UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 3, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9474
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FORSTMANN & COMPANY, INC.
Debtor-in-Possession
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1651326
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Avenue of the Americas, New York, N.Y. 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 642-6900
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. As a result of the Company's closing price per share being
less than $1.00 per share for more than thirty (30) consecutive days, the
NASDAQ National Market System delisted Forstmann & Company, Inc. on
October 16, 1995. Accordingly, the aggregate market value of the voting stock
held by non-affiliates of the registrant is not determinable.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
As of January 30, 1997 - 5,618,799 shares of Common Stock
Total Number of Pages: [ ]
Exhibit Index starts on sequentially numbered page [ ].
Item 1. BUSINESS
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GENERAL
Forstmann & Company, Inc., a Georgia corporation (the "Company" or
"Forstmann"), 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. The apparel industry represents the majority of the Company s
customers. The Company manufactures fabrics produced from 100% wool, wool
blends and blends of other natural and man-made fibers. The Company believes
that it is the largest manufacturer of domestically produced woolen fabrics
and the second largest manufacturer of domestically produced worsted fabrics.
During the Company's 1996 fiscal year (the fifty-three week period from
October 30, 1995 through November 3, 1996) ("Fiscal Year 1996"), women's wear
and outerwear fabrics accounted for approximately 67.8% of revenues and men's
wear fabrics accounted for approximately 20.3% of revenues. During the
Company's 1995 fiscal year (the fifty-two week period from October 31, 1994
through October 29, 1995) ("Fiscal Year 1995"), women's wear and outerwear
fabrics accounted for approximately 67.0% of revenues and men's wear fabrics
accounted for approximately 25.8% of revenues. During the Company's 1994
fiscal year (the fifty-two week period from November 1, 1993 through October
30, 1994) ("Fiscal Year 1994"), women's wear and outerwear fabrics accounted
for approximately 64.0% of revenues and men's wear fabrics accounted for
approximately 28.0% of revenues. Specialty fabrics, including government and
other, accounted for remaining revenues.
Although Forstmann was incorporated in December 1985, its predecessors
have been in business for over 100 years. The Company is the successor to the
business of the Woolen and Worsted Fabrics Division of J.P. Stevens & Co.,
Inc., the assets of which the Company acquired in February 1986.
The principal executive offices of the Company are located at 1155
Avenue of the Americas, New York, New York 10036, and its telephone number is
(212) 642-6900.
SIGNIFICANT EVENTS
Bankruptcy Filing. The Company's results of operations declined significantly
during Fiscal Year 1995. The decline in the Company's results of operations
during Fiscal Year 1995 was principally due to rising wool costs, sluggishness
of retail apparel sales and a significant decline in women s outerwear sales,
which were partially offset by higher volume in sales of fabrics yielding
lower profit margins. This was further compounded by the Company's
historically high debt leverage and resulted in the Company being unable to
meet all of its principal and interest payments when such became due. 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").
Although the rise in wool costs subsequently stabilized, the continued
sluggishness of retail apparel sales, as well as the continued economic
downturn in the apparel industry has further strained the Company s operating
results during Fiscal Year 1996. Recently such underlying market conditions,
particularly in men's wear and women's outerwear have somewhat stabilized,
management believes that competition from domestic sources and imports will
increase during fiscal year 1997. In response to these factors, management of
the Company has instituted plans with a greater focus on significantly reduced
product offerings; tighter management of inventory levels; enhanced cost
controls; and reduced capital expenditures. All of these management actions
are designed to improve the Company s cash flows from operations and in total.
The Company has successfully improved performance during Fiscal Year 1996 in
each of these areas and is continuing to refine its strategies in response to
evolving circumstances.
Further, in the fourth quarter of Fiscal Year 1996, management began
efforts to negotiate and document a plan of reorganization pursuant to which
the Company will emerge from bankruptcy. The Company currently anticipates
that such a plan of reorganization can be confirmed and consummated in the
first half of calendar year 1997. However, due to the factors involved to
confirm a plan of reorganization there can be no assurance that the Company
will confirm and consummate a plan of reorganization in such time frame or at
all.
The Company has continued to accrue interest on the majority of its
secured debt obligations as the Company currently estimates that the
collateral securing most of the secured debt obligations is sufficient to
cover the debt and interest portion of scheduled payments. Refer to Note 7 to
the Financial Statements included in Item 8. of this Annual Report on Form 10-
K and "Financing Agreements -- DIP Facility" for a discussion of the credit
arrangements entered into subsequent to the Bankruptcy Filing.
In the course of the Company's operational restructuring, certain assets
of the Company have been rendered surplus or obsolete. Accordingly, during
Fiscal Year 1996, the Company has increased its inventory market reserves (see
Note 3 to the Financial Statements included in Item 8. of this Annual Report
on Form 10-K ) and written down certain of its machinery and equipment (see
Note 4 to the Financial Statements included in Item 8. of this Annual Report
on Form 10-K).
As a plan of reorganization is developed, the Company may further
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 its plan of reorganization that are not reflected in the
Financial Statements included in Item 8. of this Annual Report on Form 10-K.
Any additional asset impairment or restructuring costs directly related to
reorganization proceedings will be reflected as reorganization items in the
period the Company becomes committed to plans which impair the valuation of
the Company's assets or incurs a restructuring liability.
Other Financing Events. IN connection with the Bankruptcy Filing, the Company
obtained from General Electric Capital Corporation ("GE Capital") debtor-in-
possession financing (as amended, the "DIP Facility"), which provides up to
$85 million in financing (including a $10.0 million letter of credit facility)
under a borrowing base formula. The DIP Facility was amended on May 31, 1996
to, among other things, cure the EBITDA (as defined in the DIP Facility)
covenant violation that existed at April 28, 1996, set revised minimum EBITDA
covenants and cap eligible inventory included in the borrowing base.
The DIP Facility was further amended on October 10, 1996 to extend the
maturity of the DIP Facility one year to October 31, 1997, to cure all minimum
EBITDA covenant violations for any period ending prior to September 1, 1996
and to set revised minimum EBITDA covenants for the remainder of the Company's
Fiscal Year 1996 and all of fiscal year 1997. Based upon current financial
forecasts, management of the Company expects that the Company will not be in
violation of the DIP Facility while under court protection. However,
depending upon the results of future operations, a future violation may occur.
The October 1996 amendment to the DIP Facility also reduces the advance rate
for eligible inventory and sets revised inventory advance caps. The Company
expects that availability under the DIP Facility will be adequate to fund its
operating and capital expenditure requirements for all of fiscal year 1997.
On April 5, 1993, the Company issued an aggregate of $20 million Senior
Secured Notes (the "Original Senior Secured Notes") and on March 30, 1994, the
Company issued an aggregate of $10 million Senior Secured Notes (the
"Additional Senior Secured Notes"), all of which are due October 30, 1997
(collectively the "Senior Secured Notes"). The Senior Secured Notes were
issued pursuant to an indenture, dated April 5, 1993, which was amended and
restated as of March 30, 1994, between the Company and Shawmut Bank
Connecticut, National Association, as trustee (the "Senior Secured Notes
Indenture"). See "Financing Arrangements -- Senior Secured Notes".
As a result of the Bankruptcy Filing, the Company has not remitted
principal and interest payments which are due under the 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
agreements, 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 under the Senior Secured Notes
Indenture. The agreement was amended to provide "adequate protection"
payments in the amount of $125,000 at the end of each month commencing on
November 27, 1996 and ending on the earlier of (i) the date on which a plan of
reorganization is consummated in the Company s bankruptcy case or (ii) October
31, 1997. In connection with the amended agreement, the Company also agreed
to pay $85,000 in legal fees and expenses incurred by certain of the holders
of the Senior Secured Notes and the trustee. The Company has applied the
adequate protection payments made as of November 3, 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.
Since December 1991, the Company has been a party to a loan and security
agreement (as amended, the "CIT Equipment Facility") with the CIT
Group/Equipment Financing, Inc. ("CIT") which provided financing for the
acquisition of and refinancing of borrowings incurred to acquire various
textile machinery and equipment. At November 3, 1996, an aggregate of $6.1
million was outstanding under the CIT Equipment Facility.
As a result of the Bankruptcy Filing, the Company has not remitted
principal and interest payments which are due under the CIT Equipment
Facility. At the Bankruptcy Filing date the Company owed CIT $7.7 million in
principal and accrued interest payments and had issued $1.5 million in letters
of credit payable to CIT. During Fiscal Year 1996, CIT drew against all
amounts outstanding under the letters of credit to satisfy a portion of the
principal and interest due under the CIT Equipment Facility.
In Fiscal Year 1996, the Company agreed to provide "adequate protection"
payments to CIT in connection with the CIT Equipment Facility. The agreement
required 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. The agreement was subsequently amended to provide "adequate
protection" payments in the amount of $118,750 at the end of each month
commencing on November 27, 1996 and ending on the earlier of (i) the date on
which a plan of reorganization is consummated in the Company s bankruptcy case
for (ii) October 31, 1997. In connection with the amended agreement, the
Company also agreed to pay $48,000 in legal fees and expenses incurred by CIT.
The Company has applied the adequate protection payments made as of November
3, 1996 first to accrued interest and secondly to outstanding principal.
However, final application as to principal and interest of the adequate
protection payments is to be subsequently determined pursuant to the
Bankruptcy Code.
DESCRIPTION OF BUSINESS
MARKETS AND PRODUCTS. Forstmann fulfills many of the diverse fabric needs of
leading men's, women's and outerwear apparel makers by offering a collection
of 100% wool, wool-blend, synthetic and synthetic-blend fabrics, as well as
fabrics blended with natural fibers such as linen, cotton and silk. These
fabrics are offered in a wide variety of styles, colors, weaves and weights
which can be used in tailored clothing, sportswear, coats for men and women,
as well as for specialty applications. The Company introduces new collections
throughout the year to ensure that its customers are frequently exposed to the
latest fabric offerings and to accommodate seasonal retail cycles. This has
resulted in stronger, year-round customer relationships. As a result of the
Bankruptcy Filing, the Company began an internal rationalization of its
product line during the fourth quarter of Fiscal Year 1995, reviewing each of
its styles for such factors as margin contribution, volume and continued
market potential. Through this review, the Company simplified the complexity
of its product development process and reduced the total number of products
offered. The Company has established a protocol for new product development
that requires analysis of such factors as research and development costs,
potential margin contribution, volume and sales, prior to adopting a new
product which will be on-going as the Company continues to evaluate its
product offerings.
Women's Apparel Fabrics. The Company designs, markets and manufactures
woolen and worsted fabrics for women s apparel in the moderate, better and
bridge price ranges, primarily for sportswear, suits and dresses. Forstmann
is also a significant supplier of fabrics for women s woolen coats, providing
fabric for most major domestic women s outerwear resources. Forstmann offers
a spring/summer, fall/winter and holiday fabric collection for women s apparel
with each one varying in terms of fabric composition, weight, color palette
and styling to fit the appropriate season. The fall/winter collection
includes traditional fabrics such as 100% wool, flannels, meltons and velours
and 100% worsted crepes, tricotines and twills. It also includes more
directional fabrics made with silk, mohair, cashmere, polyester, viscose and
other synthetic and natural fibers.
The spring/summer and holiday collections are generally lighter in
weight and texture. As U.S. consumer habits demand, there is a greater
emphasis on non-wool or "wool-poor" products in these collections. They
include a number of 100% worsted viscose and viscose-blend fabrics, as well as
a variety of combinations of fibers such as linen, silk and polyester.
Forstmann also offers a collection of lightweight worsted wool fabrics, some
of which are suitable for year-round wear and contain Lycra (R) brand spandex*
or other synthetic or natural fibers. Some fabrics thus are sold year-round.
With three distinct collections, Forstmann is seeking to serve its
women's wear customers all year long. The women's apparel fabrics group
accounted for approximately 67.8% in Fiscal Year 1996, 67.0% in Fiscal Year
1995 and 64.0% in Fiscal Year 1994 of total revenue.
Men's Apparel Fabrics. The Company designs, markets and manufactures
fabrics in the moderate and better price ranges for men's apparel. The men's
wear group presents a fall/winter and spring/summer collection for two general
apparel categories: sportswear (woolen sportcoats, trousers, etc.) and
tailored clothing (worsted suits, formal wear, blazers, etc.) The product
ranges include traditional fabrics such as tropicals, gabardines and flannels
in wool and wool blends, as well as fabrics made with man-made fibers such as
Lycra (R) brand spandex, viscose and polyester and natural fibers such as
linen and silk. Through market-specific product styling and composition, the
Company is able to serve emerging apparel categories such as suit separates
and "dress-casual sportswear" as well as its traditional base of tailored
clothing and sportswear. Men's wear accounted for approximately 20.3% in
Fiscal Year 1996, 25.8% in Fiscal Year 1995 and 28.0% in Fiscal Year 1994 of
total revenue.
Specialty and Government Fabrics. The Company produces specialty fabrics
for a wide variety of end uses, including billiard tables, sports caps and
school uniforms. The Company is a leading domestic billiard table fabric
manufacturer, selling directly to manufacturers and distributors. Since 1992,
the Company has also sold a small percentage of billiard fabrics in Europe.
Forstmann is the dominant supplier of wool fabric used in production of
official major league baseball caps for on-field play.
The Company also sells a limited amount of fabric through the bidding
process to the U.S. government for a variety of military apparel uses. These
fabrics are designed to meet stringent requirements for tailoring, comfort and
durability. The Company's sales to the government are generally in the form
of long-term contracts for high-volume, lower-margin goods. Therefore, the
Company bids opportunistically on contracts that will balance its
manufacturing capacity during off-peak periods. The actual awarding of
government contracts can be a long-term process with legislative approval of
funding
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Lycra (R) brand spandex is a registered trademark of E.I. Dupont de Nemours &
Company, Inc.
sometimes required. During Fiscal Year 1996, the Company was awarded $5.8
million in government contracts and at November 3, 1996, $6.5 million in
orders were open and unfilled. Specialty and government sales accounted for
approximately 11.9% in Fiscal Year 1996, 7.2% in Fiscal Year 1995 and 8.0% in
Fiscal Year 1994 of total revenue.
Forstmann International. In July 1992, the Company formed the Forstmann
International division and entered into a licensing, technical information and
consulting arrangement with Compagnia Tessile, S.p.A., an Italian corporation,
and its affiliate (collectively "Carpini"). Under the arrangement, the
Company had the exclusive right to sell "Carpini(R) USA" fabrics for men's and
women's apparel in the United States and Canada and nonexclusive rights in
Mexico for an initial period of five years. These high quality fabrics,
styled in Italy and manufactured in Georgia, were marketed through a
specialized sales force to the designer and bridge apparel markets in North
America. Additionally, the Company imported certain fabrics from Carpini and
its affiliate which the Company marketed in the United States and Canada. The
division accounted for less than 3% of sales at its peak in Fiscal Year 1995
and was unprofitable in each year of its operation.
In connection with the arrangement with Carpini, the Company established
letters of credit payable to Carpini and an affiliate in an aggregate of $1.0
million. Subsequent to the commencement of the bankruptcy proceeding, the
Company rejected all agreements with Carpini. Under the terms of the
agreement and letters of credit, Carpini subsequently drew all amounts
outstanding under the letters of credit as reimbursement for defaulted royalty
and guaranteed minimum fee and liquidated damages. The $0.7 million in excess
of accrued royalty and guaranteed minimum fee due as of December 31, 1995 was
recognized as a reorganization item in the Company s first quarter of Fiscal
Year 1996.
STYLING, MERCHANDISING AND MARKETING. The Company's styling, merchandising
and marketing functions are integrated and include the conceptualization
(styling and merchandising) and the sales (marketing) of the product line.
These functions are directed from its New York office and are organized around
the Company's three customer-end use divisions: women s apparel fabrics, men s
apparel fabrics and specialty fabrics. The primary sales force is based in
New York, with a sales representative in Dallas. The Company also retains
sales agents in Canada, Germany and California.
PRODUCT DEVELOPMENT. As a result of the Bankruptcy Filing, the Company began
an internal rationalization of its product line during the fourth quarter of
Fiscal Year 1995, through which the Company simplified its product development
process and reduced the total number of products offered. This exercise also
led to a complete restructuring of the product development function within the
Company. The ultimate accountability for the successful, cost-effective
development of new products was returned to the senior manager of each of the
Company's customer-end use divisions. The Company has established a protocol
for new product development that requires analysis of such factors as research
and development costs, potential margin contribution, and market potential
prior to adopting a new product. Over the course of each fiscal year,
approximately 30% of products offered are new introductions. The protocol
will be on-going as the Company develops and implements a simplified, but more
focused, product line. Forstmann's objective is to cultivate innovative
product development that manages the Company s resources and maximizes its
manufacturing capabilities while addressing the ever changing requirements of
its targeted markets.
MANUFACTURING. The Company has vertically integrated facilities that perform
operations from yarn manufacturing through weaving, dyeing and finishing of
fabric. This vertical integration not only provides significant flexibility
in the production of woolens and worsteds fabrics, but also the ability to
produce a wide variety of other natural and synthetic-blend fabrics.
For the production of woolen fabrics the Company purchases scoured
(degreased) wool. Scoured wool is the shorter fiber taken from the sheep, and
when spun into yarn generally has a "fuzzy" appearance due to the length of
the fiber. Woolen fabrics are used in garments such as flannel blazers,
outerwear coats and sports coats. Woolen fabrics can be produced piece-dyed
(solid color) or as fancies (patterned). In piece dyeing the fabric is dyed
after it is woven. In fancies, the raw wool is dyed or yarn is dyed and then
woven into the desired pattern. Finishing of woolen fabrics is the critical
value added step in the manufacturing process. It is finishing that gives the
woolen fabric its "hand" (feel) and appearance.
For the production of worsted fabrics, the Company purchases wool top.
Wool top is the long fiber taken from the sheep which has been combed, a
process which parallels and straightens the fibers. The combination of the
long fibers and additional yarn manufacturing steps to straighten the fibers
produces worsted yarn, which is generally fine and has a smooth appearance.
Worsted fabrics are used in garments such as men's suits, women's crepe skirts
and men's trousers. Worsted fabrics, like woolen fabrics, can be produced
piece dyed (solid) or fancy (patterned). Other fibers such as viscose, linen,
silk, polyester, nylon or cotton can be blended or woven into both woolen and
worsted applications.
CAPITAL INVESTMENT PROGRAM. During fiscal year 1992, the Company established
a six-year, $100 million capital investment program. This program was
designed to (i) reduce manufacturing costs, (ii) enhance product quality,
(iii) provide greater manufacturing flexibility while maintaining operating
efficiencies, and (iv) improve the Company's technical capabilities to provide
new blends, styles and colors of fabrics to be offered. Through the end of
Fiscal Year 1995, the Company made capital expenditures (including capital
leased assets and computer information systems) of $64.1 million and also
entered into certain operating leases associated with machinery and equipment.
As a result of the Bankruptcy Filing, the Company's capital investment
program was halted. Capital expenditures during Fiscal Year 1996 were limited
to maintaining the Company s facilities, emergency replacements and the
relocation of certain wool blending machinery and equipment from the Company s
Tifton facility to its Dublin facility. During Fiscal Year 1996, the Company
invested $1.0 million in property, plant and equipment and $0.9 million in the
development and implementation of certain computer information systems. The
Company expects to spend less than $5.0 million in capital-related
expenditures (including costs associated with the development and
implementation of computer information systems) during fiscal year 1997.
During Fiscal Year 1996, the Company announced its intention to close
its Tifton facility. The closing commenced in late July 1996 and was
completed in November 1996. The Company incurred $0.4 million during Fiscal
Year 1996 and expects to incur $0.2 million during fiscal year 1997 in
connection with the relocation of certain of its wool blending machinery and
equipment from the Tifton facility to the Dublin facility. Such expenses are
being reflected as reorganization items in the period incurred.
In November 1996, the Company entered into a Contract of Sale with the
Tift County Development Authority, providing for the sale of the Tifton
facility for $1.25 million. The Contract of Sale provided for the transaction
to close prior to the end of January 1997. As a result of delays in obtaining
the financing necessary to consummate its purchase of the facility, the
Development Authority requested that the closing of the transaction be
delayed. Accordingly, the Company and the Development Authority entered into
an agreement amending the Contract of Sale to provide for a closing on or
before February 28, 1997. The Company and the Development Authority are
working to conclude the sale of the Tifton facility prior to this date.
However, there can be no assurance that the sale will be consummated in this
or any other timeframe.
The expected selling price for the Tifton facility is $1.1 million below
the net book value for the facility. This expected loss was accrued during
Fiscal Year 1996.
RAW MATERIALS. The Company's raw material costs constituted approximately
42.0% of its cost of goods manufactured during Fiscal Year 1996. The primary
raw material used by the Company is wool. As a result, the Company's costs
are dependent on its ability to manage its wool inventory and control its wool
costs. Approximately three-quarters of the Company's wool is imported from
Australia and substantially all of the balance is purchased in the United
States. The Company purchases its wool from both brokers and processors and
is not dependent on a single supply source. The Company's foreign wool
purchases are denominated in U.S. dollars and the Company generally does not
incur any currency exchange risk. 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.
Prior to the Bankruptcy Filing, much of the Company's wool was purchased on
extended payment terms. Subsequent to the Bankruptcy Filing, the majority of
the Company's wool purchases have required payment to the wool providers upon
arrival in the United States or upon the Company s receipt of the wool.
During Fiscal Year 1995, the cost of certain raw wool categories sourced from
Australia rose significantly, due in part to a drought in Australia which
resulted in a reduction in sheep herds. More recently, world-wide declines in
wool demand have resulted in a moderate decline in wool costs. Fiscal Year
1996 wool costs were 7% higher than Fiscal Year 1995; whereas Fiscal Year 1995
wool costs were 26% higher than Fiscal Year 1994. Based on the Company's
forward purchase commitments, the Company expects its wool costs to be a
weighted average of 3% lower during fiscal year 1997 as compared to Fiscal
Year 1996.
The Company purchases the majority of its raw wool needs from Australia.
The Company does not have adequate alternative sources of raw wool if the
existing wool suppliers are unwilling or unable to supply raw wool to the
Company.
CUSTOMERS. The Company has more than 700 active customers. During Fiscal
Year 1996, one of the Company's customers accounted for approximately 13.0% of
the Company's revenues. No other customer of the Company accounted for 10.0%
or more of the Company's revenues in Fiscal Year 1996.
Substantially all of the Company's customers are located within the
United States. During each of Fiscal Year 1994, Fiscal Year 1995 and Fiscal
Year 1996, less than two percent of the Company's revenues arose from exports.
BACKLOG. The Company's sales order backlog at December 29, 1996 was $60.0
million, an increase of $10.2 million from the comparable period one year ago.
Excluding government orders, which yield slightly lower gross profit margins,
the backlog at December 29, 1996 was $49.7 million or $9.4 million greater
than the comparable period one year ago. The increase in the backlog,
excluding government orders, is attributable to an overall improvement in
order position for the women's apparel group, particularly in wool flannels.
The Company believes that its backlog of sales orders at the comparable period
in Fiscal Year 1995 were adversely influenced by the timing of the Company's
Bankruptcy Filing. Based on current market trends and world-wide excess in
worsted fabric manufacturing capacity, management expects increased
competition in its women's wear worsted product line. The stabilization of
the men's wear and women's outerwear markets are expected to help offset the
effects, if any, of the increased competition in the women's wear worsted
market. Accordingly, the Company expects sales in fiscal year 1997 to be
approximately the same as Fiscal Year 1996, although there can be no assurance
that sales in fiscal year 1997 will reach such level. The Company s ability
to achieve such a level of sales will depend on market conditions and other
factors beyond the Company s control.
SEASONALITY. The wool fabric business is seasonal, with the vast majority of
orders placed from December through April for manufacture and shipment from
February through July to enable apparel manufacturers to produce apparel for
retail sale during the fall and winter seasons. As a result of normal payment
terms for sale of such fabrics, the Company receives the major portion of its
payments from May through October. The Company's worsted fabrics sales tend
to be less seasonal because the lighter weight of such fabrics makes them
suitable for retail sale in the spring and summer seasons as well as in the
fall and winter seasons.
COMPETITION. The textile business in the United States is highly competitive
and the Company competes with many other textile companies. However, due to
the capital intensive nature of wool fabric production, there are a limited
number of domestic textile mills that produce woolen and worsted fabrics. The
Company believes that it is the largest domestic manufacturer of woolen
fabrics and the second largest domestic manufacturer of worsted fabrics. The
Company s principal competitors in the sale of woolen fabrics are Warshaw
Woolen Associates, Inc. and Carleton Woolen Mills, Inc., and its principal
competitors in the sale of worsted fabrics are Burlington Industries Equity,
Inc. and The Worcestor Company, Inc.
Almost all of the fabrics Forstmann produces for apparel are consumed in
the United States, although the finished garments are often cut, made and sewn
in other countries. For several years, the Company has faced increasing
domestic and foreign competition in virtually all segments of its business.
This trend is expected to continue, with competition increasing from global
woolen and worsted textile manufacturers as well as from imports of finished
garments.
The Company believes that the principal competitive factors are fashion,
quality, price and service, with the significance in each factor depending
upon the product and market involved. The competitive position of the Company
varies among the different fabrics it manufactures. In the current retail
environment, the Company believes that price is the primary factor influencing
its customers to make a purchasing decision. While Forstmann is not the low
cost domestic producer, the Company believes that it can distinguish itself as
a premier service provider and is pursuing a plan to make this its competitive
advantage. Forstmann has defined customer satisfaction as the on-time
delivery of first quality fabric. It has identified goals to reduce sample
and production lead times significantly in fiscal year 1997 as part of this
initiative. The Company believes its current sample and production lead times
are shorter than the majority of its foreign competitors and are generally
comparable with its domestic competitors.
Today, imports of foreign-manufactured woolen and worsted fabrics face
strict quotas and high import duties upon entering the United States unless
they are produced under the NAFTA or the Caribbean Basin Initiative ("CBI")
trade agreements (explained below). During the period January-September 1996,
overall wool product imports decreased 3% from the same period in 1995.
However, the volume of wool apparel imports increased 9% from the same period
in 1995. The Company expects competition from imported garments to continue
as apparel makers are increasingly linking the sourcing of their fabrics with
the cut, make and sew operations of garment manufacturing to maximize low-cost
foreign labor and tariff reductions.
The North American Free Trade Agreement ("NAFTA"), which became
effective on January 1, 1994, is expected to have a long-term effect on the
Company's growth. An increasing percentage of garments for sale in the United
States, Canada and Mexico are being manufactured in Canada or Mexico, taking
market share from the Far East. In order for such garments to qualify for
duty-free treatment into the United States and Canada, the fabric has to be
sourced from the United States, Canada or Mexico. With limited wool fabric
production capacity currently in Mexico and Canada, this requirement
represents a major opportunity for woolen mills in the United States. The CBI
provides reduced duties under the "807" provision. The General Agreement on
Trade and Tariffs ("GATT"), reduces tariffs on wool fabric from about one
third, to 25%, over a ten-year period. In exchange for the tariff reduction,
market access for products manufactured in the United States to countries that
are parties to GATT is improved.
TRADEMARKS. The Company owns the Forstmann (R) name, which it uses as a trade
name, as a trademark in connection with various merchandise, and as a service
mark in the United States. The Forstmann name is also registered in various
countries, including Austria, Australia, the Benelux countries, Canada,
Denmark, France, Germany, Hong Kong, Indonesia, Ireland, Italy, Japan, Norway,
Portugal, Spain, Switzerland and the United Kingdom, under International
Class 24. In addition, the Company has applied to register the Forstmann name
in various countries, including China and Sweden. The Company believes that
no individual trademark or trade name, other than Forstmann(R), is material to
the Company's business.
EMPLOYEES. As of December 31, 1996, the Company employed approximately 2,172
hourly-paid, full-time skilled personnel at its plants and approximately 333
additional salaried, supervisory, management and administrative employees.
None of the Company's employees is represented by a union or a labor
organization. The Company has never experienced a strike and believes that
its relations with its employees are good.
Environmental MATTERS. By the nature of its operations, the Company's
manufacturing facilities are subject to various federal, state and local
environmental laws and regulations, including the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. Although the Company
occasionally has been subject to proceedings and orders pertaining to
emissions into the environment, the Company believes that it is in substantial
compliance with existing environmental laws and regulations.
Pursuant to Georgia's Hazardous Site Response Act (the "Response Act"),
property owners in Georgia were required to notify the Environmental
Protection Division of the Georgia Department of Natural Resources (the "EPD")
of known releases of regulated substances on their properties above certain
levels by March 22, 1994. Pursuant to the Response Act, the Company notified
the EPD of two historical releases at the Company s Dublin, Georgia facility,
one relating to the presence of trichloroethylene at the site (the "TCE Site")
and one relating to another constituent near the southern property boundary
(the "1, 1-DCA Site"). Based upon the Company's March 1994 notification, the
EPD determined that a release exceeding a reportable quantity had occurred at
those two sites. As a result, the two sites have been listed on the Georgia
Hazardous Site Inventory ("HSI"), which currently consists of over 300 other
sites. In January 1995, the EPD notified the Company that the Company was a
responsible party, and pursuant to the Response Act, the Company was required
to submit a compliance status report ("CSR") and compliance status
certification with respect to the two sites. The EPD also informed the
Company of the obligation to identify all other potentially responsible
parties, and, in compliance therewith, on February 24, 1995, the Company
identified the prior owner and operator (J.P. Stevens & Company, Inc., ("J.P.
Stevens")) of the Company s Dublin facility.
On June 29, 1995, the Company notified the EPD of a possible release of
a hazardous substance at the Company-owned site (previously owned by J.P.
Stevens) where various waste materials were reportedly disposed and burned by
J.P. Stevens (the "Burn Area"). The Company purchased the facility in 1986
and has not disposed of or burned such waste materials at the Burn Area.
By letter of July 14, 1995, the EPD notified the Company that the two
sites which the EPD had previously placed on the HSI had been designated as
"Class I" sites needing corrective action. The letter required the Company to
file a deed notice that the sites were on the HSI and needed corrective
action. Included with this letter was a proposed consent order. The Company
and the EPD tried to negotiate a mutually agreeable consent order regarding
the two sites, but those negotiations were not successful.
On December 29, 1995, the EPD issued separate administrative orders to
the Company and J.P. Stevens, which related to the three sites at the
Company s Dublin Facility. With respect to the TCE and 1, 1-DCA sites, the
orders required the Company and J.P. Stevens to submit a CSR and compliance
status certification within 120 days from December 29, 1995 (i.e., by April
27, 1996) to the EPD that included, 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 August 1, 1996, the EPD
agreed to an extension until August 16, 1996 for the Company to submit the CSR
for the TCE and 1,1-DCA sites and the Company complied with this deadline. By
letter dated October 9, 1996 the EPD requested clarification and additional
information with respects to the Company's CSR. The Company provided this
information to the EPD by letter dated November 13, 1996. To date, the EPD
has not responded to the Company. 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 $0.3
million accrued environmental cost as of November 3, 1996 is sufficient to
cover the Company s known and probable responsibilities related to the TCE and
1,1-DCA sites.
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
the Burn Area and that the Burn Area was being listed on the HSI. The
administrative orders required both Forstmann and J.P. Stevens to submit a CSR
and compliance status certification for the Burn Area by April 11, 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 April 11, 1996 deadline for the Burn Area "prior
to June 3, 1996" to allow extra time for the Company and J.P. Stevens to reach
an agreement concerning an allocation of work under the administrative order.
On May 22, 1996, J.P. Stevens, through its counsel, informed the EPD
that it was negotiating with the Company an allocation of the work required
under the administrative orders 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 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. The Company completed negotiation of the agreement with J.P. Stevens,
and the agreement has been approved by the Bankruptcy Court.
Also in 1996, J.P. Stevens commenced the negotiation of a Consent Order
with the EPD. This negotiation was concluded successfully and the Consent
Order became effective on December 12, 1996. The Consent Order obligates J.P.
Stevens to prepare and submit to the EPD a CSR for the Burn Area within 180
days of the effective date of the Consent Order. Among other things, the
Consent Order provides for the imposition of stipulated daily penalties in the
event that J.P Stevens does not comply with the terms of the Consent Order.
Furthermore, the Consent Order provides that, in the event the Company does
not perform any action or work required by the EPD for the TCE or 1, 1-DCA
sites, the EPD may direct J.P. Stevens to take such action or work. In
consideration for these commitments, and so long as J.P. Stevens is in
compliance with the Consent Order, the EPD agreed that J.P. Stevens would not
be subject to penalties or to an enforcement action for violations of the
administrative order issued on December 29, 1995. The EPD has offered a
similar Consent Order to the Company, and the Company is still evaluating this
option.
J.P. Stevens and the Company have verbally agreed to sign the agreement
approved by the Bankruptcy Court, with one minor revision in which each party
will waive the right provided in the agreement to attend the other party s
meetings, if any, with the EPD. The Company expects J.P. Stevens to supply it
with an executed copy of the agreement. According to J.P. Stevens
representatives, work at the Burn Area will begin promptly after the agreement
is signed.
After completion of the investigation of the Burn Area, 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 Company has been notified that soil and groundwater samples from the
Tifton facility were obtained by an environmental consultant engaged by a
potential lender to the purchaser of the Tifton facility. The Company is
currently reviewing the test result data provided by the environmental
consultant and has engaged its own environmental consultants to resample the
soil and groundwater as close to the locations sampled by the buyers
environmental consultant. Based on the analytical results from such
resampling, the Company will determine whether any further action, including
notification to the EPD under the Response Act is required and the Company
will respond accordingly.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets," which is effective for fiscal years
beginning after December 15, 1995. In October 1995, the FASB issued Statement
of Financial Accounting Standards No. 123,"Accounting for Stock-Based
Compensation" (SFAS 123), which is effective for transactions entered into in
fiscal years that begin after December 15, 1995. SFAS 123 establishes a fair
value based method of accounting for stock-based compensation plans. The
effect of adopting both of these standards is not expected to be material to
the Company's financial position or results of operations.
FINANCING AGREEMENTS
The Company's debt facilities for borrowed money as of November 3, 1996,
consists of indebtedness outstanding under the DIP Facility, the Senior
Secured Notes, the CIT Equipment Facility, the Sanwa Capital Lease
(hereinafter defined), certain other capital lease obligations and the
Subordinated Notes. As a result of the Company s results of operations,
liquidity and financial position and the Bankruptcy Filing, the Company is in
default under substantially all of its pre-petition debt agreements. (See
Note 7 to the Financial Statements included in Item 8. of this Annual Report
on Form 10-K.)
DIP FACILITY. The Company has obtained DIP financing from GE Capital which was
approved by the Bankruptcy Court. The DIP Facility, provides up to $85
million in financing (including a $10.0 million letter of credit facility)
under a borrowing base formula. The DIP Facility was amended on May 31, 1996
to, among other things, cure the minimum EBITDA covenant violation that
existed at April 28, 1996, set revised minimum EBITDA covenant and caps on
eligible inventory included in the borrowing base.
The DIP Facility was further amended on October 10, 1996 to extend the
maturity of the DIP Facility one year to October 31, 1997, to cure all minimum
EBITDA covenant violations for any period ending prior to September 1, 1996
and to set revised minimum EBITDA covenants for the remainder of the Company's
Fiscal Year 1996 and all of fiscal year 1997. Based upon current financial
forecasts, management of the Company expects that the Company will not be in
violation of the DIP Facility while under court protection. However,
depending upon the results of future operations, a future violation may occur.
The October 1996 amendment to the DIP Facility also reduces the advance rate
for eligible inventory and sets revised inventory advance caps. The Company
expects that availability under the DIP Facility will be adequate to fund its
operating and capital expenditure requirements for all of fiscal year 1997.
The Company's obligations under the DIP Facility are secured by liens on
substantially all of the Company s assets. Outstanding borrowings (including
outstanding letters of credit) under the DIP Facility cannot exceed the sum of
(1) 85% of eligible accounts receivable (other than bill and hold
receivables); (2) the lesser of (a) $12.5 million or (b) a percentage (based
on aging) of eligible bill and hold accounts receivable; and (3) the sum of
50% of eligible raw material inventory, 35% of eligible yarn in storage and
eligible greige goods, 50% of eligible finished goods (other than samples and
seconds) and the lesser of (a) $1.2 million or (b) 40% of samples and seconds.
The Company s borrowing base is subject to reserves determined by GE Capital
in its sole discretion. At November 3, 1996, the Company s loan availability
as defined in the DIP Facility, in excess of advances and outstanding letters
of credit, was approximately $20.2 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 1.25%
per annum above the index rate, and the fixed rate is 2.75% per annum above
LIBOR. At November 3, 1996, the DIP Facility bore interest at the fixed rate
of 8.25%.
Proceeds from the Company's 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 a fee of 0.5% per annum on the average daily
unused portion of the DIP Facility. In addition, the Company paid GE Capital
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 $550,000 during Fiscal Year
1996. In connection with entering into the October 1996 amendment to the DIP
Facility, the Company agreed to pay GE Capital, a nonrefundable amendment fee
equal to $375,000 which was fully earned upon entry by the Bankruptcy Court of
the order approving the amendment and is due and payable in monthly
installments of $31,250 each commencing on October 31, 1996 and continuing
until paid in full. In the event that GE Capital provides the Company post
bankruptcy financing, the amount of the facility fee would be reduced by
$212,500 if the date the Bankruptcy Court approves the Company s plan of
reorganization occurs anytime prior to April 30, 1997, $145,750 between May 1,
1997 and July 31, 1997 and $106,250 between August 1, 1997 and October 31,
1997.
GE CAPITAL FACILITY. The Company entered into the GE Capital Facility as of
October 30, 1992, for borrowings of up to $100 million. Subject to certain
borrowing base limitations, the GE Capital Facility provided for a maximum
available non-amortizing Revolving Line of Credit (which included a $7.5
million letter of credit facility) of $85 million and had an Original Term
Loan of $15 million. On April 5, 1993, the Company issued the Senior Secured
Notes in the aggregate principal amount of $20 million and prepaid in full the
Original Term Loan. In January 1995, the GE Capital Facility was amended,
subject to loan availability to provide a $7.5 million Term Loan. In January
1995, the Company borrowed $7.5 million under the Term Loan, the proceeds of
which were used to repay a portion of outstanding borrowings under the
Revolving Line of Credit. As a result of the Company s deteriorating
liquidity and financial position during Fiscal Year 1995 the Company was, at
various times, not in compliance with certain of its financial covenant
requirements under the GE Capital Facility. On June 19, 1995, the GE Capital
Facility was amended to, among other things, retroactively lower the financial
covenants and provide lower financial covenant requirements under the
remaining term of the GE Capital Facility. Such amended financial covenants
were based on the Company s estimate of its future operating results and cash
flows. In connection with such amendments, the Company agreed to repay
borrowings outstanding under the Term Loan. On July 1, 1995 the Company
repaid $2.5 million of the Term Loan, and on September 1, 1995 the Company
repaid the remaining borrowings outstanding under the Term Loan. Borrowings
under the Revolving Line of Credit were used to repay the Term Loan. Proceeds
from the Company s operations during Fiscal Year 1996, were first applied to
repay in full the principal amount of borrowings outstanding under the GE
Capital Revolving Line of Credit.
SENIOR SECURED NOTES. On April 5, 1993, the Company issued an aggregate of
$20 million Original Senior Secured Notes and on March 30, 1994, the Company
issued the Additional Senior Secured Notes in the aggregate principal amount
of $10 million, all of which are due on October 30, 1997. The Senior Secured
Notes were issued pursuant to the Senior Secured Notes Indenture. The
Company's obligations under the Senior Secured Notes are secured by liens on
substantially all of the Company's assets.
The Senior Secured Notes require principal payments of $4.0 million on
October 31, 1995, $5.0 million on October 31, 1996 and a final payment of the
unpaid principal balance on October 30, 1997. As a result of the Bankruptcy
Filing, the Company did not remit the required principal payments of $4.0
million due on October 31, 1995 and of $5.0 million due on October 31, 1996.
Further, the quarterly interest payment of $633,937 due on October 31, 1995
was not paid. Subsequently, 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 agreements, 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 agreement was amended to provide adequate protection payments in
the amount of $125,000 at the end of each month commencing on November 27,
1996 and ending on the earlier of (i) the date on which a plan of
reorganization is consummated in the Company s bankruptcy case or (ii) October
31, 1997. In connection with the amended agreement, the Company also agreed
to pay $85,000 in legal fees and expenses incurred by certain of the holders
of the Senior Secured Notes and the trustee. The Company has applied the
adequate protection payments made as of November 3, 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.
In addition, under the Senior Secured Notes Indenture, as modified by a
Bankruptcy Court order, the net proceeds from the sale or other disposition by
the Company of assets (excluding, among other things, the sales of inventory
in the ordinary course of business) are required to be deposited with the
Senior Secured Notes Indenture trustee. As of November 3, 1996, under the
terms of the Senior Secured Notes Indenture, the Company had deposited $91,000
of such net proceeds with the trustee.
