<PAGE>
[As filed with the Securities and Exchange Commission on September 14, 1994]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1994
-------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to_____________________
Commission File Number: 1-9474
FORSTMANN & COMPANY, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1651326
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1185 Avenue of the Americas
New York, New York 10036
(Address of principal executive offices)
(212) 642-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes ___ No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 5,588,800 shares of voting common stock, $.001 par value,
outstanding as of September 8, 1994.
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FORSTMANN & COMPANY,INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED JULY 31, 1994 AND AUGUST 1, 1993, AND
THE THIRTY-NINE WEEKS ENDED JULY 31, 1994
AND AUGUST 1, 1993
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------ --------------------------
July 31, August 1, July 31, August 1,
1994 1993 1994 1993
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $69,092,000 $66,073,000 $183,052,000 $180,846,000
Cost of goods sold 54,919,000 50,744,000 141,544,000 140,090,000
----------- ----------- ------------ ------------
Gross profit 14,173,000 15,329,000 41,508,000 40,756,000
Selling, general and
administrative expenses 5,212,000 5,459,000 16,157,000 15,243,000
Provision for uncollectible
accounts 187,000 666,000 1,606,000 1,825,000
Loss from disposal and
impairment of machinery
and equipment - - - 962,000
----------- ----------- ------------ ------------
Operating income 8,774,000 9,204,000 23,745,000 22,726,000
Interest expense 4,726,000 4,213,000 12,841,000 12,005,000
----------- ----------- ------------ ------------
Income before income taxes 4,048,000 4,991,000 10,904,000 10,721,000
Income tax provision - principally deferred 1,599,000 1,922,000 4,307,000 4,128,000
----------- ----------- ------------ ------------
Net income 2,449,000 3,069,000 6,597,000 6,593,000
Preferred stock in-kind
dividends and accretion
to redemption value 58,000 52,000 173,000 156,000
----------- ----------- ------------ ------------
Income applicable to
common shareholders $ 2,391,000 $ 3,017,000 $ 6,424,000 $ 6,437,000
=========== =========== ============ ============
Per share and share
information:
Income per common share $.43 $.54 $1.15 $1.15
=========== =========== ============ ============
Weighted average common
shares outstanding 5,588,766 5,585,014 5,587,479 5,585,014
=========== =========== ============ ============
</TABLE>
See notes to financial statements.
2
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FORSTMANN & COMPANY, INC.
CONDENSED BALANCE SHEETS
JULY 31, 1994 AND OCTOBER 31, 1993
(unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 53,000 $ 53,000
Accounts receivable, net of allowance of
$1,433,000 and $2,195,000, respectively 82,343,000 48,816,000
Inventories 79,971,000 76,936,000
Current deferred tax assets 2,689,000 2,869,000
Other current assets 2,083,000 2,298,000
------------ ------------
Total current assets 167,139,000 130,972,000
Property, plant and equipment, net 77,655,000 76,521,000
Deferred financing costs, net of accumulated
amortization of $1,273,000 and $629,000,
respectively 3,145,000 3,024,000
Other assets 6,329,000 5,850,000
------------ ------------
Total $254,268,000 $216,367,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,634,000 $ 2,821,000
Accounts payable 17,055,000 24,580,000
Accrued compensation and payroll taxes 3,916,000 5,457,000
Accrued interest payable 2,896,000 648,000
Other accrued liabilities 4,941,000 4,805,000
Income taxes payable 2,850,000 -
------------ ------------
Total current liabilities 37,292,000 38,311,000
Long-term debt, plus unamortized premium
of $4,481,000 and $5,036,000, respectively,
and less current maturities 169,032,000 136,038,000
Deferred tax liabilities 4,760,000 4,033,000
Accrued additional pension liability in
excess of accumulated benefit obligation 1,900,000 1,900,000
Senior preferred stock 2,367,000 2,195,000
Shareholders' Equity:
Common stock 5,589 5,585
Additional paid-in capital 27,173,411 28,570,415
Excess of additional pension liability
over unrecognized prior service cost,
net (1,101,000) (1,101,000)
Retained earnings since November 2, 1992 12,839,000 6,415,000
------------ ------------
Total shareholders' equity 38,917,000 33,890,000
------------ ------------
Total $254,268,000 $216,367,000
============ ============
</TABLE>
See notes to financial statements.
3
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FORSTMANN & COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JULY 31, 1994
AND AUGUST 1, 1993
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
July 31, August 1,
1994 1993
------------ ------------
Net income $ 6,597,000 $ 6,593,000
------------ ------------
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 10,346,000 7,494,000
Income tax provision 4,307,000 4,128,000
Provision for uncollectible accounts 1,606,000 1,825,000
(Gain)loss from disposal and impairment of
machinery and equipment (66,000) 962,000
Changes in current assets and current
liabilities:
Accounts receivable (35,133,000) (32,501,000)
Inventories (3,035,000) (3,776,000)
Other current assets (446,000) (362,000)
Accounts payable (7,525,000) (1,012,000)
Accrued liabilities (2,590,000) (5,955,000)
Accrued interest payable 2,248,000 2,010,000
Deferred income taxes (571,000) (519,000)
Investment in notes receivable, net 430,000 (477,000)
Deferred financing costs (765,000) (2,810,000)
------------ ------------
Total adjustments (31,194,000) (30,993,000)
------------ ------------
Net cash used by operating activities (24,597,000) (24,400,000)
------------ ------------
Cash flows used in investing activities:
Capital expenditures (10,177,000) (11,498,000)
Investment in other assets, principally
computer information systems (1,724,000) (1,634,000)
Net proceeds from disposal of machinery and
equipment 128,000 245,000
------------ ------------
Net cash used by investing activities (11,773,000) (12,887,000)
------------ ------------
Cash flows from financing activities:
Net borrowings under the Citibank facility - 1,500,000
Repayment of the Citibank facility - (57,987,000)
Net borrowings under the Revolving Line of
Credit 25,927,000 72,436,000
Proceeds from the Term Loan - 15,000,000
Repayment of the Term Loan - (15,000,000)
Proceeds from sale of Senior Secured Notes - 20,000,000
Proceeds from sale of Additional Senior
Secured Notes 10,000,000 -
Borrowings under the CIT Equipment Facility
and other financing arrangements 3,099,000 2,584,000
Repayment of the CIT Equipment Facility and
other financing arrangements (2,681,000) (1,246,000)
Incentive stock options exercised 25,000 -
------------ ------------
Net cash provided by financing activities 36,370,000 37,287,000
------------ ------------
Net increase in cash - -
Cash at beginning of period 53,000 52,000
------------ ------------
Cash at end of period $ 53,000 $ 52,000
============ ============
</TABLE>
See notes to financial statements.
4
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FORSTMANN & COMPANY, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THIRTY-NINE WEEKS ENDED JULY 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Pension
Additional Liability Total
Common Paid-In Over Prior Retained Shareholders'
Stock Capital Service Cost Earnings Equity
------ ------------ ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993 $5,585 $28,570,415 $(1,101,000) $ 6,415,000 $33,890,000
Incentive stock options
exercised 4 24,996 - - 25,000
Quasi-reorganization
adjustment - (1,422,000) - - (1,422,000)
Income applicable to
common shareholders - - - 6,424,000 $ 6,424,000
------ ----------- ------------ ----------- -----------
Balance, July 31, 1994 $5,589 $27,173,411 $(1,101,000) $12,839,000 $40,133,000
====== =========== ============ =========== ===========
</TABLE>
See notes to financial statements.
5
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FORSTMANN & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
(unaudited)
1. Forstmann & Company, Inc. ("the Company") is a leading designer, marketer
and manufacturer of innovative, high-quality woolen, worsted, synthetic and
other natural fabrics which are used primarily in the production of brand
name and private label apparel for men and women. The Company also produces
high-quality specialty fabrics for use in billiard tables and sports caps
(e.g. baseball), as well as interior textiles for the transportation, office
systems, hospitality and healthcare markets. A majority of the Company's
common stock is owned by Odyssey Partners, L.P.
The condensed financial statements presented herein are unaudited and have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of such information have been made. These financial
statements should be read in conjunction with the financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993 (the "1993 Form 10-K"), to which
reference is made. Certain information normally included in financial
statements and related notes prepared in accordance with generally accepted
accounting principles has been condensed or omitted. Because of the seasonal
nature of the Company's business, the results for the interim periods
presented are not indicative of the results for a full fiscal year.
Certain prior year's financial statement balances have been reclassified to
conform with the current year's presentations.
2. Inventories are stated at the lower of cost, determined principally by the
LIFO method, or market and consist of:
<TABLE>
<CAPTION>
July 31, October 31,
1994 1993
----------- -----------
<S> <C> <C>
Raw materials and supplies $17,090,000 $18,073,000
Work-in-process 49,897,000 45,165,000
Finished products 14,734,000 15,601,000
Less market reserves (1,750,000) (1,903,000)
----------- -----------
Total 79,971,000 76,936,000
Difference between LIFO
carrying value and current
replacement cost (1,547,000) (1,565,000)
----------- -----------
Current replacement cost $78,424,000 $75,371,000
=========== ===========
</TABLE>
Although the current replacement cost for inventories at July 31, 1994 and
October 31, 1993 was less than LIFO carrying value, the Company's management
believes that the carrying value will be recovered through future sales which
will yield normal profit margins.
3. Per share and share information for the thirteen and thirty-nine weeks ended
July 31, 1994 and August 1, 1993 are based upon actual income applicable to
common shareholders and the weighted average shares outstanding during the
periods.
4. As discussed in Note 10 to the Company's annual financial statements in the
1993 Form 10-K, the Company has accrued certain estimated costs for
environmental matters. During the thirty-nine weeks ended July 31, 1994, an
additional $341,000 was accrued for such environmental matters. Based upon
the advice of outside environmental consultants, management believes that
such accrual, after adjustment, is appropriate and reasonable. Because the
additional environmental accrual relates to contingencies arising prior to
and existing at November 2, 1992, the related charge, net of tax, was applied
against additional paid-in capital as a quasi-reorganization adjustment.
Pursuant to the Georgia Hazardous Site Response Act (the "Response Act"),
property owners in Georgia were required to notify the Environmental
Protection Division of the
6
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Georgia Department of Natural Resources (the "Division") of known releases of
regulated substances on their properties above certain levels by March 22,
1994. Pursuant to the Response Act, the Company notified the Division of two
releases at the Dublin facility (both occurring prior to November 2, 1992)
one relating to the presence of trichloroethylene, at the facility and the
other relating to another constituent near the southern property boundary.
Groundwater conditions at the Dublin facility have been the subject of
continuing assessment and corrective action activities of which the Company
has kept the Division informed. Based upon the Company's notification, the
Division has evaluated the notification and determined that a release
exceeding a reportable quantity has occurred at the site. As a result, the
site has been listed on the Hazardous Site Inventory ("HSI"), which as of
July 1, 1994, is comprised of 278 sites. The Division intends to evaluate the
sites on the HSI to determine which sites need corrective action. The
Division has finalized cleanup standards and procedures for determining when
corrective action is necessary under the Response Act. Management considered
the standards when addressing the additional environmental accrual discussed
above and, accordingly, management does not believe the standards will have a
material adverse effect on the financial condition or liquidity of the
Company.
5. As discussed in Note 10 to the Company's annual financial statements in the
1993 Form 10-K, the Company is involved in legal proceedings with certain
shareholders who dissented from a 1992 merger with an affiliated company (the
"Dissenters' Proceeding"). In September 1994, the Company concluded a
settlement and a dismissal of claims with one of the dissenting shareholders
that represents 86% of an aggregate of 1,473,562 dissenting shares. As part
of the settlement, the Company agreed to pay $475,000 and issue 30,000 shares
of its common stock to such dissenting shareholder. The Company further
agreed to register with the Securities and Exchange Commission the 30,000
shares that will be issued to the dissenting shareholder. The Company
continues to be involved in the Dissenters' Proceeding with the remaining
dissenting shareholders, who represent 208,562 dissenting shares. The Court
has granted the Company's motion for an independent court approved appraiser
to assist in the judicial determination of fair value as to the remaining
208,562 dissenting shares. The trial date has not been set. During the
thirty-nine weeks ended July 31, 1994, an accrual of $1,216,000 was recorded
for all estimated costs associated with resolution of the Dissenters'
Proceeding. Because the Dissenters' Proceeding relates to contingencies
arising prior to and existing at November 2, 1992, the charges associated
with the Dissenters' Proceedings were applied against additional paid-in
capital as a quasi-reorganization adjustment. The Company believes that any
additional payments in respect thereof should not have a material adverse
effect on the results of operations, financial condition or liquidity of the
Company. However, there is no certainty as to the ultimate outcome of the
Dissenters' Proceeding or the amounts, if any, the Court will assess against
any of the parties as to the fair value of the dissenting shares, interest or
costs of litigation. If the Company is required to pay an aggregate cash
amount in excess of $500,000 to the parties to the Dissenters' Proceeding,
such payments, in the absence of a consent by GECC (hereinafter defined),
would constitute an event of default under the Loan Agreement (hereinafter
defined).
6. The Company is a party to a loan and security agreement (the "Equipment
Facility") with The CIT Group/Equipment Financing, Inc. which provided
financing for the acquisition of, and to refinance borrowings incurred to
acquire, various textile machinery and equipment. The Equipment Facility
contains a covenant whereby the Company may not permit its adjusted leverage
ratio (the ratio of total liabilities to tangible net worth) to exceed a
certain ceiling. On June 13, 1994, the Equipment Facility was amended to
increase this maximum permitted adjusted leverage ratio from 160% to 170% for
the period from January 31, 1994 through July 31, 1994. On September 12,
1994, the Equipment Facility was further amended to extend the period for the
increased maximum permitted adjusted leverage ratio from January 31, 1994
through October 30, 1994. The Company's adjusted leverage ratio as of May 1,
1994 was 166% and as of July 31, 1994 was 163%. The Company's adjusted
leverage ratio has increased during the 1994 fiscal year due in part to an
adjustment in the Company's assumed discount rate used to measure the
accumulated benefit obligation for its hourly and salaried pension plans
under Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions", settlement of claims with one of the Company's
dissenting shareholders as discussed in Note 5 above, and the additional debt
the Company incurred to fund an increase in inventories. Absent the
amendments to the Equipment Facility, an adjusted leverage ratio of more than
160% during the 1994 second quarter and 1994 third quarter would have been an
event of default under the Equipment Facility. In addition, such an event of
default would have triggered a cross default under the terms of the Loan
Agreement. The lender under the Loan Agreement (as hereinafter defined) has
consented to the amendments to the Equipment Facility and acknowledged that
no event of default under the Loan Agreement exists as a result of the events
giving rise to such amendments.
7
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Item 2.
-------
FORSTMANN & COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the 1993 Form 10-K
for a discussion of the Company's financial condition as of October 31, 1993,
including a discussion of the Company's anticipated liquidity and working
capital requirements during its 1994 fiscal year.
Financial Condition and Liquidity
- ---------------------------------
The Company historically has financed its operations and investing activities
through a combination of borrowings, equipment leasing and internally generated
funds. The Company's financing needs have arisen principally in connection with
modernization and expansion of the Company's production capacity and with
increased working capital needs that have accompanied seasonal sales growth.
The Company's cash requirements, including capital expenditures and working
capital, are primarily funded from operations and the proceeds from borrowings
under the Company's five-year loan agreement dated as of October 30, 1992 with
General Electric Capital Corporation ("GECC"), as agent and lender (the "Loan
Agreement"). The Loan Agreement provides a revolving line of credit up to a
maximum of $85 million (the "Revolving Line of Credit"). Proceeds from the
Company's ordinary operations are applied to reduce the principal amount of
borrowings outstanding under the Revolving Line of Credit. Unused portions of
the Revolving Line of Credit may be borrowed and reborrowed, subject to
availability in accordance with the then applicable commitment and borrowing
base limitations. At July 31, 1994 the aggregate amount of revolving loans and
letters of credit outstanding under the Revolving Line of Credit was
approximately $76.1 million and loan availability, in excess of the Company's
outstanding borrowings and letters of credit, was approximately $8.9 million.
In order to provide additional capacity during peak borrowing periods and to
finance possible expanded operations, the Company is currently in negotiations
with GECC to amend the Loan Agreement to provide for a $15 million term loan
(the "Proposed Term Loan") in addition to the Revolving Line of Credit. If
made, the principal amount of the Proposed Term Loan would be aggregated with
the outstanding revolving loans and letters of credit for purposes of applying
the borrowing base limitations on additional borrowings under the Revolving Line
of Credit. There is no assurance that the Company will be successful in its
negotiations with GECC or that the Proposed Term Loan will be made to the
Company.
Net cash used by operating activities during the thirty-nine weeks ended July
31, 1994 (the "1994 Period") was $24.6 million, an increase of $0.2 million from
the thirty-nine weeks ended August 1, 1993 (the "1993 Period"). Historically,
during the first half of its fiscal year, the Company utilizes cash to fund
operations, whereas operations provide cash during the second half of the
Company's fiscal year. Net cash used by investing activities during the 1994
Period, primarily for capital expenditures, was $11.8 million, a decrease of
$1.1 million from the 1993 Period. Cash used to fund the Company's operating
and investing activities during the 1994 Period was obtained primarily from
$25.9 million of borrowings, net of repayments, under the Revolving Line of
Credit, $9.7 million, net of underwriter's fees of $0.3 million, of proceeds
from the sale of the Additional Senior Secured Notes (hereinafter defined) and
$3.1 million in equipment financing.
The Company's business is seasonal, with the vast majority of orders for
woolen fabrics placed from December through April for manufacturers to produce
apparel for retail sale during the fall and winter months. As a result of
normal payment terms for such fabrics, the Company receives the major portion of
its payments thereon during July through October. The Company's worsted fabric
sales tend to be less seasonal because the weight of worsted fabrics makes them
suitable for retail sales in the spring as well as in the fall and winter
months.
Accounts receivable increased $33.6 million from October 31, 1993 to July 31,
1994. Historically, the Company experiences an increase in accounts receivable
during the first three quarters of its fiscal year (primarily during the second
and third quarters), due to the seasonal increase in sales which typically
occurs in January through July of each year. This seasonal pattern is
influenced by the industry practice
8
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of providing certain fabrics to customers with favorable billing terms (referred
to as "dating"), which permit extended payment beyond 60 days from the invoice
date (predominately 60 days beyond July for invoices billed in January through
June). Accounts receivable at July 31, 1994 included $29.6 million of
receivables with dating, a decrease of $1.0 million compared to August 1, 1993.
Inventories increased $3.0 million from October 31, 1993 to July 31, 1994.
The increase in inventories occurred in work-in-process. The increase in work-
in-process inventories since October 31, 1993 occurred in both yarn and greige
cloth inventories primarily as a result of the increase in womenswear worsted
and menswear fabric sales and sales order backlog. Historically, inventories
decline during the third fiscal quarter of each year as a result of the
Company's seasonal sales pattern. During the third quarter of fiscal 1994,
inventories declined $7.4 million as compared to a decline of $2.4 million
during the third quarter of fiscal 1993. Such decline occurred primarily in
finished goods inventories as the Company slowed down the production of wool
flannel as a result of the decline in demand for such fabrics.
Capital additions for plant and equipment were $10.2 million in the 1994
Period. The Company expects spending for capital expenditures, primarily
machinery and equipment, to be approximately $22.0 million during the 1994
fiscal year. The Company believes that cash generated from operations during
the remaining portion of the 1994 fiscal year, borrowings under the Revolving
Line of Credit, proceeds from the sale of the Additional Senior Secured Notes
(as hereinafter defined) and permitted operating and capital leases will be
sufficient to fund its ongoing working capital and capital expenditure
requirements in the 1994 fiscal year.
On April 5, 1993, the Company issued an aggregate of $20 million Senior
Secured Floating Rate Notes due October 30, 1997 (the "Original Senior Secured
Notes") under an indenture dated as of April 5, 1993 between the Company and
Shawmut Bank Connecticut, National Association, as trustee (the "Original Senior
Note Indenture"), which requires principal payments of $3.0 million on October
31, 1994, $4.0 million on October 31, 1995, $5.0 million on October 31, 1996 and
a final payment of the unpaid principal balance on October 30, 1997. On March
30, 1994, the Company amended and restated the Original Senior Note Indenture
(as so amended and restated, the "Senior Note Indenture") and issued $10 million
of additional Senior Secured Notes due October 30, 1997 (the "Additional Senior
Secured Notes") under the Senior Note Indenture which requires that the
Additional Senior Secured Notes be paid in full on October 30, 1997. The
proceeds (net of underwriting fees) from the issuance of the Additional Senior
Secured Notes were used to repay borrowings outstanding under the Revolving Line
of Credit.
Long-term debt, including the current portion of long-term debt at July 31,
1994 was $174.7 million, an increase of $35.8 million from October 31, 1993.
Such increase was primarily a result of borrowings, net of repayments, under the
Revolving Line of Credit, the sale of the Additional Senior Secured Notes and
borrowings under permitted capital leases, which were used to fund the Company's
working capital needs and to acquire certain machinery and equipment.
Working capital at July 31, 1994 was $130.9 million, an increase of $38.2
million from October 31, 1993. This increase resulted, in part, from a $36.4
million increase in current assets, primarily attributable to the previously
described increases in accounts receivable and inventories. Further, working
capital increased as a result of a $1.8 million decrease in current liabilities.
Results of Operations
- ---------------------
THE 1994 THIRTY-NINE WEEK PERIOD COMPARED TO THE 1993 THIRTY-NINE WEEK PERIOD.
Net sales for the 1994 Period were $183.1 million, an increase of 1.2% from
the 1993 Period. Total yards of fabric sold declined by approximately 2.0%
during the 1994 Period. Such decline primarily occurred in womenswear woolen
fabric sales (mainly wool flannel) which was somewhat offset by sales of
womenswear worsted and menswear fabric sales as well as increased sales in other
merchandising lines. The decline in wool flannel sales is attributable to
adjustments by manufacturers of moderate women's sportswear for an overordering
of wool flannel in fiscal year 1993. The increase in menswear fabric sales is
the result of the Company over the past two years focusing its menswear product
line on specific market niches. Based on the composition of the Company's
backlog as of August 26, 1994, the Company expects its women's worsted and
menswear fabric sales to continue to reflect sales growth during the 1994 fiscal
fourth quarter. Due to changes in product mix, average per yard selling prices
during the 1994 Period were above last year's average.
9
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Cost of goods sold increased to $141.5 million in the 1994 Period from $140.1
million in the 1993 Period. Gross profit increased 1.8% in the 1994 Period to
$41.5 million from $40.8 million in the 1993 Period and gross profit margin for
the 1994 Period was 22.7% compared to 22.5% for the 1993 Period. The 1994
Period and 1993 Period include the effects of the Company's quasi-reorganization
which was effected as of the beginning of the Company's 1993 fiscal year.
Included in the gross profit in the 1993 Period is a one-time benefit of $3.0
million ($1.8 million net of income taxes or $0.33 per share). Such one-time
benefit related to the reversal in the 1993 Period of unfavorable wool purchase
commitments recorded as a liability in connection with the quasi reorganization
which resulted in a reduction in cost of goods sold in the 1993 Period.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, increased 6% to $16.2 million in the 1994 Period from
$15.2 million in the 1993 Period. Such increase is attributable to increased
human resource, facility, depreciation and amortization costs. Human resource
related costs increased due to the hiring of personnel for marketing and in-
house legal counsel. Due to modernization and computerization of the Company's
styling, sales and marketing operations in New York, coupled with other computer
equipment upgrades, facility, depreciation and amortization expenses were higher
in the 1994 Period than in the 1993 Period.
The provision for uncollectible accounts was $1.6 million in the 1994 Period
compared to $1.8 million in the 1993 Period. The provision for uncollectible
accounts is based on the establishment of specific allowances for uncollectible
accounts, based on a customer-by-customer analysis, plus a general reserve for
unidentified potential uncollectible accounts, based on historical trends for
uncollectible accounts. The provision for uncollectible accounts in the 1994
Period includes the effect of one of the Company's outerwear customers, which
owed the Company $2.4 million, discontinuing operations and liquidating its
assets resulting in no amounts being remitted to its trade creditors. Prior to
such liquidation, through fiscal year 1993, the Company had reserved
approximately 50% of the aggregate amount due from such customer and has
subsequently reserved the remaining amount due and written off the entire
account and notes receivable outstanding. During the 1993 Period, several of
the Company's customers filed for protection under the Federal Bankruptcy Code,
which customers, at the time of such filings, owed the Company an aggregate of
approximately $2.9 million. In April 1993, The Leslie Fay Companies, Inc.
("Leslie Fay") filed a petition for reorganization under Chapter XI of The
Bankruptcy Code. At such time, the Company was owed approximately $1.9 million
for goods sold to Leslie Fay prior to the filing of such petition ("Pre-petition
Receivables"). On June 30, 1993, the Company sold the Pre-petition Receivables
to an unrelated third party, without recourse, for a cash payment of 80% of such
receivables. The difference between the proceeds received and the carrying
value of the receivables is included in the Company's provision for
uncollectible accounts in the 1993 Period.
The loss from disposal and impairment of machinery and equipment during the
1993 Period relates to the Company's disposal and writedown of idle equipment or
soon to be replaced equipment to reflect its remaining future economic benefit.
Interest expense for the 1994 Period was $12.8 million or approximately $0.8
million higher than the 1993 Period. Such increase in interest expense in the
1994 Period is due to the additional borrowings under the Revolving Line of
Credit and the Additional Senior Secured Notes and increased interest rates
associated with such borrowings. The Revolving Line of Credit and Additional
Senior Secured Notes bear interest at floating rates (LIBOR) which are
influenced by changes in bank prime lending rates which have increased from 6.0%
at the beginning of fiscal year 1994 to 7.75% as of September 13, 1994.
