FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 1, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission File Number 1-6797
TEXFI INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Delaware 56-0795032
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Glenwood Avenue, Suite 215, Raleigh, NC 27612
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (919) 783-4736
--------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- --------------------
Common Stock, par value $1.00 per share New York Stock Exchange, Inc.
- --------------------------------------- -----------------------------
11-1/4% Convertible Senior Subordinated
Debentures due October 1, 1997 New York Stock Exchange, Inc.
- --------------------------------------- -----------------------------
8-3/4% Senior Subordinated Debentures
due August 1, 1999 New York Stock Exchange, Inc.
- --------------------------------------- -----------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by persons other than officers,
directors and related stockholders as of January 13, 1997: $19,926,194.
Number of shares of Common Stock outstanding at January 13, 1997: 8,735,491.
Documents incorporated by reference:
Portions of the definitive proxy statement for the Annual Meeting of
Stockholders to be held on March 11, 1997 are Incorporated by Reference into
Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
Texfi Industries, Inc. ("the Company") was incorporated in Delaware in
1963. The Company manufactures and markets a diverse line of textile products
from a variety of raw materials, including natural and synthetic materials. The
Company's offices are located at 5400 Glenwood Avenue, Suite 215, Raleigh, North
Carolina 27612, telephone (919) 783-4736.
The Company's operations include two divisions: Texfi Blends and Texfi
Narrow Fabrics. The following discusses each of the Company's operating
divisions and how it contributed to the Company's consolidated 1996 operating
performance.
The Texfi Blends division is the Company's largest division, operating
three manufacturing facilities Located in Rocky Mount and Fayetteville, North
Carolina and Jefferson, Georgia, which provide an aggregate of 845,000 of square
feet manufacturing facilities. The division's sales and marketing headquarters
are in New York City, with branch offices or agents in other major cities
throughout the United States and Europe.
The Texfi Blends division contributed 87.5% of the Company's total net
sales in fiscal 1996 sales by manufacturing products made from textured
polyester, flame-retardant polyester, and blends of polyester, rayon, and wool.
These products are sold worldwide to the menswear, womenswear and childrenswear
apparel, uniform, home furnishings, and export markets.
During 1996, the Texfi Narrow Fabrics division operated 319,000 square
feet of manufacturing facilities in Asheboro and Graham, North Carolina. It
maintains a sales office in Asheboro, North Carolina and agents in several
United States cities. Texfi Narrow Fabrics contributed 12.5% of the Company's
total net sales in fiscal 1996 by manufacturing products from polyester, nylon
and rubber which are sold domestically to the intimate apparel, insert apparel,
medical and automotive markets. On November 1, 1996, the Company announced it
would consolidate its Narrow Fabrics division operations and close the Graham,
North Carolina plant. The consolidation of operations and plant closure resulted
in a one-time restructuring charge of $3.3 million during the fourth quarter of
1996.
The Company signed a letter of intent for the purpose of creating a
joint venture with NHL Enterprises, L.P., the licensing, marketing and
publishing arm of the National Hockey League. Both the company and NHL
Enterprises, L.P. will hold an equity interest. The yet unnamed entity will
establish a branded label for hockey-related apparel and soft-goods merchandise.
This merchandise, as well as other sports apparel and private label fashion tops
will be marketed and sourced by the Company's newly formed Kingstree Marketing
division.
In the fourth quarter of 1996, management decided to discontinue the
manufacturing operations at its Kingstree Knit Apparel division which generated
a 1996 operating loss totaling $5.2 million. During 1996, this division
offered knit apparel made to customer specification and marketed to the branded
private label, promotional and garment dyeing markets as well as retailers,
screen printers and distributors. Kingstree Knit Apparel had previously operated
in 676,000 square feet of manufacturing facilities located in Haw River, North
Carolina; Andrews, Kingstree, Lane, and Olanta, South Carolina; and Midway,
Georgia. The Company will liquidate this division's assets and liabilities
during its 1997 fiscal year. This discontinuance and related disposition
generated $10.0 million in charges which are recorded as a loss on disposal of
discontinued operations. As of November 1, 1996, the Company held $13.5 million
in fixed assets for disposal through orderly liquidation.
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<PAGE>
PRODUCT GROUPS
The Company manufactures two basic product groups:
* woven finished fabrics for the apparel, home furnishings and
export markets;
* narrow knitted and woven fabrics for the intimate apparel
and insert apparel markets, as well as automotive accessories
and medical applications;
The approximate percentage of total revenue contributed by each of the
Company's product groups is as follows:
_1996 1995 1994
---- ----- -----
Woven finished fabrics 87.5 83.8 83.2
Narrow fabrics 12.5 16.2 16.8
---- ---- ----
100.0 100.0 100.0
===== ===== =====
SEASONALITY
During 1996 and 1995, the Company's business exhibited seasonality,
primarily due to temporary plant shutdowns during the Christmas/New Year's
holiday season. As a result, sales have been and are expected to be lower during
the first quarter of the fiscal year while working capital requirements increase
in anticipation of higher second quarter sales. Working capital is comprised
chiefly of inventories and accounts receivable. Inventories are reported at the
lower of cost or market value with cost being determined primarily by the
first-in, first-out method. Market value is based on replacement cost or net
realizable value, as appropriate. The majority of accounts receivable are due
from certain financial institutions with whom the Company has entered into
factoring agreements.
BACKLOG
At November 1, 1996, the Company had a $56,755,000 backlog of orders
believed to be firm, as compared to a $57,267,000 backlog at November 1, 1995.
The decrease is attributable to the discontinuance of manufacturing operations
of the Kingstree Knit Apparel division. The comparative backlog for the
Company's ongoing operations actually increased from $35,583,000 as of the end
of the 1995 fiscal year. The current backlog of orders is expected to be filled
prior to the end of fiscal 1997.
CUSTOMERS
In fiscal 1996, the Company's products were sold to more than 1,000
customers, which were primarily domestic manufacturers of apparel and home
furnishings, as well as medical suppliers and retailers. Sales to the 10 largest
customers represented approximately 27.5% of total sales, but no one customer
accounted for more than 4% of total sales. The Company does not believe that the
loss of any one of its customers would have a material adverse effect on the
Company.
MARKETING
The Company's products are sold through a sales force of 22 full-time,
salaried account executives and 37 independent, commissioned sales
representatives who may sell products of other manufacturers, including some
competitors of the Company. The Company maintains sales offices in New York
City, as well as in Asheboro and Charlotte, North Carolina. The Company's
production is determined in large part by customer contracts which are received
by its sales force. As part of its marketing effort, the Company continually
works to develop new products and processes and improve existing products and
processes, but expenditures for these activities are not financially
identifiable.
In order to improve its customer service capabilities, the Company has
begun utilizing computerized networks with many of its customers in order to
provide "quick response" to customer requirements for more competitive product
deliveries. By providing these customers with certain direct inventory
information, the Company believes that the customers' inventory requirements and
inventory carrying costs can be reduced.
3
<PAGE>
COMPETITION
The textile and apparel industry is highly competitive with a large number
of domestic and foreign manufacturers, none of which dominates the market for
any of the Company's product lines. The Company competes on the basis of
styling, price, product performance and customer service.
U.S. producers, including the Company, are significantly affected by
competition from foreign manufacturers. Rules under the recently enacted General
Agreement on Trade and Tariffs ("GATT") would eliminate restrictions on imports
of textiles and apparel after a ten-year transition period. The North American
Free Trade Agreement ("NAFTA") between the United States, Canada and Mexico has
created the world's largest free-trade zone. The Agreement contains safeguards
that were sought by the U.S. textile industry, including a rule of origin
requirement that products be processed in one of the three countries in order to
benefit from NAFTA. There can be no assurance that either NAFTA or GATT will not
adversely affect the Company.
Because of the absence of published information regarding sales of
competing products by other manufacturers, some of which are privately owned
companies or divisions or subsidiaries of large companies, it is not possible to
determine precisely the market shares of the Company and its competitors for the
Company's various products.
SOURCES OF RAW MATERIALS
The Company purchases from outside suppliers natural and synthetic fibers,
rubber, dyes and chemicals for use in its fabric manufacturing operations. The
Company purchases virtually all of its textured polyester yarns from the leading
independent domestic supplier of such yarns. Fabrics for its apparel
manufacturing operations are supplied by the Company's own fabric manufacturing
operations. The Company has not experienced a significant shortage of raw
materials and believes that such supplies will continue to be available.
EMPLOYEES
As of November 1, 1996, the Company had approximately 2,200 employees with
whom it considers its relationship to be good.
RESEARCH AND DEVELOPMENT
Although the Company pursues improvements in the quality, style and
performance of its products, research and development expenditures have not
accounted for a material portion of the Company's total operating costs.
GOVERNMENTAL REGULATION
The Company believes that it is in substantial compliance with federal,
state and local provisions regulating the release of materials into the
environment, or otherwise relating to the protection of the environment.
The existence of groundwater contaminants primarily of a type often found
in commonly used industrial solvents was discovered at one of the Company's
facilities. This facility has not been operated by the Company since 1980 and
has been sold to another party. The State of North Carolina has issued a permit
to discharge treated groundwater, and treatment systems have been installed to
complete groundwater remediation. The Company's cost to monitor and maintain the
treatment system will be approximately $54,000 annually until the site is
remediated. In addition, there may be other potential environmental conditions
at the site to be addressed, and the remedial plan does not cover these
conditions; however, management does not believe that the cost of taking
corrective action will have a material adverse effect on the Company's financial
condition.
4
<PAGE>
The Company has instituted a corporate policy statement on safety and
environmental affairs to ensure that the Company and its divisions comply with
federal, state and local regulatory standards relating to safety and
environmental pollution controls. Included in this policy is a requirement for
periodic compliance audits at each of the Company's facilities. The Company
believes that costs to be expended now or in the future to ensure compliance
with environmental and safety regulations will not have a material adverse
impact on the financial condition of the Company.
SEGMENT INFORMATION
The Company's ongoing operations are concentrated in a single industry, the
manufacture and production of textiles.
FORWARD LOOKING INFORMATION
Statements contained in the foregoing discussion and elsewhere in this
report that are not based on historical fact are considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's present assumptions as to
future trends, and changes in current economic trends, prevailing interest
rates, the availability and cost of raw materials, laws affecting the Company's
business and similar factors could affect the validity of such assumptions.
ITEM 2. PROPERTIES.
The following table sets forth the location and general character of the
principal operating facilities of the Company, which contain approximately
square feet of floor space. All of these Company owned plants are in good
operating condition. The plants operate three full eight-hour shifts per workday
on a five-, six- or seven-day-per-week basis, depending upon market conditions
and customer needs. The Company believes that its facilities are suitable for
their present use and that it has adequate production capacity to support
anticipated sales growth for fiscal 1997.
LOCATION OF PLANT PURPOSE SQUARE FEET
Rocky Mount, NC Weaving, dyeing and finishing 448,000
of synthetic and blended fabrics
Fayetteville, NC Weaving, dyeing and finishing of 218,000
polyester fabrics
Asheboro, NC Manufacturing of knitted narrow 115,000
fabrics (primarily elasticized)
Haw River, NC Dyeing and finishing of polyester 320,000
fabrics
Jefferson, GA Yarn spinning and weaving 179,000
Pursuant to a Credit Agreement dated as of March 15, 1996, the Company granted
to NationsBank, N.A., as Agent a first lien on all of the above properties in
order to secure the Company's obligations thereunder.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party as plaintiff or defendant to various legal
actions which arose during the normal course of business. In the opinion of
management, final disposition of these actions will not have a material effect
on the Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
5
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
ALL POSITIONS AND OFFICES WITH
NAME AGE THE REGISTRANT PRESENTLY HELD
Richard L. Kramer 47 Chairman of the Board of Directors
William L. Remley 46 Chief Executive Officer, Vice Chairman
of the Board of Directors
Andrew J. Parise, Jr. 49 President, Chief Operating Officer and Director
Dane L. Vincent 40 Chief Financial Officer, Treasurer
Gerald A. Rubinfeld 51 President, Texfi Blends division
Gene A. Pease 46 President, Kingstree Marketing division
Tim L. Courtney 57 Vice President, Administration
Thomas M. Gilreath 54 Corporate Controller, Assistant Secretary
Mr. Richard L. Kramer was appointed Chairman of the Board of Directors on
November 1, 1994. He had previously served as Vice Chairman of the Board of
Directors since May 24, 1994. Mr. Kramer is Chairman of Mentmore Holdings
Corporation, Chairman of Sunderland Holdings Corp., Chairman of Republic
Properties Corporation, Chairman of CPT Holdings, Inc. and Chairman of Weldotron
Corp.
Mr. William L. Remley was appointed Chief Executive Officer and Vice
Chairman of the Board of Directors on November 1, 1994. He has served as a
Director since May 24, 1994. Mr. Remley is President of Mentmore Holdings
Corporation, President of CPT Holdings, Inc., President of Sunderland Industrial
Holdings Corp., Director of Republic Properties Corporation and President of
Weldotron Corporation.
Mr. Andrew J. Parise, Jr. was appointed President and Chief Operating
Officer of the Company on November 1, 1994. He previously served as the
Company's Blends Division President from 1992 to 1995 and the division's
Executive Vice President from 1990 to 1992. He has been with the Company in
various sales and operations positions since 1977.
Mr. Dane L. Vincent was appointed Chief Financial Officer during December
1995 after previously serving as Vice President of Finance and Treasurer from
December 1994. Mr. Vincent joined the Company in 1989 as Financial Accounting
Manager after a career in public accounting, where he worked for Ernst & Young
and other accounting firms.
Mr. Gerald A. Rubinfeld was appointed President of the Blends division in
1995. He joined the Company in 1984 as the Menswear Marketing Manager and held
various marketing positions prior to his appointment.
Mr. Gene A. Pease was appointed President of the Kingstree Marketing
division in 1996. He joined the Company in 1996 as President of the Kingstree
Knit Apparel division. From 1994 until 1996, Mr. Pease served as
President and Chief Executive Officer of Trench Manufacturing Company, Inc.
Prior to 1994, he held various executive positions with Chalkline Manufacturing
since 1992.
Mr. Tim L. Courtney was appointed Vice President of Administration in 1994.
He joined the Company's Lively Knits Division (since disbanded) in 1966 and
served in a variety of positions with the Company, including Director of Fiber
and Yarn Procurement and VP of Marketing Services for the Blends Division.
Mr. Thomas M. Gilreath was appointed Corporate Controller and Assistant
Secretary in 1994. He joined the Company in 1986 after spending more than 20
years in a variety of accounting positions with the Crompton company and with
the Bigelow Sanford Carpet Company. Prior to his current position Mr. Gilreath
was Vice President/Corporate Controller at the Texfi's Blends Division.
ITEM 4(B). OTHER INFORMATION
Not applicable.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded on the New York Stock Exchange.
The approximate number of holders of record as of January 13, 1997 was 1,075.
The following table sets forth the high and low sales prices for the
Common Stock on the NYSE composite tape for the period indicated.
QUARTER
FIRST SECOND THIRD FOURTH
1996 Fiscal Year:
High 3-1/4 3 3-3/8 3
Low 2-1/2 2-1/2 2-1/4 2-1/4
1995 Fiscal Year:
High 3 3-3/8 3-1/8 3-1/8
Low 2-3/8 2-1/2 2-3/4 2-3/8
The Company did not pay dividends on its Common Stock in either fiscal 1996
or 1995 and does not intend to do so in the foreseeable future.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
TEN-YEAR REVIEW OF PERFORMANCE
(Dollar amounts in thousands except per share data and the number of employees)
<TABLE>
<CAPTION>
1996* 1995* 1994*
<S> <C> <C> <C>
Summary of Operations
Net Sales $192,150 $185,685 $162,301
Cost and expenses:
Cost of goods sold 166,173 162,642 146,477
Selling, general and administrative 13,897 11,843 9,300
Restructuring charge 3,257 -- --
Interest 10,254 11,994 10,656
Equity losses (earnings) of unconsolidated subsidiary -- -- --
Other (income) expense (7) (60) (1,548)
Total cost and expenses 193,574 186,419 164,885
(Loss) income before income taxes, discontinued operations and extraordinary
items (1,424) (734) (2,584)
Provision for income taxes -- -- --
(Loss) income before discontinued operations (1,424) (734) (2,584)
Discontinued operations;
Loss from operations (5,162) (855) (5,767)
Loss on disposal (10,993) (15,325) --
Net (loss) income (17,579) (16,914) (8,351)
Redeemable preferred stock:
Dividends paid -- -- --
Accretion of issue costs -- -- --
Net (loss) income $(17,579) $(16,914) $ (8,351)
Net (loss) income from continuing operations per share $ (.16) $ (.09) $ (.32)
Net (loss) income per share $ (2.02) $ (1.96) $ (1.03)
Other Operating Data
Capital expenditures $ 9,315 $ 2,966 $ 3,333
Depreciation 7,412 8,182 9,441
Cost of equipment placed in service under operating leases 5,025 2,965 --
Number of employees 2,201 3,221 4,399
Financial Position at Year End
Receivables $ 44,570 $ 9,173 $ 10,350
Inventories 22,179 28,092 42,131
Current assets 68,468 40,089 56,184
Property, plant & equipment, net 30,223 50,514 75,945
Total assets 114,190 96,045 137,180
Current liabilities 40,907 37,408 44,013
Revolving credit line 38,967 -- --
Long-term debt 9,952 12,471 25,015
Subordinated debentures 36,943 40,724 45,127
Other long-term obligations 562 1,205 1,842
Redeemable preferred stock -- -- --
Stockholders' (deficit) equity (13,141) 4,237 21,183
Working capital 27,561 2,681 12,171
Book Value Per Share $ (1.50) $ 0.49 $ 2.45
Common Stock Price Range
High $ 3.375 $ 3.375 $ 5.125
Low 2.250 2.375 2.750
</TABLE>
*Certain amounts in the 1995 and 1994 financial statements have been restated to
reflect the discontinued operations.
**Per share data has been restated to give effect to a 4-for-3 stock split
effective July 23, 1987.
For the years presented, there were no dividends paid to common stockholders.
8
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<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C>
$237,265 $327,881 $322,020 $274,519 $233,859 $185,265 $162,842
212,633 286,883 290,420 246,739 201,474 159,714 137,736
16,328 18,214 18,181 14,733 14,196 11,402 11,267
-- -- 8,603 -- -- -- --
10,190 9,515 12,791 9,668 4,772 2,361 4,310
-- 3,867 5,173 (38) -- -- --
2,000 (6,595) 602 (341) 82 (341) 491
241,151 311,884 335,770 270,761 220,524 173,136 153,804
(3,886) 15,997 (13,750) 3,758 13,335 12,129 9,038
-- 2,385 442 583 826 439 --
(3,886) 13,612 (14,192) 3,175 12,509 11,690 9,038
(3,244) (524) (133) -- -- -- --
(1,353) -- -- -- -- -- --
(8,483) 13,088 (14,325) 3,175 12,509 11,690 9,038
(555) (673) (1,323) (2,319) (2,591) (1,619) --
-- (8) (228) (772) (605) (431) --
$ (9,038) $ 12,407 $(15,876) $ 84 $ 9,313 $ 9,640 $ 9,038
$ (.58) $ 1.69 $ (2.11) $ .01 $ 1.19 $ 1.18 $ 1.11
$ (1.18) $ 1.62 $ (2.13) $ .01 $ 1.19 $ 1.18 $ 1.11
$ 10,054 $ 5,342 $ 10,089 $ 22,477 $ 19,264 $ 10,114 $ 4,111
8,693 7,442 6,916 5,010 3,599 2,506 2,279
-- -- -- 4,586 9,634 13,648 --
4,404 4,271 4,022 3,906 3,505 2,444 2,180
$ 17,138 $ 12,753 $ 25,248 $ 24,227 $ 16,195 $ 25,569 $ 18,234
38,908 39,861 38,045 45,280 43,684 19,667 15,527
60,930 56,160 68,407 76,473 63,788 51,724 37,162
82,211 81,185 70,162 68,915 51,857 34,499 26,725
149,660 144,630 146,759 156,061 120,254 87,008 65,479
44,310 39,896 49,263 39,547 38,782 18,939 20,461
-- -- -- -- -- -- --
32,968 46,876 47,744 45,747 8,699 3,256 9,951
45,187 19,001 19,074 17,976 11,623 11,875 13,616
2,652 583 505 441 399 409 433
-- 5,206 9,095 16,464 24,004 23,400 --
24,543 33,068 20,009 35,886 36,747 29,129 21,018
16,620 16,264 19,144 36,926 25,006 32,785 16,701
$ 3.19 $ 4.35 $ 2.68 $ 4.80 $ 4.83 $ 3.72 $ 2.61
$ 9.000 $ 9.250 $ 7.500 $ 9.625 $ 12.000 $ 7.000 $ 10.313**
3.750 3.875 3.875 3.875 5.750 4.125 3.469**
</TABLE>
9
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Results of Operations
Results of operations for 1995 and 1994 have been restated to reflect the
discontinuance of the manufacturing operations of the Company's Kingstree Knit
Apparel division during the fourth quarter of fiscal 1996.
Fiscal Year 1996 Compared with Fiscal Year 1995
Net sales from continuing operations for fiscal 1996 increased to $192.1
million from $185.7 million, an increase of $6.4 million or 3.5%. This increase
resulted from $12.6 million, or 8%, higher sales at the Company's Blends
division which more than offset a $6.2 million, or 21%, decline at its Narrow
Fabrics division. The increase at the Blends division reflects this operation's
continued effort to offer greater product diversification to its customers and a
strong market for synthetic fabrics, particularly polyester. The decrease at the
Narrow Fabrics division is indicative of the persistent weak market for intimate
apparel fabrics.
Cost of goods sold ("CGS"), as a percentage of net sales from continuing
operations, decreased from 87.6% to 86.5% during 1996. This decrease resulted
primarily from the Company's ongoing re-engineering program which is designed to
streamline its manufacturing costs through equipment modernization and reduced
cycle times.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales from continuing operations rose to 7.2% in 1996 from 6.4% in fiscal 1995.