CIT EQUIPMENT FACILITY. On December 27, 1991, the Company entered into the
CIT Equipment Facility with CIT to finance the acquisition of, and to
refinance borrowings incurred to acquire, various textile machinery and
equipment. Pursuant to the CIT Equipment Facility, CIT made purchase money
loans to the Company commencing on December 27, 1991 and through December 31,
1992, in an aggregate of $4.5 million at interest rates ranging from 7.86% to
8.61% per annum. In August 1993, the CIT Equipment Facility was amended to
permit four additional loans not to exceed an aggregate of $6.0 million with
the commitment period ending on January 31, 1994. Through October 30, 1994,
the Company borrowed an additional $6.0 million at interest rates ranging from
7.36% to 7.75% per annum. In December 1994, the CIT Equipment Facility was
further amended to provide for up to two additional loans not to exceed an
aggregate of $5.0 million of additional equipment financing equal to 85% of
the acquisition cost of machinery and equipment, net of all taxes, freight,
installation and certain other fees, costs and expenses. The commitment
period would have ended on July 31, 1995. On December 22, 1994, the Company
borrowed $2.5 million at an interest rate of 10.58%. Each loan under the CIT
Equipment Facility is payable in 60 monthly installments. At November 3,
1996, an aggregate of $6.1 million was outstanding under the CIT Equipment
Facility.
The Company was required to provide CIT with an irrevocable letter of
credit in an amount equal to 25% of the original principal amount of each
additional loan made under the August 1993 amendment. As a result of the
Bankruptcy Filing, the Company has not remitted principal and interest
payments which are due under the CIT Equipment Facility. At the Bankruptcy
Filing date the Company owed CIT $7.7 million in principal and accrued
interest and had issued $1.5 million in letters of credit payable to CIT.
During Fiscal Year 1996, CIT drew against all amounts outstanding under the
letters of credit to satisfy a portion of the principal and interest due under
the CIT Equipment Facility.
In Fiscal Year 1996, the Company agreed to provide "adequate protection"
payments to CIT in connection with the CIT Equipment Facility. The agreement
required 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. The agreement was subsequently amended to provide "adequate
protection" payments in the amount of $118,750 at the end of each month
commencing on November 27, 1996 and ending on the earlier of (i) the date on
which a plan of reorganization is consummated in the Company s bankruptcy case
or (ii) October 31, 1997. In connection with the amended agreement, the
Company also agreed to pay $48,000 in legal fees and expenses incurred by
CIT.
The Company has applied adequate protection payments made as of
November 3, 1996 first to accrued interest and secondly to outstanding
principal. However, final application as to principal and interest of the
adequate protection payments is to be subsequently determined pursuant to the
Bankruptcy Code.
CAPITAL LEASE OBLIGATIONS - The Company is a party to an equipment lease
agreement (the "Sanwa Capital Lease") with Sanwa General Equipment Leasing
("Sanwa") which provided financing for the acquisition of various textile
machinery and equipment. Pursuant to the Sanwa Capital Lease, commencing on
September 30, 1994 and through December 30, 1994, the Company financed the
acquisition of equipment with an aggregate value of $2.9 million at interest
rates of 10.24% to 10.87% per annum. Sanwa subsequently assigned its rights
to the Sanwa Capital Lease to The Provident Bank ("Provident"). Each
equipment schedule under the Sanwa Capital Lease is a five-year lease, secured
by a first (and only) perfected security interest in the equipment, and is
payable in 60 consecutive and equal rentals, payable monthly in arrears. At
the Bankruptcy Filing date the Company owed Provident $2.6 million in
principal and accrued interest.
In Fiscal Year 1996, the Company agreed to provide "adequate protection"
payments to Provident in connection with the Sanwa Capital Lease. The
agreement requires the Company to remit monthly payments in arrears in the
amount of $20,000 at the end of each month commencing March 31, 1996 through
October 31, 1997. The Company has applied the adequate protection payments
made as of November 3, 1996 to outstanding principal. The Company is no
longer accruing interest on the Sanwa Capital Lease as the Company currently
estimates that the equipment value securing the lease obligation is not
sufficient to cover the principal and interest portions of scheduled payments
on the Sanwa Capital Lease. Final application as to principal and interest of
the adequate protection payments is to be subsequently determined pursuant to
the Bankruptcy Code.
SUBORDINATED INDEBTEDNESS. In April 1989, through an underwritten public
offering, the Company sold $100 million of the Subordinated Notes which
currently have an interest rate until maturity of 14-3/4%. As of January 1,
1995, an aggregate of $100 million face amount of the Subordinated Notes were
outstanding which includes $43.4 million in Subordinated Notes owned by the
Company. The Subordinated Notes are subordinated to all existing senior
indebtedness of the Company (which currently consist of the loans under the
DIP Facility, the Senior Secured Notes, the CIT Equipment Facility and the
Sanwa Capital Lease) and any extensions, modifications or refinancings
thereof. In connection with an exchange offer, the Company acquired, and did
not retire or cancel, $46.2 million aggregate face amount of the Subordinate
Notes. The Company used $2.9 million of such Subordinated Notes to satisfy
the January 31, 1993 mandatory redemption required in the Subordinated Notes
Indenture.
As a result of the Bankruptcy Filing during Fiscal Year 1995, the
Company wrote off $3.5 million of the unamortized debt premium related to the
Subordinated Notes. The Company did not remit the semi-annual interest
payment of $4.2 million due on October 15, 1995 to holders of the Subordinated
Notes. Through the date of the Bankruptcy Filing, the Company had accrued
$3.7 million in interest associated with the Subordinated Notes. Such amount
is included in "Liabilities Subject to Compromise" at November 3, 1996. The
Company did not remit the semi-annual interest payment of $4.2 million due on
April 15, 1996 and October 15, 1996. Further, the Company is no longer
accruing interest on the Subordinated Notes as such Subordinated Notes are not
collateralized. See the Financial Statements included in Item 8. of this
Annual Report on Form 10-K and Notes 1 and 11 thereto.
Item 2. PROPERTIES
----------
Information regarding the Company's manufacturing facilities, all of
which are owned, is as follows:
Approximate
Square Feet of
Building Acreage
---------------- -------
Dublin Plant 363,000 295
Dublin, Georgia
Nathaniel Plant 313,000 *
Dublin, Georgia
Milledgeville Plant 580,000 141
Milledgeville, Georgia
Louisville Plant 153,000 393
Louisville, Georgia
* The Nathaniel plant adjoins the Dublin plant and is located on the same
property.
During Fiscal Year 1996, the Company announced its intention to close
its Tifton facility. The closing commenced in late July 1996 and was
completed in November 1996. The Company incurred $0.4 million during Fiscal
Year 1996 and expects to incur $0.2 million during fiscal year 1997 in
connection with the relocation of certain of its wool blending machinery and
equipment from the Tifton facility to the Dublin facility. Such expenses are
being reflected as reorganization items in the period incurred.
In November 1996, the Company entered into a Contract of Sale with the
Tift County Development Authority, providing for the sale of the Tifton
facility for $1.25 million. The Contract of Sale provided for the transaction
to close prior to the end of January 1997. As a result of delays in obtaining
the financing necessary to consummate its purchase of the facility, the
Development Authority requested that the closing of the transaction be
delayed. Accordingly, the Company and the Development Authority entered into
an agreement amending the Contract of Sale to provide for a closing on or
before February 28, 1997. The Company and the Development Authority are
working to conclude the sale of the Tifton facility prior to this date.
However, there can be no assurance that the sale will be consummated in this
or any other timeframe.
The expected selling price for the Tifton facility is $1.1 million below
the net book value for the facility. This expected loss was accrued during
Fiscal Year 1996.
The Company owns a 24,000 square foot office building adjoining its
Dublin plant, which is used for administrative offices.
The Company leases approximately 35,000 square feet of office space at
1155 Avenue of the Americas, New York City (the "1155 Lease"), for its
principal executives offices, its styling, and sales and marketing operations.
Such lease expires on December 31, 2015.
The Company also leases storage facilities in Georgia, primarily on a
short-term basis.
The Company believes that its facilities are adequate to serve its
present needs. Substantially all of the Company's properties, plants and
equipment are encumbered by security interests under the Amended DIP Facility
and the Senior Secured Notes Indenture. See "Business -- Financing
Arrangements" in Item 1. of this Annual Report on Form 10-K.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company is a party to legal actions arising out of the ordinary
course of business. Other than the Company s Bankruptcy Filing and claims
made in connection therewith and environmental matters, the Company has no
material pending legal proceedings. See Item 1. "Business - Significant
Events" and "Description of Business - Environmental Matters."
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------
During the fourth quarter of Fiscal Year 1996, no matters were submitted
by the Company to a vote of its shareholders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS
--------------------
The Company's Common Stock was traded on the NASDAQ National Market
System ("NASDAQ-NMS"), the automated quotation system of The National
Association of Securities Dealers, Inc. (the "NASD") under the symbol "FSTM".
As a result of the Company s closing price per share being less than $1.00 per
share for more than thirty (30) consecutive days the NASDAQ National Market
System delisted Forstmann & Company, Inc. on October 16, 1995.
The following table sets forth the high and low sales prices for each
quarterly fiscal period of the Common Stock on the NASDAQ-NMS during Fiscal
Year 1995, as reported by the NASD. These quotations represent prices between
dealers, do not include retail markup, markdown or commission and may not
necessarily represent actual transactions.
High Sales Price Low Sales Price
---------------- ---------------
Fiscal Year 1995
----------------
1st Fiscal Quarter
(October 31, 1994 through
January 29, 1995) 7 5
2nd Fiscal Quarter
(January 30 through
April 30) 6 3-3/4
3rd Fiscal Quarter
(May 1 through
July 30) 5 1
4th Fiscal Quarter
(July 31 through
October 16) 2-1/4 3/8
At December 31, 1996, the Company had 95 record holders of its Common
Stock, including CEDE & Company, the nominee of Depository Trust Company, that
held 2,432,425 shares of Common Stock as nominee for an unknown number of
beneficial holders.
The Company has not paid, and has no present intention to pay in the
foreseeable future, any cash dividends in respect of its Common Stock. The
DIP Facility prohibits and the Senior Secured Notes Indenture and the
Subordinated Notes Indenture restrict the payment of cash dividends. The
payment of future cash dividends, if any, would be made only from assets
legally available therefore, and would generally depend on the Company's
financial condition, results of operations, current and anticipated capital
requirements, plans for expansion, if any, restrictions under its then
existing credit and other debt instruments and arrangements, and other factors
deemed relevant by the Company's Board of Directors, in its sole discretion.
As a debtor-in-possession, the Company is prohibited under the Bankruptcy Code
from paying cash dividends.
No sales of equity securities that were not registered under the
Securities Act have been made by the Company during the period covered by this
report.
Item 6. SELECTED FINANCIAL DATA
-----------------------
Presented below are selected operating statement data for the Company
for the fiscal years ended November 3, 1996, October 29, 1995, October 30,
1994, October 31, 1993 and November 1, 1992. Also presented are selected
balance sheet data for the Company as of November 3, 1996, October 29, 1995,
October 30, 1994, October 31, 1993 and November 1, 1992. The selected
financial data have been derived from the audited financial statements of the
Company, are not covered by the report of the Company's independent public
accountants and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7. of
this Annual Report on Form 10-K and the Company's Financial Statements (and
the related notes and schedules thereto) in Item 8. of this Annual Report on
Form 10-K.
<TABLE>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
November 3, October 29, October 30, October 31, November 1,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Operating Statement Data (1)
(amounts in thousands, except per share and share information)
<S> <C> <C> <C> <C> <C>
Net Sales $195,028 $222,217 $237,085 $233,365 $208,908
Gross Profit 22,755 26,323 47,852 51,018 39,833
Operating income (loss) 3,274 (248)(3) 23,417 26,618(3) 21,847
Income (loss) before income
taxes, extraordinary loss
and reorganization items (5,789) (19,817) 5,900 10,869 3,864
Reorganization items(2) 12,055 10,904 - - -
Income tax (provision)
benefit - 4,250 (2,331) (4,245) (5,690)(4)
Income (loss) before
extraordinary loss (17,844) (26,471) 3,569 6,624 (1,826)
Net income (loss) (17,844) (26,471) 3,569 6,624 (3,005)(5)
Income (loss) applicable
to common shareholders (17,844) (26,701) 3,339 6,415 (3,245)
Per share and share information
(pro forma as to 1992)(6):
Income (loss) before
extraordinary loss
applicable to common
shareholders (3.18) (4.75) .60 1.15 .61
Income (loss) applicable
to common shareholders (3.18) (4.75) .60 1.15 .40
Weighted average common
shares outstanding 5,618,799shs. 5,618,799shs. 5,592,022shs. 5,585,014shs. 5,585,014shs.
Other Operating Data:
Income before interest,
income taxes, depreciation,
amortization, reorganization,
items and gain/loss from
abandoned property and other
assets 15,236 13,581 37,074 37,946 32,583
Capital expenditures 972 13,729 14,979 14,955 12,354
As of As of As of As of As of
November 3, October 29, October 30, October 31, November 1,
1996(2) 1995(2) 1994 1993 1992
------- ------- ---- ---- ----
Balance Sheet Data (7): (amounts in thousands)
Current Assets $82,058 $116,475 $140,801 $130,172 $123,626
Property, plant and
equipment, net of accumulated
depreciation and amortization 65,664 78,784 79,479 76,521 92,231
Total Assets 149,929 198,203 229,256 215,567 223,424
Long-term debt, including DIP
Facility and current
maturities of long-term
debt and long-term debt
included in liabilities
subject to compromise 109,031 142,935 158,311 138,859 116,925
Senior Preferred Stock,
redeemable 2,655 2,655 2,425 2,195 4,930
Shareholders' equity (deficit) (9,328) 7,667 35,836 33,890 51,083
</TABLE>
---------------------
Notes to Operating Statement Data and Balance Sheet Data are on the next
page.
(1) The years ended November 3, 1996 ("Fiscal Year 1996") and November 1,
1992 ("Fiscal Year 1992") consist of a 53 week period. The years ended
October 29, 1995 ("Fiscal Year 1995"), October 30, 1994 ("Fiscal Year
1994") and October 31, 1993 ("Fiscal Year 1993") consist of 52 week
periods. No cash dividends on the Common Stock were paid during any of
the foregoing periods.
(2) On September 22, 1995, the Bankruptcy Filing occurred. The Company s
Fiscal Year 1996 and Fiscal Year 1995 financial statements have been
prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting of Entities
in Reorganization Under the Bankruptcy Code". In accordance with SOP
90-7, professional fees and restructuring charges directly related to
the Bankruptcy Filing have been segregated from normal operations during
Fiscal Year 1996 and Fiscal Year 1995. Reference is made to Note 15 to
the Financial Statements included in Item 8. of this Annual Report on
Form 10-K for a description of reorganization items.
(3) After taking into account a $0.4 million and $1.0 million provision in
Fiscal Year 1995 and 1993, respectively for a non-cash loss from
abandonment, disposal and impairment of machinery and equipment and
other assets to reflect their remaining economic value.
(4) The Company recorded a net deferred income tax expense of $4.2 million
primarily to write-off previously recognized income tax benefits.
(5) After taking into account an extraordinary loss of $1.2 million, net of
income tax benefit, resulting from a debt refinancing.
(6) The per share and share information for Fiscal Year 1992 is presented on
a pro forma basis to give effect to an exchange offer and merger of the
Company with an affiliate, as if such transactions occurred at the
beginning of fiscal year 1991 and as if such transactions were effected
as a recapitalization of the Company. The per share information for
Fiscal Year 1996, 1995, 1994 and 1993 is actual.
(7) The Company revalued its assets and liabilities to fair value as of the
beginning of Fiscal Year 1993 pursuant to the principles of quasi-
reorganization accounting as described in Note 14 to the Financial
Statements included in Item 8. of this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FORWARD LOOKING STATEMENTS
- --------------------------
Certain statements contained on Form 10-K under this Item 7. and under
"Item 1. Business", in addition to certain statements contained elsewhere
herein, are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are thus prospective. Such
statements may relate, among other things, to future economic performance of
the Company, the plans and objectives of management for future operations,
including plans or objectives relating to the products of the Company, and
projections of revenues, income, income loss, earnings, and earnings loss per
share, capital expenditures, capital structure or other financial terms, and
assumptions relating to the foregoing. Such forward looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward looking statements. Those risks, uncertainties and other factors
include those accompanying such forward looking statements, the Company s
Bankruptcy proceeding, demand for the Company s products, competition, the
Company s production needs, wool market conditions, expenses associated with
the Company s plan of reorganization, the ability of the Company to obtain
adequate exit financing on favorable terms, the adequacy of the Company s
current financing and any unexpected financing requirements, as well as other
factors contained herein and in the Company s other securities filings.
Recent Events
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 for protection under Chapter 11 of the United States Bankruptcy Code
with the 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 the Company's rising wool costs
and sluggishness of retail apparel sales and a significant decline in women's
outerwear sales, which were partially offset by the higher volume in sales of
fabrics yielding lower profit margins. This was further compounded by the
Company's high debt leverage and resulted in the Company being unable to meet
all of its principal and interest payments when such became due.
Although the rise in wool costs subsequently stabilized, the continued
sluggishness of retail apparel sales, as well as the continued economic
downturn in the apparel industry has further strained the Company's operating
results during Fiscal Year 1996. Recently such underlying market conditions,
particularly in men's wear and women s outerwear, have somewhat stabilized,
management believes that competition from domestic sources and imports will
increase during fiscal year 1997. In response to these factors, management of
the Company has instituted plans with a greater focus on significantly reduced
product offerings, tighter management of inventory levels, enhanced cost
controls and reduced capital expenditures. All of these management actions
are designed to improve the Company s cash flows from operations and in total.
The Company has improved performance during Fiscal Year 1996 in each of these
areas and is continuing to refine its strategies in response to evolving
circumstances.
Further, in the fourth quarter of Fiscal Year 1996, management began
efforts to negotiate and document a plan of reorganization pursuant to which
the Company will emerge from bankruptcy. The Company currently anticipates
that such a plan of reorganization can be confirmed and consummated in the
first half of calendar 1997. However, due to the factors involved to confirm
a plan of reorganization there can be no assurance that the Company will
confirm and consummate a plan of reorganization in such time frame or at all.
Under Chapter 11, absent authorization of the Bankruptcy Court, efforts
to collect on claims against the Company in existence prior to the Bankruptcy
Filing are stayed while the Company continues business operations as debtor-
in-possession. Unsecured claims against the Company in existence prior to the
Bankruptcy Filing are reflected in the Financial Statements included in Item
8. of this Annual Report on Form 10-K as "Liabilities Subject to Compromise".
See the Financial Statements included in Item 8. of this Annual Report on Form
10-K and Notes 1 and 11 thereto for a description. Additional claims
(Liabilities Subject to Compromise) may arise or become fixed subsequent to
the filing date resulting from the 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"). A
successful plan of reorganization may require certain compromises of
liabilities (including Secured Claims) that, as of November 3, 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. As of November 3,
1996 the amount of Liabilities Subject to Compromise approximated $88.6
million which primarily includes unsecured trade accounts payable and
Subordinated Notes, including interest thereon through the date of the
Bankruptcy Filing. Parties holding Secured Claims have the right to move the
court for relief from the stay imposed by the Bankruptcy Court to permit
foreclosure on collateral, which relief may be granted in certain
circumstances. Secured Claims are collateralized by substantially all of the
assets of the Company, including accounts receivables, inventory and property,
plant and equipment.
In the course of the Company's operational restructuring, certain assets
of the Company have been rendered surplus or obsolete. Accordingly, during
Fiscal Year 1996, the Company has increased its inventory market reserves (see
Note 3 to the Financial Statements included in Item 8. of this Annual Report
on Form 10-K) and written down certain of its machinery and equipment (see
Note 4 to the Financial Statements included in Item 8. of this Annual Report
on Form 10-K). As a plan of reorganization is developed, the Company may
further 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 the
Financial Statements included in Item 8. of this Annual Report on Form 10-K.
Any such additional asset impairment 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.
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 were required to file claims but failed to meet the
deadline are forever barred from voting upon or receiving distributions under
any plan of reorganization. Since the Bar Date, the Company has been
reviewing and reconciling the proofs of claims that were filed by the
creditors. As a result of the reconciliation process, the Company has filed
two Omnibus Objections with the Bankruptcy Court objecting to certain claims
filed against the Company. As a result of the Omnibus Objections, numerous
claims have been expunged and other claims have been reduced. Differences
that cannot be resolved by negotiated agreements between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly, allowed
claims may arise which are not currently reflected in the Company s financial
statements and recorded claims are subject to change which may be material to
the financial statements.
The Company purchases the majority of its raw wool needs from Australia.
The Company was able to purchase its raw wool requirements during Fiscal Year
1996 to service its customers' ordering patterns and has entered into
commitments for a significant portion of its estimated fiscal year 1997
requirements. Prior to the Bankruptcy Filing, much of the Company's wool was
purchased on extended payment terms. Subsequent to the Bankruptcy Filing, the
majority of the Company's wool purchases have required payment to the wool
providers upon its arrival in the United States or upon the Company's receipt
of the wool.
Results of Operations
- ---------------------
The Fifty-Three Week Period Ended November 3, 1996 ("Fiscal Year 1996")
compared to the Fifty-Two Week Period Ended October 29, 1995 ("Fiscal Year
1995").
Net sales in Fiscal Year 1996 were $195.0 million, a decrease of $27.2
million or 12.2% from Fiscal Year 1995. Total yards of fabric sold decreased
12.5% during Fiscal Year 1996. The decline in sales is primarily attributable
to a decline in sales of women's wear and men's wear businesses which were
somewhat offset by increases in women's outerwear (coating), specialty and
government fabrics. Due to this shift in product mix, the average per yard
selling price increased to $7.45 in Fiscal Year 1996 from $7.42 in Fiscal Year
1995. The decline in men's wear fabrics reflects the shift from tailored
men s wear to casual "Friday Wear". The Company is repositioning itself to be
able to compete in certain of the higher-end men's wear tailored markets which
it believes have a steady, slow growth demand in both private and branded
label apparel. The Company is also aligning its woolen men's wear
manufacturing operations to more cost effectively compete with imported
fabrics of similar construction and style. The decrease in sales in the
women's apparel business reflects the Company's more focused product offerings
in response to a more competitive, price sensitive market. The Company
expects the women's apparel market to become even more competitive in fiscal
year 1997 due to an overcapacity in domestic worsted wool manufacturing in
connection with the reduced demand for men's worsted products. Accordingly,
the Company's focus is to maintain existing customer relationships and markets
through competitive pricing, on-time delivery and customer service initiatives
that will differentiate the Company from both domestic and foreign suppliers.
Sales of women's outerwear fabrics during Fiscal Year 1996 increased
approximately 4.4% over Fiscal Year 1995 due to lower outerwear inventories at
retail and less impact by imports from Eastern Europe during Fiscal Year 1996.
Specialty fabric sales increased approximately 15.4% as sales of baseball cap
fabric returned to historical levels as the effects of the baseball strike in
1994/1995 subsided during the Company's Fiscal Year 1996. Excluding
Government sales of $8.9 million during Fiscal Year 1996 and $3.7 million in
Fiscal Year 1995, net sales declined 14.8% in Fiscal Year 1996 compared to
Fiscal Year 1995.
Cost of goods sold decreased $23.6 million to $172.3 million in Fiscal
Year 1996. Gross profit declined $3.6 million or 13.6% to $22.8 million in
Fiscal Year 1996 and the gross profit margin declined to 11.7% in Fiscal Year
1996 from 11.8% in Fiscal Year 1995. The Company's reduction of inventory
levels in Fiscal Year 1996 has resulted in the liquidation of LIFO inventory
layers carried at lower costs prevailing in prior years which increased gross
profit $2.2 million in Fiscal Year 1996. The decline in gross profit
primarily relates to increased wool prices that were not recovered through
higher selling prices and reduced manufacturing operations which were not
directly offset by reductions in fixed costs. The Company has reduced fixed
manufacturing costs during Fiscal Year 1996 to offset reduced manufacturing
levels. As these cost reductions were implemented in stages throughout Fiscal
Year 1996, the full effect of the savings were not realized in Fiscal Year
1996. The Company will have a fixed cost basis for fiscal year 1997 that is
more closely aligned with its expected production needs which is expected to
improve the Company's gross margin in fiscal year 1997. Due to these factors
the Company expects the gross margins will improve in fiscal year 1997
compared to Fiscal Year 1996. However, changes in wool prices, market
conditions and other factors relating to the Company's business could alter
the Company's gross margin and accordingly no assurance can be given that
gross margins in fiscal year 1997 will improve compared to Fiscal Year 1996.
The Company expects overall wool costs in fiscal year 1997 to be a weighted
average of approximately 3% lower than Fiscal Year 1996 due to the actual wool
purchase commitment position of the Company but there can be no assurance that
costs will not exceed this level.
Selling, general and administrative expenses, excluding the provision
for uncollectible accounts, decreased 22.2% to $18.1 million in Fiscal Year
1996 as compared to $23.3 million in Fiscal Year 1995. The majority of the
decrease relates to organizational changes implemented during Fiscal Year 1996
which resulted in a flatter corporate organization, particularly in marketing
and product development functions. The Company also achieved reductions in
other human resource costs and administrative expenses. In Fiscal Year 1996
there was no severance expense included in selling, general and administrative
expenses, whereas, in Fiscal Year 1995 over $1.3 million was expensed. Fiscal
Year 1996 includes $0.9 million accrued in connection with an incentive
compensation and retention program and a financial consulting service
agreement. Further, Fiscal Year 1995 included approximately $1.0 million in
higher costs associated with the relocation of the Company's corporate and
marketing offices.
The provision for uncollectible accounts decreased from $2.9 million in
Fiscal Year 1995 to $1.4 million in Fiscal Year 1996. Such decrease is
primarily attributable to a decrease in the Company s sales of $27.2 million
in Fiscal Year 1996 when compared to Fiscal Year 1995. Further, the Company's
allowance for doubtful accounts in Fiscal Year 1995 was increased due to the
bankruptcy filing of two of the Company's men's wear customers, whereas no
significant customers of the Company filed for bankruptcy in Fiscal Year 1996
requiring additional reserves.
Interest expense in Fiscal Year 1996 was $9.1 million compared to $19.6
million in Fiscal Year 1995. This decrease is primarily due to the Company no
longer accruing interest on the approximately $56.6 million in principal
amount of its Subordinated Notes outstanding as a result of the Bankruptcy
Filing and a significant reduction in the Company's borrowings under the DIP
Facility due to reduced inventory levels and capital expenditures throughout
Fiscal Year 1996. In light of the Bankruptcy Filing, which has resulted in
the Company reducing its working capital needs, the Company expects interest
expense in fiscal year 1997 to be less than in Fiscal Year 1996. Interest, at
the contractual rate of $8.4 million per annum, on the Company's 14-3/4%
Senior Subordinated Notes with a face value of approximately $56.6 million, is
no longer being accrued as a result of the Bankruptcy Filing.
Since the Bankruptcy Filing, the Company has been reassessing its
business strategy and capital expenditures plans. This process, which began
in the Company's 1995 fourth quarter will be on-going until the Company
successfully develops and implements its plan of reorganization and emerges
from bankruptcy. In the course of this process, the Company is significantly
reducing its product offerings, manufacturing production levels and capital
spending plans (including those for computer information systems). As a
result of such events, certain assets of the Company have been rendered
surplus or obsolete. During Fiscal Year 1996, the Company increased inventory
market reserves by $10.7 million of which $3.5 million was charged to
reorganization expense in connection with the Company's assessment and
evaluation of its business strategy which resulted in the Company continuing
to reduce its product offerings. Certain yarn inventory which had been
previously identified as surplus or obsolete inventory were sold for its net
carrying value which was $4.9 million below its gross inventory value. The
sale transactions resulted in a release of yarn inventory market reserves of
$4.9 million and did not give rise to any loss during Fiscal Year 1996 as a
significant portion had been written down during the Company's fourth quarter
in Fiscal Year 1995. During Fiscal Year 1996 the Company also announced its
intention to close manufacturing operations in the Tifton facility. Such
closing was completed in November 1996 (see Note 4 to the Financial Statements
included in Item 8. of this Annual Report on Form 10-K.) These expenses have
been reflected in the Company's financial statements as reorganization items
in the periods incurred. As a result of the Bankruptcy Filing and the
Company's operational restructuring, during Fiscal Year 1996, the Company
incurred $4.1 million in professional fees, accrued $1.1 million in connection
with the expected loss from the sale of the Tifton facility, recognized $1.1
million in additional interest expense as a result of being in default of the
Senior Secured Notes, realized a loss of $0.9 million due to the rejection and
amendment of certain executory contracts, wrote down barter credits by $0.5
million and incurred $0.9 million in other reorganization items. All of these
costs and write offs have been accounted for as reorganization items in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7 "Financial Reporting of Entities in Reorganization
Under the Bankruptcy Code". As a plan of reorganization is developed the
Company may further 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 Financial Statements included in Item 8. of this Annual Report on
Form 10-K. Any additional asset impairment 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.
The Company's effective tax rate was 13.8% for Fiscal Year 1995. The
Company did not recognize an income tax benefit in Fiscal Year 1996 as no
further amount of net operating losses can be carried back. To the extent the
Company had net deferred tax assets at November 3, 1996, the Company, during
Fiscal Year 1996, established a valuation allowance to reduce such net
deferred tax assets to zero.
As a result of the foregoing, the Company realized a net loss of $17.8
million in Fiscal Year 1996 compared to a net loss of $26.5 million in Fiscal
Year 1995.
Preferred stock in-kind dividends and accretion to redemption value was
$230,000 in Fiscal Year 1995 and zero in Fiscal Year 1996. The Company
stopped accruing the dividend under the redeemable preferred stock and
accreting of the recorded balance to redemption value as a result of the
Bankruptcy Filing. As a result of the foregoing, the Company's loss
applicable to common shareholders was $17.8 million in Fiscal Year 1996,
compared to loss applicable to common shareholders of $26.7 million in Fiscal
Year 1995.
The Company's sales order backlog at December 29, 1996 was $60.0
million, an increase of $10.2 million from the comparable period one year ago.
Excluding government orders, which yield slightly lower gross profit margins,
the backlog at December 29, 1996 was $49.7 million or $9.4 million greater
than the comparable period one year ago. The increase in the backlog,
excluding government orders, is attributable to an overall improvement in
order position for the women's apparel group, particularly in wool flannels.
The Company believes that its backlog of sales orders at the comparable period
in Fiscal Year 1995 was adversely influenced by the timing of the Company's
Bankruptcy Filing. Based on current market trends and world-wide excess in
worsted fabric manufacturing capacity, management expects increased
competition in its women's wear worsted product line. The stabilization of
the men's wear and women's outerwear markets are expected to help offset the
effects, if any, of the increased competition in the women's wear worsted
market. Accordingly, the Company expects sales in fiscal year 1997 to be
approximately the same as Fiscal Year 1996, although there can be no assurance
that sales will reach such level. The Company's ability to achieve such a
level of sales will depend on market conditions and other factors beyond the
Company's control.
The Fifty-Two Week Period Ended October 29, 1995 ("Fiscal Year 1995")
compared to the Fifty-Two Week Period ended October 30, 1994 ("Fiscal Year
1994").
Net sales in Fiscal Year 1995 were $222.2 million, a decrease of $14.9
million or 6.3% from Fiscal Year 1994. Total yards of fabric sold decreased
3.7% during Fiscal Year 1995. The decline in sales is attributable to a
decline in sales of women's outerwear (coating), men's wear and specialty
fabrics which were somewhat offset by increases in women's wear, converting (a
product line the Company exited during Fiscal Year 1996) and Carpini
(Forstmann International) fabrics. Due to this shift in product mix, the
average per yard selling price declined from $7.63 in Fiscal Year 1994 to
$7.42 in Fiscal Year 1995. Sales of women's outerwear fabrics declined 43% in
Fiscal Year 1995 due to the unseasonably warm fall and winter weather
experienced in much of the U.S. last year and the increase in women's coats
imported from Eastern Europe during Fiscal Year 1995. As a result, during
1995, higher levels of women's coats remained in retail inventories resulting
in lower demand for the Company's women's outerwear fabrics for the fall and
winter season. Compounding the effect of the decline in women's outerwear
fabrics was a decline in sales of men's wear worsted and specialty fabrics.
The decline in men's wear sales reflects the continuing decline in the sale of
tailored men's wear and the shift to "Friday wear". The decline in specialty
fabrics is primarily due to the effects of the prolonged major league baseball
strike which resulted in lower demand for baseball caps. Excluding government
sales ($3.7 million in Fiscal Year 1995 and $2.9 million in Fiscal Year 1994),
which traditionally yield lower gross profit margins, net sales for Fiscal
Year 1995 declined $15.7 million from Fiscal Year 1994.
Cost of goods sold increased $6.7 million to $195.9 million in Fiscal
Year 1995. Gross profit declined $21.5 million or 45.0% to $26.3 million in
Fiscal Year 1995 and the gross profit margin declined to 11.8% in Fiscal Year
1995 from 20.2% in Fiscal Year 1994. The decline in gross profit is primarily
due to the significant increase in wool costs that was not recovered through
higher selling prices. Fiscal Year 1995 wool costs were 26% higher than
Fiscal Year 1994. Due to the continuing weakness in sales, the Company
reduced its manufacturing operations, particularly woolen, during the fourth
quarter of Fiscal Year 1995.
Selling, general and administrative expenses, excluding the provision
for uncollectible accounts, increased 4.2% in Fiscal Year 1995 to $23.3
million as compared to $22.4 million in Fiscal Year 1994. The majority of
this increase is attributable to severances, relocation of the Company's
corporate and marketing headquarters and professional services, all of which
were somewhat offset by a decline in employee benefit related expenses,
primarily pension and retirement and travel and entertainment, lower
advertising and promotional related expenses and incentive compensation.
Severance in Fiscal Year 1995 is primarily due to the Company and an Executive
Officer entering into a severance agreement and the Executive Officer
resigning from the Company as more fully described in Note 11 to the Financial
Statements included in Item 8. of this Annual Report on Form 10-K. In
connection with the Company relocating and entering into a twenty (20) year
lease for its corporate and marketing headquarters, the new landlord and the
Company entered into a takeover agreement, effective August 1, 1995, whereby
the landlord agreed to take over the Company's remaining obligation under a
previous lease which expires in October 1996. Pursuant to the accounting
rules for leases, the Company recognized a loss of $0.6 million during Fiscal
Year 1995 for the estimated economic loss in the previous lease assumed by
the new landlord. Additionally, during Fiscal Year 1995, the Company incurred
accelerated amortization on leasehold improvements associated with the
previous lease.
The provision for uncollectible accounts increased from $2.2 million in
Fiscal Year 1994 to $2.9 million. Such increase is primarily attributable to
an increase in the Company's allowance for uncollectible accounts in Fiscal
Year 1995 resulting from the filing by two of the Company's men's wear
customers for protection under the United States Bankruptcy Code. Further,
the Company increased its general allowance based on continuing economic
downturn in the apparel industries, in which most of the Company's customers
operate. During Fiscal Year 1994, the allowance for doubtful accounts
included an increased provision as a result of one of the Company's outerwear
customers filing for protection under the United States Bankruptcy Code in
February 1994.
Interest expense in Fiscal Year 1995 was $19.6 million compared to $17.5
million in Fiscal Year 1994. This increase is primarily due to the increase
in the Federal Reserve discount rates which began during calendar year 1994.
Increases in the Federal Reserve discount rates since the beginning of Fiscal
Year 1994 have resulted in the Company's interest rates applicable to
borrowings under the Revolving Line of Credit and Senior Secured Notes
increasing by approximately 2% per annum in Fiscal Year 1995 as compared to
Fiscal Year 1994.
The Company's effective tax rate was 13.8% for Fiscal Year 1995, while
the effective tax rate for Fiscal Year 1994 was 39.5%. Recognition of the
income tax benefit in Fiscal Year 1995 was limited to the amount of its net
operating loss the Company can carry back. To the extent the Company had net
deferred tax assets at October 29, 1995, the Company, during Fiscal Year 1995,
established a valuation allowance to reduce such net deferred tax assets to
zero. The corresponding charge to increase the valuation allowance reduced
the Company's 1995 income tax benefit.
As a result of the foregoing, the Company realized a net loss of $26.5
million in Fiscal Year 1995 compared to net income of $3.6 million in Fiscal
Year 1994.
Preferred stock in-kind dividends and accretion to redemption value was
$230,000 in both Fiscal Years 1995 and 1994. As a result of the Bankruptcy
Filing, the Company is no longer accruing the dividend under the redeemable
preferred stock and accreting the recorded balance to redemption value.
As a result of the foregoing, the Company s loss applicable to common
shareholders in Fiscal Year 1995 was $26.7 million, compared to income
applicable to common shareholders of $3.3 million in Fiscal Year 1994.
Liquidity and Capital Resources
- -------------------------------
The Company historically has financed its operations and investing
activities through a combination of borrowings, equipment leasing, and
internally generated funds. The Company's financing needs have been
significantly reduced from historical levels during Fiscal Year 1996 due to
the Company's curtailment of its $100 million capital expenditure program
initiated in 1992, aggressive inventory management and through cost reductions
implemented during Fiscal Year 1996. At November 3, 1996 gross inventories,
net of LIFO reserve, were $51.0 million, compared to $78.1 million at October
29, 1995.
The Company has obtained debtor-in-possession (DIP) financing from GE
Capital under a 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, (see Note 7 to the Company's Financial Statements included in
Item 8. of this Annual Report on Form 10-K). The DIP Facility was amended on
May 31, 1996, to, among other things, cure the minimum EBITDA covenant
violation that existed at April 28, 1996, set revised minimum EBITDA covenant
and caps on eligible inventory included in the borrowing base.
The DIP Facility was further amended on October 10, 1996 to extend the
maturity of the facility one year to October 31, 1997, to cure all minimum
EBITDA covenant violations for any period ending prior to September 1, 1996
and to set revised minimum EBITDA covenants for the remainder of the Company's
Fiscal Year 1996 and all of fiscal year 1997. Based upon current financial
forecasts, management of the Company expects that the Company will not be in
violation of the DIP Facility while under court protection. However,
depending upon the results of future operations, a future violation may occur.
The October 1996 amendment to the DIP Facility also reduces the advance rate
for eligible inventory and sets revised inventory advance caps. The Company
expects that availability under the DIP Facility will be adequate to fund its
operating and capital expenditure requirements for all of fiscal year 1997.
The Company is negotiating exit financing that will be necessary in
connection with its emergence from the Bankruptcy proceeding. There can be no
assurance that the Company will be able to obtain adequate amounts of
financing, if at all, or that if obtained, such financing will be on terms
favorable to the Company.
Proceeds from the Company's operations (as defined) during Fiscal Year
1996 were first applied to repay in full the principal amount of borrowings
under the GE Capital Facility. Thereafter, proceeds from the Company's
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.
The Company's cash requirements, including working capital and capital
expenditures during Fiscal Year 1996, were funded from the proceeds from
borrowings under the DIP Facility. At November 3, 1996, the aggregate amount
of revolving loans and letters of credit outstanding under the DIP Facility
was approximately $18.6 million and loan availability under the DIP Facility
in excess of the Company's outstanding borrowings and letters of credit, was
approximately $20.2 million.
The Company expects that cash generated from operations and borrowings
under the DIP Facility will be sufficient to fund its fiscal year 1997 working
capital and capital expenditures requirements. However, expected cash flow
from operations is dependent upon achieving sales expectations during fiscal
year 1997 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 throughout the fiscal
year until the fourth quarter, when, at year-end, borrowings will tend to be
the lowest. However, the Company's ability to reduce its working capital
needs, as well as, deviations from the Company's fiscal year 1997 operating
plan, could result in borrowings at the end of fiscal year 1997 being higher
than at the beginning of fiscal year 1997 or being higher during various times
within fiscal year 1997 than comparable periods within Fiscal Year 1996.
The Company is in default of substantially all of its pre-petition debt
agreements (other than the DIP Facility). All outstanding unsecured debt of
the Company has been presented in these financial statements as "Liabilities
Subject to Compromise."
As a result of the Bankruptcy Filing, the Company has not remitted
principal and interest which are due under the 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
agreements, 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 under the Senior Secured Notes
Indenture. The agreement was amended to provide adequate protection payments
in the amount of $125,000 at the end of each month commencing on November 27,
1996 and ending on the earlier of (i) the date on which a plan of
reorganization is consummated in the Company's bankruptcy case or (ii) October
31, 1997. In connection with the amended agreement, the Company also agreed
to pay $85,000 in 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 November 3, 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. See Note 7
to the Financial Statements included in Item 8. of this Annual Report on Form
10-K for a full description of the Senior Secured Notes.
