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 June 26, 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 August 9, 1999, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 61,948,046 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------- -------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales...................................$ 486,821 $ 463,335 $ 965,158 $ 941,475
--------- ---------- --------- -------
Cost of goods sold.......................... 408,559 399,521 816,308 798,928
Selling, general and administrative
expenses.................................. 38,322 40,153 79,077 79,373
Restructuring charge........................ 4,554 - 4,554 -
--------- --------- -------- ---------
451,435 439,674 899,939 878,301
--------- --------- -------- ---------
Operating income............................ 35,386 23,661 65,219 63,174
Interest expense, net....................... 23,009 19,434 44,824 39,913
Loss on sale of receivables................. 1,323 1,682 2,634 3,306
Other expense (income)...................... (983) 3,485 1,194 3,725
-------- --------- -------- ---------
Income (loss) before income taxes........... 12,037 (940) 16,567 16,230
Income tax expense (benefit)................ 6,719 (458) 8,933 8,034
-------- --------- ------- ---------
Income (loss) before extraordinary
charge and cumulative effect of a
change in accounting principle 5,318 (482) 7,634 8,196
Extraordinary charge, net of income
taxes of $2,452........................... - (3,679) - (3,679)
Cumulative effect of a change in
accounting principle, net of income
taxes of $5,083........................... - - (8,850) -
------- ------- ------- --------
Net income (loss)........................... $ 5,318 $ (4,161) $ (1,216) $ 4,517
======= ======== ======== ========
Net income (loss) per basic and diluted
common share: Income (loss) before
extraordinary charge and cumulative effect
of a change in accounting principle.... $ 0.09 $ (0.01) $ 0.12 $ 0.12
Extraordinary charge................... - (0.05) - (0.05)
Cumulative effect of a change
in accounting principle................. - - (0.14) -
------- --------- -------- --------
Net income (loss)......................... $ 0.09 $ (0.06) $ (0.02) $ 0.07
======= ========= ======== ========
Average common shares outstanding:
Basic................................... 61,947 65,447 61,970 65,574
======= ========= ======== ========
Diluted................................. 62,303 65,447 62,327 66,392
======= ========= ======== ========
</TABLE>
I-1
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
June 26, December 26,
ASSETS 1999 1998
----------- ------------
Current Assets:
Cash and cash equivalents...................$ 44,005 $ 23,755
Accounts and other receivables, net......... 226,294 237,645
Inventories................................. 142,457 152,840
Other....................................... 103,643 96,156
----------- ------------
Total current assets....................... 516,399 510,396
Property, plant and equipment, net............ 445,812 447,121
Deferred tax assets........................... 77,894 70,632
Goodwill, net................................. 259,352 264,138
Other assets.................................. 88,293 89,924
---------- -----------
$ 1,387,750 $ 1,382,211
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings.......................$ 5,331 $ 10,954
Current maturities of long-term debt........ 25,921 19,942
Accounts payable............................ 148,601 169,808
Accrued expenses............................ 161,837 143,302
---------- ----------
Total current liabilities.................. 341,690 344,006
Long-term debt................................ 916,114 846,107
Other, including postretirement benefit
obligation.................................. 273,302 271,869
Commitments and contingencies.................
Common stock (150,000 shares authorized,
70,521 shares issued and 61,960 shares
outstanding at June 26, 1999 and 70,521
shares issued and 62,182 outstanding at
December 26, 1998).......................... 705 705
Other paid-in capital......................... 585,332 585,401
Accumulated deficit........................... (632,118) (580,666)
Accumulated other comprehensive loss.......... (34,570) (23,427)
Treasury stock, at cost (8,561 shares at
June 26, 1999 and 8,339 shares at
December 26, 1998)........................... (62,705) (61,784)
---------- ------------
Total common stockholders' deficit......... (143,356) (79,771)
----------- ------------
$ 1,387,750 $ 1,382,211
=========== ============
I-2
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
----------- --------- ---------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations..... $ 5,318 $ (482) $ 7,634 $ 8,196
Adjustments to derive cash flow from
continuing operating activities:
Impairment of long-lived assets........... 536 - 536 -
Deferred income tax expense (benefit)..... (38) (868) (1,231) 3,430
Depreciation and leasehold amortization... 14,105 12,785 28,272 27,005
Amortization of goodwill.................. 2,089 1,766 3,838 3,539
Amortization of other assets.............. 1,505 1,451 2,821 3,295
Decrease in accounts and other receivables 34,326 22,897 13,551 16,058
Decrease (increase) in inventories........ (751) (3,124) 10,383 (12,053)
Decrease in accounts payable.............. (8,041) (15,323) (21,207) (13,374)
Increase (decrease) in interest payable... (12,783) (15,636) 1,348 (2,092)
Other, net................................ (11,604) (23,541) (9,719) (30,932)
-------- --------- --------- ---------
Net cash provided by (used in) continuing
operating activities.................. 24,662 (20,075) 36,226 3,072
-------- --------- --------- ---------
Cash used in Wallcoverings discontinued
operations................................ - - - (15,052)
Cash used in other discontinued
operations................................ (2,748) (4,801) (4,431) (7,802)
--------- ---------- --------- ---------
Net cash used in discontinued
operations........................... (2,748) (4,801) (4,431) (22,854)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment... (19,843) (22,773) (32,377) (49,505)
Sales of property, plant and equipment....... 193 186 2,634 3,924
Proceeds from disposition of discontinued
operations................................ - - - 71,200
Acquisition of businesses, net of cash acquired (369) (1,003) (369) (20,239)
Other, net................................... (316) 5,646 1,758 3,537
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities........................... (20,335) (17,944) (28,354) 8,917
--------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt................... 100,000 225,000 100,000 225,000
Repayment of long-term debt.................. (4,897) (235,703) (9,486) (256,391)
Reduction of a participating interest in
accounts receivable....................... (10,500) (2,000) (2,200) (3,000)
Net borrowings (repayments) on revolving credit
facilities................................ (26,881) 67,702 (17,381) 57,702
Decrease on short-term
borrowings................................ (7,423) (468) (5,272) (7,491)
Reissuance (purchase) of treasury stock, net. 312 (4,481) (921) (6,545)
Dividends paid............................... (44,005) - (50,198) -
Other, net................................... 1,345 (1,773) 2,267 (2,091)
--------- --------- --------- ---------
Net cash provided by financing activities 7,951 48,277 16,809 7,184
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................... 9,530 5,457 20,250 (3,681)
Cash and cash equivalents at beginning of period 34,475 14,866 23,755 24,004
--------- --------- --------- ---------
Cash and cash equivalents at end of period... $ 44,005 $ 20,323 $ 44,005 $ 20,323
========= ========= ========= =========
</TABLE>
I-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 June 26, 1999, Blackstone
Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella Partners,
L.P. ("WP Partners") and their respective affiliates collectively owned
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 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 named 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 $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 quarter
and six months ended June 26, 1999, this agreement resulted in reductions in
interest expense of approximately $20 thousand and $122 thousand, respectively.
During the quarter and six months ended June 27, 1998, this agreement resulted
in reductions of interest expense of approximately $60 thousand and $115
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 for several currencies that mature
during fiscal 1999. These contracts, which aggregated a U.S. dollar equivalent
of $108.2 million at June 26, 1999, will partially offset currency volatility
associated with intercompany funding arrangements and purchase and sale
transactions. The fair value of these contracts approximated the contract value
at June 26, 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
throughout 1999. The premium associated with these contracts of approximately
$1.5 million is being amortized over the contracts' terms and is included in
other expense (income) in the accompanying consolidated statements of
operations.
I-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
E. INVENTORIES:
Inventory balances are summarized below (in thousands):
June 26, December 26,
1999 1998
--------- ------------
Raw materials........................ $ 78,972 $ 79,285
Work in process...................... 26,232 32,408
Finished goods....................... 37,253 41,147
--------- ----------
$ 142,457 $ 152,840
========= ==========
F. GOODWILL
Goodwill, representing the excess of purchase price over the fair value of
net assets of acquired entities, is being amortized on a straight-line basis
over a period of forty years. Amortization of goodwill applicable to continuing
operations was $2.1 million and $3.8 million for the quarter and six months
ended June 26, 1999, respectively, and $1.8 million and $3.5 million for the
quarter and six months ended June 27, 1998, respectively. Accumulated
amortization at June 26, 1999 was $21.7 million. The carrying value of goodwill
at an enterprise level is reviewed periodically based on the predicted 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 June 26, 1999, the Company believes the recorded value of
its goodwill of $259.4 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 and the Term Loan C Facility, as hereinafter defined,
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. On May 13, 1999, the
Company closed on the Term Loan C Facility in the principal amount of $100
million. The Term Loan C Facility is payable in quarterly installments beginning
in December, 1999 through final maturity in December, 2005. The Company used
approximately $44 million of the proceeds from the Term Loan C Facility to pay a
special dividend to shareholders on May 28, 1999. See Note M to Condensed
Consolidated Financial Statements. The remaining proceeds were used to repay
amounts outstanding on the Revolving Credit Facility and for general corporate
purposes.
At June 26, 1999, the Company had outstanding $92.5 million on the Term
Loan A Facility, $124.0 million on the Term Loan B Facility, $100.0 million on
the Term Loan C Facility and $129.8 million under the Revolving Credit Facility
(including $52.5 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.
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,
I-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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.
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 June 26, 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 June 26, 1999. Indebtedness under
the Term Loan C Facility bears interest at a per annum rate equal to LIBOR plus
3.25% (the "Tranche C LIBOR Margin") or Chase's Alternate Base Rate plus 2.25%
(the "Tranche C ABR Margin").
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 June 26, 1999, the scheduled maturities of long-term debt are as
follows (in thousands):
Remainder of fiscal year 1999.................. $ 10,867
Fiscal year 2000............................... 27,850
Fiscal year 2001............................... 116,930
Fiscal year 2002............................... 32,910
Fiscal year 2003............................... 80,823
Later years.................................... 672,655
----------
$ 942,035
==========
H. RESTRUCTURING:
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, headquartered in the Detroit metropolitan area, and
Europe Automotive Interior Systems, 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 convertible
systems businesses. In addition, the
I-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Company is in the process of relocating its corporate headquarters from
Charlotte, North Carolina to the Detroit metropolitan area and expects the
relocation to be completed in the fourth quarter of fiscal 1999.
The Company had previously announced that it anticipated incurring a
restructuring charge related to the Reorganization 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 delayed certain aspects of the
Reorganization while the Company's new Chief Executive Officer, Thomas Evans,
reviewed the Reorganization plan.
During the second quarter of 1999, Mr. Evans approved certain portions of
the Reorganization plan for the Company's North America Automotive Interior
Systems division and corporate headquarters. As a result, the Company recognized
a pre-tax restructuring charge of $4.6 million, principally representing
severance costs associated with employee reductions which either occurred or
were announced in the second quarter of fiscal 1999. Approximately 400 employees
were affected, of which approximately 350 worked in a plastics facility which is
being closed. The facility's operations are being relocated to another plastics
facility. The remaining employees held management or administrative positions
within the Company. The charge also included a $0.5 million impairment loss
related to assets located in the plastics facility. As of June 26, 1999, the
Company had spent approximately $0.9 million in severance and related costs.
The Company currently expects to recognize an additional restructuring
charge in the third quarter of fiscal 1999 once Mr. Evans completes his review
of the Reorganization plan. The total restructuring charge and other non-
recurring costs associated with the Reorganization to be recognized by the
Company have not been finalized and may exceed the Company's original estimates.
The Company has completed relocation of its bodycloth production from a
JPS Automotive L.P. ("JPS Automotive") facility to an existing C&A Products
facility and has completed the closing of the manufacturing facilities in
connection with the acquisition of JPS Automotive. The remaining reserve of
approximately $0.8 million will be used primarily for severance benefits.
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 to Condensed Consolidated Financial
Statements. 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. In June 1998, the Company incurred fees and
expenses of approximately $0.1 million for services performed by Blackstone
Partners or its affiliates for the 1996 acquisitions of JPS Automotive and
Perstorp Components and the 1997 acquisition of the remaining interest of the
Collins & Aikman/Perstorp Joint Venture.
I-7
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
K. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
The Company's continuing operations primarily supply automotive interior
systems - textile and plastic products, acoustics and convertible top systems -
to the global automotive industry.
The Company's reportable segments reflect the divisions established in the
Reorganization. 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 trim
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 losses, 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 June 26, 1999
-----------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
External revenues............. $ 292,445 $ 77,226 $ 117,150 $ - $ 486,821
Inter-segment revenues........ 21,313 7,060 9,362 (37,735) -
Depreciation and amortization. 9,051 4,667 3,772 209 17,699
Operating income (loss)....... 21,482 3,035 14,532 (3,663) 35,386
Total assets.................. 785,818 249,200 257,300 95,432 1,387,750
Capital expenditures.......... 11,429 3,893 3,172 1,349 19,843
Quarter Ended June 27, 1998
-----------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
External revenues............. $ 270,476 $ 82,142 $ 110,717 $ - $ 463,335
Inter-segment revenues........ 21,059 6,400 8,817 (36,276) -
Depreciation and amortization. 8,440 3,672 3,635 255 16,002
Operating income.............. 14,869 2,333 6,455 4 23,661
Total assets.................. 743,440 226,633 278,322 67,045 1,315,440
Capital expenditures.......... 11,936 1,298 5,803 3,736 22,773
</TABLE>
I-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 26, 1999
---------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
External revenues............. $ 576,057 $ 159,093 $ 230,008 $ - $965,158
Inter-segment revenues........ 44,073 14,343 18,134 (76,550) -
Depreciation and amortization. 18,322 8,611 7,540 458 34,931
Operating income(loss)........ 40,226 3,919 25,479 (4,405) 65,219
Total assets.................. 785,818 249,200 257,300 95,432 1,387,750
Capital expenditures.......... 18,479 7,037 4,454 2,407 32,377
Six Months Ended June 26, 1999
----------------------------------------------------------------------
North America Europe Specialty
Automotive Automotive Automotive
Interior Systems Interior Systems Products Other (a) Total
---------------- ---------------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
External revenues.............. $ 543,745 $ 168,057 $ 229,673 $ - $ 941,475
Inter-segment revenues......... 44,294 12,142 17,457 (73,893) -
Depreciation and amortization.. 17,231 8,371 7,428 809 33,839
Operating income............... 42,132 4,834 15,956 252 63,174
Total assets................... 743,440 226,633 278,322 67,045 1,315,440
Capital expenditures........... 25,420 5,638 11,465 6,982 49,505
(a) Other includes the Company's discontinued operations, non-operating units
and the effect of eliminating entries.
