SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 29, 1995
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(910) 889-5161
(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 of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
Common shares outstanding at January 29, 1995: 11,204,766
Par Value: $.05
INDEX TO FORM 10-Q
January 29, 1995
Page
Part I - Financial Information. ------
------------------------------------------
Item 1. Financial Statements:
Statements of Income--Three and Nine Months Ended I-1
January 29, 1995 and January 30, 1994
Balance Sheets--January 29, 1995 and May 1, 1994
Statements of Cash Flows--Nine Months Ended I-3
January 29, 1995 and January 30, 1994
Statements of Shareholders' Equity I-4
Notes to Financial Statements I-5
Sales by Business Unit I-8
Export Sales by Geographic Area I-9
Item 2. Management's Discussion and Analysis of Financial I-10
Condition and Results of Operation
Part II - Other Information
-------------------------------------
Item 1. Legal Proceedings II-1
Item 2. Changes in Securities II-1
Item 3. Default Upon Senior Securities II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 5. Other Information II-1
Item 6. Exhibits and Reports on Form 8-K II-1 - II-5
Signatures II-6
CULP, INC.
INCOME STATEMENTS
FOR THE THREE MONTHS & NINE MONTHS ENDED JANUARY 29, 1995 AND JANUARY 30, 1994
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 29,January 30, % Over
1995 1994 (Under) 1995 1994
Net sales 77,791 67,031 16.1 % 100.0 % 100.0 %
Cost of sales 64,785 55,350 17.0 % 83.3 % 82.6 %
Gross profit 13,006 11,681 11.3 % 16.7 % 17.4 %
Selling, general and
administrative expenses 8,295 7,798 6.4 % 10.7 % 11.6 %
Income from operations 4,711 3,883 21.3 % 6.1 % 5.8 %
Interest expense 1,120 899 24.6 % 1.4 % 1.3 %
Interest income (14) (11) 27.3 % (0.0)% (0.0)%
Other expense (income), net 245 91 169.2 % 0.3 % 0.1 %
Income before income taxes 3,360 2,904 15.7 % 4.3 % 4.3 %
Income taxes * 1,260 1,129 11.6 % 37.5 % 38.9 %
Net income 2,100 1,775 18.3 % 2.7 % 2.6 %
Average shares outstanding 11,205 11,098 1.0 %
Earnings per share $0.19 $0.16 18.8 %
Dividends per share $0.025 $0.020 25.0 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 29,January 30, % Over
1995 1994 (Under) 1995 1994
Net sales 222,585 167,600 32.8 % 100.0 % 100.0 %
Cost of sales 184,306 139,931 31.7 % 82.8 % 83.5 %
Gross profit 38,279 27,669 38.3 % 17.2 % 16.5 %
Selling, general and
administrative expenses 24,227 19,189 26.3 % 10.9 % 11.4 %
Income from operations 14,052 8,480 65.7 % 6.3 % 5.1 %
Interest expense 3,341 1,632 104.7 % 1.5 % 1.0 %
Interest income (61) (56) 8.9 % (0.0)% (0.0)%
Other expense (income), net 612 (75) ** 0.3 % (0.0)%
Income before income taxes 10,160 6,979 45.6 % 4.6 % 4.2 %
Income taxes * 3,810 2,514 51.6 % 37.5 % 36.0 %
Net income 6,350 4,465 42.2 % 2.9 % 2.7 %
Average shares 11,203 11,043 1.4 %
Earnings per share $0.57 $0.40 42.5 %
Dividends per share $0.075 $0.06 25.0 %
* Percent of sales column is calculated as a % of income before income taxes.
** Measurement is not meaningful.
I-1
CULP, INC.
BALANCE SHEETS
JANUARY 29, 1995, JANUARY 30, 1994 AND MAY 1, 1994
(Unaudited, Amounts in Thousands)
Amounts Increase
January 29, January 30, (Decrease) * May 1,
1995 1994 Dollars Percent 1994
Current assets
Cash and cash investments 317 287 30 10.5 % 2,693
Accounts receivable 40,547 35,024 5,523 15.8 % 36,743
Inventories 44,314 39,668 4,646 11.7 % 36,596
Other current assets 2,920 2,285 635 27.8 % 2,227
Total current assets 88,098 77,264 10,834 14.0 % 78,259
Restricted investments 1,602 3,577 (1,975) (55.2)% 2,923
Property, plant & equipment, net 69,373 60,333 9,040 15.0 % 64,004
Cost in excess of net assets of business
acquired, net 18,850 16,886 1,964 11.6 % 18,706
Other assets 1,215 933 282 30.2 % 1,056
Total assets 179,138 158,993 20,145 12.7 % 164,948
Current Liabilities
Current maturities of long-term debt 6,100 2,674 3,426 128.1 % 3,050
Accounts payable 24,126 20,504 3,622 17.7 % 28,466
Accrued expenses 10,082 6,712 3,370 50.2 % 8,158
Income taxes payable 1,391 1,551 (160) (10.3)% 636
Total current liabilities 41,699 31,441 10,258 32.6 % 40,310
Long-term debt 65,711 66,293 (582) (0.9)% 58,512
Deferred income taxes 3,477 2,005 1,472 73.4 % 3,477
Total liabilities 110,887 99,739 11,148 11.2 % 102,299
Shareholders' equity 68,251 59,254 8,997 15.2 % 62,649
Total liabilities and
stockholders' equity 179,138 158,993 20,145 12.7 % 164,948
Shares outstanding 11,205 11,174 31 0.3 % 11,177
* Derived from audited financial statements.
** Measurement is not meaningful.
I-2
CULP, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 29, 1995 AND JANUARY 30, 1994
(Unaudited, Amounts in Thousands)
NINE MONTHS ENDED
Amounts
January 29, January 30,
1995 1994
Cash flows from operating activities:
Net income 6,350 4,465
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 8,237 5,909
Amortization of intangible assets 458 112
Provision for deferred income taxes (272) 0
Changes in assets and liabilities:
Accounts receivable (3,804) 1,249
Inventories (7,718) (6,797)
Other current assets (421) (321)
Other assets (761) (318)
Accounts payable (4,340) (3,188)
Accrued expenses 1,924 (532)
Income taxes payable 755 138
Net cash provided by (used in) operating activities 408 717
Cash flows from investing activities:
Capital expenditures (13,606) (10,161)
Purchases of restricted investments (60) (3,577)
Proceeds from sale of restricted investments 1,381 0
Business acquired 0 (38,703)
Net cash provided by (used in) investing activities (12,285) (52,441)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 20,000 43,902
Principal payments on long-term debt (9,751) (1,517)
Net increase (decrease) in bank overdrafts 0 2,139
Dividends paid (840) (590)
Proceeds from sale of common stock 92 858
Net cash provided by (used in) financing activities 9,501 44,792
Increase (decrease) in cash and cash investments (2,376) (6,932)
Cash and cash investments at beginning of period 2,693 7,219
Cash and cash investments at end of period 317 287
I-3
Culp, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(Amounts in thousands, except per share data)
Capital
Contributed Total
Common Stock in Excess Retained Shareholders'
Shares Amount of Par Value Earnings Equity
Balance, May 2, 1993 7,259,161 $ 362 $ 15,333 $ 38,826 $ 54,521
Cash dividends (887) (887)
($.08 per share)
Net income 7,665 7,665
Common stock issued in
connection with stock
option plan 212,140 11 1,339 1,350
Three-for-two stock split 3,706,052 185 (185)
Balance, May 1, 1994 11,177,353 $ 558 $ 16,487 $ 45,604 $ 62,649
Cash dividends (840) (840)
($.075 per share)
Net income 6,350 6,350
Common stock issued in
connection with stock
option plan 27,413 2 90 92
Balance, January 29, 1995 11,204,766 $ 560 $ 16,577 $ 51,114 $ 68,251
I-4
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The financial information included herein is unaudited; however,
such information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
Certain amounts for fiscal year 1994 have been reclassified to
conform with the fiscal year 1995 presentation. Such reclassifications
had no effect on net income as previously reported. All such adjustments
are of a normal recurring nature.
The results of operations for the nine months ended January 29,
1995 are not necessarily indicative of the results to be expected for
the full year.
2. Accounts Receivable
The company factors a certain amount of its accounts receivable,
primarily on a nonrecourse basis. The factoring arrangements are used
solely for credit purposes, and not for borrowing purposes.
A summary of accounts receivable follows (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
January 29, 1995 May 1, 1994
- -----------------------------------------------------------------------------------------------------
Customers $ 38,558 $ 33,346
Factors 2,857 4,423
Allowance for doubtful accounts (517) (631)
Reserve for returns and allowances (351) (395)
- -----------------------------------------------------------------------------------------------------
$ 40,547 $ 36,743
=====================================================================================================
3. Inventories
Inventories are carried at the lower of cost or market. Cost is
determined for substantially all inventories using the LIFO (last-in,
first-out) method.
A summary of inventories follows (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
January 29, 1995 May 1, 1994
- -----------------------------------------------------------------------------------------------------
Raw materials $ 24,660 $ 19,893
Work-in-process 3,126 3,411
Finished goods 19,630 15,315
- -----------------------------------------------------------------------------------------------------
Total inventories valued at FIFO cost 47,416 $ 38,619
Adjustments to reduce FIFO cost to LIFO (3,102) (2,023)
- -----------------------------------------------------------------------------------------------------
$ 44,314 $ 36,596
=====================================================================================================
I-5
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
4. Accounts Payable
A summary of accounts payable follows (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
January 29, 1995 May 1, 1994
- -----------------------------------------------------------------------------------------------------
Bank overdraft $ 0 $ 0
Accounts payable-trade 17,651 21,023
Accounts payable-capital expenditures 6,475 7,443
- -----------------------------------------------------------------------------------------------------
$ 24,126 $ 28,466
=====================================================================================================
5. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
January 29, 1995 May 1, 1994
- -----------------------------------------------------------------------------------------------------
Compensation $ 5,019 $ 3,554
Acquisition costs 930 839
Other 4,133 3,765
- -----------------------------------------------------------------------------------------------------
$ 10,082 $ 8,158
=====================================================================================================
6. Long-term Debt
A summary of long-term debt follows (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
January 29, 1995 May 1, 1994
- -----------------------------------------------------------------------------------------------------
Secured term loan $ 43,000 $ 36,000
Industrial revenue bonds 15,811 15,929
Subordinated note payable 1,000 9,633
Revolving credit line 12,000 0
- -----------------------------------------------------------------------------------------------------
71,811 61,562
Less current maturities (6,100) (3,050)
- -----------------------------------------------------------------------------------------------------
$ 65,711 $ 58,512
=====================================================================================================
On November 7, 1994, the company amended its loan agreements, in
order to provide a significantly lower interest rate spread above LIBOR,
an additional $8.0 million in term debt to prepay the majority of the
subordinated note payable, which carried an interest rate of prime plus
one-half percent, and fewer financial covenants.
The company's loan agreements require, among other things, that the
company maintain certain financial ratios. At January 29,1995 , the
company was in compliance with these required covenants.
I-6
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
7. Subsequent Event
On March 6, 1995, the company completed the purchase of the common
stock of Rayonese Textile Inc. The transaction had an estimated value of
approximately $11 million and involved the purchase of common stock as
well as the assumption of certain liabilities.
8. Cash Flow Information
Payments for interest and income taxes during the period were
(dollars in thousands):
1995 1994
---------------- --------------
Interest $ 3,401 $ 1,300
Income taxes 3,055 2,376
I-7
CULP, INC.
SALES BY BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 29, 1995
AND JANUARY 30, 1994
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
Janaury 29 January 30, % Over
Business Units 1995 1994 (Under) 1995 1994
Upholstery Fabrics
Flat Wovens
Existing Culp 20,940 19,673 6.4 % 26.9 % 29.3 %
Rossville/Chromatex 16,397 14,113 16.2 % 21.1 % 21.1 %
37,337 33,786 10.5 % 48.0 % 50.4 %
Velvets/Prints 28,307 23,714 19.4 % 36.4 % 35.4 %
65,644 57,500 14.2 % 84.4 % 85.8 %
Mattress Ticking 12,147 9,531 27.4 % 15.6 % 14.2 %
77,791 67,031 16.1 % 100.0 % 100.0 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 29 January 30, % Over
Business Units 1995 1994 (Under) 1995 1994
Upholstery Fabrics
Flat Wovens
Existing Culp 63,387 57,190 10.8 % 28.5 % 34.1 %
Rossville/Chromatex 47,295 14,113 N/A 21.2 % N/A
110,682 71,303 55.2 % 49.7 % 42.5 %
Velvets/Prints 75,390 69,120 9.1 % 33.9 % 41.2 %
186,072 140,423 32.5 % 83.6 % 83.8 %
Mattress Ticking 36,513 27,177 34.4 % 16.4 % 16.2 %
222,585 167,600 32.8 % 100.0 % 100.0 %
I-8
CULP, INC.
EXPORT SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 29, 1995
AND JANUARY 30, 1994
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
Janaury 29 January 30, % Over
Geographic Area 1995 1994 (Under) 1995 1994
North America (Excluding USA) 2,800 2,585 8.3 % 20.1 % 25.3 %
Europe 5,821 4,827 20.6 % 41.7 % 47.2 %
South America 489 450 8.7 % 3.5 % 4.4 %
Far East & Asia 2,036 755 169.7 % 14.6 % 7.4 %
Middle East 1,703 794 114.5 % 12.2 % 7.8 %
All other areas 1,106 808 36.9 % 7.9 % 7.9 %
13,955 10,219 36.6 % 100.0 % 100.0 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 29 January 30, % Over
Geographic Area 1995 1994 (Under) 1995 1994
North America (Excluding USA) 9,343 8,077 15.7 % 25.3 % 27.2 %
Europe 12,707 11,958 6.3 % 34.3 % 40.3 %
South America 1,639 917 78.7 % 4.4 % 3.1 %
Far East & Asia 6,000 3,813 57.4 % 16.2 % 12.9 %
Middle East 4,439 1,195 271.5 % 12.0 % 4.0 %
All other areas 2,871 3,713 (22.7)% 7.8 % 12.5 %
36,999 29,673 24.7 % 100.0 % 100.0 %
I-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Analysis of Operations
Sales by major Business Unit and Export Sales by Geographic Area for
the three and nine months are set forth in separate schedules on the two
preceding pages.
Net Sales - The sales increase in upholstery fabrics for the nine
month period is primarily attributable to additional sales volume from the
Rossville/Chromatex acquisition, which was effective November 1, 1993. For
the nine month period, Rossville/Chromatex contributed sales of $47.3
million, compared to $14.1 million for the same period of last year. All
three operating units (Flat Wovens including Rossville/ Chromatex,
Mattress Ticking, and Velvets/Prints) reported sales gains for the quarter,
including strong increases in the printed mattress ticking and wet prints
upholstery fabric product lines. For the nine month period, all business
units reported sales gains, with the sales of mattress ticking and
jacquard and wet prints upholstery fabrics significantly higher.
The trends for current backlogs and incoming order rates in comparison
to last year are as follows: Mattress Ticking was up significantly, up
moderately overall for Flat Wovens, with particular strength in the
Rossville dobby product line, and in Velvets/Prints up moderately, with
particular strength in the wet prints product line and an improving trend
in the heat transfer prints product line. While sales and profitability of
the Velvets/Prints business unit continued to be below target levels in the
third quarter results were improved significantly from the first and second
quarters and, current indicators show an improving trend for the fourth
quarter of the fiscal year.
Export sales were up significantly for the quarter and the first nine
months, with strength in Europe, the Far East and Asia, and the Middle
East. Sales into Europe were up approximately 21% for the quarter, a
continuation of the positive trend which began during the second quarter of
this fiscal year. The outlook for export sales gains remains good.
The trend of increasing interest rates over the last year will likely
have an adverse impact on consumer demand for furniture and bedding at some
point, because of lower housing starts and housing resales, lower
disposable personal income and slower overall economic growth. It remains
unclear when the upward trend in interest rates will stabilize. It appears
to the company that overall U. S. residential furniture demand has weakened
over the last two months and that the near-term demand is also weaker than
a year ago.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The table below sets forth the percentage relationship to net sales of
certain items in the Statements of Income.
Three Months Ended Nine Months Ended
----------------------- ----------------------
January 29, January 30, January 29, January 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 83.3 82.6 82.8 83.5
---------- ---------- ---------- ----------
Gross profit 16.7 17.4 17.2 16.5
Selling, general and
administrative expenses 10.7 11.6 10.9 11.4
---------- ---------- ---------- ----------
Income from operations 6.1 5.8 6.3 5.1
Interest expense 1.4 1.3 1.5 1.0
Interest income 0.0 0.0 0.0 0.0
Other expense (income), net 0.3 0.1 0.3 0.0
---------- ---------- ---------- ----------
Income before
income taxes 4.3 4.3 4.6 4.2
Income taxes (*) 37.5 38.9 37.5 36.0
----------- ---------- ---------- ----------
Net income 2.7 % 2.6 % 2.9 % 2.7 %
=========== =========== ========== ==========
(*) Calculated as a percent of income before income taxes.
Gross Profit and Cost of Sales - The increase in gross profit dollars
for the nine month period is attributable to a strong contribution from the
Rossville/Chromatex acquisition. The gross profit increase for the three
month period reflects a solid contribution from flat wovens, and a
continuation of the significant improvement from mattress ticking. The
company has experienced a trend of improvement in profitability and
backlogs for the velvets/prints business unit and is expecting gains for
the fourth quarter in comparison to the same period of fiscal 1994.
Additionally, the company has been receiving moderate raw material price
increases in all areas, which are beginning to affect margins.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Selling, General and Administrative (S,G & A) Expenses - S,G & A
expenses increased in absolute dollars for the three and nine months of
this fiscal year, primarily related to the addition of the
Rossville/Chromatex division. S,G & A expenses as a percentage of sales
decreased for the three and nine months of this fiscal year. The company
continues to place a high priority on the containment of S,G & A expenses.
Additionally, the company expects this category of expenses to decrease as
a percentage of sales for fiscal 1995 as a whole in comparison to fiscal
1994, and expects that S,G & A expenses will not exceed $33 million.
Interest Expense, Interest Income - Interest expense increased for the
three and nine months periods due to additional borrowings related to
capital expenditures and higher levels of working capital necessary to
support sales growth, and to higher interest rates. Interest income
increased $5,000 compared to the first nine months of last year. The
company continues to expect interest expense to be significantly higher
than fiscal 1994 and interest income to be somewhat lower than fiscal 1994,
with interest expense for the full year in the $4.5 to $5.0 million range.
Other Expense (Income), Net - Other expense (income), net was $154,000
higher than the third quarter of fiscal 1994, and $687,000 higher than the
first nine months of fiscal 1994. The most significant item in this
category of expenses for fiscal 1995 is the amortization of costs in
excess of net assets of business acquired related to the Rossville/
Chromatex acquisition. Additionally, amortization of debt issue costs was
higher during the first nine months of fiscal 1995. Finally, the company
recognized gains on the sale of fixed assets during the third quarter and
first nine months of last year. No similar gains was realized during the
third quarter or first nine months of fiscal 1995. The company expects
other expense (income), net to approximate $800,000 for fiscal 1995.
Income Taxes - The effective tax rate for the quarter decreased
primarily because of a catch-up adjustment recorded in last year's third
quarter. For the first nine months, the effective tax rate increased
primarily due to a significantly higher level of pretax income. The
company expects the full year effective tax rate to approximate 37.5%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
The company has continued to maintain a sound financial position
during the third quarter and the first nine months of fiscal 1995. Long
and short-term debt less restricted investments (funded debt) increased to
$70,209,000 from $58,639,000, and as a percentage of shareholders' equity
to 102.9% from 93.6% at the end of fiscal 1994. Also, funded debt as a
percentage of total capitalization was 50.7% at January 29, 1995, versus
48.3% at May 1, 1994. The company's current ratio increased to 2.1 to 1,
from 1.9 to 1 at May 1, 1994. At January 29, 1995, shareholders' equity
was $68,251,000, or $6.09 per share, an increase of 8.6% over the previous
year end.
During the first nine months of fiscal 1995, the company reported
cash flows from operating activities of $408,000. The primary source of
operating cash flows was cash from earnings (net income plus depreciation
and amortization) of $15,045,000. Adding to this source of operating cash
flows was an increase in accrued expenses of $1,924,000 and an increase in
income taxes payable of $755,000. Significantly offsetting these sources of
operating cash flows were an increase in inventories of $7,718,000, an
increase in accounts receivable of $3,804,000, and a decrease in accounts
payable of $4,340,000. The operating cash flows of $408,000, were combined
with $20,000,000 of proceeds from the issuance of long-term debt,
$1,381,000 of proceeds from sale of restricted investments, $2,376,000
reduction of cash and proceeds from sale of common stock of $92,000 which
funded principal payments on long-term debt of $9,751,000, capital
expenditures of $13,606,000, and dividends of $840,000.
For fiscal 1995 as a whole, the company expects to generate
significantly lower cash flows from operations than fiscal 1994. The
company's fiscal 1995 capital expenditures budget is $21,000,000. This
represents a $3.5 million increase in the current year's budget, which
relates to the expansion of jacquard weaving capacity at Rayonese
(acquired on March 6, 1995). Capital
expenditures for fiscal 1995 principally involve purchases of equipment for
expansion of the company's vertical integration capabilities in yarn
manufacturing, expansion of weaving capacity at several plants and
additional hardware investments in the company's information systems.
Additionally, the company is currently estimating the fiscal 1996 capital
expenditures budget to be in the range of $10 million dollars, which will
be the lowest level of annual capital expenditures since fiscal 1990.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
At January 29, 1995, the company had $15,000,000 in available
borrowings under its existing revolving credit line. Management believes
cash investments, cash flows from operations, the revolving credit line
and the availability of additional financing will be sufficient to meet
the company's financing needs for the foreseeable future. On November 7,
1994, the company amended its loan agreements with the banks to provide a
significantly lower interest rate spread above LIBOR, an additional $8.0
million in term debt to prepay the majority of the subordinated note
payable during the third quarter, and fewer financial covenants. On March
6, 1994, the Company amended its loan agreements to increase availability
under the Company's revolving credit facility from $27,000,000 to
$33,300,000.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement No. 112,
"Employers' Accounting for Postemployment Benefits." Under Statement 112,
the cost of postemployment benefits must be recognized on an accrual basis
as employees perform services to earn the benefits. Implementation of the
pronouncement is required for fiscal years beginning after December 15,
1993. The company does not know and cannot reasonably estimate the impact
of Statement 112, and plans to adopt the statement in its fiscal year 1995.
Part II - OTHER INFORMATION
-------------------------------------------
Item 1. Legal Proceedings
There are no legal proceedings that are required to
be disclosed under this item.
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
3(i) Articles of Incorporation of the company, as
amended by Articles of Amendment dated
December 21, 1994.
3(ii) Restated and Amended Bylaws of the company, as
amended, were filed as Exhibit 3(b) to the
company's Form 10-K for the year ended April
28, 1991, filed July 25, 1991, and are
incorporated herein by reference.
10(a) Loan Agreement dated December 1, 1988 with
Chesterfield County, South Carolina relating to
Series 1988 Industrial Revenue Bonds in the
principal amount of $3,377,000 and related Letter
of Credit and Reimbursement Agreement dated
December 1, 1988 with First Union National Bank of
North Carolina were filed as Exhibit 10(n) to the
company's Form 10-K for the year ended April 29,
1989, and are incorporated herein by reference.
II-1
10(b) Loan Agreement dated November 1, 1988 with the
Alamance County Industrial Facilities and
Pollution
Control Financing Authority relating to Series A
and B Industrial Revenue Refunding Bonds in the
principal amount of $7,900,000, and related Letter
of Credit and Reimbursement Agreement dated
November 1, 1988 with First Union National Bank
of North Carolina were filed as exhibit 10(o) to
the company's Form 10-K for the year ended April
29, 1990, and are incorporated herein by
reference.
10(c) Loan Agreement dated January 5, 1990 with the
with the Guilford County Industrial Facilities and
Pollution Control Financing Authority, North
Carolina, relating to Series 1989 Industrial Reve-
nue Bonds in the principal amount of $4,500,000,
and related Letter of Credit and Reimbursement
Agreement dated January 5, 1990 with First Union
National Bank of North Carolina was filed as
Exhibit 10(d) to the company's Form 10-K for the
year ended April 19, 1990, filed on July 15, 1990,
and is incorporated herein by reference.
10(d) Severance Protection Agreement, dated September
21, 1989, was filed as Exhibit 10(f) to the
company's Form 10-K for the year ended April 29,
1990, filed on July 25 1990, and is
incorporated herein by reference.
10(e) Lease Agreement, dated January 19, 1990, with
Phillips Interests, Inc. was filed as Exhibit
10(g) to the company's Form 10-K for the year
ended April 29, 1990, filed on July 25, 1990, and
is incorporated herein by reference.
10(f) Lease Agreement, dated September 6, 1988, with
Partnership 74 was filed as Exhibit 10(h) to the
company's Form 10-K for the year ended April 28,
1991, filed on July 25, 1990, and is incorporated
herein by reference.
10(g) Management Incentive Plan of the company, dated
August 1986 and amended July 1989, was filed as
Exhibit 10(o) to the company's Form 10-K for the
year ended May 3, 1992, filed on August 4, 1992,
and is incorporated herein by reference.
