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 28, 1996
--------------
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.
(DEBTOR-IN-POSSESSION)
(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.)
1155 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 12, 1996.
Total number of pages:43 pages.
<TABLE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 28, 1996 AND APRIL 30, 1995 AND
THE TWENTY-SIX WEEKS ENDED APRIL 28, 1996 AND APRIL 30, 1995
(unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
April 28, April 30, April 28, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $62,087,000 $69,399,000 $95,393,000 $112,926,000
Cost of goods sold 51,245,000 57,825,000 83,568,000 94,449,000
----------- ----------- ----------- ------------
Gross profit 10,842,000 11,574,000 11,825,000 18,477,000
Selling, general and
administrative expenses 4,414,000 5,474,000 9,003,000 10,670,000
Provision for uncollectible
accounts 334,000 295,000 600,000 521,000
----------- ----------- ----------- ------------
Operating income 6,094,000 5,805,000 2,222,000 7,286,000
Interest expense (contractual
interest of $4,444,000 and
$8,940,000 for 1996) 2,238,000 4,959,000 4,646,000 9,557,000
----------- ------------ ----------- ------------
Income (loss) before
reorganization items and
income taxes 3,856,000 846,000 (2,424,000) (2,271,000)
Reorganization items 1,574,000 - 4,433,000 -
----------- ----------- ----------- ------------
Income (loss) before income
taxes 2,282,000 846,000 (6,857,000) (2,271,000)
Income tax provision (benefit) - 334,000 - (897,000)
----------- ----------- ----------- ------------
Net income (loss) 2,282,000 512,000 (6,857,000) (1,374,000)
Preferred stock in-kind
dividends and accretion
to redemption value - 63,000 - 127,000
----------- ----------- ----------- ------------
Income (loss) applicable to
common shareholders $ 2,282,000 $ 449,000 $(6,857,000) $ (1,501,000)
=========== =========== =========== ============
Share and per share
information:
Income (loss) per common
share $ .41 $ .08 $ (1.22) $ (.27)
=========== =========== =========== ============
Weighted average common
shares outstanding 5,618,799 5,618,799 5,618,799 5,618,799
=========== =========== =========== ============
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED BALANCE SHEETS
April 28, 1996 AND OCTOBER 29, 1995
(unaudited)
<CAPTION> April 28, October 29,
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 49,000 $ 52,000
Accounts receivable, net of allowance of
$3,580,000 and $2,991,000 53,821,000 43,872,000
Current income taxes receivable 2,117,000 2,417,000
Inventories 64,183,000 69,470,000
Current deferred tax assets - -
Other current assets 539,000 664,000
------------ ------------
Total current assets 120,709,000 116,475,000
Property, plant and equipment, net 73,119,000 78,784,000
Other assets 3,097,000 2,944,000
----------- ------------
Total $196,925,000 $198,203,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 63,918,000 $ 61,001,000
Accounts payable 2,536,000 1,771,000
Accrued liabilities 13,390,000 9,048,000
------------ ------------
Total current liabilities 79,844,000 71,820,000
Long-term debt 23,803,000 25,302,000
Deferred tax liabilities - -
------------ ------------
Total liabilities not subject to compromise 103,647,000 97,122,000
Liabilities subject to compromise 89,813,000 90,759,000
Redeemable preferred stock subject to
compromise 2,655,000 2,655,000
Commitments and contingencies
Shareholders' Equity:
Common stock 5,619 5,619
Additional paid-in capital 26,564,381 26,564,381
Excess of additional pension liability
over unrecognized prior service cost (1,956,000) (1,956,000)
Retained deficit since November 2, 1992 (23,804,000) (16,947,000)
------------ ------------
Total shareholders' equity 810,000 7,667,000
------------ ------------
Total $196,925,000 $198,203,000
============= ============
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED APRIL 28, 1996 AND APRIL 30, 1995
(unaudited)
<CAPTION>
April 28, April 30,
1996 1995
<S> <C> <C>
Net loss $(6,857,000) $(1,374,000)
----------- ------------
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 6,159,000 6,772,000
Income tax benefit - (897,000)
Income taxes refunded, net 292,000 1,200,000
Provision for uncollectible accounts 600,000 521,000
Loss from disposal, abandonment and
impairment of machinery and equipment
and other assets 288,000 53,000
Other non-cash items - (356,000)
Changes in current assets and current
liabilities:
Accounts receivable (10,549,000) (7,923,000)
Inventories 5,287,000 (13,334,000)
Other current assets 133,000 (873,000)
Accounts payable 770,000 12,245,000
Accrued liabilities 3,186,000 (825,000)
Accrued interest payable 1,156,000 21,000
Investment in notes receivable, net - (10,000)
Deferred financing costs (327,000) (329,000)
Operating liabilities subject to compromise (946,000) -
------------ -----------
Total adjustments 6,049,000 (3,735,000)
------------ -----------
Net cash used by operating activities (808,000) (5,109,000)
------------ -----------
Cash flows used in investing activities:
Capital expenditures (205,000) (6,194,000)
Investment in computer information systems (410,000) (769,000)
Net proceeds from disposal of machinery
and equipment 2,000 109,000
------------ ----------
Net cash used in investing activities (613,000) (6,854,000)
------------ -----------
Cash flows from financing activities:
Net borrowings under the DIP Facility 41,208,000 -
Net borrowings (repayments) under the
GE Capital Facility (38,626,000) 4,047,000
Proceeds from the Term Loan - 7,500,000
Borrowings under the CIT Equipment Facility
and other financing arrangements - 3,092,000
Repayment of CIT Equipment Facility and other
financing arrangements (1,164,000) (1,810,000)
Cash paid in connection with Dissenters
Proceeding - (869,000)
----------- -----------
Net cash provided by financing activities 1,418,000 11,960,000
----------- -----------
Net decrease in cash (3,000) (3,000)
Cash at beginning of period 52,000 49,000
----------- -----------
Cash at end of period $ 49,000 $ 46,000
=========== ===========
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF CASH FLOWS (continued)
FOR THE TWENTY-SIX WEEKS ENDED APRIL 28, 1996 AND APRIL 30, 1995
(unaudited)
<CAPTION>
April 28,
1996
<S> <C>
Supplemental disclosure of cash flow information
relating to the Chapter 11 proceeding:
Cash paid during the period for professional
fees $ 1,776,000
===========
Cash paid during the period relating to the
rejection and amendments of executory
contracts $ 754,000
===========
Cash paid during the period for other items $ 73,000
===========
See notes to financial statements.
</TABLE>
<TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED APRIL 28, 1996
(unaudited)
<CAPTION>
Pension
Additional Liability Total
Common Paid-In Over Prior Retained Shareholders'
Stock Capital Service Cost Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, October 29, 1995 $5,619 $26,564,381 $(1,956,000) $(16,947,000) $ 7,667,000
Loss applicable to
common shareholders - - - (6,857,000) (6,857,000)
------ ----------- ----------- ------------ -----------
Balance, April 28, 1996 $5,619 $26,564,381 $(1,956,000) $(23,804,000) $ 810,000
======= =========== =========== ============ ===========
See notes to financial statements.
</TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
APRIL 28, 1996
(unaudited)
1. Forstmann & Company, Inc. (the "Company") is a leading designer, marketer
and manufacturer of innovative, high quality woolen, worsted and other
fabrics which are used primarily in the production of brand-name and private
label apparel for men and women, as well as specialty fabrics for use in
billiard tables, sports caps and school uniforms. A majority (50.4%) of the
Company's common stock is owned by Odyssey Partners, L.P.
As described more thoroughly in Note 1 to the financial statements contained
in the Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995 (the "1995 Form 10-K"), as a result of the continued
decline in the Company s results of operations throughout fiscal year 1995,
on September 22, 1995, the Company filed a petition for protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with
the U.S. Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Filing"). The decline in the Company's results of operations
during fiscal year 1995 was principally due to rising wool costs, high debt
leverage and sluggishness of retail apparel sales and a significant decline
in women's outerwear sales, which were partially offset by the sale of other
fabrics yielding lower profit margins. This resulted in the Company being
unable to meet all of its interest payments when such became due. The
Company's liquidity and financial position were severely strained during
fiscal year 1995. Although the rise in wool costs has stabilized, the
continued sluggishness of retail apparel sales, as well as the continued
economic downturn in the apparel industry, which industry represents the
majority of the Company's customers, indicates that the Company's operating
results will continue to be strained during fiscal year 1996. One of the
Company's customers accounted for approximately 15% of the Company's
revenues for the twenty-six weeks ended April 28, 1996 and 8% of gross
accounts receivable at April 28, 1996. No other customer represented more
than 5% of revenues or gross accounts receivable.
Resolution to the Company's liquidity and debt leverage problems might
involve a conversion of certain existing indebtedness to equity. This
resolution might result in an ownership change as defined in Section 382 of
the Internal Revenue Code of 1986,as amended (the "Internal Revenue Code").
A tax ownership change would limit the Company's ability to utilize its net
operating loss and certain other carry forward tax credits.
As a plan of reorganization is developed, the Company may conclude that
additional market reserves, write downs of machinery and equipment and write
downs of other assets are necessary. Accordingly, the Company may recognize
significant expenses associated with the development and implementation of a
plan of reorganization that are not reflected in these financial statements.
Any additional asset impairments or restructuring costs directly related to
reorganization proceedings will be reflected as reorganization items in the
Company s financial statements in the period the Company becomes committed
to plans which impair the valuation of the Company's assets or incurs a
restructuring liability. See Note 9 to these financial statements for a
description of reorganization items recognized during the thirteen and
twenty-six weeks ended April 28, 1996.
