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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Foamex International Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Foamex International Inc.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies: _______________
2) Aggregate number of securities to which transaction
applies: _____________
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):
4) Proposed maximum aggregate value of transaction: _______________
5) Total fee paid: _____________________
[ ] 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.
1) Amount Previously Paid: ___________
2) Form, Schedule or Registration Statement No: _____________
3) Filing Party: ___________
4) Date Filed: ____________
<PAGE>
[LOGO]
Foamex
FOAMEX INTERNATIONAL INC.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Dear Stockholders:
On behalf of the Board of Directors, it is my pleasure to invite you to attend
the 1999 Annual Meeting of Stockholders which will be held on Thursday, May 27,
1999, at 10:00 a.m., local time, at the offices of the Company, 1000 Columbia
Avenue, Linwood, Pennsylvania. All holders of the Company's outstanding common
stock as of April 28, 1999 are entitled to vote at the Annual Meeting.
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe the formal business to be transacted at the Annual Meeting. Directors
and Officers will be present at the Annual Meeting to respond to any questions
you may have.
Please sign, date and return the enclosed Proxy Card in the envelope provided as
soon as possible so that your shares can be voted at the meeting in accordance
with your instructions. If you plan to attend the meeting, please mark the box
on the Proxy Card.
Very truly yours,
MARSHALL S. COGAN
CHAIRMAN OF THE BOARD
APRIL 30, 1999
<PAGE>
FOAMEX INTERNATIONAL INC.
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 27, 1999
-------------------------
The Annual Meeting of Stockholders of Foamex International Inc., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 1000 Columbia Avenue, Linwood, Pennsylvania 19061, on Thursday, May 27,
1999, at 10:00 a.m., local time, for the purpose of considering and acting upon
the following matters, which are described more fully in the accompanying Proxy
Statement:
(a) To elect seven directors to serve until the 2000 annual meeting of
stockholders or until their respective successors are duly elected and
qualified;
(b) To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the year ending December 31, 1999 ("Fiscal
1999"); and
(c) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Holders of Common Stock of record at the close of business on April 28,
1999 (the "Record Date") are entitled to vote at the Annual Meeting and any
adjournment thereof. A list of stockholders of the Company as of the Record Date
will be available for inspection during business hours through May 26, 1999, at
the Company's offices, 1000 Columbia Avenue, Linwood, Pennsylvania 19061, and
will also be available for inspection at the Annual Meeting.
Stockholders are requested to complete, date and sign the enclosed proxy
card and return it promptly in the enclosed envelope which has been provided for
your convenience and which requires no postage if mailed in the United States.
The prompt return of proxy cards will ensure a quorum. Any stockholder present
at the Annual Meeting may revoke his or her proxy, and vote personally on all
matters brought before the Annual Meeting.
By Order of the Board of Directors,
PHILIP N. SMITH, JR.
SECRETARY
<PAGE>
FOAMEX INTERNATIONAL INC.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Foamex International Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on Thursday, May 27, 1999, at
10:00 a.m., local time, at the offices of the Company, 1000 Columbia Avenue,
Linwood, Pennsylvania 19061, or at any adjournment or postponement thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. It is expected that the Notice of Annual Meeting of Stockholders,
this Proxy Statement and the enclosed proxy card will be mailed to stockholders
entitled to vote at the Annual Meeting commencing on or about May 3, 1999.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Foamex International Inc., Investor
Relations, 375 Park Avenue, 11th Floor, New York, New York 10152, (212)
230-0400. To provide the Company sufficient time to arrange for reasonable
assistance, please submit all requests by May 20, 1999.
Record Date and Voting Securities
Stockholders can ensure that their shares are voted at the Annual Meeting
by signing and returning the enclosed proxy card in the envelope provided. The
submission of a signed proxy will not affect a stockholder's right to attend the
Annual Meeting and vote in person. Stockholders who execute proxies retain the
right to revoke them at any time before they are voted by filing with the
Secretary of the Company a written revocation or a proxy bearing a later date.
The presence at the Annual Meeting of a stockholder who has signed a proxy does
not itself revoke that proxy unless the stockholder attending the Annual Meeting
files written notice of revocation of the proxy with the Secretary of the
Company at any time prior to the voting of the proxy.
Proxies will be voted as specified by the stockholders. Where specific
choices are not indicated, proxies will be voted FOR the proposals submitted for
approval. The proxy card provides space for a stockholder to withhold voting for
any or all nominees to the Board
<PAGE>
of Directors or to abstain from voting for any proposal if the stockholder
chooses to do so. For purposes of determining the number of votes cast with
respect to any voting matter, only those cast "for" or "against" are included.
Abstentions and broker non-votes are counted only for purposes of determining
whether a quorum is present at the Annual Meeting.
The Board of Directors has fixed the close of business on April 28, 1999
as the record date (the "Record Date") for the determination of the stockholders
of the Company who are entitled to receive notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, the Company had
outstanding 25,016,752 shares of common stock, par value $0.01 per share (the
"Common Stock"), excluding treasury shares.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the issued and outstanding Common Stock is necessary to
constitute a quorum. The holders of Common Stock are entitled to one vote for
each share held on the Record Date.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for the management and direction of
the Company and for establishing broad corporate policies. The Board of
Directors held six meetings during the year ended December 31, 1998 ("Fiscal
1998") and acted by written consent eleven times. Except for Mr. Davignon, no
director attended less than 75% of the board and committee meetings scheduled
during Fiscal 1998.
Committees of the Board of Directors
The Board of Directors has four standing committees: the Executive
Committee, the Audit Committee, the Compensation Committee and the Stock Option
Plan Committee. The Company also had a Special Committee from March 1998 until
January 1999. The Company does not have a standing committee on nominations. The
principal responsibilities of each committee are described in the following
paragraphs.
Executive Committee. The Executive Committee held one meeting in Fiscal
1998. It is currently comprised of Marshall S. Cogan, who serves as its
Chairman, and Robert J. Hay. Prior to his resignation as a director on March 16,
1999, Andrea Farace also served as a member of this committee. The Executive
Committee's primary function is to assist the Board of Directors by acting upon
matters when the Board is not in session. The Executive Committee has the full
power and authority of the Board, except to the extent limited by law or the
Company's Restated Certificate of Incorporation or By-laws.
Audit Committee. The Audit Committee held one meeting in Fiscal 1998. It
is comprised of Etienne Davignon, who serves as its Chairman, Robert J. Hay and
John V. Tunney, all of whom are non-employee directors. The Audit Committee is
responsible for overseeing the Company's financial reporting process. The Audit
Committee consults with management and the Company's independent accountants
during the year on matters related to the annual audit, internal controls, the
published financial statements, and the accounting principles and auditing
procedures being applied. The Audit Committee also recommends a
2
<PAGE>
firm of certified independent accountants to serve as the Company's independent
accountants, authorizes all audit fees and other professional services rendered
by the accountants and periodically reviews the independence of the accountants.
Compensation Committee. The Compensation Committee held no meetings during
Fiscal 1998 and acted twice by written consent. It is comprised of John V.
Tunney, who serves as its Chairman and Stuart J. Hershon, both of whom are
non-employee directors. The Compensation Committee reviews and recommends to the
Board of Directors the compensation to be paid to the executive officers of the
Company.
Stock Option Plan Committee. The Stock Option Plan Committee is comprised
of John V. Tunney, who serves as its Chairman, and Stuart J. Hershon. The Stock
Option Plan Committee administers and makes awards under the Company's Stock
Option Plan. The Stock Option Plan Committee held no meetings during Fiscal
1998.
Special Committee. The Special Committee existed from March 1998 until
January 1999 and was comprised at all times of John H. Gutfreund and Robert J.
Hay. The Special Committee was formed to determine the advisability and fairness
to the Company's stockholders of certain proposals by Trace International
Holdings, Inc. ("Trace International") to acquire all of the outstanding Common
Stock of the Company not owned by Trace International and its subsidiaries (the
"Proposed Transaction") and to recommend to the Board of Directors its
conclusions with respect thereto. The Special Committee was disbanded in January
1999 upon termination of the Proposed Transaction.
Compensation of Directors
In 1993, the Company instituted the Foamex International Inc. Non-Employee
Director Compensation Plan (the "Non-Employee Plan"), to provide compensation to
its non-employee directors (the "Outside Directors"). Pursuant to the
Non-Employee Plan, each Outside Director receives an annual retainer of $50,000,
payable in cash or Common Stock, and a $1,000 fee for each meeting of the Board
of Directors attended by such Outside Director. In addition, for serving on a
committee of the Board of Directors, each Outside Director receives a $1,000 fee
for each meeting of such committee attended by such Outside Director and Outside
Directors who serve as Chairman of a Committee receive an additional fee of
$1,000 per meeting attended. Currently, there are five Outside Directors of the
Company and two employee directors; although Mr. Tunney is the Chairman of
Foamex Asia, Inc. ("Foamex Asia"), he is considered an Outside Director because
he is not an employee of the Company. All directors are entitled to
reimbursement for their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Board of Directors or
committees thereof. Directors who are also employees of the Company or its
subsidiaries receive no cash compensation for serving as Directors or as members
of Board committees.
In addition, Mr. Gutfreund and Mr. Hay each received compensation in the
amount of $20,000 per month for serving on the Special Committee in connection
with the consideration of the Proposed Transaction. The Company also paid all
expenses incurred by the Special Committee, including the fees and expenses of
its financial and legal advisors.
