Page 1 of 44
Index to Exhibits-Pages 18-25
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 quarterly period ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-3634
CONE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0367025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 North Elm Street, Greensboro, North Carolina 27408
(Address of principal executive offices) (Zip Code)
(336) 379-6220
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding as of April 22, 1998:
26,165,933 shares.
1
<PAGE>
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Thirteen weeks ended March 29, 1998
and March 30, 1997 (Unaudited)............................3
Consolidated Condensed Balance Sheets
March 29, 1998 and March 30, 1997
(Unaudited) and December 28, 1997.........................4
Consolidated Condensed Statements of Cash Flows
Thirteen weeks ended March 29, 1998
and March 30, 1997 (Unaudited)............................5
Notes to Consolidated Condensed Financial Statements
(Unaudited).................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................16
Item 6. Exhibits and Reports on Form 8-K...............................17
2
<PAGE>
PART I
Item 1.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 29, 1998 March 30, 1997
(Unaudited) (Unaudited)
Net Sales $ 190,171 $ 174,714
Operating Costs and Expenses:
Cost of sales 159,846 148,059
Selling and administrative 19,779 18,304
Depreciation 7,174 6,671
Restructuring - 655
186,799 173,689
Income from Operations 3,372 1,025
Other Income (Expense):
Interest income 611 188
Interest expense (3,547) (3,683)
(2,936) (3,495)
Income (Loss) before Income Taxes (Benefit) and Equity
in Earnings (Losses) of Unconsolidated Affiliate 436 (2,470)
Income Taxes (Benefit) 144 (988)
Income (Loss) before Equity in Earnings (Losses)
of Unconsolidated Affiliate 292 (1,482)
Equity in Earnings (Losses) of Unconsolidated Affiliate 1,252 (513)
Net Income (Loss) $ 1,544 $ (1,995)
Income (Loss) Available to Common Shareholders $ 791 (2,715)
Earnings (Loss) Per Share - Basic and Diluted $ .03 $ (.10)
Weighted Average Common Shares Outstanding:
Basic 26,183 26,237
Diluted 26,210 26,237
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and par value data)
<TABLE>
<S> <C> <C> <C>
March 29, March 30, December 28,
1998 1997 1997
ASSETS (Unaudited) ((Unaudited) (Note)
Current Assets:
Cash $ 525 $ 1,148 $ 856
Accounts receivable, less allowances of
$1,500, $1,250 and $1,500 25,063 27,862 19,958
Subordinated note receivable 39,886 31,292 23,842
Inventories 122,287 145,491 115,663
Other current assets 18,913 12,716 19,228
Total Current Assets 206,674 218,509 179,547
Investments in Unconsolidated Affiliates 38,033 33,631 36,781
Other Assets 37,844 39,819 38,431
Property, Plant and Equipment 250,017 249,689 251,887
$ 532,568 $ 541,648 $ 506,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 7,500 $ 25,190 $ 4,500
Current maturities of long-term debt 10,714 10,754 10,714
Accounts payable 39,962 33,055 32,994
Sundry accounts payable and accrued liabilities 45,465 44,121 49,588
Deferred income taxes 20,436 23,594 23,370
Total Current Liabilities 124,077 136,714 121,166
Long-Term Debt 161,767 150,079 139,656
Deferred Income Taxes 40,913 40,598 38,523
Other Liabilities 10,936 10,229 10,781
Stockholders' Equity:
Class A preferred stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 383,948 shares 38,395 38,395 38,395
Class B preferred stock - no par value; authorized
5,000,000 shares - - -
Common stock - $.10 par value; authorized 42,700,000
shares; issued and outstanding 26,166,933 shares;
1997, 26,119,133 shares and 26,201,633 shares 2,617 2,612 2,620
Capital in excess of par 62,057 61,625 62,300
Retained earnings 101,039 109,879 102,449
Deferred compensation - restricted stock (702) - (740)
Accumulated other comprehensive income (8,531) (8,483) (8,504)
Total Stockholders' Equity 194,875 204,028 196,520
$ 532,568 $ 541,648 $ 506,646
</TABLE>
Note: The balance sheet at December 28, 1997, has been
derived from the audited financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<S> <C> <C>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 29, 1998 March 30, 1997
(Unaudited) (Unaudited)
Cash Used in Operations $ (14,461) $ (8,044)
Investing
Proceeds from sale of property, plant and equipment 2,566 1,225
Capital expenditures (6,790) (6,556)
Other - (1,500)
Cash used in investing (4,224) (6,831)
Financing
Net borrowings under line of credit agreements 3,000 19,923
Decrease in checks issued in excess of deposits (3,446) (3,475)
Proceeds from long-term debt borrowings 22,000 -
Dividends paid - Class A Preferred (2,954) (55)
Other (246) (1,388)
Cash provided by financing 18,354 15,005
Net change in cash (331) 130
Cash at Beginning of Period 856 1,018
Cash at End of Period $ 525 $ 1,148
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest, net of interest capitalized $ 6,520 $ 7,045
Income taxes, net of refunds $ (17) $ (3,714)
Supplemental Schedule of Noncash Investing and Financing Activities:
Receivable recorded from sale of division $ - $ 2,703
Liability incurred for dividend payable $ - $ 2,777
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 29, 1998
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") consolidated condensed
financial statements for March 29, 1998 and March 30, 1997 are unaudited,
but in the opinion of management reflect all adjustments necessary to
present fairly the consolidated condensed balance sheets of Cone Mills
Corporation and Subsidiaries at March 29, 1998, March 30, 1997, and
December 28, 1997, and the related consolidated condensed statements of
operations and cash flows for the thirteen weeks ended March 29, 1998 and
March 30, 1997. All adjustments are of a normal recurring nature. The
results are not necessarily indicative of the results to be expected for
the full year.
These statements should be read in conjunction with the audited financial
statements and related notes included in the Company's annual report on
Form 10-K for fiscal 1997.
Inventories are stated at the lower of cost or market. The last-in,
first-out (LIFO) method is used to determine cost of most domestically
produced goods. The first-in, first-out (FIFO) or average cost methods are
used to determine cost of all other inventories. Because amounts for
inventories under the LIFO method are based on an annual determination of
quantities as of the year-end, the inventories at March 29, 1998 and March
30, 1997 and related consolidated condensed statements of operations for
the thirteen weeks then ended are based on certain estimates relating to
quantities and cost as of the end of the fiscal year.
Note 2. Inventories
<TABLE>
<S> <C> <C> <C>
(in thousands) 3/29/98 3/30/97 12/28/97
Greige and finished goods $ 83,391 $ 93,131 $ 81,130
Work in process 10,578 12,060 11,260
Raw materials 16,057 14,300 11,122
Supplies and other 12,261 26,000 12,151
------- ------- -------
$ 122,287 $ 145,491 $ 115,663
======= ======= =======
</TABLE>
6
<PAGE>
Note 3. Long-Term Debt
<TABLE>
<S> <C> <C> <C>
(in thousands) 3/29/98 3/30/97 12/28/97
Senior Note $ 53,572 $ 64,286 $ 53,572
Revolving Credit Agreement 22,000 - -
8 1/8% Debentures 96,909 96,465 96,798
Other - 82 -
------- ------- -------
172,481 160,833 150,370
Less current maturities 10,714 10,754 10,714
------- ------- -------
$ 161,767 $ 150,079 $ 139,656
======= ======= =======
</TABLE>
Effective February 1998, the interest rate on the Company's Senior Note
increased to 8.75%. Interest rates under the Revolving Credit Agreement are
similar to the Company's unsecured short-term notes payable.
