<PAGE>
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 October 30, 1998
----------------
[ ] 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.)
1430 Broadway, 13th Floor, New York, NY 10018
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (212) 930-7200
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.
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 May 17, 1999: $538,047
Number of shares of Common Stock outstanding at May 17, 1999: 8,859,098.
<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 executive offices are located at 1430 Broadway, 13th Floor, New York,
New York, 10018, telephone (212) 930-7200.
The Company's only division, Texfi Blends, operates four manufacturing
facilities located in Rocky Mount, Fayetteville, and Haw River, North Carolina
and Jefferson, Georgia, providing an aggregate of 1,165,000 square feet of
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. Texfi Blends manufactures products made from
textured polyester, flame-retardant polyester, and blends of polyester, rayon,
and wool which are sold worldwide to the menswear, womenswear and childrenswear
apparel, uniform, home furnishings, and export markets. During its 1998 fiscal
year, the Company merged its weaving operations located at its Fayetteville,
North Carolina facility into its Rocky Mount, North Carolina facility. The
Company incurred $526,000 in employee-related severance and benefit costs which
were segregated as a restructuring charge.
Prior to October 1997, the Company operated its Texfi Narrow Fabrics division
which manufactured products from polyester, nylon and rubber that were sold
domestically to the intimate apparel, insert apparel, medical and automotive
markets. On November 1, 1996, the Company restructured its narrow fabrics
operations, closing this division's woven narrow fabrics' facility in Graham,
North Carolina and consolidating the remaining division assets into its knitted
narrow fabrics' Asheboro, North Carolina facility. As a result, the Company
recorded an initial $3.3 million restructuring charge during fiscal 1996 which
consisted of a $2.5 million write-down of property, plant and equipment and
inventory to net realizable value and $800,000 in other various restructuring
costs. During fiscal 1997, the Company proceeded to liquidate a majority of the
Graham facility assets and placed for sale its remaining knitted narrow fabrics
business. On October 3, 1997, the Company sold its knitted narrow fabrics
business, excluding trade and factor accounts receivable, for $7.7 million,
which generated a gain of $3.8 million. Also during the fourth quarter of fiscal
1997, the Company recorded an additional $3.3 million in restructuring charges
to write-down the assets of the Graham facility to net realizable value.
Finally, in fiscal 1998, the Company incurred an additional $415,000 in
restructuring charges associated with the liquidation of the remaining Texfi
Narrow Fabrics division assets which included a $133,000 post-closing sale
adjustment, a $152,000 write-down of property, plant and equipment to net
realizable value, and $130,000 in various other restructuring costs.
During fiscal 1996, the Company discontinued the operations at its Kingstree
Knit Apparel division. During the fourth quarter of fiscal 1997, the Company
liquidated the remaining inventory related to this division and recorded a loss
from discontinued operations of $1.0 million after reserves. The fiscal 1998
loss on disposal of discontinued operations of $1.9 million is primarily related
to the loss on sale of property, plant, and equipment remaining from the
Kingstree Knit Apparel division's operations at prices less than recorded value,
plus associated liquidation costs. As of October 30, 1998, the Company has
approximately $368,000 of Kingstree Knit Apparel division assets still held for
disposal.
2
<PAGE>
The Company accounted for its interest in Rival Sport, LLC ("Rival"), a joint
venture which was formed in February 1997 between the Company and NHL
Enterprises in order to market and source a branded line of hockey-related
apparel, using the equity method. During fiscal 1997, the Company invested $4.9
million in Rival, which recorded sales of $259,000 and a net loss of $3.2
million.
On December 18, 1997 the Company divested its interest in 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
restated its financial records as of October 31, 1997 to reflect a reserve of
$3.4 million against its net investment in Rival.
During the first quarter of fiscal 1998, the Company invested $1.2 million in
Rival. Also in the first quarter of fiscal 1998, the Company recorded an
additional $1.1 million impairment against its net investment in Rival, thus
reserving the full value of the note. Subsequent to year-end, management was
informed that the note may be of no collectible value.
PRODUCTS
The Company manufactures woven finished fabrics for the apparel and home
furnishings markets.
The approximate percentage of total revenue contributed by each of the Company's
product groups is as follows:
1998 1997 1996
-----------------------------------------------------
Woven finished fabrics 100.0% 90.9% 87.5%
Narrow fabrics -- 9.1 12.5
-----------------------------------------------------
100.0% 100.0% 100.0%
=====================================================
The Company ceased manufacture of narrow knitted and woven fabrics in fiscal
1997.
SEASONALITY
During 1998 and 1997, 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 half
of the fiscal year while working capital requirements increase in anticipation
of higher second half 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 which the Company has entered into factoring
agreements.
BACKLOG
At October 30, 1998, the Company had a $30,469,000 backlog of orders believed to
be firm, as compared to a $43,776,000 backlog at October 31, 1997. The current
backlog of orders is expected to be filled prior to the end of fiscal 1999.
3
<PAGE>
CUSTOMERS
In fiscal 1998, 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 35.5% of total sales, but no one customer accounted
for more than 6% 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 18 full-time, salaried
account executives and 10 independent, commissioned sales representatives, the
latter of whom may sell products of other manufacturers, including some
competitors of the Company. The Company maintains its primary sales office in
New York City. The Company's production is determined in large part by customer
contracts 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 utilizes
computerized networks with many of its customers to provide "quick response" 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.
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 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 for 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 and
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. The Company has not experienced a
significant shortage of raw materials and believes that such supplies will
continue to be available.
4
<PAGE>
EMPLOYEES
As of October 30, 1998, the Company had approximately 1,100 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.
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.
YEAR 2000
The Company has focused considerable attention upon potential disruptions that
could result from certain computer programs' inability to recognize the year
2000. See "YEAR 2000 IMPACT" in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" in the Company's 1998 Annual
Report to Shareholders for information relating to this issue on the Company and
the Company's efforts to address the issue.
5
<PAGE>
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
1,165,000 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 sales for fiscal 1999.
<TABLE>
<CAPTION>
Location of Plant Purpose Square Feet
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Rocky Mount, NC ** Weaving, dyeing and finishing of synthetic 448,000
and blended fabrics
Fayetteville, NC ** Weaving, dyeing and finishing of polyester 218,000
fabrics
Haw River, NC ** Dyeing and finishing of polyester fabrics 320,000
Jefferson, GA Yarn spinning and weaving 179,000
</TABLE>
** Pursuant to two separate loan and security agreements dated as of August 28,
1998, the Company granted to BackBay Capital, LLC a primary lien and BankBoston,
N.A. as Agent, a secondary lien on these 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 that
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.
6
<PAGE>
Item 4a. Executive Officers of the Registrant.
<TABLE>
<CAPTION>
All Positions and Offices with the Registrant Presently Held
Name Age Registrant Presently Held
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Andrew J. Parise, Jr. 51 Chairman of the Board, President, Chief
Executive Officer, and Chief Operating
Officer
Robert P. Ambrosini 42 Chief Financial Officer, Executive Vice
President, Finance, Director
Gerald A. Rubinfeld 53 President, Texfi Blends division
Joseph L. Drum 50 Vice President, Manufacturing
Tim L. Courtney 59 Vice President, Administration
Thomas M. Gilreath 56 Corporate Controller, Assistant Secretary
</TABLE>
Mr. Andrew J. Parise, Jr. was appointed President and Chief Operating Officer of
the Company in November 1994 and Chairman of the Board of Directors and Chief
Executive Officer in May 1999. 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. Robert P. Ambrosini was appointed Chief Financial Officer and Executive Vice
President of Finance on May 1, 1998. Prior to joining to the Company he held
senior level financial positions with various public and privately held
businesses
Mr. Gerald A. Rubinfeld was appointed President of the Company's Blends division
in 1995. He joined the Company in 1984 as the Menswear Marketing Manager and has
held various marketing positions.
Mr. Joseph L. Drum was appointed the Company's Blends Division Vice President,
Manufacturing in 1999. He joined the Company in 1973 and has held a variety of
operational and development positions during his tenure.
Mr. Tim L. Courtney was appointed the Company's Blends Division Vice President
of Administration in 1994. He joined the Company in 1966 and has served in a
variety of positions, 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.
7
<PAGE>
Item 4(b). Other Information
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
During the Company's 1998 fiscal year, its Common Stock was traded on the New
York Stock Exchange. In December 1998, the New York Stock Exchange delisted the
Company's Common Stock for failure to meet various registrant criteria. The
approximate number of shareholders as of May 17, 1999 was 944.
The following table sets forth the high and low sales prices for the Common
Stock on the NYSE composite tape for the period indicated.
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
----------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Fiscal Year:
High 5- 6/16 3-13/16 2-3/16 1-1/16
Low 2-10/16 2- 1/16 1-1/16 7/16
1997 Fiscal Year:
High 3- 1/4 4- 5/8 4- 3/4 5- 3/8
Low 2- 3/8 3- 1/8 3- 1/2 3-3/16
</TABLE>
The Company did not pay dividends on its Common Stock in either fiscal 1998 or
1997 and does not intend to do so in the foreseeable future.
8
<PAGE>
Item 6. Selected Financial Data
FIVE-YEAR REVIEW OF PERFORMANCE
(Dollar amounts in thousands except per share data and the number of employees)
<TABLE>
<CAPTION>
1998 1997 1996 1995* 1994*
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net Sales. $143,558 $207,400 $192,150 $185,685 $162,301
Cost and expenses:
Cost of goods sold 130,362 179,449 166,173 162,642 146,477
Selling, general and administrative 12,659 15,541 13,897 11,843 9,300
Restructuring(income)charge 941 (491) 3,257 -- --
Interest 8,379 10,297 10,254 11,994 10,656
Equity in loss of joint venture -- 1,603 -- -- --
Impairment loss on joint venture 1,154 3,370 -- -- --
Other (income) expense (87) (138) (7) (60) (1,548)
-------------------------------------------------------------------------------
Total cost and expenses 153,408 209,631 193,574 186,419 164,885
-------------------------------------------------------------------------------
Net loss from continuing operations (9,850) (2,231) (1,424) (734) (2,584)
Discontinued operations:
Loss from operations -- -- (5,162) (855) (5,767)
Loss on disposal (1,885) (990) (10,993) (15,325) --
Extraordinary items:
Loss from early debt extinguishment (1,886) -- -- -- --
-------------------------------------------------------------------------------
Net loss $(13,621) $ (3,221) $(17,579) $(16,914) $ (8,351)
-------------------------------------------------------------------------------
Net loss from continuing operations per share $ (1.11) $ (.26) $ (.16) $ ( .09) $ ( .32)
-------------------------------------------------------------------------------
Net loss per share $ (1.54) $ (.37) $ (2.02) $ (1.96) $ (1.03)
-------------------------------------------------------------------------------
Dividends paid -- -- -- -- --
Cash Flow Data
Capital expenditures $ 1,477 $ 9,099 $ 9,315 $ 2,966 $ 3,333
Depreciation 4,849 5,079 7,412 8,182 9,441
Cost of equipment placed in service under
operating leases 1,702 7,690 5,025 2,965 --
Financial Position at Year End
Receivables $ 30,444 $ 40,795 $ 44,570 $ 9,173 $ 10,350
Inventories 13,346 19,914 22,179 28,092 42,131
Current assets 44,916 62,767 68,468 40,089 56,184
Property, plant & equipment, net 24,882 28,254 30,223 50,514 75,945
Total assets 71,852 96,697 114,190 96,045 137,180
Current liabilities 61,907 37,362 40,907 37,408 44,013
Revolving credit line 25,144 33,919 38,967 -- --
Long-term debt 11,766 5,500 9,952 12,471 25,015
Subordinated debentures 2,354 35,631 36,943 40,724 45,127
Other long-term obligations 192 175 562 1,205 1,842
Shareholders' (deficit) equity (29,511) (15,890) (13,141) 4,237 21,183
Working capital (16,991) 25,405 27,561 2,681 12,171
Other Data
Number of employees 1,101 1,559 2,201 3,221 4,399
Book Value Per Share $ (3.33) $ (1.79) $ (1.50) $ 0.49 $ 2.45
Common Stock Price Range:
High $ 5.375 $ 5.375 $ 3.375 $ 3.375 $ 5.125
Low 0.438 2.375 2.250 2.375 2.750
</TABLE>
*Certain amounts in the 1995 and 1994 financial statements have been restated to
reflect the discontinued operations. Refer to Note 15, Discontinued Operations,
included in the Notes to Consolidated Financial Statements for the Year Ended
October 30, 1998.
9
<PAGE>
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Fiscal Year 1998 Compared with Fiscal Year 1997
Net sales from continuing operations for 1998 decreased to $143.6 million from
$207.4 million, a decrease of $63.8 million or 30.8%. This decrease resulted
from lower sales volume of $44.9 million, or 23.8%, at the Company's Blends
operations and the October 1997 divestiture of the Texfi Narrow Fabrics division
which generated $18.9 million net sales in fiscal 1997. The finished fabric
sales reduction was primarily attributable to unusually high imports of
competing fabrics and finished apparel from Asia into United States' markets,
specifically the Company's missy and junior wear markets.
Cost of goods sold ("CGS") as a percentage of net sales from continuing
operations for fiscal 1998 increased to 90.8% compared to 86.5% in 1997. The
increase in the cost of goods sold as a percentage of net sales is attributable
to volume related manufacturing inefficiencies at the Company's Blends
operations and the divestiture of the Texfi Narrow Fabrics division which
contributed a 18.8% gross margin in fiscal 1997.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales from continuing operations rose to 8.8% in 1998 from 7.5% in 1997. While
total SG&A expenses associated with ongoing operations declined by $1.2 million
in addition to the $1.6 million savings from the divestiture of the Texfi Narrow
Fabrics division, these expenses as a percentage of net sales increased
primarily due to the constant fixed costs having been spread over a declining
sales volume.