3
<PAGE>
ELECTION OF DIRECTORS
The Company has one class of directors who will be elected at
each annual meeting of stockholders. Seven directors have been nominated by the
Board of Directors for re-election and to serve in such capacity for a term of
one year until the 2000 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified.
Unless otherwise specified in the proxy, it is the intention
of the persons named in the proxies solicited by the Board of Directors to vote
FOR the seven nominees whose biographies are set forth below. If events not now
known or anticipated make any of the nominees unable to serve, the proxies will
be voted, at the discretion of the holders thereof, for other nominees supported
by the Board of Directors in lieu of those unable to serve.
<TABLE>
<CAPTION>
Name and Principal Age and Biographical Information
Occupation
<S> <C>
MARSHALL S. COGAN Marshall S. Cogan, 61, has been Chairman of the
Chairman of the Board of Board of the Company since March 16, 1999. Mr.
the Company and Chairman Cogan has been Vice Chairman of the respective
and Chief Executive Officer Boards of Foamex L.P. and FMXI, Inc. ("FMXI")
of Trace International since May 1997 and a director of Foamex Carpet
Holdings, Inc. Cushion, Inc. ("Foamex Carpet") since its
inception in February 1998. Mr. Cogan served as
the Chairman of the Board and Chief Executive
Officer of Foamex L.P. and FMXI from January 1994
to May 1997. Each of Foamex L.P., FMXI and Foamex
Carpet, directly or indirectly, is a wholly owned
subsidiary of the Company. Additionally, Mr.
Cogan served as Chairman of the Board and Chief
Executive Officer of the Company from its
inception in September 1993 to May 1997 and
served as Vice Chairman of the Board of the
Company from May 1997 until March 16, 1999. He
has been the principal stockholder, Chairman or
Co-Chairman of the Board and Chief Executive
Officer or Co-Chief Executive Officer of Trace
International Holdings, Inc. ("Trace
International") since 1974. Mr. Cogan has been a
director of Trace Foam Company, Inc. ("Trace Foam
Company") since January 1992 and a director of
Trace Foam Sub, Inc. ("Trace Foam Sub") since
March 1995. Trace Foam Company and Trace Foam Sub
are wholly owned subsidiaries of Trace
International. Mr. Cogan was named Chairman and
Chief Executive Officer of United Auto Group Inc.
("UAG"), an affiliate of Trace International, in
April 1997. He has also served as Chairman and
Director of other companies formerly owned by
Trace International, including Color Tile, Inc.,
Knoll International Inc. and Sheller-Globe
Corporation. Prior to forming Trace
International, 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 American
Friends of the Israel
4
<PAGE>
Museum, 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.
ETIENNE DAVIGNON Etienne Davignon, 66, has been a director of the
Chairman of Societe Company since December 1993. Mr. Davignon has
Generale de Belgique been the Chairman of Societe Generale de
Belgique, a Belgian bank and holding company, and
a director of its subsidiary Recticel s.a.
("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 H. GUTFREUND John H. Gutfreund, 69, has been a director of the
President, Gutfreund & Company since February 1998. He is President of
Company, Inc. Gutfreund & Company, Inc., a financial consulting
firm, which he formed in 1992. Prior to that, Mr.
Gutfreund served in various positions with
Salomon Brothers (the predecessor to Salomon
Smith Barney) from 1953 until 1991, most recently
as Chairman of the Board and Chief Executive
Officer. Mr. Gutfreund is also a director of
Ascent Assurance, Inc., Baldwin Piano & Organ
Company, LCA-Vision, Inc., and The Universal Bond
Fund 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.
ROBERT J. HAY Robert J. Hay, 73, has been Chairman Emeritus and
Chairman Emeritus a 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.
STUART J. HERSHON Stuart J. Hershon, 61, has been a director of the
Orthopedic Surgeon Company since December 1993. He was a member of
the Board of Directors of Trace International
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,
5
<PAGE>
where he is an assistant clinical professor of
orthopedic surgery. Dr. Hershon has practiced
medicine at North Shore University Hospital since
1970 and at Columbia Presbyterian Medical Center
since 1989. Dr. Hershon has served as orthopedic
consultant and team physician for certain New
York area professional sports teams.
JOHN G. JOHNSON, JR. John G. Johnson, Jr., 58, has been a director of
President and Chief the Company since March 16, 1999. He has served
Executive Officer as President and Chief Executive Officer of the
of the Company Company since March 16, 1999. Prior to joining
the Company, Mr. Johnson was President, Chief
Operating Officer and a Director of Safety-Kleen
Corp. from 1993 to 1995. He also served as
President and Chief Executive Officer of
Safety-Kleen Corp. from 1995 to 1997. From 1982
to 1992, Mr. Johnson held several executive
positions with the ARCO Chemical Company,
including Senior Vice President and Director of
ARCO Chemical and President of ARCO Chemical
Americas beginning in 1987. Mr. Johnson began his
career with the Atlantic Ritchfield Company in
1958.
JOHN V. TUNNEY John V. Tunney, 64, has been a director of the
Chairman of the Board of Company since May 1994. Mr. Tunney has served as
Cloverleaf Group, Inc. Chairman of the Board of Foamex Asia, Inc. since
March 1997. He has been Chairman of the Board of
Cloverleaf Group, Inc., an investment company,
since 1981, a partner of Sun Valley Ventures, a
venture capital firm, since 1995, and President
of JVT Consulting Inc. since 1997. 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 Illinois Central
Railroad Corp. and Swiss Army Brands.
</TABLE>
Vote Required
The affirmative vote of a plurality of the shares of Common Stock present
or represented at the Annual Meeting and entitled to vote is required for the
election of directors of the Company.
The Board of Directors recommends a vote "FOR" election of the nominees
listed above.
6
<PAGE>
OWNERSHIP OF COMMON STOCK OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 1, 1999,
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, (iii) each executive officer named in the Summary
Compensation Table and (iv) all directors and executive officers as a group.
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>
Name and Address of Beneficial Owners Beneficial Ownership (1)(2)
- ------------------------------------- --------------------------------------------------
Number of Shares % of Class Outstanding
------------------ ------------------------
<S> <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 28.0
375 Park Avenue, 11th Floor
New York, New York 10152
Lion Advisors, L.P. (4) 3,347,421 12.8
1301 Avenue of the Americas
New York, New York 10019
Apollo Advisors, L.P. (4) 3,347,421 12.8
2 Manhattanville Road
Purchase, New York 10577
Stephens Inc.(5) 1,526,111 6.1
111 Center Street
Little Rock, Arkansas 72201
Marshall S. Cogan (3)(6) 723,334 2.9
Etienne Davignon 20,836 *
John H. Gutfreund -- *
Robert J. Hay 4,944 *
Stuart J. Hershon (7) 13,646 *
John G. Johnson, Jr. 10,000 *
John V. Tunney (8) 9,000 *
Rolf E. Christensen(6) 16,096 *
7
<PAGE>
Andrea Farace(6) 125,296 *
R.V. Linn -- *
Pratt W. Wallace, Jr.(6) 4,000 *
Barry Zimmerman(6) 27,169 *
All executive officers and directors as a group
(17 persons)(3)(6)(7)(8) 999,210 3.9
</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.
(2) The above table includes shares of the Company's Common Stock held by
officers and directors under the Company's 401(k) Plan.
(3) Trace Foam Sub is wholly-owned by Trace International. The number of shares
beneficially owned by Trace International includes the shares beneficially
owned by Trace Foam Sub. Additionally, 50,000 shares 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 "Trace 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 International. Mr.
Cogan disclaims beneficial ownership of the Common Stock owned by Trace
Foam Sub or Trace International and of the Common Stock held under the
Trace Retirement Plan.
(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
indicated 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.
(5) Stephens Inc. is a registered broker-dealer, and the number of indicated
shares represents 925,000 shares of Common Stock owned by Stephens Inc. for
its own account and 601,111 shares of Common Stock held in discretionary or
advisory accounts for clients. Stephens Inc. has shared power of
disposition, but no voting power and no economic interest, with respect to
the shares of Common Stock held in client advisory accounts. Stephens Group
Inc. is a parent of Stephens Inc. and has shared power of voting and of
disposition with respect to shares of Common Stock owned by Stephens Inc.
for its own account. In addition to the number of shares of Common Stock
reported in the table, principals of Stephens Inc. and Stephens Group Inc.
own 114,000 shares of Common Stock, over which Stephens Inc. and Stephens
Group Inc. have no voting power or dispositive power. All information
relating to the beneficial ownership of Common Stock by Stephens Inc. was
taken from a Schedule 13G filed with the Securities Exchange Commission on
February 12, 1999.
8
<PAGE>
(6) Includes shares of Common Stock issuable upon exercise of options granted
under the Company's Stock Option Plan, which have vested or will vest
within sixty days. In the above table, (i) 323,334 of such shares have been
included for Mr. Cogan, (ii) 15,408 of such shares have been included for
Mr. Christensen, (iii) 106,296 of such shares have been included for Mr.
Farace, (iv) 2,000 shares of such shares have been included for Mr.
Wallace, (v) 18,169 of such shares have been included for Dr. Zimmerman,
and (vi) 492,964 of such shares have been included for all executive
officers and directors as a group.
