-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SvaQDPaY6N4Tgu4gpUo5StmW/L6aEALLSrl3I+ed4MXAEJ4u8qbTgT4dic5aeq7x 0DLxiSW9klUCA1Zs1p1s6A== 0000899140-97-000602.txt : 19970912 0000899140-97-000602.hdr.sgml : 19970911 ACCESSION NUMBER: 0000899140-97-000602 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970828 SROS: NASD GROUP MEMBERS: MARSHALL S. COGAN GROUP MEMBERS: TRACE AUTO HOLDINGS, INC. GROUP MEMBERS: TRACE FOAM COMPANY, INC. GROUP MEMBERS: TRACE FOAM SUB, INC. GROUP MEMBERS: TRACE INTERNATIONAL HOLDINGS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FOAMEX INTERNATIONAL INC CENTRAL INDEX KEY: 0000912908 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 050473908 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-48793 FILM NUMBER: 97672185 BUSINESS ADDRESS: STREET 1: 1000 COLUMBIA AVENUE CITY: LINWOOD STATE: PA ZIP: 19061 BUSINESS PHONE: 6108593000 MAIL ADDRESS: STREET 1: 1000 COLUMBIA AVE CITY: LINWOOD STATE: PA ZIP: 19061 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TRACE INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0001033338 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 375 PARK AVENUE 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10152 SC 13D/A 1 AMENDMENT NO. 4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 4) FOAMEX INTERNATIONAL INC. (Name of Issuer) Common Stock, $0.01 Par Value (Title of Class of Securities) 344123-10-4 (CUSIP Number) Philip N. Smith, Jr., Esq. Trace International Holdings, Inc. 375 Park Avenue 11th Floor New York, New York 10152 (212) 230-0400 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 15, 1997 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. Continued on following page(s) Page 1 of 19 Pages Exhibit Index: Page 10 SCHEDULE 13D CUSIP No. 344123-10-4 1 Name of Reporting Person I.R.S. Identification Nos. of Above Persons (entities only) Trace International Holdings, Inc. 58-1080969 2 Check the Appropriate Box If a Member of a Group a. |_| b. |X| 3 SEC Use Only 4 Source of Funds (See Instructions) BK, 00 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 4,402,253 Shares Beneficially 8 Shared Voting Power Owned By 7,050,247 Each Reporting 9 Sole Dispositive Power Person 4,402,253 With 10 Shared Dispositive Power 7,050,247 11 Aggregate Amount Beneficially Owned by Each Reporting Person 11,452,500 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| 13 Percent of Class Represented By Amount in Row (11) 45.9% 14 Type of Reporting Person (See Instructions) CO SCHEDULE 13D CUSIP No. 344123-10-4 1 Name of Reporting Person I.R.S. Identification Nos. of Above Persons (entities only) Trace Foam Company, Inc. 22-3065375 2 Check the Appropriate Box If a Member of a Group a. |_| b. |X| 3 SEC Use Only 4 Source of Funds (See Instructions) 00 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 0 Shares Beneficially 8 Shared Voting Power Owned By 7,000,247 Each Reporting 9 Sole Dispositive Power Person 0 With 10 Shared Dispositive Power 7,000,247 11 Aggregate Amount Beneficially Owned by Each Reporting Person 7,000,247 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| 13 Percent of Class Represented By Amount in Row (11) 28.0% 14 Type of Reporting Person (See Instructions) CO SCHEDULE 13D CUSIP No. 344123-10-4 1 Name of Reporting Person I.R.S. Identification Nos. of Above Persons (entities only) Trace Foam Sub, Inc. 58-1080969 2 Check the Appropriate Box If a Member of a Group a. |_| b. |X| 3 SEC Use Only 4 Source of Funds (See Instructions) 00 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 0 Beneficially 8 Shared Voting Power Owned By 7,000,247 Each Reporting 9 Sole Dispositive Power Person 0 With 10 Shared Dispositive Power 7,000,247 11 Aggregate Amount Beneficially Owned by Each Reporting Person 7,000,247 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| 13 Percent of Class Represented By Amount in Row (11) 28.0% 14 Type of Reporting Person (See Instructions) CO SCHEDULE 13D CUSIP No. 344123-10-4 1 Name of Reporting Person I.R.S. Identification Nos. of Above Persons (entities only) Marshall S. Cogan 2 Check the Appropriate Box If a Member of a Group* a. |_| b. |X| 3 SEC Use Only 4 Source of Funds (See Instructions) PF 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 557,500 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 557,500 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 557,500 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [X] 13 Percent of Class Represented By Amount in Row (11) 2.2% 14 Type of Reporting Person (See Instructions) IN This Amendment No. 4 to Schedule 13D is filed on behalf of Trace International Holdings, Inc., formerly known as '21' International Holdings, Inc. ("Trace Holdings"), Trace Foam Company, Inc., formerly known as '21' Foam Company, Inc. ("Trace Foam"), Trace Foam Sub, Inc., formerly known as '21' Foam Sub Company, Inc. ("Trace Foam Sub"), and Marshall S. Cogan, and amends and supplements the Schedule 13D, dated December 14, 1993 (as amended, the "Schedule 13D"), as amended by Amendment No. 1 thereto filed on December 23, 1994, Amendment No. 2 thereto filed on March 6, 1995, and Amendment No. 3 thereto filed on April 28, 1995, relating to the common stock, par value $0.01 per share (the "Common Stock"), of Foamex International Inc. ("Foamex" or the "Issuer"), and is being filed pursuant to Rule 13d-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except as disclosed herein, there has been no change in the information previously reported in the Schedule 13D. Unless otherwise indicated, all capitalized terms used but not defined herein shall have the same meaning as set forth in the Schedule 13D, as amended. All references in the Schedule 13D to 21 Holdings, 21 Foam and 21 Foam Sub, shall be deemed to be references to Trace Holdings, Trace Foam, and Trace Foam Sub, respectively. Item 2. Identity and Background. Item 2 is hereby amended and supplemented by adding the following: Marshall S. Cogan's principal occupation is the Chairman, Chief Executive Officer and President of United Auto Group, Inc. and the Chairman and Chief Executive Officer of Trace Holdings. Attached and incorporated herein by reference, are Schedules I, II, and III, which set forth the names, principal business and principal business address of the directors and executive officers of Trace Holdings, Trace Foam, and Trace Foam Sub, respectively. These Schedules amend and restate Schedules I and II previously filed with the Schedule 13D. On December 4, 1995, '21' International Holdings, Inc., '21' Foam Company, Inc. and '21' Foam Sub, Inc. changed their names to Trace International Holdings, Inc., Trace Foam Company, Inc. and Trace Foam Sub, Inc., respectively. Item 3. Sources and Amounts of Funds or Other Consideration Item 3 is hereby amended by adding the following to the end thereof: On August 15, 1997, Trace Holdings entered into a Margin Loan Credit Agreement (the "Margin Loan Agreement") with The Bank of Nova Scotia (the "Bank"), the form of which is attached hereto as Exhibit I and is incorporated herein by reference. Pursuant to the terms of the Margin Loan Agreement, Trace Holdings may obtain term loans in an aggregate principal amount of $7,500,000 (the "Tranche A Loans") and term loans in an aggregate principal amount of $8,750,000 (the "Tranche B Loans," and together with the Tranche A Loans, the "Bank Loan"). Pursuant to the terms of the Margin Loan Agreement, Trace Holdings may borrow up to $15 million for the purpose of buying Common Stock and/or common stock of United Auto Group, Inc. (the "UAG Stock"), provided, however, that until the waiver of certain negative pledges on the UAG Stock held by Trace Holdings (the "UAG Pledge Event"), Trace Holdings may not use more than $10 million of the proceeds of the Bank Loan to purchase UAG Stock and no such purchase may be made after October 31, 1997. Pursuant to the terms of a Pledge Agreement, the form of which is attached hereto as Exhibit J and incorporated herein by reference, Tranche A is secured by a first lien on all shares of UAG Stock acquired after the occurrence of the UAG Pledge Event and all shares of Common Stock (the "Pledged Shares") purchased with the proceeds of the Bank Loan and Tranche B is secured by a second lien on the Pledged Shares. Pursuant to the terms of a Security Agreement, the form of which is attached hereto as Exhibit K and incorporated herein by reference, Tranche B is secured by a first lien on the payments due (the "Management Fee") under the 21 Foam Management Agreement, dated as of October 13, 1992, as amended, between Foamex, L.P. and Trace Foam and Tranche A is secured by a second lien on the Management Fee. Item 4. Purpose of Transaction. Item 4 is hereby amended and restated in its entirety as follows: Trace Holdings acquired 4,277,574 shares of Common Stock and Trace Foam acquired 7,000,247 shares of Common Stock as part of the formation and capitalization of the Issuer. Trace Foam contributed its shares of Common Stock to Trace Foam Sub in the first quarter of 1995. In addition, Trace Holdings and Mr. Cogan have purchased Common Stock on the open market. As a result of their ownership of an aggregate of approximately 47.8% of the Issuer's outstanding Common Stock, the Reporting Persons indirectly control the Issuer. Mr. Cogan and the officers and directors of the Reporting Persons, own the Common Stock for investment purposes (the "Officers and Directors"). Trace Holdings and Trace Foam, among others, have exercised their right, contained in a registration rights agreement with Foamex, executed in connection with the capitalization of Foamex, to have their shares included in a registration statement for Common Stock of Foamex. This registration statement was declared effective by the Securities and Exchange Commission on December 13, 1994. Trace Holdings and Trace Foam Sub have pledged all of their shares of Common Stock to secure certain borrowings (See Item 6). Trace Holdings and Trace Foam Sub entered into these pledges to provide them with more flexibility in pursuing their investment strategy. Trace Holdings and Trace Foam Sub do not have any present plans to sell any shares of Common Stock. Pursuant to the terms of the Bank Loan, Trace Holdings is prohibited from acquiring additional shares of Common Stock, except with the proceeds of the Bank Loan. The Reporting Persons and the Officers and Directors intend continuously to review their investment in the Issuer. In reaching any decision with respect to such investment, the Reporting Persons and the Officers and Directors will take into consideration various factors, such as the Issuer's business and prospects, other developments concerning the Issuer, other investment opportunities available to the Reporting Persons and the Officers and Directors and general economic and market conditions. Depending upon the results of their review of such factors, the Reporting Persons and the Officers and Directors may decide to purchase (on such terms and at such times as they consider desirable) additional equity securities of the Issuer, or dispose of all or a portion of such securities (whether now or hereafter held). Executive officers of Trace currently have two seats on the Issuer's seven-person Board of Directors, and the Reporting Persons may in the future seek to have their designees fill additional seats on the Issuer's Board of Directors. Although the foregoing describes activities and possibilities presently contemplated or under consideration by the Reporting Persons, the intentions of the Reporting Persons may change. Except as set forth above or in any item hereof, the Reporting Persons do not have any present plans or proposals that relate to or would result in any of the actions required to be described in Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer. Item 5 (a and b) of the Schedule 13D is hereby amended and restated in its entirety as follows: (a and b) The information in this Item 5(a and b) is given as of the date hereof, and is based on 24,957,680 shares of outstanding Common Stock.(1) (i) Trace Foam Sub has direct beneficial ownership of 7,000,247 shares of Common Stock, constituting 28.0% of the outstanding Common Stock. Except as set forth in the Prospectus Sale Borrower's Agreement, Customer Agreement, and Bridge Securities Purchase Agreement, which are filed as Exhibit F, Exhibit G, and Exhibit H, respectively to this Schedule 13D, Trace Foam Sub has the sole power to vote and dispose of the shares of Common Stock owned by it. (ii) Trace Foam does not have direct beneficial ownership any shares of Common Stock. By virtue of its ownership of all of the outstanding capital stock of Trace Foam Sub, Trace Foam is deemed to be the beneficial owner (as such term is defined in Rule 13d-3) of all of the Common Stock owned by Trace Foam Sub. (iii) Trace Holdings has direct beneficial ownership of 4,402,253 shares of Common Stock, constituting 17.6% of the outstanding Common Stock. With respect to 4,277,574 of shares of Common Stock, except as set forth in certain Pledge Agreements described in Item 6, and filed as Exhibits B and C to this Schedule 13D, Trace Holdings has the sole power to vote and dispose of such shares of Common Stock. With respect to the remaining shares of Common Stock directly beneficially owned by Trace Holdings, except for certain restrictions following an event of default under the Bank Loan and Pledge Agreement described in Item 6 and filed as Exhibit I and J to this Schedule 13D, Trace Holdings has the sole power to vote and dispose of such shares of Common Stock. By virtue of its ownership of all of the outstanding capital stock of Trace Foam, Trace Holdings is deemed to be the beneficial owner (as such term is defined in Rule 13d-3) of all of the Common Stock owned by Trace Foam Sub. By virtue of Trace Holdings' ability to administer, and/or terminate the Trace Holdings Plan, Trace Holdings may be deemed to own beneficially (as such term is defined in Rule 13d-3) the 50,000 shares of Common Stock held by the Trace Holdings Plan. As a result of the foregoing, Trace Holdings may be deemed to own beneficially (as such term is defined in Rule 13d-3) a total of 11,452,500 shares of Common Stock, which represents approximately 45.9% of the outstanding Common Stock. (iv) As of August 11, 1997, Mr. Cogan had acquired 400,000 shares of Common Stock and had vested options for 157,500 shares of Common Stock with an exercise price of $6.875. By virtue of Rule 13d-3, Mr. Cogan may be deemed to be the beneficial owner of 557,500 shares as a result of the 400,000 shares that have been purchased, as well as the shares issuable upon exercise of the options that have vested and the options that will vest in the next sixty days. Mr. Cogan's beneficial ownership comprises 2.2% of the outstanding Common Stock of the Issuer. Mr. Cogan is the Chairman of the Board and President of Trace Foam and the Chairman of the Board and Chief Executive Officer of Trace Holdings and owns or has voting control over capital stock of Trace Holdings representing a 75.8% voting interest. In addition, Mr. Cogan is Chairman and President of Trace Foam Sub. Mr. Cogan, by virtue of his control positions at Trace Foam Sub, Trace Foam and Trace Holdings, may be deemed to own beneficially (as that term is defined in Rule 13d-3) the 11,452,500 shares of Common Stock beneficially owned, directly or indirectly, by Trace Foam Sub, Trace Foam and Trace Holdings. Mr. Cogan expressly disclaims beneficial ownership of any of the shares of Common Stock owned by Trace Foam Sub, Trace Foam and Trace Holdings. (v) Other Officers and Directors of Trace Holdings, Trace Foam Sub and Trace Foam beneficially own Common Stock in the amounts listed in the following table. Shares beneficially owned include shares issuable upon exercise of vested options, or which will vest in the next sixty days, with an exercise price of $6.875. Officer or Director Number of Shares Owned* David E. Bright 1,700 - ----------------------- Andrea Farace 9,028 - ----------------------- Frederick Marcus 10,083 - ----------------------- Robert H. Nelson 1,222 - ----------------------- Saul S. Sherman 0 - ----------------------- Philip N. Smith, Jr. 14,028 - ----------------------- Karl H. Winters 1,267 - ----------------------- Barry Zimmerman 12,791 * Includes shares issuable upon exercise of options as follows: Mr. Bright 1,500 shares; Mr. Farace, 7,028 shares; Mr. Marcus, 10,083 shares; Mr. Nelson, 1,222 shares; Mr. Smith, 3,117 shares; Mr. Winters, 1,267 shares; and Mr. Zimmerman, 7,791 shares. Item 5(c) of the Schedule 13D is hereby amended and supplemented as follows: Attached hereto as Schedule 5(c) is a schedule of transactions in the Common Stock within the past 60 days by the persons named in Item 5(a) above. Item 5(d) of the Schedule 13D is hereby amended and supplemented as follows: See Item 6 for a discussion of the Asset Appreciation Agreement. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Item 6 is hereby amended and supplemented by adding the following at the end thereof: Pursuant to the terms of the Pledge Agreement, dated August 15, 1997, between Trace Holdings and the Bank, Trace Holdings pledged to the Bank all shares of Common Stock and UAG Stock, following the occurrence of the UAG Pledge Event, to be purchased with the proceeds of the Bank Loan. The Pledge Agreement provides that as long as there is no event of default with regard to the obligations of Trace Holdings to the Bank, Trace Holdings is generally entitled to exercise all voting rights allocated to the Pledged Shares, provided that no such exercise of voting rights shall impair the value of the Pledged Shares or violate any provision of the Margin Loan Agreement or accompanying loan documents. The Pledge Agreement further provides that as long as there is no such event of default or potential event of default relating to voluntary bankruptcy, involuntary bankruptcy or the appointment of a receiver, Trace Holdings is generally entitled to receive all dividends paid in respect of the Pledged Shares, subject to certain exceptions including (i) dividends paid in other than cash and (ii) dividends paid in connection with a liquidation. Any such payments become pledged under the Pledge Agreement. The preceding summary of the Pledge Agreement is qualified in its entirety by reference to such agreement, which is filed as Exhibit J hereto. Trace Holdings has entered into an Asset Appreciation Agreement (the "Asset Agreement"), dated August 15, 1997, with the Bank in order to provide the Bank with additional interest in connection with certain loans to Trace Holdings. The Asset Agreement provides that on June 30, 2004, Trace Holdings shall make an additional interest payment to the Bank in an amount equal to 28% of the appreciation of certain assets, including any Common Stock and UAG Stock held by Trace and its subsidiaries, over certain agreed upon base prices. The base price for the shares of Common Stock and UAG Stock owned as of the date of the Asset Agreement is $11.875 and $15.00, respectively, and the base price for subsequently acquired shares of Common Stock and UAG Stock is the acquisition cost. Upon a sale of Common Stock or UAG Stock prior to June 30, 2004, Trace Holdings is required make an additional interest payment equal to the lesser of (i) 28% of the appreciation of the assets subject to the Asset Agreement, or (ii) 28% of the appreciation of the Common Stock or UAG Stock sold. Trace Holdings is also obligated to make payments in connection with voluntary prepayments of the underlying loan from the Bank, based on the appreciation of the Common Stock and UAG Stock, and upon the receipt of extraordinary distributions of cash or assets, equal to 28% of such distributions. Item 7. Material to be Filed as Exhibits. Item 7 is hereby amended and supplemented by adding the following at the end thereof: EXHIBIT I Margin Loan Credit Agreement, dated as of August 15, 1997 by and between Trace International Holdings, Inc. and the Bank. EXHIBIT J Pledge Agreement, dated as of August 15, 1997 by and between Trace International Holdings, Inc. and the Bank. EXHIBIT K Security Agreement, dated as of August 15, 1997 by and between Trace Foam Company, Inc. and the Bank. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. TRACE INTERNATIONAL HOLDINGS, INC. By: /s/ Philip N. Smith, Jr. Name: Philip N. Smith, Jr. Title: Senior Vice President and General Counsel Date: August 28, 1997 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. TRACE FOAM COMPANY, INC. By: /s/ Philip N. Smith, Jr. Name: Philip N. Smith, Jr. Title: Vice President Date: August 28, 1997 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. TRACE FOAM SUB, INC. By: /s/ Philip N. Smith, Jr. Name: Philip N. Smith, Jr. Title: Vice President Date: August 28, 1997 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. /s/ Marshall S. Cogan Marshall S. Cogan Date: August 28, 1997 SCHEDULE 5(c) SCHEDULE OF TRANSACTIONS IN COMMON STOCK IN THE PAST 60 DAYS TRACE INTERNATIONAL HOLDINGS, INC. Date Number of Shares Price August 12, 1997 50,000 $9.740 August 19, 1997 52,600 $12.9228 TRACE FOAM COMPANY, INC. None TRACE FOAM SUB, INC. None OFFICERS AND DIRECTORS On August 13, 1997, Barry Zimmerman purchased 1,000 shares. SCHEDULE I Executive Officers and Directors of Trace International Holdings, Inc. Unless otherwise indicated, the business address of each individual listed below is 375 Park Avenue, 11th Floor, New York, New York 10152. All of the following persons or U.S. citizens except Mr. Farace, who is a citizen of Italy.
Directors Class of Director Principal Employment and Employer Saul S. Sherman Class A Unitcrane & Shovel Corp. Unitcrane & Shovel Corp. 676 N. Michigan Avenue Suite 2920 Chicago, IL 60611 Marshall S. Cogan Class B Trace International Holdings, Inc. and United Auto Group, Inc. Robert H. Nelson Class B Trace International Holdings, Inc. and United Auto Group, Inc. Andrea Farace Class B Foamex International Inc. and Foamex International Inc. Trace International Holdings, Inc. 1000 Columbia Avenue Linwood, PA 19061 Frederick Marcus Class B Trace International Holdings, Inc. Executive Officers Office Held at Trace International Holdings, Inc. Principal Employment and Employer Marshall S. Cogan Chairman of the Board and Chief Executive Officer Trace International Holdings, Inc. and United Auto Group, Inc. Saul S. Sherman Vice Chairman of the Board Unitcrane & Shovel Corp. Frederick Marcus Vice Chairman and Senior Managing Director Trace International Holdings, Inc. Andrea Farace President and Senior Managing Director Trace International Holdings, Inc. and Foamex International Inc. Robert H. Nelson Senior Vice President, Chief Operating Officer and Trace International Holdings, Inc. and Chief Financial Officer United Auto Group, Inc. Barry Zimmerman Senior Vice President and Managing Director Foamex International Inc. Philip N. Smith, Jr. Senior Vice President and General Counsel United Auto Group, Inc. and Foamex International Inc. Karl H. Winters Vice President-Finance and Controller Trace International Holdings, Inc. and United Auto Group, Inc. David E. Bright Vice President, Director of Communications Foamex International Inc. and United Auto Group, Inc.
SCHEDULE II Executive Officers and Directors of Trace Foam Company, Inc. Unless otherwise indicated, the business address of each individual listed below is 375 Park Avenue, 11th Floor, New York, New York 10152. . All of the following persons or U.S. citizens except Mr. Farace, who is a citizen of Italy.
