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 2, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9474
FORSTMANN & COMPANY, INC.
(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 Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 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 ( )
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. (X)
The aggregate market value of the common stock held by non-affiliates
of the registrant as of January 28, 1998 was $11,815,789, based on the trading
price in the over-the-counter market on such date.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes (X) No ( )
As of January 28, 1998 there were 4,384,436 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement for the registrant's 1998 Annual Meeting of
Shareholders (incorporated in Part III to the extent provided in Items 10, 11,
12 and 13 hereof).
<PAGE>
Item 1. BUSINESS
GENERAL
Forstmann & Company, Inc., a Georgia corporation (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. 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 1997 fiscal year (the fifty-two week period from
November 4, 1996 through November 2, 1997) ("Fiscal Year 1997"), women's wear
and outerwear fabrics accounted for approximately 67.8% of revenues and men's
wear fabrics accounted for approximately 19.9% of revenues. 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 66.8% of revenues and men=s wear fabrics accounted
for approximately 19.1% 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
65.0% of revenues and men's wear fabrics accounted for approximately 23.4% 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.
EMERGENCE FROM BANKRUPTCY
On September 22, 1995, as a result of a decline in the Company's
results of operations during Fiscal Year 1995 reflecting, among other factors,
rising wool costs, sluggish retail apparel sales, and high debt leverage, the
Company filed a petition for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Filing"). From September
22, 1995 to July 23, 1997, the Company operated as a debtor-in-possession. On
May 14, 1997, the Company filed its First Amended Plan of Reorganization (the
"Plan of Reorganization") and an accompanying First Amended Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code (the "Disclosure Statement"). On
May 15, 1997, the Bankruptcy Court entered an order approving the Company's
Disclosure Statement. Shortly thereafter the Company began to solicit the vote
of its creditors and stockholders with respect to the Plan of Reorganization in
accordance with the Bankruptcy Code. On July 9, 1997, the Bankruptcy Court
entered an order confirming the Plan of Reorganization. On July 23, 1997 (the
"Effective Date"), the Plan of Reorganization was consummated by the Company and
the Company emerged from bankruptcy.
<PAGE>
Pursuant to the Plan of Reorganization, all general unsecured claims
against the Company were converted into 100% of the common stock of the
reorganized Company based on a ratio of 50 shares per each $1,000 of allowed
unsecured claim. Secured claims against the Company aggregating approximately
$60.1 million were either refinanced, reinstated or restructured as more fully
described in Note 8 to the Financial Statements contained in Item 8 of this
Annual Report (the "Financial Statements"). In addition, pursuant to the Plan of
Reorganization, as of the Effective Date:
(i) holders of the Company's redeemable preferred stock received
in the aggregate warrants entitling them to purchase 43,878
shares of the new common stock of the Company within two
years of the Effective Date at an exercise price of $23 per
share, and the preferred stock was canceled;
(ii) holders of the Company's old common stock received in the
aggregate warrants entitling them to purchase 43,878 shares
of the new common stock of the Company within two years of
the Effective Date at an exercise price of $23 per share,
and the old common stock was canceled;
(iii) holders of options to purchase common stock of the
predecessor Company received no distributions under the
Plan, and the options were canceled;
(iv) an aggregate of 487,528 shares of common stock of the
reorganized Company were reserved for issuance upon exercise
of options granted or to be granted pursuant to the
Company's Management Stock Option Plan and, as of the
Effective Date, 146,258 options were granted to certain
employees of the Company at an exercise price of $12.88 per
share;
(v) the Company entered into a Loan and Security Agreement dated
as of July 23, 1997 (the "Loan and Security Agreement") with
BankAmerica Business Credit, Inc. ("BABC"), as agent, and
the financial institutions named therein, providing for a
revolving line of credit (including a $10 million letter of
credit facility) of up to $85 million (the "Revolving Loan
Facility") and term loans of approximately $31.5 million
(the "Term Loan Facility"), the proceeds of which were used
to repay all amounts outstanding under the Company's GE
Capital DIP Facility (hereinafter defined) and CIT Equipment
Facility (hereinafter defined), repay the principal and a
portion of the accrued and unpaid interest due under the
Senior Secured Notes (hereinafter defined) and fund other
amounts due pursuant to the Plan of Reorganization and the
Loan and Security Agreement.
<PAGE>
BUSINESS
In connection with the Plan of Reorganization, the Company adopted a
business plan focusing on significantly reducing product offerings, tightening
management of inventory levels, enhancing cost controls and reducing capital
expenditures. This business plan was substantially implemented during Fiscal
Year 1997. Management, as a part of its strategic planning, will continue to
examine alternative approaches to further rationalize the Company's product
line, to effect cost savings, to adapt the Company's business to changes in its
markets and to find new markets. These alternatives may include the
discontinuance of certain product lines to be determined, the possible
outsourcing of certain manufacturing processes and the realignment of staff
functions. The Company expects sales revenues in fiscal year 1998 to be between
15% to 20% lower than in Fiscal Year 1997. Accordingly, the Company is
implementing plans which are intended to align its costs during fiscal year 1998
with the decline in sales anticipated in fiscal year 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
below.
MARKETS AND PRODUCTS. The Company 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 presented with to the latest
fabric offerings and to accommodate seasonal retail cycles.
As a result of its bankruptcy, the Company began an internal
rationalization of its product lines 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 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.
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 manufacturers.
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.
<PAGE>
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.
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% of total revenue in Fiscal Year 1997, 66.8% of
total revenue in Fiscal Year 1996 and 65.0% of total revenue in Fiscal Year
1995.
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) and tailored
clothing (worsted suits, formal wear, blazers). 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 "casual dress"
sportswear as well as its traditional base of tailored clothing and sportswear.
Men's wear accounted for approximately 19.9% of total revenue in Fiscal Year
1997, 19.1% of total revenue in Fiscal Year 1996 and 23.4% of total revenue in
Fiscal Year 1995.
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 sole supplier of wool fabric used in production of official
major league baseball caps for on-field play.
The Company also sells a limited quantity of fabric 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 sometimes required. During Fiscal Year
1997, the Company was awarded $6.1 million in government contracts and at
November 2, 1997, $2.3 million in orders were open and unfilled. Specialty and
government sales accounted for approximately 10.5% of total revenue in Fiscal
Year 1997, 10.2% of total revenue in Fiscal Year 1996 and 6.0% of total revenue
in Fiscal Year 1995.
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* Lycra (R) brand spandex is a registered trademark of E.I. Dupont de Nemours &
Company, Inc.
<PAGE>
DISCONTINUED PRODUCT LINES. During Fiscal Year 1996, as part of the
product rationalization process discussed above, the Company discontinued its
civilian uniform, converted fabrics and Carpini fabrics product lines. Sales
from the Company's discontinued product lines, civilian uniform fabrics,
converted fabrics and Carpini fabrics, accounted for approximately 1.9% of total
revenue in Fiscal Year 1997, 3.9% of total revenue in Fiscal Year 1996 and 5.6%
of total revenue in Fiscal Year 1995. All three discontinued product lines were
unprofitable in each of these fiscal years.
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 and government 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. Over the course of each fiscal year, approximately 30% of
products offered by the Company are new introductions. The Company's recent
rationalization of its product line 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 firmly placed
with the senior manager of each of the Company's customer-end use divisions. In
addition, 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. The Company's objective is to cultivate innovative product development
that utilizes the Company's resources and maximizes its manufacturing
capabilities, while addressing the ever changing requirements of its targeted
markets.
MANUFACTURING. The Company owns and operates vertically integrated facilities at
which it performs 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.
The Company operates the only major United States mill which manufactures
fabrics on both the woolen and worsted systems.
For the production of woolen fabrics, the Company purchases scoured
(degreased) wool which consists of the shorter fiber taken from the sheep. When
spun into yarn, woolen yarns generally tend to have 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.
<PAGE>
For the production of worsted fabrics, the Company purchases wool top
which consists of the long fiber taken from 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. As a result of the Bankruptcy Filing, the Company's
capital investment program was curtailed. Capital expenditures during Fiscal
Year 1997 and 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 previously owned Tifton facility to
its Dublin facility. During Fiscal Year 1997 and Fiscal Year 1996, the Company
invested $1.9 million and $1.0 million, respectively, in property, plant and
equipment and $0.4 million and $0.9 million, respectively, 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 1998.
RAW MATERIALS. The Company's raw material costs constituted approximately 43.0%
of its cost of goods manufactured during Fiscal Year 1997. 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 exchange rates between
United States and Australian dollars can materially affect the Company's results
of operations for financial reporting purposes. The Company does not have
adequate alternative sources of raw wool if the existing wool suppliers are
unable to supply raw wool to the Company.
During Fiscal Year 1995 and again, during Fiscal Year 1996, the cost
of certain raw wool categories sourced from Australia rose significantly. Fiscal
Year 1997 wool costs were approximated 2.0% lower than Fiscal Year 1996; Fiscal
Year 1996 wool costs were approximately 9% higher than Fiscal Year 1995; and,
Fiscal Year 1995 wool costs were approximately 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% higher during fiscal year 1998 as
compared to Fiscal Year 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations", below, for a discussion of the
effects of changes in wool prices and the impact of fluctuations in the exchange
rate between the U.S. and Australian dollars.
<PAGE>
CUSTOMERS. The Company has more than 700 active customers. During Fiscal Year
1997, one of the Company's customers accounted for approximately 17% of the
Company's revenues. No other customer of the Company accounted for 6% or more of
the Company's revenues in Fiscal Year 1997.
Substantially all of the Company's customers are located within the
United States. During each of Fiscal Year's 1995, 1996 and 1997, less than two
percent of the Company's revenues were derived from exports.
BACKLOG. The Company's sales order backlog at January 4, 1998 was $51.5 million,
a decrease of $8.5 million from the comparable period one year ago. Excluding
government orders, which have historically yielded lower gross profit margins,
the backlog at January 4, 1998 was $50.5 million or $0.8 million greater than
the comparable period one year ago. The increase in the backlog, excluding
government orders, is primarily attributable to an increase in coating fabric
orders which was partly offset by a decline in women's wear fabric orders,
particularly in worsted fabrics. Management expects the men's and women's
worsted fabric business to remain very competitive in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", below.
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 the 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 the Company 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.
<PAGE>
The Company believes that the principal competitive factors are
price, quality, service and fashion, with the significance of 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. The Company believes
that it is generally perceived as providing a high level of service, and that
this perception provides a competitive advantage. During Fiscal Year 1997, in an
effort to distinguish itself as a premier service provider, the Company reduced
its sample lead time by approximately 30% and production lead times by
approximately 15%.
U.S. Department of Commerce statistics indicate that there was a 10%
decline in 1996 in the utilization of chiefly wool fabric in U.S. men's apparel
production. However, in the same year, chiefly wool fabric utilization in U.S.
women's apparel production grew 11% to 76.2 million yards. The increase was due
primarily to increased imports of wool apparel or wool fabric. In the period
from 1994 to 1996, overall wool apparel imports to the U.S. increased 8%.
Currently, 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 North American Free Trade Agreement ("NAFTA"), or the
Caribbean Basin Initiative ("CBI") trade agreements. 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.
NAFTA, which became effective in 1994, has resulted in an increasing
percentage of garments for sale in the United States, Canada and Mexico 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. Historically, there has been limited capacity for wool production and
garment assembly in Mexico and Canada. While under NAFTA, a Canadian
manufacturer is permitted to export high volumes of men's suits into the United
States. This activity has had little effect on the Company's overall business
since the portion of the Company's business represented by men's suiting fabrics
is relatively small. However, in Mexico, certain competitors may be adding
capacity for woolen and worsted fabric production and garment packaging. This
development may pose greater competitive challenges for the Company as,
currently, Mexico benefits from lower labor rates, lower raw wool tariffs and
much less stringent environmental regulations.
The CBI provides reduced duties under the "807" provision. The
General Agreement on Trade and Tariffs ("GATT"), reduces tariffs on wool fabric
from about 33% to 25% over the next eight years. 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, China,
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
Sweden. The Company believes that no individual trademark or trade name, is
material to the Company's business.
<PAGE>
EMPLOYEES. As of December 31, 1997, the Company employed approximately 2,167
hourly-paid, full-time skilled personnel at its plants and approximately 319
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 and occasionally have been subject to
proceedings and orders pertaining to emissions into the environment.
DUBLIN, GEORGIA. On December 29, 1995, the Georgia Environmental
Protection Division ("EPD") issued separate administrative orders (the
"Administrative Orders") to the Company and to J.P. Stevens & Co., Inc.
("Stevens") which relate to three sites on the Georgia Hazardous Site Inventory
- - the "TCE site", the "1,1-DCA site" and another site known as the "Burn Area" -
at the Company's Dublin, Georgia facility. The Administrative Orders required
the Company and Stevens to submit a compliance status report ("CSR") for these
sites that would include, among other things, a description of the release,
including its nature and extent, and suspected or known source, the quantity of
the release and the date of the release. The CSR would also have to include a
determination of cleanup standards (called "risk reduction standards") for the
sites and a certification that the sites were in compliance with those
standards. Alternatively, the party submitting the CSR could acknowledge that
the site was not in compliance with risk reduction standards. Pursuant to the
Administrative Orders, if a site is not in compliance with the risk reduction
standards, then a Corrective Action Plan (a "Corrective Action Plan") for
remediating the release would have to be submitted to EPD.
Since both the Company and Stevens had been required to perform the
same work at all three of these sites, the Company and Stevens agreed to
allocate responsibilities between themselves pursuant to an Agreement Concerning
Performance of Work (the "Agreement") dated January 24, 1997. The Agreement
required the Company to prepare and submit to EPD the CSR for the TCE and
1,1-DCA sites, while requiring Stevens to do the same for the Burn Area site.
Stevens has submitted a CSR for the Burn Area site but has not received a
response from EPD. The Agreement does not commit either party to perform
corrective action at these sites.
The Company submitted a CSR for the TCE and 1,1-DCA sites, which
certified compliance with risk reduction standards for both sites. EPD indicated
that it did not agree to the certification with respect to the TCE site. After
extensive discussions with EPD concerning the issue, the Company submitted a
Corrective Action Plan for the TCE site by letter dated May 15, 1997. By letter
dated September 29, 1997, EPD responded to the Corrective Action Plan with a
notice of deficiency. The Company submitted a revised Corrective Action Plan on
October 31, 1997. The revised Corrective Action Plan calls for continued
operation of the Company's existing groundwater recovery system, as well as one
additional groundwater recovery well and a groundwater collection trench near
the former dry cleaning basement. EPD has not yet responded to the Company's
revised Corrective Action Plan.
TIFTON, GEORGIA. In January 1997, the Company was notified by a
potential buyer of the Company's Tifton facility that soil and groundwater
samples had been obtained from that facility and that certain contaminants had
been identified. Subsequently, through sampling and testing performed by the
Company's environmental consultants, the Company confirmed the presence of
contaminants in groundwater samples taken at the site. On February 28, 1997, the
Company notified EPD of such findings, and the site was placed on the Georgia
Hazadous Site Inventory.
<PAGE>
The Company subsequently consummated its sale of the Tifton facility.
As part of that transaction, the Company, the Tift County Development Authority
as purchaser ("TCDA") and Burlen Corporation as operator ("Burlen") entered into
an Environmental Cost Sharing and Indemnity Agreement ("Cost Sharing
Agreement"). Under the Cost Sharing Agreement, the Company retained
responsibility for remediating certain contamination, to the extent required by
law, that originated prior to Burlen's occupancy of the premises. Likewise, the
Company assumed the obligation to indemnify TCDA and Burlen in regard to such
contamination to the extent that a claim is made by an unaffiliated third party
or governmental agency. In exchange, Burlen agreed to pay to the Company the
lesser of (1) $150,000 minus any payments already made to the Company (certain
expenses had already been shared) to respond to the contamination or (2)
one-half of the costs incurred by the Company in response to such contamination.
EPD has not yet requested any additional response to conditions at this site.
At November 2, 1997, the Company had $0.4 million accrued for costs
to be incurred in connection with the TCE, 1,1-DCA and Tifton facility
environmental matters. The Company, subject to EPD concurring with the Company's
Corrective Action Plan relating to the TCE and 1,1-DCA sites, EPD's response to
J.P. Stevens' CSR and compliance status certification and EPD's response to the
Tifton site, believes the accrual for environmental costs at November 2, 1997 is
adequate.
FINANCING AGREEMENTS
The Company's indebtedness for borrowed money as of November 2, 1997
consisted of amounts outstanding under the Loan and Security Agreement, Deferred
Interest Rate Notes (hereinafter defined) a promissory note and certain capital
lease obligations.
LOAN AND SECURITY AGREEMENT. In connection with the consummation of the Plan of
Reorganization on July 23, 1997, the Company entered into the Loan and Security
Agreement with a syndicate of financial institutions led by BABC. The Loan and
Security Agreement provides for a revolving line of credit (including a $10.0
million letter of credit facility), subject to a borrowing base formula, of up
to $85 million (the "Revolving Loan Facility") and term loans of approximately
$31.5 million (the "Term Loan Facility"). Borrowings on July 23, 1997 of $28.0
million under the Revolving Loan Facility plus the proceeds from the Term Loan
Facility were used to repay all borrowings outstanding under the Company's GE
Capital DIP Facility (hereinafter defined) and CIT Equipment Facility
(hereinafter defined), repay the principal and a portion of the accrued and
unpaid interest due under the Senior Secured Notes (hereinafter defined) and
fund other amounts due pursuant to the Plan of Reorganization and the Loan and
Security Agreement.
The Revolving Loan Facility and Term Loan Facility mature on July 22,
2000. If the Company elects to terminate the Revolving Loan Facility prior to
April 23, 2000, the Company must pay a termination fee. The fee will be $850,000
if the termination occurs prior to the first anniversary of the Loan and
Security Agreement, $637,500 if the termination occurs between the first and
second anniversaries of the Loan and Security Agreement and $425,000 if the
termination occurs between the second anniversary of the Loan and Security
Agreement and April 23, 2000. The Term Loan Facility can be prepaid, at the
Company's election, without a termination fee at any time prior to maturity. The
Company's obligations under the Loan and Security Agreement are secured by liens
on substantially all of the Company's assets.
<PAGE>
Outstanding borrowings (including outstanding letters of credit)
under the Revolving Loan Facility cannot exceed the sum of (1) 85% of eligible
accounts receivable (including eligible bill and hold receivables which cannot
exceed $17.6 million), plus (2) the lesser of $30.0 million or 65% of eligible
inventory, less (3) a reserve that is initially $6.5 million and declines by
$47,500 each month as payments under the Term Loan Facility are made. Further,
the Company's borrowing base is subject to other reserves which may be
established from time to time by BABC. At November 2, 1997, the Company's loan
availability as defined in the Loan and Security Agreement, in excess of
outstanding advances and letters of credit, was approximately $36.0 million.
Borrowings under the Revolving Loan Facility and the Term Loan
Facility bear interest, at the Company's option, at a floating rate (which is
based on a Bank of America reference rate ("Prime")) or a fixed rate (which is
based on LIBOR), payable monthly. Under the Revolving Loan Facility, the
floating rate is 0.25% per annum above Prime and the fixed rate is 2.50% per
annum above LIBOR. Under the Term Loan Facility, the floating rate is 0.75% per
annum above Prime and the fixed rate is 3.00% per annum above LIBOR.
At November 2, 1997, there were two fixed rate loans of approximately
$5.0 million each outstanding under the Revolving Loan Facility, which bore
interest at 8.375% per annum through November 28, 1997, and 8.50% per annum
through January 28, 1998, respectively. There were two fixed rate loans of
approximately $6.0 and $24.0 million outstanding under the Term Loan Facility,
which bore interest at 8.875% per annum, through November 28, 1997, and 9.00%
per annum, through January 28, 1998, respectively. Further, at November 2, 1997,
approximately $327,000 of the Term Loan Facility bore floating rate interest at
9.50% per annum, and approximately $3.4 million of the Revolving Loan Facility
bore floating rate interest at 9.0% per annum.
The Term Loan Facility requires monthly principal payments of
approximately $374,000 which began August 31, 1997. Further, the Company is
required to pay 50% of "excess cash flow" for each fiscal year, as defined in
the Loan and Security Agreement, as long as the outstanding principal balance
under the Term Loan Facility is greater than $23.3 million. Such "excess cash
flow" payments are due on April 30 of each year following the fiscal year for
which an "excess cash flow" payment is due. Such payments are to be applied
against the unamortized principal portion of the Term Loan Facility in the
inverse order of maturity. The Company anticipates that its "excess cash flow"
payment for Fiscal Year 1997, which is due on April 30, 1998, will be
approximately $1.4 million.
In connection with entering into the Loan and Security Agreement, the
Company paid BABC approximately $728,000 as an underwriting fee and agreed to
pay the financial institutions party to the Loan and Security Agreement an
unused line fee of 0.50% per annum on the average unused portion of the
Revolving Loan Facility. The Company paid approximately $582,000 as a facility
fee to participants in the syndicate to the Loan and Security Agreement. In
addition, the Company pays BABC an agency fee of $125,000 per annum, payable
monthly commencing August 1, 1997, and pays certain fees in connection with
letters of credit. Further, the Company pays BABC a loan administration fee of
0.25% per annum on the principal amount outstanding under the Revolving Loan
Facility and Term Loan Facility.
<PAGE>
The Loan and Security Agreement contains certain restrictive
covenants, including limitations on 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 interest and fixed charge coverage ratios, minimum adjusted
tangible net worth requirements and maximum capital expenditure and software
development costs.
DIP FACILITY. In connection with the Bankruptcy Filing, the Company obtained
debtor-in-possession ("DIP") financing from General Electric Capital Corporation
("GE Capital") under a revolving credit facility which was approved by the
Bankruptcy Court (the "GE Capital DIP Facility"). As noted above, in July 1997,
the Company repaid all amounts outstanding under the GE Capital DIP Facility and
paid approximately $103,000 in unpaid amendment fees and legal fees and expenses
through borrowings under the Loan and Security Agreement.
DEFERRED INTEREST RATE NOTES AND SENIOR SECURED NOTES. Prior to the commencement
of its bankruptcy proceeding, the Company issued an aggregate of $30 million of
its Senior Secured Notes due October 30, 1997 (the "Senior Secured Notes"). On
the Effective Date, the outstanding principal amount of the Senior Secured Notes
was repaid in full and the Company issued subordinated floating rate notes (the
"Deferred Interest Rate Notes") in respect of accrued but unpaid interest
(approximately $1.6 million) due the holders of the Senior Secured Notes. In
connection with the issuance of the Deferred Interest Rate Notes, the Company
paid a closing fee of approximately $31,400. Further, in accordance with the
Plan of Reorganization, the Company paid $157,000 in trustee fees and legal fees
and expenses. In December 1997, the Company repaid the Deferred Interest Rate
Notes and accrued interest thereon in full through borrowings under the
Revolving Loan Facility.
NOTE AND CAPITAL LEASE OBLIGATIONS. In connection with the Company's emergence
from bankruptcy, the Company restructured or refinanced certain of its secured
capital lease obligations by issuing a promissory note and modifying the terms
of certain other capital leases. At November 2, 1997, an aggregate of $3.0
million was outstanding under the note and capital leases with interest rates
ranging from 7.5% to 10.75% and varying maturity dates through August 1, 2000.
<PAGE>
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.
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.
In November 1996, the Company entered into a Contract of Sale with the
TCDA, providing for the sale of the Tifton facility for $1.25 million. On July
18, 1997, the sale was consummated and the net proceeds of $1.25 million were
applied to a portion of the then outstanding accrued but unpaid interest due to
the holders of the Company's Senior Secured Notes. The selling price for the
Tifton facility was $1.1 million below the net book value for the facility and
such loss was accrued during Fiscal Year 1996.
The Company believes that its facilities are adequate for its present
needs. Substantially all of the Company's properties, plants and equipment are
encumbered by security interests under the Loan and Security Agreement. 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 in the ordinary course
of business. Other than the Company's bankruptcy proceeding 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" contained in this Annual
Report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of Fiscal Year 1997, 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
Prior to October 1995, 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". In October 1995, the NASDAQ National Market System delisted
Forstmann & Company, Inc. because the closing price of the Company's Common
Stock had been less than $1.00 for more than 30 consecutive days. Since such
time, there has been no established public trading market for the Company's
Common Stock.
The following table sets forth the high and low sales prices for the
1997 91-Day Period Ended November 2, 1997 of the Company's Common Stock. There
were no over-the-counter market transactions during the 1997 12-Day Period Ended
August 3, 1997 (the period from the Effective Date to the end of the Company's
third fiscal quarter). These quotations are based on reported over-the-counter
market transactions and represent prices between dealers, do not include retail
markup or commission and may not necessarily represent actual transactions.
HIGH SALES PRICE LOW SALES PRICE
1997 91-Day Period Ended
November 2, 1997 $13.50 $11.75
At January 28, 1998, the Company had 459 record holders of its Common
Stock, including CEDE & Company, the nominee of Depository Trust Company, that
held 3,766,802 shares of common stock as nominee for an unknown number of
beneficial holders.
