As filed with the Securities and Exchange Commission on December 28, 2000
Registration No. 333-43014
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 2211 56-0367025
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation
or organization)
3101 N. Elm Street
Greensboro, North Carolina 27408
(336) 379-6220
(Address, including Zip Code, and telephone
number, including area code, of registrant's principal
executive offices)
NEIL W. KOONCE, ESQ.
Vice President, General Counsel and Secretary
Cone Mills Corporation
3101 N. Elm Street
Greensboro, North Carolina 27408
(336) 379-6220
(Name, address, including Zip Code, and telephone
number, including area code, of agent for service)
Copies to:
DORIS R. BRAY, ESQ.
Schell Bray Aycock Abel & Livingston P.L.L.C.
230 North Elm Street, Suite 1500
Greensboro, North Carolina 27401
(336) 370-8800
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
1
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price per Aggregate Offering Amount of
Registered Registered Unit Price Registration Fee
- ---------- ---------- ---- ----- ----------------
11% Secured
Subordinated
Debentures and subsidiary
guaranty thereof $85,000,000 N/A $85,000,000 $22,440.00 (1)
8-1/8% Debentures $100,000,000 N/A $100,000,000 $25,000 (2)
Common Stock, par
value $0.10 $25,000,000 N/A $25,000,000 $6,600.00 (1)
Common Stock par value
$0.10 850,000 N/A $4,675,000 $1,234.20 (1)
- ----- ------- --- ---------- -------------
(1) Previously paid.
(2) In accordance with Rule 457(f)(2), the registration fee is based upon
the book value of the 8-1/8% Debentures Due March 15, 2005.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
2
CO-REGISTRANT
Name of Additional State of Incorporation Primary Standard Industrial IRS Employer
Registrant or Organization Classification Code Identification No.
---------- --------------- ------------------- -----------------
Cone Foreign Trading , LLC North Carolina 5131 56-0367025
3
4
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated December 28, 2000
PROSPECTUS AND CONSENT SOLICITATION
CONE MILLS CORPORATION
$85,000,000 Aggregate Principal Amount of 11% Secured Subordinated Debentures
Due March 15, 2005
_____________Shares of Common Stock
$100,000,000 Aggregate Principal Amount of 8-1/8% Debentures
Due March 15, 2005
Exchange Offer and Consent Solicitation
8-1/8% Debentures Due March 15, 2005 of Cone Mills Corporation
Exchanged for
Common Stock and 11% Secured Subordinated Debentures Due March 15, 2005
We are offering to exchange Cone Mills Corporation common stock or a
combination of our 11% Secured Subordinated Debentures Due March 15, 2005 and
shares of Cone common stock for any and all of our outstanding the $100,000,000
aggregate principal amount 8-1/8% Debentures Due March 15, 2005 and are
soliciting consents amend the indenture under which the 8-1/8% debentures were
issued and to release the debentureholders' interest in the collateral securing
the 8-1/8% debentures.
Selected terms of the exchange offer and consent solicitation:
o The exchange offer and consent solicitation will expire at 5:00 p.m., New
York City time, on __________, 2001.
o For each $1,000 principal amount of 8-1/8% debentures tendered and accepted
for exchange, you will receive, at your election, (1) ____ shares of our
common stock or (2) $1,000 principal amount of our This new 11% debentures
and 10 shares of our common stock.
o If the exchange offer is not fully subscribed, we intend to increase the
interest rate on the 11% not debentures up to a maximum rate of 14%
depending on the amount of 8-1/8% debentures that remain an outstanding.
o The new 11% debentures will be secured and subordinated as to the
collateral securing a limited sell amount of senior debt.
o If you tender your 8-1/8% debentures, you will automatically consent to
amendments to the indenture and governing the 8-1/8% debentures and to the
release of the collateral securing the 8-1/8% debentures. These it
amendments increase the amount of general secured debt Cone and its
subsidiaries may incur before the 8-1/8% is debentures must be equally and
ratably secured and will apply to the 8-1/8% debentures not tendered for
not exchange.
o Up to $15,000,000 aggregate principal amount of 8-1/8% debentures will be
exchanged for Cone common stock and up to $85,000,000 aggregate principal
amount of 8-1/8% debentures will be exchanged for a combination of our new
11% debentures and common stock. Any oversubscription for common stock or
the combination of 11% debentures and common stock will be exchanged for
the other type of consideration and the oversubscribed common stock or
combination of 11% debentures and common stock will be exchanged on a pro
rata basis.
o This exchange offer will be effective only if more than 50% of the 8-1/8%
debentures are tendered for jurisdiction exchange.
Our common stock is listed on the New York Stock Exchange under the symbol
"COE." On __________, or 2001, our common stock closed at $____ per share.
You should consider carefully the risk factors discussed on page 8 of this
prospectus in evaluating the exchange offer and consent solicitation.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus and consent solicitation is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus and consent solicitation is January __, 2001.
5
WHERE YOU CAN FIND MORE INFORMATION
Cone files annual, quarterly and special reports and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information that Cone files with the SEC at the SEC's public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also read and copy these
reports, statements or other information at the SEC's regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can also be obtained by mail from the public reference room of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms.
Cone's filings with the SEC are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http://www.sec.gov." Reports, proxy statements and other information about
Cone may also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
Cone filed a registration statement on Form S-4 on August 4, 2000 to
register with the SEC the common stock, 11% debentures and subsidiary guaranty
to be issued in the exchange offer and consent solicitation and the 8-1/8%
debentures to be amended as a result of the consent solicitation. This
prospectus is a part of that registration statement. As allowed by SEC rules,
this prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC permits Cone to "incorporate by reference" information into
this prospectus, which means that we can disclose important information to you
by referring you to other documents filed separately with the SEC. The
information incorporated by reference is considered part of this prospectus,
except for any information superseded by information contained directly in this
prospectus or in later filed documents incorporated by reference in this
prospectus.
The documents listed below are incorporated by reference into this
prospectus. These documents contain important business and financial information
about Cone.
o Cone's Annual Report on Form 10-K, for the fiscal year ended
January 2, 2000;
o Cone's Current Reports on Form 8-K dated February 11, 2000 and
December 13, 2000; and
o Cone's Quarterly Reports on Form 10-Q for the fiscal quarters
ended April 2, 2000, July 2, 2000, and October 1, 2000.
Cone also incorporates by reference additional documents that it may
file with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 between the date of this prospectus and the date the
exchange offer and consent solicitation is completed. These additional documents
may include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
prospectus from us or from the SEC through the SEC's Internet world wide web
site at the address described above. Documents incorporated by reference are
available from us without charge, excluding any exhibits to those documents,
unless the exhibit is specifically incorporated by reference as an exhibit in
this prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone and directing your
request to: Cone Mills Corporation, 3101 North Elm Street, P.O. Box 26540,
Greensboro, North Carolina 27415-6540, Attention: General Counsel. The telephone
number is (336) 379-6220. Any request for documents should be made by _________,
2001 to ensure timely delivery of the documents.
We have not authorized anyone to give any information or make any
representation about the exchange offer and consent solicitation that is
different from, or in addition to, that contained in this prospectus or in any
of the materials that we have incorporated into this prospectus. Therefore, if
anyone does give you information of this sort, you should not rely on it. The
information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
6
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION
Q: What is the proposed transaction?
A: Cone is offering to exchange its common stock or a combination of its
11% Secured Subordinated Debentures Due March 15, 2005 and Cone common
stock for any and all of Cone's outstanding 8-1/8% Debentures Due March
15, 2005. As a part of the exchange offer, Cone is soliciting consents
to amend the indenture under which the 8-1/8% debentures were issued
and to release the collateral for the 8-1/8% debentures. Cone will not
complete the exchange offer if fewer than a majority of the 8-1/8%
debentures are tendered.
Q: Why is Cone proposing this transaction?
A: The purpose of the transaction is to enable Cone to restructure its
debt in a way that should allow it more flexibility and enable it to
replace a portion of its long-term debt with asset-based financing that
would permit it to obtain additional funds and project financing
necessary for growth through its proposed expansion into Mexico.
Q: What will I receive in the exchange offer if I tender my debentures?
A: If you tender your 8-1/8% debentures prior to the expiration of the
exchange offer, you will receive, at your election, for each $1,000
principal amount of 8-1/8% debentures (1) ____ shares of Cone common
stock or (2) $1,000 principal amount of Cone's 11% debentures and 10
shares of Cone common stock.
Q: May I tender a portion of my debentures?
A. No. If you tender any of your 8-1/8% debentures, you must tender all of
them.
Q: May I tender my debentures without consenting to the proposed
amendments?
A: No. If you tender your 8-1/8% debentures in the exchange offer, you
will automatically consent to the proposed amendments to the indenture
governing those debentures and to the release of the collateral
securing them. Similarly, if you wish to consent to the proposed
amendments and the release of collateral, you must tender your
debentures.
Q: Will my rights as a holder of 8-1/8% debentures change if I tender my
debentures in the exchange offer?
A: Yes. Currently, your rights as a holder of the 8-1/8% debentures are
governed by the indenture under which the 8-1/8% debentures were
issued. However, if you exchange your debentures for shares of Cone
common stock, you will become a Cone shareholder and your rights will
be governed by North Carolina law and Cone's articles of incorporation
and bylaws, as described in this prospectus. If you exchange your
debentures for a combination of 11% debentures and common stock, your
rights as a debentureholder will be governed by the indenture under
which the 11% debentures will be issued and your rights as a
shareholder will be governed by North Carolina law and Cone's articles
of incorporation and bylaws.
Q: How would the proposed amendments to the indenture and the release of
collateral affect my rights as a holder of 8-1/8% debentures if I fail
to tender?
A: If the indenture is amended and the collateral is released, 8-1/8%
debentures that you do not tender will enjoy a less restrictive lien
covenant and will be unsecured. The 8-1/8% debentures, however, will
again become secured if the general secured indebtedness of Cone
exceeds 55% of its consolidated net tangible assets, as defined in the
indenture as proposed to be amended. In that event, the lien securing
the 8-1/8% debentures will be on the assets securing the 11% debentures
pari passu with the excess indebtedness, but junior to the lien of the
11% debentures as well as to other permitted liens under the indenture.
Q: When will accrued but unpaid interest on my 8-1/8% debentures be paid?
i
A: If you exchange your 8-1/8% debentures, your interest on the debentures
will be paid as of the effective date of the exchange offer and will be
mailed to you at the same time as your common stock or your 11%
debentures and common stock, as the case may be. If you do not accept
the exchange offer, your interest will be paid on the normal interest
payment date.
Q: If I tender my 8-1/8% debentures and consent to the proposed amendments
and the release of collateral, will I be able to revoke this decision
if I later change my mind?
A: Yes. You may revoke your consent to the proposed amendments and
withdraw your debentures at any time on or before the expiration of the
exchange offer. By withdrawing your debentures, you lose your right to
receive the exchange offer consideration.
Q: When does the exchange offer expire?
A: Unless Cone extends the exchange offer, it will expire at 5:00 p.m.,
New York City time, on ___________, 2001.
Q: Who can help answer my questions?
A: If you have any questions about the exchange offer or consent
solicitation or if you need additional copies of this prospectus, you
should contact:
Cone Mills Corporation
3101 North Elm Street
P.O. Box 26540
Greensboro, North Carolina 27415-6540
Attention: Gary L. Smith or W. Scott Wenhold
Telephone: (336) 379-6220
Dougherty & Company LLC
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402-4115
Attention: Steven D. McWhirter
Toll Free: (800) 328-4000
ii
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION...................................................................inside front cover
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION................................................i
SUMMARY................................................................................................................1
About Cone..........................................................................................................1
Rationale for the Exchange Offer....................................................................................1
The Exchange Offer and Consent Solicitation.........................................................................1
Selected Financial Data.............................................................................................6
RISK FACTORS...........................................................................................................8
Industry Risks......................................................................................................8
Company Risks.......................................................................................................9
Exchange Offer and Consent Solicitation Risks......................................................................10
Risks Related to Federal Tax Consequences..........................................................................11
CONE AND ITS STRATEGY.................................................................................................13
Revitalization Program.............................................................................................13
Why We Plan To Expand In Mexico....................................................................................14
BOOK VALUE PER COMMON SHARE...........................................................................................16
CAPITALIZATION........................................................................................................17
RATIO OF EARNINGS TO FIXED CHARGES....................................................................................21
THE EXCHANGE OFFER AND CONSENT SOLICITATION...........................................................................22
Terms of the Exchange Offer and Consent Solicitation...............................................................23
Proposed Amendments to the Indenture and Release of Collateral.....................................................24
Proposed Amendments to Indenture Governing 8-1/8% Debentures.......................................................25
Release of Collateral Securing 8-1/8% Debentures...................................................................26
Acceptance for Exchange of Debentures; Acceptance of Consents......................................................26
Procedures for Exchanging Debentures and Delivering Consents.......................................................27
Tenders of Debentures and Delivery of Consents.....................................................................27
Tenders of Debentures Held in Physical Form........................................................................28
Tender of Debentures Held Through a Custodian......................................................................28
Tender of Debentures Held Through DTC..............................................................................28
Signature Guarantees...............................................................................................29
Mutilated, Lost, Stolen or Destroyed Certificates..................................................................29
Defective Tenders..................................................................................................29
Guaranteed Delivery................................................................................................29
Backup United Stated Federal Income Tax Withholding................................................................30
Determination of Validity..........................................................................................30
Withdrawal of Tendered 8-1/8% Debentures and Revocation of Consents................................................30
Conditions to the Exchange Offer and Consent Solicitation..........................................................31
Federal Income Tax Considerations..................................................................................32
Advisor, Exchange Agent and Information............................................................................38
Conflicts of Interest..............................................................................................38
Fees and Expenses..................................................................................................38
Restrictions on Sales of Securities by Affiliates of Cone..........................................................39
No Appraisal Rights................................................................................................39
Use of Proceeds....................................................................................................39
Listing on the New York Stock Exchange.............................................................................39
Miscellaneous......................................................................................................39
DESCRIPTION OF CONE CAPITAL STOCK.....................................................................................40
Common Stock.......................................................................................................40
Shareholder Rights Plan............................................................................................40
Class A Preferred Stock............................................................................................41
Class B Preferred Stock............................................................................................42
Certain Provisions That May Have an Anti-Takeover Effect...........................................................42
Indemnification of Directors and Officers..........................................................................44
DESCRIPTION OF 11% SECURED SUBORDINATED DEBENTURES DUE MARCH 15, 2005.................................................45
General Terms of 11% Debentures....................................................................................45
ii
Indenture..........................................................................................................45
Book-Entry System..................................................................................................46
Certain Covenants..................................................................................................47
Definitions........................................................................................................48
Guaranty...........................................................................................................49
Collateral.........................................................................................................50
Merger, Consolidation, Sale, Lease or Conveyance...................................................................51
Subordination......................................................................................................51
Events of Default..................................................................................................51
Discharge, Defeasance and Covenant Defeasance......................................................................52
Modification of the Indenture......................................................................................53
DESCRIPTION OF 8-1/8% DEBENTURES DUE MARCH 15, 2005...................................................................54
General Terms of 8-1/8% Debentures.................................................................................54
Indenture..........................................................................................................54
Book-Entry System..................................................................................................54
Certain Covenants..................................................................................................56
Definitions........................................................................................................57
Merger, Consolidation, Sale, Lease or Conveyance...................................................................58
Events of Default..................................................................................................58
Discharge, Defeasance and Covenant Defeasance......................................................................59
Modification of the Indenture......................................................................................59
LEGAL MATTERS.........................................................................................................60
EXPERTS...............................................................................................................60
FORWARD-LOOKING STATEMENTS............................................................................................60
iv
SUMMARY
We are soliciting consents to amend the indenture under which the
8-1/8% debentures were issued and to release the collateral for the 8-1/8%
debentures that was pledged on January 28, 2000. We believe that the present
terms of this indenture and the high level of senior secured debt created when
Cone was required to secure the 8-1/8% debentures are barriers to both the
execution of Cone's revitalizing operating strategy and the establishment of a
stronger balance sheet more appropriate for today's capital market conditions.
As part of the solicitation, we are offering to exchange Cone common
stock or a combination of Cone's 11% Secured Subordinated Debentures Due March
15, 2005 and Cone common stock in exchange for the outstanding Cone 8-1/8%
Debentures Due March 15, 2005. This summary highlights selected information from
this prospectus and may not contain all of the information that is important to
you. To understand the exchange offer fully and for a more complete description
of the legal terms of the exchange offer, you should read carefully this entire
prospectus and the other documents to which we have referred you, including the
consent and letter of transmittal accompanying this prospectus. See "Where You
Can Find More Information" on the inside front cover of this prospectus. We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
About Cone (page __)
Founded in 1891, we are the world's largest producer of denim fabrics
and the largest commission printer of home furnishings fabrics in North America.
We are also a leading producer of decorative fabrics for the home furnishings
industry and a producer of specialty sportswear fabrics such as khaki.
We have our principal executive offices at 3101 North Elm Street,
Greensboro, North Carolina 27408 (336-379-6220). More information about us is
incorporated in this prospectus by reference. See "Where You Can Find More
Information" on the inside front cover of this prospectus.
Rationale for the Exchange Offer (page __)
Since our 8-1/8% debentures were issued in early 1995, the combination
of an industry-wide business downturn, our consequent restructuring of
operations and the presence of a more restrictive capital markets environment,
particularly among banks, has resulted in the downgrading of the 8-1/8%
debentures to less than investment grade. With the loss of our investment grade
status, our lenders required that our debt be secured by Cone assets. The 8-1/8%
debentures require that if a sufficient portion of Cone's debt were secured, the
debentures would be secured on a pro rata basis. As a consequence, the 8-1/8%
debentures, and all of Cone's other significant financing obligations, were
secured by blanket liens on substantially all of Cone's assets on January 28,
2000, when Cone refinanced its revolving credit facility on a secured basis.
This has resulted in a deficit of collateral available for needed new senior
financings. While the terms that created these liens are common for
investment-grade companies, these terms are a burden to noninvestment grade
companies who rely upon collateralized borrowings to grow their businesses.
Thus, the purpose of this transaction is to alter Cone's publicly held debt
instruments to permit us to make use of secured financing structures required by
lenders to noninvestment-grade credits.
Our objectives in this transaction are to:
o Establish a capital structure that provides support for Cone's
operating strategy for the next three to five years.
o Improve earnings and cash flow by immediate execution of
Cone's expansion plans.
o Manage financial risk by holding total interest costs at
present levels.
o Reduce Cone's public debt.
The Exchange Offer and Consent Solicitation (page __)
The 8-1/8% Debentures (page __) We are making the exchange offer with respect to all of our 8-1/8%
Debentures Due March 15, 2005.
1
The Exchange Offer (page __) We are offering (1) ____ shares of Cone common stock or (2) $1,000 of new
11% debentures and 10 shares Cone common stock for each $1,000 of the
outstanding 8-1/8% debentures.
The new debentures will carry an interest rate of at least 11%
per annum. If more than $50,000,000 but less than $100,000,000 principal
amount of 8-1/8% debentures are tendered and less than $85,000,000 8-1/8%
debentures are tendered for 11% debentures, the interest rate payable on
the new debentures will be increased up to a maximum of 14% so as to pass
on to the tendering holders some of the interest savings we realize as a
result of a portion of the 8-1/8% debentures' continuing to be outstanding.
Proration (page __) We expect to issue ____________ shares of common stock for $15,000,000 of
8-1/8% debentures and up to $85,000,000 principal amount of 11%
debentures and 850,000 shares of our common stock for $85,000,000 of
8-1/8% debentures. If more than $15,000,000 aggregate principal amount of
8-1/8% debentures are tendered for common stock, the 8-1/8% debentures
will be accepted for exchange for common stock on a pro rata basis,
rounded to the nearest $1,000 principal amount of 8-1/8% debentures.
Similarly, if more than $85,000,000 aggregate principal amount of 8-1/8%
debentures are tendered in exchange for 11% debentures, the 8-1/8%
debentures will be accepted for exchange for 11% debentures and common
stock on a pro rata basis, rounded to the nearest $1,000 principal amount
of 8-1/8% debentures. If the common stock is oversubscribed, you will
receive your pro rata share of the common stock being offered, and the
remainder of your 8-1/8% debentures will be exchanged for 11% debentures
and common stock. If the combination of 11% debentures and common stock
is oversubscribed, you will receive common stock for a portion of your
8-1/8% debentures. We reserve the right, however, to increase the common
stock to be issued in the exchange offer to a maximum of ________ shares
for up to $25,000,000 aggregate principal amount of 8-1/8% debentures if
the option to receive common stock is oversubscribed. We will
correspondingly reduce the amount of 11% debentures to be issued.
The Solicitation (page __) We are also soliciting consents to the proposed amendments to the
indenture under which the 8-1/8% debentures were issued and to release
all of the collateral currently securing those debentures. If you tender
8-1/8% debentures in the exchange offer on or before the expiration of
the exchange offer, you will automatically consent to the proposed
amendments to the indenture and the release of collateral.
The Amendments to the Old Indenture (page __) The supplemental indenture will amend the existing indenture for the
8-1/8% debentures to (1) increase the "basket" for permitted general
secured debt of Cone and its subsidiaries from its current limit of 10%
of consolidated net tangible assets to 55% of consolidated net tangible
assets, (2) add a permission for liens securing the 11% debentures, (3)
amend the definition of "consolidated net tangible assets" to exclude
current maturities of long term debt and assets not securing the 11%
debentures and to include the outstanding balance of any receivables
securitization arrangements, (4) amend the definition of "indebtedness"
to include the balance under any receivables securitization program, and
(5) amend the definition of "subsidiary" to exclude foreign subsidiaries,
with the effect that foreign subsidiaries would be excluded from the lien
and sale and leaseback covenants. After giving effect to the supplemental
indenture, each of the five indenture provisions amended by the
supplemental indenture will be substantively identical to the same
provisions in the indenture for the 11% debentures.
2
Release of the Collateral (page __) Since January 28, 2000, the 8-1/8% debentures, together with Cone's other
secured debt, have been secured by a lien on substantially all Cone's
assets as a result of a covenant in the existing indenture requiring that
such a lien be granted. Acceptance of the exchange offer will act as your
release of this collateral, making the 8-1/8% debentures unsecured once
again.
In the event the general secured indebtedness of Cone exceeds 55% of its
consolidated net tangible assets, as defined in the indenture as proposed to
be amended, the 8-1/8% debentures will be secured by a lien on the assets
securing the 11% debentures pari passu with such excess indebtedness, but
that lien will be junior to the lien of the 11% debentures as well as to
other permitted liens under the indenture. If such excess indebtedness is
repaid or the liens securing that indebtedness are released, the 8-1/8%
debentures will become unsecured.
Requisite Consents (page ___) Approval of the proposed amendments to the indenture governing the
8-1/8% debentures and the release of the collateral requires the consent
of the holders of at least a majority in aggregate principal amount of
8-1/8% debentures outstanding.
Effectiveness of Proposed Amendments Cone and the trustee for the 8-1/8% debentures will execute the
(page ___) supplemental indenture providing for the proposed amendments and the
release of the collateral promptly following the expiration of the
exchange offer if a majority of the 8-1/8% debenture have been tendered and
the requisite consents therefore received. The proposed amendments, however,
will not become operative until we have accepted for purchase all debentures
validly tendered and not withdrawn in the exchange offer. If the proposed
amendments become operative, all persons who continue to hold 8-1/8%
debentures thereafter will be subject to the provisions of the indenture
as amended by the proposed amendments.
Terms of the New Debentures (page __) The new debentures will be on substantially the same terms as the
existing 8-1/8% debentures except that the interest rate will be higher
and the new debentures will be secured. Under the terms of the 11%
debentures, Cone will be permitted to have general secured debt senior to
the 11% debentures equal to 55% of consolidated net tangible assets, or
approximately $197 million at October 1, 2000, and there will be no
limits on the financing of foreign subsidiaries secured by non-U.S.
assets. The lien securing the 11% debentures will also be subordinate to
special types of liens including purchase money liens, liens of
subsidiaries existing at the time they were acquired and certain
government liens. No material liens of these types currently exist. The
lien securing the 11% debentures will be prior to all liens other than
those to which it is specifically subordinated. The security interest
of the 11% debentures will remain outstanding for the term of the
debentures even if there is no senior secured debt or if the senior
secured debt is less than the subordinated amount. The 11% debentures
will be guaranteed by a Cone subsidiary and secured by substantially all
of its assets. This subsidiary has no debt but is a guarantor of
permitted senior debt. General secured debt outstanding as of October 1,
2000 that would have been senior to the 11% debentures and the guaranty
had they been outstanding was $141.1 million, plus $0.8 million reserved
with respect to outstanding letters of credit.
Expiration of the Exchange Offer (page __) 5:00 p.m., New York City time, on ________________, 2001, unless
extended. The supplemental indenture will be executed promptly
3
following the expiration of the exchange offer, assuming that a majority
of the 8-1/8% debentures have been tendered for exchange and, therefore,
the requisite consents have been received. If the terms of the exchange
offer are changed, the offer will remain open for an additional 10
business days following the change.