(7) Includes 12,571 shares of Common Stock held in the name of Dr. Hershon's
wife and 1,075 shares of Common Stock held in a trust of which Dr. Hershon
is the sole trustee.
(8) Includes 9,000 shares of Common Stock held in a trust of which Mr. Tunney
serves as a co-trustee.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position or
positions held by each executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position(s) Held
- ---- --- ----------------
<S> <C> <C>
Philip G. Allen 59 Executive Vice President, Carpet Cushion Products
Gregory M. Barbe 44 Executive Vice President, Foam Products
Rolf E. Christensen 53 Chief Operating Officer
Marshall S. Cogan 61 Chairman of the Board
Stephen Drap 49 Executive Vice President, Technical Products
John A. Feenan 38 Executive Vice President and Chief Financial Officer
John G. Johnson, Jr. 58 President, Chief Executive Officer and Director
Darrell Nance 46 Executive Vice President, Foam Products
Robert M. Sherwood 47 Executive Vice President, Human Resources
Philip N. Smith, Jr. 56 Senior Vice President, Secretary and General Counsel
Pratt W. Wallace, Jr. 39 Executive Vice President, Foam Products
Barry Zimmerman 61 Executive Vice President, Strategic Sourcing and Logistics
</TABLE>
Executive officers are elected by the Board of Directors and hold office
until their successors have been duly elected and qualified or until their
earlier resignation or removal from office. On March 16, 1999, Andrea Farace
resigned as Chairman and Chief Executive Officer of the Company and Foamex L.P.,
and John G. Johnson, Jr. was named President and Chief Executive Officer of the
Company. A brief biography of each executive officer of the Company is provided
below (other than those of Mr. Cogan and Mr. Johnson, each of whose biography is
set forth above under "Election of Directors").
Philip G. Allen has been Executive Vice President, Carpet Cushion Products
or Vice President, Sales and Marketing for the Company since July 1993. Mr.
Allen has also served
9
<PAGE>
as Executive Vice President of Foamex Carpet since February 1998. Mr. Allen has
served in several management positions since joining Foamex L.P. in 1967.
Gregory M. Barbe has been Executive Vice President, 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 Foamex, Mr. Barbe was the director of
Marketing for Sealy brand products at Sealy, Inc. from 1990 to 1994. Prior to
that, Mr. Barbe held several sales and marketing positions at three different
units of the General Electric Company.
Rolf E. Christensen has been the Chief Operating Officer of the Company
and Foamex L.P. since March 1998 and a director of Foamex Carpet since July
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.
Stephen Drap has been Executive Vice President, 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 Foamex in 1980.
John A. Feenan has been Executive Vice President and Chief Financial
Officer of the Company, Foamex L.P., Foamex Carpet and FMXI since June 1998.
Prior to joining the Company and its subsidiaries, 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.
Darrell Nance has been Executive Vice President, Foam Products since
joining the Company in March 1998. From 1995 until joining the Company, Mr.
Nance served as Vice President and General Manager of West Coast Operations of
Crain Industries, Inc. ("Crain"). From 1994 to 1995, Mr. Nance served as Vice
President of Operations, West Coast Operations of Crain. From 1986 to 1994, Mr.
Nance served as General Manager of Crain Western.
Robert M. Sherwood has been Executive Vice President, Human Resources of
the Company, Foamex L.P. and Foamex Carpet since July 1998. From 1993 to 1997,
he served as Senior Vice President of Human Resources of Bantam Doubleday Dell,
a division of Bertelsmann AG. Prior to 1993, Mr. Sherwood served as Vice
President of Human Resources of Reliance Group Holdings, Inc.
Philip N. Smith, Jr. has been Senior Vice President or Vice 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 Trace Foam
Company 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
10
<PAGE>
Secretary and General Counsel of Trace International since January 1988 and has
overseen and been actively involved in transaction negotiations, litigation,
stockholder and director relations and other corporate legal matters. Prior to
joining Trace International, he was the sole shareholder of a professional
corporation which was a partner of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Pratt W. Wallace, Jr. has been the Executive Vice President, Foam Products
since January 1, 1999, and was the Executive Vice President, Manufacturing
Technology from March 1998 until January 1999. From 1997 until joining the
Company, Mr. Wallace served as Vice President of the Southeast region of Crain.
From 1993 to 1997, Mr. Wallace served as the General Manager of Crain's Newnan,
Georgia facility.
Barry Zimmerman has been Executive Vice President, Strategic Sourcing and
Logistics 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 October
1995 and a Senior Vice President or Vice President and Managing Director of
Trace International since October 1986. Prior to that, Dr. Zimmerman held
several executive positions within Trace International beginning in August 1978.
Dr. Zimmerman has been an Executive Vice President of Trace Foam Company since
October 1990. Dr. Zimmerman has served as director of Foamex Capital Corporation
since July 1992.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Compensation
The following Summary Compensation Table contains information concerning
annual and long-term compensation provided to (i) the Chief Executive Officer,
(ii) each of the four next most highly compensated executive officers of the
Company as of the end of Fiscal 1998, based on salary and bonus and (iii) one
other person who was an executive officer during Fiscal 1998 and would have been
included in such table but for the fact that he was not an executive officer at
the end of Fiscal 1998 (collectively, the "Named Executive Officers"), for
services rendered in all capacities during the fiscal years 1998, 1997 and 1996.
Summary Compensation Table (1)
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Securities Underlying All Other
Name and Principal Position Year Salary Bonus(2) Options/SARs Compensation(3)
- --------------------------- ---- ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Marshall S. Cogan.............. 1998 $850,000 $300,000 -- --
Chairman of the Board 1997 848,077 500,000 170,833 --
1996 750,000 -- 100,000 --
Andrea Farace(4) .............. 1998 $571,500 -- -- $1,600
Chairman of the Board, 1997 430,769 $350,000 350,000 --
Chief Executive Officer 1996 200,004 -- -- --
Rolf E. Christensen............ 1998 $354,135 -- 8,000 $1,968
Chief Operating Officer 1997 159,251 $35,000 -- 2,122
1996 127,908 62,000 2,981 1,734
Barry Zimmerman................ 1998 $316,000 $38,146 3,000 $1,600
Executive Vice President, 1997 316,000 115,000 -- 8,000
Sourcing & Logistics 1996 306,730 50,000 -- 1,500
Pratt W. Wallace, Jr.(5)....... 1998 $166,009 $139,554 -- 4,336
Executive Vice President,
Foam Products
R.V. Linn(6) .................. 1998 $174,365 $493,750 -- $5,000
Former President,
Crain Industries, Inc.
</TABLE>
12
<PAGE>
- ------------------------
(1) Because none of the Named Executive Officers received (i) perquisites in
excess of the lesser of $50,000 or 10% of their reported salary and bonus,
(ii) any other annual compensation required to be reported, (iii) LTIP
payouts or (iv) any restricted stock awards, information relating to "Other
Annual Compensation", "LTIP Payouts" and "Restricted Stock Awards" is
inapplicable and has therefore been omitted from the table.
(2) Included in these amounts is a bonus of $66,267 received by Mr. Wallace and
a bonus of $261,500 received by Mr. Linn; each of these bonuses were
awarded and accrued by Crain prior to the acquisition of Crain by the
Company on December 23, 1997 (the "Crain Acquisition"), and paid by the
Company in 1998.
(3) The amounts shown represent the Company's matching contribution to the
Company's 401(k) plan on behalf of Mr. Farace, Mr. Christensen, Mr.
Zimmerman, Mr. Wallace and Mr. Linn. Mr. Cogan did not participate in a
401(k) plan.
(4) Mr. Farace resigned as President and Chief Executive Officer of the Company
on March 16, 1999.
(5) No compensation is reported for Mr. Wallace in 1997 because he was hired on
December 23, 1997 in connection with the Crain Acquisition and received no
compensation from the Company in 1997. No information is reported for Mr.
Wallace for 1996 because he was not yet employed by the Company.
(6) No compensation is reported for Mr. Linn in 1997 because he was hired on
December 23, 1997 in connection with the Crain Acquisition and received no
compensation from the Company in 1997. No information is reported for Mr.
Linn for 1996 because he was not yet employed by the Company. Mr. Linn's
employment with the Company was terminated on June 30, 1998.
Employment Agreements
The Company has employment agreements with the following Named Executive
Officers: Marshall S. Cogan, Pratt W. Wallace, Jr. and Barry Zimmerman. The
Company also had employment agreements with Andrea Farace prior to his
resignation on March 16, 1999 and with R.V. Linn prior to his resignation on
June 30, 1998. The Securities and Exchange Commission requires disclosure of any
employment agreement between the Company and any Named Executive Officer,
whether or not such officer is still employed by the Company.
Current Employees.
On January 1,1999, the Company entered into an employment agreement with
Marshall S. Cogan, Chairman of the Board and Chairman of the Executive Committee
of the Company. The agreement provides for an initial employment term commencing
on January 1, 1999 and continuing until December 31, 2000, which term is
automatically extended an additional day on each day of the initial term and on
each day thereafter until either Mr. Cogan or the Company provides notice of
termination. The employment agreement provides that Mr. Cogan will receive an
annual salary at the rate of $850,000 per annum with increases, if any, as may
be approved by the Board. Mr. Cogan is also eligible, but not entitled, to
receive any annual bonuses which may be determined by the Board. Also, Mr. Cogan
will participate in certain employee benefit plans and receive certain other
perquisites. The employment
13
<PAGE>
agreement automatically terminates upon the death or continued disability of Mr.
