AMENDMENT NO. 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FOAMEX INTERNATIONAL INC.
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant) Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
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(2) Aggregate number of securities to which transactions
applies:
16,757,201 shares of Common Stock(1)
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
$18.75
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(4) Proposed maximum aggregate value of transaction:
$279,097,394(2)
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(5) Total fee paid:
$55,820
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[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
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(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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(1) The transaction applies to an aggregate of 16,757,201 shares of Common
Stock calculated as follows: the sum of (i) 25,014,823 shares of Common
Stock issued and outstanding (less 11,475,000 shares of Common Stock
then owned by Trace International Holdings, Inc. ("Trace") or any
subsidiary of Trace) and (ii) 3,217,378 shares of Common Stock to be
issued upon the exercise of in-the-money options and warrants to
purchase shares of Common Stock.
(2) The proposed maximum aggregate value of the transaction is $279,097,394
calculated as follows: the sum of (i) the product of (a) 25,014,823
shares of Common Stock issued and outstanding (less 11,475,000 shares
of Common Stock then owned by Trace or any subsidiary of Trace) and (b)
$18.75, and (ii) cash consideration of $25,225,713 to be paid for the
options and warrants being surrendered in connection with the
transaction.
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PRELIMINARY COPY
FOAMEX INTERNATIONAL INC.
1000 COLUMBIA AVENUE
LINWOOD, PA 19061
, 1998
To the Stockholders of FOAMEX INTERNATIONAL INC.:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Foamex International Inc. (the "Company") to be held
at 10:00 a.m. on , 1998, at 1000 Columbia Avenue, Linwood, Pennsylvania
19061.
As described in the accompanying Proxy Statement, at the Special
Meeting you will be asked to consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger, dated June 25, 1998 (the "Merger
Agreement"), among Trace International Holdings, Inc. ("Trace"), Trace Merger
Sub, Inc., a wholly owned subsidiary of Trace ("Merger Sub"), and the Company.
Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with
and into the Company (the "Merger") and each outstanding share of common stock
of the Company ("Common Stock"), except for (x) shares owned by Trace or any
subsidiary of Trace (the "Trace Stockholders"), (y) shares owned by the Company,
and (z) shares owned by stockholders who perfect their appraisal rights in
accordance with Delaware law, will be converted into the right to receive $18.75
in cash, without interest.
Your Board of Directors, based upon the unanimous recommendation of a
special committee of independent directors (the "Special Committee"), has
determined that the terms of the Merger are fair to, and in the best interests
of, the Company and the holders of shares of Common Stock other than the Trace
Stockholders (the "Public Stockholders") and has approved the Merger Agreement
and the Merger. In arriving at its decision, the Board of Directors gave careful
consideration to a number of factors described in the accompanying Proxy
Statement, including the opinion of The Beacon Group Capital Services, LLC
("Special Financial Advisor"), financial advisor to the Special Committee, to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the consideration to be received in the Merger
by the Public Stockholders was fair to the Public Stockholders from a financial
point of view. A copy of the written opinion of the Special Financial Advisor is
included as Appendix B to the accompanying Proxy Statement and should be read in
its entirety. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. In considering the recommendations of the
Board of Directors with respect to the Merger, the Public Stockholders should be
aware that certain officers and directors of the Company have certain interests
that may be in addition to, or different from, the interests of the Public
Stockholders. See the section of the enclosed Proxy Statement captioned "Special
Factors -- Interests of Certain Persons in the Merger".
Consummation of the Merger is subject to certain conditions, including
the adoption of the Merger Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote thereon, the
receipt of certain approvals from regulatory authorities and the obtaining of
necessary financing. Only holders of Common Stock of record at the close of
business on , 1998 are entitled to notice of, and to vote at, the Special
Meeting or any adjournments or postponements thereof.
<PAGE>
As of June 25, 1998, (i) the Trace Stockholders beneficially owned, in
the aggregate, 11,475,000 shares of Common Stock, representing approximately
45.8% of such shares outstanding, (ii) the directors and executive officers of
Trace and Merger Sub beneficially owned an additional 427,612 shares of Common
Stock, representing approximately 1.7% of such shares outstanding and (iii) the
directors and executive officers of the Company (excluding such persons who are
also directors or officers of Trace) beneficially owned an additional 117,500
shares of Common Stock, representing less than one percent of such shares
outstanding. To the knowledge of the Company, Trace, Merger Sub and Marshall S.
Cogan, the directors and executive officers of the Company, Trace and Merger Sub
intend to vote their shares in favor of the approval and adoption of the Merger
Agreement. Assuming that all such persons vote in favor of the Merger, the
affirmative vote of only approximately 4% of the Public Shares (as defined )
will be required to approve and adopt the Merger Agreement.
You are urged to read the accompanying Proxy Statement, which provides
you with a description of the terms of the proposed Merger and the Merger
Agreement. A copy of the Merger Agreement is included as Appendix A to the
accompanying Proxy Statement. If the Merger is consummated, holders of Common
Stock who properly demand appraisal prior to the stockholder vote on the Merger
Agreement, do not vote in favor of approval of the Merger Agreement and
otherwise comply with the requirements of Section 262 of the Delaware General
Corporation Law will be entitled to statutory appraisal rights.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY CARD OR VOTE AT THE SPECIAL MEETING WOULD HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. EXECUTED PROXIES WITH NO
INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Please do not send in any stock certificates at this time. If the
Merger is consummated, you will be sent instructions concerning the surrender of
your shares.
Thank you for your interest and participation.
Sincerely,
ANDREA FARACE
Chairman
<PAGE>
PRELIMINARY COPY
FOAMEX INTERNATIONAL INC.
1000 COLUMBIA AVENUE
LINWOOD, PA 19061
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of FOAMEX INTERNATIONAL INC. (the "Company") will be held on
, 1998, at 10:00 a.m., at 1000 Columbia Avenue, Linwood, Pennsylvania 19061,
for the following purposes:
(i) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated June 25, 1998 (the "Merger Agreement"),
among Trace International Holdings, Inc. ("Trace"), Trace Merger Sub, Inc., a
wholly owned subsidiary of Trace ("Merger Sub"), and the Company. A copy of the
Merger Agreement is attached to the accompanying Proxy Statement as Appendix A.
As more fully described in the Proxy Statement, the Merger Agreement provides
that: (A) Merger Sub would be merged with and into the Company (the "Merger"),
with the Company continuing as the surviving corporation; (B) the Company would
thereupon become a wholly owned subsidiary of Trace; and (C) each outstanding
share of common stock, par value $0.01 per share (the "Common Stock"), of the
Company, except for (x) shares owned by Trace or any subsidiary of Trace, (y)
shares owned by the Company and (z) shares held by stockholders who perfect
their appraisal rights in accordance with Delaware law, would be converted into
the right to receive $18.75 in cash; and
(ii) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 21,
1998 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting. Only holders of Common Stock of record
at the close of business on that date will be entitled to notice of and to vote
at the Special Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. To
ensure that your vote will be counted, please complete, date, sign and return
the enclosed proxy card, whether or not you plan to attend the Special Meeting.
You may revoke your proxy in the manner described in the accompanying Proxy
Statement at any time before it is voted at the Special Meeting.
<PAGE>
If the Merger is consummated, holders of Common Stock who properly
demand appraisal prior to the stockholder vote on the Merger Agreement, do not
vote in favor of approval of the Merger Agreement and otherwise comply with the
requirements of Section 262 of the Delaware General Corporation Law will be
entitled to statutory appraisal rights. See "The Special Meeting--Appraisal
Rights" in the accompanying Proxy Statement for a statement of the rights of
dissenting stockholders and a description of the procedures required to be
followed.
-----------------------------------------
Philip N. Smith, Jr.
Secretary
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS WITH RESPECT TO THE MERGER, THE PUBLIC STOCKHOLDERS SHOULD BE
AWARE THAT CERTAIN OFFICERS AND DIRECTORS OF THE COMPANY HAVE CERTAIN INTERESTS
THAT MAY BE IN ADDITION TO, OR DIFFERENT FROM, THE INTERESTS OF THE PUBLIC
STOCKHOLDERS. SEE THE SECTION OF THE ENCLOSED PROXY STATEMENT CAPTIONED "SPECIAL
FACTORS--INTERESTS OF CERTAIN PERSONS IN THE MERGER".
THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED TO APPROVE AND ADOPT THE
MERGER AGREEMENT. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE
SPECIAL MEETING, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE
SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE MERGER AGREEMENT AT THE SPECIAL
MEETING. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PRELIMINARY COPY
FOAMEX INTERNATIONAL INC.
1000 COLUMBIA AVENUE
LINWOOD, PA 19061
--------------------------
PROXY STATEMENT
--------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
--------------------------
This Proxy Statement is being furnished to the holders of outstanding
shares of common stock, par value $0.01 per share (the "Common Stock"), of
Foamex International Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at the Special Meeting of Stockholders to be held on , 1998, at 10:00 a.m.
at 1000 Columbia Avenue, Linwood, Pennsylvania 19061, and at any adjournments or
postponements thereof (the "Special Meeting"). The Board of Directors has fixed
the close of business on August 21, 1998 as the record date (the "Record Date")
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting.
At the Special Meeting, the holders of outstanding shares of Common
Stock (the "Stockholders") will consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated June 25, 1998 (the "Merger
Agreement"), among Trace International Holdings, Inc. ("Trace"), Trace Merger
Sub, Inc., a wholly owned subsidiary of Trace ("Merger Sub"), and the Company. A
copy of the Merger Agreement is attached to this Proxy Statement as Appendix A.
Pursuant to the Merger Agreement and subject to satisfaction of the conditions
set forth therein, (i) Merger Sub would be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation (the
"Surviving Corporation"), (ii) the Company would thereupon become a wholly owned
subsidiary of Trace and (iii) each outstanding share of Common Stock, except for
(x) shares owned by Trace or any subsidiaries of Trace (the "Trace
Stockholders"), (y) shares owned by the Company, and (z) shares ("Dissenting
Shares") held by stockholders who properly perfect their appraisal rights
pursuant to Section 262 of the Delaware General Corporation Law (the "DGCL")
would be converted into the right to receive $18.75 in cash.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT. In considering the recommendations of the
Board of Directors with respect to the Merger, the Public Stockholders should be
aware that certain officers and directors of the Company have certain interests
that may be in addition to, or different from, the interests of the Public
Stockholders. See "Special Factors--Interests of Certain Persons in the Merger".
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement.
<PAGE>
ii
This Proxy Statement, the accompanying Notice of Special Meeting and
the accompanying proxy are first being mailed to Stockholders on or about ,
1998.
--------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD.
--------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES THEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON.
--------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------
The date of this Proxy Statement is , 1998.
<PAGE>
iii
TABLE OF CONTENTS
Page
SUMMARY.......................................................................1
The Special Meeting........................................................1
Special Factors............................................................2
The Merger.................................................................5
Appraisal Rights...........................................................7
Solicitation of Proxies....................................................8
The Parties................................................................8
Market Price and Dividend Information......................................8
Selected Historical Financial Data.........................................8
SPECIAL FACTORS...............................................................9
Background of the Merger...................................................9
Purpose and Structure of the Merger.......................................18
Recommendation of the Special Committee; Fairness of the Merger...........19
Recommendation of the Board of Directors..................................27
Opinion of Financial Advisor to the Special Committee.....................28
Preliminary Valuation Analyses Performed By Beacon........................35
Plans for the Company After the Merger...................................36
Interests of Certain Persons in the Merger................................37
Perspective of Trace and Merger Sub on the Merger.........................38
Perspective of Marshall S. Cogan on the Merger............................39
Certain Effects of the Merger.............................................39
Material Federal Income Tax Consequences..................................40
Risk of Fraudulent Conveyance.............................................40
Anticipated Accounting Treatment..........................................41
Regulatory Approvals......................................................41
Sources of Funds; Fees and Expenses.......................................41
THE SPECIAL MEETING..........................................................44
Matters to Be Considered at the Special Meeting...........................44
Record Date and Voting....................................................45
Vote Required; Revocability of Proxies....................................46
Appraisal Rights..........................................................47
Solicitation of Proxies...................................................49
THE MERGER AGREEMENT.........................................................50
General...................................................................50
Representations and Warranties............................................52
Conduct of the Business Pending the Merger................................53
No Solicitation...........................................................54
Conditions to the Merger..................................................55
Termination...............................................................56
Fees and Expenses.........................................................57
Indemnification of Directors and Officers.................................58
Access to Information.....................................................58
Legal Compliance..........................................................58
Amendment.................................................................59
CERTAIN PROJECTED FINANCIAL DATA.............................................59
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.............................61
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION...........................62
<PAGE>
iv
CERTAIN TRANSACTIONS.........................................................67
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS...............71
PAYMENTS RELATING TO THE IPO.................................................73
Directors and Executive Officers of the Company, Trace and Merger Sub.....74
MARKET PRICE AND DIVIDEND INFORMATION........................................74
CERTAIN TRANSACTIONS IN THE COMMON STOCK.....................................75
STOCKHOLDER LITIGATION.......................................................76
INDEPENDENT PUBLIC ACCOUNTANTS...............................................77
STOCKHOLDER PROPOSALS........................................................77
ADDITIONAL INFORMATION.......................................................77
AVAILABLE INFORMATION........................................................78
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................78
APPENDIX A -- THE MERGER AGREEMENT
APPENDIX B -- FAIRNESS OPINION OF BEACON GROUP CAPITAL SERVICES, LLC
APPENDIX C -- SECTION 262 OF THE DGCL
APPENDIX D -- CERTAIN INFORMATION REGARDING DIRECTORS AND EXECUTIVE
OFFICERS OF TRACE, MERGER SUB AND THE COMPANY
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is qualified in
its entirety by reference to the more detailed information contained in or
incorporated by reference in this Proxy Statement or in the documents attached
as Appendices hereto. Capitalized terms used but not defined in this Summary
shall have the meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to read this Proxy Statement and the Appendices hereto in
their entirety.
The Special Meeting
Matters to Be Considered at the Special Meeting. The Special Meeting is
scheduled to be held at 10:00 a.m. on , 1998 at 1000 Columbia Avenue, Linwood,
Pennsylvania 19061. At the Special Meeting, Stockholders will consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement and (ii) such
other matters as may properly be brought before the Special Meeting. See "The
Special Meeting--Matters to Be Considered at the Special Meeting."
Record Date and Voting. The Record Date for the Special Meeting is the
close of business on August 21, 1998. At the close of business on the Record
Date, there were 25,014,823 shares of Common Stock outstanding and entitled to
vote, held by approximately 146 Stockholders of record. Each holder of Common
Stock on the Record Date will be entitled to one vote for each share held of
record. The presence, either in person or by proxy, of a majority of the
outstanding shares of Common Stock entitled to be voted is necessary to
constitute a quorum at the Special Meeting. See "The Special Meeting--Record
Date and Voting."
Vote Required; Revocability of Proxies. Approval and adoption of the
Merger Agreement will require the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock entitled to vote thereon, and is not
conditioned upon the approval of a majority vote of unaffiliated Stockholders.
As of the Record Date, (i) the Trace Stockholders beneficially owned, in the
aggregate, 11,475,000 shares of Common Stock, representing approximately 45.8%
of such shares outstanding, (ii) the directors and executive officers of Trace
and Merger Sub beneficially owned an additional 427,612 shares of Common Stock,
representing approximately 1.7% of such shares outstanding and (iii) the
directors and executive officers of the Company (excluding such persons who are
also directors or officers of Trace) beneficially owned an additional 117,500
shares of Common Stock, representing less than one percent of such shares
outstanding. Trace has agreed to vote, or cause to be voted, all of the Shares
then owned by the Trace Stockholders in favor of the approval of the Merger and
the authorization and adoption of the Merger Agreement to the extent permitted
pursuant to the terms of certain agreements discussed herein under "The Special
Meeting--Vote Required; Revocability of Proxies". To the knowledge of the
Company, Trace, Merger Sub and Marshall S. Cogan, the directors and executive
officers of the Company, Trace and Merger Sub intend to vote their shares in
favor of the approval and adoption of the Merger Agreement. Accordingly,
assuming that all such persons vote in favor of the Merger, the affirmative vote
of only approximately 4% of the Public Shares (as defined) will be required to
approve and adopt the Merger Agreement. To the knowledge of the Company, Trace,
Merger Sub and Marshall S. Cogan, except as set forth in this Proxy Statement,
no executive officer, director or affiliate of the Company, Trace or Merger Sub
has made a recommendation in support of or opposed to the Merger.
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The required vote of the Stockholders on the Merger Agreement is based
upon the total number of outstanding shares of Common Stock. The failure to
submit a proxy card (or vote in person at the Special Meeting) or the abstention
from voting by a Stockholder (including broker non-votes) will have the same
effect as a vote against the Merger Agreement. Brokers who hold shares of Common
Stock as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof. See "The Special
Meeting--Vote Required; Revocability of Proxies."
A Stockholder may revoke a proxy at any time prior to its exercise by
(i) delivering to Philip N. Smith, Jr., Corporate Secretary, Foamex
International Inc., 1000 Columbia Avenue, Linwood, Pennsylvania 19061, a written
notice of revocation prior to the Special Meeting, (ii) delivering prior to the
Special Meeting a duly executed proxy bearing a later date or (iii) attending
the Special Meeting and voting in person. The presence of a Stockholder at the
Special Meeting will not in and of itself automatically revoke such
Stockholder's proxy. If no instructions are indicated on a properly executed
proxy, such proxy will be voted "FOR" approval and adoption of the Merger
Agreement.
Special Factors
Background of the Merger. For a description of the events leading to
the approval and adoption of the Merger Agreement by the Company's Board of
Directors, see "Special Factors--Background of the Merger."
Purpose and Structure of the Merger. Trace's purpose for the Merger is
to acquire all the remaining equity interests in the Company not currently owned
by the Trace Stockholders for the reasons described in "Special Factors--Purpose
and Structure of the Merger." The acquisition of those equity interests,
represented by the shares of Common Stock outstanding as of the Effective Time
(as hereinafter defined) and not currently owned by the Trace Stockholders (the
"Public Shares") from the holders of such shares (the "Public Stockholders"), is
structured as a cash merger in order to transfer ownership of those equity
interests to Trace in a single transaction and in order to facilitate financing
and provides the Public Stockholders with prompt payment in cash in exchange for
the Public Shares. See "Special Factors--Purpose and Structure of the Merger."
Recommendation of the Special Committee; Fairness of the Merger. A
special committee (the "Special Committee") of two directors of the Company who,
except in their capacity as directors of the Company, are not directors,
officers or employees of Trace or any other affiliate of Trace (the "Trace
Group") concluded, and based in part on such conclusion the Board of Directors
concluded, that the terms of the Merger are fair to the Public Stockholders. The
conclusion of the Special Committee was conditioned on the Board of Directors as
a whole determining (the "Solvency Determination") that consummation of the
transactions contemplated by the Merger Agreement (including any financing
transactions contemplated therein) would not cause the Company to become
insolvent, would not result in the assets, property or capital of the Company
being unreasonably small in relation to the ongoing business of the Company and
would not result in the inability of the Company to pay its debts as such debts
became due or matured, which determination was made by the unanimous vote of all
directors present at the meeting (Mr. Davignon was absent from the meeting). For
a discussion of the factors considered by the Special Committee in making its
recommendation, see "Special Factors--Recommendation of the Special Committee;
Fairness of the Merger."
Recommendation of Board of Directors. On June 25, 1998, by unanimous
vote of all directors present and voting (Mr. Davignon was absent from the
meeting), based in part on the
2
<PAGE>
recommendation and approval of the Special Committee, the Company's Board of
Directors (i) determined that the Merger and the transactions contemplated by
the Merger Agreement are fair, equitable and in the best interests of the
Company and the Public Stockholders, (ii) approved and adopted the Merger
Agreement and (iii) resolved to recommend that the Public Stockholders vote in
favor of the Merger. Accordingly, the Board of Directors recommends a vote FOR
approval and adoption of the Merger Agreement. See "Special Factors --
Recommendation of the Board of Directors." In considering the recommendations of
the Board of Directors with respect to the Merger, the Public Stockholders
should be aware that certain officers and directors of the Company have certain
interests that may be in addition to, or different from, the interests of the
Public Stockholders. See "Special Factors--Interests of Certain Persons in the
Merger".
Opinion of Financial Advisor to the Special Committee. On June 25,
1998, The Beacon Group Capital Services, LLC ("Special Financial Advisor" or
"Beacon") delivered its written opinion to the Special Committee that as of such
date the consideration to be received by the Public Stockholders in the Merger
is fair to the Public Stockholders from a financial point of view. The full text
of the written opinion of the Special Financial Advisor, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Appendix B and is
incorporated herein by reference. Holders of Public Shares are urged to, and
should, read such opinion in its entirety. See "Special Factors--Opinion of
Financial Advisor to the Special Committee."
Interest of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors with respect to the Merger, the Public
Stockholders should be aware that certain officers and directors have certain
interests that present actual or potential conflicts of interest in connection
with the Merger. For a more detailed discussion of such interests, see "Special
Factors--Interests of Certain Persons in the Merger." The Board of Directors was
aware of potential or actual conflicts of interest and considered them along
with other matters described under "Special Factors--Recommendation of the
Special Committee; Fairness of the Merger." As of June 25, 1998, (i) the Trace
Stockholders beneficially owned, in the aggregate, 11,475,000 shares of Common
Stock, representing approximately 45.8% of such shares outstanding, (ii) the
directors and executive officers of Trace and Merger Sub beneficially owned an
additional 427,612 shares of Common Stock, representing approximately 1.7% of
such shares outstanding and (iii) the directors and executive officers of the
Company (excluding such persons who are also directors or officers of Trace)
beneficially owned an additional 117,500 shares of Common Stock, representing
less than one percent of such shares outstanding.
For a description of current relationships and certain transactions
between Trace and the Company, see "Special Factors--Interests of Certain
Persons in the Merger." For a discussion of certain agreements by Trace with
respect to indemnification of directors and officers of the Company, see "The
Merger Agreement--Indemnification of Directors and Officers."
Certain Effects of the Merger. Upon consummation of the Merger, each
Public Share, other than Dissenting Shares held by Stockholders who properly
exercise their appraisal rights under the Delaware General Corporation Law (the
"DGCL") will be converted into the right to receive $18.75 in cash. The Public
Stockholders will cease to have any ownership interest in the Company or rights
as stockholders. The Public Stockholders will no longer benefit from any
increases in the value of the Company and will no longer bear the risk of any
decreases in the value of the Company.
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Following the Merger, Trace, which currently owns, together with the
other Trace Stockholders, approximately 45.8% of the outstanding shares of
Common Stock, will own all of the Surviving Corporation's outstanding shares of
common stock. Trace will have complete control over the management and conduct
of the Company's business, all income generated by the Company and any future
increase in the Company's value. Similarly, Trace will also bear the risk of any
losses incurred in the operation of the Company and any decrease in the value of
the Company.
As a result of the Merger, the Company will be privately held and there
will be no public market for the Common Stock. Upon consummation of the Merger,
the Common Stock will cease to be listed on the Nasdaq Stock Market ("Nasdaq")
and the registration of the Common Stock under the Exchange Act will be
terminated. Moreover, the Company will be relieved of the obligation to comply
with the proxy rules of Regulation 14A under Section 14 of the Exchange Act and
its officers, directors and 10% shareholders will be relieved of the reporting
requirements and restrictions on insider trading under Section 16 of the
Exchange Act. Accordingly, less information will be required to be made publicly
available than presently is the case. See "Special Factors--Certain Effects of
the Merger."
Stockholder Litigation. On or about March 17, 1998, various litigation
was commenced against the Company by Stockholders of the Company in Delaware
state court. These actions, purportedly brought as class actions on behalf of
all Public Stockholders, varyingly named the Company, certain of its directors,
certain of its officers and Trace as defendants. In these actions, plaintiffs
alleged that the defendants breached their fiduciary duties to plaintiffs and
the Company's other Public Stockholders in connection with the original proposal
of Trace to acquire the Public Shares for $17.00 per share.
The parties to these actions have entered into a Memorandum of
Understanding, dated June 25, 1998, providing for the settlement of such actions
upon terms and conditions described herein under "Stockholder Litigation." The
settlement is subject to execution of a definitive Stipulation of Settlement and
court approval following notice to the Public Stockholders. In connection with
the proposed settlement, the plaintiffs intend to apply for an award of
attorneys' fees and litigation expenses in an amount not to exceed $925,000, and
the defendants have agreed not to oppose this application. Additionally, the
Company has agreed to pay the cost of sending notice of the settlement, if any,
to the Public Stockholders.
The defendants have denied, and continue to deny, that they have
committed or have threatened to commit any violation of law or breaches of duty
to the plaintiffs or the purported class. The defendants have agreed to the
proposed settlement because, among other reasons, such settlement would
eliminate the burden and expense of further litigation and would facilitate the
consummation of a transaction that they believe to be in the best interests of
the Company and the Public Stockholders. See "Stockholder Litigation."
Certain U.S. Federal Income Tax Consequences. The receipt of cash in
exchange for Common Stock pursuant to the Merger will be a taxable transaction
for United States federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. Stockholders
should consult their own tax advisors regarding the U.S. federal income tax
consequences of the Merger, as well as any tax consequences under the laws of
any state or other jurisdiction. See "Special Factors--Material Federal Income
Tax Consequences."
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Risk of Fraudulent Conveyance. If a court in a lawsuit brought by an
unpaid creditor or representative of creditors, such as a trustee in bankruptcy,
or by the Surviving Corporation, were to find that the Merger, the Merger
Consideration and the financing thereof constituted fraudulent transfers or
conveyances, such court could void the distribution of the Merger Consideration
to the Public Stockholders and require that the Public Stockholders return the
same to the Surviving Corporation or a fund for the benefit of its creditors.
The voiding of the Merger Consideration as described above could result in the
Public Stockholders losing the entire value of their equity investment in the
Company and the Merger Consideration. See "Special Factors--Background of the
Merger" and "Special Factors--Risk of Fraudulent Conveyance."
The Merger
General. Upon consummation of the Merger, Merger Sub will be merged
with and into the Company and the Company will be the Surviving Corporation. The
Surviving Corporation will succeed to all the rights and obligations of the
Company and Merger Sub.
Treatment of Shares in the Merger. Subject to the provisions of the
Merger Agreement, at the Effective Time (i) each share of Common Stock
outstanding immediately prior to the Effective Time, except for (A) Common Stock
then owned by the Trace Stockholders, (B) Common Stock then owned by the Company
and (C) Dissenting Shares shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive
(subject to any applicable withholding tax) $18.75 in cash, without interest
(the "Merger Consideration"), upon surrender of the certificate representing
such Common Stock; (ii) each share of Common Stock outstanding immediately prior
to the Effective Time which is then owned by the Trace Stockholders shall remain
outstanding and from and after the Effective Time shall constitute shares of the
Surviving Corporation; (iii) each share of Common Stock outstanding immediately
prior to the Effective Time which is then owned by the Company shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
canceled and retired and cease to exist, without any conversion thereof; and
(iv) each share of common stock of Merger Sub outstanding immediately prior to
the Effective Time shall be canceled without any consideration payable therefor.
See "The Merger Agreement--General."
Stock Options and Warrants. At the Effective Time, (i) each holder of a
then outstanding option (each, a "Company Option") to purchase shares of Common
Stock will, in settlement thereof, receive from the Company for each share of
Common Stock subject to such option an amount (subject to any applicable
withholding tax) in cash equal to the amount, if any, by which the Merger
Consideration exceeds the per share exercise price of the option (the "Option
Consideration") and (ii) each holder of a then outstanding warrant (each, a
"Company Warrant") to purchase shares of Common Stock will, in settlement
thereof, receive from the Company for each share of Common Stock subject to such
warrant an amount (subject to any applicable withholding tax) in cash equal to
the amount, if any, by which the Merger Consideration exceeds the per share
exercise price of the warrant (the "Warrant Consideration"). See "The Merger
Agreement--General."
Effective Time. Pursuant to the Merger Agreement, the "Effective Time"
of the Merger will occur upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware or at such time thereafter as is
agreed to between Trace and the Company and provided in the Certificate of
Merger. See "The Merger Agreement--General."
Exchange of Share Certificates. As soon as reasonably practicable after
the Effective Time, Trace shall cause The Bank of Nova Scotia, or another bank
or trust company reasonably acceptable to
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the Special Committee, as paying agent (the "Paying Agent"), to mail to each
holder of record as of the Effective Time (other than the Company and the Trace
Stockholders) an outstanding certificate or certificates for shares of Common
Stock, a letter of transmittal and instructions for use in effecting the
surrender of such certificate for payment in accordance with the Merger
Agreement. Upon surrender to the Paying Agent of a certificate, together with a
duly executed letter of transmittal, the holder thereof shall be entitled to
receive cash in an amount equal to the product of the number of shares of Common
Stock represented by such certificate and the Merger Consideration in cash,
without interest thereon, less any applicable withholding tax, and such
certificate shall then be canceled.
Until surrendered pursuant to the procedures described above, each
certificate (other than certificates representing shares of Common Stock owned
by the Company or the Trace Stockholders and certificates representing
Dissenting Shares), shall represent for all purposes solely the right to receive
the Merger Consideration multiplied by the number of shares of Common Stock
evidenced by such certificate, without any interest thereon, subject to any
applicable withholding obligation. See "The Merger Agreement--General."
STOCKHOLDERS SHOULD NOT SEND ANY SHARE CERTIFICATES WITH THEIR PROXY CARDS.
Conditions to the Merger. Consummation of the Merger is subject to
various conditions, including, among others: (i) the approval and adoption of
the Merger Agreement by the affirmative vote of holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon, (ii) the absence of
any injunction preventing consummation of the Merger and (iii) Trace shall have
obtained financing for the transactions contemplated by the Merger Agreement on
terms and conditions and in amounts reasonably satisfactory to it. See "The
Merger Agreement--Conditions to the Merger."
No Solicitation. Pursuant to the Merger Agreement, the Company has
agreed to, and to cause its subsidiaries, officers, directors, employees,
counsel, investment bankers, financial advisers, accountants, other
representatives and agents (collectively, the "Company Representatives") to,
terminate any ongoing discussions or negotiations with respect to a Takeover
Proposal (as defined below). The Company has agreed that it will not and will
not authorize or permit any Company Representative to (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Takeover Proposal, (ii) participate
in any discussions or negotiations regarding any Takeover Proposal (other than
to respond to an inquiry by informing the inquiring party of certain
restrictions imposed by the Merger Agreement) or (iii) enter into any agreement
with respect to any Takeover Proposal, except under certain circumstances to the
extent required in order that the Board of Directors or the Special Committee
may, in its good faith judgment, comply with its fiduciary duties to
Stockholders. For purposes of the Merger Agreement, "Takeover Proposal" means
any inquiry, proposal or offer from any person relating to any (w) merger,
consolidation or similar transaction involving the Company, (x) sale, lease or
other disposition directly or indirectly by merger, consolidation, share
exchange or otherwise of assets of the Company or its subsidiaries representing
15% or more of the consolidated assets of the Company and its subsidiaries, (y)
issue, sale, or other disposition of (including by way of merger, consolidation,
share exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 15% or more of the voting power of the Company or (z) transaction
in which any person or "group" (as such term is defined under the Exchange Act)
shall acquire beneficial ownership of 25% or more of the outstanding Common
Stock, in each case, other than the transactions with Trace contemplated by the
Merger Agreement. See "The Merger Agreement--No Solicitation."
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Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the Stockholders, as
follows: (i) by the mutual written consent of the Company (with the concurrence
of the Special Committee) and Trace; (ii) by either the Company (with the
concurrence of the Special Committee) or Trace if the Merger Agreement shall
have been voted on by the stockholders of the Company at the Special Meeting and
the vote shall not have been sufficient to approve the Merger; (iii) by either
the Company or Trace if any governmental entity has issued an order, decree or
ruling prohibiting the Merger and such ruling has become final and
non-appealable; (iv) by either the Company (with the concurrence of the Special
Committee) or Trace in the event the Merger is not consummated by December 31,
1998; (v) by either the Company (with the concurrence of the Special Committee)
or Trace if any of the respective conditions described above under "The Merger
Agreement--Conditions to the Merger " that (A) are required to occur prior to
the Effective Time shall have become incapable of occurring, or (B) are not
permitted to occur prior to the Effective Time, shall have occurred prior to
such time and are incapable of being cured or reversed, and, in either case,
shall not have been, on or before the date of such termination, permanently
waived by such party; (vi) by Trace if the Company's Board of Directors or the
Special Committee has withdrawn, modified or amended its recommendation of the
Merger Agreement or the Merger; (vii) by the Special Committee on behalf of the
Company if the Special Committee has withdrawn its recommendation of the Merger
Agreement or the Merger or (viii) by the Company (or the Special Committee on
behalf of the Company) or Trace under certain circumstances in connection with a
Takeover Proposal. If the Merger Agreement is terminated prior to the Effective
Time, under certain circumstances, the Company will be required to pay Trace $30
million. See "The Merger Agreement--Termination."
Sources of Funds; Fees and Expenses. It is currently expected that
approximately $253.9 million will be required to pay the Merger Consideration to
the Public Stockholders (assuming no such holder exercises appraisal rights),
approximately $25.2 million will be required to pay the Option Consideration and
the Warrant Consideration to the holders of Company Options and Company Warrants
and approximately $73.1 million will be required to pay the expenses of the
Company, Trace and Merger Sub in connection with the Merger and the related
financings. It is currently anticipated that such funds will be furnished from
the proceeds of new debt financing by Foamex L.P. and Foamex Carpet Cushion,
Inc. ("Foamex Carpet"). See "Special Factors--Sources of Funds; Fees and
Expenses."
Accounting Treatment. The Merger will be accounted for as a partial
(approximately 53%) purchase utilizing the push down basis of accounting in
accordance with Securities and Exchange Commission (the "SEC") Staff Accounting
Bulletin 5.J.
Appraisal Rights
Under the DGCL, Stockholders who properly demand appraisal prior to the
Stockholder vote on the Merger Agreement, do not vote in favor of approval of
the Merger Agreement and otherwise comply with the requirements of DGCL Section
262 will be entitled to statutory appraisal rights. Any deviation from the
requirements of Section 262 may result in a forfeiture of statutory appraisal
rights. See "The Special Meeting--Appraisal Rights" and DGCL Section 262, a copy
of which is attached hereto as Appendix C.
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Solicitation of Proxies
The Company will bear the costs of soliciting proxies from
Stockholders. In addition to soliciting proxies by mail, directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit proxies by telephone, by telegram or in person. Arrangements may
also be made with brokerage firms and other custodians, nominees and fiduciaries
to forward solicitation materials to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. See "The Special Meeting--Solicitation
of Proxies."
The Parties
The Company. The Company, a Delaware corporation, is a holding company
which does not conduct any business of its own. The Company's executive offices
are located at 1000 Columbia Avenue, Linwood, Pennsylvania 19061 and its
telephone number is (610) 859-3000.
Trace. Trace, a Delaware corporation, is a holding company which does
not conduct any business of its own. Trace's executive offices are located at
375 Park Avenue, 11th Floor, New York, New York 10152 and its telephone number
is (212) 230-0400.
Merger Sub. Merger Sub is a Delaware corporation recently organized by
Trace for the purpose of effecting the Merger. It has no material assets and has
not engaged in any activities except in connection with the Merger. The sole
stockholder of Merger Sub is Trace. Merger Sub's address is c/o Trace
International Holdings, Inc., 375 Park Avenue, 11th Floor, New York, New York
10152 and its telephone number is (212) 230-0400.
Market Price and Dividend Information
The Common Stock is listed on Nasdaq under the symbol "FMXI." On March
13, 1998, the last trading day before the public announcement of Trace's
proposal to acquire all the shares of Common Stock held by the Public
Stockholders, the reported closing price per share of the Common Stock was
$13-7/8. On June 24, 1998, the last trading day before the public announcement
of the execution of the Merger Agreement, the reported closing sale price per
share of the Common Stock was $16-3/16. On , 1998, the last full trading day
prior to the date of this Proxy Statement, the reported closing sale price per
share of the Common Stock was $ . For additional information concerning
historical market prices of the Common Stock and the dividends paid thereon, see
"Market Price and Dividend Information."
Selected Historical Financial Data
Certain selected historical financial data of the Company are set forth
under "Selected Historical Financial Data." That data should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in this Proxy Statement. See "Incorporation of Certain
Documents by Reference."
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SPECIAL FACTORS
Background of the Merger
Trace from time to time has considered the possibility of (i) acquiring
all of the Public Shares in order to, among other reasons, realize increased
value for the shares of Common Stock owned by the Trace Stockholders (the "Trace
Shares") or (ii) realizing value for the Trace Shares by obtaining margin loans
or selling the Trace Shares, either alone or in connection with a sale of all of
the equity in the Company. See "--Purpose and Structure of the Merger." In 1995,
Trace introduced to the Company, and the Company entered into talks with, two
separate companies regarding a potential acquisition of all of the equity in the
Company. The first potential acquiror broke off negotiations, and the offer of
the second potential acquiror was rejected, in part, because the parties were
unable to agree on price.
In 1995, Foamex L.P. announced an operational plan designed to improve
profitability. In conjunction with the such plan, the Company made the decision
to sell its non-polyurethane foam businesses. The Company sold its home comfort
products business in August 1996, its automotive and specialty industrial
textiles business in December 1996 and its needlepunch carpet and synthetic yarn
business in October 1997.
In August 1997, officers of Trace had several meetings with
representatives from J.P. Morgan & Co., Inc. to discuss the possible sale of the
Trace Shares to a third party as part of the sale of all of the equity in the
Company. During these meetings, the possible form, structure and process for
such a transaction were investigated. These investigations, however, were
postponed pending the acquisition by the Company of Crain Holdings Corp. ("Crain
Holdings").
On December 23, 1997, the Company acquired Crain Holdings (the "Crain
Acquisition"), the parent company of Crain Industries, Inc., a producer of
flexible polyurethane foam and foam products ("Crain Industries"), for aggregate
consideration of approximately $213.7 million. The acquisition was made pursuant
to the terms of an Agreement and Plan of Merger, dated December 8, 1997, among
the Company, Merger Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of the Company, Crain Holdings and certain other parties signatory
thereto (the "Crain Merger Agreement"). Pursuant to the terms of the Crain
Merger Agreement, on December 23, 1997, Merger Acquisition Corp. was merged with
and into Crain Holdings, and as a result, Crain Holdings became a wholly owned
subsidiary of the Company.
In the first full week of January 1998, the Company and certain of its
affiliates (including Trace) commenced working on a series of transactions
designed to simplify the Company's corporate structure and to provide future
operational flexibility; these transactions (referred to herein, collectively,
as the "GFI Transaction") were consummated on February 27, 1998. See "Certain
Transactions."
In early January 1998, after failing to identify a likely buyer, Trace
decided to cease its investigation of the sale of the Trace Shares as part of
the sale of all of the equity in the Company; instead, Trace chose to
investigate the possibility of acquiring all of the Public Shares (the "Proposed
Transaction") in the belief that it could realize value from managing the
Company as a private company for the reasons discussed herein under "--Purpose
and Structure of the Merger." During the first full week of January 1998,
members of Trace's senior management met with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), J.P. Morgan Securities Inc. ("JP
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Morgan") and one other investment bank regarding the Proposed Transaction. On
January 5, 1998, Trace entered into a letter agreement with JP Morgan pursuant
to which J.P. Morgan agreed to act as a financial advisor to Trace in connection
with the Proposed Transaction. On January 13, 1998, Trace received a letter from
DLJ expressing interest in assisting Trace in the Proposed Transaction. During
January and February 1998, members of Trace's senior management investigated the
possible form, structure and timing of a possible Proposed Transaction with
Trace's counsel, Willkie Farr & Gallagher ("Willkie Farr").
On February 11, 1998, Mr. John H. Gutfreund was appointed to the
Company's Board of Directors pursuant to a unanimous written consent of the
Board of Directors.
On March 2, 1998, members of Trace's senior management met with The
Bank of Nova Scotia ("ScotiaBank") and DLJ regarding the Proposed Transaction.
On March 4, 1998, Trace delivered a letter to the Board of Directors of
the Company regarding Trace's intention to evaluate the Company in connection
with possible purchase or sale of additional shares of Common Stock. In
connection with this evaluation, Trace requested that the Company provide
ScotiaBank, DLJ and Trace with reasonable access to information (the "Company
Information") relating to the business operations of the Company which was
either non-public, confidential or proprietary in nature.
On this same date, the Executive Committee of the Company's Board of
Directors met to discuss Trace's letter. At this meeting, the Executive
Committee authorized the Company to grant Trace and its advisors reasonable
access to the Company Information, subject to the confidentiality provisions in
Trace's March 4, 1998 letter.
From March 4, 1998 to March 16, 1998, ScotiaBank and DLJ reviewed
certain public and non-public information with respect to the Company and also
discussed with certain members of the Company's management the business and
financial condition and prospects of the Company.