Note 4. Class A Preferred Stock
The 1999 dividend rate for Class A Preferred Stock is 7.50%, payable March 31,
1999.
7
<PAGE>
Note 5. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share ("EPS").
<TABLE>
<S> <C> <C>
(in thousands, except Thirteen Thirteen
per share data) Weeks Ended Weeks Ended
3/29/98 3/30/97
Net income (loss) $ 1,544 $ (1,995)
Preferred stock dividends (753) (720)
----- -----
Basic EPS - income (loss)
available to common shareholders 791 (2,715)
Effect of dilutive securities - -
----- -----
Diluted EPS - income (loss)
available to common shareholders
after assumed conversions $ 791 $ (2,715)
===== =====
Determination of shares:
Basic EPS - weighted average shares 26,183 26,237
Effect of dilutive securities 27 -
----- -----
Diluted EPS - adjusted weighted-
average shares and assumed
conversions 26,210 26,237
====== ======
Earnings (loss) per share:
Basic $ .03 $ ( .10)
====== ======
Diluted $ .03 $ ( .10)
====== ======
</TABLE>
Common stock options outstanding at March 30, 1997 were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive.
8
<PAGE>
Note 6. Recent Account Pronouncements
Beginning in fiscal year 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." Comprehensive income is the total of net income and other
changes in equity, except those resulting from investments by owners and
distribution to owners not reflected in net income. Total comprehensive income
for the periods was as follows: <TABLE> <S> <C> <C>
(in thousands) Thirteen Thirteen
Weeks Ended Weeks Ended
3/29/98 3/30/97
Net income (loss) $ 1,544 $ (1,995)
Other comprehensive income (loss),
currency translation adjustment (27) ( 8)
----- -----
$ 1,517 $ (2,003)
===== =====
</TABLE>
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter Ended March 29, 1998 Compared with First Quarter Ended March 30,
1997.
In the first quarter of 1998, Cone Mills experienced strong denim demand and
began to experience better market conditions in decorative print fabrics
markets. For the quarter, Cone Mills had sales of $190.2 million, up 8.8%, as
compared with sales of $174.7 million for the first quarter of 1997. After
eliminating the sales of businesses which were divested in 1997, sales were up
approximately 11%. Higher sales of denim products, finishing services and
jacquard fabrics accounted for the increase. Lower specialty sportswear sales,
primarily shirting fabrics, partially offset the sales increases. International
sales were $50.9 million, or 27% of total sales, as compared with $43.9 million,
or 25% of sales, for the first quarter of 1997.
Cone Mills had net income for the first quarter of 1998 of $1.5 million, or $.03
per share after preferred dividends. For comparison, first quarter 1997 had a
net loss of $2.0 million, or $.10 per share, including a pre-tax charge of $.7
million related to the consolidation of the Granite and Carlisle finishing
operations.
Gross profit for the first quarter of 1998 (net sales less cost of sales and
depreciation) was 12.2% of sales, as compared with 11.4% for the previous year.
The increase was primarily the result of the improved sales volume, lower raw
material costs and higher capacity utilization partially offset by additional
expense at the Carlisle Finishing plant.
10
<PAGE>
Business Segments. Cone operates in two principal business segments, apparel
fabrics and home furnishings products. The following table sets forth certain
net sales and operating income (loss) information.
<TABLE>
<S> <C> <C> <C> <C>
First Quarter
1998 1997
(Dollar amounts in millions)
NET SALES
Apparel(1) $ 158.2 83.2% $ 148.4 84.9%
Home Furnishings(2) 32.0 16.8 26.3 15.1
----- ---- ----- -----
Total $ 190.2 100.0% $ 174.7 100.0%
===== ===== ===== =====
OPERATING INCOME (LOSS)(3)
Apparel $ 6.8 4.3% $ 6.1 4.1%
Home Furnishings (2.2) (7.0) (3.5) (13.4)
Restructuring - - (.7) -
</TABLE>
(1) Apparel includes synthetic fabrics net sales of $2.7 million in 1997.
(2) Home furnishings includes Greeff's and real estate's net sales of $1.4
million in 1997.
(3) Operating income (loss) excludes general corporate expenses. Percentages
reflect operating income (loss) as a percentage of segment net sales.
Apparel Fabrics. Apparel fabrics segment sales for the first quarter of 1998
were $158.2 million, up 6.6% from first quarter of 1997 sales of $148.4
million. Excluding sales of the synthetic fabric business which was sold in
January 1997, first quarter 1998 sales were up approximately 9%. Increased
sales of denims, partially offset by lower specialty sportswear sales,
accounted for the increase. Average denim prices were essentially flat year
over year. Cotton costs were down in the first quarter of 1998, reflecting
more favorable world cotton prices. Denim manufacturing facilities operated
at capacity during the first quarter of the 1998 period.
For the first quarter of 1998, the apparel fabric segment had operating
income of $6.8 million, or 4.3% of sales, as compared with $6.1 million, or
4.1% of sales, in the first quarter of 1997. Improved profits from denim
operations in the first quarter of 1998 were substantially offset by
unfavorable specialty sportswear results.
11
<PAGE>
Home Furnishings. For the first quarter of 1998, home furnishings segment
sales were $32.0 million, up 21.8% as compared with $26.3 million for the
first quarter of 1997. Excluding operating units sold in 1997, first quarter
1998 sales were up approximately 28%. Stronger commission finishing and
jacquard fabric sales accounted for the increase. John Wolf sales were off
slightly from year-ago levels. Home furnishings had an operating loss of $2.2
million, as compared with a loss of $3.5 million for the first quarter of
1997. With the exception of the Carlisle Finishing plant, home furnishings
units substantially improved operating results in 1998 as compared with 1997.
Total Company selling and administrative expenses increased from $18.3 million
for the first quarter of 1997 to $19.8 million in the first quarter of 1998,
which included the expenses associated with the Company's increased marketing
and merchandising efforts. Selling and administrative expenses were 10.4% of
sales in the first quarter of 1998, as compared with 10.5% in the first quarter
of 1997.
Income taxes as a percentage of pre-tax income for the first quarter of 1998
were 33.0% reflecting the tax benefit resulting from operation of the Company's
foreign sales corporation.
Equity in earnings of Parras Cone, the joint venture plant in Mexico, was $1.3
million for the first quarter of 1998, as compared with a loss of $0.5 million
for the first quarter of 1997. The 1998 results reflect full operating schedules
compared with partially curtailed operations for the 1997 period.
The Company continues to experience strong denim sales and sales increases in
home furnishings operations as the second quarter of 1998 begins. The Company's
short-term operating imperatives are effective marketing for specialty
sportswear, satisfactory manufacturing results from Carlisle Finishing and
successful execution of the restructuring plan for John Wolf. New management is
in place at each of these units. As the Company continues to make progress on
marketing initiatives and cost control, improved operating effectiveness should
follow.
