UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.......333-18755.....................................
............................................Pluma, Inc..........
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
..................................................................
(Address of principal executive offices)
(Zip Code)
............801 Fieldcrest Road, Eden, North Carolina 27289................
(Registrant's telephone number, including area code)
..............................(336) 635-4000................................
(Former name, former address and former fiscal year, if changed since last
report)
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........
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 8,109,152 shares of common
stock, no par value, as of November 14, 1998.
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PLUMA, INC.
INDEX TO FORM 10-Q
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C> <C> <C> <C>
Item 1. Financial Statements
Balance Sheets - September 30, 1998 and December 31, 1997 3
Statements of Operations - Three Months and Nine Months Ended September 30, 1998
and 1997 4
Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
PART II - OTHER INFORMATION
Item 2. Changes in Security 8
Item 6. Exhibits and Reports on Form 8-K 10
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2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUMA, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,563,866 $ 1,875,992
Accounts receivable (less allowance - 1998, $1,734,356;
1997, $2,353,577) 39,047,472 32,001,332
Refundable income taxes 4,676,055 1,952,796
Other receivables -- 1,906,178
Deferred income taxes 1,251,001 1,539,385
Inventories 69,555,782 51,177,900
Other current assets 818,357 1,168,663
------------ ------------
Total current assets 117,912,533 91,622,246
------------ ------------
Property, plant and equipment:
Land 929,689 929,689
Land improvements 719,699 719,699
Buildings and improvements 17,042,915 16,663,608
Machinery and equipment 42,848,548 36,420,561
Construction in process 9,343,301 4,762,235
------------ ------------
Total property, plant and equipment 70,884,152 59,495,792
Less accumulated depreciation 24,667,198 21,496,857
------------ ------------
Property, plant and equipment, net 46,216,954 37,998,935
------------ ------------
Other assets:
Goodwill (less accumulated amortization -
1998, $1,333,840; 1997, $26,655 33,524,461 34,831,646
Other 2,570,554 1,533,840
------------ ------------
Total other assets 36,095,015 36,365,486
------------ ------------
Total $200,224,502 $165,986,667
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt 109,393,000 44,117,982
Accounts payable 22,120,728 12,057,069
Accrued expenses 5,923,435 2,472,458
------------ ------------
Total current liabilities 137,437,163 58,647,509
------------ ------------
Long-term debt -- 40,000,000
------------ ------------
Deferred income taxes 4,428,823 3,671,301
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized Common stock, no
par value, 15,000,000 shares authorized,
shares issued and outstanding - 1998, 8,109,152; 1997, 8,109,152 36,849,127 36,849,127
Retained earnings 21,509,389 26,818,730
------------ ------------
Total shareholders' equity 58,358,516 63,667,857
------------ ------------
Total $200,224,502 $165,986,667
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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PLUMA, INC.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 54,608,997 $ 38,965,527 $ 144,865,133 $ 99,477,525
Cost of goods sold 51,639,967 34,068,210 133,250,402 84,714,875
------------- ------------- ------------- -------------
Gross profit 2,969,030 4,897,317 11,614,731 14,762,650
Selling, general and administrative expenses 4,750,727 1,738,339 13,768,792 7,043,811
------------- ------------- ------------- -------------
Income (loss) from operations (1,781,697) 3,158,978 (2,154,061) 7,718,839
------------- ------------- ------------- -------------
Other income (expenses):
Interest expense (2,151,012) (519,051) (5,481,849) (1,697,223)
Amortization of goodwill (435,728) -- (1,307,185) --
Other income 108,431 158,139 595,073 407,878
------------- ------------- ------------- -------------
Total other expenses, net (2,478,309) (360,912) (6,193,961) (1,289,345)
------------- ------------- ------------- -------------
Income (loss) before income taxes (4,260,006) 2,798,066 (8,348,022) 6,429,494
------------- ------------- ------------- -------------
Income taxes (benefit) (1,550,642) 1,029,688 (3,038,681) 2,366,054
------------- ------------- ------------- -------------
Net income (loss) $ (2,709,364) $ 1,768,378 $ (5,309,341) $ 4,063,440
============= ============= ============= =============
Earnings per common share -
basic and diluted $ (.33) $ .22 $ (.65) $ .55
============= ============= ============= =============
Weighted average number of shares outstanding 8,109,152 8,109,152 8,109,152 7,366,625
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
4
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PLUMA, INC.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,309,341) $ 4,063,440
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for depreciation 3,328,491 3,018,571
Provision for amortization 1,382,188
Other, net (45,278) (1,162)
Increase in accounts receivable (5,139,962) (18,615,617)
Increase in deferred income taxes 1,045,906 305,680
Increase in inventories (18,377,882) (984,971)
(Increase) decrease in other current assets 350,306 344,065
Increase in accounts payable 10,063,659 2,268,856
(Increase) decrease in refundable income taxes (2,723,259) (691,437)
Increase in accrued expenses 3,450,977 806,308
------------ ------------
Net cash used in operating activities (11,974,195) (9,486,267)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (11,556,132) (8,814,148)
Other, net (1,056,817) (218,320)
------------ ------------
Net cash used in investing activities (12,612,949) (9,032,468)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated debt (849,640) (849,640)
Proceeds from issuance of long term debt 26,124,658 0
Net repayments of revolving loan (10,266,437)
Net proceeds from sale of common stock 29,626,577
Payment of dividends (144,451)
Net cash provided by financing activities 25,275,018 18,366,049
------------ ------------
Net increase (decrease) in cash 687,874 (152,686)
Cash, beginning of period 1,875,992 291,488
------------ ------------
Cash, end of period $ 2,563,866 $ 138,802
============ ============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest (net of amounts capitalized) $ 4,708,255 $ 1,889,717
Income taxes $ 57,500 $ 2,751,811
Cash received during the period for:
Income taxes $ 1,400,829 -
</TABLE>
The accompanying notes are an integral part of this statement.
5
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PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The accompanying unaudited financial statements of Pluma, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the financial position at September 30, 1998 and December
31, 1997, the results of operations for the three months and nine months
ended September 30, 1998 and 1997 and cash flows for the nine months ended
September 30, 1998 and 1997.
The operating results for the three months and nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1998.
In December 1997, the Company purchased certain assets and assumed
liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson
Company ("FLR)". The acquisitions have been accounted for as purchases.
Accordingly, the assets, liabilities, revenues and expenses of the
acquired businesses are included in the financial statements as of
December 31, 1997, and for the three months and nine months ended
September 30, 1998.
2. INVENTORIES
Inventories consist of the following:
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
At FIFO cost:
Raw materials $ 1,653,181 $ 1,429,371
Work-in-progress 11,167,268 6,077,538
Finished goods 61,682,367 45,885,484
Production supplies 1,114,864 953,147
-------------- ---------------
75,617,680 54,345,540
Excess of FIFO over LIFO cost (3,587,439) (1,846,435)
-------------- ---------------
72,030,241 52,499,105
Excess of cost over market (2,474,459) (1,321,205)
-------------- ---------------
$ 69,555,782 $ 51,177,900
============== ===============
3. CAPITAL STOCK
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse common stock split for shareholders of record on February 3, 1997.
All references in the accompanying financial statements to the number of
common shares and per share amounts reflect the reverse stock split.
6
<PAGE>
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. The $26,400,000 net
proceeds were used to reduce debt.
In April 1997, the Underwriters' over-allotment option for 293,300 shares
of Common Stock at $12.00 per share was exercised. The $3,300,000 net
proceeds were used to reduce debt.
4. STOCK OPTIONS
In May 1995, the Company adopted the 1995 Stock Option Plan in which
515,200 shares of the Company's Common Stock may be issued. The exercise
price of the options may not be less than the fair value of the Common
Stock on the date of grant. The options granted become exercisable at such
time or times as shall be determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may at any time
accelerate the exercisability of all or any portion of any stock option.
These options expire, if not exercised, ten years from the date of grant.
Participants in the Plan may be independent contractors or employees of
independent contractors, full or part-time officers and other employees of
the Company, or independent directors of the Company.