Sales for the Company's primary product groups are as follows (in
thousands):
Quarter Ended Six Months Ended
------------- ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Molded floor carpet............ $ 117,926 $ 107,618 $ 232,088 $ 212,970
Luggage compartment trim....... 19,861 24,234 35,157 50,063
Acoustical products............ 46,108 58,015 102,116 111,714
Accessory floormats............ 42,897 33,719 82,861 73,325
Plastic-based interior trim
systems...................... 114,984 105,368 224,894 214,245
Automotive fabrics............. 67,575 63,464 132,573 136,580
Convertible top
systems...................... 36,658 33,077 70,086 63,907
Other.......................... 40,812 37,840 85,383 78,671
------- ------- ------- -------
Total.......................... $ 486,821 $ 463,335 $ 965,158 $ 941,475
======= ======= ======= =======
</TABLE>
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.
I-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
Six Months Ended
----------------
June 26, June 27,
1999 1998
---- ----
General Motors Corporation...................... 31.8% 30.7%
Ford Motor Company............................... 20.4% 14.3%
DaimlerChrysler A.G............................... 18.8% 18.7%
Sales for the Company's continuing operations in different geographic
areas is presented below (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States................$ 278,854 $ 260,414 $ 550,754 $ 534,837
Canada....................... 104,881 96,989 199,644 192,387
Mexico....................... 25,860 23,790 55,667 46,194
United Kingdom............... 30,391 35,999 62,943 74,424
Other Europe (a)............. 46,835 46,143 96,150 93,633
--------- --------- --------- ---------
Consolidated.................$ 486,821 $ 463,335 $ 965,158 $ 941,475
========= ========= ========= =========
</TABLE>
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and
the Netherlands.
Long-lived assets for the Company's continuing operations in different
geographical regions is presented below (in thousands):
June 26, June 27,
1999 1998
---- ----
United States.............$ 445,297 $ 436,681
Canada..................... 193,339 186,986
Mexico..................... 17,003 14,659
United Kingdom............. 58,147 53,865
Other Europe (a)........... 79,671 76,208
-------- --------
Consolidated..............$ 793,457 $ 768,399
======== =========
(a) Other includes Sweden, Spain, Belgium, Germany, Austria, France, and
the Netherlands.
I-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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.
M. COMMON STOCKHOLDERS' DEFICIT:
Total comprehensive income (loss) for the quarters ended June 26, 1999 and
June 27, 1998 was $1.1 million and $(5.7) million, respectively. For the six
months ended June 26, 1999 and June 27, 1998, comprehensive income (loss) was
$(12.4) million and $7.4 million, respectively. Activity in the common
stockholders' deficit since December 26, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Current Year Other
Comprehensive Accumulated Accumulated Other Common Paid-in Treasury
Loss Total Deficit Comprehensive 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 loss
Net loss..................... $(1,216) (1,216) (1,216) - - - -
Other comprehensive loss,
net of tax:
Foreign currency
translations adjustments.....(11,027) (11,027) - (11,027) - - -
Pension equity adjustment.... (116) (116) (116) - - -
----------
$(12,359)
==========
Compensation expense adjustment 280 - - - 280 -
Purchase of treasury stock
(305 shares).................. (1,659) - - - - (1,659)
Exercise of stock options
(83 shares)................... 351 (38) - - (349) 738
Dividends....................... (50,198) (50,198) - _ - -
----------- --------- --------- ------ -------- --------
Balance at June 26, 1999........ $ (143,356) $(632,118) $(34,570) $705 $ 585,332 $(62,705)
============ ========== ========== ====== ========= ========
</TABLE>
The accumulated balances and current period activity for each component of
Accumulated Other Comprehensive Loss are as follows (in thousands):
<TABLE>
<CAPTION>
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.............. (11,027) (116) (11,143)
----------- ----------- -----------
Balance at June 26, 1999........... $ (32,581) $ (1,989) $ (34,570)
============ =========== ===========
</TABLE>
I-11
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. On May
13, 1999, the Company declared another special dividend of approximately $44.0
million, representing $0.71 per share on all outstanding shares of common stock
held by stockholders of record as of the close of business on May 20, 1999. The
dividend was paid on May 28, 1999. In connection with these dividends, the
amount authorized by the Company's Board of Directors for the Company's 1999
share repurchase program was reduced from $25 million to approximately $2
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):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales......................... $ 486,821 $ 463,335 $ 965,158 $ 941,475
Gross margin...................... 78,262 63,814 148,850 142,547
Income from continuing operations. 5,502 75 7,977 8,585
Net income (loss)................. 5,502 75 (873) 8,585
</TABLE>
June 26, December 26,
1999 1998
--------- ------------
Current assets..................$ 516,387 $ 510,303
Noncurrent assets............... 871,351 871,815
Current liabilities............. 341,491 343,807
Noncurrent liabilities..........1,186,834 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
I-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
change in accounting principle in the accompanying consolidated statement of
operations for the six months ended June 26, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". 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.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133". Under SFAS No.
137, SFAS No. 133 is now effective for fiscal years beginning after June 15,
2000. 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.
I-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
NEW OFFICERS
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 retired from the Company
on June 30, 1999. Mr. Evans also serves as a director and Chairman of the
Company's Board of 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.
On July 26, 1999, the Company announced that Rajesh K. Shah had been
named Executive Vice President and Chief Financial Officer. Mr. Shah
replaces J. Michael Stepp, who has been named Executive Vice President -
Corporate Planning and Development. Mr. Shah, 48 years old, was formerly
Vice President and Chief Financial Officer of UT Automotive, Inc. Prior to
that, Mr. Shah held several management positions at Varity Corporation.
DIVIDENDS
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. On May 28, 1999, the Company paid a special dividend of approximately
$44.0 million, representing $0.71 per share on all outstanding shares of Common
Stock held by stockholders of record as of the close of business on May 20,
1999. In connection with these dividends, the amount authorized by the Company's
Board of Directors for the Company's 1999 share repurchase program was reduced
from $25 million to approximately $2 million.
TERM LOAN C FACILITY
On May 13, 1999, the Company closed a senior six-year term loan facility
in the principal amount of $100 million payable in quarterly installments
beginning in December, 1999 through final maturity in December, 2005 (the "Term
Loan C Facility"). 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 used a portion of the proceeds to pay the $44.0 million special dividend
discussed above. The remaining proceeds were 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, headquartered in the Detroit metropolitan area, and
Europe Automotive Interior Systems, 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 convertible
systems businesses. In addition, the Company is in the process of relocating its
corporate headquarters from Charlotte, North Carolina to the Detroit
metropolitan area and expects the relocation to be completed in the fourth
quarter of fiscal 1999.
The Company had previously announced that it anticipated incurring a
restructuring charge related to the Reorganization 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 delayed certain aspects of the
Reorganization while the Company's new Chief Executive Officer, Thomas Evans,
reviewed the Reorganization plan.
During the second quarter of 1999, Mr. Evans approved certain portions of
the Reorganization plan for the Company's North America Automotive Interior
Systems division and corporate headquarters. As a result, the Company recognized
a pre-tax restructuring charge of $4.6 million, principally representing
severance costs associated with employee reductions which either occurred or
were announced in the second quarter of fiscal 1999. Approximately 400 employees
were affected, of which approximately 350 worked in a plastics facility which is
being closed. The facility's operations are being relocated to another plastics
facility.
I-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The remaining employees held management or administrative positions within the
Company. The charge also included a $0.5 million impairment loss related to
assets located in the plastics facility. As of June 26, 1999, the Company had
spent approximately $0.9 million in severance and related costs.
The Company currently expects to recognize an additional restructuring
charge in the third quarter of fiscal 1999 once Mr. Evans completes his review
of the Reorganization plan. The total restructuring charge and other
non-recurring costs associated with the Reorganization to be recognized by the
Company have not been finalized and may exceed the Company's original estimates.
GENERAL
The automotive supply industry in which the Company operates is cyclical
and is influenced by the level of North American and European automobile and
light truck 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 increased reliance of
automobile manufacturers on fewer suppliers, utilizing primarily those suppliers
who can provide comprehensive engineering and design capabilities on a worldwide
basis. 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
undertaken the Reorganization discussed above.
RESULTS OF OPERATIONS
NET SALES: Net sales for the Company for the second quarter of 1999 increased
5.1% to $486.8 million, up $23.5 million from the second quarter of 1998. Net
sales for the six months ended June 26, 1999 increased 2.5% to $965.2 million,
up $23.7 million from the comparable 1998 period. Approximately $17.8 million of
these increases is due to sales lost during June 1998 related to a strike at
General Motors, which began on June 5, 1998 and ended on July 29, 1998. The
remaining increases are due to higher sales on several product lines in the
Company's North America Automotive Interior Systems and Specialty Automotive
Products divisions, driven primarily by a strong car build in North America.
Offsetting the sales increases in North America are sales declines at the
Company's Europe Automotive Interior Systems division, primarily resulting from
decreased sales to Rover and Ford. Management currently expects sales in Europe
to Rover and Ford to continue at decreased levels for the remainder of fiscal
1999.
Approximately 18% of the Company's sales for the six months ended June 26, 1999
were attributable to products utilized in vehicles built outside North America,
compared to 20% for the six months ended June 27, 1998. The Company's North
American content per build was approximately $86 for the six months ended June
26, 1999, compared to an average of $89 for the 1998 fiscal year. The Company's
European content per build was approximately $16 for the six months ended June
26, 1999, compared to an average of $17 for the 1998 fiscal year.
GROSS MARGIN: For the second quarter of 1999, gross margin was 16.1%, up from
13.8% in the comparable period in 1998. The increase for the quarter is due to
improved volume and manufacturing efficiencies at the Company's North America
Automotive Interior Systems division, which was impacted by several events in
1998 including the General Motors strike, the closure and relocation of certain
carpet manufacturing operations into other facilities and an inventory
adjustment taken by the division's accessory floormats operations. In addition,
gross margin at the Company's Specialty Automotive Products division improved
over prior year results, which were impacted by the General Motors strike and
lower sales volume and manufacturing inefficiencies due to increased demand for
leather seating applications. For the six months ended June 26, 1999, gross
margin was 15.5%, up from 15.2% in the comparable period in 1998. The
improvements experienced in the second quarter of 1999 were offset by
unfavorable changes in sales mix, price discounts and product launch costs
experienced at the North America Automotive Interior Systems division during the
first quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the second quarter of 1999 decreased 4.6% to $38.3
million, down from $40.2 million in the comparable 1998 period. The decrease is
primarily due to cost-cutting efforts at the Company's Specialty Automotive
Products division. For the six months ended June 26, 1999, selling, general and
administrative expenses were $79.1 million, compared to $79.4 million in the
comparable 1998 period. Cost-cutting efforts at the Specialty Automotive
Products division were offset by increased costs associated with systems
upgrades and Year 2000 compliance efforts during the first quarter of
I-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
1999. As a percentage of sales, selling, general and administrative expenses
were 7.9% and 8.3% for the second quarters of 1999 and 1998, respectively, and
8.2% and 8.4% for the six months ended June 26, 1999 and June 27, 1998,
respectively.
RESTRUCTURING CHARGE: During the second quarter of 1999, the Company recognized
a $4.6 million restructuring charge, principally representing severance costs
associated with employee reductions in connection with the Reorganization. The
charge also includes a $0.5 million impairment loss related to assets located in
a plastics facility which is being closed as part of the Reorganization.
INTEREST EXPENSE: Interest expense, net of interest income of $0.6 million and
$1.6 million for the second quarter of 1999 and 1998, respectively, increased to
$23.0 million in the second quarter of 1999, up $3.6 million from the comparable
1998 period. Interest expense, net of interest income of $1.4 million and $2.2
million for the six months ended June 26, 1999 and June 27, 1998, respectively,
increased to $44.8 million for the six months ended June 26, 1999, up $4.9
million from the comparable 1998 period. These increases are due to higher
levels of outstanding debt during 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
during the second quarter of 1999, compared to a loss of $1.7 million for the
second quarter of 1998. Losses of $2.6 million and $3.3 million were recognized
for the six months ended June 26, 1999 and June 27, 1998, respectively. The
decreases in the loss on sale of receivables are primarily due to a lower
interest rate on the receivables facility during 1999.
OTHER EXPENSE (INCOME): The Company recognized other income of $1.0 million in
the second quarter of 1999, compared to other expense of $3.5 million in the
second quarter of 1998. The decrease in other expense is primarily due to
foreign currency transaction gains associated with the Canadian dollar during
1999. The Company had incurred foreign currency transaction losses associated
with the Canadian dollar during 1998. For the six months ended June 26, 1999,
the Company recognized other expense of $1.1 million, compared to other expense
of $3.7 million in the comparable 1998 period. Foreign currency gains on the
Canadian dollar recognized in the second quarter of 1999 were offset by foreign
currency losses incurred in the first quarter of 1999 related to the Mexican
peso.
INCOME TAXES: The Company recognized income tax expense of $6.7 million in the
second quarter of 1999, compared to an income tax benefit of $0.5 million
recognized in the second quarter of 1998. For the six months ended June 26,
1999, the Company recognized income tax expense of $8.9 million, compared to
income tax expense of $8.0 million during the six months ended June 27, 1998.
The Company's effective tax rate was 55.8% and 48.8% in the second quarters of
1999 and 1998, respectively, and 53.9% and 49.5% in the six months ended June
26, 1999 and June 27, 1998, respectively. The percentage increase is due to the
impact of certain state taxes and nondeductible goodwill, which do not fluctuate
with income.
EXTRAORDINARY CHARGE: For the quarter and six months ended June 27, 1998, the
Company recognized an extraordinary charge consisting of a non-cash
extraordinary charge of $3.6 million, net of income taxes of $2.4 million,
relating to the refinancing of the Company's bank facilities and a $0.1 million
charge, net of taxes of $58 thousand, recognized in connection with the
repurchase of $2.0 million principal amount of JPS Automotive 11-1/8% Senior
Notes due 2001 (the "JPS Automotive Senior Notes") on the market at prices in
excess of the carrying values.
CUMULATIVE EFFECT OF A 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 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 SOP 98-5 resulted in a charge of $8.8 million,
net of income taxes of $5.1 million.
NET INCOME (LOSS): The combined effect of the foregoing resulted in net income
of $5.3 million for the second quarter of 1999, compared to a net loss of $4.2
million for the second quarter of 1998. The Company recognized a net loss of
$1.2 million for the six months ended June 26, 1999, compared to net income of
$4.5 million for the six months ended June 27, 1998.