Liquidity and Capital Resources
The Company's principal long-term capital components consist of debt
outstanding under its Senior Note, its 8 1/8% Debentures and
stockholders' equity. Primary sources of liquidity are internally
generated funds, the $80 million Revolving Credit Facility and the
$40 million Receivables Purchase Agreement. The Receivables Purchase
12
<PAGE>
Agreement, a one-year facility, was renewed in March 1998. On March 29, 1998,
the Company had funds available of $58.0 million under its Revolving Credit
Facility.
During the first quarter of 1998, the Company generated cash from operating
activities before changes in working capital of $6.7 million, as compared with
$6.1 million for the first quarter of 1997. Working capital increases in 1998,
primarily accounts receivable and inventories, were $21.2 million. Other sources
of cash included proceeds of $2.6 million realized from the sale of old
manufacturing equipment. Uses of cash included $6.8 million for capital
expenditures, and $3.0 million for preferred stock dividends.
The Company believes that internally generated operating funds and funds
available under its credit facilities will be sufficient to meet its needs for
working capital, capital spending, potential stock repurchases and financing for
the foreseeable future.
On March 29, 1998, the Company's long-term capital structure consisted of $161.8
million of long-term debt and $194.9 million of stockholders' equity. For
comparison, on March 30, 1997, the Company had $150.1 million of long-term debt
and $204.0 million of stockholders' equity. Long-term debt (including current
maturities of long-term debt) as a percentage of long-term debt and
stockholders' equity was 47% at March 29, 1998, as compared with 44% at March
30, 1997.
Accounts and note receivable on March 29, 1998, were $64.9 million, an increase
of $5.8 million, as compared with March 30, 1997. This increase in accounts and
note receivable was primarily due to increases in sales. Receivables, including
those sold pursuant to the Receivables Purchase Agreement, represented 51 days
of sales outstanding at March 29, 1998 and 49 days at March 30, 1997.
Inventories on March 29, 1998, were $122.3 million, down $23.2 million from
March 30, 1997. The decrease was primarily due to the sale of operating units
and lower denim finished goods inventories which were partially offset by
increases in raw material levels.
Capital spending in the first quarter of 1998 was $6.8 million, as compared with
$6.6 million for the first quarter of 1997. Capital spending in 1998 is expected
to be approximately $37 million. Projects include new weaving machines and link
ring spinning for the White Oak denim plant and additional looms for the
jacquard facility.
13
<PAGE>
The Company recognizes the business implications regarding the Year 2000 as it
relates to computer programs and software systems. The Company is currently
adopting new software and modifying existing software to ensure that business
operations are not negatively impacted by the millennium change. The Company is
coordinating Year 2000 readiness with other entities with which it interacts,
both domestically and globally, including suppliers, customers and financial
service organizations.
Federal, state and local regulations relating to the workplace and the discharge
of materials into the environment continue to change and, consequently, it is
difficult to gauge the total future impact of such regulations on the Company.
Existing government regulations are not expected to cause a material change in
the Company's competitive position, operating results or planned capital
expenditures. The Company has an active environmental committee which fosters
protection of the environment and compliance with laws.
The Company is a party to various legal claims and actions. Management believes
that none of these claims or actions, either individually or in the aggregate,
will have a material adverse effect on the financial condition of the Company.
"Safe Harbor" Statement under Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Except for the historical information presented, the matters disclosed in the
foregoing discussion and analysis and other parts of this report include
forward-looking statements. These statements represent the Company's current
judgment on the future and are subject to risks and uncertainties that could
cause actual results to differ materially. Such factors include, without
limitation: (i) the demand for textile products, including the Company's
products, will vary with the U.S. and world business cycles, imbalances
between consumer demand and inventories of retailers and manufacturers and
changes in fashion trends, (ii) the highly competitive nature of the textile
industry and the possible effects of reduced import protection and free-trade
initiatives, (iii) the unpredictability of the cost and availability of
cotton, the Company's principal raw material, and (iv) the Company's
relationships with Levi Strauss as its major customer. For a further
description of these risks see the Company's 1997 Form 10-K, "Item 1.
Business -Competition, -Raw Materials and Customers" and "Management's
Discussion and Analysis of
14
<PAGE>
Results of Operations and Financial Condition -- Overview" of the Company's
1997 Annual Report to Shareholders incorporated by reference into Item 7. of
the Form 10-K. Other risks and uncertainties may be described from time to
time in the Company's other reports and filings with the Securities and
Exchange Commission.
15
<PAGE>
PART II
Item 1. Legal Proceedings
In November 1988, William J. Elmore and Wayne Comer (the "Plaintiffs") former
employees of the Company, instituted a class action suit against the Company and
certain other defendants in which the Plaintiffs asserted a variety of claims
related to the Cone Mills Corporation 1983 ESOP (the "1983 ESOP") and certain
other employee benefit plans maintained by the Company. In March 1992, the
United States District Court in Greenville, South Carolina entered a judgment in
the amount of $15.5 million (including an attorneys' fee award) against the
Company with respect to an alleged promise to make additional Company
contributions to the 1983 ESOP and all claims unrelated to the alleged promise
were dismissed. The Company, certain individual defendants and the Plaintiffs
appealed.
On May 6, 1994, the United States Court of Appeals for the Fourth Circuit,
sitting en banc, affirmed the prior conclusion of a panel of three of its judges
and unanimously reversed the $15.5 million judgment and unanimously affirmed all
of the District Court's rulings in favor of the Company. However, the Court of
Appeals affirmed, by an equally divided court, the District Court's holding that
Plaintiffs should be allowed to proceed on an alternative theory whether,
subject to proof of detrimental reliance, Plaintiffs could establish that a
letter to salaried employees on December 15, 1983 created an enforceable
obligation that could allow recovery on a theory of equitable estoppel.
Accordingly, the case was remanded to the District Court for a determination of
whether the Plaintiffs could establish detrimental reliance creating estoppel of
the Company.
On April 19, 1995, the District Court granted a motion by the Company for
summary judgment on the issues of equitable estoppel and third-party beneficiary
of contract which had been remanded to it by the Court of Appeals. The Court
ruled that the Plaintiffs could not forecast necessary proof of detrimental
reliance. The District Court, however, granted Plaintiffs motion to amend the
complaint insofar as they sought to pursue a "new" claim for unjust enrichment,
but denied their motion to amend so far as they sought to add claims for
promissory estoppel and unilateral contract. The court further denied the
Company's motion to decertify the class.
The District Court held a hearing on July 24, 1995 to decide on the merits
Plaintiffs' lone remaining claim of unjust enrichment, and in an order entered
September 25, 1995, the District Court dismissed that claim with prejudice. On
October 20, 1995, the Plaintiffs
16
<PAGE>
appealed to the Court of Appeals from the April 19, 1995 and September 25, 1995
orders of the District Court. Oral argument on Plaintiffs' appeal was held in
the Court of Appeals on October 31, 1996. Due to the uncertainties inherent in
the litigation process, it is not possible to predict the ultimate outcome of
this lawsuit. However, the Company has defended this matter vigorously, and it
is the opinion of the Company's management that the probability is remote that
this lawsuit, when finally concluded, will have a material adverse effect on the
Company's financial condition or results of operations.
