<PAGE>
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 April 30, 1995
--------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to___________________
Commission File Number: 1-9474
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 5,618,799 shares of common stock, $.001 par value,
outstanding as of June 14, 1995.
Total number of pages: 41 pages.
- 1 -
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FORSTMANN & COMPANY, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 30, 1995 AND MAY 1, 1994 AND
THE TWENTY-SIX WEEKS ENDED APRIL 30, 1995 AND MAY 1, 1994
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ ---------------------------
April 30, May 1, April 30, May 1,
1995 1994 1995 1994
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $69,399,000 $76,508,000 $112,926,000 $113,960,000
Cost of goods sold 57,825,000 57,942,000 94,449,000 86,625,000
----------- ----------- ------------ ------------
Gross profit 11,574,000 18,566,000 18,477,000 27,335,000
Selling, general and
administrative expenses 5,474,000 5,367,000 10,670,000 10,945,000
Provision for uncollectible
accounts 295,000 200,000 521,000 1,419,000
----------- ----------- ------------ ------------
Operating income 5,805,000 12,999,000 7,286,000 14,971,000
Interest expense, net 4,959,000 4,261,000 9,557,000 8,115,000
----------- ----------- ------------ ------------
Income (loss) before income
taxes 846,000 8,738,000 (2,271,000) 6,856,000
Income tax provision (benefit) 334,000 3,452,000 (897,000) 2,708,000
----------- ----------- ------------ ------------
Net income (loss) 512,000 5,286,000 (1,374,000) 4,148,000
Preferred stock in-kind
dividends and accretion
to redemption value 63,000 57,000 127,000 115,000
----------- ----------- ------------ ------------
Income (loss) applicable to
common shareholders $ 449,000 $ 5,229,000 $ (1,501,000) $ 4,033,000
=========== =========== ============ ============
Share and per share
information:
Income (loss) per common
share $ .08 $ .94 $ (.27) $ .72
=========== =========== ============ ============
Weighted average common
shares outstanding 5,618,799 5,586,795 5,618,799 5,588,035
=========== =========== ============ ============
</TABLE>
See notes to financial statements.
- 2 -
<PAGE>
FORSTMANN & COMPANY, INC.
CONDENSED BALANCE SHEETS
APRIL 30, 1995 AND OCTOBER 30, 1994
(unaudited)
<TABLE>
<CAPTION>
April 30, October 30,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 46,000 $ 49,000
Accounts receivable, net of allowance of
$1,610,000 and $2,100,000 67,467,000 57,089,000
Current income taxes receivable 300,000 1,500,000
Inventories 88,526,000 76,881,000
Current deferred tax assets 4,339,000 4,339,000
Other current assets 1,808,000 943,000
------------ ------------
Total current assets 162,486,000 140,801,000
Property, plant and equipment, net 79,168,000 79,479,000
Other assets 8,754,000 8,976,000
------------ ------------
Total $250,408,000 $229,256,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 7,625,000 $ 2,714,000
Accounts payable 25,398,000 13,153,000
Accrued liabilities 11,056,000 12,272,000
------------ ------------
Total current liabilities 44,079,000 28,139,000
Long-term debt 163,118,000 155,597,000
Deferred tax liabilities 5,419,000 6,316,000
Accrued additional pension liability in
excess of accumulated benefit obligation 943,000 943,000
Redeemable preferred stock 2,552,000 2,425,000
Shareholders' Equity:
Common stock 5,619 5,619
Additional paid-in capital 26,564,381 26,602,381
Excess of additional pension liability
over unrecognized prior service cost, net (526,000) (526,000)
Retained earnings since November 2, 1992 8,253,000 9,754,000
------------ ------------
Total shareholders' equity 34,297,000 35,836,000
------------ ------------
Total $250,408,000 $229,256,000
============ ============
</TABLE>
See notes to financial statements.
- 3 -
<PAGE>
FORSTMANN & COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED APRIL 30, 1995 AND MAY 1, 1994
(unaudited)
<TABLE>
<CAPTION>
April 30, May 1,
1995 1994
------------- -------------
<S> <C> <C>
Net income (loss) $ (1,374,000) $ 4,148,000
------------ ------------
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 6,772,000 6,801,000
Income tax provision (benefit) (897,000) 2,708,000
Income taxes refunded 1,200,000 -
Provision for uncollectible accounts 521,000 1,419,000
(Gain) loss from disposal of machinery
and equipment 53,000 (70,000)
Other non-cash items (356,000) -
Changes in current assets and current
liabilities:
Accounts receivable (7,923,000) (24,881,000)
Inventories (13,334,000) (10,432,000)
Other current assets (873,000) (99,000)
Accounts payable 12,245,000 (6,054,000)
Accrued liabilities (825,000) (2,748,000)
Accrued interest payable 21,000 41,000
Investment in notes receivable, net (10,000) 316,000
Deferred financing costs (329,000) (739,000)
------------ ------------
Total adjustments (3,735,000) (33,738,000)
------------ ------------
Net cash used by operating activities (5,109,000) (29,590,000)
------------ ------------
Cash flows used in investing activities:
Capital expenditures (6,194,000) (7,504,000)
Investment in other assets, principally
computer information systems (769,000) (1,168,000)
Net proceeds from disposal of machinery
and equipment 109,000 128,000
------------ ------------
Net cash used in investing activities (6,854,000) (8,544,000)
------------ ------------
Cash flows from financing activities:
Net borrowings under the Revolving
Line of Credit 4,047,000 28,468,000
Proceeds from the Term Loan 7,500,000 -
Proceeds from issuance of Senior Secured Notes - 10,000,000
Borrowings under the CIT Equipment Facility
and other financing arrangements 3,092,000 1,469,000
Repayment of financing arrangements (1,810,000) (1,828,000)
Incentive stock options exercised - 25,000
Cash paid in connection with Dissenters'
Proceeding (869,000) -
------------ ------------
Net cash provided by financing activities 11,960,000 38,134,000
------------ ------------
Net decrease in cash (3,000) -
Cash at beginning of period 49,000 53,000
------------ ------------
Cash at end of period $ 46,000 $ 53,000
============ ============
</TABLE>
See notes to financial statements.
- 4 -
<PAGE>
FORSTMANN & COMPANY, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED APRIL 30, 1995
(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 30, 1994 $5,619 $26,602,381 $(526,000) $ 9,754,000 $35,836,000
Quasi-reorganization
adjustment - (38,000) - - (38,000)
Loss applicable to
common shareholders - - - (1,501,000) (1,501,000)
------ ----------- ------------ ----------- -----------
Balance, April 30, 1995 $5,619 $26,564,381 $(526,000) $ 8,253,000 $34,297,000
====== =========== ============ =========== ===========
</TABLE>
See notes to financial statements.
- 5 -
<PAGE>
FORSTMANN & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995
(unaudited)
1. Forstmann & Company, Inc. (the "Company") is a leading designer, marketer
and manufacturer of innovative, high quality fabrics which are used primarily in
the production of brand-name and private label apparel for men and women. The
Company also produces specialty fabrics for use in billiard and gaming tables,
sports caps and career uniforms. 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 30, 1994
(the "1994 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.
<TABLE>
<CAPTION>
2. Accounts receivable consist of:
April 30, October 30,
1995 1994
----------- -----------
<S> <C> <C>
Trade receivables, net $64,408,000 $56,838,000
Barter credits 1,689,000 -
Sales and use taxes receivable 1,276,000 6,000
Other 94,000 245,000
----------- -----------
$67,467,000 $57,089,000
=========== ===========
</TABLE>
During the thirteen week period ended April 30, 1995, the Company received
notification from the State of Georgia concerning the refund of sales and use
taxes paid in prior years. Accordingly, such refund has been reflected in the
accompanying financial statements. Such refund, including interest, was
received subsequent to April 30, 1995. To the extent such refund, net of costs
associated with the refund, related to amounts included as a component of
property, plant and equipment at April 30, 1995, it was credited to property,
plant and equipment. Remaining amounts of $0.4 million were recognized as
income.
During the thirteen week period ended April 30, 1995, the Company exchanged
inventories with a net book value of $1.8 million for barter credits that may be
used in partial consideration for future goods and services purchased through a
barter syndicate. This transaction was recorded based upon the net book value
of the inventories and did not give rise to any profit.
