UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1999
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to___________________
Commission File Number: 1-9474
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1651326
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
498 Seventh Avenue, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (212)642-6900
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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. X Yes No
---
As of September 15,1999 there was 4,422,844 shares of Common Stock outstanding.
.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
AND THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
(unaudited)
<TABLE>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
August 1, August 2, August 1, August 2,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $23,390,000 $38,996,000 $68,930,000 $ 117,638,000
Cost of goods sold 22,558,000 37,021,000 66,203,000 104,444,000
---------- ---------- ---------- -----------
Gross profit 832,000 1,975,000 2,727,000 13,194,000
Selling, general and
administrative expenses 2,206,000 3,167,000 8,390,000 9,933,000
Provision for uncollectible
accounts 169,000 67,000 469,000 638,000
Restructuring items 2,788,000 1,254,000 3,344,000 1,566,000
--------- --------- --------- ---------
Operating (loss) income (4,331,000) (2,513,000) (9,476,000) 1,057,000
Interest expense 1,517,000 1,764,000 4,311,000 4,915,000
--------- --------- --------- ---------
Loss before reorganization
items, income taxes
and extraordinary gain (5,848,000) (4,277,000) (13,787,000) (3,858,000)
Reorganization items 1,346,000 25,000 1,400,000 80,000
--------- ------ --------- ------
Loss before income taxes
and extraordinary gain (7,194,000) (4,302,000) (15,187,000) (3,938,000)
Income tax benefit -- (142,000) -- --
--------- ---------- ---------- ----------
Loss before extraordinary
gain (7,194,000) (4,160,000) (15,187,000) (3,938,000)
Extraordinary item - gain
on debt discharge -- -- 314,000 --
----------- ----------- ------------ ------------
Net loss $(7,194,000) $(4,160,000 $(14,873,000 $(3,938,000)
=========== =========== ============ ===========
</TABLE>
(continued on next page)
<PAGE>
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
August 1, August 2, August 1, August 2,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per share and share information:
Loss before extraordinary
gain per common share
- basic and diluted ...... $ (1.63) $ (.95) $ (3.45) $ (.90)
Extraordinary gain
per common share
- basic and diluted ...... -- -- $ .07 --
------- ------ ------- -------
Loss per common share
- basic and diluted ....... $ (1.63) $ (.95) $ (3.38) $ (.90)
Weighted average common
shares outstanding, basic
and diluted ............. 4,418,887 4,386,390 4,399,388 4,385,087
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 1, 1999 AND NOVEMBER 1, 1998
(unaudited)
<TABLE>
August 1, November 1,
1999 1998
---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 204,000 $ 143,000
Cash restricted for settlement of unpaid claims -- 327,000
Accounts receivable, net of allowance of
$1,778,000 and $1,309,000 27,551,000 31,434,000
Inventories 23,499,000 38,818,000
Current deferred tax assets -- --
Other current assets 604,000 281,000
Property, plant and equipment
held for sale 2,649,000 --
----------- -----------
Total current assets 54,507,000 71,003,000
Property, plant and equipment, net 14,476,000 22,235,000
Other assets 1,920,000 2,005,000
Total $70,903,000 $95,243,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $43,318,000 $ 7,619,000
Accounts payable 191,000 3,151,000
Accrued liabilities 4,022,000 9,238,000
----------- ---------
Total current liabilities 47,531,000 20,008,000
Long-term debt 265,000 43,565,000
Deferred tax liabilities -- --
----------- -----------
Total liabilities not subject
to compromise 47,796,000 63,573,000
Liabilities subject to compromise 6,284,000 --
Shareholders' Equity:
Preferred stock, $0.01 per value, 1,000,000
shares authorized, nil outstanding -- --
Common stock, $.01 par value, 35,000,000
shares authorized, 4,422,844
and 4,387,819 shares
issued and outstanding 44,228 43,878
Additional paid-in capital 50,348,772 50,323,122
Retained deficit since July 23, 1997 (33,570,000) (18,697,000)
----------- -----------
Total shareholders' equity 16,823,000 31,670,000
----------- -----------
Total $70,903,000 $95,243,000
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FORSTMANN & COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
(unaudited)
<TABLE>
August 1, August 2,
1999 1998
---- ----
<S> <C> <C>
Net loss ............................................... $(14,873,000) $ (3,938,000)
------------ ------------
Adjustments to reconcile
net loss to net cash provided (used) by
operating activities:
Depreciation and amortization ...................... 3,162,000 4,081,000
Write-off of deferred financing costs .............. 782,000 --
Provision for uncollectible accounts ............... 469,000 638,000
Increase (decrease) in inventory
market reserves ................................. (521,000) 2,650,000
Loss from disposal, abandonment
and impairment of machinery
and equipment and other assets ................... 2,747,000 720,000
Gain associated with NY office lease
surrender ....................................... -- (987,000)
Gain associated with restructuring
lease liability ................................ (647,000) --
Extraordinary gain on discharge of debt ............ (314,000) --
Other .............................................. 549,000 --
Changes in current assets
and current liabilities:
Accounts receivable ............................ 3,414,000 (4,603,000)
Inventories .................................... 15,317,000 (7,712,000)
Other current assets ........................... (323,000) 494,000
Accounts payable ............................... (2,960,000) 566,000
Accrued liabilities ............................ (4,565,000) (2,371,000)
Deferred income taxes .......................... -- 13,000
Operating liabilities subject
to compromise .................................... 5,791,000 --
--------- ----------
Total adjustments .................................... 22,901,000 (6,511,000)
---------- ----------
Net cash provided (used) by
operating activities ............................. 8,028,000 (10,449,000)
---------- ----------
</TABLE>
(continued on next page)
<PAGE>
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
(unaudited)
<TABLE>
August 1, August 2,
1999 1998
---- ----
<S> <C> <C>
Cash flows used in investing activities:
Capital expenditures ................................ (1,782,000) (2,421,000)
Investment in other assets, primarily
computer information systems ..................... (620,000) (1,784,000)
Net proceeds from disposal of
property, plant and equipment ..................... 1,798,000 6,000
----------- -----
Net cash used in investing activities ............. (604,000) (4,199,000)
----------- ---------
Cash flows from financing activities:
Net borrowings under the
Revolving Loan Facility ........................ 5,052,000 24,240,000
Repayment of Term Loan Facility .................... (10,842,000) (7,736,000)
Repayment of Deferred Interest Rate Notes .......... -- (1,571,000)
Repayment of other financing arrangements(1,008,000) (619,000)
Deferred financing costs ........................... (892,000) (34,000)
----------- ---------
Net cash (used) provided by
financing activities ............................ (7,690,000) 14,280,000
----------- -----------
Net decrease in cash .................................. (266,000) (368,000)
Cash and restricted cash at beginning of period ....... 470,000 1,051,000
Cash and restricted cash at end of period$ ............ 204,000 $ 683,000
Supplemental disclosure of cash-flow information
relating to the Chapter 11 proceedings:
Cash paid during the period for
professional fees ............................... $ 525,000 $ 379,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999
(unaudited)
<TABLE>
Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Deficit Equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance, November 1, 1998 $43,878 $50,323,122 $(18,697,000) $31,670,000
Director shares awarded 350 25,650 -- 26,000
Net loss -- -- (14,873,000) (14,873,000)
------- ----------- ------------ -----------
Balance, August 1, 1999 $44,228 $50,348,772 $(33,570,000) $16,823,000
======= =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AUGUST 1, 1999
(unaudited)
1. Forstmann & Company, Inc. ("the Company") is a leading designer, marketer
and manufacturer of innovative, high quality woolen, worsted and other
fabrics which are used primarily in the production of brand-name and
private label apparel for men and women, as well as, specialty fabrics for
use in billiard and gaming tables, sports caps and school uniforms. The
apparel industry represents the majority of the Company's customers.
2. As described in Note 1 to the Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-K for the fiscal
year ended November 1, 1998 (the "1998 Form 10-K"), the Company incurred
net losses of $19.0 million, $7.0 million and $17.8 million in fiscal
years 1998, 1997 and 1996, respectively. Net sales declined from $199.0
million in fiscal year 1997 to $149.6 million in fiscal year 1998.
Management responded to these losses, the decline in sales and the
resulting adverse impact on the Company's liquidity by implementing a
business plan designed to align the Company's manufacturing capacity and
overhead with expected market demand. In October 1998, the Company's
Board of Directors approved the closing of its Louisville, Georgia
plant, realignment of the Company's remaining manufacturing facilities
located in Georgia and further reductions of its selling, styling and
administrative costs (the "1999 Realignment"). Implementation of the
1999 Realignment was substantially complete as of January 31, 1999.
The operating results for fiscal year 1998, the effect of the 1998
Restructuring (see Note 1 to the Consolidated Financial Statements
contained in the 1998 Form 10-K) and the 1999 Realignment and the
formation of Forstmann Apparel, Inc. ("FAI"), including the purchase of
substantially all of the assets of Arenzano Trading Company, Inc. (see
Note 4 to the Consolidated Financial Statements contained in the 1998 Form
10-K), negatively impacted the Company's borrowing availability under its
Revolving Loan Facility (herein defined). The Company's availability under
its Revolving Loan Facility was exhausted in mid-July 1999 as compared to
$17.3 million at August 2, 1998. As a result, on July 23, 1999, the
Company filed a petition for protection under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") with the U.S. Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Filing"). The
Bankruptcy Filing was effected to facilitate a possible merger, equity
investment or sale of the Company. The Company has been in discussions
with several interested parties to acquire or invest in the Company.
However, there can be no assurance that the Company will be able to
consummate a merger, equity investment or sale of the Company.
Additionally, as of August 29, 1999 borrowing availability under the
Revolving Loan Facility was $0.6 million. The Company's ability to
maintain adequate availability to meet its operating needs is dependent on
achieving future sales consistent with management's expectations for
fiscal year 1999 and successful implementation of its cost reductions. The
majority of the Company's customers are in the domestic apparel industry
which has continued to suffer an economic decline as a result of higher
levels of imports and changing fashion trends. Expected cash flow from
operations is dependent upon achieving sales expectations during fiscal
year 1999, 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 in large part upon 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. There can be no assurance that the Company will be able to
achieve an adequate level of sales consistent with management's
expectations for fiscal year 1999 to enable the Company to generate
sufficient funds to meet its operating needs. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
The Company's financial statements have been prepared in accordance with
the American Institute of Certified Public Accountants' Statement of
Position 90-7, "Financial Reporting of Entities in Reorganization Under
the Bankruptcy Code". The accompanying financial statements have been
prepared on a going concern basis which assumes continuity of operations
and realization of assets and liquidation of liabilities in the ordinary
course of business. As a result of the reorganization proceeding, the
Company may have to sell or otherwise dispose of assets and liquidate or
settle liabilities for amounts other than those reflected in these
Condensed Consolidated Financial Statements. Further, resolution of the
Company's liquidity problems could materially change the amounts currently
recorded in the financial statements. The financial statements do not give
effect to all adjustments to the carrying value of the assets, or amounts
and reclassification of liabilities that might be necessary as a result of
the bankruptcy proceeding.
Under Chapter 11, absent authorization of the Bankruptcy Court, efforts to
collect on claims against the Company in existence prior to the Bankruptcy
Filing are stayed while the Company continues business operations as a
debtor-in-possession. Unsecured claims against the Company in existence
prior to the Bankruptcy Filing are reflected as "Liabilities Subject to
Compromise". See Note 12 to the these Condensed Consolidated Financial
Statements. Additional claims (Liabilities Subject to Compromise) may
arise or become fixed subsequent to the filing date resulting from
rejection of executory contracts, including leases, from the determination
by the Court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed and unliquidated amounts and from the
determination of unsecured deficiency claims in respect of claims secured
by the Company's assets ("Secured Claims"). Resolution of the Company's
liquidity problems may require certain compromises of liabilities
(including Secured Claims) that, as of August 1, 1999, are not classified
as "Liabilities Subject to Compromise". The Company's ability to
compromise Secured Claims without the consent of the holder is subject to
greater restrictions than in the case of unsecured claims. As of August 1,
1999, the Company estimates that the amount of Liabilities Subject to
Compromise approximates $6.3 million. Parties holding Secured Claims have
the right to move the court for relief from the stay, which relief may be
granted upon satisfaction of certain statutory requirements. Secured
Claims are collateralized by substantially all of the assets of the
Company, including, accounts receivable, inventories and property, plant
and equipment.
<PAGE>
During the thirteen weeks ended August 1, 1999 (the "1999 Third Quarter"),
the Company wrote off deferred financing cost of $0.8 million associated
with the Loan and Security Agreement (herein defined) and incurred $0.3
million in severance expense. These items were recognized as
reorganization items during the 1999 Third Quarter. Any additional asset
impairment or costs directly related to the reorganization proceeding will
be reflected as reorganization items in the period the Company becomes
committed to plans which impair the valuation of the Company's assets or
incurs a reorganization liability.
As a result of the 1999 Realignment, the Company wrote down property,
plant and equipment by $2.7 million during the 1999 Third Quarter based
upon appraised values. This item was recognized as a restructuring item
during the 1999 Third Quarter. Additionally, the Company incurred
approximately $1.2 million in severance expense which was recognized as a
restructuring item during the thirteen weeks ended January 31, 1999.
During the thirteen weeks ended May 2, 1999, the Company recognized a gain
of $0.6 million associated with the reduction of the operating lease
cancellation liability previously established during fiscal year 1998.
Such gain resulted from an agreement reached with a lessor to exchange
certain idle equipment covered under a lease agreement for equipment in
operation and owned by the Company and was recognized as a restructuring
item during the thirteen weeks ended May 2, 1999. This agreement allowed
the Company to sell such idle equipment. Further, the Company incurred
costs of approximately $0.1 million during the thirty-nine week period
ended August 1, 1999 (the "1999 Period") related to the relocation of
certain machinery and equipment. Such costs were charged to cost of goods
sold during the 1999 Period.
3. On April 30, 1999 the Company entered into a letter of intent with Newco
Holdings LLC ("Newco") which provided for the sale of the ladies suit
business and certain assets, and the assumption of certain liabilities, of
FAI by Newco. Consummation of the sale was expected to occur in June
1999. However, the letter of intent expired without Newco fulfilling its
obligations under the letter of intent in order for a sale to be
consummated. The Company has also filed for Chapter 11 bankruptcy
protection for FAI and has ceased its operations.
4. One of the Company's customers accounted for approximately 9% of the
Company's revenues for the 1999 Period and another customer accounted for
approximately 8% of gross accounts receivable at August 1, 1999. No other
customer represented more than 8% of revenues for the 1999 Period or 7% of
gross accounts receivable at August 1, 1999. One of the Company's major
customers has significantly reduced the amount of its orders to the
Company during the 1999 Period due to general, adverse trends in the
apparel industry.
<PAGE>
5. Inventories are stated at the lower of cost, determined principally by the
LIFO method, or market and consist of (in thousands):
August 1, November 1,
1999 1998
---- ----
Raw materials and supplies $ 3,411 $10,218
Work in process 14,925 19,390
Finished products 7,763 12,331
Less market reserves (2,600) (3,121)
Total 23,499 38,818
Difference between LIFO
carrying value and current
replacement cost -- --
------- -------
Current replacement cost $23,499 $38,818
6. The Company had property, plant and equipment held for sale of $2.6 million
as of August 1, 1999 which related to assets previously idled in connection
with the 1998 Restructuring and 1999 Realignment (see Note 1 to the the
Consolidated Financial Statements contained in the 1998 Form 10-K and Note
2 to these Condensed Consolidated Financial Statements). Such assets are
stated at fair value, based on appraisals, and will not be depreciated in
future periods.
7. Other assets consist of (in thousands):
August 1, November 1,
1999 1998
---- ----
Computer information systems,
net of accumulated amortization
of $356 and $93 $1,248 $ 909
Deferred financing costs, net of
accumulated amortization of
$39 and $744 648 1,086
Other, net 24 10
------ ------
Total $1,920 $2,005
====== ======
<PAGE>
8. Accrued liabilities consist of (in thousands):
<TABLE>
August 1, November 1,
1999 1998
---- ----
<S> <C> <C>
Salaries, wages and related
payroll taxes $ 488 $ 606
Incentive compensation 99 290
Vacation and holiday 417 1,243
Interest on long-term debt 179 143
Medical insurance premiums 1,416 1,416
Professional fees 94 105
Environmental remediation 151 292
Loss on open wool purchase
commitments 469 1,537
Restructuring items -- 1,796
Other 709 1,810
------ ------
Total $4,022 $9,238
====== ======
</TABLE>
9. Long-term debt consists of (in thousands):
<TABLE>
August 1, November 1,
1999 1998
---- ----
<S> <C> <C>
Revolving Loan Facility $32,960 $27,908
Term Loan Facility 9,500 20,343
Other note 71 374
Capital lease obligations 1,052 1,890
Licensing agreement 493 669
Total debt 44,076 51,184
Current portion of long-term debt (43,318) (7,619)
Licensing agreement included in
liabilitiessubject to compromise (493) --
------- -------
Total long-term debt $ 265 $43,565
======= =======
</TABLE>
The Company is in default of substantially all of its debt agreements
(other than the Loan and Security Agreement). All outstanding unsecured
debt of the Company has been presented in these Condensed Consolidated
Financial Statements as "Liabilities Subject to Compromise".
