-----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, mFIrSVjryhQdCUB+cLS/mZNH5Bl72zyAe/np/MRR/xCaWI49dmTCRuiCFo70RLsW cty7L6SBgIkoQhN8e2/ZAg== 0000950168-95-000352.txt : 19950501 0000950168-95-000352.hdr.sgml : 19950501 ACCESSION NUMBER: 0000950168-95-000352 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19950330 FILED AS OF DATE: 19950428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLINS & AIKMAN CORP CENTRAL INDEX KEY: 0000846815 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 133489233 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10218 FILM NUMBER: 95532624 BUSINESS ADDRESS: STREET 1: 8320 UNIVESITY EXECUTIVE PARK, SUITE 102 STREET 2: P O BOX 4056 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: COLLINS & AIKMAN HOLDINGS CORP/DE DATE OF NAME CHANGE: 19930914 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS & AIKMAN HOLDINGS CORP DATE OF NAME CHANGE: 19930114 FORMER COMPANY: FORMER CONFORMED NAME: WCI HOLDINGS CORP DATE OF NAME CHANGE: 19920703 10-K 1 COLLINS AND AIKMAN 80421 10-K 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 28, 1995. 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 1-10218 Collins & Aikman Corporation (Exact name of registrant as specified in its charter) (Formerly Collins & Aikman Holdings Corporation) Delaware 13-3489233 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 701 McCullough Drive Charlotte, North Carolina 28262 (Address of principal executive offices) Registrant's telephone number, including area code: (704) 547-8500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock New York Stock Exchange 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. x Yes 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 voting stock held by non affiliates of the registrant was $127,796,678 as of April 26, 1995. As of April 26, 1995, the number of outstanding shares of the Registrant's common stock, $.01 par value, was 70,520,900 shares. DOCUMENTS INCORPORATED BY REFERENCE: (1) Annual Report to Stockholders for Fiscal Year Ended January 28, 1995 - Items 1, 5, 6, 7, 8 and 14* (2) Proxy Statement for 1995 Annual Meeting of Stockholders to be filed within 120 days of January 28, 1995 - Items 10, 11, 12 and 13.* *Only the portions of these documents expressly described in the items listed are incorporated by reference herein. COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES FORM 10-K Annual Report Index Item 1. Business, page 1. Item 2. Properties, page 8. Item 3. Legal Proceedings, page 8. Item 4. Submission of Matters to a Vote of Security Holders, page 12. Executive Officers of the Registrant, page 12. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters, page 14. Item 6. Selected Financial Data, page 14. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 14. Item 8. Financial Statements and Supplementary Data, page 14. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure, page 14. Item 10. Directors and Executive Officers of the Registrant, page 15. Item 11. Executive Compensation, page 15. Item 12. Security Ownership of Certain Beneficial Owners and Management, page 15. Item 13. Certain Relationships and Related Transactions, page 15. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page 16. i PART I ITEM 1. BUSINESS 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 wallpaper in the U.S. For certain financial information regarding the Company's business segments, see Note 20 to Consolidated Financial Statements on page 49 of the Company s 1994 Annual Report to Stockholders and Management's Discussion and Analysis of Financial Condition and Results of Operations on page 17 of the Company's 1994 Annual Report to Stockholders, which are incorporated herein by reference. For a discussion of the organization of the Company, certain developments in July 1994 resulting in a recapitalization of the Company and certain related mergers, see Notes 1 and 2 of the Consolidated Financial Statements on page 32 of the Company's 1994 Annual Report to Stockholders and the information under the Caption "Initial Public Offering and Recapitalization" on page 17 of the Company's 1994 Annual Report to Stockholders, which are incorporated herein by reference. With respect to market or competitive information, references to the Company as "a leader", "a leading" or "one of the leading" manufacturers in that product category mean that the Company is one of the principal manufacturers in that product category and references to the Company as "the leader", "the largest" or "the leading" manufacturer in a particular product category mean that the Company has the largest product market share based on dollar sales volume in that product category. 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 1994 net sales in this segment of $904.9 million. Automotive Products supplies four major interior trim products--automotive seat fabric ("bodycloth"), molded floor carpets, accessory floor mats and luggage compartment trim--and convertible top systems. Automotive Products had 1994 net sales in these product lines of $751.6 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 U. S. automotive equipment manufacturers and foreign owned North American automotive production and assembly facilities ("Transplants" and, collectively, "OEMs") than any of its competitors. The Company's sales are dependent on certain significant customers. In 1994, direct and indirect sales to each of General Motors Corporation, Ford Motor Company and Chrysler Corporation accounted for 10% or more of the Company's net sales. In 1993 and 1992, direct and indirect sales to each of General Motors Corporation and Chrysler Corporation accounted for 10% or more of the Company's net sales. Automotive industry demand historically has been influenced by both cyclical factors and long-term growth trends in the driving age population and real per capita income. 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 increased. 1 Products Automotive Products manufactures five principal products: automotive seat fabric, molded floor carpets, accessory floor mats, luggage compartment trim and convertible top systems. 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 1994, 1993 and 1992, Automotive Products had net sales of bodycloth of $340.3 million, $221.2 million and $191.1 million, respectively. Molded Floor Carpets. Molded floor carpets include 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 1994, 1993 and 1992 net sales of molded floor carpets were $213.2 million, $181.1 million, and $173.1 million, respectively. Accessory Floor Mats. Automotive Products produces carpeted automotive accessory floor mats for both North American produced vehicles and imported vehicles. In 1994, 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 Systems. Automotive Products designs, manufactures and distributes convertible top systems through its Dura Convertible Systems subsidiary ("Dura"). In October 1993, Dura began shipping its "Top-in-a-Box" system, in which it designs and manufactures all aspects of a convertible top, including the framework, trim set, backlight and actuating system. 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 carpets 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 and Best Top. 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. Capacity at any plant depends, among other things, on the product being produced, the processes and equipment used and tooling. This varies periodically, depending on demand and shifts in production between plants. The Company currently estimates that its Automotive Products plants generally operate at between 50% and 100% of capacity on a six- day basis. During the second half of 1994 the Company experienced capacity constraints with respect to certain automotive seat fabrics. To meet customer expectations, the Company utilized outside weaving and redeployed certain manufacturing capacity from its Decorative Fabrics velvet furniture products. Except for the foregoing constraints, which the Company believes are short term, the Company's capacity utilization in this segment is generally in line with its past experience in similar economic situations, and the Company believes that its existing facilities are sufficient to meet both this segment's existing needs and its anticipated growth requirements. The Company does not anticipate any circumstances that would render its facilities inadequate for its projected needs. 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 1994, the Interior Furnishings segment had net sales of $414.5 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 1994 net sales of $306.5 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 13,000) 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 is in the initial phase of a four year, $85 million modernization program. 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. 3 Products. Decorative Fabrics' two operating divisions are Mastercraft and Cavel. Mastercraft and Cavel design and manufacture jacquards, velvets and other woven fabrics for the furniture, interior design, commercial, recreational vehicle and industrial markets. During 1994, the Company sold the Greeff and Warner product lines through which it had designed and distributed high-end fabrics to interior designers and specialty retailers in the U.S. and U.K., respectively. Decorative Fabrics had net sales of flat-woven products in 1994, 1993 and 1992 of $262.8 million, $268.9 million and $254.7 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. Marketing and Sales. Fabrics are sold domestically by commissioned sales representatives who exclusively represent the Mastercraft and Cavel divisions of Decorative Fabrics. The Mastercraft and Cavel divisions maintain showrooms in seven key locations throughout the United States. 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 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 1.0 million square feet, of which 89% is owned and the remainder leased. Cavel shares manufacturing capacity with Automotive Products at three plants in Roxboro, North Carolina. During the last three years, the Company's capacity utilization in the Mastercraft division of the Decorative Fabrics group has consistently averaged nearly 100% on a six-day basis. The Company believes that its existing facilities are sufficient to meet the Decorative Fabrics group's existing needs, and, after taking into account Mastercraft's $85 million capital investment plan (see page 22 of Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in the Company's 1994 Annual Report to Stockholders which is incorporated herein by reference), anticipated growth requirements. Assuming the completion of Mastercraft's capital investment plan, the Company does not anticipate any circumstances that would render its Decorative Fabrics facilities inadequate for its projected needs. 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 1994 Floorcoverings had net sales of $108.0 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. 4 During 1994, Floorcoverings initiated its Source OneSM program to sell its products directly to end users which provides them turnkey full service project management. Approximately 56% of Floorcoverings' 1994 net sales were to institutional customers such as government, healthcare, and education facilities. 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(R) adhesive technology, which has 13 years of patent protection remaining. Because the Powerbond RS(R) 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 also have substantial 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 that 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. The Company currently estimates that Floorcoverings' plants operate at between 35% and 85% of capacity on a six-day basis. The Company's capacity utilization in the Floorcoverings group is generally in line with its past experience in similar economic situations and the Company believes that its existing facilities are sufficient to meet both this group's existing needs and its anticipated growth requirements. The Company does not anticipate any circumstances that would render its Floorcoverings facilities inadequate for its projected needs. WALLCOVERINGS General Wallcoverings, which operates under the name "Imperial", is a leading manufacturer and distributor of a full range of wallpaper for the residential and commercial sectors with 1994 net sales of $216.6 million. It is the only producer of wallpaper 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. 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 during 1986 and 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 5 market, coupled with a reduction in inventory by overstocked retailers. From 1991 to 1994, the industry's physical shipment volume increased at a modest rate. 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 wallpaper 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 in the residential sector 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 product market share. As a result, Imperial's sales declined during 1992 and 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 57 and 62 collections being introduced in 1994 and 1993, respectively, 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 position in residential wallpaper due to its competitive edge in color and design. Its in-house studio of approximately 35 artists represents a major strategic investment by Imperial that 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, 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 wallpaper designs. Imperial also distributes the lines of John Wilman, Great Britain's largest wallpaper 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 wallpaper designs. Some of these fabrics are supplied by the Mastercraft division of the Company. In 1994, 1993 and 1992, net sales of residential wallpaper were $191.7 million, $196.0 million and $214.0 million, respectively. 6 Customers Dealers and retail chains account for the largest portion of Imperial's customer base. Management believes that the Company is the leader 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 As a result of the recent economic turndown in the wallcoverings industry, many weaker competitors withdrew from the U.S. wallcoverings market. In addition, further contraction is expected to occur as sales of wallcoverings shift to chain stores, which along with other retailers prefer working with fewer, larger suppliers. Management believes that Imperial is well positioned to benefit from these developments. Competition in the wallcoverings industry is based on design, price and customer service. Imperial's principal competitors in wallpaper 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. The Company currently estimates that its Wallcoverings facilities that produce surface print paper generally operate at approximately 35% of capacity on a five-day basis and its facilities that produce gravure paper generally operate between approximately 80% and 100% of capacity on a five-day basis. The Company's capacity utilization in this segment is generally in line with its past experience in similar economic situations, and the Company believes that its existing facilities are sufficient to meet both this segment's existing needs and its anticipated growth requirements. The Company does not anticipate any circumstances that would render its Wallcoverings facilities inadequate for its projected needs. 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. For a discussion of increasing raw material price trends, see page 24 of Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in the Company's 1994 Annual Report to Stockholders which is incorporated herein by reference. ENVIRONMENTAL MATTERS See "ITEM 3. LEGAL PROCEEDINGS - Environmental Proceedings" and Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters on pages 25-26 of the Company's 1994 Annual Report to Stockholders incorporated herein by reference. EMPLOYEES As of January 28, 1995, the Company's subsidiaries employed approximately 12,000 persons on a full-time or full-time equivalent basis. Approximately 2,300 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. 7 ITEM 2. PROPERTIES For information concerning the principal physical properties of the Company and its various operating divisions, see "ITEM 1. BUSINESS". ITEM 3. LEGAL PROCEEDINGS Except as described below, the Company 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 Collins & Aikman Group, Inc. ("Group"), a former wholly owned subsidiary of the Company, which was merged into Collins & Aikman Products Co. ("Products"), a wholly owned subsidiary of the Company, and certain former officers and directors of Group, conspired to manipulate the price of Group's 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 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. On February 27, 1995, plaintiffs made a motion to "clarify or amend the Fifth Amended Complaint, essentially seeking either (i) a declaration that the complaint asserted claims against Group under Section 10(b) of the Securities Exchange Act and the Racketeer Influenced Corrupt Organizations Act (RICO); or (ii) the right to amend the complaint to assert those claims. On April 24, 1995, the court granted plaintiffs motion to the extent of permitting plaintiffs to amend the complaint to assert Section 10(b) and RICO claims against Group and the individual Group-related defendants. 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. Insurance Coverage Litigation. On November 22, 1994, Products was served with a complaint filed by National Union Fire Insurance Company of Pittsburgh, PA ("National Union") in the United States District Court for the Central District of California (the "California 8 action"). The complaint seeks declaratory relief and the return of approximately $10 million paid by National Union in defense costs and indemnity in respect of a class action, captioned Glass, Molders, Pottery, Plastics and Allied Workers International Union, AFL-CIO et al. v. Wickes Companies, Inc. (the "OCF Action"), which was commenced against Wickes Companies, Inc. (the predecessor by merger to Products) in or about July 1988 and settled pursuant to an order entered in or about October 1993. The complaint by National Union alleges, among other things, that National Union did not have a duty to defend or indemnify Wickes and that Wickes was unjustly enriched. On November 21, 1994, Products filed suit against National Union in the United States District Court for the Southern District of New York (the "New York action") seeking declaratory relief and damages relating to the amounts paid by National Union in respect of the OCF Action. Both the California action and the New York action have been withdrawn. In accordance with a settlement agreement dated as of January 17, 1995, the parties exchanged mutual releases of all claims related to either the California or New York action, and Products agreed to pay National Union a total of $2,510,000 of which $510,000 is due in 1995; $1,000,000 is due in 1996; and the remaining $1,000,000 is due in 1997. The settlement is covered by established accruals. 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 Company ("Wickes Manufacturing"), an indirect wholly owned subsidiary of the Company, 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. On April 21, 1995, the Court of Appeals for the State of Michigan affirmed the Trial Court s order granting Wickes Manufacturing's motion for summary disposition. On October 22, 1993, Haworth filed a complaint 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 9 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 United States Environmental Protection Agency (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 1991 to date, Kayser-Roth has paid approximately $3.6 million for past response costs, prejudgment interest and remediation. Kayser-Roth is in the process of complying with the remainder of the order. The Company has agreed to indemnify Kayser-Roth with respect to this matter. 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 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 or alleged to be responsible for 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 the Company 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; a site owned and formerly operated by Wickes Manufacturing's former Mechanical Components division located at Mancelona, Michigan; the former Albert Van Luit plant site owned by a Company subsidiary located in North Hollywood, California; the Hartley & Hartley landfill site located at Kawkawlin, Michigan; and the Stringfellow Superfund Site located at Riverside County, California. 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. In the last three fiscal years, the Company has paid approximately $6.3 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 estimating the total future cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating contaminated sites, remediation efforts by other parties, data released by the EPA, the professional judgment of the Company's environmental experts, outside environmental specialists and other experts, and the likelihood that other parties which have been named as PRPs will have the financial resources to fulfill their obligations at sites where they and the Company may be jointly and severally liable. Under the scheme of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are found to be responsible under the applicable laws. 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. The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. As of January 28, 1995, the Company has established reserves of approximately $31.7 million for the estimated future 10 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. 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. The Company 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. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT (Pursuant to Instruction G(3) of the General Instructions to Form 10-K, the following information is included herein as an unnumbered item in lieu of being included in the Company's definitive Proxy Statement). The following is a list of the names and ages (as of April 28, 1995) of all the executive officers of the Company and a description of 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 executive officers hold office at the pleasure of the Company's Board of Directors. Name Age Position David A. Stockman 48 Co-Chairman of the Board Bruce Wasserstein 47 Co-Chairman of the Board Randall J. Weisenburger 36 Vice Chairman John P. McNicholas 32 Vice Chairman Thomas E. Hannah 56 Chief Executive Officer William J. Brucchieri 52 President of Imperial Wallcoverings John D. Moose 58 President of Automotive Bodycloth Division Harry F. Schoen III 59 President of Mastercraft Division Elizabeth R. Philipp 38 Executive Vice President, General Counsel and Secretary J. Michael Stepp 51 Executive Vice President and Chief Financial Officer David A. Stockman has been Co-Chairman of the Board of the Company since July 1993. Mr. Stockman has been a General Partner of The Blackstone Group Holdings L.P. (the "Blackstone Group") since 1988. Mr. Stockman is also a director of Edward J. DeBartolo Corporation. Bruce Wasserstein has been Co-Chairman of the Board of the Company since June 1992. Mr. Wasserstein has been Chairman and Chief Executive Officer of Wasserstein Perella Management Partners, Inc. ("WP Management") since June 1992 and 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. 12 Randall J. Weisenburger has been a director of the Company since August 1989 and Vice Chairman of the Company since April 1994. Mr. Weisenburger was Deputy Chairman of the Company from July 1992 to April 1994 and Vice President from August 1989 to July 1992. Mr. Weisenburger has been Managing Director of Wasserstein Perella & Co., Inc. ("WP & Co.") since December 1993. Mr. Weisenburger was a Director of WP & Co. from December 1992 to December 1993 and a Vice President of WP & Co. from December 1989 to December 1992. Mr. Weisenburger is also Vice Chairman of the Board of Maybelline, Inc. and Chairman of the Yardley Lentheric Group. John P. McNicholas has been Vice Chairman of the Company since April 1994. Mr. McNicholas was Deputy Chairman of the Company from July 1992 to April 1994. Mr. McNicholas has been Vice President of the Blackstone Group since January 1992 and was an Associate of the Blackstone Group from November 1990 to December 1991 and an Associate, Merchant Banking Group - Merrill Lynch Capital Markets from August 1989 to November 1990. Thomas E. Hannah, has been a director of the Company and Chief Executive Officer of the Company since July 1994. Mr. Hannah was President and Chief Executive Officer of Collins & Aikman Textile and Wallcoverings Group, a division of a wholly owned subsidiary of the Company, from November 1991 until July 1994 and was named an executive officer of the Company for purposes hereof in April 1993. Mr. Hannah was President and Chief Executive Officer of the Collins & Aikman Textile Group from February 1989 to November 1991 and President of Milliken & Company's Finished Apparel Division prior to that. William J. Brucchieri has been President of Imperial Wallcoverings since February 1993 and was named an executive officer of the Company for purposes hereof in April 1994. Mr. Brucchieri was Executive Vice President of Imperial from March 1992 to January 1993 and Executive Vice President of the Mastercraft division from January 1990 to February 1992. Mr. Brucchieri was Vice President, Operations of the Mastercraft division from August 1989 to January 1990. Mr. Brucchieri joined a wholly owned subsidiary of the Company in 1988. John D. Moose has been President of the Automotive Bodycloth division since October 1994 and was President of the North American Auto Group from June 1989 until October 1994. Mr. Moose was named an executive officer of the Company for purposes hereof in April 1994. Mr. Moose joined a wholly owned subsidiary of the Company in 1960. Harry F. Schoen III has been President of the Mastercraft division since January 1993 and was named an executive officer of the Company for purposes hereof in April 1994. Mr. Schoen was Executive Vice President and Chief Operating Officer of the Mastercraft division from April 1992 to December 1992. Mr. Schoen was General Manager of Milliken & Company's Greige Fine Goods Group prior to that. Elizabeth R. Philipp has been Executive Vice President, General Counsel and Secretary of the Company since April 1994. Ms. Philipp was Vice President, General Counsel and Secretary of the Company from April 1993 to April 1994 and Vice President and General Counsel from September 1990 to April 1993. Prior to that, Ms. Philipp was associated with the law firm of Cravath, Swaine and Moore. J. Michael Stepp has been Executive Vice President and Chief Financial Officer since April 1995. Mr. Stepp was Executive Vice President, Chief Financial Officer of Purolator Products Company from December 1992 to March 1995. Prior to that, Mr. Stepp was President of American Corporate Finance Group, Inc. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock has been traded on the New York Stock Exchange under the symbol "CKC" since July 13, 1994. At April 26, 1995, there were approximately 125 holders of record. The following table lists the high and low sales prices for the common stock for the full quarterly periods since trading commenced. Fiscal 1994 High Low Third Quarter 10-7/8 8-5/8 Fourth Quarter 9-1/4 7-7/8 No dividend or other distribution with respect to the Common Stock has been paid by the Company since its incorporation in 1988. Any payment of future dividends and the amounts thereof will be dependent upon the Company's earnings, financial requirements and other factors deemed relevant by the Company's Board of Directors. The Company currently does not intend to pay any cash dividends in the foreseeable future; rather, the Company intends to retain earnings to provide for the operation and expansion of its business. Certain restrictive covenants contained in the agreement governing the Company's credit facilities limit the Company's ability to make dividend and other payments. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources on pages 22-23 of the Company's 1994 Annual Report to Stockholders incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to page 16 of the Company's 1994 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages 17 through 26 of the Company's 1994 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages 27 through 54 of the Company's 1994 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 401 of Regulation S-K regarding executive officers is set forth in Part I hereof under the caption "Executive Officers of the Registrant" and the information required by Item 401 of Regulation S-K regarding directors is incorporated herein by reference to that portion of the Registrant's definitive Proxy Statement to be used in connection with its 1995 Annual Meeting of Stockholders, which will be filed in final form with the Commission not later than 120 days after January 28, 1995 (the "Proxy Statement"), captioned "Election of Directors--Information as to Nominees and Other Directors". 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 the Company's knowledge, in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to that portion of the Proxy Statement captioned "Executive Compensation". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to those portions of the Proxy Statement captioned "Voting Securities and Principal Stockholders" and "Election of Directors--Information as to Nominees and Other Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to that portion of the Proxy Statement captioned "Compensation Committee Interlocks and Insider Participation". 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements: The following Consolidated Financial Statements of Collins & Aikman Corporation and Report of Independent Public Accountants are incorporated by reference to pages 27 through 54 of the Registrant's 1994 Annual Report to Stockholders: Report of Independent Public Accountants Consolidated Statements of Operations for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Balance Sheets at January 28, 1995 and January 29, 1994 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Notes to Consolidated Financial Statements (a) (2) Financial Schedules: The following financial statement schedules of Collins & Aikman Corporation for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Collins & Aikman Corporation. Page Number Report of Independent Public Accountants on Schedules . . . . . . . . S-1 Schedule I-Condensed Financial Information of the Registrant . . . . S-2 Schedule II-Valuation and Qualifying Accounts . . . . . . . . . . . S-5 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 July 7, 1994 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 Collins & Aikman Holdings Corporation, Collins & Aikman Group, Inc. or Wickes Companies, Inc., if such documents and filings were made prior to July 7, 1994. 16 Exhibit Number Description 3.1- Restated Certificate of Incorporation of Collins & Aikman Corporation is hereby incorporated by reference to Exhibit 4.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994. 3.2- By-Laws of Collins & Aikman Corporation, as amended, are hereby incorporated by reference to Exhibit 4.2 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994. 4.1- Specimen Stock Certificate for the Common Stock is hereby incorporated by reference to Exhibit 4.3 of Amendment No. 3 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33- 53179) filed June 21, 1994. 4.2- Indenture dated as of May 1, 1985, pursuant to which 11 3/8% Usable Subordinated Debentures due 1997 of Collins & Aikman Products Co. (the successor by merger to Collins & Aikman Group, Inc. and 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). 4.3- Credit Agreement dated as of June 22, 1994 between Collins & Aikman Products Co. (formerly Collins & Aikman Corporation) as Borrower, WCA Canada Inc., as Canadian Borrower, the Company, as Guarantor, the lenders named therein, Continental Bank, N.A., and NationsBank, N.A. as Managing Agents, and Chemical Bank as Administrative Agent is hereby incorporated by reference to Exhibit 4.5 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 30, 1994. 4.4- First Amendment dated as of January 30, 1995 to the Credit Agreement dated as of June 22, 1994 among Collins & Aikman Products Co., WCA Canada Inc., Collins & Aikman Corporation, the financial institutions party thereto and Chemical Bank, as administrative agent. Collins & Aikman Corporation 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 Corporation or any of its subsidiaries, which debt does not exceed 10% of the total assets of Collins & Aikman Corporation and its subsidiaries on a consolidated basis. 10.1- Amended and Restated Stockholders Agreement dated as of June 29, 1994 among the Company, Collins & Aikman Group, Inc., Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. 10.2- 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.* * 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. 17 Exhibit Number Description 10.3 - 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 10.7 of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.4 - 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 Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33- 53179) filed April 19, 1994.* 10.5 - Letter Agreement dated as of May 16, 1991 between Collins & Aikman Corporation and an executive officer is hereby incorporated by reference to Exhibit 10.14 of Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed April 19, 1994.* 10.6 - Employment Agreement dated as of March 23, 1992 between Collins & Aikman Group, Inc. and a former executive officer is hereby incorporated by reference to Exhibit 10.6 of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.7 - First Amendment dated as of April 4, 1994 to Agreement dated as of March 23, 1992 between Collins & Aikman Group, Inc. and a former executive officer is hereby incorporated by reference to Exhibit 10.14 of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 29, 1994.* 10.8 - Lease, executed as of the 1st day of June 1987, between Dura Corporation and Dura Acquisition Corp. is hereby incorporated by reference to Exhibit 10.24 of Amendment No.5 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed July 6, 1994. 10.9 - Agreement dated as of October 17, 1994 among Collins & Aikman Products Co. and a former executive officer is hereby incorporated by reference to Exhibit 10.29 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 29, 1994.* 10.10 - The Wickes Equity Share Plan is hereby incorporated by reference to Exhibit 10.11 of Collins & Aikman Holdings Corporation's Report on Form 10-K for the fiscal year ended January 30, 1993.* 10.11 - Collins & Aikman Corporation 1994 Executive Incentive Compensation Plan is hereby incorporated by reference to Exhibit 10.22 of Amendment No. 4 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed June 27, 1994.* 10.12 - Collins & Aikman Corporation Supplemental Retirement Income Plan is hereby incorporated by reference to Exhibit 10.23 of Amendment No. 5 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed July 6, 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. 18 Exhibit Number Description 10.13 - 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.* 10.14 - 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.* 10.15 - 1994 Directors Stock Option Plan.* 10.16 - 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 Holdings Corporation's Current Report on Form 8-K dated February 10, 1994. 10.17 - Warrant Agreement dated as of January 28, 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 Report on Form 10-K for the fiscal year ended January 29, 1994. 10.18 - Amended and Restated Receivables Sale Agreement dated as of March 30, 1995 among Collins & Aikman Products Co., Ack-Ti-Lining, Inc., WCA Canada Inc., Imperial Wallcoverings, Inc., The Akro Corporation, Dura Convertible Systems Inc., each of the other subsidiaries of Collins & Aikman Products Co. from time to time parties thereto and Carcorp, Inc. 10.19 - Servicing Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, each of the subsidiaries of Collins & Aikman Products Co. from time to time parties thereto and Chemical Bank, as Trustee. 10.20 - Pooling Agreement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as Trustee. 10.21 - Series 1995-1 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as Trustee. 10.22 - Series 1995-2 Supplement, dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, the Initial Purchasers parties thereto, Societe Generale, as Agent for the Purchasers and Chemical Bank, as Trustee. 10.23 - Master Equipment Lease Agreement dated as of September 30, 1994, between NationsBanc Leasing Corporation of North Carolina and Collins & Aikman Products Co. Is hereby incorporated by reference to Exhibit 10.27 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended October 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. 19 Exhibit Number Description 10.24 - Employment Agreement dated as of April 6, 1995 between Collins & Aikman Products Co. and an executive officer.* 10.25 - Excess Benefit Plan of Collins & Aikman Corporation.* 11 - Computation of Earnings Per Share. 13 - Pages 16-54 of Collins and Aikman Corporation s 1994 Annual Report to Stockholders. 21 - List of subsidiaries of Collins & Aikman Corporation. 23 - Consent of Arthur Andersen LLP. 27 - Financial Data Schedule. 99 - Voting Agreement between Blackstone Capital Partners L.P. and Wasserstein Perella Partners, L.P. is hereby incorporated by reference to Exhibit 99 of Amendment No.4 to Collins & Aikman Holdings Corporation's Registration Statement on Form S-2 (Registration No. 33-53179) filed June 27, 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. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the fiscal year for which this report on Form 10-K was filed. 20 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 28th day of April, 1995. COLLINS & AIKMAN CORPORATION 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 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 April 28, 1995 David A. Stockman Board of Directors /s/ Bruce Wasserstein Co-Chairman of the April 28, 1995 Bruce Wasserstein Board of Directors /s/ Thomas E. Hannah Director and Chief Executive April 28, 1995 Thomas E. Hannah Officer (Principal Executive Officer) /s/ Randall J. Weisenburger Vice Chairman and Director April 28, 1995 Randall J. Weisenburger /s/ J. Michael Stepp Executive Vice President and April 28, 1995 J. Michael Stepp Chief Financial Officer (Principal Financial Officer) /s/ Anthony Hardwick Vice President and Controller April 28, 1995 Anthony Hardwick (Principal Accounting Officer) /s/ Robert C. Clark Director April 28, 1995 Robert C. Clark /s/ James J. Mossman Director April 28, 1995 James J. Mossman /s/ Stephen A. Schwarzman Director April 28, 1995 Stephen A. Schwarzman /s/ W. Townsend Ziebold, Jr. Director April 28, 1995 W. Townsend Ziebold, Jr. 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Collins & Aikman Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Collins & Aikman Corporation's annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated March 23, 1995, except with respect to the refinancing of the receivables facility discussed in Note 23 to the consolidated financial statements, as to which the date is March 31, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14 of this Form 10-K 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 financial statements taken as a whole. ANDERSEN ARTHUR LLP Charlotte, North Carolina, March 23, 1995. S-1 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Condensed Balance Sheets (in thousands)
January 28, January 29, ASSETS 1995 1994 Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . $ 875 $ 3,010 Total current assets . . . . . . . . . . . . . . . . 875 3,010 Other assets . . . . . . . . . . . . . . . . . . . . . 18 1,300 $ 893 $ 4,310 LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities: Accounts payable and accrued expenses . . . . . . . $ - $ 130 Other current liabilities . . . . . . . . . . . . . - 5,000 Total current liabilities . . . . . . . . . . . . . - 5,130 Long-term debt . . . . . . . . . . . . . . . . . . . . - 191,861 Share of accumulated losses in excess ofinvestments in subsidiaries. . . . . . . . . . . . . . . . . . . . . 410,933 380,772 Other noncurrent liabilities . . . . . . . . . . . . . 2,582 6,399 Commitments and contingencies (Note 1) . . . . . . . . Redeemable preferred stock . . . . . . . . . . . . . . - 122,368 Common stock . . . . . . . . . . . . . . . . . . . . . 705 350 Other stockholder's equity . . . . . . . . . . . . . . (413,327) (702,570) Total stockholder's equity . . . . . . . . . . . . . (412,622) (702,220) $ 893 $ 4,310
S-2 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Condensed Statements of Operations (in thousands)
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 Other expenses . . . . . . . . . . . . . . . . $ (349) $ (71) $ (651) Interest expense . . . . . . . . . . . . . . . (12,549) (25,079) (22,203) Loss from operations before income taxes and equity in loss of subsidiaries . . . . . . . (12,898) (25,150) (22,854) Income tax benefit . . . . . . . . . . . . . . - 468 1,432 Equity in loss of subsidiaries . . . . . . . . (17,884) (252,982) (242,236) Net loss . . . . . . . . . . . . . . . . . . . $ (30,782) $ (277,664) $(263,658)
S-3 COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Condensed Statements of Cash Flows (in thousands)
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 OPERATING ACTIVITIES Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . $ (405) $ (537) $ 1,535 INVESTING ACTIVITIES Investment in subsidiary . . . . . . . . . . . (52,351) - - Other, net . . . . . . . . . . . . . . . . . . 1,309 - (55) Net cash used in investing activities . . . . . (51,042) - (55) FINANCING ACTIVITIES Issuance of common stock . . . . . . . . . . . 232,436 - - Redemption of preferred stock . . . . . . . . . (173,367) - - Repayment of long-term debt . . . . . . . . . . (9,757) - - Net cash provided by in financing activities . 49,312 - - Net increase (decrease) in cash . . . . . . . . (2,135) (537) 1,480 Cash and cash equivalents at beginning of year 3,010 3,547 2,067 Cash and cash equivalents at end of year . . . $875 $ 3,010 $ 3,547
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 notedisclosures 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 15 and 21, respectively, to Consolidated Financial Statements incorporated by reference to pages 27 through 54 of the Registrant's 1994 Annual Report to Stockholders. 2. Long-Term Debt: Long-term debt as of January 29, 1994 consisted of Subordinated PIK Bridge Notes. For additional disclosures regarding long-term debt, see Note 9 to Consolidated Financial Statements incorporated by reference to pages 27 through 54 of the Registrant's 1994 Annual Report to Stockholders 3. See Notes to Consolidated Financial Statements for additional disclosures. S-4
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (a) For the Fiscal Years Ended January 28, 1995, January 29, 1994, and January 30, 1993 (in thousands) Charge Balance at to Costs Charged Balance at Beginning and to Other End of Description of Year Expenses Accounts Deductions Year Fiscal Year Ended January 28, 1995 Allowance for doubtful accounts . . . . . . . $ 7,071 $ 1,132 $115(b) $ (1,918) (c) $ 6,400 Fiscal Year Ended January 29, 1994 Allowance for doubtful accounts . . . . . . . $ 6,748 $ 2,521 $720(b) $ (2,918) (c) $ 7,071 Fiscal Year Ended January 30, 1993 Allowance for doubtful accounts . . . . . . . $ 6,401 $ 3,700 $765(b) $ (4,118) (c) $ 6,748
(a) The fiscal year ended January 30, 1993 has 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. S-5 EX-4 2 EXHIBIT 4.4 FIRST AMENDMENT dated as of January 30, 1995 (this "Amendment") to the CREDIT AGREEMENT dated as of June 22, 1994 (the "Credit Agreement") among COLLINS & AIKMAN PRODUCTS CO., a Delaware corporation (the "Borrower"), WCA CANADA INC., a Canadian corporation (the "Canadian Borrower"), COLLINS & AIKMAN CORPORATION, a Delaware corporation ("Holdings"), the financial institutions party thereto (the "Lenders"), and CHEMICAL BANK, as administrative agent (the "Administrative Agent"). A. The Borrower, the Canadian Borrower, Holdings, the Lenders and the Administrative Agent desire to amend the Credit Agreement in certain respects as hereinafter set forth. B. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement. Accordingly, the Borrower, the Canadian Borrower, Holdings, the Lenders and the Administrative Agent hereby agree as follows: SECTION 1. Amendment of Credit Agreement. The Credit Agreement is hereby amended, effective as of the Effective Date (as hereinafter defined), as follows: (a) Paragraph (d) of Section 6.01 is amended to read in its entirety as follows: "(d) Indebtedness of (i) the Borrower to any subsidiary of the Borrower evidenced, if the amount of such Indebtedness exceeds $10,000,000, by an Intercompany Note pledged to the Collateral Agent under the Pledge Agreement, (ii) any Domestic Restricted Subsidiary to the Borrower evidenced, if the amount of such Indebtedness exceeds $10,000,000, by an Intercompany Note pledged to the Collateral Agent under the Pledge Agreement, (iii) any Domestic Restricted Subsidiary to any other Restricted Subsidiary evidenced, if the amount of such Indebtedness exceeds $10,000,000, by an Intercompany Note pledged to the Collateral Agent under the Pledge Agreement and (iv) any Restricted Subsidiaries other than Domestic Restricted Subsidiaries to the Borrower or to any other Restricted Subsidiaries in an aggregate principal amount not at any time in excess of $10,000,000 and evidenced by one or more Intercompany Notes pledged to the Collateral Agent under the Pledge Agreement if the outstanding amount of such Indebtedness exceeds $5,000,000 in the aggregate; provided that no Indebtedness may be incurred under this paragraph (d) by any Domestic Restricted Subsidiary of the Borrower that is not a Guarantor." (b) Paragraph (e) of Section 6.01 is amended by inserting the words "(or any other Restricted Subsidiary in the case of Purchase Money Indebtedness incurred not in excess of $10,000,000 in the aggregate at any time outstanding)" immediately following the words "incurred by the Borrower" occurring in such paragraph. (c) Paragraph (q) of Section 6.01 is amended by inserting the words "or any other Restricted Subsidiary" immediately following the words "Indebtedness of the Borrower" occurring in such paragraph. SECTION 2. Effectiveness. This Amendment will become effective on the date (the "Effective Date") on which the following conditions have been satisfied: (a) the Administrative Agent shall have received counterparts of this Amendment which, when taken together, bear the signatures of the Borrower, the Canadian Borrower, Holdings, the Administrative Agent and the Required Lenders, (b) on and as of the Effective Date and after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing, (c) the representations and warranties made by the Company in the Credit Agreement shall be true and correct in all material respects on and as of the Effective Date as if made on such date, except where such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, (d) the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower, dated the Effective Date, certifying the matters referred to in clauses (b) and (c) above, and (e) 65% of the outstanding and capital stock of Collins & Aikman Products GmbH shall have been pledged to Collateral Agent as collateral security for the Obligations and all steps necessary to perfect the lien of such pledge shall have been taken. SECTION 3. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. SECTION 5. Agreement. Except as expressly amended hereby, the Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. SECTION 6. Expenses. The Borrower shall pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation of this Amendment, including, but not limited to, the reasonable fees and disbursements of counsel for the Administrative Agent. SECTION 7. Headings. The headings of this Amendment are for the purposes of reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the Borrower, the Canadian Borrower, Holdings, the Lenders signatory hereto and the Administrative Agent have caused this Amendment to be duly executed by their duly authorized officers, all as of the dates first above written. COLLINS & AIKMAN PRODUCTS CO., by Anthony Hardwick Name: Anthony Hardwick Title:Vice President and Controller COLLINS & AIKMAN CORPORATION, by Anthony Hardwick Name: Anthony Hardwick Title:Vice President and Controller WCA CANADA INC., by Ronald T. Lindsay Name:Ronald T. Lindsay Title:Vice President CHEMICAL BANK, as a Lender and as Administrative Agent, by Suzanne Kjorlien Name: Suzanne Kjorlien Title:Vice President BANK OF AMERICA ILLINOIS, by Name: Title: NATIONSBANK, N.A., by J. Timothy Martin Name: J. Timothy Martin Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, by Name: Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH, by Frederick S. Haddad Name: Frederick S. Haddad Title: Authorized Signature THE INDUSTRIAL BANK OF JAPAN, LTD., by Junri Oda Name: Junri Oda Title: Senior Vice President and Senior Manager THE LONG-TERM CREDIT BANK OF JAPAN, LTD., by Mitsuo Matsunaga Name: Mitsuo Matsunaga Title: Vice President THE TORONTO-DOMINION BANK, by Neva Nesbitt Name: Neva Nesbitt Title: Manager Credit Administration THE FIRST NATIONAL BANK OF BOSTON, by William C. Purington Name: William C. Purington Title: Vice President BANK OF SCOTLAND, by Catherine M. Oniffrey Name: Catherine M. Oniffrey Title: Vice President THE BANK OF TOKYO TRUST COMPANY, by Name: Title: BANQUE PARIBAS, by Name: Title: BRANCH BANKING AND TRUST COMPANY, by Thatcher L. Townsend Name: Thatcher L. Townsend Title: Vice President CANADIAN IMPERIAL BANK OF COMMERCE, by Charles J. Klenk Name: Charles J. Klenk Title: Agent COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, by Sean Mounier Marcus Edward Name: Sean Mounier Marcus Edward Title: Vice President THE NIPPON CREDIT BANK, LTD., by Clifford Abramsky Name: Clifford Abramsky Title: Vice President and Manager SOCIETE GENERALE, by Ralph Saheb Name: Ralph Saheb Title: Vice President SOCIETY NATIONAL BANK, by Lawrence A. Mack Name: Lawrence A. Mack Title: Vice President THE TRAVELERS INSURANCE COMPANY, by Craig H. Farnsworth Name: Craig H. Farnsworth Title: Investment Officer THE TRAVELERS INDEMNITY COMPANY, by Craig H. Farnsworth Name: Craig H. Farnsworth Title: Investment Officer WACHOVIA BANK OF NORTH CAROLINA, N.A., by Joanne M. Starnes Name: Joanne M. Starnes Title: Senior Vice President WELLS FARGO BANK, by Name: Title: VAN KAMPEN MERRITT PRIME RATE INCOME TRUST, by Jeffrey W. Maillet Name: Jeffrey W. Maillet Title: Vice President and Portfolio Manager ARAB BANKING CORPORATION, by Louise Bilbro Name: Louise Bilbro Title: Vice President BANK OF IRELAND, by Roger M. Burns Name: Roger M. Burns Title: Vice President THE BANK OF NEW YORK, by Gregory L. Batson Name: Gregory L. Batson Title: Assistant Vice President CREDITANSTALT CORPORATE FINANCE, INC., by Robert M. Biringer Name: Robert M. Biringer Title: Senior Vice President by Daniel D. Lensgraf Name: Daniel D. Lensgraf Title: Senior Associate CRESTAR BANK, by T. Patrick Collins Name: T. Patrick Collins Title: Vice President FIRST UNION NATIONAL BANK OF NORTH CAROLINA, by Bert M. Corum Name: Bert M. Corum Title: Vice President FUJI BANK, by Name: Title: GIROCREDIT BANK, by John P. Redding/Dhuan G. Stephens Name: John P. Redding/Dhuan G. Stephens Title: Vice President/Vice President MIDLAND BANK, by Gina Sidorsky Name: Gina Sidorsky Title: Director THE MITSUBISHI TRUST AND BANKING CORPORATION, by Patricia Loret de Mola Name: Patricia Loret de Mola Title: Senior Vice President NATIONAL CITY BANK, by Name: Title: NBD BANK, N.A., by James D. Heinz Name: James D. Heinz Title: Vice President THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK BRANCH by Hidehiko Asai Name: Hidehiko Asai Title: Deputy General Manager UNITED STATES NATIONAL BANK OF OREGON, by Jeffrey W. Jones Name: Jeffrey W. Jones Title: Senior Vice President THE YASUDA TRUST & BANKING CO., LTD., by Neil T. Chau Name: Neil T. Chau Title: First Vice President CRESCENT/MACH 1 PARTNERS, L.P., By its General Partner CRESCENT MACH 1 G.P. CORPORATION, By its attorney-in-fact CRESCENT CAPITAL CORPORATION, by Name: Title: ALEXANDER HAMILTON LIFE INSURANCE CO., by Name: Title: KEYPORT LIFE INSURANCE CO., by Name: Title: SAKURA BANK, by Hiroyasu Imamishi Name: Hiroyasu Imamishi Title: RESTRICTED OBLIGATIONS BACKED BY SENIOR ASSETS, by Name: Title: EX-10 3 EXHIBIT 10.1 Exhibit 10.1 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT among BLACKSTONE CAPITAL PARTNERS L.P., WASSERSTEIN PERELLA PARTNERS, L.P., COLLINS & AIKMAN CORPORATION and COLLINS & AIKMAN GROUP, INC. Dated as of June 29, 1994 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of June 29, 1994, among BLACKSTONE CAPITAL PARTNERS L.P., a Delaware limited partnership ("BCP"), WASSERSTEIN PERELLA PARTNERS, L.P., a Delaware limited partnership ("WPP"), COLLINS & AIKMAN CORPORATION, a Delaware corporation (the "Company"), and COLLINS & AIKMAN GROUP, INC., a Delaware corporation ("Group"). WHEREAS BCP, WPP, the Company (as the surviving corporation from a merger between Collins & Aikman Holdings Corporation, a Delaware corporation, and Collins & Aikman Holdings II Corporation, a Delaware corporation, pursuant to the Recapitalization (as such term is defined in the Registration Statement on Form S-2 initially filed by the Company on April 19, 1994, as such Registration Statement may be amended from time to time)) and Group are parties to a Stockholders Agreement dated as of December 6, 1988, as amended by Amendment No. 1 dated as of May 1, 1992 (the "Stockholders Agreement"); WHEREAS BCP and WPP (or their affiliates) are entitled to certain fees for the provision of services to the Company and Group (or their subsidiaries) pursuant to the Stockholders Agreement and pursuant to an agreement ratified September 5, 1990 (the "Management and Retainer Agreement"); WHEREAS in connection with the Recapitalization, BCP and WPP have agreed (subject to, and effective only upon, the consummation of the Recapitalization) to reduce the fees required by the Stockholders Agreement and the Management and Retainer Agreement; and WHEREAS the parties to the Stockholders Agreement wish to otherwise amend the Stockholders Agreement and restate it in its entirety (subject to, and effective only upon, the consummation of the Recapitalization). NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Certain Definitions. As used in this Agreement, the following terms shall have the meanings specified below: "Affiliate" shall mean, when used with respect to any person, any other person which directly or indirectly beneficially owns or controls 25% or more of the total voting power of shares of capital stock of such person having the right to vote for directors under ordinary circumstances, any person controlling, controlled by or under common control with any such person (within the meaning of Rule 405 of the Securities Act), and any director or executive officer of any such person. "Affiliate" shall in any event include, when used with respect to WPP, Wasserstein Perella Co., Inc., Wasserstein Perella Group, Inc. and Wasserstein Perella Management Partners, Inc. and, when used with respect to BCP, The Blackstone Group L.P. and Blackstone Group Holdings L.P. "Common Stock" shall mean the capital stock of the Company having the right to vote for directors under ordinary circumstances. "Demanding Party" shall mean either BCP or WPP or both, or any transferee of BCP's or WPP's rights under Section 3.01 hereof, which party has properly given notice that it is seeking demand registration pursuant to Section 3.01 hereof. "Holder" shall mean BCP and WPP and any person who becomes a party to this Agreement pursuant to Section 2.03 or 2.04 hereof so long as such person remains the beneficial owner of Common Stock. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Piggyback Party" shall mean either BCP or WPP or both, or any transferee of BCP's or WPP's rights under Section 3.02 hereof, which party has properly given notice that it is seeking piggyback registration pursuant to Section 3.02 hereof. "Registration Right Party" shall mean any Demanding Party and any Piggyback Party. "Registration Shares" shall mean (a) the shares of Common Stock held by BCP or WPP or Affiliates of BCP or WPP immediately following the Recapitalization, (b) any shares of Common Stock acquired by BCP or WPP subsequent to the Recapitalization, and (c) any shares of Common Stock or other securities issued or issuable with respect to any such Common Stock (set forth in clauses (a) and (b) above) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Securities Act" shall mean the Securities Act of 1933, as from time to time amended. SECTION 1.02. Additional Definitions. Other capitalized terms not defined in Section 1.01 hereof are defined in the following Sections: Term Section Additional Services 4.02 Affiliate Transfer Agreement 2.04(a) Affiliate Transferee 2.04(a) BCP Parties Company Parties Company Securities 3.04 Demanding Party 3.01 Demand Registration 3.01 Former Fees 4.01 Group Parties Holder Offeree 2.05(a) Company Parties Company Securities 3.04 Management and Retainer Agreement Recitals Monitoring Fee 4.01 Offered Shares 2.05(a) Offering Price 2.06(b) Offering Terms 2.06(b) Offeror 2.05(a) Offer Terms 2.05(a) Piggyback Registration 3.02(a) Proposed Purchaser 2.06(b) Purchase Offer 2.06(b) Recapitalization Recitals Refusal Offeree 2.05(a) Registration Statement 3.10(a) Selling Holder 2.06(b) Stockholders Agreement Recitals Tag-Along Stockholder 2.06(b) Third Party Offeree 2.05(a) Transfer 2.03 Transfer Agreement 2.03 WPP Parties ARTICLE II Restrictions on Transfer SECTION 2.01. General Restrictions. Each Holder agrees that it shall not, directly or indirectly, offer, sell, assign, transfer, grant a participation in, pledge, or create, incur or assume any encumbrance with respect to or otherwise dispose of, any Common Stock (or solicit any offers to buy or otherwise acquire, or take a pledge, of any Common Stock) except (i) in compliance with this Agreement and with all applicable federal, state and foreign securities laws, (ii) after having given written notice to the Company as set forth in this Agreement or, if no notice is otherwise required by the applicable provisions of this Agreement, after having given at least three business days prior written notice to the Company, and (iii) when requested by the Company, with a written opinion of counsel (which opinion shall be reasonably satisfactory in form and substance to the Company) that an exemption from registration under the Securities Act is available and that the proposed transaction would not violate applicable securities laws. SECTION 2.02. Legends. Each certificate evidencing outstanding Common Stock that is issued to any Holder shall bear a legend in substantially the following form so long as the restrictions set forth in the legend are applicable to such Common Stock: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED STATES OR BY ANY SUCH AUTHORITY IN CANADA OR ANY PROVINCE OF CANADA OR OF ANY OTHER JURISDICTION. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES SHALL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND REGISTRATION OF THE SECURITIES UNDER THE SECURITIES LAWS OF ANY APPLICABLE JURISDICTIONS OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND THE SECURITIES LAWS OF ANY APPLICABLE JURISDICTIONS. THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS AS SET FORTH IN THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF JUNE 29, 1994, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES SHALL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH. When either paragraph of the preceding legend ceases to apply to any Common Stock and upon the request of the holder of such Common Stock, the Company shall issue a new certificate or certificates to such holder without the inapplicable portions of such legend in exchange for the certificate or certificates held by such holder. SECTION 2.03. Agreements to be Bound. Each Holder agrees that it shall not (except as required by law), directly or indirectly, sell, assign, transfer, grant a participation in or pledge (each, to "Transfer") any Common Stock to any transferee if following such Transfer such transferee and its Affiliates, if any, will be the beneficial owner or owners of in aggregate 10% or more of the then outstanding shares of Common Stock or a member of a group, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, that is such an owner, provided, however, that the foregoing restriction shall not apply to any Transfer to a transferee where the transferee has, prior to such Transfer, executed a Transfer Agreement, substantially in the form attached hereto as Exhibit A, which shall cause such transferee to be bound by the obligations of this Agreement as a Holder (yet not receive the benefits of this Agreement except as expressly transferred in such Transfer Agreement pursuant to a provision of this Agreement allowing such transfer), a copy of which Transfer Agreement shall be maintained on file with the Secretary of the Company and shall include the address of such transferee to which notices hereunder shall be sent. Each such Transfer Agreement shall become effective upon its execution by the transferee of the Common Stock (and shall not require the signature or consent of any other Holder) and delivery to all the parties hereto. SECTION 2.04. Transfers to Affiliates, General Partners and Limited Partners. (a) Each of BCP and WPP may Transfer any Common Stock held by it, in whole or in part, to any of its Affiliates without incurring any obligations pursuant to Sections 2.05 or 2.06 hereof, provided that prior to any such Transfer such Affiliate of BCP or WPP (an "Affiliate Transferee"), shall execute and deliver to the parties hereto (i) an Affiliate Transfer Agreement, substantially in the Form attached hereto as Exhibit B, which shall cause such Affiliate Transferee to be bound by the obligations of, and enjoy the benefits of, this Agreement as a successor to BCP or WPP, respectively, with such Affiliate Transfer Agreement becoming effective upon its execution by the Affiliate Transferee and delivery to all the parties hereto and (ii) an irrevocable proxy granting to BCP, in the case of an Affiliate Transferee of BCP, or to WPP, in the case of an Affiliate Transferee of WPP, all voting rights with respect to the Common Stock so transferred. Such Affiliate Transferee shall also agree that it shall not cease to be an Affiliate of BCP or WPP, as the case may be, unless prior to the time such Affiliate Transferee ceases to be an Affiliate of BCP or WPP, such Affiliate Transferee transfers to BCP or WPP, as the case may be, or to an Affiliate thereof designated by BCP or WPP, as the case may be, who has become bound by the terms of this Agreement pursuant to this Section 2.04, all shares of Common Stock owned by such Affiliate Transferee, and BCP and WPP hereby agree to cause such Affiliate Transferee prior to the time it ceases to be an Affiliate of BCP or WPP to so transfer such Common Stock. (b) Each of BCP and WPP may Transfer any Common Stock held by it, in whole or in part, to any of its or its Affiliates' limited partners that is not an Affiliate of BCP or WPP (a "Partner Transferee") without incurring any obligations pursuant to Sections 2.05 or 2.06 hereof, provided that if, following any Transfer pursuant to this Section 2.04(b), any Partner Transferee combined with its Affiliates, if any, will be the beneficial owner or owners of in aggregate 10% or more of the then outstanding shares of Common Stock, such Partner Transferee shall enter into a Transferee Agreement as provided in Section 2.03 hereof. SECTION 2.05. Right of First Refusal. (a) In the event that any Holder (the "Offeror") shall have made an offer to, or shall have an offer from, a third party (the "Third Party Offeree") to sell or otherwise transfer shares of Common Stock owned by such Holder in one transaction or from time to time in a series of transactions (except in a registered public offering or pursuant to Rule 144 under the Securities Act), the Holder Offeree (as defined below) and the Company shall have a right of first refusal with respect to such Common Stock as set forth below. Prior to such sale or transfer of shares of Common Stock to the Third Party Offeree, the Offeror shall offer such Common Stock (the "Offered Shares") for purchase by BCP, in the case of WPP and Affiliates or transferees of WPP, or by WPP, in the case of BCP and Affiliates or transferees of BCP (the "Holder Offeree"), as hereinafter provided by notifying the Holder Offeree in writing of such offer, setting forth the terms and conditions of sale and the price at which the Offeror proposes to sell the Offered Shares (the "Offer Terms") and the identity of the Third Party Offeree (with a copy of such notice given to the Company concurrently with such notice to the Holder Offeree). The giving of such notice shall constitute an offer by the Offeror, irrevocable during the 20-day period referred to in and subject to the terms of this Section 2.05, to sell to the Holder Offeree the Offered Shares on the Offer Terms. The Holder Offeree shall have a period of 20 days after the receipt of such notice from the Offeror in which to notify the Offeror in writing that it (or any of its Affiliates) elects to purchase the Offered Shares upon the Offer Terms. If the Holder Offeree (or any of its Affiliates) elects to purchase the Offered Shares, it shall give irrevocable notice of such election to the Offeror within such 20-day period. If the Holder Offeree does not give notice to the Offeror within such 20-day period or at any time during such 20-day period the Holder Offeree gives notice that it does not elect to purchase the Offered Shares, the Offeror shall offer the Offered Shares for purchase by the Company (together with the Holder Offeree, the "Refusal Offerees") by notifying the Company in writing of such offer, setting forth the Offer Terms and the identity of the Third Party Offeree. The giving of notice shall constitute an offer by the Offeror, irrevocable during the 10 days following the Company's receipt of such notice, to sell to the Company the Offered Shares on the Offer Terms. During such 10-day period, the Company may irrevocably notify the Offeror in writing that it (or any of its Affiliates other than BCP and WPP) elects to purchase the Offered Shares upon the Offer Terms. If the Company does not give notice to the Offeror within such 10-day period or at any time during such 10-day period the Company gives notice that it does not elect to purchase the Offered Shares, the Offeror shall be free to sell the Offered Shares to the Third Party Offeree on the Offer Terms (or, if there has been a material change in the facts considered by the Offeror and the Third Party Offeree in arriving at the Offer Terms, at a price which is at least 90% of the offered price and upon terms which are at least as favorable to the Offeror as the Offer Terms) provided that (i) such sale to the Third Party Offeree shall be consummated within 45 days after the 10-day period referred to above and (ii) the Offeror shall furnish to the Refusal Offerees (x) a certificate of an officer of the Offeror specifying the price and other material terms of sale to the Third Party Offeree, (y) a written instrument of the Third Party Offeree pursuant to which the Third Party Offeree represents and warrants that it is acquiring the Offered Shares for its own account and not for purposes of distribution thereof and (z) a Transfer Agreement of the Third Party Offeree pursuant to Section 2.03 hereof in which the Third Party Offeree agrees to be bound by the obligations of this Agreement; provided, however, that clause (ii)(z) of this Section 2.05(a) shall apply only if, following such sale of Offered Shares, the Third Party Offeree and its Affiliates will be the beneficial owner or owners of in the aggregate 10% or more of the then outstanding shares of Common Stock or a member of a group, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, that is such an owner. (b) In the event that a Refusal Offeree (or any of its Affiliates) elects to purchase the Offered Shares pursuant to paragraph (a) of this Section 2.05, the Offeror (including any Tag-Along Stockholders selling pursuant to Section 2.06 hereof) shall be obligated to sell to such Refusal Offeree (or its Affiliates), and such Refusal Offeree (or its Affiliates) shall be obligated to purchase from the Offeror (and Tag-Along Stockholders), the Offered Shares upon the Offer Terms. The written notice of election given to the Offeror pursuant to paragraph (a) of this Section 2.05 shall specify the place and date (not later than the later of 45 days from the date such notice is given and the expiration of any applicable waiting period under the HSR Act) for the closing of such purchase. At the closing of a purchase of Offered Shares hereunder, the Refusal Offeree (or its Affiliates) shall pay to the Offeror (and Tag-Along Stockholders) the purchase price for all the Offered Shares in accordance with paragraph (a) of this Section 2.05 and the Offeror (and Tag-Along Stockholders) will deliver or cause to be delivered to the Refusal Offeree (or its Affiliates) a certificate or certificates representing the Offered Shares, duly endorsed or accompanied by appropriate stock powers duly executed in blank and a certificate containing the representation described in clause (iii) of the next sentence. The obligation of the Offeror (and Tag-Along Stockholders) to deliver the Offered Shares and the Refusal Offeree (or its Affiliates) to purchase the Offered Shares at such closing shall be subject only to the conditions that (i) no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission shall be in effect which would prohibit such sale and delivery, (ii) any applicable waiting period under the HSR Act shall have expired and any other applicable governmental approvals and clearances shall have been obtained and (iii) with respect to the obligation of the Refusal Offeree (or its Affiliates), the Offeror shall deliver to the Refusal Offeree (or its Affiliates) a representation in form and substance reasonably satisfactory to the Refusal Offeree (or its Affiliates) that the Offeror (and Tag-Along Stockholders) has good and marketable title to the Offered Shares, free and clear of all liens, claims, encumbrances and security interests, and that the Offeror (and Tag-Along Stockholders) has full right, power and authority to effect such sale. (c) A Holder shall be entitled to rights under this Section 2.05 only so long as such Holder (combined with its Affiliates) beneficially owns 8% or more of the then outstanding shares of Common Stock. SECTION 2.06. Tag-Along Rights. (a) Anything in this Agreement to the contrary notwithstanding, if any Holder or group of Holders proposes, in a single transaction or from time to time in a group of related transactions, to sell or otherwise dispose of an amount of Common Stock equal to 5% or more of the shares of Common Stock then outstanding (other than (a) to an Affiliate of such Holder(s), (b) in a registered public offering or (c) pursuant to Rule 144 of the Securities Act), such Holder(s) shall refrain from effecting such transaction(s) unless, prior to the consummation thereof, BCP and WPP (and their Affiliates) shall have been afforded the opportunity to join in such transfer as provided in clause (b) of this Section 2.06. (b) Prior to the consummation of any transaction subject to this Section 2.06, the Holder or Holders that propose(s) to sell shares of Common Stock in a transaction or series of related transactions (the "Selling Holder") shall offer (the "Purchase Offer") in writing to BCP and WPP (collectively with the Affiliates of BCP and WPP, the "Tag-Along Stockholders") the option, exercisable by written notice to such Selling Holder within 15 days after receipt of the Purchase Offer, to require the Selling Holder to arrange for the proposed purchaser or purchasers (the "Proposed Purchaser") to purchase at the same time as the purchase from the Selling Holder, the number of shares described below at the price per share (the "Offering Price") at which and on the terms and conditions (the "Offering Terms") on which the Proposed Purchaser purchases the shares of Common Stock of the Selling Holder. If any of the Tag-Along Stockholders shall so elect, the Selling Holder shall arrange for the Proposed Purchaser to purchase the total number of shares of Common Stock as originally agreed upon between the Selling Holder and the Proposed Purchaser but from both the Selling Holder and the Tag-Along Stockholder, pro rata in the proportion to each such seller's total beneficial ownership of Common Stock immediately prior to the Purchase Offer, provided, however, that the Tag-Along Stockholder may elect, in its original written notice to the Selling Holder, to sell an amount of Common Stock less than such pro rata amount. In the event that a sale or other transfer subject to this Section 2.06 is to be made, the Selling Holder shall notify the Proposed Purchaser that the sale or other transfer is subject to this Section 2.06 and shall ensure that no sale or other transfer is consummated without first complying with this Section 2.06. (c) A Holder shall be entitled to rights under this Section 2.06 only so long as such Holder (combined with its Affiliates) beneficially owns 4% or more of the then outstanding shares of Common Stock. SECTION 2.07. Prohibition on Encumbrance. No Holder shall pledge, hypothecate or grant a security interest in any of the shares of Common Stock held by it; provided, however, that a Holder may pledge, hypothecate or grant a security interest in such shares to a lender if such lender agrees in writing to be bound by the terms of this Agreement (and acknowledges that it shall not receive any of the rights granted to Holders under this Agreement) and such lender is not granted any voting rights prior to foreclosure. ARTICLE III Registration Rights SECTION 3.01. Demand Registrations. At any time following the Recapitalization, the Company shall, upon the written demand of BCP or WPP (the "Demanding Party"), use its best efforts to effect the registration (a "Demand Registration") under the Securities Act of such number of Registration Shares then beneficially owned by the Demanding Party and its Affiliates as shall be indicated in a written demand by the Demanding Party sent to the Company and to the other Holders, if any, with demand rights pursuant to this Section 3.01; provided, however, that as to each of BCP and WPP (a) the Company shall be obligated to effect a total of no more than five Demand Registrations, with no more than two such Demand Registrations in any twelve month period, with the first such Demand Registration occurring no earlier than January 1, 1995 (unless this date restriction is waived by the Company); (b) the Company shall not be obligated to effect a Demand Registration unless the total number of shares of Common Stock proposed to be registered by such Demanding Party equals (x) at least 5% of the total number of Registration Shares held by such Demanding Party immediately following the Recapitalization or (y) all of such Demanding Party's Common Stock, (c) if a registration pursuant to this Section 3.01 involves an underwritten offering and the managing underwriter advises the Company that, in the opinion of such managing underwriter, the number of Registration Shares proposed to be included in such registration would have a material adverse effect on the success of the offering, then the Company will include in such registration only the number of Registration Shares requested to be included in such registration that, in the opinion of such managing underwriter, can be successfully sold, (d) a Demand Registration shall not count as such until it has become effective, except that if, after it has become effective, the offering of Registration Shares pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental authority, such registration shall be deemed not to have been effected unless such stop order, injunction or other order or requirement shall subsequently have been vacated or otherwise removed. Upon receipt of the Demanding Party's written demand and subject to Section 3.04 hereof, the Company shall expeditiously effect the registration under the Securities Act of the Registration Shares and use its best efforts to have such registration become and remain effective as provided in Section 3.10. The Demanding Party, together with any other party participating in the Demand Registration pursuant to Section 3.02 hereof (unless such other party is registering less than 80% of the amount of Registration Shares being registered by the Demanding Party), shall have the right to select the managing underwriter for a Demand Registration. SECTION 3.02. Piggyback Registrations. (a) If the Company proposes to register, or is caused to register pursuant to a demand registration, any Common Stock under the Securities Act for sale for cash (otherwise than in connection with the registration of Common Stock issuable pursuant to an employee or director stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act), the Company shall give BCP and WPP notice of such proposed registration at least 15 days prior to the filing of a registration statement. At the written request of BCP or WPP delivered to the Company within 10 days after the receipt of the notice from the Company, which request shall state the number of Registration Shares that such party wishes to sell or distribute publicly under the registration statement pro- posed to be filed by the Company, the Company shall use its best efforts to register under the Securities Act such Registration Shares, and to cause such registration (a "Piggyback Registration") to become and remain effective as provided in Section 3.10. In a piggyback registration pursuant to this Section 3.02 (other than a piggyback registration on a Demand Registration), the managing underwriter shall be selected by the Company in consultation with the Piggyback Party or Piggyback Parties, as the case may be. (b) If a Piggyback Registration is an under- written primary registration on behalf of the Company, and the managing underwriters thereof advise the Company in writing that in their opinion the number of shares of Common Stock requested to be included in the registration exceeds the number which can be sold in the offering, the Company shall include in the registration (i) first, the Common Stock the Company proposes to sell and (ii) second, the Registration Shares that BCP or WPP propose to sell divided pro rata between BCP and WPP based on the total beneficial ownership of Common Stock of each of BCP and WPP, respectively, at the time notice is given to the Company by such managing underwriters. Any Piggyback Party shall be given prompt notice by the Company of any such cutback. (c) If a Piggyback Registration is an under- written secondary registration on behalf of a Demanding Party and the managing underwriters thereof advise the Company in writing that in their opinion the number of shares of Common Stock requested to be included in the registration exceeds the number which can be sold in the offering, the Company shall include in the registration (i) first, a pro rata amount of each of BCP and WPP's Registration Shares, based on the total beneficial ownership of Common Stock of each of BCP and WPP, respectively, at the time notice is given to the Company by such managing underwriters, until one such party has had all shares so demanded included and (ii) second, the Registration Shares of the other party, if any. Any Piggyback Party shall be given prompt notice by the Company of any such cutback. In the event the Company subsequently desires to participate in such a registration of securities, the Company shall include in the registration (A) first, the Registration Shares BCP and WPP propose to sell and (B) second, the Common Stock that the Company proposes to sell. SECTION 3.03. Lock-up. Each Holder hereby agrees that, in connection with any public offering effected pursuant to this Article III, such Holder will, if so requested by the managing underwriter of such offering, enter into a customary lock-up agreement not to transfer any Common Stock held by it for a period of up to 90 days following such offering (such lock-up agreement in form and substance acceptable to such managing underwriter). SECTION 3.04. The Company's Right to Delay Demand Registration. The Company shall not be obligated to file a registration statement relating to any Demand Registration pursuant to Section 3.01 hereof if counsel to the Company renders an opinion, in form and substance reasonably satisfactory to the Demanding Party, to the effect that registration is not required for the proposed transfer of Registration Shares or if a post-effective amendment to an existing registration statement would be sufficient for such proposed transfer (and the Company files such a post- effective amendment to effect the proposed transfer). The Company may delay filing the registration statement relating to any Demand Registration pursuant to Section 3.01 hereof for not more than 60 days if (i) in the case of an underwritten offering, the Company has filed, or has taken substantial steps toward filing, a registration statement relating to any of the Company's securities (the "Company Securities"), and the managing underwriter is of the opinion that the filing of a registration statement with respect to the Demand Registration would adversely affect the offering by the Company of Company Securities, or (ii) the Board of Directors of the Company determines in good faith, by resolution, that the filing of a registration statement would, if not so deferred, materially and adversely affect a then proposed or pending financial project, acquisition, merger or corporate reorganization. SECTION 3.05. Indemnification by the Company. In the event of any registration of any Registration Shares under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless each Registration Rights Party, its directors and officers, each other person who participates as an underwriter in the offering or sale of such Registration Shares and each other person, if any, who controls such Registration Rights Party or any such underwriter within the meaning of Section 15 of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such Registration Rights Party or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which the Registration Shares were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and the Company shall reimburse each Registration Rights Party, and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information about a Registration Rights Party furnished to the Company through an instrument duly executed by or on behalf of such Registration Rights Party, specifically stating that it is for use in the preparation thereof; and provided further, however, that the Company shall not be liable to any person who participates as an underwriter in the offering or sale of Registration Shares or any other person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registration Shares to such person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a Registration Rights Party or any such director, officer or controlling person and shall survive the transfer of the Registration Shares by such Registration Rights Party. SECTION 3.06. Indemnification by the Registration Rights Party. The Company may require, as a condition to including any Registration Shares in any registration statement filed pursuant to Section 3.01 or 3.02, that the Company shall have received an undertaking reasonably satisfactory to it from the Registration Rights Party to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.05) the Company, each director of the Company, each officer of the Company signing such registration statement and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act with respect to any untrue statement or alleged untrue statement of any material fact in such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein or any amendment or supplement thereto, or omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information about the Registration Rights Party as a shareholder of the Company furnished to the Company through an instrument duly executed by the Registration Rights Party specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer by the seller of the securities of the Company being registered. SECTION 3.07. Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in Section 3.05 or 3.06, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under Section 3.05 or 3.06, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist or the indemnified party may have defenses not available to the indemnifying party in respect of such claim, the indemnify- ing party shall be entitled to participate in and to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnify- ing party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. SECTION 3.08. Other Indemnification. Indemnifi- cation similar to that specified in Section 3.05 and 3.06 hereof (with appropriate modifications) shall be given by the Company and the Registration Rights Party with respect to any required registration or other qualification of Registration Shares under any Federal or state law or regulation of any Governmental Authority other than the Securities Act. SECTION 3.09. Indemnification Payments. The indemnification required by this Article III shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. SECTION 3.10. Registration Covenants of the Company. In the event that any Registration Shares of the Registration Rights Party are to be registered pursuant to Section 3.01 or 3.02 hereof, the Company covenants and agrees that it shall use its best efforts to effect the registration and cooperate in the sale of the Registration Shares to be registered and shall as expeditiously as possible: (a) (i) prepare and file with the SEC a registra- tion statement with respect to the Registration Shares (as well as any necessary amendments or supplements thereto) (a "Registration Statement") and (ii) use its best efforts to cause the Registration Statement to become effective; (b) prior to the filing described above in Section 3.10(a), furnish to the Registration Rights Party copies of the Registration Statement and any amendments or supplements thereto and any prospectus forming a part thereof, which documents shall be subject to the review of counsel for the Registration Rights Party (but not approval of such counsel except with respect to any statement in the Registration Statement which relates to the Registration Rights Party); (c) notify the Registration Rights Party, promptly after the Company shall receive notice thereof, of the time when the Registration Statement becomes effective or when any amendment or supplement or any prospectus forming a part of the Registration Statement has been filed; (d) notify the Registration Rights Party promptly of any request by the SEC for the amending or supplementing of the Registration Statement or prospectus or for additional information; (e) (i) advise the Registration Rights Party after the Company shall receive notice or otherwise obtain knowledge of the issuance of any order by the SEC suspending the effectiveness of the Registration Statement or any amendment thereto or of the initiation or threatening of any proceeding for that purpose and (ii) promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal promptly if a stop order should be issued; (f) (i) prepare and file with the SEC such amend- ments and supplements to the Registration Statement and the prospectus forming a part thereof as may be necessary to keep the Registration Statement effective for the lesser of (A) a period of time necessary to permit the Registration Rights Party to dispose of all its Registration Shares and (B) 30 days and (ii) comply with the provisions of the Securities Act with respect to the disposition of all Registration Shares covered by the Registration Statement during such period in accordance with the intended methods of disposition by the Registration Rights Party set forth in the Registration Statement; (g) furnish to the Registration Rights Party such number of copies of the Registration Statement, each amendment and supplement thereto, the prospectus included in the Registration Statement (including each preliminary prospectus) and such other documents as the Registration Rights Party may reasonably request in order to facilitate the disposition of the Registration Shares owned by the Registration Rights Party; (h) use its best efforts to register or qualify such Registration Shares under such other securities or blue sky laws of such jurisdictions as determined by the underwriters after consultation with the Company and the Registration Rights Party and do any and all other acts and things which may be reasonably necessary or advisable to enable the Registration Rights Party to consummate the disposition in such jurisdictions of the Registration Shares (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction in which it would not otherwise be required to qualify but for this Section 3.10(h), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (i) notify the Registration Rights Party, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Registration Statement would contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of the Registration Rights Party, prepare a supplement or amendment to the Registration Statement so that the Registration Statement shall not, to the Company's knowledge, contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (j) if the Common Stock is not then listed on a securities exchange, and if the NASD is reasonably likely to permit the reporting of the Common Stock on NASDAQ, use its best efforts, consistent with the then- current corporate structure of the Company, to facilitate the reporting of the Common Stock on NASDAQ; (k) provide a transfer agent and registrar, which may be a single entity, for all the Registration Shares not later than the effective date of the Registration Statement; (l) enter into such customary agreements (includ- ing an underwriting agreement in customary form) and take all such other action, if any, as the Registration Rights Party or the underwriters shall reasonably request in order to expedite or facilitate the disposition of the Registration Shares pursuant to this Article III; (m) (i) make available for inspection by the Registration Rights Party, any underwriter participating in any disposition pursuant to the Registration Statement and any attorney, accountant or other agent retained by the Registration Rights Party or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Registration Rights Party or any such underwriter, attorney, accountant or agent in connection with the Registration Statement; (n) use its best efforts to cause the Registration Shares covered by the Registration Statement to be registered with or approved by such other Governmental Authorities as may be necessary to enable the Registration Rights Party to consummate the disposition of such Registration Shares; and (o) cause the Company's independent public accountants to provide a comfort letter in customary form and covering such matters of the type customarily covered by comfort letters. SECTION 3.11. Shelf Registrations. If a Demanding Party shall demand a shelf registration pursuant to paragraph (a) of this Section 3.01 or a Piggyback Party shall piggyback on a shelf registration pursuant to Section 3.02 hereof, such Demanding Party or Piggyback Party shall have 30 days from the time such shelf registration is declared effective by the Securities and Exchange Commission to distribute all Registration Shares so registered. SECTION 3.12. Expenses. In connection with any Demand Registration pursuant to Section 3.01, the Company shall pay all registration, filing and NASD fees, all fees and out-of-pocket expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, all messenger and delivery expenses, the reasonable fees and disbursements of the Company's independent public accountants for services required because of the Demand Registration (including the expenses of comfort letters required for the Demand Registration) and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities. In any registration, (i) the Registration Rights Party shall pay for its own underwriting discounts and commissions and transfer taxes and (ii) each of the Company and the Registration Rights Party shall pay for its own counsel. SECTION 3.13. Assignment of Registration Rights. BCP and WPP may assign their rights under this Article III in whole or in part to anyone to whom BCP or WPP, respectively, sells, transfers or assigns any of the Registration Shares (other than in sales pursuant to Rule 144 under the Securities Act or a registered public sale); provided, however, that no assignment shall increase the Company's obligations to effect registrations or pay expenses thereof. SECTION 3.14. Other Registration Rights. The Company shall not grant any right of registration under the Securities Act relating to any of its securities to any person other than BCP, WPP or an assignee of BCP or WPP unless BCP and WPP shall be entitled to have included in any piggyback registration pursuant to such grant a number of Registration Shares requested by BCP and WPP to be so included representing at least 30% of such offering prior to the inclusion of any securities requested to be registered by the persons entitled to any such registration rights. SECTION 3.15. Rule 144. So long as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall take all actions reasonably necessary to enable BCP and WPP to sell the Registration Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC, including filing on a timely basis all reports required to be filed by the Company by the Exchange Act. Upon the request of BCP or WPP, the Company shall deliver to BCP or WPP a written statement as to whether it has complied with such requirements. ARTICLE IV Fees and Other Payments SECTION 4.01. Monitoring Fee. Following the consummation of the Recapitalization, Group (or any of its subsidiaries or affiliates, on Group's behalf) shall pay an annual monitoring fee of $1,000,000 per year to each of BCP and WPP (the "Monitoring Fee"). Following the consummation of the Recapitalization, the annual operating management fee set forth in Section 6.4 of the Stockholders Agreement and the Management and Retainer Services Fee set forth in the Management and Retainer Agreement (collectively, the "Former Fees") shall no longer be payable (although BCP and WPP or their affiliates shall not be required to refund any portion of the Former Fees already paid at the time of the Recapitalization). The Monitoring Fee shall be payable in quarterly installments at the beginning of each quarter commencing after the consummation of the Recapitalization. In consideration of the Monitoring Fee, each of BCP and WPP shall provide personnel to monitor the management of the Company and its subsidiaries, including Group. Such personnel shall not receive any separate compensation for such services except as provided herein, but such personnel (or BCP or WPP on their behalf) shall be entitled to reimbursement of their reasonable out-of-pocket expenses in connection therewith, including travel expenses, and shall provide documentation of such expenses to the Company upon request. SECTION 4.02. Other Fees Not Precluded. Notwithstanding the foregoing, nothing contained herein shall preclude BCP and WPP or their Affiliates from receiving fees in addition to the Monitoring Fee; provided that any such fees shall be for services ("Additional Services") in addition to providing personnel to monitor the management of the Company and its subsidiaries. Additional Services may include, but are not limited to, services in connection with transactions such as acquisitions, divestitures, the negotiation of credit agreements or amendments thereto, sales and dispositions of assets or subsidiaries, public or private offerings of debt or equity securities, work-outs and other traditional or nontraditional investment banking, consultant or management services. SECTION 4.03. Compensation of Directors. Each director of the Company and Group who is not a full-time employee thereof shall receive reimbursement of out-of-pocket expenses incurred in connection with attendance at meetings of, and other activities relating to, serving on the Boards of Directors and any committees thereof. Following the Recapitalization, a director's fee of $40,000 per year, payable quarterly, for each such director shall be paid to each such director unless and to the extent that WPP or BCP shall notify the Company or Group that it should receive the director's fees for the directors that it has the right to designate to the Boards of Directors of the Company and Group. Nothing contained herein shall preclude the Boards of Directors of the Company or Group from increasing director's fees or authorizing directors stock options or additional director's fees. SECTION 4.04. Accrual of Payments. To the extent that the payment of any of the fees, expenses or other compensation provided for in this Agreement is not timely made, such fees, expenses or other compensation shall be accrued, together with interest thereon at the rate of interest announced publicly in New York, New York, from time to time by Citibank, N.A., as its base rate and shall be paid as soon as practicable. ARTICLE V Miscellaneous SECTION 5.01. Amendment and Restatement of the Stockholders Agreement; Complete Agreement. Subject to, and effective only upon, the consummation of the Recapitalization, this Agreement shall constitute an amendment and restatement of the Stockholders Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto with respect to the matters referred to herein and supersedes all prior agreements and understandings among the parties hereto with respect to the matters referred to herein, including, without limitation, the Stockholders Agreement and the Management and Retainer Agreement. SECTION 5.02. No Inconsistent Agreements. Neither the Company nor any of its subsidiaries shall, and BCP and WPP shall not permit the Company or any of its subsidiaries to, enter into any agreement inconsistent with the terms of this Agreement. SECTION 5.03. Amendment. Except as otherwise expressly provided herein, this Agreement may not be amended, modified or supplemented and no waivers of or consents to departures from the provisions hereof may be given unless consented to in writing by each of the parties hereto. SECTION 5.04. Notices. All notices, statements, instructions or other documents provided for herein shall be in writing and shall be either transmitted by facsimile or delivered either personally or by mailing the same in a sealed envelope, first-class mail, postage prepaid and either certified or registered, return receipt requested, addressed as follows: , For notices and communications to the Company or Group: 210 Madison Avenue New York, NY 10016 Attention: Elizabeth R. Philipp, Esq. and 8320 University Executive Park Suite 102 Charlotte, NC 28262 Attention: Corporate Counsel For notices and communications to BCP: 118 North Bedford Road Suite 300 Mount Kisco, New York 10549 Attention: Mr. David A. Stockman For notices and communications to WPP: 31 West 52nd Street New York, New York 10019 Attention: Mr. Randall J. Weisenburger Each party, by written notice given to the other parties in accordance with this Section 5.04, may change the address to which notices, statements, instructions or other documents are to be sent to such party. All notices, statements, instructions and other documents hereunder shall be deemed to have been given on the earlier of the date of actual or facsimile delivery and three days after the date of mailing, except that notice of a change of address shall be effective only upon actual delivery. SECTION 5.05. Successors; Assigns. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the respective successors and permitted assigns of the parties hereto. SECTION 5.06. Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute one and the same instrument. SECTION 5.07. Severability. The invalidity, illegality or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement or such provision in any other jurisdiction, it being the intent of the parties hereto that all rights and obligations of the parties hereto under this Agreement shall be enforceable to the fullest extent permitted by law. SECTION 5.08. Headings. The section headings herein are for convenience of reference only and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. SECTION 5.09. Applicable Law. The laws of the State of Delaware shall govern this Agreement, regardless of the laws that might be applied under applicable principles of conflicts of laws. SECTION 5.10. Term of the Agreement. This Agreement shall become effective only upon consummation of the Recapitalization and shall expire 10 years after the date hereof unless extended by the parties hereto. SECTION 5.11. No Third-Party Beneficiaries. This Agreement is intended to be solely for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 5.12. Specific Performance. Each party hereto acknowledges that its failure to comply with the provisions of this Agreement will result in irreparable and continuing damage to the other parties hereto for which there will be no adequate remedies at law and that, in the event of a failure of any party hereto to comply with the terms of this Agreement, the other parties hereto shall be entitled to injunctive relief, without the necessity of proving actual damages and without being required to post a bond or other security, and to such other and further relief as may be proper and necessary to ensure compliance with the provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BLACKSTONE CAPITAL PARTNERS, L.P., by BLACKSTONE MANAGEMENT PARTNERS, L.P., its general partner, by David A. Stockman Name: David A. Stockman Title: General Partner WASSERSTEIN PERELLA PARTNERS, L.P., by WASSERSTEIN PERELLA MANAGEMENT PARTNERS, INC., its general partner, by W. Townsend Ziebold, Jr. Name: W. Townsend Ziebold, Jr. Title: Vice President COLLINS & AIKMAN CORPORATION, by Elizabeth Philipp Name: Elizabeth Philipp Title: Executive Vice President COLLINS & AIKMAN GROUP, INC., by Elizabeth Philipp Name: Elizabeth Philipp Title: Executive Vice President EX-10 4 EXHIBIT 10.15 ____________________________________________________________________________ COLLINS & AIKMAN CORPORATION 1994 DIRECTORS STOCK OPTION PLAN ______________________________________________________________________________ As of November 1, 1994 Table of Contents Page I. Purposes of the Plan . . . . . . . . . . . . . . . . . . . . . . . 1 II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 2 IV. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. Duties of the Committee . . . . . . . . . . . . . . . . . . . 2 B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 3 C. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 3 D. Meetings of the Committee . . . . . . . . . . . . . . . . . . 3 E. Determinations . . . . . . . . . . . . . . . . . . . . . . . 3 F. Disinterested Directors . . . . . . . . . . . . . . . . . . . 3 V. Shares; Adjustment Upon Certain Events . . . . . . . . . . . . . . 3 A. Shares to be Delivered; Fractional Shares . . . . . . . . . . 3 B. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 4 C. Adjustments; Recapitalization, etc. . . . . . . . . . . . . . 4 VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . . 5 A. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B. Date of Grant . . . . . . . . . . . . . . . . . . . . . . . . 5 C. Option Agreement . . . . . . . . . . . . . . . . . . . . . . 5 D. Option Terms . . . . . . . . . . . . . . . . . . . . . . . . 6 E. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . 6 F. Acceleration of Exercisability . . . . . . . . . . . . . . . 6 VII. Effect of Termination of Directorship . . . . . . . . . . . . . . . 7 A. Death, Disability or Otherwise Ceasing to be a Director . . . 7 B. Cancellation of Options . . . . . . . . . . . . . . . . . . . 7 VIII. Nontransferability of Options . . . . . . . . . . . . . . . . . . . 7 IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . . 7 X. Termination, Amendment and Modification . . . . . . . . . . . . . . 8 XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 8 XII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 9 A. Right to Terminate Directorship . . . . . . . . . . . . . . . 9 B. Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . 9 C. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 D. Severability of Provisions . . . . . . . . . . . . . . . . . . 9 i Page E. Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . . 9 F. Headings and Captions . . . . . . . . . . . . . . . . . . . . 10 G. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . 10 H. Section 16(b) of the Act . . . . . . . . . . . . . . . . . . 10 XIII. Issuance of Stock Certificates; Legends; Payment of Expenses . . . . . . . . . . . . . . . . . . . 10 A. Stock Certificates . . . . . . . . . . . . . . . . . . . . . 10 B. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 C. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 10 XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . . . 10 XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11 Form of Option Agreement Exhibit A ii Collins & Aikman Corporation 1994 Directors Stock Option Plan I. Purposes of the Plan The purposes of this 1994 Directors Stock Option Plan (the "Plan") are to enable Collins & Aikman Corporation (the "Company") to attract, retain and motivate the directors who are important to the success and growth of the business of the Company and to create a long-term mutuality of interest between the directors and the stockholders of the Company by granting the directors options to purchase Common Stock (as defined herein). This document shall supersede all other material describing this Plan, including, but not limited to, prior drafts hereof and any documents incorporating the terms and provisions of any such prior drafts. II. Definitions In addition to the terms defined elsewhere herein, for purposes of this Plan, the following terms will have the following meanings when used herein with initial capital letters: A. "Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. B. "Board" means the Board of Directors of the Company. C. "Code" means the Internal Revenue Code of 1986, as amended (or any successor statute). D. "Committee" means the Board or a duly appointed committee of the Board to which the Board has delegated its power and functions hereunder. E. "Common Stock" means the common stock of the Company, par value $.01 per share, any Common Stock into which the Common Stock may be converted and any Common Stock resulting from any reclassification of the Common Stock. F. "Company" means Collins & Aikman Corporation, a Delaware corporation. G. "Eligible Director" means a director of the Company who is not an active employee of the Company or any subsidiary and who is not an officer, director or employee of (i) any entity which, directly or indirectly, beneficially owns or controls 5% or more of the combined voting power of the then outstanding voting securities of the Company (or any subsidiary) entitled to vote generally in the election of directors or (ii) any entity controlling, controlled by or under common control (within the meaning of Rule 405 of the Securities Act) with any such entity. H. "Fair Market Value" shall mean, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales prices reported for the Common Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. I. "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. J. "Participant" means an Eligible Director who is granted Options under the Plan which Options have not expired. K. "Person" means any individual or entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person as the context may require. L. "Related Person" means (a) any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code or (b) any corporation that is defined as a parent corporation in Section 424(e) of the Code. An entity shall be deemed a Related Person only for such periods as the requisite ownership relationship is maintained. M. "Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. N. "Share" means a share of Common Stock. O. "Termination of Directorship" with respect to an individual means that individual is no longer acting as a director of the Company. III. Effective Date The Plan shall become effective as of November 1, 1994 (the "Effective Date"), subject to its approval by the majority of the Common Stock (at the time of approval) within one year after the Plan is adopted by the Board. Grants of Options under the Plan will be made after the Effective Date of the Plan pursuant to Article VI(B) of this Plan, provided that, if the Plan is not approved by the majority of the Common Stock (at the time of approval), all Options which have been granted pursuant to the terms of the Plan shall be null and void. No Options may be exercised prior to the approval of the Plan by the majority of the Common Stock (at the time of approval). IV. Administration A. Duties of the Committee. The Plan shall be administered by the Committee. The Committee shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to prescribe the form or forms of instruments evidencing Options and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and to take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of 2 the matters coming before it. Any determination, action or conclusion of the Committee shall be final, conclusive and binding on all parties. B. Advisors. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. C. Indemnification. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law and the Restated Certificate of Incorporation or By-Laws of the Company, each officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as directors or officers under applicable law or under the Restated Certificate of Incorporation or By-Laws of the Company. D. Meetings of the Committee. The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. E. Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of this Plan by the Committee shall be final, conclusive and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company, directors, officers and other employees of the Company, and the respective heirs, executors, administrators, personal representatives and other successors in interest of each of the foregoing. F. Disinterested Directors. Notwithstanding the foregoing, the Committee may not take any action which would cause any Eligible Director to cease to be a "disinterested person" for purposes of Rule 16b-3 promulgated under the Act, as then in effect or any successor provisions ("Rule 16b-3"), with regard to any stock option or other equity plan of the Company. V. Shares; Adjustment Upon Certain Events A. Shares to be Delivered; Fractional Shares. Shares to be issued under the Plan shall be made available, at the sole discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option nor will any compensation be paid with regard to fractional shares. 3 B. Number of Shares. Subject to adjustment as provided in this Article V, the maximum aggregate number of Shares that may be issued under the Plan shall be 600,000. Where Options are for any reason cancelled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, within the limits provided by the preceding sentence. C. Adjustments; Recapitalization, etc. The existence of this Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company or any sale or transfer of all or part of its assets or business, or any other corporate act or proceeding, in which case the provisions of this Article V(C) shall govern outstanding Options: 1. The Shares with respect to which Options may be granted are Shares of Common Stock as presently constituted, but, if and whenever the Company shall effect a subdivision, recapitalization or consolidation of Shares or the payment of a stock dividend on Shares without receipt of consideration, the aggregate number and kind of shares of capital stock issuable under this Plan shall be proportionately adjusted, and each holder of a then outstanding Option shall have the right to purchase under such Option, in lieu of the number of Shares as to which the Option was then exercisable but on the same terms and conditions of exercise set forth in such Option, the number and kind of shares of capital stock which he or she would have owned after such sub-division, recapitalization, consolidation or dividend if immediately prior thereto he had been the holder of record of the number of Shares as to which such Option was then exercisable. 2. If the Company merges or consolidates with one or more corporations and the Company shall be the surviving corporation, thereafter upon exercise of an Option theretofore granted, the Participant shall be entitled to purchase under such Option in lieu of the number of Shares as to which such Option shall then be exercisable, but on the same terms and conditions of exercise set forth in such Option, the number and kind of shares of capital stock or other property to which the Participant would have been entitled pursuant to the terms of the agreement of merger or consolidation if, immediately prior to such merger or consolidation, the Participant had been the holder of record of the number of Shares as to which such Option was then exercisable. 3. If the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to be dissolved or liquidated, then, unless the surviving corporation assumes the Options or substitutes new Options which are determined by the Board in its sole discretion to be substantially similar in nature and equivalent in terms and value for Options then outstanding, upon the effective date of such merger, consolidation, liquidation or dissolution, any unexercised Options shall expire without additional compensation to the holder thereof; provided, that, the Committee shall deliver notice to each Participant at least 20 days prior to the date of consummation of such merger, consolidation, dissolution or liquidation which would result in the expiration of the Options and during the period from the date on which such notice of termination is delivered to the consummation of the merger, consolidation, dissolution or liquidation, each Participant shall have the right to exercise in full effective as of such consummation all the Options that are then outstanding (without regard to limitations on exercise otherwise contained in the Options other than the requirements of Article III) but contingent on occurrence of the merger, consolidation, dissolution or liquidation, and, provided that, if the contemplated transaction does not take place within a ninety (90) day period after giving such notice for 4 any reason whatsoever, the notice, accelerated vesting and exercise shall be null and void and if and when appropriate new notice shall be given as aforesaid. Notwithstanding the foregoing, the Options held by persons subject to Section 16(b) of the Act that would not have vested under the Plan except pursuant to Article VI(F) prior to the effective date of such merger, consolidation, liquidation or dissolution shall not expire on such date but shall expire thirty (30) days after they would have otherwise vested under the Plan and shall after the effective date of such merger, consolidation, liquidation or dissolution represent only the right to receive the number and kind of shares of capital stock or other property to which the Participant would have been entitled if immediately prior to the effective date of such merger, consolidation, liquidation or dissolution the Participant had been the holder of record of the number of Shares as to which such Option was then exercisable. 4. If as a result of any adjustment made pursuant to the preceding paragraphs of this Article V(C), any Participant shall become entitled upon exercise of an Option to receive any shares of capital stock other than Common Stock, then the number and kind of shares of capital stock so receivable thereafter shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock set forth in this Article V(C). 5. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to Options theretofore granted or the purchase price per Share. VI. Awards and Terms of Options A. Grant. Without further action by the Board or the stockholders of the Company, each Eligible Director on each Annual Date of Grant (as hereinafter defined) shall be automatically granted options to purchase 10,000 shares, subject to the terms of the Plan, provided that no such Option shall be granted if on the date of grant the Company has liquidated, dissolved or merged or consolidated with another entity in such a manner that it is not the surviving entity (unless the Plan has been assumed by such surviving entity with regard to future grants). B. Date of Grant. Annual Grants shall be made initially on the date on which this Plan is approved by the Board (the "Initial Grant Date") and on each anniversary of the Effective Date thereafter (the Initial Grant Date and each anniversary of the Effective Date thereafter being referred to as an "Annual Date of Grant"); provided that if such date in any year is a date on which the New York Stock Exchange is not open for trading, the grant shall be made on the first day thereafter on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, in the event no Fair Market Value can be determined pursuant to the provisions hereof, no Annual Grant shall be made for such fiscal year. C. Option Agreement. Options shall be evidenced by Option agreements in substantially the form annexed hereto as Exhibit A as modified from time to time. 5 D. Option Terms: 1. Exercise Price. The purchase price per share ("Purchase Price") deliverable upon the exercise of an Option shall be 100% of the Fair Market Value of such Share as of the date of the grant of the Option, or the par value of the Share, whichever is the greater. 2. Period of Exercisability. Except as otherwise provided herein, each Option granted under this Plan shall be exercisable on or after the later of (a) six (6) months and one day after the date of grant or (b) approval of this Plan by the stockholders in accordance with Article III hereof. 3. Procedure for Exercise. A Participant electing to exercise one or more Options shall give written notice to the Secretary of the Company of such election and of the number of Options he or she has elected to exercise. Shares purchased pursuant to the exercise of Options shall be paid for at the time of exercise in cash or by delivery of unencumbered Shares owned by the Participant for at least six months (or such longer period as required by applicable accounting standards to avoid a charge to earnings) or a combination thereof. E. Expiration. Except as otherwise provided herein, if not previously exercised each Option shall expire upon the tenth anniversary of the date of the grant thereof. F. Acceleration of Exercisability. All Options granted and not previously exercisable shall become fully exercisable immediately upon the later of a Change of Control (as defined herein) or approval of the Plan by the stockholders in accordance with Article III. Article (V)(C) shall also apply to the extent, if any, it is applicable. For this purpose, a "Change of Control" shall be deemed to have occurred upon: (a) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or (14)(d)(1) of the Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of more than 80% of the combined voting power of the then outstanding voting securities of Company entitled to vote generally in the election of directors, including, but not limited to, by merger, consolidation or similar corporate transaction or by purchase; excluding, however, the following: (x) any acquisition by the Company, a Related Person, Wasserstein Perella Partners, L.P., Blackstone Capital Partners L.P. or an affiliate of any of the foregoing, or (y) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or a Related Person; or (b) the approval of the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of more than 80% of the gross assets of the Company and Related Persons on a consolidated basis (determined under generally accepted accounting principles in accordance with prior practice); excluding, however, such a sale or other disposition to a corporation with respect to which, following such sale or other disposition, (x) more than 20% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the outstanding Shares immediately prior to such sale or other disposition, (y) no Person (other than the Company, Related Persons, and any employee benefit plan (or related trust) of the Company or Related Persons or such corporation and any Person 6 beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the outstanding Shares) will beneficially own, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (z) individuals who were members of the incumbent board immediately prior to the sale or other disposition will constitute at least a majority of the members of the board of directors of such corporation. VII. Effect of Termination of Directorship A. Death, Disability or Otherwise Ceasing to be a Director. Except as otherwise provided herein, upon Termination of Directorship, on account of disability, death, resignation, failure to stand for reelection or failure to be reelected or otherwise, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Directorship shall remain exercisable by the Participant or, in the case of death, by the Participant's estate or by the person given authority to exercise such Options by his or her will or by operation of law, until the expiration of the Option in accordance with the terms of the Plan and grant. B. Cancellation of Options. No Options that were not exercisable during the period such person serves as a director shall thereafter become exercisable upon a Termination of Directorship for any reason or no reason whatsoever, and such options shall terminate and become null and void upon a Termination of Directorship. VIII. Nontransferability of Options Except as provided in the following sentence, no Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution and during the lifetime of the Participant may be exercised only by the Participant or his or her guardian or legal representative. An Option shall also be transferable under a domestic relations order that is a "qualified domestic relations order", as defined in section 414(p) of the Code, but may thereafter not be further transferred except as provided in the prior sentence (with the alternate payee under such order being substituted for "Participant"). In addition, except as provided above, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately terminate and become null and void. IX. Rights as a Stockholder A Participant (or a permitted transferee of an Option) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Option until such Participant (or permitted transferee) shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares, except as otherwise specifically provided in this Plan. 7 X. Termination, Amendment and Modification The Plan shall terminate at the close of business on the seventh anniversary of the Effective Date (the "Termination Date"), unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond the Termination Date. The Committee at any time or from time to time may amend this Plan to effect (i) amendments necessary or desirable in order that this Plan and the Options shall conform to all applicable laws and regulations, and (ii) any other amendments deemed appropriate, provided that no such amendment may be made if either the authority to make such amendment or the amendment would cause the Eligible Directors to cease to be "disinterested persons" with regard to this Plan or any other stock option or other equity plan of the Company for purposes of Rule 16b-3 and further provided that the provisions of the Plan relating to the amount, price and timing of, and eligibility for, awards shall not be amended more than once every six (6) months except to comport with changes in the Code and the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Notwithstanding the foregoing, the Committee may not effect any amendment that would require the approval of the stockholders of the Company under Rule 16b-3 unless such approval is obtained. In no event, unless no longer required as a condition of compliance with the requirements of Rule 16b-3, shall the Committee without the approval of stockholders normally entitled to vote for the election of directors of the Company: 1. increase the number of Shares available for grants under this Plan; 2. reduce the minimum exercise price at which any option may be exercised; 3. change the requirements as to eligibility for participation under this Plan; 4. change the number of Options to be granted or the date on which such Options are to be granted; or 5. materially increase the benefits accruing to Participants hereunder. This Plan may be amended or terminated at any time by the stockholders of the Company. This Plan and any Options granted hereunder shall terminate and be void if this Plan does not receive the approval of the stockholders of the Company that may be required under Rule 16b-3, no later than the next annual meeting of stockholders of the Company. Except as otherwise required by law, no termination, amendment or modification of this Plan may, without the consent of the Participant or the permitted transferee of his Option, alter or impair the rights and obligations arising under any then outstanding Option. XI. Use of Proceeds The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. 8 XII. General Provisions A. Right to Terminate Directorship. This Plan shall not impose any obligations on the Company to retain any Participant as a director nor shall it impose any obligation on the part of any Participant to remain as a director of the Company. B. Trusts, etc. Nothing contained in the Plan and no action taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. C. Notices. Any notice to the Company required by or in respect of this Plan will be addressed to the Company at 701 McCullough Drive, Charlotte, North Carolina 28262, Attention: Vice President, Human Resources, or such other place of business as shall become the Company's principal executive offices from time to time, or sent to the Company by facsimile to (704) 548-2081, Attention: Vice President, Human Resources or to such other facsimile number as the Company shall notify each Participant. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the delivery to such Participant of agreements, Shares and payments. Any such notice to the Participant will, if the Company has received notice that the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his or her status and address (and has provided such reasonable substantiating information as the Company may request) by written notice under this Section. Any notice required by or in respect of this Plan will be deemed to have been duly given when delivered in person or when dispatched by telegram or, in the case of notice to the Company, by facsimile as described above, or one business day after having been dispatched by a nationally recognized overnight courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid. The Company assumes no responsibility or obligation to deliver any item mailed to such address that is returned as undeliverable to the addressee and any further mailings will be suspended until the Participant furnishes the proper address. D. Severability of Provisions. If any provisions of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. E. Payment to Minors, Etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. 9 F. Headings and Captions. The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. G. Controlling Law. The Plan shall be construed and enforced according to the laws of the State of Delaware. H. Section 16(b) of the Act. All elections and transactions under the Plan by persons subject to Section 16 of the Act involving shares of Common Stock are intended to comply with all exemptive conditions under Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. XIII. Issuance of Stock Certificates; Legends; Payment of Expenses A. Stock Certificates. Upon any exercise of an Option and payment of the exercise price as provided in such Option, a certificate or certificates for the Shares as to which such Option has been exercised shall be issued by the Company in the name of the person or persons exercising such Option and shall be delivered to or upon the order of such person or persons, subject, however, in the case of Options exercised pursuant to Section V(C)3 hereof, to the merger, consolidation, dissolution or liquidation triggering the rights under that Section. B. Legends. Certificates for Shares issued upon exercise of an Option shall bear such legend or legends as the Committee, in its sole discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between the Company and the Participant with respect to such Shares. C. Payment of Expenses. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. XIV. Listing of Shares and Related Matters If at any time the Board or the Committee shall determine in its sole discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of Options or the award or sale of Shares under the Plan, no Option grant shall be effective and no Shares will be delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. 10 XV. Withholding Taxes The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock, payment by the Participant of any Federal, state or local taxes required by law to be withheld. 11 Exhibit A COLLINS & AIKMAN CORPORATION OPTION AGREEMENT PURSUANT TO THE 1994 DIRECTORS STOCK OPTION PLAN [Eligible Director] Dear: Preliminary Statement As a director of Collins & Aikman Corporation (the "Company") on the Annual Date of Grant and pursuant to the terms of the Collins & Aikman Corporation 1994 Directors Stock Option Plan, annexed hereto as Exhibit 1 (the "Plan"), you, as an Eligible Director (as defined in the Plan), have been automatically granted a nonqualified stock option (the "Option") to purchase the number of shares of the Company's common stock, par value $.01 per share (the "Common Stock"), set forth below. The terms of the grant are as follows: 1. Tax Matters. No part of the Option granted hereby is intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Grant of Option. Subject in all respects to the Plan and the terms and conditions set forth herein and therein including, without limitation, the provisions requiring shareholder approval, you are hereby granted an Option to purchase from the Company up to 10,000 Shares (as defined in the Plan), at a price per Share of $_________ (the "Option Price"). 3. Vesting. The Option may be exercised by you, in whole or in part, at any time or from time to time on or after the later of (a) six (6) months and one (1) day after the date of grant or (b) approval of the Plan by the stockholders of the Company and prior to the expiration of the Option as provided herein and in the Plan. Upon the occurrence of a Change of Control (as defined in the Plan), the Option shall immediately become exercisable with respect to all Shares subject thereto, regardless of whether the Option has vested with respect to such Shares upon the later of such Change of Control and approval of the Plan by the stockholders of the Company. 4. Termination. Unless terminated as provided below or otherwise pursuant to the Plan, the Option shall expire on the tenth anniversary of this grant. 5. Restriction on Transfer of Option. Except as provided in the Plan with regard to a "qualified domestic relations order", as defined in Section 414(p) of the Internal Revenue Code, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution and during your lifetime may be exercised only by you or your guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. 6. Rights as a Shareholder. You shall have no rights as a shareholder with respect to any Shares covered by the Option until you shall have become the holder of record of the Shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such Shares, except as otherwise specifically provided for in the Plan. 7. Provisions of Plan Control. This grant is subject to all the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan. The annexed copy of the Plan is incorporated herein by reference. If and to the extent that this grant conflicts or is inconsistent with the terms, conditions and provisions of the Plan, the Plan shall control, and this grant shall be deemed to be modified accordingly. 8. Notices. Any notice or communication given hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or, in the case of notice to the Company, by facsimile to the facsimile number set forth below, or when dispatched by Telegram, or one business day after having been dispatched by a nationally recognized courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, to the appropriate party at the address (or, in the case of notice to the Company, facsimile number) set forth below (or such other address as the party shall from time to time specify in accordance with Article XII(D) of the Plan.): If to the Company, to: Collins & Aikman Corporation 701 McCullough Drive Charlotte, North Carolina 28262 Attention: Vice President, Human Resources Facsimile number: (704) 548-2081 If to you, to: the address indicated on the signature page at the end of this grant. Sincerely, COLLINS & AIKMAN CORPORATION By:__________________________ Authorized Officer Accepted: [PARTICIPANT] Address: 2 EX-10 5 EXHIBIT 10.18 EXECUTION COPY CARCORP, INC., as Company, COLLINS & AIKMAN PRODUCTS CO., as Master Servicer and COLLINS & AIKMAN PRODUCTS CO. AND ITS WHOLLY OWNED SUBSIDIARIES NAMED HEREIN, as Sellers AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT Dated as of March 30, 1995 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . 2 1.1 Defined Terms . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions . . . . . . . . . . 5 ARTICLE II PURCHASE AND SALE OF RECEIVABLES . . . . . 5 2.1 Purchase and Sale of Receivables . . . . . . . . 5 2.2 Purchase Price . . . . . . . . . . . . . . . . . 8 2.3 Payment of Purchase Price . . . . . . . . . . . . 8 2.4 No Repurchase . . . . . . . . . . . . . . . . . . 10 2.5 Rebates, Adjustments, Returns and Reductions; Modifications . . . . . . . . . . . . . . . . . 11 2.6 Limited Repurchase Obligation . . . . . . . . . . 11 2.7 Obligations Unaffected . . . . . . . . . . . . . 12 2.8 Certain Charges . . . . . . . . . . . . . . . . . 12 2.9 Certain Allocations . . . . . . . . . . . . . . . 12 ARTICLE III CONDITIONS TO PURCHASE AND SALE . . . . . 13 3.1 Conditions Precedent to the Company's Initial Purchase of Receivables . . . . . . . . . . . . 13 3.2 Conditions Precedent to All the Company's Purchases of Receivables . . . . . . . . . . . 15 3.3 Conditions Precedent to Sellers' Obligations . . 16 3.4 Conditions Precedent to the Addition of a Seller . . . . . . . . . . . . . . . . . . . . 16 ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . 18 4.1 Representations and Warranties of the Sellers Relating to the Sellers . . . . . . . . 18 4.2 Representations and Warranties of the Sellers Relating to the Agreement and the Receivables . . . . . . . . . . . . . . . . . . 24 ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . 25 5.1 Certificates; Other Information . . . . . . . . . 25 5.2 Compliance with Laws, etc. . . . . . . . . . . . 25 5.3 Preservation of Corporate Existence . . . . . . . 26 5.4 Visitation Rights . . . . . . . . . . . . . . . . 26 - i - Page 5.5 Keeping of Records and Books of Account . . . . . 27 5.6 Location of Records . . . . . . . . . . . . . . . 27 5.7 Computer Files . . . . . . . . . . . . . . . . . 27 5.8 Policies . . . . . . . . . . . . . . . . . . . . 27 5.9 Obligations . . . . . . . . . . . . . . . . . . . 28 5.10 Collections . . . . . . . . . . . . . . . . . . 28 5.11 Furnishing Copies, etc . . . . . . . . . . . . . 28 5.12 Obligations with Respect to Obligors and Receivables . . . . . . . . . . . . . . . . . 29 5.13 Responsibilities of the Sellers . . . . . . . . 29 5.14 Further Action . . . . . . . . . . . . . . . . . 29 5.15 Certain Procedures . . . . . . . . . . . . . . . 32 ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . 32 6.1 Liens . . . . . . . . . . . . . . . . . . . . . . 32 6.2 Extension or Amendment of Receivables . . . . . . 32 6.3 Change in Payment Instructions to Obligors . . . 33 6.4 Change in Name . . . . . . . . . . . . . . . . . 33 6.5 Policies . . . . . . . . . . . . . . . . . . . . 33 6.6 Modification of Ledger . . . . . . . . . . . . . 33 6.7 Business of the Sellers . . . . . . . . . . . . . 33 6.8 Accounting of Purchases . . . . . . . . . . . . . 34 6.9 Instruments . . . . . . . . . . . . . . . . . . . 34 6.10 Ineligible Receivables . . . . . . . . . . . . . 34 ARTICLE VII PURCHASE TERMINATION EVENTS . . . . . . 34 ARTICLE VIII THE SUBORDINATED NOTES; PARENT NOTE . . . . 36 8.1 Subordinated Notes . . . . . . . . . . . . . . . 36 8.2 Restrictions on Transfer of Subordinated Notes . . . . . . . . . . . . . . . . . . . . . 37 8.3 Parent Note . . . . . . . . . . . . . . . . . . . 37 8.4 Restrictions on Transfer of Parent Note . . . . . 38 ARTICLE IX MISCELLANEOUS . . . . . . . . . . 38 9.1 Further Assurances . . . . . . . . . . . . . . . 38 9.2 Payments . . . . . . . . . . . . . . . . . . . . 39 9.3 Costs and Expenses . . . . . . . . . . . . . . . 39 - ii - Page 9.4 Successors and Assigns . . . . . . . . . . . . . 40 9.5 Governing Law . . . . . . . . . . . . . . . . . . 40 9.6 No Waiver; Cumulative Remedies . . . . . . . . . 41 9.7 Amendments and Waivers . . . . . . . . . . . . . 41 9.8 Severability . . . . . . . . . . . . . . . . . . 41 9.9 Notices . . . . . . . . . . . . . . . . . . . . . 41 9.10 Counterparts . . . . . . . . . . . . . . . . . . 42 9.11 Construction of Agreement as Security Agreement . . . . . . . . . . . . . . . . . . 42 9.12 Waivers of Jury Trial . . . . . . . . . . . . . 43 9.13 Jurisdiction; Consent to Service of Process . . 43 9.14 Addition of Sellers . . . . . . . . . . . . . . 44 9.15 Optional Termination of a Seller . . . . . . . . 44 9.16 No Bankruptcy Petition . . . . . . . . . . . . . 46 9.17 Termination . . . . . . . . . . . . . . . . . . 46 9.18 Confidentiality . . . . . . . . . . . . . . . . 47 9.19 Conversion of Currencies . . . . . . . . . . . . 48 9.20 Taxes and Deductions . . . . . . . . . . . . . . 48 9.21 Payments by Company . . . . . . . . . . . . . . 49 SCHEDULES Schedule 1 Locations of Chief Executive Offices; Locations of Books and Records Schedule 2 Lockboxes Schedule 3 Discounted Percentage Schedule 4 Tax Matters EXHIBITS Exhibit A Form of U.S. Dollar Subordinated Note Exhibit B Form of Canadian Dollar Subordinated Note Exhibit C Form of Parent Note Exhibit D Form of Additional Seller Supplement Exhibit E List of Corporate and Trade Names - iii - AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of March 30, 1995, among Collins & Aikman Products Co., a Delaware corporation ("C&A Products"), each of the subsidiaries of C&A Products from time to time parties hereto (together with C&A Products, the "Sellers"), C&A Products, as master servicer (in such capacity, the "Master Servicer"), and Carcorp, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Company, the Master Servicer, and certain subsidiaries of the Master Servicer that are parties thereto, in their capacities as sellers of receivables, have entered into a Receivables Sale Agreement, dated as of July 13, 1994 (as the same has been amended from time to time, the "Existing RSA"); WHEREAS, in the ordinary course of business, each Seller generates accounts receivable; WHEREAS, pursuant to the Existing RSA, each Seller party thereto sells to the Company, and the Company purchases from such Seller, all of such Seller's right, title and interest in, to and under the Receivables (as defined therein) now existing or hereafter created and in the rights of such Seller in, to and under all Related Property (as defined therein); WHEREAS, the Master Servicer, the Company and Chemical Bank, as Trustee, have entered into a Pooling Agreement, dated as of the date hereof (the "Pooling Agreement") in order to create a master trust into which the Company will transfer all of its right, title and interest in, to and under the Receivables (as defined in the Pooling Agreement) and certain other assets now or hereafter owned by the Company; WHEREAS, the parties hereto wish to amend and restate in its entirety the Existing RSA; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree that the Existing RSA shall be and hereby is amended and restated in its entirety as follows: ARTICLE I DEFINITIONS 1.1 Defined Terms. Capitalized terms defined in the Pooling Agreement shall be used herein as therein defined (unless otherwise defined herein) and the following terms shall have the following meanings: "Additional Seller Supplement" shall mean an instrument substantially in the form of Exhibit D by which an additional Subsidiary of C&A Products becomes a Seller party hereto. "Canadian Dollar Subordinated Note" shall have the meaning specified in Section 8.1. "Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, options or other rights to purchase or acquire any of the foregoing. "Dilution Adjustment" shall have the meaning specified in Section 2.5. "Discounted Percentage" shall have the meaning specified in Schedule 3. "Documents" shall have the meaning specified in subsection 5.14(d)(iii). "Early Termination" shall have the meaning specified in Article VII. "Effective Date" shall mean (i) with respect to each party hereto that was an original party to the Existing RSA, July 13, 1994, (ii) with respect to each Seller added as a Seller under the Existing RSA, the Seller Addition Date with respect to such Seller and (iii) with respect to each additional Subsidiary of C&A Products added as a Seller pursuant to Section 9.14 of this Agreement, the Seller Addition Date with respect to each such Subsidiary. "ERISA Affiliate" shall mean with respect to any Person, any trade or business (whether or not incorporated) that is a member of a group of which such Person is a member and which is treated as a single employer under Section 414 of the Internal Revenue Code. -2- "Existing RSA" shall have the meaning specified in the recitals hereto. "Multiemployer Plan" shall mean with respect to any Person, a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which such Person or any ERISA Affiliate of such Person (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "One-Month LIBOR" shall have the meaning specified in Section 1.1 of the Series 1 Supplement. "Parent Note" shall have the meaning specified in Section 8.3. "Payment Date" shall have the meaning specified in subsection 2.3(a). "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any successor thereto. "Plan" shall mean, with respect to any Person, any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Internal Revenue Code which is maintained for employees of such Person or any ERISA Affiliate of such Person. "Pooling Agreement" shall have the meaning specified in the recitals hereto. "Potential Purchase Termination Event" shall mean any condition or act specified in Article VII that, with the giving of notice or the lapse of time or both, would become a Purchase Termination Event. "Purchase Price" shall have the meaning specified in Section 2.2. "Purchase Termination Event" shall have the meaning specified in Article VII. "Purchased Receivable" shall mean any Receivable sold to the Company by any Seller pursuant to, and in accordance with the terms of, this Agreement and not resold to such Seller pursuant to subsection 2.1(b) or 2.6. -3- "Recalculated Deficiency" shall have the meaning specified in subsection 9.15(a). "Reportable Event" shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code). "Repurchase Amount" shall have the meaning specified in Section 2.6. "Repurchase Event" shall have the meaning specified in Section 2.6. "Sale Documents" shall mean this Agreement, the Subordinated Notes and the Parent Note. "Sale Transactions" shall have the meaning specified in subsection 4.1(b). "Separate VFC Amortization Event" shall have the meaning specified in Section 1.1 of the Series 2 Supplement. "Seller Addition Date" shall have the meaning specified in Section 3.4. "Seller Adjustment Payment" shall have the meaning specified in Section 2.5. "Seller Repurchase Payment" shall have the meaning specified in Section 2.6. "Seller Termination Condition" shall have the meaning specified in subsection 9.15(a). "Series 1 Supplement" shall mean the Series 1995-1 Supplement, dated as of March 30, 1995, among the Company, the Master Servicer and Chemical Bank, as Trustee, as amended, supplemented or otherwise modified from time to time. "Series 2 Supplement" shall mean the Series 1995-2 Supplement, dated as of March 30, 1995, among the Company, the Master Servicer, Societe Generale, as Agent, and Chemical Bank, as Trustee, as amended, supplemented or otherwise modified from time to time. "Subordinated Notes" shall have the meaning specified in Section 8.1. -4- "U.S. Dollar Subordinated Note" shall have the meaning specified in Section 8.1. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 1.2 Other Definitional Provisions. (a) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Sellers and the Company, unless otherwise defined herein, shall have the respective meanings given to them under GAAP. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. ARTICLE II PURCHASE AND SALE OF RECEIVABLES 2.1 Purchase and Sale of Receivables. (a) Subject to the terms and conditions of this Agreement, each of the Sellers, on such Seller's Effective Date, thereby sold, transferred, assigned, set over and otherwise conveyed, or does or continues to hereby sell, transfer, assign, set over and otherwise convey, without recourse (except as expressly provided herein), to the Company, all its respective right, title and interest, in, to and under (i) all Receivables then or now existing, as the case may be, and thereafter or hereafter arising, as the case may be, from time to time, as provided in paragraph (b) below, (ii) all payment and enforcement rights (but none of the obligations) with respect to Receivables, (iii) all Related Property in respect of such Receivables, (iv) all Collections with respect to (i), (ii) and (iii) and (v) for more certainty, the universality of all present and future assets listed in (i), (ii), (iii) and (iv) including all proceeds and payments in respect of any and all of the -5- foregoing clauses (including proceeds that constitute property of the types described in said clauses and including Collections). (b) On the related Effective Date and on the date of creation of each newly created Receivable and until the close of business on the date immediately prior to the Trust Termination Date, all of the applicable Seller's right, title and interest in and to (i) in the case of such Effective Date, all existing Receivables and Related Property in respect of such Receivables and (ii) in the case of each such date of creation, all such newly created Receivables and all Related Property in respect of such Receivables shall be considered to be part of the assets that have been sold, transferred, assigned, set over and otherwise conveyed to the Company pursuant to paragraph (a) above without any further action by such Seller or any other Person. If any Seller shall not have received payment from the Company of the Purchase Price for any newly created Receivable on the Payment Date therefor in accordance with the terms of subsection 2.3(c), such newly created Receivable and the Related Property with respect thereto shall, upon receipt of notice from the applicable Seller of such failure to receive payment, immediately and automatically be sold, transferred, assigned and reconveyed by the Company to such Seller without any further action by the Company or any other Person. (c) All sales of Receivables and Related Property by any Seller hereunder shall be without recourse to, or representation or warranty of any kind (express or implied) by, any Seller, except as otherwise specifically provided herein. The foregoing sale, assignment, transfer and conveyance does not constitute and is not intended to result in a creation or assumption by the Company of any obligation of any Seller or any other Person in connection with the Receivables, the Related Property or any agreement or instrument relating thereto, including any obligation to any Obligor. (d) In connection with the foregoing conveyances, each Seller agrees to record and file, or cause to be recorded and filed, at its own expense, financing statements (and continuation statements with respect to such financing statements when applicable), and any other similar instruments, with respect to the Receivables and Related Property now existing and hereafter acquired by the Company from the Sellers meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect the purchases of the Receivables and Related Property by the Company from the Sellers, and to deliver evidence of such filings to the Company on or prior to the -6- related Effective Date. It is the express intent of the parties hereto that the transfer of such Receivables and Related Property by the Sellers to the Company, as contemplated by this Agreement be, and be treated as, sales of the Receivables and the Related Property by the Sellers to the Company and not as a grant of a security interest therein to secure a debt or other obligation of the applicable Seller. If, however, notwithstanding the intent of the parties, such transactions are deemed to be loans, each Seller hereby grants to the Company a first priority security interest in all of such Seller's right, title and interest in, to and under (i) all Receivables then or now existing, as the case may be, and thereafter or hereafter arising, as the case may be, from time to time, (ii) all payment and enforcement rights (but none of the obligations) with respect to such Receivables, (iii) all Related Property in respect of such Receivables, (iv) all Collections with respect to (i), (ii) and (iii) and (v) for more certainty, the universality of all present and future assets listed in (i), (ii), (iii) and (iv) including all proceeds and payments in respect of any and all of the foregoing clauses (including proceeds that constitute property of the types described in said clauses and including Collections), to secure all such Seller's obligations hereunder and agrees to take such reasonable steps as are necessary to perfect such security interest. (e) In connection with the foregoing conveyances, each Seller agrees at its own expense, as agent of the Company, that it will (i) indicate or cause to be indicated on the computer files and other listings relating to the Receivables that all Receivables and Related Property have been sold to the Company in accordance with this Agreement and (ii) deliver or cause to be delivered to the Company computer files, microfiche lists or typed or printed lists containing true and complete lists of all such Receivables, identified by Obligor and by the Receivables balance as of a date no later than five Business Days prior to the related Effective Date. (f) Notwithstanding anything contained herein to the contrary, from and after the time a Responsible Officer of the Company receives notice or becomes aware that a lien has been imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, the Company shall not purchase any Receivables until such time as the Company furnishes the Trustee evidence (which may be in the form of a payment receipt or wire transfer confirmation) that the Person who is required to make such payment pays to -7- such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. 2.2 Purchase Price. The amount payable by the Company to a Seller (the "Purchase Price") for newly created Receivables and Related Property on any Payment Date under this Agreement shall be equal to the product of (a) the aggregate outstanding Principal Amount of such Receivables as set forth in the applicable Daily Report and (b) the Discounted Percentage with respect to such Seller. 2.3 Payment of Purchase Price. (a) Upon fulfillment of the conditions set forth in Article III, the Purchase Price for Receivables and Related Property shall be paid or provided for in the manner provided below on each day for which a Daily Report is prepared and delivered to the Company (each such day, a "Payment Date"). Each Seller hereby appoints the Master Servicer as its agent to receive payment of the Purchase Price for Receivables and Related Property sold by it to the Company and hereby authorizes the Company to make all payments due to such Seller directly to, or as directed by, the Master Servicer. The Master Servicer hereby accepts and agrees to such appointment. (b) The Purchase Price for Receivables and the Related Property with respect thereto shall be paid by the Company on each Payment Date as follows: (i) by netting the amount of any Seller Adjustment Payments or Seller Repurchase Payments pursuant to Section 2.5 or 2.6 against such Purchase Price; (ii) to the extent available for such purpose, in cash from Collections; it being understood that Canadian Dollar cash Collections shall be applied solely to the Purchase Price of Canadian Dollar- denominated Receivables; (iii) to the extent available for such purpose, in cash from the net proceeds of a transfer of such Purchased Receivables by the Company to other Persons pursuant to the Pooling Agreement; (iv) at the option of the Company, by means of an addition to the principal amount of the Canadian Dollar Subordinated Note, the U.S. Dollar Subordinated Note or -8- the Parent Note, as appropriate in accordance with this subsection, in an aggregate amount equal to the remaining portion of the Purchase Price not paid pursuant to (i), (ii) and (iii) above; provided, however, that (A) with respect to any Seller, the outstanding principal amount of such Seller's interest in the Subordinated Notes and the Parent Note shall not at any time exceed 40% of the aggregate Purchase Price received by such Seller from the Company with respect to the outstanding balance of the Purchased Receivables and (B) the aggregate outstanding principal amount of the Subordinated Notes (with the Canadian Dollar Subordinated Note being converted into U.S. Dollars based upon the Canadian Exchange Percentage) and the Parent Note shall not at any time exceed the Principal Amount of the Purchased Receivables less the sum of the Aggregate Adjusted Invested Amount and the aggregate reserves required to be maintained by the Company under the relevant Supplement for all Outstanding Series at such time; and provided further that the Company may pay by means of additions to the principal amount of either Subordinated Note or the Parent Note only if, at the time of such payment and after giving effect thereto, the fair market value of its assets, including any beneficial interests or indebtedness of a trust and all Receivables and Related Property it owns, after giving effect for this purpose to any Dilution Adjust- ments with respect to the Purchased Receivables, is greater than the amount of its liabilities including its liabilities on the Subordinated Notes, the Parent Note and all interest and other fees payable under the Pooling Agreement and the other Transaction Documents by at least $25,000,000. Any such addition to the principal amount of the Subordinated Notes shall be allocated among the Sellers by the Master Servicer in accordance with the provisions of this subsec- tion 2.3(b)(iv); provided, however, that additions to the principal amount of the Canadian Dollar Subordinated Note may only be made to evidence the purchase price of Receivables denominated in Canadian Dollars and additions to the U.S. Dollar Subordinated Note may only be made to evidence the purchase price of Receivables denominated in U.S. Dollars. The Master Servicer may evidence such payments by means of additions to the principal amount of the appropriate Subordinated Note by recording the date and amount thereof on the books and records of the Master Servicer for the account of the Sellers or on the grid attached to such Subordinated Note; provided that the failure to make any such recordation or any error in such grid shall not adversely affect any Seller's rights; and -9- (v) in cash from the proceeds of capital contributed by C&A Products to the Company, if any, in respect of its equity interest in the Company. (c) The Master Servicer shall be responsible, in its sole discretion but in accordance with the preceding subsection, for allocating among the Sellers the payment of the Purchase Price for Receivables and any amounts netted therefrom pursuant to subsection 2.3(b)(i) which allocation shall be, subject to the first proviso contained in subsection 2.3(b)(iv), either in the form of the cash received from the Company or as an addition to the principal amount of the Seller's interest in the applicable Subordinated Note. The Company shall be entitled to pay all amounts in respect of the Purchase Price of Receivables and Related Property to an account of the Master Servicer without regard to whether or how such payments are allocated by the Master Servicer to the Sellers. The Sellers acknowledge and agree that such payments constitute consideration for the Purchase Price of Receivables. All payments under this Agreement (i) to the extent such payments are made in Canadian Dollars, shall be made on the date specified therefor in Canadian Dollars in same day funds or by check, as the Master Servicer shall elect, (ii) in all other cases, shall be made on the date specified therefor in Dollars in same day funds or by check, as the Master Servicer shall elect, (iii) in all cases, shall be made not later than 3:00 p.m., New York City time, and (iv) shall be made (x) if to any Seller, to the bank account for such Seller designated in writing by the Master Servicer to the Company and (y) if to the Master Servicer, to the bank account designated in writing by the Master Servicer to the Company. (d) Whenever any payment to be made under this Agreement shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Amounts not paid when due in accordance with the terms of this Agreement shall bear interest at a rate equal at all times to the Alternate Base Rate plus 2%, payable on demand. 2.4 No Repurchase. Except to the extent expressly set forth herein, no Seller shall have any right or obligation under this Agreement, by implication or otherwise, to repurchase from the Company any Purchased Receivables or Related Property or to rescind or otherwise retroactively effect any purchase of any Purchased Receivables or Related Property after the Payment Date relating thereto. -10- 2.5 Rebates, Adjustments, Returns and Reductions; Modifications. From time to time a Seller may make Dilution Adjustments to Receivables in accordance with this Section 2.5 and Section 6.2. The Sellers, jointly and severally, agree to pay to the Company, on the Payment Date immediately succeeding the date of the grant of any Dilution Adjustment (regardless of which Seller shall have granted such Dilution Adjustment), the amount of any such Dilution Adjustment (a "Seller Adjustment Payment"); provided, that, prior to any Purchase Termination Event, any such payments to the Company shall be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.3(b)(i) but only to the extent of the Purchase Price payable on such Payment Date; provided further, that, upon the occurrence and continuation of a Separate VFC Amortization Event, all Seller Adjustment Payments with respect to PAR Pool I shall be made solely in cash. A "Dilution Adjustment" shall mean any rebate, discount, allowance, refund or adjustment (including, without limitation, as a result of the application of any special or other discounts or any reconciliations) of any Receivable, the amount owing for any returns or cancellations and the amount of any other reduction of any payment under any Receivable in each case granted or made by the applicable Seller to the related Obligor, provided that a "Dilution Adjustment" does not include any Charge-Off. The amount of any Dilution Adjustment shall be set forth on the first Daily Report prepared after the date of the grant thereof. 2.6 Limited Repurchase Obligation. In the event that (i) any of the representations or warranties contained in Section 4.2 in respect of any Receivable shall be or have been incorrect in any material respect as of the date made or deemed made, or (ii) any Eligible Receivable shall become subject to any defense, dispute, offset or counterclaim of any kind (other than as expressly permitted by this Agreement) or any Seller shall breach any covenant contained in Sections 5.2, 5.8, 6.1, 6.2, 6.3, 6.4, 6.5, 6.8 or 6.9 with respect to any Receivable (each of the foregoing events or circumstances described in clauses (i) and (ii) above, a "Repurchase Event"), such Receivable shall cease to be an Eligible Receivable on the date on which such Repurchase Event occurs. In addition, if any Repurchase Event shall occur with respect to any Receivable, then the Sellers, jointly and severally, agree to pay to the Company an amount (the "Repurchase Amount") equal to the Purchase Price of such Receivable (whether the Company paid such Purchase Price in cash or otherwise) less Collections received by the Company in respect of such Receivable, regardless of which Seller shall have been responsible for such Repurchase Event, such payment to occur on or prior to the 30th day after the day such Repurchase Event becomes known to any -11- Seller (except that if such day is not a Business Day, such payment shall be made on the Business Day immediately succeeding such day) unless such Repurchase Event shall have been cured on or before such 30th day; provided that in the event the Company shall be required to repurchase such Receivable pursuant to Section 2.5 of the Pooling Agreement and the Company has insufficient funds to make such a repurchase, such Seller shall make such payment immediately; provided further, that, prior to the occurrence of any Purchase Termination Event, any such payments to the Company shall be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.3(b)(i) but only to the extent of the Purchase Price payable on such Payment Date; provided further, that, upon the occurrence and continuation of a Separate VFC Amortization Event, all Seller Repurchase Payments with respect to PAR Pool I shall be made solely in cash. Any payment by any Seller pursuant to this Section 2.6 is referred to as a "Seller Repurchase Payment". If, on or prior to such 30th day (or the Business Day immediately succeeding such 30th day, as applicable), any Seller shall so reacquire any such Receivable, then the Company shall have no further remedy against the Sellers in respect of the Repurchase Event with respect to such reacquired Receivable. Upon a Seller Repurchase Payment, the Company shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the applicable Seller, without recourse, representation or warranty, all the right, title and interest of the Company in, to and under such Receivable and the Related Property with respect thereto. The Company shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by such Seller to effect the conveyance of such Receivable pursuant to this Section 2.6. 2.7 Obligations Unaffected. The obligations of the Sellers to the Company under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or any sale of a Receivable. 2.8 Certain Charges. Each of the Sellers and the Company agrees that late charge revenue, reversals of discounts, other fees and charges and other similar items, whenever created, accrued in respect of Purchased Receiv- ables shall be the property of the Company notwithstanding the occurrence of an Early Termination and all Collections with respect thereto shall continue to be allocated and treated as Collections in respect of Purchased Receivables. 2.9 Certain Allocations. Each of the Sellers hereby agrees that, following the occurrence of an Early Termination in respect of any Seller, all Collections and -12- other proceeds received in respect of Receivables generated by such Seller shall be applied first, to pay the outstanding Principal Amount of Purchased Receivables (as of the date of such Early Termination) of the Obligor to whom such Collections are attributable until such Purchased Receivables are paid in full and, second, to such Seller to pay Receivables of such Obligor not sold to the Company; provided, however, that notwithstanding the foregoing, if any such Seller can attribute a Collection to a specific Obligor and a specific Receivable, then such Collection shall be applied to pay such Receivable of such Obligor. ARTICLE III CONDITIONS TO PURCHASE AND SALE 3.1 Conditions Precedent to the Company's Initial Purchase of Receivables. The obligation of the Company to purchase the Receivables and the Related Property hereunder on the related Effective Date from any Seller is subject to the conditions precedent, which may be waived by the Company, provided that the Rating Agency Condition shall have been satisfied with respect to any waiver of clauses (b)(i), (iii) and (v) below, that (a) each of the Sale Documents shall be in full force and effect and (b) the conditions set forth below shall have been satisfied on or before such Effective Date: (i) the Company shall have received copies of duly adopted resolutions of the Board of Directors of each Seller as in effect on such Effective Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and the trans- actions contemplated hereby, certified by the Secretary or Assistant Secretary of such Seller; (ii) the Company shall have received duly executed certificates of the Secretary or an Assistant Secretary of each Seller, dated such Effective Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers authorized on behalf of such Seller to sign this Agreement and any instruments or documents in connection with this Agreement; (iii) each Seller shall have filed and recorded or will file on such Effective Date, at its own expense, UCC-1 financing statements (and registered assignments, verification statements or other similar statements or -13- instruments) with respect to the Receivables and the Related Property in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership interest thereof under the UCC of all such jurisdictions (or any other similar law of any relevant jurisdictions (including the Provinces of Quebec and Ontario)) and delivered evidence of such filings to the Company on or prior to such Effective Date except with respect to the Canadian Seller which shall make all such necessary filings, assignments, registrations and verification statements and deliver evidence of such filings not later than ten Business Days after the date hereof with respect thereto; and all other action necessary or desirable, in the reasonable judgment of the Company, to perfect the Company's ownership of the Receivables and Related Property shall have been duly taken; (iv) each Seller shall have delivered to the Company a microfiche, typed or printed list or other tangible evidence reasonably acceptable to the Company showing as of a date no later than five Business Days preceding such Effective Date, the Obligors whose Receivables are to be transferred to the Company on such Effective Date and the balance of the Receivables with respect to each such Obligor as of such preceding date; and (v) the Company shall have received reports of UCC-1 and other searches of the Sellers (including reports showing the results of searches conducted against the Canadian Seller and any other Seller located in Canada in each of the relevant jurisdictions under those statutes of such jurisdictions (including, as the case may be, the Civil Code or the Personal Property Security Act of such jurisdiction) pursuant to which absolute assignments of, or mortgages, charges, hypothec or other security interests in or to, assets similar in nature to the Receivables or Related Property would ordinarily or customarily be the subject of a recording, filing or regulation in order to create, validate, preserve and perfect such assignment or security interests) with respect to the Receivables and the Related Property reflecting the absence of Liens thereon, except Liens created in connection with the sale by the Company of such Purchased Receivables and except for Liens as to which the Company has received UCC termination statements (or other similar instruments) to be filed on or prior to such Effective Date. -14- 3.2 Conditions Precedent to All the Company's Purchases of Receivables. The obligation of the Company to pay a Seller for any Receivable and the Related Property with respect thereto on each Payment Date (including the related Effective Date) shall be subject to the further conditions precedent, which may be waived by the Company, provided that the Rating Agency Condition shall have been satisfied with respect to any waiver of clauses (a)(i)-(iii) below, that on such Payment Date: (a) the following statements shall be true (and the acceptance by such Seller of the Purchase Price for any Receivables on any Payment Date shall constitute a representation and warranty by such Seller that on such Payment Date such statements are true): (i) the representations and warranties of such Seller contained in Sections 4.1 and 4.2 shall be true and correct in all material respects on and as of such Payment Date as though made on and as of such date, except insofar as such representations and warranties are expressly made only as of another date (in which case they shall be true and correct in all material respects as of such date); (ii) no Purchase Termination Event or Potential Purchase Termination Event with respect to such Seller shall have occurred and be continuing; and (iii) no Early Amortization Event (other than a Separate VFC Amortization Event) with respect to any Series shall have occurred and be continuing; (b) the Company shall be satisfied that such Seller's systems, procedures and record keeping relating to the Purchased Receivables are in all material respects sufficient and satisfactory in order to permit the purchase and administration of the Purchased Receivables in accordance with the terms and intent of this Agreement (it being understood and agreed that as of the date hereof, the Sellers' systems, procedures and record-keeping relating to the Receivables are in all material respects sufficient and satisfactory); (c) the Company shall have received payment in full of all amounts for which payment is due from such Seller pursuant to Sections 2.5, 2.6 and 9.2; (d) the Company shall have received such other approvals, opinions or documents as the Company may reasonably request; and -15- (e) such Seller shall have complied with all of its covenants in all material respects and satisfied all of its obligations in all material respects under this Agreement required to be complied with or satisfied as of such date; provided, however, that the failure of any Seller to satisfy any of the foregoing conditions shall not prevent such Seller from subsequently selling Receivables upon satisfaction of all such conditions or exercising its rights under subsection 2.1(b). 3.3 Conditions Precedent to Sellers' Obligations. (a) The obligations of each Seller on the related Effective Date shall be subject to the conditions precedent that such Seller shall have received on or before such Effective Date the following, each dated such Effective Date and in form and substance satisfactory to such Seller: (i) a copy of duly adopted resolutions of the Board of Directors of the Company authorizing this Agreement, the documents to be delivered by the Company hereunder and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company; and (ii) a duly executed certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other docu- ments to be delivered by it hereunder. (b) The obligations of each Seller on each Payment Date shall be subject to the condition precedent that no Early Amortization Event set forth in paragraph (a) of Section 7.1 of the Pooling Agreement with respect to the Company shall have occurred and be continuing. 3.4 Conditions Precedent to the Addition of a Seller. No Subsidiary of C&A Products approved by the Company as an additional Seller pursuant to Section 9.14 shall be added as a Seller hereunder unless the conditions set forth below shall have been satisfied on or before the date designated for the addition of such Seller (the "Seller Addition Date"): (i) the Company shall have received an Additional Seller Supplement duly executed and delivered by such Seller; -16- (ii) the Company shall have received copies of duly adopted resolutions of the Board of Directors of such Seller as in effect on the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of such Seller; (iii) the Company shall have received duly executed certificates of the Secretary or an Assistant Secretary of such Seller, dated the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers authorized on behalf of such Seller to sign the Additional Seller Supplement or any instruments or documents in connection with this Agreement; (iv) a Lockbox Account with respect to Receivables to be sold by such Seller shall have been established in the name of the Company; (v) such Seller shall have filed and recorded, at its own expense, UCC-1 financing statements (or other similar instruments) with respect to the Receivables and the Related Property in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership interest therein under the UCC (or any other similar law) and delivered evidence of such filings to the Company on or prior to the date thereof; and all other actions necessary or desirable, in the opinion of the Company, to perfect the Company's ownership of the Receivables shall have been duly taken; (vi) such Seller shall have delivered to the Company a microfiche, a typed or printed list or other tangible evidence reasonably acceptable to the Company showing as of a date acceptable to the Company prior to the related Seller Addition Date the Obligors whose Receivables are to be transferred to the Company and the balance of the Receivables with respect to each such Obligor as of such date; (vii) the Company shall have received reports of UCC-1 and other searches of such Seller with respect to the Receivables and the Related Property reflecting the absence of Liens thereon, except Liens created in connection with the sale or transfer by the Company of such Purchased Receivables and except for Liens as to which the Company has received UCC termination state- -17- ments (or other similar instruments) to be filed on or prior to the related Seller Addition Date; (viii) the Company shall have received (A) legal opinions on behalf of such Seller as to general corporate matters of such Seller (including, without limitation, an opinion as to the perfection of the Company's interest in the Purchased Receivables) and (B) confirmation (1) as to the "true sale" of the Purchased Receivables sold hereunder and (2) as to the likelihood of the substantive consolidation of such Seller on the one hand and the Company on the other hand, all in form and substance reasonably satisfactory to the Company; and (ix) the Company shall have received evidence that the Rating Agency Condition shall have been satisfied with respect to the addition of such Seller; provided, however, such additional Seller shall not be required to satisfy the condition set forth in clause (vii) above if such Seller is a newly formed (within the preceding ten Business Days), wholly owned Subsidiary of any existing Seller formed for the purpose of continuing the business or businesses, or a portion of the business or businesses, conducted by one or more of the existing Sellers such that no Obligors that were not Obligors of an existing Seller hereunder prior to the Seller Addition Date with respect to the additional Seller will become Obligors as a result of the addition of such Seller. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of the Sellers Relating to the Sellers. Each Seller hereby represents and warrants to the Company on the related Effective Date and on each Payment Date that: (a) Organization; Corporate Powers. It (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, (ii) has all requisite corporate power and authority, and all material licenses, permits, franchises, consents, approvals and other governmental authorizations necessary to own or lease its property and assets and to carry on its business as now conducted and as proposed to be conducted, (iii) is qualified and in good standing as a foreign corporation to do business in the jurisdiction in which its chief executive office is located and every other -18- jurisdiction where such qualification is necessary, except where the failure so to qualify would not reasonably be likely to have a Material Adverse Effect and (iv) has the corporate power and authority to execute, deliver and perform this Agreement and each of the other Sale Documents to which it is a party and each other agreement or instrument contemplated hereby or thereby to which it is or will be a party. (b) Authorization. The execution, delivery and performance by it of this Agreement and each of the other Sale Documents to which it is a party, the sale of Receivables by it hereunder and the consummation of the other transactions contemplated by any of the foregoing (collectively, the "Sale Transactions") (i) have been duly authorized by all requisite corporate and, if required, stockholder action and (ii) will not (x) violate any Requirement of Law or Contractual Obligation of such Seller except for violations that would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect or (y) result in the creation or imposition of any Lien upon any of its property or assets, except for Liens created under this Agreement and Liens created in connection with the sale by the Company of the Receivables as contemplated by the Pooling Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the sales hereunder or with the execution, delivery, performance, validity or enforceability of the this Agreement and the other Sale Documents to which it is a party by or against such Seller other than (i) those which have duly been obtained or made and are in full force and effect on such Effective Date, (ii) any filings of UCC-1 financing statements (or similar instruments as may be necessary or advisable in the Provinces of Quebec and Ontario and such other Provinces of Canada where Obligors of Receivables sold by such Seller hereunder are located) necessary to perfect the Company's ownership interest in the Receivables and the Related Property, (iii) those that may be required under state securities and "blue sky" laws in connection with the offering or sale of Certificates and (iv) any such consent, authorization, filing, notice or other act the absence of which would not reasonably be likely to have a Material Adverse Effect. (c) Enforceability. Each of this Agreement and each of the other Sale Documents to which it is a party has been duly executed and delivered by such Seller and constitutes a legal, valid and binding obligation of such Seller enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, -19- insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) Capitalization. Except with respect to C&A Products, all of its Capital Stock is owned directly or indirectly by C&A Products. (e) Material Litigation; Compliance with Laws. (i) Except as described in the Annual Report on Form 10-K of Collins & Aikman Corporation, any Quarterly Report on Form 10-Q of Collins & Aikman Corporation or any Current Report on Form 8-K of Collins & Aikman Corporation there are not any actions, suits or proceedings at law or in equity or by or before any court or Governmental Authority or labor controversies now pending or, to the knowledge of such Seller, threatened against it or any of its properties or rights as to which there is a reasonable possibility of an adverse determination or effect and which (A) if adversely determined, could individually or in the aggregate result in a Material Adverse Effect, or (B) involve this Agreement, any of the other Sale Documents, any other Transaction Document to which such Seller is a party or any of the transactions contemplated hereby or thereby. (ii) It is not in default under or with respect to any law, order, judgment, writ, injunction, decree, rule or regulation of any Governmental Authority where such default could reasonably be likely to have a Material Adverse Effect. The sales hereunder and the use of the proceeds thereof will not violate any applicable law or regulation or violate or be prohibited by any judgment, writ, injunction, decree or order of any court or Governmental Authority or subject such Seller to any civil or criminal penalty or fine. No Purchase Termination Event or Potential Purchase Termination Event with respect to such Seller has occurred and is continuing. (f) Agreements. (i) It is not a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in (A) a material adverse effect on the business, operations, property or condition (financial or otherwise) of C&A Products and its Subsidiaries taken as a whole, (B) a material impairment of the ability of such Seller to perform its obligations under the Transaction Documents, (C) a material impairment of the validity or enforceability of any of the Transaction Documents against any of the Sellers or any Servicing Party, or (D) a material -20- impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders. (ii) It is not in default in any manner under any of its Contractual Obligations in any respect which could be reasonably likely to have a Material Adverse Effect. (g) Tax Returns. It has filed or caused to be filed all Federal, and all material state, local and foreign, tax returns required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable, and any assessments in excess of $2,000,000 in the aggregate received by it, except taxes the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on its books and taxes, assessments, charges, levies or claims in respect of property taxes for property that it has determined to abandon where the sole recourse for such tax, assessment, charge, levy or claim is to such property. It has paid in full or made adequate provision (in accordance with GAAP) for the payment of all taxes due with respect to the periods ending on or before January 28, 1995, which taxes, if not paid or adequately provided for, would be reasonably likely to have a Material Adverse Effect. The tax returns of such Seller have been examined by relevant Federal tax authorities for all periods through January 26, 1985, and all deficiencies asserted as a result of such examinations have been paid. Except as set forth on Schedule 4, as of the Effective Date, with respect to such Seller, (i) no material claims are being asserted in writing with respect to any taxes, (ii) no presently effective waivers or extensions of statutes of limitation with respect to taxes have been given or requested, (iii) no tax returns are being examined by, and no written notification of intention to examine has been received from, the Internal Revenue Service or any other taxing authority and (iv) no currently pending issues have been raised in writing by the Internal Revenue Service or any other taxing authority. For purposes of this paragraph, "taxes" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. (h) Employee Benefit Plans. If such Seller is incorporated in the United States, each of such Seller and each of its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to each Plan of such Seller or any of its ERISA Affiliates except for such noncompliance which could not reasonably be expected to result in a Material Adverse -21- Effect. No Reportable Event has occurred as to which such Seller or any of its ERISA Affiliates was required to file a report with the PBGC, other than reports for which the 30 day notice requirement is waived, reports that have been filed and reports the failure of which to file would not reasonably be expected to result in a Material Adverse Effect and, as of the Effective Date, the present value of all benefit liabilities under each Plan of such Seller or any of its ERISA Affiliates (on a termination basis and based on those assumptions used to fund such Plan) did not, as of the last annual valuation report applicable thereto, exceed by more than $10,000,000 the value of the assets of such Plan. Neither such Seller nor any of its ERISA Affiliates has incurred or could reasonably be expected to incur any Withdrawal Liability that could reasonably be expected to result in a Material Adverse Effect. Neither such Seller nor any of its ERISA Affiliates has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated where such reorganization or termination has resulted or could reasonably be expected to result, through increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect. (i) Fraudulent Transfer. Such Seller is not entering into this Agreement with the actual intent to hinder, delay, or defraud its present or future creditors and is receiving reasonably equivalent and fair value for the Receivables being transferred hereunder. (j) Solvency. The fair salable value of the assets of such Seller exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of such Seller. The assets of such Seller do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Such Seller does not intend to, or believe that it will, incur debts beyond its ability to pay such debts as they mature. (k) Absence of Certain Restrictions. No Contractual Obligation of such Seller or any of its Subsidiaries will prohibit or materially restrain, or have the effect of prohibiting or materially restraining, or imposing materially adverse conditions upon, the sale of Receivables and Related Property or the granting of Liens as contemplated by the Transaction Documents. (l) Indebtedness to Company. Immediately prior to consummation of the transactions contemplated hereby on -22- such Effective Date, it had no outstanding Indebtedness to the Company other than amounts permitted by the Sale Documents. (m) Lockboxes. Set forth in Schedule 2 is a complete and accurate description as of the Effective Date of each Lockbox Account currently maintained by such Seller. Each of the Lockbox Agreements, once entered into, shall be the legal, valid and binding obligation of each Seller party thereto, enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (n) Filings. On or prior to such Effective Date, all filings and other acts necessary or advisable (including but not limited to all filings and other acts necessary or advisable under the UCC or any other similar law of each relevant jurisdiction) shall have been made or performed in order to grant the Company a first priority perfected ownership interest in respect of all Receivables. (o) Receivables Documents. Upon the delivery, if any, by such Seller to the Company of licenses, rights, computer programs, related materials, computer tapes, disks, cassettes and data relating to the administration of the Purchased Receivables pursuant to subsection 5.14(d)(v), the Company shall have been furnished with all materials and data necessary to permit immediate collection of the Purchased Receivables without the participation of any Seller in such collection. (p) Chief Executive Office. The chief executive office of such Seller is listed opposite its name on Schedule 1, which office is the place where such Person is "located" for the purposes of Section 9-103(3)(d) of the UCC of the State of New York, or, if applicable, for purposes of the relevant provincial laws of Canada, and the offices of such Seller where such Seller keeps its records concerning the Receivables are also listed in said Schedule opposite its name (or at such other locations, notified to the Company in accordance with Section 5.6, in jurisdictions where all actions required by subsection 5.14(a) have been taken and completed) and there have been no other such locations during the four months preceding the date of this Agreement. -23- (q) Bulk Sales Act. No transaction contemplated hereby with respect to such Seller requires compliance with, or will be subject to avoidance under any bulk sales act or similar law. (r) Names. Such Seller does not use any trade name other than its actual corporate name and the trade names set forth in Exhibit E hereto. Except as set forth in Exhibit E hereto, from and after the date that fell five years before the date hereof, such Seller has not been known by any legal name other than its corporate name as of the date hereof, nor has it been the subject of any merger or other corporate reorganization. 4.2 Representations and Warranties of the Sellers Relating to the Agreement and the Receivables. Each Seller hereby represents and warrants to the Company on the related Effective Date and on each Payment Date that with respect to the Receivables being paid for as of such date: (a) Receivables Description. The microfiche, printed or typed list or computer file delivered pursuant to subsection 3.1(b)(iv) is an accurate and complete listing in all material respects of all its Receivables as of the date indicated therein and the information contained therein with respect to the identity of such Receivables is true and correct in all material respects as of such date. (b) Eligible Receivable. Each Receivable sold by it hereunder and designated on a Daily Report to be an Eligible Receivable will be, at its respective Payment Date, an Eligible Receivable. The aggregate outstanding Principal Amount of Eligible Receivables sold by it on any Payment Date is correctly set forth on the Seller Daily Report with respect to such Seller and with respect to such Payment Date. (c) Title; No Liens. Other than with respect to Receivables which such Seller states in writing (in the applicable Seller Daily Report or otherwise) are not Eligible Receivables on such date, such Seller is the sole legal and beneficial owner of its Receivables, and upon the sale of each Receivable of such Seller, the Company will become the sole legal and beneficial owner of such Receivable, free and clear of any Liens (except for Liens granted by such Seller in favor of the Company and the interest in such Purchased Receivables sold and the security interest therein granted by the Company to other Persons pursuant to the Pooling Agreement), and no effective financing statement or other instrument similar in effect covering all or any part of such Purchased Receivable, -24- Related Property or Collections with respect thereto will at such time be on file against such Seller in any filing, recording office or similar office, except such as have been filed in favor of the Company in accordance with this Agreement. (d) Treatment as Sales. Such Seller intends to treat the transfer of the Receivables to the Company as a sale of the Receivables for all tax, accounting and regulatory purposes. ARTICLE V AFFIRMATIVE COVENANTS Each Seller hereby agrees that, so long as there are any amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company or until an Early Termination with respect to such Seller, whichever is later, such Seller or the Master Servicer on behalf of such Seller shall: 5.1 Certificates; Other Information. Furnish to the Company and each Rating Agency: (a) not later than 120 days after the end of each fiscal year and not later than 90 days after the end of each of the first three fiscal quarters of each fiscal year, a certificate of a Responsible Officer of the Master Servicer stating that, (i) such Responsible Officer has supervised the review and (ii) to the best of such Responsible Officer's knowledge (after due inquiry), such Seller during such period has observed or performed all of its covenants and other agreements in all material respects, and satisfied every condition, contained in the Sale Documents to which it is a party to be observed, performed or satisfied by it in all material respects, and that such Responsible Officer has obtained no knowledge of any Purchase Termination Event or Potential Purchase Termination Event except as specified in such certificate; and (b) promptly, such additional financial and other information as the Company may from time to time reasonably request. 5.2 Compliance with Laws, etc. Comply in all material respects with all Requirements of Law and Contractual Obligations affecting the collectibility of the Purchased Receivables and the performance by such Seller, in all material respects, of its obligations under this Agreement and the other Transaction Documents to which it is -25- a party, except to the extent such compliance would result in a violation of a Requirement of Law or Contractual Obligation, as the case may be. 5.3 Preservation of Corporate Existence. Do or cause to be done all things necessary to (i) preserve, renew and keep in full force and effect its legal existence and maintain such legal existence separate from that of the Company and (ii) preserve and maintain its rights, franchises and privileges in the jurisdiction of its incorporation or amalgamation, and qualify and remain in good standing as a foreign corporation in the jurisdiction where its chief executive office is located and in each other jurisdiction where the failure to preserve and maintain such rights, franchises, privileges and qualification would be reasonably likely to have a Material Adverse Effect; provided that any Seller may be merged or consolidated with or into any other Seller or C&A Products. Nothing contained herein shall restrict in any manner the ability of any Seller to change the jurisdiction of its incorporation or the location of its chief executive office; provided, however, that no Seller shall change the location of its chief executive office to a state which is within the Tenth Circuit unless it delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect that Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) is no longer controlling precedent in the Tenth Circuit. 5.4 Visitation Rights. At any reasonable time during normal business hours and from time to time, in each case upon reasonable notice to such Seller and the Master Servicer, permit (i) the Company, or any of its agents or representatives, (A) to examine and make copies of and abstracts from the records, books of account and documents (including computer tapes and disks) of each Seller relating to the Purchased Receivables and Related Property hereunder and (B) following the termination of the appointment of C&A Products as Master Servicer or of such Seller as Servicer with respect to the Purchased Receivables, to be present at the offices and properties of such Seller to administer and control the collection of amounts owing on the Purchased Receivables and (ii) the Company, or any of its agents or representatives, to visit the properties of such Seller for the purpose of examining such records, books of account and documents, and to discuss the affairs, finances and accounts of such Seller relating to the Purchased Receivables or such Seller's performance hereunder with any of its officers or directors and with its independent certified public accountants (subject to any requirements of confidentiality imposed by law or contract). -26- 5.5 Keeping of Records and Books of Account. Maintain and implement, or cause to be maintained or imple- mented, administrative and operating procedures reasonably necessary or advisable for the collection of amounts owing on all Purchased Receivables, and, until any delivery to the Company, keep and maintain, or cause to be kept and maintained, all documents, books, records and other information reasonably necessary or advisable for the collection of amounts owing on all such Purchased Receivables and the Related Property with respect thereto. 5.6 Location of Records. Keep its chief place of business and chief executive office, and the offices where it keeps the records concerning the Purchased Receivables (and all original documents relating thereto), and, in the case of the Canadian Seller, its legal head office, at the locations referred to for it on Schedule 1 hereto or upon 30 days' prior written notice to the Company, at such other locations in a jurisdiction where all action required by subsection 5.14(a) shall have been taken and completed and be in full force and effect, provided that the Rating Agencies shall be notified of any such changes in location and such location is not in a state which is within the Tenth Circuit unless such Seller delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect that Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) is no longer controlling precedent in the Tenth Circuit. 5.7 Computer Files. At its own cost and expense, retain the ledger used by such Seller as a master record of the Obligors and retain copies of all documents relating to each Obligor as custodian and agent for the Company and other Persons with interests in the Purchased Receivables and mark the computer tape or other physical records of the Purchased Receivables to the effect that interests in the Purchased Receivables existing with respect to the Obligors listed thereon have been sold to the Company and that the Company has sold an interest therein and, subsidiarily, has granted a security interest therein in the Company's retained interest therein. 5.8 Policies. Perform its obligations in accordance with and comply in all material respects with the Policies, as amended from time to time in accordance with the Transaction Documents, in regard to the Purchased Receivables and the Related Property except to the extent that failure to so comply would not be reasonably likely to have a Material Adverse Effect with respect to such Seller. -27- 5.9 Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where (a) the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on its books, or (b) the failure to so pay, discharge or satisfy all such obligations would not, in the aggregate, be reasonably likely to have a Material Adverse Effect and would not subject any of its properties to any Lien prohibited by Section 6.1. 5.10 Collections. Instruct each Obligor to make payments in respect of its Receivables to a Lockbox or a Lockbox Account in accordance with the standard Lockbox procedure of the Lockbox Processor or its agent or by wire transfer to the applicable Collection Account. 5.11 Furnishing Copies, etc. (a) Furnish to the Company: (i) within five Business Days of the Company's request, but no more than once each month, a certificate of the chief financial officer of such Seller or of the Master Servicer on behalf of such Seller certifying, as of the date thereof, to the best knowledge of such officer, that no Purchase Termination Event has occurred and is continuing and setting forth the computations used by the chief financial officer of such Seller in making such determination or if one has so occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto; (ii) promptly upon a Responsible Officer of such Seller obtaining knowledge of the occurrence of any Purchase Termination Event or Potential Purchase Termination Event, written notice thereof; (iii) promptly following request therefor, such other information, documents, records or reports regarding or with respect to the Purchased Receivables of the applicable Seller, as the Company may from time to time reasonably request; (iv) promptly upon a Responsible Officer of such Seller or the Master Servicer obtaining knowledge of the occurrence thereof, written notice of any event of default or default under any other Sale Document; -28- (v) promptly upon a Responsible Officer of such Seller or the Master Servicer obtaining knowledge of the occurrence thereof, written notice of any development that has resulted in a Material Adverse Effect; and (vi) promptly upon determining that any Purchased Receivable designated as an Eligible Receivable on the applicable Daily Report or Monthly Settlement Statement was not an Eligible Receivable as of the date provided therefor, written notice of such determination. (b) Furnish to the Rating Agencies copies of (i) all filings by Collins & Aikman Corporation with the Securities and Exchange Commission, (ii) all quarterly press releases issued by Collins & Aikman Corporation and (iii) all notices delivered pursuant to clauses (a)(ii), (iv) and (v) above. 5.12 Obligations with Respect to Obligors and Receivables. Take all actions on its part reasonably neces- sary to maintain in full force and effect its material rights under all contracts relating to the Purchased Receiv- ables. 5.13 Responsibilities of the Sellers. Notwith- standing anything herein to the contrary, (i) each Seller shall perform or cause to be performed all its obligations under the Policies related to the Purchased Receivables to the same extent as if such Purchased Receivables had not been transferred to the Company hereunder, (ii) the exercise by the Company of any of its rights hereunder shall not relieve any Seller of its obligations with respect to such Purchased Receivables and (iii) except as provided by law, the Company shall not have any obligation or liability with respect to any Purchased Receivables, nor shall the Company be obligated to perform any of the obligations or duties of any Seller thereunder. 5.14 Further Action. In addition to the foregoing: (a) Each Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable in such Seller's reasonable judgment or that the Company may reasonably request, in order to more fully effect the purposes of this Agreement and the transfer of the Receivables hereunder, to protect or more fully evidence the Company's right, title and interest in the Purchased Receivables, or to enable the Company to exercise or enforce any of its rights in respect -29- thereof. Without limiting the generality of the foregoing, each Seller will upon the request of the Company and as otherwise necessary to fully effect the purposes of this Agreement (i) execute and file such financing, financing change or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or, in the opinion of the Company, advisable, (ii) indicate on its books and records that the Purchased Receivables have been purchased by the Company and that the Company has sold an interest therein pursuant to the Pooling Agreement and, subsidiarily, has granted a security interest therein in the Company's retained interest, and provide to the Company, upon request, copies of any such records, and (iii) obtain the agreement of any Person having a Lien on any Receivables owned by any Seller (other than any Lien created or imposed hereunder or under the Pooling Agreement or any Permitted Lien) and take any steps necessary to release such Lien upon the purchase of any such Receivables by the Company. (b) Each Seller hereby irrevocably authorizes the Company to file one or more financing or continuation statements (and other similar instruments), and amendments thereto, relative to all or any part of the Purchased Receivables and the Related Property sold or to be sold by such Seller without the signature of such Seller to the extent permitted by applicable law. (c) If any Seller fails to perform any of its agreements or obligations under this Agreement, the Company may (but shall not be required to) perform, or cause performance of, such agreements or obligations, and the expenses of the Company incurred in connection therewith shall be payable by such Seller as provided in Section 9.3. (d) Each Seller agrees that, upon the occurrence and during the continuation of a Purchase Termination Event or a Servicer Default: (i) the Company (and its assignees) shall have the right at any time to notify, or require that any Seller at such Seller's expense notify, the respective Obligors of the Company's ownership of the Purchased Receivables and Related Property and may direct that payment of all amounts due or to become due under the Purchased Receivables be made directly to the Company or its designee (and the Company shall notify each Rating Agency of such action); (ii) the Company (and its assignees) shall have the right to (A) sue for collection on any Purchased Receivables or (B) sell any Purchased Receivables to any Person for a price that is acceptable to the -30- Company pursuant to the Pooling Agreement. If required by the terms of Section 9-504 or 9-505 of the UCC (or analogous provisions of any other similar law applicable to the Receivables), the Company (and its assignees) may offer to sell any Purchased Receivable to any Person, together, at its option, with all other Purchased Receivables created by the same Obligor. Any Purchased Receivable sold hereunder (other than pursuant to the Pooling Agreement) shall cease to be a Receivable for all purposes under this Agreement as of the effective date of such sale; (iii) each Seller shall, upon the Company's written request and at such Seller's expense, (A) assemble all such Seller's documents, instruments and other records (including credit files and computer tapes or disks) that (1) evidence or will evidence or record Receivables sold by such Seller and (2) are otherwise necessary or desirable to effect Collections of such Purchased Receivables (collectively, the "Documents") and (B) deliver the Documents to the Company or its designee at a place designated by the Company. In recognition of each Seller's need to have access to any Documents which may be transferred to the Company hereunder, whether as a result of its continuing business relationship with any Obligor for Receivables purchased hereunder or as a result of its responsibilities as Servicer, the Company hereby grants to the applicable Seller an irrevocable license to access the Documents transferred by such Seller to the Company and to access any such transferred computer software in connection with any activity arising in the ordinary course of such Seller's business or in performance of such Seller's duties as Servicer, provided that such Seller shall not disrupt or otherwise interfere with the Company's use of and access to the Documents and its computer software during such license period; (iv) each Seller hereby grants to the Company an irrevocable power of attorney (coupled with an interest) to take any and all steps in such Seller's name necessary or desirable, in the reasonable opinion of the Company, to collect all amounts due under the Purchased Receivables, including, without limitation, endorsing such Seller's name on checks and other instruments representing Collections, enforcing the Purchased Receivables and exercising all rights and remedies in respect thereof; and (v) upon written request of the Company, each Seller will (A) deliver to the Company all licenses, -31- rights, computer programs, related material, computer tapes, disks, cassettes and data necessary to the immediate collection of the Purchased Receivables by the Company, with or without the participation of any Seller (excluding software licenses which by their terms are not permitted to be so delivered, provided that such Seller shall use its reasonable efforts to obtain the consent of the relevant licensor to such delivery) and (B) make such arrangements with respect to the collection of the Purchased Receivables as may be reasonably required by the Company. 5.15 Certain Procedures. Each Seller shall take, or refrain from taking, as the case may be, all actions that are necessary to be taken or not taken in order to (a) ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to such Seller and (b) comply with those procedures described in such provisions which are applicable to such Seller. ARTICLE VI NEGATIVE COVENANTS Each Seller hereby agrees that, so long as there are any amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company or until an Early Termination with respect to such Seller, whichever is later, such Seller shall not, directly or indirectly: 6.1 Liens. Except as otherwise herein provided, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Receivables or Related Property, or assign any right to receive proceeds in respect thereof except for Liens created or imposed hereunder or under the Pooling Agreement. 6.2 Extension or Amendment of Receivables. Extend, make any Dilution Adjustment to, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, amend or otherwise modify, the terms of any Purchased Receivables, except (a) in accordance with the terms of the Policies, (b) as required by any Requirement of Law or (c) in the case of Dilution Adjustments, upon making a Seller Adjustment Payment pursuant to Section 2.5, provided that the applicable Servicer may cause Receivables to become Charge-Offs. -32- 6.3 Change in Payment Instructions to Obligors. Except as otherwise provided in Section 5.14, instruct any Obligor of any Purchased Receivables to make any payments with respect to any Receivables other than, in accordance with Section 5.10, to a Lockbox, a Lockbox Account or by wire transfer to the applicable Collection Account; provided further, that, in accordance with Section 2.3 of the Servicing Agreement, (i) it may terminate any Lockbox Agreements or Lockbox Accounts and (ii) it may execute additional Lockbox Agreements or Lockbox Accounts and instruct Obligors to make payments in respect of any Receivables to such additional accounts. 6.4 Change in Name. Change its name, identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) relating to this Agreement seriously misleading within the meaning of Section 9-402(7) of the UCC, or impair the perfection of the Company's interest in any Receivable under any other similar law, without 30 days' prior written notice to the Company. 6.5 Policies. Make any change or modification (or permit any change or modification to be made) in any material respect to the Policies, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be expected to have a material adverse effect on the interests of the Company or the collectibility of the Receivables or (iii) if the Rating Agency Condition is satisfied with respect thereto; provided, however, that if any change or modification, other than a change or modification permitted pursuant to clause (i) or (ii) above, would reasonably be expected to have a material adverse effect on the interests of the Investor Certificateholders of a Series which is not rated by a Rating Agency, the consent of the applicable Agent shall be required to effect such change or modification. The applicable Seller shall provide notice to each Rating Agency of any modification to the Policies. 6.6 Modification of Ledger. Delete or otherwise modify the marking on the ledger referred to in Section 5.7. 6.7 Business of the Sellers. (a) Engage at any time in any business or business activity other than the business currently conducted by it and business activities reasonably incidental or related thereto or (b) fail to maintain and operate such business in substantially the manner in which it is presently conducted and operated if such failure would materially adversely affect the interests of the Company under the Transaction Documents. -33- 6.8 Accounting of Purchases. Prepare any finan- cial statements which shall account for the transactions contemplated hereby (other than capital contributions, the Subordinated Notes and the Parent Note contemplated hereby) in any manner other than as sales of the Purchased Receivables by such Seller to the Company or in any other respect account for or treat the transactions contemplated hereby (including for accounting purposes and, where taxes are not consolidated, for tax reporting purposes, except as required by law) (other than capital contributions, the Subordinated Notes and the Parent Note contemplated hereby) in any manner other than as sales of the Purchased Receivables by such Seller to the Company. 6.9 Instruments. Take any action to cause any Receivable to be evidenced by any instrument (as defined in the UCC as in effect in the State of New York or other similar statute or legislation) or any title in bearer form except in connection with the enforcement or collection of a Receivable. 6.10 Ineligible Receivables. Without the prior written approval of the Company, take any action to cause, or which would permit, an Eligible Receivable to cease to be an Eligible Receivable, except as otherwise expressly provided by this Agreement. ARTICLE VII PURCHASE TERMINATION EVENTS If any of the following events (herein called "Purchase Termination Events") shall have occurred and be continuing: (a) any Seller shall fail (i) to pay any amount due pursuant to Section 2.6 in accordance with the provisions thereof and such failure shall continue unremedied for a period of five Business Days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge of such failure and (B) the date such Seller receives notice of such failure from the Company, the Master Servicer or the Trustee or (ii) to pay any other amount required to be paid by such Seller hereunder within two Business Days of the date when due; or (b) any Seller shall fail to observe or perform in any material respect any covenant or agreement applicable to it contained herein (other than as specified in paragraph (a) of this Article VII), provided that no such failure shall constitute a Purchase Termination Event under -34- this paragraph (b) unless such failure shall continue unremedied for a period of 30 consecutive days from the date such Seller receives notice of such failure from the Company, the Master Servicer or the Trustee; or (c) any representation, warranty, certification or statement made or deemed made by any Seller in this Agreement or in any statement, record, certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been false or misleading in any material respect on or as of the date made or deemed made, provided, that a Purchase Termination Event shall not be deemed to have occurred under this paragraph (c) based upon a breach of any representation or warranty set forth in Section 4.2 if the Sellers shall have complied with the provisions of Section 2.6 in respect thereof; or (d) (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (x) relief in respect of any Seller or of a substantial part of the property or assets of any Seller under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (y) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Seller or for a substantial part of the property or assets of any Seller or (z) the winding-up or liquidation of any Seller; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (ii) any Seller shall (t) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (u) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (d)(i) above, (v) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Seller or for a substantial part of the property or assets of such Seller, (w) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (x) make a general assignment for the benefit of creditors, (y) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (z) take any action for the purpose of effecting any of the foregoing; or -35- (e) (i) there shall have occurred an Early Amortization Event (other than a Separate VFC Amortization Event) under the Pooling Agreement or any Supplement thereunder or the commencement of the Amortization Period under any Supplement (other than as a result of a Separate VFC Amortization Event) or (ii) any Seller has been terminated as a Servicer following a Servicer Default with respect to such Seller under the Servicing Agreement; then, (x) in the case of any Purchase Termination Event described in paragraph (d) above with respect to any Seller, automatically the obligation of the Company to purchase Receivables from such Seller shall thereupon terminate without notice of any kind, which is hereby waived by the Sellers, (y) in the case of a Purchase Termination Event described in paragraph (e)(i), automatically the obligations of the Company to purchase Receivables from any and all Sellers shall terminate without notice of any kind which is waived by the Sellers; provided that the Company and the Master Servicer, upon written notice to the Sellers, may waive such Purchase Termination Event and (z) in the case of any Purchase Termination Event, so long as such Purchase Termination Event shall be continuing, the Company may terminate its obligation to purchase Receivables from any or all of the Sellers by written notice to each such Seller (any termination pursuant to clause (x), (y) or (z) of this Article VII which affects a Seller is herein called an "Early Termination" with respect to such Seller); provided, however, in the event of an involuntary proceeding or petition as described in clause (d)(i) above, the Company shall not purchase Receivables from such Seller until such time, if any, as such involuntary petition or proceeding has been dismissed, provided that such dismissal shall have occurred within 60 days of the filing of such petition or the commencement of such proceeding. ARTICLE VIII THE SUBORDINATED NOTES; PARENT NOTE 8.1 Subordinated Notes. On the initial Effective Date, the Company shall issue to the Sellers (i) a subordinated note substantially in the form of Exhibit A (the "U.S. Dollar Subordinated Note") and (ii) a subordinated note substantially in the form of Exhibit B (the "Canadian Dollar Subordinated Note"; each, a "Subordinated Note" and collectively, the "Subordinated Notes"). The aggregate principal amount of the Subordinated Notes at any time shall be equal to the difference between (a) the aggregate principal amount on the issuance thereof -36- and each addition to the principal amount of each Subordinated Note with respect to each Seller pursuant to the terms of Section 2.3 minus (b) the aggregate amount of all payments made in respect of the principal of the Subordinated Notes. All payments made in respect of the Subordinated Notes shall be allocated among the Sellers by the Master Servicer. Each Seller's interest in the Subordinated Notes shall equal the sum of each addition thereto allocated to such Seller pursuant to subsection 2.3(c) less the sum of each repayment thereof allocated to such Seller. Interest on the principal amount of each Subordinated Note shall accrue at One-Month LIBOR plus 1.75% from and including the initial Effective Date and shall be paid on each Distribution Date with respect to amounts accrued and not paid as of the last day of the preceding Settlement Period and the maturity date thereof; provided, however, that accrued interest on a Subordinated Note which is not so paid may be added to the principal amount of such Subordinated Note. Principal not prepaid pursuant to the terms hereof and of the other Sale Documents shall be payable on the maturity date thereof. Default in the payment of principal or interest under either Subordinated Note shall not constitute a default or event of default or a Purchase Termination Event hereunder, a Servicer Default under any Servicing Agreement or an Early Amortization Event (other than a Separate VFC Amortization Event) under the Pooling Agreement or any Supplement thereto. The maturity date for the Subordinated Notes shall be no earlier than one year and one day after the later of (i) the last day of the Series 1 Amortization Period and (ii) the last day of the VFC Amortization Period. 