In April 1996 and October 1995, the Company granted 32,384 and 379,776
options, respectively, to purchase Common Stock at an exercise price of
$13.077 per share of which 181,352 and 180,763 options are exercisable as
of September 30, 1998 and December 31, 1997, respectively. Forfeited
options were 40,627 as of September 30, 1998 and 31,795 as of December 31,
1997. Expired options were 6,477 shares as of September 30, 1998 and 589
shares as of December 31, 1997. The remaining 183,704 options become
exercisable on the anniversary dates of the grants as follows:
YEAR SHARES
1998 54,759
1999 61,236
2000 61,234
2001 6,475
----------
183,704
==========
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the 1995 Stock Option Plan. Accordingly, no compensation
cost has been recognized since the exercise price approximates the fair
value of the stock price at the grant dates. Had compensation cost been
determined based on the fair value at the grant date consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", the Company's net income and earnings per
share would have been effected for the three months and nine months ended
September 30, 1998 and 1997 as indicated below:
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Three Months Nine Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Income:
As reported $ (2,709,364) $ 1,768,378 $ (5,309,341) $ 4,063,440
Pro forma $ (2,737,554) $ 1,717,064 $ (5,396,291) $ 3,909,499
Earnings per Share:
As reported $ (.33) $ .22 $ (.65) $ .55
Pro forma $ (.34) $ .21 $ (.67) $ .53
</TABLE>
7
<PAGE>
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") which changes the method of computing and presenting earnings
per share. SFAS 128 requires the presentation of basic earnings per share
and diluted earnings per share ("EPS") on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic earnings per share is computed by dividing the net
income available to common shareholders by the weighted average shares of
outstanding common stock. The calculation of diluted earnings per share is
similar to basic earnings per share except that the denominator includes
dilutive common stock equivalents such as stock options and warrants. SFAS
128 is effective for financial statements for periods ending after
December 15, 1997 and early adoption is not permitted.
Outstanding options to purchase shares of common stock were not included
in the computation of diluted EPS because the options' exercise prices
were greater than the average market prices of the common shares during
the three months and nine months ended September 30, 1998 and 1997.
Accordingly, there were no differences in the numerators and denominators
used in the basic EPS and diluted EPS computations.
6. LONG-TERM DEBT
In April 1998, the Company replaced its existing debt with a $115.0
million syndicated credit facility (the "Syndicated Credit Facility"). The
Syndicated Credit Facility permits revolving loans of up to $70.0 million
(the "Revolving Loan") and term loans of up to $45.0 million (the "Term
Loans"). Any amounts outstanding under the Revolving Loans mature in
April, 2003. Term Loan borrowings will be due in specified quarterly
installments beginning in April, 1999 with a final maturity in January,
2003.
Among the various provisions, limitations and restrictions contained in
the Syndicated Credit Facility, the Company must meet specified
consolidated net worth, leverage ratio, fixed charge coverage ration,
funded debt to total capitalization ratio and consolidated earnings before
the effect of interest expense, income taxes depreciation and amortization
requirements. Under the Syndicated Credit Facility, the Company is
restricted in the amount of its capital expenditures, indebtedness to
certain other parties, payment of dividends, or redemption of its stock
that would create an event of default, unless a waiver is obtained, any
unpaid principal and accrued interest may be declared immediately due and
payable. The Syndicated Credit Facility may be terminated at any time upon
the occurrence of an event of default. The Company retains the right to
remedy certain events of default within 30 days after notice. The Company
was not in compliance with certain covenants and had not obtained the
respective waivers as of September 30, 1998. Accordingly, all debt as of
September 30, 1998 has been classified as current.
7. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS
130"), which established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement divides comprehensive income into net
income and other comprehensive income. For the three months and nine
months ended September 30, 1998 and 1997, the Company had no items of
other comprehensive income.
8
<PAGE>
In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information", was issued, establishing standards for the way
public enterprises report information about operating segments in annual
financial statements. This statement also requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. The Company will be required to apply the
provisions of this statement beginning with the annual report issued for
the year ending December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
financial statements and related notes of this Quarterly Report on Form 10-Q
and in conjunction with the Company's 1997 Annual Report.
RESULTS OF OPERATIONS
(UNDAUDITED) (UNDAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 94.6 87.4 92.0 85.2
------ ----- ---- ----
Gross profit 5.4 12.6 8.0 14.8
Selling, general and
administrative expenses 8.7 4.5 9.5 7.0
------ ----- --- ---
Income (loss) from
operations (3.3) 8.1 (1.5) 7.8
Other expenses, net 4.5 0.9 4.3 1.3
--- --- --- ---
Income (loss) before
income taxes (7.8) 7.2 (5.8) 6.5
Income taxes (benefit) (2.8) 2.7 (2.1) 2.4
----- --- ------ ---
Net income (loss) (5.0)% 4.5% (3.7)% 4.1%
--- --- --- ---
Three Months and Nine Months Ended September 30, 1998 ("1998"), Compared to
Three Months and Nine Months Ended September 30, 1997 ("1997")
NET SALES
Net sales for the nine months ended September 30, 1998 were $144.9 million, an
increase of $45.4 million, or 45.6%, over net sales of $99.5 million for the
first nine months of 1997. This increase in net sales was attributable to the
inclusion of sales from FLR and Stardust which were acquired by the Company in
December of 1997. This increase in sales, however, was lower than anticipated
due to a short supply of specific inventory styles. This shortage of inventory
was due, in part, to problems associated with system design and procedural
aspects of the SAP management information system which is currently being
implemented by the Company. Additionally, sales from FLR and Stardust were lower
than anticipated due to a temporary supply disruption of inventory that occurred
during the second quarter of 1998.
GROSS MARGINS
Gross margins declined to 5.4% and 8.0% for the third quarter and first nine
months of 1998, respectively, from 12.6% and 14.8% in the comparable periods of
1997. The decline was the result of lower fabric yield, a shift in product mix,
and an increase in supplies expense. Fabric yield was adversely impacted due to
problems associated with system design and procedural aspects of the SAP
management information system which is currently being implemented by the
Company. Steps have been or are being taken to correct this problem. Orders for
product shifted to a higher percentage of larger sized goods during the first
nine months of 1998 relative to the same period in 1997. Due to a competitive
market environment, the Company is not always able to offset
<PAGE>
the higher production costs associated with larger sized product with higher
selling prices. Supplies expense increased as the Company provided manufacturing
and shipping supplies to a greater number of outside contractors during the
first nine months of 1998 than had been utilized in the same period of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
For the first nine months, SG&A expenses increased 95.5% to $13.8 million in
1998 from $7.0 million in 1997. SG&A as a percent of sales for 1998 was 9.5%
compared to 7.0% in 1997. This increase in SG&A expense is primarily
attributable to the inclusion of expenses from FLR and Stardust in the first
nine months of 1998.
OTHER EXPENSES, NET
Other expenses, net, increased 586.7% to $2.5 million in the third quarter of
1998 and 380.4% to $6.2 million in the first nine months of 1998. This increase
was due to an increase in interest expense and amortization expense associated
with the acquisitions made in December of 1997.
INCOME TAXES
The effective tax rate was 36.4% in 1998 and 36.8% 1997.
LIQUIDITY AND CAPITAL RESOURCES
PRINCIPAL SOURCES OF LIQUIDITY
Principal sources of liquidity have been net proceeds from the Company's initial
public offering and bank financing. In March 1997, the Company completed its
initial public offering of 2,500,000 shares of common stock at $12.00 per share.
Upon the exercise of an overallotment option in April 1997, the Company issued
an additional 293,300 shares at $12.00 per share. The $29.6 million in net
proceeds from the issuance of Common Stock was used to reduce debt.
The company entered into a $115.0 million syndicated credit facility (the
"Syndicated Credit Facility") in April, 1998. The Syndicated Credit Facility
permits revolving loans of up to $70.0 million (the "Revolving Loans") and term
loans of up to $45.0 million (the "Term Loans"). Any amounts outstanding under
the Revolving Loans mature in April, 2003. Term Loan borrowings will be due in
specified quarterly installments beginning in April, 1999 with a final maturity
in January, 2003. The Syndicated Credit Facility has been amended by the First
Amendment to Credit Agreement and Waiver entered into as of August 27, 1998, the
Second Amendment to Credit Agreement entered into as of September 30, 1998, and
the Third Amendment to Credit Agreement entered into as of November 16, 1998
(the "Credit Agreement Amendments"). The provisions of the Credit Agreement
Amendments include, among other things, the addition of up to $4.0 million to
the Company's calculated borrowing base under the Revolving Loans. The $4.0
million addition to the Company's calculated borrowing base provided in the
Third Amendment to Credit Agreement expires on November 30, 1998.