Reference is made to Note 9 to the Consolidated Financial Statements
contained in the 1998 Form 10-K. 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 was amended on
July 23, 1999 to provide the Company debtor-in-possession financing. The
Loan and Security Agreement, as subsequently amended, provides for a
revolving line of credit (including a $3.0 million letter of credit
facility), subject to a borrowing base formula, of up to $40 million (the
"Revolving Loan Facility") and a term loan of $9.5 million (the "Term Loan
Facility"). In connection with the amendment, the Company agreed to
commence monthly Term Loan Facility principal payments of $500,000 on
November 1, 1999 with the balance due on July 31, 2000. Additionally, the
Company and its lenders agreed to reduce the Revolving Loan Facility
commitment to $19 million from November 1, 1999 through January 1, 2000
with a seasonal increase to $40 million thereafter. The amendment sets new
financial covenants for fiscal year 1999 and thereafter. However, there can
be no assurance that the Company will be able to comply with such financial
covenants. The Loan and Security Agreement, as subsequently amended,
expires on July 31, 2000. In connection with entering into the amendment to
the Loan and Security Agreement, the Company agreed to pay BABC for the
benefit of the lenders, $650,000 due on the earlier of October 31, 1999 or
upon sale of the Company.
At August 1, 1999, the Company's loan availability as defined in the Loan
and Security Agreement, in excess of outstanding advances and letters of
credit, was approximately $1.1 million.
Secured Claims are collateralized by substantially all of the assets of the
Company including accounts receivable, inventories and property, plant and
equipment. The Company has continued to accrue interest on most of its
secured debt obligations as management believes that in most cases the
collateral securing the secured debt obligations is sufficient to cover the
principal and interest portions of scheduled payments on the Company's
pre-petition secured debt obligations.
On March 22, 1999 the Company entered into a 9% Senior Secured Note with
ABB Industrial Systems, Inc. ("ABB") for the principal amount of $290,000
in settlement of ABB's secured claim in the Company's previous bankruptcy
(see Note 9 to the Consolidated Financial Statements contained in the 1998
Form 10-K). The note is payable in 60 consecutive monthly installments in
the amount of $6,019.91 commencing on April 1, 1999. Additionally, the
Company paid $60,000 in respect of ABB's secured claim and issued common
stock based on the formula set forth in the Company's Plan of
Reorganization in respect of ABB's unsecured claim during the thirteen
weeks ended May 2, 1999. The Company recognized an extraordinary gain on
debt discharge of $314,000 during the 1999 Period relating to ABB's
unsecured claim.
10. Statements of Financial Accounting Standards No. 128, "Earnings Per
Share, "became effective during fiscal year 1998 and requires two
presentations of earnings per share -"basic" and "diluted". Basic earnings
per share is computed by dividing income available to common stockholders
(the numerator) by the weighted average number of common shares (the
denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have
been outstanding if the potentially dilutive common shares had been issued.
The numerator in calculating both basic and diluted earnings per share for
each period is the reported net loss. The denominator used in calculating
both basic and diluted is the weighted average common shares outstanding as
there were no potentially dilutive shares for either period.
<PAGE>
11. As discussed in Note 13 to the Consolidated Financial Statements contained
in the 1998 Form 10-K, the Company has accrued certain estimated costs for
environmental matters.
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.
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. The Agreement does not commit either party to
perform corrective action at these sites. Stevens submitted a CSR for the
Burn Area site. During fiscal year 1998, EPD and Stevens corresponded
regarding the Stevens CSR. On August 6, 1999 EPD notified Stevens that EPD
concurred with the CSR certification that the Former Burn Area is in
compliance with the Type 4 risk reduction standards. Stevens has been
requested to submit a plan which outlines the activities needed to maintain
compliance with Type 4 risk reduction standards. Upon submittal of an
approved plan, the Site will be reclassified to a Class III and removed
from the Hazardous Sites Inventory.
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 revised Corrective Action Plan ("CAP") on October 31, 1997 which has been
approved by EPD. The revised CAP 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. The Company has completed installation of the
recovery well and the groundwater collection trench. In addition to the
installation of these two systems, the CAP requires the submission of an
Annual Corrective Action Status Report to EPD. The Company submitted the
report to EPD on July 28, 1999.
<PAGE>
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.
By letter dated December 21, 1998, EPD requested that the Company submit a
CSR for the site by June 21, 1999. EPD indicated that it had sent Burlen a
similar request. The Company submitted the CSR on June 21, 1999, which
certifies compliance with a Risk Reduction Standard. EPD is reviewing the
CSR and has not responded to the submittal as of August 9, 1999.
At August 1, 1999, the Company had $0.2 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's response to J.P.
Stevens' revised CSR and compliance status certification and EPD's response
to the Tifton site, believes the accrual for environmental costs at August
1, 1999 is adequate.
12. Liabilities subject to compromise consist of the following at August 1,
1999 (in thousands):
1999
----
Trade accounts payable $3,613
Priority tax claim 54
Accrued severance 278
Deferred rental and other
lease obligations 1,298
Licensing Agreement 493
Other 548
------
Total $6,284
======
<PAGE>
Unsecured claims against the Company in existence prior to the Bankruptcy
Filing are included in "Liabilities Subject to Compromise". Additional
claims (Liabilities Subject to Compromise) may arise or become fixed
subsequent to the filing date resulting from rejection of executory
contracts, including leases, from the determination by the Court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed and unliquidated amounts and from the determination of unsecured
deficiency claims in respect of claims secured by the Company's assets
("Secured Claims"). Consequently, the amount included in the balance sheet
as Liabilities Subject to Compromise may be subject to further adjustments.
A plan of reorganization may require certain compromise of liabilities
that, as of August 1, 1999, are not classified as Liabilities Subject to
Compromise. The Company's ability to compromise Secured Claims without the
consent of the holder is subject to greater restrictions than in the case
of unsecured claims. Parties holding Secured Claims have the right to move
the court for relief from the stay, which relief may be granted upon
satisfaction of certain statutory requirements. Secured Claims are
collateralized by substantially all of the assets of the Company,
including, accounts receivable, inventories and property, plant and
equipment.
13. Restructuring items related to the Company's 1998 Restructuring and 1999
Realignment have been segregated and included in normal operations during
the thirteen and thirty-nine weeks ended August 1, 1999 and August 2, 1998
and consist of (in thousands):
<TABLE>
Thirteen Weeks Ended
--------------------
August 1, August 2,
1999 1998
---- ----
<S> <C> <C>
Severance and "stay-put" bonus expense
and related employee benefits 25 $ 205
Loss associated with New York office
lease surrender -- 283
Professional fees 16 47
Loss on impairment of machinery and
equipment and other assets 2,747 719
------ ------
Total $2,788 $1,245
====== ======
</TABLE>
<TABLE>
Thirty-Nine Weeks Ended
-----------------------
August 1, August 2,
1999 1998
---- ----
<S> <C> <C>
Gain associated with reduction of operating
lease cancellation liability $ (647) $ --
Severance and "stay-put" bonus expense
and related employee benefits 1,220 1,172
Gain associated with New York office
lease surrender -- (375)
Professional fees 24 50
Loss on impairment of machinery and
equipment and other assets 2,747 719
------ ------
Total $3,344 $1,566
====== ======
</TABLE>
<PAGE>
During the thirteen weeks ended August 1, 1999, certain of the Company's
property, plant and equipment was rendered further impaired. The Company
currently estimates that the fair value of such equipment is $2.7 million
below its current net book value based upon appraised values. As a result,
the Company recognized a loss on impairment of $2.7 million as a
restructuring item during the thirteen weeks ended August 1, 1999.
During the thirteen weeks ended January 31, 1999, the Company incurred
approximately $1.2 million in severance expense as a result of the 1999
Realignment (see Note 2 to these Condensed Consolidated Financial
Statements) which was recognized as a restructuring item during the
thirteen weeks ended January 31, 1999. During the thirteen weeks ended May
2, 1999, the Company recognized a gain of $0.6 million associated with the
reduction of the operating lease cancellation liability previously
established during fiscal year 1998. Such gain resulted from an agreement
reached with a lessor to exchange certain idle equipment covered under a
lease agreement for equipment in operation and owned by the Company. This
agreement allowed the Company to sell such idle equipment. This item was
recognized as a restructuring item during the thirteen weeks ended May 2,
1999.
During the 1998 Third Quarter, certain of the Company's machinery and
equipment was rendered impaired. The Company estimated that the fair value
of such equipment was $0.7 million below its net book value. Accordingly,
the Company recognized a loss on impairment of $0.7 million as a
restructuring item during the 1998 Third Quarter.
During the thirty-nine weeks ended August 2, 1998, the Company recognized
as restructuring items severance expense of approximately $0.8 million and
expense of approximately $0.4 million for stay put bonuses related to the
1998 Restructuring (see Note 1 to the Consolidated Financial Statement
contained in the 1998 Form 10-K).
In connection with entering into the lease surrender agreement (see Note 13
to the Consolidated Financial Statements contained in the 1998 Form 10-K),
the Company wrote-down property, plant and equipment by approximately $1.1
million associated with the future abandonment of leasehold improvements
and furniture and fixtures, wrote-down the estimated deferred rent
liability at January 1, 1999 by approximately $2.1 million, accrued $0.5
million for broker's commission and accrued approximately $0.1 million for
lease cancellation liability. These items resulted in a $0.4 million gain
which was recorded as a restructuring item during the thirty-nine weeks
ended August 2, 1998.
<PAGE>
14. In accordance with SOP 90-7, professional fees, asset impairments and
reorganization charges directly related to the current and prior Bankruptcy
Filing and related reorganization proceedings have been segregated from
normal operations during the thirteen and thirty-nine weeks ended August 1,
1999 and August 2, 1998 and consist of (in thousands):
Thirteen Weeks Ended
---------------------
August 1, August 2,
1999 1998
---- ----
Write-off of deferred financing costs $ 782 $ --
Professional fees 243 19
Severance expense 297 --
Other 24 6
------ ----
Total $1,346 $ 25
====== ====
Thirty-Nine Weeks Ended
-----------------------
August 1, August 2,
1999 1998
---- ----
Write-off of deferred financing costs $ 782 $ --
Professional fees 297 45
Severance expense 297 --
Other 24 35
------- ----
Total $1,400 $ 80
====== ====
<PAGE>
Item 2. MANAGEMENT=S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Item 7 - AManagement=s Discussion and Analysis of Financial
Condition and Results of Operations@ contained in the 1998 Form 10-K for a
discussion of the Company=s financial condition as of November 1, 1998,
including a discussion of the Company=s anticipated liquidity and working
capital requirements during its 1999 fiscal year.
Forward Looking Statements
Certain matters discussed in this Quarterly Report under Item 2 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: The Company's Bankruptcy proceeding, demand for the Company=s
products, competition, the Company's production needs, wool market conditions,
foreign currency exchange rates, the adequacy of the Company's current
financing, any unexpected financing requirements, and changes in the general
economic climate.
Recent Events
1999 Realignment and Bankruptcy Filing
As described in Note 1 to the Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended November 1, 1998
(the "1998 Form 10-K"), the Company incurred net losses of $19.0 million, $7.0
million and $17.8 million in fiscal years 1998, 1997 and 1996, respectively. Net
sales declined from $199.0 million in fiscal year 1997 to $149.6 million in
fiscal year 1998. Management responded to these losses, the decline in sales and
the resulting adverse impact on the Company's liquidity by implementing a
business plan designed to align the Company's manufacturing capacity and
overhead with expected market demand. In October 1998, the Company's Board of
Directors approved the closing of its Louisville, Georgia plant, realignment of
the Company's remaining manufacturing facilities located in Georgia and further
reductions of its selling, styling and administrative costs (the "1999
Realignment"). Implementation of the 1999 Realignment was substantially complete
as of January 31, 1999.
The operating results for fiscal year 1998, the effect of the 1998 Restructuring
(see Note 1 to the Consolidated Financial Statements contained in the 1998 Form
10-K) and the 1999 Realignment and the formation of Forstmann Apparel, Inc.
("FAI"), including the purchase of substantially all of the assets of Arenzano
Trading Company, Inc. (see Note 4 to the Consolidated Financial Statements
contained in the 1998 Form 10-K), negatively impacted the Company's borrowing
availability under its Revolving Loan Facility (herein defined). The Company's
availability under its Revolving Loan Facility was exhausted in mid-July 1999 as
compared to $17.3 million at August 2, 1998. As a result, on July 23, 1999, the
Company filed a petition for protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the U.S. Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Filing"). The Bankruptcy Filing
was effected to facilitate a possible merger, equity investment or sale of the
Company. The Company has been in discussions with several interested parties to
acquire or invest in the Company. However, there can be no assurance that the
Company will be able to consummate a merger, equity investment or sale of the
Company. Additionally, as of August 29, 1999 borrowing availability under the
Revolving Loan Facility was $0.6 million. The Company's ability to maintain
adequate availability to meet its operating needs is dependent on achieving
future sales consistent with management's expectations for fiscal year 1999 and
successful implementation of its cost reductions. The majority of the Company's
customers are in the domestic apparel industry which has continued to suffer an
economic decline as a result of higher levels of imports and changing fashion
trends. Expected cash flow from operations is dependent upon achieving sales
expectations during fiscal year 1999, 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 in large part
upon 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. There can be no assurance that the Company will be able to achieve
an adequate level of sales consistent with management's expectations for fiscal
year 1999 to enable the Company to generate sufficient funds to meet its
operating needs. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
During the thirteen weeks ended August 1, 1999 (the "1999 Third Quarter"), the
Company wrote off deferred financing cost of $0.8 million associated with the
Loan and Security Agreement (herein defined) and incurred $0.3 million in
severance expense. These items were recognized as reorganization items during
the 1999 Third Quarter. Any additional asset impairment or costs directly
related to the reorganization proceeding will be reflected as reorganization
items in the period the Company becomes committed to plans which impair the
valuation of the Company's assets or incurs a reorganization liability.
As a result of the 1999 Realignment, the Company wrote down property, plant and
equipment by $2.7 million during the 1999 Third Quarter based upon appraised
values. This item was recognized as a restructuring item during the 1999 Third
Quarter. Additionally, the Company incurred approximately $1.2 million in
severance expense which was recognized as a restructuring item during the
thirteen weeks ended January 31, 1999. During the thirteen weeks ended May 2,
1999, the Company recognized a gain of $0.6 million associated with the
reduction of the operating lease cancellation liability previously established
during fiscal year 1998. Such gain resulted from an agreement reached with a
lessor to exchange certain idle equipment covered under a lease agreement for
equipment in operation and owned by the Company and was recognized as a
restructuring item during the thirteen weeks ended May 2, 1999. This agreement
allowed the Company to sell such idle equipment. Further, the Company incurred
costs of approximately $0.1 million during the thirty-nine week period ended
August 1, 1999 (the "1999 Period") related to the relocation of certain
machinery and equipment. Such costs were charged to cost of goods sold during
the 1999 Period.
<PAGE>
Sale of FAI
On April 30, 1999 the Company entered into a letter of intent with Newco
Holdings LLC ("Newco") which provided for the sale of the ladies suit business
and certain assets, and the assumption of certain liabilities, of FAI by Newco.
Consummation of the sale was expected to occur in June 1999. However, the letter
of intent expired without Newco fulfilling its obligations under the letter of
intent in order for a sale to be consummated. The Company has also filed for
Chapter 11 bankruptcy protection for FAI and has ceased its operations.
Financial Condition and Liquidity
The Company is in default of substantially all of its debt agreements (other
than the Loan and Security Agreement). All outstanding unsecured debt of the
Company has been presented in these Condensed Consolidated Financial Statements
as "Liabilities Subject to Compromise".
Reference is made to Note 9 to the Consolidated Financial Statements contained
in the 1998 Form 10-K. 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 was amended on July 23, 1999 to provide the Company
debtor-in-possession financing. The Loan and Security Agreement, as subsequently
amended, provides for a revolving line of credit (including a $3.0 million
letter of credit facility), subject to a borrowing base formula, of up to $40
million (the "Revolving Loan Facility") and a term loan of $9.5 million (the
"Term Loan Facility"). In connection with the amendment, the Company agreed to
commence monthly Term Loan Facility principal payments of $500,000 on November
1, 1999 with the balance due at maturity. Additionally, the Company and its
lenders agreed to reduce the Revolving Loan Facility commitment to $19 million
from November 1, 1999 through January 1, 2000 with a seasonal increase to $40
million thereafter. The amendment sets new financial covenants for fiscal year
1999 and thereafter. However, there can be no assurance that the Company will be
able to comply with such financial covenants. The Loan and Security Agreement,
as subsequently amended, expires on July 31, 2000. In connection with entering
into the amendment to the Loan and Security Agreement, the Company agreed to pay
BABC for the benefit of the lenders, $650,000 due on October 31, 1999 or upon
sale of the Company.
At August 1, 1999, the Company's loan availability as defined in the Loan and
Security Agreement, in excess of outstanding advances and letters of credit, was
approximately $1.1 million.
