<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 29, 1999
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File Number - 1-6797
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TEXFI INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-0795032
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Broadway, 13th Floor, New York, New York 10018
---------------------------------------------------
(Address of principal executive offices)
(ZIP Code)
(212) 930-7200
----------------------------------------------------
(Registrant's telephone number, including area code)
Number of shares of Common Stock outstanding
at ______________- 8,859,098
----------
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
----- -----
<PAGE>
TEXFI INDUSTRIES, INC.
----------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED JANUARY 29, 1999
--------------------------------------
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Consolidated Financial Statements
Texfi Industries, Inc. (the Company") has prepared the consolidated financial
statements included herein, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. The consolidated balance sheet as of
October 30, 1998 has been taken from the audited financial statements as of that
date. Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K.
The consolidated financial statements included herein reflect all adjustments
(none of which are other than normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the information
included. Operating results for the thirteen-week period ended January 29, 1999
are not necessarily indicative of the results that may be expected for the year
ended October 29, 1999. The following consolidated financial statements are
included:
Consolidated Statements of Income for the thirteen weeks ended January 29,
1999 and January 30, 1998
Consolidated Balance Sheets as of January 29, 1999 and October 30, 1998
Consolidated Statements of Cash Flows for the thirteen weeks ended January
29, 1999 and January 30, 1998
Condensed Notes to Consolidated Financial Statements
2
<PAGE>
TEXFI INDUSTRIES, INC.
----------------------
CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
Thirteen Weeks Ended January 29, 1999 and January 30, 1998
(Dollar amounts in thousands except number of shares and per share data)
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Net sales $ 27,192 $ 41,776
Cost and expenses:
Cost of goods sold 25,225 36,494
Selling, general and administrative 2,347 2,872
------------------------------------------
Total 27,572 39,366
Operating (loss) income (380) 2,410
Other expense (income):
Interest 2,220 2,154
Impairment loss on joint venture - 1,154
Other, net - (1)
------------------------------------------
Total 2,220 3,307
Net loss $ (2,600) $ (897)
==========================================
Weighted average number of shares 8,859,098 8,859,098
==========================================
Basic and diluted net loss per share $(.29) $(.10)
==========================================
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
TEXFI INDUSTRIES, INC.
----------------------
CONSOLIDATED BALANCE SHEETS
January 29, 1999 and October 30, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
(Unaudited)
----------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 211 $ 162
Receivables:
Due from factor 17,764 22,530
Trade, less allowances 4,862 7,829
Other 93 85
Inventories 11,548 13,346
Prepaid expenses 966 964
----------------------------------------
Total current assets 35,444 44,916
Property, plant and equipment - net 23,878 24,882
Property, plant and equipment held for disposal-net
351 368
Other assets 1,811 1,686
----------------------------------------
Total assets $ 61,484 $ 71,852
========================================
Liabilities and shareholders' deficit
Current liabilities:
Current maturities of long-term debt $ 1,200 $ 1,200
Current maturities of subordinated debentures 34,371 34,371
Accounts payable 20,427 22,503
Other liabilities 4,195 3,833
----------------------------------------
Total current liabilities 60,193 61,907
Revolving credit line 19,306 25,144
Long-term debt 11,563 11,766
Subordinated debentures 2,354 2,354
Other long-term obligations 179 192
----------------------------------------
Total liabilities 93,595 101,363
Shareholders' deficit:
Common stock, $1.00 par value 8,859 8,859
Additional paid-in capital 25,534 25,534
Accumulated deficit (66,504) (63,904)
----------------------------------------
Total shareholders' deficit (32,111) (29,511)
----------------------------------------
Total liabilities and shareholders' deficit $ 61,484 $ 71,852
========================================
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
TEXFI INDUSTRIES, INC.
----------------------
Thirteen Weeks Ended January 29, 1999 and January 30, 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(Dollar Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Operating activities
Net loss $(2,600) $ (897)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Impairment loss on joint venture - 1,154
Depreciation and amortization 1,199 1,438
Provision for losses on accounts receivable
(45) -
Gain on disposition of property, plant and equipment
(1) (1)
Change in operating assets and liabilities:
Receivables 7,770 8,140
Inventories 1,798 1,063
Prepaid and other assets (142) (1,437)
Accounts payable and other liabilities
(1,727) (6,870)
------------------------------------------
Net cash provided by operating activities 6,252 2,590
Investing activities
Purchases of property, plant and equipment (86) (894)
Proceeds from sale of property, plant and equipment
1 1,490
------------------------------------------
Net cash (used in) provided by investing activities
(85) 596
Financing activities
Net payments from revolving credit (5,838) (2,638)
Payments on long-term debt (203) (175)
Investment in joint venture - (1,154)
Capitalized loan costs (77) (342)
------------------------------------------
Net cash used in financing activities (6,118) (4,309)
Increase (decrease) in cash and cash equivalents
49 (1,123)
Cash and cash equivalents at beginning of period
162 1,434
Cash and cash equivalents at end of period $ 211 $ 311
==========================================
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
TEXFI INDUSTRIES, INC.