As result of the Bankruptcy Filing, the Company has not remitted
principal and interest payments which are due under the CIT Equipment
Facility. At the Bankruptcy Filing date the Company owed CIT $7.7 million in
principal and accrued interest payments and had issued $1.5 million in letters
of credit payable to CIT. During Fiscal Year 1996, CIT drew against all
amounts outstanding under the letters of credit to satisfy a portion of the
principal and interest due under the CIT Equipment Facility. In Fiscal Year
1996, the Company agreed to provide adequate protection payments to CIT in
connection with the CIT Equipment Facility. The agreement required 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. The agreement was subsequently amended to provide adequate protection
payments in the amount of $118,750 at the end of each month commencing on
November 27, 1996 and ending on the earlier of (i) the date on which a plan of
reorganization is consummated in the Company's bankruptcy case or (ii) October
31, 1997. In connection with the amended agreement, the Company also agreed
to pay $48,000 in legal fees and expenses incurred by CIT. The Company has
applied adequate protection payments made as of November 3, 1996 first to
accrued interest and secondly to outstanding principal. However, final
application as to principal and interest of the adequate protection payments
is to be subsequently determined pursuant to the Bankruptcy Code. See Note 7
to the Financial Statements included in Item 8. of this Annual Report on Form
10-K for a full description of the CIT Equipment Facility.
Capital additions for plant and equipment and investment in other
assets, principally computer information systems, were $1.9 million in Fiscal
Year 1996. The Company expects spending for capital expenditures, primarily
machinery and equipment, in fiscal year 1997 to be greater than Fiscal Year
1996 due to renewals or betterments of machinery and equipment and compliance
with environmental regulations which will be required in fiscal year 1997.
Under the terms of the DIP Facility, capital expenditures (including
investments in computer information systems) can not exceed $5.0 million 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.
Net cash provided by operating activities during Fiscal Year 1996 was
$36.2 million, an increase of $8.8 million from Fiscal Year 1995.
Historically, during the first half of its fiscal year, the Company utilizes
cash to fund operations, whereas operations provide cash during the second
half of the Company's fiscal year. Net cash used in investing activities
during Fiscal Year 1996, primarily for capital expenditures (including
investments in computer information systems), was $1.7 million, a decrease of
$13.2 million from Fiscal Year 1995. Such decrease was primarily due to
capital expenditures in Fiscal Year 1996 being curtailed in connection with
the Company filing for bankruptcy at the end of Fiscal Year 1995.
Working capital at November 3, 1996 was $18.1 million, a decrease of
$26.6 million from October 29, 1995. This decrease resulted, in part, from a
$34.4 million decrease in current assets, primarily attributable to a decrease
in accounts receivable of $8.0 million and a decrease in inventories of $24.8
million. The decrease in accounts receivable is primarily attributable to the
reduction in dated receivables at November 3, 1996 compared to October 29,
1995 as well as improved collections in the Company's fourth quarter of Fiscal
Year 1996 resulting in a lower accounts receivable balance. Although accounts
receivable declined, bill and hold accounts receivable increased $2.0 million
from $14.5 million at October 29, 1995 to $16.5 million at November 3, 1996.
This increase is primarily due to one of the Company's customers placing a
significant bill and hold order during the third and fourth quarter of Fiscal
Year 1996. The decrease in inventories is primarily attributable to the
Company's aggressive inventory management plan which more closely matches
production to orders taken and a $3.5 million increase in inventory market
reserves mainly due to the Company's assessment and evaluation of its business
strategy as more thoroughly discussed in Note 1 to the Financial Statements
included in Item 8. of this Annual Report on Form 10-K. Further as a result
of the Company s focus on inventory management, current liabilities decreased
by $7.9 million of which $32.0 million relates to lower borrowings under the
DIP Facility in connection with the Company's reduced borrowings to fund
inventory and other requirements. This was partially offset by a $20.3
million reclassification of long-term debt to current maturities of long-term
debt ($18.0 million of which relates to the Senior Secured Notes) and a $4.4
million increase in accrued liabilities. The increase in accrued liabilities
is primarily attributable to accrual for costs associated with the Company's
Incentive Compensation and Retention Program (see Note 10 to the Financial
Statements included in Item 8. of this Annual Report on Form 10-K), and
accrual for professional expenses associated with the Bankruptcy Filing.
Historically, the Company experiences an increase in accounts receivable
during the second and third quarters of its fiscal year, due to the seasonal
increase in sales which typically occurs in February through July of each
year. 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 days beyond July 1 for invoices billed
in January through June. Accounts receivable at November 3, 1996 included
$0.3 million of receivables with dating, whereas at October 29, 1995 accounts
receivable included $1.7 million of receivables with dating. The Company
expects sales with dating terms to be higher in fiscal year 1997 due to the
anticipated increase in demand for coating fabrics during fiscal year 1997.
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
the Company's forward purchase commitments, the Company expects wool costs to
be a weighted average of approximately 3% lower in fiscal year 1997 as
compared to Fiscal Year 1996, although there can be no assurance that such
costs will not exceed such levels.
The Company's assumed discount rate (the "discount rate") used to
measure the accumulated benefit obligation for its hourly and salaried pension
plans under SFAS No. 87, "Employers' Accounting for Pensions," as of the end
of Fiscal Year 1996 was increased from 7.25% to 7.50% based on the composition
of the accumulated benefit obligation and current economic conditions. The
Company's hourly pension plan's accumulated benefit obligation as of November
3, 1996 exceeds the plan assets at fair value by $442,000. As of the end of
Fiscal Year 1995, the discount rate was decreased from 8.75% to 7.25% based on
then prevailing economic conditions. As of the end of Fiscal Year 1995, the
Company's hourly pension plan's accumulated benefit obligation exceeded plan
assets at fair value by $1.5 million.
During Fiscal Year 1996, the Company decreased its accrued additional
pension liability in excess of accumulated benefit obligation from $2.0
million to $1.2 million and decreased the $2.0 million excess of additional
pension liability over unrecognized prior service cost to $1.1 million. This
decrease is based primarily on the increasing of the discount rate and head
count reductions which occurred during Fiscal Year 1996. The Company
estimates that net periodic pension cost for both the hourly and salaried
pension plans during fiscal year 1997 will be slightly lower than in Fiscal
Year 1996. However, changes in the Company's employment base or future
changes in the hourly and salaried pension plans could result in actual
results for fiscal year 1997 differing from expectations.
The Company does not believe that inflation, other than the increase in
wool costs, has had a material impact on its business.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report 35
Balance Sheets as of November 3, 1996
and October 29, 1995 36
Statements of Operations for the Fifty-Three Weeks
Ended November 3, 1996 and the Fifty-Two Weeks
Ended October 29, 1995 and October 30, 1994 37
Statements of Cash Flows for the Fifty-Three Weeks
Ended November 3, 1996 and the Fifty-Two Weeks
Ended October 29, 1995 and October 30, 1994 38
Statements of Shareholders' Equity (Deficit)
for the Fifty-Two Weeks Ended October 30, 1994
and October 29, 1995 and the Fifty-Three Weeks
Ended November 3, 1996 40
Notes to Financial Statements for the Fifty-Three Weeks
Ended November 3, 1996 and the Fifty-Two Weeks Ended
October 29, 1995 and October 30, 1994 41
Schedule II
Supplemental Financial Statement Schedule for the
Fifty-Three Weeks Ended November 3, 1996 and the
Fifty-Two Weeks Ended October 29, 1995 and
October 30, 1994 64
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Forstmann & Company, Inc. (Debtor-in-Possession):
We have audited the accompanying balance sheets of Forstmann & Company, Inc.
(Debtor-in-Possession) (the "Company") as of November 3, 1996 and October 29,
1995, and the related statements of operations, shareholders equity (deficit)
and cash flows for the fifty-three weeks ended November 3, 1996 and the fifty-
two weeks ended October 29, 1995 and October 30, 1994. Our audits also
include the financial statement schedule listed in the Index to Financial
Statements and Financial Statement Schedule. These financial statements and
financial statement schedule are the responsibility of the Company s
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Forstmann & Company, Inc. at November 3,
1996 and October 29, 1995, and the results of its operations and its cash
flows for the fifty-three weeks ended November 3, 1996 and the fifty-two weeks
ended October 29, 1995 and October 30, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information as set forth therein.
As discussed in Notes 1 and 7 to the financial statements, the Company filed
for reorganization under Chapter 11 of the Federal Bankruptcy Code on
September 22, 1995. The accompanying financial statements do not purport to
reflect or provide for the consequences of the bankruptcy proceedings. In
particular, such financial statements do not purport to show (a) as to assets,
their realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be
allowed for claims or contingencies, or the status and priority thereof; (c)
as to stockholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the effect of any
changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's losses from operations, shareholders
deficiency and its ability to obtain confirmation of a plan of reorganization
with its creditors raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also discussed
in Note 1. The financial statements do not include adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Atlanta, Georgia<PAGE>
December 20, 1996
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
- -----------------------------------------------------------------------
<TABLE>
BALANCE SHEETS
NOVEMBER 3, 1996 AND OCTOBER 29, 1995
NOTES 1996 1995
----- ---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,000 $ 52,000
Accounts receivable, net of allowance
of $4,205,000 and $2,991,000 . . . . . . . . . . . . . . . 35,881,000 43,872,000
Current income taxes receivable . . . . . . . . . . . . . . . . 9 9,000 2,417,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 3 44,646,000 69,470,000
Current deferred tax assets . . . . . . . . . . . . . . . . . . 9 - -
Other current assets . . . . . . . . . . . . . . . . . . . . . 224,000 664,000
Property, plant and equipment held
for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1,250,000 -
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 82,058,000 116,475,000
Property, plant and equipment, net . . . . . . . . . . . . . . . 4 65,664,000 78,784,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2,207,000 2,944,000
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $149,929,000 $198,203,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
Current maturities of long-term debt . . . . . . . . . . . . . 7 $ 48,389,000 $ 61,001,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 2,173,000 1,771,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 6,12 13,399,000 9,048,000
------------ -------------
Total current liabilities . . . . . . . . . . . . . . . . . . 63,961,000 71,820,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 7 4,010,000 25,302,000
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . 9 - -
-------------- ---------------
Total liabilities not subject to compromise . . . . . . . . . 67,971,000 97,122,000
Liabilities subject to compromise . . . . . . . . . . . . . . . . 11 88,631,000 90,759,000
Commitments and contingencies . . . . . . . . . . . . . . . . . . 12
Redeemable preferred stock subject to compromise,
$1.00 par value, 100,000 shares authorized,
56,867.50 shares issued and outstanding
(aggregate redemption and liquidation value
of $100 per share or $5,686,750) . . . . . . . . . . . . . . 8 2,655,000 2,655,000
SHAREHOLDERS' EQUITY (DEFICIT): 2,10,12
Common stock, $.001 par value, 20,000,000
shares authorized, 5,618,799 shares
issued and outstanding . . . . . . . . . . . . . . . . . . 5,619 5,619
Non-voting common stock, $.001 par value,
120,000 shares authorized, nil shares
issued and outstanding . . . . . . . . . . . . . . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . 26,564,381 26,564,381
Excess of additional pension liability
over unrecognized prior service cost . . . . . . . . . . . (1,107,000) (1,956,000)
Retained deficit since November 2, 1992 . . . . . . . . . . . . (34,791,000) (16,947,000)
------------- -------------
Total shareholders' equity (deficit) . . . . . . . . . . . (9,328,000) 7,667,000
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $149,929,000 $198,203,000
============ ============
</TABLE>
See notes to financial statements.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996
AND THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995
AND OCTOBER 30, 1994
NOTES 1996 1995 1994
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $195,028,000 $222,217,000 $237,085,000
Cost of goods sold 172,273,000 195,894,000 189,233,000
------------- ------------- -------------
Gross profit 22,755,000 26,323,000 47,852,000
Selling, general and administrative
expenses 18,129,000 23,310,000 22,377,000
Provision for uncollectible accounts
and notes receivable 1,397,000 2,879,000 2,167,000
Loss (gain) from abandonment, disposal
and impairment of machinery and
equipment and other assets 4 (45,000) 382,000 (109,000)
------------- ------------- ---------------
Operating income (loss) 3,274,000 (248,000) 23,417,000
Interest expense (contractual interest of $17,683,000
for 1996 and $20,422,000 for 1995) 7 9,063,000 19,569,000 17,517,000
------------- ------------- --------------
Income (loss) before reorganization
items and income taxes (5,789,000) (19,817,000) 5,900,000
Reorganization items 15 12,055,000 10,904,000 -
------------- ------------- --------------
Income (loss) before income taxes (17,844,000) (30,721,000) 5,900,000
Income tax provision (benefit) 9 - (4,250,000) 2,331,000
------------- ------------- --------------
Net income (loss) (17,844,000) (26,471,000) 3,569,000
Preferred stock in-kind dividends
and accretion to redemption
value 8 - (230,000) (230,000)
------------- ------------- ---------------
Income (loss) applicable to common
shareholders $(17,844,000) $(26,701,000) $ 3,339,000
============ ============ ==============
Per share and share information:
Income (loss) applicable to common
shareholders $ (3.18) $ (4 .75) $ .60
============ ============ =============
Weighted average common shares
outstanding 5,618,799 5,618,799 5,592,022
============ ============ =============
</TABLE>
See notes to financial statements.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996
AND THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995
AND OCTOBER 30, 1994
1996 1995 1994
----- ---- -----
<S> <C> <C> <C>
Net income (loss) $ (17,844,000) $ (26,471,000) $ 3,569,000
------------- ------------- -------------
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 13,113,000 13,982,000 13,942,000
Write-off of debt premium - (3,531,000) -
Write-off of deferred financing costs - 1,005,000 -
Income tax provision (benefit) - (4,250,000) 2,331,000
Income tax refunds (payments), net 2,531,000 1,014,000 (3,429,000)
Provision for uncollectible accounts and notes receivable 1,397,000 2,879,000 2,167,000
Increase (decrease) in market reserves (2,249,000) 6,418,000 290,000
Loss (gain) from abandonment, disposal and
impairment of machinery and equipment and other assets 1,782,000 8,199,000 (109,000)
Foreign currency transaction loss (gain) 22,000 (2,000) (10,000)
Changes in current assets and current liabilities,
exclusive of quasi-reorganization adjustments:
Accounts receivable 6,594,000 10,338,000 (10,071,000)
Inventories 27,073,000 (711,000) (235,000)
Other current assets 456,000 279,000 102,000
Accounts payable 446,000 (11,382,000) (11,427,000)
Accrued liabilities 4,190,000 (3,224,000) 1,019,000
Investment in notes receivable, net - (10,000) 161,000
Operating liabilities subject to compromise (1,279,000) 32,940,000 -
--------------- --------------- -------------
Total adjustments 54,076,000 53,944,000 (5,269,000)
--------------- --------------- -------------
Net cash provided (used) by operating activities 36,232,000 27,473,000 (1,700,000)
--------------- --------------- -------------
Cash flows used in investing activities:
Investment in property, plant and equipment (972,000) (13,729,000) (11,338,000)
Investment in other assets, principally
computer information systems (921,000) (1,361,000) (2,054,000)
Proceeds from disposal of machinery and equipment 150,000 110,000 185,000
--------------- -------------- ------------
Net cash used by investing activities . (1,743,000) (14,980,000) (13,207,000)
--------------- -------------- ------------
Cash flows from financing activities:
Net borrowings under the DIP Facility 6,582,000 9,434,000 -
Net borrowings (repayments) under GE Capital Facility (38,626,000) (20,070,000) 11,478,000
Proceeds from the Term Loan - 7,500,000 -
Repayment of the Term Loan - (7,500,000) -
Proceeds from sales of Senior Secured Notes - - 10,000,000
Repayment of Senior Secured Notes (91,000) - (3,000,000)
Borrowings under the CIT Equipment Facility - 2,487,000 1,113,000
Repayment of other financing arrangements (1,770,000) (2,900,000) (3,090,000)
Incentive stock options exercised - - 26,000
Deferred financing costs (588,000) (572,000) (821,000)
Cash paid in connection with Dissenters' Proceeding - (869,000) (803,000)
--------------- --------------- --------------
Net cash provided (used) by financing activities (34,493,000) (12,490,000) 14,903,000
-------------- -------------- -------------
Net increase (decrease) in cash (4,000) 3,000 (4,000)
Cash at beginning of period 52,000 49,000 53,000
-------------- -------------- -------------
Cash at end of period $ 48,000 $ 52,000 $ 49,000
============== ============== =============
</TABLE>
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
<TABLE>
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996
AND THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995
AND OCTOBER 30, 1994
1996 1995 1994
---- ---- ----
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 6,187,000 $ 15,336,000 $ 17,316,000
============ ============ ============
Cash (received) paid during the period
for income taxes, net $ (2,531,000) $ (1,014,000) $ 3,429,000
============ ============ ============
Cash paid during the period for
professional fees relating to
services rendered in connection
with the Chapter 11 proceeding and
other reorganization items paid $ 4,778,000 $ 847,000 $ -
============ =========== ===========
Supplemental schedule for non-cash<PAGE>
investing and financing activities:
Capital lease obligations incurred $ - $ - $ 3,641,000
============ ============ ===========
Preferred stock in-kind dividends and
accretion to redemption value $ - $ 230,000 $ 230,000
============ ============ ===========
Supplemental schedule of changes in
current assets and current liabilities:
Accounts receivable trade, net:
Decrease (increase) from operations $ 6,594,000 $ 10,338,000 $(10,071,000)
Provision for uncollectible accounts 1,397,000 2,879,000 1,798,000
----------- ------------ -------------
Net decrease (increase) $ 7,991,000 $ 13,217,000 $ (8,273,000)
=========== ============ =============
Inventories:
Decrease (increase) from operations $ 27,073,000 $ (711,000) $ (235,000)
Decrease from non-cash barter transaction - 1,704,000 -
Increase (decrease) in market reserves (2,249,000) 6,418,000 290,000
------------ ------------- --------------
Net decrease $ 24,824,000 $ 7,411,000 $ 55,000
============ ============= ==============
Accrued liabilities:
Increase (decrease) from operations $ 4,190,000 $ (3,224,000) $ 1,019,000
Quasi-reorganization adjustments - - 1,172,000
------------ ------------- --------------
Net (decrease) increase $ 4,190,000 $ (3,224,000) $ 2,191,000
============ ============= ==============
</TABLE>
See notes to financial statements.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
<TABLE>
STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
FOR THE FIFTY-TWO WEEKS ENDED OCTOBER 30, 1994 AND OCTOBER 29, 1995
AND THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996
Pension
Liability
Additional Over Prior Retained Total
Common Paid-In Service (Deficit) Shareholders'
Stock Capital Cost Earnings Equity (Deficit)
------- ------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993 $5,585 $28,570,415 $(1,101,000) $ 6,415,000 $ 33,890,000
Adjustments to Quasi
Reorganization 30 (1,993,660) - - (1,993,630)
Adjustments to pension
liability over prior
service cost - - 575,000 - 575,000
Incentive stock options
exercised 4 25,626 - - 25,630
Income applicable to common
shareholders - - - 3,339,000 3,339,000
------ ------------ --------- ---------- ----------
Balance, October 30, 1994 5,619 26,602,381 (526,000) 9,754,000 35,836,000
Adjustments to Quasi
Reorganization - (38,000) - - (38,000)
Adjustments to pension
liability over prior
service cost - - (1,430,000) - (1,430,000)
Loss applicable to common
shareholders - - - (26,701,000) (26,701,000)
------ ----------- ----------- ------------- -----------
Balance, October 29, 1995 5,619 26,564,381 (1,956,000) (16,947,000) 7,667,000
Adjustments to pension
liability
over prior service cost - - 849,000 - 849,000
Loss applicable to common
shareholders - - - (17,844,000) (17,844,000)
------ ----------- ----------- ------------- -------------
Balance, November 3, 1996 $5,619 $26,564,381 $(1,107,000) $(34,791,000) $ (9,328,000)
====== =========== =========== ============ =============
</TABLE>
See notes to financial statements.
FORSTMANN & COMPANY, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS FOR THE FIFTY-THREE WEEKS
ENDED NOVEMBER 3, 1996 AND THE FIFTY-TWO WEEKS ENDED
OCTOBER 29, 1995 AND OCTOBER 30, 1994
1. NATURE OF BUSINESS AND BANKRUPTCY FILING
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. The apparel industry
represents the majority of the Company's customers. A majority (50.4%) of the
Company s common stock is owned by Odyssey Partners, L.P.
The Company's results of operations declined significantly during Fiscal
Year 1995 (hereinafter defined). 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, sluggishness of retail apparel sales and a significant decline in
women's outerwear sales, which were partially offset by the higher volume in
sales of fabrics yielding lower profit margins. This was further compounded
by the Company's high debt leverage and resulted in the Company being unable
to meet all of its principal and interest payments when such became due.
Although the rise in wool costs subsequently stabilized, the continued
sluggishness of retail apparel sales, as well as the continued economic
downturn in the apparel industry has further strained the Company's operating
results during Fiscal Year 1996 (hereinafter defined). Recently such
underlying market conditions, particularly in men's wear and women's
outerwear, have somewhat stabilized, management expects that competition from
domestic sources and imports will increase during fiscal year 1997. In
response to these factors, management of the Company has instituted plans with
a greater focus on significantly reduced product offerings; tighter management
of inventory levels; enhanced cost controls; and reduced capital expenditures.
All of these management actions are designed to improve the Company's cash
flows from operations and in total. The Company has successfully improved
performance during Fiscal Year 1996 in each of these areas and is continuing
to refine its strategies in response to evolving circumstances.
Further, in the fourth quarter of Fiscal Year 1996, management began
efforts to negotiate and document a plan of reorganization pursuant to which
the Company will emerge from bankruptcy. The Company currently anticipates
that such a plan of reorganization can be confirmed and consummated in the
first half of calendar year 1997. However, there can be no assurance that the
Company will confirm and consummate a plan of reorganization in such time
frame or at all. The financial statements, as of November 3, 1996, do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Under Chapter 11, absent authorization of the Bankruptcy Court, efforts
to collect on claims against the Company in existence prior to the Bankruptcy
Filing are stayed while the Company continues business operations as a debtor-
in-possession. Unsecured claims against the Company in existence prior to the
Bankruptcy Filing are reflected as "Liabilities Subject to Compromise". See
Note 11 to the Financial Statements. 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"). A successful plan of
reorganization may require certain compromises of liabilities (including
Secured Claims) that, as of November 3, 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. As of November 3, 1996,
the Company estimates that the amount of Liabilities Subject to Compromise
approximates $88.6 million which primarily included unsecured trade accounts
payable and Subordinated Notes, including interest thereon through the date of
the Bankruptcy Filing (see Note 11 to the Financial Statements). 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.
Resolution to the Company's liquidity and debt leverage problems will
most likely 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"). Such ownership change will limit the Company's ability to utilize its
net operating loss and certain other carry forward tax credits. See Note 9 to
the Financial Statements for a further discussion of income tax matters.
In the course of the Company's operational restructuring, certain assets
of the Company have been rendered surplus or obsolete. Accordingly, during
Fiscal Year 1996, the Company increased its market reserves (see Note 3 to the
Financial Statements) and wrote down certain of its machinery and equipment
(see Note 4 to the Financial Statements). As a plan of reorganization is
developed, the Company may further conclude that additional market reserves
and write downs of equipment and other assets are necessary. Accordingly, the
Company may recognize significant expenses associated with the development and
implementation of the plan of reorganization that are not reflected in the
financial statements as of November 3, 1996. Any additional asset impairment
or restructuring costs directly related to the reorganization proceeding will
be reflected as reorganization items in the period the Company becomes
committed to plans which impair the valuation of the Company s assets or
incurs a restructuring liability.
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 were required to file claims but failed to meet the
deadline are forever barred from voting upon or receiving distributions under
any plan of reorganization. Since the Bar Date, the Company has been
reviewing and reconciling the proofs of claims that were filed by the
creditors. As a result of the reconciliation process, the Company has filed
two Omnibus Objections with the Bankruptcy Court objecting to certain claims
filed against the Company. As a result of the Omnibus Objections, numerous
claims have been expunged and other claims have been reduced. Differences
that cannot be resolved by negotiated agreements between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly, allowed
claims may arise which are not currently reflected in the Company's financial
statements and recorded claims are subject to change which may be material to
the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Debtor-in-Possession - The Company's financial statements have been
prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting of Entities in
Reorganization Under the Bankruptcy Code". 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.
Fiscal Year - The Company has adopted a fiscal year ending on the Sunday
nearest to October 31. The fiscal year ended November 3, 1996 ("Fiscal Year
1996") comprises fifty-three weeks and the fiscal years ended October 29, 1995
and October 30, 1994 compromise fifty-two weeks ("Fiscal Year 1995" and
"Fiscal Year 1994"), respectively.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition - Generally, sales are recognized when goods are
sold and then shipped to the Company's customers. A portion of such sales is
made on extended terms of up to 240 days. At November 3, 1996, $0.3 million
of sales made on extended terms were included in accounts receivable under
terms of specific sales.
When customers, under the terms of specific orders, request that the
Company manufacture, invoice and ship goods on a bill and hold basis, the
Company recognizes revenue based on the completion date required in the order
and actual completion of the manufacturing process. At the time such goods
are ready for delivery, title and risk of ownership pass to the customer.
Accounts receivable included bill and hold receivables of $16.5 million at
November 3, 1996 and $14.5 million at October 29, 1995.
One of the Company's customers accounted for approximately 13.0% and
14.0% of the Company's revenues during Fiscal Year 1996 and Fiscal Year 1995,
respectively. No other customer of the Company accounted for 10.0% or more of
the Company's revenues in Fiscal Year 1996 and Fiscal Year 1995. In Fiscal
Year 1994, none of the Company's customers accounted for 10.0% or more of the
Company's revenues.
Allowance for Uncollectible Accounts - Based on a review and assessment
of the collectibility of aged balances included in accounts receivable, the
Company establishes a specific allowance for uncollectible accounts.
Additionally, the Company establishes a general allowance for uncollectible
accounts based, in part, on historical trends and the state of the economy and
its effect on the Company's customers. The Company also establishes
allowances for estimated sales returns. The Company grants credit to certain
customers, most of which are companies in apparel industries, which generally
have experienced an economic downturn. The ability of such customers to honor
their debts is somewhat dependent upon the apparel business sector. One
individual customer's accounts receivable balance represents approximately
15.8% of gross accounts receivable and no other individual customer's accounts
receivable balance exceeded 5.0% of gross accounts receivable at November 3,
1996.
Inventories - Inventories are stated at the lower of cost, determined
principally by the last-in, first-out ("LIFO") method, or market.
Property, Plant and Equipment Held for Sale - Property, plant and
equipment held for sale is stated at the lower of cost or estimated net
realizable value.
Property, Plant and Equipment - Property, plant and equipment is
recorded at cost, net of accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets or the lease terms of certain capital
leased assets. For income tax purposes, accelerated methods of depreciation
are used. Maintenance and repairs are expensed when incurred, and renewals or
betterments are capitalized.
Deferred Financing Costs - Costs incurred to obtain financing are
included as other assets and amortized using the straight-line method over the
expected maturities of the related debt.
Computer Information Systems - Costs directly associated with the
initial purchase, development and implementation of computer information
systems are deferred and included as other assets. Such costs are amortized
on a straight-line basis over the expected useful life of the systems,
principally five years. Ongoing maintenance costs of computer information
systems are expensed.
Environmental Remediation Liabilities - The Company recognizes
environmental remediation liabilities when a loss is probable and can be
reasonably estimated. Estimates are developed in consultation with
environmental consultants and legal counsel and are periodically revised based
on expenditures against established reserves and the availability of
additional information. Such liabilities are included on the balance sheet as
accrued liabilities and include estimates for legal and other consultation
costs.
Earnings (Loss) Per Share - Earnings (loss) per share information is
computed using the weighted average common shares outstanding during each year
and income (loss) applicable to common shareholders. Shares issuable upon the
exercise of employee stock options do not have a material dilutive effect on
earnings (loss) per share for the periods presented.
Reclassifications - Certain prior years financial statement balances
have been reclassified to conform with the current years presentation.
3. INVENTORIES
Inventories consist of the following at November 3, 1996 and October 29,
1995 (in thousands):
1996 1995
---- ----
Raw materials and supplies $ 7,406 $10,583
Work-in-process 32,007 50,624
Finished products 11,595 16,874
Less market reserves (6,362) (8,611)
------- -------
Total 44,646 69,470
Difference between LIFO carrying
value and current replacement
cost 3,936 7,346
------- -------
Current replacement cost $48,582 $76,816
======= =======
Market reserves are estimated by the Company based, in part, on
inventory age as well as estimated usage. During Fiscal Year 1996, the
Company increased inventory market reserves by $10.7 million of which $3.5
million was charged to reorganization expense in connection with the Company's
assessment and evaluation of its business strategy which resulted in the
Company continuing to reduce its product offerings. This has had the effect
of rendering many inventory units as either surplus or obsolete. During
Fiscal Year 1996, the Company also sold certain yarn inventory which had been
previously identified as surplus or obsolete for its net carrying value which
was $4.9 million below its gross inventory value. This transaction resulted
in a release of yarn inventory market reserves of $4.9 million and did not
give rise to any loss during Fiscal Year 1996.
During Fiscal Year 1995, the Company increased inventory market reserves
by $11.2 million of which $4.3 million was charged to reorganization expense
during the fourth quarter of Fiscal Year 1995 in conjunction with the
Company's assessment and evaluation of its business strategy which resulted in
the Company significantly reducing its product offerings. This reduction in
offerings has had the effect of rendering many inventory units as either
surplus or obsolete.
The reduction of inventory quantities has resulted in the liquidation of
LIFO inventory layers carried at lower costs prevailing in prior years. The
effect of this liquidation increased gross profit by $2.2 million in Fiscal
Year 1996.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at November 3,
1996 and October 29, 1995 (in thousands):
1996 1995
--- ---
Land $ 840 $ 1,100
Buildings 16,391 19,235
Machinery and equipment 85,977 86,816
Construction in progress 4,685 4,304
-------- --------
Total 107,893 111,455
Less accumulated depreciation and
amortization (42,229) (32,671)
-------- --------
Net $ 65,664 $ 78,784
======== ========
Capital lease assets (principally machinery and equipment) at November
3, 1996 and October 29, 1995 were $5,389,000 and $5,441,000 respectively.
Accumulated amortization related to such capital lease assets at November
3,1996 and October 29, 1995 was $1,173,000 and $795,000, respectively.
Depreciation expense and amortization of capital lease assets was
$11,417,000 for Fiscal Year 1996, $11,870,000 for Fiscal Year 1995 and
$11,945,000 for Fiscal Year 1994.
During Fiscal Year 1996, the Company announced its intention to close
its Tifton facility. The closing commenced in late July 1996 and was
completed in November 1996. The Company incurred $0.4 million during Fiscal
Year 1996 and expects to incur $0.2 million during fiscal year 1997 in
connection with the relocation of certain of its wool blending machinery and
equipment from the Tifton facility to the Dublin facility. Such expenses are
being reflected as reorganization items in the period incurred.
In November 1996, the Company entered into a Contract of Sale with the
Tift County Development Authority, providing for the sale of the Tifton
facility for $1.25 million. The Contract of Sale provided for the transaction
to close prior to the end of January 1997. As a result of delays in obtaining
the financing necessary to consummate its purchase of the facility, the
Development Authority requested that the closing of the transaction be
delayed. Accordingly, the Company and the Development Authority entered into
an agreement amending the Contract of Sale to provide for a closing on or
before February 28, 1997. The Company and the Development Authority are
working to conclude the sale of the Tifton facility prior to this date.
However, there can be no assurance that the sale will be consummated in this
or any other timeframe.
The expected selling price for the Tifton facility is $1.1 million below
the net book value for the facility. This expected loss was accrued during
Fiscal Year 1996.
As of November 3, 1996, $4.2 million was included in construction in
progress relating to certain unerected idle equipment located at the Tifton
facility. Such equipment is not being sold in connection with the sale of the
Tifton facility. The Company is currently negotiating the return of such
equipment to its manufacturer and, based upon the outcome of such
negotiations, the economic value of the equipment may be impaired.
5. OTHER ASSETS
Other assets consist of the following at November 3, 1996 and October
29, 1995 (in thousands):
1996 1995
---- ----
Computer information systems,
net of accumulated amortization of
$2,270 and $3,861 $1,174 $ 832
Deferred financing costs, net of
accumulated amortization of
$1,874 and $1,293 679 1,196
Other, including $246 and $770 of net
barter credits 354 916
------ ------
Total $2,207 $2,944
====== ======
Based upon analysis of planned barter credit use, the Company wrote down
its barter credits by $0.5 million during Fiscal Year 1996 and $0.9 million
during Fiscal Year 1995. Management believes the recorded value of barter
credits, after adjustment, is fairly stated.
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at November 3, 1996
and October 29, 1995 (in thousands):
1996 1995
--- ---
Salaries and wages
(including related payroll taxes) $ 987 $1,484
Incentive compensation 1,289 171
Vacation 1,616 1,988
Employee benefit plans 617 1,037
Interest on long-term debt 2,888 1,015
Medical insurance claims 1,330 1,092
Professional Fees 2,346 720
Environmental remediation 339 357
Other 1,987 1,184
------- ------
Total $13,399 $9,048
======= ======
See Note 11 to the Financial Statements for accrued liabilities included
in Liabilities Subject to Compromise at November 3, 1996 and October 29, 1995.
7. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following at November 3, 1996 and October
29, 1995 (in thousands):
1996 1995
--- ---
GE Capital DIP Facility $16,017 $ 9,434
GE Capital Facility - 38,626
Senior Secured Notes 26,909 27,000
Equipment Facilities 6,136 7,451
Capital lease obligations
(see Note 12) 3,337 3,610
Subordinated Notes 56,632 56,632
Other - 182
-------- ---------
Total 109,031 142,935
Current portion of long-term debt (48,389) (61,001)
Subordinated Notes included in
Liabilities Subject to Compromise (56,632) (56,632)
-------- ---------
Long-term debt $ 4,010 $ 25,302
======== =========
GE Capital DIP Facility - The Company is in default of substantially all
of its pre-petition debt agreements at November 3, 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, which expired on October 31,
1996, provides up to $85 million in financing (including a $10.0 million
letter of credit facility) under a borrowing base formula. The DIP Facility
was amended on May 31, 1996 to, among other things, cure the EBITDA (as
defined) covenant violation that existed at April 28, 1996, set revised
minimum EBITDA covenants and caps on eligible inventory included in the
borrowing base.
The DIP Facility was further amended on October 10, 1996 to extend the
maturity of the facility one year to October 31, 1997, to cure all minimum
EBITDA covenant violations for any period ended prior to September 1, 1996 and
to set revised minimum EBITDA covenants for the remainder of the Company's
Fiscal Year 1996 and all of fiscal year 1997. Based upon current financial
forecasts, management of the Company expects that the Company will not be in
violation of the DIP Facility. However, depending upon the results of future
operations, a future violation may occur. The October 1996 amendment to the
DIP Facility also reduces the advance rate for eligible inventory and sets
revised inventory advance caps. The Company expects that availability under
the DIP Facility will be adequate to fund its operating and capital
expenditure requirements for all of fiscal year 1997.
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 most cases the
collateral securing the secured debt obligations is sufficient to cover the
principal and interest portions of scheduled payments on the Company s 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) under
the DIP Facility cannot exceed the sum of (1) 85% of eligible accounts
receivable (other than bill and hold receivables); (2) the lesser of (a)$12.5
million or (b) a percentage (based on aging) of eligible bill and hold
accounts receivable; and (3) the sum of 50% of eligible raw material
inventory, 35% of eligible yarn in storage and eligible greige goods, and 50%
of eligible finished goods (other than samples and seconds) and the lesser of
(a) $1.2 million or (b) 40% of samples and seconds. The Company's borrowing
base is subject to reserves determined by GE Capital in its sole discretion.
At November 3, 1996, the Company's loan availability as defined in the DIP
Facility, in excess of pre-petition and post-petition advances, and
outstanding letters of credit, was approximately $20.2 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 1.25%
per annum above the index rate, and the fixed rate is 2.75% per annum above
LIBOR. At November 3, 1996, the DIP Facility bore interest at the fixed rate
of 8.25% per annum.
Proceeds from the Company's operations (as defined) 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 a fee of 0.5% per annum on the average daily
unused portion of the DIP Facility. In addition, the Company paid GE Capital
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 $550,000 during Fiscal Year
1996. In connection with entering into the October 1996 amendment to the DIP
Facility, the Company has agreed to pay GE Capital, a nonrefundable amendment
fee equal to $375,000, which was fully earned upon entry by the Bankruptcy
Court of the order approving the amendment and is due and payable in monthly
installments of $31,250 each, commencing on October 31, 1996 and continuing
until paid in full. In the event that GE Capital provides post bankruptcy
financing, the amount of the facility fee would be reduced by $212,500 if the
date the Bankruptcy Court confirms the Company's plan of reorganization occurs
anytime prior to April 30, 1997, $148,750 between May 1, 1997 and July 31,
1997, $106,250 between August 1, 1997 and October 31, 1997.
GE Capital Facility - The Company entered into a five-year loan
agreement as of October 30, 1992 with GE Capital, as agent and lender, for
borrowings up to $100 million (the "GE Capital Facility"). The GE Capital
Facility provided revolving loans up to a maximum of $85 million (the
"Revolving Line of Credit") (which included a $7.5 million letter of credit
facility) and provided a $15 million term loan (the "Original Term Loan"). On
April 5, 1993, the Company issued the Senior Secured Notes (hereinafter
defined) in the aggregate principal amount of $20 million and prepaid in full
the Original Term Loan. In January 1995, the GE Capital Facility was amended,
subject to loan availability (as defined), to provide a $7.5 million term loan
(the "Term Loan"). On January 23, 1995, the Company borrowed $7.5 million
under the Term Loan, the proceeds of which were used to repay a portion of
outstanding borrowings under the Revolving Line of Credit. As a result of the
Company s deteriorating liquidity and financial position during Fiscal Year
1995 the Company was, at various times, not in compliance with certain of its
financial covenant requirements under the GE Capital Facility. On June 19,
1995, the GE Capital Facility was amended to, among other things,
retroactively lower the financial covenant and provide lower financial
covenant requirements under the remaining term of the GE Capital Facility.
Such amended financial covenants were based on the Company's estimate of its
future operating results and cash flows. In connection with such amendment
the Company agreed to repay borrowings outstanding under the Term Loan. On
July 1, 1995 the Company repaid $2.5 million of the Term Loan, and on
September 1, 1995 the Company repaid the remaining borrowings outstanding
under the Term Loan. Borrowings under the Revolving Line of Credit were used
to repay the Term Loan. Proceeds from the Company's operations during the
Fiscal Year 1996 were first applied to repay in full the principal amount of
borrowings outstanding under the GE Capital Revolving Line of Credit.
Senior Secured Notes - On April 5, 1993, the Company issued an aggregate
of $20 million Senior Secured Floating Rate Notes (the "Original Senior
Secured Notes") and on March 30, 1994, the Company issued an aggregate of $10
million Senior Secured Floating Rate Notes (the "Additional Senior Secured
Notes"), all of which are due October 30, 1997 (collectively the "Senior
Secured Notes"). The Senior Secured Notes were issued pursuant to an
indenture dated April 5, 1993, which was amended and restated as of March 30,
1994 between the Company and Shawmut Bank Connecticut, National Association,
as trustee (the "Senior Secured Notes Indenture").
Borrowings under the Senior Secured Notes bear interest, at the
Company's option, at a floating rate (which is based on the prime lending
rate, as defined) or a fixed rate (which is based on LIBOR), payable
quarterly. The floating rate is 1.75% per annum above the prime lending rate,
as defined, and the fixed rate is 3.25% per annum above LIBOR. Since the
Bankruptcy Filing, the Company has accrued interest on the Senior Secured
Notes at a fixed rate of 9.1875% through October 31, 1995, and various
floating and fixed interest rates ranging from 8.7328% to 10.5% during Fiscal
Year 1996.
The Senior Secured Notes require principal payments of $4.0 million on
October 31, 1995, $5.0 million on October 31, 1996 and a final payment of the
unpaid principal balance on October 30, 1997. As a result of the Bankruptcy
Filing, the Company did not remit the required principal payments of $4.0
million due on October 31, 1995 and $5.0 million due on October 31, 1996.
Further, the quarterly interest payment of $633,937 due on October 31, 1995
was not paid. Subsequently, 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 agreement was amended to provide "adequate protection" payments
in the amount of $125,000 at the end of each month commencing on November 27,
1996 and ending on the earlier of (i) the date on which a plan of
reorganization is consummated in the Company's bankruptcy case or (ii) October
31, 1997. In connection with the amended agreement, the Company also agreed
to pay $85,000 in legal fees and expenses incurred by certain of the holders
of the Senior Secured Notes and the trustee. The Company has applied the
adequate protection payments made as of November 3, 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.