3. Inventories are stated at the lower of cost, determined principally by the
LIFO method, or market and consist of:
<TABLE>
<CAPTION>
April 30, October 30,
1995 1994
------------ ------------
<S> <C> <C>
Raw materials and supplies $12,930,000 $ 9,873,000
Work-in-process 58,495,000 53,730,000
Finished products 19,143,000 15,471,000
Less market reserves (2,042,000) (2,193,000)
----------- -----------
Total $88,526,000 76,881,000
Difference between LIFO
carrying value and current
replacement cost 2,408,000 2,558,000
----------- -----------
Current replacement cost $90,934,000 $79,439,000
=========== ===========
</TABLE>
- 6 -
<PAGE>
4. Other assets consist of:
<TABLE>
<CAPTION>
April 30, October 30,
1995 1994
---------- ----------
<S> <C> <C>
Computer information systems,
net of accumulated amortization
of $3,425,000 and $2,640,000 $5,713,000 $5,896,000
Deferred financing costs, net of
amortization of $2,039,000 and
$1,512,000 2,764,000 2,961,000
Other 277,000 119,000
---------- ----------
Total $8,754,000 $8,976,000
========== ==========
</TABLE>
5. Accrued Liabilities consist of:
<TABLE>
<CAPTION>
April 30, October 30,
1995 1994
----------- ------------
<S> <C> <C>
Salaries, wages and related
payroll taxes $ 1,233,000 $ 1,314,000
Incentive compensation and ERA's 1,155,000 1,027,000
Vacation 2,943,000 2,022,000
Employee benefits plans 850,000 868,000
Interest on long-term debt 794,000 773,000
Medical insurance premiums 1,427,000 1,540,000
Environmental remediation 493,000 589,000
Dissenters' settlement - 831,000
Other 2,161,000 3,308,000
----------- -----------
Total $11,056,000 $12,272,000
=========== ===========
</TABLE>
6. Long-term debt consists of:
<TABLE>
<CAPTION>
April 30, October 30,
1995 1994
------------- -------------
<S> <C> <C>
GECC Facility $ 70,243,000 $ 58,696,000
Senior Secured Notes 27,000,000 27,000,000
Subordinated Notes 56,632,000 56,632,000
CIT Equipment Facility 8,487,000 7,082,000
Capital lease obligations 4,087,000 4,540,000
Other financing agreements 364,000 32,000
------------ ------------
Total 166,813,000 153,982,000
Debt premium - Subordinated Notes 3,930,000 4,329,000
Current portion of long-term debt (7,625,000) (2,714,000)
------------ ------------
Long-term debt $163,118,000 $155,597,000
============ ============
</TABLE>
The GECC Facility consists of an $85 million revolving line of credit and as of
January 23, 1995, was amended to include a $7.5 million term loan. Borrowings
outstanding under the GECC Facility are due October 30, 1997.
On December 22, 1994, the CIT Equipment Facility was amended to permit up to
two additional loans not to exceed an aggregate of $5.0 million. On December
22, 1994, the Company borrowed $2.5 million at an interest rate of 10.58%.
Effective as of April 30, 1995, certain financial covenants under the GECC
Facility, the indenture to the Senior Secured Notes and the CIT Equipment
Facility (as those terms are hereinafter defined in Item 2 of this Report on
Form 10-Q) were amended. Had these amendments not been effective as of such
date, the Company would not have been in compliance with, among other things,
the minimum adjusted tangible net worth, EBITDA, and certain EBITDA related
ratio requirements in two of those agreements as a result of the Company's
weaker than expected operating performance for the thirteen week period ended
April 30, 1995. Such weaker performance was primarily due to rising wool costs,
increased interest expense and other factors. In consideration for amending the
CIT Equipment Facility, the Company agreed to the termination of the remaining
$2.5 million commitment previously available to the Company under the CIT
Equipment Facility. The amendment to the GECC Facility imposes covenant
requirements, which are generally more restrictive than prior covenant
requirements, institutes tests on a monthly basis and revised caps, for
borrowing availability purposes, for certain categories of
- 7 -
<PAGE>
inventory and accounts receivable. Based on such caps, borrowing availability
under the GECC Facility, net of outstanding borrowings and letters of credit,
was $14.4 million at April 30, 1995. The Company has agreed to repay $2.5
million of the $7.5 million Term Loan outstanding under the GECC Facility on
July 1, 1995 and repay the remaining Term Loan balance on September 1, 1995.
Accordingly, at September 1, 1995, the GECC Facility will consist of only the
$85.0 million Revolving Line of Credit. At no time during the twelve month
period ended April 30, 1995 did borrowings outstanding under the GECC Facility
exceed $85.0 million. Based upon current financial forecasts, management of the
Company believes that the Company will not be in violation of any covenant
requirements of any of its debt facilities at any time during the next twelve
months. However, depending upon the results of future operations, a future
violation may occur. If the Company were to violate covenant requirements and
the Company's creditors were to demand the repayment of their debt, the Company
would not have sufficient immediate funds to repay such obligations absent new
sources of financing. GECC has indicated that it intends to conduct an inventory
collateral valuation review and, in accordance with the amended terms of the
GECC Facility, may adjust availability based upon the results of such
review. If availability adjustments are substantial, the Company may not have
adequate financial resources to fund on-going operations and investing
activities.
7. Share and per share information for the thirteen and twenty-six weeks ended
April 30, 1995 and May 1, 1994 are based upon actual income (loss) applicable to
common shareholders and the weighted average shares outstanding during the
periods.
8. As discussed in Note 11 to the Company's annual financial statements in the
1994 Form 10-K, the Company has accrued certain estimated costs for
environmental matters. Based upon the advice of outside environmental
consultants, management believes that such accrual at April 30, 1995, is
appropriate and reasonable.
9. As discussed in Note 11 to the Company's annual financial statements in the
1994 Form 10-K, the Company was 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 and in
December 1994, the Company concluded settlement of the remaining claims, paid
such remaining dissenters $365,000 and agreed to pay certain other costs. The
action has been dismissed and no claims remain pending in the Dissenters'
Proceeding. During the first quarter of fiscal year 1995, the Company finalized
and paid all remaining costs associated with the Dissenters' Proceeding. This
increased the total estimated costs associated with the Dissenters' Proceeding
from $1,788,000 to $1,826,000, all of which were charged to additional paid-in
capital in accordance with the principles of quasi-reorganization accounting
(see Note 14 to the Company's annual financial statements in the 1994 Form
10-K).
10. The Company was unable to negotiate a favorable extension or renewal of
its existing corporate and marketing office lease which expires in October 1996
and on January 31, 1995, the Company entered into a twenty (20) year lease with
a new landlord for such office space. Concurrent with the consummation of the
new lease, the landlord and the Company entered into a takeover agreement,
effective August 1, 1995, whereby the landlord agreed to take over the Company's
remaining obligations under its existing office lease which expires in October
1996. Based on the estimated market value of the new lease compared to the
Company's remaining obligation under the old lease, the Company is recognizing a
loss of $0.4 million. Additionally, the Company is incurring accelerated
amortization on leasehold improvements associated with the old lease.
Under the terms of the new lease, the Company's rental payments will commence
January 1, 1996 and future minimum rental payments, on a calendar year basis,
will be $1.6 million per year through 2015. Such minimum rental payments will
be adjusted periodically, subject to certain maximum limitations, based on
changes in the Consumer Price Index (as defined). The Company expects to spend
approximately $4.5 million in leasehold improvements and related fees and
expenses, of which the landlord will contribute approximately $1.9 million.
- 8 -
<PAGE>
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 1994 Form 10-K
for a discussion of the Company's financial condition as of October 30, 1994,
including a discussion of the Company's anticipated liquidity and working
capital requirements during its 1995 fiscal year.
Financial Condition and Liquidity
- ---------------------------------
The Company has historically financed its investing activities and the seasonal
nature of its operations through a combination of borrowings, equipment
financing and leasing, and internally generated funds. The Company's investing
needs have arisen principally in connection with modernization and expansion of
the Company's production capacity.
The Company's financing needs are funded from 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 "GECC
Facility"). The GECC Facility, as subsequently amended, includes a $7.5 million
term loan (the "Term Loan") and a $85.0 million revolving line of credit (the
"Revolving Line of Credit") (which includes a $7.5 million letter of credit
facility). As a part of the recent amendment to the GECC Facility, the Company
agreed to repay $2.5 million of the Term Loan on July 1, 1995 and to repay the
remaining Term Loan balance on September 1, 1995. 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 April 30, 1995 the aggregate amount of borrowings and letters of credit
outstanding under the GECC Facility was approximately $75.1 million and loan
availability, in excess of such borrowings and letters of credit under the GECC
Facility, was approximately $14.4 million.
Since December 1991, the Company has been a party to a Loan and Security
Agreement (the "CIT Equipment Facility") with the CIT Group/Equipment Financing,
Inc. which provides financing for the acquisition of, and to refinance
borrowings incurred to acquire, various textile machinery and equipment. Each
loan under the CIT Equipment Facility is a five-year purchase money loan,
secured by a first (and only) perfected security interest in the equipment, and
is payable in 60 consecutive installments of principal plus interest, payable
monthly. Certain loans under the CIT Equipment Facility are additionally
secured by $1.5 million in letters of credit. On December 22, 1994, the CIT
Equipment Facility was further amended to permit up to two additional loans not
to exceed an aggregate of $5.0 million with the commitment period ending on July
31, 1995. On December 22, 1994, the Company borrowed $2.5 million at an
interest rate of 10.58%. Effective as of April 30, 1995, the CIT Equipment
Facility was amended to, among other things, terminate the commitment period in
consideration for amending certain of the financial covenant requirements under
the CIT Equipment Facility.
As discussed in Note 6 to the Financial Statements effective as of April 30,
1995, certain financial covenants under the GECC Facility, the indenture to the
Senior Secured Floating Rate Notes (the "Senior Secured Notes") and the CIT
Equipment Facility were amended. Had these amendments not been effective as of
such date, the Company would not have been in compliance as of such date with,
among other things, the minimum adjusted tangible net worth, EBITDA, and certain
EBITDA related ratio requirements in two of those agreements as a result of the
Company's weaker than expected operating performance for the thirteen week
period ended April 30, 1995. Such weaker performance was primarily due to rising
wool costs, increased interest expense and other factors discussed more
thoroughly herein. The amendment to the GECC Facility imposes covenant
requirements, which are generally more restrictive than prior covenant
requirements, institutes tests on a monthly basis and revised caps, for
borrowing availability purposes, for certain categories of inventory and
accounts receivable. The Company has agreed to repay $2.5 million of the $7.5
million Term Loan outstanding under the GECC Facility on July 1, 1995 and repay
the remaining Term Loan balance on September 1, 1995. Accordingly, at September
1, 1995, the GECC Facility will consist of only the $85.0 million Revolving Line
of Credit. At no time during the twelve month period ended April 30, 1995 did
borrowings outstanding under the GECC Facility exceed $85.0 million. Based on
such caps, borrowing availability under the GECC Facility net of outstanding
borrowing and letters of credit under the GECC Facility was $14.4 million at
April 30, 1995.