Pursuant to the Plan of Reorganization, all general unsecured claims
against the Company were converted into 100% of the common stock of the
reorganized Company based on a ratio of 50 shares per each $1,000 of allowed
unsecured claim. Such shares were not registered under the Securities Act. On
the Effective Date, pursuant to the Plan of Reorganization, the Company entered
into a Registration Rights Agreement (the "Registration Rights Agreement") with
certain holders of its common stock. The Registration Rights Agreement requires
that the Company file a registration statement covering the shares of common
stock held by such holders no later than March 31, 1998. The Company is also
required to use its best efforts to have the registration statement declared
effective by the Securities and Exchange Commission and to keep the registration
statement effective for a period of two years.
On October 9, 1997, the Company adopted a shareholders' rights plan
(the "Rights Plan") whereby shareholders of record on October 29, 1997 received
one right (the "Right(s)") to purchase one share of common stock at an exercise
price of $60 for each common share held on the record date. The Rights will
become exercisable in the event that any person or group acquires 25% or more of
the Company's common shares, or announces a tender offer for 25% or more of the
Company's common stock. However, the Rights Plan "grandfathers" positions in the
Company's common stock in existence on October 9, 1997 and the ownership by a
person or group of 25% or more of the Company's common shares on such date will
not trigger the exercisability of the Rights so long as such person or group
does not acquire an additional 1% or more of the Company's common shares. Should
any "non-grand-fathered" person or group acquire 25% or more of the common
shares of the Company, all Rights not held by such person or group will entitle
the holders thereof to purchase common shares of the Company at a 50% discount
from the then current market price for such common stock. Alternatively, after a
person or group crosses the 25% threshold and before such person or group owns
50% or more of the Company's common shares, the Company's Board of Directors may
issue one common share in exchange for each right (other than those held by the
acquiring person) in lieu of permitting the Rights to be exercised. In the event
of a merger of the Company, the Rights Plan requires that the provision be made
for the conversion of the Rights into rights to purchase shares of the acquiring
person at a 50% discount. The Rights, which have a ten-year term, may be
redeemed for $0.01 per Right by the Company at any time prior to the time the
Rights become exercisable.
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 Loan
and Security Agreement prohibits the payment of cash dividends. The payment of
future cash dividends, if any, would be made only from assets legally available
therefor, 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.
Except for the securities issued pursuant to the Plan of
Reorganization, 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
Annual Report.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Presented below are selected operating statement data for the
Reorganized Company 1997 103-Day Period ended November 2, 1997 (as hereinafter
defined), the Predecessor Company 1997 261-Day Period ended July 22, 1997 (as
hereinafter defined) and the predecessor Company for the fiscal years ended
November 3, 1996, October 29, 1995, October 30, 1994 and October 31, 1993. Also
presented are selected balance sheet data for the Reorganized Company as of
November 2, 1997 and the predecessor Company as of November 3, 1996, October 29,
1995, October 30, 1994 and October 31, 1993. Also, present below are selected
operating data for Fiscal Year 1997 (the combined Reorganized Company 1997
261-Day Period Ended November 2, 1997 and the Predecessor Company 1997 261-Day
Period Ended July 22, 1997). 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 auditors and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", below and the Company's Financial Statements (and the related notes
and schedules thereto). Due to the effects of the consummation of the Plan of
Reorganization and the application of "fresh start" accounting, the operating
statement data and balance sheet data for different periods are not necessarily
comparable.
<PAGE>
<TABLE>
<CAPTION>
COMBINED REORGANIZED PREDECESSOR
COMPANY COMPANY COMPANY
------- ------- --------------------------------------------------------------------
1997 1997
103-DAY 261-DAY FISCAL FISCAL FISCAL FISCAL
PERIOD PERIOD YEAR YEAR YEAR YEAR
FISCAL ENDED ENDED ENDED ENDED ENDED ENDED
YEAR NOVEMBER 2, JULY 22, NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
OPERATING STATEMENT DATA (1): (amounts in thousands, except per share and share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 199,010 $ 57,126 $ 141,884 $ 195,028 $ 222,217 $ 237,085 $ 233,365
Gross profit 26,393 7,726(6) 18,667 22,755 26,323 47,852 51,018
Operating income (loss) 9,894 2,965 6,929 3,274 (248) 23,417 26,618
Income (loss) before
reorganization items,
income taxes and
extraordinary gain (loss) 3,213 1,242 1,971 (5,789) (19,817) 5,900 10,869
Reorganization items (2) 33,796 395 33,401 12,055 10,904 -- --
Income tax (provision)
benefit 461 461(5) -- -- 4,250 (2,331) (4,245)
Income (loss) before
extraordinary gain or
(loss) (31,044) 386 (31,430) (17,844) (26,471) 3,569 6,624
Net income (loss) (7,005) 290 (7,295) (17,844) (26,471) 3,569 6,624
Income (loss) applicable to
common shareholders (7,005) 290 (7,295) (17,844) (26,701) 3,339 6,415
Per share and share
information:
Income (loss) before
extraordinary gain
(loss) applicable to
common shareholders n/a 0.09 (5.59) (3.18) (4.75) 0.60 1.15
Income (loss) applicable
to common shareholders n/a 0.07 (1.30) (3.18) (4.75) 0.60 1.15
Weighted average common
shares outstanding n/a 4,384,436 5,618,799 5,618,799 5,618,799 5,592,022 5,585,014
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED REORGANIZED PREDECESSOR
COMPANY COMPANY COMPANY
------- ------- --------------------------------------------------------------------
1997 1997
103-DAY 261-DAY FISCAL FISCAL FISCAL FISCAL
PERIOD PERIOD YEAR YEAR YEAR YEAR
FISCAL ENDED ENDED ENDED ENDED ENDED ENDED
YEAR NOVEMBER 2, JULY 22, NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
OTHER OPERATING DATA (1): (amounts in thousands, except per share and share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before depreciation
and amortization,
reorganization items,
interest expense,
income taxes and
extraordinary gain (loss) 21,088(6) 4,333 16,755 15,236 13,581 37,074 37,946
Net cash flow provided
(used) by operating
activities 6,573 15,261 (8,688) 36,232 27,473 (1,700) (3,267)
Net cash flow provided
(used) by investing
activities 313 (974) 1,287 (1,743) (14,980) (13,207) (16,895)
Net cash flow provided
(used) by financing
activities (5,883) (13,968) 8,085 (34,493) (12,490) 14,903 13,629
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------ ---------------------------------------------------------
AS OF AS OF AS OF AS OF AS OF
NOVEMBER 2, NOVEMBER 2, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997(2,4) 1996(2) 1995(2) 1994 1993(4)
----------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (2,3,4): (amounts in thousands)
<S> <C> <C> <C> <C> <C>
Current assets $ 87,192 $ 82,058 $116,475 $140,801 $130,172
Property, plant and
equipment, net of
accumulated depreciation
and amortization 24,779(5) 65,664 78,784 79,479 76,521
Total assets 113,641 149,929 198,203 229,256 215,567
Long-term debt, including
current maturities
of long-term debt
and long-term debt
included in liabilities
subject to compromise 48,304 109,031 142,935 158,311 138,859
Senior preferred stock, -- 2,655 2,655 2,425 2,195
redeemable
Shareholders' equity
(deficit) 50,631 (9,328) 7,667 35,836 33,890
</TABLE>
<PAGE>
(1) The Reorganized Company 1997 103-Day Period ended November 2, 1997
consists of the period from July 23, 1997 (the Effective Date) to
November 2, 1997. The Predecessor Company 1997 261-Day Period Ended
July 22, 1997 consists of the period from November 4, 1996 to July 22,
1997. The year ended November 3, 1996 ("Fiscal Year 1996") consisted 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") consisted of 52-week periods. No cash dividends on
the common stock were paid during any of these periods.
(2) On September 22, 1995, the Bankruptcy Filing occurred. The financial
statements of the Reorganized Company 1997 103-Day Period ended
November 2, 1997 and the Predecessor Company 1997 261-Day Period ended
July 22, 1997 and Fiscal Years 1996 and 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" ("SOP 90-7"). In
accordance with SOP 90-7, professional fees and restructuring charges
directly related to the bankruptcy have been segregated from normal
operations during each of the applicable periods. Reference is made to
Note 16 to the Financial Statements for a description of reorganization
items.
(3) 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.
(4) In accordance with SOP 90-7, the Company established its reorganization
value and adopted "fresh start" accounting. Under the principles of
"fresh start" accounting, the Company's total net assets were recorded
at assumed reorganization value, which was then allocated to
identifiable tangible and intangible assets on the basis of their
estimated fair value. In accordance with "fresh start" accounting, the
difference between the assumed reorganization value and the aggregate
fair value of the identifiable tangible and intangible assets resulted
in a reduction in the value assigned to property, plant and equipment.
See Note 2 to the Financial Statements.
(5) In accordance with SOP 90-7, an income tax provision not payable in
cash was recognized for the Reorganized Company 1997 103-Day Period at
an effective income tax rate of 54.43%. Such provision was credited
against additional paid-in capital as net operating losses generated
during the Predecessor Company 1997 261-Day Period and can be used to
offset net taxable income generated during the Reorganized Company's
1997 103-Day Period.
(6) At the Effective Date, the Company adjusted its inventory balances to
fair value resulting in the elimination of the LIFO reserve of
approximately $2.7 million and a write-up of approximately $3.8 million
above the predecessor Company's FIFO cost. Such write-up was credited
against reorganization items during the Predecessor Company 1997 261-
Day Period. This write up will be allocated to cost of goods sold as
the inventory on hand at July 22, 1997 is sold. Approximately $0.7
million was charged to cost of goods sold during the Reorganized
Company 1997 Fourth Quarter.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Annual Report are forward looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following factors could cause
actual results to differ materially from historical results or those
anticipated: demand for the Company's products, competition, the Company's
production needs, wool market conditions, the adequacy of the Company's current
financing, any unexpected financing requirements, and changes in the general
economic climate.
RECENT EVENTS
The following discussion should be read in conjunction with the
Financial Statements and the related notes included in this Annual Report. On
September 22, 1995, the Company filed for relief under Chapter 11 of the United
States Bankruptcy Code with the Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Filing"). On May 14, 1997, the Company filed its Plan
of Reorganization and Disclosure Statement. On May 15, 1997, the Bankruptcy
Court entered an order approving the Company's Disclosure Statement and shortly
thereafter, the Company began to solicit the vote of its creditors and
stockholders with respect to the Plan of Reorganization in accordance with the
Bankruptcy Code. On July 9, 1997, the Bankruptcy Court entered an order
confirming the Plan of Reorganization. On July 23, 1997 (the "Effective Date"),
the Plan of Reorganization was consummated by the Company.
Pursuant to the Plan of Reorganization, all general unsecured claims
against the Company were converted into 100% of the common stock in the
reorganized Company based on a ratio of 50 shares per each $1,000 of allowed
unsecured claims. Secured claims against the Company aggregating approximately
$60.1 million were either refinanced, reinstated or restructured as more fully
described in Note 8 to the Financial Statements. Further, pursuant to the Plan
of Reorganization, administrative claims (which includes reclamation claims and
approved professional fees), priority claims and convenience claims (unsecured
claims in the amount of $400 or less) were paid in full. See Note 1 to the
Financial Statements for a more detailed description of the effects of the
consummation of the Plan of Reorganization.
<PAGE>
In accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company established
its reorganization value and adopted "fresh start" accounting. See Note 2 to the
Financial Statements for a description of the methodology used to determine the
Company's reorganized value and the affect of adopting "fresh start" accounting.
As a result of the consummation of the Plan of Reorganization and the
application of "fresh start" accounting, the Company was required to report its
financial results for the fifty-two weeks ended November 2, 1997 in two separate
periods in this Annual Report.
The following table describes the periods presented in the Financial
Statements and related notes contained elsewhere in this Annual Report and
discussed herein:
PERIOD REFERRED TO AS
Results for the Reorganized
Company From July 23, 1997
to November 2, 1997 "Reorganized Company 1997 103-Day Period"
Results for the Reorganized
Company From August 4, 1997
to November 2, 1997 "Reorganized Company 1997 Fourth Quarter"
Results for the Predecessor
Company From November 4,
1996 to July 22, 1997 "Predecessor Company 1997 261-Day Period"
Combined Reorganized Company
1997 103-Day Period and
Predecessor Company 1997
261-Day Period (Results for
the Fifty-Two Weeks Ended
November 2, 1997) "Fiscal Year 1997"
Results for the Predecessor
Company Fifty-Three Weeks
Ended November 3, 1996 "Fiscal Year 1996"
Results for the Predecessor
Company Fifty-Two Weeks
Ended October 29, 1995 "Fiscal Year 1995"
Due to the effects of the consummation of the Plan of Reorganization
and application of "fresh start" accounting, results for the periods defined
above are not necessarily comparable.
RESULTS OF OPERATIONS
The discussion below compares the results of operations for Fiscal
Year 1997 to Fiscal Year 1996 and Fiscal Year 1996 to Fiscal Year 1995. Except
as indicated, management believes that the impact of the Plan of Reorganization
and the application of "fresh start" accounting did not significantly affect the
results of operations for Fiscal Year 1997. Further, management believes that
the combined operating results of the Reorganized Company 1997 103-Day Period
and the Predecessor Company 1997 261-Day Period are indicative of the results of
operations for Fiscal Year 1997 (fifty-two weeks ended November 2, 1997) taken
as a whole. Due to the effects of the consummation of the Plan of Reorganization
and the application of "fresh start" accounting, results for Fiscal Year 1997
are not necessarily fully comparable to the results for Fiscal Year 1996 and
Fiscal Year 1995.
<PAGE>
The application of "fresh start" accounting resulted in property,
plant and equipment being written down by $28.6 million, which will result in an
approximate $6.4 million reduction in annual depreciation expense. Further,
annual amortization expense will be approximately $0.3 million lower, as a
result of the Company writing off certain intangible assets (primarily deferred
software development costs) and certain other assets and liabilities associated
with the Company's headquarters lease. The write off of the intangible assets
occurred during the Predecessor Company 1997 261-Day Period and was charged to
operations ($0.9 million to cost of goods sold and $0.3 million to selling,
general and administrative expenses). The write off of certain other assets and
liabilities associated with the Company's headquarters lease was charged to
reorganization items during the Predecessor Company 1997 261-Day Period ($0.9
million). In addition, as described in Note 8 to the Financial Statements, the
Company incurred additional deferred financing costs in connection with entering
into the Loan and Security Agreement and other financing arrangements and wrote
off certain deferred financing costs associated with the debt restructuring. The
write off of deferred financing costs ($0.2 million) was charged to
reorganization items during the Predecessor Company 1997 261-Day Period.
THE 1997 FIFTY-TWO WEEKS ENDED NOVEMBER 2, 1997 ("FISCAL YEAR 1997")
COMPARED TO THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996 ("FISCAL YEAR 1996").
Net sales in Fiscal Year 1997 were $199.0 million, an increase of
$4.0 million or 2.0% from Fiscal Year 1996. Total yards of fabric sold increased
3.7% during Fiscal Year 1997. The increase in sales was primarily attributable
to increases in women's outerwear (coating), men's wear (both woolen and
worsted) and government fabric sales. Such increases in sales during Fiscal Year
1997 were partly offset by declines in sales of women's wear fabrics and the
effect of the strategic decision during Fiscal Year 1996 to discontinue certain
product lines (career uniforms, converting and international). Due to this shift
in product mix, the average per yard selling price declined to $7.33 during
Fiscal Year 1997 from $7.45 in Fiscal Year 1996. Excluding government sales of
$10.1 million in Fiscal Year 1997 and $8.9 million in Fiscal Year 1996, net
sales increased 1.5% during Fiscal Year 1997 compared to Fiscal Year 1996.
The decline in women's wear sales was the result of a decline in
women's worsted fabric sales, which was somewhat offset by an increase in
women's woolen fabric sales. The increase in woolen fabric sales is attributable
to the favorable market conditions for women's woolen fabrics, improved market
conditions for domestic suppliers of women's outerwear and reduced pressure from
import of women's outerwear. Although men's wear fabric sales increased during
Fiscal Year 1997, the Company expects women's and men's worsted fabric sales in
the future to encounter stiffer competitive pressures due to the continuing
over-capacity in domestic worsted wool manufacturing. Throughout the past few
years, the domestic demand for men's worsted fabrics has declined as a result of
the on-going shift from tailored men's apparel to "Casual Friday" wear. This
trend is expected to continue and result in additional excess worsted wool
manufacturing capacity, both domestically and world-wide. Further, the women's
apparel market is extremely price sensitive and subject to changes in fashion
trends, which recently have been moving away from worsted fabrics to other
fibers and blends. Accordingly, the Company expects the men's and women's
worsted fabric business to remain very competitive in the future. Further, based
on the backlog of government orders at November 2, 1997 and the timing of
expected future government requests for competitive bids, the Company expects
the sale of government fabrics to be lower in fiscal year 1998 compared to
Fiscal Year 1997.
<PAGE>
During Fiscal Year 1996, in order to differentiate itself from its
domestic and foreign competitors, the Company began to emphasize on-time
delivery and customer service. Management believes that this focus, which is
continuing, when coupled with efforts to maintain existing customer
relationships and competitive pricing, will enable the Company to respond
effectively to increased competitive pressures.
Cost of goods sold in Fiscal Year 1997 was $172.6 or approximately
the same as in Fiscal Year 1996 when cost of goods sold was $172.3 million.
Gross profit in Fiscal Year 1997 increased to $26.4 million or $3.6 million
higher than Fiscal Year 1996. The gross profit margin was 13.3% for Fiscal Year
1997 as compared to 11.7% for Fiscal Year 1996.
The Company's reduction of inventory levels in Fiscal Years 1997 and
1996 resulted in the liquidation of LIFO inventory layers carried at lower costs
prevailing in prior years which increased gross profit by $0.5 million and $2.2
million, respectively. The effect of the liquidation of LIFO inventory layers in
Fiscal Year 1997 was recognized during the Predecessor Company 1997 261-Day
Period. At the Effective Date, the Company adjusted its inventory balances to
fair value resulting in the elimination of the LIFO reserve of approximately
$2.7 million and a write-up of approximately $3.8 million above the predecessor
Company's FIFO cost. Such write-up was credited against reorganization items
during the Predecessor Company 1997 261-Day Period and will be allocated to cost
of goods sold as the inventory on hand at the Effective Date is sold.
Approximately $0.7 million was charged to cost of goods sold during the
Reorganized Company 1997 Fourth Quarter.
The improvement in gross profit in Fiscal Year 1997 is attributable
to improved manufacturing efficiencies and shifts in product mix. As described
above, during the Predecessor Company 1997 261-Day Period, certain intangible
assets were written off and certain plant and equipment which was idled was
written down to fair value. This resulted in the recognition of approximately
$1.3 million in depreciation and amortization expense in the Predecessor Company
1997 261-Day Period which was offset by $1.6 million in lower depreciation and
amortization costs during the Reorganized Company 1997 103-Day Period due to
"fresh start" accounting. As a result of "fresh start" accounting, management
expects depreciation and amortization charged to cost of goods sold to be $5.5
million lower in fiscal year 1998 than Fiscal Year 1997.
Included in cost of goods sold in Fiscal Year 1997 is the effect of
$2.2 million in higher group medical claims due to the Company's self-insured
health care plan experiencing approximately 28 individual claims in excess of
$50,000 whereas, in Fiscal Year 1996 only 4 individual claims in excess of
$50,000 were realized. The Company expects this unfavorable trend in the
Company's self-insured health care plan to continue. The Company has taken
certain action designed to contain its health care costs, including increasing
employees' contributions, enhancing the physician and hospital network
participation and engaging a third party health care cost containment
specialist. These actions are designed to mitigate the effect of higher health
care claims in fiscal year 1998.
<PAGE>
Selling, general and administrative expenses, excluding the provision
for uncollectible accounts, decreased 12.5% or $2.3 million to $15.9 million in
Fiscal Year 1997, as compared to $18.1 million in Fiscal Year 1996. This
decrease is primarily due to lower human resources related expenses and
professional fees. Since the Bankruptcy Filing, the Company has continued to
streamline its organization structure and reduce its overhead to be more
responsive to customer needs and more closely match selling, general and
administrative expenses to market conditions and expectations. These decreases,
among others, were partially offset by higher incentive compensation expense,
which was related to the Company's retention and confirmation bonus plan.
Further, depreciation and amortization charged to selling, general and
administrative expense was approximately $231,000 lower primarily as a result of
the effects of lowering the value of property, plant and equipment in connection
with "fresh start" accounting.
The provision for uncollectible accounts decreased from $1.4 million
in Fiscal Year 1996 to $0.7 million in Fiscal Year 1997. Such decrease primarily
occurred during the Predecessor Company 1997 261-Day Period. The Company is
currently negotiating a non-notification factoring arrangement to cover certain
of its larger customers. The arrangement is designed to protect the Company from
a catastrophic loss should one or more of the Company's larger customers be
unable to pay the Company when their obligations to the Company become due. This
program is expected to cost in excess of $400,000 annually. Accordingly,
management believes that its costs of collecting and protecting its accounts
receivable will be higher in fiscal year 1998 than in Fiscal Year 1997.
Interest expense for Fiscal Year 1997 decreased $2.4 million or 26.3%
to $6.7 million, as compared to $9.1 million for Fiscal Year 1996. This decrease
is primarily attributable to lower average borrowings under the Company's credit
facilities which was facilitated by decreased working capital needs mainly due
to the further reduction in inventories. Further, due to the refinancing and
debt restructuring described above, amortization expense during Fiscal Year 1997
was $0.3 million lower.
As a result of the foregoing, income before reorganization items,
income tax and extraordinary item for Fiscal Year 1997 improved $9.0 million to
$3.2 million from a loss before reorganization items, income tax and
extraordinary item of $5.8 million for Fiscal Year 1996. Income before
depreciation and amortization, reorganization items, interest expense, income
taxes and extraordinary item during Fiscal Year 1997 was $21.8 million as
compared to $15.2 in Fiscal Year 1996.
Reorganization items which are more fully described in Note 16 to the
Financial Statements were $33.8 million in Fiscal Year 1997 as compared to $12.1
million in Fiscal Year 1996. Included in Fiscal Year 1997 is the "fresh start"
accounting adjustment of $28.6 million to adjust the carrying value of property,
plant and equipment in accordance with SOP 90-7, a loss on sale of $2.9 million
on certain unerected equipment at the Company's former Tifton facility, a credit
of $6.5 million to adjust inventory to fair market value in accordance with SOP
90-7, the write off of certain assets and liabilities of $1.7 million, net
associated with the Company's current and former headquarters lease, the
rejection of certain pre-petition contracts of $1.6 million, and the write off
of certain deferred financing costs of $0.2 million related to the refinancing
and restructuring described below in "Financial Condition, Liquidity and Capital
Resources".
<PAGE>
During Fiscal Year 1995, the Company fully utilized its net operating
loss carrybacks as permitted by the Internal Revenue Code. For the Predecessor
Company 1997 261-Day Period and Fiscal Year 1996, no income tax benefit was
recognized from the realization of net operating losses. In accordance with SOP
90-7, an income tax provision not payable in cash was recognized in the
Reorganized Company 1997 103-Day Period at an effective income tax rate of
54.43%. The income tax provision not payable in cash was credited against
additional paid-in capital as net operating losses generated during the
Predecessor Company 1997 261-Day Period can be used to offset net tax able
income, if any, generated during the Reorganized Company's 1997 103-Day Period.
As a result of the consummation of the Plan of Reorganization which
resulted in the exchange of the general unsecured claims against the Company for
equity in the reorganized Company, as more thoroughly described in Note 1 to the
Financial Statements, the Company recognized an extraordinary gain on debt
discharge of $24.1 million during the Predecessor Company 1997 261-Day Period
which was offset by additional costs associated with the debt discharge of $0.1
million which was recognized during the Reorganized Company 1997 103-Day Period.
The Company had sufficient net operating loss carry forwards to offset this gain
and therefore, no income tax was recorded.
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 was primarily attributable
to a decline in sales of women's wear and men's wear fabrics 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 reflected the shift from tailored men's wear to
"Casual Friday" wear. The decrease in sales in the women's apparel business
reflected the Company's more focused product offerings in response to a more
competitive, price sensitive market. 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 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 related 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 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.
<PAGE>
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
related to organizational changes implemented during Fiscal Year 1996 which
resulted in a leaner 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 for severance.
Fiscal Year 1996 results included $0.9 million accrued in connection with a
confirmation and retention program and a financial consulting service agreement,
while Fiscal Year 1995 results 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 was
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 protection in Fiscal
Year 1996.
Interest expense in Fiscal Year 1996 was $9.1 million compared to
$19.6 million in Fiscal Year 1995. This decrease was primarily due to the
Company ceasing to accrue 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.
As noted above, the Company instituted a strategic planning process
during its bankruptcy, which led to 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 were rendered surplus or obsolete in Fiscal Years 1996 and
1995. 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 inventories 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 5 to the
Financial Statements). 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 SOP 90-7.
<PAGE>
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 could 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
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.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The implementation of the Plan of Reorganization, which is discussed
in Note 1 to the Financial Statements, significantly deleveraged the Company's
balance sheet and, enhanced the Company's borrowing availability and the
implementation of "fresh start" accounting significantly lowered annual
depreciation and amortization expense. In addition, since the Bankruptcy Filing,
in response to continuing changes in market conditions, management of the
Company has formulated and implemented a business plan that focuses on
significantly reducing product offerings; tightening management of inventory
levels; enhancing cost controls; and reducing capital expenditures. All of these
actions have improved the Company's cash flows from operations and in total
during Fiscal Year 1997.