Directors Class of Director Principal Employment and Employer Andrea Farace Class I Foamex International Inc. and Foamex International Inc. Trace International Inc. 1000 Columbia Avenue Linwood, PA 19061 Robert H. Nelson Class I Trace International Holdings, Inc. and United Auto Group, Inc. Barry Zimmerman Class II Foamex International Inc. Foamex International Inc. 1000 Columbia Avenue Linwood, PA 19061 Frederick Marcus Class II Trace International Holdings, Inc. Marshall S. Cogan Class III Trace International Holdings, Inc. and United Auto Group, Inc. Peter A. Cohen Class III Ramius Partners L.P. Ramius Partners L.P. 40 W. 57th Street, 15th Floor New York, NY 10019 Executive Officers Office Held at Trace Foam Company, Inc. Principal Employment and Employer Marshall S. Cogan Chairman of the Board and President Trace International Holdings, Inc. and United Auto Group, Inc. Robert H. Nelson Vice President and Treasurer Trace International Holdings, Inc. and United Auto Group, Inc. Barry Zimmerman Executive Vice President Foamex International Inc. Andrea Farace Vice President Foamex International Inc. and Trace International Holdings, Inc. Karl H. Winters Vice President Trace International Holdings, Inc. and United Auto Group, Inc. Philip N. Smith, Jr. Vice President Foamex International Inc. and United Auto Group, Inc.
SCHEDULE III Executive Officers and Directors of Trace Foam Sub, Inc. Unless otherwise indicated, the business address of each individual listed below is 375 Park Avenue, 11th Floor, New York, New York 10152. . All of the following persons or U.S. citizens except Mr. Farace, who is a citizen of Italy.
Directors Principal Employment and Employer Marshall S. Cogan Trace International Holdings, Inc. and United Auto Group, Inc. Robert H. Nelson Trace International Holdings, Inc. and United Auto Group, Inc. Executive Officers Office Held at Trace Foam Sub, Inc. Principal Employment and Employer Marshall S. Cogan Chairman of the Board and President Trace International Holdings, Inc. and United Auto Group, Inc. Robert H. Nelson Vice President and Treasurer Trace International Holdings, Inc. and United Auto Group, Inc. Philip N. Smith, Jr. Vice President Foamex International Inc. and United Auto Group, Inc.
EX-10.1 2 MARGIN LOAN CREDIT AGREEMENT - -------------------------------------------------------------------------------- MARGIN LOAN CREDIT AGREEMENT Dated as of August 15, 1997 between TRACE INTERNATIONAL HOLDINGS, INC. and THE BANK OF NOVA SCOTIA - -------------------------------------------------------------------------------- MARGIN LOAN CREDIT AGREEMENT This Margin Loan Credit Agreement dated as of August 15, 1997 (as amended, amended and restated, supplemented or modified from time to time, this "Agreement") is entered into between Trace International Holdings, Inc. (the "Borrower" or the "Company") and The Bank of Nova Scotia (including its successors and assigns, the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lender agree to provide (i) a Tranche A Commitment pursuant to which the Borrower may obtain term loans (the "Tranche A Loans") in an aggregate principal amount not to exceed $7,500,000 plus any accrued interest thereon added to the principal amount thereof and (ii) a Tranche B Commitment pursuant to which the Borrower may obtain term loans (the "Tranche B Loans"; together with the Tranche A Loans being the "Loans") in an aggregate principal amount not to exceed $8,750,000 plus any accrued interest thereon added to the principal amount thereof; WHEREAS, the Borrower will use (i) the proceeds of the Tranche A Loans to make investments in the common stock of Foamex and/or UAG and (ii) the proceeds of the Tranche B Loans (x) to make investments in the common stock of Foamex and/or UAG and (y) to pay the Upfront Fee; WHEREAS, the Borrower and the Lender have agreed to enter into this Agreement and to provide for the financing provided for under the Commitments on the terms and conditions set forth herein; WHEREAS, as a condition to extending the Loans, the Lender has required the Borrower to pay the Upfront Fee provided for herein; NOW, THEREFORE, in consideration of the above premises the Borrower and the Lender agree as follows: ARTICLE I DEFINITIONS 1.1. Certain Defined Terms. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Accommodation Obligation" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any 1 Indebtedness, obligation or liability of another, in each case for borrowed money, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co-made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received; provided, however, the following obligations of the Borrower shall not constitute Accommodation Obligations: (i) the Rallis Put, (ii) the TIHI CHF Guaranty, (iii) the Holdco Guaranties, (iv) the Holdco Shareholders Agreement and (v) the Trace Foam Company, Inc. guaranty of the Credit Agreement dated as of June 12, 1997 among Foamex L.P., General Felt Industries, Inc., Trace Foam Company, Inc., FMXI, Inc., the lenders and issuing banks thereunder and the administrative agents thereunder. "Affiliate", as applied to any Person, means any other Person that directly or indirectly controls, is controlled by, or is under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the Securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. "Agreement" has the meaning ascribed thereto in the preamble. "Appreciation" has the meaning ascribed thereto in the Asset Appreciation Agreement. "Asset Appreciation Agreement" means the Amended and Restated Asset Appreciation and Extraordinary Distribution Agreement, dated the date hereof, between the Borrower and the Lender, as the same may be amended, restated, amended and restated or modified from time to time. "Authorized Officer" means the chairman, president, any vice president, treasurer or chief financial officer of the Borrower. 2 "Base Price" has the meaning ascribed thereto in the Asset Appreciation Agreement. "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA and which is subject to Title IV of ERISA. "Borrower" has the meaning ascribed thereto in the preamble. "Borrowing" has the meaning ascribed thereto in clause (c) of Section 2.1. "Business Day" means a day which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in New York, New York or Nassau, Bahamas. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.ss. 9601 et seq., any amendments thereto, any successor statutes, and any regulations or legally enforceable guidance promulgated thereunder. "CERCLIS" has the meaning ascribed thereto in clause (o)(i)(F) of Section 6.1. "Change of Control" means any event pursuant to which Marshall S. Cogan ceases (a) to control at least fifty-one percent (51%) of the Equity Interests in the Borrower entitled to elect a majority of the board of directors or (b) (i) to legally and beneficially own, directly or indirectly and of record, at least thirty percent (30%) of the issued and outstanding Equity Interests in the Borrower and (ii) the first day on which amajority of the members of the Board of Directors of the Borrower are not Continuing Directors. "CHF" means CHF General Holdings and its Subsidiaries. "CHF General Holdings" means CHF General Holdings, Inc., a Delaware corporation. "Claim" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. 3 "Closing Date" means the date on which all of the conditions set forth in Section 5.1 are satisfied (unless waived by the Lender). "Cogan Investment Letter" means the letter, dated as of August 15, 1997, of Marshall S. Cogan delivered to the Lender. "Commitments" means the Tranche A Commitment and the Tranche B Commitment. "Commitment Termination Date" means the earliest of (a) August 15, 1998; and (b) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b), the Commitment shall terminate automatically and without any further action. "Commitment Termination Event" means (a) the occurrence of any Event of Default or Potential Event of Default described in Section 10.01(f), (g) or (i); or (b) the occurrence and continuance of any other Event of Default and either: (i) the declaration of the Loan to be due and payable pursuant to Section 10.02, or (ii) the giving of notice by the Lender to the Borrower that the Commitments have been terminated. "Company" has the meaning ascribed thereto in the preamble. "Company Restricted Person" means any director (other than Saul Sherman to the extent of his ownership interest in preferred stock of the Borrower in a liquidation amount not to exceed $1,008,000 and dividends thereon), officer, employee or any Affiliate of the Borrower and any director, officer or employee of any Subsidiary of the Borrower to the extent that such Person receives compensation or any other remuneration for services rendered for or on behalf of the Borrower. "Constituent Documents" means (i) the articles/certificate of incorporation (or the equivalent organizational documents) of a Person, (ii) the by-laws (or the equivalent governing documents) of such Person and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such Person's Equity Interests. 4 "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Borrower who (i) was a member of such Board of Directors on the date hereof or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Contract Assignment Agreement" means the Security Agreement, dated as of August 15, 1997, between Trace Foam Company, Inc. and the Lender, substantially in the form of Exhibit I hereto, pursuant to which Trace Foam Company, Inc. grants a security interest in the Management Agreement in favor of the Lender, as such agreement may be amended, supplemented or modified from time to time. "Contractual Obligation", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "Current Benefit Plan" has the meaning ascribed thereto in clause (p) of Section 6.1. "Deferred Compensation Plan" means the deferred compensation plan of the Borrower as described in Schedule 1.1.1. "DOL" means the United States Department of Labor and any Person succeeding to the functions thereof. "Dollars" and "$" mean the lawful money of the United States. "Eligible Assignee" means (i) any affiliate of the Lender (so long as an assignment of the Loan hereunder in and of itself will not cause such an affiliate to seek compensation under Section 3.3 or 3.4 hereunder), (ii) after a Potential Event of Default or Event of Default hereunder has occurred and been continuing for a period of 30 days or more, any Person or (iii) any other Person upon the prior written consent of the Borrower. "Environmental Condition" means the past, present or threatened Release of any Hazardous Material or non-compliance with any Environmental, Health or Safety Requirements of Law. "Environmental, Health or Safety Requirements of Law" means any and all local, state, federal, international, governmental, public or private laws, statutes, ordinances, regulations, orders, consent decrees, settlement agreements, injunctions, judgments, permits, licenses, codes, covenants, deed restrictions, common laws, treaties, and reported state or 5 federal court decisions thereunder, related to environmental protection, health and safety of persons, natural resource damages, conservation, wildlife, waste management, the use, storage, generation, production, treatment, emission, discharge, remediation, Remedial Action, removal, disposal or transport or any other activity related to a Hazardous Material, or any other environmental, health or worker or workplace safety matter. "Environmental Lien" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental, Health or Safety Requirement of Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Hazardous Material into the environment. "Equity Interests", with respect to any Person, means any capital stock issued by such Person, regardless of class or designation, or any limited or general partnership, limited liability company or similar interest in such Person, regardless of designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "ERISA" means the Employee Retirement Income Security Act of 1974, any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "ERISA Affiliate" means (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Borrower; and (iii) solely for purposes of liability under Section 412(c)(11) of the Internal Revenue Code, the Lien created under Section 412(n) of the Internal Revenue Code, or for tax imposed for failure to meet minimum funding standards under Section 4971 of the Internal Revenue Code, a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Borrower, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "Event of Default" means any of the occurrences set forth in Section 10.1 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in Section 10.1. "Fair Labor Standards Act" means the Fair Labor Standards Act of 1938, as amended from time to time, and any successor statute. "Fair Market Value" has the meaning ascribed thereto in the Asset Appreciation Agreement. 6 "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fiscal Month" means the fiscal month of the Borrower. "Fiscal Quarter" means any quarter of a Fiscal Year. "Fiscal Year" means the fiscal year of the Borrower, ending on December 31 of each calendar year. "Foamex" means Foamex International Inc. and its Subsidiaries. "Foamex Common Stock" has the meaning ascribed thereto in the Asset Appreciation Agreement. "Foreign Pension Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrower or any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Funded Indebtedness" means the following Indebtedness of the Borrower and its Subsidiaries on a consolidated basis, (a) (i) the principal amount of all Indebtedness of the Borrower and its Subsidiaries in respect of borrowed money and (ii) accrued and unpaid interest thereon so long as the obligor of such Indebtedness is not required to pay such interest currently in cash at least semi-annually, in each case, evidenced by debt securities or debentures, (b) obligations (other than in respect of warrants of CHF issued to the Lender or shares of CHF General Holdings, Inc. issued to CIBC Wood Gundy, Inc. or obligations under the Holdco Shareholders Agreement) measured by the performance or change in value of the Borrower or any of its Subsidiaries or Investment Entities or any other obligations similar in nature to the Asset Appreciation Agreement, (c) acceptances, notes or other similar instruments, (d) in respect of Capital Lease obligations, (e) in respect of reimbursement obligations in respect of outstanding letters of credit or (f) in respect of the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business. The amount of Funded Indebtedness attributable to (i) revolving, swing line, lines of credit or other types of loans or advances as of any date of determination shall be determined by taking the average daily outstanding amount of such loans or advances during the Fiscal Quarter just ended and (ii) Indebtedness described in clause (a)(ii) above shall be an amount equal to the aggregate amount of interest which may accrue (including any compounding thereof) on such Indebtedness for the term of such Indebtedness. 7 "Funding Date" has the meaning ascribed thereto in clause (c) of Section 2.1. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board, or in the absence of the foregoing, such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof. "Governmental Authority" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Material" means any hazardous or toxic chemical, element, material, waste, byproduct, pollutant, contaminant, compound, product or substance, including any material that is regulated by any Environmental, Health or Safety Requirements of Law or that hereafter becomes regulated by any Environmental, Health or Safety Requirements of Law, including, without limitation, asbestos, urea formaldehyde foam insulation, petroleum and its derivatives, by-products and other petroleum hydrocarbons, radioactive materials, radon gas and polychlorinated byphenyls (PCBs). "Holdco Guaranties" means those Holdco Guaranty and Pledge Agreements, made by CHF Holdings, Inc. existing on the date hereof as such agreements may be amended, modified or otherwise changed from time to time. "Holdco Shareholders Agreement" means the Shareholders Agreement to be entered into between the Borrower, CHF General Holdings, Inc., Frank Foley, and CHF Holdings, Inc., substantially in the form of Exhibit H hereto. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; or (b) which relates to the limited scope of examination of matters relevant to such financial statement. "Indebtedness", as applied to any Person, means, at any time, (without duplication) (a) all indebtedness, obligations or other liabilities of such Person (i) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and 8 charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person (other than for other similar securities), (iii) with respect to letters of credit issued for such Person's account, (iv) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business as presently conducted, (v) in respect of Capital Leases, or (vi) which are Accommodation Obligations; (b) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien (other than Liens incurred in the ordinary course of business) on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (c) all indebtedness, obligations or other liabilities of such Person in respect of interest rate contracts and foreign exchange contracts, net of liabilities owed to such Person by the counterparties thereon; and (d) all preferred Equity Interests in such Person subject to mandatory redemption upon the occurrence of any contingency (but only to the extent such contingency has occurred). "Indemnified Matters" has the meaning ascribed thereto in Section 11.3. "Indemnities" has the meaning ascribed thereto in Section 11.3. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or any substantial portion of the assets of a business conducted by another Person, and (iii) any direct or indirect loan, advance (other than prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business as presently conducted) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. "Investment Entities" means each of Foamex, CHF, Trace Capital Management and UAG and each of their respective Subsidiaries. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "Lender" is defined in the preamble. 9 "Liabilities and Costs" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death costs, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury or damage to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor or consignor pursuant to ss.9-408 of the UCC), naming the owner of such property as debtor, under the UCC or other comparable law of any jurisdiction. "Loans" has the meaning ascribed thereto in the first recital. "Loan Documents" means this Agreement, the Notes, the Asset Appreciation Agreement, the Cogan Investment Letter, the Pledge Agreement, the Contract Assignment Agreement and all other instruments, agreements and written Contractual Obligations between the Borrower or any Subsidiary of the Borrower and the Lender delivered to the Lender pursuant to or in connection with this Agreement. "Tranche A Loan to Value Ratio" means, the ratio, expressed as a percentage, of (a) the then outstanding principal amount of the Tranche A Loan after giving effect to a contemplated loan to (b) the sum of 50% of the Fair Market Value of the UAG Stock and Foamex Common Stock pledged to the Lender pursuant to the Pledge Agreement, and prior to the UAG Pledge Event, 50% of the Fair Market Value of the "Negative Pledge Stock" (as defined in the Pledge Agreement) after giving effect to a contemplated loan. "Management Agreement" means the 21 Foam Management Agreement, effective as of October 13, 1992, between Foamex L.P. and Trace Foam Company, Inc. (formerly known as '21' Foam Company, Inc.), as amended through the Closing Date. "Margin Stock" means "margin stock" as such term is defined in Regulation U and Regulation G. 10 "Material Adverse Effect" means a material adverse effect upon (i) the condition (financial or otherwise), business, performance, properties, operations, assets or prospects of the Borrower, or the Borrower and its Subsidiaries, taken as a whole, or any Investment Entity which is not a Subsidiary, in each case, other than as a result of the fluctuation of the market price for the Foamex Common Stock or the UAG Stock, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the ability of the Lender to enforce the Loan Documents. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by the Borrower or any ERISA Affiliate and which is subject to Title IV of ERISA. "New Investment" means any Investment in UAG Stock or Foamex Common Stock (other than pursuant to the Rallis Put) on or after the Closing Date made with the proceeds of the Loans. "Notes" means the Tranche A Notes and the Tranche B Notes. "Notice of Borrowing" has the meaning ascribed thereto in clause (c) of Section 2.1. "NPL" has the meaning ascribed thereto in clause (o)(i)(F) of Section 6.1. "Obligations" means the Loan, and all advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, or any Person entitled to indemnification pursuant to Section 11.3 of this Agreement, of any kind or nature, present or future, arising under this Agreement, the Note or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired whether or not evidenced by any note, guaranty or other instrument. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Borrower under this Agreement or any other Loan Document. "Officer's Certificate" means a certificate executed on behalf of any Person by (i) the chairman or vice-chairman of its board of directors or (ii) its president, any of its vice-presidents, its chief financial officer, or its treasurer. "OSHA" means the Occupational Safety and Health Act of 1970, any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. 11 "Other Credit Agreement" means the Amended and Restated Credit Agreement, dated as of August 15, 1997, between the Company and The Bank of Nova Scotia, as lender, as amended, amended and restated, supplemented or modified from time to time. "Other Loan" has the meaning ascribed to the term "Loan" in the Other Credit Agreement. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "Permits" means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under an applicable Requirement of Law. "Person" means any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust, limited liability company or other organization, whether or not a legal entity, and any Governmental Authority. "Plan" means any material employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Borrower or any ERISA Affiliate is an "employer" as defined in Section 3(5) of ERISA or was such an "employer" and with respect to which the Borrower or any ERISA Affiliate has continuing liability. "Pledge Agreement" means the Pledge Agreement, dated as of August 15, 1997, between the Borrower and the Lender pursuant to which the Borrower grants a security interest in all of the Foamex Common Stock and, after the UAG Pledge Event, the UAG Stock constituting New Investments in favor of the Lender, as such agreement may be amended, supplemented or modified from time to time. "Potential Event of Default" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Prepayment Percentage" means, with respect to the sale, lease, transfer, exchange or other disposition of an Investment Entity or any part thereof, (a) which is not a Primary Operating Asset, the ratio, expressed as a percentage, of (i) the Fair Market Value of the portion of the Investment Entity (or part thereof) owned by the Borrower or any Affiliate of the Borrower subject to such transaction to (ii) the aggregate Fair Market Value of all the portions of the Investment Entities owned by the Borrower or any Affiliate of the Borrower immediately prior to giving effect to such transaction and (b) which is a Primary Operating Asset, the ratio, expressed as a percentage, of (i) the sum of (w) the Appreciation of such Primary Operating Asset and (x) the Original Investment Amount (as defined in the Asset Appreciation Agreement) of such Primary Operating Asset to (ii) 12 the sum of (y) an amount equal to the amount set forth in clause (b)(i) and (z) the aggregate Fair Market Value of all other portions of the Investment Entities owned by the Borrower or any Affiliate of the Borrower immediately prior to giving effect to such transaction. "Primary Operating Asset" means, as of any date of determination any asset or group of assets of any Subsidiary of the Borrower which represents individually or in the aggregate more than 50% of revenue of such Subsidiary (for the most recent four fiscal quarter period of such Subsidiary just ended) or 50% of the asset value of such Subsidiary as of such date of determination. "Quarterly Payment Date" means the first day of each January, April, July, and October or, if any such day is not a Business Day, the next succeeding Business Day. "Rallis Put" means the obligations of the Borrower to purchase up to 308,813 shares of Foamex International, Inc. common stock pursuant to that certain Amended and Restated Put Option Agreement, dated as of December 14, 1993, between John Rallis and the Borrower. "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss. 6901 et seq., any amendments thereto, any successor statutes, and any regulations or legally enforceable guidance promulgated thereunder. "Regulation G" means Regulation G of the Federal Reserve Board as in effect from time to time. "Regulation U" means Regulation U of the Federal Reserve Board as in effect from time to time. "Regulation X" means Regulation X of the Federal Reserve Board as in effect from time to time. "Release" means release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, groundwater or property. "Remedial Action" means actions required to (i) remediate, clean up, remove, treat or in any other way address Hazardous Materials; (ii) prevent the Release or threat of Release or minimize the further Release of Hazardous Materials; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care; or any other action required to comply with applicable Environmental, Health or Safety Requirements of Law. 13 "Reportable Event" means any of the events described in Section 4043 of ERISA for which notice as required thereunder has not been waived. "Requirements of Law" means, as to any Person, the Constituent Document or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, Regulations G, U and X, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building or land use requirement or Permit or labor or employment, rule or regulation and including any Environmental, Health or Safety Requirements of Law. "Restricted Management Payment" means (i) any dividend or distribution, direct or indirect, on account of any Equity Interests in the Borrower or any of its Subsidiaries (other than the operating Subsidiaries of CHF Industries, Inc.) now or hereafter outstanding held by any Company Restricted Person, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Equity Interests in the Borrower or any of its Subsidiaries now or hereafter outstanding held by any Company Restricted Person, (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Equity Interests in the Borrower or any of its Subsidiaries or other Investment Entities now or hereafter outstanding held by any Company Restricted Person, or (iv) any salary, wages, compensation, benefit, or other payment or remuneration, exclusive of reimbursement of expenses, made to any Company Restricted Person paid or made by the Borrower or any of its Subsidiaries (other than CHF Industries, Inc. or Trace Capital Management or any of their respective operating Subsidiaries to the extent paid or made in respect of services performed for such Persons); provided, however, that (i) the delivery by the Borrower of up to 110,000 shares of Foamex common stock to its officers or other employees as described in Schedule 1.1.3, any purchase by the Borrower of such shares in public transactions or any repurchase of such shares by the Borrower from such Persons or any cash payments in lieu thereof (not in excess of the fair market value thereof) made to such Persons and (ii) payments under the Deferred Compensation Plan shall not constitute Restricted Management Payments. "Securities" means any Equity Interests, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, 14 purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Solvent", when used with respect to any Person, means that at the time of determination: (i) the fair market value of its assets is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Subject Assets" has the meaning ascribed thereto in the Asset Appreciation Agreement. "Subsidiary" of a Person means (i) any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof and (ii) for purposes of Section 7.1(a), shall include Foamex; provided, however, Trace Global Opportunities Fund, L.P. shall not be deemed to be a Subsidiary of the Borrower or Trace Capital Management. "Taxes" has the meaning ascribed to such term in Section 3.3(a). "Termination Event" means (i) the occurrence of a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which the Borrower or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Borrower or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties 15 written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) the occurrence of any event or the existence of any condition which constitutes grounds under Section 4042(a)(1), (2) or (3) of ERISA and any other event or condition which has been identified to Borrower or any ERISA Affiliate by notice from the PBGC which would constitute grounds under Section 4042(a)(4) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or (vi) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan. "TIHI CHF Guaranty" means the Guaranty made as of July 28, 1995 by the Borrower in favor of the Lender, as such guaranty may be amended, modified or otherwise changed from time to time. "Trace Capital Management" means Trace Capital Management, Inc., a Delaware corporation and its Subsidiaries. "Tranche A Commitment" means the obligation of the Lender to make the Tranche A Loans pursuant to the terms and conditions of this Agreement. "Tranche A Commitment Amount" means $7,500,000, subject to reduction and reinstatement as set forth in clause (g) of Section 2.1. "Tranche A Loans" has the meaning ascribed thereto in the first recital. "Tranche A Note" has the meaning ascribed thereto in Section 3.5. "Tranche B Commitment" means the obligation of the Lender to make the Tranche B Loans pursuant to the terms and conditions of this Agreement. "Tranche B Commitment Amount" means $8,750,000, subject to reduction and reinstatement as set forth in clause (g) of Section 2.1. "Tranche B Loans" has the meaning ascribed thereto in the first recital. "Tranche B Note" has the meaning ascribed thereto in Section 3.5. "Transaction Costs" means the fees, costs and expenses payable by the Borrower in connection with the execution, delivery and performance of the Loan Documents. 16 "UAG" means United Auto Group, Inc. and its Subsidiaries and all Subsidiaries of the Borrower which own directly or indirectly any interest in United Auto Group, Inc. "UAG Pledge Event" means the date on which restrictions under the Agreement Between American Honda Motor Co., Inc. and United Auto Group, Inc. dated October 4, 1996 on the Borrower's ability to pledge to the Lender shares of UAG Stock constituting New Investments are terminated on a basis reasonably satisfactory to the Lender. "UAG Reinstatement Amount" means an amount equal to the excess of (a) (i) the Proceeds (as defined in the Asset Appreciation Agreement) of the sale of UAG Stock required pursuant to Section 8.12 less (ii) the Disposition Costs and Deductions (as defined in the Asset Appreciation Agreement) with respect thereto over (b) any payment to the Lender required to be made under the Asset Appreciation Agreement as a result of such sale. "UAG Stock" means UAG Common Stock, as defined in the Asset Appreciation Agreement. "Unused Commitment Fee" has the meaning ascribed thereto in clause (b) of Section 4.2. "Upfront Fee" has the meaning ascribed thereto in clause (a) of Section 4.2. 1.2. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period, provided that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.3. Accounting Terms. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.4. Other Definitional Provisions. References to "Articles", "Sections", "subsections", "Schedules", "Exhibits" and the "preamble" shall be to Articles, Sections, subsections, 17 Schedules, Exhibits and the preamble, respectively, of this Agreement unless otherwise specifically provided. ARTICLE II AMOUNTS AND TERMS OF THE LOAN 2.1. Loan Facility. (a) Availability. Subject to the terms and conditions set forth in this Agreement, the Lender hereby agrees to make Tranche A Loans to the Borrower on or after the Closing Date and on or prior to the Commitment Termination Date. The Borrower shall not be permitted to borrow nor shall the Lender be required to make a Borrowing of a Tranche A Loan (i) if the amount of such Borrowing would exceed the Tranche A Commitment Amount then in effect or (ii) if the Tranche A Loan to Value Ratio is less than 100%. (b) Subject to the terms and conditions set forth in this Agreement, the Lender hereby agrees to make Tranche B Loans to the Borrower on or after the Closing Date and on or prior to the Commitment Termination Date. The Borrower shall not be permitted to borrow nor shall the Lender be required to make a Borrowing of a Tranche B Loan if the amount of such Borrowing would exceed the Tranche B Commitment Amount then in effect. (c) Notice of Borrowing. When the Borrower desires to borrow under this Section 2.1, it shall deliver to the Lender a notice of borrowing substantially in the form of Exhibit G hereto (a "Notice of Borrowing"), signed by an Authorized Officer, no later than 11:00 a.m. (New York time) on the Business Day immediately preceding the proposed date of borrowing (each, a "Funding Date"). Each such notice of borrowing shall specify (i) the amount of the proposed borrowing (each, a "Borrowing"), (ii) whether such Borrowing is of a Tranche A Loan or Tranche B Loan and (iii) instructions for the disbursement of the proceeds of the proposed Borrowing. (d) Making of Borrowings. Subject to the fulfillment of the conditions precedent set forth in Sections 5.1 and 5.2, the Lender shall make the proceeds of a Borrowing available to the Borrower at the Lender's office in New York, New York, on the Funding Date therefor and shall disburse such proceeds in accordance with the Borrower's disbursement instructions set forth in the Notice of Borrowing. (e) Use of Proceeds of the Loan. The proceeds of Tranche A Loans shall be used solely for the acquisition of shares of UAG Stock and Foamex Common Stock. The proceeds of the Tranche B Loans shall be used (i) for the acquisition of shares of UAG Stock and Foamex Common Stock and (ii) to pay the Upfront Fee. Notwithstanding the foregoing, until the UAG Pledge Event has occurred no more than $10,000,000 aggregate principal amount of Tranche A Loans and Tranche B Loans may be used to purchase UAG 18 Stock and no such purchase may be made after October 31, 1997 and (z) the aggregate acquisition cost of UAG Stock and Foamex Common Stock purchased with the proceeds of Loans (subject to Section 8.12.) may not exceed $15,000,000. (f) Repayment of the Loan. The Borrower shall make a scheduled repayment of the outstanding principal amount of the Loan (i) on January 1, 2004 of $1,250,000, (ii) on April 1, 2004 of $3,750,000 and (iii) with the balance of the Loan being due and payable on June 30, 2004. Such payments will be applied pro rata between Tranche A Loans and the Tranche B Loans. (g) Commitment Reductions and Reinstatement. The Borrower may, upon three Business Days' prior written notice to the Lender, terminate in whole or permanently reduce in part the Commitments. Upon the prior written request of the Borrower exercised only once, the Commitments, so long as no Potential Event of Default or Event of Default has occurred and is continuing, will be reinstated (if such reinstatement occurs on or prior to the Commitment Termination Date) in an amount equal to the UAG Reinstatement Amount. The Tranche A Commitment Amount will be fully reinstated prior to any reinstatement of the Tranche B Commitment. The Commitments will be permanently reduced (i) with respect to each tranche of the Loan by the principal amount of each Borrowing of such tranche of the Loan (subject to the immediately preceding sentence) and (ii) to $0 on the Commitment Termination Date (after giving effect to any Borrowing made on such date). ARTICLE III PAYMENTS AND PREPAYMENTS 3.1. Prepayments. (a) Voluntary Prepayments. (i) The Borrower may, at any time and from time to time, prepay or repay any Loan, in whole or in part, without premium or penalty. Any notice of prepayment given to the Lender under this Section 3.1(a) shall specify the date (which shall be a Business Day) of prepayment or repayment, and the aggregate principal amount of the prepayment or repayment. When notice of prepayment is delivered as provided herein, the principal amount of the Loans specified in the notice shall become due and payable on the prepayment date specified in such notice. No voluntary prepayment of a Tranche A Loan shall be permitted if there are any Tranche B Loans outstanding. (b) Mandatory Prepayments. Within five (5) Business Days after the Borrower's or any of the Borrower's Subsidiaries' receipt of any proceeds of sale of (i) prior to the payment in full of all of the Indebtedness of the Borrower under the Other Credit Agreement, (A) a Security constituting a New Investment 19 (other than pursuant to a sale of UAG Stock under Section 8.12), the Borrower shall make a mandatory prepayment of the Loans in an amount equal to the greater of (I) an amount necessary to cause the Loans to be in compliance with Regulation U and (II) an amount equal to the sum of (x) the then outstanding principal amount of the Loan (as defined in the Other Credit Agreement) plus (y) the then outstanding principal amount of the Loans, such sum multiplied by the applicable Prepayment Percentage and (B) UAG Stock under Section 8.12, the Borrower shall make a mandatory prepayment of the Loans in an amount equal to the net proceeds of sale of such UAG Stock (after deducting therefrom any payments required under the Asset Appreciation Agreement as a result of such sale); and (ii) after the payment in full of all of the Indebtedness of the Borrower under the Other Credit Agreement, a Security (as defined in the Asset Appreciation Agreement) or a Primary Operating Asset, the Borrower shall make or cause to be made a mandatory prepayment of the Loans in an amount equal to the greater of (A) an amount necessary to cause the Loans to be in compliance with Regulation U and (B) the amount of the Loans then outstanding multiplied by the then applicable Prepayment Percentage; provided, however, that if the applicable Prepayment Percentage cannot be determined on such date of payment due to the Borrower's and the Lender's inability to agree on or prior to such date the Fair Market Value of the applicable Security (as defined in the Asset Appreciation Agreement) or Primary Operating Asset then the Borrower shall be in compliance with this clause (b) so long as on such date the Borrower makes a prepayment of the Loan in an amount equal to the Borrower's reasonable estimate of the mandatory prepayment required by this clause (b) and so long as within one (1) Business Day of the ultimate determination of such Fair Market Value pursuant to the Asset Appreciation Agreement the Borrower pays any deficiency in such actual prepayment amount; provided, further, however, that if upon a sale, exchange or other disposition of an asset of CHF that would otherwise require a prepayment of the Loan restrictions contained in Contractual Obligations of CHF existing on the Closing Date prohibit the distribution of proceeds of such transaction to the Borrower, then the Borrower shall not be required to make such a prepayment to the extent of such prohibition until the removal or termination of such restriction. (c) Application. Each prepayment of Loans made pursuant to (i) Section 3.1(a) shall be applied pro rata to the remaining maturities of the Loans and (ii) (x) Section 3.1(b)(i) shall be applied first to prepay Tranche A Loans in full and then to prepay Tranche B Loans in full and (y) Section 3.1(b)(ii) (I) from the proceeds of a New Investment first to pay the Tranche A Loans in full and second to the payment of the Tranche B Loans 20 and (II) from the proceeds of sale of any other Subject Asset first to the payment in full of the Tranche B Loans and second to the payment of Tranche A Loans. 3.2 Payments. (a) Manner and Time of Payment. All payments of principal of and interest on the Loans and other Obligations (including, without limitation, fees and expenses) which are payable to the Lender shall be made without condition or reservation of right, in immediately available funds, delivered to the Lender not later than 1:00 p.m. (New York time) on the date and at the place due, to such account of the Lender as it may designate; and funds received by the Lender, not later than 1:00 p.m. (New York time) on any given Business Day shall be credited against payment to be made that day and funds received by the Lender after that time shall be deemed to have been paid on the next succeeding Business Day. 3.3 Taxes. (a) Payment of Taxes. Any and all payments by the Borrower hereunder or under the Notes or other document evidencing any Obligations shall be made, in accordance with Section 3.2, free and clear of and without reduction for any and all taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Commitment and all other liabilities with respect thereto excluding the taxes imposed on the recipient's income, capital, profits or gains and franchise taxes imposed on the recipient by (i) the United States, except certain withholding taxes contemplated pursuant to Section 3.3(d)(ii)(C), (ii) the Governmental Authority of the jurisdiction in which the Lender's lending office is located or any political subdivision thereof or (iii) the Governmental Authority in which the Lender is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under the Notes or document to the Lender, (x) the sum payable to the Lender shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this Section 3.3) the Lender receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. No payment shall be increased 21 under this Section 3.3(a) unless the Borrower would not be required to deduct or withhold any United States federal income tax therefrom but for a change of law (including the Internal Revenue Code or applicable tax treaty) after the Closing Date. (b) Indemnification. The Borrower will indemnify the Lender against, and reimburse it on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this Section 3.3 and any additional income or franchise taxes resulting therefrom) incurred or paid by the Lender, or any bank holding company parent of the Lender and any liability (including penalties, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable, except to the extent arising from the gross negligence or willful misconduct of Lender. A certificate as to any additional amount payable to any Person under this Section 3.3 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. The Lender agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with such certificates as are reasonably required, and take such other actions as are reasonably necessary, to claim such exemptions as the Lender may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this Section 3.3 in respect of any payments under this Agreement or under the Note. (c) Receipts. Within thirty (30) days after the date of any payment of Taxes by the Borrower, the Borrower will furnish to the Lender, the original or a certified copy of a receipt, if any, or other documentation reasonably satisfactory to the Lender, evidencing payment thereof. The Borrower shall furnish to the Lender upon the request of the Lender from time to time an Officer's Certificate stating that all Taxes of which it is aware are due have been paid and that no additional Taxes of which it is aware are due. (d) Foreign Bank Certifications. (i) The Lender has delivered to the Borrower a true and accurate certificate executed in duplicate by a duly authorized officer of the Lender to the effect that the Lender is eligible to receive payments hereunder and under the Note without deduction or withholding of United States federal income tax (I) under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms)) or (II) under Section 1441(c)(1) as modified for purposes of Section 1442(a) of the Internal Revenue Code (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 4224 (or any successor or substitute form or forms)). 22 (ii) The Lender further agrees to deliver to the Borrower from time to time, a true and accurate certificate executed in duplicate by a duly authorized officer of the Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrower pursuant to this Section 3.3(d). Each certificate required to be delivered pursuant to this Section 3.3(d)(ii) shall certify as to one of the following: (A) that the Lender can continue to receive payments hereunder and under the Note without deduction or withholding of United States federal income tax; (B) that the Lender cannot continue to receive payments hereunder and under the Note without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pursuant to Section 3.3(a) because it is entitled to recover the full amount of any such deduction or withholding from a source other than the Borrower; (C) that the Lender is no longer capable of receiving payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the Closing Date and that it is not capable of recovering the full amount of the same from a source other than the Borrower; or (D) that the Lender is no longer capable of receiving payments hereunder without deduction or withholding of United States federal income tax as specified therein other than by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the Closing Date. The Lender agrees to deliver to the Borrower further duly completed copies of the above-mentioned IRS forms on or before the earlier of (x) the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding from United States federal income tax and (y) fifteen (15) days after the occurrence of any event requiring a change in the most recent form previously delivered by the Lender to the Borrower, unless any change in treaty, law, regulation, or official interpretation thereof which would render such form inapplicable or which would prevent the Lender from duly completing and delivering such form has occurred prior to the date on which any such delivery would otherwise be required and the Lender promptly advises the Borrower that it is not capable of receiving payments hereunder and under the Notes without any deduction or withholding of United States federal income tax. 23 (iii) No sum payable to the Lender shall be increased under Section 3.3(a), and the Borrower shall not indemnify the Lender under Section 3.3(b), if the Lender has not provided the IRS Forms required by Section 3.3(d)(i) and the certificates described in either Section 3.3(d)(ii)(A) or Section 3.3(d)(ii)(C). 