10(h) Amendment and Restatement of the Employees's
Retirement Builder Plan of the company dated May
1,
II-2
1981 with amendments dated January 1, 1990 and
January 8, 1990 were filed as Exhibit 10(p) to the
company's Form 10-K for the year ended May 3,
1992, filed on August 4, 1992, and is incorporated
herein by reference.
10(i) Second Amendment of Lease Agreement dated April
16, 1993, with Partnership 52 Associates was filed
as Exhibit 10(l) to the company's Form 10-K for
the year ended May 2, 1993, filed on July 29,
1993, and is incorporated herein by reference.
10(j) First Amendment of Lease Agreement, dated July 27,
1992 with Partnership 74 Associates was filed as
Exhibit 10(n) to the company's Form 10-K for the
year ended May 2, 1993, filed on July 29, 1993,
and is incorporated herein by reference.
10(k) 1993 Stock Option Plan was filed as Exhibit 10(o)
to the company's Form 10-K for the year ended
May 2, 1993, filed on July 29, 1993, and is
incorporated herein by reference.
10(l) Loan Agreement dated as of December 1, 1993
between Anderson County, South Carolina and the
company relating to $6,580,000 Anderson County,
South Carolina Industrial Revenue Bonds (Culp,
Inc. Project) Series 1993, and related Letter of
Credit and Reimbursement Agreement dated as of
December 1, 1993 by and between the company and
First Union National Bank of North Carolina was
filed as Exhibit 10(o) to the company's Form 10-Q,
filed on March 15, 1994, and is incorporated
herein by reference.
10(m) First Amendment to Loan Agreement dated as of
December 1, 1993 by and between The Guilford
County Industrial Facilities and Pollution
Control Financing Authority and the
company, and related Reimbursement and
Security Agreement dated as of December 1, 1993
between the company and Wachovia Bank of North
Carolina, National Association was filed as
Exhibit 10(p) to the company's Form 10-Q, filed on
March 15, 1994, and is incorporated herein by
reference.
II-3
10(n) First Amendment to Loan Agreement dated as of
December 16, 1993 by and between The Alamance
County Industrial Facilities and Pollution Control
Financing Authority and the company, and related
First Amendment to Letter of Credit and
Reimbursement Agreement dated as of December 16,
1993 between First Union National Bank of North
Carolina and the company was filed as Exhibit
10(q) to the company's Form 10-Q filed, filed on
March 15, 1994, and is incorporated herein by
reference.
10(o) First Amendment to Loan Agreement dated as of
December 16, 1993 by and between Chesterfield
County, South Carolina and the company, and
related First Amendment to Letter of Credit and
Reimbursement Agreement dated as of December 16,
1993 by and between First Union National Bank of
North Carolina and the company was filed as
Exhibit 10(r) to the company's Form 10-Q,
filed on March 15, 1994, and is incorporated herein
by reference.
10(p) 1994 Amended and Restated Credit Agreement dated
as of April 15, 1994 by and among the company,
First Union National Bank of North Carolina and
Wachovia Bank of North Carolina was filed as
Exhibit 10(r) to the company's Form 10-K, filed on
July 27, 1994, and is incorporated herein by
reference.
10(q) First Amendment to 1994 Amended and Restated
Credit Agreement dated as of April 30, 1994 by and
among the company, First Union National Bank of
North Carolina and Wachovia Bank of North Carolina
was filed as Exhibit 10(s) to the company's Form
10-K, filed on July 27, 1994, and is incorporated
herein by reference.
10(r) Interest Rate Swap Agreements between company and
NationsBank of Georgia (formerly The Citizens and
Southern National Bank) dated July 14, 1989 were
filed as Exhibit 10(t) to the company's Form 10-K,
filed on July 27, 1994, and are incorporated
herein by reference.
10(s) Second Amendment to 1994 Amended and Restated
Credit Agreement, dated as of April 30, 1994 by
and among the company, First Union Bank of
North Carolina, and Wachovia Bank of North
Carolina was filed as Exhibit 10(s) to the
company's Form 10-Q, filed on September 13,
1994, and is incorporated herein by reference.
II-4
10(t) Second Amended Memorandum of Lease with
Partnership 74, dated June 15, 1994, was filed as
Exhibit 10(t) to the company's Form 10-Q, filed on
September 13, 1994, and is incorporated herein by
reference.
10(u) Share Purchase Agreement dated as of December 22,
1994, between Masgan Inc. and Salorna Inc. as
Vendors and 3096726 Canada Inc. as Purchaser,
relating to the purchase of Rayonese Textile Inc.
10(v) Third Amendment to 1994 Amended and Restated
Credit Agreement, dated as of November 1, 1994, by
and among the company, First Union National Bank
of North Carolina, N.A. and Wachovia Bank of North
Carolina, N.A.
10(w) Amendment to Lease dated as of November 4, 1994,
by and between the company and RDC, Inc.
10(x) Amendment and Agreement dated as of December 14,
1994, by and between the company, Rossville
Investments, Inc., Rossville Companies, Inc.,
Chromatex, Inc., Rossville Velours, Inc. and RDC,
Inc.
10(y) Amendment to Lease Agreement dated as of December
14, 1994, by and between the company and Rossville
Investments, Inc. (formerly known as A & E
Leasing, Inc.).
27 Financial Data Schedule.
(b) The following reports on Form 8-K were filed during the
period covered by this report:
(1) Form 8-K dated November 15, 1994 included under Item 5,
Other Events, disclosure of the company's press release
for quarterly earnings and the company's Financial
Information Release relating to the financial
information for the second quarter ended October 30,
1994.
(2) Form 8-K dated December 23, 1994 included under Item 5,
Other Events, disclosure of the company's press release
related to the acquisition of Rayonese Textile Inc.
II-5
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.
CULP, INC.
(Registrant)
Date: March 14, 1995 By: s/s Franklin N. Saxon
------------------------
- -----------------
Franklin N. Saxon
Vice President and
Chief Financial Officer
(Authorized to sign on behalf
of the registrant and also
signing as principal
accounting officer)
Date: March 14, 1995 By: s/s Stephen T. Hancock
------------------------
- -----------------
Stephen T. Hancock
General Accounting Manager
(Chief Accounting Officer)
II-6
ARTICLES OF AMENDMENT
OF
CULP, INC.
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its articles of incorporation:
1. The name of the corporation is Culp, Inc.
2. The following amendment to the articles of incorporation of the
corporation was adopted by its shareholders on the 20th day of September,
1994, in the manner prescribed by law:
The Articles of Incorporation shall be amended by deleting
Article 4 in its entirety and substituting the following text as
Article 4:
4. The corporation shall have the authority to issue fifty
million (50,000,000) shares consisting of forty million
(40,000,000) shares of common stock with a par value of five
cents ($0.05) per share and ten million (10,000,000) shares of
preferred stock with a par value of five cents ($0.05) per share,
the rights, preferences and limitations of which preferred stock
may be determined from time to time in the discretion of the
Board of Directors.
3. These articles will become effective upon filing.
This the 21st day of December, 1994.
CULP, INC.
By: /s/ Robert G. Culp, III
Robert G. Culp, III
Chief Executive Officer
SHARE PURCHASE AGREEMENT
BETWEEN
MASGAN INC. AND
SALORNA INC. AS VENDORS
AND
3096726 CANADA INC.
AS PURCHASER
December 22, 1994
TABLE OF CONTENTS
1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PURCHASED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. REPRESENTATIONS AND WARRANTIES OF THE VENDORS . . . . . . . . . . 10
6.1 Enforceability of the Agreement. . . . . . . . . . . . . . . . 10
6.2 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Capital Stock & Records . . . . . . . . . . . . . . . . . . . 11
6.4 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Assets and Liabilities . . . . . . . . . . . . . . . . . . . 14
6.6 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 16
6.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Patents, Trade Marks and Copyright . . . . . . . . . . . . . 21
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . 22
6.12 Labour Relations . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Bank Accounts, Etc. . . . . . . . . . . . . . . . . . . . . . 27
6.14 Conflicting Interests . . . . . . . . . . . . . . . . . . . . 27
6.15 No Finder's or Broker's Fee . . . . . . . . . . . . . . . . . 27
6.16 Vendors' Residence . . . . . . . . . . . . . . . . . . . . . 28
6.17 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 28
6.18 Investment . . . . . . . . . . . . . . . . . . . . . . . . . 29
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . 29
7.1 Enforceability of the Agreement . . . . . . . . . . . . . . 30
7.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . 30
7.4 No Finder's Fee . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Purchaser's Residence . . . . . . . . . . . . . . . . . . . 31
8. SURVIVAL AND RELIANCE ON REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Survival Notwithstanding Investigation . . . . . . . . . . 31
8.2 Indemnification by Vendors . . . . . . . . . . . . . . . . . 31
8.3 Indemnification by Purchaser . . . . . . . . . . . . . . . . 32
- ii -
8.4 Indemnification against Third Party Claims . . . . . . . . . 32
8.5 Indemnification to be After Tax, Insurance, Etc. . . . . . . 34
8.6 Expiry of Liability . . . . . . . . . . . . . . . . . . . . . 34
8.7 De Minimis . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 Limitation of Liability . . . . . . . . . . . . . . . . . . . 35
8.9 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Nonexclusivity of Remedy; Waiver of Certain Rights . . . . . . 39
9. COVENANTS OF THE VENDORS . . . . . . . . . . . . . . . . . . . . . 39
9.1 Best Efforts to Maintain and Preserve . . . . . . . . . . . . 40
9.2 Notice of Cessation in Ordinary Course . . . . . . . . . . . 40
9.3 Access for Purchaser . . . . . . . . . . . . . . . . . . . . 40
9.4 Maintain Insurance . . . . . . . . . . . . . . . . . . . . . 41
9.5 Corporate Proceedings for Transfer . . . . . . . . . . . . . 41
9.6 Replacement of Officers and Directors . . . . . . . . . . . 41
9.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . 42
9.8 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . 42
9.9 1994 Audited Financing Statements . . . . . . . . . . . . . . 42
9.10 List of Arbitrators . . . . . . . . . . . . . . . . . . . . . 43
10. COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . 43
10.1 Discharge of Toronto Dominion Bank Security . . . . . . . . . 43
10.2 List of Arbitrators . . . . . . . . . . . . . . . . . . . . . 43
10.3 Investment Canada Act . . . . . . . . . . . . . . . . . . . . 43
11. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . 44
11.1 Conditions for the Benefit of the Purchaser . . . . . . . . 44
11.2 Conditions for the Benefit of the Vendors . . . . . . . . . . 50
12. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.1 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 52
13.2 Specific Performance . . . . . . . . . . . . . . . . . . . . . 53
13.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 54
13.4 Time of the Essence . . . . . . . . . . . . . . . . . . . . . 54
13.5 Public Announcement . . . . . . . . . . . . . . . . . . . . . 54
13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 54
13.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 54
13.8 References to Disclosure Schedule . . . . . . . . . . . . . . 55
13.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 55
13.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . 55
13.11 Language . . . . . . . . . . . . . . . . . . . . . . . . 56
- iii -
EXHIBITS AND SCHEDULE
EXHIBIT 1 Audited Financial Statements of Rayonese Textile Inc.
EXHIBIT 2 Note
EXHIBIT 3 List of security and Purchaser's covenants
EXHIBIT 4 Opinion of Vendor's Counsel
EXHIBIT 5 Non-Competition and Confidentiality Agreement
DISCLOSURE SCHEDULE
THIS AGREEMENT made as of the 22nd day of December, 1994
B E T W E E N: MASGAN INC., a corporation duly incorporated under, the
Canada Business Corporations Act, herein acting and
represented by Maurice Wechsler, its President, duly
authorized in virtue of a resolution of its Board of
Directors dated December 7, 1994;
(hereinafter, "MASGAN")
A N D: SALORNA INC., a corporation duly incorporated under the
Canada Business Corporations Act, herein acting and
represented by Henri Wechsler, its President, duly
authorized in virtue of a resolution of its Board of
Directors dated December 7, 1994;
(hereinafter, "SALORNA")
(MASGAN and SALORNA being hereinafter
collectively referred to as the
"Vendors")
OF THE FIRST PART,
A N D: 3096726 CANADA INC., a corporation duly incorporated
under the Canada Business Corporations Act, herein
acting and represented by Franklin N. Saxon, its Vice
President and Treasurer, duly authorized in virtue of a
resolution of its Board of Directors dated December 20,
1994;
(the "Purchaser")
OF THE SECOND PART.
-2-
THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein set out and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto covenant and agree as follows:
1. DEFINED TERMS
Where used herein, except where the context otherwise requires, the
following terms shall have the following meanings respectively:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Audit Date" means December 31, 1993.
"Audited Financial Statements" means the audited balance sheet of the
Corporation and related statements of earnings and retained earnings
and changes in financial position for the fiscal year ended December
31, 1993, prepared by Price Waterhouse, Chartered Accountants and
attached hereto as Exhibit 1.
"Bank Guarantee" means the irrevocable guarantee of a Schedule I
Canadian Chartered Bank obtained at the cost of the Vendors in favour
of the Purchaser in form and terms acceptable to the Purchaser
guaranteeing the payment of any and all claims of the Purchaser for
indemnification by each of the Vendors under Section 8 up to an
aggregate amount of $500,000 in respect of each of the Vendors.
-3-
"Book Value of the Purchased Shares" means the value of the
shareholders' equity of the Corporation as established by the Closing
Balance Sheet.
"Closing" means the consummation and completion of the sale and
purchase of the Purchased Shares as provided for in Section 12 hereof.
"Closing Balance Sheet" means the audited balance sheet of the
Corporation as at the Closing Date to be prepared by KPMG Peat Marwick
Thorne, Chartered Accountants, in accordance with generally accepted
accounting principles consistently applied.
"Closing Date" means 10:00 a.m. local time at the Closing Place on
March 1, 1995 or such other time and date as the parties may agree
upon.
"Closing Place" means the office of Counsel for the Purchaser at 1981
McGill College, 12th Floor, in the City of Montreal in the Province of
Quebec.
"Conversion Rate" means the rate of conversion of Canadian currency
into United States currency, which the Vendors and the Purchaser have
agreed shall be Cdn. $1.375 for U.S. $1.00 for the purposes of this
Agreement.
"Corporation" means Rayonese Textile Inc., a corporation existing
under the Canada Business Corporations Act, pursuant to a Certificate
of Continuance dated August 15, 1978.
"Counsel for the Vendors" means Messrs. Kugler Kandestin.
"Counsel for the Purchaser" means Messrs. Ogilvy Renault.
"CULP" means Culp, Inc., a corporation existing under the laws of the
State of North Carolina, U.S.A.
"Disclosure Schedule" means the Schedule so entitled which is appended
to this Agreement.
-4-
"Dollars and $" means lawful money of Canada, unless otherwise
indicated.
"Employment Agreements" means the employment agreements referred to in
Sections 11.1.11 and 11.2.2.
"Indemnitee" and "Indemnitor" have the respective meanings attributed
to such terms in Section 8.4.
"Lien" means any hypothec, priority, mortgage, pledge, lien, charge,
encumbrance, easement, title defect or irregularity, lease, security
interest or option or claim or right of another.
"Non-Competition Agreements" means the non-competition and
confidentiality agreements referred to in Section 11.1.13.
"Notes" means the convertible notes provided for in Section 3.6.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, or a government or any department or agency
thereof.
"Proprietary Intangibles" means and includes all rights held in virtue
of any copyright, design, trade mark, trade name, trade secret,
patent, trade dress, logos, computer software or other intellectual
property or any application therefor.
"Purchase Price" has the meaning attributed to it in Section 3 hereof.
"Purchased Shares" means all of the issued and outstanding shares of
the Corporation.
"Purchaser's Default" means default by the Purchaser to perform any of
its obligations under Sections 3.2, 3.3 or 3.4, the Notes or the
security documents or covenants referred to in Exhibit 3 attached
hereto.
"Securities Act" means the United States Securities Act of 1933.
-5-
"Taxes" means any tax (including, without limitation, any tax on
income, corporations, capital, excise, property, transfer, water,
business, goods and services), any duty, stamp, deduction, deduction
at source, charge, assessment, fees or costs of any nature (including,
without limitation, any interest, penalty or additional costs relating
thereto) imposed by any competent authority.
"Third Party Claim" means any demand or statement or any notice
thereof which has been made on or communicated to the Vendors or
Purchaser or the Corporation by or on behalf of any Person other than
the foregoing and which, if maintained or enforced, will or might
result in a loss, liability or expense of the nature described in
either Section 8.2 or Section 8.3.
"This Agreement", "these presents", "herein", "hereby", "hereunder"
and similar expressions refer to this Agreement of Purchase and Sale
and the accompanying schedules.
"Vendors' Best Knowledge" means the knowledge of the Vendors after the
enquiry by the Vendors of the following officers and employees of the
Corporation: the President, Henri Wechsler; the Secretary-Treasurer,
Maurice Wechsler; the Vice-President, Blair Barwick and the Plant
Manager, Bertrand Voisine.
"1994 Audited Financial Statements" means the audited financial
statements of the Corporation to be prepared and delivered pursuant to
Section 9.9.
2. PURCHASED SHARES
The Vendors covenant and agree to sell, assign and transfer the
Purchased Shares to the Purchaser and the Purchaser agrees to acquire
the Purchased Shares from the Vendors on the Closing Date, the whole
for the Purchase Price and upon the terms and conditions herein
provided.
-6-
3. PURCHASE PRICE
The purchase price of the Purchased Shares shall be the sum of TEN
MILLION DOLLARS ($10,000,000) (the "Purchase Price"), subject to
adjustment in accordance with Section 4 hereof. The Purchase Price
shall be payable by the Purchaser to the Vendors as follows:
3.1 TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) payable at
Closing by certified cheque, banker's draft or bank wire transfer
as follows:
To MASGAN $1,250,000
To SALORNA $1,250,000
3.2 the balance of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000), as adjusted in accordance with Section 4 hereof
(the "Balance"), shall be represented by the Notes and shall,
subject to the provisions of Sections 3.3 and 3.4, be payable
thirty-six (36) months after Closing by certified cheque,
banker's draft or bank wire transfer in U.S. funds converted at
the Conversion Rate, said Balance to bear interest calculated and
payable in U.S. funds at the rate of six percent (6%) per annum,
compounded in the event of non-payment, said interest being
payable in arrears on a quarterly basis commencing ninety (90)
days following Closing; the payment of the Balance and interest
thereon shall be made to the Vendors in the following
proportions:
To MASGAN: 50%
To SALORNA: 50%
In the event of a Purchaser's Default, the entire Balance shall
become due and payable if such Purchaser's Default, except in the
case of default of the Purchaser to deliver certificates for
shares of CULP within the delays stipulated in Sections 3.3 and
3.4 which shall require no notice, is not rectified by the
Purchaser within ten (10) days following notice thereof given by
the Vendors to the Purchaser.
-7-
3.3 At any time after the first anniversary of the Closing and
subject to the provisions of Sections 3.4 and 3.5:
(i) upon forty-five (45) days' prior notice (which may be given
prior to the first anniversary of the Closing) to the
Purchaser, each of the Vendors shall be entitled to demand
payment of all or any portion of the Balance owed to it with
interest accrued to the date of payment;
(ii) for so long as the portion of the Balance owed to it remains
unpaid, each of the Vendors (for the purposes hereof, the
"Converting Party") shall be entitled, in accordance with
the terms of the Notes, to convert all or any part of said
portion of the Balance or remainder thereof owed to it (as
determined by the Converting Party), into common shares of
the capital stock of CULP, at the conversion price of
U.S.$12.50 per common share. In the event that the common
shares of the capital stock of CULP should be divided or
consolidated at any time prior to the exercise of the said
right of conversion, the conversion price for the purposes
of this Section 3.3(ii) and Section 3.4 shall be adjusted
accordingly. Upon such conversion, the portion of the
Balance or remainder thereof owed to the Converting Party
shall be reduced by an amount corresponding to the aggregate
conversion price of the converted common shares. The
Purchaser shall cause CULP to take all reasonable action to
cause the delivery of the certificates representing the
shares to be received by each Vendor upon any conversion
made pursuant to this Section 3.3 (ii) or Section 3.4 at the
earliest possible date but, in any event, no later than 14
days following the Date of Conversion, as defined in the
Notes.
3.4 In the event that Robert G. Culp, III, Judith C. Walker, Harry R.
Culp and Esther R. Culp, as a group, at any time cease to hold
voting control of common shares of CULP which represent, in the
aggregate, 15% or more of the outstanding common shares of CULP,
the Purchaser shall give notice of such cessation to each of the
vendors within ten (10) days
-8-
following the date on which such
cessation occurs and each of the Vendors shall, in addition to
the right to convert such portion of the Balance into common
shares of CULP in accordance with the terms of the Notes, have
the right, upon fifteen days' notice to the Purchaser, to demand
payment of the entire portion of the Balance owed to it with
interest accrued thereon to the date of payment, subject to the
condition that, upon such cessation, if either of the Vendors
shall within the first twelve (12) months following the Closing,
pursuant to this Section 3.4, demand payment of the Balance or
conversion of the Balance into common shares of the capital stock
of CULP, each such Vendor shall deliver to the Purchaser a Bank
Guarantee. Such Bank Guarantee shall be enforceable against the
guarantor in respect of any and all claims of the Purchaser under
Section 8 asserted within the period of twenty-four (24) months
following the Closing which the Vendors and the Purchaser shall
agree in writing to be payable by either of the Vendors or which
shall be determined to be payable by an arbitration award
pursuant to Section 8.10 with respect to any claim relating to a
breach of any representation or warranty in Section 6 or a final
judgment of a court in the case of any other claim.
3.5 In the event that, at any time within the first twelve (12)
months after the first anniversary of the Closing, either of the
Vendors shall demand payment of any part of the Balance which
would result in the outstanding Balance being reduced to less
than U.S. $727,273 or shall demand conversion of any such part of
the Balance into common shares of the capital stock of CULP as
contemplated by Section 3.3 (ii), the Purchaser shall be entitled
to exclude from such payment or conversion the last U.S. $727,273
of the Balance, until each of the Vendors shall have delivered to
the Purchaser a Bank Guarantee. Such Bank Guarantee shall be
enforceable against the guarantor in respect of any and all
claims of the Purchaser under Section 8 asserted within the
period of twenty-four (24) months following the Closing which the
Vendors and the Purchaser shall agree in writing to be payable by
either of the Vendors or which shall be determined to be payable
by an arbitration award pursuant to Section 8.10 with respect to
any claim
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relating to a breach of any representation or warranty
in Section 6 or a final judgment of a court in the case of any
other claim.
3.6 The Purchaser shall issue to each of the Vendors a convertible
note for an amount equal to its respective portion of the Balance
in the form and terms of the Note attached hereto as Exhibit 2.
4. ADJUSTMENT
KPMG Peat Marwick Thorne, Chartered Accountants, will prepare the
Closing Balance Sheet within forty-five (45) days following Closing.
The Purchase Price shall be adjusted on the date which is forty-five
(45) days following Closing, as follows:
4.1 The Purchase Price shall be increased by the amount, if any, by
which the Book Value of the Purchased Shares exceeds $4,000,000;
or
4.2 The Purchase Price shall be reduced by the amount, if any, by
which $4,000,000 exceeds the Book Value of the Purchased Shares.
Following such adjustment, the Notes delivered at Closing will be
surrendered by Vendors and will be replaced without novation by new
Notes reflecting the adjusted Balance.
5. SECURITY
5.1 As security for the repayment of the Balance and interest
thereon, the Purchaser shall cause the Corporation to grant in
favour of the Vendors, at Closing, the security described in
Exhibit 3 attached hereto.
5.2 While any part of the Balance remains outstanding the Purchaser
shall comply with, fulfill and respect each of the covenants set
forth in Exhibit 3 attached hereto.
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6. REPRESENTATIONS AND WARRANTIES OF THE VENDORS
The Vendors jointly represent and warrant to the Purchaser as follows:
6.1 Enforceability of the Agreement
6.1.1 The Vendors are the sole and absolute owners of the
Purchased Shares in the proportion set out in Section 6.3
hereof, with good and marketable title thereto, free and
clear of all Liens, with full power and authority to sell,
assign and transfer the Purchased Shares as herein
provided.
6.1.2 The Vendors have been duly authorized to execute and become
party to this Agreement and to consummate the transactions
herein provided.
6.1.3 Neither the entering into of this Agreement nor the
consummation of any of the transactions contemplated hereby
will
6.1.3.1 result in the violation of (a) any of the terms or
provisions of the respective constating documents
or by-laws of the Vendors or of the Corporation or
of any agreement, written or oral, to which either
of the Vendors or the Corporation is a party; or
(b) any law or regulation of any jurisdiction to
which either of the Vendors or the Corporation is
subject, or
6.1.3.2 subject the Corporation to any penalty or
liability.
6.1.4 The Vendors are not aware of any legal proceedings pending
or threatened or of any circumstances which may reasonably
be expected to give rise to such proceedings which in any
way might interfere with the sale or delivery of the
Purchased Shares or the consummation of any of the
transactions herein contemplated.
-11-
6.1.5 Except as disclosed on the Disclosure Schedule, the Vendors
are not required to give any notice to, make any filing
with, or obtain any authorization, consent, permit or
approval from, any Person, including without limitation,
any government or governmental agency, in order for the
parties to consummate the transactions contemplated by this
Agreement.
6.2 Corporate Status
6.2.1 The Corporation
6.2.1.1 has been duly incorporated and organized and is
validly subsisting and in good standing under the
laws of the jurisdiction in which it was
incorporated;
6.2.1.2 has the corporate power to own, lease, occupy or
otherwise hold the properties and rights now owned,
leased, occupied or otherwise held by it and to
conduct the business now being conducted by it.