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. Such financial statements have been
prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The accompanying
financial statements have been prepared on a going concern basis which
assumes continuity of operations and realization of assets and liquidation
of liabilities in the ordinary course of business. As a result of the
reorganization proceeding, the Company may have to sell or otherwise dispose
of assets and liquidate or settle liabilities for amounts other than those
reflected in these financial statements. Further, a plan of reorganization
could materially change the amounts currently recorded in the financial
statements. The financial statements do not give effect to all adjustments
to the carrying value of the assets, or amounts and reclassification of
liabilities that might be necessary as a result of the bankruptcy
proceeding. The appropriateness of using the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization
with the Company's creditors, success of future operations and ability to
generate sufficient cash from operations and financing sources to meet
obligations. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
information have been made. The financial statements, as of April 28, 1996,
do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern. These financial statements should be
read in conjunction with the financial statements and related notes
contained in the Company's 1995 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.
At the Company's request, the Bankruptcy Court has established June 28, 1996
as the deadline for creditors to file all pre-petition claims against the
Company (the Bar Date ). On or before May 14, 1996, notices were mailed to
all known or potential creditors of the Company advising them that claims
against the Company must be submitted by the Bar Date. Subject to limited
exceptions, creditors who are required to file claims but fail to meet the
deadline are forever barred from voting upon or receiving distributions
under any plan of reorganization.
2. Inventories are stated at the lower of cost, determined principally by the
LIFO method, or market and consist of (in thousands):
April 28, October 29,
1996 1995
Raw materials and supplies $11,285 $10,583
Work-in-process 46,051 50,624
Finished products 15,430 16,874
Less market reserves (8,583) (8,611)
------- -------
Total 64,183 69,470
Difference between LIFO
carrying value and current
replacement cost 6,996 7,346
------- -------
Current replacement cost $71,179 $76,816
======= =======
The reduction of inventory quantities resulted in liquidations of LIFO
inventory layers carried at lower costs prevailing in prior years. The
effect of this liquidation increased gross profit by $0.4 million for the
thirteen weeks ended April 28, 1996.
3. Other assets consist of (in thousands):
April 28, October 29,
1996 1995
Computer information systems,
net of accumulated amortization
of $4,019 and $3,861 $1,084 $ 832
Deferred financing costs, net of
amortization of $1,575 and
$1,293 1,133 1,196
Other 880 916
------ ------
Total $3,097 $2,944
====== ======
4. Accrued liabilities consist of (in thousands):
April 28, October 29,
1996 1995
Salaries, wages and related
payroll taxes $ 1,253 $1,484
Incentive compensation 507 171
Vacation and holiday 2,666 1,988
Employee benefits plans 1,510 1,037
Interest on long-term debt 2,171 1,015
Medical insurance premiums 878 1,092
Professional fees 1,942 720
Environmental remediation 518 357
Other 1,945 1,184
------- ------
Total $13,390 $9,048
======= ======
5. Long-term debt consists of (in thousands):
April 28, October 29,
1996 1995
GE Capital DIP Facility 50,642 $ 9,434
GE Capital Facility - 38,626
Senior Secured Notes 27,000 27,000
Subordinated Notes 56,632 56,632
Equipment Facilities 6,546 7,451
Capital lease obligations 3,533 3,610
Other - 182
-------- --------
Total debt 144,353 142,935
Current portion of long-term debt (63,918) (61,001)
Subordinated Notes included in
liabilities subject to compromise (56,632) (56,632)
-------- --------
Total long-term debt $ 23,803 $ 25,302
======== ========
The Company was in default of substantially all of its pre-petition debt
agreements at April 28, 1996. All outstanding unsecured debt of the Company
has been presented in these financial statements as "Liabilities Subject to
Compromise."
The Company has obtained debtor-in-possession ("DIP") financing from General
Electric Capital Corporation ("GE Capital") under a revolving facility which
was approved by the Bankruptcy Court (the "DIP Facility"). The DIP Facility
provides up to $85 million (which includes a $10.0 million letter of credit
facility) under a borrowing base formula, less pre-petition advances and
outstanding letters of credit under the Company's then existing GE Capital
Facility. (Reference is made to Note 7 to the Company's annual financial
statements in the 1995 Form 10-K for discussions regarding the GE Capital
Facility.) The DIP Facility expires on October 31, 1996. The Company is
currently developing its strategic plan for fiscal year 1997 and beyond
which will be used as the basis for its DIP Facility extension negotiations
which are expected to begin this summer. The Company was in violation of
the DIP Facility minimum EBITDA covenant at April 28, 1996. The Company has
completed negotiating an amendment to the DIP Facility (the "Amended DIP
Facility") which, if approved by the Bankruptcy Court, will cure the
violation at April 28, 1996. The Amended DIP Facility amends, among other
things, the minimum EBITDA covenants and sets revised caps on eligible
inventory included in the borrowing base.
Secured Claims are collateralized by substantially all of the assets of the
Company including accounts receivable, inventories and property, plant and
equipment. The Company has continued to accrue interest on most of its
secured debt obligations as management believes that in the majority of such
cases the collateral securing the secured debt obligations is sufficient to
cover the principal and interest portions of scheduled payments on such pre-
petition secured debt obligations. To the extent any claim secured by
assets of the Company is determined to exceed the value of the asset
securing it, such claims will be treated as an unsecured claim and not
entitled to interest accruing after the Bankruptcy Filing.
Outstanding borrowings (including outstanding letters of credit) are subject
to certain caps on categories of inventory and accounts receivable under the
DIP Facility. The Company's borrowing base is subject to reserves
determined by GE Capital in its sole discretion. At April 28, 1996, the
Company's loan availability as defined in the DIP Facility, in excess of
advances, and outstanding letters of credit, was approximately $20.0
million.
Borrowings under the DIP Facility bear interest, at the Company's option, at
a floating rate (which is based on a defined index rate) or a fixed rate
(which is based on LIBOR) payable monthly. The floating rate is 1.5% per
annum above the index rate, and the fixed rate is 3.0% per annum above
LIBOR. At April 28, 1996, the DIP Facility bore interest at the fixed rate
of 8.27% per annum through May 31, 1996 and was reset at 8.46% per annum on
June 1, 1996 through July 31, 1996.
Proceeds from the Company's ordinary operations are applied to reduce the
principal amount of borrowings outstanding under the DIP Facility. Unused
portions of the DIP Facility may be borrowed and reborrowed, subject to
availability in accordance with the then applicable commitment and borrowing
base limitations.
Subject to certain exceptions, the DIP Facility restricts, among other
things, the incurrence of indebtedness, the sale of assets, the incurrence
of liens, the making of certain restricted payments, the making of specified
investments, the payment of cash dividends and the making of certain
fundamental corporate changes and amendments to the Company's corporate
organizational and governance instruments. In addition, the Company is
required to satisfy, among other things, certain financial performance
criteria, including minimum EBITDA levels and maximum capital expenditure
levels.
The Company pays GE Capital, for the account of each of the lenders party to
the DIP Facility, a fee of 0.5% per annum on the average daily unused
portion of the DIP Facility. In addition, the Company paid GE Capital, for
its own account, an agency fee of $150,000 per annum and pays certain fees
in connection with extending and making available letters of credit. In
connection with entering into the DIP Facility, the Company paid GE Capital
$100,000 on September 22, 1995, $325,000 on February 15, 1996 and agreed to
pay $125,000 on October 31, 1996. Subject to Bankruptcy Court approval, the
Company has agreed to pay $75,000 to GE Capital in consideration for
entering into the Amended DIP Facility which, among other things, amends the
minimum EBITDA covenant requirements.
Reference is made to Note 7 to the Company's annual financial statements in
the 1995 Form 10-K for discussion regarding the Company's Senior Secured
Notes. The Company agreed to remit to holders of the Company's Senior
Secured Notes $600,000 on March 21, 1996 and, commencing in April 1996,
$100,000 at the end of each month through October 31, 1996. Such payments
represent "adequate protection" payments, as defined by the Bankruptcy Code,
for the use of the collateral securing the Senior Secured Notes. In
connection with such agreement, the Company also agreed to pay up to
$240,000 in appraisal fees and expenses and legal fees and expenses incurred
by certain of the holders of the Senior Secured Notes and the trustee. The
Company has applied adequate protection payments made as of April 28, 1996
to accrued interest. However, final application as to principal and
interest of the adequate protection payments, including appraisal fees and
expenses and legal fees and expenses, is to be subsequently determined
pursuant to the Bankruptcy Code.
As discussed in Note 7 to the Company's annual financial statements in the
1995 Form 10-K, the Company is a party to a loan and security agreement (the
"CIT Equipment Facility") with the CIT Group/Equipment Financing, Inc.
("CIT") which provided financing for the acquisition of, and to refinance
borrowings incurred to acquire various textile machinery and equipment. The
Company agreed to provide "adequate protection" payments to CIT in
connection with the CIT Equipment Facility. The agreement requires the
Company to remit monthly payments in arrears in the amount of $95,000 at the
end of each month commencing March 31, 1996 through October 31, 1996. The
Company also agreed to pay $81,000 in legal fees and disbursements incurred
by CIT. Final application as to principal and interest of the adequate
protection payments is to be subsequently determined pursuant to the
Bankruptcy Code.
6. Per share and share information for the thirteen and twenty-six weeks ended
April 28, 1996 and April 30, 1995 are based upon actual income (loss)
applicable to common shareholders and the weighted average shares
outstanding during the periods.
7. As discussed in Note 12 to the Company's annual financial statements in the
1995 Form 10-K, the Company has accrued certain estimated costs for
environmental matters.
