UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 30, 2005
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Culp, Inc.
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(Exact Name of Registrant as Specified in its Charter)
North Carolina 0-12781 56-1001967
- ----------------------------- -------------------------- -------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
1823 Eastchester Drive
High Point, North Carolina 27265
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(Address of Principal Executive Offices)
(Zip Code)
(336) 889-5161
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former name or address, if changed from last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
INDEX
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Page
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Item 1.01 - Entry into a Material Definitive Agreement 3
Item 2.02 - Results of Operations and Financial Condition 3
Item 9.01(c) - Exhibits 4
Signatures 5
Exhibits
2
1.01. Entry into a Material Definitive Agreement.
On August 30, 2005, Culp, Inc. (the "Company") and Wachovia Bank, National
Association (formerly, Wachovia Bank, N.A.) (referred to herein as "Wachovia")
entered into a Sixth Amendment to Amended and Restated Credit Agreement (the
"Agreement") to amend and renew the Company's working capital line of credit
with Wachovia. The Agreement provides for an unsecured line of credit in the
amount of $8,000,000, to be used for working capital and to support letters of
credit, which in total are not to exceed $5,500,000, required by the Company for
various aspects of its operations. The line of credit has a term expiring August
31, 2006 and bears interest at LIBOR plus an adjustable margin based on the
company's debt/EBITDA ratio, as defined in the agreement. The fees for this
amendment were $5,000. The financial covenants applicable to the Company
under the Agreement include the following:
o quarterly EBITDA targets (based upon the latest four quarters), with EBITDA
being calculated excluding restructuring and related charges and other
non-cash charges (with a limit on the amount of cash restructuring
charges).
o an interest and lease coverage test.
o funded debt to tangible capital ratio not to exceed 60%.
o $5,000,000 annual limit on capital expenditures.
o dividend restrictions (unchanged from prior agreement).
o a liquidity requirement providing that from October 31, 2005 until March
15, 2006, the Company must maintain collected deposit balances with
Wachovia of at least $7,500,000. This $7,500,000 million deposit
requirement is contingent upon the company's successful completion of a
real estate loan, as described below.
A copy of the Sixth Amendment to Amended and Restated Credit Agreement is filed
herewith as Exhibit 99(c), and the description provided above is qualified by
reference to the complete terms of the Agreement as set forth in Exhibit 99(c).
In addition, on August 30, 2005, the Company executed a Real Estate Loan
Commitment Letter (the "Letter") with Wachovia, providing that Wachovia would
commit until October 31, 2005 to make a five year term loan to the Company in an
amount expected to be approximately $4,060,000, to finance and to be secured by
a lien on the Company's headquarters building in High Point, North Carolina. The
loan will bear interest at LIBOR plus an adjustable margin based on the
company's debt/EBITDA ratio, as defined in the agreement, and will be payable
monthly on a 15-year amortization schedule, with a final balloon payment due
five years from closing. The commitment contains other terms and is subject to
certain conditions and contingencies, as set forth in the Letter. The fees for
this amendment were $1,500.
A copy of the Letter is filed herewith as Exhibit 99(d), and the description
provided above is qualified by reference to the complete terms of the Letter as
set forth in Exhibit 99(d).
The Company anticipates that the real estate term loan described above will be
closed during October 2005.
Item 2.02 - Results of Operations and Financial Condition
On August 31, 2005, the Company issued a news release to announce its financial
results for the first quarter ended July 31, 2005. The news release is attached
hereto as Exhibit 99(a).
Also on August 31, 2005, the Company released a Financial Information Release
containing additional financial information and disclosures about the Company's
first quarter ended July 31, 2005. The Financial Information Release is attached
hereto as Exhibit 99(b).
3
The news release and Financial Information Release contain disclosures about
free cash flow, a non-GAAP performance measure, that management believes
provides useful information to investors because it measures the Company's
available cash flow for potential debt repayment, stock repurchases and
additions to cash and cash equivalents. In addition, the news release and
Financial Information Release contain proforma income statement information,
which reconciles the reported and projected income statement information with
proforma results, which exclude restructuring and related charges and credits.
The Company has included this proforma information in order to show operational
performance excluding the effects of restructuring and related charges and
credits that are not expected to occur on a regular basis. Management believes
this presentation aids in the comparison of financial results among comparable
financial periods. In addition, this information is used by management to make
operational decisions about the Company's business, is used in certain financial
covenants in the Company's loan agreement, and is used by the Company as a
financial goal for purposes of determining management incentive bonuses.
Forward Looking Information. This report and the exhibits hereto contain
statements that may be deemed "forward-looking statements" within the meaning of
the federal securities laws, including the Private Securities Litigation Reform
Act of 1995 (Section 27A of the Securities Act of 1933 and Section 27A of the
Securities and Exchange Act of 1934). Such statements are inherently subject to
risks and uncertainties. Further, forward-looking statements are intended to
speak only as of the date on which they are made. Forward-looking statements are
statements that include projections, expectations or beliefs about future events
or results or otherwise are not statements of historical fact. Such statements
are often but not always characterized by qualifying words such as "expect,"
"believe," "estimate," "plan" and "project" and their derivatives, and include
but are not limited to statements about the company's future operations,
production levels, sales, SG&A or other expenses, margins, gross profit,
operating income, earnings or other performance measures. Factors that could
influence the matters discussed in such statements include the level of housing
starts and sales of existing homes, consumer confidence, trends in disposable
income, and general economic conditions. Decreases in these economic indicators
could have a negative effect on the company's business and prospects. Likewise,
increases in interest rates, particularly home mortgage rates, and increases in
consumer debt or the general rate of inflation, could affect the Company
adversely. Changes in consumer tastes or preferences toward products not
produced by the Company could erode demand for the Company's products. In
addition, strengthening of the U.S. dollar against other currencies could make
the Company's products less competitive on the basis of price in markets outside
the United States. Also, economic and political instability in international
areas could affect the company's operations or sources of goods in those areas,
as well as demand for the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could cause the
cumulative effect of restructuring actions to fail to meet the objectives set
forth by management. Other factors that could affect the matters discussed in
forward-looking statements are included in the company's periodic reports filed
with the Securities and Exchange Commission.
Item 9.01 (c) -- Exhibits
99(a) News Release dated August 31, 2005
99(b) Financial Information Release dated August 31, 2005
99(c) Sixth Amendment to Amended and Restated Credit Agreement dated August 30,
2005
99(d) Real Estate Loan Commitment Letter dated August 30, 2005
4
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 hereunto duly authorized.
CULP, INC.
(Registrant)
By: /s/ Franklin N. Saxon
---------------------
Franklin N. Saxon
President and Chief Operating Officer
By: /s/ Kenneth R. Bowling
----------------------
Kenneth R. Bowling
Vice President-Finance, Treasurer
Dated: August 31, 2005
- ----------------------
5
Exhibit 99(a)
Culp Announces First Quarter Results for Fiscal 2006
HIGH POINT, N.C.--(BUSINESS WIRE)--Aug. 31, 2005--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
first quarter ended July 31, 2005.