3.4. Increased Capital. If after the date hereof the Lender determines that (i) the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdiction, power or control over the Lender or banks or financial institutions generally (whether or not having the force of law), or the compliance with any of the above affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender and (ii) the amount of such capital is increased by or based upon the making or maintenance by the Lender of the Loans, or the Lender's obligation to make the Loans, the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender or such corporation therefor. Such demand shall be accompanied by a statement as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. 3.5. Promise to Repay; Evidence of Indebtedness. The Borrower hereby agrees to pay when due the principal amount of the Loans which are made to it, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the promissory notes evidencing the Loans owing to the Lender, and the Borrower shall execute and deliver to the Lender such promissory notes as are necessary to evidence the Loans owing to the Lender after giving effect to any assignment thereof pursuant to Section 11.1, substantially in the form of Exhibit A (the "Tranche A Note" and "Tranche B Note"). 3.6. Change in Lending Office. The Lender agrees that, upon the occurrence of any event set forth in Section 3.3 or 3.4, the Lender will use reasonable efforts to book and maintain the Loans through a different lending office with the objective of avoiding or minimizing the consequences of such event; provided, however, that such booking or transfer is not otherwise disadvantageous to the Lender, as determined by the Lender in its sole discretion. 24 ARTICLE IV INTEREST AND FEES 4.1. Interest on the Loans and other Obligations. (a) Rate of Interest. The Loans shall bear interest on the unpaid principal amount thereof until paid in full. Interest shall accrue on the Loans and all other Obligations at the rate of 10% per annum. Interest payable hereunder shall be in addition to, and not duplicative of, the Obligations of the Borrower to the Lender under the Asset Appreciation Agreement. (b) Interest Payments. (i) Interest accrued on the Loans shall be payable in arrears on each Quarterly Payment Date, commencing on the first such day following the Closing Date; provided, however, that (x) interest at the rate of 6 1/2% per annum shall be payable currently on the Loans and (y) at the Borrower's written election, interest on the Loans at a rate of 3 1/2% per annum may be deferred by adding such amount to the principal amount of the Loans on the relevant Quarterly Payment Date and shall thereafter accrue interest as aforesaid, upon the prepayment thereof in full or in part when made in connection with a prepayment of the Loans and if not theretofore paid in full, at maturity (whether by acceleration or otherwise). (ii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears on each Quarterly Payment Date, commencing on the first such day following the incurrence of such Obligation, upon repayment thereof in full or in part, and if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) Computation of Interest. Interest on all Obligations shall be computed on the basis of a year of 365 days or 366 days, as the case may be. 4.2. Fees. (a) Upfront Fee. In consideration of the Commitment, the Borrower shall pay to the Lender an upfront fee of $1,250,000, payable on the Closing Date (the "Upfront Fee"). Such fee shall be payable to the Lender at its office in New York, New York in immediately available funds. Such fees shall be fully earned and nonrefundable when paid. (b) Unused Commitment Fee. The Borrower shall pay to the Lender a fee (the "Unused Commitment Fee"), accruing at the rate 1/2 of 1% per annum on the Tranche A Commitment Amount and the Tranche B Commitment Amount then in effect for the period commencing on the Closing Date and ending on the Commitment Termination Date such portion of the fee being payable quarterly, in arrears, commencing with the first Quarterly Payment Date following the Closing Date. 25 (c) Calculation and Payment of Fees. The Unused Commitment Fee shall be calculated on the basis of the actual number of days elapsed in a 365 or 366-day year, as the case may be. All such fees shall be payable in addition to, and not in lieu of, interest, compensation, expense reimbursements, indemnification and other Obligations. The Unused Commitment Fee shall be payable to the Lender at its office in New York, New York in immediately available funds. All fees shall be fully earned and nonrefundable when paid. ARTICLE V CONDITIONS TO LOANS 5.1. Conditions Precedent to the Effectiveness of this Agreement. This Agreement shall become effective on the date (the "Closing Date") when the following conditions precedent have been satisfied (unless waived by the Lender): (a) Documents. The Lender shall have received on or before the Closing Date all of the following in form and substance satisfactory to the Lender: (i) this Agreement and all other agreements, documents and instruments described in the List of Closing Documents, attached hereto and made a part hereof as Exhibit B, each duly executed by the parties thereto where appropriate and in form and substance reasonably satisfactory to the Lender and all obligations of the parties thereto required to be performed on or prior to the Closing Date shall have been fully performed without waiver or forbearance, except as consented to in writing by the Lender; without limiting the foregoing, the Borrower hereby directs its counsel, Willkie Farr & Gallagher, to prepare and deliver to the Lender, and Mayer, Brown & Platt, counsel to the Lender, the opinion referred to in such List of Closing Documents; and (ii) such additional documentation as the Lender may reasonably request. (b) Consents. The Borrower shall have received all consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority, in each case, as may be necessary to allow the Borrower, lawfully and without risk of rescission, to execute, deliver and perform, in all material respects, its obligations under this Agreement and the other Loan Documents and each other agreement or instrument to be executed and delivered by it pursuant thereto or in connection therewith. 26 (c) Existing Indebtedness. The Borrower shall have delivered to the Lender true and complete copies of all agreements, instruments and other documents evidencing or relating to the Borrower's and its Subsidiaries' Funded Indebtedness and any Funded Indebtedness of any Investment Entity which has recourse to the Borrower or any of its Subsidiaries. No default shall have occurred and be continuing thereunder. (d) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Lender shall not have received any notice that litigation is pending or threatened which is likely to (i) enjoin, prohibit or restrain the making of the Loan or (ii) impose or result in the imposition of a Material Adverse Effect. (e) No Change in Condition. No change in the condition (financial or otherwise), business, performance, properties, assets, operations or prospects of the Borrower and its Subsidiaries (other than CHF) or any Investment Entity, shall have occurred since December 31, 1996, and, with respect to CHF, shall have occurred since March 31, 1997 which change, in the reasonable judgment of the Lender, will have or is reasonably likely to have a Material Adverse Effect. (f) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Loans. (g) Representations and Warranties. All of the representations and warranties contained in Section 6.1 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date. (h) Fees and Expenses Paid. There shall have been paid to the Lender or be paid from the proceeds of the Borrowings on the Closing Date, all fees due and payable on or before the Closing Date and all expenses due and payable on or before the Closing Date. (i) Solvency Certificates. The Lender shall have received a solvency certificate in substantially the form of Exhibit C, duly executed by the chief financial officer of the Borrower, dated the date of the Closing Date and expressly permitting the Lender to rely thereon. (j) Other Credit Agreement. All of the conditions set forth in Section 5.1 of the Other Credit Agreement shall have been satisfied or performed in full. 5.2. Conditions Precedent to All Borrowings. The obligation of the Lender to make any Borrowing of a Loan 27 requested to be made by it on the Closing Date or any date after the Closing Date is subject to the following conditions precedent as of each such date: (a) Representations and Warranties. As of such date, both before and after giving effect to the Borrowing to be made on such date, all of the representations and warranties of the Borrower contained in Section 6.1 and in any other Loan Document (other than representations and warranties which expressly speak as of a different date) shall be true and correct in all material respects. (b) No Defaults. No Event of Default shall have occurred and be continuing or would result from the making of the requested Borrowing. (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Lender shall not have received notice that, in the judgment of the Lender, litigation is pending or threatened which is likely to enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the Lender's making of the requested Borrowing. (d) No Material Adverse Effect. No change in the condition (financial or otherwise), business, performance, properties, assets, operations or prospects of the Borrower and its Subsidiaries (other than CHF) shall have occurred since December 29, 1996, and, with respect to CHF, shall have occurred since March 31, 1997, which has had or is reasonably likely to have a Material Adverse Effect. (e) Regulation U. After giving effect to the Borrowing being requested the Borrower shall be in compliance with Regulation U. Each submission by the Borrower to the Lender of a Notice of Borrowing and each acceptance by the Borrower of the proceeds of each Borrowing made hereunder shall constitute a representation and warranty by the Borrower that all the conditions contained in this Section 5.2 have been satisfied or waived in accordance with Section 11.5. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Representations and Warranties of the Borrower. In order to induce the Lender to enter into this Agreement and to maintain and make the Loans, the Borrower hereby represents and warrants to the Lender, as of the Closing Date, that the following statements are true, correct and complete: 28 (a) Organization; Corporate Powers. The Borrower (i) is a corporation duly formed and organized, validly existing and in good standing under the laws of the State of Delaware, (ii) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own, operate and encumber its property or assets and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by this Agreement and the other Loan Documents. (b) Authority. (i) The Borrower has the requisite corporate power and corporate authority to execute, deliver and perform each of the Loan Documents to which it is a party. (ii) The execution, delivery and performance of each of the Loan Documents and the consummation of the transactions contemplated thereby, have been duly approved by all necessary corporate action of the Borrower, and such approvals have not been rescinded, revoked or modified in any manner. No other corporate or shareholder action or proceedings on the part of the Borrower are necessary to consummate such transactions. (iii) Each of the Loan Documents to which the Borrower is a party, has been duly executed, or delivered, on behalf of the Borrower, and constitutes its legal, valid and binding obligation, enforceable against the Borrower in accordance with its terms and is in full force and effect. No default (or event that with the passing of time or giving of notice or both would constitute an event of default) or breach of any covenant by any such party exists under any of the Funded Indebtedness of the Borrower or any Investment Entity. (c) Subsidiaries; Ownership of Equity Interests. Schedule 6.1-C (i) contains a diagram indicating the corporate structure of the Borrower and its Subsidiaries, and any other Person in which the Borrower or any of its Subsidiaries holds an Equity Interest as of the Closing Date; and (ii) accurately sets forth as of the Closing Date (A) the correct legal name and the jurisdiction of incorporation of the Persons (other than Subsidiaries of UAG) listed on such Schedule, and (B) the authorized, issued and outstanding shares of each class of Equity Interests in its Subsidiaries and the record and, to the knowledge of the Borrower, beneficial owner, of such Equity Interests. Other than as set forth in Schedule 6.1-C, as of the Closing Date, none of the Equity Interests of the Borrower, CHF, UAG or 29 Trace Capital Management is subject to any vesting, redemption, or repurchase agreement, and there are no warrants or options outstanding with respect to such Equity Interests. The outstanding Equity Interests in each of the Borrower's Subsidiaries are duly authorized, validly issued, fully paid and nonassessable and do not constitute Margin Stock. (d) No Conflict. The execution, delivery and performance of each of the Loan Documents do not and will not (i) conflict with the Constituent Documents of the Borrower, or to the best knowledge of the Borrower, any Person listed on Schedule 6.1-C or any Investment Entity, (ii) to the Borrower's best knowledge, constitute a tortious interference with any Contractual Obligation of any Person (other than the Lender) that would result in a Material Adverse Effect or (iii) except as set forth on Schedule 6.1-D, conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under (A) any Loan Document, (B) any Requirement of Law or (C) any Contractual Obligation of the Borrower or, to the best knowledge of the Borrower, any Person listed on Schedule 6.1-C or any Investment Entity, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, will have or is reasonably likely to have a Material Adverse Effect or may be reasonably likely to subject the Lender to any liability, (iv) except pursuant to the Pledge Agreement and the Contract Assignment Agreement result in or require the creation or imposition of any Lien whatsoever upon any of the property or assets of the Borrower or any Investment Entity, or (v) require any approval of the Borrower's, direct or indirect, Equity Interest holders (which has not been obtained). (e) Governmental Consents, Approvals, Permits. Except as set forth on Schedule 6.1-E, the execution, delivery and performance of each of the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except (i) filings, consents or notices which have been made, obtained or given, or, in a timely manner, will be made, obtained or given, in connection with the transactions contemplated by the Loan Documents, and (ii) routine corporate filings to maintain good standing, in each state in which the Borrower conducts its business. Except as set forth in Schedule 6.1-E, the Borrower has obtained all of the permits, licenses and other governmental approvals necessary or desirable for the conduct of its businesses as currently conducted which are material to their condition (financial or otherwise), operations, performance and prospects, taken as a whole. All of such permits, licenses and other governmental approvals have been obtained, were validly issued and are in 30 full force and effect. There is no proceeding pending or threatened against the Borrower which seeks, or may reasonably be expected, to rescind, terminate, modify or suspend any such permits, licenses or other governmental approvals so obtained. The consummation of the transactions contemplated by the Loan Documents will not impair the ownership of or rights under any permit, license or other governmental approval by the Borrower in any manner which has or is reasonably likely to have a Material Adverse Effect. (f) Governmental Regulation. Neither the Borrower nor any Investment Entity is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940. (g) Financial Position. All financial projections and related materials and documents delivered to the Lender pursuant to this Agreement are based upon facts and assumptions that the Borrower believes to be reasonable in light of the then current and foreseeable business conditions. All monthly, quarterly and annual financial statements of the Borrower delivered to the Lender were prepared in conformity with GAAP and fairly present the financial position of the Borrower or the consolidated and consolidating financial position of the Borrower, as at the respective dates thereof and the results of operations and changes in financial position for each of the periods covered thereby, subject, in the case of unaudited interim financial statements, to changes resulting from the audit and normal year-end adjustments and, with respect to all financial statements delivered prior to the Closing Date, such statements were in conformity with GAAP as interpreted by the Borrower at such time. As of the date of delivery, the Borrower does not have any Accommodation Obligation except as listed on Schedule 6.1-H hereto, contingent liability or liability for any Taxes, long-term leases or commitments, not reflected in any of its financial statements delivered to the Lender pursuant to this Agreement or otherwise disclosed to the Lender in writing, which will have or is reasonably likely to have a Material Adverse Effect. (h) Funded Indebtedness. Schedule 6.1-H hereto sets forth a complete and accurate list of all Funded Indebtedness of the Borrower and the other Funded Indebtedness evidence of which is required to be delivered to the Lender pursuant to Section 5.1(c), both before and after giving effect to the Loan. (i) Litigation; Adverse Effects. Except as set forth in Schedule 6.1-I, there is no action, suit, proceeding, investigation or arbitration or series of related actions, 31 suits, proceedings, investigations or arbitrations before or by any Governmental Authority or private arbitrator pending or, to the knowledge of the Borrower, threatened against any Investment Entity or any of their respective assets (i) challenging the validity or the enforceability of any of the Loan Documents or (ii) which will or is reasonably likely to result in any Material Adverse Effect. None of the Borrower or any Investment Entity is (A) in violation of any applicable Requirements of Law which violation will have or is reasonably likely to have a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or is reasonably likely to have a Material Adverse Effect. (j) No Material Adverse Change. Since December 29, 1996 in the case of the Borrower and its Subsidiaries (other than CHF) and any Investment Entity, and since March 31, 1997 in the case of CHF, there has occurred no event which has had or is reasonably likely to have a Material Adverse Effect. (k) Payment of Taxes. Except as set forth on Schedule 6.1-K, all tax returns and reports of the Borrower required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon its assets, income and franchises which are shown in such returns or reports to be due and payable have been paid prior to any penalty being imposed unless the terms of Section 8.4 permit non-payment thereof. The Borrower has no knowledge of any proposed tax assessment against the Borrower that will have or is reasonably likely to have a Material Adverse Effect. (l) Performance. The Borrower has not received notice or has actual knowledge that it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to the Borrower or any Investment Entity, except where such default or defaults, if any, will not have or is not reasonably likely to have a Material Adverse Effect. (m) Disclosure. The representations and warranties of the Borrower contained in the Loan Documents and all certificates and other documents delivered to the Lender pursuant to the terms thereof did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which and the time at which they were made, not misleading. The Borrower has not intentionally withheld any fact from the 32 Lender in regard to any matter which will have or is reasonably likely to have a Material Adverse Effect. (n) Requirements of Law. Except as otherwise stated in Schedules 6.1-I and 6.1-O, to the best of the Borrower's knowledge, with respect to Environmental, Health or Safety Requirements of Law and related violations of law, the Borrower is in compliance with all Requirements of Law applicable to its and its businesses, in each case where the failure to so comply individually or in the aggregate will have or is reasonably likely to have a Material Adverse Effect. (o) Environmental Matters. Except as disclosed on Schedule 6.1-O, to the knowledge of the Borrower's employees, consultants or agents: (A) the operations of the Borrower and its Subsidiaries comply in all material respects with all applicable Environmental, Health or Safety Requirements of Law; (B) the Borrower and its Subsidiaries have obtained or have taken appropriate steps, as required by Environmental Health or Safety Requirements of Law, to obtain all environmental, health and safety Permits necessary for their respective operations, and all such Permits are in good standing and the Borrower and its Subsidiaries are currently in material compliance with all terms and conditions of such Permits; (C) none of the Borrower and its Subsidiaries, or any of their respective present or past assets, property or operations are the subject of any investigation respecting (I) any violation of any Environmental, Health or Safety Requirements of Law or (II) any Remedial Action or has received any notice of any Claims for Liabilities and Costs arising from the Release or threatened Release of a Hazardous Material into the environment; (D) none of the operations of the Borrower or its Subsidiaries is subject to any judicial or administrative proceeding, order, judgment, decree or settlement alleging or addressing a violation of or a liability under any Environmental, Health or Safety Requirement of Law; (E) none of the Borrower and its Subsidiaries: (I) has experienced any Release of a Hazardous Material in amounts sufficient to require reporting under any applicable Requirement 33 of Law without having submitted the required report; (II) has treated, stored or disposed of a hazardous waste on-site, as that term is defined under 40 C.F.R. Part 261 or any state equivalent except in compliance with applicable Requirements of Law; or (III) has reported any material violation of any applicable Environmental, Health or Safety