In 1998, the Company merged its weaving operations located at its Fayetteville,
North Carolina facility into its Rocky Mount, North Carolina facility. The
Company incurred $526,000 in employee related severance and benefit costs which
were segregated as a restructuring charge.
During the fourth quarter of 1998, the Company incurred $415,000 in
restructuring charges associated with its former Texfi Narrow Fabrics division.
The total charge included a $133,000 post-closing adjustment for the sale of its
knitted narrow fabrics business plus costs of $152,000 to write-down the
remaining property, plant and equipment from its woven knitted fabrics
operations to net realizable value and $130,000 in various other restructuring
costs.
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 restated its financial records as of
October 31, 1997 to reflect a reserve of $3.4 million against its net investment
in Rival. Also in the first quarter of fiscal 1998, the Company recorded an
additional $1.1 million impairment against its net investment in Rival, thus
reserving against the full value of the note. Subsequent to yearend, management
was informed that the note may be of no collectible value.
10
<PAGE>
Fiscal Year 1998 Compared with Fiscal Year 1997-continued
The 1998 loss on disposal of discontinued operations of $1.9 million is
primarily related to the loss on sale of property, plant, and equipment
remaining from the Kingstree Knit Apparel division's operations at prices less
than recorded value, plus associated liquidation costs. The Kingstree Knit
Apparel division was closed in fiscal 1996. As of October 30, 1998, the Company
had approximately $368,000 million of Kingstree Knit Apparel division assets
still held for disposal.
Interest expense decreased by $1.9 million to $8.4 million in 1998. The
decrease was attributable to lower borrowing rates on the Company's revolving
credit and term loans as well as a $6.3 million decrease in total indebtedness.
As discussed in the Notes to Consolidated Financial Statements, as of October
30, 1998, net operating loss carryforwards of approximately $77.0 million remain
in effect to offset future taxable income.
Fiscal Year 1997 Compared with Fiscal Year 1996
Net sales from continuing operations for 1997 increased to $207.4 million from
$192.2 million, an increase of $15.2 million or 7.9%. This increase resulted
from $20.3 million, or 12.1%, higher sales at the Company's Blends division
which more than offset a $5.1 million, or 21.1%, decline at its Narrow Fabrics
division. The increase at the Blends division was attributable to higher demand
and shipments of synthetic fabrics, which are sold to apparel and specialty
markets. The decrease at the Narrow Fabrics division resulted from closure of
the woven narrow fabrics facility on November 1, 1996 which offset the increase
in sales of knitted narrow fabrics totaling $3.2 million when compared to 1996.
CGS as a percentage of net sales from continuing operations for fiscal 1997
remained consistent at 86.5% when compared to 1996. In 1997, increased operating
costs at the Company's Blends division of approximately $3.4 million were
completely offset by decreased operating costs at the Narrow Fabrics division.
The increase at the Blends division resulted from higher labor costs associated
with installing new equipment; training associates to operate this equipment;
and manufacturing inefficiencies created by increasing production rates to
maximum levels in order to satisfy higher customer demand. The decrease at the
Narrow Fabrics division resulted from closing the woven narrow fabrics facility
at the end of 1996 and a better mix of higher margin knitted narrow fabrics sold
during 1997.
SG&A as a percentage of net sales from continuing operations rose to 7.5% in
1997 from 7.2% in 1996. This increase was attributable to increased distribution
costs within the Blends division in order to accommodate the increased sales
volume; costs incurred to expand into new markets; and higher management fees
paid to Mentmore Holdings Corporation ("Mentmore"), an entity affiliated with
certain then executive officers of the Company.
Interest expense increased by $43,000 to $10.3 million in 1997. Increased
borrowing rates on the Company's revolving and term loan facility more than
offset the reduction in interest expense attributable to the $14.7 million
decreases in total indebtedness.
11
<PAGE>
Fiscal Year 1997 Compared with Fiscal Year 1996-continued
On November 1, 1996, the Company restructured its narrow fabrics operations,
closing the Narrow Fabrics division's woven narrow fabrics facility in Graham,
North Carolina and consolidating the remaining Narrow Fabrics division assets
into its knitted narrow fabrics Asheboro, North Carolina facility. As a result,
the Company recorded an initial $3.3 million restructuring charge during 1996
which primarily consisted of a write-down of $2.0 million of property, plant and
equipment and $500,000 for inventory to their net realizable value; and $800,000
in other various restructuring costs. During fiscal 1997, the Company proceeded
to liquidate a majority of the Graham facility assets and decided to place for
sale its remaining knitted narrow fabrics business. On October 3, 1997, the
Company sold its knitted Narrow Fabrics business, excluding trade and factor
accounts receivable, for $7.7 million, which generated a gain of $3.8 million.
Also during the fourth quarter of 1997, the Company recorded an additional $3.3
million in restructuring charges to write-down the remaining assets related to
the Graham facility including a $3.0 million write-down of property, plant and
equipment to net realizable value.
Sales for the Narrow Fabrics division were $18.9 million and $24.0 million for
1997 and 1996, respectively. This division reported net income of $1.9 million
in 1997 and a net loss of $869,000 in 1996, before restructuring income of
$491,000 and restructuring charge of $3.3 million.
The equity in loss of joint venture of $1.6 million for 1997 represents the
Company's share of costs related to the startup of Rival, a joint venture
between the Company and NHL Enterprises, which was created in February 1997 to
market and source a branded line of hockey-related apparel. In the first quarter
of 1998, the Company determined that there had been a permanent impairment to
its net investment in Rival and accordingly restated its financial records as of
October 31, 1997 to reflect a reserve of $3.4 million against its net investment
in Rival.
During 1996, the Company incurred charges totaling $16.2 million to discontinue
certain operations. This charge included a $10.0 million loss on the disposal of
the Kingstree Knit Apparel division assets including a $3.6 million write-down
of inventory; a $1.9 million write-down of property, plant and equipment; 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. During
the fourth quarter of 1997, the Company liquidated the remaining Kingstree Knit
Apparel division inventory resulting in an additional recorded loss from
discontinued operations of $1.0 million after reserves.
CAPITAL RESOURCES AND LIQUIDITY
During 1998 and 1997, 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 half
of the fiscal year while working capital requirements increase in anticipation
of higher second half sales. Working capital is comprised chiefly of accounts
receivable and inventory.
12
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY-continued
During its 1998 fiscal year, the Company's operating activities generated net
cash totaling $6.4 million. This operating cash was a result of the $13.6
million net loss adjusted for depreciation and amortization ($6.4 million),
impairment loss on joint venture ($1.1 million), provision for losses on
accounts receivable ($1.1 million), and net loss on disposition of property,
plant, and equipment ($380,000), none of which required cash. In addition,
decreases in accounts receivable ($9.2 million) and inventory ($6.6 million)
which offset the decrease in accounts payable and other liabilities ($4.8
million) contributed $11.0 million in operating cash. Net cash from operations
($6.4 million) plus cash on hand ($1.3 million), proceeds from sale of property,
plant and equipment held for disposal ($2.1 million), and long-term debt
proceeds ($13.0 million) were used to purchase property, plant and equipment
($1.5 million), repay long-term debt obligations ($10.6 million), reduce the
revolving credit line ($8.8 million), invest in the joint venture ($1.2
million), and fund credit and term loan costs ($669,000).
As of October 30, 1998, the Company's working capital showed a deficit of $17.0
million; a decrease of $42.4 million from October 31, 1997. This decrease is
due primarily to reductions in cash and cash equivalents of $1.3 million,
accounts receivable of $10.3 million and inventory of $6.6 million and an
increase in current maturities of long-term debt and subordinated debentures of
$29.3 milion which more than offset increases in prepaid expense of $340,000 and
decreases in accounts payable and other liabilities of $4.8 million.
On December 19, 1997, the Company amended and restated the $74.0 million credit
facility entered into on March 15, 1996. As amended, the credit facility
consisted of a $10.0 million term loan payable in sixteen equal installments of
$500,000 which began February 1998 and a $2.0 million balloon payment due May
31, 1999 and a $45.0 million revolving credit line which expired in conjunction
with the term loan's balloon payment. The credit facility was secured by
substantially all of the Company's assets.
At the end of the 1998 second fiscal quarter, the Company was in violation of
the 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 (a) reduced the aggregate revolving credit line, (b)
revised both the minimum availability requirement and its definition, (c)
increased applicable interest margins, (d) changed the interest payment periods,
and (e) waived term loan principal payments. The Forbearance Agreement was
conditioned on the deferral of management fees to Mentmore an entity affiliated
with certain former Company executive officers and the execution by an entity
associated with Mentmore 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 of a related entity's previous option to
purchase 600,000 shares of common stock.
13
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY-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 October 30, 1998, funds available under the
new credit facility, which represents the difference between the Borrowing Base
as defined by the credit facility agreement and the revolving credit line
outstanding, approximated $1.6 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. As of
October 30, 1998, the Company was in compliance with both the credit and term
loan facilities' financial covenants.
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.
14
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY-continued
As of October 30, 1998, 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 December 1997, the 8-3/4% Debenture holders waived the restriction on the
incurrence of additional indebtedness with respect to the amended and restated
March 15, 1996 credit facility. As a condition to the waiver, the Company
executed a Second Supplemental Indenture which provided that beginning on the
last business day of September 1998 and continuing on the last business day of
each month thereafter through the last business day of June 1999, the Company
would deposit with the 8-3/4% Debenture trustee $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, were to be paid as
principal and interest on the August 1, 1999 maturity date. Subsequently, the
Company executed a Third Supplemental Indenture dated as of August 28, 1998
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 October 30, 1998, 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. 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 $1.5 million in Series C Debentures put to the Company for
redemption at the option of Series C Debenture holders.
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 $15.6 million as of October 30, 1998, including $4.3
million for fiscal 1999.
15
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY-continued
As a condition precedent to the Company's December 19, 1997 amended and restated
March 15, 1996 credit facility, the Company was required to divest its interest
in Rival and accordingly, on December 18, 1997, the Company sold its investment
to Clarendon Holdings, LLC, an affiliate of certain, now former, executive
officers of the Company. In exchange for the Company's 50% ownership interest,
it received a secured $4.5 million single balloon payment note due December 15,
2007, which bears annual interest of 5%, payable upon maturity. The Company's
note represents its net investment in Rival on the date of sale. Due to
continued and anticipated future losses at Rival, and in light of the terms of
the note received from the sale of Rival; the Company recorded an impairment of
$3.4 million against its net investment in Rival as of October 31, 1997 and an
additional $1.1 million as of January 30, 1998, thus reserving the full face
value of the note. Subsequent to yearend, management was informed that the note
may be of no collectible value.
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. (Refer to
Note 18, Subsequent Events, included in the Notes to Consolidated Financial
Statements for the Year Ended October 30, 1998.)
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.
YEAR 2000 IMPACT
The Company is preparing for the impact of the arrival of the Year 2000 on its
business, as well as on the businesses of its customers, suppliers and business
partners. The "Year 2000 Issue" is a term used to describe the problems created
by systems that are unable to accurately interpret dates after December 31,
1999. These problems are derived predominantly from the fact that many software
programs have historically categorized the "year" in a two-digit format.
16
<PAGE>
YEAR 2000 IMPACT-continued
The Company has determined that it will need to modify or replace portions of
its software in order that its computer systems will function properly with
respect to dates in the year 2000 and beyond. A team of internal staff is
managing the Company's Year 2000 initiative. The team's activities are designed
to ensure that there is no adverse effect to the Company's core business
operations and transactions with customers, suppliers, and financial
institutions are fully supported. The team began with a review of all IT and
non-IT systems, including Company products and internal operating systems for
potential Year 2000 Issues. The Company completed this review for the majority
of its systems during fiscal 1998. The Company's business applications are
either currently compliant or will be replaced by compliant applications or made
compliant by the vendors which supply the programs or through modifications by
internal staff. A final component of the Company's Year 2000 compliance program
is the actual testing and remediation (if necessary) of the Company's IT and
non-IT products and systems. The Company anticipates that testing and
remediation of most of its products, IT and non-IT internal systems will be
completed by October 1999. As of October 30, 1998, the Company estimates that it
has completed approximately 70% of the Year 2000 readiness analysis required.
The Company is evaluating its principal suppliers, service providers and other
business partners to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or may otherwise impact its operations. The Company anticipates that
this evaluation will be ongoing through 1999.
The Company is working jointly with customers, strategic vendors and business
partners to identify and resolve any Year 2000 issues that may impact the
Company. However, there can be no assurance that the companies with which the
Company does business will achieve a Year 2000 conversion in a timely fashion,
or that such failure to convert by another company will not have a material
adverse effect on the Company.
The total cost associated with the Company's Year 2000 remediation is not
expected to be material to the Company's financial condition or results of
operations. Costs of the Company's Year 2000 are being expensed as incurred.
These costs represent the labor costs of time allocated from existing internal
staff and vendor purchases.
There can be no assurance that the Company will be completely successful in its
efforts to address Year 2000 Issues. If some of the Company's products are not
Year 2000 compliant, the Company could suffer lost sales or other negative
consequences, including, but not limited to, diversion of resources, damage to
the Company's reputation, increased service and warranty costs and litigation,
any of which could materially adversely affect the Company's business operations
or financial statements.
The Company is dependent on third parties such as its customers, suppliers,
service providers and other business partners. If these or other third parties
fail to adequately address Year 2000 Issues, the Company could experience a
negative impact on its business operations or financial statements.
Although the Company has not yet developed a comprehensive contingency plan to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness,
the Company's Year 2000 compliance program is ongoing and its ultimate scope, as
well as the consideration of contingency plans, will continue to be evaluated as
new information becomes available.
17
<PAGE>
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.
Item 7a. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
The Company's revolving credit line provides for the Company to elect interest
rates based upon either a Eurodollar or prime interest rate plus established
margin. Thus the Company is sensitive to changes in prevailing interest rates.
In addition, because the Company has issued fixed rate debentures it runs a risk
that market interest rates will decline below the fixed interest rates and the
required interest payments will exceed those available based upon the current
market interest rate.