I-16
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries had cash and cash equivalents totaling
$44.0 million and $23.8 million at June 26, 1999 and December 26, 1998,
respectively. The Company had a total of $111.6 million of borrowing
availability under its credit arrangements as of June 26, 1999. Availability as
of June 26, 1999 under the revolving credit facility has been reduced by
outstanding letters of credit of $22.0 million. The total was comprised of $98.1
million under the revolving credit facility (including $7.5 million available to
the Canadian Borrowers, as hereinafter defined), and approximately $13.5 million
under bank demand lines of credit in Austria, Canada, the Netherlands, and the
United Kingdom. No amounts were 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 and the Term Loan C Facility, as hereinafter defined,
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"). On May 13, 1999, the
Company closed on a senior term loan facility in the principal amount of $100
million, payable in quarterly installments beginning in December, 1999 through
final maturity in December, 2005 (the "Term Loan C Facility"). The proceeds from
the Term Loan C Facility were used to pay the $44.0 million special dividend
discussed above, repay amounts outstanding under the Company's Revolving Credit
Facility and for general corporate purposes.
At June 26, 1999, the Company had outstanding $92.5 million under the Term
Loan A Facility, $124.0 million under the Term Loan B Facility, $100.0 million
outstanding under the Term Loan C Facility, and $129.8 million under the
Revolving Credit facility (including $52.5 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. 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.
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 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
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COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 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 June 26, 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 June 26, 1999, JPS
Automotive had approximately $87.8 million of indebtedness outstanding
(including a premium of $1.8 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 June 26, 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 June 26, 1999 the maximum
amount available under the variable funding certificates was $62.3 million, of
which the entire amount was utilized.
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 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
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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)
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 June 26, 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 June 26, 1999, the Company made lease payments relating to
continuing operations of approximately $1.5 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 $2.1 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 $24.7 million
for the quarter ended June 26, 1999, compared to net cash used of $20.1 million
in the quarter ended June 27, 1998. Net cash provided by the continuing
operations of the Company was $36.2 million for the six months ended June 26,
1999 compared to $3.1 million for the six months ended June 27, 1998.
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
tax payments, costs associated with the Company's previously divested businesses
and capital expenditures. At June 26, 1999, the Company had total outstanding
indebtedness of $942.0 million (excluding approximately $22.0 million of
outstanding letters of credit) at an average interest rate of 9.43% per annum.
Of the total outstanding indebtedness, $846.3 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 to approximately $2 million in
connection with the approximately $6.2 million special dividend paid on March 1,
1999, and the approximately $44.0 million special dividend paid on May 28, 1999.
The Company believes it has sufficient liquidity under its existing credit
arrangements to effect the repurchase program. The Company spent approximately
$1.4 million to repurchase shares during the first six months 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 June 26, 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 June 26, 1999. Indebtedness under the Term Loan C
Facility bears interest at a per annum rate of LIBOR plus 3.25% (the "Tranche C
LIBOR Margin") or Chase's Alternate Base Rate plus 2.25% (the "Tranche C ABR
Margin"). The weighted average
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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)
interest rate on the Credit Agreement Facilities was 7.6% at June 26, 1999. The
weighted average interest rate on the sold interests under the Receivables
Facility at June 26, 1999 was 5.7%. Under the Receivables Facility, the term
certificates bear interest at an average rate equal to one month LIBOR plus .34%
per 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. Cash interest paid was $36.1 million in both the
quarters ended June 26, 1999 and June 27, 1998. Cash interest paid was $44.2
million and $43.2 million for the six months ended June 26, 1999 and June 27,
1998, respectively.
Due to the variable interest rates under the Credit Agreement Facilities
and the Receivables Facility, the Company is sensitive to changes 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. Based upon amounts outstanding at June
26, 1999 a .5% increase in each of LIBOR and Canadian bankers' acceptance rates
(5.2% and 4.8%, respectively, at June 26, 1999) would impact interest costs by
approximately $2.2 million annually on the Credit Agreement Facilities and $0.5
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 June
1998.
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 $10.9 million, $27.8 million, $116.9 million and $32.9
million and $80.8 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 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 June 26, 1999, the Company's continuing
operations had approximately $34.2 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 arrangements. 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 second 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
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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)
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 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 $15.2 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."
Management has reviewed the Company's operating results for recent years
as well as the outlook for its continuing businesses in concluding it is more
likely than not that the net deferred tax assets of $87.9 million at June 26,
1999 will be realized. A major goal of the Reorganization is to lower the
overall cost structure of the Company and thereby increase profitability. These
factors along with the timing of the reversal of its temporary differences and
the expiration dates of its NOLs were also considered in reaching this
conclusion. The Company's ability to generate future taxable income is dependent
on numerous factors, including general economic conditions, the state of the
automotive industry and other factors beyond management's control. Therefore,
there can be no assurance that the Company will meet its expectation of future
taxable income.
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.
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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)
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 June 26, 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 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 June 26, 1999, the
Company's estimate of its liability for these 32 sites is approximately $23.1
million. As of June 26, 1999, the Company has established reserves of
approximately $36.5 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 READINESS
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 readiness 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.
I-22
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 ready
Currently, the Company estimates that a majority of the Company's
locations are either in or have completed the Testing phase for each area of
Year 2000 risk.
The Company intends for all of its systems in North America and Europe to
become Year 2000 ready 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 ready in a timely manner; and (iii) maintaining offline
documentation of production schedules, releases and inventory levels. The
Company has not yet quantified the entire costs associated with these
contingency plans.
The Company currently anticipates that the total cost of the its Year 2000
Plan including approximately $25 million of costs associated with the BSIP Plan
and $0.3 million of costs associated with contingency plans, will be
approximately $29 million. Included in this estimate is approximately $7 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 $22 million
of these costs have been incurred through June 26, 1999 including approximately
$6 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 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, it is
difficult for the Company to determine a reasonably likely Year 2000 worst case
scenario. One possible scenario would be the failure of the Company's key
suppliers to become Year 2000 ready. To mitigate this risk, the Company has
issued questionnaires to its suppliers and has visited or had discussions with
certain of these suppliers to assess their Year 2000 readiness. The majority of
the Company's suppliers have represented that they will be Year 2000 ready by
the end of 1999. The Company is incorporating the responses received from its
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 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 ready 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
I-23
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONCLUDED)
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
readiness 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, in the Company's Report on Form 10-Q for the fiscal quarter ended March
27, 1999 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 June 26, 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.
I-24
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a),(c) On April 27, 1999, the Company held its Annual Meeting of
Stockholders. At such meeting, stockholders voted on the following matters:(1)
the election of three directors to hold office until the year 2002 Annual
Meeting of Stockholders; and (2) a proposal amending the Restated Certificate of
Incorporation of the Company to simplify one provision of the Restated
Certificate of Incorporation and to clarify the operation of certain other
provisions of the Restated Certificate in certain circumstances. The results of
the voting were as follows:
1. Election of Directors
Nominee For Withheld Broker Nonvotes
------- --- -------- ---------------
Bruce R. Barnes 57,847,770 244,103 0
James J. Mossman 57,842,290 249,583 0
Warren B. Rudman 57,846,070 245,803 0
2. Approval of Proposal Amending Restated Certificate of Incorporation
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
57,959,177 70,296 62,400 0
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 and Amendment thereto.
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 - Tranche C Term Loan Supplement dated as of May 12, 1999 to the Credit
Agreement dated as of May 28, 1998 among Collins & Aikman Products Co.,
Collins & Aikman Canada, Inc., Collins & Aikman Plastics, Ltd., Collins
& Aikman Corporation, the Financial Institutions 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.
II-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 - Employment Agreement dated as of April 22, 1999 between Collins &
Aikman Corporation and an executive officer is hereby incorporated by
reference to Exhibit 10.10 of Collins & Aikman Corporation's Report on
Form 10-Q for the quarter ended March 27, 1999.
10.2 - Letter agreement dated as of May 12, 1999 with an executive officer.
10.3 - 1994 Employee Stock Option Plan, as amended and restated through
June 3, 1999.
11 - Computation of Earnings Per Share.
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
(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-2
<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: August 9, 1999
COLLINS & AIKMAN CORPORATION
(Registrant)
By: /s/ Rajesh K. Shah
------------------
Rajesh K. Shah
Chief Financial Officer and
Executive Vice President
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
of
COLLINS & AIKMAN CORPORATION
Under Section 245 of the General Corporation Law
of the State of Delaware
This Restated Certificate of Incorporation of Collins & Aikman Corporation
(originally incorporated under the name WCI Holdings Corporation) amends and
restates such corporation's Certificate of Incorporation, as amended, which was
originally filed with the Secretary of State of the State of Delaware on
September 21, 1988, and was duly adopted in the manner and by the vote
prescribed by Section 242, in accordance with the provisions of Section 245 and
Section 228 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is Collins & Aikman Corporation
(the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover,
County of Kent. The name of the registered agent at such registered office is
The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 166,000,000, consisting of:
(a) 150,000,000 shares of Common Stock, par value $0.01 per share, which
shall be designated "Common Stock". Each share of Common Stock shall be entitled
to one vote per share; and
(b) 16,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock"). The Board of Directors of the Corporation is hereby
expressly authorized to provide for the issuance of shares of Preferred Stock in
one or more series, by resolution or resolutions and by
<PAGE>
2
filing a certificate pursuant to the applicable laws of the State of Delaware
(any such certificate a "Preferred Stock Designation"), to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each series and the
qualifications, limitations or restrictions thereof. Before any shares of any
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, the provisions of the shares thereof including, but
not limited to, the following:
(1) the distinctive designation of such series, the number of
shares to constitute such series and the stated value thereof if different
from the par value thereof;
(2) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other series of
this class;
(4) whether the shares of such series shall be subject to
redemption by the Corporation and, if so, the times, prices and other
conditions of such redemption;
(5) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding-up, or upon any
distribution of the assets, of the Corporation;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement or
other corporate purposes and the terms and provisions relative to the
operation thereof;
<PAGE>
3
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series
of this class or any other securities and, if so, the price or prices or
the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(8) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of this class;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this
class or of any other class; and
(10) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any nd all
other series at any time outstanding. All shares of any one series of Preferred
Stock shall be identical in all respects with all other shares of such series,
except that shares of any one series issued at different times may differ as to
the dates from which dividends thereon shall be cumulative.
* * * *
Rights, Preferences, Privileges and Restrictions
of 15-1/2% Cumulative Exchangeable Redeemable
Preferred Stock
RESOLVED that, pursuant to authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Company, as amended (hereinafter
called the "Certificate of Incorporation"), the Board
<PAGE>
4
of Directors hereby provides for the issuance of a series of Preferred Stock (as
such term is defined in the Certificate of Incorporation) of the Company to
consist of 16,000,000 shares, and fixes the powers, designation, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions of the shares of such series of Preferred Stock, in
addition to those set forth in the Certificate of Incorporation, as follows:
1. Designation. There is hereby designated series of Preferred Stock
known as the 15 1/2% Cumulative Exchangeable Redeemable Preferred Stock,
par value $0.01 per share (the "Merger Preferred Stock"), consisting of
16,000,000 shares, issuable by the Company pursuant to authority granted
to the Board of Directors in Article FOURTH of the Certificate of
Incorporation, which authorizes the issuance of Preferred Stock having
such rights and other terms as may be determined by the Board of
Directors.
2. Rank. The Merger Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding-up and dissolution of the
Company, rank senior to the Company's Common Stock, and to all other
classes and series of stock of the Company now or hereafter authorized,
issued or outstanding, other than any stock of the Company ranking senior
to or pari passu with the Merger Preferred Stock as to dividend rights or
rights upon liquidation, winding-up or dissolution of the Company either
authorized after the date hereof in compliance with paragraph 10(c)(i) or
issued after the date hereof in compliance with paragraph (10)(c)(i) (the
Common Stock and such other classes and series of stock collectively
referred to herein as the "Junior Securities"). The Merger Preferred Stock
shall be subject to the creation of such senior stock, such pari passu
stock and Junior Securities to the extent not expressly prohibited by this
Certificate.
3. Dividends. (a) The holders of shares of the Merger
Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors of the Company and out of the assets of the
Company available for the payment of dividends
<PAGE>
5
under the provisions of the General Corporation Law of the State of
Delaware, dividends payable at the rate of $3.875 per share per annum
(subject to increase as provided below). Such dividends shall be payable
quarterly on the first day of February, May, August, and November in each
year (each of such dates a "Dividend Payment Date") commencing with the
later of (i) August 1, 1989 and (ii) the first such date after the time
the merger of WCI Acquisition Corporation, a Delaware corporation, into
Wickes Companies, Inc., a Delaware corporation ("Wickes"), shall become
effectiv (the "Merger Effective Time"); except that if such first day is
not a business day then such dividends shall be payable on the next
succeeding business day. (As used herein, the term "business day" shall
mean any day except a Saturday, a Sunday or a day on which banking
institutions are authorized or required by law to close in the City of New
York.) Dividends on each share of Merger Preferred Stock shall begin to
accrue and be cumulative on outstanding shares of the Merger Preferred
Stock (whether or not in any quarterly period there shall be assets of the
Company legally available for the payment of such dividends) from and
including the date of initial issuance of such share. The amount of any
dividends "accrued" on any share of Merger Preferred Stock at any Dividend
Payment Date shall be deemed to be the amount of any unpaid dividends
accumulated thereon to and excluding such Dividend Payment Date, whether
or not earned or declared, and the amount of dividends "accrued" on any
share of Merger Preferred Stock at any date other than a Dividend Payment
Date shall be calculated as the amount of any unpaid dividends accumulated
to and excluding the last preceding Dividend Payment Date, whether or not
earned or declared, plus an amount calculated on the basis of the annual
dividend rate for the period from and including such last preceding
Dividend Payment Date to and excluding the date as of which the
calculation is made.
All dividends on the Merger Preferred Stock shall be computed on the
basis of the number of days elapsed in a 360-day year consisting of 12
months of 30 days each. Such dividends shall
<PAGE>
6
be paid to the holders of record of shares of the Merger Preferred Stock
as they appear on the stock register of the Company on such date as shall
be fixed by the Board of Directors of the Company; provided, however, that
such date shall not be less than 10 days nor more than 60 days prior to
the date of payment.
Dividend arrearage for any past dividend periods may be declared and
paid at any time to holders of record on such date as may be fixed by the
Board of Directors of the Company; provided, however, that such date shall
not be less than 10 days nor more than 60 days prior to the date of
payment.
