As filed with the Securities and Exchange Commission on May __, 1998
Registration No. 333-45733
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1 to Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Foamex L.P.
Foamex Capital Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3086 05-0475617
Delaware 9999 22-3182164
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation of Industrial Classification Identification No.)
organization) Code Number)
</TABLE>
---------------
1000 Columbia Avenue, Linwood, Pennsylvania 19061, (610) 859-3000
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
---------------
Philip N. Smith, Jr., Esq.
Foamex L.P.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
(610) 859-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
with a copy to:
Maurice M. Lefkort, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed
maximum Proposed maximum
Title of each class Amount to be offering price aggregate offering Amount of
of securities to be registered registered per unit(1) price registration fee
- ------------------------------------------- -------------- ---------------- -------------------- -------------------
<S> <C> <C> <C> <C>
13-1/2% Senior Subordinated Notes due 2005 $98,000,000 100% $98,000,000 $ 29,696.97(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Offer for all Outstanding 13-1/2% Senior Subordinated Notes Due 2005
in Exchange for up to $98,000,000 principal amount of
13-1/2% Senior Subordinated Notes Due 2005
of
Foamex L.P.
Foamex Capital Corporation
- --------------------------------------------------------------------------------
The Exchange Offer
will expire at Midnight, New York City time on __________, 1998, unless extended
- --------------------------------------------------------------------------------
---------------
Foamex L.P., a Delaware limited partnership ("Foamex") and Foamex Capital
Corporation, a Delaware corporation ("FCC" and together with Foamex, the
"Issuers"), hereby offer upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer") to exchange $1,000 principal amount of the
Issuers' 13-1/2% Senior Subordinated Notes due 2005 (the "New Notes") for each
$1,000 principal amount of their issued and outstanding 13-1/2% Senior
Subordinated Notes due 2005 (the "Old Notes" and, together with the New Notes,
the "Notes") from the holders (the "Holders") thereof. The terms of the New
Notes are identical in all material respects to the terms of the Old Notes,
except that the New Notes have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and, therefore, will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate on the Old Notes under certain circumstances
described in the Registration Rights Agreement (as defined). The New Notes
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the same benefits under, the Indenture (as defined) governing the
Old Notes.
Interest on the Notes is payable semi-annually in cash on February 15 and
August 15 of each year, commencing February 15, 1998. The Notes are redeemable
at the option of the Issuers, in whole or in part, at any time on or after
August 15, 2000 in cash at the redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as defined), if any, thereon to the
date of redemption. See "Description of Notes--Optional Redemption." In
addition, upon the occurrence of a Change of Control (as defined), each holder
of Notes will have the right to require the Issuers to repurchase all or any
part of such holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. See "Description
of Notes--Repurchase at the Option of Holders--Change of Control." On March 16,
1998, Trace International Holdings, Inc. ("Trace Holdings") made a proposal to
Foamex International Inc. ("Foamex International"), which, directly or
indirectly, owns all of the equity interests in the Issuers, to acquire all of
the common stock of Foamex International not presently owned by Trace Holdings
and its subsidiaries; consummation of such a transaction would not constitute a
"Change of Control." See "Risk Factors---Potential Acquisition of Foamex
International." There can be no assurance that, in the event of a Change of
Control, the Issuers would have sufficient funds to purchase all Notes
tendered. See "Risk Factors--Limitations on Ability to Make Change of Control
Payment."
The Notes are general unsecured obligations of the Issuers, rank
subordinate in right of payment to all Senior Debt (as defined), rank pari
passu in right of payment to all Pari Passu Debt (as defined) and rank senior
in right of payment to all existing and future subordinated indebtedness of the
Issuers. The Notes are unconditionally guaranteed (the "Note Guarantees") on a
senior subordinated basis by the Subsidiary Guarantors (as defined). The Note
Guarantees are general unsecured obligations of the Subsidiary Guarantors, rank
subordinate in right of payment to all Senior Debt of the Subsidiary
Guarantors, rank pari passu in right of payment to all Pari Passu Debt of the
Subsidiary Guarantors and rank senior in right of payment to all existing and
future subordinated indebtedness of the Subsidiary Guarantors. As of December
28, 1997, on a pro forma basis, after giving effect to the GFI Transaction (as
defined), the Notes would have been subordinated to approximately $407.3
million of Senior Debt and pari passu with approximately $161.5 million of Pari
Passu Debt.
The New Notes will bear interest from and including their respective dates
of issuance. Holders whose Old Notes are accepted for exchange will receive
accrued interest thereon to, but not including, the date of issuance of the New
Notes, such interest to be payable with the first interest payment on the New
Notes, but will not receive any payment in respect of interest on the Old Notes
accrued after the issuance of the New Notes.
The Old Notes were originally issued on December 23, 1997 in a transaction
not registered under the Securities Act, in reliance upon the exemption
provided in Section 4(2) of the Securities Act (the "Initial Offering"). The
Issuers are making the Exchange Offer in reliance on the position of the staff
of the Securities and Exchange Commission (the "Commission") as set forth in
certain no-action letters addressed to other parties in other transactions.
However, the Issuers have not sought their own no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances.
---------------
See "Risk Factors" beginning on page 12 for a discussion of certain factors
that holders of the Old Notes should consider in connection with the Exchange
Offer and that prospective investors in the New Notes should consider in
connection with such investment.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(Cover continued on next page)
---------------
The date of this Prospectus is [ ], 1998
<PAGE>
(Cover continued from previous page)
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to as a "Restricted Holder").
A Restricted Holder will not be able to participate in the Exchange Offer and
may only sell its Old Notes pursuant to a registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of
the Securities Act, or pursuant to an exemption from the registration
requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives New
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that it
acquired the Old Notes as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with the resale
of such New Notes. Based upon interpretations by the staff of the Commission,
the Issuers believe that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer (other than a Restricted Holder)
upon compliance with the prospectus delivery requirements, but without
compliance with the registration requirements, of the Securities Act. The
Issuers have agreed that for a period of 120 days following consummation of the
Exchange Offer they will make this Prospectus available to Participating
Broker-Dealers for use in connection with any such resale. During such period
of time, delivery of this Prospectus, as it may be amended or supplemented,
will satisfy the prospectus delivery requirements of a Participating
Broker-Dealer engaged in market making or other trading activities. See
"Exchange Offer" and "Plan of Distribution."
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold, and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The New Notes are new securities for which there is currently no market.
The Issuers presently do not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). There can be no
assurance that an active public market for the New Notes will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture. Following
consummation of the Exchange Offer, the holders of Old Notes will continue to
be subject to the existing restrictions upon transfer thereof. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, a Holder's
ability to sell untendered Old Notes could be adversely affected. It is not
expected that an active market for the Old Notes will develop while they are
subject to restrictions on transfer.
The Issuers will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to Midnight, New York City time,
on the date the Exchange Offer expires, which will be , 1998 (the
"Expiration Date"), unless the Exchange Offer is extended by the Issuers in
their sole discretion, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions which may be waived by the
Issuers in their reasonable discretion and to the terms and provisions of the
Registration Rights Agreement (as defined). Old Notes may be tendered only in
denominations of $1,000 and integral multiples thereof. The Issuers have agreed
to pay all of the expenses incurred by them in connection with the Exchange
Offer. See "The Exchange Offer--Fees and Expenses."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998.
The Issuers will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Foamex and FCC with the Commission under
file numbers 1-11432 and 1-11436, respectively, are incorporated herein by
reference:
1. The Issuers' Annual Reports on Form 10-K/A for the fiscal year ended
December 28, 1997 (other than the financial information of General Felt
Industries, Inc. and Foamex Fibers, Inc.), filed pursuant to Section 13(a) of
the Securities Exchange Act of 1934 (the "Exchange Act").
2. All other reports filed by Foamex pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 28, 1997, consisting of the Issuers' Current
Reports on Form 8-K dated February 27, 1998 and March 16, 1998 and Form 8K/A
dated March 9, 1998.
All documents filed by Foamex pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of this Exchange Offer shall be deemed to be incorporated by
reference into the Prospectus and to be a part hereof from the dates of filing
of such documents.
These documents are available without charge upon request from Foamex,
1000 Columbia Avenue, Linwood, Pennsylvania 19061 and its telephone number is
(610) 859-3000.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on
Form S-4 (the "Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the New
Notes being offered hereby. This Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request from Foamex at the address specified above. In order to
ensure timely delivery of these documents, any request should be made by
_______ __, 1998. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration Statement
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
Foamex and FCC are subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Commission.
Reports, proxy statements and other information concerning the Issuers can be
inspected without charge at the Public Reference Room maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. In
addition, upon request, such reports, proxy statements and other information
will be made available for inspection and copying at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained upon
request from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois, at the prescribed rates. Such
material may also be accessed electronically at the Commission's site on the
World Wide Web located at http://www.sec.gov.
In the event that the Issuers cease to be subject to the informational
reporting requirements of the Exchange Act, the Issuers have agreed that,
whether or not they are required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, they will
furnish to the holders of the Notes and file with the Commission (unless the
Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in such a filing
with the Commission on Forms 10-Q and 10-K as if the Issuers were required to
file such forms, including a "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and, with respect to the annual
information only, a report thereon by the Issuers' independent accountants and
(ii) all reports that would be required to be filed with the Commission on Form
8-K as if the Issuers were required to file such reports. In addition, for so
long as any of the Old Notes remain outstanding, the Issuers have agreed to
make available to any beneficial owner of the Old Notes in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context requires otherwise, the term "Foamex" refers to Foamex L.P. and its
subsidiaries, "FCC" refers to Foamex Capital Corporation, the "Issuers" refers
to Foamex and FCC and "Crain" refers to Crain Industries, Inc. and its
subsidiaries. Foamex is a wholly owned subsidiary of Foamex International Inc.
("Foamex International"). FCC is a wholly owned special purpose subsidiary of
Foamex whose sole business is to act as co-issuer of certain indebtedness of
Foamex.
The Company
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Foamex is the largest North American producer of foams used
for carpet cushion, automotive applications and specialty and technical
products and is a leading North American producer of cushioning foams. The
Company has recently refocused its business on the flexible polyurethane and
advanced polymer foam business by acquiring Crain in December 1997 and
previously divesting of non-foam business segments. Management believes that a
focus in the foam business will allow Foamex to concentrate management,
financial and operational resources and will position Foamex to pursue its
growth strategy of developing new products, improving profitability and
expanding internationally.
Foamex sells carpet cushion to its affiliate Foamex Carpet Cushion, Inc.
("Foamex Carpet"), which in turn, distributes carpet cushion to major floor
covering retailers such as Sears, Shaw Industries and Home Depot. Foamex
supplies cushioning foams to major bedding and furniture manufacturers such as
Sealy, Simmons and Ethan Allen. Foamex distributes its automotive foam products
to original equipment manufacturers ("OEMs"), including Ford, General Motors
and Chrysler, and major tier one suppliers such as Lear Corporation, Johnson
Controls and Delphi Automotive Systems. Foamex's specialty and technical foams
consist of reticulated foams and other customized polyester and polyether foams
used for filtration, reservoiring and consumer products which are utilized
worldwide in a wide variety of applications by companies such as
Hewlett-Packard and Briggs & Stratton. Foamex distributes consumer products to
retailers such as Wal-Mart. Foamex and its predecessors have been developing,
manufacturing and marketing polyurethane foam for more than 40 years.
For 1997, after giving pro forma effect to the GFI Transaction (as
defined) and the Crain Acquisition (as defined), Foamex would have had net
sales and EBDAIT (as defined) of $1,106.0 million and $117.5 million,
respectively. During the same period, the percentage of pro forma net sales
generated by carpet cushion and other carpet products, cushioning foams,
automotive foams, specialty and technical foams, and consumer products was
approximately 18.4%, 48.2%, 21.2%, 6.9% and 5.4%, respectively. Prior to 1997,
the cushioning foams and furniture product markets were treated as a single
product group; therefore, all historical data in this Prospectus reflects
cushioning foam and furniture products as the single product group "cushioning
foam."
Recent Developments
On March 16, 1998, Foamex International received a proposal from Trace
International Holdings Inc. ("Trace Holdings") to acquire all outstanding
shares of common stock of Foamex International not owned by Trace Holdings and
its subsidiaries for a cash price of $17 per share. There can be no assurance
as to whether such a transaction will be consummated, or if consummated the
terms of such a transaction and its effect on the Issuers and the Notes;
however, such a transaction would not constitute a "Change of Control" for
purposes of the Indenture (as defined). See "Risk Factors--Potential
Acquisition of Foamex International."
On February 27, 1998, Foamex International and certain of its affiliates
engaged in a series of transactions (collectively, the "GFI Transaction")
designed to simplify Foamex International's corporate structure and to provide
future operational flexibility.
Prior to consummation of the GFI Transaction, Foamex and Foamex's wholly
owned subsidiary, General Felt Industries, Inc. ("GFI"), entered into a Supply
Agreement and an Administrative Services Agreement. In addition,
1
<PAGE>
Foamex repaid its outstanding indebtedness to GFI with $4.8 million in cash and
a $34.0 million two-year promissory note (the "Foamex/GFI Note"), and
contributed $8.4 million in accounts payable to GFI and $1.0 million principal
amount outstanding under an intercompany promissory note payable to Foamex from
GFI. See "Certain Relationships and Related Transactions."
As part of the GFI Transaction, Foamex Fibers, Inc., a wholly owned
subsidiary of GFI ("Foamex Fibers"), was merged with and into GFI, and Foamex
LLC, a wholly owned subsidiary of Foamex ("FLLC"), was merged with and into
Foamex. In addition, FMXI, Inc. ("FMXI") and Crain, both wholly owned
subsidiaries of Foamex International and general partners of Foamex, were
merged and Crain, as the surviving corporation, subsequently changed its name
to FMXI, Inc. Foamex also defeased the $4.5 million outstanding principal
amount of its 9-1/2% Senior Secured Notes due 2000 (the "Senior Secured Notes").
Pursuant to a Transfer Agreement, dated as of February 27, 1998 (the
"Transfer Agreement"), by and between Foamex and Trace Foam LLC ("Trace LLC"),
Foamex transferred (the "Transfer") to Trace LLC all of the outstanding common
stock of GFI, in exchange for (i) the assumption by Trace LLC of $129.0 million
of Foamex's indebtedness, and (ii) the transfer by Trace LLC to Foamex of a 1%
non-managing general partnership interest in Foamex. The amount of the
consideration was arrived at based on an independent, third party appraisal of
GFI. As a result of the Transfer, each of GFI and Foamex Fibers ceased being a
subsidiary of Foamex and was released from all obligations under Foamex's
Senior Subordinated Notes including the Notes.
Upon consummation of the Transfer, pursuant to an Asset Purchase
Agreement, dated as of February 27, 1998 (the "Asset Purchase Agreement"), by
and among Foamex Carpet, a wholly owned subsidiary of Foamex International,
Foamex International, Trace LLC and GFI, GFI sold substantially all of its
assets (other than its owned real estate and the Foamex/GFI Note) to Foamex
Carpet in exchange for (i) $20.0 million in cash and (ii) a promissory note
issued by Foamex Carpet in favor of Trace LLC in an amount of $70.2 million
(the "New GFI Note").
The cash portion of the consideration was borrowed by Foamex under its
credit agreement, dated as of June 12, 1997, as amended and restated as of
February 27, 1998 (the "Credit Facility"), by and among Foamex, FMXI, the
institutions from time to time party thereto as lenders, the institutions from
time to time party thereto as issuing banks and The Bank of Nova Scotia
("Scotiabank") and Citicorp USA, Inc., as administrative agents (the
"Administrative Agents"), which cash portion was then distributed by Foamex to
Foamex International and then contributed by Foamex International to Foamex
Carpet. The amount of consideration was arrived at based on an independent,
third party appraisal of GFI.
On December 23, 1997, Foamex International acquired Crain (the "Crain
Acquisition") pursuant to a merger transaction with Crain Holdings Corp., a
Delaware corporation and holder of all outstanding capital stock of Crain
("Crain Holdings") for an aggregate consideration of approximately $213.7
million, including the assumption of debt, and all of the assets of Crain
subject to all of its liabilities were contributed to Foamex. Management
believes that based on net sales, Crain was the third largest domestic producer
of flexible polyurethane foam and foam products in the United States. See "The
Crain Acquisition." The Crain Acquisition provided a fully integrated
manufacturer, fabricator and distributor of a broad range of flexible
polyurethane foam and foam products which are sold to a diverse customer base,
principally in the furniture, bedding and carpet cushion markets. Management
believes that Foamex's acquisition of Crain (i) strengthens Foamex's market
position as the leading North American producer of foam products, (ii) offers
increased penetration in the Company's existing product lines and adds
complementary products lines such as consumer products, (iii) strengthens the
Company's operations geographically, (iv) provides several proprietary
foam-producing processes which serve to lower overall production costs and are
environmentally friendly, and (v) offers opportunities for significant overhead
cost reductions and purchasing and freight cost efficiencies.
In order to facilitate the Crain Acquisition, the Issuers offered (the
"Private Exchange Offer") to a limited number of holders of Crain 13-1/2% Senior
Subordinated Notes due 2005 (the "Crain Notes") with whom the Issuers have
previously negotiated the terms of the Private Exchange Offer (the "Qualified
Holders") to exchange such Qualified Holders' $98.0 million principal amount of
Crain Notes for $80.00 in cash and $1,000 principal amount of Old Notes for
each $1,000 principal amount of Crain Notes. Such $98.0 million in aggregate
principal amount of Crain Notes were retired and cancelled by the trustee of
the Crain Notes and the remaining $2.0 million in
2
<PAGE>
aggregate principal amount of Crain Notes were redeemed by Crain, all in
accordance with the indenture under which the Crain Notes were issued.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, and was used to reduce long-term debt of
approximately $38.8 million.
Competitive Strengths
Foamex believes that it possesses a number of competitive strengths that
have allowed it to become the largest manufacturer and marketer of flexible
polyurethane and advanced polymer foam products in North America, including:
Emphasis on New Product Development. Foamex believes it has one of the
leading research and development capabilities in the industry and, as a result,
has been awarded more than 100 foam-related patents worldwide. These
capabilities provide Foamex with a stream of new products, new applications for
existing products, and new processes for foam manufacturing. An example of this
capability is variable pressure foaming (VPF[TM]), an innovative manufacturing
process currently used in North America only by Foamex, which has been used to
create new products such as Reflex[TM]. Reflex[TM] is designed to replace
fiberfill in certain cushioning products. Foamex has also recently introduced
Plushlife[TM] for the carpet cushion market and Powerthane[TM] for automotive
applications. Another technology developed by Foamex is Surface Modification
Technology (SMT[TM]), which allows for high volume precision contouring of foam
surfaces, thereby improving Foamex's existing products and creating new
products such as sculpted bed mattresses.
Alignment with Key Customers. Foamex has historically maintained a steady
revenue base by aligning itself with key customers, many of which have been
Foamex's customers for many years. These customer relationships are supported
by Foamex's extensive North American network of 67 strategically located
facilities, which allows Foamex to deliver products cost effectively on a
just-in-time basis. As a result of these relationships, Foamex is able to work
with customers during the design phase for new products and new applications,
thereby favorably positioning Foamex to be the principal supplier for these
products.
High Quality Products. Foamex is a pioneer in manufacturing and
distributing high quality flexible polyurethane and advanced polymer foam
products to satisfy the specific needs of customers. During 1996, Foamex
completed QS-9000 and ISO-9001 certification for its eight domestic facilities
that supply the automotive industry and is pursuing the appropriate
certifications for the remainder of its manufacturing facilities. Foamex was
one of the first flexible polyurethane foam manufacturers to be QS-9000
certified, demonstrating its commitment to producing the highest quality
products and meeting the needs of its customers.
Low Cost Manufacturing Position. Foamex strives to maintain
state-of-the-art manufacturing facilities which utilize recent manufacturing
improvements such as the proprietary VPF[TM] and patented SMT[TM] technologies,
as well as the latest carbon dioxide converting process. In addition, the Crain
Acquisition added improved manufacturing processes such as Cardio, Enviro-Cure
and Vertifoam. These technologies are designed to, among other things, maximize
the conversion efficiency of raw materials into finished goods and to minimize
labor costs. Furthermore, Foamex has implemented a company-wide Continuous
Improvement Process program designed to continually increase productivity,
reduce costs and improve product quality. In addition, as the largest
manufacturer of flexible polyurethane and advanced polymer foam products in
North America, management believes that Foamex is able to realize economies of
scale in its raw materials procurement, which represent a significant portion
of Foamex's manufacturing costs, and recover costs from the use of
substantially all of its internally generated trim foam, which is the principal
raw material in the production of bonded carpet cushion.
Growth Strategy
Foamex's strategy focuses on (i) developing new proprietary foam products,
(ii) introducing new uses for advanced foam products, (iii) expanding in
international markets and (iv) reducing costs through continued emphasis on
manufacturing improvements.
3
<PAGE>
New Proprietary Foam Products. Foamex plans to continue to utilize its
significant research and development capability to develop new products. In
recent years, Foamex has developed new proprietary technologies, such as VPF[TM]
and SMT[TM], which have been used to create higher margin, value-added products
designed to replace existing flexible polyurethane foam products. In addition,
the Crain Acquisition added improved manufacturing processes such as Cardio,
Enviro-Cure and Vertifoam that will increase Foamex's ability to develop new
products. SMT[TM] has allowed Foamex to develop sculpted mattress toppers,
mattress pads and bed pillows which are replacing traditional polyurethane foam
products due to their superior comfort, quality and value. In certain cases,
such as Plushlife[TM], a proprietary carpet cushion designed to replace
traditional bonded and prime carpet cushion, Foamex brands these products to
create product recognition and to generate higher margins. In addition, Foamex
continuously works with its retail customers to develop consumer products.
New Uses for Foam. Foamex is actively developing new applications for its
advanced foam products to replace other materials. In the automotive industry,
the number of foam applications has increased from eight per vehicle in 1984 to
20 per vehicle in 1997. For example, Foamex has introduced products such as
foam headliners which are replacing fiberglass headliners (the rigid material
between the fabric and the metal roof of a car). Reflex[TM] foams, which
include cushion wraps and cushion cores and are created using VPF[TM], are
advanced polymer cushioning products designed to improve comfort, quality and
durability in upholstered furniture and to replace standard fiberfill. Foamex's
fastest growing business, specialty and technical foams, focuses on developing
customized foam applications for high-growth product markets such as inkjet
printer cartridges, nickel-metal hydride batteries and oxygenators for
cardio-pulmonary surgery.
International Expansion. Foamex has positioned itself to take advantage of
global opportunities. In Mexico, Foamex has built a new state-of-the-art
manufacturing facility, which is expected to meet increasing demand and to
allow Foamex to increase market penetration. In Asia, which management believes
offers attractive growth opportunities, Foamex entered into a joint venture
agreement in 1997 to build and operate fabrication facilities in Singapore and
Thailand. These facilities were completed in 1997. Additionally, Foamex has
created an alliance with Recticel s.a. ("Recticel"), Europe's largest flexible
polyurethane foam manufacturer, which will allow Foamex to better meet the
increasing global needs of its automotive customers.
----------------
The principal executive offices of Foamex are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.
4
<PAGE>
The Exchange Offer
The Exchange Offer..................... The Issuers are offering to exchange
(the "Exchange Offer") up to
$98,000,000 aggregate principal amount
of 13-1/2% Senior Subordinated Notes
due 2005 (the "New Notes") for up to
$98,000,000 aggregate principal amount
of their outstanding 13-1/2% Senior
Subordinated Notes due 2005 (the "Old
Notes"). Upon consummation of the
Exchange Offer, the terms of the New
Notes will be identical in all
material respects (including principal
amount, interest rate, maturity and
ranking) to the terms of the Old Notes
for which they may be exchanged
pursuant to the Exchange Offer, except
that the New Notes have been
registered under the Securities Act,
and, therefore, will not bear legends
restricting their transfer and will
not contain certain terms providing
for an increase in the interest rate
on the Old Notes under certain
circumstances described in the
Registration Rights Agreement (as
defined).
Minimum Condition...................... The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Old Notes being tendered for
exchange.
Expiration Date........................ The Exchange Offer will expire at
Midnight, New York City time, on
, 1998, unless extended
(the "Expiration Date").
Exchange Date.......................... The date of acceptance for exchange
for the Old Notes will be the first
business day following the Expiration
Date.
Conditions to the Exchange Offer....... The obligation of the Issuers to
consummate the Exchange Offer is
subject to certain conditions. See
"The Exchange Offer--Conditions." The
Issuers reserve the right to terminate
or amend the Exchange Offer at any
time prior to the Expiration Date upon
the occurrence of any such condition.
Withdrawal Rights...................... Tenders may be withdrawn at any time
prior to 5:00 p.m. on the Expiration
Date. Any Old Notes not accepted for
any reason will be returned without
expense to the tendering holders
thereof as promptly as practicable
after the expiration or termination of
the Exchange Offer.
Procedures for Tendering Old Notes..... See "The Exchange Offer--Procedures
for Tendering."
Federal Income Tax Consequences........ The exchange of Old Notes for New
Notes by Holders should not be a
taxable exchange for federal income
tax purposes.
5
<PAGE>
Certain Representations................ Each Holder desiring to participate
in the Exchange Offer will be required
to represent, among other things, that
(i) it is not an "affiliate" (as
defined in Rule 405 of the Securities
Act) of the Issuers, (ii) it is not
engaged in, and does not intend to
engage in, and has no arrangement or
understanding with any person to
participate in, a distribution of the
New Notes, and (iii) it is acquiring
the New Notes in the ordinary course
of its business (a holder unable to
make the foregoing representations is
referred to as a "Restricted Holder").
Transfer Restrictions on New Notes..... Based upon interpretations by the
staff of the Commission, the Issuers
believe that New Notes issued pursuant
to the Exchange Offer to Participating
Broker-Dealers may be offered for
resale, resold, and otherwise
transferred by a Participating
Broker-Dealer (other than a Restricted
Holder) upon compliance with the
prospectus delivery requirements, but
without compliance with the
registration requirements, of the
Securities Act. The Issuers have
agreed that for a period of 120 days
following consummation of the Exchange
Offer they will make this Prospectus
available to Participating
Broker-Dealers for use in connection
with any such resale. During such
period of time, delivery of this
Prospectus, as it may be amended or
supplemented, will satisfy the
prospectus delivery requirements of a
Participating Broker-Dealer engaged in
market making or other trading
activities. See "Exchange Offer" and
"Plan of Distribution." Based upon
interpretations by the staff of the
Commission, the Issuers believe that
New Notes issued pursuant to the
Exchange Offer may be offered for
resale, resold, and otherwise
transferred by a Holder thereof (other
than a Restricted Holder or a
Participating Broker-Dealer) without
compliance with the registration and
prospectus delivery requirements of
the Securities Act.
Effect on Holders of Old Notes......... As a result of the making of this
Exchange Offer, and upon acceptance
for exchange of all validly tendered
Old Notes pursuant to the terms of
this Exchange Offer, the Issuers will
have fulfilled a covenant contained in
the Registration Rights Agreement (the
"Registration Rights Agreement") dated
as of December 23, 1997 by and among
the Issuers, General Felt Industries,
Inc. ("GFI"), Foamex Fibers, Inc.
("Foamex Fibers") and Foamex LLC
("FLLC"). Holders of the Old Notes who
do not tender their Old Notes in the
Exchange Offer will continue to hold
such Old Notes and will be entitled to
all the rights and limitations
applicable thereto under the Indenture
dated as of December 23, 1997, among
the Issuers, GFI, Foamex Fibers, FLLC,
Crain Holdings Corp. ("Crain
Holdings") and The Bank of New York,
as trustee (the "Trustee"), relating
6
<PAGE>
to the Old Notes and the New Notes
(the "Indenture"). See "Description
of Notes." All untendered, and
tendered but unaccepted, Old Notes
will continue to be subject to the
restrictions on transfer provided for
in the Old Notes and the Indenture.
To the extent that Old Notes are
tendered and accepted in the Exchange
Offer, the trading market, if any,
for the Old Notes could be adversely
affected. See "Risk
Factors--Consequences of Failure to
Exchange."
7
<PAGE>
The New Notes
Issuers................................ Foamex L.P., a Delaware limited
partnership and Foamex Capital
Corporation, a Delaware corporation.
Maturity Date.......................... August 15, 2005.
Interest Payment Dates................. The New Notes bear interest at the
rate of 13-1/2% per annum, payable
semi-annually in cash on February 15
and August 15 of each year, commencing
August 15, 1998.
Ranking................................ The New Notes are general unsecured
obligations of the Issuers, rank
subordinate in right of payment to all
Senior Debt, rank pari passu in right
of payment to all Pari Passu Debt and
rank senior in right of payment to all
existing and future subordinated
indebtedness of the Issuers. The Note
Guarantees to be executed by any
future Subsidary Guarantors will be
general unsecured obligations of such
Subsidiary Guarantors, rank
subordinate in right of payment to all
Senior Debt of such Subsidiary
Guarantors, rank pari passu in right
of payment to all Pari Passu Debt of
such Subsidiary Guarantors and rank
senior in right of payment to all
subordinated indebtedness of such
Subsidiary Guarantors. As of December
28, 1997, on a pro forma basis after
giving effect to the GFI Transaction,
the New Notes would have been
subordinated to approximately $407.3
million of Senior Debt and pari passu
with approximately $161.5 million of
Pari Passu Debt. See "Description of
Notes--Subordination."
Optional Redemption.................... The New Notes are redeemable at the
option of the Issuers, in whole or in
part, at any time on or after August
15, 2000 in cash at the redemption
prices set forth herein, plus accrued
and unpaid interest and Liquidated
Damages, if any, thereon to the date
of redemption. See "Description of
Notes--Optional Redemption."
Change of Control...................... Upon the occurrence of a Change of
Control, each holder of New Notes will
have the right to require the Issuers
to repurchase all or any part of such
holder's New Notes at an offer price
in cash equal to 101% of the aggregate
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages, if any, thereon to the date
of purchase. See "Description of
Notes--Repurchase at the Option of
Holders--Change of Control." See
"Risk Factors--Potential Acquisition
of Foamex International" and
"--Limitations on Ability to Make
Change of Control Payment."
8
<PAGE>
Note Guarantees........................ The New Notes will be jointly and
severally fully and unconditionally
guaranteed on a senior subordinated
basis by all those Restricted
Subsidiaries (as defined) of the
Issuers required in the future to
execute a Note Guarantee pursuant to
the provisions of the Indenture
described under "Description of the
Notes--Additional Guarantees" and any
other Subsidiary that executes a Note
Guarantee (together, the "Subsidiary
Guarantors"). The obligations of any
Subsidiary Guarantor under its Note
Guarantee is limited to an amount
that would cause such Note Guarantee
not to constitute a fraudulent
conveyance under applicable law. See
"Risk Factors--Certain Creditors'
Rights Considerations."
Certain Covenants...................... The Indenture contains certain
covenants that limit, among other
things, the ability of the Issuers to:
(i) pay dividends, redeem capital
stock or make certain other restricted
payments or investments, (ii) incur
additional indebtedness or issue
preferred equity interests, (iii)
merge, consolidate or sell all or
substantially all of its assets, (iv)
create liens on assets and (v) enter
into certain transactions with
affiliates or related persons. See
"Description of Notes--Certain
Covenants."
For a discussion of certain factors that should be considered by
prospective participants in connection with the Exchange Offer and the Notes,
see "Risk Factors."
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical consolidated financial
information of Foamex, for the fiscal years ended December 31, 1995, December
29, 1996 and December 28, 1997, which have been derived from the audited
consolidated financial statements of Foamex. The summary pro forma data give
effect to the GFI Transaction, the Crain Acquisition and the Related
Transactions. The summary financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and related notes
thereto of Foamex and Crain included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year (1)(2)
------------------------------------------------------------
Pro Forma
1995(3) 1996 1997 1997
(In thousands, except ratios)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ........................ $862,834 $926,351 $ 931,095 $1,106,040
Gross profit ..................... 100,749 153,232 143,339 166,127
Selling, general and
administrative expenses ......... 63,466 56,778 65,907 81,573
Restructuring and other
charges (credits) ............... 39,249 (6,415) 21,100 22,104
Operating income (loss) .......... (1,966) 102,869 56,332 62,450
Income (loss) from
continuing operations ........... (48,126) 53,661 11,265 2,424
Other Data:
EBDAIT(4) ........................ $ 77,593 $117,586 $ 98,314 $ 117,533
Gross profit margin .............. 11.7% 16.5% 15.4% 15.0%
EBDAIT margin(5) ................. 9.0 12.7 10.6 10.6
Capital expenditures ............. $ 19,726 $ 23,509 $ 33,284 $ 31,904
Pro Forma Data:
Cash interest expense (6)......... -- -- 41,874 60,145
Ratio of EBDAIT to cash
interest expense ................ -- -- -- 1.95x
Ratio of net debt to LTM
Period EBDAIT (7) ............... -- -- -- 6.20x
Cash Flow Data:
Cash flow from operating
activities ...................... 27,336 36,180 22,009 --
Cash flow from investing
activities ...................... (30,554) 22,750 (107,258) --
Cash flow from financing
activities ...................... (16,163) (38,600) 73,686 --
</TABLE>
<TABLE>
<CAPTION>
As of
December 28, 1997
---------------------
<S> <C> <C>
Balance Sheet Data (at period end): Actual Pro Forma
Cash and cash equivalents ............................... $ 9,405 $ 8,982
Total assets ............................................ 834,068 729,121
Long-term debt .......................................... 726,649 674,102
</TABLE>
(footnotes on following page)
10
<PAGE>
Notes to Summary Historical and Pro Forma Consolidated Financial Information
(1) Foamex has a 52-53 week fiscal year ending on the Sunday closest to the end
of the calendar year. Each fiscal year presented was 52 weeks.
(2) Fiscal year 1995 was restated for discontinued operations resulting from
the sale of certain non-foam operations. In addition, fiscal year 1995 was
restated to reflect the contribution of Foamex Latin America, Inc. and its
subsidiaries ("Foamex Mexico") to Foamex from Foamex International because
the contribution was accounted for in a manner similar to a pooling of
interests because the entities were under common control.
(3) Includes results of operations of Foamex Fibers from its date of
acquisition of April 13, 1995, and thus may not be comparable to other
periods.
(4) EBDAIT consists of earnings before depreciation, amortization, interest,
income taxes and other non-cash or non-recurring items. EBDAIT is not
intended to represent cash flow from operations as defined by generally
accepted accounting principles ("GAAP") and should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. In fiscal years 1995, 1996 and 1997,
there were additional non-cash or non-recurring items of approximately
$56.7 million, $(6.4) million and $21.1 million, respectively. The Company
believes that EBDAIT is a standard measure commonly reported and widely
used by analysts, investors and other interested parties and further
believes that trends in EBDAIT are similar to trends in operating income,
excluding restructuring charges. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Accordingly, this
information has been disclosed herein to permit a more complete
comparative analysis of the Company's operating performance relative to
other companies in the industry. However, not all companies calculate
EBDAIT using the same methods; therefore, the EBDAIT figures set forth
above may not be comparable to EBDAIT reported by other companies. Certain
covenants contained in the Credit Facility are based upon measures similar
to EBDAIT.
(5) EBDAIT Margin is calculated by dividing EBDAIT by net sales. The Company
believes that EBDAIT Margin is a standard measure commonly reported and
widely used by analysts, investors and other interested parties.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, see Note 4 above.
(6) Represents cash paid for interest expense. Excludes amortization of debt
issuance costs and debt discounts and premiums.
(7) Net debt is defined as total long-term debt (including current maturities)
less cash and cash equivalents. LTM Period EBDAIT is defined as EBDAIT for
the prior four full fiscal quarters. The Company believes that the ratio
of net debt to LTM period EBDAIT is a standard measure commonly reported
and widely used by analysts, investors and other interested parties.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, see Note 4 above.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should consider carefully the following factors, which may be
generally applicable to the Old Notes as well as the New Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable
state securities laws, or pursuant to an exemption therefrom. Except under
certain limited circumstances, the Issuers do not intend to register the Old
Notes under the Securities Act. To the extent Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
not tendered or not accepted for exchange and the price at which they may be
sold, could be adversely affected. See "The Exchange Offer."
Substantial Leverage
As a result of the GFI Transaction, on a pro forma basis, Foamex would
have had long-term debt of $674.1 million, and partners' equity (deficit) of
($167.2) million as of December 28, 1997. For 1997, Foamex's ratio of earnings
to fixed charges was 1.02 to 1 and, on a pro forma basis after giving effect to
the GFI Transaction and to the Crain Acquisition and the Related Transactions,
Foamex's ratio of earnings to fixed charges would have been 1.06 to 1.
The Issuers will require substantial amounts of cash to fund scheduled
payments of principal and interest on their outstanding indebtedness as well as
future capital expenditures and any increased working capital requirements. The
Issuers' obligation to make principal payments on their debt, after giving pro
forma effect to the GFI Transaction, for each of the next five fiscal years is
approximately $5.6 million, $7.3 million, $45.5 million, $6.2 million and $3.6
million, respectively. Such principal payment obligation may be accelerated in
whole or in part in connection with certain asset sales, upon certain
transactions constituting a "change of control" as defined under the applicable
debt instrument, upon certain debt or equity offerings, as a result of certain
excess cash flows and upon the occurrence of an "event of default" as defined
under the applicable debt instrument. See "--Potential Acquistion of Foamex
International" and "Description of Certain Debt Instruments--Credit Facility."
FCC conducts no activity other than being co-obligor on certain indebtedness
issued by Foamex. Foamex's ability to generate sufficient cash flow to fund its
scheduled payments in the future will depend on its financial and operating
performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond its control. Also, the Indenture,
the indenture relating to $150,000,000 original principal amount of 9-7/8%
Senior Subordinated Notes due 2007 (the "9-7/8% Note Indenture") issued by the
Issuers and the Credit Facility restrict, among other things, the Issuers'
ability to incur additional indebtedness and grant liens on its properties. The
restrictions imposed by the Indenture, the 9-7/8% Note Indenture and the Credit
Facility, together with Foamex's leverage, could limit Foamex's ability to
respond to changing market and economic conditions, provide for capital
expenditures and take advantage of business opportunities. Foamex believes that
it will have sufficient cash flow from operations and available borrowings to
meet its debt service requirements. However, if Foamex's cash flow and capital
resources are insufficient to fund its debt service obligations, Foamex may be
forced to refinance all or a portion of its indebtedness or sell assets. There
can be no assurance that Foamex would be able to refinance its existing
indebtedness or sell assets on terms that are commercially reasonable or at all.
Integration of Crain Acquisition
The Crain Acquisition has expanded the size and scope of Foamex's
operations. Acquisitions, such as the Crain Acquisition, may expose Foamex to
particular risks, including, without limitation, diversion of management's
attention, the inability to integrate acquired companies into Foamex's
operations, assumption of liabilities and amortization of goodwill and other
acquired intangible assets, some or all of which could have a material adverse
effect on the financial condition or results of operations of Foamex. There can
be no assurance that Foamex will be successful in integrating Crain's business
into Foamex's operations. In addition, the Crain Acquisition has resulted in
Foamex expanding into new product areas, including distributing consumer
products. The integration
12
<PAGE>
and operation of this new business may place significant demands on Foamex's
management and other resources and may expose Foamex to additional liabilities.
There can be no assurance that there will be any operating efficiencies between
these new businesses and Foamex's existing business or that such businesses can
be operated profitably or that Foamex will realize anticipated synergies and
operating efficiencies from the combination of the assets of Foamex and Crain.
In addition, as a result of the Asset Contribution (as defined), Crain was
required to obtain the consent of third parties to the assignment of
substantially all of its contracts. Crain did not obtain all of such consents
and there can be no assurances that Crain will not lose any valuable contract
rights. Moreover, the Crain Acquisition may adversely affect the Company's
liquidity. See "The Crain Acquisition."
Partners' Deficit and Charge to Earnings
As of December 28, 1997, on a pro forma basis, after giving effect to the
GFI Transaction, Foamex had a partners' deficit of approximately $167.2
million. There can be no assurance as to when or if such deficit will be
eliminated. Foamex believes that such deficit will not have a material adverse
effect on its liquidity and financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Price and Availability of Raw Materials
Raw materials account for a significant portion of the manufacturing costs
of Foamex. The two principal chemicals used in the manufacture of flexible
polyurethane foam are toluene diisocyanate ("TDI") and polyol. ARCO Chemical
Company, BASF Corporation and The Dow Chemical Company are among Foamex's
largest suppliers of raw materials. Foamex generally has alternative chemical
suppliers for each major raw material and Foamex believes that it could find
alternative sources of supply should it cease doing business with any of its
major suppliers. The price of TDI and polyol is influenced by demand,
manufacturing capacity and oil and natural gas prices.
Historically, the price of raw materials has been cyclical and volatile,
and Foamex's principal suppliers of raw materials used in the manufacture of
flexible polyurethane foam have increased the price of raw materials several
times since September 1994. Significant increases in raw material prices could
have a material adverse effect on the financial condition or results of
operations of Foamex. Foamex attempts to offset raw material cost increases
through selling price increases; however, there can be no assurance that Foamex
will be successful in implementing selling price increases or that competitive
pricing pressure will not require Foamex to adjust selling prices. Results of
operations have been and could be adversely affected by delays in implementing,
or the inability of Foamex to implement, selling price increases to offset raw
material cost increases. For example, Foamex's results of operations in 1997,
1996 and 1995 were adversely affected by net unrecovered raw material costs.
There can be no assurance that chemical or other suppliers will not
increase raw material costs in the future or that Foamex will be able to
implement selling price increases to offset any such raw material cost
increases.
Subordination; Rights of Senior Lenders
The Notes will be subordinated to all Senior Debt including the
indebtedness under the Credit Facility. The Notes will also be structurally
subordinated to creditors (including trade creditors) of Foamex's subsidiaries
that are not guarantors of the Notes, including Foamex Canada Inc. and its
subsidiaries ("Foamex Canada"), Foamex Mexico and Foamex Asia, Inc. and its
subsidiaries ("Foamex Asia"). The incurrence of additional indebtedness by
Foamex's Restricted Subsidiaries (as defined) is restricted by the 9-7/8% Note
Indenture and the Indenture. See "Description of Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." By
reason of the subordination of the Notes, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or other winding-up of the
Issuers or upon certain defaults with respect to Senior Debt, creditors who are
holders of Senior Debt must be paid in full before the holders of the Notes may
be paid. As of December 28, 1997, on a pro forma basis, after giving effect to
the GFI Transaction, Foamex had approximately $407.3 million of Senior Debt.
The assets of the Issuers may be insufficient to pay the amount due on the
Notes in the event of any insolvency, bankruptcy, or similar event of default.
13
<PAGE>
Interest Rate Fluctuations
Variable rate debt comprises a significant percentage of the Company's
overall indebtedness and, as a result, future fluctuation in interest rates
will have a greater impact on the Company's interest expense than in the past.
In addition, as a result of an interest rate swap, the business of Foamex will
be significantly more sensitive to prevailing interest rates than under the
terms of its fixed rate indebtedness. There can be no assurance that the
variable interest payments by Foamex will not increase significantly in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Certain Creditor's Rights Considerations
The Exchange Offer may be subject to review under relevant federal and
state fraudulent conveyance laws if a bankruptcy, reorganization or
rehabilitation case or a lawsuit (including in circumstances where bankruptcy
is not involved) were ever commenced by or on behalf of unpaid creditors of the
Issuers at some future date. These laws vary among the various jurisdictions.
In general, under these laws, if a court were to find that, at the time an
obligation (such as the Notes) was incurred or a security interest was granted,
either (a) such obligation was incurred or security interest granted with the
intent of hindering, delaying or defrauding creditors or (b) the entity
incurring the obligation or granting such security interest received less than
reasonably equivalent or fair value or consideration in exchange for the
incurrence of such obligation or the granting of such security interest and (i)
was insolvent or was rendered insolvent by reason thereof, (ii) was engaged in
a business or transaction for which its remaining assets constituted
unreasonably small capital, (iii) intended to incur, or believed, or reasonably
should have believed, that it would incur, debts beyond its ability to pay such
debts as they matured (as all of the foregoing terms are defined in or
interpreted under the fraudulent conveyance statutes) or (iv) such entity was a
defendant in an action for money damages, or had a judgment for money damages
docketed against it (if, in either case, after final judgment, the judgment is
unsatisfied) (a "Fraudulent Conveyance"), such court could impose legal and
equitable remedies, including (x) subordination of the obligation to presently
existing and future indebtedness of the entity, (y) avoidance of the issuance
of the obligation or granting of the security interest, and direction of the
repayment of any amounts paid from the proceeds thereof to a fund for the
benefit of the entity's creditors or (z) taking of other action detrimental to
the holders of the Notes.
The measures of insolvency for purposes of determining whether a
Fraudulent Conveyance occurred would vary depending upon the laws of the
relevant jurisdiction and upon the valuation assumptions and methodology
applied by the court. Generally, however, a company would be considered
insolvent for purposes of the foregoing if the sum of the company's debts,
including contingent unliquidated and unmatured liabilities, is greater than
all the company's property at a fair valuation, or if the present fair salable
value of the company's assets is less than the amount that would be required to
pay the probable liability on its existing debts as they become absolute and
matured.
Pursuant to the terms of the Indenture, the obligations of any Subsidiary
Guarantor under its Note Guarantee is limited to an amount that would cause
such Note Guarantee not to constitute a fraudulent conveyance under applicable
law.
The Issuers believe that they will receive reasonably fair and equivalent
value at the time the New Notes are issued, by virtue of the surrender of a
like principal amount of Old Notes. It is possible, however, that a court could
conclude differently. Notwithstanding such possibility, however, Foamex
believes that at the time of, or as a result of, the issuance of the Notes,
Foamex (i) will not be insolvent or rendered insolvent under the foregoing
standards, (ii) will not be engaged in a business or transaction for which its
remaining assets constitute unreasonably small capital, (iii) does not intend
to incur, and does not believe that it will or would incur, debts beyond its
ability to pay such debts as they mature and (iv) will have sufficient assets
to satisfy any probable money judgment against it in any pending actions.
Consequently, Foamex believes that even if one or more elements of the
transaction were deemed to involve the incurrence of an obligation or the grant
of a security interest for less than reasonably equivalent or fair value, a
Fraudulent Conveyance would not occur. Foamex's beliefs with regard to the
solvency of Foamex are based in part on Foamex's operating history and analysis
of internal cash flow projections, estimated values of assets and liabilities
of Foamex at the time of the Exchange Offer. There can be no assurance,
however, that a court passing on these issues would adopt the same methodology
or assumption or arrive at the same conclusions.
14
<PAGE>
Control of Foamex by Trace Holdings
FMXI, the managing general partner of Foamex and a wholly owned subsidiary
of Foamex International, controls the management and operations of Foamex.
Trace Holdings, directly and indirectly through a wholly owned subsidiary, owns
approximately 46% of the outstanding common stock of Foamex International.
Marshall S. Cogan, Vice Chairman of the Board of Foamex, Foamex International,
FMXI and Chairman of Foamex International's Executive Committee, owns or has
voting control over a majority of the capital stock of Trace Holdings. Foamex
and Trace Foam Company, Inc. ("Trace Foam") have entered into a management
services agreement pursuant to which Trace Foam provides Foamex with certain
administrative and advisory services. As a result, Trace Holdings is expected
to have the ability to direct the activities of Foamex. See "--Potential
Acquisition of Foamex International," "Management," "Security Ownership of
Certain Beneficial Owners," "Certain Relationships and Related Transactions"
and "Description of the Partnership Agreement."
Potential Acquisition of Foamex International
On March 16, 1998, Foamex International received a proposal from Trace
Holdings to acquire all outstanding shares of common stock of Foamex
International not owned by Trace Holdings and its subsidiaries for a cash price
of $17 per share. There can be no assurance as to whether such a transaction
will be consummated, or if consummated the terms of such a transaction and its
effect on the Issuers and the Notes. The acquisition by Trace Holdings of all
of the outstanding common stock of Foamex International would not constitute a
"Change of Control" for purposes of the Indenture.
Reliance on Major Customers
Foamex's five largest customers together accounted for approximately 23.6%
of Foamex's net sales in fiscal year 1997. For the same period, Foamex's five
largest customers together accounted for approximately 37.2% of Foamex's net
sales, on a pro forma basis after giving effect to the GFI Transaction and the
Crain Acquisition and the Related Transactions. Also, on a pro forma basis 1997
net sales to Foamex Carpet will be approximately $203.2 million or 18.4% of
Foamex's net sales. Foamex anticipates that in connection with the Crain
Acquisition and the Related Transactions, it will lose certain current Foamex
customers as a result of the acquisition of businesses that compete with such
customers, and that certain customers of both Crain and Foamex will reduce
their purchases from the post-Crain Acquisition entity in order to avoid a
concentration of suppliers. The loss, or a substantial decrease in the amount,
of purchases by any of Foamex's major customers could adversely affect Foamex's
financial position and results of operations. See "Business--Customers."
Environmental Liabilities and Regulations
The past and present business operations of Foamex and the past and
present ownership and operation of real property by Foamex are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations, including those relating to the use, handling, storage, discharge
and disposal of hazardous substances and the remediation of environmental
contamination. As a result, Foamex is involved from time to time in
administrative and judicial proceedings and inquiries relating to environmental
matters. Foamex is currently remediating soil and groundwater contamination in
excess of state standards at several of its current and former facilities, and
is either removing or conducting permanent in place closure of its underground
storage tanks ("USTs") pursuant to federal law. Further, Foamex has been
designated a Potentially Responsible Party by the United States Environmental
Protection Agency with respect to 13 sites. Based on information available at
this time with respect to potential liability involving these facilities and
sites, and in view of indemnification by Trace Holdings and Recticel Foam
Corporation ("RFC") associated with the partnership formation of Foamex, Foamex
believes that any such liability would not have a material adverse effect on
its financial position or results of operations. If management's assessment of
Foamex's liability with respect to these facilities and sites is incorrect,
such liabilities could have a material adverse effect on Foamex.
In addition, as a result of the Crain Acquisition, Foamex has become
responsible for environmental liabilities associated with the pre-acquisition
operations of Crain. Based on information available at this time with respect
to potential liability involving these facilities and sites, Foamex believes
that any such liability would not have a material adverse effect on its
financial position or results of operations. If management's assessment of
Foamex's liability with respect to the Crain facilities and sites is incorrect,
such liabilities could have a material adverse effect on Foamex.
15
<PAGE>
Foamex cannot predict what environmental legislation or regulations will
be enacted in the future, how existing or future laws or regulations will be
administered or interpreted or what environmental conditions may be found to
exist on its properties. Compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of the regulatory agencies or
stricter interpretation of existing laws, and discovery of new conditions may
require additional expenditures by Foamex, some of which may be material. See
"Business--Environmental Matters" and "Business--Legal Proceedings."
Litigation
As of March 4, 1998, Foamex and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court. Some of these actions allege substantial damages,
but most of these actions allege unspecified damages for personal injuries of
various types. Three of these cases seek to allege claims on behalf of all
breast implant recipients or other allegedly affected parties, but no class has
been approved or certified by the court. In addition, three cases have been
filed alleging claims on behalf of approximately 700 residents of Australia,
New Zealand, England and Ireland. Foamex believes that the number of suits may
increase. During 1995, Foamex and Trace Holdings were granted summary judgments
and dismissed as defendants from all such cases in the federal courts of the
United States and the state courts of California. Appeals for these decisions
were withdrawn and the decisions are final.
Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex or
Trace Holdings. Neither Foamex nor Trace Holdings recommended, authorized, or
approved the use of its foam for these purposes. Foamex is indemnified by Trace
Holdings for any such liabilities relating to foam manufactured prior to
October 1990. Although Trace Holdings has paid Foamex's litigation expenses to
date pursuant to such indemnification and Foamex believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no
absolute assurance that Trace Holdings will be able to provide such
indemnification. While it is not feasible to predict or determine the outcome
of these actions, based on Foamex's present assessment of the merits of pending
claims, after consultation with the general counsel of Trace Holdings, and
without taking into account the indemnification provided by Trace Holdings, the
coverage provided by Trace Holdings' and Foamex's liability insurance and the
potential indemnity from the manufacturers of polyurethane foam covered breast
implants, Foamex believes that the disposition of matters that are pending or
that may reasonably be anticipated to be asserted should not have a material
adverse effect on either Foamex's or Trace Holdings' consolidated financial
position or results of operations. If Foamex's assessment of liability with
respect to these actions is incorrect, such actions could have a material
adverse effect on Foamex.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County, against Foamex
International, directors of Foamex International, Trace Holdings, and
individual officers and directors of Trace Holdings:
Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and
John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.
A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to Foamex International's stockholders in connection
with the Trace Holdings proposal to acquire all of the shares of Foamex
International's common stock. The complaints seek, among other things, class
certification, a declaration that the defendants have breached their fiduciary
duties to the class, preliminary and permanent injunctions baring
implementation of the proposed transaction, rescission of the transaction if
consummated, unspecified compensatory damages, and costs and attorneys' fees.
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the Cardio process licensed from a third
party, infringed on a patent held by plaintiff. Foamex is negotiating with the
licensor of the process for the assumption
16
<PAGE>
of the defense of the action by the licensor; however, the action is in the
preliminary stages, and there can be no assurance as to the ultimate outcome of
the action.
Foamex and its subsidiaries are involved in a number of litigation matters
which have arisen in the ordinary course of business. Foamex believes that the
outcome of these legal proceedings will not have a material adverse effect on
Foamex's financial condition or results of operations. See "Business--Legal
Proceedings."
Limitations on Ability to Make Change of Control Payment
The Indenture requires the Issuers, in the event of a Change of Control,
to make an offer to repurchase the Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of repurchase. Certain events involving a Change of Control may give
rise to a similar repurchase obligation or constitute an event of default under
the 9-7/8% Notes Indenture, the Credit Facility or other indebtedness of the
Issuers that may be incurred in the future. Moreover, the exercise by the
holders of the Notes of their right to require the Issuers to repurchase the
Notes may cause a default under the 9-7/8% Notes Indenture, the Credit Facility
or such other indebtedness even if the Change of Control does not constitute an
event of default. Additionally, there can be no assurance that the Issuers will
have the financial resources necessary to repurchase the Notes upon a Change of
Control. In addition, the obligation to make an offer to repurchase upon the
occurrence of a Change of Control may be waived by the holders of a majority of
the outstanding principal amount of the Notes. See "Description of
Notes--Repurchase at the Option of Holders--Change of Control."
Competition
The flexible polyurethane foam market in which Foamex operates is highly
competitive. Some of Foamex's competitors are larger than Foamex and may have
greater financial and other resources available to them and there can be no
assurance that Foamex can compete successfully with such other companies. See
"Business--Competition."
Dependence on Certain Industries
A substantial portion of Foamex's foam products are principally used in
the automotive, furniture, bedding and carpet industries. Accordingly, a
downturn in such industries could adversely affect Foamex. Furthermore, an
overall downturn in the economy could adversely affect the markets which Foamex
serves.
Absence of Public Market for the New Notes
There is no public market for the New Notes, and the New Notes will not be
listed on a securities exchange and they may trade at a discount from their
principal amount, depending upon a number of factors, including the market for
similar securities, prevailing interest rates and the financial condition of
the Issuers. Accordingly, no assurance can be given that a holder of New Notes
will be able to sell such New Notes in the future or that any such sale will be
at a price equal to or higher than the price paid by Holders of such New Notes.
See "Plan of Distribution."
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
financial performance of, and prospects for, the Issuers.
17
<PAGE>
THE CRAIN ACQUISITION
Pursuant to definitive agreements entered into as of December 8, 1997,
among Crain Holdings Corp., a Delaware corporation ("Crain Holdings"), certain
stockholders of Crain Holdings, Foamex International and Merger Acquisition
Corp. ("Acquisition Corp."), a wholly owned subsidiary of Foamex International,
Foamex International acquired Crain Holdings on December 23, 1997 through the
Merger of Acquisition Corp. with and into Crain Holdings (the "Merger"). The
aggregate purchase price for the Crain Acquisition was approximately $213.7
million, including the assumption of certain outstanding debt and the issuance
of the Notes.
Prior to the Crain Acquisition, Crain was a fully integrated manufacturer,
fabricator and distributor of a broad range of flexible polyurethane foam and
foam products which are sold to a diverse customer base, principally in the
furniture, bedding and carpeting markets. Management believes that Foamex's
acquisition of Crain (i) strengthens Foamex's market position as the leading
North American producer of foam products, (ii) offers increased penetration in
the Company's existing product lines and adds complementary products lines such
as consumer products, (iii) strengthens the Company's operations
geographically, (iv) provides several proprietary foam-producing processes
which serve to lower overall production costs and are environmentally friendly,
and (v) offers opportunities for significant overhead cost reductions and
purchasing and freight cost efficiencies.
