-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SU6kth+Jk65q+hQeAA1vBVh2bwntVv69JUfRxD8eq66XF9qy1xs/TaNPE/BNCjsG ltK6DIoFDq6FjnvfR8viug== 0000912908-08-000052.txt : 20080509 0000912908-08-000052.hdr.sgml : 20080509 20080509170023 ACCESSION NUMBER: 0000912908-08-000052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20080330 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOAMEX INTERNATIONAL INC CENTRAL INDEX KEY: 0000912908 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 050473908 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22624 FILM NUMBER: 08819428 BUSINESS ADDRESS: STREET 1: 1000 COLUMBIA AVENUE CITY: LINWOOD STATE: PA ZIP: 19061 BUSINESS PHONE: 6108593000 MAIL ADDRESS: STREET 1: 1000 COLUMBIA AVE CITY: LINWOOD STATE: PA ZIP: 19061 10-Q 1 fii10q033008.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 30, 2008

 

Commission file number 0-22624

 


 

FOAMEX INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

05-0473908

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

 

1000 Columbia Avenue

Linwood, PA

19061

(Address of principal

(Zip Code)

executive offices)

 

Registrant’s telephone number, including area code: (610) 859-3000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act (check one) Large accelerated filer o Accelerated filer x Non-accelerated filer o

 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the a court. YES x NO o

 

The number of shares of the registrant’s common stock outstanding as of May 5, 2008 was 24,949,597.


 

FOAMEX INTERNATIONAL INC.

 

INDEX

 

Page

Part I.

Financial Information

 

 

Item 1.

Financial Statements (unaudited).

 

Condensed Consolidated Statements of Operations – Quarters Ended

 

March 30, 2008 and April 1, 2007

3

 

 

Condensed Consolidated Balance Sheets as of March 30, 2008 and December 30, 2007

4

 

Condensed Consolidated Statements of Cash Flows – Quarters Ended

 

March 30, 2008 and April 1, 2007

5

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results

 

of Operations.

21

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

27

 

 

Item 4.

Controls and Procedures.

27

 

Part II.

Other Information

 

 

Item 1.

Legal Proceedings.

29

 

 

Item 1A.

Risk Factors.

29

 

 

Item 6.

Exhibits.

29

 

Signatures

30

 

 

 

2

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

 

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

 

Quarters Ended 

 

March 30,

 

April 1,

 

2008

 

2007

 

(thousands, except per share amounts)

NET SALES

$241,469

 

$306,194

COST OF GOODS SOLD

220,315

 

266,445

GROSS PROFIT

21,154

 

39,749

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

16,280

 

17,290

GAIN ON SALE OF ASSETS

565

 

104

RESTRUCTURING CHARGES

962

 

403

GOODWILL IMPAIRMENT CHARGE

38,478

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

(34,001)

 

22,160

INTEREST AND DEBT ISSUANCE EXPENSE

(13,498)

 

(29,200)

INCOME FROM EQUITY INTEREST IN JOINT VENTURE

 

466

OTHER INCOME (EXPENSE), NET

(850)

 

(175)

REORGANIZATION ITEMS, NET

 

(8,256)

 

 

 

 

LOSS FROM CONTINUING OPERATIONS BEFORE
      INCOME TAXES

(48,349)

 

(15,005)

PROVISION FOR INCOME TAXES

228

 

790

LOSS FROM CONTINUING OPERATIONS

(48,577)

 

(15,795)

LOSS FROM DISCONTINUED OPERATIONS

 

(1,801)

NET LOSS

$(48,577)

 

$(17,596)

 

 

 

 

LOSS PER SHARE – BASIC:

 

 

 

LOSS FROM CONTINUING OPERATIONS

$    (2.05)

 

$    (0.93)

LOSS FROM DISCONTINUED OPERATIONS

 

(0.11)

NET LOSS

$    (2.05)

 

$    (1.04)

 

 

 

 

LOSS PER SHARE - DILUTED

 

 

 

LOSS FROM CONTINUING OPERATIONS

$    (2.05)

 

$    (0.93)

LOSS FROM DISCONTINUED OPERATIONS

 

(0.11)

NET LOSS

$    (2.05)

 

$    (1.04)

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES - BASIC

23,741

 

16,897

WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED

23,741

 

16,897

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3

 


 

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

 

March 30, 2008

December 30, 2007

 

ASSETS

(thousands, except share data)

CURRENT ASSETS

 

Cash and cash equivalents

$    4,629

 

$    5,182

Accounts receivable, net of allowances of $11,645 and $10,189

142,343

 

148,696

Inventories

91,518

 

94,157

Assets held for sale

5,036

 

5,036

Other current assets

11,220

 

11,514

Total current assets

254,746

 

264,585

 

 

 

 

Property, plant and equipment

316,632

 

315,678

Less accumulated depreciation

(226,542)

 

(224,809)

NET PROPERTY, PLANT AND EQUIPMENT

90,090

 

90,869

 

 

 

 

GOODWILL

13,869

 

52,347

 

 

 

 

DEBT ISSUANCE COSTS, net of accumulated amortization of $2,927 and $2,284

16,447

 

13,220

 

 

 

 

SOFTWARE COSTS, net of accumulated amortization of $16,436 and $15,762

3,275

 

3,949

 

 

 

 

OTHER ASSETS

5,930

 

5,580

 

 

 

 

TOTAL ASSETS

$384,357

 

$430,550

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

 

 

CURRENT LIABILITIES

 

 

 

Current portion of long-term debt

$    6,138

 

$    6,189

Accounts payable

96,330

 

101,236

Accrued employee compensation and benefits

13,974

 

13,099

Accrued interest

9,120

 

9,780

Accrued customer rebates

5,138

 

6,272

Cash overdrafts

4,805

 

729

Other accrued liabilities

18,811

 

19,071

Total current liabilities

154,316

 

156,376

 

 

 

 

LONG-TERM DEBT

534,732

 

527,904

 

 

 

 

ACCRUED EMPLOYEE BENEFITS

23,716

 

26,681

 

 

 

 

OTHER LIABILITIES

26,745

 

17,710

 

 

 

 

Total liabilities

739,509

 

728,671

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIENCY

 

 

 

Preferred Stock Series D in 2008, par value $0.01 per share:

 

 

 

Authorized 7,000,000 shares in total, 60,000 shares Series D, none issued

 

Common Stock, par value $.01 per share:

 

 

 

Authorized 193,000,000 shares

 

 

 

Issued 25,216,212 and 24,375,480 shares, respectively

252

 

244

Additional paid-in capital

246,403

 

247,271

Accumulated deficit

(527,805)

 

(479,228)

Accumulated other comprehensive loss

(36,812)

 

(29,218)

Common stock held in treasury, at cost: 885,199 shares

(27,969)

 

(27,969)

Shareholder note receivable

(9,221)

 

(9,221)

Total stockholders’ deficiency

(355,152)

 

(298,121)

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

$384,357

 

$430,550

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 


 

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

Quarters Ended

 

March 30,

 

April 1,

 

2008

 

2007

 

(thousands)

OPERATING ACTIVITIES

 

 

 

Net loss

$(48,577)

 

$(17,596)

Adjustments to reconcile net loss to net cash used for operating activities

 

 

 

Loss from discontinued operations

 

1,801

Depreciation and amortization

4,060

 

4,299

Amortization of debt issuance costs and other noncash interest

2,969

 

1,463

Goodwill impairment charge

38,478

 

Other operating activities

(1,006)

 

17,660

Accrued interest

(660)

 

(87,480)

Changes in operating assets and liabilities, net

   (588)

 

(765)

 

 

 

 

Net cash used for operating activities before discontinued

 

 

 

operations and reorganization items

(5,324)

 

(80,618)

Cash used for discontinued operations

 

(383)

Cash used for reorganization items

 

(10,339)

Net cash used for operating activities

(5,324)

 

(91,340)

 

 

 

 

INVESTING ACTIVITIES

 

 

 

Capital expenditures

(2,879)

 

(2,818)

Proceeds from sale of assets

667

 

1,021

Other investing activities

 

(37)

Net cash used for investing activities

(2,212)

 

(1,834)

 

 

 

 

FINANCING ACTIVITIES

 

 

 

Repayments of DIP revolving loans, net

 

(56,331)

Proceeds from revolving loans, net

6,830

 

20,991

Proceeds from term loans

 

600,000

Repayments of long-term debt

(53)

 

(580,134)

Debt issuance costs

(3,870)

 

(16,650)

Net proceeds from rights offering

 

143,072

Debt prepayment premiums

 

(11,767)

Increase (decrease) in cash overdrafts

4,076

 

(4,223)

Other

 

23

Net cash provided by financing activities

6,983

 

94,981

 

 

 

 

Net increase (decrease) in cash and cash equivalents

(553)

 

1,807

 

 

 

 

Cash and cash equivalents at beginning of period

5,182

 

5,974

 

 

 

 

Cash and cash equivalents at end of period

$ 4,629

 

$    7,781

 

 

 

 

Supplemental Information:

 

 

 

Cash paid for interest

$11,189

 

$115,441

Cash paid (refunded) for income taxes, net

$   (152)

 

$       124

Noncash mark to market adjustment for derivatives

$(7,378)

 

$       500

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.

BASIS OF PRESENTATION

 

Organization

 

Foamex International Inc. (the “Company”) operates in the flexible polyurethane and advanced polymer foam products industry. The Company’s operations are primarily conducted through its wholly-owned subsidiary, Foamex L.P. Foamex L.P. conducts foreign operations through Foamex Canada Inc. (“Foamex Canada”) and Foamex Latin America, Inc. Financial information concerning the business segments of the Company is included in Note 14.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited and do not include certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary to present fairly the Company’s consolidated financial position and results of operations, have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2007 Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of trends or of results for a full year.

 

The condensed consolidated balance sheet as of December 30, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

 

Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Adoption of New Accounting Pronouncements

 

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), which addresses how companies should measure fair value when required for recognition or disclosure purposes under GAAP. The standard’s provisions will be applied to existing accounting measurements and related disclosure that are based on fair value. SFAS No. 157 does not require any new fair value measurements. The standard applies a common definition of fair value to be used throughout GAAP, with emphasis on fair value as a “market-based” measurement versus an entity-specific measurement and establishes a hierarchy of fair value measurement methods. The disclosure requirements are expanded to include the extent to which companies use fair value measurements, the methods and assumptions used to measure fair value and the effect of fair value measurements on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The FASB, on February 12, 2008, issued FASB Staff Position (“FSP”) FAS No. 157-2. This FSP permits a delay in the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay is intended to allow the Board and constituents additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS No. 157. On February 14, 2008, the FASB issued FSP FAS 157-1 to exclude SFAS No. 13, “Accounting for Leases”, and its related interpretive accounting pronouncements from the scope of SFAS No. 157.

 

The Company adopted SFAS No. 157 as of December 31, 2007, with the exception of the application of the statement to non-recurring non-financial assets and liabilities. Non-recurring non-financial assets and liabilities for which the Company has not applied the provision of SFAS No. 157 include those measured at fair value in goodwill impairment testing, asset retirement obligations initially measured at fair value, and those initially measured

6

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.

BASIS OF PRESENTATION (continued)

 

at fair value in a business combination. During the quarter ended March 30, 2008, the Company applied SFAS No. 157 to measure the fair value of its derivatives.

 

New Accounting Standards

 

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) addresses the recognition and measurement of identifiable assets acquired, liabilities assumed, and non-controlling interests in business combinations. SFAS No. 141(R) also requires disclosure that enables users of the financial statements to better evaluate the nature and financial effect of business combinations. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. SFAS No. 141(R) will be adopted by the Company on December 29, 2008.

 

In December 2007, the FASB issued Statement of Financial Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”), which changes the accounting and reporting for minority interests and for the deconsolidation of a subsidiary. It also clarifies that a third-party, non-controlling interest in a consolidated subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also requires disclosure that clearly identifies and distinguishes between the interests of the parent and the interest of the non-controlling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. SFAS No. 160 will be adopted by the Company on December 29, 2008. The Company does not expect the impact of adoption on its consolidated financial statements to be material.

 

In March 2008, the Financial Accounting Standards Board issued Statement of Financing Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 achieves these improvements by required disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 will be adopted by the Company on December 29, 2008. The Company is currently evaluating the disclosure impact of adoption on its consolidated financial statements.

 

2.

CHANGES IN BUSINESS

 

During 2007, the Company consolidated the operations of its Eddystone, PA manufacturing facility into its Fort Wayne, IN manufacturing facility. The Company intends to sell the Eddystone, PA facility and has included the $5.0 million net book value of the assets as held for sale in the accompanying condensed consolidated balance sheets at March 30, 2008 and December 30, 2007.

 

On September 26, 2007, the Company completed the sale of its stand-alone carpet cushion facilities located in Fairless Hills, PA; Dallas, TX; and Orlando, FL for net proceeds of approximately $9.7 million. The three plants were components under Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and continuing cash flows of the Company that are related to the three plants are limited to the discretionary sale of scrap foam to the buyer of the plants which aggregated $0.9 million in the period from the sale through December 30, 2007 and $0.7 million in the quarter ended March 30, 2008. The Company will not have any significant continuing involvement in the operation of the three plants. Therefore, the operations and disposition of the three plants are reported as discontinued operations in the

7

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

2.

CHANGES IN BUSINESS (continued)

 

accompanying condensed consolidated statement of operations for the quarter ended April 1, 2007. The Company has repaid approximately $9.7 million of first lien term debt with the sale proceeds and included interest expense in discontinued operations of $0.2 million in the quarter ended April 1, 2007.

 

Results of operations for the three plants were:

 

 

 

Quarter Ended

April 1, 2007

 

 

(thousands, except per share amounts)

Net sales

 

$10,969

Gross profit

 

$ (1,291)

Net loss

 

$ (1,801)

Net loss per diluted share

 

$   (0.11)

 

3.

GOODWILL IMPAIRMENT

 

At the end of 2007, the Company conducted a step one goodwill impairment test of its reporting units. The Technical Products reporting unit passed the step one impairment test. However, the Foam Products reporting unit failed the step one test, reflecting industry conditions, and indicating that its goodwill was impaired. In accordance with Statement of Financial Accounting Standards No. 142, the Company estimated the impairment at $36.9 million and recorded a charge for that amount in the fourth quarter of 2007. The Company obtained formal third party appraisals of the reporting unit’s property, plant and equipment and its intangible assets in the quarter ended March 30, 2008 to determine the final amount of the goodwill impairment and, as a result, recorded an additional goodwill impairment charge of $38.5 million. The remaining goodwill on the condensed consolidated balance sheet at March 30, 2008 is related to the Technical Products reporting unit.

 

4.

REORGANIZATION ITEMS

 

The Company, which emerged from bankruptcy on February 12, 2007, incurred certain professional fees and other expenses directly associated with the bankruptcy cases. Such costs are classified as reorganization items, net in the accompanying condensed consolidated statement of operations for the quarter ended April 1, 2007 and consisted of the following:

 

 

Quarter Ended

 

April 1, 2007

 

(thousands)

Professional fees associated with bankruptcy

$(9,676)

Net gain on rejected contracts

1,420

 

$(8,256)

 

 

8


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

5.

LOSS PER SHARE

 

The following table shows the amounts used in computing loss per share.

 

 

Quarters Ended

 

March 30,

 

April 1,

 

2008

 

2007

 

(thousands, except per share amounts)

Basic and diluted:

 

 

 

Loss from continuing operations

$(48,577)

 

$(15,795)

Loss from discontinued operations

 

(1,801)

Net loss

$(48,577)

 

$(17,596)

 

 

 

 

Weighted average common shares outstanding (a)

23,741

 

16,897

 

 

 

 

Loss from continuing operations

$    (2.05)

 

$   (0.93)

Loss from discontinued operations

 

(0.11)

Net loss per share

$    (2.05)

 

$   (1.04)

 

(a)

Weighted average shares outstanding are the same for basic and diluted because the inclusion of any incremental shares would be antidilutive. Potential incremental shares from stock options of 1,034,927 in the quarter ended March 30, 2008 and 162,033 in the quarter ended April 1, 2007 were not included in the calculation of diluted earnings per share because the Company had a net loss and these shares would be antidilutive.

 

6.

ACCOUNTING FOR STOCK-BASED COMPENSATION

 

The Foamex International Inc. 2007 Management Incentive Plan became effective on February 12, 2007 (the “MIP”). The MIP provides for the issuance of stock incentive awards, including options and stock appreciation rights, for up to 2,325,000 shares of common stock.

 

The Foamex International Inc. 2002 Stock Award Plan, as amended (the “2002 Stock Award Plan”) provides for the issuance of nonqualified and incentive stock options for common stock of the Company. Eligibility extends to employees, directors and consultants of the Company, including its subsidiaries and affiliates. At the Annual Meeting of Stockholders on May 25, 2004, stockholders approved an increase in the number of shares reserved for issuance under the 2002 Stock Award Plan by 625,000 shares. As of March 30, 2008, 1,150,000 shares of the Company’s common stock are reserved for issuance under the 2002 Stock Award Plan.

 

The 2002 Stock Award Plan also provides for stock appreciation rights, restricted stock, phantom stock units, performance share units and/or stock bonuses, although none of these awards have been issued. Of the 1,150,000 shares of the Company’s common stock reserved under the 2002 Stock Award Plan, 125,000 shares are available for awards of restricted stock, phantom stock units, performance share units and/or stock bonuses.

 

The price and terms of options under the plans discussed above are at the discretion of the Company, except that the term of the option cannot exceed ten years.

 

Stock-based compensation expense was $0.2 million and $0.1 million in the quarters ended March 30, 2008 and April 1, 2007, respectively. There were no tax benefits due to the valuation allowance on U.S. deferred tax assets.

 

9

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

6.

ACCOUNTING FOR STOCK-BASED COMPENSATION (continued)

 

Stock Options

 

During the first quarter of 2008, the Company granted stock options for 629,946 shares under the MIP. Terms of the stock options included four-year pro-rata vesting and a 10-year term. There were no option grants in the first quarter of 2007.

 

The fair value of each option was estimated on the grant date using the Black-Scholes option-pricing model. Based on the assumptions listed below, the weighted average fair value of options granted with an option price equal to fair market value was $2.24 per option in 2008. Expense is recognized on a straight-line basis over the expected service period.

 

Expected life in years

 

4.59

Risk-free interest rate

 

2.37%

Volatility

 

106.14%

Dividend yield

 

0.00%

 

The assumption for the expected life of the options was based on the Company’s experience both in terms in the type of awards and employee groups. The risk-free interest rate was based on the weighted average U.S. Treasury strip rates over the contractual term of the stock options. Volatility was based on the long-term historical measurement matching the expected life of the option adjusted for the volatility impact during the bankruptcy period.

 

The following table includes option activity for the first quarter of 2008.

 

 

First Quarter of 2008

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Exercise

 

Contractual

 

Instrinsic

 

Shares

 

Price

 

Term

 

Value

 

 

 

 

 

(thousands)

Outstanding at December 31, 2007

419,547

 

$14.69

 

 

 

 

Granted

629,946

 

$3.11

 

 

 

 

Exercised

 

 

 

 

 

 

Forfeited/expired

(14,566)

 

$27.36

 

 

 

 

Outstanding at March 30, 2008

1,034,927

 

$7.47

 

8.3 years

 

$–

 

 

 

 

 

 

 

 

Exercisable at March 30, 2008

186,159

 

$19.87

 

2.2 years

 

$–

 

Total unrecognized compensation cost related to unvested stock option awards was $1.9 million at March 30, 2008 and is expected to be recognized over a weighted-average period of 3.3 years.

 

Performance Stock Awards

 

The Company has issued performance stock awards under the MIP. Terms of the performance stock awards included annual vesting over a 3-year period. Annual vesting for the awards outstanding at December 31, 2007 and a portion of the awards granted in 2008 is dependent on the attainment of annual earnings levels specified in the MIP.

 

The fair value of the performance stock awards is based on the grant-date stock price and related compensation expense is based on the number of shares that are probable of being earned during the respective year.

 

10

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

6.

ACCOUNTING FOR STOCK-BASED COMPENSATION (continued)

 

The following table includes performance stock award activity for the quarter ended March 30, 2008.

 

 

 

 

 

Weighted Average

 

 

 

 

Grant Date

Performance Stock Awards

 

Shares

 

Fair Value

Outstanding at December 31, 2007, unvested

 

87,772

 

$  9.28

Granted

 

379,306

 

$  3.11

Vested

 

 

 

Cancelled

 

(29,441)

 

$10.20

Outstanding at March 30, 2008, unvested

 

437,637

 

$  3.87

 

At March 30, 2008, there was $0.9 million of unrecognized compensation that may be recognized over the 2008-2011 period based on the attainment of the performance levels discussed above.