In the 1994 Period, the Company recognized a provision for income taxes at an
effective tax rate of 39.5% on income before income taxes whereas in the 1993
Period the effective tax rate was 38.5%. The increase in the effective tax rate
is due to the Omnibus Budget Reconciliation Act of 1993 which, among other
things, increased the corporate income tax rate from 34% to 35% for taxable
income in excess of $10.0 million. As a result of the foregoing, the Company's
net income was $6.6 million in the 1994 Period or approximately equal to net
income for the 1993 Period.
Preferred Stock in-kind dividends and accretion to redemption value was
$173,000 in the 1994 Period and $156,000 in the 1993 Period, and income
applicable to common shareholders was $6.4 million for both the 1994 Period and
1993 Period.
10
<PAGE>
THE THIRTEEN WEEKS ENDED JULY 31, 1994 (THE "1994 THIRD QUARTER") COMPARED TO
THE THIRTEEN WEEKS ENDED AUGUST 1, 1993 (THE "1993 THIRD QUARTER")
Net sales for the 1994 Third Quarter were $69.1 million, an increase of 4.6%
from the 1993 Third Quarter. Total yards of fabric sold increased approximately
1.8% during the 1994 Third Quarter. Such increase is primarily attributable to
an increase in womenswear worsted and menswear fabric sales as well as increased
sales in all other merchandising lines excluding womenswear woolen. Sales of
womenswear woolen fabrics (mainly wool flannel) declined approximately 29.2%
during the 1994 Third Quarter from the 1993 Third Quarter. The continuing
decline in wool flannel sales during fiscal year 1994 is attributable to
adjustments by manufacturers of moderate women's sportswear for overordering of
wool flannel in fiscal year 1993. Due to changes in product mix, average per
yard selling prices during the 1994 Third Quarter were above the 1993 Third
Quarter's selling prices.
Cost of goods sold increased to $54.9 million in the 1994 Third Quarter from
$50.7 million in the 1993 Third Quarter. Gross profit declined 7.5% in the 1994
Third Quarter to $14.2 million from $15.3 million in the 1993 Third Quarter, and
gross profit margin for the 1994 Third Quarter was 20.5% compared to 23.2% for
the 1993 Third Quarter. Included in the gross profit in the 1993 Third Quarter
is a one-time benefit of $0.2 million ($0.1 million net of income taxes or $0.02
per share). Such one-time benefit related to the reversal in the 1993 Third
Quarter of unfavorable wool purchase commitments recorded as a liability in
connection with the quasi reorganization, effected as of the beginning of the
Company's 1993 fiscal year, which resulted in a reduction in cost of goods sold
in the 1993 Third Quarter. Further, the slowdown of wool flannel production and
increased health care claims during the 1994 Third Quarter contributed to higher
cost of goods sold in such quarter. Although, the Company has not experienced
increases in wool costs through fiscal 1994 to date, based on the Company's
order position and wool market trends, the Company expects wool costs to
increase significantly in fiscal 1995.
Selling, general and administrative expenses, excluding the provision for
doubtful accounts, declined approximately 4.5% to $5.2 million during the 1994
Third Quarter, compared to $5.5 million during the 1993 Third Quarter. Such
decline was primarily due to a decline in the accrual of incentive compensation
expense.
The provision for uncollectible accounts decreased from $0.7 million in the
1993 Third Quarter to $0.2 million in the 1994 Third Quarter. This occurred for
the reasons explained above in the discussion regarding the provision for
uncollectible accounts for the 1994 Period as compared to the 1993 Period.
Interest expense for the 1994 Third Quarter increased 12.2%, primarily due to
the same factors that contributed to the increase in interest expense during the
1994 Period. The interest rate on borrowings outstanding under the Revolving
Line of Credit averaged 7.375% per annum during the 1994 Third Quarter, an
increase of 1.1875% per annum over the comparable average of 6.1875% per annum
for the 1993 Third Quarter.
In the 1994 Third Quarter, the Company recognized an income tax provision at
an effective tax rate of 39.5% on income before income taxes, while in the 1993
Third Quarter, the Company recognized an income tax provision at an effective
rate of 38.5%. As a result of the foregoing, the Company's net income declined
$0.6 million to approximately $2.5 million for the 1994 Third Quarter, compared
to net income of $3.1 million for the 1993 Third Quarter.
Preferred stock in-kind dividends and accretion to redemption value was
$58,000 in the 1994 Third Quarter and $52,000 in the 1993 Third Quarter. As a
result of the foregoing, the Company's income applicable to common shareholders
decreased $0.6 million to $2.4 million in the 1994 Third Quarter, compared to
income applicable to common shareholders of $3.0 million in the 1993 Third
Quarter.
11
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3(i).1 Articles of Restatement setting forth the Amended and
Restated Articles of Incorporation of the Company, as
filed with the Secretary of State of the State of
Georgia on November 19, 1990.
3(i).2 Articles of Correction, as filed with the Secretary of
State of Georgia on December 18, 1990.
3(i).3 Articles of Merger of Forstmann Georgia Corp. and the
Company, as filed with the Secretary of State of the
State of Georgia on March 3, 1992.
3(i).4 Articles of Amendment, as filed with the Secretary of
State of the State of Georgia on April 8, 1994;
3(ii) Amended and Restated By-Laws of the Company (March 30, 1994).
4.1 Equipment Lease Agreement, dated as of May 31, 1994, between
SANWA General Equipment Leasing, a division of SANWA Business
Credit Corporation and the Company.
4.2 Equipment Lease Agreement, dated between SANWA General Equipment
Leasing, a division of SANWA Business Credit Corporation and the
Company.
4.3 Consent and Waiver Letter dated as of June 10, 1994 to the
Company from General Electric Capital Corporation.
4.4 Third Amendment to Loan and as of June 13, 1994 among The CIT
Financing, Inc. and the Security Agreement, dated Group/Equipment
Company.
4.5 Fourth Amendment to Loan and Security Agreement, dated as of
September 12, 1994 among the CIT Group/Equipment Financing, Inc.
and the Company.
4.6 Consent and Waiver Letter dated as of September 12, 1994 to the
Company from General Electric Capital Corporation.
11.1 Computation of per share earnings.
15.1 Independent Accountants' Report, dated August 26, 1994 (September
12, 1994 as to Notes 5 and 6), from Deloitte & Touche to
Forstmann & Company, Inc.
23.1 Letter of Deloitte & Touche, independent public
accountants.
27 Financial Data Schedule
(b) Current Reports on Form 8-K -- no reports on Form 8-K were
filed during the quarter for which this report is filed.
<PAGE>
SIGNATURES
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.
FORSTMANN & COMPANY, INC.
------------------------------
(Registrant)
/s/ William B. Towne
--------------------
William B. Towne
Executive Vice President &
Chief Financial Officer
September 14, 1994
- ------------------
Date
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Sequential
No. Description Page No.
-------- ----------- ----------
<S> <C> <C>
3(i).1 Articles of Restatement setting forth the Amended and Restated
Articles of Incorporation of the Company, as filed with the
Secretary of State of the State of Georgia on November 19, 1990.
3(i).2 Articles of Correction, as filed with the Secretary of State of
Georgia on December 18, 1990.
3(i).3 Articles of Merger of Forstmann Georgia Corp. and the Company, as
filed with the Secretary of State of the State of Georgia on March
3, 1992.
3(i).4 Articles of Amendment, as filed with the Secretary of State of the
State of Georgia on April 8, 1994;
3(ii) Amended and Restated By-Laws of the Company (March 30, 1994).
4.1 Equipment Lease Agreement, dated as of May 31, 1994, between SANWA
General Equipment Leasing, a division of SANWA Business Credit
Corporation and the Company.
4.2 Equipment Lease Agreement, dated as of June 1, 1994, between SANWA
General Equipment Leasing, a division of SANWA Business Credit
Corporation and the Company.
4.3 Consent and Waiver Letter dated as of June 10, 1994 to the Company
from General Electric Capital Corporation.
4.4 Third Amendment to Loan and the Security Agreement, dated as of June
13, 1994 among The CIT Group/Equipment Financing, Inc. and the
Company.
4.5 Fourth Amendment to Loan and Security Agreement, dated as of
September 12, 1994 among The CIT Group/Equipment Financing, Inc. and
the Company.
4.6 Consent and Waiver Letter dated as of September 12, 1994 to the
Company from General Electric Capital Corporation.
11.1 Computation of per share earnings.
15.1 Independent Accountants' Report, dated August 26, 1994 (September
12, 1994 as to Notes 5 and 6), from Deloitte & Touche to Forstmann &
Company, Inc.
23.1 Letter of Deloitte & Touche, independent public accountants.
27 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 3(i)(1)
ARTICLES OF RESTATEMENT
SETTING FORTH THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
FORSTMANN & COMPANY, INC.
I.
The name of the corporation is:
Forstmann & Company, Inc.
II.
The corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
III.
The Corporation shall have perpetual duration.
IV.
The object of the corporation is pecuniary gain and profit and the
corporation is formed for the purpose of engaging in any lawful acts or
activities for which corporations may be organized under the Georgia Business
Corporation Code.
V.
The corporation shall have authority to issue (i) 10,000,000 shares of
common stock, $.001 par value (the "Common Stock"), (ii) 120,000 shares of non-
voting common stock, $.001 par value (the "Non-Voting Common Stock"), and (iii)
100,000 shares of preferred stock, $1.00 par value, which shall be designated 5%
Senior (Pay-in-Kind) Preferred Stock (the "Preferred Stock"). The preferences,
limitations and relative rights of the Common Stock, the Non-Voting Common Stock
and the Preferred Stock are as follows:
1. The shares of Common Stock shall have unlimited voting rights. The
holders of Common Stock shall be entitled to one vote for each share on all
matters required or permitted to be voted on by shareholders of the corporation.
Except as provided by law holders of Non-Voting Common Stock shall have no right
to vote on any matter to be voted on by the shareholders of the Company. Except
as provided herein with respect to voting rights, the shares of Common Stock and
Non-Voting Common Stock shall be identical in all respects and for all purposes.
Each
<PAGE>
share of Common Stock and Non-Voting Common Stock shall be entitled to share
ratably in the net worth of the corporation upon dissolution.
After payment or provision for the payment of dividends on the Preferred
Stock then outstanding in accordance with the terms thereof, the Board of
Directors of the corporation may declare and the corporation may pay dividends
on the Common Stock and the Non-Voting Common Stock out of funds legally
available therefor as and to the extent permitted by law. Each share of Common
Stock and Non-Voting Common Stock shall be entitled to participate equally in
any dividend declared by the Board of Directors and paid by the corporation.
2. The Preferred Stock entitles the holders thereof to the rights and
preferences set out or determined as provided below.
a. Bank. The Preferred Stock shall, with respect to dividend rights and
----
rights of liquidation, winding up and dissolution, rank senior to all other
equity securities of the corporation, including all classes of the corporation's
common stock (all of such equity securities of the corporation to which the
Preferred Stock ranks senior are collectively referred to herein as the "Junior
Securities").
b. Dividends.
---------
(a) With respect to each dividend period, holders of the shares of
Preferred Stock shall be entitled to receive when, as and if declared by the
corporation's Board of Directors, out of funds legally available therefor, after
taking into account any permitted revaluation of the assets of the corporation
(the "Legally Available Funds"), cumulative dividends payable on the shares of
the Preferred Stock for each quarterly dividend period (hereinafter referred to
as a "Quarterly Dividend Period"), which Quarterly Dividend Periods shall
commence on the March 15, June 15, September 15 and December 15 of each year and
shall end on and include the day next preceding the first day of the next
Quarterly Dividend Period, at a rate of 8% per annum in respect of the
Liquidation Preferences (as defined in section 3 below) thereof. All dividends
described in this section 2(a) shall be payable on the December 15, March 15,
June 15 and September 15 of each year (each of such dates being a "Dividend
Payment Date"), commencing on the Dividend Payment Date next succeeding the date
of issuance of the Preferred Stock. Such dividends shall be paid to the holders
of record at the close of business on the date specified by the Board of
Directors of the corporation at the time such dividend is declared; provided,
--------
however, that such date shall not be more than 50 days nor less than 10 days
- -------
prior to the respective Dividend Payment Date. Each of such quarterly dividends
shall be fully cumulative and shall accrue (whether or not declared), without
interest, from the first day of the Quarterly Dividend Period, except that with
<PAGE>
respect to the initial quarterly dividend, such dividend shall accrue from the
date of issuance of the shares of Preferred Stock. Dividends shall accrue on a
daily basis without regard to the occurrence of a Dividend Payment Date or the
declaration of any dividend. The corporation, at its election, may pay
dividends on the Preferred Stock on any Dividend Payment Date by means of the
issuance of such number of additional shares of Preferred Stock (including
fractional shares, if necessary) which have an aggregate Liquidation Preference
equal to the aggregate dollar value of dividends to be paid on such Dividend
Payment Date.
(b) Dividends payable on the Preferred Stock for each full Quarterly
Dividend Period shall be computed by annualizing the dividend rate for the
shares of Preferred Stock for such Quarterly Dividend Period and dividing by
four. Dividends payable on the Preferred Stock for any period less than a full
Quarterly Dividend Period shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in the period for
which payable.
(c) All dividends paid with respect to shares of the Preferred Stock
pursuant to section 2(a) shall be paid pro rata to the holders of Preferred
Stock. In the event that the retained earnings or other surplus capital of the
corporation available for the payment of dividends shall be insufficient for the
payment of the entire amount of dividends payable in any Quarterly Dividend
Period with respect to Preferred Stock, the amount of any available surplus
shall be allocated for the payment of dividends with respect to Preferred Stock
pro rata based upon the Liquidation Preferences of the outstanding shares.
(d) (i) Holders of shares of the Preferred Stock shall be entitled to
receive the dividends provided for in section 2(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities.
(ii) No cash dividends shall be paid on the Preferred Stock if
such payment would violate the terms of any instrument governing
indebtedness of the corporation.
(iii) So long as any shares of the Preferred Stock are outstanding,
the corporation shall not declare, pay or set apart for payment any dividend
on any of the Junior Securities or make any payment on account of, or set
apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any of the Junior Securities or
any warrants, rights, calls or options exercisable for or convertible into
any of the Junior Securities, or make any distribution in respect thereof,
either directly or indirectly, and whether in cash, obligations or shares of
the corporation or other property (other than distributions or dividends in
Junior Securities to the holders of Junior Securities) and shall not permit
<PAGE>
any corporation or other entity directly or indirectly controlled by the
corporation to purchase or redeem any Junior Securities, or any warrants,
rights, calls or options exercisable for or convertible into any Junior
Securities, provided, that; (A) dividends payable on any series of Junior
-------- ----
Securities shall be permitted if prior to or concurrently with such
declaration, payment, setting apart for payment, purchase or distribution,
as the case may be, all accrued and unpaid dividends on shares of the
Preferred Stock shall have been or be paid or declared or set aside for
payment; and (B) the corporation shall be permitted to repurchase its common
stock or other equity securities from officers or employees of the
corporation upon the termination, retirement, death or disability of such
officer or employee, provided that the amounts of such distributions, after
--------
the date hereof, in the aggregate shall not exceed the sum of (i) $500,000
plus (ii) the cash proceeds from any reissuance of such common stock or
other equity interests by the corporation to officers or employees of the
corporation.
(e) Subject to the foregoing provisions of this section 2 and the other
provisions of these Articles of Incorporation, the Board of Directors may
declare and the corporation may pay or set apart for payment dividends and other
distributions on any of the Junior Securities, and may purchase or otherwise
redeem any of the Junior Securities or any warrants, rights or options
exercisable for or convertible into any of the Junior Securities, and the
holders of the shares of the Preferred Stock shall not be entitled to share
therein.
3. Liquidation Preference.
----------------------
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the corporation, the holders of shares of
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the corporation available for distribution to its shareholders an amount in
cash equal to $100 for each share outstanding (the "Liquidation Preference"),
plus an amount in cash equal to all accrued but unpaid dividends thereon to the
date fixed for liquidation, dissolution or winding up before any payment shall
be made or any assets distributed to the holders of any of the Junior
Securities. If the assets of the corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Preferred Stock, then the holders of all such shares shall share ratably in such
distribution of assets in proportion with the amount which would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Preferred Stock are entitled were paid in full.
(b) For the purposes of this section 3, neither the voluntary sale,
conveyance, exchange or transfer (for cash,
<PAGE>
shares of stock, securities or other consideration) of all or substantially all
the property or assets of the corporation nor the consolidation or merger of the
corporation with one or more corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such voluntary sale,
conveyance, exchange or transfer shall be in connection with the dissolution or
winding up of the business of the corporation.
4. Redemption.
----------
(a) Mandatory Redemption. On December 15, 2010, to the extent (i) the
--------------------
corporation shall have Legally Available Funds therefor and (ii) the corporation
shall not be rendered insolvent pursuant to the U.S. Bankruptcy Code, the
corporation shall redeem the remaining outstanding shares of Preferred Stock, at
a redemption price of $100.00 per share, together with accrued and unpaid
dividends thereon to the redemption date, in cash without interest.
If, for any reason, the corporation shall fail to discharge its mandatory
redemption obligations pursuant to this section 4(a), such mandatory redemption
obligations shall be discharged as soon as the corporation is able to discharge
such obligations. If and so long as any mandatory redemption obligations with
respect to the shares of the Preferred Stock shall not be fully discharged, the
corporation shall not, directly or indirectly,
(i) declare or pay any dividend on any Junior Securities or make
any payment on account of, or set apart money for, a sinking or other
analogous fund for the purchase, redemption or retirement of, any Junior
Securities, make any distribution in respect of Junior Securities, either
directly or indirectly and whether in cash or property or in obligations or
shares of the corporation (other than in Junior Securities),
(ii) purchase or redeem (except in either case for a consideration
payable in Junior Securities) fewer than all of the shares of the Preferred
Stock then outstanding, unless such purchase or redemption is made pro rata
among the holders of Preferred Stock, or
(iii) permit any corporation or other entity directly or indirectly
controlled by the corporation to purchase any shares of the Preferred Stock.
Dividends shall continue to accrue on any mandatory redemption obligation
that has not been discharged by the corporation pursuant to this section 4(a).
(b) The Preferred Stock is redeemable at the option of the corporation, in
whole or in part, at any time or from time to time, at a price equal to its
Liquidation Preference
<PAGE>
plus accrued and unpaid dividends. The redemption price, including any accrued
and unpaid dividends, shall be payable in cash out of Legally Available Funds.
The corporation shall comply with section 5 hereof in redeeming shares of
Preferred Stock.
(c) If, at any time, (i) all or substantially all of the corporation's
assets are sold as an entirety to any person or related group of persons other
than an affiliate or affiliates of the corporation or a Permitted Transferee (as
defined herein), (ii) the corporation is merged with or into another corporation
or another corporation is merged with or into the corporation with the effect
that immediately after such transaction the stockholders of the corporation
immediately prior to such transaction hold less than a majority in interest of
the total voting power entitled to vote in the election of directors, managers
or trustees of the person surviving such transaction, (iii) any person or
related group of persons other than FI Holdings, Inc., a Delaware corporation,
or a Permitted Transferee acquires a majority in interest of the voting power or
voting stock of the corporation (other than as a result of a bona fide pledge of
the common stock of the corporation), (iv) any person other than Odyssey
Partners, L.P., a Delaware limited partnership ("Odyssey"), acquires by way of
merger, consolidation or other business combination, greater than 50% of the
total voting power entitled to vote in the election of directors, managers of
trustees of the corporation or such other person surviving the transaction or
(v) Odyssey and its Permitted Transferees shall at any time, prior to the time
any shares of Common Stock of the corporation are sold pursuant to an
underwritten public offering, not be the beneficial owner of the greatest
percentage of the total voting power entitled to vote in the election of
directors of the corporation (collectively, the "Change of Control"), then the
corporation shall, at the election of a holder of Preferred Stock, redeem such
holder's shares of Preferred Stock at a price equal to the Liquidation
Preference thereof plus accrued and unpaid dividends thereon, provided that no
--------
shares of Preferred Stock shall be required to be redeemed unless and until the
corporation consummates the offer to purchase its 14-3/4% Senior Subordinated
Notes due April 15, 1999 and Amended Senior Subordinated Notes due April 15,
1999 issued under the Amended and Restated Indenture dated as of November 19,
1990 between the corporation and First Trust National Association, as trustee
(collectively, the "Notes"), required to be made upon a Change of Control and
purchases not less than 51% of the aggregate principal amount of outstanding
Notes pursuant to such offer.
For the purposes of this section 4, the "Permitted Transferees" shall mean
(A) Odyssey, and corporations, partnerships or other entities controlled by,
controlling or under common control with Odyssey (collectively, the "Odyssey
Affiliates") (the term "control" being the same as that term is defined under
the Securities Act of 1933, as amended), (B) any managing director, general
partner, director, limited partner,
<PAGE>
officer or employee of Odyssey (collectively "Odyssey Associates"), (C) the
heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries of any Odyssey Associate, (D) a trust, the beneficiaries of which,
or a corporation or partnership, the stockholders or general or limited partners
of which, include only an Odyssey Associate, his spouse or his lineal
descendants, to whom Odyssey, an Odyssey Affiliate or an Odyssey Associate has
transferred securities of the corporation and (E) any person or entity, as
pledgee, from whom any Odyssey Associate has borrowed funds to make its
investment in securities of the corporation (or any refinancing thereof).
5. Procedure for Redemption.
------------------------
(a) With respect to any redemption of fewer than all the outstanding shares
of Preferred Stock, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be selected (i) pro
rata as between outstanding shares of the Preferred Stock which are Restricted
Securities (as defined below) and outstanding shares thereof which are not
Restricted Securities, (ii) pro rata among the holders of outstanding shares of
Restricted Securities and (iii) with respect to the shares to be redeemed which
are not Restricted Securities, by lot or pro rata as may be determined by the
Board of Directors, except that in any redemption of fewer than all of the
outstanding shares of Preferred Stock, the corporation may first redeem all
shares held by any holder of a number of shares not to exceed 100, as may be
specified by the corporation. "Restricted Securities" means shares of the
Preferred Stock until such time as they cease to be Registrable Securities as
such term is defined in the Preferred Stock Registration Rights Agreement
between the corporation and the holder of Preferred Stock referred to therein.
(b) In the event the corporation shall redeem shares of Preferred Stock,
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption date,
to each holder of record of the shares to be redeemed at such holder's address
as the same appears on the stock register of the corporation; provided, however,
-------- -------
that no failure to give such notice nor any defect therein shall affect the
validity of the proceeding for the redemption of any shares of Preferred Stock
to be redeemed, except as to the holder to whom the corporation has failed to
give said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) the redemption date; (ii) the total number of
shares of Preferred Stock to be redeemed and the number of shares of Preferred
Stock to be redeemed from such holder; (iii) the redemption price; (iv) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price; (v) that dividends on the shares to be redeemed
will cease to accrue upon such redemption; and (vi) whether such redemption is
being made
<PAGE>
pursuant to section 4(c) hereof and, if so, providing for an election by each
holder as to whether it chooses to have its shares of Preferred Stock redeemed.
(c) Notice having been mailed as aforesaid, from and after the redemption
date (unless default shall be made by the corporation in providing money for the
payment of the redemption price of the shares called for redemption) dividends
on the shares of Preferred Stock so called for redemption shall cease to accrue,
and said shares shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of Preferred Stock and all rights of
the holders thereof as shareholders of the corporation (except the right to
receive from the corporation the redemption price and any accrued and unpaid
dividends without interest) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
corporation at the redemption price as aforesaid. If fewer than all the shares
represented by such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
6. Voting Rights. Except as expressly set forth herein or otherwise
-------------
provided by law, the holders of record of shares of Preferred Stock shall not be
entitled to any voting rights.
7. Consents. Without the affirmative vote of the holders of two-thirds
--------
(2/3) of the outstanding shares of the Preferred Stock, voting as a single
class, the corporation may not
(i) amend the corporation's Articles of Incorporation so as to
adversely affect the voting powers or other rights or preferences of shares
of the Preferred Stock; or
(ii) authorize, issue or create any shares that are pari passu with
or senior in right of payment to the Preferred Stock other than additional
shares of Preferred Stock issued in payment of dividends pursuant to section
2(a).
8. Limitation on Vote. For purposes of exercising any vote, election or
------------------
consent hereunder or under applicable law, shares of Preferred Stock held by the
corporation or any of its subsidiaries or affiliates shall only be deemed to be
outstanding shares of Preferred Stock at a time when any one or more of the
corporation and such subsidiaries and affiliates own all of the then outstanding
shares.
<PAGE>
9. Limited Rights. Except as expressly set forth herein, the holders of
--------------
the Preferred Stock shall have no rights other than those provided by law.
VI.
The pre-emptive right of any shareholder to acquire authorized and unissued
shares of the corporation is denied.
VII.
Any action required by law or by the Bylaws of the corporation to be taken
at a meeting of the shareholders of the corporation, and any action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
written consent, setting forth the action so taken, shall be signed by persons
entitled to vote at a meeting, those shares having sufficient voting power to
cast not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
were present and voted. Notice of such action without a meeting by less than
unanimous written consent shall be given within ten (10) days of the taking of
such action to those shareholders of record on the date when the written consent
is first executed and whose shares were not represented on the written consent.
VIII.