Secured Claims are collateralized by substantially all of the assets of the
Company including accounts receivable, inventories and property, plant and
equipment. The Company has continued to accrue interest on most of its secured
debt obligations as management believes that in most cases the collateral
securing the secured debt obligations is sufficient to cover the principal and
interest portions of scheduled payments on the Company's pre-petition secured
debt obligations.
<PAGE>
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 fiscal 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 quarter. Further, the industry practice of
providing coating fabric customers with favorable billing terms (referred to as
Adating@) which permit payment 60 (sixty) days from July 1 for invoices billed
in January through June encourages such coating fabric customers to place orders
in advance of their actual need. This enables the Company to manufacture and
bill certain coating fabric customers during the Company=s first fiscal quarter.
During the thirty-nine weeks ended August 1, 1999 (the A1999 Period@),
operations provided $8.0 million of cash, whereas $10.4 million was used by
operations during the thirty-nine weeks ended August 2, 1998 (the A1998
Period@). This $18.5 million increase in cash provided by operations in the 1999
Period was primarily due to a $23.0 million decrease in inventory during the
1999 Period as compared to the 1998 Period. The decrease in inventory during the
1999 Period as compared to the 1998 Period resulted from the Company curtailing
its manufacturing operations during the 1999 Period. This was in response to
significantly lower receipt of customer sales orders during the 1999 Period as
compared to the 1998 Period for product to be delivered in the Company's second
and third fiscal quarters, as well as, the Company's decision to exit certain
product lines in connection with the 1998 Restructuring (see Note 1 to the 1998
Form 10-K ) and reduced worsted manufacturing capacity resulting from the 1999
Realignment (see Note 2 to these Condensed Consolidated Financial Statements).
Accounts receivable declined by $3.4 million during the 1999 Period, whereas
accounts receivable increased by $4.6 million during the 1998 Period. The
decrease in accounts receivable primarily relates to a decrease in sales during
the 1999 Period when compared to the 1998 Period. Combined, the decrease in
inventory and accounts receivable during the 1999 Period resulted in $18.7
million being provided during the 1999 Period as compared to $12.3 million being
used during the 1998 Period. This $31.0 million increase in cash provided was
somewhat offset by a $10.9 million higher net loss during the 1999 Period when
compared to the 1998 Period.
Investing activities used $0.6 million in the 1999 Period as compared to $4.2
million in the 1998 Period. The Company expects spending for capital
expenditures, principally plant and equipment, in fiscal year 1999 to be
significantly lower than fiscal year 1998 due to caps contained in the amended
Loan and Security Agreement.
As a result of the foregoing, during the 1999 Period, $7.7 million was used by
financing activities whereas during the 1998 Period $14.3 million was provided
by financing activities.
The sales order backlog at August 29, 1999 was $13.5 million whereas
at the comparable time a year earlier the sales order backlog was $42.1 million.
The composition of the sales order backlog at August 29, 1999 reflects a weaker
order position in all product lines. Of the approximate $28.6 million decline in
the sales order backlog at August 29, 1999 as compared to the comparable time a
year earlier, approximately $20.2 million relates to womenswear fabrics. The
decline in the backlog of sales orders for women's fabrics is twofold. First, an
over capacity of woolen flannel manufacturing coupled with excessive women's
wool flannel apparel inventory at retail has lead to a decline in demand for the
Company's women's wool flannel fabrics. Second, the reduction in the Company's
worsted fabrics manufacturing capacity has caused the Company to limit somewhat
its women's worsted product offerings. The menswear fabric and government fabric
sales order backlog at August 29, 1999 declined by $4.6 million over the
comparable time a year earlier. Approximately $4.2 million of this decline
relates to the Company's decision to exit men's suits and government businesses.
Menswear fabrics further declined primarily due to an over capacity in global
worsted wool manufacturing and fashion trends. The order position for coating
fabrics at August 29, 1999 has declined by $2.0 million over the comparable time
a year earlier. The decrease in coating fabric sales order backlog is primarily
due to the unseasonably warm winter experienced throughout much of the U.S. in
1997-1998. As a result, initial coating fabric orders have been delayed by
retailers, which has delayed orders from apparel manufacturers. The specialty
fabric sales order backlog at August 29, 1999 declined by $1.8 million over the
comparable time a year earlier due to a decrease in orders for fabrics used in
baseball caps.
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. Based on wool
costs incurred during the 1999 Period and the Company=s forward purchase
commitments, the Company expects wool costs to decrease approximately 11% in
fiscal year 1999 as compared to fiscal year 1998.
Year 2000 Matters
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. 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. Costs
associated with upgrading existing systems to address the Year 2000 matter will
be expensed in the period incurred, whereas costs associated with the
replacement of existing systems will be capitalized in the period incurred.
During the 1999 Period, the Company capitalized $0.6 million in costs associated
with the replacement of existing systems.
The Company expects its Year 2000 upgrade project and the replacement of its
manufacturing and inventory related systems to be completed during the fourth
quarter of calendar year 1999. In the third quarter of calendar year 1999 over
80% of the completed Company software application systems were rigorously tested
and proven Year 2000 compliant in a Year 2000 date range computer environment.
While the Company is confident the remaining Year 2000 upgrade tasks
<PAGE>
will be completed and tested in the fourth quarter of calendar year 1999, there
can be no assurance that there will not be a delay in, or increased costs
associated with the implementation of such changes. Any inability to implement
such changes could have a material adverse effect on the Company.
The Company has not completed its assessment of the Year 2000 compliance of its
vendors and customers, nor of the possible consequences to the Company of the
failure of one or more of its vendors and customers to become Year 2000
compliant on a timely basis. The Company expects to complete such assessment
before the end of the third quarter of calendar year 1999. It is possible that
if a substantial number of the Company's customers fail to implement Year 2000
compliant billing or payment systems, for example, their payments to the Company
might be disrupted which might adversely affect the Company's cash flow. The
Company will discuss these matters with its key vendors and customers during the
remainder of 1999 to attempt to ascertain whether and to what extent such
problems are likely to occur. It is not clear, however, what, if any measures
the Company could take to deal with such eventualities while still maintaining
customer and vendor relationships. The Company does not believe that it has
other relationships with vendors and suppliers which, if disrupted, due to the
failure of such vendors and suppliers to deal adequately with their own Year
2000 compliance issues, would have a material adverse effect on the Company.
The Company has completed an assessment of its manufacturing processes, and
all mill equipment from DCS/SCADA systems to field devices had been inventoried.
All critical items have been tested and 98% are compliant. The remaining 2% (one
item of equipment)is scheduled for Year 2000 upgrade by early December 1999. The
assessment of non-critical items is 85% complete, with 100% Year 2000 compliance
and will be completed by the calendar year end.
Results of Operations
The Thirty-Nine Weeks Ended August 1, 1999 ("1999 Period") Compared to
The Thirty-Nine Weeks Ended August 2, 1998 ("1998 Period")
The Company=s business is seasonal, accordingly, results for these interim
periods are not indicative of results for a full fiscal year. Net sales for the
1999 Period were $68.9 million, a decrease of 41.4% from the 1998 Period. Total
yards of fabric sold decreased 42.7% from the 1998 Period to the 1999 Period and
the average per yard selling price decreased to $7.41 per yard from $7.57 per
yard due to shifts in product mix and sales price decline. The decrease in sales
was primarily due to womenswear fabric sales which were approximately $29.0
million lower in the 1999 Period as compared to the 1998 Period and menswear
fabric sales which were approximately $18.2 million lower in the 1999 Period as
compared to the 1998 Period. Additionally, coating fabric sales were
approximately $2.4 million lower during the 1999 Period as compared to the 1998
Period and specialty fabric sales were approximately $1.2 million lower during
the 1999 Period as compared to the 1998 Period. These decreases were nominally
offset by an increase in government fabric sales of $0.2 million during the 1999
Period as compared to the 1998 Period. Additionally, sales for FAI were $3.9
million during the 1999 Period as compared to $1.6 million during the 1998
Period. Menswear fabric sales declined due, in part, to the Company's decision
made in March 1998 to exit the men's top dyed suit business. Overall, the
Company expects men's woolen fabric sales to be lower in fiscal year 1999 as
compared to fiscal year 1998 due to fashion trends and increased competition
from imports. Women's woolen and worsted fabric sales were lower in the 1999
Period as compared to the 1998 Period. Based on current backlog of sales orders
for women's woolen and worsted sales, market trends and increased competitive
pressures, the Company expects overall women's woolen and worsted fabric sales
to be significantly lower in fiscal year 1999 as compared to fiscal year 1998.
Currently, the Company expects coating fabric sales in fiscal year 1999 to be
slightly lower than in fiscal year 1998.
Cost of goods sold decreased $38.2 million to $66.2 million during the 1999
Period primarily as a result of the decline in sales and change in product mix.
Gross profit decreased $10.5 million from $13.2 million in the 1998 Period to
$2.7 million in the 1999 Period, and gross profit margin for the 1999 Period was
4.0% compared to 11.2% for the 1998 Period. This decline in the gross profit
margin is due to fixed manufacturing costs which are not absorbed when
manufacturing operations are running at volumes below full capacity. As a result
of operating below full capacity, $7.9 million in fixed manufacturing costs were
unabsorbed during the 1999 Period as compared to $2.8 million during the 1998
Period.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, decreased 15.5% to $8.4 million in the 1999 Period
compared to $9.9 million in the 1998 Period. However, included in selling,
general and administrative expenses during the 1999 Period is $2.0 million
related to FAI as compared to $0.8 million during the 1998 Period. The majority
of the decrease in selling, general and administrative expenses exclusive of FAI
during the 1999 Period was primarily due to a decrease in human resource related
expenses as the Company reduced its overhead in response to lower sales.
Additionally, expense associated with professional services was lower during the
1999 Period when compared to the 1998 Period.
The provision for uncollectible accounts decreased to $0.5 million in the 1999
Period as compared to $0.6 million in the 1998 Period. See Note 3 to the
Consolidated Financial Statements contained in the 1998 Form 10-K for a
discussion of the Company's accounting policies regarding the establishment of
its allowance for uncollectible accounts.
Interest expense for the 1999 Period was $4.3 million as compared to $4.9
million in the 1998 Period. The decrease in interest expense during the 1999
Period is mainly attributable to a lower Term Loan Facility balance which was
somewhat offset by a higher average Revolving Loan Facility balance and $0.2
million higher interest expense associated with FAI during the 1999 Period as
compared to the 1998 Period.
As a result of the foregoing, a loss before reorganization and restructuring
items, income taxes and extraordinary gain of $10.4 million was realized in the
1999 Period as compared to $2.3 million in the 1998 Period. Loss before
depreciation and amortization, reorganization and restructuring items, interest
expense, income taxes and extraordinary gain during the 1999 Period was $3.0
million as compared to income before depreciation and amortization,
reorganization and restructuring items, interest expense and income taxes of
$6.3 million during the 1998 Period.
Restructuring items were $3.3 million during the 1999 Period and $1.6 million
during the 1998 Period (see Note 13 to these Condensed Consolidated Financial
Statements).
Reorganization items were $1.4 million during the 1999 Period and $0.1 million
during the 1998 Period (see Note 14 to these Condensed Consolidated Financial
Statements).
During fiscal year 1995, the Company fully utilized its net operating loss
carrybacks as permitted by the Internal Revenue Code. For the 1999 Period and
the 1998 Period, no income tax benefit was recognized from the realization of a
net operating loss.
An extraordinary gain on debt discharge of $0.3 million was recognized during
the 1999 Period as a result of the settlement reached with ABB Industrial
Systems, Inc. regarding its bankruptcy claim (see Note 9 to these Condensed
Consolidated Financial Statements).
As a result of the foregoing, net loss for the 1999 Period was $14.9 million as
compared to $3.9 million in the 1998 Period.
The Thirteen Weeks Ended August 1, 1999 (the "1999 Third Quarter") Compared to
The Thirteen Weeks Ended August 2, 1998 (the "1998 Third Quarter")
Net sales for the 1999 Third Quarter were $23.4 million, a decrease of 40.0%
from the 1998 Third Quarter. Total yards of fabric sold decreased 34.0% during
the 1999 Third Quarter. The average per yard selling price decreased to $7.24
per yard from $7.62 per yard due to shifts in product mix and sales price
decline. Sales declined in all major product lines. The decrease in net sales
during the 1999 Third Quarter is attributable to the reasons discussed above in
the 1999 Period compared to the 1998 Period.
Cost of goods sold decreased $14.5 million to $22.6 million during the 1999
Third Quarter primarily as a result of lower sales. Gross profit decreased $1.1
million or 57.9% to $0.8 million in the 1999 Third Quarter, and gross profit
margin for the 1999 Third Quarter was 3.6% compared to 5.1% for the 1998 Third
Quarter. The decrease in gross profit margin during the 1999 Third Quarter is
attributable to the reasons discussed above in the 1999 Period compared to the
1998 Period.
Selling, general and administrative expenses, excluding the provision for
uncollectible accounts, decreased 30.3% to $2.2 million in the 1999 Third
Quarter compared to $3.2 million in the 1998 Third Quarter. Included in selling,
general and administrative expenses during the 1999 Third Quarter is $0.3
million related to FAI as compared to $0.8 million during the 1998 Third
Quarter. The reduction in selling, general and administrative expenses during
the 1999 Third Quarter exclusive of FAI is primarily attributable to a decrease
in human resource related expenses as the Company reduced its overhead in
response to lower sales.
The provision for uncollectible accounts was $0.2 million during the 1999 Third
Quarter when compared to $0.1 million during the 1998 Third Quarter.
<PAGE>
Interest expense for the 1999 Third Quarter was $1.5 million or $0.2 million
lower than the 1998 Third Quarter. This decrease is attributable to a lower Term
Loan Facility balance during the 1999 Third Quarter as compared to the 1998
Third Quarter.
As a result of the foregoing, a loss before reorganization and restructuring
items, income taxes and extraordinary gain of $3.1 million was realized in the
1999 Third Quarter as compared to $3.0 million in the 1998 Third Quarter. Loss
before depreciation and amortization, reorganization and restructuring items,
interest expense, income taxes and extraordinary gain during the 1999 Third
Quarter was $0.3 million as compared to income before depreciation and
amortization, reorganization and restructuring items, interest expense and
income taxes of less than $0.1 million during the 1998 Third Quarter.
Restructuring items of $2.8 million was recognized in the 1999 Third Quarter as
compared to $1.3 million in the 1998 Third Quarter. Reference is made to Note 13
to these Condensed Consolidated Financial Statements for a discussion of
restructuring items incurred during the 1999 Third Quarter and the 1998 Third
Quarter.
Reorganization items were $1.3 million during the 1999 Third Quarter as compared
to $25,000 during the 1998 Third Quarter (see Note 14 to these Condensed
Consolidated Financial Statements).
During fiscal year 1995, the Company fully utilized its net operating loss
carrybacks as permitted by the Internal Revenue Code. Accordingly, for the 1999
Third Quarter, no income tax benefit was recognized from the realization of net
operating losses. During the 1998 Third Quarter, the Company recognized an
income tax benefit of $0.1 million which related to the reversal of the
provision recorded during the twenty-six weeks ended May 3, 1998.
As a result of the foregoing, a net loss of $7.2 million was recognized in the
1999 Third Quarter compared to $4.2 million in the 1998 Third Quarter.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
4.1 Amendment No. 2 to Amended and Restated Loan and Security
Agreement (DIP Financing Amendment) dated as of July 23, 1999.
11.1 Statement re computation of per share earnings - not required since
such computation can be clearly determined from the material
contained herein.
15.1 Independent Accountants' Review Report, dated September 3, 1999
from
Deloitte & Touche LLP to Forstmann & Company, Inc.
99.1 Press release re Chapter 11 Filing dated as of July 23, 1999.
(b) Current Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORSTMANN & COMPANY, INC.
---------------------------------
(Registrant)
/s/Gary E. Schafer
---------------------------------
Gary E. Schafer
Chief Financial Officer
September 15, 1999
- ------------------
Date
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
4.1 Amendment No. 2 to Amended and Restated 33
Loan and Security Agreement (DIP Financing
Amendment) dated as of July 23, 1999.
11.1 Statement re computation of per share earnings not
required since such computation can be clearly
determined from the material contained
herein.
15.1 Independent Accountants' Review Report, 56
dated September 3, 1999 from Deloitte &
Touche LLP to Forstmann & Company, Inc.
99.1 Press release re Chapter 11 Filing dated as 57
of July 23, 1999.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------
CHAPTER 11
In re
Case Nos. 99 B 10432 and
FORSTMANN & COMPANY, INC. and 99 B 10433 (PCB)
FORSTMANN APPAREL, INC.,
Debtors.