8.2 Restrictions on Transfer of Subordinated Notes. Neither any Subordinated Note, nor any right of any Seller to receive payments thereunder, shall be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. 8.3 Parent Note. On the date hereof, the Company shall issue to C&A Products a subordinated note substantially in the form of Exhibit C (the "Parent Note"). The aggregate principal amount of the Parent Note at any time shall be equal to the difference between (a) the aggregate principal amount of each loan by C&A Products to the Company pursuant to the terms of Section 2.3 minus (b) the aggregate amount of all payments made to C&A Products in respect of the principal of such Parent Note. Interest on the principal amount of the Parent Note shall accrue at One-Month LIBOR plus 1.75% from and including the initial Effective Date and shall be paid on each Distribution Date with respect to amounts accrued and not paid as of the last day of the preceding Settlement Period -37- and the maturity date thereof; provided, however, that accrued interest on the Parent Note which is not so paid may be added to the principal amount of the Parent Note. Principal not prepaid pursuant to the terms hereof and of the other Sale Documents shall be payable on the maturity date thereof. Default in the payment of principal or interest under the Parent Note shall not constitute a default or event of default or a Purchase Termination Event under this Agreement, a Servicer Default under a Servicing Agreement or an Early Amortization Event (other than a Separate VFC Amortization Event) under the Pooling Agreement or any Supplement thereto. The maturity date for the Parent Note shall be no earlier than one year and one day after the later of (i) the last day of the Series 1 Amortization Period and (ii) the last day of the VFC Amortization Period. 8.4 Restrictions on Transfer of Parent Note. Neither the Parent Note, nor any right of any Seller to receive payments thereunder, shall be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. ARTICLE IX MISCELLANEOUS 9.1 Further Assurances. (a) Each Seller agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably required or requested by the Company more fully to effect the purposes of this Agreement and the sales of the Receivables hereunder, including, without limitation, the execution of any financing statements or continuation statements (and other similar instruments) relating to the Receivables for filing under the provisions of the UCC (or any other similar law) of any applicable jurisdiction. (b) From time to time at the request of a Seller, the Company shall deliver to such Seller such documents, assignments, releases and instruments of termination as such Seller may reasonably request to evidence the reconveyance by the Company to such Seller of a Receivable pursuant to the terms of subsection 2.1(b) or Section 2.6, provided that the Company shall have been paid all amounts due thereunder; and the Company and the Master Servicer shall take such action as such Seller may reasonably request, at the expense of such Seller, to assure that any such Receivable, the Related Property with respect thereto and the proceeds thereof do not remain commingled with Collections hereunder. -38- 9.2 Payments. Each cash payment to be made by any of the Company or the Sellers hereunder shall be made on the required payment date and in immediately available funds at the office of the payee set forth below its signature hereto or to such other office as may be specified by either party in a notice to the other party hereto and (i) with respect to payments on account of Receivables denominated in Canadian Dollars, in Canadian Dollars except to the extent provided otherwise in Article II hereof and (ii) in all other cases, in U.S. Dollars. 9.3 Costs and Expenses. The Sellers, jointly and severally, agree (a) to pay or reimburse the Company for all its out-of-pocket costs and expenses incurred in connection with the preparation and execution of, and any amendment, supplement or modification to, this Agreement, the other Sale Documents and any other documents prepared in connection herewith and therewith, the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, all reasonable fees and disbursements of counsel, (b) to pay or reimburse the Company for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any of the other Transaction Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Company, (c) to pay, indemnify, and hold the Company harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay caused by the Seller in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents, (d) to pay, indemnify, and hold the Company harmless from, any and all Canadian withholding taxes which may be imposed in respect of the Receivables or in connection with the Sale Transactions and (e) to pay, indemnify, and hold the Company harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (i) which may at any time be imposed on, incurred by or asserted against the Company in any way relating to or arising out of this Agreement or the transactions contemplated hereby or in connection herewith or any action taken or omitted by the Company under or in connection with any of the foregoing (all such other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements -39- being herein called "Indemnified Liabilities") or (ii) which would not have been imposed on, incurred by or asserted against the Company but for its having purchased the Receivables hereunder, provided, that such indemnity shall not be available to the extent that such Indemnified Liabilities are determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Company, and provided, further, that the Sellers shall have no obligation under this Section 9.3 to the Company with respect to Indemnified Liabilities arising from (i) any action taken, or omitted to be taken, by a Servicer which is not an Affiliate of the Sellers, (ii) any Eligible Receivable which becomes a Charge-Off as a result of non-payment by the Obligor with respect thereto or (iii) any action taken by the Trustee or the Company at the direction of the Trustee in collecting from an Obligor. The agreements in this Section 9.3 shall survive the collection of all Receivables, the termination of this Agreement and the payment of all amounts payable hereunder. 9.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Sellers and the Company and their respective successors (whether by merger, consolidation or otherwise) and assigns. Subject to satisfaction of the Rating Agency Condition, each Seller agrees that it will not assign or transfer all or any portion of its rights or obligations hereunder without the prior written consent of the Company. The Sellers acknowledge that the Company shall assign all of its rights hereunder to the Trustee. Each Seller consents to such assignment and agrees that the Trustee, to the extent provided in the Pooling Agreement, shall be entitled to enforce the terms of this Agreement and the rights (including, without limitation, the right to grant or withhold any consent or waiver) of the Company directly against such Seller, whether or not a Purchase Termination Event or a Potential Purchase Termination Event has occurred. Each Seller further agrees that, in respect of its obligations hereunder, it will act at the direction of and in accordance with all requests and instructions from the Trustee until all amounts due to the Investor Certificateholders are paid in full. The Trustee, on behalf of the Investor Certificateholders, shall have the rights of a third-party beneficiary under this Agreement. 9.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. -40- 9.6 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Company, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. 9.7 Amendments and Waivers. Subject to satisfaction of the Rating Agency Condition, neither this Agreement nor any terms hereof may be amended, supplemented or modified except in a writing signed by the Company and any affected Seller; provided that there shall be no need to satisfy the Rating Agency Condition with respect to any amendment to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions to or change in any manner or eliminate any of the provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with this Agreement. Notice of any such amendment shall be provided to each Rating Agency. 9.8 Severability. Any provision of this Agreement 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, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.9 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Company and C&A Products, and as set forth on Schedule 1 hereof in the case of the Sellers, or to such other address as may be hereafter notified by the respective parties hereto: -41- The Company: Carcorp, Inc. P.O. Box 50102 Henderson, Nevada 89106 Attention: President Telecopier: (702) 598-3651 C&A Products: Collins & Aikman Products Co. 701 McCullough Drive Charlotte, North Carolina 28262 Attention: Assistant Treasurer Telecopier: (704) 548-2314 with a copy to Trustee: Chemical Bank, as Trustee 450 West 33rd Street 15th Floor New York, New York 10001 Attention: Structured Finance Services - ABS Telecopier: (212) 946-3916 9.10 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company. 9.11 Construction of Agreement as Security Agreement. (a) The parties to this Agreement intend that the transactions contemplated hereby shall be, and shall be treated as, a purchase by the Company and a sale by the applicable Seller of the Purchased Receivables and Related Property with respect thereto and not as a lending transaction. If, however, notwithstanding the intent of the parties, such transactions are deemed to be loans, each Seller hereby grants to the Company a first priority security interest in all of such Seller's right, title and interest in, to and under (i) all Receivables then or now existing, as the case may be, and thereafter or hereafter arising, as the case may be, from time to time, (ii) all payment and enforcement rights (but none of the obligations) with respect to such Receivables, (iii) all Related Property in respect of such Receivables, (iv) all Collections with respect to (i), (ii) and (iii) and (v) for more certainty, the universality of all present and future assets listed in (i), (ii), (iii) and (iv) including all proceeds and -42- payments in respect of any and all of the foregoing clauses (including proceeds that constitute property of the types described in said clauses and including Collections), to secure all such Seller's obligations hereunder and agrees to take such reasonable steps as are necessary to perfect such security interest. (b) This Agreement shall constitute a security agreement under applicable law. 9.12 Waivers of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER SALE DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREE- MENT AND THE OTHER SALE DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.12. 9.13 Jurisdiction; Consent to Service of Process. (a) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER SALE DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE COMPANY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE OTHER SALE DOCUMENTS AGAINST ANY SELLER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. (b) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT THEY MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS -43- AGREEMENT OR THE OTHER SALE DOCUMENTS IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (c) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.9. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 9.14 Addition of Sellers. Subject to Section 3.4 hereof and the terms and conditions of this Section 9.14, from time to time one or more additional Subsidiaries (whether now owned or hereafter acquired) of C&A Products may become Sellers hereunder and parties hereto. If any such Subsidiary wishes to become an additional Seller, it shall submit a request to such effect in writing to the Company. The Company, in its sole and absolute discretion, may agree to or deny any such request, provided that, if the Company shall have failed to respond to any such request within 30 days after receipt thereof, such request shall be deemed to have been denied. If the Company shall have agreed to any such request, such Subsidiary shall become an additional Seller hereunder and a party hereto on the related Seller Addition Date upon satisfaction of the conditions set forth in Section 3.4. 9.15 Optional Termination of a Seller. (a) Any Seller may be terminated as a Seller hereunder on the date such Seller ceases to be a wholly owned direct or indirect Subsidiary of C&A Products, provided (i) that if the aggregate outstanding Principal Amount of Purchased Receivables sold by all Sellers which so cease to be wholly owned Subsidiaries at such time (together with the aggregate outstanding Principal Amount of Purchased Receivables sold by all Sellers which have been terminated pursuant to this Section 9.15 within the preceding 90 days) (x) exceeds 10% of the aggregate outstanding Principal Amount of all Purchased Receivables, the Rating Agency Condition shall have been satisfied and (y) is equal to or less than 10% of the aggregate outstanding Principal Amount of all Purchased Receivables either (A) the Rating Agency Condition shall have been satisfied or (B) the Seller Termination Condition shall have been satisfied and (ii) that no Purchase Termination Event or Potential Purchase Termination Event has occurred and is continuing, or would occur as a result thereof. From and after the date any such Seller ceases to be a wholly owned Subsidiary of C&A Products, the Company shall cease buying Receivables and -44- Related Property from such Seller. Each such Seller shall be released as a Seller party hereto for all purposes and shall cease to be a party hereto on the date on which there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company, whether such amounts have been repurchased, collected or written off in accordance with the Policies. Prior to such date, such Seller shall be obligated to perform its servicing and other obligations hereunder and under the Transaction Documents to which it is a party with respect to Purchased Receivables previously sold by such Seller to the Company, including, without limitation, its obligation to have directed Obligors to remit and deposit Collections into the appropriate Lockboxes. To satisfy the "Seller Termination Condition," in connection with the optional termination of a Seller hereunder, the Master Servicer shall recalculate each of the Monthly Settlement Statements prepared for the preceding 12 Settlement Periods (or such lesser number of Settlement Periods as have elapsed since the Initial Closing Date), without giving effect to the Receivables generated by such terminated Seller and, if any one or more recalculated Monthly Settlement Statements indicate that the Series 1 Target Receivables Amount would have exceeded the Series 1 Allocated Receivables Amount (such excess, the "Recalculated Deficiency") for the applicable Settlement Period, the Master Servicer shall advise the Trustee of the highest resulting Recalculated Deficiency; thereafter, the Company shall be required to effect a Reduction in an amount at least equal to such highest Recalculated Deficiency in the manner provided for in Section 2.7 of the Series 1 Supplement. Further, all future Monthly Settlement Statements, shall be prepared without giving effect to the Receivables generated by such terminated Seller. (b) From time to time the Sellers, or the Master Servicer on behalf of the Sellers, may request in writing that the Company designate one or more Sellers as Sellers that shall cease to be parties to this Agreement; provided that no Purchase Termination Event or Potential Purchase Termination Event has occurred and is continuing, or would occur as a result thereof; and provided further, that the Rating Agency Condition shall have been satisfied. Any such request shall specify the minimum aggregate Principal Amount of outstanding Purchased Receivables to have been sold by the Sellers to be so designated by the Company. The Company, in its sole and absolute discretion, shall, within 45 days of receipt of such request, select the Sellers to be so terminated, provided that the aggregate Principal Amount of outstanding Purchased Receivables previously sold by such Sellers shall be substantially equal to the Principal Amount -45- specified in such request. Promptly after receipt of any such designation by the Company, the Sellers shall either (i) elect not to terminate such designated Sellers or (ii) select a date, which date shall not be later than 30 days after the date of receipt of such designation, as the "Sale Termination Date" for such designated Sellers. From and after such date, the Company shall cease buying Receivables and Related Property from such Sellers. Each such Seller shall be released as a Seller hereunder for all purposes and shall cease to be a party hereto on the date on which there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company, whether such amounts have been repurchased in the manner provided in clause (a) above, collected or written off in accordance with the Policies. Prior to such date, such Seller shall be obligated to perform its servicing and other obligations hereunder and under the Transaction Documents to which it is a party with respect to Purchased Receivables previously sold by such Seller to the Company, including, without limitation, its obligation to deposit Collections into the appropriate Lockboxes. (c) A terminated Seller shall have no obligation to repurchase any Receivables other than Receivables previously sold by it to the Company which are subject to a Repurchase Event. 9.16 No Bankruptcy Petition. Each Seller and C&A Products by entering into this Agreement, and any present or future holder of a Subordinated Note or Parent Note, by its acceptance thereof, covenants and agrees that, prior to the date which is one year and one day after the later of (i) the last day of the Series 1 Amortization Period and (ii) the last day of the VFC Amortization Period, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. 9.17 Termination. This Agreement will terminate at such time as (a) the commitment of the Company to purchase Receivables from all Sellers hereunder shall have terminated and (b) all Receivables purchased hereunder have been collected, and the proceeds thereof turned over to the Company and all other amounts owing to the Company hereunder shall have been paid in full or, if Receivables sold hereunder have not been collected, such Receivables have become Defaulted Receivables and the Company shall have completed its collection efforts in respect thereto; provided, however, that the indemnities of the Sellers to the Company set forth in this Agreement shall survive such -46- termination and provided further, that, to the extent any amounts remain due and owing to the Company hereunder, the Company shall remain entitled to receive any collections on Receivables sold hereunder which have become Defaulted Receivables after it shall have completed its collection efforts in respect thereof. 9.18 Confidentiality. The Company agrees to keep strictly confidential all non-public information provided to it by each Seller pursuant to this Agreement, and shall not, without the prior written consent of the relevant Seller, disclose in any manner whatsoever, in whole or in part, and shall not use in any way other than for the purposes of this Agreement any such non-public information provided to it; provided that nothing herein shall prevent the Company from disclosing any such information (i) to the Trustee, (ii) if such information consists of any Monthly Settlement Statement, any financial statements of the Company, C&A Products or Collins & Aikman Corporation, any public filings of Collins & Aikman Corporation, any Annual Master Servicer's Certificate, any independent accountant's letter or any other information required to be delivered pursuant to Rule 144A under the Securities Act, to any Investor Certificateholder or any prospective Investor Certificateholder, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors in connection with the foregoing, (iv) upon the request or demand of any Governmental Authority having jurisdiction over the Company or any Investor Certificateholder (provided that notice of such request or demand shall be furnished to the affected Seller a reasonable time prior to the time for compliance therewith unless such notice is legally prohibited or such Governmental Authority requests that such notice not be furnished to the Seller), (v) in response to any order of any court or other Governmental Authority or as may otherwise be required of the Company or any Investor Certificateholder pursuant to any Requirement of Law (provided that notice of such order or requirement shall be furnished to the affected Seller a reasonable time prior to the time for compliance therewith unless such notice is legally prohibited or such court or Governmental Authority requests that such notice or requirement not be furnished to the Seller), (vi) which has been publicly disclosed other than in breach of this Agreement or (vii) in connection with the collection of any Purchased Receivable or the exercise of any remedy hereunder or under the Pooling Agreement. -47- 9.19 Conversion of Currencies. If, for the purposes of obtaining judgment in any court or tribunal with respect to any party hereto, it is necessary to convert any amount due under this Agreement in U.S. Dollars into Canadian Dollars, then the conversion shall be made at the Canadian Exchange Percentage on the day on which the judgment is given. In the event that the Canadian Exchange Percentage prevailing on the date of payment is different from the first-mentioned Canadian Exchange Percentage, such party shall pay such additional amount (if any) as may be necessary to ensure that the amount paid on such date of payment is the amount in such other currency which when converted at the Canadian Exchange Percentage prevailing on the date of payment is the amount then due under this Agreement in the currency in which it is due, together with all costs, charges and expenses of conversion. Any amount due from such party under this Section 9.19 shall be due as a separate obligation and shall not be affected by judgment being obtained for any other sum due under or in respect of this Agreement. 9.20 Taxes and Deductions. (a) Any and all payments to be made by a Seller or a Servicing Party under this Agreement shall be made in full, without set-off or counterclaim, and free of and without deduction or withholding for or on account of any present or future Canadian taxes of any nature whatsoever imposed or levied upon or in respect of any such payments, provided that if the Seller, a Servicing Party or the Company shall be required by law to deduct or withhold any Canadian taxes from or in respect of any such payment, then: (i) the payment or sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this subsection 9.20(a)) the recipient of such payment shall receive an amount equal to the amount it would have received if no deduction or withholding had been made; and (ii) such Seller, Servicing Party or the Company as the case may be, shall pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable law. (b) The parties hereto hereby agree that, in conformity with the Excise Tax Act (Canada) and any provincial sales tax legislation, the Canadian Seller is the only person obliged in respect of the Receivables to remit any Canadian goods and services tax and Canadian provincial -48- sales taxes and to file any returns in respect of such taxes with Canadian tax authorities. The parties hereto further agree that the Company does not assume in any manner whatsoever any obligation of the Canadian Seller to collect such taxes, make such remittances and file such returns, and that it is not contemplated by the parties that any such obligation is hereby assumed by the Company. The Canadian Seller hereby indemnifies the Company and holds it harmless from and against any assessments, claims or other demands for payment of such taxes by Canadian tax authorities, as well as interest and penalties. It is understood that all of the Canadian Seller's invoices in respect of its Receivables will bear the Canadian Seller's GST registration number. 9.21 Payments by Company. Whenever any provision in the Transaction Documents permits or obligates the Company to make a payment in cash, failure to make such payment shall not constitute a breach by the Company giving rise to any actionable claim against the Company to the extent that the Company has insufficient funds to make such payments from amounts properly distributed to the Company pursuant to the Pooling Agreement and any Supplement. The foregoing sentence shall not in any manner limit the ability of the Company to increase the principal amounts outstanding under the Subordinated Notes and the Parent Note in accordance with the terms of this Agreement. -49- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. COLLINS & AIKMAN PRODUCTS CO., as Master Servicer By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer CARCORP, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Secretary and Treasurer The Sellers: COLLINS & AIKMAN PRODUCTS CO. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer COLLINS & AIKMAN FLOOR COVERINGS, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller and Assistant Treasurer ACK-TI-LINING, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller and Assistant Treasurer WCA CANADA INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Agent -50- IMPERIAL WALLCOVERINGS, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Acting Chief Financial Officer THE AKRO CORPORATION By: Anthony Hardwick Name: Anthony Hardwick Title: Acting Chief Financial Officer DURA CONVERTIBLE SYSTEMS, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President -51-
Jurisdiction of Seller Incorporation Location of Chief Executive Office Office Where Records are Kept Ack-Ti-Lining, Inc. New York 210 Madison Avenue, 6th Floor, New 701 McCullough Drive, Charlotte, NC York, NY 10016 28262 The Akro Corporation Delaware 1212 7th Street SW, P.O. Box 8650, 701 McCullough Drive, Charlotte, NC Canton, OH 44711 28262 Collins & Aikman Products Delaware 701 McCullough Drive, Charlotte, NC 701 McCullough Drive, Charlotte, NC Co. 28262 28262 Collins & Aikman Floor Delaware 1735 Cleveland Road, Dalton, GA 30721 701 McCullough Drive, Charlotte, NC Coverings, Inc. 28262 Dura Convertible Systems, Delaware 1365 East Beecher Street, Adrian, MI 701 McCullough Drive, Charlotte, NC Inc. 49221 28262 Imperial Wallcoverings, Delaware 23645 Mercantile Road, Beachwood, OH 23645 Mercantile Road, Beachwood, OH Inc. 44122 44122 WCA Canada Inc. Ontario 150 Collins Street, Farnham, Quebec, 150 Collins Street, Farnham, Quebec, Canada J2N 2R6 Canada J2N 2R6
The legal head office of WCA Canada Inc. is c/o Stikeman, Elliott, Commerce Court West, 53rd Floor, P.O. Box 85, Toronto, Ontario, Canada M5L 1B9. SCHEDULE 2 LOCKBOXES SCHEDULE 3 DISCOUNTED PERCENTAGE The "Discounted Percentage" applicable to the Receivables purchased on any date shall equal the percentage obtained from the following formula: 100% - (A + B + C + D) all determined by the Company as of the related Payment Date, Where: A = Adjusted Loss Reserve Percentage, which as of such Payment Date will equal the ratio obtained by dividing (a) Charge- Offs (net of recoveries in respect of Charge-Offs) with respect to such Seller during the twelve-fiscal-month period immediately preceding the Distribution Date most recently preceding such Payment Date by (b) four times the aggregate amount of Collections during the three-fiscal-month period most recently preceding the Distribution Date most recently preceding such Payment Date with respect to Receivables originated by such Seller; B = Adjusted Yield Reserve Percentage, which as of such Payment Date will equal the amount obtained by dividing (a) the product of (i) 1.5, (ii) Days Sales Outstanding and (iii) the Adjusted Discount Rate by (b) 360; C = Servicing Reserve Percentage, which as of such Payment Date will equal 0.25%; and D = Processing Expense Reserve Percentage, which will equal 1/2% and reflects the cost of the Company's overhead, including costs of processing the purchase of Receivables and other normal operating costs and a reasonable profit margin. None of the elements of the above-referenced formula, in respect of any purchase of Receivables, will be adjusted following the related Payment Date. "Adjusted Discount Rate" means as of such Payment Date the sum of (a) the weighted average of (i) the weighted average rate of interest payable to the Investor Certificateholders with respect to the Aggregate Adjusted Invested Amount and (ii) the rate of interest payable to the Sellers with respect to the outstanding principal amount of the Subordinated Notes, to the Parent in respect of the Parent Note in each case as such rates are in effect as at the end of the fiscal month immediately preceding the Distribution Date most recent to such Payment Date and (b) the amount obtained by dividing (i) the aggregate amount of fees (other than the Monthly Servicing Fee) accrued pursuant to the Transaction Documents during the fiscal month immediately preceding the Distribution Date most recent to such Payment Date by (ii) the average outstanding Principal Amount of the Receivables during such fiscal month. With respect to each calculation set forth above with respect to a Distribution Date, such calculation as calculated on each Settlement Report Date and included in the applicable Monthly Settlement Statement shall remain in effect from and including the related Distribution Date to but excluding the following Distribution Date. SCHEDULE 4 TAX MATTERS EX-10 6 EXHIBIT 10.19 EXECUTION COPY CARCORP, INC., COLLINS & AIKMAN PRODUCTS CO., as Master Servicer, ITS WHOLLY OWNED SUBSIDIARIES NAMED HEREIN, as Servicers and CHEMICAL BANK, as Trustee SERVICING AGREEMENT Dated as of March 30, 1995 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . . 1 1.1. Definitions . . . . . . . . . . . . . . . . . . 1 1.2. Other Definitional Provisions . . . . . . . . . 1 ARTICLE II ADMINISTRATION AND SERVICING OF RECEIVABLES . . . . . . . . . . 2 2.1. Appointment of Master Servicer and Servicers . . . . . . . . . . . . . . . . . 2 2.2. Servicing Procedures . . . . . . . . . . . . . 2 2.3. Collections . . . . . . . . . . . . . . . . . . 5 2.4. Reconciliation of Deposits . . . . . . . . . . 6 2.5. Servicing Compensation . . . . . . . . . . . . 7 2.6. Addition of Servicers . . . . . . . . . . . . . 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE MASTER SERVICER AND THE SERVICERS . . . . 9 3.1. Corporate Existence; Compliance with Law . . . 9 3.2. Corporate Power; Authorization . . . . . . . . 9 3.3. Enforceability . . . . . . . . . . . . . . . . 9 3.4. No Legal Bar . . . . . . . . . . . . . . . . . 10 3.5. No Material Litigation . . . . . . . . . . . . 10 3.6. No Default . . . . . . . . . . . . . . . . . . 10 3.7. Tax Returns . . . . . . . . . . . . . . . . . . 10 3.8. Servicing Ability . . . . . . . . . . . . . . . 11 3.9. Location of Records . . . . . . . . . . . . . . 11 ARTICLE IV COVENANTS OF THE MASTER SERVICER AND THE SERVICERS . . . . . . . . . . 11 4.1. Servicer Repurchase Payment . . . . . . . . . . 11 4.2. Delivery of Daily Reports . . . . . . . . . . . 12 4.3. Delivery of Monthly Settlement Statement . . . 13 4.4. Delivery of Annual Servicer's Certificate . . . 13 4.5. Delivery of Independent Public Accountants' Servicing Reports . . . . . . . . . . . . . 14 4.6. Extension, Amendment and Adjustment of Receivables; Amendment of and Compliance with Policies . . . . . . . . . . . . . . . 14 4.7. Protection of Certificateholders' Rights . . . 15 4.8. Security Interest . . . . . . . . . . . . . . . 15 - i - Page 4.9. Location of Records . . . . . . . . . . . . . . 16 4.10. Visitation Rights . . . . . . . . . . . . . . 16 4.11. Lockbox Agreement; Lockbox Accounts . . . . . 16 4.12. Instruments . . . . . . . . . . . . . . . . . 17 4.13. Delivery of Financial Statements . . . . . . . 17 4.14. Notices . . . . . . . . . . . . . . . . . . . 18 ARTICLE V OTHER MATTERS RELATING TO THE MASTER SERVICER AND THE SERVICERS . . . . . . 18 5.1. Merger, Consolidation, etc. . . . . . . . . . . 18 5.2. Indemnification of the Trust and the Trustee . . . . . . . . . . . . . . . . . . 18 5.3. Master Servicer Not to Resign . . . . . . . . . 19 5.4. Access to Certain Documentation and Information Regarding the Receivables . . . 19 ARTICLE VI SERVICER DEFAULTS . . . . . . . . . . 20 6.1. Servicer Defaults . . . . . . . . . . . . . . . 20 6.2. Trustee to Act; Appointment of Successor . . . 23 6.3. Waiver of Past Defaults . . . . . . . . . . . . 25 ARTICLE VII MISCELLANEOUS PROVISIONS . . . . . . . . 26 7.1. Amendment . . . . . . . . . . . . . . . . . . . 26 7.2. Termination . . . . . . . . . . . . . . . . . . 26 7.3. Governing Law . . . . . . . . . . . . . . . . . 26 7.4. Notices . . . . . . . . . . . . . . . . . . . . 26 7.5. Counterparts . . . . . . . . . . . . . . . . . 26 7.6. Third-Party Beneficiaries . . . . . . . . . . . 26 7.7. Merger and Integration . . . . . . . . . . . . 26 7.8. Headings . . . . . . . . . . . . . . . . . . . 27 7.9. No Set-Off . . . . . . . . . . . . . . . . . . 27 7.10. No Bankruptcy Petition . . . . . . . . . . . . 27 7.11. Liability of Trustee . . . . . . . . . . . . . 27 - ii - SERVICING AGREEMENT, dated as of March 30, 1995, among Carcorp, Inc., a Delaware corporation (the "Company"), Collins & Aikman Products Co., a Delaware corporation ("C&A Products"), as master servicer (in such capacity, the "Master Servicer"), each of the subsidiaries of C&A Products (whether now owned or hereafter acquired) from time to time parties hereto (each, in such capacity, a "Servicer" (which term shall also include C&A Products in its capacity as a Servicer of Receivables)) and Chemical Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "Trustee"). W I T N E S S E T H : WHEREAS, the Company, the Master Servicer and the Servicers (as Sellers thereunder) have entered into an Amended and Restated Receivables Sale Agreement, dated as of the date hereof (the "Receivables Sale Agreement"); WHEREAS, pursuant to the Receivables Sale Agreement, each Seller party thereto sells to the Company, and the Company purchases from such Seller, all of such Seller's right, title and interest in, to and under the Receivables (as defined in the Pooling Agreement dated as of the date hereof among the Company, the Master Servicer and the Trustee (the "Pooling Agreement")) now existing or hereafter created and in the rights of such Seller in, to and under all Related Property related thereto; WHEREAS, the parties hereto wish to enter into this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. Unless otherwise defined herein, capitalized terms which are used herein shall have the meanings assigned to such terms in Section 1.1 of the Pooling Agreement or the Series 1 Supplement dated as of the date hereof among the Company, the Master Servicer and the Trustee (the "Series 1 Supplement"). 1.2. Other Definitional Provisions. (a) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms relating to any Servicing Party, unless otherwise defined herein, shall have the respective meanings given to them under GAAP. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. ARTICLE II ADMINISTRATION AND SERVICING OF RECEIVABLES 2.1. Appointment of Master Servicer and Servicers. C&A Products agrees to act as the Master Servicer under the Pooling and Servicing Agreements and the Investor Certificateholders by their acceptance of the Certificates consent to C&A Products acting as Master Servicer. The Master Servicer will have responsibility for the management of the servicing and receipt of collections in respect of the Receivables and will have the authority to make any management decisions relating to the Receivables to the extent such authority is granted to the Master Servicer under any Pooling and Servicing Agreement. The Trustee and the Investor Certificateholders shall treat C&A Products as the Master Servicer and may conclusively rely on the instructions, notices and reports of C&A Products as Master Servicer for so long as C&A Products is the Master Servicer. In addition, each Servicer agrees to act as a Servicer under each Pooling and Servicing Agreement and the Investor Certificateholders by their acceptance of the Certificates consent to such Servicer acting as Servicer. Each Servicer will be responsible, as directed by the Master Servicer, for the servicing and administration of the Receivables originated by it. 2.2. Servicing Procedures. (a) The Master Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and charging off any Receivables as uncollectible, all in accordance with the Policies and all the terms of this Agreement. The Master Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, but subject to the terms of this Agreement and the other Transaction Documents. Without limiting the generality of the foregoing and subject to Section 6.1, the Master Servicer or its designee is -2- hereby authorized and empowered (i) to instruct the Trustee to make withdrawals from, and payments to, the Collection Accounts in accordance with the Daily Report as set forth in the Pooling and Servicing Agreements, (ii) to execute and deliver, on behalf of the Trust for the benefit of the Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable Requirements of Law, to commence enforcement proceedings with respect to such Receivables and (iii) to make any filings, reports, notices, applications, registrations with, and to seek any consents or authorizations from the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements or laws. The Master Servicer shall notify any Rating Agency of the appointment of a designee as provided for herein. (b) Each Servicer, including the Master Servicer, will, at its cost and expense and as agent for the Company, the Trustee and the Investor Certificateholders, use its best efforts to collect, consistent with its past practices, as and when the same becomes due, the amount owing on each Receivable for which it is the Servicer. Neither the Master Servicer nor any Servicer will make any material changes that deviate from the Policies in its administrative, servicing and collection systems except as expressly permitted by the terms of any Pooling and Servicing Agreement. In the event of default under any Receivable, the responsible Servicer shall have the power and authority, on behalf of the Trustee for the benefit of the Investor Certificateholders, to take such action in respect of such Receivable as such Servicer may deem advisable. In the enforcement or collection of any Receivable, each Servicer shall be entitled to sue thereon in (i) its own name or (ii) if, but only if, the Company consents in writing (which consent will not be unreasonably withheld), as agent for the Company. In no event shall any Servicing Party be entitled to take any action which would make the Company, the Trustee or the Investor Certificateholders a party to any litigation without the express prior written consent of such Person. (c) Without limiting the generality of the foregoing and subject to Section 6.1, each Servicing Party is hereby authorized and empowered to delegate any or all of its servicing, collection, enforcement and administrative duties hereunder with respect to the Receivables serviced by it to a Person who agrees to conduct such duties in accordance with the Policies; provided, however, that, in the event that such delegation would reasonably be expected to adversely affect the ability of such Servicing Party to perform its obligations in the manner contemplated by any Pooling and Servicing Agreement, or otherwise to have an -3- adverse effect upon the Receivables taken as a whole, such Servicing Party shall give prior written notice to the Trustee, each Agent and the Rating Agencies of any such delegation and prior to such delegation being effective shall have received notice that the Rating Agency Condition shall be satisfied after giving effect to such delegation and the consent of each Agent to any such delegation shall have been obtained. No delegation of duties by a Servicing Party permitted hereunder will relieve such Servicing Party of its liability and responsibility with respect to such duties. (d) Neither any Servicing Party nor any Successor Servicer shall be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables transferred to the Trust from the procedures, offices, employees and accounts used by such Servicing Party or such Successor Servicer, as the case may be, in connection with servicing other receivables. (e) Each Servicing Party shall maintain, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, with broad coverage with responsible companies on all officers, employees or other persons acting on behalf of the Servicing Party in any capacity with regard to the Receivables to handle funds, money, documents and papers relating to the Receivables. Any such fidelity bond and errors and omissions insurance shall protect and insure the Servicing Party against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such persons and shall be maintained in a form and amount that would meet the requirements of prudent institutional receivable servicers. No provision of this subsection 2.2(e) requiring such fidelity bond and errors and omissions insurance shall diminish or relieve the Servicing Party from its duties and obligations as set forth in this Agreement. The Servicing Party shall be deemed to have complied with this provision if one of its respective Affiliates has such fidelity bond and errors and omissions policy coverage and, by the terms of such fidelity bonds and errors and omission policy, the coverage afforded thereunder extends to the Servicing Party. Copies of all such fidelity bonds and insurance policies shall be provided to the Rating Agencies. Upon request of Investor Certificateholders evidencing more than 50% of an Outstanding Series, the Servicing Party shall cause to be delivered to the Trustee a certification evidencing coverage under such fidelity bond and insurance policy. Any such fidelity bond or insurance policy shall not be cancelled or modified in a materially adverse manner without ten days prior written notice to the Rating Agencies unless such fidelity bond or insurance policy is replaced by another fidelity bond or insurance policy that satisfies the requirements of this subsection 2.2(e). -4- (f) Each Servicing Party shall comply with and perform its servicing obligations with respect to the Receivables in accordance with the contracts, if any, relating to the Receivables and the Policies, except insofar as any failure to so comply or perform would not materially and adversely affect the rights of the Trust, the Trustee or the Investor Certificateholders hereunder or under the Certificates in any Receivable. (g) No Servicing Party shall take any action to cause any Receivable to be evidenced by any instrument (as defined in the UCC as in effect in the State of New York or as defined in any similar Canadian legislation) or any title in bearer form except in connection with its enforcement or collection of a Receivable, in which event such Servicing Party shall deliver such instrument to the Trustee as soon as reasonably practicable but in no event more than 30 days after execution thereof. 2.3. Collections. (a) The Servicers, or the Master Servicer on their behalf, shall have instructed all Obligors to make all payments in respect of the Receivables to a Lockbox, a Lockbox Account or to a Collection Account. All Collections received in a Lockbox shall, within one Business Day of receipt thereof, be deposited in a Lockbox Account. In the event that any payments in respect of the Receivables are made directly to a Servicing Party (including, without limitation, any employees thereof or independent contractors employed thereby), such Servicing Party shall, within two Business Days of receipt thereof, forward such amounts to a Lockbox, a Lockbox Account or a Collection Account and, prior to forwarding such amounts, such Servicing Party shall hold such payments in trust as custodian for the Trustee. Each of the Company and each Servicing Party represents, warrants and agrees that all Collections shall be collected, processed and deposited by it pursuant to, and in accordance with the terms of the Pooling and Servicing Agreements. (b) Each Lockbox Agreement shall provide that the Lockbox Processor thereunder is irrevocably directed, and such Lockbox Processor irrevocably agrees, to (i) deposit funds received in the Lockbox directly into the Lockbox Account and (ii) transfer funds on deposit in the Lockbox Account within one Business Day of receipt thereof to the Trustee for deposit in the applicable Collection Account. Each Lockbox Agreement shall be substantially in the form of Exhibit B to the Pooling Agreement or in such form as the Lockbox Processor party thereto employs in the ordinary course of its business for transactions of a type similar to the one contemplated by this Agreement. A new Lockbox Account may be designated by the Company and the Master Servicer; provided that the Lockbox Processor chosen to maintain such new Lockbox Account shall have entered into a Lockbox Agreement with the Company, the Master Servicer and the Trustee. The Company or -5- the Master Servicer shall notify each Rating Agency of the designation of a new Lockbox Account. Prior to any resignation of the Lockbox Processor or termination of the Lockbox Processor by the Company or the Trustee, the Master Servicer hereby agrees to obtain a replacement Lockbox Processor, the unsecured and uncollateralized obligations of which (or its holding company parent) are rated in one of the three highest long-term or short- term rating categories by each Rating Agency rating such replacement Lockbox Processor, to serve under a Lockbox Agreement which is reasonably acceptable to the Trustee. (c) The Trustee shall administer amounts on deposit in the Collection Accounts and the Lockbox Accounts in accordance with the terms of the Pooling and Servicing Agreements. Each of the Company and each Servicing Party acknowledges and agrees that (i) it shall not have any right to withdraw any funds on deposit in any Collection Account or any Lockbox Account and (ii) all amounts deposited in any Collection Account or Lockbox Account shall be under the sole dominion and control of the Trustee. (d) As soon as practicable but in any event not later than the Business Day following the date that any Servicing Party determines and identifies that any of the collected funds received in any of the Lockboxes, the Lockbox Accounts or the Collection Accounts do not constitute Collections on account of the Receivables, such monies which do not constitute such Collections shall be remitted to the relevant Seller to the extent such determination and identification is reasonably satisfactory to the Trustee (or such other Person as may be entitled thereto). (e) All collections received or deposited in the Collection Accounts as "Collections" shall be deemed, for purposes of the Transaction Documents, to have been received or deposited as of the Business Day Received (as defined in the immediately succeeding sentence). As used herein, the term "Business Day Received" shall mean (i) if funds are deposited in the Collection Accounts by 1:00 p.m., New York City time, such day of deposit and (ii) if funds are deposited in the Collection Accounts after 1:00 p.m., New York City time, the Business Day next following such day of deposit. (f) Unless otherwise required by law or unless an Obligor designates that a payment be applied to a specific Receivable, all Collections received from an Obligor shall be applied to the Receivables of such Obligor to which such Collections relate. 2.4. Reconciliation of Deposits. If in respect of a Collection of a Receivable any Servicing Party deposits into any Collection Account (a) a check received in respect of such Collection which check is not honored for any reason or (b) an -6- amount that is less than or more than the actual amount of such Collection, such Servicing Party shall, in lieu of making a reconciling withdrawal or deposit, as the case may be, adjust the amount subsequently deposited into such Collection Account to reflect such dishonored check or mistake. Any Receivable in respect of which a dishonored check is received shall be deemed not to have been paid; provided that no adjustments made pursuant to this Section 2.4 will change any amount previously reported pursuant to Section 4.3. 2.5. Servicing Compensation. (a) As full compensation for their servicing activities hereunder and reimbursement for their expenses as set forth in subsection 2.5(b), the Servicing Parties shall be entitled to receive on each Distribution Date for the related Accrual Period prior to the termination of the Trust pursuant to Section 9.1 of the Pooling Agreement a servicing fee (the "Servicing Fee"), which shall be payable to the Master Servicer for the account of the Servicing Parties. The Servicing Fee shall be an amount equal to (i) the product of (A) the Servicing Fee Percentage and (B) the average aggregate Principal Amount of the Receivables in the Trust for such Accrual Period and (C) the number of days in such Accrual Period, divided by (ii) 360. Except as otherwise set forth in the related Supplement, the share of the Servicing Fee allocable to each Outstanding Series for any Accrual Period shall be an amount equal to the product of (i) the Servicing Fee and (ii) a fraction (expressed as a percentage) (A) the numerator of which is the daily average Invested Amount for such Accrual Period with respect to such Series (or, in the case of the Series 2 Certificates, the daily average Aggregate Commitment Amount) and (B) the denominator of which is the sum of (1) the daily average Invested Amounts for all Outstanding Series (other than Series 2) for such Accrual Period and (2) the daily average of the Aggregate Commitment Amount with respect to the Series 2 Certificates for such Accrual Period (with respect to any such Series, the "Monthly Servicing Fee"); provided, however, that if on any day C&A Products or any Affiliate thereof is acting as Master Servicer and an Early Amortization Event has occurred and is continuing with respect to any Outstanding Series, (i) the Monthly Servicing Fee with respect to such Series shall be deposited into the Expense Account up to the amount of the Expense Account Limit for application in accordance with Section 7.3 of the Pooling Agreement and (ii) thereafter, the Monthly Servicing Fee with respect to such Series shall be deferred until all amounts due under the Investor Certificates of such Series have been paid in full. The Servicing Fee shall be payable to the Master Servicer solely pursuant to the terms of, and to the extent amounts are available for payment under, Article III of the Pooling Agreement. The Master Servicer shall issue invoices to the Canadian Seller once a month which invoice shall contain the following legend: -7- "Pursuant to the Servicing Agreement dated as of March 30, 1995 among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer, its wholly owned subsidiaries named therein, as Servicers, and Chemical Bank, as Trustee, the above noted servicing fee includes all sales and other value added taxes including Canadian goods and services tax and Canadian provincial sales tax, if applicable." (b) The expenses of the Servicing Parties shall include the amounts due to the Trustee pursuant to Section 8.5 of the Pooling Agreement and the reasonable fees and disbursements of independent accountants, and including all other fees and expenses of the Trust (including counsel fees, if any) not expressly stated herein to be for the account of the Certificate- holders; provided, however, that in no event shall any Servicing Party be liable for any federal, state or local income or franchise tax, or any interest or penalties with respect thereto, assessed on the Trust, the Trustee or the Certificateholders except as expressly provided herein. Notwithstanding anything to the contrary herein or in any other Pooling and Servicing Agreement, in the event that the Master Servicer fails to pay any amount due to the Trustee pursuant to Section 8.5 of the Pooling Agreement, or during an Early Amortization Event, the Trustee shall be entitled, in addition to any other rights it may have under law and under the Pooling Agreement, to receive directly such amounts owing to it hereunder from, and in the same order of priority as, the Servicing Fee before payment to the Master Servicer of any portion thereof; provided, that in the event the Master Servicer, on its own behalf and on behalf of the Servicers, shall have elected to waive its rights to payment of the Servicing Fee or the Servicing Fee is deferred pursuant to subsection 2.5(a), the Trustee shall nonetheless be entitled to receive such amounts from payments which would ordinarily be applied to the payment of the Servicing Fee, in the same order of priority as though such Servicing Fee were payable. Each Servicing Party shall be required to pay expenses for its own account, and shall not be entitled to any payment therefor other than the Servicing Fee. Nothing contained herein shall be construed to limit the obligation of C&A Products to pay any amounts due the Trustee pursuant to Section 8.5 of the Pooling Agreement. 2.6. Addition of Servicers. Subject to the terms and conditions hereof, from time to time one or more Subsidiaries of C&A Products may be added as additional Servicers hereunder upon (a) execution by each such Subsidiary of an Additional Servicer Supplement and (b) the prior satisfaction with respect to such Subsidiary of each of the conditions precedent set forth in Section 3.4 of the Receivables Sale Agreement. -8- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE MASTER SERVICER AND THE SERVICERS Each Servicing Party hereby makes the following representations and warranties to each of the other parties hereto: 3.1. Corporate Existence; Compliance with Law. Such Person (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority, and all material licenses, permits, franchises, consents and approvals, to own or lease its property and assets and to carry on its business as now conducted and (iii) is duly qualified to do business as is in good standing as a foreign corporation (or is exempt from such requirements) and has obtained all necessary licenses and approvals in each jurisdiction in which the servicing of Receivables as required by this Agreement requires such qualification, except where the failure to so qualify or obtain licenses or approvals would not be reasonably likely to have a Material Adverse Effect. 3.2. Corporate Power; Authorization. Such Person has the corporate power and authority to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against such Person other than (i) those which have duly been obtained or made and are in full force and effect on the Initial Closing Date, (ii) any filings of UCC-1 financing statements (or similar instruments as may be necessary or advisable in the Provinces of Quebec and Ontario) necessary to perfect the Company's or the Trust's interest in the Receivables and the Related Property, (iii) those that may be required under state securities or "blue sky" laws in conection with the offering or sale of Certificates and (iv) any such consent, authorization, filing, notice or other act, the absence of which would not reasonably be likely to have a Material Adverse Effect. This Agreement and each other Transaction Document to which it is a party have been duly executed and delivered on behalf of such Person. 3.3. Enforceability. This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligation of such Person enforceable against -9- it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). 3.4. No Legal Bar. The execution, delivery and performance of this Agreement and each other Transaction Document to which it is a party will not violate any Requirement of Law or Contractual Obligation of such Person except for violations that would not be reasonably likely to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien (other than Liens contemplated hereby) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 3.5. No Material Litigation. Except as described in (i) the Annual Report on Form 10-K of Collins & Aikman Corporation, (ii) any Quarterly Report on Form 10-Q of Collins & Aikman Corporation or (iii) any Current Report on Form 8-K of Collins & Aikman Corporation, there are not any actions, suits or proceedings at law or in equity or by or before any court or Governmental Authority now pending or, to the knowledge of such Person, threatened against it or any of its properties or rights as to which there is a reasonable possibility of an adverse determination and which (A) if adversely determined, could individually or in the aggregate result in a Material Adverse Effect, or (B) involve this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby. 3.6. No Default. Such Person is not in default under or with respect to any of its Contractual Obligations in any respect which would be reasonably likely to have a Material Adverse Effect. No Early Amortization Event or Potential Early Amortization Event with respect to such Person has occurred and is continuing. 3.7. Tax Returns. It has filed or caused to be filed all Federal, and all material state, local and foreign, tax returns required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable, and any assessments in excess of $2,000,000 in the aggregate received by it, except taxes the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on its books and taxes, assessments, charges, levies or claims in respect of property taxes for property that it has determined to abandon where the sole recourse for such tax, assessment, charge, levy or claim is to such property. It has -10- paid in full or made adequate provision (in accordance with GAAP) for the payment of all taxes due with respect to the periods ending on or before January 28, 1995, which taxes, if not paid or adequately provided for, would be reasonably likely to have a Material Adverse Effect. The tax returns of such Person have been examined by relevant Federal tax authorities for all periods through January 26, 1985, and all deficiencies asserted as a result of such examinations have been paid. Except as set forth on Schedule 4 to the Receivables Sale Agreement, as of the Initial Closing Date, with respect to such Person, (i) no material claims are being asserted in writing with respect to any taxes, (ii) no presently effective waivers or extensions of statutes of limitation with respect to taxes have been given or requested, (iii) no tax returns are being examined by, and no written notification of intention to examine has been received from, the Internal Revenue Service or any other taxing authority and (iv) no currently pending issues have been raised in writing by the Internal Revenue Service or any other taxing authority. For purposes of this paragraph, "taxes" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. 3.8. Servicing Ability. As of the related Issuance Date, there has not been since the date of this Agreement any material adverse change in the ability of such Person to perform its obligations, as Servicer or Master Servicer, as the case may be, under any Transaction Document. 3.9. Location of Records. The offices at which such Person keeps its records concerning the Receivables serviced by it either (i) are located at the addresses set forth for such Person on Schedule 1 to the Receivables Sale Agreement or (ii) have been notified to the Trustee in accordance with the provisions of Section 4.9. The chief executive office of such Person is located at one of such locations and is the place where such Person is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York or, if applicable, for purposes of the relevant provincial laws of Canada. ARTICLE IV COVENANTS OF THE MASTER SERVICER AND THE SERVICERS 4.1. Servicer Repurchase Payment. (a) If any Servicing Party shall breach any covenant contained in subsection 2.2(e), 2.2(f), 4.6, 4.7 or 4.8 which materially and adversely affects the interest of the Investor Certificateholders in any Receivable, then upon receipt by any Servicing Party of written -11- notice of such event given by the Trustee or upon a Responsible Officer of such Servicing Party obtaining knowledge of such event (whether such breach relates to such Person or to another Person bound by such representations, warranties and covenants), the Servicing Parties, jointly and severally, shall purchase such Receivable from the Trust in accordance with subsection 4.1(b). (b) The Servicing Parties, jointly and severally, shall purchase such Receivable by depositing into the applicable Collection Account in immediately available funds on the Business Day following the date on which the obligation to make such purchase arises pursuant to this Section 4.1, an amount equal to the outstanding Principal Amount of such Receivable (the "Servicer Repurchase Amount"). Upon each such purchase by a Servicing Party, the Trust shall automatically and without further action be deemed to sell, transfer, assign, and set over, and otherwise convey to such Servicing Party, without recourse, representation or warranty, all right, title and interest of the Trust in and to such Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall be reasonably requested by such Servicing Party to effect the conveyance of any Receivable pursuant to this Section. The obligation of the Servicing Parties to purchase any such Receivables shall constitute the sole remedy respecting any breach of the representations, warranties and covenants set forth in subsection 2.2(e), 2.2(f), 4.6, 4.7 or 4.8 with respect to such Receivables available to Certificateholders or the Trustee on behalf of Certificate- holders. 4.2. Delivery of Daily Reports. (a) Unless otherwise specified in the Supplement with respect to any Series, for each Business Day (the "Reported Day") and with respect to each Outstanding Series, the Master Servicer shall submit to the Trustee and each Agent no later than 3:00 p.m., New York City time, on the second Business Day following each Reported Day, a report substantially in the form attached to the related Supplement of each such Series (the "Daily Report") setting forth for the Reported Day total Collections, the amount of Receivables and Eligible Receivables created, and such other information as the Trustee may reasonably request. The Daily Report shall be in an electronic format mutually agreed upon by the Master Servicer and the Trustee, or pending such agreement, by facsimile. By delivery of a Daily Report, the Master Servicer shall be deemed to have made a representation and warranty that all information set forth therein is true and correct. (b) On each Business Day, each Servicer shall provide the Master Servicer with a written report (a "Seller Daily -12- Report") with respect to the Receivables serviced by such Servicer, in a form to be agreed upon by such Servicer and the Master Servicer, which report shall contain such information as the Master Servicer shall need or otherwise request in order to complete the Daily Report. 4.3. Delivery of Monthly Settlement Statement. Unless otherwise specified in the Supplement with respect to any Outstanding Series, the Master Servicer hereby covenants and agrees that it shall deliver to the Trustee, each Agent and each Rating Agency by 11:00 a.m., New York City time, on each Settlement Report Date, a certificate of a Responsible Officer of the Master Servicer substantially in the form attached to the related Supplement of each such Series (a "Monthly Settlement Statement") setting forth, as of the last day of the Settlement Period most recently ended and for such Settlement Period, (a) the information described in such Monthly Settlement Statement (with such changes as may be agreed to by the Master Servicer, the Trustee and the Rating Agencies) and (b) such other information as the Trustee may reasonably request. Such certificate shall include a certification by a Responsible Officer of the Master Servicer that, to the best of such Responsible Officer's knowledge, the information contained therein is true and correct and each Servicing Party has performed in all material respects all of its obligations under each Transaction Document throughout such preceding Settlement Period (or, if there has been a material default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof). Each Servicer hereby agrees to provide sufficient information to the Master Servicer on a timely basis in order to permit the Master Servicer to prepare each Monthly Settlement Statement. A copy of each Monthly Settlement Statement may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. 4.4. Delivery of Annual Servicer's Certificate. The Master Servicer agrees that it shall deliver to the Trustee, each Agent and each Rating Agency, a certificate of a Responsible Officer of the Master Servicer, substantially in the form of Exhibit D to the Pooling Agreement, stating that: (a) a review of the activities of each Servicing Party during the preceding fiscal year (or in the case of the first such certificate issued after the Initial Closing Date, during the period from the Initial Closing Date) and of its performance under each Transaction Document was made under the supervision of such Responsible Officer; and (b) to the best of such Responsible Officer's knowledge, based on such review, (i) each Servicing Party -13- has performed in all material respects its obligations under each Transaction Document throughout the period covered by such certificate (or, if there has been a material default in the performance of any such obligation, specifying each such default known to such Responsible Officer and the nature and status thereof) and (ii) each Daily Report and Monthly Settlement Statement was accurate and correct in all material respects, except as specified in such certificate. Such certificate shall be delivered by the Master Servicer within 45 days after the end of each fiscal year of C&A Products commencing with the fiscal year ending January 27, 1996. A copy of such certificate may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. 4.5. Delivery of Independent Public Accountants' Servicing Reports. The Master Servicer will cause Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing which constitute one of the accounting firms commonly referred to as the "big six" accounting firms (or any successors thereto), or otherwise acceptable to the Trustee (who may also render other services to the Master Servicer, any Servicer and the Company) to furnish to the Company, the Trustee, each Agent and each Rating Agency within six months after the Initial Closing Date and thereafter within 120 days following the last day of each fiscal year of C&A Products a letter to the effect that such firm has performed certain agreed upon procedures relating to each Servicing Party with respect to the Receivables and its performance hereunder during the preceding fiscal year (or, in the case of the first such letter issued after the Initial Closing Date, during the period from the Initial Closing Date) and describing its findings with respect to such procedures. A copy of such report may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. 4.6. Extension, Amendment and Adjustment of Receivables; Amendment of and Compliance with Policies. (a) Each Servicing Party hereby covenants and agrees that it shall not extend, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, rescind, cancel, amend or otherwise modify, the terms of, or grant any Dilution Adjustment to, any Receivable purported to be sold by such Person, or otherwise take any action which is intended to cause or permit an Eligible Receivable to cease to be an Eligible Receivable, except in any such case (i) in accordance with the terms of the Policies, (ii) as required by any Requirement of Law, (iii) in the case of any Dilution Adjustments, upon the payment by or on behalf of the related Seller of a Seller Adjustment Payment pursuant to Section 2.5 of the Receivables Sale Agreement or (iv) to the extent that -14- such modification could not reasonably be expected to have a materially adverse effect on the Company's or the Trust's interest in the Receivables. Any Dilution Adjustment authorized to be made pursuant to the preceding sentence shall result in the reduction, on the Business Day on which such Dilution Adjustment arises or is identified, in the aggregate Principal Amount of Receivables and if as a result of such a reduction, the Aggregate Receivables Amount is less than the Aggregate Target Receivables Amount, the related Seller shall be required to pay into the Series Principal Collection Sub-subaccount with respect to each Outstanding Series in immediately available funds within one Business Day of such determination such Series' pro rata share of the amount by which the Aggregate Target Receivables Amount exceeds the Aggregate Receivables Amount. (b) No Servicing Party shall make any change or modification to the Policies in any material respect, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be expected to have a material adverse effect on the Company's or the Trust's interests in the Receivables or (iii) if the Rating Agency Condition is satisfied with respect thereto; provided, however, that if any change or modification, other than a change or modification permitted pursuant to clause (i) or (ii) above, would reasonably be expected to have a material adverse effect on the interests of the Investor Certificateholders of a Series which is not rated by a Rating Agency, the consent of the applicable Agent shall be required to effect such change or modification. The applicable Servicing Party shall provide notice to each Rating Agency of any modification to the Policies. (c) Each Servicing Party shall perform its obligations in accordance with and comply in all material respects with the Policies. 4.7. Protection of Certificateholders' Rights. Each Servicing Party hereby agrees that it shall take no action, nor intentionally omit to take any action, which could reasonably be expected to substantially impair the rights or interests of the Certificateholders in the Receivables nor shall it reschedule, revise or defer payments due on any Receivable except in accordance with the Policies. 4.8. Security Interest. Each Servicing Party hereby covenants and agrees that it shall not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any Receivable sold and assigned to the Trust, whether now existing or hereafter created, or any interest therein, and such Servicing Party shall defend the right, title and interest of the Trust in, to and under any Receivable sold and assigned to the Trust, whether now existing -15- or hereafter created, against all claims of third parties claiming through or under such Servicing Party or the Company; provided, however, that nothing in this Section 4.8 shall prevent or be deemed to prohibit such Servicing Party from suffering to exist upon any of the Receivables any Permitted Liens described in clause (i) of the definition thereof. 4.9. Location of Records. Each Servicing Party hereby covenants and agrees that it (a) shall not move its chief executive office or any of the offices where it keeps its records with respect to the Receivables or, in the case of the Canadian Seller, its legal head office, outside of the location specified in respect thereof on Schedule 1 to the Receivables Sale Agreement, in any such case, without giving 30 days' prior written notice to the Trustee and (b) shall promptly take all actions reasonably required (including but not limited to all filings and other acts necessary or reasonably requested by the Trustee as being advisable under the UCC or other similar statute or legislation) in order to continue the valid and enforceable interest of the Trust in all Receivables now owned or hereafter created. 4.10. Visitation Rights. Each Servicing Party shall, at any reasonable time during normal business hours on any Business Day and from time to time, upon reasonable prior notice, according to such Servicing Party's normal security and confidentiality requirements, permit (a) the Trustee, any Agent or any of their respective agents or representatives, (i) to examine and make copies of and abstracts from the records, books of account and documents (including computer tapes and disks) of such Person relating to the Receivables and (ii) following the termination of the appointment of such Person as Master Servicer or as Servicer, as the case may be, to be present at the offices and properties of such Person to administer and control the Collection of the Receivables and (b) the Trustee, any Agent or any of their respective agents or representatives, to visit the properties of such Person to discuss the affairs, finances and accounts of such Person relating to the Receivables or such Person's performance hereunder or under any of the other Transaction Documents to which it is a party with any of its officers or directors and with its independent certified public accountants; provided that the Trustee or the Agent, as the case may be, shall notify such Person prior to any contact with such accountants and shall give such Person the opportunity to participate in such discussions. 4.11. Lockbox Agreement; Lockbox Accounts. Each Servicing Party shall (a) maintain, and keep in full force and effect, each Lockbox Agreement to which such Person is a party, except to the extent otherwise permitted under the terms of the Transaction Documents, and (b) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox -16- Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. 4.12. Instruments. Each Servicing Party shall not take any action to cause any Receivable to be evidenced by any instrument (as defined in the UCC as in effect in the State of New York or other similar statute or legislation) or any title in bearer form except in connection with the enforcement or collection of a Receivable. 4.13. Delivery of Financial Statements. The Master Servicer shall furnish to the Trustee: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Master Servicer, a copy of the consolidated balance sheets of the Master Servicer and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income, shareholders' equity and retained earnings and cash flows for such year, setting forth the comparative amounts for the previous year (beginning with the consolidated financial statements delivered for the 1996 fiscal year) and certified without a "going concern" or like qualification or exception, or scope limitation, by Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing which constitute one of the accounting firms commonly referred to as the "big six" accounting firms (or any successors thereto), or otherwise acceptable to the Trustee; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Master Servicer, commencing with the fiscal quarter ending April 29, 1995, the unaudited consolidated balance sheets of the Master Servicer and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income, shareholders' equity and retained earnings and cash flows of the Master Servicer and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth the comparative amounts for the corresponding quarter and portion of the previous year, certified by a Responsible Officer of the Master Servicer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as -17- approved by such accountants or officer, as the case may be, and disclosed therein). 4.14. Notices. Each Servicing Party shall furnish to the Trustee and each Rating Agency, promptly upon obtaining knowledge of the occurrence of any Purchase Termination Event, Potential Purchase Termination Event, Early Amortization Event, Potential Early Amortization Event or Servicer Default, written notice thereof. ARTICLE V OTHER MATTERS RELATING TO THE MASTER SERVICER AND THE SERVICERS 5.1. Merger, Consolidation, etc. The Master Servicer shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (a) the corporation formed by such consolidation or into which the Master Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Master Servicer substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and, if the Master Servicer is not the surviving entity, such corporation shall assume, without the execution or filing of any paper or any further act on the part of any of the parties hereto, the performance of every covenant and obligation of the Master Servicer hereunder; (b) the Master Servicer has delivered to the Trustee an officer's certificate executed by a Vice President or more senior officer and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer comply with this Section 5.1 and that all conditions precedent herein provided for relating to such transaction have been complied with; and (c) in the case of a merger into or conveyance or transfer by the Master Servicer of its properties and assets substantially as an entirety to any Person other than Collins & Aikman Corporation or any Seller, the Rating Agency Condition shall have been satisfied in respect thereof. 5.2. Indemnification of the Trust and the Trustee. Each Servicing Party hereby agrees, jointly and severally, to indemnify and hold harmless the Trustee for the benefit of the -18- Certificateholders and the Trustee and their respective directors, officers, agents and employees (an "indemnified person") from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of such Servicing Party pursuant to any Pooling and Servicing Agreement to which it is a party, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided that the Servicing Parties shall not indemnify any indemnified person for any liability, cost or expense of such indemnified person (a) arising solely from the failure of an Obligor to make payment in respect of a Receivable as a result of defaults or other losses relating to such Receivable for which no specific indemnification obligation is required hereunder or (b) to the extent that such liability, cost or expense arises from the negligence, bad faith or willful misconduct of such indemnified person (or any of their respective directors, officers, agents or employees). The provisions of this indemnity shall run directly to, and be enforceable by, an injured party and shall survive the termination of this Agreement or the resignation of the Master Servicer or any Servicer. 5.3. Master Servicer Not to Resign. The Master Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that (a) the performance of its duties hereunder is no longer permissible under applicable law and (b) there is no reasonable action which the Master Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Master Servicer shall be evidenced as to clause (a) above by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until a Successor Servicer or another Servicing Party shall have assumed the responsibilities and obligations of the Master Servicer in accordance with Section 6.2. Each Rating Agency shall be notified of such resignation. 5.4. Access to Certain Documentation and Information Regarding the Receivables. Each Servicing Party will hold in trust for the Trustee at the office of such Servicing Party set forth in Schedule 1 to the Receivable Sale Agreement such computer programs, books of account and other records as are reasonably necessary to enable the Trustee to determine at any time the status of the Receivables and all collections and payments in respect thereof (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof). -19- ARTICLE VI SERVICER DEFAULTS 6.1. Servicer Defaults. If, with respect to any Servicing Party, any one of the following events (a "Servicer Default") shall occur and be continuing: (a) failure by the Master Servicer to deliver, within two Business Days of the due date thereof, any Daily Report or, within three Business Days of the due date thereof, any Monthly Settlement Statement conforming in all material respects to the requirement of Section 4.2 or 4.3, as the case may be, in each case, after the earlier to occur of (i) the date upon which a Responsible Officer of the Master Servicer obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee, or to the Master Servicer and the Trustee from holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount or by any Agent; (b) failure by such Servicing Party to pay any amount on or before the date occurring five Business Days after the earlier to occur of (i) the date upon which a Responsible Officer of the Master Servicer obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to such Servicing Party by the Trustee, or to such Servicing Party and the Trustee from holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount; (c) failure on the part of such Servicing Party duly to observe or perform in any material respect any other covenants or agreements of such Servicing Party set forth in any Pooling and Servicing Agreement which has a material adverse effect on the holders of any outstanding Series, which continues unremedied until 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to such Servicing Party by the Trustee, or to such Servicing Party and the Trustee by holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount or by any Agent; provided that no Servicer Default shall be deemed to occur under this subsection if the related Servicing Party shall have complied with the provisions of Section 4.1 with respect thereto; -20- (d) any representation, warranty or certification made by such Servicing Party in any Pooling and Servicing Agreement or in any certificate delivered pursuant thereto shall prove to have been incorrect when made or deemed made, which incorrectness has a material adverse effect on the holders of any outstanding Series which material adverse effect continues unremedied until 30 days after the date on which written notice thereof, requiring the same to be remedied, shall have been given to such Servicing Party by the Trustee, or to such Servicing Party and the Trustee by holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount or by any Agent; provided that no Servicer Default shall be deemed to occur under this subsection if the related Servicing Party shall have complied with the provisions of Section 4.1 with respect thereto; (e) (i) such Servicing Party shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or any Servicing Party shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Servicing Party any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Servicing Party or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 such days from the entry thereof; or (iv) any Servicing Party or any of its respective Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Servicing Party shall generally not, or shall be unable to, or -21- shall admit in writing its inability to, pay its debts as they become due; or (f) there shall have occurred and be continuing a Purchase Termination Event with respect to such Servicing Party under the Receivables Sale Agreement; then, in the event of any Servicer Default, so long as the Servicer Default shall not have been remedied, the Trustee may, and at the written direction of (i) the holders of Term Certificates evidencing 50% or more of the Invested Amount (as such term is defined in the Series 1 Supplement) voting as a single class or (ii) the Majority Purchasers (as defined in the Series 2 Supplement) shall, by notice then given in writing to the Master Servicer and each Rating Agency (a "Termination Notice"), terminate all or any part of the rights and obligations of such Servicing Party as Master Servicer or Servicer, as the case may be, under the Pooling and Servicing Agreements. Notwithstanding anything to the contrary in this Section 6.1, a delay in or failure of performance referred to under clause (b) above for a period of 10 Business Days after the applicable grace period or a delay in or failure of performance referred to under clauses (a), (c) or (d) above for a period of 30 Business Days after the applicable grace period shall not constitute a Servicer Default, if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Servicing Party and such delay or failure was caused by an act of God or other similar occurrences. After receipt by a Servicing Party of a Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 6.2, all authority and power of such Servicing Party under any Pooling and Servicing Agreement to the extent specified in such Termination Notice shall pass to and be vested in a Successor Servicer (a "Service Transfer"); and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of a Servicing Party to cooperate) to execute and deliver, on behalf of such Servicing Party, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of such Servicing Party to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer. Each Servicing Party agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of a Servicing Party to conduct servicing hereunder, including, without limitation, the transfer to such Successor Servicer of all authority of a Servicing Party to service the Receivables provided for under the Pooling and Servicing Agreements, including, without limitation, all authority over all Collections which shall on the date of transfer be held by a Servicing Party for deposit, or which have been deposited by a Servicing Party, in the Collection Accounts, or which shall thereafter be received with respect to the -22- Receivables, and in assisting the Successor Servicer. The relevant Servicing Party shall promptly (x) assemble all such Servicing Party's documents, instruments and other records (including credit files, licenses, rights, copies of all relevant computer programs and any necessary licenses for the use thereof, related material, computer tapes, disks, cassettes and data) that (i) evidence or will evidence or record Receivables sold and assigned to the Trust and (ii) are otherwise necessary or desirable to enable a Successor Servicer to effect the immediate Collection of such Receivables, with or without the participation of any Seller or such Servicing Party and (y) deliver or license the use of all of the foregoing documents, instruments and other records to the Successor Servicer at a place designated thereby. In recognition of such Servicing Party's need to have access to any such documents, instruments and other records which may be transferred to such Successor Servicer hereunder, whether as a result of its continuing responsibility as a servicer of accounts receivable which are not sold and assigned to the Trust or otherwise, the Trustee agrees to cause such Successor Servicer to provide to such Servicing Party reasonable access to such documents, instruments and other records transferred by such Servicing Party to it in connection with any activity arising in the ordinary course of such Servicing Party's business; provided that such Servicing Party shall not disrupt or otherwise interfere with the Successor Servicer's use of and access to such documents, instruments and other records. To the extent that compliance with this Section 6.1 shall require a Servicing Party to disclose to the Successor Servicer information of any kind which such Servicing Party reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as such Servicing Party shall deem necessary to protect its interest. All costs and expenses incurred by the defaulting Servicing Party, the Successor Servicer and the Trustee in connection with any transfer resulting from a Servicer Default shall be for the account of such defaulting Servicing Party. 6.2. Trustee to Act; Appointment of Successor. (a) On and after the receipt by a Servicing Party of a Termination Notice pursuant to Section 6.1, such Servicing Party shall continue to perform all servicing functions under the Pooling and Servicing Agreements until the date specified in the Termination Notice or otherwise specified by the Trustee or the Company in writing or, if no such date is specified in such Termination Notice or otherwise specified by the Trustee, until a date mutually agreed upon by such Servicing Party and the Trustee. The Trustee shall, as promptly as possible after the giving of a Termination Notice, appoint an Eligible Successor Servicer as successor master servicer or successor servicer, as the case may be (the "Successor Servicer"). The Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee and the Company. In the event that a -23- Successor Servicer has not been appointed or has not accepted its appointment at the time when the relevant Servicing Party ceases to act as Master Servicer or Servicer, as the case may be, the Trustee without further action shall automatically be appointed the Successor Servicer. The Trustee may delegate any of its servicing obligations to an affiliate or agent in accordance with subsection 2.2(c). All amounts in the Expense Account shall be available for the Successor Servicer (but only if such Successor Servicer is not C&A Products or any Affiliate thereof) for payment of all costs, losses, liabilities, expenses, damages or injuries (including, but not limited to, reasonable attorney's fees and other reasonable costs and expenses incurred in connection with any actual or threatened action, proceeding or claim) in connection with the performance of the Successor Servicer's duties under any Pooling and Servicing Agreement except any such cost, loss, liability, expense, damage or injury as may arise from its negligence, bad faith or willful misconduct. Notwithstanding the above, the Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any Person qualifying as an Eligible Successor Servicer as the Successor Servicer hereunder. The Master Servicer shall immediately give notice to each Rating Agency of the receipt of any Termination Notice and the appointment of a Successor Servicer. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicing Party to which it is successor with respect to servicing functions under the Pooling and Servicing Agreements (with such changes as are agreed to between such Successor Servicer and the Trustee) and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on such Servicing Party by the terms and provisions hereof, and all references in any Pooling and Servicing Agreement to the Master Servicer or Servicer, as the case may be, shall be deemed to refer to the Successor Servicer. The Successor Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and charging off any Receivables as uncollectible, with reasonable care, using that degree of skill and attention that is the customary and usual standard of practice of prudent receivable servicers with respect to all comparable receivables serviced for itself and others. The Successor Servicer shall not be liable for, and relevant Servicing Party to which it is the successor shall indemnify the Successor Servicer against costs incurred by the Successor Servicer as a result of, any acts or omissions of such Servicing Party or any events or occurrences occurring prior to the Successor Servicer's acceptance of its appointment as Successor Servicer. (c) The Trustee will review any bids obtained from Eligible Successor Servicers and the Trustee shall be permitted -24- to appoint any Eligible Successor Servicer submitting such a bid as a Successor Servicer for servicing compensation not in excess of the Servicing Fee; provided, however, that the Company shall be responsible for payment of the Company's portion of the Servicing Fee as determined pursuant to Section 2.5. (d) All authority and power granted to the Successor Servicer under any Pooling and Servicing Agreement shall automatically cease and terminate on the Trust Termination Date, and shall pass to and be vested in the Company and, without limitation, the Company is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights from and after the Trust Termination Date. The Successor Servicer agrees to cooperate with the Company in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer all of its records relating to the Receivables to the Company in such form as the Company may reasonably request and shall transfer all other records, correspondence and documents to the Company in the manner and at such times as the Company shall reasonably request. To the extent that compliance with this Section 6.2 shall require the Successor Servicer to disclose to the Company information of any kind which the Successor Servicer deems to be confidential, the Company shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall reasonably deem necessary to protect its interests. 6.3. Waiver of Past Defaults. Holders of Term Certificates evidencing more than 50% or more of the Term Certificates Invested Amount and the Majority Purchasers may waive any default by such Servicing Party or the Company in the performance of their obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments in respect of any Series of Certificates. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of the Pooling and Servicing Agreements. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Either the Company or the applicable Servicing Party shall provide notice to each Rating Agency of any such waiver. -25- ARTICLE VII MISCELLANEOUS PROVISIONS 7.1. Amendment. (a) This Agreement may only be amended, supplemented or otherwise modified from time to time if such amendment, supplement or modification is effected in accordance with the provisions of Section 10.1 of the Pooling Agreement. 7.2. Termination. The respective obligations and responsibilities of the parties hereto shall terminate on the Trust Termination Date (unless such obligations or responsibilities are expressly stated to survive the termination of this Agreement). 7.3. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 7.4. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (i) in the case of the Servicers, as set forth under their signatures in the Receivables Sale Agreement and (ii) in the case of the Master Servicer, the Company and the Trustee, as set forth in Section 10.5 of the Pooling Agreement, or to such other address as may be hereafter notified by the respective parties hereto. 7.5. Counterparts. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7.6. Third-Party Beneficiaries. This Agreement will inure to the benefit of and be binding upon the parties hereto and the Certificateholders and their respective successors and permitted assigns. Except as otherwise provided in this Article VII, no other person will have any right or obligation hereunder. 7.7. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be -26- modified, amended, waived, or supplemented except as provided herein. 7.8. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 7.9. No Set-Off. Except as expressly provided in this Agreement, each Servicing Party agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Accounts for any amount owed to it by the Company, the Trust, the Trustee or any Certificateholder. 7.10. No Bankruptcy Petition. Each of the Trustee and each Servicing Party hereby covenants and agrees that, prior to the date which is one year and one day after the later of (i) the date on which the principal of and all other amounts in respect of the Term Certificates have been repaid in full or (ii) the date on which the principal of and all other amounts in respect of the VFC Certificates have been repaid in full, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. 7.11. Liability of Trustee. Notwithstanding anything in this Agreement to the contrary, in no event shall the Trustee be liable to any Person for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits that are not direct damages), even if the Trustee has been advised of the likelihood of such loss or damage; provided, however, that this Section 7.11 shall be of no force and effect in the event that such loss or damage is a result of the Trustee's bad faith, negligence or willful misconduct. -27- IN WITNESS WHEREOF, the Company, the Servicing Parties and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. CARCORP, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Secretary and Treasurer CHEMICAL BANK, not in its individual capacity but solely as Trustee By: Charles E. Dooley Name: Charles E. Dooley Title: Vice President COLLINS & AIKMAN PRODUCTS CO., as Master Servicer By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer COLLINS & AIKMAN PRODUCTS CO., as Servicer for itself and for Ack-Ti- Lining, Inc., The Akro Corporation, Collins & Aikman Floor Coverings, Inc. and Dura Convertible Systems, Inc. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer WCA CANADA INC., as Servicer By: Anthony Hardwick Name: Anthony Hardwick Title: Agent -28- IMPERIAL WALLCOVERINGS, INC., as Servicer By:Anthony Hardwick Name: Anthony Hardwick Title: Acting Chief Financial Officer -29- EX-10 7 EXHIBIT 10.20 EXECUTION COPY CARCORP, INC., as Company, COLLINS & AIKMAN PRODUCTS CO., as Master Servicer, and CHEMICAL BANK, as Trustee on behalf of the Certificateholders C&A MASTER TRUST POOLING AGREEMENT Dated as of March 30, 1995 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . . 2 1.1. Definitions . . . . . . . . . . . . . . . . . . . 2 1.2. Other Definitional Provisions . . . . . . . . . . 27 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES . . . . . . . . 28 2.1. Conveyance of Receivables . . . . . . . . . . . . 28 2.2. Acceptance by Trustee . . . . . . . . . . . . . . 31 2.3. Representations and Warranties of the Company Relating to the Company . . . . . . . . . 32 2.4. Representations and Warranties of the Company Relating to the Receivables . . . . . . . . . . . 35 2.5. Repurchase of Ineligible Receivables . . . . . . . 36 2.6. Purchase of Investor Certificateholders' Interest in Trust Portfolio . . . . . . . . . . . 37 2.7. Affirmative Covenants of the Company . . . . . . . 38 2.8. Negative Covenants of the Company . . . . . . . . 42 ARTICLE III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS . . . . . . 46 3.1. Establishment of Collection Accounts; Certain Allocations . . . . . . . . . . . . . . . . . . . 46 ARTICLE IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO . . . . . . . . . . 53 ARTICLE V THE CERTIFICATES . . . . . . . . . . 53 5.1. The Certificates . . . . . . . . . . . . . . . . . 53 5.2. Authentication of Certificates . . . . . . . . . . 54 5.3. Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . 54 5.4. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . 56 -i- Page 5.5. Persons Deemed Owners . . . . . . . . . . . . . . 57 5.6. Appointment of Paying Agent . . . . . . . . . . . 57 5.7. Access to List of Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . . . . . 58 5.8. Authenticating Agent . . . . . . . . . . . . . . . 59 5.9. Tax Treatment . . . . . . . . . . . . . . . . . . 61 5.10. Tender of Exchangeable Company Certificate . . . 61 5.11. Book-Entry Certificates . . . . . . . . . . . . . 63 5.12. Notices to Clearing Agency . . . . . . . . . . . 64 5.13. Definitive Certificates . . . . . . . . . . . . . 64 ARTICLE VI OTHER MATTERS RELATING TO THE COMPANY . . . . . 65 6.1. Liability of the Company . . . . . . . . . . . . . 65 6.2. Limitation on Liability of the Company . . . . . . 65 6.3. Liabilities . . . . . . . . . . . . . . . . . . . 66 ARTICLE VII EARLY AMORTIZATION EVENTS . . . . . . . . 66 7.1. Early Amortization Events . . . . . . . . . . . . 66 7.2. Additional Rights Upon the Occurrence of Certain Events . . . . . . . . . . . . . . . . . . . . . . 67 7.3. Expense Account . . . . . . . . . . . . . . . . . 68 ARTICLE VIII THE TRUSTEE . . . . . . . . . . . 69 8.1. Duties of Trustee . . . . . . . . . . . . . . . . 69 8.2. Rights of the Trustee . . . . . . . . . . . . . . 71 8.3. Trustee Not Liable for Recitals in Certificates . 73 8.4. Trustee May Own Certificates . . . . . . . . . . . 73 8.5. Trustee's Fees and Expenses . . . . . . . . . . . 73 8.6. Eligibility Requirements for Trustee . . . . . . . 74 8.7. Resignation or Removal of Trustee . . . . . . . . 75 8.8. Successor Trustee . . . . . . . . . . . . . . . . 76 8.9. Merger or Consolidation of Trustee . . . . . . . . 76 8.10. Appointment of Co-Trustee or Separate Trustee . . 76 8.11. Tax Returns . . . . . . . . . . . . . . . . . . . 78 8.12. Trustee May Enforce Claims Without Possession of Certificates . . . . . . . . . . . . . . . . . . . 78 8.13. Suits for Enforcement . . . . . . . . . . . . . . 79 8.14. [Reserved] . . . . . . . . . . . . . . . . . . . . 79 8.15. Representations and Warranties of Trustee . . . . 79 8.16. Maintenance of Office or Agency . . . . . . . . . 80 8.17. Limitation of Liability . . . . . . . . . . . . . 80 -ii- Page ARTICLE IX TERMINATION . . . . . . . . . . . 80 9.1. Termination of Trust; Optional Repurchase . . . . 80 9.2. Optional Purchase and Final Termination Date of Investor Certificates of any Series . . . . . . . 81 9.3. Final Payment with Respect to Any Series . . . . . 82 9.4. Company's Termination Rights . . . . . . . . . . . 83 ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . 84 10.1. Amendment . . . . . . . . . . . . . . . . . . . 84 10.2. Protection of Right, Title and Interest to Trust . . . . . . . . . . . . . . . . . . . . 85 10.3. Limitation on Rights of Certificateholders . . . 86 10.4. Governing Law . . . . . . . . . . . . . . . . . 87 10.5. Notices . . . . . . . . . . . . . . . . . . . . 87 10.6. Severability of Provisions . . . . . . . . . . . 88 10.7. Assignment . . . . . . . . . . . . . . . . . . . 88 10.8. Certificates Nonassessable and Fully Paid . . . 89 10.9. Further Assurances . . . . . . . . . . . . . . . 89 10.10. No Waiver; Cumulative Remedies . . . . . . . . . 89 10.11. Counterparts . . . . . . . . . . . . . . . . . . 89 10.12. Third-Party Beneficiaries . . . . . . . . . . . 89 10.13. Actions by Certificateholders . . . . . . . . . 89 10.14. Merger and Integration . . . . . . . . . . . . . 90 10.15. Headings . . . . . . . . . . . . . . . . . . . . 90 10.16. Construction of Agreement . . . . . . . . . . . 90 10.17. No Set-Off . . . . . . . . . . . . . . . . . . . 90 10.18. No Bankruptcy Petition . . . . . . . . . . . . . 90 10.19. Limitation of Liability . . . . . . . . . . . . 91 10.20. Canadian Taxes . . . . . . . . . . . . . . . . . 91 10.21. Payments by Company . . . . . . . . . . . . . . 92 10.22. Certain Information . . . . . . . . . . . . . . 