Foreign Currency Risk
The Company both purchases supplies and sales products in a foreign currency
which creates a foreign currency risk exposure that the U.S. dollar will decline
or increase in value as compared to the currency of the country in which the
transaction transpired.
Commodity Price Risk
The Company uses many types of fiber, both natural and man-made, in the
manufacture of its textile products. The Company believes that future price
levels for all fibers will depend primarily upon supply and demand conditions,
weather conditions, general inflation, domestic and foreign governmental
regulations and agricultural programs, and prices of underlying raw materials
such as petroleum.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended October 30, 1998, October 31, 1997
and November 1, 1996
(Dollar amounts in thousands except number of shares and per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Net sales $143,558 $207,400 $192,150
Cost and expenses:
Cost of goods sold 130,362 179,449 166,173
Selling, general and administrative 12,659 15,541 13,897
Restructuring (income) charge 941 (491) 3,257
---------------------------------------------------------
Total 143,962 194,499 183,327
Operating (loss) income (404) 12,901 8,823
Other expense (income):
Interest 8,379 10,297 10,254
Impairment loss on joint venture 1,154 3,370 --
Equity in loss of joint venture -- 1,603 --
Other, net (87) (138) (7)
---------------------------------------------------------
Total 9,446 15,132 10,247
Net loss from continuing operations (9,850) (2,231) (1,424)
Discontinued operations:
Loss from operations of discontinued
operations -- -- (5,162)
Loss on disposal of discontinued operations (1,885) (990) (10,993)
---------------------------------------------------------
Net loss from discontinued operations (1,885) (990) (16,155)
Extraordinary item:
Loss from early debt extinguishment (1,886) -- --
---------------------------------------------------------
Net loss $(13,621) $ (3,221) $(17,579)
=========================================================
Weighted average number of shares 8,859,098 8,806,865 8,696,177
=========================================================
Basic and diluted net loss per share:
Continuing operations $ (1.11) $ (.26) $ (.16)
Discontinued operations (.21) (.11) (1.86)
Extraordinary item (.22) -- --
---------------------------------------------------------
Net loss $ (1.54) $ (.37) $ (2.02)
=========================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
October 30, 1998 and October 31, 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 162 $ 1,434
Receivables:
Due from factor 22,530 35,494
Trade, less allowances ($ 1,619- 1998, $645-1997) 7,829 4,486
Other 85 815
Inventories 13,346 19,914
Prepaid expenses 964 624
-----------------------------------------
Total current assets 44,916 62,767
Property, plant and equipment net 24,882 28,254
Property, plant and equipment held for disposal-net 368 3,318
Other assets 1,686 2,358
Total assets $ 71,852 $ 96,697
=========================================
Liabilities and shareholders' deficit
Current liabilities:
Current maturities of long-term debt $ 1,200 $ 5,015
Current maturities of subordinated debentures 34,371 1,200
Accounts payable 22,503 28,110
Other liabilities 3,833 3,037
-----------------------------------------
Total current liabilities 61,907 37,362
Revolving credit line 25,144 33,919
Long-term debt 11,766 5,500
Subordinated debentures 2,354 35,631
Other long-term obligations 192 175
-----------------------------------------
Total liabilities 101,363 112,587
Contingent liabilities and commitments
Shareholders' deficit:
Common stock, $1.00 par value - authorized 20,000,000
shares; outstanding 8,859,098 shares in 1998 and 1997 8,859 8,859
Additional paid-in capital 25,534 25,534
Accumulated deficit (63,904) (50,283)
-----------------------------------------
Total shareholders' deficit (29,511) (15,890)
-----------------------------------------
Total liabilities and shareholders' deficit $ 71,852 $ 96,697
=========================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF COMMON
SHAREHOLDERS' (DEFICIT) EQUITY
For the fiscal years ending October 30, 1998, October 31, 1997, and
November 1, 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
$1 Par Value Paid-in Accumulated
Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
Net loss for fiscal 1997 -- -- -- (3,221) (3,221)
Stock issued to directors 105,735 106 320 -- 426
Stock issued under various
employee stock plans 17,872 18 28 -- 46
-----------------------------------------------------------------------------------
October 31, 1997 8,859,098 8,859 25,534 (50,283) (15,890)
Net loss for fiscal 1998 -- -- -- (13,621) (13,621)
-----------------------------------------------------------------------------------
October 30, 1998 8,859,098 $8,859 $25,534 $(63,904) $(29,511)
===================================================================================
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended October 30, 1998, October 31, 1997, and
November 1, 1996
(Dollar Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(13,621) $ (3,221) $(17,579)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Impairment loss on joint venture 1,154 3,370 --
Equity in loss of joint venture -- 1,603 --
Depreciation and amortization 6,415 5,859 8,405
Provision for losses on accounts receivable 1,120 199 2,102
Loss on disposition of property, plant and
equipment. 380 104 4,247
Loss on disposition of unamortized goodwill -- -- 1,903
Change in operating assets and liabilities:
Receivables 9,231 3,576 (37,499)
Inventories 6,568 2,265 5,913
Prepaid and other assets (74) (52) 757
Accounts payable and other liabilities (4,794) (47) 1,208
--------------------------------------------------------
Net cash provided by (used in) operating
activities 6,379 13,656 (30,543)
Investing activities
Purchases of property, plant and equipment (1,477) (9,099) (9,315)
Proceeds from sale of property, plant and
equipment 2,104 16,028 5,494
--------------------------------------------------------
Net cash provided by (used in) investing
activities 627 6,929 (3,821)
Financing activities
Proceeds from long-term debt borrowings 13,000 10,000 19,000
Net (payments) borrowings from revolving credit
(8,775) (5,048) 38,967
Payments on long-term debt and capital lease
obligations (10,549) (16,000) (22,919)
Payments for repurchase of subordinated
debentures (106) (3,649) (244)
Investment in joint venture (1,179) (4,886) --
Capitalized loan costs (669) (458) (970)
Proceeds from stock plans, net. -- 472 201
--------------------------------------------------------
Net cash (used in) provided by financing
activities (8,278) (19,569) 34,035
Increase (decrease) in cash and cash
equivalents (1,272) 1,016 (329)
Cash and cash equivalents at beginning of
period 1,434 418 747
Cash and cash equivalents at end of period $ 162 $ 1,434 $ 418
========================================================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
1. Summary of Significant Accounting Policies
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 womenswear and menswear apparel markets, as well as home
furnishings.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company's
divisions and its subsidiary. Intercompany transactions have been eliminated.
Certain 1997 fiscal year balance sheet accounts have been reclassified to
conform to the 1998 fiscal year presentation.
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 1998, 1997 and 1996 fiscal
years include 52 weeks.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions which affect the amounts reported in these consolidated
financial statements and accompanying footnotes. Actual results may differ from
those estimates and assumptions.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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.
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.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
1. Summary of Significant Accounting Policies (continued)
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.
Impairment of Long-lived Assets
When circumstances mandate, the Company evaluates the recoverability of its
long-lived assets by comparing estimated future undiscounted cash flows with the
assets' carrying value to determine whether a write-down to market value or
discounted cash flow is necessary.
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.
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.
Net Loss Per Share
The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 128 in its 1998 consolidated financial statements and has restated
all prior year per share information. 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.
For additional disclosures regarding net loss per share, see Note 7 "Loss Per
Share".
Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" and
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information"
both of which are effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components in financial statements. SFAS 131 changes the way in which
public companies report segment information in annual financial statements and
requires those companies to report selected segment information in interim
financial statements to stockholders. The Company will adopt SFAS 130 and 131
during its 1999 fiscal year and will include the financial statement disclosures
as required. The application of SFAS 130 and 131 will not impact the Company's
financial position or results from operations.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
2. Accounts Receivable - Due from Factor
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 6%
of the Company's 1998 net sales, 5% of the Company's 1997 net sales, or 4% of
the Company's 1996 net 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 factor advances and other factor related fees in 1998, 1997 and
1996 approximated $677,000, $1,181,000, and $1,442,000, respectively.
3. Inventories
Inventories at October 30, 1998 and October 31, 1997 are summarized as follows:
1998 1997
--------------------------------
(In Thousands)
Finished goods $ 3,338 $ 5,225
Goods in process 6,299 10,092
Raw materials 2,294 2,845
Supplies 2,017 2,595
---------------------------------
Total 13,948 20,757
Less reserves 602 843
---------------------------------
Inventories net $13,346 $19,914
=================================
4. Property, Plant and Equipment
Property, plant and equipment at October 30, 1998 and October 31, 1997 consists
of the following:
1998 1997
---------------------------------
(In Thousands)
Land and land improvements $ 2,220 $ 2,220
Buildings 16,019 16,019
Machinery and equipment 61,022 59,042
Construction in progress 638 1,143
---------------------------------
Total 79,899 78,424
Less accumulated depreciation 55,017 50,170
Property, plant and equipment - net $24,882 $28,254
=================================
Depreciation expense approximated $4,849,000, $5,079,000 and $7,412,000 during
1998, 1997 and 1996, respectively.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
5. Long-term Debt, Revolving Credit Line and Pledged Assets
On August 28, 1998, the Company entered into a $40.0 million loan and security
agreement ("credit facility") that expires on August 31, 2000. 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 which is subordinate to the security interests of
the term loan as 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. The credit
facility defines revolving credit availability as the sum of 90% of eligible
factor accounts receivable, 85% of eligible insured trade accounts receivable,
65% of eligible uninsured trade accounts receivable, and approximately 50% of
eligible inventory (up to a maximum of $12.0 million) less outstanding revolving
credit line debt and letters of credit. The revolving credit line balance as of
October 30, 1998 and October 31, 1997 was $25.1 million and $33.9 million,
respectively. As of October 30, 1998 the Company had revolving credit line
availability approximating $1.6 million.
In addition, on August 28, 1998, the Company entered into a $13.0 million term
loan and security agreement ("term loan") that requires 23 equal monthly
installments of $100,000 beginning October 1, 1998 and a balloon payment due
August 31, 2000. The term loan is secured by a primary lien on substantially
all of the Company's fixed assets and a second lien on working capital assets.
The term loan has a 15% stated interest rate of which 12% is payable monthly in
arrears. The additional 3% interest is accrued on the unpaid principal balance
and then added to the unpaid principal balance on the first day of each calendar
month.
Long-term debt at October 30, 1998 and October 31, 1997 consists of the
following:
1998 1997
-------------------------------
(In Thousands)
Term loan with variable interest,
collateralized by property, plant, and
equipment with a net book value of
$19,368,000 $12,966 $10,000
Term loans at 6.75%, payable in monthly
installments plus interest through
November 1, 1998 -- 515
-------------------------------
Total 12,966 10,515
Less current maturities 1,200 5,015
-------------------------------
Due after one year $11,766 $ 5,500
===============================
Net proceeds of $35.4 million from the credit facility and term loan were
applied toward the previously existing revolving credit line and term debt
obligation.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
5. Long-term Debt, Revolving Credit Line and Pledged Assets (continued)
Both the credit facility and term loan provide for a Debt Service Coverage Ratio
and Minimum Capital Funds as defined by the respective agreements. In addition,
the agreements restrict additional indebtedness, the sale or disposal of fixed
assets, the redemption of Senior Subordinated Debentures due August 1, 1999, and
the payment of dividends or purchase, redemption or distribution on capital
stock. As of October 30, 1998, the Company had complied with all credit facility
and term loan covenants.
Interest paid on debt, other than debentures, in 1998, 1997 and 1996 was
$3,616,000, $5,115,000 and $3,256,000, respectively.
For additional disclosures regarding long-term debt, revolving credit line and
pledged assets, see Note 18 "Subsequent Events".
6. Subordinated Debentures
Debentures outstanding at October 30, 1998 and October 31, 1997 consist of the
following:
1998 1997
--------------------------------
(In Thousands)
Senior Subordinated Debentures, 8-3/4%,
due August 1, 1999 $34,371 $34,400
Subordinated Extendible Debentures, 11%,
due April 1, 2000 (Series C) 2,354 2,431
--------------------------------
Total 36,725 36,831
Less current maturities 34,371 1,200
--------------------------------
Due after one year $ 2,354 $35,631
================================
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 debenture definition of
indebtedness does not include revolver credit line borrowings or operating lease
obligations. The Company was prohibited from incurring additional indebtedness
because of a violation of the defined limitations. A majority of debenture
holders waived this restriction on the incurrence of additional indebtedness
with respect to the new credit facility and term loan by executing a Third
Supplemental Indenture which also eliminated the monthly $600,000 sinking fund
deposits which were scheduled to begin on the last business day of September
1998.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
6. Subordinated Debentures (continued)
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. 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.
During 1997, the Company paid off its 11-1/4% Convertible Senior Subordinated
Debentures which were due October 1, 1997.
Interest paid on subordinated debentures in 1998, 1997 and 1996 was $3,326,000,
$3,715,000 and $3,753,000, respectively.
For additional disclosures regarding subordinated debentures, see Note 18
"Subsequent Events".
7. Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
October 30 October 31 November 1
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Net loss:
Net loss $(13,621) $(3,221) $(17,579)
--------------------------------------------------------
Weighted average shares 8,859 8,807 8,696
--------------------------------------------------------
Basic and diluted net loss per share $ (1.54) $ (. 37) $ (2.02)
========================================================
</TABLE>
Options to purchase 1,641,000 shares of common stock with exercise prices
ranging between $1.26 and $4.43 per share were outstanding during 1998 but 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.
For additional disclosures regarding outstanding stock options and subordinated
debentures, see Note 8 "Stock Options and Stock Purchase Rights" and Note 6
"Subordinated Debentures".
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
8. Stock Options and Stock Purchase Rights
At October 30, 1998, 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. Stock options granted have a maximum term of
ten years.