Exchange Date (page __) The exchange of 8-1/8% debentures for Cone common stock or a combination
of 11% debentures and common stock will be made promptly following the
expiration of the exchange offer and the satisfaction or waiver of all
conditions.
Conditions to the Exchange Offer and The completion of the exchange offer is conditioned upon more than 50%
Consent Solicitation (page __) of the 8-1/8% debentures being tendered and thereby consenting to the
proposed amendments to the indenture and release of the collateral
securing the 8-1/8% debentures, the execution of the supplemental
indenture and the other general conditions described in this prospectus.
Procedures for Tendering Debentures and If you want to tender your 8-1/8% debentures in the exchange offer, you
Delivering Consents (page __) must tender all of your debentures and you should either:
o If you hold physical certificates evidencing your 8-1/8%
debentures, complete and sign the enclosed consent and letter
of transmittal in accordance with the instructions in that
document, have your signature guaranteed if required by
Instruction 4 of the consent and letter of transmittal, and
send or deliver your manually signed consent and letter of
transmittal, together with the certificates evidencing the
debentures being tendered and any other required documents, to
the exchange agent; or
o If you hold your 8-1/8% debentures in book-entry form,
request your broker, dealer, commercial bank, trust company
or other nominee to effect the transaction for you.
If you own 8-1/8% debentures that are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, you must contact
that broker, dealer, commercial bank, trust company or other nominee if
you desire to tender your debentures.
If you are tendering your debentures by book-entry transfer to the exchange
agent's account at Depositary Trust Company, you can execute the tender
through DTC's Automated Tender Offer Program, for which the transaction will
be eligible. DTC participants that are accepting the exchange offer must
transmit their acceptance to DTC, which will verify the acceptance and
execute a book-entry delivery to the exchange agent's account at DTC. DTC
will then send an agent's message to the exchange agent for its acceptance.
Delivery of the agent's message by DTC will satisfy the terms of the exchange
offer as to the tender of debentures and the delivery of consents.
If you desire to tender 8-1/8% debentures in the exchange offer and cannot
comply with the procedures for tender or delivery on a timely basis or
if your debentures are not immediately available, you may tender your
debentures using the procedures for guaranteed delivery described in this
prospectus.
Revocation of Consents (page __) You may revoke your consents at any time prior to the expiration of the
consent solicitation, but not thereafter. If you validly revoke your
consent, it will render your tender of debentures defective, and, you
will not be
4
eligible to receive the exchange offer consideration for your 8-1/8%
debentures.
Withdrawal of Tenders of Debentures (page __) You may withdraw your tender of 8-1/8% debentures at any time before the
expiration of the exchange offer, but the exchange offer consideration
will not be payable for any debentures so withdrawn. If you withdraw
your tendered debentures, it will be deemed a revocation of the related
consent.
Untendered 8-1/8% Debentures (page __) If you do not tender your 8-1/8% debentures and they are not exchanged in
the exchange offer, they will remain outstanding. If the requisite
tenders and the related consents to amend the indenture and release the
collateral are received and the proposed amendments become operative
under the supplemental indenture, untendered debentures will be unsecured
and will no longer have the benefits of the restrictive covenants that
will be eliminated from the indenture by the proposed amendments. In
addition, as a result of the consummation of the exchange offer, the
aggregate principal amount of the 8-1/8% debentures that are outstanding
will be significantly reduced, which may adversely affect the liquidity
of and, consequently, the market price for the 8-1/8% debentures, if any,
that remain outstanding after the completion of the exchange offer.
Acceptance of Tendered Debentures and Upon the terms of the exchange offer and upon satisfaction or our waiver
Exchange (page __) of the conditions to the exchange offer, we will accept for exchange
8-1/8% debentures validly tendered on or before the expiration of the
exchange offer. Only if you validly tender your debentures, and thereby
consent to the proposed amendments and release of collateral, on or before
the expiration of the exchange offer will you receive the exchange
consideration. We will make payment of the exchange consideration for
debentures validly tendered and accepted for payment, by deposit of the
appropriate number of shares of Cone common stock, and appropriate amounts
of 11% debentures, with the exchange agent who will act as agent for
the tendering and consenting holders of 8-1/8% debentures for the purpose
of the exchange. We expect the exchange to be made on the exchange date
described in this prospectus promptly following our acceptance of the 8-1/8%
debentures in the exchange offer.
Federal Income Tax Considerations You are referred to the discussion about the federal income tax
(page __) consequences of the exchange offer on page __. Tax matters are very
complicated and the tax consequences of the exchange offer to you will
depend on the facts of your own situation. You should consult your own tax
advisor for a full understanding of the tax consequences to you of the
exchange offer.
No Appraisal Rights (page __) You will not have any right to dissent and receive an appraisal of your
8-1/8% debentures, under either the indenture or North Carolina law, in
connection with the exchange offer.
Exchange Agent (page __) The Bank of New York is serving as exchange agent in connection with the
exchange offer. Its address and telephone number are located on the back
cover of this prospectus.
5
Selected Financial Data
In the table below, we provide you with selected historical
consolidated financial data of Cone for each of the fiscal years 1995 through
1999 and for the nine months ended October 1, 2000 and October 3, 1999. We
derived this information from the audited consolidated financial statements of
Cone, except for the financial data for the nine-month periods ended October 1,
2000, and October 3, 1999, which are derived from unaudited financial
statements. The information is for illustrative purposes only and you should
read it together with Cone's historical financial statements and related notes
contained in the annual reports, quarterly reports and other information that we
have filed with the SEC and incorporated by reference. To obtain copies of these
documents, see "Where You Can Find More Information" on the inside front cover
of this prospectus.
Nine Months Ended
(in millions, except per share 1999 1998 (1) 1997 1996 1995 (4) 10/1/00 10/3/99
data and number of employees)
- --------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
Net Sales $ 616.3 $ 728.6 $ 716.9 $ 745.9 $ 910.2 $ 468.5 $ 478.9
Cost of Sales (2) 568.2 661.8 664.4 662.0 802.6 414.3 438.6
---------------------------------------------------------------------------------------------
Gross Profit 48.1 66.8 52.5 83.9 107.6 54.2 40.3
Selling and Administrative (2) 48.7 57.4 55.6 65.9 72.2 37.2 37.0
Restructuring and Impairment 16.0 17.1 5.2 5.2 - (0.3) 16.0
of Assets
---------------------------------------------------------------------------------------------
Income (Loss) from Operations (16.6) (7.7) (8.3) 12.8 35.4 17.3 (12.7)
Other Expense - Net 13.9 12.1 11.7 14.9 14.5 16.5 9.7
---------------------------------------------------------------------------------------------
Income (Loss) from Operations
Before Income Taxes
(Benefit), Equity in
Earnings (Losses) of
Unconsolidated
Affiliate and Cumulative (30.5) (19.8) (20.0) (2.1) 20.9 0.8 (22.4)
Effect of Accounting Change
Income Taxes (Benefit) (10.7) (7.9) (8.0) (2.3) 7.3 0.3 (7.7)
---------------------------------------------------------------------------------------------
Income (Loss) from Operations
Before Equity in
Earnings (Losses) of
Unconsolidated Affiliate and
Cumulative Effect of
Accounting Change (19.8) (11.9) (12.0) 0.2 13.6 0.5 (14.7)
Equity in Earnings (Losses)
of Unconsolidated 1.7 5.2 2.6 (2.4) (16.9) 2.2 1.5
Affiliate
---------------------------------------------------------------------------------------------
Income (Loss) from Operations
Before Cumulative (18.1) (6.7) (9.4) (2.2) (3.3) 2.7 (13.2)
Effect of Accounting Change
Cumulative Effect of (1.0) - - - - - (1.0)
Accounting Change (3)
---------------------------------------------------------------------------------------------
Net Income (Loss) $ (19.1) $ (6.7) $ (9.4) $ (2.2) $ (3.3) $ 2.7 $ (14.2)
---------------------------------------------------------------------------------------------
Loss Available to Common
Shareholders
Income (Loss) from $ (18.1) $ (6.7) $ (9.4) $ (2.2) $ (3.3) $ 2.7 $ (13.2)
Operations Before
Cumulative Effect of
Accounting Change
Preferred Dividends (3.0) (2.9) (2.9) (2.9) (2.8) (2.9) (2.3)
---------------------------------------------------------------------------------------------
Loss before Cumulative $ (21.1) $ (9.6) $ (12.3) $ (5.1) $ (6.1) $ (0.2) $ (15.5)
Effect of Accounting
Change
Cumulative Effect of (1.0) - - - - - (1.0)
Accounting Change (3)
6
---------------------------------------------------------------------------------------------
Net Loss $ (22.1) $ (9.6) $ (12.3) $ (5.1) $ (6.1) $ (0.2) $ (16.5)
---------------------------------------------------------------------------------------------
Per Share of Common Stock
Loss Before Cumulative
Effect of Accounting Change
Basic and Diluted $ (0.83) $ (0.37) $ (0.47) $ (0.19) $ (0.22) $ (0.01) $ (0.61)
Net Loss
Basic and Diluted (0.87) (0.37) (0.47) (0.19) (0.22) (0.01) (0.65)
Balance Sheet Data (at period end)
Total Assets $ 472.8 $ 488.5 $ 506.6 $ 530.0 $ 584.3 $ 467.9 $ 486.3
Long-Term Debt 198.8 172.1 150.4 160.7 173.0 181.2 186.7
Stockholders' Equity 157.5 181.9 196.5 210.3 222.1 156.3 164.2
Long-Term Debt as a Percent of
Stockholders' Equity 56% 49% 43% 43% 44% 54% 53%
and Long-Term Debt
Shares Outstanding 25.5 25.4 26.2 26.3 27.4 25.5 25.5
Other Data
Capital Expenditures $ 13.2 $ 32.8 $ 36.3 $ 36.2 $ 61.7 $ 4.2 $ 8.0
Investments in Unconsolidated 0.7 3.5 1.6 - 30.3 5.2 -
Affiliates
Common Stock Dividend Paid - - - - - - -
Number of Employees at Period 4,300 6,200 6,100 6,700 7,900 4,200 5,000
End
Ratio of Earnings to Fixed
Charges
Deficiency of Earnings to $ 29.5 $ 19.8 $ 20.0 $ 2.1 2.19 1.25 $ 22.2
Cover Fixed Charges
- ------------------------------------
(1) Fiscal 1998 represents a 53-week period.
(2) Selling and administrative expenses for prior years were restated to
conform to industry practices.
(3) In accordance with Statement of Position 98-5, "Reporting the Costs of
Start-up Activities," Cone recognized a charge of $1.0 million, Cone's 50%
portion of Parras Cone's unamortized start-up costs, as a cumulative effect
of an accounting change, net of income tax benefit.
(4) Due to the continued devaluation of the peso and the deepening of the
recession in the Mexican economy in 1995, Cone accelerated the amortization
of goodwill associated with its initial investment in CIPSA, increasing its
1995 loss by $3.6 million. Cone recognized an additional $7.3 million
charge, reduced by a tax benefit of $3.0 million, to adjust its investment
in CIPSA to expected net realizable value. Pursuant to a December 22, 1995
agreement, Cone sold 1.5 million shares of CIPSA, or approximately 10% of
its holdings, for $0.8 million in January 1996, thereby changing its
accounting for this investment from the equity method to the cost method at
that time.
7
RISK FACTORS
Industry Risks
We face intense competition from other manufacturers in the worldwide textile
industry that reduces margins and revenues.
We are confronted with a variety of competitive challenges from other
domestic and foreign textile manufacturers. In recent years, pricing has become
the primary basis for competition as marginal competitors with excess capacity
are struggling just to meet cash interest costs and have all but given up on
pricing at levels sufficient for debt repayment, reinvestment and return to
shareholders. While prices cannot be supported at these levels for the long
term, it is difficult to determine when prices will improve to more appropriate
levels. Other than price, we compete with these companies primarily on the basis
of quality, service, and new product development, all of which require a
commitment of both human and financial resources, which are becoming
increasingly more competitive.
Our business is dependent on there being demand for our products, which changes
with fashion trends and consumer preferences. Decreased demand may result in
decreased revenues.
Our success depends in large part on our ability and the ability of our
customers to anticipate, identify, and rapidly respond to everchanging consumer
preferences and fashion shifts in a timely manner. Failure to do so results in a
lessened demand for our products and could lead to a substantial amount of
unsold inventory and idled or curtailed production facilities.
We face risks from economic downturns of decreased revenues because consumer
demand for textile products varies with the U.S. and world economic cycles.
The textile industry is a cyclical industry and heavily dependent upon
the overall level of consumer spending on a global basis. As a result, any
substantial economic downturn or increase in interest rates in any of the
regions in which we or our competitors compete could adversely affect the sales
of our products. We compete for sales primarily in the United States, Mexico and
Europe. We are also adversely affected by foreign imports at very low prices
during economic downturns affecting the countries from which foreign imports
originate.
The prices and availability of cotton, an agricultural commodity, are highly
variable.
The price and availability of cotton may fluctuate significantly as
they are dependent on crop yields. Any raw material price increases could
increase our cost of sales and working capital requirements and decrease
profitability unless we are able to pass on the full impact of higher prices to
our customers, which historically has not occurred. In addition, any decrease in
the availability or quality of cotton could impair our ability to meet
production requirements on a timely basis.
As part of the textile industry, we are subject to risks associated with the
import into the U.S. of products from foreign competitors.
The textile industry is becoming more global due to the gradual
elimination of import quotas and the migration of its customers to lower costs
manufacturing platforms. While Cone is pursuing a strategy of lower cost
sourcing in countries such as Mexico, there can be no assurance that U.S.
textile manufacturers can successfully adjust to the long-term implications of
regional trade blocs and the effect of quota phaseout and lowering of tariffs
under the WTO trade regime.
The textile industry is subject to risks associated with importing products.
To support our operations and businesses, both in the U.S. and
internationally, we sometimes import raw materials, components and finished
products, as well as machinery and equipment, which are subject to quotas and
customs duties. From time to time, countries impose additional quotas, duties,
tariffs, or other restrictions or modify existing restrictions which could harm
our business.
8
Company Risks
We may be unable to reverse or recover from declines in sales and earnings over
the past several years that have impaired our overall competitive and financial
positions.
While our denim business has held its own competitively, despite the
difficulties of our major customer, Levi Strauss, our overall business has been
in decline for the past several years. In 1998 and 1999,
o net sales declined from $728.6 million in 1998 to $616.3
million in 1999, a decrease of 15%; and
o Cone had a net loss of $19.1 million in 1999 as compared to a
net loss of $6.7 million in 1998. Excluding restructuring
charges, related expenses, results of businesses exited and
the cumulative effect of an accounting change, operating
results declined from net income of $12.4 million in 1998 to a
loss of $1.5 million in 1999.
Our declining business, and the actions we took in response to the
decline, prevented us from addressing our present capital structure and
strategic initiatives as quickly as we had intended. As a result, our financial
flexibility and strategic initiatives remain constrained; we suffer from
increases in prevailing interest rates; and our ability is reduced to respond to
developments in the worldwide textile industry as effectively as we would like.
We have made substantial strategic, operational and management changes in the
past two years. While encouraged by our progress, we do not know whether those
changes will have the ultimate desired effect.
We may be unable to maintain or increase our sales or profitability through our
current distribution channels.
In the U.S. and Europe, branded jeans and other pants manufacturers are
currently the primary distribution channel for our denim and khaki products.
Most of these customers in recent years have decided to an increasing degree to
outsource their production to independent contractors around the world,
primarily Mexico for our U.S. customers. This shift to a lower cost
manufacturing base brings pressure on us to lower our prices. It further
requires us to create new relationships and adds a new level of complexity in
doing business. Doing business in developing countries with less substantial
companies has accompanying business risks, such as credit risk.
Distribution channels are also changing in our home furnishings
products and services businesses as designer and other branded products have
taken on added importance in the market place. Our traditional customers,
jobbers, distributors, and other converters, have given way to mass merchants in
the U.S. such as Wal-Mart Stores, Inc., Target Corporation, and Kmart
Corporation, a distribution channel that continues to increase its share of
overall retail spending, and with which we have less experience than our
competition. Moreover, we believe that consolidation in the retail and apparel
industries has centralized purchasing decisions, despite outsourcing of
production, and resulted in greater leverage over textile manufacturers like us.
We expect this trend to continue throughout the world.
A group of key customers accounts for a significant portion of our sales
rendering our business dependent on the success of those customers and on our
ongoing relationships with them.
One customer, Levi Strauss, accounted for 31% of our fiscal year 1999
net sales and 32% of our fiscal year 1998 sales. Levi Strauss and other
customers, who compete primarily on quality, service and product development,
are important to the distribution of Cone's value-added fabrics. According to
Levi Strauss, our sales to them accounted for 22% of their fabric purchases in
1999. Levi Strauss is transitioning from owned facilities to a greater reliance
on contractors. We cannot predict the long-term impact on sales, if any, of this
change in Levi Strauss's manufacturing strategy. While we have sharply increased
our share of other customers' business in recent years, the loss of Levi Strauss
as a customer, or a substantial reduction in its purchases from us, would have a
material adverse effect on our financial position and results of operations. We
have a supply agreement that provides for a rolling five-year term unless either
Levi Strauss or we elect not to extend the agreement, upon which the agreement
will terminate at the end of the then-current term. Levi Strauss and Cone may
also terminate the agreement in the event of bankruptcy or insolvency of the
other party or a material breach by the other that is not cured within a
specified time period. Levi Strauss may also terminate the agreement at any time
upon 30 days notice. While we have other long-standing customer relationships,
we do not have long-term contracts with any of them. As a result, purchases
generally occur on an order-by-order basis, and the relationship, as well as the
particular orders, can be terminated by either party at any time.
9
In addition, during the past several years, various customers, and some
of their retail customers, have experienced significant changes and
difficulties, including consolidation of ownership, increased centralization of
buying decisions, restructurings, bankruptcies and liquidations. These problems
increase the risk when Cone extends trade credit to its customers. A significant
change in a customer relationship or in a customer's financial position could
cause us to limit or discontinue doing business with that customer, require the
assumption of more credit risk, or limit our ability to collect amounts due, all
of which could harm our business and financial condition.
We are dependent on the abilities of our senior management team to which we have
recently made significant changes.
In the last two years, Cone has essentially replaced or reorganized its
senior management team. While, with one exception, the team has prior experience
with Cone or the industry, we cannot assure you that our new management team
will be able to execute successfully our strategy, and our business and
financial condition will suffer if they do not do so.
The success of our business depends on the ability to attract and retain key
personnel.
There is great competition for the services of qualified personnel. The
failure to retain our current key managers or key members of our design, product
development, manufacturing, merchandising or marketing staff could be
detrimental to our business. Factors that have affected our ability to retain
and attract employees include the competitive labor market in our various office
and plant locations, the disruption associated with restructuring initiatives,
our deteriorated financial position and the lack of attractive compensation and
incentive programs due to our financial performance.
Our international operations expose us to political and economic risks.
In fiscal year 1999, approximately 37% of our denim sales were exports,
we have a substantial investment in two locations in Mexico, including a key
joint venture manufacturing facility. We also have equity investments in other
textile companies in Mexico and India. As a result, we are subject to the risks
of doing business outside the United States, including:
o political and economic instability;
o exchange controls;
o language and other cultural barriers;
o foreign tax treaties and policies;
o restrictions on the transfer of funds to or from foreign
countries; and
o fluctuation of exchange rates.
We do not yet have in place the financing necessary to build our new
manufacturing facility in Mexico.
To build our new Mexican denim manufacturing facility, we will need to
obtain a new asset-based lending facility that will provide a portion of the
building costs and project financing secured by the Mexican facility that will
provide the bulk of the costs. While Cone has discussed these financing
facilities with several lenders and believes that appropriate financing will be
available, there is no assurance that it will be. If Cone is unable to secure
the new asset-based lending facility, it will pursue other financing
alternatives for its planned expansion in the State of Tamaulipas, Mexico. The
inability to secure the new asset-based lending facility may delay the project
and make it more costly.
Exchange Offer and Consent Solicitation Risks
The rating of the 8-1/8% debentures may be adversely affected by the exchange
offer and consent solicitation.
If the exchange offer is successful, the ratings of the 8-1/8%
debentures assigned by Moody's and Standard & Poor's could be downgraded because
of the changes in the terms of the debentures, including the release of the
collateral.
There is no established trading market for the new 11% debentures and any market
for the new 11% debentures may be illiquid.
The 11% debentures are a new issue of securities with no established
trading market. We cannot assure you that a liquid market will develop for the
debentures, that you will be able to sell your debentures at a particular time
or that the
10
prices that you receive when you sell will be favorable. Moreover,
we do not intend to apply for the debentures to be listed on any securities
exchange or to arrange for quotation on any automated dealer quotation system.
The rating of the 11% debentures may be lower than the current rating of the
8-1/8% debentures.
Because the 11% debentures may initially be subordinated as to
collateral to up to approximately $197 million of other debt, they may be
assigned a lower rating than the current 8-1/8% debentures by Moody's and
Standard & Poor's. Cone's current secured debt that would have a prior lien on
collateral was $83.2 million as of October 1, 2000, plus $0.8 million reserved
with respect to outstanding letters of credit. In addition, Cone had $57.9
million outstanding under its receivables securitization facility on that date.
The present 8-1/8% debentures allow the sale of receivables and are subordinated
as to collateral to $28 million of debt, but $55.2 of other debt, plus $0.8
million reserved with respect to outstanding letters of credit, as of October 1,
2000 ranked equally with the 8-1/8% debentures as to collateral.
If you do not exchange your 8-1/8% debentures, they may be difficult to resell.
It may be difficult for you to sell 8-1/8% debentures that are not
exchanged in the exchange offer, since any not exchanged will become subject to
the supplemental indenture with its reduced debentureholder rights.
To the extent any 8-1/8% debentures are tendered and accepted in the
exchange offer, the trading market, if any, for the 8-1/8% debentures that
remain outstanding after the exchange offer may be adversely affected due to a
reduction in market liquidity.
You May Not Receive the Exchange Consideration You Request in the Exchange
Offer.
If the common stock or the combination of 11% debentures and common
stock are oversubscribed in the exchange offer and you have elected to receive
the oversubscribed form of consideration, you will receive only a portion of the
consideration you requested. We will accept debentures tendered for the
oversubscribed form of consideration on a pro rata basis. The remainder of your
debentures will be exchanged for the other form of consideration.
Risks Related to Federal Tax Consequences
The discussion of "Federal Income Tax Considerations" includes a number of
judgments on uncertain matters.
A number of conclusions set forth in this prospectus under "The
Exchange Offer and Consent Solicitation --Federal Income Tax Considerations" are
based on the best judgment of tax counsel in the face of uncertain law. If the
IRS makes a determination in one of these areas that is contrary to the opinion
of tax counsel, the tax consequences of the exchange offer could be different
from those described in this prospectus.
You may be subject to federal income tax as a result of tendering your
debentures.
Tax counsel believes debentureholders who receive only Cone common
stock for their 8-1/8% debentures will not recognize taxable gain or loss on the
exchange offer. Our tax counsel is uncertain, however, whether a debentureholder
who receives 11% debentures and Cone common stock for his or her 8-1/8%
debentures will recognize taxable gain. The tax treatment of receiving 11%
debentures will depend on whether the 11% debentures are "securities" for tax
purposes. If the 11% debentures are "securities," tax counsel believes an
exchanging debentureholder will not recognize taxable gain on the exchange. If
the 11% debentures are not "securities," however, an exchanging debentureholder
may recognize taxable gain, even if he or she purchased the 8-1/8% debentures at
their $1,000 issue price. Tax counsel has opined that it is likely but not
certain that the 11% debentures are not "securities." The tax treatment of the
receipt of 11% debentures and Cone common stock in various situations is more
fully described in this prospectus under "The Exchange Offer and Consent
Solicitation --Federal Income Tax Considerations."
If you receive 11% debentures in addition to Cone common stock, uncertainty
about the fair market value of the 11% debentures may affect the federal income
tax consequences of the exchange offer to you.
As described more fully in this prospectus under "The Exchange Offer
and Consent Solicitation --Federal Income Tax Considerations," the fair market
value of the 11% debentures have an impact on the tax consequences
11
of the exchange offer. If the 11% debentures are not "securities," the amount of
gain recognized will depend on the fair market value of the 11% debentures. If
the 11% debentures are "securities," the allocation of basis carried over from
the 8-1/8% debentures, as between the 11% debentures and the Cone common stock,
will depend on the fair market value of the 11% debentures. Because of
uncertainty about the fair market value of the 11% debentures, each
debentureholder is encouraged to consult his or her tax advisor regarding the
tax consequences of the exchange offer in his or her individual situation.
If you receive 11% debentures in addition to Cone common stock, uncertainty
about the proper allocation of market discount may affect the federal income tax
consequences of the exchange offer to you.
Market discount affects the extent to which a debentureholder will
recognize ordinary income or capital gain upon the sale of the 11% debentures
and the Cone common stock. If the 11% debentures qualify as "securities," market
discount on the 8-1/8% debentures will be carried over to both the 11%
debentures and Cone common stock. Because of the absence of authorities, tax
counsel has not opined on the proper method of allocating the market discount,
both accrued and unaccrued, between the 11% debentures and Cone common stock
received. Each debentureholder is encouraged to consult his or her tax advisor
regarding the tax consequences of the exchange offer in his or her individual
situation.