On March 9, 1998, Trace's Board of Directors adopted resolutions by
unanimous written consent authorizing the executive officers of Trace (i) to
undertake an investigation of the Company and certain economic and market
factors in order to determine whether the Proposed Transaction was in the best
interest of Trace and (ii) based on their investigation of the Company and
certain market and economic factors, to make a proposal to the Company in order
to effect the Proposed Transaction.
After discussions with representatives from ScotiaBank, DLJ, Willkie
Farr and certain senior officers of Trace during the first two weeks of March
1998 relating to the possible form, structure, timing and price of the Proposed
Transaction, Trace's senior management determined to offer to acquire all the
Public Shares in a cash merger. Trace's senior management determined that a cash
merger was the most efficient structure as it would ensure that Trace acquired
all the Public Shares in a single step.
After discussing these matters, Trace's senior management approved the
making of a proposal to acquire all the Public Shares at $17.00 per share. Trace
selected the $17.00 per share price based principally on historical trading
prices for the Common Stock.
On March 16, 1998, Trace received, in connection with financing of the
Proposed Transaction, (i) a commitment letter (the "Commitment Letter") from
ScotiaBank, DLJ Capital Funding, Inc. and
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DLJ to provide $850 million of loans and (ii) a highly confident letter (the
"Highly Confident Letter") from DLJ and Scotia Capital Markets (U.S.A.) Inc.
("SCM") to raise $410 million of debt financing and from DLJ to raise an
additional $75 million of debt financing. Pursuant to an engagement letter dated
March 16, 1998, Trace retained DLJ to act as a financial advisor to Trace in
connection with the Proposed Transaction.
On March 16, 1998, Trace delivered a letter to the Company's Board of
Directors setting forth its proposal to purchase the Public Shares for $17.00
per share, along with copies of the Commitment Letter and the Highly Confident
Letter and, after the close of business, issued a press release announcing the
Proposed Transaction.
On March 16, 1998, the Company's Board of Directors met to discuss
Trace's offer. At this meeting, Marshall S. Cogan, a director of the Company and
Chairman of the Board and CEO of Trace, discussed the Proposed Transaction with
the Board of Directors. In order to address actual and perceived conflicts of
interest, the Board of Directors appointed two independent directors, Messrs.
John H. Gutfreund (who was attending his first Board of Directors meeting) and
Robert J. Hay, as the Special Committee. Mr. Hay has been Chairman Emeritus and
a director of the Company since September 1993, was Chairman and Chief Executive
Officer of Foamex L.P. from January 1993 to January 1994 and was President of
Foamex L.P. and its predecessor from 1972 through 1992. The Special Committee
was directed to determine the advisability and fairness to the stockholders of
the Company of the Proposed Transaction and authorized to retain such financial
and legal advisors as the Special Committee deemed appropriate, to negotiate
with Trace and its representatives on behalf of the Company with respect to the
Proposed Transaction, to obtain such information regarding the Company and
assistance from the officers, employees and agents of the Company and to take
such other actions to carry out its responsibilities as the Special Committee
deemed appropriate. The Board of Directors appointed Mr. Gutfreund as Chairman
of the Special Committee. The Board of Directors also authorized the Company to
pay the members of the Special Committee a fee of $20,000 per month for serving
on such committee, and to pay all expenses incurred by the Special Committee,
including the fees and expenses of its financial and legal advisors.
Beginning on or about March 17, 1998, six lawsuits (the "Stockholder
Litigation") were commenced variously naming the Company, certain of its
directors, certain of its officers and Trace, as defendants. Those actions,
purportedly brought by several Public Stockholders (the "Plaintiffs") as class
actions on behalf of all Public Stockholders, alleged that the defendants had
breached their fiduciary duties to the Plaintiffs and the other Public
Stockholders in connection with the Proposed Transaction. See "Stockholder
Litigation."
On March 17, 1998, the Special Committee held its initial meeting by
teleconference. At that meeting, the Special Committee resolved that it would
begin interviewing law firms and investment banks for the purpose of retaining
independent legal and financial advisors to the Special Committee.
Over the following week, the Special Committee interviewed
representatives of three law firms with regard to their experience with
transactions similar to the Proposed Transaction, potential conflicts of
interest, proposed fees in connection with the assignment and other relevant
matters. Following such interviews, the Special Committee retained Cleary,
Gottlieb, Steen & Hamilton ("Cleary, Gottlieb") to serve as legal advisor to the
Special Committee. Following the retention of Cleary, Gottlieb, representatives
of that firm discussed with the Special Committee the role and duties of the
Special Committee under applicable law and the resolution of the Board of
Directors pursuant to which the Special Committee was constituted. The members
of the Special Committee also discussed
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with representatives of Cleary, Gottlieb the process of selecting a financial
advisor to the Special Committee.
On March 31, April 1, and April 3, 1998, the Special Committee, along
with a representative of Cleary, Gottlieb, interviewed and received and reviewed
written presentations from six investment banks with regard to their experience
with transactions similar to the Proposed Transaction, potential conflicts of
interest, knowledge of the foam industry and related businesses, the personnel
that would be involved in assisting the Special Committee, proposed fees in
connection with the assignment and other relevant matters. For a summary of
certain matters discussed by Beacon at certain meetings of the Special Committee
(including the meeting held son April 3, 1998), see "--Preliminary Valuation
Analyses Performed By Beacon" below. On April 6, 1998, Mr. Gutfreund, after
consultation with Mr. Hay, retained Beacon to act as financial advisor to the
Special Committee, and on behalf of the Special Committee, Mr. Gutfreund, with
Cleary, Gottlieb's assistance, negotiated and entered into a written agreement
with Beacon with respect to Beacon's engagement. Beacon was selected by the
Special Committee because of its expertise and reputation in the areas of
mergers and acquisitions, "going private" transactions and special committee
procedures, Beacon's proposed fee in connection with the assignment and the
commitment of senior personnel of that firm to work on the assignment. For a
description of the terms of Beacon's engagement see "--Opinion of Financial
Advisor to the Special Committee." Shortly after their retention by the Special
Committee, each of Beacon and Cleary, Gottlieb commenced a due diligence review
of the Company and the Proposed Transaction.
At a meeting held on April 21, 1998, the Special Committee unanimously
ratified the retention of Beacon and Cleary, Gottlieb to serve as advisors to
the Special Committee. At the meeting, Beacon reported on the progress of its
due diligence investigation. Beacon's report included a summary of Beacon's
tours of certain of the Company's facilities and meetings held with Mr. Farace,
members of the Company's executive operating committee, and representatives of
the consulting firm that assisted the Company in connection with the Crain
Acquisition and the subsequent integration process. Beacon also reviewed
information it had received concerning, among other things, the background and
history of the Company, certain operating results, budgets and projections for
the Company obtained from management of the Company, the reorganization of the
Company's business units effected after the Crain Acquisition, the Company's
management information systems and accounting and control policies, the
Company's relationship with its primary suppliers of raw materials, various fees
paid by the Company to Trace and its affiliates, issues arising in connection
with certain past acquisitions and dispositions of businesses by the Company,
potential synergies and costs resulting from the Crain Acquisition, and the
Company's reported progress with respect to the integration of the Crain
businesses with those of the Company. Representatives of Beacon also reported
that in order to conduct the analyses necessary to determine the fairness from a
financial point of view of the Proposed Transaction, an updated financial
forecast for the Company would be necessary, and the Special Committee
authorized Beacon to request such forecast from management of the Company.
Cleary, Gottlieb then reported on the progress of its legal due diligence review
and certain legal and structuring issues raised by the draft of the Merger
Agreement that had been provided to Cleary, Gottlieb by Willkie Farr. The
Special Committee, Cleary, Gottlieb and Beacon also discussed the conduct of
further legal and financial due diligence.
On April 21, 1998, each member of the Special Committee, based in part
on advice received from Cleary, Gottlieb, entered into an indemnification
agreement with the Company, pursuant to which the Company agreed to indemnify
and hold such member harmless with respect to certain acts and omissions taken
by such member as a director of the Company or member of the Special Committee.
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On May 11, 1998, Trace retained Rhone Group LLC ("Rhone") to act,
together with DLJ and JP Morgan, as its financial advisor in connection with the
Proposed Transaction.
On May 4, May 11, May 14 and May 18, 1998, representatives of Beacon
met with various representatives of Trace, including Mr. Cogan, and
representatives of Willkie Farr and Rhone, to review a variety of matters
related to the Proposed Transaction and Beacon's financial due diligence review,
including the structure of the Proposed Transaction and the related financing,
the history of the Company, Trace's exploration of a possible sale of the Trace
Shares in 1995 discussed above and Trace's forecast for the Surviving
Corporation. During this period, Mr. Cogan expressed his confidence that the
financing for the Proposed Transaction on the terms set forth in the Commitment
Letter and the Highly Confident Letter would be completed. Mr. Cogan also
reiterated that Trace's interest in the Company was not for sale.
On May 13, 1998, representatives of Beacon met with Mr. Farace, during
which meeting Mr. Farace provided and explained the five-year forecast requested
by Beacon following the April 21, 1998 meeting of the Special Committee.
On May 21, 1998, the members of the Special Committee, along with
representatives of Beacon and Cleary, Gottlieb, met with representatives of
Willkie Farr and financial officers of Trace to further review the structure of
the Proposed Transaction, including the proposed financing thereof.
On May 27, 1998, representatives of Beacon and Cleary, Gottlieb along
with representatives of Trace and Willkie Farr, met with representatives of DLJ,
ScotiaBank and SCM to discuss the structure and feasibility of the financing
described in the Commitment Letter and the Highly Confident Letter. At such
meeting representatives of each of DLJ, ScotiaBank and SCM expressed confidence
that the financing would be completed on the terms set forth in the Commitment
Letter and the Highly Confident Letter.
At a May 29, 1998 meeting of the Special Committee attended by
representatives of Beacon and Cleary, Gottlieb, representatives of Beacon
reported to the Special Committee on the status of Beacon's financial due
diligence investigation to date. Representatives of Beacon also mentioned as a
factor considered in Beacon's continuing analyses, the Company's history of
failing to meet forecasts and budgets prepared by management. In particular,
Beacon noted that the Company failed to meet its forecasts for net sales, gross
profit and earnings by substantial margins in each of fiscal 1995 and 1997 and
failed to meet its forecasts for gross profits and earnings in fiscal 1996. See
"--Recommendation of the Special Committee; Fairness of the Merger." In
addition, Beacon cited the Trace Stockholders' ownership of 45.8% of the
Company's common stock, Mr. Cogan's control of Trace and his expressed
unwillingness to sell his interest as factors which serve to inhibit third party
interest in an acquisition of the Company. Beacon noted that as a result of
these factors, and with the Special Committee's approval, it had not contacted
third parties to ascertain their interest in a combination with the Company.
Representatives of Beacon then reviewed the preliminary results of certain
valuation analyses conducted to date and indicated that although they were not
yet prepared to render a formal opinion regarding the Proposed Transaction, and
that additional analyses were required before they would be in a position to do
so, they had reached a preliminary conclusion, based on the valuation analyses
performed to date, that Trace's offer to pay $17.00 per Public Share was not
fair to the Public Stockholders from a financial point of view. Beacon reported
to the Special Committee that it would perform additional analyses over the next
few days and shortly thereafter would be in a position to make a definitive
report to the Special Committee. Beacon did not indicate a minimum price per
Public Share at which it would be prepared to opine that an offer from Trace
would be
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fair from a financial point of view to the Public Stockholders. Following the
report by Beacon, Cleary, Gottlieb reported on the progress of its due diligence
investigation and certain legal and structuring issues raised by the draft
Merger Agreement were discussed. The Special Committee decided not to begin
negotiations with respect to the draft Merger Agreement until further progress
was made with respect to the financial terms of the Proposed Transaction.
On June 2, 1998, the members of the Special Committee conferred by
telephone with representatives of Beacon and Cleary, Gottlieb, and the Special
Committee decided to inform Trace that, if the Special Committee were to request
an opinion, Beacon would opine that Trace's offer was not fair to the Public
Stockholders from a financial point of view.
On June 3, 1998, the Special Committee met with Mr. Cogan and informed
him of that determination. Also on June 3, 1998, representatives of Beacon and
Cleary, Gottlieb met with Karl Winters, Vice President--Finance of Trace, Robert
Agostinelli of Rhone, and representatives of Willkie Farr, during which meeting
Beacon reported its position that Trace's offer was not fair to the Public
Stockholders. Without indicating a minimum price per Public Share that would be
acceptable to the Special Committee or at which Beacon would be prepared to
opine that an offer from Trace would be fair from a financial point of view to
the Public Stockholders, Beacon presented certain of its valuation analyses and
indicated that, based on such analyses and certain other factors, the Special
Committee would consider favorably an offer significantly in excess of $20.00
per Public Share. Mr. Agostinelli indicated that he believed that a price in
excess of $17.00 per Public Share was not justified, noting, among other things,
that no third party buyer for the Company had come forward since the Proposed
Transaction was publicly announced on March 16, Trace's exploration of a
possible sale of the Trace Shares in 1995 discussed above did not result in a
successful transaction, no third party would be willing to purchase the Public
Shares so long as Trace held 45.8% of the Common Stock, the Common Stock
currently was trading at a level below the offer price and the proposed offer
price constituted a substantial premium over the pre-offer trading price of the
Common Stock.
Later on June 3, 1998, Mr. Agostinelli contacted representatives of
Beacon and suggested that if the Special Committee believed the Company was
worth significantly in excess of $20.00 per share of Common Stock, Trace may be
willing to suspend the negotiation process for two weeks in order to allow the
Special Committee, acting through Beacon, to attempt to locate a buyer willing
to pay that price for all outstanding shares of Common Stock. Following such
conversation, the members of the Special Committee conferred with
representatives of Beacon and Cleary, Gottlieb, and representatives of Cleary,
Gottlieb discussed the matter with representatives of Willkie Farr. After
consultation with Beacon and Cleary, Gottlieb, the Special Committee rejected
the proposal because in the judgment of the Special Committee two weeks was too
short a period to locate and negotiate with potential buyers and because Trace
indicated to the Special Committee that although it would suspend negotiations
with respect to the Proposed Transaction it was unwilling to commit in advance
to a sale of the Trace Shares, and as a result, in the judgment of the Special
Committee, potential buyers would be unwilling to incur the expense necessary to
make a bona fide offer to purchase the Common Stock.
On June 4, 1998, representatives of Beacon contacted Mr. Agostinelli by
telephone and requested to meet the following day to further discuss the
valuation issues raised at the meeting held on June 3. On June 5, 1998, Mr.
Agostinelli contacted representatives of Beacon by telephone, deferred the
meeting scheduled for that day, and suggested that instead representatives of
Cleary, Gottlieb and Willkie Farr meet to discuss the terms of the draft of the
Merger Agreement previously provided to the Special Committee during which time
Rhone would conduct additional valuation analyses. Later that
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day, representatives of Cleary, Gottlieb conferred with Mr. Gutfreund and
representatives of Beacon by telephone regarding certain issues raised by the
draft Merger Agreement.
On June 6, and June 7, 1998, representatives of Cleary, Gottlieb and
Willkie Farr commenced negotiations with respect to the terms of the draft
Merger Agreement. Substantial changes were made to the draft Merger Agreement as
a result of such negotiations, including the elimination of certain
representations and warranties of the Company and the elimination of certain
conditions to Trace's obligation to consummate the Merger. On behalf of the
Special Committee, Cleary, Gottlieb requested, among other things, to (i)
condition consummation of the Merger on the affirmative vote of holders of a
majority of the Public Shares, (ii) condition consummation of the Merger on the
receipt by the Board of Directors of an opinion (the "Solvency Opinion"),
rendered by a firm experienced in such matters, substantially to the effect that
the Surviving Corporation would be solvent following consummation of the Merger,
would have sufficient capital to conduct its ongoing business and would be able
to pay its debts as they came due, (iii) eliminate provisions in the draft
providing for a $45 million termination fee to be paid by the Company to Trace
under certain circumstances in the event that the Merger is not consummated, and
(iv) provide that Trace bear the expenses of the Company in the event the Merger
is not consummated. On behalf of Trace, Willkie Farr refused these requests.
On June 11, 1998, representatives of Beacon met with Mr. Agostinelli
and Mr. Winters. After further discussions regarding the appropriate valuation
of the Company, Mr. Agostinelli stated that Trace would consider making two
alternative offers. Under the first alternative: (i) Trace would pay $17.00 per
Public Share, (ii) consummation of the Merger would be conditioned on the
affirmative vote of holders of a majority of the Public Shares, and (iii) the
Merger Agreement would provide for a $15 million termination fee payable to
Trace under certain circumstances in the event the Merger is not consummated.
Under the second alternative: (i) Trace would pay $17.50 per Public Share, (ii)
consummation of the transaction would not be conditioned on the affirmative vote
of holders of a majority of the Public Shares, and (iii) the Merger Agreement
would provide for a $30 million termination fee payable to Trace under certain
circumstances in the event the Merger is not consummated. In either case, in the
event the Merger is not consummated, Trace would be responsible for all of its
and the Company's expenses, unless the Company materially breached the Merger
Agreement or a material adverse effect on the Company had occurred, in which
case, the Company would be responsible for all such expenses. Following the
meeting, Beacon conferred with Mr. Gutfreund and representatives of Cleary,
Gottlieb regarding its conversation with Messrs. Agostinelli and Winters, and
Mr. Gutfreund conferred with Mr. Hay.
On June 12, 1998, a representative of Trace contacted Mr. Gutfreund and
indicated that Trace was under timing pressure with respect to the proposed
financing for the Merger and unless an agreement was reached with respect to a
transaction shortly, Trace would be forced to withdraw its offer. Such
representative also indicated that Trace might be willing to pay up to $17.75
per Public Share.
On June 16, 1998, representatives of Beacon contacted Mr. Farace by
telephone for the purpose of updating their financial due diligence
investigation. During such conversation, Mr. Farace discussed the Company's
recent performance and reaffirmed his confidence in the forecast previously
provided to Beacon by the Company.
At a June 16, 1998 meeting of the Special Committee, attended by
representatives of Beacon and Cleary, Gottlieb, representatives of Beacon
reported on the telephone conversation earlier that day with
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Mr. Farace and further reported that Beacon had updated its analyses to take
into account Mr. Farace's report and the recent stock price performance of
certain companies comparable to the Company and the impact that performance had
on such companies' valuation multiples. Representatives of Beacon indicated
that, based on their updated analyses, if asked by the Special Committee, Beacon
would opine that an offer to pay the Public Stockholders $17.75 per Public
Share, if made, would not be fair to the Public Stockholders from a financial
point of view. Beacon did not indicate a minimum price per Public Share at which
it would be prepared to opine that an offer from Trace would be fair from a
financial point of view to the Public Stockholders. Representatives of Beacon
then discussed various alternatives that the Special Committee might consider
proposing to Trace. Representatives of Beacon suggested that Trace could
increase the value of its offer without having to raise additional funds by
including zero-coupon debt securities in the package of consideration offered to
the Public Stockholders. The Special Committee decided that Beacon should study
that alternative and report back to the Special Committee within the next two
days.
On June 18, 1998, the Special Committee held a meeting by
teleconference, in which representatives of Cleary, Gottlieb and Beacon
participated. Beacon explained a structure pursuant to which Trace would use
zero-coupon debt securities to increase the consideration offered to the Public
Stockholders. Later that day, at the request of the Special Committee,
representatives of Beacon discussed that possibility with Mr. Agostinelli.
On June 19, 1998, representatives of Willkie Farr advised the Special
Committee that the use of zero-coupon debt securities would be unacceptable to
Trace. Such representatives further indicated that Trace was considering
increasing its offer to $18.00 per Public Share; however, they also indicated
that such offer would not be so increased unless all the open Merger Agreement
issues, including the termination fee, were resolved in favor of Trace. Willkie
Farr requested that the Special Committee advise Trace with respect to its views
on such potential increase in Trace's offer by noon on Monday, June 22, 1998,
and that after that time, Mr. Cogan intended to call a special meeting of the
Board of Directors. The Special Committee then conferred with representatives of
Cleary, Gottlieb and Beacon, and it was decided that Beacon would conduct
further discussions with Mr. Agostinelli and Trace in an attempt to reach an
agreement with respect to the offer price and the open Merger Agreement issues.
On June 20 and June 21, 1998, representatives of Beacon and Mr.
Agostinelli had several conversations regarding the valuation of the Company.
During those conversations representatives of Beacon communicated the position
of the Special Committee that an offer of $18.00, if made, would not be
recommended by the Special Committee in light of Beacon's and the Special
Committee's views regarding the Company. Beacon did not indicate a minimum price
per Public Share that would be acceptable to the Special Committee or at which
Beacon would be prepared to opine that an offer from Trace would be fair from a
financial point of view to the Public Stockholders.
On June 22, 1998, a representative of Willkie Farr informed Cleary,
Gottlieb that the noon deadline previously set by Trace would be extended for an
indefinite period of time to permit further negotiation. That same day,
Richards, Layton & Finger and Willkie Farr, as counsel for certain of the
defendants in the Stockholder Litigation, spoke to counsel for the Plaintiffs in
the Stockholder Litigation (see "Summary--Special Factors--Stockholder
Litigation" and "Stockholder Litigation") to determine if the Stockholder
Litigation could be resolved. In conjunction with such settlement negotiations,
Plaintiffs' counsel requested and were provided with and reviewed extensive
documents relating to the Company and the Proposed Transaction. The following
day a meeting was held at which additional information concerning the Company
and the Proposed Transaction was
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provided to Plaintiffs' counsel and their expert. In conjunction with this
meeting, Plaintiffs' counsel and their expert also made a presentation to the
representatives of the defendants who were present concerning their view of the
Company and the Proposed Transaction. Plaintiffs' counsel also made certain
proposals relating to the possible settlement of the Stockholder Litigation,
including the demand that the price to be paid by Trace per Public Share of the
Company's common stock should be increased to $18.75. Later that day, settlement
negotiations among representatives of Willkie Farr and Plaintiffs' counsel
followed which resulted in an agreement in principle to settle the Stockholder
Litigation in accordance with certain terms and conditions which were thereafter
memorialized in a written Memorandum of Understanding, dated June 25, 1998. See
"Stockholder Litigation" for further discussion.
On June 22, 1998, Mr. Winters informed representatives of Beacon and
Cleary, Gottlieb that Trace would consider making an offer of $18.50 per Public
Share if all the open issues discussed above with respect to the Merger
Agreement, including the termination fee, were resolved in favor of Trace.
Subsequently, a meeting of the Special Committee was held at the offices of
Beacon during which Mr. Winters' proposal was considered. It was decided that
the Special Committee, through Beacon, would indicate that an offer of at least
$18.75 per Public Share would be acceptable to the Special Committee, but that
with respect to the open Merger Agreement issues, any termination fee provision
would have to be limited to $30 million and structured so that the circumstances
under which such fee would be paid to Trace would be limited to circumstances
under which it is likely that the Public Stockholders would receive payments
(other than from Trace) in respect of the Public Shares. That proposal
subsequently was communicated to Mr. Agostinelli by representatives of Beacon.
Later that same day, Mr. Winters reported to Beacon that Trace would be prepared
to make an offer of $18.75 per Public Share and would be prepared to agree to
certain of the Special Committee's requests with respect to the open Merger
Agreement issues, including circumstances under which the termination fee would
be payable. Mr. Winters also reported that Trace's willingness to pay the
increased consideration took into account the expectation that the Stockholder
Litigation would be resolved satisfactorily.
Further discussions were held between Cleary, Gottlieb and Willkie Farr
regarding the Merger Agreement on June 23, 1998.
At a June 24, 1998 meeting of the Special Committee, attended by
representatives of Beacon and Cleary, Gottlieb, the potential offer of $18.75
per Public Share was discussed. Representatives of Beacon indicated that based
on the negotiations to date and certain other factors, they believed it was
unlikely that Trace would agree to pay more than $18.75 per Public Share, and
that subject to the updating of certain of its analyses, Beacon explained that
it would be prepared to deliver an opinion to the effect that an offer of $18.75
per Public Share was fair to the Public Stockholders from a financial point of
view. Following the meeting, at the request of the Special Committee, a
representative of Cleary, Gottlieb advised Willkie Farr that, subject to the
resolution of the other aspects of the Merger Agreement, the Special Committee
planned to hold a meeting the next day to consider recommending adoption of the
Merger Agreement and the Merger based on Mr. Winters' last proposal, but that
given Trace's position that consummation of the Merger would not be conditioned
on delivery of a Solvency Opinion, the Special Committee would not address
issues relating to the solvency of the Surviving Corporation and would condition
the effectiveness of any recommendation of the Special Committee on the Board of
Directors making the Solvency Determination.
On June 24, 1998, representatives of Cleary, Gottlieb and Willkie Farr
conducted further negotiations with respect to, and resolved, the remaining open
Merger Agreement issues.
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On June 25, 1998, the Special Committee held a meeting attended by
representatives of Beacon and Cleary, Gottlieb. Beacon presented its analyses
which were updated to take into account the latest proposal made by Trace and
the completion of its financial due diligence investigation of the Company.
Beacon then rendered its written opinion to the effect that a price of $18.75
per Public Share to be received by the Public Stockholders in the proposed
Merger was fair to the Public Stockholders from a financial point of view. See
"--Opinion of Financial Advisor to the Special Committee." Cleary, Gottlieb
reviewed the principal terms and conditions of the proposed Merger Agreement and
reported to the Special Committee that a tentative settlement of the Stockholder
Litigation had been reached on the assumption that the Merger Agreement would
provide for the payment of $18.75 per Public Share. After a full discussion, the
Special Committee unanimously determined that the Merger as set forth in the
Merger Agreement is fair to the Public Stockholders, and unanimously resolved to
recommend that the Board of Directors approve the Merger Agreement and the
Merger; however, such determination and recommendation was made subject to and
was conditioned upon the Solvency Determination being made by the Board of
Directors.
At a meeting of the Board of Directors held later in the afternoon of
June 25, a representative of Beacon presented a summary of Beacon's analyses,
and a representative of Cleary, Gottlieb reviewed the principal terms and
conditions of the proposed Merger Agreement. Mr. Gutfreund then presented the
determination and recommendation of the Special Committee. Presentations
followed by Mr. Farace, regarding the recent financial and operating performance
of the Company, and Mr. Cogan, regarding the Merger and the projected financial
position of the Surviving Corporation following consummation of the Merger.
After a full discussion, those members of the Board of Directors present at the
meeting (Mr. Davignon being absent), including the members of the Special
Committee, unanimously made the requisite Solvency Determination, and the
determination and recommendation of the Special Committee with respect to the
Merger and the Merger Agreement thereby became effective. Following further
discussion, those members of the Board of Directors present at the meeting
unanimously determined that the Merger was fair to, and in the best interests
of, the Company and the Public Stockholders, and adopted resolutions to approve
the Merger and approve and adopt the Merger Agreement and to recommend that the
holders of Common Stock vote to approve the Merger and approve and adopt the
Merger Agreement. The Merger Agreement was then executed and delivered by
authorized representatives of the Company, Trace and Merger Sub.
Later on June 25, 1998, following the close of trading of the Common
Stock on Nasdaq, the Company and Trace issued separate press releases disclosing
that the Company and Trace had executed the definitive Merger Agreement pursuant
to which Trace would acquire all the Public Shares at price of $18.75 per Public
Share in cash.
Purpose and Structure of the Merger
Trace's purpose for the Merger is to acquire all the equity interests
of the Company represented by the Public Shares for the reasons described below.
Trace has advised the Company that, in connection with its proposal of the
Merger, Trace did not consider any alternatives that would have allowed the
Public Stockholders to maintain an equity interest in the Company. In the
Merger, each Public Share will be converted into the right to receive an amount
in cash equal to the Merger Consideration, without interest. In determining to
acquire the Public Shares at this time, Trace focused on a number of factors,
including that the transaction would (i) create a deeper, more diverse
management group with a more efficient capital structure; (ii) provide for a
simpler management reporting process; (iii) allow Trace to capture all of the
Company's earnings and cash flow; (iv) reduce public equity compliance costs and
(v) yield potential overhead savings.
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The Company's purpose for the Merger is to provide to the Company's
Public Stockholders the opportunity to sell all of their Common Stock at a price
which represents a substantial premium over trading prices in effect immediately
prior to the announcement of the Merger.
The acquisition of the Public Shares has been structured as a cash
merger in order to provide a prompt and orderly transfer to Trace of ownership
of the equity interests represented by the Public Shares and in order to
facilitate financing of the Merger and the transactions contemplated thereby.
The structure of the Merger also (i) ensures the acquisition by Trace and its
affiliates of all the outstanding Public Shares and (ii) provides a cash payment
at a premium price to all holders of outstanding Public Shares.
Following the Merger, it is anticipated that the Common Stock will be
delisted from Nasdaq and the registration of such securities under the Exchange
Act will be terminated, thereby allowing the Company to eliminate certain
overhead costs (including the time devoted by its employees and the fees and
expenses of various professional advisors and service providers of the Company)
which relate exclusively to the Company being a public company. See "--Plans for
the Company after the Merger" and "--Certain Effects of the Merger."
Recommendation of the Special Committee; Fairness of the Merger
At a meeting duly called and held on June 25, 1998, the Special
Committee unanimously determined that the Merger as set forth in the Merger
Agreement is fair to the Public Stockholders and recommended that the Board of
Directors approve the Merger Agreement and the Merger. In reporting to the Board
of Directors, however, the Special Committee noted specifically that in its
consideration of the Merger Agreement and the Merger, the Special Committee and
the opinion of the Special Financial Advisor did not address certain issues
related to the solvency and financial viability of the Surviving Corporation
following the consummation of the transactions contemplated by the Merger
Agreement (including any related financing transactions). See "--Background of
the Merger." Accordingly, the determination and recommendation of the Special
Committee with respect to the Merger and the Merger Agreement was made by the
Special Committee subject to and was conditioned on the Solvency Determination
being made by the Board of Directors.
At the meeting of the Board of Directors held on June 25, 1998,
presentations were made by Andrea Farace, the Chairman and Chief Executive
Officer of the Company, regarding the recent financial and operating performance
of the Company, and Marshall S. Cogan, the Chairman and Chief Executive Officer
of Trace, regarding the Merger and the projected financial position of the
Surviving Corporation after consummation of the Merger. Following such
presentations, the Board of Directors, including the members of the Special
Committee, made the Solvency Determination, and as a result, the determination
and recommendation of the Special Committee with respect to the Merger and the
Merger Agreement became effective. See "--Background of the Merger."
In making its determination and in recommending that the Board of
Directors approve the Merger Agreement and the Merger, the Special Committee
considered the following material factors:
(i) The Special Committee considered the historical results of
operations of the Company for the period from January 1, 1993 through
April 30, 1998 (including pro forma results for the Crain Acquisition
for fiscal 1997 and the first quarter of 1998). In considering these
results, the Special Committee placed particular emphasis on the
volatility of the
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Company's results of operations over such period, the
decline in annual operating earnings as compared to those of the
previous year experienced in each of 1995 and 1997, and the Company's
failure to meet the net income expectations of securities analysts
during the past several years. The Special Committee concluded that
these factors supported a recommendation that the Board of Directors
approve the Merger Agreement and the Merger.
(ii) The Special Committee noted that the five-year forecast with
respect to the Company's operating and financial performance delivered
to the Special Committee and its financial advisor by management of the
Company, the opportunities and potential synergies presented by the
Crain Acquisition, and the recent restructuring of the Company's
business units may have supported a higher value per Public Share than
that offered by Trace and therefore may have been a negative factor in
connection with its consideration of the Merger Agreement and the
Merger. The Special Committee, however, considered the Company's
prospects in light of the execution risks involved in the integration
of the businesses acquired in the Crain Acquisition with the existing
businesses of the Company and the Company's substantial
under-performance relative to the budgets and forecasts prepared by
management (although the Special Committee noted that there had been
subsequent changes in management as discussed in paragraph (viii)
below) in two of the three preceding fiscal years. In particular, with
respect to forecasts, the Special Committee noted that (i) Net Sales
were 9.8% and 8.0% below the amount forecasted by management in fiscal
1995 and 1997, respectively, (ii) the Company's Gross Profit was 52.7%,
1.3% and 78.6% below the amount forecasted by management in fiscal
1995, 1996 and 1997, respectively, (iii) EBITDA was 109.1%, 0.8% and
38.2% below the amount forecasted by management in fiscal 1995, 1996
and 1997, respectively, and (iv) EBIT was 195.1%, 0.7% and 46.7% below
the amount forecasted by management in each of fiscal 1995, 1996 and
1997, respectively. As a result, the Special Committee concluded, after
balancing the potential opportunities and risks faced by the Company as
well as the Company's past performance relative to its forecasts, that
the Company's prospects supported a recommendation that the Board of
Directors approve the Merger Agreement and the Merger.
(iii) The opinion of Beacon (attached as Appendix B hereto), the
financial advisor to the Special Committee, to the effect that, as of
the date of such opinion, a price of $18.75 per Public Share was fair
to the Public Stockholders from a financial point of view, and certain
financial analyses which Beacon presented to the Special Committee,
supported a recommendation that the Board of Directors approve the
Merger Agreement and the Merger. See "--Opinion of Financial Advisor to
the Special Committee" for a detailed description of certain of the
analyses performed by Beacon, as well as a description of the opinion
and the terms of Beacon's engagement.
(iv) The Special Committee considered the fact that, in the letter to
the Board of Directors making its initial offer to purchase the Public
Shares on March 16, 1998, Trace expressly stated its unwillingness to
sell the Trace Shares to a third party, thereby effectively precluding
a sale of control of the Company. In the judgment of the Special
Committee and Beacon, it was highly unlikely that any third party would
offer to purchase all of the Public Shares at a price comparable to, or
in excess of, the Merger Consideration or attempt to enter into any
other alternative transaction with the Company or the Public
Stockholders, so long as Trace and its affiliates continued to hold an
effective control stake
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in the Company. The Special Committee concluded that this factor
supported a recommendation that the Board of Directors approve the
Merger Agreement and the Merger.
(v) The Special Committee considered the fact that since Trace's offer
was first made on March 16, 1998, no third party approached the Special
Committee or its advisors with respect to a potential acquisition of
the Company or the Public Shares. The Special Committee concluded that
this factor supported a recommendation that the Board of Directors
approve the Merger Agreement and the Merger.
(vi) The Special Committee considered the fact that Trace's exploration
of a possible sale of the Trace Shares in 1995 did not result in any
transaction. The Special Committee concluded that this factor supported
a recommendation that the Board of Directors approve the Merger
Agreement and the Merger.
(vii) The Special Committee considered the trading history of the
Common Stock since the Company's initial public offering in December
1993, with particular emphasis on (a) the fact that the Merger
Consideration represents a 35.1% premium over the closing price of the
Common Stock on Nasdaq on March 13, 1998, the last trading day prior to
Trace's initial offer, and a 37.9% premium over the average closing
price of the Common Stock on Nasdaq over the thirty trading day period
ending on March 13, 1998, (b) the high volatility of the market price
for the Common Stock since the Company's initial public offering, (c)
the Common Stock's consistent under-performance relative to the stock
market as a whole as well as certain indices composed of companies
deemed comparable to the Company by Beacon, (d) the relatively low
trading volume in the Common Stock, and (e) the possibility that the
price of the Common Stock was adversely affected by Trace's ownership
of the Trace Shares. The Special Committee concluded that these factors
supported a recommendation that the Board of Directors approve the
Merger Agreement and the Merger.
(viii) The Special Committee considered the recent turnover in the
senior management of the Company, including the appointment of a new
Chairman and Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer during the past year, and the lack of foam industry
experience of certain new senior managers, including the Chairman and
Chief Executive Officer, in light of the near-term and strategic
challenges facing the Company, including the integration process in
connection with the Crain Acquisition and the Company's recent
restructuring of its business units. The Special Committee concluded
that these factors supported a recommendation that the Board of
Directors approve the Merger Agreement and the Merger.
(ix) The Special Committee considered the history of negotiations
between Trace and the Special Committee with respect to the Merger and
the Merger Agreement that, among other things, resulted in an increase
in Trace's offer from $17.00 to $18.75 per Public Share. The Special
Committee concluded, based on such negotiations, that Trace would not
pay more than $18.75 per Public Share, which in the Special Committee's
judgment supported a recommendation that the Board of Directors approve
the Merger
Agreement and the Merger. See "--Background of the Merger."
(x) The Special Committee considered the terms of the Merger Agreement
(in addition to the amount of Merger Consideration), and on balance,
the Special Committee
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concluded that the terms of the Merger Agreement (other than the Merger
Consideration), on their own, did not support a recommendation that the
Board of Directors approve the Merger Agreement and the Merger. The
Special Committee noted that while certain of such terms of the Merger
Agreement had been improved during the course of the negotiation
process, there were certain other significant terms that it
unsuccessfully sought to change in the Merger Agreement. For instance,
as discussed in more detail below, the Special Committee unsuccessfully
sought to eliminate the termination fee and sought to include as a
condition to consummation of the Merger that the Merger be approved by
the affirmative vote of holders of a majority of the Public Shares.
However, the Special Committee concluded, based on the negotiations,
that Trace was not willing to change those terms and, therefore, that
in the absence of those terms the Public Stockholders would not be able
to receive the Merger Consideration of $18.75 per Public Share in cash.
(xi) The Special Committee considered the historical cyclicality of the
automotive and home furnishings sectors, the two primary markets for
the Company's products, and the effect such cyclicality might have on
the Public Stockholders in the future in the absence of the Merger.
Given the mitigating factor that a high percentage of the Company's
costs are variable costs and the fact that the Special Committee could
not predict the timing or extent of future business cycles, the Special
Committee concluded that, on balance, this was a substantially neutral
factor with respect to its consideration of the Merger Agreement and
the Merger.
(xii) The Special Committee considered the highly competitive nature of
the foam market and the inelastic nature of demand for the Company's
products, in light of recent pricing pressure exerted by customers in
the automotive sector. The Special Committee concluded that this factor
supported a recommendation that the Board of Directors approve the
Merger Agreement and the Merger.
(xiii) The Special Committee considered the fact that the Company is
highly-leveraged, with particular emphasis on the resulting limitations
on the financial and operating flexibility of the Company and the
resulting risks to the holders of Public Shares in the event of a
decrease in the Company's cash flows. The Special Committee concluded
that this factor supported a recommendation that the Board of Directors
approve the Merger Agreement and the Merger.
(xiv) The Special Committee concluded that the Company's history of
acquisitions and divestitures and the resulting complex corporate
structure and potential contingent liabilities supported a
recommendation that the Board of Directors approve the Merger Agreement
and the Merger.
(xv) The Special Committee considered the fees paid by the Company to
Trace and its affiliates under inter-company service agreements and
other arrangements. The Special Committee noted on the one hand that
the provision of these services by Trace created certain efficiencies
for the Company and on the other hand that it was likely that the
Company could have obtained certain of these services at fees less
expensive than those paid to Trace. The Special Committee concluded
that, on balance, this was a substantially neutral factor with respect
to its consideration of the Merger Agreement and the Merger.
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(xvi) The Special Committee considered the uncertainty regarding the
prices of key raw materials used in the manufacture of the Company's
products. Given recent supply/demand dynamics which appear to favor
chemical consumers, the Special Committee concluded that, on balance,
this was a substantially neutral factor with respect to its
consideration of the Merger Agreement and the Merger.
(xvii) The Special Committee considered the fact that following
negotiations between plaintiffs' counsel and Trace a tentative
settlement was reached with respect to the Stockholder Litigation on
the assumption that the Merger Agreement would provide for the payment
of $18.75 per Public Share. The Special Committee concluded that this
factor supported a recommendation that the Board of Directors
approve the Merger Agreement and the Merger.
(xviii) As discussed more fully below, the Special Committee considered
the fact that Trace's obligation to consummate the Merger is contingent
on its ability to obtain adequate financing. The Special Committee
concluded that, on balance, the related financing risk was a negative
factor with respect to its consideration of the Merger Agreement and
the Merger.
(xix) The Special Committee considered several recent events impacting
the Company's business, including the fire at the Company's Orlando,
Florida facility and the General Motors Corporation strike which was
ongoing at the time the Special Committee made its determination. As
certain of these events would result in opportunities for the Company
and others would result in decreased sales and/or increased costs, the
Special Committee concluded that, on balance, this was a substantially
neutral factor with respect to its consideration of the Merger
Agreement and the Merger.
In view of the circumstances and the wide variety of factors considered
in connection with its evaluation of the Merger and the Merger Agreement, the
Special Committee did not find it practicable to quantify or assign relative
weights to the factors considered in its assessment of the Merger and the Merger
Agreement, and accordingly, the Special Committee did not do so.