 

Deferred Stock Awards

 

During the first quarter of 2008, the Company issued deferred common stock awards under the MIP. Terms of the deferred stock awards included three-year pro-rata vesting from the grant date.

 

During 2007, the Company issued deferred common stock awards under the MIP. Terms of the deferred stock awards included four-year pro-rata vesting from the 2007 grant date.

 

The fair value of the deferred stock awards is the grant-date stock price and related compensation expense is recognized over the requisite service period.

 

The following table includes deferred stock award activity for the first quarter of 2008.

 

 

 

 

 

Weighted Average

 

 

 

 

Grant Date

Deferred Stock Awards

 

Shares

 

Fair Value

Outstanding at December 31, 2007, unvested

 

37,850

 

$10.20

Granted

 

379,306

 

$  3.11

Vested

 

 

 

Cancelled

 

 

 

Outstanding at March 30, 2008, unvested

 

417,156

 

$  3.75

 

At March 30, 2008, there was $1.1 million of unrecognized compensation that may be recognized over the 2008-2011 period assuming completion of the service requirements.

 

7.

RESTRUCTURING CHARGES

 

Restructuring charges in the quarter ended March 30, 2008 are primarily shutdown costs for a manufacturing facility and severance expenses related to the termination of 25 employees.

 

The following table sets forth the components of the Company’s restructuring accruals and activity for the quarter ended March 30, 2008:

 

 

 

 

Plant Closure

 

Personnel

 

Total

 

and Leases

 

Reductions

 

(millions)

Balance at December 31, 2007

$4.5

 

$1.0

 

$3.5

Restructuring charges

1.0

 

0.5

 

0.5

Cash spending

(2.2)

 

(0.9)

 

(1.3)

Balance at March 30, 2008

$3.3

 

$0.6

 

$2.7

 

 

11

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

8.

INVENTORIES

 

The components of inventories are listed below.

 

 

March 30,

 

December 30,

 

2008

 

2007

 

(thousands)

Raw materials and supplies

$58,426

 

$58,947

Work-in-process

21,930

 

23,491

Finished goods

11,162

 

11,719

Total

$91,518

 

$94,157

 

9.

REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT

 

The components of revolving credit borrowings and long-term debt are listed below.

 

 

March 30,

 

December 30,

 

2008

 

2007

 

(thousands)

New senior secured credit facilities (1)

 

 

 

Revolving credit facility

$  14,732

 

$   7,902

First lien term loan

345,000

 

345,000

Second lien term loan

175,000

 

175,000

 

 

 

 

Industrial revenue bond (2)

6,000

 

6,000

Other

138

 

191

 

540,870

 

534,093

 

 

 

 

Less current portion

6,138

 

6,189

 

 

 

 

Long-term debt

$534,732

 

$527,904

 

 

(1)

Subsidiary debt of Foamex L.P., guaranteed by the Company, FMXI, LLC and Foamex Canada.

 

(2)

Subsidiary debt of Foamex L.P.

 

New Senior Secured Credit Facilities

 

On February 12, 2007, Foamex L.P. entered into new senior secured credit facilities consisting of a $175.0 million revolving credit facility, including a sub-limit of $45.0 million for letters of credit and term loan facilities aggregating $600.0 million including $425.0 million under a first lien term loan facility and $175.0 million under a second lien term loan facility. Substantially all of the assets of Foamex L.P. and its domestic subsidiaries and Foamex Canada are pledged as collateral for the related borrowings. Borrowings under the revolving credit facility are subject to a borrowing base formula based on eligible accounts receivable and bear interest at floating rates based upon either LIBOR or a Base Rate, as defined, including an applicable margin. The revolving credit facility will mature on February 12, 2012. Borrowings under the term loan facilities also bear interest at floating rates based upon and including a margin over either Eurodollar or a Base Rate, as defined. The first lien term loan facility is subject to quarterly principal repayments initially equal to approximately $1.1 million, and annual excess cash flow repayments, as defined, with the balance maturing on February 12, 2013. The second lien term loan facility matures on February 12, 2014 and is subject to a prepayment premium of 2.0% during the first year and 1.0% during the second year. Foamex L.P. capitalized debt issuance costs of $17.1 million relating to the facilities, which is being amortized over the life of the debt using the effective interest method.

 

 

 

12

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9.

REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

 

Foamex L.P. borrowed approximately $13.4 million under the $175.0 million revolving credit facility and the full amounts of the first lien term loan facility and second lien term loan facility on February 12, 2007 to pay amounts due under the Company’s second amended plan of reorganization (the “Plan”). The initial weighted average interest rates were 8.25%, 7.57% and 10.07%, respectively.

 

Foamex L.P. is subject to a leverage ratio covenant, as defined, under both term loan facilities and an interest coverage ratio covenant, as defined, under the first lien term loan facility as well as an annual capital expenditure maximum under the first lien term loan and the revolving credit facilities. In addition, both term loan facilities and the revolving credit facility contain subjective acceleration clauses in the event of an undefined material adverse change in the ability of Foamex L.P. to perform its obligations under the facilities. If a material adverse change did occur, the lenders could exercise various options they have under the credit agreements, the most severe of which would be to demand immediate payment of all amounts outstanding under the facilities.

 

Foamex L.P. was in compliance with its debt covenants as of December 30, 2007 and as of the March 30, 2008 Test Period, as defined, after application of the Equity Cure, as discussed below. The loan agreements governing the first and second lien term loans permit the Company to cure violations of the leverage ratio and the consolidated interest coverage ratio covenants through sales of stock to certain holders of its common stock who meet specified criteria, the proceeds of which when contributed to Foamex L.P. will be deemed to be an addition to Consolidated EBITDA, as defined, for purposes of the ratio calculations. The sales can be made in no more than two of any four consecutive quarters and are limited to the lesser of (i) $20.0 million and (ii) the amount required to cure such violations for each quarter. On February 13, 2008, the Company received firm, legally enforceable commitments from eligible holders of its common stock to make up to $20.0 million of additional investments to be used to cure potential violations of the leverage ratio and consolidated interest coverage ratio covenants (the “Equity Cure”). The eligible holders are entitled to a premium, payable in shares of the Company’s common stock, equal to 5% of the maximum amount committed. The Company issued 620,083 shares of common stock to the applicable stockholders in satisfaction of the premium liability on April 22, 2008.

 

On April 17, 2008, the Company exercised its option under the Equity Cure to require the applicable stockholders to purchase shares of its capital stock for an aggregate amount of $18.5 million. The stockholders purchased 18,500 shares of a new Series D preferred stock for $1,000 per share, which was issued to them on April 22, 2008. The Company contributed the proceeds from the preferred stock sale to Foamex L.P. to be used to pay for ordinary course expenditures and to be applied as required to cure any covenant shortfall for the Test Period ended March 30, 2008. Approximately $17.9 million and approximately $13.6 million was applied to Consolidated EBITDA under the first lien term loan facility and the second lien term loan facility, respectively, to achieve the required leverage ratio covenants of 5.50 to 1.00 and 5.75 to 1.00 under the first lien term loan facility and the second lien term loan facility, respectively, as of March 30, 2008. The application of the Equity Cure as an addition to Consolidated EBITDA as of March 30, 2008 will continue to be applicable for the following three quarterly Test Periods. The Company retains the option to require the purchase of an additional $1.5 million of capital stock under the Equity Cure.

 

The Company has developed a plan to deleverage Foamex L.P.’s balance sheet. The Company intends to raise equity capital to reduce Foamex L.P.’s debt balances through the combination of a Rights Offering, as defined below, and a Second Lien Offering, as defined below, that it announced on March 12, 2008, as well as equity commitments that it obtained on April 1, 2008. Under the Rights Offering, the Company would issue rights to purchase additional shares of common stock to its existing stockholders at a price of $0.65 per share (the “Rights Offering”). Under the Second Lien Offering, the Company would permit Foamex L.P.’s second lien term loan lenders to acquire common stock at the same price as in the Rights Offering using their second lien term loans at par value (the “Second Lien Offering”). Any cash received after fees and expenses would be used to repay first lien term loans while second lien term loans received in the Second Lien Offering would be cancelled. Based on current forecasts and debt levels, and after consideration of the deleveraging plan, Foamex L.P. believes it is likely to remain in compliance with its covenants for each of the remaining quarterly Test Periods in 2008.

 

 

13

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9.

REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

 

On March 27, 2008, Foamex L.P. received the amendments and consents to the First Lien Term Credit Agreement and the Second Lien Term Credit Agreement that will enable the Company to proceed with the Second Lien Offering. In connection with the receipt of the amendments and consents, Foamex L.P. incurred fees and expenses aggregating approximately $5.0 million. In addition, (i) the applicable margin for Eurodollar or Base Rate first lien term loans will increase by 1.00% annually and (ii) the first lien term loans will be repaid (a) with an amount equal to the cash proceeds of the Equity Cure, (b) with $15.0 million of certain Net Cash Proceeds, as defined, of applicable Asset Sales, as defined, and (c) with the net cash proceeds from any Rights Offering in conjunction with the initial Second Lien Offering and any such transaction would be required to generate at least $15.0 million of net cash proceeds.

 

On April 1, 2008, certain significant equityholders and the Company entered into an equity commitment agreement that includes put option agreements that require each significant equityholder to purchase a certain number of shares of common stock. The committed significant equityholders have a $100.0 million obligation that they may satisfy by participating in either the Rights Offering or the Second Lien Offering. The significant equityholders will receive a put option premium of approximately $7.9 million, payable in shares of the Company’s common stock at the Rights Offering price.

 

If the Rights Offering and the Second Lien Offering are not consummated, under the terms of the equity commitment agreement, the Company retains the right, under the terms of a put option agreement, to require the committed significant equityholders to purchase $100.0 million of the Company’s common stock for cash or through the exchange of second lien term loans (the “Put Option”), which when combined with up to $20.0 million of additional investment from the Equity Cure will provide the Company with sufficient funding to repay debt and enable Foamex L.P. to remain in compliance with the leverage ratio and consolidated interest coverage ratio covenants and continue as a going concern. However, the terms of the equity commitment agreement prevent the Company from exercising the Put Option, if the Company does not reasonably expect, at the time of exercise, that the $100.0 million purchase of the Company’s common stock by the committed significant equityholders, when combined with the additional investment of up to $20.0 million from the Equity Cure, would be sufficient to comply with the leverage ratio and consolidated interest coverage ratio covenants Foamex L.P. must attain in the quarter that the Put Option is exercised.

 

The Company’s ability to maintain compliance with Foamex L.P.’s debt covenants depends on management’s ability to raise additional equity funds in the transactions discussed above. Funds obtained through the transactions described above will reduce outstanding debt balances. Should Foamex L.P. fail to comply with the leverage ratio or the consolidated interest coverage ratio covenants at a future measurement date, Foamex L.P. would be in default under the new senior secured credit facilities and the lenders under those facilities could exercise various options that they have under the loan agreements, the most severe of which would be to demand immediate payment of all amounts outstanding under the new senior secured credit facilities. The Company believes it is unlikely that the lenders would exercise this right but would entertain other remedies including a waiver of any covenant violation or amendments to the covenant calculations, although there are no assurances the lenders would approve such remedies.

 

During 2007, Foamex L.P. prepaid $80.0 million of principal on the first lien term loan, a portion of which was applied to the scheduled quarterly principal repayments through March 2011 and pro rata to all remaining principal repayments. As a result of the prepayments, the quarterly principal repayments will be approximately $0.9 million commencing June 2011. The prepayments exceeded the required annual excess cash flow repayment for 2007.

 

On February 27, 2007, Foamex L.P. entered into interest rate swap and “no cost” collar contracts which took effect on March 12, 2007. The interest rate swap contracts have a life of five years plus 35 days with a notional amount of $300.0 million at inception reducing annually on April 15 beginning in 2008, to $250 million, $200 million, $100 million, and $75 million, respectively, in which Foamex L.P. will receive interest at a variable rate equal to three-month LIBOR and pay interest at a fixed rate of 4.93%. The two collar contracts have a life of five years plus 35 days with a notional amount of $175 million at inception reducing to $125 million on April 15, 2011. The collar contracts limit the variability of the interest rate risk on three-month LIBOR with a cap of 5.50% and a

 

14

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9.

REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

 

floor of 4.35%. Foamex L.P. determined the interest rate swaps (from inception) and the collars (as of April 15, 2007) to be effective hedges under the guidance of Statement of Financial Accounting Standard No. 133, “Accounting for Derivatives and Hedging Activities.” As a result of these transactions, Foamex L.P. fixed the rate on 58% of the amount borrowed under the term loans at March 30, 2008 with another 34% subject to the collar. The remaining 8% will continue to have variable rates. As of March 30, 2008, Foamex L.P. recorded mark to market charges on these derivatives aggregating approximately $20.0 million which is included in other liabilities in the accompanying condensed consolidated balance sheet.

 

On January 14, 2008, the Company determined that it was appropriate to discontinue hedge accounting for the applicable collar that had a notional amount of $87.5 million as the cash flows being hedged were no longer deemed to be probable. Any subsequent mark to market adjustments on this collar will be reflected in the consolidated statement of operations rather than as an adjustment to accumulated other comprehensive loss. During the quarter ended March 30, 2008, the Company recorded a mark to market loss of $1.2 million on this collar which is reflected in interest and debt issuance expense in the condensed consolidated statement of operations. Also, on January 14, 2008, the Company determined that it is probable that certain of the cash flows that were hedged by this collar will not occur. Therefore, the associated derivative loss of $1.1 million reported in accumulated other comprehensive loss on that date has been reclassified into earnings and is reflected in interest and debt issuance expense for the quarter ended March 30, 2008.

 

At March 30, 2008, Foamex L.P. had $57.4 million of available borrowings under the revolving credit facility and $26.8 million of letters of credit outstanding. Weighted average interest rates, without consideration of derivatives, at March 30, 2008 were 5.00%, 7.29% and 9.01% under the revolving credit facility, the first lien term loan, and the second lien term loan, respectively.

 

Industrial Revenue Bond (“IRB”)

 

IRB debt includes a $6.0 million bond that matures in 2013. Interest is based on a variable rate, as defined, with options available to Foamex L.P. to convert to a fixed rate. At March 30, 2008 and December 30, 2007, the interest rates on the bond were 2.21% and 3.94%, respectively. The maximum interest rate for the IRB is 15.0% per annum. If Foamex L.P. exercises its option to convert the bond to a fixed interest rate structure, the IRB is redeemable at the option of the bondholders. In addition, at any time prior to conversion to a fixed interest rate structure, bondholders upon notice to the bond trustee and the remarketing agent may place the bonds for sale. If the remarketing agent is not successful in reselling the bonds before settlement is due on bonds placed for sale, the bond trustee may draw on a letter of credit issued under the revolving credit facility to repay the bondholders for the bonds placed for sale until the bonds can be resold by the remarketing agent. Pursuant to this arrangement, the IRB is classified as current in the accompanying condensed consolidated balance sheets at March 30, 2008 and December 30, 2007. The obligation is collateralized by certain assets, which have an approximate net carrying value of $4.3 million at March 30, 2008 and by a letter of credit in the amount of $6.3 million.

 

Maturities

 

Scheduled maturities of revolving credit borrowings and long-term debt as of March 30, 2008 are shown below (thousands):

 

2008

$       136

2009

2

2010

2011

2,695

2012

17,427

Thereafter

520,610

Total

$540,870

 

 

 

15

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

10.

RETIREE BENEFIT PLANS

 

Components of net periodic pension benefit expense (income) are listed below:

 

 

Quarters Ended

 

March 30,

 

April 1,

 

2008

 

2007

 

(thousands)

Service cost (a)

$   125

 

$1,205

Interest cost

2,129

 

2,109

Expected return on plan assets

(2,710)

 

(2,564)

Amortization of transition assets

(16)

 

Amortization of prior service benefit

20

 

51

Amortization of net loss

326

 

559

Bankruptcy adjustment (b)

 

(1,360)

Net periodic pension benefit expense (income)

$  (126)

 

$      –

 

 

(a)

The reduction in service cost reflects the elimination of future benefit accruals for plan participants effective December 31, 2007.

 

(b)

Reflects benefits under the supplemental executive retirement plan that were eliminated in connection with the Plan.

 

The Company anticipates pension plan contributions of $7.5 million for fiscal 2008. During the quarter ended March 30, 2008, the Company contributed $3.0 million. Actuarial valuations are in process for fiscal year 2008 that will determine the actual contribution requirements and net periodic pension benefit expense (credit).

 

11.

PREFERRED STOCK

 

On February 8, 2008, the Company’s Board of Directors authorized up to 60,000 shares of a new class of preferred stock, Series D. The Series D preferred stock is non voting, except in certain limited circumstances, and earns a dividend at the greater of (i) a rate of 4.5% per annum compounded monthly, payable by increases in the liquidation preference, as defined, and (ii) dividends, if any, paid on the Company’s common stock on an as converted basis. The Series D preferred stock may be converted into common stock, at the option of either the holder or the Company, within the one year period after it is issued.

 

12.

INCOME TAXES

 

The tax provision for the quarter ended March 30, 2008 relates primarily to certain foreign taxes. The tax provision for the quarter ended April 1, 2007 included an increase in U.S. deferred tax liabilities associated with indefinite lived intangibles. In accordance with SFAS No. 109, the Company has continued to maintain a valuation allowance for its U.S. deferred tax assets which primarily represent net operating loss carryforwards (“NOLs”). Such NOLs aggregated approximately $288.7 million at December 30, 2007. To the extent NOLs are utilized, the Company will reverse a portion of its valuation allowance.

 

The Company has determined that it had an ownership change as defined in IRC Section 382 on February 12, 2007. The ownership change resulted in an annual limitation on the usage of NOLs to be applicable to the periods after February 12, 2007. For the portion of the tax year prior to this ownership change, the June 2001 ownership change and annual NOL limitation of $21.0 million would be applicable on a pro-rata basis. Although the amount of the February 12, 2007 limitation has not been finally determined, the Company does not expect the amount of this annual limitation on the use of NOLs to have a significant near term impact on its cash flows or financial position.

 

 

 

16

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

12.

INCOME TAXES (continued)

 

As a result of the pending equity transactions discussed in Note 9, the Company believes it is likely, although not certain, that it will undergo another ownership change. Whether an ownership change will occur as a result of these equity transactions will depend on the degree of participation by current stockholders in the Rights Offering and the lenders in the Second Lien Offering, as well as potential changes in share ownership resulting from market transactions. Even if the Company does not undergo an ownership change as a result of the equity transactions, it still may undergo an ownership change at any time. Any 2008 ownership change would impose additional annual limitations on the use of the Company’s NOLs and may severely limit the Company’s ability to use its NOLs in the future.

 

13.

COMPREHENSIVE LOSS

 

The components of comprehensive loss are listed below.

 

 

Quarters Ended

 

March 30,

 

April 1,

 

2008

 

2007

 

(thousands)

Net loss

$(48,577)

 

$(17,596)

Pension adjustment

289

 

Foreign currency translation adjustments

(505)

 

590

Fair value adjustments on derivatives

(7,378)

 

(370)

Total comprehensive loss

$(56,171)

 

$(17,376)

 

14.

SEGMENT RESULTS

 

Foam Products manufactures and markets cushioning foams for bedding, furniture, recreational and consumer applications. Carpet Cushion Products manufactures and distributes rebond and prime carpet padding. Automotive Products supplies foam products and laminates to major tier one suppliers and original equipment manufacturers. Technical Products manufactures and markets reticulated and other specialty foams used for reservoiring, filtration, gasketing and sealing applications. The “Other” column in the table below includes corporate expenses not allocated to other business segments, restructuring charges, impairment charges, and gains on sales of assets.

 

Segment results are presented below.

 

 

 

Carpet

 

 

 

 

 

Foam

Cushion

Automotive

Technical

 

 

 

Products

Products

Products

Products

Other

Total

Quarter ended March 30, 2008

(thousands)

Net sales

$ 88,296

$13,039

$112,901

$27,233

$       

$241,469

Income (loss) from operations

$   4,100

$    (391)

$    7,872

$  3,685

$(49,267)

$ (34,001)

Depreciation and amortization

$   1,438

$     225

$       805

$     502

$   1,090

$    4,060

 

 

 

 

 

 

 

Quarter ended April 1, 2007

 

 

 

 

 

 

Net sales

$130,277

$22,251

$117,891

$35,735

$        40

$306,194

Income (loss) from operations

$  18,820

$    (476)

$    7,106

$  8,458

$(11,748)

$  22,160

Depreciation and amortization

$    1,474

$     162

$       831

$     665

$   1,167

$    4,299

 

15.