92 -iii- EXHIBITS Exhibit A Form of Exchangeable Company Certificate Exhibit B Form of Lockbox Agreement Exhibit C [Reserved] Exhibit D Form of Annual Master Servicer's Certificate Exhibit E [Reserved] Exhibit F Form of Annual Opinion of Counsel Exhibit G Form of Additional Servicer Supplement Exhibit H Internal Operating Procedures Memorandum SCHEDULES Schedule 1 Receivables Schedule 2 Identification of the Trust Accounts Schedule 3 Special Obligors Schedule 4 Location of Chief Executive Office Schedule 5 Contractual Obligations APPENDICES Appendix A Description of Servicer Site Review Procedures Appendix B Description of Standby Liquidation System -iv- POOLING AGREEMENT, dated as of March 30, 1995, among Carcorp, Inc., a Delaware corporation (the "Company"); Collins & Aikman Products Co. ("C&A Products"), a Delaware corporation (in its capacity as master servicer, the "Master Servicer"); and Chemical Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "Trustee"). W I T N E S S E T H : WHEREAS, the Company, the Master Servicer, the subsidiaries of the Master Servicer which are parties thereto (the "Sellers"), the several financial institutions which are parties thereto (the "Original Banks") and Chemical Bank, in its capacity as administrative agent for the Original Banks (the "Original Agent"), have entered into a Receivables Transfer and Servicing Agreement, dated as of July 13, 1994 (as the same has been amended from time to time, the "Original Transfer Agreement"); WHEREAS, pursuant to the Original Transfer Agreement, the Company has transferred to the Original Banks all of its right, title and interest in, to and under the receivables and other related property owned by the Company upon the terms and conditions therein stated; WHEREAS, as of the date hereof, (i) the Company, the Master Servicer and the Sellers are entering into an Amended and Restated Receivables Sale Agreement (as amended, supplemented or otherwise modified from time to time, the "Receivables Sale Agreement"), (ii) the Company, the Master Servicer, each of the subsidiaries of the Master Servicer which are from time to time parties thereto, in their capacities as servicers of the Receivables (in such capacities, the "Servicers"), and the Trustee have entered into a Servicing Agreement (as amended, supplemented or otherwise modified from time to time, the "Servicing Agreement") and (iii) the Company, the Master Servicer and the Trustee have entered into two Supplements to this Agreement pursuant to which the Company, upon the issuance and sale of the Investor Certificates thereunder, will receive funds to reacquire from the Original Banks the receivables and other property transferred under the Original Transfer Agreement and the interest of the Original Banks in such receivables and other property will be terminated; and WHEREAS, the parties hereto wish to enter into this Agreement in order to create a master trust to which the Company will transfer all of its right, title and interest in, to and under the Receivables and other Trust Assets now or hereafter owned by the Company and such master trust shall, from time to time at the direction of the Company, issue one or more Series of Investor Certificates which shall represent interests in the Receivables and such other Trust Assets as specified in the Supplement related to such Series; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. Whenever used in this Agreement, the following words and phrases shall have the following meanings: "Accounts" shall have the meaning specified in subsection 2.1(a)(vi) of this Agreement. "Accrual Period" shall mean, for any Series, the period from and including a Distribution Date, or, in the case of the initial Accrual Period for such Series, the Issuance Date for such Series, to but excluding the succeeding Distribution Date. "Additional Receivables" shall mean those Receivables, if any, originated by a Seller added to Schedule 1 to the Receivables Sale Agreement after the Initial Closing Date, which Seller's Receivables, as evidenced by an amendment to the related Supplement, shall be designated as Additional Receivables. "Additional Servicer Supplement" shall mean an instrument substantially in the form of Exhibit G by which a Subsidiary of the Master Servicer becomes a Servicer party to the Servicing Agreement. "Adjusted Invested Amount" shall mean, with respect to any Outstanding Series, the definition assigned to such term in the related Supplement. "Affiliate" shall mean, with respect to any specified Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person; provided that a Person shall not be deemed an Affiliate of another Person solely by reason of an individual serving as an officer or director of such other Person. For purposes of this definition "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary -2- voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" shall mean, with respect to any Series, the Person, if any, so designated in the related Supplement. "Aggregate Adjusted Invested Amount" shall mean, with respect to any date of determination, the sum of the Adjusted Invested Amount with respect to each Outstanding Series. "Aggregate Allocated Receivables Amount" shall mean, with respect to any date of determination, the sum of the Allocated Receivables Amount with respect to each Outstanding Series. "Aggregate Daily Collections" shall mean, with respect to any Business Day, the aggregate amount of all Collections deposited into the Collection Accounts on such day. "Aggregate Invested Amount" shall mean, at any time, the sum of the Invested Amounts with respect to all Outstanding Series. "Aggregate Primary Auto Receivables Amount" shall mean, with respect to any date of determination, the aggregate Principal Amount of all Primary Auto Receivables. "Aggregate Receivables Amount" shall mean, with respect to any date of determination, the sum of the "Aggregate Receivables Amount" with respect to each Outstanding Series as set forth in the related Supplement for each such Outstanding Series. "Aggregate Target Receivables Amount" shall mean, with respect to any date of determination, the sum of the Target Receivables Amount with respect to each Outstanding Series. "Agreement" shall mean this Pooling Agreement and all amendments hereof and supplements hereto, and including, unless expressly stated otherwise, each Supplement. "Allocated Receivables Amount" shall mean, with respect to any Outstanding Series, the amount specified in the related Supplement. "Amortization Period" shall mean, with respect to any Series, the period following the Revolving Period with -3- respect to such Series, as defined in any related Supplement. "Applicants" shall have the meaning specified in Section 5.7. "Authorized Foreign Exchange Dealer" shall mean any foreign exchange dealer authorized by applicable law to deal and engage in foreign exchange transactions relating to Canadian Dollars selected by the Master Servicer and reasonably acceptable to the Trustee. "Book-Entry Certificates" shall mean certificates evidencing a beneficial interest in the Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11; provided, however, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Certificates are issued to the Certificate Book-Entry Holders, such Certificates shall no longer be "Book-Entry Certificates". "Business Day" shall mean any day other than (i) a Saturday or a Sunday or (ii) another day on which commercial banking institutions or trust companies in the State of New York or in the city where the Corporate Trust Office is located, are authorized or obligated by law, executive order or governmental decree to be closed. "Business Day Received" shall have the meaning specified in subsection 2.3(e) of the Servicing Agreement. "C&A Products" shall mean Collins & Aikman Products Co., a Delaware corporation. "Canada/Canadian Dollar Collection Account" shall have the meaning specified in subsection 3.1(a). "Canada/U.S. Dollar Collection Account" shall have the meaning specified in subsection 3.1(a). "Canadian Dollars" shall mean dollars in lawful currency of Canada. "Canadian Exchange Percentage" shall mean, at any date of determination, the rate at which Canadian Dollars may be exchanged into U.S. Dollars (expressed as the percentage of Canadian Dollars per U.S. Dollars), as reported in The Wall Street Journal on the immediately preceding Business Day. In the event that such rate does not appear in The Wall Street Journal on such immediately preceding Business Day, the Canadian Exchange Percentage shall be determined by -4- reference to the relevant Bloomberg currency page (or, if such rate does not appear on any Bloomberg currency page, on the relevant page of the Reuters Monitor Money Rates Service) as of the close of business of the immediately preceding Business Day. In the event that such rate does not appear on any Bloomberg page or the relevant page of the Reuters Monitor Money Rates Service, the Canadian Exchange Percentage shall be determined by reference to such other publicly available service for displaying exchange rates with respect to Canadian Dollars as may be selected by the Trustee. "Canadian Seller" shall mean WCA Canada Inc., a wholly- owned Subsidiary of C&A Products. "Certificate" shall mean one of any Series of Investor Certificates, the Exchangeable Company Certificate or, if applicable, any Subordinated Company Certificate. "Certificate Book-Entry Holder" shall mean, with respect to a Book-Entry Certificate, the Person who is listed on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency, as the beneficial owner of such Book-Entry Certificate (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Certificate Rate" shall mean with respect to any Series and Class of Certificates, the percentage interest rate (or formula on the basis of which such interest rate shall be determined) stated in the applicable Supplement. "Certificate Register" shall mean the register maintained pursuant to Section 5.3, providing for the registration of the Certificates and transfers and exchanges thereof. "Certificateholder" shall mean the Person in whose name a Certificate is registered in the Certificate Register. "Certificateholders' Interest" shall have the meaning specified in subsection 3.1(b). "Charge-Offs" shall mean, during any period, with respect to the Receivables originated by any Seller and sold to the Company, the aggregate amount of such Receivables, as reflected in the most recent aged trial balance report of such Seller, that were written off, or should have been written off, during such period as uncollectible in accordance with the Policies of the Company. -5- "Class" shall mean, with respect to any Series, any one of the classes of Certificates of that Series as specified in the related Supplement. "Clearing Agency" shall mean each organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Clearing Agency Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book- entry transfers and pledges of securities deposited with such Clearing Agency. "Collection Accounts" shall mean the collective reference to the U.S. Dollar Collection Account, the Canada/U.S. Dollar Collection Account and the Canada/Canadian Dollar Collection Account. "Collections" shall mean all collections and all amounts received in respect of the Receivables transferred to the Trust, including Recoveries, Repurchase Payments and payments in respect of Dilutive Credits, together with all collections received in respect of the Related Property (including Recoveries) in the form of cash, checks, wire transfers or any other form of cash payment, and all proceeds thereof (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of, or any indemnity, warranty or guaranty payable in respect of, the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York or, if applicable, as defined under similar provincial laws of Canada). "Company" shall mean Carcorp, Inc., a Delaware corporation. "Company Collection Subaccount" shall have the meaning specified in subsection 3.1(a). "Company Exchange" shall have the meaning specified in subsection 5.10(b). "Company Interest" shall have the meaning specified in subsection 3.1(b). "Contractual Obligation" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. -6- "Corporate Trust Office" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at 450 West 33rd Street, 15th Floor, New York, New York 10001 (Attention: Structured Finance Services - ABS). "Credit Agreement" shall mean the Credit Agreement dated as of June 22, 1994 among C&A Products, as Borrower, WCA Canada Inc., as Canadian Borrower, Collins & Aikman Corporation, as Guarantor, the Lenders named therein, Continental Bank, N.A. and NationsBank, N.A., as Managing Agents, and Chemical Bank, as Administrative Agent, as amended, supplemented or otherwise modified from time to time. "Cut-Off Date" shall mean the close of business on March 29, 1995. "Daily Report" shall have the meaning specified in subsection 4.2(a) of the Servicing Agreement. "Defaulted Receivable" shall mean, with respect to each Seller, any Receivable (a) the Obligor of which is in bankruptcy, (b) which is unpaid in whole or in part for more than 90 days after its original due date or (c) which, in accordance with such Seller's Policies, is or should have been determined to be uncollectible by such Seller, in each case as calculated based on the most recent aged trial balance report with respect to such Seller. "Deficiency Amount" shall have, with respect to any Series, the meaning specified in the applicable Supplement. "Definitive Certificates" shall have the meaning specified in Section 5.11. "Delinquent Receivable" shall mean, with respect to each Seller, any Receivable, other than Defaulted Receivables, which Receivable, as calculated based on the most recent aged trial balance report with respect to such Seller, is unpaid in whole or in part for more than 60 days after its original due date. "Deposit Date" shall have the meaning specified in subsection 3.1(e). "Depository" shall mean, with respect to any Series, the Clearing Agency designated as the "Depository" in the related Supplement. -7- "Depository Agreement" shall mean, with respect to any Series, an agreement among the Company, the Trustee and a Clearing Agency, in a form reasonably satisfactory to the Trustee and the Company. "Determination Date" shall mean, with respect to any Distribution Date, the Business Day immediately preceding such Distribution Date. "Dilution Adjustments" shall have the meaning specified in Section 2.5 of the Receivables Sale Agreement. "Dilutive Credits" shall mean, for any period, the aggregate amount of discount expense, rebates, refunds, billing error expense, credits against Receivables, offsets and other adjustments or allowances in respect of Receivables permitted or incurred by the Seller thereof or the Company with respect thereto during such period. "Distribution Date" shall mean, except as otherwise set forth in the applicable Supplement, the 25th day of the month, beginning in the month immediately following the month of the Initial Issuance, or if such 25th day is not a Business Day, the next succeeding Business Day. "Dollars," "U.S. Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Early Amortization Event" shall have, with respect to any Series, the meaning specified in Section 7.1 of this Agreement and in any Supplement for such Series. "Eligible Institution" shall mean (a) with respect to accounts in the United States, a depositary institution or trust company (which may include the Trustee) organized under the laws of the United States of America or any one of the states thereof or the District of Columbia; provided, however, that at all times (i) such depositary institution or trust company is a member of the Federal Deposit Insurance Corporation, the unsecured and uncollateralized debt obligations of which are rated in the highest long-term or short-term rating category by each Rating Agency and (ii) such depositary institution or trust company has a combined capital and surplus of at least $50,000,000, and (b) with respect to accounts in Canada, a bank within the meaning of the Bank Act (Canada) or a trust company licensed under the laws of Canada or any province thereof; provided, however, that at all times the short-term deposits of any such bank or trust company shall have a credit rating from S&P so long as it is a Rating Agency, and any other Rating Agency rating such bank or trust company in the highest long-term investment category granted thereby or, if such institution -8- does not have a long-term rating from S&P and/or such other Rating Agency, the highest short-term investment category granted by S&P, as the case may be. "Eligible Investments" shall mean any book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully guaranteed as to timely payment by, the United States of America; (b) federal funds, demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by Federal or State banking or depository institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of the Rating Agencies rating such investment in the highest investment category granted thereby; (c) commercial paper rated, at the time of the investment or contractual commitment to invest therein, in the highest rating category by each Rating Agency rating such commercial paper; (d) investments in money market funds rated the highest rating category by each Rating Agency rating such money market fund (provided, that if such Rating Agency is Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., such rating shall be AAAm-g); (e) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; (f) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (b) above; or -9- (g) any other investment approved in writing by each Rating Agency. "Eligible Letter of Credit" shall mean any irrevocable direct pay or standby letter of credit (a) issued in favor of a Seller by any commercial bank that (i) has combined capital and surplus of not less than $50,000,000 and (ii) has (or the holding company parent of which has) a long-term or short-term senior unsecured debt rating in the highest rating category by each Rating Agency and (b) which permits such Seller to draw, upon notice to the issuing bank, an amount equal to the entire Principal Amount of any Receivable supported thereby, in U.S. Dollars payable by the issuing bank in the United States, no later than 90 days after the original invoice date with respect to such Receivable. "Eligible Obligor" shall mean, as of any date of determination, each Obligor in respect of a Receivable that satisfies the following eligibility criteria: (a) it is organized or located (within the meaning of Section 9-103(3)(d) of the UCC as in effect in the State of New York) in the United States; provided, however, that (i) Obligors organized or located in Canada or Japanese Obligors or (ii) Obligors not otherwise described in clause (i) above which are located (within the meaning of Section 9-103(3)(d) of the UCC as in effect in the State of New York) outside the United States, shall be deemed Eligible Obligors if (x) in the case of clauses (i) and (ii) above, the Receivables of such Obligor would otherwise be Eligible Receivables, (y) in the case of clause (i) above, the aggregate Principal Amount of all such Receivables does not exceed 20.0% of the Principal Amount of the Eligible Receivables then held by the Trust and (z) in the case of clause (ii) above, (1) the Receivables of such Obligor are supported by an Eligible Letter of Credit and (2) the aggregate Principal Amount of all such Receivables does not exceed 3.0% of the Principal Amount of the Eligible Receivables then held by the Trust; provided, further, that if an Obligor is located in the Provinces of Prince Edward Island, New Brunswick, Nova Scotia or Newfoundland, it shall not be deemed to be an Eligible Obligor until, as evidenced by an Opinion of Counsel, all actions are taken that are required to perfect the Company's and the Trust's ownership/security interest in the Receivables of any such Obligor; (b) it is not a direct or indirect Subsidiary of C&A Products; (c) it is not a domestic or foreign government or any agency, department, or instrumentality thereof; provided, -10- however, that up to 2.5% of the aggregate Principal Amount of the Eligible Receivables may be owing by the United States government, any state or local government within the United States or subdivision, or any agency, department or instrumentality thereof; and (d) it is not the subject of any reorganization, bankruptcy, receivership, custodianship or insolvency, unless the Receivables of such Obligor arise subsequent to a decree or order for relief under the Bankruptcy Reform Act of 1978, as amended, with respect to such Obligor; provided, however, that, if 25% or more of the Principal Amount of Receivables of an Obligor that is one of the ten largest Obligors (measured by Principal Amount of Receivables in the Trust) are reported as being 60 days or more past due as at the end of the fiscal month immediately preceding the most recent Settlement Report Date (commencing with the May 1995 Settlement Report Date), such Obligor shall not be deemed an Eligible Obligor until such time as the Master Servicer furnishes the Rating Agencies with a report (which may be part of a Daily Report or a Monthly Settlement Statement) indicating that less than 25% of the Principal Amount of Receivables of such Obligor then in the Trust are 60 days or more past due. "Eligible Receivable" shall mean, as of any date of determination, each Receivable owing by an Eligible Obligor in existence as of such date that satisfies the following eligibility criteria: (a) it constitutes an account (and not an "instrument" or "chattel paper" or a title in bearer form) within the meaning of Section 9-106 of the UCC of the State the law of which governs the perfection of the interest granted in it or, if applicable, under the provisions of similar legislation of any province of Canada; (b) it represents an enforceable obligation of such Eligible Obligor to pay the full Principal Amount thereof and it is not subject to any dispute in whole or in part or to any offset, counterclaim or defense; provided that a Receivable that is subject only in part to any of the foregoing shall be an Eligible Receivable to the extent not subject to dispute, offset, counterclaim or defense; (c) it is not a Defaulted Receivable or a Delinquent Receivable; (d) it is denominated and payable in U.S. Dollars or Canadian Dollars in the United States or Canada; -11- (e) it arose in the ordinary course of business from the sale of products or services of a Seller and in accordance with the Policies of such Seller and, at such date of determination, such Seller continues to be a Seller under the Receivables Sale Agreement; (f) it does not contravene any applicable law, rule or regulation and the applicable Seller is not in violation of any law, rule or regulation in connection with it which in any way renders it unenforceable or would otherwise impair in any material respect the collectibility of such Receivable; (g) if the Company and the Trust are not excluded from the definition of "investment company" pursuant to Rule 3a-7 under the Investment Company Act of 1940, as amended, it is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (h) it is not a Receivable for which the applicable Seller has established an offsetting specific reserve; (i) it is not a Receivable in respect of which the applicable Seller has (i) entered into an arrangement with the Obligor pursuant to which payment of any portion of the purchase price has been extended or deferred, whether by means of a promissory note or by any other means, to a date more than 60 days from the billing date, (ii) altered the basis of the aging from the initial due date for payment such that the final due date extends to a date more than 60 days from the billing date or (iii) otherwise made any modification except in the ordinary course of business and consistent with the Policies of such Seller; (j) the related goods shall have been delivered to the related Obligor or the related services shall have been performed and the Receivable shall have been billed to the related Obligor; (k) the Company or the Trust will have good and marketable title thereto free and clear from Liens (except those in favor of the Company and/or the Trust) and such Receivable has been the subject of either a valid transfer from the Company to the Trust or, subsidiarily, the grant of a first priority perfected security interest therein to the Trust; (l) except for Receivables sold on any Effective Date (as defined under the Receivables Sale Agreement) for any Seller, it was sold to the Company pursuant to the -12- Receivables Sale Agreement within three Business Days after the original invoice date with respect thereto; (m) all required consents, approvals and authorizations (including, without limitation, any consent of the Obligor thereof required for the assignment and sale thereof to the Company and by the Company to the Trust) have been obtained with respect to the Receivable; (n) it is fully assignable; and (o) at the time such Receivable was sold by the respective Seller to the Company under the Receivables Sale Agreement, no event described in subsection 7(d)(i) of the Receivables Sale Agreement (without giving effect to any requirement as to the passage of time) had occurred with respect to such Seller. "Eligible Primary Auto Receivables" shall mean, as of any date of determination, each Primary Auto Receivable that also is an Eligible Receivable. "Eligible Successor Servicer" shall mean a Person which, at the time of its appointment as a Servicing Party (i) is legally qualified and has the corporate power and authority to service the Receivables transferred to the Trust, (ii) has demonstrated the ability to service a portfolio of similar receivables in accordance with high standards of skill and care in the sole determination of the Master Servicer and (iii) has a combined capital and surplus of at least $5,000,000. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Exchange" shall mean either of the procedures described under Section 5.10. "Exchange Date" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in Section 5.10. "Exchange Notice" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in Section 5.10. "Exchangeable Company Certificate" shall mean the certificate executed by the Company and authenticated by the Trustee, substantially in the form of Exhibit A and exchangeable as provided in Section 5.10. -13- "Excess Primary Auto Receivables" shall mean, on any date of determination, the aggregate Principal Amount of Eligible Primary Auto Receivables in excess of the Obligor Limits for the Primary Auto Obligors. "Expense Account" shall have the meaning specified in subsection 7.3(a). "Expense Account Limit" shall mean $500,000. "Force Majeure Delay" shall mean, with respect to any Servicing Party, any cause or event which is beyond the control and not due to the negligence of such Servicing Party which delays, prevents or prohibits such Servicing Party's delivery of Daily Reports and/or Monthly Settlement Statements, including, without limitation, acts of God or the elements and fire, but shall not include strikes; provided that no such cause or event shall be deemed to be a Force Majeure Delay unless the affected Servicing Party or the Master Servicer on behalf of such Servicing Party shall have given the Company and the Trustee written notice thereof as soon as possible after the beginning of such delay. "Fractional Undivided Interest" shall mean the fractional undivided interest in the Certificateholders' Interest evidenced by an Investor Certificate. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "General Opinion" shall mean, with respect to any action, an Opinion of Counsel to the effect that (i) such action has been duly authorized by all necessary corporate action on the part of the Master Servicer or the Company, as the case may be, (ii) any agreement executed in connection with such action constitutes a legal, valid and binding obligation of the Master Servicer or the Company, as the case may be, enforceable in accordance with the terms thereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect, affecting the enforcement of creditors' rights and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity) and (iii) any condition precedent to any such action has been complied with. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, -14- regulatory or administrative functions of or pertaining to government. "Indebtedness" shall mean, with respect to any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under capital leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person which would be reflected on a balance sheet of such Person prepared in accordance with GAAP and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. For purposes of any calculation hereunder, the amount of any Indebtedness outstanding at any time, except Indebtedness under clause (e) of this definition, shall be deemed to be equal to the then outstanding principal amount of such Indebtedness (including, with respect to capital leases, the implied principal amount thereof calculated in accordance with GAAP) and the amount of any Indebtedness outstanding at any time under clause (e) of this definition shall be equal to the lesser of (i) the then outstanding principal amount of, and all accrued and unpaid interest on, the liability secured by the applicable property and (ii) the then fair market value of such property. "Ineligible Receivable" shall have the meaning specified in Section 2.5. "Initial Closing Date" shall mean March 31, 1995. "Initial Invested Amount" shall mean, with respect to any Series, the amount stated as such in the applicable Supplement. "Insolvency Event" shall mean the occurrence of any one or more of the events specified in paragraph (a) of Section 7.1. "Internal Operating Procedures Memorandum" shall mean the internal operating procedures memorandum prepared by the Trustee as set forth in Exhibit H hereto. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Invested Amount" shall have, with respect to any Series, the meaning specified in the applicable Supplement. -15- "Invested Percentage" shall have, with respect to any Series, the meaning specified in the applicable Supplement. "Investment Earnings" shall have the meaning specified in subsection 3.1(c). "Investor Certificateholder" shall mean the holder of record of, or the bearer of, an Investor Certificate. "Investor Certificates" shall mean the Certificates executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form attached to the applicable Supplement, but shall not include the Exchangeable Company Certificate, any Subordinated Company Certificate or any other Certificate held by the Company. "Issuance Date" shall mean, with respect to any Series, the date of issuance of such Series, or the date of any increase to the Invested Amount of such Series, as specified in the related Supplement. "Japanese Obligor" shall mean any of Fuji Heavy Industries, Inc., Toyota Motor Company, Honda Motor Co., Ltd., Toyota Tsusho Corp., or Kotobakiya Fronte Co., Inc. "Lien" shall mean, with respect to any asset, (a) any mortgage, hypothec, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or other similar right of a third party with respect to such securities; provided, however, that if a lien is imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, then such lien shall not be treated as a "Lien" from and after the time any Person who is obligated to make such payment pays to such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, and provides to the Trustee and each Agent a written statement of the amount of such lien together with written evidence of payment of such amount, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. "Lockbox" shall mean the post office boxes listed on Schedule 2 to the Receivables Sale Agreement to which the Obligors are instructed to remit payments on the Receivables -16- and/or such other post office boxes as may be established pursuant to Section 2.3 of the Servicing Agreement. "Lockbox Account" shall mean the intervening account used by a Lockbox Processor for deposit of funds received in a Lockbox prior to their transfer to the Collection Accounts. "Lockbox Agreement" shall mean a lockbox agreement in the form set forth as Exhibit B. "Lockbox Processor" shall mean the depositary institution or processing company (which may be the Trustee) which processes payments on the Receivables sent by the Obligors thereon forwarded to a Lockbox. "Master Servicer" shall initially mean C&A Products in its capacity as Master Servicer under the Transaction Documents and, after any Service Transfer, the Successor Servicer. "Material Adverse Effect" shall mean (i) with respect to any Seller or any Servicing Party, (a) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of C&A Products and its Subsidiaries taken as a whole, (b) a material impairment of the ability of such Seller or Servicing Party, as the case may be, to perform its obligations under the Transaction Documents, (c) a material impairment of the validity or enforceability of any of the Transaction Documents against any of the Sellers or any Servicing Party, (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders or (e) a material impairment of the collectibility of the Receivables of such Seller or Servicing Party, as the case may be, or (ii) with respect to the Company, (a) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of the Company, (b) a material impairment of the ability of the Company to perform its obligations under any Transaction Document to which it is a party, (c) a material impairment of the validity or enforceability of any of the Transaction Documents against the Company, (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders or (e) a material impairment of the collectibility of the Receivables. "Monthly Servicing Fee" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "Monthly Settlement Statement" shall have the meaning specified in Section 4.3 of the Servicing Agreement. -17- "Obligor" shall mean, with respect to any Receivable, the party obligated to make payments with respect to such Receivable, including any guarantor thereof. "Obligor Limit" shall mean, at any date, (i) with respect to any Eligible Obligor other than a Special Obligor, 2.5% of the Principal Amount of all Eligible Receivables in the Trust at such date, and (ii) with respect to any Special Obligor, the Special Obligor Limit designated in respect thereof. For purposes of applying the Obligor Limit, (i) all Eligible Obligors that are Affiliates of each other shall be deemed to be a single Eligible Obligor and (ii) all Eligible Obligors that are state or local governmental entities located within the United States or any agencies thereof shall be deemed to be a single Eligible Obligor. "Officer's Certificate" shall mean, unless otherwise specified in this Agreement, a certificate signed by the Chairman of the Board, Vice Chairman of the Board, President, Chief Financial Officer, any Vice President or Treasurer of the Master Servicer or the Company, as the case may be, or, in the case of a Successor Servicer, a certificate signed by a Vice President and the financial controller (or an officer holding an office with equivalent or more senior responsibilities) of such Successor Servicer. "Opinion of Counsel" shall mean a written opinion of counsel, who may be internal counsel to the Company or the Master Servicer, designated by the Company or the Master Servicer, as the case may be, which is reasonably acceptable to the Trustee. "Optional Repurchase Percentage" shall mean, with respect to any Series, the percentage stated as such in the applicable Supplement. "Outstanding Series" shall mean, at any time, a Series issued pursuant to an effective Supplement for which the Series Termination Date for such Series has not occurred. "Overconcentration Amount" shall mean, with respect to any date of determination, the sum of (i) for all Eligible Obligors, the excess, if any, of the aggregate Principal Amount of Eligible Receivables of each such Eligible Obligor over the Obligor Limit of each such Eligible Obligor and (ii) the excess, if any, of (A) the aggregate Principal Amount of all Receivables payable in Canadian Dollars over (B) 7.5% of the aggregate Principal Amount of all Eligible Receivables in the Trust at the end of the Business Day immediately preceding such date. For purposes of clause (i) above, the Overconcentration Amount for each Eligible -18- Obligor that owes Receivables payable in Canadian Dollars and U.S. Dollars shall be allocated first to its Eligible Receivables payable in Canadian Dollars and then to its Eligible Receivables payable in U.S. Dollars. "Parent Note" shall have the meaning specified in Section 8.3 of the Receivables Sale Agreement. "Paying Agent" shall mean any paying agent and co-paying agent appointed pursuant to Section 5.6 and, unless otherwise specified in the related Supplement of any Series and with respect to such Series, shall initially be Chemical Bank. "Permitted Liens" shall mean, at any time, for any Person: (i) Liens created pursuant to this Agreement or the Receivables Sale Agreement; (ii) Liens for taxes, assessments or other governmental charges or levies not yet due, or which are for less than $100,000 in the aggregate, or which are being contested in good faith by appropriate proceedings provided that the relevant Person shall have set aside on its books reserves in accordance with GAAP; (iii) deposits to secure the performance of leases, which are for less than $100,000 in the aggregate, and appeal bonds; and (iv) Liens (not otherwise permitted hereunder) securing obligations not exceeding $100,000 in aggregate amount at any time outstanding. "Person" shall mean any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Policies" shall mean, (i) with respect to any Seller or Servicing Party, as the case may be, which has set forth its credit and collection policies in writing, such written credit and collection policies as they have been applied by such Seller or Servicing Party, as the case may be, in the ordinary course of its business prior to the Initial Closing Date, (ii) with respect to any Seller or Servicing Party, as the case may be, which has not set forth its credit and collection policies in writing, its credit and collection policies as in effect and applied by such Seller or Servicing Party, as the case may be, in the ordinary course -19- of business prior to the Initial Closing Date, and (iii) with respect to the Company, its written charge-off policies as they have been applied by the Company in the ordinary course of its business prior to the Initial Closing Date, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Transaction Documents. "Pooling and Servicing Agreements" shall have the meaning specified in subsection 10.1(a). "Potential Early Amortization Event" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute an Early Amortization Event hereunder or under any Supplement. "Potential Servicer Default" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute a Servicer Default hereunder or under any Supplement. "Prepayment Request" shall have the meaning, with respect to any Outstanding Series, specified in the related Supplement. "Primary Auto Obligors" shall mean General Motors Corporation, Chrysler Corporation, Ford Motor Company, Honda Motor Co., Ltd., American Honda Motor Co. Inc., Toyota Motor Company and Toyota Tsusho Corp. and their respective Subsidiaries. "Primary Auto Receivable" shall mean any Receivable the Obligor of which is a Primary Auto Obligor. "Principal Amount" shall mean, with respect to any Receivable, the amount due thereunder, net of any prompt payment discount, volume discount or other promotional discount or rebate known to be deductible at the date of determination and, in the case of any Receivable payable in Canadian Dollars, multiplied by 85.0% of the applicable Canadian Exchange Percentage. "Principal Terms" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in Section 5.10. "Rating Agency" shall mean, with respect to each Outstanding Series, any rating agency or agencies designated as such in the related Supplement. "Rating Agency Condition" shall mean, with respect to any action, that each Rating Agency shall have notified the -20- Company, the Master Servicer, any Agent and the Trustee orally (to be confirmed promptly in writing) or in writing that such action will not result in a reduction or withdrawal of the rating of any Outstanding Series or any Class of any such Outstanding Series with respect to which it is a Rating Agency; provided, however, that to the extent specified in the related Supplement, certain actions requiring satisfaction of the Rating Agency Condition shall require written notice from each such Rating Agency. "Receivable" shall mean the indebtedness and payment obligations of any Person to a Seller arising from a sale of merchandise or services by such Seller in the ordinary course of its business, including, without limitation, any right to payment for goods sold or for services rendered, and including the right of payment of any interest, finance charges, returned check or late charges and other obligations of such Person with respect thereto. Notwithstanding the foregoing, "Receivables" shall not include, and the holders of the Investor Certificates shall have no interest in, the receivables generated by the Borg Textile division of the Canadian Seller. "Receivables Purchase Date" shall mean, with respect to any Receivable, the Business Day on which the Company purchases such Receivable from a Seller and transfers such Receivable to the Trust. "Receivables Sale Agreement" shall mean the Amended and Restated Receivables Sale Agreement, dated as of the date hereof, among the Sellers, the Master Servicer and the Company, as buyer, as amended, supplemented or otherwise modified from time to time. "Record Date" shall mean, with respect to any Series, the date specified as such in the applicable Supplement. "Recoveries" shall mean all amounts collected (net of out-of-pocket costs of collection) in respect of Charge- Offs. "Related Property" shall mean, with respect to each Receivable: (a) all of the applicable Seller's interest in the merchandise (including returned merchandise), if any, relating to the sale which gave rise to such Receivable; (b) all other security interests or Liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant -21- to the contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and (c) all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the contract related to such Receivable or otherwise. "Reported Day" shall have the meaning specified in subsection 4.2(a) of the Servicing Agreement. "Repurchase Payments" shall mean the collective reference to payments of Transfer Deposit Amounts and Servicer Repurchase Amounts. "Repurchase Terms" shall mean, with respect to any Series, the terms and conditions under which the Company may repurchase such Series pursuant to Section 9.2, as modified by the related Supplement. "Requirements of Law" for any Person shall mean the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean (i) when used with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee including any Vice President, any Assistant Vice President, Trust Officer or Assistant Trust Officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and (ii) when used with respect to any other Person, the chief executive officer and the president or the treasurer or the chief financial officer or any vice-president in the finance department of such Person. "Revolving Period" shall have, with respect to any Outstanding Series, the definition assigned to such term in the related Supplement. "Revolving Termination Date" shall mean, with respect to all Series, the date on which the Revolving Period for any Series terminates. -22- "Scheduled Amortization Period" shall have, if applicable with respect to any Outstanding Series, the definition assigned to such term in the related Supplement. "Securities Act" shall mean the United States Securities Act of 1933, as amended. "Seller Daily Report" shall have the meaning specified in subsection 4.2(b) of the Servicing Agreement. "Sellers" shall mean C&A Products and the Subsidiaries of C&A Products listed on Schedule 1 to the Receivables Sale Agreement (excluding any such Subsidiaries which have been terminated as Sellers in accordance with the provisions of the Receivables Sale Agreement) together with any Subsidiaries of C&A Products (whether now owned or hereafter acquired) which have been added as Sellers in accordance with the provisions of the Receivables Sale Agreement, in their capacities as sellers under the Receivables Sale Agreement. "Series" shall mean any series of Investor Certificates, the terms of which are set forth in a Supplement. "Series Account" shall mean any deposit, trust, escrow, reserve or similar account maintained for the benefit of the Investor Certificateholders of any Series or Class, as specified in any Supplement. "Series Canada/Canadian Dollar Collection Subaccount" shall have the meaning specified in subsection 3.1(a). "Series Canada/U.S. Dollar Collection Subaccount" shall have the meaning specified in subsection 3.1(a). "Series Collection Subaccount" shall have the meaning specified in subsection 3.1(a). "Series Collection Sub-subaccount" shall have the meaning specified in subsection 3.1(a). "Series Non-Principal Collection Sub-subaccount" shall have the meaning specified in subsection 3.1(a). "Series Percentage" shall have, with respect to any Outstanding Series, the definition assigned to such term in the related Supplement. "Series Principal Collection Sub-subaccount" shall have the meaning specified in subsection 3.1(a). -23- "Series Termination Date" shall mean, with respect to any Series, the date specified as such in the Supplement relating to such Series. "Service Transfer" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "Servicer" shall have the meaning assigned in the recitals hereto. "Servicer Default" shall have, with respect to any Series, the meaning specified in Section 6.1 of the Servicing Agreement, as supplemented by the related Supplement for such Series. "Servicer Repurchase Amount" shall have the meaning specified in subsection 4.1(b) of the Servicing Agreement. "Servicer Site Review" shall mean a review performed by the Trustee of the servicing operations of each Servicer at such Servicer's offices, as described in Appendix A. "Servicing Agreement" shall have the meaning specified in the recitals hereto. "Servicing Fee" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "Servicing Fee Percentage" shall mean 1.0% per annum. "Servicing Party" shall mean the collective reference to each of the Master Servicer and each Servicer. "Settlement Period" shall mean, initially, the period commencing March 31, 1995 and ending April 29, 1995. Thereafter, Settlement Period shall mean each fiscal month of the Master Servicer. "Settlement Report Date" shall mean, except as otherwise set forth in the applicable Supplement, the 20th day of each calendar month or, if such 20th day is not a Business Day, the next succeeding Business Day. "Special Obligor" shall mean each Eligible Obligor whose name is set forth on Schedule 3 which Schedule may be amended from time to time (including any amendment to any Special Obligor Limit set forth thereon) upon satisfaction of the Rating Agency Condition. "Special Obligor Limit" shall mean, with respect to any Special Obligor, the percentage set forth opposite the name of such Special Obligor on Schedule 3. -24- "Specified Bankruptcy Opinion Provisions" shall mean the provisions contained under the heading "Statement of Facts and Assumptions" in the legal opinion of Stroock & Stroock & Lavan relating to certain bankruptcy matters delivered on the Initial Closing Date. "S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., and its successors in interest. "Standby Liquidation System" shall mean a system by which the Trustee will receive and store electronic information regarding Receivables from each Servicing Party which may be utilized in the event of a liquidation of the Receivables to be carried out by the Trustee, as described in Appendix B. "Subordinated Certificate Amount" shall have, with respect to any Series, the meaning specified in the applicable Supplement. "Subordinated Company Certificate" shall mean any Certificate issued to the Company pursuant to the Supplement for any Series which represents an interest in the Trust Assets which is subordinated to the Investor Certificates of such Series. "Subordinated Notes" shall have the meaning specified in Section 8.1 of the Receivables Sale Agreement. "Subsidiary" shall mean, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. "Successor Servicer" shall have the meaning specified in Section 6.2 of the Servicing Agreement. "Supplement" shall mean, with respect to any Series, a supplement to this Agreement complying with the terms of Section 5.10, executed in conjunction with the issuance of any Series. "Target Receivables Amount" shall mean, with respect to any Outstanding Series, the amount specified as the "Target Receivables Amount" in the related Supplement. -25- "Tax Opinion" shall mean, with respect to any action, an opinion of counsel (a) to the effect that, for federal income tax purposes, (i) such action will not adversely affect the characterization as debt or as an interest in a partnership (other than a partnership taxable as a corporation), as the case may be, of any Investor Certificates of any Outstanding Series or Class not retained by the Company, (ii) such action will not cause or constitute a sale, exchange or other disposition by the Company or the Trust of the Trust Assets, or by the Investor Certificateholders of such Certificateholders' Certificates of any Outstanding Series or Class and (iii) in the case of Section 5.9, the Investor Certificates of the new Series which are not retained by the Company will be characterized as debt or as an interest in a partnership (other than a partnership taxable as a corporation) and (b) with respect to New York and North Carolina state taxation issues, in substantially the form delivered at the Initial Closing Date. "Termination Notice" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "Transaction Documents" shall mean the collective reference to this Agreement, the Servicing Agreement, each Supplement with respect to any Outstanding Series, the Receivables Sale Agreement, the Lockbox Agreements, the Certificates and any other documents delivered pursuant to or in connection therewith. "Transfer Agent and Registrar" shall have the meaning specified in Section 5.3 and shall initially be Chemical Bank. "Transfer Deposit Amount" shall have the meaning specified in subsection 2.5(b). "Transferred Agreements" shall have the meaning assigned in subsection 2.1(a)(v). "Trust" shall mean the C&A Master Trust created by this Agreement. "Trust Assets" shall have the meaning specified in Section 2.1. "Trust Termination Date" shall have the meaning specified in subsection 9.1(a). "Trustee" shall mean the institution executing this Agreement as trustee, or its successor in interest, or any successor trustee appointed as herein provided. -26- "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in any specified jurisdiction. "U.S. Dollar Collection Account" shall have the meaning specified in subsection 3.1(a). "U.S. Dollar Primary Auto Collection Subaccount" shall have the meaning specified in subsection 3.1(a). Section 1.2. Other Definitional Provisions. (a) All terms defined in this Agreement, the Servicing Agreement or in any Supplement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (d) The definitions contained in Section 1.1 are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (e) Where a definition contained in Section 1.1 specifies that such term shall have the meaning set forth in the related Supplement, the definition of such term set forth in the related Supplement may be preceded by a prefix indicating the specific Series or Class to which such definition shall apply. (f) Where reference is made in this Agreement or any related Supplement to the principal amount of Receivables, such reference shall, unless explicitly stated otherwise, be deemed a reference to the Principal Amount (as such term is defined in Section 1.1) of such Receivables. The intent of this provision is to require that, unless explicitly stated otherwise, in determining the amount of Receivables payable in Canadian -27- Dollars, the applicable Canadian Exchange Percentage be taken into consideration. (g) Any reference herein or in any other Transaction Document to a provision of the Internal Revenue Code or ERISA shall be deemed a reference to any successor provision thereto. ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.1. Conveyance of Receivables. (a) By execution and delivery of this Agreement, the Company does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Certificateholders, without recourse (except as specifically provided herein), all of its present and future right, title and interest in, to and under: (i) all Receivables owned by the Company, including those owned by the Company at the close of business on the Initial Closing Date and all Receivables thereafter acquired by the Company from time to time until but not including the Trust Termination Date; (ii) the Related Property; (iii) all Collections; (iv) all rights (including rescission, replevin or reclamation) relating to any Receivable or arising therefrom; (v) each of the Receivables Sale Agreement and the Servicing Agreement, including in respect of each agreement, (A) all rights of the Company to receive monies due and to become due under or pursuant to such agreement, whether payable as fees, expenses, costs or otherwise, (B) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to such agreement, (C) claims of the Company for damages arising out of or for breach of or default under such agreement, (D) the right of the Company to amend, waive or terminate such agreement, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder and (E) all other rights, remedies, powers, privileges and claims of the Company under or in connection with such agreement (whether arising pursuant to such agreement or otherwise available to the Company at law or in equity), including the rights of -28- the Company to enforce such agreement and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or in connection therewith (all of the foregoing set forth in subclauses (v)(A)-(E), inclusive, the "Transferred Agreements"); (vi) each Collection Account, each Lockbox and each Lockbox Account (collectively, the "Accounts"), all funds and other evidences of payment held therein and all certificates and instruments, if any, from time to time representing or evidencing any of such Accounts or any funds and other evidences of payment held therein; (vii) all investments of such funds held in such Accounts and all certificates and instruments from time to time representing or evidencing such investments; (viii) all notes, certificates of deposit and other instruments from time to time hereafter delivered to, or otherwise possessed by, the Trustee for and on behalf of the Company in substitution for any of the then existing Accounts; (ix) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the then existing Accounts; (x) all proceeds of or payments in respect of any and all of the foregoing clauses (i) through (ix) (including proceeds that constitute property of the types described in clauses (vi)-(ix) above and including Collections); and (xi) for more certainty, the universality of all of the Company's present and future rights, title and interest in, to and under the items listed in clauses (i)-(x) above. Such property described in the foregoing clauses (i) through (xi), together with all investments and all monies on deposit in any other bank account or accounts maintained for the benefit of any Certificateholders for payment to Certificateholders shall constitute the assets of the Trust (the "Trust Assets"). Although it is the intent of the parties to this Agreement that the conveyance of the Company's right, title and interest in, to and under the Receivables and the other Trust Assets pursuant to this Agreement shall constitute a purchase and sale and not a loan, in the event that such conveyance is deemed to be a loan, it is the intent of the parties to this Agreement that the Company shall be deemed to have granted to the Trustee a first priority security interest in all of the Company's present -29- and future right, title and interest in, to and under the Receivables and the other Trust Assets, and that this Agreement shall constitute a security agreement under applicable law. Notwithstanding anything contained herein to the contrary, from and after the time a Responsible Officer of the Company receives notice or becomes aware that a lien has been imposed against Collins & Aikman Corporation, the Company, the Trust or any of the Sellers, under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, the Company shall not transfer, assign, set over or otherwise convey to the Trust any Receivables until such time as the Company furnishes the Trustee evidence (which may be in the form of a payment receipt or wire transfer confirmation) that the Person who is required to make such payment pays to such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. (b) The transfer, assignment, setover and conveyance to the Trust pursuant to Section 2.1(a) shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such transfer, assignment, setover and conveyance shall be construed accordingly. In connection with the foregoing transfer, the Company and each Servicing Party agree to deliver to the Trustee each Trust Asset (including any original documents or instruments included in the Trust Assets as are necessary to effect such transfer) in which the transfer of an interest is perfected under the UCC or otherwise solely by possession and not by filing a financing statement or similar document. Notwithstanding the assignment of the Transferred Agreements set forth in Section 2.1(a), the Company does not hereby assign or delegate any of its duties or obligations under the Receivables Sale Agreement to the Trust and the Trust does not accept such duties or obligations, and the Company shall continue to have the right and the obligation to purchase Receivables from the Sellers thereunder from time to time. The foregoing transfer, assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Trust, the Trustee, any Investor Certificateholder or the Company, in its capacity as a Certificateholder, of any obligation of the Master Servicer, the Company, any Seller or any other Person in connection with the Receivables or under any agreement or instrument relating thereto, including, without limitation, any obligation to any Obligors. -30- In connection with such transfer, the Company agrees to record and file, at its own expense, any financing statements (and continuation statements with respect to such financing statements when applicable) or, where applicable, registrations in the appropriate records, with respect to the Receivables now existing and hereafter created (and with respect to any other Trust Assets a security interest for which may be perfected under the relevant UCC, legislation or similar statute by such filing or registration, as the case may be) meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect the transfer and assignment of the Receivables and such other Trust Assets (excluding returned merchandise) to the Trust, and to deliver a file-stamped copy or certified statement of such financing statement or registration or other evidence of such filing or registration to the Trustee on or prior to the date of issuance of any Certificates. The Trustee shall be under no obligation whatsoever to file such financing statement, or a continuation statement to such financing statement, or to make any other filing or other registration under the UCC, other relevant legislation or similar statute in connection with such transfer. The Trustee shall be entitled to conclusively rely on the filings or registrations made by or on behalf of the Company without any independent investigation. In this regard, inasmuch as the within creation of security interests is concerned, the parties hereto agree to execute a movable hypothec and to attend to its due registration in every jurisdiction where such movable hypothec and registration may be necessary or useful. In connection with such transfer, the Company further agrees, at its own expense, (a) on or prior to the Initial Closing Date, to indicate, or to cause to be indicated, in its computer files containing its master database of Receivables and to cause each of the Sellers to indicate in its records containing its master database of Receivables that Receivables have been conveyed to the Company or the Trust, as the case may be, pursuant to the Receivables Sale Agreement or this Agreement, respectively, for the benefit of the Certificateholders and (b) within two Business Days of the Initial Closing Date, to deliver or cause to be delivered to the Trustee computer tapes or disks containing a true and complete list of all Receivables transferred to the Trust specifying for each such Receivable, as of the Cut-Off Date, (i) the identification or reference number assigned to such Receivables by the Company and (ii) the Principal Amount of such Receivables. Such tapes or disks shall be marked as Schedule 1 to this Agreement and is hereby incorporated into and made a part of this Agreement. Section 2.2. Acceptance by Trustee. (a) The Trustee hereby acknowledges its acceptance on behalf of the Trust of all right, title and interest to the property, now existing and hereafter created, transferred to the Trust pursuant to Section -31- 2.1 and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Certificateholders. The Trustee further acknowledges that, prior to or simultaneously with the execution and delivery of this Agreement, the Company delivered or caused to be delivered to the Trustee the computer tapes or disks described in the last paragraph of Section 2.1. (b) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement. Section 2.3. Representations and Warranties of the Company Relating to the Company. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, as of the Issuance Date of such Series, that: (a) Corporate Existence; Compliance with Law. The Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority, and all material licenses, permits, franchises, consents and approvals, to own and lease its property and assets and to carry on its business as now conducted and (iii) is qualified and in good standing as a foreign corporation to do business in the jurisdiction in which its chief executive office is located and in every other jurisdiction where such qualification is necessary, except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect. The Company does not engage in activities prohibited by the Transaction Documents or its certificate of incorporation. (b) Corporate Power; Authorization. The Company has the corporate power and authority, and the legal right, to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against the Company other than (i) those which have duly been obtained or made and are in full force and effect on the Initial Closing Date, (ii) any filings of UCC- 1 financing statements or similar documents necessary to perfect the Company's or the Trust's interest in the Trust Assets, (iii) those that may be required under the state -32- securities or "blue sky" laws in connection with the offering or sale of Certificates and (iv) any such consent, authorization, filing, notice or other act, the absence of which would not reasonably be likely to have a Material Adverse Effect. This Agreement and each other Transaction Document to which the Company is a party have been duly executed and delivered on behalf of the Company. (c) Enforceability. This Agreement and each of the other Transaction Documents to which it is a party constitute the legal, valid and binding obligation of the Company enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (d) No Legal Bar. The execution, delivery and performance of this Agreement and the other Transaction Documents to which the Company is a party will not violate any Requirement of Law or Contractual Obligation of the Company except for violations that would not be reasonably likely to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien (other than Liens contemplated hereby) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. (e) No Material Litigation. (i) There are not any actions, suits or proceedings at law or in equity or by or before any court or Governmental Authority now pending or, to the knowledge of the Company, threatened against or affecting the Company or any property or rights of the Company which (a) involve this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby or (b) would reasonably be likely to have a materially adverse effect on the performance of the Company under the Transaction Documents or have a Material Adverse Effect with respect to the Company. (ii) The Company is not in default under or with respect to any law, order, judgment, writ, injunction, decree, rule or regulation of any Governmental Authority where such default could reasonably be likely to have a Material Adverse Effect. The transactions contemplated hereunder and the use of the proceeds therefrom do not violate any applicable law or regulation, any judgment, writ, injunction, decree or order of any court or -33- Governmental Authority or subject the Company to any civil or criminal penalty or fine. (f) No Default. The Company is not in default under or with respect to any of its Contractual Obligations except for defaults with respect to leases of office space, equipment or other facilities for use by the Company in its ordinary course of business, employment agreements and servicing agreements which defaults would not reasonably be likely to have a Material Adverse Effect. No Early Amortization Event has occurred and is continuing. (g) Tax Returns. The Company has filed or caused to be filed all Federal, and all material state and local, tax returns required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable, and any assessments in excess of $100,000 in the aggregate received by it, except taxes the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on its books. For purposes of this paragraph, "taxes" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. (h) Location of Records; Chief Executive Office. The offices at which the Company keeps its records concerning the Receivables either (x) are located at the addresses set forth for the Sellers on Schedule 1 of the Receivables Sale Agreement or (y) have been notified to the Trustee in accordance with the provisions of subsection 2.8(l) of this Agreement. The chief executive office of the Company is located at the address set forth on Schedule 4 and is the place where the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York, or, if applicable, for purposes of the relevant provincial laws of Canada. The state and county where the chief executive office of the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York has not changed in the past four months. (i) Solvency. (i) The fair salable value of the assets of the Company exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Company. After giving effect to the transactions to occur on the Issuance Date under the Transaction Documents to which the Company is a party, the fair salable value of the assets of the Company exceeds the amount that will be -34- required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Company. (ii) The assets of the Company do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. After giving effect to the transactions to occur on the Issuance Date under the Transaction Documents to which the Company is party, the assets of the Company do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. (iii) The Company does not intend to, or believe that it will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by the Company and of amounts to be payable on or in respect of debt of the Company. (j) Investment Company. Neither the Company nor the Trust is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (k) Ownership; Subsidiaries. All of the issued and outstanding capital stock of the Company is owned, legally and beneficially, by C&A Products. The Company has no Subsidiaries. (l) Names. The legal name of the Company is as set forth in this Agreement. The Company has no trade names, fictitious names, assumed names or "doing business as" names. (m) Use of Proceeds. No proceeds of the issuance of any Investor Certificates will be used by the Company to purchase or carry any margin security. The representations and warranties as of the date made set forth in this Section 2.3 shall survive the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Master Servicer or by a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties as of the date made, the party discovering such breach shall give prompt written notice to the other parties and to each Agent with respect to all Outstanding Series. Section 2.4. Representations and Warranties of the Company Relating to the Receivables. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, (x) as of the Issuance Date of such Series, and (y) with -35- respect to each Receivable transferred to the Trust after such Issuance Date, as of the related Receivables Purchase Date, unless, in either case, otherwise stated in the applicable Supplement or unless such representation or warranty expressly relates only to a prior date, that: (a) As of the Cut-Off Date, Schedule 1 to this Agreement sets forth an accurate and complete listing in all material respects of all Receivables transferred to the Trust as of the Cut-Off Date and the information contained therein with respect to the identity and Principal Amount of each such Receivable is true and correct in all material respects as of the Cut-Off Date. As of the Cut-Off Date, the aggregate amount of Receivables owned by the Company is accurately set forth in Schedule 1 hereto. (b) Each Receivable existing on the Initial Closing Date or, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date that each such Receivable shall have been transferred to the Trust, has been conveyed to the Trust free and clear of any Lien, except for Liens created pursuant to this Agreement or the Receivables Sale Agreement. (c) On the Initial Closing Date, each Receivable transferred to the Trust that is included in the calculation of the initial Aggregate Receivables Amount is an Eligible Receivable and, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date such Receivable shall have been transferred to the Trust, each such Receivable that is included in the calculation of the Aggregate Receivables Amount on such date is an Eligible Receivable. The representations and warranties as of the date made set forth in this Section 2.4 shall survive the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Master Servicer or a Responsible Officer of the Trustee of a breach of any of the representations and warranties set forth in this Section 2.4 as of the date made, the party discovering such breach shall give prompt written notice to the other parties and to each Agent, if any, with respect to all Outstanding Series. Section 2.5. Repurchase of Ineligible Receivables. (a) Repurchase Obligation. If (i) any representation or warranty under subsections 2.4(a), (b) or (c) is not true and correct in any material respect as of the date specified therein with respect to any Receivable transferred to the Trust, (ii) there is a breach of any covenant under subsection 2.8(c) with respect to any Receivable and such breach has a material adverse effect on the Certificateholders' Interest in such Receivable or -36- (iii) the Trust's interest in any Receivable is not a first priority perfected ownership or security interest at any time (any Receivable as to which the conditions specified in any of clause (i), (ii) or (iii) of this subsection 2.5(a) exists is referred to herein as an "Ineligible Receivable") then, after the earlier to occur of the discovery by the Company of any such event which continues unremedied, or receipt by the Company of written notice given by the Trustee or any Servicing Party of any such event which continues unremedied, the Company shall purchase or cause to be repurchased such Ineligible Receivable on the terms and conditions set forth in subsection 2.5(b). (b) Repurchase of Receivables. Subject to the last sentence of this subsection 2.5(b), the Company shall repurchase, or cause to be repurchased, each Ineligible Receivable required to be repurchased pursuant to subsection 2.5(a) by depositing in the U.S. Dollar Collection Account in immediately available funds on the Business Day following the date on which such repurchase obligation arises an amount equal to the lesser of (x) the amount by which the Aggregate Target Receivables Amount exceeds the Aggregate Allocated Receivables Amount (after giving effect to the reduction thereof by the Principal Amount of such Ineligible Receivable) and (y) the aggregate outstanding Principal Amount of each such Ineligible Receivable (the "Transfer Deposit Amount"). Upon transfer or deposit of the Transfer Deposit Amount, the Trust shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the Company, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Ineligible Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such repurchased Ineligible Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Company to effect the conveyance of such Receivables pursuant to this subsection. Except as otherwise specified in any Supplement, the obligation of the Company to repurchase any Ineligible Receivable shall constitute the sole remedy respecting the event giving rise to such obligation available to Investor Certificateholders (or the Trustee on behalf of Investor Certificateholders). Section 2.6. Purchase of Investor Certificateholders' Interest in Trust Portfolio. In the event of any breach of any of the representations and warranties set forth in Section 2.3 as of the date made, which breach has a material adverse effect on the interests of the holders of an Outstanding Series, then the Trustee, at the written direction of holders evidencing more than 50% of the Invested Amount of such Outstanding Series, may direct the Company to purchase such Outstanding Series and the Company shall be obligated to make such purchase on the next Distribution -37- Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth below; provided, however, that no such purchase shall be required to be made if, by such Distribution Date, the representations and warranties contained in Section 2.3 shall be satisfied in all material respects, or any material adverse effect on the holders of such Outstanding Series caused thereby shall have been cured. The Company shall deposit into the U.S. Dollar Collection Account for credit to the applicable subaccount of the U.S. Dollar Collection Account on the Business Day preceding such Distribution Date an amount equal to the purchase price (as described in the next succeeding sentence) for the Certificate- holders' Interest for such Outstanding Series on such day. The purchase price for any such purchase will be equal to (i) the Adjusted Invested Amount of such Outstanding Series on the date on which the purchase is made plus (ii) an amount equal to all interest accrued but unpaid on such Series up to the Distribution Date on which the distribution of such deposit is scheduled to be made pursuant to Section 9.2 plus (iii) any other amount required to be paid in connection therewith pursuant to any Supplement. Payment of such purchase price into the U.S. Dollar Collection Account in immediately available funds shall be considered a payment of the entire amount, if any, to be distributed to Certificateholders. Notwithstanding anything to the contrary in this Agreement, the entire amount of the purchase price deposited in the U.S. Dollar Collection Account shall be distributed to the related Investor Certificateholders on such Distribution Date pursuant to Section 9.2. If the Trustee gives notice directing the Company to purchase the Certificates of an Outstanding Series as provided above, the obligation of the Company to purchase such Certificates pursuant to this Section 2.6 shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.6 available to the applicable Investor Certificateholders (or the Trustee on behalf of such Investor Certificateholders). Section 2.7. Affirmative Covenants of the Company. The Company hereby covenants that, until the Trust Termination Date occurs, the Company shall: (a) Financial Statements. Furnish to the Trustee and each Agent, as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the balance sheet of the Company as at the end of such year and the related statements of income and retained earnings and cash flows for such year, setting forth in each case (beginning with the financial statements delivered for the 1996 fiscal year) in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen LLP or -38- other independent certified public accountants of nationally recognized standing which constitute one of the accounting firms commonly referred to as the "big six" accounting firms (or any successors thereto), or otherwise acceptable to the Trustee. All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants and disclosed therein). (b) Payment of Obligations; Compliance with Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where (i) the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or (ii) such obligations are owing to no more than two Persons and are in an amount not to exceed $10,000 in the aggregate at any one time. The Company shall defend the right, title and interest of the Certificateholders in, to and under the Receivables and the other Trust Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Company, the Sellers or any Servicing Party. The Company will duly fulfill all material obligations on its part to be fulfilled under or in connection with each Receivable and will do nothing to impair the rights of the Certificateholders in such Receivable. (c) Inspection of Property; Books and Records; Discussions. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Trustee upon reasonable advance notice to visit and inspect any of its properties and examine and make abstracts from any of its books and records during normal business hours on any Business Day and as often as may reasonably be desired according to the Company's normal security and confidentiality requirements and to discuss the business, operations, properties and financial and other condition of the Company with officers and employees of the Company and with its independent certified public accountants; provided, that the Trustee shall notify the Company prior to any contact with such accountants and shall give the Company the opportunity to participate in such discussions. -39- (d) Compliance with Law and Policies. (i) Comply in all material respects with all Requirements of Law applicable to the Company except to the extent that failure to so comply would not be reasonably likely to have a Material Adverse Effect. (ii) Perform its obligations, and cause each Seller to perform its obligations, in accordance with and comply in all material respects with the Policies, as amended from time to time in accordance with the Transaction Documents, in regard to the Receivables and the Related Property except to the extent that failure to so comply would not be reasonably likely to have a Material Adverse Effect with respect to the Company or such Seller. (e) Purchase of Receivables. Purchase Receivables solely pursuant to the Receivables Sale Agreement or this Agreement. (f) Delivery of Collections. In the event that the Company receives Collections directly from Obligors, deposit such Collections into a Collection Account within two Business Days after receipt thereof by the Company. (g) Notices. Promptly (and, in any event, within two Business Days after a Responsible Officer of the Company becomes aware of such event) give notice to the Trustee, each Rating Agency and each Agent for any Outstanding Series of: (i) the occurrence of any Early Amortization Event or Potential Early Amortization Event; and (ii) any Lien not permitted by subsection 2.8(c) on any Receivable or any other Trust Assets other than the conveyances and Liens hereunder and under the Receivables Sale Agreement. (h) Lockboxes. (i) Maintain, and keep in full force and effect, each Lockbox Agreement to which the Company is a party, except to the extent otherwise permitted under the terms of this Agreement and the other Transaction Documents and (ii) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. (i) Separate Corporate Existence. (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial -40- banking institutions. The funds of the Company will not be diverted to any other Person or for other than corporate uses of the Company, nor will such funds be commingled with the funds of C&A Products or any other Subsidiary or Affiliate of C&A Products; (ii) To the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (iii) To the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Company contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods or services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Company and any of its Affiliates, whether currently existing or hereafter entered into, shall be only on an arm's-length basis; (iv) Maintain a principal executive and administrative office through which its business is conducted separate from those of C&A Products and its Affiliates. To the extent that the Company and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses; (v) Issue separate financial statements prepared not less frequently than annually and prepared in accordance with subsection 2.7(a); (vi) Conduct its affairs strictly in accordance with its certificate of incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, -41- keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts; and (vii) Take, or refrain from taking, as the case may be, all other actions that are necessary to be taken or not to be taken in order to (x) ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to the Company and (y) comply with those procedures described in such provisions which are applicable to the Company. (j) Maintain a net worth of not less than $25,000,000 at all times which net worth shall not include any amounts outstanding under the Parent Note or the Subordinated Notes. Section 2.8. Negative Covenants of the Company. The Company hereby covenants that, until the Trust Termination Date occurs, it shall not directly or indirectly: (a) Accounting of Transfers. Prepare any financial statements which shall account for the transactions contemplated hereby in any manner other than as transfers of Receivables and the other Trust Assets by the Company to the Trust or in any other respect account for or treat the transactions under this Agreement (including for financial accounting purposes, except as required by law) in any manner other than as transfers of Receivables and the other Trust Assets by the Company to the Trust; provided, however, that this subsection shall not apply for any tax or tax accounting purposes. (b) Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness evidenced by the Subordinated Notes or the Parent Note; (ii) Indebtedness representing fees, expenses and indemnities payable pursuant to and in accordance with the Transaction Documents; and (iii) Indebtedness for services supplied or furnished to the Company in an amount not to exceed $100,000 at any time outstanding; provided that any Indebtedness permitted hereunder and described in clauses (i) and (iii) shall be payable by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company pursuant to this Agreement or any Supplement. -42- (c) Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens, it being understood that no Permitted Lien under clauses (ii), (iii) and (iv) of the definition thereof shall cover any of the Trust Assets. (d) Limitation on Guarantee Obligations. Become or remain liable, directly or contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise. (e) Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or make any material change in its present method of conducting business, or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets other than (i) the assignments and transfers contemplated hereby and (ii) sales or other dispositions of property (other than Trust Assets) with an aggregate book value not exceeding $25,000 in any period of twelve consecutive fiscal months. (f) Limitation on Dividends and Other Payments. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company (any of the foregoing, a "restricted payment"), unless (i) if, at the date such restricted payment is made, the Company shall have made all payments in respect of any of its repurchase obligations pursuant to this Agreement at such date and (ii) such restricted payment is made no more frequently than on a monthly basis and such restricted payment is effected in accordance with all corporate and legal formalities applicable to the Company; provided, however, that no restricted payment shall be made upon the occurrence and during the continuation of an Early Amortization Event. (g) Business of the Company. Engage at any time in any business or business activity other than the acquisition of Receivables pursuant to the Receivables Sale Agreement, the assignments and transfers hereunder and the other -43- transactions contemplated by the Transaction Documents, and any activity incidental to the foregoing and necessary or convenient to accomplish the foregoing, or enter into or be a party to any agreement or instrument other than in connection with the foregoing, except those agreements or instruments set forth on Schedule 5. (h) Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except for (i) the Receivables and the other Trust Assets and (ii) an advance or loan made to C&A Products, provided that there are no amounts then outstanding under the Subordinated Notes or Parent Note and, both before and after giving effect to such investment, no Early Amortization Event or Potential Early Amortization Event has occurred and is continuing. (i) Agreements. (i) Become a party to, or permit any of its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except the Contractual Obligations set forth on Schedule 5 hereto and any renewals thereof (and any amendments, supplements, modifications or waivers to such Contractual Obligations or renewals so long as such amendments, supplements, modifications or waivers would not reasonably be likely to have a Material Adverse Effect on the Company), this Agreement and the other Transaction Documents and agreements necessary to perform its obligations under the Transaction Documents or (ii) issue any power of attorney (except to the Trustee or any Servicing Party or except for the purpose of permitting any Person to perform any ministerial functions on behalf of the Company that are not prohibited by or inconsistent with the terms of the Transaction Documents), or (iii) amend, supplement, modify or waive any of the provisions of the Receivables Sale Agreement or any Lockbox Agreement or request, consent or agree to or suffer to exist or permit any such amendment, supplement, modification or waiver or exercise any consent rights granted to it thereunder except such amendments, supplements, modifications or waivers or such exercise of consent rights as would not be reasonably expected to have a Material Adverse Effect with respect to the Company; provided, however, that the Rating Agency Condition shall have been satisfied with respect to any such amendments, supplements, modifications or waivers pursuant to this clause (iii). (j) Policies. Make any change or modification (or permit any change or modification to be made) in any -44- material respect to the Policies, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be expected to have a material adverse effect on the interests of the Investor Certificateholders or the collectibility of the Receivables or (iii) if the Rating Agency Condition is satisfied with respect thereto; provided, however, that if any change or modification, other than a change or modification permitted pursuant to clause (i) or (ii) above, would reasonably be expected to have a material adverse effect on the interests of the Investor Certificateholders of a Series which is not rated by a Rating Agency, the consent of the applicable Agent shall be required to effect such change or modification. (k) Receivables Not To Be Evidenced by Promissory Notes. Subject to the delivery requirement set forth in subsection 2.1(b), take any action to cause any Receivable to be evidenced by any "instrument" (as defined in the UCC as in effect in any state in which the Company's, or any Seller's chief executive offices or books and records relating to such Receivable are located or, as defined under the relevant provincial laws of Canada) or any title in bearer form except in connection with its enforcement or collection. (l) Offices. Move outside the state where such office is now located the location of its chief executive office or of any of the offices where it keeps its records with respect to the Receivables, or its legal head office, without (i) 30 days' prior written notice to the Trustee and each Rating Agency, (ii) taking all actions reasonably requested by the Trustee (including but not limited to all filings and other acts necessary or advisable under the UCC or similar statute of each relevant jurisdiction) in order to continue the Trust's first priority perfected ownership or security interest in all Receivables now owned or hereafter created and (iii) giving the Trustee prompt notice of a change within the state where such office is now located of the location of its chief executive office or any office where it keeps its records with respect to the Receivables; provided, however, that the Company shall not change the location of its chief executive office to a state which is within the Tenth Circuit unless it delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect that Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) is no longer controlling precedent in the Tenth Circuit. (m) Addition of Sellers. Agree to the addition of any Subsidiary of C&A Products as an additional Seller pursuant to Section 9.14 of the Receivables Sale Agreement without -45- such Subsidiary being simultaneously added as a Servicer (or without the Master Servicer or another Subsidiary of C&A Products simultaneously agreeing to act as a Servicer in respect of such additional Seller) under the Transaction Documents pursuant to Section 2.6 of the Servicing Agreement. (n) Charter. Amend or make any change or modification to its certificate of incorporation without first satisfying the Rating Agency Condition (other than an amendment, change or modification made pursuant to changes in law of the state of its incorporation or amendments to change the Company's name, registered agent or address of registered office). ARTICLE III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS THE FOLLOWING PORTION OF THIS ARTICLE III IS APPLICABLE TO ALL SERIES. Section 3.1. Establishment of Collection Accounts; Certain Allocations. (a) The Trustee, for the benefit of the Certificateholders, shall cause to be established and maintained in the name of the Trustee on behalf of the Trust with an Eligible Institution or with the trust department of the Trustee, the following three segregated trust accounts (collectively, the "Collection Accounts"), each bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders: (i) an account in the United States to hold all Collections received in the United States (the "U.S. Dollar Collection Account"); (ii) an account in Canada to hold all Collections received in Canada that are paid in U.S. Dollars (the "Canada/U.S. Dollar Collection Account"); and (iii) an account in Canada to hold all Collections received in Canada that are paid in Canadian Dollars (the "Canada/Canadian Dollar Collection Account"). The U.S. Dollar Collection Account shall be divided into (i) a subaccount for deposit of Collections received in the United States in respect of Primary Auto Receivables (the "U.S. Dollar Primary Auto Collection Subaccount"), (ii) individual subaccounts for each Outstanding Series (each, respectively, a "Series Collection Subaccount" and, collectively, the "Series Collection Subaccounts") and (iii) a subaccount for the Company (the "Company Collection Subaccount"). For administrative purposes only, the Trustee shall establish or cause to be established for each Series, so long as such Series is an Outstanding Series, sub-subaccounts of the Series Collection Subaccounts with respect to such Series (respectively, the "Series Principal Collection Sub-subaccount" and "Series Non-Principal Collection Sub-subaccount" and, collectively, the -46- "Series Collection Sub-subaccounts"). For administrative purposes only, the Trustee shall also establish or cause to be established for each Series, so long as such Series is an Outstanding Series, subaccounts of the Canada/U.S. Dollar Collection Account and subaccounts of the Canada/Canadian Dollar Collection Account (each, respectively, a "Series Canada/U.S. Dollar Collection Subaccount" and a "Series Canada/Canadian Dollar Subaccount"). (b) Authority of the Trustee in Respect of the Collection Accounts and Certificateholders' Interests Therein. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Collection Accounts and in all proceeds thereof. The Collection Accounts shall be under the sole dominion and control of the Trustee for the benefit of the Investor Certificateholders and, to the extent set forth in any Supplement, any holder of any Subordinated Company Certificate. If, at any time, the Master Servicer has actual notice or knowledge that any institution holding any of the Collection Accounts is other than the trust department of the Trustee or has ceased to be an Eligible Institution, the Master Servicer shall direct the Trustee to establish within 15 days a substitute account therefor with an Eligible Institution, transfer any cash and/or any Eligible Investments to such new account and from the date any such substitute accounts are established, such account shall be the applicable Collection Account. Neither the Company nor the Master Servicer, nor any person or entity claiming by, through or under the Company or Master Servicer, shall have any right, title or interest in except to the extent expressly provided under the Transaction Documents, or any right to withdraw any amount from, the Collection Accounts. Pursuant to the authority granted to the Master Servicer in subsection 2.2(a) of the Servicing Agreement, the Master Servicer shall have the power, revocable by the Trustee as provided therein, to instruct the Trustee to make withdrawals from and payments to the Collection Accounts for the purposes of carrying out the Master Servicer's or Trustee's duties hereunder. Each Series of Investor Certificates shall represent Fractional Undivided Interests in the Trust as indicated in the Supplement relating to such Series and the right to receive Collections and other amounts at the times and in the amounts specified in this Article III (as supplemented by the Supplement related to such Series) to be deposited in the Collection Accounts and any other accounts maintained for the benefit of the Investor Certificateholders or paid to the Investor Certificate- holders (with respect to each outstanding Series, the "Certificateholders' Interest"). The Exchangeable Company Certificate shall represent the interest in the Trust not represented by any Series of Investor Certificates or Subordinated Company Certificates then outstanding, including the -47- right to receive Collections and other amounts at the times and in the amounts specified in this Article III to be paid to the Company (the "Company Interest"), and each Subordinated Company Certificate, if any, shall represent the interests granted to such Certificate pursuant to the related Supplement; provided, however, that no such Certificate shall represent any interest in any Trust Account and any other accounts maintained for the benefit of the Investor Certificateholders, except as specifically provided in this Article III. (c) Administration of the Collection Accounts. At the written direction of the Company, funds on deposit in the Collection Accounts available for investment, shall be invested by the Trustee in Eligible Investments selected by the Company. All such Eligible Investments shall be held by the Trustee for the benefit of the Investor Certificateholders. Amounts on deposit in each Series Non-Principal Collection Sub-subaccount shall, if applicable, be invested in Eligible Investments that will mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available on or before the immediately following Determination Date. None of such Eligible Investments shall be disposed of prior to the maturity date with respect thereto. All interest and investment earnings (net of losses and investment expenses) on funds deposited in a Series Non-Principal Collection Sub-subaccount shall be deposited in such sub-subaccount. Amounts on deposit in the Series Principal Collection Sub-subaccounts shall be invested in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available not later than the date which is specified in any Supplement. The Trustee, or its nominee or custodian, shall maintain possession of the negotiable instruments or securities, if any, evidencing any Eligible Investments from the time of purchase thereof until the time of sale or maturity. Any earnings (net of losses and investment expenses) (the "Investment Earnings") on such invested funds in a Series Principal Collection Sub-subaccount will be deposited in the related Series Non-Principal Collection Sub-subaccount. (d) Identification of Accounts. Schedule 2, which is hereby incorporated into and made a part of this Agreement, identifies the Collection Accounts by setting forth the account number of each such account, the account designation of each such account and the name of the institution with which each such account has been established. (e) Daily Collections. (i) As promptly as possible following its receipt of Collections, but in no event later than the Business Day following such receipt (such later Business Day, the "Deposit Date"), the Master Servicer shall cause to be transferred all Collections on deposit in the form of available funds in the Lockbox Accounts directly to the respective -48- Collection Accounts as follows: (A) all funds which are deposited in the United States, to the U.S. Dollar Collection Account; (B) all funds which are deposited in Canada in U.S. Dollars, to the Canada/U.S. Dollar Collection Account; and (C) all funds which are deposited in Canada in Canadian Dollars, to the Canada/Canadian Dollar Collection Account. All such transfers to the U.S. Dollar Collection Account and the Canada/U.S. Dollar Collection Account shall be made in U.S. Dollars. All such transfers to the Canada/Canadian Dollar Collection Account shall be made in Canadian Dollars. (ii) No later than the Business Day following each Deposit Date, the Master Servicer shall direct the Trustee to transfer from Aggregate Daily Collections deposited into the U.S. Dollar Collection Account pursuant to paragraph (e)(i) above below the following: (A) With respect to Aggregate Daily Collections deposited into the U.S. Dollar Collection Account other than Aggregate Daily Collections in respect of Primary Auto Receivables, (1) to the respective Series Collection Subaccount, an amount equal to the product of (x) the applicable Invested Percentage, if any, for such Outstanding Series and (y) such Aggregate Daily Collections and (2) to the Company Collection Subaccount, any remaining amounts; and (B) With respect to Aggregate Daily Collections deposited into the U.S. Dollar Collection Account in respect of Primary Auto Receivables, to the U.S. Dollar Primary Auto Collection Subaccount. (iii) No later than the Business Day following each Deposit Date, the Master Servicer shall direct the Trustee to transfer from Aggregate Daily Collections deposited into the U.S. Dollar Primary Auto Collection Subaccount pursuant to paragraph (e)(ii)(B) above, (1) to the respective Series Collection Subaccount, an amount equal to the product of (x) the Series Percentage for such Outstanding Series, (y) the applicable Invested Percentage, if any, for such Outstanding Series and (z) the amounts so deposited and (2) to the Company Collection Subaccount, any remaining amounts. (iv) No later than the Business Day following each Deposit Date, the Master Servicer shall direct the Trustee to allocate funds transferred to the Series Collection Subaccount for each Outstanding Series pursuant to subsections 3.1(e)(ii) and (iii), to the Series Non-Principal Collection Sub-subaccount and the Series Principal Collection Sub-subaccount of each such Series in accordance with the related Supplement for such Series. -49- (v) No later than the Business Day following each Deposit Date, except as otherwise provided in a Supplement, the Master Servicer shall direct the Trustee to transfer to the Company Collection Subaccount the remaining funds, if any, on deposit in the U.S. Dollar Collection Account on such date after giving effect to transfers to be made pursuant to subsections 3.1(e)(ii) and (iii). (vi) No later than the Business Day following each Deposit Date, the Master Servicer shall direct the Trustee to transfer (A) with respect to Aggregate Daily Collections deposited into the Canada/U.S. Dollar Collection Account and the Canada/Canadian Dollar Collection Account, other than Aggregate Daily Collections in respect of Primary Auto Receivables, to the respective Series Canada/U.S. Dollar Collection Subaccount and the respective Series Canada/Canadian Dollar Collection Subaccount, as the case may be, an amount equal to the product of (x) the applicable Invested Percentage, if any, for such Outstanding Series and (y) such Aggregate Daily Collections and (B) with respect to Aggregate Daily Collections deposited into the Canada/U.S. Dollar Collection Account and the Canada/Canadian Dollar Collection Account in respect of Primary Auto Receivables, to the respective Series Canada/U.S. Dollar Collection Subaccount and the respective Series Canada/Canadian Dollar Collection Subaccount, as the case may be, an amount equal to the product of (x) the Series Percentage for such Outstanding Series, (y) the applicable Invested Percentage, if any, for such Outstanding Series and (z) such Aggregate Daily Collections. (vii) No later than the Business Day following each Deposit Date, except as otherwise provided in a Supplement, if (A) the amounts deposited in a Series Collection Subaccount or Sub-subaccount, as the case may be, of an Outstanding Series in accordance with this Section 3.1 and the related Supplement are less than the amounts required to be on deposit therein or (B) if a Supplement requires funds on deposit in the respective Series Canada/U.S. Dollar Collection Subaccount or the respective Series Canada/Canadian Dollar Collection Subaccount to be transferred to another Collection Subaccount or Sub-subaccount of such Series, as the case may be, the Master Servicer shall direct the Trustee to transfer to the applicable Series Collection Subaccount or Sub-subaccounts, as the case may be, first, from amounts on deposit in the Series Canada/U.S. Dollar Collection Subaccount for such Series and second, from amounts on deposit in the Series Canada/Canadian Dollar Collection Subaccount for such Series, an amount up to the amount of any such shortfall. (f) Allocations for the Exchangeable Company Certificate. Until the occurrence and continuation of an Early Amortization Event or the commencement of an Amortization Period, on each Business Day and, after the occurrence and continuation of an Early Amortization Event or the commencement of an -50- Amortization Period and until the Trust Termination Date, on each Distribution Date, after making all allocations required pursuant to subsection 3.1(e) the Master Servicer, at the direction of the Company, shall direct the Trustee to pay to the holder of the Exchangeable Company Certificate the amounts on deposit in the Company Collection Subaccount as well as all amounts on deposit in the Canada/U.S. Dollar Collection Account and the Canada/Canadian Dollar Collection Account (and any subaccounts thereof) not otherwise required to be retained therein or otherwise distributed pursuant to the terms of a Supplement. (g) Set-Off. (i) If the Company shall fail to make a payment as provided in this Agreement or any Supplement, the Trustee may set off and apply any amounts otherwise payable to the Company on account of such obligation. The Company hereby waives demand, notice or declaration of such set-off and application; provided that notice will promptly be given to the Company of such set-off; provided further that failure to give such notice shall not affect the validity of such set-off. (ii) In the event the Master Servicer shall fail to make a payment as provided in this Agreement or any Supplement, the Trustee may set off and apply any amounts otherwise payable to the Master Servicer on account of such obligation. The Master Servicer hereby waives demand, notice or declaration of such set-off and application; provided that notice will promptly be given to the Master Servicer of such set-off; provided further that failure to give such notice shall not affect the validity of such set-off. (h) Allocation and Application of Funds. The Master Servicer will apply all Collections with respect to the Receivables for each Accrual Period as described in this Article III and in the Supplement with respect to each Outstanding Series. The Master Servicer shall direct the Trustee to pay Collections to the holder of the Exchangeable Company Certificate to the extent such Collections are allocated to the Exchangeable Company Certificate under subsection 3.1(f) and as otherwise provided in Article III. Notwithstanding anything in this Agreement, any Supplement or any other Transaction Document to the contrary, to the extent that the Trustee receives any Daily Report prior to 2:00 p.m., New York City time, on any Business Day, the Trustee shall make any applications of funds required thereby on the same Business Day and otherwise on the next succeeding Business Day. (i) Allocation of Collections on Additional Receivables. Notwithstanding anything to the contrary contained in this Article III to the contrary, if any Additional Receivables are added to the Trust Assets, the Supplement creating the Series of Certificates having an interest in such -51- Additional Receivables shall set forth provisions allocating the Collections received on such Additional Receivables. (j) Exchange of Canadian Dollars into U.S. Dollars. All amounts transferred from a Series Canada/Canadian Dollar Collection Subaccount to the U.S. Dollar Collection Account (or any subaccount or sub-subaccount thereof) shall be exchanged by the Trustee into U.S. Dollars at the direction of the Master Servicer. The Trustee shall solicit offer quotations from at least two Authorized Foreign Exchange Dealers for effecting such exchange and shall effect such exchange with at least one such Authorized Foreign Exchange Dealer as soon thereafter as is reasonably practicable. The Trustee shall notify the Master Servicer of the offer quotations or combination of offer quotations submitted that require the least amount of Canadian Dollars to be paid to the Authorized Foreign Exchange Dealers to purchase U.S. Dollars and the names and payment instructions of the Authorized Foreign Exchange Dealers that submitted such offer or offers and shall enter into an agreement or agreements on behalf of and solely as agent of the Trust with such Authorized Foreign Exchange Dealers with respect to such offer or offers (which agreement or agreements will provide for delivery of the U.S. Dollars in immediately available funds directly to or upon the order of the Trustee). The Trustee shall withdraw the portion of the Canadian Dollars from the appropriate Series Canada/Canadian Dollar Collection Subaccount required to be paid pursuant to such agreement or agreements and make the payments described in the payment instructions provided pursuant to the preceding sentence. The Trustee shall maintain written records of any quotations received in response to any solicitations made pursuant to this Section 3.1(j) and shall make the same available to the Master Servicer promptly upon request. If, as a result of changes in customary market practice in, or other changes relating to, the currency exchange markets in Canada, the Trustee is unable to comply with the terms hereof in respect of the purchase of U.S. Dollars with Canadian Dollars, then the parties hereto will use all reasonable efforts to agree on the terms of an amendment hereto and to amend the terms hereof in order to permit such compliance with the terms hereof or to reflect such customary market practice. THE REMAINDER OF ARTICLE III SHALL BE SPECIFIED IN THE SUPPLEMENT WITH RESPECT TO EACH SERIES. SUCH REMAINDER SHALL BE APPLICABLE ONLY TO THE SERIES RELATING TO THE SUPPLEMENT IN WHICH SUCH REMAINDER APPEARS. -52- ARTICLE IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO ARTICLE V THE CERTIFICATES Section 5.1. The Certificates. The Investor Certificates of each Series, any Class thereof and any Subordinated Company Certificates related thereto shall be in fully registered form (collectively, the "Certificates") and shall be substantially in the form of the exhibits with respect thereto attached to the applicable Supplement. The Exchangeable Company Certificate shall be substantially in the form of Exhibit A. The Certificates and the Exchangeable Company Certificates shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 5.2. Except as otherwise set forth in the related Supplement, the Investor Certificates shall be issued in minimum denominations of $5,000,000 and in integral multiples of $100,000 in excess thereof unless otherwise specified in any Supplement for any Series and Class. Unless otherwise specified in any Supplement for any Series, the Investor Certificates shall be issued upon initial issuance as a single certificate in an original principal amount equal to the Initial Invested Amount with respect to such Series. Each Subordinated Company Certificate, if any, issued under any Supplement shall be a single certificate and shall represent a subordinated interest in the Trust Assets allocated to such Series, as designated in the related Supplement. The Exchangeable Company Certificate shall also be a single certificate and shall represent the entire Company Interest. The Company is hereby authorized to execute and deliver each Certificate on behalf of the Trust. Each Certificate shall be executed by manual or facsimile signature on behalf of the Company by a Responsible Officer. Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Company or the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to or on the date of the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, -53- that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication but failure to do so shall not render them invalid. Section 5.2. Authentication of Certificates. Contemporaneously with the initial sale, assignment and transfer of the Receivables, whether now existing or hereafter created, and the other Trust Assets to the Trust, the Trustee shall authenticate and deliver the initial Series of the Investor Certificates that is issued upon original issuance, upon the written order of the Company in a form reasonably satisfactory to the Trustee, to the holders of the initial Series of Investor Certificates, against payment to the Company of the Initial Invested Amount. The Trustee shall authenticate and deliver the Exchangeable Company Certificate to the Company simultaneously with its delivery of the initial Series of Investor Certificates. The Certificates shall be duly authenticated by or on behalf of the Trustee, in the case of the Investor Certificates in authorized denominations equal to (in the aggregate) the Initial Invested Amount, in the case of any Subordinated Company Certificate, in a denomination equal to the subordinated interest in the Trust Assets allocated to such Certificate in accordance with the terms of the related Supplement and, in the case of the Exchangeable Company Certificate, in a denomination equal to the remaining Company Interest from time to time, and together evidencing the entire ownership of the Trust. Upon an Exchange as provided in Section 5.10 and the satisfaction of certain other conditions specified therein, the Trustee shall authenticate and deliver the Certificates of additional Series (with the designation provided in the applicable Supplement) (or, if provided in any Supplement, the additional Investor Certificates of an existing Series), upon the written order of the Company, to the Persons designated in such Supplement. Upon the order of the Company, the Investor Certificates of any Series shall be duly authenticated by or on behalf of the Trustee, in authorized denominations equal to (in the aggregate) the Initial Invested Amount of such Series of Investor Certificates. Section 5.3. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent and Registrar") in accordance with the provisions of Section 8.16 a register (the "Certificate Register") in which, subject to such reasonable regulations as the Trustee may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Investor Certificates and of transfers and exchanges of the Investor Certificates as herein provided. The Company hereby appoints Chemical Bank as Transfer Agent and Registrar for the purpose of registering the Investor Certificates and transfers and exchanges of the Investor Certificates as herein provided. -54- Chemical Bank shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Company, the Trustee and the Master Servicer; provided, however, that such resignation shall not be effective and Chemical Bank shall continue to perform its duties as Transfer Agent and Registrar until the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to the Company. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Transfer Agent and Registrar for their services under this Section 5.3. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Transfer Agent and Registrar such amounts. Upon surrender for registration of transfer of any Investor Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Investor Certificates in authorized denominations of the same Series representing like aggregate Fractional Undivided Interests and which bear numbers that are not contemporaneously outstanding. At the option of an Investor Certificateholder, Investor Certificates may be exchanged for other Investor Certificates of the same Series in authorized denominations of like aggregate Fractional Undivided Interests, bearing numbers that are not contemporaneously outstanding, upon surrender of the Investor Certificates to be exchanged at any such office or agency of the Transfer Agent and Registrar maintained for such purpose. Whenever any Investor Certificates of any Series are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and (unless the Transfer Agent and Registrar is different from the Trustee, in which case the Transfer Agent and Registrar shall) deliver, the Investor Certificates of such Series which the Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder thereof or his attorney-in-fact duly authorized in writing delivered to the Trustee (unless the Transfer Agent and Registrar is different from the Trustee, in which case to the Transfer Agent and Registrar) and complying with any requirements set forth in the applicable Supplement. -55- No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require any Certificateholder that is transferring or exchanging one or more Certificates to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Investor Certificates surrendered for registration of transfer and exchange shall be cancelled and disposed of in a manner satisfactory to the Trustee and the Company. The Trustee shall cancel and destroy each Certificate in global form upon its exchange in full for Definitive Certificates and shall deliver a certificate of destruction to the Company. The Company shall execute and deliver Certificates to the Trustee or the Transfer Agent and Registrar in such amounts and at such times as are necessary to enable the Trustee and the Transfer Agent and Registrar to fulfill their respective responsibilities under this Agreement and the Certificates. (b) The Transfer Agent and Registrar will maintain at its expense in the Borough of Manhattan, The City of New York and, subject to subsection 5.3(a), if specified in the related Supplement for any Series, any other city designated in such Supplement, an office or offices or agency or agencies where Investor Certificates may be surrendered for registration or transfer or exchange. (c) Unless otherwise stated in any related Supplements, registration of transfer of Certificates containing a legend relating to restrictions on transfer of such Certificates (which legend shall be set forth in the Supplement relating to such Investor Certificates) shall be effected only if the conditions set forth in the related Supplement are complied with. Certificates issued upon registration of transfer of, or in exchange for, Certificates bearing the legend referred to above shall also bear such legend unless the Company, the Master Servicer, the Trustee and the Transfer Agent and Registrar receive an Opinion of Counsel satisfactory to each of them, to the effect that such legend may be removed. Section 5.4. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save the Trust and each of them harmless, then, in the absence of notice -56- to the Trustee or Transfer Agent and Registrar that such Certificate has been acquired by a bona fide purchaser, the Company shall execute and, upon the request of the Company, the Trustee shall authenticate and deliver (in compliance with applicable law), in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Fractional Undivided Interest and bearing a number that is not contemporaneously outstanding. In connection with the issuance of any new Certificate under this Section 5.4, the Trustee or the Transfer Agent and Registrar may require the payment by the Certificate- holder of a sum sufficient to cover any tax or other governmental expenses (including the fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 5.4 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.5. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Article IV and for all other purposes whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary. Notwithstanding the foregoing provisions of this Section 5.5, in determining whether the holders of the requisite Fractional Undivided Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates owned by the Company, the Master Servicer or any affiliate thereof (as defined in Rule 405 under the Securities Act), shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Certificates so owned by the Company, the Master Servicer or any Affiliate thereof which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not the Company, the Master Servicer or an Affiliate thereof. Section 5.6. Appointment of Paying Agent. The Paying Agent shall make distributions to Investor Certificateholders from the Collection Accounts (and/or any other account or accounts maintained for the benefit of Certificateholders as -57- specified in the related Supplement for any Series) pursuant to Articles III and IV. The Trustee may revoke such power and remove the Paying Agent if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. Unless otherwise specified in the related Supplement for any Series and with respect to such Series, the Paying Agent shall initially be Chemical Bank and any co-paying agent chosen by Chemical Bank. Each Paying Agent shall have a combined capital and surplus of at least $50,000,000. The Paying Agent shall be permitted to resign upon 30 days' written notice to the Trustee. In the event that the Paying Agent shall so resign, the Trustee shall appoint a successor to act as Paying Agent (which shall be a depositary institution or trust company) reasonably acceptable to the Company which appointment shall be effective on the date which the Person so appointed gives the Trustee written notice that it accepts the appointment. Any resignation or removal of the Paying Agent and appointment of successor Paying Agent pursuant to this Section 5.6 shall not become effective until acceptance of appointment by the successor Paying Agent as provided in this Section 5.6. The Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Trustee to execute and deliver to the Trustee an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustee that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Trustee. The provisions of Sections 8.1, 8.2, 8.3 and 8.5 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Paying Agent for its services under this Section 5.6. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Paying Agent such amounts. Section 5.7. Access to List of Certificateholders' Names and Addresses. The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Master Servicer or the Paying Agent, within three Business Days after receipt by the Trustee of a request therefor from the Company, the Master Servicer or the Paying Agent, respectively, in -58- writing, a list of the names and addresses of the Investor Certificateholders as then recorded by or on behalf of the Trustee. If three or more Investor Certificateholders of record or any Investor Certificateholder of any Series or a group of Investor Certificateholders of record representing Fractional Undivided Interests aggregating not less than 25% of the Invested Amount of the related Outstanding Series (the "Applicants") apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Investor Certificate- holders of any Series with respect to their rights under this Agreement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall transmit or shall cause the Transfer Agent and Registrar to transmit, such communication to the Certificateholders reasonably promptly after the receipt of such application. Every Certificateholder, by receiving and holding a Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents shall be held accountable by reason of the disclosure or mailing of any such information as to the names and addresses of the Certificateholders hereunder, regardless of the sources from which such information was derived. As soon as practicable following each Record Date the Trustee shall provide to the Paying Agent or its designee, a list of Certificateholders in such form as the Paying Agent may reasonably request. Section 5.8. Authenticating Agent. (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Company. (b) Any institution succeeding to the corporate trust business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. -59- (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee. Upon the receipt by the Trustee of any such notice of resignation and upon the giving of any such notice of termination by the Trustee, the Trustee shall immediately give notice of such resignation or termination to the Company. Any resignation of an authenticating agent and appointment of successor authenticating agent shall not become effective until acceptance of appointment by the successor authenticating agent as provided in this Section 5.8. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and the Company. (d) The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to each authenticating agent for its services under this Section 5.8. The Trustee hereby agrees that, upon the receipt of such funds from the Company it shall pay each authenticating agent such amounts. (e) The provisions of Sections 8.1, 8.2, 8.3 and 8.5 shall be applicable to any authenticating agent. (f) Pursuant to an appointment made under this Section 5.8, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: "This is one of the Certificates described in the Pooling Agreement dated as of March 30, 1995, among Carcorp, Inc., Collins & Aikman Products Co., as Master Servicer and Chemical Bank, as Trustee. as Authenticating Agent for the Trustee By Authorized Officer" -60- Section 5.9. Tax Treatment. It is the intent of the Master Servicer, the Company, the Investor Certificateholders and the Trustee that, for federal, state and local income and franchise tax purposes, the Investor Certificates be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation. The Company, by entering into this Agreement, and each Investor Certificateholder, by its acceptance of its Investor Certificate, agree to treat the Investor Certificates for federal, state and local income and franchise tax purposes as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further these intentions of the parties. This Section 5.9 shall survive the termination of this Agreement and shall be binding on all transferees of any of the foregoing persons. Section 5.10. Tender of Exchangeable Company Certificate. The terms relating to any tender of the Exchangeable Company Certificate shall be specified in the Supplement with respect to each Series. Such terms shall be applicable only to the Series relating to the Supplement in which such terms appear. (a) Upon any Company Exchange, the Trustee shall issue to the Company under Section 5.1 for execution and redelivery to the Trustee for authentication under Section 5.2 (i) one or more Certificates representing an increase in the Invested Amount of an Outstanding Series, and an increase in the related Subordinated Company Certificate, or (ii) one or more new Series of Investor Certificates representing an interest in the Excess Primary Auto Receivables or any Additional Receivables, and the related Series of Subordinated Company Certificate. Any such Certificates shall be substantially in the form specified in the applicable Supplement and each shall bear, upon its face, the designation for such Series to which each such certificate belongs so selected by the Company. Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall be equally and ratably entitled as provided herein to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the applicable Supplement. (b) The Company may tender the Exchangeable Company Certificate to the Trustee in exchange for (i) (A) an increase in the Invested Amount of a Class of Investor Certificates of an Outstanding Series, and an increase in the related Subordinated Company Certificate or (B) one or more newly issued Series of Investor Certificates representing an interest in the Excess Primary Auto Receivables or any Additional Receivables, and the related newly issued Subordinated Company Certificate, and (ii) a reissued Exchangeable Company Certificate (any such tender a "Company Exchange"). In addition, to the extent permitted for -61- any Series of Investor Certificates as specified in the related Supplement, the Investor Certificateholders of such Series may tender their Certificates and the Company may tender the Exchangeable Company Certificate and any Investor or Subordinated Company Certificate to the Trustee pursuant to the terms and conditions set forth in such Supplement in exchange for (i) one or more newly issued Series of Investor Certificates, (ii) if applicable, one or more Series of Subordinated Company Certificate, and (iii) a reissued Exchangeable Company Certificate (an "Investor Exchange"). The Company Exchange and Investor Exchange are referred to collectively herein as an "Exchange". The Company may perform an Exchange by notifying the Trustee, in writing at least three days in advance (an "Exchange Notice") of the date upon which the Exchange is to occur (an "Exchange Date"). Any Exchange Notice shall state the designation of any Series to be issued on the Exchange Date and, with respect to each such Series: (a) its additional or Initial Invested Amount, as the case may be, (or the method for calculating such additional or Initial Invested Amount), if any, which, in the aggregate, at any time, may not be greater than the current principal amount of the Exchangeable Company Certificate, if any, at such time (or in the case of an Investor Exchange, the sum of the Invested Amount of the Series of Investor Certificates to be exchanged plus the current principal amount of the Subordinated Company Certificates, if any, to be exchanged plus the current principal amount of the Exchangeable Company Certificate) and (b) its Certificate Rate (or the method for allocating interest payments or other cash flow to such Series), if any. On the Exchange Date, the Trustee shall only authenticate and deliver any such Series upon delivery to it of the following: (a) a Supplement executed by the Company and specifying the Principal Terms of such Series, (b) a Tax Opinion, (c) a General Opinion, (d) written confirmation from each Rating Agency that the Exchange will not result in the Rating Agency's reducing or withdrawing its rating on any then Outstanding Series rated by it and (e) the existing Exchangeable Company Certificate or applicable Investor Certificates and Subordinated Company Certificates, as the case may be. Upon the delivery of the items listed in clauses (a) through (e) above, the Trustee shall cancel the existing Exchangeable Company Certificate, the applicable Investor Certificates and Subordinated Company Certificates, as the case may be, and issue, as provided above, such Series of Investor Certificates, such Series of Subordinated Company Certificate, if applicable, and a new Exchangeable Company Certificate, dated the Exchange Date. There is no limit to the number of Exchanges that the Company may perform under this Agreement. If the Company shall, on any Exchange Date, retain any Investor Certificates issued on such Exchange Date, it shall, prior to transferring any such Certificates to another Person, obtain a Tax Opinion with respect to such Certificates. -62- (c) In conjunction with an Exchange, the parties hereto shall execute a Supplement, which shall define, with respect to any additional Investor Certificates or newly issued Series, as the case may be: (i) its name or designation, (ii) its additional or initial principal amount, as the case may be, (or method for calculating such amount), (iii) its coupon rate (or formula for the determination thereof), (iv) the interest payment date or dates and the date or dates from which interest shall accrue, (v) the method for allocating Collections to Certificateholders, (vi) the names of any accounts to be used by such Series and the terms governing the operation of any such accounts, (vii) the terms on which the certificates of such Series may be repurchased by the Company or may be remarketed to other investors, (viii) the Series Termination Date, (ix) any deposit account maintained for the benefit of Certificateholders, (x) the number of classes of such Series, and if more than one class, the rights and priorities of each such class, (xi) the rights of the holder of the Exchangeable Company Certificate that have been transferred to the holders of such Series, (xii) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts, (xiii) provisions acceptable to the Trustee concerning the payment of the Trustee's fees and expenses and (xiv) other relevant terms (all such terms, the "Principal Terms" of such Series). The Supplement executed in connection with the Exchange shall contain administrative provisions which are reasonably acceptable to the Trustee. (d) Without prior satisfaction of the Rating Agency Condition, the Company shall not transfer, assign, exchange or otherwise dispose of any Subordinated Company Certificate or any interest represented thereby without the consent of Investor Certificateholders holding at least 50% of the Invested Amount of the related Outstanding Series and the Trustee, and any attempt to do so shall be void and of no effect. (e) Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall be equally and ratably entitled as provided herein to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the applicable Supplement. Section 5.11. Book-Entry Certificates. If specified in any related Supplement, the Investor Certificates, or any portion thereof, upon original issuance, shall be issued in the form of one or more typewritten Certificates representing the Book-Entry Certificates, to be delivered to the depository specified in such Supplement (the "Depository") which shall be the Clearing Agency, specified by, or on behalf of, the Company for such Series. The Investor Certificates shall initially be registered on the Certificate Register in the name of the nominee -63- of such Clearing Agency, and no Certificate Book-Entry Holder will receive a definitive certificate representing such Certificate Book-Entry Holder's interest in the Investor Certificates, except as provided in Section 5.13. Unless and until definitive, fully registered Investor Certificates ("Definitive Certificates") have been issued to Certificateholders pursuant to Section 5.13: (a) the provisions of this Section 5.11 shall be in full force and effect; (b) the Company, the Master Servicer and the Trustee may deal with each Clearing Agency for all purposes (including the making of distributions on the Investor Certificates) as the Certificateholder without respect to whether there has been any actual authorization of such actions by the Certificate Book-Entry Holders with respect to such actions; (c) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Agreement, the provisions of this Section 5.11 shall control; and (d) the rights of Certificate Book-Entry Holders shall be exercised only through the Clearing Agency and the related Clearing Agency Participants and shall be limited to those established by law and agreements between such related Certificate Book-Entry Holders and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Depository Agreement, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Investor Certificates to such Clearing Agency Participants. Section 5.12. Notices to Clearing Agency. Whenever notice or other communication to the Certificateholders is required under this Agreement, unless and until Definitive Certificates shall have been issued to Certificate Book-Entry Holders pursuant to Section 5.13, the Trustee shall give all such notices and communications specified herein to be given to the Investor Certificateholders to the Clearing Agencies. Section 5.13. Definitive Certificates. If (a)(i) the Company advises the Trustee in writing that any Clearing Agency is no longer willing or able to properly discharge its responsibilities under the applicable Depository Agreement, and (ii) the Trustee or the Company is unable to locate a qualified successor, (b) the Company, at its option, advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Servicer -64- Default, Certificate Book-Entry Holders representing Fractional Undivided Interests aggregating more than 50% of the Invested Amount held by such Certificate Book-Entry Holders of each affected Series then issued and outstanding advise the Clearing Agency through the Clearing Agency Participants in writing, and the Clearing Agency shall so notify the Trustee, that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Certificate Book-Entry Holders, the Trustee shall notify the Clearing Agency, which shall be responsible to notify the Certificate Book-Entry Holders, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Book-Entry Holders requesting the same. Upon surrender to the Trustee of the Investor Certificates by the Clearing Agency, accompanied by registration instructions from the Clearing Agency for registration, the Trustee shall issue the Definitive Certificates. Neither the Company nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. ARTICLE VI OTHER MATTERS RELATING TO THE COMPANY Section 6.1. Liability of the Company. The Company shall be liable for all obligations, covenants, representations and warranties of the Company arising under or related to this Agreement or any Supplement. Except as provided in the preceding sentence, the Company shall be liable only to the extent of the obligations specifically undertaken by it in its capacity as Company hereunder. Section 6.2. Limitation on Liability of the Company. Subject to Sections 6.1 and 6.3, neither the Company nor any of its directors or officers or employees or agents shall be under any liability to the Trust, the Trustee, the Certificateholders or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether or not such action or inaction arises from express or implied duties under any Transaction Document; provided, however, that this provision shall not protect the Company or any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Company and any director or officer or employee or agent of the Company may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. -65- Section 6.3. Liabilities. Notwithstanding Section 6.2, by entering into this Agreement, the Company agrees to be liable, directly to the injured party, for the entire amount of any losses, claims, damages or liabilities, arising out of or based on the arrangement created by this Agreement, the Servicing Agreement or any Supplement and the actions of the Master Servicer taken pursuant hereto or thereto as though the Pooling and Servicing Agreements created a partnership under the New York Uniform Partnership Act with the Company as a general partner thereof (except (i) those losses, claims, damages or liabilities incurred by an Investor Certificateholder in the capacity of an investor in the Investor Certificates as a result of the performance of the Receivables, market fluctuations or other similar market or investment risks or (ii) to the extent that such losses, claims, damages or liabilities arise from any action or omission to act by any Investor Certificateholder). In the event of a Service Transfer, the Successor Servicer (except for the Trustee in its capacity as Successor Servicer) will indemnify and hold harmless the Company for any losses, claims, damages and liabilities of the Company arising under this Section 6.3 from the actions or omissions of such Successor Servicer. ARTICLE VII EARLY AMORTIZATION EVENTS Section 7.1. Early Amortization Events. Unless modified with respect to any Series of Investor Certificates by any related Supplement, if any one of the following events shall occur: (a) (i) the Company or the Master Servicer, as the case may be, shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or the Master Servicer, as the case may be, shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or the Master Servicer, as the case may be, any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, -66- undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or the Master Servicer, as the case may be, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 such days from the entry thereof; or (iv) the Company or the Master Servicer, as the case may be, shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or the Master Servicer, as the case may be, shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (b) the Trust shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (c) the Trust is characterized for Federal income tax purposes as an association taxable as a corporation; then, an "Early Amortization Event" shall occur and an Amortization Period shall commence without any notice or other action on the part of the Trustee or any Investor Certificate- holder immediately upon the occurrence of such event. The Master Servicer shall notify each Rating Agency and the Trustee of the occurrence of any Early Amortization Event. Further, upon the commencement against the Company of a case, proceeding or other action described in clause (a)(ii) or (iii) above, the Company shall not purchase Receivables from any Seller, or transfer Receivables to the Trust, until such time, if any, as such case, proceeding or other action is vacated, discharged, or stayed or bonded pending appeal, provided, that such case, proceeding or other action is vacated, discharged, or stayed or bonded pending appeal within 60 days after the occurrence thereof. Section 7.2. Additional Rights Upon the Occurrence of Certain Events. (a) If an Insolvency Event with respect to the Company occurs, the Company shall immediately cease to transfer Receivables to the Trust and shall promptly give notice to the Trustee of such occurrence. Notwithstanding any cessation of the transfer to the Trust of additional Receivables, Receivables transferred to the Trust prior to the occurrence of such Insolvency Event and Collections in respect of such Receivables and interest, whenever created, accrued in respect of such Receivables, shall continue to be a part of the Trust. If 60 days after the occurrence of such Insolvency Event, the Aggregate Invested Amount and all accrued and unpaid interest thereon have not been paid to the Investor Certificateholders, the Trustee at -67- the direction of the Master Servicer shall proceed to sell, dispose of, or otherwise liquidate the Receivables in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids if reasonably available; provided, however, that if the allocable sale price, less all reasonable fees, expenses and other amounts due hereunder to the Trustee, its agents and counsel to the Trustee, to be realized from such sale, disposition or liquidation would be less than the Aggregate Invested Amount plus accrued and unpaid interest thereon through the Distribution Date next succeeding the date of such sale, the Trustee must receive the prior unanimous consent of all the Investor Certificateholders. The provisions of Sections 7.1 and 7.2 shall not be deemed to be mutually exclusive. The reasonable costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. (b) The proceeds from the sale, disposition or liquidation of the Receivables pursuant to subsection (a) above shall be treated as Collections on the Receivables and such proceeds will be distributed to holders of each Series after immediately being deposited in the applicable Collection Account, in accordance with the provisions of Section 3.1(e) and the related Supplement for such Series. After giving effect to all such deposits, the remainder, if any, shall be allocated to the Company Interest and shall be released to the holder of the Exchangeable Company Certificate upon surrender thereof. Section 7.3. Expense Account. (a) Upon the occurrence of an Early Amortization Event, the Trustee, for the benefit of the Successor Servicer under the Servicing Agreement shall establish and maintain in the name of the Trustee with an Eligible Institution or with the trust department of the Trustee, a segregated trust account accessible only by and under the sole control and dominion of, the Trustee (such account, the "Expense Account"). (b) Upon the occurrence of an Early Amortization Event with respect to any Outstanding Series as specified in the related Supplement and as specified herein, the Trustee shall deposit the portion of the Servicing Fee allocable to such Series into the Expense Account. (c) Amounts in the Expense Account shall be withdrawn by the Successor Servicer in the manner specified in Section 6.2 of the Servicing Agreement. (d) The Trustee shall invest amounts on deposit in the Expense Account in Eligible Investments and the income therefrom shall be deposited therein. Any losses resulting from such investment shall be charged to amounts on deposit in the Expense Account. -68- (e) Upon the earlier to occur of (i) the 30th day following the termination of the Trust pursuant to Section 9.1, and (ii) 30 days after the termination of the duties of the Successor Servicer under the Servicing Agreement, the Trustee shall distribute all remaining funds in the Expense Account to or at the direction of C&A Products. ARTICLE VIII THE TRUSTEE Section 8.1. Duties of Trustee. (a) The Trustee, prior to the occurrence of a Servicer Default of which a Responsible Officer of the Trustee has actual knowledge and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Pooling and Servicing Agreements or any Supplement and no implied covenants or obligations shall be read into such Agreements against the Trustee. If a Servicer Default to the actual knowledge of a Responsible Officer of the Trustee has occurred (which has not been cured or waived), the Trustee shall exercise the rights and powers vested in it by this Agreement or any Supplement. (b) The Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein upon resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee; but in the case of any of the above which are specifically required to be furnished to the Trustee pursuant to any provision of the Pooling and Servicing Agreements, the Trustee shall, subject to Section 8.2, examine them to determine whether they substantially conform to the requirements of this Agreement or any Supplement. (c) Subject to subsection 8.1(a), no provision of this Agreement or any Supplement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) The Trustee shall not be liable for an error of judgment unless it shall be proved that the Trustee was negligent, or acted in bad faith, in ascertaining the pertinent facts; (ii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith and, to the extent not so provided herein, with respect to any act requiring the Trustee to exercise its own discretion, relating to the time, method and place of -69- conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under any Pooling and Servicing Agreement; (iii) The Trustee shall not be charged with knowledge of any failure by any Servicing Party to comply with any of its obligations, unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Master Servicer, any Agent or any holders of Investor Certificates evidencing Fractional Undivided Interests aggregating not less than 10% of the Invested Amount of any Series; (iv) The Trustee shall not be charged with knowledge of an Early Amortization Event unless a Responsible Officer obtains actual knowledge of such event or the Trustee receives written notice of such event from the Master Servicer, any Agent or any holder of Investor Certificates; (v) The Trustee shall not be liable for any investment losses resulting from any investments of funds on deposit in the Accounts or any subaccounts thereof (provided that such investments are Eligible Investments); (vi) The Trustee shall have no duty to monitor the performance of the Master Servicer, nor shall it have any liability in connection with malfeasance or nonfeasance by the Master Servicer. The Trustee shall have no liability in connection with compliance of the Master Servicer or the Company with statutory or regulatory requirements related to the Receivables; and (vii) The Trustee shall take such actions as are set forth in the Internal Operating Procedures Memorandum. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under any Pooling and Servicing Agreement or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in any Pooling and Servicing Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Master Servicer under such Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Master Servicer in accordance with the terms of such Agreement. (e) Except for actions expressly authorized by any Pooling and Servicing Agreement, the Trustee shall take no action -70- reasonably likely to impair the interests of the Trust in any Receivable now existing or hereafter created or to impair the value of any Receivable now existing or hereafter created. (f) Except as expressly provided in any Pooling and Servicing Agreement, the Trustee shall have no power to vary the corpus of the Trust. (g) Provided that the Master Servicer, each other Servicing Party and the Company shall have provided to the Trustee immediately upon request all books, records and other information reasonably requested by the Trustee and shall have provided the Trustee with all necessary access to the properties, books and records of the Master Servicer, each other Servicing Party and the Company which the Trustee may reasonably require, then within 60 days following the Initial Closing Date, the Trustee shall have (i) completed the Servicer Site Review and (ii) established the Standby Liquidation System, and shall have notified the Master Servicer and each Rating Agency of such events. Section 8.2. Rights of the Trustee. Except as otherwise provided in Section 8.1: (a) The Trustee may rely on and shall be protected in acting on, or in refraining from acting in accord with, any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, note or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to any Pooling and Servicing Agreement by the proper party or parties; (b) The Trustee may consult with counsel and any Opinion of Counsel or any advice of such Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by any Pooling and Servicing Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificate- holders, pursuant to the provisions of any Pooling and Servicing Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; provided, however, that nothing contained herein shall relieve the Trustee of the obligations, upon the occurrence of a Servicer Default -71- (which has not been cured), to exercise such of the rights and powers vested in it by any Pooling and Servicing Agreement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or wilful misconduct in the performance of any such act; (d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by any Pooling and Servicing Agreement; provided that the Trustee shall be liable for its negligence or willful misconduct; (e) The Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, direction, order, approval, bond, note or other paper or document, unless requested in writing so to do by the holders of Investor Certificates evidencing Fractional Undivided Interests aggregating more than 50% of the Invested Amount of any Series which could be adversely affected if the Trustee does not perform such acts; provided, however, that such holders of Investor Certificates shall reimburse the Trustee for any expense resulting from any such investigation requested by them; provided, further, that the Trustee shall be entitled to make such further inquiry or investigation into such facts or matters as it may reasonably see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books and records of the Company, personally or by agent or attorney, at the sole cost and expense of the Company; (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) The Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects, the compliance by the Company with its representations and warranties or for any other purpose; and -72- (h) In the event that the Trustee is also acting as Paying Agent or Transfer Agent and Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VIII shall also be afforded to such Paying Agent or Transfer Agent and Registrar. Section 8.3. Trustee Not Liable for Recitals in Certificates. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 8.15, the Trustee makes no representations as to the validity or sufficiency of any Pooling and Servicing Agreement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by the Company of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Company in respect of the Receivables or deposited in or withdrawn from the Collection Accounts or other accounts hereafter established to effectuate the transactions contemplated herein and in accordance with the terms hereof. The Trustee shall not be accountable for the use or application by the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Master Servicer or any Servicer in respect of the Receivable or deposited in or withdrawn from the Accounts by or at the direction of the Master Servicer or any Servicer or Lockbox Processor. The Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Receivable. Section 8.4. Trustee May Own Certificates. The Trustee in its individual or any other capacity (a) may become the owner or pledgee of Investor Certificates with the same rights as it would have if it were not the Trustee and (b) may transact any banking and trust business with the Company, any Servicing Party or any Seller. Section 8.5. Trustee's Fees and Expenses. The Master Servicer covenants and agrees to pay, but only from funds available to it as the Servicing Fee paid under the Servicing Agreement, to the Trustee annually in advance on the Initial Closing Date and on each one year anniversary thereof, and the Trustee shall be entitled to receive, such reasonable compensation as is agreed upon in writing between the Trustee and the Master Servicer (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any -73- of the powers and duties hereunder of the Trustee. The Trustee shall be entitled to reimbursement upon its request for all reasonable expenses (including, without limitation, expenses incurred in connection with notices, requests for documentation or other communications to Certificateholders), disbursements, losses, liabilities, damages and advances incurred or made by the Trustee in accordance with any of the provisions of any Pooling and Servicing Agreement (including the reasonable fees and expenses of its agents, any co-trustee and counsel) except any such expense, disbursement, loss, liability, damage or advance as may arise from its negligence or bad faith and except as otherwise provided in this Section 8.5. To the extent not paid from Aggregate Daily Collections on a current basis on each Distribution Date, the Company will pay or reimburse the Trustee upon its request and if the Company shall fail to do so, C&A Products will so pay or reimburse the Trustee (with a right of reimbursement from the Company) for such items. Notwithstanding anything contained in this Agreement to the contrary, the Trustee shall not be entitled to reimbursement for any costs or expenses incurred in connection with the review, negotiation, preparation, execution and delivery of any of the Transaction Documents or in connection with the issuance of any Certificates on the Initial Closing Date except for such costs and expenses as have been agreed upon in writing between the Trustee and the Master Servicer. The expenses, disbursement, losses, liabilities, damages and advances made or incurred by the Trustee shall be considered "Trustee's expenses" for purposes of computing the Program Costs under each Supplement. If the Trustee is appointed Successor Servicer in accordance with the Servicing Agreement, this Section 8.5 shall not apply to expenses, disbursements, losses, liabilities, damages and advances made or incurred by the Trustee in its capacity as Successor Servicer which items shall be paid, first, out of the Servicing Fee, second, to the extent not paid therefrom, by making an appropriate withdrawal from the Expense Account and third, from amounts distributable to the Company pursuant to Section 9.4. The covenants to pay the expenses, disbursements, losses, liabilities, damages and advances provided for in the preceding sentence shall survive the termination of this Agreement. The provision of this Section 8.5 shall apply to the reasonable expenses, disbursements and advances made or incurred by the Trustee, or any other Person, in its capacity as liquidating agent, which may exceed the Servicing Fee. Section 8.6. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, having (or having a holding company parent with) a combined capital and surplus of at least $50,000,000, having unsecured and uncollateralized debt obligations which are rated in one of the two highest long-term -74- or short-term rating categories by each Rating Agency and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purpose of this Section 8.6, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 8.6, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.7. Section 8.7. Resignation or Removal of Trustee. (a) Subject to paragraph (c) below, the Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Company and the Master Servicer. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.6 hereof and shall fail to resign after written request therefor by the Master Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Company may remove the Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) Any resignation or removal of the Trustee and appointment of successor trustee pursuant to any of the provisions of this Section 8.7 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 8.8. (d) The obligations of the Company described in Sections 6.3 and 8.5 hereof and the obligations of the Master Servicer described in Section 8.5 hereof and Section 5.1 of the Servicing Agreement shall survive the removal or resignation of the Trustee as provided in this Agreement. -75- (e) No Trustee under this Agreement shall be personally liable for any action or omission of any successor trustee. Section 8.8. Successor Trustee. (a) Any successor trustee appointed as provided in Section 8.7 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents or copies thereof, at the expense of the Master Servicer, and statements held by it hereunder; and the Company and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, power, duties and obligations. The Master Servicer shall immediately give notice to each Rating Agency upon the appointment of a successor trustee. (b) No successor trustee shall accept appointment as provided in this Section 8.8 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.6. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 8.8, such successor trustee shall mail notice of such succession hereunder to all Certificateholders at their addresses as shown in the Certificate Register. Section 8.9. Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.6, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall promptly give notice, but in no event less than ten days prior to any such merger or consolidation, to the Rating Agencies upon any such merger or consolidation of the Trustee. Section 8.10. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of any Pooling and Servicing Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any -76- part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more persons to act as a co-trustee or co- trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.6 and no notice to Certificate- holders of the appointment of any co-trustee or separate trustee shall be required under Section 8.8. The Trustee shall promptly notify each Rating Agency of the appointment of any co-trustee. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any statute of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, -77- either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of any Pooling and Servicing Agreement, specifically including every provision of any Pooling and Servicing Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Master Servicer and the Company. (d) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to any Pooling and Servicing Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11. Tax Returns. In the event the Trust shall be required to file tax returns, the Company shall prepare and file or shall cause to be prepared and filed any tax returns required to be filed by the Trust and shall remit such returns to the Trustee for signature at least five Business Days before such returns are due to be filed. The Company shall also prepare or shall cause to be prepared all tax information required by law to be distributed to Certificateholders and shall deliver such information to the Trustee at least five Business Days prior to the date it is required by law to be distributed to the Certificateholders. The Trustee, upon request, will furnish the Company with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust, and shall, upon request, execute such returns. In no event shall the Trustee in its individual capacity be liable for any liabilities, costs or expenses of the Trust, the Certificateholders, the Company or the Master Servicer arising under any tax law or regulation, including, without limitation, federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from any failure to comply therewith). Section 8.12. Trustee May Enforce Claims Without Possession of Certificates. All rights of action and claims under any Pooling and Servicing Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable -78- benefit of the Certificateholders in respect of which such judgment has been obtained. Section 8.13. Suits for Enforcement. If a Servicer Default shall occur and be continuing, the Trustee, in its discretion may, subject to the provisions of Section 6.1 of the Servicing Agreement, proceed to protect and enforce its rights and the rights of the Certificateholders under this Agreement or any other Transaction Document by suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any other Transaction Document or in aid of the execution of any power granted in this Agreement or any other Transaction Document or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Certificateholders. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Certificateholder any plan of reorganization, arrangement, adjustment or composition affecting the Certificates or the rights of any holder thereof, or authorize the Trustee to vote in respect of the claim of any Certificateholder in any such proceeding. Section 8.14. [Reserved] Section 8.15. Representations and Warranties of Trustee. The Trustee represents and warrants that: (a) the Trustee is a banking corporation organized, existing and in good standing under the laws of the State of New York and meets the requirements of Section 8.6; (b) the Trustee has full power, authority and right to execute, deliver and perform this Agreement and any Supplement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement and any Supplement; and (c) each Pooling and Servicing Agreement and each of the Transaction Documents executed by it have been duly executed and delivered by the Trustee and, in the case of all such Transaction Documents, are legal, valid and binding obligations of the Trustee, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). -79- Section 8.16. Maintenance of Office or Agency. The Trustee will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Certificates and the Pooling and Servicing Agreements may be served. The Trustee will give prompt written notice to the Company, the Master Servicer and the Certificateholders of any change in the location of the Certificate Register or any such office or agency. Section 8.17. Limitation of Liability. The Certificates are executed by the Trustee, not in its individual capacity but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it by the Trust Agreement. Each of the undertaking and agreements made on the part of the Trustee in the Certificates is made and intended not as a personal undertaking or agreement by the Trustee but is made and intended for the purpose of binding only the Trust. ARTICLE IX TERMINATION Section 9.1. Termination of Trust; Optional Repurchase. (a) The Trust and the respective obligations and responsibilities of the Company, the Master Servicer, the Servicers and the Trustee created hereby (other than the obligation of the Trustee to make payments to Certificateholders as hereafter set forth) shall terminate, except with respect to any such obligations or responsibilities expressly stated to survive such termination, on the earliest of (i) the last day of the March 2010 Settlement Period (ii) at the option of the Company at any time where the Aggregate Invested Amount is zero (unless an Early Amortization Event as specified in Section 7.1 of this Agreement shall have occurred and be continuing in which case the Company shall be deemed to elect to terminate the Trust pursuant to this clause (ii)) and (iii) upon completion of distribution of the amounts referred to in subsection 7.2(b) (the "Trust Termination Date"). (b) If on the Distribution Date in the month immediately preceding the month in which the Trust Termination Date occurs (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal on any Series of Certificates to be made on the related Distribution Date pursuant to Article III) the Invested Amount of any Series would be greater than zero, the Trustee, at the direction of the Master Servicer, shall sell within 30 days of such Distribution Date all of the Receivables. The proceeds of such sale shall be treated as Collections on the Receivables and shall be allocated in accordance with Article III. During such -80- 30-day period, the Master Servicer shall continue to collect Collections on the Receivables and allocate Collections in accordance with the provisions of Article III. The reasonable costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. Section 9.2. Optional Purchase and Final Termination Date of Investor Certificates of any Series. (a) On the Distribution Date during the Amortization Period with respect to any Series on which the Invested Amount (or such other amount as may be set forth in the related Supplement) of such Series is reduced to an amount equal to or less than the Optional Repurchase Percentage of the Initial Invested Amount (or such other amount as may be set forth in the related Supplement) for such Series as of the day preceding the beginning of such Amortization Period, the Company shall have the option to repurchase the entire Certificateholders' Interest of such Series, at a purchase price equal (i) to the outstanding Invested Amount of the Investor Certificates of such Series plus (ii) accrued and unpaid interest through the date of such purchase (after giving effect to any payment of principal and monthly interest on such date of purchase) plus (iii) all other amounts payable to all Investor Certificateholders of such Series under the related Supplement. The amount of the purchase price will be deposited into the U.S. Dollar Collection Account for credit to the Series Collection Subaccount for such Series on the Distribution Date in immediately available funds and will be passed through in full to the applicable Investor Certificateholders. Following any such repurchase, such Certificateholders' Interest in the Receivables shall terminate and such interest therein will be allocated to the Company Interest and such Certificateholders will have no further rights with respect thereto. In the event that the Company fails for any reason to deposit the purchase price for such Receivables, the Trust will continue to hold such interest in the Receivables and monthly payments will continue to be made to the Certificateholders. (b) The amount deposited pursuant to subsection 9.1(b) shall be paid to the Investor Certificateholders of the related Series pursuant to Article III on the Distribution Date following the date of such deposit. All Certificates of a Series which are purchased by the Company pursuant to subsection 9.1(b) shall be delivered by the Company upon such purchase to, and be canceled by, the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Company. (c) All principal or interest with respect to any Series of Investor Certificates shall be due and payable no later than the Series Termination Date with respect to such Series. Unless otherwise provided in a Supplement, in the event that the Invested Amount of any Series of Certificates is greater than -81- zero on its Series Termination Date (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal to be made on such Series on such date), the Trustee will sell or cause to be sold, in accordance with the directions of the Master Servicer and pay the proceeds to all Certificateholders of such Series pro rata (except that unless expressly provided to the contrary in the related Supplement, no payment shall be made to Certificateholders of any Class of any Series that is by its terms subordinated to any other Class until such senior Class of Certificates have been paid in full) in final payment of all principal of and accrued interest on such Series of Certificates, an amount of Receivables or interests in Receivables up to the Invested Amount of such Series at the close of business on such date. The reasonable costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. Any proceeds of such sale in excess of such principal and interest paid shall be paid to the holder of the Exchangeable Company Certificate, unless and to the extent otherwise specified in any applicable Supplement. Upon such Series Termination Date with respect to the applicable Series of Certificates, final payment of all amounts allocable to any Investor Certificates of such Series shall be made in the manner provided in this Section 9.2. Section 9.3. Final Payment with Respect to Any Series. (a) Written notice of any termination, specifying the Distribution Date upon which the Investor Certificateholders of any Series may surrender their Investor Certificates for payment of the final distribution with respect to such Series and cancellation, shall be given (subject to at least 30 days' prior written notice from the Master Servicer to the Trustee containing all information required for the Trustee's notice) by the Trustee to Investor Certificateholders of such Series mailed not later than the fifth day of the month of such final distribution specifying (i) the Distribution Date upon which final payment of the Investor Certificates will be made upon presentation and surrender of Investor Certificates at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Master Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officers' Certificate setting forth the information specified in Section 4.4 of the Servicing Agreement covering the period during the then current calendar year through the date of such notice. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to such Investor Certificateholders. -82- (b) Notwithstanding the termination of the Trust pursuant to subsection 9.1(a) or the occurrence of the Series Termination Date with respect to any Series pursuant to Section 9.2, all funds then on deposit in the Collection Accounts (but only to the extent necessary to pay all outstanding and unpaid amounts to Certificateholders) shall continue to be held in trust for the benefit of the Certificateholders and the Paying Agent or the Trustee shall pay such funds to the Certificateholders upon surrender of their Certificates. Any Certificate not surrendered on the date specified in subsection 9.3(a)(i) shall cease to accrue any interest provided for such Certificate from and after such date. In the event that all of the Investor Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders of such Series to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Investor Certificates of such Series shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders of such Series concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds in the Collection Accounts held for the benefit of such Investor Certificateholders. The Trustee and the Paying Agent shall pay to the Company upon request any monies held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Company, Certificateholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. (c) All Certificates surrendered for payment of the final distribution with respect to such Certificates and cancellation shall be canceled by the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Company. Section 9.4. Company's Termination Rights. Upon the termination of the Trust pursuant to Section 9.1 and the surrender of the Exchangeable Company Certificate and payment to the Trustee (in its capacity as such and in its capacity as Successor Servicer) of all amounts owed to it under any Pooling and Servicing Agreement, the Trustee shall sell, assign and convey to the Company (without recourse, representation or warranty) all right, title and interest of the Trust in the Receivables, whether then existing or thereafter created, and all proceeds thereof except for amounts held by the Trustee pursuant to subsection 9.3(b). The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, representation or warranty, as shall be reasonably -83- requested by the Company to vest in the Company all right, title and interest which the Trust had in the Receivables. ARTICLE X MISCELLANEOUS PROVISIONS Section 10.1. Amendment. (a) This Agreement, the Servicing Agreement and each Supplement in respect of an Outstanding Series (collectively, the "Pooling and Servicing Agreements") may be amended in writing from time to time by the Master Servicer, the Company and the Trustee, without the consent of any holder of any outstanding Certificate, to cure any ambiguity, to correct or supplement any provisions herein or therein which may be inconsistent with any other provisions herein or therein or to add any other provisions hereof to change in any manner or eliminate any of the provisions with respect to matters or questions raised under any Pooling and Servicing Agreement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; provided, however, that such action shall not, as evidenced by an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of the Investor Certificateholders. The Trustee may, but shall not be obligated to, enter into any such amendment pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (b) Any Pooling and Servicing Agreement and, to the extent provided in any Pooling and Servicing Agreement, any other agreement relating to the Receivables may also be amended in writing from time to time by the Master Servicer, the Company and the Trustee with the consent of Investor Certificateholders evidencing more than 50% of the Invested Amount of any Series adversely affected by the amendment (and, if such amendment has not been consented to by Investor Certificateholders evidencing 66-2/3% or more of the Invested Amount of any Series adversely affected by the amendment (or, if any such Series shall have more than one Class of Investor Certificates adversely affected by the amendment, 66-2/3% or more of the Invested Amount of each Class adversely affected by the amendment), upon satisfaction of the Rating Agency Condition with respect to such amendment) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of such Pooling and Servicing Agreement or such other agreement or of modifying in any manner the rights of holders of any Series then issued and outstanding; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of such Investor Certificateholder of such Series; (ii) change the definition of or the manner of -84- calculating the interest of any Investor Certificateholder of such Series without the consent of such Investor Certificateholder; or (iii) reduce the aforesaid percentage of fractional undivided interests the holders of which are required to consent to any such amendment, in each case without the consent of all Certificateholders of all Series adversely affected. (c) Notwithstanding anything in this Section 10.1 to the contrary, the Supplement with respect to any Series may only be amended on the terms and with the procedures provided in such Supplement. (d) The Company or the Master Servicer shall deliver any proposed amendment to each Agent at least five days prior to the execution and delivery thereof. (e) Promptly after the execution of any such amendment or consent the Trustee shall furnish written notification of the substance of such amendment to each Certificateholder of each Outstanding Series (or with respect to an amendment of a Supplement, to the applicable Series), and the Master Servicer shall furnish written notification of the substance of such amendment to each Rating Agency. (f) It shall not be necessary for the consent of Investor Certificateholders under this Section 10.1 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificate- holders shall be subject to such reasonable requirements as the Trustee may prescribe. (g) In executing or accepting any amendment pursuant to this Section 10.1, the Trustee shall, upon request, be entitled to receive and rely upon (i) an Opinion of Counsel stating that (A) such amendment is authorized pursuant to a specific provision of a Pooling and Servicing Agreement and complies with such provision, and (B) all conditions precedent to the execution, delivery and performance of such amendment shall have been satisfied in full and (ii) a Tax Opinion. Section 10.2. Protection of Right, Title and Interest to Trust. (a) The Company shall cause each Pooling and Servicing Agreement, all amendments thereto and/or all financing statements and continuation statements and any other necessary documents covering the Certificateholders' and the Trustee's right, title and interest to the Trust to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, -85- title and interest of the Trustee hereunder to all property comprising the Trust. The Company shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. In the event that the Company fails to file such financing or continuation statements then the Trustee shall have the right to file the same on behalf of the Company. (b) The Company will deliver an Opinion of Counsel, not more than once annually, substantially in the form of Exhibit F, to the Trustee promptly following a request therefor (and, in any event, within 20 Business Days following such request). Section 10.3. Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholders' legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Certificateholder shall have any right to vote (except with respect to the Investor Certificateholders as provided in Section 10.1 hereof) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Certificateholder previously shall have given to the Trustee, written request to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Certificateholders shall have any right in any manner whatever by virtue or by availing itself or -86- themselves of any provisions of the Pooling and Servicing Agreements to affect, disturb or prejudice the rights of any other of the Investor Certificates, or to obtain or seek to obtain priority over or preference to any other such Investor Certificateholder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Investor Certificateholders. For the protection and enforcement of the provisions of this Section 10.3, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. (d) By their acceptance of Certificates pursuant to this Agreement and the applicable Supplement, the Certificateholders agree to the provisions of this Section 10.3. Section 10.4. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 10.5. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows (i) in the case of the Company, the Master Servicer and the Trustee, and (ii) in the case of the Servicers, as set forth on Schedule 1 to the Receivables Sale Agreement, or to such other address as may be hereafter notified by the respective parties hereto: The Company: Carcorp, Inc. P.O. Box 50102 Henderson, Nevada 89106 Attention: President Telecopy: (702) 598-3651 with a copy to the Master Servicer and a copy to: 210 Madison Avenue New York, New York 10016 Attention: Elizabeth R. Philipp Telecopy: (212) 578-1269 -87- The Master Servicer: Collins & Aikman Products Co. 701 McCullough Drive Charlotte, North Carolina 28262 Attention: Assistant Treasurer Telecopy: (704) 548-2314 with a copy to: 210 Madison Avenue New York, New York 10016 Attention: Elizabeth R. Philipp Telecopy: (212) 578-1269 The Trustee: Chemical Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attention: Structured Finance Services - ABS Telecopy: (212) 946-3916 Telephone: (212) 946-8600 Any notice required or permitted to be mailed to a Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in any Pooling and Servicing Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 10.6. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of any Pooling and Servicing Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of such Pooling and Servicing Agreement and shall in no way affect the validity or enforceability of the other provisions of any Pooling and Servicing Agreement or of the Certificates or rights of the Certificateholders. Section 10.7. Assignment. Notwithstanding anything to the contrary contained herein, except as provided in Section 5.1 of the Servicing Agreement, no Pooling and Servicing Agreement may be assigned by the Master Servicer without the prior written consent of the Trustee acting on behalf of the holders of 66-2/3% of the Invested Amount of each Outstanding Series and without the Rating Agency Condition having been satisfied with respect to any such assignment. -88- Section 10.8. Certificates Nonassessable and Fully Paid. It is the intention of the parties to each Pooling and Servicing Agreement that the Investor Certificateholders shall not be personally liable for obligations of the Trust, that the interests in the Trust represented by the Investor Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever and that Investor Certificates upon authentication thereof by the Trustee pursuant to Section 5.2 are and shall be deemed fully paid. Section 10.9. Further Assurances. The Company and the Master Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of each Pooling and Servicing Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction, or under the provisions of similar provincial laws of Canada. Section 10.10. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee or the Investor Certificateholders, any right, remedy, power or privilege, hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 10.11. Counterparts. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 10.12. Third-Party Beneficiaries. This Agreement will inure to the benefit of and be binding upon the parties hereto, the Certificateholders and their respective successors and permitted assigns. Except as otherwise provided in this Article X, no other Person will have any right or obligation hereunder. Section 10.13. Actions by Certificateholders. (a) Wherever in any Pooling and Servicing Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholders of any Series, unless such provision requires -89- a specific percentage of Investor Certificateholders of a certain Series or all Series. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, the Company or the Master Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. Section 10.14. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived, or supplemented except as provided herein. Section 10.15. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 10.16. Construction of Agreement. (a) The Company hereby grants to the Trustee a security interest in all of the Company's right, title and interest in, to and under the Receivables and the other Trust Assets now existing and hereafter created, all monies due or to become due and all amounts received with respect thereto and all "proceeds" thereof (including Recoveries), to secure all of the Company's and the Master Servicer's obligations hereunder, including, without limitation, the Company's obligation to sell or transfer Receivables hereafter created to the Trust. (b) This Agreement shall constitute a security agreement under applicable law. Section 10.17. No Set-Off. Except as expressly provided in this Agreement, the Trustee agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Accounts for any amount owed to it by the Company, the Master Servicer or any Certificateholder. Section 10.18. No Bankruptcy Petition. Each of the Trustee and the Master Servicer hereby covenant and agree that, prior to the date which is one year and one day after the date of the end of the Amortization Period with respect to all Outstanding Series, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation -90- proceedings, or other proceedings under any federal or state bankruptcy or similar law. Section 10.19. Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) each Pooling and Servicing Agreement is executed and delivered by Chemical Bank, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) except with respect to Section 8.15 hereof the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by Chemical Bank, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on Chemical Bank, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any Person claiming by, through or under such parties; provided, however, Chemical Bank shall be liable in its individual capacity for its own willful misconduct or negligence and for any tax assessed against Chemical Bank based on or measured by any fees, commission or compensation received by it for acting as Trustee and (d) under no circumstances shall Chemical Bank be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under any Pooling and Servicing Agreement. The Company hereby agrees to indemnify and hold harmless the Trustee for the benefit of the Certificateholders (each, an "indemnified person") from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Company pursuant to any Pooling and Servicing Agreement to which it is a party, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, except to the extent such loss, liability, expense, damage or injury resulted from the negligence, bad faith or willful misconduct of an indemnified person. Section 10.20. Canadian Taxes. The Company represents and warrants to the Trustee for the benefit of the Certificateholders that it has not assumed in any manner whatsoever any obligation of the Canadian Seller to make collections and remittances in respect of any Canadian goods and services tax and Canadian provincial sales taxes and to file any returns in respect of such taxes with Canadian tax authorities -91- and that it was not contemplated by the Canadian Seller and the Company that such obligation was to be assumed by the Company. The parties hereto agree that the Trust does not assume in any manner whatsoever any obligation of the Canadian Seller to collect such taxes, make such remittances and file such returns, and that it is not contemplated by the parties hereto that any such obligation is hereby assumed by the Trust or the Trustee. The Company hereby indemnifies the Trustee for the benefit of the Certificateholders and holds it harmless from and against any assessments, claims or other demands for payment of such taxes by Canadian tax authorities, as well as interest and penalties. It is understood that all of the Canadian Seller's invoices in respect of its Receivables will bear the Canadian Seller's GST registration number. Section 10.21. Payments by Company. Whenever any provision in the Transaction Documents permits or obligates the Company to make a payment in cash, failure to make such payment shall not constitute a breach by the Company giving rise to any actionable claim against the Company to the extent that the Company has insufficient funds to make such payments from amounts properly distributed to the Company pursuant to this Agreement and any Supplement. The foregoing sentence shall not in any manner limit the ability of the Company to increase the principal amounts outstanding under the Subordinated Notes and the Parent Note in accordance with the terms of the Receivables Sale Agreement. Section 10.22. Certain Information. The Master Servicer and the Company shall promptly provide to the Trustee such information in computer tape, hard copy or other form regarding the Receivables as the Trustee may reasonably request to perform its obligations hereunder. -92- IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. CARCORP, INC., as Company By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Secretary and Treasurer COLLINS & AIKMAN PRODUCTS CO., as Master Servicer By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer CHEMICAL BANK, not in its individual capacity but solely as Trustee By: Charles E. Dooley Title: Vice President -93- Schedule 1 Receivables Schedule 2 Identification of Trust Accounts The U.S. Dollar Collection Account has been established by and at Chemical Bank, account number 323-334466. The U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/U.S. Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 04- 46718. The Canada/U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/Canadian Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 22-43318. The Canada/Canadian Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. Schedule 3 Special Obligors Special Obligor Special Obligor Limit General Motors Corporation 7.0% and its Subsidiaries Ford Motor Company and 10.0% its Subsidiaries Chrysler Corporation 7.0% and its Subsidiaries Honda Motor Co., Ltd., 7.0% American Honda Motor Co. and their respective Subsidiaries Toyota Motor Company, 14.0% Toyota Tsusho Corp. and their respective Subsidiaries Notwithstanding the foregoing, if after March 30, 1995 the rating assigned to a Special Obligor is changed by either Standard & Poor's Rating Group or Duff & Phelps Credit Rating Co., the following Special Obligor Limit shall apply to such Special Obligor (in case of a split rating, the Special Obligor Limit shall be the lower of the two): Minimum Rating Standard & Poor's Duff & Phelps Special Obligor Limit A-1 AAA- 14.0% A-2 AA- 10.0% A-3 A- 7.0% - -- BBB- 5.0% Non-Investment Less than 2.5% Grade/Unrated BBB- and unrated Schedule 4 Locations of Chief Executive Office of the Company Bank of America Plaza Suite 1100 300 South Fourth Street Las Vegas, Nevada 89101 Schedule 5 Contractual Obligations 1. Service Agreement, dated as of December 16, 1994, between Nevada Holding Services, Inc. ("NHS") and the Company, as amended. 2. Sublease, dated as of December 16, 1994, between NHS, as Sublessor, and the Company, as Sublessee. 3. Agreement, dated as of December 16, 1994, between the Company and Monte L. Miller. 4. Payroll Services Agreement, dated December 22, 1994, between the Company and Computing Resources, Inc. EX-10 8 EXHIBIT 10.21 EXECUTION COPY CARCORP, INC., COLLINS & AIKMAN PRODUCTS CO., as Master Servicer and CHEMICAL BANK, as Trustee SERIES 1995-1 SUPPLEMENT Dated as of March 30, 1995 to POOLING AGREEMENT Dated as of March 30, 1995 C&A MASTER TRUST TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . 1 SECTION 1.1. Definitions . . . . . . . . . . . . . . 1 ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE TERM CERTIFICATES . . . . . . . 24 SECTION 2.1. Designation . . . . . . . . . . . . . . 24 SECTION 2.2. The Series 1 Certificates . . . . . . . 25 SECTION 2.3. Delivery . . . . . . . . . . . . . . . . 25 SECTION 2.4. Tender of Exchangeable Company Certificate . . . . . . . . . . . . . 26 SECTION 2.5. Restrictions on Transfer. . . . . . . . 27 SECTION 2.6. Application of Proceeds. . . . . . . . . 28 SECTION 2.7. Procedure for Decreasing the Invested Amount . . . . . . . . . . . . . . . . 29 ARTICLE III ARTICLE III OF THE AGREEMENT . . . . . . 30 SECTION 3A.2. Establishment of Trust Accounts. . . . 30 SECTION 3A.3. Daily Allocations. . . . . . . . . . . 32 SECTION 3A.4. Determination of Interest . . . . . . . 34 SECTION 3A.5. Determination of Series 1 Monthly Principal Payment . . . . . . . . . . 35 SECTION 3A.6. Applications . . . . . . . . . . . . . 35 ARTICLE IV DISTRIBUTIONS AND REPORTS . . . . . . . 37 SECTION 4A.1. Distributions . . . . . . . . . . . . . 37 SECTION 4A.2. Statements and Notices . . . . . . . . 38 Section 4A.3. Notices . . . . . . . . . . . . . . . . 39 ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS . . . . 39 SECTION 5.1. Additional Early Amortization Events . . 39 -i- Page ARTICLE VI SERVICING FEE . . . . . . . . . . 41 SECTION 6.1. Servicing Compensation . . . . . . . . . 41 ARTICLE VII COVENANTS, REPRESENTATIONS AND WARRANTIES . . . 42 SECTION 7.1. Representations and Warranties of the Company and the Master Servicer . . . . . . . . . . . . . . . 42 SECTION 7.2. Covenants of the Company . . . . . . . . 42 SECTION 7.3. Covenants of the Master Servicer . . . . 42 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . 42 SECTION 8.1. Ratification of Agreement . . . . . . . 42 SECTION 8.2. Governing Law . . . . . . . . . . . . . 43 SECTION 8.3. Further Assurances . . . . . . . . . . . 43 SECTION 8.4. No Waiver; Cumulative Remedies . . . . . 43 SECTION 8.5. Amendments . . . . . . . . . . . . . . . 43 SECTION 8.6. Notices . . . . . . . . . . . . . . . . 43 SECTION 8.7. Counterparts . . . . . . . . . . . . . . 44 ARTICLE IX FINAL DISTRIBUTIONS . . . . . . . . 44 SECTION 9.1. Certain Distributions . . . . . . . . . 44 -ii- EXHIBITS Exhibit A Form of Class A Certificate, Series 1995-1 Exhibit B Form of Class B Certificate, Series 1995-1 Exhibit C Form of Subordinated Company Certificate, Series 1995-1 Exhibit D [Reserved] Exhibit E Form of Daily Report Exhibit F Form of Monthly Settlement Statement SCHEDULES Schedule 1 Trust Accounts -iii- SERIES 1995-1 SUPPLEMENT, dated as of March 30, 1995 (this "Supplement"), among Carcorp, Inc., a Delaware corporation (the "Company"), Collins & Aikman Products Co. ("C&A Products"), a Delaware corporation, as master servicer (the "Master Servicer"), and Chemical Bank, a New York banking corporation, in its capacity as Trustee (the "Trustee") under the Agreement (as hereinafter defined). W I T N E S S E T H : WHEREAS, the parties hereto entered into a Pooling Agreement, dated as of March 30, 1995 (the "Agreement"); WHEREAS, the Agreement provides, among other things, that the Company, the Master Servicer and the Trustee may at any time and from time to time enter into supplements to the Agreement for the purpose of authorizing the issuance on behalf of the Trust by the Company for execution and redelivery to the Trustee for authentication of one or more Series of Investor Certificates; and WHEREAS, the Company, the Master Servicer and the Trustee wish to supplement the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. (a) The following words and phrases shall have the following meanings with respect to Series 1 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "Accrued Expense Amount" shall mean, for each Business Day during an Accrual Period, the sum of (i) the Series 1 Daily Interest Expense for such Business Day, (ii) one-tenth of the Series 1 Certificates pro rata portion of the Servicing Fee (up to the Series 1 Certificates pro rata portion of the amount thereof due and payable on the succeeding Distribution Date and zero on each Business Day thereafter until the succeeding Distribution Date) and (iii) all Program Costs which have accrued since such preceding Business Day; provided, however, that if by the tenth Business Day of an Accrual Period, the entire amount of (A) the Series 1 Monthly Interest, (B) the Series 1 Certificates pro rata portion of the Servicing Fee and (C) all Program Costs, in each case for such Accrual Period, shall not have been transferred to the applicable Account, the Accrued Expense Amount for such tenth Business Day (and each Business Day thereafter until paid) shall also include the amount of such shortfall. For purposes of clause (ii), the Servicing Fee shall be allocated among each Outstanding Series pro rata based upon the proportion that the Invested Amount for such Series (or, in the case of the Series 2 Certificates, the Aggregate Commitment Amount) bears to the sum of (i) the Invested Amounts for all Outstanding Series (other than Series 2) and (ii) the Aggregate Commitment Amount. "Additional Series Primary Auto Receivables Percentage" shall mean, as of any date of determination, the percentage, if any, set forth in, or calculated pursuant to the provisions of, the Supplement relating to a Series of Certificates issued after the Issuance Date and having an interest in PAR Pool II; provided, however, that such percentage shall not exceed, on any date of determination, the fraction (expressed as a percentage) the numerator of which equals the Principal Amount of PAR Pool II allocated to such Series and the denominator of which equals the Principal Amount of PAR Pool II. "Additional Series 2 Receivables" shall mean those Receivables, if any, originated by a Seller added to Schedule 1 to the Receivables Sale Agreement after the Issuance Date, which Seller's Receivables shall be designated as Additional Series 2 Receivables. "Aged Receivables Ratio" shall mean, as of the last day of each Settlement Period, the percentage equivalent of a fraction, the numerator of which shall be the sum of (a) the aggregate unpaid balance of Receivables originated by the Sellers that were 61-90 days past due and (b) the aggregate amount of Receivables of such Seller which were charged off as uncollectible prior to the day which is 91 days after its original due date during the Settlement Period, and the denominator of which shall be the aggregate Principal Amount of Receivables originated by the Sellers during the fourth prior Settlement Period (including the current Settlement Period). "Aggregate Commitment Amount" shall have the meaning set forth in Section 1.1 of the Series 2 Supplement. -2- "Aggregate Non-Series 1 Primary Auto Receivables Amount" shall mean, on any day, the sum of (A) the Principal Amount of the Excess Primary Auto Receivables and (B) the lesser of (i) the excess, if any, of the Aggregate Series 1 Receivables Amount over the Series 1 Target Receivables Amount and (ii) the aggregate Principal Amount of Eligible Primary Auto Receivables (other than Excess Primary Auto Receivables). "Aggregate Series 1 Receivables Amount" shall mean, as of any day, the aggregate Principal Amount of Eligible Receivables minus (i) the Principal Amount of Excess Primary Auto Receivables, (ii) the Overconcentration Amounts with respect to the Receivables of other Eligible Obligors and (iii) the Principal Amount of any Additional Series 2 Receivables. "Aggregate Series 2 Receivables Amount" shall mean, on any day, the sum of the Aggregate Non-Series 1 Primary Auto Receivables Amount and the aggregate Principal Amount of any Additional Series 2 Receivables; provided, however, that the Aggregate Series 2 Receivables Amount shall not include (i) the excess, if any, of (a) the aggregate Principal Amount of all Primary Auto Receivables payable in Canadian Dollars over (b) 25% of the aggregate Principal Amount of all Eligible Primary Auto Receivables in the Trust at the end of the Business Day immediately preceding such date and (ii) if the senior unsecured credit rating of a Primary Auto Obligor (or, if such Primary Auto Obligor is a Subsidiary, its parent) shall be reduced below BBB- by S&P, or Baa3 by Moody's Investors Service, Inc., the Principal Amount of Receivables of such Primary Auto Obligor. "Aggregate Series 2 Receivables Amount Deficiency" shall be deemed to occur on any Business Day when, if after giving effect to all allocations and distributions to be made on such day (based upon the VFC Percentage as calculated for such day) the VFC Target Receivables Amount would exceed the Aggregate Series 2 Receivables Amount. "Agreement" shall mean the Pooling Agreement, dated as of March 30, 1995, among the Company, the Master Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time. "Carrying Cost Reserve Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) equal to (a) the product of (i) 2.0 times Days Sales Outstanding as of such day and (ii) 1.50 times the Discount Rate as of such day divided by (b) 360. -3- "Class A Additional Interest" shall have the meaning assigned in subsection 3A.4(b)(i). "Class A Adjusted Invested Amount" shall mean, on any date of determination, the Class A Invested Amount minus the amount on deposit in the Series 1 Principal Collection Sub- subaccount. "Class A Certificate" shall mean a Class A Certificate, Series 1995-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "Class A Certificateholder" shall mean each holder of a Class A Certificate. "Class A Certificate Rate" shall mean, with respect to (i) the initial Accrual Period, 6.455% per annum, and (ii) any Accrual Period thereafter, One-Month LIBOR for such Accrual Period plus 0.33% per annum. "Class A Dilution Reserve Ratio I" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: DRR = [(c * d) + [(e-d) * (e/d)]] * f Where: DRR = Class A Dilution Reserve Ratio I; c = the Class A Ratings Multiple; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the highest Dilution Ratio for any Settlement Period during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and f = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables and (B) the aggregate outstanding Principal Amount of all -4- Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "Class A Dilution Reserve Ratio II" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: DRR = [(c * d) + e] * f Where: DRR = Class A Dilution Reserve Ratio II; c = the Class A Ratings Multiple; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the product of (i) the twelve-month sample standard deviation of the Dilution Ratio as of the end of each of the twelve consecutive Settlement Periods immediately preceding such earlier Settlement Report Date and (ii) the Class A Z Value; and f = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables and (B) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "Class A Initial Invested Amount" shall mean $100,000,000.00. "Class A Interest Shortfall" shall have the meaning assigned in subsection 3A.4(b)(i). "Class A Invested Amount" shall mean, with respect to any date of determination, an amount equal to the Class A Initial Invested Amount (plus the Initial Invested Amount of -5- any Class A Certificate issued subsequent to the Issuance Date) minus the aggregate amount of distributions to the Class A Certificateholders (including the holders of any such subsequently issued Class A Certificates) made in respect of principal on or prior to such date. "Class A Loss Reserve Ratio I" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: LRR = [(a * b)/c] * d * e Where: LRR = Class A Loss Reserve Ratio I; a = the sum of the aggregate Principal Amount of Receivables originated by the Sellers during the three and one-half Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest three-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; d = the Class A Ratings Multiple; and e = the Payment Terms Factor. "Class A Loss Reserve Ratio II" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: LRR = [(a * b)/c] * d * e + f Where: LRR = Class A Loss Reserve Ratio II; -6- a = the aggregate Principal Amount of Receivables originated by the Sellers during the three and one-half Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest two-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; d = the Class A Ratings Multiple; e = the Payment Terms Factor; and f = the product of (i) the twelve-month sample standard deviation of the Aged Receivables Ratio as of the end of each of the twelve consecutive Settlement Periods preceding such earlier Settlement Report Date and (ii) the Class A Z Value. "Class A Monthly Interest" shall have the meaning assigned in subsection 3A.4(a)(i). "Class A Ratings Multiple" shall mean 2.5. "Class A Ratios" shall mean, on any date of determination, the greater of (i) the sum of the Class A Loss Reserve Ratio I and the Class A Dilution Reserve Ratio I, (ii) the sum of the Class A Loss Reserve Ratio II and the Class A Dilution Reserve Ratio II and (iii) the Minimum Class A Ratio. "Class A Z Value" shall mean 2.58. "Class B Additional Interest" shall have the meaning assigned in subsection 3A.4(b)(ii). "Class B Adjusted Invested Amount" shall mean, on any date of determination, the Class B Invested Amount minus the excess, if any, of the amount on deposit on such date in the Series 1 Principal Collection Sub-subaccount over the Class A Invested Amount. -7- "Class B Certificate" shall mean a Class B Certificate, Series 1995-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit B. "Class B Certificateholder" shall mean each holder of a Class B Certificate. "Class B Certificate Rate" shall mean, with respect to (i) the initial Accrual Period, 6.625% per annum, and (ii) any Accrual Period thereafter, One-Month LIBOR for such Accrual Period plus 0.50% per annum. "Class B Dilution Reserve Ratio I" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: DRR = [(c * d) + [(e-d) * (e/d)]] * f Where: DRR = Class B Dilution Reserve Ratio I; c = the Class B Ratings Multiple; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the highest Dilution Ratio for any Settlement Period during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and f = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables and (B) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "Class B Dilution Reserve Ratio II" shall mean, as of any Settlement Report Date and continuing until the next -8- Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: DRR = [(c * d) + e] * f Where: DRR = Class B Dilution Reserve Ratio II; c = the Class B Ratings Multiple; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the product of (i) the twelve-month sample standard deviation of the Dilution Ratio as of the end of each of the twelve consecutive Settlement Periods immediately preceding such earlier Settlement Report Date and (ii) the Class B Z Value; and f = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables and (B) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "Class B Initial Invested Amount" shall mean $10,000,000.00. "Class B Interest Shortfall" shall have the meaning assigned in subsection 3A.4(b)(ii). "Class B Invested Amount" shall mean, with respect to any date of determination, an amount equal to the Class B Initial Invested Amount (plus the Initial Invested Amount of any Class B Certificates issued subsequent to the Issuance Date) minus the aggregate amount of distributions to the Class B Certificateholders (including the holders of any such subsequently issued Class B Certificates) made in respect of principal on or prior to such date. -9- "Class B Loss Reserve Ratio I" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: LRR = [(a * b)/c] * d * e Where: LRR = Class B Loss Reserve Ratio I; a = the aggregate Principal Amount of Receivables originated by the Sellers during the three and one-half Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest three-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; d = the Class B Ratings Multiple; and e = the Payment Terms Factor. "Class B Loss Reserve Ratio II" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: LRR = [(a * b)/c] * d * e + f Where: LRR = Class B Loss Reserve Ratio II; a = the aggregate Principal Amount of Receivables originated by the Sellers during the three and one-half Settlement Periods immediately preceding such earlier Settlement Report Date; b = the highest two-month rolling average of the Aged Receivables Ratio that occurred during the period -10- of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; d = the Class B Ratings Multiple; e = the Payment Terms Factor; and f = the product of (i) the twelve-month sample standard deviation of the Aged Receivables Ratio as of the end of each of the twelve consecutive Settlement Periods preceding such earlier Settlement Report Date and (ii) the Class B Z Value. "Class B Monthly Interest" shall have the meaning assigned in subsection 3A.4(a)(ii). "Class B Ratings Multiple" shall mean 2.0. "Class B Ratios" shall mean, on any date of determination, the greater of (i) the sum of the Class B Loss Reserve Ratio I and the Class B Dilution Reserve Ratio I, (ii) the sum of the Class B Loss Reserve Ratio II and the Class B Dilution Reserve Ratio II and (iii) the Minimum Class B Ratio. "Class B Z Value" shall mean 1.96. "Company Exchange" shall have the meaning specified in subsection 2.4(b). "Daily Report" shall mean a report prepared by the Master Servicer on each Business Day for the period specified therein, in substantially the form of Exhibit E. "Days Sales Outstanding" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, the number of days equal to the product of (a) 91 and (b) the amount obtained by dividing (i) the difference between (A) the aggregate Principal Amount of Receivables and (B) the aggregate bad debt reserve of the Sellers, in each case as at the last day of the Settlement Period immediately preceding such earlier -11- Settlement Report Date, by (ii) aggregate Principal Amount of Receivables generated by the Sellers for the three Settlement Periods immediately preceding such earlier Settlement Report Date. "Depository" shall mean The Depository Trust Company, the nominee of which is Cede & Co., or any successor thereto. "Depository Agreement" shall have the meaning specified in subsection 2.1(b). "Depository Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depository effects book-entry transfers and pledges of securities deposited with the Depository. "Dilution Horizon" shall mean the number of days from the invoice date with respect to a Receivable until a Dilutive Credit with respect to such Receivable is issued by the related Servicing Party in accordance with its Policies. "Dilution Horizon Factor" shall mean a fraction, the numerator of which is the weighted average (based upon the Principal Amount of the Receivables) Dilution Horizon of the Sellers on the last Business Day of the most recent first and third fiscal quarters and the denominator of which is 30; provided, however, that the numerator shall not be less than 55 unless the calculation of the numerator is based upon the average of the weighted average (based upon the Principal Amount of the Receivables) Dilution Horizon calculated for the immediately preceding first and third fiscal quarters. "Dilution Ratio" shall mean, as of the last day of each Settlement Period, an amount (expressed as a percentage) equal to the aggregate amount of Dilution Adjustments made during such Settlement Period divided by the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period. "Discount Rate" shall mean, as of any date of determination, the sum of (a) the weighted average interest rate in effect with respect to the outstanding Class A and Class B Certificates as of the end of the Settlement Period immediately preceding the most recent Settlement Report Date and (b) an amount equal to (i) the aggregate amount of fees (other than the Servicing Fee) accrued with respect to the outstanding Term Certificates during the Settlement Period immediately preceding the most recent Settlement Report Date -12- divided by (ii) the average daily Term Certificates Invested Amount during such Settlement Period. "D&P" shall mean Duff & Phelps Credit Rating Co. and its successors in interest. "Early Amortization Event" shall have the meanings assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "ERISA Entity" shall mean (i) an employee benefit plan, retirement arrangement, individual retirement account or Keogh plan subject to either Title I of ERISA or Section 4975 of the Internal Revenue Code, or (ii) an entity whose source of funds to be used for the purchase of a Certificate includes the assets of any such plan, arrangement or account. "Exchange Date" shall have the meaning, with respect to any Class A and Class B Certificates issued pursuant to a Company Exchange, specified in Section 2.4(b). "Exchange Notice" shall have the meaning, with respect to any Class A and Class B Certificates issued pursuant to a Company Exchange, specified in Section 2.4(b). "Initial Purchasers" shall mean the institutional "accredited investors" (as defined in Rule 501(a)(1)-(3) promulgated under the Securities Act) who are purchasing the Term Certificates on the Issuance Date pursuant to a Purchase Agreement. "Initial Sale" shall mean the sale on the Issuance Date of the Term Certificates to the Initial Purchasers pursuant to a Purchase Agreement. "Invested Percentage" shall mean, with respect to any Business Day (i) during the Series 1 Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Series 1 Allocated Receivables Amount as of the end of the immediately preceding Business Day and the denominator of which is the Aggregate Series 1 Receivables Amount as of the end of the immediately preceding Business Day and (ii) during the Series 1 Amortization Period, the percentage equivalent (but not greater than 100%) of a fraction, the numerator of which is the Series 1 Allocated Receivables Amount as of the end of the last Business Day of the Series 1 Revolving Period and the denominator of which is the Aggregate Series 1 Receivables Amount as of the end of the immediately preceding Business Day. "Issuance Date" shall mean March 31, 1995. -13- "LIBOR Business Day" shall mean a day that is both a Business Day and a day on which banking institutions in the City of London, England are not required or authorized by law to be closed. "LIBOR Determination Date" shall mean for each given Accrual Period after the initial Accrual Period, the second LIBOR Business Day prior to the commencement of each applicable Accrual Period. "Majority Term Certificateholders" shall mean, on any day, Term Certificateholders having, in the aggregate, more than 50% of the Invested Amount. "Minimum Class A Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: MR = a + (b * c) Where: MR = Minimum Class A Ratio; a = 21%; b = the average of the Dilution Ratio during the period of the twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and c = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables originated by the Sellers and (B) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "Minimum Class B Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: MR = a + (b * c) -14- Where: MR = Minimum Class B Ratio; a = 15%; b = the average of the Dilution Ratio during the period of the twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and c = the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the immediately preceding Settlement Period and (B) the Dilution Horizon Factor and (ii) the difference between (A) the aggregate outstanding Principal Amount of all Receivables originated by the Sellers and (B) the aggregate outstanding Principal Amount of all Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "One-Month LIBOR" shall mean for any Accrual Period after the initial Accrual Period, the offered rate for U.S. Dollar deposits for one month commencing on the related LIBOR Determination Date which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination Date. If on any LIBOR Determination Date the offered rate does not appear on Telerate Page 3750, the Trustee will request each of the Reference Banks to provide the Trustee with its offered quotation for U.S. Dollar deposits for one month to prime banks in the London interbank market as of 11:00 a.m., London time, on such date. If at least two Reference Banks provide the Trustee with such offered quotations, One-Month LIBOR on such date shall be the arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth of one percent) of all such quotations. If on such date fewer than two of the Reference Banks provide the Trustee with such offered quotations, One- Month LIBOR on such date shall be the Reserve Interest Rate. The "Reserve Interest Rate" shall be the arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth of one percent) of the offered per annum rates that one or more leading banks in New York City selected by the Trustee are quoting as of 11:00 a.m., New York City time, on such date to leading European banks for U.S. Dollar deposits for one month; provided, however, that if the banks selected as aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR in effect for the applicable Accrual Period will be One-Month LIBOR in effect for the previous Accrual -15- Period. If on the April 21, 1995 LIBOR Determination Date, the Trustee is required but unable to determine One-Month LIBOR in the manner provided in the preceding sentence, One- Month LIBOR shall be 6.125%. Until the Term Certificates Invested Amount has been repaid in full, the Trustee will at all times retain at least four Reference Banks for the purpose of determining One-Month LIBOR with respect to each LIBOR Determination Date. Each Reference Bank shall (i) be a leading bank engaged in transactions in Eurodollar deposits in the international Eurocurrency market, (ii) have an established place of business in London and (iii) whose quotes appear on the Reuters Screen LIBO Page. The Reference Banks initially are Barclays Bank PLC, Bank of Tokyo, Bankers Trust Company and National Westminster Bank, PLC. If any Reference Bank designated by the Trustee should be removed from the Reuters Screen LIBO Page or in any other way fails to meet the qualifications of a Reference Bank, the Trustee will use its best efforts to designate an alternative Reference Bank. The Trustee shall not have any liability or responsibility to any Person for (i) the selection of any Reference Bank for purposes of determining One-Month LIBOR or (ii) any inability to retain at least four Reference Banks which is caused by circumstances beyond its reasonable control. In determining One-Month LIBOR, the Class A Certificate Rate and the Class B Certificate Rate, the Trustee may conclusively rely and shall be protected in relying upon the offered quotations (whether written, oral or on the Reuters Screen LIBO Page) from the Reference Banks or the New York City banks as to One-Month LIBOR or the Reserve Interest Rate, respectively, in effect from time to time. The Trustee shall not have any liability or responsibility to any Person for the Trustee's inability, following a good-faith reasonable effort, to obtain such quotations from the Reference Banks or the New York City banks as provided for in this definition. The establishment of One-Month LIBOR on each LIBOR Determination Date by the Trustee and the Trustee's calculation of the rates of interest applicable to the Term Certificates for the related Accrual Period shall (in the absence of manifest error) be final and binding. "Optional Repurchase Percentage" shall mean 10% of the Term Certificates Initial Invested Amount. "Optional Termination Date" shall have the meaning assigned in subsection 2.7(b). "Optional Termination Notice" shall have the meaning assigned in subsection 2.7(b). "PAR Pool I" shall mean the pool of Primary Auto Receivables constituting part of the Trust Assets on the -16- Business Day preceding the commencement of a Separate VFC Amortization Event. "PAR Pool II" shall mean the pool of Primary Auto Receivables conveyed to the Trust after the commencement of a Separate VFC Amortization Event. "Payment Terms Factor" shall mean a fraction the numerator of which is the weighted average (based upon the Principal Amount of the Receivables) payment terms of the Sellers on the last business day of the immediately preceding fiscal quarter and the denominator of which is 45; provided, however, that the numerator shall not be less than 45 unless the calculation of the numerator is based upon the average of the weighted average (based upon the Principal Amount of the Receivables) payment terms for the immediately preceding four fiscal quarters. "Principal Terms" shall have the meaning, with respect to any newly issued Class A and Class B Certificates issued pursuant to a Company Exchange, specified in Section 2.4. "Program Costs" shall mean, for any Business Day, the sum of (a) product of (i) the sum of (A) all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Company (other than fees and expenses payable on or in connection with the closing of the issuance of the Term Certificates) and any corporate income or franchise taxes due and payable by the Company, in each case on such Business Day and (B) all unpaid Trustee's expenses, and (ii) a fraction, the numerator of which is the Series 1 Invested Amount on such Business Day and the denominator of which is, except as otherwise set forth in a Supplement, the sum of (A) the Invested Amounts on such Business Day for each Outstanding Series (other than Series 2) and (B) the Aggregate Commitment Amount for Series 2 on such Business Day and (b) all unpaid fees and expenses due and payable to Rating Agencies rating the Term Certificates; provided, however, that Program Costs shall not exceed $50,000 in the aggregate in any fiscal year of the Master Servicer. "Purchase Agreement" shall mean each agreement to be entered into on the Issuance Date between the Company and the Initial Purchaser named therein pursuant to which the Company agrees to sell, and such Initial Purchaser agrees to purchase, the principal amount and Class of Term Certificates set forth therein. "Qualified Institutional Buyer" has the meaning ascribed to such term in Rule 144A under the Securities Act. -17- "Rating Agency" shall mean, with respect to Series 1, the collective reference to D&P and S&P. "Record Date" shall mean, with respect to any Distribution Date, the last Business Day of the immediately preceding Settlement Period. "Reduction" shall have the meaning assigned in subsection 2.7(a). "Reduction Amount" shall have the meaning assigned in subsection 2.7(a). "Reduction Threshold" shall mean, at any date of determination, $10,000,000. "Reference Bank" shall mean, at any time, each of the banks acting as a Reference Bank pursuant to the definition of One-Month LIBOR. "Required Reserves" shall mean, as of any date of determination, an amount equal to the sum of (a) the greater of (i) (A) the product of (1) the Class A Adjusted Invested Amount on such day and (2) the Class A Ratios minus (B) the Class B Adjusted Invested Amount and (ii) the product of (A) the Class A Adjusted Invested Amount and (B) the Class B Ratios, (b) the product of (i) the Class B Adjusted Invested Amount and (ii) the Class B Ratios, (c) the product of (i) the Term Certificates Invested Amount and (ii) the Carrying Cost Reserve Ratio, (d) the product of (i) the Principal Amount of Receivables in the Trust on such day, (ii) the Term Certificates Adjusted Invested Amount divided by the Aggregate Adjusted Invested Amount and (iii) the Servicing Reserve Ratio, and (e) the amount of any Accrued Expense Amount in respect of which sufficient Aggregate Daily Collections have not been transferred to the Series 1 Non- Principal Collection Sub-subaccount. "Reuters Screen LIBO Page" shall mean the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered quotations of major banks). "Scheduled Termination Date" shall mean the last day of the December 1999 Settlement Period. "Separate VFC Amortization Event" shall mean the occurrence and continuation of an Early Amortization Event with respect to the VFC Certificates prior to the Series 1 Amortization Period. -18- "Series 1" shall mean Series 1995-1, the Principal Terms of which are set forth in this Supplement. "Series 1 Accrued Interest Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Allocated Receivables Amount" shall mean, on any date of determination, the lower of (i) the Series 1 Target Receivables Amount on such day and (ii) the Aggregate Series 1 Receivables Amount on such day. "Series 1 Amortization Period" shall mean the period following the Series 1 Revolving Period and ending on the earlier of (i) the date when the Term Certificates Invested Amount shall have been reduced to zero and all accrued interest on the Term Certificates shall have been paid and (ii) the Series 1 Termination Date. "Series 1 Canada/Canadian Dollar Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Canada/U.S. Dollar Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Certificates" shall mean, collectively, those Certificates designated as the Class A Certificates, the Class B Certificates and the Series 1 Subordinated Certificate. "Series 1 Certificateholders' Interest" shall have the meaning assigned in subsection 2.2(a). "Series 1 Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Daily Interest Expense" shall mean, with respect to any Business Day during an Accrual Period, the sum of (a) one-tenth of the Series 1 Monthly Interest to be distributed on the next succeeding Distribution Date (up to but not exceeding the full amount thereof) for each day since the preceding Business Day, (b) the aggregate amount of all previously accrued and unpaid Series 1 Daily Interest Expense and (c) the aggregate amount of all accrued and unpaid Class A Additional Interest and Class B Additional Interest for each day since the preceding Business Day. "Series 1 Invested Amount" shall mean, with respect to any date of determination, the Term Certificates Invested Amount. -19- "Series 1 Monthly Interest" shall mean, collectively, the Class A Monthly Interest and the Class B Monthly Interest. "Series 1 Monthly Principal Payment" shall have the meaning assigned in Section 3A.5. "Series 1 Monthly Servicing Fee" shall have the meaning assigned in subsection 6.1. "Series 1 Non-Principal Collection Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Percentage" shall mean, on any Business Day (i) prior to the occurrence of a Separate VFC Amortization Event, one minus the VFC Percentage, and (ii) after the occurrence of a Separate VFC Amortization Event, (A) with respect to PAR Pool I, one minus the VFC Percentage and (B) with respect to PAR Pool II, one minus the Additional Series Primary Auto Receivables Percentage, if any. "Series 1 Principal Collection Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 1 Required Reserves Ratio" shall mean, as of any date of determination, the quotient of (i) Required Reserves on such day and (ii) the Term Certificates Adjusted Invested Amount on such day. "Series 1 Required Subordinated Amount" shall mean, on any date of determination, the product of (i) the Term Certificates Adjusted Invested Amount and (ii) the percentage equivalent of (A) the excess of a fraction the numerator of which is one and the denominator of which is one minus the Series 1 Required Reserves Ratio minus (B) one. "Series 1 Revolving Period" shall mean the period commencing on the Issuance Date and terminating on the earliest to occur of the close of business on (i) the date on which an Early Amortization Event is declared or automatically occurs, (ii) the Optional Termination Date and (iii) the Scheduled Termination Date. "Series 1 Subordinated Certificate" shall mean the Subordinated Company Certificate, Series 1995-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit C. "Series 1 Subordinated Certificate Amount" shall mean, for any date of determination, an amount equal to the Series -20- 1 Allocated Receivables Amount on such date minus the Term Certificates Adjusted Invested Amount on such date. "Series 1 Target Receivables Amount" shall mean, on any date of determination, the sum of (i) the Term Certificates Adjusted Invested Amount on such day and (ii) the Series 1 Required Subordinated Amount on such day. "Series 1 Termination Date" shall mean the Distribution Date that occurs in December 2000. "Series 2" shall mean Series 1995-2, the Principal Terms of which are set forth in the Series 2 Supplement. "Series 2 Allocated Receivables Account" shall mean, on any date of determination, the lower of (i) the VFC Target Receivables Amount