As mentioned above, the Special Committee considered as an important
element of its assessment of the Merger and the Merger Agreement, among the
other factors described in this section, the analyses and opinion of its
financial advisor as to the fairness of the Merger Consideration. See "--Opinion
of Financial Advisor to the Special Committee." The Special Committee placed
emphasis on the analyses performed by Beacon with respect to the Company's
results of operations for the twelve months ended March 31, 1998 computed on a
pro forma basis to include the businesses acquired in the Crain Acquisition. The
Special Committee noted the fact that the Merger Consideration exceeds the upper
limit of each valuation range computed by Beacon based on such pro forma
results. In evaluating the analyses performed by Beacon based on the forecasts
provided by management, the Special Committee noted that, depending on the
analysis performed, the Merger Consideration was either within, above or below
the valuation range. In particular, the Special Committee noted that the Merger
Consideration was above the valuation range based on management forecasts in the
following cases: (i) the application of multiples for certain publicly-traded
automotive interior components companies selected by Beacon for comparison
(defined below as the "Automotive Comparable Companies") to forecasted 1998
EBITDA, and (ii) Beacon's leveraged buyout analysis. The Special Committee noted
that the Merger Consideration was within the valuation range based on management
forecasts in the following cases: (i) the
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application of multiples for certain publicly traded home furnishings companies
selected by Beacon for comparison (defined below as the "Home Furnishings
Comparable Companies") to forecasted 1998 EBITDA, (ii) the application of
multiples for certain merger and acquisition transactions involving companies in
the home furnishings industry selected by Beacon for comparison (defined below
as the "Home Furnishings Comparable Transactions") to forecasted 1998 EBITDA,
(iii) the application of multiples for such Home Furnishings Comparable
Transactions to forecasted 1998 EBIT, (iv) Beacon's future equity value
methodology and (v) Beacon's discounted cash flow analysis. The Special
Committee noted that the Merger Consideration was below the valuation range
based on management forecasts in the following cases: (i) the application of
multiples for the Automotive Comparable Companies to forecasted 1998 EBIT, (ii)
the application of multiples for the Home Furnishings Comparable Companies to
forecasted 1998 EBIT, (iii) the application of multiples for the Automotive
Comparable Companies to forecasted 1998 Net Income, (iv) the application of
multiples for the Home Furnishings Comparable Companies to forecasted 1998 Net
Income, (v) the application of multiples for the Automotive Comparable Companies
to forecasted 1998 Net Income, including an average premium for going private
transactions, (vi) the application of multiples for the Home Furnishings
Comparable Companies to forecasted 1998 Net Income, including an average premium
for going private transactions, (vii) the application of multiples for the
Automotive Comparable Companies to forecasted 1999 Net Income, (viii) the
application of multiples for Home Furnishings Comparable Companies to forecasted
1999 Net Income, (ix) the application of multiples for Automotive Comparable
Companies to forecasted 1999 Net Income, including an average premium for going
private transactions, (x) the application of multiples for Home Furnishings
Comparable Companies to forecasted 1999 Net Income, including an average premium
for going private transactions, and (xi) the application of multiples for
certain merger and acquisition transactions involving companies in the
automotive interior components industry (defined below as the "Automotive
Comparable Transactions") to 1998 forecasted EBITDA and to 1998 forecasted EBIT.
In considering these various analyses, including those analyses which
led to valuation ranges above the Merger Consideration, the Special Committee
noted that fairness analysis is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analysis, the application of those methods to particular circumstances and the
synthesis of those methods into a conclusion concerning fairness. The Special
Committee noted that Beacon, its independent financial advisor, had concluded
based on its complete analysis, as to which the foregoing analyses were only
part, that the Merger Consideration is fair to the Public Stockholders from a
financial point of view. In addition, the Special Committee noted that all the
primary analyses performed by Beacon that resulted in valuation ranges above the
Merger Consideration were based on management forecasts. The Special Committee
evaluated such analyses in light of all other analyses presented by Beacon as
well as a variety of other factors including the execution risks involved in the
integration of the businesses acquired in the Crain Acquisition with the
existing businesses of the Company, the Company's substantial underperformance
relative to the budgets and forecasts prepared by management in two of the three
preceding fiscal years, and the recent turnover in senior management of the
Company. Based on these considerations taken together, the Special Committee
concluded that the Merger is fair to the Public Stockholders from a financial
point of view. See "--Background of the Merger."
As noted above, in its assessment of the Merger Agreement and the
Merger, the Special Committee considered the terms and conditions set forth in
the Merger Agreement (in addition to
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the amount of Merger Consideration provided for in the Merger Agreement). The
Special Committee noted that the extensive negotiation by the Special Committee
and its advisors with Trace and its advisors resulted in substantial changes to
the Merger Agreement originally proposed by Trace, and the Special Committee
believed, following such negotiations, that Trace was unwilling to make further
material changes in the Merger Agreement. See "--Background of the Merger."
Changes to the Merger Agreement resulting from the negotiations include
elimination of certain representations and warranties of the Company and the
elimination of certain conditions to Trace's obligation to consummate the
Merger. Among other things, in evaluating the terms and conditions of the Merger
Agreement (other than the amount of the Merger Consideration), the Special
Committee considered the advice of its financial and legal advisors that the
termination fee provision set forth in the Merger Agreement is not a typical
provision in transactions whereby a controlling shareholder agrees to acquire
the publicly-held shares of a company, and that such provision may result in a
substantial payment to Trace under certain circumstances if the Merger is not
completed. See "The Merger Agreement." As a result, the Special Committee
considered the termination fee a negative factor in connection with its analysis
of the Merger Agreement and the Merger. However, there were certain factors that
reduced the significance of the termination fee in the Special Committee's
analysis. In considering the potential effect of the termination fee, the
Special Committee noted that Trace had expressly stated its unwillingness to
sell the Trace Shares and that no third party had expressed interest in an
acquisition of the Company or the Public Shares since Trace made its initial
offer to acquire the Public Shares through a merger on March 16, 1998. As a
result, the Special Committee considered it highly unlikely that any third party
would make an offer to purchase the Public Shares or participate in any other
alternative transaction with the Company or the Public Stockholders following
execution of the Merger Agreement, regardless of whether the Merger Agreement
included a termination fee. The Special Committee also took into account the
fact that representatives of Trace had stated that a termination fee was a
condition of Trace's willingness to proceed with the Merger, and therefore the
Public Stockholders would have been denied the opportunity to receive the Merger
Consideration if the Special Committee refused to agree to include a termination
fee in the Merger Agreement. The Special Committee also considered the fact that
as a result of the negotiation process, the amount of such fee was reduced from
$45 million to $30 million (although such reduced amount was still a higher
percentage of the aggregate acquisition price than the Special Committee
believes is customary in acquisitions generally) and the circumstances under
which such fee would be paid were limited to circumstances under which it is
likely that the Public Stockholders would be participating in a sale of their
Public Shares to a third party as part of an acquisition at a price in excess of
the Merger Consideration. See "The Merger Agreement" and "--Background of the
Merger."
In evaluating the terms and conditions of the Merger Agreement (other
than the amount of the Merger Consideration), the Special Committee also
considered the fact that, under the terms of the Merger Agreement, adoption of
the Merger Agreement and approval of the Merger do not require an affirmative
vote of holders of a majority of the Public Shares, and that such adoption and
approval require only the affirmative vote of a majority of all the outstanding
shares of Common Stock. In the course of its negotiations with Trace, the
Special Committee unsuccessfully sought to include, as a condition to
consummation of the Merger, a requirement that the Merger Agreement and Merger
be approved by the affirmative vote of holders of a majority of the Public
Shares. The Special Committee concluded that the absence of such requirement was
a negative factor in connection with its consideration of the Merger Agreement
and the Merger. In that regard, the Special Committee noted that, as of June 25,
1998, the Trace Stockholders beneficially owned, in the aggregate, approximately
45.8% of the outstanding shares of Common Stock and have agreed
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pursuant to the Merger Agreement to vote in favor of adoption of the Merger
Agreement and approval of the Merger, and the directors and officers of Parent
and the Company beneficially owned, in the aggregate, approximately 2.2% of the
outstanding shares of Common Stock and, to the knowledge of the Company, each
such director and officer intends to vote his or her shares in favor of adoption
of the Merger Agreement and approval of the Merger. As a result, the Merger
Agreement presumably will be adopted and the Merger approved at the Special
Meeting even if holders of only approximately 4% of the Public Shares (other
than the officers and directors referred to above) vote in favor of such
adoption and approval. Nevertheless, the Special Committee believed that, with
the assistance of its financial and legal advisors, it adequately represented
the interests of the Public Stockholders and did not believe it was necessary to
appoint an unaffiliated representative to act on behalf of the Public
Stockholders in negotiating the terms of the Merger Agreement. Similarly, in
view of the engagement of Beacon by the Special Committee, the Special Committee
did not believe it was necessary to appoint any other unaffiliated
representative to prepare a report regarding the fairness of the Merger
Agreement and the Merger. In making these determinations, the Special Committee
considered the extensive due diligence and negotiations conducted over three
months by the Special Committee and its advisors that led to an increase in
Trace's offer from $17.00 to $18.75 per Public Share. In addition, neither
member of the Special Committee is employed or affiliated with the Company or
Trace except as a director of the Company, and the Special Committee was advised
and assisted by reputable, independent legal and financial advisors with whom
the Special Committee consulted frequently and who played an active role in the
consideration and negotiation of the Merger and the Merger Agreement by the
Special Committee. See "--Background of the Merger."
As noted above, the Special Committee considered the fact that Trace's
obligation to consummate the Merger is contingent on Trace's ability to obtain
adequate financing. In that regard, the Special Committee considered the fact
that the Commitment Letter is subject to certain conditions (including
satisfactory completion of due diligence and no material adverse change in the
condition of the Company) and was scheduled to expire as of August 15, 1998
(Trace has subsequently obtained a new Commitment Letter scheduled to expire on
October 15, 1998) and considered that the Highly Confident Letter is based on a
number of assumptions (including that the Merger will be consummated on the
terms originally proposed by Trace on March 16, 1998 and that favorable market
conditions will exist at the time of the Merger) and is subject to certain
conditions (including satisfactory completion of due diligence and no material
adverse change in the condition of the Company). The Special Committee also
considered the fact that as set forth in the Merger Agreement consummation of
the Merger is conditioned on the ability of Trace to obtain adequate financing,
and therefore consummation of the Merger is subject to the risk that such
financing will not be obtained. However, the Special Committee considered
several factors that tend to mitigate the financing risk to an extent. The
Special Committee's financial and legal advisors met with representatives of
Trace (including Mr. Cogan), the Company, ScotiaBank, DLJ and SCM at which
meetings the representatives of each institution (including Mr. Cogan) indicated
that such institution was confident that the financing will be completed as
contemplated by the Commitment Letter and the Highly Confident Letter, and
following negotiation of a price of $18.75 per Public Share to be paid in
connection with the Merger, representatives of Trace subsequently reiterated
their confidence that the financing will be completed as proposed. The members
of the Special Committee and its legal and financial advisors also met with
financial officers of Trace and Trace's counsel to discuss the structure and
feasibility of such financing. See "--Background of the Merger." In addition,
the members of the Special Committee and their independent financial advisor
believe DLJ, ScotiaBank and SCM to be reputable financial institutions. Further,
the Special Committee took into account the fact that the Merger Agreement
obligates Trace to use its reasonable best efforts to obtain adequate financing
to complete the Merger, so long as such financing is on terms and conditions and
in amounts not
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materially less favorable to Trace than those set forth in the Commitment Letter
and the Highly Confident Letter. See "The Merger Agreement."
As described above, the Special Committee concluded that Trace's stated
unwillingness to sell the Trace Shares to a third party effectively precluded a
sale of control of the Company and made it highly unlikely that any third party
would offer to purchase all of the Public Shares at a price comparable to the
Merger Consideration. In that regard the Special Committee considered the
statement made by a representative of Trace at one point during the course of
the negotiations to the effect that if the Special Committee believed the
Company was worth significantly in excess of $20.00 per share of Common Stock,
Trace may have been willing to suspend the negotiation process for two weeks in
order to allow the Special Committee , acting through Beacon, to attempt to
locate a buyer willing to pay that price for all outstanding shares of Common
Stock. See "--Background of the Merger." After consultation with its advisors,
the Special Committee rejected the proposal because in the judgment of the
Special Committee two weeks was too short a period to locate and negotiate with
potential buyers and because Trace indicated to the Special Committee that
although it would suspend negotiations with respect to the Proposed Transaction
it was unwilling to commit in advance to a sale of the Trace Shares, and as a
result, in the judgment of the Special Committee, potential buyers would be
unwilling to incur the expense necessary to make a bona fide offer to purchase
the Common Stock.
The Special Committee took into consideration the fact that the Public
Stockholders will not have the opportunity to participate in any future growth
of the Company following consummation of the Merger, including any future growth
resulting from the effects of the Crain Acquisition. The Special Committee
noted, however, that because the Merger Consideration is to be paid in cash,
following consummation of the Merger, the Public Stockholders will no longer be
exposed to the risk that equity securities of the Surviving Corporation may
decline in value.
The Special Committee also was aware that the Trace Stockholders will
be entitled to benefit from any increase in the value of the Company following
the Merger by virtue of their equity interest in the Surviving Corporation and
that certain representatives of Trace and certain members of the Company's
management and Board of Directors will receive cash payments for the
cancellation of stock options and the conversion of shares of Common Stock in
connection with the Merger. See "--Interests of Certain Persons in the Merger."
The Special Committee noted that in addition to Trace Shares held through
Parent, Mr. Cogan personally beneficially owns 400,000 shares of Common Stock
and options to purchase 500,000 shares of Common Stock, in respect of which he
will personally be entitled to receive (after deducting the exercise price in
respect of the options) $12,711,460 in the event the Merger is consummated. As a
result of such interest in the Merger, the Special Committee recognized that
such persons have existing or potential conflicts of interest with respect to
the Merger. Accordingly, the Special Committee considered such conflicts in
evaluating information received from such persons in connection with the Special
Committee's analysis of the Merger and the Merger Agreement.
In the course of its analyses, the Special Committee did not place
substantial emphasis on the liquidation value of the Company or the net book
value of the Company (which was $(109,993) at March 29, 1998) because it
believed that those measures of net asset value had limited relevance in the
determination of the value of a going concern such as the Company, and because
there was no intention to liquidate or break up the Company. The Special
Committee focused on the going concern value of the Company as reflected in,
among other things, the analyses presented by Beacon.
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The Special Committee was created by resolution of the Board of
Directors on March 16, 1998 for the sole purpose of determining the fairness and
advisability of the Merger to the Public Stockholders. Pursuant to such
resolution, the members of the Special Committee are entitled to a fee from the
Company of $20,000 per month for serving on the Special Committee. Robert J.
Hay, one of the two members of the Special Committee, beneficially owns 9,944
shares of Common Stock which will be exchanged for the Merger Consideration if
the Merger is consummated.
Recommendation of the Board of Directors
On June 25, 1998, by unanimous vote of all directors present and voting
(Mr. Davignon was absent from the meeting), the Company's Board of Directors (i)
determined that the Merger and the transactions contemplated by the Merger
Agreement are fair, equitable and in the best interests of the Company and the
Public Stockholders, (ii) approved and adopted the Merger Agreement and (iii)
recommended that the Public Stockholders vote in favor of the Merger. Each
director of the Company who is not otherwise an employee or affiliate of the
Company or Trace and who attended the July 25, 1998 meeting of the Board of
Directors -- Messrs. Gutfreund, Hay and Hershon -- voted in favor of the Merger
Agreement and the Merger. Mr. Davignon, who is not an employee of the Company or
Trace but is an affiliate of a Trace creditor, did not attend the July 25
meeting and did not vote and has not subsequently been requested to vote with
respect to the Merger Agreement and the Merger.
In reaching these conclusions, the Board of Directors noted that (i) it
appointed a Special Committee and directed such Special Committee, in part, to
determine the advisability and fairness to the Public Stockholders of the
Proposed Transaction, (ii) the Special Committee retained its own legal counsel
and financial advisor and negotiated an over ten percent increase in the price
to be paid by Trace per Public Share from $17.00 per share to $18.75 per share
and (iii) upon Trace agreeing to pay $18.75 per Public Share, Plaintiffs'
counsel agreed in principle to settle the Stockholder Litigation pursuant to a
written Memorandum of Understanding, dated June 25, 1998. Thus, the Board of
Directors based its conclusions listed above primarily (x) on the recommendation
and approval of the Special Committee (as discussed above) and (y) on the
opinion delivered by Beacon to the Special Committee that, as of such date and
based upon and subject to the matters set forth therein, the Merger
Consideration was fair from a financial point of view to the Public Stockholders
(as discussed below). In addition, in reaching these conclusions the Board of
Directors also considered the settlement of the Stockholder Litigation at $18.75
per Public Share and presentations by the Company's management and legal
counsel. The Board of Directors did not attach specific weights to such factors
in reaching its conclusions. In considering the recommendation of the Board of
Directors with respect to the Merger, the Public Stockholders should be aware
that certain officers and directors of the Company and Trace have interests in
the Merger which may present them with certain potential conflicts of interest
in connection with the Merger. See "--Interests of Certain Persons in the
Merger".
Opinion of Financial Advisor to the Special Committee
Beacon has acted as financial advisor to the Special Committee in
connection with the Merger. Beacon was selected by the Special Committee because
of its expertise and reputation of its senior professionals in the areas of
mergers and acquisitions, "going private" transactions and special committee
procedures, Beacon's proposed fee in connection with the assignment and the
commitment of senior personnel of the firm to work on the assignment. Beacon, as
part of its strategic advisory
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business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations for
estate, corporate or other purposes.
On June 25, 1998, Beacon delivered to the Special Committee an oral and
written opinion that, as of such date and based upon and subject to the matters
set forth therein, the Merger Consideration was fair from a financial point of
view to the Public Stockholders.
THE FULL TEXT OF THE BEACON OPINION, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY BEACON, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. PUBLIC STOCKHOLDERS ARE URGED TO READ THE
BEACON OPINION IN ITS ENTIRETY. THE BEACON OPINION IS DIRECTED TO THE SPECIAL
COMMITTEE AND RELATES ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A
FINANCIAL POINT OF VIEW TO THE PUBLIC STOCKHOLDERS AND DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER. THE SUMMARY OF THE BEACON OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF.
In arriving at its opinion, Beacon informed itself of aspects of the
Company's business, operations, financial condition, prospects and management
which it deemed appropriate and material. Beacon reviewed, among other things,
the Merger Agreement; the Prospectus issued by the Company in connection with
the initial public offering of its common stock in December 1993; Annual Reports
to shareholders and Annual Reports on Form 10-K of the Company for each of the
four fiscal years ended December 28, 1997; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q; various other communications
from the Company to its shareholders; and certain internal financial analyses
and financial forecasts for the Company prepared by its management, including
those relating to the Company's December 1997 acquisition of Crain, the
integration of Crain into the Company and the reorganization of the Company in
1998 following the acquisition of Crain. Beacon discussed the Company's business
and prospects with the Company's senior management and with others it deemed
appropriate, including senior management and other representatives of Trace.
Beacon also discussed with such individuals the relationship of the Company and
Trace, as well as inter-company transactions between the Company and Trace,
including certain transactions in connection with the financing of the Merger
pursuant to which it is anticipated that Trace would receive payments (in the
form of loans, fees and advances) of approximately $120 million, of which $60
million would be an advance against future payments under tax sharing
agreements. Beacon reviewed in outline form the proposed terms, conditions and
structure of the financing for the proposed purchase of the Public Shares and
had discussions with representatives of the principal sources of financing
concerning their confidence in completing that financing. In addition, Beacon
reviewed the reported price and trading activity for the Company's common stock;
compared financial and stock market information for the Company with similar
information for selected other companies whose securities are publicly traded
and which Beacon deemed to be comparable to the Company in certain material
respects; reviewed the financial terms of certain recent business combinations
in industries and markets in which the Company participates; and performed such
other studies and analyses as Beacon considered appropriate. Since Trace has
informed the Company that the Trace Shares were not for sale, Beacon, with the
approval of the Special Committee, did not contact third parties to ascertain
their interest in a combination with the Company or in making a proposal which
is competitive with the Merger.
Beacon assumed and relied without independent verification on the
accuracy and completeness of all of the financial and other information reviewed
by it for purposes of the opinion. With respect
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to the Projections (as hereinafter defined) furnished to Beacon by the Company,
Beacon assumed that they had been reasonably prepared on a basis which reflects
the best current estimates and judgments of the management of the Company as to
the future operating and financial performance of the Company and relevant
economic conditions. With respect to its analyses that utilized forecast 1998
financial results for the Company, Beacon used a range for earnings before
interest and tax ("EBIT"), earnings before interest, tax, depreciation and
amortization ("EBITDA") and Net Income based on the Projections provided by the
Company and guidance provided by management of the Company. The relevant ranges
of 1998 forecast financial results utilized by Beacon were: (i) for EBITDA, $180
million to $190.1 million; (ii) for EBIT, $145.2 million to $155.3 million; and
(iii) for Net Income, $44.0 million to $50.3 million (in each case, the "1998
Projection Range"). Beacon did not make an independent evaluation or appraisal
of the assets and liabilities of the Company or of any of its subsidiaries, and
Beacon has not been furnished with any such evaluation or appraisal. The Beacon
opinion does not constitute an opinion with respect to, and does not address,
the effect which consummation of the Merger or the financing thereof would have
on the solvency of the Company or any of its affiliates, including Trace.
In preparing its opinion, Beacon performed a variety of financial and
comparative analyses. The summary of Beacon's analyses set forth below does not
purport to be a complete description of the analyses underlying the Beacon
opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Beacon made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Beacon believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, could create a misleading or incomplete view of the processes
underlying such analyses and the Beacon opinion. In performing its analyses,
Beacon made numerous assumptions with respect to the Company, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the Company. No company,
transaction, or business used in such analyses as a comparison is identical to
the Company or the Merger, nor is an evaluation of the results of such analyses
entirely mathematical; rather, such analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading, or other values of the
companies, business segments, or transactions being analyzed. The estimates
contained in such analyses and the ranges resulting from any particular analysis
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
In connection with delivering its opinion, Beacon made a written and
oral presentation with respect to its analyses to the Special Committee and, at
the Special Committee's request, to the Board of Directors (A copy of the
written presentation has been filed as an exhibit to the Schedule 13E-3 filed
with the SEC and can be inspected and obtained from the SEC as set forth below
under "Available Information."). The following is a summary of the analyses
performed by Beacon in connection with the preparation of the Beacon opinion.
Comparative Stock Price Performance Analysis. Beacon reviewed the per
share daily closing prices of the Company's Common Stock over the period since
its public offering on December 7, 1993
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through June 24, 1998 compared with the performance of the Standard & Poor's
MidCap Industrials Index as well as indices comprised of stocks of publicly
traded automotive interior components companies and publicly traded home
furnishings companies deemed by Beacon to be similar to the Company in material
respects. These companies serve similar customers and markets as the Company, in
many instances sell products complementary to those of the Company and have
operating and financial characteristics similar to the comparable business
segment of the Company. Also, companies in these industries tend to experience
similar supply/demand dynamics and macroeconomic forces as the Company as a
result of serving similar markets and customers. The automotive interior
components companies reviewed by Beacon were Collins & Aikman Corporation,
Johnson Controls, Inc., Lear Corporation and Magna International Inc.
(collectively, the "Automotive Comparable Companies"); and the home furnishings
companies reviewed by Beacon were Armstrong World Industries Inc., Culp, Inc.,
Mohawk Industries, Inc. and Synthetic Industries, Inc. (collectively, the "Home
Furnishings Comparable Companies"). Beacon noted that since its initial public
offering the Company's stock has under-performed the Standard & Poor's MidCap
Industrials Index and the indices based on the Automotive Comparable Companies
and the Home Furnishings Comparable Companies.
Comparable Companies Analysis. To provide contextual data and
comparative market information, Beacon analyzed the operating performance of the
Company relative to the Automotive Comparable Companies and the Home Furnishings
Comparable Companies.
For the Automotive Comparable Companies, Beacon compared, among other
things, current stock prices as multiples of fiscal year 1998 and 1999 earnings
per share based on equity analyst research, and adjusted market values (equity
market value, plus total debt, preferred stock and minority interests, less cash
and cash equivalents) as multiples of latest twelve months reported EBIT and
EBITDA adjusted to exclude certain non-recurring items. Beacon determined that
the relevant ranges between the mean and median multiples for the Automotive
Comparable Companies were: (i) with respect to EBIT, 9.6x to 9.7x; (ii) with
respect to EBITDA, 6.5x; (iii) with respect to 1998 fiscal year estimated
earnings per share, 13.3x to 13.5x; and (iv) with respect to 1999 fiscal year
estimated earnings per share, 11.3x to 11.4x. Beacon then calculated imputed
enterprise and equity values of the Company by applying latest available
twelve-month EBIT and EBITDA multiples derived from its analysis of the
Automotive Comparable Companies to the Company's latest twelve month financial
results through March 29, 1998, pro forma effected for the inclusion of a full
year's results of Crain and exclusion of Dalton, a business sold by the Company
in 1997 ("LTM Results"). This analysis generated the following ranges of implied
equity value per share of Common Stock: (i) with respect to LTM Results for
EBIT, $5.21 to $5.65; and (ii) with respect to LTM Results for EBITDA, $2.65 to
$3.26. Beacon also applied the Automotive Comparable Companies' latest twelve
months EBIT and EBITDA multiples, as well as the 1998 fiscal year estimated
earnings per share multiple, to the Company's EBIT, EBITDA and earnings per
share based on the 1998 Projection Range. This analysis generated the following
ranges of implied equity value per share of Common Stock: (i) with respect to
projected 1998 EBIT, $23.10 to $27.28; (ii) with respect to projected 1998
EBITDA, $15.03 to $17.65; and (iii) with respect to 1998 estimated earnings per
share, $21.88 to $25.21. Beacon also applied the Automotive Comparable Companies
price as a multiple of 1999 estimated earnings per share to the estimated
earnings per share of the Company based on the Projections for 1999. This
analysis generated a range of implied equity value per share of Common Stock of
$24.17 to $24.41.
For the Home Furnishings Comparable Companies, Beacon compared, among
other things, current stock prices as multiples of fiscal year 1998 and 1999
earnings per share based on equity analyst research, and adjusted market values
(equity market value, plus total debt, preferred stock and minority interests,
less cash and cash equivalents) as multiples of latest twelve months reported
EBIT
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and EBITDA adjusted to exclude certain non-recurring items. Beacon determined
that the relevant ranges between the mean and median multiples for the Home
Furnishings Comparable Companies were: (i) with respect to EBIT, 9.6x to 10.0x;
(ii) with respect to EBITDA, 6.1x to 7.1x; (iii) with respect to 1998 fiscal
year estimated earnings per share, 12.0x to 12.2x; and (iv) with respect to 1999
fiscal year estimated earnings per share, 11.1x to 11.5x. Beacon then calculated
imputed enterprise and equity values of the Company by applying latest available
twelve-month EBIT and EBITDA multiples derived from its analysis of the Home
Furnishings Comparable Companies to the Company's LTM Results. This analysis
generated the following ranges of implied equity value per share of Common
Stock: (i) with respect to LTM Results for EBIT, $9.19 to $9.75; and (ii) with
respect to LTM Results for EBITDA, $8.52 to $8.67. Beacon also applied the Home
Furnishings Comparable Companies' latest twelve months EBIT and EBITDA
multiples, as well as the 1998 fiscal year estimated earnings per share
multiple, to the Company's EBIT, EBITDA and earnings per share based on the 1998
Projection Range. This analysis generated the following ranges of implied equity
value per share of the Common Stock: (i) with respect to projected 1998 EBIT,
$23.08 to $28.63; (ii) with respect to projected 1998 EBITDA, $16.66 to $21.44;
and (iii) with respect to 1998 estimated earnings per share, $19.80 to $22.85.
Beacon also applied the Home Furnishings Comparable Companies price as a
multiple of 1999 estimated earnings per share to the estimated earnings per
share of the Company based on the Projections for 1999. This analysis generated
a range of implied equity value per share of Common Stock of $23.90 to $24.68.
Beacon noted that the implied equity valuations per share of Common Stock were
less than the Merger Consideration for both the Automotive Comparable Companies
and the Home Furnishings Comparable Companies in all of Beacon's analyses using
the LTM Results. For analyses using the 1998 Projection Range or 1999 forecasted
earnings per share, the Merger Consideration was in the range of or below the
implied equity valuations per share of Common Stock. Beacon considered the
results of the Comparable Companies Analysis in light of the previously
described failure of the Company to meet budgets and the difficulty of
identifying companies which in all material respects are comparable to the
Company and determined that the Merger Consideration was in the range of
fairness based on this analysis.
Comparable Transactions Analysis. In conducting its analysis of the
Company, Beacon analyzed, among other things, the implied transaction multiples
paid in selected merger and acquisition transactions involving companies in the
automotive interior components and home furnishings industries.
For automotive interior components companies, these transactions
included: the acquisition of Bostrom Seating Inc. by Johnstown America
Industries, Inc., the acquisition of Automotive Industries by Lear Corporation,
the acquisition of Larizza Industries, Inc. by Collins & Aikman Corporation, the
acquisition of Masland Corporation by Lear Corporation, the acquisition of
Prince Automotive by Johnson Controls, Inc., the acquisition of the Company's
wholly-owned subsidiary JPS Automotive L.P. by Collins & Aikman Corporation, the
acquisition of Douglas & Lomason Company by Magna International Inc., the
acquisition of Keiper Car Seating Gmbh & Co. by Lear Corporation, the
acquisition of the Collins & Aikman Corporation's wholly-owned subsidiary JPS
Automotive L.P. by Safety Components International, Inc., the acquisition of
AlliedSignal Inc.'s Safety Restraint Systems Division by BREED Technologies,
Inc. and the acquisition of the Becker Group Limited by Johnson Controls, Inc.
(collectively, the "Automotive Comparable Transactions").
For home furnishings companies, these transactions included: the
acquisition of Horizon Industries, Inc. by Mohawk Industries, Inc., the
acquisition of General Felt Industries, Inc. by the Company, the acquisition of
Vintage Yarns, Inc. by Unifi, Inc., the acquisition of Great Western Foam
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Products Corporation by the Company, the acquisition of the Carpet Division of
Fieldcrest Cannon, Inc. by Mohawk Industries, Inc., the acquisition of the Hanes
Holding Company by Leggett & Platt, Incorporated, the acquisition of Perfect Fit
Industries, Inc. by the Company, the acquisition of Aladdin Mills, Inc. by
Mohawk Industries, Inc., the acquisition of the Raytex Division of Golding
Industries, Inc. by Cone Mills Corporation, the acquisition of Galaxy Carpet
Mills, Inc. by Mohawk Industries, Inc., the acquisition of England/Corsair, Inc.
by La-Z-Boy Chair Company, the acquisition of Syroco Inc. by Marley PLC, the
acquisition of Thomasville Furniture Industries, Inc. by INTERCO Incorporated,
the acquisition of Graniteville Company by Avondale Mills, Inc., the acquisition
of Masco Corporation's Home Furnishings Group by Furnishings International Inc.,
the acquisition of Collins & Aikman Corporation's Floorcoverings Division by an
investor group, the acquisition of the Mastercraft Group of Collins & Aikman
Corporation by Joan Fabrics Corporation, and the acquisition of Crain by the
Company (collectively, the "Home Furnishings Comparable Transactions").
Beacon compared transaction values in Automotive Comparable
Transactions as multiples of EBIT and EBITDA, adjusted to exclude certain
non-recurring items, of each acquired company or business for the latest
available twelve-month period immediately preceding the announcement of the
acquisition of such company or business. Beacon determined that the relevant
ranges between the mean and median multiples for the acquired companies and
businesses were: (i) with respect to EBIT, 11.0x to 11.5x; and (ii) with respect
to EBITDA, 7.5x to 7.9x. Beacon then calculated imputed enterprise and equity
values of the Company by applying the multiples derived from its analysis of the
Automotive Comparable Transactions to the Company's LTM Results. This analysis
generated ranges of implied equity value per share of Common Stock of: (i) with
respect to LTM Results for EBIT, $9.61 to $11.07; and (ii) with respect to LTM
Results for EBITDA, $7.56 to $9.05. Beacon also applied the multiples derived
from its analysis of the Automotive Comparable Transactions to the Company's
EBIT and EBITDA based on the 1998 Projection Range. This analysis generated
ranges of implied equity value per share of Common Stock of: (i) with respect to
projected 1998 EBIT, $30.64 to $36.93; and (ii) with respect to projected 1998
EBITDA, $21.90 to $26.71.
Beacon also compared transaction values in Home Furnishings Comparable
Transactions as multiples of EBIT and EBITDA, adjusted to exclude certain
non-recurring items, of each acquired company or business for the latest
available twelve-month period immediately preceding the announcement of the
acquisition of such company or business. Beacon determined that the relevant
ranges between the mean and median multiples for the acquired companies and
businesses were: (i) with respect to EBIT, 8.7x to 10.0x; and (ii) with respect
to EBITDA, 7.0x to 7.4x. Beacon then calculated imputed enterprise and equity
values of the Company by applying the multiples derived from its analysis of the
Home Furnishings Comparable Transactions to the Company's LTM Results. This
analysis generated ranges of implied equity value per share of Common Stock of:
(i) with respect to LTM Results for EBIT, $1.10 to $5.83; and (ii) with respect
to LTM Results for EBITDA, $4.64 to $6.68. Beacon also applied the multiples
derived from its analysis of the Home Furnishings Comparable Transactions to the
Company's EBIT and EBITDA based on the 1998 Projection Range. This analysis
generated ranges of implied equity value per share of Common Stock of: (i) with
respect to projected 1998 EBIT, $18.54 to $28.71; and (ii) with respect to
projected 1998 EBITDA, $18.24 to $23.41.
Beacon noted that the implied equity valuations per share of Common
Stock were less than the Merger Consideration for both the Automotive Comparable
Transactions and the Home Furnishings Comparable Transactions in all of Beacon's
analyses using the LTM Results. For analyses using the 1998 Projection Range,
the Merger Consideration was in the range of or below the implied equity
valuations per share of Common Stock. Beacon considered the results of the
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Comparable Transactions Analysis in light of the previously described failure of
the Company to meet budgets and the difficulty of identifying companies which in
all material respects are comparable to the Company and determined that the
Merger Consideration was in the range of fairness based on this analysis.
Discounted Cash Flow Analysis. Beacon performed a discounted cash flow
analysis for fiscal years 1998 through 2002 for the Company to estimate the
present value of the stand-alone, unlevered free cash flows of the Company based
upon the Projections. For purposes of this analysis, unlevered free cash flows
were defined as after-tax operating earnings plus depreciation and amortization
and other non-cash items, less projected capital expenditures and investment in
working capital. Beacon calculated terminal values by applying a range of
estimated EBITDA multiples of 6.5x to 7.5x to the projected EBITDA of the
Company in fiscal year 2002. The unlevered free cash flows and terminal values
were then discounted to the present using a range of discount rates of 10.0% to
12.0%, representing an estimated range of the weighted average cost of capital
of the Company. From the derived present value of the unlevered free cash flows,
Beacon then subtracted the value of the Company's net debt (defined as total
debt less cash at March 29, 1998) to obtain the implied equity value. Based on
this analysis, the Projections generated an implied equity value range of $17.28
to $25.88 per share of Common Stock.
Inherent in any discounted cash flow valuation are the use of a number
of assumptions, including the accuracy of projections, and the subjective
determination of an appropriate terminal value and discount rate to apply to the
projected cash flows of the entity under examination. Variations in any of these
assumptions or judgments could significantly alter the results of a discounted
cash flow analysis.
Leveraged Buyout Analysis. Based on the Projections, Beacon performed
analysis of the equity internal rates of return that could be achieved by a
third party leveraged buyout of the Company. Leveraged Buyout Analysis
determines a range of per share equity valuations that would yield the third
party investor an equity rate of return of between 25% and 30%, generally
considered to be the minimum rate of return acceptable to such investors. These
returns are calculated from a forecast of equity cash flows, including a
terminal value calculation based upon a range of multiples of EBITDA. Beacon
made a number of assumptions regarding the amount, terms and structure of
financing that would be available to third party equity investors. This analysis
generated an implied equity value range of $14.80 to $18.60 per share of Common
Stock.
Discounted Future Equity Value Analysis. Beacon also conducted an
evaluation of the future per share equity valuations resulting from applying a
range of EBIT and EBITDA multiples to the 1998 Projection Range and 1999 EBIT
and EBITDA as of the beginning of years 1999 and 2000, respectively, deducting
the estimated net debt of the Company at that time, and discounting the
resulting per share equity valuations to the present by applying a 14% discount
rate, which Beacon deemed to be representative of the Company's cost of equity
capital. This analysis generated an implied equity value range of $15.32 to
$24.50 per share of Common Stock.
Analysis of Premiums Paid. Beacon reviewed the acquisition premiums
paid in public transactions after January 1, 1994 ranging in total equity value
between $200 million and $1.5 billion in which the acquiror had previously owned
a significant, but not majority, stake in the company. The premiums paid were
measured based on the offer price, in case of stock consideration measured using
exchange rates applied to day prior to the announcement closing prices, and the
prices of the acquired company one week and one month prior to announcement.
This group consisted of 18 transactions, for
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which the mean and median premiums paid in the transaction as compared to one
week prior to the announcement of the transaction were 36.0% and 33.9%,
respectively, as compared to a premium of approximately 37.6% to be paid in the
Merger.
Beacon applied the mean premium to the stock price of the Company
resulting from applying the mean and median multiples of the Automotive
Comparable Companies based on 1998 and 1999 estimated earnings per share to the
Company's 1998 Projection Range and 1999 Projections. This analysis generated a
range of equity value per share of Common Stock of: (i) with respect to 1998
estimated earnings per share, $29.75 to $34.28; and (ii) with respect to 1999
estimated earnings per share, $32.87 to $33.19.
Beacon also applied the mean premium to the stock price of the Company
resulting from applying the mean and median multiples of the Home Furnishings
Comparable Companies based on 1998 and 1999 estimated earnings per share to the
Company's 1998 Projection Range and 1999 Projections. This analysis generated a
range of equity value per share of the Common Stock of: (i) with respect to 1998
estimated earnings per share, $26.93 to $31.07; and (ii) with respect to 1999
estimated earnings per share, $32.50 to $33.56. Beacon noted that the Merger
Consideration was less than the implied equity valuations per share of Common
Stock based on the Analysis of Premiums Paid.
Miscellaneous. Pursuant to a letter agreement dated April 6, 1998
between the Company and Beacon, the Company agreed to pay Beacon $750,000 upon
Beacon's rendering an opinion to the Special Committee, and additional
compensation in the event a transaction occurs in an amount equal to the sum of
(i) $250,000 and (ii) 5% of the consideration in excess of $17.75 per Public
Share received by the Public Stockholders in the Merger or in certain other
transactions should the Merger not be consummated. Based on the number of the
Company's shares, options and warrants reported as being outstanding in the
Company's Report on Form 10-Q for the quarter ended March 31, 1998, and assuming
consummation of the Merger at $18.75 per Public Share, Beacon would receive
total compensation pursuant to terms of the letter agreement of approximately
$1.84 million. The Company also agreed to reimburse Beacon for all reasonable
out-of-pocket expenses, including the reasonable fees and expenses of its legal
counsel and any other advisor retained by Beacon, resulting from or arising out
of the engagement. The Company further agreed to indemnify Beacon and certain
related persons and entities for certain losses, claims, damages or liabilities
(including actions or proceedings in respect thereof) related to or arising out
of, among other things, its engagement as financial advisor.
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Preliminary Valuation Analyses Performed By Beacon
In connection with its retention as the Special Committee's financial
advisor and throughout the period of its work for the Special Committee,
including during the negotiating process with Trace, Beacon advised the Special
Committee concerning the valuation methodologies that it was utilizing, the
information that it was gathering and developing and the progress it was making
in reaching an opinion as to fairness that properly reflected those
methodologies and that information. A summary of certain preliminary analyses of
Beacon follows. Beacon's definitive opinion concerning the fairness from a
financial point of view to the holders of the Public Shares of the Merger
Consideration is attached as Exhibit B and is based only on Beacon's final
analyses presented to the Special Committee on June 25, 1998.