6.3 Capital Stock & Records
6.3.1 The authorized capital stock of the Corporation consists of
an unlimited number of Class A and Class B common shares
and Class C special shares of which 4900 Class A common,
5100 Class B common and 410 Class C special shares (and no
more) are outstanding and each of such outstanding shares
has been duly allotted and issued and is fully paid and
non-assessable, and the paid-up capital for income tax
purposes of each class of such shares is as shown in the
Audited Financial Statements. The Purchased Shares are
owned by the Vendors in the following proportions:
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Class A Class B Class C
Common Common Special
MASGAN: 2450 2550 205
SALORNA: 2450 2550 205
6.3.2 No Person has any agreement or option or any right or
privilege (whether by law or by contract) capable of
becoming an agreement or option
6.3.2.1 to acquire any of the Purchased Shares ;
6.3.2.2 to subscribe for or otherwise acquire any of the
unissued shares of the capital stock or any other
securities of the Corporation.
6.3.3 The corporate records and minute books of the Corporation
contain complete and accurate minutes of all meetings of
the directors and shareholders of the Corporation held
since the date of the incorporation of the Corporation, and
all such meetings were duly called and held. The share
certificate books, registers of shareholders, registers of
transfers and registers of directors of the Corporation are
complete and accurate.
6.3.4 Except as stated in the Disclosure Schedule the Corporation
does not exist as a result or incident of any amalgamation
or merger between the Corporation and any other Person or
Persons or between other Persons pursuant to which the
properties or rights of the Corporation became or remained
subject to the rights of the creditors of such previously
existing Person or Persons.
6.3.5 The Disclosure Schedule contains a complete list of all of
the officers and directors of the Corporation as of the
date hereof.
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6.4 Business
6.4.1 The business of the Corporation is as described in the
Disclosure Schedule; and save as stated in the Disclosure
Schedule the Corporation has conducted its business
substantially as so described continuously during the
period of 10 years preceding the Audit Date and during said
period the Corporation has not conducted any other
business.
6.4.2 The respective locations or jurisdictions where the
Corporation presently conducts and has, during the 10 years
preceding the Audit Date, conducted its business are as set
out in the Disclosure Schedule and, save as therein
specified, the Corporation has not, during the said 10-year
period, conducted business in any other location or
jurisdiction.
6.4.3 The Corporation is, to Vendors' Best Knowledge, conducting
its business in compliance with all applicable laws, rules
and regulations of each jurisdiction in which such business
is being carried on; is not in breach of any such laws,
rules or regulations; is duly licenced, registered or
qualified in each jurisdiction where the nature of its
business would require it to be so licensed, registered or
qualified or where it owns or leases property or conducts
its business to enable such businesses to be conducted as
now conducted, and its properties and assets to be owned,
leased and operated, and all such licences, registrations
and qualifications are valid, subsisting and in good
standing, and none of the same contains any burdensome
term, provision, condition or limitation which has or
reasonably may be expected to have an adverse effect on the
operation of any such business.
6.4.4 Except as set out in the Disclosure Schedule, the
Corporation is not now conducting nor has it conducted its
business under any name other than its corporate name.
-14-
6.5 Assets and Liabilities
6.5.1 The respective balance sheets included in the Audited
Financial Statements and in the 1994 Audited Financial
Statements fairly present or will present, as the case may
be, the financial position of the Corporation as at the
respective dates specified therein and the related
statements of earnings, retained earnings and changes in
financial position for each of the periods then ended
fairly present or will present, as the case may be, the
results of the operations and the changes in financial
position for the periods then ended of the Corporation and
have been prepared or will be prepared, as the case may be,
in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods
specified therein, except as specifically stated in such
Audited Financial Statements or 1994 Audited Financial
Statements. Since the Audit Date, there has been no
material adverse change in the condition (financial or
otherwise), liabilities, licences, permits, business
(including relationships with suppliers, customers, and
others), operations or prospects of the Corporation.
6.5.2 Except to the extent reflected or reserved against in the
most recent balance sheet of the Corporation included in
the Audited Financial Statements or as set out in the
Disclosure Schedule, the Corporation did not have at the
Audit Date and except as reflected on the Closing Balance
Sheet, the Corporation will not have as of the Closing
Date, any liabilities or obligations (except for
liabilities and obligations which in the aggregate are
immaterial) whether accrued, absolute, contingent or
otherwise (including without limitation product liability
as manufacturer, supplier or otherwise, warranty liability,
liabilities as guarantor or otherwise with respect to
obligations of others or lease liabilities or liabilities
for Taxes and whether due or to become due.
-15-
6.5.3 The Corporation has or will have good and marketable title
to all its properties and assets, including, without
limitation, all those referred to in the most recent
balance sheets included in the Audited Financial
Statements, the 1994 Audited Financial Statements, and the
Closing Balance Sheet, as of the respective dates thereof,
(other than any thereof which have been disposed of in the
ordinary course of business) free and clear of any Liens,
except for Liens specifically referred to in the said
balance sheets. All of the real and immovable properties
and interests therein, including, without limitation, the
immoveable property owned by the Corporation and located at
680 boulevard Monseigneur Dubois in Ville Saint-Jerome,
Quebec, reflected in any such balance sheet which are owned
by the Corporation are described in the Disclosure
Schedule. All properties, equipment and machinery and all
other tangible personal property either owned or leased by
the Corporation are in good operating condition and repair,
except for normal wear and tear and normal usage and are in
each case adequate for the conduct of the business of the
Corporation in the ordinary course. The plans delivered to
the Purchaser by the Vendors of the real or immovable
property described in the Disclosure Schedule are complete
and correct in all material respects. The Corporation has
and will have valid leasehold interests in all the
properties, equipment and machinery shown in the Disclosure
Schedule or reflected in the Audited Financial Statements
or to be reflected in the 1994 Audited Financial Statements
as being leased by it, free and clear of any Liens. All
such leases (complete and correct copies of which have been
made available to the Purchaser) are valid, subsisting and
effective in accordance with their respective terms and are
in good standing, and no event or condition exists which
constitutes or after notice or lapse of time or both would
constitute a default thereunder.
6.5.4 The Corporation does not own or possess any property right
or other asset which is not so owned or possessed solely
for the
-16-
purpose of conducting its business as such business
is now being conducted.
6.5.5 Except as set out in the Disclosure Schedule, there is not
6.5.5.1 any suit, action or other proceeding or
governmental investigation pending or threatened
against the Corporation in or before or by any
court, board or administrative or other tribunal;
6.5.5.2 any order, decree, injunction or judgment of any
court, administrative agency or board or admin-
istrative or other tribunal against or affecting
the Corporation;
6.5.5.3 any legal impediment to the continued operation in
the ordinary course of the properties and business
of the Corporation; or
6.5.5.4 to the Vendors' Best Knowledge, any violation by
the Corporation of any law, directive, or
legislation.
6.5.6 Except as set out in the Disclosure Schedule, the
Corporation does not hold any loan or advance due by, or
any stock, obligation or securities of, or any other
interest in, any Person.
6.6 Conduct of Business
6.6.1 Except as set out in the Disclosure Schedule, the business
of the Corporation has been conducted since the Audit Date
in the ordinary course, and since the Audit Date the
Corporation has not entered into any transaction other than
in the ordinary course of its business and, in particular,
without limiting the generality of the foregoing, the Cor-
poration has not since the Audit Date
-17-
6.6.1.1 purchased or redeemed directly or indirectly any
shares of the capital stock of the Corporation;
6.6.1.2 issued or sold or agreed to issue or sell any
shares of the capital stock of the Corporation or
any option, warrant, conversion or other right to
acquire any such share or any securities convert-
ible into or exchangeable for such shares, or
amended its charter or bylaws;
6.6.1.3 declared or paid any dividend or declared or made
any other distribution on any of the shares of any
class of its capital stock or on any other of its
securities;
6.6.1.4 acquired or sold, assigned, transferred, licenced,
terminated, leased or disposed of any Proprietary
Intangibles;
6.6.1.5 suffered or incurred any damage, destruction, loss
or liability (whether or not covered by any
insurance), any strike or other labour trouble, or
any loss of employees or customers that, either by
itself or in the aggregate has affected adversely
or may reasonably be expected to affect adversely,
to a material extent, the Corporation or the
business of the Corporation;
6.6.1.6 made or authorized any payment to an officer,
director, former director, shareholder, employee or
Affiliate of the Corporation, otherwise than at the
regular rates payable to them, by way of, salary,
pension, bonus, rent or other remuneration;
6.6.1.7 authorized or made any capital expenditure other
than expenditures which in the aggregate do not
exceed $1,700,000.
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6.6.1.8 incurred any indebtedness or extended any credit,
except in the ordinary course of business;
6.6.1.9 agreed to take any of the actions described in
Sections 6.6.1.1 through 6.6.1.8.
6.7 Contracts
6.7.1 Except as set out in the Disclosure Schedule, the
Corporation is not a party to any contract, guarantee or
agreement either written or oral, express or implied, or
arising solely by operation of law (referred to for the
purposes of this Section 6.7 as the "Contracts"), involving
a commitment, whether contingent or otherwise, by the
Corporation or by any other Person, in excess of $25,000 in
the case of contracts, guarantees and agreements other than
purchase orders of the Corporation for raw materials and
sales orders received from customers or in excess of
$100,000 in the case of purchase orders of the Corporation
for raw materials and sales orders received from customers,
other than any contract or agreement which is terminable at
the option of the Corporation without penalty upon not more
than ninety (90) days' notice.
6.7.2 Each of the Corporation's Contracts has been duly
authorized and executed by or on behalf of the respective
parties thereto, is a valid and binding obligation of each
of such parties, enforceable against such parties in
accordance with its terms, except as such enforceability
thereof may be limited by bankruptcy, insolvency,
reorganization, or other similar laws of general
application.
6.7.3 Neither the Corporation nor any other party to any of the
Contracts is in default or in breach of any such contract
or agreement, nor does there exist any state of facts
which, after notice or lapse of time or both, would
constitute such a breach
-19-
or default, except breaches or defaults which in the
aggregate in respect of any such contract or agreement
are immaterial, and neither the execution of this Agreement
by the parties hereto nor the implementation of any of the
provisions of this Agreement will constitute a default or
breach of any such contract or agreement.
6.7.4 Except as set out in the Disclosure Schedule, the
Corporation does not, pursuant to any contract, agreement,
franchise, licence, or permit hold, possess, use or have
access to, or have the right to hold, possess, use or have
access to, any property or right of any nature belonging to
any other Person which is necessary, desirable or useful in
the conduct of the business of the Corporation as such
business is being customarily conducted, other than any
such property or right for which an alternative or
substitute property or right is reasonably expected to be
available to the Corporation upon the termination of any
such contract, agreement, franchise, licence or permit on
terms and conditions substantially equivalent or more
favourable to the Corporation.
6.7.5 Except as set out in the Disclosure Schedule, the
Corporation is not bound by any contract or agreement
purporting to constrain or limit the Corporation or in the
conduct of its business and affairs including, without
limitation, any agreement concerning confidentiality or
non-competition.
6.7.6 The Disclosure Schedule sets out all grants, subventions
and other benefits to which the Corporation is now or in
the future may become entitled to receive from any
government or municipality or from any department, board or
other instrumentality thereof, other than any such grants,
subventions or other benefits which accrue or become
available by operation of the law generally to Persons con-
ducting businesses similar to those being conducted by the
Corporation, and the Corporation is not in default to
comply with the terms
-20-
and conditions upon which it is or may become entitled to
receive any such grant, subvention or other benefit,
except as set out in the Disclosure Schedule.
6.7.7 Except as set out in the Disclosure Schedule, the
Corporation is not a party to or bound by (i) any
collective bargaining agreement or any other agreement with
any union of employees, (ii) any agreement for the benefit
of or with its employees, directors, officers or
shareholders, or (iii) any trust fund, arrangement or any
pension, bonus, profit sharing, compensation, retirement,
deferred compensation, illness or other plan, for the
benefit of or with its employees, directors, officers or
shareholders. There are no unfunded liabilities of the
Corporation in respect of any agreement or plan, including
without limitation the plans referred to in the Disclosure
Schedule, established for the benefit of its employees,
directors or officers.
6.8 Insurance
6.8.1 The Corporation, the business of the Corporation and the
Corporation's properties are insured with financially sound
and reputable insurers against claims, losses and damages
from all such liabilities, hazards and risks, to such
extent and in such amounts and with such deductible amounts
therefrom as is customary for Persons operating like
businesses and owning like properties, all as provided for
in and by the policies and contracts of insurance described
in the Disclosure Schedule (which describes types of
coverage, amount and policy numbers).
6.8.2 All such policies and contracts of insurance are in full
force and effect, and the Corporation is in good standing
with respect to each such policy or contract.
-21-
6.9 Taxes
6.9.1 The Corporation has duly and timely filed all tax returns
required to be filed by it and has paid all Taxes which are
due and payable on or prior to the date hereof; adequate
provision has been made in the Audited Financial Statements
and will be made in the 1994 Audited Financial Statements
for all such Taxes payable for the current year for which
tax returns are not yet required to be filed; there are no
agreements, waivers, or other arrangements providing for an
extension of time with respect to the filing of any tax
return or the payment of any Taxes by the Corporation;
there are no actions, suits, proceedings, investigations or
claims, threatened or pending against the Corporation in
respect of Taxes, nor are there any matters under
discussion with any governmental or municipal authority
relating to Taxes asserted by any such authority; the
Corporation has been assessed by all federal and provincial
tax authorities having jurisdiction up to and including the
year 1993.
6.9.2 The Corporation has withheld from each payment made to any
of its officers, directors, employees, shareholders or
creditors, all amounts which it is required by the laws to
which it is subject to withhold or deduct and has duly
remitted all amounts so withheld or deducted to the proper
recipients thereof within the delays and in the manner
required by such laws.
6.10 Patents, Trade Marks and Copyright
6.10.1 The Corporation owns free and clear of any Liens or is
licenced or otherwise has the right to use in the manner
that the same is now being used each of the Proprietary
Intangibles presently used in the business of the Cor-
poration, all of which are as set out in the Disclosure
Schedule, and the Corporation has not
-22-
granted any licence, permit or right to use such Proprietary
Intangibles nor any of them.
6.10.2 No Person has made or threatened to make a claim to the
right to use any of such Proprietary Intangibles or to deny
to the Corporation the right to use the same, except as set
forth in the Disclosure Schedule.
6.10.3 No other Proprietary Intangibles are owned by the
Corporation or are used or required to be used in the
business of the Corporation.
6.11 Environmental Matters
6.11.1 In this Section 6.11, the following terms shall have
the following meanings respectively:
"Environment" refers, but is not limited to every layer of the earth
including the air and the atmosphere, land (including the soil
surface, subsurface and all underground areas, including those
submerged by water) and water (including all surface water, subsurface
water and groundwater), all organic and inorganic and all animate and
inanimate matter;
"Environmental Approval" means any permit, licence, certificate of
authorization, authorization, approval, attestation, consent or other
instrument or document, including, without limitation, those of an
administrative nature, required pursuant to the Environmental Laws;
"Environmental Conditions" refers to any contamination or damage to
the Environment, including any contamination or damage caused by or
relating to the generation, production, use, handling, storage,
treatment, transportation, disposal, elimination, recycling, reuse,
valorization, release, spilling, leaking, pumping, pouring, emitting,
emptying, discharging,
-23-
ejecting, escaping, leaching, disposing,
seeping, draining, dumping, migrating or threatened release of
Hazardous Materials by the Corporation or its predecessors in
interest, including, without limitation, any soil or groundwater
contamination existing on any Facility which exceeds the A criteria of
the Politique de rehabilitation des terrains contamines of the Quebec
Government; with respect to claims or potential claims by employees,
"Environmental Conditions" also includes the exposure of persons to
Hazardous Materials at a workplace of the Corporation;
"Environmental Laws" means any federal, provincial or municipal law,
by-law, regulation, rule, policy, directive, protocol, order, decree
or code, including the provisions of any Environmental Approval, which
applies to any Facility, the Corporation and its operations, and which
concerns, in whole or in part, directly or indirectly, the protection
or maintenance of the quality of the Environment or the health and
safety of the public and of employees;
"Environmental Noncompliance" means any violation of any Environmental
Law or any Environmental Approval;
"Facilities" means any facility, land, property or location owned,
leased, operated or used or previously owned, leased, operated or used
by the Corporation or its predecessors in interest, and
"Hazardous Materials" means any substance, constituent, contaminant,
waste, waste material
(i) that is likely, immediately or at some future
time, to alter or cause harm or damage or other impairment to the
Environment or to endanger or diminish human life, safety, well-being
or comfort; or
-24-
(ii) that is deemed or presumed, in accordance with any
Environmental Law, to be potentially toxic or hazardous.
6.11.2 Except as set forth in the Disclosure Schedule,
6.11.2.1 there are no investigations, inquiries,
administrative proceedings, remedial orders,
actions, suits, claims, legal proceedings or any
other proceeding pending or threatened against the
Corporation which involve, or relate to,
Environmental Conditions, Environmental
Noncompliance or the release, use or disposal of
any Hazardous Materials at any Facility;
6.11.2.2 to the Vendors' Best Knowledge, there are no
conditions, activities, procedures or other facts
or circumstances at any Facility which constitute
or could be reasonably expected to constitute in
the future an Environmental Noncompliance or an
Environmental Condition;
6.11.2.3 to the Vendors' Best Knowledge, the Corporation
has all Environmental Approvals that are required
in order to carry on its operations and activities
and said Environmental Approvals are in full force
and effect; the Corporation is in compliance with
all said Environmental Approvals;
6.11.2.4 to the Vendors' Best Knowledge there is no friable
asbestos or urea formaldehyde in any walls,
roofing or plumbing in any of the Facilities;
6.11.2.5 other than the transformers currently in use or
held as spares, to the Vendors' Best Knowledge the
Corporation does not use or store any
-25-
polychlorinated biphenyls ("PCBs") in a manner
which constitutes an Environment Noncompliance;
6.11.2.6 to the Vendors' Best Knowledge, there are no and
have not been any processes, operations, equipment
or any other activity at or on any Facility or in
the course of transportation from or to any
Facility which currently result or have in the
past resulted in the release or threatened release
of Hazardous Materials into the Environment, or
which otherwise contribute or contributed to
Environmental Conditions or constitutes or
constituted an Environmental Noncompliance;
6.11.2.7 there are no underground storage tanks, or
underground piping associated with tanks, used for
the containment or management of Hazardous
Materials at any Facility which do not have a full
secondary containment system in place, and there
are no abandoned underground storage tanks at any
Facility which have not been either abandoned in
place or removed pursuant to an Environmental
Approval in accordance with Environmental Laws;
6.11.2.8 to the Vendors' Best Knowledge, none of the
Facilities has ever been used as a waste disposal,
waste storage or landfill site;
6.11.2.9 to the Vendors' Best Knowledge, the Corporation
has complied with all contracts, agreements or
understandings entered into with the government
authorities relating to environmental matters; and
6.11.2.10 all engineering and environmental data and
studies with respect to the Corporation or the
Facilities which have been prepared in the last
five years and
-26-
which are in the possession of the Vendor have been
delivered to the Purchaser.
6.12 Labour Relations
Without restricting the provisions of Section 6.7.7 and except as
set out in the Disclosure Schedule:
6.12.1 there is no collective agreement governing the labour
relations of the Corporation and its employees, and no
union has been certified in respect thereof, nor is any
proceeding in process for obtaining a union certification
or the conclusion of a collective agreement with respect to
such employees;
6.12.2 the Corporation has observed in all respects the
provisions of all applicable laws and regulations
respecting employment, including, but not limited to,
labour standards legislation and regulations and
legislation and regulations prohibiting discrimination, and
there is no complaint, civil action or other proceeding in
process alleging a violation of any such law or regulation;
and
6.12.3 the Corporation has not received any remedial order or
notice of offence under (a) the Act Respecting Occupational
Health and Safety (Quebec) R.S.Q., c. S-2.1, (b) the
Workmen Compensation Act (Quebec) R.S.Q., c. A-3 or (c) the
Act Respecting Industrial Accidents and Occupational
Diseases (Quebec) R.S.Q., c. A-3.001, or under equivalent
statutes or regulations in other jurisdictions, except in
respect of matters which have been settled or remedied
since the issuance of such order or notice, and the
Corporation has performed all its financial or monetary
obligations under such statutes or regulations towards its
employees and towards the Commission or equivalent body
having jurisdiction in respect thereof, and, to the
knowledge of either of the Vendors, there are no facts
which may give rise to a claim for which the Corporation
might
-27-
be held liable under the provisions of the said
statutes or regulations.
6.13 Bank Accounts, Etc.
The Disclosure Schedule sets out the name of
6.13.1 each bank, trust company or other Person with which the
Corporation has an account or safekeeping arrangement or
safety deposit box and the names of each Person authorized
to operate or have access to such account, arrangement or
box on behalf of the Corporation; and
6.13.2 each Person holding a general or special power of
attorney from the Corporation with a summary of the terms
thereof.
6.14 Conflicting Interests
Neither the Vendors nor any Affiliate of either of the Vendors or
of the Corporation, nor any officer, director, or shareholder of
either of the Vendors or of any such Affiliate or of the
Corporation, nor any member of their respective families owns, or
during the last 3 years has owned, directly or indirectly, or has
or during the last 3 years has had a substantial ownership
interest in any business, corporate or otherwise, which is a
party to, or in any property which is the subject of, business
arrangements with the Corporation or which is competitive with
any business or property of the Corporation.
6.15 No Finder's or Broker's Fee
No Person other than Werner Management Consultants Inc. and/or
Martin Rubenstein has, or as a result of any of the transactions
contemplated hereby will have, as a result of any commitment of
either of the Vendors or of the Corporation towards such Person,
any right, interest or valid claim against or upon the Purchaser
or the Corporation or any of their respective properties for any
commission,
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fee, or other compensation as broker or finder or for
services in any similar capacity. At or prior to the Closing,
the Vendors and/or the Corporation will pay, to the complete
exoneration of the Purchaser and the Corporation, any and all
commissions, fees and other compensation due to the said Werner
Management Consultants Inc. and/or Martin Rubenstein and will
indemnify the Purchaser and hold the Purchaser harmless against
and from any and all claims, demands, losses, suits, costs and
expenses suffered or incurred by the Purchaser in respect
thereof.
6.16 Vendors' Residence
Neither of the Vendors is a non-resident within the meaning of
that term as used in the Income Tax Act of Canada.
6.17 Full Disclosure
6.17.1 The Vendors, by their respective duly appointed
officers, have made or caused to be made due enquiry with
respect to each of the representations, warranties, and
statements contained in this Agreement and in each of the
schedules, certificates, documents and other writings
referred to herein or furnished to the Purchaser hereunder,
and none of the same contains any untrue statement of a
material fact or omits to state a material fact necessary
to make the statements contained herein and therein not
misleading.
6.17.2 Except as set out herein or in the Disclosure Schedule,
there is no fact or circumstance presently known to the
Vendors which materially adversely or in the future may (so
far as the Vendors can now reasonably foresee) materially
adversely affect the condition (financial or otherwise),
property, assets, liabilities, business, operations, or
prospects of the Corporation or the ability of the Vendors
to perform their obligations hereunder.
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6.18 Investment
6.18.1 Each of Vendors understands that the Notes (and any
underlying shares of Culp common stock) have not been, and
will not be, registered under the Securities Act, or under
the securities laws of any state of the United States or
any province of Canada, and are being offered and sold in
reliance upon U.S. federal, state and provincial exemptions
for transactions not involving any public offering.
6.18.2 Each of the Vendors is acquiring the Notes (and any
underlying shares of Culp common stock) solely for its own
account for investment purposes, and not with a view to the
distribution thereof.
6.18.3 Each of Vendors is a sophisticated investor with
knowledge and experience in business and financial matters
and has received certain information concerning the
Purchaser and Culp and has had the opportunity to obtain
additional information as desired in order to evaluate the
merits and the risks inherent in holding the Notes (and any
underlying shares of Culp common stock).
6.18.4 Each of the Vendors is able to bear the economic risk
and lack of liquidity inherent in holding the Notes (and
any underlying shares of Culp common stock), and is an
accredited investor within the meaning of Rule 501(a) of
the Regulation D promulgated under the Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendors as follows:
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7.1 Enforceability of the Agreement
The Purchaser has full power and authority to purchase and
acquire the Purchased Shares as herein provided and has been duly
authorized to execute and become a party to this Agreement and to
consummate the transactions herein provided.
7.2 No Violation
Neither the entering into of this Agreement nor the consummation
of any of the transactions contemplated hereby will result in the
violation of any of the terms or provisions of the constating
documents or by-laws of the Purchaser or of any agreement,
written or oral, to which the Purchaser is a party or any law or
regulation of any jurisdiction to which the Purchaser is subject.
7.3 No Legal Proceedings
The Purchaser is not aware of any legal proceedings pending or
threatened or of any circumstances which may reasonably be
expected to give rise to such proceedings which in any way might
interfere with the purchase of or payment for the Purchased
Shares or the consummation of any of the transactions herein
contemplated.
7.4 No Finder's Fee
No Person has, or as a result of any of the transactions
contemplated hereby will have, by reason of any commitment of the
Purchaser towards such Person, any right, interest, or valid
claim against or upon the Vendors or any property of the Vendors
for any commission, fee, or other compensation as broker or
finder or for services in any similar capacity.