- 9 -
<PAGE>
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 operations was approximately
$5.6 million during the twenty-six week period ended April 30, 1995 (the "1995
Period") as compared to net cash used by operations of approximately $29.6
million during the twenty-six week period ended May 1, 1994 (the "1994 Period").
Net cash used by investing activities during the 1995 Period, primarily for
capital expenditures, was $6.4 million, a decrease of $2.2 million from the 1994
Period. Operating and investing activities during the 1995 Period were funded
from $4.0 million of net borrowings under the Revolving Line of Credit, the $7.5
million proceeds of the Term Loan (which were used to repay a portion of
outstanding borrowings under the Revolving Line of Credit), and $3.1 million of
additional borrowings under the CIT Equipment Facility and other financing
arrangements which were somewhat offset by $1.8 million repayment of loans under
the CIT Equipment Facility and other financing arrangements, and $0.9 million
paid in connection with the final settlement of the Dissenters' Proceeding (see
Note 9 to the Financial Statements contained in this Form 10-Q).
The Company expects spending for capital expenditures, primarily machinery and
equipment, in fiscal year 1995 to be less than fiscal year 1994. The Company
believes that cash generated from operations during the remaining portion of
fiscal year 1995, borrowings under the GECC Facility, the remaining loan
available under the CIT Equipment Facility and permitted operating leases will
be sufficient to fund its ongoing working capital and capital expenditure
requirements in fiscal year 1995.
Working Capital at April 30, 1995 was $118.4 million, an increase of $5.7
million from October 30, 1994. This increase is attributable to a $21.7 million
increase in current assets which was somewhat offset by a $16.0 million increase
in current liabilities. The increase in current assets is primarily due to a
$7.9 million increase in accounts receivable and a $13.3 million increase in
inventories. The increase in accounts receivable is due to the seasonal nature
of the Company's sales. The increase in inventories is due to a $3.1 million
increase in raw materials and supplies, a $4.8 million increase in work-in-
process and a $3.7 million increase in finished products. Such increases in
inventories precedes the historical seasonal increase in sales, which primarily
occurs in the Company's second and third fiscal quarters. The increase in
current liabilities is primarily attributable to a $12.2 million increase in
accounts payable primarily due to higher and extended terms for wool payables, a
$4.9 million increase in the current portion of long-term debt primarily due to
reclassification of the $4.0 million payment due October 31, 1995 under the
Company's Senior Secured Notes and a $1.2 million decrease in accrued
liabilities.
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 historically receives the major
portion of its payments thereon during July through October. This seasonal
pattern is further influenced by the industry practice of providing coating
fabric customers with favorable billing terms (referred to as "dating"), which
permits payment sixty (60) days beyond July 1 for invoices billed in January
through June. Accounts receivable at April 30, 1995 included $16.1 million of
receivables with dating, a decrease of $6.7 million compared to May 1, 1994.
This decrease is primarily attributable to a $10.3 million decline in women's
outerwear (coating) fabric sales during the 1995 Period compared to the 1994
Period. The Company believes that the decline in sales of coating fabrics is
- 10 -
<PAGE>
due to the exceptionally warm temperatures registered across the country during
the previous fall and winter seasons which has resulted in higher levels of
women's coats remaining in retail inventories during the 1995 Period. The
Company expects women's outerwear sales to be less in fiscal year 1995 than in
fiscal year 1994.
The sales backlog at May 28, 1995 was $48.5 million as compared to $62.6
million at the same time a year earlier. The decline is primarily attributable
to the reduced demand for women's coating, menswear and specialty fabrics as
well as the effects of government orders being filled, all of which were
somewhat offset by higher womenswear orders. Excluding government orders, which
traditionally yield significantly lower gross profit margins, the backlog
declined from $56.9 million to $48.4 million at May 28, 1995. The backlog
reflects continued growth in womenswear woolens and worsted and Carpini/TM/ USA.
The Company purchases a significant amount of its raw wool inventory from
Australia. Since all of the Company's forward purchase commitments for raw wool
are denominated in U.S. dollars, there is no actual currency exposure on
outstanding contracts. However, future changes in the relative exchange rates
between United States and Australian dollars can materially affect the Company's
results of operations for financial reporting purposes. The cost of certain raw
wool categories sourced from Australia has risen significantly, due in part to a
drought in Australia which has resulted in a reduction in sheep herds and the
effect of fluctuating raw wool purchases by certain Far Eastern counties,
indicates that such costs will continue to increase in the near future. Based
on wool costs incurred during the 1995 Period and the Company's forward purchase
commitments and current wool market trends, the Company expects wool costs to
continue to be significantly higher during the remainder of fiscal year 1995 as
compared to fiscal year 1994.
The Company was unable to negotiate a favorable extension or renewal of its
existing corporate and marketing office lease which expires in October 1996 and
on January 31, 1995, the Company entered into a twenty (20) year lease with a
new landlord for such office space. Concurrent with the consummation of the new
lease, the landlord and the Company entered into a lease takeover agreement,
effective August 1, 1995, whereby the landlord agreed to take over the Company's
remaining obligation under its existing office lease.
Under the terms of the new lease, the Company's rental payments will commence
January 1, 1996 and future minimum rental payments, on a calendar year basis,
will be $1.6 million per year through 2015. Such minimum rental payments will
be adjusted periodically, subject to certain maximum limitations, based on
changes in the Consumer Price Index (as defined). The Company expects to spend
approximately $4.5 million in leasehold improvements and related fees and
expenses, of which the landlord will contribute approximately $1.9 million. Such
leasehold improvements will be funded from borrowings under the GECC Facility.
RESULTS OF OPERATIONS
- ---------------------
THE 1995 TWENTY-SIX WEEK PERIOD COMPARED TO THE 1994 TWENTY-SIX WEEK PERIOD
Net sales for the 1995 Period were $112.9 million, a $1.0 million decrease from
the 1994 Period. Total yards of fabric sold increased 2.3% during the 1995
Period. However, due to shifts in product mix, the average per yard selling
price declined. The decrease in sales was primarily due to a decline in women's
outerwear, menswear and speciality fabric sales which was somewhat offset by an
increase in womenswear woolen and worsted, converting, Carpini/TM/ USA and
government fabrics sales. The increase in womenswear woolen sales reflects the
return to historical sales levels of certain womenswear woolen fabrics which
were depressed during the 1994 Period due to the over-ordering of certain wool
fabrics by the Company's customers in 1993. Excluding government sales ($3.5
million in the 1995 Period and $0.7 million in 1994 Period), which traditionally
yield lower gross profit margins, net sales for the 1995 Period decreased $3.9
million from the 1994 Period.
Cost of goods sold increased $7.8 million to $94.4 million during the 1995
Period. Gross profit decreased $8.9 million or 32.4% to $18.5 million in the
1995 Period, and gross profit margin for the 1995 Period was 16.4% compared to
- 11 -
<PAGE>
24.0% for the 1994 Period. The decline in gross profit margin is primarily due
to the shift in product mix, including the increase in government sales, to
fabrics yielding lower profit margins and the significant increases in raw wool
costs.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, decreased 2.5% to $10.7 million in the 1995 Period
compared to $10.9 million in the 1994 Period. The decrease is attributable to a
decrease in expenses associated with management incentive compensation during
the 1995 Period due to targeted operating results not being achieved.
The provision for uncollectible accounts decreased from $1.4 million in the
1994 Period to $0.5 million in the 1995 Period. Such decrease is primarily
attributable to the Company increasing its allowance for uncollectible accounts
during the 1994 Period due to one of the Company's outerwear customers, which
owed the Company $2.4 million, filing for protection under the federal
Bankruptcy Code in February 1994.
Interest expense for the 1995 Period was $9.6 million or $1.4 million higher
than the 1994 Period. This increase is primarily due to the increases in the
Federal Reserve discount rates which began during calendar year 1994. Increases
in the Federal Reserve discount rates since the beginning of fiscal year 1994
have resulted in the Company's interest rates applicable to borrowings under the
GECC Facility and Senior Secured Floating Rate Notes increasing by approximately
2.9% per annum.
The Company's effective income tax rate was 39.5% for both the 1995 Period and
1994 Period.
Preferred stock in-kind dividends and accretion to redemption value was
$127,000 in the 1995 Period and $115,000 in the 1994 Period, and the loss
applicable to common shareholders was $1.5 million in the 1995 Period compared
to income applicable to common shareholders of $4.0 million in the 1994 Period.
THE THIRTEEN WEEKS ENDED APRIL 30, 1995 (THE "1995 SECOND QUARTER") COMPARED TO
THE THIRTEEN WEEKS ENDED MAY 1, 1994 (THE "1994 SECOND QUARTER")
Net sales for the 1995 Second Quarter were $69.4 million, a decrease of 9.3%
from the 1994 Second Quarter. Total yards of fabric sold decreased
approximately 8.3% during the 1995 Second Quarter. Such decrease is primarily
attributable to decreases in the Company's core woolen and worsted menswear and
womenswear apparel fabrics business, which decreases are primarily due to the
continuing sluggishness of retail apparel sales. The most significant decline
occurred in women's outerwear fabrics which declined by 43.6% during the 1995
Second Quarter. The Company believes that the decline in sales of coating
fabrics is due to the exceptionally warm temperatures registered in the fall and
winter months which has resulted in higher levels of women's coats remaining in
retail inventories. Gross profit decreased 37.7% in the 1995 Second Quarter to
$11.6 million. The gross profit margin for the 1995 Second Quarter was 16.7%,
compared to 24.3% for the 1994 Second Quarter.
