-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ys1UFzBN4CBg0byInqspWCeQHpRZgg5vzc3yT8iEFQNFXNn/T7J+TQgss5CyEeDN +hFlK6NFoczlgkUhsCEDkg== 0000950168-94-000165.txt : 19940505 0000950168-94-000165.hdr.sgml : 19940505 ACCESSION NUMBER: 0000950168-94-000165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLINS & AIKMAN GROUP INC CENTRAL INDEX KEY: 0000106998 STANDARD INDUSTRIAL CLASSIFICATION: 2221 IRS NUMBER: 381954600 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06761 FILM NUMBER: 94526091 BUSINESS ADDRESS: STREET 1: 8320 UNIVESITY EXECUTIVE PARK STREET 2: SUITE 102 CITY: CHARLOTTE STATE: NC ZIP: 28262 BUSINESS PHONE: 7045482350 MAIL ADDRESS: STREET 1: PO BOX 562237 CITY: CHARLOTTE STATE: NC ZIP: 28256-2237 FORMER COMPANY: FORMER CONFORMED NAME: WICKES COMPANIES INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WICKES CORP DATE OF NAME CHANGE: 19850213 10-K 1 COLLINS & AIKMAN 10-K 5/4/94 #89563.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 29, 1994. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-6761 COLLINS & AIKMAN GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-1954600 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
8320 UNIVERSITY EXECUTIVE PARK, SUITE 102 CHARLOTTE, NORTH CAROLINA 28262 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 548-2350 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED $2.50 Convertible Preferred Stock, Series A American Stock Exchange 15% Subordinated Notes due 1995 American Stock Exchange Pacific Stock Exchange* 11 3/8% Usable Subordinated Debentures due 1997 American Stock Exchange Pacific Stock Exchange* 7 1/2%/10% Debentures due 2005 American Stock Exchange Pacific Stock Exchange* 11 7/8% Senior Subordinated Debentures due 2001 American Stock Exchange * Collins & Aikman Group, Inc. has applied to the Securities and Exchange Commission ("Commission") to have its debt securities removed from listing on the Pacific Stock Exchange ("PSE"). The PSE did not object to such application, which is currently pending before the Commission.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the $2.50 Convertible Preferred Stock, Series A held by nonaffiliates of the Registrant (based upon the closing price on the American Stock Exchange on May 2, 1994) was approximately $42,900,000. As of May 2, 1994, the number of outstanding shares of the Registrant's common stock, $0.10 par value, was 47,808,123 shares. Since April 13, 1989, all shares have been held by Collins & Aikman Holdings Corporation (formerly WCI Holdings Corporation). DOCUMENTS INCORPORATED BY REFERENCE: NONE COLLINS & AIKMAN GROUP INC. AND SUBSIDIARIES FORM 10-K ANNUAL REPORT INDEX Item 1. Business, page 1. Item 2. Properties, page 6. Item 3. Legal Proceedings, page 6. Item 4. Submission of Matters to a Vote of Security Holders, page 9. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters, page 9. Item 6. Selected Financial Data, page 10. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 11. Item 8. Financial Statements and Supplementary Data, page 17. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure, page 17. Item 10. Directors and Executive Officers of the Registrant, page 18. Item 11. Executive Compensation, page 21. Item 12. Security Ownership of Certain Beneficial Owners and Management, page 30. Item 13. Certain Relationships and Related Transactions, page 32. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page 33.
i PART I ITEM 1. BUSINESS Collins & Aikman Group, Inc. ("Group" or the "Company") (formerly Wickes Companies, Inc.) was incorporated in Delaware on March 17, 1971, and is the successor to a Michigan corporation called The Wickes Corporation, whose earliest predecessor company was established in 1854. On October 25, 1988, Group, Collins & Aikman Holdings II Corporation ("Holdings II") (formerly WCI Holdings II Corporation) and Collins & Aikman Holdings Corporation ("Holdings") (formerly WCI Holdings Corporation) entered into an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Holdings acquired approximately 80% of the outstanding shares of the Company's common stock, par value $.01 per share (the "Common Stock") on December 8, 1988 following a tender offer. On April 13, 1989, a subsidiary of Holdings merged with and into Group (the "Merger"), and Group became a direct wholly owned subsidiary of Holdings. Holdings II and Holdings were formed for the purpose of acquiring the entire equity interest in Group. Holdings II is a Delaware corporation jointly owned by Blackstone Capital Partners L.P., a Delaware limited partnership ("Blackstone Partners"), and Wasserstein Perella Partners, L.P., a Delaware limited partnership ("WP Partners"), and their respective affiliates. Since the acquisition of Group by Holdings (the "1988 Acquisition"), the Company has divested 27 businesses for approximately $1,643 million. By the end of 1993, the Company had streamlined its operations into its three existing business segments. See Notes 4 and 16 to Consolidated Financial Statements. The Company is a leader in each of its three business segments: Automotive Products, the largest supplier of interior trim products to the North American automotive industry; Interior Furnishings, the largest manufacturer of residential upholstery fabrics in the U.S.; and Wallcoverings, the largest producer of residential wallcoverings in the U.S. For certain financial information regarding the Company's business segments, see Note 16 to Consolidated Financial Statements and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." All references to a year with respect to the Company refer to the fiscal year of the Company which ends on the last Saturday of January of the following year. AUTOMOTIVE PRODUCTS GENERAL The Company is a leading designer and manufacturer of automotive products with 1993 net sales in this segment of $677.9 million. Automotive Products supplies four major interior trim products -- automotive seat fabric ("bodycloth"), molded floor carpets, accessory floor mats and luggage compartment liner -- and convertible top stacks. Automotive Products had 1993 net sales in these product lines of $537.8 million. Automotive Products has supplied interior trim products to the automotive industry for over 60 years. While some interior trim suppliers have sales volumes equivalent to or greater than that of the Company in a single product line, management believes that the Company sells a wider variety of interior trim products, has products on more vehicle lines and has a broader, more uniform sales penetration at foreign owned North American automotive production and assembly facilities ("Transplants") and U. S. automotive equipment manufacturers (together with Transplants, "OEMs") than any of its competitors. The Company's sales are dependent on certain significant automotive customers. Sales to General Motors Corporation accounted for more than 10% of the Company's net sales in each of 1993, 1992 and 1991, and sales to Chrysler Corporation accounted for approximately 10% of the Company's net sales in each of 1993 and 1992. Automotive industry demand historically has been influenced by both cyclical factors and long-term growth trends. During the last three decades, the stock of U.S. light vehicles (passenger cars, pickups, mini vans and sports utility vehicles) grew at a 3.2% compound annual rate, and at a 2.4% compound annual rate since 1980. Since nearly all of the historic growth in the stock of light vehicles has been associated with increases in the 1 driving age population and real per capita income, the Company anticipates that the fleet of light vehicles will continue to grow at rates consistent with these factors. Annual new car and truck sales historically have been cyclical. In the most recent cycle, U.S. light vehicle sales declined from an average of 15.4 million units per year in 1986-1988 to a low of 12.3 million units in 1991. Since late 1993, however, U.S. light vehicles sales have accelerated strongly, reflecting what management believes to be the early phase of a cyclical upturn. Cyclical upturns in the auto cycle generally have lasted three to five years. PRODUCTS Automotive Products manufactures five principal products: automotive seat fabric, molded floor carpets, accessory floor mats, luggage compartment trim and convertible top stacks. Automotive Products also produces a variety of other automotive and nonautomotive products. AUTOMOTIVE SEAT FABRIC. Automotive Products manufactures a wide variety of bodycloth, including flat-wovens, velvets and knits. Automotive Products also laminates foam to bodycloth. In 1993, 1992 and 1991, Automotive Products had net sales of bodycloth of $218.4 million, $191.1 million and $189.8 million, respectively. MOLDED FLOOR CARPETS. Molded floor carpets includes polyethylene, barrier-backed and molded urethane underlay carpet. In the Company's automotive molded floor product line, it has developed a "foam-in-place" process to provide floor carpeting with enhanced acoustical and fit characteristics, resulting in a substantial gain in unit selling prices. In 1993, 1992 and 1991 net sales of molded floor carpets were $180.5 million, $173.1 million and $161.9 million, respectively. ACCESSORY FLOOR MATS. Automotive Products produces carpeted automotive accessory floor mats for both North American produced vehicles and imported vehicles. In 1993, management estimates that approximately 63% of all vehicles produced in North America included accessory mats as original equipment. LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece molded trunk systems and assemblies, wheelhouse covers, seatbacks, tireboard covers, center pan mats and other trunk trim products. CONVERTIBLE TOP STACKS. Automotive Products designs, manufactures and distributes convertible top stacks through its Dura Convertible Systems division ("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" product for Ford Motor Company's redesigned Mustang vehicle. OTHER. Automotive Products also produces a variety of other auto products, including die cuts for automotive interior trim applications, convertible power train units, headliner fabric, and roll goods for export and domestic consumption. Small volumes of certain products, such as residential floor mats, casket and tie linings and sliver knits, are sold to other commercial and industrial markets. COMPETITION The automotive supply business is highly competitive. The primary competitor in bodycloth is Milliken & Company. The primary competitors in molded floor carpet are Masland Corporation and JPS Automotive Products Corp. In accessory floor mats, the Company competes primarily against Pretty Products Company. Automotive Products' primary competitors in luggage compartment trim are Masland Corporation and Gates Corporation. In convertible top stacks, Automotive Products competes primarily against American Sunroof Corporation. The Company principally competes for new business at the design stage of new models and upon the redesign of existing models. The Company is vulnerable to a decrease in demand for the models that generate the most sales for the Company, a failure to obtain purchase orders for new or redesigned models and pricing pressure from the major automotive companies. 2 FACILITIES Automotive Products has 34 manufacturing, warehouse and other facilities located in the U.S., Canada and Mexico aggregating approximately 5.9 million square feet. The majority of these facilities are located in North Carolina, Ohio and Michigan and in Ontario and Quebec, Canada. Approximately 90% of the total square footage of these facilities is owned and the remainder is leased. Many facilities are strategically located to provide just-in-time ("JIT") inventory delivery to the Company's customers. INTERIOR FURNISHINGS Interior Furnishings designs and manufactures residential and commercial upholstery fabrics through its Decorative Fabrics group and high-end specified contract floorcoverings through its Floorcoverings group. In 1993, the Interior Furnishings segment had net sales of $407.2 million. DECORATIVE FABRICS GENERAL. Interior Furnishings' Decorative Fabrics group is the largest designer and manufacturer of upholstery fabrics in the U.S. The Decorative Fabrics group had 1993 net sales of $313.6 million. Decorative Fabrics strives to be the preferred supplier of middle to high-end flat-woven upholstery fabrics to furniture manufacturers and fabric distributors. This group's primary division, Mastercraft, is the leading manufacturer of flat-woven upholstery fabrics. Management believes that Mastercraft has substantially more Jacquard looms and styling capacity dedicated to upholstery fabrics, and offers more patterns (approximately 14,000) in a greater range of price points than any of its competitors. The breadth and size of Mastercraft's manufacturing and design capabilities provide it with exceptional flexibility to respond to changing customer demands and to develop innovative product offerings. In order to accommodate anticipated growth, the Company recently initiated a plan to invest $85 million in Mastercraft between 1994 and 1998. Investment is targeted toward the purchase of high-speed looms to increase capacity and productivity, new electronic jacquard heads to reduce pattern changeover times, and computer monitoring systems to provide information about the manufacturing processes and to improve quality, productivity and capacity. The three primary types of upholstery fabric are flat-wovens, velvets and prints. Flat-woven fabrics are made in two major styles: Jacquard, which is produced on high-speed computerized looms capable of weaving intricate designs into the fabric, and Dobby, a plain fabric produced on standard looms. Demand for upholstery fabric generally varies with economic conditions, particularly sales of new and existing homes, and is directly associated with sales of upholstered furniture at the retail level. Shifts in consumer taste can also affect demand for upholstery fabric. PRODUCTS. Decorative Fabrics' four operating divisions are Mastercraft, Cavel, Warner and Greeff. Mastercraft and Cavel design and manufacture Jacquards, velvets and other woven fabrics for the furniture, interior design, commercial, recreational vehicle and industrial markets. Greeff and Warner design and distribute high-end designer fabrics to interior designers and specialty retailers in the U.S. and the U.K., respectively. Decorative Fabrics had net sales of flat-woven products in 1993, 1992 and 1991 of $268.9 million, $254.7 million and $214.5 million, respectively. CUSTOMERS. Decorative Fabrics is a primary supplier to virtually all major furniture manufacturers in the U.S., including La-Z-Boy, Ethan Allen, Thomasville, Flexsteel, Bassett, Broyhill, Baker, Henredon, Rowe and Robert Allen. Due to the breadth of its product offerings, strong design capabilities and superior customer service, the Company has developed close relationships with many of Decorative Fabrics' over 1,000 customers. Nearly all of Decorative Fabrics' products are made to customer order. This reduces the amount of raw material and finished goods inventory required and greatly reduces product returns, all of which improve profit margins. COMPETITION. The U.S. upholstery fabrics market is highly competitive. Manufacturers compete on the basis of design, quality, price and customer service. Decorative Fabrics' primary competitors include Quaker Fabric 3 Corporation, Culp, Inc., Joan Fabrics Corp. and the Burlington House Upholstery Division of Burlington Industries, Inc. FACILITIES. Mastercraft operates four weaving plants and one finishing plant in North Carolina aggregating 1.1 million square feet, of which approximately 93% is owned and the remainder is leased. Cavel shares manufacturing capacity with Automotive Products at three plants in Roxboro, North Carolina. Greeff and Warner are designers and distributors, subcontracting all manufacturing. FLOORCOVERINGS GENERAL. The Floorcoverings group of the Interior Furnishings segment is a leading producer of high-end specified contract carpeting products for institutional and commercial customers. In 1993 Floorcoverings had net sales of $93.6 million. Its principal products are six-foot wide rolls and modular carpet tiles. Floorcoverings produces virtually no product for inventory or for commodity markets. Since 1990, Floorcoverings has repositioned its product offerings, shedding those products in which it lacked either a low-cost position or proprietary product advantage. By focusing on areas of competitive advantage, Floorcoverings has prospered, notwithstanding a significant downturn in commercial construction and renovation, and increased its average selling price per square yard by over 13%. Management estimates that 70% of the Company's floorcoverings business is based on renovation rather than new construction projects. Historically, renovation activity has been significantly less cyclical than new construction. Also, approximately 60% of Floorcoverings' 1993 net sales were to institutional customers such as government, healthcare, and education facilities rather than to commercial market customers. Management believes that government, healthcare and educational customers are stable growth sectors. PRODUCTS. Floorcoverings' key competitive advantage in its principal products, six-foot wide rolls and modular carpet tiles, is its patented Powerbond RS(Register mark) adhesive technology, which has 14 years of patent protection remaining. Because the Powerbond RS(Register mark) system does not use wet adhesives, it permits the installation of floorcoverings directly on floor surfaces, including existing carpeting, with substantially reduced labor costs and without the fumes of conventional wet adhesives. This allows for less disruptive and less time-consuming installation and, for this reason, is particularly attractive to institutions such as schools and hospitals. In addition to reducing installation downtime for customers to as little as one day, management believes Floorcoverings' product exhibits demonstrably superior durability and cleaning characteristics ideally suited for high-traffic areas such as airline terminals and customers such as Discovery Zone and Blockbuster. COMPETITION. The commercial carpet industry is highly competitive, and several of Floorcoverings' competitors have substantially greater commercial carpet sales in the commodity segments of the industry, segments in which Floorcoverings does not compete. Floorcoverings' niche products have demanding specifications and generally cannot be manufactured using the equipment which currently supplies most of the industry's commodity products. The Company's primary competitors are Interface, Milliken & Company, Mohawk Industries and Shaw Industries, Inc. FACILITIES. Floorcoverings owns and operates four facilities in Dalton, Georgia aggregating approximately 630,000 square feet. WALLCOVERINGS GENERAL Wallcoverings, which operates under the name "Imperial", is a leading manufacturer and distributor of a full range of wallcoverings for the residential and commercial sectors of the wallcoverings market with 1993 net sales of $220.4 million. It is the only producer of wallcoverings in the U.S. that is fully integrated from paper production through design and distribution. In addition, management believes that Imperial has a competitive advantage due to its extensive in-house design expertise and licensing arrangements, its low cost, vertically-integrated manufacturing capability, and its advanced customer ordering and service network. 4 The wallcoverings industry experienced significant and consistent growth from the early 1980s through 1987. This growth resulted in part from increases in new construction starts and existing home sales, which peaked in 1986 to 1987. In addition, a one-time surge in demand created a new industry-wide layer of inventory as a result of the rapid growth of large in-stock retailers. Between 1983 and 1987, the industry's physical shipment volume increased from 137 million to 200 million rolls of wallpaper per year, a 9.9% annual growth rate. Between 1987 and 1990, the industry underwent a contraction, with volume declining dramatically from 200 million rolls in 1987 to 174 million rolls in 1990, a 4.5% annual decline. This resulted from a slowdown in the overall economy, particularly in the housing market, coupled with a reduction in inventory by overstocked retailers. From 1991 to 1993, the industry's physical shipment volume increased at a compound annual growth rate of 3.0%. The wallcoverings market can generally be divided into the residential and commercial sectors with the residential sector being the larger of the two sectors. Demand for wallcoverings is primarily influenced by levels of construction, renovation and remodeling. In addition to these cyclical factors, shifts in consumer taste between wallpaper and paint can be a factor. The two primary distribution channels within the residential sector of the wallcoverings market are independent retailers ("dealers") and retail chains. The industry contraction of the late 1980s and early 1990s left Imperial with unutilized manufacturing capacity, an oversized distribution network and excess product offerings. Between 1989 and 1992, Imperial implemented a comprehensive downsizing program designed to bring Imperial's high fixed-cost structure into better alignment with the changed industry environment. Imperial closed 22 showrooms and 12 warehouses and reduced fixed costs by nearly 15%. Imperial also substantially reduced the annual introduction rate of new collections and virtually eliminated its use of independent distributors in favor of exclusive captive distribution. This restructuring program improved manufacturing efficiencies, but it adversely affected sales and led to a reduction in shelf space and market share. As a result, Imperial's sales declined during 1992 and into 1993, despite what management now believes to have been a moderate upturn in industry conditions. A new management team installed in February 1993 determined that the reduction in new collections had been too severe. Accordingly, in late 1993, management instituted a second restructuring program to bolster its new product introduction rate through aggressive product design efforts. This product line renewal led to 62 collections being introduced in 1993 and 70 collections being planned for introduction in 1994, compared to 45 in 1992. Management is also broadening its selection of in-stock programs and improving its order fulfillment capabilities. PRODUCTS Management believes Imperial has maintained its leading market position due to its competitive edge in color and design. Its in-house studio of approximately 35 artists represents a major strategic investment by Imperial which is supplemented by an active licensing program under which Imperial licenses proven designs from well-known designers. Imperial is continuously introducing new designs and color concepts that supplement its already vast library. Imperial offers a large number of well-known brand names, including Imperial, United, Sterling Prints, Katzenbach & Warren, Greeff, Albert Van Luit and Plexus. In addition to these in-house brands, Imperial licenses a number of well-known brand names, including Gear, Laura Ashley, Pfaltzgraff, Croscill, Mario Buatta, David and Dash, Louis Nichole, Clarence House and Carlton Varney, for which it converts home furnishing designs into wallcovering designs. Imperial also distributes the lines of John Wilman, Great Britain's largest wallcoverings designer and manufacturer. In recent years, there has been increasing demand for wallcoverings coordinated with decorative accessories such as window treatments, bedding, upholstery fabric and other textile products. To satisfy this demand from upscale home furnishings customers, Imperial provides fabrics, which it generally purchases outside the Company, that are coordinated with its wallcovering designs. Some of these fabrics are supplied by the Mastercraft and Greeff divisions of the Company. 5 CUSTOMERS Dealers and chains account for the largest portion of Imperial's customer base. Management believes that the Company has the leading share in each of these distribution channels. Management believes that Imperial has the most extensive dealer network in the U.S., selling to approximately 15,000 dealers. Imperial also sells to many of the leading chains in the country, including Home Depot, Lowes, Sears, Sherwin Williams and Target. COMPETITION Competition in the wallcoverings industry is based on design, price and customer service. Imperial's principal competitors are Borden, GenCorp, F.S. Schumacher and Seabrook Wallcoverings. FACILITIES Imperial operates five manufacturing facilities in the United States and three in Canada, as well as three distribution centers in the United States aggregating 1.5 million square feet. Of this amount approximately 82% is owned and the remainder is leased, including the three U.S. distribution centers. RAW MATERIALS Raw materials and other supplies used in the Company's operations are normally available from a variety of competing suppliers. The loss of a single or few suppliers would not have a material adverse effect on the Company. ENVIRONMENTAL MATTERS See "ITEM 3. LEGAL PROCEEDINGS -- Environmental Proceedings" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- ENVIRONMENTAL MATTERS." EMPLOYEES As of January 29, 1994, the Company's subsidiaries employed approximately 12,000 persons on a full-time or full-time equivalent basis. Approximately 2,200 of such employees are represented by labor unions. Management believes that the Company's relations with its employees and with the unions that represent certain of them are good. ITEM 2. PROPERTIES For information concerning the principal physical properties of Group and its various operating divisions, see "ITEM 1. BUSINESS." ITEM 3. LEGAL PROCEEDINGS Except as described below, Group and its subsidiaries are not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to their businesses. PREFERRED STOCK REDEMPTION LITIGATION. On August 2, 1991, a Fifth Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES LITIGATION (the "BOESKY action"), a multi-district litigation pending for pre- trial purposes in the United States District Court for the Southern District of New York. In essence, the complaint is an amalgam of numerous class action and individual claims against a variety of defendants relating principally to the activities of, among others, Ivan F. Boesky, Drexel Burnham Lambert Incorporated and Michael R. Milken. Among other things, the complaint alleges that these defendants and various named associates, along with Group and certain former officers and directors of Group, conspired to manipulate the price of the Common Stock in April 1986 for the purpose of triggering a redemption of outstanding preferred stock of Group issued in an April 24, 1985 public offering (the "Preferred Stock"). The complaint alleges claims for compensatory and punitive damages in unspecified amounts against Group and the individual Group-related defendants for fraud 6 and deceit, breach of fiduciary duty, unjust enrichment and violations of Section 25400 of the California Corporations Code. It does so on behalf of a certified class of persons and entities who, during the period of April 23, 1986 through June 2, 1986 redeemed, converted or sold shares of the Preferred Stock. The complaint also alleges numerous other claims not involving Group or its former officers and directors. The factual allegations in the complaint involving Group are substantially similar to the allegations set forth in CITRON V. WICKES COMPANIES, INC., ET AL., AND WEINBERGER V. WICKES COMPANIES, INC., ET AL., two actions previously filed in the Superior Court of the State of California for the County of Los Angeles which have been stayed in favor of the BOESKY action. PREFERRED STOCK LITIGATION. On or about October 27, 1992, suit was filed in the United States District Court for the Central District of California against Holdings, Group and nine current or former officers and directors of Holdings and/or Group. The complaint, as amended, brought on behalf of a purported class of purchasers of preferred stock of Holdings and Group, alleged Federal securities law violations, state common law fraud and negligent misrepresentation in various Holdings and Group Forms 10-K and 10-Q issued during the period from December 1990 to December 1992. The complaint sought unspecified damages and costs. On January 3, 1994, the Court approved a Stipulation of Settlement pursuant to which Group agreed, in full settlement of the lawsuit, to make certain disclosures concerning the 11 7/8% Securities (as hereinafter defined) in certain of its Annual Report on Form 10-K and Quarterly Report on Form 10-Q filings and, under certain circumstances, a press release. In addition, Group reimbursed plaintiffs' counsel for attorneys' fees and expenses of $200,000. POF ARBITRATION. On or about May 26, 1992, Advanced Development & Engineering Centre ("ADEC"), a division of an indirect subsidiary of Group, filed a request for arbitration with the International Chamber of Commerce seeking a resolution of ADEC's dispute with the Pakistan Ordnance Factories Board ("POF") concerning ADEC's installation of a munitions facility in Pakistan for a purchase price of $26.5 million. ADEC alleges that POF violated the contract, among other things, by refusing to permit completion of a production run, which would have entitled ADEC to receive $2.65 million, the remaining unpaid portion of the purchase price under the contract. On August 6, 1992, POF filed a reply and counterclaim alleging that as a result of ADEC's alleged breach of the contract, POF's entire investment in the munitions facility was a loss. POF claims damages in excess of $30 million. DERIVATIVE LITIGATION. On or about March 19, 1993, a complaint was filed in the Supreme Court of the State of New York, County of New York, against Group, Blackstone Management Partners L.P. ("Blackstone Management"), Blackstone Partners, WP Partners (together with Blackstone Partners, "the Partners"), Wasserstein Perella & Co., Inc. ("WP & Co.") and six current or former directors and/or officers of Group, captioned GLINERT V. COLLINS & AIKMAN GROUP, INC., ET AL. That complaint, and an amendment dated April 13, 1994, alleged that the plaintiff brought the action derivatively on behalf of Group. Plaintiff alleged that the payment of certain fees by Group to its affiliates constitutes unfair self-dealing, a waste and spoilation of Group's assets and breach of contract. Plaintiff sought to have the defendants account to Group for any profits of Blackstone Management and WP & Co. and for any damages to Group as a result of the transactions alleged in the complaint. Plaintiff also sought to have a permanent injunction entered prohibiting the further payment of certain fees by Group to Blackstone Management and WP & Co. On April 13, 1994, plaintiff and defendants entered into a stipulation of settlement in full settlement of the lawsuit, and on April 28, 1994, the court entered a scheduling order calling for, among other things, a hearing on the final approval of the settlement on June 9, 1994. If the settlement is approved by the Court, after notice and a hearing, the Company, Blackstone Management and WP & Co. shall enter into an agreement relating to the provision of certain management, consulting and financial services to the Company (including services to be rendered for the $2.5 million in combined fees paid annually to each of Blackstone Management and WP & Co. and transactional services to be billed based on specified formulas). The Company shall appoint an ombudsman to review annually and challenge (if warranted) payments, and disputes shall be resolved by an arbitrator-expert. To the extent fees are paid to Blackstone Management, WP & Co. and their affiliates in the future in accordance with that agreement, such fees shall not be subject to objection or challenge by the Company or any preferred holder. The agreement also provides for a deferral or cessation of certain fees under certain circumstances. As part of the settlement, the Company on behalf of all the defendants shall pay plaintiffs' counsel fees and expenses as awarded by the Court up to $225,000. 7 In the opinion of the Company's management based on the facts presently known to it, the ultimate outcome of any of these legal proceedings will not have a material effect on the Company's consolidated financial condition or future results of operations. ENVIRONMENTAL PROCEEDINGS DOUGLAS, MICHIGAN. On January 4, 1991, a complaint was filed in the Circuit Court for Allegan County, Michigan, captioned HAWORTH, INC. V. WICKES MANUFACTURING COMPANY (the "HAWORTH action"), in which Haworth, Inc. ("Haworth") alleges that predecessors of Wickes Manufacturing released environmental contaminants on property, now owned by Haworth, located in the Village of Douglas, Michigan. Haworth seeks a declaratory judgment that Wickes Manufacturing is liable for the alleged contamination of the site, indemnification for any costs incurred or to be incurred in connection with the alleged contamination, an affirmative injunction requiring Wickes Manufacturing to implement response actions at the site, damages in connection with alleged diminution in value of the subject property, and other damages, interest, and costs, all in unspecified amounts. Wickes Manufacturing has filed counterclaims against Haworth. On June 28, 1993, the Court entered an order granting Wickes Manufacturing's motion for summary disposition dismissing all of Haworth's claims against Wickes Manufacturing. On July 19, 1993, Haworth appealed the Court's order granting Wickes Manufacturing's motion for summary disposition. On October 22, 1993, a complaint was filed in the United States District Court for the Western District of Michigan, captioned HAWORTH, INC. V. WICKES MANUFACTURING COMPANY AND PARAMOUNT COMMUNICATIONS, INC. (the "Second HAWORTH action"). In the Second HAWORTH action, Haworth alleges federal and state law claims with respect to Wickes Manufacturing and Paramount Communications Inc. that are factually similar to the state law claims alleged in the HAWORTH action, and Haworth seeks relief similar to the relief it seeks in the HAWORTH action. The Michigan Department of Natural Resources, by letter dated December 20, 1989, notified Wickes Manufacturing pursuant to the Michigan Environmental Response Act that Wickes Manufacturing is potentially responsible for undertaking investigation and response actions to address contamination at the site involved in the HAWORTH action and its possible effect on the water supply of the Village of Douglas. NORTH SMITHFIELD, RHODE ISLAND. On May 23, 1988, a complaint was filed in the United States District Court for the District of Rhode Island, captioned UNITED STATES V. KAYSER-ROTH CORPORATION AND HYDRO-MANUFACTURING, INC. (the "STAMINA MILLS action"), in which the United States sought to recover response costs under The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") from Group's former Kayser-Roth Corporation subsidiary ("Kayser-Roth") and others in connection with a site formerly operated by Stamina Mills, Inc., a former subsidiary of Kayser-Roth, in North Smithfield, Rhode Island. In January 1990, the District Court held Kayser-Roth liable under CERCLA for all past and future response costs. By Amended Administrative Order issued June 4, 1991, the EPA directed Kayser-Roth to implement the remedies set forth in its Record of Decision issued September 18, 1990. Since the beginning of fiscal 1990 to date, Kayser-Roth has paid approximately $2.9 million for past response costs, prejudgment interest and remediation. Kayser-Roth is in the process of complying with the remainder of the order. Group has agreed to indemnify Kayser-Roth with respect to this matter. On March 14, 1991, Hydro-Manufacturing, Inc. ("Hydro") filed a complaint in the Providence County Superior Court for the State of Rhode Island captioned HYDRO-MANUFACTURING, INC. V. KAYSER-ROTH CORPORATION, alleging, among other things, that Hydro was compelled to submit to a Consent Decree in the STAMINA MILLS action whereby it agreed to transfer the site to the United States in order to limit Hydro's liability. Group has agreed to indemnify Kayser-Roth with respect to this matter. In this action, Hydro sought to recover from Kayser-Roth the alleged diminution in the site's value resulting from the site's contamination, legal fees and costs incurred in defending the STAMINA MILLS action, punitive damages, and other damages, interest and costs, all in unspecified amounts. On July 21, 1992, the Court entered an order dismissing the litigation. Hydro appealed the dismissal of the case to the Rhode Island Supreme Court. On April 19, 1994, the Rhode Island Supreme Court affirmed the lower court's order dismissing the litigation. MISCELLANEOUS ENVIRONMENTAL MATTERS. In addition to the judicial and administrative proceedings listed above, the Company also is legally or contractually responsible or alleged to be responsible for the investigation 8 and remediation of contamination at various other sites. It also has received notices that it is a potentially responsible party ("PRP") in a number of proceedings. It is a normal risk of operating a manufacturing business that liability may be incurred for investigating and remediating on-site and off-site contamination. The Company is currently engaged in investigation or remediation at certain sites. These sites include, among others, the following: a site adjacent to a facility formerly operated by Wickes Manufacturing's former Bohn Heat Transfer division located at Beardstown, Illinois; a site formerly owned and operated by Wickes Manufacturing's alleged former Daybrook Ottawa division located at Bowling Green, Ohio; a site owned and formerly operated by Group located at Elmira, California; the Beaunit Corporation Superfund Site located near Fountain Inn, South Carolina; the Butterworth Landfill Superfund Site located at Grand Rapids, Michigan; the Distler farm landfill site located at Jefferson County, Kentucky; a site owned and formerly operated by Wickes Manufacturing's former Mechanical Components division located at Mancelona, Michigan; the Jadco Hughes Superfund Site located at North Belmont, North Carolina; the former Albert Van Luit plant site owned by a Group subsidiary located in North Hollywood, California; and the Stringfellow Superfund Site located at Riverside County, California. In the last three fiscal years, Group has paid approximately $5.5 million in the aggregate (excluding amounts paid in connection with the Stamina Mills action disclosed above) in connection with its various environmental sites. The majority of such costs have been incurred in connection with the Elmira, California and North Hollywood, California sites. In addition to the environmental sites and proceedings listed above, the Company is and has been a party or PRP at other sites and involved in other proceedings from time to time. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRP's, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. As of January 29, 1994, the Company has established reserves of approximately $30.8 million for the estimated future costs related to all its known environmental sites. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or results of operations. Group is seeking insurance coverage for a portion of the defense costs and liability it has incurred and may incur in connection with the environmental proceedings described above. Coverage issues have not been resolved. There can be no assurance that any coverage will be provided. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There no longer is a trading market for the Common Stock. Upon the consummation of the Merger on April 13, 1989, Holdings became the sole owner of all the Common Stock of Group. Group's bank loan agreements and indentures governing outstanding debt restrict the payment of dividends on its Common Stock. Since January 26, 1991, no dividends could be paid by Group to Holdings under the most restrictive provisions in the existing debt agreements of Group. Under these provisions, which are contained in the indenture, as amended, (the "11 7/8% Indenture"), pursuant to which the Company's 11 7/8% Senior Subordinated Debentures due 2001 (the "11 7/8% Securities") as of January 29, 1994, Group would have needed to earn an additional $866 million of consolidated net income (as defined in the 11 7/8% Indenture, as amended), in order to eliminate the deficit in its dividend capacity (assuming no change in the other factors used to determine Group's 9 dividend capacity). Accordingly, Group does not expect to be permitted to pay dividends on its Common Stock during fiscal 1994 or in the foreseeable future beyond fiscal 1994, so long as the 11 7/8% Securities are outstanding. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 9 to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial information for the Company at and for each of the five fiscal years indicated. The statements of operations and balance sheet data have been restated to reflect discontinued operations (see Note 4 to Consolidated Financial Statements). As a result of an acquisition in 1991, and the recognition of a cumulative adjustment in 1991 to adopt the accrual basis of accounting for postretirement benefits (see Notes 1 and 11 to Consolidated Financial Statements), the financial information set forth below is not comparable for the periods presented and should not be considered indicative of current or future operations or income. The following financial information should be read in conjunction with "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Consolidated Financial Statements and notes thereto appearing elsewhere herein.