Among the various provisions, limitations and restriction contained in the
Syndicated Credit Facility, the Company must meet specified consolidated net
worth, leverage ratio, fixed charge coverage ratio, funded debt to total
capitalization ratio and consolidated earnings before the effect of interest
expense, income taxes, depreciation and amortization requirements. Under the
Syndicated Credit Facility, the Company is restricted in the amount of its
capital expenditures, indebtedness to certain other parties, payment of
dividends, or redemption of its stock that would create an event of default. In
the event of default, unless a waiver is obtained, any unpaid principal and
accrued interest may be declared immediately due and payable. The Syndicated
Credit Facility may be terminated at any time upon the occurrence of an event of
default. The Company retains the right to remedy certain events of default with
30 days after notice.
The Company was not in compliance with certain covenants and had not obtained
waivers as of September 30, 1998. As of September 30, 1998, the Company was
required to have a consolidated net worth greater than or equal to $62.5
million, a fixed charge coverage ratio of no less than 1.50 to 1.0, and
consolidated earnings before the effect of interest expense, income taxes,
depreciation and amortization greater than or equal to $20 million. As of
September 30, 1998, the Company had a consolidated net worth of $58.4 million, a
fixed charge coverage ratio of (0.37) to 1, and consolidated earnings before the
effect of interest expense, income
<PAGE>
taxes, depreciation and amortization of $12.5 million. The lenders party to the
Syndicated Facility have agreed to forbear exercising their rights and remedies
arising from the Company's covenant violations until December 31, 1998 and to
continue to make available to the Company the loans provided under the
Syndicated Credit Facility.
CASH FLOWS FROM OPERATING ACTIVITIES
For the nine months ended September 30, 1998 and 1997, net cash used in
operating activities totaled $12.0 million and $9.5 million, respectively.
Accounts receivable, net increased $5.1 million from December 31, 1997 to
September 30, 1998 due to increased sales volume and the seasonality of
activewear shipments. Inventories increased $18.4 million from December 31, 1997
to September 30, 1998 in order to support shipments due in the next six months.
These uses of cash were offset primarily by an increase in accounts payable of
$10.1 million.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $11.6 million for the nine months ended September 30,
1998. These capital expenditures were primarily to enhance manufacturing and
management information systems capabilities.
CASH FLOWS FROM FINANCING ACTIVITIES
For the nine months ended September 30, 1998, the Company had net borrowings of
$25.3 million to help meet working capital and capital expenditure financing
needs.
Forward Looking Statements
Information in this form 10-Q may contain certain forward looking statements.
These statements involve risks and uncertainties that could cause actual results
to differ materially, including without limitation, the actual costs of
operating the Company's business, actual operating performance, the ability to
maintain large client contracts or to enter into new contracts and the level of
demand for the Company's product. Additional factors that could cause actual
results to differ are discussed in the Company's recent filings with the
Securities and Exchange Commission.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITY
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse Common Stock split for shareholders of record on February 3, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Filed Herewith (*)
6.1 First Amendment to Credit Ageement
6.2 Second Amendment to Credit Agreement
6.3 Third Amendment to Credit Agreement
6.4 Forbearance Agreement
6.5 Cash Collateral Security Agreement
11.1 Computation of Earnings per Share *
b. Reports on Form 8-K
None
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.
Pluma, Inc.
-----------------------------------
R. Duke Ferrell, Jr.
President, Chief Executive Officer
and Director
-----------------------------------
Forrest H. Truitt II
Executive Vice President, Treasurer
and Chief Financial Officer
9
FIRST AMENDMENT TO
------------------
CREDIT AGREEMENT AND WAIVER
---------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (hereinafter, the
"Amendment") is entered into as of August 27, 1998 among PLUMA, INC., a North
Carolina corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Credit Agreement.
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998 (as amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, Events of Default currently exist under the Credit Agreement (the
"Existing Defaults") as a result of the failure of the Credit Parties to comply
as of the fiscal quarter ending June 30, 1998 with the terms of Section 7.11(b)
of the Credit Agreement, Section 7.11(d) of the Credit Agreement and Section
7.11(e) of the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders provide a limited
waiver of the Existing Defaults and continue to make available to the Borrower
the Loans provided under the Credit Agreement; and
WHEREAS, the Lenders are willing to provide a limited waiver of the
Existing Defaults and continue to make available to the Borrower the Loans,
based upon and subject to the terms and conditions specified in this Amendment
and, in connection therewith, the Required Lenders have directed the Agent to
execute this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral, (b)
that the Borrower's obligation to repay the outstanding principal amount of the
Loans and reimburse the Issuing Lender for any drawing on a Letter of Credit is
unconditional and not subject to any offsets, defenses or counterclaims, (c)
that the Agent and the Lenders have performed fully all of their respective
obligations under the Credit Agreement and the other Credit Documents, and (d)
by entering into this Amendment, the Lenders do not waive (except for the
limited waiver of the Existing Defaults) or release any term or condition of the
Credit Agreement or any of the other Credit Documents or any of their rights or
remedies under such Credit Documents or applicable law or any of the obligations
of any Credit Party thereunder.
<PAGE>
2. Limited Waiver. The Borrower acknowledges that it is not in compliance
with the financial covenants contained in Section 7.11(b), Section 7.11(d) and
Section 7.11(e) of the Credit Agreement (the "Existing Defaults"). The Lenders
hereby waive the Existing Defaults for the period from June 30, 1998 through
September 29, 1998, subject to the terms and conditions set forth herein. This
limited waiver shall not modify or affect (a) the Borrower's obligation to
comply with Section 7.11(b), Section 7.11(d) and Section 7.11(e) on and at all
times after September 30, 1998 and (b) the Borrower's obligation to comply fully
with any other duty, term, condition or covenant contained in the Credit
Agreement and the other Credit Documents. Nothing herein contained shall be
deemed to constitute a waiver of any rights or remedies the Agent or any Lender
may have under the Credit Agreement or any other Credit Documents or under
applicable law.
3. New Definition. The following definition is hereby added to Section 1.1
of the Credit Agreement:
"NEW CONSULTANT" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN
SECTION 7.19 HEREOF.
4. Amended Definitions.
-------------------
(a) The definition of "Applicable Percentage" set forth in Section
1.1 of the Credit Agreement is amended and restated in its entirety to
read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING (I)
THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY TERM
LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING
SEPTEMBER 21, 1998 AND 3.50% AT ALL TIMES AFTER SEPTEMBER 21, 1998
AND (B) FOR BASE RATE LOANS, 1.00% THROUGH AND INCLUDING SEPTEMBER
21, 1998 AND .75% AT ALL TIMES AFTER SEPTEMBER 21, 1998, (II) THE
APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF
SECTION 3.5(B), .375% AND (C) THE APPLICABLE RATE FOR THE LETTER OF
CREDIT FEE FOR ANY DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1 of
the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF
ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS
SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO
THE AGENT AND THE LENDERS IN ACCORDANCE WITH THE TERMS OF SECTION
7.1(C) AND (C) DURING THE PERIOD (I) FROM AND INCLUDING AUGUST 27,
1998 THROUGH AND INCLUDING SEPTEMBER 11, 1998, $4,000,000, (II) FROM
AND INCLUDING SEPTEMBER 12, 1998 THROUGH AND INCLUDING SEPTEMBER 21,
1998, $2,000,000, AND (III) AFTER SEPTEMBER 21, 1998, $0.
2
<PAGE>
5. Minimum Amounts. Section 2.1(b)(ii) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(II) MINIMUM AMOUNTS. EACH EURODOLLAR LOAN THAT IS A
REVOLVING LOAN SHALL BE IN A MINIMUM AGGREGATE PRINCIPAL AMOUNT OF
$2,000,000 AND INTEGRAL MULTIPLES OF $500,000 IN EXCESS THEREOF (OR
THE REMAINING AMOUNT OF THE REVOLVING COMMITTED AMOUNTS, IF LESS)
AND EACH BASE RATE LOAN THAT IS A REVOLVING LOAN SHALL BE IN A
MINIMUM AGGREGATE PRINCIPAL AMOUNT OF $500,000 AND INTEGRAL
MULTIPLES OF $100,000 IN EXCESS THEREOF (OR THE REMAINING AMOUNT OF
THE REVOLVING COMMITMENT, IF LESS).