Jointly Administered
- ---------------------------------------
FINAL ORDER AUTHORIZING POST-
PETITION FINANCING, GRANTING SENIOR LIENS, PRIORITY
ADMINISTRATIVE EXPENSE, AND AUTHORIZING AGREEMENT
WITH BANK OF AMERICA NT & SA, AS AGENT AND LENDER
Upon the application of Forstmann & Company, Inc. ("Forstmann") and
its subsidiary, Forstmann Apparel, Inc. ("FAI"), debtors and
debtors-in-possession (each a "Debtor" and collectively, the "Debtors") dated
July 23, 1999 (the "Motion") for entry of an order authorizing the Debtors to
(a) obtain post-petition financing in the form of additional loans under an
amended and restated loan and security agreement dated as of September 14, 1998
(as amended and restated from time to time, the "Pre-Petition Loan Agreement")
among the Debtors, the lender parties thereto (the "Lenders") and Bank of
America NT & SA as successor to BankAmerica Business Credit, Inc., as Agent (the
"Agent"), (b) to grant to the Agent, for the benefit of the Lenders, pursuant to
Sections 364(c)(2) and 364(d)(1) of title 11 of the United States Code (the
"Bankruptcy Code"), security interests for the Obligations1 of the Debtors to
the Agent and the Lenders pursuant to the Pre-Petition Loan Agreement, as
amended by the Acknowledgement and Amendment (the "Amendment"), a copy of which
is annexed hereto as an Exhibit A, (the Pre-Petition Loan Agreement as amended
by the Amendment shall hereinafter be referred to as the "Post-Petition Loan
Agreement"), and (c) to grant to the Agent, for the benefit of the Lenders,
super-priority administrative status, pursuant to 11 U.S.C.ss. 364(c)(1), all as
more fully set forth herein; and a copy of the Motion and the Interim Financing
Order having been served on the twenty (20) largest creditors of each Debtor and
the Lenders as required by the Court and evidenced by the affidavit of service
with respect thereto as filed by the Debtors with the Clerk of the Court; and
the Office of the United States Trustee having filed an objection to Motion and
the proposed interim financing requested thereunder, dated July 28, 1999 (the
"UST Objection") and Newco Holdings, LLC having filed an objection to the Motion
to the extent Forstmann Apparel, Inc. seeks authority to obtain
debtor-in-possession financing, dated July 29, 1999 (the "Newco Objection"); and
an interim hearing (the "Interim Hearing") as scheduled by the Court pursuant to
an Order (1) Granting the Debtors Emergency Authorization to Borrow from the
Debtors' Pre-petition Lenders (2) Scheduling Interim and Final Hearings to
Consider Entry of Further Orders: (A) Approving and Authorizing Debtors to Enter
into Post-Petition Credit Agreement with Lenders Pursuant to 11 U.S.C. ss.
364(c) and (d); (C) Approving Form and Manner of Notice Regarding Interim and
Final Hearings; and (D) Granting Related Relief, dated July 23, 1999 (the
"Emergency Order") entered by the Court at the conclusion of a hearing to
consider emergency relief under the Motion held on July 23, 1999 (the "Emergency
Hearing") having been held by the Court on July 30, 1999 to consider the Motion
and the interim relief sought therein, and at the Interim Hearing, the Court
having granted the Motion on an interim basis as to Forstmann and thereupon
having entered an Interim Order Authorizing Post-Petition Financing, Granting
Senior Liens, Priority Administrative Expense, and Authorizing Agreement with
Bank of America NT & SA, as Agent and Lender, dated August 4, 1999 (the "Interim
Order") which Order set a final hearing on the Motion for August 11, 1999 at
2:30 p.m. (the "Final Hearing"); and no objections in addition to the UST
Objection and the Newco Objection having been filed or received after due notice
of the Final Hearing having been given; and good and sufficient cause appearing
for entry of this Order;
THE COURT HEREBY FINDS, upon the full record of the proceedings
heretofore held before this Court with respect to the Motion, as follows:
A. On July 23, 1999 (the "Petition Date"), the Debtors each filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code and have
been continued as debtors-in-possession.
B. Prior to the commencement of these Chapter 11 cases, the Lenders
made loans and advances to the Debtors, and caused to be issued letters of
credit on the Debtors' behalf, pursuant to the Pre-Petition Loan Agreement and
related documents executed by the Debtor, secured by a first lien on, among
other things, substantially all of the Debtors' property, including all of the
Debtors' then existing and after acquired Accounts, Inventory, Equipment,
General Intangibles (including, but not limited to inventions, designs, patent
applications, trademarks, and trade secrets) and other non-real Property, and
Real Estate, as those terms are described in the Pre-Petition Loan Agreement,
and the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance covering any or all of the foregoing
property, and any property resulting from the sale or other disposition of any
of the foregoing property interests, or any portion thereof or interest therein,
and the proceeds thereof (the "Pre-Petition Collateral").
C. As of the close of business on July 22, 1999, the Debtors were
indebted to the Lenders under the Pre-Petition Loan Agreement in the aggregate
sum of principal and interest of not less than $44,271,769.98 plus additional
costs, fees and expenses thereon (the "Pre-Petition Indebtedness"); the Debtors
(a) admit the validity and enforceability of the Pre-Petition Indebtedness owing
to the Agent and the Lenders as shown on the books of the Agent or the Lenders,
and (b) admit that the security interests and liens held by the Agent in and
upon the Pre-Petition Collateral to fully secure the Pre-Petition Indebtedness
and are duly perfected, valid and enforceable and not subject to any claims,
defenses, set-offs or off-sets.
D. The Motion was filed on July 23, 1999, and prior to the Interim
Hearing, the Debtors provided actual notice of the terms of the Motion and the
interim relief requested thereunder to (i) the Office of the United States
Trustee, (ii) all known creditors who may have liens against the Debtors'
assets, (iii) the twenty (20) largest unsecured creditors of each Debtor, (iv)
counsel for the Agent and (v) parties in interest that as of the date of notice,
had filed a notice of appearance and request for papers in these chapter 11
cases, if any, by hand delivery, overnight courier, or mail as evidenced by the
affidavit of service filed by counsel for the Debtors.
E. At the Interim Hearing held on July 30, 1999 the Court heard
evidence and statements of counsel and, except as otherwise provided in the
Interim Order, overruled or disposed of both the UST Objection and the Newco
Objection and entered the Interim Order on August 4, 1999 and therein scheduled
the Final Hearing for August 11, 1999, and no objections having been filed or
received as required under the Interim Order with respect to the final relief
requested in the Motion or to the entry of this Order.
F. [Sufficient and adequate notice of the Motion, Final Hearing has
been given pursuant to Bankruptcy Rules 2002, 4001(c) and (d) and 9014 and
Section 102(1) as required by Sections 364(c) and (d) of the Bankruptcy Code and
in accordance with the Interim Order, as evidenced by affidavits of service
filed by counsel to the Debtors.
G. Consideration of the Motion constitutes a "core-proceeding" as
defined in 28 U.S.C. ss.ss. 157(b)(2)(A), (D), (G), (K), (M) and (O). This Order
is subject to, and the Agent and the Lenders are each entitled to the benefits
of, the provisions of Sections 363(m) and 364(e) of the Bankruptcy Code. This
Court has jurisdiction over this proceeding and the parties and property
affected hereby pursuant to 28 U.S.C. ss.ss. 157 and 1334.
H. The financing arrangements between Forstmann and the Agent and
the Lenders, pursuant to which post-petition loans, advances and other credit
accommodations may be made or provided under this final financing Order to
Forstmann by the Agent and the Lenders, are entered into by the Agent, the
Lenders and the Debtors in good faith as required by Section 364(e) of the
Bankruptcy Code and are in the best interests of the Debtors.
I. The relief requested in the Motion is necessary, essential and
appropriate for the continued survival and operation of Forstmann's business,
absent which Forstmann's ability to maximize the value of its estate for the
benefit of its creditors will be irreparably jeopardized to the detriment of
such creditors. Forstmann is unable to obtain unsecured credit allowable under
11 U.S.C. ss. 503(b)(1) as an administrative expense.
J. The Lenders will not provide financing absent the terms and
conditions set forth herein and the financing hereinafter ordered is necessary
to avoid immediate and irreparable harm to Forstmann's estate.
K. On July 29, 1999, an Official Committee of Unsecured Creditors
(the "Committee") was appointed in these chapter 11 cases by the Office of the
United States Trustee pursuant to Section 1102 of the Bankruptcy Code.
L. Good and sufficient cause has been shown for the entry of this
Order. Among other things, entry of this Order will minimize disruption of
Forstmann's business and operations and permit them to meet payroll and other
operating expenses, and maximize value for the benefit of creditors. The final
financing arrangement authorized hereunder is vital to avoid immediate and
irreparable harm to Forstmann's estate. Consummation of such financing therefore
is in the best interests of Forstmann's estate.
M. The UST Objection and the Newco Objection having been resolved
between the parties as reflected on the record of the Interim Hearing and/or the
Final Hearing, or the Court having denied or otherwise determined said
objections in their entirety, or to the extent applicable to Forstmann or
necessary with respect to the relief granted by this Order.
N. Good, adequate and sufficient cause has been shown to justify the
granting of the relief requested in the Motion, with respect to the proposed
financing as provided in this Order.
NOW, THEREFORE upon the record of the proceedings heretofore held
before this Court with respect to the Motion, the evidence adduced at the
Interim and Final Hearings, and the statements of counsel at such Hearings, IT
IS HEREBY ORDERED THAT:
1. Forstmann be, and it hereby is, authorized to borrow funds and to
obtain credit from the Lenders, said borrowing and credit accommodations to be
made in all respects in accordance with and subject to the terms of the
Post-Petition Loan Agreement. All of such post-petition borrowing and credit
accommodations will be evidenced by such documents as the Agent and/or the
Lenders shall reasonably require to be signed by Forstmann, and shall be secured
and shall bear interest at the rate or rates as set forth in the Post-Petition
Loan Agreement. The terms of the Post-Petition Loan Agreement are incorporated
herein by reference, and Forstmann's entry into and performance under the
Post-Petition Loan Agreement is ratified, authorized and approved. Forstmann
hereby assumes and agrees to be bound by and shall comply with the terms of, the
Post-Petition Loan Agreement, except to the extent such terms are inconsistent
with this Order, and as to any inconsistencies between the Post-Petition Loan
Agreement and this Order, the terms of this Order shall govern.
2. Unless terminated earlier according to the terms of this Order or
the Post-Petition Loan Agreement, Forstmann's authority to borrow money from the
Lenders pursuant to this Order shall expire on July 31, 2000. All post-petition
loans from the Lenders to the Debtors pursuant to the terms of the Post-Petition
Loan Agreement as approved under the Emergency Order, the Interim Order and this
Order shall be due and payable in full on the earlier of the expiration date of
this (i) Financing Order; (ii) July 31, 2000; (iii) such earlier time as is
provided for in the Post-Petition Loan Agreement; or (iv) immediately upon a
default under those documents.
3. The loans and advances made, and other credit accommodations
provided, by the Agent or the Lenders to Forstmann shall be used solely by
Forstmann for the purposes and in the amounts set forth in the Budget annexed as
Exhibit B hereto, and any subsequent Budget satisfactory to the Lenders, for the
payment of employee salaries, and other general operating and working capital
purposes in the ordinary course of business, including any other expenses
approved by the Court in accordance with the terms and conditions of this Order
and the Post-Petition Loan Agreement.
4. The Debtors have acknowledged and agreed, and this Court hereby
finds for all purposes in these chapter 11 cases (subject only to the rights as
hereinafter set forth in paragraph 5 below of the Committee), that as of the
Petition Date: (a) the Pre-Petition Indebtedness constituted valid and binding
obligations of the Debtors, (b) the amount of the Pre-Petition Indebtedness due
and payable to the Agent and the Lenders is the amount due the Agent and the
Lenders according to their books and records as of the Petition Date, (c) the
Agent's security interests in and liens upon the Pre-Petition Collateral
securing the Pre-Petition Indebtedness are valid, perfected, enforceable and
non-voidable, and each of the Lenders' pre-petition claims against the Debtors
and the estates of the Debtors are allowed and are valid, enforceable and
non-voidable in the amount of the Pre-Petition Indebtedness according to the
Agent's and the Lenders' books and records, (d) the Debtors do not possess, may
not assert and hereby waive any claim, counterclaim, set-off or defense of any
kind or nature which would in any way affect the validity, enforceability and
non-avoidability of the Pre-Petition Indebtedness or the security interests in
and liens upon the Pre-Petition Collateral or reduce or affect the obligation of
the Debtors to pay the Pre-Petition Indebtedness, and (e) the Lenders and the
Agent, and their respective agents and employees, are hereby released and
discharged by the Debtors from all claims and causes of action arising out of
any loan agreement or other relationship with the Debtors prior to the entry of
this Order.
5. The extent, validity, perfection, and enforceability of the
Agent's and the Lenders' claims, security interests and liens, and the waiver of
any other claims whatsoever against the Agent or the Lenders are approved and
authorized for all purposes, subject only to the rights of the Committee, no
later than sixty (60) days after the date of entry of the Interim Order (August
4, 1999), subject to extension by further order of this Court, or written
consent of the Agent, and without the need of obtaining further order of this
Court, to (i) file a complaint pursuant to Bankruptcy Rule 7001 to invalidate,
set aside or subordinate the Pre-Petition Indebtedness (standing for which is
hereby granted) and/or (ii) file a complaint pursuant to Bankruptcy Rule 7001
challenging, or otherwise file an objection to, the amount claimed to be owed to
the Agent or the Lenders as the Pre-Petition Indebtedness, or the extent,
validity or perfection of the Lenders' liens and security interests on and
against the Pre-Petition Collateral. If such complaint is not timely filed, (a)
the Pre-Petition Indebtedness shall be allowed, validated, and recognized in
full, and (b) the Agent's security interests and liens on and against the
Pre-Petition Collateral securing the Pre-Petition Indebtedness shall be deemed
allowed, duly perfected, fully enforceable, and in full force and effect, and
the same shall be binding on all parties in this proceeding, including any
successor trustee appointed hereafter. In the event that the Committee contests
the amount owed to the Lenders or the Agent or the extent, validity or
perfection of the Lenders' or the Agent's liens and security interest on and
against the Pre-Petition Collateral, the Agent and the Lenders shall, absent
further Order of this Court, continue to receive all proceeds from the
liquidation, sale or disposition of the Pre-Petition Collateral and the
Post-Petition Collateral which shall be applied by the Agent and the Lenders in
accordance with the terms of this Order subject to the rights of the Committee
(i) set forth in this paragraph 5, (ii) to seek disgorgement of all or part of
the proceeds received by the Agent and the Lenders, and (iii) as otherwise
provided by law.
6. In accordance with Sections 364(c)(2) and 364(d)(1) of the
Bankruptcy Code, any and all of the Post-Petition Indebtedness incurred by the
Debtors to the Agent and the Lenders under the Post-Petition Loan Agreement
shall be secured other than for Permitted Liens as defined in the Existing Loan
Agreement, by first and senior security interests and liens in favor of the
Agent for the benefit of the Lenders, in and on all property of Forstmann' s
estate, including but not limited to all now existing and hereafter-acquired
assets or property of Forstmann of any kind and nature, including, but not
limited to, the Pre-Petition Collateral, Forstmann's existing and after-acquired
Accounts, Inventory, Equipment, vehicles, fixtures, General Intangibles, Real
Estate, licenses, permits, trademarks, contract rights, insurance proceeds, tax
refunds, documents, instruments, investment property, merchandise returns and
chattel paper, together with all monies, deposit accounts or other assets in its
possession or in the custody or control of the Lenders, as well as the proceeds
and products thereof, excluding, however, all rights and avoidance actions of
the Debtors (the "Avoidance Actions") arising under Chapter 5 of the Bankruptcy
Code (the "Post-Petition Collateral"). Provided, however, and not withstanding
any other provision of this Order, that the liens and security interests in
favor of the Agent and Lenders on pre-Petition Date assets as granted hereby
shall only be to the extent of actual post-Petition Date advances, and shall not
extend to any assets against which the pre-Petition Date liens and security
interests are avoided as contemplated in paragraph 5 hereof ("Excluded Assets").
7. The Debtors shall remit to the Agent, for the benefit of the
Lenders, as provided in the Post-Petition Loan Agreement, all funds and other
property in its possession from and after the Petition Date representing the
proceeds of any and all of the Pre-Petition Collateral or Post-Petition
Collateral. During the term of this Order, any and all funds received by the
Debtors from operations or lease, use or sale of any of the Pre-Petition
Collateral or the Post-Petition Collateral shall be deposited in the manner and
in such amounts as provided for in the Post-Petition Loan Agreement, subject to
the provisions of this paragraph. The Agent is authorized to apply such funds
received in such order and manner as the Agent may deem appropriate in its
discretion, including, without limitation, to payment of its costs, fees and
expenses, then to interest and then to principal of all of the Pre-Petition
Indebtedness, including to accrued and accruing interest on such Pre-Petition
Indebtedness at the rates set forth in the Post-Petition Loan Agreement, and
after all of Pre-Petition Indebtedness has been paid in full, to payment of
Post-Petition Indebtedness, subject, however, that proceeds of Pre-Petition
Collateral that are assets of FAI and received on or after the Petition Date
shall not be applied to the Post-Petition Indebtedness, and shall only be
applied to the Pre-Petition Indebtedness. No funds generated from operations of
the Debtors or from the sale, lease or use of any Pre-Petition Collateral or
Post-Petition Collateral shall be deposited in any bank account except in the
manner provided in the Post-Petition Loan Agreement.
8. Forstmann irrevocably waives any right to seek any modifications
or extensions of this Order without the prior written consent of the Agent and
the Lenders and no such consent shall be implied by any other action, inaction
or acquiescence by the Lenders.