To the fullest extent permitted by Georgia law, as the same exists or may
hereafter be amended, a Director of this corporation shall not be liable to the
corporation or any of its shareholders for damages caused by the Director's
action or inaction in his capacity as a Director, provided the Director acted in
good faith and in a manner which he believed to be in the best interests of the
corporation. Neither the amendment or repeal of this provision, nor the
adoption of any provision of the Articles of Incorporation inconsistent with
this provision, shall eliminate or reduce the effect of this provision with
respect to any matter occurring, or any cause of action, pursuit or claim, that,
but for this provision, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
<PAGE>
IN WITNESS WHEREOF, Forstmann & Company, Inc. has caused these Articles of
Restatement to be executed, its corporate seal affixed and the foregoing to be
attested, all by duly authorized officers, on the 19th day of November, 1990.
FORSTMANN & COMPANY, INC.
By:/s/ Christopher L. Schaller
---------------------------
Christopher L. Schaller,
President
ATTEST:
By:/s/ Salem D. Shuchman
---------------------
Salem D. Shuchman,
Secretary
[CORPORATE SEAL]
<PAGE>
EXHIBIT 3(i)(2)
ARTICLES OF CORRECTION
OF THE
CERTIFICATE OF FORSTMANN & COMPANY, INC.
WITH RESPECT TO ARTICLES OF RESTATEMENT
---------------------------------------
Pursuant to O.C.G.A. (S) 14-2-124, Forstmann & Company, Inc., a corporation
organized under the laws of the State of Georgia, executes the following
Articles of Correction:
I. The name of the corporation is: FORSTMANN & COMPANY, INC.
II. That the Certificate of Forstmann & Company, Inc. with Respect to
Articles of Restatement was recorded by the Secretary of State of
Georgia on November 19, 1990 and that said document requires
correction.
III. The error in said document to be corrected is as follows:
Paragraph FIFTH subsection (ii)(A) contains incorrect figures
resulting from a miscalculation of the number of shares of
Common Stock and Non-Voting Common Stock to be issued
pursuant to the Exchange Agreement referred to in paragraph
FIFTH.
IV. The foregoing error in the document is corrected by deleting
subsection (ii)(A) of paragraph FIFTH thereof and by substituting
in lieu thereof the following:
1,152,862 shares of Common Stock and 112,138 shares of
Non-Voting Common Stock to CSLI, and
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles
of Correction to be signed in its corporate name and on its behalf by its
President and attested by its Secretary on this 18th day of December, 1990.
----
FORSTMANN & COMPANY, INC.
By: /s/ Christopher L. Shaller
--------------------------
Christopher L. Schaller
President
ATTEST:
[SEAL]
By: /s/ Salem D. Shuchman
---------------------
Salem D. Shuchman
Secretary
<PAGE>
EXHIBIT 3(i)(3)
ARTICLES OF MERGER OF
FORSTMANN GEORGIA CORP.
(A GEORGIA CORPORATION)
WITH AND INTO
FORSTMANN & COMPANY, INC.
(A GEORGIA CORPORATION)
Pursuant to the Georgia Business Corporation Code (S) 14-2-1105, the
undersigned corporations do hereby agree to these Articles of Merger:
I. The names of the corporations proposing to merge and the names of the
states under the laws of which such corporations are organized are as follows:
FORSTMANN GEORGIA CORP.
a Georgia corporation ("FGC")
and
FORSTMANN & COMPANY, INC.
a Georgia corporation ("Forstmann").
The surviving corporation in the merger (the "Surviving Corporation") shall
be FORSTMANN & COMPANY, INC.
II. A copy of the executed Agreement and Plan of Merger, dated as of March
3, 1992 (the "Plan of Merger"), is attached hereto as Exhibit A and incorporated
---------
herein by reference.
III. The merger was duly approved by the shareholders of each of the
merging corporations.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations have caused these
Articles of Merger to be executed in its name by duly authorized officers as of
the 3rd day of March, 1992.
"FGC"
FORSTMANN GEORGIA CORP.
By: /s/
------------------------------------
Its: President
Attest: /s/ Elyn Megargee Macek
--------------------------------
Its: Assistant Secretary
[CORPORATE SEAL]
"FORSTMANN"
FORSTMANN & COMPANY, INC.
By: /s/ William B. Towne
------------------------------------
Its: Executive Vice President and
Chief Financial Officer
Attest: /s/ Linda A. Filliponi
--------------------------------
Its: Assistant Secretary
[CORPORATE SEAL]
<PAGE>
AGREEMENT AND PLAN OF MERGER
between
FORSTMANN GEORGIA CORP.
(a Georgia corporation)
and
FORSTMANN & COMPANY, INC.
(a Georgia corporation)
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into this
3rd day of March, 1992, by and between FORSTMANN GEORGIA CORP., a Georgia
corporation ("FGC"), and FORSTMANN & COMPANY, INC., a Georgia corporation
("FORSTMANN").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, FGC is a corporation duly organized and existing under the laws of
the State of Georgia, having its registered office at 127 Peachtree Street,
Suite 1400, Atlanta, Georgia 30303-1810; and
WHEREAS, FGC has authorized capital stock consisting of Ten Thousand
(10,000) shares of common stock, $.10 par value, of which One Hundred (100)
shares have been duly issued and are outstanding, fully paid and nonassessable
(the "FGC Common Stock"); and
WHEREAS, FORSTMANN is a corporation duly organized and existing under the
laws of the State of Georgia, having its registered office at 127 Peachtree
Street, Suite 1400, Atlanta, Georgia 30303-1810; and
WHEREAS, FORSTMANN has authorized capital stock consisting of: (i) Ten
Million (10,000,000) shares of $.001 par value common stock, of which Four
Million Eight Hundred Fifty-Five Thousand Eight Hundred Seventy-Four and Five
Tenths (4,855,874.5) shares have been duly issued and are outstanding, fully
paid and nonassessable (the "Common Stock"); (ii) One Hundred Twenty Thousand
(120,000) shares of non-voting common stock, $.001 par value, of which One
Hundred Twelve Thousand One Hundred Thirty-Eight (112,138) shares are issued and
outstanding, fully paid and nonassessable (the "Non-Voting Common Stock") and
(iii) One Hundred Thousand (100,000) shares of preferred stock, $1.00 par value,
which are designated 5% Senior (Pay-in-Kind) Preferred Stock, of which Forty-
Seven Thousand One Hundred Ninety-Nine and Sixty-Three Hundredths (47,199.63)
shares are issued and outstanding, fully paid and nonassessable (the "Preferred
Stock"); and
<PAGE>
WHEREAS, FORSTMANN intends to commence a public offering of up to 3,162,500
shares of Common Stock pursuant to a Registration Statement on Form S-1
(Registration No. 33-44417) filed with the Securities and Exchange Commission on
December 9, 1991, as amended on each of December 13, 1991, January 23, 1992,
January 27, 1992, February 10, 1992 and February 26, 1992; and
WHEREAS, FORSTMANN commenced an offer on December 9, 1991 to exchange for
each $1,000 face amount of its 14-3/4% Senior Subordinated Notes due April 15,
1999 and Split Coupon Redeemable Amended Senior Subordinated Notes due April 15,
1999 which were surrendered and accepted for exchange (i) $580 in cash and (ii)
such number of unregistered shares of Common Stock which is equal to the result
obtained by dividing $420 by the initial public offering price per share (but in
no event more than 35 shares) together with accrued interest (the "Exchange
Offer"); and
WHEREAS, the respective Boards of Directors of FGC and FORSTMANN
(collectively, the "Constituent Corporations") have deemed it advisable to
merge, and have authorized the merger of FGC with and into FORSTMANN on the
terms and conditions hereinafter set forth in accordance with the laws of the
State of Georgia, and have recommended that the merger of FGC into FORSTMANN
(the "Merger") be approved and that this Agreement be approved and adopted by
the shareholders of each of the Constituent Corporations;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, covenants and conditions hereinafter contained, FGC and FORSTMANN do
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger shall take effect upon the filing of the Certificate or
Articles of Merger (together with any other documents required by the Georgia
Business Corporation Code (the "Code") to effect the Merger) with the Secretary
of State of the State of Georgia (the "Effective Time"), at which time the
separate existence of FGC shall cease and FGC shall be merged, pursuant to
Article 11 of the Code, with and into FORSTMANN, which shall continue its
corporate existence and be the corporation surviving the merger (the "Surviving
Corporation").
1.2 The name of the Surviving Corporation shall be FORSTMANN & COMPANY,
INC.
<PAGE>
ARTICLE II
THE SURVIVING CORPORATION
2.1 The Surviving Corporation shall be governed by the laws of the State
of Georgia. The existing Articles of Incorporation of FORSTMANN shall be the
Articles of Incorporation of the Surviving Corporation after the Effective Time,
until thereafter amended and/or restated in the manner provided by law. The
purposes and powers of FORSTMANN set forth in the Articles of Incorporation of
FORSTMANN in effect immediately prior to the Effective Time shall be the
purposes and powers of the Surviving Corporation after the Effective Time until
thereafter amended and/or restated in the manner provided by law.
2.2 The existing By-Laws of FORSTMANN shall be the By-Laws of the
Surviving Corporation after the Effective Time until the same shall thereafter
be altered, amended and/or restated, or thereafter repealed in accordance with
applicable law, the Articles of Incorporation then in effect and said By-Laws.
ARTICLE III
DIRECTORS AND OFFICERS
3.1 The persons who are the directors and officers, respectively, of
FORSTMANN immediately prior to the Effective Time shall be the directors and
officers, respectively, of the Surviving Corporation after the Effective Time.
If after the Effective Time a vacancy exists, it may thereafter be filled in the
manner provided by the By-Laws of the Surviving Corporation.
ARTICLE IV
CONVERSION OF SHARES
4.1 At the Effective Time, by virtue of the Merger and without any action
on the part of the holder of any capital stock of FGC or FORSTMANN:
(a) Each share of FGC Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive
cash at the price of $9.00 per share and shall be cancelled and retired;
(b) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than "Dissenting Shares", as defined in
Section 4.3 hereof) shall be converted into (i) the right to receive
1/2,172 of a share of common stock, $.001 par value, of the Surviving
Corporation (the "Surviving Corporation Common Stock"), rounded down to the
nearest whole share of Surviving Corporation Common Stock, and (ii) the
right to receive cash pursuant to Section 4.4 for any fraction (before such
<PAGE>
rounding) of a share of Surviving Corporation Common Stock which
would otherwise result from such conversion ratio;
(c) Each share of Common Stock held in the corporate treasury of
FORSTMANN immediately prior to the Effective Time shall be cancelled and
retired and cease to exist without any conversion or payment in respect
thereof;
(d) Each share of Non-Voting Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares)
shall be converted into (i) the right to receive 1/2,172 of a share of non-
voting common stock, $.001 par value, of the Surviving Corporation (the
"Surviving Corporation Non-Voting Common Stock"), rounded down to the
nearest whole share of Surviving Corporation Non-Voting Common Stock, and
(ii) the right to receive cash pursuant to Section 4.4 for any fraction
(before such rounding) of a share of Surviving Corporation Non-Voting
Common Stock which would otherwise result from such conversion ratio;
(e) Each share of Non-Voting Common Stock held in the corporate
treasury of FORSTMANN immediately prior to the Effective Time shall be
cancelled and retired and cease to exist, without any conversion or payment
in respect thereof;
(f) Each share of Preferred Stock issued and outstanding or held in
the corporate treasury of FORSTMANN immediately prior to the Effective Time
shall be converted into one issued, fully paid and nonassessable share of
preferred stock. $1.00 par value, of the Surviving corporation (the
"Surviving Corporation Preferred Stock") which is either outstanding or
held in the corporate treasury, as the case may be .
4.2 After the Effective Time, each holder of an outstanding certificate or
certificates which immediately prior thereto represented shares of Common Stock
or Non-Voting Common Stock (other than holders of Dissenting Shares) will, upon
surrender of such certificate or certificates, be entitled to a certificate or
certificates representing the number of shares of Surviving Corporation Common
Stock or Surviving Corporation Non-Voting Common Stock, as the case may be, into
which the aggregate number of shares of Common Stock or Non-Voting Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to the Merger in accordance with Section 4.1
thereof, plus cash in lieu of fractional shares as provided in Section 4.4.
<PAGE>
4.3 Notwithstanding any other provision of this Agreement to the contrary,
shares of FORSTMANN which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have timely filed with
FORSTMANN a written objection to the Merger and otherwise complied with Article
13 of the Code (herein "Dissenting Shares") shall not be converted into or
represent a right to receive any shares of Surviving Corporation Common Stock or
Surviving Corporation Non-Voting Common Stock pursuant to Section 4.1 hereof,
but the holder thereof shall be entitled only to such rights as are granted by
Article 13 of the Code. Each holder of Dissenting Shares who becomes entitled
to payment for such shares pursuant to Article 13 of the Code shall receive
payment therefor from FORSTMANN in accordance with the Code. If any such holder
shall have failed to perfect or shall have effectively withdrawn or legally lost
his right to appraisal and payment of the fair value for his shares under the
foregoing Article of the Code, each such share shall thereupon be converted into
and represent the right to receive 1/2,172 of a share of Surviving Corporation
Common Stock and cash in lieu of fractional shares or 1/2,172 of a share of
Surviving Corporation Non-Voting Common Stock and cash in lieu of fractional
shares, as applicable, pursuant to Section 4.1 hereof upon surrender of the
certificate representing each such share to FORSTMANN.
4.4 Notwithstanding any other provision of this Agreement, no certificates
or scrip for fractional shares of Surviving Corporation Common Stock or
Surviving Corporation Non-Voting Common Stock shall be issued upon surrender for
exchange of certificates pursuant to this Article IV. In lieu of any such
fractional securities, each holder of Common Stock or Non-Voting Common Stock
who would otherwise have been entitled to a fraction of a share of Surviving
Corporation Common Stock or Surviving Corporation Non-Voting Common Stock upon
surrender of certificates for exchange pursuant to this Article IV will be
entitled to receive cash upon such surrender in an amount computed by
multiplying $9.00 by such fraction.
ARTICLE V
EXCHANGE OF SHARES
5.1 Prior to the Effective Time, FORSTMANN shall designate a bank or trust
company to act as the Exchange Agent in the Merger (the "Exchange Agent").
5.2 Promptly after the Effective Time, the Surviving Corporation shall
cause the Exchange Agent to mail to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which immediately prior to
the Effective Time represented shares of Common Stock or Non-Voting Common Stock
(the "Certificate") a form of letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to the Certificates shall
pass only upon proper delivery of
<PAGE>
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of Certificates for exchange. Upon surrender to the Exchange Agent
of a Certificate, together with such letter of transmittal relating thereto,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor certificates representing the appropriate number of shares of
Surviving Corporation Common Stock or Surviving Corporation Non-Voting Common
Stock, as the case may be, and such Certificate shall forthwith be cancelled. If
new certificates are to be registered in the name of a person other than the
person in whose name the Certificate surrendered is registered, it shall be a
condition of exchange that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such exchange shall pay any transfer or other tax required by reason
of the exchange to a person other than the registered holder of the Certificate
surrendered, or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 5.2, each Certificate shall represent
1/2,172 of the shares stated on the face of such Certificate.
5.3 After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of shares of Common Stock and Non-
Voting Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, shares are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for certificates
representing the appropriate number of shares of Surviving Corporation Common
Stock or Surviving Corporation Non-Voting Common Stock, as the case may be.
5.4 Certificates representing shares of Preferred Stock prior to the
Effective Time will represent shares of Surviving Corporation Preferred Stock
after the Effective Time.
ARTICLE VI
SHAREHOLDER APPROVAL, EFFECTIVENESS OF MERGER
6.1 This Agreement shall be submitted for approval to the shareholders of
FGC and FORSTMANN as provided by the Code. If this Agreement, the Merger (and
the transactions contemplated thereby) are approved by the requisite vote or
written consents of such shareholders and are not terminated and abandoned
pursuant to the provisions of Article VII hereof, this Agreement and Articles of
Merger or a Certificate of Merger incorporating the terms of this Agreement
shall be filed and recorded in accordance with the laws of the State of Georgia
after the last approval by such shareholders upon the direction of the Board of
Directors of FORSTMANN and, upon such filings, the Merger shall become
effective. The Board of Directors and the proper officers of the Constituent
Corporations are authorized, empowered and
<PAGE>
directed to do any and all acts and things, and to make, execute, deliver, file
and record any and all instruments, papers, and documents which shall be or
become necessary, proper, or convenient to carry out or put into effect any of
the provisions of this Agreement or of the Merger herein provided for.
ARTICLE VII
TERMINATION
7.1 Anything herein or elsewhere to the contrary notwithstanding, at any
time prior to the filing of the Articles or Certificate of Merger with the
Secretary of State of Georgia, the Board of Directors of FORSTMANN or FGC may
terminate and abandon this Agreement, notwithstanding favorable action on the
Merger by the shareholders of either such corporation or earlier approval by the
Boards of Directors of such corporations.
ARTICLE VIII
MISCELLANEOUS
8.1 This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
8.2 This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the laws of the State of
Georgia applicable to instruments made, executed and performed wholly in such
state and, in any case, without regard to the conflicts of law principles of
such state.
IN WITNESS WHEREOF, each of the Constituent Corporations has caused this
Agreement to be signed in its corporate name by its duly authorized officers all
as of the date first above written.
[Remainder of page intentionally left blank]
<PAGE>
"FGC"
FORSTMANN GEORGIA CORP.,
a Georgia corporation
By: /s/ Laurence Levett
------------------------------------
Its: President
Attest: /s/ Elyn Megargee Macek
--------------------------------
Its: Assistant Secretary
[CORPORATE SEAL]
"FORSTMANN"
FORSTMANN & COMPANY, INC.,
a Georgia corporation
By: /s/ William B. Towne
------------------------------------
Its: Executive Vice President and
Chief Financial Officer
Attest: /s/ Linda A. Filliponi
--------------------------------
Its: Assistant Secretary
[CORPORATE SEAL]
<PAGE>
CERTIFICATE
TO: Secretary of State
Suite 315 West Tower
2 Martin Luther King, Jr. Drive
Atlanta, Georgia 30334
Pursuant to the Georgia Business Corporation Code Section 14-2-1105.1(a),
I, William B. Towne, do hereby certify, verify and confirm that the request for
publication of a notice of intent to file articles of merger and payment
therefor have been made as required by the Georgia Business Corporation Code
Section 14-2-1105.1(b) for the corporation:
FORSTMANN & COMPANY, INC.
This 3rd day of March, 1992.
/s/ William B. Towne
---------------------------------
William B. Towne
Executive vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 3(i)(4)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
FORSTMANN & COMPANY, INC.
I.
The name of the corporation is Forstmann & Company, Inc.
II.
Effective the date hereof, Article FIFTH of the Articles of Incorporation
of Forstmann & Company, Inc. is amended to read as follows:
The corporation shall have authority to issue (i) 20,000,000 shares of
common stock, $.001 par value (the "Common Stock"), (ii) 120,000 shares of
non-voting common stock, $.001 par value (the "Non-Voting Common Stock"),
and (iii) 100,000 shares of preferred stock, $1.00 par value, which shall
be designated 5% Senior (Pay-in-Kind) Preferred Stock (the "Preferred
Stock).
All other provisions of the Articles of Incorporation shall remain in full force
and effect.
III.
This amendment was recommended to the shareholders by the board of
directors, duly approved by the shareholders in accordance with the provisions
of Section 14-2-1003 of the Georgia Business Corporation Code and adopted on
March 30, 1994.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed and attested by its duly authorized officers this 30th day of
March, 1994.
Forstmann & Company, Inc.
By: /s/ Jane S. Pollack
--------------------------------
Jane S. Pollack, Vice President,
General Counsel and Secretary
<PAGE>
EXHIBIT 3(ii)
AMENDED AND RESTATED
BY-LAWS
OF
FORSTMANN & COMPANY, INC.
ARTICLE I
OFFICES
The corporation shall at all times maintain a registered office in the
State of Georgia and a registered agent at that address but may have other
offices located within or outside the State of Georgia as the Board of Directors
may determine.
ARTICLE II
SHAREHOLDERS' MEETINGS
2.1. Annual Meeting. A meeting of shareholders of the corporation shall
--------------
be held annually. The annual meeting shall be held at such time and place and
on such date as the Directors shall determine from time to time and as shall be
specified in the notice of such meeting.
2.2. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chairman of the Board of Directors or any holder or
holders of at least twenty-five percent (25%) of the outstanding capital stock
of the corporation. Special meetings shall be held at such time and place and
on such date as shall be specified in the notice of the meeting.
2.3. Place. Annual or special meetings of shareholders may be held within
-----
or without the State of Georgia.
2.4. Notice. Notice of annual or special shareholders meetings stating
------
place, day and hour of the meeting shall be given in writing not less than ten
nor more than fifty days before the date of the meeting, either mailed to the
last known address or personally given to each shareholder. Notice of any
special meeting of shareholders shall state the purpose or purposes for which
the meeting is called. The notice of any meeting at which amendments to or
restatements of the articles of incorporation, Merger or consolidation of the
corporation, or the disposition of corporate assets requiring shareholder
approval are to be considered shall state such purpose, and further comply with
all requirements of law. Notice of a meeting may be waived
<PAGE>
by an instrument in writing executed before or after the meeting. The waiver
need not specify the purpose of the meeting or the business transacted, unless
one of the purposes of the meeting concerns a plan of merger or consolidation,
in which event the waiver shall comply with the further requirements of law
concerning such waivers. Attendance at such meeting in person or by proxy shall
constitute a waiver of notice thereof.
2.5. Quorum. At all meetings of shareholders a majority of the
------
outstanding shares of the voting stock shall constitute a quorum for the
transaction of business, and no resolution or business shall be transacted
without the favorable vote of the holders of a majority of the shares
represented at the meeting and entitled to vote. A lesser number may adjourn
from day to day, and shall announce the time and place to which the meeting is
adjourned.
2.6. Proxies. At every meeting of the shareholders, including meetings of
-------
shareholders for the election of Directors, any shareholder having the right to
vote shall be entitled to vote in person or by proxy, but no proxy shall be
voted after eleven months from its date, unless said proxy provides for a longer
period.
2.7. Required Vote. Each shareholder shall have one vote for each share
-------------
of stock having voting power, registered in his name on the books of the
corporation. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, except as otherwise provided by law, by
the articles of incorporation or by these By-Laws.
2.8. Presiding Officer. At every meeting of the shareholders the Chairman
-----------------
of the Board, or in his absence or if there be none, the President, or in his
absence a Vice President, or, if none be present, the appointee of the meeting,
shall preside.
2.9. Secretary. At every meeting.of the shareholders, the Secretary, or
---------
in his absence an Assistant Secretary, or if none be present, the appointee of
the presiding officer of the meeting, shall act as secretary of the meeting.
2.10. Shareholder List. To the extent required by law, the officer or
----------------
agent having charge of the stock transfer books of the corporation shall produce
for inspection of any shareholder at every meeting of the shareholders, a
complete alphabetical list of shareholders entitled to vote at that meeting,
showing the address and share holdings of each shareholder. If the record of
shareholders readily shows such information, it may be produced in lieu of such
a list.
- 2 -
<PAGE>
2.11. Action in Lieu of Meeting. Any action to be taken at a meeting of
-------------------------
the shareholders of the corporation, or any action that may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by holders of all of
the shares entitled to vote with respect to the subject matter thereof and any
further requirements of law pertaining to such consent have been satisfied.
ARTICLE III
DIRECTORS
3.1. Management. Subject to these By-Laws, or any lawful agreement among
----------
the shareholders, the full and entire management of the affairs and business of
the corporation shall be vested in the Board of Directors, which shall have and
may exercise all of the powers that may be exercised or performed by the
corporation.
3.2. Number of Directors. The Board of Directors shall consist of five
-------------------
(5) members.
3.3. Election of Directors. Directors shall be elected at each annual
---------------------
meeting of the shareholders and shall serve for a term of one year and until
their successors are elected. Each Director shall hold office until the next
succeeding annual meeting of the shareholders and until his successor has been
elected and qualified, or until his earlier resignation, removal or death. The
corporation shall at all times have at least two Directors (the "Independent
Directors") who are neither officers nor employees of the corporation or any of
its Affiliates. Prior to each annual meeting of shareholders, the Board of
Directors shall nominate five persons for election as Directors, provided that
not less than two of such nominees (i) would qualify as Independent Directors
and (ii) are chosen from a list of persons designated in writing by holders of a
majority of the aggregate principal amount of the 14-3/4% Senior Subordinated
Notes due April 15, 1999 (the "Notes") and the Amended Senior Subordinated Notes
due April 15, 1999 (the "Amended Notes") issued and outstanding pursuant to the
Amended and Restated Indenture (the "Indenture") by and between the corporation
and First Trust National Association, as trustee, as the same may be amended or
supplemented from time to time. For purposes of this Article III, Affiliate
means any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the corporation.
3.4. Vacancies. Except as provided in this Section 3.4, any vacancy
---------
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors, though
- 3 -
<PAGE>
less than a quorum of the Board of Directors, or by the sole remaining Director,
as the case may be, or, if the vacancy is not so filled or if no Director
remains, by the shareholders of the Company. A Director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by the Board of Directors, but only for a term of office
continuing until the next election of Directors by the shareholders and until
the election and qualification of the successor. Notwithstanding the foregoing,
a vacancy occurring in the Board of Directors which causes the Board of to have
less than two Independent Directors may only be filled by the affirmative vote
of a majority of the remaining Directors, though less than a quorum of the Board
of Directors, or by the sole remaining Director, as the case may be, or, if the
vacancy is not so filled or if no Director remains, by the shareholders of the
Company; provided, however, that the nominee to fill the vacancy (i) would
-----------------
qualify as an Independent Director and (ii) be chosen from a list of persons
designated in writing by the remaining Independent Director or if there is no
remaining Independent Director by holders of a majority of the aggregate
principal amount of the Notes and the Amended Notes issued and outstanding
pursuant to the Indenture.