On April 3, 1998, Beacon representatives presented to the Special
Committee preliminary valuation analyses of the Company in connection with its
overall presentation of how it would execute its assignment as the Special
Committee's advisor. Those preliminary analyses included only Beacon's initial
Comparable Companies Analysis, Comparable Transactions Analysis and Analysis of
Premiums Paid because at that time Beacon had conducted no due diligence
concerning the Company other than examining publicly available information. That
publicly available information included filings by the Company with the SEC and
equity research analysts' consensus earnings estimates for the Company. Beacon
did not, however, have the Company's forecasts, the 1998 Projection Range or
information required to construct the LTM Results, including the impact of the
Company's acquisitions, divestitures and restructuring programs on the LTM
Results. Consequently, the initial preliminary analyses did not include
Discounted Cash Flow Analysis, Leveraged Buyout Analysis or Discounted Future
Equity Value Analysis or reflect the LTM Results. Moreover, certain companies
used for the initial preliminary Comparable Companies Analysis were later
excluded because of Beacon's greater understanding of the Company after
conducting due diligence and its resulting determination that they were not
comparable to the Company. In addition, certain transactions described in the
Comparable Transactions Analysis segment under the heading "--Opinion of the
Financial Advisor to the Special Committee" were not included in the initial
preliminary Comparable Transactions Analysis because at that time Beacon had not
determined them to be comparable or information relating to those transactions
was not available.
On May 29, 1998, Beacon representatives delivered to the Special
Committee materials supporting Beacon's preliminary view that $17.00 per Public
Share was not fair to the Public Stockholders from a financial point of view.
These materials included Comparable Companies Analysis, Comparable Transactions
Analysis, Discounted Cash Flow Analysis, Leveraged Buyout Analysis, Discounted
Future Equity Analysis and Analysis of Premiums Paid. These analyses were based
on the Company forecasts available at that time, which did not include the 1998
Projection Range. Projected EBITDA for 1998 at that time was $190.1 million
compared to the 1998 Projection Range of $180 million to $190.1 million, and
projected EBIT at that time was $155.3 million compared to the 1998 Projection
Range of $145.2 million to $155.3 million. These analyses were based on
forecasted results for 1998 and, therefore, differed from the results of the
analyses described under the heading "--Opinion of the Financial Advisor to the
Special Committee," which reflected Beacon's assessment of the impact of the
1998 Projection Range on its views concerning value. In addition, for purposes
of the analyses presented on May 29, 1998, Beacon also analyzed the implied
equity valuations per share of Common Stock based on the Trace Forecasts.
Because the Trace Forecasts are more optimistic regarding the future financial
performance of the Company than the Company's forecasts and the 1998 Projection
Range, the
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implied equity valuations per share of Common Stock based on the Trace Forecasts
were higher in every analysis prepared by Beacon than the results of the same
analyses based on the Company's forecasts and the 1998 Projection Range. Beacon
concluded that the Trace Forecasts should not be in its final analyses because,
according to representatives of Trace, the Trace Forecasts had been prepared by
Trace in connection with its arranging of financing for the Merger and, although
based on information provided by the Company, were not prepared with any direct
involvement by the Company.
On June 16, 1998, Beacon presented to the Special Committee valuation
analysis materials updated to reflect the 1998 Projection Range.
On June 24 and 25, 1998, Beacon presented its final analyses to the
Special Committee, which are described above under the heading "--Opinion of
Financial Advisor to the Special Committee."
On each occasion that Beacon presented Comparable Companies Analysis to
the Special Committee, the stock prices and earnings estimates of the Comparable
Companies were updated to reflect current market conditions and information.
Plans for the Company After the Merger
Except as indicated in this Proxy Statement, neither Trace, Merger Sub
or Marshall S. Cogan has any present plans or proposals which relate to, or
would result in, an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company or any of its subsidiaries,
a sale or transfer of a material amount of assets of the Company or any other
material changes in the Company's corporate structure or business or the
composition of the Board of Directors or management of the Company.
Upon consummation of the Merger, Trace intends to retain the Company as
a wholly owned subsidiary of Trace. However, Trace anticipates that an
approximately 10% economic interest in the Company's subsidiaries will be issued
to one of Trace's creditors in satisfaction of certain of Trace's debt
obligations and that an approximate 5% interest in the Company's subsidiaries
will be issued to certain financing sources in connection with the financing of
the Merger and the related transactions. Trace anticipates that the assets,
business and operations of the Company will be continued substantially as they
are currently being conducted. Management of Trace may, however, cause the
Company to make such changes as are deemed appropriate and intends to continue
to review the Company and its assets, businesses, operations, properties,
policies, corporate structure, capitalization and management and consider if any
changes would be desirable in light of the circumstances then existing. In
addition, Trace intends to continue to review the business of the Company and
identify synergies and potential cost savings.
Interests of Certain Persons in the Merger
In considering the recommendations of the Board of Directors with
respect to the Merger, the Public Stockholders should be aware that certain
officers and directors of the Company have certain interests summarized below
that may be in addition to, or different from, the interests of the Public
Stockholders. The Special Committee and the Board of Directors were aware of
these interests and considered them along with other matters described under
"--Recommendation of the Special Committee; Fairness of the Merger."
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Common Stock, Option and Warrant Ownership. As of June 25, 1998, the
executive officers and directors of the Company beneficially owned an aggregate
of 1,524,024 shares of Common Stock (excluding the Trace Shares which may be
deemed to be beneficially owned by Marshall S. Cogan, constituting approximately
45.8% of the total number of shares of Common Stock then outstanding). If the
Merger is consummated, such persons will receive, in the aggregate,
approximately $18,910,024 for their shares of Common Stock and Company Options.
See "Security Ownership of Management and Certain Beneficial Owners."
Ownership of Common Stock of Trace and Other Trace Relationships. The
following directors and executive officers either own equity securities in, or
otherwise have engaged in transactions with, Trace:
Marshall S. Cogan - Mr. Cogan beneficially owns in excess of
50% of the common equity of Trace and controls in excess of 75% of the
voting power in Trace. Mr. Cogan is also Chairman and Chief Executive
Officer of Trace.
Andrea Farace - From April 1991 until December 1997, Mr.
Farace served in a variety of capacities with Trace, most recently as
President. Effective December, 1997, Mr. Farace resigned from all
positions with Trace.
John Tunney - Mr. Tunney provides consulting services to both
Trace and the Company. In 1997, Mr. Tunney received fees and expense
reimbursement of approximately $167,717 from Trace and fees of
approximately $56,667 from the Company.
Etienne Davignon - Mr. Davignon is the Chairman of Societe
Generale de Belgique, to which Trace owes, either directly or
indirectly through a subsidiary, approximately $58,000,000 principal
amount of promissory notes, which are due in the years 2005 through
2007.
Stuart Hershon - Dr. Hershon's wife is employed as an
Assistant General Counsel of Trace. Dr. Hershon owns 25 shares of
Trace's Class A COMMON STOCK.
Philip N. Smith, Jr. and Barry Zimmerman are the only executive
officers or directors of the Company (excluding Mr. Cogan and Dr. Hershon) to
own common stock of Trace. Mr. Smith owns 25 shares of Class A Common Stock of
Trace and Mr. Zimmerman owns 101 shares of Class A Common Stock of Trace; each
of such amounts represent less than one percent of the outstanding Class A
Common Stock of Trace.
Directors and Officers. The Merger Agreement provides that after the
Merger, the officers and directors of Merger Sub will become the officers and
directors of the Surviving Corporation.
Indemnification of Officers and Directors. Trace has agreed in the
Merger Agreement, subject to certain limitations, that all rights to
indemnification with respect to matters occurring through the Effective Time,
existing in favor of directors, officers or employees of the Company as provided
in the Company's Certificate of Incorporation or By-Laws shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time. The Company's Certificate of Incorporation
and By-Laws provided for indemnification of the Company's directors and officers
under certain circumstances for actions taken on behalf of the Company.
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On April 21, 1998, the Company entered into an indemnification
agreement with each member of the Special Committee pursuant to which the
Company agreed to indemnify and hold such member harmless with respect to
certain acts and omissions taken by such member as a director of the Company or
member of the Special Committee.
Transaction Fee. Trace anticipates that upon consummation of the Merger
it will be paid a success fee of $17.5 million. This fee will be paid by Foamex
Holdings, Inc. ("Foamex Holdings") after consummation of the Merger, at which
point in time Trace will have an approximately 90% beneficial ownership interest
in Foamex Holdings. It is anticipated that the transaction fee will be funded
with the proceeds of certain of the indebtedness incurred in connection with the
Merger. See "Certain Transactions."
Loan. Trace anticipates that upon consummation of the Merger, Foamex
Holdings will extend to it a $47.5 million loan. This loan will be extended by
Foamex Holdings after consummation of the Merger, at which point in time Trace
will have an approximately 90% beneficial ownership interest in Foamex Holdings.
It is anticipated that the loan will be funded with the proceeds of certain of
the indebtedness incurred in connection with the Merger. See "Certain
Transactions."
Special Committee. Robert J. Hay, one of the two members of the Special
Committee, beneficially owns 9,944 shares of Common Stock which will be
exchanged for the Merger Consideration if the Merger is consummated. Mr. Hay has
been Chairman Emeritus and a director of the Company since September 1993, was
Chairman and Chief Executive Officer of Foamex L.P. from January 1993 to January
1994 and was President of Foamex L.P. and its predecessor from 1972 through
1992. Pursuant to the resolution creating the Special Committee, each member of
the Special Committee is entitled to a fee of $20,000 per month for serving on
the Special Committee.
See "Certain Transactions" for disclosure of other transactions
occurring in connection with the Merger and other relationships considered by
the Board of Directors.
Perspective of Trace and Merger Sub on the Merger
Trace and Merger Sub note that the Company's Board of Directors
appointed a Special Committee and directed such committee, in part, to determine
the advisability and fairness to the Public Stockholders of the Proposed
Transaction, (ii) the Special Committee retained its own legal counsel and
financial advisor and negotiated an over ten percent increase in the price to be
paid by Trace per Public Share from $17.00 per share to $18.75 per share and
(iii) upon Trace agreeing to pay $18.75 per Public Share, Plaintiffs' counsel
agreed in principle to settle the Stockholder Litigation pursuant to a written
Memorandum of Understanding, dated June 25, 1998. Based upon the opinion of
Beacon, the financial advisor to the Special Committee of the Board of
Directors, as to the fairness of the Merger Consideration to the Public
Stockholders from a financial point of view and the determination by the Special
Committee and the Board of Directors that the Merger is fair to, and in the best
interests of the Public Stockholders, each of Trace and Merger Sub believe that
the Merger Consideration is fair to the Public Stockholders from a financial
point of view and adopt the conclusions of Beacon contained in its opinion.
Neither Trace nor Merger Sub attached specific weights to any factors in
reaching its belief as to fairness.
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Perspective of Marshall S. Cogan on the Merger
Marshall S. Cogan is Vice Chairman of the Board of Directors and, as
such, voted in favor of (i) determining that the Merger and the transactions
contemplated by the Merger Agreement are fair, equitable and in the best
interests of the Company and the Public Stockholders, (ii) approving and
adopting the Merger Agreement and (iii) recommending that the Public
Stockholders vote in favor of the Merger. For a discussion of the factors
considered by the Board of Directors, including Marshall S. Cogan, in reaching
these conclusions, see "--Recommendation of the Board of Directors".
Certain Effects of the Merger
As a result of the Merger, the entire equity interest of the Surviving
Corporation will be owned directly by Trace. Therefore, following the Merger,
the Public Stockholders will no longer benefit from any increases in the value
of the Company and will no longer bear the risk of any decreases in the value of
the Company. In addition, following the Merger, the interest of Trace in the
Company's net book value and net income will increase to 100% from a current
level of approximately 45.8%.
Following the Merger, Trace will benefit from any increases in the
value of the Company and also bear the risk of any decreases in the value of the
Company.
The Public Stockholders will have no continuing interest in the Company
following the Merger. As a result, the shares of Common Stock will no longer
meet the requirements of Nasdaq for continued listing and will, therefore, be
delisted from Nasdaq.
The Common Stock is currently registered under the Exchange Act.
Registration under the Exchange Act may be terminated upon application of the
Company to the SEC if such securities are not listed on a national securities
exchange or quoted on Nasdaq and there are fewer than 300 record holders of such
securities. Termination of registration of the Common Stock under the Exchange
Act would mean certain provisions of the Exchange Act, such as the short-swing
trading provisions of Section 16(b), the requirement to file periodic reports,
the requirement of furnishing a proxy statement in connection with stockholders'
meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, would no longer be
applicable to the Company. If registration of the shares of Common Stock under
the Exchange Act is terminated, the Common Stock would no longer be eligible for
Nasdaq listing. In addition, "affiliates" of the Company and persons holding
"restricted securities" of the Company might as a result be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. It is the present intention of Trace to seek
to cause the Company to make an application for the termination of the
registration of the Common Stock under the Exchange Act as soon as practicable
after the Effective Time of the Merger.
Material Federal Income Tax Consequences
The receipt of cash in exchange for Common Stock pursuant to the Merger
will be a taxable transaction for United States federal income tax purposes and
may also be a taxable transaction under applicable state, local and foreign tax
laws. A Stockholder will generally recognize gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between such
Stockholder's adjusted tax basis in such Stockholder's Common Stock and the
consideration received by such Stockholder in the Merger. Such gain or loss will
be calculated separately for each block of Common Stock exchanged by a
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Stockholder. Such gain or loss shall be treated as long-term capital gain or
loss if, at the Effective Time, the Common Stock was held for more than one
year. In the case of individuals, such gain or loss will be subject to U.S.
federal income tax at a maximum rate of 20% if a block of Common Stock has been
held, at the Effective Time, for more than one year.
The aggregate amount of Merger Consideration paid for a Stockholder's
Common Stock will be reported to the Internal Revenue Service (the "IRS"). A
"backup" withholding at a rate of 31% will apply to payments made to a
Stockholder (other than corporations and certain other exempt Stockholders)
unless the Stockholder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury regulations, certifies that such number
is correct, certifies as to no loss of exemption from backup withholding and
meets certain other conditions.
Any amounts withheld from a Stockholder under the "backup" withholding
rules will be allowed as a refund or credit against such Stockholder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS.
The foregoing discussion may not apply to Stockholders who acquired
their Common Stock pursuant to the exercise of employee stock options or other
compensation arrangements with the Company, who are not citizens or residents of
the United States or who are otherwise subject to special tax treatment. EACH
STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE,
LOCAL OR OTHER TAX LAWS.
Risk of Fraudulent Conveyance
If a court in a lawsuit brought by an unpaid creditor or representative
of creditors, such as a trustee in bankruptcy, or by the Surviving Corporation,
as debtor in possession, were to find that at the Effective Time or at the time
the Surviving Corporation distributed the Merger Consideration to the Public
Stockholders, the Surviving Corporation (a) made such payment with fraudulent
intent, or (b) received less than a reasonably equivalent value or consideration
in exchange for the Merger Consideration, and the Surviving Corporation (i) was
insolvent, (ii) had unreasonably small assets, property or capital in relation
to its ongoing business, or (iii) would be unable to pay its debts as they came
due or matured, such court could (A) find that the Merger, the Merger
Consideration and the financing thereof constituted fraudulent transfers or
conveyances, (B) void the Merger and require that the assets of the Surviving
Corporation be placed in a fund for the benefit of the Company's creditors, (C)
void the distribution of the Merger Consideration to the Public Stockholders and
require that the Public Stockholders return the same to the Surviving
Corporation or a fund for the benefit of its creditors, and/or (D) void or
modify the rights and obligations with respect to the financing of the Merger.
The measure of insolvency for the purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied. Generally,
however, the Surviving Corporation would be considered insolvent if the sum of
the Surviving Corporation's assets is less than the amount that it will be
required to pay its probable liability on its debts as they become due. No
assurance can be given as to the method a court would use to determine whether
the Surviving Corporation was insolvent at the Effective Time or at the time the
Surviving Corporation distributed the Merger Consideration, nor can assurance be
given that a court would not find that the Surviving Corporation was insolvent
at the Effective Time. The voiding of the Merger Consideration as described
above could result in the Public
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Stockholders losing the entire value of their equity investment in the
Company and the Merger Consideration.
Management of the Company believes that the payments to be made in
connection with the Merger will be made for proper purposes and in good faith,
and that, based on present forecasts and other financial information, the
Company is, and the Surviving Corporation will be, solvent, and will have
sufficient assets, property and capital to conduct its ongoing business and pay
its debts as they come due and mature. In addition, as required by the Special
Committee with respect to its recommendation that the Board of Directors approve
the Merger and the Merger Agreement, the Board of Directors in approving and
recommending the Merger and the Merger Agreement made the Solvency Determination
after hearing presentations from the management of the Company and Trace with
respect to the solvency of the Company and the Surviving Corporation. However,
no investigation was conducted by, or opinion received from, any independent
third party, with respect to the solvency of the Company or the Surviving
Corporation. See "--Background of the Merger."
Anticipated Accounting Treatment
The Merger will be accounted for as a partial (approximately 53%)
purchase utilizing the push down basis of accounting in accordance with SEC
Staff Accounting Bulletin 5.J.
Regulatory Approvals
No federal or state regulatory approvals are required to be obtained,
nor any regulatory requirements complied with, in connection with the
consummation of the Merger by any party to the Merger Agreement, except for (i)
the filing by the Company and Trace of a Premerger Notification and Report Form
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (ii) the requirements of the DGCL in connection with
stockholder approvals and consummation of the Merger and (iii) the requirements
of federal securities laws.
Sources of Funds; Fees and Expenses
Trace intends to fund the payment of the Merger Consideration
principally with the proceeds of additional indebtedness incurred by the Company
and its subsidiaries in connection with the Merger. The following table
summarizes the sources and uses of funds in connection with the Merger by the
Company and its subsidiaries, assuming that all of Foamex L.P.'s outstanding
9-7/8% Senior Subordinated Notes due 2007 and 13-1/2% Senior Subordinated Notes
due 2005 are tendered in the proposed tender offer, and as if the transaction
occurred on June 28, 1998:
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<TABLE>
<S> <C>
Sources of Funds $'s in 1,000's
Cash on hand of the Company and its subsidiaries........... $13,690
Foamex Holdings Senior Discount Debentures (a)(b)......... 125,000
Foamex L.P., Foamex Carpet and Foamex Funding Credit
Facility (c)....................................... 717,189
Foamex Corp. Senior Notes (d) (e).......................... 150,000
Foamex Corp. Senior Subordinated Notes (d)(f).............. 300,000
----------
Total............................................. $1,305,879
----------
Uses of Funds $'s in 1,000's
Merger Consideration.......................................... $253,872
Option Consideration.......................................... 12,983
Warrant Consideration......................................... 12,242
Pay-Off of Existing Credit Agreement.......................... 406,189
Repurchase of Senior Subordinated Notes....................... 248,000
Prepayment penalties and premiums on Existing Credit
Facility and Notes (g)............................... 45,527
Purchase of indebtedness of Foam Funding LLC (c)............. 104,200
Loan to Trace (h)............................................. 47,500
Transaction fee to Trace...................................... 17,500
Advance against future tax sharing payments (i)............... 75,000
Transaction fees and expenses (j)........................... 73,112
Accrued interest and other.................................... 9,754
----------
Total................................................ $1,305,879
----------
</TABLE>
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(a) Foamex Holdings is to be formed as a wholly owned
subsidiary of the Company, to which the Company will contribute all of
its direct and indirect equity in Foamex L.P. and Foamex Carpet in
exchange for all of the outstanding capital stock . Immediately after
its capitalization, Foamex Holdings will distribute to the Company: (i)
an amount in cash sufficient to fund the payment of the merger
consideration and the repayment of promissory notes and accrued
interest thereon owed by the Company to Foamex L.P., which amount is
estimated to be approximately $296.2 million (the "Special
Distribution"), (ii) a $16 million promissory note of Foamex Holdings
(the "New Holdings Note"), (iii) $40 million initial accreted value of
a new issue of Junior Discount Debentures ("Junior Debentures") of
Foamex Holdings, (iv) $9.9 million principal amount of pre-existing
promissory notes of Trace payable to Foamex L.P., (the "Old Trace
Notes"), and (v) the promissory note evidencing the new $47.5 million
loan from Foamex Holdings to Trace (the "Trace-Holdings Note") (see
note (h) below). It is anticipated that ScotiaBank will contribute a
$16 million obligation of Trace (the "Trace Stub Note") to Foamex
Holdings in exchange for a 10% interest in Foamex Holdings. Foamex
Holdings will deliver the Trace Stub Note to the Company in
satisfaction of the New Holdings Note.
(b) Represents the gross proceeds to Foamex Holdings from the
sale of a new issue of Senior Discount Debentures (the "Senior
Debentures"). The term, the interest rate, the security (if any) and
other material terms of the Senior Debentures have not yet been
determined.
(c) At the Effective Time, Foamex L.P., Foamex Carpet, and
Foamex Funding, Inc., a to be formed wholly owned subsidiary of the
Company ("Foamex Funding"), will enter into a new Credit Agreement (the
"New Credit Facility") with The Bank of Nova Scotia, DLJ Funding, Inc.,
and the Institutions from time to time party thereto as Lenders and
Issuing Banks. It is anticipated that the New Credit Facility will
consist of (i) a $150.0 million revolving credit facility and (ii) a
$700.0 million term facility, and the New Credit Facility will be
secured by substantially all of the assets of Foamex L.P., Foamex
Carpet and Foamex Funding. The term, the interest rate and other
material terms of the New Credit Facility have not yet been determined.
At the Effective Time, Foamex Funding will borrow $104.2 million in
term loans which it will use to purchase from The Bank of Nova Scotia
and Citicorp USA, Inc. $104.2 million aggregate principal amount of
indebtedness of Foam Funding LLC. Foamex Funding will not be able to
make any additional borrowings, and Foamex Carpet will be limited to
$20.0 million of revolving credit borrowings.
(d) Foamex Corporation ("Foamex Corp.") is to be formed as a
wholly owned subsidiary of Foamex Holdings, to which Foamex Holdings
will contribute all of its direct and indirect equity in Foamex L.P.
and Foamex Carpet in exchange for all of the outstanding capital stock.
Immediately after such transaction, Foamex Corp. will distribute to
Foamex Holdings: (i) an amount in cash equal to the Special
Distribution, and (ii) the Old Trace Notes.
(e) Represents the gross proceeds to Foamex Corp. from the
sale of a new issue of Senior Notes. The term, the interest rate, the
security (if any) and other material terms of the of the Senior Notes
have not yet been determined.
(f) Represents the gross proceeds to Foamex Corp. from the
sale of a new issue of Senior Subordinated Notes. It is anticipated
that the Senior Subordinated Notes will be
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unsecured obligations of Foamex Corp. The term, the interest rate, the
security (if any) and other material terms of the of the Senior
Subordinated Notes have not yet been determined.
(g) Represents prepayment penalties to repay the Existing
Credit Facility and consent fees and tender premiums to repurchase all
outstanding 9-7/8% Senior Subordinated Notes due 2007 and all
outstanding 13-1/2% Senior Subordinated Notes due 2005.
(h) Represents a loan by Foamex Holdings to Trace in the
amount of $47.5 million The term, the interest rate and other material
terms of the loan have not yet been determined. See note b.
(i) Trace, Trace Foam Company, Inc. ("TFC"), Trace Foam Sub,
Inc. ("Trace Foam Sub"), the Company, Foamex Holdings, Foamex Corp.,
Foamex Funding, FMXI, Inc. ("FMXI") and Foamex Carpet will enter into a
tax sharing agreement pursuant to which such entities will agree to pay
to Trace the amount which they would be obligated to pay were they not
included in Trace's consolidated return. Immediately after the Merger,
Foamex Corp., FMXI, and Foamex Carpet will make an aggregate advance to
Trace of $75.0 million against future payment obligations under the tax
sharing agreement. Any tax payments to Trace that are attributable to
partnership interests in Foamex L.P. will be funded by pro rata
distributions from Foamex L.P. to its partners in proportion to their
respective partnership interests.
(j) Estimated fees and expenses incurred or to be incurred by
Trace, the Company and their affiliates in connection with the Merger
are underwriting and investment banking fees and expenses of $63.3
million, legal and accounting fees and expenses of $4.6 million and
miscellaneous fees and expenses of $5.2 million.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense; provided, however, that if the Merger Agreement is
terminated prior to the Effective Time, under certain circumstances, the Company
will be required to pay Trace $30 million. See "The Merger Agreement--Fees and
Expenses."
Neither Trace nor the Company will pay any fees or commissions to any
broker or dealer or any other person (other than Rhone, DLJ, and the Paying
Agent) for soliciting Public Shares pursuant to the Merger. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by the
Company for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
THE SPECIAL MEETING
Matters to Be Considered at the Special Meeting
Each copy of this Proxy Statement mailed to Stockholders is accompanied
by a proxy card furnished in connection with the solicitation of proxies by the
Board of Directors for use at the Special Meeting. The Special Meeting is
scheduled to be held at 10:00 a.m., on 1998, at 1000 Columbia Avenue,
Linwood, Pennsylvania 19061. At the Special Meeting, Stockholders will consider
and vote upon (i) a proposal to approve and adopt the Merger Agreement and (ii)
such other matters as may properly be brought before the Special Meeting.
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The Board of Directors, based upon the unanimous recommendation of the
Special Committee with respect to the fairness of the Merger and the Merger
Agreement, has determined that the Merger and the Merger Agreement are fair to,
and in the best interests of, the Company and its Public Stockholders and has
approved the Merger and the Merger Agreement by unanimous vote of all directors
present at the relevant meeting (Mr. Davignon was absent from the meeting).
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "Special Factors--Background
of the Merger," "--Purpose and Structure of the Merger" and "--Recommendations
of the Special Committee; Fairness of the Merger." In considering the
recommendations of the Board of Directors with respect to the Merger, the Public
Stockholders should be aware that certain officers and directors of the Company
have certain interests that may be in addition to, or different from, the
interests of the Public Stockholders. See "Special Factors--Interests of Certain
Persons in the Merger". Trace has agreed to vote, or cause to be voted, all of
the Shares then owned by the Trace Stockholders in favor of the approval of the
Merger and the authorization and adoption of the Merger Agreement to the extent
permitted pursuant to the terms of the agreements filed as exhibits to Trace's
Schedule 13D with respect to the Company. To the knowledge of the Company, the
directors and executive officers of Trace and Merger Sub intend to vote their
shares in favor of the approval and adoption of the Merger Agreement.
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR
TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT.
Record Date and Voting
The Board of Directors has fixed the close of business on August 21,
1998, as the Record Date for the determination of the holders of Common Stock
entitled to notice of, and to vote at, the Special Meeting. Only stockholders of
record at the close of business on that date will be entitled to receive notice
of, or to vote at, the Special Meeting. At the close of business on the Record
Date, there were 25,014,823 shares of Common Stock outstanding and entitled to
vote at the Special Meeting, held by approximately 146 stockholders of record.
Each holder of Common Stock on the Record Date will be entitled to one
vote for each share held of record. The presence, in person or by proxy, of a
majority of the outstanding shares of Common Stock entitled to be voted at the
Special Meeting is necessary to constitute a quorum for the transaction of
business. Abstentions (including broker non-votes) will be included in the
calculation of the number of votes represented at the Special Meeting for
purposes of determining whether a quorum has been achieved.
If the enclosed proxy card is properly executed and received by the
Company in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Properly executed proxies with no instructions indicated thereon will be voted
"FOR" approval and adoption of the Merger Agreement.
The Board of Directors is not aware of any matters other than that set
forth in the Notice of Special Meeting of Stockholders that may be brought
before the Special Meeting. If any other matters properly come before the
Special Meeting, including a motion to adjourn the meeting for the purpose
46
<PAGE>
of soliciting additional proxies, the persons named in the accompanying proxy
will vote the shares represented by all properly executed proxies on such
matters in their discretion, except that shares represented by proxies which
have been voted "against" the Merger Agreement will not be used to vote "for"
adjournment of the Special Meeting for the purpose of allowing additional time
for soliciting additional votes "for" the Merger Agreement. See "--Vote
Required; Revocability of Proxies."
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES
SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO STOCKHOLDERS BY THE PAYING AGENT, PROMPTLY
AFTER THE EFFECTIVE TIME.
Vote Required; Revocability of Proxies
The affirmative vote of holders of a majority of the outstanding shares
of Common Stock entitled to vote thereon is required to approve and adopt the
Merger Agreement, but the approval of the Merger Agreement is not conditioned
upon the approval of a majority vote of unaffiliated Stockholders. As of the
Record Date, (i) the Trace Stockholders owned, in the aggregate, 11,475,000
shares of Common Stock, representing approximately 45.8% of such shares
outstanding, (ii) the directors and executive officers of Trace and Merger Sub
beneficially owned an additional 427,612 shares of Common Stock, representing
approximately 1.7% of such shares outstanding and (iii) the directors and
executive officers of the Company (excluding such persons who are also directors
or officers of Trace) beneficially owned an additional 117,500 shares of Common
Stock, representing less than one percent of such shares outstanding. Trace has
agreed to vote, or cause to be voted, all of the Shares then owned by the Trace
Stockholders in favor of the approval of the Merger and the authorization and
adoption of the Merger Agreement ; provided, however, that (x) the right of
Trace to vote 2,684,903 shares of Common Stock is limited by the Pledge
Agreement, dated as of December 14, 1993 (the "RFC Pledge Agreement"), made by
Trace in favor of Recticel Foam Corporation, (y) the right of Trace to vote
1,592,671 shares of Common Stock is limited by the Pledge Agreement, dated as of
December 14, 1993 (together with the RFC Pledge Agreement, the "RFC/GB Pledge
Agreements"), made by Trace in favor of Generale Bank and (z) the right of Trace
to vote 175,100 shares of Common Stock is limited by the pledge agreement, dated
as of August 15, 1997 (the "ScotiaBank Pledge Agreement"), made by Trace in
favor of The Bank of Nova Scotia. Pursuant to the RFC/GB Pledge Agreements,
Trace may not exercise any voting rights with respect to the pledged shares
after an event of default or if such action would have a material adverse effect
on the value of the pledged collateral. Pursuant to the ScotiaBank Pledge
Agreement, Trace may not exercise any voting rights with respect to the pledged
shares after an event of default or if such action would impair any pledged
collateral.
To the knowledge of the Company, Trace, Merger Sub and Marshall S.
Cogan, the directors and executive officers of the Company, Trace and Merger Sub
intend to vote their shares in favor of the approval and adoption of the Merger
Agreement. Accordingly, assuming that all such persons vote in favor of the
Merger, the affirmative vote of only approximately 4% of the Public Shares will
be required to approve and adopt the Merger Agreement. To the knowledge of the
Company, Trace, Merger Sub and Marshall S. Cogan, except as set forth in this
Proxy Statement, no executive officer, director or affiliate of the Company,
Trace or Merger Sub has made a recommendation in support of or opposed to the
Merger.
Because the required vote of the Stockholders on the Merger Agreement
is based upon the total number of outstanding shares of Common Stock, the
failure to submit a proxy card (or to vote in
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person at the Special Meeting) or the abstention from voting by a Stockholder
will have the same effect as a vote against approval and adoption of the Merger
Agreement. Brokers holding shares of Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions from
the beneficial owners thereof.
A Stockholder may revoke a proxy at any time prior to its exercise by
(i) delivering to Philip N. Smith, Jr., Corporate Secretary, Foamex
International Inc., 1000 Columbia Avenue, Linwood, Pennsylvania 19061, a written
notice of revocation prior to the Special Meeting, (ii) delivering prior to the
Special Meeting a duly executed proxy bearing a later date or (iii) attending
the Special Meeting and voting in person. The presence of a Stockholder at the
Special Meeting will not in and of itself automatically revoke such
Stockholder's proxy.
If for any reason the Special Meeting is adjourned, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Special
Meeting, except for any proxies which have theretofore effectively been revoked
or withdrawn.
The obligations of the Company and Trace to consummate the Merger are
subject, among other things, to the condition that the Stockholders approve and
adopt the Merger Agreement. See "The Merger Agreement--Conditions to the
Merger."
Appraisal Rights
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court. The following is a summary of certain of the
provisions of Section 262 of the DGCL and is qualified in its entirety by
reference to the full text of such Section, a copy of which is attached hereto
as Appendix C.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of stockholders, as in the case of the
Special Meeting, not less than 20 calendar days prior to the meeting, the
Company must notify each of the holders of Common Stock at the close of business
on the Record Date that such appraisal rights are available and include in each
such notice a copy of Section 262. This Proxy Statement constitutes such notice.
Any Stockholder wishing to exercise appraisal rights should review the following
discussion and Appendix C carefully because failure to timely and properly
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. Such demand will be sufficient if it reasonably
informs the Company of the identity of the Stockholder and that the Stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the Merger Agreement will not constitute such a demand. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must hold of record
such shares on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time.
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Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and wish to exercise appraisal rights are urged
to consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to Philip N. Smith, Jr.,
Corporate Secretary, Foamex International Inc., 1000 Columbia Avenue, Linwood,
Pennsylvania 19061, so as to be received before the vote on the approval and
adoption of the Merger Agreement at the Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal on
behalf of a holder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is agent for such owner or owners. A record holder such as a broker
holding Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares as to which appraisal is sought and where no
number of shares is expressly mentioned the demand will be presumed to cover all
Common Stock held in the name of the record owner.
Within 10 calendar days after the Effective Time, the Company, as the
surviving corporation in the Merger, must send a notice as to the effectiveness
of the Merger to each person who has satisfied the appropriate provisions of
Section 262 and who has not voted in favor of the Merger Agreement. Within 120
calendar days after the Effective Time, the Company, or any Stockholder entitled
to appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of all such Stockholders. The
Company is not under any obligation, and has no present intention, to file a
petition with respect to the appraisal of the fair value of the shares of Common
Stock. Accordingly, it is the obligation of the Stockholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed in
Section 262.
Within 120 calendar days after the Effective Time, any Stockholder of
record who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement must be mailed within 10 calendar days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the Stockholders
entitled to appraisal rights and will appraise the "fair value" of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Common
Stock as determined under Section 262 could be
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more than, the same as or less than the amount per share that they would
otherwise receive if they did not seek appraisal of their shares of Common
Stock. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of shares of Common Stock in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all the shares of Common Stock entitled to appraisal.
The Court may require Stockholders who have demanded an appraisal and
who hold Common Stock represented by certificates to submit their certificates
of Common Stock to the Court for notation thereon of the pendency of the
appraisal proceedings. If any Stockholder fails to comply with such direction,
the Court may dismiss the proceedings as to such Stockholder.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares of Common Stock as of
a date prior to the Effective Time).
If any Stockholder who demands appraisal of shares under Section 262
fails to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive the Merger Consideration in accordance with
the Merger Agreement, without interest. A Stockholder will fail to perfect, or
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 calendar days after the Effective Time. A Stockholder may withdraw a
demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such attempt
to withdraw made more than 60 calendar days after the Effective Time will
require the written approval of the Company. Once a petition for appraisal has
been filed, such appraisal proceeding may not be dismissed as to any Stockholder
without the approval of the Court.
Solicitation of Proxies
The Company will bear the costs of soliciting proxies from
Stockholders. In addition to soliciting proxies by mail, directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit proxies by telephone, by facsimile or in person. Arrangements may
also be made with brokerage firms and other custodians, nominees and fiduciaries
to forward solicitation materials to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached hereto as Appendix A and incorporated by
reference herein. All references to and summaries of the Merger Agreement in
this Proxy Statement are qualified in their entirety by reference to the Merger
Agreement. Stockholders are urged to read the Merger Agreement carefully and in
its entirety.
General
The Merger. The Merger Agreement provides for the merger of Merger Sub
with and into the Company. The Company will be the Surviving Corporation and it
will continue its corporate existence under the laws of the State of Delaware.
At the Effective Time, the separate corporate existence of Merger Sub shall
cease. The Surviving Corporation shall possess all the property, rights,
privileges, immunities, powers and franchises of Merger Sub and the Surviving
Corporation shall assume and become liable for all liabilities, obligations and
penalties of the Company and Merger Sub. Notwithstanding the foregoing, Trace,
at its sole election, may substitute any direct or indirect wholly owned
subsidiary of Trace for Merger Sub.
Effective Time of Merger. The Effective Time will occur upon the filing
of the Certificate of Merger with the Delaware Secretary of State or at such
time thereafter as is agreed to between Trace and the Company and provided in
the Certificate of Merger. See "--Conditions to the Merger."
Treatment of Shares in the Merger. At the Effective Time: (a) each
share of Common Stock outstanding immediately prior to the Effective Time,
except for (i) Common Stock then owned by the Trace Stockholders, (ii) Common
Stock then owned by the Company and (iii) Dissenting Shares, shall by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive $18.75 in cash, without interest, upon
surrender of the certificate representing such Common Stock; (b) each share of
Common Stock outstanding immediately prior to the Effective Time which is then
owned by the Trace Stockholders shall, by virtue of the Merger and without any
action on the part of the holder thereof, remain outstanding and from and after
the Effective Time shall constitute shares of the Surviving Corporation; and (c)
each share of Common Stock outstanding immediately prior to the Effective Time
which is then owned by the Company or any subsidiary of the Company shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be canceled and retired and cease to exist, without any conversion thereof.
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court. See "The Special Meeting--Appraisal Rights."
Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and retired
and cease to exist, without any conversion thereof.
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Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and By-Laws of the Company in effect at the Effective Time shall
be Certificate of Incorporation and By-Laws of the Surviving Corporation until
amended in accordance with applicable law.
Cancellation of Options. As of the Effective Time, the Company shall
use its reasonable best efforts to take such actions to provide that by virtue
of the Merger and without any action on the part of the holders thereof, each
Company Option that is outstanding immediately before the Effective Time,
whether or not then-exercisable, shall be canceled and, in consideration of such
cancellation, each holder of a Company Option shall receive at the Effective
Time an amount (subject to any applicable withholding tax) equal to the product
of: (A) the number of shares of Common Stock subject thereto and (B) the Option
Consideration. The Option Consideration equals the amount, if any, by which the
Merger Consideration exceeds the per share exercise price of the particular
Option. The Option Consideration shall be paid without interest after (a)
verification by the Paying Agent of the ownership and terms of the particular
Company Option by reference to the Company's records or such other evidence
reasonably acceptable to the Surviving Corporation as the holder may provide,
and (b) delivery of a written instrument duly executed by the owner of the
applicable Company Options, in a form provided by the Paying Agent and setting
forth (i) the aggregate number of Company Options owned by that person, (ii) a
representation by the person that such person is the owner of all Company
Options described pursuant to clause (i), and that none of those Company Options
has expired or ceased to be exercisable; and (iii) a confirmation of and consent
to the cancellation of all of the Company Options described pursuant to clause
(i).
Cancellation of Warrants. As of the Effective Time, the Company shall
use its reasonable best efforts to take such actions to provide that by virtue
of the Merger and without any action on the part of the holders thereof, each
Company Warrant that is outstanding immediately before the Effective Time,
whether or not then exercisable, shall be canceled and, in consideration of such
cancellation, each holder of a Company Warrant shall receive at the Effective
Time an amount (subject to any applicable withholding tax) equal to the product
of: (A) the number of shares of Common Stock subject thereto and (B) the Warrant
Consideration. The Warrant Consideration equals the amount, if any, by which the
Merger Consideration exceeds the per share exercise price of the particular
Warrant. The Warrant Consideration shall be paid without interest after (a)
verification by the Paying Agent of the ownership and terms of the particular
Company Warrant by reference to the Company's records or such other evidence
reasonably acceptable to the Surviving Corporation as the holder may provide,
and (b) delivery of a written instrument duly executed by the owner of the
applicable Company Warrants, in a form provided by the Paying Agent and setting
forth (i) the aggregate number of Company Warrants owned by that person, (ii) a
representation by the person that such person is the owner of all Company
Warrants described pursuant to clause (i), and that none of those Company
Warrants has expired or ceased to be exercisable; and (iii) a confirmation of
and consent to the cancellation of all of the Company Warrants described
pursuant to clause (i).
Surrender of Stock Certificates. Trace will designate ScotiaBank or
another bank or trust company reasonably acceptable to the Special Committee to
act as the Paying Agent under the Merger Agreement. Prior to the Effective Time,
Trace shall deposit with the Paying Agent cash in an aggregate amount equal to
the sum of (i) the product of: (A) the number of shares of Common Stock
outstanding immediately prior to the Effective Time (other than Common Stock
owned by the Trace Stockholders or the Company or Dissenting Shares) (the "Total
Shares"); and (B) the Merger Consideration, (ii) the product of (X) the number
of shares of Common Stock subject to Company Options and (Y) the Option
Consideration and (iii) the product of (E) the number of shares of Common Stock
subject to Company Warrants and (F) the Warrant Consideration (such aggregate
amount being
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hereinafter referred to as the "Exchange Fund"). The Paying Agent shall,
pursuant to irrevocable instructions, make the payments provided for under the
Merger Agreement out of the Exchange Fund.
As soon as reasonably practicable after the Effective Time, the Paying
Agent shall mail to each holder of record as of the Effective Time (other than
the Company and the Trace Stockholders) of an outstanding certificate or
certificates for Common Stock (the "Certificates"), a letter of transmittal and
instructions for use in effecting the surrender of such certificates for payment
in accordance with the Merger Agreement. Upon the surrender to the Paying Agent
of a Certificate, together with a duly executed letter of transmittal, the
holder thereof shall be entitled to receive cash in an amount equal to the
product of the number of shares of Common Stock represented by such Certificate
and the Merger Consideration, less any applicable withholding tax, and such
Certificate shall then be canceled.