This increase was attributable to the following factors: (a) increases in
selling expenses within the Blends division as it expanded into new markets, (b)
costs associated with improvements to the Company data processing systems, and
(c) the fact that corporate related SG&A costs remained consistent due to their
fixed nature despite the discontinuance of the manufacturing operations of the
Kingstree Knit Apparel division.
The Company recorded a $3.3 million restructuring charge related to the
consolidation of its Narrow Fabrics division and the closing of this division's
Graham, North Carolina facility. This facility generated operating losses
totaling $2.0 million and $1.2 million in 1996 and 1995, respectively.
Interest expense declined by $1.7 million, or 14%, to $10.3 million in the
1996 fiscal year. This decrease when compared to interest expense of $12.0
million for 1995 is a result of reductions in long-term debt outstanding and
improved borrowing rates available through the Company's revolving credit line
as compared to historical borrowings against factor receivables.
During the 1996 fiscal year, the Company incurred charges totaling $16.2
million in order to discontinue certain operations. These charges include a
$10.0 million loss on the disposal of the Kingstree Knit Apparel division
assets which consists of a $3.6 million write-down of inventory and a $1.9
million write-down in property, plant and equipment to net realizable
value, a $1.9 million write-off of goodwill, an $800,000 reserve for the
liquidation of accounts receivable, and $1.8 million in other various
costs, primarily to run out operations, distribute severance pay and
cancel lease obligations.
In addition, the 1996 net loss from discontinued operations includes the
Kingstree Knit Apparel division's loss from operations totaling $5.2 million.
This division generated $41.9 million in net sales, $41.4 million in CGS, $5.7
million in SG&A, and $67,000 in other expense, during fiscal 1996 as compared to
$71.8 million, $65.0 million, $5.3 million, and $160,000 in net sales, CGS,
SG&A, and other expense, respectively, in fiscal 1995.
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<PAGE>
The 1996 net loss from discontinued operations also includes a $1.0 million
charge to increase the reserves related to disposal of its Highland Yarn Mills
and Marion Fabrics greige goods operations which were discontinued during the
1995 fiscal year. During 1995, the Company recorded a $15.3 million loss on the
disposal of these operations. As of the end of the 1996 fiscal year, property,
plant and equipment totaling $282,000 and trade accounts receivable of $255,000
from these prior year discontinued operations remain.
As discussed in the Notes to Consolidated Financial Statements, as of
November 1, 1996, net operating loss carryforwards of approximately $60.6
million remain to offset future taxable income.
Fiscal Year 1995 Compared with Fiscal Year 1994
Net sales from continuing operations for fiscal 1995 increased to $185.7
million from $162.3 million, an increase of $23.4 million or 14.4%. This
increase resulted from improved sales of $20.5 million and $2.9 million at the
Company's Blends and Narrow Fabrics divisions, respectively. The Blends division
improved primarily as a result of increased demand and delivery of many of the
division's synthetic fabrics to the junior girls, women's wear and export
markets.
CGS as a percentage of net sales from continuing operations decreased from
90.3% to 87.6% in 1995. This decrease resulted primarily from a reduction in
volume-related operating costs within both the Blends and Narrow Fabrics
divisions. These improvements were partially offset by increased raw material
costs, primarily synthetic yarns.
SG&A as a percentage of net sales from continuing operations increased from
5.7% in the 1994 fiscal year to 6.4% in 1995. This increase is primarily a
result of corporate related SG&A costs remaining fixed despite the
discontinuance of the manufacturing operations of the Kingstree Knit Apparel
division in 1996 and the Highland Yarn Mills, Jefferson Mills and Marion Fabrics
operations in 1995.
Despite the Company's reduction in both total debt outstanding and factor
advances by approximately $25.0 million, interest expense increased $1.3 million
during 1995 when compared with 1994. This increase is primarily due to rises in
the prime rate of interest and other comparable interest rate measures, which
occurred throughout late fiscal 1994 and fiscal 1995.
Other income decreased to $60,000 in 1995 as compared to $1.6 million in
1994 which included receipt of approximately $1.5 million for the settlement of
a lawsuit.
During fiscal 1995, the Company recorded charges totaling $17.5 million to
discontinue its Highland Yarn Mills yarn, Jefferson Mills diaper and corduroy
fabric and Marion Fabrics greige goods operations. These charges included a loss
on disposal of operations totaling $15.3 million which is comprised of the
following: $9.8 million in property, plant and equipment, $3.1 million in
accounts and notes receivable, $1.2 million in inventory, and $1.2 million in
other various costs. These discontinued operations generated $21.8 million in
net sales, $22.4 million in CGS, and $1.6 million in SG&A during fiscal 1995, as
compared to $64.8 million, $66.1 million, $4.9 million, and $200,000 of net
sales, CGS, SG&A and other expense, respectively, in the 1994 fiscal year.
Capital Resources and Liquidity
During 1996 and 1995, the Company's business exhibited seasonality,
primarily due to temporary plant shutdowns during the Christmas/New Year's
holiday season. As a result, sales have been and are expected to be lower during
the first quarter of the fiscal year while working capital requirements increase
in anticipation of higher second quarter sales. Working capital is comprised
chiefly of accounts receivable and inventory.
As of November 1, 1996, working capital equaled $27.6 million, an increase
of $24.9 million from the fiscal year ended November 3, 1995. This increase is
due primarily to the $44.5 million pay-off of factor advances with the proceeds
from the Company's new credit facility, which more than offset decreases in
accounts receivable of $9.1 million, inventories of $5.9 million, prepaid
expenses of $800,000 and cash and cash equivalents of $300,000, as well as
increases in current maturities of subordinated debentures and long-term debt of
$1.6 million and accounts payable and other liabilities of $1.9 million.
11
<PAGE>
<PAGE>
The Company's operating activities used $30.5 million in net cash during the
1996 fiscal year. Adjustments to the fiscal year net loss of $17.6 million
included depreciation and amortization of $8.4 million, provision for losses on
accounts receivable of $2.1 million, and the net loss on disposition of
property, plant and equipment and unamortized goodwill of $4.3 million and $1.9
million, respectively. In addition to the adjusted net loss of $922,000, the
$37.5 million rise in net accounts receivable was offset by decreases in
inventories ($5.9 million) and prepaid and other assets ($757,000) and increases
in accounts payable and other liabilities ($1.2 million). The $37.5 million
increase in accounts receivable is primarily attributable to the $44.5 million
pay-off of factor advances with the proceeds of the Company's new credit
facility. Net proceeds of $57.0 million from the new credit facility, $4.6
million from the sale-lease back of equipment, and $900,000 from the sale of
property, plant and equipment were used to purchase property, plant and
equipment totaling $9.3 million and reduce various long-term debt and
subordinated debenture instruments by $23.2 million.
On March 15, 1996, the Company entered into a $74.0 million credit facility
(subsequently reduced by amendment to $64.0 million), of which $54.7 million was
initially utilized. Net proceeds from the credit facility were applied toward
the previously existing term loans and outstanding factor advances. The new
facility consisted of a $19.0 million term loan, payable in 29 equal monthly
installments and a balloon payment in September 1998, and a revolving credit
line which, as amended, cannot exceed $45.0 million during the life of the
facility. The revolving credit line, which expires on the same date as the term
loan's final maturity, replaced the Company's factor advance arrangements. As of
November 1, 1996, funds available through the revolving credit line approximated
$8.3 million. The credit facility is secured by substantially all of the
Company's assets. The credit facility currently provides for the Company to pay
interest on amounts outstanding at the prime rate plus an applicable margin
until 10 business days following the end of the Company's 1997 second fiscal
quarter, at which time, if certain financial conditions are met, the Company may
elect interest rates based upon a LIBOR or prime interest rate plus applicable
margin. The applicable margin is adjusted each fiscal quarter based upon the
Company's leverage ratio as defined in the credit facility. If the Company
elects a LIBOR interest rate, the Company may also elect interest periods of 30,
60, 90 or 180 days. As of November 1, 1996, the average interest rate for the
various elections held by the Company approximated 8.46% per annum for
approximately $53.4 million in term and revolving debt. The facility places
limitations on the Company's rental expense, additional indebtedness,
acquisitions, capital expenditures, payment of subordinated debentures, and sale
or disposal of assets. The Company is required to liquidate certain assets used
in connection with discontinued operations, maintain a minimum net worth, and
comply with certain financial ratios, including current ratio, coverage ratio,
and leverage ratio, as defined by the facility. This facility has been
periodically amended to make the restrictive covenants less restrictive in order
that the Company would remain in compliance with all covenant requirements and
effect certain other changes. As of November 1, 1996, the Company was in
compliance with all of the facility's covenant requirements.
As of November 1, 1996, the Company had outstanding approximately $34.4
million of its Senior Subordinated Debentures due August 1, 1999 ("8 3/4%
Debentures") outstanding. The 8 3/4% Debentures, which cannot be called prior to
their maturity date, are unsecured obligations. These debentures contain
covenants that place limitations on the use of proceeds from disposal of assets
and on the incurrence of additional indebtedness and senior indebtedness (as
defined in the governing indenture) if such indebtedness would exceed stated
ratios of capitalization and earnings after such incurrence. Under the most
restrictive of these covenants the Company may not incur additional indebtedness
if, after giving effect to such incurrence, the aggregate amount of indebtedness
of the Company would exceed 75% of the sum of all indebtedness and stockholders'
(deficit) equity. The Company is currently prohibited by this covenant from
incurring additional indebtedness. This restriction on the incurrence of
additional indebtedness was waived by debenture holders with respect to the new
credit facility. As a condition to the waiver, the Company executed a Second
Supplemental Indenture dated March 15, 1996 which provided that beginning on the
last business day of September 1998 and continuing on the last business day of
each month thereafter to and including June 1999, the Company will deposit with
the trustee of these debentures $600,000 less an amount equal to 8 3/4%
Debentures repurchased during the period prior to the monthly payment date.
Total deposits, including interest earned thereon, are to be paid as principal
and interest when these debentures are due.
12
<PAGE>
<PAGE>
The Company had $3.5 million of 11 1/4% Convertible Senior Subordinated
Debentures outstanding as of November 1, 1996. These debentures which are
convertible to common stock at the option of the debenture holders for $6.69 per
share, are redeemable by the Company at face value on October 1, 1997 and are
classified as a current liability at the end of the 1996 fiscal year. Under the
terms of the governing indenture, the Company is required to make two sinking
fund payments equal to 10% of the outstanding debenture principal at February
28, 1997 and August 31, 1997, respectively.
As of November 1, 1996, the Company had approximately $2.5 million of its
Series C Debentures outstanding. The annual interest rate of these debentures
may be adjusted at the sole discretion of the Company on April 1st of each year
until maturity in the year 2000. On March 1, 1996, the Company set the Series C
interest rate at 13% for the period April 1, 1996 through March 31, 1997. The
Series C Debentures are redeemable on April 1st of each year, in whole or in
part, at the option of the holder or the Company for the principal amount
thereof plus accrued interest through the date of redemption.
The Company has significant lease obligations that are classified as
operating leases and therefore are not reflected in the balance sheet. The
aggregate future minimum lease payments under these leases for their initial or
remaining noncancellable terms were $13.9 million as of November 1, 1996,
including $3.5 million for fiscal 1997. The Company plans to place into service
$10.6 million of machinery and equipment during fiscal 1997. These capital
investments primarily will increase dyeing capacity and replace older weaving
equipment with new looms in order to improve production speed, efficiency and
product quality, as well as expand styling diversity. Management anticipates
that substantially all of the equipment will be placed into service through
operating leases and thus not included in the Company's balance sheet.
Management believes cash flows from operations and funds available under the
revolving credit line will provide the Company with sufficient sources of funds
to meet its fiscal 1997 cash needs and, assuming no significant deterioration in
current market conditions or interest rates, for the foreseeable future.
Environmental Matters and Litigation
In 1992 the Company adopted a corporate policy statement on safety and
environmental affairs to ensure that the Company and its divisions comply with
all federal, state and local regulatory standards relating to safety and
environmental pollution controls. Included in this policy is a requirement for
periodic compliance audits at each of the Company's facilities. The Company has
addressed and continues to address certain environmental conditions and
potential conditions at a former plant site. The Company believes that costs to
be expended now or in the future to ensure compliance with environmental and
safety regulations will not have a material adverse impact on the financial
condition of the Company.
The Company is also involved in various litigation arising in the ordinary
course of business. The final resolution of these matters cannot be determined;
however, it is management's opinion these matters will not have a material
adverse effect on the Company's financial position or future liquidity.
Inflation
The Company believes that inflation affects its business to an extent no
greater than it affects the textile industry generally and the economy as a
whole.
Forward Looking Information
Statements contained in the foregoing discussion and elsewhere in this
report that are not based on historical fact are considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's present assumptions as to
future trends, and changes in current economic trends, prevailing interest
rates, availability and cost of raw materials, laws affecting the Company's
business and similar factors could affect the validity of such assumptions.
13
<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended November 1, 1996, November 3, 1995 and October 28,
1994
(Dollar amounts in thousands except number of shares and per share data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales $ 192,150 $ 185,685 $ 162,301
Cost and Expenses:
Cost of goods sold 166,173 162,642 146,477
Selling, general and administrative 13,897 11,843 9,300
Restructuring charge 3,257 -- --
Total 183,327 174,485 155,777
Operating Income 8,823 11,200 6,524
Other Expense (Income):
Interest 10,254 11,994 10,656
Other, net (7) (60) (1,548)
Total 10,247 11,934 9,108
Net Loss From Continuing Operations (1,424) (734) (2,584)
Discontinued Operations:
Loss from operations of discontinued operations (5,162) (855) (5,767)
Loss on disposal of discontinued operations (10,993) (15,325) --
Net loss from Discontinued Operations (16,155) (16,180) (5,767)
Net Loss $ (17,579) $ (16,914) $ (8,351)
Weighted Average Number of Shares 8,696,177 8,651,668 8,107,507
Loss Per Share
Loss from continuing operations $ (.16) $ (.09) $ (.32)
Loss from discontinued operations (1.86) (1.87) (.71)
Net loss $ (2.02) $ (1.96) $ (1.03)
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
November 1, 1996 and November 3, 1995
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 418 $ 747
Receivables:
Due from factor 40,885 6,971
Trade, less allowances ($1,899 -- 1996; $1,362 -- 1995) 3,555 1,958
Other 130 244
Inventories 22,179 28,092
Prepaid expenses 1,301 2,077
Total 68,468 40,089
Property, Plant and Equipment -- Net 30,223 50,514
Property, Plant and Equipment Held For Disposal -- Net 13,461 1,513
Other Assets 2,038 3,929
$114,190 $ 96,045
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Current maturities of long-term debt $ 6,563 $ 8,452
Current maturities of subordinated debentures 3,537 --
Accounts payable 22,182 22,742
Other liabilities 8,625 6,214
Total 40,907 37,408
Revolving Credit Line 38,967 --
Long-term Debt 9,952 12,471
Subordinated Debentures 36,943 40,724
Other Long-term Obligations 562 1,205
Contingent Liabilities and Commitments
Stockholders' (Deficit) Equity:
Common stock, $1.00 par value -- authorized 20,000,000 shares;
outstanding 8,735,491 shares in 1996 and 8,650,690 shares in 1995 8,735 8,651
Additional paid-in capital 25,186 25,069
Accumulated deficit (47,062) (29,483)
Total (13,141) 4,237
$114,190 $ 96,045
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
For the fiscal years ending November 1, 1996, November 3, 1995 and October 28,
1994
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
$1 Par Value Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
<S> <C> <C> <C> <C> <C> <C>
October 29, 1993 8,621,083 $8,621 $ 25,147 $ (4,218) $(5,007) $ 24,543
Net loss for fiscal 1994 (8,351) (8,351)
Stock issued under Directors' Deferred
Comp Plan 37,209 37 93 130
Restricted stock forfeitures (6,385) (6) (29) (35)
Stock issued under various employee
stock plans 1,381 1 4 5
Sale of treasury stock (924,000 shares) (667) (116) 5,007 4,891
October 28, 1994 8,652,621 8,653 25,099 (12,569) -- 21,183
Net loss for fiscal 1995 (16,914) (16,914)
Restricted stock forfeitures (5,000) (5) (34) (39)
Stock issued under various employee
stock plans 3,069 3 4 7
November 3, 1995 8,650,690 8,651 25,069 (29,483) -- 4,237
Net loss for fiscal 1996 (17,579) (17,579)
Stock issued under various employee
stock plans 84,801 84 117 201
November 1, 1996 8,735,491 $8,735 $ 25,186 $ (47,062) $ -- $(13,141)
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended November 1, 1996, November 3, 1995 and October 28,
1994
(Dollar Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net loss $(17,579) $(16,914) $ (8,351)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 8,405 9,147 11,005
Provision for losses on accounts receivable 2,102 3,196 2,568
Loss (gain) on disposition of property, plant and equipment 4,247 9,356 (2)
Loss on disposition of unamortized goodwill 1,903 -- --
Change in operating assets and liabilities:
Accounts receivable (37,499) (2,019) 4,220
Inventories 5,913 14,039 (3,223)
Prepaid and other assets 757 386 212
Accounts payable and other liabilities 1,208 (4,232) (1,669)
Net Cash (Used In) Provided by Operating Activities (30,543) 12,959 4,760
Investing Activities:
Purchases of property, plant and equipment (9,315) (2,966) (3,333)
Proceeds from sale of property, plant and equipment 5,494 9,434 160
Net Cash (Used In) Provided by Investing Activities (3,821) 6,468 (3,173)
Financing Activities:
Proceeds from long-term debt borrowings 19,000 -- --
Net advances from revolving credit line 38,967 -- --
Payments on long-term debt and capital lease obligations (22,919) (15,554) (7,391)
Capitalized loan costs (970) (159) --
Payments for repurchase of subordinated debentures (244) (4,403) (60)
Proceeds from sale of treasury stock, net -- -- 4,891
Proceeds from employee stock plans, net 201 (32) 100
Net Cash Provided by (Used In) Financing Activities 34,035 (20,148) (2,460)
Decrease in Cash and Cash Equivalents (329) (721) (873)
Cash and Cash Equivalents at Beginning of Period 747 1,468 2,341
Cash and Cash Equivalents at End of Period $ 418 $ 747 $ 1,468
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 1, 1996, November 3, 1995 and October 28, 1994
1. Summary of Significant Accounting Policies
A. Company
Texfi Industries, Inc. and one wholly owned inactive subsidiary (the
"Company") is one of the nation's leading manufacturers of synthetic fabrics
which are marketed throughout the United States, as well as Europe. The
Company's products are either made primarily from polyester yarns or polyester
blended with rayon, lycra, or wool. Products are sold and distributed to a
variety of manufacturers in the women's wear and men's wear apparel markets, as
well as home furnishings and medical industries.
B. Principles of Consolidation
The consolidated financial statements include the accounts of the divisions
of the Company and its subsidiary. Intercompany transactions and profits and
losses have been eliminated.
C. Fiscal Year
The Company's operations are based on a fifty-two or fifty-three week fiscal
year ending on the Friday closest to October 31. The 1996 and 1994 fiscal years
include 52 weeks while the 1995 fiscal year includes 53 weeks.
D. Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation and reflect discontinued
operations. These reclassifications had no effect on either previously reported
net loss or stockholders' (deficit) equity.
E. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the amounts reported in these financial statements and
accompanying footnotes. Actual results may differ from those estimates and
assumptions.
F. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
G. Accounts Receivable -- Factored
The Company has entered into factoring agreements with several financial
institutions whereby it may assign certain receivables generally without
recourse as to credit risk.
H. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
primarily on the basis of the first-in, first-out method. Market is based on
replacement cost or net realizable value, as appropriate.
I. Property, Plant and Equipment
Property, plant and equipment is stated at cost. For financial statement
purposes, depreciation is determined primarily by the straight-line method. For
income tax purposes, the straight-line and accelerated methods are used.
Interest costs incurred in the construction or acquisition of property, plant
and equipment are capitalized.
J. Revenue Recognition
Sales are recorded upon shipment or designation of specific goods for later
shipment at customers' request with related risk of ownership passing to such
customers.
18
<PAGE>
<PAGE>
K. Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured using the enacted rates and laws which will be in effect
when these differences are expected to reverse. Deferred tax expense results
from the change in the liability accounts for deferred taxes.
L. Loss Per Share
Net loss per share has been computed using the weighted average number of
common shares and common share equivalents outstanding during the year. The
difference between primary and fully diluted net loss per share is not material
during the years presented.
M. Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FASB 121"), which requires companies to
record impairment losses on long-lived assets used in operations and long-lived
assets that are expected to be disposed of, when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The Company will adopt FASB 121
during the first quarter of its 1997 fiscal year and based upon current
circumstances, does not believe that the effect of adoption will be material.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation", ("FASB 123"). FASB 123 encourages companies to adopt
the fair method for expense recognition of employee stock options. FASB 123 also
allows companies to continue accounting for stock options and stock based awards
using the intrinsic value method as outlined under Accounting Board Opinion No,
25, "Accounting for Stock Issued to Employees" ("APB 25") and to make pro forma
disclosures of net loss and net loss per share as if the fair value method had
been applied. Currently, the Company uses APB 25 to account for its stock
options and stock based awards and intends to continue to apply APB 25 for
future stock options and stock based awards.
2. Accounts Receivable -- Due from factor
Prior to March 15, 1996, the Company had an arrangement with its primary
factor whereby it could be advanced funds in amounts not to exceed 90% of
eligible factored accounts receivable plus 50% of eligible inventories not to
exceed a maximum of $10.0 million. As a result, factored receivables totaling
$51.5 million as of November 3, 1995, are shown net of funds borrowed in advance
of collection on such factored sales of $44.5 million. Effective March 15, 1996,
the Company entered into a $74.0 million credit facility, (subsequently reduced
by amendment to $64.0 million) from which a portion of the proceeds were applied
towards the existing factor advances, and the factor advance arrangement was
terminated.
