
Stepp ("Employee") in favor of Collins & Aikman Corporation, a Delaware
corporation (the "Company").
WHEREAS, pursuant to that certain Employment and Retention Agreement
(the "Agreement") by and between the Company and Employee dated as of January 1,
1999, the Company agreed to provide Employee with certain severance and
retention benefits (the "Benefits") and Employee agreed to accept the Benefits,
all on the terms and conditions set forth in the Agreement; and
WHEREAS, pursuant to Section 5.3 of the Agreement, Employee shall
not be entitled to receive certain severance benefits unless Employee executes
and delivers to the Company a release of the parties as set forth in Section 7
of the Agreement, such release to be dated as of the Termination Date (as such
term is defined in the Agreement);
NOW THEREFORE, for good and valuable consideration in connection
with the receipt of the Benefits, Employee agrees as follows:
1. Release. Employee unconditionally releases the Company and its
subsidiaries and affiliates and directors, officers, employees and stockholders
thereof, from any and all claims, liabilities and obligations of any nature
pertaining to the terms of his employment or the termination of his employment
other than those explicitly provided for by the Agreement including, without
limitation, any claims arising out of alleged legal restrictions on the
Company's rights to terminate its employees, such as any termination contrary to
public policy or to laws prohibiting discrimination (including, without
limitation, the Age Discrimination in Employment Act).
2. Governing Law. The validity, interpretation and performance of this
Release shall be governed by the laws of the State of New York, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
Employee hereby waives any right such party may have to a trial by jury.
3. Miscellaneous. In executing this Release, Employee has not relied
upon any statement, representation or promise, whether written or oral, of the
Company or any of its subsidiaries or affiliates, or of any representative or
attorney for the Company or any of its subsidiaries or affiliates, except for
statements expressly set forth in this Release. Employee has read this Release
carefully and knows and understands the contents hereof.
<PAGE>
IN WITNESS WHEREOF, Employee has executed this Release as of the
date and year first above written.
/s/ J. Michael Stepp
-----------------------
J. MICHAEL STEPP [L.S.]
A-2
<PAGE>
EXHIBIT B
American Sunroof
Guilford
Joan Fabrics
Lear
Johnson Controls
Milliken
Rieter/Magee
COLLINS & AIKMAN CORPORATION
1994 EMPLOYEE STOCK OPTION PLAN
As Amended through April 12, 1999
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
------------------
Page
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<S> <C>
I. Purposes of the Plan.................................................................. 1
II. Definitions........................................................................... 1
III.Effective Date........................................................................ 4
IV. Administration........................................................................ 4
A. Duties of the Committee.......................................................... 4
B. Advisors......................................................................... 5
C. Indemnification.................................................................. 5
D. Meetings of the Committee........................................................ 5
E. Determinations................................................................... 5
V. Shares; Adjustment Upon Certain Events................................................ 6
A. Shares to be Delivered; Fractional Shares........................................ 6
B. Number of Shares................................................................. 6
C. Adjustments; Recapitalization, etc............................................... 6
VI. Awards and Terms of Options........................................................... 7
A. Grant............................................................................ 7
B. Exercise Price................................................................... 7
C. Number of Shares................................................................. 7
D. Exercisability................................................................... 7
E. Acceleration of Exercisability................................................... 7
F. Exercise of Options.............................................................. 8
G. Black-Out Periods................................................................ 9
H. Non-Competition and Other Provisions............................................. 9
I. Restrictions on Exercise......................................................... 9
J. Incentive Stock Option Limitations............................................... 9
VII. Effect of Termination of Relationship............................................ 10
A. Death, Disability, Retirement, etc.............................................. 10
B. Cause............................................................................ 10
C. Other Termination................................................................ 11
D. Cancellation of Options.......................................................... 11
VIII. Nontransferability of Options.................................................... 11
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
IX. Rights as a Stockholder.......................................................... 11
X. Termination, Amendment and Modification.......................................... 11
A. General Amendments............................................................... 11
B. Other Termination................................................................ 12
XI. Use of Proceeds.................................................................. 12
XII. General Provisions............................................................... 12
A. Right to Terminate Employment ....................................................12
B. Purchase for Investment.......................................................... 12
C. Trusts, etc...................................................................... 13
D. Notices.......................................................................... 13
E. Severability of Provisions....................................................... 13
F. Payment to Minors, Etc........................................................... 13
G. Headings and Captions............................................................ 13
H. Controlling Law.................................................................. 14
I. Section 162(m) Deduction Limitation.............................................. 14
J. Section 16(b) of the Act......................................................... 14
XIII. Issuance of Stock Certificates; Legends; Payment of Expenses .................. 14
A. Stock Certificates............................................................... 14
B. Legends.......................................................................... 14
C. Payment of Expenses.............................................................. 14
XIV. Listing of Shares and Related Matters............................................ 14
XV. Withholding Taxes..................................................................... 15
Schedule I. 1997 U.K. Executive Stock Option Scheme ......................................16
</TABLE>
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Collins & Aikman Corporation
1994 Employee Stock Option Plan
(As Amended)
I. Purposes of the Plan
The purposes of this 1994 Employee Stock Option Plan (the "Plan")
are to enable Collins & Aikman Corporation (formerly Collins & Aikman Holdings
Corporation), (the "Company") and Related Persons (as defined herein) to
attract, retain and motivate the employees and consultants who are important to
the success and growth of the business of the Company and Related Persons and to
create a long-term mutuality of interest between the Key Employees and Executive
Consultants (as defined herein) and the stockholders of the Company by granting
the Key Employees and Executive Consultants options to purchase Common Stock (as
defined herein). This document shall supersede all other material describing
this Plan, including, but not limited to, prior drafts hereof and any documents
incorporating the terms and provisions of any such prior drafts.