The purchase price for the Crain Acquisition and related fees and expenses
was funded from: (i) the proceeds of $118.0 million of borrowings by
Acquisition Corp. (the "Bridge Loan") and (ii) the issuance by Foamex of the
Notes.
Immediately following consummation of the Merger: (i) Crain was merged
with Crain Holdings, (ii) Crain contributed its retail business to FLLC, (iii)
Crain contributed its interests in FLLC and all of its other assets, subject to
all of its liabilities, to Foamex (the transactions described in clauses (i)
through (iii) are referred to herein as the "Asset Contribution")), and (iv)
Foamex refunded the Bridge Loan through additional borrowings under the Credit
Agreement (the "Bridge Loan Refunding") (collectively, the "Related
Transactions").
For a more complete description of the foregoing, see "Capitalization,"
"Description of Certain Debt Instruments" and "Pro forma Condensed Combined
Financial Information" included elsewhere in this Prospectus.
USE OF PROCEEDS
Foamex will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as described
in this Prospectus, Foamex will receive in exchange Old Notes in like principal
amount. The Old Notes surrendered in exchange for the New Notes will be retired
and cancelled and cannot be reissued. Accordingly, the issuance of the New
Notes will not result in any change in the indebtedness of Foamex.
18
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of Foamex as of December 28, 1997, and as adjusted to give pro
forma effect to the GFI Transaction. This table should be read in conjunction
with the consolidated financial statements and related notes thereto of Foamex
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of December 28, 1997
----------------------------
Historical Pro forma
(In thousands)
<S> <C> <C>
Cash and cash equivalents ........................................... $ 9,405 $ 8,982
========== ==========
Short-term borrowings and current portion of long-term debt ......... $ 18,759 $ 12,209
---------- ----------
Long-term debt
Credit Facility:
Term Loan A ...................................................... 69,638 --
Term Loan B ...................................................... 108,350 82,713
Term Loan C ...................................................... 98,500 75,195
Term Loan D ...................................................... 108,900 108,900
Revolving credit facility ........................................ 54,928 86,961
9-7/8% Senior subordinated notes due 2007 .......................... 150,000 150,000
13-1/2% Senior subordinated notes due 2005
(includes $13,720 of unamortized debt premiums) (1)................ 111,720 111,720
9-1/2% Senior secured notes due 2000 (2) ........................... 4,523 4,523
Industrial revenue bonds ........................................... 7,000 7,000
Subordinated note payable (net of unamortized
debt discount of $886) (3)......................................... 6,129 6,129
Other .............................................................. 6,961 6,961
---------- ----------
Total Long-term debt ............................................ 726,649 640,102
Long-term debt--related party
Foamex/GFI Note .................................................... -- 34,000
Partners' equity (deficit) .......................................... (156,302) (167,249)
---------- ----------
Total capitalization ............................................ $ 589,106 $ 519,062
========== ==========
</TABLE>
- ----------
(1) The Notes have been reflected at their estimated fair market value of
$111.7 million with a face value of $98.0 million.
(2) Subsequently defeased on February 27, 1998. Noncurrent assets include
approximately $4.8 million in deposits associated with the defeasance of
these notes.
(3) Net of unamortized debt discount of approximately $0.9 million.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated statements of operations for the year
ended December 28, 1997, give effect to the GFI Transaction, the Crain
Acquisition and the Related Transactions and Crain's acquisition of SIMCO
Corporation in May 1997 as though each such transaction had occurred at
December 30, 1996. The Pro forma Consolidated Balance Sheet as of December 28,
1997 has been prepared to give effect to the GFI Transaction as though such
transaction occurred as of December 28, 1997. The pro forma adjustments are
based upon available information and certain assumptions that Foamex believes
are reasonable.
The Crain Acquisition was accounted for using the purchase method of
accounting. Allocations of the purchase price for the Crain Acquisition have
been determined based upon preliminary estimates of fair value and are subject
to change. In addition, the GFI Transaction has been accounted for as a
distribution in a manner similar to a pooling of interests because the entities
were under common control. Differences between the amounts included herein and
the final allocations are not expected to have a material effect on the pro
forma financial information.
The pro forma consolidated financial statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements and related notes
thereto included elsewhere in this Prospectus. These pro forma financial
statements are presented for illustrative purposes only, and therefore are not
necessarily indicative of the operating results that might have been achieved
had such events occurred as of an earlier date, nor are they indicative of the
operating results which may occur in the future.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 28, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro forma Pro forma Pro forma Pro forma
Crain(1) Simco(1) Adjustments(2) Crain Foamex L.P. GFI(3) Adjustments(2) Consolidated
-------- -------- -------------- --------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales ................ $319,021 $6,596 $ $325,617 $931,095 $(286,261) $135,589(6) $1,106,040
Cost of Goods Sold ....... 249,516 5,301 254,817 787,756 (260,239) 157,579(7) 939,913
-------- ------ ----- -------- -------- -------- -------- ----------
Gross Profit ............. 69,505 1,295 70,800 143,339 (26,022) (21,990) 166,127
Selling, General &
Administrative Expenses... 40,992 565 41,557 65,907 (18,445) (7,446)(8) 81,573
Depreciation &
Amortization ............ 13,849 180 61(4) 14,090 (14,090)(9) --
Restructuring and Other
Charges (Credits) ....... -- -- -- 21,100 (1,004) -- 22,104
-------- ------ ----- -------- -------- -------- -------- ----------
Income (Loss) From
Operations .............. 14,664 550 (61) 15,153 56,332 (8,581) (454) 62,450
Interest and Debt
Issuance
Expense ................. 17,670 132 462(5) 18,264 44,181 (899) (1,103)(10) 60,443
Other Income (Expense),
Net ..................... (285) 8 (277) 2,009 (1,339) -- 393
-------- ------ ----- -------- -------- -------- -------- ----------
Income (Loss) from
Continuing Operations
Before Provision for
Income Taxes ............ (3,291) 426 (523) (3,388) 14,160 (9,021) 649 2,400
Provision (Benefit) for
Income Taxes ............ -- -- -- -- 2,895 (2,919) -- (24)
-------- ------ ----- -------- -------- -------- -------- ----------
Income (Loss) from
Continuing
Operations .............. $ (3,291) $ 426 $(523) $ (3,388) $ 11,265 $ (6,102) $ 649 $ 2,424
======== ====== ===== ======== ======== ======== ======== ==========
</TABLE>
See notes to pro forma financial statements.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 28, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro forma
Foamex L.P. GFI(3) Adjustments Consolidated
------------- ----------- --------------------- -------------
<S> <C> <C> <C> <C>
Cash & Cash Equivalents ........................ $ 9,405 $ (423) -- (11) $ 8,982
Accounts Receivable, Net ....................... 174,959 (36,388) -- 138,571
Inventories .................................... 120,299 (8,205) -- 112,094
Other Current Assets ........................... 47,554 (14,262) 760 (12) 34,052
---------- -------- ----------- ----------
Total Current Assets ......................... 352,217 (59,278) 760 293,699
Property, Plant & Equipment, Net ............... 221,274 (15,569) -- 205,705
Cost in Excess of Assets Acquired, Net ......... 219,699 (35,176) -- 184,523
Debt Issuance Costs, Net ....................... 18,889 -- 250 (13) 19,139
Other Assets ................................... 21,989 (743) 4,809 (14) 26,055
---------- -------- ----------- ----------
TOTAL ASSETS ................................. $ 834,068 $(110,766) $ 5,819 $ 729,121
========== ======== =========== ==========
Short-term Borrowings .......................... 6,598 -- -- 6,598
Current Portion of Long-term Debt .............. 12,161 -- (6,550)(15) 5,611
Accounts Payable ............................... 121,147 (10,943) -- 110,204
Accounts Payable to Related Parties ............ 11,662 (11,614) 11,614 (16) 11,662
Accrued Interest ............................... 10,655 -- (657)(17) 9,998
Other Accrued Liabilities ...................... 63,920 (16,801) -- 47,119
---------- -------- ----------- ----------
Total Current Liabilities .................... 226,143 (39,358) 4,407 191,192
Long-term Debt ................................. 726,649 -- (86,547)(18) 640,102
Long-term Debt-Related Party ................... -- (585) 34,585 (19) 34,000
Other Liabilities .............................. 37,578 (6,502) -- 31,076
Partners' Equity (Deficit) ..................... (156,302) -- (10,947)(20) (167,249)
Stockholder's Equity ........................... -- (64,321) 64,321 (21) --
---------- -------- ----------- ----------
TOTAL LIABILITIES & EQUITY ................... $ 834,068 $(110,766) $ 5,819 $ 729,121
========== ======== =========== ==========
</TABLE>
See notes to pro forma financial statements.
22
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(1) Crain's statement of operations includes the results of SIMCO from its
acquisition date of May 1997. The statement of operations for SIMCO
includes its respective pre-acquisition results.
(2) Adjustments relating to Crain's acquisition and related financing of
SIMCO. Adjustments for the Crain Acquisition and the Related Transactions
and the GFI Transaction.
(3) Reflects GFI's Fiscal Year 1997 Consolidated Statement of Operations and
Consolidated Balance Sheet. This column is subtracted to determine the
consolidated amounts.
(4) Increase for the amortization of goodwill associated with the SIMCO
acquisition of $61.
(5) Increase in interest and debt issuance expenses associated with the SIMCO
acquisition of $462.
<TABLE>
<S> <C>
(6) Reflects Foamex net sales of carpet cushion to General Felt .. $ 142,250
Represents the adjustment in carpet cushion net sales from
Crain to GFI as compared to third parties to be in
accordance with the Supply Agreement ......................... (6,661)
----------
$ 135,589
==========
(7) Cost of goods sold for Foamex net sales of carpet cushion
to GFI previously eliminated in consolidation ............... $ 135,564
Reclassification of depreciation expense to cost
of goods sold ............................................... 10,852
Reclassification of transportation costs from selling,
general and administrative expenses ......................... 12,963
Reduction in depreciation expenses ........................... (1,800)
----------
$ 157,579
==========
(8) Reclassification of amortization and depreciation expense
to selling, general, and administrative expenses ............ $ 3,238
Reclassification of transportation costs to cost
of goods sold ............................................... (12,963)
Increase in goodwill amortization ............................ 2,279
----------
$ (7,446)
==========
(9) Reclassification to cost of goods sold ....................... $ (10,852)
Reclassification to selling, general and
administrative expenses ..................................... (3,238)
----------
$ (14,090)
==========
(10) Elimination of historical Crain interest and debt
issuance expenses ........................................... $ (18,264)
Interest and debt issuance costs on financings
associated with the Crain Acquisition ....................... 23,264
Net reduction in interest and debt
issuance associated with the GFI Transaction ................ (6,103)
----------
$ (1,103)
==========
(11) Long-term debt incurred by Foamex in connection
with the GFI Transaction .................................... $ 161,033
Long-term debt redeemed by Foamex in connection with the
GFI Transaction including repayment of accrued interest ..... (125,787)
Long-term debt incurred by Foamex to fund distribution
to Foamex International in order to capitalize
Foamex Carpet Cushion ....................................... (20,000)
Partial repayment by Foamex of GFI Note ...................... (4,800)
Deposit of funds with trustee to defease
Senior Secured Notes ........................................ (4,809)
Payment of transaction fees .................................. (5,637)
----------
$ --
==========
</TABLE>
23
<PAGE>
(12) The $760 represents intercompany interest receivables that were offset
against intercompany payables in connection with the GFI Transaction.
(13) The $250 represents debt issuance costs on new debt that was incurred by
Foamex in connection with the GFI Transaction.
<TABLE>
<CAPTION>
<S> <C>
(14) Reflects Foamex's investment in GFI ......................... $ 103,121
Contribution by Foamex of intercompany payables and
long-term debt to GFI ...................................... 12,199
Reflects deposit for defeasance of Senior Secured Notes ..... 4,809
Contribution of GFI common stock to Trace Foam LLC .......... (115,320)
----------
$ 4,809
==========
(15) The $6,550 represents the adjustment to reflect the current portion of
long-term debt after the GFI Transaction.
(16) The $11,614 represents intercompany payables due to Foamex by GFI that were
contributed in connection with the GFI Transaction.
(17) The $657 represents the accrued interest that was repaid in connection with
the GFI Transaction.
(18) Long-term debt incurred by Foamex in connection with
the GFI Transaction ........................................ $ 161,033
Long-term debt redeemed by Foamex in connection with
the GFI Transaction ........................................ (125,130)
Assumption of long-term debt by Trace Foam LLC in connection
with the GFI Transaction ................................... (129,000)
Reclassification of long-term in accordance
with new repayment terms ................................... 6,550
----------
$ (86,547)
==========
(19) Reflects Foamex intercompany note payable to GFI ............ $ 38,800
Contribution by Foamex of intercompany note receivable
from GFI ................................................... 585
Repayment on Foamex intercompany note payable to GFI ........ (4,800)
----------
$ 34,585
==========
(20) Assumption of long-term by Trace LLC in connection
with the GFI Transaction ................................... $ 129,000
Distribution to Foamex International in order to
capitalize Foamex Carpet ....... ........................... (20,000)
Transaction fees associated with the GFI Transaction ........ (5,387)
Reflects forgiveness of Foamex's intercompany interest
receivable to GFI .......................................... 760
Distribution of investment in GFI to Trace LLC .............. (115,320)
----------
$ (10,947)
==========
(21) The $64,321 reflects the distribution of GFI common stock to Trace LLC.
</TABLE>
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF FOAMEX
The following table presents selected historical consolidated financial
information of Foamex, for the fiscal years ended January 2, 1994, January 1,
1995, December 31, 1995, December 29, 1996 and December 28, 1997, which have
been derived from the audited consolidated financial statements of Foamex. The
selected historical consolidated financial information should be read in
conjunction with the consolidated and the condensed consolidated financial
statements and related notes thereto of Foamex included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Fiscal Year (1)(2)
--------------------------------------------------------------------------
1993(3) 1994(4) 1995(5) 1996 1997
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ............................. $684,310 $833,660 $862,834 $926,351 931,095
Gross profit .......................... 93,704 142,395 100,749 153,232 143,339
Selling, general and administrative
expenses ............................. 48,403 57,059 63,466 56,778 65,907
Restructuring and other charges
(credits) ............................ 7,400 -- 39,249 (6,415) 21,100
-------- -------- -------- -------- -------
Operating income (loss) ............... 37,901 85,336 (1,966) 102,869 56,332
Interest and debt issuance
expense .............................. 47,375 41,532 44,550 43,211 44,181
Other income (expense), net ........... 1,809 732 (205) 1,705 2,009
-------- -------- -------- -------- -------
Income (loss) from continuing
operations before provision for
income taxes ......................... (7,665) 44,536 (46,721) 61,363 14,160
Provision for income taxes(6) ......... 261 6,525 1,405 7,702 2,895
-------- -------- -------- -------- -------
Income (loss) from continuing
operations ........................... (7,926) 38,011 (48,126) 53,661 11,265
Income (loss) from discontinued
operations, net ...................... 194 1,230 (5,117) (42,050) --
Extraordinary loss .................... (9,921) -- -- (1,912) (48,559)
-------- -------- -------- -------- -------
Net income (loss) ..................... $(17,653) $ 39,241 $(53,243) $ 9,699 $ (37,294)
======== ======== ======== ======== =========
Other Data:
Capital expenditures .................. $ 21,270 $ 21,201 $ 19,726 $ 23,509 $ 33,284
Ratio of earnings to fixed
charges(7) ........................... --(8) 1.94x --(8) 2.31x 1.02x
Balance Sheet Data
(at period end):
Cash and cash
equivalents .......................... $ 3,978 $ 20,019 $ 638 $ 20,968 $ 9,405
Total assets .......................... 575,528 654,176 605,892 586,157 834,068
Long-term debt ........................ 414,445 441,757 433,956 392,617 726,649
Partners' equity (deficit) ............ 49,386 52,548 (12,604) 12,832 (156,302)
</TABLE>
(footnotes on following page)
25
<PAGE>
Notes to Selected Historical Consolidated Financial Information of Foamex
(1) Foamex has a 52-53 week fiscal year ending on the Sunday closest to the end
of the calendar year. Each fiscal year presented was 52 weeks.
(2) Fiscal years 1993 through 1995 were restated for discontinued operations
resulting from the sale of Perfect Fit Industries, Inc. ("Perfect Fit").
In addition, fiscal years 1994, 1995 and 1996 were restated to reflect the
contribution of Foamex Mexico to Foamex from Foamex International because
the contribution was accounted for in a manner similar to a pooling of
interests because the entities were under common control.
(3) Includes the results of operations of GFI and Great Western from their
respective dates of acquisition of March 23, 1993 and May 1, 1993, and
thus may not be comparable to other periods. Great Western was
subsequently merged into Foamex.
(4) Includes the operations of Foamex Mexico from its date of acquisition of
March 31, 1994, and thus may not be comparable to other periods. See Note
2 above.
(5) Includes results of operations of Foamex Fibers from its date of
acquisition of April 13, 1995, and thus may not be comparable to other
periods.
(6) Foamex, as a partnership, is not subject to federal and certain state
income taxes. Provision for income taxes for all periods presented relates
to Canadian income tax and certain state income taxes of Foamex and
additionally subsequent to (i) 1993, Mexican income taxes and (ii) 1994,
the state income taxes of Foamex Fibers which files a consolidated federal
tax return with GFI.
(7) For purposes of computing this ratio, earnings consist of income (loss)
before income taxes and extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized, and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rental expense).
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million in fiscal year 1993 and approximately $47.0 million in fiscal year
1995. Earnings before fixed charges for the 1993 and 1995 fiscal years
were reduced by non-cash expenses consisting principally of depreciation
and amortization of approximately $21.7 million and $22.9 million,
respectively.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CRAIN
The following table presents selected historical consolidated financial
information of Crain, for the fiscal years ended August 27, 1993, August 26,
1994 and August 25, 1995, the four months ended December 31, 1995 and the year
ended December 31, 1996 and the period from January 1, 1997 to December 23,
1997, which have been derived from the audited consolidated financial
statements of Crain and the Predecessor (as defined). The selected historical
consolidated financial information should be read in conjunction with the
consolidated financial statements and related notes thereto of Crain included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Four
Predecessor Company months
--------------------------------------- ended Year
Fiscal Year December 31, Ended
--------------------------------------- ------------- --------------------------
1993(1) 1994(1) 1995(1) 1995(1) 1996 1997
----------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales .............................. $180,769 $232,826 $258,895 $ 96,463 $306,093 319,021
Cost of Sales .......................... 142,104 180,575 210,459 77,855 243,745 249,516
Selling, general and
administrative expenses ............... 27,007 28,404 32,673 10,438 35,299 40,992
Depreciation and amortization .......... 4,290 4,962 5,286 2,439 9,295 13,849
-------- -------- -------- --------- -------- ---------
Operating income (loss) ................ 7,368 18,885 10,477 5,701 17,754 14,664
Interest expense ....................... 2,016 2,564 3,431 5,156 14,618 15,661
Amortization of deferred
financing costs ....................... -- -- -- 597 1,841 2,009
Other income (expense), net(2) ......... (332) 223 2,510 (103) (304) (285)
-------- -------- -------- --------- -------- ---------
Income (loss) before provision
for income taxes ...................... 5,020 16,544 9,556 (155) 991 (3,291)
Provision (benefit) for
income taxes .......................... -- -- -- 91 395 --
-------- -------- -------- --------- -------- ---------
Net income (loss) ...................... $ 5,020 $ 16,544 $ 9,556 $ (246) $ 596 (3,291)
======== ======== ======== ========= ======== =========
Other Data:
Capital expenditures ................... $ 11,246 $ 6,505 $ 11,754 $ 2,141 $ 11,030 $ 5,183
Ratio of earnings to
fixed charges(3) ...................... 2.3x 4.4x 2.6x --(4) 1.05x --(4)
Balance Sheet Data
(at period end):
Cash and cash equivalents .............. $ 2,170 $ 2,859 $ 4,057 $ 1,983 $ 6,102 $ 2,440
Total assets ........................... 86,470 105,985 121,835 183,858 198,876 217,428
Long-term debt ......................... 28,634 35,908 42,263 116,337 118,182 123,838
Stockholder's equity (deficit) ......... 34,685 42,371 46,265 24,282 29,842 36,562
</TABLE>
(footnotes on following page)
27
<PAGE>
Notes to Selected Historical Consolidated Financial Information of Crain
(1) Crain changed its year end from a fiscal year ending on the last Friday in
August to a calendar year end effective December 31, 1995.
(2) During 1995, the predecessor of Crain (the "Predecessor") recognized a gain
of $2,434 on an insurance settlement related to a fire at one of its
facilities.
(3) For purposes of computing this ratio, earnings consists of income (loss)
before income taxes, extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized and the amortization of deferred financing
costs, and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of operating
lease rental expense).
(4) Earnings were insufficient to cover fixed charges by approximately $0.2
million in the four months ended December 31, 1995 and $3.3 million for the
period ended December 23, 1997. Earnings before fixed charges for the four
months ended December 31, 1995 and for the period ended December 23, 1997
were reduced by non-cash expenses consisting principally of depreciation
and amortization or approximately $2.4 million and $13.8 million,
respectively.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Foamex operates in the flexible polyurethane foam and foam products
industry. The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto of Foamex included
in this Prospectus.
Foamex is the largest manufacturer and distributor of flexible
polyurethane and advanced polymer foam products in North America. During 1997,
1996 and 1995, Foamex's products were utilized primarily in five end-markets;
(i) carpet cushion and other carpet products, (ii) cushioning foams, including
bedding products, (iii) furniture products for furniture manufacturers and
distributors, (iv) automotive applications, including trim and accessories, and
(v) specialty and technical applications, including those for filtration,
gasketing and sealing. As a result of the Crain Acquisition, Foamex has added a
sixth end-market: consumer products. Foamex has recently refocused its business
on the flexible polyurethane and advanced polymer foam business by the Crain
Acquisition in December 1997 and the divesting of non-foam business segments.
Management believes that a focus in the foam business will allow Foamex to
concentrate management, financial and operational resources and will position
Foamex to pursue its growth strategy of developing new products, improving
profitability and expanding internationally.
On March 16, 1998, Foamex International announced that its Board of
Directors received an unsolicited buyout proposal from Trace Holdings, Foamex
International's principal stockholder. Trace Holdings proposed to acquire all
of the outstanding common stock of Foamex International not currently owned by
Trace Holdings and its subsidiaries for a cash price of $17.00 per share. Also,
Trace Holdings informed the Board of Directors that financing for the buyout
transaction would be arranged through Donaldson, Lufkin & Jenrette Securities
Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of March 16,
1998, Trace Holdings and its subsidiaries beneficially owned approximately
11,475,000 shares or approximately 46% of the outstanding common stock of
Foamex International. In response to Trace Holding's offer, Foamex
International's Board of Directors has appointed a special committee to
determine the advisability and fairness of the proposed buyout to Foamex
International's stockholders other than Trace Holdings and its subsidiaries.
Trace Holding's proposed buyout is subject to a number of conditions, including
the negotiations of definitive documents (which are expected to contain
customary closing conditions); the filing of a disclosure statement and other
documents with the Securities and Exchange Commission; regulatory filings; and
approval of the transaction by a majority of Foamex's stockholders.
On February 27, 1998, Foamex International, Foamex and certain of its
affiliates completed a series of transactions designed to simplify Foamex
International's structure and to provide future operational flexibility. Prior
to the consummation of these transactions, (i) Foamex and Foamex's wholly owned
subsidiary, GFI, entered into a Supply Agreement and an Administrative Services
Agreement, (ii) Foamex repaid its outstanding indebtedness to GFI with $4.8
million in cash and a $34.0 million two-year promissory note and (iii) Foamex
defeased the $4.5 million outstanding principal amount of its 9-1/2% Senior
Secured Notes due 2000. Foamex settled its intercompany payables to GFI with
$4.8 million in cash and a $34.0 million principal amount promissory note
supported by a $34.5 million letter of credit under the Credit Facility (the
"Foamex/GFI Note"). The initial transaction resulted in the transfer from
Foamex to Trace LLC of all of the outstanding common stock of GFI, in exchange
for (i) the assumption by Trace LLC of $129.0 million of Foamex's indebtedness
and (ii) the transfer by Trace LLC to Foamex of a 1% non-managing general
partnership interest in Foamex. As a result, each of GFI and Foamex Fibers
ceased being a subsidiary of Foamex and was relieved from all obligations under
the Senior Subordinated Notes including the Notes. Upon consummation of the
initial transaction, Foamex Carpet, a newly formed wholly-owned subsidiary of
Foamex International, Foamex International, Trace LLC, and GFI entered into an
Asset Purchase Agreement dated February 27, 1998, in which GFI sold
substantially all of its assets (other than the Foamex/GFI Note and its
operating facility in Pico Rivera, California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet to
Trace LLC in the amount of $70.2 million. The $20.0 million cash payment was
funded by a distribution by Foamex. As part of these transactions, Foamex
Fibers, a wholly-owned subsidiary of GFI, was merged with and into GFI and
FLLC, a wholly-owned subsidiary of Foamex, was merged with and into Foamex. In
addition, FMXI and Crain, both wholly-owned subsidiaries of Foamex
International and general partners of Foamex, were merged and Crain, as the
surviving corporation, subsequently changed its name to FMXI. Upon consummation
of the transactions contemplated by the Asset Purchase Agreement, Foamex Carpet
entered into a Credit Agreement with the institutions from time to time party
thereto as lenders, the institutions from time to time party thereto as issuing
banks and Citicorp USA, Inc. and The Bank of Nova
29
<PAGE>
Scotia, as administrative agents, which provides for up to $20.0 million in
revolving credit borrowings. These transactions will be accounted for as a
distribution in a manner similar to a pooling of interests because the entities
were under common control. Therefore future Foamex financial statements will
exclude the operations of GFI and Foamex Fibers. Foamex Carpet will conduct the
carpet cushion business previously conducted by GFI. Also, Trace LLC has
retained ownership of one of GFI's operating facilities which is being leased to
Foamex Carpet and the $34.0 million Foamex/GFI Note.
On December 23, 1997, Foamex acquired Crain pursuant to a merger agreement
with Crain Holdings for a purchase price of approximately $213.7 million,
including the assumption of debt with a face value of approximately $98.6
million (and an estimated fair value of approximately $112.3 million). In
addition, fees and expenses associated with the Crain Acquisition were
approximately $13.2 million. The Crain Acquisition provided a fully integrated
manufacturer, fabricator and distributor of a broad range of flexible
polyurethane foam and foam products which are sold to a diverse customer base,
principally in the furniture, bedding and carpet cushion markets. Management
believes that the Crain Acquisition (i) strengthens Foamex's market position as
the leading North American producer of foam products, (ii) offers increased
penetration in Foamex's existing product lines and adds complementary product
lines such as consumer products, (iii) strengthens Foamex's operations
geographically, (iv) provides several proprietary foam-producing processes
which serve to lower overall production costs and are environmentally friendly,
and (v) offers opportunities for significant overhead cost reductions and
purchasing and freight cost efficiencies. In connection with the Crain
Acquisition, Foamex initiated a restructuring/consolidation plan for the two
entities. Foamex recorded restructuring charges of $21.1 million relating to
the restructuring of Foamex's operations in connection with the Crain
Acquisition and the Related Transactions. In addition, Foamex recorded
approximately $1.5 million of severance and related costs and $8.5 million for
costs associated with the shut down and consolidation of certain acquired
facilities in connection with purchase price accounting.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted carpeting
and artificial grass products business, located in Dalton, Georgia to Bretlin,
Inc., a subsidiary of The Dixie Group, Inc. The sale price was approximately
$41.0 million, and was used to reduce long-term debt of $38.8 million. Foamex
incurred an extraordinary loss on the early extinguishment of debt of
approximately $0.9 million.
On June 12, 1997, Foamex International substantially completed a
refinancing plan (the "Refinancing Plan") designed to reduce Foamex
International's interest expense and increase its financing flexibility. The
Refinancing Plan included a tender offer to purchase $373.0 million of Foamex's
existing public debt and approximately $116.7 million of Discount Debentures.
Also, the Refinancing Plan included the payment of $5.2 million of term loan
borrowings under an existing credit facility, and the payment of related fees
and expenses. In addition, the tender offer included amending the existing
indentures to remove substantially all of the restrictive covenants. Foamex
purchased $342.3 million of its public debt and the $116.7 million of Discount
Debentures under the tender offer and incurred an extraordinary loss on the
early extinguishment of its debt of approximately $44.5 million. The
Refinancing Plan was funded by $347.0 million of borrowings under the Credit
Facility and the net proceeds from the issuance of $150.0 million principal
amount of Senior Subordinated Notes. As a result of the Refinancing Plan,
Foamex's long-term debt increased by $150.1 million. Foamex expects the
Refinancing Plan to result in increased interest expense as compared to the
debt structure prior to the Refinancing Plan, assuming no material changes in
interest rates. Foamex's future interest expense will vary based on a variety
of factors, including fluctuations in interest rates in general. As a result of
the Refinancing Plan, variable rate debt comprised a larger percentage of
Foamex's overall indebtedness than in the past, and as a result, future
fluctuations in interest rates will have a greater impact on Foamex's interest
expense than in the past.
On October 1, 1997, Foamex redeemed approximately $26.2 million of the
approximately $30.7 million of Foamex's outstanding public debt that was not
tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings under the Credit Facility. In connection with these redemptions,
Foamex incurred an extraordinary loss on the early extinguishment of debt of
approximately $2.1 million. The remaining outstanding public debt of
approximately $4.5 million that was not tendered as part of the Refinancing
Plan was defeased in February 1998.
During 1996, Foamex sold Perfect Fit Industries, Inc. ("Perfect Fit")
which comprised the home comfort products business segment of Foamex. The
consolidated financial statements of Foamex were restated for discontinued
operations and includes a net loss of $41.8 million (net of $1.2 million income
tax benefit) on the disposal of this business segment, which includes
provisions for operating losses during the phase-out period. (See Note 9 to the
consolidated financial statements for further discussion).
Foamex's automotive foam customers are predominantly automotive OEMs or
other automotive suppliers. As such, the sales of these product lines are
directly related to the overall level of passenger car and light truck
30
<PAGE>
production in North America. Also, Foamex's sales are sensitive to sales of new
and existing homes, changes in personal disposable income and seasonality.
Foamex typically experiences two seasonally slow periods during each year, in
early July and in late December, due to scheduled plant shutdowns and holidays.
Operating results for 1998 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
consolidation of the Crain Acquisition, (ii) continued implementation of the
continuous improvement program to improve Foamex's profitability, (iii)
additional raw material cost increases, if any, by Foamex's chemical suppliers,
(iv) Foamex's success in passing on to its customers selling price increases to
recover such raw material cost increases and (v) fluctuations in interest
rates.
RESULTS OF OPERATIONS
1997 Compared to 1996
Net sales for 1997 were $931.1 million as compared to $926.4 million in 1996, an
increase of $4.7 million or 0.5%. Carpet cushion net sales for 1997 decreased
6.0% to $273.9 million from $291.3 million in 1996 primarily due to (i) the sale
in early October 1997 of a facility which manufactured needlepunch, tufted
carpeting, and artificial grass products which had net sales of approximately
$8.3 million in the fourth quarter of 1996, (ii) reduction in rebond carpet
cushion selling prices due to lower trim material costs, and (iii) a shift in
product mix from higher price carpet cushion to lower price carpet cushion.
Cushioning foam net sales for 1997 increased 6.2% to $225.0 million from $211.9
million in 1996 primarily due to increased net sales volume from both new and
existing customers of bedding related products. Automotive foam net sales for
1997 increased 1.0% to $234.2 million from $231.9 million in 1996 primarily due
to increased volume. Furniture net sales for 1997 were constant at $121.7
million as compared to $121.0 million for 1996. Specialty and technical foam net
sales for 1997 increased 8.5% to $76.3 million from $70.3 million in 1996
primarily due to increased net sales volume.
Gross profit as a percentage of net sales decreased to 15.4% for 1997 from
16.5% in 1996 primarily due to unfavorable impact of unrecovered raw material
cost increases, product mix change to lower margin products and the sale in
early October 1997 of a facility which manufactured needlepunch, tufted
carpeting and artificial grass products.
Income from operations was $56.3 million for 1997 as compared to $102.9
million in 1996. The decrease was primarily due to a decrease in gross profit
margins as discussed above, 1997 restructuring and other charges of $21.1
million as compared to a restructuring credit of $6.5 million in 1996, and an
increase in selling, general and administrative expenses of $9.1 million for
1997 as compared to 1996. The 1997 restructuring and other charges are related
to the restructuring of Foamex's operations in connection with the Crain
Acquisition. The increase in selling, general and administrative expenses is
the result of increases in the provision for uncollectible accounts, employee
compensation and incentives, research and development costs, and travel and
promotion costs associated with the launching of new products and international
expansion.
Income from continuing operations before provision for income taxes was
$14.2 million for 1997 as compared to $61.4 million in 1996. The decrease is
primarily due to the reasons cited above. Interest and debt issuance expense
was fairly constant at $44.2 million in 1997 as compared to $43.2 million in
1996.
Foamex, as a limited partnership, is not subject to federal and certain
state income taxes. However, the consolidated financial statements include a
provision for income taxes which primarily relates to the federal and state
income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 11 to the
consolidated financial statements for further discussion.
The extraordinary loss on early extinguishment of debt of $48.6 million
primarily relates to the write-off of debt issuance costs and redemption
premiums associated with the early extinguishment of long-term debt in
connection with the 1997 Refinancing Plan.
31
<PAGE>
1996 Compared to 1995
Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Combined cushioning
foam and furniture foam net sales for 1996 increased 7.4% to $332.9 million
from $310.0 million in 1995 primarily due to increased net sales volume from
both new and existing customers of bedding related products, increased selling
prices initiated at the beginning of 1996 and a full year of results for a
company acquired in April 1995 which manufactures cushioning products.
Automotive foam net sales for 1996 increased 5.5% to $231.9 million from $219.8
million in 1995 primarily due to a continued increase in net sales of
tri-laminates and composite headliners and increased selling prices initiated
at the beginning of 1996. Specialty and technical foam net sales for 1996
increased 13.4% to $70.3 million from $62.0 million in 1995 primarily due to
increased selling prices and increased net sales volume.
Gross profit as a percentage of net sales increased to 16.5% for 1996 from
11.7% for 1995 primarily due to selling price increases and improved material
and production efficiencies, which includes (i) selling price increases during
1996 to offset the adverse effect of 1995 and 1994 raw material cost increases,
(ii) reductions in customer deductions for pricing disputes, promotional
programs and other matters and (iii) reductions in salaries and other overhead
costs associated with the implementation of the 1995 restructuring plan.
Income (loss) from operations was $102.9 million for 1996 as compared to a
loss from operations of $2.0 million in 1995. The increase was primarily due to
an increase in gross profit margin as discussed above, a decrease in
restructuring and other charges (credits) of $45.7 million and a decrease in
selling, general and administrative expenses of $6.7 million for 1996 as
compared to 1995. The decrease in restructuring and other charges (credits) is
comprised of the $39.2 million charge for restructuring and other charges in
1995 plus the net restructuring credit of $6.4 million in 1996. The 1996 net
restructuring credit is comprised of an $11.3 million credit due to Foamex's
decision not to close a facility which was part of the 1995 restructuring plan
(as defined below) and $1.7 million of credits relating primarily to the
favorable termination of lease agreements and other matters relating to the
1995 restructuring plan, offset by $6.6 million of restructuring charges
relating to the 1996 restructuring plan which primarily consist of the closure
of two facilities during 1997. The decrease in selling, general and
administrative expenses is the result of reductions in the provision for
uncollectible accounts of approximately $3.9 million, salaries and employee
costs of approximately $3.7 million and a reduction of approximately $2.0
million in environmental accruals offset by increases in selling expenses
associated with the increased net sales volume and management realignment in
connection with a 1995 restructuring plan.
Income from continuing operations before provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing operations before
provision for income taxes of $46.7 million in 1995. The increase is primarily
due to the reasons cited above and a decrease in interest and debt issuance
expense of $1.3 million. The decrease in interest and debt issuance expense is
primarily due to a $2.3 million increased benefit from interest rate swap
agreements offset by the amount of interest allocated to discontinued
operations in 1996 as compared to 1995.
Foamex, as a limited partnership, is not subject to federal and certain
state income taxes. However, the consolidated financial statements include a
provision for income taxes which primarily relates to the federal and state
income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 11 to the
consolidated financial statements for further discussion.
The loss from discontinued operations of $42.1 million (net of $2.6
million income tax benefit) in 1996 relates to the net loss on the sale of the
home comfort products business segment which consisted primarily of the net
assets of Perfect Fit and the operating loss of Perfect Fit through the closing
date. See Note 9 to the consolidated financial statements for further
discussion.
Foamex Capital Corporation ("FCC")
FCC is solely a co-issuer of certain indebtedness of Foamex and FCC has no
other material operations.
32
<PAGE>
Liquidity and Capital Resources
Liquidity
Foamex's operating cash requirements consist principally of working
capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures of the operating
subsidiaries. Foamex believes that cash flow from operating activities, cash on
hand and periodic borrowings under the Credit Facility, if necessary, will be
adequate to meet operating cash requirements. The ability to meet the operating
cash requirements of Foamex could be impaired if Foamex were to fail to comply
with any of the covenants contained in the Credit Facility and such
noncompliance were not cured by Foamex or waived by the lenders. Foamex was in
compliance with the covenants in the Credit Facility as of December 28, 1997
and expects to be in compliance with the covenants for the foreseeable future.
Cash and cash equivalents decreased $11.6 million during 1997 to $9.4
million at December 28, 1997 from $21.0 million at December 29, 1996 primarily
due to a decrease in operating cash/results offset by less cash used for the
operating assets and liabilities. Cash and cash equivalents increased $20.4
million during 1996 to $21.0 million at December 29, 1996 from $0.6 million at
December 31, 1995 primarily due to a $18.4 million payment received on a note
from a partner and improved operating results, offset by the increased use of
cash and cash equivalents by the operating assets and liabilities of Foamex,
capital expenditures and scheduled debt repayments. Working capital decreased
$11.0 million during 1997 to $126.1 million at December 28, 1997 from $137.1
million at December 29, 1996 primarily due to the decrease in cash and cash
equivalents and accrued restructuring/consolidation costs. Net operating assets
and liabilities (comprised of accounts receivable, inventories, accounts payable
and accounts payable from affiliates) increased $19.8 million during 1997 to
$162.4 million at December 28, 1997 from $142.6 million at December 29, 1996
primarily due to increases in accounts receivable and inventories offset by an
increase in accounts payable. These increases are primarily associated with the
Crain Acquisition. Working capital increased $65.8 million during 1996 to $137.1
million at December 29, 1996 from $71.3 million at December 31, 1995 primarily
due to (i) improved operating results, (ii) an increase in cash resulting from
the payment received on a note with a partner and (iii) an increase in net
operating assets and liabilities, which was offset by working capital used for
capital expenditures and scheduled debt repayments. Net operating assets and
liabilities (comprised of accounts receivable, inventories, accounts payable and
accounts payable from affiliates) increased $18.5 million during 1996 to $142.6
million at December 29, 1996 from $124.1 million at December 31, 1995 primarily
due to increased accounts receivable and inventories offset by an increase in
accounts payable. The increase in accounts receivable and inventories are
primarily associated with the improved operating results of Foamex. In addition,
raw material inventories increased due to increased year end purchases
associated with a potential cost increase that did not occur. The increase in
accounts payable is primarily associated with the year end purchase of raw
material inventories. Foamex's restructuring/consolidation plan includes
accruals of approximately $26.9 million cash charges of which $15.6 million is
expected to be paid during 1998.
As of December 28, 1997, there were $54.9 million of revolving credit
borrowings under the Credit Facility with unused availability of approximately
$73.9 million which includes approximately $16.0 million associated with
letters of credit outstanding which are supported by the Credit Facility.
Borrowings by Foamex Canada as of December 28, 1997 were $3.6 million under
Foamex Canada's revolving credit agreement with unused availability of
approximately $2.0 million at an interest rate of 6.50%.
Cash Flow from Operating Activities
Cash flow from continuing operations was $22.0 million, $36.7 million and
$36.5 million in 1997, 1996 and 1995, respectively. Cash flow from continuing
operations decreased for 1997 as compared to 1996 primarily as a result of the
use of approximately $24.4 million of cash for payments and costs associated
with the debt extinguishment during 1997 and reduced operating results offset
by a decreased use of cash by the operating assets and liabilities by reduced
operating results. Cash flow from continuing operations remained consistent for
1996 as compared to 1995 primarily as a result of improved operating results
from continuing operations offset by an increased use of cash by the operating
assets and liabilities.
Cash Flow from Investing Activities
From the beginning of 1995 through 1997, Foamex spent approximately $75.8
million on capital improvements. The expenditures included: (i) installation of
new variable pressure foaming technology ("VPF[TM]") in the Orange, California
facility; (ii) the construction of a facility in Mexico City, Mexico to improve
manufacturing
33
<PAGE>
efficiencies and to meet the growing local demand for foam products; (iii) the
expansion and modernization of a facility in Orlando, Florida to improve
manufacturing efficiencies, and (iv) installation of more efficient foam
production line systems and fabricating equipment in a number of manufacturing
facilities. Foamex expects to increase capital expenditures at the current
levels for the foreseeable future as a result of the Crain Acquisition and the
installation of the VPF[TM] manufacturing process.
On December 23, 1997, Foamex acquired Crain pursuant to a merger agreement
with Crain Holdings for a purchase price of approximately $213.7 million,
including the assumption of debt with a face value of approximately $98.6
million (and an estimated fair value of approximately $112.3 million). In
addition, fees and expenses associated with the Crain Acquisition were
approximately $13.2 million. The Crain Acquisition was primarily funded with
$118.0 million of bank borrowings under the Credit Facility.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997.
During 1996, Foamex received net sale proceeds of approximately $42.7
million in connection with the sale of Perfect Fit which was finalized in 1996.
The net sale proceeds were used to repurchase long-term debt and for the
payment of certain retained liabilities.
During 1996, FJPS, a former limited partner, repaid $18.4 million under a
promissory note and a waiver payment of $0.2 million using a portion of the
proceeds from the sale of its partnership interest in JPS Automotive L.P. in
exchange for certain waivers and amendments of the promissory note.
During 1995, Foamex acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for an aggregate consideration of approximately $8.0 million,
including related fees and expenses of approximately $0.3 million, with an
initial cash payment of $7.2 million.
During 1994, Foamex International acquired Transformacion De Espumas Y
Fieltros, S.A. de C.V. ("TEFSA") which required the purchase price to be paid
over a three year period. During 1996, Foamex International contributed its
interest in Foamex Mexico to Foamex. During 1997, 1996 and 1995, Foamex made
scheduled cash payments of approximately $0.9 million, $0.8 million and $0.8
million, respectively, in accordance with the purchase agreement. The final
payment was made in 1997.
Cash Flow from Financing Activities
On June 12, 1997, Foamex International substantially completed the
Refinancing Plan designed to reduce Foamex International's interest expense and
increase its financing flexibility. The Refinancing Plan included a tender
offer to purchase $373.0 million of Foamex's existing public debt and
approximately $116.7 million of the Discount Debentures. Also, the Refinancing
Plan included the payment of $5.2 million of term loan borrowings under an
existing credit facility, and the payment of related fees and expenses. In
addition, the tender offer included amending the existing indentures to remove
substantially all of the restrictive covenants. Foamex purchased $342.3 million
of its public debt and the $116.7 million of Discount Debentures under the
tender offer and incurred an extraordinary loss on the early extinguishment of
debt of approximately $44.5 million. The Refinancing Plan was funded by $347.0
million of borrowings under the Credit Facility and the net proceeds from the
issuance of $150.0 million principal amount of Senior Subordinated Notes. As a
result of the Refinancing Plan, Foamex's long-term debt increased by $150.1
million. Foamex expects the Refinancing Plan to result in increased interest
expense as compared to the debt structure prior to the Refinancing Plan,
assuming no material changes in interest rates. Foamex 's future interest
expense will vary based on a variety of factors including fluctuations in
interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of Foamex's overall indebtedness than in the
past, and as a result, future fluctuations in interest rates will have a
greater impact on Foamex's interest expense than in the past.
During 1997, in connection with the Refinancing Plan, Foamex purchased all
of the Discount Debentures for approximately $105.8 million, including fees and
expenses and subsequently distributed the Discount Debentures to FJPS.
During 1997, Foamex made a tax distribution advance of approximately $13.6
million to Foamex International pursuant to a tax distribution advance
agreement.
34
<PAGE>
On October 1, 1997, Foamex redeemed approximately $26.2 million of the
approximately $30.7 million of Foamex's outstanding public debt that was not
tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings under the Credit Facility. In connection with these redemptions,
Foamex incurred an extraordinary loss on the early extinguishment of debt of
approximately $2.1 million. The remaining outstanding public debt of
approximately $4.5 million that was not tendered as part of the Refinancing
Plan was defeased in February 1998.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. Foamex used the net proceeds of the sale to reduce
borrowings under the Credit Facility by approximately $38.8 million.
During 1997 and 1996, Foamex repurchased long-term debt of approximately
$42.4 million with the net proceeds from the sale of Perfect Fit.
Foamex made cash distributions to its partners, pursuant to a tax sharing
agreement, of approximately $8.8 million, $3.5 million and $2.4 million in
1997, 1996 and 1995, respectively. Also, Foamex made a cash distribution during
1997 of approximately $1.5 million to a partner in connection with the
Refinancing Plan.
Interest Rate Swap Agreements
Foamex enters into interest rate swaps to lower funding costs and/or to
manage interest costs and exposure to changing interest rates. Foamex does not
hold or issue financial instruments for trading purposes.
In connection with the Refinancing Plan, Foamex's existing interest rate
swap agreements with a notional amount of $300.0 million were considered to be
effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, Foamex entered into an amendment of the existing interest rate swap
agreements resulting in one interest rate swap agreement with a notional amount
of $150.0 million through June 2007. Accordingly, the $8.2 million fair value
liability has been recorded as a deferred credit which will be amortized as a
reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, Foamex entered into a new amendment to
its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, Foamex is obligated to make fixed payments of 5.78%
per annum through December 1998 and variable payments based on LIBOR at the
beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each
six month period commencing December 1999.
Foamex is exposed to credit loss in the event of a nonperformance by the
swap partner; however, the occurrence of this event is not anticipated. The
effect of interest rate swaps was a favorable adjustment to interest and debt
issuance expense of $2.2 million, $3.7 million and $1.4 million for 1997, 1996
and 1995, respectively.
Environmental Matters
Foamex is subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with Foamex's compliance with
such laws and regulations did not have a material adverse effect on operations,
financial position, capital expenditures or competitive position. The amount of
liabilities recorded by Foamex in connection with environmental matters as of
December 28, 1997 was $4.3 million. In addition, as of December 28, 1997 Foamex
has net receivables of $1.1 million for indemnification of environmental
liabilities from former owners, net of a $1.0 million allowance relating to
potential disagreements regarding the scope of the indemnification. Although it
is possible that new information or future developments could require Foamex to
reassess its potential exposure to all pending environmental matters, including
those described in the footnotes to Foamex's consolidated financial statements,
management believes that, based upon all currently available information, the
resolution of all such pending environmental matters will not have a material
adverse effect on Foamex's operations, financial position, capital expenditures
or competitive position.
35
<PAGE>
Inflation and Other Matters
There was no significant impact on Foamex's operations as a result of
inflation during the prior three year period. See "Results of Operations" for a
discussion of the impact of raw material price increases. In some
circumstances, market conditions or customer expectations may prevent Foamex
from increasing the price of its products to offset the inflationary pressures
that may increase its costs in the future.
Foamex has and will continue to make certain investments in its software
systems and applications to ensure Foamex is Year 2000 compliant. Foamex plans
to continue to make modifications to the identified software during 1998 and
test them during 1998. The financial impact to Foamex has not been and is not
anticipated to be material to its financial position or results of operation in
any given year.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Foamex will adopt SFAS No. 130 for 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Foamex will adopt
SFAS No. 131 for year end 1998 reporting. Management is evaluating the impact,
if any, the standard will have on Foamex's present segment reporting.
36
<PAGE>
BUSINESS
Foamex's operations are conducted together with its wholly owned
subsidiaries, Foamex Canada, Foamex Mexico and Foamex Asia, and their
respective operations. FCC is a wholly owned special purpose subsidiary of
Foamex whose sole business is to act as a co-issuer of certain indebtedness of
Foamex.
Business Overview
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Foamex is the largest North American producer of foams used
for carpet cushion, automotive applications and specialty and technical
products and is a leading North American producer of cushioning foams. The
Company has recently refocused its business on the flexible polyurethane and
advanced polymer foam business by acquiring Crain in December 1997 and
previously divesting non-foam business segments. Management believes that a
focus in the foam business will allow Foamex to concentrate management,
financial and operational resources and will position Foamex to pursue its
growth strategy of developing new products, improving profitability and
expanding internationally.
Foamex sells carpet cushion to Foamex Carpet, which in turn, distributes
carpet cushion to major floor covering retailers such as Sears, Shaw Industries
and Home Depot. Foamex supplies cushioning foams to major bedding and furniture
manufacturers such as Sealy, Simmons and Ethan Allen. Foamex distributes its
automotive foam products to OEMs, including Ford, General Motors and Chrysler,
and major tier one suppliers such as Lear Corporation, Johnson Controls and
Delphi Automotive Systems. Foamex's specialty and technical foams consist of
reticulated foams and other customized polyester and polyether foams used for
filtration, reservoiring and consumer products which are utilized worldwide in
a wide variety of applications by companies such as Hewlett-Packard and Briggs
& Stratton. Foamex distributes its consumer products to retailers such as
Wal-Mart. Foamex and its predecessors have been developing, manufacturing and
marketing polyurethane foam for more than 40 years.
For the LTM Period, after giving pro forma effect to the GFI Transaction
and to the Crain Acquisition and the Related Transactions, Foamex had net sales
and EBDAIT (as defined) of $1,106.0 million and $117.5 million, respectively.
During the same period, the percentage of pro forma net sales generated by
carpet cushion and other carpet products, cushioning foams, automotive foams,
specialty and technical foams, and consumer products was approximately 18.4%,
48.2%, 21.2%, 6.9% and 5.4%, respectively. Prior to the second quarter of 1997,
the cushioning foams and furniture product markets were treated as a single
product group; therefore, all historical data in this Prospectus reflects
cushioning foam and furniture products as the single product group "cushioning
foam."
On March 16, 1998, Foamex International received a proposal from Trace
Holdings to acquire all outstanding shares of common stock of Foamex
International not owned by Trace Holdings and its subsidiaries for a cash price
of $17 per share. There can be no assurance as to whether such a transaction
will be consummated, or if consummated the terms of such a transaction and its
effect on the Issuers and the Notes; however, such a transaction would not
constitute a "Change of Control" for purposes of the Indenture. See "Risk
Factors---Potential Acquisition of Foamex International."
On February 27, 1998, Foamex International and certain of its affiliates
engaged in the GFI Transaction designed to simplify Foamex International's
corporate structure and to provide future operational flexibility.
Prior to consummation of the GFI Transaction, Foamex and GFI entered into
a Supply Agreement and an Administrative Services Agreement. In addition,
Foamex repaid its outstanding indebtedness to GFI with $4.8 million in cash and
the Foamex/GFI Note, and contributed $8.4 million in accounts payable to GFI
and $1.0 million principal amount outstanding under an intercompany promissory
note payable to Foamex from GFI. See "Certain Relationships and Related
Transactions."
As part of the GFI Transaction, Foamex Fibers was merged with and into
GFI, and FLLC was merged with and into Foamex. In addition, FMXI and Crain,
both wholly owned subsidiaries of Foamex International and general partners of
Foamex, were merged and Crain, as the surviving corporation, subsequently
changed its name to FMXI, Inc. Foamex also defeased the $4.5 million
outstanding principal amount of its Senior Secured Notes.
37
<PAGE>
Pursuant to the Transfer Agreement, Foamex transferred to Trace LLC all of
the outstanding common stock of GFI, in exchange for (i) the assumption by
Trace LLC of $129.0 million of Foamex's indebtedness, and (ii) the transfer by
Trace LLC to Foamex of a 1% non-managing general partnership interest in
Foamex. The amount of the consideration was arrived at based on an independent,
third party appraisal of GFI. As a result of the Transfer, GFI ceased being a
subsidiary of Foamex and was released from all obligations under Foamex's
Senior Subordinated Notes including the Notes.
Upon consummation of the Transfer, pursuant to the Asset Purchase
Agreement, GFI sold substantially all of its assets (other than its owned real
estate and the Foamex/GFI Note) to Foamex Carpet in exchange for (i) $20.0
million in cash and (ii) the New GFI Note. The cash portion of the
consideration was borrowed by Foamex under the Credit Facility, which cash
portion was then distributed by Foamex to Foamex International and then
contributed by Foamex International to Foamex Carpet. The amount of
consideration was arrived at based on an independent, third party appraisal of
GFI.
On December 23, 1997, Foamex acquired Crain pursuant to a merger
transaction with Crain Holdings for an aggregate consideration of approximately
$213.7 million, including the assumption of debt. Management believes that
based on net sales, Crain was the third largest domestic producer of flexible
polyurethane foam and foam products in the United States. The Crain Acquisition
provided a fully integrated manufacturer, fabricator and distributor of a broad
range of flexible polyurethane foam and foam products which are sold to a
diverse customer base, principally in the furniture, bedding and carpet cushion
markets. Management believes that Foamex's acquisition of Crain (i) strengthens
Foamex's market position as the leading North American producer of foam
products, (ii) offers increased penetration in the Company's existing product
lines and adds complementary products lines such as consumer products, (iii)
strengthens the Company's operations geographically, (iv) provides several
proprietary foam-producing processes which serve to lower overall production
costs and are environmentally friendly, and (v) offers opportunities for
significant overhead cost reductions and purchasing and freight cost
efficiencies.
In order to facilitate the Crain Acquisition, the Issuers offered the
Qualified Holders to exchange such Qualified Holders' $98.0 million principal
amount of Crain Notes for $80.00 in cash and $1,000 principal amount of Old
Notes for each $1,000 principal amount of Crain Notes. Such $98.0 million in
aggregate principal amount of Crain Notes were retired and cancelled by the
trustee of the Crain Notes and the remaining $2.0 million in aggregate
principal amount of Crain Notes were redeemed by Crain, all in accordance with
the indenture under which the Crain Notes were issued.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, and was used to reduce long-term debt of
approximately $38.8 million.
Competitive Strengths
Foamex believes that it possesses a number of competitive strengths that
have allowed it to become the largest manufacturer and marketer of flexible
polyurethane and advanced polymer foam products in North America, including:
Emphasis on New Product Development. Foamex believes it has one of the
leading research and development capabilities in the industry and, as a result,
has been awarded more than 100 foam-related patents worldwide. These
capabilities provide Foamex with a stream of new products, new applications for
existing products, and new processes for foam manufacturing. An example of this
capability is variable pressure foaming (VPF[TM]), an innovative manufacturing
process currently used in North America only by Foamex, which has been used to
create new products such as Reflex[TM]. Reflex[TM] is designed to replace
fiberfill in certain cushioning products. Foamex has also recently introduced
Plushlife[TM] for the carpet cushion market and Powerthane[TM] for automotive
applications. Another technology developed by Foamex is Surface Modification
Technology (SMT[TM]), which allows for high volume precision contouring of foam
surfaces, thereby improving Foamex's existing products and creating new
products such as sculpted bed mattresses.
Alignment with Key Customers. Foamex has historically maintained a steady
revenue base by aligning itself with key customers, many of which have been
Foamex's customers for many years. These customer relationships are supported
by Foamex's extensive North American network of 67 strategically located
facilities, which allows Foamex to deliver products cost effectively on a
just-in-time basis. As a result of these relationships, Foamex is
38
<PAGE>
able to work with customers during the design phase for new products and new
applications, thereby favorably positioning Foamex to be the principal supplier
for these products.
High Quality Products. Foamex is a pioneer in manufacturing and
distributing high quality flexible polyurethane and advanced polymer foam
products to satisfy the specific needs of customers. During 1996, Foamex
completed QS-9000 and ISO-9001 certification for its eight domestic facilities
that supply the automotive industry and is pursuing the appropriate
certifications for the remainder of its manufacturing facilities. Foamex was
one of the first flexible polyurethane foam manufacturers to be QS-9000
certified, demonstrating its commitment to producing the highest quality
products and meeting the needs of its customers.