In addition, under the Senior Secured Notes Indenture, as modified by a
Bankruptcy Court order, the net proceeds from the sale or other disposition by
the Company of assets (excluding, among other things, the sales of inventory
in the ordinary course of business) are required to be deposited with the
Senior Secured Notes Indenture trustee. As of November 3, 1996, under the
terms of the Senior Secured Notes Indenture, the Company had deposited $91,000
of such net proceeds with the trustee.
The Company's obligations under the Senior Secured Notes are secured by
liens on substantially all of the Company's assets.
Equipment Facilities - The Company is a party to a loan and security
agreement (the "CIT Equipment Facility") with the CIT Group/Equipment
Financing, Inc. ("CIT") which provides financing for the acquisition of, and
to refinance borrowings incurred to acquire various textile machinery and
equipment. Pursuant to the CIT Equipment Facility, commencing on December 27,
1991 and through December 31, 1992, the Company borrowed an aggregate of $4.5
million at interest rates ranging from 7.86% to 8.61% per annum.
On August 2, 1993, the CIT Equipment Facility was amended to permit up
to four additional loans not to exceed an aggregate of $6.0 million with the
commitment period ending on January 31, 1994. Through October 30, 1994, the
Company borrowed an additional $6.0 million at interest rates ranging from
7.36% to 7.75% per annum. On December 22, 1994, the CIT Equipment Facility
was further amended to permit up to two additional loans not to exceed an
aggregate of $5.0 million with the commitment period ending on July 31, 1995.
On December 22, 1994, the Company borrowed $2.5 million at an interest rate of
10.58%. At November 3, 1996, an aggregate of $6.1 million was outstanding
under the CIT Equipment Facility. Each loan under the CIT Equipment Facility
is a five-year purchase money loan, secured by a first (and only) perfected
security interest in the equipment, and is payable in 60 consecutive
installments of principal plus interest, payable monthly in arrears.
The Company was required to provide CIT with an irrevocable letter of
credit in an amount equal to 25% of the original principal amount of each
additional loan made under the August 2, 1993 amendment. As a result of the
Bankruptcy Filing, the Company has not remitted principal and interest
payments which are due under the CIT Equipment Facility. At the Bankruptcy
Filing date the Company owed CIT $7.7 million in principal and accrued
interest and had issued $1.5 million in letters of credit payable to CIT.
Since October 29, 1995 and during Fiscal Year 1996 CIT drew against all
amounts outstanding under the letters of credit to satisfy principal and
interest due under the CIT Equipment Facility.
In Fiscal Year 1996, the Company agreed to provide "adequate protection"
payments to CIT in connection with the CIT Equipment Facility. The agreement
required 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. The agreement was subsequently amended to provide "adequate
protection" payments in the amount of $118,750 at the end of each month
commencing on November 27, 1996 and ending on the earlier of (i) the date on
which a plan of reorganization is consummated in the Company's bankruptcy case
or (ii) October 31, 1997. In connection with the amended agreement, the
Company also agreed to pay $48,000 in legal fees and expenses incurred by CIT.
The Company has applied the adequate protection payments made as of November
3, 1996 first to accrued interest and secondly to outstanding principal.
However, final application as to principal and interest of the adequate
protection payments is to be subsequently determined pursuant to the
Bankruptcy Code.
Capital Lease Obligations - The Company is a party to an equipment lease
agreement ("Sanwa Capital Lease") with Sanwa General Equipment Leasing
("Sanwa") which provided financing for the acquisition of various textile
machinery and equipment. Pursuant to the Sanwa Capital Lease, commencing on
September 30, 1994 and through December 30, 1994, the Company financed the
acquisition of equipment with an aggregate value of $2.9 million at interest
rates of 10.24% to 10.87% per annum. Sanwa subsequently assigned its rights
to the Sanwa Capital Lease to The Provident Bank ("Provident"). Each
equipment schedule under the Sanwa Capital Lease is a five-year lease, secured
by a first (and only) perfected security interest in the equipment, and is
payable in 60 consecutive and equal rentals, payable monthly in arrears. At
the Bankruptcy Filing date the Company owed Provident $2.6 million in
principal and accrued interest.
In Fiscal Year 1996, Company agreed to provide "adequate protection"
payments to Provident in connection with the Sanwa Capital Lease. The
agreement requires the Company to remit monthly payments in arrears in the
amount of $20,000 at the end of each month commencing March 31, 1996 through
October 31, 1997. The Company has applied adequate protection payments made
as of November 3, 1996 to outstanding principal. The Company is no longer
accruing interest on the Sanwa Capital Lease as the Company currently
estimates that the equipment value securing the lease obligation is not
sufficient to cover the principal and interest portions of scheduled payments
on the Sanwa Capital Lease. Final application as to principal and interest of
the adequate protection payments is to be subsequently determined pursuant to
the Bankruptcy Code.
Subordinated Notes - On April 20, 1989, through an underwritten public
offering, the Company sold $100 million of 14-3/4% Senior Subordinated Notes
due April 15, 1999 (the "14-3/4% Notes") (effective rate 15%). In fiscal year
1992, the Company acquired, and did not retire or cancel, $46,240,100
aggregate face amount of the Subordinated Notes. The Company used $2,875,000
of such Subordinated Notes to satisfy a January 31, 1993 mandatory redemption
required in the Subordinated Notes Indenture.
The Subordinated Notes are subordinated to all existing and future
senior indebtedness (as defined) of the Company. The Subordinated Notes
Indenture limits, subject to certain financial tests, the incurrence of
additional senior indebtedness and prohibits the incurrence of any
indebtedness senior to the Subordinated Notes that is subordinated to the
Company's then existing senior indebtedness. The Subordinated Notes Indenture
contains restrictions relating to payment of dividends, the repurchase of
capital stock and the making of certain other restricted payments, certain
transactions with affiliates and subsidiaries, and certain mergers,
consolidations and sales of assets. In addition, the Subordinated Notes
Indenture requires the Company to make an offer to purchase (1) a portion of
the Subordinated Notes if (a) the Company's adjusted tangible net worth (as
defined) falls below $15 million at the end of any two consecutive fiscal
quarters or (b) the Company consummates an asset sale (as defined) at certain
times or (2) all of the Subordinated Notes if a change of control (as defined)
occurs.
As a result of the Quasi Reorganization (hereinafter defined, see Note
14 to the Financial Statements), the Subordinated Notes were fair valued,
which, for financial reporting purposes, resulted in the elimination of the
previously existing deferred interest payable and debt discount, the creation
of a debt premium of $5,663,000 and an adjustment in the effective interest
rate on the outstanding Subordinated Notes to 12.43% per annum. As a result
of the Bankruptcy Filing, during Fiscal Year 1995, the Company wrote off $3.5
million of the unamortized debt premium related to the Subordinated Notes.
The Company did not remit the semi-annual interest payment of $4,177,000 due
on October 15, 1995 to holders of the Subordinated Notes. Through the date of
the Bankruptcy Filing, the Company had accrued $3.7 million in interest
associated with the Subordinated Notes. Such amount is included in
Liabilities Subject to Compromise at November 3, 1996. The Company did not
remit the semi-annual interest payment of $4,177,000 due on April 15, 1996 and
October 15, 1996. Further, the Company is no longer accruing interest on the
Subordinated Notes as such Subordinated Notes are not collateralized. Based
on the face value of the Subordinated Notes at the contractual interest rate
of 14-3/4%, the Company has not accrued $8.4 million and $0.8 million in
interest expense during Fiscal Year 1996 and 1995, respectively.
Aggregate Maturities - Absent the Bankruptcy Filing and covenant
defaults under the Company's various financing agreements, at November 3,
1996, aggregate long-term debt maturities excluding capital lease obligations
(see Note 11 to the Financial Statements), are as follows (in thousands):
Fiscal Year Amount
----------- ------
1997 $ 46,795
1998 51,650
1999 7,166
2000 83
--------
Total $105,694
========
8. REDEEMABLE PREFERRED STOCK
The Company's senior preferred stock, with a dividend rate of 5% per
annum, is non-voting, except in limited circumstances, and ranks senior to any
subsequently issued class or series of preferred stock. The Company is
prohibited from paying cash dividends on the senior preferred stock under its
existing financial arrangements (see Note 7 to the Financial Statements),
except that the Company may, at its option, pay such dividends through the
issuance of additional shares of senior preferred stock with an aggregate
liquidation preference equal to the dollar value of the required dividend.
The senior preferred stock, plus accumulated unpaid dividends, is mandatorily
redeemable on December 15, 2010 (and earlier under certain circumstances upon
a change in control (as defined)) at a price equal to the liquidation
preference thereof.
In connection with the Company's Quasi Reorganization, the senior
preferred stock was fair valued. The fair valuation resulted in an effective
dividend rate of 10.11% per annum. As a result of the Bankruptcy Filing, the
Company is no longer accruing the dividend due under the redeemable preferred
stock or accreting the recorded balance to redemption value. The redeemable
preferred stock is subject to compromise in the Bankruptcy Filing.
9. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
1996 1995 1994
--- --- ---
Current $ - $(1,930) $1,759
Deferred - (2,320) 572
Total $ - $(4,250) $2,331
====== ======= ======
A reconciliation between federal income taxes at the statutory rate and
the Company's income tax provision is as follows:
1996 1995 1994
--- --- ---
Federal statutory tax rate (35.00)% (35.00)% 35.00%
State income taxes, net of federal
benefit (4.50) (4.50) 4.50
Valuation allowance 32.94 25.14
Non-deductible expenses 6.56 .53 .01
------ ------ -----
Income tax provision - % (13.83)% 39.51%
====== ====== =====
Recognition of the income tax benefit in Fiscal Year 1995 was limited to
the amount of its net operating loss the Company can carry back. To the
extent the Company had net deferred tax assets at November 3, 1996 and October
29, 1995, the Company, during Fiscal Years 1996 and 1995, established a
valuation allowance to reduce such net deferred tax assets to zero. The
corresponding charge to increase the valuation allowance reduced the Company's
Fiscal Year 1996 and Fiscal Year 1995 income tax benefit.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax liability at
November 3, 1996 and October 29, 1995 are as follows (in thousands):
1996 1995
---- ----
Deferred tax liabilities:
Differences between book and tax basis of
property, plant and equipment $ 9,915 $ 9,971
Deferred interest payable 1,054 1,417
Other 27 27
------- ------
Total 10,996 11,415
------- ------
Deferred tax assets:
Operating loss carryforwards (14,222) (10,187)
Alternative minimum tax carryforwards (923) (846)
Difference between book and tax basis of
computer information systems (494) (1,308)
Accrued liabilities (4,256) (3,363)
Barter credits reserve (814) (631)
Allowance for uncollectible accounts (1,661) (1,181)
Inventories (5,888) (5,671)
Other (219) (290)
Total (28,477) (23,477)
Valuation allowance 17,481 12,062
-------- --------
Net deferred tax liability $ - $ -
======== ========
The valuation allowance increased $5.4 million during Fiscal Year 1996
primarily due to the increase in the operating loss carryforward. At November
3, 1996, the Company had cumulative net operating loss carryforwards for
federal income tax purposes of approximately $36.0 million, of which
approximately $28.0 million is available to offset future taxable income as
discussed below. For federal income tax purposes, net operating loss
carryforwards begin to expire in the year 2002.
As a result of a recapitalization in fiscal year 1992, the Company
underwent an ownership change as defined in the Internal Revenue Code. This
ownership change limits the Company's ability to utilize its net operating
loss carryforwards. One possible resolution to the Company's current
liquidity and debt leverage problems will most likely 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, as
amended. Such ownership change will further limit the Company's ability to
utilize its net operating loss and certain other carry-forward tax attributes.
At November 3, 1996 and October 29, 1995, the Company established a valuation
allowance to reduce its net deferred tax assets to zero based on a more likely
than not assessment of recoverability.
10. EMPLOYEE BENEFIT PLANS
The Company has established and presently maintains qualified pension
plans and qualified and non-qualified profit sharing and savings plans
covering eligible hourly and salaried employees. The qualified
noncontributory defined benefit pension plans cover substantially all salaried
and hourly employees.
Pension plan assets consist primarily of common stocks, bonds and United
States government securities. The plans provide pension benefits that are
determined by years of service and for salaried plan participants are based on
the plan participants' average compensation for the last five years of service
and for hourly plan participants are based on the plan's applicable hourly
rate for each specific participant's year of service. The Company's funding
policy is to make the annual contribution required by applicable regulations
and recommended by its actuary.
Net periodic pension cost for the periods indicated include the
following components at November 3, 1996, October 29, 1995 and October 30,
1994, (in thousands, except assumption percentages):
1996 1995 1994
Hourly Salaried Hourly Salaried Hourly Salaried
Pension Pension Pension Pension Pension Pension
Plan Plan Plan Plan Plan Plan
---- ---- ---- ---- ---- ----
Service cost $ 659 $ 798 $ 489 $ 683 $ 568 $ 878
Interest cost 681 577 591 539 532 476
Return on plan assets (537) (503) (489) (434) (390) (356)
---- ---- ----- ----- ----- -----
Net periodic pension
cost $ 803 $ 872 $ 591 $ 788 $ 710 $ 998
===== ===== ===== ===== ===== =====
Assumptions used in
the accounting are:
Discount rates 7.50% 7.50% 7.25% 7.25% 8.75% 8.75%
Rate of increase in
compensation levels - 4.00% - 5.50% - 5.50%
Expected long-term rate
of return on assets 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
The following schedule sets forth the funded status of the hourly and
salaried pension plans and the plan assets (accrued pension costs) included in
the Company's balance sheets at November 3, 1996 and October 29, 1995,
respectively (in thousands):
1996 1995
Hourly Salaried Hourly Salaried
Pension Pension Pension Pension
Plan Plan Plan Plan
------- ------- ------- -------
Actuarial present value
of pension obligation:
Vested $(9,417) $(7,087) $(8,674) $(6,146)
Nonvested (648) (506) (607) (528)
-------- -------- ------- -------
Accumulated benefit obligation (10,065) (7,593) (9,281) (6,674)
Effects of projected future
compensation levels - (1,223) - (1,849)
-------- -------- ------- -------
Projected benefit obligation (10,065) (8,816) (9,281) (8,523)
Plan assets at fair value 9,623 8,240 7,800 6,438
Unrecognized net loss (gain) 1,170 (764) 2,011 522
-------- ------- ------- ------
Plan assets (accrued pension
costs) included in balance
sheet $ 728 $(1,340) $ 530 $(1,563)
======== ======= ======= =======
The Company's assumed discount rate ("discount rate") used to measure
the accumulated benefit obligation for its hourly and salaried pension plans
as of the end of Fiscal Year 1996 was increased from 7.25% to 7.50% based on
the composition of the accumulated benefit obligation and current economic
conditions. The Company's hourly pension plan benefit obligation exceeds the
plan assets at fair value at the end of Fiscal Year 1996 by $442,000. During
Fiscal Year 1996, the Company decreased its accrued additional pension
liability in excess of accumulated benefit obligation from $2,025,000 to
$1,170,000 and decreased the excess of additional pension liability over
unrecognized prior service cost charged to shareholders' equity from
$1,956,000 at the end of Fiscal Year 1995 to $1,107,000 at the end of Fiscal
Year 1996.
The Company has a qualified salaried employees' savings, investment and
profit sharing plan under Section 401(k) of the Internal Revenue Code (the
"Qualified Plan"). The Company has adopted a non-qualified salaried
employees' savings, investment and profit sharing plan covering certain
employees not covered under the Qualified Plan (the "Non-Qualified Plan"). No
matching contributions to the Qualified Plan or Non-Qualified Plan were made
by the Company in Fiscal Year 1996, Fiscal Year 1995 or Fiscal Year 1994.
On September 18, 1992, the Company adopted the Forstmann & Company, Inc.
Common Stock Incentive Plan, as subsequently amended (the "Option Plan"), for
key employees of the Company. Through November 3, 1996 the Company's
shareholders had reserved 950,000 shares for issuance by the Company under the
Option Plan. Options granted under the Option Plan may be either incentive
stock options ("ISOs"), which are intended to meet the requirements of Section
422 of the Internal Revenue Code, or non-qualified stock options ("NSOs").
The Compensation Committee of the Company's Board of Directors may grant
under the Option Plan (1) ISOs at an exercise price per share which is not
less than the fair market value (as defined) of the common stock at the date
of grant and (2) NSOs at an exercise price not less than $.001 per share. The
Option Plan further provides that the maximum period in which options may be
exercised will be determined by the Compensation Committee, except that ISOs
may not be exercised after the expiration of ten years from the date of grant
(five years in the case of an optionee who is a 10% shareholder). The Option
Plan requires that ISOs terminate on the date the optionee's employment with
the Company terminates, except in the case of death, disability, termination
of employment without cause or a change of control (as defined) of the
Company, as determined by the Compensation Committee. Options are non-
transferable, except by will or by the laws of descent and distribution, and
may be exercised upon the payment of the option price in cash or any other
form of consideration acceptable to the Compensation Committee.
The following summarizes stock option activity:
1996 1995
---- ----
Shares under option at beginning
of fiscal year 421,301 241,268
Granted - 225,000
Exercised - -
Terminated (275,634) (44,967)
--------- -------
Shares under option at end of fiscal year 145,667 421,301
========= =======
Options exercisable at end of fiscal year 95,667 172,274
========= =======
Options available for future grant 800,536 524,902
========= =======
Option prices per share:
Granted $ - $ 8.50
Exercised $ - $ -
Outstanding at end of fiscal year $6.75-$9.00 $6.75-$9.00
Five senior officers of the Company were granted equity referenced
deferred incentive awards ("ERAs") on March 4, 1992, which generally vest
three years after grant and are exercisable only if, after vesting, the
Company's common stock maintains a market price of at least $9.00 per share
for a continuous period of 30 days provided that such event occurs before
March 4, 1998. Upon exercise, the ERAs have a value of $9.00, multiplied by
the number of shares covered by the senior officer's ISOs, thus permitting the
officers to be reimbursed, on a pre-tax basis, for the exercise price of their
ISOs. The senior officers will be entitled to exercise their ERAs even if
they determine not to exercise their ISOs. As described more fully in Note 11
to the Financial Statements, on August 16, 1995, the Company's former Chairman
of the Board, President and Chief Executive Officer (the "Executive Officer")
entered into a severance agreement and resigned from the Company. The
agreement entitled the Executive Officer to a continuation of existing salary
and certain other benefits for a period of two years from the date of
separation from the Company and grants the Executive Officer title to certain
of the Company's assets in the Executive Officer's possession. In addition,
under the terms of the agreement, the Company agreed to pay certain vested but
unearned ERAs which he would have been entitled to under his employment
agreement with the Company if he had been dismissed without "cause" as defined
therein. The value of his ERAs was fully accrued by the Company as of March
4, 1995 and, as a result of the Bankruptcy Filing has been included in
"Liabilities Subject to Compromise". Based upon management's analysis of
likely allowed bankruptcy claims, the ERAs which had been previously accrued
for the Executive Officer ($585,000) was reversed during the fourth quarter of
Fiscal Year 1996 and the resulting gain is included in reorganization items
(see Note 15 to the Financial Statements). During the fourth quarter of
Fiscal Year 1995, based on management's assessment of possible resolutions to
the Company's liquidity and debt leverage problems, the remaining accrued
value of the ERAs applicable to other participants ($450,000) was reversed and
the resulting gain is included in reorganization items (see Note 15 to the
Financial Statements).
On December 8, 1992, the Compensation Committee approved a supplemental
retirement benefit plan (the "SERP") to provide additional retirement benefits
to senior officers of the Company. The SERP provides supplemental retirement
income benefits, supplemental welfare benefit coverage and death benefits to
senior officers who have been selected by the Compensation Committee. The
level of benefits a participant may receive depends upon the participant's
accrued or projected benefits under the Company's tax-qualified pension plan,
the participant's length of service with the Company and the circumstances
under which the participant retires. If a participant is terminated from
employment without cause or after a change in control (as defined), the
participant will receive the same benefits which would have been provided by
the SERP if the participant continued in the Company's employ until age 62.
As of November 3, 1996, $149,000 of contributions have been made to the SERP.
During Fiscal Year 1995, as a result of the resignation of certain
participants in the SERP, a $37,000 gain was recognized in connection with the
SERP and during Fiscal Year 1994 $128,000 was expensed. Effective January 31,
1996, the Company's Board of Directors ceased future benefit accruals and
terminated the SERP. As a result of the Bankruptcy Filing, the accrued amount
due the SERP participants has been included in "Liabilities Subject to
Compromise". Contributions to the SERP were made to a grantor or trust as
defined by the Sections 671-677 of the Internal Revenue Code, commonly known
as a "rabbi trust". Under bankruptcy law, the assets of a rabbi trust are
treated as general assets of the Company and can be used to satisfy the
Company's on-going obligations.
Effective as of November 14, 1996, the Bankruptcy Court approved the
Company's Incentive Compensation and Retention Program (the "Program") which
provides certain eligible employees with a pre-determined confirmation bonus
and provides for a discretionary bonus to certain employees of the Company
selected by the Company's Chief Executive Officer in consultation with the
Board of Directors. The aggregate amounts payable under the program as a
confirmation bonus can not exceed $990,000 and the total of the discretionary
bonuses available to be awarded shall not exceed $510,000 (plus any portion of
the confirmation bonus pool not paid to a participant as a result of
ineligibility of any one or more confirmation bonus participants). The
confirmation and discretionary bonuses payable to a participant under the
Program are payable in two installments, 50% one month after the Company's
plan of reorganization becomes effective with the remaining 50% payable six
months after the plan of reorganization becomes effective. Further, the
Program provides a termination award to certain key employees if the eligible
employee is terminated without "cause" within two years following the
confirmation of the plan of reorganization. A termination award will be equal
to one and one-half times the terminated participant's base salary and is
payable to the terminated participant no later than three business days
following the date of the participant's termination with the Company. As of
November 3, 1996, $1.0 million had been accrued by the Company in connection
with the Program.
11. LIABILITIES SUBJECT TO COMPROMISE
Liabilities Subject to Compromise consist of the following at November
3, 1996 and October 29, 1995 (in thousands):
1996 1995
--- ---
Subordinated Notes, including accrued
pre-petition interest $60,330 $60,330
Trade accounts payable 22,591 22,808
Priority tax claim 293 1,008
Accrued severance 1,295 1,498
Deferred rental and other lease
obligations 2,735 2,781
Accrued additional pension liability
in excess of accumulated benefit
obligation 1,170 2,025
Other 217 309
------- -------
Total $88,631 $90,759
======= =======
On August 16, 1995, the Company s former Chairman of the Board,
President and Chief Executive Officer (the "Executive Officer") entered into a
severance agreement and resigned from the Company. The agreement entitled the
Executive Officer to a continuation of existing salary and certain other
benefits for a period of two years from the date of separation from the
Company and granted the Executive Officer title to certain of the Company's
assets in the Executive Officer s possession. In addition, under the
agreement, the Company agreed to pay certain vested but unearned ERAs which he
would have been entitled to under his employment agreement with the Company if
he had been dismissed without "cause" as defined therein. The value of the
ERAs was fully accrued by the Company as of March 4, 1995. In connection with
the severance agreement, the Company recognized $0.7 million of expense during
the fourth quarter of Fiscal Year 1995. Based upon management's analysis of
bankruptcy claims likely to be allowed, the ERAs which had been previously
accrued for the Executive Officer ($585,000) was reversed during the fourth
quarter of Fiscal Year 1996. Additionally, during the fourth quarter of
Fiscal Year 1996, the salary portion of accrued severance for the Executive
Officer was adjusted to the equivalent of one year's compensation in
accordance with Section 502 (b) (7) of the Bankruptcy Code. This resulted in
a $0.4 million gain during the fourth quarter of Fiscal Year 1996. The
Company accrued the equivalent of one year's compensation during the fourth
quarter of Fiscal Year 1996 for three former executives of the Company who
were terminated during Fiscal Year 1996. In connection with such accrual, the
Company recognized $0.8 million of expenses which was recorded as a
reorganization item during the fourth quarter of Fiscal Year 1996.
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 that, as
of November 3, 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 were required to file claims but failed to meet the
deadline are forever barred from voting upon or receiving distributions under
any plan of reorganization. Since the Bar Date, the Company has been
reviewing and reconciling the proofs of claims that were filed by the
creditors. As a result of the reconciliation process, the Company has filed
two Omnibus Objections with the Bankruptcy Court objecting to certain claims
filed against the Company. As a result of the Omnibus Objections numerous
claims have been expunged and other claims have been reduced. Differences
that cannot be resolved by negotiated agreements between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly, allowed
claims may arise which are not currently reflected in the Company's financial
statements and recorded claims are subject to change which may be material to
the financial statements.
12. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Aggregate future minimum lease commitments under
operating leases and capital leases with an initial or remaining non-
cancelable term in excess of one year, together with the present value of the
minimum capital lease payments at November 3, 1996, are as follows (in
thousands):
Operating Capital
Fiscal Year Leases Leases
----------- ------ ------
1997 $ 2,755 $2,224
1998 2,582 942
1999 2,571 905
2000 2,359 103
2001 2,133 -
Thereafter 18,544 -
------ ------
Total minimum lease payments $30,944 $4,174
======
Less amount representing interest 837
------
Present value of minimum lease
payments 3,337
Less current portion of capital
lease obligations 1,594
------
Long-term portion of capital
lease obligations $1,743
======
Rental expense under operating leases was $3.1 million for Fiscal Year
1996 and Fiscal Year 1995 and $2.2 million for Fiscal Year 1994.
The Company was unable to negotiate a favorable extension or renewal of
its corporate and marketing lease which expired in October 1996 (the "Previous
Lease") and on January 31, 1995, the Company entered into a twenty (20) year
lease for office space with a new landlord (the "New Lease"). Concurrent with
the consummation of the New Lease, the landlord and the Company entered into a
takeover agreement, effective August 1, 1995, whereby the landlord agreed to
take over the Company's remaining obligations under the Previous Lease.
Pursuant to the accounting rules for leases, the Company recognized a loss of
$0.6 million during Fiscal Year 1995 for the estimated economic loss in the
Previous Lease assumed by the new landlord. Additionally, during Fiscal Year
1995, the Company incurred accelerated amortization on leasehold improvements
associated with the Previous Lease.
Under the terms of the New Lease, as subsequently amended, the Company's
rental payments commenced January 1, 1996 and future minimum rental payments,
on a calendar year basis, are $1.1 million per year through 2015. Such
minimum rental payments will be adjusted periodically, subject to certain
maximum limitations, based on changes in the Consumer Price Index (as
defined). The Company has incurred approximately $3.9 million in leasehold
improvements and related fees and expenses, of which the landlord has
contributed approximately $1.4 million. Under the terms of the New Lease,
$0.5 million in landlord contributions is due the Company when the Company
remits outstanding payments due to its construction related vendors. As a
result of the Bankruptcy Filing, $0.7 million has not been paid to
construction-related vendors and is included in "Liabilities Subject to
Compromise".
On December 27, 1995, the New Lease was amended to, among other things,
permanently reduce the square footage under the lease thereby reducing future
rental payments by approximately $0.5 million per year. In connection with
entering into the amendment, $255,000 of capitalized leasehold improvements
and related fees and expenses were written off during the first quarter of
Fiscal Year 1996.
License & Royalty Agreements - In July 1992, the Company formed its
Forstmann International division and entered into a licensing, technical
information and consulting arrangement with Compagnia Tessile, S.p.A., an
Italian corporation, and its affiliate (collectively "Carpini"). Under the
arrangement, the Company had the exclusive right to manufacture "Carpini(R)
USA for Forstmann International" fabrics for women's and men's apparel for
distribution and sale in the United States, Canada and Mexico for an initial
period through December 31, 1997. The Company also had the right to acquire
certain technical information. In consideration of the licensing and
consulting arrangement, the Company had agreed to pay Carpini an annual
royalty and guaranteed minimum fee.
Additionally, the Company was required to pay Carpini a sales fee equal
to five percent (5%) of annual net sales of "Carpini USA" fabrics, after
deducting the annual guaranteed minimum fee. Further, the arrangement
permitted the Company to purchase certain fabrics manufactured by Carpini
which could be resold by the Company in the United States and Canada. In
connection with entering into the arrangement, the Company established letters
of credit payable to Carpini in an aggregate of $1.0 million. On December 22,
1995, through the Bankruptcy Court, the Company rejected all agreements under
the Carpini arrangement except for a letter agreement which permits the
Company to purchase certain fabrics manufactured by Carpini which can be
resold by the Company in the United States and Canada. Since the Bankruptcy
Filing, Carpini has not shipped any fabrics manufactured by Carpini as
provided for in the letter of agreement. Under the terms of the arrangement
and letters of credit, Carpini subsequently drew all amounts outstanding under
the letters of credit as reimbursement for defaulted royalty and guaranteed
minimum fee and liquidated damages. The $0.7 million in excess of the royalty
and guaranteed minimum fee due as of December 31, 1995 was expensed as a
reorganization item in the Company's first quarter of Fiscal Year 1996.
Purchase Commitments - In the ordinary course of business, the Company
has significant purchase orders for raw wool outstanding, which generally
require the placement of an order six to nine months prior to delivery.
Additionally, at November 3, 1996 the Company had outstanding commitments to
purchase machinery and equipment with an approximate value of $3.1 million.
As a result of the Bankruptcy Filing, the Company's capital expenditure
program has been curtailed and most open purchase orders are not being honored
by the Company. At the date of the Bankruptcy Filing, the Company owed
approximately $0.9 million for machinery and equipment purchased but not yet
paid. Such amount is included in Liabilities Subject to Compromise.
Letters of Credit - At November 3, 1996, the Company had outstanding
letters of credit aggregating $2.6 million.
Litigation - The Company is a party to legal actions arising out of the
ordinary course of business. In the opinion of management, after consultation
with counsel, other than environmental matters, the resolution of these claims
will not have a material adverse effect on the financial position or results
of operations of the Company.
Financial Consulting Services Agreement - On July 31, 1995, the Company
and Jay Alix & Associates entered into a Letter Agreement, as amended,
pursuant to which the services of the Company's Chief Executive Officer are
provided. Under the terms of the Letter Agreement, it can be terminated by
written notice from either party. On December 20, 1996, subjected to
Bankruptcy Court approval, the Letter Agreement was amended to provide a
performance fee equal to (a) $400,000 in cash, plus (b) cash, securities or
other property in the amount and of the type that would be received pursuant
to the Company's plan of reorganization by a person holding an unsecured claim
against the Company allowed in the amount of $600,000. As of November 3,
1996, $200,000 was accrued under the Letter Agreement.
Environmental - By the nature of its operations, the Company's
manufacturing facilities are subject to various federal, state and local
environmental laws and regulations and occasionally have been subject to
proceedings and orders pertaining to emissions into the environment.
During fiscal year 1988, the Company became aware of accidental releases
of certain chemicals into the environment. At that time, the Company accrued
environmental remediation liabilities for its estimate of the necessary
remediation costs to be incurred relating to the releases. Pursuant to
Georgia's Hazardous Site Response Act (the "Response Act"), property owners in
Georgia were required to notify the Environmental Protection Division of the
Georgia Department of Natural Resources (the "EPD") of known releases of
regulated substances on their properties above certain levels by March 22,
1994. Pursuant to the Response Act, the Company notified the EPD of two
historical releases at the Company s Dublin, Georgia facility, one relating to
the presence of trichloroethylene at the site (the "TCE Site") and one
relating to another constituent near the southern property boundary (the "1,
1-DCA site"). Based upon the Company's March 1994 notification, the EPD
determined that a release exceeding a reportable quantity had occurred at
those two sites. As a result, the two sites have been listed on the Georgia
Hazardous Site Inventory ("HSI"), which currently consists of over 300 other
sites. In January 1995, the EPD notified the Company that the Company was a
responsible party, and informed the Company that, pursuant to the Response
Act, the Company was required to submit a compliance status report ("CSR") and
compliance status certification with respect to the two sites. The EPD also
informed the Company of the obligation to identify all other potentially
responsible parties, and, in compliance therewith, on February 24, 1995, the
Company identified the prior owner and operator (J.P. Stevens & Company, Inc.
or "J.P. Stevens") of the Company s Dublin facility.
On June 29, 1995, the Company notified the EPD of a possible release of
a hazardous substance at the Company-owned site (previously owned by J.P.
Stevens) where various waste materials were reportedly disposed and burned by
J.P. Stevens (the "Burn Area"). The Company purchased the facility in 1986
and has not disposed of or burned such waste materials at the Burn Area.
By letter of July 14, 1995, the EPD notified the Company that the two
sites which the EPD had previously placed on the HSI had been designated as
"Class I" sites needing corrective action. The letter required the Company to
file a deed notice that the sites were on the HSI and needed corrective
action. Included with this letter was a proposed consent order. The Company
and the EPD tried to negotiate a mutually agreeable consent order regarding
the two sites, but those negotiations were not successful.
On December 29, 1995, the EPD issued separate administrative orders to
the Company and J.P. Stevens, which related to the three sites at the
Company s Dublin Facility. With respect to the TCE and 1, 1-DCA sites, the
orders required the Company and J.P. Stevens to submit a CSR and compliance
status certification within 120 days from December 29, 1995 (i.e., by April
27, 1996) to the EPD that included, 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 August 1, 1996, the EPD
agreed to an extension until August 16, 1996 for the Company to submit the CSR
for the TCE and 1,1-DCA sites and the Company complied with this deadline. By
letter dated October 9, 1996, the EPD requested clarification and additional
information with respects to the Company s CSR. The Company provided this
information to the EPD by letter dated November 13, 1996. To date, the EPD
has not responded to the Company. 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 $0.3
million accrued environmental cost as of November 3, 1996 is sufficient to
cover the Company's known and probable responsibilities related to the TCE and
1,1-DCA sites.
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
the Burn Area and that the Burn Area was being listed on the HSI. The
administrative orders required both Forstmann and J.P. Stevens to submit a CSR
and compliance status certification for the Burn Area by April 11, 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 April 11, 1996 deadline for the Burn Area "prior
to June 3, 1996" to allow extra time for the Company and J.P. Stevens to reach
an agreement concerning an allocation of work under the administrative order.
On May 22, 1996, J.P. Stevens, through its counsel, informed the EPD
that it was negotiating with the Company an allocation of the work required
under the administrative orders 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 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. The Company completed negotiation of the agreement with J.P. Stevens,
and the agreement has been approved by the Bankruptcy Court.
Also in 1996, J.P. Stevens commenced the negotiation of a Consent Order
with the EPD. This negotiation was concluded successfully and the Consent
Order became effective on December 12, 1996. The Consent Order obligates J.P.
Stevens to prepare and submit to the EPD a CSR for the Burn Area within 180
days of the effective date of the Consent Order. Among other things, the
Consent Order provides for the imposition of stipulated daily penalties in the
event that J.P. Stevens does not comply with the terms of the Consent Order.
Furthermore, the Consent Order provides that, in the event the Company does
not perform any action or work required by the EPD for the TCE or 1, 1-DCA
sites, the EPD may direct J.P. Stevens to take such action or work. In
consideration for these commitments, and so long as J.P. Stevens is in
compliance with the Consent Order, the EPD agreed that J.P. Stevens would not
be subject to penalties or to an enforcement action for violations of the
administrative order issued on December 29, 1995. The EPD has offered a
similar Consent Order to the Company, and the Company is still evaluating this
option.
J.P. Stevens and the Company have verbally agreed to sign the agreement
approved by the Bankruptcy Court, with one minor revision in which each party
will waive the right provided in the agreement to attend the other party s
meetings, if any, with the EPD. The Company expects Stevens to supply it with
an execution copy of the agreement. According to Stevens representatives,
work at the Burn Area will begin promptly after the agreement is signed.
After completion of the investigation of the Burn Area, 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 Company has been notified that soil and groundwater samples from
the Tifton facility were obtained by an environmental consultant engaged by a
potential lender to the purchaser of the Tifton facility. The Company is
currently reviewing the test result data provided by the environmental
consultant and has engaged its own environmental consultants to resample the
soil and groundwater as close to the locations sampled by the buyers
environmental consultant. Based on the analytical results from such
resampling, the Company will determine whether any further action, including
notification to the EPD under the Response Act is required and the Company
will respond accordingly.
Dissenters' Proceeding - As required under Georgia Statute O.C.G.A.
section 14-2-1330, the Company commenced, on July 10, 1992, a civil action
against: Resolution Trust Corporation as receiver for Columbia Savings & Loan
Association, F.A. (the "RTC"); James E. Kjorlien; Gary M. Smith; Grace
Brothers, Ltd.; The Henley Group; Randall D. Smith, Jeffrey A. Smith and
Russell B. Smith, as Trustees for Lake Trust dtd 9/4/91; (the "Non-RTC
defendants") and the record owners of the shares of the Non-RTC defendants
(the "Dissenters' Proceeding"). The RTC and Non-RTC defendants were record
owners or beneficial holders of an aggregate of 1,473,562 shares of the
Company's then existing voting and non-voting common stock who dissented (the
"Pre-Merger Stock") from a merger between the Company and an affiliated
Company. Under Georgia law, holders of the outstanding shares of Pre-Merger
Stock who were deemed to have dissented from the merger became entitled to
payment of the "fair value" of their Pre-Merger Stock, determined as of a time
immediately before consummation of the merger plus interest on that amount
from the date of the merger.
In September 1994, the Company settled the claims of the RTC in exchange
for payment by the Company of $475,000 and the issuance of 30,000 shares of
the Company's common stock. In December 1994, in settlement of the remaining
claims, the Company paid the Non-RTC defendants $365,000. The action has been
dismissed and no claims remain pending in the Dissenters' Proceeding. Total
costs of $1,788,000, including legal fees to settle the Dissenters'
Proceeding, were charged to additional paid-in capital during Fiscal Year 1994
in accordance with the principles of quasi-reorganization accounting (see Note
14 to the Financial Statements).
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Fair
Value of Financial Instruments", requires that the fair value of all financial
instruments be estimated and compared to the carrying amount of such financial
instruments as of the balance sheet date. As a result of the Company s
Bankruptcy Filing, the fair value of most of the Company's financial
instruments, other than cash, accounts receivable, accounts payable, Senior
Secured Notes and the DIP Facility, have been compromised or impaired.
Possible resolutions to the Company's liquidity and debt leverage problems and
emergence from bankruptcy may involve the conversion of certain of the
Company's existing indebtedness to equity. In management's opinion, until a
plan of reorganization is developed, accepted by the Company's creditors and
the Company emerges from bankruptcy, the fair value of the Company's financial
instruments, other than cash, accounts receivable, accounts payable and the
DIP Facility is not reasonably estimatable. Accordingly, the Company has not
attempted to fair value such financial instruments whose value might have been
compromised or impaired by the Bankruptcy Filing. The Company believes that
the carrying amount of cash, accounts receivable, accounts payable, Senior
Secured Notes and DIP Facility is a reasonable estimate of their fair value.
14. QUASI REORGANIZATION
The Company, with approval from its Board of Directors, revalued its
assets and liabilities to fair value as of the beginning of Fiscal Year 1993
pursuant to the principles of quasi-reorganization accounting (the "Quasi
Reorganization"). The Quasi Reorganization fair value adjustments recorded
during fiscal year 1993 resulted in a write-down of the Company's net assets
of $22,507,000 that was charged to the Company's retained deficit account.
Subsequent to the fair value adjustments, the balance in the Company's
retained deficit account of $59,599,000 was eliminated against the Company's
additional paid-in capital account.
At the effective date of the Quasi Reorganization, the Company had
certain unresolved contingencies related to specific environmental matters and
the Dissenters' Proceeding (see Note 12 to the Financial Statements). In
accordance with the principles of quasi-reorganization accounting, the
difference between the actual costs subsequently incurred to resolve these
matters and the liabilities recorded at the time of the Quasi Reorganization
will be charged or credited to additional paid-in capital, as appropriate.
During Fiscal Year 1995, $38,000 related to the Dissenters' Proceeding and
during Fiscal Year 1994, $206,000 (net of income taxes) and $1,788,000 related
to the environmental matters and Dissenters Proceeding, respectively were
charged to additional paid-in capital as adjustments to the amounts initially
recorded in the Quasi Reorganization.