Cogan, and the agreement may be terminated by the Company or Mr. Cogan at any
time. Upon termination of the employment agreement by the Company without "just
cause" or by Mr. Cogan with "good reason" (as such terms are defined therein),
the Company shall pay Mr. Cogan, in addition to any amounts earned but not yet
paid, the amount of his then-current base salary for a period of twenty-four
months. Additionally, Mr. Cogan would be entitled to continue to receive any
health care or insurance benefits for a period of twenty-four months. The
employment agreement prohibits Mr. Cogan from disclosing any confidential
information of the Company during his employment term or any time thereafter.
Additionally, the employment agreement provides that for a period of one year
following his termination date, Mr. Cogan may not solicit or attempt to entice
away from the Company (including its affiliates or subsidiaries), or interfere
with the relationship of the Company with, any employees, customers or clients
of the Company.
On December 11, 1997, the Company entered into an employment agreement
with Pratt W. Wallace, Jr., Executive Vice President, Foam Products of the
Company. The agreement provides for an initial employment term of two years
commencing on the date of the closing of the Crain Acquisition. The employment
agreement provides that Mr. Wallace will receive an annual salary of $175,000
per annum, subject to annual review by the Company. Mr. Wallace is eligible to
receive an annual bonus and to participate in various incentive plans, and he is
entitled to an additional bonus of $40,500 upon the completion of each of his
first two years of employment. Also, Mr. Wallace will participate in certain
employee benefit plans and receive certain other perquisites. The Company also
granted Mr. Wallace an option to purchase 10,000 shares of the Common Stock of
the Company at an exercise price equal to the closing price of the Common Stock
on the date of the closing of the acquisition of Crain. The Company may
terminate the employment agreement upon the continued disability of Mr. Wallace
or at any time for "cause", and Mr. Wallace can terminate the agreement for
"good reason" (as such terms are defined in the agreement). The agreement also
terminates automatically upon the death of Mr. Wallace. Upon termination of the
employment agreement by the Company for "cause" or by Mr. Wallace for other than
"good reason", the Company shall pay Mr. Wallace, in addition to any amounts
earned but not yet paid, an amount equal to two months' then-current base salary
in bi-weekly payments. In the event of termination by the Company other than for
"cause" or by Mr. Wallace for "good reason", the Company must pay Mr. Wallace an
amount equal to greater of (i) three months' then-current base salary or (ii)
the remainder of the initial employment term of two years, subject to a
reduction for any amounts received by Mr. Wallace in any other employment
beginning one year after his termination. Mr. Wallace agrees that, during the
period of his employment, he will not own any controlling or substantial stock
or other beneficial interest in any business which is engaged in or competitive
with any business engaged in by the Company. The employment agreement prohibits
Mr. Wallace from disclosing any confidential information of the Company during
his employment term or any time thereafter. Additionally, the employment
agreement provides that for a period of one year following his termination date,
Mr. Wallace may not (i) engage in any business activities which the Company
reasonably determines to be competitive with any of its business activities,
(ii) solicit or attempt to induce any employee or agent of the Company to
terminate his or her employment or agency with the Company, or (iii) divert or
14
<PAGE>
attempt to divert any person or entity from doing business with the Company or
attempt to induce any person or entity to cease being a customer or supplier of
the Company.
On January 25, 1999, the Company entered into an employment agreement with
Barry Zimmerman, Executive Vice President, Strategic Sourcing and Logistics of
the Company. The agreement provides for an initial employment term continuing
until December 31, 2000, which term is automatically extended an additional day
on each day of the initial term and on each day thereafter until either Mr.
Zimmerman or the Company provides notice of termination. The employment
agreement provides that Mr. Zimmerman will receive an annual salary at the rate
of $316,000 per annum with increases, if any, as may be approved by the Board.
Mr. Zimmerman is also eligible, but not entitled, to receive any annual bonuses
which may be determined by the Board. Also, Mr. Zimmerman will participate in
certain employee benefit plans and receive certain other perquisites. The
employment agreement automatically terminates upon the death or continued
disability of Mr. Zimmerman, and the agreement may be terminated by the Company
or Mr. Zimmerman at any time. Upon termination of the employment agreement by
the Company without "just cause" or by Mr. Zimmerman with "good reason" (as such
terms are defined therein), the Company shall pay Mr. Zimmerman, in addition to
any amounts earned but not yet paid, the amount of his then-current base salary
for a period of twenty-four months. Additionally, Mr. Zimmerman would be
entitled to continue to receive any health care or insurance benefits for a
period of twenty-four months. The employment agreement prohibits Mr. Zimmerman
from disclosing any confidential information of the Company during his
employment term or any time thereafter. Additionally, the employment agreement
provides that for a period of one year following his termination date, Mr.
Zimmerman may not solicit or attempt to entice away from the Company (including
its affiliates or subsidiaries), or interfere with the relationship of the
Company with, any employees, customers or clients of the Company.
Prior Employees.
On January 1,1999, the Company entered into an employment agreement with
Andrea Farace, Chairman of the Board and Chief Executive Officer of the Company.
The agreement provided for an initial employment term commencing on January 1,
1999 and continuing until December 31, 2000, which term was automatically
extended an additional day on each day of the initial term and on each day
thereafter until either Mr. Farace or the Company provided notice of
termination. The employment agreement provided that Mr. Farace would receive an
annual salary of $600,000 per annum with increases, if any, as may be approved
by the Board. Mr. Farace was also eligible, but not entitled, to receive any
annual bonuses which would be determined by the Board. Also, Mr. Farace
participated in certain employee benefit plans and received certain other
perquisites. Pursuant to this agreement, Mr. Farace's received a severance
payment of $250,000 in connection with the termination of his employment with
the Company on March 16, 1999. In addition to the severance payment as described
above, the Company agreed to pay Mr. Farace the amount of his then-current base
salary for a period of twenty-four months. Additionally, Mr. Farace will receive
health care or insurance benefits for a period of twenty-four months from the
date of his termination. The employment agreement prohibits Mr. Farace from
disclosing any
15
<PAGE>
confidential information of the Company during his employment term or any time
thereafter. Additionally, the employment agreement provides that for a period of
one year following his termination date, Mr. Farace may not solicit or attempt
to entice away from the Company (including its affiliates or subsidiaries), or
interfere with the relationship of the Company with, any employees, customers or
clients of the Company.
On January 7, 1998, the Company entered into an employment agreement with
R.V. Linn, the former President of Crain. The agreement provided for an initial
employment term of six months, commencing on January 1, 1998 and continuing
until June 30, 1998. The employment agreement provided that as compensation for
all services rendered by Mr. Linn, he would receive an annual salary at the rate
of $330,000 per annum. Pursuant to this agreement, Mr. Linn received (i) a
signing bonus of $50,000 upon the completion of the term of employment on June
30, 1998 and (ii) an incentive bonus payment of $107,250, calculated as 65% of
Mr. Linn's base salary pro-rated by term. Under the agreement, Mr. Linn
participated in certain employee benefit plans and received certain other
perquisites, including an automobile allowance of $1,750 per month. Mr. Linn's
employment with the Company terminated on June 30, 1998.
16
<PAGE>
Company Stock Option Plan
During 1998, 1997 and 1996, the Stock Option Committee granted 125,250
options, 625,833 options and 202,240 options to purchase Common Stock to
officers or key employees of the Company, respectively, pursuant to the
Company's 1993 Stock Option Plan (the "Stock Option Plan"). The 1998 options
were granted at exercise prices of $11.438 to $13.25 per share, the 1997 options
were granted at exercise prices ranging from $9.688 to $14.00 per share and the
1996 options were granted at exercise prices of $6.875 to $10.25 per share, all
such exercise prices representing the closing price of the Common Stock on each
grantees' date of hire or the date of grant. The 1998 and 1997 options will vest
20% annually, beginning one year after the date of the grant. Generally, the
options granted in 1996 will vest 20% annually, beginning December 6, 1996.
The following table provides information on option grants in Fiscal 1998
by the Company to the Named Executive Officers.
Foamex International Option Grants In Last Fiscal Year (1)
<TABLE>
<CAPTION>
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock Price
Underlying Options/SARs Exercise Appreciation
Options/ Granted to or Base for Option Term (2)
SAR's Employees in Price Expiration -----------------------------
Granted (#) Fiscal Year ($/Sh) Date 5% 10%
------------- -------------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rolf E. Christensen 8,000 6.4% $13.25 02/12/09 $55,261 $150,781
Barry Zimmerman 3,000 2.4 13.25 02/12/09 20,723 56,543
</TABLE>
- ----------------
(1) Messrs. Cogan, Farace, Linn and Wallace are not included in this table
since no options were granted to such individuals during Fiscal 1998.
(2) Based on December 31, 1998 market value of the Company's common stock of
$12.375 per share.
17
<PAGE>
Aggregate Option Values
The following table sets forth, as of December 31, 1998, the number of
options for the Company's Common Stock and the value of the unexercised options
and SARs held by the Named Executive Officers. None of the Named Executive
Officers exercised stock options in Fiscal 1998.