----------------------
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
January 29, 1999
1. Details of certain balance sheet captions at January 29, 1999 and October 30,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
INVENTORIES:
1999 1998
----------------------------------------
(In Thousands)
<S> <C> <C>
Finished goods $ 2,451 $ 3,338
Goods in process 5,545 6,299
Raw materials 2,084 2,294
Supplies 2,070 2,017
----------------------------------------
Total 12,150 13,948
Less reserves 602 602
Inventories - net $11,548 $13,346
========================================
<CAPTION>
PROPERTY, PLANT AND EQUIPMENT:
1999 1998
----------------------------------------
(In Thousands)
<S> <C> <C>
Land and land improvements $ 2,220 $ 2,220
Buildings 16,019 16,019
Machinery and equipment 60,968 61,022
Construction in progress 733 638
----------------------------------------
Total 79,940 79,899
Less accumulated depreciation 56,062 55,017
Property, plant and equipment - net
$23,878 $24,882
========================================
<CAPTION>
LONG TERM DEBT:
1999 1998
----------------------------------------
(In Thousands)
<S> <C> <C>
Term loan with variable interest
$12,763 $12,966
Less current maturities 1,200 1,200
Due after one year $11,563 $11,766
========================================
<CAPTION>
SUBORDINATED DEBENTURES:
1999 1998
----------------------------------------
(In Thousands)
<S> <C> <C>
Senior Subordinated Debentures, 8-3/4%, due
August 1, 1999 $34,371 $34,371
Subordinated Extendible Debentures, 11%, due
April 1, 2000 (Series C) 2,354 2,354
----------------------------------------
Total 36,725 36,725
Less current maturities 34,371 34,371
----------------------------------------
Due after one year $ 2,354 $ 2,354
========================================
</TABLE>
6
<PAGE>
2. At January 29, 1999, shares of common stock were reserved for possible
issuance as follows:
Stock options 858,099
Stock options granted to entities
affiliated with certain Company
former executive officers. 1,200,000
1990 Executive Stock Purchase Plan 283,892
Directors' Deferred Stock Compensation Plan 57,153
Total 2,399,144
===================
3. At the end of the 1999 first fiscal quarter, the Company was in violation of
the August 28, 1998 credit and term loan facility's debt service coverage
ratio, minimum capital funds requirement, and non-payment of certain real
property taxes and equipment operating leases. On February 25, 1999, the
Company entered into a Forbearance Agreement which provided that during the
forbearance period defined as February 25 through May 28, 1999, the credit
facility lenders would not, solely by reason of the defaults noted, exercise
any right or remedy available upon default other than those expressly set
forth in the Forbearance Agreement. The Forbearance Agreement (a) revised
the Borrowing Base definition to include a reserve for certain real property
taxes, (b) replaced the debt service coverage ratio and minimum capital
funds requirement with an EBITDA financial requirement, and (c) expanded
periodic reporting requirements.
The Forbearance Agreement was conditioned on the deferral of interest and
principal payments due by the Company on its subordinated debentures and the
receipt of $1.5 million in cash, representing the net proceeds of a
subordinated loan made by Moore Assets International Limited ("MAI"). In
addition, the Forbearance Agreement required that the net proceeds from the
MAI subordinated loan to be applied to the revolving credit line and the
Company is prohibited from payment of interest or principal on the MAI
subordinated loan.
Subsequent to yearend, the Company failed to (a) make the February 1, 1999
interest payment due on the 8-3/4% Debentures which approximated $1.5
million, (b) make the April 1, 1999 interest payment due on the Series C
Debentures which approximated $153,000, and (c) honor the approximately $1.5
million in Series C Debentures put to the Company for redemption at the
option of Series C Debenture holders.
9
<PAGE>
In May 1999, certain executive officers and entities affiliated with those
officers sold their combined interest approximating 23% of the Company's common
stock outstanding to Whitecross Limited, a Bahamas holding company. In
conjunction therewith, Mr. Richard L. Kramer resigned as a director and Chairman
of the Board of Directors. In addition, Mr. William L. Remley resigned as Chief
Executive Officer, director, and Vice Chairman of the Board. The Board named Mr.
Andrew J. Parise, Jr. as Chairman of the Board of Directors and Chief Executive
Officer in addition to his responsibilities as President and Chief Operating
Officer.
In May 1999, the Company reached a settlement with Mentmore Holdings Corporation
("Mentmore"), an entity affiliated with certain of the Company's former
executive officers whereby after August 1, 1998, the Company would receive
management consulting services from and would provide office space and
administrative services to Mentmore at no charge. The Company agreed to pay
Mentmore approximately $56,000, representing the net amount due to Mentmore for
management consulting services received and office space and administrative
services provided prior to August 1, 1998. Mentmore deferred payment of this
obligation without interest until July 31, 1999.
At the end of the 1999 second fiscal quarter, the Company was in violation of
the February 25, 1999 credit and term loan facility's Forbearance Agreement's
EBITDA financial requirement and failure to pay interest on the 8-3/4%
Debentures and Series C Debentures and to honor the Series C Debentures put to
the Company for redemption on April 1, 1999. On May 28, 1999, the Company
negotiated Amendment Number 1 to the Forbearance Agreement and Amendment Number
3 to the Loan Agreement (the "Amendment"). The Amendment (a) reduced the credit
facility from $40.0 million to $30.0 million, (b) revised the period end EBITDA
financial requirements, (c) limited Borrowing Base availability on specific in-
house trade accounts receivable customers, and (d) increased applicable interest
rate margins.
The Amendment extends the initial Forbearance period by 120 days through
September 28, 1999. The extension period is separated into two sixty day
periods, each contingent upon the Company raising an additional $1.0 million in
subordinated financing. The first extension period runs through July 28, 1999
pursuant to the May 28, 1999 receipt of $1.0 million in cash, representing the
net proceeds of a subordinated loan made by MAI. In addition, the Amendment
required that the net proceeds from this MAI subordinated loan similarly be
applied to the revolving credit line and the Company is prohibited from payment
of interest or principal on either MAI subordinated loan.
10
<PAGE>
4. Basic net loss per share was determined by dividing net loss by the
weighted average number of shares outstanding during each year. Diluted
net loss per share reflects the potential dilution that could occur
assuming conversion or exercise of all convertible securities and issued
and unexercised stock options. Options to purchase shares of common stock
were not included in the computation of diluted net loss per share because
the options' exercise price was greater than the average market price of
the common shares and, therefore, the effect would be antidilutive.