Reference is made to the discussion regarding sales, sales mix, cost of goods
sold and gross profit in the previous comparison of operations for the 1995
Period and the 1994 Period for an explanation of the foregoing variations.
Selling, general and administrative expenses, excluding the provision for
doubtful accounts, was $5.5 million in the 1995 Second Quarter, compared to $5.4
million in the 1994 Second Quarter.
The provision for uncollectible accounts increased from $0.2 million in the
1994 Second Quarter to $0.3 million in the 1995 Second Quarter. The Company
establishes a specific allowance for uncollectible accounts based on its
quarterly review and assessment of the collectibility of aged balances included
in accounts receivable. Additionally, the Company establishes a general
allowance for uncollectible accounts based, in part, on historical trends and
the status of the economy and its effect on the Company's customers.
Interest expense for the 1995 Second Quarter increased 16.4% to $5.0 million,
primarily due to the same factors that contributed to the increase in interest
expense during the 1995 Period.
- 12 -
<PAGE>
In the 1995 Second Quarter and 1994 Second Quarter the Company recognized an
income tax provision at an effective tax rate of 39.5% on income before income
taxes.
Preferred stock in-kind dividends and accretion to redemption value was $63,000
in the 1995 Second Quarter and $57,000 in the 1994 Second Quarter. As a result
of the foregoing, the Company's income applicable to common shareholders
decreased $4.8 million to $0.4 million in the 1995 Second Quarter, compared to
income applicable to common shareholders of $5.2 million in the 1994 Second
Quarter.
- 13 -
<PAGE>
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date and type of meeting: April 4, 1995 -- Annual Meeting of
Shareholders
(b) Name of each director elected at the meeting:
Stephen Berger
Cameron Clark, Jr.
Steven Friedman
F. Peter Libassi
Alain Oberrotman
Christopher Schaller
No persons other than the above had a term of office as director continuing
after the meeting.
(c) Matters voted upon at the Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
Abstentions
Votes Against and Broker
Matter Votes For or Withheld Non-Votes
<S> <C> <C> <C>
Ratification of selection of 4,938,554 1,700 3,197
Deloitte & Touche as independent
auditors for fiscal year 1995
<CAPTION>
Election of directors:
<S> <C> <C>
Stephen Berger 4,916,351 27,100
Cameron Clark, Jr. 4,916,351 27,100
Steven Friedman 4,913,351 30,100
F. Peter Libassi 4,916,351 27,100
Alain Oberrotman 4,916,351 27,100
Christopher Schaller 4,916,351 27,100
</TABLE>
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
4.1 Twelfth Amendment, dated June 16, 1995, to the Loan Agreement.
4.2 Sixth Amendment to the Loan and Security Agreement, dated as of June
15, 1995.
4.3 Supplemental Indenture, dated as of June 15, 1995, between the
Company and Shawmut Bank Connecticut, National Association, as
trustee, relating to the Senior Secured Notes.
11.1 Statement re computation of per share earnings - not required since
such computation can be clearly determined from the material
contained herein.
15.1 Independent Accountants' Report, dated June 16, 1995 from Deloitte &
Touche LLP to Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP.
27. Financial Data Schedule.
(b) Current Reports on Form 8-K
None.
- 14 -
<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/ Kenneth J. Doel
------------------------------
Kenneth J. Doel
Executive Vice President
and Chief Financial Officer
June 19, 1995
- -------------
Date
- 15 -
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
4.1 Twelfth Amendment, dated June 16, 1995, to
the Loan Agreement.
4.2 Sixth Amendment to the Loan and Security
Agreement, dated as of June 15, 1995.
4.3 Supplemental Indenture, dated as of June
15, 1995, between the Company and Shawmut
Bank Connecticut, National Association, as
trustee, relating to the Senior Secured Notes.
11.1 Statement re computation of per share earnings -
not required since such computation can be
clearly determined from the material contained
herein.
15.1 Independent Accountants' Report, dated
June 16, 1995, from Deloitte & Touche LLP to
Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
- 16 -
<PAGE>
EXHIBIT 4.1
TWELFTH AMENDMENT TO LOAN AGREEMENT
-----------------------------------
THIS TWELFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"), made and
entered into as of June 16, 1995, but effective as of the date set forth in
Section 2 hereof, by and between FORSTMANN & COMPANY, INC., a Georgia
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), as sole "Lender" under the "Loan Agreement"
hereinafter referred to and as agent for itself and the other "Lenders" who may
hereafter become parties to the Loan Agreement (GE Capital, in such capacity,
the "Agent").
RECITALS:
--------
A. Borrower and GE Capital, as a Lender and as Agent, entered into
a certain Loan Agreement, dated as of October 30, 1992, as amended (the "Loan
Agreement"; capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Loan Agreement), whereby, subject to the terms
and conditions set forth therein, GE Capital, as sole Lender thereunder, has
made certain financial accommodations available to Borrower; and
B. Borrower has requested that GE Capital amend the financial
covenants in the Loan Agreement in certain respects as hereinafter set forth
and, subject to the terms and conditions set forth herein, GE Capital is willing
to do so; and
C. Borrower and GE Capital, as Lender and Agent, desire to enter
into this Amendment in order to set forth their mutual understandings regarding
such amendments and certain other amendments as hereinafter set forth.
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
1. AMENDMENTS. Upon satisfaction of all conditions precedent set
----------
forth in Section 2 hereof, effective as of the date set forth in Section 2
hereof, the Loan Agreement shall be amended as follows:
(a) AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT.
----------------------------------------------
Section 1.1 of the Loan Agreement shall be amended by deleting in its
entirety the definition of "Borrowing Base" contained therein and substituting
in lieu thereof the following revised definition of "Borrowing Base":
"Borrowing Base" means, as of any date of determination, an amount
--------------
determined by the Agent to be equal to the sum of (a) up to 85% of Eligible
Accounts (other than Eligible Bill and Hold Accounts), plus (b)
----
<PAGE>
the lesser of $10,000,000, reducing to $9,000,000 on the date of execution of
------
the Twelfth Amendment to Loan Agreement, $8,000,000 on July 1, 1995, $7,000,000
on August 1, 1995, $6,000,000 on September 1, 1995 and $5,000,000 on October 1,
1995, or the sum of (i) up to 85% of Eligible Bill and Hold Accounts which are
not more than thirty (30) days past invoice date, (ii) up to 75% of Eligible
Bill and Hold Accounts which are more than thirty (30) days, but not more than
sixty (60) days, past invoice date, (iii) up to 65% of Eligible Bill and Hold
Accounts which are more than sixty (60) days, but not more than ninety (90)
days, past invoice date and (iv) up to 45% of Eligible Bill and Hold Accounts
which are more than ninety (90) days, but not more than one hundred eighty (180)
days, past invoice date, plus (c) up to 60% of Eligible Inventory (other than
----
Eligible Inventory consisting of seconds or samples), plus (d) the lesser of
---- ------
$3,000,000 or up to 60% of Eligible Inventory consisting of samples and seconds;
provided, however, that the (i) the aggregate amount of Eligible Inventory
- -------- ------- ----
consisting of raw materials included in the Borrowing Base shall not exceed
$8,000,000 during the period commencing on May 1, 1995 and ending on August 31,
1995 and $7,000,000 at any time thereafter, (ii) the aggregate amount of
Eligible Inventory consisting of work in process included in the Borrowing Base
shall not exceed $30,000,000 during the month of May, 1995, $28,000,000 during
the month of June, 1995, $26,000,000 during the month of July, 1995, $24,000,000
during the period commencing on August 1, 1995 and ending on October 31, 1995,
$23,000,000 during the period commencing on November 1, 1995 and ending on April
30, 1996, $21,000,000 during the period commencing on May 1, 1996 and ending on
October 31, 1996, $23,000,000 during the period commencing on November 1, 1996
and ending on April 30, 1997 and $21,000,000 at any time thereafter and (iii)
the aggregate amount of Eligible Inventory consisting of finished goods
(inclusive of seconds and samples) included in the Borrowing Base shall not
exceed $8,000,000 during the month of May, 1995, $7,500,000 during the period
commencing on June 1, 1995 and ending on October 31, 1995, $13,000,000 during
the period commencing on November 1, 1995 and ending on April 30, 1996,
$7,500,000 during the period commencing on May 1, 1996 and ending on October 31,
1996, $13,000,000 during the period commencing on November 1, 1996 and ending on
April 30, 1997 and $7,500,000 at any time thereafter.
Borrower acknowledges that (i) the advance rates provided for in the
preceding paragraph have been agreed to by Lenders and the Agent to reflect the
Agent's determination of the loan value of Borrower's Eligible Accounts and
Eligible Inventory as of the date of the execution of the Twelfth Amendment to
this Agreement, based upon such considerations as were known to the Agent as of
such date, (ii) the Agent may, at any time or times hereafter, in the exercise
of its sole credit judgment, decrease the advance rates against Eligible
Accounts and Eligible Inventory, or provide for sublimits or varying advance
rates as the among various categories of Eligible Accounts and Eligible
Inventory, (iii) each such decrease, sublimit or variation shall become
effective immediately upon the Agent's giving of notice thereof to Borrower, and
(iv) immediately upon the Agent's giving of any notice as provided in the
preceding subclause (iii), the provisions of the preceding paragraph shall be
deemed to be amended in accordance therewith.