You may be subject to federal income tax even if you do not tender your
debentures.
Tax counsel believes debentureholders who do not tender their 8-1/8%
debentures will not recognize taxable gain or loss as a result of the exchange
offer, if the indenture governing the 8-1/8% debentures is not amended. If the
indenture is amended, however, the tax treatment to nontendering
debentureholders will depend on whether the amendments to the indenture are
determined to result in a "significant modification" of the 8-1/8% debentures
for tax purposes. Based on representations made by Cone that the amendments to
the indenture will not cause a change in "payment expectations," tax counsel has
opined that the amendments to the indenture will not result in a "significant
modification," and that, therefore, nontendering debentureholders will not
recognize taxable gain or loss as a result of the exchange offer. If, however,
it is determined that a "significant modification" did occur because of a change
in "payment expectations" brought about by the amendment, a nontendering
debentureholder who purchased 8-1/8% debentures for less than their $1,000 issue
price could recognize taxable gain.
12
CONE AND ITS STRATEGY
Founded in 1891 and incorporated in North Carolina, Cone is the world's
largest producer of denim fabrics and the largest commission printer of home
furnishings fabrics in North America. Cone is also a leading producer of
decorative fabrics, such as jacquard fabrics, for the home furnishings industry
and a producer of specialty sportswear fabrics such as khaki. Cone competes
domestically and internationally on the basis of styling and product
development, management experience, versatility and size of manufacturing
facilities, competitive prices and the Cone name and reputation.
Cone operates in three principal business segments: (1) denim and
khaki; (2) commission finishing; and (3) decorative fabrics. Cone seeks growth
of its products through expansion into new geographic areas and markets, product
development and investment in value-added technology. Cone is engaged in denim
production in Mexico through a 50/50 joint venture facility with Compania
Industrial de Parras, S.A. de C.V. ("CIPSA"). This facility, Parras Cone, has
been producing basic denims and yarn since late 1995. Under a marketing
agreement, Cone markets and distributes 100% of the denim production of Parras
Cone.
Cone has its principal executive offices at 3101 North Elm Street,
Greensboro, North Carolina 27408 (336-379-6220). More information about Cone is
incorporated in this prospectus by reference. See "Where You Can Find More
Information" on the inside front cover of this prospectus.
Revitalization Program
In early 1999, Cone launched a major revitalization program consisting
of three initiatives: cost reduction, reorganization and restructuring;
disciplined management during a cyclical downturn; and continued growth through
expansion of denim.
Management believes that it has successfully implemented its cost
reduction, reorganization and restructuring program. This program resulted in a
30% decrease in employment during 1999, is expected to result in $40 million of
annual savings and cost reductions, and has created a revitalized attitude among
its leadership team and associates. The highlights of this program include:
o Closing of the Salisbury Plant and exit from yarn-dyed
shirting fabrics operations
o Closing of certain U.S. yarn manufacturing plants and entry
into a U.S. yarn manufacturing alliance that has reduced, and
is expected to continue to reduce, raw material costs
o Downsizing and reorganization of selling and administrative
functions
o Restructuring of Cone's Carlisle Finishing operation with the
reduction of 25% of workforce and the simultaneous improvement
in quality and efficiency by approximately 10%
o Restructuring of the Decorative Fabrics Group concurrent with
the appointment of a new Group President
Cone also believes that it has successfully managed through the
cyclical downturn in the U.S. denim industry that resulted in an industry-wide
decline in domestic mill shipments of approximately 14% in 1999. Management
believes that while domestic retail sales of jeans were down only 3%-5% in 1999
from 1998, adjustments in inventories throughout the softgoods pipeline resulted
in a major cyclical downturn in the business. Cone responded with cost reduction
programs, inventory control efforts, and reinforced emphasis on quality, product
development and customer service to gain market share. As a result of these
actions, as well as renewed consumer interest in denim and stable inventory
levels, denim backlog at October 1, 2000 was 96% higher on a volume basis as
compared with October 3, 1999. Cone is presently operating its denim and
jacquard decorative fabrics weaving plants at capacity.
Cone believes that completion of its third initiative, expansion of its
denim manufacturing capacity, will result in further strengthening of Cone's
leadership position in the denim industry, substantially improved profitability
and a strengthened financial position. However, Cone has determined that the
present structure of Cone's balance sheet is inappropriate for the execution of
Cone's growth initiatives. After several months of study Cone is now proposing
to
13
amend the indenture under which its 8-1/8% debentures were issued to implement a
more effective and efficient capital structure that will allow Cone to execute
its operating strategy.
Cone believes that it is recognized as a leader in the production of
denim in Mexico. In conjunction with CIPSA, Cone operates a large state of the
art denim facility in Parras, Mexico. Cone believes that this plant is generally
recognized as one of the most efficient and highest quality basic denim plants
in the world. As denim jeans sourcing from Mexico has grown, Cone has gained
momentum in denim manufacturing and distribution in Mexico. As a result of
Mexico's low cost of labor, availability of textile and apparel workforce,
favorable tariff treatment through NAFTA, proximity to U.S. markets, and the
newly enacted Mexico/EU Free Trade Agreement, Mexico is expected to take market
share from Asia, as well as the U.S. producers over the coming decade.
Throughout the past 18 months, Cone has worked in conjunction with
Guilford Mills, Inc., the Mexican federal government and the State of
Tamaulipas, Mexico to develop a large-scale industrial park for textiles and
apparel manufacturing in the State of Tamaulipas, Mexico. By the end of 2000,
Cone intends to have approximately 200 acres of land with roads, electricity,
natural gas and water available. Upon successful completion of the exchange
offer and consent solicitation Cone plans to begin construction of a
state-of-the-art denim facility on this site.
Why We Plan To Expand In Mexico
Our goal is to strengthen further our leadership position in the denim
industry by beginning the construction of a new denim plant on the site in
Tamaulipas in 2000. We believe that now is the time for this expansion for
several reasons.
First, we have enjoyed more than 30% annual growth rates in the
sourcing of denim jeans from Mexico by the U.S. markets. We believe that NAFTA
has made it more advantageous to source jeans from Mexico as compared with any
other country in the world. Our studies and experience confirm that Mexico is at
this time the most cost efficient and effective location in the world from which
to source basic denim jeans for U.S. markets. Our Mexican plant is operating at
capacity, our U.S. plants are also operating at capacity and our customers,
which include all of the leading U.S. brands, are requesting more denim in
general and particularly more denim from Mexico. We have the most experience in
denim production in Mexico as compared with any other U.S. denim producer, and
we are anxious to get full use of our manufacturing, marketing, logistic and
financial know-how in Mexico by expanding our operations.
Second, we believe that through the combined efforts of Cone, Guilford
Mills, the Mexican federal government and the State of Tamaulipas we have one of
the finest sites available for textile manufacturing in North America due to
abundant water supplies, labor and transportation facilities.
Third, Cone is the largest U.S. exporter of denim fabrics to Europe.
The new plant will be located less than 10 miles from one of Mexico's best ports
with easy access to the U.S., Europe, Caribbean, and South America. As a result
of the newly enacted Mexican-European Union free trade agreement, Cone will be
positioned to expand its European markets.
Finally, as jeans manufacturing has evolved in Mexico from basic styles
to more complex products, our customers have asked us to supply them with entry
level, value-added products from Mexico. The new plant will be designed to
support the continued development of the Mexican garment industry.
Our site in Mexico can accommodate up to four large-scale textile
plants. The first phase of our denim manufacturing complex is designed to
produce about 20 million yards of denim and cost about $90 million. Based on
discussions with potential lenders Cone expects to finance the first phase of
the denim facility with an estimated $60 million to $70 million of project
financing and equipment lending. The balance of the cost, or about $20 million
to $30 million is expected to be provided by internal cash flow and from its
Cone's anticipated asset-based lending facility. Cone expects to enter into the
asset-based lending facility following completion of the exchange offer. Cone
does not have binding commitments for either the project financing or the
asset-based lending facility. The plant is designed to be expandable by 100% but
with a substantially smaller additional investment. We expect this site to
provide ample opportunity to grow efficiently our denim and sportswear capacity
as Mexico becomes a leader in textile and apparel manufacturing.
14
Our production of denim in Mexico provides us with economic advantages
versus our U.S. competition. These economic advantages include labor savings,
government incentives to build our site, efficiencies associated with a new and
streamlined operation and lower transportation costs due to the proximity to
customer's jeans production. In addition and as described above, we will enjoy
certain duty advantages for the export of products to Europe.
15
BOOK VALUE PER COMMON SHARE
The following table presents (1) the book value per common share of
Cone for each of the fiscal years 1995 through 1999 and for the first nine
months of fiscal years 1999 and 2000 and (2) the pro forma book value per common
share for fiscal 1999 and for the first nine months of fiscal 2000. The pro
forma book value per common share shown in the table immediately below reflects
the adjustments to shareholders' equity resulting from the exchange offer for
the 8-1/8% debentures assuming exchange of the 8-1/8% debentures for 3.35
million shares of common stock and $85 million in 11% debentures.
First nine months
-----------------------
2000 1999 1999 1998 1997 1996 1995
--------------------------------------------------------------------
Actual book value per common share $4.70 $4.92 $4.69 $ 5.56 $5.95 $ 6.45 $ 6.63
Pro Forma book value per common share $4.80 $4.79
If the common stock is oversubscribed in the exchange offer, Cone may elect to
exchange the 8-1/8% debentures for up to $25 million of its common stock and $75
million in 11% debentures. The pro forma book value per common share would equal
$4.86 as of the end of the first nine months of 2000 and $4.85 as of the end of
fiscal year 1999 if the 8-1/8% debentures were exchanged for 4.92 million shares
of common stock and $75 million in 11% debentures.
16
CAPITALIZATION
The following table sets forth (1) the actual capitalization of Cone as
of October 1, 2000, and (2) the pro forma capitalization of Cone as of October
1, 2000, assuming the exchange of the 8-1/8% debentures for 11% debentures of
$85 million and 3.35 million shares with an assumed market value of $6.00 per
share of Cone common stock. Cone will not receive any cash proceeds from the
exchange offer. The 8-1/8% debentures surrendered in the exchange offer will be
canceled.
As of October 1, 2000
-----------------------------------------------------------
(in thousands) Actual Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt (1):
Senior note $29,209 $ - $ 29,209
Revolving credit agreement 54,000 - 54,000
8-1/8% Debentures 98,020 (98,020) -
11% Secured subordinated debentures (2) - 79,900 79,900
-----------------------------------------------------------
Total long-term debt 181,229 (18,120) 163,109
-----------------------------------------------------------
Stockholders' equity:
Class A preferred stock - $100 par value; authorized 1,500,000 shares;
issued and outstanding 343,546
shares 34,355 - 34,355
Class B preferred stock - no par value; authorized
5,000,000 shares - - -
Common stock - $.10 par value; authorized
42,700,000 ---- shares; issued and outstanding
25,497,459 ---- shares (28,847,459 shares as
adjusted) (2)(3) 2,550 335 2,885
Capital in excess of par - common stock (2)(3) 57,514 19,765 77,279
Retained earnings (4)(5) 70,513 (1,466) 69,047
Deferred compensation - restricted stock (158) - (158)
Accumulated other comprehensive loss, currency
translation --- adjustment (8,517) - (8,517)
-----------------------------------------------------------
Total stockholders' equity 156,257 18,634 174,891
-----------------------------------------------------------
Total capitalization $ 337,486 $ 514 $ 338,000
-----------------------------------------------------------
(1) Long-term debt includes current maturities of long-term debt.
(2) Reflects issuance of $85 million of 11% debentures and 850,000 shares of
common stock in exchange for $85 million of 8-1/8% debentures. The 11%
debentures and common stock are recorded at their respective fair
values. The table has been prepared assuming the fair value of the 11%
debentures and common stock equals the face value of the 8-1/8%
debentures being exchanged. Fair value of the 11% debentures was
determined based upon
17
comparable securities in the marketplace and the discounting of cash
flows. The fair value of the common stock was based upon market price.
If the fair value of the 11% debentures and common stock exceeds the
face value of the 8-1/8% debentures a loss will be recognized on the
exchange. If the fair value of the securities exchanged are less than
the face value of the 8-1/8% debentures a gain will be recognized on
the exchange. The gain or loss will be classified as an extraordinary
item in Cone's Statement of Operations.
(3) Reflects issuance of 2.5 million shares of common stock in exchange for
$15 million of 8-1/8% debentures.
(4) Adjustment to Retained Earnings is related to an extraordinary loss on
early extinguishment of the 8-1/8% debentures associated with the
write-off of an interest rate hedge and the discount on the original
issue. The adjustment consists of an extraordinary loss of $2.4 million
net of tax benefit of $.9 million.
18
(5) The difference between the closing price of Cone's common stock at
closing of the exchange offer (as reported on the New York Stock
Exchange Composite Tape on such date) and the market value per share
used to calculate the exchange rate multiplied by the number of shares
issued will be recorded as an extraordinary gain or loss from an early
extinguishment of debt in Cone's Statement of Operations. The table has
been prepared assuming a fair value equal to the exchange value.
Cone may elect to exchange of the 8-1/8% debentures for up to $25
million of its common stock and $75 million in 11% debentures in the event the
common stock is oversubscribed in the exchange offer. If the 8-1/8% debentures
were exchanged for $75 million in 11% debentures and 4.92 million shares of
common stock, Cone's pro forma total long-term debt, total shareholders' equity
and total capitalization would equal $153.7 million, $184.3 million and $338.0
million, respectively.
19
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing earnings
by fixed charges. For this purpose, "earnings" include pretax income from
continuing operations plus fixed charges. "Fixed charges" include interest,
whether expensed or capitalized, amortization of debt expense and the portion of
rental expense that represents the interest factor in these rentals. The
following table presents (1) the ratio of earnings to fixed charges of Cone for
each of the fiscal years 1995 through 1999 and for the first nine months of
fiscal years 1999 and 2000; and (2) the pro forma ratio of earnings to fixed
charges for fiscal 1999 and for the first nine months of fiscal 2000. The pro
forma ratios of earnings to fixed charges give effect to Cone's related
borrowings and other transactions described in the pro forma financial
statements incorporated by reference in this prospectus, in each case as if such
transactions had occurred at the beginning of such periods. The pro forma
information assumes that the 8-1/8% debentures are exchanged for 3.35 million
shares of common stock and $85 million in 11% debentures. Cone may elect to
exchange the 8-1/8% debentures for up to $25 million of its common stock and $75
million in 11% debentures in the event the common stock is oversubscribed in the
exchange offer. If the 8-1/8% debentures were exchanged for 4.92 million shares
of common stock and $75 million in 11% debentures, the pro forma ratio of
earnings to fixed charges for the first nine months of fiscal 2000 would be
1.26. There would be no effect on the deficiency in fiscal year 1999.
First Nine
-------------------
2000 1999 1999 1998 1997 1996 1995
---------------------------------------------------------------
Ratio of earnings to fixed charges 1.25 2.19
Deficiency of earnings to cover fixed charges (in
thousands) $22,179 $29,465 $19,768 $20,003 $2,074
Pro Forma ratio of earnings to fixed charges 1.24
Pro Forma deficiency of earnings to cover fixed
charges (in thousands) $29,465
20
THE EXCHANGE OFFER AND CONSENT SOLICITATION
This section of the prospectus describes material aspects of the
proposed exchange offer and consent solicitation. While we believe that the
description covers the material terms of the exchange offer and consent
solicitation, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the exchange offer
and consent solicitation.
When our 8-1/8% debentures were issued in early 1995, the U.S. textile
industry was growing, capital markets were liquid and our debentures were
unsecured and were rated investment grade. Today, because of the U.S. textile
industry's cyclical downturn of 1998-1999, the resulting need for, and the
disruption caused by, Cone's restructuring of operations, and a more restrictive
capital markets environment, particularly among banks, the credit ratings of our
debentures were downgraded to less than investment grade by Moody's and Standard
& Poor's.
Since Cone's financial structure was formulated at a time when Cone was
considered by lenders an investment grade credit, substantially all of Cone's
debt was unsecured. The loss of Cone's investment grade status, however, caused
its lending banks to require that its debt be secured by Cone's assets. Because
the governing documents of Cone's principal debt, including the indenture
relating to the 8-1/8% debentures, provided that the unsecured debt would be
secured on a pro rata basis if any debt were secured, all of Cone's significant
financing obligations, including the 8-1/8% debentures, were secured by blanket
liens on substantially all of Cone's assets on January 28, 2000. This has
resulted in a deficit of collateral available for needed new senior financings.
Cone's indenture relating to the 8-1/8% debentures allows sales of
Cone's receivables, which totaled approximately $100 million on October 1, 2000,
and the 8-1/8% debentures are effectively subordinated to certain other priority
claims equal to $28,000,000. Collateral securing debt above these amounts is
shared among the various secured creditors, including the debentureholders, on a
pari passu basis. While the terms that created these liens are common for
investment-grade companies, these terms are a burden to noninvestment grade
companies who rely upon collateralized borrowings to grow their businesses.
Thus, the purpose of this transaction is to alter Cone's publicly held debt
instruments to permit Cone to make use of secured financing structures required
by lenders to noninvestment grade borrowers. This is accomplished primarily by
the release of the existing collateral for the 8-1/8% debentures and the
elimination of certain existing restrictive indenture covenants, both effected
by the exchange offer and consent solicitation. It is also accomplished by
including in the indentures for both the 8-1/8% debentures and the 11%
debentures permission for secured financing equal to 55% of consolidated net
tangible assets instead of the 10% of consolidated net tangible assets threshold
for general secured debt contained in the existing indenture for the 8-1/8%
debentures. At October 1, 2000, this provision would have permitted
approximately $197 million of secured debt in contrast to the about $35 million
allowed under the existing indenture at that date. In determining the permitted
amount of secured debt, the outstanding balance of any receivables
securitization, which is excluded under the present 8-1/8% debentures, would be
considered debt.
During the past months, Cone's management, Board of Directors and
advisers have studied Cone's needs, the requirements of its investors and the
overall capital markets. Based upon this assessment, Cone's objectives in this
transaction are as follows:
1. Establish a capital structure that provides support for Cone's
operating strategy for the next three to five years. Cone
intends to enter into a new asset-based lending agreement
that, in conjunction with project financing, will achieve this
objective. The establishment of ample long-term liquidity is
expected to be favorable for both debentureholders and
shareholders.
2. Improve earnings and cash flow by immediate execution of
Cone's expansion plans. Achieving this goal will protect
Cone's debt holders and enhance equity values.
3. Manage financial risk by holding total interest costs at
present levels and reducing public debt. The exchange offer,
which reduces Cone's public debt through the use of equity in
exchange for a portion of the old debentures, and Cone's plan
to substitute lower cost asset-based financing for its present
bank financing and long-term notes are expected to achieve
this goal.
We believe this exchange offer, if successful, will assist Cone in
achieving these objectives. We believe we are providing debentureholders with a
generous incentive to approve the required amendments to the old indenture, as
well as protecting the rights of the 11% debentureholders through a carefully
designed financial plan. Further, we intend to
21
increase the interest rate on the new debentures up to a maximum of 14% to the
extent we realize interest savings because less than all of the 8-1/8%
debentures are tendered and thus remain outstanding. At par, the yield,
including the Cone common stock valued at $6.00 per share, of the 11% debentures
will be approximately 12.814% to 15.931% depending on the amount of debentures
exchanged. The following table illustrates the yield calculation on the
combination of new debentures and common stock and how it varies depending on
the amount of debentures exchanged. The calculation assumes a settlement date of
October 15, 2000, a maturity date of March 15, 2005, and that $15,000,000 of
8-1/8% debentures are exchanged for common stock. It further assumes that the 10
shares of common stock issued for each $1,000 8-1/8% debenture are sold at $6
per share and the proceeds are used to reduce the basis in the new debenture.
Number of Shares Assumed Net Cost
Principal Amount of Interest Issued with New of
New Debentures Rate Yield Debentures New Debentures
-------------- ---- ----- ---------- --------------
$85,000,000 11.000% 12.814% 850,000 $79,900,000
$75,000,000 11.383% 13.212% 750,000 $70,500,000
$50,000,000 13.013% 14.905% 500,000 $47,000,000
$35,001,000 or less 14.000% 15.931% 350,010 $32,900,940
Terms of the Exchange Offer and Consent Solicitation
Upon the terms and subject to the conditions of the exchange offer set
forth in this prospectus and in the accompanying consent and letter of
transmittal, we are offering to exchange all of the outstanding 8-1/8%
debentures for shares of Cone common stock or a combination of 11% Secured
Subordinated Debentures Due March 15, 2005 of Cone and shares of Cone common
stock.
o The total consideration available for each $1,000 principal
amount of the 8-1/8% debentures tendered in the exchange offer
is (1) ____ shares of Cone common stock or (2) $1,000
principal amount of 11% Secured Subordinated Debentures Due
March 15, 2005 of Cone and 10 shares of Cone common stock.
You may elect to receive either common stock or a new
debenture and 10 shares of common stock for each $1,000
principal amount of 8-1/8% debentures held by you. If you hold
more than $1,000 in aggregate principal amount of 8-1/8%
debentures, you need not make the same election for each
$1,000 principal amount of debentures. For example, if you
hold $100,000 aggregate principal amount of 8-1/8% debentures
and you choose to tender your debentures in the exchange
offer, you may elect to receive common stock for $65,000 of
your debentures and a combination of new 11% debentures and
common stock for the remaining $35,000 of your debentures.
o If you elect to tender your 8-1/8% debentures in the exchange
offer, you must tender all of your 8-1/8% debentures.
o We do not intend to issue more than ___________ shares of our
common stock or more than $85,000,000 aggregate principal
amount of new 11% debentures and 850,000 shares of common
stock in the exchange offer. However, we reserve the right to
increase the number of shares of common stock to be issued in
the exchange offer to a maximum of ________shares for up to
$25,000,000 aggregate principal amount of 8-1/8% debentures if
the option to receive solely common stock in exchange for
8-1/8% debentures is oversubscribed. The amount of 11%
debentures we issue will be correspondingly reduced.
If more than $15,000,000 aggregate principal amount of 8-1/8%
debentures, or a greater amount up to $25,000,000 if we
exercise our right to increase the number of shares of common
stock issuable in the exchange offer, are tendered in the
exchange offer with an election to receive shares of Cone
common stock and are not withdrawn prior to the expiration of
the exchange offer, the debentures so tendered will be
accepted for exchange for common stock on a pro rata basis,
rounded to the nearest $1,000 principal amount of 8-1/8%
debentures, according to the amount of 8-1/8% debentures
validly tendered for common stock and not withdrawn prior to
the expiration of the exchange offer. The remainder of your
8-1/8% debentures will be exchanged for new 11% debentures and
common stock. The exchange agent will perform the proration
with appropriate instructions and guidance from Cone.
22
If more than $85,000,000 aggregate principal amount of 8-1/8%
debentures are tendered in the exchange offer with an election
to receive new 11% debentures and common stock and are not
withdrawn prior to the expiration of the exchange offer, the
debentures so tendered will be accepted for exchange on a pro
rata basis, rounded to the nearest $1,000 principal amount of
8-1/8% debentures, according to the amount of 8-1/8%
debentures validly tendered for debentures and common stock
and not withdrawn prior to the expiration of the exchange
offer. The remainder of your 8-1/8% debentures will be
exchanged for common stock. The exchange agent will perform
the proration with appropriate instructions and guidance from
Cone.
o We will make the exchange of common stock and 11% debentures
for 8-1/8% debentures validly tendered and accepted for
exchange promptly following the expiration of the exchange
offer, which we refer to as the "exchange date." If less than
a majority in aggregate principal amount of 8-1/8% debentures
are tendered, we will promptly return the 8-1/8% debentures to
tendering debentureholders upon expiration of the exchange
offer.
Upon the terms and subject to the conditions of the solicitation, we
are also soliciting consents to the proposed amendments to the indenture
governing the 8-1/8% debentures and to the release of the existing collateral
for the 8-1/8% debentures.
o If you desire to tender your 8-1/8% debentures in the exchange
offer and receive the exchange consideration, you are required
to tender validly all of the debentures that you own, and
thereby consent to the proposed amendments and release of
collateral, on or before the expiration of the exchange offer.
o Your completion, execution and delivery of the consent and
letter of transmittal in connection with your tender of
debentures will constitute your consent to the proposed
amendments and release of collateral with respect to the
8-1/8% debentures.
Our obligation to accept and exchange debentures validly tendered in
the exchange offer is conditioned upon the valid tender, and nonwithdrawal, of
more than 50% of the 8-1/8% debentures and to the general conditions described
in this prospectus. See "--Conditions to the Exchange Offer and Consent
Solicitation." Subject to applicable securities laws and the terms and
conditions in this prospectus, we reserve the right, on or before the expiration
of the exchange offer, to:
o Waive any and all conditions to the exchange offer;
o Extend or terminate the exchange offer; or
o Otherwise amend the exchange offer in any respect.
These reserved rights are in addition to our right to terminate the exchange
offer described under "--Conditions to the Exchange Offer and Consent
Solicitation."