5. The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
consolidated financial statements and accompanying footnotes. Actual
results may differ from those estimates and assumptions.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
=====================
Net sales for the thirteen weeks ended January 29, 1999 decreased to
$27,192,000 as compared to net sales of $41,776,000 for the thirteen weeks ended
January 30, 1998. This $14,584,000 (34.9%) decrease resulted from lower sales
volume at the Company's Blends operations which was primarily attributable to
unusually high imports of competing fabrics and finished apparel from Asia into
the United States' markets, specifically the Company's missy and junior wear
markets.
For the comparable thirteen-week period, cost of goods sold, as a
percentage of net sales, increased 5.4% from 87.4% in 1998 to 92.8% in 1999. The
first quarter 1999 increase was caused primarily by fixed manufacturing costs
increasing as a percentage of net sales while the Company operated at a reduced
schedule in order to avoid increasing inventory levels to accommodate the
December holiday season and lower January orders as compared to the prior year.
Selling, general and administrative expenses ("SG&A") increased from 6.9%
to 8.6% as a percentage of net sales for the thirteen weeks ended January 29,
1999 as compared to the same period in 1998. The increase reflected fixed costs
that were spread over the declining sales volume.
Interest expense for the first quarter of 1999 remained consistent at $2.2
million as compared to the first quarter of 1998.
On December 18, 1997 the Company divested its interest in the joint venture
Rival Sport, LLC ("Rival") by selling its 50% ownership interest to an entity
affiliated with certain of the Company's then executive officers. The Company
received a secured $4.5 million ten-year note which bore interest at 5.0% per
annum, payable at maturity. In the first quarter of fiscal 1998, the Company
determined that as a result of continued and anticipated future losses at Rival
and in light of the terms of the note there had been a permanent impairment to
its net investment in Rival and accordingly recorded an additional $1.1 million
impairment against its net investment in Rival, thus reserving the full value of
the note. Subsequent to the end of the first fiscal quarter 1999, management
was informed that the note may be of no collectible value.
12
<PAGE>
Financial Condition:
During 1999 and 1998, 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 generally been lower in the first
quarter of the fiscal year than in subsequent quarters while cash requirements
increase due to the seasonal timing of certain cash payments.
As of January 29, 1999, the Company's working capital showed a deficit of
$24.8 million; a decrease of $7.8 million from October 30, 1998. This decrease
is due primarily to reductions in receivables of $7.7 million and inventory of
$1.8 million which more than offset decreases in accounts payable and accrued
expenses of $1.7 million.
During the first fiscal quarter of 1999, operating activities generated net
cash of $6.3 million. This cash was generated as a result of the $2.6 million
net loss adjusted for depreciation and amortization of $1.2 million, together
with a decrease in accounts receivable of $7.7 million and inventories of $1.8
million which offset increases in prepaid and other assets of $142,000 and
decreases in accounts payable and other liabilities of $1.7 million. Cash flow
from operations provided funds to repay long-term debt of $203,000, purchase
property, plant and equipment totaling $85,000, pay loan amendment costs of
$77,000 and reduce the revolving line of credit $5.8 million.
At the end of the 1998 second fiscal quarter, the Company was in violation
of its amended and restated March 15, 1996 credit facility's financial ratios
and minimum availability requirement. On June 5, 1998, the Company entered into
a Forbearance Agreement which provided that during the forbearance period
defined as June 5 through July 24, 1998, the credit facility lenders would not,
solely by reason of the defaults noted, exercise any right or remedy available
upon default other than those expressly set forth in the Forbearance Agreement.
The Forbearance Agreement was conditioned on the deferral of management fees to
an entity owned by certain Company executive officers and the execution by this
entity of a guaranty of secured obligations to the extent of $1.0 million. In
consideration, the entity received from the Company a ten-year option to
purchase 600,000 shares of common stock and an amendment of the purchase price
and option period related to that entity's previous option to purchase 600,000
shares of common stock.
13
<PAGE>
Financial Condition-continued
On August 28, 1998, the Company entered into a $40.0 million credit facility
that expires on August 31, 2000. Net proceeds of $22.8 million from the credit
facility were applied toward repayment of the previous revolving credit line.
The credit facility is secured by a first lien on substantially all of the
Company's working capital assets and a second lien on substantially all of the
Company's property, plant and equipment. The second lien position is subordinate
to the security interests of Back Bay Capital, LLC securing the term loan
entered into on August 28, 1998 and as more fully described below. The credit
facility currently provides for the Company to elect interest rates based upon a
Eurodollar or prime interest rate plus applicable margin. In addition, the
Company may choose interest periods of 1, 2, 3 or 6 months with respect to its
Eurodollar rate elections. As of January 29, 1999, funds available under the new
credit facility, which represents the difference between the Borrowing Base as
defined by the facility agreement and the revolving credit line outstanding,
approximated $1.2 million.
On August 28, 1998, the Company also entered into a $13.0 million term loan
with Back Bay Capital, LLC. The $12.6 million in net proceeds from the term
loan were applied toward the term loan ($8.0 million) outstanding under the
previously existing credit facility and revolving credit line ($4.6 million) of
the new credit facility. The new term loan is payable in 23 equal monthly
installments of $100,000 beginning October 1, 1998 with a balloon payment on
August 31, 2000. The term loan is secured by a first lien on substantially all
of the Company's property, plant and equipment, with a second lien on
substantially all of the Company's working capital assets. The second lien is
subordinate to the aforesaid revolving credit facility's security interest. The
term loan provides for interest on the unpaid principal balance at 12.0% per
annum payable monthly in arrears. There is an additional provision for 3.0% per
annum interest that is accrued and added to the unpaid principal balance monthly
in arrears.