15. REORGANIZATION ITEMS
In accordance with SOP 90-7, professional fees, asset impairments and
restructuring charges directly related to the Bankruptcy Filing and related
reorganization proceedings have been segregated from normal operations during
Fiscal Year 1996 and Fiscal Year 1995 and consists of (in thousands):
1996 1995
---- ----
Professional fees $ 4,084 $ 1,234
Write off of deferred financing cost
and expense and other financing
fees incurred - 1,305
Write off of debt premium associated
with Subordinated Notes - (3,531)
Impairment of assets (See Notes 3, 4 and 5) 5,076 12,156
Expense incurred due to the rejection and
amendment of executory contracts 925 -
Default interest expense 1,101 -
Severance expenses 279 190
Other 590 (450)
------- -------
Total $12,055 $10,904
======= =======
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for Fiscal Year 1996 and Fiscal Year 1995 are
summarized as follows (in thousands, except per share information):
Fiscal Quarter
First Second Third Fourth
----- ----- ----- ------
Fiscal Year 1996
Net sales $33,306 $62,087 $58,009 $41,626
Gross profit 983 10,842 9,160 1,770
Reorganization items 2,859 1,574 3,259 4,363
Income (loss) applicable to
common shareholders (9,139) 2,282 (1,122) (9,865)
Income (loss) per share
applicable to common
shareholders (1.63) .41 (.20) (1.76)
Fiscal Quarter
First Second Third Fourth
---- ----- ----- ------
Fiscal Year 1995
Net sales $43,527 $69,399 $68,608 $40,683
Gross profit (loss) 6,903 11,574 9,083 (1,237)
Reorganization items - - - 10,904
Income (loss) applicable to
common shareholders (1,950) 449 (2,730) (22,470)
Income (loss) per share
applicable to common
shareholders (.35) .08 (.49) (4.00)
During the fourth quarter of Fiscal Year 1996, the Company accrued
$1,086,000 for the expected loss on the sale of the Tifton plant (see Note 4
to the Financial Statements), increased its barter credit reserve by $480,000
(see Note 5 to the Financial Statements), increased its inventory market
reserves by $1,010,000 (see Note 3 to the Financial Statements), reduced its
severance accrual relating to the Company's former Chairman of the Board,
President and Chief Executive Officer by $962,000 and accrued $758,000 for
severance associated with three former executives of the Company (see Note 11
to the Financial Statements). Also during the first and fourth quarters of
Fiscal Year 1996, the Company incurred significant unfavorable manufacturing
variances resulting from a slowdown of production at its manufacturing
facilities.
During the fourth quarter of Fiscal Year 1995, the Company increased its
allowance for uncollectible accounts by $1,181,000, increased its inventory
market reserves by $4,338,000 (see Note 3 to the Financial Statements), wrote
off $2,417,000 of machinery and equipment (see Note 4 to the Financial
Statements), wrote off $4,644,000 of deferred software development costs (see
Note 5 to the Financial Statements), accrued $859,000 in severance costs
associated with a severance agreement with the Company's former Chairman of
the Board, President and Chief Executive Officer (see Note 11 to the Financial
Statements), wrote off $1,005,000 of deferred financing costs relating to the
GECC Facility and wrote off $3,531,000 of debt premium associated with the
Subordinated Notes (see Note 7 to the Financial Statements) and increased its
barter credit reserve by $905,000 (see Note 5 to the Financial Statements).
Also, during the fourth quarter of Fiscal Year 1995, the Company incurred
significant unfavorable manufacturing variances resulting from a slowdown of
production at its manufacturing facilities.
SCHEDULE II
FORSTMANN & COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
THE FIFTY-TWO WEEKS ENDED OCTOBER 30, 1994 AND
OCTOBER 29, 1995 AND THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996
<TABLE>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- --------- --------- ---------- ---------
Allowance for Doubtful Accounts:
- --------------------------------
<S> <C> <C> <C> <C>
Fifty-Two Weeks Ended
October 30, 1994 $2,195,000 $2,167,000 $(2,262,000) (1) $2,100,000
Fifty-Two Weeks Ended
October 29, 1995 $2,100,000 $2,879,000 $(1,988,000) (1) $2,991,000
Fifty-Three Weeks Ended
November 3, 1996 $2,991,000 $1,397,000 $(183,000) (1) $4,205,000
Inventory Market Reserves:
Fifty-Two Weeks Ended
October 30, 1994 $1,903,000 $4,285,000 $(3,996,000) $2,193,000
Fifty-Two Weeks Ended
October 29, 1995 $2,193,000 $11,239,000 $(4,821,000) $8,611,000
Fifty-Three Weeks Ended
November 3, 1996 $8,611,000 $10,678,000 $(12,927,000) $6,362,000
</TABLE>
(1) Accounts written off net of recoveries of accounts previously written off.
PART III
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth the name, age and position with the Company
of each person who is a director or executive officer of the Company:
Position with the
Name Age Company
---- --- -------------------
Stephen Berger 57 Director
Cameron Clark, Jr. 74 Director, Audit Committee
Chairman and Member of
Compensation Committee
Steven M. Friedman 42 Director and Member of
Compensation Committee
F. Peter Libassi 66 Chairman of the Board,
Chairman of
Compensation
Committee and Member of
Audit Committee
Alain Oberrotman 45 Director and Member of
Audit Committee
Robert N. Dangremond 53 Director, President and
Chief Executive Officer
Rodney J. Peckham 41 Chief Financial Officer
Gary E. Schafer 45 Vice President and
Corporate Controller
The business experience of each of the directors and executive officers
during the past five years is as follows:
Stephen Berger has been a General Partner of Odyssey Partners since July
1, 1993 and has been a director of the Company since March 1994. From July
1990 to July 1993, Mr. Berger was employed by General Electric Capital
Corporation, most recently as Executive Vice President and Chairman and Chief
Executive Officer of its subsidiary, Financial Guaranty Insurance Corporation.
Immediately prior thereto, Mr. Berger served as the Executive Director of the
New York and New Jersey Port Authority. Mr. Berger is a director of the
following reporting companies: Canrise Resources Ltd. (a natural oil and gas
company), Hugoton Energy Corporation (a natural gas exploration and production
company), Scotsman Holdings, Inc. (a holding company) and The Scotsman Group,
Inc. (a lessor of mobile office units).
Cameron Clark, Jr. has been President and Chief Executive Officer of
Production Sharing International, Ltd., the principal business of which is
third world industrial development, since January 1979 and has been a director
of the Company since December 1991.
Steven M. Friedman has been a General Partner of Eos Partners, L.P. (a
private investment firm) since January 1, 1994 and has been a director of the
Company since December 1988. For more than five years prior thereto, he was a
General Partner of Odyssey Partners. Mr. Friedman was Chairman of the Board
of the Company from October 1990 to March 1992 and a Vice President of the
Company from December 1988 to March 1992. Mr. Friedman is a director of the
following reporting companies: The Leslie Fay Companies, Inc. (a women's wear
designer and manufacturer), which is a customer of the Company, The Caldor
Corporation (a chain of discount retail stores), Eagle Food Centers, Inc. (a
chain of grocery stores), JPS Textile Group & Subsidiaries (a textile
manufacturer) and Rickel Home Centers, Inc. (a home center retailer).
F. Peter Libassi has been Vice President of the Board of Governors of
The Center for Global Business Studies (Paris, France) since June 1996, and
President of The Children s Fund of Connecticut (Hartford, CT) since October
1996 and has been a director of the Company since February 1994. From
February 1993 to June 1996, he was Dean of the Barney School of Business and
Public Administration of the University of Hartford and from 1982 to February
1993, he was Senior Vice President for Corporate Communications of Travelers
Corporation (an insurance and financial services company). Since June 1993,
Mr. Libassi also has been Of Counsel of the Washington, D.C. law firm of
Verner, Liipfer, Bernhard, McPherson and Hand.
Alain Oberrotman has been a Principal of Odyssey Partners since October
1992 and has been a director of the Company since December 1994. From
September 1990 until joining Odyssey Partners, he was a Principal of Hambro
International Equity Partners, a venture capital firm. From September 1982 to
September 1990, he was President of TVI Group, Inc. a business development,
consulting and finance firm. Mr. Oberrotman is a director of the JPS Textile
Group & Subsidiaries, Eagle Food Centers, Inc. and AER Energy.
Robert N. Dangremond has been a director of the Company since August
1995. Since August 1995, Mr. Dangremond has also served as Chief Executive
Officer and President of the Company. Mr. Dangremond's services have been
made available to the Company pursuant to a Letter Agreement dated July 31,
1995, as amended, between Jay Alix & Associates ("Alix") and the Company.
Since September 1989 Mr. Dangremond has been a Principal with Alix, a
consulting firm specializing in the restructuring of major corporations. From
1982 to 1989 he was the CFO and Treasurer of Leach & Garner Company, a
diversified manufacturing and trading company. Prior thereto, he served as a
Vice President and Manager for Chase Manhattan Bank and a Sales and Marketing
Manager for Scott Paper Company. Mr. Dangremond is also a director of AM
International (a manufacturing and distribution company), Standard Brands
Paint Company (a manufacturing and retail company), and Envirodyne Industries,
Inc. (a manufacturing company).
Rodney J. Peckham was elected Chief Financial Officer of the Company in
March 1996. From October 1995 until he became Chief Financial Officer, Mr.
Peckham was employed as Director of Financial Operations. Mr. Peckham was
previously employed by the Company from August 1986 through May 1995 during
which time he served as Corporate Controller from August 1986 until he became
Treasurer in March 1992, and he also served as Secretary from December 1992 to
September 1993. From May 1995 through October 1995, Mr. Peckham was self-
employed and provided various financial consulting services to the Company.
Gary E. Schafer was elected Vice President and Corporate Controller of
the Company in March 1992. In 1990, when Mr. Schafer joined the Company, he
served as Director of Cost Accounting. Prior thereto, Mr. Schafer was Chief
Financial Officer of Racal-Milgo Skynetworks (a telecommunications company).
Item 11. EXECUTIVE COMPENSATION
----------------------
SUMMARY OF COMPENSATION IN FISCAL YEARS 1996, FISCAL YEAR 1995 AND FISCAL YEAR
1994
The following summary compensation table sets forth information
concerning compensation for services in all capacities awarded to, earned by
or paid to the Chief Executive Officer and the two other most highly
compensated executive officers of the Company during Fiscal Year 1996, Fiscal
Year 1995 and Fiscal Year 1994.
<TABLE>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ -------------
Other Annual Securities All Other
Name and Fiscal Bonus Compensation Underlying Compensation
Principal Position Year Salary ($) ($)(1) ($)(2) Options(#)(3) ($)(4)(5)(6)
------------------ ------ --------- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Dangremond 1996 n/a n/a n/a n/a 1,049,511
(5) President and 1995 n/a n/a n/a n/a 153,750
Chief Executive 1994 n/a n/a n/a n/a n/a
Officer
Rodney J. Peckham (6) 1996 238,013 0 2,486 0 0
Chief Financial 1995 93,312 0 3,787 12,500 97,155
Officer 1994 134,167 0 5,493 0 0
Gary E. Schafer (4) 1996 119,708 0 4,322 0 578
Vice President and 1995 109,075 0 4,357 12,500 0
Corporate 1994 104,875 0 4,210 0 0
Controller
</TABLE>
(1) The amount of any bonus earned for a fiscal year, although included in
the fiscal year earned, is actually determined and paid after the end of
the fiscal year. Fiscal Year 1996 does not include any amounts which
may be subsequently paid in connection with the Company s Incentive
Compensation and Retention Program.
(2) Represents tax liability reimbursed by the Company arising from
contributions made by the executive officer and for investment earnings
thereon under a Company employee savings plan.
(3) Represents incentive stock options ("ISOs") granted under the Company's
Common Stock Incentive Plan on January 6, 1995 to purchase the stated
number of shares of common stock at an exercise price of $8.50 per
share, exercisable for one-third of such shares commencing on each of
January 6, 1996, January 6, 1997 and January 9, 1998. The options
granted on January 6, 1995 were granted at an amount greater than fair
market value.
(4) Represents amounts paid for health club dues.
(5) Mr. Dangremond is an employee and principal of Alix. The amount shown
is that which has been paid to Alix with respect to services and travel
and entertainment-related expenses provided by Mr. Dangremond during
Fiscal Year 1996 and from August 1995 through October 29,1995 during
Fiscal Year 1995.
(6) The amount shown for Mr. Peckham includes $89,800 for financial
consulting services paid to Mr. Peckham between June 1995 to October
1995. The remaining $7,355 represents reimbursement of Mr. Peckham's
relocation expenses.
INCENTIVE COMPENSATION AND RETENTION PROGRAM
Effective as of November 14, 1996, the Bankruptcy Court approved the
Company's Incentive Compensation and Retention Program (the "Program") which
provides certain eligible employees with a pre-determined confirmation bonus
and provides for a discretionary bonus to certain employees of the Company
selected by the Company s Chief Executive Officer in consultation with its
Board of Directors. The aggregate amounts payable under the program as a
confirmation bonus can not exceed $990,000 and the total of the discretionary
bonuses available to be awarded shall not exceed $510,000 (plus any portion of
the confirmation bonus pool not paid to a participant as a result of
ineligibility of any one or more confirmation bonus participants). The
confirmation and discretionary bonuses payable to a participant under the
Program are payable in two installments, 50% one month after the Company's
plan of reorganization becomes effective with the remaining 50% payable six
months after the plan of reorganization becomes effective. Further, the
Program provides a termination award to certain key employees if the eligible
employee is terminated without "cause" within two years following the
confirmation of the plan of reorganization. A termination award will be equal
to one and one-half times the terminated participant's base salary and is
payable to the terminated participant no later than three business days
following the date of the participant's termination with the Company.
FINANCIAL CONSULTING SERVICES AGREEMENT
On July 31, 1995, the Company and Jay Alix & Associates entered into a
Letter Agreement, as amended, pursuant to which the services of the Company's
Chief Executive Officer are provided. Under the terms of the Letter
Agreement, it can be terminated by written notice from either party. On
December 20, 1996, subjected to Bankruptcy Court approval, the Letter
Agreement was amended to provide a performance fee equal to (a) $400,000 in
cash, plus (b) cash, securities or other property in the amount and of the
type that would be received pursuant to the Company's plan of reorganization
by a person holding an unsecured claim against the Company allowed in the
amount of $600,000. As of November 3, 1996, $200,000 was accrued under the
Letter Agreement.
STOCK OPTIONS GRANTED IN FISCAL YEAR 1996
The Company did not grant any stock options or stock appreciation rights
during Fiscal Year 1996.
STOCK OPTIONS HELD AT THE END OF FISCAL YEAR 1996
The following table indicates the total number of exercisable and
unexercisable stock options granted under the Company's Common Stock Incentive
Plan held by each executive officer named below on November 3, 1996, the day
that the Company was delisted on NASDAQ National Market System. No options to
purchase Common Stock were exercised during Fiscal Year 1996 and no stock
appreciation rights were outstanding during Fiscal Year 1996. On October 13,
1995, the last trading day, prior to being delisted, the last sales price of
the Common Stock on the NASDAQ National Market System was $0.50 per share.
Number
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
Fiscal Year End (#) Fiscal Year End ($)
------------------ ------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- ------------ -------------
Gary E. Schafer 8,167shares 8,333 shares 0.00 0.00
RETIREMENT PENSION PLAN
The Company maintains a Retirement Pension Plan (the "Pension Plan") for
its salaried employees. The Pension Plan is a defined benefit pension plan
providing a formula benefit, upon vesting, for employees 21 years of age or
older who have completed one year of service with the Company. The Pension
Plan generally takes into account credited service and annual compensation
earned under the pension plan of a predecessor of the Company (the
"Predecessor Plan"), but the benefit payable from the Pension Plan, depending
on the circumstances, may be reduced by any benefit payable under the
Predecessor Plan.
The following table shows the estimated annual benefits upon retirement
to participants in the Pension Plan in specified annual compensation and years
of credited service classifications. The amounts shown are subject to the
maximum benefit limitations set forth in Section 415 of the Internal Revenue
Code of 1986 (the "Code") and are subject to reduction for amounts payable
under the Predecessor Plan. The pension benefits shown are based upon
retirement at age 65 and the payment of a single-life annuity to the
participants. The pension benefits in the table do not reflect the limitation
under Section 401(a)(17) of the Code on the maximum amount of annual
compensation ($150,000 effective February 1, 1994 (the "Code Limitation")),
that can be utilized for determining benefits.
<TABLE>
Years of Credited Service at Retirement
Highest Five Year Average
Annual Compensation(1) 5 10 15 20 25 30 35
--------------- ------- -------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 6,852 $13,704 $20,556 $27,408 $34,260 $ 41,112 $ 47,964
150,000 10,602 21,204 31,806 42,408 53,010 63,612 74,214
200,000 14,352 28,704 43,056 57,408 71,760 86,112 100,464
250,000 18,102 36,204 54,306 72,408 90,510 108,612 126,714
300,000 21,852 43,704 65,556 87,408 109,260 131,112 152,964
350,000 25,602 51,204 76,806 102,408 128,010 153,612 179,214
400,000 29,352 58,704 88,056 117,408 146,760 176,112 205,464
450,000 33,102 66,204 99,306 132,408 165,510 198,612 231,714
500,000 36,852 73,704 110,556 147,408 184,260 221,112 257,964
550,000 40,602 81,204 121,806 162,408 203,010 243,612 284,214
600,000 44,352 88,704 133,056 177,408 221,760 266,112 310,464
650,000 48,102 96,204 144,306 192,408 240,510 288,612 336,714
</TABLE>
(1) Annual compensation is the amount reportable on a participant's Form W-2
for federal income tax purposes, and consists of the amounts reported in
the table included under "Summary of Compensation in Fiscal Year 1996,
Fiscal Year 1995 and Fiscal Year 1994" as salary, bonus, other annual
compensation and all other compensation.
Credited years of service for benefit accrual under the Pension Plan, as
of December 31, 1996, for the following executive officers are:
Rodney J. Peckham 9 years
Gary E. Schafer 6 years
A participant's annual pension payable as of his or her normal
retirement date at age 65 will be equal to 1% of that portion of the
participant's "final average compensation" (as defined in the Pension Plan)
which is equal to the "social security integration level" (as defined in the
Pension Plan) in effect for the year in which the participant retires, plus 1-
1/2% of that portion of the participant's final average compensation in excess
of the social security integration level, multiplied by the number of years of
credited service not to exceed 35 years. A reduced pension benefit is payable
upon (i) early retirement at or after age 55, (ii) death, under certain
circumstances, and (iii) disability if the participant has completed at least
five years of vesting service. A reduced pension benefit is also payable, at
the election of a participant who terminates employment after completing at
least five years of vesting service, at any time at or after age 55.
Generally, the payment of benefits will be in the form of a straight life
annuity for participants who are not married and a joint and survivor annuity
for those who are married.
SUPPLEMENTAL RETIREMENT PLANS
In response to the Code Limitation, which substantially reduces the
amount of annual compensation that can be considered under the Pension Plan,
the Company, in Fiscal Year 1994, approved an auxiliary nonqualified
retirement plan (the "Auxiliary Plan") applicable to all employees whose
annual compensation exceeds the Code Limitation. The Auxiliary Plan became
effective during Fiscal Year 1994 and will provide a retirement benefit,
payable only if and when the participant or the participant's beneficiary
commences receiving a benefit under the Pension Plan, equal to the difference
between the benefit the participant or the participant's beneficiary would
have received had the Code Limitation not existed and the amount of the
benefit being received under the Pension Plan. On January 29, 1996, the
Auxiliary Plan was terminated and no additional liability will accrue to
participants after January 29, 1996. The Company has not remitted any of the
contributions due the Auxiliary Plan since the Auxiliary Plan became
effective.
Executive officers of the Company having a position of Executive Vice
President or higher, upon attaining age 50, are eligible to participate in the
Company's Supplemental Retirement Benefit Plan (the "SERP"). Currently there
are no participants in the SERP. The Company's contributions to the SERP
through December 1994 were paid to a trust for the benefit of participants.
No amounts were contributed by the Company to the SERP after December 1994. A
participant who retires at or after age 62 who does not elect an optional form
of payment will receive until death (i) monthly amounts equal to the greater
of (a) the annuity benefit that would be payable to him for such month under
the Pension Plan after application of the Code Limitation, or (b) the annuity
benefit that, as of the date he became a participant, was expected to be
payable to him, as aforesaid, for such month under the Pension Plan, and (ii)
continued welfare benefits (such as medical insurance) for himself, his spouse
and his eligible dependents. Alternatively, a participant may elect to have
his supplemental income benefit paid in a lump sum, in five equal annual
installments, or as a joint and survivor annuity. A participant who
voluntarily resigns before age 62 will receive, on his 62nd birthday, the
following: (i) if he was employed by the Company for at least two-thirds of
his anticipated service period (the period commencing on the date he became a
participant and ending on his 62nd birthday), a lump sum payment that is the
actuarial equivalent of two-thirds of the normal form of payment he would have
received had he continued in the Company's employ until age 62 and (ii) if he
was employed by the Company for at least one-third (but less than two-thirds)
of his anticipated service period, a lump sum payment that is the actuarial
equivalent of one-third of the normal form of payment he would have received
had he continued in the Company's employ until age 62. If a participant dies
while employed, his beneficiary will receive a lump sum payment that is the
actuarial equivalent of the normal form of payment the participant would have
received had he continued in the Company's employ until age 62. If a
participant is terminated from employment without cause or after a change in
control, he will receive the same supplemental income benefit (actuarially
reduced for payment prior to age 62) and the same welfare benefits he would
have received had he continued in the Company's employ until age 62. No
payment may be made under the SERP to a participant whose employment is
terminated for cause. On January 29, 1996, the SERP was terminated and no
additional benefits accrued to any participants after December 31, 1995.
EMPLOYMENT CONTRACTS WITH FORMER EXECUTIVE OFFICERS OF THE COMPANY.
The Company was a party to an employment agreement with the Company s
former Chairman of the Board and each of the Company's former Executive Vice
Presidents. Each of these agreements was for a two-year term and was
automatically extended so that the unexpired term thereof remains two years,
until either the Company or the executive gives two years' advance notice of
non-renewal. During the term of their respective agreements, each executive
was to receive an annual base salary of not less than the executive's base
salary at the time his employment agreement was executed. Each agreement
provides that, upon the executive's termination for any reason other than for
cause (as defined), disability, death or voluntary resignation, the executive
would have (i) received a lump sum payment equal to (a) two times the
executive's then-current base salary, plus (b) the executive's most recent
bonus reduced proportionately to the extent that the current year's adjusted
pre-tax earnings are less than such amount in the immediately preceding year,
(ii) continued to receive life and health insurance benefits for a two-year
period on the same contributory basis that would have been in effect had the
executive remained employed by the Company, unless substantially similar
coverage is obtained prior thereto at no greater expense to the executive,
(iii) become vested in all unvested stock options and ERAs previously granted
to the executive, and (iv) been entitled to outplacement consultant services.
On August 16, 1995, the Company s former Chairman of the Board,
President and Chief Executive Officer (the "Executive Officer") entered into a
severance agreement and resigned from the Company. The agreement entitled the
Executive Officer to a continuation of existing salary and certain other
benefits for a period of two years from the date of separation from the
Company and granted the Executive Officer title to certain of the Company's
assets in the Executive Officer's possession. In addition, under the
agreement, the Company agreed to pay certain vested but unearned ERAs which he
would have been entitled to under his employment agreement with the Company if
he had been dismissed without "cause" as defined therein. The value of the
ERAs was fully accrued by the Company as of March 4, 1995 and as a result of
the Bankruptcy Filing has been included in "Liabilities Subject to
Compromise". In connection with the severance agreement, the Company
recognized $0.7 million of expense during the fourth quarter of Fiscal Year
1995. Based upon management s analysis of bankruptcy claims likely to be
allowed, the ERAs which had been previously accrued for the Executive Officer
($585,000) was reversed during the fourth quarter of Fiscal Year 1996.
Additionally, during the fourth quarter of Fiscal Year 1996, the salary
portion of accrued severance for the Executive Officer was adjusted to the
equivalent of one year's compensation in accordance with Section 502 (b) (7)
of the Bankruptcy Code. This resulted in a $0.4 million gain during the
fourth quarter of Fiscal Year 1996. The Company accrued the equivalent of one
year's compensation during the fourth quarter of Fiscal Year 1996 for three
former executives of the Company who were terminated during Fiscal Year 1996.
In connection with such accrual, the Company recognized $0.8 million of
expenses which was recorded as a reorganization item during the fourth quarter
of Fiscal Year 1996. During the fourth quarter of Fiscal Year 1995, based on
management's assessment of possible resolutions to the Company's liquidity and
debt leverage problems, the remaining accrued value of the ERAs applicable to
other participants ($450,000) was reversed and the resulting gain is included
in reorganization items.
The SERP provides that if a participant thereunder is terminated from
employment without cause or after a change in control, the participant will
receive the same supplemental income benefit (actuarially reduced for payment
prior to age 62) and the same welfare benefit he would have received if he
continued in the Company's employ until age 62. The former Chairman of the
Board and one of the former Executive Vice Presidents were the only
participants in the SERP due to the age eligibility requirement for the SERP.
On January 29, 1996, the SERP was terminated and no additional benefits
accrued to any participants after December 31, 1995.
INDEMNITY AGREEMENTS
The Company is party to an indemnity agreement (the "Indemnity
Agreement") with each of its directors and certain of its executive officers
which provides that the indemnitee will be entitled to receive
indemnification, which may include advancement of expenses, to the full extent
permitted by law for all expenses, judgements, fines, penalties and settlement
payments incurred by the indemnitee in actions brought against the indemnitee
in connection with any act taken in the indemnitee's capacity, and within the
indemnitee s scope of authority, as a director or executive officer of the
Company. The Indemnity Agreement provides for the appointment of independent
legal counsel to determine whether a director or executive officer is entitled
to indemnity after a change in control. It also requires the Company to
maintain its current level of directors and officers liability insurance for
so long as the indemnitee may be subject to any possible, threatened or
pending action, unless the cost of such insurance is more than 150% of the
annualized cost thereof in Fiscal Year 1994.
THE BOARD OF DIRECTORS AND COMMITTEES THEREOF
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders and until their successors have been duly
elected and qualified. During Fiscal Year 1996, there were twelve meetings of
the Board of Directors, and, except for Alain Oberrotman who did not attend
one Audit Committee meeting, each director attended all of the meetings of the
Board of Directors and of the Committees thereof, if any, on which he served.
The Company's Board of Directors has an Audit Committee and a
Compensation Committee. The members of each committee are appointed by the
Board of Directors for a term beginning after the first regular meeting of the
Board of Directors following the Annual Meeting of Shareholders and until
their respective successors are elected and qualified.
Audit Committee. THE Audit Committee recommends to the Board of Directors the
auditing firm to be selected each year as independent auditors of the
Company's financial statements. The Audit Committee also has responsibility
for (i) reviewing the proposed scope and results of the audit, (ii) reviewing
the Company's financial condition and results of operations, (iii) considering
the adequacy of the Company's internal accounting and control procedures, and
(iv) reviewing any non-audit services and special engagements to be performed
by the independent auditors, and ensuring that the performance of such tasks
will not impair the auditors' independence. The Audit Committee also reviews,
at least annually, the terms of all material transactions and arrangements
between the Company. Members of the Audit Committee may not be employees of
the Company, and not more than one member may be affiliated with or represent
the interest of a shareholder of the Company beneficially owning 20% or more
of the outstanding Common Stock. The current members of the Audit Committee
are Messrs. Clark, Libassi, and Oberrotman, with Mr. Clark serving as
Chairman. During Fiscal Year 1996, the Audit Committee held five meetings.
Compensation Committee. THE Compensation Committee determines, subject to the
approval of the Board of Directors, the compensation paid to the Company's
executive officers, the award of stock options under the Company's Common
Stock Incentive Plan and the implementation of the management incentive
compensation plans. The current members of the Compensation Committee are
Messrs. Clark, Friedman and Libassi, with Mr. Libassi serving as Chairman.
During Fiscal Year 1996, the Compensation Committee held two meetings.
Compensation of Directors. Directors who are employees of the Company or an
affiliate of the Company receive no compensation for their services as
directors. Other directors receive $2,500 for attendance at each meeting of
the Board of Directors or Committee thereof.
COMPARATIVE PERFORMANCE BY THE COMPANY
THE Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total shareholder return on its Common Stock
with the cumulative total shareholder return of (i) a broad equity market
index, and (ii) a published industry index or peer group. Such a chart would
normally be for a five-year period. However, the Company's common stock has
been publicly traded only since March 4, 1992, and on October 16, 1995, as a
result of the Company s closing price per share being less than $1.00 per
share for more than thirty (30) consecutive days, the NASDAQ National Market
System delisted the Company. Accordingly, the Company does not believe that
the required chart comparing the cumulative total shareholder return on its
Common Stock would be meaningful. For the five year period consisting of
Fiscal Year 1996, 1995, 1994, 1993 and 1992, the Company has realized a
cumulative loss applicable to common shareholders of $38.0 million. As of
November 3, 1996 the Company's shareholders deficit was $9.3 million.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth the aggregate number of shares of Common
Stock of the only persons or groups known to the Company as of December 31,
1996 to own beneficially 5% or more of the outstanding shares of Common Stock.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
------------------- --------------------- --------
Odyssey Partners, L.P.(1) 2,832,713 shares 50.41%
31 West 52nd Street
New York, New York 10019
David L. Babson & Company, Inc.(2) 574,800 shares 10.23%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
- -----------------------------
(1) Leon Levy, Jack Nash, Stephen Berger, Joshua Nash and Jeffrey Gendell,
by virtue of being general partners of Odyssey Partners, share voting
and dispositive power with respect to the Common Stock owned by Odyssey
Partners and, accordingly, may each be deemed to own beneficially the
Common Stock owned by Odyssey Partners. Each of the aforesaid persons
has expressly disclaimed any such beneficial ownership (within the
meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) which exceeds the proportionate
interest in the Common Stock which he may be deemed to own as a general
partner of Odyssey Partners. The Company has been advised that no other
person exercises (or may be deemed to exercise) any voting or investment
control over the Common Stock owned by Odyssey Partners. Odyssey
Partners is a private investment firm with substantial equity capital
invested in marketable securities and closely-held businesses. Steven
M. Friedman, a director of the Company, was, until December 31, 1993, a
general partner of Odyssey Partners.
(2) Based on information received by the Company on December 31, 1996.
David L. Babson & Company, Inc., a registered investment adviser under
the Investment Advisers Act of 1940, is the beneficial owner of 574,800
shares of Common Stock with sole dispositive power over such shares. It
has sole voting power with respect to 432,900 of such shares and shared
voting power with respect to the remaining 141,900 of such shares.
Set forth below is information, as of January 30, 1997, with respect to
the beneficial ownership of the Common Stock by (a) the six nominees of the
Board of Directors for election as directors of the Company (which consists of
all current directors), (b) the Company's Chief Executive Officer and the two
other most highly compensated executive officers of the Company during Fiscal
1996, and (c) all current directors and executive officers of the Company, as
a group (8 persons).
Amount and Nature of Percent
Name Beneficial Ownership (1) of Class
---- ---------------------- --------
Stephen Berger 2,832,713(2) 50.41%
Cameron Clark, Jr. 1,500 *
F. Peter Libassi 1,000(3) *
Steven M. Friedman 0(4) ---
Alain Oberrotman 0 ---
Robert N. Dangremond 0 ---
Rodney J. Peckham 0 ---
Gary E. Schafer 8,167(5) *
All directors and executive
officers as a group 2,843,380(6) 52.44%
- -----------------------
* Less than 1%.
(1) Each individual listed below has sole investment and voting power except
as otherwise indicated.
(2) Consists of the shares owned by Odyssey Partners. As reflected in
footnote (1) to the preceding table, Mr. Berger is a general partner of
Odyssey Partners and may be deemed to own beneficially the shares owned
by Odyssey Partners. Mr. Berger has disclaimed beneficial ownership in
such shares to the extent that such beneficial ownership exceeds the
proportionate interest in such shares that he may be deemed to own as a
general partner of Odyssey Partners.
(3) Mr. Libassi shares investment and voting power with his wife.
(4) Mr. Friedman has an indirect financial interest in a portion of the
shares owned by Odyssey Partners which are listed above for Mr. Berger;
however, Mr. Friedman does not have any voting or dispositive power over
any shares owned by Odyssey Partners.
(5) Represents shares issuable upon exercise of currently exercisable
options under the Company's Common Stock Incentive Plan.
(6) Includes shares issuable upon exercise of currently exercisable options
under the Company's Common Stock Incentive Plan.
SECTION 16 REPORTS
Based upon a review of information received by the Company, none of the
Company s directors, officers or holders of more than 10% of its Common Stock
failed to file timely with the Securities and Exchange Commission the reports
required to be filed during Fiscal Year 1995 pursuant to Section 16(a) of the
Exchange Act, except Rodney J. Peckham who did not timely file a Form 3 which
has since been filed.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
The Compensation Committee of the Board of Directors consists of Cameron
Clark, Jr., Steven M. Friedman and F. Peter Libassi. Mr. Friedman served as a
Vice President of the Company and Chairman of the Board of Directors from
December 1988 to March 1992. Until December 31, 1993, Mr. Friedman was a
general partner of Odyssey Partners, which, directly or indirectly, has been a
principal shareholder of the Company since December 1988. See "Ownership of
Equity Securities". In connection with the Company's March 1992 initial
public offering, Odyssey Partners purchased from the Company an aggregate of
1,215,000 unregistered shares of Common Stock for $9.00 per share and the
Company agreed to grant registration rights to Odyssey Partners with respect
thereto. These registration rights have not yet been exercised.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements.
All financial statements required to be filed as part of this Annual
Report on Form 10-K are filed under Item 8. A listing of such
financial statements is set forth in Item 8., which listing is
incorporated herein by reference.
2. Schedules.
Schedules for the Fifty-Two Weeks Ended October 30, 1994 and October
29, 1995 and the Fifty-Three Weeks Ended November 3, 1996.
SCHEDULE
NUMBER
--------
II. Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because (a) they
are not required or are not applicable or (b) the required information
is shown in the financial statements or notes related thereto.
(b) No Current Report on Form 8-K was filed by the Company during the
fourth quarter of its fiscal year ended November 3, 1996.
(c) Exhibits
3.1(a) Articles of Restatement setting forth the Amended and Restated
Articles of Incorporation of the Company, as filed with the
Secretary of State of Georgia on November 19, 1990 (Exhibit
3(i)1. to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1994).
3.1(b) Articles of Correction, as filed with the Secretary of State of
Georgia on December 18, 1990 (Exhibit 3(i)2. to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1994).
3.1(c) Articles of Amendment to the Articles of Incorporation of the
Company, as filed with the Secretary of State of Georgia on
April 5, 1994 (Exhibit 3.1(d) to the Company's Annual Report on
Form 10-K for the year ended October 30, 1994).
3.2(a) Amended and Restated By-Laws of the Company on March 30, 1994
(Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994).
4.1(a) Amended and Restated Indenture, dated as of November 19, 1990,
relating to Senior Subordinated Notes due April 15, 1999
(Exhibit 2 to the Company's Current Report on Form 8-K dated
November 19, 1990).
4.1(b) First Supplemental Indenture, dated as of November 29, 1990,
relating to Senior Subordinated Notes due April 15, 1999
(Exhibit 3 to the Company's Current Report on Form 8-K dated
November 19, 1990).
4.1(c) Second Supplemental Indenture, dated as of March 4, 1992,
relating to Senior Subordinated Notes due April 15, 1999
(Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 2, 1992).
4.2 Form of 14-3/4% Senior Subordinated Note due April 15, 1999
(Exhibit A to Exhibit 4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof).
4.3 Form of Amended Senior Subordinated Note due April 15, 1999
(Exhibit B to Exhibit 4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof).
4.4(a) Loan Agreement, dated as of October 30, 1992, between the
Company and General Electric Capital Corporation ("GECC"), as
lender and agent for the lenders named therein ("Loan
Agreement") (Exhibit 4.4(a) to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992).
4.4(b) Security Agreement, dated as of November 13, 1992, by the
Company, in favor of GECC, as lender and agent for the lenders
named therein (Exhibit 4.4(b) to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992).
4.4(c) Form of Trademark Security Agreement, dated as of November 13,
1992, by the Company, in favor of GECC, as lender and agent for
the lenders named therein (Exhibit 4.4(c) to the Company's
Annual Report on Form 10-K for the year ended November 1,
1992).
4.4(d) Form of Deed to Secure Debt, Assignment of Leases and Rents,
Security Agreement and Fixture Filing, dated as of November 13,
1992, between the Company and GECC, as agent (Exhibit 4.4(d) to
the Company's Annual Report on Form 10-K for the year ended
November 1, 1992).
4.4(e) First Amendment, dated as of November 13, 1992, to the Loan
Agreement (Exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993).
4.4(f) Form of Promissory Note for the Loan Agreement (Exhibit 19.2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended August 1, 1993).
4.4(g) Second Amendment, dated as of December 30, 1992, to the Loan
Agreement (Exhibit 19.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993).
4.4(h) Third Amendment, dated as of April 5, 1993, to the Loan
Agreement (Exhibit 19.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993).
4.4(i) Consent and Waiver Letter, dated as of June 10, 1994, to the
Company from GECC (Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994).
4.4(j) Fourth Amendment, dated as of June 11, 1993, to the Loan
Agreement (Exhibit 19.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993).
4.4(k) Fifth Amendment, dated as of August 2, 1992, to the Loan
Agreement (Exhibit 4.4(j) to the Company's Annual Report on
Form 10-K for the year ended October 31, 1993).
4.4(l) Sixth Amendment, dated as of October 29, 1993, TO the Loan
Agreement (Exhibit 4.4(k) to the Company's Annual Report on
Form 10-K for the year ended October 31, 1993).
4.4(m) Seventh Amendment, dated as of March 30, 1994, to the Loan
Agreement (Exhibit 4.9 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994).
4.4(n) Eighth Amendment, dated as of August 29, 1994, to the Loan
Agreement (Exhibit 4.4(n) to the Company's Annual Report on
Form 10-K for the year ended October 30, 1994).
4.4(o) Consent and Waiver Letter, dated as of September 12, 1994, to
the Company from GECC (Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994).
4.4(p) Ninth Amendment, dated as of November 4, 1994, to the Loan
Agreement (Exhibit 4.4(p) to the Company's Annual Report on
Form 10-K for the year ended October 30, 1994).
4.4(q) Tenth Amendment, dated January 4, 1995, to the Loan Agreement
(Exhibit 4.4(q) to the Company's Annual Report on Form 10-K for
the year ended October 30, 1994).
4.4(r) Eleventh Amendment, dated as of January 23, 1995, to the Loan
Agreement (Exhibit 4.4(r) to the Company's Annual Report on
Form 10-K for the year ended October 30, 1994).
4.4(s) Twelfth Amendment, dated June 16, 1995, to the Loan Agreement
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1995).
4.4(t) Amended and Restated Debtor-in-Possession Loan Agreement, dated
September 27, 1995 (as approved by the United States Bankruptcy
Court Southern District of New York on October 31, 1995).
(Exhibit 4.4(t) to the Company's Annual Report on Form 10-K for
the year ended October 29, 1995.)
4.4(u) Waiver of Default Letter dated March 8, 1996 from General
Electric Capital Corporation (Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 28,
1996).
4.4(v) Amendment to Amended and Restated Debtor-in-Possession Loan
Agreement dated as of May 3, 1996 (Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 28,
1996).
4.4(w)* Second Amendment to Amended and Restated Debtor-in-Possession
Loan Agreement made and entered into October 10, 1996, by and
among Forstmann & Company, Inc. DIP, the Lenders, and General
Electric Capital Corporation (as approved by the United States
Bankruptcy Court Southern District of New York on October 28,
1996).
4.5(a) Loan and Security Agreement ("Loan and Security Agreement"),
dated December 27, 1991, between the Company and The CIT
Group/Equipment Financing, Inc. ("CIT") (Exhibit 28.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 2, 1992).
4.5(b) Amendment, dated September 2, 1992, to the Loan and Security
Agreement (Exhibit 4.5(b) to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992).
4.5(c) Amendment, dated October 30, 1992, to the Loan and Security
Agreement (Exhibit 4.5(c) to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992).
4.5(d) Amendment, dated December 31, 1992, to the Loan and Security
Agreement (Exhibit 4.5(d) to Post-Effective Amendment No. 4 to
the Company's Registration Statement (No. 33-38520) on Form S-
1).
4.5(e) Amendment, dated as of July 30, 1993, to the Loan and Security
Agreement (Exhibit 4.5(e) to Post-Effective Amendment No. 4 to
the Company's Registration Statement (No. 33-38520) on Form S-
1).
4.5(f) Third Amendment to the Loan and Security Agreement, dated as of
June 13, 1994 (Exhibit 4.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994).
4.5(g) Fourth Amendment to the Loan and Security Agreement, dated as
of September 12, 1994 (Exhibit 4.5 to the Company's Quarterly
Report on Form 10-K for the quarter ended July 31, 1994).
4.5(h) Fifth Amendment to the Loan and Security Agreement, dated as of
December 22, 1994 (Exhibit 4.5(h) to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994).