9. In the manner and as expressly provided for in the Post-Petition
Loan Agreement, the Debtors are authorized and directed to continue their
existing Collection Account arrangements as provided for in the Pre-Petition
Loan Agreement and, upon the Agent's request after an event of Default has
occurred and remains uncured, instruct all account debtors and other parties now
or hereafter obligated to pay the Debtors for services provided by the Debtors
to them or for inventory or other property of the estates of the Debtors sold by
Debtors to them to remit any such payments to the Collection Account established
or to be established by or for the benefit of the Agent at such banking
institution or institutions as may be designated in the Post-Petition Loan
Agreement or designated by the Agent, subject, however, that any Pre-Petition
Collateral that are accounts receivables or other rights to payment of FAI shall
only be applied to the Pre-Petition Indebtedness.
10. Any equity in the Pre-Petition Collateral that constitutes
assets of Forstmann, after payment in full of the Pre-Petition Indebtedness,
shall constitute further security for the Post-Petition Indebtedness to the
Agent and the Lenders under the Post-Petition Loan Agreement, and for any and
all post-petition loans and advances made by the Agent or the Lenders and all
letters of credit issued or caused to be issued by the Agent or the Lenders to
or for the account of Forstmann.
<PAGE>
11. In addition to the above, in accordance with Section 364(b) of
the Bankruptcy Code, any and all Post-Petition Indebtedness incurred under the
Post-Petition Loan Agreement and pursuant to this Order, shall constitute an
administrative expense in these Chapter 11 cases and shall have priority in
payment over any and all obligations of the Debtors now in existence or
hereinafter incurred by Debtors and over all administrative expenses of the kind
specified in or authorized by Sections 326, 330, 331, 503(b), 506(c), and 507(b)
of the Bankruptcy Code, whether incurred in these Chapter 11 cases or in any
subsequent liquidation proceeding(s) under Chapter 7 of the Bankruptcy Code,
except as provided in paragraph 17 of this Order. No costs or expenses of
administration which have been or may be incurred in these Chapter 11 cases are
or will be prior to or on a parity with the claims of the Lenders and the Agent
against the Debtors, and no such cost or expenses of administration shall be
imposed against the Lenders or the Agent, or their claims or their Post-Petition
Collateral, unless the Lenders and the Agent have given their respective prior
written consent to same. The Agent and the Lenders shall not be deemed to have
consented to payment of any administrative expenses from Lenders' and the
Agent's Pre-Petition or Post-Petition Collateral, or be deemed to have granted
any claimant priority over the Lenders' super-priority administrative claim,
unless the Lenders and the Agent shall have given their prior consent thereto in
writing. Notwithstanding the foregoing, in the event that no equity or
insufficient equity is realized from the sale, liquidation or other disposition
of the Post-Petition Collateral in excess of the aggregate outstanding
Pre-Petition Indebtedness, the outstanding Post-Petition Indebtedness and all
other amounts due and owing to the Lenders and the Agent, the Lenders and the
Agent each agree to subordinate their super-priority administrative expense
claim, and their liens on the Post-Petition Collateral, (i) up to a maximum
amount of $450,000, (accruing at a rate not to exceed $100,000 per month until
fully funded, whether or not there is actual availability under the
Post-Petition Loan Agreement, or an Event of Default has occurred) exclusive of
all retainers paid pre-petition to any professional, for purposes of providing
funds to pay administrative expense claims of the professionals retained by the
Debtors, excluding, however, (A) those professionals which are engaged by the
Debtors in the ordinary course of business pursuant to an order of this Court
approving such engagements ("Ordinary Course Professionals"), and (B) Butler,
Chapman & Co., Inc. ("Butler") and the attorneys and accountants retained by the
Committee, and Court allowed out of pocket expenses of the members of the
Committee (the "Professional Carve Out"), (ii) statutory fees of the Office of
the United States Trustee that are due or may become due ("U.S. Trustee Carve
Out") and (iii) retention bonuses for certain employees of the Debtors up to a
maximum of $547,000 ("Retention Carve Out"), (collectively the "Professional
Carve Out", "U.S. Trustee Carve Out", and "Retention Carve Out" are referred to
as "Carve Out"). The Carve Out shall be applied on the books of the Lenders to
reduce the Debtors' Availability under the Post-Petition Loan Agreement. The
Carve Out shall not be used to challenge the amount or validity of the Agent or
Lender's Claims or the extent, validity or priority of the Agent's liens, and
shall not be used to contest any plan proposed or supported by the Agent or the
Lenders. This subordination provision shall not be effective with respect to any
claimant who makes a claim against the Agent or the Lenders or the Post-Petition
Collateral for payment of any administrative expenses in excess of the Carve
Out, and shall not apply to any compensation or reimbursable expense of Ordinary
Course Professionals and Butler. The super-priority administrative claim granted
hereby to the Agent and Lenders shall not, under any circumstances, be satisfied
from the proceeds of any Avoidance Actions or Excluded Assets.
12. Without the necessity of the filing of financing statements,
mortgages or other documents, this Order shall be sufficient evidence of the
Agent's perfected liens and security interests in and to the Post-Petition
Collateral as described herein to secure the Obligations. Notwithstanding the
foregoing, Forstmann is authorized and directed to execute such documents
including, without limitation, mortgages, pledges and Uniform Commercial Code
financing statements and to pay such costs and expenses as may be reasonably
required to provide further evidence of the perfection of the Agent's security
interests in the collateral as provided herein.
13. Forstmann is authorized and directed to perform all acts and to
make, execute and deliver any and all instruments as may be necessary to
implement the terms and conditions of this Order and the transactions described
herein and in the Motion. The stay of Section 362 of the Bankruptcy Code is
hereby modified to permit the parties to accomplish the transactions
contemplated herein, and for the Agent and the Lenders to apply proceeds and
funds received in satisfaction of the Pre-Petition and Post-Petition
Indebtedness.
14. In the event of (i) a default hereunder by Forstmann or upon the
occurrence of Events of Default under the Post-Petition Loan Agreement, (ii) the
expiration of authority to borrow hereunder, (iii) the appointment of a Chapter
11 Trustee or Examiner with expanded powers, (iv) the conversion of either or
both of these Chapter 11 cases to cases under Chapter 7 of the Bankruptcy Code,
(v) the transfer of venue of either or both of these cases from this district,
(vi) the dismissal of either or both of these Chapter 11 cases, (vii) the entry
of an order granting, in whole or in part, an application of any party in
interest to incur debt prior in right or on a parity with the Agent's or the
Lenders' debt, (ix) Forstmann's failure to comply with the Budget in any
material respect, or (x) the entry of any order modifying, reversing, revoking,
staying, rescinding, vacating or amending this Order without the express prior
written consent of the Agent or the Lenders, which shall not be implied, then,
and upon the occurrence of any of the foregoing, and at all times thereafter,
the Agent or the Lenders may, at their absolute and sole discretion and option,
cease lending or issuing or causing the issuance of post-petition letters of
credit and all post-petition loans and all other amounts due under the
Post-Petition Loan Agreement shall become due and payable in full, and the Agent
and the Lenders, after first providing five (5) business days' prior written
notice by telecopier of the occurrence of a default hereunder to counsel to the
Debtors, counsel to the Committee and the Office of the United States Trustee,
without further order of the Court, shall thereafter be entitled to take any and
all actions necessary or appropriate under the Post-Petition Loan Agreement or
applicable law to collect their claims against the Debtors, and to foreclose
upon and liquidate the Pre- and Post-Petition Collateral and apply the proceeds
to payment first of the unpaid Pre-Petition Indebtedness, and then to the
Post-Petition Indebtedness unencumbered by any stay otherwise applicable under
Sections 105 and 362 of the Bankruptcy Code. For purposes of evaluating
Forstmann's compliance with the Budget, the Agent and the Lenders agree that a
deviation of greater than five percent (5%) in each line item measured weekly,
or for the entire Budget on a cumulative basis, shall constitute a material
deviation from the Budget and, at the option of the Majority Lenders, an event
of Default under the Post-Petition Loan Agreement. From and after a default
hereunder until such default is cured, the Lenders may charge the Debtors
interest at the Default Rate set forth in the Post-Petition Loan Agreement on
the aggregate of all outstanding Pre-Petition Indebtedness and Post-Petition
Indebtedness.
15. Except for sales of inventory or services rendered in the
ordinary course of its business and as otherwise provided in the various July
23, 1999, and July 29, 1999, orders of the Court, the Debtors shall not sell,
transfer, lease, encumber or otherwise dispose of any of the property of their
estates without the prior written consent of the Agent, and no such consent
shall ever be implied from any other action, inaction or acquiescence by the
Agent or the Lenders, unless such sale, transfer, lease, encumbrance or other
disposition is approved by this Court.
16. Forstmann shall provide the Agent with additional and/or updated
budgets and projections in such form and such detail as may be reasonably
requested by the Agent.
17. The provisions of this Order shall be binding upon any trustee
appointed during these Chapter 11 cases, or upon a conversion to Chapter 7,
provided, however, that the super-priority administrative expense claims status
provided to the Lenders under paragraph 11 of this Order shall not apply to
commissions, fees, or costs of such a trustee, and any such commissions, fees
and costs shall have priority in payment as is provided under the Bankruptcy
Code.
18. The Lenders and the Agent shall be entitled to reimbursement by
the Debtors of all reasonable and necessary costs and expenses incurred in
connection with negotiating and drafting the Pre-Petition Loan Agreement and
Post-Petition Loan Agreement and documents related thereto and actions to
preserve and protect Agent's and Lenders' claims and rights under the
Pre-Petition Loan Agreement and the Post-Petition Loan Agreement, including
reasonable counsel fees, filing fees, audit expenses, and field examination
expenses. All of such costs and expenses, when incurred by the Agent or the
Lenders, shall be treated as and included as part of the principal amount of
Post-Petition Indebtedness outstanding, for purposes of calculating the Debtors'
Availability under the Post-Petition Loan Agreement.
19. The Agent and Lenders shall have the right, upon reasonable
prior notice to the Debtors, at any time, during normal business hours, to
inspect, audit, examine, check and make copies of, and extract information from
their records, and to obtain information from Debtors' employees, and the
Debtors shall make its records and employees available to the Agent and the
Lenders for such purposes, upon the premises of the Debtors. The Debtors shall
timely file and serve upon the Agent all pleadings and other documents filed in
these Chapter 11 cases or otherwise disseminated to creditors or the Committee,
including monthly financial reports required by the Office of the United States
Trustee, and shall continue to supply to the Agent such reports as are required
under the Post-Petition Loan Agreement or as requested by the Agent or the
Lenders.
20. Nothing contained herein shall be construed to obligate the
Agent or any Lender to make any loans or advances not in accordance with the
terms of the Post-Petition Loan Agreement.
21. Pursuant to Section 364(e) of the Bankruptcy Code, the Agent and
the Lenders are each hereby found to be an entity that extended or will extend
credit in good faith and are entitled to all of the protections provided to an
entity that extended credit in good faith as set forth in Section 364(e), with
respect to all loans and advances made and letters of credit issued or to be
issued pursuant to this Order and the Post-Petition Loan Agreement.
22. All of the conditions precedent under Section 364(b) and (c) of
the Bankruptcy Code to the granting of all of the rights or interests herein to
the Agent and the Lenders will be deemed satisfied in the Agent's and Lenders
sole discretion. The provisions of this Order and any actions taken pursuant
hereto shall survive entry of any order which may be entered converting Debtors'
Chapter 11 cases to ones under Chapter 7 of the Bankruptcy Code, or any order
which may be entered confirming or consummating any plan of reorganization, and
the terms and provisions of this Order, as well as the priorities in payment,
liens and security interests granted pursuant to this Order shall continue in
this or any superseding case under the Bankruptcy Code, until the Pre-Petition
and Post-Petition Indebtedness are indefeasibly satisfied and discharged in full
in cash.
23. Forstmann hereby irrevocably waives the right to seek entry in
these Chapter 11 cases or any subsequent Chapter 7 proceeding any further order
which authorizes (a) the use of cash collateral of Forstmann or the sale, lease
or other disposition of property of the estate of Forstmann in which Agent and
the Lenders have an interest, or (b) under Section 364 of the Bankruptcy Code,
the obtaining of credit or the incurring of indebtedness secured by a lien or
security interest which is equal or senior to a lien or security interest held
by the Agent or the Lenders or which is entitled to priority administrative
status which is equal or superior to that granted to the Agent and the Lenders;
unless (i) the Agent and the Lenders shall have given their prior written
consent thereto, or (ii) such other order requires that the Agent and the
Lenders shall first be indefeasibly paid in full all Obligations of the Debtors
to the Agent and the Lenders.
24. In making the decision to provide loans and advances to
Forstmann pursuant to this Order, or to issue or cause to be issued any letters
of credit for Forstmann's account, the Agent and the Lenders shall not be deemed
to be in "control" of the operations of the Debtors, to be acting as a
"Responsible Person" or "Owner" or "Operator" with respect to the operation or
management of the Debtors (as such terms or similar terms are used in the United
States Comprehensive Environmental Response, Compensation and Liability Act of
1980 or any similar federal or state statute).
25. Nothing contained in this Order shall be deemed to terminate,
modify or release any obligations of any non-debtor guarantor to the Agent or
the Lenders with respect to the Pre-Petition or Post-Petition Indebtedness.
26. Except as otherwise provided in this paragraph, the terms of
this Order shall be valid and binding upon the Debtors, all creditors of the
Debtors and all other parties in interest from and after the execution of this
Order by this Court. In the event this Court modifies any of the provisions of
this Order following any further hearing, such modifications shall not affect
the rights and priorities of the Agent or the Lenders granted pursuant to this
Order with respect to the Pre-Petition Indebtedness and that portion of the
Post-Petition Indebtedness which is advanced prior to such modifications.
27. If any or all of the provisions of this final financing Order
are hereafter modified, vacated or stayed by subsequent order of this Court or
any other court, without the Agent's and Lender's written consent, such stay,
modification or vacation shall not affect (a) the validity of any obligation,
indebtedness or liability incurred by Forstmann to the Agent or the Lenders that
is or was incurred pursuant to this final financing Order before the Agent's or
the Lenders' receipt of notice of the effective date of such stay, modification
or vacation, (b) the validity and enforceability of the lien and security
interest authorized and created by this final financing Order or (c) the Agent's
and each Lender's right and ability to collect all amounts due to it under the
Credit Facility as approved by this Order.
28. Notwithstanding any such stay, modification or vacation, any
indebtedness, obligation or liability incurred by Forstmann pursuant to this
final financing Order arising prior to the Agent's receipt of notice of the
effective date of such stay, modification or vacation shall be governed in all
respects by the original provisions of this Order, and the Agent and the Lenders
shall continue to be entitled to all of the rights, remedies, privileges and
benefits, including any payments authorized herein and the security interests
and liens granted herein, with respect to all such indebtedness, obligation or
liability, and the validity of any payments made or obligations owed or credit
extended or lien or security interests granted pursuant to this Order is and
shall remain subject to the protection afforded under Section 364(e) of the
Bankruptcy Code.
29. Notwithstanding anything herein to the contrary, commencing upon
the approval of this order and on a monthly basis thereafter for so long as the
Agent and the Lenders seek payment of their reasonable legal fees and expenses,
counsel to the Agent shall submit an invoice to Forstmann with a statement of
individual time entries requesting compensation and reimbursement of expenses
for the prior month (the "Monthly Invoice"), and shall serve a copy of said
Monthly Invoice via telecopier or overnight delivery for next business day
receipt to counsel to the Debtors, counsel to the Committee and the Office of
the United States Trustee. Each Monthly Invoice shall indicate the amount
requested, broken down as to fees and disbursements, and shall indicate the
total time expended, the names of the professionals performing the service and
the hourly rate for each professional. In the event that the Debtors, the
Committee or the Office of the United States Trustee desires to object to the
payment of fees and/or reimbursement of expenses sought pursuant to the Monthly
Invoice, the same shall serve a written objection hereto on counsel to the Agent
by no later than five (5) business days after the date the Monthly Invoice is
received. If no written objection is received within five (5) business days, the
Debtors are authorized to pay and shall promptly pay all of the fees requested
and expenses incurred, as set forth in the Monthly Invoice, from the proceeds of
the Collateral. If there is a timely objection to payment of fees and/or
reimbursement of expenses sought pursuant to the Monthly Invoice, that portion
of the Monthly Invoice objected to shall nevertheless be paid by the Debtors,
unless counsel to the Debtors, or counsel to the Committee or the Office of the
United States Trustee, within ten (10) business days of such objection brings a
motion before the Bankruptcy Court seeking a determination as to the
reasonableness of such disputed fees. Notwithstanding the foregoing, the Debtors
shall promptly pay that portion of the Monthly Invoice which is not subject to a
timely objection.