On the Effective Date, as described in Note 8 to the Financial
Statements, the Company entered into the Loan and Security Agreement with a
syndicate of financial institutions led by BABC. The Loan and Security Agreement
provides for a Revolving Loan Facility (including a $10.0 million letter of
credit facility), subject to a borrowing base formula and certain borrowing base
limitations, of up to $85 million and the Term Loan Facility of approximately
$31.5 million.
Proceeds from the Company's operations (as defined) are applied to
reduce the principal amount of floating rate borrowings outstanding under the
Revolving Loan Facility. Unused portions of the Revolving Loan Facility may be
borrowed and reborrowed subject to availability in accordance with the then
applicable commitment and borrowing base limitations. At November 2, 1997, the
Company's availability, net of outstanding advances, letters of credit and
reserves, under the Revolving Loan Facility was approximately $36.0 million. The
Company believes that cash generated from operations and borrowings under the
Revolving Loan Facility will be sufficient to fund its working capital and
capital expenditures requirements during fiscal year 1998 and the near future.
However, expected cash flow from operations is dependent upon achieving sales
expectations during fiscal year 1998, which are influenced by market conditions,
including apparel sales at retail, that are beyond the control of the Company.
Further, the collectibility of accounts receivable is dependent upon the state
of the economy and, in particular, the financial condition of the apparel
industry. Also, continuing refinement of the Company's strategies in response to
evolving circumstances could materially change the Company's working capital and
capital expenditures requirements.
The Company's sales order backlog at January 4, 1998 was $51.5
million, a decrease of $8.5 million from the comparable period one year ago.
Excluding government orders, which historically have yielded lower gross profit
margins, the backlog at January 4, 1998 was $50.5 million or $0.8 million
greater than the comparable period one year ago. The increase in the backlog,
excluding government orders, is primarily attributable to an increase in coating
fabric orders which was partly offset by a decline in women's wear fabric
orders, particularly in worsted fabrics. As discussed above, management expects
the men's and women's worsted fabric business to remain very competitive in the
future. Further, the Company expects the sale of government fabrics to be lower
in fiscal year 1998 compared to Fiscal Year 1997. Historically, government
fabric orders have been taken, in part, to balance overall worsted fabric
manufacturing operations.
<PAGE>
Based on these trends (increased competitive pressures in the worsted
market, the decline in the backlog of government orders and management's
expectations as to the level of government orders to be awarded to the Company
during fiscal year 1998 and the effect of the discontinued product lines), the
Company expects sales revenues in fiscal year 1998 to be between 15% to 20%
lower than in Fiscal Year 1997. Accordingly, the Company is implementing plans
which are intended to align its costs during fiscal year 1998 with the decline
in sales anticipated in fiscal year 1998. However, there can be no assurance as
to the level of sales that will actually be attained in fiscal year 1998, as
sales are dependent on market conditions and other factors beyond the Company's
control, nor can there be assurance that the Company's cost reduction will be
implemented successfully.
In connection with the Plan of Reorganization, the Company adopted a
business plan focusing on significantly reducing product offerings, tightening
management of inventory levels, enhancing cost controls and reducing capital
expenditures. This business plan was substantially implemented during Fiscal
Year 1997. Management, as a part of its strategic planning, will continue to
examine alternative approaches to further rationalize the Company's product
line, to effect cost savings, to adapt the Company's business to changes in its
markets and to find new markets. These alternatives may include the
discontinuance of certain product lines to be determined, the possible
outsourcing of certain manufacturing processes and the realignment of staff
functions.
The Company's business is seasonal, with the vast majority of orders
for woolen fabrics placed from December through April for apparel manufacturers
to produce apparel for retail sale during the fall and winter months. This
results in a seasonal sales order and billing pattern which historically
generates higher sales during the Company's second and third fiscal quarters
compared to the Company's first and fourth quarters. This sales pattern places
seasonal constraints on the Company's manufacturing operations which results in
increased working capital requirements in the Company's first fiscal quarter
relating to the manufacture of certain components of inventory which are sold in
the Company's second and third fiscal quarters. The seasonal sales and order
pattern also results in increased levels of accounts receivable due to the
larger sales volume and "dated" sales to coating fabric customers which allows
for payment sixty (60) days from July 1 for invoices billed in January through
June.
Due to the seasonal nature of the Company's core woolen and worsted
business, the Company's borrowings under the Revolving Loan Facility will tend
to increase during the first three fiscal quarters of the Company's fiscal year
until the fourth quarter, when at year-end, borrowings tend to be the lowest.
However, for the reasons indicated above, borrowings during various times within
fiscal year 1998 may be higher than comparable periods within Fiscal Year 1997.
CURRENCY RISKS
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 the United States and Australian dollars can materially affect the
Company's results of operations for financial reporting purposes. The Company
expects wool costs during fiscal year 1998 to be slightly higher than in Fiscal
Year 1997.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per share". SFAS 128 establishes standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly held common stock or
potential common stock and requires the presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period being reported. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted on the issuance of
common stock that then shared in the earnings of the entity. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted and all
prior-period EPS data presented must be restated. Adoption of SFAS 128 is not
expected to be material to the Company's results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997 and reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Company
will provide the comprehensive income statement required by SFAS.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, under SFAS 131, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS 131 also requires that a public business enterprise report
descriptive information about the way operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
does not believe that it has reportable segments as defined by SFAS 131.
<PAGE>
The Company is in the process of updating or replacing its
computerized systems to ensure its systems are "Year 2000" compliant and to
improve the Company's overall manufacturing, planning and inventory related
systems. The Company is utilizing both internal and external resources to
upgrade or replace its existing computerized systems. Currently, the Company
estimates that the total cost of upgrading or replacing its existing systems is
approximately $2.3 million. Costs associated with upgrading existing systems to
address the "Year 2000" will be expensed in the period incurred, whereas costs
associated with the replacement of existing systems will be capitalized in the
period incurred. During fiscal year 1998, the Company expects to expense $0.3
million in costs associated with upgrading its existing systems to make it Year
2000 complaint and capitalize $1.5 million in costs associated with the
replacement of existing systems.
The Company expects its "Year 2000" upgrade project and the
replacement of its manufacturing, planning and inventory related systems to be
completed on a timely basis. During Fiscal Year 1997 the Company expensed less
than $0.1 million associated with system upgrades and capitalized $0.4 million
associated with the replacement of certain computerized systems.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report..................................................34
Balance Sheets for the Reorganized Company as of November 2, 1997
and the Predecessor Company as of November 3, 1996 and October 29, 1995.......36
Statements of Operations for the Reorganized Company 103-Day
Period Ended November 2, 1997, the Predecessor Company 261-Day Period
Ended July 22, 1997 and the Predecessor Company Fifty-Three Weeks Ended
November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995...................38
Statements of Cash Flows for the Reorganized Company 103-Day
Period Ended November 2, 1997, the Predecessor Company 261-Day
Period Ended July 22, 1997 and the Predecessor Company Fifty-Three
Weeks Ended November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995.......39
Statements of Shareholders' Equity (Deficit) for the
Predecessor Company Fifty-Two Weeks Ended October 29, 1995,
Fifty-Three Weeks Ended November 3, 1996 and the Predecessor
Company 261-Day Period Ended July 22, 1997 and the Reorganized
Company 103-Day Period Ended November 2, 1997.................................43
Notes to Financial Statements for the Reorganized Company 103-Day
Period Ended November 2, 1997 and the Predecessor Company 261-Day
Period Ended July 22, 1997 and the Predecessor Company Fifty-Three
Weeks Ended November 3, 1996 and Fifty-Two Weeks Ended October 29, 1995.......45
Schedule II
Supplemental Financial Statement Schedule for the Fifty-Two Weeks Ended
October 29, 1995, the Fifty-Three Weeks Ended November 3, 1996 and the
Fifty-Two Weeks Ended November 2, 1997........................................78
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Forstmann & Company, Inc.:
We have audited the accompanying financial statements of Forstmann & Company,
Inc. (the "Company") for the following periods:
PERIOD(S) COVERED
FINANCIAL STATEMENTS REORGANIZED COMPANY PREDECESSOR COMPANY
Balance Sheet November 2, 1997 November 3, 1996
Statement of Operations Period from July 23, 1997 Period from November 4,
to November 2, 1997 1996 to July 22, 1997
Fifty-three weeks
ended November3, 1996
and fifty-two weeks
ended October 29, 1995
Statement of Cash Flows Period from July 23, 1997 Period from November 4,
to November 2, 1997 1996 to July 22, 1997
Fifty-three weeks
ended November 3, 1996
and fifty-two weeks
ended October 29, 1995
Statement of Changes in Period from July 23, 1997 Period from November 4,
Shareholders' Equity to November 2, 1997 1996 to July 22, 1997
(Deficit)
Fifty-three weeks
ended November 3, 1996
and fifty-two weeks
ended October 29, 1995
Our audits also include the financial statement schedule listed in the Index to
Financial Statements and Financial Statement Schedule. These financial
statements and the 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.
<PAGE>
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at November 2, 1997 and November
3, 1996, and the results of its operations and its cash flows for the period
July 23, 1997 to November 2, 1997, the period November 4, 1996 to July 22, 1997,
the fifty-three weeks ended November 3, 1996 and the fifty-two weeks ended
October 29, 1995, 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 Note 2 to the financial statements, on July 9, 1997 the
Bankruptcy Court entered an order confirming the Company's plan of
reorganization which became effective after the close of business on July 22,
1997. Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the Reorganized
Company as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 2.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 19, 1997
<PAGE>
FORSTMANN & COMPANY, INC.
BALANCE SHEETS
NOVEMBER 2, 1997 AND NOVEMBER 3, 1996
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
November 2, November 3,
NOTES 1997 1996
----- ---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 493,000 $ 48,000
Cash restricted for settlement of unpaid claims 558,000 --
Accounts receivable, net of allowance of
$458,000 and $4,205,000 42,005,000 35,890,000
Inventories 4 43,210,000 44,646,000
Current deferred tax assets 9 -- --
Other current assets 926,000 224,000
Property, plant and equipment held for sale 5 -- 1,250,000
------------ ------------
Total current assets 87,192,000 82,058,000
Property, plant and equipment, net 5 24,779,000 65,664,000
Other assets 6 1,670,000 2,207,000
------------ ------------
Total $113,641,000 $149,929,000
============ ============
See notes to financial statements.
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
BALANCE SHEETS
NOVEMBER 2, 1997 AND NOVEMBER 3, 1996 (CONTINUED)
<CAPTION>
Reorganized Predecessor
Company Company
November 2, November 3,
NOTES 1997 1996
----- ---- ----
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt 8 $ 5,756,000 $ 48,389,000
Accounts payable 3,335,000 2,173,000
Accrued liabilities 7 11,371,000 13,399,000
------------ -------------
Total current liabilities 20,462,000 63,961,000
Long-term debt 8 42,548,000 4,010,000
Deferred tax liabilities 9 -- --
------------ -------------
Total liabilities not subject to compromise 63,010,000 67,971,000
Liabilities subject to compromise 13 -- 88,631,000
Commitments and contingencies 14
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) 10 -- 2,655,000
SHAREHOLDERS' EQUITY (DEFICIT): 11
New common stock, $.01 par value,10,000,000
shares authorized 4,384,436 shares issued
and outstanding 43,844 --
Old common stock, $.001 par value,20,000,000
shares authorized, 5,618,799 shares issued
and outstanding -- 5,619
Additional paid-in capital 50,297,156 26,564,381
Excess of additional pension liability
over unrecognized prior service cost -- (1,107,000)
Retained earnings since July 23, 1997
and (deficit) since November 2, 1992 290,000 (34,791,000)
------------ -------------
Total shareholders' equity (deficit) 50,631,000 (9,328,000)
------------ -------------
Total $113,641,000 $ 149,929,000
============ =============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Reorganized
Company PREDECESSOR COMPANY
----------- ---------------------------------------------------
Period From Period From
July 23, November 4, Fifty-Three Fifty-Two
1997 to 1996 to Weeks Ended Weeks Ended
November 2, July 22, November 3, October 29,
NOTES 1997 1997 1996 1995
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $57,126,000 $ 141,884,000 $ 195,028,000 $ 222,217,000
Cost of goods sold 49,400,000 123,217,000 172,273,000 195,894,000
----------- ------------- ------------- -------------
Gross profit 7,726,000 18,667,000 22,755,000 26,323,000
Selling, general and administrative
expenses 4,296,000 11,576,000 18,129,000 23,310,000
Provision for uncollectible accounts
and notes receivable 458,000 252,000 1,397,000 2,879,000
Loss (gain) from abandonment, disposal
and impairment of machinery and
equipment and other assets 5 7,000 (90,000) (45,000) 382,000
----------- ------------- ------------- -------------
Operating income (loss) 2,965,000 6,929,000 3,274,000 (248,000)
Interest expense (contractual
interest of $11,192,000 for the
Predecessor Company 1997 261-Day
Period, $17,683,000 for 1996 and
$20,422,000 for 1995) 8 1,723,000 4,958,000 9,063,000 19,569,000
----------- ------------- ------------- -------------
Income (loss) before reorganization
Items, income taxes and
extraordinary gain (loss) 1,242,000 1,971,000 (5,789,000) (19,817,000)
Reorganization items 16 395,000 33,401,000 12,055,000 10,904,000
----------- ------------- ------------- -------------
Income (loss) before income taxes
and extraordinary item 847,000 (31,430,000) (17,844,000) (30,721,000)
See notes to financial statements.
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF OPERATIONS (CONTINUED)
<CAPTION>
Reorganized
Company PREDECESSOR COMPANY
----------- -----------------------------------------------------
Period From Period From
July 23, November 4, Fifty-Three Fifty-Two
1997 to 1996 to Weeks Ended Weeks Ended
November 2, July 22, November 3, October 29,
NOTES 1997 1997 1996 1995
----- ---- ---- ---- ----
<S> <C> <C>
Income tax provision:
Not payable in cash (benefit) 9 461,000 -- -- (4,250,000)
----------- ------------ ------------ ------------
Income (loss) before extraordinary item 386,000 (31,430,000) (17,844,000) (26,471,000)
Extraordinary item - gain (loss) on
debt discharge (96,000) 24,135,000 -- --
----------- ------------ ------------ ------------
Net income (loss) 290,000 (7,295,000) (17,844,000) (26,471,000)
Preferred stock in-kind dividends and
accretion to redemption value 10 -- -- -- (230,000)
----------- ------------ ------------ ------------
Income (loss) applicable to common
shareholders $ 290,000 $ (7,295,000) $(17,844,000) $(26,701,000)
=========== ============ ============ ============
Per share and share information:
Income (loss) before extraordinary item
applicable to common shareholders $ .09 $ (5.59) $ (3.18) $ (4.75)
Extraordinary (loss) gain applicable to
common shareholders $ (.02) $ 4.29 $ -- $ --
----------- ------------ ------------ ------------
Income (loss) applicable to common
shareholders $ .07 $ (1.30) $ (3.18) $ (4.75)
=========== ============ ============ ============
Weighted average common shares
outstanding 4,384,436 5,618,799 5,618,799 5,618,799
=========== ============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Reorganized
Company PREDECESSOR COMPANY
------------ ------------------------------------------------
Period From Period From
July 23, November 4, Fifty-Three Fifty-Two
1997 to 1996 to Weeks Ended Weeks Ended
November 2, July 22, November 3, October 29,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 290,000 $ (7,295,000) $(17,844,000) $(26,471,000)
------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,519,000 10,600,000 13,113,000 13,982,000
Write-off of debt premium -- -- -- (3,531,000)
Write-off of deferred financing costs -- 211,000 -- 1,005,000
Income tax not payable in cash 461,000 -- -- --
Income tax benefit -- -- -- (4,250,000)
Income tax refunds (payments), net (250,000) (108,000) 2,531,000 1,014,000
Provision for uncollectible accounts 458,000 252,000 1,397,000 2,879,000
Increase (decrease) in market reserves 721,000 (6,362,000) (2,249,000) 6,418,000
Loss from abandonment, disposal and impairment
of machinery and equipment and other assets 7,000 3,305,000 1,782,000 8,199,000
Non-cash item-beginning profit inventory
write-down 686,000 -- -- --
Adjustment of accounts to fair value -- 22,076,000 -- --
Extraordinary loss (gain) on debt discharge 96,000 (24,135,000) -- --
Foreign currency transaction loss (gain) -- (1,000) 22,000 (2,000)
Change in current assets and current liabilities:
Accounts receivable 10,301,000 (17,592,000) 6,594,000 10,338,000
Inventories 3,854,000 9,047,000 27,073,000 (711,000)
Other current assets 182,000 (996,000) 456,000 279,000
Accounts payable (676,000) 2,028,000 446,000 (11,382,000)
Accrued liabilities (2,292,000) 795,000 4,190,000 (3,224,000)
Investment in notes receivable, net -- -- -- (10,000)
Operating liabilities subject to compromise (96,000) (513,000) (1,279,000) 32,940,000
------------ ------------ ------------ ------------
Total adjustments 15,136,000 (1,393,000) 54,076,000 53,944,000
------------ ------------ ------------ ------------
Net cash provided (used) by operating activities 15,261,000 (8,688,000) 36,232,000 27,473,000
------------ ------------ ------------ ------------
See notes to financial statements.
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
Reorganized
Company PREDECESSOR COMPANY
------------ ------------------------------------------------
Period From Period From
July 23, November 4, Fifty-Three Fifty-Two
1997 to 1996 to Weeks Ended Weeks Ended
November 2, July 22, November 3, October 29,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows provided (used) by investing activities:
Investment in property, plant and equipment (857,000) (1,036,000) (972,000) (13,729,000)
Investment in other assets, principally
computer information systems (125,000) (289,000) (921,000) (1,361,000)
Proceeds from disposal of property,
plant and equipment 8,000 2,612,000 150,000 110,000
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities (974,000) 1,287,000 (1,743,000) (14,980,000)
------------ ------------ ------------ ------------
Cash flows provided (used) by financing activities:
Net borrowings (repayments) under the
Revolving Loan Facility (12,855,000) 26,244,000 -- --
Borrowings under the Term Loan Facility -- 31,450,000 -- --
Repayment of the Term Loan Facility (1,123,000) -- -- --
Net borrowings (repayments) under DIP Facility -- (16,017,000) 6,582,000 9,434,000
Net borrowings (repayments) under GE Capital
Facility -- -- (38,626,000)
(20,070,000)
Proceeds from the Term Loan -- -- -- 7,500,000
Repayment of the Term Loan -- -- -- (7,500,000)
Repayment of Senior Secured Notes -- (26,909,000) (91,000) --
Borrowing under the CIT Equipment Facility -- -- -- 2,487,000
Borrowing under financing arrangements -- 1,691,000 -- --
Repayment of CIT Equipment Facility and other
financing arrangements (99,000) (6,368,000) (1,770,000) (2,900,000)
Deferred financing costs 109,000 (2,006,000) (588,000) (572,000)
Cash paid in connection with Dissenters'
Proceeding -- -- -- (869,000)
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities (13,968,000) 8,085,000 (34,493,000) (12,490,000)
------------ ------------ ------------ ------------
Net increase (decrease) in cash 319,000 684,000 (4,000) 3,000
Cash at beginning of period 732,000 48,000 52,000 49,000
------------ ------------ ------------ ------------
Cash at end of period $ 1,051,000 $ 732,000 $ 48,000 $ 52,000
============ ============ ============ ============
See notes to financial statements.
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
Reorganized
Company PREDECESSOR COMPANY
------------ ------------------------------------------------
Period From Period From
July 23, November 4, Fifty-Three Fifty-Two
1997 to 1996 to Weeks Ended Weeks Ended
November 2, July 22, November 3, October 29,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Supplemental schedule of cash flow information:
Cash paid during the period for interest $ 1,520,000 $ 5,093,000 $ 6,187,000 $ 15,336,000
=========== ============ ============ ============
Cash (received) paid during the period for
income taxes , net $ 250,000 $ 108,000 $ (2,531,000) $ (1,014,000)
=========== ============ ============ ============
Cash paid during the period for professional fees
relating to services rendered in connection with
the Chapter 11 proceeding and other
reorganization items paid $ 2,392,000 $ 4,019,000 $ 4,778,000 $ 847,000
=========== ============ ============ ============
Supplemental schedule for non-cash investing
and financing activities:
Preferred stock in-kind dividends and accretion
to redemption value $ -- $ -- $ -- $ 230,000
=========== ============ ============ ============
Supplemental schedule of changes in current
assets and current liabilities:
Accounts receivable trade, net:
Decrease (increase) from operations $10,301,000 $(17,592,000) $ 6,594,000 $ 10,338,000
Loss on asset impairment -- 466,000 -- --
Provision for uncollectible accounts 458,000 252,000 1,397,000 2,879,000
----------- ------------ ------------ ------------
Net decrease (increase) $10,759,000 $(16,874,000) $ 7,991,000 $ 13,217,000
=========== ============ ============ ============
Inventories:
Decrease (increase) from operations $ 3,854,000 $ 9,047,000 $ 27,073,000 $ (711,000)
Decrease from non-cash barter transaction -- -- -- 1,704,000
Decrease from non-cash beginning profit
inventory write-down 686,000 -- -- --
Increase from fair market valuation -- (6,510,000) -- --
Increase (decrease) in market reserves 721,000 (6,362,000) (2,249,000) 6,418,000
----------- ------------ ------------ ------------
Net decrease (increase) $ 5,261,000 $ (3,825,000) $ 24,824,000 $ 7,411,000
=========== ============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Shares Pension Total
Of Additional Liability Retained Shareholders'
Common Common Paid-In Over Prior Earnings Equity
STOCK STOCK CAPITAL SERVICE COST (DEFICIT) (DEFICIT)
------ ------ ---------- ------------ --------- ---------
PREDECESSOR COMPANY:
<S> <C> <C> <C> <C> <C> <C>
Balance, October 30, 1994 5,618,799 $ 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 5,618,799 $ 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 5,618,799 $ 5,619 $ 26,564,381 $(1,107,000) $(34,791,000) $ (9,328,000)
Loss for period before debt
discharge and refinancing
and fresh start accounting -- -- -- -- (8,760,000) (8,760,000)
Adjustments for:
Cancellation of old
common stock and
old preferred stock (5,618,799) (5,619) 2,660,619 -- -- 2,655,000
Discharge of debt 4,384,436 43,844 62,697,156 -- 24,135,000 86,876,000
Debt refinancing expense -- -- -- -- (594,000) (594,000)
Fresh start accounting adjustments:
Fair market valuation of assets
and liabilities -- -- -- -- (22,076,000) (22,076,000)
Eliminate retained earnings
deficit and pension liability
over prior service cost -- -- (43,193,000) 1,107,000 42,086,000 --
---------- -------- ------------ ----------- ------------ ------------
Balance, July 22, 1997 4,384,436 $ 43,844 $ 48,729,156 $ -- $ -- $ 48,773,000
See notes to financial statements.
</TABLE>
(continued on next page)
<PAGE>
<TABLE>
FORSTMANN & COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<CAPTION>
Shares Pension Total
Of Additional Liability Retained Shareholders'
Common Common Paid-In Over Prior Earnings Equity
STOCK STOCK CAPITAL SERVICE COST (DEFICIT) (DEFICIT)
------ ------ ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REORGANIZED COMPANY:
Adjustments to pension liability
over prior service cost -- -- 1,107,000 -- -- 1,107,000
Income for period -- -- -- -- 290,000 290,000
Income taxes not payable
in cash -- -- 461,000 -- -- 461,000
--------- ------- ----------- ----------- -------- -----------
Balance, November 2, 1997 4,384,436 $43,844 $50,297,156 $ -- $290,000 $50,631,000
========= ======= =========== =========== ======== ===========
See notes to financial statements.
</TABLE>
<PAGE>
FORSTMANN & COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE REORGANIZED
COMPANY 1997 103-DAY PERIOD ENDED NOVEMBER 2, 1997 AND THE PREDECESSOR COMPANY
1997 261-DAY PERIOD ENDED JULY 22, 1997, THE FIFTY-THREE WEEKS ENDED NOVEMBER 3,
1996 AND THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995
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.
On September 22, 1995, as a result of a decline in the Company's
results of operations during Fiscal Year 1995 reflecting, among other factors,
rising wool costs, sluggish retail apparel sales, and high debt leverage, the
Company filed a petition for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Filing"). From September
22, 1995 to July 23, 1997, the Company operated as a debtor-in-possession.
On May 14, 1997, the Company filed its First Amended Plan of
Reorganization (the "Plan of Reorganization") and an accompanying First Amended
Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code (the
"Disclosure Statement"). On May 15, 1997, the Bankruptcy Court entered an order
approving the Company's Disclosure Statement, and shortly thereafter, the
Company began to solicit the vote of its creditors and stockholders with respect
to the Plan of Reorganization in accordance with the Bankruptcy Code. On July 9,
1997, the Bankruptcy Court entered an order confirming the Plan of
Reorganization. On July 23, 1997 (the "Effective Date"), the Plan of
Reorganization was consummated by the Company.