Information with respect to stock options outstanding is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted Average Weighted Average Weighted Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 457,800 $3.75 311,664 $3.82 293,915 $4.36
Granted 35,000 1.26 185,000 4.00 60,000 3.25
Canceled (51,800) 3.37 (38,864) 5.49 (42,251) 6.75
---------------------------------------------------------------------------------------------
End of year 441,000 $3.54 457,800 $3.75 311,664 $3.82
=============================================================================================
</TABLE>
The Company has elected to comply with Accounting Principles Board ("APB")
Opinion Number 25, "Accounting for Stock Issued to Employees." Under APB 25, no
compensation expense is recognized for the Company's employee stock options
because the option exercise price equals the market price of the underlying
stock on the date of grant.
Pro forma information regarding net loss and net loss per share is required when
APB 25 accounting is elected. Pro forma information was determined as if the
Company had accounted for its employee stock options under the fair value method
of SFAS 123, "Accounting for Stock-Based Compensation." The pro forma amounts
were determined based on stock option grants during 1998, 1997 and 1996 and thus
the pro forma amounts for compensation cost may not be indicative of the effects
on pro forma net income (loss) and net income (loss) per share for future years.
1998 1997
-------------------------------
(In Thousands)
Net loss as reported $(13,621) $(3,221)
-------------------------------
Pro forma net loss $(13,665) $(3,246)
===============================
1998 1997
--------------------------------
Net loss per share as reported $(1.54) $(.37)
-------------------------------
Pro forma net loss $(1.54) $(.37)
===============================
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
8. Stock Options and Stock Purchase Rights (continued)
The fair values for options were estimated on the grant date using a Black-
Scholes option pricing method. For purposes of pro forma disclosures, the
estimated fair values of the options are amortized to expense over the option's
vesting period.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Options exercisable at year end 279,250 242,300 138,214
======== ======== ========
Options available for granting
at year end 417,099 400,299 546,435
======== ======== ========
Per share weighted average fair
value of options granted $ 1.26 $ 2.76 $ 2.07
======== ======== ========
Weighted average years of
contractual life of stock
options granted 5.00 8.65 5.00
======== ======== ========
Risk-free interest rate 5% 5% 5%
======== ======== ========
Volatility factor .7500 .6046 .6319
======== ======== ========
Dividend yield 0% 0% 0%
======== ======== ========
</TABLE>
Effective July 22, 1988, the Board of Directors of the Company adopted a Share
Purchase Rights Plan and approved the distribution to stockholders 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 entitle common stockholders 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 were generally 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 expired on August 9, 1998.
9. Common Shareholders' Deficit
At October 30, 1998, shares of common stock were reserved for possible issuance
as follows:
Stock options (Note 8) 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
==============
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
10. Income Taxes
As of October 30, 1998, the Company had net operating loss carryforwards of
$77.0 million for income tax purposes which will begin to expire in 2007. For
financial reporting purposes, a valuation allowance of $30.8 million has been
recognized to offset the deferred tax asset related to these carryforwards.
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 October 30, 1998 and October 31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liability:
Tax over book depreciation and amortization $ 272 $ 493
Deferred tax asset:
Net operating loss carryforwards 30,722 25,279
Allowance for bad debts 3 258
Contribution rollover 8 8
Lawsuit settlement 66 66
---------------------------------
Total deferred tax assets 30,799 25,611
Valuation allowance (30,527) (25,118)
Net deferred tax assets 272 493
---------------------------------
Net deferred tax liability $ -- $ --
=================================
</TABLE>
11. Employee Benefit Plan
The Company maintains a defined contribution plan (401(k)) covering
substantially all employees who have completed six months of service. The
Company matches each participating employee's contributions at 50% up to a
maximum of 2.5% of the employees gross wages. Discretionary Company
contributions are determined annually by the Board of Directors based on results
of operations and may either match employee contributions or represent fixed
amounts. There were no discretionary contributions in 1998, 1997 or 1996. The
Company contributed approximately $288,000, $45,000, and $127,000, in 1998, 1997
and 1996, respectively.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
12. Rental Expense and Lease Obligations
Rental expense, primarily for machinery and equipment, is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross rentals $3,947 $4,921 $4,255
Less sublease rentals 127 154 133
----------------------------------------------------
Rental expense, net $3,820 $4,767 $4,122
====================================================
</TABLE>
Future obligations for minimum rentals under operating leases that have initial
or remaining noncancellable lease terms in excess of one year at October 30,
1998 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>
(in Thousands)
1999 $ 4,266 -- $ 4,266
2000 3,840 -- 3,840
2001 3,183 -- 3,183
2002 1,597 -- 1,597
2003 1,243 -- 1,243
Thereafter 1,460 -- 1,460
---------------------------------------------------------
Total minimum lease
payments $15,589 -- $15,589
=========================================================
</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 1998 fiscal year, the Company placed into service $1.7 million of
machinery and equipment through various sale-lease back transactions.
13. Restructuring Charge
During its 1998 fiscal year, the Company merged its weaving operations located
at its Fayetteville, North Carolina facility into its Rocky Mount, North
Carolina facility. The Company incurred $526,000 in employee related severance
and benefit costs which were segregated as a restructuring charge.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
13. Restructuring Charge (continued)
During its 1996 fiscal year, the Company closed its Narrow Fabrics division's
Graham, North Carolina facility and recorded a $3.3 million restructuring charge
from the consolidation of the remaining Narrow Fabrics division assets and the
Graham facility shutdown. The total $3.3 million restructuring charge included
a $2.5 million write-down of property, plant, and equipment and inventory to net
realizable value and $800,000 in various other restructuring costs. During
1997, the Company incurred an additional $3.3 million in restructuring charges
consisting primarily of a $3.0 million write-down of property, plant and
equipment to net realizable value. On October 3, 1997, the Company sold its
remaining Narrow Fabrics business, excluding trade and factor accounts
receivable, for $7.7 million. The sale generated a $3.8 million gain which was
netted against the $3.3 million restructuring charge. In 1998, the Company
incurred an additional $415,000 in restructuring charges which included a
$133,000 post-closing sale adjustment, $152,000 write-down of remaining
property, plant and equipment to net realizable value, and $130,000 in various
other restructuring costs.
Sales for the Narrow Fabrics division were $18.9 million and $24.0 million for
the 1997 and 1996 years, respectively. This division's net income (loss) before
restructuring (income) charge was $1.9 million and ($869,000) for the 1997 and
1996 years, respectively.
14. Joint Venture
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 restated its financial records as of
October 31, 1997 to reflect a reserve of $3.4 million against its net investment
in Rival. Also in the first quarter of fiscal 1998, the Company recorded an
additional $1.1 million impairment against its net investment in Rival, thus
reserving the full value of the note. Subsequent to yearend, management was
informed that the note may be of no collectible value.
The Company accounted for Rival, a joint venture which was formed in February
1997 between the Company and NHL Enterprises in order to market and source a
branded line of hockey-related apparel, using the equity method. During fiscal
1997, the Company invested $4.9 million in Rival which recorded sales of
$259,000 and a net loss of $3.2 million.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
15. Discontinued Operations
During the 1996 fiscal year, the Company incurred charges totaling $16.2 million
in connection with the discontinuance of 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
discontinued operations represented 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 included $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 operations of 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 in net
sales in 1996.
The 1997 loss on disposal of discontinued operations of $1.0 million is
primarily the write-off of inventory remaining from the Kingstree Knit Apparel
division's operations.
The 1998 loss on disposal of discontinued operations of $1.9 million is
primarily related to the loss on sale of property, plant, and equipment
remaining from the Kingstree Knit Apparel division's operations at prices less
than recorded value, plus associated liquidation costs.
Property, plant and equipment held for disposal at October 30, 1998 and October
31, 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
(In Thousands)
<S> <C> <C>
Land and land improvements $ 7 $ 222
Buildings 815 4,290
Machinery, equipment, etc. 592 1,684
---------------------------------
Total 1,414 6,196
Less accumulated depreciation 756 1,954
Less reserve to net realizable value 290 924
---------------------------------
Property, plant and equipment held for
disposal net $ 368 $3,318
=================================
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
16. Related Party Transactions
On or about April 1, 1997, the Company began operating under a verbal management
advisory services agreement with Mentmore Holdings Corporation ("Mentmore") an
entity affiliated with certain of the Company's then executive officers, whereby
Mentmore was paid for management consulting services. During 1998, the Company
paid $675,000 and accrued $337,500 for these services. Pursuant to the August
28, 1998 credit and term loan facilities, the Company was prohibited from paying
management fees to Mentmore.
In addition, Mentmore shared office space with Company personnel in New York for
which it accrued $140,000 during 1998 for rent and administrative services
provided. As of October 30, 1998, the Company had a net amount due to Mentmore
of $56,000.
For additional disclosures regarding the credit and term loan facilities and the
related party, see Note 14 "Joint Venture" Note 5 "Long-term debt,
revolving credit line and pledged assets" and Note 18 "Subsequent Event".
17. 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.
18. Subsequent Events
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.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 30, 1998, October 31, 1997 and November 1, 1996
18. Subsequent Events-continued
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 $1.5 million in Series C Debentures put
to the Company for redemption at the option of Series C debenture holders.
In May, 1999, the Company reached a settlement agreement with Mentmore whereby
after August 1, 1998, the Company would receive management consulting services
and would provide space and administrative services at no charge. Mentmore
further agreed to defer payment of the $56,000 obligation without interest until
July 31, 1999.
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 an unnamed third party. In conjunction therewith, Mr.
Richard L. Kramer, an officer of those entities resigned as a director and
Chairman of the Board of Directors. In addition, Mr. William L. Remley, also an
officer of those entities resigned as Chief Executive Officer 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.
19. Going Concern Uncertainty
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.
For additional disclosures regarding subsequent events, see Note 18 "Subsequent
Events".
36
<PAGE>
Item 8. Report of 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 October 30, 1998 and October 31, 1997, and the related
statements of operations, shareholders' (deficit) equity and cash flows for each
of the three years in the period ended October 30, 1998. 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 October 30, 1998 and October 31, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
October 30, 1998 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.
As discussed in Note 19 to the financial statements, the Company's recurring
losses from operations and net capital deficiency raise substantial doubt about
its ability to continue as a going concern. The 1998 financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
Raleigh, North Carolina
December 21, 1998, except as to notes 18 and 19, as to which the date is May 25,
1999
37
<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.
In May 1999, the Board of Directors ("the Board") amended the Company's bylaws
to allow more flexibility in the size of the Board by providing that the number
of directors shall be not less than three nor more than twelve and vacancies
occurring among directors and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the board then in office. Directors so chosen shall hold office until the next
annual meeting of shareholders.
Mr. Michael D. Schenker a member of the Board resigned in December 1998 for
personal reasons. At a special meeting of the Board in May 1999, the Board
appointed Robert P. Ambrosini to serve as a director until the next annual
meeting of the shareholders or until his successor has been duly elected and
qualified.
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 an unnamed third party. In conjunction therewith, Mr.
Richard L. Kramer, an officer of those entities resigned as a director and
Chairman of the Board of Directors. In addition, Mr. William L. Remley, also an
officer of those entities resigned as Chief Executive Officer 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.
The following information is furnished with respect to the Company's directors:
Mr. Andrew J. Parise, Jr. Chairman of the Board of Directors and Chief
51 Executive Officer (May 1999); President and Chief
Operating Officer (1994-present); President, Finished
Fabrics Division (1992-1994); Executive Vice
President, Texfi Blends Division (1990-1992). Board
Director since 1995.
Mr. Robert P. Ambrosini Chief Financial Officer, Executive Vice President
42 (May 1998 - present). Board director since May 1999.
Mr. Richard C. Hoffman President and Principal, Richard C. Hoffman, P.C.,
51 Attorney-at-law, Greenwich Connecticut (1998-
present). Board director since 1997.
Mr. Joel J. Karp Senior Tax Partner and President, Karp & Genauer, P.
59 A., Attorneys-at-law, Coral Gables, Florida (1994-
present). Board director since 1997.
38
<PAGE>
Item 10. Directors and Executive Officers of the Registrant-continued
During the fiscal year ended October 30, 1998, the Board held a total of five
regular and special meetings, including telephone conference meetings. Each
director attended 100% of the total number of Board meetings and the Board
committee meetings on which he served. The Board has a standing Executive
Committee, Audit Committee, Compensation and Stock Options Committee, and
Nominating Committee.
The Executive Committee exercises the authority of the Board in the management
and business affairs of the Company in interim periods between regular and
special meetings of the full Board. The Executive Committee cannot (a) amend the
Company's Certificate of Incorporation or bylaws; adopt an agreement of merger
or consolidation; (b) recommend to shareholders the sale, lease or exchange of
all or substantially all of the Company's property or assets; (c) recommend to
shareholders a dissolution of the Company or a revocation of a dissolution; (d)
declare a dividend; authorize the issuance of stock; (e) fill vacancies on the
Board or any of its committees; (f) authorize or approve the reacquisition of
the Company's capital stock, except as according to a formula or method
prescribed by the full Board; (g) approve or propose to shareholders action that
the General Corporation Law of Delaware requires be approved by shareholders;
(h) change the Company's principal corporate office; (i) appoint or remove
Company officers; or (j) fix compensation of Company directors. The Executive
Committee's members included Messrs. Remley (Chairman), Parise and Hoffman
during fiscal 1998 and did not meet in that period.
The Audit Committee confers with the Company's independent auditors and reviews
both the scope of the audit of the Company's books and accounts and the reports
submitted by the auditors thereof. The Audit Committee also reviews, with the
independent auditors and appropriate Company personnel, procedures and methods
employed in connection with the Company's management policies relating to
internal controls. The Audit Committee's members included Messrs. Karp
(Chairman), Kramer and Hoffman during fiscal 1998 and met one time during that
period.