(b) All dividends on the Merger Preferred Stock shall be payable in
cash, except that dividend payments with respect to quarterly dividends
accruing on or prior to February 1, 1995 (whenever such dividends are
actually paid), may be paid in whole or in part in additional shares of
the Merger Preferred Stock if the Board of Directors of the Company so
directs. All such dividends paid in additional shares of Merger Preferred
Stock shall be paid at a rate of 0.04 shares of Merger Preferred Stock for
each $1 of such dividends not paid in cash. The issuance of Merger
Preferred Stock at the prescribed rate shall constitute full payment of
the portion of such dividends payable in kind. Except as described below
with respect to fractional shares of Merger Preferred Stock, all dividends
paid with respect to shares of the Merger Preferred Stock, whether and to
the extent in cash or in kind, shall be paid pro rata to the holders
entitled thereto. No interest or sum of money in lieu of interest or
additional shares of Merger Preferred Stock shall be payable in respect of
any accumulated unpaid dividends on the Merger Preferred Stock (whether
such unpaid dividends are subsequently paid in kind or in cash).
(c) Only whole shares of Merger Preferred Stock will be issued upon
the payment of dividends in kind on the Merger Preferred Stock. In lieu of
the fractional portion of the aggregate number of shares of Merger
Preferred Stock otherwise payable
<PAGE>
7
to a record holder of Merger Preferred Stock at any time as dividends in
kind ("Fractional Shares"), such record holder will receive a payment in
cash equal to such record holder's proportionate interest in the net
proceeds from the sale or sales in the open market of the aggregate of all
Fractional Shares otherwise payable as a dividend. Such sale or sales
shall be effected promptly after the record date fixed for determining the
holders entitled to payment of the dividend.
(d) (i) Holders of shares of the Merger Preferred Stock shall be
entitled to receive the dividends provided for in paragraph 3(a) in
preference to and in priority over any dividends upon any of the Junior
Securities.
(ii) The Company shall not (x) declare, pay or set apart funds
for payment of any cash dividends on shares of Common Stock or any
other shares of Junior Securities, (y) purchase, redeem or otherwise
retire any Junior Securities or warrants, rights or options
exercisable for shares of Junior Securities (and shall not set apart
funds for such payment with respect thereto), or (z) make any
distributions with respect to Junior Securities or any warrants,
rights or options exercisable for any Junior Securities (except
dividends or distributions on shares of Junior Securities in shares
of any Junior Securities), unless (I) full cumulative dividends on
the Merger Preferred Stock shall have been paid prior to, or shall
be paid concurrently with, the time of such declaration, payment,
setting apart, purchase, redemption, retirement or distribution for
each Dividend Payment Date on or prior to such time and (II) any
redemption required to have been made on or prior to such time
pursuant to paragraph 4(b) and, if such time is on or after the 10th
anniversary of the Merger Effective Time, the redemption of Merger
Preferred Stock set forth in paragraph 4(a) shall have been made
prior to, or shall be made concurrently with, such time (it being
<PAGE>
8
understood that the failure of the Company to effect such a
redemption as a result of the absence of assets legally available
therefor shall not constitute compliance with this clause (II)).
(iii) Notwithstanding anything contained in this Certificate
to the contrary, no dividends on shares of the Merger Preferred
Stock shall be declared by the Board of Directors of the Company or
paid or set apart for payment by the Company at such time as the
terms and provisions of any contract or other agreement of the
Company or any of its subsidiaries entered into or assumed at or
prior to the Merger Effective Time, or any refinancings (including
multiple refinancings) of such contracts or agreements, prohibit
such declaration, payment or setting apart for payment or provide
that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder; provided,
however, that nothing contained in this Certificate shall in any way
or under any circumstances be construed or deemed to require the
Board of Directors of the Company to declare or the Company to set
apart for payment any dividends on shares of the Merger Preferred
Stock, whether or not permitted by any of such agreements. The
failure of the Board of Directors of the Company to declare a
dividend in reliance upon the immediately preceding sentence shall
not be construed or deemed to prevent the accrual of such undeclared
dividend.
(e) Subject to the foregoing provisions of this paragraph 3 and to
the provisions of paragraph 9, the Board of Directors may declare, and the
Company may pay, make or set apart for payment, dividends and other
distributions on, and the Company may purchase, redeem or otherwise
retire, any Junior Securities or any warrants, rights or options
exercisable for shares of Junior Securities, and the holders of shares of
Merger Preferred Stock shall not be entitled to share therein.
<PAGE>
9
(f) If, at any time on or after the second anniversary of the Merger
Effective Time, the Affiliated Common Equity Interest shall be less than
$75,000,000, from and after such time the dividend rate for all
outstanding Merger Preferred Stock shall be increased to $3.9375 per share
per annum. "Affiliated Common Equity Interest" means from time to time the
amount of the aggregate of all equity contributions to WCI Holdings II
Corporation, a Delaware corporation ("Parent"), on or before such time by
Blackstone Capital Partners L.P., a Delaware limited partnership, or any
successor thereto ("Blackstone Partners"), Wasserstein, Perella Partners,
L.P., a Delaware limited partnership, or any successor thereto ("WP
Partners"), and all owners of a limited partnership interest in, or
employees of Blackstone Partners or WP Partners who had co-investment
rights or a similar opportunity to invest in investments made by
Blackstone Partners or WP Partners at the time of their equity
contribution to Parent (Blackstone Partners, WP Partners and all such
persons who on or before such time shall have made such equity
contributions, or any successor thereto, collectively, the "Affiliated
Investors") minus any amounts received by Affiliated Investors as
dividends on, redemptions of or sales of equity interests in Parent (other
than sales by an Affiliated Investor to another Affiliated Investor), it
being understood that payments to an Affiliated Investor of amounts
characterized for this purpose by Parent (in its sole discretion and
notwithstanding the characterization of such payments for any other
purpose) as fees or expenses shall not constitute dividends. As used in
this Certificate, a "Person" shall include any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or political subdivision
thereof. The Company will by first-class mail send to each record holder a
written notice of any such change in the dividend rate on the Merger
Preferred Stock within 15 days of such change.
4. Scheduled Redemption. (a) Subject to the Company having
funds legally available
<PAGE>
10
therefor, the Company shall be obligated to redeem all outstanding shares
of Merger Preferred Stock on the 10th anniversary of the Merger Effective
Time. Such redemption of shares of Merger Preferred Stock pursuant to this
paragraph 4(a) shall be at a redemption price equal to the Liquidation
Preference (as defined below) per share together with accrued but unpaid
dividends (whether or not declared) through the date fixed for redemption.
(b) To the extent the Company shall have funds legally available
therefor, if at any time prior to the second anniversary of the Merger
Effective Time, the Affiliate Common Equity Interest is less than
$75,000,000, the Company will be obligated within 45 days (or the next
following business day if the 45th following day is not a business day) to
set apart out of funds legally available therefor, funds sufficient to
redeem all shares of Merger Preferred Stock then outstanding. Such a
redemption shall be at the Optional Redemption Price (as defined below)
plus all accrued and unpaid dividends (whether or not declared) to the
date fixed for redemption.
(c) If the funds of the Company legally available for any redemption
pursuant to this paragraph 4 at the redemption date are insufficient to
redeem such Merger Preferred Stock, funds to the extent legally available
for the purpose will be used to redeem the number of shares of Merger
Preferred Stock that legally may be redeemed. If the Company at any time
shall fail to discharge any obligation to redeem shares of Merger
Preferred Stock pursuant to this paragraph 4, such obligation shall be
discharged as soon as the Company is able to do so.
5. Optional Redemption. All or any part of the Merger Preferred
Stock may be redeemed by the Company at its election at any time and from
time to time in whole or in part, by resolution of the Board of Directors,
at a cash price per share equal to the sum of (i) the Optional Redemption
Price plus (ii) any accrued and unpaid dividends thereon, whether or not
declared, to the date fixed for the redemption; provided, however, that,
<PAGE>
11
if and when any quarterly dividend shall have accrued on the Merger
Preferred Stock and shall not have been paid or declared and a sufficient
sum set apart for payment for any Dividend Payment Date on or prior to the
date fixed for redemption, the Company may not redeem any shares of the
Merger Preferred Stock unless all shares of the Merger Preferred Stock
then outstanding are redeemed. The Optional Redemption Price shall equal
for redemptions with a date fixed for redemption (a) that is on or prior
to the first anniversary of the Merger Effective Time, 101% of the
Liquidation Preference per share, (b) after the first anniversary of the
Merger Effective Time to and including the second anniversary of the
Merger Effective Time, 101.5% of the Liquidation Preference per share, and
(c) thereafter, 102% of the Liquidation Preference per share.
6. Selection of the Merger Preferred Stock To Be Redeemed. If fewer
than all the outstanding shares of the Merger Preferred Stock not
previously called for redemption or exchange are to be redeemed pursuant
to paragraph 5, the Board of Directors of the Company shall select the
shares of the Merger Preferred Stock to be redeemed from outstanding
shares not previously called for redemption by lot or pro rata as
determined by the Board of Directors of the Company, in its sole
discretion; provided, however, that the Board of Directors of the Company
may in selecting shares for redemption choose to redeem all shares of
Merger Preferred Stock held by holders of a number of such shares not to
exceed 99 as may be specified by the Board of Directors (with all other
shares to be redeemed, if any, so selected by lot or pro rata).
7. Notice of Redemption. At least 30 days but not more than 60 days
prior to the date fixed for any redemption of shares of the Merger
Preferred Stock, written notice of such redemption shall be mailed to each
holder of record of shares of Merger Preferred Stock to be redeemed at the
address shown on the stock transfer books of the Company or, if no such
address appears or is given, at the place where the principal executive
office of the Company is located; provided,
<PAGE>
12
however, that no failure to give such notice or any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption. Each such notice shall specify (i) the number of shares to be
redeemed from such holder, (ii) the numbers of the certificates of the
shares being redeemed, (iii) the date fixed for redemption, (iv) the
redemption price, (v) the place or places at which payment may be
obtained, (vi) the provision of this Certificate pursuant to which the
shares are to be redeemed and (vii) that dividends on the shares to be
redeemed shall cease to accrue on the date fixed for such redemption.
8. Status of Shares of Merger Preferred Stock upon Redemption. (a)
Upon due surrender of the certificates for any shares of Merger Preferred
Stock to be redeemed, such shares of Merger Preferred Stock shall be
redeemed by the Company at the applicable redemption price. In case fewer
than all the shares of Merger Preferred Stock represented by any such
certificate are redeemed, a new certificate or certificates shall be
issued representing the unredeemed shares of Merger Preferred Stock
without cost to the holder thereof. Unless there shall have been a default
in payment of the redemption price, from and after any date fixed for
redemption, dividends on the shares of Merger Preferred Stock so called
for redemption shall cease to accrue, such shares of Merger Preferred
Stock shall no longer be deemed to be outstanding and shall not have the
status of shares of Merger Preferred Stock and all rights of the holders
thereof as stockholders of the Company (except the right to receive from
the Company the redemption price without interest) shall cease with
respect to such shares. From and after any date fixed for redemption,
shares of the Merger Preferred Stock redeemed by the Company shall be
restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are once more
designated as part of a particular series by the Board of Directors of the
Company.
(b) If at any time the Company shall have irrevocably deposited in
trust with a trustee for the benefit of the holders of all shares of
Merger
<PAGE>
13
Preferred Stock money or direct noncallable obligations of the United
States maturing as to principal and interest in such amounts and at such
times as are sufficient to pay all future dividends on all shares of
Merger Preferred Stock at the scheduled Dividend Payment Dates through the
10th anniversary of the Merger Effective Time (or any earlier date duly
fixed for an optional redemption thereof), and the redemption price
thereof, then, from and after the date on which such provision has been
made, such Merger Preferred Stock shall no longer be deemed to be
outstanding except for purposes of accruals of quarterly dividends and
shall not have the status of shares of Merger Preferred Stock, and all
rights of the holders thereof as stockholders of the Company (except the
right to receive from the Company quarterly dividends and the applicable
redemption price without interest) shall cease with respect to such
shares. Without limiting the foregoing, any shares deemed not to be
outstanding pursuant to this paragraph 8(b) shall not be subject to the
provisions of paragraphs 3(f) and 4(b).
(c) All moneys so deposited with or held by such trustee which
remain unclaimed by the holders of shares of Merger Preferred Stock 730
days after the date such moneys are payable to holders of shares of such
Merger Preferred Stock shall be paid by such trustee to the Company, and
thereafter the holders of such shares of Merger Preferred Stock shall look
only to the Company for payment.
9. Liquidation, Dissolution or Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, holders of the Merger Preferred Stock shall be entitled to be
paid out of the assets of the Company available for distribution to its
stockholders, whether from capital, surplus or earnings, an amount in cash
equal to $25.00 per share (the "Liquidation Preference") plus any accrued
and unpaid dividends to the date fixed for liquidation, dissolution or
winding-up, whether or not declared, before any distribution is made on
any Junior Securities, including the Common Stock.
<PAGE>
14
If upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the assets of the Company available for
distribution to holders of the Merger Preferred Stock shall be
insufficient to pay the holders of outstanding Merger Preferred Stock the
full amounts to which they shall be entitled under this paragraph 9, the
holders of the Merger Preferred Stock shall share equally and ratably in
any distribution of assets of the Company in proportion to the full amount
to which they would otherwise be respectively entitled. After payment of
the full amount of Liquidation Preference to which they are entitled plus
all accrued and unpaid dividends, whether or not declared, the holders of
the Merger Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Company. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or any part of
the property or assets of the Company, nor the consolidation or merger or
other business combination of the Company with or into any other
corporation or corporations, shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding-up of the Company, unless
such voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding-up of the
Company.
10. Voting Rights. (a) The holders of shares of Merger Preferred
Stock shall not be entitled to any voting rights except as expressly
provided in this paragraph 10 or as otherwise provided by law.
(b) (i) If at any time or times dividends payable on the then
outstanding Merger Preferred Stock shall be in arrears and unpaid in an
aggregate amount equal to the amount of five consecutive quarterly
dividends on the then outstanding Merger Preferred Stock, the then number
of directors constituting the Board of Directors of the Company, without
further action, shall be increased by two and the holders of Merger
Preferred Stock shall have the exclusive right, voting separately as a
class, to elect the
<PAGE>
15
directors of the Company to fill such newly created directorships, the
remaining directors to be elected by the other class or classes of stock
entitled to vote therefor, at each meeting of stockholders held for the
purpose of electing directors.
(ii) Whenever such voting right shall have vested, such right
may be initially exercised at a special meeting of the holders of
Merger Preferred Stock called as hereinafter provided, at any annual
meeting of stockholders held for the purpose of electing directors
or by the written consent of the holders of Merger Preferred Stock
pursuant to Section 228 of the General Corporation Law of the State
of Delaware. Such voting right shall continue until such time as all
cumulative dividends on Merger Preferred Stock accrued through the
latest Dividend Payment Date on or before such time shall have been
paid in full, at which time such voting right of the holders of
Merger Preferred Stock shall terminate, but such voting right shall
again vest in the event of each and every subsequent arrearage in
dividends in the requisite amount as described above.