Aggregate FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options/SARs at Fiscal Value of Unexercised In-the-Money
---------------------------------- ---------------------------------
Year End Options/SARs at Fiscal Year End(2)
Name(1)
-------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Marshall S. Cogan 303,334 196,666 $2,230,631 $1,932,909
Andrea Farace 86,296 280,000 668,285 2,225,000
Rolf Christensen 13,808 9,192 94,930 8,195
Barry Zimmerman 17,569 3,000 120,787 --
Pratt W. Wallace, Jr. 2,000 8,000 19,376 77,504
</TABLE>
(1) Mr. Linn has been excluded from the table because he does not own any
options or SARs.
(2) As of December 31, 1998, the market value of the Company's common stock was
$12.375 per share.
18
<PAGE>
Pension Plans
The Foamex Group Salaried Employees Pension Plan (the "Retirement Plan")
is a defined benefit pension plan that is qualified under the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), and in which executive
officers are eligible to participate.
The following table illustrates estimated annual pensions under the
Retirement Plan for various compensation levels and periods of credited service,
assuming present compensation rates at all points in the past and until Normal
Retirement Date (as defined in the Retirement Plan) and a constant Social
Security Wage Base ($72,600 in 1999). The pension amount is expressed as a life
annuity with certain benefits continuing to the spouse.
Pension Plan Table
Years of Credited Service
<TABLE>
<CAPTION>
15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current Compensation:
$125,000 $27,368 $36,490 $45,613 $54,735 $63,858
$160,000 and above $36,555 $48,740 $60,925 $73,110 $85,295
</TABLE>
The Retirement Plan is a career pay plan. The Retirement Plan formula is
1.25% of annual compensation up to the Social Security Wage Base and 1.75% of
annual compensation in excess of the Social Security Wage Base, subject to an
annual compensation limit of $160,000. Prior to September 1, 1994, the
Retirement Plan was a final average pay plan, with retirement benefits based
upon earnings for the five consecutive years within the last ten years which
yield the highest average yearly salary ("Final Average Compensation"). Annual
benefit calculations under the Retirement Plan for service prior to June 1,
1994, will be the years of credited service multiplied by the sum of 2.0% of
Final Average Compensation and 0.4% of Final Average Compensation in excess of
the average of the Social Security Wage Bases over the 35 year period ending
with the year an employee reaches age 65 (such 35 year average referred to
herein as the "Covered Compensation"). For service subsequent to May 31, 1994,
but before September 1, 1994, annual benefit calculations will be the years of
credited service multiplied by the sum of 1.1% of Final Average Compensation and
0.4% of Final Average Compensation in excess of Covered Compensation. The
actuarially determined cost of providing benefits under the Retirement Plan is
provided by the Company. The participants are neither required nor permitted to
make contributions.
The compensation used as a basis for computing pension is primarily based
on salaries set forth in the Summary Compensation Table and excludes bonuses set
forth therein. In 1998 and 1997, the compensation used as a basis for computing
the pension of each of the executive officers named in the Summary Compensation
Table was as follows: Mr. Cogan, $160,000 and $160,000,
19
<PAGE>
respectively; Mr. Farace, $160,000 and $160,000, respectively; Mr. Christensen,
$160,000 and $160,000, respectively; Mr. Zimmerman, $160,000 and $160,000,
respectively; and Mr. Wallace, $160,000 in 1998. Mr. Wallace was not a plan
participant in 1997 and Mr. Linn was not a plan participant in 1997 or 1998.
The estimated annual benefits under the Retirement Plan payable on
retirement at normal retirement age, or immediately if the individual has
reached normal retirement age, for each of the employees named in the Summary
Compensation Table (with the exception of Mr. Linn) are as follows: Mr. Cogan,
$23,200; Mr. Farace, $68,100; Mr. Christensen, $106,600; Mr. Zimmerman, $22,850;
and Mr. Wallace, $23,600. These amounts assume the employees continue their
employment with the Company at present salary levels until normal retirement
age. As of December 31, 1998, the employees named in the Summary Compensation
Table had been credited with years of service under the Retirement Plan as
follows: Mr. Cogan, 5.83 years; Mr. Farace, 5.08 years; Mr. Christensen, 30.83
years; Mr. Zimmerman, 5.83 years; and Mr. Wallace, 0.5 years.
IRS Limitations
Under the Internal Revenue Code, a participant's compensation in excess of
$160,000 (as adjusted to reflect cost of living increases) is disregarded for
purposes of determining pension benefits. Benefits accrued for plan years prior
to 1994 on the basis of certain compensation in excess of $160,000 are
preserved. In addition, as required by law, the maximum annual pension payable
to a participant under a qualified pension plan in 1998 is $130,000, in the form
of a qualified joint and survivor annuity, although certain benefits are not
subject to such limitation. Such limits have been included in the calculation of
estimated annual benefit amounts listed above for each of the Named Executive
Officers. The Company does not have a non-qualified defined benefit plan to
provide payments in excess of limits imposed by the Internal Revenue Service.
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that might
incorporate filings by reference, including this Proxy Statement, in whole or in
part, the following Report of the Compensation Committee (the "Compensation
Committee") and Stock Option Plan Committee (the "Stock Option Committee") on
Executive Compensation and the Performance Graph shall not be incorporated by
reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE AND THE STOCK OPTION
PLAN COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee's responsibilities include establishing the
Company's policies governing the compensation of officers and other key
executives of the Company. The Compensation Committee approves all elements of
compensation for Executive Officers. The Stock Option Committee is responsible
for the administration of the 1993 Stock Option Plan.
Executive Compensation The Company's compensation program consists of base
salary, incentive programs, stock options and employee benefits. The goal of the
Company's
20
<PAGE>
compensation program is to motivate and reward its executive officers and other
key employees to improve long-term stockholder value and to attract and retain
the highest quality executive and key employee talent available. The Company's
executive compensation program is designed to align executive compensation
practices with increasing the value of the Company's Common Stock and to foster
adherence to, and promotion of, the Company's business mission, values,
strategic goals and annual objectives. The compensation levels for Messrs.
Christensen, Wallace and certain other officers of the Company (or its
subsidiaries) who are not Named Executive Officers, are determined pursuant to
the terms of their respective employment agreements. The compensation levels for
Mr. Linn was determined pursuant to the terms of his employment agreement prior
to his resignation from the Company. See "Compensation of Executive
Officers--Employment Agreements." The compensation levels for the other Named
Executive Officers were determined pursuant to the criteria set forth below.
The Compensation Committee annually reviews salary increases for the
current year and incentive payments to be made in connection with the previous
year's performance. The Compensation Committee will consider an executive's
scope of responsibilities, level of experience, individual performance and
attainment of pre-established goals as well as the Company's business plan and
general economic factors. In making its decisions, and to maintain the desired
levels of competitiveness and congruity with the Company's long-term performance
goals, the Compensation Committee will receive input from the Company's Chief
Executive Officer, President and Chief Operating Officer and from the Company's
Human Resources Department.
Base Salary and Bonus The salary levels for executive officers are determined by
such officer's level of job responsibility and experience, job performance and
attainment of pre-established goals. Additional consideration is given to
salaries for a comparable position within the industry and the Company's ability
to pay. Bonus payouts to executive officers and other key employees of the
Company are based on attainment of general or specific corporate goals. In 1998,
in connection with the Company's acquisition and integration of Crain, the
Company paid or accrued bonuses to certain executive officers or key employees
of the Company, including Messrs. Linn, Wallace and Zimmerman. No other bonuses
were paid for 1998 services to any Named Executive Officer other than a bonus to
Mr. Cogan.
Options The Stock Option Committee believes strongly that the interests of
senior management must be closely aligned with those of the stockholders.
Long-term incentives in the form of stock options provide a vehicle to reward
executive officers only if there is an increase in stockholder value. Stock
options are granted on a discretionary basis within a guideline range that takes
into account the position responsibilities of executive officers and key
employees of the Company whose contributions and skills are important to the
long-term success of the Company. Stock options to purchase Common Stock
providing long-term incentives may be granted to executive officers or key
employees of the Company with a maximum term of ten years.
21
<PAGE>
In 1998, the Stock Option Committee granted 125,250 options to purchase
Common Stock to officers or key employees of the Company pursuant to the Stock
Option Plan. Such options were granted at exercise prices of $11.438 to $13.25
per share, which price represents the closing price of the Common Stock on each
officer's or key employee's date of hire or the date of grant. Twenty percent of
the options granted in 1998 will vest each year beginning one year after the
date of the grant of the option.
Chief Executive Officer In 1998, Mr. Farace received $571,500 in compensation
from the Company. Mr. Farace's salary was approved based upon a review of market
data for similar positions. Mr. Farace did not receive a bonus for 1998.
Policy Regarding Qualifying Compensation Section 162(m) of the Internal Revenue
Code imposes a $1,000,000 ceiling on tax-deductible remuneration paid to the
five most highly compensated executive officers of a publicly-held corporation,
unless the compensation is treated as performance related. While the Company's
general policy is that compensation to the Company's executive officers should,
under most circumstances, satisfy the conditions required for full
deductibility, the Company believes that in order to effectively compete with
other similarly situated companies in the acquisition and retention of top
executive talent, the Company must have the flexibility to pay compensation that
may not be fully deductible under Section 162(m) of the Code. The Company
believes that the compensation of all executive officers for 1998 was fully
deductible.