The Compensation and Stock Option Committee is comprised of non-employee
directors. The Compensation and Stock Option Committee reviews and makes
recommendations to the Board regarding the base salary of the Chief Executive
Officer and reviews and approves recommendations of the Chief Executive Officer
regarding the salaries of other corporate and divisional executives. The
Compensation and Stock Option Committee also reviews and recommends Board action
on all forms of non-salary executive compensation and administers the Company's
stock-based incentive plans pursuant to the terms of the respective plans. It is
the Compensation and Stock Options Committee's responsibility to review the
Company's general compensation philosophy, the elements of its compensation
program, the specifics of each element, the goals and measurements used in the
compensation program and the results of the compensation program as compared to
the compensation philosophy. The Compensation and Stock Option Committee's
members included Messrs. Hoffman (Chairman) and Karp during fiscal 1998 and did
not meet in that period.
39
<PAGE>
Item 10. Directors and Executive Officers of the Registrant-continued
The Nominating Committee makes Board recommendations with respect to candidates
for membership on the Board. The Nominating Committee's members included
Messrs. Hoffman and Parise during fiscal 1998 and did not meet in that period.
Item 11. Executive Compensation.
The following information relates to all compensation awarded to, earned by, or
paid pursuant to a plan or otherwise, to (i) the Company's Chief Executive
Officer and (ii) all executive officers, other than the Chief Executive Officer,
who were serving as Company executive officers on October 30, 1998 and whose
compensation for the fiscal year then ended exceeded $100,000. The above-
referenced persons are referred to herein as the Named Executive Officers.
Summary Compensation Table
- --------------------------
The following table sets forth for the Named Executive Officers for each of the
previous three fiscal years annual compensation amounts as indicated by the
applicable table headings.
<TABLE>
<CAPTION>
Other Securities Other
Name Fiscal Compensation Underlying Compensation
Principal Position Year Salary ($) Bonus ($) ($) Options ($) (f)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William L. Remley 1998 $ 41,667 $ -- $1,012,500 (a) 600,000(b) $ --
Chief Executive Officer 1997 145,833 (d) -- 825,135 (a) -- --
(g) 1996 350,000 (e) -- 13,297 (c) -- --
- -------------------------------------------------------------------------------------------------------
Andrew J. Parise, Jr. 1998 379,500 -- -- -- 5,000
President, 1997 343,750 -- -- 100,000 150
Chief Operating Officer 1996 300,000 -- 11,348 (c) -- 150
- -------------------------------------------------------------------------------------------------------
Gerald A. Rubinfeld 1998 198,250 -- -- -- 5,000
President, 1997 198,067 -- 2,868 (c) 15,000 150
Blends Division 1996 180,000 72,000 592 (c) 14,000 150
- -------------------------------------------------------------------------------------------------------
Robert P. Ambrosini 1998 112,500 50,000 -- 35,000 --
Chief Financial Officer 1997 -- -- -- -- --
Exec.Vice President 1996 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Horace E. Stembridge 1998 132,500 15,000 -- -- 3,394
Exec.Vice President 1997 56,250 -- -- -- 150
(h) 1996 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) On or about April 1, 1997, the Company began operating under a verbal
management advisory services agreement with Mentmore Holdings Corporation
("Mentmore") an entity affiliated with certain of the Company's then
executive officers, whereby Mentmore was paid for management consulting
services. Amounts represent the Company's obligation to Mentmore for
services rendered primarily by Messrs. Remley and Kramer in their
capacities as officers of Mentmore. During fiscal 1998, the Company paid
$675,000 and accrued $337,500 for these services.
(b) At the end of the 1998 second fiscal quarter, the Company was in violation
of the 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 conditioned on the deferral of
management fees to Mentmore and the execution by an entity associated with
Mentmore of a guaranty of secured obligations to the extent of $1.0
million. In consideration, this 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 of a related entity's previous option to
purchase 600,000 shares of common stock.
(c) Represents the dollar value of the difference between the price paid for
the Company's common stock pursuant to the Company's Executive Stock
Purchase Plan and the fair market value of the Company's common stock on
the date of purchase.
40
<PAGE>
Item 11. Executive Compensation-continued
Summary Compensation Table-continued
- ------------------------------------
(d) Amount includes $83,333 paid directly to Mentmore as consulting fees for
the services rendered by Mr. Remley as the Company's Chief Executive
Officer and Vice Chairman of the Board.
(e) Amount includes $200,000 paid directly to Mentmore as consulting fees for
the services rendered by Mr. Remley as the Company's Chief Executive
Officer and Vice Chairman of the Board.
(f) Represents the Company's matching contributions to the Company's 401(k)
Retirement and Savings Plan.
(g) In May 1999, certain executive officers and entities affiliated with those
officers sold their combined interest approximating 23% of the Company's
common stock outstanding to an unnamed third party. In conjunction
therewith, Mr. Richard L. Kramer, an officer of those entities resigned as
a director and Chairman of the Board. In addition, Mr. William L. Remley
also an officer of those entities resigned as Chief Executive Officer and
Vice Chairman of the Board. The Board named Mr. Andrew J. Parise, Jr. as
Chairman of the Board of Directors and Chief Executive Officer in addition
to his responsibilities as President and Chief Operating Officer.
(h) In May 1999, Mr. Horace E. Stembridge resigned as Executive Vice President,
Operations. The Chief Executive Officer appointed Mr. Joseph L. Drum as
Vice President, manufacturing.
Stock Options
- -------------
The following table provides details regarding stock options granted to the
Named Executive Officers during fiscal year 1998.
<TABLE>
<CAPTION>
Securities % of Total Exercise
Underlying Options Price Expiration
Name Options Granted ($/share) Date 5% (a) 10% (a)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Ambrosini 35,000 100.00 $1.26 May 4, 2003 $21,158 $46,743
(b)
- ------------------------------------------------------------------------------------------
</TABLE>
(a) The Securities and Exchange Commission requires illustration of a 5% and
10% annual rate of appreciation on the market prices of the Company's
common stock from the date of grant throughout the option term. The market
price of the Company's common stock on May 1, 1998, the close of business
preceding the date of grant for options to Mr. Ambrosini was $2.1875.
There can be no assurance that the rate of appreciation assumed for
purposes of this table will be achieved. The actual value of the stock
options to the Named Executive Officers and all optionees as a group will
depend on the future price of the Company's common stock.
(b) Nonqualified stock options granted under the Company's 1987 Stock Option
Plan. One-quarter of the options will become exercisable on May 4, 1999,
one-quarter will become exercisable on May 4, 2000, one-quarter will become
exercisable on May 4, 2001, and the remaining one-quarter will become
exercisable on May 4, 2002.
At the end of the 1998 second fiscal quarter, the Company was in violation of
the 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 conditioned on the deferral of management fees to Mentmore
and the execution by an entity associated with Mentmore 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 of a related entity's
previous option to purchase 600,000 shares of common stock.
41
<PAGE>
Item 11. Executive Compensation-continued
Stock Options-continued
- -----------------------
The following table illustrates the number of shares subject to unexercised
options held by the Named Executive Officers as of October 30, 1998. The table
divides such unexercised options into those that were exercisable as of fiscal
year-end and those which were not. At the end of fiscal 1998, all options of
the Named Executive Officers were "out-of-the-money", which implies a negative
spread between the fiscal year-end market price $.4375 of the underlying Company
common stock and the respective exercise price of such stock options. No stock
options were exercised by the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
Name Exercisable Unexercisable Total
- -------------------------------------------------------------------
<S> <C> <C> <C>
William L. Remley 150,000 -- 150,000
- -------------------------------------------------------------------
Andrew J. Parise, Jr. 100,000 75,000 175,000
- -------------------------------------------------------------------
Gerald A. Rubinfeld 10,750 18,250 29,000
- -------------------------------------------------------------------
Robert P. Ambrosini -- 35,000 35,000
- -------------------------------------------------------------------
Horace E. Stembridge 2,500 7,500 10,000
- -------------------------------------------------------------------
</TABLE>
Director Compensation
- ---------------------
On or about April 1, 1997, the Company began operating under a verbal management
advisory services agreement with Mentmore, an entity affiliated with certain of
the Company's then executive officers, whereby the Company paid $112,500 per
month plus out-of-pocket expenses for management consulting services rendered
primarily by Messrs. Remley and Kramer in their capacities as officers of
Mentmore. Under such arrangement, during fiscal 1998, the Company paid $675,000
and accrued $337,500 for these services.
In addition, Mentmore shared office space with Company personnel in New York for
which it accrued $140,000 during 1998 for rent and administrative services
provided. As of October 30, 1998, the Company had a net amount due to Mentmore
of $56,000. In May, 1999, the Company reached a settlement agreement with
Mentmore whereby after August 1, 1998, the Company would receive management
consulting services and would provide space and administrative services at no
charge. Mentmore further agreed to defer payment of the $56,000 obligation
without interest until July 31, 1999.
Each director who is not a Company full-time employee receives an annual
director's fee of $15,000. In addition, each such director receives a meeting
fee of $500 for each meeting of the full Board and any committee thereof which
he attends. Directors who are Company full-time employees receive no additional
compensation for serving as directors or as committee members.
42
<PAGE>
Item 11. Executive Compensation-continued
Director Compensation-continued
- -------------------------------
Effective July 14, 1989, the Company adopted the Directors' Deferred Stock
Compensation Plan, which permits Company directors to defer receipt of their
directors' fees and to receive such fees in the form of Company common stock
after their termination of service as a director. On the first business day of
each fiscal quarter, directors' fees for the previous fiscal quarter are
credited to each director's account as shares of Company common stock based upon
the market value of such stock on that date. Until distribution of a
director's account upon his termination as Company director, the director has no
rights as a shareholder with respect to shares credited to his director's
account. Messrs. Kramer, Remley, Hoffman, Karp and Schenker were the directors
eligible to participate in the Plan in fiscal 1998 and had elected to do so.
Allocations totaling 51,938 shares of Company common stock have been credited to
the directors' accounts as follows: Mr. Kramer, 21,664 shares; Mr. Remley, 9,483
shares; Mr. Hoffman, 7,912 shares; Mr. Karp, 7,412 shares; and Mr. Schenker,
5,467 shares.
Mr. Michael D. Schenker a member of the Board resigned in December 1998 for
personal reasons. At a special meeting of the Board in May 1999, the Board
appointed Robert P. Ambrosini, a Company full-time employee, to serve as a
director until the next annual meeting of the shareholders or until his
successor has been duly elected and qualified.
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 sold its interest to an unnamed third party. In conjunction
therewith, Mr. Richard L. Kramer, an officer of those entities resigned as a
director and Chairman of the Board of Directors. In addition, Mr. William L.
Remley, also an officer of those entities resigned as Chief Executive Officer
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth each person or entity that may be deemed to have
beneficial ownership of more than five percent of the Company's outstanding
common stock as of May 17, 1999:
<TABLE>
<CAPTION>
Name
Address Amount of Ownership Percent of Common Stock
- -------------------------------------------------------------------------------
<S> <C> <C>
Polysindo Hong Kong Limited 1,024,928 11.6
1513 World Finance Center
North Tower Harbor City
19 Canton Road, Tsimshatsui
Kowloon, Hong Kong
- -------------------------------------------------------------------------------
</TABLE>
Pursuant to a Securities and Exchange Commission Schedule 13D received by the
Company on May 20, 1999, Messrs. Kramer and Remley, directors and executive
officers of the Company, as well as, Chadbourne Corporation and Mentmore
Holdings Corporation, entities of which Messrs. Kramer and Remley are officers
had sold their combined interest approximating 23% of the Company's common stock
outstanding to an unnamed third party.
43
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management-
continued
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of May 20, 1999.
<TABLE>
<CAPTION>
Name Amount of Ownership (a)(b) Percent of Common Stock
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Richard C. Hoffman -- *
- ----------------------------------------------------------------------------------------------
Joel J. Karp -- *
- ----------------------------------------------------------------------------------------------
Andrew J. Parise, Jr. 179,191 2.0
- ----------------------------------------------------------------------------------------------
Gerald A. Rubinfeld 16,950 *
- ----------------------------------------------------------------------------------------------
Robert P. Ambrosini -- *
- ----------------------------------------------------------------------------------------------
Horace E. Stembridge -- *
- ----------------------------------------------------------------------------------------------
All Directors and Executive Officers as
a Group (8 persons) 250,343 2.8
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Does not include Company common stock shares allocated pursuant to the
Directors' Deferred Stock Compensation Plan as to which directors have no
rights as shareholders. See the Director Compensation section of Item 11.
Executive Compensation.
(b) Includes Company common stock shares which named individual has the right
to purchase under presently exercisable common stock options granted to him
by the Company, which shares may be deemed to be beneficially owned by him.
See the Stock Options section of Item 11. Executive Compensation.
Item 13. Certain Relationships and Related Transactions.
Effective April 1995, the Company and Mr. William L. Remley entered into an
employment agreement which expired March 31, 1997 whereas Mr. Remley served as
Chief Executive Officer and Vice Chairman of the Board for which he received an
annual base salary of $350,000. During fiscal 1997, $200,000 of such annual
base salary was paid directly to Mentmore as a consulting fee for services
rendered by Mr. Remley in his capacity as Chief Executive Officer and Vice
Chairman of the Board. During fiscal 1998, $83,333 of such annual base salary
was paid directly to Mentmore as a consulting fee for services rendered by Mr.
Remley in his capacity as Chief Executive Officer and Vice Chairman of the
Board.
On or about April 1, 1997, the Company began operating under a verbal management
advisory services agreement with Mentmore an entity affiliated with certain of
the Company's then executive officers, whereby the Company paid $112,500 per
month plus out-of-pocket expenses for management consulting services rendered
primarily by Messrs. Remley and Kramer in their capacities as officers of
Mentmore. During fiscal 1997, the Company paid $825,135 for these services.
During fiscal 1998, the Company paid $675,000 and accrued $337,500 for these
services. Pursuant to the August 28, 1998 credit and term loan facilities, the
Company was prohibited from paying management fees to Mentmore.