Low Cost Manufacturing Position. Foamex strives to maintain
state-of-the-art manufacturing facilities which utilize recent manufacturing
improvements such as the proprietary VPF[TM] and patented SMT[TM] technologies,
as well as the latest carbon dioxide converting process. In addition, the Crain
Acquisition added improved manufacturing processes such as Cardio, Enviro-Cure
and Vertifoam. These technologies are designed to, among other things, maximize
the conversion efficiency of raw materials into finished goods and to minimize
labor costs. Furthermore, Foamex has implemented a company-wide Continuous
Improvement Process program designed to continually increase productivity,
reduce costs and improve product quality. In addition, as the largest
manufacturer of flexible polyurethane and advanced polymer foam products in
North America, management believes that Foamex is able to realize economies of
scale in its raw materials procurement, which represent a significant portion
of Foamex's manufacturing costs, and recover costs from the use of
substantially all of its internally generated trim foam, which is the principal
raw material in the production of bonded carpet cushion.
Growth Strategy
Foamex's strategy focuses on (i) developing new proprietary foam products,
(ii) introducing new uses for advanced foam products, (iii) expanding in
international markets and (iv) reducing costs through continued emphasis on
manufacturing improvements.
New Proprietary Foam Products. Foamex plans to continue to utilize its
significant research and development capability to develop new products. In
recent years, Foamex has developed new proprietary technologies, such as
VPF[TM] and SMT[TM], which have been used to create higher margin, value-added
products designed to replace existing flexible polyurethane foam products. In
addition, the Crain Acquisition added improved manufacturing processes such as
Cardio, Enviro-Cure and Vertifoam that will increase Foamex's ability to
develop new products. SMT[TM] has allowed Foamex to develop sculpted mattress
toppers, mattress pads and bed pillows which are replacing traditional
polyurethane foam products due to their superior comfort, quality and value. In
certain cases, such as Plushlife[TM], a proprietary carpet cushion designed to
replace traditional bonded and prime carpet cushion, Foamex brands these
products to create product recognition and to generate higher margins.
New Uses for Foam. Foamex is actively developing new applications for its
advanced foam products to replace other materials. In the automotive industry,
the number of foam applications has increased from 8 per vehicle in 1984 to 20
per vehicle in 1997. For example, Foamex has introduced products such as foam
headliners which are replacing fiberglass headliners (the rigid material
between the fabric and the metal roof of a car). Reflex[TM] foams, which
include cushion wraps and cushion cores and are created using VPF[TM], are
advanced polymer cushioning products designed to improve comfort, quality and
durability in upholstered furniture and to replace standard fiberfill. Foamex's
fastest growing business, specialty and technical foams, focuses on developing
customized foam applications for high-growth product markets such as inkjet
printer cartridges, nickel-metal hydride batteries and oxygenators for
cardio-pulmonary surgery.
International Expansion. Foamex has positioned itself to take advantage of
global opportunities. In Mexico, Foamex has built a new state-of-the-art
manufacturing facility, which is expected to meet increasing demand and to
allow Foamex to increase market penetration. In Asia, which management believes
offers attractive growth opportunities. Foamex entered into a joint venture
agreement in 1997 to build and operate fabrication facilities in Singapore and
Thailand. These facilities were completed in 1997. Additionally, Foamex has
created an alliance with Recticel, Europe's largest flexible polyurethane foam
manufacturer, which will allow Foamex to better meet the increasing global
needs of its automotive customers.
39
<PAGE>
Products
Foamex is a manufacturer of quality flexible polyurethane and advanced
polymer foam products designed to satisfy the specific needs of customers.
Foamex's 61 manufacturing and 6 distribution facilities enable it to source
production efficiently and meet the needs of its customers throughout North
America. Such facilities are also important for satisfying all of the foam
requirements of large national customers in a timely and cost effective manner.
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Prior to the second quarter of 1997, the cushioning foams
and furniture product markets were treated as a single product group;
therefore, all historical data in this Prospectus reflects cushioning foam and
furniture products as the single product group "cushioning foam." The consumer
products group was acquired in the Crain Acquisition and the Related
Transactions and historical data for the consumer products category is not
available. The table below sets forth historical net sales of Foamex by product
category for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------------ ------------------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Carpet cushion ........................ $ 271.0 31.4% $ 291.3 31.5% $ 273.9 29.4%
Cushioning foams ...................... 310.0 35.9 332.9 35.9 346.7 37.2
Automotive foams ...................... 219.8 25.5 231.9 25.0 234.2 25.2
Specialty and technical foams ......... 62.0 7.2 70.3 7.6 76.3 8.2
-------- ----- -------- ----- -------- -----
Total ................................ $ 862.8 100.0% $ 926.4 100.0% $ 931.1 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Carpet Cushion. Foamex is one of the largest manufacturers of prime,
bonded, sponge rubber and felt carpet cushion in North America. Foamex has also
developed Plushlife[TM], a proprietary bonded carpet cushion product,
introduced in February 1997, which Foamex believes to be one of the most
significant improvements in bonded carpet cushion products in many years.
Plushlife[TM] combines two cushions into a single structure one to absorb the
energy of foot traffic and the other to enhance comfort.
Foamex developed ComfortWear[RegTM], a quality prime carpet cushion, which
was introduced in February 1994 in conjunction with significant consumer and
trade promotions. ComfortWear[RegTM] currently is sold in retail outlets
throughout the United States. ComfortWear[RegTM] is marketed through floor
covering retailers in the United States such as Sears, Shaw Industries and Home
Depot. Since February 27, 1998, Foamex has sold and will continue to sell
carpet cushion to its affiliate Foamex Carpet, which in turn, distributes
carpet cushion to floor covering retailers such as Sears, Shaw Industries and
Home Depot.
Cushioning Foams. Foamex is one of the largest manufacturers of cushioning
foams in North America. Foamex manufactures and sells flexible polyurethane
foam and polyester fiber to bedding manufacturers both directly and indirectly
through independent fabrication operations. These foams are used by the bedding
industry in quilts, toppers, cores and border rolls for mattresses and by the
furniture industry for seating products. Cushioning foams are generally sold in
large volumes on a regional basis because of high shipping costs. Due to its
size and the strategic location of its production facilities, Foamex believes
it will continue to have an advantage over small regional producers in
supplying large national accounts with all of their foam requirements.
The development and introduction of value added products continues to be a
priority of Foamex and has included (i) Reflex[TM] discussed below, (ii)
viscoelastic or "memory" foams for the bedding industry, which maintain their
resiliency better than other foams and materials and (iii) Latex Plus[TM], a
urethane-based replacement for latex, a material used in bedding products. One
of Foamex's most recent product introductions is Reflex[TM] for the cushioning
industry which was created using the VPF[TM] manufacturing process. Reflex[TM]
materials, which include cushion wraps and cushion cores, are advanced polymer
cushioning products designed to improve comfort, quality and durability in
upholstered furniture.
Foamex's cushioning foams for bedding products are sold to mattress
customers, such as Sealy, Simmons, Serta, and Spring Air Company, both directly
and through independent fabrication operators located across the
40
<PAGE>
United States. Also, Foamex supplies cut-to-size seat cushions, backs and other
pieces to the furniture industry, including to Berkline, Action and Schnadig.
Foamex also sells cushioning foam for use in a number of other markets. The
uses of cushioning foam include packaging materials for such things as computer
and electronic components and cushioning applications in certain sporting good
products and in recreational vehicles.
Automotive Foams. Foamex is one of the largest suppliers of the trim foam
requirements of the North American operations of American OEMs. Depending on
the automotive manufacturer and/or the application, foam is supplied by Foamex
either directly to the manufacturer or indirectly through subsuppliers.
Automotive foams are used for trim pads, door panel parts, headliners,
acoustical purposes, flame and adhesive laminates and rolls for tri-lamination.
Tri-laminated foam is applied to automotive fabrics to form a foam/fabric
composite that results in cost savings and aesthetic value for the automotive
manufacturer.
The domestic automotive manufacturers have narrowed their supply base
during recent years, increasing the percentage and dollar amount of components
that they purchase from outside suppliers. As a result, a smaller number of
companies are supplying an increasing percentage of these manufacturers' needs.
Foamex believes it has benefited from this trend, which favors suppliers with
quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Foamex believes this outsourcing trend will continue,
particularly for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle. Automotive suppliers are
increasingly offering integrated systems which lower overall cost and improve
quality relative to previous sourcing methods in which individually sourced
components were assembled and installed by the OEMs.
During 1996, Foamex entered into a strategic alliance with Recticel to
design, manufacture and market polyurethane products for the automotive
industry in order to meet the worldwide requirements of the OEMs and the major
tier one suppliers such as Lear Corporation, Johnson Controls, Inc., and Delphi
Automotive Systems. Under this alliance, both companies will jointly supply the
automotive suppliers, with products manufactured in North America by Foamex and
in Europe by Recticel.
Foamex believes that the automotive manufacturers' just-in-time inventory
requirements will provide Foamex with a competitive advantage due to the
quality of Foamex's foam products, its flexible manufacturing capacity and its
61 strategically located manufacturing facilities and 6 distribution facilities
that enable Foamex to minimize shipping time and costs. In addition, Foamex
expects foam usage per vehicle to continue to increase because manufacturers
have generally increased their investment in upgrading automobile and light
truck interiors to improve comfort, attractiveness, safety and noise absorption
capabilities. Foamex is well suited to meet these requirements.
Foamex's new product development and flexible manufacturing capabilities
allow it to produce quality products to satisfy changing specifications.
Examples of Foamex's ability to react to changing industry requirements include
thermoformable headliners, tri-laminates, advanced cutting technology and
energy absorbing foams. For example, Foamex is one of the first suppliers to
introduce a thermoformable headliner, Customfit[TM], made from rigid
polyurethane foam. The use of foam headliners is expected to continue to grow
due to concerns for automotive workers' safety caused by fiberglass processing.
Foamex intends to continue manufacturing and supplying foam and fabric
components, such as tri-laminated material for automotive seating. The use of
tri-laminates has become increasingly prevalent due to significant cost savings
for manufacturers and improved aesthetics for consumers.
Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards. Foamex
has achieved the highest quality ratings awarded to foam suppliers by
automotive manufacturers. For instance, the Ford Motor Company has announced
that it will buy components only from plants which have achieved or are
currently being evaluated for the Ford Q-1 status. All Foamex plants which
supply parts to the Ford Motor Company are currently rated Q-1. In addition,
Foamex's facilities that supply the automotive industry have been highly rated
by the General Motors Corporation's "Target for Excellence" program, and a
majority of such facilities that supply the Chrysler Corporation have received
Chrysler's "Quality Excellence" award. Eventually, all tier one and tier two
automotive supplier facilities worldwide will be required to meet the QS-9000
quality manufacturing standards set by United States automotive manufacturers.
In 1996, Foamex completed QS-9000 and ISO-9001 certification for its eight
domestic facilities which supply the automotive industry. Foamex was one of the
first polyurethane manufacturers to be QS-9000 certified which demonstrates its
commitment to producing the highest quality products and meeting the needs of
its customers.
41
<PAGE>
Specialty and Technical Foams. Foamex believes that it is one of the foam
industry's prime innovators and producers of industrial, specialty, consumer
and safety foams (collectively, "specialty and technical foams"). Specialty and
technical foams consist of reticulated foams and other custom polyester and
polyether foams, which are sometimes combined with other materials to yield
specific properties. Reticulation is the thermal or chemical process used to
remove the membranes from the interconnecting cells within foam. This leaves a
porous, skeletal structure allowing for the free flow of gases and/or liquids.
Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary surgery,
instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other specialty
and technical foams have unique characteristics such as flame retardancy and
fluid absorption. In addition, felting and lamination with other foams or
materials give these composites specific properties. Additional products sold
within this group include foams for refrigerated supermarket produce counters,
mop heads, paint brushes, diapers and cosmetic applications.
Foamex utilizes advertising in trade journals and related media in order to
attract customers and, more generally, to create an awareness of its
capabilities for specialty and technical foams. In addition, due to the highly
specialized nature of most specialty and technical foams, Foamex's research
staff works with customers to design, develop and manufacture each product to
specification. Foamex's customers include Hewlett Packard and Briggs & Stratton.
Consumer Products. Foamex sells flexible polyurethane foam and polyester
fiber for use in therapeutic sleep products such as mattress pads and bed
pillows, which are manufactured for the health care and consumer markets. Foamex
also manufactures and markets a broad line of home furnishing products to
retailers throughout the United States. Foamex's home furnishing products
include a broad range of products such as leisure furniture, futon sofas, bean
bag chairs, floor pillows and pet beds. Foamex sells its products to retailers
including Wal-Mart.
Marketing and Sales
As of December 28, 1997, Foamex had a marketing and sales force of
approximately 208 employees. As a result of the GFI Transaction, Foamex has a
marketing and sales force of approximately 155 employees. Product business
managers direct sales efforts toward the following end-user markets: cushioning
foams, furniture products, automotive foams, specialty and technical foams and
consumer products.
Bedding and furniture products are sold directly by Foamex to customers
and also through third party independent fabricators. The key strategic
elements supporting growth in these areas are a focus on marketing and sales
efforts, high quality, cost-competitive products and low freight costs through
optimal plant location. Plant locations are critical in this regionalized line
of business where the transportation cost typically comprises a significant
portion of product cost.
Foamex has been a leading supplier of automotive foam products to the
automotive industry for more than 30 years. Foamex is the primary supplier of
automotive foam products to certain tier one suppliers, including Lear
Corporation, Johnson Controls, Inc. and Delphi Automotive Systems. For its
other customers, Foamex competes for new business both at the beginning of the
development of new models and upon the redesign of existing models. Once a foam
producer has been designated to supply parts for a new program, the foam
producer usually produces parts for the life of the program. Competitive
factors in the market include product quality and reliability, cost and timely
service, technical expertise and development capability, new product innovation
and customer service.
Foamex markets most of its specialty and technical foams through a network
of independent fabrication and distribution companies in North America, the
United Kingdom and South Korea. Such fabricators or distributors often further
process or finish these products to meet the specific needs of the end user.
Foamex's specialty and technical foams service unique end user requirements and
are generally sold at relatively high margins. This line of business is
characterized by a diversity and complexity of both customers and applications.
Foamex's consumer products sales efforts are primarily regionally based
with each salesperson selling to local accounts. Foamex sells its consumer
products to retailers including Wal-Mart.
International and Domestic Operations and Export Sales
International ventures initiated in 1996 illustrate Foamex's long-term
commitment to expanding outside North America. These international ventures
include Foamex's expansion of its international capabilities in Mexico and
42
<PAGE>
the exploration of opportunities in Asia. The first international venture was
Foamex's expansion in Mexico to meet the steady growth in demand there over the
past year. Foamex has a total of three facilities in Mexico serving the
automotive and cushioning industries. Two such facilities are located within
Mexican free trade zones close to the U.S. border and primarily service
automotive customers. The new state-of-the-art Mexico City facility services
both automotive and cushioning customers.
Foamex has been servicing the Asian market with technical products for
several years primarily through third party distributors. Foamex believes Asia
offers attractive growth opportunities. Foamex entered into a joint venture
agreement in 1997 to build and operate fabrication facilities in Singapore and
Thailand. These facilities were completed in 1997.
Foamex has created an alliance with Recticel, Europe's largest flexible
polyurethane foam manufacturer, which will allow Foamex to meet the global
needs of its automotive customers. In addition, the alliance will allow Foamex
and Recticel to jointly design, manufacture and market products for U.S. and
European automotive customers. The alliance facilitates supplying automotive
customers with polyurethane foam products in both North America and Europe.
Foamex has in the past exchanged technical information and expertise relating
to foam manufacturing with Recticel.
Foamex's net sales to customers in foreign markets in 1997, 1996 and 1995
were $85 million (9.1% of net sales), $76.0 million (8.2% of net sales) and
$73.3 million (8.5% of net sales), respectively.
Customers
During the past three fiscal years, no one customer accounted for more
than 10.0% of Foamex's net sales. However, during the fiscal year ended
December 28, 1997 net sales to the five largest customers comprised $220.2
million or 23.6% of Foamex's net sales. During the same period, on a pro forma
basis after giving effect to the GFI Transaction and the Crain Acquisition and
the Related Transactions, net sales to the five largest customers accounted for
approximately 37.2% of pro forma net sales. Also, on a pro forma basis 1997 net
sales to Foamex Carpet will be approximately $203.2 million or 18.4% of
Foamex's net sales. See "Risk Factors--Reliance on Major Customers."
Manufacturing and Raw Materials
As of December 28, 1997, Foamex produced bulk and fabricated flexible
polyurethane foam at 61 manufacturing facilities in North America with a total
of approximately 8.4 million square feet of floor space excluding 16 locations
with 2.6 million square feet of floor space that are planned to close in
connection with the restructuring/consolidation plan. Foamex believes that
its manufacturing facilities are well suited for their intended purposes and
are in good condition. See "--Properties." The manufacturing facilities are
strategically located to service their major customers because high freight
cost in relation to the cost of the foam product generally results in
distribution being most cost effective within 200 to 300 miles from each
facility.
Foamex's fabrication process involves cutting foam buns into various
shapes and sizes to meet customer specifications. Fabricated foam is sold to
customers and is utilized by Foamex to produce its home furnishing products.
Scrap foam, generated in connection with the fabrication of foam products, is
used by Foamex to produce bonded carpet cushion.
Raw materials account for a significant portion of the manufacturing costs
of Foamex. The two principal chemicals used in the manufacture of flexible
polyurethane foam are TDI and polyol. ARCO Chemical Company, BASF Corporation
and The Dow Chemical Company are among Foamex's largest suppliers of raw
materials. Foamex generally has alternative chemical suppliers for each major
raw material and Foamex believes that it could find alternative sources of
supply should it cease doing business with any of its major suppliers. The
price of TDI and polyol is influenced by demand, manufacturing capacity and oil
and natural gas prices.
Historically, the price of raw materials has been cyclical and volatile,
and Foamex's principal suppliers of raw materials used in the manufacture of
flexible polyurethane foam have increased the price of raw materials several
times since September 1994. In response, Foamex increased selling prices, where
possible, for cushioning, automotive and specialty and technical foam products.
Results of operations have been and could be adversely affected by delays in
implementing, or the inability of Foamex to implement, selling price increases
to offset raw material cost increases. For example, Foamex's results of
operations in 1997, 1996 and 1995 were adversely affected by net unrecovered
raw material costs. Significant increases in raw material costs could have a
material adverse
43
<PAGE>
effect on Foamex's financial condition or results of operations. There can be
no assurance that chemical suppliers will not increase raw material costs in
the future or that Foamex will be able to implement selling price increases to
offset any such raw material cost increases. See "Risk Factors--Price and
Availability of Raw Materials."
Employees
As of December 28, 1997, Foamex employed 6,414 persons, with 5,704 of such
employees involved in manufacturing, 502 in administration and 208 involved in
sales and marketing. Approximately 1,095 of these employees are located outside
the United States. Also, approximately 1,450 of these employees are covered by
collective bargaining agreements with labor unions, which agreements expire on
various dates from 1998 through 2001. Foamex considers relations with its
employees to be good.
Competition
The flexible polyurethane foam industry is highly competitive. With
respect to flexible polyurethane foam, competition is based primarily on price,
quality of products and service. Foamex's larger competitors in the
polyurethane foam industry include E. R. Carpenter Company, Hickory Springs
Manufacturing Company, Vitafoam, Inc., General Foam Corporation, Flexible Foam
Products, Inc. and Future Foam, Inc. None of such competitors competes in all
of the product categories in which Foamex does business. See "Risk
Factors--Competition."
Patents and Trademarks
Foamex owns various United States and foreign patents relating to the
manufacture and processing of foam. Patented technologies developed by Foamex
have included SMT[TM], reticulation and felting. Trademarks and servicemarks
include Foamex[RegTM], SMT[TM], Reflex[TM] and Chamber TechnologySM. The
registered processes and products were developed through ongoing research and
development activities to improve quality, reduce costs and expand markets
through the development of new applications for flexible polyurethane foam
products. Foamex uses several additional trademarks and tradenames for product
identification, the majority of which are used in the carpet cushion and
specialty and technical foams product lines. See "--Research and Development"
below for a discussion of the VPF[TM] technology. As a result of the Crain
Acquisition and Related Transactions, Foamex acquired various patents and
trademarks registered domestically and in numerous foreign countries. The
registered processes and products were developed through Crain's ongoing
research and development activities to improve quality, reduce costs and expand
markets through the development of new applications for flexible polyurethane
foam products. Crain used several trademarks and trade names for product
identification including Vertifoam[RegTM], Enviro-Cure[RegTM] and Egg
Crate[RegTM]. Foamex believes its business is not dependent upon any individual
patent, trademark, servicemark or tradename.
Research and Development
Foamex believes it has a significant research and development capability
in the flexible polyurethane industry. This capability gives Foamex a
significant advantage in the ongoing development of new products and new
applications for existing products. Foamex's primary research and development
facility is located in Eddystone, Pennsylvania. Foamex employs approximately 35
full-time employees in research and development. Expenditures for research and
development amounted to $3.2 million, $2.5 million and $2.4 million for 1995,
1996 and 1997, respectively, excluding expenditures by Crain for research and
development prior to the Crain Acquisition and the Related Transactions.
Foamex and Recticel have exchanged know-how, trade secrets, engineering
and other data, designs, specifications, chemical formulations, technical
information, market information and drawings which are necessary or useful for
the manufacture, use or sale of foam products and it is anticipated that they
will continue to do so in the future. Foamex, Recticel and Beamech Group
Limited, an unaffiliated third party ("Beamech"), have an interest in a Swiss
corporation that develops new manufacturing technology for the production of
polyurethane foam including the VPF[TM] manufacturing process. VPF[TM] is a
manufacturing process that contains no chlorofluorocarbons and eliminates
volatile auxiliary blowing agents. Moreover, VPF[TM] produces polymers with a
wide range of properties, including previously unavailable low density,
ultrasoft products. Foamex believes that the VPF[TM] process will expand
applications for urethane-based products. Foamex, Recticel, and their
affiliates have a royalty-free license to use technology developed by the Swiss
corporation. The Swiss corporation, subject to certain limitations, is free to
license the VPF[TM] technology to third parties. Foamex currently operates the
only two VPF[TM] units in North America.
44
<PAGE>
Foamex recently developed SMT[TM] which allows for high volume precision
contouring of foam surfaces, including the pattern, the size of the pattern and
the depth of the cut, thereby improving Foamex's existing products and creating
new products such as sculpted bed mattresses that provide enhanced comfort.
Properties
As of December 28, 1997, Foamex conducted its operations at 67
manufacturing and distribution facilities which includes 22 facilities that
were acquired on December 23, 1997 in connection with the Crain Acquisition,
excluding 22 facilities that will be closed in connection with the various
restructuring/consolidation plans. As of December 28, 1997, 19 of these
facilities were owned and 48 were leased. Total floor space in use at the owned
manufacturing and distribution facilities is approximately 3.4 million square
feet and total floor space in use at the leased manufacturing and distribution
facilities is approximately 5.1 million square feet. Fifty-nine of these
facilities are located in thirty-nine cities in the United States, five
facilities are located in two cities in Canada and three facilities are located
in three cities in Mexico. The 1998 annual base rental with respect to such
leased facilities is approximately $8.7 million under leases expiring from 1998
to 2007. Foamex does not anticipate any problem in renewing or replacing any of
such leases expiring in 1998. In addition, Foamex has approximately 1.0 million
square feet of idle space of which approximately 0.2 million is leased.
Foamex maintains administrative and sales offices in Linwood,
Pennsylvania; St. Louis, Missouri; Chicago, Illinois; Southfield, Michigan;
Atlanta, Georgia; and New York, New York.
Environmental Matters
Foamex is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1997, expenditures in connection with Foamex's
compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on its operations, financial
position, capital expenditures or competitive position. As of December 28,
1997, Foamex had accruals of approximately $4.3 million for environmental
matters.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride, propylene oxide and TDI, materials
used in the manufacturing of foam. On December 27, 1996, the United States
Environmental Protection Agency (the "EPA") proposed regulations under the 1990
CAA Amendments that will require manufacturers of slab stock polyurethane foam
and foam fabrication plants to reduce emissions of methylene chloride. Because
these regulations are subject to change prior to finalization, Foamex cannot
accurately predict the actual cost of their implementation. Foamex does not
believe implementation of the regulations will require it to make material
expenditures, due to Foamex's use of alternative technologies which do not
utilize methylene chloride and its ability to shift current production to the
facilities which use these alternative technologies, however, material
expenditures may be required at the facilities formerly operated by Crain. The
1990 CAA Amendments also may result in the imposition of additional standards
regulating air emissions from polyurethane foam manufacturers, but these
standards have not yet been proposed or promulgated.
In addition to general regulatory requirements, state laws have resulted
or will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been required to meet
greater state restrictions regarding emission limits and/or quantities used of
this chemical. For example, in California, methylene chloride usage was phased
out at the end of 1995, while in Kent, Washington, and Easton, Pennsylvania,
the former Crain facilities, pursuant to consent decrees as well as applicable
laws, must over a period of time phase out methylene chloride usage.
Specifically, through the development of the Enviro-Cure[RegTM] process, which
uses ambient or refrigerated air to remove the heat of reaction during the foam
curing process, methylene chloride usage can be reduced by up to 90 percent
and, when used in conjunction with the Vertifoam[RegTM] process, completely.
Crain had installed the Enviro-Cure[RegTM] process at its manufacturing
facilities in Ft. Smith, Arkansas; Compton, California; San Leandro,
California; Elkhart, Indiana; Tupelo, Mississippi; and Conover, North Carolina.
Where regulations require the elimination of methyl-chloroform and methylene
chloride. Crain has installed a CARDIO[RegTM] system, which eliminates the use
of methyl-chloroform. During 1996, Crain installed the CARDIO[RegTM] system at
its Compton, California; Easton, Pennsylvania; and Kent, Washington plants.
However, see "Legal Proceedings" below.
45
<PAGE>
Foamex has reported to appropriate state authorities that it has found
soil contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina;
Fort Wayne, Indiana; Philadelphia, Pennsylvania; and at a former facility in
Dallas, Texas and groundwater contamination in excess of state standards at the
Orlando, Conover, Philadelphia, and Cornelius facilities. Foamex has begun
remediation and is conducting further investigations into the extent of the
contamination at these facilities and, accordingly, the extent of the
remediation that may ultimately be required. The actual cost and the timetable
of any such remediation cannot be predicted with any degree of certainty at
this time. Foamex, based on engineering estimates of the remaining potential
remediation costs for these facilities, has accruals of $3.0 million for the
estimated cost of completing remediation and established a net receivable of
$1.0 million on the basis of indemnifications by Trace Holdings and RFC
associated with the partnership formation of Foamex. Foamex has completed
remediation of soil contamination at a former Trenton, New Jersey manufacturing
facility closed in October 1993 and is awaiting final closure approvals from
the New Jersey Department of Environmental Protection regarding the remediation
of soil contamination and monitoring of groundwater at the former Trenton
facility. Foamex is in the process of completing a remediation at its Mesquite,
Texas facility and expects a certificate of completion under the Texas
Voluntary Clean Up program when such remediation is complete.
Federal regulations require that by the end of 1998 all USTs be removed or
upgraded in all states to meet applicable standards. Foamex has six USTs that
will require removal or permanent in-place closure by the end of 1998. Due to
the age of all of these tanks, leakage may have occurred resulting in soil and
possibly groundwater contamination. Foamex has accrued approximately $0.1
million for the estimated removal and remediation costs, if any, associated
with USTs. However, the full extent of contamination, and accordingly, the
actual cost of such remediation, including at the former Crain facilities,
cannot be predicted with any degree of certainty at this time. Foamex believes
that its USTs do not pose a significant risk of environmental liability because
of its monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of Foamex's manufacturing processes.
Foamex does not believe that it will be required to make any material
expenditures to comply with these new standards due to its use of alternative
technologies which do not use methylene chloride and its ability to shift
production to facilities which use these technologies, however, material
expenditures may be required at the facilities formerly operated by Crain.
Foamex has been designated as a Potentially Responsible Party ("PRP") by
the EPA with respect to 13 sites with an estimated total liability to Foamex
for the 13 sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRPs with respect to the specified site. In each
case, the participation of Foamex is considered to be immaterial.
On May 5, 1997, there was an accidental chemical spill at one of Foamex's
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. Although it is possible that new information
or future developments could require Foamex to reassess its potential exposure
relating to all pending environmental matters, including those described
herein, Foamex believes that, based upon all currently available information,
the resolution of such environmental matters will not have a material adverse
effect on Foamex's operations, financial position, capital expenditures or
competitive position. The possibility exists, however, that new environmental
legislation and/or environmental regulations may be adopted, or other
environmental conditions may be found to exist, that may require expenditures
not currently anticipated and that may be material. See "Risk
Factors--Environmental Liabilities and Regulations."
Legal Proceedings
As of March 4, 1998, Foamex and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court. Some of these actions allege substantial damages,
but most of these actions allege unspecified damages for personal injuries of
various types. Three of these cases seek to allege claims on behalf of all
breast implant recipients or other allegedly affected parties, but no class has
been approved or certified by the court. In addition, three cases have been
filed alleging claims on behalf of approximately 700 residents of Australia,
New Zealand, England, and Ireland. Foamex believes that the number of suits may
increase. During 1995,
46
<PAGE>
Foamex and Trace Holdings were granted summary judgments and dismissed as
defendants from all cases in the federal courts of the United States and the
state courts of California. Appeals for these decisions were withdrawn and the
decisions are final.
Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex or
Trace Holdings. Neither Foamex nor Trace Holdings recommended, authorized, or
approved the use of its foam for these purposes. Foamex is indemnified by Trace
Holdings for any such liabilities relating to foam manufactured prior to
October 1990. Although Trace Holdings has paid Foamex's litigation expenses to
date pursuant to such indemnification and Foamex believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no
absolute assurance that Trace Holdings will be able to provide such
indemnification. While it is not feasible to predict or determine the outcome
of these actions, based on Foamex's present assessment of the merits of pending
claims, after consultation with the general counsel of Trace Holdings, and
without taking into account the indemnification provided by Trace Holdings, the
coverage provided by Trace Holdings' and Foamex's liability insurance, and the
potential indemnity from the manufacturers of polyurethane covered breast
implants, Foamex believes that the disposition of matters that are pending or
that may reasonably be anticipated to be asserted should not have a material
adverse effect on either Foamex's or Trace Holdings' consolidated financial
position or results of operations. If Foamex's assessment of liability with
respect to these actions is incorrect, such actions could have a material
adverse effect on Foamex.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County, against Foamex
International, directors of Foamex International, Trace Holdings, and
individual officers and directors of Trace Holdings:
Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and
John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.
A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to Foamex International's stockholders in connection
with the Trace Holdings proposal to acquire all of the shares of Foamex
International's common stock. The complaints seek, among other things, class
certification, a declaration that the defendants have breached their fiduciary
duties to the class, preliminary and permanent injunctions baring
implementation of the proposed transaction, rescission of the transaction if
consummated, unspecified compensatory damages, and costs and attorneys' fees.
Foamex is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
Foamex that the disposition of these lawsuits will not, individually or in the
aggregate, have a material adverse effect on the financial position or results
of operations of Foamex. If Foamex's assessment of Foamex's liability with
respect to these actions is incorrect, such actions could have a material
adverse effect on Foamex's consolidated financial position. See "Risk
Factors--Litigation."
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the Cardio process licensed from a third
party, infringed on a patent held by plaintiff. Foamex is negotiating with the
licensor of the process for the assumption of the defense of the action by the
licensor; however, the action is in the preliminary stages, and there can be no
assurance as to the ultimate outcome of the action.
47
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were issued by the Issuers on December 23, 1997 as part of
the Crain Acquisition and the Related Transactions. In connection therewith,
the Issuers entered into the Registration Rights Agreement, pursuant to which
the Issuers agreed, for the benefit of the Holders of the Old Notes, that the
Issuers would, at their sole cost, (i) within 45 days following the original
issuance of the Old Notes, file with the Commission the Exchange Offer
Registration Statement (of which this Prospectus is a part) under the
Securities Act with respect to an issue of a series of new notes of the Issuers
identical in all material respects to the series of Old Notes and (ii) use
their reasonable best efforts to cause such Exchange Offer Registration
Statement to become effective under the Securities Act at the earliest possible
time, but in no event later than 150 days following the original issuance of
the Old Notes. Upon the effectiveness of the Exchange Offer Registration
Statement (of which this Prospectus is a part), the Issuers will offer to the
Holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, to be issued without a restrictive legend and
which may, subject to certain exceptions described below, be reoffered and
resold by the Holder without restrictions or limitations under the Securities
Act. The term "Holder" with respect to any Note means any person in whose name
such Note is registered on the books of Foamex.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter
of Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of New Notes. Based upon interpretations by the
staff of the Commission, the Issuers believe that New Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer (other than
a Restricted Holder) upon compliance with the prospectus delivery requirements,
but without compliance with the registration requirements, of the Securities
Act. The Issuers have agreed that for a period of 120 days following
consummation of the Exchange Offer they will make this Prospectus available to
Participating Broker-Dealers for use in connection with any such resale. During
such period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market making or other trading
activities. See "Plan of Distribution."
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
If (i) the Issuers are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy or
(ii) any Holder of Transfer Restricted Securities (as defined) notifies the
Issuers 20 business days following the consummation of the Exchange Offer that
(A) such Holder is prohibited by law or Commission policy from participating in
the Exchange Offer or (B) such Holder may not resell the New Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and this
Prospectus is not appropriate or available for such resales or (C) such Holder
is a broker-dealer and owns Old Notes acquired directly from the Issuers or an
affiliate of the Issuers, then the Issuers are required under the Registration
Rights Agreement to file with the Commission a shelf registration statement
(the "Shelf Registration Statement") to cover resales of Transfer Restricted
Securities by the Holder thereof who satisfies certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Issuers are required under the Registration Rights Agreement to
use their reasonable best efforts to cause the Shelf Registration Statement to
be declared effective at the earliest possible time but in no event later than
120 days after the date on which the Issuers become obligated to file such
Shelf Registration
48
<PAGE>
Statement and, except under certain circumstances, keep effective such Shelf
Registration Statement until two years after its effective date. For purposes
of the foregoing, "Transfer Restricted Securities" means each Note until the
earliest to occur of (i) the date on which such Old Note has been exchanged by
a person other than a Participating Broker-Dealer for a New Note in the
Exchange Offer, (ii) following the exchange by a Participating Broker-Dealer in
the Exchange Offer of an Old Note for a New Note, the date on which such New
Note is sold to a purchaser who receives from such Participating Broker-Dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Securities
Act. The Issuers will, in the event of the filing of the Shelf Registration
Statement, provide to each Holder of Transfer Restricted Securities covered by
the Shelf Registration Statement copies of any Shelf Registration Statement or
any prospectus which is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of
Transfer Restricted Securities. A Holder of Transfer Restricted Securities that
sells such Transfer Restricted Securities pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to the purchaser, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such Holder (including
certain indemnification obligations). In addition, Holders of Transfer
Restricted Securities will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Transfer Restricted
Securities included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages, if any, set forth in the following
paragraph.
If (i) any Registration Statement required by the Registration Rights
Agreement is not filed with the Commission on or prior to the date specified
for such filing in the Registration Rights Agreement, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the date specified for such effectiveness in the Registration Rights
Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has not
been consummated within 30 business days after the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement or (iv) any
Registration Statement required by the Registration Rights Agreement is filed
and declared effective but thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Issuers have agreed
to pay to each Holder of Transfer Restricted Securities, for the first 90-day
period immediately following the occurrence of such Registration Default,
liquidated damages ("Liquidated Damages") in an amount equal to $.05 per week
per $1,000 principal amount of Notes constituting Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the Liquidated Damages payable to
each Holder will increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages, if any,
shall cease.
Payment of Liquidated Damages is the sole remedy available to the Holders
of Transfer Restricted Securities in the event that the Issuers do not comply
with the deadlines set forth in the Registration Rights Agreement with respect
to the registration of Transfer Restricted Securities for resale under the
Registration Statement.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuers will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only
in integral multiples of $1,000.
49
<PAGE>
The form and terms of the New Notes will be identical in all material
respects (including principal amount, interest rate, maturity and ranking) to
terms of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer except that the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the interest rate on the Old
Notes under certain circumstances described in the Registration Rights
Agreement. The New Notes will evidence the same debt as the Old Notes and will
be entitled to the benefits of the Indenture under which the Old Notes were,
and the New Notes will be, issued.
As of the date of this Prospectus, $98.0 million aggregate principal
amount of the Old Notes is outstanding. The Issuers have fixed the close of
business on , 1998 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent. As of such date, there was one
registered Holder of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Issuers
intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commission or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean Midnight, New York City time, on
, 1998, unless the Issuers, in their reasonable discretion, extend
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the
Exchange Agent (as defined) of any extension by oral or written notice and will
make a public announcement thereof prior to 9:00 a.m., New York City time, on
the next business day after each previously scheduled Expiration Date, unless
otherwise required by applicable law or regulation.
The Issuers reserve the right, in their reasonable discretion, (i) to
delay accepting any Old Notes, to extend the Exchange Offer or, if in their
reasonable judgment any of the conditions set forth below under the caption
"--Conditions" shall not have been satisfied, to terminate the Exchange Offer,
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Issuers to constitute a
material change, the Issuers will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered Holders, and
the Issuers will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which the Issuers may choose to make a
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Issuers shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
Procedures for Tendering
Only a Holder of Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, Agent's Message (as
defined), and any other required documents, to the Exchange Agent prior to
Midnight, New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent prior to
the Expiration Date along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes into the Exchange Agent's account at The Depository Trust Company ("DTC"
or the "Book-Entry Transfer Facility") pursuant to the
50
<PAGE>
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, or Book-Entry Confirmation, as the case may be, the
Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "--Exchange Agent" prior to
Midnight, New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO
THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold Old Notes on behalf of
beneficial owners of Old Notes through DTC to tender their Old Notes as if they
were Holders. To effect a tender of Old Notes, DTC participants should either
(i) complete and sign the Letter of Transmittal (or a manually signed facsimile
thereof), have the signature thereon guaranteed if required by the Instructions
to the Letter of Transmittal, and mail or deliver the Letter of Transmittal (or
such manually signed facsimile) to the Exchange Agent pursuant to the procedure
set forth in "Procedures for Tendering" or (ii) transmit their acceptance to
DTC through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible and follow the procedure for book-entry transfer
set forth in "--Book-Entry Transfer."
The tender by a Holder will constitute an agreement between such Holder
and the Issuers in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Old Notes, or Book-Entry Confirmation, as the case may
be, should be sent to the Issuers.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such beneficial owner's Old Notes, either make appropriate
arrangement to register ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power and signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The
51
<PAGE>
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuers shall determine. Neither the Issuers, the Exchange Agent nor any other
person shall incur any liability for failure to give notice of any defect or
irregularity with respect to any tender of Old Notes. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will not be deemed to have been properly tendered. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
By tendering, each Holder will represent to the Issuers, among other
things, that such Holder is not a Restricted Holder. Each Participating
Broker-Dealer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
Acceptance of Old Notes for Exchange; Delivery of New Notes
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Issuers shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Issuers have given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal or Agent's Message and all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering
Holder thereof (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the Expiration Date.
Book-Entry Transfer
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at DTC promptly after the date of this
Prospectus, and any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of Old Notes may
make a book-entry tender of Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although tender of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
validly executed, with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must,
in any case, be received by the Exchange Agent at its address set forth below
under the caption "Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
the participant in DTC tendering the Old Notes stating (i) the aggregate
principal amount of Old Notes which have been tendered by such participant,
(ii) that such participant has received and agrees to be bound by the term of
the Letter of Transmittal and (iii) that the Company may enforce such agreement
against the participant.
52
<PAGE>
Guarantee Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder, the certificate number(s) of such Old
Notes and the principal amount of Old Notes tendered, stating that the tender
is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's
Message, together with the certificate(s) representing the Old Notes, or a
Book-Entry Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's
Message, as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Old Notes), (iii) be signed by the
Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of the Book Entry Transfer Facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Properly withdrawn Old Notes may be retendered by following one of
the procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes).
53
<PAGE>
Conditions
Notwithstanding any other term of the Exchange Offer, the Issuers shall
not be required to accept for exchange, or exchange New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in the reasonable judgment of the Issuers, might materially impair the ability
of the Issuers to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Issuers, or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of their subsidiaries;
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Issuers or any of their subsidiaries has
occurred which, in the reasonable judgment of the Issuers, might materially
impair the ability of the Issuers to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Issuers;
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Issuers; or
(d) any governmental approval has not been obtained, which approval the
Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Issuers and may
be asserted by the Issuers regardless of the circumstances giving rise to any
such condition or may be waived by the Issuers in whole or in part at any time
and from time to time in their reasonable discretion. The failure by the
Issuers at any time to exercise any of the foregoing rights shall not be deemed
a waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
If the Issuers determine in their reasonable discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of Holders to withdraw such
Old Notes (see "--Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Issuers will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and the Issuers will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
To: The Bank of New York
By Hand/Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: George Johnson
Reorganization Section
Facsimile Transmission:
(212) 815-6339
Confirm by Telephone: (212) 815-3687
54
<PAGE>
Fees and Expenses
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
The Issuers will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old
Notes, which is the estimated fair market value as reflected in the Issuers'
accounting records on the date of the Initial Offering. Accordingly, no gain or
loss for accounting purposes will be recognized. The expenses of the Exchange
Offer, the unamortized expenses related to the issuance of the Old Notes and
the adjustment to reflect the estimated fair market value of the Old Notes will
be amortized over the term of the Notes.
Regulatory Approvals
The Issuers do not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration
Statement under the Securities Act.
Other
Participation in the Exchange Offer is voluntary and Holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
55
<PAGE>
MANAGEMENT
Directors and Executive Officers of the Issuers
Pursuant to the Partnership Agreement (as defined), Foamex is managed by
its managing general partner, FMXI. All of the directors and executive officers
of FMXI are employees of Foamex and/or Foamex International and are not
compensated by FMXI for their services as directors and executive officers of
FMXI. See "Description of the Partnership Agreement."
FCC is a wholly owned subsidiary of Foamex. The directors of FCC are not
compensated by FCC for their services as directors.
The following sets forth certain information with respect to the persons
who, as of the date of this Prospectus, are executive officers of Foamex and/or
directors and executive officers of FMXI and/or FCC.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Andrea Farace ................. 42 Chairman and Chief Executive Officer of
Foamex, FMXI and FCC
Marshall S. Cogan ............. 60 Vice Chairman of Foamex and FMXI; a
director of FCC
Robert J. Hay ................. 72 Chairman Emeritus of Foamex
Rolf Christensen .............. 52 Chief Operating Officer of Foamex
Kenneth R. Fuette ............. 53 Executive Vice President of Finance,
Chief Financial Officer and Chief
Administrative Officer of Foamex;
Executive Vice President of Finance and
a director of FMXI; Executive Vice
President of Finance, Chief Financial
Officer and a director of FCC
Barry Zimmerman ............... 61 Executive Vice President, Manufacturing
Services and Corporate Development of
Foamex; Vice President of FMXI; Vice
President and a director of FCC
Philip N. Smith, Jr ........... 55 Senior Vice President of Foamex; Vice
President, Secretary and General
Counsel and a director of FMXI; Vice
President and Secretary of FCC
Gregory M. Barbe .............. 43 Executive Vice President, Cushioning
Products of Foamex
Gregory W. Brown .............. 42 Executive Vice President, Automotive
Products of Foamex
Christine A. Henisee .......... 51 Executive Vice President, Business
Development and Technology of Foamex
Stephen Drap .................. 48 Executive Vice President, Manufacturing
and Customer Service, Technology
Products of Foamex
Darrel Nance .................. 38 Executive Vice President, Cushioning
Products of Foamex
Pete Wallace .................. 38 Executive Vice President, Manufacturing
Technology of Foamex
George L. Karpinski ........... 50 Senior Vice President, Treasurer and
Secretary of Foamex; Vice President of
FMXI and FCC
Robert H. Nelson .............. 52 Vice President, Assistant Secretary and
Assistant Treasurer of Foamex; Vice
President and a director of FCC
R. Allen Baker ................ 36 Vice President and Chief Accounting
Officer of Foamex, FMXI and FCC
</TABLE>
The board of directors of each of FMXI and FCC is elected annually until
their successors are elected and qualified. Successors are required to be
elected by stockholder vote while vacancies in unexpired terms and any
additional positions created by board action are filled by action of the
existing board of directors. The executive officers named above were elected to
serve in such capacities until their respective successors have been duly
elected and have been qualified or until their earlier death, resignation,
disqualifications or removal from office.
There is no family relationship between any of the directors and executive
officers.
56
<PAGE>
Andrea Farace began serving as Chairman and Chief Executive Officer of
Foamex, Foamex International, FMXI, FCC and certain affiliated entities in May
1997. Mr. Farace has also served as a director of Foamex International since
February 1996. Mr. Farace served as President and a director of Trace Holdings
from December 1994 and December 1993, respectively, to December 1997. Prior to
December 1993, Mr. Farace held several executive positions within Trace
Holdings beginning in April 1991. Mr. Farace was Senior Executive of C.I.R.
S.p.A. from May 1990 to March 1991. Prior to that, Mr. Farace was a Managing
Director at Shearson Lehman Hutton, Inc. Mr. Farace is a director of Trace Foam
and CHF Industries, Inc., both of which are subsidiaries of Trace Holdings.
Additionally, Mr. Farace is a director of the Managed High Income Portfolio,
Inc. and a member of the Advisory Board of the Italy Fund, both of which are
NYSE-listed mutual funds.
Marshall S. Cogan began serving as Vice Chairman of Foamex International,
Foamex and FMXI and as a director of FCC in May 1997. Additionally, Mr. Cogan
became the Chairman and Chief Executive Officer of United Auto Group, Inc.
("UAG"), an affiliate of Trace Holdings in April 1997. Mr. Cogan served as the
Chairman of the Board and Chief Executive Officer of Foamex, FMXI and FCC from
January 1994 to May 1997. Additionally, Mr. Cogan served as Chairman of the
Board and Chief Executive Officer of Foamex International from its inception in
September 1993 to May 1997. Mr. Cogan has served as Chairman of the Executive
Committee of Foamex International since September 1993. Mr. Cogan has been a
director of Trace Foam since December 1991 and the Chairman of the Board and
President of Trace Foam and Trace Foam Sub, Inc. ("Trace Foam Sub"), since
January 1992 and March 1995, respectively. Mr. Cogan also served as Vice
Chairman of Foamex from January 1993 until January 1994. Mr. Cogan has been the
principal stockholder, Chairman or Co-Chairman of the Board and Chief Executive
Officer or Co-Chief Executive Officer of Trace Holdings, since 1974. He has
also been a member of the Board of Directors of UAG since November 1990, and of
Recticel since February 1993. Additionally, Mr. Cogan serves on the Board of
Directors of the American Friends of the Israel Museum and the American Ballet
Theater, the Board of Trustees of The Museum of Modern Art, the Boston Latin
School and New York University Medical Center. Mr. Cogan also serves on several
committees of Harvard University.
Robert J. Hay has been Chairman Emeritus of Foamex since January 1994. Mr.
Hay was Chairman Emeritus and a director of FMXI from January 1994 to May 1997
and also served as Chairman Emeritus and a director of Foamex International
from 1993 to 1997. Mr. Hay was Chairman and Chief Executive Officer of Foamex
from January 1993 to January 1994. Mr. Hay was President of Foamex and its
predecessor from 1972 through 1992. Mr. Hay began his career as a chemist with
The Firestone Tire and Rubber Company, a predecessor of Foamex in 1948.
Rolf Christensen has been Chief Operating Officer of Foamex since March
1998. Prior to that Mr. Christensen served as Executive Vice President,
Technical Products of Foamex. Mr. Christensen has served in several management
positions since joining Foamex in 1967.
Kenneth R. Fuette has been Senior Vice President of Finance and Chief
Financial Officer of Foamex and Foamex International since July 1997, and
Senior Vice President of Finance of FMXI since January 1994. Mr. Fuette began
serving as a director of FMXI, Senior Vice President of Finance, Chief
Financial Officer and a director of FCC in May 1997. Prior thereto, Mr. Fuette
served as Senior Vice President of Finance, Chief Accounting Officer and Chief
Financial Officer of Foamex and Foamex International from January 1996 to July
1997. Mr. Fuette served as a Vice President of Foamex International and its
predecessors from 1983 to 1995 and as Controller of Foamex International or its
predecessors from 1977 to 1995.
Barry Zimmerman has been Executive Vice President, Manufacturing Services
and Corporate Development of Foamex since November 1996, Chairman, President
and a director of Foamex Mexico since September 1993 and Vice President of FMXI
since April 1995. Mr. Zimmerman has been a Senior Vice President of Foamex from
October 1995 to November 1996 and a Senior Vice President or Vice President and
Managing Director of Trace Holdings since October 1986. Prior to that, Mr.
Zimmerman held several executive positions within Trace Holdings beginning in
August 1978. Mr. Zimmerman has been a director of Trace Foam since October
1990. Mr. Zimmerman has served as director of FCC since July 1992.
Philip N. Smith, Jr. has been Vice President of Foamex, Vice President,
Secretary and General Counsel of FMXI since October 1993 and Vice President,
Secretary and General Counsel of Foamex International since its inception in
September 1993 and of UAG since June 1996. Since May 1997, Mr. Smith has served
as a director of FMXI and Vice President and Secretary of FCC. Mr. Smith has
been the Secretary of Trace Foam since its inception in October 1990 and a Vice
President of Trace Foam since December 1991. Mr. Smith has been a Vice
President or
57
<PAGE>
Senior Vice President and the Secretary and General Counsel of Trace Holdings
since January 1988 and has overseen and been actively involved in transaction
negotiations, litigation, stockholder and director relations and other
corporate legal matters. Prior to joining Trace Holdings, he was the sole
shareholder of a professional corporation which was a partner of Akin, Gump,
Strauss, Hauer & Feld, L.L.P
Gregory M. Barbe has been Executive Vice President of the Foam Products
group of Foamex since March 1998 and Executive Vice President, Cushioning
Products of Foamex since July 1997. Mr. Barbe served as Vice President of Sales
of Foamex from April 1994 to July 1997. Prior to joining Foamex, Mr. Barbe was
the director of Marketing for Sealy brand products at Sealy, Inc. from 1990 to
1994. Prior to that, Mr. Barbe held several sales and marketing positions at
three different units of the General Electric Company.
Gregory W. Brown has been Executive Vice President, Automotive Products of
Foamex since July 1997. Prior to joining Foamex, Mr. Brown served as Vice
President of Marketing and Sales for the Guardian Industries Exterior Trim
Group and served as Vice President of Business Development at DC Inc. and
President at DCT Material Handling Inc.
Christine A. Henisee has been Executive Vice President, Business
Development and Technology of Foamex since July 1997. Prior to joining Foamex
in 1996, Ms. Henisee held various management positions with Scott Paper Co. Ms.
Henisee also serves on the Board of Episcopal Academy.
Stephen Drap has been Executive Vice President, Technical Products of
Foamex since March 1998. Prior to that, Mr. Drap served as Vice President,
Manufacturing and Customer Service, Technical Products of Foamex. Mr. Drap has
held various management positions since joining Foamex in 1980.
Darrel Nance has been Executive Vice President of Foam Products of Foamex
since March 1998. Prior to joining Foamex, Mr. Nance held several positions
within Crain since 1994.
Pete Wallace has been the Executive Vice President, Manufacturing
Technology of Foamex since March 1998. Prior to joining Foamex, Mr. Wallace
served as Vice President of Crain and as General Manager of the Newnan
Facility. Prior to that, Mr. Wallace held several positions at Reeves Brothers
Curon Division.
George L. Karpinski has been Senior Vice President, Treasurer and
Secretary of Foamex since July 1997 and has been Vice President and Treasurer
of Foamex International since May 1996. Prior thereto, Mr. Karpinski served as
Vice President, Secretary and Treasurer of Foamex from May 1993 to July 1997.
Mr. Karpinski was Treasurer of Foamex from March 1989 to May 1993 and was
Assistant Treasurer of Foamex from November 1985 to March 1989. Mr. Karpinski
began serving as Vice President of FMXI and FCC in May 1997 and became a
director of Foamex Mexico in June 1997. Mr. Karpinski began his career with the
predecessor to Foamex in 1969.
Robert H. Nelson has served as Vice President and a director of FCC since
July 1992, as Vice President, Assistant Secretary and Assistant Treasurer of
Foamex since January 1996. Mr. Nelson has also served as Executive Vice
President and Chief Financial Officer of UAG since January 1997 and as a
director since January 1996. He has also served as Vice Chairman of Atlantic
Finance since March 1996, Chief Financial Officer and Treasurer of Trace since
1987 and Senior Vice President, Chief Operating Officer and a director of Trace
since 1994.
R. Allen Baker has served as Vice President and Chief Accounting Officer
of Foamex, FMXI, Foamex International and FCC since August 1997. Prior thereto,
Mr. Baker was the Director of Financial Reporting of Foamex and Foamex
International from October 1994 until August 1997. Prior to joining Foamex and
Foamex International, Mr. Baker was a manager in the business assurance
practice of Coopers & Lybrand L.L.P. since June 1988.
For information regarding executive compensation for Foamex, see Foamex
International's 1997 Annual Report on Form 10-K. See "Incorporation of Certain
Documents by Reference."
58
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 27, 1998, the beneficial
ownership of the partnership interests of Foamex by (i) each person who is
known to Foamex to own beneficially more than 5.0% of any class of Foamex's
partnership interests, (ii) each director of FMXI (the managing general partner
of Foamex) and FCC (iii) each executive officer listed in the summary
compensation table of Foamex's 1997 Form 10-K and (iv) all executive officers
and directors of Foamex, FMXI and FCC as a group. FCC is a wholly owned
subsidiary of Foamex.
<TABLE>
<CAPTION>
Name and Address Type of % of % of
of Beneficial Owners Interest Profits Class
<S> <C> <C>
FMXI, Inc. (1)
1000 Columbia Avenue
Linwood, Pennsylvania 19061 ......... General Partner 2.0 100.0
Foamex International Inc. (1)
1000 Columbia Avenue General Partner 2.0 100.0
Linwood, Pennsylvania 19061 ......... Limited Partner 98.0 100.0
All officers and directors as
a group (11 persons) (2) ............ 0.0 0.0
</TABLE>
- ----------
(1) FMXI is wholly owned by Foamex International.
(2) The disclosure of beneficial ownership of officers and directors does not
include any beneficial ownership arising solely by virtue of such person's
position with FMXI or Foamex International.
59
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Foamex regularly enters into transactions with its affiliates on terms it
believes to be no less favorable to Foamex than those which Foamex could have
obtained from unaffiliated third parties. Payments to affiliates by Foamex and
its subsidiaries in connection with any such transactions are governed by the
provisions of the 9-7/8% Note Indenture, the Indenture and the Credit Facility,
which generally provide that such transactions be on terms comparable to those
generally available in equivalent transactions with third parties.
Airplane Lease
Foamex was party to a lease agreement for an airplane with Trace Aviation
Corp., a subsidiary of Trace Holdings ("Trace Aviation"). During 1995, Foamex
paid Trace Aviation $1.6 million, pursuant to the lease agreement. The lease
agreement also provided for the use of the airplane by Trace Holdings with
remuneration to Foamex based on actual usage of the airplane. During 1995,
Trace Holdings paid to Foamex $0.6 million pursuant to the lease agreement.
During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly owned
subsidiary of Foamex International, acquired the airplane from Trace Holdings
and the Foamex lease and other agreements were terminated. Foamex anticipates
that it will distribute approximately $2.0 million per year to Aviation to
enable Aviation to pay debt service and certain operating costs.
Tax Sharing Agreement
In 1992, Foamex and its partners entered into a tax sharing agreement, as
amended (the "Tax Sharing Agreement"), pursuant to which Foamex agreed to make
quarterly distributions to its partners which, in the aggregate, will equal the
tax liability that Foamex would have paid if it had been a Delaware corporation
filing separate tax returns rather than a Delaware partnership. For the fiscal
years ended December 31, l995, December 29, 1996 and December 28, 1997, Foamex
made payments of approximately $2.4 million, $3.5 million and $8.8 million,
respectively, pursuant to the terms of the Tax Sharing Agreement to Foamex
International and its subsidiaries.