4.5(i) Sixth Amendment to the Loan and Security Agreement, dated as of
June 15, 1995 (Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1995).
4.5(j) 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 (Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 28, 1996).
4.5(k)* Stipulation amending stipulation providing adequate protection
between Forstmann & Company, Inc. and CIT Equipment Finance
dated October 30, 1996 as approved by the United States
Bankruptcy Court Southern District of New York on November 20,
1996.
4.6(a) Indenture, dated as of April 5, 1993, between the Company and
Shawmut Bank Connecticut, National Association ("Shawmut"), as
trustee, relating to the Senior Secured Floating Rate Notes
("Senior Secured Notes") (Exhibit 4.6(a) to Post-Effective
Amendment No. 4 to the Company's Registration Statement (No.
33-38520) on Form S-1).
4.6(b) Form of Senior Secured Note due October 30, 1997 (Exhibit
4.6(b) to Post-Effective Amendment No. 4 to the Company's
Registration Statement (No. 33-38520) on Form S-1).
4.6(c) Form of Deed to Secure Debt, Assignments of Leases and Rents,
Security Agreements and Fixture Filings, dated as of April 5,
1993, between the Company and Shawmut, as trustee (Exhibit
4.6(c) to Post-Effective Amendment No. 4 to the Company's
Registration Statement (No. 33-38520) on Form S-1).
4.6(d) Security Agreement, dated as of April 5, 1993, between the
Company and Shawmut, as trustee (Exhibit 4.6(d) to Post-
Effective Amendment No. 4 to the Company's Registration
Statement (No. 33-38520) on Form S-1).
4.6(e) Form of Trademark Security Agreement, dated as of April 5,
1993, between the Company and Shawmut, as trustee (Exhibit
4.6(e) to Post-Effective Amendment No. 4 to the Company's
Registration Statement (No. 33-38520) on Form S-1).
4.6(f) Form of Patent Security Agreement, dated as of April 5, 1993,
between the Company and Shawmut, as trustee (Exhibit 19.4 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended August 1, 1993).
4.6(g) Amended and Restated Indenture, dated as of March 30, 1994,
between the Company and Shawmut Bank of Connecticut, National
Association, as trustee, relating to the Senior Secured Notes
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994).
4.6(h) Form of Original Senior Secured Note (incorporated herein by
reference to Exhibit 4.6(g)).
4.6(i) Form of Additional Senior Secured Note (incorporated herein by
reference to Exhibit 4.6(g)).
4.6(j) Form of First Amendment to Deed to Secure Debt, Assignments of
Leases and Rents, Security Agreements and Fixture Filings,
dated as of March 30, 1994, between the Company and Shawmut
Bank Connecticut, National Association, as trustee (Exhibit 4.4
to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994).
4.6(k) First Amendment to Pledge and Security Agreement, dated as of
March 30, 1994 between the Company and Shawmut Bank
Connecticut, National Association, as trustee (Exhibit 4.5 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994).
4.6(l) First Amendment to Trademark Security Agreement (foreign),
dated as of March 30, 1994, between the Company and Shawmut
Bank Connecticut, National Association, as trustee (Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994).
4.6(m) First Amendment to Trademark Security Agreement (U.S.), dated
as of March 30, 1994, between the Company and Shawmut Bank
Connecticut, National Association, as trustee (Exhibit 4.7 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended May 1, 1994).
4.6(n) First Amendment to Patent Security Agreement, dated as of March
30, 1994, between the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1,
1994).
4.6(o) Supplemental Indenture, dated as of January 23, 1995, between
the Company and Shawmut Bank Connecticut, National Association,
as trustee, relating to the Senior Secured Notes (Exhibit
4.6(o) to the Company's Annual Report on Form 10-K for the year
ended October 30, 1994).
4.6(p) Supplemental Indenture, dated as of June 15, 1995, between the
Company and Shawmut Bank Connecticut, National Association, as
trustee, relating to the Senior Secured Notes (Exhibit 4.3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1995).
4.6(q) 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 (Exhibit 4.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 28, 1996).
4.6(r)* Stipulation and order amending 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 their collateral upon debtor providing adequate protection
dated November 25, 1996 as approved by the United States
Bankruptcy Court Southern District of New York on November 25,
1996.
4.7 Stipulation providing adequate protection between Forstmann &
Co., Inc. and The Provident Bank dated July 25, 1996 as
approved by the United States Bankruptcy Court Southern
District of New York on August 22, 1996 (Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 28, 1996).
10.1(a) J. P. Stevens & Co., Inc. Trademark Assignments to the Company,
effective December 28, 1985, dated January 29, 1986 (Exhibit
10(h) to the Company's Registration Statement (No. 33-27296)
on Form S-1).
10.1(b) Lease, dated July 21, 1986, between the Company and 1185 Avenue
of the Americas Associates ("1185 Associates") (Exhibit 10(t)
to the Company's Registration Statement (No. 33-27296) on Form
S-1).
10.1(c) Lease Modification Agreement, dated December 5, 1991, between
the Company and 1185 Associates (Exhibit 10.7 to the Company's
Registration Statement (No. 33-44417) on Form S-1).
10.1(d) Consent to Lease Modification Agreement, dated May 11, 1992,
between the Company and 1185 Associates (Exhibit 10.2(c) to the
Company's Annual Report on Form 10-K for the year ended
November 1, 1992).
10.1(e) Lease Modification Agreement, dated May 11, 1992, between the
Company and 1185 Associates (Exhibit 10.1(d) to the Company's
Annual Report on Form 10-K for the year ended November 1,
1992).
10.1(f) Lease dated January 31, 1995 between 1155 Avamer Realty Corp.,
and the Company (Exhibit 10.1(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 29, 1995).
10.1(g) Lease Takeover Amendment dated January 31, 1995 between the
Company and 1155 Avamer Realty Corp. and the Company (Exhibit
10.1(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended January 29, 1995).
10.1(h) First Amendment to Lease dated as of December 27, 1995 between
1155 Avamer Realty Corp., and the Company (Exhibit 10.1(h) to
the Company's Annual Report on Form 10-K for the year ended
October 29, 1995).
10.2(a) Amended Note Registration Rights Agreement, dated as of
November 19, 1990, among the Company and the parties thereto
(Exhibit 10.4 to the Company's Registration Statement (No. 33-
38520) on Form S-1).
10.2(b) Preferred Stock Registration Rights Agreement, dated as of
November 19, 1990, between the Company and Executive Life
Insurance Company (Exhibit 10.6 to the Company's Registration
Statement (No. 33-38520) on Form S-1).
10.2(c) Common Stock Registration Rights Agreement, dated as of
September 9, 1994, between the Company and Resolution Trust
Corporation as receiver for Columbia Savings & Loan
Association, F. A. (Exhibit 10.2(d) to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994).
10.2(d) Common Stock Registration Rights Agreement, dated as of April
4, 1995, among the Company and Odyssey Partners, L.P. (Exhibit
10.2(e) to the Company's Annual Report on the Company's Annual
Report on Form 10-K for the year ended October 29, 1995).
10.3(a)** Common Stock Incentive Plan as amended as of March 30, 1994
(Exhibit 10.3(a) to the Company's Annual Report on Form 10-K
for the year ended October 30, 1994).
10.3(b)** Form of Incentive Stock Option Agreement (Exhibit 4.2(a) to the
Company's Registration Statement (No. 33-55770) on Form S-8).
10.3(c)** Alternative Form of Incentive Stock Option Agreement (Exhibit
4.2(b) to the Company's Registration Statement (No. 33-55770)
on Form S-8).
10.4(a)** Form of Equity Referenced Deferred Incentive Award Agreement
("ERA") (Exhibit 10.13 to the Company's Registration Statement
(No. 33-44417) on Form S-1).
10.4(b)** Amendment, dated February 10, 1994, to the ERA Agreement, dated
February 26, 1992 Exhibit 10.4(b) to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994).
10.5(a)** Form of Change in Control Agreement (Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
November 1, 1992).
10.5(b)** Employment Agreement dated December 16, 1993 between the
Company and Christopher L. Schaller. (Exhibit 10.5(b) to the
Company's Annual Report on Form 10-K for the year ended October
31, 1993).
10.5(c)** Form of Employment Agreement for Executive Vice Presidents.
(Exhibit 10.5(c) to the Company's Annual Report on Form 10-K
for the year ended October 31, 1993).
10.5(d)* Separation agreement made and entered into on August 14, 1995
between Forstmann & Company, Inc. and Christopher L. Schaller.
10.5(e)* Separation and General Release Agreement made as of February 1,
1996, between Forstmann & Company, Inc. and Richard Pactor.
10.5(f)* Separation and General Release Agreement made as of March 12,
1996, between Forstmann & Company, Inc. and Fred D. Matheson.
10.5(g)* Separation and General Release Agreement, dated October 10,
1996, between Forstmann & Company, Inc. and Peter M. Roaman.
10.6(a)** Supplemental Retirement Benefit Plan (Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
November 1, 1992).
10.6(b)** Trust Agreement, dated December 30, 1993, of the Supplemental
Retirement Benefit Plan Trust. (Exhibit 10.6(b) to the
Company's Annual Report on Form 10-K for the year ended October
31, 1993).
10.7** Non-Qualified Salaried Employees' Savings, Investment and
Profit Sharing Plan (Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended November 1, 1992).
10.8*(**) Forstmann & Company, Inc. Incentive Compensation and Retention
Program, effective as of November 14, 1996.
10.9(a) Form of Indemnity Agreement, effective as of February 7, 1994,
between the Company and its corporate officers (Exhibit 10.9(a)
to the Company's Annual Report on Form 10-K for the year ended
October 30, 1994).
10.9(b) Form of Indemnity Agreement, effective as of February 7, 1994,
between the Company and its directors (Exhibit 10.9(b) to the
Company's Annual Report on Form 10-K for the year ended October
30, 1994).
10.10(a) License Agreement, dated July 1, 1992, between Campagnia
Tessile S.p.A. ("licensor") and the Company (Exhibit 10.10(a)
to the Company's Annual Report on Form 10-K for the year ended
October 30, 1994).
10.10(b) Guarantee Agreement, dated July 1, 1992, between the Licensor
and the Company (Exhibit 10.10(b) to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994).
10.10(c) Italian Fabrics Purchase Agreement, dated July 1, 1992, between
the Licensor and the Company (Exhibit 10.10(c) to the Company's
Annual Report on Form 10-K for the year ended October 10,
1994).
10.10(d) Liquidated Damages Agreement, dated July 1, 1992, between the
Licensor and the Company (Exhibit 10.10(d) to the Company's
Annual Report on Form 10-K for the year ended October 30,
1994).
10.10(e) Use of the mark "Carpini" Agreement, dated July 1, 1992,
between the Licensor and the Company (Exhibit 10.10(e) to the
Company's Annual Report on Form 10-K for the year ended October
30, 1994).
10.10(f) Consultancy/Sales Fee Agreement, dated July 1, 1992, between
Woolverton Limited ("Consultant") and the Company (Exhibit
10.10(f) to the Company's Annual Report on Form 10-K for the
year ended October 30, 1994).
10.10(g) Guarantee Agreement, dated July 1, 1992, between the Consultant
and the Company (Exhibit 10.10(g) to the Company's Annual
Report on Form 10-K for the year ended October 30, 1994).
10.10(h) Consultation for Purchase of Italian Fabrics Agreement, dated
July 1, 1992, between the Consultant and the Company (Exhibit
10.10(h) to the Company's Annual Report on Form 10-K for the
year ended October 30, 1994).
10.10(i) Liquidated Damages Agreement, dated July 1, 1992, between the
Consultant and the Company (Exhibit 10.10(i) to the Company's
Annual Report on Form 10-K for the year ended October 30,
1994).
10.10(j) Renegotiation of Sales Fee Arrangements for Non-Registration
of Marks, dated July 1, 1992, between the Consultant and the
Company (Exhibit 10.10(j) to the Company's Annual Report on
Form 10-K for the year ended October 30, 1994).
10.10(k) Agreement for Financial Consulting Services between Jay Alix &
Associates and the Company, dated July 31, 1995 (Exhibit
10.10(k) to the Company's Annual Report on Form 10-K for the
year ended October 29, 1995).
10.10(l) Letter of Acknowledgment in Agreement dated August 18, 1995,
between Jay Alix & Associates and the Company, outlining
changes to "Agreement for Financial Consulting Services" dated
July 31, 1995 (Exhibit 10.10(l) to the Company's Annual Report
on Form 10-K for the year ended October 29, 1995).
10.10(m)* Second Amendment to Agreement for Financial Consulting
Services, dated December 20, 1996.
11.1* Computation of per share earnings.
23.1* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule
* Filed herewith.
** Management or Compensatory Plan or Arrangements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: January 30, 1997 By:/s/ Robert N. Dangremond
------------------------
Robert N. Dangremond
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert N. Dangremond President and Chief January 30, 1997
- ------------------------
Robert N. Dangremond Executive Officer
and Director
(Principal Executive Officer)
/s/ Rodney J. Peckham Chief Financial Officer January 30, 1997
- ---------------------
Rodney J. Peckham (Principal Financial Officer)
/s/ Gary E. Schafer Vice President January 30, 1997
- -------------------
Gary E. Schafer and Corporate
Controller (Principal
Financial Accounting Officer)
/s/ Stephen Berger Director January 30, 1997
- ------------------
Stephen Berger
/s/ Cameron Clark, Jr. Director January 30, 1997
- ----------------------
Cameron Clark, Jr.
/s/ Steven M. Friedman Director January 30, 1997
- ----------------------
Steven M. Friedman
/s/ F. Peter Libassi Director January 30, 1997
- --------------------
F. Peter Libassi
/s/ Alain Oberrotman Director January 30, 1997
- --------------------
Alain Oberrotman
EEO/AAP/M/F/D/V
-------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
EXHIBITS
Filed with the
ANNUAL REPORT ON FORM 10-K
for
For the Fiscal Year ended November 3, 1996
of
FORSTMANN & COMPANY, INC.
Commission File Number: 1-9474
------------------------------
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
3.1(a) Articles of Restatement setting forth the
Amended and Restated Articles of Incorporation
of the Company, as filed with the Secretary
of State of Georgia on November 19, 1990
(Exhibit 3(i)1. to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 31, 1994). *
3.1(b) Articles of Correction, as filed with the
Secretary of State of Georgia on
December 18, 1990 (Exhibit 3(i)2. to the
Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
3.1(c) Articles of Amendment to the Articles of
Incorporation of the Company, as filed with
the Secretary of State of Georgia on
April 5, 1994 (Exhibit 3.1(d) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
3.2(a) Amended and Restated By-Laws of the Company
on March 30, 1994 (Exhibit 3(ii) to the
Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
4.1(a) Amended and Restated Indenture, dated as of
November 19, 1990, relating to Senior
Subordinated Notes due April 15, 1999
(Exhibit 2 to the Company's Current Report
on Form 8-K dated November 19, 1990). *
4.1(b) First Supplemental Indenture, dated as of
November 29, 1990, relating to Senior
Subordinated Notes due April 15, 1999
(Exhibit 3 to the Company's Current Report
on Form 8-K dated November 19, 1990). *
4.1(c) Second Supplemental Indenture, dated as of
March 4, 1992, relating to Senior Subordinated
Notes due April 15, 1999 (Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended February 2, 1992). *
(i)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
4.2 Form of 14-3/4% Senior Subordinated Note
due April 15, 1999 (Exhibit A to Exhibit
4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof). *
4.3 Form of Amended Senior Subordinated Note
due April 15, 1999 (Exhibit B to Exhibit
4.1(a) hereof, as amended by Exhibits
4.1(b) and 4.1(c) hereof). *
4.4(a) Loan Agreement, dated as of October 30, 1992,
between the Company and General Electric
Capital Corporation ("GECC"), as lender
and agent for the lenders named therein
("Loan Agreement") (Exhibit 4.4(a) to the
Company's Annual Report on Form 10-K for the
year ended November 1, 1992). *
4.4(b) Security Agreement, dated as of November
13, 1992, by the Company, in favor of GECC,
as lender and agent for the lenders named
therein (Exhibit 4.4(b) to the Company's
Annual Report on Form 10-K for the year
ended November 1, 1992). *
4.4(c) Form of Trademark Security Agreement, dated
as of November 13, 1992, by the Company, in
favor of GECC, as lender and agent for the
lenders named therein (Exhibit 4.4(c) to the
Company's Annual Report on Form 10-K for the
year ended November 1, 1992). *
4.4(d) Form of Deed to Secure Debt, Assignment of
Leases and Rents, Security Agreement and
Fixture Filing, dated as of November 13,
1992, between the Company and GECC, as agent
(Exhibit 4.4(d) to the Company's Annual
Report on Form 10-K for the year ended
November 1, 1992). *
4.4(e) First Amendment, dated as of November 13,
1992, to the Loan Agreement (Exhibit 19.1
to the Company's Quarterly Report on
Form 10-Q for the quarter ended August
1, 1993). *
4.4(f) Form of Promissory Note for the Loan
Agreement (Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993). *
(ii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
4.4(g) Second Amendment, dated as of December
30, 1992, to the Loan Agreement (Exhibit
19.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
August 1, 1993). *
4.4(h) Third Amendment, dated as of April 5,
1993, to the Loan Agreement (Exhibit
19.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
August 1, 1993). *
4.4(i) Consent and Waiver Letter, dated as of
June 10, 1994, to the Company from GECC
(Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 31, 1994). *
4.4(j) Fourth Amendment, dated as of June 11, 1993,
to the Loan Agreement (Exhibit 19.6 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 1, 1993). *
4.4(k) Fifth Amendment, dated as of August 2, 1992,
to the Loan Agreement (Exhibit 4.4(j) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
4.4(l) Sixth Amendment, dated as of October 29, 1993,
to the Loan Agreement (Exhibit 4.4(k) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
4.4(m) Seventh Amendment, dated as of March 30, 1994,
to the Loan Agreement (Exhibit 4.9 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994). *
4.4(n) Eighth Amendment, dated as of August 29, 1994,
to the Loan Agreement (Exhibit 4.4(n) to the
Company's Annual Report on Form 10-K for the
year ended October 30, 1994). *
4.4(o) Consent and Waiver Letter, dated as of September
12, 1994, to the Company from GECC (Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1994). *
4.4(p) Ninth Amendment, dated as of November 4, 1994,
to the Loan Agreement (Exhibit 4.4(p) to the
Company's Annual Report on Form 10-K for the
year ended October 30, 1994). *
(iii)
EXHIBIT INDEX
-------------
Sequential Exhibit No. Description
Page No.
- ---------- ----------- ---------
4.4(q) Tenth Amendment, dated January 4, 1995, to the
Loan Agreement (Exhibit 4.4(a) to the Company s
Annual Report on Form 10-K for the year ended
October 30, 1994). *
4.4(r) Eleventh Amendment, dated as of January 23,
1995, to the Loan Agreement (Exhibit 4.4(r) to the
Company's Annual Report on Form 10-K for the
year ended October 30, 1994). *
4.4(s) Twelfth Amendment, dated June 16, 1995,
to the Loan Agreement (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1995). *
4.4(t) Amended and Restated Debtor-in-Possession Loan
Agreement, dated September 27, 1995 (as approved
by the United States Bankruptcy Court Southern
District of New York on October 31, 1995). *
4.4(u) Waiver of Default Letter dated March 8, 1996 from
General Electric Capital Corporation (Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 28, 1996). *
4.4(v) Amendment to Amended and Restated (Exhibit 4.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended April 28, 1996). *
4.4(w)* Second amendment to amended and restated
debtor-in-possession loan agreement made and
entered into October 10, 1996, by and among
Forstmann & Company, Inc. DIP, the Lenders,
and General Electric Capital Corporation (as
approved by the United States Bankruptcy
Court Southern District of New York on
October 28, 1996). *
4.5(a) Loan and Security Agreement ("Loan and
Security Agreement"), dated December 27,
1991, between the Company and The CIT
Group/Equipment Financing, Inc. ("CIT")
(Exhibit 28.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
February 2, 1992). *
4.5(b) Amendment, dated September 2, 1992, to the
Loan and Security Agreement (Exhibit 4.5(b)
to the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
(iv)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- --------
4.5(c) Amendment, dated October 30, 1992, to the
Loan and Security Agreement (Exhibit 4.5(c)
to the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
4.5(d) Amendment, dated December 31, 1992, to the
Loan and Security Agreement (Exhibit 4.5(d)
to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520)
on Form S-1). *
4.5(e) Amendment, dated as of July 30, 1993, to the
Loan and Security Agreement (Exhibit 4.5(e)
to Post-Effective Amendment No. 4 to the
Company's Registration Statement (No. 33-38520)
on Form S-1). *
4.5(f) Third Amendment to the Loan and Security
Agreement, dated as of June 13, 1994 (Exhibit
4.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1994). *
4.5(g) Fourth Amendment to the Loan and Security
Agreement, dated as of September 12, 1994
(Exhibit 4.5 to the Company's Quarterly Report
on Form 10-K for the quarter ended July 31,
1994). *
4.5(h) Fifth Amendment to the Loan and Security
Agreement, dated as of December 22, 1994
(Exhibit 4.5(h) to the Company's Annual Report
on Form 10-K for the year ended October 30, 1994). *
4.5(i) Sixth Amendment to the Loan and Security
Agreement, dated as of June 15, 1995
(Exhibit 4.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
April 30, 1995). *
4.5(j) 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 (Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 28, 1996). *
4.5(k)* Stipulation amending stipulation providing
adequate protection between Forstmann & Company,
Inc. and CIT Equipment Finance dated
October 30, 1996 as approved by the United
States Bankruptcy Court Southern District
of New York on November 20 , 1996. *
(v)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
4.6(a) Indenture, dated as of April 5, 1993,
between the Company and Shawmut Bank
Connecticut, National Association ("Shawmut"),
as trustee, relating to the Senior
Secured Floating Rate Notes ("Senior
Secured Notes") (Exhibit 4.6(a) to
Post-Effective Amendment No. 4 to the
Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(b) Form of Senior Secured Note due October
30, 1997 (Exhibit 4.6(b) to Post-Effective
Amendment No. 4 to the Company's
Registration Statement (No. 33-38520)
on Form S-1). *
4.6(c) Form of Deed to Secure Debt, Assignments
of Leases and Rents, Security Agreements
and Fixture Filings, dated as of April
5, 1993, between the Company and Shawmut,
as trustee (Exhibit 4.6(c) to
Post-Effective Amendment No. 4 to the
Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(d) Security Agreement, dated as of April 5,
1993, between the Company and Shawmut,
as trustee (Exhibit 4.6(d) to
Post-Effective Amendment No. 4 to the
Company's Registration Statement
No. 33-38520) on Form S-1). *
4.6(e) Form of Trademark Security Agreement,
dated as of April 5, 1993, between the
Company and Shawmut, as trustee (Exhibit
4.6(e) to Post-Effective Amendment No. 4
to the Company's Registration Statement
(No. 33-38520) on Form S-1). *
4.6(f) Form of Patent Security Agreement, dated as
of April 5, 1993, between the Company and
Shawmut, as trustee (Exhibit 19.4 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended August 1, 1993). *
4.6(g) Amended and Restated Indenture, dated as of
March 30, 1994, between the Company and
Shawmut Bank of Connecticut, National
Association, as trustee, relating to the
Senior Secured Notes (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994). *
(vi)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- --------
4.6(h) Form of Original Senior Secured Note
(incorporated herein by reference to
Exhibit 4.6(g)). *
4.6(i) Form of Additional Senior Secured Note
(incorporated herein by reference to
Exhibit 4.6(g)). *
4.6(j) Form of First Amendment to Deed to
Secure Debt, Assignments of Leases
and Rents, Security Agreements and Fixture
Filings, dated as of March 30, 1994, between
the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(k) First Amendment to Pledge and Security
Agreement, dated as of March 30, 1994 between
the Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(l) First Amendment to Trademark Security
Agreement (foreign), dated as of March 30,
1994, between the Company and Shawmut Bank
Connecticut, National Association, as trustee
(Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 1, 1994). *
4.6(m) First Amendment to Trademark Security
Agreement (U.S.), dated as of March 30, 1994,
between the Company and Shawmut Bank
Connecticut, National Association, as trustee
(Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 1, 1994). *
4.6(n) First Amendment to Patent Security Agreement,
dated as of March 30, 1994, between the
Company and Shawmut Bank Connecticut,
National Association, as trustee (Exhibit
4.8 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994). *
4.6(o) Supplemental Indenture, dated as of January 23,
1995, between the Company and Shawmut Bank
Connecticut, National Association, as trustee,
relating to the Senior Secured Notes (Exhibit 4.6(o)
to the Company's Annual Report on Form 10-K
for the year ended October 30, 1994). *
(vii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
4.6(p) Supplemental Indenture, dated as of June 15, 1995,
between the Company and Shawmut Bank
Connecticut, National Association, as trustee,
relating to the Senior Secured Notes (Exhibit 4.3
to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1995). *
4.6(q) 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 (Exhibit 4.2
to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 28, 1996). *
4.6(r)* Stipulation and order amending 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 their
collateral upon debtor providing adequate protection
dated November 25, 1996 as approved by the United
States Bankruptcy Court Southern District of
New York on November 25, 1996. *
4.7 Stipulation providing adequate protection between
Forstmann & Co., Inc. and The Provident Bank dated
July 25, 1996 as approved by the United States
Bankruptcy Court Southern District of New York
on August 22, 1996 Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended July 28, 1996). *
10.1(a) J. P. Stevens & Co., Inc. Trademark
Assignments to the Company, effective
December 28, 1985, dated January 29,
1986 (Exhibit 10(h) to the Company's
Registration Statement (No. 33-27296)
on Form S-1). *
10.1(b) Lease, dated July 21, 1986, between the
Company and 1185 Avenue of the Americas
Associates ("1185 Associates") (Exhibit
10(t) to the Company's Registration
Statement (No. 33-27296) on Form S-1). *
10.1(c) Lease Modification Agreement, dated
December 5, 1991, between the Company
and 1185 Associates (Exhibit 10.7 to the
Company's Registration Statement
(No. 33-44417) on Form S-1).
(viii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
10.1(d) Consent to Lease Modification Agreement,
dated May 11, 1992, between the Company
and 1185 Associates (Exhibit 10.2(c) to
the Company's Annual Report on Form 10-K
for the year ended November 1, 1992). *
10.1(e) Lease Modification Agreement, dated
May 11, 1992, between the Company and
1185 Associates (Exhibit 10.1(d) to the
Company's Annual Report on Form 10-K for
the year ended November 1, 1992). *
10.1(f) Lease dated January 31, 1995 between 1155
Avamer Realty Corp., and the Company
(Exhibit 10.1(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
January 29, 1995). *
10.1(g) Lease Takeover Agreement dated January 31,
1995 between the Company and 1155 Avamer
Realty Corp. (Exhibit 10.1(b) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended January 29, 1995). *
10.1(h) First Amendment to Lease dated as of
December 27, 1995 between 1155 Avamer
Realty Corp., and the Company (Exhibit 10.1(h)
to the Company's Annual Report on Form 10-K
for the year ended October 29, 1995). *
10.2(a) Amended Note Registration Rights Agreement,
dated as of November 19, 1990, among the
Company and the parties thereto (Exhibit
10.4 to the Company's Registration Statement
(No. 33-38520) on Form S-1). *
10.2(b) Preferred Stock Registration Rights Agreement,
dated as of November 19, 1990, between the
Company and Executive Life Insurance Company
(Exhibit 10.6 to the Company's Registration
Statement (No. 33-38520) on Form S-1). *
10.2(c) Common Stock Registration Rights Agreement,
dated as of September 9, 1994, between the
Company and Resolution Trust Corporation as
receiver for Columbia Savings & Loan
Association, F.A. (Exhibit 10.2(d) to the
Company's Annual Report on Form 10-K for
the year ended October 30, 1994). *
(ix)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
10.2(d) Common Stock Registration Rights Agreement,
dated as of April 4, 1995, among the Company and
Odyssey Partners, L.P. (Exhibit 10.2(e) to the
Company's Annual Report on Form 10-K for the
year ended October 29, 1995. *
10.3(a)** Common Stock Incentive Plan as amended
as of March 30, 1994 (Exhibit 10.3(a) to the
Company's Annual Report on Form 10-K for
the year ended October 30, 1994). *
10.3(b)** Form of Incentive Stock Option Agreement
(Exhibit 4.2(a) to the Company's Registration
Statement (No. 33-55770) on Form S-8). *
10.3(c)** Alternative Form of Incentive Stock Option
Agreement (Exhibit 4.2(b) to the Company's
Registration Statement (No. 33-55770)
on Form S-8). *
10.4(a)** Form of Equity Referenced Deferred Incentive
Award Agreement ("ERA") (Exhibit 10.13 to
the Company's Registration Statement
(No. 33-44417) on Form S-1). *
10.4(b)** Amendment, dated February 10, 1994, to the
ERA Agreement, dated February 26, 1992
(Exhibit 10.4(b) to the Company's Annual Report
on Form 10-K for the year ended October 30, 1994). *
10.5(a)** Form of Change in Control Agreement (Exhibit
10.6 to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992). *
10.5(b)** Employment Agreement dated December 16, 1993
between the Company and Christopher L. Schaller.
(Exhibit 10.5(b) to the Company's Annual
Report on Form 10-K for the year ended
October 31, 1993). *
10.5(c)** Form of Employment Agreement for Executive
Vice Presidents. (Exhibit 10.5(c) to the
Company's Annual Report on Form 10-K for the
year ended October 31, 1993). *
10.5(d)* Separation agreement made and entered into on
August 14, 1995 between Forstmann & Company, Inc.
and Christopher L. Schaller. *
(x)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
10.5(e)* Separation and General Release Agreement
made as of February 1, 1996, between
Forstmann & Company, Inc. and Richard Pactor.
10.5(f)* Separation and General Release Agreement
made as of March 12, 1996, between
Forstmann & Company, Inc. and
Fred D. Matheson.
10.5(g)* Separation and General Release Agreement,
dated October 10, 1996, between
Forstmann & Company, Inc.
and Peter M. Roaman.
10.6(a)** Supplemental Retirement Benefit Plan (Exhibit
10.7 to the Company's Annual Report on
Form 10-K for the year ended November 1, 1992). *
10.6(b)** Trust Agreement, dated December 30, 1993,
of the Supplemental Retirement Benefit Plan
Trust. (Exhibit 10.6(b) to the Company's
Annual Report on Form 10-K for the year ended
October 31, 1993). *
10.7 Non-Qualified Salaried Employees' Savings,
Investment and Profit Sharing Plan (Exhibit
10.9 to the Company's Annual Report on Form
10-K for the year ended November 1, 1992). *
10.8* Forstmann & Company, Inc. Incentive
Compensation and Retention Program, effective
as of November 14, 1996. *
10.9(a) Form of Indemnity Agreement, effective as of
February 7, 1994, between the Company and its
corporate officers (Exhibit 10.9(a) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
10.9(b) Form of Indemnity Agreement, effective
as of February 7, 1994, between the
Company and its directors (Exhibit 10.9(b) to
the Company's Annual Report on Form 10-K for
the year ended October 30, 1994). *
10.10(a) License Agreement, dated July 1, 1992,
between Campagnia Tessile S.p.A. ("licensor")
and the Company (Exhibit 10.10(a) to the
Company's Annual Report on Form 10-K for
the year ended October 30, 1994). *
(xi)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ---------- ----------- ---------
10.10(b) Guarantee Agreement, dated July 1, 1992,
between the Licensor and the Company
(Exhibit 10.10(b) to the Company's Annual
Report on Form 10-K for the year ended
October 30, 1994). *
10.10(c) Italian Fabrics Purchase Agreement, dated
July 1, 1992, between the Licensor and
the Company (Exhibit 10.10(c) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
10.10(d) Liquidated Damages Agreement, dated
July 1, 1992, between the Licensor and the
Company (Exhibit 10.10(d) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
10.10(e) Use of the mark "Carpini" Agreement, dated
July 1, 1992, between the Licensor and the
Company (Exhibit 10.10(e) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
10.10(f) Consultancy/Sales Fee Agreement, dated
July 1, 1992, between Woolverton Limited
("Consultant") and the Company (Exhibit 10.10(f)
to the Company's Annual Report on Form 10-K
for the year ended October 30, 1994). *
10.10(g) Guarantee Agreement, dated July 1, 1992,
between the Consultant and the Company
(Exhibit 10.10(g) to the Company's Annual
Report on Form 10-K for the year ended
October 30, 1994). *
10.10(h) Consultation for Purchase of Italian Fabrics
Agreement, dated July 1, 1992, between the
Consultant and the Company (Exhibit 10.10(h)
to the Company's Annual Report on Form 10-K
for the year ended October 30, 1994). *
10.10(i) Liquidated Damages Agreement, dated
July 1, 1992, between the Consultant and
the Company (Exhibit 10.10(i) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
(xii)
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ---------- --------
10.10(j) Renegotiation of Sales Fee Arrangements
for Non-Registration of Marks, dated
July 1, 1992, between the Consultant and
the Company (Exhibit 10.10(j) to the Company's
Annual Report on Form 10-K for the year ended
October 30, 1994). *
10.10(k) Agreement for Financial Consulting Services
between Jay Alix & Associates and the Company,
dated July 31, 1995 (Exhibit 10.10(k) to the
Company's Annual Report on Form 10-K for the
year ended October 29, 1995). *
10.10(l) Letter of Acknowledgment in Agreement dated
August 18, 1995, between Jay Alix & Associates
and the Company, outlining changes to "Agreement
for Financial Consulting Services" dated
July 31, 1995 (Exhibit 10.10(l) to the
Company s Annual Report on Form 10-K for
the year ended October 29, 1995). *
10.10(m) Second Amendment to Agreement for Financial
Consulting Services, dated December 20, 1996. *
11.1 Computation of per share earnings. *
23.1 Consent of Deloitte & Touche LLP. *
27 Financial Data Schedule (for EDGAR only) *
(xiii)
Exhibit 4.4(w)
SECOND AMENDMENT TO AMENDED AND RESTATED
DEBTOR-IN-POSSESSION LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED DEBTOR-IN-POSSESSION LOAN
AGREEMENT (the "Amendment") is made and entered into as of the 10th day of
October, 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 (i) 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, and (ii) that certain Amendment to Amended
and Restated Debtor-in-Possession Loan Agreement, dated as of May 31, 1996 and
approved by the Bankruptcy Court on or about June 25, 1996 (as amended, 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 5 of this Amendment, as
follows:
(a) The definition of the term "Borrowing Base" is hereby
amended by deleting in its entirety the first paragraph of such definition and
by inserting, in lieu thereof, the following:
"Borrowing Base" means, as of any date of determination, an amount
determined by the Agent to be equal to the sum of (a) up to 85% of Eligible
Accounts (other than Eligible Bill and Hold Accounts), plus (b) the lesser of
$12,500,000 or the sum of (i) up to 85% of Eligible Bill and Hold Accounts
which are not more than thirty (30) days past invoice date, (ii) up to 75% of
Eligible Bill and Hold Accounts which are more than thirty (30) days, but not
more than sixty (60) days, past invoice date, (iii) up to 60% of Eligible Bill
and Hold Accounts which are more than sixty (60) days, but not more than
ninety (90) days, past invoice date, and (iv) up to 45% of Eligible Bill and
Hold Accounts which are more than ninety (90) days, but not more than one
hundred eighty (180) days, past invoice date, plus (c) up to 50% of Eligible
Inventory consisting of raw materials, plus (d) up to 35% of Eligible
Inventory consisting of yarn in storage, plus (e) up to 35% of Eligible
Inventory consisting of greige goods, plus (f) up to 50% of Eligible Inventory
consisting of finished goods (exclusive of seconds and samples), plus (g) up
to 40% of Eligible Inventory consisting of seconds and samples; provided,
however, that (i) the aggregate amount of the Borrowing Base attributable to
Eligible Inventory consisting of raw materials shall not exceed $4,500,000 at
any time during November 1996, $4,900,000 at any time during December 1996,
$5,200,000 at any time during January 1997, $5,100,000 at any time during
February 1997, $5,100,000 at any time during March 1997, $5,100,000 at any
time during April 1997, $5,000,000 at any time during May 1997, $5,200,000 at
any time during June 1997, $4,700,000 at any time during July 1997, $4,600,000
at any time during August 1997, $4,500,000 at any time during September 1997,
or $4,400,000 at any time during October 1997, (ii) the aggregate amount of
the Borrowing Base attributable to Eligible Inventory consisting of yarn in
storage shall not exceed $6,000,000 at any time during November 1996,
$6,500,000 at any time during December 1996, $7,000,000 at any time during
January 1997, $7,000,000 at any time during February 1997, $6,800,000 at any
time during March 1997, $6,600,000 at any time during April 1997, $6,400,000
at any time during May 1997, $6,200,000 at any time during June 1997,
$6,200,000 at any time during July 1997, $6,300,000 at any time during
August 1997, $6,400,000 at any time during September 1997, or $6,500,000 at
any time during October 1997, (iii) the aggregate amount of the Borrowing Base
attributable to Eligible Inventory consisting of greige goods shall not exceed
$4,500,000 at any time during November 1996, $5,400,000 at any time during
December 1996, $5,700,000 at any time during January 1997, $5,100,000 at any
time during February 1997, $5,000,000 at any time during March 1997,
$4,200,000 at any time during April 1997, $3,900,000 at any time during
May 1997, $3,600,000 at any time during June 1997, $4,000,000 at any time
during July 1997, $4,100,000 at any time during August 1997, $4,000,000 at any
time during September 1997, or $4,200,000 at any time during October 1997,
(iv) the aggregate amount of the Borrowing Base attributable to Eligible
Inventory consisting of finished goods (exclusive of seconds and samples)
shall not exceed $6,600,000 at any time during November 1996, $8,200,000 at
any time during December 1996, $9,000,000 at any time during January 1997,
$9,100,000 at any time during February 1997, $8,500,000 at any time during
March 1997, $8,700,000 at any time during April 1997, $7,700,000 at any time
during May 1997, $7,800,000 at any time during June 1997, $7,300,000 at any
time during July 1997, $6,400,000 at any time during August 1997, $6,800,000
at any time during September 1997, or $6,500,000 at any time during
October 1997, and (v) the aggregate amount of the Borrowing Base attributable
to Eligible Inventory consisting of seconds and samples shall not exceed
$1,200,000 at any time from the Effective Date through the Commitment
Termination Date.
For convenience of reference, a table setting forth the foregoing caps on the
aggregate amount of the Borrowing Base attributable to the various categories
of Eligible Inventory is attached to this Amendment as Exhibit A.
(b) 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
July/August/September 1996 $(2,700,000)
August/September/October 1996 (4,100,000)
September/October/November 1996 (4,000,000)
October/November/December 1996 (3,900,000)
November/December 1996/January 1997 100,000
December 1996/January/February 1997 4,200,000
January/February/March 1997 7,400,000
February/March/April 1997 9,700,000
March/April/May 1997 9,700,000
April/May/June 1997 8,300,000
May/June/July 1997 5,700,000
June/July/August 1997 3,700,000
July/August/September 1997 2,100,000
August/September/October 1997 1,700,000
(c) The definition of the term "Maturity Date" is hereby amended
by deleting the date contained in such definition and by inserting, in lieu
thereof, the following date: October 31, 1997.
(d) The Agreement is hereby amended by deleting Exhibit B to the
Agreement in its entirety and by inserting, in lieu thereof, the form of
Borrowing Base Certificate attached to this Amendment as Exhibit B.
(e) The Agreement is hereby amended by deleting Exhibit C to the
Agreement in its entirety and by inserting, in lieu thereof, the form of
Compliance Certificate attached to this Amendment as Exhibit C.
(f) Section 3.6 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:
$100,000 of the facility fee was paid on the date of acceptance of the
Commitment Letter by Borrower, $325,000 of the facility fee was paid on
February 15, 1996, and the remaining balance thereof (i.e., $125,000) shall be
due and payable on October 31, 1996.
(g) Section 6.19 of the Agreement is hereby amended by deleting
such Section in its entirety and by inserting, in lieu thereof, the following:
6.19 Capital Expenditures. Borrower shall not make,
or incur any Contractual Obligation to make, any Capital Expenditure if to do so
would cause Borrower's aggregate (i) Capital Expenditures (exclusive of MIS
Expenditures) to exceed $4,000,000 during the period from November 1, 1996
through and including October 31, 1997, or (ii) MIS Expenditures to exceed
$1,000,000 during the period from November 1, 1996 through and including
October 31, 1997.
(h) The Agreement is hereby amended by adding the following
Section 5.14 thereto:
5.14 Inventory Reserves. Borrower shall at all times
(a) reflect in its books and records adequate reserves for
Inventory, including (without limitation) reserves for damage,
deterioration, below-standard quality, obsolescence and changes in
price levels, and (b) determine the amount of its Inventory
reserves in accordance with GAAP.