COMPENSATION COMMITTEE STOCK OPTION PLAN COMMITTEE
John V. Tunney, Chairman John V. Tunney, Chairman
Stuart J. Hershon Stuart J. Hershon
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised entirely of Outside Directors. No
employee of the Company serves on the Compensation Committee. The Company is not
aware of any other corporation in which both (i) an executive officer of the
Company serves on the board of directors and/or compensation committee and (ii)
a director of the Company serves as an executive officer. See "Certain
Relationships and Related Transactions -- Tunney Consulting Agreement" for a
discussion of certain transactions between the Company and John V. Tunney, the
Chairman of the Compensation Committee.
22
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company regularly enters into transactions with its
affiliates on terms it believes to be the same as could be obtained in third
party transactions. The following is a summary of any such material transactions
entered into or continuing during Fiscal 1998. 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 its public debt securities which
generally provide that such transactions be on terms comparable to those
generally available in equivalent transactions with third parties.
As a result of certain of the transactions described below, as of
December 31, 1998, Trace International had a net amount due to the Company of
approximately $3.0 million against which an allowance has been taken by the
Company as a result of the announced financial condition of Trace International.
The 1998 Proposed Transactions
On March 16, 1998, the Company announced that its Board of
Directors received an unsolicited buyout proposal from Trace International, the
Company's principal stockholder. Trace International proposed to acquire all of
the outstanding common stock of the Company not owned by Trace International and
its subsidiaries (the "Public Shares") for a cash price of $17.00 per share. In
response to Trace International's offer, the Company's Board of Directors
appointed the Special Committee to determine the advisability and fairness of
the proposed buyout to the Company's stockholders other than Trace International
and its subsidiaries.
On June 25, 1998, Trace International, Trace Merger Sub, Inc.,
a wholly owned subsidiary of Trace International ("Merger Sub"), and the Company
entered into an Agreement and Plan of Merger (the "First Merger Agreement").
Pursuant to the terms of the First Merger Agreement, Merger Sub would have been
merged with and into the Company (the "First Merger") and each outstanding share
of common stock, other than common stock held by Trace International and its
subsidiaries, treasury shares, and common stock with respect to which appraisal
rights would have been perfected, would have been converted into the right to
receive $18.75 per share in cash. On November 5, 1998, Trace International
terminated the First Merger Agreement, pursuant to its terms, due to the failure
of certain financing conditions.
On November 5, 1998, Trace International, Merger Sub and the
Company entered into a second Agreement and Plan of Merger (the "Second Merger
Agreement"). Pursuant to the terms of the Second Merger Agreement, Merger Sub
would have been merged with and into the Company (the "Second Merger") and each
outstanding share of common stock, other than common stock held by Trace
International and its subsidiaries, treasury shares, and common stock with
respect to which appraisal rights would have been perfected, would have been
converted into the right to receive $12.00 per share in cash. Trace
International delivered a letter to the Company, dated January 8, 1999 (the
"Notice of Termination"), terminating the Second Merger Agreement, pursuant to
its terms, due to the failure of certain financing conditions.
In connection with the First Merger Agreement and the Second
Merger Agreement, the Company retained and paid for legal counsel to the Special
Committee, a
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financial advisor to the Special Committee, legal counsel to the Board of
Directors and a financial advisor to the Board of Directors. In addition, the
Company commenced, but did not close, a debt tender offer, a debt exchange
offer, an internal corporate restructuring and refinancing, and the offer of
three different issues of high-yield notes. Each of Trace International and the
Company bore their own expenses incurred in connection with such transactions;
the Company's expenses totaled approximately $6.5 million.
Litigation Indemnification
As described under "Certain Litigation", certain of the Company's
directors have been named as defendant's in certain suits related to the
transactions described under "-- The 1998 Proposed Transaction." To date, the
Company's expenditures for the defense of such directors have not been
significant and have been included as part of the transaction costs of $6.5
million discussed above.
The Airplane Sale
On March 31, 1999, the Company sold its corporate airplane to an
unaffiliated third party for $16.3 million in gross proceeds of which $8.9
million was used to repay debt associated with the airplane. As specified by the
terms of the Aircraft Sale, Lease and Operating Agreement, dated August 1995,
pursuant to which the Company purchased the airplane from Trace International,
Trace International agreed to reimburse the Company to the extent the net
proceeds from the sale of the airplane were less than a specified amount, and
the Company was obligated to share the net proceeds in excess of such specified
amount with Trace International. Pursuant to the terms of such agreement, the
Company was obligated to pay Trace approximately $0.6 million or approximately
50% of the "Excess Proceeds", as defined, which was offset against Trace's
obligation to pay interest on two promissory notes in favor of the Company. See
"--Trace Notes" below.
Employment Arrangements
As described herein under "Employment Agreements", the Company has entered
into employment agreements with certain executive officers. In addition, on
March 16, 1999, the Company entered into an employment agreement with John G.
Johnson, Jr. in connection with the hiring of Mr. Johnson as President and Chief
Executive Officer of the Company. The agreement provides for an initial term of
two years commencing on March 16, 1999, and automatically renews for additional
one-year terms unless notice of intent to not extend the term of the agreement
is given by either party. The employment agreement provides that as compensation
for all services rendered by Mr. Johnson, he will receive an annual salary at
the rate of at least $500,000 per annum, which salary will be reviewed annually
by the Compensation Committee of the Board. Mr. Johnson is entitled to earn an
annual bonus of up to $500,000; the actual amount of the bonus is based on the
attainment of certain performance targets for that year. The agreement provides
that the bonus to be paid to Mr. Johnson in 1999 will not be less than $250,000.
Also, Mr. Johnson will participate in certain employee or executive benefit
plans and receive certain other perquisites, including an
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automobile lease allowance. Mr. Johnson's employment agreement further provides
for the grant by the Company to Mr. Johnson of options to purchase 750,450
shares of Common Stock. Fifty percent of the options were granted on March 22,
1999 at a per share price equivalent to the closing price of the Common Stock on
March 22, 1999, and the remaining 50% were granted on April 20, 1999 at a per
share price equivalent to the closing price of the Common Stock on April 20,
1999. The options will vest in equal installments on March 16, 2000, March 16,
2001 and March 16, 2002.
Certain employees of the Company are also employees of Trace International
and/or affiliates of Trace International. The Company pays the salaries or a
portion of the salaries of such employees of Trace International based on the
amount of time devoted to the Company's matters by such employees, which
payments in Fiscal 1998 aggregated approximately $2.0 million. Certain of these
employees entered into employment agreements with the Company in January 1999,
which agreements provide for aggregate annual compensation of approximately $1.1
million.
Tunney Consulting Agreement
John V. Tunney, one of the directors of the Company, acts as a business
advisor to the Company. Pursuant to this arrangement, Mr. Tunney provides
consulting services to the Company with respect to various personnel and
compensation issues. In exchange for his services, Mr. Tunney receives a fee of
$10,000 per month. In addition, Mr. Tunney serves as the Chairman of Foamex
Asia.
Management Services Agreement
Foamex L.P. and Trace Foam Company entered into a management services
agreement on October 13, 1992 pursuant to which Trace Foam Company, a subsidiary
of Trace International, provides general managerial services of a financial,
technical, legal, commercial, administrative and/or advisory nature to Foamex
L.P. The management services agreement provides that Trace Foam Company is
entitled to an annual fee of $3.0 million, plus reimbursement of expenses
incurred. For Fiscal 1998, Foamex L.P. made payments of approximately $3.0
million, pursuant to the terms of the management services agreement to Trace
Foam Company.
GFI Transaction
On February 27, 1998, the Company and certain of its affiliates completed
a series of transactions (collectively, the "GFI Transaction") designed to
simplify the Company's structure and to provide future operational flexibility.
Prior to these transactions, Foamex L.P. settled its intercompany payables to
General Felt Industries, Inc. ("General Felt") with $4.8 million in cash and a
$34.0 million aggregate principal amount promissory note supported by a $34.5
million letter of credit under the Foamex L.P. credit facility (the "Foamex/GFI
Note"). The initial transaction resulted in the transfer from Foamex L.P. to
Foam Funding LLP, an indirect wholly owned subsidiary of Trace International
("Foam Funding"), of all of the outstanding common stock of General Felt, in
exchange for (i) the assumption by Foam
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Funding of $129.0 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. As a result, General Felt ceased being a subsidiary of Foamex L.P.
and was relieved from all obligations under Foamex L.P.'s 9 7/8% senior
subordinated notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon
consummation of the initial transaction, (i) Foamex Carpet, a newly formed
wholly owned subsidiary of the Company, the Company, Foam Funding and General
Felt entered into an Asset Purchase Agreement dated February 27, 1998, in which
General Felt sold substantially all of its assets (other than cash on hand, the
Foamex/GFI Note and its operating facility in Pico Rivera, California) to Foamex
Carpet in exchange for (i) $20.0 million in cash and (ii) a promissory note
issued by Foamex Carpet to Foam Funding in the aggregate principal 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 "Pico Rivera
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 Pico Rivera Lease, which guarantee is secured by a pledge of the
Company's partnership interests in Foamex L.P.
Pico Rivera Lease
In connection with the GFI Transaction, Foam Funding and Foamex Carpet
entered into a lease, dated as of February 27, 1998, pursuant to which Foam
Funding leases to Foamex Carpet 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 desires
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 also has the right (the "Option") at any time during the
term to purchase all of 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.