(iii) At any time when such voting right shall have vested in
the holders of Merger Preferred Stock and if such right shall not
already have been initially exercised, a proper officer of the
Company shall, upon the written request of any holder of record of
Merger Preferred Stock then outstanding, call a special meeting of
holders of Merger Preferred Stock; provided, however, no such
special meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of stockholders.
Any holder of Merger Preferred Stock which would be entitled to vote
at such meeting shall have access to the stock books of the Company
for the purpose of causing a meeting
<PAGE>
16
of stockholders to be called pursuant to the provisions of this
paragraph 10(b)(iii).
(iv) At any meeting at which the holders of Merger Preferred
Stock shall have the right to elect directors as provided in this
paragraph 10(b), the presence in person or by proxy of the holders
of at least a majority of the then outstanding shares of Merger
Preferred Stock shall be required and be sufficient to constitute a
quorum. At any such meeting or adjournment thereof, the absence of a
quorum of the holders of Merger Preferred Stock shall not prevent
the election of directors other than those to be elected by the
holders of Merger Preferred Stock and the absence of a quorum or
quorums of the holders of capital stock entitled to elect such other
directors shall not prevent the election of directors to be elected
by the holders of Merger Preferred Stock.
(v) For so long as the aforesaid voting rights are vested in
the holders of Merger Preferred Stock, the term of office of all
directors elected by the holders of Merger Preferred Stock shall
terminate upon the election of their successors by the holders of
Merger Preferred Stock; provided, however, that any director who
shall have been elected by holders of the Merger Preferred Stock may
be removed at any time, either with or without cause, only by the
affirmative vote of the holders of record of a majority of the
outstanding shares of the Merger Preferred Stock at a duly called
stockholders meeting. Upon any termination of such voting rights in
accordance with paragraph 10(b)(ii), the term of office of all
directors elected by the holders of Merger Preferred Stock shall
thereupon terminate and upon such termination the number of
directors constituting the Board of Directors shall, without further
action, be reduced by two.
(vi) In case of any vacancy occurring among the directors so
elected by holders of Merger Preferred Stock, the remaining
<PAGE>
17
director who shall have been so elected may appoint a successor to
hold office for the unexpired term of the director whose place shall
be vacant. If both directors so elected by the holders of Merger
Preferred Stock shall cease to serve as directors before their terms
shall expire, the holder of Merger Preferred Stock then outstanding
may, in the manner provided in paragraph 10(b)(ii), elect successors
to hold office for the unexpired terms of the directors whose places
shall be vacant.
(c) (i) Subject to paragraph 10(c)(ii), so long as any shares of Merger
Preferred Stock are outstanding, the Company will not, without the
affirmative vote, or the written consent pursuant to Section 228 of the
General Corporation Law of the State of Delaware, of the holders of at
least the Required Majority of the outstanding shares of Merger Preferred
Stock (or such greater number as may be required by law), voting
separately as a class:
(I) increase the authorized number of shares of Merger
Preferred Stock or create, authorize or issue any class or
series of stock of the Company (other than the shares of the
Merger Preferred Stock) ranking pari passu with the Merger
Preferred Stock as to dividend rights or rights upon
liquidation, winding-up or dissolution of the Company;
(II) make any amendment, alteration or repeal of any of
the provisions of the Certificate of Incorporation or of any
certificate amendatory thereof or supplemental thereto so as
to change the terms of the Merger Preferred Stock to affect
adversely the rights, powers, preferences or privileges of the
Merger Preferred Stock; or
(III) create, authorize or issue any class or series of
stock of the Company ranking senior to the Merger Preferred
<PAGE>
18
Stock as to dividend rights or rights upon liquidation,
winding-up or dissolution of the Company.
The "Required Majority" for any action referred to in clause
(II) and (III) shall be two-thirds, and for any other action
referred to in this paragraph 10(c)(i) shall be a simple
majority.
(ii) Notwithstanding paragraph 10(a) or paragraph 10(c)(i),
holders of the Merger Preferred Stock will have no voting
rights in connection with a merger or consolidation of the
Company with or into Wickes, as the surviving corporation in
the merger referred to above, in which the Merger Preferred
Stock is converted into stock of Wickes with substantially the
same terms as those set forth in this Certificate (as
determined in good faith by the Board of Directors of the
Company).
(d) In connection with any matter on which holders of the Merger
Preferred Stock are entitled to vote including, without limitation, the
election of directors as set forth in this paragraph 10 or any matter on
which the holders of the Merger Preferred Stock are entitled to vote as a
class or otherwise pursuant to the General Corporation Law of the State of
Delaware or the provisions of the Certificate of Incorporation of the
Company, each holder of the Merger Preferred Stock shall be entitled to
one vote for each share of Merger Preferred Stock held by such holder.
11. Exchange Provisions. (a) On any Dividend Payment Date, the
Company, at its sole option, may require the exchange of all or any part
of the shares of the Merger Preferred Stock then outstanding for the
Company's 15 1/2% Junior Subordinated Exchange Debentures (the "Exchange
Debentures") on the notice set forth below. Holders of record of
outstanding shares of the Merger Preferred Stock as they appear on the
stock register of the Company at the close of business on the record date
for such exchange shall be entitled to receive Exchange Debentures having
a
<PAGE>
19
principal amount equal to the sum of the Liquidation Preference plus any
accrued and unpaid dividends, whether or not declared, on the Merger
Preferred Stock to the date of such exchange in exchange for each share of
Merger Preferred Stock held by them. At the time of such exchange (an
"Exchange Date"), the rights of the holders of the Merger Preferred Stock
then outstanding as stockholders of the Company shall cease (except for
the right to receive the Exchange Debentures) and the persons entitled to
receive the Exchange Debentures issuable upon exchange shall be treated
for all purposes as the holders of record of such Exchange Debentures. In
the event such exchange would result in the issuance of any Exchange
Debenture in a principal amount which is less than $1,000 or which is not
an integral multiple of $1,000 (such principal amount less than $1,000 or
the difference between such principal amount and the highest integral
multiple of $1,000 that is less than such principal amount, as the case
may be, being hereinafter referred to as a "Fractional Principal Amount"),
each holder of Merger Preferred Stock otherwise entitled to a Fractional
Principal Amount shall be entitled to receive a cash payment in lieu
thereof equal to such holder's proportionate interest in the net proceeds
by the Company or any agent appointed for the purpose from the sale or
sales on the open market of the aggregate amount of such Exchange
Debentures. The person or persons entitled to receive the Exchange
Debentures issuable upon exchange shall be treated for all purposes as the
registered holder or holders of such Exchange Debentures as of the related
Exchange Date. The Exchange Debentures will be issued under an Indenture
(the "Indenture") between the Company and United States Trust Company of
New York, as trustee, substantially in the form filed as an Exhibit to the
Company's and Wickes' Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission (File No. 33-27143), as amended
pursuant to the terms of the Indenture. When no Exchange Debentures are
outstanding, the Indenture may be changed as may be required by law, stock
exchange rules or usage, or as may otherwise be agreed to by the Company
and holders of a majority of the then outstanding shares of
<PAGE>
20
Merger Preferred Stock. The Exchange Debentures shall have the terms
and benefits provided in the Indenture.
(b) If fewer than all the outstanding shares of the Merger Preferred
Stock are to be exchanged, the Board of Directors of the Company shall
select the shares of the Merger Preferred Stock to be exchanged from the
outstanding shares by lot or pro rata as determined by the Board of
Directors of the Company, in their sole discretion; provided, however,
that the Board of Directors of the Company may in selecting shares to be
exchanged choose to exchange all shares of the Merger Preferred Stock held
by holders of a number of such shares not to exceed 100 as may be
specified by the Board of Directors.
(c) At least 30 days but not more than 60 days prior to the Exchange
Date, written notice of such exchange shall be mailed to each holder of
record of shares of the Merger Preferred Stock to be exchanged at the
address shown on the stock transfer books of the Company or, if no such
address appears or is given, at the place where the principal executive
office of the Company is located; provided, however, that no failure to
give such notice or any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such exchange. Each such notice
shall specify (i) the number of shares of Merger Preferred Stock to be
received in the exchange from such holder, (ii) the numbers of the
certificates of the shares of Merger Preferred Stock being exchanged,
(iii) the principal amount of Exchange Debentures to be issued in exchange
for such shares, (iv) the Exchange Date, (v) the place or places at which
the shares of the MergerPreferred Stock shall be exchanged for Exchange
Debentures and (vi) that dividends on the shares to be exchanged shall
cease to accrue on the Exchange Date.
(d) Upon surrender of the certificates for any of the Merger
Preferred Stock so exchanged, such shares of Merger Preferred Stock shall
be exchanged by the Company at the required exchange rate. In case fewer
than all the shares of Merger
<PAGE>
21
Preferred Stock represented by any such certificate are exchanged, a new
certificate or certificates shall be issued representing the unexchanged
shares of Merger Preferred Stock without cost to the holder thereof. From
and after the Exchange Date, dividends on the shares of the Merger
Preferred Stock so called for exchange shall cease to accrue, such shares
of Merger Preferred Stock shall no longer be deemed to be outstanding and
shall not have the status of shares of Merger Preferred Stock, and all
rights of the holders thereof as stockholders of the Company (except the
right to receive from the Company the Exchange Debentures upon exchange
and the right to receive cash payments in lieu of Fractional Principal
Amounts) shall cease with respect to such shares. From and after the
related Exchange Date, shares of Merger Preferred Stock exchanged for the
Exchange Debentures shall be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to series until
such shares are once more designated as part of a particular series by the
Board of Directors of the Company.
FIFTH: (a) The business of the Corporation shall be managed by or under
the direction of the Board of Directors, except as may be otherwise provided by
statute or by this Certificate of Incorporation. The number of directors of the
Corporation shall be fixed by, or in the manner provided in, the By-laws of the
Corporation; provided, however, that such number of directors shall not exceed
nine. The directors of the Corporation, other than those who may be elected
pursuant to any Preferred Stock Designation, shall be divided into three classes
(Class I, Class II and Class III), with the term of office of one class expiring
each year. Each class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors. The
membership of each class initially shall be as set forth in a resolution adopted
by the Board of Directors of the Corporation on or prior to June 30, 1994 (the
"Effective Date"). The initial term of Class I directors shall expire at the
first annual meeting of stockholders following the Effective Date; the initial
term of Class II directors shall expire at the second annual meeting of
stockholders following the Effective Date; and the initial term of Class III
directors shall expire at the third annual meeting of
<PAGE>
22
stockholders following the Effective Date. At each annual meeting of
stockholders, each class of directors whose term shall then expire shall be
elected to hold office for a three year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
but in no case shall a decrease in the number of directors shorten the term of
any incumbent director. A director shall hold office until the annual meeting
for the year in which such director's term expires and until such director's
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
(b) There shall be a nominating committee of the Board of Directors (the
"Nominating Committee") consisting of all directors serving on the Board of
Directors, excluding directors that are salaried employees of the Corporation.
The Nominating Committee shall be authorized to nominate, by a majority vote
thereof and subject only to the restrictions set forth in this paragraph (b) of
this Article FIFTH, persons for election to the Board of Directors at any annual
meeting of stockholders or at any special meeting of stockholders called for the
purpose of electing directors; provided, however, that if the Nominating
Committee does not nominate a person by majority vote with respect to any
directorship to be voted upon at such meeting and the incumbent director holding
such directorship is affiliated with Blackstone Capital Partners L.P.
("Blackstone Partners"), Wasserstein Perella Partners, L.P. ("WP Partners") or a
Transferee (as defined in Section 3.01 of that certain Voting Agreement dated as
of June 29, 1994 between Blackstone Partners and WP Partners, as the same may be
amended from time to time) of either, in lieu of any Nominating Committee
nomination, the Corporation shall place in nomination the name of the incumbent
director or a similarly affiliated person designated by the party with whom such
incumbent director is affiliated (i.e., Blackstone Partners, WP Partners or a
Transferee, as the case may be) for election to the Board of Directors at such
meeting, and the Corporation shall nominate no other person for election to such
director position. For purposes of the preceding sentence and paragraph (d) of
this Article FIFTH, a person shall be affiliated with Blackstone Partners, WP
Partners or a Transferee if such person is a general partner, limited partner,
director or officer of such entity or any affiliate of such entity or is
otherwise an "affiliate" of such entity
<PAGE>
23
as defined in the rules and regulations under the Securities Act of 1933. Except
as provided herein, the Board of Directors, or any committee thereof, shall not
be authorized to nominate persons for election to the Board of Directors.
(c) Unless and except to the extent that the By-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
(d) Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification or removal from
office shall be filled solely by the Nominating Committee, by a majority vote
thereof, and not by the stockholders; provided, however, that if a vacancy in
the Board of Directors results from the death, resignation, retirement,
disqualification or removal from office of a director affiliated with (as
defined in paragraph (b) of this Article FIFTH) Blackstone Partners, WP Partners
or a Transferee(excluding, however, a resignation by a director affiliated with
Blackstone Partners or WP Partners pursuant to Section 3.01 of the Voting
Agreement referred to in paragraph (b) of this Article FIFTH), such vacancy
shall automatically be filled with a similarly affiliated person designated by
the party with whom such incumbent director was affiliated (i.e., Blackstone
Partners, WP Partners or a Transferee, as the case may be), such affiliation
being a qualification for election to such directorship. Any director elected to
fill a newly created directorship or any vacancy on the Board of Directors
resulting from death, resignation, retirement, disqualification or removal from
office, shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified. Directors
shall continue in office until others are chosen and qualified in their stead.
(e) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the applicable resolution or resolutions of the Board of Directors
adopted pursuant to Article FOURTH.
<PAGE>
24
(f) Any director or the entire Board of Directors of the Corporation may
be removed from office only for cause and only by the affirmative vote of the
holders of a majority of the shares of capital stock of the Corporation then
entitled to vote in the election of such director or directors. For purposes of
this paragraph and to the extent permitted by law, "cause" shall be limited to
(i) action by a director involving wilful malfeasance, which conduct has a
material adverse effect on the Corporation, (ii) conviction of a director of a
felony or (iii) the wilful and continuous failure of a director substantially to
perform such director's duties to the Corporation (including any such failure
resulting from incapacity due to physical or mental illness).
