Archibald Candy enters into forbearance with noteholders, preferred stock holders

New York, March 5 - Archibald Candy Corp. said it entered into a forbearance agreement with holders of its 10¼% senior secured notes due 2004, extended the forbearance with its bank lender and added that its sole shareholder Fannie May Holdings, Inc. entered into a forbearance agreement with the holders of Fannie May's senior preferred stock.

The agreement with noteholders covers investors owning 88% of the principal amount of the notes, according to a filing with the Securities and Exchange Commission.

Under terms of this agreement, the noteholders have agreed that they will not exercise before April 30, 2002 their rights resulting from Archibald's failure to make the $8.7 million interest payment due Jan. 2 on the notes.

This agreement can be terminated if there is any other default, the agreements with the bank lenders or preferred stockholders end, if principal or interest on the notes is accelerated, if there is any payment to preferred stockholders or if the preferred stockholders elect a director having 51% of the total voting power of the board of directors.

The forbearance with the bank lender is with The CIT Group/Business Credit, Inc., agent and sole lender for the company's revolving credit facility and also expires on April 30. The original agreement was scheduled to expire on March 1.

CIT agreed to allow Archibald to continue to request borrowings for working capital, subject to a limit.

This agreement ends early if the senior notes are accelerated, there is any payment on the notes or preferred stock or there is any other default on the facility.

Holders of the senior preferred stock agreed until April 30 to forbear from exercising their right to elect a director who would have 51% of the total voting power of the board and from exercising any other remedies from Fannie May's failure to make the $3 million redemption payment required on Jan. 15 and the remaining $10.5 million of redemption payments that were automatically accelerated.

The preferred forbearance may be terminated early if the CIT or noteholders agreements end.

Holders of the preferreds will have the right to send an observer to board meetings.

Archibald added that it is continuing discussions about a capital restructuring, including a possible exchange of the senior notes for equity or repurchasing the notes at a discounted price or obtaining new equity or debt from third parties.

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