Foamex/GFI Note
The Foamex/GFI Note was issued by Foamex L.P. in favor of Foam Funding on
February 27, 1998 as part of the GFI Transaction, and bears interest at either
(i) the Base Rate (as defined therein) or (ii) LIBOR (as defined therein) plus
0.75%, payable monthly in arrears. The Foamex/GFI Note has a $34.0 million
principal amount, is collateralized by a $34.5 million letter of credit, and is
not subject to voluntary prepayment. The Foamex/GFI
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Note is due in March 2000. During 1998 the Company paid Foam Funding
approximately $1.7 million in interest pursuant to the terms of the Foamex/GFI
Note.
Foamex Carpet Note
The Foamex Carpet Note was issued by Foamex Carpet in favor of Foam
Funding on February 27, 1998 as part of the GFI Transaction, and bears interest
at either (i) the Base Rate (as defined therein) plus 2.0% or (ii) LIBOR (as
defined therein) plus 3.0%. The Foamex Carpet Note requires quarterly principal
payments and matures on February 25, 2004; provided, however, payment may be
demanded at any time after March 17, 2000. The Foamex Carpet Note had an
original $70.2 million principal amount, is collateralized by a lien on
substantially all of the assets of Foamex Carpet and is not subject to voluntary
prepayment. During 1998 the Company paid Foam Funding approximately $4.7 million
in interest and approximately $5.3 million in principal pursuant to the terms of
the Foamex Carpet Note.
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. During Fiscal 1998, no payments were made to Trace
International or its subsidiaries pursuant to the terms of the tax sharing
agreement. As a result of the GFI Transaction, Trace International and its
subsidiaries are no longer direct partners in Foamex L.P.; therefore, no further
payments will be made to such parties under the Foamex L.P. Tax Sharing
Agreement.
Technology Sharing Arrangements
In December 1992, Foamex L.P., Recticel and Beamech Group Limited
("Beamech"), an unaffiliated third party, formed a Swiss corporation to develop
new manufacturing technology for the production of polyurethane foam. Each of
Foamex L.P., Recticel and Beamech contributed or caused to be contributed to
such corporation a combination of cash and technology valued at $1.5 million,
$3.0 million and $1.5 million, respectively, for a 25%, 50% and 25% interest,
respectively, in the corporation. Foamex L.P., Recticel and their affiliates
have been granted a royalty-free license to use certain technology, and it is
expected that the corporation will license use of such technology to other foam
producers in exchange for royalty payments.
Indemnification Regarding Environmental Matters
Pursuant to an Asset Transfer Agreement (the "RFC Asset Transfer
Agreement") between Foamex L.P. and Recticel Foam Corporation ("RFC"), Foamex
L.P. is indemnified by RFC 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 RFC Asset Transfer Agreement or the conduct
of the transferred business on or prior to
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October 2, 1990, including, without limitation, any loss actually arising out of
or resulting from any events, occurrences, acts or activities occurring before
October 2, 1990 or 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 RFC 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 RFC
for any liabilities arising under Environmental Laws (as defined in the RFC
Asset Transfer Agreement) relating to current or former RFC assets and for any
liability for property damage or bodily harm relating to products of the
transferred business shipped on or prior to October 2, 1990. Such
indemnification is limited after December 1993 unless such liability is covered
by insurance. Foamex L.P. has agreed to assume certain known environmental
liabilities relating to the assets transferred by RFC to Foamex L.P., with an
estimated remediation cost of less than $0.5 million, in exchange for a cash
payment by RFC to Foamex L.P. approximately equal to the remediation cost for
such environmental liabilities. As of December 31, 1998, RFC owed the Company
approximately $85,000 in connection with such indemnification.
Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended, between Trace International and Foamex L.P. (the "Trace International
Asset Transfer Agreement"), Foamex L.P. is indemnified by Trace International
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 International 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 International 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 International for any liabilities arising under
Environmental Laws (as defined in the Trace International Asset Transfer
Agreement) relating to current or former Trace International 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 Foamex L.P.'s acquisition of General Felt in March
1993, Trace International and General Felt entered into the GFI Reimbursement
Agreement pursuant
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to which Trace International 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 1998, such pro rata amount attributable to Trace
International was approximately $100,000, none of which has been paid. In
connection with the GFI Transaction, the GFI Reimbursement Agreement was
assigned by General Felt to Foamex Carpet. Foamex Carpet carries on its books a
receivable from Trace International of $0.5 million relating to payments due
under the GFI Reimbursement Agreement for Fiscal 1998 and prior fiscal years,
which was fully reserved for at December 31, 1998.
Trace Notes
Prior to Fiscal 1998, Trace International had borrowed $9.8 million from
Foamex L.P. pursuant to the terms of two promissory notes (the "Trace Notes").
The Trace Notes are due and payable on demand or, if no demand is made, on July
7, 2001, and bear interest at 2 3/8% plus three-month LIBOR, as defined, per
annum. payable quarterly in arrears. During 1998, the Company recorded interest
income of $0.8 million on the Trace Notes, of which $0.6 million was paid, and
$0.2 million is carried on the Company's books as a receivable, which was fully
reserved for at December 31, 1998.
Office Sublease
Trace International 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 with the occupancy and
rent payments commencing on October 1, 1994. The lease provides for an initial
term of 11 years and expires on September 30, 2004. The lease provides for two
optional five-year renewal periods at the fair market rental value of the
property on the first day of such renewal term. The annual rental for the period
October 1, 1994 through September 30, 2004 is approximately $0.7 million. Under
the lease, Foamex L.P. is required to pay certain excess real estate taxes and
operating expenses incurred by the lessor relating to the property for which it
will be proportionally reimbursed by Trace International. The rental terms were
the result of arm's length negotiations between Foamex L.P. and the third party
lessor. Trace International 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 International. In Fiscal 1998 Trace International incurred
total sublease charges of $0.5 million for its portion of the leased property,
none of which has been paid. Foamex L.P. carries on its books a receivable of
$2.2 million relating to payments due under the sublease for Fiscal 1998 and
prior fiscal years, which was fully reserved for at December 31, 1998.
Investments
Prior to 1998, the Company's Retirement Plan had invested approximately
$5.0 million in shares of Trace Global Opportunities Fund, which primarily
invests in companies organized or operating outside the G-7 markets and is a
subsidiary of Trace International. As
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of December 31, 1998, the value of such investment was approximately $4.3
million. During 1998, the Retirement Plan purchased 250,000 shares of UAG common
stock for approximately $4.8 million. The value of the Retirement Plan's
investment in UAG, which is an affiliate of Trace International, was
approximately $2.3 million at December 31, 1998.
During 1997, the Company purchased a $2.0 million investment in Trace
Global Opportunities Fund. The value of the Company's investment in Trace Global
Opportunities Fund was $0.9 million at December 31, 1998.
Charitable Contributions
In Fiscal 1998, Foamex L.P. made charitable contributions to the Trace
International Holdings, Inc. Foundation (the "Foundation") in the amount of $0.2
million. The Foundation is a Delaware tax-exempt private foundation. Marshall S.
Cogan, Chairman of the Company and Foamex L.P., is the sole director of the
Foundation.
CERTAIN LITIGATION
Beginning on or about March 17, 1998, six actions (collectively the
"Stockholder Litigation") were filed in the Court of Chancery of the State of
Delaware, New Castle County (the "Court"), by stockholders of the Company. The
Stockholder Litigation, purportedly brought as class actions on behalf of all
stockholders of the Company, named the Company, certain of its directors,
certain of its officers, Trace International and Merger Sub, as defendants
alleging that they had breached their fiduciary duties to the plaintiffs and
other stockholders of the Company unaffiliated with Trace International in
connection with the original proposal of Trace International to acquire all of
the outstanding common stock of the Company not owned by Trace International and
its subsidiaries (the "Public Shares") for a cash price of $17.00 per share. The
complaints sought, among other things, class certification, a declaration that
the defendants have breached their fiduciary duties to the class, preliminary
and permanent injunctions barring implementation of the proposed transaction,
rescission of the transaction if consummated, unspecified compensatory damages,
and costs and attorneys' fees. A stipulation and order consolidating these six
actions under the caption In re Foamex International Inc. Shareholders
Litigation, Consolidated Civil Action, No. 16259NC was entered by the Court on
May 28, 1998.
On June 25, 1998, Trace International, Merger Sub and the Company entered
into the First Merger Agreement. The parties to the Stockholder Litigation
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
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settlement between the parties and approval by the Court following notice to the
class and a hearing. The Memorandum of Understanding provided 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 would be held to vote upon and approve the First Merger Agreement
which provided, among other things, for the Public Shares owned by stockholders
of the Company unaffiliated with Trace International and its subsidiaries (the
"Public Stockholders") to be converted into the right to receive $18.75 in cash,
without interest.
The Memorandum of Understanding also provided 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 the
plaintiffs and all members of the class of all claims and causes of action that
were or could have been asserted against Trace International, Merger Sub, the
Company and the individual defendants in the Stockholders Litigation or that
arise out of the matters alleged by plaintiffs. Following the completion of the
confirmatory discovery which was provided for in the Memorandum of
Understanding, on September 9, 1998, the parties entered into a definitive
Stipulation of Settlement and the Court set a hearing for October 27, 1998 to
consider whether the settlement should be approved (the "Settlement Hearing").