If we make a material change in the terms of the exchange offer or the
information concerning the exchange offer or waive a material condition to the
exchange offer, we will disseminate additional exchange offer materials and
extend the exchange offer to the extent required by law. In addition, we may, if
we deem appropriate, extend the exchange offer for any other reason. If the
consideration to be paid in the exchange offer is increased or decreased or the
principal amount of 8-1/8% debentures subject to the exchange offer is
decreased, the exchange offer will remain open at least 10 business days from
the date we first give notice to you, by public announcement or otherwise, of
that increase or decrease. In the case of an extension of the exchange offer,
the announcements will be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration of the exchange
offer. Without limiting the manner in which any public announcement may be made,
we will have no obligation to publish, advertise or otherwise communicate any
public announcement other than by issuing a release to the Dow Jones News
Service.
Proposed Amendments to the Indenture and Release of Collateral
This section sets forth a brief description of the proposed amendments
to the indenture for the 8-1/8% debentures for which we are seeking consents in
the exchange offer and an explanation of the purpose and effect of the proposed
release of the existing collateral for the 8-1/8% debentures. The proposed
amendments and release of collateral constitute a single proposal, and if you
tender and consent, you must consent to the proposed amendments as an entirety
AND to the
23
release of collateral and may not consent selectively to specific proposed
amendments nor to the amendments without the release of collateral or vice
versa. The valid tender by you of your 8-1/8% debentures in the exchange offer
will be deemed to constitute your consent to all proposed amendments and the
release of collateral with respect to those debentures.
The proposed amendments and collateral release will be embodied in an
amendment to the indenture in the form set forth in the supplemental indenture.
The supplemental indenture will become effective after it is approved by the
holders of the required amount of debentures, as described below, and is signed
by Cone and the trustee on the expiration of the consent solicitation. The
proposed amendments and the release of collateral, however, will not become
operative until we accept the 8-1/8% debentures for exchange in the exchange
offer. Thereafter, the proposed amendments and the release of collateral will be
binding on all nontendering holders of 8-1/8% debentures. The indenture will
remain in effect, without giving effect to the proposed amendments, until the
proposed amendments become operative and the 8-1/8% debentures will remain
secured by the collateral until the release of collateral becomes effective. If
the exchange offer is terminated or withdrawn, or the 8-1/8% debentures are
never accepted for exchange, the supplemental indenture will never become
operative and the collateral will not be released.
Under the terms of the indenture, the proposed amendments and release
each require the written consent of the holders of at least a majority in
aggregate principal amount of the 8-1/8% debentures outstanding and not owned or
held by Cone or any person or entity controlling, controlled by or under common
control with Cone.
Proposed Amendments to Indenture Governing 8-1/8% Debentures
The proposed amendments to the indenture for the 8-1/8% debentures
would change the Limitation on Liens covenant and the definitions of
"consolidated net tangible assets," "indebtedness" and "subsidiary" to conform
them to the proposed provisions in the indenture for the new 11% debentures and
add a new paragraph to the Limitation on Liens covenant to permit liens securing
the 11% debentures.
Section 3.9(i) of the indenture, which permits a limited amount of
general secured indebtedness of Cone and its covered subsidiaries that can have
priority over the 8-1/8% debentures, would be amended to increase the amount of
that limitation from its present level of 10% of consolidated net tangible
assets to 55% of consolidated net tangible assets. At October 1, 2000, this
represents an increase from approximately $35 million to about $197 million of
permitted general secured indebtedness. A new clause (k) to Section 3.9
[Limitation on Liens] would also be added to permit liens securing the new 11%
debentures and refinancings thereof.
The definition of "consolidated net tangible assets" would be amended
to exclude current maturities of long-term debt and assets not securing the 11%
debentures as a deduction from the calculation of that amount and to include the
outstanding balance of any receivables securitization, thereby increasing the
amount of consolidated net tangible assets determined under the definition.
The definition of "indebtedness" would be amended to include the
balance of any accounts receivable securitization facility. The effect of this
amendment is to include obligations incurred in connection with a receivables
securitization facility in the Section 3.9(i) permitted lien basket. These
obligations are presently not included in the lien basket.
The definition of "subsidiary" would be amended to exclude foreign
subsidiaries of Cone but to include any special purpose entity that purchases
accounts receivable from Cone and securitizes them. The exclusion of foreign
subsidiaries has the effect of allowing foreign subsidiaries to incur secured
indebtedness and to enter into sale and leaseback transactions without
restriction by the indenture covenants. The inclusion of a special purpose
entity connected to a receivables securitization program has the effect of
including obligations incurred in connection with the accounts receivable
securitization program in the Section 3.9(i) permitted lien basket. These
obligations are presently not included in the lien basket.
The net effect of the changes to the three provisions of the indenture
made by the proposed amendments would be to enhance Cone's ability to obtain
secured financing for both its domestic and its foreign operations.
24
Release of Collateral Securing 8-1/8% Debentures
From the time when the 8-1/8% debentures were originally issued in 1995
through the beginning of this year, the debentures were unsecured obligations of
Cone. This means that they had no special claim on any of Cone's assets over and
above the claims of all of Cone's other creditors. Until January 2000, all of
Cone's other creditors were unsecured as well, with the only priority claim on
its assets being the claim on its accounts receivable by the entity to whom Cone
sells its accounts receivable on an ongoing basis.
Following Cone's loss of its investment grade status, the industry
downturn and a deterioration in Cone's operating performance, however, the bank
group that provides Cone's revolving credit facility required Cone to secure its
revolving credit obligations to them. The act of securing these obligations in
turn triggered requirements in Cone's other financing documents, including the
requirement in Section 3.9(i) of the indenture for the 8-1/8% debentures, that
Cone's other financing obligations, including the 8-1/8% debentures, be
similarly secured. On January 28, 2000, Cone signed a number of security
instruments, the net effect of which was
(1) to grant a priority lien to substantially all of Cone's
creditors other than the debentureholders and trade creditors
in Cone's principal real properties and substantially all of
its personal properties other than accounts receivable sold to
the receivables purchaser, securing a pro rata portion of the
indebtedness of Cone to those creditors in the amount of 10%
of Cone's then consolidated net tangible assets, or
$28,000,000, as permitted by Section 3.9(i) of the existing
indenture, and
(2) to grant a secondary lien, subject to prior satisfaction of
the priority lien, to these same creditors as well as the
debentureholders as required by Section 3.9(i) of the existing
indenture in the same real and personal property collateral.
Thus, on January 28, 2000, the 8-1/8% debentures became secured for the first
time, albeit on a subordinated basis to the priority liens and the receivables
securitization.
The grant of the security interest in favor of the debentureholders and
Cone's other creditors, however, left Cone with a level of secured debt that
potential lenders regarded as unacceptably high. At the same time the costs of
Cone's existing financings had risen to a level that Cone viewed as unacceptably
high. Further, Cone's existing creditors were unwilling to permit financing of
the new strategic initiatives that Cone regards as imperative to its long-term
prospects. To be in a position to secure new financing or refinancing on
acceptable terms, Cone needed either to reduce its overall level of secured debt
or to obtain permission for its bank and other financings to be secured on a
priority basis.
As part of the exchange offer, all exchanging debentureholders will be
required to consent to the release of all of the collateral granted to the
trustee on behalf of the debentureholders on January 28, 2000. The 8-1/8%
debentures would then once again be unsecured. The new 11% debentures will be
secured but subordinated as to collateral to present and future general secured
financings to the extent those financings do not exceed 55% of Cone's
consolidated net tangible assets. The other creditors, namely the bank group and
Cone's senior note lender, will remain secured under the January 28, 2000
security instruments, but it is Cone's intention to refinance these creditors'
obligations, as well as its obligations to the purchaser of Cone's accounts
receivable, as soon as practicable through a single asset-based lending
facility. Cone does not have a binding commitment from a financial institution
for an asset-based lending facility, but it does have several indications of
interest. While there can be no assurance that an asset-based facility will be
obtained, Cone believes that it will obtain the facility based on its
discussions with financial institutions. Cone expects that this new facility
would be on substantially more favorable terms to Cone than its current
financings and would either finance, or permit financing of, Cone's strategic
initiatives. Cone therefore believes it imperative to its future performance and
prospects that the security for the 8-1/8% debentures be released to permit a
comprehensive refinancing of Cone's secured debt.
In the event the general secured indebtedness of Cone exceeds 55% of
its consolidated net tangible assets, as defined in the indenture as proposed to
be amended, the 8-1/8% debentures will be secured by a lien on the assets
securing the 11% debentures pari passu with that excess indebtedness. The lien,
however, will be junior to the lien of the 11% debentures as well as to other
permitted liens under the indenture.
Acceptance for Exchange of Debentures; Acceptance of Consents
Upon the terms and subject to the conditions of the exchange offer and
applicable law, we will exchange shares of common stock and 11% debentures for
all 8-1/8% debentures validly tendered and not withdrawn under the exchange
25
offer that are accompanied by consents validly delivered and not revoked under
the consent solicitation, all on or before the expiration of the exchange offer.
This exchange will be made by the deposit by us of the exchange
consideration, consisting of shares of common stock and 11% debentures, with the
exchange agent as soon as practicable after the expiration of the exchange offer
so that the exchange consideration may be paid to you on the exchange date. The
exchange agent will act as agent for you for the purpose of issuing the exchange
consideration for the 8-1/8% debentures and consents. Under no circumstances
will interest on the exchange consideration be paid by us due to any delay on
behalf of the exchange agent in making the exchange.
We expressly reserve the right, in our sole discretion and subject to
Rule 14e-1(c) under the Securities Exchange Act of 1934, to delay acceptance for
exchange of, or the exchange of, 8-1/8% debentures to comply, in whole or in
part, with any applicable law. See "--Conditions to the Exchange Offer and
Consent Solicitation."
In all cases, exchange by the exchange agent of shares of common stock
and 11% debentures for 8-1/8% debentures accepted for exchange under the
exchange offer will be made only after timely receipt by the exchange agent of:
o Certificates representing your debentures or timely
confirmation of a book-entry transfer of your debentures into
the exchange agent's account at DTC; and
o A properly completed and duly executed consent and letter of
transmittal with all other required documents or a properly
transmitted agent's message.
For purposes of the exchange offer, validly tendered debentures, or
defectively tendered debentures for which we have waived that defect, will be
deemed to have been accepted for exchange by us if, as and when we give written
notice thereof to the exchange agent. Consents to the proposed amendments and
release of the collateral will be deemed to have been accepted by us if, as and
when the supplemental indenture is executed.
If the exchange offer is terminated or withdrawn, or the debentures are
not accepted for exchange, no exchange offer consideration will be paid or
payable.
Procedures for Exchanging Debentures and Delivering Consents
To receive the exchange consideration you must tender your 8-1/8%
debentures under the exchange offer on or before its expiration. By tendering
your 8-1/8% debentures, you will automatically be delivering your consent to the
proposed amendments and release of collateral with respect to those debentures.
The method of delivery of 8-1/8% debentures and consents and letters of
transmittal, any required signature guarantees and all other required documents,
including delivery through DTC and any acceptance of any agent's message
transmitted through ATOP, is at your election and risk. Except as otherwise
provided in the consent and letter of transmittal, delivery will be deemed made
only when actually received by the exchange agent. If delivery is by mail, we
suggest that you use properly insured registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the
expiration of the exchange offer.
All shares and 11% debentures will be delivered only in book-entry form
through DTC. Accordingly, if you anticipate tendering other than through DTC,
you are urged to contact promptly a bank, broker or other intermediary that has
the capability to hold securities custodially through the DTC, to arrange for
the receipt of any shares and 11% debentures to be delivered as the exchange
offer consideration and to obtain the information necessary in the consent and
letter of transmittal.
Tenders of Debentures and Delivery of Consents
Your tender of 8-1/8% debentures, and subsequent acceptance by us, by
one of the procedures set out below will constitute a binding agreement between
us in accordance with the terms and subject to the conditions set forth in this
prospectus, in the consent and letter of transmittal and, if applicable, in the
notice of guaranteed delivery.
26
Tenders of Debentures Held in Physical Form
To tender effectively 8-1/8% debentures held in physical form and
deliver the related consents:
o You must complete and duly execute a consent and letter of
transmittal and any other documents required by the consent
and letter of transmittal, and the consent and letter of
transmittal and other required documents must be received by
the exchange agent at its address set out on the back cover of
this prospectus on or before the expiration of the exchange
offer; and
o You must ensure that certificates representing those
debentures are received by the exchange agent at that address
on or before the expiration of the exchange offer.
Consents and letters of transmittal and debentures should be sent only
to the exchange agent and should not be sent to Cone or the trustee.
If your 8-1/8% debentures are registered in the name of a person other
than the signatory to the consent and letter of transmittal, then, to tender
those debentures under the exchange offer, the debentures must be endorsed or
accompanied by an appropriate written instrument or instruments of transfer
signed exactly as that name appears on the debentures, with the signature on the
debentures or instruments of transfer guaranteed as provided below. If these
procedures are followed by a beneficial owner tendering debentures on or before
the expiration of the exchange offer, the registered holder of these debentures
must sign a valid proxy because only registered holders may deliver consents.
Tender of Debentures Held Through a Custodian
If your 8-1/8% debentures are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and if you wish to
tender 8-1/8% debentures and deliver a consent and letter of transmittal, you
should contact that registered holder promptly and instruct him, her or it to
tender debentures and deliver a consent and letter of transmittal on your
behalf. A letter of instructions is enclosed in the solicitation materials
provided along with this prospectus which may be used by you in this process to
instruct the registered holder to tender debentures and deliver consents. If you
wish to tender those debentures and deliver consents yourself, you must, prior
to completing and executing the consent and letter of transmittal and delivering
those debentures, either make appropriate arrangements to register ownership of
the 8-1/8% debentures in your name or follow the procedures described in the
immediately preceding paragraph. The transfer of record ownership may take
considerable time.
Tender of Debentures Held Through DTC
To tender effectively 8-1/8% debentures that are held through DTC, if
you are a DTC participant, you must electronically transmit your acceptance
through DTC's Automated Tender Offer Program, for which the transaction will be
eligible. By transmitting your acceptance, you will also be giving your consent
to the proposed amendments and the release of the collateral. Upon receipt of
your acceptance through ATOP, DTC will edit and verify the acceptance and send
an agent's message, as described below, to the exchange agent for its
acceptance.
The exchange agent will establish accounts with respect to the 8-1/8%
debentures at DTC for purposes of the exchange offer within two business days
after the date of this prospectus. Any financial institution that is a
participant in DTC may make book-entry delivery of the debentures by causing DTC
to transfer those debentures into the exchange agent's account in accordance
with DTC's procedures for that transfer.
Although delivery of debentures may be effected through book-entry
transfer into the exchange agent's account at DTC, an agent's message, as
described below, in connection with a book-entry transfer, and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent through ATOP on or before the expiration of the exchange offer.
Delivery of documents to DTC does not constitute delivery to the exchange agent.
The confirmation of a book-entry transfer into the exchange agent's
account at DTC as described above is referred to in this prospectus as a
"book-entry confirmation." The term "agent's message" means a message
transmitted by DTC to, and received by, the exchange agent and forming a part of
the book-entry confirmation, which states that DTC has received an express
acknowledgment from a DTC participant that the participant has received and
agrees to be bound by the terms of the consent and letter of transmittal,
including the consent to the proposed amendments and the release of the
collateral, and that Cone may enforce that agreement against the participant.
27
Signature Guarantees
Signatures on all consents and letters of transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, unless your tender of 8-1/8% debentures tendered and delivery
of consents delivered are tendered and delivered:
o By a registered holder of 8-1/8% debentures, or by a
participant in DTC whose name appears on a security position
listing as the owner of those debentures, who has not
completed any of the boxes entitled "Special Payment
Instructions" or "Special Delivery Instructions" on the
consent and letter of transmittal; or
o For the account of a member firm of a registered national
securities exchange, a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States. We
refer to these entities as "eligible institutions."
If your 8-1/8% debentures are registered in the name of a person other
than the signatory to the consent and letter of transmittal or if 8-1/8%
debentures not accepted for exchange or not tendered are to be returned to a
person other than the registered holder, then the signature on the consent and
letter of transmittal accompanying the tendered debentures must be guaranteed.
See Instruction 4 of the consent and letter of transmittal.
Mutilated, Lost, Stolen or Destroyed Certificates
If you desire to tender 8-1/8% debentures, but the certificates
evidencing those debentures have been mutilated, lost, stolen or destroyed, you
should contact the trustee to receive information about the procedures for
obtaining replacement certificates for debentures at the following address or
telephone number: The Bank of New York, 101 Barclay Street, New York, New York,
10286, Attention: Ming Shiang, telephone (212) 815-2745.
Defective Tenders
Except as provided below, unless the 8-1/8% debentures being tendered
are deposited with the exchange agent on or before the expiration of the
exchange offer, accompanied by a properly completed and duly executed consent
and letter of transmittal or a properly transmitted agent's message, we may at
our option treat that tender as defective for purposes of the right to receive
the exchange offer consideration. Exchange for the debentures will be made only
against deposit of the tendered debentures and delivery of any other required
documents.
Guaranteed Delivery
If you want to tender 8-1/8% debentures under the exchange offer and
o Your certificates representing those debentures are not
immediately available,
o Time will not permit your consent and letter of transmittal,
the certificates representing your debentures and all other
required documents to reach the exchange agent on or before
the expiration of the exchange offer, or
o The procedures for book-entry transfer, including delivery of
an agent's message, cannot be completed on or before the
expiration of the exchange offer,
you may nevertheless tender your 8-1/8% debentures with the effect that tender
will be deemed to have been received on or before the expiration of the exchange
offer if all the following conditions are satisfied:
o the tender is made by or through an eligible institution;
o a properly completed and duly executed notice of guaranteed
delivery or an agent's message with respect to guaranteed
delivery that is accepted by us is received by the exchange
agent on before the
28
expiration of the exchange offer as provided below; and
o the certificates for the tendered debentures, in proper form
for transfer, or a book-entry confirmation of the transfer of
those debentures into the exchange agent's account at DTC as
described above, together with a consent and letter of
transmittal that is properly completed and duly executed, with
any signature guarantees and any other documents required by
the consent and letter of transmittal, or a properly
transmitted agent's message, are received by the exchange
agent within two business days after the date of execution of
the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible institution in the form set out in the notice of guaranteed delivery.
Under no circumstances will interest be paid by us by reason of any
delay in exchanging 8-1/8% debentures for the exchange offer consideration to
any person using the guaranteed delivery procedures that results from this
guaranteed delivery. The exchange offer consideration for debentures tendered
under the guaranteed delivery procedures will be the same as for debentures
delivered to the exchange agent after the expiration of the consent solicitation
and on or prior to the expiration of the exchange offer, even if the debentures
to be delivered subject to the guaranteed delivery procedures are not so
delivered to the exchange agent, and therefore exchange by the exchange agent on
account of those debentures is not made, until after the exchange date.
Backup United Stated Federal Income Tax Withholding
To prevent backup federal income tax withholding you must provide the
exchange agent with your current taxpayer identification number and certify that
you are not subject to backup federal income tax withholding by completing the
Substitute Form W-9 included in the consent and letter of transmittal.
Determination of Validity
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of any tendered debentures subject to any of the
procedures described above will be determined by us, in our sole discretion, and
our determination will be final and binding.
We reserve the right to reject any or all tenders of any 8-1/8%
debentures that we determine not to be in proper form or, in the case of
debentures, if the acceptance for tender of those debentures may, in the opinion
of our counsel, be unlawful. We also reserve the rights to waive any of the
conditions of the exchange offer or any defect or irregularity in any tender of
your debentures, whether or not similar defects or irregularities are waived in
the case of other holders of debentures.
Our interpretation of the terms and conditions of the exchange offer,
including the consent and letter of transmittal and the instructions thereto,
will be final and binding. Neither we, the exchange agent, the trustee nor any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. If we waive our right to reject a defective tender of
debentures, you will be entitled to the exchange offer consideration.
Withdrawal of Tendered 8-1/8% Debentures and Revocation of Consents
You may withdraw tenders of 8-1/8% debentures at any time on or before
the expiration of the exchange offer, but the exchange offer consideration will
not be payable in respect of debentures so withdrawn. A valid withdrawal of
tendered debentures effected on or before the expiration of the exchange offer
will constitute the concurrent valid revocation of your related consent. To
revoke a consent, you must withdraw the related tendered debentures.
Tenders of debentures may be validly withdrawn if the exchange offer is
terminated without any debentures being exchanged. In this case, the debentures
tendered under the exchange offer will be promptly returned to you, the
supplemental indenture will not become operative and the consents will be deemed
revoked.
If the consent solicitation is amended on or before the expiration of
the exchange offer in a manner determined by us, in our sole discretion, to
constitute a material adverse change to you, we promptly will disclose that
amendment and, if
29
necessary, extend the exchange offer for a period deemed by us to be adequate to
permit you to withdraw your debentures and revoke your consents.
For a withdrawal of tendered debentures and the revocation of consents
to be effective, a written or facsimile transmission notice of withdrawal and
revocation must be received by the exchange agent on or before the expiration of
the exchange offer at its address set out on the back cover of this prospectus.
Any such notice of withdrawal must:
o Specify the name of the person who tendered the debentures to
be withdrawn;
o Contain the description of the 8-1/8% debentures to be
withdrawn and identify the aggregate principal amount
represented by those debentures as well as the certificate
number or numbers shown on the particular certificates
evidencing those debentures unless those debentures were
tendered by book-entry transfer; and
o Be signed in the same manner as the original signature on the
consent and letter of transmittal by which those debentures
were tendered, including any required signature guarantees,
and the related consent was given, or be accompanied by
evidence sufficient to us that the person withdrawing the
tender and revoking the consent has succeeded to the
beneficial ownership of the debentures.
If the debentures to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal is effective
immediately upon written or facsimile notice of that withdrawal even if physical
release is not yet effected.
Any permitted withdrawal of debentures and revocation of consents may
not be rescinded, and any debentures properly withdrawn will thereafter be
deemed not validly tendered for purposes of the exchange offer. Withdrawn
debentures may, however, be re-tendered again following one of the appropriate
procedures described in this prospectus at any time on or before the expiration
of the exchange offer.
If we extend the exchange offer or if for any reason the acceptance for
tender of debentures is delayed or if we are unable to accept the tender of
debentures under the exchange offer, then, without prejudice to our rights under
the exchange offer, tendered debentures may be retained by the exchange agent on
our behalf and may not be withdrawn except as otherwise provided in this
section. This is subject, however, to Rule 14e-l(c) under the Exchange Act,
which requires that an offeror pay the consideration offered or return the
securities deposited by or on behalf of the investor promptly after the
termination or withdrawal of a tender offer.
All questions as to the validity, form and eligibility, including time
of receipt, of notices of withdrawal will be determined by us, in our sole
discretion, and our determination will be final and binding. Neither we, the
exchange agent, the trustee nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal, or
incur any liability for failure to give any such notification.
Conditions to the Exchange Offer and Consent Solicitation
Notwithstanding any other provisions of the exchange offer and in
addition to our rights to extend or amend the exchange offer, we shall not be
required to accept for exchange or exchange, and may delay the acceptance for
exchange of, or exchange of, any tendered 8-1/8% debentures, in each event
subject to Rule 14e-l(c) under the Exchange Act, and may terminate the exchange
offer, if:
o Less than a majority of the 8-1/8% debentures shall have been
tendered and not withdrawn under the exchange offer; or
o The general conditions described below shall not have been
satisfied.
The "general conditions" are set forth below in paragraphs (1) and (2)
below. The general conditions will be deemed to have been satisfied or waived
unless any of the following events or conditions shall occur on or before the
expiration of the exchange offer:
30
(1) There shall be no third-party proceeding or investigation
pending that questions the validity or legality of, or seeks
to restrain or prohibit the performance of the exchange offer
or of any action taken or to be taken pursuant to or in
connection with the exchange offer; or
(2) An order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been enacted,
entered, issued, promulgated, enforced or deemed applicable by
any court or governmental, regulatory or administrative agency
or instrumentality that, in our reasonable judgment, would
prohibit, prevent, or materially restrict or delay
consummation of the exchange offer.
These conditions are for our sole benefit and we may assert them in our
reasonable discretion, regardless of the circumstances giving rise to any such
condition, including any action or inaction by us, and we may waive these
conditions, in whole or in part, at any time and from time to time, in our
reasonable discretion, whether any other condition of the exchange offer is also
waived. Our failure at any time to exercise any of our rights will not be deemed
a waiver of any other right and each right will be deemed an ongoing right that
may be asserted at any time and from time to time.
Federal Income Tax Considerations
The following summary of the material federal income tax considerations
applicable to the holders of the 8-1/8% debentures in the exchange offer
constitutes the opinion of Ivins, Phillips & Barker Chartered, special tax
counsel to Cone. This summary discusses all material United States federal
income tax consequences to the debentureholders of the exchange offer and the
adoption of the proposed amendments. Nevertheless, it is not intended to be a
complete analysis or description of all potential federal income tax
consequences or any other tax consequences to the debentureholders, or any
particular debentureholder. This summary is not intended as a substitute for
careful tax planning or for an individual analysis of the tax consequences of
the exchange offer to each debentureholder. Each debentureholder should consult
his or her own tax advisor as to the specific tax consequences of the exchange
offer, such as the effects of federal, state, local, and foreign income tax
laws, to him or her.