on such day and (ii) the Aggregate Series 2 Receivables Amount on such day. "Series 2 Certificates" shall mean, collectively, those Certificates issued pursuant to the Series 2 Supplement and designated as the VFC Certificates and the VFC Subordinated Certificate. "Series 2 Principal Collection Sub-subaccount" shall mean the Series Principal Collection Sub-subaccount established by the Trustee for the benefit of the holders of the Series 2 Certificates pursuant to the Series 2 Supplement. "Series 2 Supplement" shall mean the Series 1995-2 Supplement, dated as of March 30, 1995, among the Company, the Master Servicer, Societe Generale, as Agent, and the Trustee, as amended, supplemented or otherwise modified from time to time. "Servicer Default" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "Servicing Reserve Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) equal to (i) the product of (A) 1.0% and (B) 2.0 times Days Sales Outstanding as of such earlier Settlement Report Date divided by (ii) 360. "Special Distribution Date" shall have the meaning assigned in subsection 2.7(a). "Subordinated Interest" shall have the meaning specified in subsection 2.2(b). -21- "Telerate Page 3750" shall mean the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vender, for the purpose of displaying comparable rates or prices). "Term Certificateholders" shall mean, collectively, the Class A Certificateholders and Class B Certificateholders. "Term Certificates" shall mean, collectively, those Certificates designated as the Class A Certificates and Class B Certificates. "Term Certificates Adjusted Invested Amount" shall mean, as of any date of determination, (i) the Term Certificates Invested Amount on such date, minus (ii) the amount on deposit in the Series 1 Principal Collection Sub- subaccount on such date. "Term Certificates Initial Invested Amount" shall mean, collectively, the Class A Initial Invested Amount and the Class B Initial Invested Amount. "Term Certificates Invested Amount" shall mean, collectively, the Class A Invested Amount and the Class B Invested Amount. "Trust Accounts" shall have the meaning assigned in subsection 3A.2(a). "VFC Adjusted Invested Amount" shall mean, as of any date of determination, (i) the Aggregate VFC Invested Amount (as defined in Section 1.1 of the Series 2 Supplement) minus (ii) the amount on deposit in the Series 2 Principal Collection Sub-subaccount. "VFC Certificate" shall mean a VFC Certificate, Series 1995-2, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A to the Series 2 Supplement. "VFC Percentage" shall mean (i) on any Business Day during the Revolving Period for the VFC Certificates, the percentage equivalent of a fraction, the numerator of which is equal to (A) the Series 2 Allocated Receivables Amount as of the end of such Business Day and the denominator of which is equal to (B) the Aggregate Primary Auto Receivables Amount as of the end of such Business Day; provided that if on any Business Day, if after giving effect to all allocations and distributions to be made on such day (based upon the VFC Percentage as calculated for such day), an Aggregate Series 2 Receivables Amount Deficiency would -22- exist, the VFC Percentage will not change (and shall be equal to the VFC Percentage as calculated at the close of business on the Business Day immediately preceding the occurrence of such Aggregate VFC Receivables Amount Deficiency) until such Aggregate Series 2 Receivables Amount Deficiency would no longer exist, and (ii) on any Business Day during the Amortization Period for the VFC Certificates, the VFC Percentage on the last day of the Revolving Period for the VFC Certificates; provided that such percentage shall only be applied with respect to PAR Pool I. Further, the VFC Percentage with respect to any Receivables other than Primary Auto Receivables (and Additional Series 2 Receivables, if any) shall be 0. "VFC Required Subordinated Amount" shall have the meaning set forth in Section 1.1 of the Series 2 Supplement. "VFC Subordinated Certificate" shall mean the Subordinated Company Certificate, Series 1995-2, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit B to the Series 2 Supplement. "VFC Target Receivables Amount" shall mean, on any date of determination, the sum of (i) the VFC Adjusted Invested Amount on such date and (ii) the VFC Required Subordinated Amount for such day. (b) If any term or provision contained herein conflicts with or is inconsistent with any term or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All capitalized terms not otherwise defined herein are defined in the Agreement. All Article, Section or subsection references herein shall mean Article, Section or subsections of this Supplement, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Agreement, each capitalized term used or defined herein shall relate only to the Series 1 Certificates and no other Series of Investor Certificates issued by the Trust. (c) Unless the contest requires otherwise, any reference contained herein to Series 2 or VFC shall include any other Outstanding Series of Investor Certificates which have an interest in Collections on the Receivables not otherwise allocated to the Series 1 Certificates. -23- ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE TERM CERTIFICATES SECTION 2.1. Designation. (a) The Certificates created and authorized pursuant to the Agreement and this Supplement shall be divided into three classes, which shall be designated respectively as (i) the "Class A Certificates, Series 1995-1," (ii) the "Class B Certificates, Series 1995-1" and (iii) the "Subordinated Company Certificate, Series 1995-1". (b) The Depository, the Company and the Trustee have entered into a Depository Agreement dated as of March 30, 1995 (the "Depository Agreement"). Each Class of the Term Certificates shall be issued in the form of one typewritten Certificate, representing the Book-Entry Certificate, to be delivered to the Depository. Except as provided in Section 5.13 of the Agreement, the Term Certificates shall at all times remain registered in the name of the Depository or its nominee and at all times: (i) registration of the Term Certificates may not be transferred by the Trustee except to a successor to the Depository; (ii) ownership and transfers of registration of the Term Certificates on the books of the Depository shall be governed by applicable rules established by the Depository; (iii) the Depository may collect its usual and customary fees, charges and expenses from its Depository Participants; (iv) the Trustee shall deal with the Depository, Depository Participants and indirect participating firms as representatives of such Certificate Book-Entry Holders of the respective Class of Term Certificates for purposes of exercising the rights of the Term Certificateholders under the Agreement and this Supplement, and requests and directions for and votes of such representatives shall not be deemed to be inconsistent if they are made with respect to different Certificate Book-Entry Holders; and (v) the Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its Depository Participants and furnished by the Depository Participants with respect to indirect participating firms and Persons shown on the books of such indirect participating firms as direct or indirect Certificate Book-Entry Holders. The Depository Agreement provides that the Depository shall maintain book-entry records with respect to the Certificate Book-Entry Holders and with respect to ownership and transfers of each such Class of Term Certificates. All transfers by Certificate Book-Entry Holders of such respective Classes of Term Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Book-Entry Certificate Holders. Each Depository Participant shall only transfer Term Certificates of Certificate Book-Entry Holders it -24- represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. SECTION 2.2. The Series 1 Certificates. (a) The Term Certificates shall represent fractional undivided interests in the Trust, consisting of the right to receive (1) the Invested Percentage (expressed as a decimal) of (i) Collections received with respect to the Receivables (other than the Primary Auto Receivables) and (ii) all other funds on deposit in the Collection Accounts and in any subaccounts thereof (other than those relating to Primary Auto Receivables) and (2) the product of the Series 1 Percentage and the Invested Percentage (expressed as a decimal) of (i) Collections received with respect to the Primary Auto Receivables and (ii) all other funds relating to the Primary Auto Receivables on deposit in the Collection Accounts and in any subaccounts thereof (collectively, the "Series 1 Certificateholders' Interest"). (b) The Series 1 Subordinated Certificate shall represent a fractional undivided interest in the Trust, consisting of the right to receive Collections with respect to the Receivables allocated to the Series 1 Certificateholders' Interest and not required to be distributed to or for the benefit of the Term Certificateholders (the "Subordinated Interest"). The Exchangeable Company Certificate and any other Series of Investor Certificates outstanding shall represent the ownership interest in the remainder of the Trust not allocated pursuant hereto to the Series 1 Certificateholders' Interest or the Subordinated Interest. (c) The Class A Certificates, the Class B Certificates and the Series 1 Subordinated Certificate shall be issued in registered form in substantially the forms of Exhibits A, B and C, respectively, and shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 2.3 hereof and Section 5.2 of the Agreement. SECTION 2.3. Delivery. On the Issuance Date, the Company shall sign on behalf of the Trust and shall direct in writing pursuant to Section 5.2 of the Agreement the Trustee to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate (a) the Class A Certificates in authorized denominations equal to the Initial Class A Invested Amount, (b) the Class B Certificates in authorized denominations equal to the Initial Class B Invested Amount and (c) a Series 1 Subordinated Certificate in a denomination equal to the Series 1 Subordinated Certificate Amount from time to time. The Term Certificates shall be issued in minimum denominations of $500,000 and integral multiples of $100,000 in excess thereof. -25- SECTION 2.4. Tender of Exchangeable Company Certificate. (a) Upon any Company Exchange, the Trustee shall issue to the Company under Section 5.1 of the Agreement for execution and redelivery to the Trustee for authentication under Section 5.2 of the Agreement one or more newly issued Class A and Class B Certificates. (b) The Company may tender the Exchangeable Company Certificate to the Trustee in exchange for (i) one or more newly issued Class A and Class B Certificates and (ii) a reissued Exchangeable Company Certificate (any such tender a "Company Exchange"). The Company may perform a Company Exchange by notifying the Trustee, in writing at least three days in advance (an "Exchange Notice") of the date upon which the Company Exchange is to occur (an "Exchange Date"). Any Exchange Notice shall state: (a) the Initial Invested Amount (or the method for calculating such Initial Invested Amount) of each newly issued Class A and Class B Certificate, which, in the aggregate, together with any increase in the Series 1 Subordinated Certificate Amount, at any time, may not be greater than the current principal amount of the Exchangeable Company Certificate, if any, at such time and (b) its Certificate Rate (or formula for the determination thereof). On the Exchange Date, the Trustee shall only authenticate and deliver any such Certificates upon delivery to it of the following: (a) a Supplement executed by the Company and specifying the Principal Terms of such Class A Certificates and Class B Certificates, (b) a Tax Opinion, (c) a General Opinion, (d) written confirmation from each Rating Agency that the Company Exchange will not result in the Rating Agency's reducing or withdrawing its rating on any then outstanding Class A and Class B Certificates rated by it and (e) the existing Exchangeable Company Certificate. Such Supplement shall contain provisions reasonably acceptable to the Trustee concerning the payment of the Trustee's reasonable fees and expenses and shall contain administrative provisions which are reasonably acceptable to the Trustee. Upon the delivery of the items listed in clauses (a) through (e) above, the Trustee shall cancel the existing Exchangeable Company Certificate, and issue, as provided above, such Class A Certificates and Class B Certificates and a new Exchangeable Company Certificate, dated the Exchange Date and increase the Series 1 Subordinated Certificate Amount. There is no limit to the number of Company Exchanges that the Company may perform under this Supplement. If the Company shall, on any Exchange Date, retain any Class A Certificates or Class B Certificates issued on such Exchange Date, it shall, prior to transferring any such Certificates to another Person, obtain a Tax Opinion with respect to such Certificates. (c) In conjunction with a Company Exchange, the parties hereto shall execute a Supplement, which shall define, with respect to any newly issued Class A and Class B Certificates: (i) their Initial Invested Amounts and (ii) their -26- Certificate Rates (or formula for the determination thereof) (all such terms, the "Principal Terms" of such Certificates). All other terms of such newly issued Class A and Class B Certificates shall be identical in all other respects to the terms of the then outstanding Class A and Class B Certificates. The Initial Invested Amounts of any newly issued Class A and Class B Certificates shall be in the same proportions as the Initial Class A Invested Amount and the Initial Class B Invested Amount. (d) In addition, during the Series 1 Amortization Period, the Company may tender the Exchangeable Company Certificate to the Trustee in exchange for (i) one or more additional Series of Investor Certificates, (ii) one or more Subordinated Company Certificates and (iii) a reissued Exchangeable Company Certificate. An exchange pursuant to this subsection 2.4(d) shall only be made upon (i) receipt of written notice by the Trustee that the Rating Agency Condition has been satisfied in connection with such exchange and (ii) compliance with the other conditions set forth in Section 5.10 of the Agreement. SECTION 2.5. Restrictions on Transfer. On the Issuance Date, the Company shall sell the Term Certificates to the Initial Purchasers pursuant to the Purchase Agreements. Thereafter, the Term Certificates may not be transferred except (a) to Qualified Institutional Buyers in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A thereunder or (b) pursuant to a transaction exempt from registration under the Securities Act. The Trustee shall have no obligations or duties with respect to determining whether any transfers of Term Certificates in book- entry form are made in accordance with the Securities Act. With respect to Definitive Certificates, the Trustee shall enforce such transfer restrictions in accordance with the terms set forth on the related Certificate. Each purchaser of the Term Certificates (other than the Initial Purchasers) will be deemed to have represented and agreed as follows: (i) It is (a) a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act and is acquiring the Term Certificates for its own institutional account or for the account of a Qualified Institutional Buyer or (b) buying the Term Certificates pursuant to a transaction exempt from registration under the Securities Act. (ii) It is not an ERISA Entity. (iii) It understands that the Term Certificates are being transferred to it in a transaction not involving any public offering within the meaning of the Securities Act, and that, if -27- in the future it decides to resell, pledge or otherwise transfer any Term Certificates, such Term Certificates may be resold, pledged or transferred only (a) to a person who the seller reasonably believes is a Qualified Institutional Buyer that purchases for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A or (b) pursuant to a transaction otherwise exempt from registration under the Securities Act. (iv) It understands that each Term Certificate will bear a legend substantially to the following effect: "UNLESS THIS TERM CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS TERM CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE HOLDER HEREOF, BY PURCHASING THIS TERM CERTIFICATE, AGREES THAT THIS TERM CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (2) IN A TRANSACTION OTHERWISE EXEMPT FROM REGISTRATION UNDER THE ACT. THIS TERM CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1) EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A "PLAN"), OR (2) ENTITIES WHOSE SOURCE OF FUNDS TO BE USED FOR THE PURCHASE OF A CERTIFICATE CONSISTS OF ASSETS OF ANY SUCH PLAN OR ACCOUNT. THIS TERM CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON." SECTION 2.6. Application of Proceeds. On the Issuance Date, the Trustee shall remit to the Company the cash proceeds received by it upon the issuance of the Term Certificates. -28- SECTION 2.7. Procedure for Decreasing the Invested Amount. (a) If (i) as of the last day of any period of three consecutive Settlement Periods the daily average excess during such period of the Term Certificates Invested Amount over the Term Certificates Adjusted Invested Amount equals or exceeds the Reduction Threshold, or (ii) following the termination of any Seller pursuant to Section 9.15 of the Receivables Sale Agreement, as of the last day of any Settlement Period, the Company shall, in the case of clause (i) above, or the Company may, in the case of clause (ii) above, reduce the Class A Invested Amount and the Class B Invested Amount (a "Reduction"), by distributing to the Term Certificateholders an amount (the "Reduction Amount") at least equal to such Reduction Threshold, provided that in no event shall a Reduction cause the Term Certificates Invested Amount be reduced below $50,000,000. The distribution of the Reduction Amount shall be made to the Term Certificateholders pro rata based on the Initial Invested Amount of each Class, from the funds on deposit in the Series 1 Principal Collection Sub-subaccount on the immediately succeeding Distribution Date (a "Special Distribution Date"); provided that no Early Amortization Event or Potential Early Amortization Event (other than pursuant to clauses (c), (d) and (f) of Section 5.1 hereof) has occurred and is continuing and the Company shall have given the Trustee and the Master Servicer written notice (or, if such Reduction is mandatory, the Master Servicer shall have given such notice on behalf of the Company) of such Reduction and the related Reduction Amount (which amount shall not exceed the available funds on deposit in the Series 1 Principal Collection Account (including amounts to be transferred thereto from the Series 1 Canada/U.S. Dollar Collection Subaccount and the Series 1 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) as of the date of such notice) at least five days prior to the related Special Distribution Date setting forth the amount of such Reduction and, in the case of such notice to the Trustee, instructions to not distribute to the Company any amounts pursuant to subsection 3A.3(c)(i) until the condition set forth in the second proviso in such subsection is satisfied. If the Company elects to cause a Reduction pursuant to clause (ii) above as a result of a sale or other disposition of a Seller and, after giving effect to such sale or disposition, the amount by which the Term Certificates Invested Amount exceeds the Term Certificates Adjusted Invested Amount is less than the Reduction Threshold, the Company may direct the Trustee to retain Collections on deposit in the Series 1 Principal Collection Sub-subaccount (including amounts to be transferred from the Series 1 Canada/U.S. Collection Subaccount or the Series 1 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) until such date as the amount on deposit therein at least equals $10,000,000 and, on the Distribution Date next succeeding such date, a Reduction shall be effected. The Trustee shall give -29- prompt written notice of any proposed Reduction to the Term Certificateholders and each Rating Agency. (b) (i) On any Business Day to occur following the second anniversary of the Issuance Date and prior to the occurrence of the Scheduled Termination Date or an Early Amortization Event, the Company shall have the right to deliver an irrevocable notice (an "Optional Termination Notice") to the Trustee and the Master Servicer in which the Company declares that the Series 1 Revolving Period shall terminate on the date (the "Optional Termination Date") set forth in such notice (which date, in any event, shall not be less than 10 days from the date on which such notice is delivered). (ii) From and after the Optional Termination Date, the Series 1 Amortization Period shall commence for all purposes under this Agreement and the other Transaction Documents. The Trustee shall give prompt written notice of its receipt of an Optional Termination Notice to the Term Certificateholders and each Rating Agency. ARTICLE III ARTICLE III OF THE AGREEMENT Section 3.1 of the Agreement shall be read in its entirety as provided in the Agreement. Article III of the Agreement (except for Section 3.1 thereof and any portion thereof relating to another Series) shall read in its entirety as follows and shall be exclusively applicable to the Series 1 Certificates: SECTION 3A.2. Establishment of Trust Accounts. (a) The Trustee shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, (i) (A) for the benefit of the Class A Certificateholders, (B) for the benefit, subject to the prior interest of the Class A Certificateholders, of the Class B Certificateholders and (C) for the benefit, subject to the prior interest of the Term Certificateholders, of the holder of the Series 1 Subordinated Certificate, a subaccount of the U.S. Dollar Collection Account (the "Series 1 Collection Subaccount"), which subaccount is the Series Collection Subaccount with respect to Series 1, bearing a designation clearly indicating that the funds deposited therein are held (A) for the benefit of the Class A Certificateholders, (B) for the benefit, subject to the prior interest of the Class A Certificate-holders, of the Class B Certificateholders and (C) for the benefit, subject to the prior interest of the Term Certificateholders, of the holder of the Series 1 Subordinated Certificate; (ii) (A) for the benefit of the Class A Certificateholders, (B) for the benefit, subject to the prior interest of the Class A Certificateholders, of the Class B -30- Certificateholders and (C) for the benefit, subject to the prior interest of the Term Certificateholders, of the holder of the Series 1 Subordinated Certificate, two subaccounts of the Series 1 Collection Subaccount: the Series 1 Principal Collection Sub- subaccount and the Series 1 Non-Principal Collection Sub-subaccount (respectively, the "Series 1 Principal Collection Sub-subaccount" and the "Series 1 Non-Principal Collection Sub- subaccount"), each bearing a designation clearly indicating that the funds deposited therein are held (A) for the benefit of the Class A Certificateholders, (B) for the benefit, subject to the prior interest of the Class A Certificateholders, of the Class B Certificateholders and (C) for the benefit, subject to the prior interest of the Term Certificateholders, of the holder of the Series 1 Subordinated Certificate; (iii) for the benefit of the Class A Certificateholders and for the benefit, subject to the prior interest of the Class A Certificateholders, of the Class B Certificateholders, a subaccount of the Series 1 Non-Principal Collection Sub-subaccount (the "Series 1 Accrued Interest Sub- subaccount"; and (iv)(A) for the benefit of the Class A Certificateholders, (B) for the benefit, subject to the prior interest of the Class A Certificateholders, of the Class B Certificateholders and (C) for the benefit, subject to the prior interest of the Term Certificateholders, of the holder of the Series 1 Subordinated Certificate, one subaccount of the Canada/U.S. Dollar Collection Account (the "Series 1 Canada/U.S. Dollar Collection Subaccount") and one subaccount of the Canada/Canadian Dollar Collection Account (the "Series 1 Canada/Canadian Dollar Collection Subaccount"); all accounts established pursuant to this subsection 3A.2(a) and listed on Schedule 1, collectively, the "Trust Accounts"). The Trustee shall possess all right, title and interest in all funds from time to time on deposit in, and all Eligible Investments credited to, the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the exclusive benefit of (i) the Class A Certificateholders, (ii) subject to the prior interest of the Class A Certificateholders, the Class B Certificateholders, and (iii) to the extent applicable, subject to the prior interest of the Term Certificateholders, the holder of the Series 1 Subordinated Certificate. (b) All Eligible Investments in the Trust Accounts shall be held by the Trustee for the exclusive benefit of (i) the Class A Certificateholders, (ii) subject to the prior interest of the Class A Certificateholders, the Class B Certificateholders, and (iii) subject to the prior interest of the Term Certificate- holders, the holder of the Series 1 Subordinated Certificate; provided, however, that funds on deposit in a Trust Account which is a Sub-subaccount of the a Collection Account may, at the direction of the Master Servicer, be invested together with funds held in other Sub-subaccounts of a Collection Account. After giving effect to any distribution to the Company pursuant to -31- subsection 3A.3(d), amounts on deposit and available for investment in the Series 1 Principal Collection Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, (i) in the case of any such investment made during the Revolving Period, on or prior to the next Business Day and (ii) in the case of any such investment made during the Amortization Period, on or prior to the Business Day immediately preceding the next Distribution Date. Amounts on deposit and available for investment in the Series 1 Non-Principal Collection Sub-subaccount and the Series 1 Accrued Interest Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the subsequent Determination Date. As of the Determination Date, all interest and other investment earnings (net of losses and investment expenses) on funds deposited in the Series 1 Accrued Interest Sub-subaccount shall be deposited in the Series 1 Non-Principal Collection Sub- subaccount. All interest and investment earnings (net of losses and investment expenses) on funds deposited in the Series 1 Principal Collection Sub-subaccount shall be deposited in the Series 1 Non-Principal Collection Sub-subaccount. SECTION 3A.3. Daily Allocations. (a) The portion of Aggregate Daily Collections allocated to the Series 1 Certificates pursuant to Article III of the Agreement shall be allocated and distributed as set forth in this Article III by the Trustee based on the information provided to it by the Master Servicer in the Daily Report. (b)(i) On each Business Day, an amount equal to the Accrued Expense Amount for such day (or such greater amount as the Company may request) shall be transferred from the Series 1 Collection Subaccount (or, if necessary, from the Series 1 Canada/U.S. Dollar Collection Subaccount and the Series 1 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) to the Series 1 Non- Principal Collection Sub-subaccount. (ii) Following the transfers pursuant to clause (i) above, any remaining funds on deposit in the Series 1 Collection Subaccount shall be transferred to the Series 1 Principal Collection Sub-subaccount. (c)(i) On each Business Day during the Series 1 Revolving Period (including Distribution Dates), after giving effect to all allocations of Aggregate Daily Collections on such Business Day, amounts on deposit in the Series 1 Principal Collection Sub-subaccount and amounts, if any, remaining on deposit in the Series 1 Canada/U.S. Dollar Collection Subaccount and the Series 1 Canada/Canadian Dollar Collection Subaccount -32- shall (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the Collections on deposit therein), at the election of the Company, either (A) be distributed by the Trustee to the Company or (B) transferred to the Series 2 Principal Collection Sub-subaccount, all as indicated on the Daily Report; provided that such distributions or transfers, as the case may be, shall be made only if no Early Amortization Event or Potential Early Amortization Event (other than pursuant to clauses (c), (d) and (f) of Section 5.1 hereof) shall be continuing and only to the extent that, if after giving effect to such distributions or transfers, the Series 1 Target Receivables Amount would not exceed the Series 1 Allocated Receivables Amount and no Aggregate Series 2 Receivables Amount Deficiency exists; provided further that if the Company (or the Master Servicer, on behalf of the Company) shall have given a notice of a Reduction to the Trustee and the Master Servicer pursuant to subsection 2.7(a), the Trustee shall retain, until the related Special Distribution Date, aggregate amounts on deposit in the Series 1 Principal Collection Sub-subaccount (including any amounts transferred thereto from the Series 1 Canada/U.S. Dollar Collection Subaccount and the Series 1 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) equal to the sum of the Reduction Amount in respect thereof; and provided further that such distribution shall not, in any event, be made if an Early Amortization Event or Potential Early Amortization Event (other than pursuant to clauses (c), (d) and (f) of Section 5.1 hereof) has occurred. Amounts distributed to the Company hereunder shall be deemed to be paid first from Collections received directly by any Servicing Party and second from Collections received in the Lockboxes. (ii) On each Business Day during the Series 1 Amortization Period, amounts on deposit in the Series 1 Canada/U.S. Dollar Collection Subaccount and, subject to subsection 3.1(j) of the Agreement, the Series 1 Canada/Canadian Dollar Collection Subaccount shall be transferred to the Series 1 Collection Subaccount and allocated as set forth in Article III of the Agreement and this Section 3A.3. (iii) On each Business Day during the Series 1 Amortization Period (including Distribution Dates), funds deposited in the Series 1 Principal Collection Sub-subaccount (including, without limitation, funds transferred pursuant to clause (b)(ii) above) shall be invested in Eligible Investments that mature on or prior to the next Determination Date and shall be distributed on such Distribution Date in accordance with subsection 3A.6(c). No amounts on deposit in the Series 1 Principal Collection Sub-subaccount shall be distributed by the Trustee to the Company during the Series 1 Amortization Period. -33- (d) On each Business Day an amount equal to the Series 1 Daily Interest Expense for such day shall be transferred from the Series 1 Non-Principal Collection Sub-subaccount to the Series 1 Accrued Interest Sub-subaccount. (e) The allocations to be made pursuant to this Section 3A.3 are subject to the provisions of Sections 2.6, 7.2 and 9.1 of the Agreement. SECTION 3A.4. Determination of Interest. (a) The amount of interest distributable with respect to the Term Certificates on each Distribution Date shall be as determined by the Master Servicer as follows: (i) for the Class A Certificates, an amount (the "Class A Monthly Interest") equal to the product of (A) the Class A Certificate Rate for such Accrual Period; (B) the Class A Invested Amount on the first day of such Accrual Period (after giving effect to any distributions of principal on such date); and (C) the actual number of days in such Accrual Period divided by 360; and (ii) for the Class B Certificates, an amount (the "Class B Monthly Interest") equal to the product of (A) the Class B Certificate Rate for such Accrual Period; (B) the Class B Invested Amount on the first day of such Accrual Period (after giving effect to any distributions of principal on such date); and (C) the actual number of days in such Accrual Period divided by 360. (b) (i) On each Distribution Date, the Master Servicer shall determine the excess, if any (the "Class A Interest Shortfall"), of (A) the Class A Monthly Interest for the Accrual Period ending on such Distribution Date over (B) the amount which will be available to be distributed to the Class A Certificateholders on such Distribution Date in respect thereof pursuant to this Supplement. If the Class A Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("Class A Additional Interest") equal to the product, for such Accrual Period until such Class A Interest Shortfall is repaid, of (A) the Class A Certificate Rate for such Accrual Period (B) such Class A Interest Shortfall (or the portion thereof which has not been paid to the Class A Certificateholders) and (C) the actual number of days in such Accrual Period divided by 360, shall be payable as provided herein with respect to the Class A Certificates on each Distribution Date following such Distribution Date to and including, the Distribution Date on which such Class A Interest Shortfall is paid in full to the Class A Certificateholders. -34- (ii) On each Distribution Date, the Master Servicer shall determine the excess, if any (the "Class B Interest Shortfall"), of (A) the Class B Monthly Interest for the Accrual Period ending on such Distribution Date over (B) the amount which will be available to be distributed to the Class B Certificateholders on such Distribution Date in respect thereof pursuant to this Supplement. If the Class B Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("Class B Additional Interest") equal to the product, for such Accrual Period (or portion thereof) until such Class B Interest Shortfall is repaid, of (A) the Class B Certificate Rate for such Accrual Period (B) such Class B Interest Shortfall (or the portion thereof which has not been paid to the Class B Certificateholders) and (C) the actual number of days in such Accrual Period divided by 360, shall be payable as provided herein with respect to the Class B Certificates on each Distribution Date following such Distribution Date to and including, the Distribution Date on which such Class B Interest Shortfall is paid in full to the Class B Certificateholders. SECTION 3A.5. Determination of Series 1 Monthly Principal Payment. The amount (the "Series 1 Monthly Principal Payment") distributable from the Series 1 Principal Collection Sub-subaccount on each Distribution Date during the Series 1 Amortization Period shall be equal to the amount on deposit in such account on such Distribution Date as determined by the Master Servicer; provided, that the Series 1 Monthly Principal Payment on any Distribution Date shall not exceed the Term Certificates Invested Amount on such Distribution Date. SECTION 3A.6. Applications. (a) The Master Servicer shall direct the Trustee to distribute, on each Distribution Date, from amounts on deposit in the Series 1 Accrued Interest Sub-subaccount in the following order of priority to the extent funds are available: (i) an amount equal to the Class A Monthly Interest payable on such Distribution Date, plus the amount of any Class A Monthly Interest previously due but not distributed to the Class A Certificateholders on a prior Distribution Date, plus the amount of any Class A Additional Interest for such Distribution Date and any Class A Additional Interest previously due but not distributed to the Class A Certificateholders on a prior Distribution Date, to the Class A Certificateholders; provided, however, that during the Series 1 Amortization Period, no Class A Additional Interest will be paid until repayment in full of the Term Certificates Invested Amount and all Class A and Class B Monthly Interest has been paid; -35- (ii) an amount equal to the Class B Monthly Interest payable on such Distribution Date, plus the amount of any Class B Monthly Interest previously due but not distributed to the Class B Certificateholders on a prior Distribution Date, plus the amount of any Class B Additional Interest for such Distribution Date and any Class B Additional Interest previously due but not distributed to the Class B Certificateholders on a prior Distribution Date, to the Class B Certificateholders; provided, however, that during the Series 1 Amortization Period, no Class B Additional Interest will be paid until repayment in full of the Term Certificates Invested Amount and all Class A and Class B Monthly Interest has been paid. (b) On each Distribution Date, the Master Servicer shall direct the Trustee to apply funds on deposit in the Series 1 Non-Principal Collection Sub-subaccount (after taking into consideration the distribution to the Term Certificateholders from the Series 1 Non-Principal Collection Sub-subaccount pursuant to subsection 3A.6(a)) in the following order of priority to the extent funds are available: (i) an amount equal to the Series 1 Monthly Servicing Fee for the Accrual Period ending on such Distribution Date shall be withdrawn from the Series 1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Master Servicer, provided that if an Early Amortization Event shall have occurred and C&A Products or any Affiliate thereof is the Master Servicer, the Trustee shall deposit the Series 1 Monthly Servicing Fee into the Expense Account up to the amount of the Expense Account Limit, or if C&A Products or any Affiliate thereof is not the Master Servicer, the Series 1 Monthly Servicing Fee shall be paid to such Person acting as Successor Servicer; and (ii) an amount equal to any Program Costs due and payable shall be withdrawn from the Series 1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Persons owed such amounts. Any remaining amount on deposit in the Series 1 Non-Principal Collection Sub-subaccount not allocated pursuant to clauses (i) and (ii) above shall be paid to the holder of the Series 1 Subordinated Certificate; provided, however, that during the Series 1 Amortization Period, such remaining amounts shall be deposited in the Series 1 Principal Collection Sub-subaccount for distribution in accordance with subsection 3A.6(c). (c) During the Series 1 Amortization Period, the Master Servicer shall direct the Trustee to apply, on each Distribution Date, amounts on deposit in the Series 1 Principal Collection Sub-subaccount in the following order of priority: -36- (i) an amount equal to the Series 1 Monthly Principal Payment for such Distribution Date (rounded down to the nearest $1,000,000 unless such payment is less than $1,000,000) shall be distributed from the Series 1 Principal Collection Sub-subaccount: (A) first, pro rata to the Class A Certificateholders until the repayment in full of the Class A Invested Amount on such date; and (B) second, pro rata to the Class B Certificateholders until the repayment in full of the Class B Invested Amount on such date; (ii) if, following the repayment in full of the Invested Amount, any amounts are owed to the Trustee or any other Person, on account of its expenses incurred in respect of the performance of its responsibilities hereunder or as Successor Servicer, such amounts shall be transferred from the Series 1 Principal Collection Sub-subaccount and paid to the Trustee or such other Person; and (iii) if, following the repayment of all of the amounts set forth in clauses (i) and (ii) above, the remaining amount on deposit in the Series 1 Principal Collection Sub- subaccount on such Distribution Date, if any, shall be distributed to the holder of the Series 1 Subordinated Certificate. (d) On each Special Distribution Date occurring in respect of a Reduction hereunder, the Master Servicer shall cause the Trustee to distribute to the Term Certificateholders on such Special Distribution Date from amounts on deposit in the Series 1 Principal Collection Sub-subaccount (including amounts transferred from the Series 1 Canada/U.S. Dollar Collection Subaccount and the Series 1 Canada/Canadian Dollar Collection Subaccount) amounts equal to the Reduction Amount to be made on such Special Distribution Date, pro rata based on the Initial Invested Amount of each Class, to the Term Certificateholders. ARTICLE IV DISTRIBUTIONS AND REPORTS Article IV of the Agreement (except for any portion thereof relating to another Series) shall read in its entirety as follows and the following shall be exclusively applicable to the Term Certificates: SECTION 4A.1. Distributions. (a) The final distribution of principal in respect of the Term Certificates -37- will be made after due notice by the Trustee of the pendency of such distribution (subject to at least five Business Days prior written notice from the Master Servicer to the Trustee containing all information required for the Trustee's notice) and only upon presentation and surrender of such Term Certificates at the office of the Paying Agent or at the Corporate Trust Office of the Trustee, by check drawn on, or by transfer to an account maintained by the holder with, a bank in New York City. Any other distribution of principal in respect of the Term Certificates or on account of interest or fees on the Term Certificates on each Distribution Date will be made or caused to be made by the Paying Agent or the Trustee to the persons in whose name the Term Certificates are registered at the close of business on the related Record Date. Such payment will be made by a check mailed to the Term Certificateholders at such Term Certificateholders' registered addresses or, upon application by any Term Certificateholder of at least $3,000,000 in original principal amount thereof to the Trustee not later than five Business Days prior to the related Distribution Date, by transfer to an account maintained by the Term Certificateholder with a bank in New York City. (b) All allocations and distributions hereunder shall be in accordance with the Monthly Settlement Statement and subject to Section 3.1(h) of the Agreement. SECTION 4A.2. Statements and Notices. (a) Monthly Settlement Statements. On each Settlement Report Date the Master Servicer shall deliver to the Trustee and each Rating Agency a Monthly Settlement Statement setting forth, among other things, the Class A Loss Reserve Ratio I, the Class A Loss Reserve Ratio II, the Class B Loss Reserve Ratio I, the Class B Loss Reserve Ratio II, the Class A Dilution Reserve Ratio I, the Class A Dilution Reserve Ratio II, the Class B Dilution Reserve Ratio I, the Class B Dilution Reserve Ratio II, the Minimum Class A Ratio, the Minimum Class B Ratio, the Carrying Cost Reserve Ratio and the Servicing Reserve Ratio, each as recalculated for the next succeeding Settlement Period. The Trustee shall forward a copy of each Monthly Settlement Statement to any Term Certificateholder upon request by such Term Certificateholder. (b) Annual Certificateholders' Tax Statement. On or before April 1 of each calendar year (or such earlier date as required by applicable law), beginning with calendar year 1996, the Company on behalf of the Trustee shall furnish, or cause to be furnished, to each Person who at any time during the preceding calendar year was a Term Certificateholder, a statement prepared by the Company containing the aggregate amount distributed to such Person for such calendar year or the applicable portion thereof during which such Person was a Term Certificateholder, together with such other information as is required to be provided by an issuer of indebtedness under the Internal Revenue -38- Code and such other customary information as the Company deems necessary or desirable to enable the Term Certificateholders to prepare their tax returns. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall have been provided by the Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. (c) Early Amortization Event Notices. Promptly after its receipt of notice of the occurrence of an Early Amortization Event with respect to Series 1, the Trustee shall give notice of such occurrence to (i) each Rating Agency (which notice shall in any event be given (by telephone or otherwise) not later than the second Business Day after such receipt) and (ii) each Term Certificateholder. Section 4A.3. Notices. Notices required to be given to the Term Certificateholders hereunder will be given by first class mail to the address of such holders as they appear in the Certificate Register. ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS SECTION 5.1. Additional Early Amortization Events. If any one of the events specified in Section 7.1 of the Agreement (after any grace periods or consents applicable thereto) or any one of the following events shall occur during the Revolving Period with respect to the Series 1 Certificates: (a) failure on the part of the Company to make any payment (i) in respect of interest owing on any Term Certificates within two Business Days of the date such interest is due or (ii) in respect of any other amounts owing by the Company under any Pooling and Servicing Agreement to or for the benefit of the Term Certificateholders within five Business Days of the date such other amount is due; (b) the Trustee shall be appointed, pursuant to Section 6.2 of the Servicing Agreement, as Master Servicer to liquidate the Receivables and the Related Property; (c) failure on the part of the Company duly to observe or perform in any material respect any covenants or agreements of the Company set forth in any Pooling and Servicing Agreement which has a material adverse effect on the Term Certificateholders which continues unremedied until 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been -39- given to the Company by the Trustee, or the Company and the Trustee by holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount; (d) any representation or warranty made by the Company in any Pooling and Servicing Agreement to or for the benefit of the Term Certificateholders shall prove to have been incorrect in any material respect when made or when deemed made which continues to be incorrect until 30 days after the date on which notice of such failure, requiring the same to be remedied, shall have been given by the Trustee to the Company or the Company and the Trustee by holders of the Term Certificates evidencing 25% or more of the Term Certificates Invested Amount and as a result of such incorrectness, the interests of the Term Certificateholders have been materially and adversely affected; provided, however, that no event under Section 5.1 herein or Section 7.1 of the Agreement with respect to the Series 1 Certificates shall not be deemed to have occurred under this paragraph if the incorrectness of such representation or warranty gives rise to an obligation to repurchase the related Receivables and the Company has repurchased the related Receivable or all such Receivables, if applicable, in accordance with the provisions of the Pooling and Servicing Agreement within ten Business Days of when the Company was obligated to do so; (e) the Series 1 Allocated Receivables Amount shall be less than the Series 1 Target Receivables Amount for a period of five consecutive Business Days; (f) a Servicer Default with respect to the Master Servicer shall have occurred and be continuing; (g) any of the Agreement, the Servicing Agreement, this Supplement or the Receivables Sale Agreement shall cease, for any reason, to be in full force and effect, or the Company shall so assert in writing; or (h) the Internal Revenue Service shall file a notice of lien with regard to the assets of Collins & Aikman Corporation or any of the Sellers and 40 days shall have elapsed without such notice having been effectively withdrawn or such lien having been released or discharged; then, in the case of any event described above, after the applicable grace period (if any) set forth in such subsections, the Trustee may, and at the written direction of Term Certificateholders evidencing 51% or more of the Term Certificates Invested Amount voting as a single class shall, by written notice then given to the Company and the Master Servicer, declare that an early amortization event (an "Early Amortization -40- Event") has occurred and the Series 1 Amortization Period has commenced as of the date of such notice with respect to Series 1; provided, however, that in the case of the event described in clause (e) above, if an Early Amortization Event has not been declared within ten Business Days from the occurrence of such event, then an Early Amortization Event shall occur automatically unless, (i) prior to the end of such ten Business Day period, the Series 1 Allocated Receivables Amount shall no longer be less than the Series 1 Target Receivables Amount and (ii) so long as the Series 1 Allocated Receivables Amount is equal to or greater than the Series 1 Target Receivables Amount, within fifteen Business Days from the end of such ten Business Day period, Term Certificateholders evidencing 51% or more of the Term Certificates Invested Amount voting as a single class shall have waived the occurrence of such event. Notwithstanding the foregoing, a delay in or failure in performance referred to in clause (a) above for a period of five Business Days after the applicable grace period, or in clause (c) above for a period of 30 Business Days after the applicable grace period, will not constitute an Early Amortization Event if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Company and such delay or failure was caused by an act of God or the public enemy, riots, acts of war, acts of terrorism, epidemics, flood, embargoes, weather, landslides, fire, earthquakes or similar causes. The Company will nevertheless be required to use its best efforts to perform its obligations in a timely manner in accordance with the terms of the Transaction Documents, and the Company shall promptly give the Trustee an Officer's Certificate notifying it of such failure or delay by it. ARTICLE VI SERVICING FEE SECTION 6.1. Servicing Compensation. A monthly servicing fee (the "Series 1 Monthly Servicing Fee") shall be payable to the Master Servicer, on behalf of the Servicing Parties, on each Distribution Date for the Accrual Period then ending, in an amount equal to the product of (a) the Servicing Fee and (b) a fraction the numerator of which is the daily average Term Certificates Invested Amount for such Accrual Period and the denominator of which is the sum of (i) the daily average of the Invested Amounts for each Outstanding Series (other than Series 2) for such Accrual Period and (ii) the daily average of the Aggregate Commitment Amount with respect to the Series 2 Certificates for such Accrual Period; provided, however, that if an Early Amortization Event has occurred and C&A Products or any Affiliate thereof is acting as Master Servicer, (i) the Series 1 Monthly Servicing Fee shall be deposited into the Expense Account -41- up to the amount of the Expense Account Limit for application in accordance with Section 7.3 of the Agreement and (ii) thereafter, the Series 1 Monthly Servicing Fee shall be deferred until the Term Certificates Invested Amount has been paid in full. ARTICLE VII COVENANTS, REPRESENTATIONS AND WARRANTIES SECTION 7.1. Representations and Warranties of the Company and the Master Servicer. The Company and the Master Servicer hereby represent and warrant to the Trustee and each of the Term Certificateholders that each and all of their respective representations and warranties contained in each Pooling and Servicing Agreement is true and correct in all material respects as of the Issuance Date. SECTION 7.2. Covenants of the Company. The Company hereby agrees that: (a) it shall observe each and all of its respective covenants (both affirmative and negative) contained in each Pooling and Servicing Agreement in all material respects; (b) it shall not terminate the Agreement unless in strict compliance with the terms of the Agreement; and (c) within 60 days of the date hereof, it will (i) deliver to the Trustee executed copies of software licenses or sublicenses, in a form reasonably acceptable to the Trustee, which grant to the Trustee the right to utilize any of the software owned or licensed by the Servicers that is necessary to perform the collection and administrative functions to be performed by the Trustee under the Transaction Documents, and (ii) have taken all necessary actions in connection with, and to ensure completion of, each of the Servicer Site Review and the Standby Liquidation System. SECTION 7.3. Covenants of the Master Servicer. The Master Servicer hereby agrees that it shall observe each and all of its covenants (both affirmative and negative) contained in each Pooling and Servicing Agreement in all material respects. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects -42- ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 8.2. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 8.3. Further Assurances. Each of the Company and the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the other more fully to effect the purposes of this Supplement and the sale of the Term Certificates hereunder, including, without limitation, in the case of the Company, the execution of any financing or registration statements or continuation statements relating to the Receivables and the other Trust Assets for filing under the provisions of the UCC or similar legislation of any applicable jurisdiction. SECTION 8.4. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee or any Term Certificateholder, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 8.5. Amendments. This Supplement may only be amended, supplemented or otherwise modified from time to time if such amendment, supplement or modification is effected in accordance with the provisions of Section 10.1 of the Pooling Agreement. SECTION 8.6. Notices. All notices, requests and demands to or upon any party hereto to be effective shall be given in the manner set forth, in the case of the Company, the Master Servicer and the Trustee, in Section 10.5 of the Pooling Agreement, and in the case of any other party, in writing (including a confirmed transmission by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Rating Agencies or to such other address as may be hereafter notified by the respective parties hereto: -43- D&P: Duff & Phelps Credit Rating Co. 55 East Monroe Street Chicago, Illinois 60603 Attention: Asset-Backed Research and Monitoring Group Telecopier: (312) 263-2852 S&P: Standard & Poor's Ratings Group 25 Broadway New York, New York 10004 Attention: Asset-Backed Surveillance Group Telecopier: (212) 412-0225 Any notice required or permitted to be mailed to a Term Certificateholder shall be given as provided in Section 4A.3. SECTION 8.7. Counterparts. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. ARTICLE IX FINAL DISTRIBUTIONS SECTION 9.1. Certain Distributions. (a) Not later than 2:00 p.m., New York City time, on the Distribution Date following the date on which the proceeds from the disposition of the Receivables are deposited into the Series 1 Non-Principal Collection Sub-subaccount and the Series 1 Principal Collection Sub-subaccount pursuant to subsection 7.2(b) of the Agreement, the Trustee shall distribute such amounts pursuant to Article III of this Supplement. (b) Notwithstanding anything to the contrary in this Supplement or the Agreement, any distribution made pursuant to this Section shall be deemed to be a final distribution pursuant to Section 9.3 of the Agreement with respect to the Term Certificates. -44- IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee have caused this Series 1 Supplement to be duly executed by their respective officers as of the day and year first above written. CARCORP, INC. By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Secretary and Treasurer COLLINS & AIKMAN PRODUCTS CO., as Master Servicer By: Anthony Hardwick Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer CHEMICAL BANK, not in its individual capacity but solely as Trustee By: Charles E. Dooley Title: Vice President -45- Schedule 1 Trust Accounts The U.S. Dollar Collection Account has been established by and at Chemical Bank, account number 323-334466. The U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/U.S. Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 04-46718. The Canada/U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/Canadian Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 22-43318 The Canada/Canadian Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. EX-10 9 EXHIBIT 10.22 EXECUTION COPY CARCORP, INC., COLLINS & AIKMAN PRODUCTS CO., as Master Servicer, SOCIETE GENERALE, as Agent and CHEMICAL BANK, as Trustee SERIES 1995-2 SUPPLEMENT Dated as of March 30, 1995 to POOLING AGREEMENT Dated as of March 30, 1995 C&A MASTER TRUST TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . . 1 SECTION 1.1. Definitions . . . . . . . . . . . . . . . 1 ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE VFC CERTIFICATES . . . . . . . . 17 SECTION 2.1. Designation . . . . . . . . . . . . . . . 17 SECTION 2.2. The Series 2 Certificates . . . . . . . . 17 SECTION 2.3. Purchases of Interests in the VFC Certificates . . . . . . . . . . . . . . 18 SECTION 2.4. Delivery . . . . . . . . . . . . . . . . . 18 SECTION 2.5. Procedure for Initial Issuance and for Increasing the VFC Invested Amount . . . 19 SECTION 2.6. Procedure for Decreasing the VFC Invested Amount . . . . . . . . . . . . 20 SECTION 2.7. Reductions of the Commitments . . . . . . 21 SECTION 2.8. Interest; Commitment Fee . . . . . . . . . 22 SECTION 2.9. Purchase of VFC Certificateholders' Interest in the VFC Certificates . . . . 22 SECTION 2.10. Indemnification by Company and the Master Servicer . . . . . . . . . . . 23 ARTICLE III ARTICLE III OF THE AGREEMENT . . . . . . . 25 SECTION 3A.2. Establishment of Trust Accounts . . . . . 25 SECTION 3A.3. Daily Allocations. . . . . . . . . . . . 27 SECTION 3A.4. Determination of Interest . . . . . . . . 29 SECTION 3A.5. Determination of Series 2 Monthly Principal Payment During a VFC Amortization Period . . . . . . . 31 SECTION 3A.6. Applications . . . . . . . . . . . . . . 31 ARTICLE IV DISTRIBUTIONS AND REPORTS . . . . . . . . 33 SECTION 4A.1. Distributions . . . . . . . . . . . . . . 33 SECTION 4A.2. Daily Reports . . . . . . . . . . . . . . 33 SECTION 4A.3. Statements and Notices . . . . . . . . . 33 -i- Page ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS . . . . . 34 SECTION 5.1. Additional Early Amortization Events . . . 34 ARTICLE VI SERVICING FEE . . . . . . . . . . . 37 SECTION 6.1. Servicing Compensation . . . . . . . . . . 37 ARTICLE VII CHANGE IN CIRCUMSTANCES . . . . . . . . 38 SECTION 7.1. Illegality . . . . . . . . . . . . . . . . 38 SECTION 7.2. Requirements of Law . . . . . . . . . . . 38 SECTION 7.3. Taxes . . . . . . . . . . . . . . . . . . 40 SECTION 7.4. Indemnity . . . . . . . . . . . . . . . . 42 SECTION 7.5. Limitation . . . . . . . . . . . . . . . . 43 ARTICLE VIII COVENANTS, REPRESENTATIONS AND WARRANTIES . . . . 43 SECTION 8.1. Representations and Warranties of the Company and the Master Servicer . . . . 43 SECTION 8.2. Covenants of the Company . . . . . . . . . 43 SECTION 8.3. Covenants of the Master Servicer . . . . . 44 SECTION 8.4. Obligations Unaffected . . . . . . . . . . 45 SECTION 8.5. Representations and Warranties of the Initial Purchasers . . . . . . . . . . . 45 ARTICLE IX CONDITIONS PRECEDENT . . . . . . . . . 46 SECTION 9.1. Conditions Precedent to Effectiveness of Supplement . . . . . . . . . . . . . 46 ARTICLE X THE AGENT . . . . . . . . . . . . 49 SECTION 10.1. Appointment, Rights and Duties of the Agent . . . . . . . . . . . . . . 49 SECTION 10.2. Consultation with Experts . . . . . . . . 50 SECTION 10.3. Liability of the Agent . . . . . . . . . 50 SECTION 10.4. Indemnification . . . . . . . . . . . . . 50 SECTION 10.5. Credit Decision . . . . . . . . . . . . . 50 -ii- Page SECTION 10.6. Reliance by the Agent . . . . . . . . . . 51 SECTION 10.7. Notice of Servicer Default or Early Amortization Event . . . . . . . . . . 51 SECTION 10.8. The Agent in its Individual Capacity . . . . . . . . . . . . . . . 52 SECTION 10.9. Successor Agent . . . . . . . . . . . . . 52 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . 53 SECTION 11.1. Ratification of Agreement . . . . . . . 53 SECTION 11.2. Governing Law . . . . . . . . . . . . . 53 SECTION 11.3. Further Assurances . . . . . . . . . . . 53 SECTION 11.4. Payments . . . . . . . . . . . . . . . . 53 SECTION 11.5. Costs and Expenses . . . . . . . . . . . 53 SECTION 11.6. No Waiver; Cumulative Remedies . . . . . 54 SECTION 11.7. Amendments . . . . . . . . . . . . . . . 54 SECTION 11.8. Severability . . . . . . . . . . . . . . 55 SECTION 11.9. Notices . . . . . . . . . . . . . . . . 55 SECTION 11.10. Successors and Assigns . . . . . . . . . 55 SECTION 11.11. Counterparts; Effectiveness . . . . . . 58 SECTION 11.12. Adjustments; Set-off . . . . . . . . . . 58 SECTION 11.13. Repurchase by Master Servicer . . . . . 59 SECTION 11.14. Repurchase by Company . . . . . . . . . 59 SECTION 11.15. Limitation of Liability . . . . . . . . 59 SECTION 11.16. Limitation of Payments By Company . . . 60 SECTION 11.17. Certain Payments . . . . . . . . . . . . 60 SECTION 11.18. No Bankruptcy Petition . . . . . . . . . 61 ARTICLE XII FINAL DISTRIBUTIONS . . . . . . . . . 61 SECTION 12.1. Certain Distributions . . . . . . . . . . 61 -iii- EXHIBITS Exhibit A Form of VFC Certificate, Series 1995-2 Exhibit B Form of Subordinated Company Certificate, Series 1995-2 Exhibit C [Reserved] Exhibit D Form of Commitment Transfer Supplement Exhibit E Form of Daily Report Exhibit F Form of Monthly Settlement Statement Exhibit G Form of Notice of Increase SCHEDULES Schedule 1 Commitments Schedule 2 Trust Accounts -iv- SERIES 1995-2 SUPPLEMENT, dated as of March 30, 1995 (this "Supplement"), among Carcorp, Inc., a Delaware corporation (the "Company"), Collins & Aikman Products Co., a Delaware corporation ("C&A Products"), as master servicer (the "Master Servicer"), the several banks parties to this Supplement as of the Issuance Date (collectively, the "Initial Purchasers" and, individually, an "Initial Purchaser"), the other financial institutions from time to time parties hereto as purchasers pursuant to Section 11.10, Societe Generale, a banking corporation organized under the laws of France acting through its Southwest Agency, as agent (the "Agent") for the Purchasers (as hereinafter defined) and as an Initial Purchaser, and Chemical Bank, a New York banking corporation, in its capacity as Trustee (the "Trustee") under the Agreement (as hereinafter defined). W I T N E S S E T H : WHEREAS, the Company, the Master Servicer and the Trustee entered into a Pooling Agreement, dated as of March 30, 1995 (the "Agreement"); WHEREAS, the Agreement provides, among other things, that the Company, the Master Servicer and the Trustee may at any time and from time to time enter into supplements to the Agreement for the purpose of authorizing the issuance on behalf of the Trust by the Company for execution and redelivery to the Trustee for authentication of one or more Series of Investor Certificates; and WHEREAS, the Company, the Master Servicer, the Trustee and the Initial Purchasers wish to supplement the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. (a) The following words and phrases shall have the following meanings with respect to Series 2 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "Accrued Expense Amount" shall mean, for each Business Day during an Accrual Period, the sum, without duplication, of (i) the Daily Interest Deposit for such Business Day, (ii) one-tenth of the Commitment Fee (up to the amount thereof due and payable on the succeeding Distribution Date and zero on each Business Day thereafter until the succeeding Distribution Date) payable to the VFC Certificateholders on the next succeeding Distribution Date, (iii) one-tenth of the Series 2 Certificates pro rata portion of the Servicing Fee (up to the Series 2 Certificates' pro rata portion of the amount thereof due and payable on such succeeding Distribution Date and zero on each Business Day thereafter until the succeeding Distribution Date) and (iv) all Program Costs which have accrued since such preceding Business Day. For purposes of clause (iii) above, the Servicing Fee shall be allocated among each Outstanding Series pro rata based upon the proportion that the Invested Amount for each such Series (or, with respect to Series 2, the Aggregate Commitment Amount) bears to the sum of (i) the Invested Amounts for all Outstanding Series (other than Series 2) and (ii) the Aggregate Commitment Amount. "Acquiring Purchaser" shall have the meaning assigned in subsection 11.10(c). "Additional Interest" shall have the meaning assigned in subsection 3A.4(b). "Additional Series 2 Receivables" shall mean those Receivables, if any, originated by a Seller added to Schedule 1 to the Receivables Sale Agreement after the Issuance Date, which Seller's Receivables, as evidenced by an amendment to this Supplement and consented to by each Purchaser (in its sole and absolute discretion), shall be designated as Additional Series 2 Receivables. "Agent" shall have the meaning specified in the recitals hereto. "Aggregate Commitment Amount" shall mean, with respect to any Business Day, the aggregate amount of the Commitments of all Purchasers on such date, as reduced from time to time pursuant to Section 2.6. "Aggregate Series 1 Receivables Amount" shall mean, of any day, the aggregate Principal Amount of Eligible Receivables minus (i) the Principal Amount of Excess Primary Auto Receivables, (ii) the Overconcentration Amounts with respect to Receivables of other Eligible Obligors and (iii) the Principal Amount of any Additional Series 2 Receivables. -2- "Aggregate Series 2 Primary Auto Receivables Amount" shall mean, on any day, the sum of (A) the Principal Amount of the Excess Primary Auto Receivables and (B) the lesser of (i) the excess, if any, of the Aggregate Series 1 Receivables Amount over the Series 1 Target Receivables Amount and (ii) the aggregate Principal Amount of Eligible Primary Auto Receivables (other than Excess Primary Auto Receivables). "Aggregate Series 2 Receivables Amount" shall mean, on any day, the sum of the Aggregate Series 2 Primary Auto Receivables Amount and the aggregate Principal Amount of any Additional Series 2 Receivables; provided, however, that the Aggregate Series 2 Receivables Amount shall not include (i) the excess, if any, of (a) the aggregate Principal Amount of all Primary Auto Receivables payable in Canadian Dollars over (b) 25% of the aggregate Principal Amount of all Eligible Primary Auto Receivables in the Trust at the end of the Business Day immediately preceding such date and (ii) if the senior unsecured credit rating of a Primary Auto Obligor (or, if such Primary Auto Obligor is a Subsidiary, its parent) shall be reduced below BBB- by S&P, or Baa3 by Moody's Investors Service, Inc., the Principal Amount of Receivables of such Primary Auto Obligor. "Aggregate Series 2 Receivables Amount Deficiency" shall be deemed to occur on any Business Day when, if after giving effect to all allocations and distributions to be made on such day (based upon the VFC Percentage as calculated for such day) the VFC Target Receivables Amount would exceed the Aggregate Series 2 Receivables Amount. "Aggregate VFC Invested Amount" shall mean, as of any date of determination, the sum of the VFC Invested Amounts of all Purchasers on such date. "Agreement" shall mean the Pooling Agreement, dated as of March 30, 1995, among the Company, the Master Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16th of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the -3- preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Margin" shall mean, at any date of determination, for each Eurodollar Tranche 0.40%, and for the Floating Tranche 0.0%; provided, however, if the senior unsecured credit rating of a Primary Auto Obligor (or, if such Primary Auto Obligor is a Subsidiary, its parent) shall be reduced below BBB by S&P, or Baa2 by Moody's Investors Service, Inc., the Applicable Margin for each Eurodollar Tranche and each Floating Tranche shall increase by 0.10% per annum commencing with the date the Master Servicer receives notice that such rating has been reduced and continuing until the date the Master Servicer receives notice that such rating has been upgraded to at least BBB or Baa2, as the case may be, or such other date as the Trust no longer owns Receivables of such Primary Auto Obligor. "Article VII Costs" shall mean any amounts due pursuant to Article VII. "Assessment Rate" shall mean, for any date, the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in U.S. Dollars at the Agent's domestic offices. "Available Commitment" shall mean, with respect to any Business Day, the (i) Aggregate Commitment Amount on such Business Day minus (ii) the Aggregate VFC Invested Amount. "Available Pricing Amount" shall mean, on any Business Day, the sum of (i) the Unallocated Balance plus (ii) the Increase, if any, on such date. "Benefitted Purchaser" shall have the meaning assigned in Section 11.12. "Board" shall mean the Board of Governors of the Federal Reserve System or any successor thereto. "Certificate Rate" shall mean on any date of determination, the average, weighted based on the respective amounts of the Floating Tranche and each Eurodollar Tranche, -4- of the Alternate Base Rate in effect on such day and the Eurodollar Rates in effect on such day plus, in each case, the Applicable Margin; provided, however, during the continuation of an Early Amortization Event, the "Certificate Rate" shall be equal to the greater of (i) such average or (ii) the Alternate Base Rate plus 2.0%. "Commitment" shall mean, as to any Purchaser, its obligation to maintain and, subject to certain conditions, increase, its VFC Invested Amount, in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite such Purchaser's name on Schedule 1 under the caption "Commitment", as such amount may be reduced from time to time as provided herein; collectively, as to all Purchasers, the "Commitments". "Commitment Fee" shall have the meaning assigned in subsection 2.8(b). "Commitment Percentage" shall mean, as to any Purchaser and as of any date, the percentage equivalent of a fraction, the numerator of which is such Purchaser's Commitment as set forth on Schedule 1 and the denominator of which is the Aggregate Commitment Amount as of such date. "Commitment Period" shall mean the period commencing on the Issuance Date and terminating on the date which is the earlier of (i) the Commitment Termination Date and (ii) the date on which an VFC Amortization Period commences. "Commitment Reduction" shall have the meaning assigned in subsection 2.7(a). "Commitment Termination Date" shall mean the last day of the December 1999 Settlement Period. "Commitment Transfer Supplement" shall have the meaning assigned in subsection 11.10(c). "Daily Interest Deposit" shall mean, for any Business Day, an amount equal to (i) the amount of accrued and unpaid Daily Interest Expense in respect of such day plus (ii) the aggregate amount of all previously accrued and unpaid Daily Interest Expense plus (iii) the aggregate amount of all accrued and unpaid Additional Interest. "Daily Interest Expense" for any day in any Accrual Period, shall mean the sum of (A) the product of (i) the Aggregate VFC Invested Amount allocable to the Floating Tranche on such day divided by 365 and (ii) the Alternate Base Rate plus the Applicable Margin in effect on such day, and (B) the product of (i) the Aggregate VFC Invested Amount -5- allocable to Eurodollar Tranches on such day divided by 360 and (ii) the weighted average Eurodollar Rate plus the Applicable Margin in effect with respect thereto; provided, however, that for any such day during the continuation of an Early Amortization Event, the "Daily Interest Expense" for such day shall be equal to the greater of (i) the sum of the amounts calculated pursuant to clauses (A) and (B) above and (ii) the product of (x) the Aggregate VFC Invested Amount on such day divided by 365 and (y) the Alternate Base Rate in effect on such day plus 2.0%. "Daily Report" shall mean a report prepared by the Master Servicer on each Business Day for the period specified therein, in substantially the form of Exhibit E or in such other form as may be approved by the Agent and the Master Servicer. "Days Sales Outstanding" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, the number of days equal to the product of (a) 91 and (b) the amount obtained by dividing (i) the difference between (A) the aggregate Principal Amount of the Primary Auto Receivables and Additional Series 2 Receivables and (B) the aggregate bad debt reserve of the Sellers, in each case as at the last day of the Settlement Period immediately preceding such earlier Settlement Report Date, by (ii) aggregate Principal Amount of Primary Auto Receivables and Additional Series 2 Receivables generated by the Sellers for the three Settlement Periods immediately preceding such earlier Settlement Report Date. "Decrease" shall have the meaning assigned in Section 2.6. "Dilution Ratio" shall mean, as of the last day of each Settlement Period, the ratio (expressed as a percentage) equal to the aggregate amount of Dilution Adjustments made with respect to the Primary Auto Receivables and Additional Series 2 Receivables during such Settlement Period divided by the aggregate Principal Amount of the Primary Auto Receivables and Additional Series 2 Receivables which were originated by the Sellers during such Settlement Period. "Dilution Reserve Multiple" shall mean 1.50. "Dilution Reserve Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: -6- DRR = c*d*e Where: DRR = Dilution Reserve Ratio; c = the Dilution Reserve Multiple; d = the greater of (i) the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such Settlement Report Date and (ii) the average of the Dilution Ratio during the period of three consecutive Settlement Periods ending prior to such Settlement Report Date; and e = the quotient of (i) the aggregate Principal Amount of Primary Auto Receivables and Additional Series 2 Receivables which were originated by the Sellers during the two Settlement Periods immediately preceding such earlier Settlement Report Date and (ii) the difference between (A) the aggregate outstanding Principal Amount of the outstanding Primary Auto Receivables and Additional Series 2 Receivables and (B) the aggregate outstanding Principal Amount of all Primary Auto Receivables and Additional Series 2 Receivables which are Delinquent Receivables and Defaulted Receivables, in each case, as of the last day of the Settlement Period immediately preceding such earlier Settlement Report Date. "Discount Rate" shall mean, as of any date of determination, the sum of (a) the weighted average interest rate in effect with respect to the VFC Certificates as of the end of the Settlement Period immediately preceding the most recent Settlement Report Date and (b) an amount equal to (i) the aggregate amount of fees (other than the Servicing Fee) accrued with respect to the VFC Certificates during the Settlement Period immediately preceding the most recent Settlement Report Date divided by (ii) the average daily VFC Invested Amount during such Settlement Period. "Early Amortization Event" shall have the meaning assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "Effective Date" shall have the meaning assigned in Section 9.1. -7- "Eurodollar Base Rate" shall mean, with respect to each day during each Eurodollar Period pertaining to a Eurodollar Tranche: (a) if at least two offered rates for deposits in U.S. Dollars for a period comparable to the applicable Eurodollar Period appears on Telerate Page 3750 as of 11:00 a.m., London time, on the day that is two Eurodollar Business Days prior to the first day of such Eurodollar Period, the arithmetic mean of all such offered rates; and (b) if fewer than two such offered rates so appear on Telerate Page 3750, the rate (rounded upwards, if necessary, to the nearest 1/16th of 1%) at which U.S. Dollar deposits approximately equal to the amount of such Eurodollar Tranche and for a period comparable to the applicable Eurodollar Period are offered to the Agent's office in which the relevant eurodollar operations are being conducted in immediately available funds in the eurodollar market at approximately 11:00 a.m., New York City time, on the day that is two Eurodollar Business Days prior to the first day of such Eurodollar Period. "Eurodollar Business Day" shall mean a day that is both a Business Day and a day on which banking institutions in the City of London, England are not required or authorized by law to be closed. "Eurodollar Period" shall mean, with respect to any Eurodollar Tranche: (a) initially, the period commencing on the Issuance Date or conversion date, as the case may be, with respect to such Eurodollar Tranche and ending one, two or three months thereafter, as selected by the Company in its notice of Issuance Date or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Eurodollar Period applicable to such Eurodollar Tranche and ending one, two or three months thereafter, as selected by the Company by irrevocable notice to the Agent not less than three Eurodollar Business Days prior to the last day of the then current Eurodollar Period with respect thereto; provided that, all of the foregoing provisions relating to Eurodollar Periods are subject to the following: -8- (1) if any Eurodollar Period would otherwise end on a day that is not a Eurodollar Business Day, such Eurodollar Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Eurodollar Period into another calendar month in which event such Eurodollar Period shall end on the immediately preceding Eurodollar Business Day; (2) any Eurodollar Period that would otherwise extend beyond the Scheduled Termination Date shall end on the Scheduled Termination Date; and (3) any Eurodollar Period that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Eurodollar Period) shall end on the last Eurodollar Business Day of a calendar month. "Eurodollar Rate" shall mean, with respect to each day during each Eurodollar Period pertaining to a portion of the VFC Invested Amount allocated to a Eurodollar Tranche, a rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the product of (a) the Eurodollar Base Rate in effect for such Eurodollar Period and (b) Statutory Reserves. "Eurodollar Tranche" shall mean a portion of the Aggregate VFC Invested Amount for which the Series 2 Monthly Interest is calculated by reference to a Eurodollar Rate determined by reference to a particular Eurodollar Period. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Floating Tranche" shall mean that portion of the Aggregate VFC Invested Amount not allocated to a Eurodollar Tranche for which the Series 2 Monthly Interest is calculated by reference to the Alternative Base Rate. "Increase" shall have the meaning assigned in subsection 2.5(a). -9- "Increase Amount" shall have the meaning assigned in subsection 2.5(a). "Increase Date" shall have the meaning assigned in subsection 2.5(a). "Indemnified Amounts" shall have the meaning assigned in subsection 2.10(a). "Indemnitee" shall have the meaning assigned in subsection 2.10(a). "Initial Purchasers" shall have the meaning specified in the recitals hereto. "Initial VFC Invested Amount" shall mean $12,000,000. "Initial VFC Subordinated Certificate Amount" shall mean the VFC Subordinated Certificate Increase Amount in respect of the Issuance Date. "Interest Shortfall" shall have the meaning assigned in subsection 3A.4(b). "Invested Percentage" shall not be applicable to Series 2. "Issuance Date" shall mean March 31, 1995. "Majority Purchasers" shall mean, on any day, Purchasers having, in the aggregate, more than 50% of the Aggregate Commitment Amount. "Maximum Commitment Amount" shall mean $75,000,000. "Monthly Interest Payment" shall have the meaning assigned in subsection 3A.6(a). "Monthly Settlement Statement" shall mean a report prepared by the Master Servicer with respect to each Distribution Date for the immediately preceding Settlement Period, in substantially the form of Exhibit F or in such other form as may be approved by the Agent and the Master Servicer. "Non-Excluded Taxes" shall have the meaning assigned in subsection 7.3(a). "Optional Repurchase Percentage" shall mean 10% of the Aggregate VFC Invested Amount on the close of business of the last day of the VFC Revolving Period. -10- "Participants" shall have the meaning assigned in subsection 11.10(b). "PAR Pool I" shall mean the pool of Primary Auto Receivables constituting part of the Trust Assets on the Business Day preceding the occurrence of a Separate VFC Amortization Event. "PAR Pool II" shall mean the pool of Primary Auto Receivables conveyed to the Trust after the occurrence of a Separate VFC Amortization Event. "Prime Rate" shall mean the rate of interest per annum publicly announced (or, if not announced publicly, quoted internally) from time to time by the Agent as its prime rate in effect at its principal office in New York City for short-term commercial loans in U.S. Dollars to domestic corporate borrowers (each change in the Prime Rate to be effective on the date such change is publicly announced (or quoted internally) as being effective), which rate, it is hereby acknowledged, is not necessarily the Agent's lowest rate. "Program Costs" shall mean, for any Business Day, (i) all expenses, indemnities and other amounts due and payable to the Purchasers and the Agent under the Agreement or this Supplement (including, without limitation, any Article VII Costs), plus (ii) the product of (a) the sum (x) of all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Company (other than fees and expenses payable on or in connection with the closing of the issuance of the Series 2 Certificates) and any corporate income or franchise taxes due and payable by the Company, in each case on such Business Day and (y) all unpaid Trustee's expenses, and (b) a fraction, the numerator of which is the Aggregate Commitment Amount on such Business Day and the denominator of which is the sum of (i) the Invested Amounts on such Business Day of each Outstanding Series (other than Series 2) and (ii) the Aggregate Commitment Amount on such Business Day. "Purchaser" shall mean each purchaser of a VFC Certificate, including each Initial Purchaser and each Acquiring Purchaser. "Rating Agency" shall not be applicable to Series 2. "Record Date" shall mean, for any Distribution Date or other date on which a distribution is to be made on a Series 2 Certificate, the Business Day immediately preceding such date. -11- "Register" shall mean a register maintained by the Agent for recording transfers of the VFC Certificates. "Required Purchasers" shall mean, on any day, Purchasers having, in the aggregate, more than 50% of the Aggregate Commitment Amount. "Scheduled Termination Date" shall mean the earlier of (a) the Commitment Termination Date and (b) the date on which the Commitments are terminated in whole pursuant to Section 2.7. "Separate VFC Amortization Event" shall have the meaning assigned in Section 5.1. "Series 1 Required Subordinated Amount" shall have the meaning set forth in Section 1.1 of the Series 1 Supplement. "Series 1 Supplement" shall mean the Series 1995-1 Supplement, dated as of March 30, 1995, among the Company, the Master Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time. "Series 1 Target Receivables Amount" shall mean, on any date of determination, the sum of (i) the Term Certificate Adjusted Invested Amount on such day and (ii) the Series 1 Required Subordinated Amount on such day. "Series 2" shall mean Series 1995-2, the Principal Terms of which are set forth in this Supplement. "Series 2 Accrued Interest Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 2 Allocated Receivables Amount" shall mean, on any date of determination, the lower of (i) the VFC Target Receivables Amount on such day and (ii) the Aggregate Series 2 Receivables Amount on such day. "Series 2 Canada/Canadian Dollar Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 2 Canada/U.S. Dollar Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 2 Certificates" shall mean, collectively, those Certificates designated as the VFC Certificates and the VFC Subordinated Certificate. "Series 2 Collection Subaccount" shall have the meaning assigned in subsection 3A.2(a). -12- "Series 2 Invested Amount" shall mean, with respect to any date of determination, the Aggregate VFC Invested Amount. "Series 2 Monthly Interest" shall have the meaning assigned in subsection 3A.4(a). "Series 2 Monthly Principal Payment" shall have the meaning assigned in Section 3A.5. "Series 2 Monthly Servicing Fee" shall have the meaning assigned in Section 6.1. "Series 2 Non-Principal Collection Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 2 Percentage" shall mean the VFC Percentage. "Series 2 Principal Collection Sub-subaccount" shall have the meaning assigned in subsection 3A.2(a). "Series 2 Termination Date" shall mean the date which is nine (9) months after the last day of the VFC Revolving Period. "Servicing Reserve Ratio" shall mean, as of any Settlement Report Date and continuing until the next Settlement Report Date, an amount (expressed as a percentage) equal to (a) the product of (i) 1.0% and (ii) 2.0 times (b) Days Sales Outstanding as of such day divided by (c) 365. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is one and the denominator of which is one minus the aggregate of the maximum reserve percentages (including, without limitation, basic, supplemental, marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Agent is subject with respect to the Eurodollar Rate, for "Eurocurrency Liabilities" (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Tranches shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without the benefit of or credit for proration, exemptions or offsets which may be available from time to time to any Purchaser under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. -13- "Telerate Page 3750" shall mean the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vender, for the purpose of displaying comparable rates or prices). "Term Certificates Adjusted Invested Amount" shall have the meaning set forth in Section 1.1 of the Series 1 Supplement. "Transfer Issuance Date" shall mean the date on which a Commitment Transfer Supplement becomes effective pursuant to the terms of such Commitment Transfer Supplement. "Transferee" shall have the meaning assigned in subsection 11.10(f). "Trust Accounts" shall have the meaning assigned in subsection 3A.2(a). "Unallocated Balance" shall mean, as of any Business Day, the sum of (i) the portion of the Aggregate VFC Invested Amount for which interest is then being calculated by reference to the Alternate Base Rate, and (ii) the portion of the Aggregate VFC Invested Amount allocated to any Eurodollar Tranche that expires on such Business Day. "VFC Adjusted Invested Amount" shall mean, as of any date of determination, (i) the Aggregate VFC Invested Amount on such date, minus (ii) the amount on deposit in the Series 2 Principal Collection Sub-subaccount on such date. "VFC Amortization Period" shall mean the period following the VFC Revolving Period and ending on the date when (i) the Aggregate VFC Invested Amount shall have been reduced to zero and all accrued interest and other amounts owing on the VFC Certificates and to the Agent and the Purchasers hereunder shall have been paid, or (ii) all Primary Auto Receivables and all Additional Series 2 Receivables, if any, or, in the case of a the VFC Amortization Period commencing as a result of a Separate VFC Amortization Event, all PAR Pool I Receivables, have been collected or written off as uncollectible in accordance with the Policies and, in the case of write-offs, 90 days has past since the last write-off. "VFC Certificate" shall mean a VFC Certificate, Series 1995-2, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "VFC Certificateholders" shall mean the Purchasers. -14- "VFC Certificateholders' Interest" shall have the meaning assigned in subsection 2.1(a). "VFC Invested Amount" shall mean, with respect to any Purchaser on the Issuance Date, an amount equal to the product of such Purchaser's Commitment Percentage on such date and the Initial VFC Invested Amount, and with respect to such Purchaser on any date of determination thereafter, an amount equal to (a) such Purchaser's VFC Invested Amount on the immediately preceding Business Day (or, with respect to the day as of which such Purchaser becomes a party to this Supplement, whether by executing a counterpart hereof, a Commitment Transfer Supplement or otherwise, (i) the product of such Purchaser's Commitment Percentage and the Initial VFC Invested Amount or (ii) the portion of the transferor's VFC Invested Amount being purchased, in the case of an Acquiring Purchaser), plus (b) the amount of any increases in such Purchaser's VFC Invested Amount pursuant to Section 2.5 made on such day, minus (c) the amount of any distributions to such Purchaser pursuant to Section 2.6 on such day. "VFC Percentage" shall mean (i) on any Business Day during the VFC Revolving Period, the percentage equivalent of a fraction, the numerator of which is equal to (A) the Series 2 Allocated Receivables Amount as of the end such Business Day and the denominator of which is equal to (B) the Aggregate Primary Auto Receivables Amount as of the end of such Business Day; provided that if on any Business Day, if after giving effect to all allocations and distributions to be made on such day (based upon the VFC Percentage as calculated for such day), an Aggregate Series 2 Receivables Amount Deficiency would exist, the VFC Percentage will not change (and shall be equal to the VFC Percentage as calculated at the close of business on the Business Day immediately preceding the occurrence of such Aggregate VFC Receivables Deficiency) until such Aggregate Series 2 Receivables Amount Deficiency would no longer exist, and (ii) on any Business Day during the VFC Amortization Period, the VFC Percentage on the last day of the VFC Revolving Period; provided that such percentage shall only be applied with respect to PAR Pool I. Further, the VFC Percentage with respect to any Receivables other than Primary Auto Receivables (and Additional Series 2 Receivables, if any) shall be 0. "VFC Required Reserves Ratio" shall mean, as of any date of determination, the sum of (a) the Dilution Reserve Ratio on such date and (b) the Yield Reserve Ratio on such date. -15- "VFC Required Subordinated Amount" shall mean, on any date of determination, the greater of (1) the product of (x) 4% and (y) the VFC Adjusted Invested Amount on such date and (2) the sum of (x) the product of (i) the VFC Adjusted Invested Amount on such date and (ii) the VFC Required Subordinated Percentage on such date, (y) the product of (i) the Servicing Reserve Ratio on such date and (ii) the VFC Invested Amount on such date, and (z) the aggregate amount of Daily Interest Expense for all Accrual Periods not set aside and transferred as of such day to the Series 2 Non- Principal Collection Account. "VFC Required Subordinated Percentage" shall mean, as of any date of determination, the VFC Required Reserves Ratio (expressed as a percentage) for such date. "VFC Revolving Period" shall mean the period commencing on the Issuance Date and terminating on the earlier to occur of (i) the close of business on the date on which an Early Amortization Event occurs and (ii) the Scheduled Termination Date. "VFC Subordinated Certificate" shall mean the Subordinated Company Certificate, Series 1995-2, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit B. "VFC Subordinated Certificate Amount" shall mean, for any date of determination, an amount equal to (i) the Series 2 Allocated Receivables Amount minus (ii) the VFC Adjusted Invested Amount. "VFC Subordinated Certificate Increase Amount" shall have the meaning assigned in subsection 2.5(a). "VFC Subordinated Certificate Reduction Amount" shall have the meaning assigned in subsection 2.6(b). "VFC Target Receivables Amount" shall mean, on any date of determination, the sum of (i) the VFC Adjusted Invested Amount on such day and (ii) the VFC Required Subordinated Amount for such day. "Yield Reserve Ratio" shall mean, as of any date of any Settlement Period Date and continuing until the next Settlement Report Date, a ratio (expressed as a percentage) equal to (a) the product of(i) 2.0 times Days Sales Outstanding as of such day and (ii) 1.50 times the Discount Rate as of such day divided by (b) 360. (b) If any term or provision contained herein conflicts with or is inconsistent with any term or provision -16- contained in the Agreement, the terms and provisions of this Supplement shall govern. All capitalized terms not otherwise defined herein are defined in the Agreement. All Article, Section or subsection references herein shall mean Article, Section or subsections of this Supplement, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Agreement, each capitalized term used or defined herein shall relate only to the Series 2 Certificates and no other Series of Investor Certificates issued by the Trust. ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE VFC CERTIFICATES SECTION 2.1. Designation. The Certificates created and authorized pursuant to the Agreement and this Supplement shall be divided into two Classes, which shall be designated respectively as (i) the "VFC Certificates, Series 1995-2" and (ii) the "Subordinated Company Certificate, Series 1995-2." SECTION 2.2. The Series 2 Certificates. (a) The VFC Certificates shall represent fractional undivided interests in the Trust, consisting of the right to receive (i) the VFC Percentage (expressed as a decimal) of (A) Collections received with respect to the Primary Auto Receivables (other than PAR Pool II) and (B) all other funds relating to Primary Auto Receivables (other than PAR Pool II) on deposit in the Collection Accounts and in any subaccounts thereof and (ii)(A) Collections received with respect to Additional Series 2 Receivables, if any, and (B) all other funds relating to Additional Series 2 Receivables, if any, on deposit in the Collection Accounts and in any subaccounts thereof (collectively, the "VFC Certificateholders' Interest"). (b) The VFC Subordinated Certificate shall represent a fractional undivided interest in the Trust, consisting of the right to receive (A) Collections received with respect to the Primary Auto Receivables (other than PAR Pool II) and (B) all other funds relating to Primary Auto Receivables (other than PAR Pool II) on deposit in the Collection Accounts and in any subaccounts thereof and (ii)(A) Collections received with respect to Additional Series 2 Receivables, if any, and (B) all other funds relating to Additional Series 2 Receivables, if any, on deposit in the Collection Accounts and in any subaccounts thereof allocated to the VFC Certificateholders' Interest and not required to be distributed to or for the benefit of the Purchasers (the "VFC Subordinated Interest"). The Exchangeable Company Certificate and any other Series of Investor Certificates outstanding shall represent the ownership interest in the -17- remainder of the Trust not allocated pursuant hereto to the VFC Certificateholders' Interest or the VFC Subordinated Interest. (c) The VFC Certificates and the VFC Subordinated Certificate shall be substantially in the forms of Exhibits A and B, respectively, and shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 2.4 hereof and Section 5.2 of the Agreement. (d) Except as otherwise provided herein or in the Pooling Agreement, the Series 2 Certificates shall have no right to receive payments with respect to Receivables other than (i) the VFC Percentage of the Primary Auto Receivables and (ii) the Additional Series 2 Receivables, if any. SECTION 2.3. Purchases of Interests in the VFC Certificates. (a) Initial Purchase. Subject to the terms and conditions of this Supplement, including delivery of notice in accordance with Section 2.4,(i) each Initial Purchaser hereby severally agrees (A) to purchase from the Trust on the Issuance Date a VFC Certificate in an amount equal to such Initial Purchaser's Commitment Percentage of the Initial VFC Invested Amount and (B) to maintain its VFC Certificate, subject to increase or decrease during the VFC Revolving Period, in accordance with the provisions of this Supplement and (ii) the Company hereby agrees (A) to purchase from the Trust on the Issuance Date the VFC Subordinated Certificate in an amount equal to the Initial VFC Subordinated Certificate Amount and (B) to maintain such interest in the VFC Subordinated Certificate, subject to increase or decrease during the VFC Revolving Period, in accordance with the provisions of this Supplement. Payments by the Initial Purchasers in respect of the VFC Certificates shall be made in immediately available funds on the Issuance Date to the Agent for payment to the Company. (b) Subsequent Purchases. Subject to the terms and conditions of this Supplement, each Acquiring Purchaser hereby severally agrees to maintain its VFC Certificate, subject to increase or decrease during the VFC Revolving Period, in accordance with the provisions of this Supplement. (c) Maximum VFC Invested Amount. Notwithstanding anything to the contrary contained in this Supplement, at no time shall the VFC Invested Amount of any Purchaser exceed such Purchaser's Commitment at such time. SECTION 2.4. Delivery. On the Issuance Date, the Company shall sign on behalf of the Trust and shall direct in writing pursuant to Section 5.2 of the Agreement the Trustee to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate (i) the VFC Certificates in -18- denominations equal in the aggregate to the Maximum Commitment Amount, and (ii) a VFC Subordinated Certificate in a denomination equal to the Initial VFC Subordinated Certificate Amount. The VFC Certificates shall be issued in minimum denominations of $1,000,000 and in integral multiples of $100,000 in excess thereof. The Trustee shall mark on its books the actual VFC Invested Amount and VFC Subordinated Certificate Amount outstanding on any date of determination, which, absent manifest error, shall constitute prima facie evidence of the outstanding VFC Invested Amount and VFC Subordinated Certificate Amount from time to time. SECTION 2.5. Procedure for Initial Issuance and for Increasing the VFC Invested Amount. (a) Subject to subsection 2.5(b), on any Business Day during the Commitment Period, each Purchaser agrees that the Aggregate VFC Invested Amount may be increased by increasing each Purchaser's VFC Invested Amount (an "Increase"), up to an amount not exceeding each Purchaser's Commitment, upon the request of the Master Servicer or the Company on behalf of the Trust (each date on which an increase in the Aggregate VFC Invested Amount occurs hereunder being herein referred to as the "Increase Date" applicable to such Increase); provided, however, that the Master Servicer or the Company, as the case may be, shall have given the Agent irrevocable oral notice, followed promptly, but in no event later than the next Business Day, by a written notice, substantially in the form of Exhibit G hereto, of such request no later than (i) if the Initial VFC Invested Amount or Increase Amount is to be priced solely with reference to the Alternate Base Rate, on or prior to 11:00 a.m., New York City time, one day prior to the Issuance Date or on such Increase Date, as the case may be, or (ii) if all or a portion of the Initial VFC Invested Amount or Increase Amount is to be allocated to a Eurodollar Tranche, 11:00 a.m., New York City time, three Eurodollar Business Days prior to the Issuance Date or such Increase Date, as the case may be; provided, further, that the provisions of this subsection shall not restrict the allocations of Collections pursuant to Article III. Such notice shall state (x) the Issuance Date or the Increase Date, as the case may be; (y) the Initial VFC Invested Amount or the proposed amount of such Increase (the "Increase Amount"), as the case may be; (y) what portions thereof will be allocated to a Eurodollar Tranche and the Floating Tranche; and (z) if any portions thereof are to be allocated to a Eurodollar Tranche, the length of the Eurodollar Period with respect thereto. No Purchaser shall be obligated to fund any such Increase, unless concurrently with any such Increase in the Aggregate VFC Invested Amount, the VFC Subordinated Certificate Amount shall be increased by an amount such that after giving effect to such increase, the VFC Adjusted Invested Amount plus the VFC Subordinated Certificate Amount equals the VFC Target Receivables Amount (the "VFC Subordinated Certificate Increase Amount"). -19- Notwithstanding the foregoing, neither the Agent nor any Purchaser shall be required to fund the Initial VFC Invested Amount if the VFC Target Receivables Amount would exceed the Series 2 Allocated Receivables Amount on the Issuance Date after giving effect to such funding. (b) The Purchasers shall not be required to increase their respective VFC Invested Amounts on any Increase Date hereunder unless: (i) the related aggregate Increase Amount is equal to (A) in the case of a Floating Tranche, $1,000,000 or an integral multiple of $1,000,000 in excess thereof and (B) in the case of a Eurodollar Tranche, $5,000,000 or an integral multiple of $1,000,000 in excess thereof; (ii) after giving effect to the Increase, (A) the Aggregate VFC Invested Amount would not exceed the Maximum Commitment Amount on such Increase Date or (B) the Series 2 Allocated Receivables Amount would equal or exceed the VFC Target Receivables Amount on such Increase Date; or (iii) no Early Amortization Event with respect to any Outstanding Series or an event which, with the passage of time or the giving of notice, would constitute an Early Amortization Event with respect to any such Series shall have occurred and be continuing. (c) After receipt by the Agent of the notice required by subsection 2.4(a) from the Master Servicer or the Company on behalf of the Trust, the Agent shall, so long as the conditions set forth in subsections 2.5(a) and (b) are satisfied, promptly provide telephonic notice to each Purchaser of the Increase Date and of the portion of the Increase Amount allocable to such Purchaser (which shall equal such Purchaser's Commitment Percentage of the Increase Amount). The Master Servicer shall promptly notify the Company of the Increase Date and the amount of the VFC Subordinated Certificate Increase Amount. Each Purchaser agrees to pay in immediately available funds such Purchaser's Commitment Percentage of each Increase on the related Increase Date to the Agent for payment to the Trust. SECTION 2.6. Procedure for Decreasing the VFC Invested Amount. (a) On any Business Day during the VFC Revolving Period or the VFC Amortization Period (except for Distribution Dates during the VFC Amortization Period (which shall be governed by subsection 3A.6(c))), upon request of the Master Servicer on behalf of the Trust, the Aggregate VFC Invested Amount may be reduced (a "Decrease") by the distribution to the Agent for the pro rata benefit of the Purchasers in accordance with their Commitment Percentages of some or all of the funds on deposit in the Series 2 Principal Collection Sub-subaccount on such day; -20- provided that the Master Servicer shall have given the Agent oral notice, followed promptly in writing, prior to 12:00 noon, New York City time, on the date prior to such Decrease and which notice shall state the amount of such Decrease; provided, further, that such Decrease shall be in an amount equal to $1,000,000 and integral multiples of $1,000,000 in excess thereof. Each such Decrease shall be subject to the payment of any amounts required by Section 7.4 resulting from a payment of a Eurodollar Tranche prior to the termination of the Eurodollar Period for such Eurodollar Tranche. (b) Simultaneously with any such Decrease during the VFC Revolving Period, the VFC Subordinated Certificate Amount shall be reduced by an amount (the "VFC Subordinated Certificate Reduction Amount") such that the VFC Subordinated Certificate Amount shall equal the VFC Required Subordinated Amount after giving effect to such Decrease. During the VFC Revolving Period, after the distribution described in subsection (a) above has been made, and the VFC Subordinated Certificate Amount shall have been reduced by the VFC Subordinated Certificate Reduction Amount, a distribution shall be made to the holder of the VFC Subordinated Certificate out of remaining funds on deposit in the Series 2 Principal Collection Sub-subaccount (including amounts transferred from any Series Canada/U.S. Dollar Collection Subaccount and any Series Canada/Canadian Dollar Collection Subaccount) in an amount equal to the lesser of (x) the VFC Subordinated Certificate Reduction Amount and (y) the amount of such remaining funds on deposit in the Series 2 Principal Collection Sub-subaccount (including amounts transferred from any Series Canada/U.S. Dollar Collection Subaccount and any Series Canada/Canadian Dollar Collection Subaccount). SECTION 2.7. Reductions of the Commitments. (a) On any Business Day during the VFC Revolving Period, the Company, on behalf of the Trust, may, upon three Eurodollar Business Days' prior written notice (effective upon receipt) reduce or terminate the Commitments (a "Commitment Reduction") in an aggregate amount equal to $5,000,000 or a whole multiple of $5,000,000 in excess thereof; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any reduction in the Aggregate VFC Invested Amount on such date, the Aggregate VFC Invested Amount would exceed the Aggregate Commitment Amount then in effect. Each Purchaser's Commitment shall be reduced by such Purchaser's Commitment Percentage of the amount of such Commitment Reduction. (b) Once reduced, the Commitments may not be subsequently reinstated. Upon effectiveness of any such reduction, the Agent shall prepare a revised Schedule 1 to reflect the reduced Commitment of each Purchaser and Schedule 1 of this Supplement shall be deemed to be automatically superseded by such revised Schedule 1. The Agent shall distribute such -21- revised Schedule 1 to the Company, the Master Servicer, the Trustee and each Purchaser. SECTION 2.8. Interest; Commitment Fee. (a) Interest shall be payable on the VFC Certificates on each Distribution Date pursuant to subsection 3A.6(a). (b) The Company shall direct the Trustee in writing to pay to the Agent, for the pro rata account of the Purchasers in accordance with their Commitment Percentages, on each Distribution Date, a commitment fee with respect to each Accrual Period or portion thereof ending on such date (the "Commitment Fee") during the VFC Revolving Period at a rate equal to 0.25% per annum of the average daily excess of the Aggregate Commitment Amount over the average Aggregate VFC Invested Amount during such Accrual Period. The Commitment Fee shall be payable (a) monthly in arrears on each Distribution Date, (b) immediately upon any termination of any Commitment and (c) on the Scheduled Termination Date. To the extent that funds on deposit in the Series 2 Accrued Interest Sub-subaccount and the Series 2 Non- Principal Collection Sub-subaccount at any such date are insufficient to pay the Commitment Fee due on such date, the Trustee shall so notify the Master Servicer and the Master Servicer shall immediately pay the Agent the amount of any such deficiency. (c) Calculations of per annum rates and fees under this Supplement shall be made on the basis of a 365-day year with respect to Commitment Fees, other fees, and, except with respect to Eurodollar Tranches, interest rates. Each determination of the Eurodollar Rate by the Agent shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. SECTION 2.9. Purchase of VFC Certificateholders' Interest in the VFC Certificates. In the event of any breach of any of the representations and warranties set forth in Section 2.3 of the Agreement, which breach has a material adverse effect on the interests of the Purchasers, then the Majority Purchasers, by notice then given in writing to the Company, the Trustee and the Master Servicer, may direct the Company to purchase the VFC Certificates and the Company shall be obligated to make such purchase on the next Distribution Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth below; provided, however, that no such purchase shall be required to be made if, by such Distribution Date, the representations and warranties contained in Section 2.3 of the Agreement shall be satisfied in all material respects, or any material adverse effect on the Purchasers caused thereby shall have been cured to the satisfaction of the Majority Purchasers. -22- The Company shall deposit in the U.S. Dollar Collection Account for credit to the Series 2 Principal Collection Sub- subaccount, on the Business Day preceding such Distribution Date, amounts equal to the purchase price (as described in the next succeeding sentence) for each of the VFC Certificateholders' Interests on such day. The purchase price for each such purchase will be equal to the Aggregate VFC Invested Amount on the Distribution Date on which the purchase is scheduled to be made, plus (i) with respect to the VFC Certificateholders' Interest, an amount equal to all interest accrued but unpaid on such Distribution Date and all prior Distribution Dates, plus (ii) all Article VII Costs plus (iii) all other amounts payable to the Agent and the Purchasers hereunder. Payment of such purchase price into the Series 2 Principal Collection Sub-subaccount in immediately available funds shall be considered a distribution of the