Both the credit and term loan facilities place 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 maintain minimum capital funds and comply with a debt service
coverage ratio, each as defined by the facilities. In addition, the Company is
required to consummate an exchange offer with the holders of not less that $27.1
million in principal of its 8-3/4% Senior Subordinated Debentures due August 1,
1999 on or before April 30, 1999 on terms as set forth in the facilities.
14
<PAGE>
Financial Condition-continued
At the end of the 1999 first fiscal quarter, the Company was in violation of
the August 28, 1998 credit and term loan facility's debt service coverage ratio,
minimum capital funds requirement, and non-payment of certain real property
taxes and equipment operating leases. On February 25, 1999, the Company entered
into a Forbearance Agreement which provided that during the forbearance period
defined as February 25 through May 28, 1999, the credit facility lenders would
not, solely by reason of the defaults noted, exercise any right or remedy
available upon default other than those expressly set forth in the Forbearance
Agreement. The Forbearance Agreement (a) revised the Borrowing Base definition
to include a reserve for certain real property taxes, (b) replaced the debt
service coverage ratio and minimum capital funds requirement with an EBITDA
financial requirement, and (c) expanded periodic reporting requirements.
The Forbearance Agreement was conditioned on (a) the deferral of interest
and principal payments due by the Company on any of its subordinated debentures
and (b) the receipt of $1.5 million in cash, representing the net proceeds of a
subordinated loan made by Moore Assets International Limited ("MAI"), a company
organized under the International Business Companies Act of the Commonwealth of
the Bahamas. In addition, the Forbearance Agreement required that the net
proceeds from the MAI subordinated loan be applied to the revolving credit line
and the Company is prohibited from payment of interest or principal on the MAI
subordinated loan.
At the end of the 1999 second fiscal quarter, the Company was in violation
of the February 25, 1999 credit and term loan facility's Forbearance Agreement's
EBITDA financial requirement and failure to pay interest on the 8-3/4%
Debentures and Series C Debentures and Series C Debentures put to the Company
for redemption on April 1, 1999. On May 28, 1999, the Company negotiated
Amendment Number 1 to the Forbearance Agreement and Amendment Number 3 to the
Loan Agreement (the "Amendment"). The Amendment (a) reduced the credit facility
from $40.0 million to $30.0 million, (b) revised the period end EBITDA financial
requirements, (c) limited Borrowing Base availability on specific in-house trade
accounts receivable customers, and (d) increased applicable interest rate
margins. The Amendment extends the initial Forbearance period by 120 days
through September 28, 1999. The extension period is separated into two sixty day
periods, each contingent upon the Company raising an additional $1.0 million in
subordinated financing. The first extension period runs through July 28, 1999
pursuant to the May 28, 1999 receipt of $1.0 million in cash, representing the
net proceeds of a subordinated loan made by MAI. In addition, the Amendment
required that the net proceeds from this MAI subordinated loan similarly be
applied to the revolving credit line and the Company is prohibited from payment
of interest or principal on either MAI subordinated loan.
15
<PAGE>
Financial Condition-continued
As of January 29, 1999, the Company had outstanding approximately $34.4
million of its Senior Subordinated Debentures due August 1, 1999 ("8-3/4%
Debentures"). 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. The debenture definition of
indebtedness does not include revolver credit line borrowings or operating lease
obligations. The Company was prohibited from incurring additional indebtedness.
In August 1998, the Company executed a Third Supplemental Indenture whereby,
the requisite 8-3/4% Debenture holders waived the restriction on the incurrence
of additional indebtedness with respect to both the August 28, 1998 Revolving
Credit Facility and Term Loan and Security Agreements referred to above and
eliminated the monthly $600,000 sinking fund deposits which were scheduled to
begin on the last business day of September 1998.
Subsequent to yearend, the Company failed to make the February 1, 1999
interest payment due on the 8-3/4% Debentures which approximated $1.5 million.
As of January 29, 1999, the Company had approximately $2.4 million of its
Series C Debentures due April 1, 2000. 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. The Series C Debentures are redeemable on April 1, 1999,
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.
Subsequent to yearend, the Company failed to make the April 1, 1999
interest payment due on the Series C Debentures which approximated $153,000 and
failed to honor the approximately $1.5 million in debentures put to the Company
for redemption at the option of Series C Debenture holders.
16
<PAGE>
Management believes that cash flows from operations and funds available
under the current revolving credit line may not provide the Company with
sufficient funds to meet its fiscal 1999 cash needs, assuming no significant
improvement in current market conditions or interest rates. Management,
therefore, intends to explore various alternatives to the need for additional
working capital, including the possibility of filing for a reorganization under
the United States Bankruptcy code and /or raising additional capital from third
parties. Because the Company's recurring losses from operations and net capital
deficiency raise substantial doubt about its ability to continue as a going
concern, Ernst & Young, the Company's independent auditors issued a going
concern opinion on the Company's 1998 consolidated financial statements.
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.
17
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibits to this report are listed in the accompanying index to
exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 29,
1999.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXFI INDUSTRIES, INC.
(Registrant)
Date: June 7, 1999 By:/S/Robert P. Ambrosini
---------------------------------
Robert P. Ambrosini
Chief Financial Officer and
Executive Vice President
(Principal Accounting Officer)
19
<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).
<PAGE>
*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) Indenture dated September 8, 1993 between Registrant and The 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)(3) 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
Report as of March 15, 1996.
*4(a)(4) 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
Report as of March 15, 1996.