On December 29, 1995, the Environmental Protection Division of the Georgia
Department of Natural Resources (the "EPD") issued separate administrative
orders to the Company and J.P. Stevens & Co., Inc., ("J.P. Stevens")
(previous owner and operator of the Company's Dublin facility), which
related to two sites at the Company's Dublin facility. The orders required
the Company and J.P. Stevens to submit a compliance status report ("CSR")
and compliance status certification within 120 days from December 29, 1995
(i.e., by April 27, 1996) to the EPD that includes, among other things, a
description of the release, including its nature and extent, and suspected
or known source, quantity and date of the release. By letter dated February
2, 1996, the Company notified the EPD that it had not been able to secure
access to certain property on the western side of the Oconee River in order
to install groundwater monitoring wells. The EPD had previously indicated
that such wells would be necessary in order for the Company to submit a CSR.
Additionally, by letter dated March 27, 1996, the Company requested
clarification from the EPD concerning various technical issues relating to
these sites, the Burn Area (hereinafter defined) and other environmental
considerations at the facility. In a letter dated March 28, 1996 from the
EPD to the Company, the EPD requested that the Company provide additional
information by April 29, 1996 concerning its efforts to obtain access. In
this letter, the EPD also clarified that only groundwater, and not soil,
sampling would be required in order for the Company to complete a CSR for
the two sites. The Company responded to the EPD's March 28, 1996 letter by
letter dated April 25, 1996.
By letter dated April 29, 1996, the EPD responded to the Company's March 27,
1996 letter concerning various technical and off-site access issues. The
Company subsequently attended a meeting with the Director of the EPD and his
staff on May 6, 1996 in which these matters were further discussed. Based
on the EPD's letter and the discussions held on May 6, 1996, the Company has
concluded that at least two more groundwater monitoring wells must be
installed and tested at the site before the EPD will agree that the nature
and extent of one of the two groundwater releases (the "TCE release") has
been determined. The results of this testing will assist in determining
whether or not additional testing must be performed or whether other
alternatives are available to the Company to satisfy the EPD that the
Company has complied with the Hazardous Site Response Act. At the May 6,
1996 meeting, it was agreed that the Company would propose a timetable to
the EPD for installing and testing these wells. With respect to the other
groundwater release (the 1,1-DCA release along the southern property
boundary), the EPD described a number of options available to the Company
for resolving to the EPD s satisfaction that the release has been fully
delineated. Those options include modeling the groundwater in the area of
this release to demonstrate that the release has been delineated. By letter
dated May 31, 1996, the Company submitted to the EPD a schedule to complete
the items agreed upon in the May 6, 1996 meeting.
While the EPD's April 29, 1996 letter indicates that the EPD has not been
persuaded that an extension of the timetable provided in the administrative
order is appropriate, the EPD representative indicated that they had not yet
reviewed the Company's April 25, 1996 letter. The Director further
expressed that he was using his discretion not to take enforcement action
against the Company at this time. He stated that, when the Company began to
implement and move forward with the action items discussed at the May 6,
1996 meeting, he would consider revising the schedule in the administrative
order of these releases. Based on the additional work required by the EPD,
the Company increased its accrual for environmental cost by $0.2 million
during the thirteen week period ended April 28, 1996. Subject to additional
communication with the EPD, the Company believes that the $0.5 million
accrued environmental cost as of April 28, 1996 is sufficient to cover the
Company's known and probable responsibilities related to the TCE and 1,1-DCA
releases.
The EPD's letters of December 29, 1995 also informed the Company and J.P.
Stevens that a release exceeding a reportable quantity had occurred in an
area where various waste materials were reportedly disposed and burned by
J.P. Stevens (the "Burn Area") and that the Burn Area was being listed on
the Georgia Hazardous Site Inventory. Both the Company and J.P. Stevens
were requested to submit a CSR and compliance status certification for the
Burn Area by April 11, 1996. The extent and scope of such remediation
investigation has not been determined, and the cost can not currently be
estimated. Preparation of a CSR would first require completion of a
remediation investigation of the Burn Area, which will be performed during
fiscal year 1996. The two companies responded separately to the EPD
indicating their belief that the April 11, 1996 due date was unrealistic.
The Company requested 330 days for submittal of the CSR. By letter dated
March 27, 1996, the Company reminded the EPD that the agency had not
responded to its request for an extension for submitting the CSR for the
Burn Area. In its April 29, 1996 letter to the Company, the EPD indicated
that it is not presently considering enforcement action regarding the missed
deadline for the Burn Area "prior to June 3, 1996." The Company is
currently negotiating an agreement regarding the performance of CSR work at
the three sites that would involve J.P. Stevens taking responsibility for
the CSR for the Burn Area and the Company for the CSR relating to the other
two groundwater releases. On May 22, 1996, J.P. Stevens, through its
counsel, informed the EPD of such negotiations and indicated that
implementation of any agreement(s) resulting from the negotiations would be
dependent upon, among other things, the EPD's recognition of the
agreement(s) between J.P. Stevens and Forstmann. On May 31, 1996, the EPD
informed J.P. Stevens that it was encouraged by the prospect of cooperation
between the two companies and that it was willing to recognize an agreement
between the two companies that would lead to full compliance with the
Hazardous Site Response Act. The EPD stated that, upon its review of the
agreement between the companies, it would propose consent orders to them.
Until then, however, the administrative orders would remain in effect.
After completion of the remediation investigation, the Company will be able
to estimate the expected future costs associated with the Burn Area. Based
on previous experience with environmental issues at the Company's
facilities, subject to responsibilities borne by J.P. Stevens, if any,
management believes that environmental costs associated with the Burn Area
may be material and may have a material adverse effect on the Company's
liquidity and financial position. The Company has been informed that the
EPD may require demonstration of financial assurance upon the conclusion of
the Company's Bankruptcy Filing.
The EPD representative also informed the Company that they wanted the
Company to take samples from the soil beneath the location where the former
dry cleaner was once located. If contamination is detected, more soil
sampling would be necessary to determine the extent and nature of any
contamination. The Company intends to submit a proposal to the EPD for the
performance of this sampling.
8. Liabilities subject to compromise consists of (in thousands):
April 28, October 29,
1996 1995
Subordinated Notes, including
accrued pre-petition interest $60,330 $60,330
Trade accounts payable 22,497 22,808
Priority tax claim 287 1,008
Accrued severance 1,498 1,498
Deferred rental and other
lease obligations 2,928 2,781
Accrued additional pension liability
in excess of accumulated benefit
obligation 2,025 2,025
Other 248 309
------- -------
Total $89,813 $90,759
======= =======
Unsecured claims against the Company in existence prior to the Bankruptcy
Filing are included in "Liabilities Subject to Compromise." Additional
claims (Liabilities Subject to Compromise) may arise or become fixed
subsequent to the filing date resulting from rejection of executory
contracts, including leases, from the determination by the Court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed and unliquidated amounts and from the determination of unsecured
deficiency claims in respect of claims secured by the Company's assets
("Secured Claims"). Consequently, the amount included in the balance sheet
as Liabilities Subject to Compromise may be subject to further adjustments.
A plan of reorganization may require certain compromise of liabilities
(including Secured Claims) that, as of April 28, 1996, are not classified as
Liabilities Subject to Compromise. The Company's ability to compromise
Secured Claims without the consent of the holder is subject to greater
restrictions than in the case of unsecured claims. Parties holding Secured
Claims have the right to move the court for relief from the stay, which
relief may be granted upon satisfaction of certain statutory requirements.
Secured Claims are collateralized by substantially all of the assets of the
Company, including, accounts receivable, inventories and property, plant and
equipment.
At the Company's request, the Bankruptcy Court established June 28, 1996 as
the deadline for creditors to file all pre-petition claims against the
Company (the "Bar Date"). On or before May 14, 1996, notices were mailed to
all known or potential creditors of the Company advising them that claims
against the Company must be submitted by the Bar Date. Subject to limited
exceptions, creditors who are required to file claims but fail to meet the
deadline are forever barred from voting upon or receiving distributions
under any plan of reorganization.
9. In accordance with SOP 90-7, professional fees and restructuring charges
directly related to the Bankruptcy Filing and related reorganization
proceedings have been segregated from normal operations during the thirteen
and twenty-six weeks ended April 28, 1996 and consists of (in thousands):
Thirteen Weeks Twenty-Six Weeks
Ended Ended
April 28, 1996 April 28, 1996
Professional fees $ 965 $2,575
Expense incurred due to the
rejection and amendment
of executory contracts 10 919
Default interest expense 260 460
Severance expenses 295 378
Other 44 101
------ ------
Total $1,574 $4,433
====== ======
During the thirteen weeks ended April 28, 1996, the Company announced its
intention to close the manufacturing operations in the Tifton Plant. The
closing will commence in late July 1996 and is estimated to be completed in
December 1996. The Company expects to incur relocation expenses of
approximately $0.7 million in connection with the relocation of certain of
its machinery and equipment from the Tifton Plant to the Dublin Plant. Such
expenses will be reflected as reorganization items in the period incurred.
Item 2.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
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 1995 Form 10-K for
discussion of the Company's financial condition as of October 29, 1995,
including a discussion of the Company's anticipated liquidity and working
capital requirements during its 1996 fiscal year.
Financial Condition and Liquidity
The Company's expectations and beliefs expressed below regarding liquidity
and capital resources for fiscal year 1996 constitute "forward-looking
statements" within the meaning of Section 21E of the Exchange Act. These
"forward-looking statements" are accompanied by cautionary discussions
identifying important factors that could cause actual results to differ
materially from those expressed in such "forward-looking statements". Such
factors should not be construed as exhaustive.