6. Voluntary Prepayments. Section 3.3(a) of the Credit Agreement is hereby
amended to provide that partial prepayments of Loans (other than Swingline
Loans) shall be in a minimum principal amount of $2,000,000 and integral
multiples of $100,000 in excess thereof.
7. Year 2000 Compliance. A new Section 6.25 is hereby added to the Credit
Agreement and shall read as follows:
6.25 YEAR 2000 COMPLIANCE.
--------------------
EACH CREDIT PARTY HAS (I) INITIATED A REVIEW AND ASSESSMENT OF
ALL AREAS WITHIN ITS AND EACH OF ITS SUBSIDIARIES' BUSINESS AND
OPERATIONS THAT COULD REASONABLY BE EXPECTED TO BE ADVERSELY
AFFECTED BY THE "YEAR 2000 PROBLEM" (THAT IS, THE RISK THAT COMPUTER
APPLICATIONS USED BY SUCH CREDIT PARTY OR ANY OF ITS SUBSIDIARIES
MAY BE UNABLE TO RECOGNIZE AND PERFORM PROPERLY DATE-SENSITIVE
FUNCTIONS INVOLVING CERTAIN DATES PRIOR TO AND ANY DATE AFTER
DECEMBER 31, 1999), (II) DEVELOPED A PLAN AND TIMELINE FOR
ADDRESSING THE YEAR 2000 PROBLEM ON A TIMELY BASIS, AND (III) TO
DATE, IMPLEMENTED THAT PLAN IN ACCORDANCE WITH THE TIMETABLE. BASED
ON THE FOREGOING, EACH CREDIT PARTY BELIEVES THAT ALL COMPUTER
APPLICATIONS THAT ARE MATERIAL TO ITS AND ANY OF ITS SUBSIDIARIES'
BUSINESS AND OPERATIONS ARE REASONABLY EXPECTED ON A TIMELY BASIS TO
BE ABLE TO PERFORM PROPERLY DATE-SENSITIVE FUNCTIONS FOR ALL DATES
BEFORE AND AFTER JANUARY 1, 2000 (THAT IS, BE "YEAR 2000
COMPLIANT"), EXCEPT TO THE EXTENT THAT A FAILURE TO DO SO COULD NOT
REASONABLY BE EXPECTED TO HAVE MATERIAL ADVERSE EFFECT.
8. Financial Statements. Section 7.1(b) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(B) MONTHLY FINANCIAL STATEMENTS. AS SOON AS AVAILABLE, AND IN ANY
EVENT WITHIN 30 DAYS AFTER THE CLOSE OF EACH CALENDAR MONTH (I) A
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF THE CONSOLIDATED
PARTIES, AS OF THE END OF SUCH CALENDAR MONTH, TOGETHER WITH RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND OF
CASH FLOWS FOR SUCH CALENDAR MONTH IN EACH CASE SETTING FORTH IN
COMPARATIVE FORM CONSOLIDATED FIGURES FOR THE CORRESPONDING PERIOD
OF THE PRECEDING FISCAL YEAR AND (II) A CONSOLIDATING BALANCE SHEET
AND INCOME
3
<PAGE>
STATEMENT OF THE BORROWER AND ITS MATERIAL SUBSIDIARIES, AS OF THE
END OF SUCH CALENDAR MONTH, TOGETHER WITH RELATED CONSOLIDATING
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND OF CASH FLOWS
FOR SUCH CALENDAR MONTH, IN EACH CASE SETTING FORTH IN COMPARATIVE
FORM CONSOLIDATING FIGURES FOR THE CORRESPONDING PERIOD OF THE
PRECEDING FISCAL YEAR, ALL SUCH FINANCIAL INFORMATION DESCRIBED
ABOVE TO BE IN REASONABLE FORM AND DETAIL AND REASONABLY ACCEPTABLE
TO THE AGENT, AND ACCOMPANIED BY A CERTIFICATE OF THE CHIEF
FINANCIAL OFFICER OF THE BORROWER TO THE EFFECT THAT SUCH MONTHLY
FINANCIAL STATEMENTS FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE
FINANCIAL CONDITION OF THE CONSOLIDATED PARTIES OR THE BORROWER
AND ITS MATERIAL SUBSIDIARIES, AS APPLICABLE, AND HAVE BEEN PREPARED
IN ACCORDANCE WITH GAAP, SUBJECT TO CHANGES RESULTING FROM AUDIT AND
NORMAL YEAR-END AUDIT ADJUSTMENTS. THE BORROWER ACKNOWLEDGES AND
AGREES THAT SUCH MONTHLY FINANCIAL STATEMENTS SHALL BE USED TO TEST
THE FINANCIAL COVENANTS CONTAINED IN SECTION 7.11.
9. Borrowing Base Certificate. The following sentence is hereby added at
the end of Section 7.1(e) of the Credit Agreement and shall read as follows:
FURTHERMORE, THE BORROWER AGREES TO PROVIDE ON EACH BUSINESS DAY TO
THE AGENT AND EACH OF THE LENDERS A BORROWING BASE CERTIFICATE AS OF
SUCH BUSINESS DAY SUBSTANTIALLY IN THE FORM OF EXHIBIT 7.1(E)(II)
AND CERTIFIED BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER TO BE
TRUE AND CORRECT AS OF THE DATE THEREOF.
10. PLAN OF ACTION; CASH FORECAST. NEW SECTIONS 7.1(O) AND 7.1(P) ARE
HEREBY ADDED TO THE CREDIT AGREEMENT AND SHALL READ AS FOLLOWS:
(O) PLAN OF ACTION. ON OR BEFORE SEPTEMBER 21, 1998, THE BORROWER
SHALL PROVIDE THE AGENT WITH A DETAILED REPORT (IN FORM AND
SUBSTANCE SATISFACTORY TO THE AGENT) OUTLINING ITS PLAN OF ACTION
(INCLUDING A TIMETABLE FOR SUCH PLAN) FOR THOSE MATTERS IDENTIFIED
ON SCHEDULE 7.1(O) ATTACHED HERETO.
(P) CASH FORECAST. THE BORROWER WILL DELIVER EVERY OTHER WEEK (BY NO
LATER THAN WEDNESDAY OF SUCH WEEK) TO THE AGENT AND EACH OF THE
LENDERS A CASH FORECAST SUBSTANTIALLY IN THE FORM OF EXHIBIT 7.1(P).
THE PARTIES HERETO AGREE THAT THE BORROWER'S CASH FORECAST AS OF
AUGUST 24, 1998 IS AS ATTACHED HERETO AS EXHIBIT 7.1(P).
11. Audit/Inspections. The last sentence of Section 7.10 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
THE CREDIT PARTIES AGREE THAT THE AGENT, AND ITS REPRESENTATIVES, MAY
CONDUCT A QUARTERLY AUDIT OF THE COLLATERAL, AT THE EXPENSE OF THE
BORROWER. IT IS UNDERSTOOD AND AGREED THAT THE FIRST SUCH AUDIT SHALL BE
CONDUCTED IN SEPTEMBER, 1998.