The Company and its subsidiaries are involved in legal proceedings and claims
arising in the ordinary course of business. Although there can be no assurance
as to the ultimate disposition of these matters, management believes that the
probable resolution of such contingencies will not have a material adverse
effect on the financial condition of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this Form 10-Q are listed in the accompanying Index
to Exhibits.
(b) Reports on Form 8-K.
None
17
<PAGE>
Exhibit Sequential
No. Description Page No.
*2.1(a) Purchase Agreement between Registrant and Cone Receivables LLC dated
as of March 25, 1997, filed as Exhibit 2.1(l) to Registrant's report
on Form 10-Q for the quarter ended March 30, 1997.
*2.1(b) Receivables Purchase Agreement dated
as of March 25, 1997, among Cone
Receivables LLC, as Seller, the
Registrant, as Servicer, and
Delaware Funding Corporation, as
buyer, filed as Exhibit 2.1(m) to
Registrant's report on Form 10-Q
for the quarter ended March 30, 1997.
2.1(c) Amendment to Receivables Purchase
Agreement dated March 24, 1998,
between the Registrant and Delaware
Funding Corporation. 27
*2.2(a) Investment Agreement dated as of
June 18, 1993, among Compania Industrial
de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and Cone Mills
Corporation, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for
the quarter ended July 4, 1993, with
exhibits herein numbered 2.2(b),(c),
(d), (f), (g), and (j) attached.
*2.2(b) Commercial Agreement dated as of June 25, 1993, among Compania
Industrial de Parras, S.A.de C.V., Cone Mills Corporation and Parras
Cone de Mexico, S.A., filed as Exhibit 2.2(b) to Registrant's report
on Form 10-Q for the quarter ended July 4, 1993.
*2.2(c) Guaranty Agreement dated as of June 25, 1993, between Cone Mills
Corporation and Compania Industrial de Parras, S.A. de C.V., filed
as Exhibit 2.2(c) to Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
18
<PAGE>
Exhibit Sequential
No. Description Page No.
*2.2(d) Joint Venture Agreement dated as of
June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V.,
and Cone Mills (Mexico), S.A. de C.V.
filed as Exhibit 2.2(d) to
Registrant's report on Form 10-Q for
the quarter ended July 4, 1993.
*2.2(e) First Amendment to Joint Venture Agreement dated as of June 14,
1995, between Compania Industrial de Parras, S.A. de C.V., and Cone
Mills (Mexico), S.A. de C.V., filed as Exhibit 2.2(e) to the
Registrant's report on Form 10-Q for the quarter ended July 2, 1995.
*2.2(f) Joint Venture Registration Rights
Agreement dated as of June 25, 1993,
among Parras Cone de Mexico, S.A.,
Compania Industrial de Parras, S.A. de
C.V. and Cone Mills (Mexico),
S.A. de C.V. filed as Exhibit 2.2(e)
to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
*2.2(g) Parras Registration Rights Agreement
dated as of June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V. and
Cone Mills Corporation filed as Exhibit
2.2(f) to the Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
*2.2(h) Guaranty Agreement dated as of June 14,
1995, between Compania Industrial de
Parras, S.A. de C.V. and Cone Mills
Corporation filed as Exhibit 2.2(h) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
*2.2(i) Guaranty Agreement dated as of June 15, 1995, between Cone Mills
Corporation and Morgan Guaranty Trust Company of New York filed as
Exhibit 2.2(i) to the Registrant's report on Form 10-Q for the
quarter ended July 2, 1995.
19
<PAGE>
Exhibit Sequential
No. Description Page No.
*2.2(j) Support Agreement dated as of June 25,
1993, among Cone Mills Corporation, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia
Muriel and certain other person listed
herein ("private stockholders") filed
as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter
ended July 4, 1993.
*2.2(k) Call Option dated September 25, 1995, between Registrant and SMM
Trust, 1995 - M, a Delaware business trust, filed as Exhibit 2.2(k)
to the Registrant's report on Form 10-Q for the quarter ended
October
1, 1995.
*2.2(l) Put Option dated September 25, 1995, between Registrant and SMM
Trust,1995 - M, a Delaware business trust, filed as Exhibit 2.2(l)to
the Registrant's report on Form 10-Q for the quarter ended October
1, 1995.
*2.2(m) Letter Agreement dated January 11, 1996
among Registrant, Rodolfo Garcia Muriel,
and Compania Industrial de Parras, S.A. de
C.V.,filed as Exhibit 2.2(m) to the
Registrant's report on Form 10-K for
the year ended December 31, 1995.
*4.1 Restated Articles of Incorporation of the Registrant effective
August 25, 1993, filed as Exhibit 4.1 to Registrant's report on Form
10-Q for the quarter ended October 3, 1993.
*4.2 Amended and Restated Bylaws of Registrant,
Effective June 18, 1992, filed as Exhibit
3.5 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
*4.3 Note Agreement dated as of August 13, 1992,
between Cone Mills Corporation and The
Prudential Insurance Company of America,
20
<PAGE>
Exhibit Sequential
No. Description Page No.
with form of 8% promissory note attached, filed as Exhibit 4.01 to
the Registrant's report on Form 8-K dated August 13, 1992.
*4.3(a) Letter Agreement dated September 11, 1992, amending the Note
Agreement dated August 13, 1992, between the Registrant and The
Prudential Insurance Company of America filed as Exhibit 4.2 to the
Registrant's report on Form 8-K dated March 1, 1995.
*4.3(b) Letter Agreement dated July 19, 1993, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America filed as Exhibit 4.3 to the
Registrant's report on Form 8-K dated March 1, 1995.
*4.3(c) Letter Agreement dated June 30, 1994, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America filed as Exhibit 4.4 to the
Registrant's report on Form 8-K dated March 1, 1995.
*4.3(d) Letter Agreement dated November 14, 1994, amending the Note
Agreement dated August 13, 1992, between the Registrant and The
Prudential Insurance Company of America filed as Exhibit 4.5 to the
Registrant's report on Form 8-K dated March 1, 1995.
*4.3(e) Letter Agreement dated as of June 30, 1995, amending the Note
Agreement dated August 13, 1992, between the Registrant and The
Prudential Insurance Company of America filed as Exhibit 4.3(e) to
the Registrant's report on Form 10-Q for the quarter ended July 2,
1995.
21
<PAGE>
Exhibit Sequential
No. Description Page No.
*4.3(f) Letter Agreement dated as of June 30, 1995, between the Registrant
and The Prudential Insurance Company of America superseding Letter
Agreement filed as Exhibit 4.3(e) to the Registrant's report on Form
10-Q for the quarter ended July 2, 1995.
*4.3(g) Letter Agreement dated as of March 30,1996, between the Registrant
and The Prudential Insurance Company of America filed as Exhibit
4.3(g) to the Registrant's report on Form 10-Q for the quarter ended
March 31, 1996.
*4.3(h) Letter Agreement dated as of January 31, 1997, between the
Registrant and The Prudential Insurance Company of America filed as
Exhibit 4.3(h) to the Registrant's report on Form 10-K for the year
ended December 29, 1996.