As more thoroughly described in Note 1 to the financial statements contained
in Item 1 of this Form 10-Q, on September 22, 1995, the Company filed a petition
for protection under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") with the U.S. Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Filing"). The Company has obtained debtor-in-
possession ("DIP") financing from General Electric Capital Coporation ("GE
Capital") under a facility (the "DIP Facility"). The DIP Facility provides up
to $85 million (which includes a $10.0 million letter of credit facility) under
a borrowing base formula, less pre-petition advances and outstanding letters of
credit under the Company's then existing revolving credit facility. As of April
28, 1996, no pre-petition advances under such revolving credit facility remained
outstanding. The DIP Facility is subject to certain borrowing base limitations
and expires on October 31, 1996. The Company is currently developing its
strategic plan for fiscal year 1997 and beyond which will be used as the basis
for its DIP Facility extension negotiations which are expected to begin this
summer. The Company was in default of substantially all of its debt agreements,
as more thoroughly described in Note 5 to the financial statements, at April 28,
1996. The Company and GE Capital have completed negotiating and entered into an
amendment to the DIP Facility which, if approved by the Bankruptcy Court, will
cure the violation at April 28, 1996. During the thirteen week period ended
April 28, 1996 (the "1996 Second Quarter"), the Company agreed to remit to
holders of certain of the Company's secured debt obligations "adequate
protection" payments, as defined by the Bankruptcy Code, for use of the
collateral securing such secured debt obligations. Such agreements, as more
thoroughly described in Note 5 to the financial statements, require aggregate
payments of $2.1 million through October 31, 1996. The Company's operations
and investing activities are funded through a combination of borrowings and
internally generated funds.
During the twenty-six week period ended April 28, 1996 (the "1996 Period"),
operations used approximately $0.8 million, a decrease of approximately $4.3
million from the twenty-six week period ended April 30, 1995 (the "1995
Period"). This improvement was primarily due to a reduction of inventory of
approximately $5.3 million in the 1996 Period as compared to an increase in
inventory of $13.3 million during the 1995 Period. This $18.6 million
improvement in cash flow was somewhat offset by a $6.3 million decrease in
accounts payable, accrued liabilities and interest payable in the 1996 Period as
compared to the 1995 Period, the $5.5 million higher loss in the 1996 Period
and an increase in accounts receivable of $2.6 million compared to the 1995
Period. The increase in accounts receivable in the 1996 Period compared to the
1995 Period is attributable to the Company offering early payment discounts to
its customers in the 1995 Period to increase cash flow which was not needed
in the 1996 Period. Reduced inventories in the 1996 Period as compared to the
1995 Period is attributable to lower sales which resulted in the Company
reducing its manufacturing operations to more closely match production to
sales and open customer orders. The reduction in manufacturing operations,
which primarily occurred during the thirteen week period ending
January 28, 1996 (the "1996 First Quarter"), contributed to the $6.9 million
loss realized in the 1996 Period. See "Results of Operations" for further
discussion of the factors contributing to such loss.
Net cash used by investing activities was $0.6 million in the 1996 Period as
compared to $6.9 million in the 1995 Period. This $6.2 million decline is
primarily attributable to lower capital expenditures due to the curtailment of
the Company's $100 million capital investment program as a result of Bankruptcy
Filing. Under the terms of the DIP Facility, capital expenditures are limited
and the Company is prohibited from entering into any additional capital lease
obligations. Further, the DIP Facility prohibits the Company from entering into
any operating lease obligations other than for replacement of existing operating
lease obligations where the minimum annual rental payments under the new
operating lease does not exceed the old operating lease by $50,000 or more.
Capital additions, including capital lease obligations, were $13.7 million for
fiscal year 1995. The Company, for the reasons indicated above, expects
spending for capital expenditures, primarily machinery and equipment, in fiscal
year 1996 to be less than $3.4 million.
During the 1996 Period $1.4 million in cash was provided by financing
activities whereas during the 1995 Period, $12.0 million was provided by
financing activities. The Company, due to cost savings initiatives implemented
in fiscal year 1996, more closely matched production and sourcing to its sales
and order base, did not seek outside sources of financing in the 1996
Period as it did in the 1995 Period. In the 1995 Period the Company secured a
$7.5 million term loan and $3.1 million in equipment financing to cover its
cash needs.
Working capital at April 28, 1996 was $40.9 million, a $3.8 million decrease
from October 29, 1995. This decrease is primarily attributable to a $5.3
million decrease in inventories and a $8.0 million increase in current
liabilities which was offset by a $9.9 million increase in accounts receivable.
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 permit payment 60 (sixty) days beyond July 1 for invoices billed in
January through June. Accounts receivable at April 28, 1996 included $6.1
million of receivables with dating, a decrease of $10.0 million compared to
April 30, 1995. This decrease is primarily attributable to sales in the fourth
quarter of fiscal year 1994 which were made on extended credit terms due to
competitive pressures. The Company did not grant such extended credit terms
during the fourth quarter of fiscal year 1995 due to the Company's financial
condition and strained liquidity.
The Company believes that cash generated from operations and borrowings
under the DIP Facility will be sufficient to fund its fiscal year 1996 working
capital and capital expenditures requirements. However, expected cash flows
from operations is dependent upon achieving sales expectations during fiscal
year 1996 which are influenced by market conditions, including apparel sales at
retail, that are beyond the control of the Company. Due to the seasonal nature
of the Company's core woolen and worsted business, the Company's borrowings
under its DIP Facility will tend to increase during the second and third quarter
of the fiscal year until the fourth quarter, when, at year-end, borrowings will
tend to be the lowest. However, if the Company is unable to reduce its working
capital needs, borrowings at the end of fiscal year 1996 may be higher than at
the beginning of fiscal year 1996 or higher during various times within fiscal
year 1996 than comparable periods within fiscal year 1995.
The sales order backlog at June 2, 1996 was $49.5 million as compared to
$48.5 million at the same time a year earlier. The increase is primarily
attributable to an increase in government orders which were offset by the
reduced demand for menswear fabrics. The decline in the menswear backlog is
believed to be due to the sluggishness of retail apparel sales and the economic
downturn in the apparel industry which have been most notable in the menswear
apparel market.
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. Based on wool costs
incurred during the 1996 Period and the Company's forward purchase commitments
and current wool market trends, the Company expects wool costs to increase
approximately 10% in fiscal year 1996 as compared to fiscal year 1995.
Results of Operations
The 1996 Twenty-Six Week Period (the "1996 Period") Compared to the 1995 Twenty-
Six Week Period (the "1995 Period")
Net sales for the 1996 Period were $95.4 million, a decrease of 15.5% from
the 1995 Period. Total yards of fabric sold decreased 17.1% during the 1996
Period. However, due to shifts in product mix, the average per yard selling
price increased. The decrease in sales was primarily due to a decrease in the
sales in most of the Company's merchandising lines. Such decline in sales is
attributable to the sluggishness of retail apparel sales, as well as the
continued economic downturn in the apparel industries that the Company serves.
Excluding government sales ($4.0 million in the 1996 Period and $3.5 million in
the 1995 Period), net sales for the 1996 Period decreased 16.4% from the 1995
Period.
Cost of goods sold decreased $10.9 million to $83.6 million during the 1996
Period as a result of the decline in sales which were somewhat offset by the
Company's cost reduction initiatives. Gross profit decreased $6.6 million or
36.0% to $11.8 million in the 1996 Period, and gross profit margin for the 1996
Period was 12.4% compared to 16.4% for the 1995 Period. The decline in gross
profit is due to the decline in sales of $17.5 million during the 1996 Period,
higher wool costs and an approximate 27% decline in manufacturing production
during the 1996 Period which generated an approximate $6.7 million unfavorable
fluctuation in manufacturing variances primarily associated with fixed
manufacturing costs (principally depreciation and amortization and salaried
employees associated with the Company's manufacturing operations). The Company
slowed its manufacturing operations during the 1996 Period, primarily during the
1996 First Quarter, in response to lower sales and the uncertainty in retail
apparel sales and its effect on the Company's customer s financial operations.
Such slow down in the Company's manufacturing operations resulted in gross
inventories, net of LIFO reserves, being approximately $17.8 million lower at
April 28, 1996 as compared to April 30, 1995.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, decreased 15.6% to $9.0 million in the 1996 Period
compared to $10.7 million in the 1995 Period. The majority of the decrease in
the 1996 Period is due to savings being recognized as a result of organizational
changes implemented during the 1996 Period.
The provision for uncollectible accounts increased from $0.5 million in the
1995 Period to $0.6 million in the 1996 Period. Such increase is primarily
attributable to the Company increasing its allowance for uncollectible accounts
during the 1996 Period in response to the economic downturn in the apparel
industries.
Interest expense for the 1996 Period was $4.6 million or $4.9 million lower
than the 1995 Period. This decrease is primarily due to the Company no longer
accruing interest on its Subordinated Notes as a result of the Bankruptcy Filing
and reduction in the Company's secured borrowings primarily as a result of lower
inventories and capital expenditures in the 1996 Period as compared to the 1995
Period.
In the 1995 Period, the Company recognized an income tax benefit at an
effective income tax rate of 39.5%. During fiscal year 1995 the Company fully
utilized its net operating loss carrybacks as permitted by the Internal Revenue
Code. Accordingly, during fiscal year 1996, no income tax benefit can be
recognized from the realization of operating losses.
Preferred stock in-kind dividends and accretion to redemption value was zero
in the 1996 Period compared to $0.1 million in the 1995 Period. The loss
applicable to common shareholders was $6.9 million in the 1996 Period compared
to $1.5 million in the 1995 Period. As a result of the Bankruptcy Filing, the
Company is no longer accruing the dividend due under the redeemable preferred
stock and accreting the recorded balance to redemption value. The redeemable
preferred stock is subject to compromise in the Bankruptcy Filing.