4
<PAGE>
12. Business Consultant. A new Section 7.19 is hereby added to the Credit
Agreement and shall read as follows:
7.19 BUSINESS CONSULTANT. THE BORROWER HAS PREVIOUSLY RETAINED
NORELLI AND COMPANY ("N&C") AS A BUSINESS AND FINANCIAL CONSULTANT FOR THE
BORROWER. IMMEDIATELY UPON OBTAINING APPROVAL FROM ITS BOARD OF DIRECTORS,
THE BORROWER WILL MAKE AVAILABLE TO THE LENDERS FROM TIME TO TIME
APPROPRIATE REPRESENTATIVES OF N&C TO REVIEW AND DISCUSS WITH THE LENDERS
THE RECOMMENDATIONS THAT HAVE BEEN MADE BY N&C TO THE BORROWER (INCLUDING
MAKING AVAILABLE TO THE LENDERS COPIES OF ALL WRITTEN MATERIALS PROVIDED
BY N&C TO THE BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT THE EXPENSE
OF THE BORROWER, A THIRD PARTY EXPERT TO REVIEW ON BEHALF OF THE LENDERS
THE INFORMATION PREPARED BY N&C. THE BORROWER COVENANTS AND AGREES THAT,
IF REQUESTED BY THE REQUIRED LENDERS, THE BORROWER WILL IMMEDIATELY HIRE
AN ADDITIONAL BUSINESS CONSULTANT SATISFACTORY TO THE AGENT IN THE AGENT'S
REASONABLE DISCRETION (THE "NEW CONSULTANT"). THE EXACT SCOPE OF THE NEW
CONSULTANT'S SERVICES SHALL BE AGREED UPON BY THE BORROWER AND THE NEW
CONSULTANT, BUT MUST BE SATISFACTORY TO THE AGENT IN THE AGENT'S
REASONABLE DISCRETION. IF REQUIRED TO BE RETAINED PURSUANT TO THE TERMS
HEREOF THE BORROWER SHALL CAUSE THE NEW CONSULTANT (I) TO MEET
PERIODICALLY WITH THE AGENT AT ITS REASONABLE REQUEST TO REPORT UPON THE
NEW CONSULTANT'S FINDINGS AND RECOMMENDATIONS AND (II) TO MEET WITH THE
LENDERS TO REPORT ON THE NEW CONSULTANT'S FINDINGS AND RECOMMENDATIONS.
THE BORROWER SHALL PAY ALL COSTS ASSOCIATED WITH ITS RETENTION OF THE NEW
CONSULTANT. THE BORROWER SHALL NOT TERMINATE THE NEW CONSULTANT'S
SERVICES, OR DENY THE NEW CONSULTANT ACCESS TO INFORMATION NECESSARY TO
PERFORM ITS SERVICES WITHIN THE SCOPE OF ITS ENGAGEMENT, PRIOR TO THE
EXPIRATION OF SUCH ENGAGEMENT. ALL REPORTS AND INFORMATION PROVIDED BY N&A
AND/OR THE NEW CONSULTANT TO THE AGENT OR THE LENDERS SHALL BE SUBJECT TO
THE CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF.
13. Exhibit 7.1(e)(ii). New Exhibits 7.1(e)(ii) and 7.1(p) are hereby
added to the Credit Agreement and shall read as Exhibit 7.1(e)(ii) and Exhibit
7.1(p) attached hereto.
14. Schedule 7.1(o). A new Schedule 7.1(o) is hereby added to the Credit
Agreement and shall read as Schedule 7.1(o) attached hereto.
15. Conditions Precedent. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and the
Agent.
(b) Payment by the Borrower (i) to the Agent for the pro rata
benefit of the Lenders an amendment fee in an amount equal to $115,000 and
(ii) of all other costs and expenses heretofore incurred by the Agent,
including without limitation legal fees and expenses, in connection with
the negotiation, administration, amendment and enforcement of any of the
Credit Documents.
5
<PAGE>
(c) The Agent shall have received such other documents and
information as it deems reasonably necessary.
16. Miscellaneous.
-------------
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement, and
the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered by
the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect to
matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) no unwaived
event has occurred and is continuing which constitutes a Default or an
Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all
of which shall constitute one and the same instrument. Delivery of an
executed counterpart of this Amendment by telecopy shall be effective as
an original and shall constitute a representation that an executed
original shall be delivered.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
6
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC.
By:_____________________________________________
Name: __________________________________________
Title: _________________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
SECOND AMENDMENT TO
-------------------
CREDIT AGREEMENT
----------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (hereinafter, the "Amendment")
is entered into as of September 30, 1998 among PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the parties desire to amend certain terms of the Credit Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amended Definitions. The Credit Agreement is hereby amended in the
following respects:
(a) The definition of "Applicable Percentage" set forth in Section
1.1 of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF CALCULATING (I)
THE APPLICABLE INTEREST RATE FOR ANY REVOLVING LOAN OR ANY TERM
LOAN, (A) FOR EURODOLLAR LOANS, 3.75% THROUGH AND INCLUDING OCTOBER
30, 1998 AND 3.50% AT ALL TIMES AFTER OCTOBER 30, 1998 AND (B) FOR
BASE RATE LOANS, 1.00% THROUGH AND INCLUDING OCTOBER 30, 1998 AND
.75% AT ALL TIMES AFTER OCTOBER 30, 1998, (II) THE APPLICABLE RATE
OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF SECTION 3.5(B), .375%
AND (C) THE APPLICABLE RATE FOR THE LETTER OF CREDIT FEE FOR ANY
DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section 1.1 of
the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A) 85% OF
ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN EACH CASE AS
SET FORTH IN THE MOST RECENT BORROWING BASE CERTIFICATE DELIVERED TO
THE AGENT AND THE LENDERS IN
<PAGE>
ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE
PERIOD (I) FROM AND INCLUDING AUGUST 27, 1998 THROUGH AND INCLUDING
OCTOBER 30, 1998, $4,000,000 AND (II) AFTER OCTOBER 30, 1998, $0.
2. Deposit Account. A new Section 7.20 is hereby added to the Credit
Agreement and shall read as follows:
7.20 DEPOSIT ACCOUNT
---------------
THE CREDIT PARTIES SHALL ESTABLISH WITH THE AGENT AND PLEDGE TO THE
AGENT FOR THE BENEFIT OF THE LENDERS A DEPOSIT ACCOUNT (THE "DEPOSIT
ACCOUNT") AS COLLATERAL SECURITY FOR THE CREDIT PARTY OBLIGATIONS PURSUANT
TO A CASH COLLATERAL SECURITY AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY
TO THE AGENT. EACH OF THE CREDIT PARTIES HEREBY AGREES THAT IT WILL CAUSE
EACH ACCOUNT DEBTOR OBLIGATED TO PAY A RECEIVABLE TO DIRECT PAYMENT OF
SUCH RECEIVABLE TO THE DEPOSIT ACCOUNT. THE CREDIT PARTIES FURTHER AGREE
THAT THE AGENT SHALL APPLY THE FUNDS IN THE DEPOSIT ACCOUNT TO PAYMENT OF
THE LOANS.
3. Conditions Precedent. The effectiveness of this Amendment is subject to
the satisfaction of each of the following conditions:
(a) The Agent shall have received original duly executed
counterparts of this Amendment duly executed by the Credit Parties and the
Agent.
(b) Payment by the Borrower of all other costs and expenses
heretofore incurred by the Agent, including without limitation legal fees
and expenses, in connection with the negotiation, administration,
amendment and enforcement of any of the Credit Documents.
(c) The Agent shall have received such other documents and
information as it deems reasonably necessary.
4. Miscellaneous.
-------------
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement, and
the obligations of the Credit Parties thereunder and under the other
Credit Documents, are hereby ratified and confirmed and shall remain in
full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
2
<PAGE>
(ii) This Amendment has been duly executed and delivered by
the Borrower and constitutes the Borrower's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Amendment.
(c) The Borrower represents and warrants to the Lenders that (i)
except for the representation contained in Section 6.2(a) with respect to
matters previously disclosed to the Lenders, the representations and
warranties of the Credit Parties set forth in Section 6 of the Credit
Agreement are true and correct as of the date hereof and (ii) no unwaived
event has occurred and is continuing which constitutes a Default or an
Event of Default.
(d) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all
of which shall constitute one and the same instrument. Delivery of an
executed counterpart of this Amendment by telecopy shall be effective as
an original and shall constitute a representation that an executed
original shall be delivered.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[Remainder of page intentionally left blank]
3
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.
PLUMA, INC.
By: ___________________________________________
Name: __________________________________________
Title:__________________________________________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (hereinafter, the "Amendment")
is entered into as of November 16, 1998 among PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the Borrower and the Agent are parties to that certain
Forbearance Agreement dated as of the date hereof (the "Forbearance Agreement");
WHEREAS, in accordance with and as a condition precedent to the
Forbearance Agreement, the parties desire to amend certain terms of the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Reaffirmation of Existing Debt. The Credit Parties acknowledge and
confirm (a) that the Agent, on behalf of the Lenders, has a valid and
enforceable first priority perfected security interest in the Collateral subject
only to certain Permitted Liens, (b) that the Borrower's obligation to repay the
outstanding principal amount of the Loans and reimburse the Issuing Lender for
any drawing on a Letter of Credit is unconditional and not subject to any
offsets, defenses or counterclaims, (c) that the Agent and the Lenders have
performed fully all of their respective obligations under the Credit Agreement
and the other Credit Documents, and (d) by entering into this Amendment, the
Lenders do not waive or release any term or condition of the Credit Agreement or
any of the other Credit Documents or any of their rights or remedies under such
Credit Documents or applicable law or any of the obligations of any Credit Party
thereunder.
