SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED APRIL 1, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file numbers 333-42411 and 333-42411-01
GLENOIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
GLENOIT ASSET CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0343206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West 40th Street
New York, New York 10018
Telephone: (212) 391-3915
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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___ No__X_
None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.
As of April 1, 2000, there were 1,000 shares of Glenoit Corporation common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 1, April 1,
2000 2000
--------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,015,080 $ 748,885
Receivables:
Trade accounts receivable, net of allowance of $5,470,000 and
$5,326,000 as of January 1, 2000 and April 1, 2000,
respectively 27,639,925 35,940,508
Other receivables 2,396,339 3,482,673
Inventories 50,974,925 57,208,611
Current deferred tax assets 3,406,960 4,406,960
Prepaid expenses and other current assets 1,012,441 1,510,982
--------------- ----------------
Total current assets 87,445,670 103,298,619
Property, plant and equipment, net 67,701,677 66,222,976
Other assets:
Notes receivable from related party 246,810 241,808
Intangible assets, net of accumulated amortization of $3,185,000
and $3,764,000 as of January 1, 2000 and April 1, 2000,
respectively 50,933,860 50,354,695
Deferred loan costs and other, net of accumulated amortization of
$2,836,000 and $3,336,000 as of January 1, 2000 and April 1,
2000, respectively 9,293,032 8,792,639
Other assets 1,324,424 1,220,410
--------------- ----------------
Total assets $ 216,945,473 $ 230,131,147
=============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 1, April 1,
2000 2000
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S DEFICIT (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,061,519 $ 12,585,015
Accrued expenses 13,907,287 20,736,167
Current maturities of long-term debt 237,681,953 244,022,158
Due to Holdings 2,462,933 2,890,515
--------------- ---------------
Total current liabilities 264,113,692 280,233,855
Long-term debt less current maturities 0 0
Deferred income taxes 5,840,012 5,839,917
Other long-term liabilities 6,125,933 6,220,117
--------------- ---------------
Total liabilities 276,079,637 292,293,889
--------------- ---------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding as of January 1, 2000 and April 1, 2000 10 10
Additional paid-in capital 1,461,713 1,461,713
Accumulated deficit ( 60,255,036 ) ( 63,249,924 )
Accumulated other comprehensive loss ( 340,851 ) ( 374,541 )
--------------- ---------------
Total stockholder's deficit ( 59,134,164 ) ( 62,162,742 )
--------------- ---------------
Total liabilities and stockholder's deficit $ 216,945,473 $ 230,131,147
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
April 3, April 1,
1999 2000
--------------- ---------------
<S> <C> <C>
Net sales $ 54,882,318 $ 77,869,520
Cost of sales 40,457,537 58,527,202
--------------- ---------------
Gross profit 14,424,781 19,342,318
--------------- ---------------
Operating expenses:
Selling 4,885,364 5,644,719
Administrative 8,731,456 9,435,280
Research and development 640,315 1,135,760
Restructuring charge 13,100,000 0
--------------- ---------------
Total operating expenses 27,357,135 16,215,759
--------------- ---------------
Income (loss) from operations ( 12,932,354 ) 3,126,559
--------------- ---------------
Other income (expense):
Interest expense ( 5,122,613 ) ( 6,704,082 )
Amortization of deferred financing costs ( 291,819 ) ( 500,393 )
Other 46,641 129,364
--------------- ---------------
Total other expense ( 5,367,791 ) ( 7,075,111 )
--------------- ---------------
Loss before income taxes ( 18,300,145 ) ( 3,948,552 )
Income tax benefit ( 6,778,698 ) ( 953,664 )
--------------- ---------------
Net loss ( $ 11,521,447 ) $ ( 2,994,888 )
==================== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statement of Stockholder's Deficit (Unaudited)
for the three months ended April 1, 2000
<TABLE>
<CAPTION>
Accumulated
Shares of Additional Other
Common Common Paid-in Accumulated Comprehensive
Stock Stock Capital Deficit Loss Total
---------- ---------- ------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 2000 1,000 $ 10 $ 1,461,713 $ ( 60,255,036 ) $ ( 340,851 ) $ ( 59,134,164 )
Net loss ( 2,994,888 ) ( 2,994,888 )
Accumulated Other
Comprehensive
Income ( 33,690 ) ( 33,690 )
---------- ---------- ------------ ------------------ ---------------- ----------------
Balance as of
April 1, 2000 1,000 $ 10 $ 1,461,713 $ ( 63,249,924 ) $ ( 374,541 ) $ ( 62,162,742 )
========== ========== ============ ================== ================ ================
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
April 3, April 1,
1999 2000
------------------ ----------------
<S> <C> <C>
Net loss $ ( 11,521,447 ) $ ( 2,994,888 )
Other comprehensive income (loss), net of tax:
Currency translation adjustment 116,974 ( 22,909 )
------------------ ----------------
Comprehensive loss $ ( 11,404,473 ) $ ( 3,017,797 )
================== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
April 3, April 1,
1999 2000
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ ( 11,521,447 ) ( 2,994,888 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,816,585 3,257,950
Restructuring charge 13,100,000 -
Gain on sale of property and equipment - ( 168,727 )
Effect of foreign currency exchange rate 188,668 ( 33,690 )
Changes in operating assets and liabilities:
Trade and other receivables ( 639,586 ) ( 9,538,917 )
Inventories ( 8,750,576 ) ( 6,233,686 )
Prepaid expenses and other assets ( 280,197 ) ( 1,389,526 )
Due to Holdings ( 5,690,725 ) 427,582
Accounts payable 1,588,390 2,523,496
Accrued expenses and other liabilities 3,513,311 6,959,302
-------------- --------------
Net cash used in operating activities ( 5,675,577 ) ( 7,191,104 )
--------------- ---------------
Cash flows from investing activities:
Purchases of acquired businesses, net of cash acquired ( 50,279,944 ) -
Purchases of and additions to property, plant and equipment ( 2,608,987 ) ( 767,522 )
Proceeds from sale of property and equipment and refunds of
deposits - 352,227
--------------- ---------------
Net cash used in investing activities ( 52,888,931 ) ( 415,295 )
--------------- ---------------
Cash flows from financing activities:
Proceeds from line of credit and issuance of debt, net 63,875,669 8,000,000
Repayments of long-term debt - ( 1,659,796 )
Payments for financing costs ( 4,192,854 ) -
--------------- ---------------
Net cash provided by financing activities 59,682,815 6,340,204
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,118,307 ( 1,266,195 )
Cash and cash equivalents at beginning of period 339,700 2,015,080
--------------- ---------------
Cash and cash equivalents at end of period $ 1,458,007 $ 748,885
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Glenoit Corporation and subsidiaries (collectively the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended April 1, 2000 are
not necessarily indicative of the results that may be expected for
the fiscal year ending December 30, 2000. The unaudited financial
statements should be read in conjunction with the audited financial
statements and footnotes thereto for the fiscal year ended January
1, 2000. Subsequent to January 1, 2000, the Company was in violation
of certain covenants of its senior credit facility and senior
subordinated notes (See Note 4). This matter raises substantial
doubt about the Company's ability to continue as a going concern.
The Company is currently in negotiations with its senior lenders and
is reviewing alternative financing and strategic options to address
the defaults outstanding as well as reduce the Company's overall
leverage. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
CONSOLIDATION
Prior to September 1997, the accompanying financial statements
included the accounts of Glenoit Corporation and its wholly-owned
subsidiaries Glenoit Mills, Inc. ("Mills"), Tarboro Properties, Inc.
("Tarboro"), and Glenoit Asset Corporation, Inc. ("Glenoit Asset
Corporation"). In September 1997, Glenoit Corporation merged with
Mills and Tarboro. In addition, Glenoit Corporation's newly formed
wholly-owned subsidiary, Glenoit Corporation of Canada ("Glenoit
Canada") acquired the assets of Collins & Aikman Canada Inc. On
October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. On February 12, 1999, the Company
acquired all the outstanding shares of capital stock of Ex-Cell Home
Fashions, Inc. (See Note 7). Accordingly, at April 1, 2000, the
accompanying financial statements include the accounts of Glenoit
Corporation and it's wholly-owned subsidiaries Glenoit Canada,
American Pacific Enterprises, Inc., Glenoit Asset Corporation and
Ex-Cell Home Fashions, Inc. The Company is a wholly-owned subsidiary
of Glenoit Universal, Ltd. ("Holdings").
7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS
No. 133"). SFAS No. 133 establishes standards related to the
recording and reporting of derivative instruments. The FASB recently
delayed the required implementation of SFAS No. 133 until fiscal
year 2001. During 1999, the Company entered into an interest rate
hedge agreement but has yet to determine any future impact of SFAS
No. 133.