Concentration of credit risk is limited due to the large number of customers
to which the Company sells its products (no one customer accounted for more than
4% of the Company's 1996 sales or 3% of the Company's 1995 sales) and the use of
several factors to assign the invoices for sales to its customers. The Company
generally requires no collateral for its accounts receivable.
Interest paid on factors advances in 1996, 1995 and 1994 was $1,442,000,
$4,676,000 and $3,150,000, respectively.
19
<PAGE>
<PAGE>
3. Inventories
Inventories at November 1, 1996 and November 3, 1995 are summarized as
follows:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Finished goods $10,304 $11,248
Goods in process 8,765 11,093
Raw materials 4,104 3,761
Supplies 3,337 3,371
Total 26,510 29,473
Less reserves 4,331 1,381
Inventories -- net $22,179 $28,092
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment at November 1, 1996 and November 3, 1995
consists of the following:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Land and land improvements $ 2,358 $ 2,841
Buildings 15,170 23,099
Machinery, equipment, etc. 56,306 83,595
Construction in progress 2,218 772
Total 76,052 110,307
Less accumulated depreciation 45,829 59,793
Property, plant and equipment -- net $30,223 $50,514
</TABLE>
Depreciation expense approximated $7,412,000, $8,182,000, and $9,441,000
during the 1996, 1995, and 1994 fiscal years, respectively.
5. Long-term Debt, Revolving Credit Line and Pledged Assets
Long-term debt at November 1, 1996 and November 3, 1995 consists of the
following:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Term loan with variable interest of 8.47%, payable in equal monthly
installments until balloon payment due September 1998, collateralized by
property, plant, and equipment with a net book value of $41,084,000 $15,367 $ --
Term loans at 6.75%, payable in monthly installments plus interest through
November 1, 1998; collateralized by property, plant and equipment with a
net book value of $2,600,000 1,148 1,800
Term loan with variable interest rate of 8.42% -- 17,998
Term loan at prime plus 1% -- 620
Capitalized leases, principally at prime -- 505
Total 16,515 20,923
Less current maturities 6,563 8,452
Due after one year $ 9,952 $12,471
</TABLE>
On March 15, 1996, the Company entered into a $74.0 million credit facility
(subsequently reduced by amendment to $64.0 million). Net proceeds from the
credit facility, as amended, were applied toward the previously existing term
loans and outstanding factor advances. The new credit facility, as amended,
consists of a $19.0 million term loan, payable in 29 equal monthly installments
and a balloon payment due September 15, 1998, and a revolving credit line which
cannot exceed $45.0 million during the life of the facility. The revolving
credit line which expires September 1998 consistent with the term loan's final
maturity, replaced the Company's factor advance arrangements. As of November 1,
1996, the revolving credit line totaled $39.0 million and had available funds
approximating $8.3 million.
20
<PAGE>
<PAGE>
The credit facility is secured by substantially all of the Company's assets.
The credit facility currently provides for the Company to pay interest on
amounts outstanding at the prime rate plus an applicable margin until 10
business days following the end of the Company's 1997 second fiscal quarter, at
which time, if certain financial conditions are met, the Company may elect
interest rates based upon a LIBOR or prime interest rate plus applicable margin.
The applicable margin is adjusted each fiscal quarter based upon the Company's
leverage ratio as defined in the credit facility. If the Company elects a LIBOR
interest rate, the Company may also elect interest periods of 30, 60, 90 or 180
days. As of November 1, 1996, the average interest rate for the various
elections held by the Company approximated 8.43% per annum for approximately
$53.4 million in debt. The facility requires the Company to liquidate certain
assets used in connection with discontinued operations, and maintain a specified
minimum net worth and certain financial ratios, including current ratio,
coverage ratio, and leverage ratio, as defined by the facility. In addition, the
facility places limitations on the Company's additional borrowings, rental
expense, acquisitions, payment of subordinated debentures, and the purchase,
sale and lease of real and personal property. On January 30, 1997, the credit
facility was amended to make the restrictive covenants less restrictive in order
that the Company would be in compliance with all covenant requirements as of
November 1, 1996 and effect certain other changes. As of the end of the fiscal
year the Company was in compliance with all of the facility covenant
requirements.
Payments due on long-term debt during each of the two succeeding years and
thereafter are listed below:
<TABLE>
<CAPTION>
Fiscal
Year Total
<S> <C>
<CAPTION>
(in thousands)
<S> <C>
1997 $6,563
1998 9,952
</TABLE>
Interest paid on debt, other than debentures, in 1996, 1995 and 1994 was
$3,256,000, $2,504,000, and $2,885,000, respectively.
6. Subordinated Debentures
Debentures outstanding at November 1, 1996 and November 3, 1995 consist of
the following:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Senior Subordinated Debentures, 8 3/4%, due August 1, 1999 $34,420 $34,430
Convertible Senior Subordinated Debentures, 11 1/4%, due October 1, 1997 3,537 3,537
Subordinated Extendible Debentures, 11%, due April 1, 2000 (Series C) 2,523 2,757
Total 40,480 40,724
Less current maturities 3,537 --
Due after one year $36,943 $40,724
</TABLE>
In September 1993, the Company issued $34.5 million in principal amount of
Senior Subordinated Debentures due August 1, 1999 ("8 3/4% Debentures"). The
annual interest rate of these debentures is 8.75%, payable semiannually on
August 1 and February 1 of each year. The 8 3/4% Debentures, which cannot be
called prior to their maturity date, are unsecured obligations but contain
covenants that place limitations on the use of proceeds from the disposal of
assets and the incurrence of additional indebtedness and senior indebtedness (as
defined in the indenture) if such indebtedness would exceed stated ratios of
capitalization and earnings after such incurrence. The Company is currently
prohibited from incurring additional indebtedness because the aggregate amount
of its indebtedness exceeds 75% of the sum of all indebtedness and stockholders'
(deficit) equity. The debenture definition of indebtedness does not include
revolver credit line borrowings or operating lease obligations. This restriction
on the incurrence of additional indebtedness was waived by debenture holders
with respect to the new credit facility. As a condition to the waiver, the
Company executed a Second Supplemental Indenture dated March 15, 1996 which
provided that beginning on the last business day of September 1998 and
continuing on the last business day of each month thereafter to and including
June 1999, the Company will deposit with the trustee of these debentures
$600,000 less an amount equal to 8 3/4% Debentures repurchased during the period
prior to the monthly payment date. Total deposits, including interest earned
thereon, are to be paid as principal and interest when these debentures are due.
21
<PAGE>
<PAGE>
The 11 1/4% Convertible Senior Subordinated Debentures due October 1, 1997
are convertible at any time prior to maturity into common stock of the Company
at $6.69 per share (subject to antidilutive provisions of the indenture). The
11 1/4% Debentures are not subject to a sinking fund while the Company maintains
a positive, tangible net worth. The payment of the principal and interest on the
11 1/4% Debentures is subordinated in right of payment to the prior payment in
full of all senior indebtedness of the Company as defined in the indenture. As
of the end of the Company's third fiscal quarter, the Company's tangible net
worth as defined by the indenture declined to less than the minimum as provided
by the indenture. Accordingly, the indenture requires the Company to pay the
trustee a sum sufficient to retire by redemption 10% of the outstanding
debenture principal. The deposits are required semi-annually, commencing on the
last day of the month six months after the determination date, or February 28,
1997.
In April 1990, the Company issued $7.1 million in principal amount of
Subordinated Extendible Debentures due April 1, 2000, Series C (11%) (the
"Series C Debentures"). The annual interest rate of the Series C Debentures may
be adjusted at the sole discretion of the Company on each April 1 until maturity
in 2000. On March 1, 1996, the Company set the interest rate on the Series C
Debentures to 13% for the period April 1, 1996 through March 31, 1997. The
Series C Debentures will be redeemable on each April 1 until maturity, in whole
or in part, at the option of the holder or the Company for the principal amount
thereof plus accrued interest through the date of redemption.
Interest paid on subordinated debentures in 1996, 1995 and 1994 was
$3,753,000, $3,984,000 and $3,886,000, respectively.
7. Stock Options and Stock Purchase Rights
At November 1, 1996, options to purchase previously unissued shares of
common stock were outstanding under a stock option plan. Payment for shares
purchased upon exercise of an option granted under the plan may be made either
in cash or in common stock of the Company.
Information with respect to stock options outstanding is as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
<S> <C> <C>
October 29, 1993 479,330 $5.31 to $10.75
Canceled (112,842) $5.44 to $10.75
October 28, 1994 366,488 $5.31 to $ 9.13
Granted 225,000 $2.81 to $ 4.43
Canceled (297,573) $5.31 to $ 9.13
November 3, 1995 293,915 $2.81 to $ 8.13
Canceled (42,251) $5.57 to $ 8.13
Granted 60,000 $3.25
November 1, 1996 311,664 $2.81 to $ 8.13
</TABLE>
Options on 138,214 shares, 53,390 shares and 239,880 shares were exercisable
at November 1, 1996, November 3, 1995 and October 28, 1994, respectively. Under
the plan, 546,435 shares, 564,184 shares and 491,611 shares of common stock were
available for the granting of additional options at November 1, 1996, November
3, 1995 and October 28, 1994, respectively.
Effective July 22, 1988, the Board of Directors of the Company adopted a
Share Purchase Rights Plan and approved the distribution to shareholders of
record on August 9, 1988 of one Preferred Share Purchase Right ("Right") for
each outstanding share of the Company's common stock. Each Right, when
exercisable, generally entitles common shareholders to purchase one
one-hundredth of a share of a new series of preferred stock, designated as
Series A Junior Participating Preferred Stock, at a price of $30. The Rights
will generally be exercisable and transferable apart from the Company's common
stock upon acquisition by a person or group of 30% or more of the Company's
common stock (amended by the Board of Directors in 1994 to change 15% to 30%),
the announcement of a tender offer for 20% or more of the Company's common stock
or a determination by the Board of Directors that any holder of 12% or more of
the Company's common stock is an "adverse person." The Rights will expire on
August 9, 1998, unless such date is extended by the Company's Board of Directors
or the Rights are redeemed prior to that time.
22
<PAGE>
<PAGE>
8. Common Stockholders' (Deficit) Equity
At November 1, 1996, shares of common stock were reserved for possible
issuance as follows:
<TABLE>
<S> <C>
Conversion of 11 1/4% Convertible Senior Subordinated Debentures (Note 6) 528,647
Stock options (Note 7) 858,099
Stock options granted to an entity owned by certain Company officers 600,000
1990 Executive Stock Purchase Plan 101,764
Directors' Deferred Stock Compensation Plan 162,791
Total 2,251,301
</TABLE>
9. Income Taxes
As of November 1, 1996, the Company had net operating loss carryforwards of
$60.6 million for income tax purposes which are available through the year 2011.
For financial reporting purposes, a valuation allowance of $25.0 million has
been recognized to offset the deferred tax asset related to these carryforwards.
The Company has Alternative Minimum Tax credits totaling $377,000 and Investment
Tax credits of $29,000 available to reduce income taxes payable in future
periods. The Investment Tax credits expire during 1996 through 2001.
Deferred income tax expense results from temporary differences related
primarily to net operating loss carryforwards. Significant components of the
Company's deferred tax asset as of November 1, 1996 and November 3, 1995 are as
follows:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Deferred Tax Liability:
Tax over book amortization $ -- $ 769
Deferred Tax Asset:
Book over tax amortization 26 --
Net operating loss carryforwards 24,079 15,692
Allowance for bad debts 760 477
Contribution rollover 29 22
Lawsuit settlement 66 292
Total deferred tax assets 24,960 16,483
Valuation Allowance (24,960) (15,714)
Net Deferred tax assets -- 769
Net deferred tax liability $ -- $ --
</TABLE>
10. Employee Benefit Plan
The Company maintains a defined contribution plan (401(k)) covering
substantially all employees who have completed six months of service. The plan
requires the Company to match up to $150 per year for each participating
employee's contributions. Discretionary Company contributions are determined
annually by the Board of Directors based on results of operations. These
discretionary contributions may either match employee amounts or represent fixed
amounts. The Company contributed approximately $127,000, $146,000, and $215,000
in 1996, 1995 and 1994, respectively.
23
<PAGE>
<PAGE>
11. Rental Expense and Lease Obligations
Rental expense is summarized as follows:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(in thousands)
<S> <C> <C> <C>
Gross rentals $ 4,255 $ 4,380 $ 5,086
Less sublease rentals 133 371 152
Rental expense, net $ 4,122 $ 4,009 $ 4,934
</TABLE>
Future obligations for minimum rentals under operating leases that have
initial or remaining noncancellable lease terms in excess of one year at
November 1, 1996 and rentals to be received under noncancellable subleases are
as follows:
<TABLE>
<CAPTION>
Operating Leases Net
Minimum Sublease Minimum
Fiscal Year Rentals Rentals Rentals
<S> <C> <C> <C>
<CAPTION>
(in thousands)
<S> <C> <C> <C>
1997 3,535 133 3,402
1998 2,466 97 2,369
1999 2,294 79 2,215
2000 1,924 79 1,845
2001 1,282 79 1,203
Thereafter 2,407 257 2,150
Total minimum lease payments $13,908 $ 724 $13,184
</TABLE>
Certain operating leases contain renewal options ranging from one to five
years and/or contain purchase options, generally approximating fair market
value.
During the 1996 fiscal year, the Company placed into service $5.0 million of
machinery and equipment through various sale-lease back transactions.
12. Restructuring Charge
The $3.3 million restructuring charge reflects the consolidation of the
Company's Narrow Fabrics division and the closing of this division's Graham,
North Carolina facility. This facility generated operating losses totaling $2.0
million and $1.2 million in 1996 and 1995, respectively.
13. Discontinued Operations
During the 1996 fiscal year, the Company incurred charges totaling $16.2
million in order to discontinue certain operations. In the 1996 fiscal fourth
quarter, the Company discontinued the manufacturing operations of its Kingstree
Knit Apparel division. The $10.0 million loss on disposal of this division
represents write-downs of $3.6 million in inventory, $1.9 million in property,
plant and equipment, $1.9 million in goodwill, $800,000 in accounts receivable,
and $1.8 million in other various costs. In addition, the loss on disposal of
discontinued operations includes $1.0 million to adjust the reserves related to
disposal of its Highland Yarn Mills and Marion Fabrics greige goods operations
which were discontinued during the 1995 fiscal year. The 1996 net loss from
discontinued operations represents the manufacturing operations of the Kingstree
Knit Apparel division totaling $5.2 million. The Kingstree Knit Apparel division
generated $41.9 million, $71.8 million, and $ 55.8 million in net sales in 1996,
1995, and 1994, respectively. Operating income for this division totaling $1.4
million ($.16 per share) and $592,000 ($.07 per share), in 1995 and 1994,
respectively, have been restated in the Consolidated Statements of Operations.
During the first quarter of 1995, the Company discontinued its commodity
yarn, corduroy and diaper fabric production. During the second quarter of 1995,
the Company discontinued and sold its greige goods manufacturing facility.
Operating losses for these operations totaling $6.2 million ($.77 per share) in
1994 were restated in the Consolidated Statements of Operations.
24
<PAGE>
<PAGE>
Property, plant and equipment related to discontinued operations and held
for disposal at November 1, 1996 and November 3, 1995 consists of the following:
[CAPTION]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(in thousands)
<S> <C> <C>
Land and land improvements $ 459 $ 864
Buildings 7,705 532
Machinery, equipment, etc. 27,464 1,587
Total 35,628 2,983
Less accumulated depreciation 18,288 657
Less reserve to net realizable value 3,879 813
Property, plant and equipment held for disposal -- net $ 13,461 $ 1,513
</TABLE>
These assets have been valued based upon either appraisals or inquiries of
brokers and equipment dealers and will be disposed of by orderly liquidation.
14. Contingent Liabilities and Commitments
The Company is involved in various litigation arising in the ordinary course
of business. The final outcome of these matters cannot be determined; however,
it is management's opinion that the final resolution of these matters will not
have a material adverse effect on the Company's financial position or future
liquidity.
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to Directors, appearing under the heading
"Election of Directors" on pages 6 through 9 of the Registrant's definitive
proxy statement for the Annual Meeting of Stockholders to be held on March 11,
1997, is incorporated herein by reference. Information regarding executive
officers is included as Item 4A in Part I of this document.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation, appearing under the
heading "Executive Compensation" on pages 9 through 15 of the Registrant's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
March 11, 1997, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial
owners and management, appearing under the headings "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" on pages 2
through 5 of the Registrant's definitive proxy statement for the Annual Meeting
of Stockholders to be held on March 11, 1997, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions,
appearing under the headings "Employment and Other Related Agreements" on page
16 and "Certain Transactions" on page 22 of the Registrant's definitive proxy
statement for the Annual Meeting of Stockholders to be held on March 11, 1997,
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) AND (2) Financial Statements and Schedule
The financial statements and supplemental schedule
listed in the accompanying index to financial
statements and schedule are filed as part of this
document.
(3) Exhibits
Exhibits to this report are listed in the
accompanying index to exhibits.
(B) No reports on Form 8-K were filed during the Company's 1996
fourth fiscal quarter.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
TEXFI INDUSTRIES, INC.
Date: January 30, 1997 By:s/Richard L. Kramer
-------------------
Richard L. Kramer
Chairman of the Board
of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
s/Richard L. Kramer Chairman of the Board of January 30, 1997
Richard L. Kramer Directors
s/William L. Remley Chief Executive Officer January 30, 1997
William L. Remley and Vice Chairman of the
Board of Directors
s/Andrew J. Parise, Jr. President and Chief January 30, 1997
Andrew J. Parise, Jr. Operating Officer
s/John S. Rainey Director January 30, 1997
John S. Rainey
s/Braxton Schell Director January 30, 1997
Braxton Schell
s/William D. Goldston, Jr. Director January 30, 1997
William D. Goldston, Jr.
s/John D. Mazzuto Director January 30, 1997
John D. Mazzuto
s/Dane L. Vincent Chief Financial Officer January 30, 1997
Dane L. Vincent and Treasurer (Principal
Accounting and
Financial Officer)
27
<PAGE>
FORM 10-K -- ITEMS 8, 14(A)(1) AND (2) AND ITEM 14(D)
TEXFI INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
I - Report of Independent Auditors Relating to Consolidated Financial F-2
Statements and Supplemental Schedule of Texfi Industries, Inc.
II - Valuation and Qualifying Accounts F-3
Other schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
consolidated financial statements or in the notes thereto.
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors and Shareholders of
Texfi Industries, Inc.
We have audited the accompanying balance sheets of Texfi Industries, Inc.
and subsidiary as of November 1, 1996 and November 3, 1995, and the related
statements of operations, shareholders' (deficit) equity and cash flows for the
three years in the period ended November 1, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Texfi Industries, Inc. and
subsidiary as of November 1, 1996 and November 3, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
November 1, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the related Financial Statement Schedule, when considered
in relation to the basic financial statements, taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Raleigh, North Carolina
December 9, 1996, except for Note 5
as to which the date is January 30, 1997
F-2
<PAGE>
SCHEDULE II
TEXFI INDUSTRIES, INC.
Analysis of Valuation and Qualifying Accounts for the
Fiscal Years Ended November 1, 1996,
November 1, 1995 and October 28, 1994
(Amounts in thousands)
FISCAL YEAR
1996 1995 1994
----- ------ -----
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Allowance for doubtful accounts and claims:
Balance at beginning of year ....... $1,362 $4,287 $3,616
Net additions charged to income:
Doubtful accounts.................. 1,342 526 384
Claims and allowances.............. 760 2,670 2,184
------ ----- ------
2,102 3,196 2,568
Deductions for accounts written off as
uncollectible (net of recoveries) ... 1,565 6,121 1,897
------ ------ -----
Balance at end of year ................ $1,899 $1,362 $4,287
====== ====== ======
F-3
<PAGE>
TEXFI INDUSTRIES, INC.
INDEX TO EXHIBITS
*3(a)(1) Restated Certificate of Incorporation of Registrant dated
August 13, 1969, filed as Exhibit (3)(a)(1) to Registrant's
Form 10-K Annual Report for the fiscal year ended October 31,
1980.
*3(a)(2) Certificate of Amendment of Certificate of Incorporation of
Registrant dated March 16, 1972, filed as Exhibit (3)(a)(2)to
Registrant's Form 10-K Annual Report for the fiscal year ended
October 31, 1980.
*3(a)(3) Certificate of Amendment of Certificate of Incorporation of
Registrant dated March 27, 1978, filed as Exhibit (3)(a)(3) to
Registrant's Form 10-K Annual Report for the fiscal year ended
October 31, 1980.
*3(a)(4) Certificate of Amendment of Certificate of Incorporation of
Registrant dated May 19, 1986, filed as Exhibit 4.4 to
Registrant's Form S-8 Registration Statement (No. 33-14697).
*3(a)(5) Certificate of Amendment of Certificate of Incorporation of
Registrant dated March 20, 1987, filed as Exhibit 4.5 to
Registrant's Form S-8 Registration Statement (No. 33-14697).
*3(a)(6) Certificate of Amendment of Certificate of Incorporation of
Registrant dated September 28, 1987, filed as Exhibit 4(a)(6)
to Registrant's Form S-2 Registration Statement (No. 33-16794).
*3(a)(7) Certificate of Designations of Registrant dated November 20,
1987, filed as Exhibit 4(a)(7) to Registrant's Form S-2
Registration Statement (No. 33-16794).
*3(a)(8) Certificate of Designations of Registrant dated March 8, 1988,
filed as Exhibit 4(a)(8) to Registrant's Form S-2 Registration
Statement (No. 33-20131).
*3(a)(9) Certificate of Designations of Registrant dated August 4, 1988,
filed as Exhibit 4(d)(9) to Registrant's Form 10-Q Quarterly
Report for the fiscal quarter ended July 29, 1988.