2. Amendments. The Credit Agreement is hereby amended in the following
respects:
<PAGE>
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"APPLICABLE PERCENTAGE" MEANS, FOR PURPOSES OF
CALCULATING (I) THE APPLICABLE INTEREST RATE FOR ANY REVOLVING
LOAN OR ANY TERM LOAN, (A) FOR EURODOLLAR LOANS, 3.75% FROM
OCTOBER 31, 1998 AND THEREAFTER AND (B) FOR BASE RATE LOANS,
1.00% FROM OCTOBER 31, 1998 AND THEREAFTER, (II) THE
APPLICABLE RATE OF THE UNUSED FEE FOR ANY DAY FOR PURPOSES OF
SECTION 3.5(B), .375% AND (III) THE APPLICABLE RATE FOR THE
LETTER OF CREDIT FEE FOR ANY DAY, 3.50%.
(b) The definition of "Borrowing Base" set forth in Section
1.1 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"BORROWING BASE" MEANS, AS OF ANY DAY, THE SUM OF (A)
85% OF ELIGIBLE RECEIVABLES, (B) 60% OF ELIGIBLE INVENTORY, IN
EACH CASE AS SET FORTH IN THE MOST RECENT BORROWING BASE
CERTIFICATE DELIVERED TO THE AGENT AND THE LENDERS IN
ACCORDANCE WITH THE TERMS OF SECTION 7.1(C) AND (C) DURING THE
PERIOD (I) FROM AND INCLUDING NOVEMBER 16, 1998 THROUGH AND
INCLUDING DECEMBER 31, 1998, $1,000,000 AND (II) AFTER
DECEMBER 31, 1998, $0.
(c) The definition of "New Consultant" contained in Section
1.1 of the Credit Agreement is deleted in its entirety.
(d) The following definitions are hereby added to Section 1.1
of the Credit Agreement:
"BORROWER'S CONSULTANTS" MEANS N&C, PWC AND TSG.
"N&C" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION
7.19 HEREOF.
"PWC" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION
7.19 HEREOF.
"TSG" SHALL HAVE THE MEANING PROVIDED SUCH TERM IN SECTION
7.19 HEREOF.
(e) Section 7.1(f) of the Credit Agreement is hereby amended
and restated in its entirety to read as follows:
(F) ANNUAL BUSINESS PLAN AND BUDGETS. AT LEAST 30
DAYS PRIOR TO THE END OF EACH FISCAL YEAR OF THE BORROWER, AN
ANNUAL BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES
CONTAINING, AMONG OTHER THINGS, PRO FORMA FINANCIAL STATEMENTS
FOR THE NEXT FISCAL YEAR; PROVIDED, HOWEVER, THAT THE ANNUAL
BUSINESS PLAN AND BUDGET OF THE CONSOLIDATED PARTIES FOR
FISCAL YEAR 1999: (I) SHALL NOT BE DUE UNTIL DECEMBER 21, 1998
AND (II) SHALL BE PREPARED WITH THE MATERIAL ASSISTANCE OF
PWC.
2
<PAGE>
(f) Section 7.1(p) of the Credit Agreement is hereby amended
and restated in its entirety and shall read as follows:
(P) CASH FLOW FORECASTS. COMMENCING ON MONDAY,
NOVEMBER 16, 1998, AND CONTINUING ON A ROLLING BASIS ON
THURSDAY OF EACH WEEK THEREAFTER, DETAILED CASH FLOW
PROJECTIONS FOR THE THEN UPCOMING THIRTEEN WEEKS, EACH IN FORM
ACCEPTABLE TO THE AGENT. THROUGH AT LEAST THE THIRTEEN WEEK
CASH FLOW PROJECTION DUE THURSDAY, DECEMBER 31, 1998, SUCH
PROJECTIONS SHALL BE PREPARED BY OR WITH THE MATERIAL
ASSISTANCE OF PWC.
(g) A new Section 7.1(q) is hereby added to the Credit
Agreement and shall read as follows:
(Q) CASH FLOW RECONCILIATIONS. COMMENCING ON
THURSDAY, NOVEMBER 19, 1998, AND CONTINUING ON THURSDAY OF
EACH WEEK THEREAFTER, A TRUE AND ACCURATE RECONCILIATION
REPORT, REFLECTING A DETAILED COMPARISON BETWEEN THE
CONSOLIDATED PARTIES' ACTUAL CASH FLOW COMPUTATIONS THROUGH
THE END OF THE PREVIOUS WEEK AND THAT PROJECTED FOR SUCH WEEK
IN THE MOST RECENT CASH FLOW PROJECTION INCLUDING SUCH PERIOD
PROVIDED TO THE AGENT IN ACCORDANCE WITH SECTION 7.1(P)
HEREOF. THROUGH AT LEAST THE RECONCILIATION REPORT DUE
THURSDAY, DECEMBER 31, 1998, SUCH RECONCILIATION REPORTS SHALL
BE PREPARED BY OR WITH THE MATERIAL ASSISTANCE OF PWC.
(h) Section 7.19 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
7.19 CONSULTANTS. THE BORROWER PREVIOUSLY HAS
RETAINED NORELLI AND COMPANY ("N&C") AND PRICEWATERHOUSE
COOPERS, L.L.P.("PWC") AS BUSINESS AND FINANCIAL CONSULTANTS
FOR THE BORROWER, AND BORROWER PREVIOUSLY HAS RETAINED THE
STEPHENS GROUP ("TSG") AS A MANAGEMENT INFORMATION CONSULTANT.
THE BORROWER SHALL MAKE AVAILABLE TO THE LENDERS FROM TIME TO
TIME APPROPRIATE REPRESENTATIVES OF THE BORROWER'S CONSULTANTS
TO REVIEW AND DISCUSS WITH THE LENDERS THE RECOMMENDATIONS
AND/OR REPORTS THAT HAVE BEEN MADE BY ANY OF THE BORROWER'S
CONSULTANTS TO AND/OR ON BEHALF OF THE BORROWER (INCLUDING
MAKING AVAILABLE TO THE LENDERS COPIES OF ALL WRITTEN
MATERIALS PROVIDED BY ANY OF THE BORROWER'S CONSULTANTS TO THE
BORROWER). THE LENDERS MAY ELECT TO ENGAGE, AT THE EXPENSE OF
THE BORROWER, A THIRD PARTY EXPERT TO REVIEW ON BEHALF OF THE
LENDERS THE INFORMATION PREPARED BY ANY OF THE BORROWER'S
CONSULTANTS. THE BORROWER SHALL CAUSE THE BORROWER'S
CONSULTANTS, AS THE AGENT MAY REQUEST, (I) TO MEET
PERIODICALLY WITH THE AGENT TO REPORT UPON THE BORROWER'S
CONSULTANTS' FINDINGS, REPORTS AND RECOMMENDATIONS AND (II) TO
MEET WITH THE LENDERS TO REPORT ON THE BORROWER'S CONSULTANTS'
FINDINGS, REPORTS AND RECOMMENDATIONS. THE BORROWER SHALL PAY
ALL COSTS ASSOCIATED WITH ITS RETENTION OF THE BORROWER'S
CONSULTANTS. THE BORROWER SHALL NOT TERMINATE ANY OF THE
BORROWER'S CONSULTANTS' SERVICES, OR DENY ANY OF THE
BORROWER'S CONSULTANTS ACCESS TO
3
<PAGE>
INFORMATION NECESSARY TO PERFORM ITS SERVICES WITHIN THE SCOPE
OF ITS ENGAGEMENT, PRIOR TO THE EXPIRATION OF SUCH ENGAGEMENT.
ALL REPORTS AND INFORMATION PROVIDED BY THE BORROWERS'
CONSULTANTS TO THE AGENT OR THE LENDERS SHALL BE SUBJECT TO
THE CONFIDENTIALITY PROVISIONS OF SECTION 11.15 HEREOF.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the
other Credit Documents, are hereby ratified and confirmed and shall
remain in full force and effect according to their terms.