1993 1992 (A) 1991 1990 1989 (IN THOUSANDS) STATEMENTS OF OPERATIONS DATA Net sales.................................. $1,305,517 $1,277,500 $1,184,316 $1,232,403 $1,276,442 Loss from continuing operations before income taxes (b)......................... (165,078) (39,105) (43,722) (46,069) (95,259) Loss from continuing operations after income taxes............................. (176,692) (41,404) (59,570) (64,042) (100,193) Income (loss) before extraordinary items.................................... (292,291) (271,253) (93,901) (130,830) 66,348 Net income (loss)(c)....................... (292,291) (271,253) (170,515) (91,625) 233,858 BALANCE SHEET DATA (AT FISCAL YEAR END) Working capital............................ $ 319,730 $ 325,375 $ 174,580 $ 235,382 $ 351,791 Total assets............................... 1,540,210 1,813,181 2,000,595 2,132,644 2,561,954 Short-term debt (d)........................ 29,711 70,433 55,643 14,091 8,428 Long-term obligations and redeemable preferred stock (e)...................... 733,580 784,850 776,404 836,559 1,041,650 Stockholder's equity....................... 210,344 489,274 773,281 950,929 1,083,581
(a) 1992 included fifty-three weeks. (b) 1992 and 1990 include restructuring costs of $10.0 million and $17.3 million, respectively. 1989 includes restructuring costs of $16.2 million. 1993 includes a goodwill write-down of $144.8 million and a $26.7 million charge related to the Holdings 1993 Employee Stock Option Plan. (c) 1991 net loss is after the cumulative effect of the change in accounting principle for other postretirement benefits, net of tax of $0, of $87.6 million. (d) Includes notes payable, current maturities of long-term debt and current portion of capital lease obligations. (e) Long-term obligations includes long-term debt and noncurrent portion of capital lease obligations. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with "ITEM 6. SELECTED FINANCIAL DATA" and the Consolidated Financial Statements of the Company and the notes thereto, included elsewhere in this Form 10-K. RECENT DEVELOPMENTS On April 19, 1994, the Company's parent, Holdings, as part of a proposed recapitalization (the "Recapitalization"), filed a registration statement on Form S-2 covering the issuance by Holdings in a public offering of 20,000,000 shares of Holdings common stock. The Recapitalization, if effected, would result in (i) the defeasance and redemption or prepayment of substantially all outstanding debt of Holdings and its subsidiaries including the Company and (ii) the redemption of all outstanding preferred stock of the Company and Holdings. The sources of capital for the Recapitalization are proceeds of the public offering, cash on hand and amounts to be available under certain proposed new credit facilities (the "New Credit Facilities"). The New Credit Facilities will consist of (i) a Closing Date Term Loan Facility in an aggregate principal amount of $475 million with a term of eight years, (ii) a Delayed Draw Term Loan Facility in an aggregate principal of $25 million with a term of eight years and (iii) a Revolving Facility in an aggregate principal amount of up to $275 million with a term of seven years. These facilities will include various restrictive covenants including maintenance of EBITDA (i.e. earnings before interest, taxes, depreciation and amortization) and interest coverage ratios, leverage and liquidity tests and various other restrictive covenants which are typical for such facilities. In connection with the Recapitalization, Holdings II, currently the sole common stockholder of Holdings, will be merged into Holdings and Holdings will change its name to Collins & Aikman Corporation. Concurrently, the Company will be merged into its wholly-owned subsidiary, Collins & Aikman Corporation ("C&A Co."), which will change its name to C&A Products Co. GENERAL After the 1988 Acquisition, the Company implemented a restructuring plan designed to focus on certain businesses in which it enjoyed a competitive advantage and to eliminate unnecessary corporate overhead. The Company divested 27 business units which in 1988 contributed 73% of net sales. The aggregate proceeds from these divestitures were $1,643 million, and enabled the Company to reduce total indebtedness from $1,862 million at October 29, 1988 to $763.1 million at the end of 1993. In addition, the Company reduced and consolidated corporate staffs. Throughout this period, the Company made substantial investments to enhance the competitive position of its three continuing business segments and to strengthen its position as a low-cost producer. The Company's continuing business segments consist of Automotive Products, Interior Furnishings and Wallcoverings. The Company's 1993 net sales were $1,305.5 million, with approximately $677.9 million (51.9%) in Automotive Products, $407.2 million (31.2%) in Interior Furnishings, and $220.4 million (16.9%) in Wallcoverings. The industries in which the Company competes are cyclical. Automotive Products is influenced by the level of North American vehicle production. Interior Furnishings is primarily influenced by the level of residential, institutional and commercial construction and renovation. Wallcoverings is also influenced by levels of construction and renovation and by the trends in home remodeling. During 1993, the Company disposed of several businesses and reclassified one subsidiary as a continuing business. Accordingly, the Company's 1993 financial statements reflect (i) the sale of the Company's Engineering Group, (ii) the disposition of substantially all of the assets, and the settlement of substantially all the current liabilities, of the Company's Builders Emporium division ("Builders Emporium"), (iii) the sale of Kayser-Roth, and (iv) the decision to retain Dura. The results of the Engineering Group, Builders Emporium and Kayser-Roth are classified as discontinued operations for all periods. The results of Dura are now classified in Automotive Products and prior reporting periods have been restated to reflect Dura as a continuing operation. As 11 a result of the foregoing, this discussion is not comparable to the previous discussions of the Company's operations. See Note 4 to Consolidated Financial Statements. The Company reclassified its industry segments during 1993 to realign its products based on primary customer groups. Businesses related to the automotive industry which were part of the Company's former Specialty Textiles segment have been reclassified as Automotive Products. The decorative fabrics and floorcoverings businesses have been reclassified as Interior Furnishings. Previously, the floorcovering business was part of the Specialty Textiles segment. Wallcoverings' products, which were previously part of the Home Furnishing segment, have been reclassified as Wallcoverings. Industry segment information has been restated for the years 1992 and 1991. See Note 16 to the Consolidated Financial Statements. The Company does not believe that inflation has had a material impact on sales or income during the three years ended January 29, 1994. 1993 COMPARED TO 1992 NET SALES Net sales increased 2.2% to $1,305.5 million in 1993 (a 52-week year) from $1,277.5 million in 1992 (a 53-week year). The overall increase in net sales reflected improvement in Automotive Products and Interior Furnishings offset by a decrease in net sales at Wallcoverings. Automotive Products' net sales increased 5.3% in 1993 to $677.9 million. Net sales growth increased, primarily during the second half of 1993, due to a number of factors. First, growth in the North American vehicle build accelerated due in part to increased production by the Transplants. Second, the Company won placement of its products on a number of new and existing vehicle lines in 1993. Third, the Company continued to benefit from increasing sales content per vehicle. These factors were offset by decreased demand for product for certain key models in the second quarter due to OEM production downtime during model changeovers. Interior Furnishings' net sales increased 3.9% in 1993 to $407.2 million. The increase in net sales was attributable to an industry-wide strengthening of furniture sales in 1993 (somewhat offset by an industry-wide decline in sales volume during the second quarter of 1993) and increased sales of the Company's patented Powerbond RS(Register mark) floorcovering products. Net sales increased by 5.6% at both Mastercraft, which represents 66.0% of Interior Furnishings' sales, and Floorcoverings due largely to volume increases. Wallcoverings' net sales decreased 8.9% in 1993 to $220.4 million. The decrease in sales was due primarily to the consolidation of certain product distribution channels and to Wallcoverings' downsizing program. In the fourth quarter, management responded to these reduced sales by aggressively rebuilding dealer shelf space. As a result, sample book placements in the dealer market increased. OPERATING EXPENSES Total operating expenses were $1,386.4 million and $1,229.5 million in 1993 and 1992, respectively, including $38.8 million ($26.7 million of which was a one-time charge related to the Holdings 1993 Employee Stock Option Plan (the "1993 Plan")) and $24.0 million of unallocated corporate expenses, respectively. Operating expenses allocated to the Company's three business segments totaled $1,347.6 million and $1,205.5 million in 1993 and 1992, respectively. These operating expenses in 1993 included certain non-recurring charges relating to (i) the write-down of goodwill in the amount of $144.8 million in the quarter ended October 30, 1993 and (ii) postretirement medical plan costs, which were $4.7 million higher, on an annual basis, than expected in future periods due to changes in plan provisions which became effective April 1, 1994. Operating expenses in 1992 included (i) $10.0 million of charges relating to Wallcoverings' downsizing program and (ii) postretirement medical plan costs, which were $5.0 million higher, on an annual basis, than expected in future periods due to changes in plan provisions which became effective April 1, 1994. See Notes 2 and 3 to the Consolidated Financial Statements. Excluding the goodwill write-down in 1993 and the restructuring charges in 1992, operating expenses allocated to the segments were $1,202.8 million or 92.1% of sales in 1993 compared to $1,195.5 million or 93.6% of 12 sales in 1992. This 1.5 percentage point improvement is the result of the allocation of fixed costs over a larger sales volume, improved manufacturing productivity, and continuing cost reduction initiatives at both the operating and corporate level. At the end of the third quarter of 1993, the Company recorded a restructuring charge of $24.0 million, principally related to the write-down of certain surplus or under-utilized assets of the Automotive Products and Wallcoverings segments and to provide for the obsolescence of certain manufacturing processes as a result of shifts in customer demand. During the fourth quarter of 1993 management reevaluated its plan to restructure these manufacturing facilities. Based on changes in product mix and underlying improvement in certain of the Company's businesses, management has concluded that the assets and facilities identified previously can be utilized at a level of production that would not result in the impairment of the asset values. Accordingly, in the fourth quarter of 1993 management has revised its estimate and reversed these charges. INTEREST EXPENSE Interest expense for continuing operations, net of interest income of $4.3 million in 1993 and $4.0 million in 1992, decreased to $84.2 million during 1993 compared to $87.1 million in 1992. Interest expense, including amounts allocated to discontinued operations and excluding interest income, decreased to $107.9 million during 1993 compared to $114.4 million in 1992. The decrease in interest expense was due to the additional week in 1992 and a reduction in the Company's weighted average cost of borrowings. INCOME TAXES In 1993 income taxes of $11.6 million consisted primarily of foreign and state taxes. This amount compared with $2.3 million in 1992. DISCONTINUED OPERATIONS The Company's loss from discontinued operations was $115.6 million for 1993 and $229.8 million for 1992, including losses on disposals of $111.1 million and $184.0 million, respectively. The 1993 loss is primarily attributable to the $109.3 million additional charge arising from the Company's determination as of the end of the second quarter of 1993 that it would be unable to sell Builders Emporium as an ongoing entity. The 1992 loss reflected primarily the expected loss on the anticipated sale of Builders Emporium. NET INCOME The combined effect of the foregoing resulted in a net loss of $292.3 million in 1993 compared to a net loss of $271.3 million in the prior year. 1992 COMPARED TO 1991 NET SALES Net sales increased 7.9% to $1,277.5 million in 1992 (a 53-week year) from $1,184.3 million in 1991 (a 52-week year). Automotive Products' net sales increased 5.5% to $643.8 million in 1992 from $610.3 million in 1991, reflecting the impact of a modest increase in the North American vehicle build as well as an improvement in Automotive Products' product mix. The molded carpet product line experienced the largest net sales increase. Interior Furnishings' net sales increased 16.3% to $391.8 million in 1992 from $336.8 million in 1991 principally due to two factors. First, 1992 net sales reflected the full year impact of the acquisition of Doblin, a manufacturer of high-end Jacquard fabric, in the third quarter of 1991, as well as substantial incremental net sales volume from, the full utilization of excess Doblin manufacturing capacity. Second, Floorcoverings' net sales increased 17.7%, which was primarily attributable to restyled product offerings. 13 Wallcoverings' net sales increased 2.0% to $241.9 million in 1992 from $237.2 million in 1991. The net sales increase reflected a combination of two offsetting factors. During the first quarter of 1992, the Company benefited from the increase in industry demand for wallcoverings. However, this increase was offset by reduced sales due primarily to Wallcoverings' efforts during 1992 to consolidate certain distribution channels and its downsizing program. OPERATING EXPENSES Total operating expenses were $1,229.5 million and $1,140.4 million in 1992 and 1991, respectively, including $24.0 million and $25.8 million of unallocated corporate expenses. Operating expenses allocated to the Company's three business segments totaled $1,205.5 million and $1,114.5 million in 1992 and 1991, respectively. Operating expenses in 1992 included $10.0 million of restructuring costs. Prior to these charges, 1992 operating expenses allocated to the segments were $1,195.5 million or 93.6% of sales, versus $1,114.5 million or 94.1% of sales in 1991, representing a .5 percentage point improvement. RESTRUCTURING CHARGES In 1992, the Company reevaluated the distribution methods as well as certain manufacturing and product lines in Wallcoverings. This reevaluation resulted in a restructuring charge of $10.0 million for the closure of certain manufacturing facilities. Of this amount, $2.7 million related to asset write-downs and $7.3 million related to the consolidation of Wallcoverings' operations. INTEREST EXPENSE Interest expense for continuing operations, net of interest income of $4.0 million in 1992 and $6.9 million in 1991, decreased to $87.1 million during 1992 compared to $ 87.7 million in 1991. Interest expense, including amounts allocated to discontinued operations and excluding interest income, decreased to $114.4 million during 1992 compared to $119.6 million in 1991 principally as a result of the reduction in the Company's weighted average cost of borrowings. INCOME TAXES The Company's 1992 income taxes of $2.3 million consisted primarily of foreign and state taxes. In 1991, income taxes of $15.8 million consisted of foreign and state taxes of $11.6 million and Federal income taxes of $4.2 million. DISCONTINUED OPERATIONS As previously discussed, loss from discontinued operations, net of taxes and including loss on disposals, was $229.8 million in 1992 compared to the loss from discontinued operations of $34.3 million in 1991. The 1992 loss primarily reflected the expected loss on the anticipated sale of Builders Emporium. The 1991 loss was attributable to the discontinuation of the remaining businesses of Wickes Manufacturing. EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING Gain on early retirement of indebtedness, net of taxes, was $10.9 million in 1991. See Note 9 to the Consolidated Financial Statements. The cumulative effect on prior years of the change in accounting for postretirement benefits other than pensions was $87.6 million in 1991. See Note 11 to the Consolidated Financial Statements. NET INCOME The combined effect of the foregoing resulted in a net loss of $271.3 million in 1992 compared to a net loss of $170.5 million in 1991. 14 LIQUIDITY AND CAPITAL RESOURCES At January 29, 1994, the Company had cash and cash equivalents totaling $78.4 million compared to $80.1 million at January 30, 1993. Included in cash and cash equivalents at January 29, 1994 was $8.6 million held by C&A Co. On April 27, 1994, Group received cash proceeds of $71.2 million, including accrued interest, from the repayment of the Kayser-Roth note referred to below. The Company's principal uses of liquidity for the next several years will be to fund principal and interest payments on its indebtedness, working capital and capital expenditures. The Company makes capital expenditures on a recurring basis for replacement and improvements. As of January 29, 1994, the Company had approximately $43.0 million in outstanding capital commitments. During 1994, the Company anticipates capital expenditures will exceed the annual expenditures made by its continuing businesses during 1993, 1992 and 1991, which were $44.9 million, $38.2 million and $38.9 million, respectively. This increase is due primarily to the acquisition of additional machinery and equipment to expand the productive capacity of Decorative Fabrics' Mastercraft division, as well as ongoing capital expenditures in each of the Company's three segments. The Company has significant obligations relating to postretirement, casualty, environmental, lease and other liabilities of discontinued operations. Management anticipates that the net cash requirements of its discontinued operations will be approximately $20.9 million during 1994. However, it is possible that the actual net cash requirements of the Company's discontinued operations could differ materially from management's estimates. Management believes that such needs can be adequately funded in 1994 by net cash provided by operating activities and by borrowings under bank credit facilities. From time to time, the Company evaluates acquisitions. In 1991 the Company acquired the Doblin Fabrics Division of Springs Industries. The Company expects to fund any future acquisitions with net cash provided by operating activities, borrowings under bank credit facilities or the issuance of securities. Net cash provided by the operating activities of the Company's continuing operations in 1993 was $28.0 million. If the Recapitalization is effected, the Company expects to have approximately $660.7 million of outstanding indebtedness and unused borrowing availability of approximately $121.3 million under the New Credit Facilities after giving effect to the Recapitalization. Management believes that, if the Recapitalization is effected, borrowings under the New Credit Facilities together with cash generated from operations will provide sufficient liquidity to meet cash requirements through 1994 and into the foreseeable future. As part of the Recapitalization as proposed, all the outstanding public debt and preferred stock of the Company and its subsidiaries would be defeased and redeemed. In addition, the C&A Co. Credit Agreement described below would be terminated and all borrowings thereunder would be prepaid. If the Recapitalization is not successful, management believes that the Company has sufficient liquidity to meet its cash requirements through 1994 and into 1995. To meet long-term cash requirements, the Company will require alternative financing or proceeds from asset sales. There can be no assurance as to the timing of any such financing or asset sales or the proceeds the Company could realize therefrom. Restrictions in existing debt agreements of the Company could limit the ability of the Company to effect future financings and asset sales. Since January 26, 1991, no additional cash dividends to Holdings have been permitted under the most restrictive provisions in the existing debt agreements of the Company. Under these provisions, which are contained in the 11 7/8% Indenture, as of January 29, 1994, Group would have needed to earn an additional $866.0 million of consolidated net income (as defined in the 11 7/8% Indenture) in order to eliminate the deficit in its dividend capacity (assuming no change in the other factors used to determine the Company's dividend capacity). As of January 29, 1994, the Company had total outstanding long-term indebtedness of $759.3 million (including the current portion of $25.9 million) at varying interest rates between 5% and 15% per annum. Annual cash interest expense on that indebtedness in 1994 will be approximately $87.2 million. At the end of 1992 and 1991, the Company had total outstanding indebtedness of $860.8 million and $859.2 million, respectively. Cash interest paid during 1993, 1992 and 1991 was approximately $101.5 million, $102.5 million and $112.6 million, respectively. 15 The maturities of long-term debt of the Company during 1994, 1995 and 1996 are $25.9 million, $170.9 million and $63.3 million, respectively. See Note 9 to Consolidated Financial Statements. Under the terms of the 11 7/8% Indenture, the Company is required to redeem $138 million aggregate principal amount of 11 7/8% Securities on each June 1 from 1993 through 2000 ("Mandatory Redemptions") and to repay the remaining outstanding 11 7/8% Securities at maturity on June 1, 2001. Under the terms of the 11 7/8% Indenture, if Adjusted Net Worth (as such term is defined in the 11 7/8% Indenture) is equal to or less than $700 million on the last day of any fiscal quarter (the "Minimum Equity Test"), the Company would be required to begin on the last day of the second fiscal quarter thereafter (unless the Minimum Equity Test is satisfied at the end of the intervening fiscal quarter) semi-annual redemptions ("Accelerated Redemptions") of $138 million aggregate principal amount of 11 7/8% Securities until all the 11 7/8% Securities are redeemed or until the Minimum Equity Test is again satisfied. The Company can reduce its obligation to make any cash Mandatory Redemption or Accelerated Redemption payment through the application of previously redeemed or purchased and canceled 11 7/8% Securities as permitted by the Indenture. The Company has previously delivered for cancellation $1,033 million in aggregate principal amount of 11 7/8% Securities, which are available for such purpose. The Company satisfied the Minimum Equity Test at the end of fiscal 1993. On that date, Adjusted Net Worth was $753.7 million. If the Company had not satisfied the Minimum Equity Test at that date and did not subsequently satisfy such test, the first cash redemption payment (after giving effect to credits for previously acquired 11 7/8% Securities) would be required at the end of the fiscal quarter ending January 1997. By comparison, if the Company continues to satisfy the Minimum Equity Test at all times or cures any failure of such test prior to any accelerated cash redemption payment becoming due, no cash redemption payment will be required until June 1, 2000. During 1993, the Company sold Kayser-Roth for approximately $170 million (subject to post-closing purchase price adjustment), including a $70 million senior unsecured bridge note. A portion of the proceeds were used to repay $66 million of borrowings under a Kayser-Roth credit facility. The Company's Engineering Group, which was discontinued in 1992, was sold during 1993 for approximately $51 million. Additionally, the Company has nearly completed the disposition of the real estate, inventory and other assets of its Builders Emporium home improvement retail chain which the Company discontinued at the end of 1992. During 1993, the Company used cash from the aforementioned sources and new borrowings of $76.1 million to repay $179.9 million of outstanding indebtedness. During 1992 and 1991, the Company expended $54.4 million and $182.8 million, respectively, for the reduction of indebtedness while incurring new indebtedness of $60.1 million and $157.6 million, respectively. On April 27, 1994, the Kayser-Roth note was repaid with accrued interest. The Company intends to use these cash proceeds of $71.2 million for general corporate purposes, including possibly the repurchase of a portion of its 15% Subordinated Notes due 1995 or other debt in open market or privately negotiated transactions. The Company's C&A Co. subsidiary consummated a $225 million credit agreement with a syndicate of banks on May 22, 1991 that expires on May 15, 1998 (the "C&A Co. Credit Agreement"). In 1993, C&A Co. made net principal repayments under the C&A Co. Credit Agreement of $54 million and paid Group dividends aggregating $30 million. Availability under the C&A Co. Credit Agreement is determined monthly based upon C&A Co.'s receivables balance. The C&A Co. Credit Agreement permits C&A Co. to pay additional dividends to Group only if C&A Co. satisfies a minimum liquidity requirement of $25 million and then limits the amount of total dividends to $175 million plus 90% (or 100% if certain specified ratios are met) of C&A Co.'s net income (excluding the impact of Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions") subsequent to April 27, 1991. As of January 29, 1994, an additional $54.8 million was available to C&A Co. under the C&A Co. Credit Agreement. Although, as of that date, approximately $56 million of additional dividends could be paid to Group under the dividend restriction in the C&A Co. Credit Agreement, other financial covenants in the C&A Co. Credit Agreement would limit the amount of dividends to approximately $47 million. C&A Co. and its subsidiaries are separate corporate entities and the assets of C&A Co. and its subsidiaries are available first and foremost to satisfy the claims of the creditors of C&A Co. and such subsidiaries. At January 29, 1994, receivables and fixed assets pledged as collateral under the C&A Co. Credit Agreement aggregated approximately $168 million and $104 million, respectively. 16 The Company's Canadian subsidiaries have a bank demand line of credit that made available to them approximately $8.5 million at January 29, 1994, of which approximately $5.8 million was outstanding as of that date. The Company's Board of Directors has authorized expenditures for the voluntary repurchase from time to time of Group's outstanding publicly traded debt securities. During 1991, the Company repurchased publicly traded debt securities with a face value of approximately $160 million. The principal source of funds for the repurchase of publicly traded debt in 1991 was net proceeds from borrowings under the C&A Co. Credit Agreement. There were no repurchases of publicly traded debt during 1992 or 1993. Repurchases of publicly traded debt may be made from time to time through open market or privately negotiated transactions. The Company expects to fund any such additional repurchases out of the proceeds of the Kayser-Roth note referred to above, cash from operating activities or borrowings under existing or new lines of credit. Such repurchases may occur prior to the consummation of the proposed Recapitalization (which, if effected as proposed, would result in the defeasance and redemption of such debt) or at any other time, depending on market conditions, available cash and other factors that the Board of Directors of Group in its sole discretion deems relevant to the advisability of repurchasing publicly traded debt. For information regarding commitments and contingencies, see Note 17 to Consolidated Financial Statements. ENVIRONMENTAL MATTERS The Company is subject to increasingly stringent Federal, state and local environmental laws and regulations that (i) affect ongoing operations and may increase capital costs and operating expenses and (ii) impose liability for the costs of investigation and remediation and certain other damages related to on-site and off-site soil and groundwater contamination. The Company's management believes that it has obtained, and is in material compliance with, all material environmental permits and approvals necessary to conduct its various businesses. Environmental compliance costs for continuing businesses currently are accounted for as normal operating expenses or capital expenditures of the business units. In the opinion of management, based on the facts presently known to it, such environmental compliance costs will not have a material adverse effect on the Company's consolidated financial condition or results of operations. The Company is legally or contractually responsible or alleged to be responsible for the investigation and remediation of contamination at various sites. It also has received notices that it is a PRP in a number of proceedings. The Company may be named as a PRP at other sites in the future, including with respect to divested and acquired businesses. It is a normal risk of operating a manufacturing business that liability may be incurred for investigating and remediating on-site and off-site contamination. The Company is currently engaged in investigation or remediation at certain sites. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRP's, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. As of January 29, 1994, the Company has established reserves of approximately $30.8 million for the estimated future costs related to all its known environmental sites. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or results of operations. See "ITEM 3. LEGAL PROCEEDINGS -- Environmental Proceedings." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Consolidated Financial Statements of Collins & Aikman Group, Inc. and subsidiaries included herein and listed on the Index to Financial Statements set forth in Item 14(a)(1) of this Form 10-K Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS The following is a list of the names and ages (as of April 28, 1994) of all the incumbent directors of the Company, indicating all other positions and offices with the Company held by each person, the date each such person was appointed a director and each such person's principal occupations and employment during the past five years. All such persons have been appointed to serve until their successors are elected, or until their earlier resignation or retirement. None of such directors is related to any executive officer or other director of the Company by blood, marriage or adoption. The directors are also directors of Holdings and Holdings II as well. The affiliations between the Company and WP Management, WP Group, WP & Co., the Blackstone Group and Blackstone (as such terms are defined below) are set forth below under "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Certain Affiliations".
POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT NAME AGE DIRECTOR SINCE DURING THE PAST FIVE YEARS David A. Stockman................ 47 December 1988 Co-Chairman and Co-Chief Executive Officer since July 1993. General Partner of the Blackstone Group Holdings L.P. (the "Blackstone Group"), which is under common control with Blackstone Partners, since 1988. Mr. Stockman is also a director of Edward J. DeBartolo Corporation. Bruce Wasserstein................ 46 June 1992 Co-Chairman and Co-Chief Executive Officer since June 1992. Chairman and Chief Executive Officer, Wasserstein Perella Management Partners, Inc. ("WP Management") since June 1992; Chief Executive Officer and Chairman or President, Wasserstein Perella Group, Inc. ("WP Group") since 1988. Mr. Wasserstein is Chairman of the Board of Maybelline, Inc. James R. Birle................... 58 December 1988 Co-Chairman and Co-Chief Executive Officer from May 1991 until July 1993. Co-Chairman and Chief Executive Officer from December 1988 to May 1991; General Partner of the Blackstone Group since 1988. Mr. Birle is also a director of Connecticut Mutual Life Insurance Co., Great Lakes Dredge & Dock Corporation and Transtar, Inc. Stephen A. Schwarzman............ 47 December 1988 Co-Founding Partner of the Blackstone Group and President and Chief Executive Officer of The Blackstone Group L.P. ("Blackstone") since 1985. Mr. Schwarzman is also a director of Great Lakes Dredge & Dock Corporation and Transtar, Inc.
18
POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT NAME AGE DIRECTOR SINCE DURING THE PAST FIVE YEARS Randall Weisenburger............. 35 August 1989 Vice Chairman since April 1994. Deputy Chairman from July 1992 to April 1994; Managing Director of WP & Co. since December 1993; Director of WP & Co. from December 1992 to December 1993; Vice President of WP & Co. from December 1989 to December 1992; Associate of WP & Co. from 1988 to December 1989. Mr. Weisenburger is also Vice Chairman of the Board of Mabelline, Inc. and Chairman of the Yardley Lentheric Group. W. Townsend Ziebold, Jr.......... 31 December 1992 Director of WP & Co. since December 1993; Vice- President of WP & Co. from December 1991 to December 1993; Associate of WP & Co. from 1988 to December 1991. Mr. Ziebold is also a director of Maybelline, Inc.
EXECUTIVE OFFICERS The following is a list of the names and ages (as of April 28, 1994) of all the executive officers of the Company, indicating all positions and offices with the Company held by each such person and each such person's principal occupations and employment during the past five years. All such persons hold office at the pleasure of the Company's Board of Directors.
POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS NAME AGE AND EMPLOYMENT DURING THE PAST FIVE YEARS David A. Stockman.................. 47 See description under "Directors" above. Bruce Wasserstein.................. 46 See description under "Directors" above. Randall J. Weisenburger............ 35 See description under "Directors" above. William J. Brucchieri.............. 51 President, Imperial Wallcoverings, Inc., a wholly owned subsidiary of C&A Co., a wholly owned subsidiary of the Company, since February 1993 and named an executive officer of the Company for purposes hereof in April 1994. Executive Vice President of Imperial Wallcoverings, Inc. from March 1992 to January 1993. Executive Vice President of Mastercraft Division of C&A Co. from January 1990 to February 1992. Vice President, Operations of Mastercraft Division of C&A Co. from August 1989 to January 1990. Vice President, Administration and Control, Mastercraft Division of C&A Co., from January 1988 to July 1989. Thomas E. Hannah................... 55 President and Chief Executive Officer of Collins & Aikman Textile and Wallcoverings Group, a division of C&A Co., a wholly owned subsidiary of the Company, since November 1991 and named an executive officer of the Company for purposes hereof in April 1993. President and Chief Executive Officer of the Collins & Aikman Textile Group from February 1989 to November 1991. President of Milliken & Company's Finished Apparel Division prior to that.
19
POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATIONS NAME AGE AND EMPLOYMENT DURING THE PAST FIVE YEARS Andrew Major....................... 72 President of Collins & Aikman Decorative Fabrics Group, a division of C&A Co., a wholly owned subsidiary of the Company, since 1987, and named an executive officer of the Company for purposes hereof in April 1994. John P. McNicholas................. 31 Vice Chairman since April 1994. Deputy Chairman from July 1992 to April 1994; Vice President of Blackstone Group from January 1992 to present; Associate of Blackstone Group from November 1990 to December 1991; Associate, Merchant Banking Group -- Merrill Lynch Capital Markets from August 1989 to November 1990. Graduate student, Darden School of Business Administration, University of Virginia in 1989. Paul W. Meeks...................... 41 Vice President and Treasurer since September 1992. Assistant Treasurer from April 1988 to September 1992. John D. Moose...................... 57 President of Collins & Aikman North American Auto Group, a division of C&A Co., a wholly owned subsidiary of the Company, since June 1989, and named an executive officer of the Company for purposes hereof in April 1994. Executive Vice President, Marketing of Automotive Division of Automotive Division of C&A Co. prior to that. Elizabeth R. Philipp............... 37 Executive Vice President, General Counsel and Secretary since April 1994. Vice President, General Counsel and Secretary from April 1993 to April 1994; Vice President and General Counsel from September 1990 to April 1993. Prior to that, associated with the law firm of Cravath, Swaine & Moore. Mark O. Remissong.................. 41 Senior Vice President and Chief Financial Officer of C&A Co., a wholly owned subsidiary of the Company, and an executive officer of the Company for purposes hereof since December 1993. Vice President of Finance for Burlington Industries from 1989 until December 1993. Harry F. Schoen III................ 58 President, Mastercraft Division of C&A Co., a wholly owned subsidiary of the Company, since January 1993 and named an executive officer of the Company for purposes hereof in April 1994. Executive Vice President and Chief Operating Officer of the Mastercraft Division of C&A Co. from April 1992 to December 1992. General Manager of Milliken & Company's Greige Fine Goods Group prior to that.
20 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation for services rendered to the Company and its subsidiaries by (i) the Company's Co-Chairmen of the Board and Co-Chief Executive Officers, (ii) the Company's former Co-Chairman of the Board and Co-Chief Executive Officer (who resigned from such positions on July 20, 1993), (iii) the Company's four most highly compensated executive officers (other than the Co-Chief Executive Officers) who were serving as executive officers at the end of the fiscal year ended January 29, 1994 and whose total annual salary and bonus exceeded $100,000 and (iv) two former executive officers who would have been among the Company's four most highly compensated executive officers but for the fact that they were not serving as executive officers on January 29, 1994 (the individuals named in clauses (i) through (iv) being hereinafter referred to as the "named executive officers"). On April 1, 1993, Mr. Fenton's employment as an executive officer of the Company or any of its subsidiaries terminated. On January 28, 1994, Mr. Seelert ceased to be an executive officer of the Company due to the sale by the Company of its Kayser-Roth subsidiary. Mr. Seelert resigned from Kayser-Roth on January 28, 1994. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION OTHER AWARDS NAME AND ANNUAL SECURITIES PAYOUTS ALL OTHER PRINCIPAL YEAR SALARY BONUS COMPENSATION UNDERLYING LTIP COMPENSATION POSITION (1) ($) ($) ($) OPTIONS (#) PAYOUTS ($) ($) DAVID A. STOCKMAN 1993 15,000(2) 0 0 0 0 0 Co-Chairman of 1992 15,000(2) 0 0 0 0 0 the Board and 1991 15,000(2) 0 0 0 0 0 Co-Chief Executive Officer BRUCE WASSERSTEIN 1993 15,000(2) 0 0 0 0 0 Co-Chairman of 1992 7,500(2)(3) 0 0 0 0 0 the Board and 1991 N/A N/A N/A N/A N/A N/A Co-Chief Executive Officer JAMES R. BIRLE 1993 15,000(2) 0 0 0 0 0 Former Co-Chairman 1992 15,000(2) 0 0 0 0 0 of the Board and 1991 15,000(2) 0 0 0 0 0 Former Co-Chief Executive Officer THOMAS E. HANNAH 1993 415,000 783,960 (4) 981,435 2,319,907(5) 19,481(6) President and CEO 1992 407,500 630,800 (4) 0 0 24,256 of Collins & Aikman 1991 364,600 0 (4) 0 0 28,500 Textile and Wallcoverings Group DAVID J. MCKITTRICK 1993 350,000 375,000(8) 244,667(9) 0 0 12,809(10) Vice Chairman and 1992 271,923(11) 175,000 (4) 0 0 914 Chief Operating 1991 N/A N/A N/A N/A N/A N/A Officer (7) PAUL W. MEEKS 1993 125,833 42,000 153,465(12) 11,403 6,500(5) 4,836(13) Vice President and 1992 106,000 60,000 (4) 0 0 6,540 Treasurer 1991 100,000 52,000 (4) 0 0 2,035 ELIZABETH R. PHILIPP 1993 256,250 120,000 (4) 91,853 77,433(5) 9,838(14) Executive Vice 1992 246,667 100,000 (4) 0 0 19,566 President, General 1991 230,000 75,000 (4) 0 0 2,610 Counsel and Secretary ROBERT L. SEELERT 1993 300,000 0 (4) 0 0 11,683(15) Former President 1992 300,000 150,000 (4) 0 0 3,501 and CEO of 1991 227,308(16) 150,000 91,545(17) 0 0 90,095 Kayser-Roth Corporation, a former subsidiary of Group
21
LONG TERM COMPENSATION ANNUAL COMPENSATION OTHER AWARDS NAME AND ANNUAL SECURITIES PAYOUTS ALL OTHER PRINCIPAL YEAR SALARY BONUS COMPENSATION UNDERLYING LTIP COMPENSATION POSITION (1) ($) ($) ($) OPTIONS (#) PAYOUTS ($) ($) ROBERT S. FENTON 1993 162,211(18) 0 (4) 0 69,737(5) 15,364(19) Former Vice 1992 225,000 100,000 (4) 0 0 470,094 President, Tax 1991 206,250 63,000 (4) 0 0 19,469 and Administration, and Secretary
(1) The information given in this table is for the fiscal years indicated, not calendar years. 1993 indicates the fiscal year ended January 29, 1994. 1992 indicates the fiscal year ended January 30, 1993. 1991 indicates the fiscal year ended January 25, 1992. (2) Represents compensation for serving on the Board of Directors of the Company. Mr. Stockman, Mr. Wasserstein and Mr. Birle received no separate compensation during the years shown for serving as executive officers of the Company or any of its subsidiaries. (3) Mr. Wasserstein was elected as director and appointed Co-Chairman of the Board of Directors and Co-Chief Executive Officer of the Company effective June 19, 1992. "N/A" appearing in the table opposite Mr. Wasserstein's name denotes not applicable, as it pertains to fiscal years in which Mr. Wasserstein held no positions with the Company or its subsidiaries. (4) Total perquisites for executive officer were less than the lesser of $50,000 or 10% of annual salary and bonus. Perquisites for an executive officer may, but do not necessarily, include reimbursement for any of the following expenses: car; financial planning; executive fitness; executive physicals and medical; luncheon club; and relocation. (5) The amounts for Mr. Hannah, Mr. Meeks and Ms. Philipp represent payouts in November 1993 under the Equity Share Plan, which was terminated in October 1993. In connection with such termination, certain conditions as to the vesting of awards to the following executive officers were modified: Mr. Hannah (approximately $464,000 of the amount shown as a payout was attributable to such modification); Mr. Meeks (the entire payout was attributable to such modification); and Ms. Philipps ($12,000 of the amount shown as a payout was attributable to such modification). The payout to Mr. Fenton was made in August 1993 based upon Mr. Fenton's vested interest in the Equity Share Plan as of April 1993 (the date at which Mr. Fenton ceased to be an executive officer of the Company or any of its subsidiaries). (6) Amount for fiscal 1993 consists of (i) C&A Co.'s contributions to the C&A Co. Profit Sharing Plan, a defined contribution plan (the "PSP"), in the amount of approximately $4,717, (ii) C&A Co.'s contributions to the non-qualified supplement to the PSP (the "SPSP") in the amount of approximately $5,699, (iii) premiums in the amount of $4,812 and $911 paid by C&A Co. for basic term life insurance and Accidental Death & Dismemberment life insurance ("AD&D life insurance"), respectively, under group life insurance policies and (iv) interest income in the amount of $3,342 in connection with a promissory note (bearing interest at the rate of 4% per annum and maturing April 1, 1993) which was given by C&A Co. to Mr. Hannah for a portion of his fiscal 1992 bonus. (7) Mr. McKittrick was appointed Vice Chairman and Chief Operating Officer on March 23, 1992. Prior to that date, Mr. McKittrick held no positions with the Company or its subsidiaries. "N/A" appearing in the table opposite Mr. McKittrick's name denotes not applicable, as it pertains to fiscal years in which Mr. McKittrick held no positions with the Company or its subsidiaries. Mr. McKittrick resigned as an executive officer of the Company and any of its subsidiaries on April 4, 1994, but continues to serve as principal financial and accounting officer with limited responsibilities for a transitional period. See "Employment Agreements". 22 (8) $200,000 of this amount represents the portion of Mr. McKittrick's phantom equity award vested during fiscal 1993. The vested amount is payable upon termination for reasons other than cause pursuant to his employment agreement. See "Employment Agreements". (9) Includes $228,204 reimbursement for relocation costs in connection with Mr. McKittrick's move to Group's headquarters in Charlotte, North Carolina, including gross-ups of relocation reimbursements to compensate the executive for incremental federal and state income taxes. (10) Amount for fiscal 1993 consists of (i) Group's contributions to the PSP in the amount of approximately $4,717, (ii) Group's contributions to the SPSP in the amount of approximately $2,283, (iii) premiums in the amount of $4,057 and $645 paid by Group for basic term life insurance and AD&D life insurance, respectively, under group life insurance policies and (iv) interest income in the amount of $1,107 in connection with a promissory note (bearing interest at the rate of 4% per annum and maturing April 1, 1993) which was given by Group to Mr. McKittrick for a portion of his fiscal 1992 bonus. (11) Includes salary for the period from March 23, 1992 through January 30, 1993, the portion of fiscal year 1992 during which Mr. McKittrick was an executive officer of the Company. (12) Includes $148,226 representing reimbursement for relocation costs in connection with Mr. Meeks' move to Group's headquarters in Charlotte, North Carolina, including gross-ups of relocation reimbursements to compensate the executive for incremental federal and state income taxes. (13) Amount for fiscal 1993 consists of (i) Group's contributions to the PSP in the amount of approximately $3,912 and (ii) premiums in the amount of $828 and $96 paid by Group for basic term life insurance and AD&D life insurance, respectively, under group life insurance policies. (14) Amount for fiscal 1993 consists of (i) Group's contributions to the PSP in the amount of approximately $4,717, (ii) Group's contributions to the SPSP in the amount of approximately $1,427, (iii) premiums in the amount of $2,958 and $343 paid by Group for basic term life insurance and AD&D life insurance, respectively, under group life insurance policies and (iv) interest income in the amount of $393 in connection with a promissory note (bearing interest at the rate of 4% per annum and maturing April 1, 1993) which was given by Group to Ms. Philipp for a portion of her fiscal 1992 bonus. (15) Amount for fiscal 1993 consists of (i) Kayser-Roth's matching contributions to the 401(m) Kayser-Roth Corporation Employees' Savings Plan (the "K-R Savings Plan") in the amount of $4,500, (ii) premiums in the amount of $126 paid by Kayser-Roth for basic term life insurance and AD&D life insurance under group life insurance policies, (iii) interest income in the amount of approximately $955 in connection with a promissory note (bearing interest at the rate of 4% per annum and maturing April 1, 1993) which was given by Kayser-Roth to Mr. Seelert for a portion of his fiscal 1992 bonus and (iv) premiums in the amount of approximately $6,102 paid by Kayser-Roth for long term disability insurance. Mr. Seelert resigned on January 28, 1994 after the sale of Kayser-Roth. (16) Includes salary for the period from May 1, 1991 through January 25, 1992, the portion of the fiscal year during which Mr. Seelert was employed by Kayser-Roth. (17) Includes approximately $86,179 for relocation costs in connection with Mr. Seelert's move to Kayser-Roth's headquarters in Greensboro, North Carolina, including gross-ups of relocation reimbursements to compensate the executive for incremental federal and state income taxes. (18) Mr. Fenton ceased to be an executive officer of the Company or any of its subsidiaries on April 1, 1993. However, Mr. Fenton continues to be employed by the Company (although not as an executive officer) pursuant to a new employment agreement. See "Employment Agreements". (19) Amount for fiscal 1993 consists of (i) Group's contributions to the PSP in the amount of approximately $4,717, (ii) Group's contributions to the SPSP in the amount of approximately $1,877, (iii) Group's matching contributions to the Retirement Savings Plus Plan (the "RSPP") and payment in lieu of a contribution in 1993 to the non-qualified supplement to the RSPP (the "Supplemental RSPP") in the amounts of $1,363 and $1,948, respectively, (iv) premiums of $4,348 and $748 paid by Group for basic term life insurance and AD&D life insurance, respectively, under group life insurance policies and (v) interest income in the 23 amount of $363 in connection with a promissory note (bearing interest at the rate of 4% per annum and maturing April 1, 1993) which was given by Group to Mr. Fenton for a portion of his fiscal 1992 bonus. The RSPP was terminated on April 30, 1993 and account balances of continuing employees were rolled over into the PSP. The Supplemental RSPP was terminated and account balances were paid out. OPTION GRANTS IN LAST FISCAL YEAR Shown below is further information on grants of stock options pursuant to the 1993 Plan for the fiscal year ended January 29, 1994, to the named executive officers. The 1993 Plan became effective as of January 28, 1994 (the "Effective Date") upon the approval by vote of the majority of common stock of Holdings ("Holdings Common Stock") in April 1994.