Pursuant to the Plan of Reorganization, all general unsecured claims
against the Company were converted into 100% of the common stock of the
reorganized Company based on a ratio of 50 shares per each $1,000 of allowed
unsecured claim. Secured claims against the Company aggregating approximately
$60.1 million were either refinanced, reinstated or restructured as more fully
described in Note 8 to the Financial Statements. In addition, pursuant to the
Plan of Reorganization, as of the Effective Date:
(i) holders of the Company's redeemable preferred stock
received in the aggregate warrants entitling them to
purchase 43,878 shares of the new common stock of the
Company within two years of the Effective Date at an
exercise price of $23 per share, and the preferred stock
was canceled;
<PAGE>
(ii) holders of the Company's old common stock received in the
aggregate warrants entitling them to purchase 43,878 shares
of the new common stock of the Company within two years of
the Effective Date at an exercise price of $23 per share,
and the old common stock was canceled;
(iii) holders of options to purchase common stock of the Company
received no distributions under the Plan, and the options
were canceled;
(iv) an aggregate of 487,528 shares of common stock of the
reorganized Company were reserved for issuance upon
exercise of options granted or to be granted pursuant to
the Company's Management Stock Option Plan and, as of the
Effective Date, 146,258 options were granted to certain
employees of the Company at an exercise price of $12.88 per
share;
(v) the Company entered into a Loan and Security Agreement
dated as of July 23, 1997 (the "Loan and Security
Agreement") with BankAmerica Business Credit, Inc.
("BABC"), as agent, and the financial institutions named
therein, the proceeds of which were used to repay all
amounts outstanding under the Company's GE Capital DIP
Facility (hereinafter defined) and CIT Equipment Facility
(hereinafter defined), repay the principal and a portion of
the accrued and unpaid interest due under the Senior
Secured Notes (hereinafter defined) and fund other amounts
due pursuant to the Plan of Reorganization and the Loan and
Security Agreement.
2. REORGANIZATION VALUE AND "FRESH START" ACCOUNTING.
In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company established
its reorganization value and adopted "fresh start" accounting as of July 22,
1997.
Pursuant to SOP 90-7, the total reorganization value of the
reorganized Company's assets was determined using several factors and by
reliance on various valuation methods, including discounting cash flow, as well
as by analyzing market cash flow multiples applied to the Company's pro forma
adjusted 12-month trailing cash flows. The factors considered by the Company
included:
(i) Forecasted operating and cash flow results which gave
effect to the estimated impact of the restructuring and
implementation of the Company's strategic initiatives;
limitations on the use of available net operating loss
carryovers and other tax attributes resulting from
consummation of the Plan of Reorganization and other
events;
<PAGE>
(ii) the discounted residual value at the end of the forecast
period;
(iii) market share and position;
(iv) competition and general economic considerations;
(v) future potential profitability, and;
(vi) the Company's seasonality and working capital
requirements.
Based on this analysis, the Company, after consultation with the
Company's creditors' committee established by the Bankruptcy Court and an
independent firm specializing in reorganizations retained by the creditors'
committee, established the Company's reorganization value. Under the principles
of "fresh start" accounting, the Company's total net assets were recorded at
this assumed reorganization value, which was then allocated to identifiable
tangible and intangible assets on the basis of their estimated fair value. In
accordance with "fresh start" accounting, the difference between the assumed
reorganization value and the aggregate fair value of the identifiable tangible
and intangible assets resulted in a reduction in the value assigned to property,
plant and equipment. In addition, the Company's accumulated deficit was
eliminated.
(continued on next page)
<PAGE>
The effect of the Plan of Reorganization and the application of
"fresh start" accounting to the Company's condensed balance sheet as of July 22,
1997 was as follows (in thousands):
<TABLE>
<CAPTION>
Pre-Fresh
Start Plan of Fresh Start
Balance Reorganization Fair Value Balance
Sheet Adjustments Adjustment Sheet
July 22, 1997 (A) (B) July 22, 1997
------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 48 $ 684 $ -- $ 732
Accounts receivable 52,764 -- -- 52,764
Inventory 41,961 -- 6,510 48,471
Other current assets 1,220 (360) -- 860
--------- -------- -------- --------
Total current assets 95,993 324 6,510 102,827
Property, plant and equipment, net 53,879 -- (28,586) 25,293
Deferred financing costs 794 995 -- 1,789
Other assets 91 -- -- 91
--------- -------- -------- --------
Total assets $ 150,757 $ 1,319 $(22,076) $130,000
========= ======== ======== ========
Current maturities of long-term debt $ 53,906 $(48,282) $ -- $ 5,624
Accounts payable 3,964 -- -- 3,964
Accrued liabilities 17,043 (3,378) -- 13,665
--------- -------- -------- --------
Total current liabilities 74,913 (51,660) -- 23,253
Long-term debt 2,690 54,114 -- 56,804
Other long-term obligations 1,170 -- -- 1,170
Liabilities subject to compromise 87,417 (87,417) -- --
Redeemable preferred stock 2,655 (2,655) -- --
Stockholders' equity (deficit) (18,088) 88,937 (22,076) 48,773
--------- -------- -------- --------
Total liabilities and stockholders' equity $ 150,757 $ 1,319 $(22,076) $130,000
========= ======== ======== ========
</TABLE>
(A) To record the transactions consummated pursuant to the Plan of
Reorganization and eliminate the deficit in accumulated
stockholders' deficit.
(B) To record the adjustments to state assets and liabilities at
fair value and adjust for the difference between the assumed
reorganization value and the fair value of the identifiable
tangible and intangible assets by reducing the value assigned to
property, plant and equipment.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION VALUE AND "FRESH START" ACCOUNTING - The Company's
financial statements have been prepared in accordance with SOP 90-7.
FISCAL YEAR - The Company has adopted a fiscal year ending on the
Sunday nearest to October 31.
<PAGE>
As a result of the consummation of the Plan of Reorganization and the
application of "fresh start" accounting in accordance with SOP 90-7, the Company
was required to report its financial results for Fiscal Year 1997 in two
separate periods. The following table describes the periods presented in the
financial statements and the notes thereto:
PERIOD REFERRED TO AS
Results of the Reorganized Company "Reorganized Company 1997 103-Day Period"
From July 23, 1997 to
November 2, 1997
Results for the Reorganized Company "Reorganized Company 1997 Fourth Quarter"
From August 4, 1997
to November 2, 1997
Results for the Predecessor Company "Predecessor Company 1997 261-Day Period"
From November 4, 1996
to July 22, 1997
Combined Reorganized Company "Fiscal Year 1997"
1997 103-Day Period and
Predecessor Company 1997
261-Day Period (Results for the
Fifty-Two Weeks Ended
November 2, 1997)
Results for the Predecessor Company "Fiscal Year 1996"
Fifty-Three Weeks Ended
November 3, 1996
Results for the Predecessor Company "Fiscal Year 1995"
Fifty-Two Weeks Ended
October 29, 1995
Due to the effects of the consummation of the Plan of Reorganization
and application of "fresh start" accounting, results for Fiscal Year 1997 are
not necessarily fully comparable to the results for Fiscal Year 1996 and Fiscal
Year 1995. Due to the seasonal nature of the Company's business, the results of
each of the Reorganized Company 1997 103-Day Period and the Predecessor Company
1997 261-Day Period can not be annualized so as to be indicative of the results
for a full fiscal year.
<PAGE>
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 2, 1997, $1.5 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 $20.2 million at November 2,
1997 and $16.5 million at November 3, 1996.
One of the Company's customers accounted for approximately 17%, 13%
and 14% of the Company's revenues during Fiscal Years 1997, 1996 and 1995,
respectively. No other customer of the Company accounted for 10% or more of the
Company's revenues in these Fiscal Years 1997, 1996 and 1995.
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. One individual
customer's accounts receivable balance represented approximately 23.4% of gross
accounts receivable at November 2, 1997 and no other individual customer's
accounts receivable balance exceeded 6.1% of gross accounts receivable at
November 2, 1997.
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 adjusted cost, net of accumulated depreciation and amortization. In
conjunction with adoption of "fresh start" accounting, all property, plant and
equipment was adjusted to reflect reorganization value. 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. Property, plant and equipment is evaluated on a quarterly basis
and written down to net realizable value when management believes that the
undepreciated cost can not be recovered through future cash flow.
<PAGE>
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.
RECENT ACCOUNTING PRONOUNCEMENTS - In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per share". SFAS 128 establishes standards
for computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock and requires the
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period being
reported. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted on the issuance of common stock that then shared
in the earnings of the entity. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted and all prior-period EPS data presented
must be restated. Adoption of SFAS 128 is not expected to be material to the
Company's results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997 and reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Company
will provide the comprehensive income statement required by SFAS 130.
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, under SFAS 131, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS 131 also requires that a public business enterprise report
descriptive information about the way operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
does not believe that it has reportable segments as defined by SFAS 131.
4. INVENTORIES
Inventories consist of the following at November 2, 1997 and November
3, 1996 (in thousands):
1997 1996
---- ----
Raw materials and supplies $ 8,303 $ 7,406
Work-in-process 27,459 32,007
Finished products 8,169 11,595
Less market reserves (721) (6,362)
-------- --------
Total 43,210 44,646
Difference between LIFO carrying
value and current replacement
cost -- 3,936
-------- --------
Current replacement cost $ 43,210 $ 48,582
======== ========
Market reserves are estimated by the Company based, in part, on
inventory age as well as estimated usage.
During the Predecessor Company 1997 261-Day Period, the Company sold
certain yarn inventory which had been previously identified as surplus or
obsolete for its net carrying value which was $3.0 million below its gross
inventory value. This transaction resulted in a release of yarn inventory market
reserves of $3.0 million and did not give rise to any loss during the
Predecessor Company 1997 261-Day Period. Additionally, the Company increased
market reserves by $0.9 million for inventory related to the converting fabrics
product line which had been discontinued as part of the product rationalization
effort undertaken in Fiscal Year 1996. Such reserve was necessary as a result of
selling price markdowns anticipated to sell off the remaining converting fabrics
inventory on hand. This expense was charged to reorganization items during the
Predecessor Company 1997 261-Day Period.
<PAGE>
At the Effective Date, the Company adjusted its inventory balances to
fair value resulting in the elimination of the LIFO reserve of approximately
$2.7 million and a write-up of approximately $3.8 million above the predecessor
Company's FIFO cost. Such write-up was credited against reorganization items
during the Predecessor Company 1997 261-Day Period and will be allocated to cost
of goods sold as the inventory on hand at the Effective Date is sold.
Approximately $0.7 million was charged to cost of goods sold during the
Reorganized Company 1997 Fourth Quarter.
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 and rendered 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.
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 $0.5 million during the
Predecessor Company 1997 261-Day Period and $2.2 million in Fiscal Year 1996.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at November 2,
1997 and November 3, 1996 (in thousands):
1997 1996
---- ----
Land $ 243 $ 840
Buildings 4,062 16,391
Machinery and equipment 21,003 85,977
Construction in progress 826 4,685
-------- ---------
Total 26,134 107,893
Less accumulated depreciation and
amortization (1,355) (42,229)
-------- ---------
Net $ 24,779 $ 65,664
======== =========
Capital lease assets (principally machinery and equipment) at November
2, 1997 and November 3, 1996 were $808,000 and $5,389,000, respectively.
Accumulated amortization related to such capital lease assets at November 2,
1997 and November 3,1996 was $23,000 and $1,173,000, respectively.
Depreciation and amortization expense of capital lease assets was
$9,792,000 for Fiscal Year 1997, $11,417,000 for Fiscal Year 1996 and
$11,870,000 for Fiscal Year 1995.
<PAGE>
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
$0.1 million in expenses during the Predecessor Company 1997 261-Day Period in
connection with the relocation of certain of its wool blending machinery and
equipment from the Tifton facility to the Dublin facility. These expenses were
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 (the "TCDA"), providing for the sale of the
Tifton facility for $1.25 million. On July 18, 1997, the sale was consummated
and the net proceeds of $1.25 million were applied to a portion of the accrued
but unpaid interest due to the holders of the Company's Senior Secured Notes.
The selling price for the Tifton facility was $1.1 million below the net book
value for the facility and such loss was accrued during Fiscal Year 1996.
In accordance with "fresh start" accounting, the difference between
the assumed reorganization value and the fair value of the identifiable tangible
and intangible assets resulted in a write-down in the value assigned to
property, plant and equipment of $28.6 million. During the Predecessor Company
1997 261-Day Period, the Company adjusted certain impaired property, plant and
equipment to its net realizable value. This resulted in a $0.4 million increase
in cost of goods sold and a $0.1 million increase in selling, general and
administrative expenses during the Predecessor Company 1997 261-Day Period.
As of November 3, 1996, $4.2 million was included in construction in
progress relating to certain unerected equipment located at the Tifton facility.
Such equipment was not sold in connection with the sale of the Tifton facility.
During the Predecessor Company 1997 261-Day Period, the Company negotiated the
return of such equipment to its manufacturer or sold such equipment and
recognized a loss of $2.9 million. Such loss is reflected as a reorganization
items in the Predecessor Company 1997 261-Day Period.
<PAGE>
6. OTHER ASSETS
Other assets consist of the following at November 2, 1997 and
November 3, 1996 (in thousands):
1997 1996
------ ------
Computer information systems,
net of accumulated amortization of
$0 and $2,270 $ 94 $1,174
Deferred financing costs, net of
accumulated amortization of
$164 and $1,874 1,520 679
Other, including $0 and $246 of net
barter credits 56 354
------ ------
Total $1,670 $2,207
====== ======
During the Predecessor Company 1997 261-Day Period, the Company
evaluated its computer information systems that were being internally developed
and concluded that the majority of such previously capitalized costs will not be
recovered through future operations and, accordingly, wrote off approximately
$1.2 million of such deferred software development costs.
Also, during the Predecessor Company 1997 261-Day Period, the Company
wrote off approximately $0.2 million of deferred financing costs associated with
debt agreements that were fully paid in connection with the consummation of the
Plan of Reorganization.
Based upon analysis of planned barter credit use, the Company wrote
down its barter credits by $0.2 million during the Predecessor Company 1997
261-Day Period and $0.5 million during Fiscal Year 1996.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following at November 2, 1997 and
November 3, 1996 (in thousands):
1997 1996
------- -------
Salaries and wages
Salaries and wages
(including related payroll taxes) $ 978 $ 987
Incentive compensation 2,082 1,289
Vacation 1,729 1,616
Employee benefit plans 20 617
Interest on long-term debt 62 2,888
Medical insurance claims 1,327 1,330
Professional fees 355 2,346
Environmental remediation 361 339
Deferred rental and other lease obligations 2,186 --
Other 2,271 1,987
------- -------
Total $11,371 $13,399
======= =======
See Note 13 to the Financial Statements for accrued liabilities
included in Liabilities Subject to Compromise at November 3, 1996.
<PAGE>
8. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS
Long-term debt consists of the following at November 2, 1997 and
November 3, 1996 (in thousands):
1997 1996
-------- ---------
Revolving Loan Facility $ 13,389 $ --
Term Loan Facility 30,327 --
Deferred Interest Rate Notes 1,571 --
Other note 603 --
Capital lease obligations 2,414 3,337
GE Capital DIP Facility -- 16,017
Senior Secured Notes -- 26,909
CIT Equipment Facilities -- 6,136
Senior Subordinated Notes -- 56,632
-------- ---------
Total debt 48,304 109,031
Current portion of long-term debt (5,756) (48,389)
Senior Subordinated Notes included in
Liabilities Subject to Compromise -- (56,632)
-------- ---------
Total long-term debt $ 42,548 $ 4,010
======== =========
REVOLVING LOAN AND TERM LOAN FACILITIES - On July 23, 1997, the
Company entered into the Loan and Security Agreement with a syndicate of
financial institutions led by BABC. The Loan and Security Agreement provides for
a revolving line of credit (including a $10.0 million letter of credit
facility), subject to a borrowing base formula, of up to $85 million (the
"Revolving Loan Facility") and term loans of approximately $31.5 million (the
"Term Loan Facility").
Borrowings on July 23, 1997 of $28.0 million under the Revolving Loan
Facility, plus the proceeds from the Term Loan Facility, were used to repay all
borrowings outstanding under the Company's GE Capital DIP Facility (hereinafter
defined) and CIT Equipment Facility (hereinafter defined), repay the principal
and a portion of the accrued and unpaid interest due under the Senior Secured
Notes (hereinafter defined) and fund other amounts due pursuant to the Plan of
Reorganization and the Loan and Security Agreement.
The Revolving Loan Facility and the Term Loan Facility mature on July
22, 2000. If the Company elects to terminate the Revolving Loan Facility prior
to April 23, 2000, the Company must pay a termination fee. The fee will be
$850,000 if the termination occurs prior to the first anniversary of the Loan
and Security Agreement, $637,500 if the termination occurs between the first and
second anniversaries of the Loan and Security Agreement and $425,000 if the
termination occurs between the second anniversary of the Loan and Security
Agreement and April 23, 2000. The Term Loan Facility can be prepaid, at the
Company's election, without a termination fee at any time prior to maturity. The
Company's obligations under the Loan and Security Agreement are secured by liens
on substantially all of the Company's assets.
<PAGE>
Outstanding borrowings (including outstanding letters of credit)
under the Revolving Loan Facility cannot exceed the sum of (1) 85% of eligible
accounts receivable (including eligible bill and hold receivables up to $17.6
million), plus (2) the lesser of $30.0 million or 65% of eligible inventory,
less (3) a reserve that is initially $6.5 million and declines by $47,500 each
month as payments under the Term Loan Facility are made. Further, the Company's
borrowing base is subject to other reserves which may be established from time
to time by BABC. At November 2, 1997, the Company's loan availability as defined
in the Loan and Security Agreement, in excess of outstanding advances and
letters of credit, was approximately $36.0 million.
Borrowings under the Revolving Loan Facility and the Term Loan
Facility bear interest, at the Company's option, at a floating rate (which is
based on a Bank of America reference rate ("Prime")) or a fixed rate (which is
based on LIBOR), payable monthly. Under the Revolving Loan Facility, the
floating rate is 0.25% per annum above Prime and the fixed rate is 2.50% per
annum above LIBOR. Under the Term Loan Facility, the floating rate is 0.75% per
annum above Prime and the fixed rate is 3.00% per annum above LIBOR.
At November 2, 1997, there were two fixed rate loans of approximately
$5.0 million each outstanding under the Revolving Loan Facility, which bore
interest at 8.375% per annum, through November 28, 1997, and 8.50% per annum
through January 28, 1998, respectively. There were two fixed rate loans of
approximately $6.0 and $24.0 million outstanding under the Term Loan Facility,
which bore interest at 8.875% per annum, through November 28, 1997, and 9.00%
per annum, through January 28, 1998, respectively. Further, at November 2, 1997,
approximately $327,000 of the Term Loan Facility bore floating rate interest at
9.50% per annum, and approximately $3.4 million of the Revolving Loan Facility
bore floating rate interest at 9.0% per annum.
The Term Loan Facility requires monthly principal payments of
approximately $374,000 commencing August 31, 1997. Further, the Company is
required to pay 50% of excess cash flow (as defined in the Loan and Security
Agreement) for each fiscal year as long as the outstanding principal balance
under the Term Loan Facility is greater than $23.3 million. Such excess cash
flow payments are due on April 30 of each year following the fiscal year for
which an "excess cash flow" payment is due. Such payments are to be applied
against the unamortized principal portion of the Term Loan Facility in the
inverse order of maturity. The Company anticipates that its excess cash flow
payment for Fiscal Year 1997, which payment will be due on April 30, 1998, will
be approximately $1.4 million.
In connection with entering into the Loan and Security Agreement, the
Company paid BABC approximately $728,000 as an underwriting fee and agreed to
pay the financial institutions party to the Loan and Security Agreement an
unused line fee of 0.50% per annum on the average unused portion of the
Revolving Loan Facility. The Company paid approximately $582,000 as a facility
fee to participants in the syndicate to the Loan and Security Agreement. In
addition, the Company pays BABC an agency fee of $125,000 per annum, payable
monthly commencing August 1, 1997, and pays certain fees in connection with
letters of credit. Further, the Company pays BABC a loan administration fee of
0.25% per annum on the principal amount outstanding under the Revolving Loan
Facility and Term Loan Facility.
<PAGE>
The Loan and Security Agreement contains certain restrictive
covenants, including limitations on 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 interest and fixed charge coverage ratios, minimum adjusted
tangible net worth requirements and maximum capital expenditure and software
development costs. As of November 2, 1997, the Company was in compliance with
such covenants.
DEFERRED INTEREST RATE NOTES AND SENIOR SECURED NOTES - On April 5,
1993, the Company issued an aggregate of $20 million of its Senior Secured
Floating Rate Notes and on March 30, 1994, the Company issued an aggregate of
$10 million of its Senior Secured Floating Rate Notes, all of which were 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").
On the Effective Date, the outstanding principal amount of the Senior
Secured Notes was repaid in full and the Company issued subordinated floating
rate notes (the "Deferred Interest Rate Notes") in respect of accrued but unpaid
interest (approximately $1.6 million) due the holders of the Senior Secured
Notes. In connection with the issuance of the Deferred Interest Rate Notes, the
Company paid a closing fee of approximately $31,400. Further, in accordance with
the Plan of Reorganization, the Company paid $157,000 in trustee fees and legal
fees and expenses. The Deferred Interest Rate Notes are due July 23, 2001 and
bear interest at 4.5% per annum above LIBOR, payable monthly. Subject to certain
exceptions, the Deferred Interest Rate Notes restrict, among other things, the
incurrence of indebtedness and liens. On December 22, 1997, the Company repaid
the Deferred Interest Rate Notes and accrued interest due thereon through
borrowings under the Revolving Loan Facility.
OTHER NOTE AND CAPITAL LEASE OBLIGATIONS - Prior to the Bankruptcy
Filing, the Company was a party to certain capital lease financing arrangements
which provided financing for the acquisition of various textile machinery and
equipment. In connection with the consummation of the Plan of Reorganization,
the Company issued a secured note in satisfaction of its obligations under one
of the capital leases and restructured the remaining capital leases in
settlement of the lessors' secured claims. The principal amount due under such
note and capital lease obligations are included in the schedule of aggregate
long-term debt maturities below.
GE CAPITAL DIP FACILITY - In connection with the Bankruptcy Filing,
the Company 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 provided
up to $85 million in financing (including a $10.0 million letter of credit
facility) under a borrowing base formula. In connection with its emergence from
bankruptcy, the Company repaid all amounts outstanding under the GE Capital DIP
Facility and paid approximately $103,000 in unpaid amendment fees and legal fees
and expenses.
<PAGE>
CIT EQUIPMENT FACILITY - The Company was a party to a loan and
security agreement (the "CIT Equipment Facility") with the CIT Group/Equipment
Financing, Inc. ("CIT") which provided financing for the acquisition of, and to
refinance borrowings incurred to acquire, various textile machinery and
equipment. At the Bankruptcy Filing date the Company owed CIT approximately $7.7
million in principal and accrued interest. On the Effective Date, the
outstanding principal and accrued but unpaid interest due under the CIT
Equipment Facility was repaid in full. Further, in accordance with the Plan of
Reorganization, the Company paid approximately $36,000 in legal fees and
expenses.
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 "Subordinated Notes"). 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.
In accordance with the Plan of Reorganization, the Subordinated Notes
were settled through the issuance of 3,013,744 shares of common stock of the
reorganized Company. Further, in accordance with the Plan of Reorganization, the
Company paid $80,000 in trustee fees associated with the Subordinated Notes.
AGGREGATE MATURITIES - Aggregate long-term debt maturities excluding
capital lease obligations (see Note 14 to the Financial Statements), are as
follows (in thousands):
FISCAL YEAR AMOUNT
----------- ------
1998 ........................................... $ 4,722
1999 ........................................... 4,699
2000 ........................................... 34,898
2001 ........................................... 1,571
-------
Total.......................................... $45,890
=======
9. INCOME TAXES
The provision (benefit) for income taxes is as follows (in
thousands):
Reorganized Predecessor
Company 1997 Company 1997
103-Day 261-Day
PERIOD PERIOD 1996 1995
------ ------ ---- ----
Current $-- $-- $ -- $(1,930)
Deferred 461 -- -- (2,320)
---- ----- ------- -------
Total $461 $-- $ -- $(4,250)
==== ===== ======= =======
<PAGE>
A reconciliation between federal income taxes at the statutory rate
and the Company's income tax provision is as follows:
Reorganized Predecessor
Company 1997 Company 1997
103-Day 261-Day
PERIOD PERIOD 1996 1995
------ ------ ---- ----
Federal statutory tax rate 35.00% (35.00)% (35.00)% (35.00)%
State income taxes, net
of federal benefit 4.50 (4.50) (4.50) (4.50)
Valuation allowance -- 29.09 32.94 25.14
Non-deductible expenses 14.93 10.41 6.56 .53
----- ----- ----- -----
Income tax provision 54.43% -- % -- % (13.83)%
===== ===== ===== =====
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.