44
<PAGE>
Item 13. Certain Relationships and Related Transactions-continued
In addition, Mentmore shared office space with Company personnel in New York for
which it accrued $140,000 during 1998 for rent and administrative services
provided. As of October 30, 1998, the Company had a net amount due to Mentmore
of $56,000. In May, 1999, the Company reached a settlement agreement with
Mentmore whereby after August 1, 1998, the Company would receive management
consulting services and would provide space and administrative services at no
charge. Mentmore further agreed to defer payment of the $56,000 obligation
without interest until July 31, 1999.
During fiscal 1998, the Company paid Mr. Richard L. Kramer directly $41,667 for
his service as Chairman of the Board and Mr. Remley $41,667 for his service as
Chief Executive Officer and Vice Chairman of the Board.
Effective April 1, 1997, the Company and Mr. Andrew J. Parise, Jr. entered into
an employment agreement with a three year term under which Mr. Parise would
serve as President and Chief Operating Officer and receive an annual base salary
of $375,000. In addition, Mr. Parise is entitled to participate in the
Company's annual incentive bonus plan and other comparable benefit programs
provided to Company senior executive officers. This agreement may be terminated
by the Company with or without cause or upon Mr. Parise's death or disability or
voluntarily by Mr. Parise upon receipt of 60 days notice. If Mr. Parise is
terminated without cause, then he is entitled to (i) his base salary for the
greater of a six-month period from termination or the remaining term of his
employment agreement and (ii) any amounts due under the Company's annual
incentive bonus plan. Mr. Parise is also entitled to such payments in the event
he voluntarily terminated his employment due to a substantial change in duties.
In addition, following any termination of employment that entitles Mr. Parise to
the foregoing payments, all outstanding and unexpired stock options which are
held by Mr. Parise become exercisable for a period of 60 days.
In May 1999, Mr. Richard L. Kramer resigned as a director and Chairman of the
Board. In addition, Mr. William L. Remley resigned as Chief Executive Officer
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.
45
<PAGE>
Item 13. Certain Relationships and Related Transactions-continued
Effective January 1, 1997, the Company and Mr. Gerald A. Rubinfeld entered into
an employment agreement with a three year term under which Mr. Rubinfeld would
serve as President of the Company's Blends Division and receive an annual base
salary of $200,000. In addition, Mr. Rubinfeld is entitled to participate in
the Company's annual incentive bonus plan and other comparable benefit programs
provided to Company senior executive officers. This agreement may be terminated
by the Company with or without cause or upon Mr. Rubinfeld's death or disability
or voluntarily by Mr. Rubinfeld upon receipt of 60 days notice. If Mr.
Rubinfeld is terminated without cause, then he is entitled to (i) his base
salary for the greater of a six-month period from termination or the remaining
term of his employment agreement and (ii) any amounts due under the Company's
annual incentive bonus plan. In addition, following any termination of
employment that entitles Mr. Rubinfeld to the foregoing payments, all
outstanding and unexpired stock options which are held by Mr. Rubinfeld become
exercisable for a period of 60 days.
Effective May 1, 1998, the Company and Mr. Robert P. Ambrosini entered into an
employment agreement with a three year term under which Mr. Ambrosini would
serve as Chief Financial Officer and Executive Vice President, Finance and
receive an annual base salary of $225,000 and a $50,000 first year bonus. In
addition, Mr. Ambrosini is entitled to participate in the Company's annual
incentive bonus plan and other comparable benefit programs provided to Company
senior executive officers. This agreement may be terminated by the Company with
or without cause or upon Mr. Ambrosini's death or disability or voluntarily by
Mr. Ambrosini upon receipt of 60 days notice. If Mr. Ambrosini is terminated
without cause, then he is entitled to (i) his base salary for the greater of a
six-month period from termination or the remaining term of his employment
agreement and (ii) any amounts due under the Company's annual incentive bonus
plan. In addition, following any termination of employment that entitles Mr.
Ambrosini to the foregoing payments, all outstanding and unexpired stock options
which are held by Mr. Ambrosini become exercisable for a period of 60 days.
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. Subsequent to yearend, management was informed that
the note may be of no collectible value.
46
<PAGE>
Item 13. Certain Relationships and Related Transactions-continued
During fiscal 1998, Messrs. Kramer and Remley were officers of, Mr. Hoffman was
corporate counsel for, and Mr. Schenker was general counsel for Mentmore. In
addition, Mentmore shared office space in New York with the Company's senior
executive officers and marketing associates. The Company accrued $140,000 during
1998 from Mentmore for rent and administrative services provided. As of October
30, 1998, the Company had a net amount due to Mentmore $56,000. In May, 1999,
the Company reached a settlement agreement with Mentmore whereby after August 1,
1998, the Company would receive management consulting services and would provide
space and administrative services at no charge. Mentmore further agreed to defer
payment of the $56,000 obligation without interest until July 31, 1999.
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 1998 fourth fiscal
quarter.
47
<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: June 1, 1999 By: /s/ Andrew J. Parise, Jr.
-------------------------
Andrew J. Parise, Jr.
Chairman of the Board of Directors,
President, Chief Executive Officer, and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Robert P. Ambrosini Director, Chief Financial Officer June 1, 1999
and Executive Vice President (Principal
Accounting Officer)
/s/ Richard C. Hoffman Director June 1, 1999
/s/ Joel J. Karp Director June 1, 1999
</TABLE>
48
<PAGE>
FORM 10-K -- 14(a)(1) and (2) and ITEM 14(d)
TEXFI INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
II - Valuation and Qualifying Accounts F-1
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.
49
<PAGE>
SCHEDULE II
TEXFI INDUSTRIES, INC.
Analysis of Valuation and Qualifying Accounts for the
Fiscal Years Ended October 30, 1998, October 31, 1997, and
November 1, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal Year
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY
APPLY:
Allowance for doubtful accounts and claims:
Balance at beginning of year $ 645 $1,899 $1,362
Net additions charged to income:
Doubtful accounts 1,000 199 1,342
Claims and allowances 120 -- 760
-------------------------------------------
1,120 199 2,102
Deductions for accounts written off as
uncollectible (net of recoveries) 146 1,453 1,565
-------------------------------------------
Balance at end of year $1,619 $ 645 $1,899
===========================================
Reserve for impairment of long-lived assets:
Balance at beginning of year $3,370 $ -- $ --
Net additions charged to income:
Impairment of joint venture 1,154 3,370 --
-------------------------------------------
Balance at end of year $4,524 $3,370 $ --
===========================================
</TABLE>
50
<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).
51
<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 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
Form 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
Form 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 Form S-1 Registration
Statement (No. 2-41653).
52
<PAGE>
*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.
53
<PAGE>
*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) 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 Annual Report for the fiscal year ended October 30, 1997.
*4(d)(7) 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)(8) 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)(9) 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)(10) 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)(11) 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)(12) 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)(13) 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.
4(d)(14) Subordinated note dated February 26, 1999 between Registrant, as
payor, and Moore Assets International Limited.
54
<PAGE>
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) 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)(3) Amended and Restated Nonqualified Stock Option Plan, as adopted by
Registrant's Board of Directors on January 16, 1997 and approved March
11, 1997 at a meeting of Registrant's Stockholders, filed as Exhibit
10(a)(1) to Registrant's Form 10-Q for the fiscal quarter ended
January 31, 1997.
*10(a)(4) 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)(5) 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)(6) 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.
*10(a)(7) 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)(8) 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
fiscal quarter ended April 30, 1993.
*10(a)(9) 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.
55
<PAGE>
*10(a)(10) Resolution amending 1990 Executive Stock Purchase Plan, as adopted
by Registrant's Board of Directors on January 16, 1997, filed as
Exhibit 10(a)(2) to Registrant's Form 10-Q Quarterly Report for the
fiscal quarter ended January 31, 1997.
*10(a)(11) Employment Agreement dated April 1, 1997 between Registrant and
Andrew J. Parise, Jr., filed as Exhibit 10 to Registrant's Form 10-Q
Quarterly Report for the quarter ended August 1, 1997.
*10(a)(12) Employment Agreement dated as of January 1, 1997 between Registrant
and Gerald A. Rubinfeld, filed as Exhibit 10(a)(22) to Registrant's
Form 10-K Annual Report for the fiscal year ended November 1, 1996.
*10(a)(13) Employment Agreement dated May 1, 1998 between Registrant Borrower
and Robert P. Ambrosini, filed as Exhibit 10(a)(1) to Registrant's
Form 10-Q Quarterly Report for the fiscal quarter ended July 30,
1998.
*10(a)(14) 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)(15) 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
November 3, 1995.
10(a)(16) Settlement Agreement dated May 20, 1999 between Registrant and
Mentmore Holdings Corporation.
*10(b)(1) Purchase Agreement dated December 15, 1997 between Registrant and
Clarendon Holdings, LLC, filed as Exhibit 10(b)(6) to Registrant's
Form 10-K Annual Report for the fiscal year ended October 31, 1997.
*10(b)(2) Bill of Sale dated December 15, 1997 between Registrant and Clarendon
Holdings, LLC, filed as Exhibit 10(b)(7) to Registrant's Form 10-K
Annual Report for the fiscal year ended October 31, 1997.
*10(b)(3) Promissory Note dated December 15, 1997 between Registrant and
Clarendon Holdings, LLC, filed as Exhibit 10(b)(8) to Registrant's
Form 10-K Annual Report for fiscal year ended October 31, 1997.
*10(b)(4) Security Agreement dated December 15, 1997 between Registrant and
Clarendon Holdings, LLC, filed as Exhibit 10(b)(9) to Registrant's
Form 10-K Annual Report for the fiscal year ended October 31, 1997.
56
<PAGE>
*10(c)(1) Stock and Option Purchase Agreement dated May 24, 1994 between
Registrant and Chadbourne Corporation, filed as Exhibit 10(d)(1) to
Registrant's Form 10-Q Quarterly Report for the fiscal quarter ended
April 29, 1994.
*10(c)(2) Second Amendment dated June 17, 1998 to the Stock and Option Purchase
Agreement dated May 24, 1994 between Registrant and Chadbourne
Corporation, filed as Exhibit 10(d)(1) to Registrant's Form 10-Q
Quarterly Report for the fiscal quarter ended July 30, 1998.
*10(c)(3) Option Purchase Agreement dated June 17, 1998 between Registrant and
Mentmore Holdings Corporation, filed as Exhibit 10(d)(2) to
Registrant's Form 10-Q Quarterly Report for the fiscal quarter ended
July 30, 1998.
21 Subsidiary of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
__________________________________
*Incorporated by reference to previous filing.
57
<PAGE>
EXHIBIT 4(d)(13)
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT is made as of February 25, 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 and in effect on the date
hereof, the "Loan Agreement", terms defined therein and not otherwise defined
herein being used herein as therein defined). The Borrower and BBL are parties
to various equipment leases (the "Equipment Leases"). The Borrower and Back Bay
are parties to a Term Loan and Security Agreement dated as of August 28 1998 (as
amended, modified, supplemented or restated and in effect from time to time, the
"Back Bay Agreement").
Events of Default have occurred and are continuing under the Loan Agreement
as described on Schedule 1. The Borrower has failed to make timely payment of
February rentals due and owing under the Equipment Leases, which failure is a
default thereunder. "Events of Default" have also occurred and are continuing
under the Back Bay Agreement as described on Schedule 2 (the "Back Bay
Defaults"). All Events of Default and Back Bay Defaults referred to in this
paragraph and any continuation or repetition of such specified Events of Default
or Back Bay Defaults and the February payment default under the Equipment
Leases, are referred to hereinafter as the "Forbearance Defaults."
The Borrower has requested, and the Lenders and the Agent under the Loan
Agreement, BBL under the Equipment Leases and Back Bay under the Back Bay
Agreement have agreed, upon and subject to all of the terms, conditions and
provisions of this Agreement, to forbear for a specified period from exercising,
respectively, the various rights and remedies available to the Lenders and the
Agent when an Event of Default has occurred and is continuing under the Loan
Agreement, to BBL when payment default has occurred and is continuing under the
Equipment Leases and to Back Bay when an "Event of Default" has occurred and is
continuing under the Back Bay Agreement by reason of any Forbearance Default.
Accordingly, in consideration of the Loans, the Term Loan outstanding under
and 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:
<PAGE>
Section 1. Acknowledgments and Agreements by Borrower. The Borrower
------------------------------------------
acknowledges and agrees that:
(a) Events of Default under the Loan Documents, payment defaults under the
Equipment Leases and "Events of Default" under the Back Bay Agreement have
occurred and now exist and are continuing;
(b) The Loan Documents (as defined in each of the Loan Agreement and the
Back Bay Agreement) and the Equipment Leases 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;
(c) The Security Interest granted by the Borrower to the Agent in the
Collateral and the Real Estate and the Liens granted by the Borrower to Back Bay
in the "Collateral" and the "Real Estate Collateral" (each as defined in the
Back Bay Agreement) are duly perfected Liens, subject only to Permitted Liens or
"Permitted Encumbrances" (as defined in the Back Bay Agreement), respectively;
and
(d) All of the Secured Obligations and Junior Secured Obligations are
absolutely due and owing by the Borrower to the Lenders, their Affiliates and
the Agent and all of the "Liabilities" (as defined in the Back Bay Agreement)
are absolutely due and owing by the Borrower to Back Bay, and all lease
payments, whether or not denominated as rental, due under the Equipment Leases
are absolutely due and owing by the Borrower to BBL, in each case without any
defense, deduction, offset or counterclaim.