COMMITMENTS AND CONTINGENCIES

 

Leases

 

On March 28, 2008, the Company entered into an operating lease for office facilities that commences on August 1, 2008 for a period of 11 years. Minimum rental commitments required under the lease are approximately $10.8 million.

 

17

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

15.

COMMITMENTS AND CONTINGENCIES (continued)

 

Litigation

 

The Company is party to various lawsuits, both as defendant and plaintiff, arising in the normal course of business. It is the opinion of management that the disposition of these lawsuits will not, individually or in the aggregate, have a material adverse effect on the Company’s financial position or results of operations. If management’s assessment of the Company’s liability relating to these actions is incorrect, these actions could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

 

In July 2001, Foamex L.P. purchased certain assets, but did not assume any liabilities, related to the manufacture and sale of a variety of polyurethane foam products from a group of sellers, including General Foam Corporation (“GFC”). PMC, Inc. (“PMC”), the parent of GFC, served as guarantor under the asset purchase agreement memorializing the sale. The guarantee, for the benefit of Foamex L.P., covered the performance of all terms, conditions, covenants and indemnities required to be performed by the sellers (including GFC) under the agreement. The indemnities and the related guarantee are subject to various indemnity caps including a $2.5 million limitation for the litigation discussed below.

 

Foamex L.P. is party to certain disputes relating to a fire at a nightclub in West Warwick, Rhode Island in February 2003. The fire destroyed the nightclub killing 100 persons and injuring over 100 others. Foamex L.P. and several of its affiliates are named as defendants, along with more than 50 other defendants, in certain litigation concerning the fire. The ensuing litigation comprising numerous cases has been consolidated in a single case, Gray v. Derderian, Case No. 04-312L (the “Litigation”), before the United States District Court for the District of Rhode Island. Plaintiffs have also filed proofs of claim in the Company’s bankruptcy cases. Foamex L.P. is named in these cases solely as an alleged successor to GFC, a defendant in the Litigation. In addition to other foam manufacturing defendants in the Litigation, GFC is alleged to have manufactured and sold polyurethane foam to a foam fabricator in Rhode Island. The foam fabricator is alleged to have then sold the foam at issue to the nightclub. The foam was among other building materials alleged to have caught fire when pyrotechnics were set off inside the nightclub.

 

The Litigation is in its early stages. The Company believes that there are multiple defenses to (i) the claims against GFC, and (ii) the successor claim against Foamex L.P. The Company intends to continue vigorously defending Foamex L.P. in the Litigation. The Company also believes that, if GFC is held liable for monetary damages in the Litigation, GFC is unable to satisfy that obligation and Foamex L.P. is found to have liability as a successor to GFC, there is likely to be adequate insurance available to Foamex L.P. to cover such liability. However, there can be no assurance that the defenses available to GFC or to Foamex L.P. as an alleged successor will prevail. In addition, if GFC is held liable for monetary damages in the Litigation, there can be no assurance that GFC, or PMC under the guarantee, will be able to satisfy that obligation or any potential obligation to Foamex L.P. under the $2.5 million indemnity cap, which is the subject of a separate dispute with PMC, as discussed below.

 

Foamex L.P. incurred fees and costs in defense of the Litigation and neither GFC nor PMC honored the Company’s demand for reimbursement of those fees and costs, as was agreed to under the asset purchase agreement. Therefore, in November 2005, the Company filed an adversary proceeding against PMC alleging, among other claims, that PMC breached its obligations under the asset purchase agreement by failing to reimburse Foamex L.P. for the fees and costs related to the defense of the Litigation (the “PMC Litigation”).

 

On October 4, 2006, the parties to the PMC Litigation agreed to a settlement of the PMC Litigation. The settlement resolved the PMC Litigation in its entirety and resulted in the recovery of the vast majority of the fees and costs expended defending the Litigation and up to an aggregate of $2.5 million in total fees and costs, but did not settle any disputes as to any PMC obligations under the indemnity for the underlying liability, which is subject to the same $2.5 million indemnity cap. The settlement was approved by the Bankruptcy Court on October 19, 2006.

 

As of March 30, 2008, the Company had accrued approximately $0.9 million for litigation and other legal matters in addition to the environmental matters discussed below.

 

18

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

15.

COMMITMENTS AND CONTINGENCIES (continued)

 

Environmental and Health and Safety

 

The Company is subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including those relating to the use, handling, storage, discharge and disposal of hazardous substances, the discharge or emission of materials into the environment, and the remediation of environmental contamination, and as a result, is from time to time involved in administrative and judicial proceedings and inquiries relating to environmental matters. As of March 30, 2008, the Company had accruals of approximately $1.4 million for environmental matters, including approximately $1.2 million related to remediating and monitoring soil and groundwater contamination and approximately $0.2 million related to two sites where it has been designated as a PRP. Additional losses, if any, in excess of amounts currently accrued, cannot be reasonably estimated at this time. If there are additional matters or if current estimates are incorrect, there could be a material adverse effect on the Company’s financial position, results of operations and cash flows.

 

The Company has reported to the appropriate state authorities that it had found soil and/or groundwater contamination in excess of state standards at certain locations. Six sites are currently in various stages of investigation or remediation. Accordingly, the extent of contamination and the ultimate liability is not known with certainty for all sites.

 

The Company has either upgraded or closed all underground storage tanks at its facilities in accordance with applicable regulations.

 

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and comparable state laws impose liability without fault for the costs of cleaning up contaminated sites on certain classes of persons that contributed to the release of hazardous substances into the environment at those sites, for example, by generating wastes containing hazardous substances which were disposed at such sites. The Company is currently designated as a PRP with respect to two sites. Estimates of total cleanup costs and fractional allocations of liability are often provided by the EPA, the state environmental agency or the committee of PRPs with respect to the specified site.

 

Based on these estimates (to the extent available) and on known information, in each case and in the aggregate, the Company does not expect additional costs, if any, to be material to liquidity, results of operations or financial position.

 

The possibility exists that new environmental legislation and/or environmental regulations may be adopted, or other environmental conditions, including the presence of previously unknown environmental contamination, may be found to exist or a reassessment of the potential exposure to pending environmental matters may be necessary due to new information or future developments, that may require expenditures not currently anticipated and that may be material.

 

16.

FAIR VALUE MEASUREMENTS

 

The Company adopted SFAS No. 157 as of December 31, 2007, with the exception of the application of the statement to non-recurring non-financial assets and liabilities. During the quarter ended March 30, 2008, the Company applied SFAS No. 157 to measure the fair value of its derivatives. SFAS No. 157 among other matters, requires enhanced disclosures about financial assets and liabilities that are measured and reported at fair value. SFAS No. 157 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories.

 

19

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

16.

FAIR VALUE MEASUREMENTS (continued)

 

Level I – Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments generally included in this category include listed equities and listed derivatives.

 

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives.

 

Level III – Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation. Investments that are included in this category generally include general and limited partnership interests in corporate private equity and real estate funds, mezzanine funds, funds of hedge funds, distressed debt and non-investment grade residual interests in securitizations and collateralized debt obligations.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

The following table summarizes the valuation of the Company’s investments by the above SFAS No. 157 fair value hierarchy levels as of March 30, 2008 (thousands of dollars):

 

 

 

Total

 

Level I

 

Level II

 

Level III

Interest rate swaps and collars - liability

 

$20,003

 

 

$20,003

 

 

The fair values of the Company’s derivative contracts were determined with the assistance of a third party valuation specialist.

 

17.

SUBSEQUENT EVENT

 

On April 18, 2008, the Company’s Board of Directors authorized up to 60,000 shares of a new class of preferred stock, Series E. The Series E preferred stock is non voting, except in certain limited circumstances, and earns a dividend at the rate of 9.0% per annum compounded monthly, payable in increases in the liquidation preference, as defined. The Series E preferred stock may be redeemed by the holder after August 12, 2014. The Company may redeem the Series E preferred stock by paying cash equal to the liquidation preference.

 

20

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s present expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and expressly disclaim any obligation to, update or alter forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

 

General Business and Economic Conditions.

 

As we have previously disclosed, our business can be affected by general business and economic conditions in the United States that could have a significant impact on demand for our products. The general business and economic conditions in the United States deteriorated during the quarter and had a negative impact on our operating performance. In particular, the slowdown in economic activity relative to many of the major markets we serve has been a significant factor in the decline in our net sales and overall operating performance.

 

If general economic conditions in the United States and specifically economic conditions in these major markets do not improve, our future revenues and operating performance will continue to be negatively impacted.

 

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 30, 2008 COMPARED TO THE QUARTER ENDED APRIL 1, 2007

 

 

 

Carpet

 

 

 

 

 

Foam

Cushion

Automotive

Technical

 

 

 

Products

Products

Products

Products

Other

Total

Quarter ended March 30, 2008

(thousands)

Net sales

$ 88,296

$13,039

$112,901

$27,233

$         

$241,469

Income (loss) from operations

$   4,100

$    (391)

$    7,872

$  3,685

$(49,267)

$ (34,001)

Depreciation and amortization

$   1,438

$     225

$       805

$     502

$   1,090

$    4,060

Income (loss) from operations

 

 

 

 

 

 

as a percentage of net sales

4.6%

(3.0)%

7.0%

13.5%

n.m.*

(14.1)%

 

 

 

 

 

 

 

Quarter ended April 1, 2007

 

 

 

 

 

 

Net sales

$130,277

$22,251

$117,891

$35,735

$        40

$306,194

Income (loss) from operations

$  18,820

$    (476)

$    7,106

$  8,458

$(11,748)

$  22,160

Depreciation and amortization

$    1,474

$     162

$       831

$     665

$   1,167

$    4,299

Income (loss) from operations

 

 

 

 

 

 

as a percentage of net sales

14.4%

(2.1)%

6.0%

23.7%

n.m.*

7.2%

 

* not meaningful

 

Income from Operations - Consolidated

 

Net sales for the quarter ended March 30, 2008 decreased 21% to $241.5 million from $306.2 million in the quarter ended April 1, 2007. The decrease was primarily attributable to lower sales volumes in all operating segments.

 

Gross profit was $21.2 million, or 8.8% of net sales, in the quarter ended March 30, 2008 compared to $39.7 million, or 13.0% of net sales, in the 2007 period. The decrease is primarily due to the lower sales volumes and higher labor costs.

 

Loss from operations for the quarter ended March 30, 2008 was $34.0 million, or 14.1% of net sales, a $56.2 million decrease from $22.2 million of operating income, or 7.2% of net sales, reported during the 2007 period. The $18.6 million decrease in gross profit was partially offset by lower selling, general and administrative expenses which decreased by $1.0 million, or 6%, due principally to lower salary costs and professional fees partially offset

21

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

by higher bad debt expenses. The 2008 period included a goodwill impairment charge of $38.5 million. Restructuring charges were $1.0 million in the 2008 period compared to $0.4 million in the 2007 period.

 

Foam Products

 

Foam Products net sales for the quarter ended March 30, 2008 decreased 32% to $88.3 million from $130.3 million in the 2007 period primarily due to a decrease in overall volume of approximately 32%, due to the loss of a significant customer and softness in demand in the bedding and furniture markets. Income from operations decreased $14.7 million, to $4.1 million in the quarter ended March 30, 2008 from $18.8 million in the 2007 period principally as a result of the decline in unit volume and higher transportation costs. Income from operations was 4.6% of net sales in 2008 and 14.4% of net sales in 2007.

Carpet Cushion Products

 

Carpet Cushion Products net sales for the quarter ended March 30, 2008 decreased 41% to $13.0 million from $22.3 million in the 2007 period due to a 22% decrease in volume and a 25% decrease in average selling prices. Loss from operations was $0.4million in the quarter ended March 30, 2008 compared to a $0.5 million loss in the 2007 period as lower material costs offset the decline in average selling prices. A charge of $2.7 million to adjust the carrying value of scrap inventory to net realizable value reduced income from operations in the 2007 period. Loss from operations was 3.0% of net sales in 2008 and loss from operations was 2.1% of net sales in 2007.

 

Automotive Products

 

Automotive Products net sales for the quarter ended March 30, 2008 decreased 4% to $112.9 million from $117.9 million in the 2007 period primarily due to a decrease in volumes, partially offset by higher per unit revenue as fabric cost increases were recaptured from customers. Income from operations increased $0.8 million to $7.9 million primarily due to lower manufacturing costs. The 2007 period included startup costs for a new contract. Income from operations was 7.0% of net sales in 2008 and 6.0% of net sales in 2007.

 

Technical Products

 

Technical Products net sales for the quarter ended March 30, 2008 decreased 24% to $27.2 million from $35.7 million in the 2007 period, primarily due to lower volumes. Income from operations decreased $4.8 million to $3.7 million in 2008 compared to $8.5 million in 2007 as a result of lower volumes. Income from operations was 13.5% of net sales in 2008 and 23.7% of net sales in 2007.

 

Other

 

Other primarily consists of corporate expenses not allocated to business segments, restructuring charges, impairment charges, and gains on sales of assets. The loss from operations was $49.3 million in 2008, including a goodwill impairment charge of $38.5 million, and $11.8 million in 2007.

 

Interest and Debt Issuance Expense

 

Interest and debt issuance expense was $13.5 million in the quarter ended March 30, 2007, which represented a 54% decrease from the 2007 period expense of $29.2 million reflecting lower borrowings and interest rates. The 2007 period included prepayment premiums of $11.8 million on debt repaid on emergence from bankruptcy.

 

Other Income (Expense), Net

 

Other expense, net was $0.9 million for the quarter ended March 30, 2008 compared to other expense, net of $0.2 million for the quarter ended April 1, 2007.

 

 

 

22

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Reorganization Items, Net

 

On September 19, 2005, we filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code and emerged on February 12, 2007. During the quarter ended April 1, 2007, we incurred professional fees associated with the bankruptcy and recorded gains from rejection of certain contracts resulting in net expense of $8.3 million.

 

Income Taxes

 

The tax provision for the quarter ended March 30, 2008 relates primarily to certain foreign taxes. The tax provision for the quarter ended April 1, 2007 included an increase in U.S. deferred tax liabilities associated with indefinite lived intangibles. In accordance with SFAS No. 109, we have continued to maintain a valuation allowance for our U.S. deferred tax assets which primarily represent net operating loss carryforwards (“NOLs”). Such NOLs aggregated approximately $288.7 million at December 30, 2007. To the extent NOLs are utilized, we will reverse a portion of our valuation allowance.

 

We have determined that we had an ownership change as defined in IRC Section 382 on February 12, 2007. The ownership change resulted in an annual limitation on the usage of NOLs to be applicable to the periods after February 12, 2007. For the portion of the tax year prior to this ownership change, the June 2001 ownership change and annual NOL limitation of $21.0 million would be applicable on a pro-rata basis. Although the amount of the February 12, 2007 limitation has not been finally determined, we do not expect the amount of this annual limitation on the use of NOLs to have a significant near term impact on our cash flows or financial position.

 

As a result of the pending equity transactions discussed in Note 9 to the condensed consolidated financial statements we believe it is likely, although not certain, that we will undergo another ownership change. Whether an ownership change will occur as a result of these equity transactions will depend on the degree of participation by current stockholders in the Rights Offering and the lenders in the Second Lien Offering, as well as potential changes in share ownership resulting from market transactions. Even if we do not undergo an ownership change as a result of the equity transactions, we still may undergo an ownership change at any time. Any 2008 ownership change would impose additional annual limitations on the use of our NOLs and may severely limit our ability to use our NOLs in the future.

 

Liquidity and Capital Resources

 

Our operations are conducted through our wholly-owned subsidiary, Foamex L.P. Our liquidity requirements consist principally of accounts receivable, inventory and accounts payable, scheduled payments of interest and principal on outstanding indebtedness, capital expenditures and employee related costs. Cash flow from Foamex L.P.’s operating activities, cash on hand and periodic borrowings under Foamex L.P.’s revolving credit agreements have been adequate and are expected to continue to be adequate to meet Foamex L.P.’s liquidity requirements.

 

Cash and cash equivalents were $4.6 million at March 30, 2008 compared to $5.2 million at December 30, 2007. Working capital at March 30, 2008 was $100.4 million and the current ratio was 1.65 to 1 compared to working capital at December 30, 2007 of $108.2 million and a current ratio of 1.69 to 1.

 

Total long-term debt and revolving credit borrowings at March 30, 2008 were $540.9 million, up $6.8 million from December 30, 2007. Revolving credit borrowings of $14.7 million at March 30, 2008 reflect working capital requirements.

 

New Senior Secured Credit Facilities

 

On February 12, 2007, Foamex L.P. entered into new senior secured credit facilities consisting of a $175.0 million revolving credit facility, including a sub-limit of $45.0 million for letters of credit and term loan facilities aggregating $600.0 million including $425.0 million under a first lien term loan facility and $175.0 million under a second lien term loan facility. Substantially all of the assets of Foamex L.P. and its domestic subsidiaries and Foamex Canada are pledged as collateral for the related borrowings. Borrowings under the revolving credit facility

 

23

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

are subject to a borrowing base formula based on eligible accounts receivable and bear interest at floating rates based upon either LIBOR or a Base Rate, as defined, including an applicable margin. The revolving credit facility will mature on February 12, 2012. Borrowings under the term loan facilities also bear interest at floating rates based upon and including a margin over either Eurodollar or a Base Rate, as defined. The first lien term loan facility is subject to quarterly principal repayments initially equal to approximately $1.1 million, and annual excess cash flow repayments, as defined, with the balance maturing on February 12, 2013. The second lien term loan facility matures on February 12, 2014 and is subject to a prepayment premium of 2.0% during the first year and 1.0% during the second year. Foamex L.P. capitalized debt issuance costs of $17.1 million relating to the facilities, which are being amortized over the life of the debt using the effective interest method.

 

Foamex L.P. borrowed approximately $13.4 million under the $175.0 million revolving credit facility and the full amounts of the first lien term loan facility and second lien term loan facility on February 12, 2007 to pay amounts due under the Plan. The initial weighted average interest rates were 8.25%, 7.57% and 10.07%, respectively.

 

Foamex L.P. is subject to a leverage ratio covenant, as defined, under both term loan facilities and an interest coverage ratio covenant, as defined, under the first lien term loan facility as well as an annual capital expenditure maximum under the first lien term loan and the revolving credit facilities. In addition, both term loan facilities and the revolving credit facility contain subjective acceleration clauses in the event of an undefined material adverse change in the ability of Foamex L.P. to perform its obligations under the facilities. If a material adverse change did occur, the lenders could exercise various options they have under the credit agreements, the most severe of which would be to demand immediate payment of all amounts outstanding under the facilities.

 

Foamex L.P. was in compliance with its debt covenants as of December 30, 2007, and as of the March 30, 2008 Test Period, as defined, after application of the Equity Cure, as discussed below. The loan agreements governing the first and second lien term loans permit us to cure violations of the leverage ratio and the consolidated interest coverage ratio covenants through sales of stock to certain holders of our common stock who meet specified criteria, the proceeds of which when contributed to Foamex L.P. will be deemed to be an addition to Consolidated EBITDA, as defined, for purposes of the ratio calculations. The sales can be made in no more than two of any four consecutive quarters and are limited to the lesser of (i) $20.0 million and (ii) the amount required to cure such violations for each quarter. On February 13, 2008, we received firm, legally enforceable commitments from eligible holders of our common stock to make up to $20.0 million of additional investments to be used to cure potential violations of the leverage ratio and consolidated interest coverage ratio covenants (the “Equity Cure”). The eligible holders are entitled to a premium, payable in shares of our common stock, equal to 5% of the maximum amount committed. We issued 620,083 shares of common stock to the applicable stockholders in satisfaction of the premium liability on April 22, 2008.

 

On April 17, 2008, we exercised our option under the Equity Cure to require the applicable stockholders to purchase shares of our capital stock for an aggregate amount of $18.5 million. The stockholders purchased 18,500 shares of a new Series D preferred stock for $1,000 per share, which was issued to them on April 22, 2008. We contributed the proceeds from the preferred stock sale to Foamex L.P. to be used to pay for ordinary course expenditures and to be applied as required to cure any covenant shortfall for the Test Period ended March 30, 2008. Approximately $17.9 million and approximately $13.6 million was applied to Consolidated EBITDA under the first lien term loan facility and the second lien term loan facility, respectively, to achieve the required leverage ratio covenants of 5.50 to 1.00 and 5.75 to 1.00 under the first lien term loan facility and the second lien term loan facility, respectively, as of March 30, 2008. The application of the Equity Cure as an addition to Consolidated EBITDA as of March 30, 2008 will continue to be applicable for the following three quarterly Test Periods. We retain the option to require the purchase of an additional $1.5 million of capital stock under the Equity Cure.