(g) In furtherance and not in limitation of the powers conferred upon it
by law, the Board of Directors is expressly authorized to adopt, alter, amend or
repeal any provision of the By-laws of the Corporation (including, without
limitation, By-laws governing the conduct of, and the matters which may properly
be brought before, meetings of the stockholders and By-laws specifying the
manner and extent to which prior notice shall be given of the submission of
proposals to be submitted at any meeting of stockholders or of nominations of
elections of directors to be held at any such meeting) by the vote of a majority
of the entire Board of Directors.
(h) In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
this Restated Certificate of Incorporation and the By-laws of the Corporation;
provided, however, that no By-laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
By-laws had not been adopted.
SIXTH: Any action required or permitted to be taken by the stockholders of
the Corporation may be effected only at a duly called annual or special meeting
of such stockholders and may not be effected by consent in writing by such
stockholders. Except as otherwise provided by any Preferred Stock Designation,
special meetings of stockholders for any purpose or purposes may be called only
by the Chairman or a Co-Chairman of the Board, if there be one, or by resolution
of the Board of Directors, acting by
<PAGE>
25
not less than a majority of the entire Board, and the power of stockholders to
call a special meeting is specifically denied. No business shall be transacted
and no corporate action shall be taken at a special meeting of stockholders
other than that stated in the notice of such meeting.
SEVENTH: (a) In addition to any requirements of law and any other
provision of this Restated Certificate of Incorporation or any resolution or
resolutions of the Board of Directors adopted pursuant to Article FOURTH of this
Restated Certificate of Incorporation (and notwithstanding the fact that a
lesser percentage may be specified by law, this Restated Certificate of
Incorporation or any such resolution or resolutions), a Business Combination (as
hereinafter defined) shall require the affirmative vote of the holders of
66-2/3% or more of the combined voting power of the then outstanding shares of
Voting Stock, voting together as a single class.
(b) For the purposes of this Article SEVENTH, "Business
Combination" shall mean:
(1) any merger or consolidation of the Corporation (whether or
not the Corporation is the surviving corporation);
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) of
all or substantially all the assets of the Corporation;
(3) the adoption of any plan or proposal for the liquidation,
dissolution, spinoff, splitup, splitoff, or winding up of the affairs of
the Corporation (whether voluntary or involuntary); or
(4) any agreement, contract or other arrangement providing for any
of the transactions described in this definition of Business Combination.
EIGHTH: To the fullest extent that the General Corporation Law of the
State of Delaware as it exists on the date hereof or as it may hereafter be
amended permits the limitation or elimination of the liability of directors, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. No
amendment to or repeal of this Article EIGHTH shall apply to or have any effect
on the liability or alleged liability of any director of the
<PAGE>
26
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by law.
In addition to any requirements of law and any other provision of this Restated
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article FOURTH of this Restated Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Restated Certificate of Incorporation or any such
resolution or resolutions), the affirmative vote of the holders of 66-2/3% or
more of the combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class, shall be required to adopt, amend,
alter or repeal any provision of this Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate
of Incorporation to be signed in the name and on behalf of the Corporation, and
attested to, by the duly elected officers of the Corporation as indicated below
this 13th day of July, 1994.
COLLINS & AIKMAN CORPORATION
by Paul W. Meeks
---------------------------
Name: Paul W. Meeks
Title: VP/Treasurer
Attest:
Elizabeth Philipp
- ---------------------------
Name: Elizabeth Philipp
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COLLINS & AIKMAN CORPORATION
Collins & Aikman Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the amendments set forth below to the Corporation's Restated
Certificate of Incorporation were duly adopted in accordance with Section 242 of
the General Corporation Law of the State of Delaware:
FIRST: Article FOURTH of the Restated Certificate of Incorporation is
hereby amended so that paragraph (b) of such Article FOURTH shall read in its
entirety as follows:
(b) 16,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"). The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued and undesignated
shares of Preferred Stock, for the issuance of one or more series of Preferred
Stock and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the powers (if any)
of the shares of such series, and the preferences and relative, participating,
optional and other special rights, if any, and any qualifications,
limitations or restrictions thereof, of the shares of such series. The powers,
preferences and relative, participating, optional and other special rights of
each series of Preferred Stock, and the qualifications,
<PAGE>
limitations or restrictions thereof, if any, may differ from those of any and
all series at any time outstanding.
SECOND: Article FIFTH of the Restated Certificate of Incorporation is
hereby amended so that paragraphs (b) and (f) of such Article FIFTH shall
read in their entirety as follows:
(b) There shall be a nominating committee of the Board of Directors (the
"Nominating Committee") consisting of all directors serving on the Board of
Directors, excluding directors that are salaried employees of the Corporation.
The Nominating Committee shall be authorized to nominate, by a majority vote
thereof and subject only to the restrictions set forth in this paragraph (b) of
this Article FIFTH, persons for election to the Board of Directors at any annual
meeting of stockholders or at any special meeting of stockholders called for the
purpose of electing directors; provided, however, that if the Nominating
Committee does not nominate a person by majority vote with respect to any
directorship to be voted upon at such meeting and the incumbent director holding
such directorship is affiliated with Blackstone Capital Partners L.P.
("Blackstone Partners"), Wasserstein Perella Partners, L.P. ("WP Partners") or a
Transferee (as defined in Section 3.01 of that certain Voting Agreement dated as
of June 29, 1994 between Blackstone Partners and WP Partners, as the same may be
amended from time to time) of either, in lieu of any Nominating Committee
nomination, the Corporation shall place in nomination the name of the incumbent
director or a similarly affiliated person designated by the party with whom such
incumbent director is affiliated (i.e., Blackstone Partners, WP Partners or a
Transferee, as the case may be) for election to the Board of Directors at such
meeting, and the Corporation shall nominate no other person for election to such
director position. For purposes of the preceding sentence and paragraphs (d) and
(f) of this Article FIFTH, a person shall be affiliated with Blackstone
Partners, WP Partners or a Transferee if such person is a general partner,
limited partner, director, officer or employee of such entity or any affiliate
of such entity or is otherwise an "affiliate" of such entity as defined in the
rules and regulations under the Securities Act of 1933. Except as provided
herein, the Board of Directors, or any committee
<PAGE>
thereof, shall not be authorized to nominate persons for election to the Board
of Directors.
(f) Except as set forth below, any director or the entire Board of
Directors of the Corporation may be removed from office only for cause and only
by the affirmative vote of the holders of a majority of the shares of capital
stock of the Corporation then entitled to vote in the election of such director
or directors. For purposes of this paragraph and to the extent permitted by law,
"cause" shall be limited to (i) action by a director involving willful
malfeasance, which conduct has a material adverse effect on the Corporation,
(ii) conviction of a director of a felony or (iii) the willful and continuous
failure of a director substantially to perform such director's duties to the
Corporation (including any such failure resulting from incapacity due to
physical or mental illness). In addition to the foregoing, if any director was
at the time of his election to the Board of Directors of the Corporation
affiliated with (as defined in paragraph (b) of this Article Fifth) Blackstone
Partners or WP Partners, it shall be a qualification for such director to hold
office that such director continue to remain affiliated with Blackstone Partners
or WP Partners and upon any failure of such director to remain so affiliated,
such director shall automatically be removed from office.
Dated as of August 2, 1999
EXECUTION COPY
Exhibit 4.1
===============================================================================
TRANCHE C TERM LOAN SUPPLEMENT
Dated as of May 12, 1999
Among
COLLINS & AIKMAN PRODUCTS CO.,
as Borrower,
THE LENDERS NAMED HEREIN,
And
THE CHASE MANHATTAN BANK,
as Administrative Agent
To The
CREDIT AGREEMENT
Dated as of May 28, 1998
Among
COLLINS & AIKMAN PRODUCTS CO.,
as Borrower,
COLLINS & AIKMAN CANADA INC.,
as a Canadian Borrower,
COLLINS & AIKMAN PLASTICS, LTD.,
as a Canadian Borrower,
COLLINS & AIKMAN CORPORATION,
as Guarantor,
THE LENDERS NAMED THEREIN,
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
as Documentation Agent,
THE CHASE MANHATTAN BANK,
as Administrative Agent
And
THE CHASE MANHATTAN BANK OF CANADA
as Canadian Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms..........................................1
ARTICLE II.
THE CREDITS
SECTION 2.01. Loans; Commitments.....................................2
SECTION 2.02. Notes; Repayment of Tranche C Term Loans...............2
SECTION 2.03. Repayment of Tranche C Term Borrowings.................2
SECTION 2.04. Applicable Margin......................................2
SECTION 2.05. Fees...................................................2
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Corporate Power; Authorization;
Enforceable Obligations................................2
SECTION 3.02. Financial Statements...................................3
SECTION 3.03. Representation and Warranties..........................3
ARTICLE IV.
CONDITIONS
SECTION 4.01. Conditions. ..........................................4
ARTICLE V.
MISCELLANEOUS
SECTION 5.01. Continuing Effect of Credit Agreement..................5
SECTION 5.02. Expenses...............................................6
SECTION 5.03. Applicable Law.........................................6
SECTION 5.04. Counterparts...........................................6
SECTION 5.05. Headings...............................................6
SECTION 5.06. Intercreditor Agreement................................6
Exhibits
Exhibit A Form of Acknowledgment and Consent
Exhibit B Form of Opinion
Schedules
1.01(A) Supplement to Schedule 1.01(A) of Credit Agreement:
Tranche C Term Loan Applicable Margin
2.01 Supplement to Schedule 2.01 of Credit Agreement:
Tranche C Term Loan Commitments
2.11 Supplement to Schedule 2.11 of Credit Agreement:
Tranche C Term Loan Amortization Schedule
i
<PAGE>
TRANCHE C TERM LOAN SUPPLEMENT dated as of May 12, 1999 (this
"Supplement"), among COLLINS & AIKMAN PRODUCTS CO., a Delaware
corporation (the "Company"), the financial institutions party hereto
(the "Tranche C Lenders", and together with the Existing Lenders
referred to below, the "Lenders"), and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), as administrative agent (in such
capacity, the "Administrative Agent"), to the Credit Agreement, dated
as of May 28, 1998 (as amended and waived to the date hereof, the
"Credit Agreement"), among the Company, Collins & Aikman Canada Inc.
("Collins and Aikman Canada"), Collins & Aikman Plastics, Ltd.
("Collins and Aikman Plastics," and collectively with Collins and
Aikman Canada, the "Canadian Borrowers"), Collins & Aikman
Corporation, the financial institutions parties thereto (the "Existing
Lenders"), Bank of America National Trust & Savings Association, as
documentation agent (in such capacity, the "Documentation Agent"), the
Administrative Agent, and The Chase Manhattan Bank of Canada, as
Canadian administrative agent (in such capacity, the "Canadian
Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Credit Agreement provides that it may be supplemented by a
Tranche C Term Loan Supplement, which, among other things, shall establish
Tranche C Term Loan Commitments and set forth the terms of Tranche C Term Loans;
and
WHEREAS, the Company has requested that the Credit Agreement be
supplemented by this Supplement to provide for the making available of the
Tranche C Term Loan Commitments and the addition of the Tranche C Lenders as new
Lenders under the Credit Agreement, as supplemented by this Supplement, who
shall hold Tranche C Term Loan Commitments and make Tranche C Term Loans
pursuant to the terms hereof and of the Credit Agreement, as supplemented by
this Supplement, in an amount equal to $100,000,000; and
WHEREAS, the Company, the Administrative Agent and the Tranche C Lenders
have agreed to supplement the Credit Agreement in the manner provided for and
pursuant to the terms and conditions contained herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms Unless otherwise defined herein, terms defined
in the Credit Agreement are used herein as therein defined. The following terms
shall have the meanings specified below:
"Supplement Effective Date" shall mean the date on which the
conditions set forth in Article IV of this Supplement are satisfied or
waived.
<PAGE>
2
"Tranche C Term Loan Maturity Date" shall mean December 31, 2005.
ARTICLE II.
THE CREDITS
SECTION 2.01. Loans; Commitments (a) Subject to the terms and conditions
herein and in the Credit Agreement and relying upon the representations and
warranties set forth herein and in the Credit Agreement, each Tranche C Lender
agrees, severally and not jointly, to make a Tranche C Term Loan to the Company
on the Supplement Effective Date in a principal amount not to exceed its Tranche
C Term Loan Commitment set forth opposite its name in Schedule 2.01. Amounts
paid or prepaid in respect of Tranche C Term Loans may not be reborrowed.
SECTION 2.02. Repayment of Tranche C Term Loans. The Company hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the principal amount of the Tranche C Term Loan of such Lender in
consecutive quarterly installments, payable each March 31, June 30, September 30
and December 31 in accordance with Section 2.11 of the Credit Agreement and this
Supplement (or the then unpaid principal amount of such Tranche C Term Loan, on
the date that such Tranche C Term Loan becomes due and payable pursuant to
Article VII of the Credit Agreement).
SECTION 2.03. Repayment of Tranche C Term Borrowings. The Tranche C Term
Borrowings shall be payable as to principal in such number of consecutive
installments, payable on such dates (each a "Tranche C Term Loan Repayment
Date") and in such amounts as set forth on Schedule 2.11.
SECTION 2.04. Applicable Margin. The Applicable Margin for Tranche C Term
Loans shall be, with respect to Eurodollar Loans, 3.25%, and with respect to ABR
Loans, 2.25%.
SECTION 2.05. Fees. The Company agrees to pay to the Administrative
Agent, on the Date of this Supplement, fees in the amounts previously agreed
to in writing by the Company.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each of the Lenders that:
SECTION 3.01. Corporate Power; Authorization; Enforceable Obligations. (a)
The Company has the corporate power and authority, and the legal right, to make,
execute and deliver this Supplement and to perform the Loan Documents, as
supplemented by this Supplement, and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Supplement and the
performance of the Loan Documents, as supplemented by this Supplement.
(b) No consent or authorization of, approval by, notice to, filing with
or other act by or in respect of, any Governmental Authority or any other Person
is required in connection with the
<PAGE>
3
execution and delivery of this Supplement or with the performance, validity or
enforceability of the Loan Documents, as supplemented by this Supplement.
(c) This Supplement has been duly executed and delivered on behalf of the
Company.
(d) Each of this Supplement and each Loan Document, as supplemented by
this Supplement, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
SECTION 3.02. Financial Statements. Holdings has heretofore furnished to
each of the Lenders consolidated balance sheets and consolidated statements of
income and cash flow of Holdings and its consolidated subsidiaries as of and for
the fiscal years ended December 26, 1998 and December 27, 1997, certified by
Arthur Andersen L.L.P., independent public accountants for Holdings. Such
balance sheet and statement of income and cash flows present fairly the
financial condition and results of operations of Holdings and its consolidated
subsidiaries on a consolidated basis as of the dates and for the periods
indicated. Neither Holdings nor any of its Subsidiaries had, at the date of the
most recent balance sheet referred to above, any material Guarantee, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto. The financial statements referred
to in this Section 3.02 have been prepared in accordance with GAAP applied on a
consistent basis.