(i) The Agreement is hereby amended by adding the following
Section 7.2(d)(vi) thereto:
(vi) A schedule setting forth Borrower's Inventory
reserves as of the date of such Monthly Report with a monthly
reconciliation showing any changes in the amount of Borrower's
Inventory reserves since the date of the last Monthly Report
delivered to Agent.
(j) The definition of the term "Fixed Rate" is hereby amended by
deleting such definition in its entirety and by inserting, in lieu thereof,
the following:
"Fixed Rate" means the LIBOR Rate plus two and
three-quarters percent (2.75%) per annum.
(k) The definition of the term "Floating Rate" is hereby amended
by deleting such definition in its entirety and by inserting, in lieu thereof,
the following:
"Floating Rate" means the Index Rate plus one and
one-quarter percent (1.25%) per annum.
(l) The definition of the term "EBITDA" is hereby amended by
deleting in their entirety clauses (x)(vii), (viii) and (ix) of such
definition and by inserting, in lieu thereof, the following:
(vii) non-cash losses recognized in Net Income during such period
in connection with the writeoff of property, plant, machinery and
equipment, (viii) non-cash losses recognized in Net Income during
such period in connection with the writeoff of deferred software
development costs, and (ix) reorganization items recognized during
such period and constituting the payment of compensation and/or
reimbursement of expenses to professional persons pursuant to
Sections 330 or 331 of the Bankruptcy Code, but only to the extent
such reorganization items were deducted in computing Net Income
for such period,
(m) The definition of the term "EBITDA" is hereby further
amended by deleting in its entirety clause (y)(iv) of such definition and by
inserting, in lieu thereof, the following:
(iv) [INTENTIONALLY DELETED], all as determined in accordance with
GAAP.
(n) The definition of the term "Eligible Inventory" is hereby
amended by deleting in its entirety clause (i) of such definition and by
inserting, in lieu thereof, the following:
(i) the Inventory is not of good and merchantable quality, free
from defects which would affect the market value thereof
(exclusive of seconds and samples);
3. Amendment and Agent's Fees. Borrower shall pay to the Agent, for
the account of GE Capital, a nonrefundable amendment fee equal to $375,000,
which shall be fully earned upon entry by the Bankruptcy Court of the
Amendment Order (as such term is defined below) and shall be due and payable
in monthly installments of $31,250 each, commencing on October 31, 1996 and
continuing on each Monthly Payment Date thereafter until paid in full, and the
entire balance thereof shall be due and payable in full on the Commitment
Termination Date. Borrower shall also pay to the Agent, for its account, an
agency fee in the amount of $150,000, payable in advance in monthly
installments of $15,000 each, commencing on October 31, 1996 and continuing on
each Monthly Payment Date thereafter until paid in full, and the entire
balance thereof shall be due and payable in full on the Commitment Termination
Date; provided, however, that if (and only if) GE Capital enters into the Plan
of Reorganization Financing (as such term is defined below) and the Plan of
Reorganization Financing becomes effective on the Commitment Termination Date,
then Borrower shall not be obligated to pay any balance of the agency fee
remaining unpaid on the Commitment Termination Date and such unpaid balance
shall be forgiven.
4. Plan of Reorganization Financing.
(a) In connection with formulating a plan of reorganization in
the Chapter 11 Case, Borrower anticipates it will request that GE Capital
consider entering into a loan agreement (the "Plan of Reorganization
Financing") that provides for the extension by GE Capital of credit and other
financial accommodations to Borrower pursuant to such plan of reorganization.
GE Capital agrees to consider any such request and to work with Borrower
towards a mutually acceptable Plan of Reorganization Financing, but the
parties acknowledge and agree that GE Capital's willingness to discuss such
Plan of Reorganization Financing does not mean that Borrower and GE Capital
will successfully negotiate a mutually acceptable Plan of Reorganization
Financing. The parties further acknowledge and agree that this Paragraph 4 is
not, and is not to be construed as, a commitment, offer,
agreement-in-principle or agreement by GE Capital or its affiliates to provide
any Plan of Reorganization Financing or by Borrower to obtain any Plan of
Reorganization Financing from GE Capital. GE Capital's willingness to provide
any such Plan of Reorganization Financing would be contingent upon, inter alia
(i) GE Capital's completion, and satisfaction with the results, of its due
diligence review of Borrower's business, financial performance and business
plans (including, without limitation, financial projections), (ii) the
definitive legal documentation governing the Plan of Reorganization Financing
(including, without limitation, the loan agreement, security agreements,
intercreditor agreements and all other documents evidencing or implementing
the Plan of Reorganization Financing or affecting GE Capital's rights
thereunder) being acceptable in form and substance to GE Capital in its sole
discretion, (iii) the plan of reorganization and the order of the Bankruptcy
Court confirming the plan of reorganization in the Chapter 11 Case being
acceptable in form and substance to GE Capital in its sole discretion, and
(iv) any other matters deemed relevant by GE Capital in the exercise of its
sole credit judgment. Any Plan of Reorganization Financing obtained from
GE Capital shall be modeled after the Agreement (as amended), with such
changes thereto as GE Capital shall deem appropriate in its sole discretion,
and shall become effective (subject to the satisfaction of the conditions
precedent contained in such Plan of Reorganization Financing) upon the
effective date of Borrower's plan of reorganization that is confirmed in the
Chapter 11 Case.
(b) In the event that each of GE Capital and Borrower agrees,
in its sole and absolute discretion, to enter into a Plan of Reorganization
Financing, then the amount of the facility fee that would otherwise be charged
by GE Capital in connection with the Plan of Reorganization Financing shall be
reduced, based upon the date an order confirming Borrower's plan of
reorganization and approving the Plan of Reorganization Financing is entered
on the docket of the Bankruptcy Court in the Chapter 11 Case, by the following
amounts:
Amount of
Reduction
of Facility Fee
for Plan
Date of Entry of Reorganization
of Order Confirming Plan Financing
------------------------ -----------------
Any time prior to April 30, 1997 $212,500
Between May 1, 1997 and July 31, 1997 148,750
Between August 1, 1997 and October 31, 1997 106,250
After October 31, 1997 -0-
5. 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 October 31, 1996,
provided that on such date both of the following conditions shall 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. In the event that either of the foregoing
conditions has not been satisfied on or before October 31, 1996, then the
Amendment shall be null and void ab initio and shall be of no force or effect
whatsoever. In the event both of the foregoing conditions have been timely
satisfied, then in addition to the Events of Default specified in Section 9.1
of the Agreement, the existence or occurrence of any one or more of the
following events shall also constitute an Event of Default: (i) the
modification of the Amendment Order (whether by the Bankruptcy Court or on
appeal) without the prior written consent of Lenders, (ii) the vacation,
staying or reversal of the Amendment Order (whether by the Bankruptcy Court or
on appeal), and (iii) the expiration by its terms of the Amendment Order.
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.
6. Waiver of Defaults. GE Capital hereby waives irrevocably any and
all Defaults and/or Events of Default existing under the Agreement as a result
of the breach by Borrower of the covenant contain in Section 6.21 of the
Agreement with respect to the June/July/August 1996 fiscal period and any
three-month fiscal periods ending prior to August 1996.
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/ Rod J. Peckham
-------------------
Name:/s/ Rod J. Peckham
-------------------
Title: Chief Financial Officer
-----------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Agent<PAGE>
By:/s/Rick Luck
-------------
Rick Luck
Vice President,
GE Capital Commercial Finance, Inc.,
being duly authorized
Exhibit 4.5(k)
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 AMENDING
STIPULATION PROVIDING ADEQUATE PROTECTION
WHEREAS, on September 22, 1995 (the "Petition Date"), Forstmann
& Company, Inc. (the "Debtor") filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York (the "Court"); and
WHEREAS, prior to the Petition Date, the Debtor and The CIT
Group/Equipment Financing, Inc. ("CIT") were parties to a certain Loan and
Security Agreement, dated December 27, 1991, and eight supplements thereto
(these documents, collectively, and as amended, the "Loan Agreement"); and
WHEREAS, pursuant to the terms of the Loan Agreement, the
Debtor granted CIT security interests in and liens upon certain property of
the Debtor specified therein (the "Collateral"); and
WHEREAS, the Debtor was in possession of the Collateral on the
Petition Date and continues to use the Collateral during its reorganization;
and
WHEREAS, in April 1996, the Debtor and CIT entered into a
Stipulation Providing Adequate Protection providing for certain monthly
adequate protection payments to CIT which was "So Ordered" by the Court on May
21, 1996 (the "Original Stipulation"); and
WHEREAS, the term of the Original Stipulation expires on
October 31, 1996.
NOW THEREFORE, the Debtor and CIT wish to amend certain terms
of the Original Stipulation and hereby agree as follows:
1. Except as expressly amended by this Stipulation, the
Original Stipulation shall continue to be in full force and effect in
accordance with its terms.
2. Paragraph 3 of the Original Stipulation is hereby
amended to provide that, commencing with the payment to be made on November
27, 1996, each Adequate Protection Payment (as such term is defined in the
Original Stipulation) is to be increased from $95,000 to $118,750.
3. In addition, promptly upon the court approval of this
Stipulation, the Debtor will make a payment to CIT in the amount of
$47,651.69, representing attorneys fees and disbursements incurred by CIT
between March 1, 1996 and September 30, 1996 in connection with the Debtor's
bankruptcy case, enforcement of CIT's rights under the Loan Agreement and
protection of CIT's interests in the Collateral.
4. Paragraph 5 of the Original Stipulation is hereby
amended to provide that the Debtor shall continue making the Adequate
Protection Payments until the earliest of (i) October 31, 1997, (ii) the
maturity of all indebtedness of the Debtor under the DIP Facility (as such
term is defined in the Original Stipulation), (iii) the written agreement of
CIT and the Debtor to terminate the Adequate Protection Payments, (iv) the
occurrence of an Event of Default (as such term is defined in the Original
Stipulation) and notice to the Debtor by CIT of such Event of Default and
CIT's intention to terminate the Original Stipulation(as amended hereby), (v)
an order of the Court terminating or reducing the Adequate Protection
Payments, or (vi) the consummation of a plan of reorganization in the Debtor's
bankruptcy case.
5. Upon the execution of this Stipulation, the Debtor shall
apply to the Court within five (5) days, in accordance with the provisions of
the Bankruptcy Code, the Bankruptcy Rules and the rules of the Court, for
approval of this Stipulation.
6. Upon approval of this Stipulation by the Bankruptcy
Court, all payments which otherwise would have been payable hereunder prior to
such approval shall be paid by the Debtor within three (3) business days of
such approval.
7. This Stipulation shall not become effective until it has
been "So Ordered" by the Court, except as to paragraph 8 hereof which shall
become effective upon the execution of this Stipulation.
8. In the event that this Stipulation is not approved by
the Bankruptcy Court, CIT shall have the right, at any time subsequent to the
expiration of the term of the Original Stipulation, to 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 in either this Stipulation or in the Original Stipulation shall be
deemed to prejudice or waive any such right.
9. This Stipulation may not be modified, except in a
writing signed by the Debtor and CIT, which modification shall be upon notice
to parties in interest and subject to the approval of the Court.
10. This Stipulation shall be binding upon the Debtor and
CIT and their respective successors and assigns, including, without
limitation, in the case of the Debtor, any trustee in bankruptcy.
WHEREFORE, the parties hereto have executed this Stipulation as
of the day of October, 1996.
Dated: New York, New York
October 30, 1996
FORSTMANN & COMPANY, INC.,
Debtor and Debtor in Possession
By: Rodney J. Peckham
-----------------
Title: Chief Financial Officer
-----------------------
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: Arthur Lowenthal
----------------
Title: Senior Vice President
---------------------
SO ORDERED:
/s/ James L. Garrity, Jr. Dated: November 20, 1996
- ------------------------- -----------------
UNITED STATES BANKRUPTCY JUDGE
Exhibit 4.6(r)
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 AMENDING STIPULATION AND ORDER
SETTLING SENIOR SECURED NOTEHOLDERS' AND TRUSTEE'S
MOTIONS FOR RELIEF FROM THE AUTOMATIC STAY, OR
IN THE ALTERNATIVE, TO CONDITION THE USE OF THEIR
COLLATERAL UPON DEBTOR PROVIDING ADEQUATE PROTECTION
WHEREAS, on September 22, 1995 (the "Petition Date"), Forstmann
& Company, Inc., the debtor and debtor in possession in the above-captioned
case (the "Debtor") filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York;
WHEREAS, prior to the Petition Date, the Debtor entered into an
Indenture, dated as of April 5, 1993 (as amended, the "Indenture"), with Fleet
National Bank Connecticut (f/k/a Shawmut Bank Connecticut, N.A.), as trustee
(the "Trustee"), pursuant to which the Debtor issued $27 million of Senior
Secured Floating Rate Notes Due 1997 (the "Senior Secured Notes");
WHEREAS, as security for the Debtor's obligations under the
Senior Secured Notes, the Debtor has granted the Trustee a security interest
in substantially all of the Debtor's real and personal property;
WHEREAS, pursuant to an Amended and Restated Intercreditor
Agreement, dated as of March 30, 1994, between the Trustee and General
Electric Capital Corporation ("GECC"), the parties agreed that the Trustee
would enjoy a first priority security interest in the Debtor's machinery and
equipment and real property (the "Primary Collateral") and that GECC would
enjoy a first priority security interest in the Debtor's inventory and
accounts receivable;
WHEREAS, the Debtor was in possession of the Primary Collateral
on the Petition Date and continues to use the Primary Collateral during its
reorganization;
WHEREAS, Chancellor Senior Secured Management, Inc.
("Chancellor") is the authorized agent for holders of $23.65 million of Senior
Secured Notes and Diamond Lease Company Ltd. ("Diamond") is a holder of $2.5
million of Senior Secured Notes;
WHEREAS, on February 22, 1996, Chancellor and Diamond filed a
motion (the "Motion") seeking an order (a) conditioning the use by the Debtor
of the Primary Collateral and the continuance of the automatic stay upon the
Debtor providing the holders of the Senior Secured Notes with adequate
protection of their interest in the Primary Collateral, (b) prohibiting the
Debtor from continuing to use the Primary Collateral if the Debtor fails to
make such payments and (c) granting relief from the automatic stay, without
further application to the Court, if the Debtor fails to make such payments;
WHEREAS, the Trustee filed a motion joining in the Motion and
requesting the same relief;
WHEREAS, the Debtor, the Trustee, Chancellor and Diamond agreed
to settle the issues raised by the Motion and entered into a stipulation
providing for certain monthly adequate protection payments that was "So
Ordered" by the Court on March 22, 1996 (the "Original Stipulation");
WHEREAS, the last adequate protection payment required by the
Original Stipulation was paid on October 31, 1996;
WHEREAS, the parties wish to amend the Original Stipulation;
WHEREAS, the amendments to the Original Stipulation have been
negotiated by all parties hereto, and the Official Committee of Unsecured
Creditors, which has approved them as to form and content, at arm's-length,
with all parties represented by counsel;
WHEREAS, the terms of this Stipulation are fair and reasonable
under the circumstances; and
WHEREAS, Debtor believes it is in the best interest of the
estate to enter into this Stipulation.
NOW THEREFORE, the Debtor, the Trustee, Chancellor and Diamond
agree as follows:
1. Except as expressly amended by this Stipulation, the
terms of the Original Stipulation shall continue in full force and effect.
2. Paragraph 2 of the Original Stipulation is hereby
amended by inserting the following immediately after the first sentence
thereof:
In addition, subject to the provisions of
paragraph 7 below, as adequate protection for
the Debtor's use of the Senior Secured Note-
holders' Primary Collateral from November 1,
1996 through October 31, 1997, the Debtor shall
make payments in the amount of $125,000 in
immediately available funds to the holders of
the Senior Secured Notes in the manner provided
in the Indenture on the last business day of
each month commencing on November 27, 1996 and
ending on the earlier of (i) the date on which a
plan of reorganization is consummated in this
Chapter 11 case or (ii) October 31, 1997.
3. Promptly upon court approval of this Stipulation, the
Debtor will pay the reasonable attorneys' fees and disbursements incurred by
counsel to Chancellor and the Trustee from March 22, 1996 through October 16,
1996 in the amounts of $78,133.09 and $6,992.39, respectively. All payments
of legal fees and expenses pursuant to this paragraph shall be subject to the
provisions of paragraph 7 of the Original Stipulation.
4. Upon the execution of this Stipulation, the Debtor shall
apply to the Court within five (5) days, in accordance with the provisions of
the Bankruptcy Code, the Bankruptcy Rules and the rules of the Court, for
approval of this Stipulation.
5. Upon approval of this Stipulation by the Bankruptcy
Court, all payments which otherwise would have been payable hereunder prior to
such approval shall be paid by the Debtor within three business days of such
approval.
6. This Stipulation shall not become enforceable, and the
time provisions of paragraph 4 of the Original Stipulation shall not begin to
run, until this Stipulation has been "So Ordered" by the Court.
7. This Stipulation may not be modified, except in a
writing signed by each of the parties hereto, which modification shall be upon
notice to parties in interest and subject to the approval of the Court.
8. This Stipulation shall be binding upon each of the
parties and their respective successors and assigns, including, without
limitation, in the case of the Debtor, any trustee in bankruptcy.
9. This Stipulation may be executed in counterparts, each
of which when executed and delivered will be deemed to be original and all of
which when taken together shall constitute one and the same document.
WHEREFORE, the parties hereto have executed this
Stipulation as of the 25th day of November, 1996.
MILBANK, TWEED, HADLEY & McCLOY DEBEVOISE & PLIMPTON
By:/s/ Stephen J. Blauner By:/s/ Richard Hahn
---------------------- ----------------
Stephen J. Blauner (SB 1997) Richard F. Hahn (RH 5391)
1 Chase Manhattan Plaza 875 Third Avenue
New York, New York 10005 New York, New York 10022
(212) 530-5000 (212) 909-6000
Attorneys for Chancellor Senior Attorneys for the Debtor
Secured Management, Inc. and and Debtor in Possession
Diamond Lease Company Ltd.
REID & REIGE, P.C. APPROVED AS TO FORM AND
CONTENT:
STROOCK & STROOCK & LAVAN
By:/s/ Eric Henzy By:/s/ Fred S. Hodara
--------------- -------------------
Eric Henzy (EH 6155) Fred S. Hodara (FH 7947)
One State Street Seven Hanover Square
Hartford, Connecticut 06103 New York, New York 10004
(860) 278-1150 (212) 806-6000
Attorneys for Fleet National Bank of Attorneys for the Official
Connecticut, as Indenture Trustee Committee of Unsecured
Creditors
SO ORDERED:
Dated:
UNITED STATES BANKRUPTCY JUDGE
Exhibit 10.5(d)
SEPARATION AGREEMENT
-------------------------------------
THIS AGREEMENT IS MADE AND ENTERED INTO THE 14TH DAY OF AUGUST, 1995 BY AND
BETWEEN FORSTMANN & CO., INC., A GEORGIA CORPORATION, HAVING ITS PRINCIPAL
PLACE OF BUSINESS AT 1155 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
("THE COMPANY") AND CHRISTOPHER L. SCHALLER, WHO RESIDES AT 32 FAWN LANE, NEW
CANAAN, CONNECTICUT 06840 (THE "EXECUTIVE").
WHEREAS, the Executive has been employed by the Company as Chairman of the
Board, President and Chief Executive Officer; and
WHEREAS, the Company and the Executive mutually desire to settle all matters
arising out of or relating to the employment of the Executive and the
termination thereof:
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereby agree as follows:
1. By mutual agreement, subject to the terms and conditions of the
Agreement, the Executive hereby resigns, effective as of the
date set forth above (the "Termination Date") all offices and
directorships held with the Company or its affiliates. The
Termination Date is the Executive s last day of active
employment with the Company and its affiliates for all
purposes. The Executive acknowledges that, commencing on the
Termination Date, he no longer holds any offices or
directorships with the Company and its affiliates, including
without limitation the positions of President and Chief
Executive Officer of the Company. The Executive agrees to
execute any corporate documents necessary or reasonably
requested by the Company in furtherance of transition matters.
2. The parties agree that for purposes of determining the
compensation and benefits to which the Executive is entitled to
pursuant to the Employment Agreement dated December 16, 1993 by
and between the Company and the Executive (the "Employment
Agreement"), the Executive, by reason of his resignation shall
be treated as if he had been terminated by the Company for
reasons other than for Cause (as said term is defined in the
Employment Agreement).
3. (a) The parties further agree that, commencing with the
Termination Date, the Executive shall be entitled to receive
any and all compensation and benefits that he would be entitled
to receive under the Employment Agreement as well as under any
benefit plans of the Company, whether or not referred to in the
Employment Agreement, to which he would otherwise be entitled,
by reason of his employment being terminated by the Company for
reasons other than Cause; provided, however, that the parties
agree that the Executive shall be entitled to the following in
lieu of any and all compensation and benefits to which the
Executive might otherwise be entitled pursuant to Sections
9(e)(i) and 9(e)(ii) of the Employment Agreement:
(i) Upon the signing of this Agreement:
(a) delivery of, and title to, the car owned
by the Company and currently being used by
the Executive; and
(b) the payments referred to in Paragraph 6;
(ii) On each of the regular semi-monthly payroll dates of the
Company, commencing with August 30, 1995 and ending
August 15, 1997, a payment of $17,125 (for an aggregate
of $17,125 times 48 payments or $822,000).
(b) Payments to be made pursuant to Paragraph
3(a)(ii) shall become immediately due and
payable if (i) and involuntary proceeding
shall be commenced or an involuntary
petition shall be filed in a court of
competent jurisdiction seeking (A) relief
in respect of the Borrower, or of a
substantial part of its property under any
federal or state bankruptcy, insolvency,
receivership or similar law, (B) the
appointment of a receiver, trustee,
custodian, sequestrator, conservator or
similar official for the Borrower, or for
a substantial part of it property, or (C)
the winding-up of liquidation of the
Borrower, or any order or decree approving
or ordering any of the foregoing shall be
entered; or (ii) the Borrower shall file a
petition or answer or consent seeking
relief under any applicable federal or
state bankruptcy, insolvency, receivership
or similar law, or the Borrower shall
consent to the institution of proceedings
thereunder or to the filing of any such
petition or to the appointment or taking
possession of a receiver, liquidator,
conservator, assignee, trustee, custodian,
sequestrator (or other similar official)
of the Borrower, or of any substantial
part of its property; or (iii) such
payments are not being made (other than as
a result of inadvertent errors which are
promptly remedied following notice
thereof) on an at least as timely a basis
as the salary payments due the four
Executive Vice Presidents of the Company
or those persons then holding
substantially equivalent positions.
(c) Furthermore, in lieu of any and all
compensation and benefits to which the
Executive might otherwise be entitled
pursuant to Section 9(e)(v) of the
Employment Agreement pertaining to equity
referenced deferred incentive awards
( ERAs ), the Company shall pay $585,000
to the Executive on May 15, 1998.
4. All payments due the Executive pursuant to Paragraph 3(a)(ii)
shall be delivered on the applicable payment date by the
Company to the Executive by wire transfer of immediately
available funds to an account designated in writing by the
Executive. If any payment date falls on a Saturday, a Sunday
or a day on which banking institutions in the City of New York
or at the place of payment specified in accordance with this
Paragraph 4 are authorized or obligated by law, regulation or
executive order to remain closed (a "Legal Holiday"), such
payment date shall be deemed the next succeeding day that is
not a Legal Holiday.
5. Notwithstanding the provisions of Paragraph 3, the Company
agrees that if all or a substantial portion of the Company s
assets are sold, or if a tender offer for the Company s Common
Stock is consummated, the payments required by Paragraphs
3(a)(ii) and 3(c) shall be paid in full at the closing of such
transaction. The Company further agrees that if the Company
from time to time negotiates the restructuring of its debt, the
Company, if in its good faith reasonable judgment believes that
it will not put the negotiations at risk, will attempt in good
faith to negotiate to include in the terms of any such
restructuring permission to accelerate the payments of any
amounts remaining outstanding under Paragraph 3; and at such
time as such permission is obtained, and the Company has
adequate available resources to prepay such amounts shall be
prepaid.
6. Upon the signing of this Agreement, the Executive shall receive
a payment of an amount equal to the value of the Executive s
accrued vacation time through the Termination Date plus an
amount equal to the Executive s accrued but unpaid compensation
earned to the Termination Date.
7. In consideration of the execution of this Agreement by both
parties, the Executive unconditionally and irrevocably agrees
to and does hereby release, discharge and covenant not to sue
the Company and its subsidiaries, parent, affiliates, and their
respective officers, directors, employees and agents thereof
from, and on account of, any claim or cause of action which has
arisen from the Executive s employment, and/or the termination
of the Executive s employment, including without limitation
salary, bonus, vacation, severance, outplacement, welfare plans
or other benefits, and including under any plan, policy, or
practice of the Company, or any affiliate, or under any
federal, state or local statute, rule, regulation (including
any claims for employment discrimination, such as claims
brought under Title VII of the Civil Rights Act and the Age
Discrimination in Employment Act, 29 USC 621 et seq.), claims
of libel or slander, up to and including all claims through the
-------
date hereof; provided, however, that notwithstanding anything
contained to the contrary herein, the Executive does not
release or discharge the Company from its requirement to
perform its obligations under and/or which are referred to in
this Agreement, nor does the Executive hereby waive any
compensation or benefits to which the Executive is entitled
under or pursuant to this Agreement or any rights to
indemnification with respect to acts performed or omitted as a
director, officer and/or employee of the Company under the
Company s Certificate of Incorporation, By-Laws and/or
Indemnification or other agreement with the Executive.
8. The Company shall withhold from any compensation payable under
this Agreement all federal, state or other taxes as it shall be
required to withhold pursuant to any law or governmental
regulation.
9. The Company shall pay the fees of the Executive's attorney for
services rendered to the Executive in connection with this
Agreement at a rate of not more than $315.00 per hour;
provided, however, that the maximum amount paid by the Company
pursuant to this Paragraph 9 shall in no event exceed in the
aggregate $5,000.
10. The Company agrees that no other employee who has received any
ERAs shall be treated more favorably than the Executive with
respect to the payment of such employee s ERAs.
11. In consideration of this Agreement:
(a) the Executive agrees that at no time hereinafter will he
disclose to any third party or use for his own purposes
any trade secret or confidential or proprietary
information of the Company and its affiliates,
subsidiaries and parent, including customer lists
(collectively, Confidential Information ). In
furtherance hereof, the Executive covenants that he
shall not retain, and shall promptly return to the
Company and its affiliates, all Company equipment
(except for computer equipment in his personal residence
the fair market value of which does not exceed $3,500,
and all records and documents in his possession and
control which contain Confidential Information or
otherwise belong to the Company, including but not
limited to sales records, personnel information,
business plans, and marketing and financial plans, and
all correspondence and communications. Subject to the
obligations imposed under this paragraph and elsewhere
under this Agreement, the Executive may remove from the
Company premises only his personal files, notes, and
effects;
(b) the Executive agrees for five (5) years hereafter to
reasonably cooperate (at the request of and sole expense
of the Company) in any litigation, administrative
proceeding, and/or investigation of claims by the
Company or any affiliate, or in which the Company or any
affiliate is involved, including answering questions and
being reasonably available at mutually convenient times
for testimony, in executing affidavites and documents,
and that in connection with such matters he will not
voluntarily provide information in testimony to any
party other than the Company or its affiliates;
(c) the Executive agrees for a period of 18 months after the
date of this Agreement not to directly or indirectly
solicit or hire for employment of cause to be solicited
or hired for employment (whether as an employee or
independent contractor), any current employee of the
Company or it affiliates while such employment is
continuing (provided, however that the foregoing
restriction does not apply to any secretarial employee
of the Company);
(d) the Executive, on the one hand, and the Company
(including its affiliates and on behalf of its officers
and directors), on the other, agree at all times
hereafter not to disparage or attempt to damage or
impair the reputation or goodwill of or expose to the
public ridicule, hatred, scorn or shame, the other;
(e) the Executive shall at all times hereafter not claim to
be representing the Company or its divisions, units,
parents, subsidiaries, affiliates, or any of its
publications or products, in any manner whatsoever, or
claim to have power of decision in any activity relating
to them, except as expressly authorized in writing by
the Company; and
(f) the parties hereto agree that in the event of breach by
the other of any of the covenants in this paragraph 11,
the remedies at law are inadequate and the affected
party shall be entitled, in addition to any rights or
remedies to which it may be otherwise entitled, to seek
temporary and permanent injunctive relief.
12. The Executive represents and agrees that he fully understands
his rights (and has been so advised by the Company) to discuss
all aspects of this Agreement with legal and/or financial
advisors of his choosing; that to the extent, if any, which he
desires, he has availed himself of these rights, that he has
carefully read and fully understands all of the provisions of
this Agreement, that he is voluntarily entering into this
Agreement, and that he is not relying on any representation not
made in this Agreement. The Executive acknowledges that he has
been given at least forty-eight (48) hours within which to
consider this Agreement.
13. The parties agree that neither shall issue any public statement
or communication regarding this Agreement or the transactions
contemplated in this Agreement, except for such disclosures as
are required to comply with applicable law, without the consent
of the other, which consent shall not be unreasonably withheld
or delayed.
14. If either party retains counsel to represent it in connection
with a dispute concerning whether the other party is properly
fulfilling its obligations in accordance with the provisions of
this Agreement, the prevailing party shall be entitled to
reimbursement of all counsel fees and expenses reasonably
incurred. In addition, if the court finds that any amounts due
hereunder were not paid when due, then they shall award
interest on such amounts from the date due at an annual rate
equal to the prime rate charged from time to time by Citibank,
N.A., or any successor thereto, plus four percentage points.
Neither Company nor the Executive shall have any right to
offset any amounts owed by the other hereunder or claimed to be
owed to such party, whether pursuant to this Agreement or
otherwise, in any litigation brought to enforce the provisions
of this Agreement. In connection with any action or proceeding
for breach of this Agreement brought by either party (whether
at law or for equitable relief), neither party shall assert, by
way of defense, offset or counterclaim (or through
consolidation of claims), any claims against the other party
based upon any agreements, transactions or conduct, other than
conduct amounting to Cause (as said term is defined in the
Employment Agreement); provided, however, that nothing herein
shall be construed to prohibit either party from asserting any
mandatory counterclaim or to cause the waiver by any party of
any claim.
15. If any provision of this Agreement is held invalid in whole or
in part, such invalidity shall not affect any other provision
of this Agreement not held so invalid, and each such other
provision shall to the full extent consistent with law continue
in full force and effect.
16. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in
writing and if sent by registered or certified mail to the
Executive at the address set forth in this Agreement or at the
last address he has filed in writing with the Company, with a
copy to Warsaw Burstein Cohen Schlesinger & Kuh, LLP, 555 Fifth
Avenue, New York, NY 10017, Attention: Arthur Katz, or, in the
case of the Company, to the Company at its headquarters
address, Attention: Chief Executive Officer, with a copy to
Martin L. Budd, Esq., at Day, Berry & Howard, CityPlace I,
Hartford, Connecticut 06103.
17. This Agreement contains the entire understanding between the
parties hereto with respect to the matters contained herein,
supersedes all prior understandings relating thereto, and may
not be amended except in writing. No waiver shall be effective
hereunder unless in writing.
18. This Agreement shall be binding upon and shall enure to the
benefit of the parties and their respective successors,
administrators, legatees, and assigns.
19. The validity, construction and performance of this Agreement
shall be governed by the internal laws of the State of New
York, without reference to conflict of laws rules.
20. This Agreement shall be of no force and effect unless executed
by both parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hand and executed this
Agreement as of the day and year first set forth above.
FORSTMANN & CO.,INC.
By: /s/ F. D. Matheson
---------------------------------
Name: F. D. Matheson
Title: Executive Vice President
By:/s/ Christopher L. Schaller
--------------------------------
Christopher L. Schaller
Exhibit 10.5(e)
SEPARATION AND GENERAL RELEASE AGREEMENT
This Separation and General Release Agreement ("the
Agreement") is made as of the 1st day of February, 1996, between Forstmann and
Company, Inc., a Georgia Corporation ("Company"), and Richard Pactor
("Employee").
W I T N E S S E T H
WHEREAS, Employee was employed by the Company and, if
applicable, its predecessors from December 20, 1988 until March 22, 1996; and
WHEREAS the Company and Employee desire to enter into
this Agreement to resolve any disputes relating to Employee's employment or
the termination of Employee's employment with the Company or other matters as
set forth herein;
NOW, THEREFORE, in consideration of the above premises
and mutual covenants and agreements contained herein, the parties hereto agree
as follows:
1. Employee acknowledges, understands and agrees that his
employment with the Company will be completely and finally terminated on March
22, 1996, due to job elimination.
2. Employee hereby represents and acknowledges that as a
result of his employment with the Company he may have in his possession and
control proprietary documents, data, materials, files or similar items
concerning Confidential Information (as defined herein) of the Company, and
keys, credit cards and other property of the Company, and Employee
acknowledges, warrants and agrees that he will deliver to the Company all such
items and any copies or excerpts thereof and any other properties, files or
documents obtained as a result of his employment with the Company, by 5:00
p.m., March 22, 1996, and that he has held all proprietary information in
trust and strictest confidence and will continue to do so in accordance with
Section 6 of this Agreement. Confidential Information shall mean any and all
data and information relating to the business of the Company (whether
constituting a trade secret or not) which is or has been disclosed to the
Employee or of which the Employee became aware as a consequence of or through
his employment with the Company, and which has value to the Company and is not
generally known by its competitors. Confidential Information may include, but
is not limited to, information relating to the Company's financial affairs,
strategic plans, products, processes, services, customers, customer lists,
employees, employees' compensation, research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing and sales.
3. Employee agrees that during the severance period (as
defined in Section 9 of this Agreement) he will not, either on his own behalf
or as an employee, agent, consultant or director, disparage the Company with
its vendors or customers or otherwise interfere with the Company's business
relationship with its vendors and customers.
4. Employee, for himself and his administrators, heirs and
assigns, hereby forever releases, waives and discharges the Company, its
affiliated corporations, stockholders, officers, directors, employees, agents,
heirs, legal representatives, predecessors, successors, affiliates, assigns
and transferees, whether past, present or future, ("Released Parties") from
any and all actions, demands, causes of action, suits, damages, debts, claims,
counterclaims, obligations, judgments and liabilities of whatever nature,
including costs and attorneys' fees, whether known or unknown, including, but
not limited to, all claims arising out of Employee's employment with the
Company or the termination of Employee's employment with the Company,
including, but not limited to, any claim for bonus, severance or other
benefits apart from the benefits stated herein, breach of contract, wrongful
discharge, impairment of economic opportunity, any claims under common law or
at equity, any tort, claims for reimbursements, claims for commissions or
claims for employment discrimination under any state, federal or local law,
statute or regulation, other than any claim arising under Employee's
EMPLOYMENT AGREEMENT dated December 16, 1993. Notwithstanding the foregoing,
Employee shall not waive any rights that he may have to enforce the terms of
this Agreement, or the obligations of the Company under Section 9(e) of
Employee's EMPLOYMENT AGREEMENT as a result of his termination for a reason
other than "cause" (as such term is defined in the EMPLOYMENT AGREEMENT).
Employee acknowledges and agrees that this release, the release contained in
Section 5 of this Agreement, and the covenant not to sue set forth in Section
7 of this Agreement are essential and material terms of this Agreement and
that, without such releases and covenant not to sue, no Agreement would have
been reached by the parties and no benefits would have been paid. Employee
understands and acknowledges the significance and consequences of this release
and this Agreement, that he has had sufficient time to consider the terms
provided for in this Agreement, that no representations or inducements have
been made to him except as set forth herein, and that he has signed the same
KNOWINGLY AND VOLUNTARILY.
5. EMPLOYEE SPECIFICALLY WAIVES AND RELEASES THE COMPANY
AND ALL OF THE OTHER RELEASED PARTIES FROM ALL CLAIMS OR RIGHTS ARISING UNDER
THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, 29
U.S.C.section621, ("ADEA") WHICH HE MAY HAVE AS OF THE DATE HE SIGNED THIS
AGREEMENT. NEITHER THIS SECTION NOR ANY OTHER PROVISION OF THIS AGREEMENT
SHALL WAIVE RIGHTS OR CLAIMS THAT MAY ARISE UNDER THE ADEA AFTER THE DATE
EMPLOYEE SIGNS THIS AGREEMENT. EMPLOYEE AGREES THAT THIS AGREEMENT PROVIDES
BENEFITS TO WHICH HE IS NOT OTHERWISE ENTITLED, THAT THE COMPANY HAS ADVISED
EMPLOYEE TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT, AND THAT
EMPLOYEE HAS CONSULTED COMPETENT COUNSEL OF HIS OWN SELECTION PRIOR TO SIGNING
THIS AGREEMENT. EMPLOYEE HAS BEEN PROVIDED TWENTY-ONE (21) DAYS WITHIN WHICH
TO CONSIDER WHETHER HE SHOULD SIGN THIS AGREEMENT AND WAIVE AND RELEASE ALL
CLAIMS AND RIGHTS ARISING UNDER ADEA. EMPLOYEE SHALL HAVE SEVEN (7) DAYS
WITHIN WHICH TO REVOKE THIS AGREEMENT AFTER HE SIGNS IT, AND THIS AGREEMENT
SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT REVOCATION PERIOD HAS
EXPIRED.
6. Employee agrees that he will neither discuss nor reveal
to any third party, but has held in the trust and strictest confidence and
will continue to do so for a period of twenty-four (24) months from the
Employee's termination, any and all Confidential Information he has held.
7. To the maximum extent permitted by law, Employee agrees
that neither he nor any person or organization on his behalf will institute,
or permit or cause to be instituted, any action against any of the Released
Parties, including, but not limited to, any action based on any of the claims
released in Sections 4 or 5 of this Agreement; provided, however, that not
withstanding the foregoing, Employee shall not waive any rights that he may
have to seek legal or equitable relief solely to enforce the terms of this
Agreement.
8. Employee agrees that he will not discuss or review any
of the details of this Agreement or his termination of employment with anyone
other than his attorney, accountant and immediate family, all of whom shall be
bound to maintain the confidentiality of the details of this Agreement. A
breach by any of the aforesaid persons of the confidentiality obligation shall
be deemed a breach of this Agreement by Employee. The Company shall make a
good faith determination as to whether a breach of confidentiality has
occurred.
9. In consideration and as material inducement for
Employee's signing of this Agreement, the Company will:
(a) Make a vacation payment to Employee in the
gross amount of $20,211.60, which represents 20 days of unused vacation, which
shall be payable on the last payroll date after March 22, 1996, less
deductions required by law or authorized by Employee;
(b) Subject to Employee's continued
authorization of payroll deductions in accordance with the contribution
schedule, Employee's coverage in the Company's group health and life insurance
plans shall continue through March 22, 1996, without prejudice to Employee's
COBRA coverage rights thereafter; and
(c) Employee's coverage in the Company's long-
term disability plan will be terminated on March 22, 1996;
10. In case one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, the same shall not affect any other provisions in this
Agreement, but this Agreement shall be construed as if such invalid or illegal
or unenforceable provisions had never been contained herein.
11. This Agreement embodies the entire agreement of the
parties hereto relating to the subject matter hereof. Employee agrees that
neither the Company nor its agents, representatives or employees have made any
representations to him concerning the terms or effects of this Agreement,
other than those contained in this Agreement. No amendment or modification of
this Agreement shall be valid or binding upon the parties unless made in
writing and signed by the parties hereto.
12. It is intended that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought. This
Agreement shall be binding upon the parties hereto and their respective heirs,
representatives, successors, transferees and assigns.
13. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
14. Employee agrees that neither this Agreement nor
performance hereunder constitutes an admission by any of the Released Parties
of any violation of any federal, state or local law, regulations, common law,
breach of any contract or any other wrongdoing of any type.
15. Notwithstanding anything to the contrary hereinabove
provided, the Company shall have no obligation to make any payment provided
for in this Agreement if the Company terminates this Agreement for any breach
of this Agreement by Employee.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this
Agreement this day of , 199 .
Employee:
/s/ Richard Pactor
- ------------------
FORSTMANN & COMPANY, INC.
By:/s/Robert C. Christian
----------------------
Title: Vice President
--------------
Exhibit 10.5(f)
SEPARATION AND GENERAL RELEASE AGREEMENT
This Separation and General Release Agreement (the
"Agreement") is made as of the 12th day of March, 1996, between Forstmann and
Company, Inc., a Georgia Corporation ("Company"), and Fred D. Matheson
("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed by the Company and,
if applicable, its predecessors since October 17, 1990, and is currently
employed by the Company pursuant to that certain Employment Agreement, dated
December 16, 1993, between the Company and Employee (the "Employment
Agreement"); and
WHEREAS, the Company has decided to terminate Employee's
employment with the Company pursuant to the Employment Agreement for a reason
other than "cause" as defined therein, effective as of April 23, 1996; and
WHEREAS, the Company and the Employee have agreed that
the Employee's employment with the Company will terminate on April 23, 1996,
subject to the terms and conditions set forth below; and
WHEREAS, the Company and Employee desire to enter into
this Agreement to resolve any disputes relating to Employee's employment or
the Company's termination of Employee's employment with the Company or other
matters as set forth herein;
NOW THEREFORE, in consideration of the above premises
and mutual covenants and agreements contained herein, the parties hereto agree
as follows:
1. Employee acknowledges, understands and agrees that
his employment with the Company will be completely and finally terminated on
April 23, 1996, due to a reason other than "cause", namely, job elimination.