The Thirteen Weeks Ended April 28, 1996 (the "1996 Second Quarter") Compared to
the Thirteen Weeks Ended April 30, 1995 (the "1995 Second Quarter")
Net sales for the 1996 Second Quarter were $62.1 million, a decrease of
10.5% from the 1995 Second Quarter. Total yards of fabric sold decreased
approximately 12.8% during the 1996 Second Quarter. Such decrease is primarily
attributable to decreases in woolen and worsted menswear and womenswear worsted
apparel fabrics, which decreases are primarily due to the continuing
sluggishness of retail apparel sales. The most significant decline occurred in
womens worsted fabrics which declined by 21.0% during the 1996 Second Quarter.
However, during the 1996 Second Quarter increases in net sales were realized in
the Company's outerwear, womenswear woolen and specialty fabric areas. Gross
profit decreased 6.3% in the 1996 Second Quarter to $10.8 million. The gross
profit margin for the 1996 Second Quarter was 17.5%, compared to 16.7% for the
1995 Second Quarter. Through a focused effort of reducing fixed and variable
costs, the gross profit margin in the 1996 Second Quarter improved. Lower costs
have been primarily achieved through organizational changes.
Selling, general and administrative expenses, excluding the provision for
doubtful accounts, was $4.4 million in the 1996 Second Quarter, compared to $5.5
million in the 1995 Second Quarter. The decrease in selling, general and
administrative expenses is due to the cost savings initiatives implemented
during the Company's reorganization process.
The provision for uncollectible accounts was approximately $0.3 million in
both the 1996 Second Quarter and 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 1996 Second Quarter was $2.2 million or $2.7
million lower than the 1995 Second Quarter, primarily due to the same factors
that contributed to the decrease in interest expense during the 1996 Period.
In the 1995 Second Quarter, the Company recognized an income tax provision
at an effective tax rate of 39.5% on income before income taxes. As discussed
in the 1996 Period, the Company did not recognize an income tax benefit in the
1996 Second Quarter.
Preferred Stock in-kind dividends and accretion to redemption value was zero
in the 1996 Second Quarter compared to $0.1 million in the 1995 Second Quarter.
As a result of the foregoing, the Company's income applicable to common
shareholders increased $1.8 million to $2.3 million in the 1996 Second Quarter,
compared to income applicable to common shareholders of $0.5 million in the 1995
Second Quarter.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
4.1 Amendment to Amended and Restated Debtor-In-Possession Loan
Agreement dated as of May 3, 1996.
4.2 Stipulation and order settling Senior Secured Note Holders and
Trustee s motion for relief from the automatic stay, or in the
alternative, to condition use of collateral upon debtor providing
adequate protection dated March 20, 1996 as approved by the
United States Bankruptcy Court Southern District of New York on
March 20, 1996.
4.3 Stipulation providing adequate protection between Forstmann &
Co., Inc. and CIT Equipment Finance dated April, 1996 as approved
by the United States Bankruptcy Court Southern District of New
York on May 21, 1996.
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 10, 1996 from
Deloitte & Touche LLP to Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP.
99.1 Financial Data Schedule
(b) Current Reports on Form 8-K
None
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/ Rodney J. Peckham
------------------------------
Rodney J. Peckham
Chief Financial Officer
June 12, 1996
- ---------------
Date
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------------------------------------------------------------------------------
4.1 Amendment to Amended and Restated Debtor-In-Possession 22
Loan Agreement dated as of May 3, 1996.
4.2 Stipulation and order settling Senior Secured Note 27
Holders and Trustee's motion for relief from the
automatic stay, or in the alternative, to condition use
of collateral upon debtor providing adequate protection
dated March 20, 1996 as approved by the United States
Bankruptcy Court Southern District of New York on
March 20, 1996.
4.3 Stipulation providing adequate protection between 34
Forstmann & Co., Inc. and CIT Equipment Finance dated
April, 1996 as approved by the United States
Bankruptcy Court Southern District of New York on
May 21, 1996.
15.1 Independent Accountants' Report, dated 42
June 10, 1996, from Deloitte & Touche
LLP to Forstmann & Company, Inc.
23.1 Consent of Deloitte & Touche LLP. 43
99.1 Financial Data Schedule
Exhibit 4.1
AMENDMENT TO AMENDED AND RESTATED
DEBTOR-IN-POSSESSION LOAN AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED DEBTOR-IN-POSSESSION LOAN AGREEMENT
(the "Amendment") is made and entered into as of the third day of May, 1996, by
and among FORSTMANN & COMPANY, INC., a Georgia corporation, as Debtor-in-
Possession under Chapter 11 of the United States Bankruptcy Code ("Borrower"),
the Lenders, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("GE Capital"), as Agent for the Lenders.
Recitals:
A. Borrower, the Lenders and the Agent are parties to that certain
Amended and Restated Debtor-in-Possession Loan Agreement, dated as of
September 27, 1995, as amended by that certain Final Order Approving
Postpetition Financing, Granting Liens Pursuant to 11 U.S.C. section 364, and
Modifying the Automatic Stay entered by the Bankruptcy Court in the Chapter 11
Case on or about October 31, 1995 (the "Agreement").
B. Borrower, the Lenders and the Agent desire to further amend the
Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth in this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Agreement.
2. Amendments to Agreement. The Agreement is hereby amended, effective
as of the date set forth in Paragraph 4 of this Amendment, as follows:
(a) The definition of the term "Eligible Inventory" is hereby
amended by deleting in its entirety the first paragraph following subparagraph
(k) of such definition.
(b) The definition of the term "Borrowing Base" is hereby amended
by adding the following proviso at the end of the first paragraph of such
definition:
; provided, however, that (i) the aggregate amount of the Borrowing Base
attributable to Eligible Inventory consisting of raw materials shall not exceed
$6,667,000 at any time during April 1996, $6,943,000 at any time during May
1996, $6,887,000 at any time during June 1996, $6,282,000 at any time during
July 1996, $5,982,000 at any time during August 1996, $6,061,000 at any time
during September 1996, or $5,374,000 at any time during October 1996, (ii) the
aggregate amount of the Borrowing Base attributable to Eligible Inventory
consisting of work in process shall not exceed $32,124,000 at any time during
April 1996, $30,838,000 at any time during May 1996, $31,996,000 at any time
during June 1996, $29,682,000 at any time during July 1996, $27,216,000 at any
time during August 1996, $26,982,000 at any time during September 1996, or
$25,907,000 at any time during October 1996, (iii) the aggregate amount of the
Borrowing Base attributable to Eligible Inventory consisting of finished goods
(exclusive of seconds and samples) shall not exceed $11,718,000 at any time
during April 1996, $10,104,000 at any time during May 1996, $8,944,000 at any
time during June 1996, $8,272,000 at any time during July 1996, $8,932,000 at
any time during August 1996, $8,468,000 at any time during September 1996, or
$8,823,000 at any time during October 1996, and (iv) the aggregate amount of the
Borrowing Base attributable to Eligible Inventory consisting of seconds and
samples shall not exceed $1,950,000 at any time from the Effective Date through
the Commitment Termination Date.
(c) Section 6.21 of the Agreement is hereby amended by deleting
such Section in its entirety and by inserting, in lieu thereof, the following:
6.21 EBITDA. Borrower shall not permit its EBITDA for any
three-month fiscal period set forth below to be less than the
amount set forth opposite such three-month fiscal period (with
negative numbers indicated by parentheses):
Three-Month
Fiscal Period AMOUNT
January/February/March 1996 $3,800,000
February/March/April 1996 5,200,000
March/April/May 1996 6,100,000
April/May/June 1996 5,900,000
May/June/July 1996 5,300,000
June/July/August 1996 2,700,000
July/August/September 1996 (600,000)
August/September/October 1996 (3,200,000)
(d) The Agreement is hereby amended by adding the following
Section 6.25 thereto:
6.25 Cash Balances In Bank
Accounts. Borrower shall not permit any bank account of
Borrower to contain funds in an amount that exceeds the sum of
(a) the unpaid checks (i) drawn on such account, and
(ii) issued by Borrower in the ordinary course of business or
pursuant to an order of the Bankruptcy Court, and (b) the wire
transfers to be made from such account within the next three
days and to be used to pay obligations that will then be due
and payable pursuant to an order of the Bankruptcy Court or in
the ordinary course of Borrower's business; provided, however,
that the following bank accounts shall collectively be
permitted to contain $100,000 in addition to the amounts
otherwise contemplated by this Section 6.25: Borrower's bank
accounts at Bank of New York (Account No. 8230060712) and
Republic National Bank of New York (Account No. 9700121610).
Borrower shall not request any Advance under this Agreement
(whether pursuant to a Request for Advance, a telephonic
request for an Advance by a Responsible Official of Borrower,
or otherwise) that could reasonably be expected to cause
Borrower to breach the provisions of this Section 6.25.
(e) The definition of the term "Borrowing Base" is hereby further
amended by deleting in its entirety clause (g) contained in the last paragraph
of such definition and by inserting, in lieu thereof, the following:
(g) the Carve Out Amount as of the date of determination, plus
$500,000 (provided, however, that the aggregate reserve established pursuant to
this clause (g) shall not exceed an amount equal to $2,500,000), and
(f) Section 2.8 of the Agreement is hereby amended by deleting
the last sentence of such Section in its entirety and by inserting, in lieu
thereof, the following:
Notwithstanding any other provision of this Agreement, (y) the Professionals
Carve Out Amount shall not at any time exceed $2,500,000, and (z) the amount by
which the Professionals Carve Out Amount shall increase following the
occurrence and during the continuation of a Default or Event of Default shall
not exceed $500,000; provided, however, that the $500,000 limitation
contemplated by this clause (z) shall only become effective on the date that
the Agent gives written notice to Borrower that Agent has triggered the
effectiveness of this clause (z).