Requirement of Law. (F) none of the Borrower's and its Subsidiaries' present or past assets or property is listed or proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS") or any state list of sites requiring Remedial Action and the Borrower is unaware of any conditions on such property which, if known to a Governmental Authority, would qualify such property for inclusion on any such list; (G) none of the Borrower and its Subsidiaries has sent or directly arranged for the transport of any waste to any site listed on the NPL or proposed for listing on the NPL or to a site included on the CERCLIS list, or any state list of sites requiring Remedial Action; (H) there is not now, nor has there ever been on or in the Borrower's or its Subsidiaries' properties: (I) any generation, treatment, recycling, storage or disposal of any hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state equivalent except in compliance with applicable Requirements of Law; (II) any landfill, waste pile, underground storage tank or surface impoundment; (III) any asbestos-containing material; or (IV) a Release of any polychlorinated biphenyls (PCB) used in hydraulic oils, electrical transformers or other equipment; (I) none of the Borrower and its Subsidiaries has received any notice or Claim to the effect that any of such Persons is or may be liable to any Person as a 34 result of the Release or threatened Release of a Hazardous Material into the environment; (J) there have been no Releases of any Hazardous Materials in a quantity reportable or otherwise regulated under any Environmental, Health or Safety Requirements of Law to the environment from any property; (K) none of the Borrower and its Subsidiaries have any known contingent liability in connection with any Release or threatened Release of any Hazardous Materials into the environment; (L) no Environmental Lien has attached to any asset or property of the Borrower or its Subsidiaries; and (M) none of the Borrower and its Subsidiaries has entered into any agreements with any Person relating to any Remedial Action or environmentally related Claim. (ii) the Borrower and its Subsidiaries are conducting and will continue to conduct their respective businesses and operations in an environmentally responsible manner, and the Borrower and its Subsidiaries, taken as a whole have not been, and have no reason to believe that they shall be, subject to Liabilities and Costs arising out of or relating to environmental, health or safety matters that have or will result in cash expenditures by the Borrower and its Subsidiaries in excess of $2,500,000 in the aggregate (excluding from the calculation of any such expenditures any amounts for which the Borrower has been reimbursed in cash pursuant to the terms of the acquisition agreement pertaining to the acquisition of CHF by the Borrower) for any calendar year ending after the Closing Date. (p) ERISA. None of the Borrower, its Subsidiaries or any ERISA Affiliate currently maintains or contributes to any Benefit Plan or Multiemployer Plan other than those listed on Schedule 6.1-P hereto. Except as disclosed on Schedule 6.1-P hereto, each Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code as currently in effect has been determined by the IRS to be so qualified. Except as disclosed in Schedule 6.1-P hereto, neither the Borrower nor any ERISA Affiliate maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA or applicable law. Except as disclosed in Schedule 6.1-P hereto, the Borrower and its Subsidiaries and the ERISA Affiliates are in compliance in all material respects with the responsibilities, obligations and duties imposed on them by ERISA and the Internal 35 Revenue Code with respect to all Plans. No Benefit Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or not waived. Except as disclosed in Schedule 6.1-P hereto, the Borrower has not engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code (provided, however, that in making this representation, the Borrower shall be entitled to assume that the Lender is not doing so from any source which constitutes "plan assets" for purposes of ERISA). Except as disclosed in Schedule 6.1-P, neither the Borrower nor any ERISA Affiliate has taken or failed to take any action which would constitute or result in a Termination Event. Except as disclosed on Schedule 6.1-P hereto, neither the Borrower nor any such ERISA Affiliate is subject to any liability under Section 4063, 4064, 4069, 4204 or 4212(c) of ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan to which the Borrower or any ERISA Affiliate is currently obligated to contribute ("Current Benefit Plan") and furnished to the Lender is complete and accurate. Since the date of the latest Schedule B, there has been no material adverse change in the funding status or financial condition of any Current Benefit Plan relating to such Schedule B. Except as disclosed on Schedule 6.1-P hereto, neither the Borrower nor any ERISA Affiliate has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any ERISA Affiliate has failed to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. Neither the Borrower nor any such ERISA Affiliate is required to provide security to a Benefit Plan under Section 401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in an increase in current liability for the plan year. Except as disclosed on Schedule 6.1-P hereto, neither the Borrower nor the Borrower's Subsidiaries has, by reason of the transactions contemplated hereby, any obligation to make any payment to any employee pursuant to any Plan or existing contract or arrangement. (q) Transaction with Affiliates. Schedule 6.1-Q lists each and every existing agreement and arrangement as of the Closing Date that (i) the Borrower has entered into with any Affiliate or (ii) the Borrower or any Affiliate of the Borrower is subject to or has entered into with respect to the Borrower's properties, including, in the case of each of clause (i) and (ii) any management or similar agreement. The Lender has been provided a true, accurate and complete copy of each existing written agreement or arrangement set forth on Schedule 6.1-Q and a true, accurate and complete 36 description of each existing or proposed agreement or arrangement set forth in Schedule 6.1-Q that is not in writing. (r) Securities Activities. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (s) Solvency. After giving effect to the transactions contemplated in the Loan Documents and the Loan, if any, to be made on the Closing Date and the disbursement of the proceeds of the Loan pursuant to the Borrower's instructions, the Borrower is Solvent. (t) Intellectual Property. The Borrower owns, is licensed or otherwise has the lawful right to use all patents, trademarks, copyrights, service marks, or applications for patents, trademarks, copyrights or service marks, trade names, technology, know-how and processes used in or necessary for the conduct of its business as currently conducted which are material to its condition (financial or otherwise), operations, performance and prospects, taken as a whole. Except as set forth on Schedule 6.1-T, no claims are pending or, to the best knowledge of the Borrower, threatened that the Borrower is infringing or otherwise adversely affecting the rights of any Person with respect to such patents, trademarks, trade names, copyrights, technology, know-how and processes except for such claims and infringements as do not in the aggregate, give rise to any liability on the part of the Borrower which has or is reasonably likely to have a Material Adverse Effect. (ii) The consummation of the transactions contemplated by the Loan Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any patents, trademarks, copyrights, service marks, or applications for patents, trademarks, copyrights or service marks, trade names, technology, know-how or processes by the Borrower in any manner which has or is reasonably likely to have a Material Adverse Effect. (u) Assets and Properties. The Borrower or its Subsidiaries, as the case may be, has good and marketable title to all of the Subject Assets, except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets and the Liens or other restrictions set forth on Schedule 6.1 U. Neither this Agreement nor any other Loan Document, nor any transaction contemplated under any such agreement, will affect any right, title or interest of the Borrower or such Subsidiary in and to any of such Subject Assets in a manner that would have or is reasonably likely to have a Material Adverse Effect. 37 (v) Insurance. Schedule 6.1-V accurately sets forth as of the Closing Date all insurance policies and programs currently in effect with respect to the respective property and assets and business of the Borrower, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, (v) the expiration date thereof and (vi) the annual premium with respect thereto. Such insurance policies and programs are in amounts sufficient to cover the replacement value of the respective property and assets of the Borrower subject to customary deductibles. ARTICLE VII REPORTING COVENANTS The Borrower covenants and agrees that so long as the Commitment is outstanding and thereafter until all of the Obligations (other than indemnities not yet due) are paid in full, unless the Lender shall otherwise give prior written consent thereto: 7.1. Financial Statements. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated and consolidating financial statements in conformity with GAAP, and each of the financial statements described below (except as otherwise expressly provided) shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Lender: (a) Quarterly Reports. As soon as practicable, and in any event within (i) in the case of the Borrower and its Subsidiaries (other than Trace Capital Management and CHF), sixty (60) days and (ii) in the case of Trace Capital Management and CHF, forty-five (45) days, in each case after the end of each Fiscal Quarter in each Fiscal Year, the consolidated and consolidating balance sheets and results of operations of such Person and its Subsidiaries as at the end of such period, and the related consolidated and consolidating statements of income and cash flow of such Person and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case, in comparative form the corresponding figures for the corresponding Fiscal Quarter of the previous Fiscal Year certified by the chief financial officer of the Borrower as fairly presenting the consolidated and consolidating financial position of such Person and such Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with 38 GAAP, subject to normal year end adjustments (but excluding GAAP footnotes). (b) Annual Reports. As soon as practicable, and in any event within (i) in the case of the Borrower and its Subsidiaries (other than Trace Capital Management and CHF), one hundred and twenty (120) days and (ii) in the case of Trace Capital Management and CHF, ninety (90) days, in each case after the end of each Fiscal Year, (x) the consolidated and consolidating financial statements of such Person and its Subsidiaries (which shall be audited with respect to consolidated financial statements by an independent certified public accountant reasonably acceptable to the Lender) as at the end of such Fiscal Year which shall be prepared in conformity with GAAP applied on a basis consistent with prior years (except for changes with which such independent certified public accountant, if applicable, shall concur and which shall have been disclosed in the notes to the financial statements), and which shall set forth, in comparative form the corresponding figures for the previous Fiscal Year, and (y) an opinion on such consolidated financial statements by an independent certified public accountant reasonably acceptable to the Lender, which opinion shall not contain an Impermissible Qualification. For purposes of this Section 7.1 only, Subsidiaries of the Borrower shall include Foamex and UAG. Notwithstanding anything in this Agreement to the contrary, Borrower shall be deemed to have satisfied its obligations under Sections 7.1(a) and 7.1(b) with respect to Foamex and UAG if it shall have delivered the periodic reports required to be filed by Foamex International Inc. and United Auto Group, Inc., respectively, under the Securities Exchange Act. (c) Officer's Certificate. Together with each delivery of any financial statement pursuant to paragraphs (a) and (b) of this Section 7.1, an Officer's Certificate of the Borrower substantially in the form of Exhibit D attached hereto and made a part hereof (including a statement of all Restricted Management Payments made during the period), stating that the executive officer signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under its supervision, a review in reasonable detail of the transactions and consolidated and consolidating financial condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of 39 existence thereof and what action the Borrower or any of its Subsidiaries has taken, is taking and proposes to take with respect thereto. (d) Together with each delivery of any financial statement pursuant to clauses (a) and (b) of this Section 7.1, the Borrower shall deliver unconsolidated, condensed and unaudited balance sheet and cash flow statement of the Borrower as to its assets and business which are not part of or derived from the Investment Entities, each such balance sheet or cash flow statement to be substantially in the form of Exhibit E hereto. 7.2. Events of Default. Promptly upon the Borrower obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Potential Event of Default, (ii) that any Person has given any written notice to the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 10.1(e), or (iii) of any condition or event which has or is reasonably likely to have a Material Adverse Effect, the Borrower shall deliver to the Lender an Officer's Certificate specifying (A) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Borrower has taken, is taking and proposes to take with respect thereto. 7.3. Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any property or asset of the Borrower (including any Subsidiary or Investment Entity) not previously disclosed pursuant to Section 6.1(i), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any such property or asset to liability in an amount aggregating $500,000 or more (exclusive of claims covered by insurance policies of the Borrower unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim coverage on such claims), the Borrower shall give written notice thereof to the Lender and provide, if requested, such other information as may be reasonably available to enable the Lender and its counsel to evaluate such matters; and (ii) in addition to the requirements set forth in clause (i) of this Section 7.3, the Borrower upon request of the Lender shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) above and provide such other information as may be reasonably available to it to enable the Lender and its counsel to evaluate such matters. 40 7.4. Insurance. As soon as practicable and in any event by the last day of each Fiscal Year, the Borrower shall deliver to the Lender (i) a report in form and substance reasonably satisfactory to the Lender outlining all material insurance coverage maintained (including the "key man" life insurance policy maintained on Marshall S. Cogan) as of the date of such report by the Borrower and the duration of such coverage and (ii) evidence that all premiums with respect to such coverage have been paid when due. 7.5. ERISA Notices. The Borrower shall deliver or cause to be delivered, within the time limits set forth below, to the Lender, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (i) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows that a Termination Event has occurred, a written statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (ii) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows that a prohibited transaction (defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code) has occurred with respect to any Plan, a statement of the chief financial officer of the Borrower describing such transaction and the action which the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto; (iii) within ten (10) Business Days or such longer period as may be reasonably agreed to by the Lender after the Borrower or ERISA Affiliate receives written notice from the Lender requesting same, copies of each annual report (form 5500 series), including Schedule B thereto, filed with respect to each Benefit Plan; (iv) within ten (10) Business Days after the request of the Lender, copies of each actuarial report for any Benefit Plan; (v) within ten (10) Business Days after the filing of the same with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Borrower or any ERISA Affiliate with respect to such request; (vi) within ten (10) Business Days after the request of the Lender regarding the occurrence of any material increase in the benefits of any existing Benefit Plan or the establishment of any new Benefit Plan or the commencement of 41 contributions to any Benefit Plan to which the Borrower or any ERISA Affiliate was not previously contributing, notification of such increase, establishment or commencement; (vii) within ten (10) Business Days after the Borrower or any ERISA Affiliate receives notice of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Internal Revenue Code, copies of each such letter; (viii) within ten (10) Business Days before the Borrower or any ERISA Affiliate will be unable to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or payment which will give rise to a Lien, a notification of such failure; and (ix) within ten (10) Business Days after the Borrower or any ERISA Affiliate knows (A) a Multiemployer Plan which is subject to Title IV of ERISA has been terminated, (B) the administrator or plan sponsor of such Multiemployer Plan has provided the Borrower or any ERISA Affiliate with notice of an intention to terminate such Multiemployer Plan, or (C) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate such Multiemployer Plan. For purposes of this Section 7.5, the Borrower and any ERISA Affiliate shall be deemed to know all facts known by the Administrator of any Plan of which the Borrower or ERISA Affiliate is the plan sponsor. Section 7.5 shall only apply with respect to a Plan for which the Borrower or any ERISA Affiliate is an "employer" as defined in Section 3(5) of ERISA. 7.6. Environmental Notices. (a) The Borrower shall notify the Lender in writing, promptly upon the Borrower's learning thereof, of any: (i) notice or claim to the effect that the Borrower is or may be liable to any Person as a result of the Release or threatened Release of any Hazardous Material into the environment; (ii) notice that the Borrower is subject to investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Hazardous Material into the environment; (iii) notice that any asset or property of the Borrower is subject to an Environmental Lien; (iv) notice of violation to the Borrower of any Environmental, Health or Safety Requirement of Law; 42 (v) condition which might reasonably constitute or result in a material violation of any Environmental, Health or Safety Requirement of Law; (vi) commencement or threat of any judicial or administrative proceeding alleging a material violation by the Borrower of any Environmental, Health or Safety Requirements of Law; (vii) changes to any existing Environmental, Health or Safety Requirements of Law that would be reasonably likely to result in a Material Adverse Effect; or (viii) any proposed acquisition of stock, assets, real estate, or leasing of property, or any other action by the Borrower that could subject the Borrower to environmental, health or safety Liabilities and Costs. (b) Within forty-five (45) days after the end of each Fiscal Year, the Borrower shall submit to the Lender a report summarizing the status of environmental, health or safety compliance, hazard or liability issues identified in notices required pursuant to Section 7.6(a), disclosed on Schedule 6.1-O or identified in any notice or report required herein. 7.7. Labor Matters. The Borrower shall notify the Lender in writing, promptly upon the Borrower's learning thereof, of (i) any material labor dispute to which the Borrower is likely to become a party, including, without limitation, any strikes, lockouts or other disputes relating to the Borrower's other facilities and (ii) any material liability incurred with respect to the closing of any facility of the Borrower. 7.8. Other Reports. The Borrower shall deliver or cause to be delivered to the Lender copies of all financial statements, reports and notices, if any, sent or made available generally by the Borrower to its Securities holders or filed with the Securities and Exchange Commission, all press releases made available generally by the Borrower to the public concerning material developments in the business of the Borrower and all notifications received by the Borrower pursuant to the Securities Exchange Act and the rules promulgated thereunder. 7.9. Change of Control. Promptly, upon, and in any event within three (3) Business Days of, the Borrower obtaining knowledge of the occurrence or potential occurrence of a Change of Control, the Borrower shall deliver to the Lender an Officer's Certificate specifying, with respect to a Change of Control, (i) the cause and nature of such Change of Control and (ii) the estimated date on which the Change of Control will become effective. 7.10. Other Information. Promptly upon receiving a request therefor from the Lender, the Borrower shall prepare and deliver 43 to the Lender such other information with respect to the Borrower and financial information, as from time to time may be reasonably requested by the Lender. ARTICLE VIII AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as the Commitment is outstanding and thereafter until all of the Obligations (other than indemnities not yet due) are paid in full, unless the Lender shall otherwise give prior written consent thereto: 8.1. Corporate Existence, etc. The Borrower shall, at all times, maintain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to have a Material Adverse Effect. 8.2. Conduct of Business. The Borrower shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified except in such jurisdictions where the failure so to qualify would not cause or be likely to cause a Material Adverse Effect. 8.3. Compliance with Laws, etc. The Borrower shall, and shall cause each of its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, property, assets or operations of such Person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either clause (a) or (b) above is not reasonably likely to have a Material Adverse Effect. 8.4. Payment of Taxes and Claims; Tax Consolidation. The Borrower shall, and shall cause each of its Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its property or assets or in respect of any of its franchises, business, income or property before any penalty accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of the Borrower's property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (a) above or claims referred to in clause (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. 