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7.5 Purchaser's Residence
The Purchaser is resident in Canada but is an American as defined
in and for the purposes of the Investment Canada Act.
8. SURVIVAL AND RELIANCE ON REPRESENTATIONS AND
WARRANTIES AND INDEMNIFICATION
8.1 Survival Notwithstanding Investigation
Notwithstanding any investigation conducted before or after the
Closing Date and notwithstanding any actual or implied knowledge
or notice of any fact or circumstance which any Person may have
as a result of such investigation or otherwise, the parties
hereto shall be entitled to rely upon the representations and
warranties set forth herein and the obligations of the parties
hereto with respect thereto shall survive the Closing Date and
shall continue in full force and effect in accordance with the
terms of this Section 8.
8.2 Indemnification by Vendors
The Vendors shall be liable jointly to the Purchaser and to the
Corporation and shall jointly defend, indemnify and hold harmless
the Purchaser and the Corporation against any and all loss,
liability or expense, excluding indirect or consequential
damages, arising directly or indirectly out of
8.2.1 the breach of any agreement, covenant, representation or
warranty of the Vendors contained in this Agreement or in
any document required to be furnished by the Vendors to the
Purchaser hereunder and
8.2.2 the non-fulfillment of any agreement, covenant or
obligation of either of the Vendors contained in this
Agreement or in any other agreement or contract required to
be entered into by
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either of the Vendors pursuant hereto to the extent not
waived in writing by the Purchaser.
8.3 Indemnification by Purchaser
The Purchaser shall be liable to the Vendors and shall defend,
indemnify and hold harmless the Vendors against any and all loss,
liability or expense, excluding indirect or consequential
damages, arising directly or indirectly out of
8.3.1 the breach of any agreement, covenant, representation or
warranty by the Purchaser contained in this Agreement or in
any document required to be furnished by the Purchaser to
the Vendors hereunder and
8.3.2 the non-fulfillment of any agreement, covenant or
obligation of the Purchaser contained in this Agreement or
in any contract or agreement required to be entered into by
the Purchaser pursuant hereto, to the extent not waived in
writing by the Vendors.
8.4 Indemnification against Third Party Claims
8.4.1 Promptly upon receipt by either the Purchaser, either of
the Vendors or the Corporation (herein referred to as the
"Indemnitee") of notice of any Third Party Claim in respect
of which Indemnitee proposes to demand indemnification from
a party to this Agreement (the "Indemnitor"), the
Indemnitee shall give notice to that effect to the
Indemnitor with reasonable promptness; provided, however,
that failure to give or delay in giving such notice shall
not relieve the Indemnitor of its obligations hereunder
except and solely to the extent of any prejudice caused to
the Indemnitor by such failure or delay.
8.4.2 The Indemnitor shall, in the event of a Third Party Claim
in relation to Taxes, immediately pay all such Taxes,
subject to
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the Indemnitor's right to reimbursement, in
whole or in part, if the final decision rendered in respect
of such Third Party Claim rejects same, in whole or in
part.
8.4.3 The Indemnitor shall have the right by notice to the
Indemnitee not later than 30 days after receipt of the
notice described in Section 8.4.1 to assume the control of
the defence, compromise or settlement of the Third Party
Claim, provided that
8.4.3.1 such assumption shall, by its terms, be without
cost to the Indemnitee; and
8.4.3.2 the Indemnitor shall at the Indemnitee's request
furnish it with reasonable security against any
costs or other liabilities to which it may be or
become exposed by reason of such defence,
compromise or settlement.
8.4.4 Upon the assumption of control by the Indemnitor as
aforesaid, the Indemnitor shall, at its expense, diligently
proceed with the defence, compromise or settlement of the
Third Party Claim at Indemnitor's sole expense, including
employment of counsel reasonably satisfactory to the
Indemnitee and, in connection therewith, the Indemnitee
shall co-operate fully, but at the expense of the
Indemnitor, to make available to the Indemnitor all
pertinent information and witnesses under the Indemnitee's
control, make such assignments and take such other steps as
in the opinion of counsel for the Indemnitor are necessary
to enable the Indemnitor to conduct such defence, provided
always that the Indemnitee shall be entitled to reasonable
security from the Indemnitor for any expense, costs or
other liabilities to which it may be or may become exposed
by reason of such co-operation.
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8.4.5 The final determination of any such Third Party Claim,
including all related costs and expenses, will be binding
and conclusive upon the parties hereto and the Corporation
as to the validity or invalidity, as the case may be, of
such Third Party Claim against the Indemnitor hereunder.
8.4.6 Should the Indemnitor fail to give notice to the Indemnitee
as provided in Section 8.4.3, the Indemnitee shall be
entitled to make such settlement of the Third Party Claim
as in its sole discretion may appear advisable, and such
settlement or any other final determination of the Third
Party Claim shall be binding upon the Indemnitor.
8.5 Indemnification to be After Tax, Insurance, Etc.
The amount of the indemnification for any loss, liability or
expense which the Vendors, Purchaser or the Corporation shall be
entitled to receive from any party hereto pursuant to this
Agreement shall be payable on demand and shall be determined
after giving effect to any insurance recoveries, tax savings and
recoveries from third parties other than the Corporation.
8.6 Expiry of Liability
8.6.1 The agreements, covenants, representations and warranties
of the Vendors and the Purchaser herein, other than those
of the Vendors relating to any liability of the Purchaser
or of the Corporation for the payment of any Taxes and
those of the Vendors in Section 6.11, shall terminate upon
the expiry of the period of two (2) years following the
Closing Date, except to the extent that, during such
period, the Purchaser or the Corporation shall have given
notice to the Vendors of a claim in respect of any such
agreement, covenant, representation or warranty, including
reasonable description of the claim and the basis therefor,
in which case such agreement, covenant,
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representation and warranty shall continue in full force and
effect until the final determination of such claim.
8.6.2 The agreements, covenants, representations and warranties
herein of each of the Vendors relating to any liability of
the Purchaser or of the Corporation for the payment of
Taxes arising out of this Agreement, arising from the
business and assets of the Corporation as conducted or held
up to and including the Closing Date, or arising from any
of the transactions contemplated by this Agreement, shall
terminate upon the expiry of the limitation or prescription
period under the relevant taxing statutes, but the
Purchaser covenants that, from and after the Closing Date,
it will exercise all reasonable efforts to ensure that
neither it nor the Corporation, without prior notice to the
Vendors, enters into any agreement, waiver or other
arrangement which provides for an extension of time with
respect to the filing of any tax return or the payment or
assessment of any Taxes dealt with by any such agreement,
covenant, representation or warranty.
8.6.3 The representations and warranties of each of the Vendors
contained in Section 6.11 shall survive the Closing
indefinitely.
8.7 De Minimis. The Vendors and the Purchaser each agree that they
shall not assert against the other and the Purchaser shall not
assert against the Balance or any Bank Guarantee delivered to the
Purchaser pursuant to Sections 3.4 or 3.5 any claim or claims
under this Section 8 and the Indemnitor shall not be obliged to
indemnify the Indemnitee in respect of any such claim or claims
unless and until the aggregate amount of the claim or claims
reported to the other to that date, including the claim or claims
then being reported, is in excess of $75,000.
8.8 Limitation of Liability. The liability of each of the Vendors
as an Indemnitor in respect of any claim or claims of the
Purchaser as an Indemnitee for indemnification under this
Section 8 is limited to an
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aggregate amount of Five Million Dollars ($5,000,000) and
the liability of the Purchaser in respect of any such claim or
claims of the Vendors is limited to an aggregate of Ten Million
Dollars ($10,000,000).
8.9 Set-Off. Except when a Purchaser's Default has occurred and has
not, except in the case of default of the Purchaser to deliver
certificates for shares of CULP within the delays stipulated in
Sections 3.3 and 3.4 which shall require no notice, been
rectified by the Purchaser within ten (10) days following notice
thereof given by the Vendors to the Purchaser, the Purchaser
shall be entitled to set off and claim against (i) the Balance or
(ii) any portion of the Balance or any Bank Guarantee delivered
to the Purchaser pursuant to Sections 3.4 or 3.5 any amount of
indemnification due by the Vendors to the Purchaser under this
Section 8, subject to the provisions of Sections 3.4 and 3.5 with
respect to the enforceability of the Bank Guarantee.
8.10 Arbitration.
8.10.1 All disputes with respect to claims for indemnification
pursuant to this Section 8 arising from an alleged
breach of any representation or warranty made in
Section 6 or Section 7 shall be decided by a single
arbitrator (selected as described below) in the City of
Montreal, Quebec in accordance with the rules of Book
VII of the Code of Civil Procedure of the Province of
Quebec (except to the extent modified in this Section
8.10) unless the parties mutually agree in writing to
the contrary. The arbitrator will be one of the three
persons designated on the List of Arbitrators (the
"Arbitrator List" to be delivered at closing in
accordance with Sections 9.10 and 10.2 . The
arbitrator shall be selected from the Arbitrator List
in the order of preference established thereby, on the
basis of the availability of the person whose name is
listed. For greater clarity, if the first person named
on the Arbitrator List is unavailable, the second
person named will be selected and if the second person
named is unavailable, the third party will be selected.
The selection process will be
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carried out jointly by the Vendors and the Purchaser
within five (5) business days of the date of the Notice
provided for in Section 8.10.2.
8.10.2 Notice of the demand for arbitration (the "Notice") by
either party hereto (the party making a demand for
arbitration shall be referred to herein as the
"Notifying Party") shall be made in writing to the
other party to this Agreement (the party receiving a
demand for arbitration from a Notifying Party shall be
referred to herein as the "Notified Party"). The
Notice shall be accompanied, if desired, by the
Notifying Party's written request for the Notified
Party's production of documents related to the subject
matter of the demanded arbitration. The Notified Party
shall within five (5) business days of its receipt of
the Notice deliver to the Notifying party all documents
reasonably requested by the Notifying Party. Within
five (5) days after its receipt of the Notice, the
Notified Party shall deliver to the Notifying Party, if
desired, its written request for the Notifying Party to
produce documents related to the subject matter of the
demanded arbitration. The Notifying Party shall have
five (5) business days following its receipt of such
written request from the Notified Party to produce all
reasonably requested documents. The period between the
date of delivery of the Notice and the expiration of
the fifth (5th) business day following the Notifying
Party's receipt of the Notified Party's request for
production of documents shall be referred to herein as
the "Discovery Period". Anything herein to the
contrary notwithstanding, a party shall not be required
to disclose documents protected by the attorney-client
privilege. The parties shall not be entitled to
conduct any discovery other than that provided for
herein, i.e. the parties shall not be entitled to
request or take depositions or submit written
interrogatories or perform any other discovery. All
meetings and discussions between the Vendors, or either
of them, and the Purchaser, or their representatives,
held for purposes of
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resolving disputes shall be considered settlement
discussions and any statements made by the Vendors,
the Purchaser or any of their respective
representatives, at or in connection with such meetings
or discussions, may not be used or referred to in
any way in any subsequent proceeding.
8.10.3 Within five (5) business days after the expiration of the
Discovery Period, the arbitrator shall set a time and
date for a prehearing conference between the arbitrator
and the parties to the arbitration, which such
prehearing conference shall be held within fifteen (15)
days of the expiration of the Discovery Period. At the
prehearing conference, the arbitrator shall resolve all
disputes between the parties with respect to permitted
document production requests and shall set a date for
convening the parties to the arbitration within ten
(10) days of the prehearing conference.
8.10.4 The arbitration shall be completed within three (3)
consecutive business days. The Notifying Party shall
have the first day to present its position and the
Notified Party shall have the next one and one-half(1 1/2)
successive business days to present its position. The
Notifying Party shall then have one-half of one
business day to rebut the position of the Notified
Party. The amount of time spent by a party cross-
examining the witnesses presented by the other party
shall be deducted from the time allotted to the party
conducting the cross-examination for the presentation
of its position or from its rebuttal of the other
party's position. The arbitrator shall render a
decision within fourteen (14) days following the
completion of the arbitration. The award rendered by
the arbitrator shall be final and binding upon the
parties. The arbitrator shall have the power to award
attorneys' fees to either party in accordance with the
terms of this Agreement. Interest shall accrue on the
award from the date of the award to the date of payment
at the then current prime rate of The
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Toronto Dominion Bank as such may be amended from time
to time.
8.10.5 The expense of any such arbitration (including attorneys'
fees incurred in the arbitration process by the
participating parties) (a) shall be borne by the party
seeking indemnification in the proportion that the
aggregate dollar amount of the disputed items submitted
to the arbitration by the party seeking indemnification
that are unsuccessfully disputed by such party bears to
the aggregate dollar amount of such items submitted to
the arbitration by such party and (b) shall be borne by
the Indemnifying Party in the proportion that the
aggregate dollar amount of the disputed items submitted
to the arbitration by the party seeking indemnification
that are successfully disputed by such party bears to
the aggregate dollar amount of such items submitted to
the arbitration by such party.
8.11 Nonexclusivity of Remedy; Waiver of Certain Rights
Except for those provisions requiring arbitration pursuant to
Section 8.10 with respect to an alleged breach of a warranty or
representation in Sections 6 or 7 for which arbitration pursuant
to Section 8.10 shall be the exclusive remedy, the
indemnification provisions of Section 8 are in addition to, and
not in derogation of, any statutory, equitable, or civil or
common law remedy (including, without limitation, any remedy
described in Section 13.2) any party may have for any and all
breaches or failures of representations, warranties, covenants,
contracts and agreements made in or pursuant to this Agreement or
with respect to the transactions contemplated hereby.
9. COVENANTS OF THE VENDORS
The Vendors covenant and agree with the Purchaser as follows:
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9.1 Best Efforts to Maintain and Preserve
The Vendors will exercise their best efforts with due diligence
to ensure that, from the date hereof until the Closing Date,
9.1.1 the business of the Corporation will be conducted, except
as otherwise herein provided or approved in writing by the
Purchaser, only in the ordinary course in substantially the
same manner as heretofore and in such manner that each of
the representations and warranties made by the Vendors
herein as of the date hereof will, on the Closing Date, be
true and correct;
9.1.2 the business organization of the Corporation will be
maintained intact, the services of its competent officers
and employees will be retained, and its relationships with
and the goodwill of its customers, suppliers and others
having business relations with it will be preserved, the
whole so as to maintain the goodwill and on-going business
of the Corporation.
9.2 Notice of Cessation in Ordinary Course
The Vendors will promptly notify the Purchaser of the happening
or existence or apprehended happening or existence of any event
or circumstance on or prior to the Closing Date by reason of
which the business of the Corporation has ceased or may cease to
be conducted in the ordinary course as heretofore or by reason of
which the representations and warranties made by the Vendors
herein may cease to be true and correct.
9.3 Access for Purchaser
The Vendors will cause the Corporation to permit the Purchaser by
its duly appointed officers, employees and representatives at any
time and from time to time prior to the Closing Date, during
reasonable business hours, to make such investigation of the
business, properties and rights
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of the Corporation and of its
financial and legal condition as the Purchaser may deem necessary
or advisable in order to become familiar with such business,
properties and assets and other matters including, without
limitation, full access to all premises at which any business is
carried on by the Corporation; and produce or cause to be
produced for inspection by the Purchaser, its officers, employees
and representatives, all leases, licences, contracts, title
documents, insurance policies, pension plans, guarantees, lists
of salaries (management and others), management contracts,
documents relating to pending lawsuits, title deeds and share
certificate books, share registers, constating documents of the
Corporation and all other corporate documents, and all books,
records, accounts and other statements, and all other data which
in the opinion of the Purchaser or its said officers, employees
or representatives are required to make an examination of the
Corporation and its business, properties and rights.
9.4 Maintain Insurance
The Vendors will cause the Corporation to continue to maintain in
full force and effect all policies of insurance now in effect or
duly renew the same upon substantially the same terms and
conditions.
9.5 Corporate Proceedings for Transfer
The Vendors will cause the Corporation to take all necessary
steps and proceedings as may be considered appropriate by counsel
for the Purchaser in order that the Purchased Shares may be duly
and regularly transferred to the Purchaser as of the Closing
Date.
9.6 Replacement of Officers and Directors
The Vendors will cause such directors and officers of the
Corporation to be replaced at or prior to the Closing Date by
such nominees as the Purchaser may notify to the Vendors not less
than 3 days prior to the Closing Date.
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9.7 Further Assurances
The Vendors, upon the request of the Purchaser, whether before or
after the Closing, shall do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged or delivered all such
further acts, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable in the opinion of counsel to
the Purchaser to effect complete consummation of the transactions
contemplated by this Agreement.
9.8 Exclusivity
Neither of the Vendors will (and will not cause or permit the
Corporation to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (other than
the Purchaser) relating to the acquisition of any capital stock
or other voting securities, or any substantial portion of the
assets of, the Corporation (including any acquisition structured
as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish
any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Vendors will not
vote the Purchased Shares in favor of any such acquisition
(including any merger, consolidation, or share exchange). The
Vendors will notify the Purchaser immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of
the foregoing.
9.9 1994 Audited Financing Statements
The Vendors will cause Price Waterhouse, Chartered Accountants,
to prepare and deliver to the Corporation prior to February 15,
1995 the audited financial statements of the Corporation for the
year ended December 31, 1994. The Purchaser's designated
accountant shall have the right to attend the inventory count
carried out in connection with the preparation of such audited
financial statements for the year ended December 31, 1994 by
Price Waterhouse, Chartered Accountants and
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the Vendors will give timely notice of the date and time of such
count to the Purchaser to permit the attendance of such designated
accountant.
9.10 List of Arbitrators
The Vendors shall agree with the Purchaser and initialled a List
of Arbitrators for the purposes of any required arbitration in
accordance with Section 8.10.
10. COVENANTS OF THE PURCHASER
The Purchaser covenants with the Vendors as follows:
10.1 Discharge of Toronto Dominion Bank Security
The Purchaser concurrently with the Closing will pay to the
Toronto Dominion Bank (the "Bank") all amounts owing by the
Corporation to the Bank at Closing and discharge all security
held by the Bank in respect of such amounts.
10.2 List of Arbitrators
The Purchaser shall agree with the Vendors and initial a List of
Arbitrators for the purposes of any required arbitration in
accordance with Section 8.10.
10.3 Investment Canada Act
The Purchaser will in accordance with the Investment Canada Act,
give notice of its acquisition of the Purchased Shares following
the Closing and will indemnify the Vendors against and hold them
harmless from any and all liability which they may suffer or
incur under the Investment Canada Act by reason of the failure of
the Purchaser to fulfill any of its obligations under that Act.
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11. CONDITIONS OF CLOSING
11.1 Conditions for the Benefit of the Purchaser
The purchase and sale of the Purchased Shares is subject to the
following terms and conditions for the exclusive benefit of the
Purchaser to be fulfilled and performed on or prior to the
Closing Date:
11.1.1 Representations and Warranties Remain Correct
Each of the representations and warranties of the Vendors
contained in this Agreement or in any certificate or other
document delivered to the Purchaser pursuant hereto shall be true
and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been
made on and as of such date and the Purchaser shall have received
on the Closing Date a certificate dated the Closing Date, in form
satisfactory to counsel for the Purchaser, signed by duly
authorized officers of both Vendors to the effect that such
representations and warranties referred to above are true and
correct on and as of the Closing Date with the same force and
effect as though made on and as of such date.
11.1.2 Compliance with Covenants
The Vendors shall have complied with all covenants and
agreements herein agreed to be performed or caused to be
performed by them or either of them on or prior to the
Closing Date.
11.1.3 Permits, Etc.
On or before the Closing Date, there shall have been
given to or obtained from, as the case may be, all
appropriate Persons, including without limiting the
generality thereof, all federal,
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provincial, state,
municipal or other governmental or administrative bodies,
all such notices, permits, approvals and consents, in
form and terms satisfactory to Counsel for the Purchaser,
as may be required in order to permit the change of
ownership of the Purchased Shares and the transactions
contemplated herein provided for to be completed without
affecting or resulting in the cancellation or termination
of any licence, permit, franchise, contract or other
right held by the Corporation, and without thereby
imposing on the Purchaser or the Corporation any
additional expense, liability, constraint, penalty or
other liability, which notices, permits, approvals and
consents shall include, without limiting the generality
of the foregoing, those set out in the Disclosure
Schedule.
11.1.4 Environmental Audit and Rectification of Environmental
Noncompliances and Environmental Conditions
An environmental audit is to be carried out by the
Purchaser in order to determine compliance of the
Facilities and operations of the Corporation with all
Environmental Laws and Environmental Approvals, and to
identify existing or potential Environmental
Noncompliances and Environmental Conditions (the
"Environmental Audit").
It is agreed that the Closing is conditional on, and
subject to, the full cooperation of the Vendors in the
conducting of the Environmental Audit and the
satisfaction of the Purchaser with the results thereof.
In the event that any Environmental Noncompliance or
Environmental Condition is required by the Purchaser to
be rectified by the Vendors prior to the Closing or as a
condition thereof, the Purchaser shall give notice
thereof to the Vendors requiring the Vendors to elect
either (i) to cause such rectification, entirely at their
cost, within a delay to be
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prescribed by the Purchaser in
such notice or (ii) to terminate this Agreement. The
Vendors shall give notice of their election to the
Purchaser within seven (7) days of the Purchaser's
notice. In the event that the Vendors elect to cause
such rectification within the delay prescribed by the
Purchaser, the Closing Date shall be deferred to a date
which is fifteen (15) days following written notice by
the Purchaser to the Vendors that the Purchaser is
satisfied with such rectification and the provision made
by the Vendors for the costs thereof. In the event that
the rectification is not completed within the prescribed
delay or if the Purchaser gives notice to the Vendors
that it is not satisfied therewith, this Agreement shall
terminate.
11.1.5 Title Search
Without prejudice to or in any way affecting the
representations and warranties provided by the Vendors in
Section 6.5.3, the Purchaser shall have completed an
examination of title to the immovable properties of the
Corporation and determined, to its satisfaction, that the
Corporation has good and marketable title to all its
immovable properties and interests therein, free and
clear of any Liens.
11.1.6 Due Diligence
Without prejudice to or in any way affecting the
representations and warranties provided by the Vendors in
this Agreement, the Purchaser shall have completed and be
satisfied with the results of its due diligence
investigation of the Corporation, including, without
limitation, such investigation of the business,
properties and rights of the Corporation and of its
financial and legal condition, including the level of
bank indebtedness, as the Purchaser may deem
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necessary or advisable in order to become familiar with such
business, properties and assets and other matters.
11.1.7 No Actions or Proceedings
No action or proceeding at law or in equity shall be pending or
threatened by any Person, including without limiting the
generality thereof any governmental authority, regulatory body or
agency to enjoin or prohibit:
11.1.7.1 the purchase and sale of the Purchased Shares
contemplated hereby or the right of the Purchaser
to own the Purchased Shares; and
11.1.7.2 the right of the Corporation to conduct its
operations and carry on its business in the normal
course.
11.1.8 Opinion of Vendors' Counsel
The Purchaser shall have received from Counsel for the Vendors a
favourable opinion addressed to the Purchaser, dated the Closing
Date in the terms of the draft opinion set out in Exhibit 4 with
such additions or modifications thereto as shall be mutually
agreed between Counsel for the Vendors and Counsel for the
Purchaser acting reasonably and as to such other matters incident
to the transactions contemplated hereby as the Purchaser or
Counsel for the Purchaser may reasonably request. In providing
such opinion, Counsel for Vendors may rely upon the opinion of
Bennett, Jones, Verchere with respect to matters governed by the
laws of the Province of Alberta and with respect to the matters
referred to in Sections 6.1.2 and 6.1.3 and shall express no
opinion with respect to matters governed by laws of the United
States.
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11.1.9 Corporate and Other Proceedings
All corporate and other proceedings of the Corporation in
connection with the transactions contemplated hereby, and all
documents and instruments incident hereto, shall have been duly
authorized and executed, shall be in form and substance to the
satisfaction of the Purchaser and Counsel for the Purchaser, and
the Purchaser and Counsel for the Purchaser shall have received
all such documents and instruments, or duly certified copies
thereof, as may be reasonably requested.
11.1.10 Replacement of Officers and Directors
Each of the officers and directors of the Corporation to be
replaced in accordance with the notice referred to in Section 9.6
shall have been replaced by the nominee of the Purchaser named in
such notice, and each such nominee shall have been duly appointed
or elected to the office or post designated in such notice.
11.1.11 Employment Agreements
Each of Maurice Wechsler and Henri Wechsler shall have executed
with the Corporation an employment agreement providing for
employee services to be furnished to the Corporation in return
for remuneration to be paid by the Corporation to each of the
said Maurice Wechsler and Henri Wechsler (at mutually agreed
intervals) equal to (i) a salary of Cdn.$150,000, (ii) such
expenses as shall be mutually agreed upon, and (iii) such bonus
incentives as shall be mutually agreed upon.
11.1.12 Release
Each officer and director of the Corporation, shall have
executed in favor of the Corporation a release of any
claim
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which he may have against the Corporation as
director, officer or employee of the Corporation in
respect of any matter occurring prior to the Closing
Date.
11.1.13 Non-Competition and Confidentiality Agreements
Each of Maurice Wechsler and Henri Wechsler and the Vendors shall
have executed with the Purchaser a non-competition and
confidentiality agreement in favour of the Corporation, the whole
in the form and terms of the draft agreement attached hereto as
Exhibit 5.