3.5. Meetings.
--------
(a) Meetings of the Board of Directors may be held at any place, within or
without the State of Georgia.
(b) The Directors shall meet annually, without notice, following the annual
meeting of the shareholders. If the Board of Directors is elected by written
consent without a meeting, then the newly elected Board shall meet as soon as is
reasonably practicable after such consent is duly filed with the corporation, at
the call of the Chairman of the Board, if any, or by the President or by at
least one-third of the Directors then in office at such time and place as shall
be specified by written notice thereof given to each Director either by personal
delivery or by mail, telegram, facsimile transmission or cablegram at least two
days before the meeting. Special meetings of the Directors may be called at any
time by the Chairman of the Board of Directors or by any two Directors, on one
day's written or telephonic notice to each Director, which notice shall specify
the time and place of the meeting. Notice of any such meeting may be waived by
an instrument in writing executed before or after the meeting. No notice of any
meeting of the Board of Directors need state the purposes thereof. Directors
may attend and participate in meetings either in person or by means of
conference telephones or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by means of such communication equipment shall constitute presence in
person at
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<PAGE>
any meeting. Attendance in person at such meeting shall constitute a
waiver of notice thereof.
3.6. Quorum. At all meetings of the Board of Directors, the presence of a
------
majority of the authorized number of Directors shall be necessary and sufficient
to constitute a quorum for the transaction of business. The act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law, the articles of incorporation or these By-Laws. In the absence of a
quorum, a majority of the Directors present at any meeting may adjourn the
meeting from time to time until a quorum is present. Notice of any adjourned
meeting need only be given by announcement at the meeting at which the
adjournment is taken.
3.7. Action in Lieu of Meeting. Any action to be taken at a meeting of
-------------------------
the Directors, or any action that may be taken at a meeting of the Directors,
may be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the Directors and any further requirements
of law pertaining to such consents have been complied with.
3.8. Removal. Any Director may be removed from office, with or without
-------
cause, upon the vote of the holders of at least a majority of the shares
entitled to vote at an election of directors at a shareholders' meeting with
respect to which notice of such purpose is given.
3.9. Resignation. Any Director may resign at any time either orally at
-----------
any meeting of the Board of Directors or by so advising to the Chairman of the
Board, if any, or the President or by giving written notice to the corporation.
A Director who resigns may postpone the effectiveness of his resignation to a
future date or upon the occurrence of a future event specified in a written
tender of resignation. If no time of effectiveness is specified therein, a
resignation shall be effective upon tender. A vacancy shall be deemed to exist
at the time a resignation is tendered, and the Board of Directors or the
shareholders may, then or thereafter, elect or appoint a successor to take
office when the resignation becomes effective.
3.10. Interested Directors and Officers. An interested Director or
---------------------------------
officer is one who is a party to a contract or transaction with the corporation
or who is an officer or director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions between the
corporation and one or more interested Directors or officers shall not be void
or voidable solely because of the involvement or vote of such interested persons
as long as (i) the contract or transaction is approved in good faith
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<PAGE>
by the Board of Directors or appropriate committee by the affirmative votes of a
majority of disinterested Directors, even if the disinterested directors be less
than a quorum, at a meeting of the Board or committee at which the material
facts as to the interested person or persons and the contract or trans action
are disclosed or known to the Board or committee prior to the vote; or (ii) the
contract or transaction is approved in good faith by the shareholders after the
material facts as to the interested person or persons and the contract or
transaction have been disclosed to them; or (iii) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or ratified
by the Board, committee, or shareholders. Interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board or committee
which authorizes the contract or transaction.
3.11. Compensation. Directors may be allowed such compensation for
------------
attendance at regular or special meetings of the Board of Directors and of any
special or standing committees thereof as may be determined from time to time by
resolution of the Board of Directors.
ARTICLE IV
COMMITTEES
4.1. Executive Committee.
-------------------
(a) The Board of Directors may by resolution adopted by a majority of the
entire Board designate an Executive Committee of three or more Directors. Each
member of the Executive Committee shall hold office until the first meeting of
the Board of Directors after the annual meeting of shareholders next following
his election and until his successor is elected and qualified or (if earlier)
until his death, resignation or removal, or until he shall cease to be a
Director.
(b) During the intervals between the meetings of the Board of Directors,
the Executive Committee may exercise all the authority of the Board of
Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (1) amending the articles of incorporation or by-laws
of the corporation; (2) adopting a plan of merger or consolidation; (3) the
sale, lease, exchange or other disposition of all or substantially all the
property and assets of the corporation; or (4) a voluntary dissolution of the
corporation or a revocation of any such voluntary dissolution.
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<PAGE>
(c) The Executive Committee shall meet from time to time on call of the
Chairman of the Board or the President or of any two or more members of the
Executive Committee. Meetings of the Executive Committee may be held at such
place or places, within or without the State of Georgia, as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedures, including provision for notice of its meetings. It shall
keep a record of its proceedings and shall report these proceedings to the Board
of Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the Board of
Directors, except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of its members;
provided, that contracts or transactions of and by the corporation in which
officers or Directors of the corporation are interested shall require the
affirmative vote of a majority of the disinterested members of the Executive
Committee, at a meeting of the Executive Committee at which the material facts
as to the interest and as to the contract or transaction are disclosed or known
to the members of the Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications equipment
by means of which all persons participating in the proceedings can hear each
other, and such participation shall constitute presence in person at such
proceedings.
(f) The Board of Directors, by resolution adopted in accordance with
paragraph (a) of this section, may designate one or more Directors as alternate
members of the Executive Committee who may act in the place and stead of any
absent member or members at any meeting of said committee.
4.2. Other Committees. The Board of Directors, by resolution adopted by a
----------------
majority of the entire Board, may designate one or more additional committees,
each committee to consist of two or more of the Directors of the corporation,
which shall have such name or names and shall have and may exercise such powers
of the Board of Directors, except the powers denied to the Executive Committee,
as may be determined from time to time by the Board of Directors. Such
committees shall provide for their own rules of procedure, subject to the same
restrictions thereon as provided above for the Executive Committee.
4.3. Removal. The Board of Directors shall have power
-------
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<PAGE>
at any time to remove any member of any committee, with or without cause,
and to fill vacancies in and to dissolve any such committee.
ARTICLE V
OFFICERS
5.1. General Provisions. The officers of the corporation shall be the
------------------
Chairman of the Board of Directors, the President, one or more Vice Presidents,
the Secretary and the Treasurer and such other officers, who shall have such
authority and perform such duties as may be prescribed by the Board of
Directors, as may be elected by the Board of Directors or appointed as provided
in these By-Laws. The Board of Directors may assign such additional titles and
duties to one or more of the officers as it shall deem appropriate. Each
officer shall be elected or appointed for a term of office running until the
meeting of the Board of Directors following the next annual meeting of the
shareholders of the corporation, or such other term as provided by resolution of
the Board of Directors or the appointment to office. Each officer shall serve
for the term of office for which he is elected or appointed and until his
successor has been elected or appointed and has qualified or his earlier
resignation, removal from office or death. Any two or more offices may be held
by the same person, except the offices of President and Secretary. Any officer,
agent or employee of the corporation may be removed by the Board of Directors
with or without cause. Such removal without cause shall be without prejudice to
such person's contract rights, if any, but the election or appointment of any
person as an officer, agent or employee of the corporation shall not of itself
create contract rights. The compensation of officers, agents and employees
elected by the Board of Directors shall be fixed by the Board of Directors, but
this power may be delegated to any officer, agent or employee as to persons
under his direction or control. The Board of Directors may require any officer,
agent or employee to give security f or the faithful performance of his duties.
5.2. Chairman of the Board of Directors. The Chairman of the Board of
----------------------------------
Directors (the "Chairman"), when present, shall preside at all meetings of the
shareholders and the Board of Directors. The Chairman shall perform other
duties commonly incident to a Chairman and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time.
5.3. President. The President shall preside at all meetings of the
---------
shareholders and all meetings of the Board of Directors, unless the Chairman has
been appointed and is present. The President shall be the Chief Executive
officer and Chief
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<PAGE>
operating Officer of the corporation and shall, subject to the
control of the board of Directors, have general supervision, direction and
control of the business and officers of the corporation, including the authority
(i) to designate the powers and duties of subordinate officers of the
corporation, and (ii) to recommend to the Board of Directors a salary, bonus,
benefits and remuneration of all such officers. The President shall perform
such other duties commonly incident to his office and to a Chief Executive
Officer and shall also perform such other duties and have such other powers as
the Board of Directors or the Chairman shall designate from time to time.
5.4. Vice Presidents. The Vice Presidents, in the order determined by the
---------------
Board of Directors from time to time, may assume and perform the duties of the
President in the absence or disability of the President or whenever the office
of President is vacant. The Vice Presidents shall perform other duties commonly
incident to their office and shall also perform such other duties and have such
other powers as the Board of Directors or the Chairman shall designate from time
to time.
5.5. Secretary. The Secretary shall keep minutes of all meetings of the
---------
shareholders and of the Board of Directors and have charge of the minute books
and seal of the corporation, and shall keep or cause to be kept the stock
transfer books in the manner prescribed by law. The Secretary shall perform all
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the Chairman
shall designate from time to time.
5.6. Chief Financial Officer and Treasurer. The Chief Financial Officer
-------------------------------------
shall be charged with the management of the financial affairs of the
corporation, shall have the power to recommend action concerning the
corporation's affairs to the Chairman, and shall perform such other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the Chairman shall designate
from time to time. The Treasurer shall perform such duties commonly incident to
his office and shall also perform such other duties and have such other powers
as the Board of Directors, the Chairman or the Chief Financial officer shall
designate from tune to time.
5.7. Assistant Secretaries and Treasurers. Assistants to the Secretary
------------------------------------
and Treasurer may be appointed by the Chairman or elected by the Board of
Directors and shall perform such duties and have such powers as shall be
delegated to them by the Chairman or the Board of Directors.
5.8. Delegation of Duties. In the case of the absence of any officer of
--------------------
the corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of
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<PAGE>
Directors (or in the case of Assistant Secretaries or
Assistant Treasurers only, the Chairman of the Board or the President) may
confer for the time being the powers and duties, or any of them, of such officer
upon any other officer (provided that the powers and duties of the President may
not be conferred upon the Secretary, and vice versa), or elect or appoint any
new officer to fill a vacancy created by death, resignation, retirement or
termination of any officer. In such latter event such new officer shall serve
until the next annual election of officers,
ARTICLE VI
CAPITAL STOCK
6.1. Share Certificates. The interest of each shareholder shall be
------------------
evidenced by a certificate or certificates representing shares of the
corporation which shall be in such form as the Board of Directors may from time
to time adopt and shall be numbered in any appropriate manner to indicate the
order in which they are issued. Each certificate representing shares shall set
forth such information as may be required by law and such further information as
may be required by the terms of the corporation's capital stock.
Each certificate shall be signed by the Chairman of the Board or the
President and by the Secretary or an Assistant Secretary and may be sealed with
the seal of the corporation or a facsimile thereof. If a certificate is
countersigned by a transfer agent or registered by a registrar, other than the
corporation itself or an employee of the corporation, the signature of any such
officer of the corporation may be a facsimile. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be delivered
as though the person or persons who signed such certificate or certificates or
whose facsimile signatures shall have been used thereon had not ceased to be
such officer or officers.
6.2. Shareholder List. The corporation shall keep or cause to be kept a
----------------
record of the shareholders of the corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes or series of stock,
if any, the names of the shareholders entitled to vote, with the address of and
the number of shares held by each. To the extent required by law, said record
shall be made available at all meetings of the shareholders.
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<PAGE>
6.3. Transfer of Shares. Transfers of stock shall be made on the books of
------------------
the corporation only by the person named in the certificate, or by power of
attorney lawfully constituted in writing, and upon surrender of the certificate
thereof or in the case of a certificate alleged to have been lost, stolen or
destroyed, upon compliance with the provisions of Section 6.8 of these By-Laws.
6.4. Voting. Except as otherwise provided in the terms of any capital
------
stock of the corporation as set forth in the Articles of Incorporation of the
corporation, the holders of the capital stock shall be entitled to one vote for
each share of stock standing in their name.
6.5. Record Dates. For the purpose of determining shareholders entitled
------------
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the corporation's
stock transfer books shall not be closed, but a record date shall be set and,
upon that date, the corporation or its transfer agent shall take a record of the
shareholders without actually closing the stock transfer books. Such record
date shall not be more than fifty days, nor less than ten days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken.
6.6. Registered Owner. The corporation shall be entitled to treat the
----------------
holder of record of any share of stock of the corporation as the person entitled
to vote such share, to receive any dividend or other distribution with respect
to such share, and for all other purposes and accordingly shall not be bound to
recognize any equitable or other claim or interest in such share on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
6.7. Transfer Agents and Registrars. The Board of Directors may appoint
------------------------------
one or more transfer agents and one or more registrars and may require each
share certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
6.8. Lost Certificates. Any person claiming a certificate of stock to be
-----------------
lost, stolen or destroyed shall make an affidavit or affirmation of the fact in
such manner as the Board of Directors may require and shall, if the Directors so
require, give the corporation a bond of indemnity in form and amount and with
one or more sureties satisfactory to the Board of Directors, whereupon an
appropriate new certificate may be issued in lieu of the certificate alleged to
have been lost, stolen or destroyed.
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<PAGE>
6.9. Fractional Shares Or Scrip. The corporation may, when and if
--------------------------
authorized so to do by its Board of Directors, issue certificates for fractional
shares or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the corporation, including voting
rights, dividend rights or the right to participate in any assets of the
corporation in the event of liquidation. In lieu of issuing fractional shares
or scrip, the corporation may pay in cash the fair value of fractional interests
as determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
ARTICLE VII
SEAL
The seal of the corporation shall be in such form as the Board of Directors
may from time to time determine. In the event it is inconvenient to use such a
seal at any time, the signature of the corporation followed by the word "Seal"
enclosed in parentheses or scroll shall be deemed the seal of the corporation.
The seal shall be in the custody of the Secretary and affixed by him or by his
assistants on the certificates of stock and other appropriate papers.
ARTICLE VIII
EMERGENCY POWERS
8.1. By-Laws. The Board of Directors may adopt emergency by-laws, subject
-------
to repeal or change by action of the shareholders, which shall, notwithstanding
any provision of law, the articles of incorporation or these By-Laws, be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or on a locality in which the
corporation conducts its business or customarily holds meetings of its Board of
Directors or its shareholders, or during any nuclear or atomic disaster, or
during
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<PAGE>
the existence of any catastrophe, or other similar emergency condition,
as a result of which a quorum of the Board of Directors or a standing committee
thereof cannot readily be convened for action. The emergency by-laws may make
any provision that may be practical and necessary for the circumstances of the
emergency.
8.2. Lines of Succession. The Board of Directors, either before or during
-------------------
any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the corporation shall for any reason be rendered incapable of
discharging their duties.
8.3. Head Office. The Board of Directors, either before or during any
-----------
such emergency, may effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or authorize the
officers to do so.
8.4. Period of Effectiveness. To the extent not inconsistent with any
-----------------------
emergency by-laws so adopted, these By-Laws shall remain in effect during any
such emergency and upon its termination the emergency by-laws shall cease to be
operative.
8.5. Notices. Unless otherwise provided in emergency by-laws, notice of
-------
any meeting of the Board of Directors during any such emergency may be given
only to such of the Directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
8.6. officers as Directors Pro Tempore. To the extent required to
---------------------------------
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the corporation who are present shall, unless
otherwise provided in emergency by-laws, be deemed, in order of rank and within
the same rank in order of seniority, Directors for such meeting.
8.7. Liability of Officers, Directors and Agents. No officer, Director,
-------------------------------------------
agent or employee acting in accordance with any emergency by-laws shall be
liable except for willful misconduct. Without limiting or otherwise affecting
any other provision of law, the articles of incorporation or these By-Laws
regarding the liability of officers, Directors, employees or agents of the
corporation, no officer, Director, agent or employee shall be liable for any
action taken by him in good faith in such an emergency in furtherance of the
ordinary business affairs of the corporation even though not authorized by the
By-Laws then in effect.
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<PAGE>
ARTICLE IX
AMENDMENT
These By-Laws may be amended by the affirmative vote of a majority of the
Directors then holding office or by a majority vote of the shareholders,
provided that the shareholders may provide by resolution that any By-Law
provisions repealed, amended, adopted or altered by them may not be repealed,
amended, adopted or altered by the Board of Directors, and provided further that
any By-Law providing for the vote of more than a majority of the shares may not
be amended or repealed by a vote less than the vote pre scribed in such
provision.
ARTICLE X
INDEMNIFICATION
Each Director or officer of this corporation, and each person who at its
request has served as an officer or director of another corporation,
partnership, joint venture, trust or other enterprise shall be indemnified by
this corporation against those expenses which are allowed by the laws of the
State of Georgia and which are reasonably incurred in connection with any
action, suit or proceeding, pending or threatened, in which such person may be
involved by reason of his being or having been a Director or officer of this
corporation or of such other enterprises. Such indemnification shall be made
only in accordance with the laws of the State of Georgia and subject to the
conditions prescribed therein. The corporation may purchase and maintain
insurance on behalf of any such officers and Directors against any liabilities
asserted against such persons whether or not the corporation would have the
power to indemnify such officers and Directors against such liability under the
laws of the State of Georgia. If any expenses or other amounts are paid by way
of indemnification, other than by court order, action by shareholders or by an
insurance carrier, the corporation shall provide notice of such payment to the
shareholders in accordance with the provisions of the laws of the State of
Georgia.
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<PAGE>
AMENDMENTS TO AMENDED AND RESTATED BY-LAWS OF FORSTMANN & COMPANY, INC.
On June 25, 1991, Section 6.1 of the By-Laws of the
company was amended to read in its entirety as follows:
16.1. Share Certificates. The interest of each shareholder shall be
------------------
evidenced by a certificate or certificates representing shares of the
corporation which shall be in such form as the Board of Directors may from time
to time adopt and shall be numbered in any appropriate manner to indicate the
order in which they are issued. Each certificate representing shares shall set
forth such information as may be required by law and such further information as
may be required by the terms of the corporation's capital stock.
Each certificate shall be signed by the Chairman of the Board or the
President or by such Vice Presidents of the Corporation as may be designated by
the Board of Directors from time to time and by the Secretary or an Assistant
Secretary and may be sealed with the seal of the corporation or a facsimile
thereof. If a certificate is countersigned by a transfer agent or registered by
a registrar, other than the corporation itself or an employee of the
corporation, the signature of any such officer of the corporation may be a
facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the corporation, such certificate or
certificates may nevertheless be delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signatures shall have
been used thereon had not ceased to be such officer or officers.
<PAGE>
AMENDMENTS TO AMENDED AND RESTATED BY-LAWS OF FORSTMANN & COMPANY, INC.
On March 4, 1992, Sections 3.2 and 3.3 of the By-Laws of the Company were
amended to read in their entirety as follows:
3.2. Number of Directors. The Board of Directors shall consist of five
-------------------
(5) members at least two of whom are neither officers or employees of the
corporation or any of its Affiliates (the "Independent Directors"). For purposes
of this Article III, Affiliate means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
corporation.
3.3. Election of Directors. Directors shall be elected at each annual
---------------------
meeting of the shareholders and shall serve for a term of one year and until
their successors are elected. Each Director shall hold office until the next
succeeding annual meeting of the shareholders and until his successor has been
elected and qualified, or until his earlier resignation, removal or death.
<PAGE>
AMENDMENTS TO AMENDED AND RESTATED BY-LAWS OF FORSTMANN & COMPANY, INC.
On February 28, 1994, Sections 6.5 of the By-Laws of the Company was
amended to read in its entirety as follows:
6.5 Record Dates. For the purpose of determining shareholders entitled to
------------
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the corporation's
stock transfer books shall not be closed, but a record date shall be set and,
upon that date, the corporation or its transfer agent shall take a record of the
shareholders without actually closing the stock transfer books. Such record date
shall not be more than seventy days, nor less than ten days, prior to the date
on which the particular action requiring such determination of shareholders is
to be taken.
<PAGE>
AMENDMENTS TO AMENDED AND RESTATED BY-LAWS OF FORSTMANN & COMPANY, INC.
On March 30, 1994, Sections 3.2 of the By-Laws of the Company was amended
to read in its entirety as follows:
3.2. Number of Directors. The Board of Directors shall consist of six (6)
-------------------
members at least two of whom are neither officers nor employees of the
corporation or any of its Affiliates (the "Independent Directors"). For
purposes of this Article III, Affiliate means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
corporation.
<PAGE>
EXHIBIT 4.1
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
EQUIPMENT LEASE AGREEMENT
THIS EQUIPMENT LEASE AGREEMENT (the "Lease") is made as of the 31st day of
May, 1994, by and between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
The parties agree that Lessee shall lease from Lessor the property (the
"Equipment") described in the Equipment Schedule(s) to be executed pursuant
hereto (collectively, the "Equipment Schedule"), subject to the terms set forth
herein, in the Riders annexed hereto and in the Equipment Schedule.
1. TERM. The term of this Lease with respect to any item of the Equipment
shall consist of the term set forth in the Equipment Schedule relating thereto;
provided, however, that this Lease shall be effective from and after the date of
execution hereof.
2. RENT. Lessee shall pay Lessor rent, without any deduction or setoff and
without prior notice or demand, in the aggregate amounts specified in the
Equipment Schedule. This is a non-cancellable net lease, and Lessee shall not
be entitled to any abatement or reduction of payments due hereunder for any
reason. Lessee agrees to make the payments due hereunder regardless of any
existing or future offset or claim which may be asserted by Lessee. Rent is
payable as and when specified in the Equipment Schedule by mailing the same to
Lessor at its address specified pursuant to this Lease; and shall be effective
upon receipt. Time is of the essence. If any payment is not paid on the due
date, Lessor may collect, and Lessee agrees to pay, a charge calculated as the
product of the late charge rate specified in the Equipment Schedule (the "Late
Charge Rate") and the amount in arrears for the period such amount remains
unpaid.
3. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants
that: (a) Lessee is a corporation duly organized and validly existing in good
standing under the laws of the state of its incorporation. (b) The execution,
delivery and performance of this Lease and all related instruments and
documents: (i) have been duly authorized by all necessary corporate action on
the part of Lessee; (ii) do not require the approval of any stockholder, trustee
or holder of any obligations of Lessee except such as have been duly obtained;
and (iii) do not and will not contravene any law, governmental rule, regulation
or order now binding on Lessee, or the charter or by-laws of Lessee, or
contravene the provisions of, or constitute a default under, or result in the
creation of any lien or encumbrance upon the property of Lessee under, any
indenture, mortgage, contract or other agreement to which Lessee is a party or
by which it or its property is bound. (c) This Lease and all related
instruments and documents, when entered into, will constitute legal, valid and
binding obligations of Lessee enforceable against Lessee in accordance with the
terms thereof. (d) Except as disclosed in Lessee's filings with the Securities
Exchange Commission, there are no pending actions or proceedings to which Lessee
is a party, and there are no other pending or threatened actions or proceedings
of which Lessee has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Lessee, or the ability of Lessee to perform its
obligations hereunder. Further, Lessee is not in default under any obligation
for borrowed money, for the deferred purchase price of property or any lease
agreement which, either individually or in the aggregate, would have the same
such effect. (e) Under the laws of the state(s) in which the Equipment is to be
located, the Equipment consists solely of personal property and not fixtures.
(f) The financial statements of Lessee (copies of which have been furnished to
Lessor) have been prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP"), and fairly present Lessee's financial
condition and the results of its operations as of the date of and for the period
covered by such statements, and since the date of such statements there has been
no material adverse change in such conditions or operations. (g) The address
stated below the signature of Lessee is the chief place of business and chief
executive office of Lessee; and Lessee does not conduct business under a trade,
assumed or fictitious name, other than Carpini USA and Forstmann International.
4. COVENANTS OF LESSEE. Lessee covenants and agrees as follows: (a) Lessee
will furnish Lessor (1) within ninety (90) days after the end of each fiscal
year of Lessee, a balance sheet of Lessee as at the end of such year, and the
related statement of income and statement of cash flows of Lessee for such
fiscal year, prepared in accordance with GAAP, all in reasonable detail and
certified by independent certified public accountants of recognized standing
selected by Lessee (which shall be a "Big 6" accounting firm); (2) within sixty
(60) days after the end of each quarter of Lessee's fiscal year, a balance sheet
of Lessee as at the end of such quarter, and the related statement of income and
statement of cash flows of Lessee for such quarter, prepared in accordance with
GAAP; and (3) within forty-five (45) days after the end of each fiscal year of
Lessee, a budget for the succeeding fiscal year (with monthly detail),
internally prepared; and (4) within thirty (30) days after the date on which
they are filed, all regular periodic reports, forms and other filings required
to be made by Lessee to the Securities and Exchange Commission. (b) Lessee will
promptly execute and deliver to Lessor such further documents, instruments and
assurances and take such further action as Lessor from time to time may
reasonably request in order to carry out the intent and purpose of this Lease
and to establish and protect the rights and remedies created or intended to be
created in favor of Lessor hereunder.