2. RELATED PARTY TRANSACTIONS
In January 1999, the Company loaned an officer $150,000 and created
an unsecured note receivable which was repaid in February, 1999.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 1, April 1,
2000 2000
----------------------- ------------------------
(Unaudited)
<S> <C> <C>
Raw materials $9,269,434 $9,961,083
Work-in-process 4,985,545 10,675,322
Finished goods 36,719,946 36,572,206
----------------------- ------------------------
Total inventories $50,974,925 $57,208,611
======================= ========================
</TABLE>
4. LONG-TERM DEBT
As of January 1, 2000 and April 1, 2000, long-term debt consisted of
the following:
<TABLE>
<CAPTION>
January 1, April 1,
2000 2000
----- ----
(Unaudited)
<S> <C> <C>
Senior credit facility................................................ $142,681,953 $149,022,158
11% Senior subordinated notes ........................................ 95,000,000 95,000,000
----------- -----------
Total long-term debt........................................... 237,681,953 244,022,158
Less current portion ................................................. 237,681,953 244,022,158
------------ ------------
$0 $0
== ==
</TABLE>
8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG TERM DEBT (CONTINUED)
On April 1, 1997, the Company issued $100,000,000 of senior
subordinated notes (the "Senior Subordinated Notes") in a private
placement bond offering. The Senior Subordinated Notes bear interest
at a fixed rate of 11% and mature on April 15, 2007. The Company at
its option, can prepay these notes at a price of 105.5% of the
original principal amount, beginning on April 15, 2002. The premium
declines by 1.833% thereafter each year beginning on April 15
until reduced to the original principal amount. Upon a Change
of Control of the Company, as defined in the Indenture
governing the Senior Subordinated Notes, the holder of a
Senior Subordinated Note may require the Company to redeem the
note at a price of 101% of the principal amount. Interest is
payable semi-annually, and began on October 15, 1997.
During September 1998, the Company acquired $5 million of the Senior
Subordinated Notes in the open market. These notes were subsequently
retired. In connection with this transaction, the Company recorded
an extraordinary loss of approximately $117,000, net of a tax
benefit, which consisted of the write off of a pro rata share of
deferred financing costs associated with the issuance of the Senior
Subordinated Notes.
On April 1, 1997, the Company also entered into a $70 million senior
credit facility (the "Facility") with a financial institution. Of
the total commitment of $70 million under the Facility, $25 million
was designated as an Acquisition Commitment and $45 million as a
Working Capital Commitment, which is a revolving credit facility
limited to the Borrowing Base as defined in the Facility. On October
2, 1998, the Facility was amended to increase the Acquisition
Commitment to $76 million. On October 2, 1998, in connection with
the acquisition of American Pacific Enterprises, Inc., discussed in
Note 7, the Company borrowed approximately $55.7 million under the
Acquisition Commitment.
As further discussed in Note 7, the Company acquired all outstanding
shares of capital stock of Ex-Cell Home Fashions, Inc. on February
12, 1999. In connection with that acquisition, the Company amended
and restated the Facility to increase the borrowing availability to
$200 million. The additional availability was reduced to $175
million in connection with the June, 1999 amendment discussed below
and is currently comprised of (i) $65.0 million as the Working
Capital Commitment, subject to the Borrowing Base as defined, (ii)
$40.0 million Term A loan and (iii) $70.0 million Term B loan. The
borrowings under both the Working Capital Commitment and Term A
loan, as amended, bear interest at the Base Rate plus 2.25% or the
Eurodollar Rate plus 3.50%. Advances under the Term B loan bear
interest at the Base Rate plus 3.00% or the Eurodollar Rate plus
4.25%. Beginning in July 1999, the interest rate charged on the Term
A and Working Capital Commitment borrowings could decrease by 1.0%
if certain financial ratios are
9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG TERM DEBT (CONTINUED)
met. Principal payments on the Term A and Term B loans began on
September 30, 1999 at a total of $1.7 million per quarter and
increase over the lives of the loans. Borrowings under the Term A
loan and Working Capital Commitment are required to be fully repaid
by December 31, 2003 and borrowings under the Term B loan are
required to be fully repaid by June 30, 2004. On the date of the
Ex-Cell acquisition, the Term A and Term B loans were fully drawn.
The bank also extended up to a total of $5 million in letters of
credit to the Company; however, the amount is limited to the amount
of the unused Working Capital Commitment.
The Facility and Senior Subordinated Notes have various covenants,
as well as cross-acceleration provisions, that require the Company
to: maintain key financial ratios, restrict corporate borrowings,
limit the Company's ability to pay dividends, limit the type and
amount of certain investments which may be undertaken by the
Company, limit the Company's disposition of assets, limit the
Company's ability to enter into operating and capital leases, and
restrict the Company's ability to issue shares of its stock.
As of January 1, 2000, the Company was in compliance with its
covenants related to both the Facility and the Senior Subordinated
Notes. On February 23, 2000, the Company failed to repay
approximately $2 million of borrowings outstanding under the Working
Capital Commitment that was required as a result of an insufficient
borrowing base which resulted in a default under the Facility. The
insufficient borrowing base was the result of missed shipments
during the last week of January 2000 as a result of a blizzard in
Eastern North Carolina that closed operating facilities and
restricted shipments. On March 16, 2000, the Company's lenders
waived this default until April 10, 2000 and limited the Company's
availability under the Working Capital Commitment to approximately
$48.3 million, including $3.3 million specifically for letters of
credit, with a view towards negotiating mutually acceptable
modifications to the facility prior to April 10, 2000. The Company
and its lenders have been unable to negotiate such modifications to
date and, as of April 11, 2000, the Company was in default under the
Facility as a result of the termination of the above waiver. In
accordance with terms of the Facility, the Company's lenders
notified the Company on April 13, 2000 that such lenders were
exercising their election to prohibit the Company from making the
interest payments of approximately $5.3 million due under the Notes
on April 15, 2000. Accordingly, as of April 15, 2000, the Company
was in default and remains in default under the terms of the Notes
due to its failure to make the interest payment. On April 26, 2000,
the Company's Facility was amended and the previous defaults
outstanding as of April 10, 2000 were waived until June 15, 2000 and
the Company's lenders will continue lending within terms of the
Facility at their discretion. As a result of the above defaults and
short term waivers, all of the Company's borrowings under the Senior
Subordinated Notes and Facility are classified as current
liabilities.
10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG TERM DEBT (CONTINUED)
For the quarter ended April 1, 2000, the Company was in default of
certain financial covenants under the Facility which had not
previously been adjusted under the waivers and amendments received
prior to January 1, 2000. This default was waived in the amendment
on April 26, 2000 discussed above. The Company is currently in
negotiations with its senior lenders to conform its financial
covenants and borrowing needs to its current business plan. Even
though discussions are ongoing, there can be no assurance that the
Company will obtain the necessary amendments and waivers or as to
the terms thereof. The Company is currently reviewing alternative
financing and strategic options to attempt to address the default
outstanding under the Senior Subordinated Notes and additional
amendments required for the Facility as well as reduce the Company's
overall leverage. The Notes also contain a cross-acceleration clause
under which they become due and payable in the event that the
Company's senior lenders demand payment of the Facility.
Barring an intervening acceleration of the indebtedness under the
Facility or an insolvency proceeding, the Company believes it has
sufficient liquidity to meet its current cash needs. However, any
decrease in cash provided from operations or increase in cash used
in operations could cause the Company to be unable to meet its cash
needs. The Company's future operating performance and ability to
service or refinance the Notes and to extend or refinance its other
indebtedness will be subject to future economic conditions and to
financial, business and other factors beyond the Company's control.
During June 1999, the Company entered into an interest rate cap
agreement which caps the maximum Eurodollar rate to be paid by the
Company at 6.5% on an $82.5 million notional amount. The Company
paid approximately $820,000 to enter into this agreement.
Substantially all of the Company's assets and operations are pledged
as collateral for the Facility. Holdings and Glenoit Asset
Corporation have guaranteed the Company's obligations under the
Facility. Holdings and Glenoit Asset Corporation have no substantive
assets or operations and rely on the Company to fund their
obligations.
11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes To Consolidated Financial Statements (Unaudited)
4. LONG TERM DEBT (CONTINUED)
The Senior Subordinated Notes are fully and unconditionally
guaranteed, on a joint and several basis, by Glenoit Asset
Corporation, American Pacific Enterprises, Inc. ("APE") and, as of
February 12, 1999, Ex-Cell Home Fashions, Inc. ("Ex-Cell") (together
the "Subsidiary Guarantors"). Glenoit Asset Corporation's operations
consist solely of leasing certain trademarks and other intangibles
to Glenoit Corporation. Accordingly, Glenoit Asset Corporation's
assets and operations consist primarily of intercompany assets and
operations with Glenoit Corporation. Glenoit Canada and the foreign
subsidiaries of APE and Ex-Cell (together the "Subsidiary
Non-Guarantors") do not guarantee the Senior Subordinated Notes. The
financial information of the Subsidiary Guarantors for these periods
has been excluded because management believes that this information
is not material to investors.