30. This Order constitutes a final order pursuant to Rule 4001(c) of
the Federal Rules of Bankruptcy Procedure. The Debtors shall effect service of a
copy of this Order upon the following parties on or before August 17, 1999, by
U.S.P.S. first class mail: (a) the Office of the United States Trustee; (b) the
attorneys for the Agent; (c) the counsel for the Committee; (d) all other
creditors known to the Debtors who may have or who may assert liens against the
Debtors' assets; (d) The Securities and Exchange Commission; (e) the United
States Internal Revenue Service; (f) The Pension Benefit Guaranty Corporation;
(g) the United States Environmental Protection Agency; (h) all landlords,
operators and/or mortgagors of the premises at which any of the Debtors'
inventory or equipment is located, (i) all equipment lessors of Debtors; and (j)
counsel to Newco Holdings, LLC
Dated: New York, New York
August 11, 1999
s/ Prudence Carter Beatty
------------------------------
United States Bankruptcy Judge
<PAGE>
EXHIBIT 1
EXHIBIT "1"
To Final Financing Order
ACKNOWLEDGEMENT AND AMENDMENT
<PAGE>
EXHIBIT "1"
To Final Financing Order
ACKNOWLEDGEMENT AND
AMENDMENT NO. 2 TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
(DIP FINANCING AMENDMENT)
ACKNOWLEDGEMENT AND AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (DIP FINANCING AMENDMENT) (this "DIP Amendment") dated as of
July 23, 1999 among Forstmann & Company, Inc. ("Forstmann") and Forstmann
Apparel, Inc. ("FAI"), as Debtors and Debtors-in-Possession, Bank of America NT
and SA successor to BankAmerica Business Credit, Inc., as agent (in such
capacity, the "Agent"), and the lender parties to the Loan and Security
Agreement referred to below (the "Lenders").
W I T N E S S E T H:
WHEREAS, Forstmann, FAI, the Lenders and the Agent are parties to a
certain Amended and Restated Loan and Security Agreement dated as of September
14, 1998, as amended by a Waiver and Amendment No. 1 to Loan Agreement dated as
of February 8, 1999 (the "Existing Loan Agreement", and as amended by this DIP
Amendment and as further amended, restated, modified or supplemented from time
to time, the "Loan Agreement"); and
WHEREAS, Forstmann filed in the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court") a petition for
relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. ss. 101 et. seq. and
proposed a Plan of Reorganization; and
WHEREAS, by Order dated July 9, 1997, the Bankruptcy Court confirmed
Forstmann's Plan of Reorganization; and
WHEREAS, on July 23, 1999 (the "Petition Date"), the Borrowers filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court, thereby commencing the Second Chapter 11 Cases; and
WHEREAS, the Borrowers have requested that (a) the Lenders make
available to the Borrowers an additional loan commitment pursuant to which
Additional Loans will be made by the Lenders to the Borrowers from time to time
after the Additional Loan Closing Date and prior to the Stated Termination Date
to be used by the Borrowers for the purposes and pursuant to the terms and
conditions set forth herein; and (b) the Agent issue or cause to be issued
Additional Letters of Credit to or for Forstmann's account, to be used in
connection with the operation of Forstmann's business in accordance with the
terms herein stated; and
WHEREAS, the Lenders and the Agent are willing, on the terms and
conditions hereinafter set forth, to extend such commitments, to make such
additional loans and to issue additional letters of credit; and
WHEREAS, in connection with the Second Chapter 11 Cases, the
Borrowers have requested that the Lenders and the Agent amend the Loan Agreement
in certain respects, and the Lenders and the Agent are willing to so amend the
Loan Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
A. DEFINED TERMS.
1. Definitions. Unless otherwise defined herein, capitalized terms
used herein have the respective meaning ascribed to them in the Existing Loan
Agreement.
B. ACKNOWLEDGEMENTS. The Borrowers acknowledge and agree as follows:
1. The Agent and the Lenders have and shall have no further
obligation under the Loan Agreement (a) to make any Loans under the Loan
Agreement other than Additional Loans according to the terms and conditions
herein stated, or (b) to issue or cause to be issued any Letters of Credit other
than Additional Letters of Credit according to the terms and conditions herein
stated.
2. Prior to the Petition Date and continuing as of the Petition
Date, Events of Default (as defined in the Existing Loan Agreement) had occurred
and were continuing.
3. As of the close of business on July 22, 1999, the Borrowers,
jointly and severally, owed Pre-Petition Indebtedness to the Lenders and the
Agent in an aggregate amount of not less than $44,260,198.79 including all
accrued but unpaid interest, Letter of Credit Fees and Unused Line Fees, but
excluding certain additional costs, fees and expenses which the Borrowers
acknowledge and agree the Lenders and the Agent are entitled to recover. The
Pre-Petition Indebtedness is due and payable in full without any further demand
or notice from the Agent or the Lenders, constitutes a valid and binding
obligation of the Borrowers without offset, setoff, recoupment, counterclaim,
deduction, defense of any kind, and is secured by Liens granted by the Borrowers
in and to the Pre-Petition Collateral.
4. The Agent's Liens in and to the Pre-Petition Collateral are
valid, properly perfected and recorded and are unavoidable and indefeasible in
the Second Chapter 11 Cases or otherwise.
5. The Borrowers must promptly borrow money and otherwise be
extended credit in the form of Additional Loans to meet their payroll and
otherwise to pay their continuing obligations incurred in the operation of their
business in order to maximize recoveries to their creditors.
C. AMENDMENTS.
1. Section 1.1 of the Existing Loan Agreement is hereby amended by
adding the following new definitions thereto, in appropriate alphabetical order:
"Additional Letter of Credit" means any additional standby letter of
credit issued or caused to be issued for the account of the Borrowers pursuant
to Section 2.4 and shall include any Credit Support provided by Agent in respect
thereto. All Additional Letters of Credit shall constitute Letters of Credit
hereunder and shall be subject to all conditions, fees, procedures and other
terms to which all other Letters of Credit are subject.
"Additional Loan Closing Date" means the date upon which all of the
conditions precedent to the effectiveness of the DIP Amendment have been
satisfied or waived in the Agent's and each Lender's sole and absolute
discretion.
"Additional Loans" means all Additional Revolving Loans and Over
Advances made after the Petition Date.
"Additional Revolving Loans" has the meaning specified in Article 4.
All Additional Revolving Loans shall constitute Revolving Loans hereunder, shall
constitute Base Rate Revolving Loans and shall be subject to all conditions,
fees, procedures and other terms to which all other Revolving Loans are subject.
"Budgets" has the meaning specified in Section 9.31.
"Carve Out Reserve" means any and all reserves which the Agent from
time to time establishes, in its sole discretion, with respect to the Carve Out
(as that term is defined in the Financing Orders).
"Collateral Management Fee" has the meaning specified in Section
3.7.
"DIP Amendment" has the meaning specified in the preamble.
"Existing Loan Agreement" has the meaning specified in the preamble.
"Final Financing Order" means an order entered in the Bankruptcy
Court in the Second Chapter 11 Cases, in form and substance satisfactory to the
Agent and Majority Lenders in their sole discretion approving the making of the
Additional Loans and the issuing of the Additional Letters of Credit on the
terms herein contained.
"Financing Orders" means the Interim Financing Order and Final
Financing Order, collectively.
"Interim Financing Order" means an interim order entered in the
Bankruptcy Court in the Second Chapter 11 Cases, substantially in the form of
Exhibit 1.1-A, approving the making of the Additional Loans and the issuing of
the Additional Letters of Credit on the terms herein contained.
"Interim Order Date" means the date upon which the Bankruptcy Court
enters the Interim Financing Order, which date shall not be later than July 27,
1999.
"Petition Date" means July 23, 1999.
"Post-Petition Indebtedness" means all present and future loans,
advances, liabilities, obligations, covenants, duties, and debts owing by each
of the Borrowers to the Agent and/or any Lender, arising after the Interim Order
Date, whether arising on or after conversion or dismissal of the Second Chapter
11 Case, or before or after any Second Chapter 11 Plan and whether arising under
or related to this Agreement, any other Loan Document or any Financing Order,
whether or not evidenced by any note, or other instrument or document, whether
arising from an extension of credit, opening of a letter of credit, acceptance,
loan, guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment from others, and
any participation by the Agent and/or any Lender in any Borrower's debts owing
to others), absolute or contingent, due or to become due, primary or secondary,
as principal or guarantor, and including, without limitation, all principal,
interest, charges, expenses, fees, reasonable attorneys' fees, filing fees and
any other sums chargeable to any Borrower under this Agreement or under any of
the other Loan Documents including, without limitation, (a) all debts,
liabilities, and obligations now or hereafter owing from any Borrower to the
Agent and/or any Lender under or in connection with the Letters of Credit or
Credit Support, and (b) all debts, liabilities and obligations now or hereafter
owing from any Borrower to the Agent and Lenders arising from or related to ACH
Transactions. "Pre-Petition Collateral" means all of the Collateral (as defined
in the Existing Loan Agreement) as of the Petition Date.
"Pre-Petition Indebtedness" means all present and future loans,
advances, liabilities, obligations, covenants, duties, and debts, owing by each
of the Borrowers to the Agent and/or any Lender, arising under or pursuant to
the Existing Loan Agreement or any of the other Loan Documents, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Agent and/or any Lender in any Borrower's debts owing to others), absolute
or contingent, due or to become due, primary or secondary, as principal or
guarantor, and including, without limitation, all principal, interest, charges,
expenses, fees, reasonable attorneys' fees, filing fees and any other sums
chargeable to any Borrower hereunder or under any of the other Loan Documents
including, without limitation, (a) all debts, liabilities, and obligations now
or hereafter owing from any Borrower to the Agent and/or any Lender under or in
connection with the Letters of Credit or Credit Support, (b) all debts,
liabilities and obligations now or hereafter owing from any Borrower to the
Agent and Lenders arising from or related to ACH Transactions and (c) all
interest and all other amounts referred to above, on the terms provided,
accruing after the filing of any proceeding under any bankruptcy, insolvency,
reorganization or similar law.
"Second Chapter 11 Cases" means the Chapter 11 cases of the
Borrowers under Case Nos. 99 B 10432 (PBC) and 99 B 10433 (PCB) in the
Bankruptcy Court.
2. The definitions of "Applicable Margin", "Availability", "L/C
Subfacility", "Maximum Revolver Amount", "Stated Termination Date" and "Unused
Letter of Credit Subfacility" contained in Section 1.1 of the Existing Loan
Agreement are hereby amended in its entirety to read as follows:
"Applicable Margin" is amended as follows: (i) "one quarter of one
percent (.25%)" is amended to "one and one quarter percent (1.25%)" (ii) "three
quarters of one percent (.75%)" is amended to "one and three quarters percent
(1.75%)"; (iii) "two and one half percent (2.50%)" is amended to "three and one
half percent (3.50%)"; and (iv) "three percent (3.00%)" is amended to "four
percent (4.00%)".
"Availability" means, at any time of determination, for any
Borrower,
(a) the lesser of:
(i) the Maximum Revolver Amount; or
(ii) the sum of:
(A) eighty-five percent (85%)
(reducing to eighty percent (80%) on December 1, 1999)
of the Net Amount of Eligible Accounts (other than
Eligible Bill and Hold Accounts) owed to the Borrowers,
(B) the lesser of (1) eighty-five
percent (85%) (reducing to eighty percent (80%) on
December 31, 1999) of the Net Amount of Eligible Bill
and Hold Accounts owed to the Borrowers or (2)(X) prior
to September 30, 1999, $15 million and (Y)on September
30, 1999 to December 1, 1999, $5 million, and (2) from
January 1, 2000 until Termination $15 million.
(C) in the case of Eligible Inventory
of the Borrowers consisting of work-in-process or yarn,
the lesser of (1) fifty percent (50%) (reducing to
forty-five percent (45%) on December 1, 1999 and forty
percent (40%) on January 1, 2000) of the lower of cost,
determined on a first-in-first-out ("FIFO") basis, or
market value of such Eligible Inventory (the "WIP
Borrowing Base") or (2) (during each fiscal month
indicated below) up to 107% of the lesser of (i) the WIP
Borrowing Base as of the close of business on the last
business day of the prior fiscal month or (ii) the
amount set forth below for the indicated preceding
fiscal month:
Fiscal Month Amount
July 1999 $3,100,000
August 1999 $3,150,000
September 1999 $3,050,000
October 1999 $3,100,000
November 1999 and each
fiscal month thereafter $3,000,000;
(D) in the case of Eligible Inventory
of the Borrowers consisting of raw materials, the lesser
of (1) sixty-five percent (65%) (reducing to sixty
percent (60%) on January 1, 2000) of the lower of cost,
determined on a first-in-first-out ("FIFO") basis, or
market value of such Eligible Inventory (the "RM
Borrowing Base") or (2) (during each fiscal month
indicated below) up to 107% of the lesser of (i) the RM
Borrowing Base as of the close of business on the last
business day of the prior fiscal month or (ii) the
amount set forth below for the indicated preceding
fiscal month:
Fiscal Month Amount
July 1999 $2,350,000
August 1999 $2,325,000
September 1999 $2,310,000
October 1999 $2,310,000
November 1999 and
each fiscal month thereafter $2,300,000;
(E) in the case of Eligible Inventory
of the Borrowers consisting of greige cloth, the lesser
of (1) sixty-five percent (65% ) (reducing to sixty
percent (60%) on December 1, 1999 and fifty five percent
(55%) on January 1, 2000) of the lower of cost,
determined on a first-in-first-out ("FIFO") basis, or
market value of such Eligible Inventory (the "Cloth
Borrowing Base") or (2) (during each fiscal month
indicated below) up to 107% of the lesser of (i) the
Cloth Borrowing Base as of the close of business on the
last business day of the prior fiscal month or (ii) the
amount set forth below for the indicated preceding
fiscal month:
Fiscal Month Amount
July 1999 $3,950,000
August 1999 $3,850,000
September 1999 $3,525,000
October 1999 $3,500,000
November 1999 and each
fiscal month thereafter $3,250,000;
(F) in the case of Eligible Inventory
of the Borrowers consisting of finished goods, the
lesser of (1) sixty-five percent (65% ) (reducing to
sixty percent (60%) on January 1, 2000) of the lower of
cost, determined on a first-in-first-out ("FIFO") basis,
or market value of such Eligible Inventory (the "FG
Borrowing Base") or (2) (during each fiscal month
indicated below) up to 107% of the lesser of (i) the FG
Borrowing Base as of the close of business on the last
business day of the prior fiscal month or (ii) the
amount set forth below for the indicated preceding
fiscal month:
Period Amount
July 1999 $3,190,000
August 1999 $2,625,000
September 1999 $2,400,000
October 1999 $2,200,000
November 1999 and each fiscal
month thereafter $2,100,000; plus
(G) until and including September 30,
1999, $1,750,000, and after September 30, 1999, $0;
provided however that the sum of (C),
(D), (E), and (F) (such sum hereinafter referred to as
the "Inventory Borrowing Base") shall not exceed (1) At
any fiscal month end, the amount set forth below for the
subsequent fiscal month or (2) (by more than $300,00) at
any time in any fiscal month, the lesser of (i) the
Inventory Borrowing Base as of the close of business on
the last business day of the prior fiscal month; or (ii)
the amount set forth below for the indicated preceding
fiscal month:
Fiscal Month Amount
August 1999 $12,590,000
September 1999 $11,950,000
October 1999 $11,285,000
November 1999 $11,110,000
December 1999 and each fiscal
month thereafter $10,650,000
minus
(b) the sum of:
(i) the Revolver Outstandings for the Borrowers,
(ii) reserves for accrued interest on the Obligations,
(iii) the Environmental Compliance Reserves,
(iv) the ACH Settlement Risk Reserves,
(v) the cumulative aggregate amount of the net
proceeds of sale or other disposition of Inventory on or after
the Interim Order Date not in the ordinary course of business
in excess of the aggregate applicable advance rate set forth
above in clause (a)(ii) above for such Inventory,
(vi) after repayment in full in cash of the Term
Loan, the cumulative aggregate net proceeds of sale or other
disposition of Equipment or Real Estate,
(vii) the cumulative aggregate amount of other net
proceeds or cash received by the Borrowers (other than
collections of Accounts) after the Interim Order Date,
(viii) the Carve Out Reserve, and
(ix) all other reserves (including, without
limitation, any and all reserves established by the Agent in
respect of waivers referenced in Section 6.2(b) which any
Borrower has failed to obtain, Liens referenced in Section
9.1, judgments referenced in Section 11.1(m) or taxes,
assessments or other similar charges of any Borrower under
Section 9.1) which the Agent deems necessary in the reasonable
exercise of its credit judgment to maintain with respect to
the Borrowers' accounts, including, without limitation,
reserves for any amounts which the Agent or any Lender may be
obligated to pay in the future for the account of any
Borrower.
"L/C Subfacility" means that portion of the Maximum Revolver Amount
available for the issuance of Additional Letters of Credit in an aggregate
amount outstanding at any time not to exceed the sum of (i) $3,000,000 minus
(ii) the sum of (a) the aggregate undrawn amount of all outstanding Letters of
Credit issued prior to the Petition Date plus (b) the aggregate unpaid
reimbursement obligations with respect to all Letters of Credit issued prior to
the Petition Date. "Maximum Revolver Amount" means to and before November 1,
1999, $40,000,000, and from and after November 1, 1999 to January 1, 2000,
$19,000,000 and from January 1, 2000 until the Stated Termination Date,
$40,000,000.