entire amount required to be distributed to the VFC Certificateholders. Notwithstanding anything to the contrary in this Supplement or the Agreement, the entire amount of the purchase price deposited in each such account shall be distributed to the VFC Certificateholders on such Distribution Date. If the Majority Purchasers give notice directing the Company to purchase the Receivables as provided above, the obligation of the Company to purchase the VFC Certificateholders' Interest pursuant to this Section 2.9 shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.9 available to the Purchasers. SECTION 2.10. Indemnification by Company and the Master Servicer. (a) The Company, subject to Section 11.16, and the Master Servicer hereby agree, jointly and severally, to pay, and to indemnify and hold harmless, the Agent, each Purchaser and each of their respective officers, directors, agents and employees (each such person being called an "Indemnitee") from and against all claims, liabilities, damages, penalties and losses, including without limitation (but subject to Section 2.10(b)), reasonable attorneys' fees and expenses and disbursements of counsel (all of the foregoing being referred to collectively as "Indemnified Amounts") arising out of or resulting from the Transaction Documents or the transactions contemplated thereby, including Indemnified Amounts related to or resulting from (i) the use by the Company of the proceeds from the sale of any Certificates, (ii) a breach of any representation or warranty made or deemed made by the Company or the Master Servicer (or any of their respective officers) under or in connection with any Transaction Document, (iii) the failure by the Company or the Master Servicer to comply with any applicable law, rule or regulation, (iv) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor or as a result of a Charge-Off of a Receivable) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related contract not being a legal, valid and binding obligation of such Obligor -23- enforceable against it in accordance with its terms, or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable), (v) any failure of the Company or the Master Servicer to perform its covenants, agreements, duties or obligations required to be performed or observed by it, in accordance with the provisions of the Pooling Agreement, the Servicing Agreement or the other Transaction Documents, (vi) any products liability or other claim arising out of or in connection with merchandise or service which are the subject of any Receivable, (vii) the commingling of Collections of Receivables at any time with other funds, or (viii) the failure to maintain vested in the Trustee a first priority ownership or security interest in the Trust Assets; provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such Indemnified Amounts are determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee (treating, for this purpose only, any Person and its respective directors, officers, employees and agents as a single Indemnitee). (b) If any action, suit, proceeding or investigation is commenced as to which an Indemnitee proposes to demand indemnification, it shall promptly so notify the Company and the Master Servicer. The Indemnitee shall have the right to retain counsel of its own choice to represent it (which choice of counsel shall be reasonably satisfactory to the Company and the Master Servicer (it being understood that it would not be reasonable for the Company or the Master Servicer to object to the Indemnitee's choice of law firm solely on the basis of the location of such firm's principal office or the size of such firm)), and the Company and the Master Servicer shall pay the reasonable fees, expenses and disbursements of such counsel; and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with the Company, the Master Servicer and any counsel designated by the Company or the Master Servicer. In no event shall the Company or the Master Servicer be liable for the fees, expenses and disbursements of more than one counsel representing all Indemnitees that are parties to the same action, suit, proceeding or investigation. The Company and the Master Servicer shall be liable for any settlement of any action, suit, proceeding or investigation against an Indemnitee made with the Company's and the Master Servicer's written consent, which consent shall not be unreasonably withheld. The Company and the Master Servicer may, without the consent of an Indemnitee, settle or compromise any action, suit, proceeding or investigation, or permit a default or consent to the entry of any judgment in respect thereof, if such settlement, compromise or consent includes the giving by the claimant to such Indemnitee a release from all liability in -24- respect of such action, suit, proceeding or investigation. In the event of any dispute between any Indemnitee, on the one hand, and the Company or the Master Servicer, on the other hand, as to whether the Company or the Master Servicer is acting reasonably in objecting to any proposed settlement, compromise, default or consent, such dispute shall be resolved through arbitration in New York City in accordance with the commercial arbitration rules of the American Arbitration Association. There shall be a single arbitrator to be selected by mutual agreement of the Indemnitee, the Company and the Master Servicer (or, if such parties cannot agree on an arbitrator, by an arbitrator selected by a federal or state court located in the City of New York). Any such arbitration must be commenced not later than 30 days after the date such dispute arose. In any such arbitration, each party shall be responsible for and pay its costs and expenses (including attorneys' fees), and the parties shall share equally in the cost of the arbitration. (c) Notwithstanding anything to the contrary in this Section 2.10, this Section 2.10 shall not apply to taxes, it being understood that the Company's and the Master Servicer's only obligations with respect to taxes shall arise under Section 7.3. ARTICLE III ARTICLE III OF THE AGREEMENT Section 3.1 of the Agreement shall be read in its entirety as provided in the Agreement. Article III of the Agreement (except for Section 3.1 thereof and any portion thereof relating to another Series) shall read in its entirety as follows and shall be exclusively applicable to the Series 2 Certificates: SECTION 3A.2. Establishment of Trust Accounts. (a) The Trustee shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, (i) for the benefit of the Purchasers and for the benefit, subject to the prior interest of the Purchasers, of the holder of the VFC Subordinated Certificate, a subaccount of the U.S. Dollar Collection Account (the "Series 2 Collection Subaccount"), which subaccount is the Series Collection Subaccount with respect to Series 2, bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Purchasers and for the benefit, subject to the prior interest of the Purchasers, of the holder of the VFC Subordinated Certificate; (ii) for the benefit of the Purchasers and for the benefit, subject to the prior interest of the Purchasers, of the holder of the VFC Subordinated Certificate, two subaccounts of the Series 2 Collection Subaccount: the Series 2 Principal Collection Sub- subaccount and the Series 2 Non-Principal Collection -25- Sub-subaccount (respectively, the "Series 2 Principal Collection Sub-subaccount" and the "Series 2 Non-Principal Collection Sub- subaccount"), each bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Purchasers and for the benefit, subject to the prior interest of the Purchasers, of the holder of the VFC Subordinated Certificate; (iii) for the benefit of the Purchasers, a subaccount of the Series 2 Non-Principal Collection Sub-subaccount (the "Series 2 Accrued Interest Sub-subaccount"; and (iv) for the benefit of the Purchasers, one subaccount of the Canada/U.S. Dollar Collection Account (the "Series 2 Canada/U.S. Dollar Collection Subaccount") and one subaccount of the Canada/Canadian Dollar Collection Account (the "Series 2 Canada/Canadian Dollar Collection Subaccount"); all accounts established pursuant to this subsection 3A.2(a) and listed on Schedule 2, collectively, the "Trust Accounts"). The Trustee shall possess all right, title and interest in all funds from time to time on deposit in, and all Eligible Investments credited to, the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the exclusive benefit of the Purchasers and to the extent applicable, subject to the prior interest of the Purchasers, to the holder of the VFC Subordinated Certificate. (b) All Eligible Investments in the Trust Accounts shall be held by the Trustee for the exclusive benefit of the Purchasers and, subject to the prior interest of the Purchasers, of the holder of the VFC Subordinated Certificate; provided, however, that funds on deposit in a Trust Account which is a Sub- subaccount of a Collection Account may, at the direction of the Master Servicer, be invested together with funds held in other Sub-subaccounts of a Collection Account. After giving effect to any distribution to the Company pursuant to subsection 3A.3(c), amounts on deposit and available for investment in the Series 2 Principal Collection Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the next Business Day. Amounts on deposit and available for investment in the Series 2 Accrued Interest Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the subsequent Distribution Date. All interest and other investment earnings (net of losses and investment expenses) on funds deposited in the Series 2 Accrued Interest Sub-subaccount shall be deposited in the Series 2 Non-Principal Collection Sub-subaccount. All interest and investment earnings (net of losses and investment expenses) on funds deposited in the Series 2 Principal Collection Sub-subaccount shall be deposited in the Series 2 Non-Principal Collection Sub-subaccount. -26- SECTION 3A.3. Daily Allocations. (a) The portion of the Aggregate Daily Collections allocated to the Series 2 Certificates pursuant to Article III of the Agreement shall be allocated and distributed as set forth in this Article III. In accordance with subsection 3.1(e) of the Agreement, the Master Servicer shall direct the Trustee to transfer the following amounts: (i) on each Business Day, an amount equal to the Accrued Expense Amount for such day (or such greater amount as the Company may request) shall be transferred from the Series 2 Collection Subaccount (or, if necessary, from the Series 2 Canada/U.S. Dollar Collection Subaccount and the Series 2 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) to the Series 2 Non-Principal Collection Sub-subaccount; provided, however, if on any Business Day, after giving effect to any transfers to be made on such Business Day, the VFC Invested Amount would be less than $10,000,000, the Master Servicer shall direct the Trustee to transfer from the Series 2 Collection Subaccount (or, if necessary, from the Series 2 Canada/U.S. Dollar Collection Subaccount and the Series 2 Canada/Canadian Dollar Collection Subaccount pursuant to Section 3.1(e)(vii) of the Agreement) to the Series 2 Non- Principal Collection Sub-subaccount an amount equal to the excess, if any, of (A) the sum of (1) the Commitment Fee (assuming the daily average available Commitment would be equal to the Maximum Commitment) payable to the Purchasers on the next succeeding Distribution Date and (2) the Series 2 Certificates pro rata portion of the Servicing Fee due and payable on the next succeeding Distribution Date over (B) the amount transferred to and on deposit in the Series 2 Non-Principal Sub-subaccount prior to such Business Day pursuant to clauses (ii) and (iii) of the definition of Accrued Expense Amount; and (ii) following the transfers pursuant to clause (i) above, any remaining funds on deposit in the Series 2 Collection Subaccount shall be transferred to the Series 2 Principal Collection Sub-subaccount. (b) (i) On each Business Day during the VFC Revolving Period (including Distribution Dates), after giving effect to all allocations of Aggregate Daily Collections on such Business Day, amounts on deposit in the Series 2 Principal Collection Sub- subaccount (together with any amounts transferred thereto pursuant to subsection 3A.3(c) of the Series 1 Supplement), and amounts, if any, remaining on deposit in the Series 2 Canada/U.S. Dollar Collection Subaccount and the Series 2 Canada/Canadian Dollar Collection Subaccount shall be distributed by the Trustee to the Company (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the -27- Collections on deposit therein); provided that such distribution shall be made only if no Early Amortization Event shall be continuing and only to the extent that, if after giving effect to such distribution, the VFC Target Receivables Amount would not exceed the Aggregate Series 2 Receivables Amount; provided further that if the Company or the Master Servicer shall have given the Agent irrevocable notice (effective upon receipt) at least one Eurodollar Business Day prior to such day (or, in the case of the Floating Tranche, notice may be given on such day), the Company or the Master Servicer may instruct the Trustee to withdraw all or a portion of such amounts on deposit in the Series 2 Principal Collection Sub-subaccount (together with any amounts transferred thereto pursuant to subsection 3A.3(c) of the Series 1 Supplement and any amounts to be transferred thereto from the Series 2 Canada/U.S. Dollar Collection Sub-subaccount and the Series 2 Canada/Canadian Dollar Collection Sub- subaccount) and apply such withdrawn amounts toward the reduction of the Aggregate VFC Invested Amount and the VFC Subordinated Certificate Amount in accordance with Section 2.6; provided further, that, if on any Business Day during the VFC Revolving Period, after giving effect to all allocations of Aggregate Daily Collections on such Business Day, the VFC Target Receivables Amount would exceed the Aggregate Series 2 Receivables Amount, the Master Servicer shall direct the Trustee to transfer to the Series 2 Principal Collection Sub-subaccount, first, from amounts on deposit in the Series 2 Canada/U.S. Dollar Collection Subaccount and second, from amounts on deposit in the Series 2 Canada/Canadian Dollar Subaccount (after exchanging such amounts into U.S. Dollars in accordance with subsection 3.1(j) of the Agreement), an amount equal to such shortfall. Amounts distributed to the Company hereunder shall be deemed to be paid first from Collections received directly by any Servicing Party and second from Collections received in the Lockboxes. (ii) On each Business Day during the VFC Amortization Period, amounts on deposit in the Series 2 Canada/U.S. Dollar Collection Subaccount and, subject to subsection 3.1(j) of the Agreement, the Series 2 Canada/Canadian Dollar Collection Subaccount shall be transferred to the Series 2 Collection Subaccount and allocated as set forth in Article III of the Agreement and this Section 3A.3. (iii) On each Business Day during the VFC Amortization Period (including Distribution Dates), funds deposited in the Series 2 Principal Collection Sub-subaccount (including, without limitation, funds transferred pursuant to clause (b)(ii) above) shall be invested in Eligible Investments that mature on or prior to the next Determination Date and shall be distributed on such Distribution Date in accordance with subsection 3A.6(c). No amounts on deposit in the Series 2 Principal Collection Sub-subaccount shall be distributed by the Trustee to the Company -28- or the holder of the VFC Subordinated Certificate during a VFC Amortization Period. (c) On each Business Day, an amount equal to the Daily Interest Deposit for such day shall be transferred from the Series 2 Non-Principal Sub-subaccount to the Series 2 Accrued Interest Sub-subaccount. (d) The allocations to be made pursuant to this Section 3A.3 are subject to the provisions of Sections 2.6, 7.2 and 9.1 of the Agreement. SECTION 3A.4. Determination of Interest. (a) (i) The amount of interest distributable with respect to the VFC Certificates ("Series 2 Monthly Interest") on each Distribution Date shall be determined by the Master Servicer and shall be (A) with respect to that portion of the Aggregate VFC Invested Amount allocated to each Eurodollar Tranche on such day, an amount equal to the product of (1) the number of days in the preceding Accrual Period divided by 360, (2) the weighted average portion of the Aggregate VFC Invested Amount allocable to such Eurodollar Tranche since the close of business on the preceding Distribution Date and (3) the Eurodollar Rate applicable to such Eurodollar Tranche for the Accrual Period ending on such Distribution Date plus the Applicable Margin, and (B) with respect to that portion of the Aggregate VFC Invested Amount allocated to the Floating Tranche on such day, an amount equal to the sum of the portion of the Daily Interest Expense accrued pursuant to clause (A) of the definition thereof determined for each day of the Accrual Period ended on such Distribution Date; provided, however, that during the continuance of an Early Amortization Event, the "Series 2 Monthly Interest" on such Distribution Date shall be equal to the greater of (x) the sum of the amounts calculated pursuant to clauses (A) and (B) above and (y) the sum of the Daily Interest Expense accrued pursuant to clause (ii) of the proviso to the definition thereof determined for each day of the Accrual Period relating to such Distribution Date. (ii) Following any change in the amount of any Eurodollar Tranche or Floating Tranche during an Accrual Period, the Series 2 Monthly Interest shall be calculated with respect to such changed amount for the number of days in the Accrual Period during which such changed amount is outstanding. (iii) If the Certificate Rate changes during any Accrual Period, the Master Servicer and the Agent shall cooperate in amending the Monthly Settlement Statement to reflect the adjustment in the Series 2 Monthly Interest for such Accrual Period caused by such change and any consequent adjustments, including, without limitation, adjustment to the Series 2 Deficiency Amount, if any, and the Master Servicer shall also provide notification to the Trustee of any such change in the -29- Certificate Rate. Any amendment to the Monthly Settlement Statement pursuant to this subsection 3A.4(a)(ii), including, without limitation, any adjustment to the Series 2 Deficiency Amount, shall be completed by 10:00 a.m. on the day preceding the next Settlement Report Date. (b) On each Distribution Date, the Master Servicer shall determine the excess, if any (the "Interest Shortfall"), of (i) the aggregate Series 2 Monthly Interest for the Accrual Period ending on such Distribution Date over (ii) the amount which will be available to be distributed to the Purchasers on such Distribution Date in respect thereof pursuant to this Supplement. If the Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("Additional Interest") equal to the product of (A) the number of days until such Interest Shortfall shall be repaid divided by 365, (B) the Alternate Base Rate plus 2.0% and (C) such Interest Shortfall (or the portion thereof which has not been paid to the Purchasers) shall be payable as provided herein with respect to the VFC Certificates on each Distribution Date following such Distribution Date to and including, the Distribution Date on which such Interest Shortfall is paid to the VFC Certificateholders. (c) On any Eurodollar Business Day, the Company may, subject to subsection 3A.4(e), elect to allocate all or any portion of the Available Pricing Amount to one or more Eurodollar Tranches with Eurodollar Periods commencing on such Eurodollar Business Day by giving the Agent irrevocable written or telephonic (confirmed in writing) notice thereof, which notice must be received by the Agent prior to 12:00 noon, New York City time, three Eurodollar Business Days prior to such Eurodollar Business Day. Such notice shall specify (i) the applicable Eurodollar Business Day, (ii) the Eurodollar Period for each Eurodollar Tranche to which a portion of the Available Pricing Amount is to be allocated and (iii) the portion of the Available Pricing Amount being allocated to each such Eurodollar Tranche. Promptly upon receipt of each such notice the Agent shall notify each Purchaser of the contents thereof. If the Agent shall not have received timely notice as aforesaid with respect to all or any portion of the Available Pricing Amount, the Monthly Interest Payment on such amount shall be calculated by reference to the Alternate Base Rate. (d) Any reduction in the VFC Invested Amount on any Business Day shall be allocated in the following order of priority: First, to reduce the Available Pricing Amount, as appropriate; and -30- Second, to reduce the portion of the Aggregate VFC Invested Amount allocated to Eurodollar Tranches in such order as the Company may select in order to minimize costs payable pursuant to Section 7.4. (e) Notwithstanding anything to the contrary contained in this Section 3A.4, (i) the portion of the Aggregate VFC Invested Amount allocable to each Eurodollar Tranche must be in an amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof; (ii) no more than five Eurodollar Tranches shall be outstanding at any one time; (iii) after the occurrence and during the continuance of any Early Amortization Event, the Company may not elect to allocate any portion of the Available Pricing Amount to a Eurodollar Tranche; and (iv) after the end of the VFC Revolving Period, the Company may not select any Eurodollar Period that exceeds one month or that does not end on or prior to the next succeeding Distribution Date. SECTION 3A.5. Determination of Series 2 Monthly Principal Payment During a VFC Amortization Period. The amount (the "Series 2 Monthly Principal Payment") distributable from the Series 2 Principal Collection Sub-subaccount on each Distribution Date during the VFC Amortization Period shall be equal to the amount on deposit in such account on the immediately preceding Determination Date; provided, however, that Series 2 Monthly Principal Payment on any Distribution Date shall not exceed the Aggregate VFC Invested Amount on such Distribution Date. Further, on any other Business Day during the VFC Amortization Period, funds may be distributed from the Series 2 Principal Collection Sub-subaccount to the Purchasers in accordance with Section 2.6 of this Supplement. SECTION 3A.6. Applications. (a) The Master Servicer shall direct the Trustee to distribute, on each Distribution Date, from amounts on deposit in the Series 2 Accrued Interest Sub-subaccount, an amount equal to the Series 2 Monthly Interest payable on such Distribution Date (such amount, the "Monthly Interest Payment"), plus the amount of any Monthly Interest Payment previously due but not distributed to the Purchasers on a prior Distribution Date, plus the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to the Purchasers on a prior Distribution Date, to the Purchasers. (b) On each Distribution Date, the Master Servicer shall direct the Trustee to apply funds on deposit in the Series 2 Non-Principal Collection Sub-subaccount (after taking into consideration the distribution to the Purchasers from the Series 2 Non-Principal Collection Sub-subaccount pursuant to subsection 3A.6(a)) in the following order of priority to the extent funds are available: -31- (i) an amount equal to the Series 2 Monthly Servicing Fee for the Accrual Period ending on such Distribution Date shall be withdrawn from the Series 2 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Master Servicer, provided that if an Early Amortization Event shall have occurred and C&A Products or any Affiliate thereof is the Master Servicer, the Trustee shall deposit the Series 2 Monthly Servicing Fee into the Expense Account up to the amount of the Expense Account Limit, or if C&A Products or any Affiliate thereof is not the Master Servicer, the Series 2 Monthly Servicing Fee shall be paid to such Person acting as Successor Servicer; and (ii) an amount equal to any Program Costs due and payable shall be withdrawn from the Series 2 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Persons owed such amounts. Any remaining amounts on deposit in the Series 2 Non-Principal Collection Sub-subaccount (in excess of the Accrued Expense Amount as of such day) not allocated pursuant to clauses (i) and (ii) above shall be paid to the holder of the VFC Subordinated Certificate; provided, however, that during the VFC Amortization Period, such remaining amounts shall be deposited in the Series 2 Principal Collection Sub-subaccount for distribution in accordance with subsection 3A.6(c). (c) During a VFC Amortization Period, the Master Servicer shall direct the Trustee to apply, on each Distribution Date, amounts on deposit in the Series 2 Principal Collection Sub-subaccount in the following order of priority: (i) an amount equal to the Series 2 Monthly Principal Payment for such Distribution Date shall be distributed from the Series 2 Principal Collection Sub-subaccount to the Purchasers; and (ii) if, following the repayment in full of the VFC Invested Amount, any amounts are owed to the Trustee or any other Person, on account of its expenses incurred in respect of the performance of its responsibilities hereunder or as Successor Servicer, such amounts shall be transferred from the Series 2 Principal Collection Sub-subaccount and paid to the Trustee or such other Person; and (iii) if, following the repayment of all of the amounts set forth in clauses (i) and (ii) above, the remaining amount on deposit in the Series 2 Principal Collection Sub- subaccount on such Distribution Date, if any, shall be distributed to the holder of the VFC Subordinated Certificate. -32- ARTICLE IV DISTRIBUTIONS AND REPORTS Article IV of the Agreement (except for any portion thereof relating to another Series) shall read in its entirety as follows and the following shall be exclusively applicable to the VFC Certificates: SECTION 4A.1. Distributions. (a) On each Distribution Date, the Trustee shall distribute to each Purchaser an amount equal to the product of (i) the amount to be distributed to the Purchasers pursuant to Article III and (ii) such Purchaser's Commitment Percentage. (b) All allocations and distributions hereunder shall be in accordance with the Monthly Settlement Statement and shall be made in accordance with the provisions of Section 11.4 hereof and subject to Section 3.1(h) of the Agreement. SECTION 4A.2. Daily Reports. The Master Servicer shall provide the Agent and the Trustee with a Daily Report in accordance with subsection 4.2(a) of the Servicing Agreement. The Agent shall make copies of the Daily Report available to the Purchasers at their reasonable request at the Agent's office in The City of New York. SECTION 4A.3. Statements and Notices. (a) Monthly Settlement Statements. On each Settlement Report Date, the Master Servicer shall deliver to the Trustee and the Agent a Monthly Settlement Statement. The Agent shall forward a copy of each Monthly Settlement Statement to any Purchaser upon request by such Purchaser. (b) Annual Certificateholders' Tax Statement. On or before April 1 of each calendar year (or such earlier date as required by applicable law), beginning with calendar year 1996, the Company on behalf of the Trustee shall furnish, or cause to be furnished, to each Person who at any time during the preceding calendar year was a Purchaser, a statement prepared by the Company containing the aggregate amount distributed to such Person for such calendar year or the applicable portion thereof during which such Person was a Purchaser, together with such other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as the Company deems necessary or desirable to enable the Purchasers to prepare their tax returns. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall have been provided by the Trustee or the Agent pursuant to any requirements of the Internal Revenue Code as from time to time in effect. -33- (c) Early Amortization Event Notices. Upon the occurrence of an Early Amortization Event with respect to Series 2, the Company or the Master Servicer, as the case may be, shall give prompt written notice thereof to the Trustee and the Agent. The Agent shall give notice to each Purchaser. In addition, on the Business Day preceding each day on which a distribution of principal is to be made during the VFC Amortization Period, the Master Servicer shall direct the Agent to send notice to each Purchaser, which notice shall set forth the amount of principal to be distributed on the related date to the Purchasers with respect to the outstanding VFC Certificates. ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS SECTION 5.1. Additional Early Amortization Events. If an "Early Amortization Event" shall occur with respect to the Series 1 Certificates under the Series 1 Supplement during the VFC Revolving Period, an "Early Amortization Event" also shall be deemed to have occurred hereunder with respect to the Series 2 Certificates. In addition, if any one of the events specified in Section 7.1 of the Agreement (after any grace periods or consents applicable thereto) or any one of the following events shall occur during the VFC Revolving Period: (a) failure on the part of the Company to make any payment (i) in respect of interest owing on any VFC Certificates or the Commitment Fee within two Business Days of the date such interest or Commitment Fee is due or (ii) in respect of any other amounts owing by the Company under any Pooling and Servicing Agreement to or for the benefit of the Purchasers within five Business Days of the date such other amount is due; (b) failure on the part of the Company duly to observe or perform in any material respect any covenants or agreements of the Company set forth in any Pooling and Servicing Agreement or the other Transaction Documents which continues unremedied until 30 days after the earlier of (i) the date any Responsible Officer of the Company obtains actual knowledge of such failure and (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Trustee, or the Company and the Trustee by the Agent or Purchasers evidencing 25% or more of the VFC Invested Amount; (c) any representation or warranty made by the Company in any Pooling and Servicing Agreement shall prove to have been incorrect in any material respect when made or when -34- deemed made which continues to be incorrect until 30 days after the date on which notice of such failure, requiring the same to be remedied, shall have been given by the Trustee to the Company or the Company and the Trustee by Purchasers evidencing 25% or more of the VFC Invested Amount and as a result of such incorrectness, the interests, rights or remedies of the Purchasers have been materially and adversely affected; provided, however, that no event under Section 5.1 herein or Section 7.1 of the Agreement with respect to the Series 2 Certificates shall not be deemed to have occurred under this paragraph if the incorrectness of such representation or warranty gives rise to an obligation to repurchase the related Receivables and the Company has repurchased the related Receivable or all such Receivables, if applicable, in accordance with the provisions of the Pooling and Servicing Agreements within ten Business Days of when the Company was obligated to do so; (d) as of the end of any Settlement Period, the three month rolling average of the Dilution Ratio shall exceed 5.0%; (e) as of the end of any Settlement Period, the three month rolling average of the ratio, expressed as a percentage, for each such Settlement Period of (i) the Principal Amount of the Primary Auto Receivables and Additional Series 2 Receivables that are between 61-90 days past due as of the last day of such Settlement Period to (ii) the aggregate Principal Amount of the outstanding Primary Auto Receivables and Additional Series 2 Receivables on such day, shall exceed 3.0%; (f) as of the end of any Settlement Period, the three month rolling average of the ratio, expressed as a percentage, for each such Settlement Period of (i) the Principal Amount of the Primary Auto Receivables and Additional Series 2 Receivables that have become 91-120 days past due as of the last day of such Settlement Period to (ii) the aggregate Principal Amount of the outstanding Primary Auto Receivables and Additional Series 2 Receivables on such day, shall exceed 2.25%; (g) an Event of Default (as defined in the Credit Agreement) shall have occurred pursuant to Article VII of the Credit Agreement and the effect of which Event of Default is to cause the Loans (as defined in the Credit Agreement) then outstanding to be due and payable prior to their stated maturity; (h) an Event of Default (as defined in the Credit Agreement) shall have occurred (i) pursuant to clause (b) or (c) of Article VII of the Credit Agreement or (ii) as a -35- result of the failure by Holdings, any Restricted Subsidiary or any Significant Subsidiary (each as defined in the Credit Agreement as in effect on the date hereof) to pay any principal or interest due in respect of (A) all indebtedness of such person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business), (B) any other indebtedness of such person which is evidenced by a note, bond, debenture or similar instrument or (C) all obligations of such person in respect of bankers' acceptances issued or created for the account of such person, having (in the case of (A), (B) or (C)) an aggregate principal or notional amount of $15,000,000 or more, when and as the same shall become due and payable, after giving effect to any applicable grace period; (i) the Trustee shall be appointed, pursuant to Section 6.2 of the Servicing Agreement, as Master Servicer to liquidate the Receivables and the Related Property; (j) the Series 2 Allocated Receivables Amount shall be less than the VFC Target Receivables Amount for a period of five consecutive Business Days; (k) a Servicer Default with respect to the Master Servicer shall have occurred and be continuing; (l) any of the Agreement, the Servicing Agreement, this Supplement, the Series 1 Supplement or the Receivables Sale Agreement shall cease, for any reason, to be in full force and effect, or the Company, a Seller or the Master Servicer shall so assert in writing; or (m) failure on the part of the Company to make any payment in respect of interest owing on any Series 1 Certificate or in respect of any other amounts owing by the Company under any Pooling and Servicing Agreement to or for the benefit of the holders of the Series 1 Certificates, which failure continues unremedied for a period of 60 days, and an "Early Amortization Event" with respect to Series 1 has not been declared by the Trustee; or (n) the Internal Revenue Service or the Pension Benefit Guaranty Corporation shall file a notice of lien with regard to the assets of Collins & Aikman Corporation, the Company, the Trust or any of the Sellers and 30 days shall have elapsed without such notice having been effectively withdrawn or such lien having been released or discharged; then, in the case of any event described above, after the applicable grace periods (if any) set forth in such subsections, -36- the Trustee may, and at the written direction of the Majority Purchasers shall, by written notice then given to the Company and the Master Servicer, declare that a "Separate VFC Amortization Event" has occurred with respect to the Series 2 Certificates as of the date of such notice and that the VFC Amortization Period has commenced. A Separate VFC Amortization Event also shall constitute an Early Amortization Event with respect to Series 2. Notwithstanding the foregoing, a delay in or failure in performance referred to in clause (a) above for a period of five Business Days after the applicable grace period, or in clause (b) above for a period of 30 Business Days after the applicable grace period, will not constitute an Early Amortization Event if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Company and such delay or failure was caused by an act of God or the public enemy, riots, acts of war, acts of terrorism, epidemics, flood, embargoes, weather, landslides, fire, earthquakes or similar causes. The Company will nevertheless be required to use its best efforts to perform its obligations in a timely manner in accordance with the terms of the Transaction Documents, and the Company shall promptly give the Trustee an Officer's Certificate notifying it of such failure or delay by it. ARTICLE VI SERVICING FEE SECTION 6.1. Servicing Compensation. A monthly servicing fee (the "Series 2 Monthly Servicing Fee") shall be payable to the Master Servicer, on behalf of the Servicing Parties, on each Distribution Date for the Accrual Period then ending, in an amount equal to the product of (a) the Servicing Fee and (b) a fraction the numerator of which is the daily average Aggregate Commitment Amount for such Accrual Period and the denominator of which is the sum of (i) the daily average of the Invested Amounts for each Outstanding Series (other than Series 2) such Accrual Period and (ii) the daily average of the Aggregate Commitment Amount for such Accrual Period; provided, however, that if an Early Amortization Event has occurred and is continuing and C&A Products or any Affiliate thereof is acting as Master Servicer, (i) the Series 2 Monthly Servicing Fee shall be deposited into the Expense Account up to the amount of the Expense Account Limit for application in accordance with Section 7.3 of the Agreement and (ii) thereafter, the Series 2 Monthly Servicing Fee shall be deferred until the VFC Invested Amount has been paid in full. -37- ARTICLE VII CHANGE IN CIRCUMSTANCES SECTION 7.1. Illegality. (a) Notwithstanding any other provision herein, if, after the Issuance Date, the adoption of or any change in any Requirement of Law or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof shall make it unlawful for any Purchaser to make or maintain its portion of the VFC Certificateholders' Interest in any Eurodollar Tranche and such Purchaser shall notify the Agent, the Trustee and the Company, then the portion of each Eurodollar Tranche applicable to such Purchaser shall thereafter be calculated by reference to the Alternate Base Rate. If any such change in the method of calculating interest occurs on a day which is not the last day of the Eurodollar Period with respect to any Eurodollar Tranche, the Company shall pay to the Agent for the account of such Purchaser the amounts, if any, as may be required pursuant to Section 7.4. (b) For purposes of this Section 7.1, a notice to the Company by any Purchaser shall be effective as to each Eurodollar Tranche, if lawful, on the last day of the Eurodollar Period currently applicable to such Eurodollar Tranche; in all other cases such notice shall be effective on the date of receipt by the Company. SECTION 7.2. Requirements of Law. (a) Notwithstanding any other provision herein, if after the Issuance Date any change in any Requirement of Law or in the interpretation or administration thereof by any Governmental Authority charged with the administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Purchaser in respect of such Purchaser's portion of the VFC Certificateholders' Interest (other than (i) any Non- Excluded Taxes described in Section 7.3 and (ii) changes in respect of taxes imposed on the overall net income of such Purchaser by the jurisdiction in which such Purchaser has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets or deposits with or for the account of or credit extended by such Purchaser (except any such reserve requirement which is reflected in the Eurodollar Base Rate), or shall impose on any Purchaser any other condition affecting this Supplement or such Purchaser's Commitment hereunder, and the result of any of the foregoing is to increase the cost to such Purchaser of purchasing or maintaining its portion of the VFC Certificateholders' Interest by an amount which such Purchaser deems to be material, then the Company will pay to such Purchaser upon demand such -38- additional amount or amounts as will compensate such Purchaser for such additional costs incurred or reduction suffered. (b) If any Purchaser shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Purchaser (or any purchasing office of such Purchaser) or any Purchaser's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) made or issued after the Issuance Date by any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Purchaser's capital or on the capital of such Purchaser's holding company, if any, as a consequence of its obligations hereunder to a level below that which such Purchaser or such Purchaser's holding company would have achieved but for such adoption, change or compliance (taking into consideration such Purchaser's policies and the policies of such Purchaser's holding company with respect to capital adequacy) by an amount deemed by such Purchaser to be material, then from time to time, the Company shall promptly pay to such Purchaser such additional amount or amounts as will compensate such Purchaser for any such reduction suffered. (c) A certificate of each Purchaser setting forth such amount or amounts as shall be necessary to compensate such Purchaser or its holding company as specified in subsections 7.2(a) and (b) above, as the case may be, shall be delivered to the Company and the Master Servicer through the Agent and shall be conclusive absent manifest error. The Company shall pay each Purchaser the amount shown as due on any such certificate delivered by it on the Distribution Date subsequent to such notification. (d) In the event any Purchaser delivers a notice pursuant to subsection 7.2(e) below, the Company may require, at the Company's expense and subject to Section 7.4, such Purchaser to assign, upon payment of such Purchaser's VFC Invested Amount plus accrued interest and fees payable hereunder, without recourse (in accordance with Section 11.10), all of its interests, rights and obligations hereunder (including all of its Commitment and the VFC Certificateholders' Interest at the time held by it) to a financial institution specified by the Company, provided that (i) such assignment shall not conflict with or violate any Requirement of Law of any court or other Governmental Authority, (ii) the Company shall have received the written consent of the Agent, which consent shall not unreasonably be withheld, to such assignment and (iii) the Company shall have paid to the assigning Purchaser all monies accrued and owing hereunder to it (including pursuant to this Section 7.2). -39- (e) Promptly after any Purchaser has determined, in its sole judgment, that it will make a request for increased compensation pursuant to this Section 7.2, such Purchaser will notify the Company thereof. Failure on the part of any Purchaser so to notify the Company or to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Purchaser's right to demand compensation with respect to such period or any other period; provided that the Company shall not be under any obligation under subsections 7.2(a) or (b) with respect to any increased costs or reductions with respect to any period prior to the date that is six months prior to such request if such Purchaser knew or could reasonably have been expected to be aware of circumstances giving rise to such increased costs or reductions and of the fact that such circumstances would in fact result in such increased costs or reduction; provided, further, that, the foregoing limitation shall not apply to any increased costs or reductions arising out of the retroactive application of any law, regulation, rule, guideline or directive as aforesaid within such six month period. The protection of this Section 7.2 shall be available to each Purchaser regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. SECTION 7.3. Taxes. (a) All payments made by the Company under this Supplement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding (i) net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Agent or any Purchaser as a result of a present or former connection between the Agent or such Purchaser and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Agent or such Purchaser having executed, delivered or performed its obligations or received a payment under, or enforced, this Supplement) and (ii) any United States withholding taxes payable with respect to payments under this Supplement under laws (including, without limitation, any statute, treaty, ruling, determination or regulation) in effect on the date such Purchaser or a Participant became a party to this Supplement. If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Agent or any Purchaser hereunder, the amounts so payable to the Agent or such Purchaser shall be increased to the extent necessary to yield to the Agent or such Purchaser (after payment of all Non-Excluded -40- Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Supplement; provided, however, that the Company shall not be required to increase any such amounts payable to any Purchaser that is not organized under the laws of the United States of America or a state thereof if such Purchaser fails to comply with the requirements of subsection 7.3(b). Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter the Company shall send to the Agent for its own account or for the account of such Purchaser, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company shall indemnify the Agent and the Purchasers for any incremental taxes, interest or penalties that may become payable by the Agent or any Purchaser as a result of any such failure. (b) Each Purchaser that is not incorporated under the laws of the United States of America or a state thereof agrees that prior to the Issuance Date (or if such Purchaser is not an Initial Purchaser, prior to or at the time such Purchaser becomes a "Purchaser" hereunder) it shall: (i) deliver to the Company and the Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Company and the Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Purchaser from duly completing and delivering any such form with respect to it and such Purchaser so advises the Company and the Agent. Such Purchaser shall certify (to the extent permitted by law) (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Supplement without -41- deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Purchaser or a Participant pursuant to Section 11.10 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Purchaser from which the related participation shall have been purchased. (c) No increased amount on account of Non-Excluded Taxes shall be payable pursuant to this Section 7.3 to any Purchaser to the extent such Non-Excluded Taxes would not have been payable if such Purchaser had furnished a form (properly and accurately completed in all material respects) which it was otherwise required to furnish in accordance with subsection 7.3(b). (d) Each Purchaser shall furnish the Agent, and the Agent shall furnish the Company (to the extent received from the Purchasers), with information necessary to enable the Company to comply with United States federal income tax information reporting requirements regarding payments of interest received by Purchasers under this Supplement. (e) Upon the occurrence of any event requiring Non- Excluded Taxes to be withheld from any amounts payable to any Purchaser hereunder, each Purchaser whose Commitment hereunder is affected by such event shall transfer its Commitment to another branch office (or, if such Purchaser so elects, to an Affiliate) of such Purchaser; provided that such transfer shall be made only if such Purchaser shall have determined in good faith (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) that, on the basis of existing circumstances, such transfer will avoid or reduce the amount of Non-Excluded Taxes withheld resulting from such event and will not result in any additional costs, liabilities or expenses to such Purchaser (unless the Company agrees to pay such additional costs, liabilities or expenses of such Purchaser). SECTION 7.4. Indemnity. The Company and the Master Servicer jointly and severally agree to indemnify each Purchaser and to hold each Purchaser harmless from any loss or expense which such Purchaser may sustain or incur as a consequence of (a) default by the Company in making a borrowing of, conversion into or continuation of a Eurodollar Tranche after the Company has given irrevocable notice requesting the same in accordance with the provisions of this Supplement, (b) default by the Company in making any prepayment after the Company has given irrevocable notice thereof in accordance with the provisions of this Supplement or (c) the making of a prepayment of a Eurodollar -42- Tranche prior to the termination of the Eurodollar Period for such Eurodollar Tranche. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Eurodollar Period (or, in the case of a failure to borrow, convert or continue, the Eurodollar Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Tranche provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Purchaser) which would have accrued to such Purchaser on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by any Purchaser to the Company and the Master Servicer shall be conclusive absent manifest error. SECTION 7.5. Limitation. The obligations of the Company under this Article VII shall be limited by Section 11.16. ARTICLE VIII COVENANTS, REPRESENTATIONS AND WARRANTIES SECTION 8.1. Representations and Warranties of the Company and the Master Servicer. The Company and the Master Servicer each hereby represents and warrants to the Trustee, the Agent and each of the Purchasers that each and every of their respective representations and warranties contained in the Agreement is true and correct in all material respects as of the Issuance Date and as of the date of each Increase. SECTION 8.2. Covenants of the Company. The Company hereby agrees that: (a) it shall observe in all material respects each and every of its respective covenants (both affirmative and negative) contained in the Agreement, the Servicing Agreement, this Supplement and all other Transaction Documents to which it is a party; (b) it shall not terminate the Agreement unless in strict compliance with the terms of the Agreement; and (c) it shall afford the Agent or any representative of the Agent access to all records relating to the Receivables at any reasonable time during regular business hours, upon reasonable prior notice, for purposes of inspection and -43- shall permit the Agent or any representative of the Agent to visit any of its offices or properties during regular business hours and as often as may reasonably be desired according to the Company's normal security and confidentiality requirements and to discuss the business, operations, properties, financial and other conditions of the Company with its officers and employees and with its independent certified public accountants; provided that the Agent shall notify the Company prior to any contact with such accountants and shall give the Company the opportunity to participate in such discussions. SECTION 8.3. Covenants of the Master Servicer. The Master Servicer hereby agrees that: (a) it shall observe in all material respects each and every of its respective covenants (both affirmative and negative) contained in the Agreement, the Servicing Agreement, this Supplement and all other Transaction Documents to which it is a party; (b) subject to any applicable limitation under the related Supplement of any other Outstanding Series, it shall not (i) amend, supplement or otherwise modify any Receivable which will result in a material adverse effect on the interest of the Purchasers in the Receivables transferred to the Trust and in the Collections in respect thereof without the consent of the Majority Purchasers or (ii) terminate the Agreement unless in strict compliance with the terms of the Agreement; (c) it shall provide to the Agent, simultaneously with delivery to the Trustee or the Rating Agencies, all reports, notices, certificates, statements and other documents required to be delivered to the Trustee or the Rating Agencies pursuant to the Agreement, the Servicing Agreement and the other Transaction Documents and furnish to the Agent promptly after receipt thereof a copy of each material notice, material demand or other material communication (excluding routine communications) received by or on behalf of the Company or the Master Servicer with respect to the Transaction Documents; (d) it shall afford the Agent or any representative of the Agent access to all records relating to the Receivables at any reasonable time during regular business hours, upon reasonable prior notice, for purposes of inspection and shall permit the Agent or any representative of the Agent to visit any of its offices or properties during regular business hours and as often as may reasonably be desired according to the Master Servicer's normal security and confidentiality requirements and to discuss the business, -44- operations, properties, financial and other conditions of the Master Servicer with its officers and employees and with its independent certified public accountants; provided that the Agent shall notify the Master Servicer prior to any contact with such accountants and shall give the Master Servicer (if C&A Products) the opportunity to participate in such discussions; and (e) it shall provide notice to the Agent of the appointment of a Successor Servicer pursuant to Section 6.2 of the Servicing Agreement. SECTION 8.4. Obligations Unaffected. The obligations of the Company and the Master Servicer to the Agent and the Purchasers under this Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the Receivables or any sale of any of the Receivables. SECTION 8.5. Representations and Warranties of the Initial Purchasers. Each Initial Purchaser represents, warrants and covenants to the Company, as of the Issuance Date, that: (a) Such Initial Purchaser acknowledges that the VFC Certificates have not been and will not be registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act, and have not and will not be registered or qualified under the securities or "blue sky" laws of any jurisdiction, and may not be resold or otherwise transferred unless so registered or qualified or unless any exemption from such requirements is available. (b) Such Initial Purchaser is purchasing the VFC Certificates in the ordinary course of its business and for investment only solely for its own account or accounts for which it exercises sole investment discretion and not as nominee or agent for any other Person and not with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States of America or any state thereof. (c) Such Initial Purchaser is an institutional investor that is an "Accredited Investor" (as defined under Rule 501(a) of the Securities Act) or, if the VFC Certificates are to be purchased for one or more institutional accounts ("investor accounts) for which it is acting as a fiduciary or agent, each such investor account is an institutional investor that is an Accredited Investor. (d) Such Initial Purchaser invests in or has such knowledge and experience in business and financial matters and with respect to investments in securities so as to enable it to -45- understand and evaluate the risks of such investments and form an investment decision with respect thereto and is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. (e) Such Initial Purchaser has been afforded access to information (including the financial condition) about the Company, C&A Products and the Sellers to enable such Initial Purchaser to evaluate its investment in the VFC Certificates and acknowledges that it has been afforded the opportunity (i) to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company, C&A Products or Persons acting on its behalf concerning the terms and conditions of the offering of the VFC Certificates and the merits and risks of investing in the VFC Certificates, (ii) to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness of the Information and (iii) to review the filings of Collins & Aikman Corporation with the Securities and Exchange Commission and all of the public disclosure of Collins & Aikman Corporation. (f) Such Initial Purchaser acknowledges that it is the expressed intent of the Company that the VFC Certificates are being issued only in transactions not involving any public offering within the meaning of the Securities Act and that the Certificates will bear a legend substantially as set forth in the form of the VFC Certificates included in this Supplement and will be subject to certain limitations on transfer and exchange specified in the Pooling Agreement, this Supplement and the other Transaction Documents. ARTICLE IX CONDITIONS PRECEDENT SECTION 9.1. Conditions Precedent to Effectiveness of Supplement. This Supplement will become effective on the date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) Documents. The Agent shall have received an original executed copy for each Purchaser, each executed and delivered in form and substance satisfactory to the Agent, of (i) the Agreement executed by a duly authorized officer of each of the Company, the Master Servicer and the Trustee, (ii) this Supplement executed by a duly authorized officer of each of the Company, the Master Servicer, the Trustee, the Agent and the Initial Purchasers and (iii) the other Transaction Documents duly executed by the parties thereto. -46- (b) Corporate Documents; Corporate Proceedings of the Company and Master Servicer. The Agent shall have received, with a copy for each Purchaser, from the Company, each Seller and the Master Servicer (i) a copy of the certificate or articles of incorporation or the articles of amalgamation, as the case may be, including all amendments thereto, and all other constituting documents (if any), of such Person, certified as of a recent date by the Secretary of State or other appropriate authority of the state of incorporation or jurisdiction of amalgamation thereof, as the case may be, and a certificate of compliance, of status or of good standing, as and to the extent applicable, of each such Person as of a recent date, from the Secretary of State or other appropriate authority of such jurisdiction; (ii) a certificate of the Secretary or Assistant Secretary of such Person dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Person, as in effect on the Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of the resolutions in form and substance reasonably satisfactory to the Agent, of the Board of Directors of such Person authorizing the execution, delivery and performance of the Transaction Documents to which it is a party and the transactions contemplated thereby, and that such resolutions have not been amended, modified, revoked or rescinded and are in full force and effect, (C) that the certificate or articles of incorporation or the articles of amalgamation, as the case may be, of such Person has not been amended since the date of the last amendment thereto shown on the certificate of good standing (or its equivalent) furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing any Transaction Documents or any other document delivered in connection herewith or therewith on behalf of such Person; and (iii) a certificate of another officer as the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. (c) Good Standing Certificates. The Agent shall have received copies of certificates of compliance, of status or of good standing, dated as of a recent date from the Secretary of State or other appropriate authority of such -47- jurisdiction, with respect to the Company, the Master Servicer and each Seller, in each State and Province where the ownership, lease or operation of property or the conduct of business requires it to qualify as a foreign corporation, except where the failure to so qualify would not have a material adverse effect on the business, operations, properties or condition (financial or otherwise) of the Company, the Master Servicer or a Seller, as the case may be, and with respect to each Seller the Obligors of which are located in Canada, of each Province in which an Obligor is situated if such Seller's registration as an extra- provincial corporation in such Province is required as a condition precedent to the effectiveness or enforceability of the Company's ownership interest in the Receivables or Related Property sold pursuant to the Receivables Sale Agreement. (d) Consents, Licenses, Approvals, Etc. The Agent shall have received, with a counterpart for each Purchaser, certificates dated the date hereof of the President, Vice Chairman, Chief Financial Officer or any Vice President of the Company, the Master Servicer and each Seller either (i) attaching copies of all material consents, licenses and approvals required in connection with the execution, delivery and performance by the Company, the Master Servicer or any Seller, as the case may be, of this Supplement or the Receivables Sale Agreement, as the case may be, and the validity and enforceability of this Supplement and the Agreement against the Company and the Master Servicer and the Receivables Sale Agreement against such Seller, and such consents, licenses and approvals shall be in full force and effect or (ii) stating that no such consents, licenses or approvals are so required, except those that may be required under state securities or "blue sky" laws. (e) Filings, Registrations and Recordings. Any documents (including, without limitation, financing statements) required to be filed in order (i) to perfect the sale of the Receivables by any Seller to the Company pursuant to the Receivables Sale Agreement and (ii) to create, in favor of the Trustee, a perfected ownership/security interest in the Trust Assets under the Agreement with respect to which an ownership/security interest may be perfected by a filing under the UCC or other comparable statute shall, in each case, have been properly prepared and executed for immediate filing in each office in each jurisdiction listed in the Agreement or the Receivables Sale Agreement, as the case may be, and such filings are the only filings required in order to perfect the sale of the Receivables to the Company under the Receivables Sale Agreement or to the Trust, under the Agreement, as the case may be, in the jurisdictions listed therein, except with -48- respect to the Canadian Seller which shall make all such necessary filings not later than ten Business Days after the date hereof. The Agent shall have received evidence reasonably satisfactory to it of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (f) Lien Searches. The Agent shall have received the results of a recent search by a Person satisfactory to the Agent, of UCC and other filings with respect to the Company and such other parties as it deems necessary. (g) Legal Opinions. The Agent shall have received, (i) with a counterpart for each Purchaser and the Trustee, legal opinions of Stroock & Stroock & Lavan, special counsel to the Company and the Master Servicer, and Stikeman, Elliott, special Canadian counsel to the Company and the Master Servicer, dated the Issuance Date, as to corporate, tax, bankruptcy, perfection and other matters in form and substance acceptable to the Agent and its counsel and (ii) with a counterpart for each Purchaser and the Company, a legal opinion of counsel acceptable to the Agent and its counsel in each jurisdiction where the chief executive office of any Seller is located, dated the Issuance Date, in form and substance satisfactory to the Agent. (h) Interest Rate Certificate. The Trustee shall have received from the Agent a certificate stating the Alternate Base Rate in effect on the Issuance Date. ARTICLE X THE AGENT SECTION 10.1. Appointment, Rights and Duties of the Agent. Each Purchaser hereby irrevocably designates and appoints the Agent as the agent of such Purchaser under this Supplement and each such Purchaser hereby irrevocably authorizes the Agent, as the agent for such Purchaser, to take such action on its behalf under the provisions of this Supplement and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Supplement, together with such other powers as are reasonably incidental thereto including, but not limited to, the signing by the Agent as agent for the Purchasers of any financing statements related to the Receivables. Notwithstanding any provision to the contrary in this Supplement, the Agent shall not have any duties or responsibilities, except those expressly set forth in this Supplement, nor any fiduciary relationship with any Purchaser (except as Agent), the Company or the Master Servicer, and no -49- implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Supplement or otherwise be deemed to exist against the Agent. SECTION 10.2. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Company or the Master Servicer), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 10.3. Liability of the Agent. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (a) with the consent or at the request of the Required Purchasers or (b) in the absence of its own negligence or willful misconduct. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Agreement or this Supplement; (ii) the performance or observance of any of the covenants or agreements of the Company or the Master Servicer; (iii) the satisfaction of any condition specified in Article IX, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Supplement, the Agreement or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 10.4. Indemnification. Each Purchaser shall, ratably in accordance with its VFC Invested Amount, indemnify the Agent (to the extent not reimbursed by the Company or the Master Servicer, but without limiting the obligations of the Company and the Master Servicer under Section 2.10 hereof) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Agent's gross negligence or willful misconduct) that the Agent may suffer or incur in connection with this Supplement or any action taken or omitted by the Agent hereunder. SECTION 10.5. Credit Decision. Each Purchaser acknowledges that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Supplement. Each Purchaser also acknowledges that it will, independently and without reliance upon the Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit -50- decisions in taking or not taking any action under this Supplement. SECTION 10.6. Reliance by the Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Purchasers and counsel to the Company or the Master Servicer), independent accountants and other experts selected by such Agent, as the case may be. The obligations of the Agent are only those expressly set forth herein. The Agent shall be fully justified in failing or refusing to take any action under this Supplement unless it shall first receive such advice or concurrence of the Required Purchasers as it deems appropriate or it shall first be indemnified to its satisfaction by the Purchasers against any and all liability and expense (other than such liability or expense arising from such Agent's own gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Purchasers, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Purchasers and all successors and assigns of the Purchasers. SECTION 10.7. Notice of Servicer Default or Early Amortization Event. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Servicer Default with respect to the Master Servicer or any Early Amortization Event hereunder unless the Agent has received notice from a Purchaser, the Company or the Master Servicer referring to the Agreement or this Supplement, describing such Servicer Default or Early Amortization Event and stating that such notice is a "notice of a Servicer Default with respect to the Master Servicer" or a "notice of an Early Amortization Event", as the case may be. In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Purchasers, the Trustee, the Company and the Master Servicer. The Agent shall take such action with respect to such Servicer Default or Early Amortization Event as shall be reasonably directed by the Required Purchasers, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Servicer Default or Early Amortization Event as it shall deem advisable in the best interests of the Purchasers. -51- SECTION 10.8. The Agent in its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company, the Master Servicer or any of their Affiliates as though such Agent were not an Agent. With respect to any VFC Certificate, the Agent may from time to time hold the same and the Agent shall have the same rights and powers under this Supplement as any Purchaser and may exercise the same as if it were not the Agent, and the term "Purchaser" and "Purchasers" shall include the Agent in its individual capacity. SECTION 10.9. Successor Agent. (a) Societe Generale may assign all or a portion of its rights and obligations as Agent at any time to an Affiliate of Societe Generale or an Eligible Institution acceptable to the Company and the Master Servicer. Any such assignee shall be entitled to all the benefits and protection afforded the Agent pursuant to this Article X. Any such assignment shall become effective upon Societe Generale's giving notice of such assignment to the Company, the Master Servicer and the Purchasers. (b) The Agent may resign as Agent upon 10 days' notice to the Purchasers and the Trustee and pursuant to the following sentence. The Agent's resignation shall not become effective until a successor is approved pursuant hereto. If the Agent shall give notice to the Purchasers, Trustee and the Company of its intention to resign as Agent under this Agreement, then the Required Purchasers shall appoint a successor agent for the Purchasers which successor agent shall be approved by the Company and the Master Servicer, which approval shall not be unreasonably withheld; provided that if the Required Purchasers shall not have appointed, or the Required Purchasers shall have appointed but the Company and the Master Servicer shall not have approved, any such successor agent within 60 days of the original notice given by the Agent of its intention to resign, then the Agent may appoint a successor agent for the Purchasers, subject to the approval of the Required Purchasers and, provided that no Early Amortization Event has occurred and is continuing, the Company and the Master Servicer, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, if the Required Purchasers, the Company and the Master Servicer determine in good faith that the Agent has carried out its duties in a manner characterized by gross negligence or willful misconduct, then the Required Purchasers, the Company and the Master Servicer may appoint a successor agent. Upon any appointment pursuant to the two preceding sentences, such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this -52- Supplement or any of their successors and assigns. After any retiring Agent's resignation or dismissal hereunder as Agent, the provisions of this Section 10.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Supplement. ARTICLE XI MISCELLANEOUS SECTION 11.1. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 11.2. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.3. Further Assurances. Each of the Company, the Master Servicer and the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the Agent or Required Purchasers more fully to effect the purposes of this Supplement and the sale of the VFC Certificates hereunder, including, without limitation, in the case of the Company and the Master Servicer, the execution of any financing or registration statements or similar documents or notices or continuation statements relating to the Receivables and the other Trust Assets for filing or registration under the provisions of the UCC or other comparable statute of any applicable jurisdiction or under the laws of any province of Canada. SECTION 11.4. Payments. Each payment to be made hereunder shall be made on the required payment date in lawful money of the United States and in immediately available funds, if to the Purchasers, at the office of the Agent set forth below its signature hereto. On each Distribution Date, the Agent shall remit in like funds to each Purchaser its applicable pro rata share (based on each such Purchaser's VFC Invested Amount) of each such payment received by the Agent for the account of the Purchasers. SECTION 11.5. Costs and Expenses. The Company and the Master Servicer jointly and severally agree to pay all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, reasonable fees and disbursements of one counsel to the Agent) in connection with (i) the preparation, execution and -53- delivery of this Supplement, the Agreement and the other Transaction Documents and amendments or waivers of any such documents and (ii) the enforcement by the Agent of the obligations and liabilities of the Company and the Master Servicer under the Agreement, this Supplement or any related document. SECTION 11.6. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee, the Agent or any Purchaser, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 11.7. Amendments. (a) Subject to subsection (c) of this Section 11.7, this Supplement may be amended in writing from time to time by the Master Servicer, the Company and the Trustee, with the consent of the Agent but without the consent of any holder of any outstanding VFC Certificate, to cure any ambiguity, to correct or supplement any provisions herein or therein which may be inconsistent with any other provisions herein or therein or to add any other provisions to or changing in any manner or eliminating any of the provisions with respect to matters or questions raised under this Supplement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; provided, however, that such action shall not, as evidenced by an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of any VFC Certificateholder. The Trustee may, but shall not be obligated to, enter into any such amendment pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (b) Subject to subsection (c) of this Section 11.7, this Supplement may also be amended in writing from time to time by the Master Servicer, the Company and the Trustee with the written consent of the Required Purchasers for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Supplement or of modifying in any manner the rights of the VFC Certificateholders; provided, however, that no such amendment shall, unless signed or consented to in writing by all Purchasers, (i) extend the time for payment, or reduce the amount, of any amount of money payable to or for the account of any Purchaser under any provision of this Supplement (including, without limitation, Articles II, III and VII), (ii) subject any Purchaser to any additional obligation (including, without limitation, any change in the determination -54- of any amount payable by any Purchaser) or (iii) change the Aggregate Commitment Amount or the number of Purchasers which shall be required for any action under this subsection or any other provision of this Supplement. (c) Any amendment hereof can be effected without the Agent being a party thereto; provided, however, that no such amendment, modification or waiver of this Supplement that affects rights or duties of the Agent shall be effective unless the Agent shall have given its prior written consent thereto. (d) Notwithstanding the foregoing, no amendment to subsection 2.2(d) or Sections 11.16 or 11.18 or the definition of VFC Percentage of this Supplement may be effected without satisfying the Rating Agency Condition. SECTION 11.8. Severability. If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction. SECTION 11.9. Notices. All notices, requests and demands to or upon any party hereto to be effective shall be given in the manner set forth, in the case of the Company, the Master Servicer and the Trustee, in Section 10.5 of the Pooling Agreement, and in the case of any other party, in writing delivered by hand or by facsimile and shall be deemed to have been duly given, in the case of notice by facsimile, when telecopied to the number set forth below its signature hereto, or, in the case of notice by hand, if personally delivered at its address set forth below its signature hereto or to such other telecopier number or address as may be hereafter notified by it to the other parties hereto. SECTION 11.10. Successors and Assigns. (a) This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under this Supplement without the prior written consent of the Purchasers. (b) Any Purchaser may, upon the satisfaction of all applicable requirements under Section 5.3 of the Agreement, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more financial institutions or other entities ("Participants") participations in its VFC Certificate and its rights hereunder pursuant to documentation in form and substance satisfactory to such Purchaser and the Participant. In the event of any such sale by a Purchaser to a Participant, such Purchaser's obligations under this Supplement shall remain unchanged and such Purchaser shall -55- remain solely responsible for the performance thereof. The Company agrees that each Purchaser is entitled, in its own name, to enforce for the benefit of, or as agent for, any Participant any and all rights, claims and interest of such Participant in respect of the Trust and the Company's obligations under this Supplement. A Participant shall have the right to receive Article VII Costs but only to the extent that the related selling Purchaser would have had such right absent the sale of the related participation. (c) Any Purchaser may, in the ordinary course of its business and in accordance with applicable law, at any time sell or assign all or any part of its rights and obligations under this Supplement and the VFC Certificate to (i) its Affiliates and to any other Purchaser and, (ii) upon prior written notice to the Agent, one or more banks or other entities (an "Acquiring Purchaser"), in each case pursuant to a commitment transfer supplement, substantially in the form of Exhibit D, (the "Commitment Transfer Supplement"), executed by such Acquiring Purchaser, such assigning Purchaser and the Agent (and, in the case of an Acquiring Purchaser that is not then an existing Purchaser or an Affiliate thereof, by the Company and the Master Servicer), and delivered to the Agent for its acceptance and recording in the Register. Notwithstanding the foregoing, no Purchaser shall so sell its rights hereunder without the prior written consent of the Company, which consent will not be unreasonably withheld. Upon such execution, delivery, acceptance and recording, from and after the Transfer Issuance Date determined pursuant to such Commitment Transfer Supplement, (x) the Acquiring Purchaser thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Purchaser hereunder with a Commitment as set forth therein and (y) the transferor Purchaser thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Supplement. Such Commitment Transfer Supplement shall be deemed to amend this Supplement (including the Schedules attached hereto) to the extent, and only to the extent, necessary to reflect the addition of such Acquiring Purchaser as a "Purchaser" and the resulting adjustment of Commitment percentages arising from the purchase by such Acquiring Purchaser of all or a portion of the rights and obligations of such transferor Purchaser under this Supplement and the VFC Certificates. (d) The Agent shall maintain at its address referred to in Section 11.9 a copy of each Commitment Transfer Supplement delivered to it. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Purchaser and an Acquiring Purchaser (and, in the case of a Transferee that is not then an existing Purchaser or an affiliate thereof, by the Company and -56- the Master Servicer), the Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Issuance Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Purchasers, the Master Servicer and the Company. (f) The Company and the Master Servicer each authorizes each Purchaser to disclose to any Participant or Acquiring Purchaser (each, a "Transferee") and any prospective Transferee any and all financial information in such Purchaser's possession concerning the Company, the Master Servicer or the Receivables which has been delivered to such Purchaser by the Company or the Master Servicer pursuant to this Supplement or which has been delivered to such Purchaser by or on behalf of the Company in connection with such Purchaser's credit evaluation of the Company, the Master Servicer, the Trust and the Trust Assets prior to becoming a party to this Supplement; provided, however, if any such information is subject to a confidentiality agreement between such Purchaser and the Company or the Master Servicer, the Transferee or prospective Transferee shall have agreed to be bound by the terms and conditions of such confidentiality agreement. (g) If, pursuant to this subsection, any interest in this Supplement or the VFC Certificates is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Purchaser shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Purchaser (for the benefit of the transferor Purchaser, the Agent, the Company and the Master Servicer) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Company, the Master Servicer or the transferor Purchaser with respect to any payments to be made to such Transferee in respect of the VFC Certificates, (ii) to furnish to the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Agent and the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Purchaser, the Agent, the Company and the Master Servicer) to provide the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Agent, the Company and the Master Servicer) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable -57- U.S. laws and regulations with regard to such withholding tax exemption. (h) Notwithstanding any other provisions herein, no transfer or assignment of any interests or obligations of any Purchaser hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would result in a prohibited transaction under Section 4975 of the Internal Revenue Code or Section 406 of ERISA or cause the Trust Assets to be regarded as plan assets pursuant to 29 C.F.R. (section mark) 2510.3-101, or require the Company or any Seller to file a registration statement with the Securities and Exchange Commission or to qualify the VFC Certificates under the "blue sky" laws of any state. SECTION 11.11. Counterparts; Effectiveness. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. SECTION 11.12. Adjustments; Set-off. (a) If any Purchaser (a "Benefitted Purchaser") shall at any time receive in respect of its VFC Invested Amount any distribution of principal, interest, Commitment Fees or other fees, or any interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise) in a greater proportion than any such distribution received by any other Purchaser, if any, in respect of such other Purchaser's VFC Invested Amount, or interest thereon, such Benefitted Purchaser shall purchase for cash from the other Purchasers such portion of each such other Purchaser's interest in the VFC Certificates, or shall provide such other Purchasers with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Purchaser to share the excess payment or benefits of such collateral or proceeds ratably with each of the Purchasers; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Purchaser, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Purchaser so purchasing a portion of the VFC Certificateholders' Interest may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Purchaser were the direct holder of such portion. (b) In addition to any rights and remedies of the Purchasers provided by law, each Purchaser shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by -58- applicable law, upon any amount becoming due and payable by the Company hereunder or under the VFC Certificates to set-off and appropriate and apply against any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Purchaser to or for the credit or the account of the Company. Each Purchaser agrees promptly to notify the Company and the Agent after any such set-off and application made by such Purchaser; provided that the failure to give such notice shall not affect the validity of such set-off and application. SECTION 11.13. Repurchase by Master Servicer. Upon any repurchase of the VFC Certificates by the Master Servicer pursuant to Section 9.1 of the Agreement, the Master Servicer shall pay, in addition to the amounts set forth in Section 9.1 of the Agreement, any accrued and unpaid Article VII Costs and any accrued and unpaid Commitment Fees. SECTION 11.14. Repurchase by Company. Upon any repurchase of the VFC Certificates by the Company pursuant to Section 2.6 or subsection 9.2(a), as the case may be, of the Agreement, the Company shall pay, in addition to the amounts set forth in Section 2.6 or subsection 9.2(a), as the case may be, of the Agreement, any accrued and unpaid Article VII Costs and any accrued and unpaid Commitment Fees. SECTION 11.15. Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Supplement is executed and delivered by the trust department of Chemical Bank, in its capacity as Trustee, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by Chemical Bank, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability of Chemical Bank, as Trustee, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Supplement and by any Person claiming by, through or under such parties; provided, however, that Chemical Bank, as Trustee, shall be liable in its individual capacity for its own willful misconduct or negligence and for any tax assessed against Chemical Bank, based on or measured by any fees, commission or compensation received by it for acting as Trustee and (d) under no circumstances shall Chemical Bank be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, -59- warranty or covenant made or undertaken by the Trust under this Supplement. SECTION 11.16. Limitation of Payments By Company. Whenever any provision in the Transaction Documents permits or obligates the Company to make a payment in cash, failure to make such payment shall not constitute a breach by the Company giving rise to any actionable claim against the Company to the extent that the Company has insufficient funds to make such payments from amounts properly distributed to the Company pursuant to the Pooling Agreement and any Supplement. The foregoing sentence shall not in any manner limit the ability of the Company to increase the principal amounts outstanding under the Subordinated Notes and the Parent Note in accordance with the terms of the Receivables Sale Agreement. If the Company is required to make a payment under this Supplement but does not have sufficient amounts to make such a payment, C&A Products hereby agrees that it shall make all such payments. SECTION 11.17. Certain Payments. To the extent that the Trustee, the Master Servicer or the Company makes a payment to the Agent or the Purchasers, or the Agent or the Purchasers receive any payment or proceeds with respect to any amount payable in connection with this Supplement, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent such payment or proceeds are set aside, the amount payable in connection with this Agreement or part or parts thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by the Agent or the Purchasers. -60- SECTION 11.18. No Bankruptcy Petition. Each Purchaser hereby covenants and agrees that, prior to the date which is one year and one day after the later of (i) the last day of the VFC Amortization Period and (ii) the last day of the Series 1 Amortization Period, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law. ARTICLE XII FINAL DISTRIBUTIONS SECTION 12.1. Certain Distributions. (a) Not later than 2:00 p.m., New York City time, on the Distribution Date following the date on which the proceeds from the disposition of the Receivables are deposited into the Series 2 Non-Principal Collection Sub-subaccount and the Series 2 Principal Collection Sub-subaccount pursuant to subsection 7.2(b) of the Agreement, the Trustee shall distribute such amounts pursuant to Article III of this Supplement. (b) Notwithstanding anything to the contrary in this Supplement or the Agreement, any distribution made pursuant to this Section shall be deemed to be a final distribution pursuant to Section 9.3 of the Agreement with respect to the VFC Certificates. -61- IN WITNESS WHEREOF, the Company, the Master Servicer, the Trustee, the Agent and the Initial Purchasers have caused this Series 2 Supplement to be duly executed by their respective officers as of the day and year first above written. CARCORP, INC. By: Anthony Hardwick ________________________________ Name: Anthony Hardwick Title: Vice President, Secretary and Treasurer COLLINS & AIKMAN PRODUCTS CO., as Master Servicer By: Anthony Hardwick __________________________________ Name: Anthony Hardwick Title: Vice President, Controller, Acting Chief Financial Officer and Assistant Treasurer SOCIETE GENERALE, as Agent By: Martin J. Finan _______________________________ Title: Vice President Address: 303 Peachtree Street NE Atlanta, Georgia 30308 Telecopier: (404) 865-7419 CHEMICAL BANK, not in its individual capacity but solely as Trustee By: Charles E. Dooley ________________________________ Title: Vice President SOCIETE GENERALE, as Initial Purchaser By: Martin J. Finan _______________________________ Title: Vice President Address: 303 Peachtree Street NE Atlanta, Georgia 30308 Telecopier: (404) 865-7419 -62- Schedule 1 Commitments Purchaser Commitment Societe Generale $75,000,000 Schedule 2 Trust Accounts The U.S. Dollar Collection Account has been established by and at Chemical Bank, account number 323-334466. The U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/U.S. Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 04-46718. The Canada/U.S. Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. The Canada/Canadian Dollar Collection Account has been established by and at Canadian Imperial Bank of Commerce, account number 22-43318. The Canada/Canadian Dollar Collection Account is for the account of Chemical Bank, as trustee for the C&A Master Trust. EX-10 10 EXHIBIT 10.24 EMPLOYMENT AGREEMENT AGREEMENT, dated as of April 6, 1995 between COLLINS & AIKMAN PRODUCTS CO. (the "Company") and J. MICHAEL STEPP ("Employee"). WHEREAS, the Company desires to employ Employee and to enter into an agreement embodying the terms of such employment; and WHEREAS, Employee desires to a accept such employment and to enter into such agreement; 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. Term of Employment. The Company hereby agrees to employ Employee and Employee hereby accepts employment for a period of three (3) years, commencing April 6, 1995 and ending April 5, 1998 subject to the terms and conditions of this Agreement. 2. Position of Employment. During the term of this Agreement, Employee shall be employed in the position of not less than Executive Vice President and Chief Financial Officer of the Company and shall perform such services for the Company and its subsidiaries as may be assigned to him from time to time by the Board of Directors of the Company. Employee shall devote his full time and attention to the affairs of the Company and his duties in such positions. 3. Salary, Bonus Plan and Stock Options 3.1 Salary. The Company shall pay Employee a base salary at an annual rate of not less than $240,000 during the term of his employment hereunder. Such amount shall be reviewed with the salaries of the other members of the Company Operating Committee, from time to time, by the Board of Directors of the Company or an appropriate committee thereof (the Company's Board of Directors or such committee being referred to herein as the "Compensation Board") and may be increased in the sole discretion of the Compensation Board. 3.2 Bonus Plan. Employee shall be eligible to participate in the Company's annual Executive Incentive Compensation Plan (the "EIC Plan") in accordance with the applicable provisions of the Plan; however, in no event for the first year of Employee's participation in the EIC Plan shall Employee receive a cash bonus of less than $92,000. 3.3 Stock Options. Employee shall be eligible to participate in the Collins & Aikman Holdings Corporation 1994 Employee Stock Option Plan (the "Option Plan") and shall be granted the option to purchase up to 100,000 shares, in accordance with the applicable terms and conditions of the Option Plan and the Option Agreement 1 between Collins & Aikman Holdings Corporation and Employee. 4. Benefits. Employee shall be entitled to such fringe benefits and perquisites, and to participate in such pension, profit sharing and benefit plans as are generally made available to executives of the Company and such other fringe benefits as may be determined by the Company during the term hereof, including major medical, extended medical and disability insurance, group term life insurance and appropriate annual holidays, sick days and annual vacation time. 5. Reimbursement of Expenses. The Company shall reimburse Employee for all reasonable travel, entertainment and other reasonable business expenses reasonably incurred by Employee in connection with the performance of his duties hereunder, provided that Employee furnishes to the Company adequate records or other evidence respecting such expenditures. 6. Perquisites. Employee shall be entitled to use of a Company car (Buick Park Avenue or comparable vehicle) and reimbursement of reasonable expenses related thereto incurred by Employee. Such Company car use shall be subject to applicable terms and policies of the Company. Employee also shall be entitled to reimbursement of the initiation fee (not to exceed $15,000), monthly dues and reasonable business related expenses incurred by Employee at a local country club of Employee's choice. 7. Termination of Employment 7.1 Voluntary Termination. Employees may terminate his employment with the Company at any time. In the event Employee terminates such employment voluntarily, upon such termination the Company shall pay Employee his unpaid base salary under Section 3.1 accrued to the date on which his employment terminates (the "Termination Date"). 7.2 Involuntary Termination. (a) Employee's employment with the Company shall automatically terminate upon Employee's death or, unless the Board of Directors of the Company in its sole discretion shall otherwise elect, Employee's physical or mental disability for any consecutive six-month period (measured from the first date on which Employee is absent from work due to such disability to the same date in the sixth succeeding calendar month, or, if there is no such date or such date is not a business day, the next succeeding business day). In the event Employee's employment with the Company is terminated due to Employee's death or physical or mental disability, the Company shall pay to Employee or, if applicable, his estate or legal representative his unpaid base salary under Section 3.1 accrued to the Termination Date, but in no event less than an amount equal to one year's base salary. The amount due to Employee 2 pursuant to this paragraph (a) shall be paid, at the sole election of Employee or, if applicable, his estate or legal representative, at the time of termination, either in a lump sum or in a number of equal annual installments to be specified by Employee or, if applicable, Employee's estate or legal representative at the Termination Date. (b) In the event Employee's employment with the Company is involuntarily terminated for any other reason, other than termination for Cause (as hereinafter defined), prior to the expiration of the term of employment then in effect under Section 1, upon such termination the Company shall be obligated to pay Employee an amount equal to his base salary under Section 3.1 for the entire remaining portion of such term of employment then in effect under Section 1; or if longer, for a one year period following the Termination Date. The amount due to Employee pursuant to this paragraph (b) shall be paid, at the sole discretion of the Compensation Board at the Termination Date, either in a lump sum or on a periodic basis in accordance with normal pay practice. Employee shall receive the same letter agreement as all other members of the Company Operating Committee regarding termination relating to a change of control. (c) The Company may at any time without notice terminate Employee's employment with the Company for Cause. In the event Employee's employment with the Company is terminated for Cause, Employee shall receive the same amount that would be payable under Section 7.1 if such termination were voluntary. (d) As used herein, the term "Cause" means (i) fraud or misappropriation with respect to the business of the Company or intentional material damage to the property or business of the Company, (ii) willful failure by Employee to perform his duties and responsibilities and to carry out his authority, (iii) willful malfeasance or misfeasance or breach of fiduciary duty or representation to the Company or its stockholder, (iv) willful failure to act in accordance with any specific lawful instructions of a majority of the Board of Directors of the Company, or (v) conviction of Employee of a felony. 8. Representations and Covenants of Employee. 8.1 No Violation. Employee represents and warrants that he has not disclosed and will not disclose any confidential information or trade secrets concerning his former employer to the Company or its subsidiaries or any directors or officers thereof, and that he can perform his duties for the Company without disclosing or using any such confidential information or trade secrets. Employee covenants and agrees that he will not use any confidential information or trade secrets concerning any former employer or its subsidiaries in violation of any obligations to such former employer during the term of his employment by the 3 Company. 8.2 No Conflicts. Employee represents and warrants that the terms of this Agreement do not conflict with any other agreement, written or oral, to which Employee is a party or by which Employee is bound, including, without limitation, any noncompetition agreement for the benefit of any former employer. 8.3 Conduct. Employee will at all times refrain from taking any action or making any statements, written or oral, which are intended to and do disparage the goodwill or reputation of the Company or any of its subsidiaries or affiliates or any directors or officers thereof or which could adversely affect the morale of employees of the Company and its subsidiaries. 8.4 Performance of Duties. In consideration of the payments to be made hereunder, Employee agrees that during the term of his employment under this Agreement, he shall devote substantially his entire business time and attention to the performance of his duties hereunder, serve the Company diligently and to the best of his abilities and shall not compete with the Company in any way whatsoever. Without limiting the generality of the foregoing, Employee shall not, during such term, directly or indirectly (whether for compensation or otherwise), alone or as an agent, principal, partner, officer, employee, trustee, director, shareholder or in any other capacity, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or furnish any capital to, or be connected in any manner with or provide any services as a consultant for any business which competes with the business of the Company, its parent company or their subsidiaries or affiliates as it may be conducted from time to time, provided, however, that notwithstanding the foregoing, nothing contained in the Employment Agreement shall be deemed to preclude Employee from owning not more than 5% of the publicly traded securities of any entity which is in competition with the business of the Company, its parent company or their subsidiaries or affiliates. 8.5 Company Information. Employee agrees that so long as he is employed by the Company and following any termination of this employment Employee will keep confidential all confidential information and trade secrets of the Company or any of its subsidiaries or affiliates and will not disclose such information to any person without the prior approval of the Board of Directors of the Company or use such information for any purpose other than in the course of fulfilling his duties of employment with the Company pursuant to this Agreement. It is understood that for purposes of this Agreement the term "confidential information" is to be construed broadly to include all material nonpublic or proprietary information. 9. Release. In consideration of the compensation 4 continuance available in certain events pursuant to this Agreement, Employee unconditionally releases and covenants not to sue 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 termination of employment other than those explicitly provided for by this Agreement including, without limitation, any claims arising out of alleged legal restrictions on the Company's rights to terminate its employees, such as any implied contract of employment or termination contrary to public policy. 10. Governing law. The validity, interpretation and performance of this Agreement shall be governed by the laws of North Carolina, regardless of the laws that might be applied under applicable principles of conflicts of laws. 11. Entire Agreement and Survivorship. This Agreement constitutes the entire agreement and understanding between the parties hereto with respect to the matters referred to herein and supersedes all prior agreements and understandings between the parties hereto with respect to the matters referred to herein. The representations, warranties and covenants of Employee contained in all parts of Section 8, except 8.4, and the release contained in Section 9 shall survive expiration, or termination of this Agreement by either party. 12. Notice. Any written notice required to be given by one party to the other party hereunder shall be deemed effective if mailed by certified or registered mail: To the Company: Collins & Aikman Products Co. 701 McCullough Drive Charlotte, North Carolina 28262 Attention: Harold R. Sunday To Employee: Attention: J. Michael Stepp or such other address as may be stated in notice given under this Section 12. 13. Severability. The invalidity, illegality or enforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement or such provision in any other jurisdiction, it being the intent of the parties hereto that all rights and obligations of the parties hereto under this Agreement shall be enforceable to the fullest extent permitted by law. 5 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their personal representatives, and, in the case of the Company, its successors and assigns, and Section 9 shall also inure to the benefit of the other persons and entities identified therein; provided, however, that Employee shall not, without the prior written consent of the Company, transfer, assign, convey, pledge or encumber this Agreement or any interest under this Agreement. Employees understands that the assignment of this Agreement or any benefits hereof or obligations hereunder by the Company to any subsidiary, or to any purchaser of all or a substantial portion of the assets of the Company, and the employment of Employee by such subsidiary or by any such purchaser or by any successor of the Company in a merger or consolidation, shall not be deemed a termination of Employee's employment for purposes of Section 7.2 or otherwise. 15. Amendment. This Agreement may be amended or canceled only by an instrument in writing duly executed and delivered by each party to this Agreement. 16. Headings. Headings contained in this Agreement are for convenience only and shall not limit this Agreement or affect the interpretation thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. J. Michael Stepp _______________________________ J. Michael Stepp COLLINS & AIKMAN PRODUCTS CO. Thomas E. Hannah By: ___________________________ Thomas E. Hannah, President 6 EX-10 11 EXHIBIT 10.25 EXCESS BENEFIT PLAN OF COLLINS & AIKMAN CORPORATION (Amended And Restated as of November 7, 1986) ARTICLE I Background and Purpose Effective as of February 29, 1976, the Collins & Aikman Corporation (the "Company") established the Excess Benefit Plan of Collins & Aikman Corporation (the "Plan"). The Plan is hereby amended and restated effective as of November 7, 1986. The Plan is intended to provide benefits which would have accrued to any Company employee under the terms of the Company's Profit-Sharing Plan or Retirement Plan but for certain restrictions imposed by certain provisions of the Internal Revenue Code, including without limitation, Code sections 415 and 401(a)(17), upon the contributions for, or benefits of, Company employees participating in the Profit-Sharing Plan and the Retirement Plan. ARTICLE II Definitions The following terms whenever used in the Plan, including the Preamble, shall have the meanings set forth in this Article II. 2.1 "Beneficiary" means the Participant's beneficiary under the Profit-Sharing Plan or Retirement Plan, as the case may be, or such other beneficiary as is designated in writing to the Committee by the Participant. 2.2 "Board of Directors" means the Board of Directors of the Company as constituted from time to time. 2.3 "Code" means the Internal Revenue Code of 1954, as amended, or, effective January 1, 1987, the Internal Revenue Code of 1986, as amended. 2.4 "Committee" means the Pension Plan and Profit-Sharing Plan Committee appointed by the Board of Directors which shall be responsible for the administration of the Plan in accordance with Article VI. 2.5 "Company" means Collins & Aikman Corporation or any successor thereto. 2.6 "Excess Profit-Sharing Account" means the bookkeeping account established to reflect a Participant's total excess profit-sharing benefit under the Plan as determined in accordance with Ssection 4.1. 2.7 "Excess Retirement Benefit" means a Participant's retirement benefit under the Plan determined in accordance with Section 4.2. 2.8 "Fund" or "Funds" means the fund or funds in which contributions to the Profit-Sharing Plan may be invested. 2.9 "Participant" means a Participant in this Plan as defined in Article III. 2.10 "Plan" means the Excess Benefit Plan of Collins & Aikman Corporation, as amended and restated as of November 7, 1986. 2.11 "Plan Year" means the 52 or 53 week period ending in each year on the Saturday nearest to or coinciding with the last day of February (or such other period as may be specified by the Committee). 2.12 "Profit-Sharing Account" means the separate account or combination of accounts established and maintained for each Participant under the Profit-Sharing Plan. 2.13 "Profit-Sharing Plan" means the Employees Profit- Sharing Plan of Collins & Aikman Corporation, as amended through March 2, 1986, and as may be amended from time to time thereafter. 2.14 "Retirement Plan" means the Collins & Aikman Corporation Salaried Employees' Retirement Plan, as amended and restated effective March 3, 1985, and as may be amended from time to time thereafter. 2.15 "Retirement Plan Benefit" means the annual retirement benefit payable to or on account of a Participant pursuant to the Retirement Plan. 2 2.16 "Valuation Date" means the last business day of each Plan Year, and such other dates as the Committee under the Profit-Sharing Plan may from time to time designate as "valuation dates". ARTICLE III Participants Any salaried employee who is a participant in the Profit- Sharing Plan and/or in the Retirement Plan shall be a Participant in this Plan if the benefit payable to such Participant under the Profit-Sharing Plan or the Retirement Plan is limited as a result of restrictions imposed by Code provisions, including, without limitation, the limitations on contributions and benefits imposed by Section 415 of the Code, and the limitation on includible compensation under Section 401(a)(17) of the Code. ARTICLE IV Benefits 4.1 Excess Profit-Sharing Account. A Participant's Excess Profit-Sharing Account shall be equal to the total amounts credited to such account as follows: (a) As of the last day of each Plan Year (commencing with the Plan Year ended February 29, 1976), each Participant's Excess Profit-Sharing Account shall be credited with an amount equal to the difference between (i) and (ii) (the "Excess Contributions") where (i) equals the contribution which would have been made to the Participant's Profit-Sharing Account for such Plan Year had the limitation imposed by Section 415 of the Code not been in effect, and had the amount of compensation used in calculating the contribution to the Participant's Profit-Sharing Account under the terms of the Profit-Sharing Plan not been curtailed by Section 401(a)(17) of the Code, and (ii) equals the actual contribution made to 3 the Participant's Profit-Sharing Account as of the end of such Plan Year; and (b) As of each Valuation Date, each Participant's Excess Profit-Sharing Account shall be credited or debited, as the case may be, with an amount equal to the income, dividend, expense, gain, loss or other appreciation or depreciation in value (the "Investment Credit") which would have been earned on the Participant's Excess Profit-Sharing Account as of such Valuation Date had such account been invested in such Funds and in such proportions in each Fund as elected by the Participant in accordance with subparagraph (c) hereof. (c) Each Participant may file a written election with the Committee prior to the last day of each Plan Year, in accordance with procedures established by the Committee, to have the Investment Credit allocable to his Excess Contributions for such Plan Year determined as if such Excess Contributions were invested in such Funds, and in such proportions in each Fund, as designated by the Participant. A Participant's investment designation shall be applied to future Excess Contributions unless, prior to the end of any Plan Year for which Excess Contributions are credited to such Participant's Excess Profit-Sharing Account, the Participant files a new investment designation with respect to Excess Contributions for such Plan Year. A Participant may change the investment designation as to existing amounts credited to his or her Excess Profit- Sharing Account on such dates and in accordance with such conditions as may be specified by the Committee. If a Participant fails to file an investment designation with the Committee in accordance with this subparagraph (c), the election as to Fund investment filed by the Participant under the Profit-Sharing Plan shall be applied to his Excess Profit-Sharing Account, and any investment direction or transfer between Funds pursuant to a request which has been approved in accordance with the Profit-Sharing Plan shall be 4 similarly applied to the Participant's Excess Profit-Sharing Account. 4.2 Excess Retirement Benefit A Participant's Excess Retirement Benefit shall be equal to the difference between (a) and (b) where (a) equals the benefit the Participant would have received under the Retirement Plan on a single life annuity basis (i) had the limitation imposed by Section 415 of the Code not been in effect, (ii) had the amount of compensation used in calculating the Participant's Retirement Plan Benefit under the terms of the Retirement Plan not been curtailed by Section 401(a)(17) of the Code, and (iii) in the case of Donald F. McCullough, had such Participant's Retirement Plan Benefit been computed without regard to any actuarial reduction by reason of his retirement prior to attaining age 65; and (b) equals the actual Retirement Plan Benefit on a single life annuity basis payable to the Participant. 4.3 Vesting of Benefits A Participant shall become vested in his or her Excess Profit-Sharing Account and Excess Retirement Benefit in accordance with the same schedule and rules as are applicable in determining when he or she becomes vested in his or her Profit- Sharing Account or Retirement Plan Benefit, respectively. ARTICLE V Payment of Benefits 5.1 Excess Profit Sharing Account A Participant's Excess Profit-Sharing Account shall be paid in the form of a lump-sum, at such time as the Participant would be entitled to receive a lump-sum payment under the Profit Sharing Plan. Upon the death of a Participant, the balance in his Excess Profit Sharing Account shall be paid to his Beneficiary in a lump- 5 sum as soon as practicable, and in any event no later than one year, after a Participant's death. 5.2 Payment of Excess Retirement Benefit A Participant's Excess Retirement Benefit shall be paid under the same circumstances, in the same form and at the same time as such Participant's benefits under the Retirement Plan, and shall cease when benefits under the Retirement Plan cease, unless a Participant elects otherwise in accordance with this Article V. For purposes of determining such circumstances, form and time, all relevant provisions of the Retirement Plan shall be applied hereunder, including, without limitation, the provisions that relate to payments to the Participant's Beneficiary under such plan. A Participant may elect in writing prior to commencement of benefits under the Plan to receive payment of his or her Excess Retirement Benefit in an alternative form of benefit payment provided under the Retirement Plan, regardless of the form in which benefits under such plan are paid. ARTICLE VI Administration of the Plan 6.1 Committee The Committee shall be responsible for the management, operation and administration of the Plan and shall have such implied powers and duties as may be necessary to carry out the provisions of the Plan, including the power to delegate any of its administrative responsibilities hereunder as well as any powers and duties granted to the administrative committees under the Profit-Sharing Plan and the Retirement Plan. 6.2 Benefit Determination The Committee shall rely on the records of the Company in determining the form in which and time at which benefits are being paid under the Profit-Sharing Plan and the Retirement Plan and, pursuant to Article V of this Plan, shall pay benefits under this Plan accordingly. 6 6.3 Indemnification To the extent permitted by law, the Company shall indemnify the members of the Committee from all claims for liability, loss or damage (including payment of expenses in connection with defense against such claim) arising from any act or failure to act which constitutes a breach of such individual's fiduciary responsibilities under any applicable law. ARTICLE VII Miscellaneous 7.1 Benefits Payable by Company All benefits payable under this Plan shall constitute an unfunded obligation of the Company. Payments shall be made, as due, from the general funds of the Company. The Company may, in its sole and absolute discretion, establish one or more accounts or funds to reflect its obligations under the Plan and may make such investments as it may deem desirable to assist it in meeting such obligations. Any such accounts or funds shall be assets of the Company subject to claims of its general creditors. No person eligible for a benefit under this Plan shall have any right, title or interest in any such investments. 7.2 Inalienability of Benefits The right of any person to any benefit or payment under the Plan shall not be subject to voluntary or involuntary transfer, alienation or assignment, and, to the fullest extent permitted by law, shall not be subject to attachment, execution, garnishment, sequestration or other legal or equitable process. In the event a person who is receiving or is entitled to receive benefits under the Plan attempts to assign, transfer or dispose of such right, or if an attempt is made to subject said right to such process, such assignment, transfer or disposition shall be null and void. 7.3 Status of Employment Nothing herein contained shall be deemed (a) to give any Participant the right to be retained in the employ of the Company 7 or any affiliate, (b) to affect the right of the Company to discipline, including (but not limited to), the right to discharge, any Participant at any time, (c) to give the Company or any affiliate the right to require any Participant to remain in its employ, or (d) to affect any Participant's right to terminate his or her employment at any time. 7.4 Payments to Minors and Incompetents If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor or is deemed by the Committee or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Committee may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan. 7.5 Amendment or Termination (a) The Company reserves the right to amend, modify, restate or terminate the Plan; provided, however, that no such action by the Company shall reduce a Participant's Excess Profit- Sharing Account or Excess Retirement Benefit accrued as of the time thereof. (b) If the Plan is terminated, a determination shall be made of each Participant's Excess Profit-Sharing Account and Excess Retirement Benefit as of the Plan termination date. The amount of such account or benefits shall be payable to the Participant or Beneficiary at the time it would have been payable under Article V if the Plan had not been terminated. Until fully paid, the accrued and undistributed balance of a Participant's Excess Profit-Sharing Account shall be credited or debited, as the case may be, as of the last day of each Plan Year, with an amount equal to the income, dividend, expense, gain, loss or other appreciation or depreciation in value on such balance as if it had been invested in such Funds and in such proportions in each Fund as the Participant's Profit-Sharing Account for such Plan Year. No interest shall be credited on an Excess Retirement Benefit. 8 7.6 Governing Law Except to the extent Pre-empted by federal law, the provisions of the Plan will be construed according to the laws of the State of New York. IN WITNESS WHEREOF, Collins & Aikman Corporation has caused this amended and restated Plan to be executed effective as of November 7, 1986. COLLINS & AIKMAN CORPORATION By:/s/ Alfred S. Crimmins President ATTEST: /s/ Charles H. Scherer Secretary 9 EX-11 12 EXHIBIT 11 Exhibit 11 Collins & Aikman Corporation Computation of Earnings Per Share In thousands, except per share data (Unaudited)