Tax Distribution Advance Agreement
On December 11, 1996, Foamex and Foamex International entered into a Tax
Distribution Advance Agreement pursuant to which Foamex International has the
right to obtain up to $17.0 million of advances against future distributions to
the Tax Sharing Agreement. Any such advances will bear interest at a rate equal
to 13.25% per annum. All advances must be repaid by December 31, 1999, and
Foamex International is obligated to use 50.0% of any tax distribution to
prepay the outstanding advances. In June 1997, the maximum amount of advances
was increased to $25.0 million. In December 1997, Foamex advanced $13.6 million
to Foamex International pursuant to the Tax Distribution Advance Agreement.
Management Services Agreement
Foamex and Trace Foam entered into a management services agreement,
pursuant to which Trace Foam provides Foamex with general managerial services
of a financial, technical, legal, commercial, administrative and/or advisory
nature for an annual fee of $3.0 million and reimbursement of expenses
incurred.
Indemnification Regarding Environmental Matters
Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended, between Trace Holdings and Foamex (the "Trace Holdings Asset Transfer
Agreement"), Foamex is indemnified by Trace Holdings for any liabilities
incurred by Foamex arising out of or resulting from, among other things, the
ownership or use of any of the assets transferred pursuant to the Trace
Holdings Asset Transfer Agreement or the conduct of the transferred business on
or prior to October 2, 1990, including, without limitation, any loss actually
arising out of or resulting from any events, occurrences, acts or activities
occurring after October 2, 1990, to the extent resulting from conditions
existing on or prior to October 2, 1990, relating to (i) injuries to or the
contraction of any diseases by any person resulting from exposure to Hazardous
Substances (as defined in the Trace Holdings Asset Transfer Agreement) without
regard to when such injuries or diseases are first manifested, (ii) the
generation, processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance, whether on or off the premises from which the
transferred business has been conducted or (iii) any pollution or other damage
or injury
60
<PAGE>
to the environment, whether on or off the premises from which the transferred
business has been conducted. Foamex is also indemnified by Trace Holdings for
any liabilities arising under Environmental Laws (as defined in the Trace
Holdings Asset Transfer Agreement) relating to current or former Trace Holdings
assets and for any liability relating to products of the transferred business
shipped on or prior to October 2, 1990.
FJPS Note
On June 28, 1994, Foamex purchased an $87.9 million principal amount note
due 2006 from its 98% limited partner FJPS for $35.3 million (the "FJPS Note").
In December 1996 in exchange for certain waivers and amendment of the FJPS
Note, FJPS repaid $18.4 million of the FJPS Note and a waiver payment of $0.2
million using a portion of the proceeds from the sale of its partnership
interest in JPS Automotive. The FJPS Note was classified in partners' equity
(deficit) and the accreted principal of $16.3 million for the period from June
28, 1994 to December 29, 1996 was included in the FJPS Note. In connection with
the Refinancing Plan, the FJPS Note was distributed by Foamex to its partners
and canceled.
Foamex International Supply Agreement
In June 1994, Foamex also entered into a supply agreement with Foamex
International (the "Foamex International Supply Agreement"). Pursuant to the
terms of the Foamex International Supply Agreement, at the option of Foamex,
Foamex International will purchase certain raw materials which are necessary
for the manufacture of Foamex's products, and resell such raw materials to
Foamex at a price equal to net cost plus reasonable out-of-pocket expenses.
Management believes that the terms of the Foamex International Supply Agreement
are no less favorable than those which Foamex could have obtained from an
unaffiliated third party. For the fiscal years ended December 31, 1995,
December 29, 1996 and December 28, 1997, Foamex purchased $105.1 million,
$129.7 million and $138.6 million, respectively, in raw materials under the
Foamex International Supply Agreement.
Certain Transactions in Connection with the Refinancing Plan
In connection with the consummation of the Refinancing Plan, Foamex
distributed (i) to FJPS and FMXI, all FJPS Discount Debentures purchased in the
Refinancing Plan, the FJPS Note and the promissory note of Foamex International
payable to Foamex, and (ii) to Trace Foam, an amount in cash equal to 1/99th of
the distribution to FJPS and FMXI. As part of the Refinancing Plan (a) FMXI
dividended its distribution to Foamex International, (b) each of the FJPS
Discount Debentures distributed to FJPS, the Foamex International promissory
note, and the FJPS Note were canceled and (c) FJPS and its general partner,
FJGP Inc., were merged into Foamex International.
On July 7, 1996, Trace Holdings issued to Foamex a promissory note for
approximately $4.4 million plus accrued interest of approximately $0.4 million,
which is an extension of an earlier note. As part of the Refinancing Plan, the
Note was amended and restated, with accrued interest being added to principal,
the maturity was extended to July 7, 2001, and the interest rate was changed to
the sum of 2-3/8% plus Three Month LIBOR. In connection with the Refinancing
Plan, on July 1, 1997 Trace International borrowed an additional $5.0 million
on terms and conditions substantially similar to the existing promissory note,
and the tax distribution advance agreement was amended to increase the
permitted advances to Foamex International from $17.0 million to $25.0 million.
In connection with the Refinancing Plan, FJPS and its general partner FJGP
Inc. were merged into Foamex International, and Foamex's tax sharing agreement,
tax distribution advance agreement and management agreement were amended to
reflect such merger.
Certain Transactions in Connection with the Crain Acquisition
As part of the Crain Acquisition and the Related Transactions, Crain
(which at the time was a wholly owned subsidiary of Foamex International)
contributed all of its assets, subject to all of its liabilities to Foamex on
December 23, 1997 in exchange for a 1% non-managing general partnership
interest. The assumed liabilities included indebtedness comprised of an
approximately $118.0 million bridge loan, and $98.0 million principal amount of
the Old Notes. In connection with the such contribution, Foamex refinanced the
bridge loan with $8.0 million of revolving credit borrowing and $110.0 million
of term borrowing under its Credit Facility.
61
<PAGE>
Certain Transactions Relating to the GFI Transaction
Prior to the consummation of the GFI Transaction, Foamex and GFI entered
into the Supply Agreement and the Administrative Services Agreement. Under the
Supply Agreement, (i) GFI may purchase from Foamex finished prime, rubber and
rebond carpet underlay at the lesser of cost plus 4.7% or fair market value,
(ii) Foamex may purchase from GFI nonwoven textile fiber products at the lesser
of cost plus 15% or fair market value, and (iii) either party may purchase from
the other trim foam and other raw materials and supplies for the lesser of the
price paid for such raw materials or fair market value. Under the terms of the
Administrative Services Agreement, Foamex provides GFI with administrative
services on a cost basis. In addition, Foamex repaid its outstanding
indebtedness to GFI with $4.8 million in cash and the Foamex/GFI Note.
As part of the GFI Transaction, Foamex Fibers was merged with and into
GFI, and FLLC was merged with and into Foamex. In addition, FMXI and Crain were
merged. Pursuant to the Transfer Agreement, Foamex transferred to Trace LLC all
of the outstanding common stock of GFI, in exchange for (i) the assumption by
Trace LLC of $129.0 million of Foamex's indebtedness, and (ii) the transfer by
Trace LLC to Foamex of a 1% non-managing general partnership interest in
Foamex. The amount of consideration was arrived at based on an independent,
third party appraisal of GFI. As a result of the Transfer, each of GFI and
Foamex Fibers ceased being a subsidiary of Foamex, and was released from all
obligations under Foamex's Senior Subordinated Notes including the Notes.
Upon consummation of the Transfer and pursuant to the Asset Purchase
Agreement, GFI sold substantially all of its assets (other than its owned real
estate and the Foamex/GFI Note) to Foamex Carpet in exchange for (i) $20.0
million in cash and (ii) the New GFI Note. The cash portion of the
consideration was borrowed by Foamex under its Credit Facility, which cash
portion was then distributed by Foamex to Foamex International and then
contributed by Foamex International to Foamex Carpet. The amount of
consideration was arrived at based on an independent, third party appraisal of
GFI.
As a result of the Crain Acquisition and the GFI Transaction, the partners
of Foamex are Foamex International, with a 98% limited partnership interest and
FMXI, a wholly owned subsidiary of Foamex International, with a 2% managing
general partnership interest. In addition, Foamex's tax sharing agreement was
amended to provide for distributions in proportion to the new partnership
percentages.
Other Transactions
For each of the fiscal years ended December 31, 1995, December 29, 1996,
and December 28, 1997, Foamex made charitable contributions to the Trace
International Holdings, Inc. Foundation (the "Foundation") in the amount of
$0.2 million. The Foundation is a Delaware tax-exempt private foundation.
Marshall S. Cogan, Vice Chairman of Foamex International and Foamex, is the
sole director of the Foundation.
In December 1995, Foamex entered into a $2.0 million promissory note with
Foamex International. The note bore interest at a rate per annum equal to six
month LIBOR plus 4.0% and was payable semi-annually in June and December. The
note was scheduled to mature in December 1997. The note was classified in the
other component of partners' equity (deficit). This note was distributed to
Foamex's partners and canceled in connection with the Refinancing Plan.
In December 1997, Foamex purchased two promissory notes from Foamex
International, one on December 26, 1997 for $2.5 million, and one on December
29, 1997 for $2.49 million. The notes bear interest at a rate per annum equal
to three month LIBOR plus 2.375%. The notes are payable on demand, or if no
demand is made on December 31, 2001.
Trace Holdings rents approximately 5,900 square feet of general, executive
and administrative office space in New York, New York from Foamex, on
substantially the same terms as Foamex leases such space from a third party
lessor. The lease commenced October 1, 1993 with the occupancy and rent
payments commencing on October 1, 1994. The lease provides for an initial term
of 11 years and expires on September 30, 2004. The lease provides for two
optional five-year renewal periods at the fair market rental value of the
property on the first day of such renewal term. The annual rental for the
period October 1, 1994 through September 30, 2004 is approximately $0.7
million. Under the lease, Foamex is required to pay certain excess real estate
taxes and operating expenses incurred by the lessor relating to the property
for which it will be proportionally reimbursed by Trace Holdings. The rental
terms were the result of arm-length negotiations between Foamex and the third
party lessor. Trace Holdings will reimburse, through increased rent, Foamex for
the cost of any leasehold improvements applicable to the space occupied for the
benefit of Trace Holdings.
62
<PAGE>
DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
Set forth below is a summary of all of the material payment terms of
certain debt instruments to which Foamex is a party.
Credit Facility
Foamex has entered into a credit agreement, as amended, (the "Credit
Facility") with a group of banks. The Credit Facility provides for (i) a $120.0
million term A sub-facility (the "Term A Loan"), a $110.0 million term B
sub-facility (the "Term B Loan"), a $100.0 million term C sub-facility (the
"Term C Loan"), and a $110.0 million term D sub-facility (the "Term D Loan")
and (ii) a $200.0 million revolving credit facility (the "Revolving Facility").
The Term D Loan, together with additional debt, including borrowings under the
Revolving Credit Facility, was incurred in connection with the Crain
Acquisition and was used to refinance the Bridge Loan. The Bridge Loan was used
to fund the Crain purchase price.
In conjunction with the Refinancing Plan, $88.0 million of a term A
sub-facility (the "Term A Loan"), $110.0 million of Term B Loans, $100.0
million of Term C Loans and $49.0 million of borrowings under the Revolving
Facility were drawn. In connection with the redemption of certain publicly held
debt securities on October 1, 1997, Foamex drew an additional $29.0 million of
Term A Loans. Also, on October 6, 1997, Foamex repaid $38.8 million of Term A
borrowings with the net proceeds from the sale of its needlepunch carpeting,
tufted carpeting and artificial grass products business. In connection with the
GFI Transaction, Foamex borrowed $129.0 million under a new term facility, and
used the net proceeds of the borrowings to repay $75.7 million of Term A Loans
(which represented the outstanding balance), $25.9 million of Term B Loans and
$23.5 million of Term C Loans. Foamex was discharged from all obligations under
the new term facility upon its assumption by Trace LLC in the GFI Transaction.
The Term B Loan, the Term C Loan and the Term D Loan are amortized each
year and will mature in June 2005, June 2006 and December 2006, respectively.
The Revolving Facility will terminate in June 2003. Set forth below are the
aggregate principal amounts of the term loans that are amortized for each
fiscal year commencing in 1998, assuming that $83.8 million, $76.2 million and
$110.0 million are drawn for the Term B Loan, the Term C Loan and the Term D
Loan, respectively, and no excess cash flow or other prepayments are made.
<TABLE>
<CAPTION>
Fiscal Year Amount
(in thousands)
<S> <C>
1998 .......... $ 4,237
1999 .......... 2,703
2000 .......... 2,703
2001 .......... 2,027
2002 .......... 2,703
2003 .......... 10,891
2004 .......... 62,408
2005 .......... 59,271
2006 .......... 124,102
--------
Total ......... $271,045
========
</TABLE>
The maturity of borrowings under the Credit Facility may be accelerated
upon the occurrence of certain events. In addition, Foamex is required, subject
to certain exceptions, to prepay outstanding borrowings from the net proceeds
of certain asset sales, equity and debt issuances and a percentage of annual
excess cash flow (based on Foamex's then current Leverage Ratio (as defined
below)). Borrowings under the Credit Facility are secured by the accounts
receivable, inventories, certain real and personal property and certain
intangible assets of Foamex, the partnership interests of Foamex and the
capital stock of all the direct and indirect subsidiaries of Foamex.
Funds borrowed under the Credit Facility bear interest at either (i)
Scotiabank's alternate base rate ("Base Rate") or (ii) LIBOR plus, in each
case, an applicable margin (the "Applicable Margin") based on Foamex's ratio
(the "Leverage Ratio") of (a) total funded indebtedness less cash to (b) its
trailing four quarter EBDAIT. Generally, for LIBOR borrowings, the Applicable
Margin ranges from 0.625% (corresponding to a Leverage Ratio less than
63
<PAGE>
2.50) to 2.750% (corresponding to a Leverage Ratio greater than or equal to
4.50). Generally, for Base Rate borrowings, the Applicable Margin ranges from
0.0% (corresponding to a Leverage Ratio less than 3.00) to 1.750%
(corresponding to a Leverage Ratio greater than or equal to 4.50). Within these
ranges, the Applicable Margin varies depending on the maturity date of the
borrowings.
The Credit Facility restricts, among other things and subject to certain
exceptions, Foamex's ability: (i) to incur additional indebtedness, except for
extensions or refundings of certain permitted indebtedness, (ii) to merge,
consolidate, liquidate, dissolve, sell or transfer all or substantially all of
their assets or make other similar fundamental changes, (iii) to sell assets
outside the ordinary course of business in excess of amounts set forth therein
in any fiscal year, (iv) to guarantee or invest in, or make loans or advances
to, other persons or entities, (v) to declare or pay dividends or make other
distributions with respect to their equity interests and (vi) to engage in
certain transactions with affiliates and holders of their equity interests. In
general, these covenants are more restrictive than those contained in the
Indenture and the 9-7/8% Note Indenture. The Credit Facility also requires
Foamex to maintain specified financial ratios.
Events of default under the Credit Facility include, among other things:
(i) any failure by Foamex to pay principal thereunder when due, or to pay
interest or any other amount due within five days after the date due, (ii) the
failure of Foamex or any of its subsidiaries to pay any other indebtedness
(including capitalized leases) when due in excess of amounts set forth therein,
or the occurrence of any breach, default or event of default that would cause
or permit the acceleration of indebtedness in excess of amounts set forth
therein, (iii) the breach by Foamex or FMXI of certain covenants and agreements
of the Credit Facility, (iv) the material inaccuracy of any representation or
warranty given by Foamex or FMXI in the Credit Facility, (v) the continuance of
a default by Foamex or FMXI in the performance of or compliance with other
covenants and agreements in the Credit Facility for 30 days after the
occurrence thereof and (vi) certain changes of control and acts of bankruptcy,
insolvency or dissolution. An event of default under the Credit Facility would
result in an Event of Default under the Indenture and the 9-7/8% Note Indenture.
9-7/8% Senior Subordinated Notes due 2007
The 9-7/8% Notes were issued on June 12, 1997 and bear interest at the
rate of 9-7/8% payable semi-annually on each June 15 and December 15. The 9-7/8%
Notes mature on June 15, 2007. The 9-7/8% Notes are subordinated in right of
payment to all Senior Debt (as defined). The 9-7/8% Notes may be redeemed at the
option of Foamex, in whole or in part, at any time on or after June 15, 2002,
initially at 104.938% of their principal amount, plus accrued interest, and
declining to 100% on or after June 15, 2005. Prior to June 15, 2005, Foamex may
redeem, on one or more occasions, up to 35% of the initially outstanding
aggregate principal amount of the 9-7/8% Notes at a redemption price equal to
109.875% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages with the cash proceeds of one or more Public Equity
Offerings; provided that, in each case, at least 65% of the initially
outstanding aggregate principal amount of 9-7/8% Notes remains outstanding
immediately after such redemption. The 9-7/8% Note Indenture contains covenants
substantially similar to the Indenture, except that (i) the prepayment of the
9-7/8% Notes does not constitute a "Restricted Payment" under the Indenture, and
(ii) in connection with Asset Sales, Foamex is required to offer to repurchase
the 9-7/8% Notes before it offers to repurchase the Notes.
Foamex/GFI Note
The Foamex/GFI Note was issued on February 27, 1998, and bears interest at
either (i) the Base Rate or (ii) LIBOR plus 0.75% payable March 17, 2000. The
Foamex/GFI Note has a $34.0 million principal amount, is collateralized by a
$34.5 million letter of credit under the Credit Facility, and is not subject to
voluntary prepayment.
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.4 million at
December 28, 1997 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex to convert to
a fixed rate. The interest rates on the IRBs were 4.15% and 3.85% at December
28, 1997 for the $6.0 million and $1.0 million bond issues, respectively. The
interest rate on the $6.0 million bond issue varies weekly based on an interest
rate that is indicative of current bidside yields on high quality short-term,
tax-exempt obligations, or if such interest rate is not available, 70.0% of the
interest rate for thirteen
64
<PAGE>
week United States Treasury Bills. The maximum interest rate for either of the
IRBs is 15.0% per annum. At the time of a conversion to a fixed interest rate
and upon appropriate notice, the IRBs are redeemable at the option of the
bondholders.
Subordinated Note Payable
This note payable was issued to the former Chief Operating Officer of
Foamex International, on May 6, 1993 by Foamex in connection with the
acquisition of Great Western. The note bears interest at a maximum rate of 6.0%
per annum and the principal amount is payable in three equal annual
installments beginning May 6, 1999. See "Certain Relationships and Related
Transactions--Certain Transactions Relating to the Acquisition of Great
Western."
Foamex Mexico Loan Agreement
In May 1997, Foamex Mexico entered into a loan agreement which provides
for (i) a $5.0 million term loan and (ii) a $2.0 million line of credit.
Borrowings under such loan agreement bear interest at a rate of LIBOR plus 4.5%
and are collateralized by certain assets of Foamex Mexico. The $5.0 million
term loan is amortized in equal quarterly payments after the first year and
will mature in 2002. The $2.0 million line of credit will be used for working
capital purposes and is renewable annually. During December 1997, the agreement
was amended to provide for (i) a $7.0 million term loan and (ii) a $3.0 million
line of credit. The terms of the amended agreement including repayments are
identical to the original agreement. Foamex Mexico used the proceeds of the
term loan for expenditures associated with the construction of a new
manufacturing facility.
65
<PAGE>
DESCRIPTION OF NOTES
General
The Old Notes were issued and the New Notes will be issued under an
indenture (the "Indenture") by and among Foamex and FCC, as joint and several
obligors, GFI, Foamex Fibers and FLLC as Subsidiary Guarantors, Crain Holdings
solely as intermediate obligor and The Bank of New York, as trustee (the
"Trustee"). The Indenture was amended and supplemented by a First Supplemental
Indenture, dated as of February 27, 1998 (the "First Supplemental Indenture"),
by and among Foamex, FCC, GFI, Foamex Fibers, FLLC, Crain Holdings and the
Trustee pursuant to which each of GFI, Foamex Fibers and FLLC was released and
discharged from all its obligations as a Subsidiary Guarantor under the
Indenture and Crain Holdings was released and discharged from all of its
obligations under the Indenture. The terms of the New Notes are identical in
all material respects to the terms of the Old Notes, except that the New Notes
have been registered under the Securities Act, and, therefore, will not bear
legends restricting their transfer and will not contain certain terms providing
for an increase in the interest rate on the Old Notes under the circumstances
described in the Registration Rights Agreement. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following is
a summary of all material provisions of the Indenture. A copy of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The definition of certain terms used in the following summary are
set forth under "--Certain Definitions." For purposes of this summary, the term
Issuers refers only to Foamex and FCC and not to any of their respective
Subsidiaries.
The Notes are general unsecured obligations of the Issuers, subordinated
in right of payment to all existing and future Senior Debt of the Issuers,
including Indebtedness pursuant to the Credit Facility. The Issuers'
obligations under the Notes are jointly and severally unconditionally
guaranteed (the "Note Guarantees") on a senior subordinated basis by the
Subsidiary Guarantors. See "--Note Guarantees." As of December 28, 1997, on a
pro forma basis, after giving effect to the GFI Transaction, the Issuers would
have had approximately $407.3 million aggregate principal amount of Senior Debt
and approximately $161.5 million aggregate principal amount of Pari Passu Debt.
The Indenture permits the incurrence of additional Senior Debt, Pari Passu Debt
and Subordinated Indebtedness in the future.
The operations of Foamex are conducted in part through its Subsidiaries,
and Foamex may, therefore, be dependent upon the cash flow of its Subsidiaries
to meet its debt obligations, including its obligations under the Notes. While
certain future domestic subsidiaries of the Issuers are expected to be
Subsidiary Guarantors, certain other foreign Subsidiaries of Foamex are not
guarantors and may be restricted in their ability to pay dividends to Foamex
pursuant to instruments governing indebtedness of such Subsidiaries. Under
certain circumstances, the Issuers will be able to designate any Subsidiaries
formed by the Issuers or acquired by the Issuers after the original issuance of
the Notes as Unrestricted Subsidiaries. Unrestricted Subsidiaries are not
Subsidiary Guarantors and are not subject to most of the restrictive covenants
set forth in the Indenture.
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $98.0 million and
will mature on August 15, 2005. Each Note will bear interest at the rate of
13-1/2% per annum from the date of issuance of the Crain Note for which the Note
is exchanged, from the date of the last periodic payment of interest on such
Crain Note or from the most recent date to which interest has been paid or
provided for, whichever is later. Interest is payable semi-annually on February
15 and August 15 of each year commencing February 15, 1998 to holders of record
at the close of business on the January 30 or July 30 immediately preceding the
Interest Payment Date. Principal, interest, premium and Liquidated Damages, if
any, on the Notes will be payable at the office or agency of the Issuers
maintained for such purpose within the City and State of New York or, at the
option of the Issuers, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, interest, premium and Liquidated Damages, if any, with
respect to the Notes, the Holders of which have given wire transfer
instructions to the Issuers, will be required to be made by wire transfer of
immediately available next day funds to the accounts specified by
66
<PAGE>
the Holders thereof. Until otherwise designated by the Issuers, the Issuers'
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes will be issued in denominations of $1,000 and integral
multiple of $1,000.
Subordination
The payment of principal of, interest and premium and Liquidated Damages,
if any, on the Notes is subordinate in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt, whether outstanding
on the date of the Indenture or thereafter created, incurred or assumed and all
permissible renewals, extensions, refundings or refinancings thereof.
The Indenture provides that, upon any payment or distribution of assets of
the Issuers of any kind or character, whether in cash, property or securities,
to creditors in any Insolvency or Liquidation Proceeding with respect to either
Issuer all amounts due or to become due under or with respect to all Senior
Debt will first be paid in full before any payment is made on account of the
Notes, except that the Holders of Notes may receive Reorganization Securities.
Upon any such Insolvency or Liquidation Proceeding, any payment or distribution
of assets of Foamex or FCC of any kind or character, whether in cash, property
or securities (other than Reorganization Securities), to which the holders of
the Notes or the Trustee would be entitled will be paid by Foamex or FCC or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Notes or by the
Trustee if received by them, directly to the holders of Senior Debt (pro rata
to such holders on the basis of the amounts of Senior Debt held by such
holders) or their Representative or Representatives, as their interests may
appear, for application to the payment of the Senior Debt remaining unpaid
until all such Senior Debt has been paid in full, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
Senior Debt.
The Indenture provides that (a) in the event of and during the
continuation of any default in the payment of principal of, interest or
premium, if any, on any Senior Debt, or any Obligation owing from time to time
under or in respect of Senior Debt, or in the event that any event of default
(other than a payment default) with respect to any Senior Debt will have
occurred and be continuing and will have resulted in such Senior Debt becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, or (b) if any event of default other than as
described in clause (a) above with respect to any Designated Senior Debt will
have occurred and be continuing permitting the holders of such Designated
Senior Debt (or their Representative or Representatives) to declare such
Designated Senior Debt due and payable prior to the date on which it would
otherwise have become due and payable, then no payment will be made by or on
behalf of Foamex or FCC on account of the Notes (other than payments in the
form of Reorganization Securities) (x) in case of any payment or nonpayment
default specified in (a), unless and until such default will have been cured or
waived in writing in accordance with the instruments governing such Senior Debt
or such acceleration will have been rescinded or annulled, or (y) in case of
any nonpayment event of default specified in (b), during the period (a "Payment
Blockage Period") commencing on the date the Issuers or the Trustee receive
written notice (a "Payment Notice") of such event of default (which notice will
be binding on the Trustee and the holders of Notes as to the occurrence of such
a payment default or nonpayment event of default) from the Credit Agent (or
other holders of Designated Senior Debt or their Representative or
Representatives) and ending on the earliest of (A) 179 days after such date,
(B) the date, if any, on which such Designated Senior Debt to which such
default relates is paid in full or such default is cured or waived in writing
in accordance with the instruments governing such Designated Senior Debt by the
holders of such Designated Senior Debt and (C) the date on which the Trustee
receives written notice from the Credit Agent (or other holders of Designated
Senior Debt or their Representative or Representatives), as the case may be,
terminating the Payment Blockage Period. During any consecutive 360-day period,
the aggregate of all Payment Blockage Periods shall not exceed 179 days and
there shall be a period of at least 181 consecutive days in each consecutive
360-day period when no Payment Blockage Period is in effect. No event of
default which existed or was continuing with respect to the Senior Debt to
which notice commencing a Payment Blockage Period was given on the date such
Payment Blockage Period commenced shall be or be made the basis for the
commencement of any subsequent Payment Blockage Period unless such event of
default is cured or waived for a period of not less than 90 consecutive days.
As a result of the subordination provisions described above, in the event
of Foamex's or FCC's liquidation, dissolution, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or in an assignment for the
benefit of the creditors or a marshaling of the assets and liabilities of
either of the Issuers, holders of Notes may
67
<PAGE>
recover less ratably than creditors of the Issuers who are holders of Senior
Debt. See "Risk Factors--Subordination." The Indenture will limit, subject to
certain financial tests, the amount of additional Indebtedness, including
Senior Debt, that the Issuers and their respective Restricted Subsidiaries can
incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
Note Guarantees
The Note Guarantees will be subordinated to the prior payment in full of
all Senior Debt of any future Subsidiary Guarantor (including such Subsidiary
Guarantor's guarantee of the Credit Agreement, if any) to the same extent that
the Notes are subordinated to Senior Debt of the Issuers. The obligations of
any Subsidiary Guarantor under its Note Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Certain Creditors' Rights Considerations."
The Indenture provides that no Subsidiary Guarantor may consolidate with
or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another corporation, Person or entity whether or not
affiliated with such Subsidiary Guarantor unless, subject to the provisions of
the following paragraph, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; and (iv) Foamex
would be permitted by virtue of Foamex's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." The requirements of clauses
(iii) and (iv) of this paragraph will not apply in the case of a consolidation
with or merger with or into any other Person if the acquisition of all of the
Equity Interests in such Person would have complied with the provisions of the
covenants described below under the captions "--Restricted Payments" and
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that (a) in the event of a sale or other
disposition of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, or (b) in the event that either of
the Issuers designates a Subsidiary Guarantor to be an Unrestricted Subsidiary,
or such Subsidiary Guarantor ceases to be a Subsidiary of the Issuers, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Note Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "--Repurchase at the Option of Holders." In the case of a sale,
assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor, upon the assumption
provided for in clause (i) in the preceding paragraph, such Subsidiary
Guarantor shall be discharged from all further liability and obligation under
the Indenture.
Intermediate Obligations of Crain Holdings
Crain Holdings was a party to the Indenture for the sole purpose of
assuming the obligations of the Notes before the effectiveness of the Asset
Contribution. As a result of the consummation of the Asset Contribution on
December 23, 1997 and the execution of the First Supplemental Indenture, Crain
Holdings was released as an obligor of the Notes.
Optional Redemption
The Notes will not be redeemable at the Issuers' option prior to August
15, 2000. Thereafter, the Notes will be redeemable at the option of the
Issuers, in whole or in part, at any time upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
68
<PAGE>
<TABLE>
<CAPTION>
Period Redemption Price
------------------------------------- ----------------
<S> <C>
2000 ................................ 106.7500%
2001 ................................ 105.0625%
2002 ................................ 103.3750%
2003 ................................ 101.6875%
2004 and thereafter ................. 100.0000%
</TABLE>
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders,"
the Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Issuers will mail a notice to each Holder describing the
transaction or transactions that constituted the Change of Control and offering
to repurchase the Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than the fifth Business Day preceding
the last day of the fiscal quarter of Foamex next following the Change of
Control date (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Issuers will comply
with the requirements of Rule 14e-l under the Exchange Act any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment all the Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect to all the
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of the Notes or portions thereof being
purchased by the Issuers. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The
Indenture provides that, prior to complying with the provisions of this
covenant, but in any event prior to the Change of Control Payment Date, the
Issuers will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of the Notes required by this covenant. The Issuers will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. See "Risk
Factors--Potential Acquisition of Foamex International" and "--Limitations on
Ability to Make Change of Control Payment."
69
<PAGE>
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Facility restricts the Issuers from repurchasing any Notes and
also provides that certain asset sales and change of control events with
respect to the Issuers would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which either of the
Issuers becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Issuers are prohibited from
purchasing the Notes, the Issuers could seek the consent of their respective
lenders to purchase the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Issuers do not obtain such consent or repay
such borrowings, the Issuers will remain prohibited from purchasing the Notes.
In such case, the Issuers' failure to purchase tendered Notes would constitute
an Event of Default under the Note Indenture which would, in turn, constitute a
default under the 9-7/8% Note Indenture and the Credit Facility and would likely
cause an event of default under any other outstanding Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes. See "Risk
Factors--Subordination" and "Description of Certain Debt Instruments."
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Issuers and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of each of the Issuers and each of their respective
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of the Notes to require the Issuers to repurchase such Notes as a result
of sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Issuers and their respective Subsidiaries taken as a whole to
another person or group may be uncertain.
The obligation to make a Change of Control Offer, together with
restrictions in the Indenture described herein on the ability of Foamex and its
Restricted Subsidiaries to incur additional indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales, may make more
difficult or discourage a takeover of Foamex, whether favored or opposed by the
management of Foamex. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that Foamex or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make any leveraged buyout of Foamex or any of its Subsidiaries
by the management of Foamex more difficult. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of the
Notes protection in all circumstances from the adverse aspects of highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction. In addition, while neither Foamex nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control,
such right may be waived by the Holders of a majority of the outstanding
principal amount of the Notes.
Asset Sale
The Indenture provides that each of the Issuers will not, and will not
permit any of their respective Restricted Subsidiaries to, consummate an Asset
Sale unless (i) such Issuer (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by an Officers' Certificate delivered to the
Trustee and a resolution of the Board of Directors) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by such Issuer or such Restricted Subsidiary is
in the form of (A) cash, (B) assets useful in a Permitted Business not to
exceed $30.0 million in the aggregate over the life of the Notes, or (C) Equity
Interests representing a controlling interest in a Permitted Business not to
exceed $30.0 million in the aggregate over the life of the Notes (collectively,
the "Permitted Consideration"), provided that the amount of (x) any liabilities
(as shown on such Issuer's or such Restricted Subsidiary's most recent balance
sheet), of such Issuer or any Restricted Subsidiary (other than contingent
liabilities
70
<PAGE>
(except to the extent reflected (or reserved for) on a balance sheet of the
Issuers or any Restricted Subsidiary as of the date prior to the date of
consummation of such transaction) and liabilities that are by their terms
subordinated to the Notes or the Note Guarantees) that are assumed by the
transferee of any such assets and (y) any securities, notes or other
obligations received by such Issuer or any such Restricted Subsidiary from such
transferee that are converted within 90 days by such Issuer or such Restricted
Subsidiary into Permitted Consideration (to the extent so received), shall be
deemed to be Permitted Consideration of the same type (or in the case of
assumed liabilities, shall be deemed to be cash) for purposes of this
provision; and provided further, that the 80% limitation referred to above
shall not apply to any Asset Sale in which the Permitted Consideration portion
of the consideration received therefor is equal to or greater than what the net
after-tax proceeds would have been had such Asset Sales complied with the
aforementioned 80% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuers may apply such Net Proceeds, at their option, (a) to repay Senior
Debt, or (b) to the acquisition of assets to be used in a Permitted Business.
Pending the final application of any such Net Proceeds, the Issuers may
temporarily reduce the Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15.0 million, the Issuers will be
required to make an offer to all Holders of the Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of the Notes that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture; provided, however, the obligation to
consummate such repurchase shall be suspended during such time as the Issuers
are conducting an offer to repurchase the 9-7/8% Notes pursuant to the terms of
the 9-7/8% Note Indenture, and the amount of Excess Proceeds shall be reduced by
the amount applied to the payment of the 9-7/8% Notes in such repurchase offer.
To the extent that the aggregate amount of the Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of the Notes surrendered by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis; provided, however, that the Issuers shall not be obligated to
purchase the Notes in denominations other than integral multiples of $1,000.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that each of the Issuers will not, and will not
permit any of their respective Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of the Issuers' or any of their respective Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Issuers (other than
cash in lieu of fractional shares)) or to the direct or indirect holders of the
Issuers' or any of their respective Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable (a) in
additional Equity Interests (other than Disqualified Stock) of the Issuers or
(in the case of a dividend, other payment or distribution on account of the
Equity Interest of a Restricted Subsidiary) of such Restricted Subsidiary or
(b) to the Issuers or their Restricted Subsidiaries); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Issuers) any Equity
Interests of the Issuers or any direct or indirect parent of the Issuers; (iii)
make any Investment in any Unrestricted Subsidiary; (iv) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness (other than the Notes and the 9-7/8% Notes) that is
pari passu with or subordinated to the Notes or the Note Guarantees, except a
payment of interest or principal at Stated Maturity; or (v) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) Foamex would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
71
<PAGE>
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Issuers and their respective Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi), (xii),
(xiii), (xiv), (xv), (xvi), (xvii) and (xviii) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of
Foamex for the preceding four-quarter period, plus (ii) 100% of the aggregate
net cash proceeds received by Foamex from the issue or sale since June 12, 1997
of Equity Interests of Foamex (other than Disqualified Stock) or of
Disqualified Stock or debt securities of Foamex that have been converted into
such Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Issuers and other than
Disqualified Stock or convertible debt securities that have been converted into
Disqualified Stock) or of capital contributions to the Issuers, plus (iii) to
the extent that any Restricted Investment that was made after June 12, 1997 is
sold for cash or otherwise liquidated or repaid for cash (less the cost of
disposition, if any), or the cash return, including, without limitation, any
cash dividends or distributions, with respect to such Restricted Investment or
from any Unrestricted Subsidiary.
The foregoing provisions will not prohibit (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at
said date of declaration such payment would have complied with the provisions
of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any Pari Passu Debt, or subordinated Indebtedness or
Equity Interests of the Issuers or any Restricted Subsidiary in exchange for,
or out of the net cash proceeds of the substantially concurrent sale or
issuance (other than to a Restricted Subsidiary of the Issuers) of, Equity
Interests of the Issuers or any Restricted Subsidiary (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of
Pari Passu Debt or subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend or distribution by a Restricted Subsidiary of the Issuers to the
holders of its Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Issuers, any Restricted Subsidiary of the Issuers, or any direct or
indirect parent of the Issuers or their respective Restricted Subsidiaries held
by any member of the Issuers' (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement either (a) in effect as of June 12, 1997; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $2.5 million in any twelve-month period and
no Default or Event of Default shall have occurred and be continuing
immediately after such transaction or (b) upon the termination of such person's
employment; (vi) the advancement of payment or payment of distributions
pursuant to the Tax Sharing Agreement and the making of up to $17.0 million of
loans or advances pursuant to the Tax Advance Agreement dated as of December
11, 1996 between FJPS and Foamex as amended to the date of the Indenture; (vii)
the payment by Foamex of a management fee pursuant to the Management Services
Agreement in an amount not to exceed $3.0 million per annum; (viii)
distributions to Foamex International Inc. and its Subsidiaries which are
utilized to pay the debt service and other expenses of Foamex Aviation Corp.,
the aggregate amount of which shall not exceed $2.0 million in any twelve-month
period; (ix) additional payments in an aggregate amount not to exceed $25.0
million; (x) Contributions to a Restricted Subsidiary if such Subsidiary (a)
executes and delivers to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall guarantee all of the Obligations of the Issuers with respect
to the Indenture and the Notes and (b) delivers to the Trustee an Opinion of
Counsel reasonably satisfactory to the Trustee to the effect that such
supplemental indenture, has been duly executed and delivered by such Restricted
Subsidiary and is in compliance with the terms of the Indenture; (xi)
distributions, loans or advances to the holders of the Equity Interests of the
Issuers in an amount sufficient to pay all or a portion of the principal of,
interest or premium, if any, on the Foamex-JPS Automotive L.P. Senior Secured
Discount Debentures due 2004; (xii) distributions, loans or advances to holders
of the Equity Interests of the Issuers in an amount sufficient to enable Foamex
International to pay its reasonable, out of pocket operating and administrative
expenses, including without limitation, directors fees, legal and audit
expenses, SEC compliance expenses and corporate franchise and other taxes;
provided that no such expense payments shall be made to an Affiliate (other
than a director or officer of the Issuers whose status as an Affiliate results
solely from his position as a director or officer of the Issuers) of Foamex
International; (xiii) Investments received by the Issuers or any
72
<PAGE>
of their Restricted Subsidiaries as non-cash consideration from Asset Sales to
the extent permitted by the covenant described under the caption "--Repurchase
at the Option of Holders--Asset Sales"; (xiv) the Closing Date Transactions;
(xv) payments made pursuant to the Great Western Note; (xvi) payments made to
purchase any Indebtedness subject to the Closing Date Transactions that is not
purchased pursuant to such Closing Date Transactions; (xvii) the issuance or
sale of Equity Interests of Foamex Latin America to key executives of Foamex
Latin America not to exceed 5% of the outstanding Equity Interests of Foamex
Latin America ; and (xviii) the Crain Acquisition Transactions.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by any Subsidiary
Guarantor be transferred to or held by an Unrestricted Subsidiary. For purposes
of making such determination, all outstanding Investments by either Issuer and
their respective Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will be included for purposes of calculating the
aggregate amount of Restricted Payments under clause (c) of first paragraph of
this covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuers or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any individual or series of related non-cash
Restricted Payments (other than the Closing Date Transactions and the Crain
Acquisition Transactions) shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing, as applicable, if
such fair market value exceeds $1.0 million. In connection with each Restricted
Payment, the Issuers shall deliver to the Trustee, prior to or within 60 days
of the making of such Restricted Payment, an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuers will not, and will not permit any
of their respective Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Issuers and the Subsidiary
Guarantors will not issue any Disqualified Stock and the Issuers will not
permit any of their respective Subsidiaries which are not Subsidiary Guarantors
to issue any shares of preferred stock; provided, however, that the Issuers and
their Subsidiaries may incur Indebtedness (including Acquired Debt and
Indebtedness under the Credit Facility) or issue shares of Disqualified Stock
or in the case of Subsidiaries which are not Subsidiary Guarantors, issue
preferred stock if: the Fixed Charge Coverage Ratio for Foamex's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.25 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock or preferred stock had been issued
and such net proceeds had been applied, as the case may be, at the beginning of
such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Issuers or any of their respective Subsidiaries
of term Indebtedness under the Credit Facility; provided that the aggregate
principal amount of all term Indebtedness outstanding under the Credit Facility
after giving effect to such incurrence, including all term Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (i), does not exceed an amount equal to $470.0 million
less the aggregate amount of all Net Proceeds of Asset Sales that have been
applied since the date of the Indenture to repay such term Indebtedness under
the Credit Facility and resulting in a permanent reduction of the related
commitments pursuant to the covenant described above under the caption "Asset
Sales";
73
<PAGE>
(ii) the incurrence by the Issuers or any of their Subsidiaries of
revolving credit Indebtedness and letters of credit (with letters of credit
being deemed to have a principal amount, without duplication, equal to the
maximum potential liability of the Issuers and their Subsidiaries thereunder)
under the Credit Facility; provided that the aggregate principal amount of all
revolving credit Indebtedness outstanding under the Credit Facility after
giving effect to such incurrence, including all Indebtedness incurred to
refund, refinance or replace any other revolving Indebtedness incurred pursuant
to this clause (ii), does not exceed an amount equal to $150.0 million, less
the aggregate amount of all Net Proceeds of Asset Sales applied to repay such
revolving Indebtedness and resulting in a permanent reduction of the related
commitments pursuant to the covenant described above under the caption "--Asset
Sales"; provided, however, that notwithstanding anything to the contrary
contained in the Indenture, in no event shall the amount of Indebtedness which
the Issuers and their Subsidiaries may incur in the aggregate pursuant to
clause (i) and this clause (ii) be less than $150.0 million;
(iii) the incurrence by the Issuers and their respective Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Issuers and the Subsidiary Guarantors of
Indebtedness represented by the Notes;
(v) the incurrence by the Issuers or any of their respective Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Issuers
or such Subsidiary, in an aggregate principal amount not to exceed $25.0
million at any time outstanding;
(vi) the incurrence by the Issuers or any of their respective Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was permitted
by the Indenture to be incurred;
(vii) the incurrence by the Issuers or any of their respective Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuers and any
of their respective Restricted Subsidiaries; provided, however, that (i) if an
Issuer is the obligor on such Indebtedness and the payee is not a Subsidiary
Guarantor, such Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than an Issuer or a Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either an Issuer or a Restricted Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by an Issuer or
such Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Issuers or any of their respective
Subsidiaries of Hedging Obligations;
(ix) the Guarantee by the Issuers or any of their respective Subsidiaries
of Indebtedness of the Issuers or a Restricted Subsidiary of the Issuers that
was permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Issuers' Unrestricted Subsidiaries of
Non-Recourse Debt and preferred stock, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Issuers;
(xi) the incurrence by the Issuers or any of their respective Subsidiaries
of additional Indebtedness including, without limitation, pursuant to the
Credit Facility, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xi), not to exceed $45.0 million;
(xii) Acquired Debt of a Subsidiary in existence at the time of the
acquisition of such Subsidiary, if such Acquired Debt was not incurred in
contemplation of such acquisition and such Acquired Debt is Non-Recourse Debt
(except with respect to such acquired Subsidiary and its Subsidiaries);
(xiii) Indebtedness of Foamex Canada, Inc. and its Subsidiaries (which is
Non-Recourse Debt, except with respect to such entities) in an amount, at any
time outstanding not to exceed CND$15.0 million;
(xiv) Indebtedness of Foamex Latin America (which is Non-Recourse Debt,
except with respect to such entities) in an amount, at any time outstanding not
to exceed $12.0 million;
(xv) Assets Sales in the form of Receivables Transactions; and
74
<PAGE>
(xvi) Indebtedness of Foamex Asia, Inc. and its Subsidiaries (which is
Non-Recourse Debt, except with respect to such entities) in an amount, at any
time outstanding not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Issuers shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Neither the accrual of interest, nor
the accretion of accreted value will be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Liens
The Indenture provides that the Issuers will not and will not permit any
of their respective Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary which is not a
Subsidiary Guarantor to (i)(a) pay dividends or make any other distributions to
the Issuers or any of their respective Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Issuers or
any of their respective Restricted Subsidiaries, (ii) make loans or advances to
the Issuers or any of their respective Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Issuers or any of their
respective Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Credit Facility as in effect as of
the date of the Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Facility as in effect on the date of the
Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Issuers or any of their respective Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred
in connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person and its Subsidiaries, or the property or
assets of the Person and its Subsidiaries, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (g) purchase money obligations for property acquired that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (i) any instrument or agreement
governing Indebtedness permitted to be incurred under the Indenture, which is
secured by a Lien permitted to be incurred under the Indenture, which
encumbrance or restriction is not applicable to any property or assets other
than the property or assets subject to such Lien, or (j) restrictions
applicable to a Receivables Subsidiary arising from a Receivables Transaction.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Issuers may not consolidate or merge with
or into (whether or not the Issuers are the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
their properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) such Issuer is the surviving entity or
the entity or the Person formed by or surviving any such consolidation or
merger (if other than such Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is organized and
existing under the laws of the United States, any state thereof or the District
of Columbia provided that FCC may not consolidate or merge with or into any
entity other than a corporation satisfying
75
<PAGE>
such requirements for so long as Foamex remains a partnership; (ii) the entity
or Person formed by or surviving any such consolidation or merger (if other
than such Issuer) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of such Issuer under the Notes and the Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) except in the case of a merger of an Issuer with or into one of its
Wholly Owned Restricted Subsidiaries, the Issuer or the entity or Person formed
by or surviving any such consolidation or merger (if other than the Issuer), or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of such Issuer immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." In the case of a sale,
assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of an Issuer, upon the assumption provided for
in clause (ii) above, such Issuer shall be discharged from all further
liability and obligation under the Indenture.
Transactions with Affiliates
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Issuers or the relevant Subsidiary than those
that would have been obtained in a comparable transaction by the Issuers or
such Subsidiary with an unrelated Person and (ii) the Issuers deliver to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the members of the Board of Directors and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national standing;
provided that (l) the Crain Acquisition Transactions; (m) prepaid expenses and
loans or advances to employees and similar items in the ordinary course of
business; (n) the advancement of payment or payment of distributions pursuant
to the Tax Sharing Agreement and the making of loans or advances pursuant to
the Tax Advance Agreement dated as of December 11, 1996 between FJPS and
Foamex, as amended to the date of the Indenture; (o) the payment by Foamex of a
management fee pursuant to the Management Services Agreement in an amount not
to exceed $3.0 million per annum; (p) distributions to Foamex International and
its Subsidiaries which are utilized to pay the debt service and other expenses
of Foamex Aviation Corp., the aggregate amount of which shall not exceed $2.0
million in any twelve-month period; (q) the issuance or sale of Equity
Interests of Foamex Latin America to key executives of Foamex Latin America,
not to exceed 5% of the outstanding Equity Interests of Foamex Latin America;
(r) Investments in the Trace Note not to exceed $5.0 million; (s) Investments
in the Trace Global Opportunity Fund not to exceed $5.0 million; (t) borrowings
of up to $5.0 million by Trace Holdings from the Issuers and their respective
Subsidiaries; (u) the Closing Date Transactions; (v) transactions pursuant to
the Supply Agreement with Foamex International, dated as of June 28, 1994; (w)
purchases (and sales) of inventory and services in the ordinary course of
business at a price not greater (less) than the price paid by (charged to)
purchasers of a similar quantity of inventory and services which are not
Affiliates of the Issuers, (x) any employment agreement entered into by the
Issuers or any of their respective Restricted Subsidiaries in the ordinary
course of business and consistent with the current market practice or the past
practice of the Issuers or such Restricted Subsidiary; (y) transactions between
or among the Issuers and/or its Restricted Subsidiaries; and (z) Restricted
Payments that are permitted by the provisions of the Indenture described above
under the caption "--Restricted Payments," in each case, shall not be deemed
Affiliate Transactions.
Anti-Layering
The Indenture provides that (i) the Issuers will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior Debt and
76
<PAGE>
(b) senior in any respect in right of payment to the Notes and (ii) no
Subsidiary Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is both (a) subordinate or junior in
right of payment to its Senior Debt and (b) senior in right of payment to its
Note Guarantee.
Sale and Leaseback Transactions
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, enter into any sale and
leaseback transaction; provided that the Issuers may enter into a sale and
leaseback transaction if (i) the Issuers could have (a) incurred Indebtedness
in an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the covenant described above under the caption
"--Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens" and (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(in the case of gross cash proceeds in excess of $5.0 million as determined in
good faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Indenture provides that the Issuers (i) will not, and will not permit
any Restricted Subsidiary of the Issuers to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Issuers to any Person (other than the Issuers or a Restricted Subsidiary of the
Issuers), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Restricted Subsidiary and (b)
the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Asset Sales," and (ii) will not permit any Restricted Subsidiary
of the Issuers to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Issuers or a Restricted Subsidiary of the Issuers;
provided, however, the foregoing restrictions will not apply to (A) Investments
in the entities described under clause (o) of the definition of Permitted
Investments; (B) transfers, conveyances, sales, leases or other dispositions
(collectively "dispositions") of any Capital Stock of any Restricted Subsidiary
that have a fair market value at the time of such disposition of less than $1.0
million; or (C) a public offering of Equity Interests of Foamex Latin America
which results in the net proceeds to Foamex Latin America of at least $15.0
million.
Business Activities
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, engage in any business other
than Permitted Businesses, except to such extent as would not be material to
the Issuers and their respective Restricted Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Issuers nor any of their
respective Restricted Subsidiaries will, directly or indirectly, pay or cause
to be paid any consideration, whether by way of interest, fee or otherwise, to
any Holder of any Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes
unless such consideration is offered to be paid or is paid to all Holders of
the Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
Additional Guarantees
The Indenture provides that (i) if the Issuers or any of their respective
Restricted Subsidiaries shall, after the date of the Indenture, transfer or
cause to be transferred, including by way of any Investment, in one or a series
of transactions (whether or not related), any assets, businesses, divisions,
real property or equipment having an aggregate fair market value (as determined
in good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or a Foreign
Subsidiary, (ii) if Foamex or any of its Restricted Subsidiaries shall acquire
another Restricted Subsidiary other than a Foreign Subsidiary having total
assets with a fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary
other than a Foreign Subsidiary shall incur Acquired Debt in excess of $1.0
million, then the Issuers shall, at the time of such transfer, acquisition or
incurrence, (i) cause such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt (if not then a Subsidiary
Guarantor)
77
<PAGE>
to execute a Note Guarantee of the Obligations of the Issuers under the Notes
in the form set forth in the Indenture and (ii) deliver to the Trustee an
Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such
Note Guarantee is a valid, binding and enforceable obligation of such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt, subject to customary exceptions for bankruptcy, fraudulent
conveyance and equitable principles. Notwithstanding the foregoing, the Issuers
or any of their Restricted Subsidiaries may make a Restricted Investment in any
Wholly Owned Restricted Subsidiary of the Issuers without compliance with this
covenant provided that such Restricted Investment is permitted by the covenant
described under the caption "--Restricted Payments."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Issuers will furnish to the Trustee and the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Issuers were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Issuers and their consolidated
Subsidiaries and, with respect to the annual information only, a report thereon
by Foamex's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Issuers
were required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Issuers will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Issuers have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Certain Effects of the Covenants
Although the covenant described above under "Incurrence of Indebtedness
and Issuance of Preferred Stock" will restrict the incurrence of certain
additional Indebtedness by Foamex and its Subsidiaries, Foamex and its
Subsidiaries will nevertheless be able to incur Permitted Debt and additional
Indebtedness if the appropriate Fixed Charge Coverage Ratio is obtained (the
"Debt Test"). The Debt Test may have limited applicability in the event of a
leveraged buyout initiated or supported by Foamex, its management, or an
affiliate of either party. However, the Debt Test, together with other
covenants in the Indenture, including those relating to Restricted Payments,
Liens, and Transactions with Affiliates, may not afford Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
or similar transaction. Neither Foamex nor the Trustee may waive such
covenants; however, such covenants, except for certain limited exceptions
related to payment and subordination, may be waived by the Holders of a
majority of the outstanding principal amount of the Notes. See "--Amendment,
Supplement and Waiver."
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Issuers to
comply with the provisions described under the captions "--Change of Control,"
or to consummate a mandatory Offer to purchase pursuant to the covenant
described above under the caption "--Asset Sales," or "--Merger, Consolidation,
or Sale of Assets"; (iv) failure by the Issuers for 60 days after notice to
comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Issuers or any of their respective Restricted Subsidiaries (or
the payment of which is Guaranteed by the Issuers or any of their respective
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of, interest or premium, if any, on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on
the date of such default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its Stated Maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the Stated Maturity of which has
78
<PAGE>
been so accelerated, aggregates $20.0 million or more; (vi) failure by the
Issuers or any of their respective Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days after entry thereof; and (vii)
certain events of bankruptcy or insolvency with respect to the Issuers or any
of their respective Significant Subsidiaries (as defined in the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that if any Indebtedness or Obligation is outstanding pursuant to the Credit
Facility, upon a declaration of acceleration by the Holders of the Notes or the
Trustee, all principal and interest under the Indenture shall be due and
payable upon the earlier of (x) the day which is five Business Days after the
provision to the Issuers, the Credit Agent and the Trustee of such written
notice of acceleration or (y) the date of acceleration of any Indebtedness
under the Credit Facility; and provided, further, that in the event of an
acceleration based upon an Event of Default set forth in clause (v) above, such
declaration of acceleration shall be automatically annulled if the holders of
Indebtedness which is the subject of such failure to pay at maturity or
acceleration have rescinded their declaration of acceleration in respect of
such Indebtedness or such failure to pay at maturity shall have been cured or
waived within 30 days thereof and no other Event of Default has occurred during
such 30-day period which has not been cured, paid or waived. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to the Issuers or any of their
respective Restricted Subsidiaries all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of either of the
Issuers with the intention of avoiding payment of the premium that the Issuers
would have had to pay if the Issuers then had elected to redeem the Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Issuers with the intention of avoiding the prohibition on
redemption of the Notes prior to August 15, 2000, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Partners and
Stockholders
No director, officer, employee, partner, incorporator or stockholder of
the Issuers or any of their Restricted Subsidiaries, as such, shall have any
liability for any obligations of the Issuers or any Subsidiary Guarantor under
the Notes, the Indenture, the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against
public policy.
Satisfaction and Discharge of the Indenture; Defeasance
The Indenture provides that the Issuers may terminate their Obligations
under the Indenture and the Obligations of the Subsidiary Guarantors under the
Note Guarantees at any time by delivering all outstanding Notes issued under
the Indenture to the Trustee for cancellation and paying all sums to be paid
pursuant to the terms of the Indenture.
79
<PAGE>
In addition, the Issuers are permitted to terminate their Obligations under the
Indenture and the Obligations of the Subsidiary Guarantors under the Note
Guarantees by irrevocably depositing with the Trustee money or United States
Government Obligations sufficient to pay principal, interest and premium and
Liquidated Damages, if any, on the Notes to maturity or redemption, and all
other sums payable pursuant to the terms of the Indenture after complying with
certain other procedures set forth therein. Notwithstanding the foregoing,
certain Obligations of the Issuers and the Subsidiary Guarantors under the
Indenture, the Notes and the Note Guarantees shall survive until the Notes are
no longer outstanding.
Transfer and Exchange
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Note selected for redemption. Also, the Issuers are not required
to transfer or exchange any Note for a period of 15 days before a selection of
the Notes to be redeemed.
A registered Holder of a Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium or Liquidated
Damages, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal
amount of the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of the Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 or Article 12 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes, the Issuers, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption and discharge of the
Issuers' and the Subsidiary Guarantors' obligations to Holders of the Notes in
the case of a merger, consolidation or sale of assets or Capital Stock, to make
any change that would provide any additional rights or benefits to the Holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act or to allow any Subsidiary to Guarantee the Notes.
80
<PAGE>
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers or the Subsidiary Guarantors, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of the Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Book-Entry, Delivery and Form
Except as set forth below, the Notes will initially be issued in the form
of one or more notes in global form without coupons (each, a "Global Note").
Upon issuance, each Global Note will be deposited with, or on behalf of, the
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary.
If a Holder tendering the Old Notes so requests, such Holder's Notes will
be issued as described below under "Certificated Securities" in form without
coupons (the "Certificated Securities").
The Depositary has advised the Issuers that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing
Agency" registered pursuant to Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry charges to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. The Depositary's Participants include
securities brokers and dealers, banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
The Issuers expect that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants who elect to exchange Old Notes with an interest in
the Global Note and (ii) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery of definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depositary or its nominee is the registered owner of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have the Notes
represented by such Global Notes registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in the Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Issuers understand that under existing industry practice, in the event
the Issuers request any action of holders or an owner of a beneficial interest
in a Global Note desires to take any action that the Depositary, as the holder
of such Global Note, is entitled to take, the Depositary would authorize the
Participants to take such action
81
<PAGE>
and the Participant would authorize persons owning through such Participants to
take such action or would otherwise act upon the instruction of such persons.