II. Definitions
In addition to the terms defined elsewhere herein, for purposes
of this Plan, the following terms will have the following meanings when used
herein with initial capital letters:
A. "Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
B. "Board" means the Board of Directors of the Company.
C. "Cause" means that the Committee shall have determined that
any of the following events has occurred: (1) an act of fraud, embezzlement,
misappropriation of business or theft committed by a Participant in the course
of his or her employment or consultancy or any intentional or gross negligent
misconduct of a Participant which injures the business or reputation of the
Company or Related Persons; (2) intentional or gross negligent damage committed
by a Participant to the property of the Company or Related Persons; (3) a
Participant's willful failure or refusal to perform the customary duties and
responsibilities of his or her position or consultancy with the Company or
Related Persons; (4) a Participant's breach of fiduciary duty, or the making of
a false representation, to the Company or Related Persons; (5) a Participant's
material breach of any covenant, condition or obligation required to be
performed by him or her pursuant to this Plan, the Option Agreement or any other
agreement between him or her and the Company or Related Persons or a
Participant's intentional or gross negligent violation of any material written
policy of the Company or Related Persons; (6) a Key Employee's willful failure
or refusal to act in accordance with any specific lawful instructions of a
majority of the Board of Directors of the Company; or (7) commission by a
Participant of a felony or a crime involving moral turpitude. Cause shall be
deemed to exist as of the date any of the above events occur even if the
Committee's determination is later and whether or not such determination is made
before or after Termination of Employment or Termination of Consultancy.
<PAGE>
D. "Code" means the Internal Revenue Code of 1986, as amended (or
any successor statute).
E. "Committee" means such committee, if any, appointed by the
Board to administer the Plan, consisting of two or more directors as may be
appointed from time to time by the Board, provided however that for the purpose
of determining any compensation under the Plan of a "covered employee" within
the meaning of Section 162(m) of the Code and the regulations relating thereto
("Section 162(m)" which is intended to qualify as "performance-based" within the
meaning of Section 162(m) ("Qualified Compensation") and deciding all matters
related to Qualified Compensation which are required under Section 162(m) to be
decided by "outside directors" (including without limitation making grants and
determining material terms of grants), "Committee" shall mean the Section 162(m)
Committee of the Board. If the Board does not appoint a committee for this
purpose, "Committee" means the Board.
F. "Common Stock" means the common stock of the Company, par
value $.01 per share, any Common Stock into which the Common Stock may be
converted and any Common Stock resulting from any reclassification of the Common
Stock.
G. "Company" means Collins & Aikman Corporation, a Delaware
corporation.
H. "Competitive Activity" means (a) being employed by, consulting
to or being a director of any business, or engaging directly or indirectly in
any business activity, that is competitive with any material business of any of
the Company, a Related Person or of the division that the Participant is or was
employed by or (b) soliciting for employment or consulting, employing or
retaining, or assisting another Person to employ or retain, directly or
indirectly, any employees of the Company or Related Persons or any Person who
was an employee of the Company or Related Persons in the prior six months,
provided, however, that employing or retaining, or assisting another Person to
employ or retain, any Person whose employment or consultancy with the Company or
a Related Person has been terminated without Cause or any Person that is
non-exempt under the Federal Fair Labor Standards Act, 29 USC ss. 213(a)(1),
shall not be considered Competitive Activity.
I. "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion. A Disability shall only be
deemed to occur at the time of the determination by the Committee of the
Disability.
J. "Executive Consultants" shall mean executive-level consultants
of the Company or Related Persons, as determined by the Committee, provided,
however, that no managing director, general partner, limited partner, director,
officer or employee of Wasserstein Perella & Co., Inc. or The Blackstone Group
L.P. that is a director of the Company will be eligible to participate in the
Plan.
K. "Fair Market Value" shall mean, for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or any
regulations issued thereunder, as of any date, the last sales prices reported
for the Common Stock on the applicable date, (i) as reported by the principal
national securities exchange in the United States on which it is then traded, or
(ii) if not traded on any such national securities exchange, as quoted on an
automated quotation system sponsored
2
<PAGE>
by the National Association of Securities Dealers, or if the sale of the Common
Stock shall not have been reported or quoted on such date, on the first day
prior thereto on which the Common Stock was reported or quoted. If the Common
Stock is not readily tradeable on a national securities exchange or any system
sponsored by the National Association of Securities Dealers, its Fair Market
Value shall be set by the Committee based upon its assessment of the cash price
that would be paid between a fully informed buyer and seller under no compulsion
to buy or sell (without giving effect to any discount for a minority interest or
any restrictions on transferability or any lack of liquidity of the stock).
L. "Incentive Stock Option" shall mean any Option awarded under
this Plan intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code.
M. "Key Employee" means any person who is an executive officer or
other valuable employee of the Company or a Related Person, as determined by the
Committee, provided, however, that no managing director, general partner,
limited partner, director, officer or employee of Wasserstein Perella & Co.,
Inc. or The Blackstone Group L.P. that is a director of the Company will be
eligible to participate in the Plan. A Key Employee may, but need not, be an
officer or director of the Company or a Related Person.
N. "Non-Qualified Stock Option" shall mean any Option awarded
under this Plan that is not an Incentive Stock Option.
O. "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan.
P. "Participant" means a Key Employee or Executive Consultant who
is granted Options under the Plan which Options have not expired; provided,
however, that any Executive Consultant shall be a Participant for purposes of
the Plan solely with respect to grants of Non-Qualified Stock Options and shall
be ineligible for Incentive Stock Options.
Q. "Person" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
R. "Public Offering" means the closing of an offering under a
registration statement registering the common equity shares of the registering
entity under the Securities Act (other than a registration on a Form S-8, S-4 or
any successor or similar special purpose form).
S. "Related Person or Related Persons" means (a) any corporation
that is defined as a subsidiary corporation in Section 424(f) of the Code or (b)
any corporation that is defined as a parent corporation in Section 424(e) of the
Code. An entity shall be deemed a Related Person only for such periods as the
requisite ownership relationship is maintained.
T. "Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
U. "Share" means a share of Common Stock.
V. "Ten Percent Shareholder" shall mean a person owning Common
Stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company as defined in
Section 422 of the Code.
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W. "Termination of Consultancy" with respect to an individual
means that individual is no longer acting as an Executive Consultant to the
Company or a Related Person. In the event an entity shall cease to be a Related
Person, there shall be deemed a Termination of Consultancy of any individual who
is not otherwise an Executive Consultant of the Company or another Related
Person at the time the entity ceases to be a Related Person.
X. "Termination of Employment" with respect to an individual
means that individual is no longer actively employed by the Company or a Related
Person on a full-time basis, irrespective of whether or not such employee is
receiving salary continuance pay, is continuing to participate in other employee
benefit programs or is otherwise receiving severance type payments. In the event
an entity shall cease to be a Related Person, there shall be deemed a
Termination of Employment of any individual who is not otherwise an employee of
the Company or another Related Person at the time the entity ceases to be a
Related Person. A Termination of Employment shall not include a leave of absence
approved for purposes of the Plan by the Committee.