"Stated Termination Date" means the earliest to occur of (i) July
28, 1999, if the Interim Financing Order has not been entered by such date, (ii)
August 31,1999, if the Final Financing Order has not been entered before such
date, (iii) July 31, 2000, or (iv) the date of termination of the Commitments
pursuant to Section 12.1 upon the occurrence of an Event of Default.
"Unused Letter of Credit Subfacility" means an amount equal to the
Letter of Credit Subfacility minus the sum of (a) the aggregate undrawn amount
of all outstanding Additional Letters of Credit plus (b) the aggregate unpaid
reimbursement obligations with respect to all Additional Letters of Credit.
3. The definitions of "Borrower" and "Borrowers" contained in
Section 1.1 of the Existing Loan Agreement are hereby amended in their entirety
to read as follows:
"Borrower" and "Borrowers" means (a) prior to the Petition Date,
Forstmann & Company, Inc., and Forstmann Apparel, Inc., and (b) on and
after the Petition Date, Forstmann & Company, Inc., and Forstmann Apparel,
Inc., as debtors and debtors-in-possession under the Bankruptcy Code.
4. The definition of "Eligible Accounts" as defined in Section 1.1
of the Existing Loan Agreement is modified by adding to the end of clause (i)
(A) thereof the following sentence "(c) Borrower agrees that there will be no
"dated" Accounts from October 1, 1999 to January 1 of any year and all such
"dated" Accounts created in any year shall be ineligible after September 30 of
such year."
5. The definition of "Letter of Credit" contained in Section 1.1 of
the Existing Loan Agreement is hereby amended to include the following sentence
at the end thereof:
The term "Letter of Credit" shall also include any Additional Letter
of Credit.
6. The definition of "Loan Documents" contained in Section 1.1 of
the Existing Loan Agreement is hereby amended to include the following sentence
at the end thereof:
The term "Loan Documents" shall also include the DIP Amendment, the
Financing Orders and all amendments, modifications and revisions thereto
and documents executed or delivered in connection herewith.
7. The definition of "Loans" contained in Section 1.1 of the Loan
Agreement is hereby amended to include the following sentence at the end
thereof:
The term "Loans" shall also include the Additional Loans.
8. The definition of "Obligations" contained in Section 1.1 of the
Existing Loan Agreement is hereby amended in its entirety to read as follows:
Obligations" means the Pre-Petition Indebtedness and the Post-Petition
Indebtedness, collectively.
9. The definition of "Revolver Outstandings" is amended by removing
the period at the end of the definition and adding an "and (f) Additional
Revolving Loans and Additional L/C's".
10. The definition of "Revolving Loans" contained in Section 1.1 of
the Existing Loan Agreement is hereby amended to include the following sentence
at the end thereof:
The term "Revolving Loans" shall also include any Additional
Revolving Loans.
11. Section 2.1 of the Existing Loan Agreement is hereby amended by
deleting such Section in its entirety and substituting in its place the
following:
2.1 Total Facility. Subject to all of the terms and conditions of
this Agreement, the Lenders severally agree to make available a total
credit facility of up to $49,500,000 until October 31, 1999, and from
November 1, 1999 until January 1, 2000 $28,500,000 and after January 1,
2000 until the Stated Termination Date $49,500,000 (the "Total Facility")
for the Borrowers' use from time to time during the term of this
Agreement. The Total Facility shall consist of (a) a revolving
post-petition line of credit consisting of Additional Loans and Additional
Letters of Credit, and (b) the Pre-Petition Indebtedness.
12. Section 2.2(a) of the Existing Loan Agreement is hereby amended
by deleting such Section in its entirety and substituting in its place the
following:
(a) Amounts. Subject to the satisfaction of the conditions precedent
set forth in Article 10, each Lender severally agrees, upon Forstmann's
request from time to time on any Business Day during the period from the
Interim Order Date to the Stated Termination Date, to make revolving loans
(the "Additional Revolving Loans") to the Borrowers and participate (as
provided for in Section 2.4(f)) in the reimbursement obligations under the
Credit Support and Additional Letters of Credit, in amounts not to exceed
at any time outstanding (except for BABC with respect to BABC Loans and
the Agent with respect to Agent Advances) such Lender's Pro Rata Share of
the Availability minus such Lender's Pro Rata Share of the Pre-Petition
Indebtedness outstanding at such time. If the Aggregate Revolver
Outstandings exceed the Availability (with the Availability for this
purpose calculated as if the Aggregate Revolver Outstandings were zero),
the Lenders may refuse to make or otherwise restrict the making of
Additional Revolving Loans as the Lenders determine until such excess has
been eliminated; and further provided, however, that at no time shall the
sum of the aggregate outstanding principal amount of Pre-Petition
Indebtedness in respect of pre-petition Revolving Loans to FAI and the
aggregate principal amount of Additional Loans made to FAI exceed $58,000.
13. Section 2.2(i)(i) of the Existing Loan Agreement is hereby
amended by deleting such Section in its entirety and substituting in its place
the following:
(i) Subject to the limitations set forth in the provisos contained
in this Section 2.2(i) and notwithstanding the provisions of Section 10.2
to the contrary, the Agent is hereby authorized by Borrowers and the
Lenders, from time to time in the Agent's sole discretion, (1) after the
occurrence of a Default or an Event of Default, or (2) at any time that
any of the other applicable conditions precedent set forth in Article 10
have not been satisfied, to make Additional Revolving Loans to the
Borrowers on behalf of the Lenders which the Agent, in its reasonable
business judgment, deems necessary or desirable (A) to preserve or protect
the Collateral, or any portion thereof, (B) to enhance the likelihood of,
or maximize the amount of, repayment of the Loans and other Obligations,
or (C) to pay any other amount chargeable to the Borrowers pursuant to the
terms of this Agreement, including, without limitation, costs, fees and
expenses as described in Section 15.7 (any of the advances described in
this Section 2.2(i) being hereinafter referred to as "Agent Advances");
provided, that the Agent shall not make any Additional Agent Advance if
the amount thereof would exceed the amount of Availability on the Funding
Date applicable thereto; and provided, further, that the Majority Lenders
may at any time revoke the Agent's authorization contained in this Section
2.6(i) to make Agent Advances, any such revocation to be in writing and to
become effective upon the Agent's receipt thereof.
14. The references to "Letters of Credit" set forth in subsections
(a), (c) and (d) of Section 2.4 of the Existing Loan Agreement are hereby
deleted, and references to "Additional Letters of Credit" are hereby substituted
therefor in each instance. In addition, subsection (b) of section 2.4 is hereby
amended by deleting such Section in its entirety and substituting in its place
the following:
(b) Amounts; Outside Expiration Date. The Agent shall not have any
obligation to take steps to cause to be issued any Additional Letter of
Credit or to provide Credit Support for any Additional Letter of Credit at
any time if: (1) the maximum undrawn amount of the requested Additional
Letter of Credit is greater than the Unused Letter of Credit Subfacility
at such time; (2) the maximum undrawn amount of the requested Additional
Letter of Credit and all commissions, fees, and charges due from any
Borrower in connection with the opening thereof exceed the Availability at
such time; or (3) such Additional Letter of Credit has an expiration date
later than the earlier to occur of (i) the Stated Termination Date and
(ii) (x) the date which is 365 days from the date of issuance thereof, in
the case of Standby Letters of Credit and (y) the date which is 90 days
from the date of issuance thereof, in the case of Documentary Letters of
Credit.
15. Notwithstanding anything to the contrary set forth in the
Existing Agreement, from and after the Interim Order Date, the Borrowers shall
not have the right, and agree not to seek, to elect to have any Additional
Revolving Loans be made as LIBOR Revolving Loans, or to convert any pre-petition
Base Rate Loan (or any part thereof) into a LIBOR Rate Loan (or any part
thereof) as a LIBOR Rate Loan on or after the expirations of the applicable
Interest Period. Upon the expiration of the Interest Period applicable to each
pre-petition LIBOR Rate Loan, such LIBOR Rate Loan shall automatically convert
into a Base Rate Loan. Article 3 of the Existing Credit Agreement is hereby
deemed amended accordingly.
16. Section 3.4 of the Existing Loan Agreement is hereby amended by
deleting such Section in its entirety and substituting in its place the
following:
3.4 DIP Amendment Closing Fee. The Borrowers jointly and severally
agree to pay to the Agent, for the ratable account of each Lender, a fee
(the "DIP Amendment Closing Fee") in the aggregate amount of $650,000. The
DIP Amendment Closing Fee shall be fully earned upon the entry of the
Interim Financing Order on the Interim Order Date and shall be due and
payable on the earlier of October 31, 1999 or the Stated Termination Date.
17. A new Section 3.7 shall be added to the Existing Loan Agreement
and shall read as follows:
3.7. Collateral Management Fee. The Borrowers jointly and severally
agree to pay the Agent, for its own account, non-refundable collateral
management fees (the "Collateral Management Fee") equal to $150,000 per
annum, payable to the Agent in monthly installments of $12,500 on the
first Business Day of each month, commencing August 1, 1999.
18. From and after the Additional Loan Closing Date, the Early
Termination Fee provided for in Section 4.2 of the Existing Loan Agreement shall
no longer be chargeable.
19. Section 4.3 of the Existing Loan Agreement is hereby amended by
deleting such Section in its entirety and substituting in its place the
following:
4.3 Repayment of the Term Loan. The Borrowers agree to repay the
principal amount of the Term Loan to the Agent, for the account of the
Lenders, in accordance with the terms of this Agreement and, as modified
by the next sentence, the Term Loan Notes. Notwithstanding any other
provision in this Agreement or the Term Loan Notes to the contrary, the
principal amount of the Term Loan outstanding on the Petition Date shall
be paid in ten consecutive installments, the first nine of which
installments shall each be in the amount of $500,000 and be payable
monthly on the first day of each month, commencing November 1, 1999, and
the last of which installments shall be in the entire then outstanding
principal amount of the Term Loan and shall be payable on July 31, 2000 or
the Stated Termination Date.
The Term Loan Notes are hereby deemed amended to the extent necessary to reflect
the forgoing amendment.
20. The references to "Revolving Loans" set forth in Section 4.7 of
the Existing Loan Agreement are hereby deleted, and references to "Additional
Revolving Loans" are hereby substituted therefor in each instance.
21. Section 4.8 of the Existing Loan Agreement is hereby amended by
inserting the following two sentences at the end thereof:
Without limiting the foregoing, all payments received by the Agent,
including proceeds from the sale, disposition or liquidation of
Post-Petition Collateral, may be applied to either the Pre-Petition
Indebtedness or the Post-Petition Indebtedness in the Agent's and the
Lenders' sole discretion. The Borrowers hereby irrevocably waive any right
to direct or challenge the manner of application of any payments to the
Agent or the Lenders or any other receipts by the Agent or the Lenders or
proceeds of any of the Collateral.
22. The first paragraph of subsection 6.1(a) of the Existing Loan
Agreement is hereby amended by deleting such paragraph in its entirety and
substituting in its place the following:
As security for all Pre-Petition Indebtedness, Post-Petition Indebtedness
and all other present and future Obligations, each of the Borrowers hereby
grants to the Agent, for the ratable benefit of the Agent and the Lenders,
a continuing security interest in, and a perfected and enforceable first
priority lien on, assignment of, and right of set-off against, all
Pre-Petition Collateral and all of the following property of such
Borrower, whether now owned or existing or hereafter acquired or arising,
regardless of where located, including, without limitation:
23. New subsections (d) and (e) are hereby added to Section 6.1 of
the Existing Loan Agreement and shall read as follows:
(d) All of the Obligations which may now or from time to time
hereafter be owing by the Borrowers to the Agent and the Lenders, and all
other liabilities and obligations which may now or from time to time
hereafter be owing or incurred by the Borrowers to the Agent or any
Lender, shall be secured by all of the Collateral and, to the extent not
otherwise included therein, a first, general and continuing lien, mortgage
and security interest, pursuant to Sections 363, 364(c)(2), 364(c)(3) and
364(d) of the Bankruptcy Code, upon, in and to all of the Borrowers'
right, title and interest in and to all of its goods, property, assets,
and interests in property, of every kind and nature, whether real or
personal, tangible or intangible, whether now or hereafter existing and
whether owned, acquired, possessed or controlled by the Borrowers before,
on or after the Petition Date, and wherever located, including without
limitation all inventory, accounts receivable, contract rights, purchase
orders, documents, instruments, chattel paper, fixed assets, machinery,
equipment, fixtures, furniture, accessories and additions thereto, real
estate, general intangibles, patents, licenses, trademarks, insurance
proceeds, tax refunds, rights to payment, goods, property of the
Borrowers' estates (as defined in Section 541 of the Bankruptcy Code), and
all property acquired by the Borrowers after the Petition Date, inclusive
of the proceeds of any recovery by claim or litigation initiated by the
Borrowers or of any action brought under Sections 544 through 550 of the
Bankruptcy Code, as well as Section 506(c) and/or Section 724 of the
Bankruptcy Code, now in existence or hereafter created and further
including without limitation all property described in any and all of the
Loan Documents, as well as any and all Proceeds and products thereof.
Without limiting the foregoing, any equity in the property which the
Lenders hold as Pre-Petition Collateral, shall, after payment in full of
the Pre-Petition Indebtedness, constitute further security for any and all
Post-Petition Indebtedness to the Lenders from the Debtor and as adequate
protection to the Lenders in accordance with Section 361 of the Bankruptcy
Code, any equity in the Collateral, and shall, after payment in full of
the Post-Petition Indebtedness, constitute further security for any and
all Pre-Petition Indebtedness to the Agent and the Lenders from the
Debtor.
(e) In addition to the security interests, liens and mortgages
granted to the Agent and the Lenders above, pursuant to Section 364 of the
Bankruptcy Code, all Post-Petition Indebtedness shall constitute an
administrative priority equivalent in priority to a claim under Sections
364(c)(1) of the Bankruptcy Code, and shall have priority over all
administrative expenses of the kind specified in or ordered pursuant to
Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c) or 716
of the Bankruptcy Code, as well as any other priority claims, and shall at
all times be senior to the rights of the Borrowers or any successor
trustee in the either Second Chapter 11 Case or any subsequent case under
the Bankruptcy Code, whether such administrative expenses are incurred or
arise between or after the entry of the Financing Orders or before or
after a conversion of such case pursuant to Section 1112 of the Bankruptcy
Code or otherwise.
24. A new subsection (f) is hereby added to Section 6.8 of the
Existing Loan Agreement and shall read as follows:
(f) The Borrowers shall obtain, within 10 days after the creation
thereof, a written confirmation, in form and substance satisfactory to the
Agent, from the Account Debtor of each Bill and Hold Account created after
the Petition Date and shall deliver a copy of such confirmation to the
Agent promptly after receipt thereof.
25. New subsection (m) is hereby added to Section 7.2 of the
Existing Loan Agreement and shall read as follows:
(m) Budget Reconciliations. No later than the fourth Business Day of
each week, a report, in form and substance satisfactory to the Agent, of
all amounts collected and expended by the Borrowers during the previous
week, which report shall reconcile such collections and expenditures to
the respective Budget in effect for such week and contain such other
information as the Agent shall reasonably require.
26. Sections 8.24 of the Existing Loan Agreement is hereby amended
by deleting such Sections in its entirety and substituting in its place the
following:
8.24 Use of Proceeds of Additional Loans and Additional Letters of
Credit; Margin Regulations. The proceeds of the Additional Loans and
Additional Letters of Credit will be used by such Borrower solely for the
purposes detailed in the Budget and the Financing Orders. Such Borrower is
not engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
27. Sections 8.8, 8.9, 8.15, 8.26, 9.14, 9.25, 9.28 11.1(g) and
11.1(h) of the Existing Loan Agreement are hereby deleted in their entirety.
28. Section 9.24 of the Existing Loan Agreement is hereby amended by
deleting such section in its entirety and substituting in its place the
following:
(a) The Borrowers shall not make or incur any Capital Expenditures
without the prior written consent of the Majority Lenders (i) if, after
giving effect thereto, the aggregate amount of all Capital Expenditures by
the Borrower would exceed $100,000 during any fiscal quarter of the
Borrowers, commencing with the fiscal quarter beginning August 2, 1999; or
(ii) that would exceed $25,000 for any single Capital Expenditure or
series of related Capital Expenditure.
(b) During the 60 days following the entry of the Interim Financing
Order, the Borrower shall develop a plan and budget to achieve Year 2000
compliance ("Y2K") for its MIS equipment. After such final 60-day period,
such plan and budget will be submitted for approval to Agent and Lenders.
Borrower may undertake such MIS Y2K related expenditures as set forth in a
plan and budget approved in writing by Agent and Majority Lenders.
29. Section 9.24 of the Existing Loan Agreement is hereby amended by
deleting such Sections in its entirety and substituting in its place the
following:
9.24 Minimum EBITDA. The Borrower's EBITDA for (a) the Fiscal Year
ending October 1999 shall not be less than -$2,750,000, and (b) for each
fiscal month thereafter shall not be less than $0.