Overview
For the three months ended July 31, 2005, net sales were $62.3
million, compared with net sales of $67.8 million a year ago. The
company reported a net loss of $3.9 million, or $0.34 per diluted
share, for the first quarter of fiscal 2006, compared with a net loss
of $1.1 million, or $0.09 per diluted share, for the first quarter of
fiscal 2005. The financial results for the first quarter of fiscal
2006 include after-tax restructuring and related charges of $3.3
million, or $0.29 per diluted share. Excluding these charges, the net
loss for the first fiscal quarter was $628,000, or $0.05 per diluted
share. Excluding after-tax restructuring and related charges and
credits of approximately $42,000, the net loss for the first quarter
of fiscal 2005 was unchanged at $1.1 million, or $0.09 per diluted
share. (A reconciliation of the net loss and net loss per share
calculations has been set forth on Page 5.)
Commenting on the company's results for the first quarter of
fiscal 2006, Robert G. Culp, III, chief executive officer of Culp,
Inc., said, "At the beginning of the quarter, we had ambitious
strategic plans in place, as previously announced, for our operating
segments - mattress ticking and upholstery fabrics, which includes
both U.S. and offshore operations. We are pleased with how much we
accomplished during the quarter with respect to these operational
initiatives as we continue to adapt to the rapidly changing furniture
and bedding markets. While we are not yet profitable in the upholstery
fabrics segment, it is gratifying to see the improvement in operating
results for the first quarter on a year-over-year basis. Although the
transition to a leaner and more agile business model is affecting our
financial performance, we believe we are taking the right steps to be
competitive and position the company for growth over the long term in
today's global marketplace."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales were $22.9
million in the first quarter of fiscal 2006, an 11.7 percent decline
compared with $26.0 million for the first quarter of fiscal 2005,
reflecting soft demand industry-wide. Operating income for this
segment was $1.4 million, or 5.9 percent of sales, compared with $2.9
million, or 11.2 percent of sales, in the first quarter of fiscal
2005. Operating margins in this segment were affected by lower unit
sales, costs related to the start-up of the company's capital project
announced last October, and lower average selling prices principally
related to the damask product line. This pricing trend reflects the
ongoing shift mattress manufacturers are making to less expensive
common border ticking, which is the fabric that goes on the side of
mattresses and box springs. The average selling price for mattress
ticking declined by 4.2 percent for the first quarter of fiscal 2006
compared with the prior year's quarter. On a unit volume basis, total
yards sold declined by 7.5 percent over the same time. However,
excluding the less popular printed ticking category, total yards sold
were only down about one percent compared with the prior year's
quarter.
"Mattress ticking continues to be a very solid part of Culp's
business and we are taking aggressive steps to improve our competitive
position," added Culp. "We are in the final stages of our $7.0 million
capital project for this segment designed to improve our globally
competitive cost structure. During the first quarter, we completed the
building expansion and weaving machine installation at our Stokesdale,
North Carolina, plant as well as the installation and full operation
of the new weaving machines at our Quebec, Canada, facility. We are
ramping up production at the Stokesdale plant during the second
quarter. By the end of October 2005, we expect to have completed the
transition of a significant portion of our production from a higher
cost upholstery fabric weaving plant to our two mattress ticking
facilities. While these changes have affected our results during the
last three quarters, we believe that once this project is fully
implemented, Culp will be well positioned to substantially improve
operating margins in our mattress ticking business."
Upholstery Fabrics Segment
Sales for this segment were $39.4 million in the first quarter of
fiscal 2006, a 5.9 percent decline compared with $41.9 million in the
first quarter of fiscal 2005. Total yards sold were down 7.0 percent,
while average selling prices were about 1.0 percent higher than the
same period a year ago. Sales for the quarter continued to reflect
significantly lower demand industry-wide for U.S. produced upholstery
fabrics. The current consumer preference for leather and suede
furniture and customer selection of other imported fabrics, including
cut and sewn kits, are driving this trend. The lower sales of U.S.
produced fabrics were offset to a large degree by higher sales of
offshore produced fabrics. Operating loss for this segment was
$380,000, compared with an operating loss of $2.6 million for the same
period a year ago, reflecting higher gross profit in the offshore
produced business and substantially lower selling, general and
administrative expenses.
"With respect to our U.S. operations, we continued to take very
aggressive actions to bring our U.S. manufacturing costs and capacity
in line with current demand trends," Culp noted. "During the first
quarter we initiated and completed the consolidation of our two velvet
production facilities into our Anderson, South Carolina, plant.
Additionally, we consolidated a finished goods distribution center and
our design center into other Culp facilities, resulting in lower
operating costs and the sale of these two buildings for approximately
$3.0 million. Further, we combined our sales, design and customer
service activities for Culp Decorative Fabrics and Culp
Velvets/Prints, the two divisions within the upholstery fabrics
segment, resulting in a more unified approach for our customers. With
these actions and others, we reduced our selling, general and
administrative expenses in this segment by 34.1 percent when compared
with the first quarter last year.
"Earlier this month, we announced a plan to reduce the company's
U.S. yarn manufacturing operations in order to lower costs and
facilitate more yarn innovation by strategically aligning with key
suppliers. As a result of these consolidations and earlier
restructuring actions, the book value of our U.S. based upholstery
fabric fixed assets is projected to be $17 million by the end of the
second quarter of fiscal 2006, compared with approximately $52 million
at the end of fiscal 2004, just 18 months ago. While we believe it is
important to produce some level of upholstery fabrics in the U.S. to
support our customers' domestic fabric requirements, we remain
committed to taking whatever additional steps are necessary to achieve
profitable U.S. upholstery fabric operations.
"With respect to our non-U.S. operations in this segment, we are
pleased with the positive trends during the quarter," added Culp.
"Sales of upholstery fabrics produced outside of our U.S.
manufacturing plants, which include the popular micro-denier suedes as
well as fabrics produced at our China facility, were more than twice
the amount for the same quarter last year. These fabrics accounted for
30 percent of Culp's overall upholstery fabric sales during the first
quarter of fiscal 2006, up from five percent two years ago during the
first quarter of fiscal 2004. Customer response has been favorable and
we are excited about the innovative products at excellent values that
we are now able to offer. Our introduction of new offshore-produced
fabrics at the Showtime fabric market in July was well received, and
we anticipate strong placements with manufacturers at the fall
furniture market. Overall, our offshore-produced business is
profitable and represents a significant growth opportunity for Culp."
New Financing
The company also announced changes to its current bank financing
agreement due to expire on August 31, 2005. Under the agreement, the
term of the company's credit facility has been extended by one year.
This amended credit facility in the amount of $8.0 million remains
unsecured. The company has also received a commitment to provide a
long term mortgage on its corporate headquarters for approximately
$4.0 million with an expected closing by the end of October 2005.
Outlook
Commenting on the outlook for the second quarter of fiscal 2006,
Culp continued, "We are pleased with our progress to date in executing
the strategic changes underway in our operations. However, we do
anticipate a continued decline in our overall sales. While mattress
ticking sales have picked up somewhat in the early part of the second
quarter, we expect this segment will show lower sales than a year ago.
Operating income margin in this segment is expected to improve from
the first quarter of fiscal 2006 due to a higher absolute sales level
and the benefits from our capital project. In the upholstery fabrics
segment, we expect continued significant growth in sales of fabrics
produced outside the U.S. However, we believe demand for domestically
produced upholstery fabrics will show a sharp decline, resulting in a
year-over-year decline in overall upholstery fabrics segment sales as
the industry faces weak consumer demand. Even with lower sales, we
believe this segment's operating results will approximate breakeven
for the second quarter due to the profitability in our offshore
produced business and the substantial cost reductions in our U.S.
operations.