(b) The Borrower hereby represents and warrants as follows:
(i) It has taken all necessary action to authorize
the execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and
delivered by the Borrower and constitutes the Borrower's legal, valid
and binding obligations, enforceable in accordance with its terms,
except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by the Borrower of this
Amendment.
(c) The Borrower represents and warrants to the Lenders that
(i) except for the representation contained in Section 6.2(a) with
respect to matters previously disclosed to the Lenders, the
representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement are true and correct as of the date
hereof and (ii) other than the Acknowledged Events of Default (as
defined in the Forbearance Agreement) no unwaived event has occurred
and is continuing which constitutes a Default or an Event of Default.
(d) This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of this Amendment by
telecopy shall be effective as an original and shall constitute a
representation that an executed original shall be delivered.
4
<PAGE>
(e) The Borrower hereby releases the Agent, the Lenders, and
the Agent's and the Lenders' respective officers, employees,
representatives, agents, counsel and directors from any and all
actions, causes of action, claims, demands, damages and liabilities of
whatever kind or nature, in law or in equity, now known or unknown,
suspected or unsuspected to the extent that any of the foregoing arises
from any action or failure to act on or prior to the date hereof.
(f) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
Each of the parties hereto has caused a counterpart of this Amendment
to be duly executed and delivered as of the date first above written.
PLUMA, INC., A NORTH CAROLINA CORPORATION
By: ________________
Name: ______________
Title: ______________
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:______________
Name:____________
Title: __________
5
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (hereinafter, this "Forbearance Agreement")
is entered into as of November 16, 1998 between PLUMA, INC., a North Carolina
corporation (the "Borrower") and NATIONSBANK, N.A., as Agent for and on behalf
of the Lenders (the "Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement (defined below).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of April 23, 1998, as amended by that certain
First Amendment to Credit Agreement and Waiver between the Borrower and the
Agent for and on behalf of the Lenders dated as of August 27, 1998 and by that
certain Second Amendment to Credit Agreement between the Borrower and the Agent
for and on behalf of the Lenders dated as of September 30, 1998 (as further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively as the "Acknowledged Events of Default"): (1) as of the
fiscal quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Fixed Charge Coverage Ratio required by Section 7.11(b) of
the Credit Agreement, (2) as of the fiscal quarter ended September 30, 1998, the
Consolidated Parties have failed to maintain the minimum Consolidated Net Worth
required by Section 7.11(d) of the Credit Agreement, and (3) as of the fiscal
quarter ended September 30, 1998, the Consolidated Parties have failed to
maintain the minimum Consolidated EBITDA required by Section 7.11(e) of the
Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders waive the
Acknowledged Events of Default, and the Lenders have refused that request.
WHEREAS, the Borrower now has asked the Lenders to: (1) forbear
exercising its rights and remedies arising from the Acknowledged Events of
Default until December 31, 1998 (the "Forbearance Termination Date") and
continue to make available to the Borrower the Loans provided under the Credit
Agreement and (2) release the Robinson Indemnity Receivables (defined below).
The Agent, on behalf of the Lenders, has agreed to do so, but only upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Forbearance. The Agent hereby agrees, for and on behalf of the
Lenders, that it shall, subject to the terms and conditions set forth herein,
forbear exercising its and their rights and remedies arising exclusively as a
result of the Acknowledged Events of Default until the
<PAGE>
Forbearance Termination Date; provided, however, that the Agent shall be free to
exercise any or all of its rights and remedies arising on account of the
Acknowledged Events of Default at any time after the occurrence of a Forbearance
Default (defined below).
2. Amendment to Credit Agreement. Simultaneously with the execution of
this Forbearance Agreement, the Borrower shall execute and deliver to the Agent,
on behalf of the Lenders, a Third Amendment to Credit Agreement (the "Third
Amendment") in form and substance acceptable to Agent.
3. Assignment of Cash Collateral Account. Simultaneously with the
execution of this Forbearance Agreement, the Borrower, pursuant to Section 7.20
of the Credit Agreement, shall execute and deliver to the Agent, on behalf of
the Lenders, an Assignment of Cash Collateral Account (the "Cash
Collateral Security Agreement") in form and substance acceptable to Agent.
4. Consultant Authorization Letters. On or before November 16, 1998,
the Borrower shall have executed and delivered to each of the Borrower's
Consultants an authorization letter in substantially the form of that attached
hereto as Exhibit C, with copies thereof delivered to the Agent.
5. Inventory Appraisal. The Borrower hereby acknowledges that the Agent
has given the Borrower reasonable notice that the Agent intends to exercise its
rights under Section 7.10 of the Credit Agreement to appoint an independent
appraiser to visit Borrower's facilities and appraise the Borrower's inventory
during normal business hours on any business days between the date hereof and
the Forbearance Termination Date as may be chosen by the Agent.
6. Forbearance Defaults. Nothing set forth herein or contemplated
hereby is intended to constitute an agreement by the Agent or the Lenders to
forbear the exercise of any of the rights and remedies available to the Agent
and/or the Lenders under the Credit Agreement and the other Credit Documents
(all of which rights and remedies are hereby expressly reserved by the Agent, on
behalf of the Lenders) upon and after the occurrence of a Forbearance Default.
The term "Forbearance Default" shall mean the existence or occurrence of any or
all of: (a) any Default or Event of Default under the Credit Agreement or any
other Credit Document other than the Acknowledged Events of Default or (b) a
breach by the Borrower of any term of this Forbearance Agreement. The Agent, on
behalf of the Lenders, shall be free to exercise any or all of its rights and
remedies arising on account of any Default or Event of Default under the Credit
Agreement or any other Credit Document upon the earlier of: (x) the occurrence
of a Forbearance Default or (y) the Forbearance Termination Date.
2
<PAGE>
7. Conditions Precedent. As conditions precedent to the effectiveness
of this Forbearance Agreement, on or before the date hereof:
(a) The Agent shall have received original duly executed
counterparts of this Forbearance Agreement duly executed by the Credit
Parties and the Agent;
(b) The Borrower shall have executed and delivered to the
Agent the Third Amendment;
(c) The Borrower shall have executed and delivered to the
Agent the Assignment of Cash Collateral Account; and
(d) The Borrower shall have delivered to the Agent an opinion
of counsel to the Borrower in form and substance satisfactory to the
Agent as to the due authorization, execution, delivery and
enforceablility of this Forbearance Agreement, the Third Amendment and
the Assignment of Cash Collateral Agreement.
8. Release. The Borrower hereby releases the Agent, the Lenders, and
the Agent's and the Lenders' respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or
in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises from any action or failure to act on or prior to the
date hereof.
9. Expenses. Upon demand therefor, the Borrower shall pay all
out-of-pocket expenses incurred by the Agent in connection with the negotiation,
drafting and execution of this Forbearance Agreement and the exhibits hereto,
including without limitation reasonable fees and expenses of the Agent's
counsel.
10. Borrower's Representations. The Borrower hereby represents and
warrants as follows:
(a) The Borrower has taken all necessary action to authorize
the execution, delivery and performance of this Forbearance Agreement.
(b) This Forbearance Agreement has been duly executed and
delivered by the Borrower and constitutes the Borrower's legal, valid
and binding obligations, enforceable in accordance with its terms,
except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
3
<PAGE>
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by the Borrower of this Forbearance Agreement.
11. Counterparts. This Forbearance Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
Delivery of an executed counterpart of this Forbearance Agreement by telecopy
shall be effective as an original and shall constitute a representation that an
executed original shall be delivered.
12. GOVERNING LAW. THIS FORBEARANCE AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
4
<PAGE>
Each of the parties hereto has caused a counterpart of this Forbearance
Agreement to be duly executed and delivered as of the date first above written.
PLUMA, INC., A NORTH CAROLINA CORPORATION
By: _____________________
Name: ___________________
Title:
NATIONSBANK, N.A.,
as Agent for and on behalf of
the Lenders
By:_____________________
Name:___________________
Title:__________________
5
CASH COLLATERAL SECURITY AGREEMENT
THIS CASH COLLATERAL ACCOUNT SECURITY AGREEMENT (this Agreement) is
made as of the ___ day of November, 1998, by PLUMA, INC., a North Carolina
corporation (the "Borrower"), and the Borrower's Subsidiaries (collectively with
the Borrower, the "Pledgors") to NATIONSBANK, N.A., as agent (together with its
successors and assigns, in such capacity, the "Agent") for the Lenders under the
Credit Agreement referenced below.