NUMBER OF POTENTIAL REALIZABLE VALUE SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF UNDERLYING OPTIONS GRANTED EXERCISE MARKET PRICE STOCK PRICE APPRECIATION OPTIONS TO EMPLOYEES PRICE ON DATE OF EXPIRATION FOR OPTION TERM (2) NAME GRANTED (#)(1) IN FISCAL 1993 ($ / SH) GRANT (2) DATE (3) 5% ($) 10% ($) 0% ($) David A. Stockman 0 0 N/A N/A N/A N/A N/A N/A Bruce Wasserstein 0 0 N/A N/A N/A N/A N/A N/A James R. Birle 0 0 N/A N/A N/A N/A N/A N/A Thomas E. Hannah (4) 841,230 27.0 3.99 13.14 1/28/04 7,697,255 14,645,814 25,312,611 140,205 4.5 8.26 13.14 1/28/04 684,200 1,842,294 3,620,093 David J. McKittrick 0 0 N/A N/A N/A N/A N/A N/A Paul W. Meeks (4) 11,403 .4 3.99 13.14 1/28/04 104,337 198,526 343,116 Elizabeth R. Philipp (4) 83,508 2.7 3.99 13.14 1/28/04 764,098 1,453,874 2,512,756 8,345 .3 8.26 13.14 1/28/04 40,724 109,653 215,468 Robert L. Seelert 0 0 N/A N/A N/A N/A N/A N/A Robert S. Fenton 0 0 N/A N/A N/A N/A N/A N/A
(1) Options granted under the 1993 Plan are subject to restrictions on transfer and exercise. No option granted may be exercised prior to the earlier of the closing of a Public Offering (as defined under the 1993 Plan) or the expiration of two years from the Effective Date, subject to acceleration in the event of a Change in Control of Holdings (as defined in the 1993 Plan) and subject to the authority of a duly authorized disinterested committee of the directors of Holdings (the "Committee"). The Committee may set a schedule of exercisability with regard to each option grant, may, at any time, accelerate the time at which all or any part of the options may be exercised and may waive any other conditions to exercise. In the event that a Public Offering does not occur with respect to Holdings by January 28, 1995 the Committee may amend or terminate the 1993 Plan and a participant's rights with respect to any options granted prior to such amendment or termination. Shares of Holdings Common Stock purchased upon exercise of an option may not be transferred for a period of two years following the Public Offering, or after such shorter time as the Committee may determine. In consideration of a grant of options an employee agrees not to engage, without the written consent of the Committee, in any Competitive Activity (as defined in the 1993 Plan) during the employee's employment and for one year following termination of employment. Additionally, in further consideration of such grant the employee agrees to fully discharge Holdings and various related entities from any and all claims, liabilities or obligations under a previously canceled benefits plan known as the Equity Share Plan, the termination of the Equity Share Plan or the creation of any new plan. (2) The options specified hereunder were granted prior to an initial public offering. Consequently, the market price date of grant is equal to the estimated fair market value used by Group for accounting purposes to determine compensation expense related to the option grants. (3) No option is exercisable after the expiration of ten years from the date of grant. 24 (4) Stock options granted to the named individuals under the 1993 Plan vest in accordance with the following schedule, pursuant to the provisions of their individual grant agreements: (a) Mr. Hannah: 50% on June 1, 1995 and 50% on June 1, 1996 (b) Mr. Meeks and Ms. Philipp: 40% on June 1, 1995 and 60% on June 1, 1996 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES Shown below is information with respect to the year-end value of unexercised options to purchase Holdings' Common Stock granted under the 1993 Plan to the named executive officers and held by them effective as of January 28, 1994.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY-OPTIONS AT SHARES ACQUIRED VALUE AT FY-END (#) FY-END ($) NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE David A. Stockman 0 0 0 0 N/A N/A Bruce Wasserstein 0 0 0 0 N/A N/A James R. Birle 0 0 0 0 N/A N/A Thomas E. Hannah 0 0 0 841,230 N/A 7,697,255 0 0 0 140,205 N/A 684,200 David J. McKittrick 0 0 0 0 N/A N/A Paul W. Meeks 0 0 0 11,403 N/A 104,337 Elizabeth R. Philipp 0 0 0 83,508 N/A 764,098 0 0 0 8,345 N/A 40,724 Robert L. Seelert 0 0 0 0 N/A N/A Robert S. Fenton 0 0 0 0 N/A N/A
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE Messrs. Stockman, Wasserstein and Birle have never participated in and have not received and will not receive any benefits under the Pension Plan, the C&A Co. Plan, the C&A Co. Excess Benefit Plan or the C&A Co. SRIP Plan described below. See "Summary Compensation Table", footnote 2. Mr. Seelert has never participated in the Pension Plan, the C&A Co. Plan, the C&A Co. Excess Benefit Plan or the C&A Co. SRIP Plan. Mr. Seelert, prior to his resignation from Kayser-Roth, did participate in Kayser-Roth's Cash Balance Plan, but his entire interest was unvested and thus forfeited upon his resignation. Mr. Seelert has not received and will not receive any benefits under such Cash Balance Plan. PENSION PLAN. Certain current and former employees of the Company, including certain named executive officers, are entitled to monthly annuities commencing at age 65 under the Company's Salaried Employees' Pension Plan (the "Pension Plan"), which was terminated in 1985. All actual plan participants as of December 31, 1984 as a group will be entitled to benefits from the annuities purchased for them totaling $5,160,000 per year at age 65. The annual benefits of Messrs. McKittrick, Meeks, Hannah and Fenton and Ms. Philipp will be approximately $0, $1,100, $0, $3,600 and $0, respectively. C&A CO. PLAN. Provided certain eligibility requirements are met, at the end of each calendar month, pay credits are applied to a participant's account under the Collins & Aikman Corporation Employees' Pension Account Plan (the "C&A Co. Plan") based on the participant's length of credited service and compensation (as defined) during that month. For participants aged 50 or older, the monthly pay credit is based on either credited service and compensation or age and compensation, whichever results in the higher amount. 25 The following chart sets forth how pay credits are determined under the C&A Co. Plan:
PERCENTAGE OF COMPENSATION USED TO DETERMINE PAY CREDITS UP TO 1/3 OVER 1/3 ELIGIBILITY REQUIREMENT OF THE OF THE YEARS OF S.S. S.S. CREDITED SERVICE OR AGE WAGE BASE WAGE BASE less than 10 less than 50 2.5% 4.5% 10 - 14 50 - 54 3.0% 5.5% 15 - 19 55 - 59 4.0% 6.5% 20 - 24 60 - 64 5.0% 8.0% 25 or more 65 or more 6.0% 10.0%
The dollar amounts that result from these percentages are added together and the total is the pay credit for the month. In addition, interest credits are applied each month to the account balance. Participants make no contributions to the C&A Co. Plan. Employer contributions are 100% vested after five years of service or at age 65, whichever is earlier, and may vest under certain other circumstances as set forth in the C&A Co. Plan. The estimated annual benefits payable upon retirement at normal retirement age under the C&A Co. Plan for Messrs. McKittrick, Meeks, Hannah and Fenton and Ms. Philipp are $2,600, $13,600, $8,200, $16,900 and $11,000, respectively. Participants in the C&A Co. Plan have the option, however, of receiving the value of their vested account in a lump sum following termination of employment. C&A CO. EXCESS PLAN. The Excess Benefit Plan of Collins & Aikman Corporation (the "C&A Co. Excess Plan") works in conjunction with the C&A Co. Plan (which is described above) and provides to the employee any benefit which the C&A Co. Plan would have provided but for certain legal limitations under the Employee Retirement Income Security Act of 1974 and Internal Revenue Service regulations. The pay credits and interest credits are determined as described with respect to the C&A Co. Plan as if no legal limitations existed, and then this plan provides any benefit which is in excess of the benefit provided under the C&A Co. Plan. The estimated annual benefits payable upon retirement at normal retirement age under the C&A Co. Excess Plan for Messrs. McKittrick, Meeks, Hannah, and Fenton and Ms. Philipp are $3,000, $0, $24,700, $100, and $2,200, respectively. C&A CO. SRIP. Participation in the Collins & Aikman Corporation Supplemental Retirement Income Plan (the "C&A Co. SRIP") is solely at the discretion of the Board of Directors of C&A Co. and is extended to a select group of key executives. The plan provides a participating employee with a retirement benefit at age 62. A target benefit is first calculated for each employee based on Total Annual Compensation (final base salary plus the average of the bonuses paid for the last three fiscal years) and years of service at retirement. The benefit payable from the C&A Co. SRIP is determined as the excess of the target benefit over any pension benefits payable from Social Security and any other retirement plans sponsored by C&A Co. An employee does not become vested in a benefit until reaching age 62. 26 The following table shows, for specified compensation/years of service classifications, the hypothetical annual target benefits under the C&A Co. SRIP for employees retiring at age 65, assuming that the retiring participant elects a single life annuity. PENSION PLAN TABLE
TOTAL ANNUAL YEARS OF SERVICE COMPENSATION 10 15 20 25 30 35 $ 100,000 $ 42,000 $ 51,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 125,000 52,500 63,750 75,000 75,000 75,000 75,000 150,000 63,000 76,500 90,000 90,000 90,000 90,000 175,000 73,500 89,250 105,000 105,000 105,000 105,000 200,000 84,000 102,000 120,000 120,000 120,000 120,000 225,000 94,500 114,750 135,000 135,000 135,000 135,000 250,000 105,000 127,500 150,000 150,000 150,000 150,000 275,000 115,500 140,250 165,000 165,000 165,000 165,000 300,000 126,000 153,000 180,000 180,000 180,000 180,000 400,000 168,000 204,000 240,000 240,000 240,000 240,000 450,000 189,000 229,500 270,000 270,000 270,000 270,000 500,000 210,000 255,000 300,000 300,000 300,000 300,000 600,000 252,000 306,000 360,000 360,000 360,000 360,000 700,000 294,000 357,000 420,000 420,000 420,000 420,000 800,000 336,000 408,000 480,000 480,000 480,000 480,000 900,000 378,000 459,000 540,000 540,000 540,000 540,000 1,000,000 420,000 510,000 600,000 600,000 600,000 600,000
Mr. Hannah is the only named executive officer participating in this plan. He currently has five years of plan service, and at age 65, he will have an estimated 14 years, 5 months of plan service. EMPLOYMENT AGREEMENTS In June 1989, the Company entered into an employment agreement (the "Original Agreement") with Mr. Fenton at an initial base salary of $200,000 per year. In the event of involuntary termination for reasons other than cause, the Original Agreement provided for severance benefits equal to two times annual base compensation. On December 30, 1992, Mr. Fenton was notified that his employment with the Company and its subsidiaries pursuant to the Original Agreement was being involuntarily terminated without cause effective April 1, 1993. Mr. Fenton ceased to be an executive officer of the Company or any of its subsidiaries on April 1, 1993. Mr. Fenton's severance in the amount of $450,000 pursuant to the Original Agreement is being paid in periodic installments which commenced after April 1, 1993. In addition, Mr. Fenton entered into an employment agreement with the Company dated as of February 25, 1993 (as amended, the "New Agreement") which provides for his employment with the Company for a term commencing April 1, 1993 and ending April 1, 1995. During the term of the New Agreement, Mr. Fenton will work on such special projects as may be assigned to him from time to time at an annual base salary of $150,000 for his first year of employment thereunder and $75,000 for his second year of employment thereunder; provided, that, upon the Company's prior approval, any services rendered by Mr. Fenton in excess of 1000 hours during his first year of employment and 500 hours during his second year of employment will be separately compensated for at the rate of $200 per hour. The New Agreement provides that Mr. Fenton's employment will not be involuntarily terminated without cause. In July 1990, the Company entered into an employment agreement with Ms. Philipp at an initial base salary of $225,000 per year with a minimum cash bonus equal to 30% of base salary for the first year of employment. The initial term of the agreement commenced September 1990 and ended January 30, 1993, with automatic one 27 year renewals thereafter. In the event of involuntary termination for reasons other than cause, including the Company's failure to renew the agreement, any requirement that Ms. Philipp's office be relocated or any change in control (as defined), the agreement provides for severance benefits equal to Ms. Philipp's base salary then in effect for a period of one year from the termination date plus the pro rata portion of any cash bonuses she would have received had she been employed for the entire fiscal year. In May 1991, Kayser-Roth entered into an employment agreement with Mr. Seelert at an initial base salary of $300,000 per year with minimum cash bonuses of $150,000 per year for fiscal 1991 and fiscal 1992. The initial term of the agreement expired May 1, 1993, but was extended until May 1, 1994. In the event of involuntary termination for reasons other than cause, the agreement provides for severance benefits equal to his base salary then in effect plus his minimum bonus for the entire remaining portion of his term of employment. Following the sale of Kayser-Roth by Group, Mr. Seelert resigned on January 28, 1994. In March 1992, the Company entered into an employment agreement with Mr. McKittrick, which was amended as of April 1994. The agreement, as amended, provides for an initial base salary of $350,000 per year and a cash bonus of not less than $87,500 for the six months ending July 30, 1994. Pursuant to the agreement, as amended, Mr. McKittrick ceased to be Vice Chairman and Chief Operating Officer on April 4, 1994 and became principal financial and accounting officer with limited responsibilities for a transitional period. The term of the agreement, as amended, ends July 30, 1994, unless extended by written agreement of the parties. In the event of termination for reasons other than cause prior to the expiration of the term of employment (other than a voluntary termination by Mr. McKittrick prior to July 1, 1994), the agreement provides for payment of (i) base salary then in effect for the remaining portion of the term of employment (or, in the case of a voluntary termination, until the termination date) plus (ii) a pro rata portion of $87,500 (representing the cash bonus for the current period). In addition, in the event of termination for reasons other than cause (including for this purpose the expiration of the term of employment), the agreement, as amended, also provides for payment of (i) the amount of $17,000 as a retirement severance benefit in addition to the value of Mr. McKittrick's vested accounts under the PSP and C&A Co. Plan plus (ii) any amount payable with respect to Mr. McKittrick's phantom equity award. Mr. McKittrick's award, which was made pursuant to his employment agreement with the Company, represents phantom equity in Holdings in the amount of $1,000,000 and vests at the rate of $200,000 per year, with cliff vesting for the first two years and continuous vesting thereafter (provided Mr. McKittrick does not voluntarily terminate his employment prior to July 1, 1994). Upon the termination of Mr. McKittrick's employment without cause, Mr. McKittrick will receive the vested portion of his phantom equity. In July 1992, C&A Co. entered into an employment agreement with Mr. Hannah, which was amended as of February 1994. The agreement, as amended, provides for an initial base salary of $525,000 and participation in any executive bonus plan, with a target bonus of 75% of base salary then in effect up to a maximum of 150% of base salary. The agreement expires January 31, 1997, with automatic one year renewals thereafter unless C&A Co. notifies Mr. Hannah prior to that time of its intention to terminate the agreement. In the event of involuntary termination for reasons other than cause and other than a change of control, the agreement provides for severance benefits equal to Mr. Hannah's base salary then in effect for a period of one year from the termination date plus any unpaid cash bonus for the prior fiscal year and a pro rata portion of any bonus he would have received had he been employed for the entire fiscal year. C&A Co. also entered into a letter agreement with Mr. Hannah in May 1991 pursuant to which Mr. Hannah is entitled to receive an amount equal to two times his base salary then in effect in the event his employment is terminated by C&A Co. within three months prior to or one year following a change of control (as defined) of C&A Co. In August 1992, Group entered into a letter agreement with Mr. Meeks pursuant to which Mr. Meeks became an officer of Group at an initial base salary of $125,000 per year. Mr. Meeks' employment is on an "at will" basis and may be terminated by Mr. Meeks or Group at any time. The letter agreement provides that Mr. Meeks is eligible for benefits under the Group severance policy in existence at the date of the letter agreement (the "Existing Severance Policy") for a period of 24 months following a change of control (as defined) of Group. The Existing Severance Policy generally provides for 1.5 weeks of base salary per year of service, with a minimum of 12 weeks and a maximum of 39 weeks. After 24 months following a change of control, Mr. Meeks will be eligible for severance benefits under such policy as may be effective at that time within the then current 28 organization for persons who may be reasonably considered to have positions comparable to Mr. Meeks' at that time. If, as a result of a change of control or other organizational change, a position is offered to Mr. Meeks that is not reasonably comparable to his then current position, Mr. Meeks has the option of terminating his employment with severance benefit eligibility per the Existing Severance Policy. COMPENSATION OF DIRECTORS Each director of the Company (or the Partner who designates such director to the Board of Directors) receives an annual fee of $15,000, payable quarterly, for serving as a director. See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Certain Agreements" and "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" below. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee is currently comprised of Mr. Stockman, Co-Chairman of the Board and Co-Chief Executive Officer of the Company, and Mr. Weisenburger, Deputy Chairman of the Company. Prior to July 20, 1993, the Company's Compensation Committee was comprised of Mr. Birle, who was at that time Co-Chairman of the Board and Co-Chief Executive Officer, and Mr. Weisenburger. None of Mr. Stockman, Mr. Weisenburger or Mr. Birle is separately compensated for serving as an executive officer of the Company or any of its subsidiaries. Mr. Stockman (after July 20, 1993), Mr. Birle (through July 20, 1993) and Mr. Weisenburger deliberated during the last completed fiscal year concerning compensation of executive officers of the Company who are separately compensated for serving as executive officers of the Company. None of the executive officers of the Company who are separately compensated for serving as executive officers of the Company serve as directors of the Company or serve on the Compensation Committee of the Company. Messrs. Birle and Stockman are general partners of Blackstone Group, Blackstone Management and Blackstone Management Associates L.P. ("Blackstone Associates"). Mr. Weisenburger is a Managing Director of WP & Co., which is a subsidiary of WP Group. WP Group formed WP Partners. See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Certain Affiliations." Group has agreed to pay to each of Blackstone Management and WP & Co. or their affiliates an annual operating management fee of $1 million. This fee was paid upon the consummation of the Merger and, thereafter, on each subsequent anniversary of the consummation of the tender offer in which Holdings acquired its shares of the Company's Common Stock. Also, effective April 1, 1990, the Company agreed to pay to each of Blackstone Management and WP & Co. or their affiliates an annual management and financial advisory services fee of $1.5 million, payable quarterly in advance. Group also reimburses Blackstone Management and WP & Co. or their affiliates for out-of-pocket expenses in connection with their management. The Board of Directors of the Company has authorized the investment by the Company from time to time of amounts not to exceed $5 million in a short-term investment fund to which Blackrock Financial Management L.P. serves as investment advisor. Blackrock Financial Management L.P., an affiliate of Blackstone, charges annual management fees equal to .3% of the amount invested, plus nominal out of pocket expenses. Since the beginning of fiscal 1993, the Company has paid to Blackrock Financial Management L.P. fees of approximately $7,000. Since the beginning of fiscal 1993, in connection with the divestiture of the Engineering Group, Group has paid divestiture fees (i) to Blackstone Management in the amount of approximately $512,500 and (ii) to WP & Co. and WP Partners in an aggregate amount of $512,500. Since the beginning of fiscal 1993, in connection with the consummation of two credit agreements by Group's former subsidiary, Kayser-Roth, Group has paid fees (i) to Blackstone Management in the amount of $375,000 and (ii) to WP & Co. and WP Partners in an aggregate amount of $375,000. Since the beginning of fiscal 1993, Group has paid $1,394,000 to each of Blackstone Management and WP & Co. or their affiliates in connection with the divestiture of Kayser-Roth. In September 1993, Blackstone entered into an agreement with Group to provide advisory services and assistance in connection with the sale or disposition by Group of Builders Emporium. The agreement provides for 29 reimbursement of out-of-pocket expenses plus payment of fees to be paid by Group to Blackstone of (i) $100,000 per fiscal month, commencing with the fiscal month ending September 25, 1993 and ending with the fiscal month ending January 29, 1994 and (ii) $100,000 for the fiscal quarter commencing January 30, 1994 and ending April 30, 1994. Since the beginning of fiscal 1993, Group has paid $600,000 under this agreement. In addition, Blackstone negotiated with Arkaid Incorporated, a real estate consultant ("Arkaid"), to receive 20% of the incentive fees payable to Arkaid by the Company in connection with the resolution of lease liabilities of Builders Emporium. Since the beginning of fiscal 1993, no such incentive fees have been accrued or paid to Arkaid. Wasserstein Perella Securities, Inc. ("WP Securities"), a wholly owned subsidiary of WP Group, has acted, and may in the future act, as agent for the Company in the purchase from time to time of the Company's debt securities, although no amounts have been paid or accrued to WP Securities for this purpose since the beginning of fiscal 1993. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Set forth in the table below is certain information as of April 28, 1994, regarding the beneficial ownership of voting securities of the Company by persons who are known to the Company to own beneficially more than 5% of the Company's voting stock.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS Common Stock.................. Collins & Aikman Holdings Corporation 47,808,123(1) 100.00% 8320 University Executive Park Suite 102 Charlotte, North Carolina 28262 Collins & Aikman Holdings II 47,808,123(1) 100.00% Corporation 8320 University Executive Park Suite 102 Charlotte, North Carolina 28262 Blackstone Capital Partners L.P. 47,808,123(1) 100.00% 118 North Bedford Road Suite 300 Mount Kisco, New York 10549 Wasserstein Perella Partners, L.P. 47,808,123(1) 100.00% 31 West 52nd Street New York, New York 10019
(1) See "Certain Affiliations" below. SECURITY OWNERSHIP OF MANAGEMENT Executive officers and directors of the Company as a group (15 persons) beneficially own: (i) no shares of Common Stock; (ii) no shares of the Company's $2.50 Convertible Preferred Stock, Series A, par value $.10 per share (the "Series A Preferred Stock"); (iii) no shares of the Company's 15 1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock, par value $0.10 per share ("Intermediate Preferred Stock"); (iv) no shares of the 15 1/2% Cumulative Exchangeable Redeemable Preferred Stock, par value $0.01 per share (the "Merger Preferred Stock"), of Holdings; and (v) no shares of Holdings Common Stock. For further information regarding the securities ownership of the directors of the Company, see "Certain Affiliations" below. Messrs. Birle, Stockman, Wasserstein, McKittrick, Meeks, Hannah and Seelert and Ms. Philipp beneficially own the following securities of the Company and Holdings: (i) no shares of Common Stock; (ii) no shares of Series A Preferred Stock; (iii) no shares of Intermediate Preferred Stock; (iv) no shares of Merger Preferred Stock; and (v) no shares of Holdings Common Stock. For further information regarding the securities ownership of Messrs. Birle, Stockman and Wasserstein, see "Certain Affiliations" below. Mr. Fenton beneficially owns the following securities of the Company and Holdings: (i) no shares of Common Stock; (ii) no shares of Series A 30 Preferred Stock; (iii) no shares of Intermediate Preferred Stock; (iv) 11 shares of Merger Preferred Stock (less than 1% of this class); and (v) no shares of Holdings Common Stock. CERTAIN AFFILIATIONS Blackstone Partners is a Delaware limited partnership formed in 1987 for the purpose of, among other things, (i) committing capital to facilitate corporate restructuring, leveraged buyouts, bridge financings and other investments and (ii) capitalizing affiliates which will engage in investment and merchant banking activities. The sole general partner of Blackstone Partners is Blackstone Associates, a Delaware limited partnership, whose general partners include Messrs. Birle, Schwarzman and Stockman. At present, the business of Blackstone Associates consists of performing the function of, and serving as, the general partner of certain limited partnerships, including Blackstone Partners. Messrs. Birle, Schwarzman and Stockman are also general partners of Blackstone Management. WP Partners is a Delaware limited partnership, the general partner of which is WP Management. Mr. Wasserstein is Chairman and Chief Executive Officer of WP Management and of WP Group. WP Partners was formed by WP Group for the purpose of participating in merchant banking activities, including committing capital to the organization and consummation of leveraged buyout transactions. WP Management and WP Group are both Delaware corporations. WP Management is engaged in managing WP Partners. WP Group is an international private advisory and merchant banking firm. The principal subsidiary of WP Group is WP & Co., an international investment banking firm. Holdings and Holdings II are both Delaware corporations formed on September 21, 1988, in connection with the tender offer for the Common Stock and the Merger. The presently outstanding 35,035,000 shares of Holdings Common Stock are all owned by Holdings II. Each of Blackstone Partners and WP Partners owns one- half of the 204,502 shares of common stock, par value $1.00 per share, that constitute the only outstanding voting stock of Holdings II. WP Partners and Blackstone Partners and certain of their affiliates own the outstanding Class A common stock of Holdings II, shares of which have no voting power but otherwise are identical to the common stock of Holdings II. No director of the Company beneficially owns any shares of Common Stock, Series A Preferred Stock or Intermediate Preferred Stock. In addition, no director beneficially owns any shares of any class of equity securities of Holdings. Messrs. Birle, Schwarzman and Stockman, in their capacities as general partners of Blackstone Associates, collectively share with all the general partners of Blackstone Associates the power to vote and to dispose of 102,251 shares of the outstanding voting common stock of Holdings II (representing 50% of such class of stock) and the power to dispose of 10,250 shares of the outstanding non-voting Class A common stock of Holdings II (representing approximately 22.5% of such class of stock). Similarly, Messrs. Wasserstein, Weisenburger and Ziebold, in their capacities as executive officers or officers of WP Group, may be deemed to have the power to vote and to dispose of 102,251 shares of the outstanding voting common stock of Holdings II (representing 50% of such class of stock) and the power to dispose of 19,625 shares of the outstanding non-voting Class A common stock of Holdings II (representing approximately 43.1% of such class of stock). For purposes of this filing under the Securities Exchange Act of 1934, as amended, Messrs. Birle, Schwarzman and Stockman, on the one hand, and Messrs. Wasserstein, Weisenburger and Ziebold, on the other hand, may be deemed to be beneficial owners, respectively, of such securities; however, each of Messrs. Birle, Schwarzman, Stockman, Wasserstein, Weisenburger and Ziebold expressly disclaims such beneficial ownership of any equity securities of Holdings II. CERTAIN AGREEMENTS Blackstone Partners, WP Partners, Holdings II and Holdings have entered into a Stockholders Agreement, as amended (the "Stockholders Agreement") relating to the corporate governance, management and ownership of Holdings II and its subsidiaries. Among other things, the Stockholders Agreement provides that Blackstone Partners and WP Partners each shall designate one-half of the directors of Holdings II, Holdings and the Company. 31 The Stockholders Agreement also places limitations on the redemption, purchase and transfer of any equity securities of Holdings II or its subsidiaries. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This Item calls for the information required by Item 404 of Regulation S-K. Pursuant to Instruction 1 to Item 404 of Regulation S-K, no information need be given in response to Item 404 as to any compensation or transaction reported in response to Item 402 of Regulation S-K. The compensation or transactions that would otherwise be required hereunder are set forth under "ITEM 11. EXECUTIVE COMPENSATION -- Compensation Committee Interlocks and Insider Participation" pursuant to Item 402(j) of Regulation S-K and as such are not required to be set forth under this ITEM 13. For a description of the relationships of the Company's directors with any of Blackstone Group, Blackstone Partners, Blackstone Management, WP Partners, WP & Co. or WP Management, see "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" and "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Certain Affiliations" above. 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE NUMBER (A)(1) INDEX TO FINANCIAL STATEMENTS. COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................................................. F-1 Consolidated Statements of Operations for the fiscal years ended January 29, 1994, January 30, 1993 and January 25, 1992............................................................ F-2 Consolidated Balance Sheets at January 29, 1994 and January 30, 1993...................... F-3 Consolidated Statements of Other Paid in Capital for the fiscal years ended January 29, 1994, January 30, 1993 and January 25, 1992.............................................. F-4 Consolidated Statements of Accumulated Deficit for the fiscal years ended January 29, 1994, January 30, 1993 and January 25, 1992.............................................. F-4 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994, January 30, 1993 and January 25, 1992............................................................ F-5 Notes to Consolidated Financial Statements................................................ F-6 (A)(2) INDEX OF FINANCIAL SCHEDULES. Report of Independent Public Accountants on Schedules..................................... S-1 Schedule III-Condensed Financial Information of the Registrant............................ S-2 Schedule VIII-Valuation and Qualifying Accounts........................................... S-5 Schedule IX-Short-Term Borrowings......................................................... S-6 Schedule X-Supplementary Statements of Operations Information............................. S-7
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required, are inapplicable, or the information is included in the consolidated financial statements or notes thereto. (A)(3) EXHIBITS. Please note that in the following description of exhibits, the title of any document entered into, or filing made, prior to and in some cases on July 15, 1992 reflects the name of the entity a party thereto or filing, as the case may be, AT SUCH TIME. Accordingly, documents and filings described below may refer to WCI Holdings II Corporation, WCI Holdings Corporation or Wickes Companies, Inc., if such documents and filings were made prior to and in some cases on July 15, 1992.
EXHIBIT NUMBER DESCRIPTION 3.1 -- Restated Certificate of Incorporation of Collins & Aikman Group, Inc. 3.2 -- By-Laws of Collins & Aikman Group, Inc. 3.3 -- Certificate of Merger merging WCI Acquisition Corporation, a Delaware corporation, with and into Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.), a Delaware corporation, is hereby incorporated by reference to Exhibit 3.3 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 28, 1989 (SEC File No. 1-6761). 3.4 -- Certificate of Correction Filed to Correct Certain Errors in the Certificate of Merger merging WCI Acquisition Corporation with and into Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 3.4 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 27, 1990.
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EXHIBIT NUMBER DESCRIPTION 4.1 -- Specimen certificate representing the 15 1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 4.1 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 28, 1989 (SEC File No. 1-6761). 4.2 -- Specimen certificate of Common Stock, par value $0.10 per share, of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 4(a) of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1988 (SEC File No. 1-6761). 4.3 -- Indenture dated as of January 26, 1985, pursuant to which 7 1/2%/10% Debentures due 2005 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby incorporated by reference to Exhibit T3-C of Wickes Companies, Inc.'s Application for Qualification of Indentures under the Trust Indenture Act of 1939 on Form T-3, as amended, dated January 2, 1985 (SEC File No. 22-13520). 4.4 -- Indenture dated as of May 1, 1985, pursuant to which 11 3/8% Usable Subordinated Debentures due 1997 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby incorporated by reference to Exhibit 4(f) of Wickes Companies, Inc.'s Current Report on Form 8-K dated May 21, 1985 (SEC File No. 1-6761). 4.5 -- Indenture dated as of May 1, 1985, pursuant to which 15% Subordinated Notes due 1995 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby incorporated by reference to Exhibit 4(g) of Wickes Companies, Inc.'s Current Report on Form 8-K dated May 21, 1985 (SEC File No. 1-6761). 4.6 -- Indenture dated as of June 1, 1986, pursuant to which 11 7/8% Senior Subordinated Debentures due 2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) were issued is hereby incorporated by reference to Exhibit 4 to Amendment No. 3 to Wickes Companies, Inc.'s Registration Statement on Form S-3 (Registration No. 33-4401) filed June 5, 1986. 4.7 -- First Supplemental Indenture dated as of January 29, 1993, by and between Collins & Aikman Group, Inc. and Bank One, Columbus, NA regarding 11 7/8% Senior Subordinated Debentures due 2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 4.11 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993. 4.8 -- Second Supplemental Indenture dated as of January 29, 1993, by and between Collins & Aikman Group, Inc. and Bank One, Columbus, NA regarding 11 7/8% Senior Subordinated Debentures due 2001 of Collins & Aikman Group, Inc. (formerly named Wickes Companies, Inc.) is hereby incorporated by reference to Exhibit 4.12 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993. 4.9 -- Second Amendment and Restatement of Credit Agreement dated as of April 8, 1994, among Collins & Aikman Group, Inc. and Continental Bank, N.A., Individually and as Issuing Bank. 4.10 -- Credit Agreement dated as of May 15, 1991, among Collins & Aikman Corporation, certain subsidiaries of Collins & Aikman Corporation, the financial institutions party thereto and Continental Bank N.A., as Agent,is hereby incorporated by reference to Exhibit 4.18 of Wickes Companies, Inc.'s Report on Form 10-Q for the quarter ended April 27, 1991.
34
EXHIBIT NUMBER DESCRIPTION 4.11 -- First Amendment to Credit Agreement dated as of March 11, 1992, among Collins & Aikman Corporation, certain subsidiaries of Collins & Aikman Corporation, the financial institutions party thereto and Continental Bank N.A., as Agent, is hereby incorporated by reference to Exhibit 4.21 of Wickes Companies Inc. Report on Form 10-K for the fiscal year ended January 25, 1992. Collins & Aikman Group, Inc. agrees to furnish to the Commission upon request in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K copies of instruments defining the rights of holders of long-term debt of Collins & Aikman Group, Inc. or any of its subsidiaries, which debt does not exceed 10% of the total assets of Collins & Aikman Group, Inc. and its subsidiaries on a consolidated basis. 10.1 -- Stockholders Agreement dated as of December 6, 1988, among Blackstone Capital Partners L.P., Wasserstein Perella Partners, L.P., WCI Holdings II Corporation, WCI Holdings Corporation and WCI Acquisition Corporation is hereby incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-4 of WCI Holdings Corporation and Wickes Companies, Inc. (Registration No. 33-27143) filed February 22, 1989. 10.2 -- Amendment No.1 to Stockholders Agreement dated as of May 1, 1992 to Stockholders Agreement dated as of December 6, 1988, among Blackstone Capital Partners L.P., Wasserstein Perella Partners, L.P., Collins & Aikman Holdings II Corporation, Collins & Aikman Holdings Corporation, and Collins & Aikman Group, Inc. is hereby incorporated by reference to Exhibit 10.5 of Collins & Aikman Group, Inc.'s Report on Form 10-Q for the quarter ended October 24, 1992. 10.3 -- Employment Agreements dated as of June 16, 1989 between Wickes Companies, Inc. and certain executive officers is hereby incorporated by reference to Exhibit 10.1 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 27, 1990.* 10.4 -- First Amendment to Employment Agreements dated as of March 20, 1990 between Wickes Companies, Inc. and certain executive officers is hereby incorporated by reference to Exhibit 10.2 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 27, 1990.* 10.5 -- Employment Agreement dated as of July 18, 1990 between Wickes Companies, Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.3 of Wickes Companies, Inc.'s Report on Form 10-K for the fiscal year ended January 26, 1991.* 10.6 -- Agreement dated as of February 25, 1993 and First Amendment dated as of March 29, 1993 between Collins & Aikman Group, Inc. and a former executive officer is hereby incorporated by reference to Exhibit 10.8 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.7 -- Employment Agreement dated as of May 1, 1991 between Kayser-Roth Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.8 -- First Amendment to Employment Agreement dated as of May 1, 1991 between Kayser-Roth Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman Group, Inc.'s Report on Form 10-Q for the quarter ended July 31, 1993.*
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 35
EXHIBIT NUMBER DESCRIPTION 10.9 -- Letter Agreement dated as of May 16, 1991 and Employment Agreement dated as of July 22, 1992 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.5 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.10 -- First Amendment to Employment Agreement dated as of February 24, 1994 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.11 -- Letter Agreements dated as of May 16, 1991 between Collins & Aikman Corporation and certain executive officers is hereby incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.12 -- Employment Agreement dated as of February 1, 1992 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.15 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.13 -- Agreement dated as of March 23, 1992 between Collins & Aikman Group, Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.4 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.14 -- First Amendment to Agreement dated as of April 4, 1994 between Collins & Aikman Group, Inc. and an executive officer.* 10.15 -- Employment Agreement dated as of April 27, 1992 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.16 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.16 -- Letter Agreement dated as of August 12, 1992 between Collins & Aikman Group, Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.7 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.17 -- Employment Agreement dated as of March 1, 1993 between Imperial Wallcoverings, Inc. and an executive officer is hereby incorporated by reference to Exhibit 10.17 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.18 -- Employment Agreement dated as of October 1, 1993 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.18 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994.* 10.19 -- The Wickes Equity Share Plan, is hereby incorporated by reference to Exhibit 10.8 of Collins & Aikman Group Inc.'s Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.20 -- Warrant Agreement dated as of January 8, 1994 by and between Collins & Aikman Group, Inc. and Legwear Acquisition Corporation is hereby incorporated by reference to Exhibit 10.20 of Collins & Aikman Holdings Corporation's Form 10-K for the fiscal year ended January 29, 1994.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 36
EXHIBIT NUMBER DESCRIPTION 10.21 -- 1993 Employee Stock option Plan is hereby incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994. 10.22 -- 1994 Employee Stock option Plan is hereby incorporated by reference to Exhibit 10.13 of the Registration Statement on Form S-2 of Collins & Aikman Holdings Corporation (File No. 33-53179) filed April 19, 1994. 10.23 -- Acquisition Agreement dated as of November 22, 1993 as amended and restated as of January 28, 1994, among Collins & Aikman Group, Inc., Kayser-Roth Corporation and Legwear Acquisition Corporation is hereby incorporated by reference to Exhibit 2.1 of Collins & Aikman Group, Inc.'s Current Report on Form 8-K dated February 10, 1994. 21 -- List of subsidiaries of Collins & Aikman Group, Inc.