Neither the Issuers nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of the
Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such New Notes.
Payments with respect to the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes represented by a Global Note
registered in the name of the Depositary or its nominee on the applicable
record date will be payable by the Trustee to or at the direction of the
Depositary or its nominee in its capacity as the registered holder of the
Global Note representing such Notes under the Indenture. Under the terms of the
Indenture, the Issuers and the Trustee may treat the persons in whose names the
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Issuers nor the Trustee have or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of the Notes (including principal, premium, if any, interests and
Liquidated Damages, if any), or to immediately credit the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interest in the Global
Note as shown on the records of the Depositary. Payments by the Participants
and the Indirect Participants to the beneficial owners of the Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants.
Certificated Securities
If (i) the Issuers notify the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Issuers are unable to
locate a qualified successor within 90 days or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
New Notes in definitive form under the Indenture, then, upon surrender by the
Depositary of its Global Notes, Certificated Securities will be issued to each
person that the Depositary identifies as the beneficial owner of the New Notes
represented by the Global Note. In addition, any person having a beneficial
interest in a Global Note or any Holder of Old Notes whose Old Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent,
as the case may be, exchange such beneficial interest or Old Notes for
Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Issuers nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the New Notes to be issued).
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person to the extent of the
fair market value of such asset where the Indebtedness so secured is not the
Indebtedness of such Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. Notwithstanding the foregoing, Donaldson, Lufkin &
Jenrette Securities Corporation will not be deemed to be an Affiliate as of the
date of the Indenture.
82
<PAGE>
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (excluding any sale and leaseback transaction, the granting of a
Permitted Lien, and the transfer of cash and Cash Equivalents) other than sales
of inventory, licensing of intellectual property or sales of services, in each
case in the ordinary course of business, but including a Receivables
Transaction (provided that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Issuers and their Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Issuers or any of their respective Restricted Subsidiaries
of Equity Interests of any of the Issuers' Restricted Subsidiaries, in the case
of either clause (i) or (ii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $10.0
million or (b) for Net Proceeds in excess of $10.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by either of the Issuers to a Restricted
Subsidiary or by a Restricted Subsidiary to either of the Issuers or to another
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted
Subsidiary to either of the Issuers or to another Restricted Subsidiary, (iii)
Hedging Obligations and (iv) a Restricted Payment that is permitted by the
covenant described above under the caption "--Restricted Payments" will not be
deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Beneficial Owner" means "beneficial owner", as such terms is defined in
Rule l3d-3 and Rule l3d-5 under the Exchange Act; provided, however, that (i) a
person shall not be deemed to have beneficial ownership of securities subject
to a stock purchase agreement, merger agreement, or similar agreement until the
consummation of the transactions contemplated by such agreement, and (ii) for
purposes of determining beneficial ownership of Voting Stock of Foamex,
stockholders of Foamex International Inc. shall be deemed to beneficially own a
percentage of Voting Stock of Foamex equal to their percentage beneficial
ownership of Voting Stock of Foamex International Inc. multiplied by Foamex
International Inc.'s beneficial ownership of Voting Stock of Foamex.
"Board of Directors" means the Board of Directors of the Managing General
Partner, on behalf of Foamex (or Foamex, if Foamex is a corporation), FCC, or
any Subsidiary Guarantor or any authorized committee of the Board of Directors.
"Business Day" means any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States of America is pledged in support thereof), (iii) time
deposits and certificates of deposit, including eurodollar time deposits, of
any commercial bank organized in the United States having capital and surplus
in excess of $100,000,000 or a commercial bank organized under the laws of any
other country that is a member of the OECD having total assets in excess of
$100,000,000 with a maturity date not more than one year from the date of
acquisition, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (i) and (ii)
above entered into with any bank meeting the qualifications specified in clause
(iii) above, (v) direct obligations issued by any state of the United States of
America or any political subdivision of any state or any public instrumentality
thereof maturing within 90 days after the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
either Standard &
83
<PAGE>
Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time
neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall
be rating such obligations, then from such other nationally recognized rating
service acceptable to the Trustee), (vi) commercial paper issued by the parent
corporation of any commercial bank organized in the United States having
capital and surplus in excess of $100,000,000 or a commercial bank organized
under the laws of any other country that is a member of the OECD having total
assets in excess of $100,000,000, and commercial paper issued by others having
one of the two highest ratings obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. (or, if at any time neither
Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be
rating such obligations, then from such other nationally recognized rating
services acceptable to the Trustee) and in each case maturing within one year
after the date of acquisition, (vii) overnight bank deposits and bankers'
acceptances at any commercial bank organized in the United States having
capital and surplus in excess of $100,000,000 or a commercial bank organized
under the laws of any other country that is member of the OECD having total
assets in excess of $100,000,000, (viii) deposits available for withdrawal on
demand with commercial banks organized in the United States having capital and
surplus in excess of $50,000,000 or a commercial bank organized under the laws
of any other country that is a member of the OECD having total assets in excess
of $50,000,000 and (ix) investments in money market funds substantially all of
whose assets comprise securities of the types described in clauses (i) through
(viii).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of either of the Issuers and their respective
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act) other than the Principals or their
Related Parties (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Issuers, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the Beneficial Owner of (A) more
than 25% of the Voting Stock of either of the Issuers (measured by voting power
rather than by number of shares) and (B) a greater percentage of the Voting
Stock than the Principals and their Related Parties or (iv) the first day on
which a majority of the members of the Board of Directors of either of the
Issuers are not Continuing Directors.
"Closing Date Transactions" means the following transactions entered into
by Foamex in connection with the issuance of the 9-7/8% Notes: (i) the
distribution to Foamex-JPS Automotive L.P. ("FJPS") and FMXI, Inc. of: (a) all
of the FJPS and Foamex-JPS Capital Corporation Senior Secured Discount
Debentures due 2004 purchased by Foamex on or prior to the date of the
Indenture; (b) the promissory note of FJPS payable to Foamex, dated June 28,
1994 and (c) the promissory note of Foamex International Inc. payable to
Foamex, dated December 8, 1995; (ii) a cash distribution to Trace Foam Company,
Inc. in an amount equal to one-ninety ninth (1/99) of the distribution in (i)
above; (iii) the amendment of the promissory note of Trace International
Holdings, Inc. payable to Foamex, dated July 7, 1996, which extends the
maturity of such obligation to 2001; and (iv) the Tender Offer and the
incurrence of borrowings under the Credit Facility in connection with the
Refinancing Plan.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale or discontinued operations (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period (including, to the extent applicable, payments made pursuant to any tax
sharing agreements), to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii) consolidated interest
expense of such Person and its Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings (whether or not accounted for by the Issuers and
their respective Subsidiaries as interest expense), and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash expenses of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated
84
<PAGE>
Net Income, minus (v) non-cash items increasing such Consolidated Net Income
for such period, in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP (excluding, however, the effect of the Closing Date Transactions and
of any other extraordinary transaction in connection with the incurrence of the
9-7/8% Notes, and the consummation of the recapitalization of the Issuers in
connection therewith); provided that (i) the Net Income of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions with respect to current or prior years Net Income (if not
previously distributed or dividended) paid in cash to the referent Person or a
Restricted Subsidiary thereof; (ii) the Net Income of any Restricted Subsidiary
that is not a Subsidiary Guarantor shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders; (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded; (iv) the
cumulative effect of a change in accounting principles shall be excluded; and
(v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Issuers or one of their respective
Subsidiaries except as set forth in (i).
"Consolidated Net Worth" means, (A) with respect to any partnership, the
common and preferred partnership equity of such partnership and its
consolidated subsidiaries, as determined on a consolidated basis in accordance
with GAAP, and (B) with respect to any other Person as of any date, the sum of
(i) the consolidated equity of the common equityholders of such Person and its
consolidated Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with respect to any
series of preferred equity (other than Disqualified Stock) that by its terms is
not entitled to the payment of dividends unless such dividends may be declared
and paid only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such Person upon
issuance of such preferred stock, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets
of a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), plus (z)
all unamortized debt discount and expense and unamortized deferred charges as
of such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Issuers who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Contributions" means any loans, cash advances, capital contributions,
investments or other transfers of assets for less than fair value by the
Issuers or any of their respective Restricted Subsidiaries to any Subsidiary or
other Affiliate of the Issuers or any of their respective Restricted
Subsidiaries other than a Subsidiary Guarantor, other than loans and cash
advances to officers and directors made in the ordinary course of business not
to exceed
$5.0 million.
"Crain Acquisition Transactions" means the contribution by Crain
Industries, Inc. and/or any of its subsidiaries of substantially all of their
assets, subject to substantially all of their liabilities to Foamex L.P. in
exchange for a limited partnership interest, the assumption by Foamex L.P. of
all such liabilities, and the refinancing of certain indebtedness assumed
through borrowings under the Credit Facility.
"Credit Agent" means any of The Bank of Nova Scotia or Citicorp USA, Inc.,
in their respective capacity as Administrative Agents for the lenders party to
the Credit Facility, or any successor thereto or any person
otherwise appointed.
"Credit Facility" means that certain Credit Facility, dated as of June 12,
1997, by and among the Issuers and The Bank of Nova Scotia and Citicorp USA,
Inc., as Credit Agents, providing for up to $620.0 million of borrowings,
85
<PAGE>
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time, and
after the Credit Agent has acknowledged in writing that the Credit Facility has
been terminated and all then outstanding Indebtedness and obligations
thereunder with respect thereto have been repaid in full in cash and
discharged, any successors to or replacements of such Credit Facility (as
designated by the Board of Directors as evidenced by a resolution), as such
successors or replacements may be amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt the principal amount of which is
$25.0 million or more and that has been designated by the Issuers as Designated
Senior Debt.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means (i) up to $14.1 million in aggregate
principal amount of Indebtedness of the Issuers and their respective Restricted
Subsidiaries (other than Indebtedness under the Credit Facility plus
Indebtedness subject to the Closing Date Transactions that is not purchased
pursuant to such Closing Date Transactions) in existence on the date of the
Indenture, including the Great Western Note and (ii) the 9-7/8% Notes, in each
case until all such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding the amortization of deferred financing costs) and
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period to the extent related to
Indebtedness, and (iii) any interest expense on Indebtedness of another Person
(other than such Person's Restricted Subsidiaries) that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon), but only to the extent of the interest
expense attributable to the lesser of (a) the principal amount of such
Indebtedness, or (b) the fair market value of such asset and (iv) the product
of (a) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other
than dividend payments to such Person or its Restricted Subsidiaries and
dividends on Equity Interests payable solely in Equity Interests of the
Issuers, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person and its Restricted Subsidiaries,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Issuers or any of their respective Restricted Subsidiaries incurs, assumes,
Guarantees or redeems, repurchases or otherwise retires any Indebtedness (other
than revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption, repurchase or retirement of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the
86
<PAGE>
Issuers or any of their respective Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Foamex Latin America" means Foamex Latin America, Inc. and its direct and
indirect Subsidiaries.
"Foreign Subsidiary" means any Subsidiary of the Issuers either (a) which
is organized outside of the United States of America, (b) whose principal
activities are conducted outside of the United States of America or (c) whose
only material assets are Equity Interests in Subsidiaries which are Foreign
Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on June 12, 1997.
"Great Western Note" means the subordinated promissory note incurred in
connection with the acquisition of Great Western in the principal amount of
$7,014,864 that bears interest at a maximum rate of 6.0% per annum payable
semi-annually.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate or currency swap agreements, interest
rate or currency cap agreements, interest rate or currency collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against or expose such Person to fluctuations in interest rates and/or currency
exchange rates.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) to the
extent of the fair market value of such asset where the Indebtedness so secured
is not the Indebtedness of such Person and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, to the extent such Indebtedness does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of
any other Indebtedness. Notwithstanding anything in the Indenture to the
contrary, Hedging Obligations shall not constitute Indebtedness, except to the
extent they appear on the balance
sheet of Foamex.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to Foamex or FCC or to the
creditors of Foamex or FCC, as such, or to the assets of Foamex or FCC, or (ii)
any liquidation, dissolution, reorganization or winding up of Foamex or FCC,
whether voluntary or involuntary and involving insolvency or bankruptcy, or
(iii) any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of Foamex or FCC.
87
<PAGE>
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. If the Issuers or any Restricted
Subsidiary of the Issuers sells or otherwise disposes of any Equity Interests
of any direct or indirect Restricted Subsidiary of the Issuers such that, after
giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary of one of the Issuers, the Issuers shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Restricted Payments." A provision
in an agreement relating to the purchase or sale of any of the Issuers' or
their respective Restricted Subsidiaries' assets containing an "earn out" or
providing for an adjustment to the purchase or sale price based on a financial
statement relating to the assets purchased or sold shall not be deemed to be an
"Investment."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Services Agreement" means that management services agreement,
by and between Foamex and Trace Foam Company, Inc. as in effect on the date of
the Indenture.
"Managing General Partner" means FMXI, Inc., a Delaware corporation and
its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (or loss
in the case of (a)), together with any related provision for taxes (including
pursuant to the Tax Sharing Agreement) on such gain (or loss in the case of
(a)), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions and
losses) or (b) the disposition of any securities other than Cash Equivalents by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (or loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (or loss),
excluding charges related to hyper-inflationary accounting pursuant to FASB 52
and interpretations by the Commission thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Issuers
or any of their respective Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, consent fees to facilitate such
Asset Sale and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"9-7/8% Note Indenture" means the Indenture, dated as of June 12, 1997,
among Foamex L.P., Foamex Capital Corporation, General Felt Industries, Inc.,
Foamex Fibers, Inc. and The Bank of New York, as trustee, relating to the 9-7/8%
Notes.
"9-7/8% Note" means the $150,000,000 principal amount of the Issuers'
9-7/8% Senior Subordinated Notes due 2007.
"Non-Recourse Debt" means Indebtedness (i) as to which neither of the
Issuers nor any of their respective Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder
88
<PAGE>
of any other Indebtedness of either of the Issuers or any of their respective
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders, except for lenders under
instruments governing Acquired Debt (a) have acknowledged that they do not have
recourse to the holder of the Equity Interest of the debtor or (b) have been
notified in writing that they will not have any recourse to the stock or assets
of either of the Issuers or any of their respective Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, expenses, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Debt" means any Indebtedness of the Issuers or any of their
Restricted Subsidiaries which, by its terms is pari passu in right of payment
to the Notes.
"Payment in Full" (together with any correlative phrases, e.g., "paid in
full" and "pay in full") means (i) with respect to any Senior Debt other than
Senior Debt under or in respect of the Credit Facility, payment in full thereof
or due provision for payment thereof (x) in accordance with the terms of the
agreement or instrument pursuant to which such Senior Debt was issued or is
governed or (y) otherwise to the reasonable satisfaction of the holders of such
Senior Debt, which shall include, in any Insolvency or Liquidation Proceeding,
approval by such holders individually or as a class, of the provision for
payment thereof, and (ii) with respect to Senior Debt under or in respect of
the Credit Facility, payment in full thereof in cash or Cash Equivalents.
"Permitted Business" means (i) the manufacture and distribution of
polyurethane and advanced polymer foam and activities related thereto, and (ii)
other businesses engaged in by the Issuers and their respective Restricted
Subsidiaries on the date of the Indenture and similar lines of businesses to
those engaged in by the Issuers on the date of the Indenture, including, but
not limited to, the manufacture and distribution of plastics and related
products.
"Permitted Investments" means (a) any Investment in either of the Issuers
or in a Wholly Owned Restricted Subsidiary of either of the Issuers and that is
engaged in a Permitted Business; (b) any Investment in Cash Equivalents; (c)
any Investment by either of the Issuers or any Restricted Subsidiary of either
of the Issuers in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Issuers or such Restricted
Subsidiary is engaged in a Permitted Business or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, either of the Issuers or a
Restricted Subsidiary of either of the Issuers that is engaged in a Permitted
Business; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) any Investment to the extent made in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Issuers or a Subsidiary
Guarantor; (f) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (f) that are at the time outstanding,
not to exceed the sum of (A) $15.0 million, and (B) the aggregate net cash
proceeds (or non-cash proceeds when converted into cash) received by Foamex and
its Restricted Subsidiaries from the sale or disposition of investments
existing as of June 12, 1997 or made pursuant to this clause (f); (g)
securities received in connection with any good faith settlement or Insolvency
or Liquidation Proceeding; (h) Hedging Obligations entered into in the ordinary
course of business in connection with the operation of the business of the
Issuers and their Restricted Subsidiaries or as required by any Indebtedness
issued in compliance with the Indenture; (i) prepaid expenses and loans or
advances to employees and similar items in the ordinary course of business; (j)
endorsements of negotiable instruments and other similar negotiable documents;
(k) transactions with Affiliates as permitted under the Indenture; (l)
Investments outstanding as of the date of the Indenture, (m) Investments of up
to $5.0 million in Trace Global Opportunities Fund, (n) loans or advances of up
to $5.0 million in Trace Holdings, and (o) Investments in, including
Contributions to, Foamex Latin America, Foamex Asia or one or more Foreign
Subsidiaries, provided that the maximum amount of such Investments outstanding
at any one time does not exceed $50.0 million, plus the cash dividends and
distributions received by the Issuer and its Restricted Subsidiaries with
respect to Investments pursuant to this clause (o).
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facility; (ii) Liens in favor of either of the Issuers or any Subsidiary
Guarantor; (iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Issuers or any Subsidiary of either of
the Issuers; provided that such Liens
89
<PAGE>
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with either of the Issuers; (iv) Liens on property existing at the
time of acquisition thereof by the Issuers or any Subsidiary of the Issuers,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (v) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(vii) Liens existing on the date of the Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor, (ix) Liens on assets of Unrestricted Subsidiaries that
secure Non-Recourse Debt of Unrestricted Subsidiaries; (x) Liens incurred in
the ordinary course of business including, without limitation, judgment and
attachment liens, of the Issuers or any Subsidiary of the Issuers with respect
to obligations that do not exceed $25.0 million at any one time outstanding and
that are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business); (xi) Liens in favor of the Trustee; (xii) Liens on Receivables in
connection with Receivables Transaction; (xiii) Liens incurred in connection
with Permitted Refinancing Indebtedness, but only if such Liens extend to no
more assets than the Liens securing the Indebtedness being refinanced; (xiv)
Liens securing Senior Debt; (xv) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (xvi) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens (including contractual landlords liens) arising in the
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (xvii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (xviii) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xix) Liens to secure Indebtedness of any
Restricted Subsidiary, that is a Foreign Subsidiary provided that such
Indebtedness is used by such Restricted Subsidiary to finance operations of
such Foreign Subsidiary outside the United States and Canada; (xx) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with
the business of Foamex or any of its Subsidiaries; and (xxi) Liens arising from
filing Uniform Commercial Code financing statements regarding leases (other
than true leases and true consignments).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuers
or any of their respective Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Issuers or any of their respective
Restricted Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness does not
exceed the principal amount of (or accreted value, if applicable), plus
prepayment premium and accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by one of the Issuers or by the Restricted Subsidiary which is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
90
<PAGE>
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means all interest and expenses accrued or
accruing after the commencement of any Insolvency or Liquidation Proceeding in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing any Senior Debt, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Principals" means Trace International Holdings, Inc. and Marshall S.
Cogan.
"Public Equity Offering" means a public offering of Equity Interests
(other than Disqualified Stock) of (i) Foamex or FCC; or (ii) Foamex
International Inc. to the extent the net proceeds thereof are contributed to
one of the Issuers as a capital contribution, that, in each case, results in
the net proceeds to either of the Issuers of at least $25.0 million.
"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable
or account debtors, (v) all letters of credit, security, or guarantees for any
of the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, that at no time shall the Issuers and their respective Subsidiaries
have more than one Receivables Subsidiary.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or an interest therein, or (ii) the sale or other
disposition of Receivables or an interest therein to a Receivables Subsidiary
followed by a financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is effected by such
Receivables Subsidiary or by a third party to whom such Receivables Subsidiary
sells such Receivables or interests therein); provided that in each of the
foregoing, the Issuers or their Restricted Subsidiaries receive at least 80% of
the aggregate principal amount of any Receivables financed in such transaction.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A) and this clause (B).
"Reorganization Securities" means securities distributed to the holders of
the Notes in an Insolvency or Liquidation Proceeding pursuant to a plan of
reorganization consented to by each class of the Senior Debt, but only if all
of the terms and conditions of such securities (including, without limitation,
term, tenor, interest, amortization, subordination, standstills, covenants and
defaults) are at least as favorable (and provide the same relative benefits) to
the holders of Senior Debt and to the holders of any security distributed in
such Insolvency or Liquidation Proceeding on account of any such Senior Debt as
the terms and conditions of the Notes and the Indenture are, and provide to the
holders of Senior Debt.
"Representative" means the trustee, agent or representative for any Senior
Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
91
<PAGE>
"Senior Debt" means all Indebtedness and other Obligations specified below
payable directly or indirectly by either of the Issuers or any of their
respective Restricted Subsidiaries, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed by either of the Issuers
or any of their respective Restricted Subsidiaries: (i) the principal of,
interest on and all other Obligations related to the Credit Facility (including
without limitation all loans, letters of credit and other extensions of credit
under the Credit Facility, and all expenses, fees, reimbursements, indemnities
and other amounts owing pursuant to the Credit Facility); (ii) amounts payable
in respect of any Hedging Obligations; (iii) all Indebtedness not prohibited by
the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant that
is not expressly pari passu with or subordinated to the Notes, and (iv) all
permitted renewals, extensions, refundings or refinancings thereof. All
Post-Petition Interest on Senior Debt shall constitute Senior Debt.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (i) Indebtedness of either of the Issuers or any of their respective
Restricted Subsidiaries to any other Restricted Subsidiaries which is not a
Subsidiary Guarantor, (ii) Indebtedness of FCC to Foamex, (iii) any
Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Debt, (iv) any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business, or (v) Indebtedness incurred in violation of the Indenture. To the
extent any payment of Senior Debt (whether by or on behalf of the Issuers or
any of their respective Restricted Subsidiaries, as proceeds or security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent
or preferential, set aside, or required to be paid to a trustee, receiver or
other similar party under any bankruptcy, insolvency, receivership or similar
law, then if such payment is recovered by or paid over to such trustee,
receiver or other similar party, the Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. All Senior Debt shall be and remain Senior Debt
for all purposes of the Indenture, whether or not subordinated in a bankruptcy,
receivership, insolvency or similar proceeding.
"Stated Maturity" means, with respect to any installment of interest,
accreted value or principal on any series of Indebtedness, the date on which
such payment of interest or principal is due or is scheduled to be paid in the
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
accreted value or principal prior to the date originally scheduled for the
payment or accretion thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means those Restricted Subsidiaries required to
execute a Note Guarantee pursuant to the provisions of the Indenture described
under the caption "Additional Guarantees" and any other Subsidiary that
executes a Note Guarantee.
"Tax Sharing Agreement" means the tax sharing agreement, among Foamex,
Trace Foam Company, Inc., FMXI, Inc. and Foamex International Inc. as in effect
on the date of the Indenture.
"Trace Note" means the promissory note of Trace International Holdings,
Inc. dated July 7, 1996 payable to Foamex, as amended and restated as part of
the Closing Date Transactions.
"United States Government Obligations" means direct obligations of the
United States of America, or any agency or instrumentality thereof the payment
of which the full faith and credit of the United States of America is pledged.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors of either Issuer as an Unrestricted Subsidiary pursuant
to a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) on the date of such designation
is not party to any agreement, contract, arrangement or understanding with
either of the Issuers or any Restricted Subsidiary of either of the Issuers
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to such Issuer or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates
92
<PAGE>
of such Issuer; (c) is a Person with respect to which neither of the Issuers
nor any of their respective Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness
of either of the Issuers or any of their respective Restricted Subsidiaries;
and (e) has at least one director on its board of directors that is not a
director or executive officer of either of the Issuers or any of their
respective Restricted Subsidiaries and has at least one executive officer that
is not a director or executive officer of either of the Issuers or any of their
respective Restricted Subsidiaries. Any such designation by the Board of
Directors of either Issuer shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments." If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
such Issuer as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," the Issuers
shall be in default of such covenant). The Board of Directors of either of the
Issuers may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of such Issuer of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
93
<PAGE>
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
Set forth below is a summary of certain material terms of the Fourth
Amended and Restated Agreement of Limited Partnership of Foamex dated as of
December 14, 1993 and amended as of June 28, 1994, June 12, 1997, December 23,
1997 and February 27, 1998 (the "Partnership Agreement"). A copy of such
agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Organization and Duration
Foamex is a Delaware limited partnership. FMXI, a wholly owned subsidiary
of Foamex International, serves as the managing general partner of Foamex and
has a 2.0% interest therein. Foamex International is a limited partner of
Foamex and has a 98.0% interest therein. Foamex will continue its existence
until December 14, 2033, unless terminated earlier in accordance with the terms
of the Partnership Agreement. See "--Dissolution" below.
Management
The business and affairs of Foamex are managed by FMXI as the managing
general partner. The Partnership Agreement authorizes FMXI to designate
officers of Foamex who are responsible for implementing the decisions of FMXI
and for conducting the ordinary and usual business and affairs of Foamex. See
"Management--Directors and Executive Officers of the Issuers and Subsidiary
Guarantors."
Assignment of Partnership Interests
No partner of Foamex may sell or otherwise encumber or dispose of, whether
voluntarily or by operation of law, any part or all of its interest in Foamex
without the written consent of the other partners and any attempt to do so will
be void.
A person or entity will not be admitted as a substitute general partner of
Foamex or a substitute limited partner of Foamex until such time as such person
or entity (i) executes a counterpart of the Partnership Agreement or an
amendment to the Partnership Agreement agreeing to be bound by the terms and
conditions of the Partnership Agreement and (ii) is listed as a general partner
or a limited partner, as the case may be, on the books and records of Foamex.
No partner may withdraw from Foamex or otherwise assign its partnership
interest other than pursuant to the Partnership Agreement.
Amendment of the Partnership Agreement
The Partnership Agreement may not be amended except by an instrument in
writing signed by partners holding more than 50% of the partnership interests
in Foamex at such time; provided, however, no amendment affecting the rights of
Trace Foam in respect of allocations, distributions, assignments,
indemnification or capital contributions may be made without the approval of
Trace Foam.
Dissolution
The partnership existence of Foamex shall continue until December 14, 2033
and then dissolve unless extended by mutual written consent of all partners,
unless any of the following events occur which shall require a dissolution of
Foamex: (i) any event of withdrawal of a general partner that causes a general
partner to cease to be a general partner of Foamex under the Delaware Revised
Uniform Limited Partnership Act (the "Partnership Act"), except that Foamex
shall not be dissolved if (a) at the time of such event all remaining general
partners agree to carry on the business of Foamex without dissolution upon such
an event or (b) within 90 days after such event all partners of Foamex agree in
writing to continue the business of Foamex and to the appointment, effective as
of the date of such event, of one or more general partners of Foamex or (ii)
the entry of a decree of judicial dissolution under the Partnership Act.
Notwithstanding the foregoing, except to the extent required by applicable
law, Foamex may not be dissolved until 90 days after Scotiabank, and Citicorp
USA, Inc. as Administrative Agents (or any successor agent as Administrative
Agent) of the Credit Facility, shall have received written notice of such
impending or proposed dissolution. See "Description of Certain Debt
Instruments--Credit Facility."
94
<PAGE>
Indemnification
The Partnership Agreement provides that, to the fullest extent permitted
by law, Foamex will indemnify the partners, their respective affiliates,
officers, directors, stockholders, employees and agents, and any employee,
agent and officer of Foamex, against all expenses actually and reasonably
incurred by it or them in connection with any threatened, pending or completed
action, suit or proceeding against it or them or by, against or in the right of
Foamex to which it or them is or was a party, or is threatened to be made a
party, involving an alleged cause of action for damages arising out of, or in
any way related to or connected with, the business or internal affairs of
Foamex, if, in the transaction giving rise to such action, suit, or proceeding,
such person acted in good faith, without gross negligence or willful misconduct
or the willful breach of the Partnership Agreement and in a manner such person
reasonably believed to be within the scope of its authority under the
Partnership Agreement.
95
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain United States federal income
tax consequences of the exchange of the Old Notes and the ownership and
disposition of the New Notes to a U.S. Holder. For this purpose, a "U.S. Holder"
is a person who is, for United States federal income tax purposes, (i) a citizen
or resident of the United States; (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof; (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source; or (iv) a trust
if a court within the U.S. is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the authority
to control all substantial decisions of the trust. Although the following
discussion does not purport to describe all of the tax considerations that may
be relevant to a U.S Holder, such discussion summarizes the material United
States federal income tax consequences to a U.S. Holder that purchased the Old
Notes pursuant to their original issue and that holds the Notes as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code").
The statements regarding United States tax laws and practices set forth
below are based on the Code, administrative pronouncements, judicial decisions
and existing and proposed Treasury regulations in force and as applied in
practice on the date of this Prospectus and are subject to changes to those
laws and practices, and any relevant judicial decisions, subsequent to the date
of this Prospectus, which changes may be retroactive.
This discussion does not deal with persons that are subject to special tax
rules, such as dealers in securities, financial institutions, life insurance
companies, tax-exempt entities, persons holding the Notes as a part of a
hedging or conversion transaction or a straddle or persons whose "functional
currency" is not the United States dollar.
HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED
STATES TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE EFFECT OF ANY STATE OR LOCAL TAX LAWS.
The Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should be treated as a continuation of the corresponding Old Notes because the
terms of the New Notes are not materially different from the terms of the Old
Notes. Accordingly, such exchange should not constitute a taxable event to U.S.
Holders and, therefore, (i) no gain or loss should be realized by U.S. Holders
upon receipt of a New Note, (ii) the holding period of the New Note should
include the holding period of the Old Note exchanged therefor and (iii) the
adjusted tax basis of the New Note should be the same as the adjusted tax basis
of the Old Note exchanged therefor immediately before the exchange.
Stated Interest
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. As described more fully below, because the Old Notes were
treated as received in a taxable sale or exchange, the Old Notes (and therefore
the New Notes) may be treated as issued at a premium. If the New Notes are
treated as issued at a premium, a U.S. Holder may, under certain conditions,
offset interest income on the New Notes by an allocable portion of such premium
over the term of the New Notes. See "Sale, Exchange or Retirement of the Notes;
Amortization of Premium."
Sale, Exchange or Retirement of the Notes; Amortization of Premium
A U.S. Holder generally will recognize gain or loss on the sale, exchange
or retirement of a Note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the Note.
Gain or loss recognized on the sale, exchange or retirement of a Note
(excluding amounts received in respect of accrued interest, which will be
taxable as ordinary interest income) generally will be capital gain or loss and
will be long-term capital gain or loss if the Note was held for more than one
year. In the case of individuals, such gain or loss will be subject to a
maximum rate of twenty eight percent if the Old Note and the New Note have been
held for more than one year but less than eighteen months, and will be subject
to a maximum tax rate of twenty percent if held for more than eighteen months.
96
<PAGE>
If the issue price of the New Notes exceeds their principal amount, then a
portion of such excess may constitute "amortizable bond premium" under Section
171 of the Code. A U.S. Holder may elect under certain conditions to amortize
amortizable bond premium over the term of the Notes as an offset against
interest income. Because the Issuer is permitted under certain conditions to
redeem the Notes at prices that exceed their principal amount, such right will
have the effect of reducing or eliminating any such amortizable bond premium,
depending upon the extent to which the issue price of the Notes exceeds the
optional redemption price. U.S. Holders who nevertheless desire to amortize the
full excess, if any, of the issue price of the Notes over their principal
amount should consider an election under Treasury Regulations Section 1.1272-3
to report the accrual of interest on the New Notes on a constant
yield-to-maturity basis. Such an election must be made for the taxable year in
which such U.S. Holder acquires an Old Note and, once made, may not be revoked
without the consent of the IRS. On December 30, 1997, the IRS issued final
regulations under Section 171 of the Code. If an election under Treasury
Regulations Section 1.1272-3 election was not made for the Old Notes, a U.S.
Holder should consider an election under Treasury Regulations Section 1.171-4,
which would allow such U.S. Holder to amortize the bond premium attributable to
the years for which the election is in effect. Such an election may be made for
both the taxable year of the Exchange Offer and any subsequent year and, once
made, may not be revoked without the consent of the IRS. Moreover, electing
U.S. Holders otherwise permitted to report income under the "cash method" of
accounting would not be permitted to do so with respect to payments under the
Note and, accordingly, such an election may result in an acceleration of
interest income otherwise reportable under a Note.
Backup Withholding
Under certain circumstances a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number
or other taxpayer identification number ("TIN") in the specified manner and in
certain other circumstances. Any amount withheld from a payment to a U.S.
Holder under the backup withholding rules is allowable as a credit against such
U.S. Holder's federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service. Corporations and
certain other entities described in the Code and Treasury regulations are
exempt from backup withholding if their exempt status is properly established.
97
<PAGE>
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter
of Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such New Notes. Based upon interpretations by the
staff of the Commission, the Issuers believe that New Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer (other than
a Restricted Holder) upon compliance with the prospectus delivery requirements,
but without compliance with the registration requirements, of the Securities
Act. The Issuers have agreed that for a period of 120 days following
consummation of the Exchange Offer, they will make this Prospectus available to
Participating Broker-Dealers for use in connection with any such resale. During
such period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market making or other trading
activities.
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by Participating Broker-Dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such Participating Broker-Dealer and/or the purchasers of any such New
Notes. Any Participating Broker-Dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incidental to the Exchange
Offer other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Issuers by Willkie Farr & Gallagher, New York, New York.
98
<PAGE>
EXPERTS
The (i) consolidated financial statements of Foamex as of December 29,
1996 and December 28, 1997 and for each of the three years in the period ended
December 28, 1997 and (ii) balance sheets of Foamex Capital Corporation as of
December 29, 1996 and December 28, 1997 included in this Registration
Statement have been included in reliance upon the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing. The consolidated financial statements of Crain
Industries, Inc. as of December 23, 1997 and for the period then ended,
included in this Registration Statement have been included in reliance upon the
report of Arthur Andersen L.L.P., independent accountants, given on authority
of that firm as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
In connection with certain forward-looking statements contained in this
Prospectus, Foamex notes that there are various factors that could cause actual
results to differ materially from those set forth in any such forward-looking
statements, such as the integration of acquired businesses, raw material price
increases, general economic conditions, the implementation and estimated
annualized savings of the operations plan and changes in environmental
legislation and environmental conditions. The forward-looking statements
contained in this Prospectus were prepared by management and are qualified by,
and subject to, significant business, economic, competitive, regulatory and
other uncertainties and contingencies, all of which are difficult or impossible
to predict and many of which are beyond the control of Foamex. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Prospectus will be realized or that actual results will not be significantly
higher or lower. The forward-looking statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Prospectus should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of Foamex are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this
Prospectus. The inclusion of forward-looking statements contained in this
Prospectus should not be regarded as a representation by Foamex or any other
person that the forward-looking statements contained herein will be achieved.
In light of the foregoing, readers of this Prospectus are cautioned not to
place undue reliance on the forward-looking statements contained herein.
99
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Foamex L.P.
Report of Independent Accountants ........................................ F-2
Consolidated Balance Sheets as of December 29, 1996
and December 28, 1997 .................................................. F-3
Consolidated Statements of Operations for the years ended
1995, 1996 and 1997 .................................................... F-5
Consolidated Statements of Cash Flows for the years ended
1995, 1996 and 1997 .................................................... F-6
Consolidated Statements of Partners' Equity (Deficit) for the years
ended 1995, 1996 and 1997 .............................................. F-7
Notes to Consolidated Financial Statements ............................... F-8
Foamex Capital Corporation
Report of Independent Accountants ........................................ F-31
Balance Sheets as of December 29, 1996 and December 28, 1997 ............. F-32
Notes to Balance Sheets .................................................. F-33
Crain Industries, Inc.
Report of Independent Accountants ........................................ F-34
Consolidated Balance Sheets as of December 31, 1996
and December 23, 1997 .................................................. F-35
Consolidated Statements of Operations for the periods ended
December 31, 1996 and December 23, 1997 ................................ F-36
Consolidated Statements of Stockholder's Equity for the periods ended
December 31, 1996 and December 23, 1997 ................................ F-37
Consolidated Statements of Cash Flows for the periods ended
December 31, 1996 and December 23, 1997 ................................ F-38
Notes to Consolidated Financial Statements ............................... F-39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Foamex L.P.:
We have audited the accompanying consolidated balance sheets of Foamex L.P. and
subsidiaries ("Foamex L.P.") as of December 29, 1996 and December 28, 1997, and
the related consolidated statements of operations, cash flows and partners'
equity (deficit) for each of the three years in the period ended December 28,
1997. These financial statements are the responsibility of Foamex L.P.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Foamex L.P. and
subsidiaries as of December 29, 1996 and December 28, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 28, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998, except as to
the information presented in
Note 1 and Note 16, for which
the date is March 23, 1998.
F-2
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
(thousands)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 20,968 $ 9,405
Restricted cash .................................. 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $8,082.......... 125,847 174,959
Inventories ...................................... 101,220 120,299
Deferred income taxes ............................ 6,720 6,850
Due from related parties ......................... 1,791 1,680
Other current assets ............................. 20,231 39,024
--------- ---------
Total current assets ........................... 288,920 352,217
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements ....................... 9,674 9,054
Buildings and leasehold improvements ............. 78,082 79,876
Machinery, equipment and furnishings ............. 185,348 219,164
Construction in progress ......................... 20,784 23,331
--------- ---------
Total .......................................... 293,888 331,425
Less accumulated depreciation and amortization ... (111,461) (110,151)
--------- ---------
Property, plant and equipment, net ............... 182,427 221,274
COST IN EXCESS OF ASSETS ACQUIRED, NET ............ 83,991 219,699
DEBT ISSUANCE COSTS, NET .......................... 14,902 18,889
OTHER ASSETS ...................................... 15,917 21,989
--------- ---------
TOTAL ASSETS ...................................... $ 586,157 $ 834,068
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
(thousands)
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Short-term borrowings .................................... $ 3,692 $ 6,598
Current portion of long-term debt ........................ 13,735 12,161
Accounts payable ......................................... 75,621 121,147
Accounts payable to related parties ...................... 8,803 11,662
Accrued employee compensation ............................ 7,302 10,827
Accrued interest ......................................... 8,871 10,655
Accrued restructuring and plant consolidation ............ 6,300 15,644
Other accrued liabilities ................................ 27,506 37,449
-------- ---------
Total current liabilities .............................. 151,830 226,143
LONG-TERM DEBT ............................................ 392,617 726,649
DEFERRED INCOME TAXES ..................................... 4,663 2,529
ACCRUED RESTRUCTURING AND PLANT CONSOLIDATION ............. 4,043 11,252
OTHER LIABILITIES ......................................... 20,172 23,797
-------- ---------
Total liabilities ...................................... 573,325 990,370
-------- ---------
COMMITMENTS AND CONTINGENCIES ............................. -- --
-------- ---------
PARTNERS' EQUITY (DEFICIT) ................................
General partners ......................................... 632 (122,304)
Limited partners ......................................... 57,654 --
Notes and advances receivable from partner ............... (35,180) (16,118)
Other .................................................... (10,274) (17,880)
-------- ---------
Total partners' equity (deficit) ....................... 12,832 (156,302)
-------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) ......... $586,157 $ 834,068
======== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended 1995, 1996 and 1997
<TABLE>
<CAPTION>
December 31, December 29, December 28,
1995 1996 1997
------------ ------------ ------------
(thousands)
<S> <C> <C> <C>
NET SALES .................................... $ 862,834 $ 926,351 $ 931,095
COST OF GOODS SOLD ........................... 762,085 773,119 787,756
--------- --------- ---------
GROSS PROFIT ................................. 100,749 153,232 143,339
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ................................... 63,466 56,778 65,907
RESTRUCTURING AND OTHER CHARGES (CREDITS)..... 39,249 (6,415) 21,100
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS ................ (1,966) 102,869 56,332
INTEREST AND DEBT ISSUANCE EXPENSE ........... 44,550 43,211 44,181
OTHER INCOME (EXPENSE), NET .................. (205) 1,705 2,009
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES .......... (46,721) 61,363 14,160
PROVISION FOR INCOME TAXES ................... 1,405 7,702 2,895
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ..... (48,126) 53,661 11,265
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ........................ (5,117) (230) --
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS, INCLUDING PROVISION FOR
OPERATING LOSSES DURING THE PHASE-OUT
PERIOD, NET OF INCOME TAXES ................ -- (41,820) --
--------- --------- ---------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ........................ (5,117) (42,050) --
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS ...... (53,243) 11,611 11,265
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ..................... -- (1,912) (48,559)
--------- --------- ---------
NET INCOME (LOSS) ............................ $ (53,243) $ 9,699 $ (37,294)
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended 1995, 1996 and 1997
<TABLE>
<CAPTION>
December 31, December 29, December 28,
1995 1996 1997
------------ ------------ ------------
(thousands)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) ............................................... $ (53,243) $ 9,699 $ (37,294)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................. 22,905 21,132 20,882
Amortization of debt issuance costs and debt discount ......... 2,729 2,919 2,307
Net loss on disposal of discontinued operations ............... -- 40,551 --
Net loss from discontinued operations.......................... 5,117 1,499 --
Asset writedowns and other charges (credits) .................. 16,677 (7,364) 12,041
Extraordinary loss on early extinguishment of debt ............ -- 1,217 24,182
Provision for uncollectible accounts .......................... 4,627 704 2,295
Deferred income taxes ......................................... 659 6,010 (568)
Other, net .................................................... (706) (5,804) (5,977)
Changes in operating assets and liabilities, net of
acquisitions and discontinued operations:
Accounts receivable ........................................... (1,472) (13,130) (4,038)
Inventories ................................................... 14,146 (13,078) 12,882
Accounts payable and accounts payable related parties ......... 823 5,035 14,359
Accrued restructuring charges ................................. 16,834 (7,000) 5,701
Other assets and liabilities .................................. 7,415 (5,724) (24,763)
--------- --------- ----------
Net cash provided by continuing operations ................... 36,511 36,666 22,009
Net cash used for discontinued operations .................... (9,175) (486) --
--------- --------- ----------
Net cash provided by operating activities .................... 27,336 36,180 22,009
--------- --------- ----------
INVESTING ACTIVITIES:
Capital expenditures ............................................ (19,348) (23,344) (33,117)
Acquisitions, net of cash acquired .............................. (7,272) (841) (119,065)
Proceeds from sale of assets .................................... -- -- 40,169
Proceeds from sale of discontinued operations ................... -- 42,650 --
Purchase of note from related party ............................. (2,000) -- (5,000)
Repayment of (purchase of) note from partner .................... -- 18,623 (2,500)
Decrease (increase) in restricted cash .......................... -- (12,143) 12,143
Capital expenditures for discontinued operations ................ (4,429) (919) --
Other investing activities ...................................... 2,495 (1,276) 112
--------- --------- ----------
Net cash provided by (used for) investing activities .......... (30,554) 22,750 (107,258)
--------- --------- ----------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings ......... (1,685) 1,493 2,894
Net proceeds from (repayments of) revolving loans ............... (3,000) -- 54,928
Proceeds from long-term debt .................................... -- 1,500 594,499
Repayments of long-term debt .................................... (9,099) (38,116) (430,593)
Purchase of FJPS senior secured discount debentures ............. -- -- (105,829)
Tax distribution advances ....................................... -- -- (13,618)
Distributions to partners ....................................... (2,379) (3,487) (10,283)
Debt issuance costs ............................................. -- -- (18,410)
Other financing activities ...................................... -- 10 98
--------- --------- ----------
Net cash provided by (used for) financing activities .......... (16,163) (38,600) 73,686
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents ............. (19,381) 20,330 (11,563)
Cash and cash equivalents at beginning of period ................. 20,019 638 20,968
--------- --------- ----------
Cash and cash equivalents at end of period ....................... $ 638 $ 20,968 $ 9,405
========= ========= ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended 1995, 1996 and 1997
<TABLE>
<CAPTION>
Note
General Limited Receivable
Partners Partners from Partner Other Total
---------- ---------- ------------ --------- ----------
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995 .......................... 1,448 97,686 (38,167) (8,419) 52,548
Net loss ............................................. (1,044) (52,199) -- -- (53,243)
Distributions ........................................ (125) (5,603) -- -- (5,728)
Purchase of note receivable from Foamex
International ....................................... -- -- (2,000) -- (2,000)
Increase in note receivable from Trace Holdings ...... -- -- -- (1,373) (1,373)
Accretion of note receivable from partner ............ 125 6,152 (6,277) -- --
Additional pension liability ......................... -- -- -- (3,290) (3,290)
Foreign currency translation adjustment .............. - -- -- 482 482
---------- ---------- --------- --------- ----------
Balances at December 31, 1995 ........................ 404 46,036 (46,444) (12,600) (12,604)
Net income ........................................... 184 9,515 -- -- 9,699
Distributions ........................................ (104) (5,108) -- -- (5,212)
Accretion of note receivable from partner ............ 144 7,031 (7,175) -- --
Repayment of note receivable from partner ............ -- -- 18,439 -- 18,439
Repayment premium on note receivable from partner..... 4 180 -- -- 184
Additional pension liability ......................... -- -- -- 2,372 2,372
Foreign currency translation adjustment .............. - -- -- (46) (46)
---------- ---------- --------- --------- ----------
Balances at December 29, 1996 ........................ 632 57,654 (35,180) (10,274) 12,832
Net loss ............................................. (746) (36,548) -- -- (37,294)
Distributions ........................................ (23) (1,099) -- -- (1,122)
Accretion of note receivable from partner ............ 48 2,339 (2,387) -- --
Distributions associated with the June 1997
Refinancing Plan .................................... (2,896) (141,947) 37,567 -- (107,276)
Additional pension liability ......................... -- -- -- (1,311) (1,311)
Foreign currency translation adjustment .............. -- -- -- (873) (873)
Increase in note receivable from Trace Holdings ...... -- -- -- (5,422) (5,422)
Purchase of note receivable from Foamex
International ....................................... -- -- (2,500) -- (2,500)
Tax distribution advance ............................. -- -- (13,618) -- (13,618)
Other ................................................ -- 282 -- -- 282
Deficit balance of Limited Partners assumed by
General Partners .................................... (119,319) 119,319 -- -- --
---------- ---------- --------- --------- ----------
Balances at December 28, 1997 ........................ $ (122,304) $ -- $ (16,118) $ (17,880) $ (156,302)
========== ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-7
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P. is a manufacturer and distributor of flexible polyurethane
foam and advanced polymer foam products in North America. During 1995, 1996 and
1997, Foamex L.P.'s products were utilized primarily in five end markets (i)
carpet cushion and other carpet products, (ii) cushioning foams including
bedding, (iii) automotive applications, including trim and accessories, (iv)
furniture products for furniture manufacturers and distributors, and (v)
specialty and technical applications including those for foams for filtration,
gasketing and sealing.
During 1995, 1996 and 1997, Foamex L.P., a Delaware limited partnership,
was an indirect, majority-owned subsidiary of Foamex International Inc.
("Foamex International"). Effective February 27, 1998, Foamex L.P. became a
wholly-owned subsidiary of Foamex International (See Note 19).
On December 23, 1997, Foamex L.P. acquired Crain Industries, Inc.
("Crain") pursuant to a merger agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million, including the assumption of
debt with a face value of approximately $98.6 million (and an estimated fair
value of approximtely $112.3 million) (the "Crain Acquisition"). In addition,
fees and expenses associated with the Crain Acquisition are approximately $13.2
million. The Crain Acquisition provided a fully integrated manufacturer,
fabricator and distributor of a broad range of flexible polyurethane foam and
foam products which are sold to a diverse customer base, principally in the
furniture, bedding and carpet cushion markets. In connection with the Crain
Acquisition, Foamex L.P. approved a restructuring/consolidation plan for the
two entities. Foamex L.P. recorded restructuring charges of $21.1 million
relating to restructuring Foamex L.P.'s operations in connection with the Crain
Acquisition and related transactions. In addition, Foamex L.P. recorded
approximately $1.5 million of severance and related costs and $8.5 million for
costs associated with the shut down and consolidation of certain acquired
facilities.
On March 16, 1998, Foamex International announced that its Board of
Directors received an unsolicited buyout proposal from Trace International
Holdings, Inc. ("Trace Holdings"), Foamex International's principal
stockholder. Trace Holdings proposed to acquire all of the outstanding common
stock of Foamex International not currently owned by Trace Holdings and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings
informed the Board of Directors that financing for the buyout transaction would
be arranged through Donaldson, Lufkin & Jenrette Securities Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace
Holdings and its subsidiaries beneficially owned approximately 11,475,000
shares or approximately 46% of the outstanding common stock of Foamex
International. In response to Trace Holding's offer, Foamex International's
Board of Directors has appointed a special committee to determine the
advisability and fairness of the proposed buyout to Foamex International's
stockholders other than Trace Holdings and its subsidiaries. Trace's proposed
buyout is subject to a number of conditions, including the negotiations of
definitive documents (which are expected to contain customary closing
conditions); the filing of a disclosure statement and other documents with the
Securities and Exchange Commission; regulatory filings; and approval of the
transaction by a majority of Foamex International's stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Foamex L.P.
and all subsidiaries that Foamex L.P. directly or indirectly controls, either
through majority ownership or otherwise. Intercompany accounts and transactions
for continuing operations have been eliminated in consolidation.
Fiscal Year
Foamex L.P.'s fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1995, 1996 and 1997 were composed of fifty-two
weeks and ended on December 31, 1995, December 29, 1996 and December 28, 1997,
respectively.
F-8
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 4, 8, 11, 15, 16 and 17 and Cost in Excess of Net
Assets Acquired below.)
Revenue Recognition
Revenue from sales is recognized when products are shipped at which time
title passes to the customer.
Discounts and Billing Adjustments
A reduction in sales revenue is recognized for sales discounts when
product is invoiced or for other billing adjustments.
Cash and Cash Equivalents
Foamex L.P. considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
As of December 29, 1996, Foamex L.P. had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to
the sale of Perfect Fit (See Note 9) and was restricted by Foamex L.P.'s debt
agreements. During 1997, Foamex L.P. used the restricted cash to repurchase
approximately $11.8 million of outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings is generally twenty to
thirty-five years and the range for machinery, equipment and furnishings is
five to twelve years. Leasehold improvements are amortized over the shorter of
the terms of the respective leases or the estimated useful lives of the
leasehold improvements. Depreciation expense for the years ended 1995, 1996 and
1997 was $18.7 million, $17.9 million and $17.6 million, respectively. For
income tax purposes, Foamex L.P. uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the effective interest method. Accumulated amortization as of December
29, 1996 and December 28, 1997 was approximately $7.5 million and $1.4 million,
respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
Foamex L.P. evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators
F-9
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
such as historical and future ability to generate income from operations based
on a going concern basis. Accumulated amortization as of December 29, 1996 and
December 28, 1997 was approximately $11.6 million and $12.0 million,
respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs
can be reasonably estimated.
Postretirement and Postemployment Benefits
Foamex L.P. accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, Foamex L.P. accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other partners' equity (deficit) until the entity is substantially
sold or liquidated. For operations in countries treated as highly inflationary,
certain financial statement amounts are translated at historical exchange
rates, with all other assets and liabilities translated at year end exchange
rates. These translation adjustments are reflected in the results of operations
and are insignificant for all periods presented. Also, foreign currency
transaction gains and losses are insignificant for all periods presented. The
effect of foreign currency exchange rates on cash flows is not material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the asset and liability method, in
which deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Foamex L.P., as a limited partnership, is not subject to federal income
taxes; therefore no current or deferred provision has been provided for such
taxes. However, Foamex L.P. has provided for the income taxes of certain states
in which it is subject to taxes and for certain subsidiaries which are subject
to federal and state income taxes. The partners will provide for their
respective shares of income or loss in their federal or applicable state income
tax returns. Foamex L.P. has a tax sharing agreement that provides for the
payment of distributions to the partners for amounts that would be required to
be paid if Foamex L.P. was a corporation filing separate tax returns. The
ability of Foamex L.P. to make such distributions is limited by the terms of
its credit agreements and indentures. (See Note 7).
Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-10
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Foamex L.P. will adopt SFAS No. 130 for 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Foamex L.P. will
adopt SFAS No. 131 for year ended 1998 reporting. Management is evaluating the
impact, if any, the standard will have on the Company's present segment
reporting.
3. ACQUISITIONS
On December 23, 1997, Foamex L.P. acquired Crain pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately
$213.7 million, including the assumption of debt with a face value of
approximately $98.6 million (with an estimated fair value of approximately
$112.3 million). In addition, fees and expenses associated with the Crain
Acquisition are approximately $13.2 million. The Crain Acquisition provided a
fully integrated manufacturer, fabricator and distributor of a broad range of
flexible polyurethane foam and foam products which are sold to a diverse
customer base, principally in the furniture, bedding and carpet cushion
markets. The acquisition was funded by $118.0 million in bank borrowings by
Foamex L.P. under the Credit Facility. The excess of the purchase price over
the estimated fair value of the net assets acquired was approximately $152.5
million. In connection with the Crain Acquisition, Foamex L.P. approved a plan
to close certain acquired facilities. As of the acquisition date, Foamex L.P.
established accruals of approximately $1.5 million of severance and related
costs and $8.5 million for costs associated with the shut down and
consolidation of certain acquired facilities.
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million.
During 1994, Foamex L.P. acquired Transformaci-n De Espumas Y Fi-ltros
S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately $4.5
million to be paid over a three-year period with an initial cash payment of
$1.7 million. During 1995, 1996 and 1997, Foamex L.P. made scheduled cash
payments of $0.8 million, $0.8 million and $0.9 million, respectively, in
accordance with the purchase agreement.
The acquisitions were accounted for as purchases and the operations of the
acquired companies are included in the consolidated statements of operations
and cash flows from their respective dates of acquisition. However, Crain's
operations for the period from December 24, 1997 to December 28, 1997 have not
been included in the consolidated statements of operations or cash flows since
the affect would be insignificant. The cost of each acquisition has been
allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years. The allocation of the purchase price for the Crain
Acquisition is based upon preliminary estimates and assumptions and is subject
to revision once appraisals, valuations and other studies of the fair value of
the acquired assets and liabilities have been completed. The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at
the beginning of each year presented.
F-11
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. ACQUISITIONS (continued)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(thousands)
<S> <C> <C>
Net sales ..................... $1,271,315 $1,256,712
========== ==========
Income (loss) from continuing
operations .................... $ 45,881 $ 2,904
========== ==========
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the Crain Acquisition had been in effect for the entire periods
presented nor are they necessarily indicative of future consolidated results.
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, Foamex L.P. approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations to concentrate resources as a result of industry conditions
and to better position itself to achieve its strategic growth objectives.
Foamex L.P. recorded restructuring and other charges of $39.2 million which was
comprised of $35.6 million associated with the consolidation of the foam
production, fabrication or branch locations, $2.2 million associated with the
completion of a 1993 restructuring plan and $1.4 million associated with merger
and acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost
for personnel reductions primarily represents severance and employee benefit
costs associated with the elimination of manufacturing and administrative
personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. approved a plan
to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net restructuring credit which included a
restructuring credit of $11.3 million associated with Foamex L.P.'s decision
not to close the facility identified as part of the 1995 restructuring plan and
$1.7 million of restructuring credits relating primarily to the favorable
termination of certain lease agreements and other matters relating to the 1995
restructuring plan, offset by $6.6 million of restructuring charges relating to
the closure of the two facilities during 1997 (the "1996 restructuring plan").
During December 1997, Foamex L.P. approved a restructuring plan (the "1997
restructuring plan") to consolidate nine of Foamex L.P.'s foam production,
fabrication or branch locations in connection with the Crain Acquisition. (See
Note 3.) Foamex L.P. recorded restructuring and other charges of $21.1 million
which was comprised of $23.0 million associated with the consolidation of the
foam production, fabrication or branch locations, offset by $1.9 million of
restructuring credits due primarily to the favorable termination of certain
lease agreements and other matters associated with the 1996 and 1995
restructuring plans. The components of the $23.0 million restructuring charge
include: $12.1 million for fixed assets writedowns (net of estimated sale
proceeds), $9.8 million for plant closure and operating lease obligations and
$1.1 million for personnel reductions.
In addition, Foamex L.P. approved a consolidation plan to integrate the
acquired Crain facilities into Foamex L.P.'s existing facilities. Foamex L.P.
recorded approximately $1.5 million of severance and related costs and $8.5
million for costs associated with the shut down of certain acquired facilities.