"Considering these factors, we expect the company to report
earnings in the range of a net loss of $0.03 to net income of $0.03
per diluted share in the second fiscal quarter, excluding previously
announced restructuring and related charges. This is management's best
estimate at present, recognizing that future financial results are
difficult to predict because the upholstery fabrics industry is
undergoing a dramatic transition and many internal changes are
underway within the company. The actual results will depend primarily
upon the level of demand throughout the quarter, the company's
progress with respect to restructuring activities for our domestic
upholstery fabrics operations, and the continuing implementation of
our capital project in mattress ticking."
The company estimates pre-tax restructuring and related charges of
approximately $6.6 million will be incurred during the second fiscal
quarter. These charges are primarily related to the company's
previously announced plan for the reduction of its yarn manufacturing
operations. Including these charges, the company expects to report a
net loss for the first fiscal quarter of $0.38 to $0.32 per diluted
share. (A reconciliation of the projected net loss per share
calculation has been set forth on Page 5.)
In closing, Culp remarked, "Our primary focus for fiscal 2006 is
to restore Culp to profitability. While we are still in a period of
transition, the strategic moves we have made in our U.S. upholstery
fabric operations are already making a positive difference. Our
offshore produced upholstery fabric business, including our China
platform, is showing strong and profitable growth trends and we are
excited about the opportunities for extending our market reach and
capabilities. We have strengthened our competitive position in
mattress ticking and look forward to realizing the benefits of the
capital project in this segment. We believe we have the right strategy
in place that is being implemented aggressively."
About the Company
Culp, Inc. is one of the world's largest marketers of mattress
fabrics for bedding and upholstery fabrics for furniture. The
company's fabrics are used principally in the production of bedding
products and residential and commercial upholstered furniture.
This release contains statements that may be deemed
"forward-looking statements" within the meaning of the federal
securities laws, including the Private Securities Litigation Reform
Act of 1995 (Section 27A of the Securities Act of 1933 and Section 27A
of the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date
on which they are made. Forward-looking statements are statements that
include projections, expectations or beliefs about future events or
results or otherwise are not statements of historical fact. Such
statements are often but not always characterized by qualifying words
such as "expect," "believe," "estimate," "plan" and "project" and
their derivatives, and include but are not limited to statements about
the company's future operations, production levels, sales, SG&A or
other expenses, margins, gross profit, operating income, earnings or
other performance measures. Factors that could influence the matters
discussed in such statements include the level of housing starts and
sales of existing homes, consumer confidence, trends in disposable
income, and general economic conditions. Decreases in these economic
indicators could have a negative effect on the company's business and
prospects. Likewise, increases in interest rates, particularly home
mortgage rates, and increases in consumer debt or the general rate of
inflation, could affect the company adversely. Changes in consumer
tastes or preferences toward products not produced by the company
could erode demand for the company's products. In addition,
strengthening of the U.S. dollar against other currencies could make
the company's products less competitive on the basis of price in
markets outside the United States. Also, economic and political
instability in international areas could affect the company's
operations or sources of goods in those areas, as well as demand for
the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could
cause the cumulative effect of restructuring actions to fail to meet
the objectives set forth by management. Other factors that could
affect the matters discussed in forward-looking statements are
included in the company's periodic reports filed with the Securities
and Exchange Commission.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Net sales $62,340,000 $67,849,000
Net loss $(3,941,000) $(1,052,000)
Net loss per share:
Basic $ (0.34) $ (0.09)
Diluted $ (0.34) $ (0.09)
Net loss per share, diluted, excluding
restructuring and related charges
(credits)(a) $ (0.05) $ (0.09)
Average shares outstanding:
Basic 11,551,000 11,547,000
Diluted 11,551,000 11,547,000
(a) Excludes restructuring and related charges of $5.3 million ($3.3
million or $0.29 per diluted share, after taxes) for the first quarter
of fiscal 2006. Excludes restructuring credit of $63,000 ($42,000 or
$0.00 per diluted share, after taxes) for the first quarter of fiscal
2005.
CULP, INC.
Reconciliation of Net Loss as Reported to Pro Forma Net Loss
(Unaudited)
Three Months Ended
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Net loss, as reported $(3,941,000) $(1,052,000)
Restructuring and related charges
(credits), net of income taxes 3,313,000 (42,000)
----------- -----------
Pro forma net loss $ (628,000) $(1,094,000)
=========== ===========
Reconciliation of Net Loss Per Share as Reported
to Pro Forma Net Loss Per Share
(Unaudited)
Three Months Ended
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Diluted net loss per share $ (0.34) $ (0.09)
Restructuring and related charges
(credits), net of income taxes 0.29 --
----------- -----------
Diluted net loss per share, adjusted $ (0.05) $ (0.09)
=========== ===========
Reconciliation of Projected Range of Net Loss Per Share to
Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months
Ending
October 30,
2005
-------------
Projected range of net loss per diluted share $(0.38)-(0.32)
Projected restructuring and related charges,
net of income taxes 0.35
-------------
Projected range of pro forma net loss per diluted
share $(0.03)- 0.03
=============
CONTACT: Culp Inc., High Point
Investor:
Kathy J. Hardy, 336-888-6209
or
Media:
Kenneth M. Ludwig, 336-889-5161
Exhibit 99(b)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF NET LOSS
FOR THE THREE MONTHS ENDED July 31, 2005 AND August 1, 2004
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------
Amounts Percent of Sales
--------------------- -------------------
July 31, August 1, % Over July 31, August 1,
2005 2004 (Under) 2005 2004
--------- --------- --------- -------- ---------
Net sales $ 62,340 67,849 (8.1)% 100.0% 100.0%
Cost of sales 55,785(1) 59,174(2) (5.7)% 89.5% 87.2%
--------- --------- --------- -------- ---------
Gross profit 6,555 8,675 (24.4)% 10.5% 12.8%
Selling, general and
administrative expenses 9,856(3) 9,280 6.2% 15.8% 13.7%
Restructuring expense (credit) 1,826(4) (138)(4) 1,423.2% 2.9% (0.2)%
--------- --------- --------- -------- ---------
Loss from operations (5,127) (467) 997.9% (8.2)% (0.7)%
Interest expense 948 940 0.9% 1.5% 1.4%
Interest income (16) (27) (40.7)% (0.0)% (0.0)%
Other expense 133 214 (37.9)% 0.2% 0.3%
--------- --------- --------- -------- ---------
Loss before income taxes (6,192) (1,594) (288.5)% (9.9)% (2.3)%
Income taxes* (2,251) (542) 315.3% 36.4% 34.0%
--------- --------- --------- -------- ---------
Net loss $ (3,941) (1,052) (274.6)% (6.3)% (1.6)%
========= ========= ========= ======== =========
Net loss per share-basic $ (0.34) (0.09) (277.8)%
Net loss per share-diluted $ (0.34) (0.09) (277.8)%
Net loss per share, diluted, excluding restructuring
and related charges and credits $ (0.05) (0.09) 44.4%
(see pro-forma statement on page 7)
Average shares outstanding-basic 11,551 11,547 0.0%
Average shares outstanding-diluted 11,551 11,547 0.0%
* Percent of sales column for income taxes is calculated as a % of loss
before income taxes.
(1) Includes $495,000 of restructuring related charges--see Proforma income
statement per page 5 of 5.
(2) Includes $75,000 of restructuring related charges--see Proforma income
statement per page 5 of 5.
(3) Includes $3.0 million of restructuring related charges--see Proforma income
statement per page 5 of 5.