The following tables present summarized balance sheet information of
Glenoit Corporation, the Subsidiary Guarantors, and Subsidiary
Non-Guarantors as of April 1, 2000 and the related summarized
operating statement and cash flow statement information for the
period then ended. The Company believes that separate financial
statements and other disclosures regarding the Subsidiary
Guarantors, are not material to investors.
Summarized balance sheet information, in thousands, as of April 1,
2000 is as follows (unaudited):
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Eliminations Sub-total Non-Guarantors Eliminations Consolidated
----------- ---------- ------------ --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $90 $(148) $ (58) $ 807 $749
Accounts and other receivables, net... 12,662 23,608 36,270 3,153 39,423
Inventories............................ 10,151 42,537 52,688 4,521 57,209
Other current assets................... 7,621 (1,932) 5,689 229 5,918
------- -------- -------- ------- -------
Total current assets.............. 30,524 64,065 0 94,589 8,710 0 103,299
Property, plant and equipment, net... 33,001 23,195 56,196 10,027 66,223
Other assets........................... 183,940 97,400 $(198,305) 83,035 1,423 $(23,849) 60,609
-------- -------- --------- -------- ------- -------- -------
Total assets...................... 247,465 184,660 (198,305) 233,820 20,160 (23,849) 230,131
======== ======== ========= ======== ======= ======== =======
Accounts payable....................... 6,232 3,607 9,839 2,746 12,585
Other current liabilities.............. 242,851 31,026 - 273,877 (6,228) 267,649
-------- -------- -------- ------- -------
Total current liabilities......... 249,083 34,633 0 283,716 (3,482) 0 280,234
Long-term debt......................... 58,419 (58,419) 0 3,277 (3,277) 0
Other long-term liabilities............ 1,785 10,141 11,926 134 12,060
Stockholders equity (deficit).......... (61,822) 139,886 (139,886) (61,822) 20,231 (20,572) (62,163)
-------- -------- --------- -------- ------- -------- -------
Total liabilities and equity...... $247,465 $184,660 $(198,305) $233,820 $20,160 $(23,849) $230,131
======== ======== ========= ======== ======= ======== ========
</TABLE>
12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG-TERM DEBT (CONTINUED)
Summarized operating statements information, in thousands, for the
three months ended April 1, 2000 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Eliminations Sub-total Non-Guarantors Eliminations Consolidated
----------- ---------- ------------ --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $24,041 $48,028 $72,069 $9,800 (4000) $77,869
Cost of sales.......................... 20,177 34,440 54,617 7,910 (4000) 58,527
------- ------- ------ ------ ----- -------
Gross profit........................... 3,864 13,588 0 17,452 1,890 0 19,342
Operating expenses..................... 5,144 10,616 15,760 456 16,216
Royalty income (expense)............... (1,640) 1,640 0 - -
------- ------- ------ ------ -------
Income (loss) from operations.......... (2,920) 4,612 0 1,692 1,434 0 3,126
Interest expense (income).............. 7,216 (561) 6,655 49 6,704
Other expense (income)................. (3,551) (945) 3,946 (550) 19 902 371
Income taxes........................... (3,590) 2,172 - (1,418) 464 - (954)
------- ------- ------ ------ ------ --- -------
Net income (loss)................. $(2,995) $3,946 $(3,946) $(2,995) $ 902 $(902) $(2,995)
======= ======= ======= ======= ====== === =======
</TABLE>
Summarized cash flow statement information, in thousands, for the
three months ended April 1, 2000 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Eliminations Sub-total Non-Guarantors Eliminations Consolidated
----------- ---------- ------------ --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities.. $(4,906) $(1,954) $(6,860) $(331) $(7,191)
Cashflows used in investing
activities...................... (49) (223) (272) (143) (415)
Cashflows from financing activities.. 4,976 1,205 6,181 159 6,340
----- ----- ------- ----- -------
Net increase(decrease) in cash....... 21 (972) 0 (951) (315) 0 (1,266)
Cash at beginning of period.......... 69 1,744 1,813 202 2,015
------ ----- ------- ----- -------
Cash at end of period................ $90 $772 0 $862 $(113) 0 $749
====== ===== = ======= ===== = =======
</TABLE>
13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG-TERM DEBT (CONTINUED)
Summarized operating statements information, in thousands, for the
three months ended April 3, 1999 is as follows :
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Eliminations Sub-Total Non-Guarantors Eliminations Consolidated
----------- ---------- ------------ --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... 24,765 27,448 52,213 4,669 (2000) 54,882
Cost of sales..................... 19,883 18,593 0 38,476 3,982 (2000) 40,458
------ ------ ----- ------- ----- ---- ------
Gross profit...................... 4,882 8,855 0 13,737 687 0 14,424
Operating expenses................ 18,732 8,316 27,048 309 27,357
Royalty income (expense).......... (1,705) 1,705 0 0 0 0 0
------- ------ ----- ------- ----- -- ------
Income (loss) from operations..... (15,555) 2,244 (13,311) 378 0 (12,933)
Interest expense (income)......... 5,641 (557) 5,084 39 5,123
Other expense (income)............ (1,719) (200) 1954 35 (42) 251 244
Income taxes...................... (7,956) 1,047 0 (6,909) 130 0 (6,779)
------- ------ ----- ------- ----- -- ------
Net income (loss)............ (11,521) 1,954 (1,954) (11,521) 251 (251) (11,521)
======= ====== ===== ======= ===== == ======
</TABLE>
Summarized cash flow statement information, in thousands, for the
three months ended April 3, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Eliminations Sub-Total Non-Guarantors Eliminations Consolidated
----------- ---------- ------------ --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities.. (7,323) 1,395 (5,928) 252 (5,676)
Cashflows used in investing
activities...................... (52,203) (501) (52,704) (185) (52,889)
Cashflows from financing activities.. 59,775 (58) 0 59,717 (34) 0 59,683
------- ----- -- ------- ----- -- -------
Net increase (decrease) in cash...... 249 836 1,085 33 1,118
Cash at beginning of period.......... 39 179 0 218 122 0 340
-------- ----- -- ------- ----- -- -------
Cash at end of period................ 288 1,015 0 1,303 155 0 1,458
======= ===== == ======= ===== == -------
</TABLE>
14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
5. COMMITMENTS AND CONTINGENCIES
Holdings is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cash
flows. Accordingly, Holdings relies on the Company's distribution of
dividends in order to fund its operations and meet its obligations,
including its interest and principal payments.
Holdings has obligations with a face amount of approximately $32.6
million, bearing interest at stated rates between 5% to 12.5%, to
shareholders ("Shareholder Notes") with principal due in 2004 and
2005. These obligations are not reflected in the Company's
accompanying balance sheets or income statements. Subject to
existing debt restrictions, Shareholder Notes with a face amount of
approximately $9.8 million contain certain acceleration clauses. At
the option of Holdings, subject to the Company's existing debt
restrictions, the interest may be paid by the issuance of additional
notes or in cash.
However, Holdings must pay interest in cash on certain of the
Shareholder Notes if defined levels of consolidated cash flows of
Holdings are attained. Annual interest payments during the next five
years are approximately $2.6 million per year, excluding interest on
notes that may be issued to pay interest. Assuming Holdings makes
all interest payments related to the Shareholder Notes with
additional notes, the Company's ultimate distribution of dividends
in order for Holdings to meet its existing debt obligations is
expected to be approximately $63 million beginning December 2004
through December 2005. However, the Company may be required to
declare dividends in order for Holdings to fund certain of its
obligations in cash as discussed above. Such amounts could
approximate $3 million in the aggregate and are due through December
2004, if the defined levels of consolidated cash flow of Holdings
are met.
APE is a party to a copyright infringement and unfair business
practices litigation with a competitor. The competitor has filed
suit claiming damages in excess of $8 million. The suit is in the
early stages of discovery and the potential liability, if any, to
the Company cannot be determined. Management believes that the
competitor's case is without merit and intends to vigorously contest
this lawsuit. Accordingly, no provision has been made in the
Company's financial statements.
From time to time, the Company is involved in various other
litigation which arises in the ordinary course of business. After
consultation with its legal counsel, management believes the
ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
6. INCOME TAXES
The Company and Holdings, have entered into a Tax Sharing Agreement
whereby the Company will pay Holdings its respective pro rata share
of the total consolidated tax liability or receive its respective
pro rata share of the total consolidated tax refund, as set forth in
the tax sharing agreement. Under the Tax Sharing Agreement, the
Company and Holdings are treated as separate tax groups.
Consistent with the year ending January 1, 2000, the Company
provided a valuation allowance for net operating losses generated in
North Carolina and New York which are not currently anticipated to
be utilized. During the first quarter of 2000, the allowance was
increased $130,000. The Company estimates its annual effective
income tax rate to be a benefit of approximately 24%.