11.1.14 List of Arbitrators
A List of Arbitrators for the purposes of Section 8.10 shall have
been agreed and delivered, initialled by the Vendors and the
Purchaser, to the Purchaser in accordance with the provision of
Section 9.10.
11.1.15 Rescission on Failure to Fulfill
In case any of the foregoing conditions shall not be fulfilled
and performed at or before the Closing Date to the reasonable
satisfaction of the Purchaser and Counsel for the Purchaser, the
Purchaser may rescind this Agreement by notice to the Vendors and
in such event, the Purchaser shall be released from all
obligations and liability hereunder, the whole without prejudice
to any right of the Purchaser to claim for damages or loss of
profits arising out of such non-fulfillment or non-performance.
The conditions set out in this Section 11.1 are for the exclusive
benefit of the Purchaser and may be waived by it in whole or in
part by instrument in writing.
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11.2 Conditions for the Benefit of the Vendors
The purchase and sale of the Purchased Shares is subject to the
following terms and conditions for the exclusive benefit of the
Vendors to be fulfilled and performed on or prior to the Closing
Date.
11.2.1 Compliance with Covenants
The Purchaser shall have complied with all covenants and
agreements herein agreed to be performed or caused to be
performed by it on or prior to the Closing Date.
11.2.2 Employment Agreements
Each of Maurice Wechsler and Henri Wechsler shall have executed
with the Corporation an employment agreement as required in
Section 11.1.11.
11.2.3 List of Arbitrators
A List of Arbitrators for the purposes of Section 8.10
shall have been agreed and delivered, initialled by the
Vendors and the Purchaser, to the Vendors in accordance
with the provisions of Section 10.2.
11.2.4 Opinion of Culp's Counsel
The Vendors shall have received from Culp's counsel in the United
States a favourable opinion addressed to the Vendors affirming
the due execution, validity and enforceability of the guarantee
of Culp provided pursuant to Section 5 and the validity and
enforceability of the conversion right of the Vendors under the
Notes.
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11.2.5 Rescission on Failure to Fulfill
In case any of the foregoing conditions shall not be fulfilled
and performed at or before the Closing Date to the reasonable
satisfaction of the Vendors and Counsel for the Vendors, the
Vendors may rescind this Agreement by notice to the Purchaser and
in such event, the Vendors shall be released from all obligations
and liability hereunder, the whole without prejudice to any right
of the Vendors to claim for damages or loss of profits arising
out of such non-fulfillment or non-performance. The conditions
set out in this Section 11.2 are for the exclusive benefit of the
Vendors and may be waived by them in whole or in part by
instrument in writing.
12. CLOSING
The sale and purchase of the Purchased Shares herein provided for
shall be consummated and completed on the Closing Date at the Closing
Place.
12.1 At the Closing, the Vendors shall deliver or cause to be
delivered to the Purchaser free and clear of all Liens
12.1.1 a duly executed certificate or certificates for the
Purchased Shares, registered in the name of the Purchaser
or its duly appointed nominee and
12.1.2 all such other agreements, contracts, certificates,
opinions, consents, approvals, and other documents herein
required to be delivered by the Vendors or either of them
at or prior to the Closing Date and not theretofore
received by the Purchaser.
12.2 The Purchaser shall deliver or cause to be delivered to or to the
order of the Vendors the portion of the Purchase Price referred
to in paragraph 3.1 hereof in the form herein required to be so
delivered.
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13. MISCELLANEOUS
13.1 Notices, Etc.
Any communication provided for under this Agreement shall be in
writing in the English language and may be given to the Person to
whom it is addressed by delivering the same to or for or mailing
the same by certified mail to such Person at the address of such
Person as hereinafter set out or at such other address as such
Person shall have theretofore notified to the other party or
parties hereto. Any communication so addressed and delivered or
mailed as aforesaid shall be deemed to have been sufficiently
given or made on the date on which it was so delivered or five
(5) days following the date of mailing, as the case may be.
To MASGAN INC.: 145 Finchley Rd.
Hampstead, Quebec
H3X 3A3
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To SALORNA INC.: 141 Finchley Rd.
Hampstead, Quebec
H3X 3A3
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With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To the Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
With copy to: Ogilvy Renault
1981 McGill College
Suite 1100
Montreal, Quebec
H3A 3C1
Attention: Richard J.F. Bowie
13.2 Specific Performance
Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly,
each of the parties agrees that the other parties shall be
entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action
instituted in any court having jurisdiction over the parties and
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the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
13.3 Governing Law
This Agreement shall in all respects be governed by and construed
in accordance with the laws of the Province of Quebec, including
all matters of construction, validity and performance.
13.4 Time of the Essence
Time shall be of the essence of this Agreement.
13.5 Public Announcement
No public announcement with respect to this Agreement or any
transaction contemplated hereby shall be made by the parties
hereto unless and until the text of the announcement and the time
and manner of its release have been approved by the other party
hereto, provided that, if at any time, any party hereto shall be
bound by applicable law to make any such public announcement,
such party shall be at liberty to do so, after consultation with
the other party.
13.6 Expenses
Each party shall pay its own expenses incurred in connection with
the authorization, preparation, execution and performance of this
Agreement, including, without limitation, all fees and expenses
of its counsel, employees, agents and representatives.
13.7 Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors, heirs,
representatives and permitted assigns, provided that no benefit
under this Agreement
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may be voluntarily assigned by any party without the prior
consent of the other party.
13.8 References to Disclosure Schedule
Any matter declared in any numbered section of this Agreement to
be set out, stated, described or reflected in the Disclosure
Schedule shall be deemed to have been sufficiently disclosed to
the parties hereto for all purposes of this Agreement if, in a
section of the Disclosure Schedule bearing the same number, such
matter has been fully and plainly described or there is a cross
reference to another section of the Disclosure Schedule
containing such full and plain description.
13.9 Entire Agreement
This Agreement embodies the entire agreement and understanding
among the parties hereto and supersedes all prior agreements
between such parties. Neither this Agreement nor any of the
terms hereof may be changed, waived, discharged or terminated
otherwise than by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or
modification is sought. Any waiver of any term or condition or
any breach of any covenant of this Agreement shall not operate as
a waiver of any other such term or condition or breach, nor shall
any failure to enforce any provision hereof operate as a waiver
of such provision or of any other provision hereof.
13.10 Counterparts
This Agreement may be executed by the parties hereto in several
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall constitute but
one and the same instrument.
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13.11 Language
The parties hereto confirm that it is their wish that this
Agreement as well as all other documents relating hereto
including communications have been and shall be drawn up in
English only.
Les parties aux presentes confirment leur volonte que cette
convention, de meme que tous les documents, y compris tous avis,
s'y rattachant, soient redies en anglais seulement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first hereinbefore written.
MASGAN INC.
Per: Maurice Wechsler
Maurice Wechsler
SALORNA INC.
Per: Henri Wechsler
Henri Wechsler
3096726 CANADA INC.
Per: Franklin N. Saxon
Rayonese Textile Inc.
Financial Statements
December 31, 1993
Price Waterhouse
January 14, 1994
Auditors' Report
To the Shareholders of
Rayonese Textile Inc.
We have audited the balance sheet of Rayonese Textile Inc. as at
December 31, 1993 and the statements of loss and deficit and
changes in financial position for the year then ended. These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these financial statements present fairly, an all
material respects, the financial position of the company as at
December 31, 1993 and the results of its operations and the
changes in financial position for the year then ended in
accordance with generally accepted accounting principles.
Price Waterhouse
Chartered Accountants
Rayonese Textile Inc.
Balance Sheet
December 31
1993 1992
Assets
Current Assets
Accounts receivable $1,700,036 $1,854,831
Inventories (Note 2) 2,847,700 2,891,000
Prepaid Expenses 47,400 6,000
4,595,136 4,751,831
Property, plant and equipment (Note 3) 4,151,020 4,666,211
$8,746,156 $9,418,042
Liabilities
Current liabilities
Bank Indebtedness (Note 4) $2,027,283 $1,549,269
Accounts payable and accrued charges 563,763 844,455
Current portion of long-term debt
(Note 4) 420,000 420,000
Income taxes payable 1,998 1,607
Dividend payable __________ 130,000
3,013,044 2,945,331
Long-term debt (Note 4) 985,000 1,405,000
Deferred income taxes 497,297 587,297
4,495,341 4,937,628
Shareholders' Equity
Stated capital (Note 5) 4,110,000 4,110,000
Contributed surplus 493,137 493,137
Deficit (352,322)
(122,723)
4,250,815 4,480,414
$8,746,156 $9,418,042
Approved by the Board __________ Director ____________ Director
Rayonese Textile Inc.
Statement of Loss and Deficit
Year ended December 31
1993 1992
Gross sales $11,282,100 $13,151,964
Discounts 141,827 142,257
Net sales 11,140,273 13,009,707
Cost of goods sold 10,313,840 11,684,224
Gross profit 826,433 1,325,483
Selling expenses 292,477 299,658
Administrative expenses 642,517 725,880
Interest on long-term debt 99,944 141,670
Interest on demand loan 109,096 135,740
1,144,034 1,302,948
Income (loss) before income taxes (317,601) 22,535
Provision for income taxes
(recovery)
Current 1,998 1,607
Deferred (90,000) 5,137
(88,002) 6,744
Net income (loss) for the year (229,599) 15,791
Retained earnings (deficit),
beginning of year (122,723) 66,486
Dividends (205,000)
Deficit, end of year $ (352,322) $ (122,723)
Rayonese Textile Inc.
Statement of Changes in Financial Position
Year ended December 31
1993 1992
Operating activities
Net income (loss) for the year $ (229,599) $ 15,791
Items not involving a current
cash flow
Depreciation 597,997 596,098
Deferred income taxes (90,000) 5,137
Loss on disposal of fixed
assets 1,008
278,398 618,034
Net change in non-cash operating
elements of working capital (253,606) 1,414
Cash provided by operating
activities 24,792 619,448
Investment activity
Purchase of fixed assets - net (82,806) (77,240)
Financing activities
Dividends (205,000)
Repayment of term loan (420,000) (1,975,000)
New debt 2,000,000
Cash used in financing
activities (420,000) (180,000)
Net cash increase (decrease)
during the year (478,014) 362,208
Bank indebtedness, beginning of
year (1,549,269) (1,911,477)
Bank indebtedness, end of year $(2,027,283) $(1,549,289)
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993
1. Summary of significant accounting policies
Inventories
Inventories are valued at the lower of cost and net
realizable value.
Fixed assets and depreciation
Fixed assets are recorded at cost which is net of the
proceeds of government grants and investment tax credits.
Maintenance and repairs are charged against operations as
incurred.
Depreciation is based on the estimated useful lives of the
assets. The following methods and composite rates of
depreciation are used for the principal assets of the
business:
Building 5% diminishing balance
Machinery and equipment 6 straight-line - 20%
diminishing balance
Furniture and fixtures 20% diminishing balance
Automobiles and automotive
equipment 30% diminishing balance
Income taxes
Income taxes are accounted for on the tax allocation method
whereby taxes are fully provided for on reported income at
current tax rates. Deferred income taxes are a result of
claiming deductions from taxable income, as permitted by income
tax regulations, in amounts which do not coincide with those
charged for financial reporting purposes.
2. Inventories
1993 1992
Finished products $ 329,889 $ 265,606
Work in process 1,519,230 1,607,930
Raw materials 184,674 202,019
Factory supplies 813,907 815,445
$2,847,700 $2,891,000
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993 Page 2
3. Property, plant and equipment
1993
___________________________________
Accumulated
Cost depreciation Net
Land $ 27,740 $ $ 27,740
Building 2,384,494 1,650,150 734,344
Machinery and equipment 11,041,188 7,702,311 3,338,877
Furniture and fixtures 153,585 128,400 25,185
Automobiles and
automotive equipment 95,820 70,946 24,874
$13,702,827 $9,551,807 $4,151,020
1992
___________________________________
Accumulated
Cost depreciation Net
Land $ 27,740 $ $ 27,740
Building 2,371,846 1,609,070 762,776
Machinery and equipment 10,972,976 7,162,107 3,810,869
Furniture and fixtures 151,639 122,347 29,292
Automobiles and
automotive equipment 95,820 60,286 35,534
$13,620,021 $8,953,810 $4,666,211
4. Bank indebtedness and long-term debt
1993 1992
Term loan at bank prime rate
plus 1/2% repayable in
monthly installments of
$35,000 $1,405,000 $1,825,000
Less: Portion included in
current liabilities 420,000 420,000
$ 985,000 $1,405,000
The term loan is secured by a fixed and floating charge over
land, building, machinery and equipment.
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993 Page 3
Loan repayments over the next four years amount to:
1994 $420,000
1995 $420,000
1996 $420,000
1997 $145,000
Bank indebtedness is secured by a pledge of trade accounts
receivable and inventories to the bank.
5. Stated capital
The company is authorized to issue an unlimited number of
Class A and Class B common shares and Class C special
shares. As at December 31, 1993, the company's stated
capital was composed as follows:
1993 1992
4,900 Class A common shares $ 4,900 $ 4,900
5,100 Class B common shares 5,100 5,100
410 Class C special shares 4,100,000 4,100,000
$4,110,000 $4,110,000
Rayonese Textile Inc.
Statement of Cost of Goods Sold
(unaudited)
Year ended December 31
1993 1992
Opening inventory $ 2,891,000 $2,826,721
Purchases, freight and duty 4,212,506 5,206,051
Wages and employee benefits 3,489,327 3,973,658
Factory overhead
Supplies 708,872 764,514
Light, heat and power 902,430 842,081
Insurance and taxes 218,851 262,927
Depreciation
Machinery and equipment 540,204 539,439
Building 41,080 39,481
Automotive equipment 8,437 6,795
Other 148,833 113,557
2,568,707 2,568,794
13,161,540 14,575,224
Less: Closing inventory 2,847,700 2,891,000
Cost of goods sold $10,313,840 $11,684,224
Rayonese Textile Inc.
Statement of Selling and Administrative Expenses
(unaudited)
Year ended December 31
1993 1992
Selling
Shipping expenses $ 43,852 $ 52,529
Salaries and commissions 112,375 108,954
Travel and promotion 89,890 94,528
Automobile expenses 44,137 39,463
Depreciation - automobiles 2,223 3,176
Loss on disposal of fixed assets 1,008
$292,477 $299,658
Administrative
Administrative salaries $390,788 $384,162
Office salaries 152,069 165,514
Professional fees 31,699 48,089
Office supplies and postage 28,366 31,006
Telephone and telegraph 22,235 20,728
Donations 7,017 23,872
Depreciation - office furniture 6,053 7,207
General 5,922 5,344
Bad debt expense (1,632) 39,958
$642,517 $725,880
EXHIBIT 2
PROMISSORY NOTE
1. PROMISE TO PAY
In accordance with that certain Share Purchase Agreement dated , 1994
(the "Share Purchase Agreement") under which 3096726 Canada Inc. (the
"Purchaser") has agreed to purchase from Masgan Inc. and Salorna Inc. all
of the issued and outstanding shares of Rayonese Textile Inc., the Purchaser
hereby promises to pay to (the "Vendor") on [36 months after Closing]
the sum of $2,727,272.50 in lawful currency of the United States of America
(the "Debt"), said Debt to bear interest at the rate of six per cent (6%) per
annum, compounded in the event of non-payment, said interest being
payable in arrears on a quarterly basis commencing ninety (90) days
following the Closing Date under the Share Purchase Agreement and both
before and after maturity and judgment.
2. CAPITALIZED TERMS
In this Promissory Note, expressions beginning with a capital letter and not
otherwise defined herein shall have the meaning ascribed thereto in the
Share Purchase Agreement.
3. PAYMENT BY ANTICIPATION
Subject to the provisions of Sections 3.4 and 3.5 of the Share Purchase
Agreement, the Vendor shall have the right to demand payment of all or part
of the Debt, with interest accrued to the date of payment, (i) at any time and
from time to time on or after [first anniversary of Closing], upon forty-five
(45) days' prior notice (which may be given prior to the first anniversary of
the Closing) to the Purchaser, the whole as more fully set forth in Section 3.3
of the Share Purchase Agreement, or (ii) at any time in the event of any
Purchaser's Default which is, except in the case of default of the Purchaser to
deliver certificates for shares of CULP within the delays stipulated in
Sections 3.3 and 3.4 of the Share Purchase Agreement, not rectified by the
Purchaser within ten (10) days following notice thereof given by the Vendors
to the Purchaser.
4. CHANGE OF CONTROL OF CULP
The Vendor shall have the right to demand payment of the entire Debt, with
interest accrued to the date of payment, upon fifteen (15) days' notice to the
Purchaser in the event that Robert G. Culp, III, Judith C. Walker, Harry R.
Culp and Esther R. Culp, as a group, at any time cease to hold voting control
of common shares of Culp, Inc. ("CULP") which represent, in the aggregate,
15% or more of the outstanding common shares of CULP, the whole as more
fully set forth in and subject to the provisions of Section 3.4 of the Share
Purchase Agreement.
5. CONVERSION
5.1 Conversion Privilege
(a) After [first anniversary of Closing] and for so long as the
Debt or any part thereof remains unpaid, the Vendor shall,
subject to the provisions of Section 3.5 of the Share Purchase
Agreement, have the right at any time to convert the Debt or,
from time to time, to convert any part thereof into
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common shares of the capital stock of CULP par value $.05 per share
("Common Shares") at the conversion price of U.S.$12.50 per Common Share
(the "Conversion Price").
(b) In the event that Robert G. Culp, III, Judith C. Walker, Harry
R. Culp and Esther R. Culp, as a group, at any time cease to
hold voting control of common shares of CULP which represent,
in the aggregate, 15% or more of the outstanding common
shares of CULP, the Vendor shall, subject to the provisions of
Section 3.4 of the Share Purchase Agreement have the right at
any time to convert the entire Debt into Common Shares at the
Conversion Price.
5.2 Conversion Procedure
In order to exercise its right of conversion, the Vendor shall
give notice to CULP at its office at 101 South Main Street, 7th Floor,
High Point, North Carolina, U.S.A. stating that it elects to convert the
Debt or a stated portion thereof into Common Shares (the date of receipt
by the Purchaser of such notice being herein referred to as the "Date of
Conversion").
As promptly as practicable, but not later than 14 days following the
Date of Conversion, and against delivery of this Note for replacement
as provided for below CULP shall issue and deliver to the Vendor a
certificate or certificates in the name of the Vendor for the number of
Common Shares deliverable upon the conversion of the Debt or
specified portion thereof based on the Conversion Price. Such
conversion shall be deemed to have been effected immediately prior to
the close of business on the Date of Conversion and the Vendor shall
be deemed to have become at such time the holder of record of the
Common Shares resulting from such conversion; provided, however,
that no such surrender on any day on which the transfer agent for
Common Shares shall be closed shall be effective to constitute the
Vendor as the holder of record of such Common Shares at such time,
but such surrender shall be effective to constitute the Vendor as the
holder of record thereof for all purposes at the close of business on the
next succeeding day on which such transfer agent is open.
The Common Shares issued to the Vendor hereunder shall be entitled
to dividends only in respect of dividends declared in favour of
shareholders of record on and after the Date of Conversion or such
later date as such holder shall become the holder of record of such
Common Shares pursuant to this Section 4.2.
Upon surrender to the Purchaser of this Note against delivery to the
Vendor of a share certificate or certificates as provided for above in the
case of a conversion of only part of the Debt, the Vendor shall be
entitled to receive, without expense to the Vendor, a new Note for the
unconverted portion of the Debt, upon the same terms and conditions
as this Note, said new Note not effecting novation in any way
whatsoever.
5.3 No Fractional Shares
Notwithstanding anything herein contained, CULP shall in no way be
required to issue fractional Common Shares upon the conversion of the
Debt or part thereof.
6. ADJUSTMENTS
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6.1 Subdivision, Redivision, Etc.
For so long as the Debt or part thereof remains unpaid, in case the
outstanding Common Shares of CULP shall be subdivided, redivided
or changed into a greater or consolidated into a lesser number of
shares or reclassified into different shares, the Vendor shall be entitled
to receive and shall accept, upon the exercise of its right of conversion
at any time on or after the effective date of such subdivision,
redivision, change, consolidation or reclassification, in lieu of the
number of Common Shares to which it was theretofore entitled upon
conversion at the Conversion Price, the aggregate number of shares of
CULP that the Vendor would have been entitled to receive as a result
of such subdivision, redivision, change, consolidation or reclassification
if, on the effective date thereof, it had been the registered holder of the
number of Common Shares to which it was theretofore entitled upon
conversion.
6.2 Certificate as to adjustment
CULP shall immediately after the occurrence of any event referred to
in Section 6.1 provide the Vendor with a notice specifying in
reasonable detail the nature of such event.
6.3 Reclassifications, reorganizations, etc.
In case of any reclassification or change of the Common Shares (other
than a change as a result of a subdivision, redivision or consolidation),
or in case of any amalgamation of CULP with, or merger of CULP into,
any other corporation (other than an amalgamation or merger in
which CULP is the continuing corporation and which does not result in
any reclassification or change, other than aforesaid, of the Common
Shares), CULP or the corporation formed by such amalgamation or the
corporation into which CULP shall have been merged, as the case may
be, shall execute and deliver to the Vendor an undertaking providing
that the Vendor shall have the right thereafter to convert the Debt or
remainder thereof into the kind and amount of shares and other
securities and property receivable upon such reclassification, change,
amalgamation or merger by a holder of the number of Common Shares
into which the Debt or remainder thereof might have been converted
immediately prior to such reclassification, change, amalgamation or
merger. The above provisions of this Note shall similarly apply to
successive reclassifications, changes, amalgamations or mergers.
7. NOTICES
Any communication provided for under this Note shall be in writing in the
English language and may be given to the party to whom it is addressed by
delivering the same to or for such party at the address of such party as
hereinafter set forth or at such other address as such party shall have
theretofore notified to the other party hereto. Any communication so
addressed and delivered as aforesaid shall be deemed to have been
sufficiently given or made on the date on which it was so delivered.
-4-
To Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To [Vendor]:
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
8. PREPAYMENT
Notwithstanding the provisions of Section 1 hereof, the Purchaser
shall have the right, at any time and from time to time after the date
hereof, with the Vendor's prior written consent, to pay by anticipation
to the Vendor, without penalty, all or part of the Debt, with interest
accrued to the date of payment.
9. NON-NEGOTIABLE
This Note is not negotiable and may not be assigned.
10. NO NOVATION
This Note evidences but does not novate or otherwise discharge the
Balance and interest payable thereon as defined in the Share Purchase
Agreement and is secured and guaranteed by the security and guarantees
described in the Share Purchase Agreement.
11. PREVAILING EFFECT OF SHARE PURCHASE AGREEMENT
In the event of any discrepancy between the terms of this Promissory Note
and the Share Purchase Agreement, the terms of the Share Purchase
Agreement shall prevail.
SIGNED at Montreal, this 1995.
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3096726 CANADA INC.
By_________________________________
[VENDOR]
____________________________________
UNDERTAKING
The undersigned, CULP, Inc., acknowledges having taken cognizance of
the above Promissory Note and hereby confirms that, for good and
valuable consideration received, it agrees to be bound by the provisions
of Sections 4 and 5 thereof relating to the conversion of the debt
evidenced by the said Promissory Note, or part thereof, into common
shares of the capital stock of CULP, Inc.
The undersigned further confirms that 218,182 common shares of CULP,
Inc. have been reserved and set aside for issuance further to the
exercise by of its conversion rights pursuant to the said Promissory
Note.
SIGNED at Montreal, this 1995.
CULP, INC.
____________________________________
EXHIBIT 3
SECIRITY AND COVENANTS
SECURITY
1. As security for repayment of the Balance as well as all
interest thereon (as evidenced, but neither novated nor
discharged, by the Notes), Purchaser shall, at Closing, deliver
or cause to be delivered to Vendors the following, namely:
(a) an unconditional guarantee therefor from Culp;
(b) an unconditional guarantee from the Corporation therefor,
in turn supported and secured by the hypothecation (without
dispossession) by the Corporation in favour of Vendors of:
i) as a universality, all of the Corporation's present and
future movable property, assets and undertakings of
every nature, form and description including, without
limitation, all equipment to be purchased by the
Corporation, Purchaser or Culp all insurance
indemnities resulting from any loss or destruction
thereof; and,
ii) all of the Corporation's immovable properties, all
present and future rentals resulting therefrom,
rental insurance thereon and insurance indemnities
resulting from the loss or destruction thereof; and,
(c) the hypothecation/pledge (with dispossession) of the
Purchased Shares,
supported by certified extracts of by-laws and/or resolutions
of the Boards of Directors of the Corporation, Culp and
Purchaser as appropriate, all in form and substance
satisfactory to Counsel for the Vendors, acting reasonably.