30. A new Section 9.31 is hereby added to the Existing Loan
Agreement and shall read as follows:
9.31 Budgets. The Borrowers have submitted to the Agent and the
Lenders weekly budgets (the "Budgets") in the form of Exhibit 9.31 annexed
hereto. The Borrowers will, from time to time promptly upon request of the
Agent, submit to the Agent updated weekly budgets, which updated budgets
will, if acceptable in form and substance to the Agent in its sole
discretion, be substituted for the Budgets then in effect and thenceforth
constitute the Budgets; provided, however, that the Agent shall have no
duty to accept any such updated weekly budget. The Borrowers agree not to
request Additional Loans or Additional Letters of Credit in amounts which
are in excess of the budgeted amounts set forth in the Budgets then in
effect. In their sole discretion, however, the Agent and the Majority
Lenders may, at any time and from time to time, waive and/or exceed any
time, dollar or other limitations(s) contained in such Budgets, so long as
such amount would not cause the aggregate principal amount of Obligations
outstanding under this Loan Agreement to exceed the Total Facility.
31. A new Section 9.32 is hereby added to the Existing Loan
Agreement and shall read as follows:
9.32 Second Chapter 11 Cases. The Borrowers (a) shall not file any
motion, application, objection, plan, response, adversary complaint or
similar pleading in the Second Chapter 11 Cases that seeks, directly or
indirectly, the use of any cash collateral or that might otherwise
adversely affect the ability of the Agent or the Lenders to receive
indefeasible payment in full in cash of all of the Obligations; and (b)
shall notify the Agent of all motions, applications, objections, plans,
responses, adversary complaints or similar pleadings filed in the Second
Chapter 11 Cases.
32. Section 11.1 of the Existing Loan Agreement is hereby amended by
deleting the word "or" at the end of subsection (s) thereof, replacing the
period at the end of subsection (t) of such section with a semi-colon, and
adding new subsections (u) through (gg) thereto, to read as follows:
(u) the Bankruptcy Court shall enter an order dismissing either
Second Chapter 11 Case, or converting either Second Chapter 11 Cases to a
case under Chapter 7 of the Bankruptcy Code, or appointing a trustee or a
responsible officer or an examiner with expanded powers in either Second
Chapter 11 Case, or transferring venue in either Second Chapter 11 Cases
to another judicial district;
(v) the Bankruptcy Court shall enter an order granting relief from
the automatic stay applicable under Section 362 of the Bankruptcy Code to
the holder of any security interest other than in favor of the Agent in
any assets of the Borrowers having an aggregate value in excess of
$100,000;
(w) the Bankruptcy Court shall enter an order confirming a Plan of
Reorganization in either Second Chapter 11 Case;
(x) an order shall be entered in either Second Chapter 11 Case by
the Bankruptcy Court or any other court of competent jurisdiction
amending, supplementing, staying for a period in excess of 10 days,
vacating or otherwise modifying any of the Financing Orders, or the
Borrowers shall apply for authority to do so; provided that no Event of
Default shall occur under this clause (x) to the extent that such
amendment, supplement or other modification is made in compliance with
this Agreement and is not adverse, in the sole judgment of the Agent and
the Majority Lenders, to the rights and interests of the Agent and the
Lenders under this Agreement and the Loan Documents;
(y) The Interim Financing Order shall cease to be in full force and
effect and; or the Interim Order shall cease to be in full force and
effect and the Final Financing Order shall not have been entered prior to
such cessation; or the Final Financing Order shall cease to be in full
force and effect;
(z) the Borrowers shall oppose, or encourage or support any other
Person's opposition to, any motion made in the Bankruptcy Court by the
Agent or any Lender seeking confirmation of the amount of the Agent's or
such Lender's claim or the validity and enforceability of the Liens in
favor of the Agent or such Lender;
(aa) the Borrowers shall seek to, or shall encourage or support any
other Person's motion to, disallow, subordinate or recharacterize, in
whole or in part any Lender's claim in respect of the Pre-Petition
Indebtedness, Post-Petition Indebtedness or the other Obligations or to
challenge the validity and enforceability of the Liens in favor of the
Agent or any Lender;
(bb) the Borrowers shall make any payments on any Indebtedness of
the Borrowers (other than in respect of the Pre-Petition Indebtedness)
arising before the Petition Date without the prior written approval of the
Agent and the Majority Lenders or authorization by the Bankruptcy Court
after notice and service of any such application upon the Agent;
(cc) an application shall be filed by the Borrowers for the approval
of, or there shall exist, be established or allowed, any other
Superpriority Claim pari passu with or senior to the claim of the Agent
and the Lenders under this Agreement and the other Loan Documents or any
other Lien on the Borrowers' Property other than Permitted Liens;
(dd) the Borrowers shall fail to comply with the terms of the
Financing Orders in all material respects;
(ee) the Borrowers shall seek to, or shall encourage or support any
Person's motion to, surcharge pursuant to Section 506 of the Bankruptcy
Code any of the Collateral; or
(ff) the Borrowers' exclusive periods to file a plan of
reorganization or seek acceptance thereof pursuant to Section 1121(c) of
the Bankruptcy Code shall expire or be terminated; or
(gg) either Rod Peckham or Richard Reddon ceases to be, or act
perform the functions of Chairman of the Board and President and Chief
Operating Officer, respectively, of Forstmann for any reason whatsoever.
33. A new Section 11.2(d) is hereby added to the Existing Loan
Agreement and shall read as follows:
(d) Upon the occurrence of an Event of Default, provided that the
Borrowers have failed to cure or remedy such Event of Default after 5
Business Days written notice the automatic stay provisions of the
Bankruptcy Code shall be lifted and terminated as to the Agent and the
Lenders to the fullest extent necessary to implement the provisions of
this Section 11.2, including without limitation in order for the Agent and
the Lenders immediately to proceed without delay, hindrance or motion to
enforce their rights and remedies upon the occurrence of an Event of
Default and to realize upon, apply and to retain the proceeds of
Collateral for all purposes set forth herein. Upon the occurrence of an
Event of Default: (i) the Agent and the Lenders may, but are not required,
to take possession of any and/or all of the Collateral and, upon the
Agent's or the Majority Lenders' request, the Borrowers, as well as any
superseding trustee in bankruptcy, shall immediately surrender and deliver
peaceful possession to the Agent, or its authorized agent, of all such
Collateral, and the Agent and the Lenders shall be authorized to liquidate
all or any portion of the Collateral in accordance with the provisions of
this Loan Agreement, the other Loan Documents and applicable law,
including, without limitation, Article 9 of the Uniform Commercial Code,
or to retain such Collateral in satisfaction of the Obligations; (ii) the
Agent and the Lenders shall have no further or other obligation to make
any Additional Loan or issue any Additional Letter of Credit; and (iii)
the Agent and the Lenders may also exercise any and all rights and
remedies available under the Loan Documents or under applicable law,
without any duty of the Agent or the Lenders to marshal assets or to be
bound by any other doctrine which could prohibit or restrict the ability
of the Agent or the Lenders in choosing to foreclose on or enforce their
rights as to any portion of the Collateral. In connection with the
enforcement of each and all of the above remedies, the Borrowers agrees to
cooperate fully with the Agent and the Lenders, consents thereto and
hereby agrees not to take any steps or actions to contest or otherwise
challenge the exercise thereof. The Agent shall give the Borrowers'
counsel such notice, if any, of a claimed Event of Default, as is provided
for herein, prior to the exercise of the Agent's rights and remedies as to
the Collateral, and the Borrowers and any other interested parties at that
time shall only have the right to contest the existence of an Event of
Default and any applicable rights to cure such Event of Default and shall
not have any entitlement to, and shall not directly or indirectly raise,
any other claims of any kind.
D. REPRESENTATIONS AND WARRANTIES. To induce the Agent and the
Lenders to enter into this DIP Amendment and to make the Additional Loans and to
issue the Additional Letters of Credit, the Borrowers hereby restates and
reaffirms each of the representations and warranties contained in the Existing
Loan Agreement (as amended hereby), except with respect to Sections 8.1, 8.2,
and 8.20 which are deemed amended to include a reference to the Second Chapter
11 Cases and the Bankruptcy Court and except that each reference in such
representations and warranties to "this Agreement" shall be deemed to be a
reference to the Loan Agreement as amended by this DIP Amendment.
E. CONDITIONS TO EFFECTIVENESS. This DIP Amendment shall become
effective as of the Interim Order Date upon receipt by the Agent, in form and
substance satisfactory to the Agent, of (a) counterpart originals hereof duly
executed by the Borrowers, the Lenders and the Agent, (b) resolutions of the
board of directors of the Borrowers and such other authority and/or evidence of
authority with respect to any and all matters set forth in this DIP Amendment
and the Loan Documents as the Agent shall reasonably require, authorizing the
execution, delivery and performance of this DIP Amendment and the Existing Loan
Agreement as amended hereby; and (c) a certified copy of the Interim Financing
Order.
F. MISCELLANEOUS.
1. Limited Effect. This DIP Amendment shall be limited solely to the
matters expressly set forth herein and shall not (a) constitute a waiver or
amendment of any other term or condition of the Existing Loan Agreement or of
any instrument or agreement referred to therein or any Event of Default
thereunder or (b) prejudice any right or rights which the Lenders may now have
or may have in the future under or in connection with the Loan Agreement or any
instrument or agreement referred to therein or with respect to any Event of
Default thereunder. Except as expressly amended hereby, all of the covenants and
provisions of the Existing Loan Agreement are and shall continue to be in full
force and effect.
2. GOVERNING LAW. THIS DIP AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK.
3. Counterparts. This Amendment may be executed by the parties
hereto in any number of separate counterparts, each of which shall be an
original, and all of which taken together shall be deemed to constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the date set forth above.
FORSTMANN & COMPANY, INC., as
Debtor and Debtor-in-Possession
By:________________________________
Name:
Title:
FORSTMANN APPAREL, INC., as Debtor
and Debtor-in-Possession
By:________________________________
Name:
Title:
BANK OF AMERICA NT & SA,
as Agent and Lender
By:________________________________
Name:
Title:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By:________________________________
Name:
Title:
IBJ WHITEHALL BUSINESS CREDIT CORP.
f/k/a IBJ SCHROEDER BUSINESS CREDIT
CORPORATION
By:________________________________
Name:
Title:
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM FINANCE, INC.
By:________________________________
Name:
Title:
LA SALLE BUSINESS CREDIT, INC.
By:________________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:________________________________
Name:
Title:
Exhibit 15.1
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders of Forstmann & Company, Inc.
(Debtor-in-Possession):
We have reviewed the accompanying condensed consolidated balance sheet of
Forstmann & Company, Inc. and subsidiary (Debtor-in-Possession) (the "Company")
as of August 1, 1999 and the related condensed consolidated statements of
operations for the thirteen and thirty-nine weeks ended August 1, 1999 and
August 2, 1998 and cash flows for the thirty-nine weeks ended August 1, 1999 and
August 2, 1998 and the condensed consolidated statement of changes in
shareholders' equity for the thirty-nine weeks ended August 1, 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements contained in the 1998 Form 10-K (not
presented herein) and in Note 2 to these condensed consolidated financial
statements, the Company exhausted the availability under its loan facility, has
experienced a significant decline in operating results and have filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. Such
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1 to the consolidated financial statements contained in the 1998 Form 10-K
and Note 2 to these condensed consolidated financial statements.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of November 1, 1998
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the period from November 3, 1997 to November 1, 1998 (not
presented herein); and in our report dated February 8, 1999, we expressed an
unqualified opinion on those consolidated financial statements and included an
explanatory paragraph concerning matters that raise substantial doubt about the
Company's ability to continue as a going concern. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of November 1, 1998 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Atlanta, Georgia
September 3, 1999
For Immediate Release
Forstmann & Company, Inc. to Facilitate Sale or Merger Through Chapter 11 Filing
Receives $50 Million in DIP Financing
New York, NY -- July 23, 1999 -- Forstmann & Company, Inc. (OTCBB:FSMN) one
of the largest and oldest (Founded in 1904) wool fabric producing firms in the
U.S. announced today that it has filed a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code. The purpose of commencing a Chapter 11
case was to achieve its long-term objectives which may include a merger, new
equity investment, or sale of the Company.
The Company also reached an agreement with its bank group, led by Bank of
America, to provide a $50 million debtor-in-possession line of financing at the
outset. Forstmann believes this amount will be more than sufficient to meet its
continued operating needs. The Company also said that it has retained (subject
to Bankruptcy Court approval) the New York-based investment banking firm of
Butler, Chapman & Co., Inc. to assist it in identifying potential buyers, merger
partners and or investors. In that regard the Company has hired Richard Redden
of the turnaround consulting firm of OSNOS Associates, Inc., based in New York
and Charlotte, N.C., who will serve as Interim Chief Operating Officer to assist
in completing its organization.
Rod Peckham, president of Forstmann, said that the Company had discussions
with several interested parties to merge, acquire or make an equity investment
in the business. He said that the filing will allow the Company to eliminate
significant recurring liabilities, which have served as an impediment to these
opportunities and to effect a restructuring and redirection of the Company from
a product driven commodity-based entity to a market driven niche supplier of
finished goods.
The filing will also allow the Company to continue to operate while it
pursues these various opportunities and to meet its obligations to employees,
customers and vendors. He said that, with the Company's new financing in place,
customers can be assured of continued good service and vendors can be assured of
receiving timely payment for goods and services received after today's filing
date.
Mr. Peckham said that after exploring all available alternatives, the board
concluded that a voluntary Chapter 11 proceeding was the only viable alternative
for the Company to achieve its Long-term objectives.
"The companies that survive in this industry in the future will fall into two
categories," he said. "(1) Large companies that can compete worldwide through
economies of scale, global sourcing and selling opportunities and that are well
capitalized to ride the global ups and downs and; (2) niche market suppliers
that supply products to serve limited specific market needs through good
customer service, innovation, good price-value and that offer the retailer the
low inventory, quick response that it requires. When properly reorganized, we
are confident that we can successfully compete in those niche markets and
produce a reasonable return for our stakeholders."
Mr. Peckham said the Company's current customers and retailers have
maintained a favorable perception of the Company and have expressed a need for
its capacity, quality and product as a U.S. supplier for U.S. and 807 companies.
He said that several large retailers have told the Company that they see major
opportunities in new wool products through purchased packages using Forstmann
fabrics and their joint testing and development.
"Despite the fact that U.S. wool consumption was up in 1997/1998 by 2-3% per
capita, U.S. wool fabric producers saw an average decline of over 15% in market
demand," Mr. Peckham said. "There were a number of reasons for this excess
worldwide capacity. First, the market experienced added capacity in areas like
Mexico, Turkey and Korea. This resulted in the dumping of wool fabrics at below
cost to generate hard currency and keep employees working. Second, the market
was also adversely affected by the Asian financial collapse and resulting
devaluations of their currency. This resulted in reduced consumption in Asia and
the dumping of products by Asian producers at low prices on the world markets.
Other contributing factors include recent warm winter trends to casual dress for
men and women and the resultant lower demand for suiting, and the increased use
of high tech synthetics in winter apparel."
Mr. Peckham said that over the past 12 months, the Company has taken
extensive measures to reduce costs and increase competitiveness. "Through
headcount reductions and plant and office consolidations we have reduced our
operating costs by $55 million per year. This effort has included the entire
organization with $40 million reductions in personnel, $5 million in corporate
overhead and $10 million in plant related cost and expenses," he stated.
"Chapter 11 allows us to continue to move forward with our planned
improvements to the business and pursue these other objectives at the same
time," he stated. "With the support of our customers and vendors and the hard
work of our employees, we are confident that we will be able to emerge from this
process a stronger, more competitive company."
Peckham said that while it completes its restructuring, the Company's
plants, sales and design staffs will continue to do business as usual. The
Company said that it has the support of its lenders in moving forward, and
expects that -- given the new financing and the priority status accorded to
vendors who ship after the filing date -- "the vendor community will support us,
as well."
"The action we took today not only enhances our ability to meet our
obligations to customers and suppliers, but puts the business in a far better
position to capitalize on future opportunities," Mr. Peckham said.
Forstmann & Company voluntarily filed a petition of reorganization under
Chapter 11 in U.S. Bankruptcy Court for the Southern District of New York. It is
represented in the bankruptcy case by the law firm of Salans Hertzfeld Heilbronn
Christy & Viener. Forstmann & Company has manufacturing facilities in Georgia
and is headquartered in New York. Forstmann designs, manufactures and markets
woolen and worsted fabrics for men's and women's sportswear, coating, and
specialty products. Its wholly owned subsidiary, Forstmann Apparel, Inc., also
headquartered in New York, designs, markets and distributes women's suits and
has the North American license for Oleg Cassini's women's suits.
Note:
- ----
This press release may include statements that constitute "forward-looking"
statements. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Factors that would cause
or contribute to such differences include, but are not limited to, continued
acceptance of the Company's products in the marketplace, competitive factors,
dependence upon third-party vendors, and other risks detailed in the Company's
periodic report filings with the Securities and Exchange Commission. By making
these forward-looking statements, the Company undertakes no obligation to update
these statements for revisions or changes after the date of this release.
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This schedule contains financial information extracted from Forstmann &
Company, Inc.'s condensed consolidated financial statements for the thirty-nine
weeks ended August 1, 1999 and is qualified in its entirety by reference to such
financial statements.
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