*3(b)(1) Bylaws of Registrant, filed as Exhibit 4.6 to Registrant's Form
S-8 Registration Statement (No. 33-14697).
*3(b)(2) Amendment to Bylaws of Registrant, filed as Exhibit 4(b)(2) to
Registrant's Form S-2 Registration Statement (No. 33-16794).
*3(b)(3) Amendment to Bylaws of Registrant adopted by Registrant's Board
of Directors on January 18, 1991, filed as Exhibit 3(b)(3) to
Registrant's Form 10-K Annual Report for the fiscal year ended
November 2, 1990.
*3(b)(4) Amendment to Bylaws of Registrant adopted by Registrant's Board
of Directors on August 31, 1994, filed as Exhibit 4(b)(4) to
Registrant's Form 10-Q Quarterly Report for the fiscal quarter
ended July 29, 1994.
*3(b)(5) Amendment to Bylaws of Registrant adopted by Registrant's Board
of Directors on September 7, 1994, filed as Exhibit 4(b)(5) to
Registrant's Form 10-Q Quarterly Report for the fiscal quarter
ended July 29, 1994.
*4(a)(1) Indenture between Registrant and Rhode Island Hospital Trust
National Bank, Trustee, with a copy of Subordinated Debentures
due April 1, 1995, Series A, Subordinated Debentures due April
1, 1995, Series B and Subordinated Extendible Debentures due
April 1, 2000, Series C attached, filed as Exhibit 4(f) to
Registrant's Form S-2 Registration Statement (No. 33-32485).
*4(a)(2) First Supplemental Indenture between Registrant and Rhode
Island Hospital Trust National Bank, Trustee, with a revised
Subordinated Debenture due April 1, 1995, Series B attached,
filed as Exhibit 4 to Registrant's Form 8-K Current Form dated
May 16, 1990.
*4(a)(3) Indenture dated October 1, 1991 between Registrant and First
National Bank of Boston, Trustee, with copy of 11-1/4%
Convertible Senior Subordinated Debenture due October 1, 1997,
filed as Exhibit 4(a)(1) to Registrant's Form 10-K Annual
Report for the fiscal year ended November 1, 1991.
1
<PAGE>
*4(a)(4) Indenture dated September 8, 1993 between Registrant and First
Union National Bank of North Carolina, Trustee, with copy of
8-3/4% Senior Subordinated Debenture due August 1, 1999, filed
as Exhibit 4(c)(2) to Registrant's Form 10-Q Quarterly Report
for the fiscal quarter ended July 30, 1993.
*4(a)(5) First Supplemental Indenture dated as of March 10, 1995 between
Registrant and First Union National Bank of North Carolina, as
Trustee, filed as Exhibit 4(a)(1) to Registrant's Form 8-K
Current Form as of March 15, 1996.
*4(a)(6) Second Supplemental Indenture dated as of March 15, 1996
between Registrant and First Union National Bank of North
Carolina, as Trustee, filed as Exhibit 4(a)(2) to Registrant's
Form 8-K Current Form as of March 15, 1996.
*4(b)(1) Specimen Common Stock ($1 par value) certificates, filed as
Exhibit 4.01 to Amendment No. 2 to Registrant's Form S-1
Registration Statement (No. 2-41653).
*4(c)(1) Rights Agreement dated July 22, 1988 between Registrant and
First Union National Bank of North Carolina, as Rights Agent,
filed as Exhibit 1 to Registrant's Form 8-K Current Form dated
July 22, 1988.
*4(c)(2) Form of Rights Certificate, filed as Exhibit B to Exhibit 1 to
Registrant's Form 8-K Current Form dated July 22, 1988.
*4(c)(3) Amendment to Rights Agreement between Registrant and First
Union National Bank of North Carolina dated October 31, 1988,
filed as Exhibit 4(e)(3) to Registrant's Form S-2 Registration
Statement (No. 33-32485).
*4(c)(4) Second Amendment to Rights Agreement dated May 24, 1994 between
Registrant and First Union National Bank of North Carolina, as
Rights Agent, filed as Exhibit 4(e)(4) to Registrant's Form
10-Q Quarterly Report for the fiscal quarter ended April 29,
1994.
*4(c)(5) Third Amendment to Rights Agreement dated December 16, 1994
between Registrant and First Union National Bank of North
Carolina, as Rights Agent, filed as Exhibit 4(c)(5) to
Registrant's Form 10-K Annual Report for the fiscal year ended
October 28, 1994.
*4(d)(1) Credit Agreement dated as of March 15, 1996 among Registrant,
as Borrower, certain Lenders referred to therein, NationsBank,
N.A., as Agent, and NationsBanc Commercial Corporation, as
Disbursing Agent, filed as Exhibit 2(a)(1) to Registrant's
Form 8-K Current Report dated March 15, 1996.
*4(d)(2) Security Agreement dated as of March 15, 1996 between
Registrant, as Grantor, and NationsBank, N.A., as Agent for
certain Lenders referred to therein, and NationsBanc Commercial
Corporation, as Disbursing Agent, filed as Exhibit 2(a)(2) to
Registrant's Form 8-K Current Report dated March 15, 1996.
*4(d)(3) Form of Deed of Trust and Security Agreement (North Carolina
property) dated as of March 15, 1996 between Registrant, as
Grantor, TIM, Inc., as Trustee, and NationsBank, N.A., as
Beneficiary and Agent for certain Lenders referred to therein,
and NationsBanc Commercial Corporation, as Disbursing Agent,
filed as Exhibit 2(a)(3) to Registrant's Form 8-K Current
Report dated March 15, 1996.
*4(d)(4) Form of Mortgage and Security Agreement (South Carolina
property) dated as of March 15, 1996 between Registrant, as
Grantor, and NationsBank, N.A., as Beneficiary and Agent for
certain Lenders referred to therein, and NationsBanc Commercial
Corporation, as Disbursing Agent, filed as Exhibit 2(a)(4) to
Registrant's Form 8-K Current Report dated March 15, 1996.
*4(d)(5) Deed to Secure Debt and Security Agreement (Georgia property)
dated as of March 15, 1996 between Registrant, as Grantor, and
NationsBank, N.A., as Beneficiary and Agent for certain Lenders
referred to therein, and NationsBanc Commercial Corporation, as
Disbursing Agent, filed as Exhibit 2(a)(5) to Registrant's Form
8-K Current Report dated March 15, 1996.
*4(d)(6) Form of Assignment of Factoring Proceeds dated March 15, 1996,
filed as Exhibit 2(a)(6) to Registrant's Form 8-K Current
Report dated March 15, 1996.
2
<PAGE>
*4(d)(7) First Amendment dated May 10, 1996 to the Credit Agreement
dated March 15, 1996 among Registrant, as Borrower, certain
Lenders referred to therein, NationsBank, N.A., as Agent, and
NationsBanc Commercial Corporation, as Disbursing Agent, filed
as Exhibit 2(a)(7) to Registrant's Form 10-Q for the fiscal
quarter ended May 3, 1996.
*4(d)(8) Waiver Agreement dated June 14, 1996 to the Credit Agreement
dated March 15, 1996 among Registrant, as Borrower. certain
Lenders, referred to therein, NationsBank, N.A., as Agent, and
NationsBanc Commercial Corporation, as Disbursing Agent, filed
as Exhibit 2(a) (8) to Registrant's Form 10-Q for the fiscal
quarter ended May 3, 1996.
*4(d)(9) Second Amendment dated September 12, 1996 to the Credit
Agreement dated March 15, 1996 among Registrant, as Borrower,
certain Lenders referred to therein, NationsBank, N.A., as
Agent, and NationsBanc Commercial Corporation, as Disbursing
Agent, filed as Exhibit 2(a)(9) to Registrant's Form 10-Q for
the fiscal quarter ended August 2, 1996.
4(d)(10) Third Amendment dated January 30, 1997 to the Credit Agreement
dated March 15, 1996 among Registrant, as Borrower, certain
Lenders referred to therein, NationsBank, N.A., as Agent, and
NationsBanc Commercial Corporation, as Disbursing Agent.
Management contract or compensatory plan or arrangement (Exhibits 10(a)(1)
through 10(a)(23))
*10(a)(1) Supplemental Retirement Agreement dated September 1, 1981
between Registrant and Joseph H. Hamilton, filed as Exhibit
10(b) to Registrant's Form 10-K Annual Report for the fiscal
year ended October 30, 1981.
*10(a)(2) 1987 Nonqualified Stock Option Plan, as adopted by Registrant's
Board of Directors on December 16, 1987 and approved March 8,
1988 at a meeting of Registrant's Stockholders, filed as
Exhibit 4(c)(11) to Registrant's Form 10-Q Quarterly Report for
the fiscal quarter ended April 29, 1988.
*10(a)(3) Form of 1987 Nonqualified Stock Option Agreement, filed as
Exhibit 4(c)(12) to Registrant's Form 10-Q Quarterly Report for
the fiscal quarter ended April 29, 1988.
*10(a)(4) Resolutions amending the 1987 Nonqualified Stock Option Plan,
as adopted by Registrant's Board of Directors on January 8,
1991 and Registrant's Stockholders on March 12, 1991, filed as
Exhibit 10(a)(9) to Registrant's Form 10-K Annual Report for
the fiscal year ended November 1, 1991.
*10(a)(5) Resolutions amending the 1987 Nonqualified Stock Option Plan,
as adopted by Registrant's Board of Directors on January 12,
1993 and Registrant's Stockholders on March 9, 1993, filed as
Exhibit 19(f) to Registrant's Form 10-Q Quarterly Report for
the fiscal quarter ended April 30, 1993.
*10(a)(6) Resolution amending the 1987 Nonqualified Stock Option Plan, as
adopted by Registrant's Board of Directors on September 6,
1995, filed as Exhibit 10(a)(6) to Registrant's Form 10-K
Annual Report for the fiscal year ended November 3, 1995.
*10(a)(7) Form of 1987 Nonqualified Stock Option Agreements dated May 18,
1995 between William L. Remley and Andrew J. Parise, Jr. and
Registrant, filed as Exhibit10(a)(7) to Registrant's Form 10-K
Annual Report for the fiscal year ended November 3, 1995.
*10(a)(8) Directors' Deferred Stock Compensation Plan as adopted by
Registrant's Board of Directors on July 14, 1989, filed as
Exhibit 19 to Registrant's Form 10-Q Quarterly Report for the
fiscal quarter ended July 28, 1989.
*10(a)(9) Resolutions amending the Directors' Deferred Stock Compensation
Plan as adopted by Registrant's Board of Directors on November
30, 1994 and Registrant's Stockholders on March 14, 1995, filed
as Exhibit 10(a)(7) to the Registrant's Form 10-Q Quarterly
Report for the fiscal quarter ended April 28, 1995.
*10(a)(10) Resolution amending Directors' Deferred Stock Compensation
Plan, as adopted by the Directors' Deferred Stock Compensation
Committee of Registrant's Board of Directors on September 6,
1995, filed as Exhibit 10(a)(10) to Registrant's Form 10-K
Annual Report for the fiscal year ended November 3, 1995.
3
<PAGE>
*10(a)(11) 1990 Executive Stock Purchase Plan, dated January 9, 1990,
filed as Exhibit 4(d)(16) to Registrant's Form 10-Q Quarterly
Report for the fiscal quarter ended February 2, 1990.
*10(a)(12) Resolutions amending the 1990 Executive Stock Purchase Plan, as
adopted by Registrant's Board of Directors on March 9, 1993,
filed as Exhibit 19(g) to Registrant's Form 10-Q Quarterly
Report for the quarter ended April 30, 1993.
*10(a)(13) Resolution amending 1990 Executive Stock Purchase Plan, as
adopted by Registrant's Board of Directors on September 6,
1995, filed as Exhibit 10(a)(13) to Registrant's Form 10-K
Annual Report for the fiscal year ended November 3, 1995.
*10(a)(14) 1990 Restricted Incentive Stock Plan, dated January 9, 1990,
filed as Exhibit 4(d)(17) to Registrant's Form 10-Q Quarterly
Report for the fiscal quarter ended February 2, 1990
(terminated in 1995 except as to previously issued stock).
*10(a)(15) Letter Agreement dated March 20, 1995 between Registrant and L.
Terrell Sovey, Jr., filed as Exhibit 10(a)(16) to Registrant's
Form 10-K Annual Report for the fiscal year ended November 3,
1995.
*10(a)(16) Employment Agreement dated November 17, 1992 between Registrant
and Michael A. Miller, filed as Exhibit 10(a)(26) to
Registrant's Form 10-K Annual Report for the fiscal year ended
October 30, 1992.
*10(a)(17) Amendment to Employment Agreement dated January 29, 1993
between Registrant and Michael A. Miller, filed as Exhibit
19(d) to Registrant's Form 10-Q Quarterly Report for the fiscal
quarter ended April 30, 1993.
*10(a)(18) Employment Agreement dated October 31, 1994 between Registrant
and Andrew J. Parise, Jr., filed as Exhibit 10(a)(23) to
Registrant's Form 10-K Annual Report for the fiscal year ended
October 28, 1994.
*10(a)(19) Description of Registrant's 1994 Management Incentive
Compensation Plan adopted by Registrant's Board of Directors on
February 15, 1994, filed as Exhibit 10(a)(24) to Registrant's
Form 10-K Annual Report for the year ended October 28, 1994
(terminated as to Messrs. Remley, Parise, Vincent, Courtney and
Gilreath in 1995).
*10(a)(20) Employment Agreement dated April 1, 1995 between Registrant and
William L. Remley, filed as Exhibit 10(a)17 to Registrant's
Form 10-Q Quarterly Report for the fiscal quarter ended April
28, 1995.
*10(a)(21) Performance Incentive Plan adopted by Registrant's Board of
Directors on September 6, 1995, filed as Exhibit 10(a)(23) to
Registrant's Form 10-K Annual Report for the fiscal year ended
November3, 1995.
10(a)(22) Employment Agreement dated as of January 1, 1997 between
Registrant and Gerald A. Rubinfeld
10(a)(23) Employment Agreement dated as of January 1, 1997 between
Registrant and Gene A. Pease.
*10(b)(1) Master Loan and Security Agreement dated June 1, 1993 between
Registrant and BOT Financial Corporation and related Promissory
Note dated June 4, 1993 between Registrant and BOT Financial
Corporation, filed as Exhibit 19(h) to Registrant's Form 10-Q
Quarterly Report for the fiscal quarter ended April 30, 1993.
*10(b)(2) Loan Schedule No. 2 to Master Loan and Security Agreement an
related Promissory Note and Supplemental Security Agreement
dated July 30, 1993 between Registrant and BOT Financial
Corporation, filed as Exhibit 10(b)(19) to Registrant's Form
10-K Annual Report for the fiscal year ended October 29, 1993.
*10(b)(3) Loan Schedule No. 3 to Master Loan and Security Agreement and
related Promissory Note and Supplemental Security Agreement
dated October 29, 1993 between Registrant and BOT Financial
Corporation, filed as Exhibit 10(b)(20) to Registrant's Form
10-K Annual Report for the fiscal year ended October 29, 1993.
*10(b)(4) Master Loan and Security Agreement dated June 1, 1993 between
Registrant and KeyCorp. Leasing Ltd. and related Promissory
Note dated June 4, 1993 between Registrant and KeyCorp. Leasing
Ltd., filed as Exhibit 19(i) to Registrant's Form 10-Q
Quarterly Report for the fiscal quarter ended April 30, 1993.
4
<PAGE>
10(b)(5) Master Lease Agreement dated July 11, 1996 between Registrant
and NationCredit Commercial Corporation with Form of Master
Lease Schedule attached.
*10(c)(1) Stock and Option Purchase Agreement dated May 24, 1994 between
Registrant and Chadborne Corporation, filed as Exhibit 10(d)(1)
to Registrant's Form 10-Q Quarterly Report for the fiscal
quarter ended April 29, 1994.
11 Computation of Earnings Per Share
21 Subsidiary of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
----------------------------------
*Incorporated by reference to previous filing.
5
<PAGE>
<PAGE>
THIRD AMENDMENT
THIS THIRD AMENDMENT (the "Amendment"), to the Credit Agreement
referred to below is entered into as of the 30th day of January, 1997, by and
among TEXFI INDUSTRIES, INC., a corporation organized under the laws of Delaware
(the "Borrower"), THE LENDERS SIGNATORY HERETO (collectively, the "Lenders"),
and NATIONSBANK, N.A., a national banking association, as Agent (the "Agent").
STATEMENT OF PURPOSE
The Borrower, the Lenders and the Agent are parties to a certain Credit
Agreement dated as of March 15, 1996 (as heretofore amended hereby and as
further amended or modified hereby, the "Credit Agreement"), pursuant to which
the Lenders have agreed to make, and have made, certain Loans to the Borrower.
The Borrower, the Lenders and the Agent have agreed to amend the Credit
Agreement upon the terms and conditions of this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto hereby agree as follows:
I. AMENDMENTS.
1. Section 1.1 of the Credit Agreement. Section 1.1 of the Credit
Agreement is hereby amended as follows:
(a) By deleting the definition set forth below in its entirety
and inserting in lieu thereof the following:
"Aggregate Revolving Credit Commitment" means the
aggregate amount of the Lenders' Revolving Credit Commitments
hereunder, as such amount may be reduced at any time or from
time to time pursuant to Section 2.5. As of the effective date
of the Third Amendment to Credit Agreement, the Aggregate
Revolving Credit Commitment shall be Forty-Five Million
Dollars ($45,000,000).
(b) By adding to the definition of Net Income the following
sentence:
All losses resulting from the sale, conversion or other
disposition of fixed assets by the Borrower in excess of
reserves established as of the end of the Borrower's 1996
fiscal year end shall be deducted from the Borrower's gross
revenues in determining the Borrower's Net Income.
<PAGE>
2. Section 3.3 of the Credit Agreement. Section 3.3 of the Credit
Agreement is hereby amended by deleting the first sentence of the same in its
entirety and inserting in lieu thereof the following:
The Borrower shall repay the principal amount of the Term Loan
outstanding as of the effective the date of the Third
Amendment to Credit Agreement in (21) consecutive monthly
installments on the last day of each month commencing January
31, 1997, the first twenty (20) of which shall be in the
amount of $500,000 and the last of which shall be in the
amount of $4,378,552.80 or such other principal amount as
shall then remain unpaid under the Term Loan.
3. Section 3.5(a) of the Credit Agreement. Subsection 3.5(a) of the
Credit Agreement is hereby amended by adding the following proviso at the end of
such subsection:
;provided, that to the extent that the aggregate amount of the
Net Proceeds realized from any such Asset Sale(s) equals or
exceeds $100,000, the Borrower shall transfer such Net
Proceeds to the Agent via wire transfer to an account
designated by the Agent to be applied to the prepayment of the
Term Loan and then to permanently reduce the Aggregate
Revolving Credit Commitment in consideration for the release
by the Agent of the applicable assets sold.
4. Section 3.5(c) of the Credit Agreement. Subsection 3.5(c) of the
Credit Agreement is hereby amended by deleting the same in its entirety and
inserting in lieu thereof the following:
(c) Manner of Application. Each mandatory prepayment
under this Section 3.5 shall be applied to the principal
installments due on the Term Loan in the inverse order of
maturity (and on a pro rata basis in accordance with the
Commitment Percentage of each Lender). Each such prepayment
shall be accompanied by any payment required under Section 4.8
hereof.
5. Section 4.1(a) of the Credit Agreement. Section 4.1(a) of the Credit
Agreement is hereby amended to provide that the Borrower shall no longer have
the option to request that the CD Rate apply to any Loan. At the end of any
existing Interest Period during which the elected rate is the CD Rate, such Loan
shall, subject to the terms of the following paragraph, bear interest at the
Base Rate or LIBOR Rate plus, in each case, the Applicable Margin.
Commencing with the date of the Third Amendment and continuing until
the tenth Business Day after receipt by the Agent of the Borrower's financial
statements for the second fiscal quarter of 1997 and the accompanying Officer's
Compliance Certificate (such date being
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<PAGE>
referred to herein as the "Rate Option Adjustment Date"), all Loans shall bear
interest at the Base Rate plus Applicable Margin, and the LIBOR Rate option
shall not be available.
Provided the Borrower is in compliance with Sections 9.2 and 9.3, as
amended by the Third Amendment, as of the end of the first and second fiscal
quarters of 1997, on and after the Rate Option Adjustment Date the principal
balance of each Loan shall bear interest at the Base Rate or the LIBOR Rate
plus, in each case, the Applicable Margin, as elected by the Borrower in
accordance with the terms of Section 4.1, as amended hereby.
6. Section 4.1(c) of the Credit Agreement. Section 4.1(c) of the Credit
Agreement is hereby amended by deleting the pricing matrix in its entirety and
inserting in lieu thereof the following pricing matrix:
<TABLE>
<CAPTION>
Applicable Margin Per Annum
Leverage Ratio Base Rate + Fixed Rate +
<S> <C> <C>
greater than or equal to
4.75 to 1.0 2.00% 3.00%
less than 4.75 to 1.0
but equal to or greater
than 4.0 to 1.0 1.75% 2.75%
less than 4.0 to 1.0
but equal to or greater
than 3.25 to 1.0 1.50% 2.50%
less than 3.25 to 1.0 1.25% 2.25%
</TABLE>
7. Section 7.3 of the Credit Agreement. Subsection (f) of Section 7.3
of the Credit Agreement is hereby amended to become subsection (h) of Section
7.3 of the Credit Agreement and the following subsections (f) and (g) of Section
7.3 of the Credit Agreement are hereby added to the Credit Agreement:
(f) Weekly, a certificate of the chief executive
officer or chief financial officer of the Borrower in the form
of Exhibit Q attached hereto setting forth as of the end of
the preceding week the status of the discontinued assets of
the Borrower and its Subsidiaries, including, without
limitation, accounts receivable, inventory, and property,
plant and equipment, relating to the Borrower's Kingstree
Knits business and the Borrower's facility in Graham, North
Carolina;
(g) As soon as practicable and in no event later than
15 days after the end of each month, a certificate of the
chief executive officer or
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<PAGE>
chief financial officer of the
Borrower setting forth as of the end of
such month the status of the accounts payable of the Borrower
and its Subsidiaries, including, without limitation, an
accounts payable aging report of the Borrower and its
Subsidiaries; and
8. Section 8.14 of the Credit Agreement. Article VIII of the Credit
Agreement is hereby amended by inserting the following new Section thereto:
8.14 Minimum Asset Sales. Prior to the end of the Borrower's
1997 fiscal year, sell or otherwise dispose of fixed assets in
connection with the closing of the Borrower's Kingstree Knits business
and the Borrower's facility in Graham, North Carolina having an
aggregate value of not less than $6,000,000.