(continued on next page)
<PAGE>
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 2, 1997
and November 3, 1996 are as follows (in thousands):
1997 1996
-------- --------
Deferred tax liabilities:
Differences between book and tax basis of
property, plant and equipment $ -- $ 9,915
Deferred interest payable -- 1,054
Inventories 968 --
Other -- 27
-------- --------
Total 968 10,996
-------- --------
Deferred tax assets:
Operating loss carryforwards (7,773) (14,222)
Alternative minimum tax carryforwards (923) (923)
Differences between book and tax basis of property,
plant and equipment (2,797) --
Difference between book and tax basis of
computer information systems -- (494)
Accrued liabilities (2,954) (4,256)
Barter credits reserve (963) (814)
Allowance for uncollectible accounts (2,068) (1,661)
Inventories -- (5,888)
Other (30) (219)
-------- --------
Total (17,508) (28,477)
Valuation allowance 16,540 17,481
-------- --------
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 2, 1997, the Company had cumulative net operating loss carryforwards
for federal income tax purposes of approximately $18.5 million. For federal
income tax purposes, net operating loss carryforwards begin to expire in the
year 2010. Under the Plan of Reorganization, certain debt instruments were
canceled in exchanged for shares in the reorganized Company's common stock as
described in Note 8 to the Financial Statements. As a result, the Company
recognized a gain on extinguishment of debt of approximately $24.1 million in
the Predecessor Company 1997 261-Day Period. The Company had sufficient net
operating loss carryforwards to offset this gain and therefore, no income tax
expense was recorded.
<PAGE>
Distribution of the new common stock of the Company to the Company's
unsecured creditors pursuant to the Plan of Reorganization is believed to have
resulted in an ownership change as defined in Section 382 of the Internal
Revenue Code. This ownership change limits the Company's ability to utilize its
net operating loss carryforwards. Such ownership change further limits the
Company's ability to utilize certain of its other carryforward tax attributes.
Certain future events may result in such benefits being utilized in
the Company's future income tax returns, which the Company will record as a
reduction in the valuation allowance and, in accordance with the principles of
"fresh start" accounting, a credit to additional paid-in capital.
During Fiscal Year 1995, the Company fully utilized its net operating
loss carrybacks as permitted by the Internal Revenue Code. For the Predecessor
Company's 1997 261-Day Period and Fiscal Year 1996, no income tax benefit has
been recognized from the realization of net operating losses. In accordance with
SOP 90-7, an income tax provision not payable in cash was recognized for the
Reorganized Company 1997 103-Day Period at an effective income tax rate of
54.43%. Such provision was credited against additional paid-in capital as net
operating losses generated during the Predecessor Company 1997 261-Day Period
can be used to offset net taxable income generated during the Reorganized
Company's 1997 103-Day Period.
10. REDEEMABLE PREFERRED STOCK
The Company's senior preferred stock, with a dividend rate of 5% per
annum, was non-voting, except in limited circumstances, and ranked senior to any
subsequently issued class or series of preferred stock. As a result of the
Bankruptcy Filing, the Company no longer accrued the dividend due under the
redeemable preferred stock or accreted the recorded balance to redemption value.
On the Effective Date, holders of the Company's redeemable preferred
stock received in the aggregate warrants entitling them to purchase 43,878
shares of the new common stock of the Company within two years of the Effective
Date at an exercise price of $23 per share and the preferred stock was
cancelled.
11. SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS
SHAREHOLDERS' EQUITY - The Company had 4,384,436 shares of common
stock outstanding at November 2, 1997 (including 106,237 shares of common stock
held by the Company as the Distribution Agent under the Plan of Reorganization
in a Disputed Claims Equity Reserve pending determination of the entitlement
thereto of holders of certain disputed claims against the Company) having a par
value of $.01 per share. Authorized shares were 10,000,000 at November 2, 1997.
In accordance with "fresh start" accounting, as more thoroughly described in
Note 2 to the Financial Statements, the balance of the shareholders' deficit on
July 22, 1997 was reclassified to additional paid-in capital. Accordingly, at
November 2, 1997, retained earnings is comprised of the net income of the
Company since its emergence from bankruptcy on July 23, 1997.
Also on the Effective Date, the Company issued warrants to holders of
record as of July 9, 1997 of its old common stock and its old preferred stock.
Eligible stockholders received warrants to purchase an aggregate of 87,756
shares of the Company's new common stock at an exercise price of $23 per share.
The warrants may be exercised at any time prior to the second anniversary of the
Effective Date.
<PAGE>
REGISTRATION RIGHTS AGREEMENT - On the Effective Date, pursuant to
the Plan of Reorganization, the Company entered into a Registration Rights
Agreement (the "Registration Rights Agreement") with certain holders of its
common stock. The Registration Rights Agreement requires that the Company file a
registration statement covering the shares of common stock held by such holders
on or before March 31, 1998. The Company is also required to use its best
efforts to have the registration statement declared effective by the Securities
and Exchange Commission and to keep the registration statement effective for a
period of two years.
RIGHTS PLAN - On October 9, 1997, the Company adopted a shareholders'
rights plan (the "Rights Plan") whereby shareholders of record on October 29,
1997 received one right (the "Right(s)") to purchase one share of common stock
at an exercise price of $60 for each common share held on the record date. The
Rights will become exercisable in the event that any person or group acquires
25% or more of the Company's common shares, or announces a tender offer for 25%
or more of the Company's common stock. However, the Rights Plan "grandfathers"
positions in the Company's common stock in existence on October 9, 1997 and the
ownership by a person or group of 25% or more of the Company's common shares on
such date will not trigger the exercisablility of the Rights so long as such
person or group does not acquire an additional 1% or more of the Company's
common shares. Should any "non-grand-fathered" person or group acquire 25% or
more of the common shares of the Company, all Rights not held by such person or
group will entitle the holders thereof to purchase common shares of the Company
at a 50% discount from the then current market price for such common stock.
Alternatively, after a person or group crosses the 25% threshold and before such
person or group owns 50% or more of the Company's common shares, the Company's
Board of Directors alternatively may issue one common share in exchange for each
Right (other than those held by the acquiring person) in lieu of the Rights to
be exercised. In the event of a merger of the Company, the Rights Plan requires
that provision be made for the conversion of the Rights into rights to purchase
shares of the acquiring person at a 50% discount. The Rights, which have a ten
year term, may be redeemed for $0.01 per Right by the Company at any time prior
to the time the Rights become exercisable.
STOCK OPTION PLANS - 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, which are intended to meet the requirements of
Section 422 of the Internal Revenue Code, or non-qualified stock options.
Pursuant to the Plan of Reorganization options outstanding under the
Option Plan were terminated. The Company, pursuant to the Plan of
Reorganization, adopted the Forstmann & Company, Inc. Executive Stock Option
Plan (the "Executive Option Plan") for key employees and reserved 487,528 shares
of its new common stock for future issuance upon the exercise of stock options
granted or to be granted pursuant to the Executive Option Plan. On the Effective
Date, the Company granted options to purchase an aggregate of 146,258 shares of
common stock at an exercise price of $12.88 per share to certain employees.
One-quarter of these options vested on the Effective Date and an additional
quarter will vest on each of the first three anniversaries of the Effective
Date. No options under the Executive Option Plan were exercised during Fiscal
Year 1997.
<PAGE>
In October 1995, Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" was issued. The adoption of
the new recognition provisions for stock-based compensation expense included in
SFAS No.123 is optional. As permitted by SFAS No. 123, the Company has elected
to follow the measurement provisions of Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," in its accounting for employee stock
options and does not recognize compensation expense for its stock-based plans;
therefore, no impact on the Company's financial position and results of
operations is expected. Had compensation cost for the Executive Option Plan been
determined consistent with the methodology prescribed by SFAS No.123, the
Company's net income and earnings per share for the Reorganized Company 1997
103-Day Period would have been reduced, on a pro forma basis, to $113,000 and
$.03, respectively from the actual $290,000 and $.07, respectively.
(continued on next page)
<PAGE>
Shares of the Company's common stock available for future grants
under the Management Option Plan were 341,270 at November 2, 1997. Stock option
transactions are summarized as follows:
Executive Option Option
Option Plan Plan Plan
1997 1997 1996
---- ---- ----
Shares under option at
beginning of fiscal year -- 145,667 421,301
Granted 146,258 -- --
Exercised -- -- --
Terminated -- (145,667) (275,634)
------- -------- --------
Shares under option at end
of fiscal year 146,258 -- 145,667
======= ======== ========
Options exercisable at end of
of fiscal year 36,564 -- 95,667
======= ======== ========
Options available for future grant 341,270 -- 800,536
======= ======== ========
Option prices per share:
Granted $ 12.88 -- --
Exercised -- -- --
Outstanding at end of fiscal year $ 12.88 -- $6.75-$8.50
The weighted averaged fair value of the stock options granted during
Fiscal Year 1997 under the Management Option Plan was $4.30. The fair value of
each stock option grant is estimated on the date of grant using the Black
Scholes option pricing model with the following weighted average assumption used
for grants in Fiscal Year 1997:
Risk free interest rate 6.06%
Expected dividend yield 0.0%
Expected life 5.0 years
Expected volatility 44.2%
The outstanding stock options at November 2, 1997 have a weighted
average contractual life of 9.75 years.
<PAGE>
12. EMPLOYEE BENEFIT PLANS
The Company has established and presently maintains qualified
noncontributory pension plans and qualified profit sharing and savings plans
covering substantially all hourly and salaried 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. Pension benefits for salaried plan participants
are based on the plan participants' average compensation for the last five years
of service and pension benefits 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 2, 1997 (Combined Reorganized Company 1997
103-Day Period and Predecessor Company 1997 261-Day Period), November 3, 1996
and October 29, 1995 (in thousands, except assumption percentages):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- -------------------------- ---------------------
Hourly Salaried Hourly Salaried Hourly Salaried
Pension Pension Pension Pension Pension Pension
PLAN PLAN PLAN PLAN PLAN PLAN
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 633 $ 695 $ 659 $ 798 $ 489 $ 683
Interest cost 750 676 681 577 591 539
Return on plan assets (853) (730) (537) (503) (489) (434)
----- ----- ----- ----- ----- -----
Net periodic pension cost $ 530 $ 641 $ 803 $ 872 $ 591 $ 788
===== ===== ===== ===== ===== =====
Assumptions used in the accounting are:
Discount rates 7.25% 7.25% 7.50% 7.50% 7.25% 7.25%
Rate of increase in
compensation levels -- 4.00% -- 4.00% -- 5.50%
Expected long-term rate
of return on assets 8.75% 8.75% 8.00% 8.00% 8.00% 8.00%
</TABLE>
(continued on next page)
<PAGE>
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 2, 1997 and November 3, 1996,
respectively (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------- -------------------------
Hourly Salaried Hourly Salaried
Pension Pension Pension Pension
PLAN PLAN PLAN PLAN
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of pension obligation:
Vested $(10,293) $ (8,613) $ (9,417) $(7,087)
Nonvested (1,125) (408) (648) (506)
-------- -------- -------- -------
Accumulated benefit obligation (11,418) (9,021) (10,065) (7,593)
Effects of projected future
compensation levels -- (1,434) -- (1,223)
-------- -------- -------- -------
Projected benefit obligation (11,418) (10,455) (10,065) (8,816)
Plan assets at fair value 12,121 9,831 9,623 8,240
Unrecognized net loss (gain) 719 (814) 1,170 (764)
-------- -------- -------- -------
Plan assets (accrued pension
costs) included in balance sheet $ 1,422 $ (1,438) $ 728 $(1,340)
======== ======== ======== =======
</TABLE>
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 1997 was decreased from 7.50% to 7.25% based on the
composition of the accumulated benefit obligation and current economic
conditions. Also, as of the beginning of Fiscal Year 1997, the Company increased
its assumed expected long-term rate of return on assets from 8.00% to 8.75% for
both the hourly and salaried pension plans. This increase in the expected
long-term rate of return on assets was based on the historical actual returns on
plan assets.
In accordance with "fresh start" accounting the hourly pension plan's
excess of additional pension liability over unrecognized prior service cost was
eliminated and charged to paid-in capital at July 22, 1997. During the
Reorganized Company 1997 103-Day Period, the Company decreased its accrued
additional pension liability in excess of accumulated benefit obligation from
$1,170,000 to zero and, in accordance with "fresh start" accounting, credited
additional paid-in capital $1,107,000 and credited other assets $63,000.
<PAGE>
The Company's assumed 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. 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 employees' savings, investment and profit
sharing plan under Section 401(k) of the Internal Revenue Code (the "Qualified
401(k) Plan"). During Fiscal Year 1997, the Qualified 401(k) Plan was amended to
include eligible hourly employees participation in the Qualified 401(k) Plan
effective January 1, 1998. The Company also adopted a non-qualified salaried
employees' savings, investment and profit sharing plan covering certain salaried
employees not covered under the Qualified 401(k) Plan (the "Non-Qualified
Plan"). No matching contributions to the Qualified 401(k) Plan or Non-Qualified
Plan were made by the Company in Fiscal Year 1997, Fiscal Year 1996 or Fiscal
Year 1995. Subsequent to November 2, 1997, the Company terminated the
Non-Qualified Plan.
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 were to be
payable in two installments, 50% one month after the Company's Plan of
Reorganization became effective with the remaining 50% payable six months after
the Plan of Reorganization became effective. The Plan of Reorganization became
effective on July 23, 1997. Accordingly, on August 26, 1997, the Company paid
$0.8 million in connection with the Program. 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 2, 1997, $0.8 million
was accrued by the Company in connection with the Program.
<PAGE>
13. LIABILITIES SUBJECT TO COMPROMISE
Liabilities Subject to Compromise consist of the following at
November 3, 1996 (in thousands):
1996
----
Subordinated Notes, including accrued
pre-petition interest $60,330
Trade accounts payable 22,591
Priority tax claim 293
Accrued severance 1,295
Deferred rental and other lease
obligations 2,735
Accrued additional pension liability in excess of
accumulated benefit obligation 1,170
Other 217
-------
Total $88,631
=======
In accordance with the Plan of Reorganization, unsecured creditors
with allowed claims could elect to receive the lesser of $400 or the actual
amount of their allowed unsecured claim (the "Convenience Class"). Accordingly,
on the Effective Date, the Company paid $59,068 to the Convenience Class.
Further, in accordance with the Plan of Reorganization, the Company was required
to deposit into a reserve account (the "Disputed Claims Cash Reserve") cash
equal to 100% of the asserted amount of administrative, priority and secured
claims as to which the Company disputes liability. On the Effective Date, the
Company deposited $684,221 in the Disputed Claims Cash Reserve. At November 2,
1997, $558,000 was on deposit in the Disputed Claims Cash Reserve account.
<PAGE>
14. 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 2, 1997, are as follows (in thousands):
Operating Capital
FISCAL YEAR LEASES LEASES
1998 .................................... $2,661 $1,328
1999 .................................... 2,677 907
2000 .................................... 2,439 587
2001 .................................... 2,194 -
2002..................................... 1,906 -
Thereafter............................... 16,814 -
------- -------
Total minimum lease payments............. $28,691 $2,822
=======
Less amount representing interest........ 408
-------
Present value of minimum lease
payments.............................. 2,414
Less current portion of capital
lease obligations..................... 1,034
-------
Long-term portion of capital
lease obligations..................... $1,380
=======
Rental expense under operating leases was $2.8 million for Fiscal
Year 1997 and $3.1 million for Fiscal Year 1996 and Fiscal Year 1995.
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 new landlord and the
Company entered into a takeover agreement, effective August 1, 1995, whereby the
new 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 wrote off certain leasehold improvements
associated with the Previous Lease.
<PAGE>
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. The new landlord is disputing the
Company's claims under the takeover agreement and landlord contributions the
Company is due pursuant to the New Lease. Pending the outcome of this dispute,
the Company fully reserved its claims against the new landlord during the
Predecessor Company 1997 261-Day Period. Such reserves were charged to
reorganization items.
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.
<PAGE>
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.
LETTERS OF CREDIT - At November 2, 1997, the Company had outstanding
letters of credit aggregating $2.3 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, 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. On August
26, 1997, the Company paid $200,000 and distributed 30,000 shares of its new
common stock pursuant to the terms of the Letter of Agreement as amended. As of
November 2, 1997, $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.
DUBLIN, GEORGIA. On December 29, 1995, the Georgia Environmental
Protection Division ("EPD") issued separate administrative orders (the
"Administrative Orders") to the Company and to J.P. Stevens & Co., Inc.
("Stevens") which relate to three sites on the Georgia Hazardous Site Inventory
- - the "TCE site", the "1,1-DCA site" and another site known as the "Burn Area" -
at the Company's Dublin, Georgia facility. The Administrative Orders required
the Company and Stevens to submit a compliance status report ("CSR") for these
sites that would include, among other things, a description of the release,
including its nature and extent, and suspected or known source, the quantity of
the release and the date of the release. The CSR would also have to include a
determination of cleanup standards (called "risk reduction standards") for the
sites and a certification that the sites were in compliance with those
standards; alternatively, the party submitting the CSR could acknowledge that
the site is not in compliance with risk reduction standards. Pursuant to the
Administrative Orders, if a site is not in compliance with the risk reduction
standards, then a Corrective Action Plan (a "Corrective Action Plan") for
remediating the release would have to be submitted to EPD.
<PAGE>
Since both the Company and Stevens had been required to perform the
same work at all three of these sites, the Company and Stevens agreed to
allocate responsibilities between themselves pursuant to an Agreement Concerning
Performance of Work ("Agreement") dated January 24, 1997. The Agreement required
the Company to prepare and submit to EPD the CSR for the TCE and 1,1-DCA sites,
while requiring Stevens to prepare and submit to EPD a CSR for the Burn Area
site. Stevens has submitted a CSR for the Burn Area site but has not received a
response from EPD. The Agreement does not commit either party to perform
corrective action at these sites.
The Company submitted a CSR for the TCE and 1,1-DCA sites, which
certified compliance with risk reduction standards for both sites. EPD indicated
that it did not agree to the certification with respect to the TCE site. After
extensive discussions with EPD concerning the issue, the Company submitted a
Corrective Action Plan for the TCE site by letter dated May 15, 1997. By letter
dated September 29, 1997, EPD responded to the Corrective Action Plan with
notice of deficiency. The Company submitted a revised Corrective Action Plan on
October 31, 1997. The revised Corrective Action Plan calls for continued
operation of the Company's existing groundwater recovery system, as well as one
additional groundwater recovery well and a groundwater collection trench near
the former dry cleaning basement. EPD has not yet responded to the Company's
revised Corrective Action Plan.
TIFTON, GEORGIA. In January 1997, the Company was notified by a
potential buyer of the Company's Tifton facility that soil and groundwater
samples had been obtained from that facility and that certain contaminants had
been identified. Subsequently, through sampling and testing performed by the
Company's environmental consultants, the Company confirmed the presence of
contaminants in groundwater samples taken at the site. On February 28, 1997, the
Company notified EPD of such findings, and the site was placed on the Georgia
Hazardous Site Inventory.
The Company subsequently consummated its sale of the Tifton facility.
As part of that transaction, the Company, the Tift County Development Authority
as purchaser ("TCDA") and Burlen Corporation as operator ("Burlen") entered into
an Environmental Cost Sharing and Indemnity Agreement ("Cost Sharing
Agreement"). Under the Cost Sharing Agreement, the Company retained
responsibility for remediating certain contamination, to the extent required by
law, that originated prior to Burlen's occupancy of the premises. Likewise, the
Company assumed the obligation to indemnify TCDA and Burlen in regard to such
contamination to the extent that a claim is made by an unaffiliated third party
or governmental agency. In exchange, Burlen agreed to pay to the Company the
lesser of (1) $150,000 minus any payments already made to the Company (certain
expenses had already been shared) to respond to the contamination or (2)
one-half of the costs incurred by the Company in response to such contamination.
EPD has not yet requested any additional response to conditions at this site.
At November 2, 1997, the Company had $0.4 million accrued for costs
to be incurred in connection with the TCE, 1,1-DCA and Tifton facility
environmental matters. The Company, subject to EPD concurring with the Company's
Corrective Action Plan relating to the TCE and 1,1-DCA sites, EPD's response to
J.P. Stevens CSR and compliance status certification and EPD's response to the
Tifton site, believes the accrual for environmental costs at November 2, 1997 is
adequate.
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards 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.
Judgement is required in developing the estimates of fair value
presented herein. Accordingly, these estimates are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - The carrying amount
of these items is a reasonable estimate of their fair value.
LONG-TERM DEBT (OTHER THAN CAPITAL LEASE OBLIGATIONS) - Based upon
the nature of the Company's Loan and Security Agreement and the Deferred
Interest Rate Notes, the Company believes its carrying value approximates fair
value.
Accordingly, the Company believes that the carrying amount for cash,
accounts receivable, accounts payable and long-term debt (other than capital
lease obligations) approximates fair value at November 2, 1997.
<PAGE>
16. 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
the Reorganized Company 1997 103-Day Period, the Predecessor Company 1997
261-Day Period, Fiscal Year 1996 and Fiscal Year 1995 and consists of (in
thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
COMPANY COMPANY
------------ ------------------------------------------------
1997 103-Day 1997 261-Day
Period Ended Period Ended Fiscal Fiscal
November 2, July 22, Year Year
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional fees $288 $ 3,102 $ 4,084 $ 1,234
Write off of deferred financing cost
and expense and other financing
fees incurred -- 403 -- 1,305
Write off of debt premium associated
with Subordinated Notes -- -- -- (3,531)
Impairment of assets (See Notes 4, 5
and 6) -- 4,199 5,076 12,156
Expense incurred due to the rejection and
amendment of executory contracts -- 3,314 925 --
Default interest expense and
professional fees associated with the
Senior Secured Notes -- (388) 1,101 --
Severance expenses 51 105 279 190
Adjustment of accounts to fair value
(see Note 2) -- 22,076 -- --
Other 56 590 590 (450)
---- -------- ------- --------
Total $395 $ 33,401 $12,055 $ 10,904
==== ======== ======= ========
</TABLE>
During the Predecessor Company 1997 261-Day Period, the Company
recognized a $2.9 million loss for certain equipment not installed at the
Company's Tifton facility which was held for sale.
During the Predecessor Company 1997 261-Day Period, pre-petition
unsecured liabilities were increased by $3.3 million associated with contract
rejection damages relating to the Company's former headquarters and marketing
office leases ($1.7 million), the termination of a contract to purchase certain
equipment ($0.9 million) and two rejected contracts relating to the former joint
venture with an Italian fabric designer ($0.7 million). These charges were
recognized as reorganization items during the Predecessor Company 1997 261-Day
Period. Such charges were partially offset by the recognition of a $0.9 million
net receivable from the Company's current landlord related to its assumption of
a portion of the Company's obligations under its former headquarters lease.
During the Predecessor Company 1997 261-Day Period, the Company fully
reserved against accounts receivable from its current landlord of its
headquarters and marketing offices lease relating to its assumption of a portion
of the Company's former headquarters lease as well as the remaining work
allowance receivable under its current lease. This charge was partially offset
by a reduction in the deferred rent liability account for its current lease due
to the adjustment of the work allowance receivable. Expense of $0.9 million was
charged to reorganization expense during the Predecessor Company 1997 261-Day
Period as a result of these items.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the Reorganized Company 12-Day Period
Ended August 3, 1997 and 91-Day Period Ended November 2, 1997, the Predecessor
Company 1997 First and Second fiscal quarters and the Predecessor Company 1997
79-Day Period Ended July 22, 1997 and Fiscal Year 1996 are summarized as follows
(in thousands, except per share information):
REORGANIZED COMPANY: FISCAL PERIOD
- -------------------------------- ---------------------------------------------
12-Day 91-Day
Period Period
Ended Ended
August 3, November 2,
1997 1997
---- ----
FISCAL PERIOD 1997
Net sales $8,016 $ 49,110
Gross profit 2,163 5,563
Reorganization items -- 395
Income (loss) before
extraordinary item 893 (567)
Income (loss) applicable to
common shareholders 893 (603)
Income (loss) before
extraordinary item per share
applicable to common
shareholders .20 (.11)
Extraordinary loss on debt
discharge -- --
Income (loss) per share applicable
to common shareholders .20 (.13)
<PAGE>
PREDECESSOR COMPANY: FISCAL PERIOD
- ---------------------------- ---------------------------------------------
79-Day
Period
Ended
July 22,
FIRST SECOND 1997
FISCAL PERIOD 1997
Net sales $ 31,218 $64,786 $ 45,880
Gross profit 2,843 11,926 3,898
Reorganization items 4,151 4,174 25,076
Income (loss) before
extraordinary item (7,318) 2,040 (26,152)
Income (loss) applicable to
common shareholders (7,318) 2,040 (2,017)
Income (loss) before
extraordinary item per
share applicable to
common shareholders (1.30) .36 (4.65)
Extraordinary gain on debt
discharge -- -- 24,135
Income (loss) per share
applicable to common
shareholders (1.30) .36 (.36)
PREDECESSOR COMPANY: 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)
During the Predecessor Company 79-Day Period Ended July 22, 1997 in
connection with the adoption of "fresh start" accounting, the Company
adjusted its inventory balances to fair value resulting in the elimination
of the LIFO reserve of approximately $2.7 million and a write-up of
approximately $3.8 million above the predecessor Company's FIFO cost (See
Note 4 to the Financial Statements) and decreased the value assigned to
property, plant, and equipment by $28.6 million (See Note 5 to the Financial
Statements). These items resulted in a $22.1 million charge to
reorganization items during the Predecessor Company 1997 79-Day Period Ended
July 22, 1997.