15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
7. ACQUISITIONS
On October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. ("APE") for approximately $39.1
million, including fees and expenses, subject to post-closing
adjustments. In addition, approximately $16.6 million of
indebtedness of APE was extinguished by the Company in connection
therewith. The purchase agreement also includes additional payments
to the former owners of APE if certain earning targets for APE's
operations are met during 1998 and 1999. For fiscal 1998,
approximately $12.3 million was paid to the former owners and
current employees during April 1999. Of this amount, approximately
$3.5 million was paid to current employees and expensed during 1998.
The remaining $8.8 million was recorded as additional purchase
price. Based on APE's projected operating results through the first
quarter of 1999, the Company recorded approximately $1.0 million of
compensation expense related to this agreement. However, based on
the full year of APE's 1999 operating results, this charge was later
reversed and no compensation expense was recorded for the twelve
months ended January 1, 2000. APE is a leading designer, importer
and marketer of decorative textile home furnishings, principally
quilts and specialty decorative bedding items. The purchase price
allocation attributed approximately $31.8 million to net working
capital items, approximately $1.3 million to property, plant and
equipment and approximately $31.4 million to goodwill. Goodwill is
being amortized on a straight-line basis over 25 years.
On February 12, 1999, the Company acquired all the outstanding
shares of capital stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell")
in a single transaction for approximately $44.1 million, including
fees and expenses, subject to post-closing adjustments. In addition,
approximately $6.8 million of indebtedness of Ex-Cell was
extinguished by the Company in connection therewith. Ex-Cell is
engaged in the design, manufacture, importation and distribution of
textile home furnishings consisting principally of shower curtains,
table linens and decorative pillows. The acquisition has been
accounted for as a purchase, and, accordingly, the operating results
of the acquired business have been included in the results of
operations since the acquisition date. The purchase price allocation
attributed approximately $15.1 million to net working capital items,
approximately $22.8 million to property, plant and equipment, $7.1
million to long term liabilities including deferred income taxes and
approximately $20.1 million to goodwill. Goodwill is being amortized
on a straight line basis over 25 years.
The following unaudited proforma summary of consolidated results of
operations have been prepared as if the acquisition of Ex-Cell
occurred at the beginning of the period presented. In connection
with the allocation of purchase price, the Company wrote up
Ex-Cell's inventory by approximately $2.2 million. This write-up
negatively impacted gross margin during the Company's first nine
months of 1999 as that inventory was sold. The impact of this
write-up is not reflected in the proforma results presented below.
Certain costs associated with the former shareholders of Ex-Cell are
also excluded from the proforma results.
16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
7. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
April 3,
1999
------------------
<S> <C>
(Unaudited)
Net sales.................................................. $63,700,000
===========
Net loss................................................... (11,400,000)
===========
</TABLE>
These proforma results do not purport to be indicative of the
results that would have actually been obtained if Ex-Cell had been
acquired as of January 3, 1999 or results of future periods.
8. RESTRUCTURING CHARGE
On February 25, 1999, the Company's Board of Directors approved a
plan to close one of the manufacturing operations of the Fabric
Division. In connection with this activity, the Company discontinued
operations at its leased Tennessee facility and terminated
substantially all of the associates at that facility. The Company
ceased substantially all operations in the facility on or about May
28, 1999. During the first quarter of fiscal 1999, the Company
recorded a restructuring charge totaling $13.1 million of which $3.2
million related to the write-off of the goodwill, $1.8 million to
cover the write-down of machinery and equipment to fair market value
and the remainder for the costs of operating leases and severance
and other personnel costs related to the termination of
approximately 225 associates. Management reviewed its original
write-down of fixed assets and compared the actual results of asset
sales to original appraised values as well as reviewed any remaining
asset values. In connection with this review as of January 1, 2000,
management determined that the write down of machinery and equipment
should be increased to $3.4 million. Management also reviewed the
anticipated requirements for operating leases and determined this
amount should decrease by $1.6 million as a result of certain leased
equipment being transferred to its other manufacturing facilities
and placed in service. The components of the reserves for this
facility are as follows (in thousands):
<TABLE>
<CAPTION>
Original Reserve Usage Adjustment Remaining Reserve
---------------- ----- ---------- -----------------
<S> <C> <C> <C> <C>
Anticipated expenditures related to operating
leases for plant and equipment $7,323 $(1,626) $(1,586) $4,111
Anticipated severance benefits 850 ( 850) 0 0
------ ------- ------- ------
$8,173 $(2,476) $(1,586) $4,111
====== ======== ======== ======
</TABLE>
17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
9. OPERATING SEGMENTS
DESCRIPTION OF SEGMENTS
The Company has two operating segments: (i) Decorative Home
Furnishings which designs, manufacturers, imports and distributes
decorative textile home furnishings and (ii) a domestic manufacturer
and marketer of specialty fabrics, primarily for the apparel
industry, known as "sliver knit" pile fabrics ("Fabric Division").
MEASUREMENT OF SEGMENT PROFIT
The Company evaluates performance and allocates resources based on
operating income of each division. The accounting policies of the
reportable segments are the same as described in Note 1 and exclude
any costs associated with the Company's corporate administrative and
finance functions.
FACTORS MANAGEMENT USED TO IDENTIFY THE REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer
different products and each are managed separately. The following
tables present operating results and other financial information
utilized by management in analyzing each operating division. All
amounts are in thousands.
18
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
9. OPERATING SEGMENTS
<TABLE>
<CAPTION>
Three Months
------------------------------
April 3, April 1,
1999 2000
---- ----
<S> <C> <C>
Net Sales
Decorative Home Furnishings...... $40,365 $65,500
Fabric........................... 14,517 12,662
Intercompany..................... - ( 292)
-------- ---------
Consolidated................ $54,882 $77,870
======= =======
Operating income (loss)
Decorative Home Furnishings...... $3,037 $5,382
Fabric........................... (13,350) ( 398)
Corporate/Other.................. (2,619) (1,857)
------- -------
Consolidated................ $(12,932) $ 3,127
======== =======
Depreciation and amortization
Decorative Home Furnishings. $ 938 $1,661
Fabric........................... 1,167 977
Corporate/Other.................. 712 620
------ ------
Consolidated................ $2,817 $3,258
====== ======
April 1,
2000
--------
Inventory and accounts receivable
Decorative Home Furnishings...... $83,022
Fabric........................... 10,127
------
Consolidated................ $93,149
=======
</TABLE>
19
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
On December 13,1995, Glenoit Universal, Ltd. ("Holdings") formed a
wholly owned subsidiary, Glenoit Corporation (the Company), formerly Glenoit
Intermediate, Inc. and exchanged all of the issued and outstanding stock of
Glenoit Mills, Inc. and subsidiary ("Mills") for all of the issued and
outstanding shares of common stock of Glenoit Corporation. During 1997, Mills
was merged into the Company. The Company has two operating segments: (i)
Decorative Home Furnishings which manufactures, imports and distributes
decorative textile home furnishings and (ii) a domestic manufacturer and
marketer of specialty fabrics, primarily for the apparel industry, known as
"sliver-knit" pile fabrics ("Fabric Division"). The Company's two most recent
acquisitions, American Pacific Enterprises and Ex-Cell Home Fashions, Inc., are
part of the Decorative Home Furnishings segment
RECENT DEVELOPMENTS
On October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. ("APE") for approximately $39.1 million,
including fees and expenses, subject to post-closing adjustment. In addition,
approximately $16.6 million of indebtedness of APE was extinguished by the
Company in connection therewith. In addition, the Company paid the former
shareholders approximately $8.8 million and certain employees approximately $3.5
million during April 1999 in connection with the acquisition agreement. APE is a
leading designer, importer and marketer of decorative textile home furnishings,
principally quilts and decorative bedding items. On February 12, 1999, the
Company acquired all the outstanding shares of capital stock of Ex-Cell Home
Fashions, Inc. ("Ex-Cell") in a single transaction for approximately $44.1
million, subject to post-closing adjustments. In addition, approximately $6.8
million of debt of Ex-Cell was extinguished in connection therewith. Ex-Cell is
engaged in the design, manufacture, importation and distribution of textile home
furnishings, principally shower curtains, table linens, and decorative pillows.
The Company believes that these acquisitions will expand its current product
offerings to large retailers, further penetrate the specialty retailing segment
and diversify product sourcing capabilities beyond North America to include
Chinese suppliers. As a result of these acquisitions, the Company believes it
has transformed itself from a specialty textile manufacturer focused on
profitable niche segments to a diversified manufacturer and distributor of
consumer goods, with the majority of its revenues derived from the home textile
market. These acquisitions have been accounted for as "purchases" under APB
Opinion No. 16 and, accordingly, the financial statements reflect the results of
operations from the dates of purchase.
On February 25, 1999, the Company's Board of Directors approved a plan
to close one of the manufacturing operations of the Fabric Division. In
connection with this activity, the Company discontinued all operations at its
leased Tennessee facility and terminated substantially all of the associates at
that facility. During the first quarter of fiscal 1999, the Company recorded a
restructuring charge totaling $13.1 million to cover the estimated costs
associated with the closing of that facility including the cost of operating
leases, the write-off of the related goodwill, the write-down of machinery and
equipment to fair market value and severance and other personnel costs.