9. Section 9.2 of the Credit Agreement. Section 9.2 of the Credit
Agreement is hereby amended by deleting the same in its entirety and inserting
in lieu thereof the following:
Section 9.2 Coverage Ratio. Permit the Coverage Ratio to be
less than the following ratios as of the date indicated:
Ratio Applicable Date
.70 to 1.0 At the end of the fourth quarter of
the Borrower's 1996 fiscal year.
.95 to 1.0 At the end of the first quarter of
the Borrower's 1997 fiscal year.
.85 to 1.0 At the end of the second quarter
of the Borrower's 1997 fiscal
year.
.85 to 1.0 At the end of the third quarter of
the Borrower's 1997 fiscal year.
1.00 to 1.0 At the end of the fourth quarter of
the Borrower's 1997 fiscal year.
1.10 to 1.0 At the end of the first quarter of
the Borrower's 1998 fiscal year.
1.25 to 1.0 At the end of the second quarter
of the Borrower's 1998 fiscal year
and at the end of each fiscal
quarter thereafter.
- 4 -
<PAGE>
Notwithstanding the manner in which the calculation of the "Coverage
Ratio" is set forth in Section 1.1 hereof, compliance with Section 9.2
as of the end of the first quarter of fiscal year 1997 shall be
calculated for the one (1) fiscal quarter then ended, compliance with
Section 9.2 as of the end of the second quarter of fiscal year 1997
shall be calculated for the period of two (2) consecutive fiscal
quarters then ended and compliance with Section 9.2 as of the end of
the third fiscal quarter of fiscal year 1997 shall be calculated for
the period of three (3) consecutive fiscal quarters then ended.
10. Section 9.3 of the Credit Agreement. Section 9.3 of the Credit
Agreement is hereby amended by deleting the same in its entirety and inserting
in lieu thereof the following:
Section 9.3 Leverage Ratio. Permit the Leverage Ratio to
exceed the following ratios as of the date indicated:
Ratio Applicable Date
6.40 to 1.0 At the end of the fourth quarter of
the Borrower's 1996 fiscal year.
5.25 to 1.0 At the end of the first quarter of
the Borrower's 1997 fiscal year.
5.15 to 1.0 At the end of the second quarter
of the Borrower's 1997 fiscal
year.
4.85 to 1.0 At the end of the third quarter of
the Borrower's 1997 fiscal year.
3.55 to 1.0 At the end of the fourth quarter of
the Borrower's 1997 fiscal year.
3.50 to 1.0 At the end of the first quarter of
the Borrower's 1998 fiscal year
and at the end of each fiscal
quarter thereafter.
11. Section 9.4 of the Credit Agreement. Section 9.4 of the Credit
Agreement is hereby amended by deleting the same in its entirety and inserting
in lieu thereof the following:
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<PAGE>
Section 9.4 Minimum Net Worth. Permit Consolidated Net Worth
to be less than negative $13,141,000 as of the end of the fourth
quarter of the Borrower's 1996 fiscal year, negative $12,585,000 as of
the end of the first quarter of the Borrower's 1997 fiscal year and as
of any date thereafter, an amount equal to the sum of (x) negative
$12,585,000 plus (y) fifty percent (50%) of Consolidated Net Income (if
positive) of the Borrower and its Subsidiaries for each fiscal quarter
occurring after the first fiscal quarter of the Borrower's 1997 fiscal
year plus (z) one hundred percent (100%) of the aggregate Net Proceeds
of any issuance or offering of capital stock received by the Borrower
or any of its Subsidiaries after the first fiscal quarter of the
Borrower's 1997 fiscal year.
12. Section 10.11 of the Credit Agreement. Section 10.11 of the Credit
Agreement is hereby amended by deleting the proviso in its entirety and
inserting in lieu thereof the following:
; provided that the Borrower may make the payment of principal under
the Borrower's 11-1/4% Convertible Senior Subordinated Debentures due
October 1, 1997, subject to the following conditions precedent: (i) No
Default or Event of Default shall have occurred and be continuing or
would result therefrom; and (ii) after giving effect to such payment
and for the period of thirty (30) consecutive days ending on the date
of such payment, the Committed Amount shall exceed the aggregate
outstanding principal amount of all Revolving Credit Loans and Letter
of Credit Obligations by at least $4,000,000. The right of the Borrower
to make payments of principal of more than $315,000 with respect to the
Subordinated Extendible Debentures due April 1, 2000, Series C, are
subject to the following conditions precedent: (i) No Default or Event
of Default shall have occurred and be continuing or would result
therefrom; and (ii) after giving effect to any such payment and for the
period of thirty (30) consecutive days ending on the date of such
payment, the Committed Amount shall exceed the aggregate principal
amount of all Revolving Credit Loans and Letter of Credit Obligations
by at least $2,000,000. Provided no Default or Event of Default shall
have occurred and be continuing or would result therefrom, the Borrower
may (i) make all scheduled payments of interest necessary to comply
with its binding obligations under the instruments evidencing the
Subordinated Debt outstanding on March 15, 1996, (ii) all sinking fund
payments required to be made under the Borrower's 11-1/4% Convertible
Senior Subordinated Debendures due October 1, 1997, and (iii) make all
redemptions required under Paragraph 6 of the Borrower's 8-3/4% Senior
Subordinated Debentures due August 1, 1999, provided the Borrower is
not obligated to redeem more than an aggregate of $50,000 in principal
amount of debentures tendered on behalf of any single deceased Initial
Holder (as defined therein). In the event of any conflict or
inconsistency between the terms of this Section 10.11 and Section 2.1,
this Section 10.11 shall control.
- 6 -
<PAGE>
No amendment or waiver of the foregoing conditions precedent to the
right of the Borrower to make payments under the instruments evidencing
the referenced Subordinated Debt shall be effective without the prior
written consent of each Lender.
13. Section 13.10 of the Credit Agreement. The Lenders hereby consent
and agree that pursuant to Section 13.10 of the Credit Agreement the Agent may,
without the further consent of the Lenders, release Collateral in connection
with (i) any asset sale permitted pursuant to subsections (a) and (d) of Section
10.6 (including, without limitation, the sale of assets in connection with the
Borrower's Kingstree Knits business and the Borrower's facility in Graham, North
Carolina) and (ii) sale-leasebacks permitted under Section 10.6 with respect to
Equipment to be purchased under the Borrower's 1996, 1997 and 1998 capital
expenditure plans included in the projections furnished by the Borrower to the
Lenders which will be financed under operating leases to be entered into by the
Borrower with respect to such Equipment and under any capital expenditure plans
subsequently furnished to and approved by the Lenders in connection with the
Borrower's annual budgets or otherwise.
14. Exhibits. Attached hereto is a copy of Exhibit Q as referenced in
this Third Amendment.
II. CONFIRMATION; CONDITIONS TO EFFECTIVENESS.
1. Representations and Warranties. In order to induce the Lenders and
the Agent to execute this Amendment, the Borrower hereby confirms that each
representation and warranty made by it under the Loan Documents is true and
correct as of the date hereof and that after giving effect to this Amendment, no
Default or Event of Default exists under the Credit Agreement. The Borrower
hereby represents and warrants that as of the date hereof there are no claims or
offsets against or defenses or counterclaims to its obligations under the Credit
Agreement or any other Loan Document.
2. Conditions to Effectiveness. This Amendment shall become effective
upon completion of the following conditions to the satisfaction of the Agent:
(a) receipt by the Agent of an originally executed copy of this
Amendment; and
(b) receipt by the Agent of any other document or instrument
reasonably requested by it in connection with the execution of
this Amendment; and
(c) receipt by the Agent of the Amendment fee in the amount of
$74,223 to be shared by the Lenders pro rata in accordance the
Commitment Percentage of each Lender.
- 7 -
<PAGE>
III. GENERAL PROVISIONS.
1. Additional Fee. In the event the balance of the Term Loan
outstanding as of July 1, 1997 is more than $6,500,000, the Borrower shall pay
to the Agent, for the account of the Lenders, a fee in an amount equal to 25
basis points of the Committed Amount plus the Term Loan balance on July 1, 1997,
such fee to be paid not later than July 15, 1997.
2. Limited Amendment. The amendment of Sections 9.2, 9.3 and 9.4 of the
Credit Agreement as set forth in Paragraphs 9, 10 and 11 of this Amendment shall
be effective as of November 1, 1996. Except as expressly amended herein, the
Credit Agreement and each other Loan Document shall continue to be, and shall
remain, in full force and effect. This Amendment shall not be deemed (i) to be a
waiver of, or consent to, or a modification or amendment of, any other term or
condition of the Credit Agreement or (ii) to prejudice any other right or rights
which the Agent or any Lender may now have or may have in the future under or in
connection with the Credit Agreement or the Loan Documents or any of the
instruments or agreements referred to therein, as the same may be amended or
modified from time to time.
3. Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
4. Definitions. All capitalized terms used and not defined herein shall
have the meanings given thereto in the Credit Agreement.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NORTH CAROLINA.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
BORROWER:
TEXFI INDUSTRIES, INC.
By:
Name:
Title:
- 9 -
<PAGE>
AGENT:
NATIONSBANK, N.A.
By:
Name:
Title:
- 10 -
<PAGE>
LENDERS:
NATIONSBANK, N.A.
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
CORESTATES BANK, N.A.
By:
Name:
Title:
FLEET BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
- 11 -
<PAGE>
NATIONAL BANK OF CANADA
By:
Name:
Title:
By:
Name:
Title:
- 12 -
<PAGE>
Exhibit Q
to
Third Amendment
by and among
Texfi Industries, Inc.,
the Lenders Signatory Hereto,
NationsBank, N.A. and
NationsBanc Commercial Corporation
Dated January ___, 1996
Asset Status Certificate
This certificate is delivered pursuant to Section 7.3 of the Credit
Agreement (the "Credit Agreement") dated as of March 15, 1996 by and among TEXFI
INDUSTRIES, INC. (the "Borrower") and the Lenders party thereto and NATIONSBANK,
N.A. as Agent. The undersigned, on behalf of the Borrower, hereby certifies to
NationsBank, N.A., in its capacity as Agent for the Lenders that this
certificate has been prepared under his supervision and is true and correct in
all respects, to the best of his knowledge.
Witness the following signature, the ____ day of _____________, 1997.
------------------------------------------
Name: ____________________________
Title: ____________________________
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of January 1, 1997 (the
"Agreement"), by and between TEXFI INDUSTRIES, INC., a Delaware corporation with
offices at 5400 Glenwood Avenue, Raleigh, North Carolina ("Texfi" or the
"Company"), and Gerald A. Rubinfeld, ("Rubinfeld").
W I T N E S S E T H:
WHEREAS, Texfi desires to employ Rubinfeld and to enter
into the Agreement embodying the terms of such employment; and
WHEREAS, Rubinfeld desires to accept such employment and
to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree that the following provisions shall constitute the Agreement:
1. Employment. Texfi hereby employs Rubinfeld and
Rubinfeld hereby accepts employment with Texfi for the term set forth in
Section 2 below, in the position and with the duties and responsibilities set
forth in Section 3 below, and upon the other terms and conditions hereinafter
stated.
2. Term. Unless otherwise terminated as hereinafter
provided, the term of the Agreement shall commence on January 1, 1997, and shall
continue through December 31, 1999.
3. Position, Duties, Responsibilities, Extent of Services.
3.1. Position. It is intended that, at all times
during the term of the
<PAGE>
Agreement, Rubinfeld shall serve as President of the Texfi Blends Division. In
accordance with such position, he is hereby granted appropriate
responsibilities, duties, and authorities, subject to the direction of the Chief
Executive Officer and the President and Chief Operating Officer of the Company.
3.2. Extent of Services. During his employment under
this Agreement, Rubinfeld shall devote his full time and attention to the
business and affairs of Texfi; provided, however, that nothing in this Agreement
shall preclude Rubinfeld from engaging in charitable and civic activities or
from managing his personal investments so long as such outside activities do not
unreasonably interfere with the performance of his duties and responsibilities
under this Agreement.
4. Salary. For services rendered by him under this Agreement, Rubinfeld
shall receive a base salary at the annual rate of $200,000 (the "Base Salary"),
payable at least in equal monthly installments, or such other amount as the
Company and Rubinfeld may agree to from time to time..
5. Bonus. Rubinfeld will be eligible to participate in
the incentive bonus plans in effect from time to time for senior executive
officers of the Blends Division of Texfi.
6. Employee Benefit Plans. Rubinfeld will be provided
employee benefit programs comparable to those being provided by Texfi to senior
executive officers during the term of the Agreement.
7. Reimbursable Expenses.
7.1. Business Expenses. During the term of his
employment hereunder, Rubinfeld shall be entitled to receive proper
reimbursement for all reasonable out-of-pocket
- 2 -
<PAGE>
expenses incurred by him (in accordance with the policies and procedures
established by Texfi for its senior executive officers) in performing services
hereunder, provided Rubinfeld properly accounts therefor.
7.2. Automobile. During the term of his employment
hereunder, Texfi will furnish to Rubinfeld an automobile to be used in
performing his duties on behalf of Texfi, or will pay to Rubinfeld an automobile
allowance of $500 per month.
. 8. Termination of Employment.
8.1. Death. In the event of the death of Rubinfeld
during the term of this Agreement, the following payments shall be made to his
designated beneficiary or, in the absence of such designation, to his estate:
(a) his Base Salary, as provided in Section 4, through the end of the month in
which death occurs, and (b) any amounts due under Incentive Bonus Plans then in
effect in accordance with the terms of such plans.
8.2. Long-Term Disability. In the event that
Rubinfeld shall suffer an illness or mental or physical disability or incapacity
of such a nature, degree or effect that he is unable to perform his duties
hereunder for a continuous period of six months or for shorter periods
aggregating six months within any 12-month period, the Company, at its sole
option, may terminate his employment and this Agreement. Upon such termination,
Rubinfeld, shall be entitled to payment of (a) his Base Salary, as provided in
Section 4, through the end of the pay period in which the termination occurs,
and (b) any amounts due under Incentive Bonus Plans then in effect in accordance
with the terms of such plans.
8.3. For Cause. The Company shall have the right to
terminate the employment of Rubinfeld and this Agreement for "cause." For
purposes of this Agreement,
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<PAGE>
"cause" shall mean: (i) Rubinfeld's willful and continued failure to perform
substantially his duties under this Agreement (other than by reason of illness
or mental or physical disability or incapacity) for more than 60 days after a
written demand for substantial performance is delivered to him by the Board of
Directors of the Company, which demand specifically identifies the manner in
which Rubinfeld has not substantially performed his duties; (ii) theft or
misappropriation by Rubinfeld of assets of the Company; or (iii) actions by
Rubinfeld which constitute an act of moral turpitude or that materially injure
the Company. If Rubinfeld's employment is terminated for cause, he shall be
entitled to his Base Salary, as provided in Section 4, through the end of the
pay period in which the termination occurs.
8.4. Without Cause. Notwithstanding any other term or
provision of this Agreement, the Company may terminate Rubinfeld's employment
and this Agreement at any time and for whatever reason it deems appropriate. In
the event such termination by the Company occurs and is not due to disability
pursuant to Section 8.2 or for cause pursuant to Section 8.3, Rubinfeld shall be
entitled to payment of (a) his Base Salary, as provided in Section 4, for the
greater of six (6) months from the date of termination or the remaining term of
this Agreement, and (b) any amounts due under Incentive Bonus Plans then in
effect in accordance with the terms of such plans.
8.5. Voluntary Termination. Rubinfeld may
voluntarily terminate his employment with the Company on at least 60 days'
prior written notice. Upon such termination, Rubinfeld shall be entitled to
his Base Salary, as provided in Section 4, through the end of the pay period in
which the termination occurs.
9. Acceleration of Stock Options. All outstanding and
unexpired stock options
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<PAGE>
held by Rubinfeld that are not then exercisable shall become exercisable, in
whole or in part, for a period of sixty (60) days following termination of
employment pursuant to Section 8.4.
10. Covenants Not to Compete.
10.1. Competition; Soliciting Customers.
Rubinfeld promises and agrees that,
until the later of (a) the termination of the Agreement or (b) the expiration
of any salary payments made to Rubinfeld pursuant to Section 8.4, he will
not, directly or indirectly:
(i) own, manage, operate, control, be
employed by, render advisory services to, participate
in or be connected in any management or control of
any business in the United States that is engaged in
competition with Texfi or any of its subsidiaries or
affiliates in the commission dyeing and finishing of
textile products or the manufacture and/or sale of
textile products of the same or a like nature to the
products of Texfi and its subsidiaries, or
(ii) influence or attempt to influence any
customer of Texfi or any of its subsidiaries or
affiliates to divert its purchases of woven or knit
fabrics or other products to any individual,
partnership, firm, corporation or other entity then
in competition with Texfi or any of its subsidiaries
or affiliates.
For purposes of this Section 10.1, "competition with Texfi or any of its
subsidiaries or affiliates" shall mean direct competition for customers of
textile products or services in any geographic area in which Texfi or any of its
subsidiaries or affiliates is engaged, directly or indirectly, in selling or
attempting to sell such products or services.
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<PAGE>
10.2. Soliciting Employees; Interference.
Rubinfeld promises and agrees that, for a period of one year after the later of
(a) the termination of the Agreement, or (b) the expiration of any salary
payments made to Rubinfeld pursuant to Section 8.4, he will not, directly or
indirectly:
(i) solicit any employee of Texfi or any
subsidiary or affiliate of Texfi, who earned annually
$25,000 or more as an employee during the last six
months of Rubinfeld's employment by Texfi, to work
for any business, individual, partnership, firm,
corporation or other entity then in competition with
the business of Texfi or any of its subsidiaries or
affiliates; or
(ii) wrongfully interfere with, disrupt or
attempt to disrupt the relationship, contractual or
otherwise, between Texfi and any other party,
including without limitation any supplier,
distributor, lessor or lessee, licensor or licensee.
10.3. Scope. Rubinfeld acknowledges and agrees that the
covenants set forth in Sections 10.1 and 10.2 shall be enforceable in accordance
with their terms notwithstanding any termination of the Agreement or his
employment by Texfi, for any reason whatsoever, including without limitation,
the termination of his employment under the circumstances described in Sections
8.3, 8.4, and 8.5; and the obligations set forth in Sections 10.1 and 10.2 shall
continue as therein provided irrespective of whether payments are required by
Texfi to Rubinfeld under the Agreement except that Rubinfeld shall not be bound
by said covenants if Texfi fails to make any payments which, under the terms of
the Agreement, it has agreed to
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<PAGE>
make to Rubinfeld after the termination of his employment.
10.4. Savings Clause. It is the desire and
intent of the parties that the provisions of Sections 10.1 and 10.2 shall be
enforced to the fullest extent permitted under the laws and public policies of
each jurisdiction in which enforcement is sought. Accordingly, if any particular
portion of Sections 10.1 and 10.2 shall be adjudicated to be invalid or
unenforceable, such adjudication shall apply only with respect to the operation
of that portion in the particular jurisdiction in which such adjudication is
made, and all other portions shall continue in full force and effect.
11. Confidential Information; Rights to Materials.
11.1. Confidential Information. Rubinfeld agrees
not to disclose, either while in Texfi's employ or at any time thereafter,
to any person not employed by Texfi, or not engaged to render services to Texfi,
any confidential and proprietary information of Texfi obtained by him while in
the employ of Texfi, including, without limitation, any of Texfi's methods,
processes, techniques, shop practices, formulae, research data, marketing and
sales information, personnel data, customer lists, financial data, plans, and
all other know-how, trade secrets and proprietary information of Texfi;
provided, however, that this provision shall not preclude Rubinfeld from use or
disclosure of information known generally to the public (other than information
known generally to the public as a result of a violation of this Section 11.1 by
Rubinfeld), from use or disclosure of information acquired by Rubinfeld outside
of his affiliation with Texfi, from disclosure required by law or court order,
or from disclosure appropriate and in the ordinary course of carrying out his
duties and authorities hereunder
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<PAGE>
(e.g., disclosure to Texfi's outside accountants, bankers or trade creditors of
financial date properly request by such persons).
11.2. Rights to Materials. Rubinfeld also agrees that, upon
termination of his employment for whatever reason, he will not take with him,
without the prior written consent of an officer authorized to act in the matter
by the Board of Directors, any records, files, memoranda, reports, price lists,
customer lists, drawings, plans, sketches, documents, specifications, and the
like (or any copies thereof) relating to the business of Texfi.
12. Assignment by Texfi. This Agreement shall be binding upon and shall
inure to the benefit of Texfi or any corporation or other entity to which Texfi
may transfer all or substantially all of its assets and business (by operation
of law or otherwise) and to which Texfi may assign this Agreement, in which case
"Texfi," as used herein, shall mean such transferee corporation or other entity.
13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws and judicial decisions of the State of
North Carolina.
14. Entire Agreement. This Agreement contains all of the
understandings and agreements of the parties hereto with respect to the
employment of Rubinfeld by the Company and supersedes all prior understandings
and agreements between the parties, whether oral or in writing.