*4(a)(5) Tripartite Agreement dated as of August 14, 1998, between Registrant,
First Union National Bank, formerly known as First Union National Bank
of North Carolina, as Initial Trustee, and Norwest Bank, Minnesota,
National Association, as successor Trustee filed as Exhibit 4(a)(5) to
Registrant's Form 10-Q Quarterly Report for the fiscal quarter ended
July 31, 1998.
*4(a)(6) Third Supplemental Indenture dated as of August 28, 1998, between
Registrant and Norwest Bank, Minnesota, National Association, as
successor Trustee filed as Exhibit 4(a)(6) to Registrant's Form 10-Q
Quarterly Report for the fiscal quarter ended July 31, 1998.
*4(b)(1) Specimen Common Stock ($1 par value) certificates, filed as
Exhibit 4.01 to Amendment No. 2 to Registrant's
21
<PAGE>
Form S-1 Registration Statement (No. 2-41653).
*4(d)(1) Amended and Restated Loan and Security Agreement dated December 19,
1997 to the Credit Agreement dated March 15, 1996 among Registrant, as
Borrower, the Financial Institutions referred to therein, and
BankBoston, N.A., as Agent filed as Exhibit 4(d)(14) to Registrant's
Form 10-K for the fiscal year ended October 31, 1997.
*4(d)(2) Forbearance Agreement dated June 5, 1998 among Registrant, as
Borrower, the Financial Institutions referred to therein, and
BankBoston, N.A., as Agent, filed as Exhibit 4(d)(15) to Registrant's
Form 10-Q filed for the fiscal quarter ended May 1, 1998.
*4(d)(3) Forbearance Agreement Extension dated July 21, 1998 among Registrant,
as Borrower, the Financial Institutions referred to therein, and
BankBoston, N.A., as Agent, filed as Exhibit 4(d)(16) to Registrant's
Form 10-Q filed for the fiscal quarter ended July 30, 1998.
*4(d)(4) Forbearance Agreement Extension dated August 21, 1998 among
Registrant, as Borrower, the Financial Institutions referred to
therein, and BankBoston, N.A., as Agent, filed as Exhibit 4(d)(17) to
Registrant's Form 10-Q filed for the fiscal quarter ended July 30,
1998.
*4(d)(5) Loan and Security Agreement dated August 28, 1998 among Registrant, as
Borrower, the Financial Institutions referred to therein, and
BankBoston, N.A., as Agent, filed as Exhibit 4(d)(18) to Registrant's
Form 10-Q for the fiscal quarter ended July 30, 1998.
*4(d)(6) Term Loan and Security Agreement dated August 28, 1998 among
Registrant, as Borrower and Back Bay Capital LLC, filed as Exhibit
4(d)(19) to Registrant's Form 10-Q filed for the fiscal quarter ended
July 30, 1998.
*4(d)(7) Ledger Debt Payment Agreement dated August 28, 1998 among Registrant,
as Borrower and the CIT Group/Commercial Services, Inc., filed as
Exhibit 4(d)(20) to Registrant's Form 10-Q for the fiscal quarter
ended July 30, 1998.
*4(d)(8) Forbearance Agreement dated February 25, 1999 among Registrant, as
Borrower, the Financial Institutions referred to therein, and
BankBoston, N.A., as Agent, and Back Bay Capital LLC, filed as Exhibit
4(d)(13) to Registrant's Form 10-K Annual Report for the fiscal year
ended October 30, 1998.
22
<PAGE>
*4(d)(9) Subordinated note dated February 26, 1999 between Registrant, as
payor, and Moore Assets International Limited, filed as Exhibit
4(d)(14) to Registrant's Form 10-K Annual Report for the year ended
October 30, 1998.
4(d)(10) Amendment Number 1 to Forbearance Agreement and Amendment Number 3 to
Loan Agreement dated May 28, 1999 among Registrant, as Borrower, the
Financial Institutions referred to therein, and BankBoston, N.A., as
Agent, and Back Bay Capital LLC.
* Incorporated by reference to previous filing.
23
<PAGE>
AMENDMENT NO. 1 TO
FORBEARANCE AGREEMENT
AND
AMENDMENT NO. 3
TO LOAN AGREEMENT
THIS AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT is made as of May 28,
1999 by and among TEXFI INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. and THE CIT GROUP/COMMERCIAL SERVICES, INC. (the
"Lenders") and BANKBOSTON, N.A., as the agent (the "Agent") for the Lenders,
BANCBOSTON LEASING INC., a Massachusetts corporation ("BBL"), and BACK BAY
CAPITAL FUNDING LLC, a Delaware limited liability company ("Back Bay").
Preliminary Statement
The Borrower, the Lenders and the Agent are parties to a Loan and
Security Agreement dated as of August 28, 1998, as amended by Amendment No. 1
dated as of December 14, 1998 and Amendment No. 2 dated as of February 25, 1999
(said Agreement, as so amended, the "Loan Agreement") and the Borrower, the
Lenders, the Agent, BBL and Back Bay are parties to the Forbearance Agreement
dated as of February 28, 1999 (the "Forbearance Agreement", terms defined
therein or by reference therein and not otherwise defined herein being used
herein as therein defined).
Events of Default have occurred and are continuing under the Loan
Agreement as described on Schedule 1 (the "Loan Agreement Defaults"). The other
Forbearance Defaults have occurred and are continuing as described on Schedule
2. Additionally, the Borrower is in default under the Forbearance Agreement by
reason of its failure to comply with Section 2(c) and Section 3(b) as described
on Schedule 3 (the "Additional Defaults"). All Loan Agreement Defaults,
Forbearance Defaults and the Additional Defaults referred to in this paragraph
and any continuation or repetition of such specified Loan Agreement Defaults,
Forbearance Defaults and Additional Defaults, are referred to hereinafter as the
"Existing Forbearance Defaults."