(4) See Proforma income statement per page 5 of 5 for breakdown of
restructuring expenses.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
JULY 31, 2005, AUGUST 1, 2004 AND MAY 1, 2005
Unaudited
(Amounts in Thousands)
Amounts Increase
---------------------- (Decrease)
July 31, August 1, -------------------- * May 1,
2005 2004 Dollars Percent 2005
---------- ---------- ---------- --------- ----------
Current assets
Cash and cash equivalents $ 5,238 11,946 (6,708) (56.2)% 5,107
Accounts receivable 23,019 24,242 (1,223) (5.0)% 28,824
Inventories 52,125 52,083 42 0.1 % 50,499
Deferred income taxes 7,054 9,256 (2,202) (23.8)% 7,054
Other current assets 1,660 1,645 15 0.9 % 2,691
---------- ---------- ---------- --------- ----------
Total current assets 89,096 99,172 (10,076) (10.2)% 94,175
Property, plant & equipment, net 60,190 78,880 (18,690) (23.7)% 66,032
Goodwill 4,114 9,240 (5,126) (55.5)% 4,114
Deferred income taxes 12,268 0 12,268 100.0 % 10,086
Other assets 1,519 1,307 212 16.2 % 1,716
---------- ---------- ---------- --------- ----------
Total assets $ 167,187 188,599 (21,412) (11.4)% 176,123
========== ========== ========== ========= ==========
Current liabilities
Current maturities of long-term debt $ 8,126 545 7,581 1,391.0 % 8,110
Accounts payable 18,524 14,857 3,667 24.7 % 22,852
Accrued expenses 10,178 10,880 (702) (6.5)% 9,556
Accrued restructuring 4,855 4,656 199 4.3 % 5,850
Income taxes payable 1,179 606 573 94.6 % 1,544
---------- ---------- ---------- --------- ----------
Total current liabilities 42,862 31,544 11,318 35.9 % 47,912
Long-term debt, less current maturities 42,440 50,519 (8,079) (16.0)% 42,440
Deferred income taxes 0 4,138 (4,138) (100.0)% 0
---------- ---------- ---------- -------- ----------
Total liabilities 85,302 86,201 (899) (1.0)% 90,352
Shareholders' equity 81,885 102,398 (20,513) (20.0)% 85,771
---------- ---------- ---------- -------- ----------
Total liabilities and
shareholders' equity $ 167,187 188,599 (21,412) (11.4)% 176,123
========== ========== ========== ========= ==========
Shares outstanding 11,552 11,548 4 0.0 % 11,551
========== ========== ========== ========= ==========
* Derived from audited financial statements.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 2005 AND AUGUST 1, 2004
Unaudited
(Amounts in Thousands)
THREE MONTHS ENDED
-----------------------
Amounts
-----------------------
July 31, August 1,
2005 2004
--------- ---------
Cash flows from operating activities:
Net loss $ (3,941) (1,052)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 6,172 3,362
Amortization of other assets 31 37
Stock-based compensation 53 52
Deferred income taxes (2,182) 0
Restructuring expense (credit) 1,826 (138)
Changes in assets and liabilities:
Accounts receivable 5,805 6,477
Inventories (1,626) (3,038)
Other current assets 1,031 (11)
Other assets 166 206
Accounts payable (4,413) 112
Accrued expenses 622 (2,148)
Accrued restructuring (1,968) (228)
Income taxes payable (365) (1,244)
--------- ---------
Net cash provided by operating activities 1,211 2,387
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,840) (4,375)
Proceeds from the sale of buildings 2,850 0
--------- ---------
Net cash used in investing activities (990) (4,375)
--------- ---------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (108) (675)
Proceeds from issuance of long-term debt 16 34
Proceeds from common stock issued 2 7
--------- ---------
Net cash used in financing activities (90) (634)
--------- ---------
Increase (decrease) in cash and cash equivalents 131 (2,622)
Cash and cash equivalents at beginning of period 5,107 14,568
--------- ---------
Cash and cash equivalents at end of period $ 5,238 11,946
========= =========
Free Cash Flow (1) $ 113 (2,663)
========= =========
- --------------------------------------------------------------------------------
(1) Free Cash Flow reconciliation is as follows:
FY 2006 FY 2005
-----------------------
A) Net cash provided by operating activities $ 1,211 2,387
B) Minus: Capital Expenditures (3,840) (4,375)
C) Add: Proceeds from the sale of buildings 2,850 0
C) Minus: Payments on vendor-financed capital
expenditures (108) (675)
--------- ---------
$ 113 (2,663)
========= =========
- --------------------------------------------------------------------------------
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT
FOR THE THREE MONTHS ENDED JULY 31, 2005 AND AUGUST 1, 2004
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------
Amounts Percent of Total Sales
----------------------- ----------------------
July 31, August 1, % Over July 31, August 1,
Net Sales by Segment 2005 2004 (Under) 2005 2004
- ----------------------------------------------------- --------- --------- --------- -------- ---------
Mattress Fabrics $ 22,915 25,953 (11.7)% 36.8 % 38.3 %
Upholstery Fabrics 39,425 41,896 (5.9)% 63.2 % 61.7 %
--------- --------- --------- -------- ---------
Net Sales $ 62,340 67,849 (8.1)% 100.0 % 100.0 %
========= ========= ========= ======== =========
Gross Profit by Segment Gross Profit Margin
- ----------------------------------------------------- ----------------------
Mattress Fabrics $ 3,095 4,794 (35.4)% 13.5 % 18.5 %
Upholstery Fabrics 3,955 3,956 (0.0)% 10.0 % 9.4 %
--------- --------- --------- -------- ---------
Subtotal 7,050 8,750 (19.4)% 11.3 % 12.9 %
Restructuring related charges (495)(1) (75)(2) 560.0 % -0.8 % (0.0)%
--------- --------- --------- -------- ---------
Gross Profit $ 6,555 8,675 (24.4)% 10.5 12.8 %
========= ========= ========= ======== =========
Sales, General and Administrative expenses by Segment Percent of Sales
- ----------------------------------------------------- ----------------------
Mattress Fabrics $ 1,737 1,895 (8.3)% 7.6 % 7.3 %
Upholstery Fabrics 4,335 6,575 (34.1)% 11.0 % 15.7 %
Unallocated Corporate expenses 762 810 (5.9)% 1.2 % 1.2 %
--------- --------- --------- -------- ---------
Subtotal 6,834 9,280 (26.4) 11.0 % 13.7 %
Restructuring related charges 3,022(3) 0 100.0 % 4.8 % 0.0 %
--------- --------- --------- -------- ---------
Selling, General and Administrative expenses $ 9,856 9,280 6.2 % 15.8 % 13.7 %
========= ========= ========= ======== =========
Operating Income
Operating income (loss) by Segment (Loss) Margin
- ----------------------------------------------------- ----------------------
Mattress Fabrics $ 1,358 2,899 (53.2)% 5.9 % 11.2 %
Upholstery Fabrics (380) (2,619) 85.5 % (1.0)% (6.3)%
Unallocated corporate expenses (762) (810) 5.9 % (1.2)% (1.2)%
--------- --------- --------- -------- ---------
Subtotal 216 (530) 140.8 % 0.3 % (0.8)%
Restructuring (expense) and credits (1,826)(4) 138 (2) N/A % (2.9)% 0.2 %
Restructuring related charges (3,517)(5) (75)(2) N/A % (5.6)% (0.1)%
--------- --------- --------- -------- ---------
Operating loss $ (5,127) (467) (997.9)% (8.2)% (0.7)%
========= ========= ========= ======== =========
Depreciation by Segment
- -----------------------------------------------------
Mattress Fabrics $ 857 916 (6.4)%
Upholstery Fabrics 1,798 2,446 (26.5)%
--------- --------- ---------
Subtotal 2,655 3,362 (21.0)%
Accelerated depreciation (Restructuring related) 3,517(5) 0 100.0 %
--------- --------- ---------
Total Depreciation $ 6,172 3,362 83.6 %
========= ========= =========
(1) The $495,000 represents restructuring related charges for accelerated
depreciation on equipment associated with the consolidation of the the
Burlington, NC and Anderson, SC manufacturing facilities.