44 8.5. Insurance. The Borrower shall maintain in full force and effect the insurance policies and programs listed on Schedule 6.1-V or substantially similar policies and programs or other policies and programs as are reasonably acceptable to the Lender and shall maintain the key man insurance in the same amount and same policies as described in Section 7.4. 8.6. Inspection of Property. The Borrower shall permit, and cause its Subsidiaries to permit, any authorized representative(s) designated by the Lender to visit and inspect any of the assets or properties of the Borrower or such Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby and by the Loan Documents (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. Each such visitation and inspection shall be at the Borrower's expense. 8.7. Books and Records; Discussions. The Borrower shall keep and maintain, and cause its Subsidiaries to keep and maintain, in all material respects proper books of record and account in which entries in conformity with GAAP, as then in effect, shall be made of all dealings and transactions in relation to their respective businesses and activities. 8.8. ERISA Compliance. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans. 8.9. Maintenance of Property. The Borrower shall, and shall cause each of its Subsidiaries to, maintain in all material respects all of the owned and leased property of the Borrower or such Subsidiary used and necessary in the business of the Borrower or such Subsidiary in adequate, working condition and repair, ordinary wear and tear excepted, and not permit, commit or suffer any waste or abandonment of any such property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required. 8.10. Primary Investment. The Borrower shall at all times cause itself to be and to remain Marshal Cogan's primary investment vehicle and shall at all times represent a substantial portion of Mr. Cogan's assets. Substantially all other 45 investments in other Persons by Mr. Cogan shall be passive in character. 8.11. Line of Business. The Borrower will maintain substantially all its Investments and other business activities in assets subject to the Asset Appreciation Agreement and devote at least such management time and assets to such Investments (taken as a whole) as devoted thereto on the Closing Date. 8.12. No UAG Pledge Event. If the UAG Pledge Event shall not have occurred on or prior to February 28, 1998, the Borrower shall, on or prior to [April 30, 1998, sell the UAG Stock constituting New Investments. ARTICLE IX NEGATIVE COVENANTS The Borrower covenants and agrees that so long as the Commitment is outstanding and thereafter until all of the Obligations (other than indemnities not yet due) are paid in full, unless the Lender shall otherwise give prior written consent thereto: 9.1. Indebtedness. The Borrower shall not and shall not permit any of its Subsidiaries (other than CHF Industries, Inc. and its operating Subsidiaries and any Subsidiary which is not a Subsidiary of an Investment Entity) directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Funded Indebtedness, except Funded Indebtedness of the Borrower and such Subsidiaries so long as (x) the aggregate principal amount of such Funded Indebtedness (exclusive of (A) the principal amount of the Existing Loan, (B) Funded Indebtedness of CHF Industries, Inc. which is non recourse to the Borrower or any other Subsidiary, (C) the Holdco Shareholders Agreement, (D) Holdco Guaranties, (E) TIHI CHF Guaranty and (F) the Trace Foam Company, Inc. guaranty of the Credit Agreement, dated as of June 12, 1997, among Foamex L.P., General Felt Industries, Inc., Trace Foam Company, Inc., Trace Foam Company, Inc., FMXI, Inc., the lenders and issuing banks thereunder and the administrative agents thereunder) at any time does not exceed the sum of (I) $149,000,000 and (II) the aggregate amount of principal repayments of the Other Loan outstanding as of the Closing Date, and (y) all such Funded Indebtedness outstanding on the date of incurrence of any such Funded Indebtedness did not exceed an amount equal to 65% of the then aggregate Fair Market Value of the Investment Entities. 9.2. Investments. The Borrower shall not make any Investment in any Investment Entity or any Subsidiary thereof other than (i) any Investment existing on the Closing Date, (ii) 110,000 shares of Foamex International Inc. common stock described in the proviso to the definition of "Restricted Management Payment", (iii) as required by Section 4(c) of the TIHI CHF Guaranty, (iv) the New Investments and (v) any 46 Investment made in CHF with the proceeds of the Other Loan pursuant to the terms of the Other Credit Agreement. The Borrower shall not and shall not permit any Subsidiary to sell, transfer or otherwise dispose of any Subject Asset to another Subsidiary of the Borrower unless (x) such transferee Subsidiary is a direct, wholly owned Subsidiary of the Borrower and (y) the Borrower shall have given prior written notice of such transaction to the Lender. 9.3. Restricted Management Payments. The Borrower shall not make or permit any Subsidiary to make Restricted Management Payments in excess (without duplication) of $12,000,000 in any Fiscal Year; provided, however, if in any Fiscal Year the aggregate amount of Restricted Management Payments made in such Fiscal Year do not exceed $12,000,000 then the shortfall in such permitted Restricted Management Payments may be carried over to succeeding Fiscal Years so long as the aggregate Restricted Management Payments made in a Fiscal Year (without duplication and including any such carryforward if paid) shall not exceed $20,000,000. 9.4. Transactions with Shareholders and Affiliates. The Borrower shall not and shall not permit any Investment Entity which is a Subsidiary to directly or indirectly enter into any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service), with any Affiliate of the Borrower. Nothing contained in this Section 9.4 shall prohibit (i) any transaction permitted by Section 9.3 or, subject to Section 9.3, compensation and benefits for officers and employees of the Borrower or any of the Borrower's predecessors in interest or any of their respective Subsidiaries which are customary in the industry or consistent with the past business practice of the Borrower or such Subsidiary, provided that no Event of Default or Potential Event of Default has occurred and is continuing at the time of any increase therein; (ii) payment of customary directors' fees and indemnities; (iii) performance of any obligations arising under the Loan Documents; (iv) transactions listed on Schedule 6.1-Q, (v) payment of dividends and distributions by Subsidiaries to the Borrower and (vi) transactions between Trace Capital Partners LLC and Trace Capital Management LLC on the one hand and Trace Global Opportunities Fund L.P. on the other hand, other than any such transaction which reduces the compensation or profits allocation payable to Trace Capital Partners LLC or Trace Capital Management LLC. 9.5. Restriction on Fundamental Changes. The Borrower shall not enter into any merger or consolidation, or liquidate, windup or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of its business or property or assets, whether now or hereafter acquired. The Borrower shall not amend, modify, change or grant any waiver or forbear its rights under the Management Agreement 47 if such amendment, modification, change, waiver or forbearance would be adverse to the collateral value of the Management Agreement or in any other manner adverse to the interests of the Lender. 9.6. [Intentionally omitted]. 9.7. ERISA. The Borrower shall not: (i) engage, or permit any of its ERISA Affiliates to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (ii) fail to make any contribution or payment, which individually or in the aggregate shall exceed $1,000,000, to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iii) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code, which individually or in the aggregate shall exceed $1,000,000, on or before the due date for such installment or other payment; or (iv) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current liability for the plan year, which individually or in the aggregate shall exceed $1,000,000, such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code. 9.8. Environmental Matters. The Borrower shall not: (i) become subject to any Liabilities and Costs which would have a Material Adverse Effect arising out of or related to (a) the Release or threatened Release at any location of any Hazardous Material into the environment, or any Remedial Action in response thereto, or (b) any violation of any Environmental, Health or Safety Requirements of Law; or (ii) either directly or indirectly, create, incur, assume or permit to exist any Environmental Lien on or with respect to any of its Property. 48 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.1. Events of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments when Due. The Borrower shall fail to pay when due (i) any principal of the Loans or (ii) interest on the Loans or any other Obligation within five (5) days when due. (b) Breach of Certain Covenants. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on such Person under Sections 3.5, 7.9, 8.1 and 8.2, or Article IX. (c) Breach of Representation or Warranty. Any representation or warranty made or deemed made by the Borrower to the Lender or in any statement or certificate at any time given by the Borrower pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made. (d) Other Defaults. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by paragraphs (a), through (c) and (e) through (m), of this Section 10.1) or any default or event of default shall occur under any of the other Loan Documents or the Management Agreement, and such default or event of default shall continue for thirty (30) days after the occurrence thereof. (e) Default as to Other Indebtedness. The Borrower or any of its Affiliates shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than an Obligation) in excess of $20,000,000; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof is to cause an acceleration, mandatory redemption or other required repurchase of such Indebtedness, or during the continuance of such breach, default or event of default, permit the holder(s) of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness, or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Affiliates (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof other than the change of control puts contained in Section 4.15 of the Indenture, dated as of June 12, 1997, by and among, Foamex L.P., Foamex Capital Corporation, General Felt Industries, 49 Inc., Foamex Fibers, Inc. and Bank of New York, as trustee, as in effect on the date hereof relating to $150,000,000 9-7/8% Senior Subordinated Notes due 2007); in each case such accelerated, repurchased or other Indebtedness to exceed, in the aggregate, $20,000,000. (f) Involuntary Bankruptcy; Appointment of Receiver, etc. (i) An involuntary case shall be commenced against the Borrower or any Investment Entity or Subsidiary thereof and the petition shall not be dismissed, stayed, bonded or discharged within forty-five (45) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any Investment Entity or Subsidiary thereof in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors (or other governing body) of the Borrower or any Investment Entity or Subsidiary thereof (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any Investment Entity or Subsidiary thereof or over all or a substantial part of the property of the Borrower or any Investment Entity or Subsidiary thereof shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any Investment Entity or Subsidiary thereof or of all or a substantial part of the property of the Borrower or any Investment Entity or Subsidiary thereof shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of the Borrower or any Investment Entity or Subsidiary thereof shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within forty-five (45) days after entry, appointment or issuance; or the board of directors of the Borrower or any Investment Entity or Subsidiary thereof (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (g) Voluntary Bankruptcy; Appointment of Receiver, etc. The Borrower or any Investment Entity or Subsidiary thereof shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a 50 substantial part of its property; or the Borrower or any Investment Entity or Subsidiary thereof shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due. (h) Judgments and Attachments. Any money judgment, writ or warrant of attachment, or similar process against the Borrower or any Investment Entity or Subsidiary thereof or any of their respective assets involving in any case an amount in excess of $20,000,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. (i) Dissolution. (i) Any order, judgment or decree shall be entered against the Borrower or any Investment Entity or Subsidiary thereof decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days or (ii) the Borrower or any Subsidiary of the Borrower, Foamex International Inc. or United Auto Group, Inc., shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (j) Loan Documents. At any time, for any reason, any Loan Document or any Lien granted thereunder ceases to be in full force and effect or the Borrower seeks to repudiate its obligations thereunder. (k) Termination Event. Any Termination Event occurs which could reasonably be expected to subject the Borrower or any ERISA Affiliate to liability in excess of $20,000,000. (l) Waiver Application. The plan administrator of any Benefit Plan for which the Borrower or an ERISA Affiliate is an "employer" as defined in Section 3(5) of ERISA applies under Section 412(d) of the Internal Revenue Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code with respect to any Benefit Plan contribution obligation of the Borrower or ERISA Affiliate which is in excess of $20,000,000. (m) Change of Control. Any Change of Control occurs. 10.2. Rights and Remedies. (a) Acceleration and Termination. Upon the occurrence of any Event of Default described in Section 10.1(f) or 10.1(g) with respect to the Borrower, the Commitments shall automatically and immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without 51 presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Lender may, by written notice to the Borrower, (A) declare that the Commitments are terminated, and/or (B) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. ARTICLE XI MISCELLANEOUS 11.1. Assignments. (a) Assignments. No assignments of the Lender's rights or obligations under this Agreement shall be made except in accordance with this Section 11.1. The Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all of its rights and obligations with respect to the Loans) in accordance with the provisions of this Section 11.1. (b) Information Regarding the Borrower. The Lender may, in connection with any assignment or proposed assignment pursuant to this Section 11.1, disclose to the assignee or proposed assignee, any information relating to the Borrower or its Subsidiaries or any Investment Entity furnished to the Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, such assignee or proposed assignee, shall agree to preserve in accordance with Section 11.18 the confidentiality of any confidential information described therein. 11.2. Expenses. (a) Generally. The Borrower agrees upon demand to pay, or reimburse the Lender for all of the Lender's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Mayer, Brown & Platt, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Lender in connection with (A) the Lender's audit and investigation of the Borrower and the Investment Entities in connection with the preparation, negotiation, and execution of the Loan Documents and the Lender's periodic audits of the 52 Borrower; (B) the preparation, negotiation, execution and interpretation of this Agreement (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article V), the Loan Documents and the making of the Loans hereunder; (C) the ongoing administration of this Agreement and the Loans, including consultation with attorneys in connection therewith and with respect to the Lender's rights and responsibilities under this Agreement and the other Loan Documents; (D) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (E) the commencement, defense or intervention in any court proceeding relating to the Obligations, the Borrower, any of its Subsidiaries, this Agreement or any of the other Loan Documents; (F) the response to, and preparation for, any subpoena or request for document production with which the Lender is served or deposition or other proceeding in which the Lender is called to testify, in each case, relating in any way to the Obligations, the Borrower, any of its Subsidiaries, this Agreement or any of the other Loan Documents; and (H) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same. (b) After Default. The Borrower further agrees to pay or reimburse the Lender upon demand for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees (including allocated costs of internal counsel and costs of settlement) incurred by the Lender, after the occurrence of an Event of Default (i) in enforcing any Loan Document or Obligation or any security therefor or exercising or enforcing any other right or remedy available by reason of such Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleading in any legal proceeding relating to the Obligations, the Borrower or any of its Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above. 11.3. Indemnity. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Lender and each of its Affiliates, and each of their respective officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article V) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the 53 reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (a) this Agreement, the Loan Documents or the other Loan Documents, or any act, event or transaction related or attendant thereto, the making of the Loans, the management of the Loans, the use or intended use of the proceeds of the Loans hereunder, or any of the other transactions contemplated by the Loan Documents, (b) any Liabilities and Costs under any Environmental, Health or Safety, Requirements of Law arising from or in connection with the past, present or future operations of the Borrower, any of its Subsidiaries or any of their respective predecessors in interest, or the past, present or future Environmental Condition of any respective property of the Borrower or such Subsidiaries or any of their respective predecessors in interest (relating to the period during which the Borrower, such Subsidiaries, any of their respective predecessors in interest, or the Lender, in such capacity, owned or operated such property), the presence of asbestos-containing materials at any respective property of the Borrower or such Subsidiaries or the Release or threatened Release of any Hazardous Material into the environment from any respective property of the Borrower or such Subsidiaries or (c) or any other transaction contemplated in the Loan Documents (collectively, the "Indemnified Matters"); provided, however, the Borrower shall not have any obligation to an Indemnitee hereunder with respect to Indemnified Matters with respect to costs caused by or resulting from the willful misconduct or gross negligence of such Indemnitee, as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. 11.4. Setoff. In addition to any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, the Lender, and any Affiliate of any Lender is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held by or owing to the Lender, any of its Affiliates or any such Affiliate to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to the Lender, any of its Affiliates or any such purchaser, including, but not limited to, the Loan and all claims of any nature or description arising out of or in connection with this Agreement, 54 irrespective of whether or not (i) the Lender or such purchaser shall have made any demand hereunder or (ii) the Lender shall have declared the principal of and interest on the Loan and other amounts due hereunder to be due and payable as permitted by Article X and even though such Obligations may be contingent or unmatured. 11.5. Amendments and Waivers. Unless otherwise provided in this Agreement, no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Lender and the Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Lender, which the Lender shall have the right to grant or withhold in its sole discretion. 11.6. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 11.6) shall be as set forth below each party's name on the signature pages hereof or the signature page of any applicable assignment agreement executed pursuant to Section 11.1 or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties to this Agreement. 11.7. Survival of Warranties and Agreements. All representations and warranties made herein, and all obligations of the Borrower in respect of taxes, indemnification and expense reimbursement hereunder shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Loans and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event, except as limited by applicable statutes of limitation. 11.8. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of the Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 55 11.9. Marshalling; Payments Set Aside. The Lender shall not be under any obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Lender or the Lender receives payment from the exercise of its rights of setoff, and such payment or payments or the proceeds of such setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 11.10. Severability. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not, to the extent permitted by law, in any way be affected or impaired thereby. 11.11. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 11.12. Governing Law. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 11.13. Limitation of Liability. No claim may be made by the Borrower or any Lender or any other Person against the Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Borrower and the Lender, hereby waive, release and agree not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 11.14. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lender. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of the Lender. 56 11.15. Certain Consents and Waivers of the Borrower. (a) Personal Jurisdiction. EACH OF THE LENDER AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK COUNTY, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE LENDER AND THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (b) Service of Process. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, THE BORROWER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN THE JURISDICTION SET FORTH IN SECTION 11.15(a)(i) ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (c) Waiver of Jury Trial. EACH OF THE LENDER AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 11.16. Counterparts; Effectiveness; Inconsistencies. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 11.17. Entire Agreement. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and all 57 prior agreements and understandings, written and oral, relating to the subject matter hereof. 