In connection with the proposed settlement, the plaintiffs intended to apply for
an award of attorney's fees and litigation expenses in an amount not to exceed
$925,000, and the defendants agreed not to oppose this application.
Additionally, the Company agreed to pay the cost, if any, of sending notice of
the settlement to the Public Stockholders. On September 24, 1998, a Notice of
Pendency of Class Action, Proposed Settlement of Class Action and Settlement
Hearing was mailed to the members of the settlement class. On October 20, 1998,
the parties to the Stockholder Litigation requested that the Court cancel the
Settlement Hearing in light of the announcement made by Trace International on
October 16, 1998, that it had been unable to obtain the necessary financing for
the contemplated acquisition by Trace International of the Company's common
stock at a price of $18.75 per share which was the subject matter of the
proposed settlement. This request was approved by the Court on October 21, 1998,
and the Company issued a press release on October 21, 1998, announcing that the
Court had canceled the Settlement Hearing.
On November 5, 1998, Trace International, Merger Sub and the Company
entered into the Second Merger Agreement. Pursuant to the terms of the Second
Merger Agreement, each outstanding share of common stock, other than common
stock held by Trace International and its subsidiaries, treasury shares, and
common stock with respect to which appraisal rights would have been perfected,
would have been converted into the right to receive $12.00 per share in cash.
On November 10, 1998, counsel for certain of the defendants in the
Stockholder Litigation gave notice pursuant to the Stipulation of Settlement
that such defendants were withdrawing from the Stipulation of Settlement in
light of the notice given by Trace International to the Company and the special
committee of the Board of Directors on November 5, 1998 whereby Trace
International terminated the First Merger Agreement on the
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grounds that the financing condition in the First Merger Agreement was incapable
of being satisfied.
On November 12, 1998, the plaintiffs in the Stockholder Litigation filed
an Amended Class Action Complaint (the "Amended Complaint"). The Amended
Complaint named the Company, Trace International, Merger Sub, Mr. Marshall S.
Cogan, Mr. Andrea Farace, Dr. Stuart Hershon, Mr. John Tunney, and Mr. Etienne
Davignon as defendants, alleging that they breached their fiduciary duties to
plaintiffs and the other Public Stockholders in connection with the Second
Merger, that the proposal to acquire the Public Shares for $12.00 per share
lacked entire fairness, that the individual defendants violated 8 Del. Code ss.
251 in approving the Second Merger Agreement, and that Trace International and
Merger Sub breached the Stipulation of Settlement. On December 2, 1998,
plaintiffs served a motion for a preliminary injunction, seeking an Order to
preliminarily enjoin the defendants from proceeding with, consummating or
otherwise effecting the merger contemplated by the Second Merger Agreement.
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 or any breach of the Stipulation of
Settlement. The defendants intend to vigorously defend the Stockholder
Litigation. If the Stockholder Litigation is adversely determined, it could have
a material adverse effect on the financial position, results of operations and
cash flows of the Company.
On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex International, Inc., et al., 99 Civ. 3004 (DC), was filed in the United
States District Court for the Southern District of New York naming as defendants
the Company, Trace International and certain officers and directors of the
Company on behalf of stockholders who bought shares of Common Stock during the
period from May 7, 1998 through and including April 16, 1999. The lawsuit
alleges that the defendants violated Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 by misrepresenting and/or omitting material
information about the Company's financial situation and operations, with the
result of artificially inflating the price of the Company's stock. The lawsuit
also alleges that Trace International and Marshall S. Cogan violated Section
20(a) of the Securities Exchange Act of 1934 as controlling persons of the
Company. The complaint seeks class certification, a declaration that defendants
violated the federal securities laws, an award of money damages, and costs and
attorneys', accountants' and experts' fees. The defendants intend to vigorously
defend the action. To date, no response to the complaint has been made and no
discovery or other proceedings have taken place.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed the firm of PricewaterhouseCoopers LLP as the independent accountants
of the Company for Fiscal 1999. PricewaterhouseCoopers LLP will examine the
financial statements of the Company for the year 1999. This firm has examined
the accounts of the Company since
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its inception in 1993 and for Foamex L.P. and its subsidiaries since fiscal year
1992. If the stockholders do not ratify this appointment, the Board will
consider other independent accountants. One or more members of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have the opportunity to make a statement if they so desire and will be
available to respond to questions.
Vote Required
The affirmative vote of a majority of the issued and outstanding shares of
Common Stock is required for the ratification of the independent accountants.
The Board of Directors recommends a vote "FOR" ratification of the appointment
of PricewaterhouseCoopers LLP as independent accountants.
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SHARE INVESTMENT PERFORMANCE
The following graph compares the cumulative total stockholder returns on
the Common Stock based on an investment of $100 after the close of the market on
(i) December 31, 1994, (ii) the close of the market on December 31, 1995; (iii)
the close of the market on December 31, 1996; (iv) the close of the market on
December 31, 1997; and (v) the close of the market on December 31, 1998, against
the Standard & Poor's Index ("S&P 500") and an industry peer group consisting of
the following companies: Armstrong World Industries, Inc., Leggett & Platt,
Inc., Sealed Air Corporation and Shaw Industries, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG FOAMEX INTERNATIONAL INC., THE S & P 500 INDEX
AND AN INDUSTRY PEER GROUP
[Line Graph Omitted]
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ----- ----- ----- -----
Dollars
Foamex International Inc. 100 59 43 97 64 73
Pear Group 100 73 100 123 153 159
S & P 500 100 101 139 171 229 294
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
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FILINGS UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires executive officers and
directors, and persons who beneficially own more than 10% of the Company's
stock, to file initial reports of ownership and reports of changes of ownership
with the SEC and the NASDAQ National Market System, Inc. Executive officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms furnished
to the Company and written representations from the executive officers,
directors and greater than 10% beneficial owners, the Company believes that all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% owners were complied with, with the exception of
the late filing of one Form 4 filed on the behalf Mr. Cogan.
STOCKHOLDER NOMINATIONS AND PROPOSALS FOR 2000
Any proposals intended to be presented to stockholders at the Company's
2000 Annual Meeting of Stockholders must be received by the Company for
inclusion in the proxy statement for such annual meeting by January 15, 2000.
Such proposals must also meet other requirements of the rules of 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.
OTHER BUSINESS
It is not anticipated that there will be presented to the Annual Meeting
any business other than the election of directors and the proposals described
herein, and the Board of Directors was not aware, a reasonable time before this
solicitation of proxies, of any other matters which might properly be presented
for action at the meeting. If any other business should come before the Annual
Meeting, the persons named on the enclosed proxy card will have discretionary
authority to vote all proxies in accordance with their best judgment.
Proxies in the form enclosed are solicited by or on behalf of the Board of
Directors. The cost of this solicitation will be borne by the Company. In
addition to the solicitation of the proxies by use of the mails, some of the
officers and regular employees of the Company, without extra remuneration, may
solicit proxies personally, or by telephone or
35
<PAGE>
otherwise. In addition, arrangements will be made with brokerage houses and
other custodian, nominees and fiduciaries to forward proxies and proxy material
to their principals, and the Company will reimburse them for their expenses in
forwarding soliciting materials, which are not expected to exceed $5,000.
It is important the proxies be returned promptly. Therefore, stockholders
are urged to sign, date and return the enclosed proxy card in the accompanying
stamped and addressed envelope.
By Order of the Board of Directors
Philip N. Smith, Jr.
April 30, 1999
<PAGE>
FOAMEX INTERNATIONAL INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all prior proxies and appoints Marshall S.
Cogan, John G. Johnson, Jr. and Philip N. Smith, Jr., and each of them, as
proxies with full power of substitution, to vote on behalf of the undersigned
the same number of shares of Foamex International Inc. Common Stock which the
undersigned is then entitled to vote, at the Annual Meeting of Stockholders to
be held on Thursday, May 27, 1999, at 10:00 a.m., at the offices of the
Corporation, 1000 Columbia Ave., Linwood, PA 19061, and at any adjournments
thereof, on any matter properly coming before the meeting, and specifically the
following:
The proxy will be voted as specified. If no specification is made, it will
be voted for proposals 1 and 2.
(Continued on reverse side)
^ FOLD AND DETACH HERE ^
<PAGE>
1. To elect seven directors to serve until the 2000 annual meeting of
stockholders or until their respective successors are duly elected and
qualified;
<TABLE>
<S> <C> <C>
|_| FOR all nominees listed |_| WITHHOLD authority JOHN G. GUTFREUND, MARSHALL S. COGAN, ETIENNE DAVIGNON, JOHN G. JOHNSON, JR.,
(except as marked to to vote for all ROBERT J. HAY, STUART J. HERSHON, JOHN V. TUNNEY
the contrary) nominees listed
Instructions: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
2. To ratify the selection of PricewaterhouseCoopers LLC as the Company's 3. To transact such other business as may properly
independent accountants for the year ending December 31, 1999 ("Fiscal come before the meeting or any adjournment or
1999"); and postponement thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
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Signature of Stockholder(s)
-------------------------------------------------
Date
Note: Please sign your name exactly as it is
shown at the left. When signing as attorney,
executor, administrator, trustee, guardian or
corporate officer, please give your full title
as such. EACH joint owner is requested to sign.
Please sign, date and return this proxy promptly in the enclosed postage paid envelope.
^ FOLD AND DETACH HERE ^
</TABLE>