 

We have developed a plan to deleverage Foamex L.P.’s balance sheet. We intend to raise equity capital to reduce Foamex L.P.’s debt balances through the combination of a Rights Offering and a Second Lien Offering that we announced on March 12, 2008, as well as equity commitments that we obtained on April 1, 2008. Under the Rights Offering, we would issue rights to purchase additional shares of common stock to our existing stockholders at a price of $0.65 per share. Under the Second Lien Offering, we would permit Foamex L.P.’s second lien term

 

24

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

loan lenders to acquire common stock at the same price as in the Rights Offering using their second lien term loans at par value. Any cash received after fees and expenses would be used to repay first lien term loans while second lien term loans received in the Second Lien Offering would be cancelled. Based on current forecasts and debt levels, and after consideration of the deleveraging plan, we believe it is likely Foamex L. P. will remain in compliance with the covenants for each of the remaining quarterly Test Periods in 2008.

 

On March 27, 2008, Foamex L.P. received the amendments and consents to the First Lien Term Credit Agreement and the Second Lien Term Credit Agreement that will enable us to proceed with the Second Lien Offering. In connection with the receipt of the amendments and consents, Foamex L.P. has incurred fees and expenses aggregating approximately $5.0 million. In addition, (i) the applicable margin for Eurodollar or Base Rate

first lien term loans will increase by 1.00% annually and (ii) the first lien term loans will be repaid (a) with an amount equal to the cash proceeds of the Equity Cure, (b) with $15.0 million of certain Net Cash Proceeds, as defined, of applicable Asset Sales, as defined, and (c) with the net cash proceeds from any Rights Offering in conjunction with the initial Second Lien Offering and any such transaction would be required to generate at least $15.0 million of net cash proceeds.

 

On April 1, 2008, we and certain significant equityholders entered into an equity commitment agreement that includes put option agreements that require each significant equityholder to purchase a certain number of shares of common stock. The committed significant equityholders have a $100.0 million obligation that they may satisfy by participating in either the Rights Offering or the Second Lien Offering. The significant equityholders will receive a put option premium of approximately $7.9 million, payable in shares of our common stock at the Rights Offering price.

 

If the Rights Offering and the Second Lien Offering are not consummated, under the terms of the equity commitment agreement, we retain the right, under the terms of a put option agreement, to require the committed significant equityholders to purchase $100.0 million of our common stock for cash or through the exchange of second lien term loans (the “Put Option”), which when combined with up to $20.0 million of additional investment from the Equity Cure will provide us with sufficient funding to repay debt and enable Foamex L.P. to remain in compliance with the leverage ratio and consolidated interest coverage ratio covenants and continue as a going concern. However, the terms of the equity commitment agreement prevent us from exercising the Put Option, if we do not reasonably expect, at the time of exercise, that the $100.0 million purchase of our common stock by the committed significant equityholders, when combined with the additional investment of up to $20.0 million from the Equity Cure, would be sufficient to comply with the leverage ratio and consolidated interest coverage ratio covenants Foamex L.P. must attain in the quarter that the Put Option is exercised.

 

Our ability to maintain compliance with Foamex L.P.’s debt covenants depends on management’s ability to raise additional equity funds in the transactions discussed above. Funds obtained through the transactions described above will reduce outstanding debt balances. Should Foamex L.P. fail to comply with the leverage ratio or the consolidated interest coverage ratio covenants at a future measurement date, Foamex L.P. would be in default under the new senior secured credit facilities and the lenders under those facilities could exercise various options that they have under the loan agreements, the most severe of which would be to demand immediate payment of all amounts outstanding under the new senior secured credit facilities. We believe it is unlikely that the lenders would exercise this right but would entertain other remedies including a waiver of any covenant violation or amendments to the covenant calculations, although there are no assurance the lenders would approve such remedies.

 

During 2007, Foamex L.P. prepaid $80.0 million of principal on the first lien term loan, a portion of which was applied to the scheduled quarterly principal repayments through March 2011 and pro rata to all remaining principal repayments. As a result of the prepayments, the quarterly principal repayments will be approximately $0.9 million commencing June 2011. The prepayments exceeded the required annual excess cash flow repayment for 2007.

 

On February 27, 2007, Foamex L.P. entered into interest rate swap and “no cost” collar contracts which took effect on March 12, 2007. The interest rate swap contracts have a life of five years plus 35 days with a notional amount of $300.0 million at inception reducing annually on April 15 beginning in 2008, to $250 million, $200

25

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

million, $100 million, and $75 million, respectively, in which Foamex L.P. will receive interest at a variable rate equal to three-month LIBOR and pay interest at a fixed rate of 4.93%. The two collar contracts have a life of five years plus 35 days with a notional amount of $175 million at inception reducing to $125 million on April 15, 2011. The collar contracts limit the variability of the interest rate risk on three-month LIBOR with a cap of 5.50% and a floor of 4.35%. Foamex L.P. determined the interest rate swaps (from inception) and the collars (as of April 15, 2007) to be effective hedges under the guidance of Statement of Financial Accounting Standard No. 133, “Accounting for Derivatives and Hedging Activities.” As a result of these transactions, Foamex L.P. fixed the rate on 58% of the amount borrowed under the term loans at March 30, 2008 with another 34% subject to the collar. The remaining 8% will continue to have variable rates. As of March 30, 2008, Foamex L.P. recorded mark to marketcharges on these derivatives aggregating approximately $20.0 million which is included in other liabilities in the accompanying condensed consolidated balance sheet.

 

On January 14, 2008, we determined that it was appropriate to discontinue hedge accounting for the applicable collar that had a notional amount of $87.5 million as the cash flows being hedged were no longer deemed to be probable. Any subsequent mark to market adjustments on this collar will be reflected in the consolidated statement of operations rather than as an adjustment to other comprehensive loss. During the quarter ended March 30, 2008, we recorded a mark to market loss of $1.2 million on this collar which is reflected in interest and debt issuance expense in the condensed consolidated statement of operations. Also, on January 14, 2008, we determined that it is probable that certain of the cash flows that were hedged by this collar will not occur. Therefore, the associated derivative loss of $1.1 million reported in accumulated other comprehensive loss on that date has been reclassified into earnings and is reflected in interest and debt issuance expense for the quarter ended March 30, 2008.

 

At March 30, 2008, Foamex L.P. had $57.4 million of available borrowings under the revolving credit facility and $26.8 million of letters of credit outstanding. Weighted average interest rates at March 30, 2008, without consideration of the impact of derivatives, were 5.00%, 7.27% and 9.01% under the revolving credit facility, the first lien term loan, and the second lien term loan, respectively.

 

We anticipate contributing approximately $7.5 million to our pension plan in 2008 with $3.0 million contributed during the quarter ended March 30, 2008. Actuarial valuations are in process for fiscal year 2008 that will determine the actual funding requirements.

 

Cash Flow from Operating Activities

 

Cash used for operating activities was $5.3 million for the quarter ended March 30, 2008 compared to $91.3 million of cash used for operating activities for the quarter ended April 1, 2007. Net loss adjusted for noncash charges decreased by $0.9 million in the 2008 period compared to the 2007 period. Cash payments for interest were $104.7 million less in the 2008 period than in the 2007 period as we paid accrued interest on liabilities subject to compromise aggregating $91.8 million and prepayment premiums aggregating $11.8 million on February 12, 2007.

 

Cash Flow from Investing Activities

 

Investing activities used $2.2 million of cash for the quarter ended March 30, 2008. Cash requirements included capital expenditures of $2.9million while proceeds from asset sales were $0.7 million. In the quarter ended April 1, 2007, cash used for investing activities was $1.8 million, which included capital expenditures of $2.8 million and proceeds from sale of assets of $1.0 million.

 

Cash Flow from Financing Activities

 

Cash provided by financing activities in the quarter ended March 30, 2008 was $7.0 million and consisted principally of proceeds from revolving loans. Cash provided by financing activities was $95.0 million for the quarter ended April 1, 2007 and consisted principally of proceeds from the new senior secured credit facilities and the rights offering partially offset by repayments of long-term debt and revolving loans and expenditures for debt issuance costs and debt prepayment premiums.

 

 

26

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Contractual Obligations

 

During the quarter ended March 30, 2008, we entered into an operating lease for office facilities that commences on August 1, 2008 for a period of 11 years. Minimum rental commitments required under the lease are approximately $10.8 million.

 

Off Balance Sheet Financing

 

We have no off balance sheet financing arrangements.

 

Environmental Matters

 

We are subject to extensive and changing environmental laws and regulations. Expenditures to date in connection with our compliance with such laws and regulations did not have a material adverse effect on our operations, financial position, capital expenditures or competitive position. The amount of liabilities recorded in connection with environmental matters as of March 30, 2008 was $1.4million. Although it is possible that new information or future developments could require us to reassess our potential exposure to all pending environmental matters, including those described in Note 15 to our condensed consolidated financial statements, we believe that, based upon all currently available information, the resolution of all such pending environmental matters will not have a material adverse effect on our operations, financial position, capital expenditures or competitive position.

 

Market Risk

 

Our debt securities with variable interest rates are subject to market risk for changes in interest rates. On March 30, 2008, indebtedness with variable interest rates, including $175.0 million of debt subject to a collar, aggregated $240.7 million. On an annualized basis, if the interest rates on these debt instruments increased by 1.0%, annual interest expense would increase by approximately $0.7 million as of March 30, 2008.

 

The principal chemicals used in the manufacturing of flexible polyurethane foam are toluene diisocyanate, or “TDI” and polyol. The prices of TDI and polyol are influenced by demand, manufacturing capacity and oil and natural gas prices. Historically, the prices of raw materials have been cyclical and volatile and our principal suppliers of raw materials used in the manufacturing of flexible polyurethane foam have significantly increased the price of raw materials several times over the past several years. We attempt to offset raw material price increases through selling price increases and manufacturing process efficiencies, but have historically been only partially successful in doing so.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

See the “Market Risk” section under Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

(a)

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

 

27

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

(b)

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting occurred during the quarter ended March 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

28

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

Part II - Other Information.

 

Item 1.

Legal Proceedings.

 

Reference is made to the description of the legal proceedings contained in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007. The information from Note 15 to the condensed consolidated financial statements is incorporated herein by reference.

 

Item 1A.

Risk Factors.

 

As we have previously disclosed, our business can be affected by general business and economic conditions in the United States that could have a significant impact on demand for our products. The general business and economic conditions in the United States deteriorated during the quarter and had a negative impact on our operating performance. In particular, the slowdown in economic activity relative to many of the major markets we serve has been a significant factor in the decline in our net sales and overall operating performance.

 

If general economic conditions in the United States and specifically economic conditions in these major markets do not improve, our future revenues and operating performance will continue to be negatively impacted.

 

Item 6.

Exhibits.

 

4.28*

Certificate of Designations of Series D Preferred Stock of Foamex International.

4.29*

Certificate of Designations of Series E Preferred Stock of Foamex International.

10.46.1*

Waiver Agreement, dated as of March 28, 2008, to the Revolving Credit Agreement, among Foamex L.P., as borrower, borrower’s affiliates thereto as guarantors, the financial institutions party thereto as lenders, and Bank of America, N.A., as Administrative Agent.

10.47.1*

Amendment and Consent No. 1 to First Lien Term Loan Credit Agreement, dated as of March 24, 2008, among Foamex L.P., as borrower, Foamex International, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

10.49.1*

Amendment No. 1 to Second Lien Term Loan Credit Agreement, dated as of March 24, 2008, among Foamex L.P., as borrower, Foamex International, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

10.66*

Change in Control Protection Agreement, dated as of December 20, 2002, between Foamex International and Paul A. Haslanger.

10.66.1*

Amendment to Change in Control Protection Agreement, dated as of January 31, 2007, between Foamex International and Paul A. Haslanger.

10.67*

Change in Control Protection Agreement, dated as of December 20, 2002, between Foamex International and Darrell Nance.

10.67.1*

Amendment to Change in Control Protection Agreement, dated as of January 31, 2007, between Foamex International and Darrell Nance.

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

*

Filed herewith.

 

 

29

 


FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES

 

 

 

SIGNATURE

 

Pursuant to the requirements 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.

 

FOAMEX INTERNATIONAL INC.

 

Date:

May 9, 2008

By:

/s/ John G. Johnson, Jr.

 

Name:

John G. Johnson, Jr.

 

Title:

President and Chief Executive Officer

 

(Duly Authorized Officer)

 

 

FOAMEX INTERNATIONAL INC.

 

Date:

May 9, 2008

By:

/s/ Robert M. Larney

 

Name:

Robert M. Larney

 

Title:

Executive Vice President and

Chief Financial Officer

 

 

 

 

 

30

 

 

GRAPHIC 2 img1.gif GRAPHIC begin 644 img1.gif M1TE&.#EA<@!F`'<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y M!`$`````+`0``P!J`%@`@P````````D("`L*"@L)"@P*"PH("0<&!P,#`P<& M!@D'"`8%!04$!`@'!V&/_?___P3_$,A)J[TXZ^SZ_F`HCB35G4ZIKBR+OFTL MS])KIW0^G]K[_#><;DBR77R_I)'(!`6%`%1RJN0UK\S8RS6S/>DFTGURGZUQW=I>MT_1>3ES?!U^?WB!.X6&0(N,@(DR?8^.AI"1 M+9.6E7Z7F"N:G9QTGI\EH80.E(BFH*.DJJFLK2JHL*]+M)FO=WL/N;HNO(=: M,,&2P[^`6L?(;<1P)L#-M4'04!6EU"'%0=M7;=W?GJ['KN M[_`T\O/TSK&;T?B[R638^E7[UXB?P('Z1!D\6,16KX!9(`I\)NO#M(D.[V$P MQY"BF8MB_XH=]*C.F+1*-_IE5":RABV3\'P5Y*1%H[*/44&&V4B^,?>>%TBXO4VMFD'-%::!FQK6*7(!'_ M?7QR,N7+F#-KWLRYLV<)`4*+'DWZ\P@+LVEG M@*U;!._>('X#WR`\=P4#!Q"(3J"@P(4""A:(9M#`.84!!`0DEZ!`.0,"$Q2$ M7@!>@X$$H1$<,%`!=8(!QV^#EB_AM6KI`=@#0!U:_X0$"5AG@/]R`2!0'@"D MS=8`:>`M.-J!QR%@(``$$)A`?0R(A@!\$@P0V@$')BA-YN!H!\RXW`4.*C"!`:*9F"`"UF780`6_\4@!?P&H"`"/H0VI07&B M.6FCE,(M*=J!LHTG`72CP8B>B432!]J)8@+@86@,7)!=`@2&%J:;6_+FHG'_ MB6;=?'!*P&1Z^>%6)IU5_E9``\HE8$"6>>()J)B!_EGFG@$X:4&5%#2:YP`$ MZJCHFXLF:JF(#"B@)'NGJJJK!G8""2JM-89&H2S M'C#!;U#"*BR=$N`7`*\8+-@`B2_&1NE^CJ+Y9V:TOT8)0`'&$@MLK,1:^>$' M/,(XIZ\MCG;G!03".`%_%T[`;)3!=BKO!<9*:\%K"*PKH[X]GJL:B4X.&`"Y M_%);:IQ75KNKPL=>@&*D'`Y@0,#*0=BJB"*:]S!UR`+070#?*>HFQK/"EN`% 1R#&+`'/PB:8I!:VN5T`$`#L_ ` end EX-4 3 ex428codseriesd.htm

CERTIFICATE OF DESIGNATIONS

of

SERIES D PREFERRED STOCK

of

FOAMEX INTERNATIONAL INC.

(Pursuant to Section 151 of the

Delaware General Corporation Law)

----------------------

Foamex International Inc., a Delaware corporation (the “Corporation”), hereby certifies that this Certificate of Designations was duly adopted by resolution of the Board of Directors of the Corporation (the “Board”) in accordance with Section 151 of the Delaware General Corporation Law.

Pursuant to the authority expressly granted to and vested in the Board by the provisions of the Second Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), there is hereby created, out of the Seven Million (7,000,000) shares of Preferred Stock, par value $0.01 per share, of the Corporation authorized in Article V of the Certificate of Incorporation (the “Preferred Stock”), a series of the Preferred Stock consisting of Sixty Thousand (60,000) shares, which series shall have the following powers, designations, preferences and relative, participating, optional or other rights, and the following qualifications, limitations and restrictions (in addition to the powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions, set forth in the Certificate of Incorporation which are applicable to the Preferred Stock):

Section 1.      Designation and Amount.

The shares of such series shall be designated as “Series D Preferred Stock” (the “Series D Preferred Stock”) and the number of shares constituting the Series D Preferred Stock shall be Sixty Thousand (60,000). Such number of shares may be increased or decreased by resolution of the Board; provided, that no decrease shall reduce the number of shares of Series D Preferred Stock to a number less than the number of such shares then outstanding.

Section 2.      Rank.

The Series D Preferred Stock shall with respect to (i) the payment of the Accrued Liquidation Preference (as defined below) in the event of a liquidation, dissolution or winding up of the Corporation, (ii) dividends and (iii) all other rights,

 

1

 


preferences and privileges, rank senior to the common stock, par value $0.01 per share, of the Corporation (the “Common Stock”), and each other class or series of capital stock of the Corporation now or hereafter outstanding, including, without limitation, any other class or series of Preferred Stock of the Corporation now existing or hereafter created (the “Junior Securities”); provided, however, that the foregoing shall not apply to the extent the Holders (as defined below) give the approvals described in Section 4(b) hereof.

Section 3.      Dividends and Distributions.

(a)       The holders of record of shares of Series D Preferred Stock (the “Holders”) will be entitled to cumulative dividends on their shares at an annual rate of 4.5% (the “Dividend Rate”) of the Accrued Liquidation Preference, compounding monthly. Dividends on the outstanding shares of Series D Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue daily commencing on the respective dates of original issue of such shares (which dates shall be reflected on the certificates evidencing the same), and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Accrued dividends shall not be payable by the Corporation periodically (in cash or otherwise) while Series D Preferred Stock is outstanding. In lieu of such periodic payment, the amount of accrued dividends per share of Series D Preferred Stock shall be added to the Accrued Liquidation Preference of that share on the last day of each month (such amount will accrue further dividends each month in accordance with this Section 3(a)).

(b)       If the Corporation, during any fiscal quarter of the Corporation while Series D Preferred Stock is outstanding, distributes or pays as a dividend to holders of Common Stock (i) evidences of its indebtedness, (ii) any security (including a distribution of Common Stock), (iii) rights or warrants to subscribe for or purchase any security, except for any rights issued in a Rights Offering (as defined below), or (iv) any other asset (including, without limitation, cash) (the “Distributed Property”), in an aggregate amount (as determined below) greater than the amount of dividends that otherwise would have accrued on shares of Series D Preferred Stock during such quarter under Section 3(a), then in each case the Corporation shall simultaneously deliver to each Holder, in lieu of the addition of dividends accrued during such quarter to the Accrued Liquidation Preference pursuant to Section 3(a), the Distributed Property that each such Holder would have been entitled to receive in respect of the number of shares of Common Stock then issuable to such Holder pursuant to Section 7 hereof had the Holder been the record holder of such shares of Common Stock immediately prior to the applicable record or payment date. The amount of the Distributed Property shall equal: (i) in case of cash, the amount of cash so distributed per share of Common Stock, (ii) in case of securities traded on a securities exchange or over-the-counter market, the Volume Weighted Average Price of a share of such securities on the date of such distribution multiplied by the number of shares of such securities distributed per share of Common Stock, and (iii) in case of any property other than cash or securities referred in clause (ii) above, the fair market value thereof as determined in good faith by the Board.

 

2

 


Section 4.      Voting Rights.

(a)       The Holders shall not be entitled to any voting rights except as hereinafter provided in this Section 4 or as otherwise required by law.

(b)       In addition to any vote or consent of stockholders required by law, the affirmative vote or consent of the Holders of at least 80% of the shares of Series D Preferred Stock at the time outstanding, voting or consenting as a separate class (with each Holder being entitled to one vote per share), given in person or by proxy, shall be necessary to (a) authorize, create, issue or increase (including by way of reclassifying, converting or exchanging any securities of the Corporation) the amount of any (i) class or series of capital stock of the Corporation ranking senior or pari passu to the Series D Preferred Stock (including any security exchangeable for, convertible into, or evidencing the right to purchase, any such capital stock) or (ii) any class or series of capital stock of the Corporation or any security convertible or exercisable for any class or series of capital stock of the Corporation that is redeemable mandatorily or at the option of the holder thereof; (b) amend, alter or repeal any provision of the Certificate of Incorporation of the Corporation if such amendment or alteration alters or changes the powers, preferences or rights of the Series D Preferred Stock so as to affect them adversely; (c) declare, pay or set aside for payment, any dividend on any Junior Securities or redeem, repurchase or otherwise acquire (or permit any person directly or indirectly controlled by the Corporation to redeem, repurchase or otherwise acquire) any Junior Securities (other than the repurchase of Common Stock held by employees, officers or directors of the Corporation or any of its subsidiaries in accordance with arrangements approved by the Board); or (d) authorize or take any other action if such action alters or changes any of the rights of the Series D Preferred Stock in any respect or otherwise would be inconsistent with this Certificate of Designations.