As a result of the consummation of the Plan of Reorganization which
resulted in the exchange of the general unsecured claims against the Company
for equity in the reorganized Company, the Company recognized an
extrordinary gain on debt discharge of $24.1 million during the Predecessor
Company 79-Day Period Ended July 22, 1997. Also during the Predecessor
Company 79-Day Period Ended July 22, 1997, the Company wrote off
approximately $1.2 million of deferred software development costs (See Note
6 to the Financial Statements) and wrote off approximately $0.9 million of
certain assets and liabilities associated with the Company's headquarters
lease (See Note 16 to the Financial Statements), accelerated depreciation
associated with impaired property, plant and equipment by $0.5 million (See
Note 5 to the Financial Statements) and wrote off approximately $0.2 million
of deferred financing costs (See Note 6 to the financial statements).
During the first quarter of Fiscal Year 1997, the Company accrued a
$3.0 million loss for certain unerected equipment at the Company's Tifton
facility which was held for sale. During the Predecessor Company's 1997
79-Day Period Ended July 22, 1997, such equipment was sold and a gain of
$0.1 million was realized (See Note 5 to the Financial Statements). During
the second quarter of Fiscal Year 1997, the Company increased pre-petition
unsecured liabilities by $3.3 million (See Note 16 to the Financial
Statements), increased inventory market reserves related to the converting
fabrics product line by $0.9 million (See Note 4 to the Financial
Statements) and wrote down its barter credits by $0.2 million (See Note 6 to
the Financial Statements). Also, due to the seasonal nature of the Company's
business, during the first quarter of Fiscal Year 1997 and the Reorganized
Company 1997 Fourth Quarter, the Company incurred significant unfavorable
manufacturing variances resulting from a slowdown of production at its
manufacturing facilities.
During the fourth quarter of Fiscal Year 1996, the Company accrued
$1.1 million for the expected loss on the sale of the Tifton plant (see Note
5 to the Financial Statements), increased its barter credit reserve by $0.5
million (see Note 6 to the Financial Statements), increased its inventory
market reserves by $1.0 million (see Note 4 to the Financial Statements),
reduced its severance accrual relating to the Company's former Chairman of
the Board, President and Chief Executive Officer by $1.0 million and accrued
$0.8 million for severance associated with three former executives of the
Company. Also, due to the seasonal nature of the Company's business, 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.
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
FORSTMANN & COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
THE FIFTY-TWO WEEKS ENDED OCTOBER 29, 1995 AND
NOVEMBER 2, 1997 AND THE FIFTY-THREE WEEKS ENDED NOVEMBER 3, 1996 AND THE
FIFTY-TWO WEEKS ENDED NOVEMBER 2, 1997
Additions
Balance at Charged to Balance
Beginning Costs and at End
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
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
Fifty-Two Weeks Ended
November 2, 1997 $4,205,000 $ 710,000 $ (4,457,000)(1)(2) $ 458,000
INVENTORY MARKET RESERVES:
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
Fifty-Two Weeks Ended
November 2, 1997 $6,362,000 $ 3,334,000 $ (8,975,000)(2) $ 721,000
</TABLE>
(1) Accounts written off net of recoveries of accounts previously written
off.
(2) Includes amounts netted against the gross accounts as of July 23,
1997 in connection with "fresh start" accounting.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information required by Item 10 (Directors and Executive Officers
of the Registrant) Item 11 (Executive Compensation), Item 12 (Security Ownership
of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships
and Related Transactions) is incorporated by reference to the Company's
definitive proxy statement for the 1998 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before February 28,
1998, except that the "Report of the Compensation Committees" and the
"Performance Graph" and the text describing it to be contained in the proxy
statement are not incorporated by reference herein.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1 and 2.
Financial statements and financial statement schedules - See Index
Financial Statements and Financial Statement Schedules in Item 8 of
this Annual Report.
3. Listing of Exhibits:
2. First Amended Plan of Reorganization (Exhibit 1 to
Company's Current Report on Form 8-K dated July 9, 1997).
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).
3.1(d) Amendment Pursuant to Reorganization of the Articles of
Incorporation of Forstmann & Company, Inc., dated July 23,
1997 (Exhibit 3 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 3, 1997).
3.2(a)* Amended and Restated By-Laws of the Company as of October
9, 1997.
4.1 Registration Rights Agreement, dated as of July 23, 1997,
between the Company and the holders of Common Stock named
therein. (Exhibit 4.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 3, 1997).
<PAGE>
4.2 Warrant Agreement, dated as of July 23, 1997, between the
Company and Norwest Bank Minnesota, N.A., as warrant
agent. (Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 3, 1997).
4.3 Indenture, dated as of July 23, 1997, between the Company
and State Street Bank and Trust Company, as Trustee
(Deferred Interest Rate Notes). (Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997).
4.4(a)*** Loan Agreement, dated as of July 23, 1997, between the
Company and Schlaforst Inc.
4.4(b)*** Promissory Note, dated as of July 23, 1997, between the
Company and Schlaforst Inc.
4.4(c)*** Security Agreement, dated as of July 23, 1997, between the
Company and Schlaforst Inc.
10.1(a) Loan and Security Agreement, dated as of July 23, 1997,
among the Company, the lenders named therein, and
BankAmerica Business Credit, Inc., as agent (the "Agent").
(Exhibit 10.1(a) to the Company's Quarterly Report on Form
10-Q for the quarterly period ended August 3, 1997).
10.1(b) Trademark Security Agreement, dated as of July 23, 1997,
between the Company and the Agent. (Exhibit 10.1(b) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997).
10.1(c) Patent Secutiry Agreement, dated as of July 23, 1997,
between the Company and the Agent. (Exhibit 10.1(c) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997).
10.1(d) Pledge Agreement, dated as of July 23, 1997, between the
Company and the Agent. (Exhibit 10.1(d) to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended August 3, 1997).
10.1(e) Deed to Secure Debt, dated as of July 23, 1997, between
the Company and the Agent, with respect to the owned real
property located in Laurens County, Georgia. (Exhibit
10.1(e) to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended August 2, 1997).
<PAGE>
10.1(f) Deed to Secure Debt, dated as of July 23, 1997, between
the Company and the Agent, with respect to the owned real
property located in Baldwin County, Georgia. (Exhibit
10.1(f) to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended August 5, 1997).
10.1(g) Deed to Secure Debt, dated as of July 23, 1997, between
the Company and the Agent, with respect to the owned real
property located in Jefferson County, Georgia. (Exhibit
10.1(g) to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended August 3, 1997).
10.2** Incentive Plan for Senior Managers, effective as of July
23, 1997. (Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended August 3,
1997).
10.3** Incentive Plan for Key Employees, effective as of July 23,
1997. (Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended August 3,1 997).
10.4** Executive Stock Option Plan, effective as of July 23,
1997. (Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended August 3, 1997).
10.5 Environmental Cost Sharing and Indemnity Agreement dated
as of July 18, 1997, among the Company, Tift County
Development Authority and Burlen Corporation. (Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended August 3, 1997).
10.6(a) 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).
10.6(b) 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).
10.6(c) 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).
10.7(a)* Form of Indemnity Agreement, effective as of October 9,
1997, between the Company and certain of its corporate
officers.
<PAGE>
10.7(b)* Form of Indemnity Agreement, effective as of October 9,
1997, between the Company and its directors.
10.8 Forstmann & Company, Inc. Incentive Compensation and
Retention Program, effective as of November 14, 1996
(Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended November 3, 1996).
10.9(a) 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).
10.9(b) 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).
10.9(c) Second Amendment to Agreement for Financial Consulting
Services, dated December 20, 1996 (Exhibit 10.10(m) to the
Company's Annual Report on Form 10-K for the year ended
November 3, 1996).
11.1* Computation of per share earnings.
27* Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K during the fourth quarter of
its fiscal year ended November 2, 1997.
* Filed herewith.
** Management or Compensatory Plan or Arrangements.
*** Not filed herewith. Registrant has filed herewith an Undertaking to
Furnish Copy of Agreements Upon Request.
<PAGE>
September 18, 1997
Undertaking to Furnish Copy of
Agreements Upon Request
Loan Agreement, dated as of July
23, 1997, Between the Company and
Schlafhorst Inc.
Promissory Note, dated as of July
23, 1997, Between the Company and
Schlafhorst Inc.
Security Agreement, dated as of July
23, 1997, Between the Company and
Schlafhorst Inc.
The total amount of the debt securities to which the above-referenced agreements
relate does not exceed 10% of the total assets of the registrant and,
consequently, the registrant is not filing the agreements pursuant to Paragraph
(b) (4) (iii) of Item 601 of Regulation S-K. The registrant will provide the
Securities and Exchange Commission with a copy of such agreements upon request.
Sincerely,
FORSTMANN & COMPANY, INC.
By /s/Rodney Peckham
-----------------
Rodney Peckham
Chief Financial Officer
<PAGE>
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/ Rodney J. Peckham
-------------------------------------
Rodney J. Peckham
Executive Vice President Finance,
Administration and Strategic Planning
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/ Brian A. Moorstein President January 30, 1998
- ----------------------
Brian A. Moorstein (Principal Executive
Officer)
/s/ Rodney J. Peckham Executive Vice President January 30, 1998
- ----------------------
Rodney J. Peckham Finance, Administration
and Strategic Planning
(Principal Financial
Officer)
/s/ Gary E. Schafer Vice President January 30, 1998
- ----------------------
Gary E. Schafer and Corporate
Controller (Principal
Financial Accounting
Officer)
/s/ Bruce W. Gregory Director January 30, 1998
- ----------------------
Bruce W. Gregory
/s/ Margaret Bertelsen Hapton Director January 30, 1998
- -----------------------------
Margaret Bertelsen Hampton
/s/ James E. Kjorlien Director January 30, 1998
- ----------------------
James E. Kjorlien
<PAGE>
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 2, 1997
OF
FORSTMANN & COMPANY, INC.
COMMISSION FILE NUMBER: 1-9474
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
2. First Amended Plan of Reorganization (Exhibit 1 to
Company's Current Report on Form 8-K dated
July 9, 1997). *
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). *
3.1(d) Amendment Pursuant to Reorganization of the Articles
of Incorporation of Forstmann & Company, Inc.,
dated July 23, 1997 (Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997). *
3.2(a) Amended and Restated By-Laws of the Company
as of October 9, 1997.
4.1 Registration Rights Agreement, dated as of July 23, 1997,
between the Company and the holders of Common
Stock named therein. (Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997). *
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
4.2 Warrant Agreement, dated as of July 23, 1997,
between the Company and Norwest Bank Minnesota,
N.A., as warrant agent. (Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997). *
4.3 Indenture, dated as of July 23, 1997, between the
Company and State Street Bank and Trust Company,
as Trustee (Deferred Interest Rate Notes).
(Exhibit 4.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended
August 3, 1997). *
4.4(a)*** Loan Agreement, dated as of July 23, 1997, between
the Company and Schlaforst Inc. *
4.4(b)*** Promissory Note, dated as of July 23, 1997, between
the Company and Schlaforst Inc. *
4.4(c)*** Security Agreement, dated as of July 23, 1997, between
the Company and Schlaforst Inc. *
10.1(a) Loan and Security Agreement, dated as of July 23, 1997,
among the Company, the lenders named therein, and
BankAmerica Business Credit, Inc., as agent
(the "Agent"). (Exhibit 10.1(a) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997). *
10.1(b) Trademark Security Agreement, dated as of
July 23, 1997, between the Company and the Agent.
(Exhibit 10.1(b) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended
August 3, 1997). *
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
10.1(c) Patent Secutiry Agreement, dated as of
July 23, 1997, between the Company and the Agent.
(Exhibit 10.1(c) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended
August 3, 1997). *
10.1(d) Pledge Agreement, dated as of July 23, 1997,
between the Company and the Agent. (Exhibit 10.1(d)
to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended August 3, 1997). *
10.1(e) Deed to Secure Debt, dated as of July 23, 1997,
between the Company and the Agent, with respect
to the owned real property located in Laurens County,
Georgia. (Exhibit 10.1(e) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
August 2, 1997). *
10.1(f) Deed to Secure Debt, dated as of July 23, 1997,
between the Company and the Agent, with respect
to the owned real property located in Baldwin County,
Georgia. (Exhibit 10.1(f) to the Company's Quarterly
Report on Form 10-Q for the quarterly period
ended August 5, 1997). *
10.1(g) Deed to Secure Debt, dated as of July 23, 1997,
between the Company and the Agent, with respect
to the owned real property located in Jefferson
County, Georgia. (Exhibit 10.1(g) to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997). *
10.2 Incentive Plan for Senior Managers, effective as of
July 23, 1997. (Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997). *
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
10.3 Incentive Plan for Key Employees, effective as of
July 23, 1997. (Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period
ended August 3,1 997). *
10.4 Executive Stock Option Plan, effective as of
July 23, 1997. (Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1997). *
10.5 Environmental Cost Sharing and Indemnity Agreement
dated as of July 18, 1997, among the Company, Tift
County Development Authority and Burlen Corporation.
(Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended
August 3, 1997). *
10.6(a) 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). *
10.6(b) 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). *
10.6(c) 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). *
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
10.7(a) Form of Indemnity Agreement, effective as of
October 9, 1997, between the Company and
certain of its corporate officers.
10.7(b) Form of Indemnity Agreement, effective as of
October 9, 1997, between the Company and its
directors.
10.8 Forstmann & Company, Inc. Incentive Compensation
and Retention Program, effective as of
November 14, 1996 (Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the year ended
November 3, 1996). *
10.9(a) 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). *
10.9(b) 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). *
10.9(c) Second Amendment to Agreement for Financial
Consulting Services, dated December 20, 1996
(Exhibit 10.10(m) to the Company's Annual
Report on Form 10-K for the year ended
November 3, 1996). *
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
11.1 Computation of per share earnings.
27 Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K during the fourth quarter of
its fiscal year ended November 2, 1997.
*** Not filed herewith. Registrant has filed herewith an Undertaking to
Furnish Copy of Agreements Upon Request.
<PAGE>
EXHIBIT 3.2(a)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORSTMANN & COMPANY, INC.
AMENDED AND RESTATED
BY-LAWS
As Adopted on October 9, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
OFFICES...............................................................1
Section 1.01. REGISTERED OFFICE......................................1
ARTICLE II
STOCKHOLDERS........................................................1
Section 2.01. ANNUAL MEETINGS........................................1
Section 2.02. SPECIAL MEETINGS.......................................1
Section 2.03. NOTICE OF MEETINGS; WAIVER.............................2
Section 2.04. VOTING.................................................2
Section 2.05. ADJOURNMENT............................................2
Section 2.06. PROXIES................................................3
Section 2.07. ORGANIZATION; PROCEDURE................................3
Section 2.08. QUORUM.................................................3
Section 2.09. INSPECTORS OF ELECTIONS................................3
Section 2.10. OPENING AND CLOSING OF POLLS...........................4
Section 2.11. STOCKHOLDER PROPOSALS..................................4
Section 2.12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.............4
ARTICLE III
BOARD OF DIRECTORS....................................................6
Section 3.01. GENERAL POWERS.........................................6
Section 3.02. NUMBER AND TERM OF OFFICE..............................6
Section 3.03. ELECTION OF DIRECTORS; QUALIFICATION...................6
Section 3.04. NOMINATION OF DIRECTORS................................6
Section 3.05. ANNUAL AND REGULAR MEETINGS; NOTICE....................7
Section 3.06. SPECIAL MEETINGS; NOTICE...............................7
<PAGE>
Section 3.07. QUORUM; VOTING.........................................8
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Section 3.08. ADJOURNMENT............................................8
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Section 3.09. ACTION WITHOUT A MEETING...............................8
------------------------
Section 3.10. REGULATIONS; MANNER OF ACTING..........................8
-----------------------------
Section 3.11. ACTION BY TELEPHONIC COMMUNICATIONS....................8
-----------------------------------
Section 3.12. RESIGNATIONS...........................................8
------------
Section 3.13. REMOVAL OF DIRECTORS...................................8
--------------------
Section 3.14. VACANCIES AND NEWLY CREATED DIRECTORSHIPS..............9
-----------------------------------------
Section 3.15. COMPENSATION...........................................9
------------
Section 3.16. RELIANCE ON ACCOUNTS AND REPORTS, ETC..................9
-------------------------------------
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES..............................9
Section 4.01. HOW CONSTITUTED........................................9
Section 4.02. POWERS................................................10
Section 4.03. PROCEEDINGS...........................................10
Section 4.04. QUORUM AND MANNER OF ACTING...........................10
Section 4.05. ACTION BY TELEPHONIC COMMUNICATIONS...................11
Section 4.06. ABSENT OR DISQUALIFIED MEMBERS........................11
Section 4.07. RESIGNATIONS..........................................11
Section 4.08. REMOVAL...............................................11
Section 4.09. VACANCIES.............................................11
ARTICLE V
OFFICERS.............................................................11
Section 5.01. NUMBER................................................11
Section 5.02. ELECTION..............................................11
Section 5.03. SALARIES..............................................12
Section 5.04. REMOVAL AND RESIGNATION; VACANCIES....................12
Section 5.05. AUTHORITY AND DUTIES OF OFFICERS......................12
Section 5.06. THE CHAIRMAN OF THE BOARD.............................12
Section 5.07. THE PRESIDENT.........................................12
Section 5.08. THE VICE PRESIDENT....................................12
Section 5.09. THE SECRETARY.........................................13
Section 5.10. THE CHIEF FINANCIAL OFFICER...........................13
<PAGE>
Section 5.11. THE TREASURER.........................................14
Section 5.12. ADDITIONAL OFFICERS...................................14
ARTICLE VI
CAPITAL STOCK........................................................15
Section 6.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES..........15
Section 6.02. SIGNATURES............................................15
Section 6.03. LOST, STOLEN OR DESTROYED CERTIFICATES................15
Section 6.04. TRANSFER OF STOCK.....................................15
Section 6.05. RECORD DATE...........................................15
Section 6.06. REGISTERED STOCKHOLDERS...............................16
Section 6.07. TRANSFER AGENT AND REGISTRAR..........................16
ARTICLE VII
INDEMNIFICATION......................................................16
Section 7.01. NATURE OF INDEMNITY...................................16
Section 7.02. SUIT AGAINST CORPORATION..............................17
Section 7.03. NO PRESUMPTION........................................17
Section 7.04. SUCCESSFUL DEFENSE....................................17
Section 7.05. ADVANCE FOR EXPENSES..................................17
Section 7.06. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION....17
Section 7.07. DETERMINATION TO ADVANCE EXPENSES.....................18
Section 7.08. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS
AND OFFICERS..........................................18
Section 7.09. SURVIVAL; PRESERVATION OF OTHER RIGHTS................19
Section 7.10. INSURANCE.............................................19
Section 7.11. SEVERABILITY..........................................19
ARTICLE VIII
GENERAL PROVISIONS...................................................20
Section 8.01. DIVIDENDS.............................................20
Section 8.02. RESERVES..............................................20
Section 8.03. EXECUTION OF INSTRUMENTS..............................20
Section 8.04. CORPORATE INDEBTEDNESS................................20
Section 8.05. DEPOSITS..............................................21
Section 8.06. CHECKS................................................21
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES....................21
Section 8.08. VOTING AS STOCKHOLDER.................................21
<PAGE>
Section 8.09. SEAL..................................................21
Section 8.10. BOOKS AND RECORDS; INSPECTION.........................21
ARTICLE IX
AMENDMENT OF BY-LAWS.................................................22
Section 9.01. AMENDMENT.............................................22
ARTICLE X
CONSTRUCTION.........................................................22
Section 10.01. CONSTRUCTION.........................................22
<PAGE>
FORSTMANN & COMPANY, INC.
AMENDED AND RESTATED
BY-LAWS
As adopted on October 9, 1997
ARTICLE I
OFFICES
Section 1.01. REGISTERED OFFICE. The corporation shall at all
times maintain a registered office in the State of Georgia and a registered
agent at that address but may have other offices located within or without the
State of Georgia as the Board of Directors may determine.
ARTICLE II
STOCKHOLDERS
Section 2.01. ANNUAL MEETINGS. The annual meeting of the
stockholders of the Corporation for the election of the Board of Directors and
for the transaction of such other business as properly may come before such
meeting shall be held at such place, either within or without the State of
Georgia, at such date and hour as may be fixed from time to time by resolution
of the Board of Directors and set forth in the notice or waiver of notice of the
meeting.
Section 2.02. SPECIAL MEETINGS. Special meetings of the
stockholders may be called at any time by the Chairman of the Board (or, in the
event of his or her absence or disability, by the President or, in the event of
his or her absence or disability, by any Vice President), or by the Board of
Directors. A special meeting shall be called by the Chairman of the Board (or,
in the event of his or her absence or disability, by the President or, in the
event of his or her absence or disability, by any Vice President) or by the
Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than 662/3% of the outstanding
shares of the Corporation at the time entitled to vote at any meeting of the
stockholders, provided that such request states the purposes for which the
meeting is called. The business that may be transacted at any special meeting of
the stockholders shall be limited to that proposed in the notice of the special
meeting given in
<PAGE>
accordance with Section 2.03 hereof or otherwise properly brought before the
meeting by a stockholder pursuant to these By-Laws. If such officers or the
Board of Directors shall fail to call such meeting within twenty days after
receipt of such request, any stockholder executing such request may call such
meeting. Such special meetings of the stockholders shall be held at such places,
within or without the State of Georgia, as shall be specified in the respective
notices or waivers of notice thereof.
Section 2.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice, except as may otherwise be required by law. The attendance of
any stockholder at a meeting of stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 2.04. VOTING. If, pursuant to Section 6.05 of these
By-Laws, a record date has been fixed, every holder of record of shares entitled
to vote at a meeting of stockholders shall be entitled to one vote for each
share outstanding in his or her name on the books of the Corporation at the
close of business on such record date. If no record date has been fixed, then
every holder of record of shares entitled to vote at a meeting of stockholders
shall be entitled to one vote for each share of stock outstanding in his or her
name on the books of the Corporation at the close of business on the day next
preceding the day on which notice of the meeting is given or, if notice is
waived, at the close of business on the day next preceding the day on which the
<PAGE>
meeting is held. Except as otherwise required by law or by the Articles of
Incorporation or by these By-Laws, the vote of a majority of the shares
represented in person or by proxy at any meeting at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.
Section 2.05. ADJOURNMENT. If a quorum is not present at any
meeting of the stockholders, the stockholders present in person or by proxy
shall have the power to adjourn any such meeting from time to time until a
quorum is present. Notice of any adjourned meeting of the stockholders of the
Corporation need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 6.05 of these
By-Laws, a notice of the adjourned meeting, conforming to the requirements of
Section 2.03 of these By-Laws, shall be given to each stockholder of record
entitled to vote at such meeting. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted on the
original date of the meeting.
Section 2.06. PROXIES. Any stockholder or his or her agent or
attorney-in-fact entitled to vote at any meeting of the stockholders or to
express consent to or dissent from corporate action in writing without a meeting
may authorize another person or persons to vote at any such meeting and express
such consent or dissent for him or her by proxy. A stockholder may authorize a
valid proxy by executing an appointment form. Such execution may be accomplished
by any reasonable means, including by facsimile, signed by such stockholder or
his or her attorney-in-fact in the case of an individual stockholder, or by an
authorized officer, director, employee or agent in the case of any other
stockholder. No such proxy shall be voted or acted upon after the expiration of
eleven months from the date of such proxy, unless such proxy provides for a
longer period. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where (I) the appointment form states that
it is irrevocable and the appointment is coupled with an interest, or (II)
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
<PAGE>
reproduction of the entire original writing or transmission. An appointment form
is effective when it is received by the inspector of election.
Section 2.07. ORGANIZATION; PROCEDURE. At every meeting of
stockholders, the presiding officer shall be the Chairman of the Board or, in
the event of his or her absence or disability, the President or, in the event of
his or her absence or disability, a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The Secretary or, in the event
of his or her absence or disability, the Assistant Secretary, if any or, if
there be no Assistant Secretary, in the absence of the Secretary, an appointee
of the presiding officer, shall act as Secretary of the meeting. The order of
business and all other matters of procedure at every meeting of stockholders may
be determined by such presiding officer.
Section 2.08. QUORUM. A quorum for the transaction of business
at any annual or special meeting of stockholders shall exist when the holders of
a majority of the outstanding shares entitled to vote are represented either in
person or by proxy at such meeting.
Section 2.09. INSPECTORS OF ELECTIONS. Preceding any meeting
of the stockholders, the Board of Directors shall appoint one or more persons to
act as Inspector of Elections, and may designate one or more alternate
inspectors. In the event no inspector or alternate is able to act, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of the duties of an
inspector, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector may be an officer or employee of the Corporation. The
inspector shall:
(a) ascertain the number of shares outstanding and the voting
power of each;
(b) determine the shares represented at a meeting;
(c) determine the validity of proxies and ballots;
(d) count all votes; and
(e) determine the result.