The following discussion assumes that each debentureholder is a citizen
or resident of the United States for federal income tax purposes and holds the
debentures as capital assets. This discussion does not address the federal
income tax consequences relevant to particular categories of debentureholders
subject to special treatment under the federal income tax laws, such as
broker-dealers, financial institutions, life insurance companies, tax-exempt
entities, and foreign individuals and entities. In addition, it does not
describe any tax consequences arising out of the laws of any state, locality, or
foreign jurisdiction.
This discussion is based upon the Internal Revenue Code of 1986, as
amended, temporary and final Treasury Regulations promulgated under the Code,
proposed Treasury Regulations, published rulings, notices and other
administrative pronouncements of the Internal Revenue Service, and judicial
decisions now in effect. All of these authorities are subject to change at any
time by legislative, judicial, or administrative action so as to result in
federal income tax consequences different from those discussed below. Any such
changes may be retroactively applied in a manner that could adversely affect a
debentureholder. Moreover, substantial uncertainties, resulting from the lack of
definitive judicial or administrative authority and interpretation, apply to
certain tax aspects of the exchange offer. Accordingly, although the following
discussion covers all of the material federal income tax consequences of the
exchange offer to the debentureholders, no absolute assurance can be given with
respect to any particular federal income tax consequence. No ruling has been
requested from the Internal Revenue Service concerning any aspect of the
exchange offer. As to some issues, particularly those as to which the discussion
below is qualified, there is a risk that the Internal Revenue Service will
disagree with the conclusions set forth herein.
The federal income tax consequences applicable to the 8-1/8%
debentureholders in the exchange offer will depend in part upon whether the
8-1/8% debentures and the 11% debentures qualify as "securities" for purposes of
Section 354 of the Code. This term is not defined in the Code or in applicable
regulations or court decisions. The determination of whether a debt instrument
constitutes a "security" for federal income tax purposes is based upon all the
facts and circumstances. Although the term of the debt's maturity is a
significant factor in determining whether a debt instrument constitutes a
security, an overall evaluation of the nature of the debt, the degree of
participation and continuing interest in the business of the issuer, the extent
of proprietary interest compared with the similarity of the debt instrument to a
cash payment, the purpose for which the debt was issued and other factors must
be considered. In general, debt instruments with terms of less than five years
are usually not considered "securities;" debt instruments with terms between
five and 10 years may be "securities;" and debt instruments with terms of longer
than 10 years are usually "securities."
31
The 8-1/8% debentures, which had an original term to maturity of 10
years, will qualify as "securities." The following discussion of the material
federal income tax consequences of the exchange is based on the conclusion that
the 8-1/8% debentures are "securities."
The 11% debentures have an original term of less than five years.
Therefore it is more likely than not, but not certain, that the 11% debentures
will not qualify as "securities." Each debentureholder should consult his or her
tax advisor as to this issue and its significance in his or her particular
situation.
1. Tax Consequences Upon the Exchange of 8-1/8% Debentures Solely for Cone
Common Stock.
a. Nonrecognition of Gain or Loss. The exchanging
debentureholders will not recognize gain or loss with respect
to the exchange of 8-1/8% debentures solely for Cone common
stock.
b. Basis of Cone Common Stock. Each debentureholder's aggregate
tax basis in the shares of Cone common stock received in the
exchange will be the same as the aggregate tax basis of the
8-1/8% debentures surrendered in the exchange.
Debentureholders who have purchased blocks of 8-1/8%
debentures at different prices should consult their tax
advisors.
c. Holding Period. The holding period of the shares of Cone
common stock received in the exchange will include the holding
period for the debentures surrendered in exchange therefor.
d. Market Discount. Exchanging debentureholders should consult
their tax advisors concerning the effect of market discount
and associated elections.
(i) Amount. Market discount with respect to a debt
instrument, such as the 8-1/8% debentures, is
generally equal to the excess, if any, of the face
amount of the instrument over the basis of the
instrument in the hands of the holder immediately
after its acquisition by the holder. A holder of a
debt instrument who acquires the instrument at its
original issue, however, has no market discount.
Also, if the market discount on a debt instrument is
de minimis, the market discount is considered to be
zero. De minimis here means less than 1/4 of 1
percent of the stated redemption price of the debt
instrument at maturity multiplied by the number of
complete years between the maturity date and the date
the holder acquired the debt instrument.
(ii) Accrual and Taxation. If a holder has market
discount, the market discount "accrues" during the
time a person holds the instrument. Accrual occurs
either on a straight-line basis or, by election, on
the basis of a constant interest rate. If a holder
recognizes gain on the disposition of a debt
instrument, the gain will be taxed as ordinary income
to the extent of accrued market discount.
(iii) Carryover of Accrued Market Discount after the
Exchange. Accrued market discount on the 8-1/8%
debentures at the time of the exchange will carry
over to the Cone common stock. The debentureholder
will not recognize any taxable income due to accrued
market discount Upon a sale or disposition of the
Cone common stock, any gain recognized by the holder
will be treated as ordinary income to the extent of
the accrued market discount. Any gain in excess of
the accrued market discount generally will be capital
gain or loss.
(iv) Election to Include Market Discount Currently in
Income. A holder may elect to include market discount
in income currently as it accrues. If a
debentureholder has made this election, the holder's
basis in the debenture is increased by the amount of
market discount included in income, and the holder
will not be required to treat gain recognized on the
disposition of the debenture as ordinary income.
32
2. Tax Consequences Upon the Exchange of 8-1/8% Debentures for 11%
Debentures and 10 Shares of Cone Common Stock.
a. If 11% Debentures Do Not Qualify as "Securities." If, as tax
counsel believes is likely but not certain, the 11% debentures
are not "securities," the following will be the material
federal income tax consequences of the exchange of 8-1/8%
debentures for 11% debentures and Cone common stock, at 10
shares per 8-1/8% debenture:
(i) Gain or Loss. In general, no gain or loss is
recognized if stock or securities in a corporation
are exchanged solely for stock or securities in the
same corporation. Gain may be recognized, however, to
the extent of the sum of
o any excess of the principal amount of
securities received over the principal
amount of securities surrendered, and
o the fair market value of any "other
property" received. If the 11% debentures
are not "securities," they constitute "other
property."
The "amount realized" on the exchange of 8-1/8%
debentures for 11% debentures and Cone common stock
is the sum of the fair market value of the Cone
common stock and the "amount realized" with respect
to the 11% debentures. Under Treasury Regulations
Section 1.1001-1(g)(1), because the 11% debentures
are not publicly traded, the "amount realized" with
respect to the 11% debentures will be their stated
principal amount of $1,000 each, irrespective of
their fair market value, discussed below. However,
the gain realized on the exchange, i.e. the "amount
realized" minus the holder's basis, should be
recognized, and be currently taxable, only to the
extent of the "fair market value" of the 11%
debentures received.
In general, the "fair market value" of property is
the price upon which a willing buyer would agree to
buy, and a willing seller would agree to sell, the
property. An argument can be made that Treasury
Regulations Section 1.1001-1(g)(1) should apply to
make the fair market value of the 11% debentures
equal to their $1,000 principal amount. There is,
however, no authority to support that treatment. Note
also that, if more than $50,000,000 but less than
$100,000,000 principal amount 8-1/8% debentures are
exchanged, the interest rate on the 11% debentures
issued in the exchange may increase, and that
increase may cause the fair market value of the new
debentures to increase. Each debentureholder should
consult his or her tax advisor as to this issue and
its significance in his or her own situation.
If the 11% debentures do not qualify as "securities,"
a debentureholder who purchased his or her 8-1/8%
debentures at their principal amount will recognize
taxable gain on the exchange of such debentures for
11% debentures and Cone common stock. The amount of
gain will be equal to the fair market value of the 10
shares of Cone common stock received in the exchange.
33
No loss will be recognized on the exchange even if
the "amount realized" on the exchange is less than
the debentureholder's basis in the 8-1/8% debentures.
(ii) Holding Period. The holding period for the Cone
common stock received will include the holding period
for the 8-1/8% debentures and the holding period for
the 11% debentures will begin on the day after the
exchange.
(iii) Basis. The holder's basis in the Cone common stock
received will be the same as the aggregate tax basis
of the 8-1/8% debentures surrendered in the exchange
decreased by the "fair market value" of the 11%
debentures and increased by the amount of any gain
recognized on the exchange. The debentureholder's
basis in the 11% debentures received will be equal to
their fair market value, the determination of which
is discussed in part 2.a.(i), above.
(iv) Character of Gain. Except as discussed in part 2.c.,
below, relating to market discount, any gain or loss
recognized on the exchange of the 8-1/8% debentures
for the 11% debentures and Cone common stock
generally will be capital gain to a holder who held
the 8-1/8% debentures as capital assets. The gain
will be long-term capital gain if the holding period
for the 8-1/8% debentures surrendered exceeds one
year at the time of the exchange.
b. If 11% Debentures Qualify As "Securities." If, as tax counsel
believes is not likely but possible, the 11% debentures
qualify as "securities" for federal income tax purposes, the
following will be the material federal income tax consequences
of the exchange of 8-1/8% debentures for 11% debentures and
Cone common stock, at 10 shares per 8-1/8% debenture:
(i) Gain or Loss. Since the principal amount of the
8-1/8% debentures is equal to the principal amount of
the 11% debentures, no gain or loss will be
recognized by a debentureholder upon receipt of the
11% debentures and Cone common stock in exchange for
the 8-1/8% debentures.
(ii) Holding Period. The holding period of the 11%
debentures and Cone common stock will include the
holding period of the 8-1/8% debentures.
(iii) Basis. Each debentureholder's aggregate tax basis in
the 11% debentures and Cone common stock received in
the exchange will be the same as the aggregate tax
basis of the 8-1/8% debentures surrendered in the
exchange. The aggregate tax basis of the 8-1/8%
debentures will be allocated between the 11%
debentures and Cone common stock in proportion to
their fair market values.
c. Separate Blocks of Debentures. Debentureholders who have
purchased separate blocks of 8-1/8% debentures at different
prices should consult their tax advisors concerning the impact
of this fact on the amount of gain recognized in the exchange
and the basis of Cone common stock and 11% debentures received
in the exchange.
d. Market Discount. Exchanging debentureholders should consult
their tax advisors concerning the effect of market discount
and associated elections.
(i) Amount. Market discount with respect to a debt
instrument, such as the 8-1/8% debentures, is
generally equal to the excess, if any, of the face
amount of the instrument over the basis of the
instrument in the hands of the holder immediately
after its acquisition by the holder. A holder of a
debt instrument who acquires the instrument at its
original issue, however, has no market discount.
Also, if the market discount on a debt instrument is
de minimis the market discount is considered to be
zero. De minimis here means less than 1/4 of 1
percent of the stated redemption price
34
of the debt instrument at maturity multiplied by the
number of complete years between the maturity date
and the date the holder acquired the debt instrument.
(ii) Accrual and Taxation. If a holder has market
discount, the market discount "accrues" during the
time a person holds the instrument. Accrual occurs
either on a straight-line basis or, by election, on
the basis of a constant interest rate. If a holder
recognizes gain on the disposition of a debt
instrument, the gain will be taxed as ordinary income
to the extent of accrued market discount.
(iii) Effect of Market Discount If 11% Debentures Qualify
as "Securities." If, as tax counsel believes is not
likely but possible, the 11% debentures qualify as
"securities,"
o a portion of the accrued market discount on
the 8-1/8% debentures, to the extent not
previously included in the debentureholder's
income, will be carried over to the shares
of Cone common stock received, and any gain
on the disposition of the shares of Cone
common stock will be treated as ordinary
income to the extent of the portion of the
accrued market discount allocated to such
Cone common stock;
o a portion of the accrued market discount, to
the extent not previously included in the
debentureholder's income, will be treated as
accrued market discount with respect to the
11% debentures received in the exchange; and
o a portion of the unaccrued market discount,
to the extent not previously included in the
debentureholder's income, should be treated
as unaccrued market discount with respect to
the 11% debentures received in the exchange.
Unaccrued market discount carried over to the 11%
debentures will continue to accrue. It Unaccrued
market discount allocated to the Cone common stock
will not continue to accrue. Due to an absence of
authorities, it is unclear how the market discount on
the 8-1/8% debentures, both unaccrued and accrued,
will be allocated between the 11% debentures and the
Cone common stock. Debentureholders should consult
their tax advisors regarding this allocation and
future accrual of market discount.
(iv) Effect of Market Discount If 11% Debentures Do Not
Qualify as "Securities." If, as tax counsel believes
is likely but not certain, the 11% debentures do not
qualify as "securities," an exchanging
debentureholder will be required to treat any gain
recognized on the exchange of the 8-1/8% debentures
for 11% debentures and Cone common stock as ordinary
income to the extent of any market discount that has
not previously been included in the holder's income
and has accrued on the 8-1/8% debentures at the time
of the exchange. If the accrued market discount
exceeds the amount of gain recognized on the
exchange, this excess accrued market discount will be
carried over to the Cone common stock. Upon a sale or
other disposition of the Cone common stock, any gain
recognized by the debentureholder will be treated as
ordinary income to the extent of this accrued market
discount.
(v) Election to Include Market Discount Currently in
Income. A holder may elect to include market discount
in income currently as it accrues. If a
debentureholder has made this election, the holder's
basis in the debenture is increased by the amount of
market discount included in income, and the holder
will not be required to treat gain recognized on the
disposition of the debenture as ordinary income.
35
e. Original Issue Discount. Under Section 1273 of the Code, since
the stated redemption price at maturity of the 11% debentures,
i.e. $1,000, is equal to their issue price, i.e. $1,000, the
11% debentures are being issued without original issue
discount.
f. Bond Premium. If, after application of the basis rules set
forth in this section, the tax basis of an exchanging
debentureholder in the 11% debentures exceeds the principal
amount of those debentures, then the excess may constitute
amortizable bond premium that is deductible by the exchanging
debentureholder over the term of the 11% debentures. To
amortize bond premium, the exchanging holder must make the
necessary election under Section 171 of the Code, and the
election will apply to all debt instruments held by him.
Exchanging debentureholders should consult their tax advisors
concerning the existence of bond premium and the associated
election.
3. Tax Consequences If a Debentureholder Exchanges Some 8-1/8% Debentures
for Cone Common Stock and Some 8-1/8% Debentures for 11% Debentures and
10 Shares of Cone Common Stock. As described in this prospectus, a
debentureholder may elect to exchange some of his or her 8-1/8%
debentures for Cone common stock and the rest of his or her 8-1/8%
debentures for 11% debentures and 10 shares of Cone common stock. Even
if a debentureholder elects to receive all of the same type of
consideration in exchange for his or her 8-1/8% debentures, he or she
may still receive some of the other type of consideration if either the
shares of Cone common stock or the 11% debentures are oversubscribed.
Under federal tax law, exchanges are generally analyzed on a
holder-by-holder basis, not on a debenture-by-debenture basis.
Therefore, all of the consideration received by the exchanging holder
will be treated as received in exchange for all of the holder's 8-1/8%
debentures in one integrated transaction and the receipt of Cone common
stock and 11% debentures will not be analyzed as separate exchange
transactions. Debentureholders who have purchased blocks of 8-1/8%
debentures at different prices should consult their tax advisors. The
tax consequences of such an exchange will be similar to the
consequences of an exchange described in part 2 of this section, above.
a. If 11% Debentures Do Not Qualify as "Securities." If, as tax
counsel believes is likely but not certain, the 11% debentures
do not qualify as "securities," the following will be the
material federal income tax consequences of the exchange of
8-1/8% debentures for 11% debentures and shares of Cone common
stock:
(i) Gain or Loss. If the 11% debentures are not
"securities," they constitute "other property." The
"amount realized" on the exchange of 8-1/8%
debentures for 11% debentures and Cone common stock
will be the sum of the fair market value of the Cone
common stock and the "amount realized" with respect
to the 11% debentures, as discussed in part 2.a.(i),
above. However, the gain realized on the exchange,
i.e. the "amount realized" minus the holder's basis,
will be recognized only to the extent of the "fair
market value" of the 11% debentures received. In
determining the "amount realized" with respect to the
11% debentures, under Treasury Regulations Section
1.1001-1(g)(1), the "amount realized" with respect to
an 11% debenture will be its stated principal amount
of $1,000.
No loss will be recognized on the exchange even if
the "amount realized" on the exchange is less than
the debentureholder's basis in the 8-1/8% debentures.
(ii) Holding Period, Basis and Character of Gain. See
parts 2.a.(ii) through (iv), above.
b. If 11% Debentures Qualify as "Securities." If, as tax counsel
believes is not likely but possible, the 11% debentures
qualify as "securities," the following will be the material
federal income tax consequences of the exchange of 8-1/8%
debentures for 11% debentures and shares of Cone common stock:
(i) Gain or Loss. Since the principal amount of the
8-1/8% debentures is equal to the principal amount of
the 11% debentures, no gain or loss will be
recognized by a debentureholder upon receipt of 11%
debentures and Cone common stock in exchange for
8-1/8% debentures.
36
(ii) Holding Period and Basis. See parts 2.b.(ii) and
(iii), above.
c. Market Discount, Original Issue Discount and Bond Premium. See
parts 2.c. through e., above.
4. Tax Consequences to Nonexchanging Debentureholders. If a
debentureholder does not participate in the exchange offer, and the
indenture for the 8-1/8% debentures is not amended, there will be no
change in the debentureholder's tax position. If a debentureholder does
not participate in the exchange offer, and the indenture for the 8-1/8%
debentures is amended, based on representations made by Cone to tax
counsel, the proposed amendments to the indenture will not constitute a
"significant modification" of the 8-1/8% debentures pursuant to Section
1001 of the Code and the regulations thereunder, and accordingly, there
will be no change in the debentureholder's tax position. If the
Internal Revenue Service challenges tax counsel's belief that the
amendments to the 8-1/8% debentures are not a "significant
modification" of the debentures, the material federal income tax
consequences to nonexchanging debentureholders may be different from
those described herein.
Advisor, Exchange Agent and Information
Dougherty & Company LLC has acted as an advisor to Cone in connection
with the exchange offer. As advisor, Dougherty participated with Cone in
determining the terms and conditions of the exchange offer and has provided
information to us regarding comparable transactions in the marketplace.
Dougherty was not asked to and will not render a fairness opinion in connection
with the transaction. We have agreed to indemnify the advisor against
liabilities incurred in connection with any actions taken or omitted to be taken
by Cone, or by the advisor with Cone's consent, under the terms of the
engagement, except to the extent any such liability is the result of the
advisor's gross negligence or willful misconduct.
The advisor has nondiscretionary investment authority over client
accounts holding Cone common stock and 8-1/8% debentures. It is also a market
maker in the 8-1/8% debentures and from time to time holds substantial amounts
of the debentures in its trading account.
The Bank of New York has been appointed as exchange agent for the
exchange offer. Consents and letters of transmittal and all correspondence in
connection with the exchange offer should be sent or delivered by you or your
broker, dealer, commercial bank, trust company or other nominee to the exchange
agent at the addresses and telephone numbers set forth on the back cover page of
this prospectus.
You may direct questions and requests for assistance or additional
copies of this prospectus, the consent and letter of transmittal or the notice
of guaranteed delivery to Cone at its address and telephone number set forth in
the forepart of this prospectus under "Questions and Answers About the Exchange
Offer and Consent Solicitation." You may also contact your broker, dealer,
commercial bank or trust company for assistance concerning the exchange offer
and consent solicitation.
Conflicts of Interest
Bruce H. Hendry, a director of Cone, owns $11,000,000 principal amount
of the 8-1/8% debentures, and Marc H. Kozberg, also a director of Cone, owns
$102,000 principal amount of the 8-1/8% debentures. No other directors or
executive officers of Cone own any 8-1/8% debentures. Both Mr. Hendrey and Mr.
Kozberg have indicated to Cone that they intend to accept the exchange offer.
Mr. Hendry was a registered representative of Dougherty & Company LLC, the
advisor, until his retirement on September 30, 2000. Mr. Kozberg is presently a
registered representative of Dougherty and is the head of its investment
advisory division. Messrs. Hendry and Kozberg have no economic interest,
however, in the completion of the exchange offer except as holders of 8-1/8%
debentures.
Fees and Expenses
The advisor will receive compensation for its services in connection
with, and upon the completion of, the exchange offer of $750,000. If the
exchange offer is completed on the terms and conditions described in the
prospectus contained in the registration statement as originally filed on August
4, 2000, the advisor will receive additional compensation of $300,000. The
advisor will also be reimbursed for its reasonable out-of-pocket expenses in
connection with the exchange offer. The exchange agent will also receive
reasonable and customary fees and reimbursement for its
37
reasonable out-of-pocket expenses in connection with the exchange offer.
Brokerage houses and other custodians, nominees and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses incurred in forwarding
copies of this prospectus and related documents to the beneficial owners of
8-1/8% debentures. We will pay all such fees and expenses. In addition to the
solicitation of consents by mail, our directors, officers or employees may
solicit consents by telephone, facsimile or in person without receiving
additional compensation. We have not engaged a solicitation agent in connection
with the exchange offer.
Restrictions on Sales of Securities by Affiliates of Cone
The shares of Cone common stock and 11% debentures to be issued in
connection with the exchange offer will be registered under the Securities Act
of 1933 and will be freely transferable under the Securities Act, except for
those securities issued to any person in the exchange who is deemed to be an
"affiliate" of Cone under the Securities Act at the time of the exchange offer.
Persons who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control with Cone and may
include some officers and directors, as well as principal shareholders.
Affiliates may not sell their shares of Cone common stock or 11% debentures
acquired in connection with the exchange except by means of:
o An effective registration statement under the Securities Act
covering the resale of those securities;
o An exemption under paragraph (d) of Rule 145 under the
Securities Act; or
o Any other applicable exemption under the Securities Act.
No Appraisal Rights
You will not have any right to dissent and receive an appraisal of your
8-1/8% debentures in connection with the exchange offer.
Use of Proceeds
The Cone common stock and 11% debentures issued in connection with the
exchange offer are being issued in exchange for your 8-1/8% debentures. We will
not receive any cash proceeds from the issuance of common stock and 11%
debentures pursuant to the exchange offer.
Listing on the New York Stock Exchange
Cone common stock is listed on the New York Stock Exchange. Cone will
use its best efforts to cause the shares of Cone common stock to be issued in
the exchange offer to be approved for listing on the New York Stock Exchange,
subject to official notice of issuance, before the completion of the exchange
offer.
Miscellaneous
We are making this exchange offer to all holders of 8-1/8% debentures.
We are not aware of any jurisdiction in which the making of the exchange offer
is not in compliance with applicable law. If we become aware of any jurisdiction
in which the making of the exchange offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
If, after such good faith effort, we cannot comply with any such law, the
exchange offer will not be made to, and tenders of debentures and consents will
not be accepted from, the holders of debentures residing in that jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Cone not contained in this prospectus or in the
consent and letter of transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
38
DESCRIPTION OF CONE CAPITAL STOCK
The following description of the common stock of Cone to be registered
in this prospectus and other capital stock of Cone is based on the provisions of
Cone's amended and restated articles of incorporation and bylaws and the
applicable provisions of North Carolina law. For information on how you can
obtain copies of Cone's articles of incorporation and bylaws, see "Where You Can
Find More Information" on the inside front cover of this prospectus.
The authorized capital stock of Cone is 49,200,000 shares, consisting
of
o 42,700,000 shares of common stock, par value $.10 per share,
o 1,500,000 shares of Class A Preferred Stock, par value $100
per share ("Class A Preferred Stock"), and
o 5,000,000 shares of Class B Preferred Stock ("Class B
Preferred Stock").
As of October 1, 2000, there were outstanding 343,546 shares of Class A
Preferred Stock and 25,497,459 shares of common stock. The shares of common
stock were held in the name of approximately 359 holders of record on October 1,
2000.
Common Stock
Holders of Cone common stock are entitled ratably, share for share, to
dividends, when, as and if declared by the Board of Directors, out of funds
legally available therefor. Common stock is junior to Class A Preferred Stock
with respect to dividend and liquidation preferences and may be junior to Class
B Preferred Stock depending upon the relative preferences, limitations and
relative rights the Board of Directors may determine upon issuance of such Class
B Preferred Stock. The only series of Class B Preferred Stock that has been
created by the Board of Directors to the date of this prospectus is Class B
Preferred Stock (Series A), which is senior to common stock in dividend and
liquidation preferences. After payment in liquidation has been made to the
senior capital stock, the remaining assets of Cone would be distributed pro rata
among the holders of common stock on a per share basis. Holders of common stock
are entitled to one vote per share on all matters submitted to a vote of holders
of common stock.
Shareholder Rights Plan
On October 14, 1999, the Board of Directors of Cone adopted a
shareholder rights plan by authorizing and declaring a dividend distribution of
one right for each outstanding share of common stock to shareholders of record
at the close of business on October 25, 1999. Each right entitles the holder of
common stock to purchase from Cone a unit consisting of one one-hundredth of a
share of Class B Preferred Stock (Series A) of Cone at a purchase price of $30
per unit, subject to adjustment. The description and terms of the rights are set
forth in the Rights Agreement, dated as of October 14, 1999, between Cone and
First Union National Bank, as Rights Agent.