Y. "Termination of Relationship" means a Termination of
Consultancy or a Termination of Employment where the individual is no longer a
consultant to, or employee of, the Company.
III. Effective Date
The Plan shall become effective on April 15, 1994 (the "Effective
Date"), subject to its approval by the majority of the Common Stock (at the time
of approval) within one year after the Plan is adopted by the Board of Directors
of the Company. Grants of Options by the Committee under the Plan may be made on
or after the Effective Date of the Plan, including retroactively, provided that,
if the Plan is not approved by the majority of the Common Stock (at the time of
approval), all Options which have been granted by the Committee shall be null
and void. No Options may be exercised prior to the approval of the Plan by the
majority of the Common Stock (at the time of approval).
IV. Administration
A. Duties of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend and rescind rules for carrying out
the Plan; to administer the Plan, subject to its provisions; to select
Participants in, and grant Options under, the Plan; to determine the terms,
exercise price and form of exercise payment for each Option granted under the
Plan; to determine the consideration to be received by the Company in exchange
for the grant of the Options; to determine whether and to what extent Incentive
Stock Options and Non-Qualified Stock Options, or any combination thereof, are
to be granted hereunder to one or more Key Employees and to determine whether
and to what extent Non-Qualified Stock Options are to be granted hereunder to
one or more Executive Consultants; to prescribe the form or forms of instruments
evidencing Options and any other instruments required under the Plan (which need
not be uniform) and to change such forms from time to time; and to make all
other determinations and to take all such steps in connection with the Plan and
the Options as the Committee, in its sole discretion, deems necessary or
desirable. The Committee shall not be bound to any standards of uniformity or
similarity of action, interpretation or conduct in the discharge of its duties
hereunder, regardless of the apparent similarity of
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the matters coming before it. Any determination, action or conclusion of the
Committee shall be final, conclusive and binding on all parties. Anything in the
Plan to the contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be so exercised, so as to disqualify the
Plan under Section 422 of the Code, or, without the consent of the Participants
affected, to disqualify any Incentive Stock Option under such Section 422.
B. Advisors. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel, consultant
or agent shall be paid by the Company.
C. Indemnification. To the maximum extent permitted by applicable
law, no officer of the Company or member or former member of the Committee or of
the Board shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
the Company, each officer and member or former member of the Committee or of the
Board shall be indemnified and held harmless by the Company against any cost or
expense (including reasonable fees of counsel reasonably acceptable to the
Company) or liability (including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to pay the foregoing at
the earliest time and to the fullest extent permitted, arising out of any act or
omission to act in connection with the Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, members or former members may have as directors under applicable law
or under the Certificate of Incorporation or By-Laws of the Company or Related
Person.
D. Meetings of the Committee. The Committee shall adopt such
rules and regulations as it shall deem appropriate concerning the holding of its
meetings and the transaction of its business. Any member of the Committee may be
removed from the Committee at any time either with or without cause by
resolution adopted by the Board, and any vacancy on the Committee may at any
time be filled by resolution adopted by the Board. All determinations by the
Committee shall be made by the affirmative vote of a majority of its members.
Any such determination may be made at a meeting duly called and held at which a
majority of the members of the Committee are in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all the members of the Committee shall be as fully effective as if it had been
made by a majority vote of the members at a meeting duly called and held.
E. Determinations. Each determination, interpretation or other
action made or taken pursuant to the provisions of this Plan by the Committee
shall be final, conclusive and binding for all purposes and upon all persons,
including, without limitation, the Participants, the Company and Related
Persons, directors, officers and other employees of the Company and Related
Persons, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
V. Shares; Adjustment Upon Certain Events
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A. Shares to be Delivered; Fractional Shares. Shares to be issued
under the Plan shall be made available, at the sole discretion of the Board,
either from authorized but unissued Shares or from issued Shares reacquired by
Company and held in treasury. No fractional Shares will be issued or transferred
upon the exercise of any Option. In lieu thereof, the Company shall pay a cash
adjustment equal to the same fraction of the Fair Market Value of one Share on
the date of exercise.
B. Number of Shares. Subject to adjustment as provided in this
Article V, the maximum aggregate number of Shares that may be issued under the
Plan shall be 2,980,534. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
C. Adjustments; Recapitalization, etc. The existence of the Plan
and the Options granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting Common Stock, the dissolution or liquidation of the Company or Related
Persons, any sale or transfer of all or part of its assets or business or any
other corporate act or proceeding. The Committee may make or provide for such
adjustments in the maximum number of Shares specified in Article V(B), in the
number of Shares covered by outstanding Options granted hereunder, and/or in the
Purchase Price (as hereinafter defined) applicable to such Options or such other
adjustments in the number and kind of securities received upon the exercise of
Options, as the Committee in its sole discretion may determine is equitably
required to prevent dilution or enlargement of the rights of Participants or to
otherwise recognize the effect that otherwise would result from any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities or any other corporate transaction or event having an
effect similar to any of the foregoing. In the event of a merger or
consolidation in which Company is not the surviving entity or in the event of
any transaction that results in the acquisition of substantially all of
Company's outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of all of the Company's assets (the foregoing being referred to as
"Acquisition Events"), then the Committee may in its sole discretion terminate
all outstanding Options effective as of the consummation of the Acquisition
Event by delivering notice of termination to each Participant at least 20 days
prior to the date of consummation of the Acquisition Event; provided that,
during the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have the
right to exercise in full all the Options that are then outstanding (without
regard to limitations on exercise otherwise contained in the Options) but
contingent on occurrence of the Acquisition Event, and, provided that, if the
Acquisition Event does not take place within a specified period after giving
such notice for any reason whatsoever, the notice and exercise shall be null and
void. Except as hereinbefore expressly provided, the issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor or upon conversion of
shares or other securities, and in any case whether or not for fair value, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number and class of shares and/or other securities or property subject to
Options theretofore granted or the Purchase Price (as hereinafter defined).