(g) Section 6.19 of the Agreement is hereby amended:
(1) by increasing the dollar amount contained in such Section
from $3,000,000 to $3,400,000, and
(2) by adding the following proviso at the end of such
Section:
; provided, however, that Borrower's aggregate MIS Expenditures during such
period shall not exceed $1,000,000.
(h) The definition of the term EBITDA is hereby amended:
(1) by deleting in its entirety clause (x)(vii) of such
definition and by inserting, in lieu thereof, the following:
(vii) non-cash losses recognized in connection with the establishment of
inventory market reserves which arise from the identification of obsolete
inventories when Borrower implements its fiscal year 1996 business plan, as
well as subsequent changes in inventory market reserves which result in
additional non-cash losses being recognized in the determination of Borrower s
Net Income,
(2) by deleting in its entirety clause (x)(x) of such
definition, and
(3) by deleting in its entirety clause (y)(iv) of such
definition and by inserting, in lieu thereof, the following:
(iv) changes in inventory market reserves which result in non-cash gains being
recognized in Borrower's Net Income, all as determined in accordance with GAAP.
3. Amendment Fee. Borrower shall pay to the Agent, for the account of
GE Capital, a nonrefundable amendment fee equal to $75,000, which shall be
fully earned upon entry by the Bankruptcy Court of the Amendment Order (as such
term is defined below) and shall be paid by Borrower not later than the end of
the next Business Day after the date of entry of the Amendment Order.
4. Continued Effectiveness of Agreement. Except as expressly amended
by this Amendment, the Agreement shall continue to be in full force and effect
in accordance with its terms. Notwithstanding any other provision of this
Amendment, this Amendment shall only become effective on the date upon which
both of the following conditions have been satisfied: (a) Borrower, the
Lenders and the Agent shall have executed and delivered this Amendment, and
(b) an Order approving the execution, delivery and performance by Borrower of
this Amendment (the "Amendment Order") shall have been entered by the
Bankruptcy Court in the Chapter 11 Case, which Amendment Order shall be
acceptable in form and substance to the Agent in its sole and absolute
discretion. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its principles of
conflicts of laws. This Amendment may be executed in one or more counterparts,
all of which shall be an original, but which together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
FORSTMANN & COMPANY, INC.,
as Debtor and Debtor-in-Possession
By: /s/ Robert N. Dangremond
---------------------------------
Name: Robert N. Dangremond
-------------------------------
Title: President
------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Agent
By: /s/ Rick Luck
---------------------------------
Rick Luck
Vice President,
GE Capital Commercial Finance, Inc.,
being duly authorized
Exhibit 4.2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - -x
In re :Chapter 11
Case No. 95-44190 (JLG)
FORSTMANN & COMPANY, INC., :
Debtor. :
- - - - - - - - - - - - - - - -x
STIPULATION AND ORDER SETTLING SENIOR SECURED NOTEHOLDERS'
AND TRUSTEE'S MOTIONS FOR RELIEF FROM THE AUTOMATIC
STAY, OR IN THE ALTERNATIVE, TO CONDITION USE OF THEIR
COLLATERAL UPON DEBTOR PROVIDING ADEQUATE PROTECTION
WHEREAS, CHANCELLOR Senior Secured Management, Inc. ("Chancellor"),
the authorized agent for the holders of $23.65 million of senior secured
floating rate notes due October 30, 1997 (the "Senior Secured Notes") issued by
the debtor and debtor-in-possession, Forstmann & Company, Inc. (the "Debtor"),
and Diamond Lease Company Ltd., a holder of $2.5 million of Senior Secured
Notes (together with Chancellor, the "Senior Secured Noteholders") filed a
Motion (the "Motion") in the above-referenced proceeding (the "Proceeding")
seeking (a) an order pursuant to 11 U.S.C. sectionsection 105(a), 362(d)(1) and
363(e) and Rule 4001 of the Federal Rules of Bankruptcy Procedure ("Fed. R.
Bankr. P.") conditioning the use by the Debtor of certain assets that are the
Senior Secured Noteholders' Primary Collateral (as defined in the Motion) and
the continuance of the automatic stay, upon the Debtor providing the Senior
Secured Noteholders with adequate protection of their interest in the Senior
Secured Noteholders' Primary Collateral in the form of monthly cash payments,
(b) an order prohibiting the Debtor from continuing to use the Senior Secured
Noteholders' Primary Collateral if the Debtor fails to make such payments, and
(c) an order granting the Senior Secured Noteholders relief from the automatic
stay, without further application to the Court, if the Debtor fails to make
such payments;
WHEREAS, Fleet National Bank of Connecticut, ("Fleet"), f/k/a
Shawmut Bank Connecticut, N.A. ("Shawmut") (the "Indenture Trustee") filed a
motion (the "Trustee's Motion") joining in the Motion and requesting the same
relief;
WHEREAS, the Motion and the Trustee's Motion each initiate a
contested matter pursuant to Fed. R. Bankr. Pro. 9014 and a core proceeding
pursuant to 28 U.S.C. section 157(b)(2)(A), (M) and (O);
WHEREAS, the United States Bankruptcy Court for the Southern
District of New York (the "Court") has jurisdiction over the subject matter of
this contested matter pursuant to 28 U.S.C. sectionsection 1334(b) and 157(a)
and (b);
WHEREAS, the Senior Secured Noteholders, the Indenture Trustee and
the Debtor have agreed to settle the issues raised by the Motion and the
Trustee's Motion by entering into the instant stipulation (the "Stipulation");
WHEREAS, the Stipulation has been negotiated by all parties hereto,
and the Official Committee of Unsecured Creditors, which has approved it as to
form and content, at arm's length, with all parties represented by counsel;
WHEREAS, the terms of the Stipulation are fair and reasonable under
the circumstances;
WHEREAS, Debtor believes it is in the best interest of the estate
to settle the Motion and the Trustee's Motion on the terms contained herein;
WHEREAS, the terms of the Stipulation do not violate Section 6.23
of the Amended and Restated Debtor-in-Possession Loan Agreement dated as of
September 27, 1995 (the "DIP Loan Agreement") or this Court's Final Order
Approving Postpetition Financing, Granting Liens Pursuant To 11 U.S.C. section
364, And Modifying The Automatic Stay dated October 31, 1995 (the "DIP Order");
and
WHEREAS, under Rule 4001(d)(4) of the Fed. R. Bankr. Pro. the
Stipulation may be approved by the Court without further notice because the
Motion and the Trustee's Motion were each made pursuant to Rule 4001(a) and
contained sufficient information to afford reasonable notice of the issues
being settled herein and opportunity for a hearing;
Now, therefore, it is HEREBY STIPULATED AND AGREED, by and between
the undersigned, as follows:
1. The Motion and the Trustee's Motion are withdrawn without
prejudice to renew at a later date in accordance with the terms of this
Stipulation.
2. Subject to the provisions of paragraph 7 below, as adequate
protection for Debtor's use of the Senior Secured Noteholders' Primary
Collateral through October 31, 1996, Debtor shall make the following payments,
in immediately available funds to the holders of the Senior Secured Notes on
the following dates in the manner provided in the Indenture (as defined in the
Motion):
a. March 21, 1996 $600,000
b. April 30, 1996 $100,000
c. May 31, 1996 $100,000
d. June 28, 1996 $100,000
e. July 31, 1996 $100,000
f. August 30, 1996 $100,000
g. September 30, 1996 $100,000
h. October 31, 1996 $100,000
Unless and until this Stipulation shall expire, neither the Senior Secured
Noteholders nor the Indenture Trustee shall seek any other or further adequate
protection with respect to the Debtor's use of the Senior Secured Noteholders'
Primary Collateral or the Lenders' Primary Collateral (as defined in the
Motion).
3. Subject to the provisions of paragraph 7 below, Debtor agrees
to pay the reasonable legal and appraisal fees and expenses incurred by the
Senior Secured Noteholders through the date of approval by the Court of the
Stipulation and the reasonable legal fees and expenses incurred by the
Indenture Trustee through the date of approval by the Court of the Stipulation.
The appraisal fees and expenses incurred by the Senior Secured Noteholders and
the legal fees and expenses incurred by the Indenture Trustee shall be paid on
March 21, 1996. The legal fees and expenses incurred by the Senior Secured
Noteholders shall be paid in three equal installments on March 21, 1996, April
30, 1996 and May 31, 1996. The Senior Secured Noteholders and the Indenture
Trustee represent and warrant that to the best of their knowledge the legal and
appraisal fees and expenses to be reimbursed by the Debtor pursuant to this
paragraph 3 do not exceed $240,000. All payments of legal fees and expenses
pursuant to this paragraph shall be subject to the provisions for documentation
and review applicable to the payment of counsel fees and expenses of General
Electric Capital Corp. ("GECC") set forth in paragraphs 11(b) and (c) of the
DIP Order, provided that the requirement of five business days' notice is
waived.
4. In the event Debtor fails to make any payment set forth in
paragraph 2 hereof on the date or in the amount set forth therein or any
payment set forth in paragraph 3, Debtor shall be in default under this
Stipulation. In the event of the Debtor's default, which default is not waived
by the Senior Secured Noteholders and the Indenture Trustee in writing within
five business days of such default, the terms of this Stipulation shall expire
and the Senior Secured Noteholders may file the Motion and the Indenture
Trustee may file the Trustee's Motion with the Court, or request the Court to
grant any other relief. This Stipulation shall also terminate in the event
that (i) GECC shall cease to make borrowings available under the DIP Loan
Agreement, or (ii) there shall occur a material adverse change in the financial
condition, operations, or business of the Debtor from the date of the
Stipulation, which change materially impairs the value of the interest of the
holders of the Senior Secured Notes in the Senior Secured Noteholders' Primary
Collateral. The parties hereto agree that should the Debtor close its facility
located in Tifton, Georgia and dispose of such facility and the machinery and
equipment contained therein, such closure and disposition shall not constitute
such a material adverse change.