15. Amendment; Waiver. No provision of this Agreement
may be amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing and signed by Rubinfeld and by an officer of the
Company duly authorized to sign by the Board of Directors of the Company. No
waiver by either party hereto of any breach by the other of any
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<PAGE>
provision of this Agreement to be performed by such other party shall be deemed
a waiver of a similar or dissimilar provision at the same time or at any prior
or subsequent time.
16. Severability. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or unenforceable in any
respect under applicable law, the validity, legality or enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
17. Withholding. Anything herein to the contrary
notwithstanding, all payments
made by the Company hereunder shall be subject to the
withholding of such amounts relating to taxes as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the 1st day of January, 1997.
TEXFI INDUSTRIES, INC.
By: /s/ Andrew J. Parise, Jr.
President
/s/ Gerald A. Rubinfeld
Gerald A. Rubinfeld
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of January 1, 1997 (the
"Agreement"), by and between TEXFI INDUSTRIES, INC., a Delaware corporation with
offices at 5400 Glenwood Avenue, Raleigh, North Carolina ("Texfi" or the
"Company"), and Gene A. Pease, ("Pease").
W I T N E S S E T H:
WHEREAS, Texfi desires to employ Pease and to enter into the Agreement
embodying the terms of such employment; and
WHEREAS, Pease desires to accept such employment and to
enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree that the following provisions shall constitute the Agreement:
1. Employment. Texfi hereby employs Pease and Pease hereby
accepts employment with Texfi for the term set forth in Section 2
below, in the position and with the duties and responsibilities set forth in
Section 3 below, and upon the other terms and conditions hereinafter stated.
2. Term. Unless otherwise terminated as hereinafter
provided, the term of the Agreement shall commence on January 1, 1997, and shall
continue through December 31, 1999.
3. Position, Duties, Responsibilities, Extent of Services.
3.1. Position. It is intended that, at all times
during the term of the Agreement, Pease shall serve as President of the Apparel
(Kingstree) Division. In accordance with such position, he is hereby granted
appropriate responsibilities, duties, and authorities,
<PAGE>
subject to the direction of the Chief Executive Officer and the
President and Chief Operating Officer of the Company.
3.2. Extent of Services. During his employment under
this Agreement, Pease shall devote his full time and attention to the business
and affairs of Texfi; provided, however, that nothing in this Agreement shall
preclude Pease from engaging in charitable and civic activities or from managing
his personal investments so long as such outside activities do not unreasonably
interfere with the performance of his duties and responsibilities under this
Agreement.
4. Salary. For services rendered by him under this Agreement, Pease
shall receive a base salary at the annual rate of $200,000 (the "Base Salary"),
payable at least in equal monthly installments, or such other amount as the
Company and Pease may agree to from time to time.
5. Bonus. Pease will be eligible to participate in the
incentive bonus plans in effect from time to time for senior executive officers
of the Blends Division of Texfi.
6. Employee Benefit Plans. Pease will be provided
employee benefit programs comparable to those being provided by Texfi to
senior executive officers during the term of the Agreement.
7. Reimbursable Expenses.
7.1. Business Expenses. During the term of his employment
hereunder, Pease shall be entitled to receive proper reimbursement for all
reasonable out-of-pocket
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<PAGE>
expenses incurred by him (in accordance with the policies and procedures
established by Texfi for its senior executive officers) in performing services
hereunder, provided Pease properly accounts therefor.
7.2. Automobile. During the term of his employment
hereunder, Texfi will pay to Pease an automobile allowance of $500 per month.
8. Termination of Employment.
8.1. Death. In the event of the death of Pease
during the term of this Agreement, the following payments shall be made to his
designated beneficiary or, in the absence of such designation, to his estate:
(a) his Base Salary, as provided in Section 4, through the end of the month in
which death occurs, and (b) any amounts due under Incentive Bonus Plans then in
effect in accordance with the terms of such plans.
8.2. Long-Term Disability. In the event that Pease
shall suffer an illness or mental or physical disability or incapacity of such
a nature, degree or effect that he is unable to perform his duties hereunder
for a continuous period of six months or for shorter periods aggregating six
months within any 12-month period, the Company, at its sole option, may
terminate his employment and this Agreement. Upon such termination, Pease,
shall be entitled to payment of (a) his Base Salary, as provided in Section 4,
through the end of the pay period in which the termination occurs, and (b) any
amounts due under Incentive Bonus Plans then in effect in accordance with the
terms of such plans.
8.3. For Cause. The Company shall have the right to
terminate the employment of Pease and this Agreement for "cause." For
purposes of this Agreement, "cause" shall mean: (i) Pease's willful and
continued failure to perform substantially his duties
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<PAGE>
under this Agreement (other than by reason of illness or mental or physical
disability or incapacity) for more than 60 days after a written demand for
substantial performance is delivered to him by the Board of Directors of the
Company, which demand specifically identifies the manner in which Pease has not
substantially performed his duties; (ii) theft or misappropriation by Pease of
assets of the Company; or (iii) actions by Pease which constitute an act of
moral turpitude or that materially injure the Company. If Pease's employment is
terminated for cause, he shall be entitled to his Base Salary, as provided in
Section 4, through the end of the pay period in which the termination occurs.
8.4. Without Cause. Notwithstanding any other term or
provision of this Agreement, the Company may terminate Pease's employment and
this Agreement at any time and for whatever reason it deems appropriate. In the
event such termination by the Company occurs and is not due to disability
pursuant to Section 8.2 or for cause pursuant to Section 8.3, Pease shall be
entitled to payment of (a) his Base Salary, as provided in Section 4, for the
greater of six (6) months from the date of termination or the remaining term of
this Agreement, and (b) any amounts due under Incentive Bonus Plans then in
effect in accordance with the terms of such plans.
8.5. Voluntary Termination. Pease may voluntarily
terminate his employment with the Company on at least 60 days' prior written
notice. Upon such termination, Pease shall be entitled to his Base Salary, as
provided in Section 4, through the end of the pay period in which the
termination occurs.
9. Acceleration of Stock Options. All outstanding and
unexpired stock options held by Pease that are not then exercisable shall become
exercisable, in whole or in part, for a
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<PAGE>
period of sixty (60) days following termination of employment pursuant to
Section 8.4.
10. Covenants Not to Compete.
10.1. Competition; Soliciting Customers. Pease
promises and agrees that, until the later of (a) the termination of the
Agreement or (b) the expiration of any salary payments made to Pease pursuant
to Section 8.4, he will not, directly or indirectly:
(i) own, manage, operate, control, be
employed by, render advisory services to, participate
in or be connected in any management or control of
any business in the United States that is engaged in
competition with Texfi or any of its subsidiaries or
affiliates in the commission dyeing and finishing of
textile products or the manufacture and/or sale of
textile products of the same or a like nature to the
products of Texfi and its subsidiaries, or
(ii) influence or attempt to influence any
customer of Texfi or any of its subsidiaries or
affiliates to divert its purchases of woven or knit
fabrics or other products to any individual,
partnership, firm, corporation or other entity then
in competition with Texfi or any of its subsidiaries
or affiliates.
For purposes of this Section 10.1, "competition with Texfi or any of its
subsidiaries or affiliates" shall mean direct competition for customers of
textile products or services in any geographic area in which Texfi or any of its
subsidiaries or affiliates is engaged, directly or indirectly, in selling or
attempting to sell such products or services.
10.2. Soliciting Employees; Interference. Pease
promises and agrees that, for
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<PAGE>
a period of one year after the later of (a) the termination of the Agreement, or
(b) the expiration of any salary payments made to Pease pursuant to Section 8.4,
he will not, directly or indirectly:
(i) solicit any employee of Texfi or any
subsidiary or affiliate of Texfi, who earned annually
$25,000 or more as an employee during the last six
months of Pease's employment by Texfi, to work for
any business, individual, partnership, firm,
corporation or other entity then in competition with
the business of Texfi or any of its subsidiaries or
affiliates; or
(ii) wrongfully interfere with, disrupt or
attempt to disrupt the relationship, contractual or
otherwise, between Texfi and any other party,
including without limitation any supplier,
distributor, lessor or lessee, licensor or licensee.
10.3. Scope. Pease acknowledges and agrees that the covenants
set forth in Sections 10.1 and 10.2 shall be enforceable in accordance with
their terms notwithstanding any termination of the Agreement or his employment
by Texfi, for any reason whatsoever, including without limitation, the
termination of his employment under the circumstances described in Sections 8.3,
8.4, and 8.5; and the obligations set forth in Sections 10.1 and 10.2 shall
continue as therein provided irrespective of whether payments are required by
Texfi to Pease under the Agreement except that Pease shall not be bound by said
covenants if Texfi fails to make any payments which, under the terms of the
Agreement, it has agreed to make to Pease after the termination of his
employment.
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<PAGE>
10.4. Savings Clause. It is the desire and intent of the
parties that the provisions of Sections 10.1 and 10.2 shall be enforced to the
fullest extent permitted under the laws and public policies of each jurisdiction
in which enforcement is sought. Accordingly, if any particular portion of
Sections 10.1 and 10.2 shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation of that portion in
the particular jurisdiction in which such adjudication is made, and all other
portions shall continue in full force and effect.
11. Confidential Information; Rights to Materials.
11.1. Confidential Information. Pease agrees not
to disclose, either while in Texfi's employ or at any time thereafter, to any
person not employed by Texfi, or not engaged to render services to Texfi, any
confidential and proprietary information of Texfi obtained by him while in the
employ of Texfi, including, without limitation, any of Texfi's methods,
processes, techniques, shop practices, formulae, research data, marketing and
sales information, personnel data, customer lists, financial data, plans, and
all other know-how, trade secrets and proprietary information of Texfi;
provided, however, that this provision shall not preclude Pease from use or
disclosure of information known generally to the public (other than information
known generally to the public as a result of a violation of this Section 11.1
by Pease), from use or disclosure of information acquired by Pease outside of
his affiliation with Texfi, from disclosure required by law or court order, or
from disclosure appropriate and in the ordinary course of carrying out his
duties and authorities hereunder (e.g., disclosure to Texfi's outside
accountants, bankers or trade creditors of financial date properly request by
such persons).
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<PAGE>
11.2. Rights to Materials. Pease also agrees that, upon
termination of his employment for whatever reason, he will not take with him,
without the prior written consent of an officer authorized to act in the matter
by the Board of Directors, any records, files, memoranda, reports, price lists,
customer lists, drawings, plans, sketches, documents, specifications, and the
like (or any copies thereof) relating to the business of Texfi.
12. Assignment by Texfi. This Agreement shall be binding upon and shall
inure to the benefit of Texfi or any corporation or other entity to which Texfi
may transfer all or substantially all of its assets and business (by operation
of law or otherwise) and to which Texfi may assign this Agreement, in which case
"Texfi," as used herein, shall mean such transferee corporation or other entity.
13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws and judicial decisions of the State of
North Carolina.
14. Entire Agreement. This Agreement contains all of the
understandings and agreements of the parties hereto with respect to the
employment of Pease by the Company and supersedes all prior understandings and
agreements between the parties, whether oral or in writing.
15. Amendment; Waiver. No provision of this Agreement
may be amended, modified or waived unless such amendment, modification or
waiver is agreed to in writing and signed by Pease and by an officer of the
Company duly authorized to sign by the Board of Directors of the Company. No
waiver by either party hereto of any breach by the other of any provision of
this Agreement to be performed by such other party shall be deemed a waiver of
a similar or dissimilar provision at the same time or at any prior or
subsequent time.
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<PAGE>
16. Severability. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or unenforceable in any
respect under applicable law, the validity, legality or enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
17. Withholding. Anything herein to the contrary
notwithstanding, all payments made by the Company hereunder shall be subject to
the withholding of such amounts relating to taxes as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the 1st day of January, 1997.
TEXFI INDUSTRIES, INC.
By: /s/ Andrew J. Parise, Jr.
President
/s/ Gene A. Pease
Gene A. Pease
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<PAGE>
MASTER LEASE AGREEMENT
Lease No.: 002
THIS MASTER LEASE AGREEMENT (this "Lease") is between NATIONSCREDIT
COMMERCIAL CORPORATION ("Lessor"), a Delaware corporation with an office address
at One Canterbury Green, Stamford, Connecticut 06901 and TEXFI INDUSTRIES, INC.
("Lessee"), a Delaware corporation with its address and principal place of
business at 5400 Glenwood Avenue #215, Raleigh, North Carolina 27612, which
parties hereby agree as follows:
1. LEASING: Subject to the terms and conditions set forth herein,
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor the
equipment (the "Equipment"; a unit or part thereof being sometimes referred to
as an "Item") described in any Equipment Schedule hereto (each, a "Schedule")
now or hereafter executed by the parties. Except as otherwise provided in
Section 19(d), nothing contained herein shall obligate either party to execute
any Schedule subsequent to the date hereof and in no event shall Lessor have any
obligation to execute any Schedule subsequent to Lessor's determination that a
material adverse change in the financial condition of Lessee has occurred. Any
modifications to this Lease contained in any Schedule shall be controlling, but
only with respect to the Equipment described in such Schedule. This Lease and
all Schedules and Addenda shall constitute one lease, and references to this
Lease shall include all Schedules and Addenda.
2. TERM, RENT AND PAYMENT: (a) The term (the "Term") of this Lease for
each Item shall commence on the date (the "Commencement Date") the Lessee
executes a Delivery and Acceptance Certificate (an "Acceptance Certificate")
therefor and, unless sooner terminated pursuant to Sections 8 or 15 hereof or
pursuant to Section 1 of the Termination, Purchase and Renewal Addendum, shall
continue for the period specified as the "Basic Term" in the applicable
Schedule. If any Term be extended, or the Lease renewed pursuant to a renewal
option, "Term" shall include all such extensions and renewals, and all
provisions of this Lease shall apply therein, except as may be otherwise
specifically provided.
(b) Lessee agrees to pay to Lessor basic rent ("Basic Rent")
for each Item in the amount set forth in the applicable Schedule. The first
Basic Rent payment for each Item shall be due on the date specified in such
Schedule. Subsequent Basic Rent payments shall be made monthly in advance on the
same day of each month thereafter. On the Commencement Date, Lessee will pay to
Lessor as interim rent ("Interim Rent") for each Item the amount specified
therefor in the Schedule, such Interim Rent to cover the period from the
Commencement Date to the first Basic Rent payment date. Any payment due on a day
which is not a business day shall be made on the next business day.
(c) Basic Rent, Interim Rent and all other amounts payable to
Lessor under this Lease (collectively, "Rent") shall, be paid by either company
check to One Canterbury Green, Stamford, Connecticut 06901 Attention: Manager,
Contract Administration (or to such other address as Lessor may direct) or by
wire transfer to The First National Bank of Chicago, Chicago Illinois, ABA
#071000013, Credit: NationsCredit Commercial Corporation, Account Number:
52-56933, Ref: Texfi Industries, Inc. and shall be deemed received when good
funds
<PAGE>
are received by Lessor. Lessee agrees to pay Lessor on demand
(i) a late charge on all Rent not paid within 10 days of the date due hereunder
equal to the lesser of: (x) 5% of the amount not timely paid and (y) the maximum
amount permitted by applicable law, and (ii) interest on all Rent not paid
within 10 days of the due date hereunder from such 10th day until the date paid
at a rate per annum equal to the lesser of (x) the prime rate (the "Prime Rate")
as announced from time to time by The Chase Manhattan Bank, N.A. (whether or not
such rate is charged) or, if no such rate is published, the generally accepted
prime rate in effect on the Commencement Date plus 5% and (y) the maximum rate
permitted by applicable law.
3. QUIET ENJOYMENT: So long as no Event of Default (as defined below)
exists Lessor will not interfere with Lessee's quiet enjoyment and use of the
Equipment and Lessee's use and possession of the Equipment will not be
interrupted or otherwise disturbed by any entity asserting a claim under or
through Lessor.
4. NET LEASE; NO SET-OFF: This Lease is a net lease and
Lessee shall not be entitled to any abatement or reduction of, or set-off
against, any Rent by reason of: (a) any past, present or future claim against
Lessor or any successor or assignee of Lessor or any supplier of any Item or
any other person or entity; (b) any defect in or damage to, or loss,
prohibition, restriction on use or destruction of, any Item (except as
expressly provided in Section 8) from whatever cause; or (c) any other cause
whatsoever, whether similar or dissimilar to the foregoing, it being
the intention of the parties that all Rent shall continue to be payable in all
events in the specified manner and at the specified times and that Lessee's
obligation to pay Rent shall be absolute and unconditional unless the obligation
to pay the same shall be terminated pursuant to the express provisions of this
Lease.
5. USE, LOCATION AND POSSESSION; LIENS: (a) Lessee shall use each Item
in a careful and proper manner and for the use contemplated by the manufacturer
thereof and in compliance with all applicable laws, rules, and regulations and
the provisions of the insurance required to be maintained hereunder and the
terms of any manufacturer's warranty. Each Item will at all times be kept at the
location specified in the applicable Schedule unless the Lessor has given prior
written consent to a change in location. Lessee shall at all times keep each
Item in its possession and control.
(b) Lessee shall keep each Item free and clear of all, and
shall not create, incur, assume or suffer to exist any, claims, liens, pledges,
rights of others or other encumbrances (collectively "Liens"), other than those
("Lessor Liens") arising by, through or under Lessor prior to the occurrence of
an Event of Default and not related to the transactions contemplated hereby.
6. MAINTENANCE AND SERVICE; IMPROVEMENTS: (a) Lessee will, at its
expense, at all times maintain, service and repair each Item as would a prudent
owner of such Item, and in any event so as to keep each Item in good operating
condition, ordinary wear and tear excepted, in compliance with all applicable
laws, rules, regulations, and manufacturer's recommended maintenance programs,
and, to the extent that Lessee's maintenance, repair or servicing standards
exceed the foregoing, then so as to keep each Item in at least as good
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<PAGE>
condition as other comparable equipment owned or used by Lessee. Lessee shall,
if at any time requested to do so by Lessor, affix in a prominent position on
each Item plates, tags or other identifying labels showing ownership thereof by
Lessor.
(b) Any alterations or modifications with respect to any Item
that may at any time during the Term be required to comply with any applicable
law or any governmental or other rule or regulation shall be made by Lessee at
its sole cost and expense, and shall thereupon become the property of Lessor.
(c) Unless required pursuant to Subsection (b), Lessee will
not, without Lessor's prior consent, affix, or install any accessory, equipment,
or device on, or modify, any Item if such addition or modification will impair
the original function or use thereof or cannot be readily removed without
causing damage to such Item. Further, Lessee will not, without Lessor's prior
written consent, affix or install any Item to or in any other real or personal
property so that such Item shall constitute a fixture. The Equipment is, and
shall at all times be and remain, personal property notwithstanding that the
Equipment or any part thereof may now be, or hereafter become, in any manner
affixed or attached to real property or any improvements thereon. Lessee shall
obtain and deliver to Lessor disclaimers or waivers from all owners and/or
mortgagees of real estate in which an Item is located in form and content
acceptable to Lessor.
7. DISCLAIMER: Lessee acknowledges that it alone has selected the
Equipment and the supplier(s) thereof; that it has reviewed and approved any
written supply contract or purchase order covering the Equipment purchased from
the supplier, or has been advised by the Lessor in writing of the identity of
the supplier; that it may have rights under such supply contract or purchase
order; and that it may contact the supplier for a description of any such
rights. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL
RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UNIFORM
COMMERCIAL CODE, INCLUDING SECTIONS 2A-508 THROUGH 522 THEREOF. LESSOR IS
NEITHER THE MANUFACTURER NOR SELLER OF THE EQUIPMENT, AND MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED. LESSEE UNDERSTANDS AND
AGREES THAT THE EQUIPMENT IS BEING LEASED TO IT "AS-IS," "WHERE-IS" AND "WITH
ALL FAULTS" AND THAT NO WARRANTY FROM LESSOR IS TO BE IMPLIED WITH RESPECT TO
THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY, THE FITNESS OF THE
EQUIPMENT FOR A PARTICULAR PURPOSE, THE ACCURACY OF THE DESCRIPTION OF THE
EQUIPMENT, OR WITH RESPECT TO INFRINGEMENT, INTERFERENCE OR THE LIKE. LESSOR
SHALL NOT BE LIABLE IF, FOR WHATEVER REASON, THE EQUIPMENT IS NOT DELIVERED TO
LESSEE. LESSOR SHALL HAVE NO OBLIGATION TO INSTALL, MAINTAIN, ERECT, TEST,
ADJUST OR SERVICE THE EQUIPMENT. REGARDLESS OF CAUSE, LESSEE AGREES NOT TO
ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR
ANY OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, NOR SHALL LESSOR BE
RESPONSIBLE FOR ANY
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DAMAGES OR COSTS WHICH MAY BE ASSESSED AGAINST LESSEE IN ANY ACTION FOR
INFRINGEMENT OF ANY UNITED STATES LETTERS PATENT. Nothing herein contained
shall be construed to deprive the Lessee of whatever rights Lessee may have
against parties other than the Lessor, such as the supplier and the manufacturer
of any Item, and Lessee agrees to look solely to such third parties with respect
to any and all claims concerning the Equipment. So long as Lessee is not in
default under this Lease, Lessee may pursue such claims for the mutual benefit
of Lessor and Lessee in accordance with their interests in the Equipment. Lessee
understands and agrees that neither the manufacturer, the supplier, any dealer
nor any agent of the foregoing is an agent of Lessor or is authorized to waive
or alter any term or condition of this Lease. Lessor hereby assigns to Lessee
(to the extent assignable) any and all rights Lessor may have to enforce any
warranty from the manufacturer with respect to the Equipment and Lessor agrees
to enforce for the benefit of Lessee (at Lessee's sole cost and expense) every
such warranty not assigned hereby; provided, however, that all of the foregoing
rights shall automatically revert to Lessor upon the occurrence and during the
continuance of any Event of Default hereunder or upon the return of the
Equipment to Lessor. Lessee agrees to settle all claims with respect to the
Equipment directly with the manufacturers thereof, and to give Lessor prompt
notice of any such settlement and the details of such settlement.