20
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended April 1, 2000, increased to $77.9 million or
41.9% compared to $54.9 million during the comparable quarter in the prior year.
The increase in net sales is partially attributable to the acquisition of
Ex-Cell. Ex-Cell's net sales totaled $22.3 million for the first quarter of 2000
compared to $10.6 million for the first quarter of 1999 since its acquisition on
February 12, 1999. The Decorative Home Furnishings segment also benefited from
internal sales growth of APE. These increases in sales were slightly offset by a
decline in sales of the Fabric Division to $12.7 million from $14.5 million.
This decrease was mainly due to manufacturing inefficiencies which restricted
the shipment of finished goods.
Gross profit for the quarter ended April 1, 2000 was $19.3 million or 24.8% of
net sales compared to $14.4 million or 26.3% of net sales for the same period
last year. The increase of $4.9 million relates to the inclusion of Ex-Cell's
operating results for the full quarter of 2000 as well as sales growth at APE.
Ex-Cell's gross margin was negatively impacted in the first quarter of 1999 by $
0.6 million of additional cost of sales related to the sale of inventory that
had been written up at the time of acquisition in accordance with generally
accepted accounting principles. As a result of the significant decline in sales,
the Fabric Division's gross margin decreased to $1.5 million from $1.7 million.
The Fabric Division's results were negatively impacted by the decreased volume
which resulted in a low absorption of overhead costs. The Fabric Division
benefited from the shutdown of the Tennessee facility during 1999 which reduced
manufacturing overhead costs during the first quarter of 2000.
Operating expenses for the quarter ended April 1, 2000, were $16.2 million
compared to $27.4 million in the first quarter of the prior year. Operating
expenses for 1999 include a $13.1 million restructuring charge related to the
closure of a manufacturing facility in the Fabric Division as discussed in
"Recent Developments". In addition to the restructuring charge, dollar increases
in 2000 relate to the operating expenses of Ex-Cell for the full quarter of
2000. Based on APE's projected operating results, the Company recorded
approximately $1.0 million of compensation expense in the first quarter of 1999
related to the APE purchase agreement. However, based on the full year of APE's
1999 operating results, this charge was later reversed and no compensation
expense was recorded for the twelve months ended January 1, 2000. Operating
expenses for the Fabric Division were down slightly as a result of the decreased
sales.
The Company reported operating income of $3.1 million for the quarter ended
April 1, 2000 compared to an operating loss of $12.9 million in the prior year
as a result of factors described above.
Interest expense for the quarter ended April 1, 2000, was $6.7 million compared
to $5.1 million for the same period last year. Interest expense has increased
due to higher levels of debt related to the Ex-Cell acquisition, as well as
overall increases in interest rates.
Net loss for the quarter ended April 1, 2000, was $3.0 million compared to a net
loss of $11.5 million the prior year.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements, capital expenditures and working capital
needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated notes
(the "Notes"). Concurrently with the issuance of the Notes, the Company entered
into a $70 million senior credit facility ("the New Credit Facility") with a
syndicate of lenders led by Banque Nationale de Paris ("BNP"), pursuant to which
the Company obtained available credit (i) up to $45.0 million for working
capital and general corporate purposes (the "Working Capital Commitment"),
subject to a Borrowing Base, and (ii) up to $25.0 million for acquisitions (the
"Acquisition Commitment"). On October 2, 1998, the New Credit Facility was
amended to increase the Acquisition Commitment to $76 million. On October 2,
1998, the Company borrowed approximately $55.7 million under the Acquisition
Commitment in connection with the acquisition of APE. In connection with the
acquisition of Ex-Cell, the Company amended and restated the New Credit Facility
to increase its borrowing availability to $200 million. This additional
availability was reduced to $175 million in connection with the June, 1999
amendment discussed below and is currently comprised of (i) $65 million as the
Working Capital Commitment, subject to the Borrowing Base, as defined, (ii) $40
million Term A loan, and (iii) $70 million Term B loan. Principal payments under
the Term A and Term B loans began on September 30, 1999 at a total of $1.7
million per quarter and increase over the life of loans. Borrowings under the
Term A loan and Working Capital Commitment are required to be fully repaid by
December 31, 2003 and borrowings under the Term B loan are required to be fully
repaid by June 30, 2004. On the date of the Ex-Cell acquisition, both the Term A
and Term B loans were fully drawn. During November 1999, the Company prepaid a
total of approximately $1 million of loans outstanding under the Term A and Term
B facilities with excess cash proceeds from the sale of fixed assets. A more
detailed description of the senior subordinated notes and the senior credit
agreement may be found in the notes to consolidated financial statements.
As of January 1, 2000, the Company was in compliance with its covenants related
to both the New Credit Facility and the Notes. On February 23, 2000, the Company
failed to repay approximately $2 million of borrowings outstanding under the
Working Capital Commitment that was required as a result of an insufficient
borrowing base which resulted in a default under the New Credit Facility. The
insufficient borrowing base was the result of missed shipments during the last
week of January 2000 as a result of a blizzard in Eastern North Carolina that
closed operating facilities and restricted shipments. On March 16, 2000, the
Company's lenders waived this default until April 10, 2000 and limited the
Company's availability under the Working Capital Commitment to approximately
$48.3 million, including $3.3 million specifically for letters of credit, with a
view towards negotiating mutually acceptable modifications to the facility prior
to April 10, 2000. The Company and its lenders have been unable to negotiate
such modifications to date and, as of April 11, 2000, the Company was in default
under the New Credit Facility as a result of the termination of the above
waiver. In accordance with terms of the New Credit Facility, the Company's
lenders notified the Company on April 13, 2000 that such lenders were exercising
their election to prohibit the Company from making the interest payments of
22
<PAGE>
approximately $5.3 million due under the Notes on April 15, 2000. Accordingly,
as of April 15, 2000, the Company was in default and remains in default under
the terms of the Notes due to its failure to make the interest payment. On April
26, 2000, the New Credit Facility was amended and the previous defaults
outstanding as of April 10, 2000 were waived until June 15, 2000 and the senior
lenders will continue lending within terms of the New Credit Facility at their
discretion. As a result of the above defaults and short term waivers, all of the
Company's borrowings under the Notes and New Credit Facility are classified as
current liabilities.
For the quarter ended April 1, 2000, the Company was in default of certain
financial covenants under the New Credit Facility which had not previously been
adjusted under the waivers and amendments received prior to January 1, 2000.
This default was waived in the amendment on April 26, 2000 discussed above. The
Company is currently in negotiations with its senior lenders to conform its
financial covenants and borrowing needs to its current business plan. Even
though discussions are ongoing, there can be no assurance that the Company will
obtain the necessary amendments and waivers or as to the terms thereof. The
Company is currently reviewing alternative financing and strategic options to
attempt to address the default outstanding under the Notes and additional
amendments required for the New Credit Facility as well as reduce the Company's
overall leverage. The Notes also contain a cross-acceleration clause under which
they become due and payable in the event that the Company's senior lenders
demand payment of the New Credit Facility.
Barring an intervening acceleration of the indebtedness under the New Credit
Facility or an insolvency proceeding, the Company believes it has sufficient
liquidity to meet its current cash needs. However, any decrease in cash provided
by operations or increase in cash used in operations could cause the Company to
be unable to meet its cash needs. The Company's future operating performance and
ability to service or refinance the Notes and to extend or refinance its other
indebtedness will be subject to future economic conditions and to financial,
business and other factors beyond the Company's control.
Ex-Cell has a factoring arrangement whereby substantially all of its accounts
receivable are assigned and sold without recourse. During November 1999, the
Company entered into a factoring agreement for its Fabric Division whereby all
pre-approved accounts are assigned without recourse. The Company does retain
credit risks on customer orders that were not approved by the factor. As of
April 1, 2000, the Company retained credit risk of approximately $1.9 million
related to accounts not factored under these two agreements.
Principal and interest payments in respect of the Notes and the New Credit
Facility represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of the Seller Notes, (ii) to cover certain administrative and operating
expenses of Holdings and (iii) to cover certain tax liabilities allocable to the
Company, subject in each case to certain conditions as described in the Notes
and the New Credit Facility.
23
<PAGE>
Holdings is a holding company and as a result does not have any substantive
assets or operations that generate revenues or cashflows. Accordingly, Holdings
relies on the Company's distribution of dividends to meet its obligations,
including interest and principal payments. As of April 1, 2000, Holdings has
obligations with a face amount of $32.6 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and 2005.
During September 1998, the Company acquired $5 million of the Notes in the open
market. These Notes were subsequently retired. In connection with this
transaction, the Company recorded an extraordinary loss of approximately
$117,000, net of a tax benefit, which consisted of the write off of a pro rata
share of deferred financing costs associated with the Notes.