(2) The $75,000 represents equipment dismantling charges related to the closing
of the Lumberton, NC manufacturing facility. The $138,000 restructuring
credit represents the reversal of certain accrued expenses associated with
termination benefits.
(3) The $3.0 million represents restructuring related charges for accelerated
depreciation associated with the design and distribution centers sold in
June 2005.
(4) The $1.8 million restructuring expense includes $1.2 million in asset
movement costs; $754,000 in write-downs of equipment; $47,000 in lease
termination expense; and $142,000 in a restructuring credit for the
reversal of accrued termination benefit expenses.
(5) See note (1) and (3).
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
FOR THE THREE MONTHS ENDED JULY 31, 2005 AND AUGUST 1, 2004
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------------------------------------------------------
July 31, August 1,
2005 2004
As Proforma As Proforma
Reported Net of Reported Net of Proforma
July 31, % of Adjust- % of Adjust- % of August 1, % of Adjust- % of Adjust- % of % Over
2005 Sales ments Sales ments Sales 2004 Sales ments Sales ments Sales (Under)
---------------- --------------- ---------------- ---------------- --------------- ----------------- -------
Net sales $ 62,340 100.0% 0 0.0% 62,340 100.0% 67,849 100.0% 0 0.0% 67,849 100.0% -8.1%
Cost of sales 55,785 89.5% (495) -0.8%(1) 55,290 88.7% 59,174 87.2% (75) -0.1%(5) 59,099 87.1% -6.4%
---------------- --------------- ---------------- ---------------- --------------- ----------------- -------
Gross profit 6,555 10.5% (495) -0.8% 7,050 11.3% 8,675 12.8% (75) -0.1% 8,750 12.9% -19.4%
Selling, general
and administrative
expenses 9,856 15.8% (3,022) -4.8%(2) 6,834 11.0% 9,280 13.7% 0 0.0% 9,280 13.7% -26.4%
Restructuring
expense (credit) 1,826 2.9% (1,826) -2.9%(3) 0 0.0% (138) -0.2% 138 0.2%(5) 0 0.0% 0.0%
---------------- --------------- ---------------- ---------------- --------------- ----------------- -------
Income (loss)
from operations (5,127) -8.2% (5,343) -8.6% 216 0.3% (467) -0.7% 63 0.1% (530) -0.8% -140.8%
Interest expense 948 1.5% 0 0.0% 948 1.5% 940 1.4% 0 0.0% 940 1.4% 0.9%
Interest income (16) 0.0% 0 0.0% (16) 0.0% (27) 0.0% 0 0.0% (27) 0.0% -40.7%
Other expense 133 0.2% 0 0.0% 133 0.2% 214 0.3% 0 0.0% 214 0.3% -37.9%
---------------- --------------- ---------------- ---------------- --------------- ----------------- -------
Income (loss)
before income
taxes (6,192) -9.9% (5,343) -8.6% (849) -1.4% (1,594) -2.3% 63 0.1% (1,657) -2.4% 48.8%
Income taxes (4) (2,251) 36.4% (2,030) 38.0% (221) 26.0% (542) 34.0% 21 33.3% (563) 34.0% 60.7%
---------------- --------------- ---------------- ---------------- --------------- ----------------- -------
Net income (loss) $ (3,941) -6.3% (3,313) -5.3% (628) -1.0% (1,052) -1.6% 42 0.1% (1,094) -1.6% 42.6%
================ =============== ================ ================ =============== ================= =======
Net income (loss)
per share-basic ($0.34) ($0.29) ($0.05) ($0.09) $0.00 ($0.09)
Net income (loss)
per share-diluted ($0.34) ($0.29) ($0.05) ($0.09) $0.00 ($0.09)
Average shares
outstanding-basic 11,551 11,551 11,551 11,547 11,547 11,547
Average shares
outstanding-diluted 11,551 11,551 11,551 11,547 11,727 11,547
Notes:
(1) The $495,000 represents restructuring related charges for accelerated
depreciation on equipment associated with the consolidation of the
Burlington, NC and Anderson, SC manufacturing facilities.
(2) The $3.0 million represents accelerated depreciation on the distribution
and design centers sold in June of 2005.
(3) The $1.8 million in restructuring expense represents $1.2 million in asset
movement costs; $754,000 in write-downs of equipment; $47,000 in lease
termination costs; and $142,000 in restructuring credits for the reversal
of accrued termination and benefit expenses.
(4) The percent of net sales column for income taxes is calculated as a % of
income (loss) before income taxes.
(5) The $75,000 represents equipment dismantling charges related to the closing
of the Lumberton manufacturing facility. The $138,000 restructuring credit
represents the reversal of certain accrued expenses.
Exhibit 99(c)
SIXTH AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ("Sixth
Amendment") is made as of the 30th day of August, 2005, by and between CULP,
INC., a North Carolina corporation (together with its successors and permitted
assigns, the "Borrower") and WACHOVIA BANK, NATIONAL ASSOCIATION (formerly,
Wachovia Bank, N.A.), a national banking association, as Agent and as a Bank
(together with its endorsees, successors and assigns, the "Bank").
BACKGROUND
----------
The Borrower and the Bank entered into an Amended and Restated Credit
Agreement, dated as of August 23, 2002, as amended by Second Amendment to
Amended and Restated Credit Agreement (the "Second Amendment"), dated as of June
3, 2003, by Third Amendment to Amended and Restated Credit Agreement (the "Third
Amendment"), dated as of August 23, 2004, by Fourth Amendment to Amended and
Restated Credit Agreement ("Fourth Amendment"), dated as of December 7, 2004 and
by Fifth Amendment to Amended and Restated Credit Agreement ("Fifth Amendment")
dated as of February 18, 2005 (it being acknowledged by the parties hereto that
the proposed First Amendment to Amended and Restated Credit Agreement, which had
been under discussion in March 2003, was never executed by the parties and is of
no force or effect; otherwise, such agreement, as amended by the Second
Amendment, Third Amendment, Fourth Amendment and Fifth Amendment and as it may
be further amended, restated, supplemented and/or modified, shall be referred to
herein as the "Credit Agreement"). Terms used herein and not herein defined
shall have the meanings given to them in the Credit Agreement.
The Borrower has now requested additional amendments to the provisions of
the Credit Agreement, which the Bank is willing to accommodate subject to the
terms, provisions and conditions set forth in this Sixth Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank hereby agree as follows:
1. Amendment to Credit Agreement. The Credit Agreement is hereby amended as
follows:
(a) The following definition in Section 1.01 is hereby amended and restated
in its entirety to read as follows:
"Termination Date" means whichever is applicable of (i) August 31,
2006, (ii) the date the Commitments are terminated pursuant to Section 6.01
following the occurrence of an Event of Default, or (iii) the date the
Borrower terminates the Commitments entirely pursuant to Section 2.08.