8. RISK OF DAMAGE AND LOSS: Lessee assumes and shall be solely
responsible for the entire risk of any Item being lost, destroyed, damaged,
stolen, confiscated or condemned, from whatever source, from the Commencement
Date until the Return Date (as defined in Section 10). In the event of damage to
any Item, Lessee, at its sole cost and expense, shall promptly repair the same,
restoring it to the condition required to be maintained hereunder and continuing
to pay Rent while doing so.
If any Item is lost, destroyed, stolen, damaged in such a way that it
is not commercially reasonable to repair it (or such repairs are not completed
within 60 days of the damage or by the end of the Term with respect thereto,
whichever is shorter), confiscated or condemned (each, an "Event of Loss")
Lessee shall, on the first to occur of (x) the end of the Term with respect
thereto and (y) the second Basic Rent payment date following such Event of Loss,
pay to Lessor the Stipulated Loss Value (as shown on the Stipulated Loss Value
Table to the applicable Schedule) of such Item as of the Basic Rent payment date
immediately preceding the Event of Loss plus interest thereon at a rate per
annum equal to the Prime Rate then in effect plus 2% from the Event of Loss date
through the date of payment and all other Rent owing with respect to such Item.
Until such time as the Stipulated Loss Value payment is made to Lessor, Lessee
shall continue to make Basic Rent payments with respect to such Item (provided
that all Basic Rent payments made for Basic Rent payment dates subsequent to the
Event of Loss date shall be credited against the Stipulated Loss Value amount as
of the date of its payment.
Upon due payment by the Lessee of all such amounts, this Lease
shall terminate with respect to such Item and Lessor shall transfer title
thereto to Lessee, without representation or warranty other than as to Lessor
Liens and that Lessor has not conveyed any interest in the Equipment to any
third party. So long as no Event of Default exists, any
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proceeds of insurance received by Lessor with respect to any damage or Event of
Loss respecting any Item shall be paid to Lessee to the extent necessary to
reimburse Lessee for costs incurred and paid by Lessee in repairing the same or
shall be credited against amounts payable to Lessor by Lessee with respect to
the Item involved.
Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make
claims for, receive payment of, and execute and endorse all documents, checks,
or drafts for loss or damage under any said insurance policies, should the
Lessee fail to promptly do so.
9. INSURANCE: Lessee at its sole cost and expense shall
at all times through the Return Date:
(a) Keep the Equipment insured against all risks of loss or
damage from every cause whatsoever in an amount not less than the greater of
replacement value or the Stipulated Loss Value thereof, and
(b) Obtain comprehensive liability insurance, including
automobile if the Equipment includes motor vehicles, respecting the Equipment
covering liability for bodily injury, including death, and property damage, in
an amount of at least $5 million per occurrence, or such greater amount as
Lessee may generally maintain, or in such other amounts as Lessor may from time
to time require. Lessor shall be the sole named loss payee with respect to
damage or loss to the Equipment with no provision for co-insurance and shall be
named as an additional insured on the liability insurance. All insurance shall
be with insurers and in form reasonably satisfactory to Lessor; have a
deductible not to exceed $50,000 per occurrence, or such other amount as Lessor
may from time to time reasonably require; shall provide for at least 30 days'
prior written notice to Lessor before any cancellation or material modification
thereof shall be effective as against Lessor; shall waive any claim for premium
against Lessor; and shall provide that Lessor will be insured regardless of any
breach by Lessee of any representation, warranty or covenant in any such policy
or any application therefor. Lessee shall deliver to Lessor certificates of
insurance and other evidence satisfactory to Lessor evidencing the insurance
required hereby, and at Lessor's request Lessee will furnish copies of such
policies to Lessor. In the case of renewals, evidence of renewal shall be
delivered to Lessor at least 20 days prior to the expiration of the current
policy.
10. ACCEPTANCE AND RETURN OF EQUIPMENT: (a) By its
execution of any Acceptance Certificate, Lessee warrants and agrees that the
Equipment covered thereby conforms to the specifications and requirements of
Lessee and that, as between Lessee and Lessor, it was delivered in good repair
and that Lessee has unconditionally accepted it hereunder as of the Commencement
Date.
(b) Upon the expiration or earlier termination of this Lease
with respect to any Item, Lessee will, at its sole cost and expense, promptly
dismantle, crate and return such Item to Lessor at the address specified in the
first paragraph of the Lease, or to such other location in the continental
United States as Lessor may specify in a written notice to Lessee to be provided
to Lessee prior to such expiration or earlier termination or as soon
thereafter as
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practicable, in the condition required to be maintained hereunder.
If Lessee shall fail to return any Item of Equipment as provided herein, Lessee
shall be responsible for all cost and expense incurred by Lessor in returning
the Equipment to such required condition or any reduction in value as a result
thereof. Lessee shall also, at the request of Lessor, store the Equipment for up
to 90 days prior to such redelivery and shall bear the risk of loss and shall be
responsible for insuring the Equipment during such storage period as if this
Lease were still in effect with respect thereto. In the event Lessee does not
redeliver any Item to Lessor as herein required, Lessee shall pay to Lessor
Basic Rent for such Item (at the highest rate payable during the Term) until the
date (the "Return Date") the same is duly returned and in the proper condition
unless Lessee fails to redeliver any such Item solely as a result of Lessor's
failure to designate a location to which any such Item shall be returned.
11. GENERAL TAX INDEMNITY: Lessee agrees to pay and does hereby
indemnify, on an after-tax basis, Lessor against all income, sales, use, excise,
personal property, ad valorem, value added, leasing, stamp, documentary or other
taxes, levies, imposts, fees, assessments, duties, charges or withholdings of
any nature, including all license and registration fees, together with any
penalties, fines or interest thereon (collectively, "Impositions") arising out
of the transactions contemplated by this Lease (including the acquisition of any
Item prior to the Commencement Date) and imposed against Lessor, Lessee, this
Lease (including any Rent) or the Equipment or any Item by the United States or
any state or political subdivision thereof or any foreign government or taxing
authority, excluding, however, any Impositions based on or measured by the net
income of Lessor imposed by the United States or any state or political
subdivision thereof. Lessee will notify Lessor of the need to file any reports
and returns relating to any Imposition within five (5) days of Lessee's notice
thereof and will remit to Lessor upon demand any amounts payable in connection
therewith. In the event that Lessor pays any such Impositions, Lessee will on
demand reimburse Lessor for the full amount paid by Lessor therefor. Lessor
shall prepare and file all returns, and remit all Impositions, unless and to the
extent that Lessor directs Lessee to do so, in which case Lessee shall do so.
Lessee acknowledges that in some jurisdictions Impositions may not be billed,
audited, assessed or due until after this Lease has terminated and agrees that
in such event Lessee will remain liable for such Impositions notwithstanding
such termination.
12. INCOME TAX INDEMNIFICATION: (a) Lessee acknowledges
that Lessor intends to claim and take the depreciation deductions
("Depreciation Deductions") with respect to the Equipment in accordance with
Section 168 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Lessee represents, warrants and covenants as follows:
(i) Lessor will not be required to include any
amount in its income in connection with any Item for any taxable year or part
thereof during the Term respecting such Item other than (1) Basic Rent and
Interim Rent, as such Rent accrues in accordance with the terms hereof, (2) any
amount constituting gain recognized with respect to or by reason of the sale or
other disposition of such Item upon the termination of this Lease with respect
thereto, (3) any amount payable to Lessor to the extent such amount is required
to be determined by
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reference to the income tax effect to Lessor of the receipt thereof, (4) any
amount specifically identified as interest, and (5) any other amount with
respect to which Lessor shall be entitled to a contemporaneous and equal
offsetting deduction (any amount so includable in Lessor's income other than as
contemplated in clauses (1) through (5) above being referred to herein
as an "Inclusion"); and
(ii) Each Item will constitute 5-year MACRS
property within the meaning of Section 168(e) of the Code and Lessor will be
entitled to Depreciation Deductions with respect to its basis in the Equipment
(which basis shall equal 100% of the total cost (including any taxes,
transportation or installation charges) originally paid by Lessor for the
Equipment (the "Equipment Cost") for each Item) in accordance with the Code.
(c) If, by reason of any act or omission of Lessee or the
inaccuracy of any representation or warranty of Lessee herein or any breach by
Lessee of its obligations hereunder:
(i) Lessor shall lose or lose the right to
claim, or be advised or determines that it would be imprudent, improper or
inadvisable to claim, or there shall be disallowed or recaptured, all or any
portion of the anticipated Depreciation Deductions,
(ii) Lessor shall suffer an Inclusion, or
(iii) Any foreign tax credit of Lessor shall be
reduced, disallowed or recaptured (any such loss, disallowance, reduction,
recapture or Inclusion being hereinafter called a "Tax Loss"),
then, in any such event, within 30 days after written notice to Lessee by Lessor
that any Tax Loss has occurred, which notice shall include an explanation and
calculation of such Tax Losses, Lessee shall pay Lessor, as an indemnity
payment, a lump sum amount which, after deduction of all federal, state and
local taxes required to be paid by Lessor in respect of the receipt of such
payment, shall provide Lessor with not less than the same net after-tax return
that Lessor would have realized if such Tax Loss had not occurred, including any
interest and penalties payable by Lessor attributable to such Tax Loss. In
computing Lessee's liability under this Section, the federal, state and local
taxes payable by Lessor shall be based upon the highest marginal corporate tax
rate in effect for the taxable year in which the Tax Loss occurred.
(d) Lessee shall not be liable for indemnification respecting
a Tax Loss occurring solely as a result of: (i) Lessor being subject to the
application of the mid-quarter convention of Section 168(d)(3) of the Code, (ii)
Lessor making any election to claim the Depreciation Deductions in a manner less
rapid than contemplated by the definition thereof, (iii) Lessor failing to have
sufficient taxable income to utilize the Depreciation Deductions, (iv) Lessor
being subject to the "alternative minimum tax" of Section 55 of the Code, or (v)
A voluntary transfer or other voluntary disposition by the Lessor of any
interest in any Equipment or this Lease when no Event of Default exists.
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(e) For the purposes of this Section the term "Lessor" shall
include any affiliated group within the meaning of Section 1504 of the Code of
which Lessor is a member, if consolidated returns are filed for such affiliated
group for Federal tax purposes, and a Tax Loss shall be deemed to have occurred
upon the earliest of:
(i) The happening of any event which may cause
such Tax Loss,
(ii) The payment by Lessor to the taxing
authority of the tax increase resulting from such Tax Loss, or
(iii) The adjustment of the tax return of
Lessor to reflect such Tax Loss.
13. GENERAL INDEMNIFICATION: Lessee hereby agrees to indemnify, save
and keep harmless Lessor, and its agents, officers, directors, employees,
successors and assigns, from and against any and all losses, damages, (including
indirect, special or consequential damages) harm, expenses, including reasonable
legal fees, penalties, injuries, claims, actions and suits, of whatsoever kind
and nature, in contract, tort or otherwise, whether caused by the negligence of
Lessor or otherwise and including Lessor's strict liability in tort, in any way
arising out of or in connection with the selection, modification, manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession,
maintenance, use, condition (including latent or other defects, whether or not
discoverable by Lessor or Lessee, and any claim for patent, trademark or
copyright infringement), return of, or operation of any Item prior to its Return
Date or relating to any default by Lessee or any Event of Default.
14. DEFAULT: Each of the following shall constitute an
event of default (an "Event of Default") hereunder:
(a) Lessee fails to pay any Rent or Stipulated Loss Value,
late fee, indemnity obligation, reimbursement, or any other amount payable to
Lessor under this Lease or any other Document (as defined in Section 18(a)(i))
when due;
(b) Lessee fails to pay when due any indebtedness for borrowed
money (which term shall include any rental due under any lease the aggregate
rental throughout the term which exceeds $1,000,000.00 as to which Lessee is a
lessee), whether or not to Lessor, arising independently of this Lease;
(c) Lessee defaults in the performance of any other covenant
contained herein, in any Document or in any other agreement relating to borrowed
money, whether or not such other agreement is with Lessor, and such default
continues beyond the applicable grace period, if any, without being cured or
waived and, in the case of a default under any other agreement relating to
borrowed money, such default permits the acceleration of the maturity of the
indebtedness under such agreement;
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(d) Lessee becomes insolvent or make an assignment
for the benefit of creditors;
(e) Lessee applies for or consent to the appointment of a
receiver, trustee or liquidator for a substantial part of its property or such
receiver, trustee or liquidator is appointed without the application or consent
of Lessee;
(f) A petition is filed by or against Lessee under the federal
bankruptcy laws (including a petition for reorganization, arrangement or
extension) or under any other insolvency law or law providing for the relief of
debtors and, in the case of a filing against Lessee, shall not be dismissed
within 60 days of the date of filing;
(g) Lessee defaults or an event of default occurs under any
Document, that certain Master Lease Agreement between Lessor and Lessee dated as
of August 10, 1995 and all schedules and addenda thereto, or any other agreement
with Lessor or any affiliate of Lessor and such default or event of default
continues beyond the applicable grace period, if any, without being cured or
waived;
(h) Any representation or warranty made by Lessee herein
(other than in Section 12), in any agreement or certificate delivered in
connection herewith or any Document proves to have been false or misleading in
any material respect when made; or
(i) Lessee defaults or an event of default occurs under any
agreement with the landlord or mortgagee of any property on which any Item of
Equipment is located or with any other person or entity which may affect the
ability of Lessee to keep any Item of Equipment at its location specified in the
applicable Schedule and such default or event of default continues beyond the
applicable grace period, if any, without being cured or waived.
15. REMEDIES: (a) So long as any Event of Default
exists, then, to the extent permitted by applicable law, Lessor shall have the
right to exercise any one or more of the following remedies:
(i) To proceed by appropriate court action to
enforce performance by Lessee of its obligations hereunder or to recover
damages for breach thereof;
(ii) To require Lessee, at Lessee's sole cost
and expense, to assemble all the Equipment at a place reasonably designated by
Lessor or to return the Equipment in the method, manner and condition described
in Section 10 or to take possession of any and all Items, wherever located, and
thereafter hold, sell, operate or lease such Items, all with or without
judicial process to the fullest extent permitted by law, free of claims of
Lessee, except as set forth below;
(iii) By notice to Lessee, to terminate this
Lease;
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<PAGE>
(iv) To demand immediate payment of the
Stipulated Loss Value of the Equipment as liquidated damages for the remaining
Term (whereupon Lessee shall promptly pay the same); and
(v) To pursue any other remedy available to
Lessor at law or in equity.
(b) Lessor and Lessee agree that an amount equal to the
Stipulated Loss Value of the Equipment represents a reasonable return for the
use of the Equipment and for the depreciation thereof, and shall be the basis
for liquidated damages for the remaining Term for which Lessee shall be liable
to Lessor upon an Event of Default. Any amounts realized by Lessor on account of
the Equipment subsequent to Lessor's taking possession thereof pursuant to
Section 15(a)(ii) shall, after reimbursement to Lessor of all its expenses
incurred in connection therewith, including legal fees, (and a reasonable
allocation of the compensation, costs and expenses of internal counsel, based
upon time spent), be credited to amounts of Stipulated Loss Value and all other
Rent owing by Lessee hereunder or, if such Stipulated Loss Value and all other
Rent has been paid, paid to Lessee, up to the amount of Stipulated Loss Value
actually paid by Lessee.
(c) If Lessor elects not to sell, re-lease, or otherwise
dispose of all or any part of the Equipment, and holds such Equipment for the
Lessee for the remaining Term, Lessor may recover, in addition to all Rent
accrued and unpaid as of the date of Lessor's recovery of possession of the
Equipment, the present value as of such date, of the Rent for the remainder of
the Term respecting such Equipment (which Term shall include, for this purpose,
to the extent applicable, any agreed upon renewals which would, in the absence
of an Event of Default, automatically extend the Term upon the Lessee's failure
to exercise any option to purchase the Equipment contained in any Addenda
hereto). Present value shall be computed using a discount rate equal to the
Prime Rate in effect on the Commencement Date.
(d) If Lessor sells, leases, or otherwise disposes of all or
any part of the Equipment, Lessor may recover from Lessee, in addition to any
Rent accrued and unpaid as of the date of Lessor's recovery of possession of the
Equipment, the present value computed by using a discount rate equal to the
Prime Rate in effect on the Commencement Date, of the difference between (i) the
Rent for the remainder of the Term respecting such Equipment (which Term shall
include, for this purpose, to the extent applicable, any agreed upon renewals
which would, in the absence of an Event of Default, automatically extend the
Term upon the Lessee's failure to exercise any option to purchase the Equipment
contained in any Addenda hereto) and (ii) the market rent determined by Lessor
in its reasonable discretion, or, in the case of a lease of Equipment which is
substantially similar to this Lease, the total rent for the lease term of such
substantially similar lease.
(e) Time of performance of Lessee's obligations
hereunder is of the essence. All remedies of Lessor hereunder are cumulative,
and may, to the extent permitted by law, be exercised concurrently or
separately, and the exercise of any one remedy shall not be deemed
to be an election of such remedy to the exclusion of any other remedy or to
preclude the exercise of any other remedy at any other time. Failure on the part
of Lessor to exercise, or
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delay in exercising, any right or remedy hereunder or Lessor's failure at any
time to require performance by Lessee of any of the provisions hereof shall not
operate as a waiver thereof; nor shall any single or partial exercise by Lessor
of any right or remedy hereunder preclude any other further exercise thereof or
the exercise of any other right or remedy. With respect to Lessor, Lessee
hereby waives any and all damages occasioned by any retaking of the Equipment.
Lessee shall be liable for all costs and expenses incurred by Lessor in
exercising the remedies provided hereunder, including but not limited to, court
costs and reasonable attorneys' fees.
16. ASSIGNMENT: Lessee acknowledges and understands that Lessor without
notice to Lessee, may assign this Lease or any Schedule or any Addenda or part
thereof and/or may sell or grant a security interest in the Equipment to any
person, organization or agency (which shall thereafter be entitled to Lessor's
rights hereunder to the extent assigned) and Lessor shall give Lessee prompt
written notice thereafter of any such assignment, sale or grant, including the
date thereof and the parties thereto. Lessor hereby covenants that as a
condition to any assignment of the Lease hereunder or the sale or grant of a
security interest with respect thereto, each person or entity to whom such
assignment, sale or security interest is made shall expressly covenant to Lessee
that, so long as no Event of Default shall have occurred and be continuing, such
person or entity nor anyone claiming by, through or under such person or entity
shall disturb Lessee's quiet and peaceful possession and use of the Equipment
for its intended purpose during the term of the Lease. Any assignee of Lessor
shall have all of the rights, but (unless specifically assumed) none of the
obligations, of Lessor under this Lease and Lessee agrees that it will not
assert against any assignee of Lessor any defense, counterclaim or offset that
Lessee may have against Lessor, provided that Lessor shall remain liable for
such performance. Lessee acknowledges that any assignment or transfer by Lessor
shall not materially change Lessee's duties or obligations under this Lease nor
materially increase the burdens or risks imposed on Lessee. Upon being notified
by the Lessor of an assignment Lessee shall: (a) recognize and consent to any
such assignment and reaffirm in writing the provisions of this Section with
respect thereto; (b) accept the lawful demands of such assignee; and (c) not
require any assignee of the Lease to perform any duty, covenant or condition
required to be performed by Lessor under the terms of this Lease (unless
specifically assumed); provided that Lessor shall remain liable for such
performance. Such assignment shall not affect any claims that Lessee may have
against Lessor or the right of Lessee to enforce such claim in any manner other
than Lessee's refusal to perform its obligations under this Lease.
LESSEE SHALL NOT ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR IN ANY WAY
DISPOSE OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR
ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF THE EQUIPMENT WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR.
This Lease inures to the benefit of and is binding upon the heirs,
legatees, personal representatives, and permitted successors and assigns of the
parties hereto.
17. REPORTS: (a) Lessee will immediately notify Lessor of:
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(i) Each Event of Loss or accident involving or
allegedly involving any Item;
(ii) Any Lien (other than a Lessor Lien) which
shall have attached to any Item;
(iii) Any notice from the landlord or mortgagee
of any property on which any Item of Equipment is located or from any other
person or entity which may affect the ability of Lessee to keep any Item of
Equipment at its location specified in the applicable Schedule; and
(iv) The occurrence of any Event of Default or
event which, with the lapse of time or giving of notice or both could become an
Event of Default.
(b) Lessee will within 120 days of the close of each of its
fiscal years deliver to Lessor Lessee's balance sheet, profit and loss
statement, and cash flow statement certified to by a recognized firm of
certified public accountants. Lessee will also deliver to Lessor within 60 days
of the close of each of its fiscal quarters Lessee's quarterly financial report
(which shall be in reasonable detail) certified to by the chief financial
officer of Lessee.
(c) Lessee will permit Lessor to inspect and examine the
Equipment and any Item and Lessee's records relating thereto upon reasonable
notice.
18. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF
LESSEE: (a) Lessee hereby represents and warrants to Lessor,
and agrees that the following representations and warranties shall be deemed
remade by Lessee on the date of execution of each Schedule:
(i) Lessee has full power, authority and legal
right to enter into and to perform its obligations under this Lease and all
related documents (collectively the "Documents"), is in good standing under the
laws of its jurisdiction of incorporation and is duly qualified to do business
and in good standing wherever necessary to carry on its present business and
operations, including the jurisdiction(s) where the Equipment is or is to be
located.
(ii) The Documents have been duly authorized,
executed and delivered by Lessee and constitute valid, legal and binding
agreements of Lessee, enforceable against it in accordance with their respective
terms.
(iii) No approval, consent or withholding of
objections is required from any governmental authority or instrumentality, or
any person or entity, with respect to the entry into or performance by Lessee of
the Documents except such as have already been obtained.
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(iv) The entry into and performance by Lessee
of its obligations under the Documents will not (1) violate any judgment, order,
law or regulation applicable to Lessee or any provision of Lessee's Articles or
Certificate of Incorporation or By-Laws; or (2) result in any breach of,
constitute a default under or result in the creation of any Lien, pursuant to
any indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument to which Lessee is a party.