The Borrower has requested that the Forbearance Period be extended from
May 28, 1999 to July 28, 1999 and the Lenders, the Agent, BBL and Back Bay have
agreed to such extension upon and subject to all of the terms, conditions and
provisions hereof. Further, the Borrower has requested that the Revolving Credit
Facility be reduced from $40,000,000 to $30,000,000 and the Agent and the
Lenders have agreed to such reduction upon and subject to all of the terms,
conditions and provisions hereof
Accordingly, in consideration of the Loans, the Term Loan outstanding
under and
<PAGE>
as defined in the Back Bay Agreement, the Equipment Leases, the mutual
undertakings hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
Section 1. Acknowledgments and Agreements by Borrower. The Borrower
------------------------------------------
acknowledges and agrees that:
(i) Existing Forbearance Defaults have occurred and now exist under the
Forbearance Agreement, the Loan Agreement, the other Loan Documents, the
Existing Leases, the Back Bay Agreement and the other "Loan Documents" as
defined in the Back Bay Agreement (the "Forbearance Documents") and are
continuing by reason of the existence of the Existing Forbearance Defaults; and
(ii) The Forbearance Documents executed and delivered by the Borrower
are the legal, valid and binding obligations of the Borrower, enforceable
against it in accordance with their respective terms.
Section 2. Amendments to Forbearance Agreement. Subject to the
-----------------------------------
provisions of Section 4, the Forbearance Agreement is hereby amended by
(a) deleting the term "Forbearance Defaults" and all references
throughout the Forbearance Agreement and substituting therefor the term
"Existing Forbearance Defaults";
(b) amending Section 2 Agreement to Forbear by inserting following
--------------------
subsection (c) thereof, the following additional subsections (d) through (f) and
redesignating existing (second) subsections (c) [sic] and (d) as subsections (g)
and (h):
(d) by amending the definition "Applicable Margin" by deleting
the phrase "as to Base Rate Loans, 1%" and substituting therefor "as to
Base Rate Loans, 2%";
(e) by amending subsection (h) of the definition "Eligible
Receivable" by adding at the end thereof the phrase "or if the Account
Debtor is Daisy Group such Receivable is greater than $1,000,000 on or
before July 9, 1999 and thereafter such Receivable is greater than
$796,000 or if the Account Debtor is All-American Sportswear, such
Receivable is greater than $629,000,";
(f) by amending Section 11.1 in its entirety to read as
follows:
SECTION 11.1. Financial Ratios. Permit EBITDA for (i)
----------------
May 1999 to be less than ($190,000), (ii) May and June 1999 to
be less than ($300,000), (iii) May, June and July 1999 to be
less than ($600,000), (iv) May, June, July and August 1999 to
be less than ($300,000) or (v) May 1 through September 30,
1999 to be less than $100,000.
2
<PAGE>
and amending the final grammatical paragraph of Section 2 by deleting therefrom
the date "May 28, 1999," and substituting therefor the phrase "July 28, 1999, as
the same may be extended at the Borrower's option by notice to the Agent not
later than July 23, 1999, accompanied by the payment of $1,000,000 (to be
applied to outstanding Revolving Credit Loans), to September 28, 1999, provided
that the source of such $1,000,000 payment shall be funded to the Borrower
either through capital contributions or subordinated loans, in form and
substance reasonably satisfactory to the Agent, and the Borrower acknowledges
and agrees (i) that such subordinated loans shall be made by Moore Assets
International Limited (registration no. 84998B), a company organized under the
International Business Companies Act of the Commonwealth of the Bahamas or, with
the consent of the Agent, by another Person, and (ii) that the Borrower shall
not pay any interest on or repay any principal on such subordinated loans, or";
(c) by amending Section 3 Forbearance Conditions by deleting
----------------------
subsections (d) and (e) thereof and substituting therefor the following:
(d) the Borrower shall have executed and delivered such
amendment to the Back Bay Agreement, acknowledgment addressed to Back
Bay, or other instrument or agreement as may be satisfactory to Back
Bay in form and substance, the effect of which is to (i) increase the
interest rate applicable to the Borrower's obligations under the Back
Bay Agreement by 1% per annum and (ii) provide for the fee payable to
Back Bay beginning August 31, 1999 in the amount of $390,000, to be
fully earned and non-refundable upon the execution and delivery by Back
Bay and the Borrower of any extension or amendment extending this
Agreement at least 60 days beyond May 28, 1999 and payable in two
installments with the first payment due on August 31, 1999 in the
amount of $78,000 and the second payment due on September 29, 1999 in
the amount of $312,000;
(e) Contemporaneously with the execution and delivery of this
Amendment, the Borrower shall have received $1 million in cash, being
the net proceeds of a subordinated loan made by Moore Assets
International Limited (registration no. 84998B), a company organized
under the International Business Companies Act of the Commonwealth of
the Bahamas, pursuant to documentation substantially in the form
attached hereto as Exhibit A and otherwise in form and substance
satisfactory to the Agent (together with the amount loaned to the
Borrower in connection with the effectiveness of the Forbearance
Agreement and any further amount loaned to the Borrower in connection
with the optional extension of the Forbearance Period to September 28,
1999, the "MAI Loan"), the proceeds of the MAI Loan shall be applied
upon receipt to repayment of Revolving Credit Loans outstanding under
the Loan Agreement (but without any reduction in the Revolving Credit
Facility), and the Borrower acknowledges and agrees that it shall not
pay any interest on or repay any principal of the MAI Loan;
3
<PAGE>
Section 3. Amendments to Loan Agreement. Subject to the provisions of
----------------------------
Section 4, the Loan Agreement is hereby amended by
(a) amending the definition "Revolving Credit Facility" by
-------------------------
deleting the amount "$40,000,000" appearing therein and substituting
therefor the amount "$30,000,000";
(b) deleting therefrom Annex A and substituting therefor,
Annex A in the form of Annex 1 attached hereto.