During June 1999, the Company entered into an interest rate cap agreement which
caps the maximum Eurodollar rate to be paid by the Company at 6.5% on an $82.5
million national amount. The Company paid approximately $820,000 to enter into
this agreement.
During the first quarter of 2000, net cash used in operations was $7.2 million.
Receivables increased by $9.5 million, inventories increased by $6.2 million,
accrued expenses increased $7.0 million, and accounts payable increased $2.5
million. These increases are primarily to support the sales growth in the
Decorative Home Furnishing Segment and to meet the company's seasonal
requirements.
CAPITAL IMPROVEMENTS
Capital expenditures for the three months ended April 1, 2000 were $0.8 million.
These additions were related to several projects in the two operating segments.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for the Company's products during the fall (back-to-school) and
holiday selling seasons. Consequently, demand for the Company's products is
generally higher during the Company's second and third fiscal quarters when such
products are produced and distributed for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on the results
of operations presented.
IMPACT OF YEAR 2000 COMPLIANCE
The Company has currently not experienced any significant systems or
other Year 2000 related problems. The Company substantially completed all the
conversions that were in progress to improve operating efficiencies in which
Year 2000 corrections were ancillary. The Company
24
<PAGE>
capitalized the costs associated with these conversions in accordance with
appropriate accounting policies.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in developing and expanding
its business and of maintaining financing on reasonable terms. These statements
are based upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions inevitably will not materialize,
and unanticipated events will occur which will affect the Company's results. The
forward looking statements in this Form 10-Q are intended to be subject to the
safe harbor protection provided by Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934 (the "Safe Harbor Acts").
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk relates to changes in interest
rates and foreign currency rates. During 1999, the Company entered into an
interest rate cap agreement which caps the maximum Eurodollar rate to be paid by
the Company at 6.5% on an $82.5 million notional amount. As of April 1, 2000,
the market value of this cap was approximately $1 million. The Company has not
utilized any other derivative financial instruments. The Company's borrowings
under its New Credit Facility bear interest rates based on either a floating
Base Rate or the Eurodollar Rate. As of April 1, 2000, the Company had $149.0
million outstanding under its New Credit Facility with an average interest rate
of 10.1%. The Company's other borrowings consist of $95.0 million of senior
subordinated debt due on April 2007 at a fixed rate of 11%. The definitive
extent of the Company's interest rate risk under the New Credit Facility is not
quantifiable or predictable because of the variability of future interest rates
and borrowing requirements.
The Company is exposed to foreign currency risk by virtue of its Canadian
and Chinese operations. However, less than 10% of its annual revenues are
generated by these operations. Both China and Canada have traditionally had a
relatively stable currency and therefore the Company feels its exposure to
significant adjustments to be minimal. Additionally, the Company's consolidated
financial statements are denominated in U. S. dollars and, accordingly, changes
in the exchange rate between U. S. dollars and these currencies affect the
operating results as well as stockholder's deficit. These adjustments, to date,
have not been material to the Company's consolidated balance sheet.
PART II - OTHER INFORMATION
ITEM 2: LEGAL PROCEEDINGS
There have been no material developments in legal proceedings involving
the Company or its subsidiaries since the Company's Annual Report on Form
10-K for the year ended January 1, 2000.
ITEM 3: DEFAULT ON SENIOR INDEBTEDNESS
See "Liquidity and Capital Resources" for a discussion regarding the
Company's defaults under the New Credit Facility and Senior Subordinated
Notes.
25
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of Glenoit Corporation is hereby
incorporated by reference to Exhibit 3.1 to Glenoit
Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on December 16, 1997.
3.2 By-Laws of Glenoit Corporation are hereby incorporated by reference to Exhibit 3.2 to Glenoit Corporation's
Registration Statement on
Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
3.3 Certificate of Incorporation of Glenoit Asset Corporation is hereby incorporated by reference to Exhibit 3.3 of
Amendment No. 1 to
Glenoit Asset Corporation's Registration Statement of Form S-4 (Registration No. 333-42411-01) filed
February 4, 1998.
3.4 By-Laws of Glenoit Asset Corporation are hereby incorporated by reference to Exhibit 3.4 of Amendment No. 1 to
Glenoit Asset Corporation's Registration Statement of Form S-4 (Registration No. 333-42411-01) filed
February 4, 1998.
4.1 Indenture dated as of April 1, 1997 between Glenoit
Corporation, the Subsidiary Guarantors (as defined therein)
and United States Trust Company of New York is hereby
incorporated by reference to Exhibit 4.1 to Glenoit
Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on December 16, 1997.
4.2 Purchase Agreement dated as of March 26, 1997 among Glenoit Corporation, the Subsidiary Guarantors (as defined
therein), Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is hereby incorporated by reference to
Exhibit 4.2 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
4.3 Registration Agreement dated as of March 26, 1997 among Glenoit Corporation, the Subsidiary Guarantors (as
defined therein), Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is hereby incorporated by reference
to Exhibit 4.3 to Glenoit Corporation's Registration Statement on Form S-4 (Registration No. 333-42411) filed on
December 16, 1997.
10.1 Second Amended and Restated Credit Agreement dated as of
April 1, 1997 among Glenoit Corporation, the banks, financial
institutions and other institutional lenders listed on the
signature pages thereto as the Restatement Lenders, the
Banque Nationale de Paris, as Administrative Agent for the
Lender Parties (as defined therein) is hereby incorporated by
reference to Exhibit 10.1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No.
333-42411) filed on December 16, 1997.
10.2 Supply Agreement dated February 1, 1997 by and between the Company and Sterling Fibers, Inc. is hereby
incorporated by reference to Exhibit 10.2 of Amendment No. 1 to Glenoit Corporation's Registration Statement on
Form S-4 (Registration No. 333-42411) filed on February 4, 1998.
10.3 Employment Agreement dated October 28, 1997 by and among the Company, Glenoit Universal, Inc. and Thomas J.
O'Gorman is hereby incorporated to reference to Exhibit 10.3 of Amendment No. 1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411) filed on February 4, 1998.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4 Employment Agreement dated August 5, 1996 by and between the Company and Lester D. Sears is hereby incorporated
by reference to Exhibit 10.4 of Amendment No. 1 to Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on February 4, 1998.
10.5 Stockholders Agreement dated as of December 14, 1995 by and
among Glenoit Universal, Inc., Citicorp Venture Capital, John
Mowbray O'Mara, Banque Nationale de Paris, The Equitable Life
Assurance Society of the United States, the Seller, Soannes
Investment Corporation, Thomas J. O'Gorman and certain other
parties thereto to is hereby incorporated by reference to
Exhibit 10.5 of Amendment No. 1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No.
333-42411) filed on February 4, 1998.
10.6 Second Amendment and Waiver to the Credit Agreement, dated
October 2, 1998, among Glenoit Corporation, the banks,
financial institutions and other institutional lenders
parties to the Credit Agreement and Banque Nationale de Paris
as Agent is hereby incorporated by reference to Exhibit 4.1
of Glenoit Corporation's Form 8-K filed on October 16, 1998.
10.7 Stock Purchase Agreement dated October 2, 1998 among Glenoit Corporation, American Pacific Enterprises, Inc.,
Steven J. Block, Jeffrey J. Block and Gregory D. Block is hereby incorporated by reference to Exhibit 2.1 of
Glenoit Corporation's Form 8-K filed on October 16, 1998
10.8 Third Amendment and Waiver to the Credit Agreement, dated
October 30, 1998, among Glenoit Corporation, the banks,
financial institutions and other institutional lenders
parties to the Credit Agreement and Banque Nationale de Paris
as Agent is incorporated by reference to Exhibit 10.8 of
Glenoit Corporation's Form 10-K filed on April 1, 1999.
10.9 Third Amended and Restated Credit Agreement, dated February
12, 1999, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the
Credit Agreement and Banque Nationale de Paris as Agent is
hereby incorporated by reference to Exhibit 4.1 of Glenoit
Corporation's Form 8-K filed on February 26, 1999.
10.10 Stock Purchase Agreement dated February 12, 1999, among
Glenoit Corporation, Ex-Cell Home Fashions, Inc., Arnold
Angerman, Irving Angerman, Samuel Samelson and two trusts is
hereby incorporated by reference to Exhibit 2.1 of Glenoit
Corporation's Form 8-K filed on February 26, 1999.
10.11 Amendment No. 2 to the Third Amended and Restated Credit
Agreement, dated as of June 29, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent
is hereby incorporated by reference to Exhibit 10.11 of
Glenoit Corporation's Form 10-Q filed on August 24, 1999.
10.12 Amendment No. 3 to the Third Amended and Restated Credit
Agreement, dated as of August 20, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent
is hereby incorporated by reference to Exhibit 10.12 of
Glenoit Corporation's Form 10-Q filed on August 24, 1999.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13 Amendment No. 4 to the Third Amended and Restated Credit
Agreement, dated as of October 29, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent,
is hereby incorporated by reference to Exhibit 10.13 of
Glenoit Corporation's Form 10-Q filed on November 23, 1999.