Until surrendered pursuant to the procedures described above, each
Certificate (other than Certificates representing Common Stock owned by the
Company or the Trace Stockholders and Certificates representing Dissenting
Shares) shall represent for all purposes the right to receive the Merger
Consideration in cash multiplied by the number of shares of Common Stock
evidenced by such Certificate, without any interest thereon, subject to any
applicable withholding obligation.
After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for an amount in cash equal to the Merger Consideration
multiplied by the number of shares of Common Stock evidenced by such
Certificate, without any interest thereon, subject to any withholding
obligation.
Any portion of the Exchange Fund which remains unclaimed by the
shareholders of the Company or holders of options or warrants for one year after
the Effective Time (including any interest received with respect thereto) shall
be repaid to the Surviving Corporation, upon demand. Any stockholders or holders
of options or warrants of the Company who have not theretofore complied with the
procedures set forth above shall thereafter look only to the Surviving
Corporation for payment of their claim for the Merger Consideration per share of
Common Stock, without any interest thereon, but shall have no greater rights
against the Surviving Corporation than may be accorded to general creditors of
the Surviving Corporation under Delaware law. Notwithstanding the foregoing,
neither the Paying Agent nor any party to the Merger Agreement shall be liable
to any holder of certificates formerly representing Common Stock for any amount
to be paid to a public official in good faith pursuant to any applicable
abandoned property, escheat or similar law.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the Company to Trace and Merger Sub, including with respect to the following
matters: (i) the due organization and valid existence of the Company and its
subsidiaries and similar corporate matters; (ii) the capitalization of the
Company and its subsidiaries; (iii) the due authorization, execution and
delivery of the Merger Agreement, its binding effect on the Company, and the
Board of Directors' recommendation of the Merger to the Public Stockholders;
(iv) regulatory filings and approvals, and the lack of conflicts between the
Merger Agreement and the transactions contemplated thereby with the Company's
Certificate of Incorporation or By-Laws or any contract to which it or its
subsidiaries are parties; (v) the accuracy of the Company's SEC filings, its
financial statements and the absence of undisclosed liabilities; (vi) the
absence of certain changes; (vii) the absence of undisclosed liabilities; (viii)
the
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absence of undisclosed pending or threatened litigation; (ix) the absence of
defaults or violations of the Company's Certificate of Incorporation or By-Laws
or certain agreements; and (x) various other matters. Such representations and
warranties are subject, in certain cases, to specified exceptions and
qualifications, including without limitation, those exceptions that are
disclosed to Trace in the written disclosure schedule delivered by the Company
to Trace pursuant to the Merger Agreement (the "Company Disclosure Schedule").
In many instances the representations and warranties given by the Company are
subject to the qualification that the applicable representation or warranty
would not fail to be true and correct unless it would have a Material Adverse
Effect. For purposes of the Merger Agreement, "Material Adverse Effect" means
any material adverse effect on the business, operations, properties (including
intangible properties) or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole.
The Merger Agreement also includes certain representations and
warranties by Trace and Merger Sub, including representations and warranties
regarding: the due organization, good standing and authority to conduct business
and own, lease and operate the properties of Trace and Merger Sub; the authority
to enter into the Merger Agreement; the absence of conflict between the
transactions contemplated by the Merger Agreement with other agreements and
documents; consents and approvals; and the conduct of business by Merger Sub.
Conduct of the Business Pending the Merger
The Company has agreed that, except as expressly contemplated in the
Merger Agreement, as set forth in the Company Disclosure Schedule, or as agreed
to by Trace, during the period from the date of the Merger Agreement and
continuing until the earlier of termination of the Merger Agreement or the
Effective Time, the business of the Company and its subsidiaries will be
conducted only in the ordinary and usual course and in all material respects in
compliance with all applicable legal requirements, and to the extent consistent
therewith, each of the Company and its subsidiaries will use its commercially
reasonable efforts to preserve its business organization intact and maintain its
existing relationships with customers, suppliers, employees, creditors, and
business partners and to maintain customary levels of insurance coverage with
respect to its assets and operations. The Company has further agreed that during
such period, and subject to the same exceptions, the Company will not, and will
not permit its subsidiaries to, among other things: (i) amend its or its
subsidiaries' certificate of incorporation or bylaws or similar organizational
documents; (ii) declare, set aside, or pay any dividend or other distribution in
respect of any of its capital stock or that of its subsidiaries, other than
those dividends or other distributions payable solely to the Company or one of
its wholly-owned subsidiaries; (iii) redeem, purchase or otherwise acquire any
shares of capital stock (or options, warrants, calls, commitments or rights of
any kind to acquire any shares of capital stock) of the Company or its
subsidiaries; (iv) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company or its subsidiaries (other than the
issuance of Common Stock upon the exercise of outstanding Company stock options
or warrants); (v) split, combine, or reclassify the outstanding capital stock of
the Company or its subsidiaries; (vi) acquire or agree to acquire, transfer,
lease, license, sell, mortgage, pledge, encumber, dispose of or agree to dispose
of any material assets either by purchase, merger, consolidation, sale of shares
in its subsidiaries or otherwise, subject to certain exceptions; (vii) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any intellectual
property, subject to certain exceptions; (viii) grant any increase in the
compensation payable by the Company or its subsidiaries to any of its executive
officers or directors (other than regularly scheduled pay increases of not more
than 10% per annum) or to any of its key employees other than in the ordinary
course of business consistent with past practice; (ix) adopt, amend, increase or
accelerate the payment or vesting of the amounts payable under any existing
bonus, incentive compensation, deferred compensation, severance, profit sharing,
stock option, stock purchase, insurance, pension, retirement or other employee
benefit plan, agreement or arrangement, except as expressly contemplated by the
Merger Agreement or as required by any obligation existing as of the date hereof
to do so or any applicable legal requirement, subject to certain exceptions; (x)
enter into or modify or amend any employment agreement or arrangement with any
officer or director of the Company or any of its subsidiaries, other than in the
ordinary
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course of business consistent with past practice, or enter into or
modify or amend any severance agreement or arrangement with, or grant any
severance or termination pay to, any officer or director of the Company or any
of its subsidiaries, except in the ordinary course of business consistent with
past practice or as required by any applicable legal requirement or any
contracts, agreements or other instruments to which the Company or any of its
subsidiaries is bound and which was in effect on the date of the Merger
Agreement, or enter into any collective bargaining agreement; (xi) modify, amend
or terminate any of its material contracts or waive, release or assign any
material rights or claims, other than in the ordinary course of business
consistent with past practice; (xii) incur or assume any indebtedness other than
for working capital in amounts consistent with past practice or enter into
capital leases other than in the ordinary course of business, or materially
modify any material indebtedness; (xiii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
any material obligations of any other person (other than a subsidiary of the
Company or subject to certain other exceptions); (xiv) make any loans, advances
or capital contributions to, or investments in, any other person (other than to
a subsidiary of the Company or pursuant to the terms of the Merger Agreement
(provided the ownership structure of any such subsidiary has not changed since
the date of the Merger Agreement) or customary advances to employees); (xv)
enter into any material contract or transaction other than in the ordinary
course of business consistent with past practice; (xvi) materially change any of
the accounting methods used by it unless required by GAAP; (xvii) make any
material tax election (unless required by law) or settle or compromise any
material income tax liability; (xviii) except in the ordinary course of business
consistent with past practice, pay, discharge or satisfy any actions, suits,
proceedings or claims, other than the payment, discharge or satisfaction, in
each case in complete satisfaction, and with a complete release, of such matter
with respect to all parties to such matter, of actions, suits, proceedings or
claims that do not result in, individually or in the aggregate, a Material
Adverse Effect; (xix) waive the benefits of, or agree to modify in any material
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party, except as contemplated by the
Merger Agreement; (xx) commence a lawsuit except as provided for in the Merger
Agreement; (xxi) enter into an agreement, contract, commitment or arrangement to
do any of the foregoing, or authorize, recommend, propose or announce an
intention to do any of the foregoing.
No Solicitation
Pursuant to the Merger Agreement, the Company has agreed to, and to
cause the Company Representatives to, terminate any ongoing discussions or
negotiations with respect to a Takeover Proposal (as defined). The Company has
agreed that it will not and will not authorize or permit any Company
Representative to (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action to facilitate, any inquiries
or the making of any proposal which constitutes, or may reasonably be expected
to lead to, any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding any Takeover Proposal (other than to respond to an
inquiry by informing the inquiring party of certain restrictions imposed by the
Merger Agreement) or (iii) enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, if at any time prior to the Effective
Time, the Board of Directors of the Company or the Special Committee
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determines in good faith, based on the advice of its legal counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the Company's
shareholders under applicable law, the Company or the Special Committee may, in
response to a Takeover Proposal, and subject to compliance with the Merger
Agreement, (i) furnish information with respect to the Company to any person
pursuant to a confidentiality agreement and (ii) participate in negotiations
regarding such Takeover Proposal.
The Company has agreed that neither the Board of Directors of the
Company nor the Special Committee shall (a) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Trace, the approval or recommendation
by such Board of Directors or such Special Committee of the Merger Agreement or
the Merger, (b) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (c) cause the Company to enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, in the event
that prior to the Effective Time the Board of Directors of the Company or the
Special Committee determines in good faith, based on the advice of its legal
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to the Company's shareholders under applicable law, the Board of
Directors or the Special Committee may withdraw or modify its approval or
recommendation of the Merger Agreement and the Merger, approve or recommend any
Superior Proposal (as defined below) or cause the Company to enter into an
agreement with respect to a Superior Proposal, but in each case only at a time
that is after the first business day following Trace's receipt of written notice
advising Trace that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making the Superior Proposal. In addition,
if the Company enters into an agreement with respect to any Superior Proposal,
it shall concurrently with entering into such an agreement pay, or cause to be
paid, to Trace the Termination Fee. For purposes of the Merger Agreement, a
"Superior Proposal" means any bona fide Takeover Proposal which the Special
Committee or the Board of Directors of the Company determines in its good faith
judgment (based on the advice of its financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareholders than the Merger.
Pursuant to the Merger Agreement, Trace and Merger Sub will together
prepare and file the Schedule 13E-3 under the Exchange Act. The Company, Trace
and Merger Sub will each furnish all information concerning it, its affiliates
and certain other persons required to be included in the Proxy Statement and the
Schedule 13E-3.
Conditions to the Merger
All Parties. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
on or prior to the Effective Time of each of the following conditions, any and
all of which may be waived in whole or in part by the Company (provided the
Special Committee consents to such waiver), Trace or Merger Sub, as the case may
be, to the extent permitted by law: (i) the adoption and approval of the Merger
Agreement by the requisite vote of the shareholders of the Company if required
by applicable law or the Certificate of Incorporation of the Company, in order
to consummate the Merger; (ii) no statute, rule, order, decree, regulation, or
other legal requirement has been enacted or promulgated by any governmental
entity which prohibits the consummation of the Merger or the transactions
contemplated hereby; and (iii) no order or injunction of a court or other
governmental authority of competent jurisdiction has precluded, restrained,
enjoined or prohibited the consummation of the Merger.
Trace and Merger Sub. Pursuant to the Merger Agreement, the obligations
of Trace and Merger Sub to effect the Merger are also subject to the following
conditions: (i) the representations
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and warranties of the Company, without regard to any Material Adverse Effect
qualification or any other materiality qualification contained in any such
representation and warranty, shall be true and correct in all respects on and as
of the Effective Time, with the same force and effect as if made on and as of
the Effective Time, unless the failure of such representations and warranties to
be true and correct would not reasonably be expected to result in, individually
or in the aggregate, a Material Adverse Effect; (ii) the Company has performed
or complied in all material respects with all agreements, conditions and
covenants required by the Agreement to be performed or complied with by it on or
before the Effective Time; (iii) the Company has obtained financing for the
transactions contemplated in the Merger Agreement on terms, conditions and in
amounts reasonably satisfactory to Trace; and (iv) since March 29, 1998, no
event or events has occurred which have resulted in or would reasonably be
expected to result in a Material Adverse Effect.
The Company. Pursuant to the Merger Agreement, the obligation of the
Company to effect the Merger is also subject to the fulfillment of the following
conditions: (i) the representations and warranties of Trace and Merger Sub,
without regard to any material adverse effect or any other materiality
qualification contained in any such representation or warranty, shall be true
and correct on and as of the Effective Time, with the same force and effect as
if made on and as of the Effective Time, unless the failure of such
representations and warranties to be true and correct would not reasonably be
expected to result in, individually or in the aggregate, a material adverse
effect on the ability of Trace and Merger Sub to consummate the transactions
contemplated by the Merger Agreement, including the Merger; and (ii) Trace and
Merger Sub shall have performed or complied in all material respects with all
agreements, conditions and covenants required by the Merger Agreement to be
performed or complied with by them on or before the Effective Time.
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after Stockholder approval of the terms of the
Merger Agreement: (i) by mutual written consent of the Boards of Directors of
Trace and the Company, with the concurrence of the Special Committee in the case
of the Company; (ii) by either Trace or the Company (with the concurrence of the
Special Committee if by the Company), if the Merger Agreement shall have been
voted on by the Stockholders at the Special Meeting and the vote shall not have
been sufficient to satisfy the conditions set forth above under the caption
"Conditions to the Merger"; (iii) by either Trace or the Company if any
governmental entity shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
acceptance for payment of, or payment for, Public Shares pursuant to the Merger
and such order, decree or ruling or other action shall have become final and
nonappealable; (iv) by either Trace or the Company (with the concurrence of the
Special Committee, if by the Company), if the Merger shall not have been
consummated by December 31, 1998; provided, however, that the right to terminate
the Merger Agreement shall not be available to any party whose failure to
perform any of its obligations under the Merger Agreement has been the cause of,
or resulted in, the failure of the Merger to occur on or before such date; (v)
by Trace or Merger Sub, if the Company shall have breached in any material
respect any representation, warranty, covenant or other agreement contained in
the Merger Agreement which breach is incapable of being cured or has not been
cured within 30 days after the giving of written notice to the Company; (vi) by
the Company (with the concurrence of the Special Committee), if Trace or Merger
Sub shall have breached any of their respective representations, warranties,
covenants or other agreements contained in the Merger Agreement which breach is
incapable of being cured or has not been cured within 30 days after the giving
of written notice to Trace or Merger Sub, as applicable; (vii) by Trace or
Merger Sub, if the Company's Board of Directors or the Special Committee (A) has
withdrawn or modified or
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amended in any respect its recommendation of the Merger Agreement or the Merger,
(B) has caused the Company to enter into an agreement with a third party with
respect to any Takeover Proposal, or (C) the Board of Directors of the Company
or the Special Committee shall have resolved to take any of the foregoing
actions; (viii) by the Company with the concurrence of the Special Committee,
(x) if the Company's Board of Directors or the Special Committee shall have
withdrawn its recommendation of the Merger Agreement or the Merger or shall have
approved or recommended a Takeover Proposal, (y) in connection with entering
into an agreement with a third party with respect to any Takeover Proposal, or
(z) if the Board of Directors of the Company or the Special Committee shall have
resolved to take any of the foregoing actions, provided that in any case the
Company, the Board of Directors of the Company and the Special Committee shall
have complied with certain obligations provided in the Merger Agreement,
including making simultaneous payment of Trace's expenses and the Termination
Fee; or (ix) by the Special Committee on behalf of the Company, if the Special
Committee shall have withdrawn its recommendation of the Merger Agreement or the
Merger or shall have approved or recommended a Takeover Proposal, or if the
Special Committee shall have resolved to take any of the foregoing actions,
provided that in any case the Special Committee shall have complied with certain
obligations provided in the Merger Agreement, including making simultaneous
payment of Trace's expenses and the Termination Fee or (x) by Trace, Merger Sub
or the Company if any of the respective conditions described above under
"--Conditions to the Merger" that (A) are required to occur prior to the
Effective Time shall have become incapable of occurring, or (B) are not
permitted to occur prior to the Effective Time, shall have occurred prior to
such time and are incapable of being cured or reserved, and, in either case,
shall not have been, on or before the date of such termination, permanently
waived by such party. The Merger Agreement provides that in the event of its
termination, no party thereto will have any liability or further obligation to
any other party to the Merger Agreement, provided that certain obligations under
the Merger Agreement shall survive any termination, including the obligation to
pay the Termination Fee as described under "--Fees and Expenses."
Fees and Expenses
The Merger Agreement provides that, except as provided in the following
paragraph, whether or not the Merger is consummated, all fees and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses.
If a Triggering Transaction (as defined below) is consummated within
twelve months of the termination of the Merger Agreement and the Merger
Agreement was terminated by (i) Trace or Merger Sub as a result of (A) actions
described under clause (v) under "--Termination" above; (B) actions described
under clause (vii) under "--Termination" above; or (C) at the time of the
termination of the Merger Agreement Trace or Merger Sub had the right to
terminate the Merger Agreement under such provisions, (ii) the Company
terminated the Merger Agreement as a result of actions described in clause
(viii) under "--Termination" above; (iii) the Special Committee terminated the
Merger Agreement as a result of actions described in clause (ix) under
"--Termination" above; or (4) prior to any termination of the Merger Agreement,
the Company had materially breached the provisions of the Merger Agreement
described in "--No Solicitation" above; then the Company shall pay, or cause to
be paid, to Trace $30 million (the "Termination Fee"). The Termination Fee shall
be paid in same day funds at the time of the first receipt by a holder of shares
of Common Stock (other than the Trace Stockholders) of any consideration arising
out of the Triggering Transaction.
58
<PAGE>
For purposes of the Merger Agreement, a "Triggering Transaction" means
any of the transactions described in clauses (w), (x) (in the event the
transaction involves all or substantially all of the consolidated assets of the
Company and its subsidiaries), or (z) (in the event the 25% threshold is reached
without including in the shares of Common Stock of which beneficial ownership
was acquired those shares that immediately prior to the transaction were owned
by the Trace Stockholders) of the definition of "Takeover Proposal" set forth in
"Summary--The Merger--No Solicitation" with any person other than Trace or any
of its "affiliates" (as such term is used in the Exchange Act), other than the
Company and its subsidiaries, which either (i) provides that each share of
Common Stock (excluding the shares of Common Stock owned by the Trace
Stockholders) that is purchased or otherwise acquired or exchanged in connection
with such transaction will receive consideration having a value at the time of
the consummation of such transaction equal to or greater than the Merger
Consideration or (ii) was proposed to the Company, or publicly disclosed, prior
to the termination of the Merger Agreement.
Indemnification of Directors and Officers
Trace has agreed in the Merger Agreement, subject to certain
limitations, that all rights to indemnification with respect to matters
occurring through the Effective Time, existing in favor of directors, officers
or employees of the Company as provided in the Company's Certificate of
Incorporation, By-Laws or certain existing indemnification agreements between
the Company and such parties, shall survive the Merger and shall continue in
full force and effect for a period of not less than six years from the Effective
Time. In furtherance of such, the Company will purchase and pay all premiums
with respect to a six-year extension of the current policies of such directors
and officers' liability insurance maintained by the Company with respect to
matters arising before and acts or omissions occurring or existing at or prior
to the Effective Time, including the transactions contemplated by the Merger
Agreement. The Company's Certificate of Incorporation, Bylaws and such existing
indemnification agreements provide for indemnification of the Company's
directors and officers under certain circumstances for actions taken on behalf
of the Company.
Access to Information
The Company has agreed to afford Trace and its representatives, upon
reasonable advance notice, access during normal business hours prior to the
Effective Time to the properties, books, contracts, insurance policies,
commitments and records of the Company and its subsidiaries, and during such
period promptly to furnish Trace with such other information concerning its
business, properties and personnel as Trace may reasonably request.
Legal Compliance
Subject to the terms and conditions in the Merger Agreement, each of
the parties to the Merger Agreement has agreed to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, each of the Company, Trace and Merger Sub has agreed to use its
reasonable best efforts to comply promptly with all legal requirements that may
be imposed on it with respect to the Merger Agreement and the transactions
contemplated thereby and to cooperate with, and furnish information to, each
other in connection with any such requirements imposed upon any of them or any
of the subsidiaries in connection with the Merger Agreement and the transactions
contemplated thereby.
59
<PAGE>
Amendment
The Merger Agreement provides that it may be amended, modified and
supplemented in any and all respects, whether before or after any approval of
the Merger Agreement by the Stockholders of the Company, by written agreement of
the Company, Trace and Merger Sub, at any time prior to the Effective Time;
provided, however, that the Company shall only agree to any material
modification, amendment, supplement or waiver with the consent of the Special
Committee; and provided, further, that after the approval of the Merger
Agreement by the Stockholders of the Company, no such amendment, modification or
supplement shall reduce the amount or change the form of the Merger
Consideration without further approval by the holders of such number of shares
of Common Stock that are required to approve the Merger Agreement pursuant to
the DGCL.
CERTAIN PROJECTED FINANCIAL DATA
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in order to
aid the evaluation of the Company by the Special Committee and the Special
Financial Advisor and the Special Financial Advisor's assessment of the
fairness, from a financial point of view, of the Merger Consideration, the
Company in May 1998 furnished the Special Committee and the Special Financial
Advisor with certain projections (the "Projections") prepared by the Company's
management and, therefore, the Projections are included herein. The following
summary of the Projections is included in this Proxy Statement solely because
such was made available to such parties. The Projections do not reflect any of
the effects of the Merger or other changes that may in the future be deemed
appropriate concerning the Company and its assets, business, operations,
properties, policies, corporate structure, capitalization and management in
light of the circumstances then existing. Accordingly, the Projections do not
reflect the Company's or management's view of the Company's expected results
following the Merger.
The Projections were not prepared with a view toward public disclosure
or compliance with published guidelines of the SEC or the American Institute of
Certified Public Accountants regarding forward-looking information or generally
accepted accounting principles. Neither the Company's independent auditors, nor
any other independent accountants, have compiled, examined, or performed any
procedures with respect to the prospective financial information contained
herein, nor have they expressed any opinion or given any form of assurance on
such information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.
Furthermore, the Projections necessarily make numerous assumptions, some (but
not all) of which are set forth below and many of which are beyond the control
of the Company and may prove not to have been, or may no longer be, accurate.
Additionally, this information, except as otherwise indicated, does not reflect
revised prospects for the Company's businesses, changes in general business and
economic conditions, or any other transaction or event that has occurred or that
may occur and that was not anticipated at the time such information was
prepared. Accordingly, such information is not necessarily indicative of current
values or future performance, which may be significantly more favorable or less
favorable than as set forth below, and should not be regarded as a
representation that they will be achieved.
The Company has also made certain forward-looking statements in this
Proxy Statement and the documents incorporated by reference herein. These
statements are based on the Company's management's beliefs and assumptions,
based on information available to it at the time such statements
60
<PAGE>
were prepared. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF PERFORMANCE.
THEY INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND
STOCKHOLDER VALUES OF THE COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN
THESE FORWARD-LOOKING STATEMENTS. MANY OF THE FACTORS THAT WILL DETERMINE THESE
RESULTS AND VALUES ARE BEYOND THE COMPANY'S ABILITY TO CONTROL OR PREDICT.
STOCKHOLDERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS.
Stockholders should understand that the following important factors, in
addition to those discussed elsewhere in the Proxy Statement and in the
documents which are incorporated by reference into this Proxy Statement, could
affect the future results of the Company and could cause results to differ
materially from those expressed in such forward-looking statements and the
Projections: (i) the effect of general economic conditions, both domestic and
international; (ii) the Company's outstanding indebtedness and leverage; (iii)
restrictions imposed by the terms of the Company's indebtedness; (iv) the impact
of raw material costs; (v) future capital requirements; (vi) the impact of
competition, including its impact on market share and prospects in each of the
Company's business units; (vii) the loss of key employees; (viii) the impact of
litigation; (ix) the impact of current or pending legislation and regulations,
and (x) other factors that may be described from time to time in filings of the
Company with the SEC. It is likely that there will be differences between the
Projections and actual results because events and circumstances frequently do
not occur as expected, and such differences may be material. Internal financial
forecasts were prepared in connection with the acquisition of the Company's
automotive and specialty industrial textile business in 1994 and certain other
material transactions since 1994. The Company failed to achieve the results
forecasted therein. Operating management of the Company has changed since the
date of such forecasts.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF THE
COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF
THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND THE
COMPANY'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS WILL BE REALIZED OR THAT THE COMPANY'S FUTURE FINANCIAL RESULTS WILL
NOT MATERIALLY VARY FROM THE PROJECTIONS. THE COMPANY DOES NOT INTEND TO UPDATE
OR REVISE THE PROJECTIONS.
61
<PAGE>
FOAMEX INTERNATIONAL INC.
(in millions except percentages)
<TABLE>
<CAPTION>
Projected For Fiscal Years
---------------------------------------------------------------
1998 1999 2000 2001 2002
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales................. $1,353.1 $1,487.6 $1,554.5 $1,625.3 $1,698.3
Growth Rate............ 7.7% 9.9% 4.5% 4.5% 4.5%
Cost of Sales............. 1,113.8 1,234.1 1,289.0 1,348.2 1,409.0
------- ------- ------- ------- -------
Gross Profit........... 239.3 253.5 265.5 277.1 289.2
Gross Margin........... 17.7% 17.0% 17.1% 17.1% 17.0%
SG&A Expense.............. 84.0 89.7 94.1 98.8 103.7
------- ------- ------- ------- -------
Operating income....... 155.3 163.8 171.4 178.3 185.6
Interest Expense (net).... 73.2 69.7 66.8 62.6 58.1
------- ------- ------- ------- -------
Pre-tax Income......... 82.1 94.1 104.6 115.8 127.4
Income Tax Expense........ 32.8 37.7 41.8 46.3 51.0
------- ------- ------- ------- -------
Net Income............. $49.2 $56.5 $62.7 $69.5 $76.5
======= ======= ======= ======= =======
</TABLE>
(figures may not add due to rounding)
The Projections included herein have been prepared by the Company based
upon management's estimates of the total market for polyurethane foam products
and the Company's own performance through 2002, as well as cost reductions of in
excess of $20 million in 1998 and $35 million in 1999 reflected in Cost of Sales
and SG&A Expense related to the integration of the Crain Acquisition. The
projected results for fiscal 1998 were based upon actual results through March
1998 and management forecasts for the remainder of the year. In the projections,
(i) the increase in net sales for 1998 over pro forma 1997 of approximately
7.7%, reflects new business captured by the Company in all of its business
areas, (ii) the increase in net sales for 1999 of approximately 9.9% reflects
new business captured by the Company, particularly in automotive lamination,
(iii) the increase in net sales in each of 2000, 2001, 2002 of approximately
4.5% per annum reflects reduced general economic growth, partially offset by
increased growth of the Company's international divisions in Mexico and Asia,
(iv) gross margins in 1998 are forecasted to be 17.7% and to decrease to 17.0%
in 1999 and then increase only slightly due to business mix, (v) selling,
general and administrative expenses are forecasted to be 6.2% of sales in 1998
and to decrease to 6.0% in 1999 as a full year of cost reductions related to the
Crain Acquisition are realized, (vi) interest expense reflects the anticipated
expense related to the Company's various pieces of public and non-public debt,
as well as the amortization of deferred financing costs and the amortization of
the premium on the Company's 13.50% Senior Subordinated Notes, and (vii) income
taxes reflect all state and federal income taxes, both domestic and foreign.
62
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below is certain historical consolidated financial
information of the Company. The selected financial information for, and as of
the end of, each of the years in the five year period ended December 28, 1997 is
derived from, and should be read in conjunction with, the historical
consolidated financial statements of the Company and its subsidiaries, which
consolidated financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants. The selected financial information for, and as of
the end of, the six month periods ended June 28, 1998 and June 29, 1997 is
derived from, and should be read in conjunction with, the Company's unaudited
financial statements. Operating results for the six months ended June 28, 1998
are not necessarily indicative of results for the full year. The financial
information that follows is qualified by reference to the financial statements
and related notes incorporated by reference herein.
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year (1) (2)
------------------- -------------------------------------------------------
June 28, June 29,
1998(3) 1997 1997 (4) 1996(5) 1995 (6) 1994 1993 (7)
-------- -------- -------- ------- -------- ------ --------
(unaudited) (thousands except for earnings per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net Sales.................. $612,269 $469,007 $931,095 $926,351 $862,834 $833,660 $684,310
Income (loss) from continuing
operations................. 16,699 17,606 4,131 32,492 (50,750) 22,211 (5,440)
Basic earnings per share from
continuing operations (8)(9) 0.67 0.70 0.16 1.28 1.92 0.83 --
Diluted earnings per share from
continuing operations (8)(9) 0.64 0.67 0.16 1.26 1.92 0.83 --
Balance Sheet Data (at period end):
Total assets............... $922,597 $647,425 $893,623 $619,846 $748,242 $786,895 $612,124
Long-term debt............. 789,659 547,348 735,724 483,344 514,954 502,980 414,445
Stockholders' equity
(deficit).................... (99,435) (87,045) (113,419) (58,103) 29,383 92,145 64,306
</TABLE>
(1) The Company has a 52 or 53 week fiscal year ending on the Sunday
closest to the end of the calendar year. Each fiscal year presented was
comprised of 52 weeks.
(2) Fiscal years 1993 through 1995 were restated for discontinued
operations.
(3) Includes the results of operations of Crain Industries from the date of
acquisition on December 23, 1997.
(4) The Statements of Operations Data includes restructuring and other
charges of $21.1 million (see Note 4 to the consolidated financial
statements incorporated by reference herein), but does not include the
results of operations of Crain Holdings which was acquired December 23,
1997 since the effect is insignificant. The Balance Sheet Data includes
the estimated fair value of the net assets acquired in the Crain
Acquisition.
(5) Includes restructuring credits of $6.5 million (see Note 4 to the
consolidated financial statement incorporated by reference herein).
(6) Includes restructuring and other charges of $41.4 million (see Note 4
to the consolidated financial statements incorporated by reference
herein).
(7) Includes the results of operations of General Felt and Great Western
Foam Products Corporation from March 23, 1993 and May 1, 1993,
respectively, and thus may not be comparable to other periods.
(8) In December 1993, the Company completed an initial public offering of
common stock; therefore, earnings (loss) per share for 1993 is not
applicable.
(9) As of December 28, 1997, the Company adopted SFAS 128 "Earnings Per
Share" and has restated all prior periods presented.
63
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following presents the Company's unaudited pro forma combined
Statements of Operations for the year ended December 28, 1997 and for the six
months ended June 28, 1998 which are derived from the historical financial
statements of the Company, Crain and SIMCO Corporation ("SIMCO").
The unaudited pro forma combined statements of operations for the year
ended December 28, 1997 and for the six months ended June 28, 1998 give effect
to the Crain Acquisition and Crain Industries' acquisition of Simco in May 1997,
as though each such transaction had occurred at the beginning of the earliest
period presented. The pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. The unaudited
pro forma combined financial statements are presented for illustrative purposes
only, and are, however, not necessarily indicative of the Company's results of
operations that might have occurred had such transactions been completed at the
beginning of the earliest period presented, and do not purport to indicate the
Company's combined results of operations for any future period. Upon
consummation of the Crain Acquisition, the Company initiated a plan to integrate
the Company's and Crain Industries' businesses. The Company has included pro
forma savings adjustments that are directly related to, and have been realized
in connection with, the Crain Acquisition.
The selected pro forma financial data should be read in conjunction
with the "Selected Historical Financial Data" and the related notes thereto set
forth above. The combined financial information that follows is qualified by
reference to the financial statements and related notes incorporated by
reference herein.
64
<PAGE>
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
For the year ended December 28, 1997
(thousands except for earnings per share)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Foamex Acquisition Savings
International(1) Crain(2) SIMCO(2) Adjustments(3) Adjustments Pro Forma
---------------- ---------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............. $ 931,095 $ 319,021 $6,596 $ -- $ -- $1,256,712
Cost of goods sold.... 787,756 249,516 5,301 22,015 (4) (2,400)(5) 1,062,188
Gross profit.......... 143,339 69,505 1,295 (22,015) 2,400 194,524
Selling, general and
administrative
expenses.......... 67,139 40,992 565 (7,446)(6) (9,731)(7) 91,519
Depreciation and
amortization....... -- 13,849 180 (14,029)(8) -- --
Restructuring and other
charges (credits).. 21,100 -- -- -- -- 21,100
Income (loss) from
operations......... 55,100 14,664 550 (540) 12,131 81,905
Interest and debt
issuance expense... 50,570 17,670 132 4,155 (9) -- 72,527
Other income (expense),
net................ 2,126 (285) 8 -- -- 1,849
Income (loss) from
continuing
operations before
provision for income
taxes.............. 6,656 (3,291) 426 (4,695) 12,131 11,227
Provision (benefit) for
income taxes....... 2,525 -- -- (1,853)(10) 4,852(10) 5,524
Income (loss) from
continuing operations $ 4,131 $ (3,291) $ 426 $ (2,842) $ (7,279) $ 5,703
Basic earnings per share $ .16 $ (.13) $ .02 $ (.11) $ .29 $ .23
Basic weighted average
shares outstanding... 25,189 25,189 25,189 25,189 25,189 25,189
Diluted earnings per
share................ $ .16 $ (.13) $ .02 $ (.11) $ .28 $ .22
Diluted weighted
average shares
outstanding.......... 25,700 25,700 25,700 25,700 25,700 25,700
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
combined statements of operations.
65
<PAGE>
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
For the six months ended June 28, 1998
(thousands except for earnings per share)
<TABLE>
<CAPTION>
Foamex Pro Forma
International(1) Savings
Adjustments Pro Forma
<S> <C> <C> <C>
Net sales............ $ 612,269 $ -- $ 612,269
Cost of goods sold... 504,151 -- 504,151
Gross profit......... 108,118 -- 108,118
Selling, general and
administrative
expenses.......... 43,238 (861)(7) 42,377
Income (loss) from
operations........ 64,880 861 65,741
Interest and debt
issuance expense.. 35,308 -- 35,308
Other income
(expense), net.... (1,745) -- (1,745)
Income (loss) from
continuing
operations
before provision
for income taxes.. 27,827 861 28,688
Provision
(benefit) for
income taxes...... 11,128 344(10) 11,472
Income (loss) from
continuing
operations........ $16,699 $ 517 $ 17,216
Basic earnings per
share............. $ .67 $ .02 $ .69
Basic weighted
average shares
outstanding....... 24,977 24,977 24,977
Diluted earnings per
share............. $ .64 $ .02 $ .66
Diluted weighted
average shares
outstanding....... 26,090 26,090 26,090
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
combined statements of operations.
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) The Company's consolidated statement of operations represents the
historical consolidated results of operations for the Company for
the periods presented.
(2) Crain Industries' statement of operations includes the results of Simco
Corporation ("Simco") from its acquisition in May 1997. The statement of
operations for Simco includes its pre-acquisition results.
(3) Pro forma acquisition adjustments represent the Company's acquisition of
Crain Industries, Crain Industries' acquisition and related financing of
Simco.
<TABLE>
<CAPTION>
Year Ended
December 28, 1997
-------------------
<S> <C>
(4) Reclassification of depreciation expense to cost of
goods sold................................................... $ 10,852
Reclassification of transportation costs from selling, general
and administrative expenses.................................. 12,963
Reduction of depreciation expenses................................. (1,800)
------
Total........................................................ $ 22,015
======
(5) Represents savings associated with Crain Industries purchasing of
principal raw materials on terms equivalent to the Company's supply
arrangements in effect during 1997.
Year Ended
December 28, 1997
-------------------
(6) Reclassification of amortization and depreciation expense to
selling, general and administrative
expenses..................................................... $ 3,177
Reclassification to transportation costs and cost of goods sold... (12,963)
Increase in goodwill amortization................................. (2,340)
------
Total........................................................ $ (7,446)
======
</TABLE>
(7) Elimination of salaries and other expenses associated with:
<TABLE>
<CAPTION>
Six Months
ended
Year Ended June 28,
December 28, 1997 1998
---------------------- ------------
<S> <C> <C>
Crain's prior shareholders...............................(a) $3,200 $ 0
Crain's prior corporate headquarters.....................(b) 2,372 336
Crain's prior administrative headquarters................(c) 1,679 310
Rationalization of sales force...........................(d) 1,736 74
Subtotal............................................... $8,987 $ 720
Reduction of insurance and other expenses................(e) 744 141
------ ------
Total.................................................. $9,731 $ 861
====== ======
</TABLE>
67
<PAGE>
(a) Elimination of salaries, benefits and other expenses associated with
employees of Crain Industries' former controlling shareholders.
(b) Elimination of salaries, benefits and other expenses associated with
administrative employees, comprised primarily of the executive
officers of Crain Industries, located in St. Louis, MO. The majority
of such employees were terminated during the first quarter of 1998
and the office was closed in June 1998.
(c) Elimination of salaries, benefits and other expenses associated with
administrative employees and research employees located in Ft.
Smith, Arkansas. The majority of such employees were terminated in
the first quarter of 1998.
(d) Elimination of salaries, benefits and other expenses associated with
twenty-six employees. The majority of such employees were terminated
in the first quarter of 1998.
(e) Represents reduction in insurance costs resulting from terminating
Crain Industries' insurance policies and combining them with
Foamex's at lower cost. Also includes savings resulting from
terminating Crain's accounts receivable factoring arrangement with a
commercial bank. Such accounts receivable management functions have
been absorbed into the Company's existing credit management and
accounts receivable functions.
<TABLE>
<CAPTION>
Year Ended
December 28, 1997
-------------------
<S> <C>
(8) Reclassification to cost of goods
sold........................................................... $ (10,852)
Reclassification to selling, general and administrative expenses.... (3,177
-----------
Total.......................................................... $ (14,029)
===========
(9) Elimination of historical Crain interest and debt issuance
expenses....................................................... $ (18,264)
Interest and debt issuance costs on financings associated with
the Crain Acquisition.......................................... 21,957
Interest and debt issuance costs associated with Simco Acquisition.. 462
-----------
Total.......................................................... $ 4,155
===========
(10) Assumes an effective income tax rate of 40.0%.
</TABLE>
CERTAIN TRANSACTIONS
The Company regularly enters into transactions with its affiliates on
terms it believes to be no less favorable than those that could be obtained in
third party transactions. Payments to affiliates by Foamex L.P. and its
subsidiaries in connection with any such transactions are governed by the
provisions of the indentures for their public debt securities which generally
provide that such transactions be on terms comparable to those generally
available in equivalent transactions with third parties.
Merger. In connection with the Merger, the Company and its subsidiaries
intend to engage in certain transactions with Trace and its subsidiaries
described below. Upon consummation of the Merger, Foamex Holdings will pay to
Trace a success fee in the amount of $17.5 million. In addition,
68
<PAGE>
Foamex Holdings will loan approximately $47.5 million to Trace. The term, the
interest rate and other material terms of the loan have not yet been determined.
In connection with the Merger, the management agreement and tax sharing
agreements will be amended as described below under "Tax Sharing Agreement" and
"Management Agreement". In addition, Foamex Corp., FMXI and Foamex Carpet will
make an aggregate advance to Trace of $75.0 million against future payment
obligations under the tax sharing agreement.
Also in connection with the consummation of the Merger, Trace will
assign to the Company its right to receive a portion of the payments under the
management agreement in exchange for $40 million initial accreted value of
Junior Debentures. It is anticipated that the Company will declare an annual
dividend to Trace in the amount of such assigned payments.
GFI Transaction. On February 27, 1998, the Company and certain of its
affiliates engaged in a series of transactions (collectively, the "GFI
Transaction") designed to simplify the Company's corporate structure and to
provide future operational flexibility.
Pursuant to a Transfer Agreement, dated as of February 27, 1998, by and
between Foamex L.P. and Foam Funding LLC, an indirect wholly owned subsidiary of
Trace ("Foam Funding"), Foamex L.P. transferred (the "GFI Transfer") to Foam
Funding all of the outstanding common stock of General Felt Industries, Inc.
("General Felt"), in exchange for (i) the assumption by Foam Funding of $129
million of Foamex L.P.'s indebtedness, and (ii) the transfer by Foam Funding to
Foamex L.P. of a 1% non-managing general partnership interest in Foamex L.P. The
amount of consideration was arrived at based on an independent, third party
appraisal of General Felt. As a result of the GFI Transfer, General Felt ceased
being a subsidiary of Foamex L.P. and was released from all obligations under
Foamex L.P.'s Senior Subordinated Notes.