Section 5.      Registration.

(a)       The Corporation shall register the issuance and ownership of shares of the Series D Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “Series D Preferred Stock Register”), in the name of the Holders thereof from time to time. The Corporation may deem and treat the registered Holder of shares of Series D Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof or any distribution to such Holder, and for all other purposes, absent actual notice to the contrary.

(b)       The Corporation shall register the transfer of any shares of Series D Preferred Stock in the Series D Preferred Stock Register, upon surrender of certificates evidencing such shares to the Corporation at its address specified herein and delivery of such additional documents as the Corporation shall reasonably request in connection with such transfer. Upon any such registration of transfer, a new certificate evidencing the shares of Series D Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder.

 

3

 


Section 6.      Liquidation, Dissolution or Winding Up.

(a)       Upon the occurrence of a liquidation, dissolution or winding up of the Corporation, the Holders as of the record date established by the Board for determination of stockholders entitled to receive a distribution in such liquidation, dissolution or winding up of the Corporation, as applicable (the “Record Date”), shall be paid in cash for each share of Series D Preferred Stock then held, out of, but only to the extent of, the assets of the Corporation legally available for distribution to its stockholders, before any payment or distribution is made in respect of any Junior Securities, the greater of (i) an amount equal to the sum of (A) the Original Liquidation Preference (as defined below) (as adjusted for any stock split, combination, reclassification or similar event involving the Series D Preferred Stock), plus (B) the monthly addition to the Accrued Liquidation Preference pursuant to Section 3(a) hereof and, (C) without duplication of any amounts referred to in the preceding clause (B), all accrued and unpaid dividends on such shares of Series D Preferred Stock (such sum, the “Accrued Liquidation Preference”) on the date of such payment in respect of the Series D Preferred Stock, and (ii) the amount per share that would be payable to a Holder had all shares of Series D Preferred Stock been converted to shares of Common Stock pursuant to Section 7 hereof immediately prior to the occurrence of such liquidation, dissolution or winding up. If the assets of the Corporation available for distribution to the Holders shall be insufficient to permit payment in full to such Holders of the aggregate amount payable pursuant to the preceding sentence, then all of the assets available for distribution to the Holders shall be distributed among and paid to such Holders ratably in proportion to the amounts that would be payable to such Holders if such assets were sufficient to permit payment in full. As used herein, the “Original Liquidation Preference” shall mean $1,000.00 per share of Series D Preferred Stock.

(b)       After the Holders of all shares of Series D Preferred Stock as of the Record Date shall have been paid in full the amounts to which they are entitled in Section 6(a) hereof, such Holders shall not be entitled to any further participation in any distribution of assets of the Corporation and the remaining assets of the Corporation shall be distributed to the holders of Junior Securities in accordance with their terms.

(c)       Written notice of the Record Date for a liquidation, dissolution or winding up of the Corporation, as applicable, stating a payment or payments and the place where such payment or payments shall be payable, shall be delivered to the Holders not less than 15 (fifteen) Business Days prior to the earliest payment date stated therein. As used herein, “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close.

(d)       For the purposes of this Section 6, neither the sale, lease, transfer, conveyance or other disposition (for cash, shares of stock, securities or other consideration) of all or substantially all of the property, stock or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities, or any dividend on or repurchase of any capital stock of the Corporation, or any recapitalization of the Corporation, shall be deemed to be a liquidation, dissolution or

 

4

 


winding up of the Corporation; provided that the Holders shall nevertheless be entitled from and after any such sale, lease, transfer, conveyance or other disposition or consolidation or merger to the rights provided by this Section 6.

Section 7.      Conversion.

(a)       The shares of Series D Preferred Stock shall be convertible, in whole or in part, at the option of the Holders thereof, at any time prior to the Anniversary Date (as defined below) into a number of shares of Common Stock equal to (A) the aggregate Accrued Liquidation Preference of the Series D Preferred Stock to be converted as of the Conversion Date (as defined below), divided by (B) the Conversion Price (as defined below). In order to convert shares of Series D Preferred Stock, the Holder thereof shall (i) deliver an irrevocable written notice (the “Conversion Notice”) to the Corporation specifying the number of shares of Series D Preferred Stock to be converted and the name in which such Holder wishes the certificate for shares of Common Stock to be issued, and (ii) surrender the certificate for such shares of Series D Preferred Stock to the Corporation and deliver such additional documents as the Corporation shall reasonably request in connection with such conversion.

(b)       The shares of Series D Preferred Stock shall be convertible, in whole and not in part, at the option of the Corporation, on the Corporation Conversion Date (as defined below) into a number of shares of Common Stock equal to (A) the aggregate Accrued Liquidation Preference of the Series D Preferred Stock to be converted, divided by (B) the Conversion Price. In order to convert shares of Series D Preferred Stock, the Corporation shall deliver a written notice to each Holder.

(c)       If the Series D Preferred Stock is converted into the Common Stock pursuant to Section 7(a) or Section 7(b), the Corporation shall deliver or cause to be delivered as directed by the relevant Holder promptly (i) certificates representing the full number of validly issued, fully paid and nonassessable shares of Common Stock to which such Holder shall be entitled, and (ii) if less than the full number of shares of Series D Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares of Series D Preferred Stock evidenced by such surrendered certificate or certificates less the number of shares of Series D Preferred Stock being converted. Such conversion shall be deemed to have occurred at the close of business on the Conversion Date so that as of such time the rights of the Holder thereof to the shares of Series D Preferred Stock being converted shall cease, except for the right to receive certificates representing shares of Common Stock in accordance herewith, and the Holder entitled to receive the shares of Common Stock issued as a result of such conversion shall be treated for all purposes as having become the holder of record of such shares of Common Stock at such time.

(d)       In connection with the conversion of any shares of Series D Preferred Stock, no fractions of shares of Common Stock shall be issued. If more than one share of Series D Preferred Stock shall be surrendered for conversion by the same Holder on the same Conversion Date, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total number of

 

5

 


shares of Series D Preferred Stock so surrendered. If the conversion of any shares of Series D Preferred Stock results in a fraction of a share of Common Stock, the number of shares of Common Stock issuable to the Holder shall be rounded down to the nearest whole number.

(e)       The Corporation shall at all times when the Series D Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series D Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation.

(f)        The Corporation’s obligations to issue and deliver shares of Common Stock upon conversion of Series D Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by any Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by any Holder or any other person of any obligation to the Corporation or any violation or alleged violation of law by any Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to any Holder in connection with the issuance of such shares of Common Stock.

Section 8.      Adjustment of Conversion Price.

(a)       If the Corporation, at any time after the commencement of the Trading Price Averaging Period and before the Conversion Date, pays a dividend or makes a distribution to all holders of shares of Common Stock in shares of Common Stock, then in each such case the Volume Weighted Average Price of the Common Stock on each Trading Day during the Trading Price Averaging Period prior to the Ex-Dividend Date (as defined below) shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such dividend or distribution and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such dividend or distribution.

(b)       If the Corporation, at any time after the commencement of the Trading Price Averaging Period and before the Conversion Date, (i) subdivides the outstanding shares of Common Stock into a larger number of shares or (ii) combines the outstanding shares of Common Stock into a smaller number of shares, then in each such case the Volume Weighted Average Price of the Common Stock on each Trading Day during the Trading Price Averaging Period prior to the effective date for such subdivision

 

6

 


or combination shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.

(c)       If the Corporation, at any time after the commencement of the Trading Price Averaging Period and before the Conversion Date, issues rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) of the Common Stock (except for any rights issued in a Rights Offering), then the Volume Weighted Average Price of the Common Stock on each Trading Day during the Trading Price Averaging Period prior to the Ex-Dividend Date for such issuance shall be multiplied by a fraction of which (x) the numerator shall be the number of shares of Common Stock outstanding immediately before such issuance plus the number of shares of Common Stock equal to the quotient of (A) the aggregate price payable to exercise such rights or warrants divided by (B) the Current Market Price of the Common Stock, and (y) the denominator shall be the number of shares of Common Stock outstanding immediately before such issuance plus the total number of shares of Common Stock issuable pursuant to such rights or warrants.

(d)       If the Corporation, at any time after the commencement of the Trading Price Averaging Period and before the Conversion Date, pays a dividend or makes a distribution to all holders of Common Stock of any Distributed Property (but excluding the Common Stock and rights or warrants to subscribe for Common Stock), then the Volume Weighted Average Price of the Common Stock on each Trading Day during the Trading Price Averaging Period prior to the Ex-Dividend Date for such distribution or dividend shall be multiplied by a fraction of which (x) the numerator shall be the Current Market Price of Common Stock and (y) the denominator shall be such Current Market Price of Common Stock plus the amount (as determined pursuant to subsection (g) below), on the Ex-Dividend Date for such distribution, of the Distributed Property so distributed, expressed as an amount per share of Common Stock.

(e)       If, at any time after the commencement of the Trading Price Averaging Period and before the Conversion Date, a tender or exchange offer made by the Corporation or any subsidiary of the Corporation for all or any portion of the Common Stock shall be consummated and such tender or exchange offer shall involve a consideration per share of Common Stock having a value (as determined pursuant to subsection (g) below) on the Expiration Date (as defined below) that exceeds the Closing Sale Price of the Common Stock on the Trading Day next succeeding such Expiration Date, then the Volume Weighted Average Price of the Common Stock on each Trading Day during the Trading Price Averaging Period on or prior to such Expiration Date shall be multiplied by a fraction of which (x) the numerator shall be the product of the Closing Sale Price of the Common Stock on the Expiration Date multiplied by the number of shares of Common Stock outstanding on the Expiration Date, and (y) the denominator shall be the sum of (A) the product of the Closing Sale Price of the Common Stock on the Expiration Date multiplied by the number of shares of Common Stock outstanding immediately after the Expiration Date and (B) the aggregate value (as determined

 

7

 


pursuant to subsection (g) below), on the Expiration Date, of all cash and any other consideration paid or payable for shares validly tendered or exchanged and not withdrawn as of the Expiration Date. For purposes of this subsection, the “Expiration Date” means the last date on which tenders or exchanges may be made pursuant to the tender or exchange offer.

(f)        If there is a Change of Control at any time while Series D Preferred Stock is outstanding, then upon any subsequent conversion of Series D Preferred Stock, each Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion absent such Change of Control, the same kind and amount of securities, cash or property as it could have been entitled to receive upon the occurrence of such Change of Control if it had been, immediately prior to such Change of Control, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the applicable Conversion Prices for the Series D Preferred Stock shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Change of Control, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Change of Control, then each Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of Series D Preferred Stock following such Change of Control. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Change of Control shall issue to the Holder a new series of preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Change of Control is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (f) and insuring that the Series D Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Change of Control.

(g)       For purposes of subsections (c) and (d) above, the “Current Market Price” means the average of the Closing Sale Prices of the Common Stock for the ten consecutive Trading Days immediately prior to the Ex-Dividend Date for the distribution requiring such computation. For purposes of subsections (d) and (e) above, the amount of the Distributed Property or the value of the consideration shall equal: (i) in case of cash, the amount of cash so distributed per share of Common Stock, (ii) in case of securities traded on a securities exchange or over-the-counter market, the Volume Weighted Average Price of a share of such securities on the applicable date multiplied by the number of shares of such securities distributed per share of Common Stock, and (iii) in case of any property other than cash or securities referred in clause (ii) above, the fair market value thereof as determined in good faith by the Board. All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall

 

8

 


not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

(h)       Upon the occurrence of each adjustment pursuant to this Section 8, the Corporation at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Corporation will promptly deliver a copy of each such certificate to each Holder.

(i)        If the Corporation (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Corporation or any subsidiary (except for a Rights Offering), (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Change of Control, or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Corporation, then the Corporation shall deliver to each Holder a notice describing the material terms and conditions of such transaction, at least 20 Business Days prior to the applicable record or effective date on which a person would need to hold Common Stock in order to participate in or vote with respect to such transaction.

Section 9.         Charges, Taxes and Expenses. Issuance of certificates for shares of Series D Preferred Stock and for shares of Common Stock issued on conversion of (or otherwise in respect of) the Series D Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Corporation. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Series D Preferred Stock or receiving shares of Common Stock in respect of the Series D Preferred Stock.

Section 10.       Replacement Certificates. If any certificate evidencing Series D Preferred Stock or shares of Common Stock is mutilated, lost, stolen or destroyed, or a Holder fails to deliver such certificate as may otherwise be provided herein, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction (in such case) and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

Section 11.       Rights Offering Credit. In connection with any Rights Offering, each Holder of Series D Preferred Stock may elect, at its option, either (1) to credit the Accrued Liquidation Preference of such Holder’s Series D Preferred Stock toward any financial commitment such Holder may have in respect of Common Stock not acquired

 

9

 


pursuant to the exercise of rights in such Rights Offering, provided such Holder shall convert such Series D Preferred Stock in accordance with the terms hereof (the “Crediting Option”), (2) to separately satisfy such commitment and to have the conversion of such Series D Preferred Stock result in the issuance of shares of Common Stock in addition to those acquired in the Rights Offering (the “Overallotment Option”) or (3) to elect a combination of the Crediting Option and the Overallotment Option.

Section 12.      Definitions.

(a)       “ Anniversary Date”means one-year anniversary of the first date on which shares of the Series D Preferred Stock are issued pursuant to this Certificate of Designations.

(b)       “ Average Trading Price” of the Common Stock for the Trading Price Averaging Period means the average of each Volume Weighted Average Price of the Common Stock on each Trading Day during such period.

(c)       “Change of Control” means:

(i)        the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its subsidiaries, taken as a whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) other than the Corporation or one of its wholly owned subsidiaries;

(ii)       the adoption of a plan relating to the liquidation, dissolution or winding up of the Corporation;

(iii)      the consummation of any transaction (including, without limitation, any merger or consolidation) or series of transactions pursuant to which immediately after the consummation thereof the persons owning the then-outstanding Voting Securities (as defined below) of the Corporation immediately prior to such consummation shall not own, directly or indirectly, a majority in the aggregate (by reason of such prior ownership) of the then-outstanding Voting Securities of the Corporation or the surviving entity if other than the Corporation; and

(iv)      the first day on which a majority of the members of the Board are not Continuing Directors (as defined below).

(d)       “Closing Sale Price” of any share of Common Stock or any other security on any Trading Day means:

(i) the closing sale price per share of such security (or, if no closing sale price is reported, the average of the closing bid and closing ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported in composite transactions for the principal U.S. securities exchange on which such security is traded;

 

10

 


(ii) if such security is not listed on a U.S. national or regional securities exchange, the last quoted bid price of such security on that date in the over-the-counter market as reported by Pink Sheets LLC or a similar organization; or

(iii) if such security is not so quoted by Pink Sheets LLC or a similar organization, as determined by a nationally recognized securities dealer retained by the Corporation for that purpose.

The Closing Sale Price shall be determined without reference to extended or after hours trading.

(e)       “Continuing Director” means, as of any date of determination, any member of the Board who:

(i)        was a member of such Board on the date hereof; or

(ii)       was nominated for election or elected to the Board with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination or election (or any Continuing Directors appointed by Continuing Directors).

(f)        “Conversion Date” means: (i) if the shares of Series D Preferred Stock are converted at the option of the Holders thereof, the date on which the Conversion Notice is delivered to the Corporation; and (ii) if the shares of Series D Preferred Stock are converted at the option of the Corporation, the Corporation Conversion Date.

(g)       “Conversion Price” means: (i) if (x) a Rights Offering is consummated prior to the ninetieth day following the first date on which shares of the Series D Preferred Stock are issued pursuant to this Certificate of Designations and (y) the Series D Preferred Stock is converted at the option of a Holder thereof during the period of ten Business Days immediately following the consummation of such Rights Offering or the Series D Preferred Stock is converted at the option of the Corporation on the tenth Business Day following such consummation, the subscription price for a share of Common Stock in such Rights Offering; and (ii) in all other cases, the Average Trading Price of the Common Stock for the thirty-Trading Day period ending on the fifth Trading Day immediately preceding the Conversion Date (the “Trading Price Averaging Period”).

(h)       “Corporation Conversion Date” means: (i) if a Rights Offering is consummated prior to the ninetieth day following the first date on which shares of the Series D Preferred Stock are issued pursuant to this Certificate of Designations, the tenth Business Day following such consummation; and (ii) if no Rights Offering is consummated prior to the ninetieth day following the first date on which shares of the Series D Preferred Stock are issued pursuant to this Certificate of Designations, the Anniversary Date.

 

11

 


(i)        “Ex-Dividend Date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the relevant dividend, distribution or issuance.

(j)        “Market Disruption Event” means the occurrence or existence on any scheduled Trading Day of any material suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) of, or any material unavailability, through a recognized system of public dissemination of transaction information, of accurate price, volume or related information in respect of (1) the Common Stock on the principal exchange or market on which the Common Stock is traded, or (2) any options contracts or futures contracts relating to the Common Stock, or any options on such futures contracts, on any exchange or market.

(k)       “Rights Offering” means an SEC-registered offering by the Corporation of rights to purchase additional Common Stock to existing holders of Common Stock that raises gross proceeds of at least $50 million.

(l)        “Trading Day” means a day during which (i) the principal exchange or market on which the Common Stock is traded is open for trading and has a scheduled closing time of 4:00 p.m., New York City time (or the then standard closing time for regular trading on the relevant exchange or market), or if the Common Stock is not traded on any exchange or market, any Business Day, and (ii) there is no Market Disruption Event.

(m)        “Volume Weighted Average Price” on any Trading Day means:

(i)        with respect to the Common Stock, the per share volume weighted average price as displayed on Bloomberg (or any successor service) Page FMXL.PK<equity>AQR in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such Trading Day (or, if such Volume Weighted Average Price is unavailable, the market value per share of Common Stock on such Trading Day as determined by a nationally recognized independent investment banking firm retained for this purpose by the Corporation).

(ii)       with respect to any other securities, the per share volume weighted average price as determined in a manner substantially consistent with the manner in which the “Volume Weighted Average Price” of a share of Common Stock is to be determined in accordance with clause (i) as determined in good faith by the Board.

(n)       “Voting Securities” means securities of any class or classes of the Corporation then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors (or persons performing similar functions).

Section 13.      Miscellaneous.

(a)       Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and

 

12

 


shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 13 prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 13 on a day that is not a Business Day or later than 4:30 p.m. (New York City time) on any Business Day, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Corporation, to 1000 Columbia Avenue, Linwood, Pennsylvania 19061, facsimile: (610) 859-3000, Attention: Senior Vice President, Legal, or (ii) if to a Holder, to the address or facsimile number appearing on the Corporation’s stockholder records or such other address or facsimile number as such Holder may provide to the Corporation in accordance with this Section 13.

(b)       Any registered Holder may proceed to protect and enforce its rights and the rights of such Holder by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

 

13

 


IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chief Executive Officer this 18th day of April, 2008.

FOAMEX INTERNATIONAL INC.

 

 

By:

/s/ John G. Johnson, Jr.

 

Name:

John G. Johnson, Jr.

 

Title:

Chief Executive Officer

 

 

14

 

 

EX-4 4 ex429codseriese.htm

CERTIFICATE OF DESIGNATIONS

of

SERIES E PREFERRED STOCK

of

FOAMEX INTERNATIONAL INC.

(Pursuant to Section 151 of the

Delaware General Corporation Law)

----------------------

Foamex International Inc., a Delaware corporation (the “Corporation”), hereby certifies that this Certificate of Designations was duly adopted by resolution of the Board of Directors of the Corporation (the “Board”) in accordance with Section 151 of the Delaware General Corporation Law.

Pursuant to the authority expressly granted to and vested in the Board by the provisions of the Second Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), there is hereby created, out of the Seven Million (7,000,000) shares of Preferred Stock, par value $0.01 per share, of the Corporation authorized in Article V of the Certificate of Incorporation (the “Preferred Stock”), a series of the Preferred Stock consisting of Sixty Thousand (60,000) shares, which series shall have the following powers, designations, preferences and relative, participating, optional or other rights, and the following qualifications, limitations and restrictions (in addition to the powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions, set forth in the Certificate of Incorporation which are applicable to the Preferred Stock):

Section 1.      Designation and Amount.