<PAGE>
The Borrowing Base shall be determined by the Agent with reference
to the most recent Borrowing Base Certificate, adjusted on a daily basis since
the most recent Borrowing Base Certificate to reflect Collections remitted to
the Agent pursuant to Section 3.1(a) and applied to the outstanding principal
------- ------
amount of the Revolving Credit Loan and the daily reports furnished to the Agent
pursuant to Section 7.2(a); provided that if on any date of determination, a
------- ------ --------
Borrowing Base Certificate has not been delivered as of the most recent due date
therefor, the Borrowing Base shall mean such amount as may be determined by the
Agent in the exercise of its reasonable judgment.
The Agent shall have the right to establish reserves against the
Borrowing Base as to such matters, events, conditions or contingencies as to
which the Agent, based on the Agent's customary credit considerations,
determines reserves should be established hereunder, including, without
limitation, reserves with respect to (a) taxes, charges and assessments of any
Governmental Agency and Liens, (b) sums as to which the Agent is permitted to
make Advances on Borrower's behalf under Section 2.4, (c) anticipated costs of
-----------
repair, replacement or restoration of damaged or destroyed Property in
accordance with the provisions of Section 6 of the Security Agreement and
Section 7 of the Mortgage, (d) expenses incurred by Borrower in connection with
the transactions contemplated to occur on the Closing Date which have not been
paid by Borrower on or before such date, and (e) potential liabilities for
responding to Environmental Claims, potential costs of Remedial Actions and
potential decreases in the value of the Collateral, in each case occurring as a
result of Release of Contaminants or violations of Environmental Laws at or with
respect to the Borrower's Real Property, (f) anticipated costs of liquidation of
Collateral upon exercise of the Agent's rights and remedies under the Security
Agreement and the Mortgage and (g) such other matters, events, conditions or
contingencies as to which the Agent determines that reserves should be
established hereunder. Without limitation of the foregoing, Borrower
acknowledges and agrees that on the date on which Lenders make the Term Loans to
Borrower, the Agent shall establish a reserve against the Borrowing Base in an
amount equal to the aggregate outstanding principal amount of the Term Loans
($7,500,000, initially) which reserve shall remain in effect until payment in
<PAGE>
full of the Term Loans (subject to reduction upon any partial payment
or prepayment of the Term Loans by the amount of any such payment or
prepayment).
Amendment to Section 3.3 of the Loan Agreement. Section 3.3 of
----------------------------------------------
the Loan Agreement shall be amended by adding a new clause (f) thereof to read
as follows:
(f) On July 1, 1995, the Agent shall apply the sum of Two Million Five
Hundred Thousand Dollars ($2,500,000) from the reserve held by the Agent against
the Borrowing Base in respect to the Term Loans in payment of an equal amount
of the outstanding principal balance of the Term Loans, and on September 1,
1995, the Agent shall apply the balance of such reserve in payment of the
principal balance of the Term Loans. Borrower authorizes and directs the Agent
to make such applications and agrees that accrued and unpaid interest on the
Term Loans shall continue to be paid at the times provided in Section 3.17
hereof until paid in full. Borrower shall not incur any obligations pursuant to
Section 3.15 of the Loan Agreement as a result of the prepayments of the Term
Loans effected hereby.
(b) Amendment to Section 6.23 of the Loan Agreement. Section 6.23 of
-----------------------------------------------
the Loan Agreement shall be deleted in its entirety and the following revised
Section 6.23 substituted in lieu thereof:
6.23 Adjusted Tangible Net Worth.
---------------------------
(a) Borrower shall not permit its Adjusted Tangible Net Worth,
calculated as of the last day of each fiscal month set forth below, to be less
than the Amount set forth opposite such fiscal month:
<TABLE>
<CAPTION>
Fiscal Month Amount
- ------------ ------
<S> <C>
April, 1995 $25,700,000
May, 1995 $26,200,000
June, 1995 $27,500,000
July, 1995 $28,600,000
August, 1995 $28,200,000
September, 1995 $28,300,000
October, 1995 $28,800,000
November, 1995 $27,900,000
December, 1995 $27,400,000
January, 1996 $28,400,000
February, 1996 $29,300,000
March, 1996 $30,600,000
April, 1996 $32,200,000
May, 1996 $33,100,000
June, 1996 $33,900,000
July, 1996 $34,100,000
August, 1996 $32,700,000
September, 1996 $32,200,000
October, 1996 $32,500,000
</TABLE>
(b) Borrower shall not permit its Adjusted Tangible Net Worth,
calculated as of the last day of each Fiscal Quarter set forth below, to be less
than the Amount set forth opposite such Fiscal Quarter.
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
- --------------------- ------
<S> <C>
January, 1997 $32,500,000
April, 1997 $36,500,000
July, 1997 $39,000,000
October, 1997 $39,000,000
</TABLE>
(c) Amendment to Section 6.24 of the Loan Agreement.
-----------------------------------------------
Section 6.24 of the Loan Agreement shall be deleted in its entirety and the
following revised Section 6.24 substituted in lieu thereof:
6.24 Interest Coverage Ratio.
-----------------------
(a) Borrower shall not permit its Interest
<PAGE>
Coverage Ratio, calculated as of the last day of each fiscal month set forth
below, to be less than the Ratio set forth opposite such fiscal month:
<TABLE>
<CAPTION>
Fiscal Month Ratio
- ------------ -----
<S> <C>
April, 1995 1.36:1.00
May, 1995 1.33:1.00
June, 1995 1.34:1.00
July, 1995 1.32:1.00
August, 1995 1.39:1.00
September, 1995 1.47:1.00
October, 1995 1.58:1.00
November, 1995 1.54:1.00
December, 1995 1.56:1.00
January, 1996 1.62:1.00
February, 1996 1.69:1.00
March, 1996 1.72:1.00
April, 1996 1.86:1.00
May, 1996 1.90:1.00
June, 1996 1.89:1.00
July, 1996 1.90:1.00
August, 1996 1.81:1.00
September, 1996 1.78:1.00
October, 1996 1.82:1.00
</TABLE>
(b) Borrower shall not permit its Interest Coverage Ratio, calculated
as of the last day of each Fiscal Quarter set forth below, to be less than the
ratio set forth opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
- --------------------- -----
<S> <C>
January, 1997 1.75:1.00
April, 1997 1.75:1.00
July, 1997 1.80:1.00
October, 1997 1.80:1.00
</TABLE>
(d) Amendment to Section 6.25 of the Loan Agreement. Section 6.25 of
-----------------------------------------------
the Loan Agreement shall be deleted in its entirety and the following revised
Section 6.25 substituted in lieu thereof:
6.25 Fixed Charge Coverage Ratio.
---------------------------
(a) Borrower shall not permit its Fixed Charge Coverage Ratio,
calculated as of the last day of each fiscal month set forth below, to be less
than the Ratio set forth opposite such fiscal month:
<PAGE>
<TABLE>
<CAPTION>
Fiscal Month Ratio
- ------------ -----
<S> <C>
April, 1995 .69:1.00
May, 1995 .66:1.00
June, 1995 .69:1.00
July, 1995 .68:1.00
August, 1995 .74:1.00
September, 1995 .82:1.00
October, 1995 .84:1.00
November, 1995 .80:1.00
December, 1995 .77:1.00
January, 1996 .81:1.00
February, 1996 .84:1.00
March, 1996 .86:1.00
April, 1996 .94:1.00
May, 1996 1.03:1.00
June, 1996 1.01:1.00
July, 1996 .98:1.00
August, 1996 .94:1.00
September, 1996 .96:1.00
October, 1996 .90:1.00
</TABLE>
(b) Borrower shall not permit its Fixed Charge Coverage Ratio,
calculated as of the last day of each Fiscal Quarter set forth below, to be less
than the ratio set forth opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
- --------------------- -----
<S> <C>
January, 1997 .85:1.00
April, 1997 .85:1.00
July, 1997 .85:1.00
October, 1997 .70:1.00
</TABLE>
(e) Amendment to Section 6.26 of the Loan Agreement. Section 6.26 of
-----------------------------------------------
the Loan Agreement shall be deleted in its entirety and the following revised
Section 6.26 substituted in lieu thereof:
6.26 Accounts Receivable Turnover.
----------------------------
(a) Borrower shall not permit its Accounts Receivable Turnover,
expressed in days, calculated as of the last day of each fiscal month set forth
below, to be greater than the number of days set forth opposite such fiscal
month:
<TABLE>
<CAPTION>
Fiscal Month No. of Days
- ------------ -----------
<S> <C>
April, 1995 106
May, 1995 106
June, 1995 103
July, 1995 100
August, 1995 98
September, 1995 97
October, 1995 98
November, 1995 99
December, 1995 99
</TABLE>
<PAGE>
<TABLE>
<S> <C>
January, 1996 99
February, 1996 98
March, 1996 99
April, 1996 98
May, 1996 99
June, 1996 102
July, 1996 103
August, 1996 105
September, 1996 106
October, 1996 105
</TABLE>
(b) Borrower shall not permit its Accounts Receivable Turnover,
expressed in days, calculated as of the last day of each Fiscal Quarter set
forth below, to be greater than the number of days set forth opposite such
Fiscal Quarter:
Fiscal Quarter Ending No. of Days
- --------------------- -----------
<TABLE>
<CAPTION>
<S> <C>
January, 1997 135
April, 1997 136
July, 1997 136
October, 1997 137
</TABLE>
(f) Amendment to Section 6.27 of the Loan Agreement. Section 6.27 of
-----------------------------------------------
the Loan Agreement shall be deleted in its entirety and the following revised
Section 6.27 substituted in lieu thereof:
6.27 Inventory Turnover.
------------------
(a) Borrower shall not permit its Inventory Turnover,
expressed in times turned per year, calculated as of the last day of each fiscal
month set forth below, to be less than the number of times turned per year set
forth below opposite such fiscal month:
<TABLE>
<CAPTION>
Times Turned
Fiscal Month Per Year
- ------------ --------
<S> <C>
April, 1995 2.08
May, 1995 2.06
June, 1995 2.12
July, 1995 2.23
August, 1995 2.29
September, 1995 2.35
October, 1995 2.35
November, 1995 2.50
December, 1995 2.55
January, 1996 2.55
February, 1996 2.56
March, 1996 2.53
April, 1996 2.58
</TABLE>
<PAGE>
<TABLE>
<S> <C>
May, 1996 2.58
June, 1996 2.52
July, 1996 2.45
August, 1996 2.35
September, 1996 2.27
October, 1996 2.24
</TABLE>
(b) Borrower shall not permit its Inventory Turnover, expressed in
times turned per year, calculated as of the last day of each Fiscal Quarter set
forth below, to be less than the number of times turned per year set forth
opposite such Fiscal Quarter:
Fiscal Quarter Ending Times Turned Per Year
- --------------------- ---------------------
<TABLE>
<CAPTION>
<S> <C>
January, 1997 2.21
April, 1997 2.24
July, 1997 2.27
October, 1997 2.32
</TABLE>
(g) Amendment to Section 6.28 of the Loan Agreement. Section 6.28 of
-----------------------------------------------
the Loan Agreement shall be deleted in its entirety and the following revised
Section 6.28 substituted in lieu thereof:
6.28 EBITDA.
------
(a) Borrower shall not permit its EBITDA for any period of
twelve consecutive fiscal months ending on the last day of any fiscal month
set forth below, to be less than the Amount set forth opposite such fiscal
month:
<TABLE>
<CAPTION>
Fiscal Month Amount
- ------------ ------
<S> <C>
April, 1995 $25,400,000
May, 1995 $25,100,000
June, 1995 $25,700,000
July, 1995 $25,800,000
August, 1995 $27,600,000
September, 1995 $29,500,000
October, 1995 $32,200,000
November, 1995 $31,600,000
December, 1995 $32,300,000
January, 1996 $33,700,000
February, 1996 $35,100,000
March, 1996 $35,800,000
April, 1996 $39,100,000
May, 1996 $39,900,000
June, 1996 $39,400,000
July, 1996 $39,200,000
August, 1996 $37,300,000
September, 1996 $36,300,000
October, 1996 $37,000,000
</TABLE>
(b) Borrower shall not permit its EBITDA for any period of twelve
consecutive fiscal months ending on the last day of any Fiscal
<PAGE>
Quarter set forth below, to be less than the amount set forth opposite such
Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
- --------------------- ------
<S> <C>
January, 1997 $37,500,000
April, 1997 $38,300,000
July, 1997 $39,000,000
October, 1997 $39,500,000
</TABLE>
(h) Amendment to Section 7.1 of the Loan Agreement. Section 7.1 of the
----------------------------------------------
Loan Agreement is hereby amended by adding the following sentence at the end of
clause (a) thereof:
Notwithstanding anything contained herein to the contrary, all of the
financial statements and other information required to be delivered by Borrower
to Lenders pursuant to this Section 7.1(a) with respect to the September, 1995
fiscal month and the portion of Borrower's Fiscal Year ending with such fiscal
month shall be so delivered on or prior to October 10, 1995.
2. CONDITIONS PRECEDENT. This Amendment shall not become
--------------------
effective unless and until all of the following conditions precedent have been
fulfilled to the satisfaction of GE Capital:
(a) Borrower shall have paid to GE Capital the amendment fee
described in Section 3 below.
(b) After giving effect to this Amendment, and the amendments to the
Restated Indenture and the CIT Loan Agreement being executed and delivered
concurrently herewith, no Default or Event of Default shall have occurred and be
continuing.
Upon the satisfaction of such conditions, this Amendment shall be deemed to
have an effective date of April 30, 1995.
3. Amendment Fee. On the date hereof, Borrower shall pay to GE
-------------
Capital an amendment fee in the amount of Two Hundred Thirty Thousand Dollars
($230,000). Such fee shall be fully earned and non-refundable on the date
hereof.
4. Certain Expenses. Borrower confirms that pursuant to Section
----------------
11.3 of the Loan Agreement it is obligated to pay, among other costs and
expenses, the reasonable costs and expenses of any counsel, auditors,
accountants, appraisers, insurance and environmental advisors, records research
firms, management consultants and other consultants and agents retained by GE
Capital, in any capacity, in connection with the ongoing administration of the
Loan Documents.
5. OTHER AGREEMENTS.
----------------
(a) GE Capital hereby consents to the amendment to the CIT Loan
Agreement being executed and delivered concurrently herewith, in the form of the
draft dated June 12, 1995 previously delivered to GE Capital, notwithstanding
the prohibition contained in Section 6.4 of the Loan Agreement.
(b) Except as set forth expressly herein and above, all terms of the
Loan Agreement and the other Loan Documents shall be and remain in full force
and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Agent and Lenders, subject to Debtor Relief Laws.
In furtherance of the foregoing, Borrower acknowledges that from and after the
date hereof, it shall continue to be bound by all provisions of the Loan
Agreement as amended hereby. To the extent any terms and conditions in any of
the other Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified and amended accordingly to
reflect the terms
<PAGE>
and conditions of the Loan Agreement as modified and amended hereby.
(c) Borrower hereby affirms that each of the representations and
warranties of Borrower contained in the Loan Agreement or in any of the other
Loan Documents is correct in all material respects on and as of the date hereof
and after giving effect to this Amendment (except to the extent that such
representations and warranties relate solely to an earlier date and except as
affected by transactions expressly contemplated by the Loan Agreement or this
Amendment). In addition, with respect to this Amendment, Borrower warrants and
represents as follows: The execution, delivery and performance by Borrower of
this Amendment and the other Loan Documents contemplated hereby, (i) are within
Borrower's corporate power; (ii) have been duly authorized by all necessary or
proper corporate action; (iii) are not in contravention of any provision of
Borrower's articles of incorporation or bylaws; (iv) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality;
(v) will not require a consent or approval under, conflict with or result in the
breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Borrower is a party or by which Borrower
or any of its property is bound; (vi) will not result in the creation or
imposition of any Lien upon any of the property of Borrower other than those in
favor of the Agent pursuant to the Loan Documents; and (vii) do not require the
authorization, consent, approval, order, license or permit from, or filing,
registration or qualification with, any Governmental Agency in order to
authorize or permit such execution, delivery and performance under applicable
Laws. This Amendment has been duly executed and delivered for the benefit of
or on behalf of Borrower and constitutes a legal, valid and binding obligation
of Borrower, enforceable against Borrower in accordance with its terms subject
to Debtor Relief Laws.
(d) Borrower hereby represents that no Default or Event of Default has
occurred and is continuing as of the date hereof, after giving effect to this
Amendment and the amendments to the Restated Indenture and the CIT Loan
Agreement being executed and delivered concurrently herewith.
(e) Borrower hereby ratifies and reaffirms its grant to the Agent, for
its benefit and the ratable benefit of Lenders, of a first priority security
interest in the Lenders' Primary Collateral and a second priority security
interest in the Noteholders' Primary Collateral, in each case subject only to
Permitted Encumbrances.
(f) Borrower agrees to pay on demand all reasonable costs and out-of-
pocket expenses of GE Capital in connection with the preparation, execution,
delivery and enforcement of this Amendment, the closing hereof, and any other
transactions contemplated hereby, including the fees and out-of-pocket expenses
of King & Spalding, counsel to GE Capital.
(g) To induce the Agent and Lenders to enter into this Amendment,
Borrower hereby acknowledges and agrees that, as of the date hereof, there
exists no right to offset, defense or counterclaim in favor of Borrower as
against the Agent or Lenders with respect to the Obligations. In furtherance of
the foregoing, Borrower hereby releases, acquits and forever discharges the
Agent and each Lender and their respective agents, employees, officers,
directors, servants, representatives, attorneys, affiliates, successors and
assigns (collectively, the "Lender Release Parties") from any and all
liabilities, claims, suits, debts, liens, losses, causes of action, demands,
rights, damages and costs and expenses, of any kind, character or nature
whatsoever, known or unknown, fixed or contingent, that Borrower may have or
claim to have, relating to or arising out of or in connection with the Loan
Agreement or any other Loan Document or any agreement or transaction
contemplated thereby or any action taken in connection therewith from the
beginning of time up to and including the date of the execution and delivery of
this Amendment (collectively, the "Released Claims"). Borrower further agrees
forever to refrain from commencing, instituting or prosecuting any lawsuit,
action or other proceeding against the Lender Released Parties with respect to
any and all Released Claims.
(h) This Amendment shall be governed by, and construed in accordance
with the laws of the State of New York applicable to contracts made and
performed in such State and all applicable laws of the United States of America.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed under seal by their respective officers thereunto duly authorized,
as of the date first above written.