Section 2.10. OPENING AND CLOSING OF POLLS. The date and time
for the opening and the closing of the polls for each matter to be voted upon at
a stockholder meeting shall be announced at the meeting. The inspector of the
election shall be
<PAGE>
prohibited from accepting any ballots, proxies or votes nor any revocations
thereof or changes thereto after the closing of the polls.
Section 2.11. STOCKHOLDER PROPOSALS. No proposal (a
"Stockholder Proposal") shall be brought before a meeting of stockholders by a
stockholder (the "Proponent") unless the Proponent shall have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty nor more than
ninety days prior to such meeting; provided, however, that if less than seventy
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of meeting was mailed or such public disclosure was made. The notice
shall set forth with particularity (I) the names and business addresses of the
Proponent and all natural persons, corporations, partnerships, trusts or any
other type of legal entity or recognized ownership vehicle (each, a "Person")
acting in concert with the Proponent; (II) the name and address of the Proponent
and the Persons identified in clause (i), as they appear on the Corporation's
books (if they so appear); (III) the number of shares of each class of stock of
the Corporation beneficially owned by the Proponent and each Person identified
in clause (i); (IV) a description of the Stockholder Proposal containing all
material information relating thereto; (V) any material interest of the
Proponent and each Person identified in clause (i) in such proposal; and (VI)
such other information as the Board of Directors reasonably determines is
necessary or appropriate to enable the Board of Directors and stockholders of
the Corporation to consider the Stockholder Proposal. The presiding officer at
any meeting of the stockholders may, if the facts so warrant, determine that any
Stockholder Proposal was not made in accordance with the procedures prescribed
in this Section 2.11 or is otherwise not in accordance with law, and if he or
she should so determine, such officer shall so declare at the meeting and the
Stockholder Proposal shall not be brought before the meeting.
Section 2.12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Whenever the vote of stockholders at a meeting thereof is required or permitted
to be taken for or in connection with any corporate action, such action may be
taken without a meeting, without prior notice and without a vote of
stockholders, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Georgia, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings
<PAGE>
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. Prompt notice of the taking of the corporate written consent shall be
given to those stockholders who have not consented in writing.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by deli very to its registered office in
the State of Georgia, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded.
The record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be fixed by the
Board of Directors. Any stockholder seeking to have the stockholders authorize
or take corporate action by written consent without a meeting shall, by written
notice to the Chairman of the Board or the President, request the Board of
Directors to fix a record date. Upon receipt of such a request, the Chairman of
the Board, or, in his or her absence, the President, shall, as promptly as
practicable, call a special meeting of the Board of Directors to be held as
promptly as practicable, but in any event not more than ten days following the
date of receipt for such a request. At such a meeting, the Board of Directors
shall fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date that such resolution
is adopted. Notice of the record date shall be published in accordance with the
rules and policies of the National Association of Securities Dealers, Inc. If no
record date has been so fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action without a
meeting, where no prior action by the Board of Directors is required by the
Georgia Business Corporation Code, shall be the first date on which a signed
written consent setting forth the action proposed to be taken is delivered to
the Corporation. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by the Georgia Business
Corporation Code, the record date for determining stockholders entitled to
consent to such corporate action in writing without a meeting shall be the date
on which the Board of Directors adopts the resolution taking such prior action.
In the event of the delivery to the Corporation of a written
consent or consents purporting to represent the requisite voting power to
authorize or take corporate action and/or related revocations, the Secretary
shall provide for the
<PAGE>
safekeeping of such consents and revocations and shall, as promptly as
practicable, engage independent inspectors for the purpose of promptly
performing a ministerial review of the validity of the consents and revocations.
No action by written consent without a meeting shall be effective until such
inspectors have completed their review, determined that the requisite number of
ballots and unrevoked consents has been obtained to authorize or take actions
specified in the consents and certifies such determination for entry in the
records of the Corporation for the purpose of recording the proceedings of
meetings of the stockholders.
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. GENERAL POWERS. Except as may otherwise be
provided by law, by the Articles of Incorporation or by these By-Laws, the
property, affairs and business of the Corporation shall be managed by or under
the direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation.
Section 3.02. NUMBER AND TERM OF OFFICE. The number of
directors shall not be less than five, nor more than seven, and shall be fixed
within such minimum and maximum by the stockholders or the Board of Directors.
Each director (whenever elected) shall hold office until the annual meeting of
stockholders and until his or her successor has been duly elected and qualified,
or until his or her earlier death, retirement, disqualification, resignation or
removal from office.
Section 3.03. ELECTION OF DIRECTORS; QUALIFICATION. Except as
otherwise provided in Sections 3.12 and 3.13 of these By-Laws, the directors
shall be elected at each annual meeting of the stockholders. At each meeting of
the stockholders for the election of directors, provided a quorum is present,
the directors shall be elected by a plurality of the votes validly cast in such
election.
As long as any shares of the Corporation's capital stock shall
be quoted on the NASDAQ National Market, the Board of Directors shall ensure,
and shall have all powers necessary to ensure, that the membership of the Board
of Directors shall at all times include such number of "independent" directors
(as such term is defined in Part III, Paragraph 6(c) of Schedule D to the
By-Laws of the National Association of Security Dealers, Inc., as the same may
be amended from time to time) as shall be required by such By-Laws in order for
shares of the Corporation's capital stock to be eligible for quotation on the
NASDAQ National Market. In the event that the shares of the Corporation's
capital stock shall cease to be quoted on the NASDAQ National Market and
subsequently shares of the Corporation's capital stock are listed or quoted on a
national securities exchange or other trading system, the Board of Directors
shall ensure that the membership of the Board of Directors shall at all times be
consistent with the applicable rules and regulations of such exchange or trading
system.
Section 3.04. NOMINATION OF DIRECTORS. Nominations for
election to the Board of Directors at a meeting of stockholders may be made by
the Board of Directors or by any stockholder entitled to vote for the election
of Directors at such meeting. Such nominations, other than those made by or on
behalf of the Board of Directors, shall be made by notice in writing delivered
or mailed by first class United States mail,
<PAGE>
postage prepaid, to the Board of Directors in care of the Secretary of the
Corporation, and received not less than sixty days nor more than ninety days
prior to such meeting; provided, however, that if less than seventy days' notice
or prior public disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed or delivered to the Board of Directors in
care of the Secretary not later than the close of business on the tenth day
following the day on which the notice of meeting was mailed or such public
disclosure was made. Such notice shall set forth (A) as to each proposed nominee
(I) the name, age, business address and, if known, residence address of each
such nominee, (II) the principal occupation or employment of each such nominee,
(III) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee, and (IV) any other information concerning the
nominee that must be disclosed as to nominees in proxy solicitations pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to be named as a nominee and to serve as a
Director if elected); and (B) as to the stockholder giving the notice (I) the
name and address, as they appear on the Corporation's books, of such stockholder
and (II) the class and number of shares of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.04 of these By-laws. The presiding officer at the meeting may, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall not be brought before the meeting.
Section 3.05. ANNUAL AND REGULAR MEETINGS; NOTICE. The annual
meeting of the Board of Directors for the purpose of electing officers and for
the transaction of such other business as may come before the meeting shall be
held as soon as possible following adjournment of the annual meeting of the
stockholders. Notice of such annual meeting of the Board of Directors need not
be given. The Board of Directors from time to time may by resolution provide for
the holding of regular meetings and fix the place (which may be within or
without the State of Georgia) and the date and hour of such meetings. Notice of
regular meetings need not be given, provided, however, that if the Board of
Directors shall fix or change the time or place of any regular meeting, notice
of such action shall be mailed promptly, or sent by telegram, facsimile
transmission or cablegram, to each director who shall not have been present at
the meeting at which such action was taken, addressed to him or her at his or
her usual place of business, or shall be delivered to him or her personally.
Notice of
<PAGE>
such action need not be given to any director who attends the first regular
meeting after such action is taken without protesting the lack of notice to him
or her, prior to or at the commencement of such meeting, or to any director who
submits a signed waiver of notice, whether before or after such meeting.
Section 3.06. SPECIAL MEETINGS; NOTICE. Special meetings of
the Board of Directors shall be held whenever called by the Chairman of the
Board, or, in the event of his absence or disability, by any other director, at
such place (within or without the State of Georgia), date and hour as may be
specified in the respective notices or waivers of notice of such meetings.
Special meetings of the Board of Directors may be called on twenty-four hours'
notice, if notice is given to each director personally or by telephone,
facsimile transmission, or telegram, or on five days' notice, if notice is
mailed to each director, addressed to him or her at his or her usual place of
business. Notice of any special meeting need not be given to any director who
attends such meeting without protesting the lack of notice to him or her, prior
to or at the commencement of such meeting, or to any director who submits a
signed waiver of notice, whether before or after such meeting, and any business
may be transacted thereat.
Section 3.07. QUORUM; VOTING. At all meetings of the Board of
Directors, the presence of a majority of the total then-authorized number of
directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 3.08. ADJOURNMENT. A majority of the directors
present, whether or not a quorum is present, may adjourn any meeting of the
Board of Directors to another time or place. No notice need be given of any
adjourned meeting unless the time and place of the adjourned meeting are not
announced at the time of adjournment, in which case notice conforming to the
requirements of Section 3.05 of these By-Laws shall be given to each director.
Section 3.09. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 3.10. REGULATIONS; MANNER OF ACTING. To the extent
consistent with applicable law, the Articles of Incorporation and these By-Laws,
the Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the
<PAGE>
Corporation as the Board of Directors may deem appropriate. The directors shall
act only as a Board, and the individual directors shall have no power as such.
Section 3.11. ACTION BY TELEPHONIC COMMUNICATIONS. Members of
the Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 3.12. RESIGNATIONS. Any director may resign at any
time by delivering a written notice of resignation, signed by such director, to
the Chairman of the Board, if any, or to the President of the Corporation.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 3.13. REMOVAL OF DIRECTORS. Any director may be
removed at any time, either for or without cause, upon the affirmative vote of
the holders of a majority of the outstanding shares of stock of the Corporation
entitled to vote for the election of such Director. Any vacancy in the Board of
Directors caused by any such removal may be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed. If
such stockholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
3.14 of these By-Laws.
Section 3.14. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. If
any vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal, increase in the then-authorized number of directors or
otherwise, the directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
directors then in office, although less than a quorum. A director elected to
fill a vacancy or a newly created directorship shall hold office until his or
her successor has been elected and qualified or until his or her earlier death,
resignation or removal. Any such vacancy or newly created directorship may also
be filled at any time by vote of the stockholders.
Section 3.15. COMPENSATION. The amount, if any, which each
director shall be entitled to receive as compensation for his or her services as
such shall be fixed from time to time by resolution of the Board of Directors.
Section 3.16. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A member
of the Board of Directors, or a member of any Committee designated by the Board
of Directors, shall be fully protected in relying in good faith upon the records
of the
<PAGE>
Corporation and upon such information, opinions, reports or statements,
including financial statements and other financial data, if prepared by (I) one
or more officers or employees of the Corporation whom the director reasonably
believes to be reliable and competent in the matters presented; (II) legal
counsel, public accountants, investment bankers or other persons as to matters
the director reasonably believes are within the person's professional or expert
competence; or (III) Committees of the Board of Directors of which he is not a
member if the director reasonably believes the Committee merits confidence.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. HOW CONSTITUTED. The Board of Directors may
designate one or more Committees, including an Executive Committee, each such
Committee to consist of such number of directors as from time to time may be
fixed by the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any such Committee, who may replace any
absent or disqualified member or members at any meeting of such Committee.
Thereafter, members (and alternate members, if any) of each such Committee may
be designated by the Board of Directors. Any such Committee may be abolished or
re-designated from time to time by the Board of Directors. Each member (and each
alternate member) of any such Committee (whether designated at an annual meeting
of the Board of Directors or to fill a vacancy or otherwise) shall hold office
until his or her successor shall have been designated or until he or she shall
cease to be a director, or until his or her earlier death, resignation or
removal.
Section 4.02. POWERS. During the intervals between the
meetings of the Board of Directors, the Executive Committee, except as otherwise
provided in this section, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the property, affairs
and business of the Corporation, including the power to declare dividends and to
authorize the issuance of stock. Each such other Committee, except as otherwise
provided in this section, shall have and may exercise such powers of the Board
of Directors as may be provided by resolution or resolutions of the Board of
Directors. Neither the Executive Committee nor any such other Committee shall
have the power or authority:
(a) to approve or propose to stockholders action that by law
must be approved by stockholders;
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(b) to fill vacancies on the Board of Directors or on any of
its committees;
(c) to amend the Articles of Incorporation pursuant to
O.C.G.A. Section 14-2- 1002;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) to adopt, amend or repeal the By-Laws of the Corporation;
or
(f) to approve a plan of merger not requiring stockholder
approval.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 4.03. PROCEEDINGS. Each such Committee may fix its own
rules of procedure and may meet at such place (within or without the State of
Georgia), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceedings.
Section 4.04. QUORUM AND MANNER OF ACTING. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings of
any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute a
quorum for the transaction of business. The act of the majority of the members
present at any meeting at which a quorum is present shall be the act of such
Committee. Any action required or permitted to be taken at any meeting of any
such Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing and such writing or writings are filed
with the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 4.05. ACTION BY TELEPHONIC COMMUNICATIONS. Members of
any Committee designated by the Board of Directors may participate in a meeting
of such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and
<PAGE>
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 4.06. ABSENT OR DISQUALIFIED MEMBERS. In the absence
or disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 4.07. RESIGNATIONS. Any member (and any alternate
member) of any Committee may resign at any time by delivering a written notice
of resignation, signed by such member, to the Chairman of the Board, or to the
President. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 4.08. REMOVAL. Any member (and any alternate member)
of any Committee may be removed from his or her position as a member (or
alternate member, as the case may be) of such Committee at any time, either for
or without cause, by resolution adopted by a majority of the whole Board of
Directors.
Section 4.09. VACANCIES. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE V
OFFICERS
Section 5.01. NUMBER. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chairman of the Board, a
President, a Chief Financial Officer, one or more Vice Presidents, a Secretary,
and a Treasurer. The Board of Directors also may elect one or more Assistant
Secretaries and Assistant Treasurers in such numbers as the Board of Directors
may determine. Any number of offices may be held by the same person. No officer
need be a director of the Corporation.
Section 5.02. ELECTION. Unless otherwise determined by the
Board of Directors, the officers of the Corporation shall be elected by the
Board of Directors at the annual meeting of the Board of Directors, and shall be
elected to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the
<PAGE>
failure to elect officers at such annual meeting, officers may be elected at any
regular or special meeting of the Board of Directors. Each officer shall hold
office until his or her successor has been elected and qualified, or until his
or her earlier death, resignation or removal.
Section 5.03. SALARIES. The salaries of all officers and
agents of the Corporation elected by the Board of Directors shall be fixed by
the Board of Directors, but this authority may be delegated to any officer,
agent or employee of the Corporation as to persons under his or her direction or
control.
Section 5.04. REMOVAL AND RESIGNATION; VACANCIES. Any officer
may be removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors.
Section 5.05. AUTHORITY AND DUTIES OF OFFICERS. The officers
of the Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law.
Section 5.06. THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, when present, shall preside at all meetings of the stockholders and the
Board of Directors. The Chairman of the Board shall perform other duties usually
pertaining to the office of a chairman of the board of directors, and shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
Section 5.07. THE PRESIDENT. The President shall be the chief
executive officer and the chief operating officer of the Corporation, shall have
general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He or she shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He or she shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the Secretary
or an Assistant Secretary, conveyances of real estate and other documents and
instruments to which the seal of the Corporation is affixed. He or she shall
have the authority to cause the
<PAGE>
employment or appointment of such employees and agents of the Corporation as the
conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President or the Board of Directors. The President shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 5.08. THE VICE PRESIDENT. Each Vice President shall
perform such duties and exercise such powers as may be assigned to him from time
to time by the President. In the absence of the President, the duties of the
President shall be performed and his powers may be exercised by such Vice
President as shall be designated by the President, or failing such designation,
such duties shall be performed and such powers may be exercised by each Vice
President in the order of their earliest election to that office, subject in any
case to review and superseding action by the President.
Section 5.09. THE SECRETARY. The Secretary shall have the
following powers and duties:
(a) He or she shall keep or cause to be kept a record of all
the proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy of
such resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been
requested and duly authorized in accordance with these By-Laws, and
when so affixed he or she may attest the same.
(e) He or she shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Articles of Incorporation or these By-Laws.
<PAGE>
(f) He or she shall have charge of the stock books and ledgers
of the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident
to the office of secretary and such other duties as may be specified in
these By-Laws or as may be assigned to him or her from time to time by
the Board of Directors or the President.
Section 5.10. THE CHIEF FINANCIAL OFFICER. The Chief Financial
Officer of the Corporation shall have the following powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable
effects of the Corporation to be deposited in the name and to the
credit of the Corporation in such banks or trust companies or with such
bankers or other depositaries as shall be selected in accordance with
Section 8.05 of these By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys
disbursed.
(d) He or she shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition
of the Corporation and of all his or her transactions as Chief
Financial Officer, and render a full financial report at the annual
meeting of the stockholders, if called upon to do so.
<PAGE>
(e) He or she shall be empowered from time to time to require
from all officers or agents of the Corporation reports or statements
giving such information as he or she may desire with respect to any and
all financial transactions of the Corporation.
(f) He or she shall perform, in general, all duties incident
to the office of chief financial officer and such other duties as may
be specified in these By-Laws or as may be assigned to him or her from
time to time by the Board of Directors or the President.
Section 5.11. THE TREASURER. The Treasurer shall perform such
duties usually pertaining to the office of treasurer and shall also perform such
other duties and have such other powers as may be assigned to him or her from
time to time by the Board of Directors or the President.
Section 5.12. ADDITIONAL OFFICERS. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause.
ARTICLE VI
CAPITAL STOCK
Section 6.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES.
The shares of the Corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by the Chairman of the Board, the President or a Vice
President, and by the Secretary or an Assistant Secretary, representing the
number of shares registered in certificate form. Such signature may be either
manual or in
<PAGE>
facsimile, provided that if such signature is in facsimile, then such
certificate must be countersigned by a transfer agent or registered by a
registrar other than the Corporation or an employee of a Corporation. Such
signature of a transfer agent or registrar may be manual or by facsimile. Such
certificate shall be in such form as the Board of Directors may determine, to
the extent consistent with applicable law, the Articles of Incorporation and
these By-Laws.
Section 6.02. SIGNATURES. In case any officer, transfer agent
or registrar who has signed, or whose facsimile signature has been placed upon,
a certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
Section 6.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The
Board of Directors may direct that a new certificate be issued in place of any
certificate thereto fore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 6.04. TRANSFER OF STOCK. Transfers of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his duly authorized attorney, or with a duly appointed
transfer agent or registrar, and on surrender of the certificate or certificates
for such shares properly endorsed and the payment of all taxes thereon. The
Board of Directors may make such additional rules concerning the issuance,
transfer and registration of stock and requirements regarding the establishment
of lost, destroyed and wrongfully taken stock certificates as it deems
appropriate.
Section 6.05. RECORD DATE. Subject to Section 2.12 of these
By-Laws, in order to determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof or to take any other
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which shall not be more than seventy
nor less than ten days before the date of such meeting or action. A
determination of stockholders of record entitled to
<PAGE>
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting unless the Board of Directors fixes a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 6.06. REGISTERED STOCKHOLDERS. Prior to due surrender
of a certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests,
except as otherwise required by law. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented to the
Corporation for transfer or uncertificated shares are requested to be
transferred, both the transferor and transferee request the Corporation to do
so.
Section 6.07. TRANSFER AGENT AND REGISTRAR. The Board of
Directors may appoint one or more transfer agents and one or more registrars,
and may require all certificates representing shares to bear the signature of
any such transfer agents or registrars.
ARTICLE VII
INDEMNIFICATION
Section 7.01. NATURE OF INDEMNITY. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was
<PAGE>
or has agreed to become a director or officer of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he or she is or was or has agreed to become an employee or agent
of the Corporation, or is or was serving or has agreed to serve at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if he or she acted in good faith
and in a manner that, if such conduct was made in his or her official capacity,
he or she reasonably believed was in the best interests of the Corporation, or,
in all other cases, he or she reasonably believed to be at least not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, he or she had no reasonable cause to believe was unlawful; except
that the Corporation shall not indemnify a director or officer (I) in connection
with a proceeding by or in the right of the Corporation, except for reasonable
expenses incurred in connection with the proceeding if it is determined that the
director has met the relevant standard of conduct under this Section 7.01, or
(II) in connection with any proceeding with respect to conduct for which he or
she was adjudged liable on the basis that personal benefit was improperly
received by him or her, whether or not involving action in his or her official
capacity.
Section 7.02. SUIT AGAINST CORPORATION. Notwithstanding the
foregoing, but subject to Section 7.04 of these By-Laws, the Corporation shall
not be obligated to indemnify a director or officer of the Corporation in
respect of a Proceeding (or part thereof) instituted by such director or
officer, unless such Proceeding (or part thereof) has been authorized by the
Board of Directors.
Section 7.03. NO PRESUMPTION. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in, or at least not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
<PAGE>
Section 7.04. SUCCESSFUL DEFENSE. To the extent that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding to which he or she was a
party because he or she was a director or officer, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
Section 7.05. ADVANCE FOR EXPENSES. Subject to Section 7.07
hereof, the Corporation may, before final disposition of a Proceeding, advance
funds to pay for or reimburse the reasonable expenses incurred by a director or
officer who is a party to a Proceeding because he or she is a director or
officer of the Corporation, provided that such director or officer delivers to
the Corporation prior to such a decision (I) a written affirmation of his or her
good faith belief that he or she has met the relevant standard of conduct
described in Section 7.01 hereof, or that the subject of the Proceeding is
conduct for which liability has been eliminated under a provision of the
Articles of Incorporation of the Corporation; and (II) a written unlimited
general undertaking to repay any funds advanced if it is ultimately determined
that such director or officer is not entitled to indemnification under the
Articles of Incorporation of the Corporation or these By-Laws.
Section 7.06. DETERMINATION AND AUTHORIZATION OF
INDEMNIFICATION. Any indemnification of a director or officer of the Corporation
under Section 7.01 of these By-Laws (unless ordered by a court) shall be made by
the Corporation unless a determination is made that indemnification of the
director or officer is not proper in the circumstances because he or she has not
met the applicable standard of conduct set forth in Section 7.01 of these
By-Laws. Any indemnification of an employee or agent of the Corporation under
Section 7.01 of these By-Laws (unless ordered by a court) may be made by the
Corporation upon a determination that indemnification of the employee or agent
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in Section 7.01 of these By-Laws. Any such determination
shall be made by the Corporation in the following manner: (1) if there are two
or more disinterested directors (as such term is defined in O.C.G.A. Section
14-2- 850), by the Board of Directors by a majority vote of all the
disinterested directors (a majority of whom shall for such purpose constitute a
quorum) or by a majority of the members of a committee of two or more
disinterested directors appointed by such a vote; (2) by special legal counsel
selected in the manner described in subsection (1) of this Section 7.06 or, if
there are fewer than two disinterested directors, selected by the Board of
Directors in accordance with Section 3.07 hereof; or (3) by the stockholders,
but shares owned by or voted under the control of a director who is not a
disinterested director, or an officer, employee or agent, who at the time would
not qualify as a disinterested director if he or she were a director, may not be
voted on the determination.
<PAGE>
Section 7.07. DETERMINATION TO ADVANCE EXPENSES. The decision
to advance funds to an officer or director under Section 7.05 hereof shall be
made by the Corporation in the following manner: (1) by the Board of Directors
when there are two or more disinterested directors, by a majority vote of all
disinterested directors (a majority of whom for such purpose constitute a
quorum) or by a majority of the members of a committee of two or more
disinterested directors; (2) when there are fewer than two disinterested
directors, by the vote of a majority of the Board of Directors without regard to
whether or not any such director is disinterested; or (3) by the Stockholders,
but shares owned or voted under the control of a director who at the time does
not qualify as a disinterested director with respect to the proceeding may not
be voted on the authorization.
Section 7.08. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND
OFFICERS. Any indemnification of a director, officer, employee or agent of the
Corporation under Section 7.01 of these By-Laws, or the advance of costs,
charges and expenses to a director or officer under Section 7.05 of these
By-Laws, shall be made promptly, and in any event within thirty days, upon the
written request of such person. If the Corporation fails to respond within sixty
days to a written request for indemnity or advancement of expenses by a director
or officer, the Corporation shall be deemed to have approved such request. If
the Corporation fails to respond within sixty days to a written request for
indemnity or advancement of expenses by an employee or agent of the Corporation,
the Corporation shall be deemed to have denied such request. If the Corporation
denies a written request for indemnity or advancement of expenses, in whole or
in part, or if payment in full pursuant to such request is not made within
thirty days, the right to indemnification or advances as granted by this Article
shall be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Corporation. To the extent
allowed by law, it shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses under
Section 7.05 of these By-Laws where the required undertaking, if any, has been
received by or tendered to the Corporation) that the claimant has not met the
standard of conduct set forth in Section 7.01 of these ByLaws, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel,
and its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 7.01
of these By-Laws, nor the fact that there has been an actual determination by
the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders)
<PAGE>
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 7.09. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Georgia Business Corporation Code are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such state of facts. Such a "contract right" may not be
modified retroactively without the consent of such director, officer, employee
or agent.