(B) REPORTS ON FORM 8-K. No current reports on Form 8-K were filed during the year for which this report on Form 10-K is filed. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 3rd day of May, 1994. COLLINS & AIKMAN GROUP, INC. By: /s/ DAVID A. STOCKMAN By: /s/ BRUCE WASSERSTEIN David A. Stockman Bruce Wasserstein CO-CHAIRMAN OF THE BOARD OF DIRECTORS CO-CHAIRMAN OF THE BOARD OF DIRECTORS AND CO-CHIEF EXECUTIVE OFFICER AND CO-CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ DAVID A. STOCKMAN Co-Chairman of the Board of Directors May 3, 1994 and Co-Chief Executive Officer David A. Stockman /s/ BRUCE WASSERSTEIN Co-Chairman of the Board of Directors May 3, 1994 and Co-Chief Executive Officer Bruce Wasserstein /s/ RANDALL J. WEISENBURGER Vice Chairman and Director May 3, 1994 Randall J. Weisenburger /s/ DAVID J. MCKITTRICK Principal Financial and Accounting Officer May 3, 1994 David J. McKittrick /s/ JAMES R. BIRLE Director May 3, 1994 James R. Birle /s/ STEPHEN A. SCHWARZMAN Director May 3, 1994 Stephen A. Schwarzman /s/ W. TOWNSEND ZIEBOLD, JR. Director May 3, 1994 W. Townsend Ziebold, Jr.
38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Collins & Aikman Group, Inc.: We have audited the accompanying consolidated balance sheets of Collins & Aikman Group, Inc. (a Delaware corporation) and subsidiaries as of January 29, 1994 and January 30, 1993, and the related consolidated statements of operations, other paid-in capital, accumulated deficit and cash flows for each of the three fiscal years in the period ended January 29, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Collins & Aikman Group, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 29, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 11 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in the fiscal year ended January 25, 1992. ARTHUR ANDERSEN & CO. Charlotte, North Carolina, April 27, 1994. F-1 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Net sales............................................................... $ 1,305,517 $ 1,277,500 $ 1,184,316 Cost of goods sold...................................................... 995,790 978,473 915,486 Selling, general and administrative expenses............................ 219,028 241,057 224,878 Management equity plan expense.......................................... 26,736 -- -- Restructuring costs..................................................... -- 10,000 -- Goodwill write-down..................................................... 144,800 -- -- 1,386,354 1,229,530 1,140,364 Operating income (loss)................................................. (80,837) 47,970 43,952 Interest expense, net of interest income of $4,328, $3,958 and $6,935... 84,241 87,075 87,674 Loss from continuing operations before income taxes..................... (165,078) (39,105) (43,722) Income taxes............................................................ 11,614 2,299 15,848 Loss from continuing operations......................................... (176,692) (41,404) (59,570) Discontinued operations: Income (loss) from operations, net of income taxes (benefit) of ($467), $1,234 and $2,560.......................................... (4,462) (45,849) 3,669 Loss on disposals, net of income tax benefit of $344, $0 and $0.......................................................... (111,137) (184,000) (38,000) Loss before extraordinary item.......................................... (292,291) (271,253) (93,901) Extraordinary gain on early retirement of debt, net of income taxes of $362......................................................... -- -- 10,949 Cumulative effect on prior years (to January 26, 1991) of change in accounting principle, net of income taxes of $0.................... -- -- (87,563) Net loss................................................................ $ (292,291) $ (271,253) $ (170,515)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-2 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JANUARY 29, JANUARY 30, 1994 1993 ASSETS Current Assets: Cash and cash equivalents........................................................... $ 78,363 $ 80,141 Accounts and notes receivable, net.................................................. 200,368 164,655 Inventories......................................................................... 176,062 165,864 Net assets of discontinued operations............................................... -- 205,131 Receivable from sale of business.................................................... 70,000 -- Other............................................................................... 53,397 23,370 Total current assets............................................................. 578,190 639,161 Property, plant and equipment, net.................................................... 292,600 292,434 Goodwill.............................................................................. 612,042 778,776 Other assets.......................................................................... 57,378 102,810 $ 1,540,210 $ 1,813,181 LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Notes payable....................................................................... $ 3,789 $ 9,067 Current maturities of long-term debt................................................ 25,895 61,287 Accounts payable.................................................................... 85,591 75,996 Accrued expenses.................................................................... 140,514 166,049 Other............................................................................... 2,671 1,387 Total current liabilities........................................................ 258,460 313,786 Long-term debt........................................................................ 733,448 784,658 Deferred income taxes................................................................. 640 4,823 Other, including postretirement benefit obligation.................................... 337,186 220,475 Commitments and contingencies (Note 17)............................................... Redeemable preferred stock (aggregate preference in liquidation $129)................. 132 165 Preferred stock (aggregate preference in liquidation $45,145)......................... 181 181 Common stock (47,808 shares issued and outstanding)................................... 4,781 4,781 Other paid-in capital................................................................. 1,001,126 974,339 Accumulated deficit................................................................... (782,179) (485,355) Foreign currency translation adjustments.............................................. 309 1,174 Pension equity adjustment............................................................. (13,874) (5,846) Total stockholder's equity....................................................... 210,344 489,274 $ 1,540,210 $ 1,813,181
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-3 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OTHER PAID-IN CAPITAL (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Balance at beginning of year.............................................. $ 974,339 $ 974,559 $ 974,559 Management equity plan.................................................... 26,736 -- -- Other..................................................................... 51 (220) -- Balance at end of year.................................................... $ 1,001,126 $ 974,339 $ 974,559
CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Balance at beginning of year............................................... $(485,355) $(209,588) $ (34,558) Net loss................................................................... (292,291) (271,253) (170,515) Preferred stock dividends declared......................................... (4,533) (4,514) (4,515) Balance at end of year..................................................... $(782,179) $(485,355) $(209,588)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-4 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 OPERATING ACTIVITIES Loss from continuing operations............................................ $(176,692) $ (41,404) $ (59,570) Adjustments to derive cash flow from continuing operating activities: Depreciation and amortization............................................ 75,225 79,562 78,456 Management equity plan expense........................................... 26,736 -- -- Goodwill write-down...................................................... 144,800 -- -- Restructuring costs...................................................... -- 10,000 -- Decrease in accounts and notes receivable................................ (33,232) (149) (7,166) Decrease (increase) in inventories....................................... (7,303) 4,308 12,269 Increase (decrease) in accounts payable.................................. 14,145 130 (2,874) Other, net............................................................... (15,698) (24,703) (30,643) Net cash provided by (used in) continuing operating activities...... 27,981 27,744 (9,528) Loss from discontinued operations.......................................... (115,599) (229,849) (34,331) Adjustments to derive cash flow from discontinued operating activities: Loss on disposals........................................................ 111,137 184,000 38,000 Depreciation and amortization............................................ 18,075 24,082 24,475 Net change in receivables, inventory and accounts payable................ 70,162 24,163 5,634 Other, net............................................................... (151,192) (15,854) (20,243) Net cash provided by (used in) discontinued operating activities....................................................... (67,417) (13,458) 13,535 INVESTING ACTIVITIES Additions to property, plant and equipment................................. (56,278) (54,181) (61,899) Sales of property, plant and equipment..................................... 22,710 10,347 7,522 Proceeds from businesses sold.............................................. 148,743 -- 5,598 Other, net................................................................. 43,983 9,223 28,743 Net cash provided by (used in) investing activities................... 159,158 (34,611) (20,036) FINANCING ACTIVITIES Issuance of long-term debt................................................. 76,135 60,128 157,587 Reduction of long-term debt and capital lease obligations.................. (179,940) (54,376) (182,760) Net proceeds (reduction) of short-term borrowings.......................... (5,899) 3,554 (1,057) Dividends paid............................................................. (4,515) (4,514) (4,515) Other, net................................................................. (7,281) (2,863) (459) Net cash provided by (used in) financing activities................... (121,500) 1,929 (31,204) Decrease in cash and cash equivalents...................................... (1,778) (18,396) (47,233) Cash and cash equivalents at beginning of year............................. 80,141 98,537 145,770 Cash and cash equivalents at end of year................................... $ 78,363 $ 80,141 $ 98,537
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. F-5 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: FISCAL YEAR -- The fiscal year of Collins & Aikman Group, Inc. ("Group" or the "Company") ends on the last Saturday of January. Fiscal 1993 and fiscal 1991 were 52 week years which ended on January 29, 1994 and January 25, 1992, respectively. Fiscal 1992 was a 53 week fiscal year which ended on January 30, 1993. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- Effective as of the beginning of fiscal 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 requires accrual, during the period in which eligible employees render service, of the expected cost of providing these benefits to an employee and the employee's beneficiaries and covered dependents. The Company has recorded the cumulative effect at January 26, 1991, net of tax of $0, of $87.6 million as of the beginning of fiscal 1991. ACQUISITION BY COLLINS & AIKMAN HOLDINGS CORPORATION -- On October 25, 1988, the Company, Collins & Aikman Holdings II Corporation (formerly WCI Holdings II Corporation) ("Holdings II") and Collins & Aikman Holdings Corporation (formerly WCI Holdings Corporation) ("Holdings") entered into an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Holdings, a corporation indirectly jointly owned by Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P., and their respective affiliates, acquired approximately 80% of the shares of common stock of the Company on December 8, 1988 following a cash tender offer. Pursuant to the Merger Agreement, on April 13, 1989, a wholly owned subsidiary of Holdings was merged into the Company (the "Merger"), and the Company became a direct wholly owned subsidiary of Holdings. CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany items have been eliminated in consolidation. INCOME TAXES -- During fiscal 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting Standards No. 96, of the same title, which the Company previously followed to account for income taxes. The adoption of SFAS 109 did not impact the Company's financial position or results of operations. See also Note 14. FOREIGN CURRENCY TRANSLATION -- Foreign currency accounts are translated in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation"("SFAS 52"). SFAS 52 generally provides that the assets and liabilities of foreign operations be translated at the current exchange rates as of the end of the accounting period and that revenues and expenses be translated using average exchange rates. The resulting translation adjustment arising from foreign currency translation is accumulated as a separate component of stockholder's equity. Translation adjustments during fiscal 1993, 1992 and 1991 were ($865,000), ($5.8) million, and ($1.9) million, respectively. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. Included in cash and cash equivalents at January 29, 1994 is $8.6 million which is held by the Company's Collins & Aikman Corporation subsidiary ("C&A Co."). INVENTORIES -- Inventories are valued principally at the lower of cost or market, but not in excess of net realizable value. Cost is determined on the first-in, first-out basis. OTHER CURRENT ASSETS -- Other current assets at January 29, 1994 include $22.8 million which is on deposit with an insurer to cover future deferred payments. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Provisions for depreciation are primarily computed on a straight-line basis over the estimated useful lives of the assets, presently F-6 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ranging from 3 to 40 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the improvements. GOODWILL -- Goodwill is being amortized by the straight-line method over 40 years. Management's policy is to continually review whether there have been any significant and permanent downturns in the industries in which the Company operates, loss of a majority of customers, introduction of substitute products and the current and expected future results of the acquired entities in assessing the recoverability of the goodwill related to each of its businesses. When the foregoing considerations suggests that a deterioration of the financial condition of the Company has occurred, the methodology used by the Company to determine whether there has been an impairment of goodwill is to assess whether the forecasted operating results (including a proportionate share of the Company's projected consolidated interest expense) of each of its business units will recover the recorded goodwill balance over the remaining amortization period. Amortization applicable to continuing operations was $21.9 million, $23.1 million and $23.0 million for fiscal 1993, 1992 and 1991, respectively. During fiscal 1993, Group wrote down goodwill by $144.8 million related to its Wallcoverings segment as described in Note 2 below. Accumulated amortization was $133.6 million and $142.0 million at January 29, 1994 and January 30, 1993, respectively. ENVIRONMENT -- Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accruals for environmental liabilities are generally included in the balance sheet as other noncurrent liabilities at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. Accruals for insurance or other third party recoveries for environmental liabilities are recorded when it is probable that the claim will be realized. RECLASSIFICATIONS -- Certain reclassifications have been made to the fiscal 1992 and 1991 statements of operations and statements of cash flows and to the January 30, 1993 balance sheet to conform to the fiscal 1993 presentation. 2. GOODWILL: The substantial losses of Builders Emporium and the inability to sell the Builders Emporium chain as an ongoing entity left the Company with materially higher leverage and interest costs than previously anticipated. The inability of the Company to sell its Dura Convertible division ("Dura") at an acceptable price along with the sale of Kayser-Roth Corporation ("Kayser-Roth") at a price and on terms that were worse than management's prior expectations of value were additional adverse factors. Prior to the end of the third quarter, management explored debt recapitalization alternatives and the possibility of raising new equity capital. The indications from the financial community at that time were that a debt recapitalization was not likely to significantly reduce the Company's interest burden and that raising new equity capital to deleverage the Company was not feasible at that time. Although management of the Company, based on the facts known to it at October 30, 1993, was expecting both cyclical and long-term improvement in the results of operations, an analysis suggested that, given the Company's capital structure, a deterioration of the financial condition of the Company had occurred. As a result, the Company forecasted its operating results forward 33 years, which approximated the remaining amortization period of the Company's goodwill at October 30, 1993, to determine whether cumulative net income would be sufficient to recover the goodwill. At October 30, 1993, management believed that the projected future results were the most likely scenario given the Company's current capital structure. In spite of the fact that the operating results reflected in the forecasts showed improvement over the historical results achieved during the past few years, management concluded, based on the forecast, that the net income allocable to the Company's Wallcoverings segment over the forecast period (including a proportionate share of the Company's projected consolidated interest expense) would not be sufficient to recover its entire goodwill balance. Accordingly, the Company recorded a write-down of $144.8 F-7 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) million during the third quarter ended October 30, 1993 to reflect the portion of Wallcoverings' goodwill balance which was not forecasted to be recovered over the projection period. For the other business units of the Company, net income over the forecast period was sufficient to recover their respective goodwill balances. Management's continuing evaluations have indicated no further impairment in the ability of Wallcoverings to recover its remaining goodwill and no permanent impairment with respect to the other operations of the Company. 3. RESTRUCTURING COSTS: At the end of the third quarter of fiscal 1993, the Company recorded a restructuring charge of $24.0 million, principally related to the write-down of certain surplus or under-utilized assets of the Company's Automotive Products and Wallcoverings segments and to provide for the obsolescence of certain manufacturing processes as a result of shifts in customer demand. During the fourth quarter of fiscal 1993, management reevaluated its plan to restructure these manufacturing facilities and, based on changes in product mix and underlying improvement in certain of the Company's businesses, management has concluded that the assets and facilities identified previously can be utilized at a level of production that would not result in the impairment of the asset values. Accordingly, in the fourth quarter of fiscal 1993, management has revised its estimate and reversed these charges. During fiscal 1992, the Company incurred certain identifiable costs in connection with the restructuring of Wallcoverings. The restructuring costs, aggregating $10.0 million, principally related to the closure of certain manufacturing and distribution facilities. 4. DISCONTINUED OPERATIONS: During fiscal 1991, Group reclassified the remaining businesses of Wickes Manufacturing Company consisting of its Dura, Bumper and H. Koch & Sons ("H. Koch") divisions as discontinued operations. In July 1992, Group sold its Bumper and H. Koch divisions. As of the end of fiscal 1992, Group reclassified Builders Emporium and the Engineering Group as discontinued operations. Group recorded a loss on disposal of discontinued operations of $184 million in the fourth quarter of fiscal 1992 principally to provide for the expected loss on sale of Builders Emporium. In March 1993, the Engineering Group was sold for approximately $51 million. As of the end of the second quarter of fiscal 1993, the Company determined that it would be unable to sell Builders Emporium as an ongoing entity. The Company recorded an additional loss on disposal of discontinued operations of $109.3 million principally to (i) provide additional reserves for the significant reduction in estimated proceeds from disposition and other costs in connection with the sale or disposition of Builders Emporium inventory, real estate and other assets and (ii) provide for employee severance and other costs. Builders Emporium's inventory was sold during the third and fourth quarters of fiscal 1993 and substantially all accounts receivable and accounts payable balances were settled as of January 29, 1994. Remaining assets and liabilities of Builders Emporium relate primarily to real estate and insurance liabilities which continue to be liquidated. Kayser-Roth was reclassified as a discontinued operation at the end of the third fiscal quarter ended October 30, 1993 and was sold on January 28, 1994 for a total price of approximately $170 million (subject to post-closing purchase price adjustment). In connection with the sale, Group received a 90 day $70 million Senior unsecured bridge note from the purchaser which was collected on April 27, 1994. The results of Builders Emporium, Kayser-Roth, the Engineering Group, Bumper and H. Koch are classified as discontinued operations for all periods presented. At the end of the second fiscal quarter ended July 31, 1993, Group decided to retain its Dura business. The results of Dura are now classified in the automotive products segment and prior reporting periods have been restated to reflect Dura as a continuing operation. F-8 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized statements of operations for periods prior to units being classified as discontinued operations follow (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Sales............................................................ $ 274,297 $ 977,098 $ 1,042,377 Costs and expenses, other than interest.......................... 268,821 998,703 1,012,309 Interest expense................................................. 10,405 23,010 23,839 Loss before income taxes......................................... (4,929) (44,615) 6,229 Income taxes (benefit)........................................... (467) 1,234 2,560 Income (loss) from discontinued operations....................... $ (4,462) $ (45,849) $ 3,669
The above summarized results include Builders Emporium and the Engineering Group through January 30, 1993 and Kayser-Roth through the third quarter ended October 30, 1993 (the respective dates at which these businesses were reclassified as discontinued operations). The summarized statement of operations for fiscal 1991 also includes Bumper and H. Koch through their date of sale. Sales of Builders Emporium in fiscal 1993 aggregated approximately $410 million and sales of Kayser-Roth for the fourth quarter of fiscal 1993 aggregated approximately $95 million. Interest expense of $13.1 million (including $5.5 million of interest expense which was reserved for Builders Emporium and Kayser-Roth), $19.7 million and $20.9 million during fiscal 1993, 1992 and 1991, respectively, has been allocated to discontinued operations based upon the ratio of net book value of discontinued operations (including reserves for loss on disposal) to consolidated invested capital. Interest expense incurred by Builders Emporium and Kayser-Roth subsequent to their reclassification as discontinued operations aggregated $2.2 million. Such amounts were charged to discontinued operations reserves. In October 1993, Group received $35.1 million from Wickes Lumber Company in exchange for a Wickes Lumber Company promissory note and warrant that Group had received in partial consideration for the sale of Wickes Lumber Company in 1988. Fees paid or accrued to Blackstone Partners and WP Partners for services related to divestitures aggregated $4.3 million and $500,000 during fiscal 1993 and 1992, respectively. Divestiture fees in fiscal 1993 include $400,000 paid and $100,000 accrued to Blackstone Partners for advisory services in connection with the sale of Builders Emporium's inventory, real estate and other assets. The majority of Builders Emporium's leased properties have been assigned to third parties. In addition, Group has assigned leases in connection with the divestiture of Kayser-Roth, the Engineering Group, Wickes Manufacturing Company and other divested businesses. Although Group has obtained releases from the lessors of certain properties, Group remains contingently liable under most of the leases. Group's future liability for these leases, in management's opinion, based on the facts presently known to it, will not have a material effect on the Company's consolidated financial condition or future results of operations. 5. ACCOUNTS AND NOTES RECEIVABLE, NET: Accounts and notes receivable, net, are summarized below (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Accounts and notes receivable.................................................. $ 207,439 $ 171,403 Less allowance for doubtful accounts........................................... (7,071) (6,748) $ 200,368 $ 164,655
F-9 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INVENTORIES: Inventory balances are summarized below (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Raw materials.................................................................. $ 70,762 $ 62,663 Work in process................................................................ 24,739 26,121 Finished goods................................................................. 80,561 77,080 $ 176,062 $ 165,864
7. PROPERTY, PLANT AND EQUIPMENT, NET: Property, plant and equipment, net, are summarized below (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Land and improvements.......................................................... $ 28,347 $ 20,747 Buildings...................................................................... 117,275 123,406 Machinery and equipment........................................................ 414,208 374,946 Leasehold improvements......................................................... 1,421 1,431 Construction in progress....................................................... 21,863 20,733 583,114 541,263 Less accumulated depreciation and amortization................................. (290,514) (248,829) $ 292,600 $ 292,434
Depreciation and amortization expense of property, plant and equipment applicable to continuing operations was $42.2 million, $45.5 million and $43.9 million for fiscal 1993, 1992 and 1991, respectively. 8. ACCRUED EXPENSES: Accrued expenses are summarized below (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Payroll and employee benefits.................................................. $ 42,086 $ 37,303 Interest....................................................................... 19,242 24,107 Insurance...................................................................... 15,152 25,122 Other.......................................................................... 64,034 79,517 $ 140,514 $ 166,049
F-10 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT: Long-term debt is summarized below (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Senior indebtedness: Mortgage notes............................................................... $ 1,464 $ 1,841 Notes payable to banks....................................................... 7,595 7,891 Notes payable to others...................................................... 8,266 4,744 C&A Co. credit facility, average interest rate of 5.5% and 5.3%.............. 137,129 191,155 Debentures due 2005, interest rate 7 1/2% until January 31, 1994, and 10% thereafter................................................................ 138,694 138,694 Sinking fund debentures due 1994, interest rate 12%.......................... -- 40,982 Industrial revenue bonds due through 2006, interest rates from 5% to 7 5/8%.................................................................... 11,648 12,754 Unamortized debt discount.................................................... (47,650) (53,239) 257,146 344,822 Senior subordinated indebtedness: Senior subordinated debentures due 2001, interest rate 11 7/8%............... 347,414 347,414 Unamortized debt discount.................................................... (4,629) (5,019) 342,785 342,395 Subordinated indebtedness: Subordinated notes due 1995, interest rate 15%............................... 137,359 137,359 Subordinated debentures due 1997, interest rate 11 3/8%...................... 24,500 24,500 Unamortized debt discount.................................................... (2,447) (3,131) 159,412 158,728 Total debt..................................................................... 759,343 845,945 Less current maturities........................................................ (25,895) (61,287) $ 733,448 $ 784,658
Group's C&A Co. subsidiary consummated a $225 million credit agreement with a syndicate of banks on May 22, 1991 that expires on May 15, 1998 (the "C&A Co. Credit Agreement"). During fiscal 1991, C&A Co. borrowed $152 million under the C&A Co. Credit Agreement. Out of these borrowings, $120 million was paid to Group as a dividend to be used for general corporate purposes. During fiscal 1992, C&A Co. paid Group dividends aggregating $110 million, borrowed an additional $56.0 million and made principal repayments under the C&A Co. Credit Agreement of $10.3 million. During fiscal 1993, C&A Co. paid Group dividends aggregating $30 million, borrowed an additional $17.0 million and made principal repayments under the C&A Co. Credit Agreement of $71.0 million. Availability under the C&A Co. Credit Agreement is determined monthly based upon C&A Co.'s receivables balance. The C&A Co. Credit Agreement permits C&A Co. to pay additional dividends to Group only if C&A Co. satisfies a minimum liquidity requirement of $25 million and then limits the amount of total dividends to $175 million plus 90% (or 100% if certain specified ratios are met) of C&A Co.'s net income (excluding the impact of SFAS 106) subsequent to April 27, 1991. As of January 29, 1994, an additional $54.8 million was available to C&A Co. under the C&A Co. Credit Agreement. Although as of that date approximately $56 million of additional dividends could be paid to Group under the dividend restrictions in the C&A Co. Credit Agreement, other financial covenants in the C&A Co. Credit Agreement would limit the amount of dividends to approximately $47 million. C&A Co. and its subsidiaries are separate corporate entities and the assets of C&A Co. and its subsidiaries are available first and foremost to satisfy the claims of the creditors of F-11 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C&A Co. and such subsidiaries. At January 29, 1994, receivables and fixed assets pledged as collateral under the C&A Co. Credit Agreement aggregated approximately $168 million and $104 million, respectively. On March 12, 1993, Kayser-Roth and a bank consummated a $40 million credit agreement. Kayser-Roth initially borrowed $35 million under the credit agreement of which $26 million was paid to Group as a dividend. On May 27, 1993, Kayser-Roth completed a $75 million credit facility (the "Kayser-Roth Credit Agreement") with a group of banks to replace the $40 million credit agreement and, on July 6, 1993, Kayser-Roth paid an additional dividend of $26 million to Group. Group used approximately $41 million of the proceeds from the original and the replacement Kayser-Roth credit facilities to redeem all of its outstanding 12% Sinking Fund Debentures due January 31, 1994 on July 7, 1993. Group repaid the outstanding borrowings under the Kayser-Roth Credit Agreement of $66 million with a portion of the cash proceeds from the sale of Kayser-Roth. There are limitations on the payment of dividends contained in various debt agreements of Group. Currently, the most restrictive of such limitations is contained in the indenture, as amended, (the "11 7/8% Indenture") governing the 11 7/8% Senior Subordinated Debentures due 2001 (the "11 7/8% Securities"). Since January 26, 1991, no additional dividends could be paid to Holdings under such indenture. Under these provisions as of January 29, 1994, Group would have needed to earn an additional $866 million of consolidated net income (as defined in the 11 7/8% Indenture) in order to eliminate the deficit in its dividend capacity (assuming no change in the other factors used to determine Group's dividend capacity). Under the terms of the 11 7/8% Indenture, the Company is required to redeem $138 million aggregate principal amount of 11 7/8% Securities on each June 1 from 1993 through 2000 ("Mandatory Redemptions") and to repay the remaining outstanding 11 7/8% Securities at maturity on June 1, 2001. Under the terms of the 11 7/8% Indenture, if Adjusted Net Worth (as such term is defined in the 11 7/8% Indenture) is equal to or less than $700 million on the last day of any fiscal quarter (the "Minimum Equity Test"), the Company would be required to begin on the last day of the second fiscal quarter thereafter (unless the Minimum Equity Test is satisfied at the end of the intervening fiscal quarter) semi-annual redemptions ("Accelerated Redemptions") of $138 million aggregate principal amount of 11 7/8% Securities until all the 11 7/8% Securities are redeemed or until the Minimum Equity Test is again satisfied. The Company can reduce its obligation to make any cash Mandatory Redemption or Accelerated Redemption payment through the application of previously redeemed or purchased and canceled 11 7/8% Securities as permitted by the 11 7/8% Indenture. The Company has previously delivered for cancellation $1,033 million in aggregate principal amount of 11 7/8% Securities, which are available for such purpose. The Company satisfied the Minimum Equity Test at the end of fiscal 1993. On that date, Adjusted Net Worth was $753.7 million. If the Company had not satisfied the Minimum Equity Test at that date and did not subsequently satisfy such test, the first cash redemption payment (after giving effect to credits for previously acquired 11 7/8% Securities) would be required at the end of the fiscal quarter ending January 1997. By comparison, if the Company continues to satisfy the Minimum Equity Test at all times or cures any failure of such test prior to any accelerated cash redemption payment becoming due, no cash redemption payment will be required until June 1, 2000. The 11 3/8% subordinated debentures of Group become callable on May 1, 1995. The remaining indebtedness of Group is callable at various premiums at the Company's option. Maturities of long-term debt during each of the five fiscal years subsequent to January 29, 1994, are $25.9 million, $170.9 million, $63.3 million, $39.9 million and $20.6 million, respectively. Total interest paid by the Company on all indebtedness was $101.5 million, $102.5 million and $112.6 million for fiscal 1993, 1992 and 1991, respectively. F-12 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For additional information see "ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" elsewhere herein. 10. LONG-TERM LEASES AND LEASE COMMITMENTS: The Company is lessee under various long-term operating leases for land and buildings for periods up to forty years. The majority of these leases contain renewal provisions. In addition, the Company leases transportation, operating and administrative equipment for periods ranging from one to ten years. At January 29, 1994, future minimum lease payments under operating leases are as follows (in thousands):
FISCAL YEAR ENDING January 1995................................................. $ 16,568 January 1996................................................. 12,520 January 1997................................................. 9,165 January 1998................................................. 4,128 January 1999................................................. 1,143 Later years.................................................. 2,171 $ 45,695
Rental expense of continuing operations under operating leases was $19.2 million, $19.0 million and $15.4 million for fiscal 1993, 1992 and 1991, respectively. Obligations under capitalized leases are not significant. 11. EMPLOYEE BENEFIT PLANS: The Company and its subsidiaries have in effect defined benefit pension plans covering substantially all employees who meet eligibility requirements. Plan benefits are generally based on years of service and employee's compensation during their years of employment. Funding of retirement costs for these plans complies with the minimum funding requirements specified by the Employee Retirement Income Security Act. Assets of the pension plans are held in a Master Trust which invests primarily in equity and fixed income securities. Net periodic pension cost of continuing operations for fiscal 1993, 1992 and 1991 included the following components (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Service cost...................................................... $ 5,232 $ 5,313 $ 5,240 Interest cost on projected benefit obligation and service cost.... 6,843 6,220 5,947 Actual return on assets........................................... (6,334) 746 (13,771) Net amortization and deferral..................................... (1,119) (10,063) 7,136 $ 4,622 $ 2,216 $ 4,552
F-13 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets at January 29, 1994 and January 30, 1993 (in thousands):
JANUARY 29, 1994 JANUARY 30, 1993 PLANS FOR WHICH PLANS FOR WHICH ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS Actuarial present value of benefit obligation: Vested benefit obligation.............................. $ (21,352) $ (82,248) $ (15,096) $ (76,958) Accumulated benefit obligation......................... $ (22,214) $ (86,451) $ (15,850) $ (80,432) Projected benefit obligation............................. $ (24,317) $ (89,435) $ (17,314) $ (83,050) Plan assets at fair value................................ 24,761 66,795 20,089 72,763 Projected benefit obligation less than (in excess of) plan assets............................................ 444 (22,640) 2,775 (10,287) Unrecognized net loss.................................... 2,081 25,315 310 22,122 Prior service cost not yet recognized in net periodic pension cost........................................... 424 (7,361) 443 (13,608) Unrecognized net asset at February 1, 1986............... (665) (503) (80) (983) Adjustment required to recognize minimum liability....... -- (14,068) -- (6,244) Pension asset (pension liability) recognized in the consolidated balance sheets............................ $ 2,284 $ (19,257) $ 3,448 $ (9,000)
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7% and 8% at January 29, 1994 and January 30, 1993, respectively. The expected rate of increase in future compensation levels is 4% and 5.5% and the expected long-term rate of return on plan assets is 9% and 10% in fiscal 1993 and 1992, respectively. The provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), require companies with any plans that have an unfunded accumulated benefit obligation to recognize an additional minimum pension liability, an offsetting intangible pension asset and, in certain situations, a contra-equity balance. In accordance with the provisions of SFAS 87, the consolidated balance sheets at January 29, 1994 and January 30, 1993 include an intangible pension asset of $194,000 and $398,000; an additional minimum pension liability of $14.1 million and $6.2 million and a contra-equity balance of $13.9 million and $5.8 million, respectively. The Company sponsors defined contribution plans covering employees who meet eligibility requirements. Company contributions are based on a formula as specified in the plan agreements. Contributions related to continuing operations were $4.7 million, $4.0 million and $3.4 million in fiscal 1993, 1992 and 1991, respectively. The Company has provided postretirement life, health and medical coverage for certain retirees under plans currently in effect. Many of the Company's domestic employees may be eligible for benefits if they reach retirement age while still employed by the Company. Effective as of the beginning of fiscal 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Statement requires that costs of such benefits be accrued as a form of deferred compensation earned during the period that employees render service, rather than the previously permitted practice of accounting for such costs as incurred. F-14 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company elected to recognize the cumulative effect of this change in accounting principle as of the beginning of fiscal 1991. The following table sets forth the amounts included in the Company's consolidated balance sheets (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Accumulated postretirement benefit obligation: Retirees..................................................................... $ 48,559 $ 56,497 Fully eligible active plan participants...................................... 12,425 13,145 Other active plan participants............................................... 13,845 26,366 Unrecognized prior service gain from plan amendments......................... 23,764 -- Unrecognized net gain........................................................ 7,408 8,869 Total postretirement benefit obligation................................. $ 106,001 $ 104,877
Net periodic postretirement benefit cost of continuing operations, determined on the accrual basis, included the following components (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Service cost -- benefits attributed to service during the year............. $ 2,131 $ 2,168 $ 2,066 Interest cost on accumulated postretirement benefit obligation............. 4,385 6,865 6,574 Amortization of unrecognized net gain...................................... (200) -- -- Net periodic postretirement benefit cost................................... $ 6,316 $ 9,033 $ 8,640
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7% at January 29, 1994 and 8% at January 30, 1993. The plans are unfunded. For measurement purposes, a 14% annual rate of increase in the per capita cost of covered health care benefits was assumed for fiscal 1993; the rate was assumed to decrease 1% per year to 6% for fiscal 2001 and remain at that level thereafter. The health care cost trend rate assumption has an impact on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of January 29, 1994 by $878,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $103,000. Effective April 1, 1994, the Company amended the postretirement benefit plan which covers substantially all of the eligible current and retired employees of the Company's continuing operations. Pursuant to the amendment the Company's obligation for future health care inflation will be limited to 6% per year through March 31, 1998. Subsequent to March 1998, the Company will not provide coverage for inflation in health care costs. 12. COMMON STOCK AND PREFERRED STOCK: At January 29, 1994 and January 30, 1993, 70,000,000 shares of $.10 par value common stock were authorized and approximately 47,808,000 shares were issued and outstanding. At January 29, 1994 and January 30, 1993, 30,000,000 shares of $.10 par value preferred stock were authorized and approximately 1,806,000 shares of convertible preferred stock, Series A were outstanding. Each share of Series A preferred stock, which has an annual dividend of $2.50 per share, is convertible into 0.50 shares of Merger Preferred Stock of Holdings, subject to subsequent adjustment pursuant to its terms. F-15 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. MANAGEMENT EQUITY PLANS: Effective on January 28, 1994, Holdings adopted the 1993 Employee Stock Option Plan ("1993 Plan") for certain key employees of Group. The 1993 Plan was created primarily for the special purpose of rewarding key employees for the appreciation earned through prior service under the Company's previous equity share plan that was terminated on October 29, 1993. Holdings granted options to acquire 3,119,466 shares of the Common Stock at an average exercise price of $4.57 per share. The majority of these options vest 40% in June 1995 with the remaining shares vesting in June 1996. In connection with the adoption of this plan, the Company recorded a charge of $26.7 million for management equity plan expense. In addition, effective in April 1994, Holdings adopted the 1994 Employee Stock Option Plan ("1994 Plan") as a successor to the 1993 Plan to facilitate awards to certain key employees and to consultants. The 1994 Plan authorizes the issuance of up to 2,980,534 shares of Common Stock and provides that no options may be granted after 10 years from the effective date of this plan. Options for 169,634 shares of Common Stock at an average exercise price of $5.52 per share were granted to key employees of Group in April 1994. Management equity plan expense of $1.3 million will be recognized as the options ratably vest over the next three years. Upon a change of control of Holdings, as defined, all of the above options become fully vested and exercisable. 14. INCOME TAXES: During the first quarter of fiscal 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 supersedes Statement of Financial Accounting Standards No. 96, of the same title, which the Company previously followed to account for income taxes. The adoption of SFAS 109 did not impact the Company's financial position or results of operations. Deferred income taxes are provided for the temporary differences between the financial reporting and tax basis of the Company's assets and liabilities. The components of the net deferred tax liability as of January 29, 1994 and January 30, 1993 were as follows (in thousands):
JANUARY 29, JANUARY 30, 1994 1993 Deferred tax assets: Employee benefits including postretirement benefits.......................... $ 69,245 $ 69,903 Net operating loss carryforwards............................................. 134,928 83,599 Investment tax credit carryforwards.......................................... 11,900 14,567 Alternative minimum tax credits.............................................. 7,000 9,523 Other liabilities and reserves............................................... 130,093 133,586 Valuation allowance.......................................................... (289,204) (251,426) Total deferred tax asset..................................................... 63,962 59,752 Deferred tax liabilities: Property, plant and equipment................................................ 51,258 50,213 Unamortized debt discount.................................................... 13,344 14,362 Total deferred tax liability................................................. 64,602 64,575 Net deferred tax liability..................................................... $ 640 $ 4,823
The valuation allowances of $289.2 million at January 29, 1994 and $251.4 million at January 30, 1993 were established because, in the Company's assessment, it was uncertain whether the net deferred tax assets would be realized. F-16 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provisions for income taxes applicable to continuing operations for fiscal 1993, 1992 and 1991, are summarized as follows (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Current Federal, including tax sharing payment to (from) Holdings....... $ 337 $(1,222) $ 4,209 State and local................................................. 6,462 4,896 5,470 Foreign......................................................... 7,697 5,739 2,193 14,496 9,413 11,872 Deferred State and local................................................. (16) (5,936) 3,339 Foreign......................................................... (2,866) (1,178) 637 (2,882) (7,114) 3,976 Income taxes.................................................... $11,614 $ 2,299 $15,848
Domestic and foreign components of income (loss) from continuing operations before income taxes are summarized as follows (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Domestic.......................................................... $(175,213) $ (51,574) $ (51,794) Foreign........................................................... 10,135 12,469 8,072 $(165,078) $ (39,105) $ (43,722)
A reconciliation between income taxes computed at the statutory Federal rate (35% for fiscal 1993 and 34% for fiscal 1992 and 1991) and the provisions for income taxes applicable to continuing operations is as follows (in thousands):
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Amount at statutory Federal rate.................................. $ (57,777) $ (13,296) $ (14,865) State and local income taxes, net of Federal income tax benefit... 6,229 (2,893) 5,814 Foreign tax more than Federal tax at statutory rate............... 1,284 321 86 Amortization and write-off of goodwill............................ 58,357 7,840 7,835 Valuation allowance............................................... 5,509 6,934 -- Net operating loss generated...................................... -- -- 13,454 Tax sharing payment to Holdings................................... 337 3,848 3,894 Other............................................................. (2,325) (455) (370) Income taxes...................................................... $ 11,614 $ 2,299 $ 15,848
In addition, the valuation allowance was increased by $38.4 million in fiscal 1993 and $68.6 million in fiscal 1992 to offset deferred tax assets arising from the losses of discontinued operations. F-17 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At January 29, 1994, Group had the following tax attribute carryforwards available for Federal income tax purposes (in thousands):
EXPIRATION AMOUNT DATES Net operating losses -- regular tax Prior to acquisition of Group by Holdings ("Preacquisition"), subject to limitations............................................................... $134,000 1996-2003 Postacquisition, unrestricted................................................ 251,000 2006-2008 $385,000 Net operating losses -- alternative minimum tax Preacquisition, subject to limitations....................................... $118,000 1996-2002 Postacquisition, unrestricted................................................ 202,000 2006-2008 $320,000 Investment tax and other credits Preacquisition, subject to limitations....................................... $ 11,900 1994-2003 Alternative minimum tax credits................................................ $ 7,000 No limit
The regular tax net operating loss carryforwards include amounts related to Kayser-Roth and subsidiaries for preacquisition regular tax purposes, subject to limitations, of $35 million and postacquisition regular tax purposes, unrestricted, of $62 million. Alternative minimum tax net operating loss carryovers include amounts related to Kayser-Roth and subsidiaries of $33 million for preacquisition alternative minimum tax purposes, subject to limitations, and $51 million for postacquisition alternative minimum tax purposes, unrestricted. Although the sale agreement provides that an election will be made (under Section 338(h)(10) of the Internal Revenue Code) to treat the sale as an asset sale for Federal income tax purposes, there are provisions whereby the purchaser of Kayser-Roth and the Company can reevaluate this decision. If the purchaser and the Company mutually agree to treat the transaction as a stock sale rather than an asset sale, the net operating losses related to Kayser-Roth and subsidiaries will be transferred from the Company to the purchaser. The Internal Revenue Service has examined the returns of C&A Co. and its subsidiaries for the last three fiscal years prior to its acquisition by the Company in December 1986. Certain adjustments were agreed to and the effect of those adjustments, principally reductions to the net operating loss carryforwards and investment tax credit carryforwards, are reflected in the amounts discussed above. In the course of an examination of the Company's Federal income tax returns for fiscal 1988 and 1989, the IRS has challenged the availability of $176.6 million of the Company's approximately $385.0 million of current NOLs. The examination is at a preliminary stage and management believes that the basis for the IRS' position is unclear. Management disputes the IRS' challenge and believes that substantially all of the NOLs should be available (subject to certain limitations) to offset its income, if any, in the future. If the IRS were to maintain its position and all or a majority of such position were to be upheld in litigation, the amount of the NOLs available to the Company in future years would be materially reduced. The Company and its subsidiaries have entered into a tax sharing agreement with Holdings. The tax sharing agreement provides for payments to (from) Holdings for utilization of Holdings tax losses by the Company and its subsidiaries. The agreement provides for tax sharing payments calculated in accordance with Federal tax regulations. Tax sharing payments paid to Holdings during fiscal 1993, 1992 and 1991 were $0, $4.5 million and $7.2 million, respectively. The Company's tax sharing receivable from Holdings of $8.8 million at January 29, 1994 and the related fiscal 1992 tax sharing benefit result from the utilization of tax loss carrybacks. This receivable from Holdings is currently expected to be settled through offset against future years tax sharing payable amounts. F-18 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income taxes paid including tax sharing payments to Holdings of $0, $4.5 million and $7.2 million, were $3.3 million, $21.3 million and $26.2 million for fiscal 1993, 1992 and 1991, respectively. 15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, AND ACCOUNTS PAYABLE -- The carrying amount approximates fair value because of the short maturity of these instruments. RECEIVABLE FROM SALE OF BUSINESS, LONG-TERM INVESTMENTS -- Fair value approximates carrying value. LONG-TERM DEBT -- The fair value of the Company's publicly-traded long-term debt is based upon the quoted market prices for the issues. The fair value of the remaining long-term debt of the Company approximates the carrying value. The estimated fair values of the Company's financial instruments are summarized as follows (in thousands):
JANUARY 29, 1994 JANUARY 30, 1993 CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE Receivable from sale of business................................. $ 70,000 $ 70,000 $ -- $ -- Long-term investments............................................ -- -- 32,675 32,675 Long-term debt................................................... 759,343 826,066 845,945 830,875
16. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS: The Company reclassified its industry segments during 1993 to realign its products based on primary customer groups. Businesses related to the automotive industry which were part of Specialty Textiles have been renamed Automotive Products. The decorative fabrics and floorcoverings businesses have been reclassified as Interior Furnishings. Previously, the floorcoverings business was part of the Specialty Textiles segment. Wallcoverings products which were previously part of the Home Furnishings segment have been renamed Wallcoverings. Industry segment information has been restated for fiscal 1992 and 1991. For fiscal 1993, 1992 and 1991, sales to General Motors Corporation approximated 16.1%, 15.3% and 17.2%, respectively, and sales to Chrysler Corporation approximated 10.0%, 10.2% and 8.3%, respectively, of total consolidated sales. These sales were part of the Automotive Products segment. Information about the Company's segments for fiscal 1993, 1992 and 1991 follows (in thousands):
OPERATING DEPRECIATION NET INCOME AND CAPITAL FISCAL YEAR ENDED JANUARY 29, 1994 SALES LOSS (B) AMORTIZATION ASSETS (B) EXPENDITURES Automotive Products......................... $ 677,867 $ 55,279 $ 36,712 $ 783,718 $ 29,208 Interior Furnishings........................ 407,201 40,683 15,617 350,342 11,768 Wallcoverings............................... 220,449 (138,010) 11,453 209,424 3,751 1,305,517 (42,048)(c) 63,782 1,343,484 44,727 Corporate items............................. -- (38,789)(d) 384 196,726 196 1,305,517 (80,837) 64,166 1,540,210 44,923 Discontinued operations..................... -- -- 18,075 -- 11,355 $ 1,305,517 $ (80,837) $ 82,241 $1,540,210 $ 56,278
F-19 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING INCOME DEPRECIATION NET (LOSS) AND CAPITAL FISCAL YEAR ENDED JANUARY 30, 1993 (A) SALES (B) AMORTIZATION ASSETS (B) EXPENDITURES Automotive Products......................... $ 643,827 $ 42,330 $ 39,771 $ 749,688 $ 20,563 Interior Furnishings........................ 391,778 34,647 15,876 335,708 14,295 Wallcoverings............................... 241,895 (4,960) 12,646 374,706 3,045 1,277,500 72,017(c) 68,293 1,460,102 37,903 Corporate items............................. -- (24,047)(d) 228 147,948 306 1,277,500 47,970 68,521 1,608,050 38,209 Discontinued operations..................... -- -- 24,082 205,131 15,972 $ 1,277,500 $ 47,970 $ 92,603 $1,813,181 $ 54,181
OPERATING INCOME DEPRECIATION NET (LOSS) AND CAPITAL FISCAL YEAR ENDED JANUARY 25, 1992 SALES (B) AMORTIZATION ASSETS (B) EXPENDITURES Automotive Products......................... $ 610,325 $ 45,242 $ 37,195 $ 762,009 $ 24,220 Interior Furnishings........................ 336,773 25,403 16,791 340,269 9,519 Wallcoverings............................... 237,218 (871) 12,712 406,529 5,093 1,184,316 69,774 66,698 1,508,807 38,832 Corporate items............................. -- (25,822) 246 134,447 96 1,184,316 43,952 66,944 1,643,254 38,928 Discontinued operations..................... -- -- 24,475 357,341 22,971 $ 1,184,316 $ 43,952 $ 91,419 $2,000,595 $ 61,899
(a) The fiscal year ended January 30, 1993 included fifty-three weeks. (b) Operating income is determined by deducting all operating expenses, including restructuring costs, goodwill write-down and other costs, from revenues. Operating expenses do not include interest expense. Assets of the business segments include goodwill. Operating income reflects related amortization.