5. The provisions of this Stipulation shall be binding upon and
inure to the benefit of the Debtor, the estate, the Senior Secured Noteholders,
the Indenture Trustee and their respective successors and assigns (including
without limitation, any trustee or other representative of the estate
hereinafter appointed in this Proceeding or in any subsequent proceeding
commenced under chapter 7 of the United States Bankruptcy Code (the "Bankruptcy
Code")).
6. Notwithstanding any provision of the Stipulation, the
Stipulation shall not be construed in any way as a waiver or relinquishment of
any rights the Senior Secured Noteholders or the Indenture Trustee may have to
be heard on any matter brought before the Court or to seek the appointment of a
trustee or examiner under Section 1104 of the Bankruptcy Code, to seek
conversion of the Proceeding to a proceeding under chapter 7 of the Bankruptcy
Code, or to oppose extension of the exclusivity periods provided by Section
1121 of the Bankruptcy Code. None of the payments made by the Debtor pursuant
to this Stipulation shall waive or modify in any respect any claim of the
Senior Secured Noteholders or the Indenture Trustee against the Debtor.
7. All payments made by the Debtor under the Stipulation
including, without limitations, fees and expenses reimbursed pursuant to
paragraph 3 hereof are subject to the reservation by the Debtor and each party
in interest of the right to (a) determine pursuant to the Bankruptcy Code
(including section 506 thereof) the proper allocation of such payments between
principal and interest of the obligations owed to the Senior Secured
Noteholders and (b) challenge the validity, priority, perfection and
enforceability of the liens held by the Indenture Trustee on the Debtor's
assets, provided that any such challenge to the validity, priority, perfection
or enforceability of the liens shall be brought on or prior to April 30, 1996
or be forever waived.
8. All notices, requests, consents and demands hereunder shall
be in writing and delivered by facsimile, hand delivery, overnight courier
service or by certified mail to the intended recipient at the address for
notice specified beneath its name on the signature pages hereof or, as to any
party to this Stipulation, at such other address as shall be designated by such
person in a notice to the other parties to this Stipulation. Except as
otherwise provided in this Stipulation, all such communications shall be deemed
to have been duly given when transmitted by facsimile or personally delivered
or, in the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid. Any party transmitting a notice, request, consent
and/or demand hereunder by facsimile shall deliver an original of such document
within five business days after delivery of the facsimile.
9. The terms of this Stipulation may be waived, altered,
modified, or amended only by an instrument in writing duly executed by the
parties hereto and the Official Committee of Unsecured Creditors. Any such
amendment or waiver shall be binding upon the parties to this Stipulation.
10. Each party to this Stipulation hereby acknowledges and agrees
to the terms and matters set forth herein.
11. This Stipulation shall take effect and be binding on the
parties upon approval by the Court.
IN WITNESS WHEREOF, the parties hereto have caused this Stipulation
to be duly executed and delivered for all purposes as of the date hereof.
Date: March 20, 1996
MILBANK, TWEED, HADLEY & McCLOY
By /s/ Stephen J. Blauner
----------------------------
(A Member of the Firm)
Stephen J. Blauner (SB 1997)
1 Chase Manhattan Plaza
New York, New York 10005
(212) 530-5000
Attorneys for Chancellor Senior
Secured Management, Inc. and
Diamond Lease Company Ltd.
REID & RIEGE, P.C.
By /s/ Eric Henzy
---------------------------
Eric Henzy (EH 6155)
One State Street
Hartford, Connecticut 06103
(860) 278-1150
Attorneys for Fleet National Bank
of Connecticut, as Indenture
Trustee
DEBEVOISE & PLIMPTON
By /s/ Richard Hahn
--------------------------
(A Member of the Firm)
Richard F. Hahn (RH 5391)
875 Third Avenue
New York, New York 10022
(212) 909-6000
Attorneys for Debtor and Debtor-
in-possession Forstmann &
Company, Inc.
APPROVED AS TO FORM AND CONTENT:
STROOCK & STROOCK & LAVAN
By /s/ Fred S. Hodara
--------------------------
(A Member of the Firm)
Fred S. Hodara (FH 7947)
Seven Hanover Square
New York, New York 10004-2696
(212) 806-5400
Attorneys for the Official
Committee of Unsecured Creditors
of Forstmann & Company, Inc.
SO ORDERED:
/s/ James L. Garrity, Jr.
- -------------------------
U.S.B.J.
Exhibit 4.3
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------x
:
In re: : Chapter 11
:
FORSTMANN & COMPANY, INC., : Case No. 95 B 44190 (JLG)
:
Debtor. :
:
- -----------------------------------x
STIPULATION PROVIDING ADEQUATE PROTECTION
WHEREAS, on September 22, 1995 (the "Petition Date"), FORSTMANN &
COMPANY, INC. (THE "Debtor") filed a Chapter 11 Petition for Reorganization
under Title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"); and
WHEREAS, prior to the Petition Date, the Debtor and CIT executed and
entered into a Loan and Security Agreement, dated December 27, 1991 (as amended
the "Loan Agreement") whereby CIT agreed to provide certain loans and financial
accommodations to the Debtor in order to finance certain machinery and
equipment, a true and correct copy of which is annexed hereto, made a part
hereof and marked Exhibit "A"; and
WHEREAS, on and after December 27, 1991, pursuant to the terms and
conditions of the Loan Agreement, the Debtor executed and delivered in favor of
CIT eight (8) Supplements to the Loan Agreement (each a "Supplement" and
collectively, the "Supplements"), and contemporaneously with each such
execution and delivery, executed and delivered in favor of CIT a corresponding
Promissory Note as of the dates and in the original principal amounts as listed
on Exhibit "B" hereto (each a "Note") to evidence the indebtedness of the
Debtor to CIT for loans made to the Debtor contemporaneously therewith; and
WHEREAS, pursuant to the Loan Agreement and the Supplements, the
Debtor granted to CIT security interests in and liens upon certain property of
the Debtor as specified therein, including, without limitation, certain pieces
of equipment and other items of personal property relating to such equipment,
together with all accessories, parts, repairs, replacements, substitutions,
attachments, modifications, renewals, improvements, additions, upgrades and
accessories of, to or upon such items of equipment whenever acquired (the
"Equipment"), all warranties, service contracts or like arrangements with
respect to the Equipment, and all plans, specifications, operating manuals and
other documents and instruments relating to the operation of the Equipment (the
"Operating Documents") and the proceeds of the foregoing (all of the foregoing,
collectively, the "Collateral"); and
WHEREAS, CIT asserts that it perfected its security interest in the
Collateral by filing Uniform Commercial Code financing statements in all
necessary jurisdictions (the "UCCs"; the UCCs, together with the Loan
Agreement, the Supplements, the Notes and any other related documents,
instruments, and agreements creating or evidencing indebtedness or granting
collateral security, executed and delivered by the Debtor or related third
parties in favor of CIT, are hereinafter collectively referred to as the
"Agreements"); and
WHEREAS, the Debtor is in default under the Agreements; and
WHEREAS, by letter dated January 3, 1996 the Debtor acknowledged that
as of October 31, 1995 it was indebted to CIT in the aggregate amount of
$7,750,122.16 plus other costs, fees and charges payable by the Debtor in
accordance with the terms of the Agreements and the provisions of the United
States Bankruptcy Code, and acknowledged CIT's fully perfected liens upon and
security interests in the Collateral (a copy of such Acknowledgment Letter is
annexed hereto, made a part hereof and marked as Exhibit "C"); and
WHEREAS, the Debtor acknowledges that it is obligated to CIT under the
Agreements in the aggregate amounts set forth in paragraph 2 hereof; and
WHEREAS, the Debtor was in possession of the Collateral on the
Petition Date and continues to be in possession of the Collateral and continues
to use the Collateral during its reorganization and CIT has agreed to the
Debtor's continued retention and use of the Collateral upon the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Debtor and CIT hereby agree as follows:
1. Except as modified herein, and subject to the United States
Bankruptcy Code, the Debtor hereby acknowledges and confirms the terms and
provisions of the Agreements. Nothing in this Stipulation shall be deemed to
constitute an assumption of the Agreements by the Debtor.
2. The Debtor hereby acknowledges and confirms that it is
indebted to CIT as of February 29, 1996 in the aggregate principal amount of
$6,554,243.08 plus interest accrued and accruing, attorneys fees and other sums
and charges as provided for in the Agreements, to the extent permitted by the
United States Bankruptcy Code (the "Indebtedness"), and that such indebtedness
is due and owing.
3. As adequate protection under Sections 361, 362 and 363 of the
Bankruptcy Code, for, among other things, the use by the Debtor of the
Collateral, the Debtor shall make a monthly payment to CIT on the last business
day of each month in arrears in the amount of $95,000 (each, an "Adequate
Protection Payment" and collectively, the "Adequate Protection Payments"),
commencing March 31, 1996, provided, however, that the amount of the Adequate
Protection Payment to be paid on March 31, 1996 shall be reduced by $7,695.42,
such amount representing (i) the aggregate amount of drawings of $88,639.43
made by CIT during March, 1996 under letter of credit No. S950177, dated
October 16, 1995, issued by ABN AMRO Bank N.V. in favor of CIT in the original
amount of $1,212,830.50 allocable to payments due under the Notes and
Supplements, less (ii) the amount of costs of $80,944.01 including attorneys
fees and disbursements incurred by CIT through February 29, 1996 in connection
with this bankruptcy case, enforcement of CIT's rights under the Agreements and
protection of CIT's interests in the Collateral.