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VI. Awards and Terms of Options
A. Grant. The Committee may grant Non-Qualified Stock Options or
Incentive Stock Options, or any combination thereof to Key Employees and may
grant Non-Qualified Stock Options to Executive Consultants, provided, that the
maximum number of Shares with respect to which Options may be granted to any Key
Employee or Executive Consultant during any calendar year may not exceed
1,000,000, except that in the year of the first grant of Options to a Key
Employee or Executive Consultant, the maximum number of Shares with respect to
which Options may be granted may not exceed 1,500,000. To the extent that the
maximum number of authorized Shares with respect to which Options may be granted
are not granted in a particular calendar year to a Participant (beginning with
the year in which the Participant receives his or her first grant of Options
hereunder), such ungranted Options for any year shall increase the maximum
number of Shares with respect to which Options may be granted to such
Participant in subsequent calendar years during the term of the Plan until used.
To the extent that any Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its exercise or
otherwise), such Option or the portion thereof which does not qualify, shall
constitute a separate Non-Qualified Stock Option. Each Option shall be evidenced
by an Option agreement (the "Option Agreement") in such form as the Committee
shall approve from time to time.
B. Exercise Price. The purchase price per Share (the "Purchase
Price") deliverable upon the exercise of a Non-Qualified Stock Option granted on
or prior to the initial Public Offering of the Company shall be determined by
the Committee and set forth in a Participant's Option Agreement, provided that
the Purchase Price shall not be less than the par value of a Share, and,
provided, further, that the Purchase Price deliverable upon the exercise of a
Non-Qualified Stock Option granted after the initial Public Offering of the
Company shall be determined by the Committee and set forth in a Participant's
Option Agreement but shall not be less than 100% of the Fair Market Value of a
Share at the time of grant. The Purchase Price deliverable upon the exercise of
an Incentive Stock Option shall be determined by the Committee and set forth in
a Participant's Option Agreement but shall be not less than 100% of the Fair
Market Value of a Share at the time of grant; provided, however, if an Incentive
Stock Option is granted to a Ten Percent Shareholder, the Purchase Price shall
be no less than 110% of the Fair Market Value of a Share.
C. Number of Shares. The Option Agreement shall specify the
number of Options granted to the Participant, as determined by the Committee in
its sole discretion.
D. Exercisability. At the time of grant, the Committee shall
specify when and on what terms the Options granted shall be exercisable. In the
case of Options not immediately exercisable in full, the Committee may at any
time accelerate the time at which all or any part of the Options may be
exercised and may waive any other conditions to exercise. No Option shall be
exercisable after the expiration of ten years from the date of grant; provided,
however, the term of an Incentive Stock Option granted to a Ten Percent
Shareholder may not exceed five years. Each Option shall be subject to earlier
termination as provided in Article VII below.
E. Acceleration of Exercisability.
All Options granted and not previously exercisable shall
become fully exercisable immediately upon a Change of Control (as
defined herein). For this purpose, a "Change of Control" shall be deemed
to have occurred upon:
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(a) an acquisition by any individual, entity or
group (within the meaning of Section 13d-3 or 14d-1 of the Act)
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of more than 80% of the combined
voting power of the then outstanding voting securities of Company
entitled to vote generally in the election of directors,
including, but not limited to, by merger, consolidation or
similar corporate transaction or by purchase; excluding, however,
the following: (x) any acquisition by the Company, Related
Persons, Wasserstein Perella Partners, L.P., Blackstone Capital
Partners L.P. or an affiliate of any of the foregoing, or (y) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or Related Persons; or
(b) the approval of the stockholders of the Company
of (i) a complete liquidation or dissolution of the Company or
(ii) the sale or other disposition of more than 80% of the gross
assets of the Company and Related Persons on a consolidated basis
(determined under generally accepted accounting principles as
determined in good faith by the Committee); excluding, however,
such a sale or other disposition to a corporation with respect to
which, following such sale or other disposition, (x) more than
20% of the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors will be then beneficially owned, directly
or indirectly, by the individuals and entities who were the
beneficial owners of the outstanding Shares immediately prior to
such sale or other disposition, (y) no Person (other than the
Company, Related Persons, and any employee benefit plan (or
related trust) of the Company or Related Persons or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the outstanding Shares) will beneficially own, directly
or indirectly, 20% or more of the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors and (z)
individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of such corporation.
F. Exercise of Options.
1. A Participant may elect to exercise one or more Options
by giving written notice to the Committee of such election and of the
number of Options such Participant has elected to exercise, accompanied
by payment in full of the aggregate Purchase Price for the number of
Shares for which the Options are being exercised; provided, however,
that, in the case of a notice of exercise delivered to the Committee by
facsimile, such payment may be made by delivery of payment to the
Committee on the business day next following the date on which such
notice of exercise is delivered (such delivery being deemed to have been
duly made if the Participant giving such facsimile notice shall have
dispatched such payment by a nationally recognized overnight courier
service guaranteeing delivery on such next business day, provided such
payment is actually received by the Company).
2. Shares purchased pursuant to the exercise of Options
shall be paid for as follows:
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(a) in cash or by check, bank draft or money order
payable to the order of Company;
(b) if the Shares are traded on a national
securities exchange, through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an
amount equal to the aggregate Purchase Price; or
(c) on such other terms and conditions as may be
acceptable to the Committee (which may include payment in full or
in part by the transfer of Shares which have been owned by the
Participant for at least 6 months or the surrender of Options
owned by the Participant) and in accordance with applicable law.
3. Upon receipt of payment, the Company shall deliver to
the Participant as soon as practicable a certificate or certificates for
the Shares then purchased.
G. Black-Out Periods. The direct or indirect sale, transfer or
other disposition of Common Stock received by a Participant upon the exercise of
Options shall be prohibited for two years following the initial Public Offering
of the Company, unless a shorter period of time is specified by the Committee in
its sole discretion at any time.
H. Non-Competition and Other Provisions. In consideration of the
grant of Options, by accepting the grant of Options the Participant agrees
during employment and, in the event any Options vest, for a period ending one
year following the date of the Participant's Termination of Employment, not to
engage in any Competitive Activity, except to the extent consented to by the
Committee in writing. Each Participant by accepting a grant of Options hereunder
acknowledges that the Company or a Related Person will suffer irreparable harm
in the event such Participant engages in any Competitive Activity during this
period, and agrees that in addition to its remedies at law, the Company and a
Related Person shall be entitled to injunctive relief as a consequence of a
violation or threatened violation of this covenant. Notwithstanding the
foregoing, nothing in this Plan shall prohibit or penalize ownership by a
Participant of the shares of a business that is registered under Section 12 of
the Act and constitutes, together with all such shares owned by any immediate
family member or affiliate of, or person acting in concert with, such
Participant, less than 2% of the outstanding registered shares of such business.