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, 1994 1993 (IN THOUSANDS) (c) Segment operating income before goodwill write-down and restructuring costs:........ $ 102,752 $ 82,017 Goodwill write-down................................................................ (144,800) -- Restructuring costs................................................................ -- (10,000) Segment operating income (loss)..................................................... $ (42,048) $ 72,017
(d) Corporate items in fiscal 1993 include $26.7 million of management equity plan expense. Corporate items in fiscal 1993, 1992 and 1991 each include operating management and advisory fees to affiliates of Holdings of $5.0 million. 17. COMMITMENTS AND CONTINGENCIES: During 1991, a Fifth Consolidated Amended Complaint was filed in IN RE IVAN F. BOESKY SECURITIES LITIGATION, involving numerous class actions and individual claims against a variety of defendants including the Company. Among other things, this complaint asserts claims on behalf of certain of the Company's former preferred stockholders alleging a conspiracy to manipulate the price of the Company's stock in 1986 for the purpose of triggering a redemption of certain outstanding preferred stock of the Company. In 1992, Advanced Development F-20 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) & Engineering Centre ("ADEC"), a division of an indirect subsidiary of the Company, filed arbitration demands against the Pakistan Ordnance Factories Board ("POF") concerning ADEC's installation of a munitions facility for POF. POF filed arbitration counterclaims alleging that ADEC's alleged breach of contract caused POF to lose its entire investment in the munitions facility. The ultimate outcome of the legal proceedings to which the Company is a party will not, in the opinion of the Company's management based on the facts presently known to it, have a material effect on the Company's consolidated financial condition or future results of operations. In 1988, the federal government filed suit in the U.S. District Court for the District of Rhode Island against Group's former Kayser-Roth Corporation subsidiary and others in connection with a Superfund site in Rhode Island. The District Court held Kayser-Roth liable under CERCLA for all past and future response costs. By Amended Administrative Order issued June 4, 1991, the EPA directed Kayser-Roth to implement the remedies set forth in its Record of Decision issued September 18, 1990. Since the beginning of fiscal 1990 to date, Kayser-Roth has paid approximately $2.9 million for past response costs, prejudgment interest and remediation. Kayser-Roth is in the process of complying with the remainder of the order. Group has agreed to indemnify Kayser-Roth with respect to this matter. The Company is legally or contractually responsible or alleged to be responsible for the investigation and remediation of contamination at various sites. It also has received notices that it is a potentially responsible party ("PRP") in a number of proceedings. The Company may be named as a PRP at other sites in the future, including with respect to divested and acquired businesses. It is a normal risk of operating a manufacturing business that liability may be incurred for investigating and remediating on-site and off-site contamination. The Company is currently engaged in investigation or remediation at certain sites. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRP's, uncertainty regarding the extent of environmental problems and the Company's share, if any, of liability for such problems, the selection of alternative compliance approaches, the complexity of environmental laws and regulations and changes in cleanup standards and techniques. When it has been possible to provide reasonable estimates of the Company's liability with respect to environmental sites, provisions have been made in accordance with generally accepted accounting principles. However, there can be no assurance that the Company has identified or properly assessed all potential environmental liability arising from the activities or properties of the Company, its present and former subsidiaries and their corporate predecessors. As of January 29, 1994, the Company has established reserves of approximately $30.8 million for the estimated future costs related to all its known environmental sites. In the opinion of management, based on the facts presently known to it, the environmental costs and contingencies will not have a material adverse effect on the Company's consolidated financial condition or results of operations. The Company is subject to increasingly stringent Federal, state and local environmental laws and regulations that (i) affect ongoing operations and may increase capital costs and operating expenses and (ii) impose liability for the costs of investigation and remediation and certain other damages related to on-site and off-site soil and groundwater contamination. The Company's management believes that it has obtained, and is in material compliance with, all material environmental permits and approvals necessary to conduct its various businesses. Environmental compliance costs for continuing businesses currently are accounted for as normal operating expenses or capital expenditures of the business units. In the opinion of management, based on the facts presently known to it, such environmental compliance costs will not have a material adverse effect on the Company's consolidated financial condition or results of operations. For additional information regarding the foregoing, see "ITEM 3. LEGAL PROCEEDINGS" appearing elsewhere herein. F-21 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18. QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data for fiscal 1993 and 1992 follows (in thousands):
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE AFTER NET GROSS INCOME INCOME INCOME FISCAL YEAR ENDED JANUARY 29, 1994 NET SALES PROFIT TAXES TAXES (LOSS) First Quarter.......................... $ 339,043 $ 78,948 $ 156 $ (5,296) $ (8,504) Second Quarter......................... 289,694 61,230 (15,043) (17,222) (130,122) Third Quarter.......................... 334,629 84,445 (161,449) (164,194) (163,685) Fourth Quarter......................... 342,151 85,104 11,258 10,020 10,020 $1,305,517 $309,727 $(165,078) $(176,692) $(292,291) LOSS FROM CONTINUING OPERATIONS BEFORE AFTER GROSS INCOME INCOME NET FISCAL YEAR ENDED JANUARY 30, 1993 NET SALES PROFIT TAXES TAXES LOSS First Quarter.......................... $ 319,488 $ 72,564 $ (6,812) $ (11,009) $ (16,980) Second Quarter......................... 319,713 74,081 (7,411) (11,855) (16,406) Third Quarter.......................... 314,873 70,819 (7,048) (7,764) (16,078) Fourth Quarter (a)..................... 323,426 81,563 (17,834) (10,776) (221,789) $1,277,500 $299,027 $ (39,105) $ (41,404) $(271,253)
(a) The fourth quarter of fiscal 1992 included fourteen weeks. The quarterly financial data above has been restated to reflect Kayser-Roth as a discontinued operation and Dura as a continuing operation. Loss from continuing operations before income taxes in the third quarter of fiscal 1993 includes the write-down of goodwill of $144.8 million and restructuring costs of $24.0 million. The fourth quarter of fiscal 1993 includes management equity plan expense of $26.7 million offset by the reversal of the third quarter restructuring costs. (See Note 3). Net loss in fiscal 1993 includes provisions for loss on disposal of discontinued operations of $1.8 million and $109.3 million in the first and second quarters, respectively. Loss from continuing operations before income taxes in fiscal 1992 includes restructuring costs of $10.0 million in the fourth quarter. Net loss in fiscal 1992 includes provision for loss on disposal of discontinued operations of $184.0 million in the fourth quarter. The Company's operations are not subject to significant seasonal influences. 19. SUBSEQUENT EVENT: On April 19, 1994, Holdings, as part of a proposed recapitalization (the "Recapitalization") filed a registration statement on Form S-2 for the issuance of 20.0 million shares of common stock. The Recapitalization, if effected, would result in the defeasance and redemption, or repayment, of virtually all outstanding debt and all preferred stock of Group. The sources of capital for the Recapitalization are proceeds of the public offering, cash on hand and amounts to be available under certain proposed new credit facilities aggregating $775 million. In connection with the Recapitalization, Holdings II, currently the sole common stockholder of Holdings, will be merged into Holdings and Holdings will change its name to Collins & Aikman Corporation. Concurrently, Group will be merged into its wholly owned subsidiary, C&A Co., which will change its name to C&A Products Co. F-22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Collins & Aikman Group, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Collins & Aikman Group, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated April 27, 1994. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN & CO. Charlotte, North Carolina, April 27, 1994. S-1 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (IN THOUSANDS)
JANUARY 29, JANUARY 30, 1994 1993 ASSETS Current Assets: Cash and cash equivalents........................................................... $ 69,403 $ 57,094 Receivable from sale of business.................................................... 70,000 -- Other current assets................................................................ 40,952 37,188 Total current assets............................................................. 180,355 94,282 Investments in and advances to subsidiaries........................................... 893,204 1,190,722 Long-term investments................................................................. -- 33,831 Other assets.......................................................................... 30,140 27,888 $ 1,103,699 $ 1,346,723 LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Current maturities of long-term debt................................................ $ -- $ 40,982 Accounts payable and accrued expenses............................................... 96,777 113,436 Other current liabilities........................................................... 3,748 9,067 Total current liabilities........................................................ 100,525 163,485 Long-term debt........................................................................ 593,241 586,579 Other noncurrent liabilities.......................................................... 199,457 107,220 Commitments and contingencies (Note 1) Redeemable preferred stock............................................................ 132 165 Preferred stock....................................................................... 181 181 Common stock.......................................................................... 4,781 4,781 Other stockholder's equity............................................................ 205,382 484,312 Total stockholder's equity....................................................... 210,344 489,274 $ 1,103,699 $ 1,346,723
S-2 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Other expenses............................................................. $ (10,753) $ (11,214) $ (13,387) Interest expense........................................................... (74,977) (90,940) (94,630) Loss from continuing operations before income taxes and equity in loss of subsidiaries............................................................. (85,730) (102,154) (108,017) Income tax benefit......................................................... 681 9,905 13,134 Equity in loss of subsidiaries............................................. (123,242) (42,227) (79,512) Loss from continuing operations............................................ (208,291) (134,476) (174,395) Loss from discontinued operations.......................................... (84,000) (136,777) (431) Loss before extraordinary item and cumulative change in accounting principle................................................................ (292,291) (271,253) (174,826) Extraordinary item......................................................... -- -- 10,949 Cumulative effect of change in accounting principle........................ -- -- (6,638) Net loss................................................................... $(292,291) $(271,253) $(170,515)
S-3 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 29, JANUARY 30, JANUARY 25, 1994 1993 1992 Net cash provided by (used in) operating activities........................ $ (84,532) $ 57,000 $ 51,688 Investing Activities: Proceeds from businesses sold............................................ 148,743 -- 5,598 Sales of property, plant and equipment................................... 22,116 7,288 3,003 Other.................................................................... 52,987 1,285 4,868 Net cash provided by investing activities............................. 223,846 8,573 13,469 Financing Activities: Net advances to subsidiaries............................................. (74,467) (41,455) (2,515) Net reductions of long-term debt and capital lease obligations........... (48,023) (32,895) (153,432) Other.................................................................... (4,515) (4,536) (4,515) Net cash used in financing activities................................. (127,005) (78,886) (160,462) Net increase (decrease) in cash............................................ 12,309 (13,313) (95,305) Cash and cash equivalents at beginning of year............................. 57,094 70,407 165,712 Cash and cash equivalents at end of year................................... $ 69,403 $ 57,094 $ 70,407
NOTES TO CONDENSED FINANCIAL STATEMENTS 1. PRESENTATION: These condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. For disclosures regarding redeemable preferred stock and commitments and contingencies, see Notes 12 and 17, respectively, to Consolidated Financial Statements. 2. LONG-TERM DEBT: Long-term debt consisted of 7 1/2% to 10% debentures due 2005, 11 7/8% senior subordinated debentures due 2001, 15% subordinated notes due 1995 and 11 3/8% subordinated debentures due 1997. Maturities of long-term debt during each of the five fiscal years subsequent to January 29, 1994, are $0, $137,359,000, $24,500,000, $0 and $0, respectively. For additional disclosures regarding long-term debt, see Note 9 to Consolidated Financial Statements. 3. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL DISCLOSURES. S-4 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (A) FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND JANUARY 25, 1992 (IN THOUSANDS)
ADDITIONS CHARGED BALANCE AT TO COSTS CHARGED BALANCE BEGINNING AND TO OTHER AT END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR FISCAL YEAR ENDED JANUARY 29, 1994 Allowance for doubtful accounts...................... $ 6,748 $ 2,521 $ 720(b) $ (2,918)(c) $ 7,071 Valuation allowance for deferred tax assets.......... $ 251,426 $ 43,896 $ -- $ (6,118) $ 289,204 FISCAL YEAR ENDED JANUARY 30, 1993 Allowance for doubtful accounts...................... $ 6,401 $ 3,700 $ 765(b) $ (4,118)(c) $ 6,748 Valuation allowance for deferred tax assets.......... $ 173,486(d) $ 75,511 $3,758 $ (1,329) $ 251,426 FISCAL YEAR ENDED JANUARY 25, 1992 Allowance for doubtful accounts...................... $ 5,675 $ 4,324 $ 937(b) $ (4,535)(c) $ 6,401
(a) The fiscal years ended January 30, 1993 and January 25, 1992 have been restated to exclude amounts related to discontinued operations. (b) Reclassification and collection of accounts previously written off. (c) Reclassifications and uncollectible amounts written off. (d) The valuation allowance for deferred tax assets arose as a result of the Company's adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" as of the beginning of fiscal 1992. See Note 14 to Consolidated Financial Statements. S-5 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND JANUARY 25, 1992 (IN THOUSANDS)
WEIGHTED AVERAGE WEIGHTED INTEREST MAXIMUM AVERAGE AVERAGE RATE ON AMOUNT AMOUNT INTEREST BALANCE AT BALANCE OUTSTANDING OUTSTANDING RATE END OF AT END OF DURING THE DURING THE DURING THE CATEGORY YEAR YEAR YEAR YEAR (A) YEAR (B) FISCAL YEAR ENDED JANUARY 29, 1994 Banks............................................. $ 41 7.3% $ 5,000 $ 388 7.5% Other............................................. $ 3,748 4.5% $ 4,067 $ 2,455 4.4% FISCAL YEAR ENDED JANUARY 30, 1993 Banks............................................. $ 5,000 7.5% $ 5,000 $ 385 7.5% Other............................................. $ 4,067 3.9% $ 4,179 $ 2,908 5.0% FISCAL YEAR ENDED JANUARY 25, 1992 Banks............................................. $ 2,217 12.5% $11,677 $ 9,912 14.9% Other............................................. $ 4,179 5.8% $ 5,050 $ 2,396 7.4%
(a) The average amount outstanding during the year was computed by dividing the total month-end outstanding principal balances by the number of months. (b) The weighted average interest rates were computed by dividing the total interest expense on short-term debt by the average amount outstanding during the fiscal year. S-6 COLLINS & AIKMAN GROUP, INC. AND SUBSIDIARIES SCHEDULE X -- SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND JANUARY 25, 1992 (IN THOUSANDS)
CHARGED TO COSTS AND EXPENSES FISCAL FISCAL FISCAL ITEM 1993 1992 1991 Maintenance and Repairs.......................................................... $36,842 $31,445 $27,862 Advertising Costs................................................................ $ 2,714 $ 2,515 $ 6,569
S-7 EX-3 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF COLLINS & AIKMAN GROUP, INC. Collins & Aikman Group, Inc., a corporation originally incorporated on March 17, 1971 under the name Five Fifteen, Inc. and existing under and by virtue of the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY: 1. That the Restated Certificate of Incorporation of this corporation be restated to read in full as follows: FIRST: The name of the Corporation is Collins & Aikman Group, Inc. (hereinafter sometimes called the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name of the registered agent at that address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Hundred Twenty-Three Million, Six Hundred Thousand and One (123,600,001) consisting of: (a) Thirty Million (30,000,000) shares of Preferred Stock of the par value of ten cents ($.10) each (hereinafter referred to as 'Undesignated Preferred Stock'); (b) In addition to the Undesignated Preferred Stock, Twenty-Three Million, Six Hundred Thousand (23,600,000) shares of 15-1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock of the par value of ten cents ($.10) each (hereinafter referred to together with the Undesignated Preferred Stock, collectively, as the 'Preferred Stock'); (c) One (1) share of Class A Common Stock of the par value of ten cents ($.10) each (hereinafter referred to as the 'Class A Common Stock'); and (d) Seventy Million (70,000,000) shares of Common Stock of the par value of ten cents ($.10) each (hereinafter referred to as 'Common Stock'). A. UNDESIGNATED PREFERRED STOCK Shares of Undesignated Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors, each of said series to be distinctly designated. All shares of any one series of Undesignated Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the designations, preferences and relative, participating, optional or other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and there is hereby expressly vested in the Board of Directors of the Corporation the authority to issue one or more series of Undesignated Preferred Stock and to fix in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors of the Corporation the voting powers and the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Undesignated Preferred Stock which shall constitute, such series, and such number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions upon which, dividends, if any, on Undesignated Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other classes of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Undesignated Preferred Stock of such series to convert the same into, or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Undesignated Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions upon which, Undesignated Preferred Stock of such series may be redeemed; 2 (5) The rights, if any, of the holders of Undesignated Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up of the Corporation; (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Undesignated Preferred Stock of such series; and (7) The extent of the voting powers, of the holders of such series of Undesignated Preferred Stock which may, without limiting the generality of the foregoing, include the right, voting as a series by itself or together with other series or class of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series or class of Preferred Stock or under such other circumstances and on such conditions as the Board of Directors may determine; provided, however, that any resolution adopted by the Board of Directors establishing a series of Undesignated Preferred Stock shall contain provisions to the effect that in the event of a continuing default in the payment of dividends which has not been cured by such payment on the terms and subject to the conditions set forth in such resolution, the holders of each series of Undesignated Preferred Stock as to which there is such a continuing default shall have the right, as a class, to elect not less than one director as provided in such resolution until such default has been cured by the payment of any dividends so in arrears. B. 15-1/2% JUNIOR CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK The powers, designation, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions of the 15-1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock of the Corporation are as follows: (1) Designation. The designation of this class of 23,600,000 shares of Preferred Stock is '15-1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock, par value $0.10 per share' (hereinafter called 'this Class'). The number of shares of this Class may be increased or decreased from time to time by an amendment or amendments to this subparagraph 1 authorized by a resolution or resolutions of the Board of Directors of the Corporation pursuant to the authority granted to it by provisions of subparagraph 5 of Paragraph D of this Article FOURTH, provided that no such amendment shall reduce the number of shares of this Class to less than the aggregate number of shares of this Class then issued and outstanding and issuable pursuant to warrants then outstanding. 3 (2) Rank. This Class shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank senior to the Common Stock and the Class A Common Stock (collectively, the "Junior Securities"). This Class shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank junior to the Corporation's $2.50 Convertible Preferred Stock, Series A, and all other classes and series of capital stock of the Corporation hereafter authorized, designated or issued (collectively, the "Senior Securities"). There shall be no restrictions or limitations on the ability of the Corporation to authorize, designate or issue additional classes, series or shares of Senior Securities. (3) Dividends. (a) The holders of shares of this Class shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation and out of the assets of the Corporation available for the payment of dividends under the provisions of the GCL, dividends payable at the rate of $3.875 per share per annum. Such dividends shall be payable quarterly on the first day of February, May, August and November in each year (each of such dates a 'Dividend Payment Date') commencing with later of (i) August 1, 1989, and (ii) of the first such date after the time the merger (the 'Merger') of WCI Acquisition Corporation, a Delaware corporation, with and into the Corporation shall become effective (the 'Merger Effective Time'); except that if such day is not a business day then such dividend shall be payable on the next following business day. (As used in this Article FOURTH, the term 'business day' shall mean any day except a Saturday, a Sunday or a day on which banking institutions are authorized or required by law to close in the City of New York.) Dividends on each share of this Class shall begin to accrue and be cumulative on each outstanding share of this Class (whether or not in any quarterly period there shall be assets of the Corporation legally available for the payment of such dividends) from and including the later of (i) the Merger Effective Time and (ii) the date of initial issuance of such share. The amount of any dividends 'accrued' on any share of this Class at any Dividend Payment Date shall be deemed to be the amount of any unpaid dividends accumulated thereon to and excluding such Dividend Payment Date, whether or not earned or declared, and the amount of dividends 'accrued' on any share of this Class at any date other than a Dividend Payment Date shall be calculated as the amount of any unpaid dividends accumulated to and excluding the last preceding Dividend Payment Date, whether or not earned or declared, plus an amount calculated on the basis of the annual dividend rate for the period from and including such last preceding Dividend Payment Date to and excluding the date as of which the calculation is made. All dividends on this Class shall be computed on the basis of the number of days elapsed in a 360-day year consisting of 12 months of 30 days each. Such dividends shall be paid to the 4 holders of record of shares of this Class as they appear on the stock register of the Corporation on such date as shall be fixed by the Board of Directors of the Corporation; provided, however, such date shall not be less than 10 days nor more than 60 days prior to the applicable Dividend Payment Date. Dividend arrearages for any past dividend periods may be declared and paid at any time to holders of record on such date as may be fixed by the Board of Directors of the Corporation; provided, however, such date shall not be less than 10 days nor more than 60 days prior to the date of payment. (b) All dividends on this Class shall be payable in cash, except that dividend payments with respect to quarterly dividends accruing on or prior to February 1, 1995 (whenever such dividends are actually paid), may be paid in whole or in part in additional shares of this Class if the Board of Directors of the Corporation so directs. All such dividends paid in additional shares of this Class shall be paid at a rate of 0.04 shares of this Class for each $1 of such dividends not paid in cash. The issuance of shares of this Class at the prescribed rate shall constitute full payment of the portion of such dividends payable in kind. All dividends paid with respect to shares of this Class, whether and to the extent in cash or in kind, shall be paid pro rata to the holders entitled thereto. No interest or sum of money in lieu of interest or additional shares of this Class shall be payable in respect of any accumulated unpaid dividends on shares of this Class (whether such unpaid dividends are subsequently paid in kind or in cash). (c) Shares of this Class issued upon the payment of dividends in kind on shares of this Class will be issuable in fractional shares to the extent applicable. (d) (i) Holders of shares of this Class shall be entitled to receive the dividends provided for in subparagraph 3(a) in preference to and in priority over any dividends upon any of the Junior Securities. (ii) The Corporation shall not (x) declare, pay or set apart funds for payment of any cash dividends on shares of Junior Securities, (y) purchase, redeem or otherwise retire any Junior Securities or warrants, rights or options exercisable for shares of Junior Securities (and shall not set apart funds for such payment with respect thereto), or (z) make any distributions with respect to Junior Securities or any warrants, rights or options exercisable for any Junior Securities (except dividends or distributions on shares of Junior Securities in shares of any Junior Securities), unless full cumulative dividends on all shares of this Class shall have been paid prior to, or shall be paid concurrently with, the time of such declaration, payment, setting apart, purchase, redemption, retirement or distribution for each Dividend Payment Date on or prior to such time. 5 (iii) Notwithstanding anything contained in this Paragraph B of this Article FOURTH to the contrary, no dividends on shares of this Class shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time as the terms and provisions of any contract or other agreement of the Corporation or any of its subsidiaries entered into or assumed at or prior to the Merger Effective Time, or any refinancings (including multiple refinancings) of such contracts or agreements, prohibit such declaration, payment or setting apart for payment or provide that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder; provided, however, that nothing contained in this Paragraph B of this Article FOURTH shall in any way or under any circumstances be construed or deemed to require the Board of Directors of the Corporation to declare, or the Corporation to set apart for payment, any dividends on shares of this Class, whether or not permitted by any of such agreements. The failure of the Board of Directors of the Corporation to declare a dividend in reliance upon the immediately preceding sentence shall not be construed or deemed to prevent the accrual of such undeclared dividend. (e) Subject to the foregoing provisions of this subparagraph 3 of this Paragraph B and to the provisions of subparagraph 8 of this Paragraph B, the Board of Directors may declare, and the Corporation may pay, make or set apart for payment, dividends and other distributions on, and the Corporation may purchase, redeem or otherwise retire, any Junior Securities or any warrants, rights or options exercisable for shares of Junior Securities, and the holders of shares of this Class shall not be entitled to share therein. (4) Scheduled Redemption. Subject to the Corporation having funds legally available therefor, the Corporation shall be obligated to redeem all outstanding shares of this Class on the 10th anniversary of the Merger Effective Time. Such redemption of shares of this Class shall be at a redemption price equal to the Liquidation Preference (as defined below) per share together with accrued but unpaid dividends (whether or not declared) through the date fixed for redemption. If the funds of the Corporation legally available for such a redemption on such 10th anniversary are insufficient to redeem all shares of this Class then outstanding, funds to the extent legally available for the purpose will be used to redeem the number of shares of this Class that legally may be redeemed. If the Corporation at any time shall fail to discharge its obligation to redeem shares of this Class pursuant to this subparagraph 4, such obligation shall be discharged as soon as the Corporation is able to do so. (5) Optional Redemption. All or any part of this Class may be redeemed by the Corporation at its election at any time and from time to time in whole or in part, by resolution of the Board 6 of Directors, at a cash price per share equal to the sum of (i) the Optional Redemption Price plus (ii) any accrued and unpaid dividends thereon, whether or not declared, to the date fixed for the redemption; provided, however, that, if and when any quarterly dividend shall have accrued on shares of this Class and shall not have been paid or declared and a sufficient sum set apart for payment for any Dividend Payment Date on or prior to the date fixed for redemption, the Corporation may not redeem any shares of this Class unless all shares of this Class then outstanding are redeemed. The Optional Redemption Price shall equal for optional redemptions with a date fixed for redemption (a) that is on or prior to the first anniversary of the Merger Effective Time, 101% of the Liquidation Preference per share, (b) after the first anniversary of the Merger Effective Time to and including the second anniversary of the Merger Effective Time, 101.5% of the Liquidation Preference per share, and (c) thereafter, 102% of the Liquidation Preference per share. If fewer than all the outstanding shares of this Class not previously called for redemption are to be redeemed pursuant to this subparagraph 5, the Board of Directors of the Corporation shall select the shares of this Class to be redeemed from outstanding shares not previously called for redemption by lot or pro rata as determined by the Board of Directors of the Corporation in its sole discretion; provided, however, that the Board of Directors of the Corporation may in selecting shares for redemption choose to redeem all shares of this Class held by holders of a number of such shares not to exceed 99 as may be specified by the Board of Directors (with all other shares to be redeemed, if any, so selected by lot or pro rata). (6) Notice of Redemption. At least 30 days but not more than 60 days prior to the date fixed for any redemption of shares of this Class, written notice of such redemption shall be mailed to each holder of record of shares of this Class to be redeemed at the address shown on the stock transfer books of the Corporation or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption. Each such notice shall specify (i) the number of shares to be redeemed from such holder, (ii) the numbers of the certificates of the shares being redeemed, (iii) the date fixed for redemption, (iv) the redemption price, (v) the place or places at which payment may be obtained, and (vi) that dividends on the shares to be redeemed shall cease to accrue on the date fixed for such redemption. (7) Status of Shares of Preferred Stock upon Redemption. (a) Upon due surrender of the certificates for any shares of this Class to be redeemed, such shares shall be redeemed by the Corporation at the applicable redemption price. In case fewer than 7 all shares of this Class represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares of this Class without cost to the holder thereof. Unless there shall have been a default in payment of the redemption price, from and after any date fixed for redemption, dividends on the shares of this Class so called for redemption shall cease to accrue, such shares shall no longer be deemed to be outstanding and shall not have the status of shares of this Class and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price without interest) shall cease with respect to such shares. (b) If at any time the Corporation shall have irrevocably deposited in trust with a trustee for the benefit of the holders of all shares of this Class money or direct noncallable obligations of the United States maturing as to principal and interest in such amounts and at such times as are sufficient to pay all future dividends on all shares of this Class at the scheduled Dividend Payment Dates through the 10th anniversary of the Merger Effective Time (or any earlier date duly fixed for an optional redemption thereof) and the redemption price thereof, then, from and after the date on which such provision has been made such shares of this Class shall no longer be deemed to be outstanding except for purposes of accruals of quarterly dividends and shall not have the status of shares of this Class, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation quarterly dividends and the applicable redemption price without interest) shall cease with respect to such shares. (c) All moneys so deposited with or held by such trustee which remain unclaimed by the holders of shares of this Class 730 days after the date such moneys are payable to holders of shares of this Class shall be paid by such trustee to the Corporation and thereafter the holders of such shares of this Class shall look only to the Corporation for payment. (8) Liquidation, Dissolution or Winding-Up. In the event of any voluntary or involuntary liquidation, dissolution or winding- up of the Corporation, holders of shares of this Class shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings but after payment in full of all amounts due under or in respect of all classes and series of capital stock of the Corporation other than Junior Securities, an amount in cash equal to $25.00 per share (the 'Liquidation Preference') plus any accrued and unpaid dividends to the date fixed for liquidation, dissolution or winding-up, whether or not declared, before any distribution is made on any Junior Securities. If upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation available for 8 distribution to holders of shares of this Class shall be insufficient to pay the holders of outstanding shares of this Class the full amounts to which they shall be entitled under this subparagraph 8, the holders of shares of this Class shall share equally and ratably in any distribution of assets of the Corporation in proportion to the full amount to which they would otherwise be respectively entitled. After payment of the full amount of Liquidation Preference to which they are entitled plus all accrued and unpaid dividends, whether or not declared, the holders of shares of this Class shall not be entitled to any further participation in any distribution of assets of the Corporation. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or any part of the property or assets of the Corporation, nor the consolidation or merger or other business combination of the Corporation with or into any other corporation or corporations, shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding-up of the Corporation. (9) Voting Rights. The holders of shares of this Class shall not be entitled to any voting rights except to the extent provided by law. (10) Rights to Redeem in Exchange for Merger Preferred Stock. The holders of shares of this Class shall have the right, at their option, to redeem shares of this Class in exchange for shares of the 15-1/2% Cumulative Exchangeable Redeemable Preferred Stock (the 'Merger Preferred Stock') of WCI Holdings Corporation, a Delaware Corporation ('Holdings'), at any time, on and subject to the following terms and conditions: (a) The shares of this Class shall be redeemable, at the office of the Corporation or of any agent appointed by the Corporation for that purpose, in exchange for fully paid and nonassessable shares of Merger Preferred Stock at a rate of one share of Merger Preferred Stock for each share of this Class. (b) In order to convert shares of this Class into Merger Preferred Stock, the holder of shares of this Class shall surrender, at the office of the Corporation or of any agent appointed by the Corporation for that purpose the certificate or certificates therefor, duly endorsed to the Corporation or in blank, and give written notice to the Corporation at such office that he elects to redeem such shares in exchange for shares of Merger Preferred Stock. No payment or adjustment shall be made upon any redemption under this subparagraph 10 on account of any dividends accrued (whether or not declared) on the shares of this Class surrendered for redemption. Shares of this Class shall be deemed to have been redeemed immediately prior to the close of 9 business on the day of the surrender of such shares for redemption in accordance with the foregoing provisions of this subparagraph 10. As promptly as practicable on or after the redemption date, the Corporation shall cause to be issued and delivered at such office a certificate or certificates for the number of full shares of Merger Preferred Stock issuable upon such redemption. In case any shares of this Class are called for redemption by the Corporation pursuant to subparagraph 5 of this Paragraph B, the right of the holder to redeem such shares pursuant to this subparagraph 10 shall cease and terminate at the close of business on the redemption date fixed by the Corporation pursuant to subparagraph 5 of this Paragraph B, unless default shall be made in payment of the redemption price. (c) Only whole shares of Merger Preferred Stock will be issued upon redemption of shares of this Class pursuant to this subparagraph 10 in exchange for shares of Merger Preferred Stock. In lieu of the fractional portion of the aggregate number of shares of Merger Preferred Stock otherwise deliverable to a record holder of shares of this Class upon such a redemption ('Fractional Shares'), such record holder will receive a payment in cash equal to such record holder's proportionate interest in the net proceeds from the sale or sales in the open market of the aggregate of such Fractional Shares otherwise in connection with such a redemption; provided, however, the Board of Directors of the Corporation may, but need not, make other provisions with respect to payment for such Fractional Shares as it shall determine in its discretion exercised in good faith. Any such sale or sales shall be effected promptly. (d) In case of any consolidation or merger of Holdings with another corporation or in the case of any sale or conveyance to another corporation (other than a wholly owned subsidiary of Holdings) of all or substantially all the property of Holdings, or in case the Merger Preferred Stock shall be reclassified or converted, the holder of a share of this Class shall have the right thereafter, so long as the redemption right under this subparagraph 10 shall exist, to redeem such share in exchange for the kind and amount of shares of stock and other securities and properties receivable upon consummation of such consolidation, merger, sale, conveyance, reclassification or conversion that such holder actually would have been entitled to if such holder had redeemed such share in exchange for Merger Preferred Stock immediately prior to such consummation (with such adjustments with respect to fractional shares of this Class as the Board of Directors of the Corporation shall determine in its discretion exercised in good faith). If applicable, on or prior to such consummation, effective provision shall be made, in the certificate of incorporation of any resulting or surviving corporation or otherwise, for the protection of the redemption rights of the shares of this Class set forth in this subparagraph 10 which shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other 10 securities and property deliverable upon redemption of shares of this Class at the option of the holder. In case securities or properties other than Merger Preferred Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this subparagraph 10 shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. If any event shall occur by reason of action taken by Holdings as to which, in the good faith opinion of the Board of Directors of the Corporation, the provisions of this subparagraph 10(d) shall not be strictly applicable, but with respect to which the failure to make any adjustment to the provisions concerning the property for which shares of this Class are redeemable in exchange would cause the redemption rights set forth in this subparagraph 10 not to be applicable in accordance with the intent and principles of this subparagraph 10(d), then the Board of Directors of the Corporation may, in its sole discretion, but shall be under no obligation to, make such adjustments in the application of the provisions of this subparagraph 10 on a basis consistent with such intent and principles. Whenever an adjustment is made pursuant to this subparagraph 10(d), the Corporation shall promptly mail to holders of shares of this Class and file with the transfer agent therefor a notice of the adjustment and file with the transfer agent for this Class an officer's certificate stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct. The Corporation need not deliver prior notice of any event which would result in an adjustment pursuant to this subparagraph 10(d) to the holders of shares of this Class prior to the occurrence of such event. The Corporation shall pay any and all taxes that may be payable in respect of the issue and delivery of shares of Merger Preferred Stock on redemption of shares of this Class pursuant to this subparagraph 10(d), except that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Merger Preferred Stock in a name other than that in which the shares of this Class so redeemed were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to Corporation the amount of any such tax, or has established to the satisfaction of the Corporation that such tax has been paid. (11) Fractional Shares. Fractional shares of this Class shall be issuable. C. COMMON STOCK (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the 11 provisions of Paragraph A of this Article FOURTH and set forth in Paragraph B of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements (fixed in accordance with the provisions of Paragraph A of this Article FOURTH and set forth in Paragraph B of this Article FOURTH), if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts, and subject further to any other conditions which may be fixed in accordance with the provisions of Paragraph A of this Article FOURTH and which are set forth in Paragraph B of this Article FOURTH, then, and not otherwise, the holders of Common Stock and Class A Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors out of assets of the Corporation legally available therefor; provided, however, any dividends on the Common Stock and the Class A Common Stock shall be paid to the holders thereof ratably in proportion to the number of shares of Common Stock or Class A Common Stock held by them respectively. (2) After distribution in full of the preferential amount (fixed in accordance with the provision of Paragraph A of this Article FOURTH and set forth in Paragraph B of this Article FOURTH), if any, to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock and Class A Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders, ratably in proportion to the number of shares of Common Stock and Class A Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of Paragraph B of this Article FOURTH or of such resolution or resolutions as may be adopted respecting Undesignated Preferred Stock by the Board of Directors pursuant to Paragraph A of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held by such holder on all matters voted upon by the stockholders and each holder of Class A Common Stock shall have one vote in respect of each share of Class A Common Stock held by such holder on all matters voted upon by the stockholders. The shares of Common Stock and Class A Common Stock shall be voted together as a class in any such vote. D. OTHER PROVISIONS (1) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of 12 any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (2) The relative powers, preferences and rights of each series of Undesignated Preferred Stock in relation to the powers, preferences and rights of each other series or class of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in Paragraph A of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series or classes of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Undesignated Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Undesignated Preferred Stock adopted pursuant to Paragraph A of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be fixed therein) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Undesignated Preferred Stock. (3) Subject to the provisions of subparagraph 2 of this Paragraph D, shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (4) Shares of authorized Common Stock and Class A Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (5) Subject to the applicable provisions of the GCL, if any, the authorized number of shares of Common Stock, of Class A Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. 13 (6) The Corporation shall not issue any shares of stock of any class or series without voting rights other than shares of the 15-1/2% Junior Cumulative Exchangeable Redeemable Preferred Stock. * * * * Rights, Preferences, Privileges and Restrictions of $2.50 Convertible Preferred Stock, Series A. RESOLVED that pursuant to the authority conferred upon the Board of Directors by Paragraph A of Article FOURTH of the Certificate of Incorporation of this Corporation there is hereby established a series of the authorized preferred shares of this Corporation having a par value of $.10 per share, which series shall be designated as "$2.50 Convertible Preferred Stock, Series A" (the "Convertible Preferred Stock"), shall consist of 18,000,000 shares and shall have the following dividend rights, dividend rates, voting rights, conversion rights, rights and terms of redemption, redemption prices and liquidation preferences. 1. Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified. Acquisition. The term "Acquisition" shall mean the purchase by the Corporation of the Consumer and Industrial Products Group of Gulf & Western Industries, Inc. pursuant to the terms of the agreement between Wickes Companies, Inc. and Gulf & Western Industries, Inc. dated September, 1985. Board of Directors. The term "Board of Directors" shall mean the Board of Directors of this Corporation and, to the extent permitted by law, any committee of such Board of Directors authorized to exercise the powers of such Board of Directors. Closing Price. The term "Closing Price" for any day shall mean the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in either case on the principal national securities exchange on which the security is listed or admitted to trading, or if the security is not listed or admitted to trading on any national securities exchange, but is traded in the over the counter market, the closing sale price of the security or, in case no sale is publicly reported, the average of the closing bid and asked quotations for the security on NASDAQ or any comparable system or, if the security is not listed on NASDAQ or a comparable system, the closing sale price of the security or, in case no sale is publicly reported, the average of the closing bid and asked prices, as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by this Corporation for that purpose. 