4. Upon approval of this Stipulation by the Bankruptcy Court,
all Adequate Protection Payments which otherwise would have been payable
hereunder prior to such approval shall be paid by the Debtor to CIT within
three (3) business days of such approval.
5. The Debtor shall continue making Adequate Protection Payments
hereunder until the earliest of (i) October 31, 1996, (ii) the maturity of all
indebtedness of the Debtor under the debtor-in-possession financing facility
provided to the Debtor by General Electric Capital Corporation, including any
renewals or extensions thereof, as approved by Final Order of the Bankruptcy
Court on October 31, 1995 or any substantially equivalent replacement debtor-
in-possession financing facility (the "DIP Facility"), (iii) the written
agreement of CIT and the Debtor to terminate the Adequate Protection Payments,
(iv) the occurrence of an Event of Default under this Stipulation and notice to
the Debtor by CIT of such Event of Default and CIT's intention to terminate
this Stipulation or (v) an order of the Bankruptcy Court terminating or
reducing the Adequate Protection Payments. Unless and until this Stipulation
shall expire or terminate, CIT shall not seek any other or further adequate
protection with respect to the Debtor's use of the Collateral.
6. All payments made by the Debtor under this Stipulation are
subject to the reservation of all rights (a) by the Debtor and each party in
interest, with respect to the determination pursuant to the United States
Bankruptcy Code (including, without limitation, Section 506) of the proper
allocation of such payments between principal, interest and costs of the
obligations owed to CIT and (b) by each party in interest to challenge the
validity, priority, perfection and enforceability of the liens held by CIT on
the Debtor's assets, provided that any such challenge or objection to the
validity, priority, perfection or enforceability of the liens shall be filed
with the Bankruptcy Court on or prior to May 31, 1996 or be forever waived.
Nothing contained herein shall limit CIT's right to apply the Adequate
Protection Payments to the Debtor's outstanding Indebtedness to CIT for its
internal purposes as CIT in its sole discretion determines. This Stipulation
shall have no effect on the rights of the parties with respect to payments on
CIT's claims not encompassed in this Stipulation, all of which rights are
expressly reserved.
7. CIT hereby finally and irrevocably waives its claim for
default rate interest as provided for in the Agreements, and agrees to charge
the non-default rate of interest otherwise chargeable under the Agreements,
during the period from the Petition Date through the date the Debtor ceases
making complete and timely Adequate Protection Payments; provided, however,
that such waiver is without prejudice to any right CIT may have to a claim for
default rate interest as provided for in the Agreements from and after the date
on which the Debtor ceases making Adequate Protection Payments.
8. As adequate protection under Sections 361, 362 and 363 of the
Bankruptcy Code for, among other things, the use by the Debtor of the
Collateral, CIT shall be granted administrative priority status under Section
503(b)(1) of the Bankruptcy Code for the payment of the Adequate Protection
Payments.
9. CIT shall have all rights and remedies with respect to the
Debtor, the Collateral and the repayment of the Indebtedness as are provided
for in this Stipulation and the Bankruptcy Code.
10. Upon the occurrence of any of the following events (each, an
"Event of Default"), each of which shall also constitute an "Event of Default"
under and as defined in the Agreements: a default in payment of any amount
due under this Stipulation and such default shall continue for five (5)
consecutive days ("Payment Default"); a breach by the Debtor of any material
term or condition of this Stipulation and such breach shall continue for ten
(10) consecutive days; the dismissal of the Debtor's Chapter 11 case or the
conversion thereof to a case under Chapter 7; or the termination or cessation
of substantially all of the Debtor's business operations and subsequent notice
by CIT to the Debtor of the termination of this Stipulation; then, in addition
to any other rights or remedies granted to CIT under this Stipulation, and
without further Order of the Bankruptcy Court, CIT may upon fifteen (15) days
notice to the Debtor, move for relief from any stay, including, without
limitation, any stay under Section 362 of the Bankruptcy Code with respect to
the exercise of CIT's remedies under this Stipulation, the Agreements or
otherwise, or with respect to the enforcement of CIT's rights to obtain
possession, sell, lease, transfer, or otherwise dispose of the Collateral;
11. Except as specifically amended herein or as modified by the
United States Bankruptcy Code, the Agreements shall remain in full force and
effect in accordance with their terms and the Debtor agrees, among other
things, to continue to perform all acts required under this Stipulation and the
Agreements, including, without limitation, the obtaining of casualty, hazard,
liability and property insurance with respect to the Collateral, designating
CIT as the loss payee thereunder, at Debtor's sole expense and as provided for
in the Agreements, the delivery of such written reports as CIT may require as
to the location, status and condition of the Collateral, the providing to CIT,
at CIT's request, of access to the Collateral and all of the Debtor's books and
records relating thereto, in order to allow CIT to examine the Collateral and
such books and records, and the execution of such other documents, agreements
or instruments as are reasonably necessary to carry out the terms and
provisions hereof.
12. Upon the execution of this Stipulation, the Debtor shall
apply to the Bankruptcy Court within five (5) days, in accordance with the
rules of the Bankruptcy Court, for approval of this Stipulation.
13. This Stipulation shall not become effective until it has been
approved by an Order of the Bankruptcy Court, except as to paragraph 15 hereof
which shall become effective upon execution of this Stipulation by the Debtor
and CIT.
14. This Stipulation may not be modified, except in a writing
signed by Debtor and CIT, which modification shall be upon notice to parties in
interest and subject to the approval of the Bankruptcy Court.
15. In the event that this Stipulation is not approved by the
Bankruptcy Court, CIT shall have the right to immediately make application to
the Bankruptcy Court for, among other things, adequate protection, and such
other and further relief as CIT deems appropriate in its discretion. Nothing
contained herein shall be deemed to prejudice or waive any such right.<PAGE>
16. This Stipulation shall be binding upon CIT and its successors and
assigns and the Debtor and its successors and assigns, including, without
limitation, any trustee-in-bankruptcy.
WHEREFORE, the parties hereto have executed this Stipulation as of the
____ day of April , 1996.
FORSTMANN & COMPANY, INC.
DEBTOR and Debtor-in-Possession
By: /s/ Rodney J. Peckham
---------------------------------------------
Title: Chief Financial Officer
-------------------------------------------
THE CIT GROUP/EQUIPMENT FINANCING, INC.
BY: /s/ Arthur M. Lowenthal
----------------------------------------------
Title: Senior Vice President
-------------------------------------------
SO ORDERED this 21st day
of May, 1996
/s/ James L. Garrity, Jr.
- ------------------------------
UNITED STATES BANKRUPTCY JUDGE
Exhibit 15.1
INDEPENDENT ACCOUNTANTS' REPORT
TO the Board of Directors and Shareholders of
FORSTMANN & Company, Inc. (Debtor-in-Possession):
We have reviewed the accompanying condensed balance sheet of Forstmann &
Company, Inc. (Debtor-in-Possession) as of April 28, 1996 and the related
condensed statements of operations for the thirteen and twenty-six weeks ended
April 28, 1996 and April 30, 1995 and cash flows for the twenty-six weeks ended
April 28, 1996 and April 30, 1995 and the condensed statement of changes in
shareholders' equity (deficit) for the twenty-six weeks ended April 28, 1996.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. 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.
The accompanying condensed financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and
5 to the condensed financial statements, the Company was in violation of
substantially all of its debt agreements at April 28, 1996, has experienced a
significant decline in operating results and has filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. Such conditions raise
substantial doubt about the Company s ability to continue as a going concern.
Management s plans concerning these matters are also described in Note 1.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Forstmann & Company, Inc. as of October 29,
1995 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 January 26, 1996, we expressed an unqualified opinion on those
financial statements and included an explanatory paragraph concerning matters
that raise substantial doubt about the Company s ability to continue as a going
concern. In our opinion, the information set forth in the accompanying
condensed balance sheet as of October 29, 1995 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
June 10, 1996
Exhibit 23.1
June 11, 1996
Forstmann & Company, Inc.
1155 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. (Debtor-in-Possession) for the periods
ended April 28, 1996 and April 30, 1995, as indicated in our report dated June
10, 1996 (which included an explanatory paragraph concerning matters that raise
substantial doubt about the Company s ability to continue as a going concern);
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 28, 1996, is
incorporated by reference in Registration Statement No. 33-57643 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 that Act.
Yours truly,
/s/Deloitte & Touche LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Forstmann & Company, Inc. condensed financial statements for the
twenty-six weeks ended April 28, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-03-1996
<PERIOD-START> OCT-30-1996
<PERIOD-END> APR-28-1996
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 55,938
<ALLOWANCES> 3,580
<INVENTORY> 64,183
<CURRENT-ASSETS> 120,709
<PP&E> 73,119
<DEPRECIATION> 38,263
<TOTAL-ASSETS> 196,925
<CURRENT-LIABILITIES> 79,466
<BONDS> 23,803
2,655
0
<COMMON> 6
<OTHER-SE> 1,182
<TOTAL-LIABILITY-AND-EQUITY> 196,925
<SALES> 95,393
<TOTAL-REVENUES> 95,393
<CGS> 83,455
<TOTAL-COSTS> 83,455
<OTHER-EXPENSES> 8,738
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 4,646
<INCOME-PRETAX> (2,046)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (4,433)
<CHANGES> 0
<NET-INCOME> (6,479)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