FORSTMANN & COMPANY, INC.
By: /s/ Kenneth J. Doel
___________________________
Kenneth J. Doel, Executive
Vice President and Chief
Financial Officer
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and
initial Lender
By: /s/ Rick Luck
___________________________
Rick Luck,
Vice President -
Commercial Finance
<PAGE>
EXHIBIT 4.2
SIXTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Sixth Amendment ("Sixth Amendment"), dated as of this 15 day of June,
1995 to a Loan and Security Agreement dated December 27, 1991 and previously
amended by amendments dated September 2, 1992, July 30, 1993, June 13, 1994,
September 12, 1994, and December 22, 1994 is entered into by and between THE CIT
GROUP/EQUIPMENT FINANCING, INC. ("CIT"), a New York corporation, having an
address at 1211 Avenue of the Americas, New York, New York 10036 and FORSTMANN &
COMPANY, INC. ("Debtor"), a Georgia corporation, having its principal executive
offices at 1185 Avenue of the Americas, New York, New York 10036.
RECITALS
A. CIT and Debtor first entered into a Loan and Security Agreement (the
"Original Loan Agreement") dated December 27, 1991.
B. CIT and Debtor thereafter entered into an Amendment Agreement (the
"First Amendment"), amending the Original Loan Agreement in certain respects, on
September 2, 1992.
C. Pursuant to a Second Amendment to Loan and Security Agreement dated as
of July 30, 1993 (the "Second Amendment"), CIT committed to provide up to Six
Million Dollars ($6,000,000) in additional loans to Debtor.
D. The Original Loan Agreement was thereafter further amended by
amendments dated June 13, 1994 and September 12, 1994 (The Original Loan
Agreement, as amended to date by each of the foregoing amendments, is sometimes
referred to herein as the "Amended Loan Agreement").
E. Pursuant to a Fifth Amendment to Loan and Security Agreement dated as
of December 22, 1994 (the "Fifth Amendment"), CIT committed to provide up to
Five Million Dollars ($5,000,000) in additional loans to Debtor, which loans are
referred to in such Amendment as the "Further Loans".
F. Debtor has requested that CIT modify certain of the financial covenants
included in the Amended Loan Agreement.
G. CIT has agreed to modify the financial covenants in consideration of
the agreement of Debtor to terminate the Commitment Period for Further Loans.
1
<PAGE>
NOW THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS
-------------
1.1 Additional Defined Terms. The following terms shall be added to the
------------------------
Amended Loan Agreement and inserted in their proper alphabetical sequence and,
in the case of the second of the two definitions listed below, shall replace the
definition of such term provided in the Fifth Amendment:
"Amended Loan Agreement" shall mean the Original Loan Agreement, as amended
----------------------
by Amendments dated September 2, 1992, July 30, 1993, June 13, 1994, September
12, 1994 and December 22, 1994.
"Sixth Amendment" shall mean this Sixth Amendment to Loan and Security
---------------
Agreement.
SECTION 2. TERMINATION OF COMMITMENT PERIOD FOR FURTHER LOANS.
--------------------------------------------------
2.1 Debtor agrees that effective the date hereof, the Commitment Period
for Further Loans shall terminate and in consequence thereof, CIT have no
obligation to make any Further Loans to Debtor, or otherwise extend additional
credit or financial accommodations to Debtor.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
-------------------------------
3.1 Power and Authority. Debtor has full power, authority and legal right
-------------------
to execute and deliver this Sixth Amendment and to perform its obligations
hereunder.
3.2 Consents and Permits. No consent of any other party (including any
--------------------
stockholders, trustees or holders of any indebtedness of Debtor), and no
consent, license, approval or authorization of, exemption by, or registration or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by Debtor of this Sixth Amendment, or the
validity or enforceability of this Sixth Amendment, including the enforcement by
CIT of its rights and remedies hereunder, other than those previously obtained
or made.
3.3 No Legal Bar; Senior Debt. The execution, delivery and performance by
-------------------------
Debtor of this Sixth Amendment, does not and will not violate any provision of
any Applicable Laws or of any judgement, award, order, writ or decree of any
court of Governmental Authority, will not violate any provision of the charter
or by-laws of Debtor and will not violate any provision of or cause a default
under any mortgage, indenture, contract, agreement or other undertaking to which
Debtor is a party or which purports to be binding upon Debtor or upon any of its
assets, except any such violation or default, the consequences of which would
not have a
2
<PAGE>
Material Adverse Effect, and will not result in the creation or imposition of
any Lien on any of the assets of Debtor, other than the security interest
created by the Original Loan Agreement.
3.4 Enforceability. This Sixth Amendment has been duly authorized,
--------------
executed and delivered by Debtor and constitutes the legal, valid and binding
obligation of Debtor, enforceable in accordance with its terms, except to the
extent the enforcement by CIT of its remedies may be limited under applicable
bankruptcy and insolvency laws and by applicable equitable principles.
3.5 Financial Condition of Debtor. The financial statements of Debtor (i)
-----------------------------
as at and for its final year ended October 30, 1994, audited by Deloitte &
Touche, and (ii) as at and for the period ended January 29, 1995, copies of
which have heretofore been delivered to CIT, are complete and correct, have been
prepared in accordance with GAAP (except in the case of interim financial
statements, subject to normal year-end audit adjustments), and present fairly
the financial position of Debtor as at said dates and the results of its
operations for the period ended on said dates. There are no known material
contingent liabilities or material liabilities for taxes which are not reflected
in said financial statements or the notes thereto and, except as has been
disclosed to CIT, there has been no material adverse change in the financial
condition, business or operations of Debtor since said dates.
SECTION 4. COVENANTS
---------
4.1 Cash Flow Coverage Ratio. Paragraph (b) of Section 5.5 of the Amended
------------------------
Loan Agreement is hereby amended by deleting the covenant in its entirety and
substituting the following in its place:
"(b) Cash Flow Coverage Ratio. Debtor will not permit its Cash Flow
------------------------
Coverage Ratio, at the end of any of its Fiscal quarters, based on that Fiscal
Quarter and the three immediately preceding Fiscal Quarters, to be less than the
following amounts:
<TABLE>
<CAPTION>
FISCAL YEAR OR OTHER
PERIOD MINIMUM RATIO
- -------------------- -------------
<S> <C>
From 1/31/95 through 7/31/95 1.10 to 1.0
For Each of the Fiscal Quarters 1.15 to 1.0
for the period beginning 8/1/95
and ending 10/31/96
For Each of the Fiscal Quarters 1.20 to 1.0
for the period beginning
11/1/96 and ending 10/31/97
Thereafter 1.25 to 1.0
</TABLE>
3
<PAGE>
4.2 Adjusted Leverage Ratio. Paragraph (c) of Section 5.5 of the Amended
-----------------------
Loan Agreement is hereby amended by deleting the covenant in its entirety and
substituting the following in its place:
"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>
During any fiscal year 1.95 to 1.0
At Fiscal Year End 10/95 1.60 to 1.0
At Fiscal Year End 10/96 1.50 to 1.0
At Fiscal Year End 10/97 1.45 to 1.0
Each Subsequent Fiscal Year End 1.35 to 1.0
</TABLE>
4.3 Tangible Capital Funds. Paragraph (e) of Section 5.5 of the Amended
----------------------
Loan Agreement is hereby amended by deleting the covenant in its entirety and
substituting the following in its place:
"(e) Tangible Capital Funds. Debtor shall maintain at all times during the
----------------------
term of the Loan Agreement minimum Tangible Capital Funds of at least the
following amounts for the respective periods indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR OR OTHER
FISCAL PERIOD MINIMUM AMOUNT
- -------------------- --------------
<S> <C>
From 10/31/94 through 10/29/95 $83,000,000
From 10/30/95 through 10/29/96 $85,000,000
Beginning 10/30/96 and continuing
thereafter $90,000,000
</TABLE>
SECTION 5. MISCELLANEOUS
-------------
5.1 Expenses. Debtor agrees that the provisions of Section 9.3 of the
--------
Original Loan Agreement shall apply equally to the negotiation, preparation,
execution and delivery of this Sixth Amendment.
5.2 Ratification. Other than as specifically set forth herein, Debtor
------------
hereby ratifies and confirms the Original Loan Agreement and all instruments and
agreements
4
<PAGE>
relating thereto, as modified by all prior amendments through the date hereof,
confirms that all of the foregoing remain in full force and effect, subject to
the terms of this Sixth Amendment, and confirms that each of the foregoing is
enforceable against Debtor in accordance with its terms, except to the extent
the enforcement of the remedies provided for herein may be limited under
applicable bankruptcy and insolvency laws and by applicable equitable
principles.
5.3 No Waiver. Except as set forth herein, CIT shall not be deemed to
---------
have waived any of its rights or to have agreed to forbear from exercising any
of its remedies, all of which are expressly reserved. All amendments and
modifications to the Amended Loan Agreement must be in writing, and until
reduced to a writing signed by the party to be charged, any discussions,
promises or statements made by either party shall not binding on or enforceable
against such party.
5.4 Other Provisions. Except as modified hereby, the provisions of
----------------
Section 9 of the Loan Agreement, captioned "Miscellaneous", are incorporated
herein by reference as if set forth at length herein and apply equally to the
terms of this Sixth Amendment.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
FORSTMANN & COMPANY, INC.