11.18. Confidentiality. Subject to Section 11.1(b), the Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with the Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide offeree, transferee or participant in connection with the contemplated transfer or participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such offeree, transferee or participant to agree (and require any of its offerees, transferees or participants to agree) to comply with this Section 11.18. In no event shall the Lender be obligated or required to return any materials furnished by the Borrower; provided, however, each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between the Lender and the Borrower shall survive the execution of this Agreement. 58 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. TRACE INTERNATIONAL HOLDINGS, INC. By /s/ Philip N. Smith, Jr. Title: Senior Vice President, Secretary and General Counsel Notice Address: 375 Park Avenue, 11th Floor New York, NY 10152 Attn.: Philip N. Smith, Jr., Esq. and Robert H. Nelson Telecopier No. (212) 593-1363 59 THE BANK OF NOVA SCOTIA By /s/ Brian S. Allen Title: Authorized Signatory Notice Address: The Bank of Nova Scotia-New York Agency One Liberty Plaza New York, New York 10006 Attn: Brian Allen Telecopier No. (212) 225-5090 60 TABLE OF CONTENTS Section Page - ------- ----- ARTICLE I DEFINITIONS 1.1. Certain Defined Terms.......................................1 1.2. Computation of Time Periods................................17 1.3. Accounting Terms...........................................17 1.4. Other Definitional Provisions..............................17 ARTICLE II AMOUNTS AND TERMS OF THE LOAN 2.1. Loan Facility..............................................18 ARTICLE III PAYMENTS AND PREPAYMENTS 3.1. Prepayments................................................19 3.2 Payments...................................................21 3.3 Taxes......................................................21 3.4. Increased Capital..........................................24 3.5. Promise to Repay; Evidence of Indebtedness.................24 3.6. Change in Lending Office...................................24 ARTICLE IV INTEREST AND FEES 4.1. Interest on the Loans and other Obligations................25 4.2. Fees.......................................................25 ARTICLE V CONDITIONS TO LOANS 5.1. Conditions Precedent to the Effectiveness of this Agreement................................................26 5.2. Conditions Precedent to All Borrowings...................27 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Representations and Warranties of the Borrower...........28 ARTICLE VII REPORTING COVENANTS 7.1. Financial Statements.....................................38 7.2. Events of Default........................................40 7.3. Lawsuits.................................................40 7.4. Insurance................................................41 7.5. ERISA Notices............................................41 i 7.6. Environmental Notices....................................42 7.7. Labor Matters............................................43 7.8. Other Reports............................................43 7.9. Change of Control........................................43 7.10. Other Information........................................43 ARTICLE VIII AFFIRMATIVE COVENANTS 8.1. Corporate Existence, etc.................................44 8.2. Conduct of Business......................................44 8.3. Compliance with Laws, etc................................44 8.4. Payment of Taxes and Claims; Tax Consolidation...........44 8.5. Insurance................................................45 8.6. Inspection of Property...................................45 8.7. Books and Records; Discussions...........................45 8.8. ERISA Compliance.........................................45 8.9. Maintenance of Property..................................45 8.10. Primary Investment.......................................45 8.11. Line of Business.........................................46 8.12. No UAG Pledge Event......................................46 ARTICLE IX NEGATIVE COVENANTS 9.1. Indebtedness.............................................46 9.2. Investments..............................................46 9.3. Restricted Management Payments...........................47 9.4. Transactions with Shareholders and Affiliates............47 9.5. Restriction on Fundamental Changes.......................47 9.6. [Intentionally omitted]..................................48 9.7. ERISA....................................................48 9.8. Environmental Matters....................................48 ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES 10.1. Events of Default........................................49 10.2. Rights and Remedies......................................51 ARTICLE XI MISCELLANEOUS 11.1. Assignments..............................................52 11.2. Expenses.................................................52 11.3. Indemnity................................................53 11.4. Setoff...................................................54 11.5. Amendments and Waivers...................................55 11.6. Notices..................................................55 11.7. Survival of Warranties and Agreements....................55 11.8. Failure or Indulgence Not Waiver; Remedies Cumulative....55 11.9. Marshalling; Payments Set Aside..........................56 11.10. Severability.............................................56 ii 11.11. Headings.................................................56 11.12. Governing Law............................................56 11.13. Limitation of Liability..................................56 11.14. Successors and Assigns...................................56 11.15. Certain Consents and Waivers of the Borrower.............57 11.16. Counterparts; Effectiveness; Inconsistencies.............57 11.17. Entire Agreement.........................................57 11.18. Confidentiality..........................................58 iii EXHIBITS Exhibit A -- Form of Note Exhibit B -- List of Closing Documents Exhibit C -- Form of Solvency Certificate Exhibit D -- Form of Officer's Certificate to Accompany Reports Exhibit E -- Form of Balance Sheet and Cash Flow Statement Exhibit F -- Form of Pledge Agreement Exhibit G -- Form of Notice of Borrowing Exhibit H -- Form of Holdco Shareholders Agreement Exhibit I -- Form of Contract Assignment Agreement SCHEDULES Schedule 1.1.1 -- Deferred Compensation Plan Schedule 1.1.2 -- Management Fees and Tax Sharing Payments Schedule 1.1.3 -- Restricted Management Payments Schedule 6.1-C -- Subsidiaries; Ownership of Equity Interests Schedule 6.1-D -- Conflicts with Contractual Obligations and Requirements of Law Schedule 6.1-E -- Governmental Consents Schedule 6.1-H -- Funded Indebtedness Schedule 6.1-I -- Pending Actions Schedule 6.1-K -- Taxes Schedule 6.1-O -- Existing Environmental Matters Schedule 6.1-P -- ERISA Matters Schedule 6.1-Q -- Related Party Contracts Schedule 6.1-T -- Patent, Trademark & Permit Claims Pending Schedule 6.1-U -- Subject Asset Liens Schedule 6.1-V -- Insurance Policies iv EX-10.2 3 PLEDGE AGREEMENT PLEDGE AGREEMENT This PLEDGE AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Pledge Agreement"), dated as of August 15, 1997, is made by TRACE INTERNATIONAL HOLDINGS, INC. (the "Pledgor"), in favor of THE BANK OF NOVA SCOTIA (the "Lender"). W I T N E S S E T H: WHEREAS, pursuant to the Margin Loan Credit Agreement, dated as of August 15, 1997 (as amended, supplemented, amended and restated or modified from time to time, the "Credit Agreement"), between the Pledgor and the Lender, the Lender has agreed to extend the Commitment to the Pledgor; WHEREAS, as a condition precedent to the execution and delivery of the Credit Agreement, the Pledgor is required to execute and deliver this Pledge Agreement; and WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Lender to enter into the Credit Agreement, the Pledgor agrees, for the benefit of the Lender as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Collateral" is defined in Section 2.1. "Credit Agreement" is defined in the first recital. "Distributions" means all stock dividends, liquidating dividends, shares of stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers, consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other shares of capital stock or other Equity Interests constituting Collateral, but shall not include Dividends. 1 "Dividends" means cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Property made in the ordinary course of business and not a liquidating dividend. "Negative Pledge Shares" means, prior to the UAG Pledge Event, shares of UAG Stock purchased with the proceeds of the Loans. "Pledge Agreement" is defined in the preamble. "Pledged Property" means all Pledged Shares and all other pledged shares of capital stock or other Equity Interests or promissory notes, all other securities, all assignments of any amounts due or to become due, all other instruments which are now being delivered or required to be delivered by the Pledgor to the Lender or may from time to time hereafter be delivered or required to be delivered by the Pledgor to the Lender under this Pledge Agreement or any other Loan Document, and all proceeds of any of the foregoing; provided, however, in no event shall Pledged Property include "Collateral" as such term is defined in the Assignment and Security Agreement, dated as of the date hereof, between Pledgor and Lender. "Pledged Shares" means all shares of (i) Foamex Common Stock and (ii) after the occurrence of the UAG Pledge Event, UAG Common Stock, in each case, acquired by the Pledgor on or after the date hereof, but excluding any shares of Foamex Common Stock or UAG Stock owned by Pledgor prior to the date of this Pledge Agreement or distributed with respect thereto as a result of stock dividends, stock splits, reclassifications, mergers, consolidations or similar transactions with respect thereto. "Pledgor" is defined in the preamble. "Secured Obligations" is defined in Section 2.2. "Securities Act" is defined in Section 6.2. "U.C.C." means the Uniform Commercial Code, as in effect from time to time in the State of New York. SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. 2 ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. The Pledgor hereby pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Lender, and hereby grants to the Lender, a continuing security interest in, all of the following property (the "Collateral"): (a) all Pledged Shares acquired by the Pledgor from time to time; (b) all other Pledged Property, whether now or hereafter delivered or required to be delivered to the Lender in connection with this Pledge Agreement; (c) all Dividends, Distributions, and other payments and rights with respect to any Pledged Property; and (d) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations. This Pledge Agreement secures the payment in full in cash of all Obligations of the Pledgor now or hereafter existing under the Credit Agreement, the Note, and each other Loan Document, whether for principal, interest, costs, fees, expenses, or otherwise (all such Obligations being the "Secured Obligations"). SECTION 2.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Collateral, including all Pledged Shares and Negative Pledge Shares, shall be delivered to and held by or on behalf of the Lender pursuant hereto, and in the case of Collateral shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4. Dividends on Pledged Shares. In the event that any Dividend is to be paid on any Pledged Share at a time when no Potential Event of Default of the nature referred to in Section 10.1(f) or 10.1(g) of the Credit Agreement or any Event of Default has occurred and is continuing, such Dividend may be paid directly to the Pledgor. If any such Potential Event of Default or Event of Default has occurred and is continuing, then any such Dividend shall be paid directly to the Lender. SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full in cash of all Secured Obligations and the termination of the Commitment, 3 (b) be binding upon the Pledgor and its successors, transferees and assigns, and (c) inure, together with the rights and remedies hereunder, to the benefit of the Lender. Without limiting the foregoing clause (c), the Lender may assign or otherwise transfer (in whole or in part) the Notes or the Loans held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to the Lender under any Loan Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Article XI of the Credit Agreement. Upon (i) the sale, transfer or other disposition of Collateral in compliance with Section 3.1(b) of the Credit Agreement or (ii) the payment in full in cash of all Secured Obligations, and the termination of the Commitments, the security interest granted herein shall automatically terminate with respect to (x) such Collateral (in the case of clause (i)) or (y) all Collateral (in the case of clause (ii)). Upon any such termination, the Lender will, at the Pledgor's sole expense, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Collateral held by the Lender hereunder, and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 2.6. Security Interest Absolute. All rights of the Lender and the security interests granted to the Lender hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional with respect to the Secured Obligations, irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any Note or any other Loan Document, (b) the failure of the Lender or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against the Pledgor or any other Person under the provisions of the Credit Agreement, any Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation, 4 (d) any reduction, limitation, impairment or termination of any Secured Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, any Note or any other Loan Document, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (g) to the extent permitted by applicable law, any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower, any other Obligor, any surety or any guarantor. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties, etc. The Pledgor represents and warrants unto the Lender, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by the Pledgor to the Lender of any Collateral, as set forth in this Article. SECTION 3.1.1. Ownership, No Liens, etc. The Pledgor is the legal and beneficial owner of, and has good and marketable title to the Negative Pledge Shares and the Collateral and has full right and authority to pledge and assign) such Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Lender. SECTION 3.1.2. Valid Security Interest. The delivery of such Collateral to the Lender is effective to create a valid, perfected, first priority security interest in such Collateral and all proceeds thereof, securing the Secured Obligations. No filing or other action will be necessary to perfect or protect such security interest. 5 SECTION 3.1.3. As to Pledged Shares and the Negative Pledge Shares. The Pledged Shares and the Negative Pledge Shares are duly authorized and validly issued, fully paid, and non-assessable. The Negative Pledge Shares and the Pledged Shares are owned by the Borrower free and clear of all Liens, except for the Lien created hereunder and in the case of the Negative Pledge Shares, the restrictions described in the definition of the term UAG Pledge Event. SECTION 3.1.4. Authorization, Approval, etc. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other Person is required either (a) for the pledge by the Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by the Pledgor, except for the filing by Borrower of an amendment to its Schedule 13D with respect to the Foamex Common Stock and the UAG Common Stock, or (b) for the exercise by the Lender of the voting or other rights provided for in this Pledge Agreement, (i) except for the filing of (x) a Schedule 13D if such Pledged Shares constitute more than 5% of the outstanding Foamex Common Stock or UAG Stock, (y) a Form 3, 4, or 5 if such Pledged Shares constitute more than 10% of the outstanding Foamex Common Stock or UAG Stock, (ii) in the case of certain "business combinations" between the Lender and the issuer of the Pledged Shares, the prior approval of the board of directors of such issuer as required by Delaware General Corporation Law Section 203, or (iii) except with respect to any Pledged Shares, as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement. SECTION 3.1.5. Compliance with Laws. The Pledgor is in compliance with the requirements of all applicable laws (including the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, the non-compliance with which might have a Material Adverse Effect or materially adversely affect the value of the Collateral or the worth of the Collateral as collateral security. ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. The Pledgor will not sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except upon compliance with Section 3.1(b) of the Credit Agreement or in favor of the Lender 6 hereunder). The Pledgor will warrant and defend the right and title herein granted unto the Lender in and to the Collateral (and all right, title, and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. The Pledgor agrees that at any time, and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. SECTION 4.2. Stock Powers, etc. The Pledgor agrees that all Pledged Shares (and all other shares of capital stock constituting Collateral) delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer acceptable to the Lender. The Pledgor will, from time to time upon the request of the Lender, promptly deliver to the Lender such stock powers, instruments, and similar documents, satisfactory in form and substance to the Lender, with respect to the Collateral as the Lender may reasonably request and will, from time to time upon the request of the Lender after the occurrence of any Event of Default, promptly transfer any Pledged Shares or other shares of common stock constituting Collateral into the name of any nominee designated by the Lender. SECTION 4.3. Continuous Pledge. The Pledgor will, at all times except as provided in Section 2.4, 2.5 or 2.6, keep pledged to the Lender pursuant hereto all Pledged Shares and all other shares of capital stock constituting Collateral, all Dividends and Distributions with respect thereto, and all other Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Pledgor in respect of any Collateral. SECTION 4.4. Voting Rights; Dividends, etc. The Pledgor agrees: (a) after any Event of Default shall have occurred and be continuing, promptly upon receipt of notice thereof by the Pledgor and without any request therefor by the Lender, to deliver (properly endorsed where required hereby or requested by the Lender) to the Lender all Dividends, Distributions, all other cash payments, and all proceeds of the Collateral, all of which shall be held by the Lender as additional Collateral for use in accordance with Section 6.4; and (b) after any Event of Default shall have occurred and be continuing and the Lender has notified the Pledgor of the Lender's intention to exercise its voting power under this Section 4.4(b) 7 (i) the Lender may exercise (to the exclusion of the Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other shares of capital stock constituting Collateral and the Pledgor hereby grants the Lender an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Lender such additional proxies and other documents as may be necessary to allow the Lender to exercise such voting power. All Dividends, Distributions, cash payments, and proceeds which may at any time and from time to time be held by the Pledgor but which the Pledgor is then obligated to deliver to the Lender, shall, until delivery to the Lender, be held by the Pledgor separate and apart from its other property in trust for the Lender. The Lender agrees that unless an Event of Default shall have occurred and be continuing and the Lender shall have given the notice referred to in Section 4.4(b), the Pledgor shall have the exclusive voting power with respect to any shares of capital stock (including any of the Pledged Shares) constituting Collateral and the Lender shall, upon the written request of the Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Pledgor which are necessary to allow the Pledgor to exercise voting power with respect to any such share of capital stock (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Pledgor that would impair any Collateral or be inconsistent with or violate any provision of the Credit Agreement or any other Loan Document (including this Pledge Agreement). ARTICLE V THE LENDER SECTION 5.1. Lender Appointed Attorney-in-Fact. The Pledgor hereby irrevocably appoints the Lender the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Lender's discretion, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including after the occurrence and continuance of a Potential Event of Default of the nature referred to in Section 10.1(f) or 10.1(g) of the Credit Agreement or an Event of Default: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for 8 moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Lender with respect to any of the Collateral. The Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Lender May Perform. If the Pledgor fails to perform any agreement contained herein, the Lender may itself perform, or cause performance of, such agreement, and the expenses of the Lender incurred in connection therewith shall be payable by the Pledgor pursuant to Section 6.4. SECTION 5.3. Lender Has No Duty. The powers conferred on the Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. Reasonable Care. The Lender is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Pledgor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. 9 ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Lender may (i) transfer all or any part of the Collateral into the name of the Lender or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Lender of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral, and 10 (vi) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. Securities Laws. If the Lender shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, the Pledgor agrees that, upon request of the Lender, the Pledgor will, if it controls the issuer or if it otherwise has the right to effect such registration: (a) execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Lender, advisable to register such Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), subject to the Lender furnishing all information required to be provided by selling shareholders and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, however, such period shall expire once the Collateral is eligible for sale pursuant to Rule 144 under the Securities Act, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Collateral, as requested by the Lender; and (c) cause each such issuer to make generally available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Lender by reason of the failure by the Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Lender) of the Collateral on the date the Lender shall demand compliance with this Section in exchange for which the Lender shall deliver such Collateral to Pledgor. SECTION 6.3. Compliance with Restrictions. The Pledgor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the 11 Lender is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Lender be liable nor accountable to the Pledgor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied (a) first, to the cost of such sale, collection, or realization, (b) second, to the Secured Obligations relating to Tranche A Loans, (c) third to the Secured Obligations relating to Tranche B Loans, and (d) fourth, to the Pledgor. SECTION 6.5. Indemnity and Expenses. The Pledgor hereby indemnifies and holds harmless the Lender from and against any and all claims, losses, and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses, or liabilities resulting from the Lender's gross negligence or wilful misconduct. Upon demand, the Pledgor will pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Lender may incur in connection with: (a) the administration of this Pledge Agreement, the Credit Agreement and each other Loan Document; (b) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Lender hereunder; or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. 