5. AUTHORIZATION. Lessor's obligations hereunder are conditioned upon Lessor
having received the following, in form and substance satisfactory to Lessor:
(a) evidence as to due compliance with the insurance provisions hereof; (b)
Uniform Commercial Code financing statements as required by Lessor; (c)
certificate of Lessee's Secretary certifying: (1) resolutions of Lessee's Board
of Directors duly authorizing the leasing of the Equipment hereunder and the
execution, delivery and performance of this Lease and the Equipment Schedule and
all related instruments and
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documents, and (2) the incumbency and signature of the officers of Lessee
authorized to execute such documents; and (d) an opinion of counsel for Lessee
as to each of the matters set forth in sub-parts (a) through (d) of Section 3
hereof.
6. DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE. Upon delivery, Lessee
shall inspect and accept the Equipment and shall execute and deliver to Lessor
an Equipment Schedule containing a complete description of the item of Equipment
accepted; whereupon, as between Lessor and Lessee, the same shall be deemed to
have been finally accepted by Lessee pursuant to this Lease. All expenses
incurred in connection with Lessor's purchase of the Equipment (including
shipment, delivery and installation) shall be the responsibility of Lessee and
shall be paid upon demand. If Lessee shall, for reasonable cause, refuse to
accept delivery of any item of the Equipment, Lessee will be assigned all rights
and shall assume all obligations as purchaser of the Equipment.
7. USE AND MAINTENANCE. Lessee shall use the Equipment solely in the conduct
of its business, in a careful and proper manner consistent with the requirements
of all applicable insurance policies, and in compliance with all applicable
Federal, state and local laws; and shall not permanently discontinue use of or
disassemble the Equipment. The equipment shall be intact, and capable at times
of normal full operation, and shall otherwise comply with the terms of this
Lease. Lessee will not change the location of any Equipment as specified in the
Equipment Schedule without the prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed. Lessee shall not attach or
incorporate the Equipment to or in any other item of equipment in such a manner
that the Equipment may be deemed to have become an accession to or a part of
such other item of equipment. Lessee will cause each principal item of the
Equipment to be continually marked, in a plain and distinct manner, with the
name of Lessor followed by the words "Owner and Lessor," or other appropriate
words designated by Lessor on labels furnished by Lessor. At its own expense,
Lessee will cause the Equipment to be kept and maintained as recommended by the
manufacturer and in as good operating condition as when delivered to Lessee
hereunder, ordinary wear and tear resulting from proper use alone excepted, and
will provide all maintenance and service and make all repairs or replacements
reasonably necessary for such purpose. If any parts of the Equipment become
worn out, lost, destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use, Lessee, at its own expense, will within a reasonable
time replace such parts by replacement parts which are free and clear of all
liens, encumbrances or rights of others and have a value, utility and remaining
useful life at least equal to the parts replaced. All parts which are added to
the Equipment which are essential to the operation of the Equipment or which
cannot be detached from the Equipment without materially interfering with the
operation of the Equipment or adversely affecting the value, utility and
remaining useful life which the Equipment would have had without the addition
thereof, shall immediately become the property of Lessor, and shall be deemed
incorporated in the Equipment and subject to the terms of this Lease as if
originally leased hereunder. Lessee shall not make any material alterations to
the Equipment without the prior written consent of Lessor, which consent shall
not be unreasonably withheld. Upon at least two (2) full business days' notice,
Lessor or its designated representative shall have the right to inspect the
Equipment and all maintenance records with respect thereto, if any, at any
reasonable time during normal business hours.
8. DISCLAIMER OF WARRANTIES. LESSOR, NOT BEING A SELLER, DEALER OR
MANUFACTURER (AS SUCH TERMS ARE DEFINED IN THE UNIFORM COMMERCIAL CODE AS
ENACTED IN THE STATE OF MARYLAND), NOR A SELLER'S AGENT, EXPRESSLY DISCLAIMS AND
MAKES TO LESSEE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR OTHERWISE, INCLUDING,
BUT NOT LIMITED TO: THE FITNESS FOR USE, DESIGN OR CONDITION OF THE EQUIPMENT;
THE QUALITY OR CAPACITY OF THE EQUIPMENT; THE WORKMANSHIP IN THE EQUIPMENT; THAT
THE EQUIPMENT WILL SATISFY THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR
CONTRACT PERTAINING THERETO; AND ANY GUARANTY OR WARRANTY AGAINST PATENT
INFRINGEMENT OR LATENT DEFECTS, it being agreed that all such risks, as between
Lessor and Lessee, are to be borne by Lessee. Lessor is not responsible for any
direct, indirect, incidental or consequential damage to or losses resulting from
the installation, operation or use of the Equipment or any products manufactured
thereby. All assignable warranties made by the supplier to Lessor are hereby
assigned to Lessee for and during the term of this Lease and Lessee agrees to
resolve all such claims directly with the supplier. Provided that Lessee is not
then in Default hereunder, Lessor shall cooperate fully with Lessee with respect
to the resolution of such claims, in good faith and by appropriate proceedings
at Lessee's expense. Any such claim shall not affect in any manner the
unconditional obligation of Lessee to make rent payments hereunder. The
Equipment is leased hereunder AS IS.
9. FEES AND TAXES. (a) To the extent permitted by law, Lessee shall file any
necessary report and return for, shall pay promptly when due, shall otherwise be
liable to reimburse Lessor (on an after-tax basis) for, and agrees to indemnify
and hold Lessor harmless from: (i) all titling, recordation, documentary stamp
and other fees; and (ii) taxes (other than taxes calculated solely on the basis
of net income), assessments and all other charges or withholdings of any nature
(together with any penalties, fines or interest thereon); relating to the
Equipment or this Lease or the delivery, acquisition, ownership, use, operation
or leasing of the Equipment, or upon the rentals payable hereunder, whether the
same be assessed to Lessor or Lessee. (b) If any report, return or property
listing, or any fee, tax or assessment described in sub-part (a) hereof
("Imposition") is, by law, required to be filed by, assessed or billed to, or
paid by, Lessor, Lessee at its own expense will do all things required to be
done by Lessor (to the extent permitted by law) in connection therewith and is
hereby authorized by Lessor to act on behalf of Lessor in all respects,
including (but not limited to), the contest or protest, in good faith and by
appropriate proceedings, of the validity of any Imposition, or the amount
thereof. Lessor agrees fully to cooperate with Lessee in any such contest, and
Lessee agrees promptly to indemnify Lessor for all reasonable expenses incurred
by Lessor in the course of such cooperation. An Imposition shall be paid,
subject to refund proceedings, if failure to pay would adversely affect the
title or rights of Lessor. Provided that Lessee is not then in Default, if
Lessor obtains a refund of any Imposition which has been paid (by Lessee, or by
Lessor and for which Lessor has been reimbursed by Lessee), Lessor shall
promptly pay such refund to Lessee. Lessee will cause all billings of such
charges to Lessor to be made to Lessor in care of Lessee and will, in preparing
any report or return required by law, show the ownership of the Equipment in
Lessor, and shall send a copy of any such report or return to Lessor. If Lessee
fails to pay any such charges when due, except any Imposition being contested in
good faith and by appropriate proceedings as above provided for a reasonable
period of time, Lessor at its option may do so, in which event the amount so
paid (including any penalty or interest incurred as a result of
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Lessee's failure), plus interest thereon at the Late Charge Rate, shall be paid
by Lessee to Lessor with the next periodic payment of rent. (c) As used herein,
the term "Lessor" shall mean and include Lessor and the consolidated Federal
taxpayer group of which Lessor is a member.
10. LIENS. The parties intend and agree that the Equipment shall remain
personal property, notwithstanding the manner in which it may be affixed to any
real property. Lessee shall obtain and deliver to Lessor (to be recorded at
Lessee's expense), from any person having an interest in the property where the
Equipment is to be located, waivers of any lien, encumbrance or interest which
such person might have or hereafter obtain or claim with respect to the
Equipment. Lessee further agrees to maintain the Equipment free from all claims,
liens and legal processes of creditors of Lessee or other persons claiming by,
through or under Lessee, other than (a) liens for fees, taxes, levies, duties or
other governmental charges of any kind, liens of mechanics, materialmen,
laborers, employees or suppliers and similar liens arising by operation of law
incurred by Lessee in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof (provided, however,
that such proceedings do not involve any substantial danger (as determined in
Lessor's sole reasonable discretion) of the sale, forfeiture or loss of the
Equipment or any interest therein); and (b) liens arising out of any judgments
or awards against Lessee which have been adequately bonded to protect Lessor's
interests or with respect to which a stay of execution has been obtained pending
an appeal or a proceeding for review. Lessee will defend, at its own expense,
Lessor's title to the Equipment from such claims, liens or legal processes.
Lessee shall also notify Lessor immediately upon receipt of notice of any lien,
attachment or judicial proceeding affecting the Equipment in whole or in part.
11. INSURANCE. Lessee shall keep the Equipment insured against loss or
damage due to fire and the risks normally included in extended coverage,
malicious mischief and vandalism, for not less than the greater of the full
replacement value or the Stipulated Loss Value (as defined in Section 12
hereof); and Lessee shall also carry public liability insurance, both personal
injury and property damage, covering the Equipment, with a combined single limit
per occurrence of not less than the amount specified in the Equipment Schedule,
with a deductible not to exceed $50,000.00 per occurrence. All said insurance
shall be in form and amount and with companies reasonably satisfactory to
Lessor. All insurance for loss or damage shall provide that losses, if any,
shall be payable to Lessor as loss payee and Lessee shall utilize its best
efforts to have all checks relating to any such losses delivered promptly to
Lessor. Lessor shall be named as an additional insured with respect to all such
liability insurance. Lessee shall pay the premiums therefor and deliver to
Lessor evidence satisfactory to Lessor of such insurance coverage. Lessee shall
cause to be provided to Lessor, not less than fifteen (15) days prior to the
scheduled expiration or lapse of such insurance coverage, evidence satisfactory
to Lessor of renewal or replacement coverage. Each insurer shall agree, by
endorsement upon the policy or policies issued by it or by independent
instrument furnished to Lessor, that (a) it will give Lessor thirty (30) days'
prior written notice of the effective date of any material alteration or
cancellation of such policy; and (b) insurance as to the interest of any named
additional insured or loss payee other than Lessee shall not be invalidated by
any actions, inactions, breach of warranty or conditions or negligence of Lessee
or any person other than Lessor with respect to such policy or policies. The
proceeds of such insurance payable as a result of loss of or damage to the
Equipment shall be applied as required by the provisions of Section 12 hereof.
12. LOSS AND DAMAGE. Lessee assumes the risk of direct and consequential
loss and damage to the Equipment from all causes. Except as provided in this
Section for discharge upon payment of Stipulated Loss Value, no loss or damage
to the Equipment or any part thereof shall release or impair any obligations of
Lessee under this Lease. Lessee agrees that Lessor shall not incur any
liability to Lessee for any loss of business, loss of profits, expenses, or any
other damages resulting to Lessee by reason of any failure of or delay in
delivery or any delay caused by any non-performance, defective performance, or
breakdown of the Equipment, nor shall Lessor at any time be responsible for
personal injury or the loss or destruction of any other property resulting from
the Equipment. In the event of loss or damage to the Equipment which does not
constitute a Total Loss (as hereinafter defined), Lessee shall, at its sole cost
and expense, promptly repair and restore such item of the Equipment to the
condition required by this Lease. Provided that Lessee is not then in Default,
upon receipt of evidence reasonably satisfactory to Lessor of completion of such
repairs, Lessor will apply any insurance proceeds received by Lessor on account
of such loss to the cost of repairs. Upon the occurrence of the actual or
constructive total loss of any item of the Equipment, or the loss, theft or
destruction of any item of the Equipment or damage to any item of the Equipment
to such extent as shall make repair thereof uneconomical or shall render any
item of the Equipment permanently unfit for normal use for any reason
whatsoever, or the condemnation, confiscation, requisition, seizure, forfeiture
or other taking of title to or use of any item of the Equipment (as established
to the reasonable satisfaction of Lessor; any such occurrence being herein
referred to as a "Total Loss"), during the term of this Lease, Lessee shall give
prompt notice thereof to Lessor. On the next date for the payment of rent,
Lessee shall pay to Lessor the rent due on that date plus the Stipulated Loss
Value of the item or items of the Equipment with respect to which the Total Loss
has occurred and any other sums due hereunder with respect to that Equipment
(less any insurance proceeds or condemnation award actually paid). Upon making
such payment, this (a) Lease and the obligation to make future rental payments
shall terminate solely with respect to the Equipment or items thereof so paid
for and (to the extent applicable) Lessee shall become entitled thereto as is
where is without warranty, express or implied, with respect to any matter
whatsoever, and (b) provided that no Default or event which, with the giving of
notice or the lapse of time, or both, will become a Default has then occurred,
Lessor shall remit to lessee any insurance proceeds or condemnation award
actually received by Lessor after Lessee has made such payment. Lessor shall
deliver to Lessee a bill of sale transferring and assigning to Lessee without
recourse or warranty, except (with respect to the status of title conveyed) in
respect of Lessor's acts, all of Lessor's right, title and interest in and to
the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment or
any other matters. As used in this Lease, "Stipulated Loss Value" shall mean
the product of the Total Invoice Cost (designated on the appropriate Equipment
Schedule) of the Equipment and the applicable percentage factor set forth on the
Schedule of Stipulated Loss Values attached to the Equipment Schedule.
Stipulated Loss Value shall be determined as of the next date on which a payment
of rent is or would be due after a Total Loss or other termination of this
Lease, after payment of any rent due on such date, and the applicable percentage
factor shall be that which is set forth with respect to such rent payment.
After payment of the final payment of rent due under the original term of this
Lease and during any renewal term hereof, Stipulated Loss Value shall be
determined as of the date of termination of this Lease (absent any renewal
3
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thereof) or, if during a renewal term, on the next date on which a payment of
rent is or would be due after a Total Loss or other termination of such renewal
term, after payment of any rent due on such date, and the applicable percentage
factor shall be the last percentage factor set forth on the Schedule of
Stipulated Loss Values.
13. REDELIVERY. Upon the expiration or earlier termination of this Lease (or
of any renewal hereof, if applicable), Lessee shall, at its own expense, return
the Equipment to Lessor within fifteen (15) days in the same condition as when
delivered to Lessee hereunder, ordinary wear and tear resulting from proper use
thereof excepted and in such operating condition as is capable of performing its
originally intended use, and free and clear of all liens, encumbrances or rights
of others whatsoever except liens or encumbrances resulting from claims against
Lessor not relating to the ownership of such Equipment, by delivery to such
place within the Continental United States as Lessor shall specify. In addition
to Lessor's other rights and remedies hereunder, if the Equipment is not
returned in a timely fashion, or if repairs are necessary to place the Equipment
in the condition required in this Section, Lessee shall continue to pay to
Lessor rent at the last prevailing lease rate hereunder for the period of delay
in redelivery, or for the period of time reasonably necessary to accomplish such
repairs together with the cost of such repairs, as applicable. Lessor's
acceptance of such rent on account of such delay or repair does not constitute a
renewal of the term of this Lease or a waiver of Lessor's right to prompt return
of the Equipment in proper condition. If Lessee returns the Equipment and the
net sales proceeds received by Lessor upon disposition of the Equipment to a
third party (the "Net Proceeds") is less than four (4) percent of the original
aggregate Total Invoice Cost of the Equipment, upon demand Lessee shall pay to
Lessor the amount of such shortfall as a remarketing fee.
14. INDEMNITY. Lessee assumes and agrees to indemnify, defend and keep
harmless Lessor, its agents and employees, from and against any and all losses,
claims and expenses, including legal expenses (other than such as may directly
and proximately result from the gross negligence or wilful misconduct of Lessor,
its agents or employees), arising on account of the ordering, acquisition,
delivery, installation or rejection of the Equipment, the possession,
maintenance, use, condition (including without limitation, latent and other
defects and whether or not discoverable by Lessor or Lessee, any claim in tort
for strict liability, and any claim for patent, trademark or copyright
infringement) or operation of any item of the Equipment, and by whomsoever used
or operated, during the term of this Lease with respect to that item of the
Equipment, the loss, damage, destruction, removal, return, surrender, sale or
other disposition of the Equipment, or any item thereof. Lessor shall give
Lessee prompt notice of any claim or liability hereby indemnified against and
Lessee shall be entitled to control the defense thereof, so long as Lessee is
not in Default; provided, however, that Lessor shall have the right to approve
defense counsel selected by Lessee (provided that such approval shall not
unreasonably be withheld or delayed).
15. DEFAULT. (a) Lessee shall be deemed to be in default hereunder
("Default") if (1) Lessee shall fail to make any payment of rent or any other
payment hereunder within ten (10) days after the same shall have become due; or
(2) Lessee shall fail to obtain and maintain the insurance required herein; (3)
Lessee shall fail to perform or observe any other covenant, condition or
agreement to be performed or observed by it hereunder and such failure shall
continue unremedied for a period of thirty (30) days after written notice
thereof to Lessee by Lessor; or (4) Lessee shall (A) be generally not paying its
debts as they become due; or (B) take action for the purpose of invoking the
protection of any bankruptcy or insolvency law, or any such law is invoked
against or with respect to Lessee or its property, and any such petition filed
against Lessee is not dismissed within sixty (60) days; or (5) Lessee shall make
or permit any unauthorized assignment or transfer of this Lease, the Equipment
or any interest therein; (6) any certificate, statement, representation,
warranty or audit contained herein or heretofore or hereafter furnished with
respect hereto by or on behalf of Lessee proving to have been false in any
material respect at the time as of which the facts therein set forth were stated
or certified, or having omitted any substantial contingent or unliquidated
liability or claim against Lessee; or (7) Lessee shall be in default under any
material obligation for borrowed money, for the deferred purchase price of
property or any lease agreement, and the applicable grace period with respect
thereto shall have expired; or (8) Lessee shall have terminated its corporate
existence, consolidated with, merged into, or conveyed or leased substantially
all of its assets as an entirety to any person (such actions being referred to
as an "Event"), unless not less than thirty (30) days prior to such Event: (x)
such person is organized and existing under the laws of the United States or any
state, and executes and delivers to Lessor an agreement containing an effective
assumption by such person of the due and punctual performance of this Lease as
of the effective date of such event; and (y) Lessor is reasonably satisfied as
to the creditworthiness of such person; or (9) there occurs a default under any
guaranty executed in connection with this Lease; or (10) as a result of or in
connection with a material change in the ownership of Lessee's capital stock,
Lessee's Debt to Tangible Net Worth equals or exceeds twice the ratio of
Lessee's Debt to Tangible Net Worth as of the date of this Lease, without the
prior written consent of Lessor. As used herein, "Debt" shall mean Lessee's
total liabilities which, in accordance with GAAP, would be included in the
liability side of a balance sheet; and "Tangible Net Worth" shall mean Lessee's
tangible net worth including the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits, less any amounts
attributable to goodwill, patents, copyrights, mailing lists, catalogs,
trademarks, bond discount and underwriting expenses, organization expense and
other intangibles. Accounting terms used herein shall be as defined, and all
calculations hereunder shall be made, in accordance with GAAP. (b) The
occurrence of a Default with respect to any Equipment Schedule shall, at the
sole discretion of Lessor, constitute a Default with respect any or all
Equipment Schedules. Notwithstanding anything set forth herein, Lessor may
exercise all rights and remedies hereunder independently with respect to each
Equipment Schedule.
16. REMEDIES. Upon a Default Lessor may, at its option, declare this Lease
to be in default by written notice to Lessee (without election of remedies), and
at any time thereafter, may do any one or more of the following, all of which
are authorized by Lessee:
(a) Require Lessee to assemble any or all of the Equipment at the location
to which the Equipment was delivered or the location to which such Equipment may
have been moved by Lessee or such other location in reasonable proximity to
either of the foregoing as Lessor shall designate; or to return promptly, at
Lessee's expense, any or all of the Equipment to Lessor at the location, in the
condition and otherwise in accordance with all of the terms of Section 13
hereof; and/or take possession of and render unusable by Lessee any or all of
the Equipment, wherever it may be located, without any court order or other
process of law and without liability for any damages occasioned by such taking
of possession (other than to premises) (any such taking of possession shall
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constitute an automatic termination of this Lease as it applies to those items
taken without further notice, and such taking of possession shall not prohibit
Lessor from exercising its other remedies hereunder).
(b) sell, re-lease or otherwise dispose of any or all of the Equipment,
whether or not in Lessor's possession, in a commercially reasonable manner at
public or private sale with notice to Lessee (the parties agreeing that ten (10)
days' prior written notice shall constitute adequate notice of such sale), with
the right of Lessor to purchase and apply the net proceeds of such disposition,
after deducting all costs of such disposition (including but not limited to
costs of transportation, possession, storage, refurbishing, advertising and
brokers' fees), to the obligations of Lessee pursuant to this sub-part (b), with
Lessee remaining liable for any deficiency and with any excess being retained by
Lessor; or retain any or all of the Equipment; and recover from Lessee damages,
not as a penalty, but herein liquidated for all purposes as follows:
(1) if Lessor elects to dispose of the Equipment pursuant to a lease
which is substantially similar to this Lease: in an amount equal to the sum of
(A) any accrued and unpaid rent under this Lease as of the date of commencement
(the "Commencement Date") of the term of the new lease, and (B) (i) the present
value as of the Commencement Date of the total rent for the then remaining term
of this Lease, minus (ii) the present value as of the Commencement Date of the
rent under the new lease applicable to that period of the new lease term which
is comparable to the then remaining term of this Lease, and (C) any incidental
damages allowed under Uniform Commercial Code Article 2A - Leases ("Article
2A"), less expenses saved by Lessor in consequence of the Default ("Incidental
Damages");
(2) if Lessor elects to retain the Equipment or to dispose of the
Equipment by sale, by re-lease (pursuant to a lease which is not substantially
similar to this Lease), or otherwise: in an amount equal to the sum of: (A) any
accrued and unpaid rent as of the date Lessor repossesses the Equipment or such
earlier date as Lessee tenders possession of the Equipment to Lessor, (B) (i)
the present value as of the date determined under clause (A) of the total rent
for the then remaining term of this Lease, minus (ii) the present value as of
the same date of the "market rent" (as defined in Article 2A) at the place where
the Equipment was located on that date computed for the same lease term, and (C)
any Incidental Damages (provided, however, that if the measure of damages
provided is inadequate to put Lessor in as good a position as performance would
have, the damages shall be the present value of the profit, including reasonable
overhead, Lessor would have made from full performance by Lessee, together with
any incidental damages allowed under Article 2A, DUE allowance for costs
reasonably incurred and due credit for payments or proceeds of disposition);
(3) if Lessor has not repossessed the Equipment, or if Lessor has
repossessed the Equipment or Lessee has tendered possession of the Equipment to
Lessor and Lessor is unable after reasonable effort to dispose of the Equipment
at a reasonable price or the circumstances reasonably indicate that such an
effort will be unavailing: in an amount equal to the sum of: (A) accrued and
unpaid rent as of the date of entry of judgement in favor of Lessor, (B) the
present value as of the date determined under clause (A) of the rent for the
then remaining term of this Lease, and (C) any Incidental Damages. Lessor may
dispose of the Equipment at any time before collection of a judgement for
damages. If the disposition is before the end of the remaining term of this
Lease, Lessor's recovery against Lessee for damages will be governed by sub-part
(b) (1) or (2) (as applicable), and Lessor will cause an appropriate credit to
be provided against any judgment for damages to the extent that the amount of
the judgment exceeds the applicable recovery pursuant to sub-part (b)(1) or (2).
(c) In lieu of the damages specified in sub-part (b), Lessor may recover
from Lessee, as liquidated damages for loss of a bargain and not as a penalty,
an amount calculated as the sum of: (1) the greater of either (A) the
Stipulated Loss Value of the Equipment (determined as of the next date on which
a payment is or would have been due after the declaration of a Default),
together with all other sums due hereunder as of such determination date with
respect to such Equipment, or (B) all sums due and to become due hereunder for
the full term of this Lease (including any tax indemnities becoming due as a
result of the Default, and any mandatory purchase or renewal options which
Lessee has contracted to pay) (provided that all sums becoming due after the
declaration of Default shall be discounted to present value as of the date of
payment by Lessee) plus Lessor's estimated residual interest in the Equipment;
plus (2) the amount of all commercially reasonable costs and expenses incurred
by Lessor in connection with repossession, recovery, storage, repair, sale, re-
lease or other disposition of the Equipment, including reasonable attorneys'
fees and costs incurred in connection therewith or otherwise resulting from
Lessee's default; minus (3) if Lessor has repossessed the Equipment, the amount
calculated pursuant to clause (B) (ii) of sub-part (b)(1) or (2) (as
applicable).
(d) Cancel this Lease as to any or all of the Equipment.
(e) Proceed by appropriate court action, either at law or in equity
(including an action for specific performance), to enforce performance by Lessee
or to recover damages for the breach hereof; or exercise any other right or
remedy available to Lessor at law or in equity with respect to such breach.
All amounts to be present valued shall be discounted at a rate equal to the
discount rate of the Federal Reserve Bank of Richmond in effect on the
applicable date. Unless otherwise provided above, a cancellation hereunder shall
occur only upon written notice by Lessor to Lessee and only with respect to such
items of the Equipment as Lessor specifically elects to cancel in such notice.
Except as to such items of the Equipment with respect to which there is a
cancellation, this Lease shall remain in full force and effect and Lessee shall
be and remain liable for the full performance of all its obligations hereunder.