The shares of such series shall be designated as “Series E Preferred Stock” (the “Series E Preferred Stock”) and the number of shares constituting the Series E Preferred Stock shall be Sixty Thousand (60,000). Such number of shares may be increased or decreased by resolution of the Board; provided, that no decrease shall reduce the number of shares of Series E Preferred Stock to a number less than the number of such shares then outstanding.

Section 2.      Rank.

The Series E Preferred Stock shall with respect to (i) the payment of the Accrued Liquidation Preference (as defined below) in the event of a liquidation, dissolution or winding up of the Corporation, (ii) dividends and (iii) all other rights, preferences and privileges, rank senior to the common stock, par value $0.01 per share, of the Corporation (the “Common Stock”), and each other class or series of capital stock of

 

1

 


the Corporation now or hereafter outstanding, including, without limitation, any other class or series of Preferred Stock of the Corporation now existing or hereafter created (the “Junior Securities”); provided, however, that the foregoing shall not apply to the extent the Holders (as defined below) give the approvals described in Section 4(b) hereof.

Section 3.        Dividends and Distributions. The holders of record of shares of Series E Preferred Stock (the “Holders”) will be entitled to cumulative dividends on their shares at an annual rate equal to 9.00% per annum (the “Dividend Rate”) of the Accrued Liquidation Preference, compounding monthly. Dividends on the outstanding shares of Series E Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue daily commencing on the respective dates of original issue of such shares (which dates shall be reflected on the certificates evidencing the same), and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Accrued dividends shall not be payable by the Corporation periodically (in cash or otherwise) while Series E Preferred Stock is outstanding. In lieu of such periodic payment, the amount of accrued dividends per share of Series E Preferred Stock shall be added to the Accrued Liquidation Preference of that share on the last day of each month (such amount will accrue further dividends each month in accordance with this Section 3).

Section 4.      Voting Rights.

(a)       The Holders shall not be entitled to any voting rights except as hereinafter provided in this Section 4 or as otherwise required by law.

(b)       In addition to any vote or consent of stockholders required by law, the affirmative vote or consent of the Holders of at least 80% of the shares of Series E Preferred Stock at the time outstanding, voting or consenting as a separate class (with each Holder being entitled to one vote per share), given in person or by proxy, shall be necessary to (a) authorize, create, issue or increase (including by way of reclassifying, converting or exchanging any securities of the Corporation) the amount of any (i) class or series of capital stock of the Corporation ranking senior or pari passu to the Series E Preferred Stock (including any security exchangeable for, convertible into, or evidencing the right to purchase, any such capital stock) or (ii) any class or series of capital stock of the Corporation or any security convertible or exercisable for any class or series of capital stock of the Corporation that is redeemable mandatorily or at the option of the holder thereof; (b) amend, alter or repeal any provision of the Certificate of Incorporation of the Corporation if such amendment or alteration alters or changes the powers, preferences or rights of the Series E Preferred Stock so as to affect them adversely; (c) declare, pay or set aside for payment, any dividend on any Junior Securities or redeem, repurchase or otherwise acquire (or permit any person directly or indirectly controlled by the Corporation to redeem, repurchase or otherwise acquire) any Junior Securities (other than the repurchase of Common Stock held by employees, officers or directors of the Corporation or any of its subsidiaries in accordance with arrangements approved by the Board); or (d) authorize or take any other action if such action alters or changes any of

 

2

 


the rights of the Series E Preferred Stock in any respect or otherwise would be inconsistent with this Certificate of Designations.

Section 5.      Registration.

(a)       The Corporation shall register the issuance and ownership of shares of the Series E Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “Series E Preferred Stock Register”), in the name of the Holders thereof from time to time. The Corporation may deem and treat the registered Holder of shares of Series E Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof or any distribution to such Holder, and for all other purposes, absent actual notice to the contrary.

(b)       The Corporation shall register the transfer of any shares of Series E Preferred Stock in the Series E Preferred Stock Register, upon surrender of certificates evidencing such shares to the Corporation at its address specified herein and delivery of such additional documents as the Corporation shall reasonably request in connection with such transfer. Upon any such registration of transfer, a new certificate evidencing the shares of Series E Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder.

Section 6.      Liquidation, Dissolution or Winding Up.

(a)       Upon the occurrence of a liquidation, dissolution or winding up of the Corporation, the Holders as of the record date established by the Board for determination of stockholders entitled to receive a distribution in such liquidation, dissolution or winding up of the Corporation, as applicable (the “Record Date”), shall be paid in cash for each share of Series E Preferred Stock then held, out of, but only to the extent of, the assets of the Corporation legally available for distribution to its stockholders, before any payment or distribution is made in respect of any Junior Securities, an amount equal to the sum of (A) the Original Liquidation Preference (as defined below) (as adjusted for any stock split, combination, reclassification or similar event involving the Series E Preferred Stock), plus (B) the monthly addition to the Accrued Liquidation Preference pursuant to Section 3 hereof and, (C) without duplication of any amounts referred to in the preceding clause (B), all accrued and unpaid dividends on such shares of Series E Preferred Stock (such sum, the “Accrued Liquidation Preference”) on the date of such payment in respect of the Series E Preferred Stock. If the assets of the Corporation available for distribution to the Holders shall be insufficient to permit payment in full to such Holders of the aggregate amount payable pursuant to the preceding sentence, then all of the assets available for distribution to the Holders shall be distributed among and paid to such Holders ratably in proportion to the amounts that would be payable to such Holders if such assets were sufficient to permit payment in full. As used herein, the “Original Liquidation Preference” shall mean $1,000.00 per share of Series E Preferred Stock.

 

3

 


(b)       After the Holders of all shares of Series E Preferred Stock as of the Record Date shall have been paid in full the amounts to which they are entitled in Section 6(a) hereof, such Holders shall not be entitled to any further participation in any distribution of assets of the Corporation and the remaining assets of the Corporation shall be distributed to the holders of Junior Securities in accordance with their terms.

(c)       Written notice of the Record Date for a liquidation, dissolution or winding up of the Corporation, as applicable, stating a payment or payments and the place where such payment or payments shall be payable, shall be delivered to the Holders not less than 15 (fifteen) Business Days prior to the earliest payment date stated therein. As used herein, “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close.

(d)       For the purposes of this Section 6, neither the sale, lease, transfer, conveyance or other disposition (for cash, shares of stock, securities or other consideration) of all or substantially all of the property, stock or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities, or any dividend on or repurchase of any capital stock of the Corporation, or any recapitalization of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation; provided that the Holders shall nevertheless be entitled from and after any such sale, lease, transfer, conveyance or other disposition or consolidation or merger to the rights provided by this Section 6.

Section 7.      Redemption, Repurchase and Cancellation.

(a)       At any time or from time to time following the issuance of the Series E Preferred Stock, the Corporation may elect to redeem, in whole or in part, out of funds legally available therefor, the outstanding shares of Series E Preferred Stock by paying in cash therefor an amount per share (such amount, the “Redemption Price”) equal to 100% of the Accrued Liquidation Preference on the redemption date. If less than all outstanding shares of Series E Preferred Stock are to be redeemed, the Corporation shall redeem shares pro rata among the Holders thereof in accordance with the respective numbers of shares of Series E Preferred Stock held by each of them.

(b)       At any time or from time to time beginning on a date that is six months and one day following the latest of (i) the Maturity Date as defined in the First Lien Term Credit Agreement, (ii) the Maturity Date as defined in the Second Lien Term Credit Agreement and (iii) the Stated Termination Date as defined in the Revolving Credit Agreement, each Holder shall have the right, at such Holder’s option, to require the Corporation to repurchase for cash all or a portion of such Holder’s shares of Series E Preferred Stock at a price per share (such price, the “Repurchase Price”) equal to 100% of the Accrued Liquidation Preference on the repurchase date; provided, however, that the Corporation shall not be required to purchase such shares if prohibited by any provision of the Credit Agreements.

 

4

 


(c)       Notice of any redemption of shares of Series E Preferred Stock pursuant to Section 7(a) hereof shall specify a date and procedures for such redemption and shall be sent not less than 30, but not more than 60, days prior to such date fixed for redemption to each Holder of shares of Series E Preferred Stock to be redeemed.

(d)       In order to facilitate the redemption of shares of Series E Preferred Stock pursuant to Section 7(a) hereof, the Board may fix a record date for the determination of the Holders of shares of Series E Preferred Stock to be redeemed, not more than 60 days or less than 30 days prior to the date fixed for such redemption.

(e)       Repurchases of shares of Series E Preferred Stock pursuant to Section 7(b) hereof shall be made upon (i) delivery to the Corporation by a Holder, prior to the close of business on the third Business Day immediately preceding the repurchase date, of a notice setting forth the number of shares of Series E Preferred Stock to be repurchased and stating that such shares are to be repurchased by the Corporation pursuant to the applicable provisions of this Certificate of Designations, and (ii) delivery to the Corporation by a Holder of the shares of Series E Preferred Stock to be repurchased on or before the third Business Day immediately preceding the repurchase date.

(f)        If the Series E Preferred Stock is to be redeemed or repurchased pursuant to this Section 7, then, upon payment of the Redemption Price or Repurchase Price, as applicable, in accordance with this Section 7, on and after the date of such redemption or repurchase, all rights of any Holder of such shares of Series E Preferred Stock shall cease and terminate. Such redeemed or repurchased shares of Series E Preferred Stock shall no longer be deemed to be outstanding, whether or not the certificates representing such shares have been received by the Corporation.

 

5

 


Section 8.        Charges, Taxes and Expenses. Issuance of certificates for shares of Series E Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Corporation. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Series E Preferred Stock.

Section 9.        Replacement Certificates. If any certificate evidencing Series E Preferred Stock is mutilated, lost, stolen or destroyed, or a Holder fails to deliver such certificate as may otherwise be provided herein, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction (in such case) and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

Section 10.      Rights Offering Credit. In connection with any Rights Offering (as defined below), each Holder of Series E Preferred Stock may elect, at its option, to credit the Accrued Liquidation Preference of such Holder’s Series E Preferred Stock, in whole or in part, toward any financial commitment such Holder may have in respect of such Rights Offering.

Section 11.      Definitions.

Credit Agreements” means the First Lien Term Credit Agreement, the Second Lien Term Credit Agreement and the Revolving Credit Agreement.

First Lien Term Credit Agreement” means the First Lien Term Credit Agreement, dated as of February 12, 2007, by and among Foamex L.P., as Borrower (the “Borrower”), the Corporation, as Parent Guarantor, Bank of America, N.A., as Administrative Agent and Collateral Agent (the “Administrative Agent”), and the lenders and other parties named therein, as may be amended or restated from time to time.

Revolving Credit Agreement” means the Revolving Credit Agreement, dated as of February 12, 2007, by and among the Borrower, the Corporation and the other Guarantors named thereto, the Administrative Agent and the lenders and other parties named thereto, as may be amended or restated from time to time.

Rights Offering” means an SEC-registered offering by the Corporation of rights to purchase additional Common Stock to existing holders of Common Stock that raises gross proceeds of at least $50 million.

Second Lien Term Credit Agreement” means the Second Lien Term Credit Agreement, dated as of February 12, 2007, by and among the Borrower, the Corporation, the Administrative Agent and the lenders and other parties named therein, as may be amended or restated from time to time.

 

6

 


Section 12.      Miscellaneous.

(a)       Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 on a day that is not a Business Day or later than 4:30 p.m. (New York City time) on any Business Day, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Corporation, to 1000 Columbia Avenue, Linwood, Pennsylvania 19061, facsimile: (610) 859-3000, Attention: Senior Vice President, Legal, or (ii) if to a Holder, to the address or facsimile number appearing on the Corporation’s stockholder records or such other address or facsimile number as such Holder may provide to the Corporation in accordance with this Section 12.

(b)       Any registered Holder may proceed to protect and enforce its rights and the rights of such Holder by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

 

7

 


IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chief Executive Officer this 18th day of April, 2008.

FOAMEX INTERNATIONAL INC.

 

 

By:

/s/ John G. Johnson, Jr.

 

Name:

John G. Johnson, Jr.

 

Title:

Chief Executive Officer

 

 

8

 

 

EX-10 5 ex10461waiverrevagt.htm

WAIVER AGREEMENT

WAIVER AGREEMENT (this “Waiver”), dated as of March 28, 2008, to the Revolving Credit Agreement, dated as of February 12, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Foamex L.P., a Delaware limited partnership (the “Borrower”), the Borrower’s affiliates party thereto as guarantors (collectively, the “Guarantors”), the financial institutions party thereto as lenders (the “Lenders”), Bank of America, N.A., as administrative agent for the Lenders (the “Administrative Agent”), Banc of America Securities LLC, as sole lead arranger and as sole bookrunning manager (in such capacities, “BAS”), and Wells Fargo Foothill, LLC and Wachovia Bank, National Association, as co-documentation agents (the “Documentation Agents”). Capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement.

WHEREAS, the Borrower, the Guarantors, the Lenders, the Administrative Agent, BAS and the Documentation Agents have entered into the Credit Agreement; and

WHEREAS, the Borrower has requested that the Administrative Agent and the Majority Lenders waive the requirement that the Borrower deliver to the Administrative Agent, within 90 days after the end of the 2007 Fiscal Year, the audited financial statements of the Borrower and its Subsidiaries as at and for the Fiscal Year ended December 30, 2007 and the related report and opinion to be delivered with such audited financial statements, all as required pursuant to Section 5.1(a) of the Credit Agreement, and the Administrative Agent and the Majority Lenders are agreeable to do so subject to the terms and conditions set forth herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the condition precedent set forth in Section 2 hereof, the parties hereto hereby agree as follows:

 

SECTION 1.

WAIVER TO THE CREDIT AGREEMENT.

Effective as of the Effective Date (as defined in Section 2), the Administrative Agent and the Majority Lenders hereby waive the requirement that the Borrower deliver to the Administrative Agent, within 90 days after the end of the 2007 Fiscal Year, the audited financial statements of the Borrower and its Subsidiaries as at and for the Fiscal Year ended December 30, 2007 and the related report and opinion to be delivered with such audited financial statements, all as required pursuant to Section 5.1(a) of the Credit Agreement, provided, that the Borrower shall deliver such audited financial statements and such report and opinion to the Administrative Agent on or before April 30, 2008.

 

SECTION 2.

EFFECTIVENESS.

This Waiver shall become effective on such date (the “Effective Date”) as counterparts of this Waiver executed by the Borrower, the Guarantors, the Majority Lenders and the Administrative Agent shall have been delivered to the Administrative Agent.

 


 

 

SECTION 3.

REPRESENTATIONS AND WARRANTIES.

The Borrower reaffirms and restates the representations and warranties set forth in Article 6 of the Credit Agreement, after giving effect to the waiver set forth in Section 1 hereof, and all such representations and warranties shall be true and correct in all material respects on the date hereof with the same force and effect as if made on such date (except to the extent that any such representation and warranty expressly relates to a specified prior date, in which case such representation and warranty shall be correct as of such specified prior date). In addition, the Borrower represents and warrants (which representation and warranty shall survive the execution and delivery hereof) to the Administrative Agent that, after giving effect to the waiver set forth in Section 1 hereof, there exists no Default or Event of Default.

SECTION 4.   REFERENCES TO CREDIT AGREEMENT; RATIFICATION AND CONFIRMATION.

4.1       From and after the effectiveness of this Waiver and the waiver contemplated hereby, all references in the Credit Agreement to “this Agreement”, “hereof”, “herein”, and similar terms shall mean and refer to the Credit Agreement, as modified by this Waiver, and all references in the other Loan Documents shall mean the Credit Agreement as modified by this Waiver.

4.2       This Waiver constitutes a Loan Document under the Credit Agreement.

4.3       Except as specifically set forth in Section 1 hereof, nothing herein shall be deemed to be a waiver of any covenant or agreement contained in, or of any Default or Event of Default under, the Credit Agreement or any of the other Loan Documents, and each of the parties hereto agrees that, except to the extent specifically set forth in Section 1 hereof, all of the covenants and agreements and other provisions contained in the Credit Agreement and the other Loan Documents are hereby ratified and confirmed in all respects and shall remain in full force and effect from and after the date of this Waiver.

4.4       Each of the Guarantors hereby ratifies its guarantee of the Obligations pursuant to Article 13 of the Credit Agreement and each of the Guarantors and the Borrower hereby ratifies its grant of a security interest in the Collateral in which it has an interest to secure the payment of the Obligations.

4.5       The parties hereto shall, at any time and from time to time following the execution of this Waiver, execute and deliver all such further instruments and take all such further actions as may be reasonably necessary or appropriate in order to carry out the provisions of this Waiver.

 

SECTION 5.

COUNTERPARTS.

This Waiver may be executed in any number and in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement; signature pages may be detached from multiple separate counterparts and attached to a single

 

 

2

 


counterpart so that all signature pages are physically attached to the same document. Delivery of an executed counterpart of a signature page to this Waiver by telecopier or by electronic mail shall be effective as delivery of a manually executed counterpart of this Waiver.

 

SECTION 6.

GOVERNING LAW.

THIS WAIVER SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

[Remainder of page intentionally left blank]

 

 

3

 


IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed by their respective authorized officers as of the day and year first above written.

 

FOAMEX L.P.

 

By:

FMXI, LLC, its Managing General Partner

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

FMXI, LLC

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

FOAMEX INTERNATIONAL INC.

 

By:

/s/ George L, Karpinski

 

Title:

Senior Vice President

FOAMEX CANADA INC.

 

By:

/s/ George L, Karpinski

 

Title:

Treasurer

FOAMEX LATIN AMERICA, INC.

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

FOAMEX MEXICO, INC.

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

FOAMEX ASIA, INC.

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

 


FOAMEX CARPET CUSHION LLC

 

By:

/s/ George L, Karpinski

 

Title:

Vice President

BANK OF AMERICA, N.A., Individually and as Administrative Agent

 

By:

/s/ William J. Wilson

 

Title:

Senior Vice President

WELLS FARGO FOOTHILL, LLC

 

By:

/s/ Maged Ghebrial

 

Title:

Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION

 

By:

/s/ Thomas A. Martin

 

Title:

Director

MERRILL LYNCH CAPITAL, a Division of Merrill Lynch Business Financial Services Inc.

 

By:

 

 Title:

GENERAL ELECTRIC CAPITAL CORPORATION

 

By:

/s/ Rebecca A. Ford

 

Title:

Duly Authorized Signatory

 

 

 

 

EX-10 6 ex10471amend1fltca.htm

AMENDMENT AND CONSENT NO. 1 TO

FIRST LIEN TERM CREDIT AGREEMENT

THIS AMENDMENT AND CONSENT NO. 1 (“Amendment”), dated as of March 24, 2008, to that certain First Lien Term Credit Agreement, dated as of February 12, 2007 (the “Credit Agreement”), among FOAMEX L.P., a Delaware limited partnership (the “Borrower”), FOAMEX INTERNATIONAL INC., a Delaware corporation (“Holdings”), the lenders from time to time party thereto (the “Lenders”) and BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Credit Agreement (as amended hereby).

W I T N E S S E T H:

WHEREAS, Section 10.01 of the Credit Agreement permits the Credit Agreement to be amended from time to time with the consent of the Required Lenders;

WHEREAS, Section 10.01 of the Credit Agreement permits consents to be effective once such consent is given in writing and executed by the Required Lenders;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION ONE.        Amendments. Upon and subject to the Effective Date (as defined below), the Credit Agreement is amended as follows:

(a)       The definition of “Applicable Rate” in Section 1.01 of the Credit Agreement is replaced in its entirety with the following:

Applicable Rate” means, with respect to any Loan, 2.25% per annum for Base Rate Loans and 3.25% per annum for Eurodollar Rate Loans.

(b)       Section 2.03(b)(ii) of the Credit Agreement is hereby amended by adding the following after the period:

“Notwithstanding the foregoing, this clause (ii) shall not apply to the first $15.0 million of Net Cash Proceeds of Asset Sales not described in clause (i) above received after the date of effectiveness of Amendment and Consent No. 1 to this Agreement (i.e., such $15.0 million shall be used to prepay Loans and is not permitted to be reinvested in accordance with this clause (ii).”