Section 2. Agreement to Forbear. The Agent and the Lenders, BBL and Back
--------------------
Bay agree that during the Forbearance Period (as hereinafter defined) they will
not, solely by reason of the Forbearance Defaults, exercise any right or remedy
available to them upon default by the Borrower, other than as expressly set
forth in this Agreement. Further, during the Forbearance Period the Lenders may
continue in their discretion to make Revolving Credit Loans to the Borrower in
accordance with the provisions of the Loan Agreement except as modified as
follows:
(a) To the extent not reflected herein, the terms and conditions of the
letter of consent of even date herewith with respect to the MAI Loan (as
hereinafter defined) are incorporated by reference in the Loan Agreement;
(b) The definition "Borrowing Base" is amended by redesignating clause
(a)(ii) thereof as clause (a)(iii) and clause (b)(v)(B) thereof as clause
(b)(v)(C) and inserting new clauses (a)(ii) and (b)(v)(B), both to read as
follows:
( ) an amount equal to the amount of real property taxes on owned
Real Estate that are past due from time to time, less the amount then on
deposit in
2
<PAGE>
any escrow or other account maintained for the benefit of BBC with respect
to such taxes, plus
(c) Section 11.1 is amended in its entirety to read as follows:
SECTION 11.1. Financial Ratios. Permit EBITDA for (i) February 1999
----------------
to be less than $200,000, (ii) February and March 1999 to be less than
$550,000, (iii) February, March and April 1999 to be less than $1,050,000
or (iv) February 1 through May 31, 1999 to be less than $2,050,000.
(c) In addition to the other reports and notices required by the Loan
Agreement, the Borrower shall provide to the Agent (i) before the close of
business on each Business Day, a report of sales and collections for the
preceding Business Day and (ii) not later that Tuesday of each week, a cash
budget for the 90-day period beginning on the preceding Monday including at
least budgeted sales, collections, cash receipts and disbursements, accounts
receivable and accounts payable balances, inventory, and Loan balance and
availability under the Revolving Credit Facility, on a weekly basis, such
reports to be in form satisfactory to the Agent.
"Forbearance Period" means the period beginning on the date hereof and ending on
the earlier of May 28, 1999, the date on which any Forbearance Condition (as
hereinafter defined) fails or ceases to be satisfied.
Section 3. Forbearance Conditions. The following conditions shall
----------------------
constitute the "Forbearance Conditions":
(a) The Borrower shall timely perform all of its obligations under this
Agreement;
(b) Other than the Forbearance Defaults, no Default, Event of Default, or
"Event of Default" under and as defined in the Back Bay Agreement shall occur or
be continuing;
(c) No payments shall have been made by the Borrower after the date of
this Agreement to any Affiliate of the Borrower or in respect of principal of or
interest on any Subordinated Debt;
(d) Contemporaneously with the execution and delivery of this Agreement
the Borrower shall have received $1.5 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 (the "MAI Loan") and the proceeds of the MAI Loan
shall be applied upon receipt
3
<PAGE>
to repayment of Revolving Credit Loans outstanding under the Loan Agreement (but
without any reduction in the Revolving Credit Facility);
(e) No payment of interest on or repayment or prepayment of principal of
the MAI Loan shall be made by the Borrower;
(f) The Borrower shall on or before March 31, 1999, pay any and all real
property taxes in respect of owned Real Estate that are past due or on such date
deposit in escrow with BankBoston or another escrow agent satisfactory to both
Back Bay and the Borrower an amount equal to the amount of real property taxes
due and unpaid on the Borrower's owned Real Estate (being approximately $400,000
on the date of this Agreement), pursuant to an escrow agreement that will
provide for the release of the escrowed funds (i) to pay such real property
taxes directly upon instruction to Back Bay from the Borrower, (ii) to the
Borrower upon presentation to Back Bay of evidence reasonably satisfactory to it
of payment in full of such real property taxes, or (iii) to pay such real
property taxes at any time after Back Bay has commenced enforcement actions
under the Back Bay Agreement or any of the Loan Documents (as defined therein)
or any governmental authority has commenced any adverse action against the
Borrower or the subject Real Estate arising out of the non-payment of such real
property taxes, and otherwise in form and substance satisfactory to Back Bay and
the escrow agent; and
(g) The representations and warranties contained in the Loan Agreement and
the Back Bay Agreement shall be correct in all material respects; and
(h) The Borrower shall, and shall demonstrate to the Agent's satisfaction
from time to time upon request by the Agent that the Borrower does, timely
deduct from the wages of its employees all payroll taxes and make timely and
proper deposits of all payroll and other "trust fund" taxes.
Section 4. Forbearance Terminated. If any one or more of the Forbearance
----------------------
Conditions is not satisfied, the agreements of the Lenders and the Agent and of
Back Bay to forbear as set forth in Section 2 shall, at the election of the
Required Lenders or Back Bay, as the case may be, terminate without notice to
the Borrower, and the Lenders and the Agent or Back Bay shall thereupon have and
may exercise from time to time all of the remedies available to them under the
Loan Documents (as defined in the Loan Agreement or the Back Bay Agreement, as
applicable) and Applicable Law by reason of the existence of continuing Events
of Default or "Events of Default" (under and as defined in the Back Bay
Agreement).
Section 5. Representations and Warranties of Borrower. The Borrower
------------------------------------------
hereby represents and warrants to the Agent and the Lenders 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
4
<PAGE>
Agreement or the other "Loan Documents" as defined therein or defaults existing
under the Equipment Leases, other than the Forbearance Defaults;
(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 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. Application of Proceeds. The Borrower hereby agrees, any
-----------------------
provision of the Loan Agreement or any other Loan Document to the contrary
notwithstanding, that as between the Borrower, on one hand, and the Agent and
the Lenders on the other, the Agent shall have the right to apply and reapply
any and all Collateral, proceeds thereof, other amounts received by the Agent
for application to the Secured Obligations and any property of the Borrower at
any time in the possession of the Agent or any Lender or any Affiliate of the
Agent or any Lender to the payment of the Secured Obligations in any order that
the Agent in its sole and absolute discretion may determine from time to time.
Section 7. Governing Law; General Provisions. (a) This Agreement shall
---------------------------------
be governed by and construed in accordance with the laws of the State of Georgia
(without reference to conflict of laws principles). Each of the parties hereto
hereby submits to the nonexclusive jurisdiction of the federal court of the
Northern District of Georgia in any case arising out of a dispute hereunder and
agrees that service upon it may be made by mail addressed to the address
specified hereunder for giving of notices.
(b) This Agreement 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) Captions of Sections, subsections, schedules or exhibits herein or
attached hereto are for convenience of reference only and shall not be
considered in interpreting or construing any provision of this Agreement and its
attachments.
5
<PAGE>
(d) The parties to this 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 this Agreement.
(e) This Agreement may not be amended or otherwise modified except in
writing, signed by the parties to this Agreement.
(f) All notices, demands and other communications provided for hereunder
shall be in writing and shall be deemed given to the addressee on the third
Business Day after deposit in the United States mail, first-class postage
prepaid, or upon confirmation during customary business hours of receipt of a
facsimile transmission, address to any party hereto at the address or facsimile
number appearing under such party's name on the signature pages of this
Agreement or to such other address and number as any party may specify for
itself by notice given to all other parties in the manner described in this
Section 7(f).
(g) This Agreement is not intended to be, and it shall not be construed to
be, a novation or accord and satisfaction and, except as expressly modified
hereby, the Loan Agreement, the Back Bay Agreement and the other Loan Documents
(as defined in both the Loan Agreement and the Back Bay Agreement) remain in
full force and effect and are hereby ratified and confirmed.
Section 8. No Waiver. (a) None of this Agreement, 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 this Agreement 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 this Agreement 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 this 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 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
6
<PAGE>
whose accounts receivable are factored or financed by The CIT Group/Commercial
Services, Inc.).
Section 9. Release; Waiver of Jury Trial. (a) TO INDUCE THE LENDERS AND
-----------------------------
THE AGENT AND BACK BAY TO ENTER INTO THIS AGREEMENT, 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 THIS
AGREEMENT.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered by its duly authorized officer(s) as of the date first
above written.
BORROWER:
[Corporate Seal] TEXFI INDUSTRIES, N.A.
Attest:
By: /s/ Andrew J. Parise, Jr.
By: /s/Robert P. Ambrosini --------------------------
------------------------------ Name: Andrew J. Parise, Jr.
Robert P. Ambrosini Title: CEO, President
Executive Vice President and
Chief Financial Officer
AGENT:
BANKBOSTON, N.A.
By: /s/ Christian B. Colson
-------------------------
Christian B. Colson
Managing Director
8
<PAGE>
LENDERS:
BANKBOSTON, N.A.
By: /s/ Christian B. Colson
--------------------------
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
9
<PAGE>
THE CIT GROUP/COMMERCIAL
SERVICES, INC.:
By: /s/ Grover P. Reinle
---------------------------
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
10
<PAGE>
BANCBOSTON LEASING INC.:
By: /s/ Jeanette M. Knoblock
----------------------------
Name: Jeanette M. Knoblock
Title: Assistant Vice President
Address:
100 Federal Street
Boston, Massachusetts 02110
Att: Jeanette M. Knoblock
Facsimile no.: (617) 434-0974
11
<PAGE>
BACK BAY:
BACK BAY CAPITAL FUNDING LLC
By: /s/ Robert DeAngelis
---------------------------
Name: Robert DeAngelis
Title: Managing Director
Address:
40 Broad Street
Boston, Massachusetts 02109
Attn: Robert DeAngelis
Facsimile No.: (617) 434-4339
12
<PAGE>
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 the Back Bay Defaults.
6. Non-payment of 1997 real property taxes in State of North Carolina.
7. February payment default under the Equipment Leases.
13
<PAGE>
SCHEDULE 2
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.
14
<PAGE>
EXHIBIT 4(d)(14)
SUBORDINATED NOTE
$1,500,000 February 26, 1999
FOR VALUE RECEIVED, the undersigned TEXFI INDUSTRIES, INC., a Delaware
corporation ("Borrower") hereby promises to pay to the order of MOORE ASSETS
INTERNATIONAL LIMITED (Registration No. 84998B), a Bahamian corporation
("Subordinated Lender"), the principal sum of ONE MILLION FIVE HUNDRED THOUSAND
AND NO/100s DOLLARS (US$1,500,000.00) at the office of Subordinated Lender
notified by it to Borrower, on September 1, 1999 in lawful money of the United
States, together with interest thereon at a rate equal to the "Prime Rate" of
The Chase Manhattan Bank, announced from time to time by it in New York City as
its prime rate, from the date hereof until payment in full of the principal
amount evidenced hereby, on the average principal balance outstanding hereunder
from time to time, computed on the basis of a 360-day year for the actual number
of days outstanding.
Subordination. Borrower agrees, and by its acceptance of this Note
Subordinated Lender agrees, that the obligations of Borrower to Subordinated
Lender under this Note (the principal of, interest and premium, if any, on this
Note and all other obligations of Borrower to Subordinated Lender in connection
with the indebtedness evidenced hereby, the "Subordinated Debt") are
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full in cash of all Senior Debt (as hereinafter
defined), whether outstanding on the date hereof or hereafter created, incurred,
assumed or guaranteed, whether direct or indirect, absolute or contingent,
secured or unsecured, or by operation of law or otherwise, including any and all
expenses (including reasonable attorneys' fees) incurred in connection therewith
and any interest thereon, including, without limitation, any post petition
interest accruing on such Senior Debt after Borrower becomes subject to an
insolvency proceeding (whether or not such interest is enforceable against
Borrower or recoverable against Borrower or its bankruptcy estate), and that
such subordination is for the benefit of the holders of the Senior Debt.
For purposes of this Note, "Senior Debt" means all obligations of Borrower
(i) to the Agent and the Lenders and their respective successors and assigns
under and as defined in the Loan and Security Agreement dated as of August 28,
1998 (as amended to date and as the same may be further amended, amended and
restated, supplemented, refinanced or otherwise modified, the "Loan Agreement")
and the Loan Documents (as defined in the Loan Agreement, (ii) to Back Bay
Capital Funding LLC, a Delaware limited liability company ("Back Bay") and its
successors and assigns under the Term Loan and Security Agreement dated as of
August 28, 1998 (as amended, amended and restated, supplemented, refinanced or
otherwise modified, the "Back Bay Agreement") between Borrower and Back Bay,
(iii) to BancBoston Leasing Inc., a Massachusetts
<PAGE>
corporation ("BBL") under various equipment leases (the "BBL Leases"), and (iv)
to The CIT Group/Commercial Services, Inc., a New York corporation ("CIT/CSI")
in Borrower's capacity as an account debtor of CIT/CSI factoring customers (such
obligations of Borrower, the "CIT Ledger Debt"). Senior Debt shall also include
all indebtedness, obligations and liabilities of Borrower (i) arising in
connection with any advances made to Borrower as a debtor-in-possession, or a
trustee for Borrower under any insolvency proceeding and (ii) to repay any
amount previously paid by Borrower pursuant to the Loan Agreement which amounts
have been returned to Borrower or to a trustee pursuant to sections 547 and 548
of the Bankruptcy Code or otherwise.
Notwithstanding any term of this Note to the contrary, without the prior
written consent of the Agent and Back Bay, Borrower shall not make any payment
or repayment in respect of the Subordinated Debt nor grant to Subordinated
Lender any lien or security interest to secure such payment or repayment, nor
shall Subordinated Lender sue for, receive, accept or retain any such payment,
repayment or collateral or any guaranty of any person or entity of the
Subordinated Debt, prior to the payment in full in cash of all Senior Debt. Any
money or other property received by Subordinated Lender from or on behalf of
Borrower for application to the Subordinated Debt in violation of the preceding
sentence shall be received by Subordinated Lender for the benefit of the holders
of the Senior Debt and shall be turned over to the Agent in the form received,
together with any necessary endorsement, as promptly as practicable, for
application to the Senior Debt (in accordance with the terms of the Loan
Agreement, the Back Bay Agreement and the other agreements between the holders
of the Senior Debt). Subordinated Lender shall have no responsibility for the
manner in which the Agent disburses any money so paid to the Agent by
Subordinated Lender and shall in no event be liable to any Lender, Back Bay, BBL
or CIT/CSI for any application by the Agent of any such amount.