In addition, Lessee shall be liable for all reasonable legal fees and other
expenses incurred by reason of any Default or the exercise of Lessor's remedies,
including all expenses incurred in connection with the return of any Equipment
in accordance with the terms of Section 13 hereof or in placing such Equipment
in the condition required by said Section. No right or remedy referred to in
this Section is intended to be exclusive, but each shall be cumulative and shall
be in addition to any other remedy referred to above or otherwise available at
law or in equity, and may be exercised concurrently or separately from time to
time. The failure of Lessor to exercise the rights granted hereunder upon any
default by Lessee shall not constitute a waiver of any such right upon the
continuation or reoccurrence of any such Default. In no event shall the
execution of an Equipment Schedule constitute a waiver by Lessor of any pre-
existing Default in the performance of the terms and conditions hereof.
17. ASSIGNMENT. (a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH SHALL
NOT UNREASONABLY BE WITHHELD OR DELAYED), LESSEE WILL NOT ASSIGN, TRANSFER OR
ENCUMBER ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER OR ITS LEASEHOLD INTEREST,
SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED
BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANYONE BUT LESSEE. No
assignment or sublease, whether authorized in this Section or in violation of
the terms hereof, shall relieve Lessee of its obligations hereunder and Lessee
shall remain primarily liable hereunder. (b) Lessor
5
<PAGE>
may at any time assign any or all of its rights, obligations, title and interest
hereunder, to any other person. If Lessee is given notice of any such
assignment, Lessee shall acknowledge receipt thereof in writing. Any such
assignee shall have and be entitled to exercise any and all rights and powers of
Lessor hereunder, but such assignee shall not be obligated to perform any of the
obligations of Lessor hereunder (other than the covenant of quiet enjoyment
specified in Section 18(c) hereof). Lessee will pay all rent and other amounts
payable by Lessee to such assignee, notwithstanding any defense or claim of
whatever nature, whether by reason of breach or otherwise which it may now or
hereafter have against Lessor; it being understood that in the event of a
default or breach by Lessor that Lessee shall pursue any rights on account
thereof solely against Lessor. Lessee agrees that any such assignment shall not
materially change Lessee's duties or obligations under the Lease or any
Equipment Schedule nor materially increase Lessee's risks or burdens. Upon such
assignment and except as may otherwise be provided therein all references in
this Lease to Lessor shall include such assignee. (c) Subject always to the
foregoing, this Lease inures to the benefit of, and is binding upon, the
successors and assigns of the parties hereto.
18. MISCELLANEOUS. (a) This Lease, the Riders annexed hereto, the Equipment
Schedule and any commitment letter between the parties, constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall not be rescinded, amended or modified in any manner except by a document
in writing executed by both parties. (b) Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. (c) The representations,
warranties and covenants of Lessee herein shall be deemed to be continuing and
to survive the closing hereunder. Each execution by Lessee of an Equipment
Schedule shall be deemed reaffirmation and warranty that there shall have been
no material adverse change in the business or financial condition of Lessee from
the date of execution hereof. The obligations of Lessee under Sections 9, 13 and
14, which accrue during the term of this Lease, shall survive the termination of
this Lease. (d) Lessor represents and covenants to Lessee that Lessor has full
authority to enter into this Lease and that, conditioned upon Lessee performing
all of the covenants and conditions hereof, as to claims of Lessor or persons
claiming under Lessor, Lessee shall peaceably and quietly hold, possess and use
the Equipment during the term of this Lease subject to the terms and provisions
hereof. (e) If Lessee fails to perform any of its obligations hereunder, Lessor
shall have the right, but shall not be obligated, to effect such performance,
and the amount of any out of pocket and other reasonable expenses of Lessor
incurred in connection with such performance, together with interest thereon at
the Late Charge Rate, shall be payable by Lessee upon demand. Lessor's effecting
such compliance shall not be a waiver of Lessee's default. (f) Lessee
irrevocably appoints Lessor as Lessee's attorney-in-fact (which power shall be
deemed coupled with an interest) to execute, endorse and deliver any documents
and checks or drafts relating to or received in payment for any loss or damage
under the policies of insurance required by the provisions of Section 11 hereof,
but only to the extent that the same relates to the Equipment. (g) LESSEE HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSEE AND LESSOR MAY
BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE. LESSEE
AUTHORIZES LESSOR TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT
HEARING ANY SUCH CLAIM. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAVIER OF TRIAL BY JURY OF ALL CLAIMS AGAINST PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS LEASE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
PARTIES AND THE PARTIES HEREBY ACKNOWLEDGE THAT NO REPRESENTATIONS OF FACT OR
OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY
OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. LESSOR AND LESSEE FURTHER
ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS LEASE AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(h) All notices (excluding billings and communications in the ordinary course of
business) hereunder shall be in writing, personally delivered, delivered by
overnight courier service, sent by facsimile transmission (with confirmation of
receipt), or sent by certified mail, return receipt requested, addressed to the
other party at its respective address stated below the signature of such party
or at such other address as such party shall from time to time designate in
writing to the other party; and shall be effective from the date of receipt. (i)
This Lease shall not be effective unless and until accepted by execution by an
officer of Lessor at the address, in the State of New York, as set forth below
the signature of Lessor. THIS LEASE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE
EQUIPMENT. The parties agree that any action or proceeding arising out of or
relating to this Lease may be commenced in any state or Federal court in the
State of New York, and agree that a summons and complaint commencing an action
or proceeding in any such court shall be properly served and shall confer
personal jurisdiction if served personally or by certified mail to it at its
address hereinbelow set forth, or as it may provide in writing from time to
time, or as otherwise provided under the laws of the State of New York. (j) To
the extent that this Lease and/or the Equipment Schedule would constitute
chattel paper, as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction, no security interest herein or therein
may be created through the transfer or possession of this Lease in and of itself
without the transfer or possession of the original of an Equipment Schedule
executed pursuant to this Lease and incorporating the Lease by reference; and no
security interest in this Lease and an Equipment Schedule may be created by the
transfer or possession of any counterpart of the Equipment Schedule other than
the original thereof, which shall be identified as the document marked
"Original" and all other counterparts shall be marked "Duplicate".
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed as of the day and year first above set forth.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
--------------------- ------------------------
Name: Thomas M. Jaschik Name: Rod J. Peckham
Title:Vice President Title:Vice President and Treasurer
502 Washington Avenue 1185 Avenue of the Americas
Suite 600 New York, New York 10036
Towson, Maryland 21204 Facsimile: 212-642-6992
Facsimile: 410-821-8775
7
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
RIDER NO. 1
To and part of Equipment Lease Agreement dated as of the 31st day of May, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
A. INTENT; TITLE. It is the express intent of the parties that this
agreement constitute a true lease and not a sale of the Equipment. Title to the
Equipment shall at all times remain in Lessor, and Lessee shall acquire no
ownership, title, property, right, equity, or interest in the Equipment other
than its leasehold interest solely as Lessee subject to all the terms and
conditions hereof. The parties agree that this Lease is a "Finance Lease" as
defined in Uniform Commercial Code Article 2A -- Leases ("Article 2A"). Lessee
acknowledges: (a) that Lessee has selected the "Supplier" (as defined in
Article 2A) and directed Lessor to purchase the Equipment from the Supplier; (b)
that Lessee has been informed in writing in this Lease, before signing this
Lease, that Lessee is entitled under Article 2A to the promises and warranties,
including those of any third party, provided to Lessor by the Supplier in
connection with or as part of the contract by which Lessor acquired the
Equipment, and that Lessee may communicate with the Supplier and receive an
accurate and complete statement of those promises and warranties, including any
disclaimers and limitations of them or of remedies. To the extent permitted by
applicable law, Lessee hereby waives any and all rights and remedies conferred
upon a lessee in Article 2A and any rights now or hereafter conferred by statute
or otherwise which may limit or modify any of Lessor's rights or remedies under
Section 16 of this Lease; provided, however, that such waiver shall not preclude
Lessee from asserting any claim of Lessee against Lessor in a separate cause of
action; and provided further that such waiver shall not affect Lessor's
obligations of good faith, diligence, reasonableness and care.
Notwithstanding the express intent of the parties, should a court of
competent jurisdiction determine that this agreement is not a true lease, but
rather one intended as security, then solely in that event and for the expressly
limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a
security interest in this Lease, the Equipment, and all accessions thereto,
substitutions and replacements therefor, and proceeds (including insurance
proceeds) thereof (but without power of sale); to secure the prompt payment and
performance as and when due of all obligations and indebtedness of Lessee (or
any affiliate of Lessee) to Lessor, now existing or hereafter created. For the
purposes of this paragraph, the Lease or a photocopy thereof may be filed as a
financing statement under the Uniform Commercial Code.
B. OPTION TO RENEW. (1) Provided that Lessee is not then in Default, Lessee
shall have the option to renew this Lease, at the expiration of the term of this
Lease or any subsequent renewal period, with respect to all but not less than
all of the Equipment, on the terms and conditions of this Lease, for a
negotiated renewal term at a periodic rent equal to the Fair Market Rental Value
of such Equipment determined at the time of the renewal. If Lessee desires to
exercise this option it shall give Lessor irrevocable written notice of its
election to renew at least two hundred forty (240) days before expiration of the
then term of this Lease with respect to the first Equipment Schedule to be
executed under this Lease. Such election shall be effective with respect to all
Equipment leased under all Equipment Schedules.
(2) For purposes of this Section, "Fair Market Rental Value" shall be deemed
to be an amount equal to the rental, as installed and in use, obtainable in an
arms' length transaction between a willing and informed lessor and a willing and
informed lessee under no compulsion to lease (and assuming that, as of the date
of determination, the Equipment is in at least the condition required by Section
13 and Rider No. 3 of this Lease). If (prior to one hundred eighty (180) days
before expiration of the then term of this Lease) the parties are unable to
agree on the Fair Market Rental Value of the Equipment, then (at least one
hundred twenty (120) days before expiration of the then term of this Lease)
Lessor and Lessee shall at Lessee's expense obtain appraisal values from three
independent appraisers (other than American Appraisal Associates, Inc.) (one to
be selected by Lessor, one by Lessee, and the other by the two selected by
Lessor and Lessee; each of whom must be associated with a professional
organization of equipment or personal property appraisers, such as the American
Society of Appraisers) and the average Fair Market Rental Value as determined by
such appraisers shall be binding on the parties hereto. If, prior to ninety
(90) days before the expiration of the term of this Lease, the appraisers
selected by Lessor and Lessee are unable to agree on the third appraiser, then
American Appraisal Associates, Inc. will be selected to provide the third
appraisal value.
C. OPTION TO PURCHASE. (1) (a) Provided that Lessee is not then in Default,
Lessee shall have the option to purchase all but not less than all of the
Equipment on that date which is seventy-two (72) months after the Base Lease
Commencement Date (the "Early TErmination Date") with respect to each Equipment
Schedule executed under this Lease. If Lessee desires to exercise this option it
shall give Lessor irrevocable written notice of its election to purchase at
least two hundred forty (240) days before the Early Termination Date with
respect to the first Equipment Schedule to be executed under this Lease. Such
election shall be effective with respect to all Equipment leased under all
Equipment Schedules. Thereafter, Lessee shall at Lessee's expense obtain
appraisal values from an independent appraiser selected by the Lessee, who must
be associated with a professional organization of equipment or personal property
appraisers, such as the American Society of Appraisers) and acceptable to
Lessor, to determine the Fair Market Value of the Equipment. If the appraised
Fair Market Value of the Equipment is equal to or less than the Purchase Price
(as hereinafter determined), then on each Early Termination Date, Lessee shall
pay to Lessor in cash the Purchase Price for the Equipment purchased on such
Early Termination Date. The Purchase Price of the Equipment shall be an amount
equal to 34.75 percent of the original Total Invoice Cost of the Equipment (as
specified on the Equipment Schedule),
<PAGE>
which the parties anticipate represents the Fair Market Value of the Equipment
at the Early Termination Date; together with all taxes and charges upon sale.
(b) For purposes of Section C.(1)(a), "Fair Market Value" shall be
deemed to be an amount equal to the sale price of the Equipment, as installed
and in use, obtainable in an arms' length transaction between a willing and
informed buyer and a willing and informed seller under no compulsion to sell
(and assuming that, as of the date of determination, the Equipment is in at
least the condition required by Section 13 and Rider No. 3 of this Lease).
(2) (a) Provided that Lessee is not then in Default, Lessee shall have the
option to purchase, upon the expiration of the original or any renewal term of
this Lease, all but not less than all of the Equipment upon the following terms
and conditions: If Lessee desires to exercise this option it shall give Lessor
irrevocable written notice of its election to purchase at least two hundred
forty (240) days before expiration of the applicable term of this Lease with
respect to the first Equipment Schedule to be executed under this Lease. Such
election shall be effective with respect to all Equipment leased under all
Equipment Schedules. Thereafter, Lessee shall engage in negotiations with
Lessor to determine the Purchase Price for the Equipment. At the expiration of
the applicable term of this Lease, Lessee shall pay to Lessor in cash the
Purchase Price for the Equipment so purchased, determined as hereinafter
provided. The Purchase Price of the Equipment shall be an amount equal to its
then Fair Market Value (which the parties agree will be at least four (4)
percent of the original aggregate Total Invoice Cost of the Equipment, or
greater), together with all taxes and charges upon sale.
(b) For purposes of Section C.(2)(a), "Fair Market Value" shall be
deemed to be an amount equal to the sale price of the Equipment, as installed
and in use, obtainable in an arms' length transaction between a willing and
informed buyer and a willing and informed seller under no compulsion to sell
(and assuming that, as of the date of determination, the Equipment is in at
least the condition required by Section 13 and Rider No. 3 of this Lease). If
(prior to one hundred eighty (180) days before expiration of the applicable
renewal term of this Lease) the parties are unable to agree on the Fair Market
Value of the Equipment, then (at least one hundred twenty (120) days before
expiration of the applicable renewal term of this Lease) Lessor and Lessee shall
at Lessee's expense obtain appraisal values from three independent appraisers
(other than American Appraisal Associates, Inc.) (one to be selected by Lessor,
one by Lessee, and the other by the two selected by Lessor and Lessee; each of
whom must be associated with a professional organization of equipment or
personal property appraisers, such as the American Society of Appraisers) and
the average Fair Market Value as determined by such appraisers shall be binding
on the parties hereto. If, prior to ninety (90) days before the expiration of
the applicable renewal term of this Lease, the appraisers selected by Lessor and
Lessee are unable to agree on the third appraiser, then American Appraisal
Associates, Inc. will be selected to provide the third appraisal value.
(3) Notwithstanding any election of Lessee to purchase, the provisions of
this Lease shall continue in full force and effect until the passage of
ownership of the Equipment upon the date of purchase. On the date of purchase,
Lessor shall deliver to Lessee a bill of sale transferring and assigning to
Lessee without recourse or warranty, except (with respect to the status of title
conveyed) in respect of Lessor's acts, all of Lessor's right, title and interest
in and to the Equipment. Lessor shall not be required to make and may
specifically disclaim any representation or warranty as to the condition of the
Equipment or any other matters.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
--------------------- ----------------------
Thomas M. Jaschik Vice President and
Vice President Treasurer
2
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
- --------------------------------------------------------------------------------
RIDER NO. 2
To and part of Equipment Lease Agreement dated as of the 31ST day of May, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
TAX INDEMNITY.
(1) Lessee represents and warrants that: (a) it believes that it is
reasonable to estimate that the useful life of the Equipment exceeds the lease
term (including any interim and fixed rental renewal periods) by the greater of
one (1) year or twenty (20) percent of such estimated useful life, and that said
Equipment will have a value at the end of the lease term, including any fixed
rate renewal period, of at least twenty (20) percent of the Total Invoice Cost
of the Equipment, without including in such value any increase or decrease for
inflation or deflation during the original lease term (all as evidenced by the
certificate of a qualified party to be provided at Lessee's expense to Lessor
prior to the commencement of the lease term); and (b) the Equipment is, and will
be used by Lessee so as to remain, property eligible for the depreciation
deductions under Section 167 of the Internal Revenue Code of 1986, as now or
hereafter amended (the "Code"), determined in accordance with the provisions of
Section 168 of the Code, during the term of the Lease with respect thereto, and
is assigned to the class of property specified in the Equipment Schedule
pertaining thereto.
(2) If Lessor in computing its taxable income or liability for tax, shall
either lose, or shall not have, or shall lose the right to claim or there shall
be disallowed or recaptured for Federal and/or state income tax purposes, in
whole or in part, the benefit of ACRS Deductions; or (b) Lessor shall become
liable for additional tax as a result of Lessee having added an attachment or
made an alteration to the Equipment which would increase the productivity or
capability of the Equipment so as to violate the provisions of Rev. Proc. 75-21,
1975-1 C.B. 715, or Rev. Proc. 79-48, 1979-2 C.B. 529 (as either or both may
hereafter be modified or superseded); or (c) the statutory full-year marginal
Federal tax rate (including any surcharge) for corporations is greater than
thirty-five (35) percent; hereinafter referred to as a "Loss"; then Lessee shall
pay Lessor the Tax Indemnification Payment as additional rent and Lessor may
revise the Schedule(s) of Stipulated Loss Values to reflect the Loss. As used
herein, "ACRS Deductions" shall mean the deductions under Section 167 of the
Code determined in accordance with the modified Accelerated Cost Recovery System
with respect to the Total Invoice Cost of any item of the Equipment using the
accelerated method set forth in Section 168 of the Code as in effect on the date
of this Lease for property assigned to the class of property specified in the
Equipment Schedule pertaining thereto; "Lessor" shall be deemed to include the
consolidated Federal taxpayer group of which Lessor is a member; and "Tax
Indemnification Payment" shall mean such amount as, after consideration of (i)
all taxes required to be paid by Lessor in respect of the receipt thereof under
the laws of any governmental or taxing authority in the United States, and (ii)
the amount of any interest or penalty which may be payable by Lessor in
connection with the Loss, shall be required to cause Lessor's after-tax net
return (the "Net Return") to be equal to, but no greater than, the Net Return
comtemplated consistently with current tax laws as of the date of this Lease
that would have been available to Lessor had the Loss not occurred.
(3) Lessor shall be responsible for, and shall not be entitled to a Tax
Indemnification Payment by Lessee on account of, any Loss arising solely as a
direct result of the occurrence of any one or more of the following events: (a)
the failure of Lessor to timely and properly claim ACRS Deductions in the tax
return of Lessor other than as a result of changes in the Code or applicable
regulations unless in the reasonable opinion of Lessor's tax counsel there is no
basis for such claim; or (b) the failure of Lessor to have sufficient taxable
income before application of the ACRS Deductions to offset the full amount of
such ACRS Deductions other than as a result of changes in the Code or applicable
regulations; or (c) any event which by the terms of the Lease requires payment
by Lessee of the Stipulated Loss Value if such payment is thereafter actually
made to Lessor, to the extent that such payment reimburses Lessor for amounts
otherwise payable by Lessee pursuant hereto; or (d) a disqualifying disposition
due to sale of any item of the Equipment or the Lease by Lessor prior to a
Default.
(4) Lessor promptly shall notify Lessee in writing of such Loss and Lessee
shall pay to Lessor the Tax Indemnification Payment within thirty (30) days of
such notice. For these purposes, a Loss shall occur upon the earliest of: (a)
the happening of any event (such as disposition or change in use of any item of
the Equipment) which will cause such Loss, (b) the payment by Lessor to the
Internal Revenue Service or state taxing authority of the tax increase resulting
from such Loss; (c) the date on which the Loss is realized by Lessor; or (d) the
adjustment of the tax return of Lessor to reflect such Loss.
(5) The obligations of Lessee under this Section, which accrue during the term
of the Lease, shall survive the termination of the Lease.
<PAGE>
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
----------------------- -----------------------
Thomas M. Jaschik Vice President & Treasurer
Vice President
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
- --------------------------------------------------------------------------------
RIDER NO. 3
To and part of Equipment Lease Agreement dated as of the 31st day of May, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
RETURN PROVISIONS: In addition to the provisions of Section 13 of this Lease,
- -----------------
and provided that Lessee has not elected to exercise its option to purchase the
Equipment, Lessee shall, at its expense:
(A) at least two hundred ten (210) days and not more than two hundred forty
(240) days prior to expiration or earlier termination of the Lease, provide to
Lessor a detailed inventory of all components of the Equipment. The inventory
should include, but not be limited to, a listing of model and serial numbers for
all components comprising the Equipment;
(B) at least one hundred fifty (150) days prior to expiration or earlier
termination of the Lease upon receiving reasonable notice from Lessor, provide
or cause the vendor(s) or manufacturer(s) to provide to Lessor the following
documents: (1) one set of service manuals, process flow diagrams and operating
manuals including replacements and/or additions thereto, such that all
documentation is completely up-to-date; and (2) one set of documents, detailing
equipment configuration, operating requirements, maintenance records, and other
technical data concerning the set-up and operation of the Equipment, including
replacements and/or additions thereto, such that all documentation is completely
up-to-date;
(C) at least one hundred eighty (180) days prior to expiration or earlier
termination of the Lease, upon receiving reasonable notice from Lessor, make the
Equipment available for on-site operational inspections by potential purchasers,
above ground and under power, and provide personnel, power and other operational
requirements necessary to demonstrate electrical, mechanical and operating
systems for each item of the Equipment;
(D) at least ninety (90) days prior to expiration or earlier termination of
the Lease, cause the manufacturer's representative or a qualified equipment
maintenance provider, acceptable to Lessor, to perform a comprehensive physical
inspection, including testing all material and workmanship of the Equipment; and
if during such inspection, examination and test, the authorized inspector finds
any of the material or workmanship to be defective or the Equipment not
operating within the manufacturer's specifications, then Lessee shall repair or
replace such defective material and, after corrective measures are completed,
Lessee will provide for a follow-up inspection of the Equipment by the
authorized inspector as outlined in the preceding clause and will cause a copy
of the inspection report to be provided to Lessor;
(E) at least one hundred eighty (180) days prior to expiration or earlier
termination of the Lease, provide for an inspection and Fair Market Value (as
defined in Rider No. 1 to the Lease) appraisal to be performed by an appraiser
of Lessor's choice, with the results of such appraisal to be forwarded to
Lessor;
(F) have each item of Equipment returned with an in-depth field service report
detailing said inspection as outlined in Section D of this Rider. The report
shall certify that the Equipment has been properly inspected, examined and
tested and is operating within the manufacturer's specifications;
(G) provide that all Equipment will be cleaned and cosmetically acceptable,
and in such condition so that it may be immediately installed and placed into
its intended use in a comparable environment;
(H) properly remove or treat all rust or corrosion;
(I) ensure all Equipment and equipment operations conform to all applicable
local, state, and federal laws, health and safety guidelines;
(J) ensure that all inspections, overhauls, rebuilds, or certifications known
to be or expected to be due within six (6) months are completed prior to
redelivery;
(K) de-install the Equipment in accordance with manufacturer's commonly
accepted procedures;
(L) provide for the deinstallation, packing, transporting, and certifying of
the Equipment to include, but not be limited to, the following: (1) the
manufacturer's representative or other qualified maintenance provider reasonably
acceptable to Lessor shall de-install all Equipment (including all wire, cable
and mounting hardware) in accordance with the specifications of the
manufacturer; (2) each item of Equipment will be returned with a certificate
supplied by the manufacturer's representative qualifying the Equipment to be in
good condition and (where applicable) to be eligible for the manufacturer's
maintenance plan; the certificate of eligibility shall be transferable to
another operator of the Equipment; (3) the Equipment shall be packed properly
and in accordance to the manufacturer's recommendations;
<PAGE>
and (4) Lessee shall transport the Equipment in a manner consistent with the
manufacturer's recommendations and practices;
(M) provide for the deinstallation and packing of the Equipment to include,
but not be limited to, the following: (1) all process fluids shall be removed
from the Equipment and disposed of in accordance with the then current waste
disposal laws and regulations. At no time are materials which could be
considered hazardous waste by any regulatory authority to be shipped with
machinery; (2) all internal fluids such as lube oil and hydraulic fluid are to
be filled to operating levels; filler caps are to be secured and disconnected
hoses are to be sealed to avoid spillage; (3) the manufacturer's representative
shall deinstall all Equipment in accordance with the specifications of the
manufacturer; and (4) the Equipment shall be packed properly and in accordance
with the manufacturer's recommendations;
(N) upon sale of the Equipment to a third party, provide transportation to not
more than fifteen (15) individual locations anywhere in the continental United
States selected by Lessor;
(O) obtain and pay for a policy of transit insurance for the redelivery period
in an amount equal to the replacement value of the Equipment and Lessor shall be
named as the loss payee on all such policies of insurance;
(P) be responsible for the cost of all repairs, alterations, inspections,
appraisals, storage charges, insurance costs, demonstration costs, and other
related costs necessary to place the Equipment in such condition as to be in
complete compliance with this Lease;
(Q) provide insurance and safe, secure storage for the Equipment for thirty
(30) days after expiration or earlier termination of the Lease at four (4)
accessible locations satisfactory to Lessor.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
----------------------- -----------------------
Thomas M. Jaschik Vice President & Treasurer
Vice President
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
- --------------------------------------------------------------------------------
RIDER NO. 4
To and part of Equipment Lease Agreement dated as of the 31st day of May, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LESSEE FOR SALE-LEASEBACK.