(c)       Section 2.03(d) of the Credit Agreement is hereby replaced with the following:

“(d)     Equity Offerings. (i) If any assignment of Second Lien Loans to Holdings pursuant to a First Permitted Offer (as defined in the Second Lien Credit Agreement) becomes effective, then no later than five Business Days following the receipt by Holdings

 


of Net Cash Offering Proceeds (as defined below) from Applicable Cash Offerings (as defined below) with respect to such First Permitted Offer, the Borrower shall prepay Loans in an aggregate amount equal to 100% of such Net Cash Offering Proceeds and (ii) if Holdings receives any cash proceeds from the issuance or sale of Qualified Capital Stock of Holdings pursuant to the Equity Commitment Letters described in the Holdings’ Report on Form 8-K filed on February 13, 2008 to be used for funding ordinary course expenditures (the “Equity Letter Proceeds”), then no later than five Business Days following Holdings’ receipt thereof, the Borrower shall be required to make an optional prepayment of the Loans in an amount equal to the amount of such Equity Letter Proceeds. The term “Applicable Cash Offerings” means, with respect to any First Permitted Offer, any issuance or sale of Qualified Capital Stock of Holdings for cash that Holdings intends to be included in determining whether clause (iv) of Section 10.20(a)(2)(y) of the Second Lien Credit Agreement has been complied with in connection with such First Permitted Offer, including any such issuance or sale of Qualified Capital Stock pursuant to the Equity Commitment Letters referred to in the preceding sentence. “Net Cash Offering Proceeds” means the excess, if any, of (i) any cash proceeds(other than any Equity Letter Proceeds) from the issuance or sale of Qualified Capital Stock by Holdings in Applicable Cash Offerings over (ii) the sum of (w) all reasonable fees and expenses payable by Holdings or the Borrower in connection with Amendment and Consent No. 1 to this Agreement and Amendment No. 1 to the Second Lien Credit Agreement, (x) all reasonable fees, underwriting discounts, commissions, costs and other expenses incurred in connection with such Applicable Cash Offerings, the First Permitted Offer, any related transactions and any agreements entered into in connection therewith, (y) the aggregate amount of any accrued interest payable on any Second Lien Loans assigned pursuant to such First Permitted Offer if such accrued interest is payable on the closing date of such assignment pursuant to the terms of the First Permitted Offer and (z) the aggregate amount of any accrued interest payable on the portion of the Loans to be prepaid pursuant to this Section 2.03(d).”

SECTION TWO.        Consent. Upon and subject to the Effective Date (as defined below), the Required Lenders hereby consent to (i) the amendment of the Second Lien Credit Agreement to (A) permit Second Lien Obligations to be assigned to Holdings in exchange or as consideration for Qualified Capital Stock of Holdings and (B) provide that upon such assignment to Holdings, such Second Lien Obligations will be contributed to the Borrower and extinguished, in each case on terms substantially in accordance with new Section 10.20 of the Second Lien Credit Agreement as set forth in Exhibit A hereto (including payment of accrued interest in cash, if applicable), and (ii) the consummation of any one or more such transactions; provided that after the date of effectiveness of this Amendment and prior to or concurrently with the consummation of the First Permitted Offer, Holdings shall have received Equity Letter Proceeds and Net Cash Offering Proceeds from Applicable Cash Offerings of not less than $15.0 million in the aggregate.

SECTION THREE.    Conditions to Effectiveness. This Amendment shall become effective as of the date (the “Effective Date”) when all of the following conditions have been satisfied:

 

2

 


(a)       The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, the Administrative Agent and the Required Lenders (which for the avoidance of doubt shall be calculated after disregarding the Loans of Affiliated Lenders in the manner contemplated by the Affiliated Lender Agreements).

(b)       The Borrower shall have paid an amendment and consent fee (the “Amendment Fee”) to the Administrative Agent, for the ratable account of the Applicable Lenders (as defined below), equal to $3,450,000. The term “Applicable Lenders” shall mean each Lender that has delivered to the Administrative Agent an executed counterpart of this Amendment prior to noon, New York City time, on March 24, 2008 or such later date and time specified by the Borrower and notified in writing to the Lenders by the Administrative Agent.

(c)       The Administrative Agent shall have received an Officer’s Certificate executed by Holdings, dated the Effective Date, stating that the representations and warranties in Section Four are true and correct.

(d)       All fees and expenses payable on or before the Effective Date by the Borrower to the Administrative Agent (or its Affiliates) in connection with this Amendment, to the extent invoiced to the Borrower prior to the Effective Date, shall have been paid.

(e)       Amendment No. 1 of the Second Lien Credit Agreement in substantially the form attached hereto as Exhibit A shall have become or shall become concurrently effective.

Notwithstanding anything to the contrary herein, if the Amendment Fee is not paid and the Effective Date does not occur on or prior to March 27, 2008, this Amendment (other than Sections Five and Seven) shall be void and have no effect.

SECTION FOUR.      Representations and Warranties. The Loan Parties hereby represent and warrant that (i) no Default or Event of Default has occurred and is continuing, (ii) the execution and delivery of this Amendment and the performance of this Amendment, the Credit Agreement as amended by this Amendment (the “Amended Agreement”) and each other Loan Document has been duly authorized by all necessary action on the part of Holdings and the Borrower and (iii) this Amendment, the Amended Agreement and each other Loan Document constitutes the legal, valid and binding obligation of the Loan Parties party thereto, enforceable against them in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

SECTION FIVE.        Reference to and Effect on the Credit Agreement. On and after the Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in each of the Loan Documents to “the Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as supplemented by this Amendment. The Credit Agreement and each of the other Loan Documents, as supplemented by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery

 

3

 


and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or any Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

SECTION SIX.          Costs and Expenses. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent and its Affiliates in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, if any.

SECTION SEVEN.    Execution in Counterparts. This Amendment may be executed in any number of counterparts and by 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 but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION EIGHT.     Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

4

 


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.

FOAMEX L.P.

 

By:

FMXI, LLC, its Managing General Partner

 

 

By:

/s/ George L. Karpinski

 

Name:

George L. Karpinski

 

Title:

Vice President

FOAMEX INTERNATIONAL INC.

 

By:

/s/ George L. Karpinski

 

Name:

George L. Karpinski

 

Title:

Senior Vice President

 

5

 


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.

BANK OF AMERICA, N.A., as

Administrative Agent

 

By:

/s/ Judy D. Payne

 

Name:

Judy D. Payne

 

Title:

Vice President

 

 

6

 

 

EX-10 7 ex10491amend1sltca.htm

 

AMENDMENT NO. 1 TO

SECOND LIEN TERM CREDIT AGREEMENT

AMENDMENT NO. 1 (“Amendment”), dated as of March 24, 2008, to that certain Second Lien Term Credit Agreement, dated as of February 12, 2007 (the “Credit Agreement”), among FOAMEX L.P., a Delaware limited partnership (the “Borrower”), FOAMEX INTERNATIONAL INC., a Delaware corporation (“Holdings”), the lenders from time to time party thereto (the “Lenders”) and BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Credit Agreement.

W I T N E S S E T H:

WHEREAS, Section 10.01 of the Credit Agreement permits the Credit Agreement to be amended from time to time with the consent of the Required Lenders;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION ONE.        Amendments. Upon and subject to the occurrence of the Effective Date (as defined below), the Credit Agreement is amended as follows:

 

(a)

Section 10.06 of the Credit Agreement is hereby amended as follows:

(i)        In subsection (a), (A) the word “or” appearing before clause (iv) of the first sentence thereof is hereby deleted and (B) the phrase “or (v) by way of assignment to Holdings in accordance with the provisions of Section 10.20” is hereby inserted after the phrase “subsection (h) of this Section 10.06” in clause (iv) of the first sentence thereof.

(ii)       In subsection (g), the phrase “or any Holdings Assignment and Assumption or Holdings Assignment Certificate (each as defined in Section 10.20)” is hereby inserted after the words “any Assignment and Assumption”.

(b)       A new Section 10.20 of the Credit Agreement is hereby added as set forth in Exhibit A hereto.

(c)       New Exhibits M and N to the Credit Agreement are hereby added as set forth in Exhibit B hereto.

SECTION TWO.        Conditions to Effectiveness. This Amendment shall become effective as of the date (the “Effective Date”) when all of the following conditions have been satisfied:

 


(a)       The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, the Administrative Agent and the Required Lenders (which for the avoidance of doubt shall be calculated after disregarding the Loans of Affiliated Lenders in the manner contemplated by the Affiliated Lender Agreements).

(b)       The Borrower shall have paid a consent fee (the “Consent Fee”) to the Administrative Agent, for the ratable account of the Applicable Lenders (as defined below), equal to 0.25% of the aggregate principal amount of Loans of the Applicable Lenders. The term “Applicable Lender” shall mean each Lender that (i) has delivered an executed counterpart of this Amendment prior to 5:00 p.m., New York City time, on March 13, 2008 or such later date and time specified by Borrower and notified in writing to the Lenders by the Administrative Agent and (ii) has not waived in writing its right to receive any portion of the Consent Fee.

(c)       The Administrative Agent shall have received an opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, dated the Effective Date, in substantially the form attached hereto as Exhibit C.

(d)       The Administrative Agent shall have received an Officer’s Certificate executed by Holdings, dated the Effective Date, stating that the representations and warranties in Section Three are true and correct.

(e)       All fees and expenses payable on or before the Effective Date by the Borrower to the Administrative Agent (or its Affiliates) in connection with this Amendment, to the extent invoiced to the Borrower prior to the Effective Date, shall have been paid.

(f)        The Borrower, the First Lien Administrative Agent and the Required Lenders (as defined under the First Lien Credit Agreement) shall have executed and delivered an amendment and consent under the First Lien Credit Agreement in substantially the form attached hereto as Exhibit D, and such amendment and consent shall have become effective.

Notwithstanding anything to the contrary herein, if the Consent Fee is not paid on or prior to March 27, 2008, this Amendment (other than Sections Five and Seven) shall be void and have no effect.

SECTION THREE.    Representations and Warranties. The Loan Parties hereby represent and warrant that (i) no Default or Event of Default has occurred and is continuing, (ii) the execution and delivery of this Amendment and the performance of this Amendment, the Credit Agreement as amended by this Amendment (the “Amended Agreement”) and each other Loan Document has been duly authorized by all necessary action on the part of Holdings and the Borrower and (iii) this Amendment, the Amended Agreement and each other Loan Document, constitutes the legal, valid and binding obligation of the Loan Parties party thereto, enforceable against them in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

 

-2-

 


SECTION FOUR.      Reference to and Effect on the Credit Agreement. On and after the Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in each of the Loan Documents to “the Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. The Credit Agreement and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or any Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

SECTION FIVE.        Costs and Expenses. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent and its Affiliates in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, if any.

SECTION SIX.          Execution in Counterparts. This Amendment may be executed in any number of counterparts and by 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 but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION SEVEN.    Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

-3-

 


 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.

FOAMEX L.P.

 

By:

FMXI, LLC, its Managing General Partner

 

 

By:

/s/ George L. Karpinski

 

Name:

George L. Karpinski

 

Title:

Vice President

FOAMEX INTERNATIONAL INC.

 

By:

/s/ George L. Karpinski

 

Name:

George L. Karpinski

 

Title:

Senior Vice President

 


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.

BANK OF AMERICA, N.A., as

Administrative Agent

 

By:

/s/ Judy D. Payne

 

Name:

Judy D. Payne

 

Title:

Vice President

 

 

 

EX-10 8 ex1066cicph.htm

FOAMEX INTERNATIONAL INC.

CHANGE IN CONTROL PROTECTION AGREEMENT

 

This Change in Control Protection Agreement (this “Agreement”), dated effective as of December 20, 2002 (the “Effective Date”), is entered into between Foamex International Inc., a Delaware Corporation (the “Company”), and Paul A. Haslanger (“Executive”).

WHEREAS, the Company desires to provide Executive with additional employment security in the event that the Company undergoes a change in control, as described herein, and Executive desires to receive such additional security; and

WHEREAS, Executive and the Company desire to set forth the terms and conditions of such additional employment security in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Executive and the Company hereby agree as follows:

1.    Definitions. For purposes of this Agreement:

(a)        Board” shall mean the Board of Directors of the Company.

(b)        Change in Control” shall mean:

(i)        The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of “beneficial ownership” (as defined below) of 25% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this clause (i) the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company or any corporation controlled by the Company; (3) any acquisition by any corporation pursuant to a transaction which complies with (A), (B) and (C) of clause (iii) of this Section 1(b);

(ii)       Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with

 


2

 

respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii)      The consummation of a recapitalization, restructuring, exchange of equity for debt or debt for equity or a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Transaction”), in each case, unless, following such Business Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners (as defined below), respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Transaction beneficially own, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportion as their ownership immediately prior to such Business Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Transaction or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Transaction; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Transaction; or

(iv)      The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

For purposes of this Section 1(b), “beneficial ownership” or “beneficial owner” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition; provided, however, that such Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, a merger agreement, or similar agreement, until the consummation of the transaction contemplated by such agreement.

(c)       “Cause” shall mean (i) the substantial and continued willful failure by Executive to perform his duties to the Company which results, or could reasonably be expected to result, in material harm to the business or reputation of the Company, which failure is not cured (if curable) by Executive within 30 days after written notice of such failure is delivered to Executive by the Company; (ii) an act of

 


3

 

gross misconduct by Executive involving the Company including, without limitation, embezzlement, fraud, or misappropriation; or (iii) Executive's conviction of, or pleading guilty or no contest to, a felony.

(d)       “Disability” means a physical or mental condition which has prevented Executive from performing satisfactorily his duties to the Company for a period of at least 90 consecutive days in any 365 day period or 120 non-consecutive days within any 365 day period.

(e)       “Good Reason” shall mean the occurrence of any of the following events without the consent of Executive (i) the Company and any subsidiaries sell, lease or otherwise transfer all or substantially all of their assets to an entity which has not assumed the Company’s obligations under this Agreement; (ii) a material diminution in the duties or responsibilities of Executive and such diminution is not cured within 15 days after written notice of the same is received by the Company; (iii) the Company’s failure to pay any compensation then due to Executive and such failure is not cured within 15 days after written notice of the same is received by the Company; (iv) the principal executive offices of the Company are moved to a location more than fifty (50) miles from either Linwood, Pennsylvania or, if the Company’s principal executive office has been moved (prior to the Operative Date) from Linwood, Pennsylvania to some other location, such location; (v) a liquidation or dissolution of the Company occurs; or (vi) Executive is removed from the position of Executive Vice President, Manufacturing of the Company.

(f)        “Operative Date” means the first date on which a Change in Control shall have occurred.

2.    Term of this Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue until the first date on or following the first anniversary of the Operative Date on which the Company and Executive have fully satisfied their respective obligations under this Agreement.

3.    Stock Options. In the event that Executive is employed on the Operative Date, all stock options previously granted to Executive by the Company, whether pursuant to any plan or program of the Company or otherwise, whether or not vested or exercisable, shall become fully vested and exercisable effective immediately prior to the Operative Date.

4.    Termination following a Change in Control.

(a)       If Executive’s employment is terminated during the twelve (12) month period following the Operative Date by the Company without Cause (other than as a result of the death or Disability of Executive) or by Executive with Good Reason (any such termination, a “Qualifying Termination”), the Company shall, (i) pay to Executive his accrued but unpaid base salary through the date of the Qualifying Termination; (ii) pay to Executive an amount, payable at the Executive’s election either as a lump sum payment or in twenty four equal monthly installments in accordance with

 


4

 

the Company’s regular payroll policies, equal to two times the sum of (A) the greater of (x) Executive's annual base salary in effect immediately prior to the Operative Date, and (y) Executive’s annual base salary as of the date of such Qualifying Termination, and (B) Executive’s annual bonus, calculated as though the Company and Executive had attained 100% of the performance targets for the applicable fiscal year of the Company during which the Qualifying Termination occurs; and (iii) continue Executive’s participation in the health, medical and life insurance benefits and/or coverage provided to Executive either (1) immediately prior to the Operative Date, or (2) as of the date of such Qualifying Termination, whichever is more favorable to Executive; provided, however, that (a) such benefit continuation is subject to the terms and conditions of such plans, (b) group life insurance continuation is subject to a limit of two years following such Qualifying Termination, and (c) Executive shall cease to be covered by medical and/or dental plans of the Company at such time Executive becomes covered by like plans of another company.

(b)       Notwithstanding Section 4(a), if (i) any Payment (as defined in Section 6(a)) would be subject to an Excise Tax (as defined in Section 6(a)), and (ii) the aggregate value of all Payments (the “Contingent Payments”) which are described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), does not exceed the product of (x) 1.10, multiplied by (y) the amount of Executive’s “includible compensation” for purposes of Section 280G of the Code, multiplied by (z) 2.99, then the Company shall reduce the amount of any Contingent Payments otherwise due to Executive to the extent necessary such that the total aggregate value of Contingent Payments shall be equal to the product of clauses (y) and (z) above. In the event that any Contingent Payments are required to be reduced by the Company pursuant to this Section 4(b), Executive may direct in writing to the Company the Contingent Payments to be so reduced, subject to the consent of the Company, not to be unreasonably withheld.

5.    Special Circumstances. Notwithstanding any provision of this Agreement to the contrary, if (i) Executive’s employment is terminated prior to the Operative Date under circumstances that would have constituted a Qualifying Termination if such circumstances occurred after the Operative Date; (ii) such termination (or event constituting Good Reason for such termination) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control or was otherwise in anticipation of a Change in Control; and (iii) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) or such anticipated Change in Control does occur, then for purposes of this Agreement, the date immediately prior to the date of such termination of employment shall be treated as the Operative Date and such termination shall be treated as a Qualifying Termination.

6.    Gross-Up Payment. Any determination pursuant to this Section 6 shall be made only after giving effect to Section 4(b).

(a)       If it is determined (as hereafter provided) that any payment (other than the Gross-Up Payment provided for in this Section 6) or distribution by the

 


5

 

Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code, or to any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”) in an amount such that, after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b)       Subject to the provisions of Section 6(f) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, will be made by a nationally recognized firm of certified public accountants (the “Accounting Firm”) selected by the Company, which may be the Company’s regular outside auditors. The Company will direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and Executive within 30 calendar days after the date of the Change in Control or the date of Executive’s termination of employment, if applicable, and any other such time or times as may be requested by the Company or Executive. If the Accounting Firm determines that any Excise Tax is payable by Executive, the Company will pay the required Gross-Up Payment to Executive no later than five calendar days prior to the due date for the Executive’s income tax return on which the Excise Tax is included. If the Accounting Firm determines that no Excise Tax is payable by Executive, it will, at the same time as it makes such determination, furnish Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal, state, local income or other tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment will be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 6(f) hereof and Executive thereafter is required to make a payment of any Excise Tax, Executive shall so notify the Company, which will direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and Executive as promptly as possible. Any such Underpayment will be promptly paid by the Company to, or for the benefit of, Executive within five business days after receipt of such determination and calculations.

 


6

 

(c)       The Company and Executive will each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination contemplated by Section 6(b) hereof.

(d)       The federal, state and local income or other tax returns filed by Executive will be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by Executive. Executive will make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, Executive will within five business days pay to the Company the amount of such reduction.

(e)       The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Sections 6(b) and (d) hereof will be borne by the Company. If such fees and expenses are initially advanced by Executive, the Company will reimburse Executive the full amount of such fees and expenses within five business days after receipt from Executive of a statement therefor and reasonable evidence of his payment thereof.

(f)        Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification will be given as promptly as practicable but no later than ten (10) business days after Executive actually receives notice of such claim and Executive will further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by Executive). Executive will not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of an amount with respect to such claim is due. If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive will:

(i)        provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;

(ii)       take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;

 


7

 

(iii)      cooperate with the Company in good faith in order effectively to contest such claim; and

(iv)      permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company will bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and will indemnify and hold harmless Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(f), the Company will control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided that Executive may participate therein at his own cost and expense) and may, at its option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided, however, that if the Company directs Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such payment to Executive on an interest-free basis and will indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(g)       If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(f) hereof, Executive receives any refund with respect to such claim, Executive will (subject to the Company’s complying with the requirements of Section 6(f) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(f) hereof, a determination is made that Executive will not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid pursuant to this Section 6. If, after the receipt by Executive of a Gross-Up Payment but before the payment by the Executive of the Excise Tax, it is determined by the Accounting Firm that the Excise Tax payable by Executive is less than the amount originally computed by the Accounting Firm and consequently that the

 


8

 

amount of the Gross-Up Payment is larger than that required by this Section 6, the Executive shall promptly refund to the Company the amount by which the Gross-Up Payment initially made to Executive exceeds the Gross-Up Payment required under this Section 6.