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 Average shares outstanding during the period 51,338 28,164 28,164 Incremental shares under stock options computed under the treasury stock method using the average market price of issuer's stock during the periods . . . . . . . . . 1,567 (904) (904) Total shares for EPS . . . . . . . . . . 52,905 27,260 27,260 Loss applicable to common shareholders: Continuing operations (1) . . . . . . . . $ (20,684) $ (197,048) $ (64,189) Discontinued operations . . . . . . . . . - (104,339) (218,317) Extraordinary item . . . . . . . . . . . . (106,528) - - Net loss . . . . . . . . . . . . . . . . $ (127,212) $ (301,387) $ (282,506) Loss per common share: Continuing operations . . . . . . . . . . $ (.39) $ (7.23) $ (2.35) Discontinued operations . . . . . . . . . - (3.83) (8.01) Extraordinary item . . . . . . . . . . . . (2.01) - - Net loss . . . . . . . . . . . . . . . . $ (2.40) $ (11.06) $ (10.36)
Notes: (1) Loss from continuing operations has been adjusted for dividends and accretion requirements on redeemable preferred stock of $14,408, $23,723 and $18,848 for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively. In addition, loss from continuing operations for the fiscal year ended January 28, 1995 has been adjusted for the loss on redemption of preferred stock of $82,022. EX-13 13 EXHIBIT 13 SELECTED FINANCIAL DATA (in thousands, except per share data) [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, January 25, January 26, 1995 1994 1993(1) 1992 1991 STATEMENT OF OPERATIONS DATA: Net sales $ 1,536,002 $ 1,305,517 $ 1,277,500 $ 1,184,316 $ 1,232,403 Gross margin 371,133 309,727 299,027 257,499 270,782 Selling, general and administrative expenses 198,293 196,585 218,441 202,690 192,002 Management equity plan expense -- 26,736 -- -- -- Restructuring costs -- -- 10,000 -- 17,275 Goodwill amortization and write-off -- 132,630 3,702 3,702 3,798 Operating income (loss) $ 172,840 $ (46,224) $ 66,884 $ 51,107 $ 57,707 Interest expense, net (2) 75,683 111,291 110,867 107,974 106,099 Income (loss) from continuing operations before income taxes 87,283 (162,048) (48,497) (61,382) (52,907) Income (loss) from continuing operations 75,746 (173,325) (45,341) (73,336) (57,386) Income (loss) before extraordinary items 75,746 (277,664) (263,658) (89,701) (86,983) Net loss (30,782) (277,664) (263,658) (133,810) (57,908) Loss from continuing operations per common share (.39) (7.23) (2.35) (3.27) (2.63) BALANCE SHEET DATA: Total assets $ 681,071 $ 918,825 $ 1,141,434 $ 1,300,304 $ 1,412,790 Long-term debt, including current portion 566,077 923,554 982,205 941,838 930,065 Redeemable preferred stock -- 122,368 98,602 79,754 69,240 Common stockholders' equity (deficit) (412,622) (702,220) (421,460) (130,921) 18,821 OTHER DATA (FROM CONTINUING OPERATIONS): Capital expenditures $ 84,423 $ 44,923 $ 38,209 $ 38,928 $ 42,885 Depreciation 43,882 42,232 45,463 43,899 42,532
(1) 1992 was a 53-week year. (2) Excludes amounts related to discontinued operations of $18,871 in 1993, $23,010 in 1992, $25,062 in 1991 and $33,040 in 1990. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INITIAL PUBLIC OFFERING AND RECAPITALIZATION On July 13, 1994, the Company completed an initial public offering (the "Offering") of 15.0 million shares of Common Stock at an initial public offering price of $10.50 per share. The net proceeds to the Company from the Offering and from the sale by the Company of an aggregate of 8.81 million shares of Common Stock to affiliates of the Company's principal shareholders together with proceeds under new credit facilities and available cash were used to effect a defeasance and redemption or repayment of virtually all outstanding indebtedness and all outstanding preferred stock of the Company and its subsidiaries (the "Recapitalization"). In addition, certain of the Company's indebtedness was exchanged for approximately 18.5 million shares of Common Stock. After the Offering and Recapitalization, approximately 70.5 million shares of Common Stock were outstanding. The Recapitalization was designed to reduce the Company's indebtedness, significantly lower interest expense, improve operating and financial flexibility and provide liquidity for operations and other general corporate purposes. In connection with the Recapitalization, Collins & Aikman Holdings II Corporation, formerly the sole common stockholder of the Company, was merged into the Company and the Company changed its name to Collins & Aikman Corporation. Concurrently, Collins & Aikman Group, Inc. was merged into its wholly-owned subsidiary which changed its name to Collins & Aikman Products Co. For pro forma operating results see Note 2 to the consolidated financial statements. GENERAL The Company's continuing business segments consist of Automotive Products, which supplies interior trim products to the North American automotive industry; Interior Furnishings, which manufactures residential upholstery and commercial floorcoverings in the United States; and Wallcoverings, which produces residential and commercial wallpaper in North America. The Company's net sales in fiscal 1994 were $1,536 million, with approximately $905 million (59%) in Automotive Products, $414 million (27%) in Interior Furnishings, and $217 million (14%) in Wallcoverings. 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. Capitalized terms that are used in this discussion and not defined herein have the meanings assigned to such terms in the Notes to Consolidated Financial Statements. 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 trends in home remodeling. 17 RESULTS OF OPERATIONS [CAPTION]
Automotive Products Interior Furnishings Wallcoverings Fiscal Year Fiscal Year Ended Fiscal Year Ended Ended JANUARY 28, January 29, January 30, JANUARY 28, January 29, January 30, JANUARY 28, 1995 1994 1993 1995 1994 1993 1995 Net sales $ 904.9 $ 677.9 $ 643.8 $ 414.5 $ 407.2 $ 391.8 $ 216.6 Cost of goods sold 730.1 555.4 532.1 287.1 294.7 282.5 147.7 Gross margin 174.8 122.5 111.7 127.4 112.5 109.3 68.9 Selling, general and adminis- trative expenses 51.5 54.9 57.1 70.0 68.0 70.8 61.9 Goodwill amortization, write off and other non-recurring charges (1) -- 69.9 1.9 -- 32.3 0.9 -- Segment operating income (loss) (2) $ 123.3 $ (2.3) $ 52.7 $ 57.4 $ 12.2 $ 37.6 $ 7.0 Gross margin percentages 19.3% 18.1% 17.3% 30.7% 27.6% 27.9% 31.8% Operating margin percentages 13.6% (.3)% 8.2% 13.8% 3.0% 9.6% 3.2% January 29, January 30, 1994 1993 Net sales $ 220.4 $ 241.9 Cost of goods sold 145.7 163.8 Gross margin 74.7 78.1 Selling, general and adminis- trative expenses 62.1 66.1 Goodwill amortization, write off and other non-recurring charges (1) 30.5 10.9 Segment operating income (loss) (2) $ (17.9) $ 1.1 Gross margin percentages 33.9% 32.3% Operating margin percentages (8.1)% .5%
(1) Goodwill amortization and write-off and other non-recurring charges consist of: [CAPTION]
Automotive Products Interior Furnishings Wallcoverings Fiscal Year Fiscal Year Ended Fiscal Year Ended Ended JANUARY 28, January 29, January 30, JANUARY 28, January 29, January 30, JANUARY 28, 1995 1994 1993 1995 1994 1993 1995 Goodwill amortization and write-off $ -- $69.9 $ 1.9 $ -- $32.3 $ 0.9 $ -- Restructuring charges -- -- -- -- -- -- -- Total $ -- $69.9 $ 1.9 $ -- $32.3 $ 0.9 $ -- January 29, January 30, 1994 1993 Goodwill amortization and write-off $30.5 $ 0.9 Restructuring charges -- 10.0 Total $30.5 $10.9
(2) Excludes $14.9 million, $38.3 million and $24.5 million of unallocated corporate expense in 1994, 1993 and 1992, respectively. 18 1994 COMPARED TO 1993 A discussion of the results of operations for each of the Company's operating segments follows: AUTOMOTIVE PRODUCTS NET SALES: Automotive Products' net sales increased 33.5% to approximately $904.9 million in 1994, up $227.0 million over 1993. The increase is attributable to increased sales volume, which reflects the impact of a 10.6% increase in North American automobile and light truck build in 1994 from 1993. Of the net sales increase, 53% related to automotive bodycloth, 20% related to convertible top and topstack products and 16% related to molded floor carpet. The remainder related to other automotive products. The bodycloth increase was primarily due to the Company's jacquard velvets product line, currently utilized in such high volume models as the General Motors C/K Truck Line, and to other new placements including the Chevrolet Monte Carlo, the Ford Contour/Mystique, Windstar and F-Series Trucks and the Chrysler Cirrus/Stratus. Existing product placements which experienced significant overall increases in volume over 1993 were the Pontiac Grand Am and Bonneville and the Chrysler Minivans. The molded floor carpet increase was due to a 17% increase in unit shipments principally related to increased production of high volume models including Cadillac Deville, Oldsmobile Aurora, General Motors C/K Truck Line, Chrysler Minivans, Ford Mustang, Toyota Camry, and the Dodge T-300 and Dakota Trucks. The convertible top and topstack increase resulted from Ford's full production of the Mustang convertible and increased volume of the Chrysler LeBaron convertible. These factors resulted in the Company's average revenue per North American-produced vehicle of approximately $53 for 1994 compared to approximately $43 for 1993. GROSS MARGIN: For 1994, gross margin was 19.3%, up from 18.1% in 1993. During the third and fourth quarters, the Company incurred premium freight and commission weaving costs related to capacity constraints for certain automotive seat fabrics. The premium freight and commission weaving costs offset the improvements in gross margin which resulted from spreading fixed costs over higher production volume and from continued benefits of reducing costs of nonconforming products. During 1995, the Company expects to continue to incur commission weaving costs at a declining rate into the second quarter on certain automotive seat fabric lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Automotive Products' selling, general and administrative expenses decreased 6.3% or $3.5 million in 1994 as compared to 1993. The reduction is attributable to lower styling and product development costs in the segment's automotive carpet product line and reduced administrative expenses resulting from reductions in administrative head count and changes in postretirement plan provisions. INTERIOR FURNISHINGS NET SALES: Interior Furnishings' net sales increased 1.8% to $414.5 million in 1994, up $7.3 million over 1993. In Decorative Fabrics, sales declined $7.2 million to $306.5 million. This decline was primarily due to the Company's redeployment of manufacturing capacity from certain Decorative Fabrics velvet furniture products to automotive seat fabrics and to softness in the Mastercraft product line commencing in the third quarter, which was partially offset by increased sales in the contract fabric lines. Management believes that the sales decline experienced by Mastercraft in the second half of 1994 primarily reflects increased competition from lower priced fabrics. In 1994, Floorcoverings net sales increased $14.4 million over 1993. This increase is largely attributable to a 16.3% increase in volume, primarily in six foot roll sales to the education and corporate markets and in sales in the southern United States. GROSS MARGIN: Interior Furnishings' gross margin rose to 30.7% of sales in 1994 from 27.6% in 1993. The increase reflects improvements in manufacturing efficiencies in the Decorative Fabrics group resulting from Mastercraft's loom modernization and cost improvement programs, as well as improved sales volumes and product mix in Floorcoverings. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Interior Furnishings' selling, general and administrative expenses increased 2.9% or $2.0 million in 1994 from 1993. The increase is primarily due to increased selling expenses related to sales volume increases in Floorcoverings as well as the planned expansion of that group's sales staff. WALLCOVERINGS NET SALES: Wallcoverings' net sales decreased 1.7% to $216.6 million in 1994, down $3.8 million from 1993. The overall decrease in net sales continues to reflect a modest unit increase in the independent retailer ("dealer") and converter businesses offset by a decrease in unit shipments to chain businesses and by a planned reduction in sales to independent distributors. The Company believes that the decrease in the chain business reflects increased price competition from imports and delayed product replenishment by the chain stores. 19 GROSS MARGIN: Wallcoverings' gross margin dropped to 31.8% of sales in 1994 from 33.9% in 1993. The decrease in gross margin reflects manufacturing inefficiencies in the third and fourth quarters of 1994 related to labor and materials utilization and the impact of spreading fixed costs over reduced production volume. The above factors offset improvements recognized in the first six months related to reductions in product close-out costs and improved absorption of fixed costs due to increased production of new product lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Wallcoverings' selling, general and administrative expenses decreased .3% to $61.9 million in 1994, down $.2 million over 1993. The decrease was due to lower administrative and selling expenses offset by planned increases in sample and product development costs. TOTAL COMPANY NET SALES: Net sales increased 17.7% to $1,536.0 million in 1994, up $230.5 million over 1993. The overall net sales increase reflects continued increases in the Company's Automotive Products and Interior Furnishings segments offset by continued decreases in the Wallcoverings segment as discussed above. GROSS MARGIN: Gross margin increased to $371.1 million in 1994 or 24.2% of sales, up from $309.7 million or 23.7% of sales in 1993. The increase in the gross margin in 1994 relates primarily to increased volume in the Company's Automotive Products segment, which resulted in lower fixed costs per unit, and manufacturing efficiencies in the Interior Furnishings segment, offset by premium freight and commission weaving charges in the Automotive Products segment and manufacturing inefficiencies in the Wallcoverings segment, as described above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $198.3 million in 1994 were $1.7 million higher than in 1993. In 1994, unallocated corporate expenses of $14.9 million were $3.4 million higher than 1993 expenses. The overall increase in unallocated corporate expenses relates to fees for services performed by affiliates of Blackstone Partners and of WP Partners in connection with the Company's evaluation of refinancing and strategic alternatives and certain other advisory services. MANAGEMENT EQUITY PLAN: In 1993, the Company incurred a one-time charge of $26.7 million related to the Company's 1993 Employee Stock Option Plan (the "1993 Plan"). GOODWILL WRITE-OFF AND AMORTIZATION: During the third quarter ended October 30, 1993, the Company wrote off its remaining goodwill of $129.9 million. The write- off was based on management's assessment of the Company's financial condition given the Company's capital structure 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 at that time, a deterioration of the financial condition of the Company had occurred and cumulative future net income would not be sufficient to recover the Company's remaining goodwill balance of $129.9 million at October 30, 1993. Goodwill amortization was $2.8 million in 1993. No goodwill amortization was recorded in 1994 as a result of the write-off of goodwill at October 30, 1993. INTEREST EXPENSE: Interest expense allocated to continuing operations, net of interest income of $6.4 million in 1994 and $4.4 million in 1993, decreased to $75.7 million in 1994 from $111.3 million in 1993. In 1994, interest expense, including amounts allocated to discontinued operations and excluding interest income, decreased to $82.1 million from $135.1 million in 1993. The overall decrease in interest expense was due to the Recapitalization, which reduced the amount of outstanding indebtedness and replaced higher fixed rate indebtedness with variable rate borrowings. No interest was allocated to discontinued operations in 1994. LOSS ON THE SALE OF RECEIVABLES: On July 13, 1994, the Company, as part of the Recapitalization, sold through its Carcorp subsidiary an undivided senior interest in a pool of accounts receivable to Chemical Bank. In connection with the receivables sale, a loss of $7.6 million was incurred in 1994. Of this loss, $1.3 million related to fees and expenses associated with the sale and $6.3 million related to discounts on the receivables sold. INCOME TAXES: In 1994, the provision for income taxes was $11.5 million compared with $11.3 million in 1993. In 1994 and 1993 income tax expense consisted of foreign, state and franchise taxes. DISCONTINUED OPERATIONS: The Company's loss from discontinued operations, including loss on disposals, was $104.3 million in 1993. This loss principally related to the accrual of additional reserves (i) for the significant reduction in estimated proceeds from disposition and other costs in connection with the sale or disposition of Builders Emporium's inventory, real estate and other assets (ii) to provide for employee severance and other costs and (iii) to realize a previously unrecognized loss as a result of the decision to retain Dura. The 1993 loss was partially offset by a $28.1 million gain on the sale of Kayser-Roth. In 1994, discontinued operations did not result in any charges against earnings. 20 EXTRAORDINARY LOSS ON THE EXTINGUISHMENT OF DEBT: On July 13, 1994, the Company, as part of the Recapitalization, recognized a loss on the extinguishment of debt of $106.5 million. This second quarter 1994 loss consisted of $9.6 million of premiums paid to redeem indebtedness and $96.9 million of unamortized discounts, deferred financing charges and defeasance costs. NET INCOME: The combined effect of the foregoing resulted in a net loss of $30.8 million in 1994 compared to a net loss of $277.7 million in 1993. 1993 COMPARED TO 1992 A discussion of the results of operations for each of the Company's operating segments follows: AUTOMOTIVE PRODUCTS NET SALES: 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. GROSS MARGIN: Automotive Products' gross margin increased to 18.1% in 1993 from 17.3% in 1992 as a result of improved product mix primarily due to new fabric placements and as a result of improved absorption of fixed manufacturing costs over a larger sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses as a percent of net sales decreased to 8.1% in 1993 from 8.9% in 1992. Of this 0.8% decrease, 0.5% was due to the absorption of fixed costs over a greater sales volume with the remainder relating principally to cost reductions from reduced product development activities. INTERIOR FURNISHINGS NET SALES: 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 to 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. GROSS MARGIN: Interior Furnishings' gross margin decreased to 27.6% in 1993 from 27.9% in 1992 due to price deterioration in the lower-end woven velvet product line of the Decorative Fabrics group. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses as a percent of net sales decreased to 16.7% from 18.1% primarily due to cost reduction initiatives aimed at streamlining marketing efforts in the Greeff product line. WALLCOVERINGS NET SALES: Wallcoverings' net sales decreased 8.9% in 1993 to $220.4 million. The decrease in sales was primarily due 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. GROSS MARGIN: Wallcoverings' gross margin increased to 33.9% in 1993 from 32.3% in 1992 as a result of manufacturing cost reduction initiatives aimed at improving product quality and streamlining production processes. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses were reduced by 1.8% of net sales due to the elimination of outside information systems processing. An 8.9% reduction in net sales resulted in an increase in selling, general, and administrative expenses as a percent of net sales to 28.2% from 27.3%. TOTAL COMPANY 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. GROSS MARGIN: Gross margin increased to $309.7 million or 23.7% of sales in 1993, up from $299.0 million or 23.4% of sales in 1992. The increase in the gross margin in 1993 relates primarily to increased volume in the Company's Automotive Products segment, which resulted in lower fixed costs per unit, and cost reduction initiatives in the Wallcoverings segment offset partially by price deterioration in the Interior Furnishings segment, as described above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $196.6 million 21 were $21.9 million lower than in 1992. In 1993, unallocated corporate expenses of $11.5 million were $12.9 million lower than 1992. The overall decrease in unallocated corporate expenses relates to the reduction and relocation of headquarters staff from California to North Carolina. MANAGEMENT EQUITY PLAN: In 1993, the Company incurred a one-time charge of $26.7 million related to the 1993 Plan. GOODWILL WRITE-OFF AND AMORTIZATION: During the third quarter ended October 30, 1993, the Company wrote off its remaining goodwill of $129.9 million. The write- off was based on management's assessment of the Company's financial condition given the Company's capital structure 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 at that time, a deterioration of the financial condition of the Company had occurred and cumulative future net income would not be sufficient to recover the Company's remaining goodwill balance of $129.9 million at October 30, 1993. Goodwill amortization was $2.8 million in 1993 and $3.7 million in 1992. 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 $4.4 million in 1993 and $4.0 million in 1992, increased to $111.3 million during 1993 compared to $110.9 million in 1992. Interest expense, including amounts allocated to discontinued operations and excluding interest income, decreased to $135.1 million during 1993 compared to $138.3 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 $11.3 million consisted of foreign and state taxes. This amount compared with a 1992 tax benefit of $3.2 million which was comprised of a foreign and state tax provision of $3.5 million offset by a Federal tax benefit of approximately $6.7 million. DISCONTINUED OPERATIONS: The Company's loss from discontinued operations was $104.3 million for 1993 and $218.3 million for 1992, including losses on disposals of $99.6 million and $168.0 million, respectively. The 1993 loss is primarily attributable to the $125.5 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. This was offset by a $28.1 million gain on the sale of Kayser-Roth. 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 $277.7 million in 1993 compared to a net loss of $263.7 million in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company and its subsidiaries had cash and cash equivalents totaling $3.3 million and $81.4 million at January 28, 1995 and January 29, 1994, respectively. The decrease in the Company's cash balance is primarily due to the Recapitalization which occurred in July 1994. During the fourth quarter of 1993, the Company sold Kayser-Roth for approximately $170 million (before the post-closing purchase price adjustment described below) including a $70 million note. A portion of the proceeds was used to repay $66 million of borrowings under a Kayser-Roth credit facility. On April 27, 1994, the Kayser-Roth note was paid with accrued interest resulting in cash proceeds of $71.2 million to the Company. A post-closing purchase price adjustment of $5.1 million was paid to the purchaser of Kayser-Roth on September 1, 1994. As part of the Recapitalization, the Company's C&A Products subsidiary entered into the New Credit Facilities on July 13, 1994. The New Credit Facilities consist of (i) the Term Loan Facilities, comprised of term loans in an aggregate principal amount of $475 million (including a $45 million Canadian loan) and having a term of eight years, which were drawn in full on the closing date, (ii) the Revolving Facility, having an aggregate principal amount of up to $150 million and a term of seven years and (iii) the Bridge Receivables Facility having an aggregate face amount of up to $150 million and a term of seven years. The New Credit Facilities contain restrictive covenants including maintenance of EBITDA (earnings before interest, taxes, depreciation and amortization including the non cash write-off of goodwill) and interest coverage ratios, leverage and liquidity tests and various other restrictive covenants which are typical for such facilities. In addition, C&A Products is prohibited from paying dividends or making other distributions to the Company except 22 to the extent necessary to allow the Company to pay taxes, ordinary expenses, permitted dividends on the Common Stock, the repurchase price for shares or options pursuant to contractual obligations and to make permitted investments in finance, foreign or acquired subsidiaries. The Company does not believe such prohibition will have a material adverse impact on the Company because all the Company's operations are conducted, and all the Company's debt obligations are issued, by C&A Products and its subsidiaries. On March 31, 1995, C&A Products repaid and terminated the Bridge Receivables Facility and entered, through a trust formed by its wholly-owned, bankruptcy remote subsidiary ("Carcorp"), into a new receivables facility (the "Receivables Facility") comprised of (i) term certificates, which were issued on March 31, 1995, in an aggregate face amount of $110 million and having a term of five years and (ii) variable funding certificates, which represent revolving commitments, of up to an aggregate of $75 million and having a term of five years. Carcorp purchases on a revolving basis and transfers to the trust virtually all trade receivables generated by C&A Products and certain of its subsidiaries (the "Sellers"). The certificates represent the right to receive payments generated by the receivables held by the trust. Availability under the variable funding certificates at any time depends primarily on the amount of receivables generated by the Sellers from sales to the auto industry, the rate of collection on those receivables and other characteristics of those receivables which affect their eligibility (such as bankruptcy or downgrading below investment grade of the obligor, delinquency and excessive concentration). Based on these criteria, at March 31, 1995 approximately $30 million was available under the variable funding certificates, of which approximately $12 million was utilized. The proceeds received by Carcorp from collections on receivables, after the payment of expenses and amounts due on the certificates, are used to purchase new receivables from the Sellers. Collections on receivables are required to remain in the trust if at any time the trust does not contain sufficient eligible receivables to support the outstanding certificates. The Receivables Facility contains certain other restrictions on Carcorp (including maintenance of $25 million net worth) and on the Sellers (including limitations on liens on receivables, on modifications of the terms of receivables, and on changes in credit and collection practices) customary for facilities of this type. The commitments under the Receivables Facility will terminate prior to their term upon the occurrence of certain events, including payment defaults, breach of covenants, bankruptcy, insufficient eligible receivables to support the outstanding certificates, default by C&A Products in servicing the receivables and, in the case of the variable funding certificates, failure of the receivables to satisfy certain performance criteria. On September 30, 1994, the Company entered into a master lease agreement for a maximum of $50 million of machinery and equipment. Under the master lease, the Company during 1994 sold and leased back $30.4 million of machinery and equipment utilized in the Automotive Products and Interior Furnishings segments. At January 28, 1995, the Company had $19.6 million of potential availability under this master lease for future machinery and equipment requirements of the Company, subject to the lessors' approval. The Company's principal sources of funds are cash generated from continuing operations, borrowings under the Revolving Facility and the sale of receivables under the Receivables Facility described above. Net cash provided by the operating activities of the Company's continuing operations was $50.6 million for the year ended January 28, 1995. Additionally, the Company generated $30.4 million of cash in the sale/leaseback transactions discussed above. The Company had a total of $81.2 million of borrowing availability under its credit arrangements as of January 28, 1995. The total was comprised of $67 million under the Revolving Facility, $5 million under the Bridge Receivables Facility and approximately $9.2 million under a bank demand line of credit in Canada. The Company's principal uses of funds for the next several years will be to fund interest and principal payments on its indebtedness, net working capital increases and capital expenditures. At January 28, 1995, the Company had total outstanding indebtedness of $567.8 million (excluding approximately $13.0 million of outstanding letters of credit) at an average interest rate of 7.7% per annum. Of the total outstanding indebtedness, $545 million relates to the Term Loan Facilities and the Revolving Facility. Indebtedness under the Term Loan Facilities and Revolving Facility bears interest at a per annum rate equal to the Company's choice of (i) Chemical's Alternate Base Rate (which is the highest of Chemical's announced prime rate, the Federal Funds Rate plus .5% and Chemical's base certificate of deposit rate plus 1%) ("ABR") plus the ABR Margin per annum or (ii) the offered rates for Eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as selected by the Company, plus the LIBOR Margin. Pursuant to the terms of the Term Loan Facilities and the Revolving Facility, the "ABR Margin" is initially .75% and the "LIBOR Margin" is initially 1.75%. The weighted average rate of interest on the Term Loan Facilities and the 23 Revolving Facility at January 28, 1995 was 7.8%. In March 1995, the "ABR Margin" was reduced to .50% and the "LIBOR Margin" was reduced to 1.50%. The purchases by the Buyers of participating interests in the receivables under the Bridge Receivables Facility were made at an initial interest equal to LIBOR plus .625% per annum or ABR. The weighted average interest rate on the sold interests under the Bridge Receivables Facility at January 28, 1995 was 6.6%. Under the Receivables Facility, the term certificates bear interest at an average rate equal to one-month LIBOR plus .34% per annum and the variable funding certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or a prime rate. Cash interest paid during 1994 and 1993 was $77.9 million ($16.0 million of which was paid in connection with the Recapitalization) and $101.5 million, respectively. Due to the variable interest rates associated with indebtedness under the New Credit Facilities and the Receivables Facility, the Company is sensitive to increases in interest rates. Accordingly, during September 1994, the Company entered into a program to reduce its exposure to increases in interest rates through the use of interest rate cap and corridor agreements. Under these agreements, the Company has limited its exposure through October 17, 1995 on $300 million of notional principal amount at an average LIBOR strike price of 6.92% and on $250 million of notional principal amount from October 17, 1995 through October 17, 1996 at an average LIBOR strike price of 7.50%. Based upon amounts outstanding at January 28, 1995, a .5% increase in LIBOR (6.3% at January 28, 1995) would impact interest costs by approximately $2.7 million annually on the Term Loan Facilities and the Revolving Facility and $.7 million annually on the Receivables Facility. The current maturities of long-term debt primarily consist of the current portion of the Term Loan Facilities, vendor financing, industrial revenue bonds and other miscellaneous debt. Repayments of indebtedness under the New Credit Facilities commence in the third fiscal quarter of 1995. The maturities of long-term debt of the Company during 1995 and for 1996, 1997, 1998 and 1999 are $18.1 million, $41.2 million, $61.5 million, $77.5 million and $83.6 million, respectively. In addition, the New Credit Facilities provide for mandatory prepayments with certain excess cash flow of the Company, net cash proceeds of certain asset sales or other dispositions by the Company, net cash proceeds of certain sale/leaseback transactions and net cash proceeds of certain issuances of debt obligations. The Company makes capital expenditures on a recurring basis for replacements and improvements. As of January 28, 1995, the Company had approximately $19.9 million in outstanding capital expenditure commitments. During 1994, capital expenditures of continuing operations aggregated approximately $84.4 million as compared to $44.9 million in 1993. The increase is due primarily to the acquisition of additional machinery and equipment at Decorative Fabrics' Mastercraft division as part of an $85 million four year capital investment plan that was initiated this year for the purpose of expanding production capacity to accommodate anticipated growth. Secondarily, this increase is due to expenditures of approximately $5.9 million on two new Automotive Products facilities in Mexico, which are expected to be completed for a total of approximately $9.5 million. The Company's capital expenditures in future years will depend upon demand for the Company's products and changes in technology. Due to the acceleration of certain capital projects the Company currently expects that capital expenditures in 1995 will approximate $80 million, an increase over its previous expectations. The Company is sensitive to price movements in its raw material supply base. During the last quarter of 1994 price trends for many materials began to increase. The Company anticipates that announced price increases in its primary raw materials could increase the cost of purchased materials by approximately $20 million on an annualized basis. While the Company may not be able to pass on future raw material price increases to its customers, it believes that a significant portion of the increased cost can be offset by continued results of its reengineering efforts and by continued reductions in the cost of nonconformance. During 1994, the Company began construction of two facilities in Mexico, to supply automotive products to Mexican subsidiaries of U.S. based automobile manufacturers. The Company believes that, based on the nature of its Mexican operations, fluctuations in the Mexican peso will not have a material impact on the Company's operations. The Company has significant obligations relating to postretirement, casualty, environmental, lease and other liabilities of discontinued operations. In connection with the sale and acquisition of certain businesses, the Company has indemnified the purchasers and sellers for certain environmental liabilities, lease obligations and other matters. In addition, the Company is contingently liable with respect to certain lease and other obligations assumed by certain purchasers and may be required to honor such obligations if such purchasers are unable or unwilling to do so. Management anticipates that the net cash requirements of its discontinued operations will be approximately $25.0 million in 1995. However, because the requirements of the 24 Company's discontinued operations are largely a function of contingencies, 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 the Company's needs relating to discontinued operations can be adequately funded in 1995 and into 1996 by net cash provided by operating activities from continuing operations and by borrowings under existing bank credit facilities. TAX MATTERS At January 28, 1995, the Company had outstanding NOLs (net operating loss carryforwards) of approximately $391 million for Federal income tax purposes. These NOLs expire over the period from 1996 to 2009. The Company also has unused Federal tax credits of approximately $17.8 million, $10.7 million of which expire during 1995 to 2003. The Company estimates that it will generate tax deductions of approximately $65.0 million in connection with the ultimate disposition of assets and liabilities of its discontinued businesses during the period 1995 to 1997, which were previously accrued for financial reporting purposes. The Company anticipates that utilization of these NOLs, tax credits and deductions will result in minimal Federal income taxes until these NOLs and tax credits are exhausted. The Company's Federal income tax returns for fiscal 1988 through 1991 are currently under examination by the IRS. The examination is at a preliminary stage. The IRS has outstanding challenges to the availability or timing of the utilization of $139 million of the Company's NOL's and other deductions. The Company disputes the proposed adjustments. If the IRS were to maintain its position and such position were to be upheld in litigation, the Company would become liable for the payment of interest and would lose a material amount of the NOL's and other deductions otherwise available to the Company in future years. Approximately $134.0 million of the Company's NOLs and $10.7 million of the Company's unused Federal tax credits may be used only against the income and apportioned tax liability of the specific corporate entity that generated such losses or credits or its successors. Because of the merger of Group and C&A Products, such NOLs and credits may be used against the income and apportioned tax liability of C&A Products, which the Company believes will have sufficient taxable income and apportioned tax liability to fully use such NOLs and to use a substantial portion of such tax credits. The Recapitalization did not constitute a "change in control" that would result in annual limitations on the Company's use of its NOLs and unused tax credits. However, future sales of common stock by the Company or the principal shareholders, or changes in the composition of the principal shareholders, could constitute such a "change in control". Management cannot predict whether such a "change in control" will occur. If such a "change of control" were to occur, the resulting annual limitations on the use of NOLs and tax credits would depend on the value of the equity of the Company and the amount of "built-in gain" or "built-in loss" in the Company's assets at the time of the "change in control", which cannot be known at this time. 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 otherwise 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 such 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 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. The Company is currently engaged in investigation or remediation at certain sites. In estimating the total cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating contaminated sites, remediation efforts by other parties, data released by the Environmental Protection Agency, the professional judgment of the Company's environmental experts, outside environmental specialists and other experts, and the likelihood that other parties which have been named as PRPs will have the financial resources to fulfill their obligations at sites where they and the Company may be jointly and severally liable. Under the scheme of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are 25 found to be responsible under the applicable laws. 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. As of January 28, 1995, excluding sites at which the Company's participation is anticipated to be de minimis or otherwise insignificant or where the Company is being indemnified by a third party for the liability, there are 14 sites where the Company is participating in the investigation or remediation of the site, either directly or through financial contribution, and 11 additional sites where the Company is alleged to be responsible for costs of investigation or remediation. As of January 28, 1995, the Company's estimate of its liability for these 25 sites is approximately $29.6 million. As of January 28, 1995, the Company has established reserves of approximately $31.7 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. 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. 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Collins & Aikman Corporation: We have audited the accompanying consolidated balance sheets of Collins & Aikman Corporation (formerly Collins & Aikman Holdings Corporation) (a Delaware corporation) and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, cash flows, and common stockholders' deficit for each of the three fiscal years in the period ended January 28, 1995. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Collins & Aikman Corporation and subsidiaries as of January 28, 1995 and January 29, 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 28, 1995, in conformity with generally accepted accounting principles. (Arthur Andersen LLP signature appears here) Charlotte, North Carolina, March 23, 1995 (except with respect to the matter discussed in Note 23, as to which the date is March 31, 1995). 27 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Net sales $ 1,536,002 $ 1,305,517 $ 1,277,500 Cost of goods sold 1,164,869 995,790 978,473 Selling, general and administrative expenses 198,293 196,585 218,441 Management equity plan expense -- 26,736 -- Goodwill amortization and write-off -- 132,630 3,702 Restructuring costs -- -- 10,000 1,363,162 1,351,741 1,210,616 Operating income (loss) 172,840 (46,224) 66,884 Interest expense, net of interest income of $6,441, $4,434 and $4,012 75,683 111,291 110,867 Loss on sale of receivables 7,616 -- -- Dividends on preferred stock of subsidiary 2,258 4,533 4,514 Income (loss) from continuing operations before income taxes 87,283 (162,048) (48,497) Income tax expense (benefit) 11,537 11,277 (3,156) Income (loss) from continuing operations 75,746 (173,325) (45,341) Discontinued operations: Loss from operations, net of income tax expense of $0, $584 and $5,700 -- (4,775) (50,317) Loss on disposals, net of income tax benefit of $0, $344 and $0 -- (99,564) (168,000) Income (loss) before extraordinary loss 75,746 (277,664) (263,658) Extraordinary loss, net of income tax expense of $0 (106,528) -- -- Net loss $ (30,782) $ (277,664) $ (263,658) Dividends and accretion on preferred stock (14,408) (23,723) (18,848) Excess of redemption cost over book value of preferred stock (82,022) -- -- Loss applicable to common stockholders $ (127,212) $ (301,387) $ (282,506) Per primary and fully diluted common share: Continuing operations $ (.39) $ (7.23) $ (2.35) Discontinued operations -- (3.83) (8.01) Extraordinary loss (2.01) -- -- Net loss $ (2.40) $ (11.06) $ (10.36) Average common shares outstanding 52,905 27,260 27,260
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 28 CONSOLIDATED BALANCE SHEETS (in thousands)
JANUARY 28, January 29, 1995 1994 ASSETS Current Assets: Cash and cash equivalents $ 3,317 $ 81,373 Accounts and notes receivable, net of allowances of $6,400 and $7,071 92,082 200,368 Inventories 196,096 176,062 Receivable from sale of business -- 70,000 Other 38,184 48,397 Total current assets 329,679 576,200 Property, plant and equipment, at cost less accumulated depreciation and amortization of $269,808 and $240,514 287,559 292,600 Other assets 63,833 50,025 $ 681,071 $ 918,825 LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT Current Liabilities: Notes payable $ 1,723 $ 3,789 Current maturities of long-term debt 18,114 25,895 Accounts payable 97,726 85,591 Accrued expenses 144,566 145,022 Total current liabilities 262,129 260,297 Long-term debt, net of current maturities 547,963 897,659 Deferred income taxes 1,377 640 Other, including postretirement benefit obligation 282,224 339,768 Commitments and contingencies Redeemable preferred stock of subsidiary, at carrying value -- 132 Preferred stock of subsidiary, at carrying value -- 181 Redeemable preferred stock, at carrying value -- 122,368 Common Stockholders' Deficit: Common stock (150,000 authorized; 70,521 and 28,164 shares issued and outstanding) 705 282 Other paid-in capital 586,281 160,317 Accumulated deficit (976,549) (849,337) Foreign currency translation adjustments (13,655) (5,735) Pension equity adjustment (9,404) (7,747) Total common stockholders' deficit (412,622) (702,220) $ 681,071 $ 918,825
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 29 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 OPERATING ACTIVITIES Income (loss) from continuing operations $ 75,746 $(173,325) $ (45,341) Adjustments to derive cash flow from continuing operating activities: Depreciation and leasehold amortization 43,882 42,232 45,463 Goodwill amortization and write-off -- 132,630 3,702 Restructuring costs -- -- 10,000 Management equity plan expense -- 26,736 -- Amortization of other assets and liabilities 5,277 13,029 13,108 Increase in accounts and notes receivable (36,714) (32,982) (149) Decrease (increase) in inventories (20,034) (6,952) 4,308 Increase (decrease) in interest and dividends payable (14,485) (4,865) 1,027 Increase in accounts payable 12,135 14,145 130 Other, net (15,251) 11,975 (9,919) Net cash provided by continuing operating activities 50,556 22,623 22,329 Cash used in discontinued operations (30,974) (67,417) (13,458) INVESTING ACTIVITIES Additions to property, plant and equipment (84,423) (56,278) (54,181) Sales of property, plant and equipment 805 22,710 10,347 Proceeds from sale/leaseback arrangement 30,365 -- -- Net proceeds from disposition of discontinued operations 68,861 148,743 -- Other, net 1,915 44,271 11,659 Net cash provided by (used in) investing activities 17,523 159,446 (32,175) FINANCING ACTIVITIES Issuance of common stock 232,436 -- -- Issuance of long-term debt 675,234 76,135 60,128 Proceeds from sales of a participating interest in accounts receivable, net of redemptions 145,000 -- -- Redemption of preferred stock (219,110) -- -- Repayment and defeasance of long-term debt (884,908) (139,940) (104,376) Net borrowings (repayments) on revolving credit facilities, excluding the Recapitalization (60,000) (40,000) 50,000 Net borrowings (repayments) on notes payable (2,066) (5,899) 3,554 Other, net (1,747) (7,263) (2,918) Net cash provided by (used in) financing activities (115,161) (116,967) 6,388 Decrease in cash and cash equivalents (78,056) (2,315) (16,916) Cash and cash equivalents at beginning of year 81,373 83,688 100,604 Cash and cash equivalents at end of year $ 3,317 $ 81,373 $ 83,688
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 30 CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT (in thousands)
Foreign Other Currency Pension Common Paid-in Accumulated Translation Equity Stock Capital Deficit Adjustments Adjustment Total Balance at January 25, 1992 $ 282 $133,801 $ (265,444) $ 979 $ (539) $(130,921) Conversion of warrants into intermediate preferred stock -- (220) -- -- -- (220) Net loss -- -- (263,658) -- -- (263,658) Redeemable preferred stock dividends -- -- (18,988) -- -- (18,988) Accretion of redeemable preferred stock -- -- 140 -- -- 140 Foreign currency translation adjustment -- -- -- (5,849) -- (5,849) Pension equity adjustment -- -- -- -- (1,964) (1,964) Balance at January 30, 1993 282 133,581 (547,950) (4,870) (2,503) (421,460) 1993 management equity plan expense -- 26,736 -- -- -- 26,736 Net loss -- -- (277,664) -- -- (277,664) Redeemable preferred stock dividends -- -- (22,107) -- -- (22,107) Accretion of redeemable preferred stock -- -- (1,616) -- -- (1,616) Foreign currency translation adjustment -- -- -- (865) -- (865) Pension equity adjustment -- -- -- -- (5,244) (5,244) Balance at January 29, 1994 282 160,317 (849,337) (5,735) (7,747) (702,220) ISSUANCE OF SHARES THROUGH THE RECAPITALIZATION 423 426,759 -- -- -- 427,182 COMPENSATION EXPENSE ADJUSTMENT -- (795) -- -- -- (795) NET LOSS -- -- (30,782) -- -- (30,782) REDEEMABLE PREFERRED STOCK DIVIDENDS -- -- (12,380) -- -- (12,380) ACCRETION OF REDEEMABLE PREFERRED STOCK -- -- (2,028) -- -- (2,028) EXCESS OF REDEMPTION COST OVER BOOK VALUE OF REDEEMABLE PREFERRED STOCK -- -- (82,022) -- -- (82,022) FOREIGN CURRENCY TRANSLATION ADJUSTMENT -- -- -- (7,920) -- (7,920) PENSION EQUITY ADJUSTMENT -- -- -- -- (1,657) (1,657) BALANCE AT JANUARY 28, 1995 $ 705 $586,281 $ (976,549) $(13,655) $(9,404) $(412,622)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION: Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman Holdings Corporation) is a Delaware corporation. Prior to July 13, 1994, the Company was a wholly-owned subsidiary of Collins & Aikman Holdings II Corporation ("Holdings II"). In connection with an initial public offering of common stock and a recapitalization (the "Recapitalization") (described below), Holdings II was merged into the Company. Concurrently, Collins & Aikman Group, Inc., a wholly-owned subsidiary of the Company ("Group"), was merged into its wholly-owned subsidiary, Collins & Aikman Corporation, which changed its name to Collins & Aikman Products Co. ("C&A Products"). On July 7, 1994, the Company changed its name from Collins & Aikman Holdings Corporation to Collins & Aikman Corporation. Prior to the Recapitalization the Company was jointly owned by Blackstone Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella Partners, L.P. ("WP Partners") and their respective affiliates. As a result of the Recapitalization, Blackstone Partners and WP Partners and their respective affiliates collectively own approximately 76% of the common stock of the Company. The Company conducts all of its operating activities through its wholly-owned C&A Products subsidiary. 2. RECAPITALIZATION: On July 13, 1994, the Company completed an initial public offering (the "Offering") of 15,000,000 shares of its common stock. The Offering provided net proceeds to the Company of $145.4 million. In addition, the Company sold to its principal shareholders, Blackstone Partners and WP Partners, and their respective affiliates an additional 8,810,000 shares for $87 million. These proceeds were combined with $720 million of proceeds from new credit facilities (the "New Credit Facilities") and existing cash to redeem all outstanding shares of preferred stock issued by the Company and Group as well as virtually all their outstanding indebtedness. In a noncash transaction, approximately 18,500,000 shares were issued by the Company in exchange for outstanding indebtedness in an amount of $194.7 million. Set forth below are unaudited fiscal 1994 and 1993 pro forma results assuming the Offering and Recapitalization had occurred as of the beginning of each fiscal year.
(in thousands, except per share data) 1994 1993 Operating income (loss) $174,340 $(43,224) Interest expense, net 37,922 25,582 Loss on the sale of receivables 9,755 7,195 Income (loss) from continuing operations 115,366 (86,798) Net income (loss) per common share 1.60 (1.25) Average common shares outstanding 72,166 69,617
The computation of pro forma net income per share excludes all interest and other charges related to the preferred stock and indebtedness redeemed. For additional information regarding the New Credit Facilities see Note 9. 32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION -- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany items have been eliminated in consolidation. Certain prior year items have been reclassified to conform to the fiscal 1994 presentation. FISCAL YEAR -- The fiscal year of the Company ends on the last Saturday of January. Fiscal 1994 and fiscal 1993 were 52-week years which ended on January 28, 1995 and January 29, 1994, respectively. Fiscal 1992 was a 53-week year which ended on January 30, 1993. 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 Note 17. LOSS PER SHARE -- Loss per common share is based on the weighted average number of shares of common stock outstanding during each period and the assumed exercise of employee stock options less the number of treasury shares assumed to be purchased from the proceeds, including applicable compensation expense. In connection with the merger of Holdings II into the Company, the 35,035,000 shares of common stock of the Company outstanding prior to the Recapitalization were canceled and approximately 28,164,000 shares of common stock were issued in exchange for the common stock of Holdings II. All historical amounts and earnings per share computations have been adjusted to reflect the merger. Net loss has been adjusted by dividends and accretion requirements on preferred stock and the excess of redemption cost over book value of preferred stock to compute the loss applicable to common stockholders. 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 stockholders' deficit. Translation adjustments during fiscal 1994, 1993 and 1992 were ($7.9) million, ($.9) million, and ($5.8) 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 28, 1995 is $2.4 million held by C&A Products. INVENTORIES -- Inventories are valued 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. INSURANCE DEPOSITS -- Other current assets at January 28, 1995 include $14.4 million which is on deposit with an Insurer to cover the self-insured portion of the Company's workers compensation, automotive and general liabilities. The Company's reserves for these claims are determined based upon actuarial analyses and aggregated $29.4 million at January 28, 1995, $18.4 million of which is classified in current liabilities. 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 ranging from 3 to 40 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. GOODWILL -- Until the write-off of goodwill as of October 30, 1993, goodwill was being amortized by the straight-line method over 40 years. Amortization applicable to continuing operations was $2.8 million and $3.7 million for fiscal 1993 and 1992, respectively. Accumulated amortization was $16.3 million at January 30, 1993. See Note 5. 33 ENVIRONMENTAL -- The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. Accruals for environmental liabilities are generally included in the consolidated 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. 4. INTEREST RATE PROTECTION PROGRAM: During September 1994, the Company entered into a program designed to reduce its exposure to changes in the cost of its variable rate borrowings by the use of interest rate cap and corridor agreements. The strike price of these agreements exceeded the current market levels at the time they were entered into and their cost is included in interest expense ratably during the life of the agreements. Payments to be received, if any, as a result of the agreements are accrued as a reduction of interest expense. Unamortized costs of these agreements are included in other assets. Under these agreements, the Company has limited its exposure on notional principal amounts as follows (in thousands):
Protection Period Notional Principal Amount Average LIBOR Strike Price October 1994 thru October 1995 $300,000 6.92% October 1995 thru October 1996 $250,000 7.50%
Amortization of these agreements amounted to $.1 million during 1994. Information regarding the fair value of these agreements is included in Note 18. 5. GOODWILL: At October 30, 1993, before giving effect to the write-off described below, the Company had $129.9 million of goodwill which arose as a result of the acquisition of Group in December 1988. The substantial losses of Builders Emporium home improvement chain ("Builders Emporium") and the inability to sell Builders Emporium 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 Systems 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 of fiscal 1993, 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 35 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 capital structure at that time. In spite of the fact that the results reflected in the forecasts showed improvement over the historical results achieved during the past few years, the result was a cumulative net loss. Accordingly, the Company wrote off its remaining goodwill balance of $129.9 million during the third quarter ended October 30, 1993. 34 6. INVENTORIES: Inventory balances are summarized below (in thousands):
JANUARY 28, January 29, 1995 1994 Raw materials $ 81,669 $ 70,762 Work in process 24,149 24,739 Finished goods 90,278 80,561 $ 196,096 $ 176,062
7. PROPERTY, PLANT AND EQUIPMENT, NET: Property, plant and equipment, net, are summarized below (in thousands):
JANUARY 28, January 29, 1995 1994 Land and improvements $ 21,992 $ 28,347 Buildings 110,786 109,275 Machinery and equipment 392,015 372,208 Leasehold improvements 1,259 1,421 Construction in progress 31,315 21,863 557,367 533,114 Less accumulated depreciation and amortization (269,808) (240,514) $ 287,559 $ 292,600
Depreciation and leasehold amortization of property, plant and equipment applicable to continuing operations was $43.9 million, $42.2 million and $45.5 million for fiscal 1994, 1993 and 1992, respectively. 8. ACCRUED EXPENSES: Accrued expenses are summarized below (in thousands):
JANUARY 28, January 29, 1995 1994 Payroll and employee benefits $ 40,857 $ 42,063 Interest 5,886 19,242 Insurance 25,462 15,152 Other 72,361 68,565 $ 144,566 $ 145,022
35 9. LONG-TERM DEBT: Long-term debt is summarized below (in thousands):
JANUARY 28, January 29, 1995 1994 Senior indebtedness: Mortgage notes $ 853 $ 1,464 Notes payable to banks -- 7,595 Notes payable to others 12,425 8,266 Credit facility, interest at LIBOR + 1.75% -- 137,129 Revolving Facility, interest at LIBOR + 1.75% 70,000 -- Term Loan Facilities, interest at LIBOR + 1.75% 475,000 -- Industrial revenue bonds due through 2006, interest rates from 5% to 7 5/8% 7,799 11,648 Debentures due 2005, interest rate 7 1/2% until January 31, 1994, and 10% thereafter -- 138,694 Unamortized debt discount -- (33,397) 566,077 271,399 Senior subordinated indebtedness: Senior subordinated debentures due 2001, interest rate 11 7/8% -- 347,414 Unamortized debt discount -- (46,532) -- 300,882 Subordinated indebtedness: Subordinated notes due 1995, interest rate 15% -- 137,359 Subordinated debentures due 1997, interest rate 11 3/8% -- 24,500 Unamortized debt discount -- (2,446) -- 159,413 Subordinated PIK bridge notes due December 2, 1996, interest rate 14% -- 191,860 Total debt 566,077 923,554 Less current maturities (18,114) (25,895) $ 547,963 $ 897,659
As part of the Recapitalization on July 13, 1994, the Company's C&A Products subsidiary entered into the New Credit Facilities aggregating $775 million, which together with proceeds from the Offering and available cash, were used to effect a defeasance and redemption or repayment of all preferred stock and virtually all outstanding indebtedness of the Company. The New Credit Facilities consist of (i) term loans in an aggregate principal amount of $475 million (including a $45 million Canadian loan) with a term of eight years, which were drawn in full on the closing date (the "Term Loan Facilities"), (ii) a revolving credit facility in an aggregate principal amount of up to $150 million with a term of seven years (the "Revolving Facility") and (iii) a bridge receivables facility (See Note 10) in an aggregate face amount of up to $150 million with a term of seven years (the "Bridge Receivables Facility"). The New Credit Facilities contain 36 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. See Note 15. The Company's obligations under the Term Loan Facilities and the Revolving Facility are secured by a pledge of the stock of C&A Products and its significant subsidiaries. Indebtedness under the Term Loan Facilities and Revolving Facility bears interest at a per annum rate equal to the Company's choice of (i) Chemical's Alternative Base Rate (which is the highest of Chemical's announced prime rate, the Federal Funds Rate plus .5% and Chemical's base certificate of deposit rate plus 1%) ("ABR") plus the ABR Margin per annum or (ii) the offered rates for eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as selected by the Company, plus the LIBOR margin. Pursuant to the terms of the Term Loan Facilities and the Revolving Facility, the "ABR Margin" is initially .75% and the "LIBOR Margin" is initially 1.75%. The weighted average rate of interest on the Term Loan Facilities and the Revolving Facility at January 28, 1995 was 7.8%. The Company had a total of $81.2 million of borrowing availability under its credit arrangements as of January 28, 1995. The total was comprised of $67 million under the Revolving Facility, $5 million under the Bridge Receivables Facility and approximately $9.2 million under an unsecured bank demand line of credit in Canada. At January 28, 1995, the Company had approximately $13 million outstanding in letters of credit. The current maturities of long-term debt primarily consist of the current portion of the Term Loan Facilities, vendor financing, industrial revenue bonds and other miscellaneous debt. Repayments of indebtedness under the New Credit Facilities commence in the third fiscal quarter of 1995. In addition, the New Credit Facilities provide for mandatory prepayments with certain excess cash flow of the Company and net cash proceeds of certain asset sales or other dispositions by the Company, certain sale/leaseback transactions and certain issuances of debt obligations. At January 28, 1995, the scheduled annual maturities of long-term debt are as follows (in thousands):
Fiscal Year Ending January 1996 $ 18,114 January 1997 41,227 January 1998 61,480 January 1999 77,479 January 2000 83,574 Later Years 284,203 $566,077
37 As part of the Recapitalization, the Company defeased or redeemed the following face value of indebtedness (in thousands):
Credit facility $122,581 Debentures due 2005 138,694 Senior subordinated debentures due 2001 347,414 Subordinated notes due 1995 137,359 Subordinated debentures due 1997 24,500 Subordinated PIK bridge notes due 1996 9,712 Subordinated PIK bridge notes due 1996 exchanged for common stock 194,745 Other 8,094 $983,099
The redemption of this indebtedness resulted in a loss of $106.5 million consisting of premiums paid of $9.6 million, unamortized debt discounts and deferred debt expenses of $79.7 million and $11.8 million, respectively, and post-defeasance interest of $5.4 million. On May 27, 1993, a subsidiary of C&A Products, Kayser-Roth Corporation ("Kayser-Roth") completed a $75 million credit facility (the "Kayser-Roth Credit Agreement") with a group of banks to replace a $40 million credit agreement and, on July 6, 1993, Kayser-Roth paid an additional dividend of $26.0 million to C&A Products. C&A Products used approximately $41 million of the proceeds from the original and the replacement Kayser-Roth credit facilities to redeem on July 7, 1993 all of its outstanding 12% Sinking Fund Debentures due January 31, 1994. C&A Products 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. At January 29, 1994, Blackstone Partners and WP Partners were holders of the Company's Subordinated PIK bridge notes with aggregate balances of approximately $89.2 million and $93.5 million, respectively. The remainder of the Subordinated PIK bridge notes outstanding aggregated approximately $9.2 million at January 29, 1994. Total interest paid by the Company on all indebtedness was $77.9 million, $101.5 million and $105.0 million for fiscal 1994, 1993 and 1992, repectively. 10. RECEIVABLES FACILITY: In connection with the Recapitalization, on July 13, 1994, C&A Products and certain of its subsidiaries (the "Sellers") transferred approximately $190.0 million of customer trade receivables to Carcorp, a wholly-owned, bankruptcy remote subsidiary of C&A Products which, in turn, on July 13, 1994, sold an undivided senior interest in the receivables pool for $136.8 million to Chemical Bank ("Chemical" and, together with a syndicate of financial institutions if Chemical so elects at any time, the "Buyers") pursuant to a Receivables Transfer and Servicing Agreement ("RTA") with Chemical, as administrative agent. In connection with the receivables sales, a loss of $7.6 million was incurred in 1994. Of this loss, $1.3 million related to fees and expenses associated with the sales and $6.3 million related to discounts on the receivables sold. Carcorp continues to purchase, on a revolving basis, all trade receivables generated by the Sellers. The Sellers will continue to service the receivables for Carcorp. Carcorp may sell to the Buyers undivided senior interests of up to $150 million in receivables at any time, subject to, among other things, the sufficiency of the underlying receivables and the qualification of the underlying receivables as "Eligible Receivables" under the RTA. The Bridge Receivables Facility terminates July 13, 2001 or earlier if a defined liquidation event occurs. 38 As of January 28, 1995, Carcorp's total receivables pool was $228.5 million net of allowances for doubtful accounts. As of January 28, 1995, the Buyers possessed a $145 million undivided senior interest in Carcorp's receivables pool and, accordingly, such receivables were not reflected in the Company's accounts receivable balance as of that date. As of January 28, 1995, Carcorp owned a subordinated interest in the receivables pool. For information regarding the Receivables Facility, which replaced the Bridge Receivables Facility, see Note 23. 11. LEASE COMMITMENTS: The Company is the 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. On September 30, 1994, the Company entered into a master equipment lease agreement. Pursuant to that agreement, during 1994, the Company sold and leased back for a term of 10.5 years equipment utilized in its Automotive Products and Interior Furnishings segments. The aggregate net book values of the equipment totaling $29.8 million have been removed from the balance sheet and the gain realized on the sale totaling $.6 million has been deferred and is being recognized as an adjustment to rent expense over the lease term. The Company's rental payments on the leased equipment amount to $4.0 million annually. The Company has a purchase option on the equipment at the end of the lease term based on the fair market value of the equipment and has additional options to cause the sale of some or all of the equipment or to purchase some or all of the equipment at prices determined under the agreement. The Company has classified the lease as an operating lease. The Company may sell and leaseback additional equipment in the future under the same master lease agreement, subject to the lessors' approval. At January 28, 1995, future minimum lease payments under operating leases for continuing operations are as follows (in thousands):
Fiscal Year Ending January 1996 $18,193 January 1997 15,043 January 1998 12,079 January 1999 10,305 January 2000 8,577 Later years 22,326 $86,523
Rental expense of continuing operations under operating leases was $20.1 million, $19.2 million and $19.0 million for fiscal 1994, 1993 and 1992, respectively. Obligations under capital leases are not significant. 12. EMPLOYEE BENEFIT PLANS: DEFINED BENEFIT PLANS Subsidiaries of the Company 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 employees' 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. 39 The net periodic pension cost of continuing operations for fiscal 1994, 1993 and 1992 includes the following components (in thousands): [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Service cost $ 5,590 $ 5,232 $ 5,313 Interest cost on projected benefit obligation and service cost 7,577 6,843 6,220 Actual loss (gain) on assets 1,450 (6,334) 746 Net amortization and deferral (8,412) (1,836) (9,298) Net periodic pension cost $ 6,205 $ 3,905 $ 2,981
The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets at January 28, 1995 and January 29, 1994 (in thousands):
JANUARY 28, 1995 January 29, 1994 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 obligations: Vested benefit obligation $ (18,990) $ (80,860) $ (21,352) $ (82,248) Accumulated benefit obligation $ (19,591) $ (86,546) $ (22,214) $ (86,450) Projected benefit obligation $ (20,897) $ (90,908) $ (24,317) $ (89,433) Plan assets at fair value 22,927 68,096 24,761 66,794 Projected benefit obligation less than (in excess of) plan assets 2,030 (22,812) 444 (22,639) Unrecognized net loss 666 19,505 1,855 20,431 Prior service cost not yet recognized in net periodic pension cost 1,042 (7,168) 416 (9,208) Adjustment required to recognize minimum liability -- (9,541) -- (7,841) Pension asset (liability) recognized in the consolidated balance sheets $ 3,738 $ (20,016) $ 2,715 $ (19,257)
The discount rate used in determining the actuarial present value of the projected benefit obligation was 8.5% and 7% at January 28, 1995 and January 29, 1994, respectively. The expected rate of increase in future compensation levels was 5.5% and 4.75% and the expected long-term rate of return on plan assets was 9% in fiscal 1994 and 1993. 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 28, 1995 and 40 January 29, 1994 include an intangible pension asset of $.1 million and $.1 million; an additional minimum pension liability of $9.5 million and $7.8 million; and a contra-equity balance of $9.4 million and $7.7 million, respectively. DEFINED CONTRIBUTION PLANS Subsidiaries of the Company sponsor defined contribution plans covering employees who meet eligibility requirements. Subsidiary contributions are based on a formula or are at the Company's discretion as specified in the plan documents. Contributions related to continuing operations were $8.9 million, $4.7 million and $4.0 million for fiscal 1994, 1993 and 1992, respectively. POSTRETIREMENT BENEFIT PLANS Subsidiaries of the Company have provided postretirement life and health coverage for certain retirees under plans currently in effect. Many of the subsidiaries' domestic employees may be eligible for coverage if they reach retirement age while still employed by the Company. The net periodic postretirement benefit cost of continuing operations, determined on the accrual basis, includes the following components (in thousands): [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Service cost $ 1,389 $ 2,131 $ 2,168 Interest cost on accumulated postretirement benefit obligation 3,117 4,385 6,865 Net amortization (1,897) (200) -- Net periodic postretirement benefit cost $ 2,609 $ 6,316 $ 9,033
The following table sets forth the amount of accumulated postretirement benefit obligation included in the Company's consolidated balance sheets (in thousands):
JANUARY 28, January 29, 1995 1994 Retirees $ 38,191 $ 48,559 Fully eligible active plan participants 11,671 12,425 Other active plan participants 13,678 13,845 Unrecognized prior service gain from plan amendments 26,866 23,764 Unrecognized net gain 13,677 7,408 Accumulated postretirement benefit obligation $ 104,083 $ 106,001
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.5% and 7% at January 28, 1995 and January 29, 1994, respectively. The plans are unfunded. For measurement purposes, a 12% annual rate of increase in the per capita cost of covered health care benefits was assumed for fiscal 1995; the rate was assumed to decrease 1% per year to 6% through fiscal 1998 and remain at that level thereafter. The health care cost trend rate assumption has an impact on the amounts reported; however, the Company's obligation is limited by certain amended provisions of the various plans, as further described below. 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 28, 1995 by $1.2 million and the aggregate of the 41 service and interest cost components of net periodic postretirement benefit cost for the year then ended by $.1 million. 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 inflation of health care costs will be limited to 6% per year through March 31, 1998. Subsequent to March 1998, the Company's portion of coverage costs will not be adjusted for inflation in health care costs. 13. RESTRUCTURING COSTS: During fiscal 1992, the Company incurred certain identifiable costs in connection with the restructuring of its Wallcoverings segment. The restructuring costs, aggregating $10.0 million, principally related to the closure of certain manufacturing and distribution facilities. 14. DISCONTINUED OPERATIONS: As of the end of fiscal 1992, the Company reclassified its Builders Emporium home improvement retail chain and its Engineering Group as discontinued operations. The Company recorded a loss on disposal of discontinued operations of $168.0 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 $125.5 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's inventory, real estate and other assets, (ii) provide for employee severance and other costs and (iii) realize a previously unrecognized loss as a result of the decision to retain Dura. Builders Emporium's inventory was sold during the third and fourth quarters of fiscal 1993 and all accounts receivable and accounts payable balances were settled as of January 28, 1995. Remaining assets and liabilities of Builders Emporium relate primarily to seven owned and three leased real estate properties and self-insured workers compensation 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 a post-closing purchase price adjustment of $5.1 million which was paid to the purchaser of Kayser-Roth on September 1, 1994. In connection with the sale, the Company received a 90 day $70 million senior unsecured bridge note from the purchaser which was collected with accrued interest on April 27, 1994. The gain on disposal of $28.1 million in the fourth quarter of fiscal 1993 related to the sale of Kayser-Roth. Net sales of discontinued operations in fiscal 1993 and fiscal 1992 aggregated approximately $790.1 million and $977.1 million, respectively. Subsequent to their respective reclassifications as discontinued operations, sales of Builders Emporium aggregated approximately $410.0 million and sales of Kayser-Roth aggregated approximately $95.0 million. Total interest expense of discontinued operations, including amounts allocated to discontinued operations, was $18.9 million and $23.0 million in fiscal 1993 and fiscal 1992, respectively. Interest expense of $13.1 million and $19.7 million during fiscal 1993 and 1992, 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. 42 In connection with certain discontinued operations, the Company has future minimum lease payments and future sublease rental receipts at January 28, 1995 as follows (in thousands):
Minimum Lease Sublease Rental Fiscal Year Ending Payments Receipts January 1996 $8,832 $6,250 January 1997 7,722 5,104 January 1998 4,755 2,764 January 1999 3,339 1,932 January 2000 2,485 1,628 Later Years 6,823 953 Total $33,956 $18,631
The Company has significant obligations relating to postretirement, casualty, environmental, lease and other liabilities of discontinued operations. In connection with the sale and acquisition of certain businesses, the Company has indemnified the purchasers and sellers for certain environmental liabilities, lease obligations and other matters. The Company believes it has provided adequate reserves for anticipated future costs of its discontinued operations. 15. COMMON STOCK AND PREFERRED STOCK: At January 29, 1994, 1,000 shares of $1.00 par value common stock were authorized, issued and outstanding. The Company's Certificate of Incorporation was amended on April 27, 1994 to authorize 150,000,000 shares of common stock, to reduce the par value of the common stock from $1.00 to $.01 per share and to authorize a 35,035 for 1 stock split of all outstanding shares of common stock. The stock split was effective April 27, 1994. In connection with the merger of Holdings II into the Company, the 35,035,000 shares of common stock of the Company outstanding prior to the Recapitalization were canceled and approximately 28,164,000 shares of common stock were issued in exchange for the common stock of Holdings II. All historical amounts and earnings per share computations have been adjusted to reflect the merger and the stock split. In connection with the 1989 merger of a wholly owned subsidiary of the Company into Group, approximately 4,250,000 shares of 15 1/2% Cumulative Exchangeable Redeemable Preferred Stock ("Merger Preferred Stock"), par value $.01 (authorized 16,000,000 shares), were issued. At January 29, 1994, approximately 6,268,000 shares were outstanding. Dividends payable in additional shares accrued during fiscal 1994, 1993, and 1992, including accretion for difference between redemption value and fair value at date of issuance, aggregated approximately $14.4 million, $23.7 million and $18.8 million, respectively. All of the shares of Merger Preferred Stock were redeemed in connection with the Recapitalization. At January 29, 1994, 30,000,000 shares of $.10 par value preferred stock of Group were authorized and approximately 1,806,000 shares of $2.50 Convertible Preferred Stock, Series A of Group ("Series A Preferred Stock") were outstanding. Each share of Series A Preferred Stock of Group had an annual dividend of $2.50 per share. All of the Series A Preferred Stock of Group was redeemed in connection with the Recapitalization. The Company has not declared or paid cash dividends on common stock since its incorporation. The New Credit Facilities prohibit the payment of dividends until the fifth full fiscal quarter following the closing date of the Recapitalization and then limit any dividends paid to a maximum of $3 million per quarter unless the principal amount of the Term Loan Facilities is reduced to less than $350 million and certain other conditions are satisfied (in which case the New Credit Facilities limit dividends paid in any year to a maximum of 25% of net income for the prior fiscal year). 43 16. STOCK OPTION PLANS: Effective on January 28, 1994, the Company adopted the 1993 Employee Stock Option Plan ("1993 Plan") for certain key employees. 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. The 1993 Plan authorizes the issuance of 3,119,466 shares of Common Stock. Effective on January 28, 1994, the Company granted options to acquire 3,119,466 shares of the Common Stock. 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 the 1994 Employee Stock Option Plan ("1994 Plan") was adopted 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 vest, in each case, as specified by the Company's compensation committee, generally over three years after issuance. At January 28, 1995, none of the outstanding options were exercisable. Upon a change of control, as defined, all of the above options become fully vested and exercisable. Stock option activity under the plans is as follows: [CAPTION]
Fiscal Year Ended JANUARY 28, 1995 January 29, 1994 NUMBER PRICE Number Price OF PER of Per SHARES SHARE Shares Share Outstanding beginning of year 3,119,466 $ 3.99- 8.26 -- $ -- Awarded 186,634 4.43-10.50 3,199,466 3.99-8.26 Cancelled (209,298) 3.99- 8.26 -- -- Outstanding end of year 3,096,802 $ 3.99-10.50 3,199,466 $ 3.99-8.26
On February 23, 1995, the Company adopted the 1994 Director's Stock Option Plan ("the Director's Plan") which provides for the issuance of a maximum of 600,000 options to non-management directors and directors not affiliated with a major stockholder. This plan is subject to stockholder approval and, as of January 28, 1995, no options were granted. 44 17. INCOME TAXES: 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 28, 1995 and January 29, 1994 were as follows (in thousands):
JANUARY 28, January 29, 1995 1994 Deferred tax assets: Employee benefits, including postretirement benefits $ 68,862 $ 69,358 Net operating loss carryforwards 136,709 151,913 Investment tax credit carryforwards 10,700 11,900 Alternative minimum tax credits 7,100 7,000 Other liabilities and reserves 99,132 130,056 Valuation allowance (268,908) (296,624) Total deferred tax assets 53,595 73,603 Deferred tax liabilities: Property, plant and equipment 54,972 51,258 Unamortized debt discount -- 22,985 Total deferred tax liabilities 54,972 74,243 Net deferred tax liability $ 1,377 $ 640
The valuation allowances of $268.9 million at January 28, 1995 and $296.6 million at January 29, 1994 were established because, in the Company's assessment, it was uncertain whether the net deferred tax assets would be realized. The provisions for income taxes applicable to continuing operations for fiscal 1994, 1993 and 1992 are summarized as follows (in thousands): [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Current Federal 150 $ -- $ (6,677) State and local 5,158 6,462 4,896 Foreign 6,056 7,697 5,739 11,364 14,159 3,958 Deferred State and local 162 (16) (5,936) Foreign 11 (2,866) (1,178) 173 (2,882) (7,114) Income tax expense (benefit) 11,537 $ 11,277 $ (3,156)
45 Domestic and foreign components of income (loss) from continuing operations before income taxes are summarized as follows (in thousands): [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Domestic $ 68,720 $ (172,183) $ (60,966) Foreign 18,563 10,135 12,469 87,283 $ (162,048) $ (48,497)
A reconciliation between income taxes computed at the statutory Federal rate (35% for fiscal 1994 and 1993 and 34% for fiscal 1992) and the provisions for income taxes applicable to continuing operations is as follows (in thousands): [CAPTION]
Fiscal Year Ended JANUARY 28, January 29, January 30, 1995 1994 1993 Amount at statutory Federal rate $ 30,549 $ (56,717) $ (16,489) State and local income taxes, net of Federal income tax benefit 3,391 6,229 (2,893) Foreign tax more (less) than Federal tax at statutory rate (360) 1,284 321 Foreign dividend income 23,509 -- -- Amortization and write-off of goodwill -- 46,421 1,258 Other 1,354 (2,035) (456) Valuation allowance (46,906) 16,095 15,103 Income tax expense (benefit) $ 11,537 $ 11,277 $ (3,156)
During 1994, the valuation allowance decreased $27.7 million from 1993. The net decrease resulted from the utilization of $46.9 million for continuing operations offset by $19.2 million in additions related primarily to the deferral of the net benefits arising from the loss on redemption of indebtedness and other miscellaneous adjustments. During 1993, the valuation allowance increased $48.4 million which consisted of $16.1 million related to continuing operations and $32.3 million related primarily to the establishment of reserves for discontinued operations and other miscellaneous adjustments. 46 At January 28, 1995, the Company had the following tax attribute carryforwards available for Federal income tax purposes (in thousands):
Expiration Amount Dates Net operating losses -- regular tax Preacquisition, subject to limitations $134,000 1996-2003 Postacquisition, unrestricted 257,000 2006-2009 $391,000 Net operating losses -- alternative minimum tax Preacquisition, subject to limitations $112,000 1996-2002 Postacquisition, unrestricted 187,000 2006-2008 $299,000 Investment tax and other credits Preacquisition, subject to limitations $ 10,700 1995-2003 Alternative minimum tax credits $ 7,100 No limit
The Company's Federal income tax returns for fiscal 1988 through 1991 are currently under examination by the Internal Revenue Service ("IRS"). The examination is at a preliminary stage. The IRS has outstanding challenges to the availability or timing of the utilization of $139 million of the Company's net operating losses ("NOLs") and other deductions. The Company disputes the proposed adjustments. If the IRS were to maintain its position and such position were to be upheld in litigation, the Company would become liable for the payment of interest and would lose a material amount of the NOLs and other deductions otherwise available to the Company in future years. Approximately $134.0 million of the Company's NOLs and $10.7 million of the Company's unused Federal tax credits may be used only against the income and apportioned tax liability of the specific corporate entity that generated such losses or credits or its successors. Because of the merger of Group and C&A Products, such NOLs and credits may be used against the income and apportioned tax liability of C&A Products, which the Company believes will have sufficient taxable income and apportioned tax liability to fully use such NOLs and to use a substantial portion of such tax credits. The Recapitalization did not constitute a "change in control" that would result in annual limitations on the Company's use of its NOLs and unused tax credits. However, future sales of common stock by the Company or the principal shareholders, or changes in the composition of the principal shareholders, could constitute such a "change in control". Management cannot predict whether such a "change in control" will occur. If such a "change of control" were to occur, the resulting annual limitations on the use of NOLs and tax credits would depend on the value of the equity of the Company and the amount of "built-in gain" or "built-in loss" in the Company's assets at the time of the "change in control", which cannot be known at this time. Income taxes paid, net of refunds, were $5.1 million, $3.3 million, and $16.8 million for fiscal 1994, 1993 and 1992, respectively. 18. 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. 47 RECEIVABLE FROM SALE OF BUSINESS, LONG-TERM INVESTMENTS -- Fair value approximates carrying value. INTEREST RATE PROTECTION AGREEMENTS -- The fair value of interest rate cap and corridor agreements is based on quoted market prices as if the agreements were entered into on the measurement date. LONG-TERM DEBT -- The fair value of publicly-traded long-term debt is based upon the quoted market price of the issues. The fair value of the remaining long-term debt of the Company approximates the carrying value. PREFERRED STOCK -- The fair value of the Company's redeemable preferred stock and the Series A Preferred Stock of Group is based upon the quoted market price. The fair value of the Series A Preferred Stock approximates the carrying value. The estimated fair values of the Company's financial instruments are summarized as follows (in thousands): [CAPTION]
JANUARY 28, 1995 January 29, 1994 ESTIMATED CARRYING FAIR Carrying Estimated AMOUNT VALUE Amount Fair Value Receivable from sale of business $ -- $ -- $ 70,000 $ 70,000 Long-term investments 4,364 4,364 1,046 1,046 Interest rate protection agreements 1,405 1,567 -- -- Long-term debt 566,077 566,077 923,554 1,017,927 Preferred stock -- -- 122,681 161,200
19. RELATED PARTY TRANSACTIONS: Pursuant to the Stockholders' Agreement among the Company, Group, Blackstone Partners and WP Partners dated December 1988, the Company paid Blackstone Partners and WP Partners, or their respective affiliates, operating, management and advisory fees aggregating $5.0 million annually until the agreement's amendment in July 1994. Under the Amended and Restated Stockholders' Agreement among the Company, C&A Products, Blackstone Partners and WP Partners, the Company pays Blackstone Partners and WP Partners, or their respective affiliates, each an annual monitoring fee of $1.0 million, which is payable quarterly and which commenced in the quarter ended October 29, 1994. During the first quarter of 1994, the Company incurred expenses of $2.5 million for services performed by affiliates of Blackstone Partners and WP Partners in connection with a comprehensive review of the Company's liabilities associated with discontinued operations, including surplus real estate, postretirement and workers compensation liabilities. The Company also incurred during the first quarter of 1994 expenses of $2.75 million for services performed by affiliates of WP Partners and $3.25 million for services performed by affiliates of Blackstone Partners in connection with the Company's review of refinancing and strategic alternatives as well as other advisory services; these fees are included in "selling, general and administrative expenses" for the first quarter of 1994. 48 In connection with the Company's discontinued operations, the Company incurred fees to affiliates of Blackstone Partners and WP Partners for services related to divestitures aggregating $4.3 million and $.5 million during fiscal 1993 and 1992, respectively. Amounts in fiscal 1993 related principally to divestiture fees on the sales of Kayser-Roth and the Engineering Group, and advisory services in connection with the sale of Builders Emporium's inventory, real estate and other assets. Fees incurred during the first quarter of 1994 included $.1 million to an affiliate of Blackstone Partners for advisory services in connection with the sale of Builders Emporium's inventory, real estate and other assets. In September 1993, an affiliate of Blackstone Partners negotiated with a real estate consultant to receive 20% of the incentive fees payable to the consultant by the Company in connection with the resolution of lease liabilities of Builders Emporium. Such affiliate received approximately $.5 million in fees during 1994 pursuant to this arrangement. 20. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS: The Company's continuing business segments consist of Automotive Products, which supplies interior trim products to the North American automotive industry; Interior Furnishings, which manufactures residential upholstery and commercial floorcoverings in the United States; and Wallcoverings, which produces residential and commercial wallpaper in North America. Direct and indirect sales to significant customers in excess of ten percent of net sales are as follows:
1994 1993 1992 General Motors Corporation 18.3% 16.1% 15.3% Ford Motor Company 12.1 N/A N/A Chrysler Corporation 10.3 10.0 10.2
49 Information about the Company's segments for fiscal 1994, 1993 and 1992 follows (in thousands):
OPERATING INCOME DEPRECIATION FISCAL YEAR ENDED NET (LOSS) AND CAPITAL JANUARY 28, 1995 SALES (B) AMORTIZATION (D) ASSETS (B) EXPENDITURES Automotive Products $ 904,855 $123,318 $ 25,279 $ 273,010 $ 55,834 Interior Furnishings 414,524 57,421 12,247 131,851 22,173 Wallcoverings 216,623 7,039 5,292 101,159 5,360 1,536,002 187,778 42,818 506,020 83,367 Corporate items -- (14,938) 1,064 175,051(F) 1,056 $ 1,536,002 $172,840 $ 43,882 $ 681,071 $ 84,423
Operating Income Depreciation Fiscal Year Ended Net (Loss) and Capital January 29, 1994 Sales (b) Amortization (d) Assets (b) Expenditures Automotive Products $ 677,867 $ (2,261) $ 25,873 $ 379,637 $ 29,208 Interior Furnishings 407,201 12,175 12,521 226,417 11,768 Wallcoverings 220,449 (17,856) 6,229 125,387 3,751 1,305,517 (7,942)(c) 44,623 731,441 44,727 Corporate items -- (38,282)(e) 384 187,384 196 1,305,517 (46,224) 45,007 918,825 44,923 Discontinued operations -- -- 16,340 -- 11,355 $ 1,305,517 $(46,224) $ 61,347 $ 918,825 $ 56,278 Operating Income Depreciation Fiscal Year Ended Net (Loss) and Capital January 30, 1993 (a) Sales (b) Amortization (d) Assets (b) Expenditures Automotive Products $ 643,827 $ 52,684 $ 29,419 $ 403,148 $ 20,563 Interior Furnishings 391,778 37,520 13,003 240,292 14,295 Wallcoverings 241,895 1,141 6,545 170,516 3,045 1,277,500 91,345(c) 48,967 813,956 37,903 Corporate items -- (24,461) 198 137,301 306 1,277,500 66,884 49,165 951,257 38,209 Discontinued operations -- -- 22,541 190,177 15,972 $ 1,277,500 $ 66,884 $ 71,706 $1,141,434 $ 54,181
(a) The fiscal year ended January 30, 1993 included fifty-three weeks. (b) Operating income (loss) is determined by deducting all operating expenses, including restructuring costs, goodwill write-off and other costs, from revenues. Operating expenses do not include interest expense. Assets of the business segments at January 30, 1993 include goodwill. Operating income (loss) reflects related amortization. (c) The segment operating loss of $7.9 million in 1993 includes the write-off of goodwill of $129.9 million; $68.4 million of which is included in the $2.3 million operating loss of the Automotive Products segment; $31.6 million of which is included in the $12.2 million operating income of the Interior Furnishings segment and $29.9 million of which is included in the $17.9 million operating loss of the Wallcoverings' segment. The Wallcoverings' segment operating income in 1992 includes restructuring costs of $10.0 million. (d) Depreciation and amortization excludes the amortization of deferred financing costs and debt discount which do not impact operating income (loss). (e) Corporate items in 1993 include $26.7 million of management equity plan expense. (f) Includes Carcorp's $83.5 million subordinated interest in the total receivables pool of $228.5 million, net of allowances for doubtful accounts. 50 21. COMMITMENTS AND CONTINGENCIES: LEGAL 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 Group. Among other things, this complaint asserts claims on behalf of certain of Group's former preferred stockholders alleging a conspiracy to manipulate the price of stock in 1986 for the purpose of triggering a redemption of certain outstanding preferred stock of Group. In 1992, Advanced Development & 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 Company and its subsidiaries also have other lawsuits and claims pending against them and have certain guarantees outstanding which were made in the ordinary course of business. 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 results of operations. ENVIRONMENTAL In 1988, the Federal government filed suit in the U.S. District Court for the District of Rhode Island against the Company's former Kayser-Roth 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 1991 to date, Kayser-Roth has paid approximately $3.6 million for past response costs, prejudgment interest and remediation. Kayser-Roth is in the process of complying with the remainder of the order. The Company 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. In estimating the total cost of investigation and remediation, the Company has considered, among other things, the Company's prior experience in remediating contaminated sites, remediation efforts by other parties, data released by the EPA, the professional judgment of the Company's environmental experts, outside environmental specialists and other experts, and the likelihood that other parties which have been named as PRPs will have the financial resources to fulfill their obligations at sites where they and the Company may be jointly and severally liable. Under the scheme of joint and several liability, the Company could be liable for the full costs of investigation and remediation even if additional parties are found to be responsible under the applicable laws. It is difficult to estimate the total cost of investigation and remediation due to various factors including incomplete information regarding particular sites and other PRPs, 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. The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. In its assessment 51 the Company makes its best estimate of the liability based upon information available to the Company at that time, including the professional judgment of the Company's environmental experts, outside environmental specialists and other experts. As of January 28, 1995, excluding sites at which the Company's participation is anticipated to be de minimis or otherwise insignificant or where the Company is being indemnified by a third party for the liability, there are 14 sites where the Company is participating in the investigation or remediation of the site either directly or through financial contribution, and 11 additional sites where the Company is alleged to be responsible for costs of investigation or remediation. As of January 28, 1995, the Company's estimate of its liability for these 25 sites is $29.6 million. As of January 28, 1995, the Company has established reserves of approximately $31.7 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. 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. 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 such 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. OTHER COMMITMENTS 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, C&A Products, as successor by merger to Group, remains contingently liable under most of the leases. C&A Products' 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 results of operations. 52 22. QUARTERLY FINANCIAL DATA (UNAUDITED):
(in thousands, except for per share data) FIRST SECOND THIRD FOURTH FISCAL 1994 QUARTER QUARTER QUARTER QUARTER Net sales $390,446 $359,749 $403,722 $382,085 Gross margin 100,954 87,357 92,976 89,846 Income from continuing operations before income taxes 15,372 10,293 33,941 27,677 Income from continuing operations 12,754 7,323 30,966 24,703 Net income (loss) 12,754 (99,205) 30,966 24,703 Primary and fully diluted earnings (loss) per share before extraordinary loss .19 (2.17) .43 .34 Primary and fully diluted earnings (loss) per share .19 (4.99) .43 .34 Common stock prices High -- 10 9/16 10 7/8 9 1/4 Low -- 10 8 5/8 7 7/8 First Second Third Fourth Fiscal 1993 Quarter Quarter Quarter Quarter Net sales $339,043 $ 289,694 $ 334,629 $342,151 Gross margin 78,948 61,230 84,445 85,104 Loss from continuing operations before income taxes (2,202) (18,343) (125,725) (15,778) Loss from continuing operations (5,473) (20,628) (129,821) (17,403) Net income (loss) (9,069) (149,430) (129,871) 10,706 Primary and fully diluted earnings (loss) per share (.54) (5.70) (4.99) .16
Net loss in the second quarter of fiscal 1994 includes an extraordinary loss of $106.5 million related to the Recapitalization. Loss from continuing operations before income taxes in the third quarter of fiscal 1993 includes the write-off of goodwill of $129.9 million. The fourth quarter of fiscal 1993 includes management equity plan expense of $26.7 million. Net loss in fiscal 1993 includes provisions for loss (gain) on disposal of discontinued operations of $2.2 million, $125.4 million and ($28.1) million in the first, second and fourth quarters, respectively. The Company's operations are not subject to significant seasonal influences. 53 23. SUBSEQUENT EVENT: On March 31, 1995, C&A Products repaid and terminated the Bridge Receivables Facility and entered, through a trust formed by its wholly-owned, bankruptcy remote subsidiary Carcorp, into a new receivables facility (the "Receivables Facility") comprised of (i) term certificates, which were issued on March 31, 1995, in an aggregate face amount of $110 million and having a term of five years and (ii) variable funding certificates, which represent revolving commitments, of up to an aggregate of $75 million and having a term of five years. Carcorp purchases on a revolving basis and transfers to the trust virtually all trade receivables generated by C&A Products and certain of its subsidiaries (the "Sellers"). Availability under the variable funding certificates at any time depends primarily on the amount of receivables generated by the Sellers from sales to the auto industry, the rate of collection on those receivables and other characteristics of those receivables which affect their eligibility (such as bankruptcy or downgrading below investment grade of the obligor, delinquency and excessive concentration). Based on these criteria, at March 31, 1995 approximately $30 million was available under the variable funding certificates, of which approximately $12 million was utilized. The term certificates bear interest at an average rate equal to one-month LIBOR plus .34% per annum. The variable funding certificates bear interest, at Carcorp's option, at LIBOR plus .40% per annum or a prime rate. 54 EX-21 14 EXHIBIT 21 Exhibit 21
Subsidiaries of Collins & Aikman Corporation1 Company Jurisdiction Collins & Aikman Products Co.2 Delaware Ackerman Associates, Inc. New York Ack-Ti-Lining, Inc. New York The Akro Corporation Delaware Builders Emporium Payroll Services, Inc. Delaware Cepco Incorporated Delaware Collins & Aikman Automotive International, Inc. Delaware Collins & Aikman Floor Coverings, Inc. Delaware Collins & Aikman Holdings Canada, Inc. Canada WCA Canada Inc. Canada Imperial Wallcoverings (Canada), Inc.3 Canada Collins & Aikman Products GmbH Austria Carcorp, Inc. Delaware Collins & Aikman United Kingdom, Ltd.4 United Kingdom Imperial Wallcoverings Limited United Kingdom Dura Convertible Systems, Inc.5 Delaware Dura Convertible Systems de Mexico, S.A. de C.V.6 Mexico Imperial Wallcoverings, Inc. Delaware Marketing Service, Inc. Delaware Collins & Aikman de Mexico, S.A. de C.V.7 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 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 Formerly Collins & Aikman Holdings Corporation. 2 Formerly Collins & Aikman Corporation. 3 Formerly Berkley Wallcoverings, Inc.; 24% owned by Imperial Wallcoverings, Inc. 4 One share owned by Collins & Aikman Products Co. and Ronald T. Lindsay, as joint owners. 5 Formerly Dura Acquisition Corp. 6 One share owned by The Collins & Aikman Products Co. 7 One share owned by The Akro Corporation
EX-23 15 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-53321 and No. 33-53323. ARTHUR ANDERSEN LLP Charlotte, North Carolina, April 28, 1995. EX-27 16 EXHIBIT 27
5 This schedule contains summary financial information extracted from the company's consolidated balance sheet and consolidated statement of operations for the twelve months ended January 28, 1995 and such is qualified in its entirety by reference to such financial statements. 12-MOS JAN-28-1995 JAN-28-1995 3,317 0 98,482 6,400 196,096 329,679 557,367 269,808 681,071 262,129 547,963 705 0 0 (413,327) 681,071 1,536,002 1,536,002 1,164,869 1,164,869 0 1,132 75,683 87,283 11,537 75,746 0 (106,528) 0 (30,782) (2.40) (2.40)
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