10.14 Amendment No. 5 to the Third Amended and Restated Credit
Agreement, dated as of November 19, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent,
is hereby incorporated by reference to Exhibit 10.14 of
Glenoit Corporation's Form 10-Q filed on November 23, 1999.
10.15 Amendment No. 6 to the Third Amended and Restated Credit
Agreement, dated as of March 16, 2000, among Glenoit
Corporation, the banks, financial institutions, and other
institutional lenders and Banque Nationale de Paris as Agent,
is hereby incorporated by reference to Exhibit 10.15 of
Glenoit Corporation's Form 10-K filed on April 17, 2000.
10.16 Amendment No. 7 to the Third Amended and Restated Credit Agreement dated as of April 26, 2000,
among Glenoit Corporation, the banks, financial institutions, and other institutional lenders
and Banque Nationale de Paris as Agent.
21.1 Subsidiaries of Glenoit Corporation is hereby incorporated by reference to Exhibit 21.1 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
Dated: May 22, 2000
GLENOIT CORPORATION
By /S/ LESTER D. SEARS
--------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 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.
Dated: May 22, 2000
GLENOIT ASSET CORPORATION
By /S/ LESTER D. SEARS
-------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
29
Exhibit 10.16
SEVENTH AMENDMENT TO THE THIRD
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of April 26, 2000
SEVENTH AMENDMENT TO THE THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment") among Glenoit Corporation (the "Borrower"), the
Lenders named in the Credit Agreement (defined below) (the "Lenders"), Banque
Nationale de Paris (the "Agent"), as Agent, Arranger, Issuing Bank and Swing
Line Bank, Fleet National Bank, as Syndication Agent, and LaSalle National Bank,
as Documentation Agent.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, the Agent, the Arranger, the
Issuing Bank, the Swing Line Bank, the Syndication Agent and the Documentation
Agent have entered into a Third Amended and Restated Credit Agreement, dated as
of February 12, 1999 (as the same has been and in the future may be amended and
modified from time to time, the "Credit Agreement"). Capitalized terms not
otherwise defined in this Amendment have the same meanings as specified in the
Credit Agreement as amended hereby.
(2) Section 2.06(b)(iii) of the Credit Agreement provides that
the Borrower is obligated to prepay an aggregate principal amount of Working
Capital Advances, Swing Line Advances and Letter of Credit Advances in an amount
by which such Advances plus the Available Amount of all Letters of Credit then
outstanding (together with such Advances, the "Outstanding Amount") exceeds the
Loan Value of Eligible Collateral, based upon the most recent Borrowing Base
Certificate.
(3) On February 23, 2000, Borrower delivered to the Agent a
Borrowing Base Certificate dated February 23, 2000 (the "February BB
Certificate") reflecting that the Outstanding Amount exceeded the Loan Value of
Eligible Collateral. The Borrower was then obligated under Section 2.06(b)(iii)
of the Credit Agreement to make a principal prepayment in the approximate amount
of $2,000,000, which the Borrower failed to make.
(4) The failure of the Borrower to make the principal
prepayment required by Section 2.06(b)(iii) of the Credit Agreement as aforesaid
constitutes on Event of Default under Section 6.01(a) of the Credit Agreement
(the "Section 2.06(b)(iii) Event of Default"), which the Borrower has
acknowledged by its letter to the Agent, dated February 23, 2000.
(5) Section 5.04 of the Credit Agreement sets forth the
financial covenants of the Borrower. On April 9, 2000, the Borrower delivered a
letter to the Agent confirming that the Borrower is in breach of the Section
5.04 covenants as of April 1, 2000. The breach of such covenants constitutes an
Event of Default under Section 6.01(c) of the Credit Agreement (the "Covenant
Events of Default").
(6) On April 14, 2000, the Agent delivered to the Borrower and
United States Trust Company of New York, the Indenture Trustee under the
Subordinated Debt Documents (the "Indenture Trustee"), a letter (the
"Subordinated Debt Notice") (i) confirming that, as a result of the Section
2.06(b)(iii) Event of Default, the Borrower was prohibited from making any
<PAGE>
payments whatsoever in respect of the Subordinated Notes, and (ii) notifying the
Company and the Indenture Trustee that if, but only if, the Section 2.06(b)(iii)
Event of Default is determined not to be a payment default and the Borrower is
not otherwise in payment default under the Credit Agreement, the Subordinated
Debt Notice shall constitute a Blockage Notice (as defined in the Subordinated
Debt Documents) based on the Covenant Events of Default.
(7) Provided the Borrower is working diligently to devise a
restructuring plan acceptable to its creditors and equity holders, the Lenders
may, in their discretion, continue to provide Working Capital Advances and issue
Letters of Credit on the conditions, for the limited period and for the limited
purposes hereinafter set forth.
SECTION 1. Working Capital Advances and Letters of Credit.
Subject to the conditions precedent set forth in Section 3 hereof, the Lenders
hereby agree that the Borrower may request and the Lenders, in their discretion,
may provide Working Capital Advances and issue Letters of Credit from the date
hereof through and including June 15, 2000 (the "Amendment Period"); provided,
however, that (a) the aggregate Available Amount of all Letters of Credit
outstanding shall not at any time exceed an amount equal to $48.314 million less
the sum of (x) the Working Capital Advances, (y) the Swing Line Advances, and
(z) the Letter of Credit Advances at the time outstanding and (b) Working
Capital Advances shall not at any time exceed $45 million.
SECTION 2. AMENDMENTS.
(a) During the Amendment Period, Section 5.01(m) of the Credit
Agreement shall be amended by replacing all references to "15 days",
"30 days" and "60 days" therein to "10 days".
(b) During the Amendment Period, Section 2.01(e) of the Credit
Agreement shall be amended by adding the following language at the end
of such Section:
Anything to the contrary set forth in the Loan Documents
notwithstanding, (i) no Standby Letters of Credit shall be issued
hereunder and issuance of Letters of Credit shall be limited solely to
Trade Letters of Credit, and (ii) two Business Days prior to the
issuance of any Trade Letter of Credit, the Borrower shall provide,
with respect to such Trade Letter of Credit, documentation to the Agent
describing the recipient, amount and purpose of such Trade Letter of
Credit, including, without limitation, the customer for whose benefit
the Inventory (the payment for which is to be secured by the proposed
Trade Letter of Credit) is being ordered.
SECTION 3. Conditions of Effectiveness of Amendment. This
Amendment shall become effective as of the date first above written when, and
only when, the following conditions precedent shall have been satisfied:
(a) The Agent shall have received counterparts of this
Amendment executed by the Borrower, the Agent and the required number
of Lenders.
-2-
<PAGE>
(b) The Borrower shall have reimbursed or otherwise paid all
reasonable costs and expenses of the Agent paid or incurred in
connection with the Borrower or the Credit Agreement, and theretofore
presented to the Borrower for payment, including, without limitation,
in connection with the preparation, execution, delivery and
administration of this Amendment (including, without limitation, (a)
all outstanding fees and disbursements of (a) Shearman & Sterling and
Kramer Levin Naftalis & Frankel LLP ("Kramer Levin") in their capacity
as counsel to the Agent, and (b) Zolfo Cooper LLP, in its capacity as
consultant to the Agent's counsel ("Zolfo Cooper").
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.
(b) The execution, delivery and performance by the Borrower of
this Amendment and the Loan Documents, as amended hereby, to which it
is or is to be a party, is within the Borrower's corporate powers, has
been duly authorized by all necessary corporate action and does not (i)
contravene the Borrower's charter or by-laws, (ii) violate any law
(including, without limitation, the Securities Exchange Act of 1934, as
amended, and the Racketeer Influenced and Corrupt Organizations Chapter
of the Organized Crime Control Act of 1970), rule or regulation
(including, without limitation, Regulation X of the Board of Governors
of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting the
Borrower or any of its Subsidiaries or any of their properties, (iii)
conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument binding on or affecting the Borrower,
any of its Subsidiaries or any of their properties or (iv) except for
the Liens created under the Loan Documents, result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of the Borrower or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery,
recordation, filing or performance by the Borrower of this Amendment or
any of the Loan Documents, as amended hereby, to which it is or is to
be a party.
(d) With the exception of the Section 2.06(b)(iii) Event of
Default and the Covenant Events of Default described herein, there are
no other Defaults or Events of Default by Borrower as of the date
hereof.
(e) This Amendment has been duly executed and delivered by the
Borrower. This Amendment and each of the Loan Documents, as amended
hereby, to which the Borrower is a party are legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or limiting creditors' rights or by equitable
principles generally.