SECTION 3.03. Representation and Warranties. The representations and
warranties made by the Company in each of the Loan Documents to which it is a
party and herein after giving effect to this Supplement and the transactions
contemplated hereby are true and correct in all material respects as if made on
and as of the Supplement Effective Date, except as they may specifically relate
to an earlier date; provided that such representations and warranties shall be
and hereby are amended so that all references to the Credit Agreement therein
shall be deemed a reference to (i) the Credit Agreement, (ii) this Supplement
and (iii) the Credit Agreement as supplemented by this Supplement. Without
limitation of the foregoing, all payment obligations of the Company under the
Loan Documents (including payment obligations with respect to the Tranche C Term
Loans) constitute Senior Indebtedness (as defined in the Senior Subordinated
Notes Indenture), and all payment obligations of Holdings under the Loan
Documents (including payment obligations with respect to the Tranche C Term
Loans) constitute Senior Guarantor Indebtedness (as defined in the Senior
Subordinated Notes Indenture). The Credit Agreement, as supplemented by this
Supplement, is the Credit Agreement as defined in the Senior Subordinated Notes
Indenture.
ARTICLE IV.
CONDITIONS
<PAGE>
4
SECTION 4.01. Conditions. The obligations of the Tranche C Lenders to make
Tranche C Term Loans hereunder and under the Credit Agreement, as supplemented
by this Supplement, are subject to the satisfaction of the following conditions:
(a)Each Tranche C Lender, if it so requests in accordance with
subsection 2.04(e) of the Credit Agreement, shall have received a duly
executed Tranche C Term Note, in each case, complying with the provisions
of Section 2.04 of the Credit Agreement.
(b)The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Supplement Effective Date,
including reimbursement of any out-of-pocket expenses referred to in
Section 5.02 to the extent that notice thereof is given to the Company
prior to the Supplement Effective Date.
(c)The Administrative Agent shall have received the favorable written
opinions of (i) Cravath, Swaine & Moore, special counsel for Holdings and
its subsidiaries and (ii) Elizabeth R. Philipp, Esq., general counsel for
Holdings and its subsidiaries dated the Supplement Effective Date and
addressed to the Lenders, each in form and substance satisfactory to the
Administrative Agent and covering the matters set forth in Exhibit B.
(d)The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments
thereto, of the Company, certified as of a recent date by the Secretary of
State of the state of its organization, and a certificate as to the good
standing (or the equivalent thereof) of the Company as of a recent date,
from such Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of the Company dated the Supplement Effective Date and
certifying (A) that attached thereto is a true and complete copy of the
by-laws of the Company as in effect on the Supplement Effective Date and
at all times since a date prior to the date of the resolutions described
in clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of the Loan Documents,
as supplemented by the Supplement, to which it is a party, the granting of
the Liens thereunder and the borrowings hereunder and thereunder, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the certificate or articles of
incorporation of the Company have not been amended since the date of the
last amendment thereto shown on the certificate of good standing furnished
pursuant to clause (i) above, and (D) as to the incumbency and specimen
signature of each officer executing this Supplement or any other document
delivered in connection herewith on behalf of the Company; (iii) a
certificate of another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the certificate
specified in (ii) above; and (iv) such other documents as the Tranche C
Lenders or their counsel or Simpson Thacher & Bartlett, special counsel
for the Administrative Agent, may reasonably request.
(e)After giving effect to this Supplement and to the making of the
Tranche C Term Loans and the application of the proceeds thereof, Holdings
shall be in compliance, as of the last day of the most recently ended
fiscal quarter, on a pro forma basis, with the covenants set forth in
Sections 6.14 and 6.16 of the Credit Agreement.
<PAGE>
5
(f)The Administrative Agent shall have received a certificate, dated
the Supplement Effective Date and signed by a Financial Officer of the
Company, confirming compliance with the conditions precedent set forth in
paragraphs (k) and (l) of this Article IV.
(g)The Supplement Effective Date shall occur on or prior to May 13,
1999.
(h)Each Guarantor shall have agreed to and acknowledged, in the form
of Exhibit A hereto, this Supplement and shall have agreed that the
Guarantee Agreement, the Pledge Agreement and the Intercreditor Agreement
shall remain in full force and effect after giving effect to this
Supplement.
(i) All legal matters incident to this Supplement shall be reasonably
satisfactory to the Administrative Agent and to Simpson Thacher &
Bartlett, special counsel for the Administrative Agent.
(j) The Administrative Agent shall have received a notice of Borrowing
with respect to the Tranche C Term Loans as required by Section 2.03 of
the Credit Agreement.
(k)The representations and warranties set forth in each Loan Document
shall be true and correct in all material respects on and as of the date
of the making of the Tranche C Term Loans with the same effect as though
made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(l)At the time of and immediately after the Borrowing no Event of
Default or Default shall have occurred and be continuing.
The Borrowing on the Supplement Effective Date shall be deemed to constitute a
representation and warranty by the Company on the date of such Borrowing as to
the matters specified in paragraphs (k) and (l) of this Section 4.01.
ARTICLE V.
MISCELLANEOUS
SECTION 5.01. Continuing Effect of Credit Agreement. This Supplement shall
not constitute a supplement, amendment or waiver of any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as a
supplement, amendment, waiver or consent to any action on the part of any party
hereto that would require a supplement, amendment, waiver or consent of the
Administrative Agent or the Lenders except as expressly stated herein. Except as
expressly supplemented hereby, the provisions of the Credit Agreement are and
shall remain in full force and effect. The parties to this Supplement shall be
and shall be deemed to be parties to the Credit Agreement with respect to the
matters set forth in this Supplement as if the terms of this Supplement were
actually incorporated in the Credit Agreement.
SECTION 5.02. Expenses. The Company agrees to pay or reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with (a) the negotiation, preparation,
execution and delivery of this Supplement and any other documents
<PAGE>
6
prepared in connection herewith, and consummation of the transactions
contemplated hereby and thereby, including the fees and expenses of Simpson
Thacher & Bartlett, special counsel to the Administrative Agent, and (b) the
enforcement or preservation of any rights under this Supplement and any other
such documents.
SECTION 5.03. Applicable Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 5.04. Counterparts. This Supplement may be executed in two or
more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract.
SECTION 5.05. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Supplement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Supplement.
SECTION 5.06. Intercreditor Agreement. The obligations of the Company and
the Guarantors in respect of the Tranche C Term Loans are guaranteed and secured
as provided in the Guarantee Agreement and the Pledge Agreement, and the Tranche
C Term Loans and the Tranche C Lenders are subject to and entitled to the
benefits of the Intercreditor Agreement, the Guarantee Agreement and the Pledge
Agreement.
<PAGE>
7
IN WITNESS WHEREOF, the Company, the Administrative Agent, and the Tranche
C Lenders have caused this Supplement to be duly executed by their respective
authorized officers as of the day and year first above written.
COLLINS & AIKMAN PRODUCTS CO.
by /s/ J. Michael Stepp
---------------------------
Name: J. Michael Stepp
Title: Executive Vice President
and Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a
Tranche C Lender
by
-----------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the Company, the Administrative Agent, and the Tranche
C Lenders have caused this Supplement to be duly executed by their respective
authorized officers as of the day and year first above written.
COLLINS & AIKMAN PRODUCTS CO.
by
---------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a
Tranche C Lender
by /s/ Jim Treger
-----------------------------
Name: J. Treger
Title: Vice President
<PAGE>
CYPRESSTREE INVESTMENT FUND, LLC
By: CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC. its Managing Member
by /s/ Peter K. Merrill
--------------------------------
Name: PETER K. MERRILL
Title: MANAGING DIRECTOR
<PAGE>
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC. its Managing Member
by /s/ Peter K. Merrill
--------------------------------
Name: PETER K. MERRILL
Title: MANAGING DIRECTOR
<PAGE>
NATIONSBANK, N.A.
by /s/ Edward A. Hamilton
------------------------------
Name: EDWARD A. HAMILTON
Title: MANAGING DIRECTOR
<PAGE>
NORTH AMERICAN SENIOR FLOATING
RATE FUND
By: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., as
Portfolio Manager
by /s/ Peter K. Merrill
--------------------------------
Name: PETER K. MERRILL
Title: MANAGING DIRECTOR
<PAGE>
KZH APPALOOSA LLC
by /s/ Peter Chin
------------------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE>
KZH APPALOOSA LLC
by /s/ Peter Chin
------------------------------
Name: PETER CHIN
Title: AUTHORIZED AGENT
<PAGE>
KZH STERLING LLC
by /s/ Virginia Conway
-------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND II, INC.
by /s/ Paul Travers
-------------------------------
Name: Paul Travers
Title: Authorized Signatory
<PAGE>
DEBT STRATEGIES FUND III, INC.
by /s/ Paul Travers
----------------------------
Name: Paul Travers
Title: Authorized Signatory
<PAGE>
DEBT STRATEGIES FUND II, INC.
by /s/ Paul Travers
------------------------------
Name: Paul Travers
Title: Authorized Signatory
<PAGE>
SEQUILS I, LTD
By: TCW Advisors, Inc. as its
Collateral Manager
by /s/ Justin L. Driscoll
------------------------------
Name: Justin L. Driscoll
Title: Senior Vice President
by /s/ Jonathan R. Insull
------------------------------
Name: Jonathan R. Insull
Title: Vice President
<PAGE>
SRF TRADING, INC.
by /s/ Kelly C. Walker
------------------------------
Name: Kelly C. Walker
Title: Vice President
<PAGE>
Toronto Dominion (Texas), Inc.
by /s/ Sonja R. Jordan
------------------------------
Name: Sonja R. Jordan
Title: Vice President
<PAGE>
SCHEDULE 2.11
TO
SUPPLEMENT
Supplement to Schedule 2.11 to Credit Agreement
Tranche C Term Loan Amortization Schedule
Tranche C Term
Date Loan Amortization
- ---- -----------------
December 31, 1998 N.A.
March 31, 1999 N.A.
June 30, 1999 N.A.
September 30, 1999 N.A.
December 31, 1999 $1,000,000
March 31, 2000 $1,000,000
June 30, 2000 $1,000,000
September 30, 2000 $1,000,000
December 31, 2000 $1,000,000
March 31, 2001 $1,000,000
June 30, 2001 $1,000,000
September 30, 2001 $1,000,000
December 31, 2001 $1,000,000
March 31, 2002 $1,000,000
June 30, 2002 $1,000,000
September 30, 2002 $1,000,000
December 31, 2002 $1,000,000
March 31, 2003 $1,000,000
June 30, 2003 $1,000,000
September 30, 2003 $1,000,000
December 31, 2003 $1,000,000
March 31, 2004 $1,000,000
June 30, 2004 $1,000,000
September 30, 2004 $1,000,000
December 31, 2004 $1,000,000
March 31, 2005 $1,000,000
June 30, 2005 $1,000,000
September 30, 2005 $38,500,000
December 31, 2005 $38,500,000
Total: $100,000,000
<PAGE>
EXHIBIT A
TO
SUPPLEMENT
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned Persons hereby:
(a) acknowledges and consents to the execution, delivery and performance of
the Tranche C Term Loan Supplement, dated as of May 12, 1999 (the "Supplement"),
among COLLINS & AIKMAN PRODUCTS CO. (the "Company"), the financial institutions
party thereto, and THE CHASE MANHATTAN BANK, as administrative agent (in such
capacity, the "Administrative Agent"), to the Credit Agreement, dated as of May
28, 1998 (as the same may be amended, supplemented or otherwise modified from
time to time, and as supplemented by the Supplement, the "Credit Agreement"),
among the Company, Collins & Aikman Canada Inc., ("Collins and Aikman Canada"),
Collins & Aikman Plastics, Ltd. ("Collins and Aikman Plastics," and collectively
with Collins and Aikman Canada, the "Canadian Borrowers"), Collins & Aikman
Corporation, the financial institutions parties thereto, Bank of America
National Trust & Savings Association, as documentation agent, the Administrative
Agent, and The Chase Manhattan Bank of Canada, as Canadian administrative agent;
(b) acknowledges and agrees that all obligations of the Company and the
Guarantors in respect of the Supplement, the Tranche C Term Loan Commitments and
the Tranche C Term Loans constitute "Obligations" as defined in the
Intercreditor Agreement, "Guaranteed Obligations" as defined in the Guarantee
Agreement, and "Secured Obligations" as defined in the Pledge Agreement, and the
Tranche C Term Loans and the Tranche C Lenders are subject to and entitled to
the benefits of the Intercreditor Agreement, the Guarantee Agreement and the
Pledge Agreement; and
(c) agrees that such execution, delivery and performance shall not in any
way affect such Person's obligations under any Loan Document (as defined in the
Credit Agreement) to which such Person is a party, which obligations on the date
hereof remain absolute and unconditional and are not subject to any defense,
set-off or counterclaim.
Dated: May 12, 1999
COLLINS & AIKMAN PRODUCTS CO.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN CANADA INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN PLASTICS, LTD.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
2
COLLINS & AIKMAN CORPORATION
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN ACCESORY MATS, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
DURA CONVERTIBLE SYSTEMS, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
WICKES ASSET
MANAGEMENT, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN INTERNATIONAL CORPORATION
By: /s/ A. Dennis Mahedy
----------------------------------------
Name: A. Dennis Mahedy
Title: Vice President and Treasurer
<PAGE>
3
WICKES REALTY, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
AMCO CONVERTIBLE FABRICS, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN PLASTICS, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN EUROPE, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
PACJ, INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN CARPET & ACOUSTICS (TN),
INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
COLLINS & AIKMAN CARPET & ACOUSTICS (MI),
INC.
By: /s/ J. Michael Stepp
----------------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
COLLINS & AIKMAN AUTOMOTIVE INTERNATIONAL,
INC.
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Vice President
COLLINS & AIKMAN ASSET SERVICES, INC.
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Vice President
CW MANAGEMENT CORPORATION
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Vice President
HOPKINS SERVICES, INC.
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Vice President
SAF SERVICES CORPORATION
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Vice President
COLLINS & AIKMAN (GIBRALTAR) LIMITED
By: /s/ J. Michael Stepp
-------------------------------
Name: J. Michael Stepp
Title: Executive Vice President and
Chief Financial Officer
EXHIBIT 10.2
May 12, 1999
Dr. Bruce R. Barnes Mr. David A. Stockman
Wasserstein Perella & Co., Inc. The Blackstone Group
31 West 52nd Street, 27th Floor 345 Park Avenue, 31st Floor
New York, NY 10154 New York, NY 10019
Dear Bruce and David:
We have reached this understanding following the decision to relocate the
General Counsel's office to Detroit:
1. My salary will be increased to $340,000 retroactive to January 1,
1999. I will be employed through June 30, 1999 and will work full-time
through May 31, 1999.