Section 4. Conditions to Effectiveness; Effectiveness. (a) This
------------------------------------------
Amendment shall become effective (the "Amendment Effective Date") when the Agent
has received at least one counterpart of this Amendment executed and delivered
by each other party thereto and, for the account of the Lenders, an amount equal
to $1 million to be applied to repayment of the Revolving Credit Loans.
(b) From and after the Amendment Effective Date, all references to the
Forbearance Agreement in that document or in any related agreement, certificate,
instrument or other document shall mean and be references to the Forbearance
Agreement, as amended by this Agreement. Except as expressly amended hereby, the
Forbearance Agreement and all terms, conditions and provisions thereof remain in
full force and effect and are hereby ratified and confirmed.
(c) From and after the Amendment Effective Date all references in the
Loan Agreement and in any other "Loan Document" as defined therein to "this
Agreement," "the Loan Agreement," "hereunder," "hereof" and words of like import
referring to the Loan Agreement, shall mean and be references to the Loan
Agreement as amended by this Amendment. Except as expressly amended hereby, the
Loan Agreement and all terms, conditions and provisions thereof remain in full
force and effect and are hereby ratified and confirmed.
Section 5. Representations and Warranties of Borrower. The Borrower
------------------------------------------
hereby represents and warrants to the Agent, the Lenders, BBL and Back Bay that:
(a) The Borrower has no knowledge of any Defaults or Events of Default
existing under the Loan Documents or "Events of Default" existing under the Back
Bay Agreement or the other "Loan Documents" as defined therein or defaults
existing under the Equipment Leases, other than the Existing Forbearance
Defaults, and, except by reason of the Additional Defaults, the Forbearance
Period has not terminated;
(b) Subject to such existing Events of Default and "Events of Default,"
the representations and warranties of the Borrower set forth in the Loan
Documents (as defined in the Loan Agreement and the Back Bay Agreement) are true
and correct in all material respects on and as of the date of this Agreement;
(c) The Borrower has the power and authority and has taken all
necessary steps to
4
<PAGE>
authorize it to execute, deliver and perform its obligations under this
Agreement in accordance with its terms, this Agreement has been duly executed
and delivered by the Borrower and is the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its terms; and
(d) The execution, delivery and performance by the Borrower of this
Agreement does not require any Governmental Approval, violate any Applicable
Law, conflict with or result in a breach of the Borrower's certificate of
incorporation or by-laws, or conflict with or result in a breach of or
constitute a default under any material provisions of any indenture, agreement
or other instrument to which the Borrower is a party or by which the Borrower or
any of its property may be bound or any Governmental Approval applicable to the
Borrower or its property.
Section 6. Governing Law; General Provisions. (a) This Amendment shall
---------------------------------
be governed by and construed in accordance with the laws of the State of Georgia
(without reference to conflict of laws principles).
(b) This Amendment may be executed in any number of copies and by the
parties on separate copies, all of which taken together shall constitute a
single agreement.
(c) The parties to the Forbearance Agreement do not intend to create,
and no provision hereof shall be deemed to have created, any rights in favor of
any Person not a party to the Forbearance Agreement.
Section 7. No Waiver. (a) None of the Forbearance Agreement as amended
---------
by this Amendment, the forbearance by the Agent and the Lenders and Back Bay
hereunder, the Lenders' continued Revolving Credit Loans to the Borrower in
accordance with the terms of the Loan Agreement and the Forbearance Agreement as
amended by this Amendment or the Agent's or the Lenders' or Back Bay's
discussions or negotiations with the Borrower or any Affiliate of the Borrower
are intended to be, nor are they nor shall they be deemed to be, a waiver of or
consent to the Events of Default or "Events of Default" (as defined in the Back
Bay Agreement) referred to herein or any other Default or Event of Default or
"Event of Default." The Borrower agrees that no Default or Event of Default or
"Event of Default" (as defined in the Back Bay Agreement) has been waived or
released, or shall be considered to have been cured by reason of the Agent and
the Lenders or Back Bay entering into the Forbearance Agreement or this
Amendment or performing the terms hereof, including, without being limited to,
forbearing from the exercise of available remedies and making further Revolving
Credit Loans to the Borrower.
(b) None of the Forbearance Agreement, the forbearance by the Agent and
the Lenders, BBL, and Back Bay hereunder, the Lenders' continued Revolving
Credit Loans to the Borrower in accordance with the terms of the Loan Agreement
and this Agreement or the Agent's or the Lenders', BBL's or Back Bay's
discussions or negotiations with the Borrower or any Affiliate of the Borrower
are intended to be, nor are they nor shall they
5
<PAGE>
be deemed to be, a waiver or forbearance of any of the rights, powers or
remedies of The CIT Group/Commercial Services, Inc. with respect to the ledger
debt of the Borrower (which is indebtedness for goods and services purchased by
the Borrower from any party whose accounts receivable are factored or financed
by The CIT Group/Commercial Services, Inc.).