F-12
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
As discussed above, the 1995 and 1996 restructuring plans have been
generally implemented as originally contemplated. The following table sets
forth the components of Foamex L.P.'s restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
------- ---------- ------------- ---------- -------
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge .......................... $ 39.2 $ 16.7 $ 15.1 $ 3.8 $ 3.6
Asset writeoff/writedowns .......................... (23.3) (20.9) -- -- (2.4)
Cash spending ...................................... (0.4) -- (0.3) (0.1) --
------- ------- ------- ------- -------
Balances at December 31, 1995 ...................... 15.5 (4.2) 14.8 3.7 1.2
Cash spending ...................................... (9.7) -- (6.6) (2.0) (1.1)
Cash proceeds ...................................... 1.0 1.0 -- -- --
1996 restructuring charge .......................... 6.6 2.4 4.1 0.1 --
Restructuring credits .............................. (13.0) (9.7) (2.8) (0.4) (0.1)
Asset adjustment for restructuring credits ......... 8.1 8.7 (0.6) -- --
------- ------- ------- ------- -------
Balances at December 29, 1996 ...................... 8.5 (1.8) 8.9 1.4 --
Cash spending ...................................... (2.3) -- (1.4) (0.9) --
1997 restructuring charge .......................... 23.0 12.1 9.8 1.1 --
Restructuring credits .............................. (1.9) 0.1 (2.3) 0.3 --
Asset write-off/writedowns ......................... (16.1) (16.1) -- -- --
Plant consolidation costs .......................... 10.0 -- 8.5 1.5 --
------- ------- ------- ------- -------
Balance at December 28, 1997 ....................... $ 21.2 $ (5.7) $ 23.5 $ 3.4 $ --
======= ======= ======= ======= =======
</TABLE>
As indicated in the table above, the accrued restructuring and plant
consolidation balance at December 28, 1997 will be used for payments relating
to plant closure and leases for the closed facilities. The $5.7 million of
asset writedowns relates to estimated proceeds and is included in noncurrent
assets. Foamex L.P. expects to incur approximately $15.6 million of charges
during 1998 with the remaining $11.3 million to be incurred through 2004. As of
December 28, 1997, Foamex L.P. has terminated all 270 employees associated with
the 1996 and 1995 restructuring plans and notified approximately 640 employees
in the manufacturing and administrative areas of their impending termination in
connection with the 1997 restructuring and plant consolidation plans.
5. INVENTORIES
Inventories consists of:
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
(thousands)
<S> <C> <C>
Raw materials and supplies ......... $ 60,169 $ 75,487
Work-in process .................... 13,453 15,620
Finished goods ..................... 27,598 29,192
-------- --------
Total .............................. $101,220 $120,299
======== ========
</TABLE>
6. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at
the bank's prime rate (6.0% at December 28, 1997) plus 1/2%. The weighted
average interest rates on Foamex Canada's short-term borrowings outstanding for
1995, 1996 and 1997 were 8.0%, 5.9% and 5.4%, respectively. Borrowings under
Foamex Canada's credit facility are due on demand and are
F-13
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. SHORT-TERM BORROWINGS (continued)
collateralized by accounts receivable, property and inventories of Foamex
Canada having an approximate net carrying value of $20.0 million as of December
28, 1997. The unused amount under this line of credit totaled $2.0 million as
of December 28, 1997.
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
-------------- -------------
(thousands)
<S> <C> <C>
Credit Facility:
Term Loan A(1) ..................................................... $ -- $ 76,700
Term Loan B(1) ..................................................... -- 109,725
Term Loan C(1) ..................................................... -- 99,750
Term Loan D(1) ..................................................... -- 110,000
Revolving credit facility(2) ....................................... -- 54,928
9-7/8% Senior subordinated notes due 2007(3) ........................ -- 150,000
13-1/2% Senior subordinated notes due 2005 (includes $13,720 of
unamortized debt premiums)(3) ...................................... -- 111,720
9-1/2% Senior secured notes due 2000(4) ............................. 106,793 4,523
11-1/4% Senior notes due 2002(4) .................................... 141,400 --
11-7/8% Senior subordinated debentures due 2004 (net of unamortized
debt discount of $769).............................................. 125,056 --
11-7/8% Senior subordinated debentures due 2004, Series B(5) ........ 7,000 --
Industrial revenue bonds(6) ......................................... 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996)(6) .............................................. 11,000 --
Subordinated note payable (net of unamortized debt discount of
$1,198 and $886)(5)................................................. 5,817 6,129
Other ............................................................... 2,286 8,335
-------- --------
406,352 738,810
Less current portion ................................................ 13,735 12,161
-------- --------
Long-term debt-unrelated parties .................................... $392,617 $726,649
======== ========
</TABLE>
(1) Debt of Foamex L.P., guaranteed by Foamex International, General Felt and
Foamex Fibers.
(2) Debt of Foamex L.P. and General Felt, guaranteed by Foamex International
and Foamex Fibers.
(3) Debt of Foamex L.P. and Foamex Capital Corporation, guaranteed by General
Felt and Foamex Fibers.
(4) Debt of Foamex L.P. and Foamex Capital Corporation ("FCC"), guaranteed by
Foamex International and General Felt.
(5) Debt of Foamex L.P. and Foamex Capital Corporation and guaranteed by
General Felt.
(6) Debt of Foamex L.P.
(7) Debt of Foamex L.P. and Foamex Capital Corporation and guaranteed by Foamex
International.
Refinancing Plan
On June 12, 1997, Foamex International substantially completed a
refinancing plan (the "Refinancing Plan") that included the refinancing of
certain long-term indebtedness to reduce Foamex International's interest
expense and improve financing flexibility. In connection with the Refinancing
Plan, Foamex L.P. purchased approximately
F-14
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
$342.3 million of aggregate principal amount of its public debt and
approximately $116.7 million of aggregate principal amount of FJPS's senior
secured discount debentures due 2004 (the "Discount Debentures") and repaid
$5.2 million of term loan borrowings under an existing credit facility. Foamex
L.P. incurred an extraordinary loss on the early extinguishment of debt
associated with the Refinancing Plan of approximately $44.5 million. The
Refinancing Plan was funded by $347.0 million of borrowings under a new $480.0
million credit facility (the "Credit Facility") and the net proceeds from the
issuance of $150.0 million of 9-7/8% senior subordinated notes due 2007.
In addition, on October 1, 1997, Foamex L.P. redeemed all of the
outstanding: (i) 11-1/4% senior notes due 2002, (ii) 11-7/8% senior subordinated
debentures due 2004 and (iii) the 11-7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.2 million of the approximately
$30.7 million of its outstanding public debt that was not tendered as part of
the Refinancing Plan. The redemption was funded from borrowings under the
Credit Facility. In connection with this redemption, Foamex L.P. incurred an
extraordinary loss on the early extinguishment of debt of approximately $2.1
million.
Credit Facility
On June 12, 1997, Foamex L.P. entered into the Credit Facility with a
group of banks that provides for term loans of up to $440.0 million which
expire from June 2003 to June 2006 and borrowings of up to $150.0 million under
a revolving line of credit which expires in June 2003. The term loans are
comprised of a (i) term A loan ("Term A") which provides up to $120.0 million
of borrowings, (ii) term B loan ("Term B") of $110.0 million, (iii) term C loan
("Term C") of $100.0 million and (iv) term D loan ("Term D") of $110.0 million.
Borrowings under the Credit Facility are collateralized by substantially
all of the assets of Foamex L.P., General Felt and Foamex Fibers on a pari
passu basis with the 9-1/2% senior secured notes due 2000 and the industrial
revenue bonds (collectively, the "Notes"); however, the rights of the holders
of the applicable issue of Notes to receive payment upon the disposition of the
collateral securing such issue of Notes has been preserved.
Pursuant to the terms of the Credit Facility, borrowed funds will bear
interest at a floating rate equal to an applicable margin, as defined, plus the
higher of (i) the base rate of The Bank of Nova Scotia, in effect from time to
time, or (ii) a rate that is equal to 0.5% per annum plus the federal funds
rate in effect from time to time. The applicable margin is determined based on
the total net debt to EBDAIT ratio, as defined, and can range from no margin up
to 1.125% per annum for Term A and revolving loans, from 0.875% per annum to
1.375% per annum for Term B, from 1.125% per annum to 1.625% per annum for Term
C and from 1.250% per annum to 1.750% per annum for Term D. At the option of
Foamex L.P., portions of the outstanding loans under the Credit Facility are
convertible into LIBOR based loans which bear interest at a floating rate equal
to an applicable margin for LIBOR based loans, as defined, plus the average
LIBOR, as defined. The applicable margin for LIBOR based loans is a rate that
will generally equal the applicable margin (discussed above) plus 1.0% per
annum.
Foamex L.P. had a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which was to expire in June 1999. In 1994, Foamex
L.P. and General Felt entered into a $40.0 million term loan under the Foamex
L.P. Credit Facility. During 1996 and 1997, Foamex L.P. and General Felt used
$12.0 million and $3.8 million, respectively, of net proceeds from the Perfect
Fit sale to repay term loan borrowings. The term loan was repaid in connection
with the Refinancing Plan.
9-7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in
connection with the Refinancing Plan. The Senior Subordinated Notes bear
interest at the rate of 9-7/8% per annum payable semiannually on each June 15
and December 15, commencing December 15, 1997. The Senior Subordinated Notes
mature on June 15, 2007.
F-15
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
The Senior Subordinated Notes may be redeemed at the option of Foamex L.P., in
whole or in part, at any time on or after June 15, 2002, initially at 104.938%
of their principal amount, plus accrued interest and liquidated damages, as
defined, if any, thereon to the date of redemption and declining to 100.0% on
or after June 15, 2005. In addition, at any time prior to June 15, 2000, Foamex
L.P. may on one or more occasions redeem up to 35.0% of the initially
outstanding principal amount of the Senior Subordinated Notes at a redemption
price equal to 109.875% of the principal amount, plus accrued interest and
liquidated damages, if any, thereon to the date of redemption with the cash
proceeds of one or more Public Equity Offerings, as defined. Upon the
occurrence of a change of control, as defined, each holder of Senior
Subordinated Notes will have the right to require Foamex L.P. to repurchase the
Senior Subordinated Notes at a price equal to 101.0% of the principal amount,
plus accrued interest and liquidated damages, if any, to the date of
repurchase. The Senior Subordinated Notes are subordinated in right of payment
to all senior indebtedness and are pari passu in right of payment to the
subordinated note.
13-1/2% Senior Subordinated Notes due 2005 ("13-1/2% Senior Subordinated
Notes")
The 13-1/2% Senior Subordinated Notes were issued by Foamex L.P. and FCC in
a private placement under the Securities Act of 1933, as amended, on December
23, 1997 in connection with the Crain Acquisition. The 13-1/2% Senior
Subordinated Notes represent unsecured general obligations of Foamex L.P. and
are subordinated to all Senior Debt (as defined in the Indenture).
The 13-1/2% Senior Subordinated Notes mature on August 15, 2005. Interest
on the 13-1/2% Senior Subordinated Notes is payable semiannually on each
February 15 and August 15. The 13-1/2% Senior Subordinated Notes bear interest
at the rate of 13-1/2% per annum. The 13-1/2% Senior Subordinated Notes may be
redeemed prior to August 15, 2002, except in the event of a Change of Control
(as defined) or Foamex L.P. may, subject to certain requirements (as defined),
on or prior to August 15, 1998 redeem up to 33-1/3% of the aggregate original
principal amount with proceeds from an Equity Offering (as defined).
Foamex L.P. has filed a registration statement relating to an exchange
offer in which Foamex L.P. will offer to exchange the 13-1/2% Senior
Subordinated Notes issued in the private placement for new notes. The terms of
the new notes will be substantially identical in all respects (including
principal amount, interest rate, maturity and ranking) to the terms of the
13-1/2% Senior Subordinated Notes, except that the new notes will be
transferable by holders thereof without further registration under the
Securities Act of 1933, as amended (except in the case of 13-1/2% Senior
Subordinated Notes held by affiliates of Foamex L.P. and for certain other
holders), and are not subject to any covenant regarding registration under the
Securities Act of 1933, as amended.
9-1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 with interest at the
rate of 9-1/2% payable semiannually on each June 1 and December 1. The Senior
Secured Notes had a maturity date of June 1, 2000. The Senior Secured Notes
were collateralized by a first-priority lien on substantially all of the assets
of Foamex L.P. except for receivables, real estate and fixtures. The Senior
Secured Notes were defeased in February 1998.
11-1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes had an interest rate of 11-1/4% payable semiannually on
each April 1 and October 1. The Senior Notes had a maturity date of October 1,
2002.
11-7/8% Senior Subordinated Debentures due 2004 ("Subordinated Debentures")
The Subordinated Debentures had an interest rate of 11-7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures had a
maturity date of October 1, 2004.
11-7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in
connection with the acquisition of General Felt on March 23, 1993. The Series B
Debentures had terms substantially similar to the Subordinated Debentures.
F-16
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.4 million at
December 28, 1997 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.15% and 3.85% at
December 28, 1997 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the former Chief
Operating Officer of Foamex International, on May 6, 1993 by Foamex L.P. in
connection with the acquisition of Great Western Foam Products Corporation and
certain related entities and assets (collectively, "Great Western"). The note
bears interest at a maximum rate of 6% per annum and the principal amount is
payable in three equal annual installments beginning May 6, 1999.
Other
As of December 28, 1997, other debt is comprised primarily of capital
lease obligations and borrowings by Foamex Mexico.
Early Extinguishment of Debt--Refinancing Plan
In connection with the Refinancing Plan, Foamex L.P. incurred an
extraordinary loss on the early extinguishment of debt of approximately $44.5
million. The extraordinary loss is comprised of approximately $20.2 million for
premium and consent fee payments, approximately $12.6 million for the write-off
of debt issuance costs and debt discount, approximately $8.2 million for the
loss associated with the effective termination and amendment of the interest
rate swap agreements and approximately $3.5 million of professional fees and
other costs. In connection with the Refinancing Plan, Foamex L.P. repaid $5.2
million in term loan borrowings under the Foamex L.P. Credit Facility and
purchased approximately $459.0 million of aggregate principal amount of public
debt comprised of:
o $99.8 million of aggregate principal amount of its 9-1/2% senior
secured notes due 2000 for an aggregate consideration of 104.193% of
principal plus accrued interest, comprised of a tender price of
102.193% and a consent fee of 2.0%;
o $130.1 million of aggregate principal amount of its 11-1/4% senior
notes due 2002 for an aggregate consideration of 105.709% of principal
plus accrued interest, comprised of a tender price of 103.709% and a
consent fee of 2.0%;
o $105.5 million of aggregate principal amount of its 11-7/8% senior
subordinated debentures due 2004 for an aggregate consideration of
107.586% of principal plus accrued interest, comprised of a tender
price of 105.586% and a consent fee of 2.0%;
o $6.9 million of aggregate principal amount of its 11-7/8% senior
subordinated debentures, series B due 2004 for an aggregate
consideration of 107.586% of principal plus accrued interest, comprised
of a tender price of 105.586% and a consent fee of 2.0%; and
o $116.7 million of aggregate principal amount of the Discount Debentures
for an aggregate consideration of 90.0% of principal amount, which
represents approximately 121.9% of the accreted book value as of June
12, 1997, comprised of a tender price of 88.0% of principal amount and
a consent fee of 2.0%.
Early Extinguishment of Debt--Other
In addition, during 1997 Foamex L.P. incurred extraordinary losses of
approximately $1.0 million associated with the early extinguishment of
approximately $11.8 million of long-term debt funded with approximately $12.1
F-17
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
million of the remaining net proceeds from the sale of Perfect Fit. The
extraordinary loss is comprised of approximately $0.4 million of premium
payments and approximately $0.6 million for the write-off of debt issuance
costs. The long-term debt was comprised of:
o $2.5 million of aggregate principal amount of its 9-1/2% senior secured
notes due 2000.
o $5.5 million of aggregate principal amount of its 11-1/4% senior notes
due 2002.
o Bank term loan borrowings of $3.8 million under Foamex L.P.'s old
credit facility.
During 1996, Foamex L.P. used $31.3 million of the net proceeds from the
sale of Perfect Fit to extinguish debt of $30.6 million and redemption premiums
of $0.6 million. Foamex L.P. wrote off $1.2 million of debt issuance costs
associated with the early extinguishment of debt and incurred transaction costs
of $0.1 million. The early extinguishment of debt resulted in an extraordinary
loss of $1.9 million.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing interest rates. Foamex L.P.
does not hold or issue financial instruments for trading purposes.
In connection with the Refinancing Plan, Foamex L.P.'s existing interest
rate swap agreements with a notional amount of $300.0 million were considered
to be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, Foamex L.P. entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, Foamex L.P. entered into a new amendment
to its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, Foamex L.P. is obligated to make fixed payments of
5.78% per annum through December 1998 and variable payments based on LIBOR at
the beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each
six month period commencing December 1999.
Foamex L.P. is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of the interest rate swaps was a favorable adjustment to interest and
debt issuance expense of $1.4 million, $3.7 million and $2.2 million for 1995,
1996 and 1997, respectively.
Debt Restrictions and Covenants
The indentures, credit facility and other indebtedness agreements contain
certain covenants that limit, among other things, the ability of Foamex L.P.
(i) to pay distributions or redeem partnership interests, (ii) to make certain
restrictive payments or investments, (iii) to incur additional indebtedness or
issue Preferred Equity Interest, as defined, (iv) to merge, consolidate or sell
all or substantially all of its assets, or (v) to enter into certain
transactions with affiliates or related persons. In addition, certain
agreements contain a provision that, in the event of a defined change of
control, the indebtedness must be repaid, in certain cases at the option of the
holder. Also, Foamex L.P. is required under certain of these agreements to
maintain specified financial ratios of which the most restrictive is the
maintenance of net worth and interest coverage ratios, as defined. Under the
most restrictive of the distribution restrictions, Foamex L.P. can make
distributions to Foamex International only to the extent to enable Foamex
International to meet its operating and debt obligations.
As of December 28, 1997, Foamex L.P. was in compliance with the covenants
of the indentures, credit agreements and other indebtedness agreements and
expects to be in compliance with these covenants for the foreseeable future.
F-18
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
<TABLE>
<CAPTION>
Year Ended Long-Term Debt
----------------------------------------- --------------
(thousands)
<S> <C>
1998 .................................... $ 12,161
1999 .................................... 17,902
2000 .................................... 26,168
2001 .................................... 19,171
2002 .................................... 23,248
Thereafter .............................. 627,326
--------
725,976
Unamortized debt premium, net ........... 12,834
--------
Total ................................... $738,810
========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Foamex L.P. maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(thousands)
<S> <C> <C> <C>
Service cost ........................ $ 2,087 $ 2,471 $ 2,229
Interest cost ....................... 3,742 3,997 4,273
Actual return on plan assets ........ (5,682) (8,841) (6,308)
Net amortization and deferral ....... 1,807 4,643 703
-------- -------- --------
Total ............................... $ 1,954 $ 2,270 $ 897
======== ======== ========
</TABLE>
Foamex L.P.'s funding policy is to contribute annually an amount that both
satisfies the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 and does not exceed the full funding limitations of the
Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life
insurance funds and cash equivalents. During 1997, the discount rate was
adjusted to 7.0%. The following table sets forth the funded status of Foamex
L.P.'s underfunded plans and the amounts recognized in the accompanying
consolidated balance sheets as of December 29, 1996 and December 28, 1997:
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
-------------- -------------
(thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefits ........................................... $ 55,336 $ 61,188
Nonvested benefits ........................................ 2,137 3,112
-------- --------
Accumulated benefit obligations ........................... $ 57,473 $ 64,300
======== ========
</TABLE>
F-19
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. EMPLOYEE BENEFIT PLANS (continued)
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
(thousands)
<S> <C> <C>
Total projected benefit obligations ............................ $ 58,775 $ 65,948
Fair value of plan assets ...................................... 53,734 58,952
-------- --------
Projected benefit obligations in excess of plan assets ......... (5,041) (6,996)
Unrecognized net loss from past experience difference from that
assumed and effect of changes in assumptions .................. 1,099 4,704
Additional minimum liability ................................... (2,694) (3,982)
------ ------
Accrued pension cost ........................................... $ (6,636) $ (6,274)
========= =========
</TABLE>
Significant assumptions used in determining the plans' funded status are
as follows:
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
<S> <C> <C>
Expected long-term rates of return on plan assets .............. 9.50% 10.00%
Discount rates on projected benefit obligations ................ 7.50% 7.00%
Rates of increase in compensation levels (where applicable) .... 4.00% 4.00%
</TABLE>
Defined Contribution Plan
Foamex L.P. maintains a defined contribution plan which is qualified under
Section 401(k) of the Code and is available for eligible employees who elect to
participate in the plan. Employee contributions are voluntary and subject to
certain limitations as imposed by the Code. Foamex L.P. provides contributions
amounting to a 25% match of employees' contributions up to 4% of eligible
compensation. Foamex L.P. also provides an additional 25% match of employees'
contributions up to 4% of eligible compensation made to a fund which invests in
Foamex International common stock. In addition, Foamex L.P. may make
discretionary contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. The expense for these
contributions for 1995, 1996 and 1997 was approximately $0.7 million, $0.8
million and $0.9 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, Foamex L.P. provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and Foamex L.P.
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1995, 1996 and 1997 expense for postretirement benefits
are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned ........... $ 24 $ 12 $ 9
Interest cost on liability .................. 83 67 71
Net amortization and deferral ............... (13) (53) (56)
Special termination/curtailment loss ........ 619 576 74
----- ----- -----
Net periodic postretirement benefit cost .... $ 713 $ 602 $ 98
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996 and
December 28, 1997 resulted in an unfunded obligation of $2.1 million and $2.0
million, respectively.
An 9% and 8% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1997, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000.
F-20
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. EMPLOYEE BENEFIT PLANS (continued)
Increasing the weighted average assumed health care cost trend rates by one
percentage point would have an insignificant impact on the accumulated
postretirement benefit obligation and service and interest cost. The discount
rate used was 7.50% and 7.00% as of December 29, 1996 and December 28, 1997,
respectively.
Postemployment Benefits
Foamex L.P. provides certain postemployment benefits to former or inactive
employees and their dependents during the time period following employment but
before retirement. At December 29, 1996 and December 28, 1997, Foamex L.P.'s
liability for postemployment benefits was insignificant for each period.
9. DISCONTINUED OPERATIONS
During 1996, Foamex L.P. finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included all of the net assets of Foamex
L.P.'s home comfort products segment. Actual and estimated transaction expenses
related to the sale totaled approximately $1.5 million. Foamex L.P. recorded a
net loss on the sale of Perfect Fit of approximately $41.8 million, which
includes the loss on disposal and a net loss of $1.3 million (net of $1.2
million income tax benefit) relating to operating losses during the phase-out
period. Interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds of
the sale.
10. SALE OF ASSETS
On October 6, 1997, Foamex L.P. sold substantially all of the net assets
of its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.0 million. Foamex L.P. realized an
insignificant gain on the sale in 1997. Foamex L.P. used $38.8 million of the
net sale proceeds to repay outstanding term loan borrowings under the Credit
Facility. In connection with this repayment, Foamex L.P. incurred an
extraordinary loss on the early extinguishment of debt of approximately $0.9
million during 1997.
11. INCOME TAXES
Income (loss) from continuing operations before provision for income taxes
consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ------- -------
(thousands)
<S> <C> <C> <C>
United States ................................................... $ (45,738) $58,277 $15,076
Foreign ......................................................... (983) 3,086 (916)
--------- ------- -------
Income (loss) from continuing operations before provision
(benefit) for income taxes ..................................... $ (46,721) $61,363 $14,160
========= ======= =======
</TABLE>
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
(thousands)
<S> <C> <C> <C>
Continuing operations ........................................... $ 1,405 $ 7,702 $ 2,895
Discontinued operations ......................................... (2,640) (2,606) --
-------- -------- -------
Total consolidated provision (benefit) for income taxes ......... $ (1,235) $ 5,096 $ 2,895
======== ======== =======
</TABLE>
F-21
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is summarized
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------ -------
(thousands)
<S> <C> <C> <C>
Current:
Federal ......................................................... $ -- $ 220 $ 1,958
State ........................................................... 266 686 1,007
Foreign ......................................................... 480 786 498
-------- ------ -------
Total current ................................................... 746 1,692 3,463
-------- ------ -------
Deferred:
Federal ......................................................... (1,424) 1,665 (247)
State ........................................................... (268) 1,248 (87)
Foreign ......................................................... (289) 491 (234)
-------- ------ -------
Total deferred .................................................. (1,981) 3,404 (568)
-------- ------ -------
Total consolidated provision (benefit) for income taxes ......... $ (1,235) $5,096 $ 2,895
======== ====== =======
</TABLE>
The tax effect of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
----------- ------------
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences ............................... $ 415 $ 422
Employee benefit accruals ................................. 714 860
Allowances and contingent liabilities ..................... 2,548 2,968
Restructuring and plant closing accruals .................. 3,632 2,514
Other ..................................................... 221 373
Net operating loss carryforwards .......................... 5,154 --
Capital loss carryforwards ................................ 14,193 9,097
Valuation allowance for deferred tax assets ............... (15,988) (9,097)
--------- --------
Deferred tax assets ....................................... 10,889 7,137
--------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment ......... 7,644 2,623
Other ..................................................... 1,188 193
--------- --------
Deferred tax liabilities .................................. 8,832 2,816
--------- --------
Net deferred tax assets (liabilities) ..................... $ 2,057 $ 4,321
========= ========
</TABLE>
Foamex L.P. has determined that taxable capital gains in the foreseeable
future for a subsidiary that files a separate federal income tax return will
likely not be sufficient to recognize the deferred tax asset associated with
the capital loss carryforward of that subsidiary. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward. During 1997, the valuation allowance for deferred
tax assets decreased by $6.9 million which included $5.0 million for the
utilization of the capital loss carryforward in connection with the sale of a
facility and $1.9 million decrease due to reversal of General Felt
preacquisition temporary differences. The $1.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of
assets acquired. At December 28, 1997, General Felt has $26.0 million of
capital loss carryforwards that expire in 2001.
F-22
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (continued)
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- --------
(thousands)
<S> <C> <C> <C>
Statutory income taxes ................................ $ (16,352) $ 21,477 $ 4,956
State income taxes, net of federal .................... 266 1,288 785
Permanent difference on partnership income ............ 12,233 (11,714) (2,119)
Limitation on the utilization of tax benefits ......... 4,929 -- --
Write-off of excess cost .............................. -- -- 4,305
Valuation allowance ................................... -- (4,823) (5,028)
Cost in excess of assets acquired ..................... 554 551 419
Other ................................................. (225) 923 (423)
--------- --------- --------
Total ................................................. $ 1,405 $ 7,702 $ 2,895
========= ========= ========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex L.P. is obligated under various noncancellable lease agreements for
rental of facilities, vehicles and other equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments
(excluding commitments accrued as part of the 1995 and 1996 restructuring plans
and the 1997 restructuring and plant consolidation plan) required under
operating leases at December 28, 1997 are:
<TABLE>
<CAPTION>
Operating
Leases
------------
(thousands)
<S> <C>
1998 ................. $11,098
1999 ................. 9,970
2000 ................. 8,338
2001 ................. 6,483
2002 ................. 6,524
Thereafter ........... 17,322
-------
Total ............... $59,735
=======
</TABLE>
Rental expense charged to operations under operating leases approximated
$10.1 million, $9.6 million and $10.1 million for 1995, 1996 and 1997,
respectively. Substantially all such rental expense represented the minimum
rental payments under operating leases. In addition, Foamex L.P. incurred
rental expense of approximately $3.5 million and $1.7 million for 1995 and
1996, respectively, under leases with related parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
Foamex L.P. regularly enters into transactions with its affiliates in the
ordinary course of business.
On July 1, 1997, Trace Holdings borrowed $5.0 million pursuant to a
promissory note with an aggregate principal amount of $5.0 million issued to
Foamex L.P. on June 12, 1997. The promissory note is due and payable on demand
or, if no demand is made, on July 7, 2001, and bears interest at 2-3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears
commencing October 1, 1997. On June 12, 1997, a promissory note issued to
Foamex L.P. by Trace Holdings in July 1996 was amended. The amended promissory
note is an extension of
F-23
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
a promissory note of Trace Holdings that was due in July 1997. The aggregate
principal amount of the amended promissory note was increased to approximately
$4.8 million and the maturity of the promissory note was extended. The
promissory note is due and payable on demand or, if no demand is made, on July
7, 2001, and bears interest at 2-3/8% plus three-month LIBOR, as defined, per
annum payable quarterly in arrears. The promissory notes are included in the
other component of partners' equity (deficit).
In connection with the Refinancing Plan, Foamex L.P. purchased
approximately $116.7 million of aggregate principal amount of Discount
Debentures for approximately $105.8 million including transaction costs of
approximately $0.8 million. Foamex L.P. subsequently distributed the Discount
Debentures to FJPS and FMXI.
Also on June 12, 1997, Foamex L.P. distributed its $56.2 million aggregate
principal amount note, as amended, due 2006 (the "FJPS Note") from FJPS with an
accreted value as of June 12, 1997 of $35.6 million to FJPS and FMXI. The
accretion of the original issue discount of $2.4 million for the period from
December 30, 1996 to June 12, 1997 was reflected as a direct increase in the
FJPS Note and partners' capital account, and thereby excluded from the
consolidated statements of operations.
In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI of the Discount Debentures, the FJPS Note
and the $2.0 million aggregate principal amount promissory note due from Foamex
International.
Foamex L.P. has a supply agreement (the "Supply Agreement") with Foamex
International pursuant to which, at the option of Foamex L.P., Foamex
International will purchase certain raw materials, which are necessary for the
manufacture of Foamex L.P.'s products, and resell such materials to Foamex L.P.
at a price equal to net cost plus reasonable out of pocket expenses. Management
believes that the terms of the Supply Agreement are no less favorable than
those which Foamex L.P. could have obtained from an unaffiliated third party.
During 1995, 1996 and 1997, Foamex L.P. purchased approximately $105.1 million,
$129.7 million and $138.6 million, respectively, of raw materials under the
Supply Agreement. As of December 29, 1996 and December 28, 1997, Foamex L.P.
had accounts payable to Foamex International of approximately $8.8 million and
$11.7 million, respectively, associated with the Supply Agreement.
Foamex L.P. chartered an aircraft (which is owned by a wholly-owned
subsidiary of Foamex International) through a third party and incurred costs of
approximately $1.4 million and $1.2 million in 1996 and 1997, respectively.
On December 26, 1997, Foamex L.P. entered into a $2.5 million promissory
note with Foamex International. The note bears interest at the rate of LIBOR
plus 2-3/8%. The note and interest are payable on demand, or if no demand is
made, then on December 31, 2001.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for
in a manner similar to a pooling of interests since the entities were under
common control. Accordingly, all prior periods presented were restated to
reflect the results of operations and financial position of Foamex Mexico. The
restatement of prior periods was insignificant to the consolidated financial
statements.
In December 1995, Foamex L.P. entered into a $2.0 million promissory note
with Foamex International. The note bears interest at a rate per annum equal to
six months LIBOR plus 4.0% and is payable semiannually in June and December.
The note was distributed to FJPS and FMXI on June 12, 1997.
In connection with the acquisition of Great Western, Foamex L.P. issued a
promissory note to Rallis (see Note 7) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
F-24
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995,
Foamex L.P. paid Trace Aviation $1.6 million, pursuant to the lease agreement.
The lease agreement also provided for the use of the airplane by Trace Holdings
with remuneration to Foamex L.P. based on actual usage of the plane. During
1995, Trace Holdings paid to Foamex L.P. $0.6 million, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a
wholly-owned subsidiary of Foamex International, acquired the aircraft from
Trace Holdings for $3.0 million in cash and the assumption of $11.7 million of
related debt. In connection with the acquisition of the aircraft, the Foamex
L.P. lease and other agreements were terminated.
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial,
technical, legal, commercial, administrative and/or advisory nature to Foamex
L.P. During June 1997, Foamex L.P. and Trace Foam amended their management
services agreement to increase the annual fee from $1.75 million to $3.0
million, plus reimbursement of expenses incurred. Trace Holdings rents
approximately 5,900 square feet of general, executive, and administrative
office space in New York, New York from Foamex L.P. on substantially the same
terms as Foamex L.P. leases such space from a third party lessor.
During 1995 and 1997, Foamex L.P. purchased approximately $2.5 million and
$1.9 million, respectively, of scrap material from Recticel Foam Corporation
("RFC"), a former partner of Foamex L.P. and whose chairman is a director of
Foamex International, under various agreements, latest which expired in March
1998.
Foamex L.P. made charitable contributions to the Trace International
Holding, Inc. Foundation of approximately $0.2 million in each of 1995, 1996
and 1997.
On December 11, 1996, Foamex L.P. entered into a Tax Distribution Advance
Agreement, pursuant to which its partners are entitled to obtain advances, in
the aggregate not to exceed $17.0 million, against future distributions under
Foamex L.P.'s tax distribution agreement. As of December 28, 1997, there were
$13.6 million of advances to Foamex International under this agreement.
14. PARTNERS' EQUITY (DEFICIT)
Foamex L.P. was formed as a Delaware limited partnership on September 5,
1990, and initially capitalized on October 2, 1990, in accordance with a
limited partnership agreement as amended through December 1997. As of December
28, 1997, the partnership interests of Foamex L.P. are held by FMXI, Inc.
("FMXI"), 1% managing general partnership interest, Trace Foam a 1% general
partnership interest, Crain a 1% general partnership interest and Foamex
International a 97% limited partnership interest. (See Note 19 for subsequent
event.)
Cash distributions in connection with a tax sharing agreement for 1995,
1996 and 1997 were paid (received) as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ---------
(thousands)
<S> <C> <C> <C>
FMXI ......................... $ 12 $ (35) $ 80
Trace Foam ................... -- 45 80
Foamex International ......... -- -- 8,371
FJPS ......................... 2,367 3,477 306
------ ------ ------
Total ....................... $2,379 $3,487 $8,837
====== ====== ======
</TABLE>
F-25
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. PARTNERS' EQUITY (DEFICIT) (continued)
Other
The other component of partners' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 31, December 29, December 28,
1995 1996 1997
-------------- -------------- -------------
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment ......... $ 3,448 $ 3,494 $ 4,367
Additional pension liability .................... 4,779 2,407 3,718
Note receivable from Trace Holdings ............. 4,373 4,373 9,795
------- ------- -------
$12,600 $10,274 $17,880
======= ======= =======
</TABLE>
15. ENVIRONMENTAL MATTERS
Foamex L.P. is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1997, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
financial position, capital expenditures or competitive position. As of
December 28, 1997, Foamex L.P. has environmental accruals of approximately $4.3
million for environmental matters. In addition, as of December 28, 1997 Foamex
L.P. has net receivables of approximately $1.1 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. Foamex L.P. believes that realization of the net
receivables established for indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride, propylene oxide and TDI, materials
used in the manufacturing of foam. On December 27, 1996, the United States
Environmental Protection Agency (the "EPA") proposed regulations under the 1990
CAA Amendments that will require manufacturers of slab stock polyurethane foam
and foam fabrication plants to reduce emissions of methylene chloride. Because
these regulations are subject to change prior to finalization, Foamex L.P.
cannot accurately predict the actual cost of their implementation. Foamex L.P.
does not believe implementation of the regulations will require it to make
material expenditures at facilities owned prior to December 23, 1997, due to
Foamex L.P.'s use of alternative technologies which do not utilize methylene
chloride and its ability to shift current production to the facilities which
use these alternative technologies; however, material expenditures may be
required at the facilities formerly operated by Crain. The 1990 CAA Amendments
also may result in the imposition of additional standards regulating air
emissions from polyurethane foam manufacturers, but these standards have not
yet been proposed or promulgated.
Foamex L.P. has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 28, 1997, Foamex L.P. has
environmental accruals of approximately $3.7 million for the remaining
potential remediation costs for these facilities based on engineering
estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. Foamex
L.P. has accrued $0.1 million for the estimated removal and
F-26
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. ENVIRONMENTAL MATTERS (continued)
remediation, if any, associated with these USTs. However, the full extent of
contamination and, accordingly, the actual cost of such remediation cannot be
predicted with any degree of certainty at this time. Foamex L.P. believes that
its USTs do not pose a significant risk of environmental liability because of
Foamex L.P.'s monitoring practices for USTs and conditional approval for the
permanent in-place closure for certain USTs. However, there can be no assurance
that such USTs will not result in significant environmental liability in the
future.
Foamex L.P. has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect
to thirteen sites, with an estimated total liability to Foamex L.P. for the
thirteen sites of less than approximately $0.5 million. Estimates of total
clean-up costs and fractional allocations of liability are generally provided
by the EPA or the committee of PRP's with respect to the specified site. In
each case, the participation of Foamex L.P. is considered to be immaterial.
On May 5, 1997, there was an accidental spill at one of Foamex L.P.'s
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. Although it is possible that new information
or future developments could require Foamex L.P. to reassess its potential
exposure relating to all pending environmental matters, including those
described herein, management believes that, based upon all currently available
information, the resolution of such environmental matters will not have a
material adverse effect on Foamex L.P.'s operations, financial position,
capital expenditures or competitive position. The possibility exists, however,
that new environmental legislation and/or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that may
require expenditures not currently anticipated and that may be material.
16. LITIGATION
As of March 4, 1998, Foamex L.P. and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most
of which allege unspecified damages for personal injuries of various types.
Three of these cases seek to allege claims on behalf of all breast implant
recipients or other allegedly affected parties, but no class has been approved
or certified by the court. In addition, three cases have been filed alleging
claims on behalf of approximately 700 residents of Australia, New Zealand,
England, and Ireland. During 1995, Foamex L.P. and Trace Holdings were granted
summary judgments and dismissed as defendants from all cases in the federal
courts of the United States and the state courts of California. Appeals for
these decisions were withdrawn and the decisions are final. In addition, two of
the cases filed on behalf of 903 foreign plaintiffs were dismissed on the
grounds that the cases could not be brought in the United States courts. This
decision is subject to appeal. Foamex L.P. believes that the number of suits
and claimants may increase. Although breast implants do not contain foam,
certain silicone gel implants were produced using a polyurethane foam covering
fabricated by independent distributors or fabricators from bulk foam purchased
from Foamex L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings
recommended, authorized or approved the use of its foam for these purposes.
While it is not feasible to predict or determine the outcome of these actions,
based on management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking
into account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid Foamex
L.P.'s litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the
F-27
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. LITIGATION (continued)
coverage provided by Trace Holdings' and Foamex L.P.'s liability insurance,
Foamex L.P. believes that the proceedings should not ultimately result in any
liability that would have a material adverse effect on the financial position
or results of operations of Foamex L.P. If management's assessment of Foamex
L.P.'s liability with respect to these actions is incorrect, such actions could
have a material adverse effect on Foamex L.P.
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the CARDIO[RegTM] process licensed from a
third party, infringed on a patent held by plaintiff. Foamex L.P. is
negotiating with the licensor of the process for the assumption of the defense
of the action by the licensor; however, the action is in the preliminary
stages, and there can be no assurance as to the ultimate outcome of the action.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County, against Foamex
International, directors of Foamex International, Trace Holdings, and
individual officers and directors of Trace Holdings:
Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and
John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.
A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to Foamex International's stockholders in connection
with Trace Holdings proposal to acquire all of the shares of Foamex
International's common stock. The complaints seek, among other things, class
certification, a declaration that the defendants have breached their fiduciary
duties to the class, preliminary and permanent injunctions baring
implementation of the proposed transaction, rescission of the transaction if
consummated, unspecified compensatory damages, and costs and attorneys' fees.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex
L.P.'s liability with respect to these actions is incorrect, such actions could
have a material adverse effect on Foamex L.P.'s consolidated financial
position.
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
Foamex L.P. has an interest rate swap agreement involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At December 28, 1997, the total notional
principal amount of the interest rate swap agreement was $150.0 million. The
counterparty to the agreement is a large international financial institution.
The interest rate swap agreement subjects Foamex L.P. to financial risk that
will vary during the life of the agreement in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject Foamex L.P. to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable. Foamex L.P. maintains cash and cash equivalents
and certain other financial instruments with various large financial
institutions. Foamex L.P.'s periodic evaluation of these financial institutions
are considered in Foamex L.P.'s investment strategy.
F-28
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
Foamex L.P. sells foam products to the automotive, carpet, cushioning and
other industries. Foamex L.P. performs ongoing credit evaluations of its
customers and generally does not require collateral. Foamex L.P. maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on Foamex L.P.'s assessment of available market information
and appropriate valuation methodologies.
The estimated fair values of Foamex L.P.'s financial instruments as of
December 28, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- ----------
(thousands)
<S> <C> <C>
Liabilities:
Long-term debt .............. $738,810 $741,298
======== ========
Interest rate swaps ......... $ -- $ 1,015
======== ========
</TABLE>
Carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short-term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market prices,
where available, or discounted cash flows.
The fair value of the interest rate swap is based on the amount at which
Foamex L.P. would pay if the swap was settled, as determined by an estimate
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
(thousands)
<S> <C> <C> <C>
Cash paid for interest ..................................... $47,282 $43,378 $ 45,330
======= ======= ========
Cash paid for income taxes ................................. $ 634 $ 1,533 $ 4,504
======= ======= ========
Noncash capital expenditures ............................... $ 378 $ 165 $ 167
======= ======= ========
Non-cash distribution of FJPS note ......................... $ -- $ -- $ 35,567
======= ======= ========
Non-cash distribution of Foamex International note ......... $ -- $ -- $ 2,000
======= ======= ========
Non-cash distribution of investment in FJPS senior
subordinated discount debentures .......................... $ -- $ -- $105,829
======= ======= ========
</TABLE>
19. SUBSEQUENT EVENT
On February 27, 1998, Foamex International, Foamex L.P. and certain of its
affiliates completed a series of transactions designed to simplify Foamex
International's structure and to provide future operational flexibility. Prior
to the consummation of these transactions, (i) Foamex L.P. and Foamex L.P.'s
wholly-owned subsidiary, General
F-29
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. SUBSEQUENT EVENT (continued)
Felt, entered into a Supply Agreement and an Administrative Services Agreement,
(ii) Foamex L.P. repaid its outstanding indebtedness to General Felt with $4.8
million in cash and a $34.0 million two-year promissory note and (iii) Foamex
L.P. defeased the $4.5 million outstanding principal amount of its 9-1/2% Senior
Secured Notes due 2000. Foamex L.P. settled its intercompany payables to General
Felt with $4.8 million in cash and a $34.0 million principal amount promissory
note supported by a $34.5 million letter of credit under the Credit Facility
(the "Foamex/GFI Note"). The initial transaction resulted in the transfer from
Foamex L.P. to Trace Foam LLC of all of the outstanding common stock of General
Felt, in exchange for (i) the assumption by Trace Foam LLC of $129.0 million of
Foamex L.P.'s indebtedness and (ii) the transfer by Trace Foam LLC to Foamex
L.P. of a 1% non-managing general partnership interest in Foamex L.P. As a
result, General Felt ceased being a subsidiary of Foamex L.P. and was relieved
from all obligations under Foamex L.P.'s 9-7/8% Senior Subordinated Notes due
2007 and 13-1/2% Senior Subordinated Notes due 2005. Upon consummation of the
initial transaction, Foamex Carpet, a newly formed wholly-owned subsidiary of
Foamex International, Foamex International, Trace Foam LLC, and General Felt
entered into an Asset Purchase Agreement dated February 27, 1998, in which
General Felt sold substantially all of its assets (other than the Foamex/GFI
Note and its operating facility in Pico Rivera, California) to Foamex Carpet in
exchange for (i) $20.0 million in cash and (ii) a promissory note issued by
Foamex Carpet to Trace Foam LLC in the amount of $70.2 million. The $20.0
million cash payment was funded with a distribution by Foamex L.P. As part of
these transactions, Foamex Fibers, a wholly-owned subsidiary of General Felt,
was merged with and into General Felt and Foamex LLC, a wholly-owned subsidiary
of Foamex L.P., was merged with and into Foamex L.P. In addition, FMXI and
Crain, both wholly-owned subsidiaries of Foamex International and general
partners of Foamex L.P., were merged and Crain, as the surviving corporation,
subsequently changed its name to FMXI, Inc. Upon consummation of these
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a Credit Agreement with the institutions from time to time party thereto as
lenders, the institutions from time to time party thereto, as issuing banks, and
Citicorp USA, Inc. and The Bank of Nova Scotia, as administrative agents, which
provides for up to $20.0 million in revolving credit borrowings. These
transactions will be accounted for as a distribution in a manner similar to a
pooling of interests because the entities were under common control. Future
Foamex L.P. financial statements will exclude the operations of General Felt.
Foamex Carpet will conduct the carpet cushion business previously conducted by
General Felt. Also, Trace Foam LLC has retained ownership of one of General
Felt's operating facilities which is being leased to Foamex Carpet and the $34.0
million Foamex/GFI Note.
As of December 29, 1996 and December 28, 1997 and for the years then
ended, General Felt's consolidated financial information included in Foamex
L.P. was as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Balance Sheet:
Current assets ............................ $ 92,201 $ 59,278
Total assets .............................. 177,681 110,766
Current liabilities ....................... 61,772 39,358
Total liabilities ......................... 80,662 46,445
Equity .................................... 97,019 64,321
Statement of Operations:
Net sales ................................. $ 302,648 $286,261
Income from continuing operations ......... 18,465 6,102
Net income (loss) ......................... (27,261) 6,102
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Foamex Capital Corporation
Wilmington, Delaware
We have audited the accompanying balance sheets of Foamex Capital Corporation
("FCC") (a wholly-owned subsidiary of Foamex L.P.) as of December 29, 1996 and
December 28, 1997. These balance sheets are the responsibility of FCC's
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable basis for
our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of FCC at December 29, 1996 and
December 28, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-31
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 28,
1996 1997
------------ ------------
<S> <C> <C>
CASH ........................................................ $1,000 $1,000
====== ======
COMMITMENTS AND CONTINGENCIES ............................... $ -- $ --
------ ------
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share;
1,000 shares authorized, issued and outstanding ......... 10 10
Additional paid-in capital ............................... 990 990
------ ------
Total Stockholder's Equity .................................. $1,000 $1,000
====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-32
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Foamex Capital Corporation ("FCC"), a wholly-owned subsidiary of Foamex
L.P., was formed on July 20, 1992 and initially capitalized on July 23, 1992
for the purpose of obtaining financing from external sources.
2. COMMITMENTS AND CONTINGENCIES
FCC is a joint obligor and severally liable on the following borrowings of
Foamex L.P.:
9-7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in
connection with the Refinancing Plan. The Senior Subordinated Notes bear
interest at the rate of 9-7/8% per annum payable semiannually on each June 15
and December 15, commencing December 15, 1997. The Senior Subordinated Notes
mature on June 15, 2007. The Senior Subordinated Notes may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after June 15,
2002, initially at 104.938% of their principal amount, plus accrued interest
and liquidated damages, as defined, if any, thereon to the date of redemption
and declining to 100.0% on or after June 15, 2005. In addition, at any time
prior to June 15, 2000, Foamex L.P. may on one or more occasions redeem up to
35.0% of the initially outstanding principal amount of the Senior Subordinated
Notes at a redemption price equal to 109.875% of the principal amount, plus
accrued interest and liquidated damages, if any, thereon to the date of
redemption with the cash proceeds of one or more Public Equity Offerings, as
defined. Upon the occurrence of a change of control, as defined, each holder of
Senior Subordinated Notes will have the right to require Foamex L.P. to
repurchase the Senior Subordinated Notes at a price equal to 101.0% of the
principal amount, plus accrued interest and liquidated damages, if any, to the
date of repurchase. The Senior Subordinated Notes are subordinated in right of
payment to all senior indebtedness and are pari passu in right of payment to
the subordinated note.
13-1/2% Senior Subordinated Notes due 2005 ("13-1/2% Senior Subordinated
Notes")
The 13-1/2% Senior Subordinated Notes were issued by Foamex L.P. and FCC
in a private placement under Rule 144A of the Securities Act of 1933, as
amended, on December 23, 1997 in connection with the Crain Acquisition. The
13-1/2% Senior Subordinated Notes represent unsecured general obligations of
Foamex L.P. and are subordinated to all Senior Debt (as defined in the
Indenture).
The 13-1/2% Senior Subordinated Notes mature on August 15, 2005. Interest
on the 13-1/2% Senior Subordinated Notes is payable semiannually on each
February 15 and August 15. The 13-1/2% Senior Subordinated Notes bear interest
at the rate of 13-1/2% per annum. The 13-1/2% Senior Subordinated Notes may not
be redeemed prior to August 15, 2002, except in the event of a Change of
Control (as defined) or Foamex L.P. may, subject to certain requirements (as
defined), on or prior to August 15, 1998 redeem up to 33-1/3% of the aggregate
original principal amount with proceeds from an Equity Offering (as defined).
Foamex L.P. has filed a registration statement relating to an exchange
offer in which Foamex L.P. will offer to exchange the 13-1/2% Senior
Subordinated Notes issued in the private placement for new notes. The terms of
the new notes will be substantially identical in all respects (including
principal amount, interest rate, maturity and ranking) to the terms of the
13-1/2% Senior Subordinated Notes, except that the new notes will be
transferable by holders thereof without further registration under the
Securities Act of 1933, as amended (except in the case of 13-1/2% Senior
Subordinated Notes held by affiliates of Foamex L.P. and for certain other
holders), and are not subject to any covenant regarding registration under the
Securities Act of 1933, as amended.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Crain Industries, Inc.,
We have audited the accompanying consolidated balance sheets of Crain
Industries, Inc. (a Delaware corporation and a wholly owned subsidiary of Crain
Holdings Corp.) and subsidiaries as of December 23, 1997 and December 31, 1996,
and the related consolidated statements of operations, stockholder's equity,
and cash flows for the period ended December 23, 1997, and the year ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Crain Industries, Inc. and subsidiaries as of December 23, 1997 and December
31, 1996, and the consolidated results of their operations and their cash flows
for the period ended December 23, 1997, and the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
January 30, 1998
F-34
<PAGE>
CRAIN INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and December 23, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ................................... $ 6,102 $ 2,440
Accounts receivables, less allowance of $8,486 and $7,554,
respectively .............................................. 40,921 48,547
Inventories ................................................. 30,025 40,903
Prepaid expenses and other .................................. 3,014 2,937
-------- --------
Total current assets ....................................... 80,062 94,827
Property, plant and equipment, net .......................... 49,873 48,791
Intangible assets, net ...................................... 56,297 62,143
Deferred financing costs, net ............................... 11,334 9,813
Other assets ................................................ 1,310 1,854
-------- --------
Total assets .............................................. $198,876 $217,428
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current maturities of long-term obligations ................. $ 136 $ 424
Accounts payable ............................................ 23,320 34,026
Accrued and other liabilities ............................... 9,790 6,732
Accrued interest ............................................ 5,176 5,086
Accrued payroll and personnel ............................... 6,986 5,958
-------- --------
Total current liabilities ................................. 45,408 52,226
Long-term obligations, less current maturities ............... 118,182 123,838
Other long-term liabilities .................................. 5,444 4,802
-------- --------
Total liabilities ......................................... 169,034 180,866
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding ........................................... 0 0
Contributed capital .......................................... 29,492 39,503
Retained earnings (deficit) .................................. 350 (2,941)
-------- --------
Total stockholder's equity ................................ 29,842 36,562
-------- --------
Total liabilities and stockholder's equity ................... $198,876 $217,428
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-35
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 23,
1996 1997
------------ ------------
<S> <C> <C>
Net sales ............................................... $306,093 $319,021
Operating expenses:
Costs of goods sold .................................... 243,745 249,516
Selling, general and administrative .................... 35,299 40,992
Depreciation and amortization .......................... $ 9,295 $ 13,849
-------- --------
Operating income ........................................ 17,754 14,664
Other expenses:
Interest expense ....................................... 14,618 15,661
Amortization of deferred financing costs ............... 1,841 2,009
Other expense .......................................... 304 285
-------- --------
Income (loss) before provision for income taxes ......... 991 (3,291)
Provision for income taxes .............................. 395 --
-------- --------
Net income (loss) ....................................... $ 596 $ (3,291)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-36
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Year Ended December 31, 1996, and the Period Ended December 23, 1997
(In thousands)
<TABLE>
<CAPTION>
Retained Total
Common Contributed Earnings Stockholder's
Stock Capital (Deficit) Equity
-------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
December 31, 1995 ................ $ 0 $24,528 $ (246) $ 24,282
Contributed capital .............. -- 4,964 -- 4,964
Net income ....................... -- -- 596 596
--- ------- -------- --------
December 31, 1996 ................ 0 29,492 350 29,842
Contributed capital, net ......... 0 10,011 -- 10,011
Net loss ......................... -- -- (3,291) (3,291)
--- ------- -------- --------
December 23, 1997 ................ $ 0 $39,503 $ (2,941) $ 36,562
=== ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-37
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 23,
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ 596 $ (3,291)
Net Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization .................................. 9,295 13,849
Amortization of deferred financing costs ....................... 1,841 2,009
Change in assets and liabilities, net of acquisitions: .........
Accounts receivable ............................................ 1,515 (5,232)
Inventories .................................................... (492) (10,390)
Prepaid expenses and other ..................................... 115 (1,179)
Accounts payable ............................................... 1,273 9,293
Accrued and other liabilities .................................. 705 (5,911)
Accrued interest ............................................... 156 (90)
Income taxes payable ........................................... 216 (262)
---------- ---------
Net cash from operating activities ............................. 15,220 (1,204)
Cash flows from investing activities: .............................
Acquisitions, net of cash acquired ............................... (14,568) (12,578)
Capital expenditures, net ........................................ (11,030) (5,183)
---------- ---------
Net cash from investing activities ............................. (25,598) (17,761)
Cash flows from financing activities: .............................
Borrowings on long-term obligations .............................. 115,270 99,257
Payments on long-term obligations ................................ (103,290) (93,982)
Equity proceeds .................................................. 4,964 10,011
Financing fees and other ......................................... (2,447) 17
---------- ---------
Net cash from financing activities ............................. 14,497 15,303
---------- ---------
Net change in cash and cash equivalents ........................... 4,119 (3,662)
Cash and cash equivalents at beginning of period .................. 1,983 6,102
---------- ---------
Cash and cash equivalents at end of period ........................ $ 6,102 $ 2,440
========== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-38
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
1. THE COMPANY
Crain Industries, Inc., a Delaware corporation ("Crain" or the "Company"),
a wholly owned subsidiary of Crain Holdings Corp. ("Holdings") was formed on
May 25, 1995. The Company is engaged in the design, manufacturing and marketing
of flexible polyurethane foam and foam products. The Company's products are
sold to a wide variety of customers primarily in the furniture, bedding and
carpet markets.
2. COMFORT CLINIC ACQUISITION
On October 18, 1996, the Company acquired substantially all of the assets
of the Comfort Clinic division of Bio Clinic Corporation (the "Comfort
Acquisition"). The consideration paid in connection with the Comfort
Acquisition consisted of cash in the amount of $14,568. The Comfort Acquisition
was funded with borrowings of approximately $9,500 of senior debt under the
Revolver (hereinafter defined) and approximately $5,000 of capital
contributions from Holdings. The Comfort Acquisition was accounted for using
the purchase method of accounting whereby the total acquisition cost has been
allocated to the acquired net assets based on their estimated respective fair
values.
The total acquisition cost was allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets ........................ $ 9,824
Property, plant and equipment ......... 4,644
Goodwill and intangibles .............. 6,654
Other ................................. 48
Fees and costs ........................ 1,000
Current liabilities ................... (6,722)
Non-current liabilities ............... (880)
--------
$ 14,568
========
</TABLE>
Unaudited pro forma data, which shows condensed results of operations for
the year ended December 31, 1996 as though the Comfort Acquisition and related
financing had occurred at the beginning of the period is as follows:
<TABLE>
<S> <C>
Net sales .................. $328,158
Net loss ................... (595)
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Crain and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related costs of goods sold are included in income when goods
are shipped to the customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives utilized
in calculating depreciation are as follows: machinery and equipment -- 3-8
years; and transportation equipment -- 3-5 years. Leasehold improvements are
depreciated over the shorter of the term of the respective lease or the life of
the respective improvement. Interest costs applicable to equipment constructed
for use by the Company are capitalized as a part of the assets.
F-39
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets
Intangible assets consist primarily of goodwill arising from the excess of
cost over the value of net assets acquired, which is amortized using the
straight-line method over forty years. Accumulated amortization aggregated
$2,118 and $8,125 at December 31, 1996 and December 23, 1997, respectively. The
Company generally assesses the recoverability of its intangible assets
primarily based on its current and anticipated future undiscounted cash flows.