12 ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Lender may from time to time, at its option, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Lender may from time to time take any other action which the Lender reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be made as set forth in Section 11.6 of the Credit Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each ofwhich shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 7.8. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO 13 THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.9. Registration Rights. (a) Borrower represents and warrants the Foamex Shares are included for resale in Registration Statement No. 33-85488 (the "Foamex Shelf"). (b) With respect to the Foamex Common Stock constituting New Investments, Borrower covenants and agrees that it shall use its best efforts: (i) to have Foamex International Inc. cause the Foamex Shelf to be continuously effective under the Securities Act; (ii) upon the written request of Lender, to have any shares of Foamex Common Stock constituting New Investments included in the Foamex Shelf, or in another Registration Statement under the Securities Act; provided, however, that Borrower shall not be obligated to update such registration Statement more frequently than quarterly; and (iii) the following an Event of Default and upon the written request of Lender: (A) to enforce on behalf of Lender, at Borrower's expense, Borrower's rights under the Registration Rights Agreement, dated as of December 14, 1993 with Foamex International Inc. and the rights of Trace Foam under Trace Foam's Registration Rights Agreement, dated as of December 14, 1993 with Foamex International Inc., (ii) to cause Foamex to amend the Foamex Shelf (or other registration Statement) to reflect Lender's foreclosure on the New Investment and to list Lender as the selling stockholder of the Foamex Common Stock constituting New Investments. (c) With respect to the UAG Stock constituting New Investments, Borrower covenants and agrees that it shall use its best efforts: (i) to have such UAG Stock included in any registration Statement filed by United Auto Group, Inc. for the resale of UAG Common Stock and to cause any such registration Statement to be continuously effective under the Securities Act; provided, however, 14 that Borrower shall not be obligated to update any such registration Statement more frequently than quarterly; and (ii) following an Event of Default and upon the written request of Lender: (A) to enforce on behalf of Lender, at Borrower's expense, Borrower's rights under the EMCO Motor Holdings, Inc. Registration Rights Agreement, dated as of October 15, 1993, as amended, and (ii) to cause UAG to amend any then effective registration Statement to reflect Lender's foreclosure on the New Investment and to list Lender as the selling stockholder of the UAG Stock constituting New Investments. 15 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. TRACE INTERNATIONAL HOLDINGS, INC. By /s/ Philip N. Smith, Jr. Name: Philip N. Smith, Jr. Title: Senior Vice President, Secretary and General Counsel THE BANK OF NOVA SCOTIA By /s/ Brian S. Allen Name: Brian S. Allen Title: Sr. Relationship Officer 16 EX-10.3 4 SECURITY AGREEMENT SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Security Agreement"), dated as of August 15, 1997, made by TRACE Foam Company, Inc., a Delaware corporation (the "Grantor"), in favor of The Bank of Nova Scotia (the "Lender"), W I T N E S S E T H: WHEREAS, pursuant to a Margin Loan Credit Agreement, dated as of August 15, 1997 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), between TRACE International Holdings, Inc., a Delaware corporation (the "Borrower") and the Lender, the Lender has extended Commitments to make Loans to the Borrower; and WHEREAS, as a condition precedent to the making of the initial Loan under the Credit Agreement, the Grantor is required to execute and deliver this Security Agreement; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lender to make Loans (including the initial Loan) to the Borrower pursuant to the Credit Agreement, the Grantor agrees, for the benefit of the Lender, as follows: DEFINITIONS SECTION 1.2. Certain Terms. The following terms (whether or not underscored) when used in this Security Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Borrower" is defined in the first recital. "Collateral" is defined in Section 2.1. "Credit Agreement" is defined in the first recital. "Grantor" is defined in the preamble. "Lender" is defined in the preamble. "Management Agreement" is defined in Section 2.1. "Secured Obligations" is defined in Section 2.2. 1 "Security Agreement" is defined in the preamble. "U.C.C." means the Uniform Commercial Code, as in effect in the State of New York. SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Security Agreement, including its preamble and recitals, with such meanings. ARTICLE II SECURITY, ETC. SECTION 2.1. Grant of Security Interest. The Grantor hereby grants to the Lender a security interest in, all of the Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to (the "Collateral") the 21 Foam Management Agreement, effective as of October 13, 1992, between Foamex, L.P., a Delaware limited partnership ("Foamex"), and the Grantor, as affirmed by the Affirmation Agreement, dated as of December 14, 1993, by and among Trace Foam Company, Inc., Foamex and FMXI, Inc., and amended by the First Amendment to the Management Agreement, dated as of June 12, 1997, as it may be amended or otherwise modified from time to time (as so amended or modified, the "Management Agreement"), including, without limitation, (a) all rights of the Grantor to receive moneys due and to become due under or pursuant to the Management Agreement; (b) all rights of the Grantor to receive proceeds of any insurance, indemnity, warranty, guaranty or collateral security with respect to the Management Agreement; (c) all claims of the Grantor for damages arising out of or for breach of or default under the Management Agreement; and (d) to the extent not included in the foregoing, all proceeds of any and all of the foregoing collateral. SECTION 2.2. Security for Obligations. This Security Agreement secures the payment of all Obligations now or hereafter existing under the Credit Agreement, the Notes and each other Loan Document, and all obligations of the Borrower to the Lender now or hereafter existing under the Other Credit Agreement, 2 whether for principal, interest, costs, fees, expenses or otherwise, and all other obligations of the Borrower to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereafter existing or due or to become due, and all obligations of the Grantor now or hereafter existing under this Security Agreement and each other Loan Document to which it is or may become a party (all such Obligations and other obligations of the Borrower and the Grantor being the "Secured Obligations"). SECTION 2.3. Continuing Security and Security Interest; Transfer of Notes. This Security Agreement shall create a continuing Security of and security interest in the Collateral and shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination of the Commitments and any other commitments of the Lender to the Borrower; (b) be binding upon the Grantor, its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), the Lender may assign or otherwise transfer (in whole or in part) the Notes or Loans to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to the Lender under any Loan Document (including this Security Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 11.1 of the Credit Agreement and Section 11.1 of the Other Credit Agreement. Upon the payment in full of all Secured Obligations and the termination of the Commitment and any other commitments of the Lender to the Borrower, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Lender will, at the Grantor's sole expense, execute and deliver to the Grantor such instruments as the Grantor shall reasonably request to evidence such termination. SECTION 2.4. Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Security Agreement had not been executed; 3 (b) the exercise by the Lender of any of its rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral; and (c) the Lender shall not have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Security Agreement, nor shall the Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 2.5. Security Interest Absolute. All rights of the Lender and the security interests granted to the Lender hereunder, and all obligations of the Grantor hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any Note or any other Loan Document; (b) the failure of the Lender or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor or any other Person under the provisions of the Credit Agreement, any Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation; (d) any reduction, limitation, impairment or termination of any Secured Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Grantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, any Note or any other Loan Document; 4 (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations; or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any other Obligor, any surety or any guarantor. SECTION 2.6. Subrogation, etc. The Grantor will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the prior payment, in full and in cash, of all Secured Obligations. Any amount paid to the Grantor on account of any payment made hereunder prior to the payment in full of all Secured Obligations shall be held in trust for the benefit of the Lender and each holder of a Note and shall immediately be paid to the Lender and each holder of a Note and credited and applied against the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement (or other agreement(s) pursuant to which such Secured Obligations are outstanding); provided, however, that if (a) the Grantor has made payment to the Lender and each holder of the Notes of all or any part of the Secured Obligations, and (b) all Secured Obligations have been paid in full and the Commitments and any other commitments of the Lender to the Borrower have been permanently terminated, the Lender and each holder of the Notes agrees that, at the Grantor's request, the Lender and such holder of the Notes will execute and deliver to the Grantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Grantor of an interest in the Secured Obligations resulting from such payment by the Grantor. In furtherance of the foregoing, for so long as any Secured Obligations or Commitments or any other commitments by the Lender to the Borrower remain outstanding, the Grantor shall refrain from taking any action or commencing any proceeding against the Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Security Agreement to the Lender or any holder of the Notes. 5 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Grantor represents and warrants unto the Lender as set forth in this Article. SECTION 3.1.1. Validity of Assigned Agreement. The Management Agreement, a true and complete copy of which has been furnished to the Lender, has been duly authorized, executed and delivered by the parties thereto, has not been amended or otherwise modified except as set forth in Section 2.1, and is in full force and effect and is binding upon and enforceable against Grantor and to Grantor's knowledge the other party thereto in accordance with its terms. The Grantor has fully performed all of its obligations under the Assigned Agreement and the other party to the Management Agreement has no defense, setoff or counterclaim arising under the Assigned Agreement. There exists no default under the Management Agreement Grantor and to Grantor's knowledge the other party thereto. SECTION 3.1.2. Location of Collateral. The place(s) of business and chief executive office of the Grantor and the office(s) where the Grantor keeps its records concerning the Collateral are located at the address specified for the Grantor on the signature page(s) hereto. The Grantor has no trade name. The Grantor has not been known by any legal name different from the one set forth on the signature page hereto, nor has the Grantor been the subject of any merger or other corporate reorganization, except "21" Foam Company Inc. None of the Collateral is evidenced by a promissory note or other instrument. SECTION 3.1.3. Ownership, No Liens, etc. The Grantor owns the Collateral free and clear of any Lien, security interest, charge or encumbrance except for the security interest created by this Security Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Lender relating to this Security Agreement. SECTION 3.1.4. Validity, etc. This Security Agreement creates a valid first priority security interest in the Collateral, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. SECTION 3.1.5. Authorization, Approval, etc. Except for the filing of a Form UCC-1 with the Secretary of State of the State of New York and the County Register of New York County. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either 6 (a) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery and performance of this Security Agreement by the Grantor; or (b) for the perfection of or the exercise by the Lender of its rights and remedies hereunder. SECTION 3.1.6. Compliance with Laws. The Grantor is in compliance with the requirements of all applicable laws (including, without limitation, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, non-compliance with which might materially adversely affect the business, properties, assets, operations, condition (financial or otherwise) or prospects of the Grantor or the value of the Collateral or the worth of the Collateral as collateral security. ARTICLE IV COVENANTS SECTION 4.1. Certain Covenants. The Grantor covenants and agrees that, so long as any portion of the Secured Obligations shall remain unpaid or the Lender shall have any outstanding Commitment or other commitment by the Lender to the Borrower, the Grantor will, unless the Lender shall otherwise consent in writing, perform the obligations set forth in this Section. SECTION 4.1.1. As to the Assigned Agreement. The Grantor shall at its expense: (a) perform and observe all the terms and provisions of the Management Agreement to be performed or observed by it, maintain the Management Agreement in full force and effect, enforce the Management Agreement in accordance with its terms, and take all such action to such end as may be from time to time requested by the Lender; and (b) furnish to the Lender promptly upon receipt thereof copies of all notices, requests and other documents received by the Grantor under or pursuant to the Management Agreement, and from time to time (i) furnish to the Lender such information and reports regarding the Collateral as the Lender may reasonably request and (ii) upon request of the Lender make to Foamex L.P. such demands and requests for information and reports as the Grantor is entitled to make under the Management Agreement. SECTION 4.1.1. Transfers and Other Liens. The Grantor shall not: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, or create or suffer to exist any Lien, security interest or other charge 7 or encumbrance upon or with respect to any of the Collateral, except for the Security and security interest created by this Security Agreement; (b) cancel or terminate the Management Agreement or consent to or accept any cancellation or termination thereof; (c) without the prior written consent of Lender, amend or otherwise modify the Management Agreement or give any consent, waiver or approval thereunder; (d) waive any default under or breach of the Management Agreement; or (e) take any other action in connection with the Management Agreement which would impair the value of the interest or rights of the Grantor thereunder or which would impair the interest or rights of the Lender. SECTION 4.1.3. Further Assurances. The Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may request, in order to perfect and protect the security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Lender may request, in order to perfect and preserve the security interest granted or purported to be granted hereby. With respect to the foregoing and the grant of the security interest hereunder, the Grantor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. A carbon, photographic or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 4.1.1. Place of Perfection; Records; Prior Notice of Name Change. The Grantor shall keep its place(s) of business and chief executive office and the office(s) where it keeps its records concerning the Collateral, and the original copies of the Management Agreement and of all other chattel paper which evidence the Collateral, at the location therefor specified in Section 3.1.2 or, upon 30 days' prior written notice to the Lender, at such other location in a jurisdiction where all action required by Section 4.1.3 shall have been taken with respect to 8 the Collateral. The Grantor will hold and preserve such records and will permit representatives of the Lender at any time during normal business hours to inspect and make abstracts from such records. The Grantor will not change its name except upon 30 days' prior written notice to the Lender. ARTICLE V THE LENDER SECTION 5.1. Lender Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Lender the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion, to take any action (including any action under the Management Agreement that the Grantor is entitled to take) and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Security Agreement, including, without limitation: (a) after the occurrence and continuance of an Event of Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings which the Lender may deem to be necessary or desirable for the collection thereof or to enforce compliance with the terms and conditions of the Management Agreement; and (d) to perform the affirmative obligations of the Grantor hereunder (including all obligations of the Grantor pursuant to Section 4.1.1 and Section 4.1.3). The Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Lender May Perform. If the Grantor fails to perform any agreement contained herein, the Lender may itself perform, or cause performance of, such agreement, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor pursuant to Section 6.2. SECTION 5.3. Lender Has No Duty. In addition to, and not in limitation of, Section 2.4, the powers conferred on the Lender hereunder are solely to protect its interest in the Collateral 9 and shall not impose any duty upon it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. Reasonable Care. The Lender is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) the Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may exercise any and all rights and remedies of the Grantor under or in connection with the Management Agreement or otherwise in respect of the Collateral, including, without limitation, any and all rights of the Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Management Agreement; (b) all payments received by the Grantor under or in connection with the Management Agreement or otherwise in respect of the Collateral shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement); and (c) all payments made under or in connection with the Management Agreement or otherwise in respect of the Collateral and received by the Lender may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 6.2) in whole or in part by the Lender against, all or any 10 part of (a) first the Secured Obligations relating to the Tranche B Loans until paid in full, (b) second, the Secured Obligations relating to the Tranche A Loans, (c) third, the Secured Obligations relating to the Other Credit Agreement and (iv) fourth, to all other Secured Obligations. Any surplus of such payments held by the Lender and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 6.2. Indemnity and Expenses. (a) The Grantor agrees to indemnify the Lender from and against any and all claims, losses and liabilities arising out of or resulting from this Security Agreement (including, without limitation, enforcement of this Security Agreement), except claims, losses or liabilities resulting from the Lender's gross negligence or wilful misconduct. (b) The Grantor will upon demand pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Lender may incur in connection with (i) the administration of this Security Agreement, (ii) the custody or preservation of, or the collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Lender hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Loan Document. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Security Agreement nor consent to any departure by the Grantor herefrom shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.3. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and, if to the Grantor, mailed or telegraphed or delivered to it, addressed to it at the address set forth below its signature hereto, if to the Lender, mailed or delivered to it, addressed to it at the address of the 11 Lender specified in the Credit Agreement, or as to either party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telegraphed, respectively, be effective when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid. SECTION 7.4. Section Captions. Section captions used in this Security Agreement are for convenience of reference only, and shall not affect the construction of this Security Agreement. SECTION 7.5. Severability. Wherever possible each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. SECTION 7.6. Governing Law, Entire Agreement, etc. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.7. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF SUCH LITIGATION 12 BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE GRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS Security AGREEMENT. SECTION 7.8. Waiver of Jury Trial. THE LENDER AND THE GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR. THE GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS SECURITY AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. 13 IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. TRACE FOAM COMPANY, INC. By: /s/ Philip N. Smith, Jr. Title: Senior Vice President, Secretary and General Counsel Address: 375 Park Avenue New York, New York 10152 Attention:__________________________________ Telecopier: (212) 593-1363 14 THE BANK OF NOVA SCOTIA By: /s/ Brian S. Allen Authorized Signatory 15 -----END PRIVACY-ENHANCED MESSAGE-----