14 Common Stock. The term "Common Stock" shall mean all shares now or hereafter authorized of any class of common stock of this Corporation and any other stock of this Corporation, howsoever designated, authorized after the Issue Date, which has the right (subject always to prior rights of any class or series of preferred shares) to participate in the distribution of the assets and earnings of this Corporation without limit as to per share amount. Conversion Price. The term "Conversion Price" shall mean the price per share of Common Stock used to determine the number of shares of Common Stock deliverable upon conversion of a share of the Convertible Preferred Stock, which price shall initially be $4.57125 per share. If, on the Effective Date, the Closing Price of the Common Stock is lower than $4 5/16 per share, the Conversion Price shall be changed to an amount equal to 106% of the average of the Closing Price of the Common Stock for the fifteen trading days immediately preceding the Effective Date, if such average Closing Price is less than $4 5/16 per share. The Conversion Price shall be subject to adjustment in accordance with the provisions of paragraph 6 below. Convertible Exchangeable Preferred Stock. T h e t e r m "Convertible Exchangeable Preferred Stock" shall mean any and all of the outstanding shares of the Corporation's $2.50 Convertible Exchangeable Preferred Stock issued on May 1, 1985 in accordance with the Certificate of Designation filed with the Secretary of State of Delaware on April 29, 1985. Dividend Payment Dates. The term "Dividend Payment Dates" shall mean the first days of December, March, June and September in each year. Effective Date. The term "Effective Date" shall mean the date on which the Securities and Exchange Commission first declares the Registration Statement effective. Final Redemption Date. The term "Final Redemption Date" shall mean the date, if any, after a default, if any, by this Corporation in making payment for shares of Convertible Preferred Stock on any date fixed for redemption, when this Corporation makes funds for payment of the Redemption Price for all shares of Convertible Preferred Stock being redeemed, together with accrued dividends to such date, available to holders thereof. Issue Date. The term "Issue Date" shall mean the date that shares of the Convertible Preferred Stock are first issued by this Corporation. Junior Stock. The term "Junior Stock" shall mean Common Stock, and any other class or series of stock of the Corporation authorized after the Issue Date not entitled to receive any dividends in any dividend period unless all dividends required to 15 have been paid or declared and set apart for payment on the Convertible Preferred Stock shall have been so paid or declared and set apart for payment and, for purposes of paragraph 4 below, shall also mean any class or series of stock of the Corporation authorized after the Issue Date not entitled to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Convertible Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. Liquidation Price. The term "Liquidation Price" shall mean $25.00 per share of Convertible Preferred Stock. Parity Stock. The term "Parity Stock" shall mean the Convertible Exchangeable Preferred Stock and any other class or series of stock of the Corporation authorized after the Issue Date entitled to receive payment of dividends on a parity with the Convertible Preferred Stock and, for purposes of paragraph 4 below, shall also mean any other class or series of stock of the Corporation authorized after the Issue Date entitled to receive assets upon liquidation, dissolution or winding up of the affairs of the Corporation on a parity with the Convertible Preferred Stock. Redemption Price. The term "Redemption Price" shall mean the price to be paid upon redemption of the Convertible Preferred Stock, as determined in accordance with paragraph 3 below. Registration Statement. The term "Registration Statement" shall mean the registration statement of the Corporation filed with the Securities and Exchange Commission on an appropriate form pursuant to the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, which covers the entire initial issue of the Convertible Preferred Stock. Senior Stock. The term "Senior Stock" shall mean any class or series of stock of the Corporation authorized after the Issue Date ranking senior to the Convertible Preferred Stock in respect of the right to receive payment of dividends, and for purposes of paragraphs 4 and 7 below, shall also mean any class or series of stock of the Corporation authorized after the Issue Date ranking senior to the Convertible Preferred Stock in respect of the right to participate in any distribution upon liquidation, dissolution or winding up of the affairs of the Corporation. Tangible Net Worth. The term "Tangible Net Worth" shall mean the stockholders' equity of the Corporation and its consolidated subsidiaries less their consolidated Intangible Assets (as defined below), all as determined on a consolidated basis and (except as otherwise specifically indicated herein) in accordance with generally accepted accounting principles. For purposes of this definition "Intangible Assets" means the amount (to the extent 16 reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within twelve months after the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by the Corporation or a consolidated subsidiary, (ii) all equity investments in unconsolidated subsidiaries and in persons which are not subsidiaries (excluding marketable equity securities), and (iii) all unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization and developmental expenses and other intangible items, all of the foregoing as determined in accordance with generally accepted accounting principles (except to the extent that any of the foregoing assets was received by the Corporation in connection with the Acquisition). Also for purposes of this definition, in determining the stockholders' equity of the Corporation and its consolidated subsidiaries there shall be added to the total consolidated liabilities of the Corporation and its subsidiaries the amount of any indebtedness of any person, other than the Corporation or its subsidiaries, which the Corporation or its subsidiaries have guaranteed or which has otherwise become their legal obligation. Total Assets. The term "Total Assets" shall mean the total amount of assets of the Corporation and its subsidiaries as determined on a consolidated basis in accordance with generally accepted accounting principles. 2. Dividends. Each issued and outstanding share of Convertible Preferred Stock shall entitle the holders of record thereof as of the "record date" to receive, when and as declared by the Board of Directors, out of any funds legally available therefor, cash dividends at the rate of $3.00 per annum, and no more, which shall accrue from the Issue Date and shall be payable on the Dividend Payment Dates, commencing December 1, 1985. On the Effective Date, but in no event less than six months from the Issue Date, the cash dividend payable shall decrease to a rate of $2.50 per annum; provided, however, that if, six months from the Issue Date, the Corporation has an insufficient number of shares of authorized but unissued shares of Common Stock available for issuance upon the conversion of all of the shares of Convertible Preferred Stock authorized hereby, the cash dividend payable on the Convertible Preferred Stock shall remain at a rate of $3.00 per annum until such time as a sufficient number of authorized but unissued shares of Common Stock shall exist. With respect to any shares of the Convertible Preferred Stock issued after the Issue Date pursuant to paragraph 10 hereof, cash dividends shall accrue from the date of issuance of any such additional shares at the rate payable on the other outstanding shares of Convertible Preferred Stock pursuant to the provisions hereof. The quarterly period between consecutive Dividend Payment Dates shall hereinafter be referred to as a "Dividend Period". As used above, the term 17 "record date" means, with respect to dividends payable on December 1, March 1, June 1 and September 1, respectively, of each year, November 15, February 15, May 15 and August 15 of such year, or such other record date designated by the Board of Directors of this Corporation with respect to the dividend payable on such respective Dividend Payment Date. If for any period holders of the Convertible Preferred Stock shall not receive the full dividends provided for in this paragraph 2, such unpaid dividends for such period shall be cumulative, and shall accrue without interest on a day-to-day basis, whether or not earned or declared, from and after the date when payment thereof would have been due. Dividends payable for any period less than a full Dividend Period will be computed on the basis of a 360-day year. So long as any shares of Convertible Preferred Stock shall be outstanding, the Corporation shall not declare or pay on any Junior Stock any dividend whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid or payable in shares of Common Stock with respect to Junior Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall the Corporation make any distribution on any Junior Stock, nor shall any Junior Stock be purchased or redeemed by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the holders of Convertible Preferred Stock shall have been entitled for all previous Dividend Periods shall have been paid or declared and a sum of money sufficient for the payment thereof set apart. In the event that full dividends are not paid or made available to the holders of all outstanding shares of Convertible Preferred Stock and of any Parity Stock, and funds available shall be insufficient to permit payment in full to all such holders of the preferential amounts to which they are then entitled, the entire amount available for payment of dividends shall be distributed among the holders of the Convertible Preferred Stock and of any Parity Stock ratably in proportion to the full amount to which they would otherwise be respectively entitled. 3. Optional Redemption. (a) Subject to the provisions of subparagraphs (b) and (d) of this paragraph 3, the shares of Convertible Preferred Stock may be redeemed, at the option of the Board of Directors, in whole or from time to time in part on at least 30 days' notice, at the following redemption prices per share (the "Redemption Price") if redeemed during the twelve-month period beginning on September 1 18 in the years specified below: Redemption Redemption Year Price Year Price 1985............ $27.50 1991............. $26.00 1986............ 27.25 1992............. 25.75 1987............ 27.00 1993............. 25.50 1988............ 26.75 1994............. 25.25 1989............ 26.50 1995 and thereafter 25.00 1990............ 26.25 plus, in each case, an amount equal to dividends accrued to the date fixed for redemption. (b) Notwithstanding the provisions of subparagraph (a), the shares of Convertible Preferred Stock may not be redeemed by the Corporation prior to September 1, 1988, unless (i) the Convertible Preferred Stock is then convertible under subparagraph (a) of paragraph 6 hereof and (ii) the Closing Price of the Common Stock for 20 trading days within a period of 30 consecutive trading days ending on the fifth day prior to the date the notice of redemption is given has been greater than or equal to 150% of the Conversion Price then in effect (as adjusted in accordance with paragraph 6). (c) Notice of every redemption shall be published at least once not less than 30 days nor more than 60 days prior to the date fixed for redemption in a daily newspaper printed in the English language and published and of general circulation in the City of Los Angeles, California, and in a daily newspaper printed in the English language and published and of general circulation in The Borough of Manhattan, City and State of New York. Notice of every such redemption shall also be mailed, not less than 30 days nor more than 60 days prior to the date fixed for redemption, to the holders of record of the shares of Convertible Preferred Stock to be redeemed at their respective addresses as the same appear upon the books of this Corporation or supplied by them to this Corporation for the purpose of such notice; but no failure to mail such notice to particular stockholders or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Convertible Preferred Stock. In case of redemption of less than all of the Convertible Preferred Stock at the time outstanding, this Corporation shall select shares to be so redeemed pro rata or by lot, in such manner as the board of Directors may determine. If notice of any redemption by this Corporation shall have been mailed as hereinbefore provided and if before the redemption date specified in such notice all funds necessary for such redemption shall have been set apart so as to be available therefor and only therefor, then on and after the close of business on the date fixed for redemption, the shares of Convertible Preferred 19 Stock called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith cease and terminate, except the right of the holders thereof to receive upon surrender of their certificates the amounts payable upon redemption thereof, without interest, and the right of holders thereof to convert shares of Convertible Preferred Stock into Common Stock pursuant to paragraph 6; provided, however, that, if on or prior to the date fixed for such redemption (but no earlier than 60 days prior to the date fixed for such redemption) this Corporation shall deposit, as a trust fund, with any bank or trust company organized under the laws of the United States of America or any state thereof having a capital, undivided profits and surplus aggregating at least $50,000,000, a sum sufficient to redeem on such redemption date the shares of Convertible Preferred Stock to be redeemed with irrevocable instructions and authority to the bank or trust company to mail the notice of redemption (or to complete such mailing previously commenced, if it has not already been completed) and to pay, on and after the date fixed for such redemption or prior thereto, the redemption price of the shares of Convertible Preferred Stock to be redeemed to their respective holders upon the surrender of their share certificates, then, from and after the date of such deposit (although prior to the date fixed for redemption) the shares of Convertible Preferred Stock to be redeemed shall be deemed to be redeemed and dividends on those shares shall cease to accrue after the date fixed for such redemption. The deposit shall be deemed to constitute full payment for shares of Convertible Preferred Stock to be redeemed to their holders and from and after the date of such deposit the shares shall be deemed to be no longer outstanding and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto, except the right to receive from the bank or trust company payment of a sum sufficient to redeem the shares, without interest, upon surrender of their certificates therefor and the right of holders thereof to convert shares of Convertible Preferred Stock into Common Stock pursuant to paragraph 6. (d) If at any time this Corporation shall have failed to pay all dividends accrued and payable on the then outstanding shares of Convertible Preferred Stock, thereafter and until all dividends accrued and payable on the then outstanding shares of Convertible Preferred Stock shall have been paid or declared and set apart for payment in full, this Corporation shall not redeem any preferred shares, by operation of any sinking fund or otherwise, including shares of Convertible Preferred Stock, unless all then outstanding preferred shares are redeemed, and shall not purchase (or permit any direct or indirect subsidiary of this Corporation to purchase) any preferred shares, including shares of Convertible Preferred Stock, and shall not redeem or purchase (or permit any direct or indirect subsidiary of this Corporation to purchase) any shares of stock subordinate to the shares of Convertible Preferred Stock in 20 respect to dividends or distribution of assets on liquidation. (e) All shares of Convertible Preferred Stock redeemed under this paragraph 3 shall be retired and shall be restored to the status of authorized and unissued preferred stock and may not be reissued as Convertible Preferred Stock. 4. Distributions Upon Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, subject to the prior preferences and other rights of any Senior Stock, but before any distribution or payment shall be made to the holders of Junior Stock, the holders of the Convertible Preferred Stock shall be entitled to be paid the Liquidation Price per share plus an amount equal to any accrued and unpaid dividends thereon to the date of such liquidation or dissolution or such other winding up, and no more, in cash or in property taken at its fair value as determined by the Board of Directors of the Corporation, or both, at the election of the Board of Directors. If such payment shall have been made in full to the holders of the Convertible Preferred Stock, and if payment shall have been made in full to the holders of any Senior Stock and Parity Stock of all amounts to which such holders shall be entitled, the remaining assets and funds of the Corporation shall be distributed among the holders of Junior Stock, according to their respective shares. If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the net assets of the Corporation distributable among the holders of all outstanding shares of the Convertible Preferred Stock and of any Parity Stock shall be insufficient to permit the payment in full to such holders of the preferential amounts to which they are entitled, then the entire net assets of the Corporation remaining after the distributions to holders of any Senior Stock of the full amounts to which they may be entitled shall be distributed among the holders of the Convertible Preferred Stock and of any Parity Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale of all or substantially all the assets of the Corporation to another corporation or corporations shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph 4. 5. When Corporation May Merge, etc. The Corporation shall not consolidate or merge with or into, or transfer or lease all or substantially all of its assets to, any person unless: (1) the person formed by or surviving any such consolidation or merger (if other than the Corporation), or to which such sale or conveyance shall have been made, is a corporation 21 organized and existing under the laws of the United States, any state thereof or the District of Columbia; (2) the corporation formed by or surviving any such consolidation or merger (if other than the Corporation), or to which such sale or conveyance shall have been made, assumes all the obligations of the Corporation with respect to the Convertible Preferred Stock as set forth herein; and (3) the corporation formed by or surviving any such consolidation or merger, or to which such sale or conveyance shall have been made, shall have Total Assets and Tangible Net Worth (immediately after such transaction) equal to or greater than the Total Assets and Tangible Net Worth of the Corporation immediately preceding the transaction. The surviving corporation shall be the successor Corporation, but the predecessor Corporation in the case of a transfer or lease shall not be released from the obligation to pay any dividends due on the Convertible Preferred Stock. 6. Conversion Rights. (a) A holder of shares of Convertible Preferred Stock may convert such shares into shares of Common Stock from the earlier of (i) eight months from and including the Issue Date, (ii) the Effective Date or (iii) the first date on which any of the following events occurs: (1) commencement of a tender offer for the Common Stock, (2) approval by the Board of Directors of any merger or sale of assets transaction in which the Corporation is to be, in substance, acquired by another entity or person, (3) initiation of a proxy contest to elect directors of the Corporation or (4) acquisition by a person or entity, or group of affiliated persons or entities, of beneficial ownership of 20% or more of the Corporation's outstanding Common Stock. Shares of Convertible Preferred Stock may be converted into shares of Common Stock until the close of business on the last business day prior to the date fixed for redemption of such shares, or, if default shall be made in the payment of the Redemption Price, at any time prior to the close of business on the last business day prior to the Final Redemption Date. For purposes of conversion, each share of Convertible Preferred Stock shall be valued at the Liquidation Price, which shall be divided by the Conversion Price in effect on the Conversion Date (as defined in subparagraph (b) below) to determine the number of full shares of Common Stock issuable upon conversion. Upon receipt of shares of Convertible Preferred Stock surrendered for conversion, the Corporation shall pay to the holder in cash an amount equal to any and all accrued but unpaid dividends through the last Dividend Payment Date on the shares of Convertible Preferred Stock so surrendered for conversion; provided, however, that if, in the opinion of counsel to the Company, any such payment would not be legally permissible, there shall be delivered to such 22 holder, in lieu of such cash payment, a number of additional shares of Common Stock having a value (based on the current market price per share of Common Stock determined in accordance with subparagraph (j) below) as of the last trading day prior to the Conversion Date equal to the amount of all accrued but unpaid dividends through the last Dividend Payment Date. Holders who convert their Convertible Preferred Stock after the record date for a dividend thereon and before the payment date will be entitled to the dividend if they held their shares of Convertible Preferred Stock on the record date. No adjustment shall be made in respect of accrued dividends on (i) shares of the Convertible Preferred Stock surrendered for conversion into shares of Common Stock except as set forth in the previous two sentences, or (ii) shares of Common Stock issued upon conversion. No fractional shares of Common Stock shall be issued upon any conversion, but in lieu thereof, this Corporation shall, at its option, either (i) pay therefor in cash an amount equal to the applicable fraction of the Closing Price on the last trading day prior to the Conversion Date (as defined in subparagraph (b) below) or (ii) make such arrangements as the Board of Directors may approve to enable the person entitled to receive a fractional share to sell such fractional share of Common Stock or to buy an additional fractional share of Common Stock sufficient to make a full share of Common Stock. (b) In order to convert shares of Convertible Preferred Stock into shares of Common Stock, a holder shall surrender the certificate or certificates evidencing the shares of Convertible Preferred Stock to be converted, duly endorsed, at the office of the transfer agent for the Convertible Preferred Stock, shall notify this Corporation at such office of his election to convert shares of Convertible Preferred Stock and of the number of such shares which he wishes to convert, shall state in writing the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued, and shall pay any transfer or similar tax if required. In the event that a holder fails to notify the Corporation of the number of shares of Convertible Preferred Stock which he wishes to convert, he shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. The date on which the holder satisfies the last of such requirements is herein referred to as the "Conversion Date". As soon as practicable after the Conversion Date, this Corporation shall deliver through the transfer agent a certificate for the number of full shares of Common Stock issuable upon the conversion and either cash for any remaining fractional share of Common Stock or order forms entitling the holder thereof to sell such fractional share of Common Stock or to purchase such additional fractional shares as may be necessary to make a full share of Common Stock, as provided in subparagraph (a), and a new certificate representing the unconverted portion, if any, of the shares of Convertible Preferred Stock represented by the certificate or certificates surrendered for conversion. The 23 person in whose name the certificate is registered shall become a stockholder of record of the Common Stock on the Conversion Date. (c) In case this Corporation shall at any time after the Issue Date (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock or other securities by reclassification of the Common Stock, the Conversion Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that each holder of shares of Convertible Preferred Stock converted after such time shall be entitled to receive the aggregate number and kind of Common Stock or other securities of this Corporation which, if such shares of Convertible Preferred Stock had been converted immediately prior to such time, he would have owned upon such conversion and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (d) If this Corporation issues any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within 60 days after the record date mentioned below to purchase shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock) at a price per share less than the current market price per share on that record date, the Conversion Price shall be adjusted in accordance with the formula: (N x P) C' = C x O + ( M ) O + N where C' = the adjusted Conversion Price. C = the then current Conversion Price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered or initially issuable upon conversion or exchange of the convertible or exchangeable securities offered. P = the offering price or conversion price or exchange price per share of the additional shares. 24 M = the current market price per share of Common Stock on the record date. See subparagraph (j) below. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If all of the shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock subject to such rights, options or warrants have not been issued when such rights, options or warrants expire, then the Conversion Price shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares of Common Stock actually issued upon the exercise of such rights, options or warrants or initially issuable based upon the number of convertible securities or exchangeable securities actually issued upon the exercise of such rights or warrants. (e) If this Corporation distributes to all holders of its Common Stock any of its assets or debt securities or any rights or warrants to purchase debt securities, assets or other securities of this Corporation (including Common Stock), the Conversion Price shall be adjusted in accordance with the formula: C' = C x M - F M where C' = the adjusted Conversion Price. C = the then current Conversion Price. M = the current market price per share of Common Stock on the record date mentioned below. See subparagraph (j) below. F = the fair market value on the record date of the assets, securities, rights or warrants applicable to one share of Common Stock. The Board of Directors shall determine, in good faith, such fair market value, which determination shall be conclusive. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. This subparagraph does not apply to cash dividends or cash distributions paid out of consolidated current earnings or net consolidated earnings accumulated after the date hereof as shown on the books of this Corporation. Also, this subparagraph does not apply to any rights, options or warrants referred to in 25 subparagraph (d). (f) If this Corporation issues shares of Common Stock for a consideration per share less than the current market price per share on the date this Corporation fixed the offering price of such additional shares, the Conversion Price shall be adjusted in accordance with the formula: P C' = C x O + M A where C' = the adjusted Conversion Price. C = the then current Conversion Price. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares. P = the aggregate consideration received for the issuance of such additional shares. M = the current market price per share of Common Stock on the date of issuance of such additional shares. See subparagraph (j) below. A = the number of shares outstanding immediately after the issuance of such additional shares. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This Section does not apply to (i) any of the transactions described in subparagraphs (d) and (e), (ii) the conversion or exchange of the Convertible Preferred Stock or other securities convertible or exchangeable for Common Stock, (iii) Common Stock issued to this Corporation's employees (other than upon the exercise of options of the type referred to in clause (iv) below) under bona fide employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subparagraph (but only to the extent that the aggregate number of shares excluded by this clause (iii) and issued after the Issue Date under all such plans shall not exceed 10% of the Common Stock outstanding at the time of the issuance of the shares under such plans, exclusive of antidilution adjustments thereunder), (iv) Common Stock issued upon the exercise of options granted to employees at a price equal to the fair market value of such Common 26 Stock at the time such options were granted, (v) Common Stock issued to stockholders of any person which merges into this Corporation, or with a subsidiary of this Corporation, in proportion to their stock holdings in such person immediately prior to such merger, upon such merger, (vi) Common Stock issued in a bona fide public offering pursuant to a firm commitment or best efforts underwriting, (vii) Common Stock issued in a bona fide private placement through a placement agent which is a member firm of the National Association of Securities Dealers, Inc. (except to the extent that any discount from the current market price attributable to restrictions on transferability of the Common Stock, as determined in good faith by the board of Directors and described in a Board resolution, shall exceed 20%), (viii) Common Stock issued upon the exercise of the Company's outstanding warrants, issued pursuant to the Warrant Agreement dated as of January 26, 1985 between the Company and J. Henry Schroder Bank & Trust Company, or (ix) Common Stock issued in exchange for outstanding publicly traded securities of this Corporation pursuant to a bona fide exchange offer to all holders of such outstanding publicly traded securities under Section 3(a)(9) of the Securities Act of 1933, as amended. For purposes of this subparagraph (f), and clause (iii) above, shares of Common Stock issuable upon conversion of shares of Convertible Preferred Stock issued to employees of this Corporation pursuant to paragraph 10 hereof for less than fair market value as determined in good faith by the Board of Directors (which determination shall be conclusive of such fair market value) shall be deemed issued on the date of issuance of such Convertible Preferred Stock, at the conversion price then in effect. (g) If this Corporation issues any securities convertible into or exchangeable for Common Stock (other than securities issued in transactions described in subparagraphs (d) or (e)) for a consideration per share of Common Stock initially deliverable upon conversion or exchange of such securities less than the current market price per share of Common Stock on the date of issuance of such securities, the Conversion Price shall be adjusted in accordance with the formula: P C' = C x O + M O + D where C' = the adjusted Conversion Price. C = the then current Conversion Price. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. 27 P = the aggregate consideration received for the issuance of such securities. M = the current market price per share of Common Stock on the date of issuance of such securities. See subparagraph (j) below. D = the maximum number of shares deliverable upon conversion or in exchange for such securities at the initial conversion or exchange rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion or exchange of such securities have not been issued when such securities are no longer outstanding, then the Conversion Price shall promptly be readjusted to the conversion price which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion or exchange of such securities. This subparagraph does not apply to (i) convertible securities issued to stockholders of any person which merges into this Corporation, or with a subsidiary of this Corporation, in proportion to their stock holdings in such person immediately prior to such merger, upon such merger, (ii) convertible securities issued in a bona fide public offering pursuant to a firm commitment or best efforts underwriting, (iii) convertible securities issued in a bona fide private placement through a placement agent which is a member firm of the National Association of Securities Dealers, Inc. (except to the extent that any discount from the current market price attributable to restrictions on transferability of Common Stock issuable upon conversion, as determined in good faith by the Board of Directors and described in a Board resolution, shall exceed 20% of the then current market price), or (iv) any shares of Convertible Preferred Stock issued pursuant to paragraph 10 hereof. (h) For purposes of any computation respecting consideration received pursuant to subparagraph (f) and (g), the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by this Corporation for any underwriting of the issue or otherwise in connection therewith; (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market 28 value thereof as determined in good faith by the Board of Directors (irrespective of the accounting treatment thereof), whose determination shall be conclusive, and described in a Board resolution; and (3) in the case of the issuance of securities convertible into or exchangeable for shares, the aggregate consideration received therefor shall be deemed to be the consideration received by this Corporation for the issuance of such securities plus the additional minimum consideration, if any, to be received by this Corporation upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subparagraph). (i) This Corporation at any time or from time to time may reduce the Conversion Price by any amount for any period of time, if the period is at least fifteen (15) days and if the reduction is irrevocable during the period, but in no event shall such Conversion Price be less than the par value of the Common Stock at the time such reduction is made. Whenever the Conversion Price is reduced, the Corporation shall mail to holders of the Convertible Preferred Stock a notice of the reduction. The Corporation shall mail the notice at least fifteen (15) days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of subparagraphs (d), (e), (f) and (g). (j) For the purpose of any computation pursuant to subparagraphs (d), (e), (f) and (g) the current market price per share of Common Stock on any date shall be deemed to be the average of the Closing Prices for thirty (30) consecutive trading days commencing forty-five (45) trading days before the date in question. In the absence of one or more such quotations, the Board of Directors shall determine the current market price on the basis of such quotations as it considers appropriate. Notwithstanding the foregoing, if any issuance of the type described in subparagraphs (f) or (g) hereof is made in connection with any bona fide transaction between the Company and an unaffiliated third party, which issuance would otherwise result in an adjustment of the Conversion Price pursuant to the provisions of said subparagraphs (f) or (g), then the "current market price per share of Common Stock" for the purposes of said subparagraphs shall be deemed to be any price which the Board of Directors reasonably determines, in good faith, adequately reflects the fair market value of the Common Stock at the time such issuance is agreed to (without regard to any allowances or other discounts with respect thereto). 29 (k) No adjustment in the Conversion Price need be made unless the adjustment would required an increase or decrease of at least 1% in the Conversion Price. Any adjustments which are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 6 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. The Conversion Price shall not be adjusted upward except in the event of a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock or in the event of a readjustment of the Conversion Price pursuant to subparagraphs (d) or (g) above. (l) No adjustment need be made for a transaction referred to in subparagraphs (c), (d), (e), (f) or (g) if holders of Convertible Preferred Stock are to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. No adjustment need me made for rights to purchase Common Stock pursuant to a plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Convertible Preferred Stock becomes convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. (m) Whenever the Conversion Price is adjusted or reduced, this Corporation shall promptly mail to holders of the Convertible Preferred Stock and file with the transfer agent therefor a notice of the adjustment or reduction and, in the case of an adjustment, file with the transfer agent for the Convertible Preferred Stock an officer's certificate briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct. (n) If (i) this Corporation takes any action which would require an adjustment in the Conversion Price pursuant to subparagraph (d) or (e), or clause (iv) or (v) of subparagraph (c); (ii) this Corporation consolidates or merges with or into, or transfers all or substantially all of its assets to, another corporation; or (iii) there is a dissolution or liquidation of this Corporation, a holder of shares of Convertible Preferred Stock may desire to convert such shares into shares of Common Stock prior to the record date for or the effective date of the transaction so that he may receive the rights, warrants, securities or assets which a holder of Common Stock on that date may receive. Therefore, this Corporation shall mail to such holders a notice stating the proposed record or effective date, as the case may be. 30 The Corporation shall mail the notice at least twenty (20) days before such date. Failure to mail the notice or any defect therein shall not affect the validity of any transaction referred to in clause (i), (ii) or (iii) of this subparagraph (n). (o) In case of a merger or consolidation which reclassifies or changes the Common Stock of this Corporation or in the case of the consolidation or merger of this Corporation with or into another corporation or corporations or the transfer of all or substantially all of the assets of this Corporation to another corporation or corporations, each share of Convertible Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion of such shares of Convertible Preferred Stock would have been entitled upon such reclassification, consolidation, merger or transfer; and, in any such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Convertible Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of shares of Convertible Preferred Stock. In case of any such merger or consolidation, the resulting or surviving corporation (if not this Corporation) shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such securities or property as the holders of the Convertible Preferred Stock remaining outstanding, or other convertible preferred stock received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provisions for the protection of the conversion right as provided above. If this subparagraph applies, subparagraph (c) shall not apply. (p) In any case in which this paragraph 6 shall require that an adjustment as a result of any event become effective from and after a record date, this Corporation may elect to defer until the occurrence of such event (i) the issuance to the holder of any shares of Convertible Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable on the basis of the Conversion Price in effect immediately prior to adjustment and (ii) the payment to such holder of any amount in cash in lieu of a fractional share of Common Stock pursuant to subparagraph (a) above; provided, however, that this Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Common Stock or such payment in lieu of such fractional shares. 31 (q) The Board of Directors may (but shall not be required to) make such adjustments in the Conversion Price, in addition to those required by this paragraph 6, as shall be determined by the Board of Directors, as evidenced by a Board resolution, to be advisable in order that any event that would otherwise be treated for federal income tax purposes as a dividend of stock or stock rights will, to the extent practicable, not be so treated or not be taxable to the recipients. (r) The Board of Directors may interpret the provisions of this paragraph 6 to resolve any inconsistency or ambiguity which may arise or be revealed in connection with the adjustment procedures provided for herein, and if such inconsistency or ambiguity reflects an inaccurate provision hereof, the Board of Directors may, in appropriate circumstances, authorize the filing of a Certificate of Correction. 7. Voting Rights. The holders of Convertible Preferred Stock shall have one (1) vote per share on all matters to come before the stockholders. Except as otherwise provided by law or the certificate of incorporation of this Corporation, or by this resolution, the holders of Convertible Preferred Stock shall vote with the holders of the outstanding Common Stock and any other preferred shares entitled to vote on such matter, and not as a separate class or series. In addition, the holders of Convertible Preferred Stock shall have the following voting rights: (a) If and whenever accrued dividends on the Convertible Preferred Stock shall not have been paid or declared (with a sum sufficient for the payment thereof set aside), for six consecutive Dividend Periods on all shares of Convertible Preferred Stock at the time outstanding, then and in such event the holders of Convertible Preferred Stock, voting separately as a class, shall be entitled at any annual meeting of the stockholders or special meeting held in place thereof, or at a special meeting of the holders of the Convertible Preferred Stock called as hereinafter provided, to elect two (2) directors and such right to elect two (2) directors shall be in lieu of the aforesaid right of the holders of Convertible Preferred Stock to vote together with the holders of Common Stock for the election of directors. Such right of the holders of Convertible Preferred Stock to elect two (2) directors may be exercised until all dividends in default on the Convertible Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, the right of the holders of Convertible Preferred Stock to elect such number of directors shall cease and their right to vote together with the holders of Common Stock for the election of directors shall resume, but subject always to the same provisions for the vesting of such special voting rights in the case of any such future dividend default or defaults. At any time when such special voting rights shall have so vested in the holders of Convertible Preferred Stock, the Secretary of the Corporation 32 may, and upon the written request of the holders of record of 10% or more of the number of shares of the Convertible Preferred Stock then outstanding addressed to him at the principal office of the Corporation, shall, call a special meeting of the holders of the Convertible Preferred Stock for the election of the two (2) directors to be elected by them as hereinafter provided, to be held in the case of such written request within forty (40) days after delivery of such request, and in either case to be held at the place and upon the notice provided by law and in the by-laws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such a special meeting in the case of any such request received less than ninety (90) days before the date fixed for the next ensuing annual meeting of stockholders. No such special meeting and no adjournment thereof shall be held on a date less than thirty (30) days before the annual meeting of the stockholders or a special meeting held in place thereof next succeeding the time when the holders of the Convertible Preferred Stock become entitled to elect two (2) directors as above provided. If at any such annual or special meeting or any adjournment thereof the holders of at least a majority of the Convertible Preferred Stock then outstanding shall be present or represented by proxy, then by vote of the holders of at least a majority of the shares of Convertible Preferred Stock present or so represented at such meeting, the then authorized number of directors of the Corporation shall be increased by two (2) and the holders of the Convertible Preferred Stock shall be entitled to elect the additional directors so provided for. The directors so elected shall serve until the next annual meeting or until their successors shall be elected and qualified, provided, however, that whenever the holders of the Convertible Preferred Stock shall be divested of the special rights to elect two (2) directors as above provided, the term of office of the persons so elected as directors by the holders of the Convertible Preferred Stock as a class, or elected to fill any vacancies resulting from the death, resignation or removal of the directors so elected by the holders of Convertible Preferred Stock, shall forthwith terminate, and the authorized number of directors shall be reduced accordingly. If, during any interval between any special meeting of the holders of the Convertible Preferred Stock for the election of two (2) directors to be elected by them as provided above and the next ensuing annual meeting of stockholders, or between annual meetings of stockholders for the election of directors, and while the holders of the Convertible Preferred Stock shall be entitled to elect two (2) directors, both of the directors who have been elected by the holders of the Convertible Preferred Stock shall, by reason of resignation, death or removal, have departed from the Board, (i) the vacancies with respect to the directors elected by the holders of the Convertible Preferred Stock may be filled by a majority vote of the remaining directors then in office, although less than a quorum, and (ii) if such vacancy or vacancies be not so 33 filled within forty (40) days after the creation thereof, the Secretary of the Corporation shall call a special meeting of the holders of the Convertible Preferred Stock and such vacancy or vacancies shall be filled at such special meeting. A director elected by the vote of the holders of Convertible Preferred Stock as a class, or elected by other directors to fill a vacancy resulting from the death, resignation or removal of a director elected by such class vote, may be removed from office without cause only by the vote or written consent of stockholders holding a majority of the outstanding shares of Convertible Preferred Stock. (b) The Certificate of Incorporation of this Corporation shall not be changed so as to alter in an adverse manner the powers, preferences or special rights of the Convertible Preferred Stock without the consent, either in writing or by vote at a meeting called for that purpose, of the holders of at least 66 2/3% of the number of shares at the time outstanding of the Convertible Preferred Stock, and all such other series of shares of preferred stock of this Corporation, if any, whose powers, preferences or special rights would also be so altered in a substantially similar manner. In giving such consent, the holders of the Convertible Preferred Stock and of all other such series, if any, shall vote as a single class. (c) So long as any shares of Convertible Preferred Stock are outstanding, the Corporation shall not create any class or series of capital stock which is (i) Senior Stock, or (ii) pari passu with the Convertible Preferred Stock in respect of the right to receive payment of dividends or the right to participate in any distribution upon liquidation, dissolution or winding up of the affairs of the Corporation, without the affirmative vote of, or, if permitted by the Certificate of Incorporation of the Corporation, the written consent pursuant to Section 228 of the Delaware General Corporation Law of, the holders of at least 66-2/3%, in the case of clause (i) above, or a majority, in the case of clause (ii) above, of the outstanding shares of Convertible Preferred Stock, voting separately as a single class. For purposes of this subparagraph (c), the issuance and reissuance from time to time in one or more series, or the establishment or re-establishment, by the Corporation of any class or series of the 30 million shares of Preferred Stock of the par value of $0.10 each presently authorized by clause (a) of Article FOURTH of the Certificate of Incorporation of the Corporation shall not be deemed to be the creation of a class or series of capital stock requiring the affirmative vote of, 34 or the written consent pursuant to Section 228 of the Delaware General Corporation Law of, the outstanding shares of Convertible Preferred Stock, voting separately as a single class. (d) In the event that the Conversion Price is cumulatively increased or decreased by more than 5%, in accordance with the provisions of paragraph 6 hereof, the voting rights of each share of Convertible Preferred Stock will be proportionately decreased or increased, respectively, by the same percentage amount. 