At December 31, 1996 and December 23, 1997 the Company does not believe there
have been any impairment of its intangible assets.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing, are amortized over the term of the related debt using
the straight-line method which approximates the effective interest method.
Fair Value of Financial Instruments
The Company's financial instruments, excluding the Senior Notes (as
hereinafter defined) are carried at fair value or amounts that approximate fair
value. The Company has estimated the fair value of the Senior Notes using
current market data. At December 31, 1996 and December 23, 1997, the estimated
fair market value of the Senior Notes was $112,750 and $116,500, respectively.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the year ended
December 31, 1996, and the period ended December 23, 1997, was approximately
$14,630 and $16,055, respectively. Taxes paid for the year ended December 31,
1996, and the period ended December 23, 1997 was approximately $106 and $262,
respectively.
4. INVENTORIES
The composition of inventories at December 31, 1996 and December 23, 1997
is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials ........... $21,294 $31,521
Finished goods .......... 8,831 9,382
------- -------
$30,025 $40,903
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, 1996 and
December 23, 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Machinery and equipment ........... $43,181 $52,760
Transportation equipment .......... 5,534 4,943
Land and buildings ................ 2,000 4,104
</TABLE>
F-40
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
5. PROPERTY, PLANT AND EQUIPMENT (continued)
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Construction in progress ............... 4,965 3,965
Leasehold improvements ................. 3,871 3,552
Less: accumulated depreciation ......... (9,678) (20,533)
-------- ---------
$ 49,873 $ 48,791
======== =========
</TABLE>
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the acquisition of the Company on August 25, 1995 (the
"Acquisition"), the Company incurred aggregate fees and costs of $13,000. Costs
of $10,000 related to the Senior Notes and Revolver (see Note 7) are included
in deferred financing costs and amortized over the terms of the related
borrowings. Costs of $500 related to the issuance of Holdings common stock have
been deducted from the proceeds to reduce the carrying value of the common
stock.
In connection with the Acquisition and obtaining the related financing,
the Company entered into a Monitoring and Oversight Agreement ("Agreement")
with Hicks, Muse & Co. Partners L.P. ("Hicks, Muse") (an affiliate of the
Company) pursuant to which the Company paid Hicks, Muse a cash fee of $2,500 as
compensation for financial advisory services. The fees have been allocated to
the debt and equity securities issued in connection with the Acquisition as
deferred financing costs or as a deduction from the cash proceeds received from
the sale of the common stock of Holdings. In connection with the Comfort
Acquisition and obtaining the related financing, the Company paid a fee of $210
to Hicks, Muse. The Agreement further provides that the Company shall pay
Hicks, Muse an annual fee of $250 for ten years for monitoring and oversight
services adjusted annually at the end of each fiscal year to an amount equal to
.1% of the consolidated net sales of the Company, but in no event less than
$250 annually. The obligation under the Agreement and the related deferred
financing costs have been recorded in the consolidated balance sheets.
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, 1996 and December
23, 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revolving credit facility .......................... $ 17,700 $ 23,124
Senior subordinated notes .......................... 100,000 100,000
Capital lease obligations .......................... -- 656
Notes payable ...................................... 618 482
Total ............................................. 118,318 124,262
-------- --------
Less current maturities ............................ 136 424
-------- --------
$118,182 $123,838
======== ========
</TABLE>
The schedule of principal payments for long-term obligations at December
23, 1997 is as follows:
<TABLE>
<S> <C>
1998 ........................ $ 424
1999 ........................ 453
2000 ........................ 23,383
2001 ........................ 2
2002 ........................ --
Thereafter .................. 100,000
--------
$124,262
========
</TABLE>
F-41
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
7. LONG-TERM OBLIGATIONS (continued)
Credit Agreement
In connection with the Acquisition, Crain and Holdings entered into a
credit agreement (the "Credit Agreement") dated as of August 29, 1995 with
certain financial institutions. Borrowings under the Credit Agreement are
collateralized by first priority mortgages and liens on all of the assets of
the Company. In addition, borrowings under the Credit Agreement are guaranteed
by Holdings. The Credit Agreement terminates on August 29, 2000, at which time
all outstanding borrowings are due.
The Credit Agreement consists of a $50,000 revolving credit facility (the
"Revolver"). The Revolver provides that up to $7,500 of such facilities may be
used for the issuance of letters of credit. At December 31, 1996 and December
23, 1997, Crain had $6,032 and $4,695 in outstanding letters of credit,
respectively. At December 31, 1996, and December 23, 1997, there was $26,268
and $22,181, respectively, of unused borrowing capacity under the Credit
Agreement. The Credit Agreement contains several financial covenants which,
among other things, require Crain to maintain certain financial ratios and
restrict Crain's ability to incur indebtedness, make capital expenditures and
pay dividends. A commitment fee on the unused portion of the Revolver of .5% is
payable on each quarterly payment date.
Borrowings under the Revolver bear interest, at the option of Crain, at a
rate per annum equal to (a) the Alternative Base Rate (as defined in the Credit
Agreement) plus 1.5% or (b) the Eurodollar Rate (as defined in the Credit
Agreement) plus 2.5%. The Alternative Base Rate and Eurodollar Rate margins are
established quarterly based on a formula as defined in the Credit Agreement.
Interest payment dates vary depending on the interest rate option to which the
Revolver is tied, but generally interest is payable quarterly. At December 31,
1996 and December 23, 1997, the weighted average interest rate on the
outstanding borrowings under the revolver was 8.49% and 8.67%, respectively.
Senior Subordinated Notes
The senior subordinated notes due 2005 (the "Senior Notes") were issued
under an indenture, dated August 29, 1995 (the "Indenture") in connection with
the Acquisition. The Senior Notes, represent unsecured general obligations of
Crain and are subordinated to all Senior Debt (as defined in the Indenture) of
Crain. The Senior Notes, which were originally sold pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended,
were exchanged for identical notes registered under such Act in February 1996.
The Senior Notes mature on August 15, 2005. Interest on the Senior Notes
is payable semi-annually on each February 15 and August 15. The Senior Notes
bear interest at the rate of 13.5% per annum. The Senior Notes may not be
redeemed prior to August 15, 2000, except in the event of a Change of Control
(as defined) or Crain may, subject to certain requirements (as defined), on or
prior to August 15, 1998 redeem up to 33-1/3% of the aggregate original
principal amount with proceeds from an Equity Offering (as defined)
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by Crain Aero,
Inc. ("Crain Aero"). The Company's only other subsidiary, Sleep Solutions,
Industries, Inc. ("Sleep Solutions"), does not guarantee the Senior Notes as it
is not required under the terms of the Indenture. Crain Aero and Sleep
Solutions are wholly-owned subsidiaries of the Company.
8. STOCK OPTION PLANS
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting for Holdings'
stock option plans. Accordingly, no compensation cost has been recognized for
the plans. Had compensation cost for the plans been determined based upon the
fair value at the grant date for awards under those plans, consistent with the
methodology prescribed under SFAS No. 123, the effect of the Company's net
income would be immaterial.
F-42
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
8. STOCK OPTION PLANS (continued)
Changes in the status of the stock option plans are summarized below:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Options Options
Per Share Granted Vested
----------------- ------------- ----------
<S> <C> <C> <C>
December 31, 1995 ......... $ 1.00 2,032,323 --
Granted .................. 1.26 175,000 --
Vested ................... -- -- 235,600
Forfeited ................ 1.00 (100,000) --
------- --------- -------
December 31, 1996 ......... 1.06 2,107,323 235,600
Granted .................. 1.87 251,500 --
Vested ................... -- -- 180,600
Forfeited ................ 1.00 (75,000) --
------- --------- -------
December 23, 1997 ......... $ 1.05 2,283,823 416,200
======= ========= =======
</TABLE>
The weighted average grant-date fair value of options granted during 1996
and 1997 was $1.26 and $1.87 per share, respectively. Of the options
outstanding at December 23, 1997, 1,038,000 options, 904,323 options, 90,000
options, and 251,500 options have exercise prices of $1.00, $1.19, $1.50, and
$1.87, respectively, and have weighted average remaining contractual lives of
7.9 years, 7.7 years, 9 years, and 9.2 years, respectively. The weighted
average exercise price of options vested at December 23, 1997 is $1.02 per
share.
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision for income taxes for the year ended December 31,
1996 and the period ended December 23, 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ------
<S> <C> <C>
Current:
Federal ......... $ (2,224) $--
State ........... (327) --
Deferred: --
Federal ......... --
State ........... 2,568 --
Total .......... 378
-------- ---
$ 395 $
======== ===
</TABLE>
Reconciliation between the statutory income tax rate and effective tax
rate is summarized below:
<TABLE>
<CAPTION>
1996 1997
-------- ------
<S> <C> <C>
U.S. Federal statutory rate .......... $ 337 $--
State taxes ......................... 50 --
Other ............................... 8 --
-------- ---
$ 395 $--
======== ===
</TABLE>
F-43
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
9. INCOME TAXES (continued)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not yet deductible ......... $2,625 $ 1,077
Net operating loss carry forward ............... 3,437 7,699
Less valuation allowance on net operating loss
carry forward ................................ -- (1,231)
Other .......................................... $ 228 863
------ --------
$6,290 $ 8,408
====== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization ......... $6,601 $8,399
Other ................................. 165 485
------ ------
6,766 8,884
------ ------
Net deferred tax liability ............ $ (476) $ (476)
====== ======
</TABLE>
10. COMMITMENTS
The Company leases certain buildings, transportation vehicles and other
equipment. Total rental expense under operating leases for the year ended
December 31, 1996, the period ended December 23, 1997 was $9,286 and $9,693,
respectively. Future minimum lease payments under capital and operating leases
that have initial or remaining noncancelable terms in excess of one year, for
years ending December 31 are:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1998 ................ $ 277 $ 4,948
1999 ................ 285 4,564
2000 ................ 92 3,703
2001 ................ 2 2,813
2002 ................ -- 2,547
Thereafter .......... -- 13,016
------ -------
$ 656 $31,591
====== =======
</TABLE>
The Company does not hold any derivative financial instruments with
off-balance sheet risk.
11. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of the Company's management, the
ultimate liabilities with respect to these actions should not, individually or
in the aggregate, have a material adverse effect on the Company's financial
condition or results of operations. The Company believes it is in material
compliance with applicable environmental laws and regulations and that its
environmental controls are adequate to address existing regulatory
requirements.
On December 13, 1995, the Company initiated a lawsuit in the District
Court of Dallas County, Texas styled Crain Industries, Inc., f/k/a Crain
Acquisition Corp. v. Dude, Inc., f/k/a Crain Industries, Inc., H.C. "Dude"
Crain, Jr., et al., Cause No. 95-12997, seeking money damages based on certain
allegations of misrepresentation, fraud,
F-44
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
11. CONTINGENCIES (continued)
and breach of contract in connection with the acquisition of Crain Industries,
Inc., an Arkansas corporation (the "Predecessor"). In August, 1996, the Company
settled all litigation with the sole shareholder of the Predecessor. The
settlement amounted to a $10,000 reduction in the purchase price through the
cancellation of a $10,000 note payable owed to the sole shareholder of the
Predecessor.
12. RETIREMENT PLAN
The Company has a defined contribution retirement savings plan (the
"Plan") covering substantially all employees who meet certain eligibility
requirements as to age and length of service. The Plan incorporates the salary
deferral provision of Section 401(k) of the Internal Revenue Code and employees
may defer up to 15% of compensation or the annual maximum limit prescribed by
the Internal Revenue Code. The Company may elect to match a percentage of the
employees' deferrals. Company contribution expense related to the Plan for the
year ended December 31, 1996 and the period ended December 23, 1997 was
approximately $555 and $660, respectively.
13. STOCK MERGER
On December 23, 1997, the Company consummated a stock merger agreement
pursuant to which Foamex International, L.L.P. acquired all of the outstanding
stock of Crain Holdings Corp., for an aggregate cash consideration of $213.0
million.
F-45
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations not contained in this Prospectus
in connection with the Exchange Offer covered by this Prospectus. If given or
made such information or representations must not be relied upon as having been
authorized by the Issuers. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the New Notes in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implications that there
has not been any change in the facts set forth in this Prospectus or in the
affairs of the Issuers since the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Incorporation of Certain Documents by
Reference ............................................. iii
Available Information .................................... iii
Prospectus Summary ....................................... 1
Risk Factors ............................................. 12
The Crain Acquisition .................................... 18
Use of Proceeds .......................................... 18
Capitalization ........................................... 19
Pro forma Condensed Combined
Financial Information ................................. 20
Selected Historical Consolidated Financial
Information of Foamex ................................. 25
Selected Historical Consolidated Financial
Information of Crain .................................. 27
Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 28
Business ................................................. 36
The Exchange Offer ....................................... 47
Management ............................................... 55
Security Ownership of Certain Beneficial Owners .......... 58
Certain Relationships and Related Transactions ........... 59
Description of Certain Debt Instruments .................. 62
Description of Notes ..................................... 65
Description of the Partnership Agreement ................. 93
Certain Federal Income Tax Considerations ................ 95
Plan of Distribution ..................................... 97
Legal Matters ............................................ 97
Experts .................................................. 98
Forward-Looking Statements ............................... 98
Index to Financial Statements ............................ F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------------
PROSPECTUS
----------------------
$98,000,000
Foamex L.P.
and
Foamex Capital Corporation
13-1/2% Senior Subordinated Notes due 2005
---------------------- , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Fourth Amended and Restated Agreement of Limited Partnership of Foamex
dated as of December 14, 1993 and amended as of June 28, 1994, June 12, 1997,
December 23, 1997 and February 27, 1998 (the "Partnership Agreement") generally
provides that, to the fullest extent permitted by law, Foamex will indemnify
the partners, their respective affiliates, officers, directors, stockholders,
employees and agents, and any employee, agent and officer of Foamex, against
all expenses actually and reasonably incurred by it or them in connection with
any threatened, pending or completed action, suit or proceeding against it or
them or by, against or in the right of Foamex to which it or them is or was a
party, or is threatened to be made a party, involving an alleged cause of
action for damages arising out of, or in any way related to or connected with,
the business or internal affairs of Foamex, if, in the transaction giving rise
to such action, suit, or proceeding, such person acted in good faith, without
gross negligence or willful misconduct or the willful breach of the Partnership
Agreement and in a manner such person reasonably believed to be within the
scope of its authority under the Partnership Agreement.
The Certificate of Incorporation and Bylaws of FCC provide that FCC shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of such corporation), by reason of the fact that
he is or was a director, officer, employee or agent of FCC, or is or was
serving at the request of FCC as a director, officer, employee or agent of
another corporation, partnership or other enterprise, against expenses actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of FCC, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The Bylaws of FCC further provide that for actions by or in the right of
FCC, similar indemnification exists, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to FCC unless and only to the extent that the
court in which such action or suit was brought shall determine that such person
is fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
The Certificate of Incorporation of FCC also provides that a director of
FCC shall not be personally liable to FCC or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1)
for any breach of the director's duty of loyalty to the corporation or its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) under Section 174 of
the General Corporation Law of the State of Delaware; or (4) for any
transaction from which the director derived an improper personal benefit.
Additionally, the Certificate of Incorporation of FCC provides that to the
fullest extent permitted by Delaware Law, a director of FCC shall not be liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
The directors and officers of Foamex International and its subsidiaries
are covered in their capacities as such under a Directors and Officers
insurance policy.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<S> <C>
2.1(t) --Transfer Agreement, dated as of February 27, 1998, by and
between Trace Foam LLC ("Trace LLC") and Foamex L.P.
("Foamex").
2.2(t) --Asset Purchase Agreement, dated as of February 27, 1998, by and
between Foamex Carpet Cushion, Inc. ("Foamex Carpet"), Foamex
International Inc. ("Foamex International"), Trace LLC and
General Felt Industries, Inc. ("GFI").
3.1(a) --Certificate of Limited Partnership of Foamex.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
3.2.1(a) --Fourth Amended and Restated Agreement of Limited Partnership of
Foamex, dated as of December 14, 1993, by and among FMXI Inc.
("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as
general partners, and Foamex International, as a limited
partner (the "Partnership Agreement").
3.2.2(b) --First Amendment to the Partnership Agreement, dated June 28,
1994.
3.2.3(c) --Second Amendment to the Partnership Agreement, dated June 12,
1997.
3.2.4(s) --Third Amendment to the Partnership Agreement, dated December
23, 1997.
3.2.5(t) --Fourth Amendment to the Partnership Agreement, dated February
27, 1998.
3.3(a) --Certificate of Incorporation of FMXI.
3.4(a) --By-laws of FMXI.
3.5(k) --Certificate of Incorporation of Foamex Capital Corporation
("FCC").
3.6(k) --By-laws of FCC.
3.7** --Certificate of Incorporation of Foamex Carpet Cushions, Inc.
3.8** --Bylaws of Foamex Carpet Cushion, Inc.
4.1.1(d) --Indenture, dated as of June 12, 1997, by and among Foamex, FCC,
the Subsidiary Guarantors and The Bank of New York, as Trustee,
relating to $150,000,000 principal amount of 9-7/8% Senior
Subordinated Notes due 2007 (the "9-7/8% Notes"), including
form of Senior Subordinated Note and Subsidiary Guarantee.
4.1.2(s) --First Supplemental Indenture, dated as of December 23, 1997,
between FLLC and The Bank of New York, as trustee, relating to
the 9-7/8% Notes.
4.2.1(t) --Discharge of Indenture, dated as of February 27, 1998, by and
among Foamex, GFI, Foamex International and State Street Bank
and Trust Company, as trustee, relating to the 9-1/2% Senior
Secured Notes due 2000.
4.3.1(s) --Indenture, dated as of December 23, 1997, by and among Foamex
and FCC as issuers, Foamex Fibers, FLLC and GFI as guarantors
and The Bank of New York, as trustee, relating to 13-1/2%
Senior Subordinated Notes due 2005.
4.3.2(t) --First Supplemental Indenture, dated as of February 27, 1998, by
and among Foamex, GFI, Foamex Fibers, FLLC, and The Bank of New
York, as trustee, relating to the 13-1/2% Senior Subordinated
Notes due 2005.
4.4.1(t) --Credit Agreement, dated as of June 12, 1997, as amended and
restated as of February 27, 1998, by and among Foamex, FMXI,
the institutions from time to time party thereto as lenders,
the institutions from time to time party thereto as issuing
banks, and Citicorp USA, Inc. and The Bank of Nova Scotia, as
Administrative Agents.
4.4.2(r) --Foamex International Guaranty, dated as of June 12, 1997, made
by Trace Foam and FMXI in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.3(r) --Partnership Guaranty, dated as of June 12, 1997, made by Trace
Foam and FMXI in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.4(r) --Foamex Guaranty, dated as June 12, 1997, made by Foamex in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(r) --GFI Guaranty, dated as of June 12, 1997, made by GFI in favor
of Citicorp USA, Inc., as Collateral Agent.
4.4.6(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Fibers in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.7(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.8(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.9(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.11(r) --Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.12(r) --Partnership Pledge Agreement, dated as of June 12, 1997, made
by Trace Foam, FMXI and Foamex International in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.13(r) --Foamex Pledge Agreement, dated as June 12, 1997, made by Foamex
in favor of Citicorp USA, Inc., as Collateral Agent.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
4.4.14(r) --GFI Pledge Agreement, dated as of June 12, 1997, made by GFI in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.15(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.16(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Fibers in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.17(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.18(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.19(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.20(r) --Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.21(r) --Foamex Security Agreement, dated as of June 12, 1997, made by
Foamex in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.22(r) --GFI Security Agreement, dated as of June 12, 1997, made by GFI
in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.23(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Fibers in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.24(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Latin America, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.25(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.26(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.27(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.28(r) --Subsidiary Security Agreement, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.29(s) --First Amendment to Credit Agreement, dated December 23, 1997.
4.4.30*** --Amended and Restated Foamex International Guaranty, dated as of
December 23, 1997, made by Foamex International in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.31*** --First Amendment to Foamex Pledge Agreement, dated as of
December 23, 1997, by Foamex in favor of Citicorp USA, Inc. as
Collateral Agent.
4.4.32*** --First Amendment to Foamex Security Agreement, dated as of
December 23, 1997, by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.33*** --First Amendment to Foamex Patent Agreement, dated as of
December 23, 1997, by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.34*** --First Amendment to Trademark Security Agreement, dated as of
December 23, 1997, by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.35*** --Acknowledgement of Guaranty by each of the guarantors to a
Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.36*** --Crain LLC Security Agreement, dated as of December 23, 1997,
made by FLLC in favor of Citicorp USA, Inc.
4.4.37*** --Crain LLC Guaranty, dated as of December 23, 1997, made by FLLC
in favor of Citicorp USA, Inc.
4.4.38*** --First Amendment to Pledge Agreement, dated as of December 23,
1997, by pledgors in favor of Citicorp USA, Inc.
4.4.39*** --Crain Industries Guaranty, dated as of December 23, 1997, made
by Crain in favor of Citicorp USA, Inc.
4.4.40*** --First Amendment to Partnership Pledge Agreement, dated as of
December 23, 1997, among Trace Foam, FMXI and Foamex
International in favor of Citicorp USA, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
4.4.41*** --First Amendment to Credit Agreement, dated as of December 23,
1997, among Foamex, GFI, Trace Foam, FMXI, the institutions
from time to time party thereto as Lenders, the institutions
from time to time party thereto as Issuing Banks and Citicorp
USA, Inc., as Collateral Agent and The Bank of Nova Scotia, as
Funding Agent.
4.4.42(t) --Second Amended and Restated Foamex International Guaranty,
dated as of February 27, 1998, made by Foamex International in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.43(t) --Amended and Restated Partnership Guaranty, dated as of February
27, 1998, made by FMXI in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.44(t) --Partnership Pledge Agreement, dated as of February 27, 1998,
made by Foamex International and FMXI, in favor of Citicorp
USA, Inc., as Collateral Agent.
4.5(j) --Commitment Letter, dated July 9, 1996, from The Bank of Nova
Scotia to Foamex Canada Inc.
4.6(a) --Subordinated Promissory Note, dated as of May 6, 1993, in the
original principal amount of $7,014,864 executed by Foamex to
John Rallis ("Rallis").
4.7(a) --Marely Loan Commitment Agreement, dated as of December 14,
1993, by and between Foamex International and Marely s.a.
("Marely").
4.8(a) --DLJ Loan Commitment Agreement, dated as of December 14, 1993,
by and between Foamex International and DLJ Funding, Inc. ("DLJ
Funding").
4.9.1(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $5,000,000, executed by Trace Holdings to
Foamex.
4.9.2(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $4,794,828, executed by Trace Holdings to
Foamex.
4.10.1(t) --Credit Agreement, dated as of February 27, 1998, by and among
Foamex Carpet, the institutions from time to time party thereto
as lenders, the institution from time to time party thereto as
issuing banks and Citicorp USA, Inc. and The Bank of Nova
Scotia, as administrative agents.
4.10.2(t) --Foamex International Guaranty, dated as of February 27, 1998,
made by Foamex International in favor of Citicorp USA, Inc., as
Collateral Agent.
4.10.3(t) --Foamex International Pledge Agreement, dated as of February 27,
1998, made by Foamex International in favor of Citicorp USA,
Inc., as Collateral Agent.
4.10.4(t) --New GFI Security Agreement, dated as of February 27, 1998, made
by Foamex Carpet in favor of Citicorp USA, Inc., as Collateral
Agent.
4.10.5(t) --New GFI Intercreditor Agreement, dated as of February 27, 1998,
by and among Foamex Carpet, The Bank of Nova Scotia, as
Administrative Agent, and Citicorp USA, Inc., as Administrative
Agent and Collateral Agent.
4.10.6(t) --Foamex International Intercreditor Agreement, dated as of
February 27, 1998, by and between Foamex International and
Citicorp USA, Inc., as Collateral Agent.
4.11.1(t) --Promissory Note of Foamex in favor of Trace LLC in the
principal amount of $34 million, dated February 27, 1998.
5.1*** --Opinion of Willkie Farr & Gallagher.
8.1*** --Opinion of Willkie Farr & Gallagher, as to tax matters.
10.1.1(r) --Amendment to Master Agreement, dated as of June 5, 1997,
between Citibank, N.A. and Foamex.
10.1.2(r) --Amended confirmation, dated as of June 13, 1997, between
Citibank, N.A. and Foamex.
10.1.3** --Amended confirmation, dated as of February 2, 1998, between
Citibank, N.A. and Foamex.
10.2(h) --Reimbursement Agreement, dated as of March 23, 1993, between
Trace Holdings and General Felt.
10.3(h) --Shareholder Agreement, dated December 31, 1992, among Recticel,
S.A. ("Recticel"), Recticel Holding Noord B.V., Foamex, Beamech
Group Limited, LME-Beamech, Inc., James Brian Blackell and
Prefoam AG relating to foam technology sharing arrangement.
10.4.1(k) --Asset Transfer Agreement, dated as of October 2, 1990, between
Trace Holdings and Foamex (the "Trace Holdings Asset Transfer
Agreement").
10.4.2(k) --First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.4.3(k) --Amended and Restated Guaranty, dated as of December 19, 1991,
made by Trace Foam in favor of Foamex.
10.5.1(k) --Asset Transfer Agreement, dated as of October 2, 1990, between
RFC and Foamex (the "RFC Asset Transfer Agreement").
10.5.2(k) --First Amendment, dated as of December 19, 1991, to the RFC
Asset Transfer Agreement.
10.5.3(k) --Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.5.4(h) --The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex.
10.5.5(h) --Letter Agreement between Trace Holdings and Recticel regarding
the Recticel Guaranty, dated as of July 22, 1992.
10.6(l) --Supply Agreement, dated June 28, 1994, between Foamex and
Foamex International.
10.7.1(l) --First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex, Trace Foam, FMXI and Foamex
International.
10.7.2(d) --First Amendment to Amended and Restated Tax Sharing Agreement
of Foamex, dated as of June 12, 1997, by and among Foamex,
Foamex International, FMXI, Inc. and Trace Foam.
10.7.3*** --Second Amendment to Amended and Restated Tax Sharing Agreement
of Foamex, dated as of December 23, 1997, by and among Foamex,
Foamex International, FMXI, Inc. and Trace Foam.
10.8.1(m) --Tax Distribution Advance Agreement, dated as of December 11,
1996, by and between Foamex and Foamex-JPS Automotive L.P.
10.8.2(d) --Amendment No. 1 to Tax Distribution Advance Agreement, dated as
of June 12, 1997, by and between Foamex International and
Foamex.
10.9.1(h) --Trace Foam Management Agreement between Foamex and Trace Foam,
dated as of October 13, 1992.
10.9.2(l) --Affirmation Agreement re: Management Agreement, dated as of
December 14, 1993, between Foamex and Trace Foam.
10.9.3(d) --First Amendment to Management Agreement, dated as of June 12,
1997, by and between Foamex and Trace Foam.
10.10.1(k) --Salaried Incentive Plan of Foamex and Subsidiaries.
10.10.2(k) --Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) --Equity Growth Participation Program.
10.10.4(o) --Foamex L.P. Salaried Retirement Plan (formerly known as the
Foamex L.P. Products, Inc.Salaried Employee Retirement Plan),
as amended, effective July 1, 1984.
10.10.5(n) --Foamex/General Felt 401(k) Savings Plan dated July 1, 1995.
10.10.6(a) --Foamex International's 1993 Stock Option Plan.
10.10.7(a) --Foamex International's Non-Employee Director Compensation Plan.
10.11.1(o) --Employment Agreement, dated as of February 1, 1994, by and
between Foamex and William H. Bundy.
10.12(a) --Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and Marely.
10.13(a) --Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and DLJ Funding.
10.14(o) --Stock Purchase Agreement, dated as of December 23, 1993, by and
between Transformacion de Espumas y Fieltros, S.A., the
stockholders which are parties thereto, and Foamex.
10.15(q) --Asset Purchase Agreement, dated as of August 29, 1997, by and
among General Felt, Foamex, Bretlin, Inc. and The Dixie Group,
Inc.
10.16.1(t) --Supply Agreement, dated as of February 27, 1998, by and between
Foamex and GFI (as assigned to Foamex Carpet).
10.16.2(t) --Administrative Services Agreement, dated as of February 27,
1998, by and between Foamex and GFI (as assigned to Foamex
Carpet).
10.17.1** --Joint Venture Agreement between Hua Kee Company Limited and
Foamex Asia, Inc. dated July 8, 1997.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.17.2** --Loan Agreement between Hua Kee Company Limited and Foamex Asia,
Inc. dated July 8, 1997.
12.1** --Computation of Ratios of Earnings to Fixed Charges (Foamex).
12.2** --Computation of Ratios of Earnings to Fixed Charges (Crain).
21.1*** --Subsidiaries of the Registrants.
23.1** --Consent of Coopers & Lybrand L.L.P. independent accountants,
to Foamex L.P.
23.2** --Consent of Coopers & Lybrand L.L.P. independent accountants,
to Foamex Capital Corporation.
23.3** --Consent of Arthur Andersen independent accountants, to Crain
Industries, Inc.
23.4*** --Consent of Willkie Farr & Gallagher included in Exhibit 5.1.
25*** --Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of The Bank of New York, as Trustee
under the Indenture.
27.1** --Financial Data Schedule.
99.1*** --Form of Letter of Transmittal.
99.2*** --Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
** Filed herewith.
*** Filed previously.
(a) Incorporated herein by reference to the Exhibit to Foamex International's
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex L.P. for the fiscal year ended January 1, 1995.
(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P. reporting an event that occurred May 28, 1997.
(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P. reporting an event that occurred June 12, 1997.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-4,
Registration No. 33-65158.
(f) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended June 30, 1996.
(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P., Foamex Capital Corporation and General Felt on
Form S-1, Registration Nos. 33-60888, 33-60888-01 and 33-60888-02.
(h) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex L.P. and Foamex Capital Corporation for the fiscal
year ended January 3, 1993.
(i) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex International for the fiscal year ended January 1,
1995.
(j) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended September 30,
1996.
(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-1,
Registration Nos. 33-49976 and 33-49976-01.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex International on Form S-4, Registration
No. 33-82028.
(m) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex L.P. for the fiscal year ended December 29, 1996.
(n) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended July 2, 1995.
(o) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex International for the fiscal year ended January 2,
1994.
(p) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex L.P. for the fiscal year ended December 31, 1995.
(q) Incorporated herein by reference to the Exhibit to the Current Report of
Form 8-K of Foamex L.P. reporting an event that occurred August 29, 1997.
(r) Incorporated herein by reference to the Exhibit to the registration
Statement of Foamex L.P. and Foamex capital Corporation on Form S-4,
Registration No. 333-30291.
II-6
<PAGE>
(s) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex
International reporting an event that occurred December 23, 1997.
(t) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex
International reporting an event that occurred February 27, 1998.
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K. The
Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(d) Schedules
None.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
Issuers being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuers undertake that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrants undertake that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415 will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 11th day of May, 1998.
FOAMEX L.P.
By: FMXI, Inc.,
Its Managing General Partner
By: /s/ Philip N. Smith, Jr.
-------------------------------------
Name: Philip N. Smith, Jr.
Title: Vice President of FMXI, Inc. and Foamex L.P.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 11th day of May, 1998.
<TABLE>
<CAPTION>
Signature Title
- --------------------------------- -----------------------------------------------------
<S> <C>
* Chairman and Chief Executive Officer of FMXI, Inc.
- --------------------------------- and Foamex L.P. (principal executive officer)
Andrea Farace
* Senior Vice President of Finance and Chief Financial
- --------------------------------- Officer of Foamex L.P. and Senior Vice President
Kenneth R. Fuette of Finance and a director of FMXI, Inc.
(principal financial and accounting officer)
* Vice Chairman of Foamex L.P. and FMXI, Inc.
- ---------------------------------
Marshall S. Cogan
* Director of FMXI, Inc.
- ---------------------------------
Andrea Farace
* Director of FMXI, Inc.
- ---------------------------------
Kenneth R. Fuette
* Director of FMXI, Inc.
- ---------------------------------
Marshall S. Cogan
* Director of FMXI, Inc.
- ---------------------------------
Philip N. Smith, Jr.
*By: /s/ Philip N. Smith, Jr.
-------------------------------
Philip N. Smith, Jr.
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 11th day of May, 1998.
FOAMEX CAPITAL CORPORATION
By: /s/ Philip N. Smith, Jr.
------------------------------------
Name: Philip N. Smith, Jr.
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 11th day of May, 1998.
<TABLE>
<CAPTION>
Signature Title
- --------------------------------- -----------------------------------------------------
<S> <C>
* Chairman and Chief Executive Officer
- --------------------------------- (principal executive officer)
Andrea Farace
* Vice President (principal executive officer)
- ---------------------------------
Robert H. Nelson
* Senior Vice President of Finance and Chief Financial
- --------------------------------- Officer (principal financial and accounting officer)
Kenneth R. Fuette
* Director
- ---------------------------------
Marshall S. Cogan
* Director
- ---------------------------------
Andrea Farace
* Director
- ---------------------------------
Robert H. Nelson
* Director
- ---------------------------------
Marshall S. Cogan
* Director
- ---------------------------------
Barry Zimmerman
*By: /s/ Philip N. Smith, Jr.
-------------------------------
Philip N. Smith, Jr.
Attorney-in-Fact
</TABLE>
II-9
CERTIFICATE OF INCORPORATION
OF
FOAMEX CARPET CUSHION, INC.
THE UNDERSIGNED, acting as incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, do hereby
adopt the following Certificate of Incorporation for such corporation:
ARTICLE 1.
NAME
The name of the corporation is Foamex Carpet Cushion, Inc. (hereinafter
the "Corporation").
ARTICLE 2.
REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the State of Delaware is
located at 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The
name of the registered agent of the Corporation at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE 3.
PURPOSE
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "DGCL").
ARTICLE 4.
CAPITAL
The aggregate number of shares of stock which the Corporation shall have
authority to issue is 1,000 shares, par value $.01 per share, designated Common
Stock. Unless specifically provided otherwise herein, the holder of such shares
shall be entitled to one vote for each share held in any stockholder vote in
which any of such holders is entitled to participate.
ARTICLE 5.
DURATION
The Corporation shall have perpetual existence.
<PAGE>
ARTICLE 6.
INCORPORATOR
The name of the incorporator of the Corporation is Tambra S. King, and
the mailing address of such incorporator is c/o Trace International Holdings,
Inc., 375 Park Avenue, 11th Floor, New York, New York 10152.
ARTICLE 7.
ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS
Pursuant to Section 102(b)(7) of the DGCL, a director of the Corporation
shall not be personally liable to the Corporation of its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL; or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of the directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
ARTICLE 8.
AMENDMENT OF CORPORATE DOCUMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE 9.
MISCELLANEOUS
Election of directors need not be by written ballot. Any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors,
except as otherwise provided by law. In furtherance and not in limitation of the
powers conferred by statute, the board of directors of the Corporation is
expressly authorized to make, alter or repeal the bylaws of the Corporation.
ARTICLE 10.
SEVERABILITY
If any provision contained in this Certificate of Incorporation shall
for any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not invalidate the entire
Certificate of Incorporation or any other provisions hereof. If such provision
shall be deemed to be modified to the extent necessary to render it valid and
enforceable, then the Certificate of Incorporation shall be construed as if not
containing such provision.
2
<PAGE>
I, THE UNDERSIGNED, for the purpose of forming the Corporation under the
laws of the State of Delaware, do make, file, and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and accordingly, I do hereunto set my hand on this 10th
day of February, 1998.
By: /s/
----------------------------
Tambra S. King, Incorporator
3
BYLAWS
OF
FOAMEX CARPET CUSHION, INC.
(THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1.1. Registered Office and Place of Business. The Corporation
may have, in addition to its registered office in the State of Delaware, offices
and places of business at such places, both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II.
MEETING OF STOCKHOLDERS
Section 2.1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held at such times and at such places within or without the
State of Delaware as shall be determined by the Board of Directors.
Section 2.2. Annual Meetings. An annual meeting of the stockholders
shall be held each year on a month and day to be selected by the Board of
Directors. At the meeting they shall elect a Board of Directors, and transact
such other business as may properly be brought before the meeting.
Section 2.3. Voting List. At least ten days before each meeting of the
stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, with the residence of each and the
number of voting shares held by each, shall be prepared by the officer or agent
having charge of the stock transfer books. Such list, for a period of ten days
prior to such meetings, shall be kept on file at the registered office of the
Corporation and shall be subject to the inspection of any stockholder who may be
present. The original stock transfer books shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at any meeting of stockholders. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at said meeting.
Section 2.4. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation or by these Bylaws, (i) may be called by the
Chairman of the Board
<PAGE>
or President and (ii) shall be called by the President or Secretary or Assistant
Secretary at the request in writing of a majority of the Board of Directors or
the stockholders owning capital stock representing a majority of the votes of
all capital stock of the Corporation entitled to vote thereat. Such request of
the Board of the stockholders shall state the purpose or purposes of the
proposed meeting.
Section 2.5. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, Assistant Secretary or the officer or person calling the meeting, to
each stockholder of record entitled to vote at the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. If said notice is for a
stockholders meeting other than an annual meeting, it shall in addition state
the purpose or purposes for which said meeting is called, and the business
transacted at such meeting shall be limited to the matters so stated in said
notice and any matters reasonably related thereto.
Section 2.6. Quorum of Stockholders. The holders of a majority of the
shares issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite to and shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute, by the Certificate of Incorporation or by these Bylaws. If
a quorum is not present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 2.7. Majority Vote; Withdrawal of Quorum. When a quorum is
present at any meeting, the vote of the holders of a majority of the shares
having voting power, present in person or represented by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of the statutes, the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2
<PAGE>
Section 2.8. Method of Voting. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of the stockholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by statute, by the
Certificate of Incorporation or by any other certificate creating any class or
series of stock. At any meeting of the stockholders, every stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder or by his duly
authorized attorney-in-fact. No proxy shall be valid after three (3) years from
the date of its execution, unless otherwise provided in the proxy. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
Secretary of the Corporation prior to or at the time of the meeting. Any vote
may be taken by voice or by show of hands unless someone entitled to vote
objects, in which case written ballots shall be used.
Section 2.9. Record Date; Closing Transfer Books. The Board of Directors
may fix in advance a record date for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of the stockholders, the record
date to be not less than ten (10) nor more than sixty (60) days prior to the
meeting; or the Board of Directors may close the stock transfer books for such
purpose for a period of not less than ten (10) nor more than sixty (60) days
prior to such meeting. In the absence of any action by the Board of Directors,
the date upon which the notice of the meeting is mailed shall be the record
date.
Section 2.10. Action Without Meeting. Any action required by statute to
be taken at a meeting of the stockholders, or any action which may be taken at a
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all of the stockholders entitled to vote with respect
to the subject matter thereof and such consent shall have the same force and
effect as a unanimous vote of the stockholders. Any such signed consent, or a
signed copy thereof, shall be placed in the minute book of the Corporation.
Section 2.11. Telephone Meeting. Subject to the provisions of applicable
law and these Bylaws, stockholders may participate in and hold a meeting by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
3
<PAGE>
ARTICLE III.
DIRECTORS
Section 3.1. Management of the Corporation. The business and affairs of
the Corporation shall be managed by its Board of Directors, who may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not, by statute or by the Certificate of Incorporation or by these Bylaws,
directed or required to be exercised or done by the stockholders.
Section 3.2. Number and Qualifications. The Board of Directors shall
consist of such number of members (not less than one) as shall be established by
resolution of the Board of Directors from time to time, none of whom need be
stockholders or residents of the State of Delaware. The directors shall be
elected at the annual meeting of the stockholders, except as hereinafter
provided, and each director elected shall hold office until his successor shall
be elected and shall qualify.
Section 3.3. Vacancies. Vacancies and newly-created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
their successors are duly elected and qualified. If there are no directors in
office, then an election of directors may be held in the manner provided by law.
If, at the time of filling any vacancy or any newly-created directorship, the
directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office. No decrease
in the size of the Board shall serve to shorten the term of an incumbent
director.
Section 3.4. Removal. Unless otherwise restricted by law, the
Certificate of Incorporation or these Bylaws, any director may be removed either
for or without cause at any special meeting of stockholders by the affirmative
vote of a majority in number of the stockholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such director, if notice of the intention to act upon such matter shall have
been given in the notice calling such meeting.
Section 3.5. Election of Directors. Directors shall be elected by
plurality vote. Cumulative voting shall not be permitted.
4
<PAGE>
Section 3.6. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board shall have the authority
to fix the compensation of directors. The directors may be reimbursed their
expenses, if any, of attendance at each meeting of the Board and may be paid
either a fixed sum for attendance at each meeting of the Board or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees of the Board may be allowed like compensation for attending
committee meetings.
Section 3.7. Place of Meetings. The directors of the Corporation may
hold their meetings, both regular and special, either within or without the
State of Delaware.
Section 3.8. Annual Meetings. The first meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of the stockholders and at the same place, unless by majority vote of
the directors then elected and serving such time or place is changed.
Section 3.9. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as may be fixed from
time to time by resolutions adopted by the Board and communicated to all
directors. Except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, neither the business to be transacted at, nor the
purpose of, any regular meeting need be specified in the notice or waiver of
notice of such meeting.
Section 3.10. Special Meetings. Special meetings of the Board of
Directors (i) may be called by the Chairman of the Board or President and (ii)
shall be called by the President or Secretary or Assistant Secretary on the
written request of two directors or the sole director, as the case may be.
Notice of each special meeting of the Board shall be given, either personally or
as hereinafter provided, to each director at least twenty-four (24) hours before
the meeting if such notice is delivered personally or by means of telephone,
telegram, telex or facsimile transmission and delivery; two (2) days before the
meeting if such notice is delivered by a recognized express delivery service;
and three (3) days before the meeting if such notice is delivered through the
United States mail. Except as may be otherwise expressly provided by statute,
the Certificate of Incorporation or these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in the
notice or waiver of notice of such meeting.
Section 3.11. Quorum; Majority Vote. At all meetings of the Board of
Directors, the presence of a majority of the directors fixed by these Bylaws
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of
5
<PAGE>
Directors, except as may be otherwise specifically provided by statute, the
Certificate of Incorporation or these Bylaws. If a quorum is not present at any
meeting of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present. At any such adjourned meeting any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 3.12. Procedure. The Board of Directors shall keep regular
minutes of its proceedings. The minutes shall be placed in the minute book of
the Corporation.
Section 3.13. Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors or any committee thereof may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the Board of Directors or such committee,
as the case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting, and may be stated as such in any document or
instrument filed with the Secretary of State. The signed consent, or a signed
copy, shall be placed in the minute book of the Corporation.
Section 3.14. Telephonic Meeting. Subject to the provisions of
applicable statutes and these Bylaws, members of the Board of Directors or of
any committee thereof may participate in and hold a meeting of the Board of
Directors or any committee thereof by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV.
COMMITTEES OF THE BOARD
Section 4.1. Establishment; Standing Committees. The Board of Directors
may, by resolution adopted by affirmative vote of a majority of the whole Board,
establish, name or dissolve one or more committees, each committee to consist of
one or more of the directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board when required.
Section 4.2. Available Powers. Any committee established pursuant to the
preceding Section of these Bylaws, but only to the extent provided in the
resolution of the Board establishing such committee or otherwise delegating
specific power and authority to such committee and as limited by law, the
6
<PAGE>
Certificate of Incorporation and these Bylaws, shall have and may exercise all
the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Without limiting the foregoing, such
committee may, but only to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
as provided in Section 15 1 (a) of the Delaware General Corporation Law, fix any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation.
Section 4.3. Unavailable Powers. No committee of the Board shall have
the power or authority to (i) amend the Certificate of Incorporation (except in
connection with the issuance of capital stock as provided in the previous
section); (ii) adopt an agreement of merger or consolidation; (iii) recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (iv) a dissolution of the Corporation or a
revocation of such a dissolution; (v) amend the Bylaws of the Corporation; or,
unless the resolutions establishing such committee or the Certificate of
Incorporation expressly so provides, (vi) declare a dividend, (vii) authorize
the issuance of stock or (viii) adopt a certificate of ownership and merger.
Section 4.4. Alternate Members. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at a meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member.
Section 4.5. Procedures. Time, place and notice, if any, of meetings of
a committee shall be determined by such committee. At meetings of a committee, a
majority of the number of members designated by the Board shall constitute a
quorum for the transaction of business. The act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
committee, except as otherwise specifically provided by law, the Certificate of
Incorporation or these Bylaws. If a quorum is not present at a meeting of a
committee, the members present may adjourn the meeting from time to time,
without notice other than an announcement at the meeting, until a quorum is
present.
7
<PAGE>
ARTICLE V.
OFFICERS, EMPLOYEES AND AGENTS:
POWERS AND DUTIES
Section 5.1. Elected Officers. The elected officers of the Corporation
shall be a President, a Secretary and a Treasurer (collectively, the "Required
Officers") having the respective duties enumerated below and may elect such
other officers having the titles and duties set forth below which are not
reserved for the Required Officers or such other titles and duties as the Board
may by resolution from time to time establish. No elected officer of the
Corporation need be a director of the Corporation, and no elected officer of the
Corporation need be a stockholder or a resident of the State of Delaware.
Section 5.2. Chairman of the Board. The Chairman of the Board, or in his
absence, the President, shall preside when present at all meetings of the
stockholders and the Board. The Chairman of the Board shall advise and counsel
the President and other officers and shall exercise such powers and perform such
duties as shall be assigned to or required of him from time to time by the Board
or these Bylaws. The Chairman of the Board may execute bonds, mortgages and
other contracts requiring a seal under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board to some other officer or agent of the Corporation. The Chairman of the
Board may delegate all or any of his powers or duties to the President, if and
to the extent deemed by the Chairman of the Board to be desirable or
appropriate.
Section 5.3. President. The President shall be the chief executive
officer of the Corporation and, subject to the provisions of these Bylaws, shall
have general supervision of the affairs of the Corporation and shall have
general and active control of all its business. In the absence of the Chairman
of the Board, or in the event of his inability or refusal to act, the President
shall perform the duties and exercise the powers of the Chairman of the Board.
Section 5.4. Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice President in the order
designated by the Board, or in the absence of any designation, then in the order
of their election or appointment) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
8
<PAGE>
Section 5.5. Secretary. The Secretary shall see that notice is given of
all meetings of the stockholders and special meetings of the Board of Directors
and shall keep and attest true records of all proceedings at all meetings of the
stockholders and the Board of Directors. He shall have charge of the corporate
seal and have authority to attest any and all instruments or writings to which
the same may be affixed. He shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable. He shall have authority to sign stock
certificates and shall generally perform all the duties usually appertaining to
the office of Secretary of a corporation. In the absence or disability of the
Secretary, his duties shall be performed and his powers may be exercised by the
Assistant Secretaries in the order of their seniority, unless otherwise
determined by the Secretary, the Chairman of the Board, President or the Board.
Section 5.6. Assistant Secretaries. Each Assistant Secretary shall
generally assist the Secretary and shall have such powers and perform such
duties and services as such from time to time be prescribed or delegated to him
by the Secretary, the Chairman of the Board, the President or the Board.
Section 5.7. Chief Financial Officer. The Chief Financial Officer shall
be the principal financial officer of the Corporatian and shall have such powers
and perform such duties as these Bylaws or the Board of Directors may from time
to time prescribe.
Section 5.8. Treasurer. The Treasurer shall have custody of all the
funds and securities of the Corporation which may come into his hands, and shall
deposit the same with such bank or banks or other depositary or depositaries as
the Board of Directors from time to time shall determine; he may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he may sign
all receipts and vouchers for payments made to the Corporation; he may sign with
the Chairman of the Board or the President or a Vice President certificates for
shares of the capital stock; he shall enter or cause to be entered regularly in
the books of the Corporation full and accurate accounts of all moneys received
and paid on account for the Corporation and wherever required by the Board of
Directors shall render statements of such accounts; he shall, at all reasonable
times, exhibit his books and accounts to the independent public accountant of
the Corporation or to any director of the Corporation during business hours; and
he shall perform all acts incident of the office of Treasurer, subject to the
control of the Board of Directors.
Section 5.9. Assistant Treasurers. Each Assistant Treasurer shall
generally assist the Treasurer and shall have
9
<PAGE>
such powers and perform such duties and services as shall from time to time be
prescribed or delegated to him by the Treasurer, the President or the Board of
Directors.
Section 5.10. Divisional Officers. Each division of the Corporation, if
any, may have a President, Secretary, Treasurer or controller and one or more
Vice Presidents, assistant secretaries, assistant Treasurers and other assistant
officers. Any number of such offices may be held by the same person. Such
divisional officers will be appointed by, report to and serve at the pleasure of
the Board and such other officers that the Board may place in authority over
them. The officers of each division shall have such authority with respect to
the business and affairs of that division as may be granted from time to time by
the Board, and in the regular course of business of such division may sign
contracts and other documents in the name of the division where so authorized;
provided that in no case and under no circumstances shall an officer of one
division have authority to bind any other division of the Corporation except as
necessary in the pursuit of the normal and usual business of the division of
which he is an officer.
Section 5.11. Appointed Officers. The Board of Directors may also
appoint such other officers and assistant officers and agents, and may remove
such officers and assistant officers and agents or delegate the power to remove
same (none of whom need be a member of the Board, a stockholder or a resident of
the State of Delaware) as it shall from time to time deem necessary, who shall
exercise such powers and perform such duties as shall be set forth in these
Bylaws or determined from time to time by the Board of Directors.
Section 5.12. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties, services and powers, the several elected and
appointive officers of the Corporation shall perform such other duties and
services and exercise such further powers as may be provided by statute, the
Certificate of Incorporation or these Bylaws or as the Board of Directors may
from time to time determine or as may be assigned to them by any competent
superior officer.
Section 5.13. Two or More Offices. Any two (2) or more offices may be
held by the same person.
Section 5.14. Compensation. The compensation of all officers of the
Corporation shall be fixed from time to time by the Board. The Board may from
time to time delegate to the President the authority to fix the compensation of
any or all of the other officers of the Corporation.
Section 5.15. Term of Office; Removal; Filling of Vacancies. Unless
otherwise specified by the Board at the time of election or in an employment
contract approved by the Board, each elected officer's term shall end at the
first meeting of
10
<PAGE>
directors after the next annual meeting of stockholders. Each elected officer of
the Corporation shall hold office until his successor is chosen and qualified in
his stead or until his earlier death, resignation or removal from office. Each
appointive officer or agent shall hold office at the pleasure of the Board of
Directors without the necessity of periodic reappointment. Any officer or agent
elected or appointed by the Board of Directors may be removed at any time by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
ARTICLE VI.
STOCK AND TRANSFER OF STOCK
Section 6.1. Certificates Representing Shares. Certificates in such form
as may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Certificate of Incorporation and these Bylaws
shall be delivered representing all shares to which stockholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on the
face thereof that the Corporation is organized under the laws of the State of
Delaware, the holder's name, the number and class of shares and the designation
of the series, if any, which such certificate represents, the par value of such
shares or a statement that such shares are without par value and such other
matters as may be required by law. Each certificate shall be signed by the
President or any Vice President and the Secretary or an Assistant Secretary and
may be sealed with the seal of the Corporation or a facsimile thereof.
Section 6.2. Issuance. Subject to the provisions of the statutes, the
Certificate of Incorporation or these Bylaws, shares may be issued for such
consideration and to such persons as the Board of Directors may determine from
time to time. Shares may not be issued until the full amount of the
consideration, fixed as provided by law, has been paid.
Section 6.3. Payment for Shares. The consideration for the issuance of
shares shall consist of money paid, labor done (including services actually
performed for the Corporation) or property (tangible or intangible) actually
received. Neither promissory notes nor the promise of future services shall
constitute payment for shares. In the absence of fraud in the transaction, the
judgment of the Board of Directors as to the value of consideration received
shall be conclusive. When consideration, fixed as provided by law, has been
paid, the shares shall be deemed to have been issued and shall be considered
fully paid and nonassessable.
11
<PAGE>
Section 6.4. Lost, Stolen or Destroyed Certificates. The Board of
Directors, the President, or such other officer or officers of the Corporation
as the Board of Directors may from time to time designate, in its or his
discretion may direct a new certificate or certificates representing shares to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate or certificates
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors, the President, or any such
other officer, in its or his discretion and as a condition precedent to the
issuance thereof, may require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it or he shall require and/or give the Corporation a bond in
such form, in such sum, and with such surety or sureties as it or he may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed.
Section 6.5. Transfers of Shares. Shares of stock shall be transferable
only on the books of the Corporation by the holder thereof in person or by his
duly authorized attorney. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate or certificates representing shares,
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, with all required stock transfer tax stamps affixed
thereto and canceled or accompanied by sufficient funds to pay such taxes, it
shall be the duty of the Corporation or the transfer agent of the Corporation to
issue a new certificate or certificates to the person entitled thereto, cancel
the old certificate or certificates and record the transaction upon its books.
Section 6.6. Registered Stockholders. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII.
INDEMNIFICATION
Section 7.1. General. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was
12
<PAGE>
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, have
reasonable cause to believe that his conduct was unlawful.
Section 7.2. Actions by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture or trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 7.3. Board Determinations. Any indemnification under Sections
7.1 and 7.2 (unless order by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 7.1 and 7.2.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by
13
<PAGE>
independent legal counsel in a written opinion, or (3) by the stockholders.
Section 7.4. Advancement of Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized by law or in this
Section. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
Section 7.5. Nonexclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, this section shall not be deemed
exclusive of any other rights to which any director, officer, employee or agent
of the Corporation seeking indemnification or advancement of expenses may be
entitled under any other bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent of the Corporation and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7.6. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of the statutes, the Certificate
of Incorporation or this Section.
Section 7.7. Certain Definitions. For purposes of this section, (a)
references to the "Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Section with respect to the resulting or
14
<PAGE>
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued; (b) references to "other
enterprises" shall include employee benefit plans; (c) references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and (d) references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Section.
Section 7.8. Change in Governing Law. In the event of any amendment or
addition to Section 145 of the General Corporation Law of the State of Delaware
or the addition of any other section to such law with regard to indemnification,
the Corporation shall indemnify to the fullest extent authorized or permitted by
such then-existing General Corporation Law of the State of Delaware, as amended,
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. Any change in applicable law shall, to the extent
permitted by applicable law, be prospective only, and shall not adversely affect
any limitation on the personal liability of any director, officer, employee or
agent of the Corporation existing at the time of such change.
ARTICLE VIII.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 8.1. Validity. Any contract or other transaction between the
Corporation and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purchases notwithstanding the presence of such director,
officer or stockholder at the meeting authorizing such contract or transaction,
or his participation or vote in such meeting or authorization.
Section 8.2. Disclosure, Approval. The foregoing shall, however, apply
only if the material facts of the relationship or
15
<PAGE>
the interest of each such director, officer or stockholder is known or
disclosed:
(1) to the Board and it nevertheless in good faith authorizes or
ratifies the contract or transaction by a majority of the directors present,
each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote; or
(2) to the stockholders and they nevertheless in good faith
authorize or ratify the contract or transaction by a majority of the shares
present, each such interested person to be counted for quorum and voting
purposes.
Section 8.3. Nonexclusive. This provision shall not be construed to
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. Dividends. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the statutes and of the Certificate of
Incorporation, may be declared by the Board of Directors at any annual, regular
or special meeting and may be paid in cash, in property or in shares of the
Corporation, or in any combination thereof.
The Board of Directors may fix in advance a record date for the purpose
of determining stockholders entitled to receive payment of any dividend, the
record date to be not less than ten (10) nor more than sixty (60) days prior to
the payment date of such dividend, or the Board of Directors may close the stock
transfer books for such purpose for a period of not less than ten (10) nor more
than sixty (60) days prior to the payment date of such dividend. In the absence
of any action by the Board of Directors, the date upon which the Board of
Directors adopts the resolution declaring the dividend shall be the record date.
Section 9.2. Reserves. Before payment of any dividends, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
think proper as a reserve or reserves to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Corporation to be
distributed to stockholders, or for such other purpose as the Board of Directors
shall determine to be in the best interest of the Corporation; and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
Section 9.3. Attendance via Communications Equipment. Unless otherwise
restricted by law, the Certificate of
16
<PAGE>
Incorporation or these Bylaws, members of the Board of Directors or any
committee thereof or the stockholders may hold a meeting by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with each other. Such
participation in a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 9.4. Means of Giving Notice. Except as expressly provided
elsewhere herein, whenever under law, the Certificate of Incorporation or these
Bylaws, notice is required to be given to any director or stockholder, such
notice may be given in writing and delivered personally, through the United
States mail, by a recognized express delivery service (such as Federal Express)
or by means of telegraph, telex, or facsimile transmission, addressed to such
director or stockholder at his address, telex or facsimile transmission number,
as the case may be, appearing on the records of the Corporation, with postage
and fees thereon prepaid. Such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail or with an express
delivery service or when transmitted, as the case may be.