*4.3(i) Letter Agreement dated as of July 31, 1997, between the Registrant
and The Prudential Insurance Company of America, filed as Exhibit
4.3(i) to the Registrant's report on Form 10-Q for the quarter ended
September 28, 1997.
4.3(j) Modification to Note Agreement dated
as of February 14, 1998, between the
Registrant and The Prudential Insurance
Company of America. 30
*4.4 Credit Agreement dated August 7, 1997, among the Registrant, various
banks and Morgan Guaranty Trust Company of New York as agent, filed
as Exhibit 4.4 to the Registrant's report on Form 10-Q for the
quarter ended September 28, 1997.
22
<PAGE>
Exhibit Sequential
No. Description Page No.
*4.5 Specimen Class A Preferred Stock
Certificate, filed as Exhibit 4.5
to the Registrant's Registration
Statement on Form S-1(File No. 33-46907).
*4.6 Specimen Common Stock Certificate, effective June 18, 1992, filed as
Exhibit 4.7 to the Registrant's Registration Statement on Form S-1
(File No. 33-46907).
*4.7 The 401(k)Program of Cone Mills Corporation, amended and restated
effective December 1, 1994, filed as Exhibit 4.8 to the Registrant's
report on Form 10-K for year ended January 1, 1995.
*4.7(a) First Amendment to the 401(k) Program of Cone Mills Corporation
dated May 9, 1995, filed as Exhibit 4.8(a) to the Registrant's
report on Form 10-K for year ended December 31, 1995.
*4.7(b) Second Amendment to the 401(k) Program of Cone Mills Corporation
dated December 5, 1995, filed as Exhibit 4.8(b) to the Registrant's
report on Form 10-K for year ended December 31, 1995.
*4.7(c) Third Amendment to the 401(k)Program of Cone Mills Corporation dated
August 7, 1997, filed as Exhibit 4.7(c) to the Registrant's report
on Form 10-Q for the quarter ended September 28, 1997.
*4.7(d) Fourth Amendment to the 401(k) Program of Cone Mills Corporation
dated December 4, 1997, filed as Exhibit 4.7(d) to the Registrant's
report on Form 10-K for the year
23
<PAGE>
Exhibit Sequential
No. Description Page No.
ended December 28, 1998.
*4.8 Cone Mills Corporation 1983 ESOP as amended and restated effective
December 1, 1994, filed as Exhibit 4.9 to the Registrant's report on
Form 10-K for year ended January 1, 1995.
*4.8(a) First Amendment to the Cone Mills Corporation 1983 ESOP dated May
9,1995, filed as Exhibit 4.9(a) to the Registrant's report on Form
10-K for year ended December 31, 1995.
*4.8(b) Second Amendment to the Cone Mills Corporation 1983 ESOP dated
December 5, 1995, filed as Exhibit 4.9(b) to the Registrant's report
on Form 10-K for year ended December 31, 1995.
*4.8(c) Third Amendment to the Cone Mills Corporation 1983 ESOP dated August
7, 1997, filed as Exhibit 4.(c) to the Registrant's report on Form
10-Q for the quarter ended September 28, 1997.
*4.8(d) Fourth Amendment to the Cone Mills Corporation 1983 ESOP dated
December 4, 1997, filed as Exhibit 4.8(d) to the Registrant's report
on Form 10-K for the year ended December 28, 1997.
*4.9 Indenture dated as of February 14,
1995, between Cone Mills Corporation
and Wachovia Bank of North Carolina,
N.A. as Trustee, filed as Exhibit 4.1
to Registrant's Registration Statement
on Form S-3 (File No. 33-57713).
24
<PAGE>
Exhibit Sequential
No. Description Page No.
27 Financial Data Schedule 44
* Incorporated by reference to the statement or report indicated.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONE MILLS CORPORATION
(Registrant)
Date May 8, 1998 /s/ Anthony L. Furr
------------------- -------------------
Anthony L. Furr
Vice President and
Chief Financial Officer
26
Exhibit 2.1(c) EXECUTION COPY
FIRST AMENDMENT
TO
RECEIVABLES PURCHASE AGREEMENT
THIS FIRST AMENDMENT dated as of March 24, 1998 (this
"Amendment") to the Receivables Purchase Agreement, dated as of March 25, 1997
(the "Receivables Purchase Agreement"), by and among CONE RECEIVABLES LLC, a
Delaware limited liability company, as seller (the "Seller"), CONE MILLS
CORPORATION, a North Carolina corporation, as servicer (the "Servicer") and in
its individual capacity, and DELAWARE FUNDING CORPORATION, a Delaware
corporation, as buyer (the "Buyer"), is by and among the parties listed above.
Capitalized terms used in this Amendment and not otherwise defined shall have
the meanings assigned to such terms in the Receivables Purchase Agreement.
RECITALS
WHEREAS, the parties to the Receivables Purchase Agreement
desire to amend the Receivables Purchase Agreement to extend the expiration date
of the facility as provided below;
NOW THEREFORE, in consideration of the premises and the
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Amendment to Section 1.01 of the Receivables
Purchase Agreement. The definition of "Expiration Date" in Section 1.01 of the
Receivables Purchase Agreement is hereby amended in its entirety and now reads
as follows:
"Expiration Date" shall mean the earliest of (i) March 23,
1999 (ii) the date of termination of the commitment of the LOC Bank under the
Letter of Credit Reimbursement Agreement, (iii) the date of termination of the
commitment of the Banks under the Credit Agreement or (iv) the day on which the
Buyer delivers a Notice of Termination pursuant to Section 7.02 hereof or a
Termination Event described in Section 7.01(k) hereof occurs.
27
<PAGE>
SECTION 2. Amendment to Section 2.15 of the
Receivables Purchase Agreement. The expiration date in Section 2.15 of the
Receivables Purchase Agreement is hereby extended by deleting "March 24, 1998"
and inserting in its place "March 23, 1999".
SECTION 3. Receivables Purchase Agreement in Full Force and
Effect as Amended. Except as specifically stated herein, all of the terms and
conditions of the Receivables Purchase Agreement shall remain in full force and
effect. All references to the Receivables Purchase Agreement in any other
document or instrument shall be deemed to mean the Receivables Purchase
Agreement, as amended by this Amendment. This Amendment shall not constitute a
novation of the Receivables Purchase Agreement, but shall constitute an
amendment thereto. The parties hereto agree to be bound by the terms and
obligations of the Receivables Purchase Agreement, as amended by this Amendment,
as though the terms and obligations of the Receivables Purchase Agreement were
set forth herein.
SECTION 4. Effectiveness. The amendments provided for by this
Amendment shall become effective as of the date hereof, upon receipt by the
Buyer of (a) executed counterparts of this Amendment and (b) a certificate of an
officer of each of the Seller and the Servicer to the effect that the
representations and warranties in Section 5.01 and 5.03, as applicable, of the
Receivables Purchase Agreement are true and correct as of the date hereof and
that no Termination Event or Potential Termination Event shall exist as of the
date hereof.
SECTION 5. Counterparts. This Amendment may be executed in any
number of counterparts and by separate parties hereto on separate counterparts,
each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same instrument.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF NEW YORK.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their duly authorized officers as of
the date hereof.