-3-
<PAGE>
(f) There is no action, suit, investigation, litigation or
proceeding affecting the Borrower or any of its Subsidiaries
(including, without limitation, any Environmental Action) pending or
threatened before any court, governmental agency or arbitrator that (i)
would be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Amendment or any of the Loan Documents, as amended hereby.
SECTION 5. Covenants of the Borrower. In consideration of the
agreements of the Lenders contained herein, the Borrower covenants and agrees as
follows:
(a) Both during and after the Amendment Period, the Borrower
shall, and shall cause each other Loan Party to, fully cooperate with
Zolfo Cooper in Zolfo Cooper's performance of its duties under the
retention agreement between Kramer Levin and Zolfo Cooper; offer Zolfo
Cooper reasonable access to its facilities, books and records; furnish
promptly to Zolfo Cooper all information concerning its business,
properties, personnel and financial performance as Zolfo Cooper shall
reasonably request; and make available to Zolfo Cooper such of its
personnel and its professional advisors as Zolfo Cooper shall
reasonably request for the understanding of the business, property,
personnel and financial performance of the Borrower and the other Loan
Parties.
(b) During the Amendment Period, the Borrower shall continue
to employ Price Waterhouse Coopers L.L.P. ("PWC") as its financial
advisor, shall provide PWC with access to such information and
personnel of the Borrower and its Subsidiaries as PWC shall reasonably
require to perform its engagement and shall consult with and be advised
by PWC on the matters within the scope of the PWC engagement.
(c) During the Amendment Period, the Borrower shall, and shall
cause each other Loan Party to, conduct its business, only in the
regular and ordinary course of business consistent with past practice.
(d) Both during and after the Amendment Period, in addition to
any and all reporting by the Borrower required by the Loan Documents,
until otherwise directed by the Agent, the Borrower shall furnish to
the Agent as of the end of each calendar week not later than five
Business Days after the end of such calendar week, a summary of cash
disbursements and deposits for such week, as well as an accounts
receivable aging report as of the end of such week.
(e) The Borrower shall fully and promptly cooperate with the
Lenders' review of the Collateral and the perfection of the Lenders'
security interest therein, including, without limitation, promptly
responding to requests for information from the Agent and its counsel
concerning the Collateral.
(f) The Borrower shall promptly execute and file any and all
financing statements requested by the Agent and take other action
reasonably requested by the Agent to perfect or continue the perfection
of the Lenders' security interest in any Collateral (wherever located).
-4-
<PAGE>
(g) During the Amendment Period, the Borrower shall diligently
work to devise a restructuring plan for the Borrower and its
Subsidiaries, acceptable to the Borrower, creditors and equity holders,
such that the Borrower and its Subsidiaries will at all times have
adequate capital resources to conduct their businesses, fund their
capital expansion, provide for contingencies and pay their debts and
other obligations, including obligations under the Loan Documents, as
and when they become due. In connection therewith, the Borrower shall
consult and negotiate diligently and in good faith with its equity
holders, lenders, factors, trade creditors and other parties whose
approval is or may be required for any restructuring plan.
(h) The covenants contained in this Section 5 are in addition
to, and not in derogation or limitation of, any other covenants,
agreements or obligations of the Loan Parties under the Loan Documents.
SECTION 6. Reference to and Effect on the Credit Agreement,
the Loan Documents, and the Subordinated Notes.
(a) On and after the effectiveness of this Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and
each reference in the Notes and each of the other Loan Documents to
"the Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment, are and shall
continue to be in full force and effect and are hereby in all respects
ratified and confirmed. Without limiting the generality of the
foregoing, the Collateral Documents and all of the Collateral described
therein do and shall continue to secure the payment of all Obligations
of the Loan Parties under the Loan Documents, in each case as amended
by this Amendment.
(c) The Borrower hereby agrees that (i) the Borrower is truly
and justly indebted to the Secured Parties, without defense,
counterclaim or offset of any kind in the full amount of the Secured
Obligations and (ii) the Secured Obligations are secured by valid,
perfected, enforceable and unavoidable first priority Liens and
security interests upon the Collateral senior to all other security
interests and liens upon the Collateral (except as set forth in the
Third Amended and Restated Security Agreement and the Credit
Agreement), granted by the Loan Parties to the Agent for the ratable
benefit of the Secured Parties.
(d) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Lender Party or the Agent
under any of the Loan Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
(e) This Amendment shall not constitute a waiver of the
Section 2.06(b)(iii) Event of Default, the Covenant Events of Default
or any other Default or Event of
-5-
<PAGE>
Default existing as of the date hereof, nor shall this Amendment
authorize or be deemed to authorize any payment by the Borrower in
respect of the Subordinated Notes or terminate or be deemed to
terminate the payment block existing in respect of the Subordinated
Notes.
SECTION 7. Fees; Costs and Expenses. The Borrower agrees to
pay on demand all reasonable costs and expenses of the Agent in connection with
the preparation, execution, delivery and administration, modification and
amendment of this Amendment and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
disbursements of counsel and financial advisor to the Agent) in accordance with
the terms of Section 8.04 of the Credit Agreement.
SECTION 8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
GLENOIT CORPORATION
By /s/ Thomas J. O'Gorman
-------------------------------------
Name: Thomas J. O'Gorman
Title: President and Chief Executive Officer
AGENT
BANQUE NATIONALE DE PARIS,
as Agent and as a Lender
By /s/ David Barcus
-------------------------------------
Name: David Barcus
Title: Director
By /s/ Elie Doft
-------------------------------------
Name: Elie Doft
Title: Associate
LENDERS
BOEING CAPITAL CORPORATION
By
-------------------------------------------
Name:
Title:
CENTURA BANK
By /s/ Lowry D. Perry
-------------------------------------
Name: Lowry D. Perry
Title: Bank of Filer
-7-
<PAGE>
COMERICA
By /s/ James R. Grossell
-------------------------------------
Name: James R. Grossell
Title: First Vice President
DEUTSCHE FINANCIAL SERVICES
By /s/ Philip G. Porcher, IX
-------------------------------------
Name: Philip G. Porcher, IX
Title: Vice President
FIRST SOURCE FINANCIAL LLP,
By First Source Financial, Inc., as its
Agent/Manager
By /s/ Robert Horak
-------------------------------------
Name: Robert Horak
Title: Vice President
FLEET BANK, N.A.
By /s/ Paul Chau
-------------------------------------
Name: Paul Chau
Title: Senior Vice President
INVESCO
By /s/ Gregory Stoeckle
-------------------------------------
Name: Gregory Stoeckle
Title: Authorized Signatory
-8-
<PAGE>
LASALLE BANK NATIONAL ASSOCIATION
By /s/ Margaret P. Heger
-------------------------------------
Name: Margaret P. Heger
Title: First Vice President
KZH ING-1 LLC
By
-------------------------------------------
Name:
Title:
KZH ING-2 LLC
By
-------------------------------------------
Name:
Title:
KHZ ING-3 LLC
By
-------------------------------------------
Name:
Title:
METROPOLITAN LIFE
INSURANCE COMPANY
By
-------------------------------------------
Name:
Title:
-9-
<PAGE>
VAN KAMPEN SENIOR FLOATING
RATE FUND
By
-------------------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE
INCOME TRUST
By
-------------------------------------------
Name:
Title:
FLEET BUSINESS CREDIT CORPORATION
By /s/Mark Pickering
-------------------------------------
Name: Mark Pickering
Title: Vice President
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
for the quarter ending April 1, 2000, and such is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001047368
<NAME> GLENOIT CORPORATION AND SUBSIDIARIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 749
<SECURITIES> 0
<RECEIVABLES> 44,749
<ALLOWANCES> (5,326)
<INVENTORY> 57,209
<CURRENT-ASSETS> 103,299
<PP&E> 96,419
<DEPRECIATION> (30,196)
<TOTAL-ASSETS> 230,131
<CURRENT-LIABILITIES> 36,212
<BONDS> 244,022
0
0
<COMMON> 0
<OTHER-SE> (62,163)
<TOTAL-LIABILITY-AND-EQUITY> 230,131
<SALES> 77,870
<TOTAL-REVENUES> 77,870
<CGS> 58,527
<TOTAL-COSTS> 16,216
<OTHER-EXPENSES> 7,075
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 6,704
<INCOME-PRETAX> (3,949)
<INCOME-TAX> (954)
<INCOME-CONTINUING> (2,995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,995)
<EPS-BASIC> (2.99)
<EPS-DILUTED> (2.99)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
for the quarter ending April 1, 2000, and such is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001051260
<NAME> GLENOIT ASSET CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 36,969
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,242
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,242
<CURRENT-LIABILITIES> 9,793
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 42,446
<TOTAL-LIABILITY-AND-EQUITY> 52,242
<SALES> 0
<TOTAL-REVENUES> 1,640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (801)
<INCOME-PRETAX> 2,438
<INCOME-TAX> 853
<INCOME-CONTINUING> 1,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,585
<EPS-BASIC> 1.58
<EPS-DILUTED> 1.58
</TABLE>