(b) The definition of "EBITDA" set forth in Section 1.01 is hereby amended
and restated in its entirety to read as follows:
"EBITDA" means at any time the sum of the following, determined on a
consolidated basis for the Borrower and its Consolidated Subsidiaries, at
the end of each Fiscal Quarter, for the Fiscal Quarter just ended and the 3
immediately preceding Fiscal Quarters: (i) Consolidated Net Income
(exclusive of (a) non-cash charges and (b) restructuring and related cash
charges; plus (ii) Consolidated Net Interest Expense; plus (iii) taxes on
income; plus (iv) depreciation; plus (v) amortization; provided, however,
that for purposes of calculation of EBITDA, cash charges for any Fiscal
Year, beginning Fiscal Year 2006, shall not exceed $3,000,000.00
(c) The definition of "Existing Letters of Credit" set forth in Section
1.01 is hereby amended by adding at the end thereof a new clause (iv), which
clause (iv) shall read as follows:
"(iv) those additional letters of credit which have been issued by the
Bank for the account of the Borrower prior to the date of this Sixth
Amendment and which remain outstanding on the date of this Sixth
Amendment."
(d) The aggregate amount of the Commitment of the Bank and the aggregate
amount of the Total Commitments, each as set forth on page 62 of the Credit
Agreement, are hereby reduced to $8,000,000.00.
(e) The requirement, as set forth in Section 2.02A(a)(i), that the maximum
amount of New Letter of Credit Obligations not exceed $2,500,000 is hereby
replaced by a requirement that the maximum amount of New Letter of Credit
Obligations, when added to the then outstanding aggregate amount of Existing
Letters of Credit, shall not exceed $5,500,000.
(f) Section 5.06 is hereby amended and restated in its entirety to read as
follows:
"Section 5.06. Use of Proceeds. The proceeds of the Loans may be used
for working capital purposes. No portion of the proceeds of the Loans will
be used by the Borrower or any Subsidiary (i) in connection with, whether
directly or indirectly, any tender offer for, or other acquisition of,
stock of any corporation with a view towards obtaining control of such
other corporation, unless such tender offer or other acquisition is to be
made on a negotiated basis with the approval of the Board of Directors of
the Person to be acquired, and the provisions of Section 5.16 would not be
violated, (ii) directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any Margin Stock, (iii)
to repay Debt owed by Borrower to any Person except to Bank; or (iv) for
any purpose in violation of any applicable law or regulation."
(g) The definition of "Applicable Margin" in Section 2.06(a) is hereby
changed to 3.00%; provided that if, on any Performance Pricing Determination
Date beginning October 31, 2005, the Debt/EBITDA Ratio for the quarterly or
annual fiscal period immediately preceding such Performance Pricing
Determination Date is less than 3.00 to 1.00, the Applicable Margin shall be
2.50% from such Performance Pricing Determination Date until the next
Performance Pricing Determination Date.
(h) Section 5.20 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Section 5.20. Ratio of Funded Debt to Total Tangible Capitalization.
The ratio of Funded Debt to Total Tangible Capitalization will at no time
exceed 0.60 to 1.00."
(i) Section 5.24 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"5.24. Capital Expenditures. Aggregate Capital Expenditures for any
Fiscal Year will not exceed $5,000,000.00."
(j) Section 5.26 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Section 5.26 Liquidity Requirement. The Borrower will maintain with
the Bank, beginning October 31, 2005 and continuing until the Principal
Payment Date, collected deposit balances of not less than $7,500,000 (none
of which has been borrowed hereunder); provided, however, that this
covenant shall apply only if the Bank and the Borrower close the $4,060,000
mortgage loan pursuant to the Bank's commitment letter, dated August 30,
2005, to Borrower. As used herein, "Principal Payment Date" means that date
when annual principal payments first become due under or with respect to
the Borrower's Series A Senior Note and/or Series B Senior Note issued
pursuant to those certain Note Purchase Agreements, dated March 4, 1998,
executed by Borrower."
(k) Section 6.01 of the Credit Agreement is hereby amended by adding a new
Event of Default thereunder, which new Event of Default (m) shall read as
follows:
(m) A default under the documents evidencing any other Debt of
Borrower to the Bank, which default is not cured within any grace or cure
period applicable thereto.
A new Section 5.27 is hereby added to the Credit Agreement, which new
section shall read as follows:
"Section 5.27. Minimum EBITDA. EBITDA, for the following Fiscal
Quarters of Fiscal Year 2006 shall equal or exceed the following amounts:
Second Fiscal Quarter $ 7,760,000
Third Fiscal Quarter $ 9,760,000
Fourth Fiscal Quarter $ 12,960,000"
2. Further Assurances. The Borrower will execute such confirmatory
instruments, if any, with respect to the Credit Agreement and this Sixth
Amendment as the Bank may reasonably request.
3. Ratification by Borrower. The Borrower ratifies and confirms all of its
representations, warranties, covenants, liabilities and obligations under the
Credit Agreement (except as expressly modified by this Sixth Amendment) and
agrees that: (i) except as expressly modified by this Sixth Amendment, the
Credit Agreement continues in full force and effect as if set forth specifically
herein; and (ii) the Borrower has no right of setoff, counterclaim or defense to
payment of its obligations under the Credit Agreement. The Borrower and the Bank
agree that this Sixth Amendment shall not be construed as an agreement to
extinguish the Borrower's obligations under the Credit Agreement or the Notes
and shall not constitute a novation as to the obligations of the Borrower under
the Credit Agreement or the Notes. The Bank hereby expressly reserves all rights
and remedies it may have against all parties who may be or may hereafter become
secondarily liable for the repayment of the obligations under the Credit
Agreement or the Notes.
4. Amendments. This Sixth Amendment may not itself be amended, changed,
modified, altered, or terminated without in each instance the prior written
consent of the Bank. This Sixth Amendment shall be construed in accordance with
and governed by the laws of the State of North Carolina.
5. Counterparts. This Sixth Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
6. Modification and Extension Fee. The Borrower shall pay to the Bank on
the date this Sixth Amendment is executed, an amendment and extension fee equal
to $5,000.00, which fee, once paid, shall be fully earned and non-refundable.
7. Bank's Expenses. In accordance with Section 9.03 of the Credit
Agreement, Borrower hereby acknowledges and agrees to pay all reasonable
out-of-pocket expenses incurred by the Bank in connection with the preparation
of this Sixth Amendment, including without limitation reasonable attorneys'
fees.
[Signature Page Follows]
IN WITNESS WHEREOF, this Sixth Amendment has been duly executed under seal
by Borrower and Bank as of the day and year first above written.
BORROWER:
CULP, INC. (SEAL)
By: /S/ Franklin N. Saxon
Name: Franklin N. Saxon
Title: President
BANK:
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Agent and as Bank (SEAL)
By: /S/ Matthew M. Rankin
Name: Matthew M. Rankin
Title: Vice President
Exhibit 99(d)
Real Estate Loan Commitment Letter
August 30, 2005
Culp, Inc.
101 South Main Street
High Point, North Carolina 27261-2686
Attention: Mr. Robert G. Culp
Re: Loan Commitment to Culp, Inc.