Upon consummation of the Transfer, (i) pursuant to an Asset Purchase
Agreement, dated as of February 27, 1998, by and among Foamex Carpet, the
Company, Foam Funding and General Felt, General Felt sold substantially all of
its assets (other than approximately $4.8 million cash on hand that was used to
repay outstanding indebtedness and its owned real estate and a certain
promissory note) to Foamex Carpet in exchange for (A) $20 million in cash and
(B) a promissory note issued by Foamex Carpet in favor of Foam Funding in the
amount of $70.2 million (the "Foamex Carpet Note"), and (ii) pursuant to a Lease
Agreement, dated as of February 27, 1998, by and between Foamex Carpet and Foam
Funding, Foamex Carpet leased all of the real estate of General Felt (the
"Foamex Carpet Lease"). Pursuant to the Foamex International Guaranty, dated as
of February 27, 1998, the Company guaranteed Foamex Carpet's obligations under
the Foamex Carpet Note and the Foamex Carpet Lease, which guarantee is secured
by a pledge of the Company's partnership interests in Foamex L.P.
Pico Rivera Lease. Foam Funding and Foamex Carpet entered into a lease,
dated as of February 27, 1998, for the premises located in Pico Rivera,
California for an initial term ending on December 31, 2004, which term may be
extended for consecutive one-year periods commencing on January 1, 2005 and
expiring on December 31, 2007. The lease is a net lease and Foamex Carpet has no
right to terminate for any reason during the term and all expenses and
impositions in connection with the premises are the obligation of Foamex Carpet.
The basic, or fixed, rent is $380,239 per year ($31,686.58 per month). If Foam
Funding shall desire to sell or convey all or any part of the leased premises,
and Foam Funding obtains from a third party a bona fide arms' length, written
purchase offer (the "Offer"), Foamex Carpet may elect to purchase the portion of
the leased premises which is the subject of the Offer on the precise terms and
conditions of the Offer. Foamex Carpet shall also have the right (the "Option")
at any time during the term to purchase all of
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<PAGE>
the leased premises from Foam Funding for a purchase price which is determined
to be fair market value on the date of the exercise of the Option as determined
by an appraisal made by two independent qualified appraisers, one selected by
Foam Funding and one selected by Foamex Carpet.
Tax Sharing Agreement. In 1992, Foamex L.P. and its partners entered
into a tax sharing agreement, as amended (the "Foamex L.P. Tax Sharing
Agreement"), pursuant to which Foamex L.P. agreed to make quarterly
distributions to its partners which, in the aggregate, will equal the tax
liability that Foamex L.P. would have paid if it had been a Delaware corporation
filing separate tax returns rather than a Delaware partnership. In 1997, Foamex
L.P. made payments pursuant to the terms of the Foamex L.P. Tax Sharing
Agreement of approximately (i) $8.7 million to the Company and its subsidiaries
and (ii) $0.1 million to TFC. In 1996, Foamex L.P. made payments pursuant to the
terms of the Foamex L.P. Tax Sharing Agreement of approximately (i) $3.4 million
to the Company and its subsidiaries and (ii) $45,000 to TFC.
In connection with the Merger, Foamex Carpet, Foamex Funding, FMXI,
Foamex Corp., Foamex Holdings, the Company, Trace Foam Sub, TFC and Trace
(collectively, the "Tax Sharing Entities") will enter into a new tax sharing
agreement, and the existing tax sharing agreements of the Tax Sharing Entities
which were in effect will be modified or terminated. The new tax sharing
agreement will generally provide that the Tax Sharing Entities will distribute
to Trace the amount that they would be required to pay in taxes were they not a
member of Trace's consolidated group. The agreement will also provide that any
tax payments to Trace that are attributable to partnership interests in Foamex
L.P. will be funded by pro rata distributions from Foamex L.P. to its partners
in proportion to their respective partnership interests. In addition, following
consummation of the Merger, Foamex Corp., FMXI and Foamex Carpet intend to make
an aggregate advance of $75.0 million to Trace to be credited against future
payments due under such new tax sharing agreement.
Management Agreement. Foamex L.P. and TFC have entered into a
management services agreement pursuant to which TFC provides Foamex L.P. 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. For the fiscal year ended December 28, 1997,
Foamex L.P. made payments of approximately $2.4 million pursuant to the terms of
the Management Agreement to Trace and its subsidiaries.
Following consummation of the Merger, Foamex L.P., Foamex Carpet, FMXI,
Foamex Corp. and Trace will enter into a management services agreement, which is
expected to increase the aggregate annual fee payable by Foamex Carpet, Foamex
Corp., and FMXI to the greater of $10.0 million or 1% of net sales. The New
Credit Facility will restrict the ability of Foamex L.P. to make the
distributions described below to Foamex Corp. and FMXI in connection with the
management services agreement. Also in connection with the consummation of the
Merger, Trace will assign to the Company its right to receive certain of the
payments under the management services agreement in exchange for $40 million
initial accreted value of Junior Discount Debentures of Foamex Holdings. Foamex
L.P. has informed Foamex Holdings that it intends to declare annual pro rata
distributions to Foamex Corp. and FMXI in the amount of their aggregate payments
under the management services agreement.
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Indemnification Regarding Environmental Matters. Pursuant to the Asset
Transfer Agreement, dated as of October 2, 1990, as amended, between Trace and
Foamex L.P. (the "Trace Asset Transfer Agreement"), Foamex L.P. is indemnified
by Trace for any liabilities incurred by Foamex L.P. arising out of or resulting
from, among other things, the ownership or use of any of the assets transferred
pursuant to the Trace 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 Asset Transfer Agreement) without
regard to when such injuries or diseases are first manifested, (ii) the
generation, processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance, whether on or off the premises from which the
transferred business has been conducted or (iii) any pollution or other damage
or injury to the environment, whether on or off the premises from which the
transferred business has been conducted. Foamex L.P. is also indemnified by
Trace for any liabilities arising under Environmental Laws (as defined in the
Trace Asset Transfer Agreement) relating to current or former Trace assets and
for any liability relating to products of the transferred business shipped on or
prior to October 2, 1990.
Certain Transactions Relating to the Acquisition of General Felt. In
connection with the Company's acquisition of General Felt Industries, Inc.
("General Felt") in March 1993, Trace and General Felt entered into the General
Felt Reimbursement Agreement pursuant to which Trace has agreed to reimburse
General Felt on a pro rata basis reflecting the period of time each has occupied
the facility for costs relating to a cleanup plan for a facility in Trenton, New
Jersey formerly owned by General Felt. In fiscal 1997 and 1996, such pro rata
amounts attributable to Trace were approximately $149,000 and $97,000,
respectively. In connection with the GFI Transaction, the General Felt
Reimbursement Agreement was assigned by General Felt to Foamex Carpet.
Other Transactions. The Company made charitable contributions to the
Trace International Holdings, Inc. Foundation (the "Foundation") in the amount
of $200,000 in each of fiscal 1997 and fiscal 1996. The Foundation is a Delaware
tax-exempt private foundation. Marshall S. Cogan is the sole director of the
Foundation.
On July 7, 1996, Trace issued to Foamex L.P. 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 1997 refinancing, 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 1997
refinancing, on July 1, 1997 Trace borrowed an additional $5.0 million on terms
and conditions substantially similar to the existing promissory note.
In connection with the June 1997 refinancing, Foamex L.P. made a cash
distribution of approximately $1.5 million to TFC.
Trace 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. The lease commenced October 1, 1993 and the occupancy and rent payments
commenced 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
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<PAGE>
for the period October 1, 1994 through September 30, 1999 is $679,868 and for
the period October 1, 1999 through September 30, 2004 is $735,652. Under the
lease, Foamex L.P. is required to pay certain excess real estate taxes and
operating expenses incurred by lessor relating to the property for which it will
be proportionally reimbursed by Trace. The rental terms were the result of
arm-length negotiations between Foamex L.P. and the third party lessor. Trace
will reimburse, through increased rent, Foamex L.P. for the cost of any
leasehold improvements applicable to the space occupied for the benefit of
Trace.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of June
25, 1998, regarding the beneficial ownership of Common Stock by (i) each
stockholder who is known by the Company to own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company, (iv) all directors and executive officers of the Company
as a group and (v) each director and executive officer of Trace. Except as
otherwise indicated, each stockholder has (i) sole voting and investment power
with respect to such stockholder's shares of stock, except to the extent that
authority is shared by spouses under applicable law and (ii) record and
beneficial ownership with respect to such stockholder's shares of stock.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
------------------------------------------------------
Number of Shares
Consisting of
Options and % of Class
Name and Address of Beneficial Owners Number of Shares Warrants (2) Outstanding
- ------------------------------------- ---------------- ---------------- -----------
<S> <C> <C> <C>
Trace International Holdings, Inc. (3) 11,525,000 -- 46.1
375 Park Avenue, 11th Floor
New York, New York 10152
Trace Foam Sub, Inc. (3) 7,000,247 -- 27.9
375 Park Avenue, 11th Floor
New York, New York 10152
Lion Advisors, L.P. (4) 3,347,421 1,062,349 13.4
1301 Avenue of the Americas
New York, New York 10019
Apollo Advisors, L.P. (4) 3,347,421 1,062,349 13.4
2 Manhattanville Road
Purchase, New York 10577
Andrea Farace 52,546 33,546 *
Marshall S. Cogan (3)(5) 12,194,167 269,167 48.8
Robert J. Hay 9,944 -- *
Rolf E. Christensen 12,106 11,378 *
John H. Gutfreund -- -- *
Stuart J. Hershon (6) 36,166 -- *
Etienne Davignon 20,836 -- *
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<PAGE>
John V. Tunney (7) 15,200 -- *
Barry Zimmerman (8) 19,819 14,819 *
Philip N. Smith, Jr. (5)(8) 18,025 5,928 *
Phil Allen 12,310 10,186 *
Gregory M. Barbe 4,324 314 *
Gregory W. Brown 7,165 2,000 *
Christine A. Henisee 1,355 -- *
Stephen Drap 4,660 1,688 *
Darrell Nance -- -- *
Pratt Wallace -- -- *
All executive officers and directors of the Company as 12,408,623 349,026 49.62
a group (17 persons) (3)(5)(6)(7)
Saul S. Sherman (9) -- -- *
Fredrick Marcus (9)(10) 29,402 19,402 *
Robert H. Nelson (11) 9,737 9,737 *
Karl H. Winters (11) 3,638 3,638 *
Tambra S. King (11) 713 198 *
</TABLE>
- ---------------------
* Less than 1%.
(1) Each named person is deemed to be the beneficial owner of securities
which may be acquired within sixty days through the exercise of
options, warrants and rights, if any, and such securities are deemed to
be outstanding for the purpose of computing the percentage of the class
beneficially owned by such person. However, any such shares are not
deemed to be outstanding for the purpose of computing the percentage of
the class beneficially owned by any other person, except as noted.
** 1 (2) Represents the number of shares of Common Stock which may be
acquired within sixty days through the exercise of options or warrants
included in the "Number of Shares" beneficially owned by each person.
(3) Trace Foam Sub is wholly-owned by Trace. The number of shares
beneficially owned by Trace includes the shares beneficially owned by
Trace Foam Sub. Additionally, 50,000 shares
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<PAGE>
of the Common Stock reported herein are held in trust for the exclusive
benefit of participants under the Trace International Holdings, Inc.
Retirement Plan for Salaried Employees (the "Retirement Plan").
Marshall S. Cogan, Chairman of the Board and President of Trace Foam
Sub, is the Chairman of the Board, Chief Executive Officer and majority
stockholder of Trace. Mr. Cogan disclaims beneficial ownership of the
Common Stock owned by Trace Foam Sub, Trace or the Retirement Plan.
* 1 moved from here; text not shown
(4) Lion Advisors, L.P. ("Lion"), pursuant to an investment advisory
contract with its client, Marely I s.a. ("Marely"), possesses the sole
power to vote and dispose of 1,548,710 of the indicated shares, which
shares are held for the account of Marely. Apollo Advisors, L.P., which
is an affiliate of Lion, possesses the sole power to vote and dispose
of 1,798,711 of the shares in its capacity as managing general partner
of AIF II, L.P., for whose account the shares are held. The Common
Stock presented in the table includes 531,174 shares of Common Stock
issuable to Marely and 531,175 shares issuable to AIF II, L.P. upon the
exercise of warrants exercisable at any time on or before October 12,
1999 at an exercise price of approximately $12.30 per share.
* 2 moved from here; text not shown
(5) Mr. Cogan, Mr. Zimmerman and Mr. Smith are also officers of Trace.
(6) Includes 35,087 shares of Common Stock held in the name of his wife and
1,079 shares of Common Stock held by a trust of which Dr. Hershon is
the sole trustee.
(7) Includes 9,000 shares of Common Stock held in a trust of which Mr.
Tunney serves as a co-trustee.
**2 (8) Includes shares of the Company's Common Stock held by officers
and directors under the Company's 401(k) Plan. In the above table
12,151 of such shares have been included for All Executive Officers and
Directors as a Group under the Company's 401(k) Plan. Includes 2,450
shares of Common Stock held by the immediate family members of an
executive officer, as to which such executive officer disclaims
beneficial ownership.
(9) Mr. Sherman is a director and Vice Chairman of the Board of Trace and
Mr. Marcus is a director, Vice Chairman of the Board and Senior
Managing Director of Trace.
* 3 moved from here; text not shown
(10) Additionally, Mr. Marcus' deceased father's estate owns 6,000
shares of Common Stock. Such shares have not been included in the table
since Mr. Marcus only manages the portfolio and thus disclaims
beneficial ownership of the shares.
**3 (11) Mr. Nelson is Senior Vice President, Chief Operating Officer and
Chief Financial Officer of Trace, Mr. Winters is Vice
President--Finance and Controller of Trace and Ms. King is Vice
President and Secretary of Trace.
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<PAGE>
PAYMENTS RELATING TO THE IPO
In connection with the Company's initial public offering in 1993, Trace
agreed to grant shares (the "Granted Shares") of Common Stock to certain
individuals who were officers of Trace at such time. Fifty percent of the
Granted Shares were scheduled to be issued on December 15, 1995 and 50% are
scheduled to be issued on December 15, 1998; however, to date, no Granted Shares
have been issued. Trace currently plans to make cash payments to these
individuals upon the closing of the Merger in an amount equal to 50% of the
number of Granted Shares to be issued to such persons multiplied by $18.75 per
Granted Share; provided, however, that Trace may elect to make cash payments to
such individuals at such time in an amount equal to 100% of the number of
Granted Shares to be issued to such persons multiplied by $18.75 per Granted
Share (the "Full Payment"). Set forth below is a table listing the current
officers or directors of Trace or the Company who will receive cash payments
relating to the Granted Shares, the number of Granted Shares issued to such
persons and the cash payments to be made to such persons by Trace upon the
closing of the Merger (assuming Trace elects to make the Full Payment).
<TABLE>
<CAPTION>
Number of Granted
Shares Cash Payment
----------------- ------------
<S> <C> <C>
Andrea Farace 23,333 $491,663
Philip N. Smith, Jr. 10,000 $187,500
Barry Zimmerman 15,000 $281,250
Fredrick Marcus 18,333 $343,744
Robert H. Nelson 18,333 $343,744
</TABLE>
Directors and Executive Officers of the Company, Trace and Merger Sub
As set forth in Appendix D, certain directors and executive officers of
the Company are also directors or executive officers of Trace or Merger Sub.
With the exception of the ownership of shares of Common Stock by certain of such
persons set forth in "Security Ownership of Management and Certain Beneficial
Owners", no director or executive officer of the Company, Trace or Merger Sub
owns any shares of Common Stock.
In connection with the Company's acquisition of Great Western, Trace
entered into a put option agreement (the "Put Option") with John Rallis, the
former President of the Company and owner of Great Western Foam Products
Corporation. Pursuant to the Put Option, Mr. Rallis has the right and option to
sell 308,813 shares of the Company's Common Stock for approximately $7.5
million, or $24.29 per share, at any time during the period commencing May 6,
1998 through August 4, 1998. It is anticipated that in connection with the
consummation of the Merger, Trace will pay to Mr. Rallis the difference between
the amount payable to Mr. Rallis upon exercise of the Put Option and the Merger
Consideration with respect to the underlying shares of Common Stock.
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<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is listed on Nasdaq under the symbol "FMXI." On March
13, 1998, the last trading day before the public announcement of Trace's
proposal to acquire all the shares of Common Stock held by the Public
Stockholders, the reported closing price per share of the Common Stock was
$13-7/8. On June 24, 1998, the last trading day before the public announcement
of the execution of the Merger Agreement, the reported closing sale price per
share of the Common Stock was $16-3/16. On , 1998, the last full trading day
prior to the date of this Proxy Statement, the reported closing sale price per
share of the Common Stock was $ . STOCKHOLDERS ARE URGED TO OBTAIN A
CURRENT PRICE QUOTATION FOR THE COMMON STOCK.
In December 1997, the Board of Directors declared a regular $0.05 per
share cash dividend, payable in January 1998. Prior to that time, the Company
did not declare or pay any cash dividends. The declaration and payment of
dividends by the Company are subject to the discretion of the Board of
Directors. The payment of any future dividends will be determined by the Board
of Directors in light of conditions then existing, including the Company's
earnings, financial condition and requirements, restrictions in financing
agreements, business conditions and other factors. The Company is a holding
company whose assets consist primarily of its indirect ownership of a 2%
managing general partnership interest and its direct ownership of a 98% limited
partnership interest in Foamex L.P. and its direct ownership of all of the
capital stock of Foamex Carpet. Consequently, the Company's ability to pay
dividends is dependent upon the earnings of Foamex L.P., Foamex Carpet and any
future subsidiaries of the Company and the distribution of those earnings to the
Company and loans or advances by Foamex L.P., Foamex Carpet and any such future
subsidiaries of the Company. The ability of Foamex L.P. and Foamex Carpet to
make distributions is restricted by the terms of their financing agreements.
The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices per share of the Common Stock, based on information
supplied by Nasdaq.
<TABLE>
<CAPTION>
LOW HIGH
<S> <C> <C>
1996
First Quarter 6 3/8 9 7/8
Second Quarter 9 12 7/8
Third Quarter 11 1/4 17
Fourth Quarter 12 5/8 17 5/8
1997
First Quarter 15 22 1/8
Second Quarter 12 15 7/8
Third Quarter 9 1/2 15 1/4
Fourth Quarter 9 3/8 14 1/2
1998
First Quarter 10 7/8 18 3/8
Second Quarter 14 3/4 18 1/8
Third Quarter (through , 1998) [ ] [ ]
</TABLE>
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<PAGE>
CERTAIN TRANSACTIONS IN THE COMMON STOCK
There were no transactions in the Common Stock of the Company that were
effected during the past 60 days (excluding transactions pursuant to the
Company's 401(k) Plan) by (i) the Company, (ii) any director or executive
officer of the Company, (iii) any person controlling the Company or (iv) any
director or executive officer of the person ultimately in control of the
Company, Trace or Merger Sub.
The following table sets forth for each fiscal quarter of the Company
since December 31, 1995 (i) the amount of Common Stock purchased by the Company,
(ii) the average purchase price paid for such Common Stock and (iii) the high
and the low prices paid for such Common Stock. No purchases were made by the
Company during the fourth quarter of fiscal 1997 or in fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES AVERAGE PRICE LOW HIGH
PRICE PRICE
<S> <C> <C> <C> <C>
1996
First Quarter 351,500 8.11 6.63 9.42
Second Quarter 171,500 11.71 10.25 12.47
Third Quarter 69,200 13.42 11.69 15.68
Fourth Quarter 32,500 15.58 13.89 16.46
1997
First Quarter 11,000 15.97 15.95 16.03
Second Quarter 245,000 13.41 12.25 14.05
Third Quarter 178,600 12.76 11.08 13.38
</TABLE>
Trace purchased 175,100 shares of Common Stock in the fourth fiscal
quarter of 1997 at an average price of $11.96 per share, at a low price of $9.74
per share and at a high price of $13.08 per share. Trace has made no other
purchases of Common Stock since December 31, 1995. Marshall S. Cogan has made no
purchases of Common Stock since December 31, 1995.
STOCKHOLDER LITIGATION
Beginning on or about March 17, 1998, six actions were filed in the
Court of Chancery of the State of Delaware (the "Court"), by stockholders of the
Company. The Stockholder Litigation, purportedly brought as class actions on
behalf of all Public Stockholders, named the Company, certain of its directors,
certain of its officers and Trace as defendants, alleging that they breached
their fiduciary duties to plaintiffs and the other Public Stockholders in
connection with the original proposal of Trace to acquire the Public Shares for
$17.00 per share. A stipulation and order consolidating these six actions under
the caption In re Foamex International Inc. Shareholders Litigation Consolidated
Action No 16259NC was entered by the Court on May 28, 1998.
The parties to the Stockholder Litigation have entered into a
Memorandum of Understanding, dated June 25, 1998 (the "Memorandum of
Understanding"), to settle the Stockholder Litigation, subject to, inter alia,
execution of a definitive Stipulation of Settlement and approval by the Court
following notice to the Public Stockholders and a hearing. The Memorandum of
Understanding provides that as a result of, among other things, the Stockholder
Litigation and negotiations among counsel for the parties to the Memorandum of
Understanding, a Special Meeting of stockholders will be held to vote upon and
adopt the Merger Agreement which provides, among other things, for the
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<PAGE>
Public Shares of Foamex stock to be converted into the right to receive $18.75
in cash, without interest. The Memorandum of Understanding also acknowledged
that the terms of the Merger have been significantly improved over the terms
originally proposed by Trace on March 16, 1996, and the Company and the
individual director and officer defendants acknowledged that the filing and
prosecution of the Stockholder Litigation was a factor they took into account in
giving fair consideration to and entering into the Merger and Trace acknowledged
that it took into account the desirability of satisfactorily addressing the
claims asserted in the Stockholder Litigation in agreeing to the increased
consideration to be paid to the Public Stockholders pursuant to the Merger
Agreement.
The Memorandum of Understanding also provides for certification of a
class, for settlement purposes only, consisting of the Public Stockholders, the
dismissal of the Stockholder Litigation with prejudice and the release by
Plaintiffs and all members of the class of all claims and causes of action that
were or could have been asserted against Trace, the Company and the individual
defendants in the Stockholder Litigation or that arise out of the matters
alleged by Plaintiffs. In connection with the proposed settlement, the
plaintiffs intend to apply for an award of attorneys' fees and litigation
expenses in an amount not to exceed $925,000, and the defendants have agreed not
to oppose this application. Additionally, the Company has agreed to pay the cost
of sending notice of the settlement, if any, to the Public Stockholders.
The defendants have denied, and continue to deny, that they have
committed or have threatened to commit any violation of law or breaches of duty
to Plaintiffs or the purported class. The defendants have agreed to the proposed
settlement because, among other reasons, such settlement would eliminate the
burden and expenses of further litigation and would facilitate the consummation
of a transaction that they believe to be in the best interests of the Company
and the Public Stockholders.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP serves as the Company's independent
certified public accountants. A representative of PriewaterhouseCoopers LLP will
be at the Special Meeting to answer questions by Stockholders and will have the
opportunity to make a statement, if so desired.
STOCKHOLDER PROPOSALS
Any proposals intended to be presented to Stockholders at the Company's
1998 Annual Meeting of Stockholders (which will only be held if the Merger has
not been consummated prior thereto) must be received by the Company for
inclusion in the proxy statement for such annual meeting by December 31, 1998.
Such proposals must also meet other requirements of the rules of the Securities
and Exchange Commission (the "SEC") relating to stockholders' proposals and the
requirements set forth in the Company's By-Laws.
Pursuant to the By-Laws, Stockholders proposing business to be brought
before the Annual Meeting must deliver written notice thereof to the Secretary
of the Company not later than the close of business on the tenth day following
the date on which the Company first makes public disclosure of the date of the
annual meeting. The Stockholder's notice must contain a brief description of the
business and reasons for conducting the business at an annual meeting, the name
and address of the Stockholder making the proposal, and any material interest of
the Stockholder in the business. The Stockholder is also required to furnish a
representation that the Stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at such meeting to propose such business.
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<PAGE>
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 13e-3
promulgated thereunder, the Company, as issuer of the class of equity securities
that are the subject of the Rule 13e-3 transaction, together with Trace and
Merger Sub, have filed with the SEC a Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") relating to the transactions contemplated by the Merger
Agreement. As permitted by the rules and regulations of the SEC, this Proxy
Statement omits certain information, exhibits and undertakings contained in the
Schedule 13E-3. Such additional information can be inspected at and obtained
from the SEC in the manner set forth below under "Available Information."
Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Schedule 13E-3. Each such statement is
qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and the rules and regulations thereunder, and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and at the SEC's
regional offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, IL 60661, and Suite 1300, Seven World Trade Center, New York,
NY 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, DC
20549. Certain reports, proxy statements and other information concerning the
Company also can be inspected on the SEC's site on the Internet at
http://www.sec.gov. See "Incorporation Of Certain Documents By Reference."
A notice has been filed with the Pennsylvania Securities Commission
which contains substantial additional information about the Merger, which notice
is available for inspection at the Pennsylvania Securities Commission's
principal office during business hours.
This Proxy Statement incorporates by reference documents that are not
presented herein or delivered herewith. Copies of such documents (other than
exhibits thereto which are not specifically incorporated by reference herein)
are available, without charge, to any person, including any beneficial owner of
Common Stock, to whom this Proxy Statement is delivered, upon oral or written
request to Philip N. Smith, Jr., Corporate Secretary, Foamex International Inc.,
1000 Columbia Avenue, Linwood, Pennsylvania 19061, telephone (610) 859-3000. In
order to ensure delivery of documents prior to the Special Meeting, requests
therefor should be made no later than ........, 1998.
THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR TRACE SINCE THE DATE HEREOF OR
THAT THE INFORMATION IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF.
80
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the SEC
pursuant to the Exchange Act (file number 0-22624) are incorporated herein by
this reference:
1. The Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997;
2. The Company's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1997;
3. The Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 1998;
4. The Company's Quarterly Report on Form 10-Q/A for the
fiscal quarter ended March 29, 1998;
5. The Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 28, 1998;
6. The Company's Current Report on Form 8-K dated
January 7, 1998;
7. The Company's Current Report on Form 8-K dated
March 13, 1998;
8. The Company's Current Report on Form 8-K dated
March 17, 1998;
9. The Company's Current Report on Form 8-K/A dated
May 13, 1998;
10. The Company's Current Report on Form 8-K dated June
26, 1998;
11. The Annual Report on Form 10-K of Crain Industries
for the fiscal year ended December 31, 1996;
12. The Quarterly Report on Form 10-Q of Crain Industries
for the fiscal quarter ended March 31, 1997;
13. The Quarterly Report on Form 10-Q of Crain Industries
for the fiscal quarter ended June 30, 1997; and
14. The Quarterly Report on Form 10-Q of Crain Industries for
the fiscal quarter ended September 30, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date hereof and prior to the
date of the Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by
81
<PAGE>
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded. All information appearing in this Proxy Statement is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding statement.
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TRACE INTERNATIONAL HOLDINGS, INC.,
TRACE MERGER SUB, INC.
AND
FOAMEX INTERNATIONAL INC.
Dated as of June 25, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. THE MERGER
Section 1.1. The Merger.....................................................1
Section 1.2. Effective Time.................................................2
Section 1.3. Closing........................................................2
Section 1.4. Directors and Officers of the Surviving Corporation............2
Section 1.5. Certificate of Incorporation...................................2
Section 1.6. Bylaws.........................................................2
Section 1.7. Effect of the Merger...........................................2
Section 1.8. Special Meeting; Certain Voting Matters........................3
Section 1.9. Company Action Regarding the Proxy Statement...................3
Section 1.10. Parent Action Regarding the Proxy Statement....................4
ARTICLE II. CONVERSION OF SECURITIES
Section 2.1. Conversion of Capital Stock....................................5
Section 2.2. Surrender of Certificates......................................6
Section 2.3. Dissenting Shares..............................................8
Section 2.4. Termination of Company Stock Plans.............................8
Section 2.5. Termination of Warrants........................................9
Section 2.6. Withholding Taxes.............................................11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1. Organization..................................................11
Section 3.2. Capitalization................................................11
Section 3.3. Authorization; Validity of Agreement; Company Action..........12
Section 3.4. Consents and Approvals; No Violations.........................13
Section 3.5. SEC Reports and Financial Statements..........................14
Section 3.6. Absence of Certain Changes....................................14
Section 3.7. No Undisclosed Liabilities....................................15
Section 3.8. Litigation....................................................15
Section 3.9. No Default; Compliance with Applicable Laws...................15
Section 3.10. Brokers.......................................................15
Section 3.11. Opinion of Financial Advisor..................................15
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1. Organization..................................................16
Section 4.2. Authorization; Validity of Agreement; Necessary Action........16
Section 4.3. Consents and Approvals; No Violations.........................16
Section 4.4. Financing Arrangements........................................17
Section 4.5. No Prior Activities...........................................17
Section 4.6. Litigation....................................................18
Section 4.7. Other Arrangements............................................18
(i)
<PAGE>
ARTICLE V. COVENANTS
Section 5.1. Interim Operations of the Company.............................18
Section 5.2. Access; Confidentiality.......................................21
Section 5.3. Additional Agreements.........................................21
Section 5.4. Consents and Approvals; HSR Act...............................21
Section 5.5. No Solicitation...............................................22
Section 5.6. Publicity.....................................................23
Section 5.7. Notification of Certain Matters...............................24
Section 5.8. Fair Price Statute............................................25
Section 5.9. Indemnification...............................................25
Section 5.10. Financing.....................................................27
Section 5.11. Conduct of Business of Sub....................................27
ARTICLE VI. CONDITIONS
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger....28
Section 6.2. Additional Conditions to Obligations of the Company...........28
Section 6.3. Additional Conditions to Obligations of Parent and Sub........29
ARTICLE VII. TERMINATION AND AMENDMENT
Section 7.1. Termination...................................................29
Section 7.2. Effect of Termination.........................................31
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Fees and Expenses.............................................31
Section 8.2. Amendment and Modification....................................32
Section 8.3. Nonsurvival of Representations and Warranties.................32
Section 8.4. Notices.......................................................32
Section 8.5. Interpretation................................................34
Section 8.6. Counterparts..................................................34
Section 8.7. Entire Agreement; No Third Party Beneficiaries................34
Section 8.8. Severability..................................................34
Section 8.9. Governing Law.................................................34
Section 8.10. Assignment....................................................35
Section 8.11. Descriptive Headings..........................................35
Section 8.12. Obligation of Parent..........................................35
ARTICLE IX. DEFINITIONS
Section 9.1. Certain Definitions...........................................35
Section 9.2. Accounting Terms and Determinations...........................41
Exhibit A -- Form of Certificate of Merger
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 25,
1998, by and among Trace International Holdings, Inc., a Delaware corporation
("Parent"), Trace Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and Foamex International Inc., a Delaware
corporation (the "Company").
RECITALS:
WHEREAS, the Boards of Directors of the Company (on the
recommendation of the Special Committee) and Parent have each adopted a
resolution approving this Agreement and the Merger (as hereinafter defined) of
Sub with and into the Company in accordance with the Delaware General
Corporation Law, and upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the Board of Directors of the Company (on the
recommendation of the Special Committee) has adopted a resolution approving this
Agreement and the Merger, and has determined that the consideration to be paid
for each share of the Company's Common Stock, $0.01 par value per share (the
"Shares") in the Merger (other than Shares held by Parent and its Subsidiaries)
is fair to the holders of such Shares;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Parent and Sub hereby agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, Sub shall be merged (the "Merger") with and
into the Company in accordance with the relevant provisions of the Delaware
General Corporation Law ("DGCL"), the separate corporate existence of Sub
(except as may be continued by operation of law) shall cease, and the Company
shall continue as the surviving corporation in the Merger (the Company is
sometimes referred to as the "Surviving Corporation"; Sub and the Company are
sometimes referred to as the "Constituent Corporations"). Notwithstanding the
foregoing, at the election of Parent, Parent may substitute any direct or
indirect wholly owned Subsidiary of Parent or Sub as a Constituent Corporation.
To the extent that Parent exercises its election to substitute a direct or
indirect wholly owned Subsidiary of Parent or Sub as a Constituent Corporation,
then the parties hereto shall promptly enter into an amendment to this Agreement
necessary or desirable to provide for such election, without any approval,
authorization or adoption by the Board of
<PAGE>
Directors or shareholders of the Company if none is required by any applicable
Legal Requirement. If Parent exercises such election in accordance with this
Section 1.1, all reference herein to "Sub" shall be deemed to refer to such
substitute Subsidiary.
Section 1.2. Effective Time. As soon as practicable after
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time as the parties shall agree, the parties shall file a certificate of
merger or other appropriate documents (in any such case, the "Certificate of
Merger") executed in accordance with the relevant provisions of the DGCL,
substantially in the form of Exhibit A hereto, and shall make all other filings
or recordings required under the DGCL in order to effectuate the Merger. The
Merger shall become effective at the time when the Certificate of Merger has
been duly filed with the Delaware Secretary of State, or such time as is agreed
upon by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
Section 1.3. Closing. The closing of the Merger (the "Closing")
shall take place (i) at 10:00 a.m., local time, on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of all of the conditions set forth in Article VI hereof, at the
offices of Willkie Farr & Gallagher in New York, NY, or (ii) at such other time
and place as Sub and the Company shall agree (the "Closing Date").
Section 1.4. Directors and Officers of the Surviving Corporation.
The directors and officers of Sub at the Effective Time shall be the directors
and officers, respectively, of the Surviving Corporation.
Section 1.5. Certificate of Incorporation. The certificate of
incorporation of the Company in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.6. Bylaws. The bylaws of the Company in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.7. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of the DGCL and
in Article II hereof. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Sub shall
become the debts, liabilities and duties of the Surviving Corporation.
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<PAGE>
Section 1.8. Special Meeting; Certain Voting Matters.
(a) The Company, acting through its Board of Directors, shall, in
accordance with applicable law, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Special Meeting") as
promptly as practicable following the date hereof for the purpose of
considering and taking action regarding the adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of the Shares then
owned by it, Sub, and any of its other Subsidiaries in favor of the
approval of the Merger and the authorization and adoption of this
Agreement to the extent permitted pursuant to the terms of the agreements
filed as exhibits as of the date hereof to Parent's Schedule 13D with
respect to the Company.
Section 1.9. Company Action Regarding the Proxy Statement.
(a) The Company, acting through its Board of Directors shall, in
accordance with applicable law and after consultation with Parent and its
legal counsel, exercise its reasonable best efforts:
(i) to prepare and file with the SEC as soon as reasonably
practicable after the date hereof, a preliminary proxy statement
relating to the Merger and this Agreement;
(ii) to obtain and furnish the information required by the SEC
to be included in the Proxy Statement or otherwise required to be
furnished to the staff of the SEC in connection therewith;
(iii) to respond as promptly as reasonably practicable to, and
resolve, all comments made by the SEC with respect to the
preliminary proxy statement;
(iv) to cause a definitive proxy statement, including any
amendment or supplement thereto (the "Proxy Statement") to be mailed
to the holders of the Shares as promptly as reasonably practicable
after resolution of the comments of the SEC staff with respect
thereto; and
(v) to obtain the necessary approvals of the Merger and
authorization and adoption of this Agreement by the holders of the
Shares.
(b) The Company shall prepare and revise the Proxy Statement and the
Company 13E-3 Information so that, at the date mailed to the holders of
Shares, and at the time of the
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<PAGE>
Special Meeting, the Proxy Statement and the Company 13E-3 Information
will (except that the Company shall not be responsible under this clause
(b) with respect to statements made in the Proxy Statement based on
information supplied by Parent or Sub expressly for inclusion in the Proxy
Statement):
(i) not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of
the circumstances under which they are made, not misleading; and
(ii) comply in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
(c) The Company, acting through its Board of Directors shall,
subject to the provisions of Section 5.5, make at the Special Meeting, and
include in the Proxy Statement, the recommendation of the Board of
Directors of the Company that holders of Shares vote in favor of the
adoption of this Agreement.
(d) The Company shall use its reasonable best efforts to assist
Parent (to the extent Parent so requests) in the preparation of the
Schedule 13E-3 relating to the Merger (the "Schedule 13E-3"), and shall
furnish such information as may be reasonably requested by Parent for
inclusion in the Schedule 13E-3 (such information furnished by the
Company, the "Company 13E-3 Information").
Section 1.10. Parent Action Regarding the Proxy Statement.
(a) Parent shall use its reasonable best efforts to assist the
Company (to the extent the Company so requests):
(i) in the preparation of the preliminary proxy statement
relating to the Merger,
(ii) in responding to and resolving any comments made by the
staff of the SEC with respect to the preliminary proxy statement,
(iii) in the preparation of the Proxy Statement, and
(iv) in obtaining the necessary approvals of the Merger and
adoption of this Agreement by the holders of the Shares as provided
herein.
(b) Parent and Sub will timely file with the SEC a Schedule 13E-3
relating to the transactions contemplated
-4-
<PAGE>
hereby, and such Schedule 13E-3 will comply in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder.
(c) Parent shall furnish to the Company written information
concerning itself and Sub as may be reasonably requested by the Company
expressly for inclusion in the Proxy Statement, including without
limitation information required pursuant to Rule 13e-3 and Schedule 13E-3
under the Exchange Act (the "Parent-Furnished Information"). Parent shall
prepare and revise the Parent-Furnished Information and the Schedule 13E-3
so that the Parent-Furnished Information and the Schedule 13E-3 will not,
at the date the Proxy Statement is mailed to the holders of the Shares, or
at the time of the Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading
(except that Parent shall not be responsible under this paragraph (c) with
respect to (i) statements made in the Schedule 13E-3 incorporated by
reference from the Proxy Statement (except to the extent constituting
Parent-Furnished Information), or (ii) with respect to statements made in
the Schedule 13E-3 based on information supplied by the Company expressly
for inclusion in the Schedule 13E-3).
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.1. Conversion of Capital Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holders of any
Shares or any shares of capital stock of Sub:
(a) Sub Capital Stock. Each issued and outstanding share of capital
stock of Sub shall be canceled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(b) Parent Shares; Cancellation of Treasury Stock and Subsidiary
Owned Stock.
(i) All Shares that are owned by the Company or any Subsidiary
of the Company shall be canceled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(ii) All Shares that are owned by Parent or any Subsidiary of
Parent at the Effective Time ("Parent Shares") shall remain
outstanding, and from and after
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<PAGE>
the Effective Time shall constitute shares of the Surviving
Corporation.
(c) Exchange of Shares. Each issued and outstanding Share (other
than Parent Shares, Shares to be canceled in accordance with Section
2.1(b)(i) and, as set forth in Section 2.3, any Shares which are held by
shareholders exercising appraisal rights pursuant to the DGCL ("Dissenting
Shareholders")) shall be converted into the right to receive $18.75 per
Share, payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such Share in the manner provided in Section 2.2. All such Shares, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section
2.2, without interest, or, in the case of Dissenting Shareholders, the
right, if any, as set forth in Section 2.3, to receive payment from the
Surviving Corporation of the fair value of such Shares as determined in
accordance with the DGCL (plus, in each case, any dividend or distribution
payable with respect to such Shares with a record date prior to the
Effective Time).
Section 2.2. Surrender of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall
designate The Bank of Nova Scotia or another bank or trust company
reasonably acceptable to the Special Committee to act as agent for the
holders of the Shares in connection with the Merger (the "Paying Agent")
to receive the aggregate amount of funds (the "Aggregate Amount") to which
holders of the Shares shall become entitled pursuant to Section 2.1(c),
the holders of Stock Options shall become entitled to pursuant to Section
2.4, and the holders of Warrants shall become entitled to pursuant to
Section 2.5. Parent shall deposit with the Paying Agent at the Closing the
Aggregate Amount, to be held by the Paying Agent and paid to holders of
Shares pursuant to Section 2.2(b), holders of Stock Options pursuant to
Section 2.4 and holders of Warrants pursuant to Section 2.5. All interest
earned on such funds shall be paid to Parent.
(b) Surrender Procedures. As soon as reasonably practicable after
the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates, which immediately prior to the Effective
Time represented outstanding Shares (the "Certificates"), whose Shares
were converted pursuant to Section 2.1(c) into the right to receive the
Merger Consideration (i) a letter of
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<PAGE>
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and shall be in such form and have
such other provisions as Parent and the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive and shall be paid
in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash
payable upon the surrender of the Certificates. If payment of the Merger
Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered or shall
have established to the reasonable satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate (other
than Certificates for Parent Shares) shall be deemed at any time after the
Effective Time to represent only the right to receive the Merger
Consideration in cash as contemplated by this Section 2.2. The right of
any shareholder to receive the Merger Consideration shall be subject to
Section 2.6.
(c) Transfer Books; No Further Ownership Rights in the Shares. At
the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers
of the Shares on the records of the Company. From and after the Effective
Time, the holders of Certificates evidencing ownership of the Shares
(other than Parent Shares) outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except
for (i) the right to surrender such Certificate in exchange for the amount
of Merger Consideration to which such holder is entitled under this
Agreement, or (ii) the rights available under the DGCL for Dissenting
Shares (plus, in each case, the right to receive any dividend or
distribution payable with respect to such Shares with a record date prior
to the Effective Time). If, after the Effective Time, Certificates (other
than Certificates for Parent Shares) are presented to the Surviving
Corporation for any reason, they shall be canceled
-7-
<PAGE>
and the Merger Consideration shall be paid as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following twelve
months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) which had been deposited with
the Paying Agent and which have not been disbursed to holders of
Certificates, Stock Options, and Warrants, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Merger Consideration payable upon
due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation
or the Paying Agent shall be liable to any holder of a Certificate for
Merger Consideration delivered to a public official in good faith pursuant
to any applicable abandoned property, escheat or similar law.