The Committee will have the discretion 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.
I. Restrictions on Exercise. Notwithstanding anything else
contained herein to the contrary other than Article VI(E), no Options may be
exercised prior to the earlier of the closing of a Public Offering of Shares or
the expiration of five years from the Effective Date of the Plan, except to the
extent consented to by the Committee in its sole and absolute discretion.
J. Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other stock option plan of the Company or any subsidiary or parent corporation
(within the meaning of Section 424 of the Code) exceeds $100,000, such Options
shall be treated as Options which are not
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Incentive Stock Options.
To the extent permitted under Section 422 of the Code, or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement, if (i) a Participant's employment with the Company or Related
Person is terminated by reason of death, Disability, retirement or termination
without Cause, and (ii) the portion of any Incentive Stock Option that would be
exercisable during the post-termination period specified under Article VII but
for the $100,000 limitation currently contained in Section 422(d) of the Code,
is greater than the portion of such Stock Option that is immediately exercisable
as an `incentive stock option' during such post-termination period under Section
422, such excess shall be treated as a Non-Qualified Stock Option. If the
exercise of an Incentive Stock Option is accelerated for any reason, any portion
of such Option that is not exercisable as an Incentive Stock Option by reason of
the $100,000 limitation contained in Section 422(d) of the Code shall be treated
as a Non-Qualified Stock Option.
Should any of the foregoing provisions not be necessary in order
for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the shareholders of the
Company, except as otherwise required by law.
VII. Effect of Termination of Relationship
A. Death, Disability, Retirement, etc. Except as otherwise
provided in the Participant's Option Agreement, upon Termination of
Relationship, all outstanding Options then exercisable and not exercised by the
Participant prior to such Termination of Relationship (and any Options not
previously exercisable but made exercisable by the Committee at or after the
Termination of Relationship) shall remain exercisable by the Participant to the
extent not exercised for the following time periods, or, if earlier, the prior
expiration of the Option in accordance with the terms of the Plan and grant:
1. In the event of the Participant's death or Disability,
such Options shall remain exercisable by the Participant (or by the
Participant's estate or by the person given authority to exercise such
Options by the Participant's will or by operation of law) for a period
of one year from the date of the Participant's death or Disability,
provided that the Committee, in its sole discretion, may at any time
extend such time period.
2. In the event the Participant retires from employment at or
after age 65 (or, with the consent of the Committee or under an early
retirement policy of the Company or a Related Person, before age 65), or
if the Participant's employment is terminated by the Company or a
Related Person without Cause, such Options shall remain exercisable for
90 days from the date of the Participant's Termination of Employment,
provided that the Committee, in its sole discretion, may at any time
extend such time period.
B. Cause. Upon the Termination of Relationship of a Participant
for Cause, or if the Company or a Related Person obtains or discovers
information after Termination of Relationship that such Participant had engaged
in conduct that would have justified a Termination of Relationship for Cause
during employment or consultancy, all outstanding Options of such Participant
shall immediately be canceled.
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C. Other Termination. In the event of Termination of Relationship
for any reason other than as provided in Article VII(A) or VII(B), all
outstanding Options not exercised by the Participant prior to such Termination
of Relationship shall remain exercisable (to the extent exercisable by such
Participant immediately before such termination) for a period of 30 days after
such termination, provided that the Committee, in its sole discretion, may at
any time extend such time period.
D. Cancellation of Options. Except as otherwise provided in
Article VI(E), no Options that were not exercisable during the period of
employment or consultancy shall thereafter become exercisable upon a Termination
of Relationship for any reason or no reason whatsoever, and such options shall
terminate and become null and void upon a Termination of Relationship, unless
the Committee determines in its sole discretion that such Options shall be
exercisable.
VIII. Nontransferability of Options
No Option shall be transferable by the Participant otherwise than
by will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall be assigned,
negotiated, pledged or hypothecated in any way (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
Option shall immediately terminate and become null and void.
IX. Rights as a Stockholder
A Participant (or a permitted transferee of an Option) shall have
no rights as a stockholder with respect to any Shares covered by such
Participant's Option until such Participant (or permitted transferee) shall have
become the holder of record of such Shares, and no adjustments shall be made for
dividends in cash or other property or distributions or other rights in respect
to any such Shares, except as otherwise specifically provided in this Plan.
X. Termination, Amendment and Modification
A. General Amendments. The Plan shall terminate at the close of
business on the tenth anniversary of the Effective Date (the "Termination
Date"), unless terminated sooner as hereinafter provided, and no Option shall be
granted under the Plan on or after that date. The termination of the Plan shall
not terminate any outstanding Options that by their terms continue beyond the
Termination Date. At any time prior to the Termination Date, the Committee may
amend or terminate the Plan or suspend the Plan in whole or in part.
The Committee may at any time, and from time to time, amend, in
whole or in part, any or all of the provisions of the Plan (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article XII), or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or
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specifically provided herein, the rights of a Participant with respect to
Options granted prior to such amendment, suspension or termination, may not,
other than as provided in Article X(B), be materially impaired without the
consent of such Participant and, provided further, without the approval of the
stockholders of the Company entitled to vote, no amendment may be made which
would require the approval of the stockholders of the Company for listing of the
Shares issuable upon exercise of the Options on the New York Stock Exchange.
The Committee may amend the terms of any Option granted,
prospectively or retroactively, but, subject to Article VI above or as otherwise
provided herein, no such amendment or other action by the Committee shall
materially impair the rights of any Participant without the Participant's
consent. No modification of an Option shall adversely affect the status of an
Incentive Stock Option as an incentive stock option under Section 422 of the
Code. Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of the Company, effect any change that would
require stockholder approval under applicable law.
B. Other Termination. Notwithstanding any other provision of the
Plan, in the event that a Public Offering does not occur with respect to the
Company by January 28, 1995, the Committee shall have the absolute right and
discretion to amend or terminate the Plan and a Participant's rights with
respect to any Options granted prior to such amendment or termination.
XI. Use of Proceeds
The proceeds of the sale of Shares subject to Options under the
Plan are to be added to the general funds of Company and used for its general
corporate purposes as the Board shall determine.
XII. General Provisions
A. Right to Terminate Employment. Neither the adoption of the
Plan nor the grant of Options shall impose any obligation on the Company or
Related Persons to continue the employment of any Participant, nor shall it
impose any obligation on the part of any Participant to remain in the employ of
the Company or Related Persons.