These subordination provisions are intended solely to define the relative
rights of the holders of the Senior Debt and Subordinated Lender and are not
intended to and shall not be construed to impair the obligation of Borrower to
repay the principal amount of this Note and to pay interest on such principal
balance in accordance with the terms hereof, provided that Subordinated Lender
will not demand payment of, accelerate the maturity of or commence or join in
(except with the Agent or Back Bay) any action or proceeding against Borrower or
any property of Borrower to recover all or any part of the Subordinated Debt
unless either (i) the Agent and the Lenders or Back Bay, respectively, have
accelerated the maturity of Borrower's obligations under the Loan Agreement or
the Back Bay Agreement or (ii) the Agent and the Lenders or Back Bay,
respectively, have demanded payment of such obligations after such obligations
remained unpaid after maturity or (iii) judicial proceedings against Borrower
have been initiated by the Agent or Back Bay.
Subordinated Lender agrees that the Agent may (but shall not be obligated
to), if Subordinated Lender has not done so within 10 business days prior to the
applicable bar date, file proofs of claim or debt and vote the claims of
Subordinated Lender in any bankruptcy, liquidation, dissolution or other similar
proceeding involving an adjustment
2
<PAGE>
of the indebtedness of Borrower or application of any assets of Borrower to
payment in liquidation thereof, or otherwise. Subordinated Lender shall not take
any action or vote in any way so as to contest (i) the validity or the
enforceability of the Loan Agreement, the Loan Documents (as defined in the Loan
Agreement), the Back Bay Agreement or the Loan Documents (as defined in the Back
Bay Agreement) or the liens and security interests to the extent granted to the
holders of the Senior Debt with respect to the Senior Debt, (ii) the rights and
duties of the holders of the Senior Debt established in the Loan Agreement, the
Back Bay Agreement or any security documents with respect to such liens and
security interests, or (iii) the validity or enforceability of any agreement or
instrument to the extent evidencing or relating to the Senior Debt. Subordinated
Lender further agrees that it (a) will not assign or transfer or subordinate all
or any part of the Subordinated Debt held by it or any claim which it may have
against Borrower in respect of the Subordinated Debt, (b) will direct Borrower
or any trustee or receiver for borrower or any other person or entity that
offers any payment to Subordinated Lender in respect of the Subordinated Debt,
to make such payment directly to the Agent for application to the Senior Debt as
provided above, (c) will not borrow money from or otherwise incur any obligation
to Borrower, (d) unless and until the Senior Debt is paid in full in cash, will
not exercise or seek to exercise any rights of subrogation Subordinated Lender
may acquire in respect of the Senior Debt.
Subordinated Lender agrees that the Agent and the Lenders and Back Bay,
respectively, may at any time and from time to time, either prior to or after
any default by Borrower with respect to any indebtedness and without affecting
the rights hereunder of the holders of Senior Debt, (a) advance additional
credit to Borrower and make other accommodations to or for the account of
Borrower even if the Senior Debt is increased, (b) amend, respectively, the Loan
Agreement or any Loan Document as defined therein or the Back Bay Agreement or
any Loan Document as defined therein and by written agreement or otherwise,
extend, renew or change, modify, compromise, release, refuse to extend, renew or
modify the Senior Debt held by them, respectively, (c) fail to exercise any
right of set off, (d) sell, assign, surrender, release, realize upon or apply,
or omit to do any of the foregoing, the Senior Debt or any collateral for the
Senior Debt and (e) without limiting the generality of the foregoing, deal with
Borrower as they see fit, including, without being limited to, taking or
omitting to take any action the taking or omission of which could otherwise
constitute a discharge of any obligor on the Senior Debt or impair the position
of the Subordinated Lender.
Subordinated Lender hereby waives any and all demands, presentments or
notices (other than notices specifically provided for in this Subordinated Note)
to which it might otherwise be entitled (including, without limitation, any and
all notice of the creation or accrual of any Senior Debt; of any extension,
modification, or renewal of any of said Senior Debt; and of reliance of the
holders of the Senior Debt on this Subordinated Note).
If Subordinated Lender in violation of any provision contained in this
Subordinated Note shall assert or bring any action, suit or proceeding against
Borrower, Borrower may interpose as a defense or dilatory plea the making of
this Subordinated Note, and each holder of the Senior Debt is hereby irrevocably
authorized to intervene
3
<PAGE>
and to interpose such defense or plea in its name or in Borrower's name. If
Subordinated Lender shall attempt to enforce, collect or realize upon any
Subordinated Debt, or any collateral, security or guarantees (if any) securing
the Subordinated Debt, in violation of the provisions of this Subordinated Note,
Borrower may, by virtue of this Subordinated Note, restrain any such
enforcement, collection or realization, or upon failure to do so, any holder of
the Senior Debt may restrain any such enforcement, collection or realization,
either in its own name or in the name of Borrower.
The Subordinated Lender acknowledges and agrees that none of the
Forbearance Agreement dated as of February 25, 1999 among Borrower, BankBoston,
N.A. and The CIT Group/Commercial Services, Inc. (the "Lenders"), BankBoston,
N.A. (the "Agent"), BBL and Back Bay (the "Forbearance Agreement"), the
forbearance by the Agent and the Lenders, BBL and Back Bay thereunder, the
Lenders' continued Revolving Credit Loans (as defined in the Loan Agreement) to
Borrower in accordance with the terms of the Loan Agreement and the Forbearance
Agreement or the Agent's or the Lenders' or BBL's or Back Bay's discussions or
negotiations with Borrower or any Affiliate (as defined in the Loan Agreement)
of Borrower are intended to be, nor are they nor shall they 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 Borrower
(which is indebtedness for goods and services purchased by Borrower from any
party whose accounts receivable are factored or financed by The CIT
Group/Commercial Services, Inc.). This Note shall be governed by and construed
in accordance with the laws of the State of Georgia (without reference to
principles of conflicts of laws). Borrower and by its acceptance hereof,
Subordinated Lender hereby agree that the federal court of the Northern District
of Georgia or shall have nonexclusive jurisdiction to hear and determine any
claims or disputes between Borrower and Subordinated Lender pertaining directly
or indirectly to this Agreement or to any matter arising herefrom. Borrower and
by its acceptance hereof Subordinated Lender expressly submits and consents in
advance to such jurisdiction in any action or proceeding commenced in such
courts. The nonexclusive choice of forum set forth herein shall not be deemed
to preclude the enforcement of any judgment obtained in such forum or the taking
of any action under this agreement to enforce same in any appropriate
jurisdiction.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its officers thereunto duly authorized, as of the date first above
written.
TEXFI INDUSTRIES, INC.
By /s/ Robert P. Ambrosini
-----------------------------
EVP & CFO
4
<PAGE>
ACCEPTANCE
By its acceptance of this Note, Subordinated Lender agrees to perform all
obligations hereunder of Subordinated Lender and confirms for the benefit of the
holders of the Senior Debt that (a) Borrower has delivered this Note in exchange
for the loan by Subordinated Lender to Borrower of US$1.5 million, in cash, (b)
the making of such loan and acceptance of this Note by Subordinated Lender have
been duly authorized, (c) Subordinated Lender's obligations hereunder constitute
the legal, valid and binding obligations of Subordinated Lender enforceable
against Subordinated Lender in accordance with the terms of this Note and (d) no
action or inaction by Borrower, including any misrepresentation made by Borrower
to Subordinated Lender, will impair or otherwise affect the subordination
provisions hereof.
IN WITNESS WHEREOF, Subordinated Lender has caused this Note to be accepted
by its authorized officer as of the date first above written.
For and on behalf of
MOORE ASSETS INTERNATIONAL LIMITED
By Premier Management Limited
----------------------------
Director
5
<PAGE>
EXHIBIT 10(a)(16)
AGREEMENT
This Agreement ("Agreement") is entered into this 20th day of May,
1999, by and between Texfi Industries, Inc. ("Texfi") and Mentmore Holdings
Corporation ("Mentmore").
RECITALS
--------
WHEREAS, Texfi and Mentmore have operated under an informal month-to-month
consulting and management advisory service agreement (the "Management
Agreement");
WHEREAS, Texfi provided space and administrative services to Mentmore and
its affiliates;
WHEREAS, certain officers of Mentmore and its affiliate Chadbourne are
directors of Texfi;
WHEREAS, Texfi states that Texfi's books and records reflect that as of
July 31, 1998 Mentmore owed Texfi $282,470.88 in accrued but unpaid rent and
other charges for space and administrative services, and that additional rent is
due from and after that date, all of which charges Mentmore disputes;
WHEREAS, Mentmore states that as of July 31, 1998 Texfi owed Mentmore the
sum of $337,500.00 in accrued but unpaid management fees and that additional
fees are due from and after that date;
WHEREAS, certain disputes have arisen between the parties over the sums, if
any, due Mentmore, under the Management Agreement, to date and into the future,
and have also arisen over the sums, if any, due to Texfi from Mentmore for rent
and administrative services to date and into the future; and
WHEREAS, by entering into the Agreement, neither party admits it had or has
any liability to the other party for management fees, rents or administrative
services.
NOW, THEREFORE, in consideration of the foregoing, and upon good and
sufficient consideration, and to settle the referenced disputes, Texfi and
Mentmore do hereby enter into the following Agreement on the following terms and
conditions:
AGREEMENT
---------
1. Recitals
--------
All of the recitals set forth above are an integral part of this agreement.
<PAGE>
2. Net Fees For The Periods Ending July 31, 1998
---------------------------------------------
Texfi agrees to continue to show on its books a net amount of $56,029.42
due Mentmore in total, as of July 31, 1998. Mentmore agrees to defer the
collection of the $56,029.42, without interest, until July 31, 1999, when that
amount shall be paid by Texfi to Mentmore.
3. Settlement of Amounts Owed
--------------------------
Texfi agrees that Texfi provided space and administrative services to
Mentmore at no charge from and after August 1, 1998, and will continue to do so
until April 15, 1999. In return, Mentmore agrees that it provided services to
Texfi under the Management Agreement from and after August 1, 1998 at no charge
to Texfi. In addition, Mentmore agrees that the Management Agreement is hereby
terminated, and that no director or officer of Mentmore or Chadbourne will
receive a salary from Texfi from and after January 1, 1999.
4. Indemnification
---------------
Texfi shall indemnify and hold harmless any officer, director or counsel of
Chadbourne or Mentmore who served as a director or officer of Texfi, or any
subsidiary of Texfi (each, an "Indemnified Party") against all liability arising
out of such Indemnified Party's service or services as a director or officer of
Texfi, or any subsidiary of Texfi, to the fullest extent permitted under (i) in
the case of Texfi, the Delaware General Corporation Law and Texfi's Certificate
of Incorporation and By-laws, including provisions therein relating to advances
of expenses incurred in the defense of any litigation and whether or not Texfi
is insured against any such matter and/or (ii) in the case of any subsidiary of
Texfi, the applicable law under which such subsidiary is organized and by such
subsidiary's organizational documents, whether or not such subsidiary is insured
against any such matters. Texfi also agrees not to amend any of its or its
subsidiaries' organizational documents in a manner in which would provide for
narrower or lesser indemnification than is provided at the date hereof.
5. Insurance
---------
Texfi shall maintain in effect for a period of six (6) years after the date
hereof existing directors' and officers' liability insurance policies (provided
Texfi may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are substantially no less advantageous)
covering classes of persons who are currently covered by such insurance.
6. Choice of law
-------------
This Settlement Agreement shall be governed by the laws of the State of
Delaware.
2
<PAGE>
7. Headings
--------
The headings used in this Agreement are for the convenience of the parties
only and have no legal force or affect.
8. Entire agreement
----------------
This Agreement constitutes the entire agreement between the parties. No
modification may be made to this Agreement, unless it shall be in writing. In
the event either party or a third party successfully voids any portion of this
Agreement, Texfi and Mentmore will each be restored to their original positions,
claims and contractual rights that existed prior to the execution of this
Agreement.
Accepted and agreed:
TEXFI INDUSTRIES, INC.
By: /s/ Andrew J. Parise, Jr.
-----------------------------
Its: CEO, President
----------------------------
MENTMORE HOLDINGS CORPORATION
By: /s/ William L. Remley
-----------------------------
Its: President and CEO
----------------------------
3
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements on Form
S-8 (2-79384, 33-14697, 33-22584, 33-22592, 33-25313, 33-31969, 33-34836, 33-
34293, 33-38527, 33-40298, 33-47601, 33-60565, 33-31099) of our report dated
December 21, 1998, except as to notes 18 and 19 as to which the date is April
30, 1999, 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 October 30, 1998.
/s/ Ernst & Young LLP
Raleigh, North Carolina
May 25, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-START> ???????
<PERIOD-END> OCT-30-1998
<CASH> 162
<SECURITIES> 0
<RECEIVABLES> 32,063
<ALLOWANCES> (1,619)
<INVENTORY> 13,346
<CURRENT-ASSETS> 44,916
<PP&E> 79,899
<DEPRECIATION> (55,017)
<TOTAL-ASSETS> 71,852
<CURRENT-LIABILITIES> 61,907
<BONDS> 2,354
0
0
<COMMON> 8,859
<OTHER-SE> (38,370)
<TOTAL-LIABILITY-AND-EQUITY> 71,852
<SALES> 143,558
<TOTAL-REVENUES> 143,558
<CGS> 130,362
<TOTAL-COSTS> 143,962
<OTHER-EXPENSES> 1,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,379
<INCOME-PRETAX> (9,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,850)
<DISCONTINUED> (1,885)
<EXTRAORDINARY> (1,886)
<CHANGES> 0
<NET-INCOME> (13,621)
<EPS-BASIC> (1,54)
<EPS-DILUTED> (1.54)
<FN> Values represent the interim year-to-date figures. All Division of
Corporation Finance Schedules will consist of a SINGLE COLUMN of numbers unless
a registration statement containing information for a complete fiscal year as
well as for an interim period is the first filing submitted with new financials
during that year. In that case, the filer will use two columns--one for the year
period and a second for the interim period. Financial Data Schedules for
Investment Management companies will have one column of numbers. Each schedule
may contain up to five columns of numbers; however, most will contain ONLY ONE.
</FN>
</TABLE>