(v) There are no suits or proceedings pending
or threatened in any court or by or before any governmental agency against or
affecting Lessee, which, if adversely determined, would have a material adverse
effect on the ability of Lessee to fulfill its obligations under this Lease or
its financial condition or prospects.
(vi) Each balance sheet, profit and loss
statement, and cash flow statement delivered to Lessor has been prepared in
accordance with generally accepted accounting principles, and since the date of
the most recent such balance sheet, profit and loss statement, and cash flow
statement, there has been no material adverse change in the financial condition
or prospects of Lessee.
The foregoing representations and warranties shall survive the
execution and delivery of this Lease and each Schedule.
(b) Lessee covenants that during the Term:
(i) The Equipment will at all times be used for
commercial or business purposes.
(ii) Lessee will not, directly or indirectly:
(1) merge with or consolidate into any other entity or permit any other entity
to merge into or with or consolidate with it unless Lessee is the surviving
corporation and its tangible net worth subsequent to such merger or
consolidation at least equals Lessee's tangible net worth prior thereto; (2)
liquidate or dissolve; (3) sell, transfer or otherwise dispose of, in any
transaction or a series of related or contemporaneous transactions, all or an
excess of forty percent of its assets; (4) redeem, purchase or otherwise
reacquire, in one or more transactions, an amount greater than forty percent of
its outstanding stock; (5) change its form or organization; or (6) change its
name or principal place of business without giving at least 30 days' prior
notice to Lessor.
19. MISCELLANEOUS: (a) Nothing herein contained shall
give or convey to Lessee any right, title or interest in and to any Equipment
leased hereunder except as a lessee. Should Lessor permit the use of any
Equipment beyond the specified Term thereof, the obligations of Lessee hereunder
shall continue (including the obligation to pay the Basic Rent at the highest
rate applicable during the Term with respect thereto) and such permissive use
shall not be construed as renewal of the Term thereof nor as a waiver of any
right or continuation of any obligation of Lessor hereunder. Lessee's
obligations pursuant to Sections 10, 11, 12 and 13 shall survive the expiration
or earlier termination of this Lease and Lessee
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shall remain liable therefor. Equipment shall at all times remain personal
property of Lessor notwithstanding any affixation to the real estate.
(b) Lessee agrees to execute any instrument or instruments
necessary or expedient for filing, recording, perfecting, or notifying of the
interest of Lessor in the Equipment upon request of, and as determined by,
Lessor. Lessee hereby specifically authorizes Lessor to file financing
statements not signed by Lessee or to execute same for and on behalf of Lessee
as Lessee's attorney-in-fact, irrevocably and coupled with an interest, for such
purposes.
(c) To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a lessee to: (i) cancel
this Lease, (ii) repudiate this Lease; (iii) reject the Equipment; (iv) revoke
acceptance of the Equipment; (v) recover damages from Lessor for any breaches of
warranty or for any other reason; (vi) a security interest in the Equipment in
Lessee's possession or control for any reason; (vii) deduct all or any part of
any claimed damages resulting from Lessor's default, if any, under this Lease;
(viii) accept partial delivery of the Equipment; (ix) "cover" by making any
purchase or lease of, or contract to purchase or lease, Equipment in
substitution for that due from Lessor; (x) recover any general, special,
incidental or consequential damages, for any reason whatsoever; and (xi) obtain
specific performance replevin, detinue, sequestration, claim and delivery or the
like for any Equipment identified to this Lease. To the extent permitted by
applicable law, Lessee also hereby waives any rights now or hereafter conferred
by statute or otherwise which may require Lessor to sell, lease or otherwise use
any Equipment in mitigation of Lessor's damages as set forth in Section 15 of
this Lease or which may otherwise limit or modify any of Lessor's rights or
remedies under Section 15.
/s/ OLV
[LESSEE'S INITIALS]
LESSOR AND LESSEE EACH WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING HEREFROM OR IN RELATION HERETO.
(d) This Lease, together with all Schedules and the
Termination, Purchase and Renewal Option Addendum, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes and replaces any prior or contradictory representations, warranties
or agreements by Lessor and Lessee, except that the provisions of the Commitment
Letter dated March 1, 1996 between Lessee and Lessor shall govern with respect
to (i) the obligations of Lessor and Lessee with respect to entering into
Schedules covering Items (and the Rent to be paid therefor), provided, however,
that Lessee shall be obligated to deliver to Lessor in connection with each
Schedule covering Items an opinion of counsel acceptable to Lessor in form and
substance substantially similar to the opinion delivered to Lessor on the date
hereof, an agreement between Lessor and Elbit Vision Systems Ltd. ("Elbit")
pursuant to which Elbit agrees to purchase any Item manufactured by it in form
and substance satisfactory to Lessor and in accordance with the March 1, 1996
Commitment Letter (if applicable) and all other documents reasonably requested
by Lessor including,
- 14 -
<PAGE>
without limitation, bills of sale, mortgagee and landlord waivers and consents,
resolutions, purchase order assignment agreements and certificates of
acceptance; (ii) funding dates, amounts and conditions; (iii) Lessee's
obligation to pay the Unused Line Fee, the Transaction Fee and the Transaction
Expenses set forth therein; and (iv) application of the Transaction Fee. Unless
set forth in a Schedule or rider hereto, signed by an authorized manager of
Lessor, Lessee shall have no right to purchase or otherwise acquire title to or
ownership of any Item. No agent or employee of any supplier or manufacturer is
authorized to bind Lessor to this Lease or any Schedule, or to waive, alter or
add to the terms and conditions printed herein and in any Schedule. THIS LEASE,
ANY AMENDMENTS TO, VARIATION OR MODIFICATION OF THIS LEASE, ANY WAIVER OF ITS
PROVISIONS OR CONDITIONS, ANY CONSENT HEREUNDER AND ALL SCHEDULES SHALL NOT BE
VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED OFFICER OR MANAGER OF LESSOR
AND LESSEE.
/s/ OLV
[LESSEE'S INITIALS]
(e) All notices, requests and other communications to any
party hereunder shall be in writing (including prepaid overnight courier,
facsimile transmission or similar writing) and shall be given to such party at
its address or telecopy number set forth below, or at such other address or
telecopy number as such party may hereafter specify for the purpose of notice to
Lessor and Lessee. Each such notice, request or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section telephonic confirmation of receipt
thereof is obtained (in the case of telecopy), or (ii) if given by mail, prepaid
overnight courier or any other means, when received at the address specified in
this Section or when delivery at such address is refused.
Lessee: With a copy to:
Texfi Industries, Inc. Braxton Schell, Esq.
5400 Glenwood Avenue #215 Schell Bray Aycock Abel & Raleigh, North
Carolina 27612 Livingston L.L.P.
Telecopy: (919) 783-4739 230 N. Elm Street
Suite 1500
Greensboro, NC 27401
Telecopy: (910) 370-8830
- 15 -
<PAGE>
Lessor: With a copy to:
NationsCredit Commercial Corporation Jan Robey Alonzo
One Canterbury Green Thompson & Mitchell
Stamford, Connecticut 06901 One Mercantile Center
Attention: Manager, Contract Suite 3400
Administration St. Louis, Missouri 63010
Telecopy: (203) 352-4171 Telecopy: (314) 342-1717
(f) If Lessee fails to perform any of its obligations
hereunder Lessor may, but shall not be obligated to, perform the same (without
such performance constituting a cure or waiver of Lessee's failure to so
perform) and Lessee will on demand reimburse Lessor for all its costs and
expenses incurred in connection therewith. In such event, all monies advanced or
expended by Lessor, and all expenses of Lessor in effecting such compliance,
shall be deemed to be additional Rent, and shall be paid by Lessee to Lessor at
the time of the next periodic payment of Rent.
(g) UNLESS OTHERWISE SPECIFIED IN A SCHEDULE OR
ADDENDA, THIS LEASE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CONNECTICUT INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF
LAWS. LESSOR AND LESSEE HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED IN CONNECTICUT, FOR ALL LEGAL PROCEEDINGS ARISING
DIRECTLY OR INDIRECTLY FROM THIS LEASE OR ANY SCHEDULE OR ANY ADDENDA AND EACH
IRREVOCABLY WAIVES ANY OBJECTION TO ANY SUCH PROCEEDING BASED ON VENUE OR
INCONVENIENT FORUM. TO THE EXTENT PERMITTED BY LAW, EACH PARTY HERETO
IRREVOCABLY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE MADE BY
SENDING THE SAME BY REGISTERED MAIL OR CERTIFIED MAIL AT ITS ADDRESS SET FORTH
HEREIN. If any provision of this Lease shall contravene or be invalid under
applicable law or regulation, such contravention or invalidity shall not affect
the entire Lease, the provisions held to be invalid to be deemed deleted or
modified and the Lease interpreted and construed as though such invalid
provision or provisions were not part hereof or conformed thereto.
20. BROKER: Lessee represents and warrants that except for Commercial
Trading Company, Inc. ("CTC"), there is no broker or other intermediary
("Broker") involved in the transaction contemplated hereby, and agrees to
indemnify and hold Lessor harmless from any claim for any brokerage commission,
fee or other compensation except that compensation which has been expressly
agreed to by Lessor with CTC. Such compensation shall be payable only in
accordance with conditions satisfactory to Lessor. No Broker or other party has
any authority to act for or bind Lessor. Lessor shall not be liable for any
expenses of any broker or intermediary, including CTC, except as expressly
provided herein.
- 16 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the 11th day of July, 1996.
NATIONSCREDIT COMMERCIAL TEXFI INDUSTRIES, INC.
CORPORATION
(Lessor) (Lessee)
By:/s/ Joel F. Raven By:/s/ Dane L. Vincent
Title: Division President Title: CFO, VP + Treasurer
- 17 -
<PAGE>
MASTER LEASE SCHEDULE
Master Lease Agreement No.: 002
Master Lease Agreement Date: July 11, 1996
Schedule No.: 001
Schedule Date: July 11, 1996
Name and Address of Lessee:
Texfi Industries, Inc.
5400 Glenwood Avenue #215
Raleigh, NC 27612
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
Equipment described below, for the term and the rental payments
provided herein, all subject to the terms and conditions of the Master
Lease Agreement referenced above.
A. Equipment
This Schedule covers the Equipment listed on Annex A attached hereto
and made a part hereof.
B. Equipment Location: See Annex A attached hereto and made a
part hereof.
C. Terms
Basic Term (number of months): sixty (60)
Commencement Date: July 11, 1996
Total Equipment Cost: $1,491,466.00
Lease Rate Factor: 1.9346666%
Monthly Rent during Basic Term: $28,854.89
D. Rent
Basic Rent payments will be due for each month of the Basic Term,
payable in advance, commencing on July 11, 1996 and subsequently on the same day
of each month thereafter. Lessee shall pay as Basic Rent the product of the
Lease Rate Factor times the Equipment Cost of all Equipment covered by this
Schedule, set forth above as the Monthly Rent during the Basic Term.
<PAGE>
E. Stipulated Loss Value
The Stipulated Loss Value of each Item of Equipment shall equal the
product of the Equipment Cost of such Item multiplied by the percentage in the
column headed "Stipulated Loss Value % of Equipment Cost" on Annex B attached
hereto corresponding to the Basic Rent payment date immediately preceding the
date of the Event of Loss.
In the event Lessee renews the Lease upon the expiration of the Basic
Term, the Stipulated Loss Value of each Item during any Renewal Term shall equal
30% of the Equipment Cost of such Item at the end of the Basic Term.
F. Miscellaneous
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule
the Commencement Date and the due date of the first Basic Rent payment.
This Schedule is executed and delivered as a Schedule to and part of
the above-referenced Master Lease Agreement.
Capitalized terms not defined herein shall have the meanings assigned
to them in the Master Lease Agreement identified above.
NATIONSCREDIT COMMERCIAL TEXFI INDUSTRIES, INC.
CORPORATION (Lessor) (Lessee)
By: /s/ Andrew J. Lloyd By: /s/ Dane L. Vincent
Title: V.P. Title: CFO, VP + Treasurer
<PAGE>
TERMINATION, PURCHASE AND RENEWAL ADDENDUM
To Master Lease Agreement Between
NationsCredit Commercial Corporation ("Lessor")
and
Texfi Industries, Inc. ("Lessee")
Dated July 11, 1996
Master Lease Agreement No. 002
This Addendum is a part of the Lease described above and applies to all
Schedules (as defined in the Lease, capitalized terms not otherwise defined
herein having the meanings assigned therein). Lessor grants an early termination
option, two purchase options and a renewal option to Lessee upon the following
terms:
1. Early Termination Option. Provided that no Event of
Default shall have occurred and be continuing, Lessee, at its option, may
terminate the Lease with respect to all, but not less than all, of the Equipment
on all Schedules for a cash purchase price equal to the Stipulated Loss Value
for the Equipment plus a premium in the amount of five percent (5%) of the
Stipulated Loss Value for the Equipment. In order to exercise such option,
Lessee shall notify Lessor in writing of Lessee's irrevocable intention to
exercise such option at least ninety (90) days prior to the Basic Rent payment
date in October 1999 for Schedule No. 1. The purchase price and premium payment
for all Equipment subject to each Schedule shall be paid by Lessee to Lessor in
cash on or before the Basic Rent payment date in October 1999 for each Schedule.
Once Lessee exercises this option it shall be obligated to acquire all
Equipment subject to all Schedules and the termination shall occur, as to all
Equipment subject to any Schedule, on the Basic Rent payment date in October
1999 with respect to such Schedule. Upon termination of the Lease under this
Section 1 and payment of the cash purchase price and premium, Lessor shall
transfer to Lessee all of the Equipment on all Schedules. Such transfer of
Lessor's interest in the Equipment shall be on an "as-is", "where-is", "with all
faults" basis with no representation or warranty by Lessor other than that the
Equipment is free and clear of Lessor Liens and that Lessor has not conveyed any
interest in any of the Equipment to any third party. Lessee shall pay any
applicable sales or other taxes assessed thereon.
2. End of Term Options.
A. Initial Purchase Option. Upon expiration of the
Basic Term of each Schedule and payment by Lessee of all rentals and other sums
due as set forth in the Schedules, and provided that no Event of Default shall
have occurred and be continuing, Lessee, at its option, may purchase all, but
not less than all, of the Equipment on all Schedules for a cash purchase price
equal to the aggregate of 20% of the Equipment Cost with respect to the
Equipment manufactured by Elbit Vision Systems Ltd. plus 30% of the Equipment
Cost for all other Equipment. In order to exercise such option, Lessee shall
notify Lessor in writing of Lessee's irrevocable intention to
<PAGE>
exercise such option at least ninety (90) days prior to the expiration of the
Basic Term for Schedule No. 1.
Such purchase shall be on an "as-is", "where-is", "with all faults"
basis with no representation or warranty by Lessor other than that the Equipment
is free and clear of Lessor Liens and that Lessor has not conveyed any interest
in any of the Equipment to any third party. Lessee shall pay any applicable
sales or other taxes assessed thereon. Once Lessee exercises this option it
shall be obligated to acquire all Equipment subject to all Schedules and the
purchases shall occur, as to all Equipment subject to any Schedule, at the end
of the Basic Term with respect to such Schedule.
The purchase price for all Equipment subject to each Schedule shall be
paid by Lessee to Lessor in cash on or before the expiration of the Basic Term
of such Schedule.
B. Renewal Option. If the Lessee for any reason does not give
notice to Lessor pursuant to Section 2(A) above of its election to purchase the
Equipment or does not fulfill the Equipment purchase terms in accordance with
Section (2)(A) hereof, the Basic Term set forth in each Schedule shall
automatically be extended for an additional term of twenty-four (24) months (the
"Renewal Term"). All of the terms and conditions of the Lease shall apply during
the Renewal Term except that Basic Rent during the Renewal Term shall equal
fifty percent (50%) of the Basic Rent for the Equipment during the Basic Term.
3. Subsequent Purchase Option. So long as Lessee has
exercised the Renewal Option and no Event of Default exists, Lessee may elect to
purchase all, but not less than all, of the Equipment on all Schedules at the
end of each Renewal Term thereof for a cash purchase price equal to its then
fair market value and otherwise on the terms and conditions set forth for the
Basic Term purchase option in Section 2(A) hereof. "Fair market value" shall be
determined as follows: In the event that Lessor and Lessee do not agree on such
fair market value before the 90th day prior to the end of the Renewal Term for
Schedule No. 1, fair market value shall be determined by an independent
appraiser selected by Lessee and acceptable to Lessor. The fees and expenses of
such appraiser shall be paid by Lessee. In order to exercise such option, Lessee
shall notify Lessor in writing of Lessee's irrevocable intention to exercise
such option at least ninety (90) days prior to the expiration of the Renewal
Term for Schedule No. 1. If Lessee does not elect to purchase the Equipment,
Lessee shall return all Equipment to Lessor at the expiration of the Renewal
Term applicable to each Schedule in accordance with the terms of the Lease.
NATIONSCREDIT COMMERCIAL TEXFI INDUSTRIES, INC.
CORPORATION (Lessor) (Lessee)
By:/s/ Joel F. Raven By: /s/ Dane L. Vincent
Title: Division President Title: CFO, VP + Treasurer
<PAGE>
Exhibit 11
TEXFI INDUSTRIES, INC.
Computation of Earnings Per Share
Fiscal Year
1996 1995 1994
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING: 8,650,690 8,652,621 7,696,416
Stock options exercised ........... 84,801 3,068 1,381
Stock tendered as payment for
option shares ................... -- -- --
Stock issued (canceled) under
restricte stock plan............. -- (5,000) (6,385)
Treasury stock sold................ -- -- 924,000
Deferred compensation.............. -- -- 37,209
------- -------- -------
Balance at end of period .. 8,735,491 8,650,69 8,652,621
========== ======== =========
PRIMARY:
Net loss (see Note 1)................ $(17,579,000) $(16,914,000 $(8,351,000)
============ ============ ============
Weighted average number of shares
outstanding:
Stock outstanding for the
period based on a daily weighted
average ........................ 8,696,177 8,651,668 8,107,507
Stock equivalents - outstanding stock
options computed on the treasury stock
method using average market
price ........................ -- -- --
------------- ------------ -------
Weighted average number of shares
outstanding ................... 8,696,177 8,651,668 8,107,507
============ =========== ============
Per share amounts:
Net loss ....................... ($2.02) $(1.96) $(1.03)
========== ========= =========
FULLY DILUTED:
Net loss (see Note 1) ........... $(17,579,000) $(16,914,000) $ (8,351,000)
Add interest on convertible
debentures, net of income tax
effect ......................... 417,000 425,000 397,000
----------- ----------- ----------
Net loss ....................... $(17,162,000) $(16,489,000) $ (7,954,000)
============= ============ ============
Weighted avg. number of shares
outstanding:
Stock outstanding for the
period based on a daily weighted
average ..... 8,696,177 8,651,668 8,107,507
Stock equivalents - outstanding
stock options computed on the
treasury stock method by using
end-of-period market prices in
lieu of average market
prices ......................... -- -- --
Increase in common shares assuming
conversion of the 11-1/4% Convertible
Senior Subordinated Debentures .... 528,647 528,647 528,647
----------- ----------- ------------
Weighted average number of shares
outstanding ....................... 9,224,824 9,180,315 8,636,154
=========== ============ ============
Per share amounts:
Excluding Convertible Debenture
Shares:
Net loss ...................... $(2.02) $(1.96) $(1.03)
========== ========= =========
Including Convertible Debenture
Shares:
Net loss ....................... $(1.86) $(1.80) $(0.92)
========== ========= =========
NOTE 1: Refer to Notes to the Consolidated Financial Statements appearing in
Registrant's 1996 Annual Report to Stockholders included as item 8 of this
document.
<PAGE>
EXHIBIT 21
SUBSIDIARY OF TEXFI INDUSTRIES, INC.
Casualwear Express, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
2-79384 on Form S-8 dated September 15, 1982, No. 33-14697 on Form S-8 dated May
26, 1987, No. 33-22584 on Form S-8 dated June 16, 1988, No. 33-22592 on Form S-8
dated June 16, 1988, No. 33-25313 on Form S-8 dated October 31, 1988, No.
33-31969 on Form S-8 dated November 6, 1989, No. 33-34836 on Form S-8 dated May
11, 1990, No. 33-34293 on Form S-8 dated April 11, 1990, No. 33-38527 on Form
S-8 dated December 31, 1990, No. 33-40298 on Form S-8 dated April 29, 1991, No.
33-47601 on Form S-8 dated April 30, 1992, and No. 33-60565 on Form S-8 dated
June 26, 1995 of our report dated December 9, 1996, except for Note 5 as to
which the date is January 30, 1997, with respect to the consolidated financial
statements and schedule of Texfi Industries, Inc. and subsidiary included in the
Annual Report (Form 10-K) for the year ended November 1, 1996.
Raleigh, North Carolina
January 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-01-1996
<PERIOD-START> NOV-04-1995
<PERIOD-END> NOV-01-1996
<CASH> 418
<SECURITIES> 0
<RECEIVABLES> 46,469
<ALLOWANCES> 1,899
<INVENTORY> 22,179
<CURRENT-ASSETS> 68,468
<PP&E> 111,680
<DEPRECIATION> 64,117
<TOTAL-ASSETS> 114,190
<CURRENT-LIABILITIES> 40,907
<BONDS> 36,943
0
0
<COMMON> 33,921
<OTHER-SE> (47,062)
<TOTAL-LIABILITY-AND-EQUITY> 114,190
<SALES> 192,150
<TOTAL-REVENUES> 192,150
<CGS> 166,173
<TOTAL-COSTS> 183,327
<OTHER-EXPENSES> (7)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,254
<INCOME-PRETAX> (1,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,424)
<DISCONTINUED> (16,185)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,579)
<EPS-PRIMARY> (2.02)
<EPS-DILUTED> (2.02)
</TABLE>