Lessee represents and warrants that: (1) The sale of those certain items of
equipment specified on the schedule attached to each Equipment Bill of Sale
(collectively the "Bill of Sale") executed by Lessee, and the execution,
delivery and performance of the Bill of Sale (a) have been duly authorized by
all necessary corporate action on the part of Lessee; (b) do not require the
consent of any stockholder, trustee or holders of any indebtedness of Lessee
except such as have been duly obtained; and (c) do not and will not contravene
any law, governmental rule, regulation or order now binding on Lessee, or the
charter or by-laws of Lessee, or contravene the provisions of, or constitute a
default under, or result in the creation of any lien or encumbrance upon the
property of Lessee under, any indenture, mortgage, contract or other agreement
to which Lessee is a party or by which it or its property is bound. (2) The
Bill of Sale transfers to Lessor valid title to the equipment described on the
schedule attached thereto free and clear of any and all encumbrances, liens,
charges or defects. No filing or recordation must be made, no notice must be
given, and no other action must be taken with respect to any state or local
jurisdiction, or any person, in order to preserve to Lessor all the rights
transferred by the Bill of Sale.
B. ADDITIONAL AUTHORIZATION. Lessor's obligations under the Lease are
further conditioned upon Lessor having received the Bill of Sale and an opinion
of counsel for Lessee as to the matters set forth in paragraph A above.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
----------------------- -----------------------
Thomas M. Jaschik Vice President & Treasurer
Vice President
<PAGE>
EXHIBIT 4.2
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
EQUIPMENT LEASE AGREEMENT
THIS EQUIPMENT LEASE AGREEMENT (the "Lease") is made as of the 1st day of
June, 1994, by and between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
The parties agree that Lessee shall lease from Lessor the property (the
"Equipment") described in the Equipment Schedule(s) to be executed pursuant
hereto (collectively, the "Equipment Schedule"), subject to the terms set forth
herein, in the Riders annexed hereto and in the Equipment Schedule.
1. TERM. The term of this Lease with respect to any item of the Equipment
shall consist of the term set forth in the Equipment Schedule relating thereto;
provided, however, that this Lease shall be effective from and after the date of
execution hereof.
2. RENT. Lessee shall pay Lessor rent, without any deduction or setoff and
without prior notice or demand, in the aggregate amounts specified in the
Equipment Schedule. This is a non-cancellable net lease, and Lessee shall not
be entitled to any abatement or reduction of payments due hereunder for any
reason. Lessee agrees to make the payments due hereunder regardless of any
existing or future offset or claim which may be asserted by Lessee. Rent is
payable as and when specified in the Equipment Schedule by mailing the same to
Lessor at its address specified pursuant to this Lease; and shall be effective
upon receipt. Time is of the essence. If any payment is not paid on the due
date, Lessor may collect, and Lessee agrees to pay, a charge calculated as the
product of the late charge rate specified in the Equipment Schedule (the "Late
Charge Rate") and the amount in arrears for the period such amount remains
unpaid.
3. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants
that: (a) Lessee is a corporation duly organized and validly existing in good
standing under the laws of the state of its incorporation. (b) The execution,
delivery and performance of this Lease and all related instruments and
documents: (i) have been duly authorized by all necessary corporate action on
the part of Lessee; (ii) do not require the approval of any stockholder, trustee
or holder of any obligations of Lessee except such as have been duly obtained;
and (iii) do not and will not contravene any law, governmental rule, regulation
or order now binding on Lessee, or the charter or by-laws of Lessee, or
contravene the provisions of, or constitute a default under, or result in the
creation of any lien or encumbrance upon the property of Lessee under, any
indenture, mortgage, contract or other agreement to which Lessee is a party or
by which it or its property is bound. (c) This Lease and all related
instruments and documents, when entered into, will constitute legal, valid and
binding obligations of Lessee enforceable against Lessee in accordance with the
terms thereof. (d) Except as disclosed in Lessee's filings with the Securities
Exchange Commission, there are no pending actions or proceedings to which Lessee
is a party, and there are no other pending or threatened actions or proceedings
of which Lessee has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Lessee, or the ability of Lessee to perform its
obligations hereunder. Further, Lessee is not in default under any obligation
for the payment of borrowed money, for the deferred purchase price of property
or for the payment of any rent under any lease agreement which, either
individually or in the aggregate, would have the same such effect. (e) Under
the laws of the state(s) in which the Equipment is to be located, the Equipment
consists solely of personal property and not fixtures. (f) The financial
statements of Lessee (copies of which have been furnished to Lessor) have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and fairly present Lessee's financial condition
and the results of its operations as of the date of and for the period covered
by such statements, and since the date of such statements there has been no
material adverse change in such conditions or operations. (g) The address
stated below the signature of Lessee is the chief place of business and chief
executive office of Lessee; and Lessee does not conduct business under a trade,
assumed or fictitious name.
4. COVENANTS OF LESSEE. Lessee covenants and agrees as follows: (a) Lessee
will furnish Lessor (1) within ninety (90) days after the end of each fiscal
year of Lessee, a balance sheet of Lessee as at the end of such year, and the
related statement of income and statement of changes in financial position of
Lessee for such fiscal year, prepared in accordance with GAAP, all in reasonable
detail and certified by independent certified public accountants of recognized
standing selected by Lessee (which shall be a "Big 6" accounting firm); (2)
within sixty (60) days after the end of each quarter of Lessee's fiscal year, a
balance sheet of Lessee as at the end of such quarter, and the related statement
of income and statement of changes in financial position of Lessee for such
quarter, prepared in accordance with GAAP; and (3) within forty-five (45) days
after the end of each fiscal year of Lessee, a budget for the succeeding fiscal
year (with monthly detail), internally prepared; and (4) within thirty (30) days
after the date on which they are filed, all regular periodic reports, forms and
other filings required to be made by Lessee to the Securities and Exchange
Commission, if any. (b) Lessee will promptly execute and deliver to Lessor such
further documents, instruments and assurances and take such further action as
Lessor from time to time may reasonably request in order to carry out the intent
and purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder.
5. AUTHORIZATION. Lessor's obligations hereunder are conditioned upon Lessor
having received the following, in form and substance satisfactory to Lessor:
(a) evidence as to due compliance with the insurance provisions hereof; (b)
Uniform Commercial Code financing statements as required by Lessor; (c)
certificate of Lessee's Secretary certifying: (1) resolutions of Lessee's Board
of Directors duly authorizing the leasing of the Equipment hereunder and
<PAGE>
the execution, delivery and performance of this Lease and the Equipment Schedule
and all related instruments and documents, and (2) the incumbency and signature
of the officers of Lessee authorized to execute such documents; and (d) an
opinion of counsel for Lessee as to each of the matters set forth in sub-parts
(a) through (d) of Section 3 hereof.
6. DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE. Upon delivery, Lessee
shall inspect and accept the Equipment and shall execute and deliver to Lessor
an Equipment Schedule containing a complete description of the item of Equipment
accepted; whereupon, as between Lessor and Lessee, the same shall be deemed to
have been finally accepted by Lessee pursuant to this Lease. All expenses
incurred in connection with Lessor's purchase of the Equipment (including
shipment, delivery and installation) shall be the responsibility of Lessee and
shall be paid upon demand. If Lessee shall, for reasonable cause, refuse to
accept delivery of any item of the Equipment, Lessee will be assigned all rights
and shall assume all obligations as purchaser of the Equipment.
7. USE AND MAINTENANCE. Lessee shall use the Equipment solely in the conduct
of its business, in a careful and proper manner consistent with the requirements
of all applicable insurance policies, and in compliance with all applicable
Federal, state and local laws; and shall not permanently discontinue use of or
disassemble the Equipment. The equipment shall be intact, and capable at times
of normal full operation, and shall otherwise comply with the terms of this
Lease. Lessee will not change the location of any Equipment as specified in the
Equipment Schedule without the prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed. Lessee shall not attach or
incorporate the Equipment to or in any other item of equipment in such a manner
that the Equipment may be deemed to have become an accession to or a part of
such other item of equipment. Lessee will cause each principal item of the
Equipment to be continually marked, in a plain and distinct manner, with the
name of Lessor followed by the words "Owner and Lessor," or other appropriate
words designated by Lessor on labels furnished by Lessor. At its own expense,
Lessee will cause the Equipment to be kept and maintained as recommended by the
manufacturer and in as good operating condition as when delivered to Lessee
hereunder, ordinary wear and tear resulting from proper use alone excepted, and
will provide all maintenance and service and make all repairs or replacements
reasonably necessary for such purpose. If any parts of the Equipment become
worn out, lost, destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use, Lessee, at its own expense, will within a reasonable
time replace such parts by replacement parts which are free and clear of all
liens, encumbrances or rights of others and have a value, utility and remaining
useful life at least equal to the parts replaced. All parts which are added to
the Equipment which are essential to the operation of the Equipment or which
cannot be detached from the Equipment without materially interfering with the
operation of the Equipment or adversely affecting the value, utility and
remaining useful life which the Equipment would have had without the addition
thereof, shall immediately become the property of Lessor, and shall be deemed
incorporated in the Equipment and subject to the terms of this Lease as if
originally leased hereunder. Lessee shall not make any material alterations to
the Equipment without the prior written consent of Lessor, which consent shall
not be unreasonably withheld. Upon at least two (2) full business days' notice,
Lessor or its designated representative shall have the right to inspect the
Equipment and all maintenance records with respect thereto, if any, at any
reasonable time during normal business hours.
8. DISCLAIMER OF WARRANTIES. LESSOR, NOT BEING A SELLER, DEALER OR
MANUFACTURER (AS SUCH TERMS ARE DEFINED IN THE UNIFORM COMMERCIAL CODE AS
ENACTED IN THE STATE OF MARYLAND), NOR A SELLER'S AGENT, EXPRESSLY DISCLAIMS AND
MAKES TO LESSEE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR OTHERWISE, INCLUDING,
BUT NOT LIMITED TO: THE FITNESS FOR USE, DESIGN OR CONDITION OF THE EQUIPMENT;
THE QUALITY OR CAPACITY OF THE EQUIPMENT; THE WORKMANSHIP IN THE EQUIPMENT; THAT
THE EQUIPMENT WILL SATISFY THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR
CONTRACT PERTAINING THERETO; AND ANY GUARANTY OR WARRANTY AGAINST PATENT
INFRINGEMENT OR LATENT DEFECTS, it being agreed that all such risks, as between
Lessor and Lessee, are to be borne by Lessee. Lessor is not responsible for any
direct, indirect, incidental or consequential damage to or losses resulting from
the installation, operation or use of the Equipment or any products manufactured
thereby. All assignable warranties made by the supplier to Lessor are hereby
assigned to Lessee for and during the term of this Lease and Lessee agrees to
resolve all such claims directly with the supplier. Provided that Lessee is not
then in Default hereunder, Lessor shall cooperate fully with Lessee with respect
to the resolution of such claims, in good faith and by appropriate proceedings
at Lessee's expense. Any such claim shall not affect in any manner the
unconditional obligation of Lessee to make rent payments hereunder. The
Equipment is leased hereunder AS IS.
9. FEES AND TAXES. (a) To the extent permitted by law, Lessee shall file any
necessary report and return for, shall pay promptly when due, shall otherwise be
liable to reimburse Lessor (on an after-tax basis) for, and agrees to indemnify
and hold Lessor harmless from: (i) all titling, recordation, documentary stamp
and other fees; and (ii) taxes (other than taxes calculated solely on the basis
of net income), assessments and all other charges or withholdings of any nature
(together with any penalties, fines or interest thereon); relating to the
Equipment or this Lease or the delivery, acquisition, ownership, use, operation
or leasing of the Equipment, or upon the rentals payable hereunder, whether the
same be assessed to Lessor or Lessee. (b) If any report, return or property
listing, or any fee, tax or assessment described in sub-part (a) hereof
("Imposition") is, by law, required to be filed by, assessed or billed to, or
paid by, Lessor, Lessee at its own expense will do all things required to be
done by Lessor (to the extent permitted by law) in connection therewith and is
hereby authorized by Lessor to act on behalf of Lessor in all respects,
including (but not limited to), the contest or protest, in good faith and by
appropriate proceedings, of the validity of any Imposition, or the amount
thereof. Lessor agrees fully to cooperate with Lessee in any such contest, and
Lessee agrees promptly to indemnify Lessor for all reasonable expenses incurred
by Lessor in the course of such cooperation. An Imposition shall be paid,
subject to refund proceedings, if failure to pay would adversely affect the
title or rights of Lessor. Provided that Lessee is not then in Default, if
Lessor obtains a refund of any Imposition which has been paid (by Lessee, or by
Lessor and for which Lessor has been reimbursed by Lessee), Lessor shall
promptly pay such refund to Lessee. Lessee will cause all billings of such
charges to Lessor to be made to Lessor in care of Lessee and will, in preparing
any report or return required by law, show the ownership of the Equipment in
Lessor, and shall send a copy of any such report or return to Lessor. If Lessee
fails to pay any such charges when due, except any Imposition being contested in
good faith and by appropriate proceedings as above provided for a reasonable
period of time, Lessor
2
<PAGE>
at its option may do so, in which event the amount so paid (including any
penalty or interest incurred as a result of Lessee's failure), plus interest
thereon at the Late Charge Rate, shall be paid by Lessee to Lessor with the next
periodic payment of rent. (c) As used herein, the term "Lessor" shall mean and
include Lessor and the consolidated Federal taxpayer group of which Lessor is a
member.
10. LIENS. The parties intend and agree that the Equipment shall remain
personal property, notwithstanding the manner in which it may be affixed to any
real property. Lessee shall obtain and deliver to Lessor (to be recorded at
Lessee's expense), from any person having an interest in the property where the
Equipment is to be located, waivers of any lien, encumbrance or interest which
such person might have or hereafter obtain or claim with respect to the
Equipment. Lessee further agrees to maintain the Equipment free from all claims,
liens and legal processes of creditors of Lessee or other persons claiming by,
through or under Lessee, other than (a) liens for fees, taxes, levies, duties or
other governmental charges of any kind, liens of mechanics, materialmen,
laborers, employees or suppliers and similar liens arising by operation of law
incurred by Lessee in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof (provided, however,
that such proceedings do not involve any substantial danger (as determined in
Lessor's sole reasonable discretion) of the sale, forfeiture or loss of the
Equipment or any interest therein); and (b) liens arising out of any judgments
or awards against Lessee which have been adequately bonded to protect Lessor's
interests or with respect to which a stay of execution has been obtained pending
an appeal or a proceeding for review. Lessee will defend, at its own expense,
Lessor's title to the Equipment from such claims, liens or legal processes.
Lessee shall also notify Lessor immediately upon receipt of notice of any lien,
attachment or judicial proceeding affecting the Equipment in whole or in part.
11. INSURANCE. Lessee shall keep the Equipment insured against loss or
damage due to fire and the risks normally included in extended coverage,
malicious mischief and vandalism, for not less than the greater of the full
replacement value or the Stipulated Loss Value (as defined in Section 12
hereof); and Lessee shall also carry public liability insurance, both personal
injury and property damage, covering the Equipment, with a combined single limit
per occurrence of not less than the amount specified in the Equipment Schedule,
with a deductible not to exceed $50,000.00 per occurrence. All said insurance
shall be in form and amount and with companies reasonably satisfactory to
Lessor. All insurance for loss or damage shall provide that losses, if any,
shall be payable to Lessor as loss payee and Lessee shall utilize its best
efforts to have all checks relating to any such losses delivered promptly to
Lessor. Lessor shall be named as an additional insured with respect to all such
liability insurance. Lessee shall pay the premiums therefor and deliver to
Lessor evidence satisfactory to Lessor of such insurance coverage. Lessee shall
cause to be provided to Lessor, not less than fifteen (15) days prior to the
scheduled expiration or lapse of such insurance coverage, evidence satisfactory
to Lessor of renewal or replacement coverage. Each insurer shall agree, by
endorsement upon the policy or policies issued by it or by independent
instrument furnished to Lessor, that (a) it will give Lessor thirty (30) days'
prior written notice of the effective date of any material alteration or
cancellation of such policy; and (b) insurance as to the interest of any named
additional insured or loss payee other than Lessee shall not be invalidated by
any actions, inactions, breach of warranty or conditions or negligence of Lessee
or any person other than Lessor with respect to such policy or policies. The
proceeds of such insurance payable as a result of loss of or damage to the
Equipment shall be applied as required by the provisions of Section 12 hereof.
12. LOSS AND DAMAGE. Lessee assumes the risk of direct and consequential
loss and damage to the Equipment from all causes. Except as provided in this
Section for discharge upon payment of Stipulated Loss Value, no loss or damage
to the Equipment or any part thereof shall release or impair any obligations of
Lessee under this Lease. Lessee agrees that Lessor shall not incur any
liability to Lessee for any loss of business, loss of profits, expenses, or any
other damages resulting to Lessee by reason of any failure of or delay in
delivery or any delay caused by any non-performance, defective performance, or
breakdown of the Equipment, nor shall Lessor at any time be responsible for
personal injury or the loss or destruction of any other property resulting from
the Equipment. In the event of loss or damage to the Equipment which does not
constitute a Total Loss (as hereinafter defined), Lessee shall, at its sole cost
and expense, promptly repair and restore such item of the Equipment to the
condition required by this Lease. Provided that Lessee is not then in Default,
upon receipt of evidence reasonably satisfactory to Lessor of completion of such
repairs, Lessor will apply any insurance proceeds received by Lessor on account
of such loss to the cost of repairs. Upon the occurrence of the actual or
constructive total loss of any item of the Equipment, or the loss, theft or
destruction of any item of the Equipment or damage to any item of the Equipment
to such extent as shall make repair thereof uneconomical or shall render any
item of the Equipment permanently unfit for normal use for any reason
whatsoever, or the condemnation, confiscation, requisition, seizure, forfeiture
or other taking of title to or use of any item of the Equipment (as established
to the reasonable satisfaction of Lessor; any such occurrence being herein
referred to as a "Total Loss"), during the term of this Lease, Lessee shall give
prompt notice thereof to Lessor. On the next date for the payment of rent,
Lessee shall pay to Lessor the rent due on that date plus the Stipulated Loss
Value of the item or items of the Equipment with respect to which the Total Loss
has occurred and any other sums due hereunder with respect to that Equipment
(less any insurance proceeds or condemnation award actually paid). Upon making
such payment, this (a) Lease and the obligation to make future rental payments
shall terminate solely with respect to the Equipment or items thereof so paid
for and (to the extent applicable) Lessee shall become entitled thereto as is
where is without warranty, express or implied, with respect to any matter
whatsoever, and (b) provided that no Default or event which, with the giving of
notice or the lapse of time, or both, will become a Default has then occurred,
Lessor shall remit to lessee any insurance proceeds or condemnation award
actually received by Lessor after Lessee has made such paymant. Lessor shall
deliver to Lessee a bill of sale transferring and assigning to Lessee without
recourse or warranty, except (with respect to the status of title conveyed) in
respect of Lessor's acts, all of Lessor's right, title and interest in and to
the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment or
any other matters. As used in this Lease, "Stipulated Loss Value" shall mean
the product of the Total Invoice Cost (designated on the appropriate Equipment
Schedule) of the Equipment and the applicable percentage factor set forth on the
Schedule of Stipulated Loss Values attached to the Equipment Schedule.
Stipulated Loss Value shall be determined as of the next date on which a payment
of rent is or would be due after a Total Loss or other termination of this
Lease, after payment of any rent due on such date, and the applicable percentage
factor shall be that which is set forth with respect to such rent payment.
After payment of the final payment of rent due under the original term of this
Lease and during any renewal
3
<PAGE>
term hereof, Stipulated Loss Value shall be determined as of the date of
termination of this Lease (absent any renewal thereof) or, if during a renewal
term, on the next date on which a payment of rent is or would be due after a
Total Loss or other termination of such renewal term, after payment of any rent
due on such date, and the applicable percentage factor shall be the last
percentage factor set forth on the Schedule of Stipulated Loss Values.
13. REDELIVERY. Upon the expiration or earlier termination of this Lease,
Lessee shall (unless Lessee has paid the Stipulated Loss Value with respect
thereto pursuant to Section 12 hereof or has paid the Termination Rental Premium
with respect thereto pursuant to Rider No. 1 to this Lease), at its own expense,
return the Equipment to Lessor within fifteen (15) days in the same condition as
when delivered to Lessee hereunder, ordinary wear and tear resulting from proper
use thereof excepted and in such operating condition as is capable of performing
its originally intended use, and free and clear of all liens, encumbrances or
rights of others whatsoever except liens or encumbrances resulting from claims
against Lessor not relating to the ownership of such Equipment, by delivery to
such place within the Continental United States as Lessor shall specify. In
addition to Lessor's other rights and remedies hereunder, if the Equipment is
not returned in a timely fashion, or if repairs are necessary to place the
Equipment in the condition required in this Section, Lessee shall continue to
pay to Lessor rent at the last prevailing lease rate hereunder for the period of
delay in redelivery, or for the period of time reasonably necessary to
accomplish such repairs together with the cost of such repairs, as applicable.
Lessor's acceptance of such rent on account of such delay or repair does not
constitute a renewal of the term of this Lease or a waiver of Lessor's right to
prompt return of the Equipment in proper condition.
14. INDEMNITY. Lessee assumes and agrees to indemnify, defend and keep
harmless Lessor, its agents and employees, from and against any and all losses,
claims and expenses, including legal expenses (other than such as may directly
and proximately result from the gross negligence or wilful misconduct of Lessor,
its agents or employees), arising on account of the ordering, acquisition,
delivery, installation or rejection of the Equipment, the possession,
maintenance, use, condition (including without limitation, latent and other
defects and whether or not discoverable by Lessor or Lessee, any claim in tort
for strict liability, and any claim for patent, trademark or copyright
infringement) or operation of any item of the Equipment, and by whomsoever used
or operated, during the term of this Lease with respect to that item of the
Equipment, the loss, damage, destruction, removal, return, surrender, sale or
other disposition of the Equipment, or any item thereof. Lessor shall give
Lessee prompt notice of any claim or liability hereby indemnified against and
Lessee shall be entitled to control the defense thereof, so long as Lessee is
not in Default; provided, however, that Lessor shall have the right to approve
defense counsel selected by Lessee (provided that such approval shall not
unreasonably be withheld or delayed).
15. DEFAULT. (a) Lessee shall be deemed to be in default hereunder
("Default") if (1) Lessee shall fail to make any payment of rent or any other
payment hereunder within ten (10) days after the same shall have become due; or
(2) Lessee shall fail to obtain and maintain the insurance required herein; (3)
Lessee shall fail to perform or observe any other covenant, condition or
agreement to be performed or observed by it hereunder and such failure shall
continue unremedied for a period of thirty (30) days after written notice
thereof to Lessee by Lessor; or (4) Lessee shall (A) be generally not paying its
debts as they become due; or (B) take action for the purpose of invoking the
protection of any bankruptcy or insolvency law, or any such law is invoked
against or with respect to Lessee or its property, and any such petition filed
against Lessee is not dismissed within sixty (60) days; or (5) Lessee shall make
or permit any unauthorized assignment or transfer of this Lease, the Equipment
or any interest therein; (6) any certificate, statement, representation,
warranty or audit contained herein or heretofore or hereafter furnished with
respect hereto by or on behalf of Lessee proving to have been false in any
material respect at the time as of which the facts therein set forth were stated
or certified, or having omitted any substantial contingent or unliquidated
liability or claim against Lessee; or (7) Lessee shall be in default under any
material obligation for the payment of borrowed money, for the deferred purchase
price of property or for the payment of any rent under any lease agreement, and
the applicable grace period with respect thereto shall have expired; or (8)
Lessee shall have terminated its corporate existence, consolidated with, merged
into, or conveyed or leased substantially all of its assets as an entirety to
any person (such actions being referred to as an "Event"), unless not less than
thirty (30) days prior to such Event: (x) such person is organized and existing
under the laws of the United States or any state, and executes and delivers to
Lessor an agreement containing an effective assumption by such person of the due
and punctual performance of this Lease as of the effective date of such event;
and (y) Lessor is reasonably satisfied as to the creditworthiness of such
person; or (9) there occurs a default under any guaranty executed in connection
with this Lease; or (10) as a result of or in connection with a material change
in the ownership of Lessee's capital stock, the ratio of Lessee's Debt to
Tangible Net Worth equals or exceeds one and one-half times the ratio of
Lessee's Debt to Tangible Net Worth as of the date of this Lease, without the
prior written consent of Lessor. As used herein, "Debt" shall mean Lessee's
total liabilities which, in accordance with GAAP, would be included in the
liability side of a balance sheet; and "Tangible Net Worth" shall mean Lessee's
tangible net worth including the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits, less any amounts
attributable to goodwill, patents, copyrights, mailing lists, catalogs,
trademarks, bond discount and underwriting expenses, organization expense and
other intangibles. Accounting terms used herein shall be as defined, and all
calculations hereunder shall be made, in accordance with GAAP. (b) Solely for
the purpose of this Section 15, each Equipment Schedule executed pursuant to
this Lease shall constitute a separate instrument of lease; provided, however,
that the occurrence of a Default with respect to any Equipment Schedule shall,
at the sole discretion of Lessor (as set forth in a written declaration to
Lessee) constitute a Default with respect to each Equipment Schedule.
Notwithstanding anything set forth herein, Lessor may exercise all rights and
remedies hereunder independently with respect to each Equipment Schedule.