Section 2.3. Dissenting Shares. Notwithstanding any other provision
of this Agreement to the contrary, Shares held by a holder who has not voted
such Shares in favor of the Merger and with respect to which appraisal rights
shall have been exercised and perfected in accordance with Section 262 of the
DGCL (the "Dissenting Shares") and as of the Effective Time not withdrawn shall
not be converted into the right to receive the Merger Consideration at or after
the Effective Time, but such Shares shall be converted into the right to receive
such consideration as may be determined to be due to holders of Dissenting
Shares pursuant to the laws of the State of Delaware unless and until the holder
of such Dissenting Shares withdraws his or her demand for such appraisal or
becomes ineligible for such appraisal (through failure to perfect or otherwise).
If a holder of Dissenting Shares shall withdraw his or her demand for such
appraisal or shall become ineligible for such appraisal (through failure to
perfect or otherwise), then, as of the Effective Time or the occurrence of such
event, whichever last occurs, such holder's Dissenting Shares shall
automatically be converted into and represent the right to receive the Merger
Consideration, without interest, as provided in Section 2.1(c). The Company
shall give Parent (i) prompt notice of any demands for appraisal of Shares
received by the Company and (ii) the opportunity to participate in and direct
all negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Parent, voluntarily make any
payment with respect to, settle or offer to settle, any such demands.
Section 2.4. Termination of Company Stock Plans.
(a) As of the Effective Time, the Company shall use its reasonable
best efforts to take such actions to provide
-8-
<PAGE>
that by virtue of the Merger and without any action on the part of the
holders thereof, each option to purchase Shares (a "Stock Option") that is
outstanding immediately before the Effective Time, whether or not
then-exercisable, shall be canceled and, in consideration of such
cancellation, each holder of a Stock Option shall receive at the Effective
Time an amount, subject to Section 2.6, equal to the product of (i) the
amount, if any, by which the Merger Consideration exceeds the per Share
exercise price of the Stock Option and (ii) the number of Shares subject
thereto. No payment shall be made with respect to any Stock Option having
a per Share exercise price, as in effect immediately prior to the
Effective Time, equal to or greater than the Merger Consideration. The
consideration due under this Section 2.4 shall be payable without interest
after (a) verification by the Paying Agent of the ownership and terms of
the particular Stock Option by reference to the Company's records or such
other evidence reasonably acceptable to the Surviving Corporation as the
holder may provide, and (b) delivery in the manner provided in Section
2.2(b) of a written instrument (the "Option Release"), duly executed by
the owner of the applicable Stock Options, in a form provided by the
Paying Agent and setting forth (i) the aggregate number of Stock Options
owned by that person (including Stock Options as to which no consideration
is payable under this Section 2.4); (ii) a representation by the person
that such person is the owner of all Stock Options described pursuant to
clause (i), and that none of those Stock Options has expired or ceased to
be exercisable; and (iii) a confirmation of and consent to the
cancellation of all of the Stock Options described pursuant to clause (i),
including the Stock Options for which no consideration is payable pursuant
to this Section 2.4, in consideration of the payment provided for in this
Section 2.4.
(b) As of the Effective Time, the Company shall use its reasonable
best efforts to provide that (i) the plans of the Company providing for
Stock Options (the "Option Plans") shall terminate as of the Effective
Time and the provisions in any other plan, program or arrangement,
providing for the issuance or grant by the Company or any of its
Subsidiaries of any interest in respect of the capital stock of the
Company or any of its Subsidiaries shall terminate as of the Effective
Time, and (ii) following the Effective Time no holder of Stock Options or
any participant in the Option Plans or any other such plans, programs or
arrangements shall have the right thereunder to acquire any equity
securities of the Company or any Subsidiary thereof.
Section 2.5. Termination of Warrants.
(a) As of the Effective Time, the Company shall use its reasonable
best efforts to take such actions to provide that by virtue of the Merger
and without any action on the
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<PAGE>
part of the holders thereof, each warrant to purchase Shares (a "Warrant")
that is outstanding immediately before the Effective Time, whether or not
then-exercisable, shall be canceled and, in consideration of such
cancellation, each holder of a Warrant shall receive at the Effective Time
an amount, subject to Section 2.6, equal to the product of (i) the amount,
if any, by which the Merger Consideration exceeds the per Share exercise
price of the Warrant and (ii) the number of Shares subject thereto. No
payment shall be made with respect to any Warrant having a per Share
exercise price, as in effect immediately prior to the Effective Time,
equal to or greater than the Merger Consideration. The consideration due
under this Section 2.5 shall be payable without interest after (a)
verification by the Paying Agent of the ownership and terms of the
particular Warrant by reference to the Company's records or such other
evidence reasonably acceptable to the Surviving Corporation as the holder
may provide, and (b) delivery in the manner provided in Section 2.2(b) of
a written instrument (the "Warrant Release"), duly executed by the owner
of the applicable Warrants, in a form provided by the Paying Agent and
setting forth (i) the aggregate number of Warrants owned by that person
(including Warrants as to which no consideration is payable under this
Section 2.5); (ii) a representation by the person that such person is the
owner of all Warrants described pursuant to clause (i), and that none of
those Warrants has expired or ceased to be exercisable; and (iii) a
confirmation of and consent to the cancellation of all of the Warrants
described pursuant to clause (i), including the Warrants for which no
consideration is payable pursuant to this Section 2.5, in consideration of
the payment provided for in this Section 2.5.
(b) As of the Effective Time, the Company shall use its reasonable
best efforts to provide that (i) except as set forth in Section 2.5 of the
Sub Disclosure Schedule (as defined below), the agreements of the Company
providing for Warrants (the "Warrant Agreements"), including the Warrant
Agreement, dated as of June 28, 1994, by and between the Company and
Shawmut Bank Connecticut, National Association, the Warrant Exchange
Agreement, dated as of December 14, 1993, by and between the Company and
DLJ Funding, Inc. and the Warrant Exchange Agreement, dated as of December
14, 1993, by and between the Company and Marely I S.A., shall terminate as
of the Effective Time and the provisions in any other agreement or
arrangement, providing for the issuance or grant by the Company of any
interest in respect of the capital stock of the Company shall terminate as
of the Effective Time, and (ii) following the Effective Time no holder of
Warrants or any party to a Warrant Agreement or any other such agreements
or arrangements shall have the right thereunder to acquire any equity
securities of the Company from the Company or any Subsidiary thereof.
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Section 2.6. Withholding Taxes. The Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable to a
holder of Shares, Stock Options or Warrants pursuant to the Merger, such amounts
as are required to be withheld under the Code, or any applicable Legal
Requirement. To the extent that amounts are so withheld by the Surviving
Corporation, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares, Stock Options or
Warrants in respect of which such deduction and withholding was made by the
Surviving Corporation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
Section 3.1. Organization. Each of the Company and its Subsidiaries
is an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation and has the requisite corporate or
partnership power and authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted, and, except as set forth in Section 3.1 of the Company
Disclosure Schedule (as defined below), is duly qualified as a foreign entity to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failure which, when taken
together with all other such failures, would not reasonably be expected to
result in a Material Adverse Effect. The certificate of incorporation and the
bylaws or equivalent organizational documents, each as amended to the date
hereof, of the Company and such documents with respect to all Subsidiaries of
the Company have been made available to Parent. Such certificate of
incorporation, bylaws and equivalent organizational documents are in full force
and effect. A true and complete list of all the Company's Subsidiaries, together
with the jurisdiction of incorporation of each Subsidiary is set forth in
Section 3.1 of the Company Disclosure Schedule delivered to Parent and Sub on or
before the date hereof (the "Company Disclosure Schedule").
Section 3.2. Capitalization.
(a) Capitalization. The authorized capital stock of the Company
consists of 50,000,000 Shares, par value $.01 per Share and 5,000,000
shares of Preferred Stock, par value $1.00 per share. As of June 19, 1998,
(i) 25,014,843 Shares were issued and outstanding, (ii) 1,989,000 Shares
were held in the treasury of the Company or by Subsidiaries of the
Company, (iii) 1,390,848 Shares were issuable upon exercise of outstanding
Stock Options under the Option Plans,
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(iv) 27,737 Shares were issuable under the Non-Employee Director
Compensation Plan, (v) 1,226,530 Shares were issuable pursuant to the
Participating Warrants, (vi) 600,000 Shares were issuable pursuant to the
1994 Warrants and (vii) no shares of Preferred Stock were issued and
outstanding. Section 3.2 of the Company Disclosure Schedule sets forth a
true and correct list as of June 19, 1998 of all holders of Stock Options,
the number of such Stock Options outstanding as of such date and the
exercise price per Stock Option. All of the outstanding Shares have been
duly authorized and validly issued and are fully paid and nonassessable
and free of preemptive rights. Subsequent to June 19, 1998, no Shares have
been issued by the Company except upon the exercise of outstanding Stock
Options or Warrants described in this Section 3.2(a). Each of the
outstanding Stock Options described in this Section 3.2 allows the
optionee to purchase Shares which have been authorized to be issued by the
Company's Board of Directors. Each of the outstanding Warrants described
in this Section 3.2 allows the holder to purchase Shares which have been
authorized to be issued by the Company's Board of Directors under the
Warrant Agreements. Except as set forth in Section 3.2 of the Company
Disclosure Schedule, there are no other options, warrants or other rights,
convertible debt, agreements, arrangements or commitments of any character
obligating the Company or any of its Subsidiaries to issue or sell any
shares of capital stock of or other equity interests in the Company or any
of its Subsidiaries. The Company is not obligated to redeem, repurchase or
otherwise reacquire any of its capital stock or other securities.
(b) Except as set forth in Section 3.2 of the Company Disclosure
Schedule, all of the outstanding shares of the capital stock of each
Subsidiary of the Company are beneficially owned by the Company, directly
or indirectly, and all such shares have been duly authorized, validly
issued and are fully paid and nonassessable and are owned by either the
Company or one of its Subsidiaries free and clear of all Liens. There are
no existing options, calls or commitments of any character relating to the
issued or unissued capital stock or other securities of any Subsidiary.
Section 3.3. Authorization; Validity of Agreement; Company Action.
The Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, subject to
obtaining stockholder approval as described in this Section 3.3. The Special
Committee, at a meeting held on June 25, 1998, unanimously resolved to recommend
that the Board of Directors of the Company approve this Agreement and the
Merger, and the Board of Directors of the Company, at a meeting duly called and
held on June 25, 1998 at which all of the members of the Board of Directors were
present, duly and unanimously adopted a resolution
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approving this Agreement and its execution, delivery and performance and the
transactions contemplated hereby, recommended that the shareholders of the
Company adopt this Agreement and the Merger, and determined that this Agreement
and the Merger, are fair to the shareholders of the Company other than Parent
and its Subsidiaries; provided, however, any such recommendation of the Special
Committee or the Board of Directors may be withdrawn, modified or amended to the
extent permitted by Section 5.5 of this Agreement. No other corporate action on
the part of the Company is necessary to authorize the execution and delivery by
the Company of this Agreement and the consummation by it of the transactions
contemplated hereby (except for the stockholder approval described in this
Section 3.3). This Agreement has been duly executed and delivered by the Company
and, assuming due and valid authorization, execution and delivery hereof by
Parent and Sub, is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and to general principles of equity. The affirmative vote of the holders of a
majority of the outstanding Shares are the only votes of the holders of any
class or series of the Company's capital stock necessary under the DGCL and the
Company's Certificate of Incorporation to adopt this Agreement and approve the
transactions contemplated hereby. Section 203 of the DGCL is not applicable to
the Merger. The provisions of Article X of the Company's Certificate of
Incorporation will not apply to this Agreement, the Merger or any of the
transactions contemplated hereby.
Section 3.4. Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals set forth on Section 3.4 of
the Company Disclosure Schedule and the filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Exchange Act, the HSR Act, state securities or blue sky
laws, and the filing and recordation of a certificate of merger under the DGCL,
neither the execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the certificate of
incorporation or the bylaws of the Company or of any of its Subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity on the part of the Company or any of its Subsidiaries, (iii)
require the consent of any person under, result in a violation or breach of,
accelerate the performance of obligations or alter the rights under, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any Contract, or (iv)
violate any Legal Requirement applicable to the Company, any of its Subsidiaries
or any of their properties or assets except in any case referred to in any of
clauses (ii) through (iv) above, which
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individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect.
Section 3.5. SEC Reports and Financial Statements.
(a) The Company and its Subsidiaries have timely filed with the SEC,
and have made available to Parent, true and complete copies of, all forms,
reports, schedules, statements and other documents required to be filed by
each of them since January 1, 1997 under the Securities Act or the
Exchange Act (collectively, the "SEC Documents"). Except as set forth in
Section 3.5 of the Company Disclosure Schedule, each of the SEC Documents
(i) was prepared, in all material respects, in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may
be, including without limitation the applicable accounting requirements
thereunder and the published rules and regulations of the SEC with respect
thereto, and (ii) when filed did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(b) Except as set forth in Section 3.5 of the Company Disclosure
Schedule, the consolidated financial statements of the Company included in
the SEC Documents: (i) were prepared from, and in accord with, the books
and records of the Company and its Subsidiaries, (ii) were prepared in
accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and (iii)
fairly present the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position,
if any) of the Company and its consolidated subsidiaries as of the
respective dates and for the respective periods thereof, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
Section 3.6. Absence of Certain Changes. Since December 29, 1997,
except (x) as expressly disclosed in the SEC Documents filed prior to the date
of this Agreement, (y) as expressly contemplated in this Agreement and (z) as
set forth on Section 3.6 of the Company Disclosure Schedule, the business of the
Company and its Subsidiaries has been carried on only in the ordinary and usual
course and no event or events, except for events involving (A) changes in
general economic conditions, (B) changes in conditions affecting the
polyurethane foam industry generally, or (C) changes in any applicable Legal
Requirement, has or have occurred that, either individually or in the aggregate,
has had, or would reasonably be expected to result in a Material Adverse Effect.
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Section 3.7. No Undisclosed Liabilities. Except (a) as set forth in
Section 3.7 of the Company Disclosure Schedule, (b) as reflected or reserved
against in the consolidated financial statements contained in the SEC Documents,
or (c) for fees or expenses incurred by or on behalf of the Special Committee,
the Company and its Subsidiaries have no Liabilities, except Liabilities which
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect.
Section 3.8. Litigation. Except as disclosed in the SEC Documents or
in Section 3.8 of the Company Disclosure Schedule, there are no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of the
Company, threatened, against the Company or any of its Subsidiaries, before any
Governmental Entity, that seek to prevent or delay the performance of this
Agreement or the transactions contemplated hereby or that would reasonably be
expected to result in a Material Adverse Effect.
Section 3.9. No Default; Compliance with Applicable Laws. Except as
disclosed in Section 3.9 of the Company Disclosure Schedule, the business of the
Company and each of its Subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective certificate
of incorporation or bylaws, (ii) any Contract, or (iii) any Legal Requirement,
excluding from the foregoing clauses (ii) and (iii), defaults or violations
which would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in Section 3.9 of the
Company Disclosure Schedule, each of the Company and its Subsidiaries has in
effect all Permits necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has occurred no
default under any such Permit, except for the absence of Permits and for
defaults under Permits which absence or defaults, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect.
Section 3.10. Brokers. No broker, finder or investment banker (other
than Beacon Group Capital Services, LLC ("Beacon")) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Company. The Company has heretofore furnished to Sub a true and
complete copy of the engagement letter between the Company and Beacon pursuant
to which such firm would be entitled to any payment in connection with the
transactions contemplated hereby.
Section 3.11. Opinion of Financial Advisor. Beacon has rendered to
the Special Committee a written opinion dated as of June 25, 1998, a copy of
which has been provided to Parent, to the effect that the consideration to be
received by the shareholders of the Company, other than Parent and its
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Subsidiaries, pursuant to the Merger is fair to such shareholders from a
financial point of view. Such opinion was delivered orally to the Special
Committee not later than the time that consummation of the transactions
contemplated hereby was approved by the Company's Board of Directors, and was
delivered in writing to the Special Committee prior to the execution of this
Agreement. Such opinion has not been withdrawn or modified in any manner adverse
to Parent except as expressly permitted by Section 5.5.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the
Company as follows:
Section 4.1. Organization. Each of Parent and Sub is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except for such failure which, when taken together with all other such failures,
would not reasonably be expected to result in a material adverse effect on (i)
Parent, its Subsidiaries and Sub, taken as a whole or (ii) their ability to
perform their obligations under this Agreement or to consummate the transactions
contemplated hereby.
Section 4.2. Authorization; Validity of Agreement; Necessary Action.
Each of Parent and Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by Parent and Sub of this Agreement, and
the consummation of the Merger and of the transactions contemplated hereby, have
been duly authorized by the Boards of Directors of Parent and Sub and by Parent
as the sole shareholder of Sub and no other corporate or shareholder action on
the part of Parent or Sub is necessary to authorize the execution and delivery
by Parent and Sub of this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub and, assuming due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of each of Parent and
Sub, enforceable against each of Parent and Sub in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity.
Section 4.3. Consents and Approvals; No Violations. Except for the
filings set forth on Section 4.3 of the Sub Disclosure Schedule delivered to the
Company on or before the date hereof (the "Sub Disclosure Schedule") and the
filings,
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permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the HSR Act and the DGCL, neither the
execution, delivery or performance of this Agreement by Parent or Sub nor the
consummation by Parent or Sub of the transactions contemplated hereby nor
compliance by Parent or Sub with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or the bylaws of Parent or its Subsidiaries, (ii) require any
filing with, or permit, authorization, consent or approval of, any Governmental
Entity on the part of Parent or its Subsidiaries, (iii) result in a violation or
breach of, accelerate the performance of obligations or alter the rights under,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any
contracts, agreements, commitments, instruments and guarantees to which Parent
or its Subsidiaries is a party, or (iv) violate any Legal Requirement applicable
to Parent or its Subsidiaries, except in any case referred to in any of clauses
(ii) through (iv) above which, individually or in the aggregate, would not
reasonably be expected to result in a material adverse effect on the ability of
Parent and Sub to perform their obligations under this Agreement or consummate
the transactions contemplated hereby.
Section 4.4. Financing Arrangements. Parent has received a
commitment letter relating to a senior secured credit facility and a "highly
confident" letter relating to (i) a senior unsecured note offering, (ii) a
senior subordinated note offering and (iii) a senior discount note offering (the
"Financing Letters"), each of which is as of the date hereof in full force and
effect and true and correct copies of which have been provided to the Board of
Directors of the Company and the Special Committee. The transactions
contemplated by the Financing Letters will, upon completion of such
transactions, result in the receipt of funds by the Surviving Corporation
sufficient to enable the Surviving Corporation to pay the Aggregate Amount and
otherwise to consummate the transactions contemplated hereby and thereby, and to
fund all costs and expenses of the Company, Parent and Sub incurred in
connection with the Merger, the Financing contemplated therein and the
transactions contemplated hereby and thereby.
Section 4.5. No Prior Activities. Except for Liabilities incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby
(including any Financing), Sub has not incurred any Liabilities, and has not
engaged in any business or activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person or entity. Sub is a wholly
owned Subsidiary of Parent.
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Section 4.6. Litigation. Except as set forth on Schedule 4.6 of the
Sub Disclosure Schedules, there are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of Parent or Sub, threatened,
against Parent or Sub or any of their Subsidiaries, before any Governmental
Entity that seek to prevent or delay the performance of this Agreement or the
transactions contemplated hereby.
Section 4.7. Other Arrangements. Except as set forth in Schedule 4.7
of the Sub Disclosure Schedule, Parent and Sub have no agreements or
understandings with any other shareholder of the Company regarding any
consideration to be paid to such shareholder in connection with the transactions
contemplated hereby except pursuant to the terms of this Agreement.
ARTICLE V.
COVENANTS
Section 5.1. Interim Operations of the Company. The Company
covenants and agrees that, except (i) as expressly contemplated by this
Agreement, (ii) as set forth in Section 5.1 of the Company Disclosure Schedule
or (iii) as agreed in writing by Parent, after the execution and delivery of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course and in all material
respects in compliance with all applicable Legal Requirements and, to the
extent consistent therewith, each of the Company and its Subsidiaries
shall use its commercially reasonable efforts to preserve its business
organization intact, to maintain its existing relations with customers,
suppliers, employees, creditors and business partners and to maintain
customary levels of insurance coverage with respect to its assets and
operations;
(b) the Company shall not, directly or indirectly, amend its or any
of its Subsidiaries' certificate of incorporation or bylaws or similar
organizational documents;
(c) the Company shall not, and it shall not permit its Subsidiaries
to: (i)(A) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Company's capital
stock or that of its Subsidiaries other than those dividends or other
distributions payable solely to the Company or one of its wholly-owned
Subsidiaries, or (B) redeem, purchase or otherwise acquire directly or
indirectly any of the Company's capital stock (or options, warrants,
calls, commitments or rights of any kind to acquire any shares of capital
stock) or that of its Subsidiaries; (ii) issue, sell, pledge, dispose of
or encumber any additional shares
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of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class of the Company or its Subsidiaries, other
than Shares issued upon the exercise of Stock Options or Warrants
outstanding on the date hereof; or (iii) split, combine or reclassify the
outstanding capital stock of the Company or of its Subsidiaries;
(d) the Company shall not, and it shall not permit its Subsidiaries
to, acquire or agree to acquire, or except as contemplated by the Crain
Restructuring (as defined in the Foamex Credit Agreement), transfer,
lease, license, sell, mortgage, pledge, encumber, dispose of or agree to
dispose of, any material assets, including Intellectual Property, other
than the Company's Mesquite Texas facility, either by purchase, merger,
consolidation, sale of shares in any of its Subsidiaries or otherwise,
except pursuant to Contracts of the Company or its Subsidiaries in effect
on the date hereof, in the ordinary course of business consistent with
past practice or in transactions involving consideration of less than
$5,000,000, in the aggregate;
(e) neither the Company nor its Subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by the Company
or any of its Subsidiaries (A) to any of its executive officers or
directors, other than regularly scheduled pay increases of not more than
10% per annum, or (B) to any of its key employees other than in the
ordinary course of business consistent with past practice; or (ii)(A)
adopt any new, or (B) except as contemplated by Section 2.4 or as required
by any obligation existing as of the date hereof to do so or any
applicable Legal Requirement or in connection with the Crain
restructuring, amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under any existing,
bonus, incentive compensation, deferred compensation, severance, profit
sharing, stock option, stock purchase, insurance, pension, retirement or
other employee benefit plan, agreement or arrangement; or (iii) enter into
or modify or amend any employment or severance agreement with or, except
as required by any applicable Legal Requirement or in connection with the
Crain restructuring or Contracts in effect on the date hereof, grant any
severance or termination pay to any officer or director of the Company or
any of its Subsidiaries; or (iv) enter into any collective bargaining
agreement;
(f) neither the Company nor any of its Subsidiaries shall modify,
amend or terminate any of its material Contracts or waive, release or
assign any material rights or claims, other than in the ordinary course of
business consistent with past practice;
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(g) neither the Company nor any of its Subsidiaries shall: (i) incur
or assume any indebtedness other than indebtedness with respect to working
capital in amounts consistent with past practice and capital leases in the
ordinary course of business; (ii) materially modify any material
indebtedness; (iii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for any
material obligations of any other person (other than a Subsidiary); (iv)
make any loans, advances or capital contributions to, or investments in,
any other person (other than to the Subsidiaries of the Company set forth
on Section 3.1 of the Company's Disclosure Schedule (provided the
ownership structure of such Subsidiary has not changed from that existing
on the date hereof) or customary advances to employees); or (v) enter into
any material Contract or transaction other than in the ordinary course of
business consistent with past practice;
(h) neither the Company nor any of its Subsidiaries shall materially
change any of the accounting methods, practices or policies used by it,
unless required by GAAP;
(i) the Company shall not, and it shall not permit its Subsidiaries
to, make any material tax election (unless required by law) or settle or
compromise any material income tax liability;
(j) the Company shall not, and it shall not permit its Subsidiaries
to (i) except in connection with any transaction permitted by Section 5.5,
waive the benefits of, or agree to modify in any material manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its Subsidiaries is a party, or (ii) except in the ordinary course
of business consistent with past practice, pay, discharge or satisfy any
actions, suits, proceedings or claims, other than the payment, discharge
or satisfaction, in each case in complete satisfaction, and with a
complete release, of such matter with respect to all parties to such
matter, of actions, suits, proceedings or claims that would not reasonably
be expected to result in, individually or in the aggregate, a Material
Adverse Effect;
(k) the Company shall not, and it shall not permit its Subsidiaries
to, commence a lawsuit other than (i) for the routine collection of bills,
(ii) in such cases where the Company in good faith determines that the
failure to commence suit would result in a material impairment of a
valuable aspect of the Company's business or the forfeiture of substantial
rights, provided that the Company consults with Parent prior to filing
such suit or (iii) to enforce this Agreement; and
(l) neither the Company nor any of its Subsidiaries shall enter into
an agreement, contract, commitment or
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arrangement to do any of the foregoing, or to authorize, recommend,
propose or announce an intention to do any of the foregoing.
Section 5.2. Access; Confidentiality. The Company shall (and shall
cause each of its Subsidiaries to) (a) afford to the officers, employees,
accountants, counsel, and other representatives of Parent, upon reasonable
advance notice, reasonable access to and the right to inspect and observe,
during normal business hours during the period prior to the Effective Time, all
its personnel, accountants, representatives, properties, books, contracts,
insurance policies, commitments and records, offices, plants and other
facilities, (b) make available promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(ii) all other information concerning its business, properties and personnel
(including, without limitation, insurance policies) as Parent may reasonably
request. Parent shall treat any such information in accordance with the
provisions of a letter agreement dated March 4, 1998 between the Company and
Parent (the "Confidentiality Agreement"). No investigation conducted by Parent
shall impact any representation or warranty given by the Company to Parent
hereunder.
Section 5.3. Additional Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. The Company also agrees to timely
file all reports and other documents required to be filed by it with the SEC.
Section 5.4. Consents and Approvals; HSR Act.
(a) Each of the Company, Parent and Sub shall use its reasonable
best efforts to comply promptly with all Legal Requirements which may be
imposed on it with respect to this Agreement and the transactions
contemplated hereby (which actions shall include, without limitation,
furnishing all information required under the HSR Act and in connection
with approvals of or filings with any other Governmental Entity) and will
promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of
their Subsidiaries in connection with this Agreement and the transactions
contemplated hereby. Each of the Company, Parent and Sub shall, and shall
cause its Subsidiaries to, use their reasonable best efforts to obtain
(and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by,
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any Governmental Entity or other public or private third party required to
be obtained or made by Parent, Sub, the Company or any of their
Subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. Notwithstanding the foregoing,
the Company shall not obtain any consent that will affect Parent or the
Company to either of their material economic detriment, including any
modification of any Contract or Permit. Each party shall promptly inform
the other party of any communication with, and any proposed understanding,
undertaking, or agreement with, any Governmental Entity regarding any such
filings or any such transaction. Neither party shall participate in any
meeting with any Governmental Entity in respect of any such filings,
investigation, or other inquiry without giving the other party notice of
the meeting and, to the extent permitted by such Governmental Entity, the
opportunity to attend and participate.
(b) In connection with any action, suit or proceeding relating to
this Agreement or the Merger, Parent, Sub and the Company agree to consult
with each other in formulating strategies, including, without limitation,
consultation regarding the retention of counsel in situations involving
multiple defendants, and in taking any other action material to the
outcome of any such action, suit or proceeding.
Section 5.5. No Solicitation.
(a) The Company shall, and shall cause its Subsidiaries, officers,
directors, employees, counsel, investment bankers, financial advisers,
accountants, other representatives and agents (collectively, the "Company
Representatives") to immediately as of the date hereof cease any
discussions or negotiations with any parties that may be ongoing with
respect to a Takeover Proposal. The Company shall not, and shall not
authorize or permit any Company Representative to (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal, (ii) participate in any discussions or negotiations regarding
any Takeover Proposal (other than to respond to an inquiry by informing
the inquiring party of the restrictions imposed by this Section 5.5) or
(iii) enter into any agreement with respect to any Takeover Proposal;
provided, however, that, if at any time prior to the Effective Time, the
Board of Directors of the Company or the Special Committee determines in
good faith, based on the advice of its legal counsel as to legal matters,
that it is necessary to do so in order to comply with its fiduciary duties
to the Company's shareholders under applicable law, the Company or the
Special Committee may, in response to a Takeover Proposal, and subject to
compliance with Section 5.5(c), (x) furnish information with
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respect to the Company to any person pursuant to a confidentiality
agreement in connection therewith and (y) participate in negotiations
regarding such Takeover Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any Company Representative shall be deemed to be a
breach of this Section 5.5(a) by the Company.
(b) Neither the Board of Directors of the Company nor the Special
Committee shall (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Parent, the approval or recommendation by such
Board of Directors or such Special Committee of this Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (iii) cause the Company to enter into any agreement
with respect to any Takeover Proposal. Notwithstanding anything in this
Agreement to the contrary, in the event that prior to the Effective Time
the Board of Directors of the Company or the Special Committee determines
in good faith, based on the advice of its legal counsel as to legal
matters, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the
Board of Directors of the Company or the Special Committee may withdraw or
modify its approval or recommendation of this Agreement and the Merger,
approve or recommend a Superior Proposal or cause the Company to enter
into an agreement with respect to a Superior Proposal, but in each case
only at a time that is after the first business day following Parent's
receipt of written notice (a "Notice of Superior Proposal") advising
Parent that the Board of Directors of the Company has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.5, the Company shall immediately
advise Parent orally and in writing of any request for information in
connection with a potential Takeover Proposal, or of any Takeover
Proposal, or any inquiry with respect to or which reasonably could lead to
any Takeover Proposal, the material terms and conditions of such request,
Takeover Proposal or inquiry and the identity of the person making such
request, Takeover Proposal or inquiry.
Section 5.6. Publicity. Each party's initial press release with
respect to the execution of this Agreement has been previously approved by the
other parties. Following such initial press releases, so long as this Agreement
is in effect, neither the Company, Parent nor any of their respective Affiliates
shall issue or cause the publication of any press release or other public
announcement with respect to the Merger, this Agreement or the other
transactions between the parties contemplated hereby
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without prior consultation with the other parties, except as may be
required by law or by any listing agreement with a national securities
exchange or trading market.
Section 5.7. Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent and Sub, and
Parent and Sub shall give prompt notice to the Company and the Special
Committee, of (x) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty of such party contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and
(y) any material failure of the Company, Parent or Sub, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect the remedies available hereunder to the party receiving
such notice.
(b) The Company also shall give prompt notice to Parent, and Parent
or Sub shall give prompt notice to the Company and the Special Committee,
of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge, threatened
against, relating to or involving or otherwise affecting it or any
of its Subsidiaries or which relate to the consummation of the
transactions contemplated by this Agreement; and
(iv) any occurrence of any event having, or which would
reasonably be expected to result in a Material Adverse Effect or a
material adverse effect on the ability of such party to perform its
obligations under this Agreement or consummate the transactions
contemplated hereby.
(c) Parent and Sub shall give prompt notice to the Company and the
Special Committee of any material development with respect to the
Financing described in the Financing Letters that would reasonably be
expected to result in (i) the conditions precedent to the Financing
described in the Financing Letters not being satisfied, or
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(ii) the termination of the Financing Letters by the parties thereto.
Section 5.8. Fair Price Statute. If any "business combination,"
"fair price," "control share acquisition" or "moratorium" statute or other
similar statute or regulation or any state "blue sky" or securities law statute
shall become applicable to the transactions contemplated hereby, the Company and
the Board of Directors of the Company shall, to the extent consistent with
applicable law and their fiduciary duties, grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise use reasonable best efforts to minimize the effects of such
statute or regulations on the transactions contemplated hereby.
Section 5.9. Indemnification.
(a) Until, and for a period of six years after, the Effective Time,
the indemnification provisions of Article VIII of the By-laws of the
Company and the provisions of Article IX of the Restated Certificate of
Incorporation of the Company limiting the personal liability of directors
for damages, shall not be amended, repealed or otherwise modified in any
manner that would make any of such provisions less favorable to the
directors of the Company or the Surviving Corporation than pertain to such
directors on the date hereof. Without limiting the foregoing, from and
after the Effective Time, the Surviving Corporation shall, (i) indemnify,
defend and hold harmless the present and former officers, directors,
employees, and agents of the Company and its Subsidiaries and of Sub
(collectively, the "Indemnified Parties"), from and against, and pay or
reimburse the Indemnified Parties for, all losses, obligations, expenses,
claims, damages or liabilities (whether or not resulting from third-party
claims and including interest, penalties, out-of-pocket expenses and
attorneys' fees incurred in the investigation or defense of any of the
same or in asserting any of their rights hereunder) resulting from or
arising out of actions or omissions of such Indemnified Parties occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) to the fullest extent
permitted under (A) applicable Legal Requirements, (B) the certificate of
incorporation or by-laws of the Company or Sub in effect on the date of
this Agreement, including, without limitation, provisions relating to
advances of expenses incurred in the defense of any action or suit, or (C)
any indemnification agreement between the Indemnified Party and the
Company; and (ii) advance to any Indemnified Parties expenses incurred in
defending any action or suit with respect to such matters, to the fullest
extent permitted by applicable law (and without requiring
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the Indemnified Party to provide any bond or other security in respect
thereof).
(b) Any Indemnified Party wishing to claim indemnification under
Section 5.9(a) shall provide notice to the Surviving Corporation promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and the Indemnified Party shall permit the
Surviving Corporation (at its expense) to assume the defense of any claim
or any litigation resulting therefrom; provided, however, that (i) counsel
for the Surviving Corporation, who shall conduct the defense of such claim
or litigation shall be reasonably satisfactory to the Indemnified Party
and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and (ii) the omission by any Indemnified
Party to give notice as provided herein shall not relieve the Surviving
Corporation of its indemnification obligation under this Agreement, except
to the extent that such omission results in a failure of actual notice to
the Surviving Corporation, and the Surviving Corporation is actually
prejudiced as a result of such failure to give notice. In the event that
the Surviving Corporation does not promptly assume the defense of any
matter as above provided, or counsel for the Indemnified Parties
reasonably believes and advises the Indemnified Parties in writing that
there are issues that raise conflicts of interest between the Surviving
Corporation and the Indemnified Parties or among the Indemnified Parties,
each group of Indemnified Parties who are not subject to such conflicts
may retain counsel satisfactory to such group, and the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for
each such group of Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation shall not be
liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld); provided, further,
however, that the Surviving Corporation shall not be responsible for the
fees and expenses of more than one counsel for each group of Indemnified
Parties without any such conflicts. In any event, the Surviving
Corporation and the Indemnified Parties shall cooperate in the defense of
any action or claim. The Surviving Corporation shall not, in the defense
of any such claim or litigation, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief
affecting the Indemnified Party or that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such
claim or litigation.
(c) At or prior to the Effective Time, the Company shall purchase
and pay all premiums with respect to a six
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year extension of the current policies of directors' and officers'
liability insurance maintained by the Company with respect to matters
arising before and acts or omissions occurring or existing at or prior to
the Effective Time, including the transactions contemplated by this
Agreement. The Company shall not cancel such insurance with respect to any
officer or director without the express written consent of such officer or
director.
(d) This Section 5.9 is intended for the benefit of, and to grant
third party rights to, persons entitled to indemnification under this
Section 5.9 and the benefits of Article IX of the Restated Certificate of
Incorporation of the Company, whether or not parties to this Agreement,
and each of such persons shall be entitled to enforce the covenants
contained herein.
(e) If Parent or the Surviving Corporation, as the case may be, or
any of their respective successors or assigns (i) reorganizes or
consolidates with or merges into any other person and is not the
resulting, continuing or surviving corporation or entity of such
reorganization, consolidation or merger, or (ii) liquidates, dissolves or
transfers all or substantially all of its properties and assets to any
person or persons, then, and in such case, proper provision will be made
so that the successors and assigns of Parent or the Surviving Corporation
assumes all of the obligations of Parent or the Surviving Corporation, as
the case may be, as set forth in this Section 5.9.
(f) Notwithstanding anything in this Section 5.9 to the contrary,
nothing in this Agreement shall in any way limit the rights of any party
under any indemnity agreement with the Company or the Surviving
Corporation.
Section 5.10. Financing . The Company shall use its reasonable best
efforts to assist Parent in obtaining the Financing, including, without
limitation, taking all action reasonably requested by Parent in connection
therewith. Parent shall use its reasonable best efforts to obtain Financing on
terms and conditions in amounts set forth in the Financing Letters, or if the
Financing contemplated by the Financing Letters is not consummated, other than
as a result of a breach by the Company of the terms of this Agreement, on
similar terms and conditions and in amounts which are not materially less
favorable to Parent than those set forth in the Financing Letters.
Section 5.11. Conduct of Business of Sub. Until the Effective Time,
Sub shall not engage in any activities of any nature, except as required by any
applicable Legal Requirement or as provided in or contemplated by this
Agreement.
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ARTICLE VI.
CONDITIONS
Section 6.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Effective Time of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company (provided the Special Committee consents to such waiver), Parent or
Sub, as the case may be, to the extent permitted by applicable Legal
Requirements:
(a) Shareholder Approval. This Agreement shall have been approved
and adopted by the requisite vote of the shareholders of the Company, if
required by applicable law or the Certificate of Incorporation of the
Company, in order to consummate the Merger;
(b) Statutes. No Legal Requirement shall have been enacted or
promulgated by any Governmental Entity which prohibits the consummation of
the Merger or the transactions contemplated hereby;
(c) Injunctions. There shall be no order or injunction of a court or
other governmental authority of competent jurisdiction in effect
precluding, restraining, enjoining or prohibiting consummation of the
Merger; and
(d) HSR Act. Any applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated.
Section 6.2. Additional Conditions to Obligations of the Company.
The obligation of the Company to effect the Merger is also subject to the
fulfillment of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in this Agreement, without regard
to any material adverse effect or any other materiality qualification
contained in any such representation or warranty, shall be true and
correct on and as of the Effective Time (except where such representation
and warranty speaks by its terms as of a different date, in which case it
shall be true and correct as of such date), with the same force and effect
as if made on and as of the Effective Time, unless the failure of such
representations and warranties to be true and correct would not reasonably
be expected to result in, individually or in the aggregate, a material
adverse effect on the ability of Parent and Sub to consummate the
transactions contemplated hereby, including the Merger in accordance with
the terms hereof; and
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(b) Agreements, Conditions and Covenants. Parent and Sub shall have
performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or
complied with by them on or before the Effective Time.
Section 6.3. Additional Conditions to Obligations of Parent and Sub.
The obligations of Parent and Sub to effect the Merger are also subject to the
following conditions:
(a) Representations. The representations and warranties of the
Company contained in this Agreement, without regard to any Material
Adverse Effect qualification or any other materiality qualification
contained in any such representation and warranty, shall be true and
correct in all respects on and as of the Effective Time (except where such
representation and warranty speaks by its terms as of a different date, in
which case it shall be true and correct as of such date), with the same
force and effect as if made on and as of the Effective Time, unless the
failure of such representations and warranties to be true and correct
would not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect.
(b) Agreements, Conditions and Covenants. The Company shall have
performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or
complied with by it on or before the Effective Time;
(c) Financing. Financing shall have been obtained on terms,
conditions and in amounts reasonably satisfactory to Parent (it being
acknowledged and agreed by Parent that the terms, conditions and amounts
set forth in the Financing Letters for the Financing contemplated thereby,
and any terms, conditions and amounts of any other Financing that are not
materially worse for the Parent, Sub or the Surviving Corporation than
those terms, conditions and amounts set forth in the Financing Letters,
are and will be satisfactory to Parent); and
(d) No Adverse Change. Since March 29, 1998, no event or events
shall have occurred which have resulted in or would reasonably be expected
to result in a Material Adverse Effect.
ARTICLE VII.