The indemnification provided by this Article VII shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7.10. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity against any
liability asserted against him or her and incurred by him or her or on his or
her behalf in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article, PROVIDED that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.
Section 7.11. SEVERABILITY. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director or
officer and may indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an
<PAGE>
action by or in the right of the Corporation, to the fullest extent permitted by
any applicable portion of this Article that shall not have been invalidated and
to the fullest extent permitted by applicable law.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. DIVIDENDS. Subject to any applicable provisions
of law and the Articles of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
Section 8.02. RESERVES. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.
Section 8.03. EXECUTION OF INSTRUMENTS. The Chairman of the
Board, the President, any Vice President, the Secretary or the Treasurer may
enter into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. The Board of Directors, the Chairman of the Board or
the President may authorize any other officer or agent to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 8.04. CORPORATE INDEBTEDNESS. No loan shall be
contracted on behalf of the Corporation, and no evidence of indebtedness shall
be issued in its name, unless authorized by the Board of Directors, the Chairman
of the Board or the Presi dent. Such authorization may be general or confined to
specific instances. Loans so authorized may be effected at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board of Directors, the Chairman of the
Board or the President shall authorize. When so authorized by the
<PAGE>
Board of Directors, the Chairman of the Board or the President, any part of or
all the properties, including contract rights, assets, business or good will of
the Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.
Section 8.05. DEPOSITS. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by the Board of Directors, the Chairman of the Board or the
President, or by such officers or agents as may be authorized by the Board of
Directors, the Chairman of the Board or the President to make such
determination.
Section 8.06. CHECKS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
agent or agents of the Corporation, and in such manner, as the Board of
Directors, the Chairman of the Board or the President from time to time may
determine.
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES. To the
extent authorized by the Board of Directors, the Chairman of the Board or the
President, any Vice President, the Secretary or the Treasurer or any other
officers designated by the Board of Directors, the Chairman of the Board or the
President may sell, transfer, endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. VOTING AS STOCKHOLDER. Unless otherwise
determined by resolution of the Board of Directors, the Chairman of the Board,
the President or any Vice President shall have full power and authority on
behalf of the Corporation to attend any meeting of stockholders of any
corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall have full power and authority to
execute any instrument expressing consent to or dissent from any action of any
such corporation without a meeting. The Board of Directors may by resolution
from time to time confer such power and authority upon any other person or
persons.
Section 8.09. SEAL. The seal of the Corporation shall be in
such form as
<PAGE>
the Board of Directors may from time to time determine. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or reproduced, or may
be used in any other lawful manner.
Section 8.10. BOOKS AND RECORDS; INSPECTION. Except to the
extent otherwise required by law, the books and records of the Corporation shall
be kept at such place or places within or without the State of Georgia as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. AMENDMENT. These By-Laws may be amended, altered
or repealed, unless otherwise specified by law:
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such
meeting; or
(b) at any regular or special meeting of the stockholders if,
in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting.
ARTICLE X
CONSTRUCTION
Section 10.01. CONSTRUCTION. In the event of any conflict
between the provisions of these By-Laws as in effect from time to time and the
provisions of the Articles of Incorporation of the Corporation as in effect from
time to time, the provisions of such Articles of Incorporation shall be
controlling.
<PAGE>
EXHIBIT 10.7(a)
INDEMNITY AGREEMENT
AGREEMENT, effective as of October 9, 1997 (the "Agreement"), between
FORSTMANN & COMPANY, INC., a Georgia corporation (the "Company"), and [NAME]
("Indemnitee"), [ADDRESS],[CITY], [STATE] [ZIP CODE].
WHEREAS, it is essential to the Company to retain and attract as
executive officers the most capable persons available; and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the full
extent (whether partial or complete) authorized or permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies; and
WHEREAS, the Company, in order to induce Indemnitee to continue to
serve as an executive officer, has agreed to provide Indemnitee with the
benefits contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and of Indemnitee's
agreeing to serve or to continue to serve the Company directly or, at its
request, another enterprise, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is, or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the full
extent authorized or permitted by law as soon as practicable but in any event no
later than thirty (30) days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim; provided, however, that,
except for proceedings to enforce rights to indemnification, the Company shall
not be obligated to indemnify Indemnitee in connection with a proceeding (or
part thereof)
<PAGE>
initiated by Indemnitee unless such proceeding (or part thereof) was authorized
in advance, or unanimously consented to, by the Board of Directors of the
Company. If so requested by Indemnitee, the Company shall advance (within two
(2) business days of such request), on an unsecured and interest-free basis, any
and all Expenses to Indemnitee (an "Expense Advance"), provided that Indemnitee
affirms in writing Indemnitee's good faith belief that Indemnitee has met the
required standard of conduct for indemnification under applicable law.
(b) Notwithstanding the foregoing (I) the obligations of the
Company under Section 1(a) shall be subject to the condition that the
Independent Legal Counsel shall not have determined in a written opinion that
Indemnitee would not be permitted to be indemnified under applicable law, and
(II) the obligation of the Company to make an Expense Advance pursuant to
Section 1(a) shall be subject to the condition that, if, when and to the extent
that the Independent Legal Counsel determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Independent
Legal Counsel that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding, and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). If there has been no determination by
the Independent Legal Counsel or if the Independent Legal Counsel determines
that Indemnitee would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence litigation in
any court in the States of Georgia or New York having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Independent Legal Counsel or any aspect thereof, including the legal or factual
bases therefor, and the Company hereby consent to service of process and to
appear in any such proceeding. Any determination by the Independent Legal
Counsel otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) No change in the Company's Articles of Incorporation (the
"Articles") or Amended and Restated By-Laws (the "By-Laws") or in the Georgia
Business Corporation Code subsequent to the date of this Agreement shall have
the effect of limiting or eliminating the indemnification available under this
Agreement as to any act, omission or capacity for which this Agreement provides
indemnification at the time of such act, omission or capacity. If any change
after the date of this Agreement in the Articles or By-Laws of the Company or in
any applicable law, statute or rule expands the power of the Company to
indemnify the Indemnitee, such change
<PAGE>
shall to the same extent expand the Indemnitee's rights and the Company's
obligations under this Agreement. If any change in the Articles or By-Laws of
the Company or in any applicable law, statute or rule diminishes the power of
the Company to indemnify the Indemnitee, such change, except to the extent
otherwise required by law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
2. INDEPENDENT LEGAL COUNSEL. The Company agrees that, in the event of
a dispute with Indemnitee with respect to any matter hereafter arising
concerning the rights of Indemnitee to indemnity payments or Expense Advances
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereinafter in effect relating to Claims for Indemnifiable Events, the
Company shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld or delayed). The Company shall notify Indemnitee in writing of the
Company's intention to seek legal advice, and the Indemnitee shall notify the
Company of Indemnitee's choice of Independent Legal Counsel within thirty (30)
days thereafter. Such counsel shall, among other things, render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to indemnify fully such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
Notwithstanding the foregoing, the Company shall not be required to seek legal
advice from more than one (1) Independent Legal Counsel if more than one (1)
party to an Indemnity Agreement with the Company seek indemnity payments and
Expense Advances with respect to the same or substantially similar Claims. In
such event, the Indemnitees shall have sixty (60) days to notify the Company of
their choice of Independent Legal Counsel and the selection of Independent Legal
Counsel shall be made (A) by the Independent Director(s) (as defined in the
Company's By-Laws) seeking such indemnity, or (B) if no Independent Director
seeks such indemnity, by the directors and officers of the Company who are
parties to an Indemnity Agreement with the Company and who seek such indemnity.
The Company shall have the right to select the Independent Legal Counsel if (X)
Indemnitee is entitled to select the Independent Legal Counsel but has not
timely notified the Company of Indemnitee's selection, (Y) there is a dispute
involving two (2) or more Independent Directors who do not timely notify the
Company of their choice of a single Independent Legal Counsel or (Z) there is a
dispute involving more than one (1) party to an Indemnity Agreement, none of
whom is an Independent Director, and all such persons do not timely notify the
Company of their choice of a single Independent Legal Counsel.
3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all Expenses and, if requested by Indemnitee, shall
(within
<PAGE>
two (2) business days of such request) advance such Expenses to Indemnitee,
which are incurred by Indemnitee in connection with any action brought by
Indemnitee for (I) indemnification or advance payment of Expenses by the Company
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereafter in effect relating to Claims for Indemnifiable Events and/or
(II) recovery under any directors' and officers' liability insurance policies
maintained by the Company; provided, however, that if there is a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that Indemnitee is not entitled to such indemnification, advance payment
of Expenses or insurance recovery, Indemnitee shall reimburse the Company for
all such Expenses theretofore paid under this Section 3.
4. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgements, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
5. BURDEN OF PROOF. In connection with any determination by the
Independent Legal Counsel or otherwise as to whether Indemnitee is entitled to
be indemnified hereunder, the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
6. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere
or its equivalent, shall not create a presumption that Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Independent Legal Counsel to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by Independent
Legal Counsel that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
<PAGE>
7. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles, By-Laws,
or the Georgia Business Corporation Code or otherwise. To the extent that a
change in the Georgia Business Corporation Code (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Articles, By-Laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
8. LIABILITY INSURANCE.
(a) The Company hereby represents and warrants that the
Company has purchased and maintains directors' and officers' liability insurance
consisting of a policy issued by Executive Risk Indemnity Inc. providing
$5,000,000 in coverage, and an excess policy with Gulf Insurance Company
providing $5,000,000 in coverage in excess of $5,000,000, and that each of such
policies is in full force and effect (the "D&O Insurance").
(b) The Company hereby covenants and agrees that, so long as
Indemnitee shall continue to serve as a director or officer of the Company and
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Indemnitee was a director
or officer of the Company, the Company shall use reasonable efforts to maintain
in full force and effect the D&O Insurance, or substantially equivalent
insurance coverage; provided, however, that the Company shall not be obligated
hereunder to pay annual premiums for directors' and officers' liability
insurance in excess of one hundred fifty percent (150%) of the annualized rate
of premiums paid by the Company for D&O Insurance for the 1997 policy year (the
"Increased Rate"), and if the premiums for such insurance coverage would exceed
the Increased Rate for any policy year, and the Company determines not to spend
in excess of the Increased Rate, the Company shall endeavor to retain such type
of coverage by amending the levels of self insured retention and/or limits of
liability of such insurance coverage so as not to exceed the Increased Rate.
(c) In all policies of D&O Insurance, Indemnitee shall be
named as an insured in such manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
9. NOTICES.
<PAGE>
(a) The Indemnitee shall give to the Company notice in writing
as soon as practicable of any Claim made against him for which indemnification
will or could be sought under this Agreement. Failure to give such notice shall
not be cause for the Company not to indemnify Indemnitee or advance Expenses
unless the Company can demonstrate that it was prejudiced by such failure.
(b) Notices shall be in writing and shall be either personally
delivered or sent by Federal Express or other reputable overnight courier for
next business day delivery, or sent by certified mail, return receipt requested,
addressed as follows:
If to the Company: Forstmann & Company, Inc.
1155 Avenue of the Americas
New York, New York 10036
Attn.: Chief Executive Officer
Attn.: Chief Financial Officer
If to the Indemnitee: at Indemnitee's address stated
above
or at such other address as from time to time designated by written notice
delivered in accordance herewith. Any notice personally served shall be deemed
delivered on the date of such service. Any notice sent by overnight courier as
provided above shall be deemed delivered on the first business day after the
date such notice was actually delivered by such overnight courier or refused.
Any notice sent by mail as provided above shall be deemed delivered on the date
of actual receipt or refusal thereof.
10. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything
<PAGE>
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
12. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, the Articles, By-Laws or otherwise) of the amounts
otherwise indemnifiable hereunder. This Agreement shall supersede any agreement
or understanding, whether written or oral, between the Company and Indemnitee
regarding indemnification for any Claim.
13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director of the Company.
14. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
15. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
16. CERTAIN DEFINITIONS.
(a) CLAIM: any threatened, pending or completed action, suit
or proceeding, or any inquiry or investigation whether instituted by or in the
right of the Company or any other party, that Indemnitee in good faith believes
might lead to the institution of any action, suit or proceeding, whether civil,
criminal, administrative, investigative or other, arising in connection with an
Indemnnifiable Event.
(b) EXPENSES: include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a
<PAGE>
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Claim relating to any Indemnifiable Event.
(c) INDEMNIFIABLE EVENT: any event or occurrence related to
the fact that Indemnitee is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director, officer, partner,
employee, agent or trustee of another corporation, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
<PAGE>
(d) INDEPENDENT LEGAL COUNSEL: an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2, who shall
not have otherwise performed services for the Company or Indemnitee within the
last two (2) years.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this ______ day of October, 1997.
FORSTMANN & COMPANY, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
- ------------------------------
[NAME]
<PAGE>
EXHIBIT 10.7(b)
INDEMNITY AGREEMENT
AGREEMENT, effective as of October 9, 1997 (the "Agreement"), between
FORSTMANN & COMPANY, INC., a Georgia corporation (the "Company"), and
[NAME]("Indemnitee"), [ADDRESS], [CITY], [STATE] [ZIP CODE].
WHEREAS, it is essential to the Company to retain and attract as
directors the most capable persons available; and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the full
extent (whether partial or complete) authorized or permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies; and
WHEREAS, Indemnitee is unwilling to serve or to continue to serve the
Company as a director without the assurances provided by this Agreement; and the
Company, in order to induce Indemnitee to continue to serve as a director, has
agreed to provide Indemnitee with the benefits contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and of Indemnitee's
agreeing to serve or to continue to serve the Company directly or, at its
request, another enterprise, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is, or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the full
extent authorized or permitted by law as soon as practicable but in any event no
later than thirty (30) days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim; provided, however, that,
except for proceedings to enforce rights to indemnification, the Company shall
not be
<PAGE>
obligated to indemnify Indemnitee in connection with a proceeding (or part
thereof) initiated by Indemnitee unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors of
the Company. If so requested by Indemnitee, the Company shall advance (within
two (2) business days of such request), on an unsecured and interest-free basis,
any and all Expenses to Indemnitee (an "Expense Advance"), provided that
Indemnitee affirms in writing Indemnitee's good faith belief that Indemnitee has
met the required standard of conduct for indemnification under applicable law.
(b) Notwithstanding the foregoing (I) the obligations of the
Company under Section 1(a) shall be subject to the condition that the
Independent Legal Counsel shall not have determined in a written opinion that
Indemnitee would not be permitted to be indemnified under applicable law, and
(II) the obligation of the Company to make an Expense Advance pursuant to
Section 1(a) shall be subject to the condition that, if, when and to the extent
that the Independent Legal Counsel determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Independent
Legal Counsel that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding, and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). If there has been no determination by
the Independent Legal Counsel or if the Independent Legal Counsel determines
that Indemnitee would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence litigation in
any court in the States of Georgia or New York having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Independent Legal Counsel or any aspect thereof, including the legal or factual
bases therefor, and the Company hereby consent to service of process and to
appear in any such proceeding. Any determination by the Independent Legal
Counsel otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) No change in the Company's Articles of Incorporation (the
"Articles") or Amended and Restated By-Laws (the "By-Laws") or in the Georgia
Business Corporation Code subsequent to the date of this Agreement shall have
the effect of limiting or eliminating the indemnification available under this
Agreement as to any act, omission or capacity for which this Agreement provides
indemnification at the time of such act, omission or capacity. If any change
after the date of this Agreement in the Articles or By-Laws of the Company or in
any applicable law, statute
<PAGE>
or rule expands the power of the Company to indemnify the Indemnitee, such
change shall to the same extent expand the Indemnitee's rights and the Company's
obligations under this Agreement. If any change in the Articles or By-Laws of
the Company or in any applicable law, statute or rule diminishes the power of
the Company to indemnify the Indemnitee, such change, except to the extent
otherwise required by law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
2. INDEPENDENT LEGAL COUNSEL. The Company agrees that, in the event of
a dispute with Indemnitee with respect to any matter hereafter arising
concerning the rights of Indemnitee to indemnity payments or Expense Advances
under this Agreement or any other agreement, or any Articles or By-Law provision
now or hereinafter in effect relating to Claims for Indemnifiable Events, the
Company shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld or delayed). The Company shall notify Indemnitee in writing of the
Company's intention to seek legal advice, and the Indemnitee shall notify the
Company of Indemnitee's choice of Independent Legal Counsel within thirty (30)
days thereafter. Such counsel shall, among other things, render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to indemnify fully such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
Notwithstanding the foregoing, the Company shall not be required to seek legal
advice from more than one (1) Independent Legal Counsel if more than one (1)
party to an Indemnity Agreement with the Company seek indemnity payments and
Expense Advances with respect to the same or substantially similar Claims. In
such event, the Indemnitees shall have sixty (60) days to notify the Company of
their choice of Independent Legal Counsel and the selection of Independent Legal
Counsel shall be made (A) by the Independent Director(s) (as defined in the
Company's By-Laws) seeking such indemnity, or (B) if no Independent Director
seeks such indemnity, by the directors and officers of the Company who are
parties to an Indemnity Agreement with the Company and who seek such indemnity.
The Company shall have the right to select the Independent Legal Counsel if (X)
Indemnitee is entitled to select the Independent Legal Counsel but has not
timely notified the Company of Indemnitee's selection, (Y) there is a dispute
involving two (2) or more Independent Directors who do not timely notify the
Company of their choice of a single Independent Legal Counsel or (Z) there is a
dispute involving more than one (1) party to an Indemnity Agreement, none of
whom is an Independent Director, and all such persons do not timely notify the
Company of their choice of a single Independent Legal Counsel.
<PAGE>
3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all Expenses and, if requested by Indemnitee, shall
(within two (2) business days of such request) advance such Expenses to
Indemnitee, which are incurred by Indemnitee in connection with any action
brought by Indemnitee for (I) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement, or any Articles or
By-Law provision now or hereafter in effect relating to Claims for Indemnifiable
Events and/or (II) recovery under any directors' and officers' liability
insurance policies maintained by the Company; provided, however, that if there
is a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or lapsed) that Indemnitee is not entitled to such
indemnification, advance payment of Expenses or insurance recovery, Indemnitee
shall reimburse the Company for all such Expenses theretofore paid under this
Section 3.
4. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgements, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
5. BURDEN OF PROOF. In connection with any determination by the
Independent Legal Counsel or otherwise as to whether Indemnitee is entitled to
be indemnified hereunder, the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
6. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere
or its equivalent, shall not create a presumption that Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Independent Legal Counsel to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by Independent
Legal Counsel that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
<PAGE>
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
7. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles, By-Laws,
or the Georgia Business Corporation Code or otherwise. To the extent that a
change in the Georgia Business Corporation Code (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Articles, By-Laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
8. LIABILITY INSURANCE.
(a) The Company hereby represents and warrants that the
Company has purchased and maintains directors' and officers' liability insurance
consisting of a policy issued by Executive Risk Indemnity Inc. providing
$5,000,000 in coverage, and an excess policy with Gulf Insurance Company
providing $5,000,000 in coverage in excess of $5,000,000, and that each of such
policies is in full force and effect (the "D&O Insurance").
(b) The Company hereby covenants and agrees that, so long as
Indemnitee shall continue to serve as a director of the Company and thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that Indemnitee was a director of the
Company, the Company shall use reasonable efforts to maintain in full force and
effect the D&O Insurance, or substantially equivalent insurance coverage;
provided, however, that the Company shall not be obligated hereunder to pay
annual premiums for directors' and officers' liability insurance in excess of
one hundred fifty percent (150%) of the annualized rate of premiums paid by the
Company for D&O Insurance for the 1997 policy year (the "Increased Rate"), and
if the premiums for such insurance coverage would exceed the Increased Rate for
any policy year, and the Company determines not to spend in excess of the
Increased Rate, the Company shall endeavor to retain such type of coverage by
amending the levels of self insured retention and/or limits of liability of such
insurance coverage so as not to exceed the Increased Rate.
(c) In all policies of D&O Insurance, Indemnitee shall be
named as an insured in such manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
9. NOTICES.
<PAGE>
(a) The Indemnitee shall give to the Company notice in writing
as soon as practicable of any Claim made against him for which indemnification
will or could be sought under this Agreement. Failure to give such notice shall
not be cause for the Company not to indemnify Indemnitee or advance Expenses
unless the Company can demonstrate that it was prejudiced by such failure.
(b) Notices shall be in writing and shall be either personally
delivered or sent by Federal Express or other reputable overnight courier for
next business day delivery, or sent by certified mail, return receipt requested,
addressed as follows:
If to the Company: Forstmann & Company, Inc.
1155 Avenue of the Americas
New York, New York 10036
Attn.: Chief Executive Officer
Attn.: Chief Financial Officer
If to the Indemnitee: at Indemnitee's address stated
above
or at such other address as from time to time designated by written notice
delivered in accordance herewith. Any notice personally served shall be deemed
delivered on the date of such service. Any notice sent by overnight courier as
provided above shall be deemed delivered on the first business day after the
date such notice was actually delivered by such overnight courier or refused.
Any notice sent by mail as provided above shall be deemed delivered on the date
of actual receipt or refusal thereof.
10. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
12. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, the Articles, By-Laws or otherwise) of the amounts
otherwise
<PAGE>
indemnifiable hereunder. This Agreement shall supersede any agreement or
understanding, whether written or oral, between the Company and Indemnitee
regarding indemnification for any Claim.
13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director of the Company.
14. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
15. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
16. CERTAIN DEFINITIONS.
(a) CLAIM: any threatened, pending or completed action, suit
or proceeding, or any inquiry or investigation whether instituted by or in the
right of the Company or any other party, that Indemnitee in good faith believes
might lead to the institution of any action, suit or proceeding, whether civil,
criminal, administrative, investigative or other, arising in connection with an
Indemnnifiable Event.
(b) EXPENSES: include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(c) INDEMNIFIABLE EVENT: any event or occurrence related to
the fact that Indemnitee is or was a director of the Company, or is or was
serving at the request of the Company as a director, officer, partner, employee,
agent or trustee of another corporation, trust or other enterprise, or by reason
of anything done or not done by Indemnitee in any such capacity.
<PAGE>
(d) INDEPENDENT LEGAL COUNSEL: an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2, who shall
not have otherwise performed services for the Company or Indemnitee within the
last two (2) years.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this ______ day of October, 1997.
FORSTMANN & COMPANY, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
----------------------------
[NAME]
<PAGE>
Exhibit 11.1
Forstmann & Company, Inc.
Computation of Per Share Earnings
Reorganized
Company
-----------
Period From
July 23, 1997 to
NOVEMBER 2, 1997
----------------
Income applicable to common shareholders $ 290,000
==========
Average common shares and common share
equivalents outstanding:
Average common shares outstanding 4,384,436
Add average common share equivalents -
options to purchase common shares, net (14,066)
----------
Average common shares and common share
equivalents outstanding 4,370,370
Loss per common share and common
share equivalent $ 0.07
==========
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 paragraph 30
of APB NO. 15 since the common share equivalents calculated above
are anti-dilutive.
Computation of per share earnings for the Predecessor Company for
all periods presented in the Condensed Statement of Operations
have been omitted as such information is not deemed to be
meaningful.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from Forstmann & Company,
Inc.'s condensed financial statements for the fifty-three weeks ended November
2, 1997 and is qualified in its entirety by reference to such financial
statements. As a result of the consummation of the Plan of Reorganization and
the application of "fresh start" accounting in accordance with SOP 90-7, the
Company was required to report its financial results for Fiscal Year 1997 in two
separate periods. Operating statement data presented herein represents the
combined periods for the Reorganized Company 1997 103-Day Period ended November
2, 1997 and the Predecessor Company 261-Day Period ended July 22, 1997.
Accordingly, primary and diluted earnings per share has been omitted from
this schedule. See Notes 1,2 and 3 to the financial statements contained in
Item 8. of the Company's Annual Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> NOV-04-1996
<PERIOD-END> NOV-02-1997
<CASH> 493
<SECURITIES> 0
<RECEIVABLES> 42,498
<ALLOWANCES> 458
<INVENTORY> 43,210
<CURRENT-ASSETS> 87,192
<PP&E> 26,134
<DEPRECIATION> 1,355
<TOTAL-ASSETS> 113,641
<CURRENT-LIABILITIES> 20,462
<BONDS> 42,548
0
0
<COMMON> 44
<OTHER-SE> 50,587
<TOTAL-LIABILITY-AND-EQUITY> 113,641
<SALES> 199,010
<TOTAL-REVENUES> 199,010
<CGS> 172,617
<TOTAL-COSTS> 172,617
<OTHER-EXPENSES> 15,789
<LOSS-PROVISION> 710
<INTEREST-EXPENSE> 6,681
<INCOME-PRETAX> 3,213
<INCOME-TAX> 461
<INCOME-CONTINUING> 2,752
<DISCONTINUED> 0
<EXTRAORDINARY> 9,757
<CHANGES> 0
<NET-INCOME> (7,005)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