7.    Confidentiality. Executive agrees that he will not, whether before or after the Operative Date, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, which he may have learned in connection with his employment. For purposes of this Agreement, a “trade or business secret, process, method or means, or any other confidential information” shall mean and include written information reasonably treated as confidential or as a trade secret by the Company. Executive’s obligation under this Section 7 shall not apply to any information which (i) is known publicly; (ii) is in the public domain or hereafter enters the public domain without the fault of Executive; (iii) was known to Executive prior to his receipt of such information from the Company, as evidenced by written records of Executive; or (iv) is hereafter disclosed to Executive by a third party not under an obligation of confidence to the Company. Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such confidential information. Executive recognizes that all such documents and objects, whether developed by him or by someone else, will be the sole exclusive property of the Company. Upon termination of his employment hereunder, Executive shall forthwith deliver to the Company all such confidential information, including without limitation all lists of customers, correspondence, accounts, records and any other documents or property made or held by him or under his control in relation to the business or affairs of the Company, and no copy of any such confidential information shall be retained by him.

8.    Entire Agreement. This Agreement constitutes the complete and full agreement between Executive and the Company concerning the subject matters hereof and, in the event that Executive becomes entitled to any payment or payments hereunder, Executive shall have no right to receive any additional payment from the Company or any of its affiliates that is in the nature of severance.1

9.    No Mitigation. Executive shall not be obligated to seek other employment by way of mitigation of the amounts payable to Executive under any provision of this Agreement.

10.   Arbitration. Any dispute between the parties hereto in connection with or arising out of this Agreement or any of its terms and provisions shall be submitted to arbitration in New York, New York, before a panel of three neutral arbitrators in accordance with the Commercial Rules of the American Arbitration Association then in effect, and the arbitration determination resulting from any such submission shall be final

_________________________

 

Specific provision to coordinate with existing employment agreement, if any.

 

 


9

 

and binding upon the parties hereto. Judgment upon any arbitration award may be entered in any court of competent jurisdiction.

11.   Successors.

(a)       This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b)       This Agreement shall inure to the benefit of and be binding upon the Company and its successors.

12.   Miscellaneous.

(a)       Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, applied without reference to principles of conflicts of laws.

(b)       Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:

Paul A. Haslanger

Foamex International Inc.

1000 Columbia Avenue

Linwood, PA 19061

 

If to the Company:

Foamex International Inc.

Attention: General Counsel

1000 Columbia Avenue

Linwood, PA 19061

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.

(c)       Tax Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, State or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

 


10

 

IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name and on its behalf, as of the day and year first above written.

FOAMEX INTERNATIONAL INC.

 

By: /s/ Gregory J. Christian

Gregory J. Christian

Executive Vice President

& General Counsel

 

/s/ Paul A. Haslanger

Paul A. Haslanger

 

 

 

EX-10 9 ex10661cicamendpah.htm

AMENDMENT TO

CHANGE IN CONTROL PROTECTION AGREEMENT

 

This Amendment No 1 (the “Amendment”) to the Change in Control Protection Agreement is made and entered into on the 31st day of January 2007 between Foamex International Inc., a Delaware corporation (the “Company”), and Paul A. Haslanger (“Executive”).

 

WHEREAS, the Company and Executive executed a change in control protection agreement, dated December 20, 2002 (the “Agreement”), providing Executive with additional employment security in the event that the Company undergoes a change in control, as described in the Agreement; and

 

WHEREAS, the Company and Executive desire to amend a certain provision in the Agreement and as set forth herein; and

 

WHEREAS, terms and conditions of the Agreement not specifically amended herein shall remain unchanged and in full force and effect.

 

NOW, THEREFORE, the parties hereby agree that the following provision will be amended as follows:

 

The definition of ‘Change in Control” in Section 1(b) is hereby amended and restated as follows:

 

“Change in Control” shall mean the occurrence, after the consummation of the transactions contemplated by the Company’s Second Amended Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”), of any of the following events:

 

(i)       the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of “beneficial ownership” (as defined below) of 50% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, that beneficial ownership by any of D. E. Shaw Laminar Portfolios, L.L.C., Goldman, Sachs & Co., Par IV Master Fund, Ltd, Sigma Capital Associates, LLC, Sunrise Partners Limited Partnership, or any of their respective affiliates shall not be taken into account in the numerator for purposes of determining whether the limit set forth above has been exceeded and, provided further that for purposes of this clause (i) the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company or any corporation controlled by the Company; (3) any acquisition by any corporation pursuant to a transaction which complies with (A), (B) and (C) of clause (iii) of this Section 6.1;

 


2

 

(ii)       Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii)      The consummation of a recapitalization, restructuring, exchange of equity for debt or debt for equity or a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Transaction”), in each case, unless, following such Business Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners (as defined below), respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Transaction beneficially own, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportion as their ownership immediately prior to such Business Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; and (B) at least a majority of the members of the board of directors of the corporation resulting from such Business Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Transaction; or

(iv)      The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

For purposes of this Section “beneficial ownership” or “beneficial owner” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition; provided, however, that such Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, a merger agreement, or

 


3

 

similar agreement, until the consummation of the transaction contemplated by such agreement.

 

For purposes of clarification, the parties acknowledge and agree that the Company’s emergence from bankruptcy and the consummation of the transactions contemplated by the Plan (and all related transactions) shall not constitute a Change in Control, and Executive is not entitled to any payments or benefits (including without limitation accelerated vesting of any equity awards) thereunder prior to, on or following the date of this Amendment, as a result of or related to (either alone or in connection with the occurrence of any other event) such emergence or transactions.

 

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written.

 

FOAMEX INTERNATIONAL INC.

 

By: /s/ Gregory J. Christian

Name: Gregory J. Christian

Title: EVP & General Counsel

 

EXECUTIVE

 

/s/ Paul A. Haslanger

 

 

EX-10 10 ex1067cicdn.htm

FOAMEX INTERNATIONAL INC.

CHANGE IN CONTROL PROTECTION AGREEMENT

 

This Change in Control Protection Agreement (this “Agreement”), dated effective as of December 20, 2002 (the “Effective Date”), is entered into between Foamex International Inc., a Delaware Corporation (the “Company”), and Darrell Nance (“Executive”).

WHEREAS, the Company desires to provide Executive with additional employment security in the event that the Company undergoes a change in control, as described herein, and Executive desires to receive such additional security; and

WHEREAS, Executive and the Company desire to set forth the terms and conditions of such additional employment security in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Executive and the Company hereby agree as follows:

1.    Definitions. For purposes of this Agreement:

(a)        Board” shall mean the Board of Directors of the Company.

(b)        Change in Control” shall mean:

(i)        The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of “beneficial ownership” (as defined below) of 25% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this clause (i) the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company or any corporation controlled by the Company; (3) any acquisition by any corporation pursuant to a transaction which complies with (A), (B) and (C) of clause (iii) of this Section 1(b);

(ii)       Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with

 


2

 

respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii)      The consummation of a recapitalization, restructuring, exchange of equity for debt or debt for equity or a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Transaction”), in each case, unless, following such Business Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners (as defined below), respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Transaction beneficially own, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportion as their ownership immediately prior to such Business Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Transaction or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Transaction; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Transaction; or

(iv)      The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

For purposes of this Section 1(b), “beneficial ownership” or “beneficial owner” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition; provided, however, that such Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, a merger agreement, or similar agreement, until the consummation of the transaction contemplated by such agreement.

(c)       “Cause” shall mean (i) the substantial and continued willful failure by Executive to perform his duties to the Company which results, or could reasonably be expected to result, in material harm to the business or reputation of the Company, which failure is not cured (if curable) by Executive within 30 days after written notice of such failure is delivered to Executive by the Company; (ii) an act of

 


3

 

gross misconduct by Executive involving the Company including, without limitation, embezzlement, fraud, or misappropriation; or (iii) Executive's conviction of, or pleading guilty or no contest to, a felony.

(d)       “Disability” means a physical or mental condition which has prevented Executive from performing satisfactorily his duties to the Company for a period of at least 90 consecutive days in any 365 day period or 120 non-consecutive days within any 365 day period.

(e)       “Good Reason” shall mean the occurrence of any of the following events without the consent of Executive (i) the Company and any subsidiaries sell, lease or otherwise transfer all or substantially all of their assets to an entity which has not assumed the Company’s obligations under this Agreement; (ii) a material diminution in the duties or responsibilities of Executive and such diminution is not cured within 15 days after written notice of the same is received by the Company; (iii) the Company’s failure to pay any compensation then due to Executive and such failure is not cured within 15 days after written notice of the same is received by the Company; (iv) the principal executive offices of the Company are moved to a location more than fifty (50) miles from either Linwood, Pennsylvania or, if the Company’s principal executive office has been moved (prior to the Operative Date) from Linwood, Pennsylvania to some other location, such location; (v) a liquidation or dissolution of the Company occurs; or (vi) Executive is removed from the position of Executive Vice President, Foam Products (Western Region) of the Company.

(f)        “Operative Date” means the first date on which a Change in Control shall have occurred.

2.    Term of this Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue until the first date on or following the first anniversary of the Operative Date on which the Company and Executive have fully satisfied their respective obligations under this Agreement.

3.    Stock Options. In the event that Executive is employed on the Operative Date, all stock options previously granted to Executive by the Company, whether pursuant to any plan or program of the Company or otherwise, whether or not vested or exercisable, shall become fully vested and exercisable effective immediately prior to the Operative Date.

4.    Termination following a Change in Control.

(a)       If Executive’s employment is terminated during the twelve (12) month period following the Operative Date by the Company without Cause (other than as a result of the death or Disability of Executive) or by Executive with Good Reason (any such termination, a “Qualifying Termination”), the Company shall, (i) pay to Executive his accrued but unpaid base salary through the date of the Qualifying Termination; (ii) pay to Executive an amount, payable at the Executive’s election either as a lump sum payment or in twenty four equal monthly installments in accordance with

 


4

 

the Company’s regular payroll policies, equal to two times the sum of (A) the greater of (x) Executive's annual base salary in effect immediately prior to the Operative Date, and (y) Executive’s annual base salary as of the date of such Qualifying Termination, and (B) Executive’s annual bonus, calculated as though the Company and Executive had attained 100% of the performance targets for the applicable fiscal year of the Company during which the Qualifying Termination occurs; and (iii) continue Executive’s participation in the health, medical and life insurance benefits and/or coverage provided to Executive either (1) immediately prior to the Operative Date, or (2) as of the date of such Qualifying Termination, whichever is more favorable to Executive; provided, however, that (a) such benefit continuation is subject to the terms and conditions of such plans, (b) group life insurance continuation is subject to a limit of two years following such Qualifying Termination, and (c) Executive shall cease to be covered by medical and/or dental plans of the Company at such time Executive becomes covered by like plans of another company.

(b)       Notwithstanding Section 4(a), if (i) any Payment (as defined in Section 6(a)) would be subject to an Excise Tax (as defined in Section 6(a)), and (ii) the aggregate value of all Payments (the “Contingent Payments”) which are described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), does not exceed the product of (x) 1.10, multiplied by (y) the amount of Executive’s “includible compensation” for purposes of Section 280G of the Code, multiplied by (z) 2.99, then the Company shall reduce the amount of any Contingent Payments otherwise due to Executive to the extent necessary such that the total aggregate value of Contingent Payments shall be equal to the product of clauses (y) and (z) above. In the event that any Contingent Payments are required to be reduced by the Company pursuant to this Section 4(b), Executive may direct in writing to the Company the Contingent Payments to be so reduced, subject to the consent of the Company, not to be unreasonably withheld.

5.    Special Circumstances. Notwithstanding any provision of this Agreement to the contrary, if (i) Executive’s employment is terminated prior to the Operative Date under circumstances that would have constituted a Qualifying Termination if such circumstances occurred after the Operative Date; (ii) such termination (or event constituting Good Reason for such termination) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control or was otherwise in anticipation of a Change in Control; and (iii) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) or such anticipated Change in Control does occur, then for purposes of this Agreement, the date immediately prior to the date of such termination of employment shall be treated as the Operative Date and such termination shall be treated as a Qualifying Termination.

6.    Gross-Up Payment. Any determination pursuant to this Section 6 shall be made only after giving effect to Section 4(b).

(a)       If it is determined (as hereafter provided) that any payment (other than the Gross-Up Payment provided for in this Section 6) or distribution by the

 


5

 

Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code, or to any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”) in an amount such that, after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b)       Subject to the provisions of Section 6(f) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, will be made by a nationally recognized firm of certified public accountants (the “Accounting Firm”) selected by the Company, which may be the Company’s regular outside auditors. The Company will direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and Executive within 30 calendar days after the date of the Change in Control or the date of Executive’s termination of employment, if applicable, and any other such time or times as may be requested by the Company or Executive. If the Accounting Firm determines that any Excise Tax is payable by Executive, the Company will pay the required Gross-Up Payment to Executive no later than five calendar days prior to the due date for the Executive’s income tax return on which the Excise Tax is included. If the Accounting Firm determines that no Excise Tax is payable by Executive, it will, at the same time as it makes such determination, furnish Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal, state, local income or other tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment will be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 6(f) hereof and Executive thereafter is required to make a payment of any Excise Tax, Executive shall so notify the Company, which will direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and Executive as promptly as possible. Any such Underpayment will be promptly paid by the Company to, or for the benefit of, Executive within five business days after receipt of such determination and calculations.

 


6

 

(c)       The Company and Executive will each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination contemplated by Section 6(b) hereof.

(d)       The federal, state and local income or other tax returns filed by Executive will be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by Executive. Executive will make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, Executive will within five business days pay to the Company the amount of such reduction.

(e)       The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Sections 6(b) and (d) hereof will be borne by the Company. If such fees and expenses are initially advanced by Executive, the Company will reimburse Executive the full amount of such fees and expenses within five business days after receipt from Executive of a statement therefor and reasonable evidence of his payment thereof.

(f)        Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification will be given as promptly as practicable but no later than ten (10) business days after Executive actually receives notice of such claim and Executive will further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by Executive). Executive will not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of an amount with respect to such claim is due. If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive will:

(i)        provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;

(ii)       take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;

 


7

 

(iii)      cooperate with the Company in good faith in order effectively to contest such claim; and

(iv)      permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company will bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and will indemnify and hold harmless Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(f), the Company will control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided that Executive may participate therein at his own cost and expense) and may, at its option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided, however, that if the Company directs Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such payment to Executive on an interest-free basis and will indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(g)       If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(f) hereof, Executive receives any refund with respect to such claim, Executive will (subject to the Company’s complying with the requirements of Section 6(f) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(f) hereof, a determination is made that Executive will not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid pursuant to this Section 6. If, after the receipt by Executive of a Gross-Up Payment but before the payment by the Executive of the Excise Tax, it is determined by the Accounting Firm that the Excise Tax payable by Executive is less than the amount originally computed by the Accounting Firm and consequently that the

 


8

 

amount of the Gross-Up Payment is larger than that required by this Section 6, the Executive shall promptly refund to the Company the amount by which the Gross-Up Payment initially made to Executive exceeds the Gross-Up Payment required under this Section 6.

7.    Confidentiality. Executive agrees that he will not, whether before or after the Operative Date, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, which he may have learned in connection with his employment. For purposes of this Agreement, a “trade or business secret, process, method or means, or any other confidential information” shall mean and include written information reasonably treated as confidential or as a trade secret by the Company. Executive’s obligation under this Section 7 shall not apply to any information which (i) is known publicly; (ii) is in the public domain or hereafter enters the public domain without the fault of Executive; (iii) was known to Executive prior to his receipt of such information from the Company, as evidenced by written records of Executive; or (iv) is hereafter disclosed to Executive by a third party not under an obligation of confidence to the Company. Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such confidential information. Executive recognizes that all such documents and objects, whether developed by him or by someone else, will be the sole exclusive property of the Company. Upon termination of his employment hereunder, Executive shall forthwith deliver to the Company all such confidential information, including without limitation all lists of customers, correspondence, accounts, records and any other documents or property made or held by him or under his control in relation to the business or affairs of the Company, and no copy of any such confidential information shall be retained by him.

8.    Entire Agreement. This Agreement constitutes the complete and full agreement between Executive and the Company concerning the subject matters hereof and, in the event that Executive becomes entitled to any payment or payments hereunder, Executive shall have no right to receive any additional payment from the Company or any of its affiliates that is in the nature of severance.1

9.    No Mitigation. Executive shall not be obligated to seek other employment by way of mitigation of the amounts payable to Executive under any provision of this Agreement.

10.   Arbitration. Any dispute between the parties hereto in connection with or arising out of this Agreement or any of its terms and provisions shall be submitted to arbitration in New York, New York, before a panel of three neutral arbitrators in accordance with the Commercial Rules of the American Arbitration Association then in effect, and the arbitration determination resulting from any such submission shall be final

_________________________

 

Specific provision to coordinate with existing employment agreement, if any.

 

 


9

 

and binding upon the parties hereto. Judgment upon any arbitration award may be entered in any court of competent jurisdiction.

11.   Successors.

(a)       This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b)       This Agreement shall inure to the benefit of and be binding upon the Company and its successors.

12.   Miscellaneous.

(a)       Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, applied without reference to principles of conflicts of laws.

(b)       Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:

Darrell Nance

Foamex International Inc.

2060 North Batavia Street

Orange, CA 92865

 

If to the Company:

Foamex International Inc.

Attention: General Counsel

1000 Columbia Avenue

Linwood, PA 19061

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.

(c)       Tax Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, State or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

 


10

 

IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name and on its behalf, as of the day and year first above written.

FOAMEX INTERNATIONAL INC.

 

By: /s/ Gregory J. Christian

Gregory J. Christian

Executive Vice President

& General Counsel

 

/s/ Darrell Nance

Darrell Nance

 

 

 

EX-10 11 ex10671cicamenddn.htm

AMENDMENT TO

CHANGE IN CONTROL PROTECTION AGREEMENT

 

This Amendment No 1 (the “Amendment”) to the Change in Control Protection Agreement is made and entered into on the 31st day of January 2007 between Foamex International Inc., a Delaware corporation (the “Company”), and Darrell Nance (“Executive”).

 

WHEREAS, the Company and Executive executed a change in control protection agreement, dated December 20, 2002 (the “Agreement”), providing Executive with additional employment security in the event that the Company undergoes a change in control, as described in the Agreement; and

 

WHEREAS, the Company and Executive desire to amend a certain provision in the Agreement and as set forth herein; and

 

WHEREAS, terms and conditions of the Agreement not specifically amended herein shall remain unchanged and in full force and effect.

 

NOW, THEREFORE, the parties hereby agree that the following provision will be amended as follows:

 

The definition of ‘Change in Control” in Section 1(b) is hereby amended and restated as follows:

 

“Change in Control” shall mean the occurrence, after the consummation of the transactions contemplated by the Company’s Second Amended Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”), of any of the following events:

 

(i)       the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of “beneficial ownership” (as defined below) of 50% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, that beneficial ownership by any of D. E. Shaw Laminar Portfolios, L.L.C., Goldman, Sachs & Co., Par IV Master Fund, Ltd, Sigma Capital Associates, LLC, Sunrise Partners Limited Partnership, or any of their respective affiliates shall not be taken into account in the numerator for purposes of determining whether the limit set forth above has been exceeded and, provided further that for purposes of this clause (i) the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company or any corporation controlled by the Company; (3) any acquisition by any corporation pursuant to a transaction which complies with (A), (B) and (C) of clause (iii) of this Section 6.1;

 


2

 

(ii)       Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii)      The consummation of a recapitalization, restructuring, exchange of equity for debt or debt for equity or a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Transaction”), in each case, unless, following such Business Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners (as defined below), respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Transaction beneficially own, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportion as their ownership immediately prior to such Business Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; and (B) at least a majority of the members of the board of directors of the corporation resulting from such Business Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Transaction; or

(iv)      The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

For purposes of this Section “beneficial ownership” or “beneficial owner” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition; provided, however, that such Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, a merger agreement, or

 


3

 

similar agreement, until the consummation of the transaction contemplated by such agreement.

 

For purposes of clarification, the parties acknowledge and agree that the Company’s emergence from bankruptcy and the consummation of the transactions contemplated by the Plan (and all related transactions) shall not constitute a Change in Control, and Executive is not entitled to any payments or benefits (including without limitation accelerated vesting of any equity awards) thereunder prior to, on or following the date of this Amendment, as a result of or related to (either alone or in connection with the occurrence of any other event) such emergence or transactions.

 

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written.

 

FOAMEX INTERNATIONAL INC.

 

By: /s/ Gregory J. Christian

Name: Gregory J. Christian

Title: EVP & General Counsel

 

EXECUTIVE

 

/s/ Darrell Nance

 

 

 

EX-31 12 ex311fii033008.htm

Exhibit 31.1

CERTIFICATION

 

I, John G. Johnson, Jr., certify that:

 

1.

I have reviewed this report on Form 10-Q of Foamex International Inc. for the period ended March 30, 2008;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and