The rights will separate from the common stock upon the earlier of
o 10 days following public announcement that a person or group
of affiliated or associated persons, with such exceptions as
are set forth in the Rights Agreement (an "acquiring person"),
has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of Cone
common stock, or
o 10 business days, or such later date as the Board of Directors
may determine, following the commencement of, or first public
announcement of the intent of a person or group to commence, a
tender offer or exchange offer that would result in a person
or group beneficially owning 20% or more of the outstanding
shares of common stock (this date is referred to as the
"distribution date").
An acquiring person does not include
o Cone, any subsidiary of Cone, any employee benefit plan or
employee stock plan of Cone or of any subsidiary of Cone, or
39
o any person or group whose ownership of 20% or more of the
shares of common stock then outstanding results solely from
any action or transaction or series of related actions or
transactions approved by the Board of Directors before such
person or group became an acquiring person.
Until a right is exercised, the holder of the right, as such, will have
no rights as a shareholder of Cone, including, without limitation, the right to
vote or to receive dividends. The rights are not exercisable until the
distribution date and will expire at the close of business on October 13, 2009
unless earlier redeemed or exchanged by Cone.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Cone on terms
not approved by the Board of Directors. The rights should not interfere with any
merger or other business combination approved by the Board of Directors of Cone
since the Board of Directors may, at its option, redeem all, but not less than
all, of the then outstanding rights at the redemption price at any time prior to
the close of business on the earlier of the tenth business day following the
date an acquiring person acquires, or obtains the right to acquire, beneficial
ownership of 20% or more of the outstanding Cone common stock or October 13,
2009.
Class A Preferred Stock
All of the issued and outstanding shares of Class A Preferred Stock are
held by the Cone Mills Corporation 1983 Employee Stock Ownership Plan except
shares held by a former participant in the ESOP. Class A Preferred Stock is
nonvoting, except as otherwise required by law, and is senior in dividend
preference to all other classes of capital stock. Class A Preferred Stock also
has a liquidation preference of $100 per share plus accrued and unpaid
dividends, which is senior to all other classes of capital stock.
Holders of shares of Class A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors from funds legally available
therefor, dividends payable in cash or stock on the 31st day of March of each
year, at the "applicable rate" in effect for the annual dividend period then
ended. The "applicable rate" is established on March 31 for the next succeeding
dividend period and is defined as the rate required to make the fair market
value of Class A Preferred Stock equal to its original par value. In no event,
however, can the "applicable rate" exceed 13% per annum or be less than 7% per
annum. The "applicable rate" is determined by an independent investment bank or
appraisal firm selected by the Board of Directors to appraise Class A Preferred
Stock, subject to confirmation by the ESOP trustee. The "applicable rate" for
the annual dividend period ended March 31, 2000, was 8.0% and is 11.75% for the
annual dividend period ended March 31, 2001. Dividends on Class A Preferred
Stock are cumulative, but accumulated dividends do not bear interest.
Dividends on the Class A Preferred Stock are, at the option of the
Board of Directors, payable in cash or by delivery of shares of Cone's Class A
Preferred Stock, common stock or by delivery of other "qualifying employer
securities" of Cone (as defined under ERISA) or by a combination of the
foregoing. On the date of delivery, however, the fair market value of any stock
or qualifying employer securities used to pay dividends must be equal to or
greater than the amount of dividends paid with such stock or securities. All
dividends paid to date on the Class A Preferred Stock have been paid in
additional shares of Class A Preferred Stock or cash.
Class A Preferred Stock held by the 1983 ESOP may be redeemed, in whole
or in part, at the option of Cone by a vote of the Board of Directors at a price
equal to the greater of $100 per share or fair market value, plus dividends
accrued and unpaid thereon to the date fixed for redemption. The redemption
price must be paid in cash or by delivery of shares of any class of Cone's
preferred stock, common stock or other qualifying employer securities or a
combination of the foregoing, at Cone's option. On the date of delivery,
however, the fair market value of any stock or other qualifying employer
securities used to pay the redemption price must be equal to or greater than the
redemption price paid with such stock or securities.
Purchases of Class A Preferred Stock by the ESOP may be necessary to
provide all or part of the pension due under Cone's designed benefit plans
pursuant to the floor-offset arrangement in connection with the ESOP and to make
distributions due to retired or terminated employees. The ESOP is obligated to
purchase shares of Class A Preferred Stock from participants and former
participants of these plans in accordance with the terms and conditions of the
plans and the related trust agreements and liquidity agreements. To the extent
the ESOP has insufficient liquidity to make these purchases, it may require Cone
to repurchase share of Class A Preferred Stock. It is within the control of Cone
to satisfy the liquidity needs of the ESOP through cash contributions, cash
dividends or optional repurchases of the Class A Preferred Stock.
40
Holders of Class A Preferred Stock have no right to convert into any
other stock or securities of Cone.
Class B Preferred Stock
The articles of Cone authorize 5,000,000 shares of Class B Preferred
Stock. The Cone Board of Directors may authorize the issuance of Class B
Preferred Stock and fix such preferences, limitations and relative rights at
such times, for such purpose and for such consideration as it may deem
advisable. In addition, the Board of Directors may divide and issue the Class B
Preferred Stock in series and may fix relative rights and preferences as between
different series. The issuance of Class B Preferred Stock under certain
circumstances may have the effect of discouraging an attempt by a third party to
acquire control of Cone without the prior approval of the Cone Board of
Directors.
On October 14, 1999, Cone's Board of Directors amended Cone's articles
of incorporation creating a series of Class B Preferred Stock denominated
"Series A." The number of shares constituting the Class B Preferred Stock
(Series A) is 500,000. The Class B Preferred Stock (Series A) is junior to the
Class A Preferred Stock and senior to common stock in dividends or distributions
of assets upon liquidation, dissolution or winding up of Cone. Dividends on the
Class B Preferred Stock (Series A) are cumulative and accrue from the quarterly
dividend payment date. Each share of Class B Preferred Stock (Series A) entitles
the holder thereof to 100 votes on all matters submitted to a vote of
shareholders of Cone. These shares were reserved for issuance under the
shareholder rights plan described above.
Certain Provisions That May Have an Anti-Takeover Effect
In addition to the shareholder rights plan and the ability of the Board
of Directors to authorize the issuance of Class B Preferred Stock with such
preferences, limitations and relative rights as the Board may deem advisable,
each discussed above, Cone's articles of incorporation and bylaws contain other
provisions that might have the effect of delaying, deferring or preventing a
change in control of Cone.
Special Vote Requirement. Cone's articles of incorporation require
that, in addition to any vote required by law, certain business combinations
must be approved by the affirmative vote of at least 66-2/3% of the outstanding
shares of stock of Cone entitled to vote generally in the election of directors,
voting together as a single class or voting group, unless the business
combination was approved by the disinterested directors of Cone.
In addition, except as described below, business combinations that
involve an interested shareholder who became the beneficial owner of any shares
of common stock or nonvoting common stock by tender offer require the
affirmative vote of at least 66-2/3% of the outstanding voting stock that is not
owned beneficially by the interested shareholder, notwithstanding approval of
the business combination by the disinterested directors.
Business combinations subject to the special vote requirement include
o a merger, consolidation or share exchange between Cone or any
subsidiary and an interested shareholder or an affiliate of an
interested shareholder;
o the sale or other disposition in one transaction or series of
transactions to an interested shareholder or any affiliate of
an interested shareholder of assets of Cone or any subsidiary
having an aggregate fair market value of more than 10% of the
aggregate fair market value of Cone's assets, as reflected on
the most recent audited consolidated balance sheet of Cone;
o subject to certain exceptions, any transaction which results
in the issuance or transfer by Cone or any subsidiary (in one
transaction or a series of transactions) of any securities of
Cone or any subsidiary to any interested shareholder or any
affiliate of an interested shareholder;
o the adoption of a plan or proposal for the dissolution of Cone
proposed by or on behalf of an interested shareholder or any
affiliate of an interested shareholder;
o the reclassification, recapitalization or other transaction
involving Cone or any subsidiary which has the effect,
directly or indirectly, of increasing the percentage of the
outstanding shares of any class of stock of Cone or a
subsidiary that is increasing the percentage of the
outstanding shares of any class of stock of Cone or a
subsidiary that is beneficially owned by any Interested
Shareholder; and
41
o any receipt by any interested shareholder or any affiliate of
an interested shareholder of a disproportionate benefit,
directly or indirectly, in the form of loans, advances,
guaranties, pledges or other financial benefits provided by or
through Cone or any subsidiary.
For purposes of the special vote requirement, "interested shareholders"
include the direct or indirect beneficial owners of 15% or more of the
outstanding shares of voting stock of Cone, and affiliates and associates of
Cone who at any time within the three-year period immediately prior to any
business combination were the beneficial owners, directly or indirectly, of 15%
or more of the then outstanding shares of voting stock of Cone. The terms
"affiliate" and "associate" are defined by reference to the definitions of those
terms contained in Rule 12b-2 of the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
"Disinterested directors" are directors who are neither affiliated with
nor a nominee of an interested shareholder, but only if they were either members
of the Board of Directors of Cone prior to the time the interested shareholder
became an interested shareholder or were recommended by a majority of the
disinterested directors then in office.
The additional high vote requirement provided for business combinations
involving an interested shareholder who became the beneficial owner of any
shares of voting stock or nonvoting common stock of Cone by means of a tender
offer is intended to protect the shareholders against a two-tiered takeover. In
a two-tiered takeover, an acquiror would pay cash in a tender offer to acquire a
controlling interest in Cone and then acquire the remaining equity interest in
Cone by paying the remaining shareholders a price for their shares that is lower
than the price paid to acquire control or by providing a less desirable form of
compensation, such as securities of the acquiror that may not have an
established trading market at the time of issuance, or both.
Under Cone's articles of incorporation, approval of any business
combination involving an interested shareholder or any affiliate of an
interested shareholder who became the beneficial owner of any shares of voting
stock or nonvoting common stock of Cone by means of a tender offer would require
the affirmative vote of the holders of at least 66-2/3% of the voting stock that
is not beneficially owned by the interested shareholder, unless all of the
following conditions are satisfied:
o at the time the business combination becomes effective,
holders of voting stock and nonvoting common stock of Cone
will be entitled to receive, in cash, a per share amount that
is not less that the highest price per share paid for any
shares of voting stock beneficially owned by the interested
shareholder;
o after becoming an interested shareholder and prior to the
consummation of the business combination, the interested
shareholder will not have acquired any newly issued shares of
capital stock of Cone and will not have received the benefit
of any loans, advances, guaranties, pledges or other financial
assistance provided by Cone or made any material changes in
Cone's business or equity capital structure; and
o a proxy statement complying with the Securities Exchange Act
of 1934 will be mailed to the shareholders of Cone in
connection with the business combination and will contain any
recommendations as to the advisability or inadvisability of
the business combination that the disinterested directors may
choose to state and the opinion of a reputable national
investment banking firm as to the fairness of the terms of the
business combination, from the point of view of holders of
voting stock and nonvoting common stock other than the
interested shareholder and its affiliates and associates.
Classification of the Board of Directors. Cone's articles of
incorporation provide for a classified Board of Directors. The Cone Board is
divided into three classes, as nearly equal in number as possible, with each
class of directors elected to staggered three-year terms so that the terms of
approximately one-third of Cone's directors expire each year. Shareholders do
not have cumulative voting rights with respect to the election of directors.
North Carolina Law. The North Carolina General Statutes have two
provisions that may be deemed to have anti-takeover effects: The Control Share
Acquisition Act and the Shareholder Protection Act. As permitted, Cone has opted
out of the provisions of both of these acts.
42
Indemnification of Directors and Officers
The articles of incorporation and bylaws of Cone provide for
indemnification of its directors and officers to the fullest extent permitted by
law. The North Carolina Business Corporation Act permits a corporation, with
certain exceptions, to indemnify a current or former officer or director against
liability and expenses if that person acted in good faith and in a manner he or
she reasonably believed was
o in the case of conduct in his or her official capacity with
the corporation, in the best interest of the corporation, and
o in all other cases, in a manner that was at least not opposed
to the corporation's best interest, and
o with respect to any criminal action or proceeding, he or she
had no reasonable cause to believe his or her conduct was
unlawful.
In addition, a corporation is required to indemnify an officer or director in
the defense of any proceeding to which he or she was a party against reasonable
expenses to the extent that he or she is wholly successful on the merits or
otherwise. This indemnification generally may be made by the corporation only
upon a determination that indemnification of the director or officer is
permissible under the circumstances because he or she met the applicable
standard for conduct set forth above.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Cone pursuant
to Cone's articles, bylaws or the North Carolina Business Corporation Act, Cone
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
43
DESCRIPTION OF 11% SECURED SUBORDINATED DEBENTURES DUE MARCH 15, 2005
The 11% debentures will be issued under an indenture dated as of
_________, 2001 between Cone and The Bank of New York, as Trustee. The terms of
the 11% debentures include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939. The 11%
debentures will be guaranteed by one of Cone's principal United States
subsidiaries and secured by a security interest in substantially all of the
United States assets of Cone and that subsidiary. This security interest will be
subordinated to certain senior indebtedness of Cone on the terms set forth in
the indenture and described below under the caption "--Subordination." The
indenture defines the terms of the security interests that will secure the 11%
debentures. The following descriptions are summaries of the material provisions
of the indenture. They do not restate the indenture in its entirety. We urge you
to read the indenture because it, and not the summary descriptions below,
defines your rights. A copy of the indenture is filed as an exhibit to the
registration statement of which this prospectus forms a part and is also
available for inspection at the office of the trustee. Section references below
are to the indenture.
General Terms of 11% Debentures
The general terms of the 11% debentures are substantially identical to
those of the 8-1/8% debentures, as proposed to be amended in the consent
solicitation, except for
o an increase in the interest rate from 8-1/8% to 11%;
o a reduction in the overall principal amount outstanding from
$100,000,000, to a maximum of $85,000,000, by virtue of the
exchange of a portion of the 8-1/8% debentures for Cone common
stock;
o the 11% debentures will have a prior lien position on assets
of Cone and the subsidiary guarantor as described under
"--Collateral" below.
Cone will increase the interest rate on the 11% debentures up to a maximum of
14% to the extent it realizes interest savings because less than all of the
8-1/8% debentures are tendered and less than $85,000,000 principal amount of 11%
debentures are issued.
The 11% debentures will mature on March 15, 2005. They will bear
interest from __________, 2000, at the rate of 11% per annum, or such higher
rate as may be applicable. Interest will be payable semiannually on March 15 and
September 15 of each year, commencing March 15, 2001, to the persons in whose
names the debentures are registered at the close of business on the March 1 and
September 1, as the case may be, immediately preceding the interest payment
date. Payments of interest will be made to the depositary as described below
under "--Book-Entry System."
The 11% debentures are not redeemable prior to maturity and are not
subject to any sinking fund.
The 11% debentures will be issued in the form of one or more registered
global securities and will be deposited with, or on behalf of, The Depository
Trust Company, as depositary, and registered in the name of the depositary's
nominee. A description of the depositary's procedures with respect to the global
securities is set forth below under "--Book-Entry System."
Principal will be payable, and the 11% debentures will be transferable
and exchangeable without any service charge, at the office of the trustee.
However, Cone may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with any transfer or exchange.
(Section 2.8)
Indenture
The indenture for the 11% debentures is substantially identical to the existing
indenture for the 8-1/8% debentures except that:
o a guaranty by Cone's principal United States subsidiary and
provisions granting the security interests in the collateral
securing the 11% debentures have been added,
o the "basket" permission in the Limitation on Liens covenant
(Section 3.9(i)), for general secured indebtedness has been
increased from 10% of consolidated net tangible assets in the
existing indenture
44
for the 8-1/8% debentures to 55% of consolidated net tangible
assets in the indenture for the 11% debentures,
o the concept of the debentures being "equally and ratably
secured" under certain circumstances has been removed because
the 11% debentures are directly secured,
o the definition of "consolidated net tangible assets" has been
changed to exclude current maturities of long-term debt and to
exclude assets not securing the 11% debentures other than
amounts outstanding under any receivables securitization and
prepaid expenses, which are included,
o the definition of "subsidiary" has been changed to exclude all
foreign subsidiaries, in addition to the Parras Cone joint
venture in Mexico,
o the definition of "subsidiary" has also been changed to
include any special purpose entity that buys and securitizes
Cone's receivables, thereby increasing secured debt by
definition, and
o subordination provisions have been added with respect to the
collateral securing the 11% debentures, as described below.
All other provisions of the indenture for the 11% debentures are substantively
identical to the provisions of the existing indenture for the 8-1/8% debentures
and are as described below.
The indenture limits the aggregate principal amount of 11% debentures
that may be issued to $85,000,000. (Section 2.3) The 11% debentures will be
direct secured obligations of Cone and will be subordinate as to the collateral
securing them to certain senior indebtedness of Cone as described below under
"--Subordination," but will have priority over unsecured indebtedness of Cone,
including obligations to trade creditors and the 8-1/8% debentures, to the
extent of the proceeds of the collateral securing the 11% debentures. Except as
described under "--Certain Covenants," the indenture governing the 11%
debentures does not limit other indebtedness or securities that may be incurred
or issued by Cone or any of its subsidiaries or contain financial or similar
restrictions on Cone or any of its subsidiaries.
Book-Entry System
The 11% debentures will be issued under a book-entry system in the form
of one or more global securities. Each global security will be deposited with,
or on behalf of, The Depository Trust Company, New York, New York. The global
securities will be registered in the name of DTC or its nominee.
DTC has advised Cone that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of section 17A of the Exchange Act. DTC was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Upon the issuance of a global security in registered form, DTC will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the 11% debentures represented by such global security to
the accounts of participants. The accounts to be credited will be designated by
the exchange agent. Ownership of beneficial interests in the global security
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in the global
security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC (with respect to participants'
interests) or its nominee and the participants (with respect to the owners of
beneficial interests in the global security). Ownership of beneficial interests
in the global security by persons that hold through participants will be shown
on, and the transfer of that ownership interest within such participants will be
effected only through, records maintained by such participants. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in a global security.
45
So long as DTC or its nominee is the registered owner of a global
security, it will be considered the sole owner or holder of the 11% debentures
represented by the global security for all purposes under the governing
indenture. Except as set forth below, owners of beneficial interests in the
global security will not be entitled to have the 11% debentures represented
thereby registered in their names, will not receive or be entitled to receive
physical delivery of certificates representing the 11% debentures and will not
be considered the owners or holders thereof under the indenture. Accordingly,
each person owning a beneficial interest in the global security must rely on the
procedures of DTC and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the indenture. Cone understands that under existing
practice, in the event that Cone requests any action of the holders or a
beneficial owner desires to take any action a holder is entitled to take, DTC
would act upon the instructions of, or authorize, the participant to take the
action.
Payment of principal of and interest on 11% debentures represented by a
global security will be made to DTC or its nominee, as the registered owner and
holder of the global security representing the 11% debentures. None of Cone, the
trustee, any paying agent or registrar for the 11% debentures will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Cone has been advised by DTC that DTC will credit participants'
accounts with payments of principal or interest on the payment date thereof in
amounts proportionate to their respective beneficial interests in the principal
amount of the global security as shown on the records of DTC. Cone expects that
payments by participants to owners of beneficial interests in the global
security held through such participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street name," and will be the
responsibility of the participants.
A global security may not be transferred except as a whole by DTC to a
nominee or successor of DTC or by a nominee of DTC to another nominee of DTC. A
global security representing all but not part of the 11% debentures being
offered hereby is exchangeable for 11% debentures in definitive form of like
tenor and terms if
o DTC notifies Cone that it is unwilling or unable to continue
as depositary for the global security or if at any time DTC is
no longer eligible to be or in good standing as a clearing
agency and a successor to DTC is not appointed by Cone within
90 days of receipt by Cone of such notice or of Cone becoming
aware of such ineligibility, or
o Cone in its sole discretion at any time determines not to have
all of the 11% debentures represented by a global security and
notifies the trustee thereof.
A global security exchangeable pursuant to the foregoing shall be exchangeable
for 11% debentures registered in such names and in such authorized denominations
as DTC shall direct. (Section 2.12)
Certain Covenants
Limitations on Liens. While any 11% debentures remain outstanding, Cone
and the guarantor subsidiary may not permit any lien on the collateral securing
the 11% debentures that is senior to or equal to the lien of the 11% debentures
except for the following:
1. liens on the assets of an entity existing at the time the
entity becomes a subsidiary of Cone;
2. liens on the assets of an entity existing at the time the
entity is merged into or consolidated with Cone or a
subsidiary or at the time the assets or shares of stock of the
entity are acquired by Cone or a subsidiary;
3. liens on assets existing at the time they are acquired by Cone
or a subsidiary, or liens to secure the payment of the
purchase price of the assets or to secure any debt incurred by
Cone or a subsidiary prior to, at the time of, or within one
year after the acquisition of the assets for the purpose of
financing the purchase price of the assets;
4. liens to secure debt of a subsidiary to Cone or to another
subsidiary;
46
5. liens in favor of the United States, any State or any federal
or state department or political subdivision, or in favor of
any other country, to secure payments incurred or guaranteed
for the purpose of financing the assets subject to the liens;
6. pledges, liens or deposits under worker's compensation laws or
similar legislation that are not currently dischargeable, or
in connection with bids, tenders, contracts (other than for
the payment of money) or leases to which Cone or any
subsidiary is a party, or to secure the public or statutory
obligations of Cone or any subsidiary, or in connection with
obtaining or maintaining self-insurance, or to obtain the
benefits of any law pertaining to unemployment insurance, old
age pensions, social security or similar matters, or to secure
surety, performance, appeal or customs bonds to which Cone or
any subsidiary is a party, or similar liens made or incurred
in the ordinary course of business;
7. liens in connection with legal proceedings arising out of
judgments or awards, to the extent the proceedings are being
contested or appealed in good faith, or liens incurred for the
purpose of obtaining a stay or discharge in the course of any
litigation;
8. liens for taxes or assessments, landlord's lien and liens and
charges incidental to the conduct of the business of Cone or
any subsidiary that were not incurred in connection with the
borrowing of money and do not, in the opinion of Cone's Board
of Directors, materially impair the use of the assets in the
operation of the business of Cone or the subsidiary or the
value of the assets;
9. liens not permitted by the foregoing clauses (1) through (8),
inclusive, if at the time the lien is created, the aggregate
amount of all outstanding indebtedness of Cone and its
subsidiaries, without duplication, secured by all liens not
otherwise permitted, together with the attributable debt (as
defined below) in respect of sale and lease-back transactions
(as defined below) does not exceed 55% of consolidated net
tangible assets (as defined below); or
10. extensions, renewals or replacements of liens permitted by the
foregoing clauses (1) through (5) above so long as the
principal amount of indebtedness secured is not increased and
the liens are limited to the collateral for the prior
indebtedness. (Section 3.9)
Limitation on Sale and Lease-Back Transactions. Neither Cone nor any
Cone subsidiary may enter into any sale and lease-back transaction unless
o Cone or the subsidiary would, at the time of entering into a
sale and lease-back transaction, be entitled to incur
indebtedness secured by a lien on the property or assets to be
leased in an amount at least equal to the attributable debt in
respect of the debt permitted to be secured under "Limitations
on Liens" above, or
o the proceeds of the sale of the assets to be leased are at
least equal to the fair value of the assets and an amount
equal to the net proceeds from the sale of the assets is
applied to the purchase or acquisition of assets or to the
retirement or repayment of 11% debentures or of funded
indebtedness (as defined below) of Cone ranking on a parity
with or senior to the 11% debentures or of funded indebtedness
of a subsidiary. (Section 3.10)
Definitions
"Attributable debt" means in connection with a sale and lease-back
transaction, the aggregate of present values (discounted at 11% compounded
semi-annually) of the obligations of Cone or a Cone subsidiary for net rental
payments during the remaining term of the applicable lease. The term "net rental
payments" means the sum of the rental and other payments required to be paid by
the lessee excluding payments for maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates or similar charges required to be
paid by the lessee.
"Collateral" means accounts receivable other than accounts sold
pursuant to any receivables securitization program, documents, equipment,
general intangibles, inventory, proceeds, capital stock of the subsidiaries that
are guaranteeing the 11% debentures, the major tracts of United States real
property owned by Cone, and cash and cash accounts. The term "collateral"
excludes assets not located in the United States, Cone's equity interests in
non-U.S. entities, and the cash surrender values of proceeds of life insurance
policies.
47
"Consolidated net tangible assets" means the total assets appearing on
the most recently prepared consolidated balance sheet of Cone and its
subsidiaries as of the end of a fiscal quarter plus the outstanding balance of
any accounts receivable securitization facility, less all current liabilities
(other than current maturities of long-term debt), all intangible assets, and
all assets that do not constitute collateral securing payment of the 11%
debentures other than the outstanding balance of any receivables securitization
and prepaid expenses.
"Funded indebtedness" means any indebtedness maturing by its terms more
than one year from the date of the determination.