COVENANTS
2. Purchaser agrees and covenants with and in favour of Vendors
that for so long as the Balance (and all interest thereon as
stipulated herein) shall not have been fully paid to Vendors as
herein provided, that:
(a) the Corporation shall deliver to Vendors (i) within 30 days
following the end of each of the Corporation's fiscal
quarters (commencing with the fiscal quarter ending July
31, 1995), the Corporation's unaudited and unconsolidated
financial statements (which shall include a balance sheet,
statement of earnings and other documents normally forming
part thereof) and (ii) within 60 days following each of the
Corporation's fiscal year-ends (commencing with the fiscal
year ending April 30, 1995) the Corporation's unaudited and
unconsolidated financial
Page 2
statements (which shall include a balance sheet, statement of
earnings and other documents normally forming part thereof) all of
which shall be prepared and presented in accordance with generally
accepted accounting principles applied on a consistent basis (the
"Statement(s)");
(b) the ratio of the Corporation's debt to equity as reflected in any
Statement shall not be greater than the ratio of the Corporation's
debt to equity as reflected in the Closing Balance Sheet. For the
purposes of this calculation, any debt owing by the Corporation to
either Culp or the Purchaser which is postponed and hypothecated in
Vendors' favour (the "Postponed Debt") shall be treated as equity;
(c) the Corporation's working capital (defined in accordance with
generally accepted accounting principles) shall not be less than 90%
of the Corporation's working capital (defined in accordance with the
same generally accepted accounting principles) as reflected in the
Closing Balance Sheet. For the purposes hereof, amounts owing to the
Corporation by Culp, the Purchaser and/or their affiliates
outstanding for periods exceeding 45 days shall not be considered as
current assets;
(d) the Corporation's Tangible Net Worth (defined as the sum of the
Corporation's share capital, earned and contributed surpluses and
any Postponed Debt less (i) amounts owing to the Corporation by
Culp, the Purchaser and/or their affiliates outstanding for periods
exceeding 45 days, (ii) investments in affiliates, and (iii)
intangible assets) as reflected in any Statement shall not be less
than the Corporation's Tangible Net Worth (defined in the same
manner) as reflected in the Closing Balance Sheet;
(e) the Corporation shall not grant nor do or refrain from doing
anything which results in the existence of any hypothecs, security
interests or third party rights of any nature or form whatsoever
upon any of the Corporation's present and future property, assets
and undertakings of any nature or form whatsoever (whether ranking
ahead of, after or pari passu with hypothecs and/or security
interests in favour of Vendors thereon);
(f) the Corporation shall not do or refrain from doing anything which
results in (i) the declaration or payment of any dividend by the
Corporation, the redemption, retraction and/or repurchase of any
shares in the Corporation's capital stock or any other distribution
to any shareholder of the Corporation, (ii) the repayment of any
present or future loans to Culp (or any person "related" to Culp
within the meaning ascribed thereto under the relevant provisions of
the Bankruptcy and Insolvency Act, Canada), (iii) the issuance of
any shares in the Corporation's capital stock or any undertaking to
effect same, (iv) the modification of any rights, privileges and/or
restrictions attaching to the Purchased Shares, or (v) the
guaranteeing by the Corporation of any third party indebtedness;
Page 3
(g) the Corporation shall not sell or otherwise dispose of any of its
present or future property, assets or undertakings other than (i)
fixed assets which shall have become obsolete or are replaced in
an aggregate book value amount not to exceed $100,000.00 during
any fiscal year or (ii) inventory in the ordinary course of
business; and,
(h) the Corporation shall diligently, actively and legally carry on
business in substantially the same manner as the Corporation
carried on such business prior to the Closing Date and the
Corporation shall not carry on any business or own any property
required for the carrying on of the Corporation's business
through any subsidiary or any other person related" to the
Corporation within the meaning ascribed to under the relevant
provisions of the Bankruptcy and Insolvency Act, Canada.
EXHIBIT 4
(Letterhead of Kugler Kandestin)
, 1995
3096726 Canada Inc.
c/o Culp, Inc.
101 South Main Street
High Point, N.C.
27261
Re: Rayonese Textile Inc.
Dear Sirs:
We have acted as counsel to Masgan Inc. and Salorna Inc. (the
"Vendors") in connection with the sale by them to you of all of the
issued and outstanding shares of Rayonese Textile Inc. ("Rayonese")
pursuant to the terms of a Share Purchase Agreement dated ,
1994 (the "Share Purchase Agreement"). In that capacity we have
attended the closing of sale on this date.
All capitalized words and expressions used in this opinion without
definition shall have the respective meanings ascribed to them in the
Share Purchase Agreement.
We have, for the purposes of this opinion, examined executed
originals of the Share Purchase Agreement, a Non-Competition and
Confidentiality Agreement between Masgan, Henri Wechsler and the
Corporation. a Non- Competition and Confidentiality Agreement bearing
this date between Salorna, Maurice Wechsler and the Corporation (the
latter two Agreements referred to herein as the "Non-Competition
Agreements"), an Employment Agreement bearing this date between Henri
Wechsler and Rayonese, an Employment Agreement bearing this date between
Maurice Wechsler and Rayonese (the latter two Agreements referred to
herein as the "Employment Agreements") and originals, photostatic,
certified or facsimile copies of all such documents, and considered such
questions of law, as we have deemed relevant and necessary.
We have also, for such purposes, assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents
submitted to us as photostatic, certified or facsimile copies thereof.
Relying solely upon and subject to the foregoing and to the
qualifications hereinafter expressed, we are of the opinion that:
1. Rayonese is a corporation duly incorporated, organized and validly
subsisting under the laws of the jurisdiction of its incorporation.
-2-
2. Rayonese has all necessary corporate power and authority to own,
lease, occupy, operate and hold its properties and rights and to conduct
its business as and in the places where such properties and rights are
now owned, leased, occupied, operated or held or such business is now
conducted.
3. Each of the Vendors is a corporation incorporated, organized and
validly subsisting under the laws of the jurisdiction of its
incorporation.
4. Each of the Vendors has the necessary capacity and authority to
enter into the Share Purchase Agreement and the Non-Competition
Agreement to which it is a party and to perform its obligations
thereunder and the execution and delivery of each of such Agreements by
each of the Vendors and the performance by it of its obligations
thereunder have been authorized by all necessary corporate actions.
5. Each of Henri Wechsler and Maurice Wechsler has the necessary
capacity and authority to enter into the Non-Competition Agreement
and the Employment Agreement to which he is a party and to perform
his respective obligations thereunder.
6. Each of the Share Purchase Agreement and the Non-Competition
Agreements and Employment Agreements to which each is party have
been duly executed and delivered by each of the Vendors and each of
Henri Wechsler and Maurice Wechsler, and the Share Purchase
Agreement, the Employment Agreement and, subject to the
qualification and paragraph (c) below, each of the Non-Competition
Agreement to which each is a party constitute legal, valid and binding
obligations of the Vendors and Henri Wechsler and Maurice Wechsler,
respectively, enforceable against each of them in accordance with their
respective terms.
7. Neither the entering into of the Share Purchase Agreement nor the
consummation of any of the transactions contemplated thereby nor the
entering into of either of the Non-Competition Agreements will result
in the violation of any of the terms or provisions of the respective
constating documents or by-laws of the Vendors or of any law or
regulation to which either of the Vendors is subject or, to the best of
our knowledge, any material contracts of the Vendors or of Rayonese.
8. At the time of the Closing the authorized capital of Rayonese consists
of [an unlimited number of Class A and Class B common shares
and Class C special shares of which 4900 Class A common, 5100
Class B common and 410 Class C special shares (and no more)
are outstanding and each of such outstanding shares has] been
validly issued, are outstanding as fully paid and non-assessable and
are registered in the names of the Vendors as follows:
Class A Class B Class C
Common Common Special
MASGAN INC. 2450 2550 205
SALORNA INC. 2450 2550 205
9. None of the issued and outstanding shares of Rayonese has been
issued in violation of any pre-emptive rights and there are no
outstanding subscriptions, options, warrants or other rights to
purchase any securities of Rayonese.
-3-
10. We are not aware of any material suits, actions or other legal
proceedings to which Rayonese is a party and which are not disclosed
in the Disclosure Schedule.
Our opinion herein is subject to the following qualifications:
(a) The enforcement of the Share Purchase Agreement, the Employment
Agreements and the Non-Competition Agreements or any judgment
arising out of or in connection therewith may be limited by any
applicable bankruptcy, reorganization, winding-up, insolvency,
moratorium or other laws of general application affecting creditors'
rights from time to time in effect.
(b) No opinion is expressed as to any specific remedy that may be granted,
imposed or rendered and, in particular, no opinion is expressed as to
the availability of equitable remedies as such for the enforcement of
any provisions of the Share Purchase Agreement, the Employment
Agreements or the Non-Competition Agreements, such as specific
performance and injunction, which are available only in the discretion
of the court.
(c) No opinion is expressed as to the enforceability of the provisions of
Section 2.1 of each of the Non-Competition Agreements.
(d) Our opinion is confined to the laws of the Province of Quebec and the
laws of Canada applicable therein.
This letter of opinion is provided solely for your benefit pursuant to
Section 11.1.8 of the Share Purchase Agreement. It is not to be transmitted to
any other person nor is it to be relied upon by any other person or for any
other purpose or quoted or referred to in any document or filed with any other
person without our prior written consent.
Yours very truly,
KUGLER KANDESTIN
EXHIBIT 5
NON-COMPETITION AGREEMENT
THIS AGREEMENT made as of the day of, 1995
BETWEEN:
(hereinafter called "");
AND: , a corporation duly constituted
under the laws of Canada
(hereinafter called "");
AND: 3096726 CANADA INC., a
corporation duly constituted under the
laws of Canada
(hereinafter called the "Purchaser")
AND: RAYONESE TEXTILE INC., a
corporation duly constituted under the
laws of Canada
(hereinafter called the "Corporation")
WITNESSETH:
WHEREAS pursuant to the terms and conditions of a Share Purchase
Agreement between Masgan Inc. and Salorna Inc. (the "Vendors") and the
Purchaser made as of , 1994 (the "Share Purchase Agreement"), the
Purchaser has agreed to purchase from the Vendors all of the issued and
outstanding shares of the Corporation;
WHEREAS it is a condition precedent to the performance by the
Purchaser of its obligations under the Share Purchase Agreement that
and enter into this Agreement and and are willing to
fulfill that condition;
WHEREAS will be employed by the Corporation for a period of time
following the closing of the said purchase pursuant to an Employment
Agreement as contemplated in the Share Purchase Agreement (the
"Employment Agreement"); and
WHEREAS holds a controlling beneficial interest in ;
NOW, THEREFORE, in consideration of the purchase and sale of the
Purchased Shares pursuant to the Share Purchase Agreement and for other good
and valuable consideration received, the parties hereto agree as follows:
-2-
1. DEFINITIONS
In this Agreement, expressions beginning with a capital letter and
not otherwise defined herein shall have the meaning ascribed thereto in
the Share Purchase Agreement.
2. NON-COMPETITION
2.1 Each of and undertakes not to engage, directly or
indirectly, in Canada or the United States of America, in any manner
whatsoever with the Corporation, nor participate, directly or
indirectly, in any manner whatsoever in any business or venture which is
in any way competitive with the business of the Corporation (as such
business will have been carried on at any time during the term of the
Employment Agreement) (a "Competing Business"), either alone or in
conjunction with any Person(s), or as a director, officer, employee,
shareholder, partner, provider of funds, advisor of, or otherwise have
an interest in, a Competing Business or any Person operating a Competing
Business or being an affiliate of any such Person, except with the prior
written consent of the Purchaser.
2.2 Each of and undertakes not to offer or permit any
firm, partnership or corporation in which either of them has any direct
or indirect interest to offer employment to or engage as an employee,
consultant, agent, distributor or representative any person who was an
employee of the Corporation at the Closing Date or at any time during
the term of the Employment Agreement.
2.3 The restrictions set forth in Sections 2.1 and 2.2 shall apply
from the date hereof until the latest of the following dates:
(i) Five (5) years from the date hereof; or
(ii) Four (4) years from the expiry of the original and any renewal
term of the Employment Agreement.
2.4 The restrictions set forth in Sections 2.1 and 2.2 shall apply
within the geographical limits of Canada and .
2.5 The restrictions set forth in Section 2.1 shall not apply to
the investment by either of or in shares of Culp, Inc. or
any successor entity in any proportion or in shares listed on a
recognized stock exchange in a proportion not exceeding five percent
(5%) of the issued shares of a Competing Business, provided such party
does not in any manner take part in the decision-making process of such
Competing Business otherwise than by exercising such party's rights as
shareholder.
3. CONFIDENTIALITY
3.1 Each of and agrees that, during the period of time
referred to in Section 2.3 and at any time thereafter, such party shall
keep secret and confidential and shall not, directly or indirectly, in
any manner whatsoever, divulge, communicate or disclose to any Person,
nor use for such party's benefit or for the benefit of any Person other
than the Corporation, any information, which is not otherwise of public
knowledge, relating to the Corporation's business strategies, financial
affairs, products, drawings, industrial designs, patents, patent rights,
copyrights,
-3-
trademarks, specifications, blueprints, reports,
descriptions of manufacturing processes, technical know-how, customer
lists, computer systems, internal pricing, marketing strategies or
activities, billing procedures, supplier lists, sales and distribution
data or contractual relationships with third parties, except with the
prior written consent of the Purchaser.
3.2 Each of and shall deliver to the Purchaser or the
Corporation, upon termination of employment or upon request of the
Purchaser, all documents, files, lists, samples and other information
and property belonging to the Corporation or relating to the business of
the Corporation and copies thereof in the possession or under the
control of such party.
3.3 Each of and agrees to impose upon their respective
employees and agents the same requirements of confidentiality and
non-disclosure as are required of them hereunder.
4. DAMAGES AND INJUNCTIVE RELIEF
agrees that the Purchaser and/or the Corporation shall be
entitled to injunctive relief to ensure compliance on the part of
with the terms of this Agreement, without prejudice to the Purchaser's
and the Corporation's other rights and remedies available under this
Agreement or under the law.
5. ENFORCEABILITY AND SEVERABILITY
5.1 Each of and has carefully considered the nature and
extent of the restrictive covenants set forth herein and agrees that the
same are reasonable including with respect to duration, scope of
activity and geographical area and necessary to protect the Purchaser's
and the Corporation's legitimate interests. In particular, agrees
that said restrictive covenants do not prevent him from reasonably
earning his living.
5.2 However, in the event that a court of competent jurisdiction
should conclude that any of these covenants is too long in duration or
too broad in scope or in territory, the said court shall have the power
and the duty to reduce its duration, scope and/or territory to the
maximum duration, scope and/or territory it deems reasonable instead of
invalidating such covenant and as of such ruling the said covenant shall
be deemed modified accordingly.
5.3 Without limiting the foregoing, the parties agree that each of
the provisions in this Agreement shall be deemed to be separate and
distinct and if, for any reason whatsoever, any of these provisions is
held null or unenforceable by the final determination of a court of
competent jurisdiction and all appeals therefrom shall have failed or
the time for such appeals shall have expired, such provision shall be
deemed deleted from this Agreement without affecting the validity or
enforceability of any other provisions hereof which shall remain in full
force and effect.
5.4 All obligations of and under Section 2 and Section
3 of this Agreement shall terminate and become unenforceable in the
event of any Purchaser's Default which is, except in the case of default
of the Purchaser to deliver certificates for shares of CULP within the
delays stipulated in Sections 3.3 and 3.4 which shall require no
-4-
notice, not rectified within ten (10) days following notice thereof
given by the Vendors to the Purchaser.
6. NOTICES
Any communication provided for under this Agreement shall be in
writing in the English language and may be given to the Person to
whom it is addressed by delivering the same to or for or mailing the
same by certified mail to such Person at the address of such Person as
hereinafter set out or at such other address as such Person shall have
theretofore notified to the other party or parties hereto. Any
communication so addressed and delivered or mailed as aforesaid shall
be deemed to have been sufficiently given or made on the date on
which it was so delivered or five (5) days following the date of mailing,
as the case may be.
To :
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To : With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To The Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
To The Corporation: 680 Monseigneur Dubois
-5-
Saint-Jerome, Quebec
J7Y 3L8
Attention: The President
7. GOVERNING LAW
This Agreement shall in all respects be governed by and construed in
accordance with the laws in force in the Province of Quebec, including
all matters of construction, validity and performance.
8. ASSIGNMENT
This Agreement shall enure to the benefit of the Purchaser, the
Corporation and their respective successors and assigns, whether as a
result of a sale, reorganization, amalgamation or otherwise and shall be
binding upon and and their respective successors and
assigns.
9. ENTIRE AGREEMENT
Except for the Share Purchase Agreement and the Employment Agreement,
this Agreement embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements between such parties
with respect to the subject matter hereof.
10. WAIVER
Except as otherwise provided herein, neither this Agreement nor any
of the terms hereof may be changed, waived or discharged otherwise than
by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or modification is sought.
Any waiver of any term or condition or any breach of any covenant of
this Agreement shall not operate as a waiver of any other such term or
condition or breach, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision
hereof.
11. PARAGRAPH HEADINGS
The paragraph headings appearing in this Agreement are inserted only
as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of such paragraphs or of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date first hereinbefore written.
Per:
Per
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3096726 CANADA INC.
Per:
RAYONESE TEXTILE INC.
Per:
DISCLOSURE SCHEDULE
OF THE SHARE PURCHASE AGREEMENT
DATED DECEMBER 22, 1994
6.1 Enforceability of the Agreement
6.1.5 N/A
6.3 Capital Stock & Records
6.3.4 N/A
6.3.5 Directors - Henri Wechsler
- Maurice Wechsler
Officers - Henri Wechsler (President)
- Maurice Wechsler
(Secretary/Treasurer)
- Blair Barwick (Vice-President)
(even though not mentioned in last
year's Annual Minutes)
6.4 Business
6.4.1 Business of the Corporation
- Vertical textile manufacturer
6.4.2 Location where Corporation conducts its business
- 680 Monseigneur Dubois
St-Jerome, Quebec, J7Y 3L8
6.4.4 N/A
6.5 Assets & Liabilities
6.5.2 N/A
6.5.3 2 Automobile Leases with Clairview Leasing Company
Inc. regarding the following vehicles:
- 1993 Chevrolet Lumina
Serial Number: 2G1WL51T1P239430
- 1994 Nissan Ultima GXE
Serial Number: 1N4BU3106RC143178
(attached hereto)
Picanol Looms - "Agreement of Sale and Specific
Hypothecation of Movables", dated February 16, 1994 and
published at the Registry of Personal and Movable Real
Rights on February 17, 1994, under number 94-0016375-0001
(attached hereto)
List of the Corporation's Fixed Assets on or about
December 18, 1994 (approximation) (attached hereto)
6.5.5.1 N/A
6.5.5.2 N/A
6.5.5.3 N/A
6.5.5.4 N/A
6.5.6 N/A
6.6 Conduct of Business
6.6.1.5 Labour Arbitration matter being handled by Ogilvy Renault
6.6.1.6 Repayment buy the Corporation to Masgan Inc. of a
$3,000,000.00 US loan to be effected on or before
December 23, 1994
6.6.1.7 List of the Corporation's Capital Expenditures for 1994
(attached hereto)
6.7 Contract
6.7.1. List of the Corporation's Contracts in excess of
$100,000.00 in the case of purchase orders of the
Corporation for raw materials and sales orders received
from customers, as at December 18, 1994 (attached hereto)
6.7.3 Contract with Republic Factors dated February 3, 1994 (attached
hereto)
6.7.4 N/A
6.7.5 N/A
6.7.6 N/A
6.7.7 (6.12) Collective Bargaining Agreement (already in the
possession of Ogilvy Renault)
6.8 Insurance
6.8.1 References regarding the Corporation's Insurance (attached
hereto)
6.9 Taxes
6.9.1 Federal and Provincial Notices of Assessment for 1993, 1992 and
1991 (attached hereto)
6.10 Patents, Trade Marks & Copyright
N/A
6.11 Environmental Matters
6.11.2.7 There is an underground storage facility which may be
described as a cement settling tank (46,000 gallons)
6.12 Labour Relations
6.12.1 See 6.7.7 above
6.12.2 Severance settlement between the Corporation and
Francesco Pignatelli dated July 26, 1994 (attached
hereto)
6.13 Bank Accounts
6.13.1 Corporation's Bank Accounts
- Toronto Dominion Bank (Bleury & St-Catherine)
- Toronto Dominion Bank (290 rue Labelle, St-Jerome
6.13.2 Authorized persons to sign on behalf of the Corporation
are Henri Wechsler, Maurice Wechsler and Blair Barwick
-2-
6.15 No Finder's or Broker's Fee
Agreement with Werner Management Consultants Inc. (Martin Rubenstein)
dated August 23, 1994 and signed by the representative of the
corporation on August 24, 1994 (attached hereto)
6.17 Full Disclosure
6.17.2 N/A
10. Covenants of the Purchaser
10.1 Discharge of Toronto-Dominion Bank Security
Any and all amounts owed by the Corporation to Toronto-Dominion
Bank shall be discharged by the Purchaser on closing, and all
security held by the Bank in respect of such amounts
(Toronto-Dominion Security attached hereto)
11. Conditions of Closing
11.1.3 Permits - N/A
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THIRD AMENDMENT
TO 1994 AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO 1994 AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of November 1, 1994, (the "Amendment" or "Third Amendment") is
made by and between
CULP, INC., a North Carolina corporation with its principal office in
High Point, North Carolina (the "Borrower"); and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, N.A., a national banking
association, as Agent (the "Agent"); and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, N.A., a national banking
association ("First Union") and WACHOVIA BANK OF NORTH CAROLINA, N.A., a
national banking association ("Wachovia" and collectively with First Union,
the "Banks"),
to the 1994 Amended and Restated Credit Agreement dated as of April
15, 1994 (as amended, modified, restated or supplemented from time to time,
the "Loan Agreement"). All capitalized terms not otherwise defined in this
Amendment shall have the meanings assigned to them in the Loan Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Banks have made available to
the Borrower Term Loans in the aggregate principal amount of $36,000,000
evidenced by Term Notes of the Borrower in the aggregate principal amount
of $36,000,000, and a Revolving Loan in the aggregate principal amount of
$27,000,000 evidenced by Revolving Credit Notes in the aggregate principal
amount of $27,000,000.
B. The Borrower has requested that the Banks (i) increase the
principal amount of the Term Loans by $8,000,000 to $44,000,000, (ii)
adjust the pricing of the Loans, (iii) change and delete certain covenants,
(iv) change the amortization of the Term Loans, (iv) allow for the proceeds
of the Term Loans made available by the Banks pursuant to this Third
Amendment to be used to prepay certain subordinated indebtedness and (v)
make certain other modifications to the Loan Agreement.
C. The Borrower, the Agent and the Banks have agreed to amend the
Loan Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of these premises, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks hereby agree as follows:
ARTICLE I
AMENDMENTS
The Loan Agreement is hereby amended as follows:
1.1. Definitions. Section 1 of the Loan Agreement is hereby amended
by making the following changes:
(a) Section 1.4 containing the definition of "Applicable Margin" is
hereby amended by deleting the definition in its entirety and replacing it
with the following:
1.4. "Applicable Margin" means the marginal rate of interest
which shall be paid by Borrower after October 31, 1994, in
addition to the Prime Rate or the Adjusted LIBOR Rate, as the
case may be, which coincides to the ratio of Consolidated Funded
Debt to Operating Cash Flow for Borrower (calculated quarterly
with respect to the immediately preceding four calendar
quarters), as specifically set forth in a separate letter
agreement dated November 1, 1994 between the Borrower and the
Banks as such letter may be amended, restated, modified or
supplemented from time to time.
(b) Section 1.27 containing the definition of "First Union Revolving
Credit Note" is hereby amended by adding the following clause after the
word "date" and prior to the period at the end of the section: "as such
promissory note may be amended, restated, modified or supplemented from
time to time."
(c) Section 1.30 containing the definition of "First Union Term Note"
is hereby amended by adding the following clause after the word "date" and
prior to the period at the end of the section: "as such promissory note
may be amended, restated, modified or supplemented from time to time."
(d) Section 1.34 containing the definition of "Free Cash Flow" is
hereby amended by deleting the definition in its entirety and replacing the
language found after the section number with the term "[RESERVED]."
(e) Section 1.52 containing the definition of "Operating Cash Flow"
is hereby amended by deleting the definition in its entirety and replacing
it with the following:
-2-
1.52. "Operating Cash Flow" (or "EBITDA") means, for any period
of four consecutive quarters, Net Income for such period plus the
sum of the following consolidated expenses of the Borrower and
its Subsidiaries for such period to the extent included in the
calculation of such Net Income: (i) depreciation expense, (ii)
amortization of intangible assets, (iii) Interest Expense for
such period and (iv) income taxes for such period, all determined
in accordance with generally accepted accounting principles in
the United States.
(f) Section 1.58 containing the definition of "Required Banks" is
hereby amended by deleting from the definition the figure "66 2/3%" and
replacing such figure with "60%."
(g) Section 1.77 containing the definition of "Wachovia Revolving
Credit Note" is hereby amended by adding the following clause after the
word "date" and prior to the period at the end of the section: "as such
promissory note may be amended, restated, modified or supplemented from
time to time."
(h) Section 1.80 containing the definition of "Wachovia Term Note" is
hereby amended by adding the following clause after the word "date" and
prior to the period at the end of the section: "as such promissory note
may be amended, restated, modified or supplemented from time to time."
1.2. Loans Evidenced by Term Notes. Section 3 of the Loan Agreement
is hereby amended as set forth below:
(a) Section 3.1 is hereby amended by deleting the second sentence of
the section in its entirety and replacing it with the following:
"The aggregate principal amount of the Term Loans is Forty-four
Million Dollars ($44,000,000)."