Section 8. Release; Waiver of Jury Trial. (a) TO INDUCE THE LENDERS AND
-----------------------------
THE AGENT AND BACK BAY TO ENTER INTO THIS AMENDMENT, THE BORROWER HEREBY
RELEASES EACH LENDER AND THE AGENT AND BACK BAY, THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND ASSIGNS, FROM ANY AND ALL CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION AND OTHER LIABILITIES OF ANY KIND, WHETHER MATURED OR
UNMATURED OR CONTINGENT, LIQUIDATED OR UNLIQUIDATED, AT LAW OR IN EQUITY, THAT
THE BORROWER HAS OR HAS HAD AGAINST ANY LENDER OR THE AGENT OR BACK BAY.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THE
FORBEARANCE AGREEMENT AS AMENDED HEREBY.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed and delivered by its duly authorized officer(s) as of
the date first above written.
BORROWER:
[Corporate Seal] TEXFI INDUSTRIES, INC.
Attest:
By:
By: Name:
Robert P. Ambrosini Title:
Executive Vice President and
Chief Financial Officer
AGENT:
BANKBOSTON, N.A.
By:
Christian B. Colson
Managing Director
7
<PAGE>
LENDERS:
BANKBOSTON, N.A.
By:
Christian B. Colson
Managing Director
Address:
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attn: Christian B. Colson
Facsimile No.: (770) 393-4166
8
<PAGE>
THE CIT GROUP/COMMERCIAL
SERVICES, INC.:
By:
Grover P. Reinle
Senior Vice President
Address:
1211 Avenue of the Americas
New York, New York 10036
Attn: Grover P. Reinle
Facsimile No.: (212) 382-6840
9
<PAGE>
BANCBOSTON LEASING INC.:
By:
Name:
Title:
Address:
100 Federal Street
Boston, Massachusetts 02110
Att: Jeanette M. Knoblock
Facsimile no.: (617) 434-0974
10
<PAGE>
BACK BAY:
BACK BAY CAPITAL FUNDING LLC
By:
Name:
Title:
Address:
40 Broad Street
Boston, Massachusetts 02109
Attn: Robert DeAngelis
Facsimile No.: (617) 434-4339
11
<PAGE>
Amendment No. 1 to
Forbearance Agreement
and Amendment No. 3 to
Loan Agreement
SCHEDULE 1
Existing Events of Default
--------------------------
Loan Agreement
--------------
1. Failure to furnish financial statements for Fiscal Year 1998 in
accordance with Section 10.1(a) of the Loan Agreement.
2. Failure to furnish timely financial reports for first Fiscal Quarter of
Fiscal Year 1999 in accordance with Section 10.1(b) of the Loan
Agreement.
3. Noncompliance with the provisions of Section 11.1(b) (Minimum Capital
Funds).
4. Noncompliance with the provisions of Section 11.1(a) (Debt Service
Coverage Ratio).
5. Event of Default pursuant to Section 12.1(e) of the Loan Agreement by
reason of (i) the Back Bay Defaults, (ii) failure to make February 1,
1999 interest payments due under the 8.75% Debenture, (iii) failure to
make April 1, 1999 interest payments due under the Extendible
Debenture, and (iv) failure of Borrower to redeem Series C Debentures
put to the Borrower by certain Series C Debenture holders pursuant to
the Extendible Debenture.
6. Non-payment of 1997 real property taxes in State of North Carolina.
7. February payment default under the Equipment Leases.
12
<PAGE>
Amendment No. 1 to
Forbearance Agreement
and Amendment No. 3 to
Loan Agreement
SCHEDULE 2
A. Existing Events of Default
-----------------------------
Back Bay Agreement
------------------
1. Failure to furnish financial statements for Fiscal Year 1998 in
accordance with Section 5-7 of the Back Bay Agreement.
2. Failure to furnish timely financial reports for first Fiscal Quarter of
Fiscal Year 1999 in accordance with Section 5-5 of the Back Bay
Agreement.
3. Noncompliance with the provisions of Section 5-11 (maintenance of
(Minimum Capital Funds and Debt Service Coverage Ratio).
4. Event of Default pursuant to Section 8-6 of the Back Bay Agreement by
reason of the Events of Default (as defined in the Loan Agreement).
5. Non-payment of real property taxes in State of North Carolina.
B. Existing Events of Default
-----------------------------
Equipment Leases
----------------
1. Failure to make timely payment of February rentals due and owing under
the Equipment Leases.
13
<PAGE>
Amendment No. 1 to
Forbearance Agreement
and Amendment No. 3 to
Loan Agreement
SCHEDULE 3
Existing Event of Default
-------------------------
Forbearance Agreement
---------------------
1. Failure to comply with Section 2(c) of the Forbearance Agreement by reason
of permitting EBITDA for (i) February and March 1999 to be less than
$550,000 and (ii) February, March and April 1999 to be less than
$1,050,000.
2. Failure to comply with Section 3(b) of the Forbearance Agreement by reason
of Borrower's failure to make timely payment of May rentals due and owing
under the Equipment Leases.
14
<PAGE>
Amendment No. 1 to
Forbearance Agreement
and Amendment No. 3 to
Loan Agreement
ANNEX 1
ANNEX A
COMMITMENTS
BankBoston, N.A. $15,000,000
The CIT Group/Commercial Services, Inc. $15,000,000
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-END> JAN-29-1999
<CASH> 211
<SECURITIES> 0
<RECEIVABLES> 24,339
<ALLOWANCES> 1,620
<INVENTORY> 11,548
<CURRENT-ASSETS> 35,444
<PP&E> 79,940
<DEPRECIATION> 56,062
<TOTAL-ASSETS> 61,484
<CURRENT-LIABILITIES> 60,193
<BONDS> 2,354
0
0
<COMMON> 8,859
<OTHER-SE> (40,970)
<TOTAL-LIABILITY-AND-EQUITY> 61,484
<SALES> 27,192
<TOTAL-REVENUES> 27,192
<CGS> 25,225
<TOTAL-COSTS> 27,572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,220
<INCOME-PRETAX> (2,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,600)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