Dear Mr. Culp:
Wachovia Bank, National Association (hereafter "Wachovia" or "Bank") is pleased
to offer you a commitment to lend on the following terms and conditions:
BORROWER:
Culp, Inc., a North Carolina corporation (the "Borrower")
AMOUNT:
The amount of this facility shall be $4,060,000 in the form of a commercial
mortgage loan (the "Loan"), provided, however, that in no event shall the
maximum principal amount of the Loan exceed 70% of the current fair market value
of the Property (hereinafter defined) as determined by the Wachovia ordered
appraisal described below.
PURPOSE:
This facility shall be used to finance certain real property known as 1823
Eastchester Drive, High Point, Guilford County, North Carolina (the "Property").
TERM:
This facility shall have a term of 5 years.
INTEREST RATE:
The interest rate will be 1-month LIBOR plus 3.00% (the "Applicable Margin");
provided, however, that for any fiscal period during which the Borrower's
Debt/EBITDA Ratio is less than 3.00 to 1.00, the Applicable Margin shall be
2.50%. As used herein, "Debt/EBITDA Ratio" shall have the meaning given such
term in the Amended and Restated Credit Agreement, dated as of August 23, 2002,
by and among the Borrower, the Bank, as Agent, and the Bank, as such Amended and
Restated Credit Agreement has itself been amended (as amended, the "Credit
Agreement'). "LIBOR" is the rate for U.S. dollar deposits of that many months
maturity as reported Telerate page 3750 as of 11:00 a.m., London time, on the
second London business day before the relevant interest period begins (or if not
so reported, then as determined by the Bank from another recognized Bank or
interbank quotation).
REQUIRED HEDGE:
Borrower will be required to hedge at least 50% of the Loan's floating interest
expense by entering into an interest rate swap (the "Swap") with Wachovia (or
other counterparty acceptable to Wachovia) contemporaneously with the closing of
the Loan, pursuant to which Borrower shall receive the amount necessary to pay
at least 50% of the interest expense due under the Loan (exclusive of default
interest or other adjustments provided for in the loan documents) and shall pay
the amount that would be equal to at least 50% of the interest that would accrue
on the Loan at a fixed rate. Borrower shall maintain the Swap for the full term
of the Loan.
Wachovia is willing to provide this Swap to Borrower upon mutually agreeable
terms. Assuming a Swap were executed with Wachovia at today's rate, the Swap's
fixed rate would be 7.71%. This is indicative only. The actual rate is subject
to market conditions at the time the Swap is consummated. The Swap will be
governed by an ISDA Master Agreement and shall be secured by the Collateral
described herein.
REPAYMENT:
This facility shall be repayable in monthly installments equal to the sum of (i)
all accrued and unpaid interest at the loan interest rate, plus (ii) a principal
payment equal to the principal portion of the fixed payment that would be
required to repay the loan in full amortized over a hypothetical 15-year term,
at the fixed interest rate payable under the Swap, in substantially equal
payments. All remaining principal and interest shall be due on the maturity
date.
PREPAYMENT:
Borrower may prepay the loan in whole or in part only if Borrower pays such
additional amounts deemed necessary by Wachovia to compensate Wachovia for any
losses, costs or expenses which Wachovia incurs as a result of such prepayments
pursuant to the compensation provisions which shall be more fully set out in the
loan documents.
Any prepayment in whole or in part shall include accrued interest and all other
sums then due under any of the Loan Documents. No partial prepayment shall
affect the obligation of Borrower to make any payment of principal or interest
due under this Note on the due dates specified.
No prepayment shall affect Borrower's obligation to continue making payments
under the Swap, which shall remain in full force and effect notwithstanding such
prepayment, subject to the terms of such Swap.
FEES:
Commitment Fee. The Borrower shall pay a non-refundable commitment fee of
$1,500.00 ("Commitment Fee"), payable at loan closing.
The Commitment Fee shall be considered earned upon Borrower's acceptance of this
Commitment. Borrower acknowledges that the Commitment Fee is a liquidated
damages amount and is reasonable compensation to Wachovia for expenses, work and
services arising from the negotiation and preparation of this Commitment and
preparing the Loan for closing.
COLLATERAL:
The Borrower shall grant Wachovia a lien and security interest in the following
collateral and provide any documents required for perfection of the lien and
security interests:
A first priority deed of trust lien on the Property, including all improvements
presently located or subsequently constructed thereon, together with a security
interest in all fixtures located at and used in connection with the Property.
FINANCIAL STATEMENTS:
Borrower shall furnish to Wachovia the following financial information, in each
instance prepared in accordance with generally accepted accounting principles
consistently applied and otherwise in form (with original signatures) and
substance satisfactory to Bank, which is required to be delivered by Borrower to
Bank in accordance with the provisions of the Credit Agreement (whether or not
the Credit Agreement has terminated).
COVENANTS.
In addition to the covenants customarily required by Wachovia for similar loans
and/or similar borrowers, the following covenants shall be applicable to this
facility:
Required Hedge. Borrower shall hedge 50% of the Loan's floating interest expense
for the full term of the Loan by maintaining an interest rate swap, cap or
collar with Bank or other counterparty acceptable to Bank in a notional amount
equal to at least 50% of the then principal balance of the Loan, providing for a
fixed rate, and containing such other terms and conditions as shall be
reasonably acceptable to Bank.
Debt/EBITDA Ratio. By April 30, 2007, the Borrower's Debt/EBITDA Ratio shall be
equal to or less than 3.00 to 1.00.
Credit Agreement Covenants. Borrower shall observe, perform and fulfill, for the
benefit of the Bank, all those financial covenants and agreements, as the same
are in effect on the date hereof or may hereafter be amended in writing executed
by Bank, contained in the Credit Agreement, the provisions of which are
incorporated herein by reference, which covenants and agreements Borrower shall
continue to observe, perform and fulfill notwithstanding any termination of the
Credit Agreement and notwithstanding that the indebtedness under the Credit
Agreement has been or may hereafter be partially or fully repaid.
CONDITIONS PRECEDENT:
The provisions of this Commitment are subject to and conditioned upon receipt by
Wachovia of the following, all in form and substance satisfactory to Wachovia:
Wachovia ordered appraisal, at Borrower's expense, showing a current fair market
value of the Property satisfactory to Wachovia.
Phase I Environmental Report, at Borrower's expense, relating to the Property
and the surrounding area. If there is any evidence or possibility of any
environmental problem on, at or adjacent to the Property, either prior to or
after the loan closing, Bank may, at its option, require evidence of the nature
of the problem and evidence that the problem has been remediated, all at
Borrower's expense.
A commitment to issue a standard ALTA mortgagee title insurance policy in form,
content and from a title insurer satisfactory to Wachovia, insuring the deed of
trust as a first lien on the Property for the full amount of the loan, with such
endorsements as Wachovia may require. Title shall be fee simple and marketable,
free and clear of all defects, liens and encumbrances, including mechanics'
liens, and subject only to such exclusions from coverage and exceptions to title
as Wachovia shall approve. The title commitment shall include judgment and
bankruptcy court searches, tax and assessment searches, and county and state
financing statement searches.
A recorded plat or current survey of the Property, certified to Wachovia and the
title insurer, showing the boundaries of the Property by courses and distances,
together with a corresponding metes and bounds description, the actual or
proposed location of all improvements, encroachments and restrictions, the
location and width of all easements, utility lines, rights-of-way and building
set-back lines, and notes referencing book and page numbers for the instruments
granting the same.