RECITALS
1. A $115 million credit facility has been extended to the Borrower
pursuant to that certain Credit Agreement dated as of April 23, 1998 (as amended
and modified, the "Credit Agreement") among the Borrower, the Borrower's
Subsidiaries identified therein, the Lenders identified therein and NationsBank,
N.A., as Agent. Terms used but not otherwise defined herein shall have the
meanings provided in the Credit Agreement.
2. The Lenders have required and the Pledgors have agreed to execute
this Agreement with the Agent pursuant to Section 7.20 of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Creation of Security Interest
Section 1.1 To secure the prompt payment and performance in full when
and as due, whether by lapse of time or otherwise, of the Credit Party
Obligations, the Pledgors hereby assign, mortgage, convey, pledge, hypothecate
and deliver to the Agent, for the benefit of the Lenders, and hereby grant to
the Agent, for the benefit of the Lenders, a security interest in all right,
title and interest of the Pledgors in and to:
(a) that certain deposit account no. 004112747930 maintained
in the name of the Agent, and any and all certificates or instruments
purchased with funds deposited in such account, and all renewals of
such instruments and certificates and replacements therefor, whether in
the form of certificates of deposit or other instruments, notes,
securities or accounts (including without limitation money market
instruments and accounts) and any other cash and non-cash proceeds of
the principal amount of the foregoing, including interest and dividends
thereon (all of the foregoing is collectively referred to as the
"Account"); and
(b) all proceeds of the Account, including without limitation
interest or
<PAGE>
dividends on the Account or said certificates, instruments, notes,
securities or accounts (the Account and the proceeds thereof being
hereinafter referred to as the "Collateral").
Section 1.2 The Pledgors shall execute and deliver to the Agent
concurrently with the execution of this Assignment, and at any time or times
hereafter at the request of the Agent, all assignments, conveyances, assignment
statements, financing statements, renewal financing statements, security
agreements, affidavits, notices and all other agreements, instruments and
documents that Agent may reasonably request, and will execute all necessary
endorsements in order to perfect and maintain the security interests and liens
granted herein by the Pledgors to the Agent and in order to fully consummate all
of the transactions contemplated herein and under the Credit Documents. In
furtherance of the foregoing, the Pledgors hereby appoint the Agent as its
attorney-in-fact for the purpose of making any of the foregoing endorsements and
executing any such financing statements, documents and agreements. The foregoing
power of attorney shall be a power coupled with an interest and shall be
irrevocable until payment in full of the Credit Party Obligations.
ARTICLE II
Priority of Security Interests
Section 2.1 The Pledgors warrant and represent that the pledge and
security interest created in Section 1.1 hereof is a first priority security
interest in favor of the Agent, for the benefit of the Lenders, and shall
constitute at all times a valid and perfected security interest in and upon all
of the Collateral and that said security interest in said Collateral shall not
become subordinate or junior to the security interests, liens or claims of any
other person, firm or corporation, including the United States or any
department, agency or instrumentality thereof, or any state, county or local
governmental agency. The Pledgors shall not grant (without the prior written
approval of the Agent) a security interest in or permit a lien or encumbrance
upon the Collateral to anyone except the Agent as long as all or any portion of
the Credit Party Obligations remain unsatisfied. The Pledgors further covenant
and agree that they shall cause all account debtors to direct payment on all
Receivables to the Account.
ARTICLE III
Default
Section 3.1 An Event of Default shall exist under the terms of this
Assignment upon the existence of an Event of Default under the terms of the
Credit Agreement. In addition, an Event of Default shall exist under this
Assignment upon (i) the failure of the Pledgors to comply with the terms and
conditions of this Assignment; or (ii) the existence or incurrence of any lien
or encumbrance on the Collateral or any part thereof.
2
<PAGE>
Section 3.2 Upon the occurrence of an Event of Default and during the
continuation thereof, the Agent, for and on behalf of the Lenders, shall have,
in respect of the Collateral, (i) all the rights and remedies contained in this
Assignment, the Credit Documents or permitted by law and (ii) all the rights and
remedies of a secured party under the Uniform Commercial Code, all of which
shall be cumulative to the extent permitted by law.
Section 3.3 If at any time or times hereafter the Agent employs counsel
to prepare or consider waivers or consents or to intervene, file a petition,
answer, motion or other pleading in any suit or proceeding related to this
Assignment or the Credit Documents, or relating to any Collateral, or to
protect, take possession of, or liquidate any Collateral, or to attempt to
enforce any security interest or lien in any collateral, or to enforce any
rights of the Agent, then in any of such events, all of the reasonable
attorneys' fees arising from such services, and any expenses, costs and charges
relating thereto, shall become a part of the Credit Party Obligations secured by
the Collateral and payable on demand.
Section 3.4 The Agent's failure at any time or times hereafter to
require strict performance by the Pledgors of any of the provisions, warranties,
terms and conditions contained in this Assignment shall not waive, affect or
diminish any right of the Agent at any time or times hereafter to demand strict
performance therewith and with respect to any other provisions, warranties,
terms and conditions contained in this Assignment.
ARTICLE IV
Access/Release of Collateral
Section 4.1 Access to Cash Collateral Account. For so long as there are
Credit Party Obligations outstanding, the Account will be maintained in the name
of the Agent, and therefore the Pledgors shall not have access to the funds or
other Collateral therein. The Agent shall have the right, at any time, to set
off against the Credit Party Obligations all amounts in the Account.
Section 4.2 Disbursement of Funds. The Agent, on behalf of the Lenders,
and the Pledgors hereby agree that all amounts in the Account shall be applied
by the Agent to payment of the Loans and other Credit Party Obligations.
ARTICLE V
Miscellaneous
Section 5.1 The internal laws and decisions of the State of North
Carolina shall govern and control the construction, enforceability, validity and
interpretation of this Assignment.
Section 5.2 This Assignment shall be binding upon and inure to the
benefit of the Pledgors, the Agent and their respective successors and assigns.
3
<PAGE>
Section 5.3 This Assignment may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Assignment to produce or account
for more than one such counterpart.
Section 5.4 If any provision of any of the Assignment is determined to
be illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions
[remainder of page intentionally left blank]
4
<PAGE>
Each of the Pledgors has caused a counterpart of this Assignment to be
duly executed and delivered as of the date first above written.
PLEDGORS PLUMA, INC.,
a North Carolina corporation
By:____________________________
Name:__________________________
Title:___________________________
Accepted and agreed as of the date first above written.
NATIONSBANK, N.A., as Agent for and on
behalf of the Lenders
By:___________________________
Name:_________________________
Title:________________________
5
<TABLE>
<CAPTION>
EXHIBIT 11.1
PLUMA, INC.
COMPUTATION OF EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO COMMON SHAREHOLDERS:
Net income (loss) available to common shareholders $ (2,709,364) $ 1,768,378 $ (5,309,343) $ 4,063,440
============= ============ ============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Common shares outstanding 8,109,152 8,109,152 8,109,152 7,366,625
------------ ----------- ----------- ----------
Assumed exercise of stock options
Total 8,109,152 8,109,152 8,109,152 7,366,625
============ ========== ========== =========
EARNINGS (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ (.33) $ .22 $ (.65) $ .55
============ ========== ========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statements of operations for the nine months ended September 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000829044
<NAME> PLUMA, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,563,866
<SECURITIES> 0
<RECEIVABLES> 40,781,828
<ALLOWANCES> 1,734,356
<INVENTORY> 69,555,782
<CURRENT-ASSETS> 117,912,533
<PP&E> 70,884,152
<DEPRECIATION> 24,667,198
<TOTAL-ASSETS> 200,224,502
<CURRENT-LIABILITIES> 32,044,163
<BONDS> 105,393,000
0
0
<COMMON> 36,849,127
<OTHER-SE> 21,509,389
<TOTAL-LIABILITY-AND-EQUITY> 200,224,502
<SALES> 144,865,133
<TOTAL-REVENUES> 144,865,133
<CGS> 133,250,402
<TOTAL-COSTS> 133,250,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,467
<INTEREST-EXPENSE> 5,481,849
<INCOME-PRETAX> (8,348,024)
<INCOME-TAX> (3,038,681)
<INCOME-CONTINUING> (5,309,343)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,309,343)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