By: /s/ Kenneth J. Doel
___________________________
Name: Kenneth J. Doel
Title: Executive Vice President
& Chief Financial Officer
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ John Zakoworogny
___________________________
Name: John Zakoworogny
Title: Vice President
5
<PAGE>
EXHIBIT 4.3
FORSTMANN & COMPANY, INC.
AND
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
as TRUSTEE
__________________________________________
Second Supplemental Indenture
Dated as of June 15, 1995
________________________________________
Supplementing and Amending the
Indenture Dated as of April 5, 1993,
as Amended and Restated by the
Amended and Restated Indenture
Dated as of March 30, 1994,
as Amended by the Supplemental Indenture
Dated as of January 23, 1995
<PAGE>
This SECOND SUPPLEMENTAL INDENTURE, dated as of June 15, 1995, ("Second
Supplemental Indenture") made by and between Forstmann & Company, Inc., a
Georgia corporation (the "Company"), and Shawmut Bank Connecticut, National
Association, as trustee (the "Trustee") under the Indenture dated as of April 5,
1993 (the "Original Indenture"), as amended and restated in the Amended and
Restated Indenture dated as of March 30, 1994 (the "Restated Indenture"), as
amended by the Supplemental Indenture dated as of January 23, 1995 (the
"Supplemental Indenture"; the Restated Indenture and Supplemental Indenture
being collectively referred to as the "Indenture"):
WHEREAS, the Company wishes to execute a second supplemental indenture to
the Indenture which amends covenants relating to Adjusted Tangible Net Worth,
EBITDA and Interest Coverage Ratios as described hereinafter;
WHEREAS, Section 9.02 of the Indenture provides that the Company, when
authorized by a resolution of its Board of Directors, and the Trustee may, upon
receipt of evidence of the written consent of the Holders of at least a majority
in principal amount of the then outstanding Notes (as defined hereinafter),
execute a supplemental indenture to amend the Indenture;
WHEREAS, the Holders of at least a majority in principal amount of the then
outstanding Notes did, as of June 11, 1995, consent to the aforesaid amendment
to the Indenture;
WHEREAS, all conditions and requirements necessary to authorize the
execution, acknowledgement and delivery of this Second Supplemental Indenture
and to make the Indenture, as supplemented by this Second Supplemental
Indenture, a valid, binding and legal instrument for the benefit of the parties
hereto and the Holders of the Company's Senior Secured Floating Rate Notes due
October 30, 1997 of which $20,000,000 in aggregate principal amount were
initially issued on April 5, 1993 and $10,000,000 in aggregate principal amount
were issued on March 30, 1994 (collectively, the "Notes"), have been complied
with or have been fulfilled and performed;
NOW, THEREFORE, this Second Supplemental Indenture witnesseth that each
party agrees as follows:
SECTION 1. Unless otherwise noted, capitalized terms used herein and not
defined shall have the meanings ascribed to such terms in the Indenture, to the
extent defined therein.
2
<PAGE>
SECTION 2. Section 4.09 of the Indenture is hereby amended to read in its
entirety as follows:
Section 4.09. Maintenance of Adjusted Tangible Net Worth.
- ------------ ------------------------------------------
The Company shall not permit its Adjusted Tangible Net Worth, calculated as
of the last day of the Company's fiscal quarters set forth below, to be less
than the amount set forth below next to such respective fiscal quarter:
<TABLE>
<CAPTION>
Company's Fiscal Adjusted Tangible
Quarter Net Worth
- ---------------- -----------------
<S> <C>
1st Quarter 1995 $23,750,000
2nd Quarter 1995 $26,100,000
3rd Quarter 1995 $28,600,000
4th Quarter 1995 $28,800,000
1st Quarter 1996 $28,025,000
2nd Quarter 1996 $29,925,000
3rd Quarter 1996 $32,300,000
4th Quarter 1996 $31,825,000
1st Quarter 1997 $30,875,000
2nd Quarter 1997 $34,675,000
3rd Quarter 1997 $37,050,000
4th Quarter 1997 $37,050,000
</TABLE>
SECTION 3. Section 4.10 of the Indenture is hereby amended to read in its
entirety as follows:
Section 4.10. Maintenance of the Company's EBITDA.
------------ -----------------------------------
The Company shall not permit its EBITDA for the period of four consecutive
fiscal quarters ending on the last day of the Company's fiscal quarters set
forth below to be less than the amount set forth below next to such respective
fiscal quarter:
3
<PAGE>
<TABLE>
<CAPTION>
Company's Fiscal
Quarter EBITDA
- ---------------- -------
<S> <C>
1st Quarter 1995 $30,400,000
2nd Quarter 1995 $25,400,000
3rd Quarter 1995 $25,800,000
4th Quarter 1995 $32,200,000
1st Quarter 1996 $33,700,000
2nd Quarter 1996 $34,200,000
3rd Quarter 1996 $34,675,000
4th Quarter 1996 $35,340,000
1st Quarter 1997 $35,625,000
2nd Quarter 1997 $36,385,000
3rd Quarter 1997 $37,050,000
4th Quarter 1997 $37,525,000
</TABLE>
SECTION 4. Section 4.12 of the Indenture is hereby amended to read in its
entirety as follows:
Section 4.12. Maintenance of Interest Coverage Ratio.
------------ --------------------------------------
The Company will not permit its Interest Coverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the Company's fiscal
quarters set forth below to be less than the ratio set forth below next to such
respective fiscal quarter:
<TABLE>
<CAPTION>
Company's Fiscal Interest Coverage
Quarter Ratio
- ---------------- -----------------
<S> <C>
1st Quarter 1995 1.57
2nd Quarter 1995 1.36
3rd Quarter 1995 1.32
4th Quarter 1995 1.58
1st Quarter 1996 1.62
2nd Quarter 1996 1.62
3rd Quarter 1996 1.66
4th Quarter 1996 1.66
1st Quarter 1997 1.66
2nd Quarter 1997 1.66
3rd Quarter 1997 1.71
4th Quarter 1997 1.71
</TABLE>
4
<PAGE>
SECTION 5. This Second Supplemental Indenture may be executed in several
counterparts, and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one
instrument.
SECTION 6. Except as specifically supplemented and amended by this Second
Supplemental Indenture, the terms and provisions of the Indenture shall be and
remain in full force and effect.
SECTION 7. The Company hereby acknowledges the receipt of an executed
counterpart of this Second Supplemental Indenture, and the Trustee hereby
acknowledges the receipt of an executed counterpart of this Second Supplemental
Indenture.
SECTION 8. This Second Supplemental Indenture shall be governed by the
laws of the State of New York.
SECTION 9. In case any provision in this Second Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10. The recitals of fact preceding Section 1 of this Second
Supplemental Indenture are statements of the Company and the Trustee has no
responsibility for the accuracy or completeness thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed, all as of the day and year first above written.
FORSTMANN & COMPANY, INC.
/s/Kenneth J. Doel
------------------
Kenneth J. Doel
Executive Vice President and
Chief Financial Officer
Attest:
/s/Martin L. Budd (SEAL)
- -----------------
Martin L. Budd
Secretary
(Signatures continued on next page)
5
<PAGE>
(Signatures continued from previous page)
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Elizabeth C. Hammer
--------------------------
Title: Vice President
-----------------------
Attest:
By: /s/ Susan C. Merker (SEAL)
------------------------
Title: Assistant Vice President
----------------------------
6
<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 April 30, 1995 and the related condensed statements of
operations for the thirteen weeks and the twenty-six weeks ended April 30, 1995
and May 1, 1994 and the statements of cash flow for the twenty-six weeks ended
April 30, 1995 and May 1, 1994 and the statement of changes in shareholders'
equity for the twenty-six weeks ended April 30, 1995 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.
As discussed in Note 6 to the financial statements, the Company amended its GECC
Facility, Indenture to the Senior Secured Notes and CIT Equipment Facility
effective as of April 30, 1995 to cure certain existing financial Covenant
Violations of such debt agreements.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Forstmann & Company, Inc. as of October 30, 1994
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 8, 1994 (January 23, 1995 as to paragraph 2 of Note 7), 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 30, 1994 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
June 16, 1995
Atlanta, Georgia
<PAGE>
EXHIBIT 23.1
June 19, 1995
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 April 30, 1995
and May 1, 1994, as indicated in our report dated June 16, 1995; 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 April 30, 1995, is
incorporated by reference in Registration Statement No. 33-57643 on Form S-8 and
Registration Statement No. 33-56367 on Form S-3.
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 that Act.
Yours truly,
/s/Deloitte & Touche LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Forstmann &
Company Inc.'s condensed financial statements for the twenty-six weeks ended
April 30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-29-1995
<PERIOD-START> OCT-31-1994
<PERIOD-END> APR-30-1995
<CASH> 46
<SECURITIES> 0
<RECEIVABLES> 67767
<ALLOWANCES> 1610
<INVENTORY> 88526
<CURRENT-ASSETS> 162486
<PP&E> 79168
<DEPRECIATION> 25906
<TOTAL-ASSETS> 250408
<CURRENT-LIABILITIES> 44079
<BONDS> 163118
<COMMON> 6
2552
0
<OTHER-SE> 34291
<TOTAL-LIABILITY-AND-EQUITY> 250408
<SALES> 112926
<TOTAL-REVENUES> 112926
<CGS> 94449
<TOTAL-COSTS> 94449
<OTHER-EXPENSES> 10670
<LOSS-PROVISION> 521
<INTEREST-EXPENSE> 9557
<INCOME-PRETAX> (2271)
<INCOME-TAX> (897)
<INCOME-CONTINUING> (1374)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1374)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