Original or duplicate policies, or evidence of insurance on an ACORD 27 form of
certificate, of: "all-risk" fire and extended coverage hazard insurance, which
must include fire, vandalism and malicious mischief coverage (non-reporting
Commercial Property Policy with Special Cause of Loss form), in an amount not
less than 100% of the agreed upon full insurable replacement value of the
Property, including coverage for loss of rents or business interruption;
comprehensive general public liability insurance in an amount satisfactory to
Wachovia; and, if the Property is located in a special flood hazard area, flood
insurance is required in the amount equal to the lesser of the loan amount or
maximum available under the National Flood Insurance Program, but in no event
should the amount of coverage be less than the value of the improved structure;
in each case in form and with companies acceptable to Wachovia and naming
Wachovia as first mortgagee, loss payee or certificate holder, as applicable,
and endorsed to provide that occupancy by any person shall not void such
coverage on such policies. Each insurance policy must state that it will not be
canceled or changed without at least thirty (30) days' prior written notice to
Wachovia.
DOCUMENTS:
The Loan will be evidenced by documents prepared by and acceptable to Wachovia,
containing such representations, warranties, affirmative and negative covenants,
indemnities, closing conditions, defaults and remedies as are typically required
by Wachovia and/or are customary in this type of transaction. The Loan shall be
cross defaulted to the Credit Agreement. The failure of Borrower and Wachovia to
reach agreement on the loan documents shall not be deemed a breach by Wachovia
of this commitment. Unless Wachovia agrees otherwise in writing, completion of
all documents is a condition of closing.
COSTS:
On or before the closing Borrower shall pay all costs, expenses and fees
(including, without limitation, any appraisal, survey, insurance, environmental
assessment, engineering, inspections, searches, recording and attorneys' fees)
associated with this transaction. Bank is not providing legal advice or services
to Borrower.
Wachovia's attorneys' fees will generally be based on the time and labor
required, the novelty and difficulty of the questions raised by the transaction
contemplated hereunder, the skill required to perform the services, the
customary fee charged for a similar services, and the time limitations imposed
for performance.
OTHER:
Opinion of Counsel. On or prior to the date of the initial borrowing, Borrower
will provide Wachovia with an opinion letter, in form and substance satisfactory
to Wachovia, from an attorney acceptable to Wachovia. The opinion will provide,
to Wachovia's satisfaction, that the Borrower is validly existing under the laws
of the jurisdiction where Borrower is organized and qualified, is qualified to
transact business and is in good standing under the laws of the state in which
the Property is located, and has full power and authority to undertake the
activities contemplated by the Loan; that all Loan Documents (as will be defined
in the Note) have been duly authorized, executed and delivered by Borrower; and
that the Loan and its terms do not violate any laws including, without
limitation, any usury laws or similar laws of the jurisdiction where Borrower
and any Collateral are located, and such other matters and opinions as Wachovia
reasonably requests.
Operating Documents. On or prior to the date of any borrowing hereunder,
Wachovia shall have received from Borrower a copy of such Borrower's by-laws,
certified as to completeness and accuracy by an appropriate officer of Borrower.
Charter Documents. Wachovia shall have received from Borrower a copy of its
Articles of Incorporation and all other charter documents of Borrower, all
certified by the Secretary of State of the state of Borrower's incorporation.
Certificate of Good Standing. Wachovia shall have received from Borrower, a
certificate of the Secretary of State of the state of such Borrower's
incorporation as to the good standing of such Borrower.
Certificate of Incumbency. Wachovia shall have received from Borrower a
certificate of an appropriate officer of Borrower as to the incumbency and
signatures of the officers of Borrower executing the Loan Documents.
Borrowing Authorization. Bank shall have received from Borrower a borrowing
resolution or other proof of authority to enter into the transactions
contemplated herein.
Permanent Financing. When and if Borrower elects to arrange permanent financing
on the Property securing the Loan, Borrower hereby grants Wachovia Securities
and Wachovia Corporation or its affiliates, including Wachovia Bank, National
Association ("Wachovia"), the right of first opportunity to register lenders and
to provide permanent financing on the Property on terms satisfactory to
Borrower. Borrower will provide first notification to Wachovia of its intent to
obtain permanent financing and will in a timely manner use its best efforts to
provide Wachovia with the information necessary to enable it to obtain such
financing.
Minimum Standards. In addition to the requirements set forth in the Loan
Documents, all surveys, insurance, title policies, construction documents,
environmental reports, payment and performance bonds, and any other due
diligence or additional documents required in connection with this Loan, shall
comply with Bank's minimum standards in place from time to time for such
documents, which shall be provided in writing by Bank to Borrower upon request.
Wachovia's obligations under this commitment are conditioned on the fulfillment
to Wachovia's sole satisfaction of each term and condition referenced by this
commitment. These terms and conditions are not exhaustive, and this commitment
is subject to certain other terms and closing conditions customarily required by
Wachovia for similar transactions and may be supplemented prior to closing based
upon Wachovia's investigation and/or as disclosure of Borrower's circumstances
so dictate. This commitment will expire unless the Loan is closed on or before
October 31, 2005. This commitment letter shall not survive closing.
Wachovia has made this commitment based upon the information supplied by
Borrower. Wachovia shall have the right to cancel this commitment, whereupon
Wachovia shall have no obligations hereunder, in the event of: (i) a material
adverse change in the business or prospects of Borrower, financial or otherwise;
(ii) a material change in the accuracy of the information, representations,
exhibits or other materials submitted by Borrower in connection with its request
for financing; (iii) loss of, damage to, a taking of, or the presence of any
hazardous substances or asbestos at or on any collateral for the Loan. Borrower
must immediately notify Wachovia of any such event; (iv) Borrower or any
principal thereof shall file or make or have filed or made against such person a
petition in bankruptcy, an assignment for the benefit of creditors or an action
for the appointment of a receiver, or shall become insolvent, however evidenced;
or (v) there is a change in the structure or ownership of Borrower.
This commitment supersedes all prior commitments and proposals with respect to
this transaction, whether written or oral, including any previous loan proposals
made by Wachovia or anyone acting with its authorization. No modification shall
be valid unless made in writing and signed by an authorized officer of Wachovia.
This commitment is not assignable, and no party other than Borrower shall be
entitled to rely on this commitment.
Please indicate your acceptance of this offer and the terms and conditions
contained herein by signing below and returning one executed copy of this
commitment letter to the undersigned. This offer of commitment shall expire
unless the acceptance is received by the undersigned on or before September 2,
2005.
Thank you for allowing Wachovia to be of service. Please do not hesitate to give
me a call at (336) 378-4136 if I can be of further assistance.
Sincerely,
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /S/ Matthew M. Rankin
Name: Matthew M. Rankin
Title: Vice President
The above commitment is agreed to and accepted on the terms and conditions
provided in this letter.
CULP, INC.
By: /S/ Franklin N. Saxon
Name: Franklin N. Saxon
Title: President
Date August 30, 2005
In the event Wachovia's document preparation staff needs to obtain additional
information for the closing of this transaction, please provide in the space
below the name and telephone number of the appropriate contact at your company:
Name Kenneth R. Bowling
Since the Loan is secured by real estate, Wachovia may need to contact your
attorney regarding title insurance and other matters. Please provide below the
name and telephone number of the attorney you plan to use.
Attorney's name: Julie Chiu
Telephone Number: (704) 377-8348
E-Mail Address: Jchiu@rbh.com
Fax Number: (704) 373-3948