2. Subject to point 9 below, I will receive a lump-sum payment on July 8,
1999 (or, if I execute and deliver the Release described in point 9
below after June 30, 1999, on the eighth day after the date on which I
execute and deliver such Release) in the amount of $500,000 payable in
lieu of the severance that would otherwise be payable under Section
6.2(b) of my employment agreement and in lieu of any EICP bonus for
1999.
3. My termination date for purposes of benefits shall be December 31,
1999, and I shall continue to receive benefits for one year thereafter
as provided in Section 4 of my employment agreement. I will receive
the profit sharing contribution for 1999, if there is any. The level
of my benefits shall be at the senior executive level, comparable to
other executive vice presidents and division presidents. I will be
paid on June 30, 1999 for any accrued but unused vacation.
4. My termination date for purposes of my stock options shall be December
31, 1999, and they shall be exercisable for one year thereafter.
5. My termination date for purposes of the change in control agreement
dated March 17, 1998 shall be December 31, 1999, and the payments and
benefits provided for in points 2 and 3 above shall be taken into
account under Section 6 of the change in control agreement.
<PAGE>
Dr. Bruce R. Barnes May 12, 1999
Mr. David A. Stockman Page 2
6. My office, office furniture, office equipment and home fax machines
shall be maintained through the expiration of the current office lease
term, which is January 31, 2000.
7. I acknowledge that the term of my employment as set forth in Section 1
of my employment agreement shall end on June 30, 1999 and I shall not
be entitled to any further notice from the Company pursuant to Section
1 of my employment agreement.
8. I acknowledge that I have no shadow equity interests under the Equity
Plan described in Section 3.3 of my employment agreement.
9. I acknowledge that payment to me of the amounts, and the other rights
accruing to me, as set forth above that are in addition to amounts and
rights to which I am currently entitled (without regard to this
letter) from Collins & Aikman (the "Additional Severance") is
conditioned upon my executing and delivering to Collins & Aikman on or
after June 30, 1999 a Release, substantially in the form attached
hereto as Exhibit 1, and on my not revoking such Release on or before
the eighth day following delivery of the Release. Delivery by fax to
the Vice-President of Human Resources or another officer or director
of Collins & Aikman shall constitute delivery.
Except as expressly modified hereby, the provisions of my employment agreement
and the change of control agreement shall continue to apply.
If this sets forth our understanding, please sign this and fax it back to me.
Very truly yours,
/s/ Elizabeth Philipp
Elizabeth R. Philipp
/s/ Bruce Barnes
- -------------------------------
Dr. Bruce R. Barnes
/s/ David A. Stockman
- --------------------------------
Mr. David A. Stockman
<PAGE>
EXHIBIT 1
RELEASE
WHEREAS, the Executive's employment with Collins & Aikman
Corporation ("Collins & Aikman") is being terminated on the date hereof on the
terms described in the letter agreement dated May __, 1999 between Elizabeth
Philipp (the "Executive") and Collins & Aikman (the "Agreement"); and
WHEREAS, the Executive is required to sign this Release in order
to receive various payments and other benefits described in the Agreement.
NOW THEREFORE, in consideration of the promises and agreements
contained herein and in the Agreement and other good and valuable consideration,
the sufficiency and receipt of which are hereby acknowledged, and intending to
be legally bound, the Executive agrees as follows:
1. In consideration of the payments by Collins & Aikman to the
Executive set forth in the Agreement, and the other benefits accruing to the
Executive under the Agreement which the Executive acknowledges includes amounts
and benefits that are in addition to payments and benefits to which the
Executive would be entitled absent the Agreement, the Executive unconditionally
releases Collins & Aikman and its subsidiaries and affiliates and directors,
officers, employees and stockholders thereof (collectively referred to herein as
the "Released Parties"), from any and all claims, liabilities and obligations of
any nature pertaining to the terms of her employment or the termination of her
employment other than those provided for by the Agreement, the employment
agreement dated as of July 18, 1990 between Wickes Companies, Inc. and the
Executive, the change of control agreement dated March 17, 1998 between Collins
& Aikman and the Executive or this Release including, without limitation, any
<PAGE>
claims arising out of alleged legal restrictions on Collins & Aikman's right to
terminate its employees, such as any termination contrary to public policy or to
laws prohibiting discrimination, including but not limited to claims of
discrimination on the basis of sex, race, age, national origin, marital status,
religion or handicap, any and all claims of wrongful or unjust discharge and any
and all claims arising from any alleged violation by the Released Parties of any
federal, state, or local statutes, ordinances or common law principles,
including but not limited to the Americans with Disabilities Act, 42 U.S.C.
Section 1 to 101, et seq.; Title VII of the Civil Rights Act of 1964, 42 U.S.C.
Section 2000e, et seq.; the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, et seq. ("ADEA"), and the New York Human Rights Law, and all
similar laws of the United States and any State or local jurisdiction including
all amendments to the foregoing statutes and amendments to any of the statues or
regulations incorporated by reference in or applicable to, any of the foregoing.
With respect to the ADEA, it is specifically recognized that the Executive is
not waiving by this Release any future claims she may have under that Act. For
the avoidance of doubt, this Release does not affect any rights of
indemnification as provided by law or the By-laws of Collins & Aikman or any
subsidiary and any rights under benefit plans, programs or stock option
agreements.
2. The Executive acknowledges that she has carefully read and
fully understands all of the provisions and effects of this Release; that she
has been advised in writing to consult an attorney prior to executing this
Release; that she is voluntarily entering into this Release; and that neither
Collins & Aikman nor its agents or attorneys have made any representations or
promises as to the terms or effects of this Release other than those contained
herein.
3. The Executive agrees that she has been provided this Release
on May 21, 1999 and has had the opportunity to review it for twenty-one (21)
days prior to executing it, and
2
<PAGE>
that such was a reasonable period of time. Changes to this Release, whether
material or immaterial, do not restart the running of the twenty-one (21) day
period. Collins & Aikman and the Executive also expressly agree that the
Executive's termination is not associated with an exit incentive or other
employment termination program offered to a group or class of employees.
4. For a period of seven (7) days following the execution of this
Release, the Executive may revoke this Release. Said revocation must be in
writing and must be delivered in person or by Registered or Certified mail,
postmarked within seven (7) days of execution of this Release, to the Chief
Executive Officer of Collins & Aikman.
5. This Release is made in the State of New York, and shall in
all respects be interpreted, enforced and governed under the laws of the State
of New York, except to the extent preempted by Federal law. The language of all
parts of this Release shall in all cases be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
6. The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Executive has executed and delivered this Release on the date set forth below.
- ---------------------------------- ------------------------------
Date: Elizabeth Philipp
STATE OF NEW YORK )
) SS.
COUNTY OF __________________________)
3
<PAGE>
On this day of , 1999, before me, a Notary Public,
personally appeared ELIZABETH PHILIPP, known by me to be the person who is
described in and who executed the foregoing Release and being first duly sworn,
acknowledged that she executed the same as her own free act and deed.
------------------------------------
Notary Public
4
Exhibit 10.3
COLLINS & AIKMAN CORPORATION
1994 EMPLOYEE STOCK OPTION PLAN
As Amended through June 3, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<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.................................................... 8
F. Exercise of Options............................................................... 8
G. [Reserved]........................................................................ 9
H. Non-Competition and Other Provisions.............................................. 9
I. [Reserved]........................................................................ 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. TRANSFERABILITY OF OPTIONS........................................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
IX. RIGHTS AS A STOCKHOLDER.......................................................... 11
X. TERMINATION, AMENDMENT AND MODIFICATION.......................................... 11
A. General Amendments............................................................... 11
XI. USE OF PROCEEDS.................................................................. 12
XII. GENERAL PROVISIONS............................................................... 12
A. Right to Terminate Employment ....................................................12
B. Purchase for Investment.......................................................... 12
C. Trusts, etc...................................................................... 12
D. Notices.......................................................................... 13
E. Severability of Provisions....................................................... 13
F. Payment to Minors, Etc........................................................... 13
G. Headings and Captions............................................................ 13
H. Controlling Law.................................................................. 13
I. Section 162(m) Deduction Limitation.............................................. 13
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................................................................ 14
Schedule I. 1997 U.K. EXECUTIVE STOCK OPTION SCHEME ......................................16
</TABLE>
<PAGE>
Collins & Aikman Corporation
1994 Employee Stock Option Plan
(As Amended Through June 3, 1999)
I. PURPOSES OF THE PLAN
The purposes of this 1994 Employee Stock Option Plan (as amended
through June 3, 1999 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.
5
<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 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
6
<PAGE>
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. [Reserved]
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.
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
7
<PAGE>
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 became effective initially on April 15, 1994 (the
"Effective Date") and was subsequently amended, including without limitation by
an amendment as of June 3, 1999. The amendment to the Plan as of June 3, 1999,
among other things, increased the number of Shares available for issuance under
the Plan from 2,980,534 to 3,980,534, subject to approval of the Plan, as so
amended, by the holders of a majority of the Common Stock (at the time of
approval) within one year after June 3, 1999 or at the year 2000 annual meeting
of the Company, whichever is later. Any Shares issued under the Plan in excess
of 2,980,534 Shares shall be referred to as the "Additional Shares". Grants of
Options by the Committee under the Plan for Additional Shares may be made,
provided that all such grants of Options for Additional Shares shall be subject
to approval of the Plan, as amended through June 3, 1999, by the holders of a
majority of the Common Stock (at the time of approval) within one year after
June 3, 1999 or at the year 2000 annual meeting of the Company, whichever is
later. If the Plan is not so approved by the holders of a majority of the Common
Stock (at the time of approval), all Options for Additional Shares which have
been granted by the Committee shall be null and void. No Options for Additional
Shares may be exercised prior to the approval of the Plan, as amended through
June 3, 1999, by the holders of a 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
8
<PAGE>
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 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
9
<PAGE>
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
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 3,980,534. 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) and VI(A),
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
10
<PAGE>
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).
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.
Any Incentive Stock Option shall be granted within ten years of the date the
Plan is adopted by the Board or approved by shareholders, whichever is earlier.
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 or 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.
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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:
(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
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received by the Company).
2. Shares purchased pursuant to the exercise of Options
shall be paid for as follows:
(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 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. [Reserved]
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. [Reserved]
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 Incentive Stock Options.
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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.
C. Other Termination. In the event of Termination of Relationship
for any reason
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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. TRANSFERABILITY OF OPTIONS
Except as provided in this Article VIII, each Option granted
hereunder shall by its terms not be assignable or transferable other than by
will or the laws of descent and distribution and may be exercised, during the
Participant's lifetime, only by the Participant. A Non-Qualified Stock Option
may be transferred to any family member (as hereinafter defined) of the
Participant or transferred to entities controlled by the Participant and/or such
family members for or without consideration. For purposes of this Article VIII,
"family member" shall mean any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in law, or sister-in-law,
including adoptive relationships, any person sharing the Participant's household
(other than a tenant or employee), a trust in which these persons have more than
fifty percent of the beneficial interest, a foundation in which these persons
(or the Participant) control the management of assets, and any other entity in
which these persons (or the Participant) own more than fifty percent of the
voting interests.
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. At any time 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 specifically provided herein, the rights of a Participant
with respect to Options granted prior to such amendment, suspension or
termination, may not be materially impaired without the consent of such
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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.
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 (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
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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 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
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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 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: the
Withholding Election shall be subject to the approval of the full Board of
Directors of the Company or a committee of the Board which consists of
"non-employee
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directors" within the meaning of Rule 16b-3 promulgated under Section 16(b) of
the Exchange 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.
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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.
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(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
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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:-
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(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 -
23
<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.
24
<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
25
Exhibit 11
Collins & Aikman Corporation
Computation of Earnings Per Share
In thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------------------------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Average shares outstanding during the period.......... 61,947 65,447 61,970 65,574
--------- ---------- ---------- ---------
Incremental shares under stock options
computed under the treasury stock method
using average market price of issuer's stock
during the period................................. 356 - 357 818
--------- ---------- ---------- ---------
Total shares for diluted EPS...................... 62,303 65,447 62,327 66,392
========= ========= ========= =========
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting
principle......................................... $ 5,318 $ (482) $ 7,634 $ 8,196
Extraordinary charge................................ - (3,679) - (3,679)
Cumulative effect of a change in accounting
principle.......................................... - - (8,850) -
--------- ---------- ---------- ----------
Net income (loss)............................... $ 5,318 $ (4,161) $ (1,216) $ 4,517
========= ========= ========= =========
Net income (loss) per basic and diluted common share:
Income (loss) before extraordinary charge and
cumulative effect of a change in
accounting principle......................... $ 0.09 $ (.01) $ 0.12 $ .12
Extraordinary charge............................ - (.05) - (.05)
Cumulative effect of a change in accounting
principle.................................... - - (0.14) -
--------- ---------- ---------- ----------
Net income (loss)............................... $ 0.09 $ (0.06) $ (0.02) $ 0.07
========= ========= ========== ==========
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in the Form 10-K for the year ended December 26, 1998
and the Form 10-K for the year ended December 27, 1997 into the Company's
previously filed Registration Statements File No. 33-53321, No. 33-53323, No.
33-60997 and No. 333-34569.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 26, 1999 AND SUCH IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846815
<NAME> COLLINS & AIKMAN CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> JUN-26-1999
<CASH> 44,005
<SECURITIES> 0
<RECEIVABLES> 230,195
<ALLOWANCES> 3,901
<INVENTORY> 142,457
<CURRENT-ASSETS> 516,399
<PP&E> 736,481
<DEPRECIATION> 290,669
<TOTAL-ASSETS> 1,387,750
<CURRENT-LIABILITIES> 341,690
<BONDS> 916,114
0
0
<COMMON> 705
<OTHER-SE> (144,061)
<TOTAL-LIABILITY-AND-EQUITY> 1,387,750
<SALES> 965,158
<TOTAL-REVENUES> 965,158
<CGS> 816,308
<TOTAL-COSTS> 78,856
<OTHER-EXPENSES> 8,382
<LOSS-PROVISION> 221
<INTEREST-EXPENSE> 44,824
<INCOME-PRETAX> 16,567
<INCOME-TAX> 8,933
<INCOME-CONTINUING> 7,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (8,850)
<NET-INCOME> (1,216)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