B. Purchase for Investment. If the Board or the Committee
determines that the law so requires, the holder of an Option granted hereunder
shall, upon any exercise or conversion thereof, execute and deliver to the
Company a written statement, in form satisfactory to the Company, representing
and warranting that such Participant is purchasing or accepting the Shares then
acquired for such Participant's own account and not with a view to the resale or
distribution thereof, that any subsequent offer for sale or sale of any such
Shares shall be made either pursuant to (i) a Registration Statement on an
appropriate form under the Securities Act, which Registration Statement shall
have become effective and shall be current with respect to the Shares being
offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to the Company,
from counsel acceptable to the Company as to the availability of such exception.
C. Trusts, etc. Nothing contained in the Plan and no action taken
pursuant to the Plan
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(including, without limitation, the grant of any Option thereunder) shall create
or be construed to create a trust of any kind, or a fiduciary relationship,
between Company and any Participant or the executor, administrator or other
personal representative or designated beneficiary of such Participant, or any
other persons. Any reserves that may be established by Company in connection
with the Plan shall continue to be part of the general funds of Company, and no
individual or entity other than Company shall have any interest in such funds
until paid to a Participant. If and to the extent that any Participant or such
Participant's executor, administrator or other personal representative, as the
case may be, acquires a right to receive any payment from Company pursuant to
the Plan, such right shall be no greater than the right of an unsecured general
creditor of Company.
D. Notices. Any notice to the Company required by or in respect
of this Plan will be addressed to the Company at 701 McCullough Drive,
Charlotte, North Carolina 28262, Attention: Vice President, Human Resources, or
such other place of business as shall become the Company's principal executive
offices from time to time, or sent to the Company by facsimile to (704)
548-2081, Attention: Vice President, Human Resources, or to such other facsimile
number as the Company shall notify each Participant. Each Participant shall be
responsible for furnishing the Committee with the current and proper address for
the mailing to such Participant of notices and the delivery to such Participant
of agreements, Shares and payments. Any such notice to the Participant will, if
the Company has received notice that the Participant is then deceased, be given
to the Participant's personal representative if such representative has
previously informed the Company of his status and address (and has provided such
reasonable substantiating information as the Company may request) by written
notice under this Section. Any notice required by or in respect of this Plan
will be deemed to have been duly given when delivered in person or when
dispatched by telegram or, in the case of notice to the Company, by facsimile as
described above, or one business day after having been dispatched by a
nationally recognized overnight courier service or three business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid. The Company assumes no responsibility or obligation
to deliver any item mailed to such address that is returned as undeliverable to
the addressee and any further mailings will be suspended until the Participant
furnishes the proper address.
E. Severability of Provisions. If any provisions of the Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Plan, and the Plan shall be
construed and enforced as if such provisions had not been included.
F. Payment to Minors, Etc. Any benefit payable to or for the
benefit of a minor, an incompetent person or other person incapable of receipt
thereof shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
G. Headings and Captions. The headings and captions herein are
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
H. Controlling Law. The Plan shall be construed and enforced
according to the laws of the State of Delaware.
I. Section 162(m) Deduction Limitation. The Committee at any time
may in its sole discretion limit the number of Options that can be exercised in
any taxable year of the Company, to the
13
<PAGE>
extent necessary to prevent the application of Section 162(m) of the Code (or
any similar or successor provision), provided that the Committee may not
postpone the earliest date on which Options can be exercised beyond the last day
of the stated term of such Options.
J. Section 16(b) of the Act. All elections and transactions under
the Plan by persons subject to Section 16 of the Exchange Act involving shares
of Common Stock are intended to comply with all exemptive conditions under Rule
16b-3. The Committee may establish and adopt written administrative guidelines,
designed to facilitate compliance with Section 16(b) of the Act, as it may deem
necessary or proper for the administration and operation of the Plan and the
transaction of business thereunder.
XIII. Issuance of Stock Certificates; Legends; Payment of Expenses
A. Stock Certificates. Upon any exercise of an Option and payment
of the exercise price as provided in such Option, a certificate or certificates
for the Shares as to which such Option has been exercised shall be issued by
Company in the name of the person or persons exercising such Option and shall be
delivered to or upon the order of such person or persons.
B. Legends. Certificates for Shares issued upon exercise of an
Option shall bear such legend or legends as the Committee, in its sole
discretion, determines to be necessary or appropriate to prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act or to implement the provisions of any agreements between Company and the
Participant with respect to such Shares.
C. Payment of Expenses. The Company shall pay all issue or
transfer taxes with respect to the issuance or transfer of Shares, as well as
all fees and expenses necessarily incurred by the Company in connection with
such issuance or transfer and with the administration of the Plan.
XIV. Listing of Shares and Related Matters
If at any time the Board or the Committee shall determine in its
sole discretion that the listing, registration or qualification of the Shares
covered by the Plan upon any national securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the grant of
Options or the award or sale of Shares under the Plan, no Option grant shall be
effective and no Shares will be delivered, as the case may be, unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
XV. Withholding Taxes
The Company shall have the right to require prior to the issuance
or delivery of any shares of Common Stock payment by the Participant of any
Federal, state or local taxes required by law to be withheld.
The Committee may permit any such withholding obligation to be
satisfied by reducing the
14
<PAGE>
number of shares of Common Stock otherwise deliverable. A person required to
file reports under Section 16(a) of the Exchange Act with respect to securities
of the Company may elect to have a sufficient number of shares of Common Stock
withheld to fulfill such tax obligations (hereinafter a "Withholding Election")
only if the election complies with such conditions as are necessary to prevent
the withholding of such shares from being subject to Section 16(b) of the
Exchange Act. To the extent necessary under then current law, such conditions
shall include the following: (x) the Withholding Election shall be subject to
the approval of the Committee and (y) the Withholding Election is made (i)
during the period beginning on the third business day following the date of
release for publication of the quarterly or annual summary statements of sales
and earnings of the Company and ending on the twelfth business day following
such date or is made in advance but takes effect during such period, (ii) six
(6) months before the stock award becomes taxable, or (iii) during any other
period in which a Withholding Election may be made under the provisions of Rule
16b-3 promulgated pursuant to the Act. Any fraction of a share of Common Stock
required to satisfy such tax obligations shall be disregarded and the amount due
shall be paid instead in cash by the Participant.