"Indebtedness" means
o all obligations for borrowed money,
o all obligations evidenced by bonds, debentures, notes or other
similar instruments,
o all obligations in respect of letters of credit or bankers
acceptances or similar instruments (or reimbursement
obligations with respect thereto),
o all obligations to pay the deferred purchase price of property
or services, except trade accounts payable arising in the
ordinary course of business,
o all obligations as lessee which are capitalized in accordance
with generally accepted accounting principles,
o all indebtedness of others guaranteed by Cone or any of its
subsidiaries, and
o the balance under any receivables securitization program.
"Sale and lease-back transaction" means any arrangement providing for
the leasing by Cone or a Cone subsidiary of any property or asset for more than
three years that has been or is to be sold or transferred by Cone or any
subsidiary to the lessor.
"Senior debt" means all obligations arising under debt of Cone that is
secured by liens that are permitted to be prior to the lien securing the 11%
debentures under Section 3.9 of the indenture. Liens identified under Section
3.9 are listed under the heading "--Certain Covenants - Limitations on Liens."
"Subsidiary" means any business entity of which at least a majority of
the total voting power of outstanding securities or other interests entitled to
vote in the election of directors, is at the time directly or indirectly owned
or controlled by Cone or one or more Cone subsidiaries. The term "subsidiary",
however, will not include
o Parras Cone, the joint venture between Cone Mills (Mexico),
S.A. de C.V. and CIPSA,
o Cone Mills (Mexico), S.A. de C.V., or
o any other business entity substantially all the property of
which is located, or substantially all of the business of
which is carried on, outside the United States.
The term "subsidiary" includes Cone Receivables II, LLC and any other special
purpose entity that purchases and securitizes accounts receivables of Cone and
its subsidiaries and in which Cone and one or more subsidiaries holds the
primary economic interest.
Guaranty
The obligation of Cone with respect to the 11% debentures will be
guaranteed, pursuant to Article 11 of the indenture, by Cone Foreign Trading ,
LLC, a wholly owned
48
subsidiary of Cone. The principal assets of Cone Foreign Trading LLC consist of
accounts receivable arising from foreign sales of Cone's products. Cone
Receivables II, LLC, a special purpose entity that purchases and securitizes
accounts receivable from Cone and its subsidiaries, is not a guarantor. The
subsidiary guarantor will secure its guaranty of Cone's obligations by granting
a security interest in substantially all of its assets as described below under
"--Collateral." The subsidiary guarantor does not have any secured debt other
than the senior debt described below under "--Subordination."
Collateral
The 11% debentures will be secured by Cone and the subsidiary guarantor
in favor of The Bank of New York, as trustee for the holders of the 11%
debentures. The collateral will consist of the U.S. assets of Cone and the
subsidiary guarantor except for
o any accounts receivable sold as part of any receivables
securitization program,
o any equity interests of Cone in its foreign subsidiaries or
any other foreign entity, and
o miscellaneous assets, including real property not used in
operations and immaterial in value, and the cash surrender
values or the proceeds of life insurance policies.
Cone will perfect the security interest of the trustee under the
indenture by filing financing statements under the Uniform Commercial Code in
the locations mandated by the UCC with respect to the collateral in which a
security interest may be perfected by such filing. The lien on cash will not be
perfected except to the extent the cash constitutes "proceeds" of other
collateral under the UCC. Liens on trademarks, patents and copyrights will be
perfected by filings in the United States Patent and Trademark Office, if such
trademarks, patents and copyrights are material to Cone's business. Cone's only
material trademark is the "Cone" trademark, accompanied by a symbol. Cone owns
no material patents or copyrights. (Section 12.4) Cone will simultaneously enter
into mortgages in favor of The Bank of New York, as trustee, with respect to
each of its 12 principal real properties in the United States. (Section 12.2)
Both the real and personal property liens securing the 11% debentures will be
subordinated to the liens of senior creditors as described below under
"--Subordination."
Cone and the subsidiary guarantor may, without the release or consent
of the trustee and free of the liens securing the 11% debentures:
o sell or dispose of in the ordinary course of business any
collateral that has become obsolete or unfit for use in Cone's
businesses upon replacing that collateral with new property
constituting collateral not necessarily of the same character
but being of at least reasonably equivalent value, so long as
the new property becomes subject to the lien of the indenture;
o dispose of in the ordinary course of business any personal
property that is no longer necessary or desirable in the
conduct of the business of Cone or the subsidiary guarantor
and is not material;
o grant in the ordinary course of business rights-of-way and
easements over any property that will not, in the opinion of
Cone's management, impair the usefulness of the property to
Cone's business;
o sell, transfer or otherwise dispose of inventory in the
ordinary course of business;
o sell or dispose of accounts and accounts receivable in the
ordinary course of business;
o make cash payments from cash that is at any time part of the
collateral in the ordinary course of business or otherwise in
connection with Cone's business;
o sell or transfer any collateral if approved by the holders of
senior debt having a lien on the collateral if the proceeds of
the sale or transfer are used to repay senior debt after
deduction of all expenses related to the sale or transfer.
(Section 12.11)
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Merger, Consolidation, Sale, Lease or Conveyance
The indenture provides that Cone will not merge or consolidate with any
other entity or sell, lease or convey all or substantially all of its assets
unless Cone is the continuing corporation, or the acquirer is a U.S. corporation
and expressly assumes the payment of the 11% debentures and the performance of
all of Cone's covenants and agreements under the indenture, and immediately
after the transaction, Cone is not in default under the indenture. (Article 8)
Subordination
The lien securing the 11% debentures is subordinated to all liens that
secure senior debt, to the extent those senior debt liens are permitted under
Section 3.9 of the indenture. Permitted liens are described in detail above
under the heading "--Certain Covenants --Limitations on Liens." Thus, if there
is a default under the 11% debentures that permits the trustee to foreclose on
the collateral, all senior debt would first be paid in full before the proceeds
from the sale of the collateral could be applied to pay the 11% debentures.
(Article 13) The lien of the 11% debentures will be prior to all secured debt
other than senior debt.
Cone presently has the following secured debt:
o A $73,000,000 revolving credit facility owed to a group of
banks led by Bank of America, N.A., under which $54 million,
plus $0.8 million reserved with respect to outstanding letters
of credit, was outstanding at October 1, 2000. The facility
expires August 6, 2001 and bears a floating interest rate,
which is presently 11 1/4% per annum.
o A senior note owed to The Prudential Insurance Company of
America, having an outstanding balance of $29.2 million as of
October 1, 2000. The senior note requires annual payments with
the final payment due August 7, 2002 and bears interest at the
annual rate of 11.7%.
o The 8-1/8% debentures, which are due March 15, 2005.
o A $60,000,000 receivables purchase agreement, $57.9 million of
which was outstanding at October 1, 2000. This is a
securitization facility that is not reflected in Cone's
financial statements because Cone's accounts receivable are
sold under the agreement. The receivables are not, therefore,
collateral for the 11% debentures.
The revolving credit facility and the senior note have a prior lien on
Cone's assets to the extent of $28,000,000. The receivables purchase agreement
provides for a sale of Cone's accounts receivable. Therefore, the purchaser of
the accounts receivable has a prior claim to all accounts receivable. The
revolving credit agreement, the senior note and the 8-1/8% debentures have liens
on remaining assets, which are equal and ratable among those lenders.
Cone intends to refinance its secured debt if the exchange offer is
successful. The revolving credit facility and the Senior Note will be paid in
full and the receivables purchase agreement will be terminated. These sources of
capital will be replaced by an asset-based lending facility that will be secured
by the same U.S. assets that will secure the 11% debentures. Cone expects that
the new facility will be for about $200 million. While Cone does not presently
have a commitment for the new asset-based lending facility, it has received
several proposals from lending institutions and believes that such a lending
facility will be available. If the exchange offer is successful, the
$100,000,000 of debt presently outstanding under the 8-1/8% debentures will be
reduced because only $85,000,000 of 11% debentures will be issued in the
exchange offer. A portion of the 8-1/8% debentures will be exchanged for Cone
common stock.
Events of Default
An event of default with respect to the 11% debentures is defined in
the indenture as being:
o default for 30 days in payment of any interest upon any 11%
debentures;
o default in any payment of principal of any 11% debentures;
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o default by Cone in performing any other of the covenants or
agreements relating to the 11% debentures that is not remedied
within 90 days after written notice to Cone by the trustee or
the holders of at least 25% of the principal amount of all 11%
debentures;
o default by Cone in the payment of amounts due on indebtedness
for money borrowed in the principal amount then outstanding of
$15,000,000 or more or acceleration of any indebtedness in
that principal amount so that it becomes due and payable prior
to the date on which it would otherwise have become due and
payable and the acceleration is not rescinded within 10
business days after notice to Cone by the trustee or the
holders of at least 25% of the principal amount of all of the
11% debentures;
o any event involving bankruptcy, insolvency, reorganization or
liquidation of Cone. (Section 4.1)
The indenture governing the 11% debentures provides that the trustee must send
notice of any uncured default under the indenture, within 90 days after the
occurrence of the default, to the holders of 11% debentures. The trustee may,
however, withhold notice of any default, other than a payment default on the 11%
debentures if the trustee considers it in the interest of the holders of 11%
debentures to do so. (Section 4.11)
The indenture provides that if an event of default due to the default
in payment of principal of or interest on the 11% debentures or due to the
default in the performance or breach of any other covenant or agreement of Cone
that is not cured, either the trustee or the holders of not less than 25% in
principal amount of the 11% debentures then outstanding may declare the
principal of all debentures and interest accrued thereon to be due and payable
immediately. The indenture also provides that if an event of default due to a
default in the performance of any other of the covenants or agreements in the
indenture, or due to a default in payment at final maturity or upon acceleration
of indebtedness for money borrowed in the principal amount then outstanding of
$15,000,000 or more, or to events of bankruptcy, insolvency and reorganization
of Cone has occurred and is not cured, either the trustee or the holders of not
less than 25% in principal amount of all debentures then outstanding may declare
the principal of all debentures and interest accrued thereon to be due and
payable immediately. These declarations may be annulled and past defaults, other
than in the payment of principal of or interest o the 11% debentures, default,
may be waived by the holders of a majority in principal amount of the debentures
then outstanding. (Sections 4.1 and 4.10)
The holders of a majority in principal amount of the 11% debentures
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee with respect to the 11% debentures,
provided that the holders must have offered to the trustee reasonable indemnity
against expenses and liabilities. (Sections 4.9 and 5.2(d))
The indenture further provides that no holder of 11% debentures may
institute any action under the indenture, except actions for payment of overdue
principal or interest, unless the holder previously has given to the trustee
written notice of the default and its continuance and unless the holders of at
least 25% in principal amount of the debentures then outstanding have requested
the trustee to institute the action and have agreed to indemnify the trustee.
The action by the holders may proceed if the trustee has neither commenced an
action within 60 days after it has received the notice, request and offer of
indemnity nor received direction inconsistent with that written request from the
holders of a majority in principal amount of the debentures then outstanding.
(Sections 4.6 and 4.7)
The indenture requires the annual filing by Cone with the trustee of a
written statement as to compliance with the covenants and agreements contained
in the indenture. (Section 3.5)
Discharge, Defeasance and Covenant Defeasance
Cone can discharge or defease its obligations under the indenture as
set forth below.
Under terms satisfactory to the trustee, Cone may discharge the 11%
debentures that have either become due or are due and payable within one year by
irrevocably depositing with the trustee an amount sufficient to pay at maturity
the principal of and interest on the debentures. (Section 9.1)
Cone at its option at any time may also (1) discharge any and all of
its obligations to holders of the 11% debentures ("defeasance") or (2) be
released from the obligations imposed by the covenants described under the
captions "--Covenants" and "--Merger, Consolidation, Sale, Lease, or Conveyance"
above ("covenant defeasance"). Defeasance or covenant defeasance may be effected
only if Cone irrevocably deposits with the trustee an amount sufficient to pay
the
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principal of and interest on all outstanding 11% debentures on the due dates, no
default exists, and Cone delivers to the trustee an opinion of counsel to the
effect that the holders of the 11% debentures will not recognize income, gain or
loss for United States federal income tax purposes as a result of the defeasance
or covenant defeasance. (Sections 9.2, 9.3, 9.4 and 9.5)
Upon discharge or defeasance of the 11% debentures all claims of the
debentures with respect to the collateral will be released.
Modification of the Indenture
The indenture contains provisions permitting Cone and the trustee, with
the consent of the holders of a majority in principal amount of the 11%
debentures at the time outstanding, to modify the indenture, any supplemental
indenture or the rights of the holders of the debentures. Any modification,
however, that extends the final maturity of any debentures, reduces their
principal amount, or impairs the right of any holder to institute suit for
payment requires the consent of the holder of each of the debentures affected by
the modification. Further, the percentage of holders that is required for any
modification may not be reduced without the consent of the holders of all
debentures then outstanding. (Section 7.2)
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DESCRIPTION OF 8-1/8% DEBENTURES DUE MARCH 15, 2005
The 8-1/8% debentures were issued under an indenture dated as of
February 14, 1995 between Cone and Wachovia Bank of North Carolina, N.A., which
has been succeeded as trustee by The Bank of New York. The indenture will be
amended by a supplemental indenture between Cone and The Bank of New York, as
Trustee. The terms of the 8-1/8% debentures include those stated in the
indenture, as amended by the supplemental indenture, and those made part of the
indenture by reference to the Trust Indenture Act of 1939. The following
descriptions are summaries of the material provisions of the indenture, as
amended. They do not state the indenture and its supplement in their entirety.
We urge you to read the indenture and the supplemental indenture because they,
and not the summary descriptions below, define your rights. Copies of the
indenture and supplemental indenture are filed as exhibits to the registration
statement of which this prospectus forms a part. They are also available for
inspection at the office of the trustee. Section references below are to the
indenture, as amended by the supplemental indenture.
General Terms of 8-1/8% Debentures
The 8-1/8% debentures will effectively be limited to $49,999,000 in
aggregate principal amount. This is because the proposed amendments to the
indenture will not become effective unless a majority in principal amount of the
present $100,000,000 in 8-1/8% debentures consent to the proposed amendments and
the release of collateral and are tendered for exchange in the exchange offer.
The 8-1/8% debentures will mature on March 15, 2005. They will continue to bear
interest from March 15, 1995, at the rate of 8-1/8% per annum. Interest will
continue to be payable semiannually on March 15 and September 15 of each year to
the persons in whose names the debentures are registered at the close of
business on March 1 and September 1, as the case may be, immediately preceding
the interest payment date. Payments of interest will continue to be made in
immediately available funds to the depositary as described below under
"--Book-Entry System."
The 8-1/8% debentures are not redeemable prior to maturity and are not
subject to any sinking fund.
The 8-1/8% debentures were issued in the form of one or more registered
global securities and were deposited with, or on behalf of, The Depositary Trust
Company, as depositary, and registered in the name of the depositary's nominee.
A description of the depositary's procedures with respect to the global
securities is set forth below under "--Book-Entry System."
Principal will be payable, and the 8-1/8% debentures will be
transferable and exchangeable without any service charge, at the office of the
trustee. However, Cone may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection with any transfer or
exchange. (Section 2.8)
Indenture
The 8-1/8% debentures are direct, unsecured and unsubordinated
obligations of Cone and will rank equally with any other unsecured and
unsubordinated obligations of Cone for borrowed money. Except as described below
under "--Certain Covenants," the indenture, as amended by the supplemental
indenture, does not limit other indebtedness or securities that may be incurred
or issued by Cone or any of its subsidiaries or contain financial or similar
restrictions on Cone or any of its subsidiaries.
Book-Entry System
The 8-1/8% debentures were issued under a book-entry system in the form
of one or more global securities. Each global security was deposited with, or on
behalf of, The Depository Trust Company, New York, New York. The global
securities were registered in the name of DTC or its nominee.
DTC has advised Cone that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of section 17A of the Exchange Act. DTC was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks,
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trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own DTC. Access to DTC's book-entry system
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Upon the issuance of a global security in registered form, DTC
credited, on its book-entry registration and transfer system, the respective
principal amounts of the 8-1/8% debentures represented by such global security
to the accounts of participants. The accounts credited were designated by the
underwriters, dealers or agents. Ownership of beneficial interests in the global
security is limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in the global
security are shown on, and the transfer of that ownership interest are effected
only through, records maintained by DTC (with respect to participants'
interests) or its nominee and the participants (with respect to the owners of
beneficial interests in the global security). Ownership of beneficial interests
in the global security by persons that hold through participants are shown on,
and the transfer of that ownership interest within such participants are
effected only through, records maintained by such participants. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in a global security.
So long as DTC or its nominee is the registered owner of a global
security, it is considered the sole owner or holder of the 8-1/8% debentures
represented by the global security for all purposes under the governing
indenture. Except as set forth below, owners of beneficial interests in the
global security are not entitled to have the 8-1/8% debentures represented
thereby registered in their names, are not entitled to receive physical delivery
of certificates representing the 8-1/8% debentures and are not considered the
owners or holders thereof under the indenture. Accordingly, each person owning a
beneficial interest in the global security must rely on the procedures of DTC
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the indenture. Cone understands that under existing practice, in the event
that Cone requests any action of the holders or a beneficial owner desires to
take any action a holder is entitled to take, DTC would act upon the
instructions of, or authorize, the participant to take the action.
Payment of principal of and interest on 8-1/8% debentures represented
by a global security are made to DTC or its nominee, as the registered owner and
holder of the global security representing the 8-1/8% debentures. None of Cone,
the trustee, any paying agent or registrar for the 8-1/8% debentures have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Cone has been advised by DTC that DTC credits participants' accounts
with payments of principal or interest on the payment date thereof in amounts
proportionate to their respective beneficial interests in the principal amount
of the global security as shown on the records of DTC. Cone understands that
payments by participants to owners of beneficial interests in the global
security held through such participants are governed by standing instructions
and customary practices, as is now the case with the securities held for the
accounts of customers registered in "street name," and are the responsibility of
the participants.
A global security may not be transferred except as a whole by DTC to a
nominee or successor of DTC or by a nominee of DTC to another nominee of DTC. A
global security representing all but not part of the 8-1/8% debentures being
offered hereby is exchangeable for 8-1/8% debentures in definitive form of like
tenor and terms if
o DTC notifies Cone that it is unwilling or unable to continue
as depositary for the global security or if at any time DTC is
no longer eligible to be or in good standing as a clearing
agency and a successor to DTC is not appointed by Cone within
90 days of receipt by Cone of such notice or of Cone becoming
aware of such ineligibility, or
o Cone in its sole discretion at any time determines not to have
all of the 8-1/8% debentures represented by a global security
and notifies the trustee thereof.
A global security exchangeable pursuant to the foregoing shall be exchangeable
for 8-1/8% debentures registered in such names and in such authorized
denominations as DTC shall direct. (Section 2.12)
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Certain Covenants
Limitations on Liens. While any 8-1/8% debentures remain outstanding,
Cone and its subsidiaries may not permit any lien on the property or assets of
Cone or any subsidiary without providing that, for so long as the lien continues
in existence, the 8-1/8% debentures will be equally and ratable secured by a
lien ranking ratably with, equal to or, at Cone's option, prior to, the
indebtedness secured by such lien. This limitation does not apply, however, to
the following:
1. liens on the assets of an entity existing at the time the
entity becomes a subsidiary of Cone;
2. liens on the assets of an entity existing at the time the
entity is merged into or consolidated with Cone or a
subsidiary or at the time the assets or shares of stock of the
entity are acquired by Cone or a subsidiary;
3. liens on assets existing at the time they are acquired by Cone
or a subsidiary, or liens to secure the payment of the
purchase price of the assets or to secure any debt incurred by
Cone or a subsidiary prior to, at the time of, or within one
year after the acquisition of the assets for the purpose of
financing the purchase price of the assets;
4. liens to secure debt of a subsidiary to Cone or to another
subsidiary;
5. liens in favor of the United States, any State or any federal
or state department or political subdivision, or in favor of
any other country, to secure payments incurred or guaranteed
for the purpose of financing the assets subject to the liens;
6. pledges, liens or deposits under worker's compensation laws or
similar legislation that are not currently dischargeable, or
in connection with bids, tenders, contracts (other than for
the payment of money) or leases to which Cone or any
subsidiary is a party, or to secure the public or statutory
obligations of Cone or any subsidiary, or in connection with
obtaining or maintaining self-insurance, or to obtain the
benefits of any law pertaining to unemployment insurance, old
age pensions, social security or similar matters, or to secure
surety, performance, appeal or customs bonds to which Cone or
any subsidiary is a party, or similar liens made or incurred
in the ordinary course of business;
7. liens in connection with legal proceedings arising out of
judgments or awards, to the extent the proceedings are being
contested or appealed in good faith, or liens incurred for the
purpose of obtaining a stay or discharge in the course of any
litigation;
8. liens for taxes or assessments, landlord's lien and liens and
charges incidental to the conduct of the business of Cone or
any subsidiary that were not incurred in connection with the
borrowing of money and do not, in the opinion of Cone's Board
of Directors, materially impair the use of the assets in the
operation of the business of Cone or the subsidiary or the
value of the assets;
9. liens not permitted by the foregoing clauses (1) through (8),
inclusive, if at the time the lien is created, the aggregate
amount of all outstanding indebtedness of Cone and its
subsidiaries, without duplication, secured by all liens not
otherwise permitted, together with the attributable debt (as
defined below) in respect of sale and lease-back transactions
(as defined below) does not exceed 55% of consolidated net
tangible assets (as defined below); or
10. extensions, renewals or replacements of liens permitted by the
foregoing clauses (1) through (5) above so long as the
principal amount of indebtedness secured is not increased and
the liens are limited to the collateral for the prior
indebtedness.
11. liens securing the 11% debentures or any extensions, renewals
or replacements of the 11% debentures so long as the principal
amount of the 11% debentures is not increased and the liens
are limited to the collateral for the 11% debentures. (Section
3.9)
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Limitation on Sale and Lease-Back Transactions. Neither Cone nor any
Cone subsidiary may enter into any sale and lease-back transaction unless
o Cone or the subsidiary would, at the time of entering into a
sale and lease-back transaction, be entitled to incur
indebtedness secured by a lien on the property or assets to be
leased in an amount at least equal to the attributable debt in
respect of the debt permitted to be secured, without equally
and ratably securing the 8-1/8% debentures as described under
"Limitations on Liens" above, or
o the proceeds of the sale of the assets to be leased are at
least equal to the fair value of the assets and an amount
equal to the net proceeds from the sale of the assets is
applied to the purchase or acquisition of assets or to the
retirement or repayment of 8-1/8% debentures or of funded
indebtedness (as defined below) of Cone ranking on a parity
with or senior to the 8-1/8% debentures or of funded
indebtedness of a subsidiary. (Section 3.10)
Definitions
"Attributable debt" means in connection with a sale and lease-back
transaction, the aggregate of present values (discounted at 8-1/8% compounded
semi-annually) of the obligations of Cone or a Cone subsidiary for net rental
payments during the remaining term of the applicable lease. The term "net rental
payments" means the sum of the rental and other payments required to be paid by
the lessee excluding payments for maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates or similar charges required to be
paid by the lessee.
"Consolidated net tangible assets" means the total assets appearing on
the most recently prepared consolidated balance sheet of Cone and its
subsidiaries as of the end of a fiscal quarter plus the outstanding balance of
any accounts receivable securitization facility, less all current liabilities
(other than current maturities of long-term debt), all intangible assets, and
all assets that do not constitute collateral securing payment of the 11%
debentures other than the outstanding balance of any receivables securitization
and prepaid expenses.
"Funded indebtedness" means any indebtedness maturing by its terms more
than one year from the date of the determination.
"Indebtedness" means
o all obligations for borrowed money,
o all obligations evidenced by bonds, debentures, notes or other
similar instruments,
o all obligations in respect of letters of credit or bankers
acceptances or similar instruments (or reimbursement
obligations with respect thereto),
o all obligations to pay the deferred purchase price of property
or services, except trade accounts payable arising in the
ordinary course of business,
o all obligations as lessee which are capitalized in accordance
with generally accepted accounting principles,
o all indebtedness of others guaranteed by Cone or any of its
subsidiaries, and
o the balance under any receivables securitization program.
"Sale and lease-back transaction" means any arrangement providing for
the leasing by Cone or a Cone subsidiary of any property or asset for more than
three years that has been or is to be sold or transferred by Cone or any
subsidiary to the lessor.
56
"Subsidiary" means any business entity of which at least a majority of
the total voting power of outstanding securities or other interests entitled to
vote in the election of directors, is at the time directly or indirectly owned
or controlled by Cone or one or more Cone subsidiaries. The term "subsidiary",
however, will not include
o Parras Cone, the joint venture between Cone Mills (Mexico),
S.A. de C.V. and CIPSA,
o Cone Mills (Mexico), S.A. de C.V., or
o any other business entity substantially all the property of
which is located, or substantially all of the business of
which is carried on, outside the United States.
The term "subsidiary" includes Cone Receivables II, LLC and any other special
purpose entity that purchases and securitizes accounts receivables of Cone and
its subsidiaries and in which Cone and one or more subsidiaries holds the
primary economic interest.