(b) Section 3.3 is hereby amended by deleting the fifth full
paragraph after the end of subsection (b) in its entirety and replacing it
with the following:
The aggregate principal amount of the Term Loans shall be due and
payable and shall be repaid by the Borrower to the Agent for the
ratable benefit of the Banks in seventy-five (75) consecutive
monthly installments, each in the amount of Five Hundred Thousand
Dollars ($500,000.00), each such payment being due and payable on
the tenth Business Day of each Fiscal Month for which such
payment is due, commencing on December 14, 1994, and one
installment in the amount of Six Million Five Hundred Thousand
Dollars ($6,500,000), due and payable on March
-3-
1, 2001; provided, however, that the Borrower shall be
obligated to repay only those funds which it has actually
borrowed, and in the event that the Borrower does not borrow
the entire additional $8,000,000 made available by the
Banks pursuant to this Third Amendment, the amount not
borrowed shall be applied as a payment on the Term Notes
and shall be applied against the aggregate principal amount
($44,000,000) due under the Term Notes in the inverse order
of maturity. The final maturity date of each of the Term
Notes is March 1, 2001.
1.3. Loans Evidenced by Revolving Credit Notes. Section 4 of the Loan
Agreement is hereby amended as set forth below:
(a) Section 4.4 relating to Bankers' Acceptances is hereby amended by
deleting subsection (g) in its entirety.
1.4. Use of Proceeds. Section 6 of the Loan Agreement is hereby
amended by deleting it in its entirety and replacing it with the following:
SECTION 6. Use of Proceeds. The proceeds of the Revolving Loans
shall be used by the Borrower for Capital Expenditures, for
normal working capital requirements and to repay from time to
time Accepted Drafts. The proceeds of the Term Loans, other than
the proceeds made available by the Banks pursuant to the Third
Amendment, shall be used by the Borrower to refinance and
restructure existing indebtedness of the Borrower to First Union
and Wachovia and for ongoing corporate purposes, and the
additional Term Loan proceeds made available by the Banks
pursuant to the Third Amendment shall be used, at such time or
times as Borrower may determine, to prepay in whole or in part
certain subordinated indebtedness evidenced by a promissory note
dated November 1, 1993 in the principal amount of $9,632,724 from
the Borrower to Rossville Investments, Inc.
1.5. Affirmative Covenants. Section 9 of the Loan Agreement is
hereby amended as set forth below:
(a) Sections 9.15, 9.17 and 9.18 of the Loan Agreement are hereby
amended by deleting each of the sections in its entirety and replacing the
language of each section found after the section number with the term
"[RESERVED]."
(b) Section 9.19 of the Loan Agreement is hereby amended by deleting
it in its entirety and replacing it with the following:
9.19. Operating Cash Flow to Interest Expense. Maintain a
ratio of (x) Operating Cash Flow less Capital
-4-
Expenditures for such period, to (y) Interest Expense for such
period, of at least 2.0 to 1.0 for each Fiscal Quarter from
November 1, 1994 through the quarter ending July, 1995; 2.5
to 1.0 for each Fiscal Quarter thereafter until the Fiscal
Quarter ending July, 1996; and 3.0 to 1 for each Fiscal
Quarter thereafter.
(c) Section 9.20 of the Loan Agreement is hereby amended by deleting
the last two clauses of the sentence containing the language "1 to 2.0
(50%) for the quarters ending October 1995, January 1996 and April 1996;
and 1 to 2.22 (45%) thereafter" and inserting the following clause: "and 1
to 2.0 (50%) thereafter."
1.6. Negative Covenants of the Borrower. Section 10 of the Loan
Agreement is hereby amended as set forth below:
(a) Sections 10.3 and 10.9 of the Loan Agreement are hereby amended
by deleting each of the sections in its entirety and replacing the language
of each section found after the section number with the term "[RESERVED]."
(b) Section 10.5 of the Loan Agreement is hereby amended by deleting
the term "$1,000,000" in the first sentence of such section and replacing
such term with the term "$5,000,000."
(c) Section 10.7 of the Loan Agreement is hereby amended by deleting
the term "$1,000,000" in the first sentence of such section and replacing
such term with the term "$5,000,000."
(d) Section 10.11 of the Loan Agreement is hereby amended by deleting
it in its entirety and replacing it with the following:
10.11. Prepayments. Retire or prepay prior to its stated
maturity any Consolidated Funded Debt (other than (i) non
interest-bearing purchase money obligations payable over a period
of not to exceed two (2) years, given to vendors of equipment,
and (ii) certain subordinated indebtedness evidenced by a
promissory note dated November 1, 1993 in the principal amount of
$9,632,724 payable by the Borrower to Rossville Investments,
Inc.) having a term of repayment in excess of one year, including
any renewals, other than indebtedness to either of the Banks
arising hereunder or obligations under industrial revenue bonds,
or pay rental obligations more than 30 days in advance of the
time for payment called for in the lease.
1.7. The Agent. Section 12 of the Loan Agreement is amended by adding
a new Section 12.13 as set forth below:
12.13. Annual Fee. The Borrower shall pay to the Agent a
fee in the amount of $12,500 per annum, which
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shall be payable (i) on November 1, 1994 and (ii)
thereafter, annually in advance on November 1 of each year.
1.8. Annex I. Annex I to the Loan Agreement is hereby amended by
deleting it in its entirety and replacing it with a new Annex I in the form
of Annex I attached hereto.
1.9. Exhibits. Exhibits 1-A, 1-B, 2-A, 2-B and 5 of the Loan
Agreement are hereby amended by deleting each exhibit in its entirety and
replacing them with new Exhibits 1-A, 1-B, 2-A, 2-B and 5 in the form of
Exhibits 1-A, 1-B, 2-A, 2-B and 5 attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
2.1. Compliance with Loan Agreement. The Borrower and each of its
Subsidiaries are in compliance with all terms and provisions set forth in
the Loan Agreement to be observed or performed, except where the Borrower's
failure to comply has been waived in writing by the Agent and the Banks.
2.2. Representations in Loan Agreement. The representations and
warranties of the Borrower set forth in the Loan Agreement are true and
correct in all material respects except to the extent that such
representations and warranties relate solely to or are specifically
expressed as of a particular date or period which has passed or expired as
of the date hereof.
2.3. No Event of Default. No Event of Default, nor any event that
upon notice, lapse of time or both would become an Event of Default is
continuing other than those, if any, waived in writing by the Agent and the
Banks.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS AND CONDITIONS
3.1. Loan Documents. The other Loan Documents, as defined in the Loan
Agreement, are amended as follows:
Any individual or collective reference to any of the Loan Documents in
any of the other Loan Documents to which the Borrower or any of its
Subsidiaries is a party shall mean, unless otherwise specifically
provided, such Loan Document as
-6-
amended by this Third Amendment to 1994 Amended and Restated
Credit Agreement, and as it is further amended, restated,
supplemented or modified from time to time and any substitute or
replacement therefor or renewals thereof, including without
limitation, all references to the Loan Agreement, which shall mean
the Loan Agreement as amended hereby and as further amended from
time to time.
3.2. Conditions. The effectiveness of this Amendment is conditioned
upon payment by the Borrower to the Agent for the ratable benefit of the
Banks, of a fee in the amount of $44,000, which represents .1% of the
aggregate principal amount of the Term Loans, as adjusted pursuant to this
Amendment.
ARTICLE IV
GENERAL
4.1. Full Force and Effect. As expressly amended hereby, the Loan
Agreement shall continue in full force and effect in accordance with the
provisions thereof. As used in the Loan Agreement, "hereinafter,"
"hereto," "hereof," and words of similar import shall, unless the context
otherwise requires, mean the Loan Agreement as amended by this Amendment.
4.2. Applicable Law. This Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of
the State of North Carolina.
4.3. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
4.4. Further Assurance. The Borrower shall execute and deliver to
the Agent and the Banks such documents, certificates and opinions as the
Agent may reasonably request to effect the amendment contemplated by this
Amendment.
4.5. Headings. The headings of this Amendment are for the purposes
of reference only and shall not affect the construction of this Amendment.
4.6. Valid Amendment. The parties acknowledge that this Amendment
complies in all respects with Section 13.1 of the Loan Agreement, which
sets forth the requirements for amendments thereto.
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers all as of the
date first above written.
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, N.A.,
individually and as Agent
By: /s/ Kent L. Phillips
Title: Vice President
WACHOVIA BANK OF NORTH CAROLINA, N.A.
By: /s/ Pete T. Callahan
Title: Vice President
CULP, INC.
By: /s/ Franklin N. Saxon
Franklin N. Saxon, Vice President and
Chief Financial Officer
-8-
Annex I
Commitment Amount Commitment Amount Percentage of
Name of Banks Term Loans Revolving Loans Aggregate Commitments
First Union National $26,400,000 $16,200,000 60.0%
Bank of North Carolina
209 North Main Street
High Point, NC 27260
Wachovia Bank of North $17,600,000 $10,800,000 40.0%
Carolina, N.A.
200 North Main Street
Post Office Box 631
High Point, NC 27261
-9-
Exhibit 1-A
FIRST AMENDED AND RESTATED TERM NOTE
$26,400,000 High Point, North Carolina
November 1, 1994
FOR VALUE RECEIVED, CULP, INC,, a North Carolina corporation (herein
called the "Borrower") , promises to pay to the order of FIRST UNION
NATIONAL BANK OF NORTH CAROLINA (the "Bank"), or order, at the office of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA at High Point, North Carolina,
in lawful money of the United States of America, the principal amount of
Twenty-six Million Four Hundred Thousand Dollars ($26,400,000), such
principal amount to be payable in seventy-five (75) consecutive equal
monthly installments of $300,000.00, payable on the tenth Business Day of
each Fiscal Month of the Borrower commencing December 14, 1995 and (ii) one
final installment of $3,900,000 payable on March 1, 2001, together with
interest on the unpaid principal amount, such interest payments beginning
on the tenth Business Day of the first Fiscal Month of the Borrower
following the date hereof, as provided in the 1994 Amended and Restated
Credit Agreement between the Borrower, the Bank (for itself and as Agent)
and Wachovia Bank of North Carolina, N.A., dated as of April 15, 1994 (as
amended, restated, modified or supplemented, the "Credit Agreement");
provided, however, that the Borrower shall be obligated to repay only those
funds which it has actually borrowed, and in the event that the Borrower
does not borrow the entire $4,800,000 made available by the Bank pursuant
to the Third Amendment to 1994 Amended and Restated Credit Agreement dated
as of November 1, 1994 between the Borrower, the Bank for itself and as
Agent, and Wachovia Bank of North Carolina, N.A., the principal amount not
borrowed shall be applied as a payment on the Term Note and shall be
applied against the principal amount of the Term Note ($26,400,000) in the
inverse order of maturity.
This Note is the First Union Term Note referred to in the Credit
Agreement and is entitled to the benefits thereof and may be prepaid in
whole or in part as provided therein. Capitalized terms used herein
without definition have the meanings specified in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid on
this Note may be declared to be immediately due and payable as provided in
the Credit Agreement.
In the event the indebtedness evidenced or secured hereby be collected
by or through an attorney at law after maturity, the holder shall be
entitled to collect reasonable attorney's fees. Demand, presentment,
protest, notice of protest, and notice of dishonor are hereby waived by all
parties bound hereon.
CULP, INC.
(CORPORATE SEAL] By:____________________________
______ President
ATTEST:
____________________
Secretary
-2-
Exhibit 1-B
FIRST AMENDED AND RESTATED TERM NOTE
$17,600,000 High Point, North Carolina
November 1, 1994
FOR VALUE RECEIVED, CULP, INC,, a North Carolina corporation (herein
called the "Borrower") , promises to pay to the order of WACHOVIA BANK OF
NORTH CAROLINA, N.A. (the "Bank"), or order, at the office of FIRST UNION
NATIONAL BANK OF NORTH CAROLINA (as the Bank's Agent and for the benefit of
the Bank) at High Point, North Carolina, in lawful money of the United
States of America, the principal amount of Seventeen Million Six Hundred
Thousand Dollars ($17,600,000), such principal amount to be payable in
seventy-five (75) consecutive equal monthly installments of $200,000.00,
payable on the tenth Business Day of each Fiscal Month of the Borrower
commencing December 14, 1995 and (ii) one final installment of $2,600,000
payable on March 1, 2001, together with interest on the unpaid principal
amount, such interest payments beginning on the tenth Business Day of the
first Fiscal Month of the Borrower following the date hereof, as provided
in the 1994 Amended and Restated Credit Agreement between the Borrower, the
Bank and First Union National Bank of North Carolina for itself and as
Agent, dated as of April 15, 1994 (as amended, restated, modified or
supplemented, the "Credit Agreement"); provided, however, that the Borrower
shall be obligated to repay only those funds which it has actually
borrowed, and in the event that the Borrower does not borrow the entire
$3,200,000 made available by the Bank pursuant to the Third Amendment to
1994 Amended and Restated Credit Agreement dated as of November 1, 1994
between the Borrower, the Bank and First Union National Bank of North
Carolina for itself and as Agent, the principal amount not borrowed shall
be applied as a payment on the Term Note and shall be applied against the
principal amount of the Term Note ($17,600,000) in the inverse order of
maturity.
This Note is the Wachovia Term Note referred to in the Credit
Agreement and is entitled to the benefits thereof and may be prepaid in
whole or in part as provided therein. Capitalized terms used herein
without definition have the meanings specified in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid on
this Note may be declared to be immediately due and payable as provided in
the Credit Agreement.
In the event the indebtedness evidenced or secured hereby be collected
by or through an attorney at law after maturity, the holder shall be
entitled to collect reasonable attorney's fees. Demand, presentment,
protest, notice of protest, and notice of dishonor are hereby waived by all
parties bound hereon.
CULP, INC.
(CORPORATE SEAL] By:____________________________
______ President
ATTEST:
____________________
Secretary
-2-
Exhibit 2-A
FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE
$16,200,000 High Point, North Carolina
November 1, 1994
FOR VALUE RECEIVED, CULP, INC,, a North Carolina corporation (herein
called the "Borrower") , promises to pay to the order of FIRST UNION
NATIONAL BANK OF NORTH CAROLINA (the "Bank"), or order, on the Revolving
Loan Termination Date (as defined in the 1994 Amended and Restated Credit
Agreement dated as of April 15, 1994 between the Borrower, the Bank (for
itself and as Agent) and Wachovia Bank of North Carolina, N.A. (as amended,
restated, modified or supplemented, the "Credit Agreement")), at the office
of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, High Point, North Carolina,
in lawful money of the United States of America, the principal amount of
Sixteen Million Two Hundred Thousand and No/ 100 Dollars ($16,200,000).
This Revolving Credit Note shall bear interest on the outstanding principal
balance from time to time as provided in the Credit Agreement and interest
shall be payable at the times set forth in the Credit Agreement.
Notwithstanding the foregoing, the Borrower shall be liable for
payment to the Bank only for such principal amount of the First Union
Revolving Loan (as defined in the Credit Agreement) as is outstanding,
together with interest at the rate per annum as aforesaid on the principal
amount outstanding from the date of advance.
This Note is the First Union Revolving Credit Note referred to in the
Credit Agreement and is entitled to the benefits thereof and may be prepaid
in whole or in part as provided therein. Capitalized terms used herein
without definition have the meanings specified in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid on
this Note may be declared to be immediately due and payable as provided in
the Credit Agreement.
In the event the indebtedness evidenced or secured hereby be collected
by or through an attorney at law after maturity, the holder shall be
entitled to collect reasonable attorneys' fees. Demand, presentment,
protest, notice of protest, and notice of dishonor are hereby waived by all
parties bound hereon.
[CORPORATE SEAL] CULP, INC.
ATTEST: By:_________________________
_________________ ________President
Secretary
Exhibit 2-B
FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,800,000 High Point, North Carolina
November 1, 1994
FOR VALUE RECEIVED, CULP, INC,, a North Carolina corporation (herein
called the "Borrower") , promises to pay to the order of WACHOVIA BANK OF
NORTH CAROLINA, N.A. (the "Bank"), or order, on the Revolving Loan
Termination Date (as defined in the 1994 Amended and Restated Credit
Agreement dated as of April 15, 1994 between the Borrower, the Bank and
First Union National Bank of North Carolina (for itself and as Agent) (as
amended, restated, modified or supplemented, the "Credit Agreement")), at
the office of FIRST UNION NATIONAL BANK OF NORTH CAROLINA (as the Bank's
Agent and for the benefit of the Bank), High Point, North Carolina, in
lawful money of the United States of America, the principal amount of Ten
Million Eight Hundred Thousand and No/ 100 Dollars ($10,800,000). This
Revolving Credit Note shall bear interest on the outstanding principal
balance from time to time as provided in the Credit Agreement and interest
shall be payable at the times set forth in the Credit Agreement.
Notwithstanding the foregoing, the Borrower shall be liable for
payment to the Bank only for such principal amount of the Wachovia
Revolving Loan (as defined in the Credit Agreement) as is outstanding,
together with interest at the rate per annum as aforesaid on the principal
amount outstanding from the date of advance.
This Note is the Wachovia Revolving Credit Note referred to in the
Credit Agreement and is entitled to the benefits thereof and may be prepaid
in whole or in part as provided therein. Capitalized terms used herein
without definition have the meanings specified in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid on
this Note may be declared to be immediately due and payable as provided in
the Credit Agreement.
In the event the indebtedness evidenced or secured hereby be collected
by or through an attorney at law after maturity, the holder shall be
entitled to collect reasonable attorneys' fees. Demand, presentment,
protest, notice of protest, and notice of dishonor are hereby waived by all
parties bound hereon.
[CORPORATE SEAL] CULP, INC.
ATTEST: By:_________________________
_________________ ________President
Secretary
Exhibit 5
CULP, INC.
1994 AMENDED AND RESTATED CREDIT AGREEMENT
QUARTERLY OFFICER'S CERTIFICATE
DATE:____________________
The undersigned chief financial officer of Culp, Inc. hereby certifies
that based upon the financial statements as of _____________, Culp, Inc.
was in compliance with the provisions of the 1994 Amended and Restated
Credit Agreement, as amended, and further certifies that, as of such date,
the financial information set forth below is true and correct:
Financial Covenants
Agreement in 1994 Credit
COVENANTS Paragraph Agreement
Consolidated Tangible $58,000,000 from
Shareholders' Equity (A) 9.16 closing to FYE April 1995; prior
year's amount plus 50% Net Income
at each FYE thereafter
Operating Cash Flow less 9.19 2.0 for each FQE after
Capital Expenditures to November 1, 1994 until
Interest Expense July, 1995
(B-F) to (C) 2.5 for each FQE there-
after until July, 1996
3.0 for each FQE there-
after
Consolidated Funded Debt to 9.20 60% from closing to FQE
Total Capitalization October 1994
(D) to (E) 55% for FQE January 1995,
April 1995 and July
1995
50% for each FQE there-
after
Sale of Assets 10.5 $5,000,000
Loans and Investments 10.7 $5,000,000
Rental Obligations 10.10 10% of Consolidated Tangible
Shareholder's Equity
__________________________________
Franklin N. Saxon
Vice President and
Chief Financial Officer
CULP, INC.
1994 AMENDED AND RESTATED CREDIT AGREEMENT
QUARTERLY OFFICER'S CERTIFICATE
CALCULATION OF CERTAIN FINANCIAL ITEMS
A) Consolidated Shareholders' Equity per
Balance Sheet $__________
Less Intangible Assets (including but not
limited to: Non-compete Agreement and
Debt Issue Costs) __________
Consolidated Tangible Shareholders' Equity $
B) Net Income $__________
Plus Interest Expense, income taxes,
Depreciation and Amortization $__________
Operating Cash Flow $
C) Interest Expense $
D) Current Maturities $__________
Plus Long-Term Debt __________
Consolidated Funded Debt $
E) Consolidated Funded Debt $__________
Plus Borrower's Tangible Shareholder's
Equity (Shareholder's Equity per Balance
Sheet, Less Intangible Assets) __________
Total Capitalization $
F) Capital Expenditures $
AMENDMENT TO LEASE
This Amendment to Lease is entered into by and between RDC, Inc.
("Lessor") and Culp, Inc. ("Lessee"), and relates to that certain Lease
Agreement dated November 1, 1993 (the "Lease") by and between Lessor and
Lessee for the Premises located at 555 McFarland Avenue in Walker County,
Georgia, and more particularly described herein. Unless the context
requires otherwise, capitalized or defined terms used herein shall have the
same meaning as given to them in the Lease.
The parties hereby agree that the Lease is amended as follows:
1. PREMISES. The "Premises" shall be those portions of the real
property located at 555 McFarland Avenue in Walker County, Georgia as are
described on Schedule A attached hereto.
2. TERM AND OPTION TO RENEW. The term of the Lease shall be
extended for a period of three (3) additional years, terminating on April
30, 1998, at 12:00 P.M.
Lessee shall have the option to extend the term of the Lease for one
(1) additional period of three (3) years commencing on May 1, 1998 and
terminating on April 30, 2001, which option must be exercised by Lessee in
writing at least twelve (12) months prior to the end of the term as
extended by this Amendment. Notice of exercise of the renewal option shall
be effective when received or when deposited in the United States Mail,
postage prepaid, correctly addressed and sent certified, return receipt
requested.
If the option to extend the term of the Lease for an additional period
of three (3) years beginning May 1, 1998 is exercised, beginning on May 1,
1998 (the "Adjustment Date") the rent shall be increased in a proportion
reflecting the total increase in the Consumer Price Index for the preceding
three year period, which increase shall be calculated as follows: multiply
the May 1, 1995 rental rate by a fraction, the numerator of which is the
Consumer Price Index, United States -- All Items for All Urban Consumers
for May 1, 1998 and the denominator of which is such index figure on the
same basis for May 1, 1995.
3. RENT. Beginning May 1, 1995, Lessee shall pay rent to Lessor in
the amounts and for the specified portions of the Premises as set forth on
Schedule A attached hereto and made a part hereof. Rent shall be payable
monthly on the first day of each month during the term of the Lease.
4. PARKING. Lessor agrees that during the term of this Lease and
any extensions thereof, it will at all times make available (at no
additional cost to Lessee) adequate parking for Lessee and its employees in
quantities sufficient to support Lessee's intended use of the Premises.
5. ENVIRONMENTAL MATTERS. Lessor acknowledges that asbestos is
present in the Premises, as disclosed by asbestos surveys previously
obtained by Lessor. Lessor agrees to take prompt action, at Lessor's
expense, to remedy all of the asbestos situations disclosed by such surveys
including, without limitation, compliance with all recommendations
contained in such surveys.
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Lessee agrees to prepay rent (in an aggregate amount not to exceed
$125,000) to Lessor in the amount of and on or prior to the due dates of
Lessor's expenses to third parties required for the asbestos remediation
described above. Such amounts will be applied equally to the rent
payments due from Lessee to Lessor beginning with the month
after such payment by Lessee through April 30, 1998.
Lessor and Lessee know of no additional violations relating to the
Premises of any Environmental Laws at the present time. However, if any
such additional violations are subsequently discovered and remedial action
is required to bring the Premises into compliance with any Environmental
Law or is required by the federal or state environmental agencies, such
remedial action will be taken by Lessor at Lessor's expense; provided,
however, that if Lessor can show that the violation of the Environmental
Laws first occurred after November 1, 1993 and was caused by the actions of
the Lessee, then the cost of remedial action with respect to the violation
that occurred after November 1, 1993 shall be borne by Lessee as provided
in Paragraph 30 of the Lease.
6. TAXES. Through April 30, 1995, Lessee shall pay all real
property taxes on the Premises as the term Premises is described in the
Lease. On and after May 1, 1995 through the term of the Lease, including
any extensions thereof, Lessee shall pay all real property taxes on the
Premises as defined in this Amendment to Lease. Beginning with the date
of this Amendment, during the term of the Lease, including all extensions,
Lessor shall forward invoices for real property taxes to Lessee promptly
upon receipt
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thereof from taxing authorities, along with an appropriate allocation
of such taxes showing the amount due with respect to the Premises.
After May 1, 1995, the allocation shall be made in accordance with the
provisions of Schedule B attached hereto. On or before December
15 of each year during the term of the Lease, Lessee will pay the real
property taxes allocable to the Premises to the appropriate taxing
authorities. For all tax parcels of which the Premises is a portion,
Lessor shall pay the real property taxes allocable to the portions of such
tax parcel or parcels that do not constitute part of the Premises before
the delinquency date thereof. If Lessor does not make such payment, Lessee
may, at its option, but without any requirement that Lessee do so, pay such
taxes as may be delinquent on any tax parcel of which the Premises is a
part, and may thereupon make demand for immediate reimbursement to Lessee
by Lessor, which Lessor shall immediately pay to Lessee. Until such
reimbursement has been paid in full, Lessee may withhold rent payments due
to Lessor in full or partial satisfaction of Lessor's reimbursement
obligation. It is further agreed that the real property taxes on the
Premises for the last year of the Lease, which shall be the property taxes
from January 1 of such year through April 30 of such year, shall be based
on the taxes for the previous year and shall be paid on or before the last
day of the term of the Lease by Lessee to Lessor, and Lessor shall pay the
taxing authority for such taxes.
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7. APPLICABLE LAW. The Lease and all amendments thereto shall be
construed in accordance with the laws of the State of Georgia.
8. REFERENCES. Any reference to "Landlord" in the Lease shall be
deemed to refer to "Lessor," and any reference to "Tenant" shall be deemed
to refer to "Lessee."
9. OTHER PROVISIONS UNAFFECTED. Except as expressly amended hereby,
the terms and conditions of the Lease are hereby ratified and shall remain
in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment to
Lease as of the 4th day of November, 1994.
RDC, INC.
By: /s/ W. Frank Hutchinson
CULP, INC.