15
<PAGE>
SCHEDULE I
COLLINS & AIKMAN CORPORATION 1997 U.K. EXECUTIVE STOCK OPTION SCHEME -
Schedule to the Collins & Aikman Corporation 1994 Employee Stock Option
Plan
1. Definitions and Interpretation
(a) Unless the context otherwise requires, all expressions defined in
the U.S. Plan shall have the same meaning in the U.K. Scheme,
save that:-
"Fair Market Value" has the meaning set forth in sub-rule 5.(3);
"Option" includes an Approved Stock Option as defined in sub-rule 1.(2);
"Related Person or Related Persons" includes "Subsidiary" as defined in
sub-rule 1.(2).
(b) In addition, the following expressions shall have the following
meanings in the U.K. Scheme unless the context otherwise
requires:
"Approved Stock Option" means an Option granted in accordance with the
U.K. Scheme;
"the Inland Revenue" means the United Kingdom's Commissioners of Inland
Revenue;
"Participating Company" means the Company or a Subsidiary of the
Company;
"the U.K. Scheme" means the Collins & Aikman Corporation 1997 U.K.
Executive Stock Option Scheme as herein set out but subject to any
alterations or additions made under Rule 8 below;
"Schedule 9" means Schedule 9 to the Taxes Act;
"Subsidiary" shall mean a body corporate, whether now or hereafter
existing which is:
(i) a subsidiary of the Company within the meaning of Section
736 of the United Kingdom Companies Act 1985; and is
(ii) under the control of the Company within the meaning of
Section 840 of the Taxes Act.
"the Taxes Act" means the United Kingdom's Income and Corporation Taxes
Act 1988;
"the U.S. Plan" means the Collins & Aikman Corporation (formerly Collins
& Aikman Holdings Corporation) 1994 Employee Stock Option Plan.
(a) Expressions not otherwise defined herein have the same meanings
as they have in Schedule 9.
16
<PAGE>
(b) Any reference herein to any enactment includes a reference to
that enactment as from time to time modified, extended or
re-enacted.
2. Applicability of the U.S. Plan
Save as hereinafter specified, all the terms and provisions of the U.S.
Plan shall apply mutatis mutandis to the grant of Approved Stock Options
under the U.K. Scheme.
3. Eligibility
(a) Subject to sub-rule (3) below, a person is eligible to be granted
an Approved Stock Option if (and only if) he is a full-time
director or qualifying employee of a Participating Company.
(b) For the purposes of sub-rule (1) above:-
(i) a person shall be treated as a full-time director of a
Participating Company if he is obliged to devote to the
performance of the duties of his office or employment with
that and any other Participating Company not less than 25
hours a week (excluding meal breaks);
(ii) a qualifying employee, in relation to a Participating
Company, is an employee of the Participating Company
(other than one who is a director of a Participating
Company).
(c) A person is not eligible to be granted an Option under the U.K.
Scheme at any time when he is not eligible to participate in the
U.K. Scheme by virtue of paragraph 8 of Schedule 9.
4. Grant of Options
(a) Subject to sub-rule (3) below, the Committee may grant to any
person who is eligible to be granted an Option under the U.K.
Scheme an Approved Stock Option to acquire Shares which satisfy
the requirements of paragraphs 10 to 14 of Schedule 9, upon the
terms set out in the U.K. Scheme and upon such other objective
terms as the Committee may reasonably specify (provided that no
such other terms may be so specified at a time when the U.K.
Scheme is approved by the Inland Revenue under Schedule 9 without
the prior approval of the Inland Revenue).
(b) The grant of an Approved Stock Option shall be subject to
obtaining any approval or consent which may be required under the
provisions of any regulation or enactment.
(c) No person shall be granted Approved Stock Options under the U.K.
Scheme which would, at the time they are granted, cause the
aggregate market value of the Shares which he may acquire in
pursuance of options granted to him under the U.K. Scheme or
under any other share option scheme, not being a savings-related
share option scheme, approved under Schedule 9 and established by
the Company or by any
17
<PAGE>
associated company of the Corporation (and not exercised) to
exceed or further exceed(pound)30,000. Any Stock Options granted
in excess of this amount shall be granted under the unapproved
Collins & Aikman Corporation 1994 Employee Stock Option Plan.
(d) For the purposes of sub-rule (3) above:-
(i) in the case of an Option granted under the U.K. Scheme the
aggregate market value of the shares shall be calculated
as on the day by reference to which the price at which
Shares may be acquired by the exercise thereof is
determined as mentioned in Rule 5(2) below;
(ii) in the case of an Option granted under any other approved
scheme, as at the time when it was granted or, in a case
where an agreement relating to the shares has been made
under paragraph 29 of Schedule 9, such earlier time or
times as may be provided in the agreement; and
(iii) In the case of any other Option, the aggregate fair market
value of shares shall be calculated as on the day or days
by reference to which the price at which shares may be
acquired by the exercise hereof was determined.
(e) Unless otherwise agreed with the Inland Revenue, the United
States dollar exchange rate for pounds sterling for the purposes
of calculating the limit in sub-rule (3) above shall be the noon
buying rate in the City of London on the day by reference to
which the price at which Shares may be acquired on the exercise
of the Option is determined as mentioned in Rule 5(2) below.
(f) Article V (A) of the U.S Plan shall not apply to the grant of
Approved Stock Options under the U.K. Scheme and options under
the U.K. Scheme shall not be granted, or adjustments made to them
which would create an entitlement to a fraction of a share.
5. Exercise Price and Consideration
(a) Shares shall be issued to the Optionee pursuant to the exercise
of an Option only upon receipt by the Company from the Optionee
of payment in full in cash. The provisions of Article VI (F) of
the U.S. Plan permitting the purchase of Shares on exercise by
means other than the payment of cash shall not apply to the grant
of Approved Stock Options under the U.K. Scheme.
(b) The price per Share under each Approved Stock Option granted by
the Committee shall be such price as is determined by the
Committee before the grant thereof, provided that it shall not be
less than 100% of the Fair Market Value per Share on the Option
Grant Date (or such other dealing day as may be agreed with the
Inland Revenue).