Section 9.5. Signature of Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officer, officers, agent or agents and in such manner as
are permitted by these Bylaws and/or as, from time to time, may be prescribed by
resolution (whether general or special) of the Board of Directors.
Section 9.6. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors of the Corporation.
Section 9.7. Seal. The Corporation's seal shall be in such form as shall
be adopted and approved from time to time by the Board of Directors. The seal
may be used by causing it, or a facsimile thereof, to be impressed, affixed,
imprinted or in any manner reproduced.
Section 9.8. Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its stockholders and Board of Directors and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
17
<PAGE>
Section 9.9. Resignation. Any director, committee member, officer or
agent may resign by giving written notice to the President or the Secretary. The
resignation shall take effect at the time specified therein, or immediately if
no time is specified. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 9.10. Indemnification and Insurance. The Corporation shall have
the power and obligation to indemnify any person who was or is a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including but not limited to, employee benefit plans, to the extent set forth in
the Certificate of Incorporation of the Corporation.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, trustee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including but not limited to, employee
benefit plans, against any liability asserted against him and incurred by him in
any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Section.
Section 9.11. Surety Bonds. Such officers and agents of the Corporation
(if any) as the President, the Board of Directors may direct, from time to time,
shall be bonded for the faithful performance of their duties and for the
restoration to the Corporation, in case of their death, resignation, retirement,
disqualification or removal from office, of all books, papers, vouchers, money
and other property of whatever kind in their possession or under their control
belonging to the Corporation, in such amounts and by such surety companies as
the President or the Board of Directors may determine. The premiums on such
bonds shall be paid by the Corporation, and the bonds so furnished shall be in
the custody of the Secretary.
Section 9.12. Amendments. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted at any meeting of the Board of Directors
at which a quorum is present by the affirmative vote of a majority of the
directors present at such meeting.
18
AMENDED CONFIRMATION
Date February 2, 1998
To: Foamex L.P. ("Foamex")
Attention: George Karpinski
Tel: 610-859-3107
Fax: 610-859-3032
From: Citibank, N.A. New York ("Citibank")
Fax No: 416-941-7432
Transaction Reference Numbers: 97L100
The purpose of this communication is to set forth the terms and conditions
of the above-Referenced Transaction entered into on the Trade Date specified
below (the "Transaction") between you and us and amended (the "Amendment") as of
the Amendment Date specified below. This communication constitutes a
"Confirmation" as referred to in the Master Agreement specified below and
amends, restates and supersedes any prior Confirmation for this Transaction.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) are incorporated
into this Confirmation. In the event of any inconsistency between those
definitions and provisions and this Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is subject to, the
Master Agreement dated as of March 31, 1994 (the "Agreement") between you and
us. All provisions contained in the Agreement shall govern this Confirmation
except as expressly modified below.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
Transaction Reference Number: 97L100
Notional Amount: USD 150,000,000
Trade Date: June 5, 1997
Amendment Date: January 6, 1998
Effective Date: June 12, 1997
<PAGE>
Termination Date: June 12, 2002; provided, however, Citibank may
designate December 13, 1999 or any June 12 or
December 12 thereafter as the Termination Date
of this Transaction by notice to Foamex on the
day that is two Business Days prior to such
date. No payment shall be made by either party
as a result of such termination.
Fixed Amounts:
--------------
Fixed Rate Payer: Citibank
Fixed Rate Payer Payment Dates: December 12, 1997 and thereafter each June 12
and December 12 to and Including the
Termination Date, subject to adjustment in
accordance with the Modified Following
Business Day Convention
Fixed Rate: 6.44 percent
Fixed Rate Day Count Fraction: 30/360
Floating Amounts:
-----------------
Floating Rate Payer Foamex
Floating Rate Payer Payment
Dates: December 12, 1997 and thereafter each June 12
and December 12 to and including the
Termination Date, subject to adjustment in
accordance with the Modified Following
Business Day Convention
Floating Rate for the
Calculation Period from, and
including, December 12, 1997
to, but excluding June 12, 1998
and from, and including,
June 12, 1998 to, but excluding
December 12,1998: 5.78 percent
Floating Rate Option for all
Calculation Periods commencing
on or after December 12, 1998: USD-LIBOR-BBA
Designated Maturity: 6 Months
-2-
<PAGE>
Floating Rate Day Count Fraction: Actual/360
Business Days: New York and London
Calculation Agent: Citibank
3. Account Details:
----------------
Payments to Citibank: Account for payments:
Citibank, N.A. New York
ABA # 021000089
Account No. 00167679
Financial Futures
Reference Swap 97L100
Payments to Foamex: Account for payments:
Citibank, N.A. New York
ABA # 021000089
Account No. 4059-7235
Account Name: Foamex L.P.
Reference: Swap 97L100
Foamex hereby agrees (a) to check this Confirmation (Reference No.: 97L100)
carefully and immediately upon receipt so that errors or discrepancies can be
promptly identified and rectified and (b) to confirm that the foregoing
correctly sets forth the term of the agreement between Citibank and Foamex with
respect to the particular Transaction to which this Confirmation relates, by
manually signing this Confirmation and providing the other information requested
herein and immediately returning an executed copy to Facsimile No. 416-941-7432.
Very truly yours,
CITIBANK, N.A. NEW YORK
By: /s/ Nancy Ling
-------------------------
Name: Nancy Ling
Assistant Manager
Agreed and Accepted By:
FOAMEX L.P.
By: /s/ George Karpinsky
-------------------------
Name: George Karpinski
Title: Senior Vice President
-3-
___ July 1997
HUA KEE COMPANY LIMITED
FOAMEX ASIA INC
================================================================================
JOINT VENTURE AGREEMENT
================================================================================
FRESHFIELDS
<PAGE>
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made on this day of July, 1997 by and between:
a. HUA KEE COMPANY LIMITED, a limited company organized and existing under the
laws of the Kingdom of Thailand, with its registered office located at
107-109 Suapa Road, Kwaeng Pomprab, Khet Pomprabsattrupai, Bangkok,
Thailand ("HK"); and
b. FOAMEX ASIA, INC., a corporation organized and existing under the laws of
the State of Delaware, U.S.A., with its principal office and place of
business at 1000 Columbia Avenue, Linwood, Pennsylvania 19061, U.S.A.
("FAI").
WHEREAS:
A. The parties have agreed that a newly formed incorporated private limited
company, Foamex Asia Co., Ltd ("FAC"), shall be used by the parties as the
jointly owned company to carry on business in the manner set out in this
Agreement;
B. The parties have agreed that their relations as shareholders in FAC shall
be governed by the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED as follows:
INTERPRETATION
Definitions
1.1 In this Agreement the following terms shall, unless the context otherwise
requires, have the following meanings:
"Board" means the board of directors of FAC;
"the Business" means the (i) operation of a foam making facility in Thailand to
undertake the manufacture of polyurethane polymer materials; (ii) operation of
converting facilities in Thailand and Singapore to undertake converting various
plastic foam materials as well as adhesive films and foils; and (iii) subject to
further agreement of the parties, operation of plastic foam converting
facilities in other countries in Asia.
"Competing Business" means a company which imports, exports, sells, markets,
trades, manufactures or otherwise deals with polymer foams that are manufactured
by FAC in any country in Asia in which FAC markets its products other than a
country in which either of the parties directly or indirectly holds shares in a
company which engages in similar activities;
<PAGE>
"Completion" means completion of the establishment of FAC in accordance with
clause 2;
"control" means the ownership, direct or indirect, of more than fifty percent
(50%) of the issued and outstanding voting capital shares of a company;
"FAC" means the limited company, Foamex Asia Co., Ltd, with its registered
address at 22nd Floor, Sathorn City Tower, 175 South Sathorn Road, Khet Sathorn,
Bangkok 10120, which has been incorporated and shall be used by the parties
pursuant to the terms of this Agreement;
"Group A Director" means a director of FAC nominated by HK pursuant to clause
4.1;
"Group B Director" means a director of FAC nominated by FAI pursuant to clause
4.1;
"Group A Shares" means ordinary shares of FAC held by HK;
"Group B Shares" means ordinary shares of FAC held by FAI;
"Interest Amount" means the total amount of interest denominated in Baht
(excluding any withholding tax deducted by FAC in accordance with the Loan
Agreement), payable by FAC on the loan by FAI to FAC in accordance with the
terms of the Loan Agreement;
"Loan Agreement" means the loan agreement to be executed by FAI, HK and FAC as
set out in Annex 3 hereto;
"member of the FAI Group" means FAI and any company or individual which
controls, is under common control with, or is controlled by FAI;
"member of the HK Group" means HK and any company or individual which controls,
is under common control with, or is controlled by HK;
"Memorandum and Articles" means the Memorandum of Association and Articles of
Association, respectively, of FAC; and
"parties" means FAI and HK.
Headings
1.2 Headings are inserted for convenience only and shall not affect the
construction of this Agreement.
<PAGE>
ESTABLISHMENT OF FAC
2.1 As soon as reasonably practicable after the signing of this Agreement and in
any event by the date of Completion referred to in clause 2.3, the parties shall
cause the following events to take place:
(a) the existing Memorandum of FAC as set out in Annex 1A shall be amended as
set out in Annex 1B and such amendments shall be adopted by FAC by a
special resolution passed at two (2) successive shareholders meetings in
accordance with Thai law;
(b) the existing registered capital of FAC shall be increased from Baht
25,000,000, consisting of 2,500,000 shares at Baht 10 par value per share,
to Baht 38,633,660, consisting of 3,863,366 shares at Baht 10 par value per
share, by a special resolution passed at two (2) successive shareholders
meetings in accordance with Thai law;
(c) the agreed draft Articles of Association as set out in Annex 2 shall be
adopted as the Articles of Association of FAC by passing a special
resolution at two (2) successive shareholders meetings in accordance with
Thai law.
(d) FAC shall have an initial registered share capital of Baht 38,633,660
consisting of 3,863,366 shares at Baht 10 par value per share as follows,
and shall be fully paid up on Completion, divided into the following
shares:
- 99% of the registered capital of FAC held by HK, consisting of
3,825,000 Group A Shares; and
- 1% of the registered capital of FAC held by FAI, consisting of 38,366
Group B Shares;
(e) the Group A Shares and Group B Shares, as ordinary shares, shall each be
entitled to one (1) vote per share;
(f) the Loan Agreement shall be executed;
(g) FAI shall lend FAC an amount of Baht 36,366,340 in accordance with the
terms set out in clause 3.2 and the terms set out in the Loan Agreement;
and
(h) the auditors of FAC shall be an independent firm of certified public
accountants (registered auditors) of internationally recognized standing
mutually agreed between the parties, with the initial auditor of FAC to be
Mrs. Sudchid Boonprakorb (certified accountant No. 2991) of Arthur
Anderson.
<PAGE>
Name
2.2 The name of FAC shall be "Foamex Asia Co. Ltd.". In the event that FAI and
affiliates of FAI, or HK and affiliates of HK, at any time cease to own any
shares in FAC, the parties agree to take all actions necessary to cause the name
of FAC to be changed as promptly as may be reasonably accomplished to delete any
reference to FAI or HK, as the case may be.
Completion
2.3 Completion shall take place on 31st July 1997 (or such later date as the
parties may agree in writing) when the following events shall take place,
namely:
(a) HK shall subscribe for 3,825,000 Group A Shares by payment in cash in the
sum of Baht 38,250,000, to the account of FAC;
(b) FAI shall subscribe for 38,366 Group B Shares by payment in cash in the sum
of Baht 383,660, to the account of FAC;
(c) The parties shall procure that FAC allots and issues credited as fully
paid:
- 3,825,000 Group A Shares to HK; and
- 38,366 Group B Shares to FAI;
and that the names of HK and FAI are entered in the share register of FAC
as the respective holder of the shares subscribed by them and that share
certificates are issued to HK and FAI in respect of such shares; and
(d) FAI shall lend FAC an amount of Baht 36,366,340, by payment in cash to the
account of FAC.
CAPITAL AND FURTHER FINANCE
Initial Share Capital
3.1 FAC shall, in accordance with and following completion of the events and
transactions referred to in clause 2, have registered and issued, and paid up,
share capital of Baht 38,633,660, consisting of 3,825,000 Group A Shares owned
by HK and 38,366 Group B Shares owned by FAI.
Repayment of Loan and Subscription for Share Capital
3.2 In accordance with, and subject to, the terms of the Loan Agreement, HK and
FAI shall each have the right to require the loan granted by FAI to
<PAGE>
FAC pursuant to the Loan Agreement to be repaid by FAC and, conditional upon
such repayment, FAI shall subscribe for further Group B Shares in FAC, in which
case the events set out in clause 3.3 shall take place.
Issue of Further Share Capital
3.3 Upon exercise by either HK or FAI of the right set out in clause 3.2 and,
subject to the terms of the Loan Agreement, the following events shall take
place, namely:
(a) the registered capital of FAC shall be increased from Baht 38,633,660,
consisting of 3,863,366 shares at Baht 10 par value per share, to Baht
75,000,000, consisting of 7,500,000 shares at Baht 10 par value per share,
by a special resolution passed at two (2) successive shareholders meetings
in accordance with Thai law;
(b) FAI shall subscribe for 3,636,634 Group B Shares by payment in cash of an
amount calculated as the sum of Baht 36,366,340 and the Interest Amount, to
the account of FAC; and
(c) the parties shall procure that FAC allots and issues credited as fully paid
3,636,634 Group B Shares to FAI and that the name of FAI is entered in the
share register of FAC as the holder of the shares subscribed by them and
that share certificates are issued to FAI in respect of such shares.
Share Capital
3.4 FAC shall, in accordance with and following completion of the events and
transactions referred to in clause 3.3, have registered and issued, and paid up,
share capital of Baht 75,000,000, consisting of 3,825,000 Group A Shares owned
by HK and 3,675,000 Group B Shares owned by FAI.
Increase in Share Capital
3.5 The share capital of FAC may from time to time be increased by the issuance
of ordinary shares and preference shares by such sum as the parties shall
mutually agree but so that in any event, after the completion of the events
referred to in clause 3.3, such increased share capital shall be held in the
proportions of 51% by HK (or other member of the HK Group) and 49% by FAI (or
other member of the FAI Group).
Further Finance
3.6(a) If FAC shall in the opinion of the Board require further finance, FAC
shall first approach its own bankers. The parties shall not be obliged
to provide guarantees for FAC's liabilities in respect of such finance
but, if they do so, they shall be given in equal proportions. The
liabilities of
<PAGE>
the parties under any such guarantees shall be several and, if a claim
is made under any such guarantee against a party, that party shall be
entitled to a contribution from the other party such as to ensure that
the aggregate liability is borne in equal proportions.
(b) If finance cannot be obtained from FAC's own bankers, neither party
shall be obliged to provide any such further finance to FAC. Any such
finance which the parties do agree to provide shall, unless otherwise
agreed, be provided by the parties in equal proportions (whether by way
of subscription of share capital, loans or otherwise).
Party Ceasing as Shareholder
3.7 Upon either party ceasing to be a shareholder in FAC, the other party shall
cause any finance provided by that party under clause 3.6 to be repaid to it and
that it shall be relieved of its obligations under any guarantees provided under
clause 3.6 (provided that, notwithstanding the termination of this Agreement, a
party ceasing to be a shareholder shall remain liable under any such guarantees
for any claims arising in respect of any default by FAC or the subsidiary in
question occurring during the period during which that party was a shareholder
in FAC).
DIRECTORS AND MANAGEMENT
Board of Directors
4.1 The business and affairs of FAC shall (subject to the Reserved Shareholder
Matters set out in clause 5) be managed by the Board of FAC. The board shall
consist of four (4) persons of which:
(a) HK shall be entitled to nominate and have appointed to the Board two (2)
directors (the Group A Directors) (and have removed any directors so
appointed from office and to nominate and have appointed another in the
place of any director so removed);
(b) FAI shall be entitled to nominate and have appointed to the Board two (2)
directors (the Group B Directors) (and to have removed any director so
appointed from office and nominate and have appointed another in the place
of any director so removed); and
(c) the Board shall consist, at all times, of a number of directors divisible
by two (2), being an equal number of Group A Directors and Group B
Directors;
and accordingly, if the number of directors is increased or decreased, it shall
be done in pairs, one (1) director being a Group A Director and the other
director being a Group B Director.
<PAGE>
Appointments and Removals
4.2 Every nomination and request for removal by FAI or HK of a director pursuant
to its entitlement shall be notified in writing to the other party. FAI and HK
shall each use their respective votes in FAC to ensure that the Board of FAC is
constituted by persons appointed in the manner set out in this Agreement.
Quorum
4.3 The quorum for the transaction of business at any meeting of the Board shall
be at least one (1) Group A Director (or his alternate) and at least one (1)
Group B Director (or his alternate) present at the time when the relevant
business is transacted.
Voting
4.4 At any meeting of the Board, each Director shall be entitled to one (1)
vote. Any director who is absent from any meeting may nominate (and confirm in
writing) any other director to act as his alternate and to vote in place at the
meeting. The chairman shall not have a casting vote.
Notice and Agenda
4.5 At least thirty (30) days written notice shall be given to each of the
members of the Board of any meeting of the Board, provided always that a shorter
period of notice may be given with the written approval of at least one (1)
Group A Director and at least one (1) Group B Director. Any such notice shall
contain, inter alia, an agenda identifying in reasonable detail the matters to
be discussed at the meeting and shall be accompanied by copies of any relevant
papers to be discussed at the meeting.
Decisions of Board
4.6 FAI and HK agree to accept as binding upon them any decision affecting FAC,
and/or the relationship of FAC with FAI or HK (as the case may be), duly taken
by the Board of FAC in which their respective nominated directors (or their
alternates) have concurred except that the Reserved Shareholder Matters covered
by clause 5 shall require the prior approval of the parties in accordance with
clause 5.3.
Chief Executive Officer (CEO) and President
4.7 The parties agree that the CEO of FAC shall be a Group A Director (initially
Dr Pichit Nithivasin) and the President of FAC shall be a Group B Director
(initially Mr Stephen P. Scibelli, Jr.). The CEO and the President shall be
under the direction of the Board. The CEO shall have responsibility for
<PAGE>
FAC's conformity with Thai governmental policies and procedures, financial
accounting and reporting, and domestic Thai banking relationships. The President
shall have responsibility for the day to day management of the operations, other
financial matters and property of FAC. The President shall have sole authority
in matters relating to operations, sales, marketing, customer relations and
technology. Matters relating to senior staff such as hiring, disengaging and
remuneration shall be approved by the CEO and the President.
Directors Authorized to Bind FAC
4.8 The directors authorized to bind FAC shall be the signature of one (1) of
the Group A Directors jointly together with the signature of one (1) of the
Group B Directors and with the seal of FAC affixed.
RESERVED SHAREHOLDER MATTERS
Matters Requiring Approval of the Parties
5.1 The following matters (Reserved Shareholder Matters) shall require the prior
approval of FAI and HK:
(a) any sale of the whole or any substantial part of FAC;
(b) any borrowing by FAC in excess of the Baht equivalent of US$100,000 (or
such other limit as the parties shall from time to time agree);
(c) approval of the annual budget and operating plan of FAC;
(d) any expansion of the marketing territory of FAC beyond Thailand and
Singapore;
(e) any repayment by FAC of any loan prior to its maturity;
(f) the formation of any subsidiary of FAC;
(g) the purchase by FAC of the shares or other securities, stock or debentures
of any other company;
(h) the appointment (and removal) and the amendment of the terms of reference
of the Chairman or President;
(i) the appointment (and removal) of the auditors of FAC;
(j) the entry into of any contract or commitment by FAC having a value or
likely to involve expenditure by FAC in excess of the Baht equivalent of
US$100,000 (or such other limit as the parties shall from time to time
agree); and
<PAGE>
(k) any change of the directors authorized to bind FAC.
Special Resolution
5.2 The parties acknowledge that under the Civil and Commercial Code of Thailand
the following matters require a special resolution of the shareholders of FAC,
which includes, inter alia, the requirement that the resolution has been passed
by seventy-five percent (75%) of the votes cast at a shareholders meeting:
(a) amendment of the Memorandum or Articles;
(b) increase or reduction of FAC's registered share capital;
(c) allotting new shares as fully or party paid-up otherwise than in money;
(d) amalgamation of FAC with another company; and
(e) dissolution or liquidation of FAC.
Method of Approval
5.3 Approval for the purposes of clause 5.1 may be given by FAI and HK either in
writing or by unanimous resolution at a general meeting of the shareholders of
FAC or by written resolution.
TRANSFER OF SHARES
Transfer Notice
6.1 Each party hereby undertakes that, if at any time any member of its Group
shall desire to sell or otherwise dispose of any of its shares in FAC other than
to another member of its Group, then:
(a) the relevant party (the Selling Party) shall give notice in writing to the
other party (the Continuing Party) of such desire and of its proposed
price; (in this clause referred to as a Transfer Notice);
(b) within thirty (30) days after receipt of the Transfer Notice, the
Continuing Party shall have the right by notice in writing (a Purchase
Notice) to inform the Selling Party that it wishes to purchase the shares
included in the Transfer Notice (the Sale Shares) at such price as may be
specified in the Transfer Notice;
(c) if the Continuing Party so serves a Purchase Notice, the sale and purchase
of the Sale Shares shall be completed accordingly; if not, neither the
Selling Party nor any other member of its Group shall thereafter be
entitled to sell the Sale Shares but shall be entitled to
<PAGE>
request the auditors of FAC (acting as experts and not as arbitrators) to
determine the price (herein called the Fair Price) representing in their
opinion a fair selling value of the Sale Shares as between a willing buyer
and a willing seller;
(d) upon the Fair Price being so determined, the Selling Party may give to the
Continuing Party a further notice in writing (herein called a Second
Transfer Notice) offering to sell the Sale Shares at the Fair Price.
(e) if the Continuing Party serves notice within thirty (30) days of receipt of
the Second Transfer Notice accepting such offer, the sale and purchase of
the Sale Shares shall be completed accordingly; if not, the Selling Party
or any other member of its Group shall thereafter be entitled to sell the
Sale shares at not less than the Fair Price to a third party purchaser
(approved by the Continuing Party in writing (but such approval shall not
be unreasonably withheld) and who shall thereupon be regarded for purposes
of this Agreement as a member of the same Group as the Selling Party)
within a period of sixty (60) days but not otherwise; and
(f) if any party is prevented or prohibited from acquiring any shares because
of any legal requirement, that party shall have the right to nominate
another person(s) from that party's Group, who is not prohibited from
purchasing such shares to acquire such shares, and such shares shall be
sold to such person(s). If such person is not a member of a party's Group,
the other party shall have no right to approve or object to any such person
unless the other party has demonstrated that a commercial or other conflict
would arise were such person to be allowed to acquire such shares.
Transfers to Members of its Group
6.2(a) Each party shall have the right, upon thirty (30) days advance written
notice to the other party, to transfer all or part of its shares to one
or more members of its Group, provided that the other party has no
reasonable objection to the transfer.
(b) The member of the FAI Group, or member of the HK Group, as the case may
be, shall, in writing, agree to re-transfer such shares to the
transferring party without further action on the date on which the
transferee ceases to be a member of that Group.
(c) The parties intend that all transfers within Groups and to parties
outside Groups be done in a manner which will preserve the original
foreign vs. Thai shareholding structure outlined in clauses 2 and 3.
<PAGE>
No Dealings in Beneficial Interest
6.3 Neither FAI or HK (nor any member of its respective Group) shall deal or
attempt to deal with the beneficial interest in any share of FAC except by
transfer of its shareholding permitted in accordance with this clause 6.
Undertaking by Transferee
6.4 No transfer of shares of FAC shall be registered or become effective unless
the transferee shall first have entered into an agreement undertaking to be
bound by this Agreement (including this clause 6) to the same extent as the
transferor would have been bound had the transfer not been effected.
Minimum Period
6.5 Neither party (nor any member of its respective Group) shall be entitled to
serve a Transfer Notice under clause 6.1 prior to five (5) years from
Completion.
Shareholder Ceasing to be a Member of the Group
6.6 Each of FAI and HK respectively undertakes to procure that, if any member of
its Group holding shares in FAC ceases at any time to be a member of that party,
that member shall, prior to so ceasing, have transferred all its shares in FAC
held by it at the time in question to the relevant party (or another member of
its Group).
CONFIDENTIALITY
Confidentiality
7.1 Each of the parties at all times shall use all reasonable endeavours to keep
confidential (and to ensure that its employees and agents shall keep
confidential) any confidential information which it may acquire in relation to
FAC and its subsidiaries, if any, or in relation to the clients, business or
affairs of the other party (or any member of its respective Group) and shall not
use or disclose such information except with the consent of the other party or,
in the case of information relating to FAC or one of its subsidiaries, if any,
in the ordinary course of advancing the Business. The restriction in this clause
7.1 shall not apply to any information:
(a) which is publicly available or becomes publicly available through no act of
the first mentioned party;
(b) which was in the possession of that party prior to its disclosure;
<PAGE>
(c) which is disclosed to that party by a third party which did not acquire the
information under an obligation of confidentiality;
(d) which is independently acquired by that party as the result of work carried
out by an employee to whom no disclosure of such information had been made;
or
(e) which is disclosed in accordance with the requirements of law, any stock
exchange regulation or any binding judgment, order or requirement of any
court or other competent authority.
Employees, Agents, etc.
7.2 Each party shall use all of its respective powers to procure (so far as it
is able) that FAC and its subsidiaries, if any, shall use all reasonable
endeavours to ensure that the officers, employees and agents of each of them
shall observe a similar obligation of confidence in favour of the parties to
this Agreement.
Survival After Termination
7.3 The provisions of this clause 7 shall survive any termination of this
Agreement.
RESTRICTIONS ON THE PARTIES
8. Neither FAI nor HK nor any member of its respective Group shall (either
solely or jointly with any other person, firm or company and whether directly or
indirectly) carry on or be engaged in or interested (except as the holder for
investment of securities dealt in on a stock exchange and not exceeding five
percent (5%) in nominal value of the securities of any class) in any Competing
Business during the period of this Agreement.
TERM
Term and Notice
9.1 Either FAI or HK shall be entitled (without prejudice to the application of
clause 5 (Transfer of Shares) to terminate this Agreement by three (3) months'
prior notice (to expire not earlier than the end of the said minimum period) in
writing served upon the other party.
SUPREMACY OF THIS AGREEMENT
10(a) FAI and HK shall each use their respective votes in FAC and all other
means at its disposal so as (a) to ensure that this Agreement is duly
performed and (b) to ensure that the provisions of the Memorandum and
Articles of Association are not infringed (save that, in the event of
any
<PAGE>
conflict between this Agreement and the Memorandum and the Articles
of Association, this Agreement shall prevail as between the parties).
(b) The parties shall cause their nominated directors on the Board to vote
at Board meetings and shall also exercise or cause to be exercised
their voting rights with respect to the shares at general meetings of
the shareholders to effect the matters provided for under this
Agreement concerning directors and also to implement all the rights and
obligations of the parties and FAC under this Agreement.
COSTS
11. Costs of both parties incurred as of 1 February 1997 in connection with the
establishment of FAC and the costs of the incorporation of FAC shall be borne
and paid by FAC. FAC shall reimburse any party who, after having obtained the
prior written approval of the other party, has advanced, or incurred, costs for
the incorporation of FAC. All other costs of each party as from 1 February 1997
shall be solely for the account of that party.
NO PARTNERSHIP OR AGENCY
12. Nothing in this Agreement shall be deemed to constitute a partnership
between the parties or constitute either party the agent of the other party for
any purpose or entitle either party to commit or bind the other party (or any
member of its respective Group in any manner.
ENTIRE AGREEMENT
13. This Agreement sets out the entire agreement and understanding between the
parties and shall supersede all previous communications, either oral or written,
between the parties with respect to the subject matter hereof.
AMENDMENTS
14. This Agreement may be amended only by an instrument in writing signed by or
on behalf of each of the parties. No amendment to this Agreement which is
purported to have been made verbally shall be valid.
MUTUAL CONSULTATION AND GOODWILL
15. The parties confirm their intention to promote the best interests of FAC and
to consult fully on all matters materially affecting the development of the
Business. Each party shall act in good faith towards the other party in order to
promote the success of FAC.
<PAGE>
NOTICES
16.1 Any notice pursuant to this Agreement shall be in writing signed by (or by
some person duly authorized by) the person giving it and shall be deemed
effectively served when delivered personally or when sent, if given by facsimile
transmission (which is confirmed by registered mail notice on the same or next
business day as the facsimile transmission) or if sent by registered post
(airmail if the recipient is in a country other than the place of remitting the
notice) ten (10) days after having been deposited in the mail with sufficient
postage affixed to the address of the other party as follows (or to such other
address as shall have been duly notified in accordance with this clause).
16.2 The details for notices are:
HK:
Hua Kee Company Limited
c/o Polymers Marketing Co., Ltd.
20th Floor, Sathorn City Tower
175 South Sathorn Road
Bangkok, Thailand 10120
Fax: (662) 679-6311
Attention: Dr. Pichit Nithivasin
FAI:
Foamex Asia, Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
U.S.A.
Fax: 1 610 859-3085
Attention: Chief Financial Officer
cc: Philip N. Smith, Jr., Esq.
Vice President, General Counsel
Foamex International Inc.
375 Park Avenue, 11th Floor
New York, NY 10152, USA
Fax: 1 212 593 1363
cc: Mr. Stephen P. Scibelli, Jr.
La-Kris Tower Co., Ltd.
Apt. 15B
9 Sukhumvit Soi 33
<PAGE>
Bangkok 10110
Fax: (662) 260 5891
INVALIDITY
17. If any of the provisions of this Agreement is or becomes invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired. The parties shall
negotiate in good faith in order to agree the terms of a mutually satisfactory
provision, achieving as near as possible the same commercial effect, to be
substituted for the provision found to be void or unenforceable.
ASSIGNMENT
18. None of the parties (nor any member of its respective Group) shall be
entitled to assign this Agreement or any of its rights or obligations hereunder
except to a transferee of that party's shares in FAC in accordance with clause 6
of this Agreement.
GOVERNING LAW
19. This Agreement shall be governed by, and construed in accordance with, the
laws of the Kingdom of Thailand.
AS WITNESS this Agreement has been executed the day and year first before
written.
HUA KEE COMPANY LIMITED
By: /s/ Dr. Pichit Nithivasin
-------------------------
Name: Dr. Pichit Nithivasin
Title: Director
[Seal]
---------------
Witness
(Mr. Praves Ingadapa)
FOAMEX ASIA INC.
By: /s/ Stephen P. Scibelli, Jr.
-------------------------------
Name: Mr. Stephen P. Scibelli, Jr.
Title: President
<PAGE>
---------------
Witness
(Mr. Richard Wong)
<PAGE>
ANNEX 1A
Existing Memorandum of Association
<PAGE>
ANNEX 1B
Details of Proposed Amendments
to the Existing Objects of FAC
<PAGE>
ANNEX 2
Proposed Articles of Association of FAC
<PAGE>
ANNEX 3
Loan Agreement
<PAGE>
CONTENTS
Clause Page
1. INTERPRETATION...........................................................1
Definitions..............................................................1
Headings.................................................................2
2. ESTABLISHMENT OF FAC.....................................................3
Name.....................................................................4
Completion...............................................................4
3. CAPITAL AND FURTHER FINANCE..............................................4
Initial Share Capital....................................................4
Repayment of Loan and Subscription for Share Capital.....................4
Issue of Further Share Capital...........................................5
Share Capital............................................................5
Increase in Share Capital................................................5
Further Finance..........................................................5
Party Ceasing as Shareholder.............................................6
4. DIRECTORS AND MANAGEMENT.................................................6
Board of Directors.......................................................6
Appointments and Removals................................................6
Quorum...................................................................7
Voting...................................................................7
Notice and Agenda........................................................7
Decisions of Board.......................................................7
Chief Executive Officer (CEO) and President..............................7
Directors Authorized to Bind FAC.........................................8
5. RESERVED SHAREHOLDER MATTERS.............................................8
Matters Requiring Approval of the Parties................................8
Special Resolution.......................................................8
Method of Approval.......................................................9
6. TRANSFER OF SHARES.......................................................9
Transfer Notice..........................................................9
Transfers to Members of its Group.......................................10
No Dealings in Beneficial Interest......................................10
Undertaking by Transferee...............................................10
Minimum Period..........................................................11
Shareholder Ceasing to be a Member of the Group.........................11
7. CONFIDENTIALITY.........................................................11
<PAGE>
Confidentiality.........................................................11
Employees, Agents, etc..................................................11
Survival After Termination..............................................12
8. RESTRICTIONS ON THE PARTIES.............................................12
9. TERM....................................................................12
Term and Notice.........................................................12
10. SUPREMACY OF THIS AGREEMENT.............................................12
11. COSTS...................................................................12
12. NO PARTNERSHIP OR AGENCY................................................13
13. ENTIRE AGREEMENT........................................................13
14. AMENDMENTS..............................................................13
15. MUTUAL CONSULTATION AND GOODWILL........................................13
16. NOTICES.................................................................13
17. INVALIDITY..............................................................14
18. ASSIGNMENT..............................................................14
19. GOVERNING LAW...........................................................15
ANNEX 1A
Existing Memorandum of Association
ANNEX 1B
Details of Proposed Amendments to the Existing Objects of FAC
ANNEX 2
Proposed Articles of Association of FAC
ANNEX 3
Loan Agreement
___ July 1997
FOAMEX ASIA, INC.
FOAMEX ASIA CO., LTD.
HUA KEE COMPANY LIMITED
================================================================================
LOAN AGREEMENT
================================================================================
FRESHFIELDS
<PAGE>
THIS LOAN AGREEMENT is made on this day of July 1997.
BETWEEN:
a. FOAMEX ASIA, INC., a corporation organized and existing under the laws of
the State of Delaware, U.S.A., with its principal office and place of
business at 1000 Columbia Avenue, Linwood, Pennsylvania 19061, U.S.A. ("the
Lender");
b. FOAMEX ASIA CO., LTD., a limited company established under the laws of the
Kingdom of Thailand having its registered office at 22nd Floor, Sathorn
City Tower, 175 South Sathorn Road, Khet Sathorn, Bangkok, Thailand (the
Borrower); and
c. HUA KEE COMPANY LIMITED, a limited company organized and existing under the
laws of the Kingdom of Thailand, with its registered office located at
107-109 Suapa Road, Kwaeng Pomprab, Khet Pomprabsattrupai, Bangkok,
Thailand ("HK").
WHEREAS:
A. The Lender and HK are parties to a Joint Venture Agreement relating to the
Borrower, a company established under the laws of Thailand to engage in the
manufacture of polyurethane polymer materials and the conversion of various
plastic foam materials and adhesive films and foils.
B. The Lender has agreed to lend the Borrower an amount of money denominated
in Baht to assist with the working capital requirements of the Borrower.
C. The parties, in entering into this Agreement, have agreed that the loan to,
and the repayment of such loan by, the Borrower shall be governed by the
terms of this Agreement.
IT IS HEREBY AGREED AS FOLLOWS:
DEFINITIONS
1. In this Agreement, the following terms shall, unless the context otherwise
requires, have the following meanings:
"Agreement" means this loan agreement as it may be amended or supplemented in
writing by the parties from time to time;
"Baht" means the lawful currency of the Kingdom of Thailand;
<PAGE>
"Business Day" means a day on which banks are officially open in Bangkok,
Thailand and New York, USA for the transaction of business of the nature
required by this Agreement;
"Drawdown Date" means the date on which the Borrower draws down the Loan Amount
in accordance with clause 4.1;
"Drawdown Notice" means a notice issued to the Lender by the Borrower in
accordance with clause 4.2(c), in the form of Annex A;
"Group B Shares" means Group B shares in the capital of the Borrower;
"Interest" means the amount of interest at the rate specified in clause 5 which
accrues on the Loan Amount from time to time;
"Joint Venture Agreement" means the joint venture agreement between the Lender
and HK dated 8 July 1997;
"Loan Amount" means the principal amount made available to the Borrower in
accordance with clause 2 by way of loan or (as the context requires) the
principal amount thereof for the time being outstanding;
"Option Agreement" means the option agreement as set out in Annex D between the
Lender and HK relating to two percent. (2%) of the issued share capital of the
Borrower owned by HK;
"Repayment Notice" means a notice issued to the Borrower by either the Lender or
HK in accordance with clause 6.2 and 6.3 respectively, in the form of Annex C;
"Subscription Amount" means the amount subscribed by the Lender for Group B
Shares in the Borrower, calculated as follows:
Baht 36,366,340 + Interest;
"Term" means the term of the loan set out in clause 3.
AMOUNT
2. The Lender agrees to lend to the Borrower the sum of Thirty Six Million Three
Hundred and Sixty Six Thousand Three Hundred and Forty Baht (Baht 36,366,340)
for working capital purposes. The Borrower shall drawdown the Loan Amount in
accordance with clause 4.
TERM
3. Unless otherwise agreed by the parties in writing, the Loan Amount shall be
repayable by the Borrower to the Lender in accordance with clause 6
<PAGE>
no later than the date which falls thirty six (36) months after the Drawdown
Date.
DRAWDOWN
4.1 Timing of Drawdown
The Borrower shall drawdown the Loan Amount on 31 July 1997 or such later date
as the Lender and the Borrower may agree in writing.
4.2 Conditions
The Borrower shall drawdown the Loan Amount in accordance with the following
conditions:
(a) prior to the Drawdown Date, the Borrower shall deliver to the Lender a
certified copy of a resolution of the board of directors of the Borrower
approving and authorising the Borrower entering into and executing this
Agreement;
(b) at least three (3) Business Days prior to the Drawdown Date, the Borrower
shall deliver to the Lender a Drawdown Notice duly completed by the
Borrower;
(c) within five (5) Business Days of the Drawdown Date, the Borrower shall
deliver a receipt duly completed by the Borrower in the form of Annex B;
and
(d) the Borrower shall deliver such other documents or do such other things as
the Lender may reasonably require.
INTEREST
5. Interest on the Loan Amount at the rate of ten percent. (10%) per annum shall
be payable by the Borrower to the Lender. Interest shall be calculated monthly
in arrears on the 15th day of each month and shall be calculated on the basis of
actual days elapsed and a year of 365 days. Unless otherwise agreed by the
parties in writing and, subject to the provisions of the Thai Civil and
Commercial Code, the Interest shall be payable by the Borrower to the Lender
upon repayment of the Loan Amount in accordance with clause 6.4.
REPAYMENT
6.1 Repayment by Borrower
At any time during the Term, the Borrower may, on giving not less than 30 days
written notice to the Lender, without penalty, repay the Loan Amount and the
Interest to the Lender in accordance with clause 6.4.
<PAGE>
6.2 Notice by Lender
At any time during the Term, the Lender shall have the right to demand repayment
of the Loan Amount and payment of the Interest by giving a Repayment Notice to
the Borrower. Upon the Lender giving a Repayment Notice to the Borrower, the
Borrower shall repay the Loan Amount and the Interest to the Lender in
accordance with clause 6.4.
6.3 Notice by HK
At any time during the Term, HK shall have the right to require the Borrower to
repay the Loan Amount and the Interest to the Lender by giving a Repayment
Notice to the Borrower. Upon HK giving a Repayment Notice to the Borrower, the
Borrower shall repay the Loan Amount and the Interest to the Lender in
accordance with clause 6.4.
6.4 Repayment
Upon the first to occur of the following events:
(i) the Borrower giving the Lender notice under clause 6.1;
(ii) either the Lender or HK giving the Borrower a Repayment Notice under
clauses 6.1 or 6.2, respectively; or
(iii) the end of the Term,
the Borrower shall:
(i) at the end of the relevant notice period where clause 6.1 applies;
(ii) within ten (10) Business Days of the date of the Repayment Notice where
either clause 6.2 or 6.3 applies; or
(iii) within ten (10) Business Days of the end of the Term,
repay the Loan Amount and the Interest (less any withholding tax deducted in
accordance with clause 8) to an account at Siam Commercial Bank PCL in the name
of the Lender and subject to the joint mandate of the Lender and the Borrower,
or to such other account as the parties may agree. Upon payment of the Loan
Amount and the Interest (less any withholding tax deducted in accordance with
clause 8), the Borrower shall have fully discharged its obligations under this
Agreement.
SUBSCRIPTION FOR B GROUP SHARES
7.1 Subscription
Upon repayment of the Loan Amount and the Interest (less any withholding tax
deducted in accordance with clause 8) by the Borrower to the Lender pursuant to
clause 6.4, the Lender shall immediately transfer the Subscription Amount
<PAGE>
from the bank account referred to in clause 6.4 to the account of the Borrower
as payment in full for the subscription for 3,636,634 Group B Shares in the
Borrower. The Lender and the Borrower shall complete and sign all withdrawal
slips or other documentation as may be required to effect the transfer of the
Subscription Amount to the account of the Borrower. Subscription for the Group B
Shares by the Lender shall be in accordance with the terms of the Joint Venture
Agreement.
7.2 Signing of Option Agreement
Upon completion of the subscription for Group B Shares by the Lender under
clause 7.1, the Lender and HK shall each sign the Option Agreement.
PAYMENTS
8. Any and all payments due to be made by the Borrower under this Agreement
shall be made in Baht currency before the close of business on the relevant
Business Day to an account at Siam Commercial Bank PCL in the name of the Lender
and subject to the joint mandate of the Lender and the Borrower, or to such
other account as the parties may agree. The Borrower shall deduct any
withholding tax payable at the appropriate rate and pay to the appropriate
authority all amounts withheld or deducted. If a receipt or other evidence of
payment can be issued, the Borrower agrees to deliver this to the Lender as soon
as possible. All payments made by the Borrower pursuant to this Agreement shall
be made without set-off or counterclaim.
REPRESENTATIONS AND WARRANTIES
9. The Borrower represents and warrants to the Lender that:
(a) it is duly incorporated and validly existing under the laws of Thailand and
has full power and authority to own and hold its assets and to carry on its
business;
(b) it has full power to execute and perform this Agreement, it has taken all
necessary action (corporate or otherwise) to authorise its borrowings
hereunder upon the terms of this Agreement and to authorise its execution
of and performance under this Agreement and the resolution of the board of
directors of the Borrower provided to the Lender under clause 4.2(a) is
true, correct and up to date, is in full force and effect and has not been
amended, modified or revoked;
(c) this Agreement constitutes ohe legal, valid and binding obligations of the
Borrower enforceable in accordance with its terms; and
(d) in any proceedings taken in relation to this Agreement, the Borrower will
not be entitled to claim for itself or any of its assets immunity from
suit, execution, attachment or other legal process.
<PAGE>
On the Drawdown Date, the Borrower shall represent and warrant to the Lender,
with reference to the facts and circumstances then subsisting, that each of the
representations and warranties contained in this clause 9 remains true, accurate
and correct.
COSTS AND EXPENSES
10. The Lender and the Borrower shall each pay its own costs, charges and
expenses incurred in connection with the preparation and implementation of this
Agreement. Any stamp duty or other fees payable in connection with this
Agreement shall be borne by the Lender.
NOTICES
11.1 Any notice required to be given hereunder shall be in writing and in
English and shall be delivered or sent by prepaid registered mail or by hand
delivery to the address of the party to whom it is to be sent as set our below
(or such other addresses of which notice may be given) and any notice shall be
deemed to be given at the time of delivery. A facsimile notice shall be deemed
to be a proper notice in writing and shall be deemed to be duly given at the
time of receipt.
11.2 The details for notices are:
The Lender: Foamex Asia, Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
U.S.A.
Fax: 1 610 859-3085
Attention: Chief Financial Officer
with copies to:
Name: Foamex International Inc.
Address: 11th Floor, 375 Park Avenue
New York, NY 10152, USA
Facsimile: 1 212 593 1363
Attention: Philip N. Smith, Jr., Esq.
Vice President, General Counsel
Name: Mr. Stephen P. Scibelli, Jr
Address: La-Kris Tower Co., Ltd.
Apt. 15B
9 Sukhumvit Soi 33
Bangkok 10110
Facsimile: (662) 260 5891.
<PAGE>
The Borrower: Foamex Asia Co., Ltd.
Address: 22nd Floor, Sathorn City Tower
175 South Sathorn Road
Bangkok, Thailand
Facsimile: (662) 679-6311
Attention: The CEO and the President
HK: Hua Kee Company Limited
Address: c/o Polymers Marketing Company Limited
20th Floor, Sathorn City Tower
175 South Sathorn Road
Bangkok, Thailand
Facsimile: (662) 679-6311
Attention: Dr. Pichit Nithivasin.
FURTHER ASSURANCES
12. The parties shall do or procure to be done all such further acts and things,
to execute or procure the execution of all such other documents, as may be
required, for the purpose of giving effect to this Agreement.
AMENDMENTS
13. This Agreement may be amended only by an instrument in writing signed by or
on behalf of each of the parties. No amendment to this Agreement which is
purported to have been made verbally shall be valid.
WAIVER
14. No failure on the part of a party to exercise, and no delay on its part in
exercising, any right or remedy under this Agreement will operate as a waiver
thereof, nor will any single or partial exercise of any right or remedy by a
party preclude any other or further exercise thereof or the exercise of any
other right or remedy by that party. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
ENTIRE AGREEMENT
15. This Agreement constitutes the entire agreement and understanding of the
parties in connection with the subject matter of the Agreement and supersedes
any and all prior agreements, understandings, arrangements, promises or
representations and warranties, if any, made prior to the date of this
Agreement.
INVALIDITY
16. If any of the provisions of this Agreement is or becomes invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired. The parties shall
<PAGE>
negotiate in good faith in order to agree the terms of a mutually satisfactory
provision, achieving as near as possible the same commercial effect, to be
substituted for the provision found to be void or unenforceable.
ASSIGNMENT
17. None of the parties shall be entitled to assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
parties.
GOVERNING LAW
18. This Agreement shall be governed by, and construed in accordance with, the
laws of the Kingdom of Thailand. Any dispute arising out of or in connection
with this Agreement shall be referred to the courts of Thailand.
AS WITNESS this Agreement has been executed the day and year first before
written.
FOAMEX ASIA, INC.
By: /s/ Stephen P. Scibelli, Jr.
--------------------------------
Name: Mr. Stephen P. Scibelli, Jr.
Title: President
---------------
Witness
(Mr. Richard Wong)
FOAMEX ASIA CO., LTD.
By: /s/ Dr. Pichit Nithivasin By: /s/ Stephen P. Scibelli, Jr.
------------------------- --------------------------------
Name: Dr. Pichit Nithivasin Name: Mr. Stephen P. Scibelli, Jr.
Title: Director Title: Director
[Seal]
<PAGE>
--------------- ---------------
Witness Witness
(Mr. Praves Ingadapa) (Mr. Richard Wong)
HUA KEE COMPANY LIMITED
By: /s/ Dr. Pichit Nithivasin
-------------------------
Name: Dr. Pichit Nithivasin
Title: Director
[Seal]
---------------
Witness
(Mr. Praves Ingadapa)
<PAGE>
Annex A
[Foamex Asia Co., Ltd letterhead]
Drawdown Notice
Date _____ 1997
To: Foamex Asia, Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061 U.S.A.
Attention: __________________
Facsimile: 1 212 593 1363
Dear Sirs,
Foamex Asia Co., Ltd., as the Borrower, hereby proposes in accordance with the
Loan Agreement dated _______ 1997 between the Lender, the Borrower and HK (the
"Loan Agreement") that the amount of Thirty Six Million Three Hundred and Sixty
Six Thousand Three Hundred and Forty Baht (Baht 36,366,340) under the Loan
Agreement be made to the Borrower on _______ 1997.
The Borrower hereby confirms that each of the representation and warranties
contained in clause 9 of the Loan Agreement is true and accurate in all respects
as though made on the date of this Notice with reference to facts and
circumstances presently subsisting and will be true and accurate in all respects
on the date of the intended drawdown as though made on the date of the intended
drawdown with reference to facts and circumstances then subsisting.
All terms used herein shall have the same meaning as ascribed to them in the
Loan Agreement.
Yours faithfully,
Foamex Asia Co., Ltd.
By: ______________ By: ______________ [Seal]
Name: Name:
Title: Title:
cc. Hua Kee Company Limited, Foamex International, Inc., Mr. Stephen P.
Scibelli, Jr.
<PAGE>
Annex B
[Foamex Asia Co., Ltd letterhead]
Receipt
Date _____ 1997
To: Foamex Asia, Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061 U.S.A.
Attention: __________________
Facsimile: 1 212 593 1363
Foamex Asia Co., Ltd., as the Borrower, has duly received from Foamex Asia,
Inc., as the Lender, the following amount:
[bullet] transferred to _____ [name of the Borrower's account] _____ Account No.
_____ at _____ [name of the Bank] _____ , _____ branch, the amount of
Thirty Six Million Three Hundred and Sixty Six Thousand Three Hundred
and Forty Baht (Baht 36,366,340).
This amount relates to a drawdown of the loan granted under the Loan Agreement
dated _____ 1997 between the Lender, the Borrower and HK.
All terms used herein shall have the same meaning as ascribed to them in the
Loan Agreement.
Foamex Asia Co., Ltd.
By: ______________ By: ______________ [Seal]
Name: Name:
Title: Title:
cc. Hua Kee Company Limited, Foamex International, Inc., Mr. Stephen P.
Scibelli, Jr.
<PAGE>
Annex C
[Foamex Asia, Inc./Hua Kee Company Limited letterhead]
Repayment Notice
To: Foamex Asia Co., Ltd
22nd Floor, Sathorn City Tower
175 South Sathorn Road
Bangkok, Thailand
Attention: __________________
Facsimile: __________
Date _________
Dear Sirs,
We refer to clause [6.2/6.3] of the Loan Agreement dated _______, 1997 between
the Lender, the Borrower and HK (the "Loan Agreement").
We hereby give notice to the Borrower under and pursuant to clause [6.2/6.3] of
the Loan Agreement requiring the Borrower to repay the Loan Amount and the
Interest (less any withholding tax deducted in accordance with clause 8 of the
Loan Agreement) to the following account within ten (10) Business Days of the
above date:
[bullet] [name of the Lender's account] Account No. _____ at _____ [name of the
Bank] _____ , _____ branch.
Upon payment of the Loan Amount and the Interest (less any withholding tax
deducted in accordance with clause 8 of the Loan Agreement), the Borrower shall
have fully discharged its obligations under the Loan Agreement.
All terms used herein shall have the same meaning as ascribed to them in the
Loan Agreement.
Yours faithfully,
[Foamex Asia, Inc./Hua Kee Company Limited]
By: ______________ By: ______________ [Seal]
Name: Name:
Title: Title:
cc. [Hua Kee Company Limited/Foamex Asia, Inc.], Foamex International Inc., Mr.
Stephen P. Scibelli, Jr.
<PAGE>
Annex D
Option Agreement
<PAGE>
CONTENTS
Clause Page
1. DEFINITIONS..............................................................1
2. AMOUNT...................................................................2
3. TERM ....................................................................2
4. DRAWDOWN.................................................................3
4.1 Timing of Drawdown...................................................3
4.2 Conditions...........................................................3
5. INTEREST.................................................................3
6. REPAYMENT................................................................3
6.1 Repayment by Borrower................................................3
6.2 Notice by Lender.....................................................3
6.3 Notice by HK.........................................................4
6.4 Repayment............................................................4
7. SUBSCRIPTION FOR B GROUP SHARES..........................................4
7.1 Subscription.........................................................4
7.2 Signing of Option Agreement..........................................5
8. PAYMENTS.................................................................5
9. REPRESENTATIONS AND WARRANTIES...........................................5
10. COSTS AND EXPENSES.......................................................6
11. NOTICES..................................................................6
12. FURTHER ASSURANCES.......................................................7
13. AMENDMENTS...............................................................7
14. WAIVER...................................................................7
15. ENTIRE AGREEMENT.........................................................7
16. INVALIDITY...............................................................7
17. ASSIGNMENT...............................................................8
18. GOVERNING LAW............................................................8
<PAGE>
ANNEX A
Drawdown Notice
ANNEX B
Receipt
ANNEX C
Repayment Notice
ANNEX D
Option Agreement
EXHIBIT 12.1--Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<TABLE>
<CAPTION>
Foamex Year ended Pro Forma
- ------ ---------------------------------------------------- ----------
Year Ended
1993 1994 1995 1996 1997 1997
------- ------- -------- -------- ------- ----------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss)
from continuing operations ........... $(7,665) $44,536 $(46,721) $ 61,363 $ 1,405 $ 4,192
Interest ............................... 47,375 41,352 44,550 43,211 44,550 60,443
Interest portion of rental expense ..... 3,867 4,533 4,533 3,767 3,397 5,964
Amortization of Capitalized Interest ... 67 108 152 171 171 171
------- ------- -------- -------- ------- --------
Earnings ............................... $43,644 $90,709 $ 2,514 $108,512 $49,523 $ 70,770
======= ======= ======== ======== ======= =======
Interest ............................... $47,375 $41,532 $ 44,550 $ 43,211 $44,550 $ 60,443
Interest portion of rental expense ..... 3,867 4,533 4,533 3,767 3,397 5,964
Capitalized Interest ................... 425 576 468 -- 461 461
------- ------- -------- -------- ------- --------
Fixed charges .......................... $51,667 $46,641 $ 49,551 $ 46,978 $48,408 $ 66,868
======= ======= ======== ======== ======= ========
Ratio of earnings to fixed charges ..... 1.94 2.31 1.02 1.06
======= ======== ======= ========
Defiency ............................... $ 8,023 $ 47,037
======= ========
</TABLE>
EXHIBIT 12.2--Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<TABLE>
<CAPTION>
Crain Industries, Inc. Fiscal Years Ended Four Months
- ---------------------- -------------------------------------- ended Year ended Period ended
August 27, August 26, August 25, December 31, December 31, December 23,
1993 1994 1995 1995 1996 1997
------- ------- -------- -------- ------- -------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss)
from continuing operations ........... $ 5,020 $16,544 $ 9,556 $ (155) $ 991 $ (3,291)
Interest ............................... 2,016 2,564 3,431 5,753 16,459 17,670
Interest portion of rental expense ..... 1,995 2,342 2,451 1,000 3,095 3,231
------- ------- -------- -------- ------- --------
Earnings ............................... $ 9,031 $21,450 $ 15,438 $ 6,598 $20,545 $ 17,610
======= ======= ======== ======== ======= ========
Interest ............................... $ 2,016 $ 2,564 $ 3,431 $ 5,753 $16,459 $ 17,670
Interest portion of rental expense ..... 1,995 2,342 2,451 1,000 3,095 3,231
------- ------- -------- -------- ------- --------
Fixed charges .......................... $ 4,011 $ 4,906 $ 5,882 $ 6,753 $19,554 $ 20,901
======= ======= ======== ======== ======= ========
Ratio of earnings to fixed charges ..... 2.25x 4.37x 2.62x -- 1.05x --
Deficiency ............................. -- -- -- $ (155) -- $ (3,291)
======= ======= ======== ======== ======= ========
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-45733) of our report dated March 4, 1998, except as to the information
presented in Note 1 and Note 16, for which the date is March 23, 1998, on our
audits of the consolidated financial statements of Foamex L.P. and subsidiaries.
We also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 8, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-45733) of our report dated March 4, 1998, on our audits of the balance
sheets of Foamex Capital Corporation. We also consent to the reference to our
firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 8, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 30, 1998, on the financial statements of Crain Industries,
Inc. (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen L.L.P.
St. Louis, Missouri
May 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000890080
<NAME> Foamex L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 9,405
<SECURITIES> 0
<RECEIVABLES> 174,959
<ALLOWANCES> 0
<INVENTORY> 120,299
<CURRENT-ASSETS> 352,217
<PP&E> 331,425
<DEPRECIATION> (110,151)
<TOTAL-ASSETS> 834,068
<CURRENT-LIABILITIES> 226,143
<BONDS> 726,649
0
0
<COMMON> 0
<OTHER-SE> (156,302)
<TOTAL-LIABILITY-AND-EQUITY> 834,068
<SALES> 931,095
<TOTAL-REVENUES> 931,095
<CGS> 787,756
<TOTAL-COSTS> 787,756
<OTHER-EXPENSES> 65,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,181
<INCOME-PRETAX> 14,160
<INCOME-TAX> 2,895
<INCOME-CONTINUING> 11,265
<DISCONTINUED> 0
<EXTRAORDINARY> (48,559)
<CHANGES> 0
<NET-INCOME> (37,294)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