TERMINATION AND AMENDMENT
Section 7.1. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of the terms
of this Agreement by the shareholders of the Company:
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(a) by mutual written consent of the Boards of Directors of Parent
and the Company, with the concurrence of the Special Committee in the case
of the Company;
(b) by either Parent or the Company (with the concurrence of the
Special Committee if by the Company), if this Agreement shall have been
voted on by the stockholders of the Company at the Special Meeting and the
vote shall not have been sufficient to satisfy the conditions set forth in
Section 6.1(a);
(c) by either Parent or the Company if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, Shares pursuant to the Merger and such
order, decree or ruling or other action shall have become final and
nonappealable;
(d) by either Parent or the Company (with the concurrence of the
Special Committee, if by the Company), if the Merger shall not have been
consummated by December 31, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(d) shall not be
available to any party whose failure to perform any of its obligations
under this Agreement has been the cause of, or resulted in, the failure of
the Merger to occur on or before such date;
(e) by the Company (with the concurrence of the Special Committee),
if (i) any of the conditions set forth in Sections 6.1 or 6.2 that (A) are
required to occur prior to the Closing shall have become incapable of
occurring, or (B) are not permitted to occur prior to the Closing shall
have occurred prior to the Closing and are incapable of being cured or
reversed, and, in either case (A) or (B), shall not have been, on or
before the date of such termination, permanently waived by the Company
(with the concurrence of the Special Committee), or (ii) Parent or Sub
shall have breached any of their respective representations, warranties,
covenants or other agreements contained in this Agreement which breach is
incapable of being cured or has not been cured within 30 days after the
giving of written notice to Parent or Sub, as applicable.
(f) by Parent or Sub, if (i) any of the conditions set forth in
Sections 6.1 or 6.3 that (A) are required to occur prior to the Closing
shall have become incapable of occurring, or (B) are not permitted to
occur prior to the Closing, shall have occurred prior to the Closing and
are incapable of being cured or reversed, and, in either case (A) or (B),
shall not have been, on or before the date of such termination,
permanently waived by Parent and Sub, or (ii) the Company shall have
breached in any material respect
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any representation, warranty, covenant or other agreement contained in
this Agreement which breach is incapable of being cured or has not been
cured within 30 days after the giving of written notice to the Company;
(g) by Parent or Sub, if the Company's Board of Directors or the
Special Committee (i) shall have withdrawn or modified or amended in any
respect its recommendation of the Merger Agreement or the Merger, (ii)
shall have caused the Company to enter into an agreement with a third
party with respect to any Takeover Proposal, or (iii) the Board of
Directors of the Company or the Special Committee shall have resolved to
take any of the foregoing actions;
(h) by the Company with the concurrence of the Special Committee,
(i) if the Company's Board of Directors or the Special Committee shall
have withdrawn its recommendation of the Merger Agreement or the Merger or
shall have approved or recommended a Takeover Proposal, (ii) in connection
with entering into an agreement with a third party with respect to any
Takeover Proposal, or (iii) if the Board of Directors of the Company or
the Special Committee shall have resolved to take any of the foregoing
actions, provided that in any case the Company, the Board of Directors of
the Company and the Special Committee shall have complied with the
provisions of Section 5.5; or
(i) by the Special Committee on behalf of the Company, if the
Special Committee shall have withdrawn its recommendation of the Merger
Agreement or the Merger or shall have approved or recommended a Takeover
Proposal, or if the Special Committee shall have resolved to take any of
the foregoing actions, provided that in any case the Special Committee
shall have complied with the provisions of Section 5.5.
Section 7.2. Effect of Termination. In the event of a termination of
this Agreement by either the Company, Parent or Sub as provided in Section 7.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to the penultimate sentence of
Section 5.2, Sections 8.1 and 8.9 and this Section 7.2. Nothing herein shall
relieve any party of liability with respect to any fraud or intentional breach
of this Agreement.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Fees and Expenses.
(a) All fees and expenses incurred in connection with the Merger,
this Agreement and the
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transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated;
(b) If a Triggering Transaction is consummated within twelve months
of the termination of this Agreement pursuant to Section 7.1, then the
Company shall pay, or cause to be paid, to Parent $30,000,000 (the
"Termination Fee") if (i) Parent or Sub terminates this Agreement under
Section 7.1(f)(ii) or (g) or at the time of the termination of this
Agreement Parent or Sub had the right to terminate this Agreement under
such Sections; (ii) the Company terminates this Agreement pursuant to
Section 7.1(h); (iii) the Special Committee terminates the Agreement
pursuant to Section 7.1(i); or (iv) prior to any termination of this
Agreement, the Company had materially breached the provisions of Section
5.5 of this Agreement. The Termination Fee shall be paid in same day funds
at the time of the first receipt by a holder of Shares (other than Parent
Shares) of any consideration arising out of the Triggering Transaction.
Section 8.2. Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the shareholders of the Company
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Closing Date with respect to any of the terms contained herein and
any provision of this Agreement may be waived by the party benefited thereby;
provided, however, that the Company shall only agree to any material
modification, amendment, supplement or waiver with the consent of the Special
Committee; and provided, further, that after the approval of this Agreement by
the shareholders of the Company, no such amendment, modification or supplement
shall reduce the amount or change the form of the Merger Consideration without
further approval by the holders of such number of Shares that are required to
approve this Agreement pursuant to Section 6.1(a).
Section 8.3. Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time, except for remedies that may be available for fraud.
Section 8.4. Notices. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next business day, (c) one business day
after the date when sent to the recipient by reputable express courier service
(charges prepaid), or (d) seven business days after the date when mailed
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to the recipient by certified or registered mail, return receipt requested
and postage prepaid. Such notices, demands and other communications shall
be sent to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Trace International Holdings, Inc.
375 Park Avenue
New York, New York 10152
Attention: Philip N. Smith, Jr., Esq.
Telephone No.: (212) 230-0400
Telecopy No.: (212) 593-1363
with copies to: 593-1363
Willkie Farr & Gallagher
Equitable Tower
787 Seventh Avenue
New York, NY 10019
Attention: Jack H. Nusbaum, Esq.
Telephone No.: (212) 728-8000
Telecopy No.: (212) 728-8111
(b) if to the Company, to:
Foamex International Inc.
1000 Columbia Avenue
Linwood, PA 19061
Attention: Chief Executive Officer
Telephone No.: (610) 859-3030
Telecopy No.: (610) 859-3069
and
Special Committee of Board of Directors
of Foamex
c/o Gutfreund & Co., Inc.
712 Fifth Avenue
New York, New York 10019
Attention: John Gutfreund
Telephone No.: (212) 956-1190
Telecopy No.: (212) 956-1390
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Telephone No.: (212) 225-2000
Telecopy No.: (212) 225-3999
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Section 8.5. Interpretation. The language used in this Agreement
shall be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
Any references to any federal, state, local or foreign statute or law shall also
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the context otherwise requires: (a) a term has the
meaning assigned to it by this Agreement; (b) including means "including but not
limited to"; (c) "or" is disjunctive but not exclusive; (d) words in the
singular include the plural, and in the plural include the singular; (e)
provisions apply to successive events and transactions; and (f) "$" means the
currency of the United States of America. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated.
Section 8.6. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties.
Section 8.7. Entire Agreement; No Third Party Beneficiaries. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein): (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (b) other than
the provisions of Section 5.9 hereof, nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give to any person,
firm or corporation other than the parties hereto any rights or remedies under
or by reason of this Agreement or any transaction contemplated hereby.
Section 8.8. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.
Section 8.9. Governing Law. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of
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Delaware, without giving effect to the choice of law principles thereof.
Section 8.10. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except as provided in Section 1.1 and that
Sub may assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent. If Sub so assigns any of its rights, interests or obligations hereunder,
all references herein to "Sub" shall be deemed to refer to the Subsidiary to
which such rights, interests or obligations were assigned with respect to such
rights, interests or obligations. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
Section 8.11. Descriptive Headings. The descriptive headings of the
several sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 8.12. Obligation of Parent. Whenever this Agreement requires
Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to use its reasonable best efforts to cause
Sub to take such action. Parent hereby guarantees the complete and timely
performance by Sub of all its obligations under this Agreement.
ARTICLE IX.
DEFINITIONS
Section 9.1. Certain Definitions.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them in this Section 9.1:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2 of
the Exchange Act; provided, however, for purposes of this Agreement the
Company and its subsidiaries shall not be deemed to be Affiliates of
Parent, and vice versa.
(b) "Aggregate Amount" shall have the meaning specified in Section
2.2 hereto.
(c) "Agreement" shall have the meaning specified in the preamble
hereto.
(d) "Beacon" shall have the meaning specified in Section 3.10
hereto.
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(e) "Certificate of Merger" shall have the meaning specified in
Section 1.2 hereto.
(f) "Certificates" shall have the meaning specified in Section 2.2
hereto.
(g) "Closing" shall have the meaning specified in Section 1.3
hereto.
(h) "Closing Date" shall have the meaning specified in Section 1.3
hereto.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(j) "Company" shall have the meaning specified in the preamble
hereto.
(k) "Company Disclosure Schedule" shall have the meaning specified
in Section 3.1 hereto.
(l) "Company Representatives" shall have the meaning specified in
Section 5.5 hereto.
(m) "Confidentiality Agreement" shall have the meaning specified in
Section 5.2 hereto.
(n) "Constituent Corporations" shall have the meaning specified in
Section 1.1 hereto.
(o) "Contracts" as of any date means, collectively, all contracts,
agreements, commitments, instruments and guaranties to which the Company
or any of its Subsidiaries is a party or by which any of their respective
property is bound as of such date, all unfilled orders outstanding as of
such date for the purchase of raw materials, goods or services by the
Company and its Subsidiaries, and all unfilled orders outstanding as of
such date for the sale of goods or services by the Company and its
Subsidiaries.
(p) "DGCL" shall have the meaning specified in Section 1.1 hereto.
(q) "Dissenting Shareholders" shall have the meaning specified in
Section 2.1 hereto.
(r) "Dissenting Shares" shall have the meaning specified in Section
2.3 hereto.
(s) "Effective Time" shall have the meaning specified in Section 1.2
hereto.
(t) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
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(u) "Expenses" means all out-of-pocket fees and expenses incurred or
paid by or on behalf of Parent or Sub in connection with the negotiation,
execution and delivery of this Merger Agreement, the Financing, or the
transactions contemplated by this Agreement or the Financing, including
all fees and expenses of counsel, commercial banks, investment banking
firms, accountants, experts and consultants to Parent.
(v) "Financing" means the receipt of funds by Parent on terms and
conditions not materially less favorable than, and in amounts not less
than, those set forth in the Financing Letters.
(w) "Financing Letters" shall have the meaning specified in Section
4.4 hereto.
(x) "Foamex Credit Agreement" means the Credit Agreement, dated as
of February 27, 1998, by and among Foamex L.P., FMXI, Inc., 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.
(y) "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign.
(z) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
(aa) "Indemnified Parties" shall have the meaning specified in
Section 5.9 hereto.
(bb) "Intellectual Property" means, collectively: (i) trademarks and
service marks (registered or unregistered), trade dress, trade names and
other names and slogans embodying business or product goodwill or
indications of origin, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated
therewith; (ii) patents, patentable inventions, discoveries, improvements,
ideas, know-how, formula methodology, processes, technology and computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data) and all applications or registrations in any jurisdiction pertaining
to the foregoing, including all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof; (iii) trade
secrets, including confidential and other non-public information, and the
right in any jurisdiction to limit the use or disclosure thereof; (iv)
copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
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jurisdiction; (v) Internet Web sites, domain names and registrations or
applications for registration thereof; (vi) licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; (vii)
books and records describing or used in connection with any of the
foregoing; and (viii) claims or causes of action arising out of or related
to infringement or misappropriation of any of the foregoing.
(cc) "Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
writ, injunction, decree, constitution, law, rule, ordinance, Permit,
principle of common law, regulation, statute, or treaty.
(dd) "Liability" means any liability or obligation whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated and whether due or to become due), including, without
limitation, any liability for Taxes.
(ee) "Liens" means any charge, claim, community property interest,
condition, equitable interest, lien, mortgage, option, pledge, security
interest, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income, or exercise
of any other attribute of ownership.
(ff) "Material Adverse Effect" means any material adverse effect on
the business, operations, properties (including intangible properties), or
condition (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole.
(gg) "Merger" shall have the meaning specified in Section 1.1
hereto.
(hh) "Merger Consideration" shall have the meaning specified in
Section 2.1 hereto.
(ii) "1994 Warrants" means the Warrants issued pursuant to the
Warrant Agreement, dated as of June 28, 1994, by and between the Company
and Shawmut Bank Connecticut, National Association.
(jj) "Notice of Superior Proposal" shall have the meaning specified
in Section 5.5 hereto.
(kk) "Option Plans" shall have the meaning specified in Section 2.4
hereto.
(ll) "Option Release" shall have the meaning specified in Section
2.4 hereto.
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(mm) "Parent" shall have the meaning specified in the preamble
hereto.
(nn) "Parent Shares" shall have the meaning specified in Section 2.1
hereto.
(oo) "Participating Warrants" means the Warrants issued pursuant to
(i) the Warrant Exchange Agreement, dated as of December 14, 1993, by and
between the Company and DLJ Funding, Inc. and (ii) the Warrant Exchange
Agreement, dated as of December 14, 1993, by and between the Company and
Marely I S.A.
(pp) "Paying Agent" shall have the meaning specified in Section 2.2
hereto.
(qq) "Permits" means Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights.
(rr) "Proxy Statement" shall have the meaning specified in Section
1.9 hereto.
(ss) "Schedule 13E-3" shall have the meaning specified in Section
1.9 hereto.
(tt) "SEC" means the Securities and Exchange Commission.
(uu) "SEC Documents" shall have the meaning specified in Section 3.5
hereto.
(vv) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(ww) "Shares" shall have the meaning specified in the recitals
hereto.
(xx) "Special Committee" means the Special Committee of the Board of
Directors of the Company appointed by the Board of Directors of the
Company on March 16, 1998 in connection with Parent's proposal to acquire
all outstanding Shares (other than Parent Shares).
(yy) "Special Meeting" shall have the meaning specified in Section
1.8 hereto.
(zz) "Stock Options" shall have the meaning specified in Section 2.4
hereto.
(aaa) "Sub" shall have the meaning specified in the preamble hereto.
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(bbb) "Sub Disclosure Schedule" shall have the meaning specified in
Section 4.3 hereto.
(ccc) "Subsidiary" of any entity means all corporations or other
entities in which such entity owns a majority of the issued and
outstanding capital stock or equity or similar interests; provided,
however, in no event shall the Company and its Subsidiaries be deemed to
be Subsidiaries of Parent.
(ddd) "Superior Proposal" means any bona fide Takeover Proposal
which the Special Committee or the Board of Directors of the Company
determines in its good faith judgment (based on the advice of its
financial advisor of nationally recognized reputation) to be more
favorable to the Company's shareholders than the Merger.
(eee) "Surviving Corporation" shall have the meaning specified in
Section 1.1 hereto.
(fff) "Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any: (A) merger, consolidation or similar
transaction involving the Company, (B) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or
otherwise of assets of the Company or its Subsidiaries representing 15% or
more of the consolidated assets of the Company and its Subsidiaries, (C)
issue, sale, or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into,
such securities) representing 15% or more of the voting power of the
Company or (D) transaction in which any person or "group" (as such terms
used in the Exchange Act) shall acquire beneficial ownership (as such term
is defined in Rule 13d-3 under the Exchange Act) of 25% or more of the
outstanding Company common stock, in each case, other than the
transactions with Parent contemplated by this Agreement.
(ggg) "Taxes" means all federal, state, local, foreign and other
taxes, assessments and water and sewer charges and rents, including
without limitation, income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, withholding,
Social Security, unemployment, real property, personal property, property
gains, registration, capital stock, value added, single business,
occupation, workers' compensation, alternative or add-on minimum,
estimated, or other tax, including without limitation any interest,
penalties or additions thereto.
(hhh) "Termination Fee" shall have the meaning specified in Section
8.1 hereto.
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(iii) "Triggering Transaction" means any of the transactions
described in clause (A), (B) (in the event the transaction involves all or
substantially all of the consolidated assets of the Company and its
Subsidiaries), or (D) (in the event the 25% threshold is reached without
including in the Shares of which beneficial ownership was acquired those
Shares that immediately prior to the transaction were Parent Shares or
Shares held by controlling persons of Parent) of the definition of the
term "Takeover Proposal" with any Person other than Parent or any of its
Affiliates, which either (a) provides that each Share (excluding Parent
Shares or Shares held by affiliates of Parent) that is purchased or
otherwise acquired or exchanged in connection with such transaction will
receive consideration having a value at the time of the consummation of
such transaction equal to or greater than the Merger Consideration or (b)
was proposed to the Company, or publicly disclosed, prior to the
termination of this Agreement.
(jjj) "Warrant" shall have the meaning specified in Section 2.5
hereto.
(kkk) "Warrant Release" shall have the meaning specified in Section
2.5 hereto.
Section 9.2. Accounting Terms and Determinations. All references in
this Agreement to "generally accepted accounting principles" or "GAAP" shall
mean generally accepted accounting principles in effect in the United States of
America at the time of application thereof, applied on a consistent basis.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished hereunder shall be prepared, in
accordance with generally accepted accounting principles, applied on a
consistent basis.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
TRACE INTERNATIONAL HOLDINGS, INC.
By: /s/ Marshall S. Cogan
------------------------------
Name: Marshall S. Cogan
Title: Chief Executive Officer
TRACE MERGER SUB, INC.
By: /s/ Marshall S. Cogan
------------------------------
Name: Marshall S. Cogan
Title: President
FOAMEX INTERNATIONAL INC.
By: /s/ Andrea Farace
------------------------------
Name: Andrea Farace
Title: Chief Executive Officer
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Amendment No. 1 to Agreement and Plan of Merger
This Amendment No. 1 (this "Amendment") to the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of June 25, 1998, by and among Trace
International Holdings, Inc., a Delaware corporation ("Parent"), Trace Merger
Sub, Inc., a Delaware corporation("Sub"), and Foamex International Inc., a
Delaware corporation (the "Company"), is being entered into as of
July 6, 1998.
WHEREAS, Parent, Sub and the Company desire to amend the Merger
Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. Amendment to Section 5.1(e)(iii). Section 5.1(e)(iii) of the
Merger Agreement is hereby amended and restated as follows: "(iii) (A) enter
into or modify or amend any employment agreement or arrangement with any officer
or director of the Company or any of its Subsidiaries, other than in the
ordinary course of business consistent with past practice or (B) enter into or
modify or amend any severance agreement with, or grant any severance or
termination pay to, any officer or director of the Company or any of its
Subsidiaries, except in the ordinary course of business consistent with past
practice or as required by any applicable Legal Requirement or in connection
with the Crain restructuring or Contracts in effect on the date hereof; or".
Section 2. Amendment to Sections 5.1(g)(iii) and (iv). Sections
5.1(g)(iii) and (iv) of the Merger Agreement are hereby amended and restated as
follows: "(iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any material
obligations of any other person (other than a Subsidiary of the Company or as
set forth on Section 5.1 of the Company's Disclosure Schedule); (iv) make any
loans, advances or capital contributions to, or investments in, any other person
(other than to the Subsidiaries of the Company, pursuant to the Merger Agreement
or as set forth on Section 5.1 of the Company's Disclosure Schedule (provided
the ownership structure of such Subsidiary has not changed from that existing on
the date hereof) or customary advances to employees); or".
Section 3. No Further Amendment. Except as otherwise provided herein, the
Merger Agreement shall remain unchanged and in full force and effect and as
amended hereby is ratified by the parties hereto.
<PAGE>
Section 4. Effect of Amendment. From and after the execution of this
Amendment by the parties hereto, any references to the Merger Agreement shall be
deemed a reference to the Merger Agreement as amended hereby.
Section 5. Governing Law. This Amendment and the legal relations between
the parties hereto will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to the choice of law principles
thereof.
Section 6. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Amendment or the Merger Agreement nor in any way affect this Amendment or the
Merger Agreement.
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IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to
be signed on his own behalf or by a duly authorized officer, as the case may be,
as of the date first above written.
TRACE INTERNATIONAL HOLDINGS, INC.
By: /s/ Philip N. Smith, Jr.
----------------------------------
Name: Philip N. Smith, Jr.
Title: Senior Vice President
TRACE MERGER SUB, INC.
By: /s/ Tambra S. King
----------------------------------
Name: Tambra S. King
Title: Vice President
FOAMEX INTERNATIONAL INC.
By: /s/ Andrea Farace
----------------------------------
Name: Andrea Farace
Title: Chief Executive Officer
3
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APPENDIX B
[BEACON LETTERHEAD]
June 25, 1998
Special Committee of the Board of Directors
Foamex International Inc.
1000 Columbia Avenue
Linwood, PA 19061
Gentlemen:
You have engaged us as your financial advisor to assist in your evaluation, and
you have requested our opinion as to the fairness from a financial point of
view, of the offer (the "Offer") made by Trace International Holdings Inc.
("Trace") on June 25, 1998 to purchase all of the outstanding shares of common
stock, par value $0.01 per share, of Foamex International Inc. (the "Company")
which are not owned by Trace or its subsidiaries (the "Shares") for $18.75 per
Share in cash, pursuant to the Agreement and Plan of Merger, dated June 25, 1998
(the "Merger Agreement"), by and among Trace, Trace Merger Sub Inc. and Foamex
International Inc.
Consummation of the proposed purchase is subject to the execution of the Merger
Agreement by and among Trace, Trace Merger Sub Inc. and the Company, approval by
the Company's Board of Directors and stockholders and other terms and conditions
in the Merger Agreement.
The Beacon Group Capital Services, LLC, as part of its strategic advisory
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations for
estate, corporate and other purposes. We are familiar with the Company having
served as financial advisor to the Special Committee of the Company's Board of
Directors, and having participated in certain of the negotiations leading to the
Offer.
Pursuant to our engagement, we have informed ourselves concerning those aspects
of the Offer and the Company's business, operations, financial condition,
prospects and management which we have deemed appropriate and material. In that
regard, we have reviewed, among other things, the Offer; the Merger Agreement;
the Prospectus issued by the Company in connection with the initial public
offering of its common stock in December 1993; Annual Reports to shareholders
and Annual Reports on Form 10-K of the Company for each of the four years ended
December 31, 1997; certain interim reports to shareholders and Quarterly Reports
on Form 10-Q; various other communications from the Company to its shareholders;
and certain internal financial analyses and financial forecasts for the Company
prepared by its management, including those relating to the Company's December
1997 acquisition of Crain Industries, Inc. ("Crain"), the integration of Crain
into the Company and the reorganization of the Company in 1998 following the
acquisition of Crain. We have discussed the Company's business and prospects
with the Company's senior management and with others we have deemed appropriate,
including senior management and other representatives of Trace. We have also
discussed with such individuals the relationship of the Company and Trace, as
well as inter-company transactions between the Company and Trace, including the
fact that Trace will receive payments of $120 million in connection with the
purchase of the Shares, of which $60 million is a payment in consideration for a
Trace tax Net Operating Loss carryforward. We have reviewed in outline form the
proposed terms, conditions and structure of the financing for the proposed
purchase of the Shares and had discussions with representatives of the principal
sources of financing concerning their confidence in completing that financing.
In addition, we have reviewed the reported price and trading activity for the
Company's common stock; compared
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financial and stock market information for the Company with similar information
for selected other companies whose securities are publicly traded and which we
deemed to be comparable to the Company in material respects; reviewed the
financial terms of certain recent business combinations in industries and
markets in which the Company participates; and performed such other studies and
analyses as we considered appropriate. Since Trace has informed the Company that
its equity position was not for sale, we have, with your approval, not contacted
third parties to ascertain their interest in a combination with the Company or
in making a proposal which is competitive with the Offer.
We have assumed and relied without independent verification on the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of the opinion which you have requested. With respect to the financial
projections furnished to us by the Company, we have assumed that they have been
reasonably prepared on a basis which reflects the best current estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company and relevant economic conditions. We have
not made an independent evaluation or appraisal of the assets and liabilities of
the Company or of any of its subsidiaries, and we have not been furnished with
any such evaluation or appraisal. This letter does not constitute an opinion
with respect to, and does not address, the effect which consummation of the
Offer or the financing thereof would have on the solvency of the Company or any
of its affiliates, including Trace.
The financial advisory services which we have provided to you and our opinion
expressed below have been and are provided for your information and assistance
in connection with your consideration of the Offer and do not constitute a
recommendation to any shareholder. Our opinion is necessarily based on economic,
market, financial and other conditions as they existed on, and could be
evaluated as of, the date hereof.
Although subsequent developments may affect our opinion, we do not have an
obligation to update, revise or reaffirm our opinion.
Based on and subject to the foregoing and such other matters as we considered
relevant, it is our opinion that as of the date hereof the proposed purchase
price of $18.75 per Share in cash contained in the Offer is fair from a
financial point of view to holders of the Shares.
Very truly yours,
/S/ THE BEACON GROUP CAPITAL SERVICES, LLC
THE BEACON GROUP CAPITAL SERVICES, LLC
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APPENDIX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d)of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph(1)of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
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exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such
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constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
C-3
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to. each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the
C-4
<PAGE>
Court may order all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees And the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
<PAGE>
APPENDIX D
DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY, TRACE AND MERGER SUB
Set forth below is the name, business address and citizenship of each
person who is a director or executive officer of the Company, Trace and Merger
Sub, and, except as otherwise indicated, the present principal occupation or
employment of each person listed below and the name, principal business and
address of the corporation or other organization in which such occupation or
employment of each such person is conducted and the material occupation,
positions, offices and employment and the name, principal business and address
of any corporation or other organization in which any material occupational
position, office or employment of each such person was held during the past five
years. Unless otherwise indicated, the business address of each person at (i)
the Company is 1000 Columbia Avenue, Linwood, PA 19061 and (ii) Trace and Merger
Sub is 375 Park Avenue, 11th Floor, New York, NY 10152.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Andrea Farace............. Mr. Farace, 42, began serving as Chairman of the ITALY
Board and Chief Executive Officer of the Company and
certain affiliated entities in May 1997. Mr. Farace
has also served as Chairman of the Board of General
Felt since May 1997. Mr. Farace has also served as a
director of the Company since February 1996. Mr.
Farace served as President and a director of Trace
from December 1994 and December 1993, respectively,
to December 1997. Prior to December 1993, Mr. Farace
held several executive positions within Trace
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 TFC and CHF Industries, Inc., both
of which are subsidiaries of Trace. 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.
D-1
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Marshall S. Cogan......... Mr. Cogan, 61, has been the Chairman of the USA
Executive Committee of the Company since its
inception in September 1993, served as Chairman and
Chief Executive Officer from January 1994 through May
1997 and has been the Vice Chairman of the Board of
Directors since May 1997. Mr. Cogan has been a
director of TFC since December 1991 and the Chairman
of the Board and President of TFC and Trace Foam Sub
since January 1992 and March 1995, respectively. He
has been the principal stockholder, Chairman or
Co-Chairman of the Board and Chief Executive Officer
or Co-Chief Executive Officer of Trace since 1974.
Mr. Cogan has been a Director and President of Merger
Sub since June 1998. He has also been a member of
the Board of Director of Recticel since February
1993. Mr. Cogan was named Chairman and Chief
Executive Officer of United Auto Group Inc., an
affiliate of Trace, in April 1997. He has also
served as Chairman, Director and Managing General
Partner of other companies formerly owned by the
Company, including JPSGP Inc., and JPS, and companies
formerly owned by Trace, including Color Tile, Inc.,
General Felt, Knoll International Inc. and
Sheller-Globe Corporation. Prior to forming Trace,
he was senior partner at Cogan, Berlind, Weill &
Levitt and subsequently CBWL - Hayden Stone, Inc.
Additionally, Mr. Cogan serves on the Board of
Directors of the American Friends of the Israel
Museum and the American Ballet Theater, and 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............. Mr. Hay , 72, has been Chairman Emeritus and a USA
director of the Company since September 1993. Mr.
Hay was Chairman and Chief Executive Officer of
Foamex L.P. from January 1993 to January 1994. Mr.
Hay was President of Foamex L.P. and its predecessor
from 1972 through 1992. Mr. Hay began his career in
1948 as a chemist with The Firestone Tire and Rubber
Company, a predecessor of Foamex L.P.
D-2
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Rolf E. Christensen....... Mr. Christensen, 53, has been Chief Operating Officer USA
since March 1998. Prior to that Mr. Christensen
served as Executive Vice President, Technical
Products of Foamex L.P. Mr. Christensen has served
in several management positions since joining
Foamex L.P. in 1967.
John H. Gutfreund......... John H. Gutfreund, 68, has served as a director and USA
as Chairman of the Special Committee of the Board of
Directors of the Company since February 1998. He is
President of Gutfreund & Company, Inc., a financial
consulting firm, which he formed in 1992. Prior to
that, Mr. Gutfreund served in various positions with
Salomon Brothers from 1953 until 1991, most recently
as Chairman of the Board and Chief Executive
Officer. Mr. Gutfreund is also a director of
AquaPenn Spring Water Company, Inc., Baldwin Piano &
Organ Company, LCA-Vision, Inc., The Universal Bond
Fund and Montefiore Medical Center and is on the
Board of Trustees of the New York Public Library.
Mr. Gutfreund served as Vice Chairman of the New York
Stock Exchange from 1985 until 1987.
Stuart J. Hershon......... Stuart J. Hershon, 60, has been a director of the USA
Company since December 1993. He was a member of the
Board of Directors of Trace from April 1986 until May
1994. He is a board certified, practicing orthopedic
surgeon at North Shore University Hospital and at
Columbia Presbyterian Medical Center in New York
where he is an assistant clinical professor of
orthopedic surgery. Dr. Hershon has served as
orthopedic consultant and team physician for certain
New York area professional sports teams.
D-3
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Etienne Davignon.......... Etienne Davignon, 64, has been a director of the Belgian
Company since December 1993. Mr. Davignon has been
the Chairman of Societe Generale de Belgique, a
Belgian bank and holding company, and
a director of its subsidiary Recticel since April
1989. Mr. Davignon was a Vice President of the EEC
Commission in charge of industry, research and energy
from 1977 through 1984. He was the first President
of the International Energy Agency. Mr. Davignon
currently serves as a director of, among other
companies, Generale de Banque s.a., Gilead
Sciences, Compagnie de Suez s.a., Solvay s.a. and
Kissinger Associates. Mr. Davignon also serves as a
member of the International Advisory Board of Fiat
S.p.A. He is the Chairman of the Association for the
Monetary Union of Europe, the Paul-Henri Spaak
Foundation and the Royal Institute for International
Relations and is a member of the European Roundtable
of Industrialists, chairing the working group on
Trade and Investment.
John V. Tunney............ John V. Tunney, 63, has been a director of the USA
Company since May 1994. He has been Chairman of the
Board of Cloverleaf Group, Inc., an investment
company, since 1981, President of John V. Tunney &
Associates, Inc. since 1991 and Chairman of the Board
of Logan Manufacturing Company since 1993. Mr.
Tunney has served as Vice Chairman of the Board of
the Corporate Fund for Housing since 1988. Mr.
Tunney served as a U.S. Senator from the State of
California from 1971 until 1977. Prior to that, Mr.
Tunney served as a member of Congress from the 38th
district of California from 1965 until 1971. Mr.
Tunney currently serves as a member of the Board of
Directors of the Prospect Group, Inc., Garnet
Resources Corporation, Illinois Central Railroad
Corp. Enterprise Plan, Inc. and The Forschner Group.
John A. Feenan............ Mr. Feenan, 37, was appointed Executive Vice USA
President and Chief Financial Officer in June 1998.
Prior to joining the Company, Mr. Feenan served as
Chief Financial Officer of LaPorte, Inc., the North
American subsidiary of LaPorte, PLC, a UK-based
manufacturer of specialty chemicals since 1994. From
1992 to 1994, Mr. Feenan served in a variety of
positions at Plasti-Line Inc., including General
Manager, and from 1989 to 1992 he was employed by IBM
Corporation in a variety of positions, including
Senior Financial Analyst.
D-4
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Barry Zimmerman........... Dr. Zimmerman, 60, has been Executive Vice USA
President, Manufacturing Services and Corporate
Development of the Company since July 1997,
Chairman, President and a director of Foamex Mexico
since September 1993 and Vice President of FMXI
since April 1995. Dr. Zimmerman has been an
Executive Vice President of Foamex L.P. since and a
Senior Vice President or Vice President and Managing
Director of Trace since October 1986. Prior to that,
Dr. Zimmerman held several executive positions
within Trace beginning in August 1978. Dr.
Zimmerman has been an Executive Vice President of TFC
since October 1990. Dr. Zimmerman has served as
director of Foamex Capital Corporation since July
1992.
Philip N. Smith, Jr....... Mr. Smith, 55, has been Senior Vice President or Vice USA
President, Secretary and General Counsel of the
Company since its inception in September 1993. Mr.
Smith has been a Vice President and Assistant
Secretary of TFC since its inception in October 1990
and a Vice President and Assistant Secretary of Trace
Foam Sub since December 1991. Mr. Smith has been a
Senior Vice President or Vice President and the
Secretary or Assistant Secretary and General Counsel
of Trace since January 1988 and has overseen and been
actively involved in transaction negotiations,
litigation, stockholder and director relations and
other corporate legal matters. Mr. Smith has been a
Director, Vice President and Secretary of Merger Sub
since June 1998. Prior to joining Trace, he was the
sole shareholder of a professional corporation which
was a partner of Akin, Gump, Strauss, Hauer & Feld,
L.L.P.
Phil Allen................ Mr. Allen, 58, has been Executive Vice President of USA
Foamex Carpet since September 1997. From July
1993 to January 1998, Mr. Allen served as Vice
President, Sales and Marketing for General Felt.
D-5
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Gregory M. Barbe.......... Mr. Barbe, 43, has been Executive Vice President, USA
Foam Products since March 1998. He was Executive
Vice President, Cushioning Products from July 1997
through March 1998. Mr. Barbe also served as Vice
President of Sales from April 1994 to July 1997.
Prior to joining the Company, 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.......... Mr. Brown, 42, has been Executive Vice President, USA
Automotive Products since July 1997. From 1995 to
1996, Mr. Brown served as President of DCT
Material Handling Systems, Inc. and from 1993 to
1995, he served as Vice President, Business
Development of DCT Material Handling Inc.
Christine A. Henisee...... Ms. Henisee, 51, has been Executive Vice President, USA
Business Development and Technology since July 1997.
From 1995 until joining the Company, Ms. Henisee
served as an advisor to Johnson & Johnson Consumer
Products in her capacity as founder of Cheswold
Group, a consulting enterprise. From 1992 to 1995,
she served as Division Vice President of Scott Paper
Company for the Global Wet Wipes Business. Prior
thereto, Ms. Henise held various management positions
for over 25 years at Scott Paper Co. Ms. Henisee
also serves on the Board of Episcopal Academy.
Stephen Drap.............. Mr. Drap, 48, has been Executive Vice President, USA
Technical Products since March 1998. Prior to that,
Mr. Drap served as Vice President, Manufacturing and
Customer Service, Technical Products beginning July
1997. Mr. Drap has held various management positions
since joining the Company in 1980.
Darrel Nance.............. Mr. Nance, 45, has been Executive Vice President, USA
Foam Products since March 1998. From 1995 until
joining the Company, Mr. Nance served as Vice
President and General Manager of California
Operations of Crain Industries.
D-6
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Prat Wallace............. Mr. Wallace, 38, has been the Executive Vice USA
President, Manufacturing Technology since March
1998. From 1997 to until joining the Company, Mr.
Wallace served as Vice President of the Southeast
region of Crain Industries. From 1993 to 1997,
Mr. Wallace served as the General Manager of Crain
Industries' Newnan, Georgia facility.
DIRECTORS AND EXECUTIVE OFFICERS OF TRACE
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Marshall S. Cogan......... See above under "Directors and Executive Officers of USA
the Company".
Saul S. Sherman........... Saul S. Sherman, 80, has been Vice Chairman of the USA
Board of Directors and a member of the Executive
Committee of Trace since March 1987 and a director
since 1981. Mr. Sherman has served as Chairman of
the Board and Executive Vice President of Unitcrane
Shovel Corp. ("Unitcrane") since 1978 and 1996,
respectively. Mr. Sherman served as Chief Executive
Officer of Unitcrane from 1978 until 1996.
Additionally, Mr. Sherman has served as a director of
Allied Products Corporation since March 1973.
Frederick Marcus.......... Frederick Marcus, 63, has been Vice Chairman of the USA
Board of Directors and Senior Managing Director of
Trace since March 1993 and March 1987, respectively,
and a director since July 1976.
Robert H. Nelson.......... Robert H. Nelson, 52, has served as Chief Financial USA
Officer of Trace since 1987 and Senior Vice
President, Chief Operating Officer and a director of
Trace since 1994 and Vice President and Treasurer of
TFC and a director, Vice President and Treasurer of
Trace Foam Sub since October 1990 and July 1992,
respectively. Additionally, Mr. Nelson has served as
a director of United Auto Group, Inc. ("UAG") since
January 1996 and as Executive Vice President and
Chief Financial Officer of UAG since January 1997.
He has also served as Vice Chairman of Atlantic
Finance since March 1996.
D-7
<PAGE>
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Barry Zimmerman........... See above under "Directors and Executive Officers of USA
the Company".
Philip N. Smith, Jr. ..... See above under "Directors and Executive Officers of USA
the Company".
Karl H. Winters........... Karl H. Winters, 39, has served as Vice USA
President-Finance and Controller of Trace since
September 1993 and as Vice President of TFC since
December 1997. Additionally, Mr. Winters has served
as Vice President and Treasurer of UAG from March
1997 and has served as Executive Vice President and
Chief Financial Officer of UAG since August 1997.
Prior thereto, Mr. Winters served as a senior audit
manager for Coopers & Lybrand, L.L.P. an accounting,
financial advisory services and management consulting
firm, which he joined in 1983.
Tambra S. King............ Tambra S. King, 36, has served as Vice President and USA
Secretary or Assistant Secretary of Trace since
September 1996 and October 1992, respectively, and as
Vice President and Secretary or Assistant Secretary
of TFC and Secretary of Trace Foam Sub since August
1997 and October 1992, respectively. Additionally,
Ms. King has served as Vice President and Secretary
or Assistant Secretary of UAG since May 1998 and
October 1992, respectively.
DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
NAME POSITION CITIZENSHIP
- ---- -------- -----------
<S> <C> <C>
Marshall S. Cogan......... See above under "Directors and Executive Officers of USA
the Company".
Philip N. Smith, Jr....... See above under "Directors and Executive Officers of USA
the Company".
Karl H. Winters........... See above under "Directors and Executive Officers of USA
Trace".
Robert H. Nelson.......... See above under "Directors and Executive Officers of USA
Trace".
Tambra S. King............ See above under "Directors and Executive Officers of USA
Trace".
</TABLE>
D-8
<PAGE>
PROXY
FOAMEX INTERNATIONAL INC.
SPECIAL MEETING OF THE STOCKHOLDERS
, 1998
The undersigned hereby constitutes and appoints and ,
and each of them, the attorneys and proxies of the undersigned, with full power
of substitution, to vote on behalf of the undersigned all the shares of Common
Stock of Foamex International Inc. (the "Company") which the undersigned is
entitled to vote at the Special Meeting of the stockholders of the Company, to
be held at 1000 Columbia Avenue, Linwood, Pennsylvania 19061, on ,
1998, at 10:00 a.m., local time, and all adjournments thereof, upon the matters
set forth on the reverse side and upon all matters incident to the conduct of
the Special Meeting. This proxy revokes all prior proxies given by the
undersigned. Receipt of the Notice of Special Meeting and Proxy Statement is
hereby acknowledged.
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
-------------------
SEE REVERSE SIDE
------------------
<PAGE>
X PLEASE MARK YOUR
--- VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL.
1. To approve and adopt the Agreement and Plan of Merger, dated as of June 24,
1998, by and among Trace International Holdings, Inc., a Delaware corporation
("Trace"), Trace Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and
Foamex International Inc., a Delaware corporation (the "Company"), pursuant to
which (A) Merger Sub would be merged with and into the Company, with the
Company continuing as the surviving corporation; (B) the Company would thereupon
become a wholly owned subsidiary of Trace; and (C) each outstanding share of
common stock, par value $0.01 per share, of the Company, except for (x) shares
owned by Trace or any subsidiary of Trace, (y) shares owned by the Company and
(z) shares held by stockholders who perfect their appraisal rights in accordance
with Delaware law, would be converted into the right to receive $18.75 in cash.
FOR AGAINST ABSTAIN
----- ----- -----
THIS PROXY WILL BE VOTED FOR THE ABOVE PROPOSAL UNLESS INSTRUCTIONS TO THE
CONTRARY ARE INDICATED. PLEASE NOTE THAT ALL ABSTAIN VOTES WILL BE COUNTED IN
DETERMINING THE EXISTENCE OF A QUORUM AT THE SPECIAL MEETING BUT WILL NOT BE
VOTED FOR THE PROPOSAL.
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
I plan to attend the meeting
----
"PLEASE MARK INSIDE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD
YOUR VOTES"
Please sign as name appears hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. Joint
tenants should both sign.
- -----------------------------------------
- -----------------------------------------
SIGNATURE(S) DATE