(c) The Fair Market Value per Share on any day shall be determined as
follows:-
18
<PAGE>
(i) if shares of the same class as the Shares are quoted on
the New York Stock Exchange, the Fair Market Value per
Share shall be the average between the highest and lowest
quoted selling price per Share in the New York Stock
Exchange Composite Transactions Tape on that day (and if
there shall be no sale of Shares reported on such date,
the Fair Market Value shall be deemed equal to the average
between the highest and lowest sale price of a Share on
such Composite Tape for the last preceding date on which
sales of Shares were reported);
(ii) if paragraph (a) above does not apply, the Fair Market
Value shall be equal to the higher of (i) market value
(within the meaning of Part VIII of the United Kingdom's
Capital Gains Tax Act 1992) of Shares, as agreed in
advance for the purposes of the U.K. Scheme with the
Shares Valuation Division of the Inland Revenue, on that
day; and (ii) Fair Market Value in accordance with the
definition set out in the U.S. Plan.
6. Exercise of Option
(a) A person is not eligible to exercise an Approved Stock Option
granted under the U.K. Scheme at any time when he is not eligible
to participate in the U.K. Scheme by virtue of paragraph 8 of
Schedule 9.
(b) The provisions of Article VI (D) of the U.S. Plan which allows
the Committee to accelerate the exercise of options which have
not yet vested shall not apply to the grant of Approved Stock
Options under the U.K. Scheme.
(c) For the avoidance of doubt Article VI (I) of the U.S. Plan is no
longer in effect and therefore does not apply to the grant of
Approved Stock Options under the U.K. Scheme.
(d) Article VII of the U.S. Plan shall apply in respect of Approved
Stock Options granted under the UK Scheme, save that Approved
Stock Options granted under the U.K. Scheme may not be exercised
more than 12 months following the death of a Participant.
7. Adjustments upon Changes in Capitalization or Merger
(a) Article V(C) of the U.S. Plan shall apply to Approved Stock
Options granted under the U.K. Scheme in respect of a variation
of capital of the Company only, save that no adjustment under
Article V(C) shall be made to an Approved Stock Option at a time
when the UK Scheme is approved by the Inland Revenue under
Schedule 9 without the prior approval of the Inland Revenue.
(b) If any company ("the acquiring company") obtains control of the
Company as a result of making -
19
<PAGE>
(i) a general offer to acquire the whole of the Common Stock
of the Company which is made on a condition such that if
it is satisfied the person making the offer will have
control of the Company, or
(ii) a general offer to acquire all the shares in the Company
which are of the same class as the Shares which may be
acquired by the exercise of Options granted under the U.K.
Scheme,
any Optionee may at any time within the appropriate period (which
expression shall be construed in accordance with paragraph 15(2)
of Schedule 9), by agreement with the acquiring company, release
any Option granted under the U.K. Scheme which has not lapsed
("the old option") in consideration of the grant to him of an
option ("the new option") which (for the purposes of that
paragraph) is equivalent to the old option but relates to shares
in a different company (whether the acquiring company itself or
some other company falling within paragraph 10(b) or (c) of
Schedule 9).
(c) The new option shall not be regarded for the purposes of sub-rule
(2) above as equivalent to the old option unless the conditions
set out in paragraph 15(3) of Schedule 9 are satisfied, but so
that the provisions of the U.K. Scheme shall for this purpose be
construed as if:-
(i) the new option were an Option granted under the U.K.
Scheme at the same time as the old option;
(ii) except for the purposes of the definitions of
"Participating Company" and "Subsidiary" in Rule 1 above
and the references to "the Committee" in Rule 4(1) above,
the reference to Collins & Aikman Corporation in the
definition of "Company" in Article II of the U.S. Plan
were a reference to the different company mentioned in
sub-rule (2) above.
8. Amendment and Termination of the U.K. Scheme
(a) The provisions of Article X of the U.S. Plan shall apply mutatis
mutandis to the U.K. Scheme, save that if an amendment is made to
the U.K. Scheme or to the terms of an Approved Stock Option at a
time when the U.K. Scheme is approved by the Inland Revenue under
Schedule 9, the approval will not thereafter have effect unless
the Inland Revenue have approved the alteration or addition.
(b) As soon as reasonably practicable after making any amendment to
the U.K. Scheme under sub-rule (1) above, the Committee shall
give notice in writing thereof to any Optionee affected thereby
and, if the U.K. Scheme is then approved by the Inland Revenue
under Schedule 9, to the Inland Revenue.
(c) In accordance with the Committees' powers under Article IV of the
US Plan, the Committee shall if it deems necessary delegate
authority to any one or more of the officers of the Corporation
to be responsible for the administration of the U.K. Scheme.
20
<PAGE>
9. Miscellaneous
(a) Within thirty days after an Option has been exercised by any
person, the Committee on behalf of the Company shall allot to him
or, as appropriate, procure the transfer to him of the number of
Shares in respect of which the Option has been exercised.
(b) All Shares allotted under the U.K. Scheme shall rank pari passu
in all respect with the Shares of the same class for the time
being in issue save as regards any rights attaching to such
shares by reference to a record date prior to the date of the
allotment.
(c) For the avoidance of doubt, it is hereby confirmed that Awards of
Incentive Stock Options may not be made under the U.K. Scheme.
CLIFFORD CHANCE
200 Aldersgate Street
LONDON
EC1A 4JJ
Tel. 071 600 0000
Fax. 071 600 5555
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 27, 1999 AND SUCH IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 34,475
<SECURITIES> 0
<RECEIVABLES> 255,611
<ALLOWANCES> 5,492
<INVENTORY> 141,706
<CURRENT-ASSETS> 520,021
<PP&E> 717,562
<DEPRECIATION> 277,369
<TOTAL-ASSETS> 1,386,081
<CURRENT-LIABILITIES> 359,916
<BONDS> 851,681
0
0
<COMMON> 705
<OTHER-SE> (101,493)
<TOTAL-LIABILITY-AND-EQUITY> 1,386,081
<SALES> 478,337
<TOTAL-REVENUES> 478,337
<CGS> 407,749
<TOTAL-COSTS> 40,755
<OTHER-EXPENSES> 3,488
<LOSS-PROVISION> 266
<INTEREST-EXPENSE> 21,815
<INCOME-PRETAX> 4,530
<INCOME-TAX> 2,214
<INCOME-CONTINUING> 2,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (8,850)
<NET-INCOME> (6,534)
<EPS-PRIMARY> (0.10)<F1>
<EPS-DILUTED> (0.10)
<FN>
<F1>EPS-BASIC
</FN>
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