16. REMEDIES. Upon a Default Lessor may, at its option, declare this Lease
to be in default by written notice to Lessee (without election of remedies), and
at any time thereafter, may do any one or more of the following, all of which
are authorized by Lessee:
(a)(1) declare the Stipulated Loss Value of the Equipment (determined as
of the next date on which a payment is or would have been due after the
declaration of a Default), together with all other sums then due hereunder with
respect to such Equipment, immediately due and payable with respect to any or
all of the Equipment (the parties also deem that such amount best reflects the
damages Lessor would sustain in the event of Lessee's bankruptcy or
4
<PAGE>
insolvency and this Lease were not assumed); and/or (2) accelerate and sue for
and recover all rent and other payments hereunder, then accrued or thereafter
accruing, with respect to any or all of the Equipment (discounted to present
value at a rate equal to the discount rate of the Federal Reserve Bank of
Richmond in effect on the date of such Default); and/or
(b)(1) require Lessee to assemble any or all of the Equipment at the
location to which the Equipment was delivered or the location to which such
Equipment may have been moved by Lessee or such other location in reasonable
proximity to either of the foregoing as Lessor shall designate; or to return
promptly, at Lessee's expense, any or all of the Equipment to Lessor at the
location, in the condition and otherwise in accordance with all of the terms of
Section 13 hereof; and/or (2) take possession of and render unusable by Lessee
any or all of the Equipment, wherever it may be located, without any court order
or other process of law and without liability for any damages occasioned by such
taking of possession (other than to premises) (any such taking of possession
shall constitute an automatic termination of this Lease as it applies to those
items taken without further notice, and such taking of possession shall not
prohibit Lessor from exercising its other remedies hereunder); and/or
(c)(1) sell or otherwise dispose of any or all of the Equipment, whether or
not in Lessor's possession, in a commercially reasonable manner at public or
private sale with notice to Lessee (the parties agreeing that ten (10) days'
prior written notice shall constitute adequate notice of such sale), with the
right of Lessor to purchase and apply the net proceeds of such disposition,
after deducting all costs incurred by Lessor in connection with the Default and
all costs of such disposition (including but not limited to costs of
transportation, possession, storage, refurbishing, advertising and brokers'
fees), to the obligations of Lessee hereunder with Lessee remaining liable for
any deficiency and with any excess being for the account of Lessee; or (2)
retain any repossessed Equipment; and/or
(d) cancel this Lease as to any or all of the Equipment; and/or
(e) proceed by appropriate court action, either at law or in equity, to
enforce performance by Lessee or to recover damages for the breach hereof; or
exercise any other right or remedy available to Lessor at law or in equity with
respect to such breach.
Unless otherwise provided above, a cancellation hereunder shall occur only
upon written notice by Lessor to Lessee and only with respect to such items of
the Equipment as Lessor specifically elects to cancel in such notice. Except as
to such items of the Equipment with respect to which there is a cancellation,
this Lease shall remain in full force and effect and Lessee shall be and remain
liable for the full performance of all its obligations hereunder. In addition,
Lessee shall be liable for all reasonable legal fees and other expenses incurred
by reason of any Default or the exercise of Lessor's remedies, including all
expenses incurred in connection with the return of any Equipment in accordance
with the terms of Section 13 hereof or in placing such Equipment in the
condition required by said Section. No right or remedy referred to in this
Section is intended to be exclusive, but each shall be cumulative and shall be
in addition to any other remedy referred to above or otherwise available at law
or in equity, and may be exercised concurrently or separately from time to time.
The failure of Lessor to exercise the rights granted hereunder upon any Default
by Lessee shall not constitute a waiver of any such right upon the continuation
or reoccurrence of any such Default. In no event shall the execution of an
Equipment Schedule constitute a waiver by Lessor of any pre-existing Default in
the performance of the terms and conditions hereof.
17. ASSIGNMENT BY LESSOR AND LESSEE. WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR (WHICH SHALL NOT UNREASONABLY BE WITHHELD), LESSEE WILL NOT ASSIGN ANY OF
ITS RIGHTS HEREUNDER, SUBLET THE EQUIPMENT OR OTHERWISE PERMIT THE EQUIPMENT TO
BE OPERATED OR USED BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANYONE
BUT LESSEE. No assignment or sublease, whether authorized in this Section or in
violation of the terms hereof, shall relieve Lessee of its obligations hereunder
and Lessee shall remain primarily liable hereunder. Lessor may at any time
assign any or all of its rights, obligations, title and interest hereunder, to
any other person with or without notice to Lessee. If Lessee is given notice of
any such assignment, Lessee shall acknowledge receipt thereof in writing. Any
such assignee shall have and be entitled to exercise any and all rights and
powers of Lessor hereunder, but such assignee shall not be obligated to perform
any of the obligations of Lessor hereunder (other than the covenant of quiet
enjoyment specified in Section 18(d) hereof). Lessee will pay all rent and
other amounts payable by Lessee to such assignee, notwithstanding any defense or
claim of whatever nature, whether by reason of breach or otherwise which it may
now or hereafter have against Lessor; it being understood that in the event of a
default or breach by Lessor that Lessee shall pursue any rights on account
thereof solely against Lessor. Subject always to the foregoing, this Lease
inures to the benefit of, and is binding upon, the successors and assigns of the
parties hereto.
18. MISCELLANEOUS. (a) This Lease, the Riders annexed hereto, the Equipment
Schedule and any commitment letter between the parties, constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall not be amended or altered in any manner except by a document in writing
executed by both parties. (b) Any provision of this Lease which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. (c) The
representations, warranties and covenants of Lessee herein shall be deemed to be
continuing and to survive the closing hereunder. Each execution by Lessee of an
Equipment Schedule shall be deemed reaffirmation and warranty that there shall
have been no material adverse change in the business or financial condition of
Lessee from the date of execution hereof. The obligations of Lessee under
Sections 9, 13 and 14, which accrue during the term of this Lease, shall survive
the termination of this Lease. (d) Lessor represents and covenants to Lessee
that Lessor has full authority to enter into this Lease and that, conditioned
upon Lessee performing all of the covenants and conditions hereof, as to claims
of Lessor or persons claiming under Lessor, Lessee shall peaceably and quietly
hold, possess and use the Equipment during the term of this Lease subject to the
terms and provisions hereof. (e) If Lessee fails to perform any of its
obligations hereunder, Lessor shall have the right, but shall not be obligated,
to effect such performance, and the amount of any out of pocket and other
reasonable expenses of Lessor incurred in connection with such performance,
together with interest thereon at the Late Charge Rate, shall be payable by
Lessee upon demand. Lessor's effecting such compliance shall not be a waiver of
Lessee's default. (f) Lessee irrevocably appoints Lessor as Lessee's attorney-
in-fact (which power shall be deemed coupled with an interest) to execute,
endorse and deliver any documents and checks or drafts relating to or received
in payment for any loss or damage under the policies of insurance required by
the provisions of Section 11 hereof, but only to the extent that the same
relates to the Equipment. (g) LESSEE HEREBY WAIVES TRIAL BY JURY IN ANY ACTION
OR PROCEEDING
5
<PAGE>
TO WHICH LESSEE AND LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY
PERTAINING TO THIS LEASE. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS LEASE. LESSEE AUTHORIZES LESSOR TO FILE THIS PROVISION WITH THE CLERK OR
JUDGE OF ANY COURT HEARING ANY SUCH CLAIM. THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY MADE BY LESSEE AND LESSEE HEREBY ACKNOWLEDGES THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
LESSEE FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS
LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF
ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL. (h) All notices (excluding billings and communications in the
ordinary course of business) hereunder shall be in writing, personally
delivered, delivered by overnight courier service, sent by facsimile
transmission (with confirmation of receipt), or sent by certified mail, return
receipt requested, addressed to the other party at its respective address stated
below the signature of such party or at such other address as such party shall
from time to time designate in writing to the other party; and shall be
effective from the date of receipt. (i) This Lease shall not be effective unless
and until accepted by execution by an officer of Lessor at the address, in the
State of Maryland, as set forth below the signature of Lessor. THIS LEASE AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
MARYLAND (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE),
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF
THE LOCATION OF THE EQUIPMENT. The parties agree that any action or proceeding
arising out of or relating to this Lease may be commenced in any state or
Federal court in the State of Maryland, and agree that a summons and complaint
commencing an action or proceeding in any such court shall be properly served
and shall confer personal jurisdiction if served personally or by certified mail
to it at its address hereinbelow set forth, or as it may provide in writing from
time to time, or as otherwise provided under the laws of the State of Maryland.
(j) To the extent that this Lease and/or the Equipment Schedule would constitute
chattel paper, as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction, no security interest herein or therein
may be created through the transfer or possession of this Lease in and of itself
without the transfer or possession of the original of an Equipment Schedule
executed pursuant to this Lease and incorporating the Lease by reference; and no
security interest in this Lease and an Equipment Schedule may be created by the
transfer or possession of any counterpart of the Equipment Schedule other than
the original thereof, which shall be identified as the document marked
"Original" and all other counterparts shall be marked "Duplicate".
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed, under seal, as of the day and year first above set forth.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschick [SEAL] By: /s/ Rod J. Peckham [SEAL]
---------------------- -------------------------
Name: Thomas M. Jaschick Name: Rod J. Peckham
Title: Vice President Title: Vice President and
Treasurer
502 Washington Avenue 1185 Avenue of the Americas
Suite 600 New York, New York 10036
Towson, Maryland 21204 Facsimile: 212-642-6992
Facsimile: 410-821-8775
6
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
- --------------------------------------------------------------------------------
RIDER NO. 1
To and part of Equipment Lease Agreement dated as of the 1st day of June, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC.("Lessee").
TERMINATION RENTAL PREMIUM. Upon the expiration or earlier termination of the
term or of any renewal term (if applicable) of this Lease, Lessee promptly shall
pay to Lessor without notice or demand therefor and together with all other
amounts then due and payable hereunder, in cash, a Termination Rental Premium of
One Dollar ($1.00). Upon receipt by Lessor of the Termination Rental Premium,
in good funds, Lessor shall deliver to Lessee a bill of sale transferring and
assigning to Lessee without recourse or warranty, except in respect of Lessor's
acts, all of Lessor's right, title and interest in and to the Equipment. Lessor
shall not be required to make and may specifically disclaim any representation
or warranty as to the condition of the Equipment or any other matters.
SECURITY. To secure the prompt payment and performance as and when due of all
obligations and indebtedness of Lessee (or any affiliate of Lessee), now
existing or hereafter created, to Lessor pursuant to this Lease or otherwise,
Lessee hereby grants to Lessor a security interest in the Equipment and all
accessions, substitutions and replacements thereto and therefor, and proceeds
(cash and non-cash), including insurance proceeds thereof (but without power of
sale). In furtherance of the foregoing, Lessee shall execute and deliver to
Lessor, to be recorded at Lessee's expense, Uniform Commercial Code financing
statements, statements of amendment and statements of continuation as reasonably
may be required by Lessor to perfect and maintain perfected the security
interest granted by Lessee herein.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
----------------------- -----------------------
Thomas M. Jaschik Vice President & Treasurer
Vice President
<PAGE>
SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA BUSINESS CREDIT CORPORATION
________________________________________________________________________________
RIDER NO. 2
To and part of Equipment Lease Agreement dated as of the 1st day of June, 1994
(the "Lease"), between SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF SANWA
BUSINESS CREDIT CORPORATION, its successors and assigns ("Lessor"), and
FORSTMANN & COMPANY, INC. ("Lessee").
A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LESSEE FOR SALE-LEASEBACK.
Lessee represents and warrants that: (1) The sale of those certain items of
equipment specified on the schedule attached to each Equipment Bill of Sale
(collectively the "Bill of Sale") executed by Lessee, and the execution,
delivery and performance of the Bill of Sale (a) have been duly authorized by
all necessary corporate action on the part of Lessee; (b) do not require the
consent of any stockholder, trustee or holders of any indebtedness of Lessee
except such as have been duly obtained; and (c) do not and will not contravene
any law, governmental rule, regulation or order now binding on Lessee, or the
charter or by-laws of Lessee, or contravene the provisions of, or constitute a
default under, or result in the creation of any lien or encumbrance upon the
property of Lessee under, any indenture, mortgage, contract or other agreement
to which Lessee is a party or by which it or its property is bound. (2) The
Bill of Sale transfers to Lessor valid title to the equipment described on the
schedule attached thereto free and clear of any and all encumbrances, liens,
charges or defects. No filing or recordation must be made, no notice must be
given, and no other action must be taken with respect to any state or local
jurisdiction, or any person, in order to preserve to Lessor all the rights
transferred by the Bill of Sale.
B. ADDITIONAL AUTHORIZATION. Lessor's obligations under the Lease are
further conditioned upon Lessor having received the Bill of Sale and an opinion
of counsel for Lessee as to the matters set forth in paragraph A above.
SANWA GENERAL EQUIPMENT FORSTMANN & COMPANY, INC.
LEASING, A DIVISION OF SANWA Lessee
BUSINESS CREDIT CORPORATION
Lessor
By: /s/ Thomas M. Jaschik [SEAL] By: /s/ Rod J. Peckham [SEAL]
----------------------- -----------------------
Thomas M. Jaschik Vice President & Treasurer
Vice President
<PAGE>
EXHIBIT 4.3
CONSENT AND WAIVER LETTER
-------------------------
June 10, 1994
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Attn: Rod J. Peckham, Vice President
Ladies and Gentlemen:
We refer to that certain Loan Agreement, dated as of October 30, 1992, as
amended (the "Loan Agreement"), between Forstmann & Company, Inc. and General
Electric Capital Corporation, as agent and sole Lender. Capitalized terms used
herein and not defined herein have the meanings assigned to them in the Loan
Agreement.
Section 6.4 of the Loan Agreement provides that, without the Majority
Lenders' written consent, you will not amend or modify the CIT Loan Agreement.
You have requested that we consent to your entrance with CIT into an
amendment to the CIT Loan Agreement in order to increase the maximum adjusted
leverage ratio permitted pursuant to Section 5.5(C) thereof.
We hereby consent to such amendment subject to our receipt of a copy of,
and approval of, the amendment document.
We hereby further acknowledge that, effective upon execution of such
amendment, no Event of Default under Section 9.1(e) of the Loan Agreement shall
exist as a result of the events giving rise to such amendment.
The consent and waiver set forth hereinabove are limited to the matters
expressly set forth above and shall not be deemed to waive, modify or amend any
provisions of the Loan agreement or the other Loan Documents or to serve as
consent to any other matters prohibited by the terms and conditions thereof.
Please countersign below to acknowledge your concurrence with the terms of
this letter.
Sincerely yours,
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and
Lender
By: /s/ Rick Luck
----------------------
Name: Rick Luck
Title: Vice President
Acknowledged and agreed:
FORSTMANN & COMPANY, INC.
By: /s/ Rod J. Peckham
----------------------------
Name: Rod J. Peckham
Title: Vice President and Treasurer
<PAGE>
EXHIBIT 4.4
THIRD AMENDMENT TO
TO
LOAN AND SECURITY AGREEMENT
June 13, 1994
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Attention: Rod J. Peckham
Gentlemen:
Reference is hereby made to the Loan and Security Agreement dated as of
December 27, 1991 between The CIT Group/Equipment Financing, Inc. ("CIT") and
Forstmann & Company, Inc. ("Debtor"), as amended (collectively, the "Original
--------
Loan Agreement"). Pursuant to the provisions of the Original Loan Agreement,
- --------------
Debtor is required to maintain an Adjusted Leverage Ratio (as such term is
defined in the Agreement) not exceeding 160%. Debtor has requested that CIT
amend the covenant regarding Adjusted Leverage Ratio as described herein and CIT
is willing to do so. All capitalized terms which are not otherwise defined
herein, shall have the meaning set forth in the Original Loan Agreement.
Accordingly, CIT and Debtor hereby agree that Section 5.5(c) of the
Original Loan Agreement is hereby deleted in its entirety and the following
substituted therefor:
"Adjusted Leverage Ratio. Debtor will not permit its Adjusted Leverage
-----------------------
Ratio to exceed at any time the following limits during the respective periods
indicated below:
<TABLE>
<CAPTION>
Fiscal Year or Other
Fiscal Period Maximum Ratio
------------- -------------
<S> <C>
From the Closing Date of the
Amendment through
1/30/94 160%
From 1/31/94 through
and including 7/31/94 170%
From 8/1/94 through and
including 10/30/94 160%
From 10/31/94 through and
including 10/29/95 145%
From 10/30/95 through and
including 11/3/96 135%
From 11/4/96 and continuing
thereafter 120%
</TABLE>
<PAGE>
Debtor hereby represents and warrants that upon the effectiveness of this
Third Amendment to Loan and Security Agreement, no Event of Default has occurred
and is continuing, and all representations and warranties contained in the
Original Loan Agreement are true and correct as of the date hereof.
CIT and Debtor hereby agree that the foregoing amendment shall be effective
retroactively for the period beginning January 31, 1994 and shall be deemed
incorporated in the Original Loan Agreement. Other than specifically set forth
herein, Debtor hereby ratifies and confirms the Original Loan Agreement and all
instruments and agreements relating thereto, confirms that all of the Original
Loan Agreement, as except as specifically amended hereby remain in full force
and effect and confirms that the foregoing amendment is enforceable against
Debtor in accordance with its terms, except to the extent the enforcement of the
remedies may be limited under applicable bankruptcy and insolvency laws and by
applicable equitable principles.
Very truly yours,
The CIT Group/Equipment
Financing, Inc.
By: /s/ Burt Feinberg
---------------------
Title: Vice President
--------------
ACCEPTED AND AGREED TO THIS
14TH DAY OF JUNE, 1994
FORSTMANN & COMPANY, INC.
By: /s/ Rod J. Peckham
----------------------
Title: Vice President and Treasurer
----------------------------
<PAGE>
EXHIBIT 4.5
FOURTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
September 9, 1994
VIA FAX
-------
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Attention: Rod J. Peckham
(212) 642-6870
Gentlemen:
Reference is hereby made to the Loan and Security Agreement dated as of
December 27, 1991 between The CIT Group/Equipment Financing, Inc. ("CIT") and
Forstmann & Company, Inc. ("Debtor"), as amended (collectively, the "Original
---------
Loan Agreement"). Pursuant to the provisions of the Original Loan Agreement,
- --------------
Debtor is required to maintain an Adjusted Leverage Ratio (as such term is
defined in the Agreement) not exceeding 160%. Debtor has requested that CIT
amend the covenant regarding Adjusted Leverage Ratio as described herein and CIT
is willing to do so. All capitalized terms which are not otherwise defined
herein, shall have the meaning set forth in the Original Loan Agreement.
Accordingly, CIT and Debtor hereby agree that Section 5.5(c) of the
Original Loan Agreement is hereby deleted in its entirety and the following
substituted therefor:
"Adjusted Leverage Ratio. Debtor will not permit its Adjusted Leverage
-----------------------
Ratio to exceed at any time the following limits during the respective periods
indicated below:
<TABLE>
<CAPTION>
Fiscal Year or Other
Fiscal Period Maximum Ratio
-------------------- -------------
<S> <C>
From the Closing Date of the
Amendment through
1/30/94 160%
From 1/31/94 through
and including 7/31/94 170%
From 8/1/94 through and
including 10/30/94 170%
From 10/31/94 through and
including 10/29/95 145%
From 10/30/95 through and
including 11/3/96 135%
From 11/4/96 and continuing
thereafter 120%"
</TABLE>
<PAGE>
Debtor hereby represents and warrants that upon the effectiveness of this
Fourth Amendment to Loan and Security Agreement, no Event of Default has
occurred and is continuing, and all representations and warranties contained in
the Original Loan Agreement are true and correct as of the date hereof.
CIT and Debtor hereby agree that the foregoing amendment shall be effective
retroactively for the period beginning August 1, 1994, and shall be deemed
incorporated in the Original Loan Agreement. Other than specifically set forth
herein, Debtor hereby ratifies and confirms the Original Loan Agreement and all
instruments and agreements relating thereto, confirms that all of the Original
Loan Agreement, as except as specifically amended hereby remain in full force
and effect and confirms that the foregoing amendment is enforceable against
Debtor in accordance with its terms, except to the extent the enforcement of the
remedies may be limited under applicable bankruptcy and insolvency laws and by
applicable equitable principles.
Very truly yours,
The CIT Group/Equipment
Financing, Inc.
By: /s/Katharine T. Sheffler
---------------------------
Title: Vice President
-----------------
ACCEPTED AND AGREED TO THIS
12th DAY OF SEPTEMBER, 1994
FORSTMANN & COMPANY, INC.
By: /s/ Rod J. Peckham
------------------
Title: Vice President and Treasurer
----------------------------
<PAGE>
EXHIBIT 4.6
CONSENT AND WAIVER LETTER
-------------------------
September 12, 1994
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Attn: Rod J. Peckham, Vice President
Ladies and Gentlemen:
We refer to that certain Loan Agreement, dated as of October 30, 1992, as
amended (the "Loan Agreement"), between Forstmann & Company, Inc. and General
Electric Capital Corporation, as agent and sole Lender. Capitalized terms used
herein and not defined herein have the meanings assigned to them in the Loan
Agreement.
Section 6.4 of the Loan Agreement provides that, without the Majority
Lenders' written consent, you will not amend or modify the CIT Loan Agreement.
You have requested that we consent to your entrance with CIT into an
amendment to the CIT Loan Agreement in order to increase the maximum adjusted
leverage ratio permitted pursuant to Section 5.5(C) thereof.
We hereby consent to such amendment subject to our receipt of a copy of,
and approval of, the amendment document.
We hereby further acknowledge that, effective upon execution of such
amendment, no Event of Default under Section 9.1(e) of the Loan Agreement shall
exist as a result of the events giving rise to such amendment.
The consent and waiver set forth hereinabove are limited to the matters
expressly set forth above and shall not be deemed to waive, modify or amend any
provisions of the Loan agreement or the other Loan Documents or to serve as
consent to any other matters prohibited by the terms and conditions thereof.
Please countersign below to acknowledge your concurrence with the terms of
this letter.
Sincerely yours,
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and
Lender
By: /s/ Rick Luck
----------------------
Name: Rick Luck
Title: Vice President
Acknowledged and agreed:
FORSTMANN & COMPANY, INC.
By: /s/ Rod J. Peckham
----------------------------
Name: Rod J. Peckham
Title: Vice President and Treasurer
<PAGE>
EXHIBIT 11.1
Forstmann & Company, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Thirteen Thirty-Nine
Weeks Ended Weeks Ended
July 31, 1994 July 31, 1994
------------- -------------
<S> <C> <C>
Income applicable to common shareholders $2,391,000 $6,424,000
========== ==========
Average common shares and common
share equivalents outstanding:
Average common shares outstanding 5,588,766 5,587,479
Add average common share equivalents
- options to purchase common
shares, net 68,942 68,573
---------- ----------
Average common shares and common share
equivalents outstanding 5,657,708 5,656,052
========== ==========
Income per common share and common
share equivalent .42 1.14
========== ==========
</TABLE>
NOTE: The information provided in this exhibit is presented in accordance with
Regulation S-K, Item 601(b) (11), while income per common share on the
Company's condensed statements of operations and retained earnings
(deficit) is presented in accordance with Accounting Principles Board
(APB) Opinion No. 15. This information is not required by Footnote 2 to
paragraph 14 of APB Opinion No. 15 as dilution is less than 3%.
<PAGE>
EXHIBIT 15.1
INDEPENDENT ACCOUNTANTS' REPORT
Forstmann & Company, Inc.:
We have made a review of the accompanying condensed balance sheet of Forstmann &
Company, Inc. as of July 31, 1994; the related condensed statements of
operations for the thirteen weeks and the thirty-nine weeks ended July 31, 1994
and August 1, 1993; the condensed statements of cash flows for the thirty-nine
weeks ended July 31, 1994 and August 1, 1993; and the condensed statement of
changes in shareholders' equity for the thirty-nine weeks ended July 31, 1994,
in accordance with standards established by the American Institute of Certified
Public Accountants. These financial statements are the responsibility of the
Company's management.
A review of interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Forstmann & Company, Inc. as of October 31, 1993
and the related statements of operations, shareholders' equity, and cash flows
for the fifty-two weeks then ended (not presented herein); and in our report
dated December 9, 1993, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of October 31, 1993 is fairly stated in all material
respects in relation to the balance sheet from which it has been derived.
/s/ Deloitte & Touche
August 26, 1994 (September 12, 1994 as to Notes 5 and 6)
<PAGE>
EXHIBIT 23.1
September 13, 1994
Forstmann & Company, Inc.
1185 Avenue of the Americas
New York, NY 10036
Dear Sirs:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Forstmann & Company, Inc. for the periods ended July 31, 1994 and
August 1, 1993, as indicated in our report dated August 26, 1994 (September 12,
1994 as to Notes 5 and 6); because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994, is
incorporated by reference in Registration Statement No. 33-55770 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
Yours truly
/s/ Deloitte & Touche
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Forstmann & Company Inc.'s condensed financial statements for the thirty-nine
weeks ended July 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> OCT-31-1993
<PERIOD-START> NOV-01-1993
<PERIOD-END> JUL-31-1994
<PERIOD-TYPE> 9-MOS
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 82,343
<ALLOWANCES> 1,433
<INVENTORY> 79,971
<CURRENT-ASSETS> 167,139
<PP&E> 77,655
<DEPRECIATION> 16,814
<TOTAL-ASSETS> 254,268
<CURRENT-LIABILITIES> 37,292
<BONDS> 169,032
<COMMON> 6
2,367
0
<OTHER-SE> 38,911
<TOTAL-LIABILITY-AND-EQUITY> 254,268
<SALES> 183,052
<TOTAL-REVENUES> 183,052
<CGS> 141,544
<TOTAL-COSTS> 141,544
<OTHER-EXPENSES> 16,157
<LOSS-PROVISION> 1,606
<INTEREST-EXPENSE> 12,841
<INCOME-PRETAX> 10,904
<INCOME-TAX> 4,307
<INCOME-CONTINUING> 6,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,597
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