CONE RECEIVABLES LLC,
By: Cone Mills Corporation,
its sole member
By: /s/ Neil W. Koonce
Name: Neil W. Koonce
Title: Vice President
CONE MILLS CORPORATION
By: /s/ Anthony L. Furr
Name: Anthony L. Furr
Title: Chief Financial Officer
and Vice President
DELAWARE FUNDING CORPORATION,
By: Morgan Guaranty Trust Company of
New York, as attorney-in-fact
for Delaware Funding Corporation
By: /s/ Richard A. Burke
Name: Richard A. Burke
Title: Vice President
29
Exhibit 4.3(j) EXECUTION COUNTERPART
Cone Mills Corporation
3101 North Elm Street
Greensboro, North Carolina 27408
As of February 14, 1998
The Prudential Insurance Company of America
c/o The Prudential Capital Group
One Gateway Center, 11th Floor
Newark, New Jersey 07102-5311
Re: Modification to Note Agreement dated as of August 13, 1992
Ladies and Gentlemen:
The undersigned, CONE MILLS CORPORATION (the "Company") and you entered
into a Note Agreement dated as of August 13, 1992, as modified by letter
agreements dated as of September 11, 1992, July 19, 1993, June 30, 1994,
November 14, 1994, March 15, 1995, June 30, 1995, March 30, 1996, January 31,
1997, March 24, 1997, and July 31, 1997 (as it has been and may be modified, the
"Note Agreement").
Subject to the terms and conditions of this modification, you have
agreed to amend certain financial covenants of the Note Agreement and the
Company has agreed to increase the rate of interest on the Note.
Pursuant to paragraph 11C of the Note Agreement and subject to your
written acceptance as hereinafter provided, the undersigned request your
agreement to the following amendment to the Note Agreement. Capitalized terms
used herein but not defined herein have the meanings ascribed to them in the
Note Agreement, as amended hereby.
The date of effectiveness of this modification is February 14, 1998 (as
used in this Modification, the "Effective Date").
The Company hereby agrees with you as follows:
1. MODIFICATION OF THE NOTE AGREEMENT. The Company and you agree
to hereby amend the Note Agreement as follows:
30
<PAGE>
1A. Paragraph 5. Paragraph 5 shall be amended by adding the
following new Paragraph 5L at the end thereof.
5L. Other Covenants. If (in the reasonable opinion of the
Required Holders) at any time and from time to time, after the date
hereof, any of the covenants, representations and warranties or events
of default, or any other material term or provision (other than any
term or provision relating to payment terms, interest rates or
penalties), contained in the Bank Facility, or in any document,
agreement or instrument from time to time entered into by the Company
in respect thereof, is more favorable to the banks under the Bank
Facility than are the terms of this Agreement to the holders of the
Notes, this Agreement shall be amended to contain each such more
favorable covenant, representation and warranty, event of default, term
or provision, and the Company hereby agrees promptly to amend this
Agreement and to execute and deliver all such documents requested by
the Required Holder(s) to reflect such amendment. Prior to the
execution and delivery of such documents by the Company, this Agreement
shall be deemed to contain each such more favorable covenant,
representation and warranty, event of default, term or provision for
purposes of determining the rights and obligations hereunder.
1B. Paragraph 6A. Paragraph 6A shall be deleted in its
entirety and the following shall be inserted in lieu thereof:
6A. Financial Covenants. Until the Company shall meet
the Ratings Requirement, it covenants that:
6A(1) Debt. (i) The Adjusted Debt to Capital Ratio on
the last day of any fiscal quarter of the Company ended after the
Effective Date will not exceed 61%.
(ii) The Company will not permit any Subsidiary to
incur, Guarantee, assume, issue or at any time be liable with respect
to any Debt except that any International Subsidiary may incur, assume
or be liable with respect to any Non-Recourse International Subsidiary
Debt.
6A(2) Minimum Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth will at no time be less than an amount
equal to the sum of (i) $136,000,000, (ii) an amount equal to 25% of
Consolidated Net Income for each fiscal quarter ending after March 30,
1997 but before the date of determination, in each case, for which
Consolidated Net Income is positive (but with no deduction on account
of negative Consolidated Net Income for any fiscal quarter of the
Company), and (iii) an amount equal to 50%
31
<PAGE>
of the aggregate net proceeds, including the fair market value of
property other than cash (as determined in good faith by the Company's
Board of Directors), received by the Company from the issuance and sale
after the date hereof of any capital stock of the Company (other than
the proceeds of any issuance and sale of any capital stock which
capital stock does not result in an increase to Consolidated Net Worth
in the determination thereof at any date) or in connection with the
conversion or exchange of any Debt of the Company into capital stock of
the Company after March 30, 1997.
6A(3) Interest Coverage Ratio. (a) As of the last day
of the fiscal quarter of the Company ending most nearly on the last day
each of the periods set forth below, the ratio of Consolidated EBITDA
to Consolidated Net Interest Expense for such period will not be less
than the ratio set forth below opposite such period:
Period Ratio
March 31, 1997 - June 30, 1997 1.40:1
March 31, 1997 - September 30, 1997 1.40:1
March 31, 1997 - December 31, 1997 1.40:1
(b) As of the last day of each fiscal quarter of the Company
ending most nearly on each of the dates set forth below, the ratio of
Consolidated EBITDA to Consolidated Net Interest Expense for the period
of four consecutive fiscal quarters then ended will not be less than
the ratio set forth below:
Fiscal Quarter Ending
Most Nearly On Ratio
March 31, 1998 1.85:1
June 30, 1998 2.15:1
September 30, 1998 2.40:1
December 31, 1998 2.75:1
March 31, 1999 2.75:1
June 30, 1999 2.75:1
September 30, 1999 3.00:1
December 31, 1999 3.00:1
March 31, 2000 and thereafter 3.25:1
1C. Paragraph 6B. Paragraph 6B shall be deleted in its
entirety and the following shall be inserted in lieu thereof:
6B. Contingent Obligations. The Company covenants that
it will not, and will not permit any Subsidiary to, incur, create,
32
<PAGE>
assume, make or at any time be liable with respect to any Contingent
Obligation other than (i) Trade Letters of Credit, (ii) other
Contingent Reimbursement Obligations of the Company incurred in the
ordinary course of its business in an aggregate amount not to exceed
$12,000,000 at any time and (iii) Guarantees by the Company of Debt of
its Subsidiaries.
1D. Paragraph 6C(3). Paragraph 6C(3) shall be deleted in its
entirety and the following shall be inserted in lieu thereof:
6C(3) Investments. Neither the Company nor any
Consolidated Subsidiary will make or acquire any Investment in any
Person other than:
(a) Temporary Cash Investments;
(b) Investments consisting of Acquisitions;
(c) Advances by the Company or a Subsidiary to
officers, directors and employees for reasonable moving expenses and
business expenses incurred in the ordinary course of business of the
Company or any Subsidiary and consistent with past practice;
(d) Investments by the Company in Parras Cone in an
aggregate amount at any time not in excess of the aggregate amount of
such Investments as of the date of the Bank Facility; and
(e) Investments by the Company not permitted by the
foregoing clauses in an aggregate amount (determined at any time in
accordance with generally acceptable accounting principles) at any time
not to exceed $55,000,000.