Notwithstanding the above, Employee shall not be required to perform any
services or duties for the Company, whether pursuant to the Employment
Agreement or otherwise, during the period between March 13, 1996 and April 23,
1996.
2. Employee hereby represents and acknowledges that as
a result of his employment with the Company he may have in his possession and
control proprietary documents, data, material, files or similiar items
concerning Confidential Information (as defined herein) of the Company, and
keys, credit cards and other property of the Company, and Employee
acknowledges, warrants and agrees that he will deliver to the Company all such
items and any copies or excerpts thereof and any other properties, files or
documents obtained as a result of his employment with the Company, by 5:00
p.m., April 3, 1996. Employee agrees that he will hold all Confidential
Information in strictest confidence in accordance with Section 6 of this
agreement. Confidential Information shall mean any and all data and
information relating to the business of the Company (whether constituting a
trade secret or not) which is or has been disclosed to the Employee or of
which the Employee became aware as a consequence of or through his employment
with the Company, and which has value to the Company and is not generally
known by its competitors. Confidential Information may include, but is not
limited to, information relating to the Company's financial affairs, strategic
plans, products, processes, services, customers, customer lists, employees,
employees' compensation, research, development, inventions, manufacturing,
purchasing, accounting, engineering, marketing and sales. Notwithstanding the
foregoing, Confidential Information shall not include (i) information that is
generally known or available to the public through no fault of or breach of
any obligation by Employee or that is contained in governmental securtities of
bankruptcy filings, (ii) information that is independently developed or
learned by Employee outside his employment with the Company and (iii)
information rightfully obtained by Employee from a third party who has the
apparent right to make such disclosure.
3. Employee agrees that during the period
beginning on the date hereof and ending on April 23, 1996 he will not, either
on his own behalf or as an employee, agent, consultant or director, disparage
the Company its vendors or customers or otherwise interfere with the Company s
business relationship with its vendors or customers.
4. Employee, for himself and his
administrators, heirs and assigns, hereby forever releases, waives and
discharges the Company, its affiliated corporations, stockholders, officers,
directors, employees, agents, heirs, legal representatives, predecessors,
successors, affiliates, assigns and transferees, whether past, present or
future, ("Released Parties") from any and all actions, demands, causes of
action, suits, damages, debts, claims, counterclaims, obligations, judgments
and liabilities of whatever nature, including costs and attorneys' fees,
whether known or unknown, including, but not limited to, all claims arising
out of Employee's employment with the Company or the termination of Employee's
employment by the Company, including, but not limited to, any claim for bonus,
severance or other benefits apart from the benefits stated herein, breach of
contract, wrongful discharge, impairment of economic opportunity, any claims
under common law or at equity, any tort, claims for reimbursements, claims for
commissions or claims for employment discrimination under any state, federal
or local law, statute or regulation and specifically including any claim
arising under the Employment Agreement (including, but not limited, Section 7
and 9(e) thereof) and claims, if any, for the indemnification of Employee, as
a former officer of the Company, arising under (i) the provisions of the
Company's Cerificate of Incorporation or By-Laws, (ii) the Company's director
and officer liability insurance policies currently in effect or ineffect while
Employee was an officer of the Company, and (iii) any applicable state laws.
Notwithstanding the foregoing, Employee shall not waive any rights that he may
have to enforce the terms of this Agreement, or the obligations of the Company
under the Employment Agreement, including, but not limited to, Sections 7 and
9(e) thereof, as a result of his termination for a reason other than "cause"
(as such term is defined in the Employement Agreement). Employee acknowledges
and agrees that this release, the release contained in Section 5 of this
Agreement, and the covenant not to sue set forth in Section 7 of this
Agreement are essential and material terms of this Agreement and that, without
such releases and covenant not to sue, no Agreement would have been reached by
the parties and no benefits would have been paid. Employee understands and
acknowledges the significance and consequences of this release and this
Agreement, that he has had sufficient time to consider the terms provided for
in this Agreement, that no representations or inducements have been made to
him except as set forth herein, and that he has signed the same KNOWINGLY AND
VOLUNTARILY.
5. EMPLOYEE SPECIFICALLY WAIVES AND RELEASES
THE COMPANY AND ALL OF THE OTHER RELEASED PARTIES FROM ALL CLAIMS OR RIGHTS
ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, 29
U.S.C. 621, ("ADEA") WHICH HE MAY HAVE AS OF THE DATE HE SIGNED THIS
AGREEMENT. NEITHER THIS SECTION NOR ANY OTHER PROVISION OF THIS AGREEMENT
SHALL WAIVE RIGHTS OR CLAIMS THAT MAY ARISE UNDER THE ADEA AFTER THE DATE
EMPLOYEE SIGNS THIS AGREEMENT. EMPLOYEE AGREES THAT THIS AGREEMENT PROVIDES
BENEFITS TO WHICH HE IS NOT OTHERWISE ENTITLED, THAT THE COMPANY HAS ADVISED
EMPLOYEE TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT, AND THAT
EMPLOYEE HAS CONSULTED COMPETENT COUNSEL OF HIS OWN SELECTION PRIOR TO SIGNING
THIS AGREEMENT. EMPLOYEE HAS BEEN PROVIDED TWENTY-ONE (21) DAYS WITHIN WHICH
TO CONSIDER WHETHER HE SHOULD SIGN THIS AGREEMENT AND WAIVE AND RELEASE ALL
CLAIMS AND RIGHTS ARISING UNDER ADEA. EMPLOYEE SHALL HAVE SEVEN (7) DAYS
WITHIN WHICH TO REVOKE THIS AGREEMENT AFTER HE SIGNS IT, AND THIS AGREEMENT
SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE BEFORE THAT REVOCATION PERIOD HAS
EXPIRED.
6. Employee agrees that, for a period of
twenty-four (24) months from the Employee's termination, he will neither
discuss nor reveal to any third party and will hold in strictest confidence
any and all Confidential Information he holds.
7. To the maximum extent permitted by law,
Employee agrees that neither he nor any person or organization on his behalf
will institute, or permit or cause to be instituted, any action against any of
the Released Parties, including, but not limited to any action based on any of
the claims released in Section 4 and 5 of this Agreement; provided, however,
notwithstanding the foregoing, Employee shall not waive any rights that he may
have to seek legal or equitable relief to enforce the terms of this Agreement,
the obligations of the Company under the Employment Agreement and the
obligations of the Company, if any, for the indemnification of Employee, as a
former officer of the Company, pursuant to (i) the provisions of the Company's
Certificate of Incorporation or By-Laws, (ii) the Company's director and
officer liability insurance policies currently in effect or ineffect while
Employee was an officer of the Company or (iii) any applicable state law.
8. Employee agrees that he will not discuss
or review any of the details of this Agreement or his termination of
employment with anyone other than his attorney, accountant and immediate
family, all of whom shall be bound to maintain the confidentiality of the
details of this Agreement. Breach by any of the aforesaid persons of the
confidentiality obligation shall be deemed a breach of this Agreement by
Employee. The Company shall make a good faith determination as to whether a
breach of confidentiality has occurred.
9. In consideration and as material
inducement for Employee's signing of this Agreement, the Company will:
(a) On the effective date of this Agreement as provided
in Section 5 hereof, or on the next succeeding business day in the event the
effective date is not a business day (the "Payment Date"), make a vacation
payment to Employee in the gross amount of $19,096.20 which represent 20 days
of unused vacation during 1996, less deductions required by law or authorized
by Employee;
(b) On the Payment Date, make a vaction payment to
Employee in the gross amount of $15,276.96, which represents 16 days of unused
vaction during 1995, less deductions required by law or authorized by
Employee;
(c) Subject to Employee's continued
authorization of payroll deductions in accordance with the contribution
schedule, continue Employee's coverage in the Company's group health and life
insurance plans through April 23, 1996, without prejudice to Employee's COBRA
health coverage rights thereafter;
(d) Continue Employee's coverage in the Company's long-
term disability plans through April 23, 1996; and
(e) Pay Employee compensation for a period from the
date first written above (the "Agreement Date") through April 23, 1996 as
follows: (i) on the Payment Date (and provided that Employee has not revoked
his acceptance of this Agreement), the Company shall pay Employee compensation
at his regular base rate of pay as in effect on the Agreement Date for the
period from the Agreement Date through Payment Date, and (ii) the Company
shall thereafter pay the remainder of such compensation in accordance with its
regular payroll practices.
10. If the Company fails to make the payments specified
in subsections 9(a), (b) and (e) above to Employee on the Payment Date, this
Agreement shall be null and void and the Company shall promptly return the
original executed Agreement to Employee.
11. In case one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, the same shall not affect any other
provisions in this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable provisions had never been contained
herein. Notwithstanding the foregoing, if any one or more of the provisions in
Section 4 or Section 5 of this Agreement shall by held invalid, illegal, or
unenforceable in any respect as the direct or indirect result of a challenge
thereof by Employee, the Company may at its option declare this Agreement void
and the Employee shall, in such event, return immediately to the Company all
consideration paid to or for the benefit of Employee pursuant to Section 9(c)
through (e), in which event, the Company and the Employee shall be released
from all obligations under this Agreement after the date of such return.
12. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof, except
with respect to the Employee's rights pursuant to the Employment Agreement as
a result of the Company's termination of his Employment thereunder for reasons
other than "cause". Employee agrees that neither the Company nor its agents,
representatives or employees have made any representations to him concerning
the terms or effects of this Agreement, other than those contained in this
Agreement. No amendment or modification of this Agreement shall be valid or
binding upon the parties unless made in writing and signed by the parties
hereto.
13. It is intended that the provisions of this
Agreement shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Georgia. This Agreement shall be binding
upon the parties hereto and their respective heirs, representatives,
successors, transferees and assigns.
14. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which, when taken together, shall constitute one agreement.
15. Employee agrees that neither this
Agreement nor performance hereunder constitutes an admission by any of the
Released Parties of any violation of any federal, state or local law,
regulations, common law, breach of any contract or any other wrongdoing of any
type, provided, however, that the foregoing shall in no way affect the nature
of the Company's termination of the Employee's employment pursuant to the
Employment Agreement for reasons other than "cause".
16. Notwithstanding anything to the contrary
hereinabove provided, the Company shall have no obligation to make any payment
provided for in this Agreement if a court of competent jurisdiction determines
that this Agreement was breached by Employee.
17. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the dates indicate below.
Employee:
/s/Fred D. Matheson Date: April 26, 1996
- -------------------
Name: Fred D. Matheson
FORSTMANN & COMPANY, INC.
By:/s/ Rodney Peckham Date: April 26, 1996
--------------------
Name: Rodney Peckham
Title: Chief Financial Officer
Exhibit 10.5(g)
SEPARATION AND GENERAL RELEASE AGREEMENT
This Separation and General Release
Agreement (the "Agreement") is made as of the 10th day of October, 1996,
between Forstmann and Company, Inc., a Georgia Corporation ("Company"), and
Peter M. Roaman ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed
by the Company and, if applicable, its predecessors since June 1, 1989; and
WHEREAS, the Company terminated
Employee's employment on August 14, 1996;
WHEREAS, the Company and Employee
desire to enter into this Agreement to resolve any disputes relating to
Employee's employment or the termination of Employee's employment with the
Company or other matters as set forth herein;
NOW THEREFORE, in consideration of
the above premises and mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1. Employee acknowledges that the
Company terminated his employment on August 14, 1996.
2. Employee hereby represents and
acknowledges that as a result of his employment with the Company he may have
in his possession and control Confidential Information (as defined herein) of
the Company, and keys, credit cards and other property of the Company.
Employee represents and warrants that he has delivered to the Company all such
items and any copies or excerpts thereof and any other properties, files or
documents obtained by him as a result of his employment with the Company, and
that he has held all Confidential Information in trust and strictest
confidence and, except as required by law or judicial process, will continue
to do so in accordance with Section 6 of this Agreement. Confidential
Information shall mean any and all data and information relating to the
business of the Company (whether constituting a trade secret or not) which is
or has been disclosed to the Employee or of which the Employee became aware as
a consequence of or through his employment with the Company, and which has
value to the Company and is not generally publicly available as of the date
hereof and has not become publicly available (other than by a breach of
Employee's obligations hereunder) after the date hereof. Confidential
Information includes, but is not limited to, information relating to the
Company's financial affairs, strategic plans, products, processes, services,
customers, employees, employees' compensation, research, development,
inventions, manufacturing, purchasing, accounting, engineering, marketing and
sales. Employee shall notify the Company immediately in writing of any
subpoena, court or administrative order, or any other action purporting or
seeking to require the disclosure of Confidential Information, and shall, to
the extent reasonably requested by the Company, cooperate with the Company's
efforts to obtain protective orders or otherwise preserve the confidentiality
of such information.
3. Employee agrees that during the
Severance Period (as defined in Section 9 of this Agreement) he will not,
either on his own behalf or as an employee, agent, consultant or director,
disparage the Company with any of its vendors or customers or otherwise
interfere with the Company's business relationship with its vendors and
customers, and Employee represents and warrants that he has not engaged in
such conduct prior to the date hereof.
4. Employee, for himself and his
administrators, heirs and assigns, hereby forever releases, waives and
discharges the Company, its affiliated corporations, stockholders, officers,
directors, employees, agents, heirs, legal representatives, predecessors,
successors, affiliates, assigns and transferees, whether past, present or
future, ("Released Parties") from any and all actions, demands, causes of
action, suits, damages, debts, claims, counterclaims, obligations, judgments
and liabilities of whatever nature, including costs and attorneys' fees,
whether known or unknown (collectively, "Claims"), relating to circumstances
arising prior to the date of this Agreement, including, but not limited to,
all Claims arising out of Employee's employment with the Company or the
termination of Employee's employment with the Company, including, but not
limited to, any Claim for bonus, severance or other benefits apart from the
benefits stated herein, breach of contract, wrongful discharge, impairment of
economic opportunity, any Claims under common law or at equity, any tort,
Claims for reimbursements, Claims for commissions or Claims for employment
discrimination under any state, federal or local law, statute or regulation
and specifically including any Claim arising under Employee's EMPLOYMENT
AGREEMENT dated December 16, 1993 (the "Employment Agreement").
Notwithstanding the foregoing, Employee shall not waive any rights that he may
have to enforce the terms of this Agreement or any stipulation contemplated
hereby. Employee acknowledges and agrees that this release, the release
contained in Section 5 of this Agreement, and the covenant not to sue set
forth in Section 7 of this Agreement are essential and material terms of this
Agreement and that, without such releases and covenant not to sue, no
Agreement would have been reached by the parties and no benefits would have
been paid. Employee understands and acknowledges the significance and
consequences of this release and this Agreement, that he has had sufficient
time to consider the terms provided for in this Agreement, that no
representations or inducements have been made to him except as set forth
herein, and that he has signed the same KNOWINGLY AND VOLUNTARILY.
5. EMPLOYEE SPECIFICALLY WAIVES AND
RELEASES THE COMPANY AND ALL OF THE OTHER RELEASED PARTIES FROM ALL CLAIMS OR
RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS
AMENDED, 29 U.S.C. section621 ET SEQ., ("ADEA") WHICH HE MAY HAVE AS OF THE
DATE HE SIGNED THIS AGREEMENT. NEITHER THIS SECTION NOR ANY OTHER PROVISION
OF THIS AGREEMENT SHALL WAIVE RIGHTS OR CLAIMS THAT MAY ARISE UNDER THE ADEA
AFTER THE DATE EMPLOYEE SIGNS THIS AGREEMENT. EMPLOYEE AGREES THAT THIS
AGREEMENT PROVIDES BENEFITS TO WHICH HE IS NOT OTHERWISE ENTITLED, THAT THE
COMPANY HAS ADVISED EMPLOYEE TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS
AGREEMENT, AND THAT EMPLOYEE HAS CONSULTED COMPETENT COUNSEL OF HIS OWN
SELECTION PRIOR TO SIGNING THIS AGREEMENT. EMPLOYEE HAS BEEN PROVIDED TWENTY-
ONE (21) DAYS WITHIN WHICH TO CONSIDER WHETHER HE SHOULD SIGN THIS AGREEMENT
AND WAIVE AND RELEASE ALL CLAIMS AND RIGHTS ARISING UNDER THE ADEA. EMPLOYEE
SHALL HAVE SEVEN (7) DAYS WITHIN WHICH TO REVOKE THIS AGREEMENT AFTER HE SIGNS
IT, AND THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE BEFORE THAT
REVOCATION PERIOD HAS EXPIRED.
6. Employee agrees that he will neither
discuss nor reveal to any third party, but has held in trust and strictest
confidence and will continue to do so during the Severance Period and for a
period of twenty-four (24) months from the Employee's termination, any and all
Confidential Information he has held.
7. To the maximum extent permitted by
law, Employee agrees that neither he nor any person or organization on his
behalf will institute, or permit or cause to be instituted, any action against
any of the Released Parties based on or relating to any of the Claims released
hereunder; provided, however, that notwithstanding the foregoing, Employee
shall not waive any rights that he may have to seek legal or equitable relief
solely to enforce the terms of this Agreement.
8. Employee agrees that he will not,
except as required by law or judicial process, discuss or review any of the
details of this Agreement or his termination of employment with anyone other
than his attorney, accountant and immediate family, and that he will discuss
or review such details with such persons only to the extent such persons have
been advised of and have agreed to maintain the confidentiality of the details
of this Agreement. A breach by any of the aforesaid persons of the
confidentiality obligation shall be deemed a breach of this Agreement by
Employee. Employee will notify and cooperate with the Company in the manner
set forth in Section 2 above in the event of any action purporting or seeking
to require the disclosure of information described in this section.
9. In consideration and as material
inducement for Employee's signing of this Agreement,
(a) the Company will:
(i) Make severance payments to Employee
in the total gross amount of $34,283.06, in respect of the period from August
15, 1996 through October 2, 1996 (the "Severance Period"), less deductions
required by law or authorized by the Employee, which shall be payable no later
than the Company's first payroll date that occurs at least three business days
after the expiration of the revocation period described in Section 5 above.
Employee acknowledges and agrees that he has already received $2,392.53 of
this sum;
(ii) Subject to Employee's continued
authorization of payroll deductions in accordance with the applicable
contribution schedule, continue Employee's coverage in the Company's group
health and life insurance plans through October 2, 1996, without prejudice to
Employee's COBRA health coverage rights thereafter;
(iii) On the Company's first regularly
designated payroll date that occurs at least three business days after the
Effective Date (as defined in Section 11) (the "Payment Date"), make an
additional lump sum payment to Employee in the gross amount of $66,670.79,
less deductions required by law or authorized by Employee; and
(b) the Company and Employee hereby
stipulate and agree that Employee has an allowed general unsecured nonpriority
pre-petition claim against the Company's estate in bankruptcy in respect of
the Employment Agreement in the amount of $247,600.00 (the "Unsecured Claim").
The Company and Employee further stipulate and agree that the Unsecured Claim
is unconditional (except as specifically provided in this Agreement), shall
not be subject to deduction or withholding, and shall be freely and
unconditionally transferable by Employee.
10. In case one or more of the
provisions contained in this Agreement (other than Sections 4 and 5 hereof)
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions in this Agreement, but this Agreement shall be construed as
if such invalid or illegal or unenforceable provisions had never been
contained herein. If Employee shall assert that any one or more of the
provisions contained in Section 4 or Section 5 of this Agreement is invalid,
illegal, or unenforceable in any respect, and any such provision is held by a
tribunal of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the Company may at its option declare this Agreement void and the
Employee shall, in such event, return immediately to the Company all
consideration paid to or for the benefit of Employee pursuant to Section 9(a)
and shall pay immediately to the Company a cash amount equal in value to the
Purchase Price (as defined in Section 12) in respect of the Unsecured Claim.
A Company declaration pursuant to the foregoing sentence shall not affect the
validity of the Unsecured Claim.
11. Within one week following Employee's
delivery to the Company of a fully-executed copy of this Agreement, the
Company shall file with the United States Bankruptcy Court for the Southern
District of New York (the "Court") a motion for approval of the Company
payments hereunder and the Unsecured Claim (the "Motion"). The Company shall
use its best efforts to persuade the Court to grant such approval. Provided
that Employee has not revoked his acceptance of this Agreement, this Agreement
shall become effective upon the later of the date the Motion is granted and
the date on which the revocation period described in Section 5 expires (such
later date being referred to herein as the "Effective Date"). This Agreement
(including the Unsecured Claim) shall be void in its entirety if such Court
approval is denied, or if such approval is not granted within forty-five (45)
days from the date on which the Employee delivers an executed copy of this
Agreement to the Company.
12. Employee represents that,
simultaneously with the execution and delivery of this Agreement, Employee is
entering into an Assignment of Claim agreement (the "Assignment") with one or
more buyers (collectively, the "Buyer") pursuant to which Employee is selling,
transferring and assigning to Buyer all of Employee's right, title to and
interest in the Unsecured Claim for a cash purchase price (the "Purchase
Price") specified in a letter heretofore delivered to the Company by or on
behalf of Employee. Notwithstanding anything herein to the contrary, if the
Assignment is not consummated on or before the Payment Date, Employee may at
his option, by written notice delivered to the Company no later than the
second business day following the Payment Date, declare this Agreement null
and void. In such event Employee shall return immediately to the Company all
consideration paid to or for the benefit of Employee pursuant to Section 9
and, upon such return, this Agreement and the Unsecured Claim shall be null
and void and neither party shall have any further obligations to the other
hereunder.
13. Employee shall be solely responsible
for, and shall indemnify the Company from and against, any and all federal,
state and local income, FICA and other tax liabilities incurred by Employee in
respect of amounts payable under or in connection with this Agreement
(including but not limited to any such liabilities arising in connection with
the granting of the Unsecured Claim).
14. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof.
Employee agrees that neither the Company nor its agents, representatives or
employees have made any representations to him concerning the terms or effects
of this Agreement, other than those contained in this Agreement. No amendment
or modification of this Agreement shall be valid or binding upon the parties
unless made in writing and signed by the parties hereto.
15. It is intended that the provisions
of this Agreement shall be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. This Agreement shall be binding upon the parties hereto and their
respective heirs, representatives, successors, transferees and assigns.
16. This Agreement may be executed in
any number of counterparts, each of which shall constitute an original and all
of which, when taken together, shall constitute one agreement.
17. Employee agrees that neither this
Agreement nor performance hereunder constitutes an admission by any of the
Released Parties of any violation of any federal, state or local law,
regulations, common law, breach of any contract or any other wrongdoing of any
type.
18. Notwithstanding anything to the
contrary hereinabove provided, the Company shall have no obligation to make
any payment provided for in this Agreement if the Company terminates this
Agreement for any material breach of this Agreement by Employee. In the event
of such breach and termination, the Company shall be entitled to pursue all
legal and equitable remedies available to it, except that the validity of the
Unsecured Claim shall be unaffected and the Company's rights in respect of
such Unsecured Claim shall be limited to recovery from Employee of an amount
equal in value to the Purchase Price.
19. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without regard to principles of conflict of laws.
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the year and date first above written.
Employee:
/s/ Peter Roaman
- -----------------
Dated: October 10, 1996
----------------
FORSTMANN & COMPANY, INC.
By: /s/ Robert N. Dangremond
------------------------
Title: President and CEO
-----------------
Exhibit 10.8
Forstmann & Company, Inc.
Incentive Compensation and Retention Program
Effective as of November 14, 1996
Section 1. Purpose.
The purposes of the Program are to
(i) encourage key employees to remain with the Company and work to benefit the
Company and its critical constituencies; and (ii) to protect key employees
from a Change in Control and related termination without Cause of employment
for a limited period of time.
Section 2. Definitions.
2.1. Definitions. Whenever used herein,
the following terms shall have the respective meanings set forth below:
"Administrator" means the Board,
except that the Board may delegate any or all of its responsibilities
hereunder to the Chief Executive Officer, the Chief Financial Officer or any
other officer of the Company as it shall determine and, to the extent
delegated, such officer shall be treated as the Administrator. Notwith-
standing the foregoing, in no event shall any such officer have the authority
to determine issues related to such officer's participation in the Plan
without the approval of the Board.
"Base Salary" means an employee's
annual base salary paid by the Company to such employee prior to deductions
relating to (i) any amounts deferred under any plan or program sponsored by
the Company or (ii) an election between benefits or cash provided under a plan
or program of the Company maintained pursuant to Section 125 or 401(k) of the
Internal Revenue Code of 1986, as amended.
"Board" means the Board of Directors
of the Company.
"Cause" means (i) an employee's
conviction of a felony or the entering by an employee of a plea of nolo
contendere to a felony charge, (ii) an employee's gross negligence,
dishonesty, willful malfeasance or gross misconduct in connection with his
employment by the Company or its subsidiaries, (iii) an employee's willful
engagement in any activity competitive with the business of the Company as to
which the Company has notified the employee in writing and the employee has
not ceased (other than for reasons beyond the control of the employee) within
five business days following such notice his or her participation in such
activity, (iv) an employee's willful and wrongful disclosure of confidential
information of the Company or its subsidiaries or (v) an employee's failure to
follow reasonable directions or instructions of a more senior officer which
are consistent with the employee's position and responsibilities as of the
date of his or her initial participation in the Program (as such position and
responsibilities may be changed from time to time with the prior consent of
the employee), and such failure shall have continued (other than for reasons
beyond the control of the employee) for a period of three business days after
receipt of written notice thereof from the Company.
"Change in Control" means the
happening of any of the following:
(i) Upon the acquisition by any person, entity
or "group", within the meaning of Section
13(d) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"),
other than the Company, its majority owned
subsidiaries or any employee benefit plan
of the Company or its subsidiaries, of
beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of either the
then outstanding shares of stock or the
combined voting power of the Company's
then outstanding voting securities
entitled to vote generally in the election
of directors;
(ii) If individuals who constitute the Board as
of the date hereof (the "Incumbent Board")
cease for any reason to constitute at
least a majority of the Board, provided
that any person becoming a director
subsequent to the date hereof whose
election, or nomination for election by
the Company's shareholders, was approved
by a vote of at least a majority of the
directors then comprising the Incumbent
Board (other than an election or
nomination of an individual whose initial
assumption of office is in connection with
the actual or threatened election contest
relating to the election of the Directors
of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for
purposes of this Agreement, considered as
though such person were a member of the
Incumbent Board;
(iii) Upon the consummation of (A) any merger or
consolidation, in each case, with respect
to which persons who were shareholders of
the Company immediately prior to such
reorganization, merger or consolidation do
not, immediately thereafter, own more than
50% of the combined voting power entitled
to vote generally in the election of
directors of the reorganized, merged or
consolidated company or (B) the sale of
all or substantially all of the assets of
the Company;
(iv) If for any reason the individual who
serves as the Company's Chief
Executive Officer as of the date
hereof ceases to serve in such
capacity or the duties and
responsibilities (including, without
limitation, direct reports) of such
individual are modified or reduced
in any substantial respect; or
(v) If an order of the Bankruptcy Court
is entered by the clerk of the
Bankruptcy Court confirming the
Company's Plan of Reorganization.
"Company" means Forstmann & Company,
Inc.
"Confirmation Date" means the date
on which the clerk of the Bankruptcy Court enters the order of the Bankruptcy
Court confirming the Company's Plan of Reorganization.
"Designated Employee" means an
employee of the Company listed in Tier I or II on Schedule A hereto on the
date of such employee's termination of employment with the Company.
"Effective Date" means the date on
which the Company's Plan of Reorganization becomes effective.
"Participant" means an employee of
the Company listed on Schedule A attached hereto. Notwithstanding anything
else herein to the contrary, only Designated Employees shall be eligible to
receive Termination Awards.
"Program" means the Forstmann &
Company, Inc. Incentive Compensation and Retention Program.
2.2. Gender and Number. Except when
otherwise indicated by the context, words in the masculine gender used in the
Program shall include the feminine gender, the singular shall include the
plural, and the plural shall include the singular.
Section 3. Types of Awards.
Participants in the Program shall be
eligible for two types of payments under the Program: a Confirmation Bonus
and a Discretionary Bonus. In addition, Participants who are Designated
Employees shall be eligible for a Termination Award under the Program. These
three types of awards are described below.
3.1. Confirmation Bonus.
(a) Eligibility. Those employees
eligible to receive a Confirmation Bonus are listed on Schedule A attached
hereto. Each such employee has been assigned to Tier I, II or III. The
maximum level of Confirmation Bonus for each Tier is as follows:
Tier I $50,000
Tier II $30,000
Tier III $20,000
(b) Bonus Pool. The aggregate
amounts payable to Participants as Confirmation Bonuses shall be determined by
the size of the Bonus Pool. The size of the Bonus Pool shall be determined by
the Company in its sole and absolute discretion. In no event, however, shall
the Bonus Pool exceed $990,000.
(c) Bonus Levels. If the maximum
Bonus Pool of $990,000 is awarded, each Participant will receive the target
level Confirmation Bonus specified next to his or her name on Schedule A. If
a Bonus Pool of less than the maximum is achieved, the Confirmation Bonus
payable to each Participant shall be reduced prorata. For example, if the
Bonus Pool is $495,000 (or 50% of the maximum Bonus Pool of $990,000) then
each Participant who would receive a Confirmation Bonus equal to 50% of the
target level Confirmation Bonus specified next to his or her name on Schedule
A.
(d) Payment Dates. The
Confirmation Bonus payable to a Participant hereunder shall be paid in two
installments, 50% one month after the Effective Date and 50% six months after
the Effective Date. Only Participants in the Company's employ on such dates
or whose employment was terminated by the Company subsequent to the
Confirmation Date for any reason other than Cause or whose employment was
terminated subsequent to the Confirmation Date as a result of the employee's
death or disability will be eligible to receive payment.
3.2. Discretionary Bonus. In addition to
any Confirmation Bonus payable hereunder, the Company's Chief Executive
Officer may award an additional Discretionary Bonus to any Participant
included in Tier I, II, III or IV (see Schedule A). The total of the
Discretionary Bonuses available to be awarded shall not exceed $510,000 (plus
any portion of the Confirmation Bonus Pool not paid to Participants as a
result of the ineligibility of one or more Participants pursuant to Section
3.1(d)). The Company's Chief Executive Officer shall award Discretionary
Bonuses hereunder based upon the individual performance of a Participant, and
shall consult with the Board in connection therewith. No Participant shall be
entitled to any Discretionary Bonus as a matter of right; such Discretionary
Bonus shall be awarded at the complete discretion of the Company's Chief
Executive Officer after consultation as aforesaid. Award and payment of any
Discretionary Bonus shall be made in the same manner and at the same time as
the Confirmation Bonuses.
3.3 Termination Awards.
(a) Eligibility. Those Designated
Employees whose employment with the Company is terminated by the Company
without Cause after a Change in Control shall be eligible to receive a
Termination Award and shall be Participants for purposes of this Section 3.3.
(b) Amount of Award. A
Participant shall receive a Termination Award equal to one and a half times
his Base Salary. Payment of such Termination Award shall be in lieu of any
severance payment under any other plan or program maintained by the Company
(including, without limitation, the Severance Plan for Salaried Employees of
Forstmann & Company, Inc.) and shall be in complete satisfaction of the
Company's obligation to the Participant. Any Participant eligible to receive
a Termination Award must explicitly waive any right to such severance payments
as a condition to receipt of the Award. In addition, such Termination Award
shall be reduced by the amount of any other payment received by the
Participant in respect of the termination of his or her employment pursuant to
any employment contract between the Company and the Participant or otherwise.
(c) Payment Date. A Participant's
Termination Award shall be paid to such Participant no later than three
business days following the date of his termination with the Company.
(d) Duration. Designated
Employees shall be eligible for Termination Awards until the second
anniversary of the Confirmation Date.
Section 4. General Provisions.
4.1. Administration.
The administration of the Program
shall be supervised by the Administrator. The Administrator may delegate
responsibility for the day to day administration of the Program to such
employees of the Company as it shall designate from time to time.
The Administrator shall interpret
and construe any and all provisions of the Program and any determination made
by the Administrator under the Program shall be final and conclusive. Neither
the Board nor the Administrator, nor any member of the Board, nor any employee
of the Company shall be liable for any act, omission, interpretation,
construction or determination made in connection with the Program (other than
acts of willful misconduct) and the members of the Board and the Administrator
and the employees of the Company shall be entitled to indemnification and
reimbursement by the Company to the maximum extent permitted at law in respect
of any claim, loss, damage or expense (including counsel's fees) arising from
their acts, omissions and conduct in their official capacity with respect to
the Program (other than acts of willful misconduct).
4.2. Amendment and Termination.
The Board may at any time amend,
suspend, discontinue or terminate the Program; provided, however, that no such
amendment, suspension, discontinuance or termination shall adversely affect
the rights of any employee to the Confirmation Bonus or Termination Award
described herein. In the event of a change in the Federal or estate tax laws,
regulations or rulings affecting the continued appropriateness of deferred
awards under the Program, the Board may, in its sole discretion, accelerate
the rate of payment or distribution of any amounts payable to any Participant.
4.3. Designation of Beneficiary.
Each Participant entitled to
payments hereunder may designate a beneficiary or beneficiaries (which
beneficiary may be an entity other than a natural person) to receive any
payments to be made following the Participant's death. Such designation may
be changed or cancelled at any time without the consent of any such
beneficiary. Any such designation, change or cancellation must be made on a
form provided for that purpose by the Administrator and shall not be effective
until received by the Administrator. If no beneficiary has been named, or the
designated beneficiary or beneficiaries shall have predeceased the Partici-
pant, the beneficiary shall be the Participant's spouse or, if no such spouse
shall survive the Participant, the Participant's estate. If a Participant
designates more than one beneficiary, payments to such beneficiaries shall be
made in equal shares, unless the Participant has designated another allocation
of such payments.
4.4. Miscellaneous.
(a) No Right of Continued
Employment. Nothing in this Program shall be construed as conferring upon any
employee any right to continue in the employment of the Company or any of its
subsidiaries or affiliates.
(b) No Claim to Particular Assets.
The obligations of the Company under this Program shall not be construed as
giving any employee, his beneficiaries or any other person any equity or other
interest of any kind in the assets of the Company or any of its subsidiaries
or affiliates or creating a trust or fiduciary relationship between the
Company and any other such person. As to any claim for payment under the
Program, an employee, his beneficiaries and any other person having a claim
for payment shall be an unsecured creditor of the Company.
(c) No Limitation on Corporate
Actions.
Nothing contained in the Program shall be construed to prevent the Company or
any subsidiary or affiliate from taking any corporate action which is deemed
by it to be appropriate or in its best interest, whether or not such action
would have an adverse effect on the Program or any awards made under the
Program. No employee, beneficiary or other person shall have any claim
against the Company or any of its subsidiaries or affiliates as a result of
any such action.
(d) Nonalienation of Benefits. No
employee or his beneficiaries shall have the power or right to transfer,
anticipate, or otherwise encumber the employee's interest in the Program in
advance of the time such interest is payable hereunder. The Company's
obligations under this Program are not assignable or transferable except to a
corporation which acquires all or substantially all of the Company's assets of
the Company or any corporation into which the Company may be merged or
consolidated. The provisions of the Program shall inure to the benefit of
each employee and his beneficiaries, heirs, executors, administrators or
successors in interest.
(e) Withholding. Any amount paid
to an employee or his beneficiary under this Program shall be made net of any
applicable Federal, state and local income and employment taxes and any other
amounts that the employee's employer is required at law to deduct and withhold
from such payment.
(f) Severability. If any provision
of this Program (other than the second, third and fourth sentences of Section
3.3(b)) is held unenforceable, the remainder of the Program shall continue in
full force and effect without regard to such unenforceable provision and shall
be applied as though the unenforceable provision were not contained in the
Program.
(g) Governing Law. The Program
shall be construed in accordance with and governed by the laws of the State of
Georgia, without reference to the principles of conflict of laws.
(h) Headings. Headings are
inserted in this Program for convenience of reference only and are to be
ignored in a construction of the provisions of the Program.
(i) Letter Agreement. The Program
shall be implemented and administered in a manner consistent with the terms of
the Letter, dated October 24, 1996, from Richard F. Hahn to Fred S. Hodara, a
copy of which is attached hereto as Exhibit A.
FORSTMANN & COMPANY, INC.
By:/s/ Robert N. Dangremond
------------------------
Witness:/s/ Linda Filippone
-------------------
Exhibit 10.10(m)
December 20, 1996
Mr. Robert N. Dangremond
Jay Alix & Associates
575 Fifth Avenue
21st Floor
New York, New York 10017
Second Amendment to Agreement for
Financial Consulting Services
Dear Mr. Dangremond:
This letter amends the Agreement for Financial Consulting
Services, dated July 31, 1995, between Forstmann & Company, Inc. and Jay Alix
& Associates, as amended by the Letter, dated August 18, 1995.
The second paragraph of page 4 of the Agreement is hereby
amended by deleting the paragraph in its entirety and inserting the following:
In addition to the fees set forth above, upon the occurrence
of the effective date of any plan of reorganization in the
Company's Chapter 11 case currently pending before the
Bankruptcy Court for the Southern District of New York, JA&A
will be entitled to receive a performance fee equal to the sum
of (a) $400,000 in cash, plus (b) cash, securities or other
property in the amount and of the type that would be received
pursuant to such plan of reorganization by a person holding an
unsecured claim against the Company allowed in the amount of
$600,000. The cash payment due under clause (a) of the first
sentence of this paragraph shall be paid in two equal
installments on the effective date of such plan of
reorganization and on the date which is six months after such
effective date. The cash, securities or other property due
under clause (b) of the first sentence of this paragraph shall
be paid on such effective date.
This letter shall not become effective until it has been
approved by the Bankruptcy Court.
If these terms meet with your approval, please sign and return
the enclosed copy of this letter.
Sincerely yours
FORSTMANN & COMPANY, INC.
/s/ F. Peter Libassi
F. Peter Libassi
Chairman of the Board
ACKNOWLEGED AND AGREED TO:
JAY ALIX & ASSOCIATES
By:/s/ Robert N. Dangremond
------------------------
Robert N. Dangremond
Exhibit 11.1
Forstmann & Company, Inc.
Computation of Per Share Earnings
Fifty-Three
Weeks Ended
November 3, 1996
----------------
Loss applicable to common shareholders $ (17,844,000)
=============
Average common shares and common share
equivalents outstanding:
Average common shares outstanding 5,618,799
Add average common share equivalents -
options to purchase common shares, net -
Average common shares and common share
equivalents outstanding 5,618,799
Loss per common share and common
share equivalent $ (3.18)
===========
NOTE: The information provided in this exhibit is presented in accordance
with Regulation S-K, Item 601(b)(11), while loss per common share on
the Company's statements of operations is presented in accordance
with Accounting Principles Board ("APB") Opinion No. 15. This
information is not required by Footnote 2 to paragraph 14 of APB
Opinion No. 15 as there is no dilution.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
38520 of Forstmann & Company, Inc. (Debtor-in-Possession) on Form S-8 of our
report dated December 20, 1996 (which express an unqualified opinion and
includes explanatory paragraphs relating to bankruptcy matters and
uncertainties as to the Company's ability to continue as a going concern),
appearing in this Annual Report on Form 10-K of Forstmann & Company, Inc.
(Debtor-in-Possession) for the year ended November 3, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 30, 1997
Exhibit 27.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Forstmann &
Company, Inc.'s condensed financial statements for the fifty-three weeks ended
November 3, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-03-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> NOV-03-1996
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 35,890
<ALLOWANCES> 4,205
<INVENTORY> 44,646
<CURRENT-ASSETS> 82,058
<PP&E> 65,664
<DEPRECIATION> 43,267
<TOTAL-ASSETS> 149,929
<CURRENT-LIABILITIES> 63,691
<BONDS> 4,010
2,655
0
<COMMON> 6
<OTHER-SE> (9,334)
<TOTAL-LIABILITY-AND-EQUITY> 149,929
<SALES> 195,028
<TOTAL-REVENUES> 195,028
<CGS> 172,273
<TOTAL-COSTS> 172,273
<OTHER-EXPENSES> 18,129
<LOSS-PROVISION> 1,397
<INTEREST-EXPENSE> 9,063
<INCOME-PRETAX> (5,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 12,055
<CHANGES> 0
<NET-INCOME> (17,844)
<EPS-PRIMARY> (3.18)
<EPS-DILUTED> (3.18)
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