By: /s/ Franklin N. Saxon
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SCHEDULE A
LEASE AGREEMENT BETWEEN RDC, INC. AND CULP, INC.
Building Sq./Ft $ Sq./Ft $ Per Mo. $ Per Yr.
Novelty Yarn 44,875 $ 1.50 $ 5,609.38 $ 67,312.50
Warping Plant-Concrete 35,821 1.50 4,477.63 53,731.50
Warping Plant-Wood 51,094 0.50 2,128.92 25,547.00
Finishing/Inspection 60,150 1.55 7,769.38 93,232.50
#8 Warehouse 41,185 1.55 5,319.73 63,836.75
Tasland Plant 48,048 0.45 1,801.80 21,621.60
Sample 6,666 1.25 694.38 8,332.50
Office 9,000 1.50 1,125.00 13,500.00
Accounting 9,666 1.50 1,208.25 14,499.00
TOTAL +\- 306,505 $ 1.16 $30,134.47 $361,613.35
35.062% AVERAGE
SCHEDULE B
Allocation of property tax to Culp, Inc. by RDC, Inc. will be based on
square footage occupied by Culp, Inc. (306,500 sq. ft.) versus total square
footage in the complex (874,181 sq. ft.)
AMENDMENT AND AGREEMENT
This Amendment and Agreement is entered into as of the 14th day of
December, 1994, by and between CULP, INC., ROSSVILLE INVESTMENTS, INC.,
ROSSVILLE COMPANIES, INC., CHROMATEX, INC., ROSSVILLE VELOURS, INC. and
RDC, INC.
The purpose of this agreement is to resolve certain items that have
arisen out of the Asset Purchase Agreement (the "Agreement") by and between
Culp, Inc. ("Culp"), Rossville Companies, Inc., Chromatex, Inc.., Rossville
Velours, Inc. and A & E Leasing, Inc. (now known as Rossville Investments,
Inc., and herein referred to as "Rossville") dated October 13, 1993.
Capitalized terms not defined herein shall have the same meaning as that
given to such terms in the Agreement unless the contest requires otherwise.
Pursuant to the Agreement, Culp has delivered the Buyer Note to
Rossville in the original principal amount of $9,632,724. The principal
amount of the Buyer Note is subject to adjustment pursuant to the terms of
the Agreement, and the parties hereto have reached further agreements about
the Buyer Note.
1. Section 1.7 of the Agreement provides that the parties shall
agree on total amount of Returns and Uncollected Accounts and shall make an
adjustment to the Buyer Note after comparing the amount of Returns and
Uncollected Accounts to the reserves for such items on the Closing Date
Balance Sheet. The parties have agreed that the total amount of Returns
and Uncollected Accounts exceeds the reserves on the Closing Date Balance
Sheet by $58,537, and
therefore the principal amount of the Buyer Note shall be reduced by
$58,537 pursuant to Section 1.7(c)(ii) of the Agreement.
2. Section 7.2(c) provides that the principal amount of the Buyer
Note will be reduced by the amount of expenses incurred by the parties to
address the matters described in that Section, subject to a $100,000
maximum reduction. To date, Rossville has incurred $53,825 to address
matters described in Section 7.2(c), and Culp has incurred $21,126 in
expenses to address such matters. Further, the parties have agreed that at
least $40,000 in additional expenditures will be required on account of
these matters. Therefore, the principal amount of the Buyer Note will be
reduced by $46,125 ($100,000 less the amount of expenses paid directly by
Rossville) pursuant to Section 7.2(c) of the Agreement. Any further claims
or expenditures that would have reduced the amount of the Buyer Note under
Section 7.2(c) but for the $100,000 limit contained in Section 7.2(c) will,
to the extent such claims or expenses relate to matters also covered by
Section 7.2(a), be subject to the $50,000 "basket" provided in Section
7.2(a) before any further reductions in the amount of the Buyer Note are
made.
3. After the purchase of certain assets by Culp from Rossville and
its affiliates pursuant to the Agreement, an account payable in the amount
of $4,415 by Rossville to Culp was created because of direct payments into
Rossville's bank accounts of receivables that were purchased by Culp. For
this reason, the principal amount of the Buyer Note will be reduced by
$4,415 in payment of this account owned by Rossville to Culp.
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4. Pursuant to the Agreement, Culp made certain payments on behalf
of Rossville to pay amounts due to factors owed by Rossville and its
affiliates. The payment made to BNY Financial Corporation was insufficient
because of late payment charges, and Culp was charged $4,335 on account of
those charges. The late payment charges paid by Culp will be reimbursed to
Culp by Rossville through a reduction in the Buyer Note, and therefore the
principal amount of the Buyer Note will be reduced by $4,335.
5. The Buyer Note provides that if the principal amount thereof is
decreased because Returns and Uncollected Accounts exceed the reserve for
such items on the Closing Date Balance Sheet, then the holder of the Buyer
Note will make a refund to Culp of interest paid with respect to the amount
of such decrease from the Closing Date to the date of the final
determination of the amount of the decrease. Through October 31, 1994, the
amount of interest paid by Culp with respect to the Returns and Uncollected
Accounts adjustment is $4,248. The principal amount of the Buyer Note will
be reduced accordingly to account for this refund of interest.
6. The parties have agreed that, after adjusting the amount of the
Buyer Note as described above and to account for prior payments on the
Buyer Note, Culp will make a prepayment on December 14, 1994 in an amount
that will reduce the outstanding principal balance of the Buyer Note to
$1,000,000. The calculation of the amount to be prepaid is as follows:
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$ 9,632,724 original principal balance
(58,537) adjustment under paragraph 1 above
(46,125) adjustment under paragraph 2 above
(4,415) adjustment under paragraph 3 above
(4,335) adjustment under paragraph 4 above
(4,248) refund of interest (paragraph 5 above)
9,515,064 adjusted principal balance
(2,408,181) payment on November 1, 1994
7,106,883 adjusted principal balance after 11/1/94
payment
1,000,000 amount to remain outstanding
$ 6,106,883 amount of prepayment on 12/14/94
Pursuant to this agreement, (i) Culp will make a payment of $6,106,883 on
December 14, 1994 as a prepayment of the Buyer Note; (ii) Culp will pay all
accrued interest to the date of such prepayment to the holder of the Buyer
Note; and (iii) the Buyer Note will be further modified as follows:
(a) The Contract Rate will be changed from the Prime Rate plus one-
half of one percent to the "Adjusted LIBOR Rate" (as defined in
the 1994 Amended and Restated Credit Agreement dated as of April
15, 1994 by and between Culp and First Union National Bank of
North Carolina, as agent, and other parties, including any
amendments thereto) plus one-half of one percent;
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(b) Interest only will be payable quarterly; and
(c) The principal balance of the Buyer Note will be due and payable
in full on November 1, 1996, with no other principal payments
required during the period from December 14, 1994, through
November 1, 1996.
7. The parties acknowledge and agree that certain remedial action
must be taken in connection with two underground storage tanks at the
Chromatex plant. The existence of these tanks was not disclosed at the
time of the closing of the acquisition under the Agreement. The parties
agree that Culp's costs in taking the required remedial action will
constitute a claim against the Sellers and Rossville under Section 7.2(a)
of the Agreement in an amount not to exceed $25,000, and such amount will
be applied against the $50,000 "basket" contained in Section 7.2(a). Culp
further agrees that it will not assert further claims against the Sellers
in connection with the four underground storage tanks at Chromatex plants
#1 and #2.
8. On December 14, 1994, at the time of making the prepayment
described in paragraph 6 above, Culp will execute a Substitute Buyer Note
in the principal amount of $1,000,000 and in the form of Exhibit A attached
hereto, and will deliver such Substitute Buyer Note to Rossville in
exchange for the original Buyer Note, which shall be marked "paid and
satisfied in full" by Rossville and delivered to Culp.
9. In connection with the agreements contained herein, Culp has
agreed to lease extensions with the owners of the real property
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located in Rossville, Georgia and used in connection with the Business purchased
pursuant to the Agreement (referred to herein as the "Rossville Real
Estate"). The Sellers have requested that they be released from certain
liabilities under the Agreement that relate to the Rossville Real Estate,
in exchange for an acknowledgement and agreement by the owners of the
Rossville Real Estate that such owners will be responsible for the released
claims. Therefore, Culp hereby releases the Sellers (as defined in the
Agreement) from any claims arising after the date hereof against such
Sellers on account of (i) a breach of the representations contained in
Section 3.22(a), 3.22(b) or 3.22(c) of the Agreement solely to the extent
such representations relate to the Rossville Real Estate, (ii) any
contamination of the Rossville Real Estate by Hazardous Materials,
specifically including contamination by asbestos, or (iii) any material
deficiency in the condition of the Rossville Real Estate that does not
relate to Environmental Laws (the claims described in clauses (i), (ii) and
(iii) above being herein referred to as "Released Claims"); provided,
however, that this release shall not apply to any claims that relate to
conditions caused by the activities of the Sellers while such Sellers
operated the Business at the Rossville Real Estate. Rossville (formerly
known as A & E Leasing, Inc. and defined as the "Shareholder" in the
Agreement) and RDC, Inc., the owners of the Rossville Real Estate, hereby
agree that (i) Rossville will be liable for and will hold harmless and
indemnify Culp for any and all Released Claims that relate in whole or in
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part to the portion of the Rossville Real Estate leased to Culp under the
lease between Rossville and Culp dated November 1, 1993 and (ii) RDC, Inc.
will be liable for and will hold harmless and indemnify Culp for any and
all Released Claims that relate in whole or in part to the portion of the
Rossville Real Estate leased to Culp under the lease between RDC, Inc. and
Culp dated November 1, 1993. This agreement is intended as a supplement to
and is incorporated hereby into the leases between Culp, Rossville and RDC,
Inc. relating to the Rossville Real Estate.
IN WITNESS WHEREOF, this Amendment and Agreement is executed as of the
date first above written.
CULP, INC.
By: /s/ Franklin N. Saxon
Title: Vice President and CFO
ROSSVILLE INVESTMENTS, INC.
(f.k.a. A & E Leasing, Inc.)
By: /s/ Ronald Satterfield
Title: President
ROSSVILLE COMPANIES, INC.
By: /s/ Ronald Satterfield
Title: E.V.P.
(Signatures continued)
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CHROMATEX, INC.
By: /s/ Ronald Satterfield
Title: E.V.P.
ROSSVILLE VELOURS, INC.
By: /s/ Ronald Satterfield
Title: E.V.P.
RDC, INC.
By: /s/ W. Frank Hutchinson
Title: President
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EXHIBIT A
SUBSTITUTE PROMISSORY NOTE
$1,000,000 Rossville, Georgia
December 14, 1994
FOR VALUE RECEIVED, the undersigned, Culp, Inc., a North Carolina
corporation, (the "Maker") promises to pay to the order of Rossville
Investments, Inc., a Georgia corporation (f.k.a. A & E Leasing, Inc.) (the
"Lender"), the principal sum of ONE MILLION DOLLARS ($1,000,000), together
with interest from date hereof until maturity, upon unpaid principal
balances, at the rate hereinafter specified.
Subject to the limitations hereinafter set forth, the disbursed and
unpaid principal balances of the indebtedness hereby evidenced shall bear
interest prior to maturity at a rate per annum which shall, from day to
day, be equal to the lesser of (a) the maximum effective rate of interest
(the "Maximum Rate") which the Lender may, from time to time, lawfully
charge, or (b) a rate ("Contract Rate") equal to (i) one-half of one
percent (.5%) per annum, plus (ii) the "Adjusted LIBOR Rate" as defined in
the 1994 Amended and Restated Credit Agreement (the "Credit Agreement") by
and between the Maker and First Union National Bank of North Carolina (the
"Bank") and Wachovia Bank of North Carolina, N.A. dated April 15, 1994,
each change in the rate of interest to be charged hereon to become
effective, without notice to the undersigned, on the effective date of each
change in the Maximum Rate or the Adjusted LIBOR Rate, as the case may be.
The rate payable under this note on December 14, 1994 (Adjusted LIBOR Rate
plus .5%) is 6.625%.
Any payment not made when due and, in the event of the acceleration of
the indebtedness evidenced hereby by reason of the Maker's default, the
entire unpaid principal balance hereof, shall bear interest after maturity
at the lesser of (i) the maximum effective contract rate of interest which
the Lender may lawfully charge under applicable statutes and laws in effect
at the time of any such default and (ii) the Adjusted LIBOR Rate (as
periodically adjusted in accordance with the immediately preceding
paragraph) plus three and one-half percent (3.5%) per annum.
Said principal is payable in one installment on November 1, 1996; and
said interest, upon unpaid principal balances, calculated as above
provided, is payable quarterly on the first day of each and every quarter
hereafter, commencing on the 1st day of February, 1995 with a final payment
of all accrued and unpaid interest being due and payable on November 1,
1996.
All installments of both principal and interest on this Note are
payable at the office of Lender, at P.O. Box 487, Rossville, Georgia,
30741, or at such other place as the holder may designate
in writing, in lawful money of the United States of America, which
shall be legal tender in payment of all debts and dues, public and
private, at the time of payment.
If:
(i) the Maker shall fail to make payment of any installment of
principal or interest, or any part thereof as above provided, or
(ii) the Maker breaches any of the terms of the Asset Purchase
Agreement (the "Asset Purchase Agreement") dated October 13, 1993 by and
between the Maker and Lender which has a material adverse effect on the
combined assets, operations or future prospects of the Maker, or
(iii) any of the representations and warranties contained in
Article IV of the Asset Purchase Agreement are breached or are inaccurate
or false or untrue in any respect which breach or inaccuracy could have a
material adverse effect on the combined assets, operations or future
prospects of the Maker, or
(iv) the Maker's "Funded Debt to Net Worth" ratio at any time is
greater than 1.35 to 1, or
(v) upon any default in full payment, promptly as and when due
(whether by reason of demand, acceleration or otherwise), of any other
indebtedness, liabilities or obligations of the Maker to the Lender or to
Chromatex, Inc. or Rossville Velours, Inc., whether now existing or
hereafter created or arising, or
(vi) Maker shall make an assignment for the benefit of creditors,
file a petition in bankruptcy, petition or apply to any tribunal for the
appointment of a custodian, receiver or any trustee for it or a substantial
part of its or his assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or if there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against Maker
in which any order for relief is entered or which remains undismissed for a
period of thirty (30) days or more; or Maker, by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a
custodian, receiver or any trustee for it or any substantial part of any of
its properties, or shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of thirty (30) days or
more; or Maker shall generally not pay its debts as such debts become due;
or
(vii) a judgment or order for the payment of money in an amount in
excess of Two Million Dollars ($2,000,000) is rendered
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and remains unsatisfied against the Maker or any Subsidiary and either
(i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of
thirty (30) consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(viii) the percentage of stock of the Maker owned by the Culp
family as reported in public information filings is reduced below fifteen
percent (15%); or
(ix) Maker or any of its Subsidiaries enter into any transaction
of merger, consolidation, pooling of interest, joint venture, syndication
or combination with any other person or entity or sell, lease, transfer or
otherwise dispose of all or a substantial part (as defined in Subparagraph
c below) of its assets (whether or not now owned or hereafter acquired) in
any single transaction or series of related transactions, to any person or
entity (other than acquisitions by Maker in which the Maker is the
surviving entity), except that:
(a) any Subsidiary may merge with the Maker, provided that
the Maker shall be the continuing or surviving corporation
or with any one or more other Subsidiaries;
(b) any Subsidiary may sell, lease or otherwise dispose of
any of its assets to the Maker;
(c) Maker and its Subsidiaries may, in one (1) fiscal year,
sell at then current market value assets (i) having a book
value of less than twenty-five percent (25%) of the total
consolidated book value of assets as of the end of the
preceding fiscal year and (ii) which contributed less than
twenty-five percent (25%) of the operating profits in the
immediately preceding four fiscal quarters [a sale of more
than such assets shall constitute a sale of substantially
all of its assets for purposes of this Paragraph (ix)]; or
(x) a default or an event of default occurs in connection with
any Funded Debt which results in the Holder of such debt accelerating the
maturity of such debt or otherwise declaring such debt due and payable;
then, if Buyer has not cured such default within ten (10) days of receipt
of written notice of such default from Lender, and in any of such events,
the entire unpaid principal balance of the indebtedness evidenced hereby,
together with all interest then accrued, shall, at the absolute option of
the Lender, at once
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become due and payable, without demand or notice, the same being
expressly waived.
"Funded Debt" for purposes of this Note shall mean:
(i) Indebtedness for borrowed money or for the deferred purchase
price of property or services (other than trade accounts payable on
customary terms and accrued expenses in the ordinary course of business),
(ii) financial obligations evidenced by bonds, debentures, notes or other
similar instruments (including, but not limited to, the "Buyer Notes"),
(iii) financial obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principals,
recorded as capital leases, and (iv) obligations under or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against
loss in respect of indebtedness or financial obligations of others of the
kinds referred to in Clauses (i) through (iii) above.
"Net Worth" for purposes of this Note means the excess of book value
of the assets of the Maker and its Subsidiaries over the Maker's and its
Subsidiaries' liabilities calculated in accordance with generally accepted
accounting principals, provided, however, that in performing such
calculation there shall be excluded from the assets of the Maker and its
Subsidiaries (i) any amounts owed to Maker or any of its Subsidiaries by a
Related Person.
"Subsidiary" or "Subsidiaries" for purposes of this Note shall mean
any entity which is included in Maker's consolidated financial statements
filed in connection with its annual report on Form 10-K or its quarterly
reports on Form 10-Q with the Securities and Exchange Commission ("SEC")
or, in the event Maker is no longer required to file such reports, any
entity which would be required under the rules and regulations of the
Securities Exchange Act of 1934 to be included in such consolidated
financial statements.
"Related Person" shall mean any Person (a) which now or hereafter
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with Maker, or (b) which now or
hereafter beneficially owns or holds five percent (5%) or more of the
capital stock of Maker, or (c) five percent (5%) or more of the capital
stock of which is beneficially owned or held by Maker. For the purposes
hereof, "Control" shall mean possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership or voting stock, by
contract or otherwise.
This Note is one of the "Buyer Notes" which are referred to in the
Asset Purchase Agreement dated October 13, 1993 by and among Maker,
Rossville Companies, Inc., Chromatex, Inc., Rossville
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Velours, Inc. and A & E Leasing, Inc. (the "Asset Purchase
Agreement"). Notwithstanding any other provision of this Note, the
principal amount outstanding with respect to the Promissory Note shall
be increased or decreased, as the case may be, in accordance with the
provisions of the Asset Purchase Agreement. Upon the final
determination of such increase or decrease, the Maker and Lender will
execute an appropriate amendment to note reflecting such increase or
decrease. If the principal amount of the Note is increased, interest
shall be due and payable (at the rates provided herein) on the amount
of such increase from the Closing through the date of such increase
and such interest shall be paid on February 1, 1994 or, if such
determination is made after February 1, 1994, such interest through
the most recent quarterly interest payment date shall be
immediately paid with the remainder of such interest to be paid
with the immediately following quarterly interest payment. If the
principal amount of the note is decreased, the Lender shall refund
any interest payments made with respect to the amount of the decrease
between the Closing and the date of the final determination of the
amount of the adjustment. Notwithstanding the foregoing, no
interest payments shall be made or return of interest payments
will be required with respect to any adjustment to this Note made
pursuant to the indemnification provisions of Article VII of the
Asset Purchase Agreement.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to enforce its collection, the Maker shall pay on
demand all costs of collection and litigation (including court costs),
together with a reasonable attorney's fee.
The Maker waives protest, demand, presentment and notice of dishonor,
and agrees that this Note may be extended, in whole or in part, without
limit as to the number of such extensions, or the period or periods
thereof, and without notice to them and without affecting its liability
thereon.
The privilege is reserved and given to make additional payments on the
principal of this Note, without penalty. Any partial prepayment of
principal shall, however, not have the effect of suspending or deferring
the annual principal payments herein provided for, but the same shall
continue to be due and payable on each due date subsequent to any such
partial prepayment of the principal, and shall operate to effect full
payment of the principal at an earlier date.
It is the intention of the Lender and the Maker to comply strictly
with all applicable usury laws; and, accordingly, in no event and upon no
contingency shall the Lender ever be entitled to receive, collect, or apply
as interest any interest, fees, charges, or other payments equivalent to
interest, in excess of the maximum rate which the Lender may lawfully
charge under applicable statutes and laws from time to time in effect;
and, in the event that the holder hereof ever receives, collects, or
applies as
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interest, any such excess, such amount which, but for this
provision, would be excessive interest, shall be applied to the
reduction of the principal amount of the indebtedness evidenced hereby;
and, if the principal amount of the indebtedness evidenced hereby, and
all lawful interest thereon, is paid in full, any remaining excess
shall forthwith be paid to the Maker, or other party lawfully
entitled thereto. All interest paid or agreed to be paid by the Maker
shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period
until payment in full of the principal, so that the interest hereon
for such full period shall not exceed the maximum amount permitted
by applicable law. Any provision hereof, or of any other agreement
between the Lender and the Maker, that operates to bind, obligate, or
compel the Maker to pay interest in excess of such maximum lawful
contract rate shall be construed to require the payment of the
maximum rate only. The provisions of this paragraph shall be given
precedence over any other provision contained herein or in any other
agreement between the Lender and the Maker that is in conflict with
the provisions of this paragraph.
This Note shall be governed and construed according to the internal
statutes and laws of the State of North Carolina, without reference to any
conflicts of law principles.
This Note is not negotiable and may not be assigned.
ATTEST: CULP, INC.
By:________________________ By: _____________________________
Secretary Vice President
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AMENDMENT TO LEASE
This Amendment to Lease is entered into by and between Rossville
Investments, Inc. (formerly known as A & E Leasing, Inc.) ("Lessor") and
Culp, Inc. ("Lessee"), and relates to that certain Lease Agreement dated
November 1, 1993 (the "Lease") by and between Lessor and Lessee for the
Premises described as Plant 12, located at Maple and Sousa Streets,
Rossville, Georgia. Unless the context requires otherwise, capitalized or
defined terms used herein shall have the same meaning as given to them in
the Lease.
The parties hereby agree that the Lease is amended as follows:
1. TERM AND OPTION TO RENEW. The term of the Lease shall be
extended for a period of three (3) additional years, terminating on April
30, 1998, at 12:00 P.M.
Lessee shall have the option to extend the term of the Lease for one
(1) additional period of three (3) years commencing on May 1, 1998 and
terminating on April 30, 2001, which option must be exercised by Lessee in
writing at least twelve (12) months prior to the end of the term as
extended by this Amendment. Notice of exercise of the renewal option shall
be effective when received or when deposited in the United States Mail,
postage prepaid, correctly addressed and sent certified, return receipt
requested.
If the option to extend the term of the Lease for an additional period
of three (3) years beginning May 1, 1998 is exercised, beginning on May 1,
1998 (the "Adjustment Date") the rent shall be increased in a proportion
reflecting the total
increase in the Consumer Price Index for the preceding three year period,
which increase shall be calculated as follows: multiply the May 1, 1995
rental rate by a fraction, the numerator of which is the Consumer Price
Index, United States -- All Items for All Urban Consumers for May 1,
1998 and the denominator of which is such index figure on the same basis
for May 1, 1995.
2. RENT. Beginning May 1, 1995, Lessee shall pay rent to Lessor in
the amount of $9,400 per month ($112,800 per year). Rent shall be payable
monthly on the first day of each month during the term of the Lease.
3. PARKING. Lessor agrees that during the term of this Lease and
any extensions thereof, it will at all times make available (at no
additional cost to Lessee) adequate parking for Lessee and its employees in
quantities sufficient to support Lessee's intended use of the Premises.
4. TAXES. Lessee shall pay all real property taxes on the Premises.
Beginning with the date of this Amendment, during the term of the Lease,
including all extensions, Lessor shall forward invoices for real property
taxes to Lessee promptly upon receipt thereof from taxing authorities. In
the alternative, Lessee may, at its option, make arrangements with such
taxing authorities to have invoices provided directly to Lessee. On or
before December 15 of each year during the term of the Lease, Lessee will
pay the real property taxes due on the Premises to the appropriate taxing
authorities. It is further agreed that the real property taxes on the
Premises for the last year of the Lease, which shall
-2-
be the property taxes from January 1 of such year through April 30 of
such year, shall be based on the taxes for the previous year and shall be
paid on or before the last day of the term of the Lease by Lessee to Lessor,
and Lessor shall pay the taxing authority for such taxes.
5. APPLICABLE LAW. The Lease and all amendments thereto shall be
construed in accordance with the laws of the State of Georgia.
6. REFERENCES. Any reference to "Landlord" in the Lease shall be
deemed to refer to "Lessor," and any reference to "Tenant" shall be deemed
to refer to "Lessee."
7. OTHER PROVISIONS UNAFFECTED. Except as expressly amended hereby,
the terms and conditions of the Lease are hereby ratified and shall remain
in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment to
Lease as of the 14th day of December, 1994.
ROSSVILLE INVESTMENTS, INC.
(formerly known as A & E Leasing, Inc.)
By: /s/ Ronald Satterfield
CULP, INC.
By: /s/ Franklin N. Saxon
-3-
5
1,000
MAY-02-1994
9-MOS
APR-30-1995
JAN-29-1995
317
0
41,064
(517)
44,314
88,098
126,238
(56,865)
179,138
41,699
0
560
0
0
67,691
179,138
222,585
222,585
184,306
184,306
24,839
0
3,341
10,160
3,810
0
0
0
0
6,350
0.57
0.57