1E. Paragraph 6. Paragraph 6 shall be amended by adding the
following new Paragraph 6I at the end thereof.
6I. Ratings Maintenance. The Company covenants that
upon satisfying the Ratings Requirement it will maintain such
Ratings Requirement at all times thereafter.
1F. Paragraph 10B. Paragraph 10B shall be amended by deleting
therefrom the definitions of each of the terms Consolidated Net Earnings;
Consolidated Net Earnings before Interest, Taxes and Rents; Consolidated Net
Tangible Assets; Fixed Charge Coverage; Fixed Charge Expense; Subsidiary and
Total Capitalization.
1G. Paragraph 10B. Paragraph 10B shall be amended by adding
the following definitions in alphabetical order:
33
<PAGE>
"Adjusted Debt to Capital Ratio" means as of any date the
ratio of Adjusted Total Consolidated Debt as of such date to Adjusted
Total Consolidated Capitalization as of such date, expressed as a
percentage.
"Adjusted Total Consolidated Capitalization" means as of
any date (i) Total Consolidated Capitalization as of such date plus
(ii) eight times Consolidated Operating Lease Expense for the period of
four consecutive fiscal quarters of the Company ended on or most
recently prior to such date.
"Adjusted Total Consolidated Debt" means as of any date
(i) Total Consolidated Debt as of such date plus (ii) eight times
Consolidated Operating Lease Expense for the period of four consecutive
fiscal quarters of the Company ended on or most recently prior to such
date.
"Acquisition" means the acquisition by the Company or any
Subsidiary of (i) any asset of any Person, whether by purchase, merger
or otherwise, which, or which together with other such acquisitions,
constitutes one or more businesses or substantially all of the assets
of one or more businesses or (ii) any shares of capital stock of any
Person which, immediately after such acquisition is made and as a
result thereof, becomes a Subsidiary.
"Bank Facility" means that certain Credit Agreement dated
as of August 7, 1997 among the Company, the banks listed therein and
Morgan Guaranty Trust Company of New York, as Agent, as it has been and
may be amended, modified or supplemented from time to time in
accordance with its terms.
"Consolidated EBITDA" means, for any period, the sum of
(i) Consolidated Net Income for such period and (ii) to the extent
deducted in determining Consolidated Net Income for such period, the
aggregate amount of (x) Consolidated Net Interest Expense, (y) income
tax expense and (z) depreciation, amortization and other similar
non-cash charges.
"Consolidated Interest Expense" means, for any period,
the interest expense of the Company and its Consolidated Subsidiaries,
determined on a consolidated basis, for such period.
"Consolidated Net Income" means, for any period, the net
income of the Company and its Consolidated Subsidiaries for such
period, excluding non-cash equity earnings or losses from
unconsolidated foreign affiliates and all other non-recurring items
related to reserves or losses for write-downs of inventory, accounts
34
<PAGE>
receivable, fixed assets, and investments outside of the ordinary
course of business.
"Consolidated Net Interest Expense" means, for any
period, the excess of (i) Consolidated Interest Expense for such period
over (ii) consolidated interest income of the Company and its
Consolidated Subsidiaries for such period; provided that in no event
shall the amount of such consolidated interest income deducted in
arriving at Consolidated Net Interest Expense for any period exceed
$250,000 multiplied by the number of fiscal quarters in such period.
"Consolidated Net Worth" means at any date the sum of the
consolidated stockholders' equity of the Company and its Consolidated
Subsidiaries determined as of such date.
"Consolidated Operating Lease Expense" means, for any
period, the aggregate rental expense of the Company and its
Consolidated Subsidiaries (other than with respect to capital leases),
determined on a consolidated basis, for such period.
"Consolidated Subsidiary" means, at any date, any
Subsidiary or other entity the accounts of which would be consolidated
under generally accepted accounting principles with those of the
Company in its consolidated financial statements as of such date.
"Consolidated Tangible Net Worth" means at any date
Consolidated Net Worth less the consolidated Intangible Assets of the
Company and its Consolidated Subsidiaries, all determined as of such
date. As used herein "Intangible Assets" means the amount (to the
extent reflected in determining such Consolidated Net Worth) of (i) all
write-ups (except write-ups resulting from foreign currency
translations and write-ups of assets of a going concern business made
within twelve months after the acquisition of such business) after
March 30, 1997 in the book value of any asset owned by the Company or a
Consolidated Subsidiary and (ii) all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or development expenses and
other intangible assets.
"Contingent Reimbursement Obligation" of any Person means
as of any date any contingent obligation of such Person to reimburse,
directly or indirectly, any bank or other Person in respect of amounts
paid under a letter of credit or similar instrument.
35
<PAGE>
"Effective Date" means February 14, 1998.
"Non-Recourse International Subsidiary Debt" means, with
respect to any International Subsidiary, Debt of such International
Subsidiary (x) incurred in the ordinary course of its business and with
respect to which (i) neither the Company nor any other Subsidiary has
any liability, absolute or contingent and (ii) recourse is expressly
limited to such Subsidiary and the tangible assets of such Subsidiary
(and no property or assets of the Company or any other Subsidiary) that
are the subject of the relevant financing, and (y) either (A)
outstanding or undrawn under a facility existing at such time such
Person becomes an International Subsidiary and not created in
contemplation of such event, (B) incurred or assumed for the purpose of
financing all or any part of the cost of acquiring plant, property or
equipment and working capital needs in connection therewith or (C) any
extensions and refinancings of any such Debt referred to in (A) or (B)
above; provided that the principal amount of such Debt is not increased
pursuant to such extension or refinancing.
"Outstanding Receivables Financing Amount" means, as of
any date, the aggregate financing amount with respect to the Purchase
Agreement, equal to the aggregate amount advanced by third-party
purchasers or lenders with respect thereto for the purchase or
financing of assets transferred pursuant thereto, net of repayments or
recoveries by such purchasers or lenders through liquidation of such
assets.
"Parras Cone" means Parras Cone de Mexico, S.A. de C.V.,
a Mexico company, and its successors.
"Ratings Requirement" means the long-term debt of the
Company shall have received a rating of not less than (i) BBB-, by
Standard and Poor's Ratings Corporation, and (ii) Baa3, by Moody's
Investors Service, Inc.
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests (i) having ordinary
voting power to elect a majority of the board of directors or other
persons performing similar functions, or (ii) otherwise having control
over the actions of the corporation or entity, are at the time directly
or indirectly owned by the Borrower.
"Temporary Cash Investment" means any Investment in (i)
direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, (ii)
time deposits with, including certificates of deposit
36
<PAGE>
issued by, any office located in the United States of any bank or trust
company which is organized under the laws of the United States or any
state thereof and (A) which is a Bank or (B) whose short-term
certificates of deposit are rated at least A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc. and (iii)
investment grade commercial instruments.