8. Stock Issuable Upon Conversion. To the full extent of its authorized but unissued and unreserved shares of Common Stock, the Corporation shall at all times keep reserved, out of shares of its authorized but unissued Common Stock, a number of shares sufficient for issuance upon conversion of the Convertible Preferred Stock in accordance with the provisions of this resolution. The shares of Common Stock issuable upon conversion of Convertible Preferred Stock in accordance with the provisions of this resolution will be, when so issued, validly issued, fully paid and nonassessable. 9. Repurchase Under Certain Circumstances. The Corporation agrees promptly to take all action within its power necessary or desirable to amend its certificate of incorporation to increase the number of shares of Common Stock that it is authorized to issue to a number in excess of 250,000,000. In the event that the Corporation has insufficient shares of Common Stock available for issuance upon conversion of any shares of Convertible Preferred Stock presented for conversion, the Corporation will either (a) purchase such shares of Convertible Preferred Stock presented for conversion for an amount per share equal to the Liquidation Price divided by the Conversion Price multiplied by the Closing Price of the Common Stock on the Conversion Date or (b) deliver or cause to be delivered to the holder of such shares of Convertible Preferred Stock presented for conversion that number of shares of Common Stock issuable upon conversion of the shares of Convertible Preferred Stock presented for conversion. In addition to its obligations under the preceding sentence, the Corporation will be obligated to deliver or cause to be delivered to any holder of Convertible Preferred Stock presented for conversion any cash amount or shares of Common Stock due to such holder pursuant to the provisions of paragraph 6(a) hereof with respect to any accrued but unpaid dividends through the last Dividend Payment Date. The Corporation will not enter into any agreement, make any acquisition or take any other action following the date of the initial issuance of Convertible Preferred Stock if as a result of such agreement, acquisition or action the Corporation would be prohibited from carrying out its commitments set forth in this paragraph, or in any way hindered in its ability to so carry out such commitments; provided however, that nothing contained herein shall preclude the Corporation from fulfilling its obligations 35 under previously granted or issued options or warrants. 10. Additional Issuances of Convertible Preferred Stock. Two million shares of Convertible Preferred Stock shall be reserved for issuance by this Corporation, from time to time, to employees of this Corporation or its subsidiaries pursuant to the terms of such plan or arrangements, and for such consideration, as the Board of Directors shall determine. However, the Corporation shall require the employees receiving shares of Convertible Preferred Stock to agree not to convert such shares until such time as the Corporation shall have available a sufficient amount of authorized but unissued Common Stock for issuance upon conversion of all outstanding shares of Convertible Preferred Stock. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by the GCL or by this Certificate of Incorporation or the By-laws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. The Board of Directors of the Corporation may delegate to the General Counsel of the Corporation and/or to other person(s) designated by the Board of Directors or by the General Counsel the determination whether litigation purportedly commenced in the name of the Corporation is in the best interests of the Corporation and should be pursued. B. The directors of the Corporation need not be elected by written ballot unless the By-laws so provide. C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the directors then in office. SIXTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-laws of the Corporation. 36 SEVENTH: The number of directors shall be as from time to time fixed by, or in the manner provided in, the By-laws of the Corporation. EIGHTH: The Board of Directors is expressly empowered to adopt, amend or repeal By-laws of the Corporation. Except as hereinafter provided, any adoption, amendment or repeal of By- laws of the Corporation by the Board of Directors shall require the approval of a majority of the directors then in office. The stockholders shall also have power to adopt, amend or repeal the By-laws of the Corporation. In addition to any vote of the holders of any class or series of stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the By- laws of the Corporation. NINTH: A. Except as provided in Paragraph B below, the affirmative vote of the holders of shares of voting stock of the Corporation representing at least a majority of the Non- Affiliated Shares (as hereinafter defined), voting together as a single class, shall be required for the approval or authorization of a Business Combination (as hereinafter defined) with any Dominant Stockholder (as hereinafter defined) or of any series of related transactions, which if taken together, would constitute a Business Combination with any Dominant Stockholder. Such affirmative vote shall be required notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote, no vote, or a different voting classification and shall be in addition to any vote of the holders of any class or series of voting stock and any other requirements under Delaware law, this Certificate of Incorporation or the Bylaws. B. The voting requirement set forth above shall not be applicable if the definitive agreement or other arrangement to effectuate a Business Combination with a Dominant Stockholder is approved by the Continuing Directors (as hereinafter defined). Such determination shall be made by a majority of the Continuing Directors even if such a majority does not constitute a quorum of the members of the Board of Directors then in office. In addition, the voting requirement specified above shall not be applicable if the cash or fair market value of other consideration to be received per share by the holders of each class or series of capital stock of the Corporation in a Business Combination with a Dominant Stockholder is not less than the highest per share price (including brokerage commissions and/or soliciting dealers' fees) paid by such Dominant Stockholder in acquiring any shares of such class or series, respectively, within the twenty-four months preceding the date of any such Business Combination. 37 C. The provisions of this Article NINTH shall also apply to a Business Combination with any Person (as hereinafter defined) which at any time within twenty-four months preceding the date of any such Business Combination has been a Dominant Stockholder notwithstanding the fact that such Person is no longer a Dominant Stockholder, if, at the time the definitive agreement or other arrangements relating to a Business Combination with such Person were entered into, it was a Dominant Stockholder or if, as of the record date for the determination of stockholders entitled to notice of and to vote on or consent to the Business Combination, such Person is an "Affiliate" (as hereinafter defined) of the Corporation or of a Dominant Stockholder. D. For all purposes of this Article NINTH: (1) The term "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified; (2) The term "Associate" used to indicate a relationship with any Person, shall mean (i) any corporation or organization (other than the Corporation or a majority-owned subsidiary of the Corporation) of which such Person is an officer or partner or, directly or indirectly, Beneficially Owns ten percent (10%) or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the Corporation or any of its parents or subsidiaries. (3) A Person shall be deemed to "Beneficially Own" any shares of capital stock of the Corporation (i) which it has the right to acquire, hold or vote pursuant to any agreement, arrangement or undertaking or upon exercise of conversion rights, warrants, options or otherwise, or (ii) which are beneficially owned, directly or indirectly (including shares deemed owned through application of the foregoing clause (i)), by any other Person (A) with which it or its Affiliate or Associate has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of capital stock of the Corporation or (B) which is its Affiliate or Associate; (4) The term "Business Combination" shall mean (i) any merger or consolidation of the Corporation with or into any other Person, (ii) any sale or lease (or series of sales or leases) of all or any Substantial Part of the assets of the Corporation (including without limitation any voting securities of a Subsidiary), (iii) any sale or lease (or series of sales or leases) of all or any Substantial Part of the assets of any Person to the 38 Corporation or a Subsidiary in exchange for securities of the Corporation or a Subsidiary or (iv) any reclassification or recapitalization of the outstanding shares of any class of capital stock of the Corporation if the effect of such transaction is to increase the relative voting power of a Dominant Stockholder; (5) The term "Continuing Directors" shall mean the directors who were in office on the date immediately prior to the date the Dominant Stockholder became a Dominant Stockholder; (6) The term "Dominant Stockholder" shall mean any Person which Beneficially Owns, directly or indirectly, shares of capital stock of the Corporation representing ten percent (10%) or more of all votes entitled to be cast in elections of directors (considered for this purpose as one class); (7) The term "Non-Affiliated Shares" shall mean all shares of capital stock of the Corporation entitled to be cast in the election of directors, considered for purposes hereof as one class, which are not Beneficially Owned by the Dominant Stockholder; (8) The term "other consideration to be received", in the event of a Business Combination in which the Corporation is the surviving corporation, shall include the shares of capital stock of the Corporation retained by its existing public stockholders; (9) The term "outstanding shares of any class of capital stock of the Corporation" shall include shares deemed owned through the application of clauses (i) and (ii) of paragraph (3) above but shall not include any other shares which may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants, options or otherwise; (10) The term "Person" shall mean any corporation, individual, person, partnership or other person or entity; (11) The term "Substantial Part" shall mean more than 25 percent of the fair market value of the total assets of the corporation in question, as determined in good faith by a majority of Continuing Directors, as of the end of its most recent fiscal year ending prior to the time the determination is being made; and (12) The term "Subsidiary" shall mean any corporation of which a majority of any class of equity security is owned directly or indirectly by the Corporation and whose assets constitute a Substantial Part of the assets of the Corporation, as determined in good faith by a majority of Continuing Directors. E. A majority of the Continuing Directors shall have the power and duty to make all determinations for the purposes of this Article NINTH on the basis of information known to them consistent 39 with their fiduciary obligations. TENTH: A. Elimination of Directors' Liability for Monetary Damages in Certain Circumstances. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Section A shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the General Corporation Law of the State of Delaware is amended hereafter to further eliminate or limit the personal liability of directors, the liability of a director of this Corporation shall be limited or eliminated to the fullest extent permitted by such Law, as amended. B. 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who had ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph 2 hereof with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person 40 seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. 2. Right of Claimant to Bring Suit. If a claim under paragraph 1 of this Section is not paid in full by the Corporation within ninety days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be thirty days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 3. Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall 41 not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. 4. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 5. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. ELEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the GCL or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the GCL order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. TWELFTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this 42 reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at lease sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal Paragraph C of Article FIFTH of this Restated Certificate of Incorporation and the affirmative vote of the holders of shares of voting stock of the Corporation representing at least a majority of the Non-Affiliated Shares (as defined in Article NINTH), voting together as a single class, shall be required to amend or repeal Article NINTH of this Certificate of Incorporation. Any amendment of this Article TWELFTH which amends or repeals the provisions hereof respecting the vote required to amend or repeal Paragraph C of Article FIFTH or Article NINTH must be approved by a vote at least equal to the vote required herein to amend or repeal said Paragraph C of Article FIFTH or Article NINTH, as the case may be. 2. That said restatement was duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware, by approval of the Board of Directors without a vote of its stockholders and said restatement only restates and integrates and does not further amend the provisions of the Corporation's certificate of incorporation as heretofore amended and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. IN WITNESS WHEREOF, the undersigned corporation has caused this Restated Certificate of Incorporation to be executed by its Vice President and attested to by its Assistant Secretary on this 6th day of April, 1994. COLLINS & AIKMAN GROUP, INC. By: /S/ PAUL W. MEEKS Vice President Attest: By: /S/ JOHN F. GROSSBAUER Assistant Secretary 43 EX-3 3 EXHIBIT 3.2 BY-LAWS OF COLLINS & AIKMAN GROUP, INC. A Delaware Corporation BY-LAWS OF COLLINS & AIKMAN GROUP, INC. (a Delaware corporation) (as amended through May 1, 1994) ARTICLE I Offices SECTION 1. Registered Office. The registered office of the Corporation in the State of Delaware shall be 32 Lockerman Square, Suite L-100, City of Dover, County of Kent. The name of the registered agent is The Prentice-Hall Corporation System, Inc. SECTION 2. Other Offices. The Corporation may also have offices at other places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II Meeting of Stockholders SECTION 1. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such place (within or without the State of Delaware), date and hour as shall be designated in the notice thereof. SECTION 2. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called only by the Board of Directors, pursuant to a resolution adopted by a majority of the directors then in office, to be held at such place (within or without the State of Delaware), date and hour as shall be designated in the notice thereof. SECTION 3. Notice of Meeting. Except as otherwise expressly required by law, notice of each meeting of the stockholders shall be given not less than 10 or more than 60 calendar days before the date of the meeting to each stockholder entitled to vote at such meeting by mailing such notice, postage prepaid, directed to each stockholder at the address of such stockholder as appears on the records of the Corporation. Every such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as provided in the next immediate sentence or as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 calendar days, or if after the adjournment a new record date if fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder entitled to vote at such adjourned meeting. A written waiver of notice, signed by a stockholder entitled to notice, whether signed before or after the time set for a given meeting, shall be deemed equivalent to notice of such meeting. Attendance of a stockholder in person or by proxy at a stockholders' meeting shall constitute a waiver of notice to such stockholder of such meeting, except when such stockholder attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 4. List of Stockholders. It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger to prepare and make, at least 10 calendar days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of share registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 calendar days prior to the meeting either at a place specified in the notice of the meeting within the city where the meeting is to be held or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. Quorum. At each meeting of the stockholders, expect as otherwise expressly required by law, stockholders holding a majority of the votes entitled to be cast by the stockholders entitled to vote at the meeting (which if any vote is to be taken by classes shall mean the holders of a majority of the votes entitled to be cast by the stockholder of each such class) shall be present in 2 person or by proxy in order to constitute a quorum for the transaction of business. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may reschedule such meeting from time to time until stockholders holding the number of votes requisite for a quorum shall be present in person or by proxy. At any such rescheduled meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called. SECTION 6. Organization. At each meeting of the stockholders, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence: (a) the Co-Chairman of the Board designated by the Board to chair such meeting; (b) if there is no Co-Chairman of the Board or if both Co-Chairman of the Board shall be absent from such meeting, the President; (c) if the Co-Chairman of the Board and the President shall be absent from such meeting, any other officer or director of the Corporation designated by the Board or the Executive Committee to act a chairman of such meeting and to preside thereat; or (f) a stockholder of record of the Corporation who shall be chosen chairman or such meeting by a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat. The Secretary or, if the Secretary shall be presiding over the meeting in accordance with the provisions of this Section or if he shall be absent from such meeting, the person (who shall be an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof. SECTION 7. Order of Business. The order of business at each meeting of the stockholder shall be determined by the chairman of such meeting, but such order of business may be changed by a majority in voting interest of those present in person or by proxy at such meeting and entitled to vote thereat. 3 SECTION 8. Voting. At each meeting of the stockholders, each holder of voting stock of the Corporation shall, except as otherwise provided in these By-laws or required by law or the Restated Certificate of Incorpora- tion, be entitled to one vote in person or by proxy for each share of stock of the Corporation held by him and registered in his name on the books of the Corporation on the date fixed pursuant to the provisions of Section 4 of Article VIII of these By-laws as the record date for the determin- ation of stockholders who shall be entitled to receive notice of an to vote at such meeting. Shares of its own stock belonging to the Corpora- tion or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Any vote of stock of the Corporation may be given at any meeting of thereon either in person or by proxy appointed by an instrument in writing delivered to the Secretary or an Assistant Secretary of the Corporation or the secretary of the meeting. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At all meetings of the stockholders, all matters, except as otherwise provided by law or in these By- laws, shall be decided by the vote of a majority of the votes cast by stockholders present in person or by proxy and entitled to vote thereat, a quorum being present. Except as otherwise expressly required by law, the vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. SECTION 2. Number and Term of Office. The Board of Directors shall consist of six members, but the number of members constituting the Board of Directors may be increased or decreased from time to time by resolution adopted by a majority of the whole Board. Directors need not be stockholders or citizens or residents of the United States 4 of America. Each of the directors of the Corporation shall hold office until his term expires and until his successor is elected and qualified or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided. SECTION 3. Election. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of directors to be elected, shall be the directors. SECTION 4. Resignation, Removal and Vacancies. Any director may resign at any time by giving written notice of his resignation to either Co-Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, when accepted by action of the Board. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. A director may be removed, either with or without cause, at any time by a vote of a majority in voting interest of the stockholders. Any vacancy or newly created directorship occurring on the Board for any reason may be filled by a majority of the directors then in office, through less than quorum, or by a sole remaining director. The director elected to fill such vacancy or newly created directorship shall hold office for the unexpired term in respect of which such vacancy occurred or such newly created directorship was created. SECTION 5. Meetings. (a) Annual Meetings. As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction of other business. (b) Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Board shall from time to time determine. (c) Special Meetings. Special meetings of the Board shall be held whenever called by either Co-Chairman of the Board or the President or a majority of the directors at the time in office. Any and all business may be transacted at a special meeting that may be transacted at a regular meeting of the Board. 5 (d) Place of Meeting. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution determine or as shall be designated in the respective notices or waivers of notice thereof. (e) Notice of Meetings. Notices of regular meetings of the Board or of any adjourned meeting need not be given. Notices of special meetings of the Board, or of any meeting of any committee of the Board that has not been fixed in advance as to time and place by such committee, shall be mailed by the Secretary or any Assistant Secretary to each director or member or such committee, addressed to him at his residence or usual place of business, so as to be received at least one calendar day before the day on which such meeting is to be held, or shall be sent to him by telegraph, cable or other form of recorded communication or be delivered personally or by telephone not later than one calendar day before the day on which such meeting is to be held. Such notice shall include the time and place of such meeting. However, notice of any such meeting need not be given to any director or member of any committee if such notice is waived by him in writing or by telegraph, cable or other form of recorded communication, whether before or after such meeting shall be held, or if he shall be present at such meeting. (f) Quorum and Manner of Acting. Except as otherwise provided by law, the Restated Certificate of Incorporation or these By-laws, one-half of the total number of directors shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting. In each case the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or any act of the Board, except as otherwise expressly required by law or these By- laws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. (g) Action by Communication Equipment. The directors, or the members of any committee of the Board, may participate in a meeting of the Board, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. 6 (h) Action by Consent. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or Committee, as the case may be, consent thereto in writing and such writing is filed with the minutes of the proceedings of the Board or such committee. (i) Organization. At each meeting of the Board, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence: (a) the Co-Chairman of the Board chosen by a majority of the directors present thereat; (b) the President; or (c) any director chosen by a majority of the directors present thereat. The Secretary or, in case of his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom the chairman shall appoint, shall act as secretary of such meeting and keep the minutes thereof. SECTION 6. Compensation. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board may receive a fixed sum and expenses incurred in performing the functions of director and member of any committee of the Board. Nothing herein contained shall be construed so as to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV Committees SECTION 1. (a) Designation and Membership. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees consisting of such number of directors, not less than one, as the Board shall appoint. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Vacancies occurring on any committee for any reason may be filled by the Board at any time. Any member of any committee shall be subject to removal, with or without cause, at any time by the Board or by a majority in voting interest of the stockholders. (b) Functions and Powers. Any such committee, subject to any limitations prescribed by the Board, shall possess and may exercise, during the intervals between meetings of the Board, all the powers and authority of the Board in the management of the business and affairs of the 7 Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; provided, however, that no such committee shall have such power or authority in reference to amending the Certificate of Incorporation of the Corporation (except that a committee may, to the extent authorized in resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation under Section 251 or Section 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, filling vacancies on the Board, changing the membership or filling vacancies on any committee of the Board or amending these By-laws. No such committee shall have the power and authority to declare dividends, to authorize the issuance of stock of the Corporation or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware unless such power and authority shall be expressly delegated to it by a resolution passed by a majority of the whole Board. (c) Meetings, Quorum and Manner of Acting. Each committee shall meet at such times and as often as may be deemed necessary and expedient and at such places as shall be determined by such committee. A majority of each such committee shall constitute a quorum, and the vote of a majority of those members of each such committee present at any meeting thereof at which a quorum is present shall be necessary for the passage of any resolution or act of such committee. The Board may designate a chairman for each such committee, who shall preside at meetings thereof, and a vice chairman, who shall preside at such meetings in the absence of the chairman. ARTICLE V Officers SECTION 1. Election, Appointment and Term of Office. The officers of the Corporation shall be two Co- Chairmen of the Board, a President, who shall also be the Chief Executive Officer, such number of Vice Chairmen of the 8 Board and Vice Presidents (including any Executive, Senior and/or First Vice Presidents) as the Board may determine from time to time, a Treasurer, one or more Assistant Treasurers, if any, as the Board may determine, a Secretary and one or more Assistant Secretaries, if any, as the Board may determine. Any two or more offices may be held by the same person. Officers need not be stockholders of the Corporation or citizens or residents of the United States of America. The Co-Chairmen of the Board, any Vice Chairman of the Board and the President shall be elected by the Board from among its members at its annual meeting, and all other officers may be elected by the Board or the Executive Committee, and each such officer shall hold office until the next annual meeting of the Board or the Executive Committee, as the case may be, and until his successor is elected or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided. The Board or the Executive Committee may elect or appoint such other officers as it deems necessary, including a Corporate General Counsel and one or more Associate or Assistant Corporate General Counsels, Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries. Each such officer shall have such authority and shall perform such duties as may be provided herein or as the Board or Executive Committee may prescribe. If additional officers are elected or appointed during the year, each of them shall hold office until the next annual meeting of the Board or Executive Committee at which officers are regularly elected or appointed and until his successor is elected or appointed or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided. SECTION 2. Resignation, Removal and Vacancies. Any officer may resign at any time by giving written notice to the President or the Secretary of the Corporation, and such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, when accepted by action of the Board or the Executive Committee. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. All officers and agents elected or appointed by the Board or Executive Committee shall be subject to removal at any time by the Board or the Executive Committee, as the case may be, with or without cause. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided 9 for election or appointment to such office. SECTION 3. Duties and Functions. (a) Co-Chairmen of the Board. The Co-Chairman of the Board, who shall be a member thereof, selected by the directors present thereat, shall preside at all meetings of the Board and of the stockholders at which one of them shall be present and each shall perform such other duties and exercise such powers as may from time to time be prescribed by the Board of Directors or the Executive Committee. (b) Vice Chairmen of the Board. Each Vice Chairman of the Board shall be a member thereof and shall have such powers and duties as may from time to time be prescribed by the Board or the Executive Committee. (c) President. The President shall be a member of the Board, shall be the Chief Executive Officer of the Corporation and shall perform such duties and exercise such powers as are incident to the office of chief executive, and shall perform such other duties and exercise such other powers as may from time to time be prescribed by the Board or the Executive Committee. (d) Vice Presidents. Each Vice president shall have such powers and duties as shall be prescribed by the Board or the Executive Committee. (e) Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation and shall deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these By-laws; he shall disburse the funds of the Corporation as may be ordered by the Board or the Executive Committee, making proper vouchers for such disbursement; and, in general, he shall perform all the duties incident to the office or Treasurer and such other duties as from time to time may be assigned to him by the Board, the Executive Committee or the President. To such extent as the Board or Executive Committee shall deem proper, the duties of the Treasurer may be performed by one or more assistants, to be appointed by the Board or Executive Committee. (f) Secretary. The Secretary shall keep the records of all meetings of the stockholders and of the Board or committee of the Board. He shall affix the seal of the Corporation to all instruments requiring the corporate seal when the same shall have been signed on behalf of the Corporation by a duly authorized officer. The Secretary shall be the custodian of all contracts, deeds, documents 10 and all other indicia of title to properties owned by the Corporation and of its other corporate records and in general shall perform all duties and have all powers incident to the office of Secretary. To such extent as the Board or the Executive Committee shall deem proper, the duties of Secretary may be performed by one or more assistants, to be appointed by the Board or Executive Committee. (g) Assistant Secretaries and Assistant Treasurers. Each Assistant Secretary and each Assistant Treasurer shall perform the duties of and exercise the powers of the Secretary and the Treasurer, respectively, in the absence of the Secretary and the Treasurer, respectively. ARTICLE VI Contracts, Checks, Drafts, Bank Accounts, Proxies, etc. SECTION 1. Execution of Documents. The President, each Vice president or any other officer, employee or agent of the Corporation designated by the Board, or designated in accordance with corporate policy as approved by the Board, shall have power to execute and deliver deeds, leases, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation, and such power may be delegated (including power to redelegate) by written instrument to other officers, employees or agents of the Corporation. SECTION 2. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise in accordance with corporate policy as approved by the Board. SECTION 3. Proxies in Respect of Stock or Other Securities of Other Corporations. The President or any other officer of the Corporation designated by the Board shall have the authority (a) to appoint from time to time an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation, (b) to vote or consent in respect of such stock or securities and (c) to execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as 11 he may deem necessary or proper in order that the Corpora- tion may exercise such powers and rights. The President or any such designated officer may instruct any person or persons appointed as aforesaid as to the manner or exercising such powers and rights. ARTICLE VII Books and Records The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board may from time to time determine. ARTICLE VIII Shares and Their Transfer; Fixing Record Date SECTION 1. Certificate for Stock. Every owner of stock of the Corporation shall be entitled to have a certif- icate certifying the number of shares owned by him in the Corporation and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board shall prescribe. Each such certificate shall be signed by, or in the name of the Corporation by, a Co- Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President and by the Treasurer, and Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 2. Record. A record shall be kept of the name of the person, firm or corporation owning the stock represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate and the date thereof, and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 3. Lost, Stolen, Destroyed or Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificate therefor. The 12 Corporation may issue a new certificate for stock in the place of any certificate theretofore issued by it and alleged to have been lost, stolen, destroyed or mutilated, and the Board or the President or the Secretary may, in its or his discretion, require the owner of the lost, stolen, mutilated or destroyed certificate or his legal representa- tives to give the Corporation a bond in such sum, limited or unlimited, in such form and with such surety or sureties as the Board shall in its discretion determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged lost, theft, mutilation or destruction of any such certificate or the issuance of any such new certificate. SECTION 4. Fixing Date for Determination of Stockholders of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which shall not be more than 60 or less than 10 calendar days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the closed of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board may fix a new record date for the adjourned meeting. (b) If the Restated Certificate of Incorporation shall permit actions by the stockholders of the Corporation by written consent without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which date shall not be more than 10 calendar days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is otherwise required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corpora- tion by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceeding of meeting of stockholders are recorded. 13 Delivery made to the registered office of the Corporation shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required, the record date for determining stockholder entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other disbursement or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 calendar days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. ARTICLE IX Seal The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the corporation, the words "Corporate Seal Delaware" and in figures the year of its incorporation. ARTICLE X Fiscal Year The fiscal year of the corporation shall be a 52- 53 week fiscal period ending the last Saturday in January. ARTICLE XI Indemnification SECTION 1. Right to Indemnification. The Corporation shall to the fullest extent permitted by applicable law as then in effect indemnify any person (the "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, 14 pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan), against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonable incurred by the Indemnitee in connection with such Proceeding. Such indemnification shall be a contract right and shall include the right to receive payment in advance of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect. SECTION 2. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any person entitled to indemnification under this Article XI against any expenses, judgments, fines and amounts payable as specified in Article XI, to the fullest extend permitted by applicable law as then in effect. The Corporation may enter into contracts with any person entitled to indemnification under this Article XI in furtherance of the provisions of this Article XI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article XI. SECTION 3. Indemnification Not Exclusive Right. The right of indemnification provided in this Article XI shall not be exclusive of any other right to which those seeking indemnification may otherwise be entitled, and the provisions of this Article XI shall inure to the benefit of the heirs and legal representatives of any person entitled to indemnification under this Article XI and shall be applicable to Proceedings commenced or continuing after the adoption of this Article XI, whether arising from acts or omissions occurring before or after such adoption. SECTION 4. Advancement of Expenses. (a) In furtherance and not in limitation of the foregoing provisions, all reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within 90 calendar days after the receipt by the Corporation or a statement or statements from the Indemnitee requesting such 15 advance or advances from time to time, except in the case of a request for expenses incurred in defending a Proceeding in advance of its final disposition, in which case the applicable period shall be 30 calendar days. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article XI. (b) If a claim under the foregoing provisions is not paid in full by the Corporation within 90 calendar days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in defending a Proceeding in advance of its final disposition, in which case the applicable period shall be 30 calendar days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. SECTION 5. Effects of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article XI (including, without limitation, this Section 5) shall adversely affect the rights of any Indemnitee under this Article XI with respect to any Proceeding commenced or threatened prior to such amendment, repeal or adoption of an 16 inconsistent provision. SECTION 6. Severability. If any provision or provisions of this Article XI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provision of this Article XI (including, without limitation, all portions of any such paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article XI (including, without limitation, all portions of any paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE XII Amendments These By-laws may be amended or repealed by the Board at any regular or special meeting thereof, subject to the power of the holders of a majority of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote in respect thereof, by their vote at an annual meeting or at any special meeting, to amend or repeal any By-law. 17 EX-4 4 EXHIBIT 4.9 [EXECUTION COPY] SECOND AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT THIS SECOND AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (this "Amendment and Restatement"), dated as of April 8, 1994, among COLLINS & AIKMAN GROUP, INC. (formerly known as Wickes Companies, Inc.), a Delaware corporation ("Group" or the "Account Party") and CONTINENTAL BANK N.A., a national banking association having its principal office at 231 South LaSalle Street, Chicago, Illinois 60697, individually ("Continental") and as Issuing Bank (the "Issuing Bank). W I T N E S S E T H: WHEREAS, Collins & Aikman Holdings II Corporation (formerly known as WCI Holdings II Corporation), Collins & Aikman Holdings Corporation (formerly known as WCI Holdings Corporation) ("Holdings"), certain Subsidiaries of Holdings, various financial institutions (the "Lenders") and Continental Bank N.A, as Agent for the Lenders (the "Agent") have heretofore entered into a certain Amendment and Restatement of Credit Agreement, dated as of March 30, 1989 (the "Restated Credit Agreement"); WHEREAS, the Restated Credit Agreement has been successively amended by a First Amendment to Credit Agreement, dated as of June 30, 1989, a Second Amendment to Amendment and Restatement of Credit Agreement, dated as of June 1, 1990, a Third Amendment to Amendment and Restatement of Credit Agreement, dated as of April 15, 1991, a Fourth Amendment to Amendment and Restatement of Credit Agreement, dated as of April 16, 1992, a Fifth Amendment to Amendment and Restatement of Credit Agreement, dated as of August 6, 1992, a Sixth Amendment to Amendment and Restatement of Credit Agreement, dated as of November 20, 1992, a Seventh Amendment to Amendment and Restatement of Credit Agreement, dated as of March 12, 1993, an Eighth Amendment to Amendment and Restatement of Credit Agreement, dated as of September 10, 1993, and a Ninth amendment to Amendment and Restatement of Credit Agreement, dated as of December 13, 1993, and certain provisions thereof have been waived by a letter agreement, dated as of February 26, 1992 and a letter agreement, dated as of March 23, 1992 (the Restated Credit Agreement, as so successively amended and waived, being called the "Credit Agreement"); WHEREAS, the Account Party and the Issuing Bank now desire to amend and restate the Credit Agreement in certain other respects as provided below; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. Unless otherwise defined herein or the context otherwise requires, the following terms (whether or not underscored), when used in this Amendment and Restatement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Account Party" is defined in the preamble. "Agent" is defined in the first recital. "Amendment and Restatement" means this Second Amendment and Restatement of Credit Agreement (as amended, supplemented, amended and restated or otherwise modified and in effect from time to time with the written consent of the Issuing Bank). "Approval" means each and every approval, consent, filing and registration by or with any federal, state or other regulatory authority necessary (a) to authorize or permit the execution, delivery or performance of this Amendment and Restatement, the Letters of Credit or any other Credit Document or (b) for the validity or enforceability hereof or thereof. "Authorized Officer" means, relative to the Account Party, those of its officers whose signatures and incumbency shall have been certified to the Issuing Bank pursuant to Section 5.1.1(b). "Business Day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Chicago, Illinois or New York, New York. "C & A Credit Agreement" means the Credit Agreement, dated as of May 15, 1991, among Collins & Aikman Corporation, certain Subsidiaries of Collins & Aikman Corporation, various financial institutions (the "Banks") and Bank of America National Trust and Savings Association, Bankers Trust Company and Chemical Bank, as Co-Agents for the Banks (the "Co-Agents") and Continental, as Managing Agent for the Co-Agents and the Banks, as such agreement may be amended, supplemented, amended and restated or otherwise modified from time to time. "Capitalized Lease Liabilities" means all monetary obligations of the Account Party or any of its Subsidiaries under -2- any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Amendment and Restatement and each other Credit Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Code" means the Internal Revenue Code of 1986, as amended, reformed, or otherwise modified from time to time. "Collins & Aikman Corporation" means Collins & Aikman Corporation, a Delaware corporation and a wholly-owned Subsidiary of the Account Party. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "Contractual Obligation" means, relative to Holdings or any of its Subsidiaries, any provision of any security issued by Holdings or of any Instrument or undertaking to which Holdings or such Subsidiary is a party or by which it or any of its property is bound. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Account Party, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Agreement" is defined in the second recital. "Credit Document" means this Amendment and Restatement and the Letters of Credit, and includes any amendments, supplements, amendments and restatements or other modifications, if any, to any of the foregoing. -3- "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" means any payment made or deemed to be made pursuant to Section 2.4 under any Letter of Credit by the Issuing Bank. "Disbursement Date" is defined in Section 2.2. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Account Party with the written consent of the Issuing Bank. "Dollar" and the sign "$" mean lawful money of the United States. "Effective Date" means the date this Amendment and Restatement becomes effective pursuant to Section 9.9. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" is defined in Section 8.1. "Fiscal Quarter" means each period of three consecutive calendar months ending on the last Saturday of each April, July, October and January. "Fiscal Year" means any period of 52 or 53 weeks ending on the last Saturday of each January; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "1994 Fiscal Year") refer to the Fiscal Year ending on the last Saturday of January occurring during the following calendar year. "GAAP" is defined in Section 1.4. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; -4- (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Amendment or Restatement or any other Credit Document refer to this Amendment and Restatement or such other Credit Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Amendment and Restatement or such other Credit Document. "Holdings" is defined in the first recital. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of any Person, any qualification or exception to such opinion or certification which (a) is of a "going concern" or similar nature; (b) relates to the limited scope of examination of matters relevant to such financial statement; or (c) relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such Person to be in default of any of its obligations under Section 8.2.1. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Amendment and Restatement and each other Credit Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by -5- or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Amendment and Restatement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Liabilities" is defined in Section 9.5. "Indemnified Parties" is defined in Section 9.5. "Independent Public Accountant" means any of the six largest public accounting firms in the United States selected by the Account Party, or any other public accounting firm of recognized -6- national standing selected by the Account Party and consented to by the Issuing Bank. "Instrument" means any contract, agreement, letter of credit, indenture, mortgage, document or writing (whether by formal agreement, letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Issuing Bank" is defined in the preamble. "Lenders" is defined in the first recital. "Letters of Credit" means those letters of credit listed on Schedule II hereto. "Letter of Credit Maximum Amount" means, at any time, the lesser of (a) the aggregate amount of Letter of Credit Outstandings and (b) $557,100. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of (a) the then aggregate amount which is undrawn and available under all of the Letters of Credit plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations in respect thereof. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Materially Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), a materially adverse effect on: (a) the assets, revenues or financial condition of the Account Party and its Subsidiaries taken as a whole; or (b) the ability of the Account Party to perform any of its payment or other material obligations under this Amendment and Restatement or any other Credit Document. -7- "Obligations" means all obligations (monetary or otherwise) of the Account Party arising under or in connection with this Amendment and Restatement and each other Credit Document. "Organic Document" means, relative to the Account Party, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and with respect to which any member of the Controlled Group may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Person" means any natural person, corporation, partnership, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. "Reference Rate" means, on any date, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest then most recently announced by Continental Bank N.A. at Chicago, Illinois as its reference rate; and (b) the Federal Funds Rate plus a margin of 1/2 of 1%. The Reference Rate is not necessarily intended to be the lowest rate of interest determined by Continental Bank N.A. in connection with extensions of credit. Changes in the rate of interest on any Obligations will take effect simultaneously with each change in the Alternate Base Rate. "Reimbursement Obligation" is defined in Section 2.3. "Release" means a "release", as such term is defined in CERCLA. -8- "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. "Stated Expiry Date" with respect to each Letter of Credit means the date on which such Letter of Credit is stated to expire. "St. Clair Indebtedness" means the Indebtedness of Collins & Aikman Corporation created under and pursuant to the $8,000,000 Principal Amount Limited Obligation Revenue Bonds (Collins & Aikman Corporation Project) of Michigan Strategic Fund and all of the credit documents related thereto, including, without limitation, the Trust Indenture between Michigan Strategic Fund and Society Bank, Michigan as Trustee, dated as of August 1, 1991, the Loan Agreement between Collins & Aikman Corporation and Michigan Strategic Fund, dated as of August 1, 1991, the Reimbursement Agreement, dated as of August 1, 1991, made by Collins & Aikman Corporation in favor of NBD Bank, N.A. and the Security Agreement, dated as of August 1, 1991, between Collins & Aikman Corporation and NBD Bank, N.A. "Subsidiary" means, with respect to any Person, any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Taxes" is defined in Section 4.2. "Termination Date" means September 13, 1994. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in section 3(1) of ERISA. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Amendment and Restatement shall have such meanings when used in each Credit Document, notice and other communication delivered from time to time in connection with this Amendment and Restatement or any other Credit Document. -9- SECTION 1.3. Cross-References. Unless otherwise specified, references in this Amendment and Restatement and in each other Credit Document to any Article or Section are references to such Article or Section of this Amendment and Restatement or such other Credit Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Credit Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") applied in the preparation of the financial statements referred to in Section 7.1; provided, however, that all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time. ARTICLE II LETTERS OF CREDIT SECTION 2.1. Letters of Credit. The Letters of Credit are currently outstanding and have been issued by the Issuing Bank for the account of the Account Party. From and after the date hereof, the Letters of Credit shall be deemed to be outstanding pursuant to the terms of this Amendment and Restatement. SECTION 2.2. Disbursements, etc. The Issuing Bank will notify the Account Party promptly of the presentment for payment of each Letter of Credit, together with notice of the date (the "Disbursement Date") such payment shall be made. Subject to the terms and provisions of the applicable Letter of Credit and this Amendment and Restatement, the Issuing Bank shall make such payment to the beneficiary of such Letter of Credit; provided, however, that the Issuing Bank shall have no obligations with respect to any Letter of Credit after the Termination Date. The Account Party agrees to reimburse the Issuing Bank on each Disbursement Date for all amounts which the Issuing Bank has disbursed under each Letter of Credit (or that are otherwise due and payable to the Issuing Bank hereunder). Interest on any late payment will be payable together with any such payment and will be calculated in the manner described in Section 3.2 and at a rate per annum equal to the rate then in effect pursuant to Section 3.2. -10- SECTION 2.3. Reimbursement. The obligation (a "Reimbursement Obligation") of the Account Party under Section 2.2 to reimburse the Issuing Bank with respect to each Disbursement (including interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Account Party may have or have had against the Issuing Bank, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuing Bank's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of any Letter of Credit; provided, however, that after paying in full its Reimbursement Obligation and all other amounts payable to the Issuing Bank hereunder, nothing herein shall adversely affect the right of the Account Party to commence any proceeding against the Issuing Bank for any wrongful Disbursement made by the Issuing Bank under any Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of the Issuing Bank. SECTION 2.4. Deemed Disbursements. Upon the occurrence and during the continuation of an Event of Default (a) an amount equal to the Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all of the Letters of Credit shall, without demand upon or notice to the Account Party or any other Person, be deemed to have been paid and disbursed by the Issuing Bank (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b) upon notification by the Issuing Bank to the Account Party of its obligations under this Section, the Account Party shall be immediately obligated to reimburse the Issuing Bank for the amount deemed to have been so paid or disbursed. Any amounts so payable by the Account Party pursuant to this Section shall be deposited in cash with the Issuing Bank for the payment of the Obligations when due in connection with any Letter of Credit. At such time when the Event of Default shall have been cured or waived, the Issuing Bank shall return to the Account Party all amounts then on deposit with the Issuing Bank pursuant to this Section, net of any amounts applied to the payment of any Reimbursement Obligations. SECTION 2.5. Nature of Reimbursement Obligations. The Account Party shall assume all risks of the acts, omissions or misuse of each Letter of Credit by the beneficiary (and its transferees) thereof. The Issuing Bank (except to the extent of -11- its own gross negligence or wilful misconduct) shall not be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) the failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to demand payment under such Letter of Credit; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, facsimile or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under any Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuing Bank. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by the Issuing Bank in connection with any Letter of Credit in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon the Account Party and shall not put the Issuing Bank under any resulting liability to the Account Party or any other Person. ARTICLE III INTEREST, FEES, ETC. SECTION 3.1. Letter of Credit Fee. The Account Party hereby agrees to pay to the Issuing Bank a Letter of Credit fee in an amount equal to 1 1/4% per annum of the average daily aggregate amount of the Letter of Credit Maximum Amount for the immediately preceding Fiscal Quarter, payable quarterly in arrears and on each Stated Expiry Date (or, if earlier, on the date of the termination of this Amendment and Restatement). -12- SECTION 3.2. Interest. Interest will accrue on any amount remaining unpaid by the Account Party to the Issuing Bank under Section 2.3 from (and including) the Disbursement Date to (but excluding) the date of reimbursement in full at the Reference Rate; provided, however, that if the Account Party reimburses the Issuing Bank on a Disbursement Date prior to 3:00 p.m., New York City time, for any amount which the Issuing bank has disbursed on such Disbursement Date, no interest shall accrue on such amount so disbursed. ARTICLE IV INCREASED CAPITAL COSTS, TAXES AND CERTAIN OTHER PROVISIONS SECTION 4.1. Change of Circumstances. (a) If, after the date hereof, the introduction of or any change in or in the interpretation of, or any change in the application of, any law or any regulation or guideline issued by any central bank or other governmental authority (whether or not having the force of law), including, without limitation, any reserve or special deposit requirement or any tax (other than tax on the Issuing Bank's general income) or any capital requirement, has, due to the Issuing Bank's compliance the effect directly or indirectly, of (i) increasing the cost to the Issuing Bank of performing its obligations hereunder or under any Letter of Credit; (ii) reducing any amount received or receivable by the Issuing Bank hereunder or its effective return hereunder or under any Letter of Credit or on its capital; or (iii) causing the Issuing Bank to make any payment or to forego any return based on any amount received or receivable by the Issuing Bank hereunder or under any Letter of Credit, then upon demand from time to time the Account Party shall be obligated to pay such amount as shall compensate the Issuing Bank for any such cost, reduction, payment or foregone return; provided, however, that the Account Party shall be obligated under this paragraph to compensate the Issuing Bank for capital adequacy requirements measured against its outstanding obligations hereunder only to the extent such capital adequacy requirements are in excess of the capital adequacy requirements required in connection with the implementation in the country where the Issuing Bank's principal office is located of the agreement announced by the Bank for International Settlements in Basle on July 11, 1988, concerning the international convergence of capital measurement and capital standards. Any certificate of the Issuing Bank in respect of the foregoing will be conclusive and binding upon the Account Party, except for demonstrable error; provided, that the Issuing Bank shall determine the amounts owing to it in good faith using any reasonable averaging and attribution methods. -13- (b) The Issuing Bank agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to seek additional amounts from the Account Party pursuant to clause (a) above, it will exercise commercially reasonable efforts to issue, or maintain each Letter of Credit through another lending office to take such other actions as it deems appropriate if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Letter of Credit pursuant to clause (a) would be reduced and if, as determined by the Issuing Bank in its sole discretion, the issuance or maintaining of any Letter of Credit through such other lending office or the taking of such other actions would not otherwise adversely affect such Letter of Credit or rights to repayment hereunder or the Issuing Bank and would not, in the Issuing Bank's sole discretion, be commercially unreasonable. SECTION 4.2. Taxes. All payments by the Account Party of amounts in respect of each Letter of Credit and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by the Issuing Bank's net income or receipts (such non- excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Account Party hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Account Party will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Issuing Bank an official receipt or other documentation satisfactory to the Issuing Bank evidencing such payment to such authority; and (c) pay to the Issuing Bank such additional amount or amounts as is necessary to ensure that the net amount actually received by the Issuing Bank will equal the full amount the Issuing Bank would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Issuing Bank with respect to any payment received by the Issuing Bank hereunder, the Issuing Bank may pay such Taxes and the Account Party will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by the Issuing Bank after the payment of such Taxes (including any Taxes on such additional amount) shall -14- equal the amount the Issuing Bank would have received had not such Taxes been asserted. If the Account Party fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Issuing Bank the required receipts or other required documentary evidence, the Account Party shall indemnify the Issuing Bank for any incremental Taxes, interest or penalties that may become payable by the Issuing Bank as a result of any such failure. SECTION 4.3. Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Account Party pursuant to this Amendment and Restatement shall be made by the Account Party to the Issuing Bank for the account of the Issuing Bank. All such payments required to be made to the Issuing Bank shall be made, without setoff, deduction or counterclaim, not later than 12:00 noon, New York City time, on the date due, in same day or immediately available funds, to such account as the Issuing Bank shall specify from time to time by notice to the Account Party. Funds received after that time shall be deemed to have been received by the Issuing Bank on the next succeeding Business Day. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 365 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.4. Setoff. The Issuing Bank shall, upon the occurrence of any Default described in clauses (a) through (d) of Section 8.1.4 or upon the occurrence of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it hereunder or under the Letters of Credit any and all balances, credits, deposits, accounts or moneys of the Account Party then or thereafter maintained with the Issuing Bank, including, without limitation, any amounts then or thereafter held in the Deposit Account. The Issuing Bank agrees promptly to notify the Account Party after any such setoff and application made by the Issuing Bank; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Issuing Bank under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which the Issuing Bank may have. -15- ARTICLE V CONDITIONS PRECEDENT SECTION 5.1. Conditions to Effectiveness. The effectiveness of this Amendment and Restatement shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. SECTION 5.1.1. Resolutions, etc. The Issuing Bank shall have received from the Account Party a certificate, dated the date of the issuance of the initial Letter of Credit, duly executed and delivered by its Authorized Officer as to (a) resolutions of its Board of Directors or a duly authorized committee thereof then in full force and effect authorizing the execution, delivery and performance of this Amendment and Restatement and each other document to be executed by it and the transactions contemplated hereby and thereby, (b) the incumbency and signatures of those of its officers authorized to act with respect to this Amendment and Restatement and each other document to be executed by it, and (c) each Organic Document of the Account Party, upon which certificates the Issuing Bank may conclusively rely until it shall have received a further certificate of the Authorized Officer of the Account Party canceling or amending such prior certificate. SECTION 5.1.2. Opinion of Counsel. The Issuing Bank shall have received an opinion, dated the Effective Date and addressed to the Issuing Bank, from the general counsel of the Account Party, in form and substance satisfactory to the Issuing Bank and its counsel. SECTION 5.1.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Account Party shall be satisfactory in form and substance to the Issuing Bank and its counsel, and the Issuing Bank and its counsel shall have received all other information, approvals, opinions, documents or instruments as the Issuing Bank or its counsel may reasonably request. SECTION 5.1.4. Closing Fees, Expenses, etc. The Issuing Bank shall have received for its own account (a) an extension fee in the amount of $25,000 and (b) all fees, costs and expenses due and payable, if then invoiced. -16- SECTION 5.1.5. Compliance with Warranties, No Default, etc. The following statements shall be true and correct: (a) the representations and warranties set forth in Article VI shall be true and correct as of the Effective Date; and (b) no Default shall have occurred and be continuing. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Issuing Bank to enter into this Amendment and Restatement, the Account Party represents and warrants unto the Issuing Bank as set forth in this Article VI. SECTION 6.1. Organization, Power, Authority, etc. The Account Party and each of its Subsidiaries is a corporation validly organized and existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Amendment and Restatement and each other Credit Document to which it is a party, to own and hold under lease its property and to conduct its business substantially as currently conducted by it and to obtain Letters of Credit hereunder. SECTION 6.2. Due Authorization, etc. The execution, delivery and performance by the Account Party of this Amendment and Restatement and each other Credit Document executed or to be executed by it are within the Account Party's corporate powers, have been duly authorized by all necessary corporate action, do not require any Approval (other than any Approvals which have been made or obtained), do not and will not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or material Contractual Obligation (other than any material Contractual Obligation which, in the event of any such conflict, violation or default the applicable Person has made provision for the repayment or satisfaction thereof) or any law or governmental regulation or court decree or order binding upon the Account Party or any of its Subsidiaries and will not result in or require the creation or imposition of any material Lien on any properties pursuant to the provisions of any Contractual Obligation. -17- SECTION 6.3. Validity, etc. This Amendment and Restatement constitutes, and each other Credit Document executed by the Account Party will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Account Party enforceable in accordance with their respective terms subject to the effect of any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally. SECTION 6.4. Financial Information. The audited financial information of the Account Party set forth in the Form 10-K annual report for its Fiscal Year ended January 30, 1993, and the unaudited financial information of the Account Party set forth in the Form 10-Q quarterly report for its Fiscal Quarter ended October 30, 1993, copies of which have been furnished to the Issuing Bank, have been prepared in accordance with GAAP consistently applied and, except as set forth in the notes to such financial information, present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended. SECTION 6.5. No Material Adverse Change. Since October 30, 1993, there have been no occurrences, of whatsoever nature, which individually or in the aggregate have had a Materially Adverse Effect on the financial condition of the Account Party and its Subsidiaries reflected in the financial information for the Fiscal Quarter ended October 30, 1993, referred to in Section 6.4. SECTION 6.6. Absence of Default. Neither the Account Party nor any of its Subsidiaries is in default in the payment of (or in the performance of any obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $7,500,000, which default, if other than in the payment of principal, would permit the acceleration of the principal of such Indebtedness prior to the maturity thereof, or in default under any governmental regulation or court decree or order which individually or in the aggregate could reasonably be expected to have a Materially Adverse Effect except as otherwise disclosed on the Disclosure Schedule. SECTION 6.7. Litigation, etc. There is no pending or, to the knowledge of the Account Party, threatened litigation, arbitration or governmental investigation, proceeding or inquiry against the Account Party or any of its Subsidiaries or to which any of the properties, assets or revenues of any thereof is subject as to which there is a reasonable possibility of adverse determination and which, if adversely determined, (a) would have a Materially Adverse Effect; and -18- (b) would adversely affect the legality, validity, binding effect or enforceability of this Amendment and Restatement, the Letters of Credit or any other Credit Document. SECTION 6.8. Ownership of Properties. The Account Party and each of its Subsidiaries owns good and, in the case of real property, marketable title to all of its material properties and assets, real and personal, of any nature whatsoever. SECTION 6.9. Subsidiaries. The Account Party has no Subsidiaries, except those Subsidiaries which are identified in Item 6.9 ("Existing Subsidiaries") of the Disclosure Schedule. SECTION 6.10. Patents, Trademarks, etc. Each of the Account Party and its Subsidiaries owns and possesses all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as it considers necessary for the conduct of its businesses as now conducted without, individually or in the aggregate, any infringement upon right of other Persons which could reasonably be expected to have a Materially Adverse Effect. SECTION 6.11. Regulations G, T, U and X. Neither the Account Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock, and less than 25% of the assets of the Account Party, individually and on a consolidated basis with its Subsidiaries, consists of margin stock. No proceeds of any Letter of Credit will be used for a purpose which violates, or would be inconsistent with, Federal Reserve System Board Regulation G, T, U or X. Terms for which meanings are provided in Federal Reserve System Board Regulation G, T, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.12. Government Approval, Regulation, etc. Neither the Account Party nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.13. Taxes. Each of the Account Party and its Subsidiaries has filed all tax returns and reports required by law to have been filed by it (or has properly filed for an extension of the date of filing) and has paid all taxes and governmental charges thereby shown to be owing, except any such -19- taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.14. Letters of Credit. The Stated Expiry Date of each Letter of Credit is on or before the Termination Date and the amount of Letter of Credit Outstandings does not exceed the Letter of Credit Maximum Amount. SECTION 6.15. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of the Account Party in writing to the Issuing Bank for purposes of or in connection with this Amendment and Restatement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Account Party to the Issuing Bank will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Amendment and Restatement by the Issuing Bank, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Account Party agrees with the Issuing Bank that, until all Obligations have been paid and performed in full, the Account Party will perform the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Account Party will furnish, or will cause to be furnished, to the Issuing Bank copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 55 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Account Party, consolidated balance sheets of the Account Party and its Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of earnings and cash flow of the Account Party and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by the chief financial Authorized Officer of the Account Party; -20- (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Account Party, a copy of the annual audit report for such Fiscal Year for the Account Party and its Subsidiaries, including therein consolidated balance sheets of the Account Party and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings and cash flow of the Account Party and its Subsidiaries for such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Issuing Bank by an Independent Public Accountant; (c) as soon as possible and in any event within three days after the occurrence of each Default, a statement of the chief financial Authorized Officer of the Account Party setting forth details of such Default and the action which the Account Party has taken and proposes to take with respect thereto; (d) promptly after the sending or filing thereof, copies of all reports which the Account Party sends to any of its securityholders, and all reports and registration statements which the Account Party or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; and (e) such other information respecting the condition or operations, financial or otherwise, of the Account Party or any of its Subsidiaries as the Issuing Bank may from time to time reasonably request. SECTION 7.1.2. Maintenance of Corporate Existences, etc. The Account Party will cause to be done at all times all things necessary to maintain and preserve the corporate existences of the Account Party and each of its Subsidiaries, and the Account Party will own and hold all of the outstanding shares of capital stock of each Subsidiary directly or indirectly through one or more other Subsidiaries and free and clear of all Liens. SECTION 7.1.3. Foreign Qualification. The Account Party will, and will cause each Subsidiary to, cause to be done at all times all things necessary to be duly qualified to do business and be in good standing as a foreign corporation in each jurisdiction where the failure so to qualify would have a Materially Adverse Effect. SECTION 7.1.4. Payment of Taxes, etc. The Account Party will, and will cause each of its Subsidiaries to, pay and discharge, as the same may become due and payable, all federal, state, local and foreign taxes, assessments, fees and other governmental charges or levies against it or on any of its -21- property, as well as other due and payable claims of any kind which, if unpaid, might become a material Lien upon any one of its properties; provided, however, that the foregoing shall not require the Account Party or any of its Subsidiaries to pay or discharge any such tax, assessment, fee, charge, levy or Lien so long as it shall be diligently contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves in accordance with GAAP with respect thereto, nor shall the foregoing prohibit the Account Party or any of its Subsidiaries from properly filing for the extension of the filing of any tax return. SECTION 7.1.5. Insurance. The Account Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses in similar locations (including, where appropriate, customary amounts of self- insurance) and will, upon request of the Issuing Bank, furnish to the Issuing Bank at reasonable intervals a certificate of an Authorized Officer setting forth the nature and extent of all insurance (including levels of self-insurance) maintained by the Account Party and its Subsidiaries in accordance with this Section. SECTION 7.1.6. Books and Records. The Account Party will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Issuing Bank or any of its representatives, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Account Party hereby authorizes such independent public accountant to discuss the Account Party's financial matters with the Issuing Bank or its representatives whether or not any representative of the Account Party is present) and to examine (and, at the expense of the Account Party, photocopy extracts from) any of its books or other corporate records. The Account Party shall pay any fees of such independent public accountant incurred in connection with the Issuing Bank's exercise of its rights pursuant to this Section. SECTION 7.2. Negative Covenants. The Account Party agrees with the Issuing Bank that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Account Party will perform the obligations set forth in this Section 7.2. SECTION 7.2.1. Consolidation, Merger, etc. The Account Party will not, and will not permit any of its Subsidiaries to, -22- liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Account Party or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Account Party or any other Subsidiary; (b) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Account Party or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or acquire such Person by merger; and (c) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Account Party may merge with and into Holdings, any direct or indirect wholly-owned Subsidiary of Holdings, or Collins & Aikman Corporation, which Person will, upon the effectiveness of any such merger, become the Account Party hereunder. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Events of Default. The occurrence of any of the following events shall be an "Event of Default" hereunder. SECTION 8.1.1. Non-Payment of Obligations. The Account Party shall fail to pay any amount payable under any provision of this Amendment and Restatement when due, and such default shall continue unremedied for a period of five days. SECTION 8.1.2. Nonperformance of Certain Covenants, etc. The Account Party shall default in the due performance and observance of any of its obligations under Section 7.2, or the Account Party shall cease to maintain an average daily balance in excess of $1,700,000 in an interest bearing deposit account with Continental. SECTION 8.1.3. Nonperformance of Other Covenants and Obligations. The Account Party shall default in the due performance and observance of any other agreement contained herein or in any other Credit Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Account Party by the Issuing Bank. -23- SECTION 8.1.4. Bankruptcy, Insolvency, etc. The Account Party or any Subsidiary of the Account Party shall (a) become insolvent or admit in writing its inability or unwillingness generally to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Account Party or any Subsidiary of the Account Party or all or substantially all of the property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Account Party or any Subsidiary of the Account Party or for all or substantially all of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Account Party or any Subsidiary of the Account Party, and, if such case or proceeding is not commenced by the Account Party or such Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Account Party or such Subsidiary, as the case may be, or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (e) take any corporate action authorizing, or in furtherance of, any of the foregoing. SECTION 8.1.5. Breach of Warranty. Any representation or warranty of the Account Party made or deemed to be made hereunder or in any other writing or certificate furnished by or on behalf of the Account Party to the Issuing Bank for the purposes of or in connection with this Amendment and Restatement, is or shall be incorrect when made or deemed to have been made in any material respect. SECTION 8.1.6. Default on Other Indebtedness. A default shall occur (a) in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1 or the St. Clair Indebtedness) of the Account Party having a principal amount, individually or in the aggregate, in excess of $5,000,000; (b) in the performance or observance of any -24- obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable prior to its expressed maturity; or (c) in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness under the C & A Credit Agreement. SECTION 8.1.7. Pension Plans. Any of the following events shall occur with respect to any Pension Plan: (a) the institution of any steps by the Account Party or any of its Subsidiaries or any other Person to terminate a Pension Plan if, as a result of such termination, the Account Party or any of its Subsidiaries would be required to make a contribution to such Pension Plan, or would incur a liability or obligation to such Pension Plan, in excess of $5,000,000; or (b) a contribution failure occurs with respect to any Pension Plan of the Account Party or any of its Subsidiaries sufficient to give rise to the enforcement of a Lien in excess of $5,000,000 under section 302(f) of ERISA. SECTION 8.1.8. Judgments. Any final judgment or order for the payment of money which, together with other such outstanding final judgments against the Account Party or its Subsidiaries (in each case to the extent not covered by insurance), exceeds $7,500,000, shall be rendered against the Account Party or any of its Subsidiaries and, for 30 consecutive days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal, or, for 30 consecutive days after the expiration of any such stay, such judgment shall not have been discharged. SECTION 8.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 8.1.4 shall occur, all outstanding Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 8.1.4) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Issuing Bank shall, upon notice or demand, declare any or all outstanding Obligations to be due and payable, without further notice, demand or presentment. -25- ARTICLE IX MISCELLANEOUS SECTION 9.1. No Waiver. No failure or delay on the part of the Issuing Bank in exercising any power or right under this Amendment and Restatement or any other document executed and delivered in connection herewith shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Account Party in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Issuing Bank shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.2. Amendments, etc. No amendment, modification, termination or waiver of any provision of this Amendment and Restatement nor consent to any departure herefrom, shall in any event be effective unless the same shall be in writing and signed by the Account Party and the Issuing Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 9.3. Notices. All notices and other communications provided to any party hereto under this Amendment and Restatement shall be in writing or by telecopy addressed and delivered or transmitted to such party at its address set forth below its signature hereto or telecopy number set forth below its signature hereto or at such other address or telecopy number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by telecopy, shall be deemed given when transmitted (receipt confirmed). SECTION 9.4. Payment of Costs and Expenses. The Account Party agrees to pay on demand all expenses of the Issuing Bank (including the fees and out-of-pocket expenses of counsel to the Issuing Bank) in connection with (a) the negotiation, preparation, execution, delivery and enforcement of this Amendment and Restatement and of each other Credit Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Amendment and Restatement or -26- any other Credit Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, and (b) the preparation and review of the form of any document or instrument relevant to this Amendment and Restatement or any other Credit Document. The Account Party further agrees to pay, and to save the Issuing Bank harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Amendment and Restatement, the issuance of the Letters of Credit, or any other Credit Documents. The Account party also agrees to reimburse the Issuing Bank upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Issuing Bank in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 9.5. Indemnification. In consideration of the execution and delivery of this Amendment and Restatement by the Issuing Bank, the Account Party hereby indemnifies, exonerates and holds the Issuing Bank and each of its officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the use of any Letter of Credit; (b) the entering into and performance of this Amendment and Restatement and any other Credit Document by any of the Indemnified Parties; (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Account Party or any of its Subsidiaries of any Hazardous Material; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the -27- Account Party or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Account Party or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Account Party hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 9.6. Survival. The obligations of the Account Party under Sections 4.1, 4.2, 9.4 and 9.5 shall in each case survive any termination of this Amendment and Restatement and the payment in full of all Obligations. The representations and warranties made by the Account Party in this Amendment and Restatement and in each other Credit Document shall survive the execution and delivery of this Amendment and Restatement and each such other Credit Document. SECTION 9.7. Severability. Any provision of this Amendment and Restatement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.8. Headings. The various headings of this Amendment and Restatement and each other Credit Document are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment and Restatement or such other Credit Document or any provisions hereof or thereof. SECTION 9.9. Execution in Counterparts, Effectiveness, etc. This Amendment and Restatement hereto may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Amendment and Restatement shall become effective when counterparts hereof executed on behalf of the Account Party and the Issuing Bank shall have been received by the Issuing Bank. SECTION 9.10. Governing Law; Entire Agreement, etc. THIS AMENDMENT AND RESTATEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This -28- Amendment and Restatement, the Letters of Credit and the other Credit 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. EACH PARTY TO THIS AMENDMENT AND RESTATEMENT HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT AND RESTATEMENT AND EACH CREDIT DOCUMENT AND EACH HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. EACH PARTY TO THIS AMENDMENT AND RESTATEMENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. SECTION 9.11. Successors and Assigns. This Amendment and Restatement shall be binding upon the Account Party, its successors and assigns, and inure to the benefit of the Issuing Bank and its successors, transferees and assigns. The Account Party shall have no right to assign its rights hereunder or any interest herein (except for any assignment by operation of law pursuant to a merger permitted by clause (c) of Section 7.2.2) without the prior written consent of the Issuing Bank. SECTION 9.12. Waiver of Jury Trial. THE ISSUING BANK AND THE ACCOUNT PARTY 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 AMENDMENT AND RESTATEMENT, THE LETTERS OF CREDIT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ISSUING BANK OR THE ACCOUNT PARTY. THE ACCOUNT PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ISSUING BANK ENTERING INTO THIS AMENDMENT AND RESTATEMENT AND EACH SUCH OTHER CREDIT DOCUMENT. -29- IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. COLLINS & AIKMAN GROUP, INC. (formerly known as Wickes Companies, Inc.) By /s/ Paul W. Meeks Name: Paul W. Meeks Title: Vice President & Treasurer Address: 8320 University Executive Park Suite 102 Charlotte, North Carolina 28262 Facsimile No.: 704-548-2360 Attention: Treasurer CONTINENTAL BANK N.A., as Issuing Bank, and as Lender and Agent under the Credit Agreement By /s/ John Orrechio Name: John Orrechio Title: Vice President Address: 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: 312-974-9102 Attention: Virginia Marroquin -30- EX-10 5 EXHIBIT 10.14 FIRST AMENDMENT dated as of April 4, 1994 to AGREEMENT (the "Agreement") dated as of March 23, 1992, between Collins & Aikman Group, Inc. (the "Company") and David J. McKittrick ("Employee"). WHEREAS, the Company and Employee desire to amend the Agreement as hereinafter provided; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties hereto hereby agree as follows: 1. Section 1 of the Agreement is hereby amended by changing "March 24, 1994" to "July 30, 1994". 2. The first sentence of Section 2 of the Agreement is hereby deleted and replaced with the following: "From March 23, 1992 until April 4, 1994, Employee shall be the Vice Chairman and Chief Operating Officer of the Company. From April 4, 1994 until further notice from the Company, Employee shall be the Principal Financial and Accounting Officer of the Company, and thereafter Employee shall have such other title consistent with his limited responsibilities as the Company and Employee shall agree. During the term of this Agreement, Employee shall perform such services for the Company and its subsidiaries as may be assigned to him from time to time by the Vice-Chairman and the Co-Chairman of the Board of Directors of the Company." 3. The third sentence of Section 2 of the Agreement is hereby amended by adding the following at the end thereof after the words "his duties in such positions": "; provided, however, that during the period from April 4, 1994 until July 30, 1994, Employee shall be permitted to initiate a job search." 4. The first sentence of Section 3.2(a) of the Agreement is hereby amended by adding the following at the end thereof after the words "January 29, 1994": "and a cash bonus of not less than $87,500 for the six months ending July 30, 1994." 5. The last sentence of Section 3.2(a) of the Agreement is hereby amended to add the following at the end thereof after the word "relate": "except that the bonus for the period ending July 30, 1994 shall be payable to the extent of 50% not later than August 30, 1994 and to the extent of 50% not later than November 30, 1994." 6. Clause (i) of Section 3.2(b) is hereby amended by adding the words "or portion thereof" after the words "fiscal year" the first time they appear and by changing the words "the last day of such fiscal year" to "July 1, 1994". 7. Clause (ii) of Section 3.2(b) of the Agreement is hereby amended to read in its entirety as follows: "(ii) if Employee is employed hereunder for less than the period from January 30, 1994 to July 30, 1994 for any reason other than a voluntary termination by Employee (excluding, however, a voluntary termination by Employee after July 1, 1994) or a termination for Cause by the Company, Employee shall be entitled to receive, in lieu of any bonus under Section 3.2(a) for such period, a pro rata portion (based on the number of weeks of such period during which Employee was actually employed hereunder over 26) of $87,500. 8. Sections 3.3 (a) through (e) of the Agreement are hereby amended to read in their entirety as follows: "(a) Subject to the vesting provisions set forth herein, Employee shall receive an award (the "Investment") having an aggregate "Value" equal to $1,000,000. (b) The Investment that Employee is eligible to receive shall vest as follows: (i) 20% of the aggregate Value shall vest at the end of each of the first two 12-month periods during which Employee is employed by the Company and its affiliates and (ii) an amount equal to $547.95 shall vest daily thereafter for the period during which Employee is employed by the Company and its affiliates, provided that Employee is so employed until July 1, 1994 or is involuntarily terminated by the Company without Cause prior to that date, until 100% of the aggregate Value is vested. (c) Upon termination of Employee's employment with the Company and its affiliates for any reason other than termination for Cause, Employee shall receive the vested Value of the Investment calculated pursuant to Section 3.3 (a) and (b). (d) Employee's rights with respect to the Investment shall not continue after Employee's termination of employment with the Company and its affiliates, except for rights to payment under Section 3.3(c) with respect to Employee's termination of employment. (e) Payments under this Section 3.3 shall be made in a lump sum cash payment upon Employee's termination of employment without Cause." 2 9. Section 3.4(a) of the Agreement is hereby amended to read in its entirety as follows: "(a) If Employee's employment with the Company and its affiliates terminates after March 23, 1994, for whatever reason (including, without limitation, termination at the end of the term of employment under Section 1, as extended by written mutual agreement) other than termination for Cause, Employee shall receive as a retirement severance benefit $17,000 payable in cash promptly after such termination. In addition, the Company hereby acknowledges that if Employee's employment with the Company terminates after March 24, 1994, Employee shall be fully vested under the Collins & Aikman Corporation Profit Sharing Plan and the Collins & Aikman Corporation Employees' Pension Account Plan and will receive the value of his vested accounts in a lump sum following termination of employment." 10. The third sentence of Section 3.4(b) of the Agreement is hereby amended to read in its entirety as follows: "Upon termination of Employee's employment with the Company, provided that such termination is after July 1, 1994 or is an involuntary termination by the Company without Cause, Employee shall be given ownership of such automobile and shall not be required to pay any purchase price in connection therewith." 11. Section 3.4(c) of the Agreement is hereby amended to read in its entirety as follows: "Employee shall be entitled to four weeks of paid vacation per 12 month period of his employment hereunder, which shall accrue on a continuous basis (i.e. 1.67 vacation days for every month of employment). Upon termination of Employee's employment with the Company, provided that such termination is after July 1, 1994 or is an involuntary termination by the Company without Cause, Employee shall be entitled to cash in a lump sum for any unused vacation days (rounded up to the nearest whole day)." 12. Section 5.3 of the Agreement is hereby amended to add the following at the end thereof: "Upon termination of Employee's employment with the Company, provided that such termination is after July 1, 1994 or is an involuntary termination by the Company without Cause, Employee shall be given ownership of his personal office equipment, including his computer and peripherals, home fax and cellular phone, and shall not be required to pay any purchase price in connection therewith." 3 13. Clauses II and III of Section 6.1 are hereby amended to read in their entirety as follows: "(ii) any unpaid cash bonus that Employee may be entitled to receive pursuant to Section 3.2, and (iii) any amounts that may be due to Employee pursuant to Sections 3.3, 3.4(a) and 3.4(c)." 14. The validity, interpretation and performance of this Amendment shall be governed by the internal laws of the State of New York, regardless of the laws that might be applied under applicable principles of conflicts of laws. Each of the parties hereby waives any right such party may have to a trial by jury. 15. All references in the Agreement to this "Agreement" shall mean the Agreement, as amended hereby. Except as expressly amended hereby, the Agreement shall continue in full force and effect in accordance with the provisions thereof. 16. In consideration of the Company entering into this Amendment, Employee unconditionally releases the Company and its subsidiaries and affiliates and directors, officers, employees and stockholders thereof, from any and all claims, liabilities and obligations of any nature pertaining to the termination of his employment, other than those explicitly provided for by the Agreement as amended hereby and amounts payable with respect to Employee under benefit plans covering Employee, including, without limitation, any claims arising out of alleged legal restrictions on the Company's rights to terminate its employees, such as any termination contrary to public policy or to laws prohibiting discrimination (including, without limitation, the Age Discrimination in Employment Act). IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. /s/ David J. McKittrick [L.S.] David J. McKittrick COLLINS & AIKMAN GROUP, INC. By /s/ David A. Stockman David A. Stockman Title: Co-Chairman and Co-Chief Executive Officer By /s/ Randall J. Weisenburger Randall J. Weisenburger Title: Vice Chairman 4 EX-21 6 EXHIBIT 21 April 28, 1994 Subsidiaries of Collins & Aikman Group, Inc. Company Jurisdiction Builders Emporium Payroll Services, Inc. Delaware Cepco Incorporated Delaware Collins & Aikman Corporation Delaware Ackerman Associates, Inc. New York Ack-Ti-Lining, Inc. New York Collins & Aikman Automotive International, Inc. Delaware Collins & Aikman Holdings Canada Canada WCA Canada, Inc. Canada Imperial Wallcoverings (Canada), Inc.1 Canada Collins & Aikman Lease Co. Delaware Collins & Aikman United Kingdom, Ltd. United Kingdom Imperial Wallcoverings, Inc. Delaware Marketing Service, Inc. Delaware The Akro Corporation Delaware Dura Acquisition Corp. Delaware Dura Convertible Systems de Mexico, S.A. de C.V.2 Mexico (1% owned by Collins & Aikman Corporation) Warner Fabrics plc United Kingdom (Owned with Wickes International Corporation) Harris Fabrics Limited United Kingdom Warner & Sons, Ltd. United Kingdom (1 share owned by Warner Fabrics plc; 1 share owned by Warner Fabrics plc and Nicholas E. Joels, as joint holders) Collins & Aikman de Mexico, S.A. de C.V.3 Mexico Gamble Development Company Minnesota Greeff Fabrics, Inc. New York Hopkins Realty Company Minnesota Ole's, Inc. California Ole's Nevada, Inc. Nevada Simmons Universal Corporation Delaware Wickes Asset Management, Inc. Delaware Wickes Guaranteed Parts, Ltd. Canada Wickes International Corporation Delaware Design Edition Limited United Kingdom (50% ownership with Warner Fabrics plc) Warner Weaving Company Limited United Kingdom (50% ownership with Warner Fabrics plc) Wickes Manufacturing Company Delaware Wickes Products, Inc. Delaware Wickes ELCO Corporation Delaware Wickes Manufacturing Services Company, Inc. Delaware Wickes Realty, Inc. Delaware Wickes Venture Capital, Inc. Delaware Sequoia Pacific Development Company Delaware 1 24% owned by Imperial Wallcoverings, Inc. 2 In formation. 3 1% owned by The Akro Corporation. In formation. -----END PRIVACY-ENHANCED MESSAGE-----