"Total Consolidated Capitalization" means as of any date
the sum of (i) Total Consolidated Debt, plus (ii) the aggregate amount
of the consolidated long term deferred tax liabilities of the Company
and its Consolidated Subsidiaries, plus (iii) stockholders' equity of
the Company and its Consolidated Subsidiaries plus (iv) the aggregate
amount deducted in determining such stockholders' equity with respect
to minority interests in Subsidiaries (other than Parras Cone if Parras
Cone has any Non-Recourse International Subsidiary Debt) that are not
Wholly Owned Consolidated Subsidiaries, in each case determined on a
consolidated basis as of such date.
"Total Consolidated Debt" means as of any date the sum of
(i) all Debt of the Company and its Consolidated Subsidiaries
determined on a consolidated basis, as of such date, as the same is or
would be set forth in a consolidated balance sheet of the Company and
its Consolidated Subsidiaries as of such date (including, without
limitation all Current Debt and the current portion of all Funded
Debt), other than (x) Trade Letters of Credit as of such date and (y)
Non-Recourse International Subsidiary Debt of Parras Cone as of such
date in an aggregate amount not to exceed $87,000,000, plus (ii) the
Outstanding Receivables Financing Amount as such date.
"Trade Letters of Credit" means letters of credit issued
for the account of the Company or any of its Consolidated Subsidiaries
providing payment of trade accounts payable arising in the ordinary
course of business (but not including, in any event, any financing or
standby letters of credit).
2. CONDITIONS PRECEDENT.
Your obligation to enter into, execute and deliver this
Modification and the effectiveness of paragraph 1 is subject to the satisfaction
of the following conditions, as determined in your sole judgment:
2A. Documents. You shall have received (i) this Modification duly
executed and delivered by the parties thereto and (ii) the promissory notes, in
substantially the form of Exhibit A hereto, fully completed and duly executed
and delivered by the Company.
37
<PAGE>
2B. Representations and Warranties; No Default. The
representations and warranties contained in paragraph 8 of the Note Agreement
shall be true on and as of the Effective Date, any reference in such paragraph 8
to the "Date of Closing" shall for purposes hereof be deemed to be a reference
to the "Effective Date" and any reference to the "Note Agreement", "this
Agreement" or words of like import shall mean and be a reference to the
Consolidated Note Agreement as amended hereby; there shall exist on the
Effective Date no Event of Default or Default; and the Company shall have
delivered to you an Officer's Certificate, dated the Effective Date, regarding
the foregoing.
2C. Proceedings. The Company shall deliver to you certified copies
(certified by its Secretary or Assistant Secretary) of all corporate action
taken by it to authorize the execution, delivery and performance of this
Modification.
2D. Other Agreements. You shall receive an executed copy
of the Bank Facility, certified as a true, correct and complete copy by
an authorized officer.
2E. Expenses. All your fees and disbursements (including
without limitation special counsel to you) shall have been paid in full.
2F. Other Documents. You shall have received such other
certificates, legal opinions and documents as you or your special counsel may
reasonably request, all in form and substance reasonably satisfactory to you.
3. MISCELLANEOUS.
3A. Successors and Assigns. All covenants and other agreements in
this Modification contained by or on behalf of either of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
3B. Governing Law. This Modification shall be construed and
enforced in accordance with, and the rights of the parties shall be
governed by, the law of the State of New York.
3C. Severability. Any provision of this Modification which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
38
<PAGE>
3D. Descriptive Headings. The descriptive headings of the
several paragraphs of this Modification are inserted for convenience only
and do not constitute a part of this Modification.
3E. Counterparts. This Modification may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one instrument.
3F. No Other Amendment. Except as expressly amended hereby,
all of the terms, conditions and obligations of the Note Agreement shall
remain in full force and effect.
[Signatures on Next Page]
39
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement among the
Company and you.
Very truly yours,
CONE MILLS CORPORATION
By: _______________________________
Title:
The foregoing Modification
is hereby accepted as of the
Effective Date.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: ___________________________
Title:
40
<PAGE>
Exhibit A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE OFFERED OR SOLD IN VIOLATION OF SUCH ACT.
CONE MILLS CORPORATION
8.75% SENIOR NOTE DUE AUGUST 13, 2002
No. _______ February 14, 1998
$------------
FOR VALUE RECEIVED, the undersigned, CONE MILLS CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws of
the State of North Carolina, hereby promises to pay to
____________________________, or registered assigns, the principal sum of
______________________________ DOLLARS on August 13, 2002, with interest
(computed on the bases of a 360-day year having twelve 30-day months) (a) on the
unpaid balance thereof at the Coupon Rate (as defined below) from the date
hereof, payable semiannually on the 13th day of August and February in each
year, commencing with the August 13 or February 13 next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including payment of interest and any overdue payment of
any Yield- Maintenance Amount (as defined in the Note Agreement referred to
below), payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal or
greater of (i) 2.0% over the Coupon Rate or (ii) 2.0% over the rate of interest
publicly announced by Bank of New York from time to time in New York City as its
Prime Rate.
"Coupon Rate" means a rate of interest per annum equal to 8.75%;
provided, however, that if the Company shall satisfy the Ratings Requirement
(which shall be evidenced by the delivery of an Officer's Certificate duly
executed by the chief financial officer of the Company specifying the date of
such compliance), such rate of interest shall be reduced to 8.0% per annum
commencing with the date of such compliance.
41
<PAGE>
Payments of principal of or interest on and any Yield-Maintenance
Amount payable with respect to this Note are to be made at the main office of
Bank of New York in New York City or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of the United States
of America.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Note Agreement, dated as of August 13, 1992 ( as
amended, herein called the "Agreement"), between the Company and The Prudential
Insurance Company of America and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof such holder's attorney duly authorized in writing, a new Note for
a like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
The Company agrees to make prepayments of principal on the dates and in
the amounts specified in the Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in the
Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note is intended to be performed in the State of New York and
shall be construed and enforced in accordance with the law of such State. AS
PROVIDED IN PARAGRAPH 11L OF THE AGREEMENT, THE COMPANY SUBMITS TO THE
JURISDICTION OF THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, IN ANY ACTION OR
PROCEEDING RELATING TO THIS NOTE.
42
<PAGE>
This Note is given in substitution for, and not in repayment of, the
promissory note dated August 13, 1992 made by the Company to the holder hereof
in connection with the Note Agreement.
CONE MILLS CORPORATION
By: _____________________________
Title:
By: _____________________________
Title:
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial infromation extracted from Cone
Mills Corporation Consolidated Financial Statements dated March 29, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> MAR-29-1998
<CASH> 525
<SECURITIES> 0
<RECEIVABLES> 66,449
<ALLOWANCES> 1,500
<INVENTORY> 122,287
<CURRENT-ASSETS> 206,674
<PP&E> 458,467
<DEPRECIATION> 208,450
<TOTAL-ASSETS> 532,568
<CURRENT-LIABILITIES> 124,077
<BONDS> 161,767
0
38,395
<COMMON> 2,617
<OTHER-SE> 153,863
<TOTAL-LIABILITY-AND-EQUITY> 532,568
<SALES> 190,171
<TOTAL-REVENUES> 190,171
<CGS> 167,020
<TOTAL-COSTS> 167,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,936
<INCOME-PRETAX> 436
<INCOME-TAX> 144
<INCOME-CONTINUING> 1,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,544
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