Merger, Consolidation, Sale, Lease or Conveyance
The indenture provides that Cone will not merge or consolidate with any
other entity or sell, lease or convey all or substantially all of its assets
unless Cone is the continuing corporation, or the acquirer is a U.S. corporation
and expressly assumes the payment of the 8-1/8% debentures and the performance
of all of Cone's covenants and agreements under the indenture, and immediately
after the transaction, Cone is not in default under the indenture. (Article 8)
Events of Default
An event of default with respect to the 8-1/8% debentures is defined in
the indenture as being:
o default for 30 days in payment of any interest upon any 8-1/8%
debentures;
o default in any payment of principal of any 8-1/8% debentures;
o default by Cone in performing any other of the covenants or
agreements relating to the 8-1/8% debentures that is not
remedied within 90 days after written notice to Cone by the
trustee or the holders of at least 25% of the principal amount
of all 8-1/8% debentures;
o default by Cone in the payment of amounts due on indebtedness
for money borrowed in the principal amount then outstanding of
$15,000,000 or more or acceleration of any indebtedness in
that principal amount so that it becomes due and payable prior
to the date on which it would otherwise have become due and
payable and the acceleration is not rescinded within 10
business days after notice to Cone by the trustee or the
holders of at least 25% of the principal amount of all of the
8-1/8% debentures;
o any event involving bankruptcy, insolvency, reorganization or
liquidation of Cone. (Section 4.1)
The indenture governing the 8-1/8% debentures provides that the trustee must
send notice of any uncured default under the indenture, within 90 days after the
occurrence of the default, to the holders of 8-1/8% debentures. The trustee may,
however, withhold notice of any default, other than a payment default on the
8-1/8% debentures if the trustee considers it in the interest of the holders of
8-1/8% debentures to do so. (Section 4.11)
The indenture provides that if an event of default due to the default
in payment of principal of or interest on the 8-1/8% debentures or due to the
default in the performance or breach of any other covenant or agreement of Cone
that is not cured, either the trustee or the holders of not less than 25% in
principal amount of the 8-1/8% debentures then outstanding may declare the
principal of all debentures and interest accrued thereon to be due and payable
immediately. The indenture also provides that if an event of default due to a
default in the performance of any other of the covenants or agreements in the
indenture, or due to a default in payment at final maturity or upon acceleration
of indebtedness for money borrowed in the principal amount then outstanding of
$15,000,000 or more,
57
or to events of bankruptcy, insolvency and reorganization of Cone has occurred
and is not cured, either the trustee or the holders of not less than 25% in
principal amount of all debentures then outstanding may declare the principal of
all debentures and interest accrued thereon to be due and payable immediately.
These declarations may be annulled and past defaults, other than in the payment
of principal of or interest o the 8-1/8% debentures, default, may be waived by
the holders of a majority in principal amount of the debentures then
outstanding. (Sections 4.1 and 4.10)
The holders of a majority in principal amount of the 8-1/8% debentures
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee with respect to the 8-1/8% debentures,
provided that the holders must have offered to the trustee reasonable indemnity
against expenses and liabilities. (Sections 4.9 and 5.2(d))
The indenture further provides that no holder of 8-1/8% debentures may
institute any action under the indenture, except actions for payment of overdue
principal or interest, unless the holder previously has given to the trustee
written notice of the default and its continuance and unless the holders of at
least 25% in principal amount of the debentures then outstanding have requested
the trustee to institute the action and have agreed to indemnify the trustee.
The action by the holders may proceed if the trustee has neither commenced an
action within 60 days after it has received the notice, request and offer of
indemnity nor received direction inconsistent with that written request from the
holders of a majority in principal amount of the debentures then outstanding.
(Sections 4.6 and 4.7)
The indenture requires the annual filing by Cone with the trustee of a
written statement as to compliance with the covenants and agreements contained
in the indenture. (Section 3.5)
Discharge, Defeasance and Covenant Defeasance
Cone can discharge or defease its obligations under the indenture as
set forth below.
Under terms satisfactory to the trustee, Cone may discharge the 8-1/8%
debentures that have either become due or are due and payable within one year by
irrevocably depositing with the trustee an amount sufficient to pay at maturity
the principal of and interest on the debentures. (Section 9.1)
Cone at its option at any time may also (1) discharge any and all of
its obligations to holders of the 8-1/8% debentures ("defeasance") or (2) be
released from the obligations imposed by the covenants described under the
captions "--Covenants" and "--Merger, Consolidation, Sale, Lease, or Conveyance"
above ("covenant defeasance"). Defeasance or covenant defeasance may be effected
only if Cone irrevocably deposits with the trustee an amount sufficient to pay
the principal of and interest on all outstanding 11% debentures on the due
dates, no default exists, and Cone delivers to the trustee an opinion of counsel
to the effect that the holders of the 8-1/8% debentures will not recognize
income, gain or loss for United States federal income tax purposes as a result
of the defeasance or covenant defeasance. (Sections 9.2, 9.3, 9.4 and 9.5)
Modification of the Indenture
The indenture contains provisions permitting Cone and the trustee, with the
consent of the holders of a majority in principal amount of the 8-1/8%
debentures at the time outstanding, to modify the indenture, any supplemental
indenture or the rights of the holders of the debentures. Any modification,
however, that extends the final maturity of any debentures, reduces their
principal amount, or impairs the right of any holder to institute suit for
payment requires the consent of the holder of each of the debentures affected by
the modification. Further, the percentage of holders that is required for any
modification may not be reduced without the consent of the holders of all
debentures then outstanding. (Section 7.2)
58
LEGAL MATTERS
The validity of the shares of Cone common stock, 11% debentures, the
guaranty and the amended 8-1/8% debentures offered by this prospectus has been
passed upon for Cone by Neil W. Koonce, Esq., Vice President, General Counsel
and Secretary of Cone. The federal income tax consequences of the exchange offer
have been passed upon by Ivins, Phillips & Barker Chartered, Washington, D.C.
EXPERTS
The consolidated financial statements of Cone as of January 2, 2000 and
January 3, 1999 and the related consolidated statements of operation,
shareholders' equity and cash flows for each of the three years in the period
ended January 2, 2000, and the related financial statement schedules, which
appear in Cone's annual report on Form 10-K for the year ended January 2, 2000,
have been incorporated in this prospectus and the registration statement by
reference in reliance upon the report of McGladrey & Pullen, LLP, independent
accountants, incorporated by reference herein, and upon the authority of that
firm as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to our financial condition, results of operations and business. Forward-looking
statements are statements other than historical information or statements of
current condition. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements relate to our
plans, objectives and expectations for future operations and are subject to
risks and uncertainties, including those described under "Risk Factors" in this
prospectus, that could cause actual results to differ materially from the
results contemplated by the forward-looking statements. In light of the risks
and uncertainties inherent in all projected operational matters, you should not
regard the inclusion of forward-looking statements in this prospectus as a
representation by us or any other person that our objectives or plans will be
achieved or that any of our operating expectations will be realized.
59
____________________, 2000
[CONE MILLS CORPORATION LOGO]
EXCHANGE OFFER AND CONSENT SOLICITATION
OUTSTANDING 8-1/8% DEBENTURES DUE MARCH 15, 2005
EXCHANGED FOR
11% SECURED SUBORDINATED DEBENTURES DUE MARCH 15, 2005 AND
COMMON STOCK OF CONE MILLS CORPORATION
PROSPECTUS
AND
CONSENT SOLICITATION
The Exchange Agent for the Exchange Offer is:
By Registered or By Hand or
Certified Mail: Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street -7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Mr. Santino Ginocchietti Ground Level
Reorganization Department New York, New York 10286
Mr. Santino Ginocchietti
Reorganization Department
By Facsimile
for Eligible Institutions:
The Bank of New York
(212) 815-6339
Confirm by Telephone:
(212) 815-6331
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article 6 of the Registrant's Restated Articles of Incorporation, as amended,
provides:
Article 6. INDEMNIFICATION
(a) Indemnification in Actions Other Than Actions by the
Corporation or by a Person Suing Derivatively. When by reason
of the fact that he is or was serving as a director, officer,
employee or agent of the Corporation or while serving in any
such or like capacity at the request of the Corporation in any
other corporation, partnership, joint venture or other
enterprise, any person is or was a party or threatened to be
made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative,
or investigative (except any action, suit or proceeding
brought by the Corporation or by any person seeking
derivatively to enforce any liability of such person to the
Corporation), such person shall be indemnified or reimbursed
by the Corporation for the expenses (including attorneys'
fees) which he actually and reasonably incurred and for any
liabilities which he may have incurred in consequence of such
action, suit or proceeding, subject to the following
conditions:
(1) f, with respect to any action, suit or proceeding, or
with respect to any claim, matter or issue therein,
such person is wholly successful on the merits, or if
the proceeding involving such person is an
administrative or investigative proceeding and does
not result in his indictment or a fine or penalty
imposed upon him, then the Corporation shall
reimburse him for the expenses (including attorneys'
fees) which he actually and reasonably incurred in
consequence of his defense of or participation in
such action, suit or proceeding, or of any claim,
issue or matter therein.
(2) If, with respect to any action, suit or proceedings,
or with respect to any claim, issue or matter
therein, such person is wholly successful in his
defense otherwise than solely on the merits, the
Corporation shall reimburse him for the expenses
(including attorneys' fees) which he actually and
reasonably incurred, in consequence of his defense or
participation in such action, suit or proceeding, or
of any claim, issue or matter therein, if
(A) The Board of Directors, by vote of a
majority of a quorum consisting of directors
who were not parties to such action, suit or
proceeding, shall approve such
reimbursement; or
(B) If no such quorum be obtainable, by vote of
a majority of the members of the Board of
Directors then in office, acting pursuant to
a written opinion of independent legal
counsel. For this purpose, the General
Counsel of the Corporation or members of his
staff shall not be deemed to be "independent
legal counsel"; or
(C) In any event, by vote of the holders of a
majority of the shares entitled to vote at a
meeting of the shareholders.
(3) If, with respect to any action, suit or proceedings,
or with respect to any claim, issue or matter
therein, such person is not wholly successful or is
unsuccessful in his defense, or if the proceeding to
which he is a party results in his indictment, or in
a fine or penalty imposed upon him then the
Corporation shall reimburse him for the expenses
(including attorneys' fees) which he actually and
reasonably incurred and the amount of any judgment,
money decree, fine, penalty or settlement for which
he may have become liable, in either of the following
instances:
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(A) The Board of Directors, by vote of a
majority of a quorum consisting of directors
who are not parties to such action, suit or
proceedings, shall have determined that such
person acted in good faith and in a manner
he reasonably believed to be in or not
opposed to the best interests of the
Corporation, and, with respect to any
criminal action or proceeding, that he also
had no reasonable cause to believe his
conduct was unlawful, and the Corporation
shall have given such information to the
shareholders of the Corporation with respect
thereto as is required by applicable law.
The termination of any action, suit or
proceeding by judgment, order, settlement,
conviction, or upon a plea of guilty or nolo
contendere or its equivalent, shall not, of
itself, create a presumption that the person
did not act in good faith and in a manner
which he reasonably believed to be in the
best interests of the Corporation, or, with
respect to any criminal action, that he had
no reasonable cause to believe that his
conduct was unlawful.
(B) A plan for such payment is submitted to the
shareholders for action at an annual or
special meeting of the shareholders, and the
plan is approved by the holders of a
majority of the shares entitled to vote at
such meeting, excluding shares held directly
or indirectly by any persons to be benefited
if the plan is approved. Whenever the Board
of Directors is required by this Article to
determine the facts requisite to awarding
reimbursement or indemnification, their
determination as to such facts shall be
conclusive in the absence of fraud.
(b) Indemnification in Actions by the Corporation or by Any Person
Suing Derivatively. When because of his duties or activities
while serving as a director, officer, employee or agent of the
Corporation or while serving in any such or like capacity at
the request of the Corporation in any other corporation,
partnership, joint venture or other enterprise, any person is
a party to an action, suit or proceeding by the Corporation or
by any person suing derivatively on behalf of the Corporation
to establish his liability to the Corporation arising out of
his alleged dereliction of duty to the Corporation, such
person shall be entitled to reimbursement or indemnification
from the Corporation only to the extent permitted, and only
pursuant to the procedure authorized, by the General Statutes
of North Carolina or otherwise by law.
(c) General Provisions Relating to Indemnification Under this
Article:
(1) In this Article 6 the term "officer" shall include
any dominant shareholder engaged to perform services
for the Corporation, whether as employee or
independent contractor; and the term "dominant
shareholder" shall mean a shareholder of the
Corporation who by virtue of his share holdings has
legal power, either directly or indirectly or through
another corporation or series of corporations,
domestic or foreign, to elect a majority of the
directors of the Corporation.
(2) In this Article 6 the term "person" shall include the
heirs, executor, administrator, or other legal
representative of such person.
(3) Expenses incurred or to be incurred by a person in
defending or participating in any action, suit or
proceedings referred to in subsection (a) may be paid
by the Corporation in advance of the final
disposition of such action, suit or proceeding if
authorized by the Board of Directors in the specific
case upon receipt of an undertaking by or on behalf
of such person to repay such amount, unless it shall
ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized by this
Article.
(4) Whenever the Corporation, whether by action of the
Board of Directors or by the shareholders, shall
reimburse or indemnify a director, officer, agent or
employee as permitted by this Article, the
determination shall be made with respect to the
particular case and the particular applicant for
indemnity or reimbursement.
(5) The indemnification authorized by this Article shall
not be deemed exclusive of any other rights to
indemnification or reimbursement which are or may
hereafter be permitted by law.
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(d) Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or who
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether
or not the Corporation would have the power, pursuant to law
or pursuant to this Article, to indemnify him against such
liability.
Article XI of the Registrant's Bylaws, as amended, provides:
Article XI. INDEMNIFICATION
Section 11-1. Extent. In addition to the indemnification otherwise provided for
by law or by the Articles of Incorporation of the Corporation, the Corporation
shall indemnify and hold harmless its directors and officers against all
liability and litigation expense, including reasonable attorneys' fees, arising
out of their status as directors or officers or their activities in any of such
capacities or in any capacity in which any of them is or was serving, at the
Corporation's request, in another corporation, partnership, joint venture, trust
or other enterprise and the Corporation shall indemnify and hold harmless its
directors, officers, and employees who are deemed to be fiduciaries of the
Corporation's employee pension and welfare benefit plans as defined under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA
fiduciaries"), against all liability and litigation expense, including
reasonable attorneys' fees, arising out of their status or activities as ERISA
fiduciaries; provided, however, that the Corporation shall not indemnify a
director or officer against liability or litigation expense that he may incur on
account of his activities that at the time taken were known or reasonably should
have been known by him to be clearly in conflict with the best interests of the
Corporation, and the Corporation shall not indemnify an ERISA fiduciary against
any liability or litigation expense that he may incur on account of his
activities that at the time taken were known or reasonably should have been
known by him to be clearly in conflict with the best interests of the employee
benefit plan to which the activities relate. The Corporation shall also
indemnify the director, officer or ERISA fiduciary for reasonable costs,
expenses and attorneys' fees in connection with the enforcement of rights to
indemnification granted herein, if it is determined in accordance with Section
11-2 of this Article that the director, officer or ERISA fiduciary is entitled
to indemnification hereunder.
Section 11-2. Determination. Any indemnification under Section 11-1 shall be
paid by the Corporation in any specific case only after a determination that the
director, officer or ERISA fiduciary did not act in a manner, at the time the
activities were taken, that was known or reasonably should have been known by
him to be clearly in conflict with the best interests of the Corporation, or the
employee benefit plan to which the activities relate, as the case may be. Such
determination shall be made (a) by the affirmative vote of a majority (but not
less than two) of directors who are or were not parties to such action, suit or
proceeding or against whom any such claim is asserted ("disinterested
directors") even though less than a quorum, or (b) if a majority (but not less
than two) of disinterested directors so direct, by independent legal counsel in
a written opinion, or (c) by the vote of a majority of all of the voting shares
other than those owned or controlled by directors, officers or ERISA fiduciaries
who were parties to such action, suit or proceeding or against whom such claim
is asserted, or by a unanimous vote of all of the voting shares, or (d) by a
court of competent jurisdiction.
Section 11-3. Advanced Expenses. Expenses incurred by a director, officer or
ERISA fiduciary in defending a civil or criminal claim, action, suit or
proceeding may, upon approval of a majority (but not less than two) of the
disinterested directors, even though less than a quorum, or, if there are less
than two disinterested directors, upon unanimous approval of the Board of
Directors, be paid by the Corporation in advance of the final disposition of
such claim, action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer or ERISA fiduciary to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified against
such expenses by the Corporation.
Section 11-4. Corporation. For purposes of this Article, references to
directors, officers or ERISA fiduciaries of the "Corporation" shall be deemed to
include directors, officers and ERISA fiduciaries of Cone Mills Corporation, its
subsidiaries, and all constituent corporations absorbed into Cone Mills
Corporation or any of its subsidiaries by a consolidation or merger.
Section 11-5. Reliance And Consideration. Any director, officer or ERISA
fiduciary who at any time after the adoption of this Bylaw serves or has served
in any of the aforesaid capacities or any other capacity for or on behalf of the
Corporation shall be deemed to be doing or to have done so in reliance upon, and
as consideration for, the right of indemnification provided herein. Such right
shall inure to the benefit of the legal representatives of any such person and
shall not be exclusive of any other rights to which such person may be entitled
apart from the provision of this Bylaw. No
II-3
amendment, modification or repeal of this Article XI shall adversely affect the
right of any director, officer or ERISA fiduciary to indemnification hereunder
with respect to any activities occurring prior to the time of such amendment,
modification or repeal.
Section 11-6. Insurance. The Corporation may purchase and maintain insurance on
behalf of its directors, officers, employees and agents and those persons who
were serving at the request of the Corporation as a director, officer, partner
or trustee of, or in some other capacity in, another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article or otherwise. Any
full or partial payment made by an insurance company under any insurance policy
covering any director, officer, employee or agent made to or on behalf of a
person entitled to indemnification under this Article shall relieve the
Corporation of its liability for indemnification provided for in this Article or
otherwise to the extent of such payment, and no insurer shall have a right of
subrogation against the Corporation with respect to such payment.
The North Carolina General Statutes contain provisions prescribing the
extent to which directors and officers shall or may be indemnified. These
statutory provisions are set forth below:
CH. 55 N.C. BUSINESS CORPORATION ACT
Part 5. Indemnification.
Section 55-8-50. Policy Statement and Definitions.
(a) It is the public policy of this State to enable corporations
organized under this Chapter to attract and maintain
responsible, qualified directors, officers, employees and
agents, and, to that end, to permit corporations organized
under this Chapter to allocate the risk of personal liability
of directors, officers, employees and agents through
indemnification and insurance as authorized in this Part.
(b) Definitions in this Part:
(1) "Corporation" includes any domestic or foreign
corporation absorbed in a merger which, if its
separate existence had continued, would have had the
obligation or power to indemnify its directors,
officers, employees, or agents, so that a person who
would have been entitled to receive or request
indemnification from such corporation if its separate
existence had continued shall stand in the same
position under this Part with respect to the
surviving corporation.
(2) "Director" means an individual who is or was a
director of a corporation or an individual who, while
a director of a corporation, is or was serving at the
corporation's request as a director, officer,
partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other
enterprise. A director is considered to be serving an
employee benefit plan at the corporation's request if
his duties to the corporation also impose duties on,
or otherwise involve services by, him to the plan or
to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires
otherwise, the estate or personal representative of a
director.
(3) "Expenses" means expenses of every kind incurred in
defending a proceeding, including counsel fees.
(4) (a) "Officer", "employee", or "agent" includes,
unless the context requires otherwise, the estate or
personal representative of a person who acted in that
capacity.
(4) (b) "Liability" means the obligation to pay a
judgment, settlement, penalty, fine (including an
excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with
respect to a proceeding.
(5) "Official capacity" means: (i) when used with respect
to a director, the office of director in a
corporation; and (ii) when used with respect to an
individual other than a director, as contemplated in
G.S. 55-8-56, the office in a corporation held by the
officer or the employment
II-4
or agency relationship undertaken by the employee or
agent on behalf of the corporation. "Official
capacity" does not include service for any other
foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan, or other
enterprise.
(6) "Party" includes an individual who was, is, or is
threatened to be made a named defendant or respondent
in a proceeding.
(7) "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative and
whether formal or informal.
Section 55-8-51. Authority to Indemnify.
(a) Except as provided in subsection (d), a corporation may
indemnify an individual made a party to a proceeding because
he is or was a director against liability incurred in the
proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct in
his official capacity with the corporation, that his
conduct was in its best interests; and (ii) in all
other cases, that his conduct was at least not
opposed to its best interests; and
(3) In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan
for a purpose he reasonably believed to be in the interests of
the participants in and beneficiaries of the plan is conduct
that satisfies the requirement of subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of no contest or its
equivalent is not, of itself, determinative that the director
did not meet the standard of conduct described in this
section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of
the corporation in which the director was adjudged
liable to the corporation; or
(2) In connection with any other proceeding charging
improper personal benefit to him, whether or not
involving action in his official capacity, in which
he was adjudged liable on the basis that personal
benefit was improperly received by him.
(e) Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation that
is concluded without a final adjudication on the issue of
liability is limited to reasonable expenses incurred in
connection with the proceeding.
(f) The authorization, approval or favorable recommendation by the
board of directors of a corporation of indemnification, as
permitted by this section, shall not be deemed an act or
corporate transaction in which a director has a conflict of
interest, and no such indemnification shall be void or
voidable on such ground.
Section 55-8-52. Mandatory Indemnification.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 55-8-53. Advance For Expenses.
II-5
Expenses incurred by a director in defending a proceeding may be paid
by the corporation in advance of the final disposition of such proceeding as
authorized by the board of directors in the specific case or as authorized or
required under any provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an undertaking by or on
behalf of the director to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation against such
expenses.
Section 55-8-54. Court-ordered Indemnification.
Unless a corporation's articles of incorporation provide otherwise, a
director of the corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving any
notice the court considers necessary may order indemnification if it determines:
(1) The director is entitled to mandatory indemnification under
G.S. 55-8-52, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred
to obtain court-ordered indemnification; or
(2) The director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances,
whether or not he met the standard of conduct set forth in
G.S. 55-8-51 or was adjudged liable as described in G.S.
55-8-51(d), but if he was adjudged so liable his
indemnification is limited to reasonable expenses incurred.
Section 55-8-55. Determination and Authorization of Indemnification.
(a) A corporation may not indemnify a director under G.S. 55-8-51
unless authorized in the specific case after a determination
has been made that indemnification of the director is
permissible in the circumstances because he has met the
standard of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a
quorum consisting of directors not at the time
parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1),
by majority vote of a committee duly designated by
the board of directors (in which designation
directors who are parties may participate),
consisting solely of two or more directors not at the
time parties to the proceeding;
(3) By special legal counsel (i) selected by the board of
directors or its committee in the manner prescribed
in subdivision (1) or (2); or (ii) if a quorum of the
board of directors cannot be obtained under
subdivision (1) and a committee cannot be designated
under subdivision (2), selected by majority vote of
the full board of directors (in which selection
directors who are parties may participate); or
(4) By the shareholders, but shares owned by or voted
under the control of directors who are at the time
parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as
the determination that indemnification is permissible, except
that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled
under subsection (b)(3) to select counsel.
Section 55-8-56. Indemnification of Officers, Employees, and Agents.
Unless a corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation is entitled to
mandatory indemnification under G.S. 55-8-52, and is
entitled to apply for court-ordered indemnification
under G.S. 55-8-54, in each case to the same extent
as a director.
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(2) The corporation may indemnify and advance expenses
under this Part to an officer, employee, or agent of
the corporation to the same extent as to a director;
and
(3) A corporation may also indemnify and advance expenses
to an officer, employee, or agent who is not a
director to the extent, consistent with public
policy, that may be provided by its articles of
incorporation, bylaws, general or specific action of
its board of directors, or contract.
Section 55-8-57. Additional Indemnification and Insurance.
(a) In addition to and separate and apart from the indemnification
provided for in G.S. 55-8-51, 55-8-52, 55-8-54, 55-8-55 and
55-8-56, a corporation may in its articles of incorporation or
bylaws or by contract or resolution indemnify or agree to
indemnify any one or more of its directors, officers,
employees, or agents against liability and expenses in any
proceeding (including without limitation a proceeding brought
by or on behalf of the corporation itself) arising out of
their status as such or their activities in any of the
foregoing capacities; provided, however, that a corporation
may not indemnify or agree to indemnify a person against
liability or expenses he may incur on account of his
activities which were at the time taken known or believed by
him to be clearly in conflict with the best interests of the
corporation. A corporation may likewise and to the same extent
indemnify or agree to indemnify any person who, at the request
of the corporation, is or was serving as a director, officer,
partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or
other enterprise or as a trustee or administrator under an
employee benefit plan. Any provision in any articles of
incorporation, bylaw, contract, or resolution permitted under
this section may include provisions for recovery from the
corporation of reasonable costs, expenses, and attorneys' fees
in connection with the enforcement of rights to
indemnification granted therein and may further include
provisions establishing reasonable procedures for determining
and enforcing the rights granted therein.
(b) The authorization, adoption, approval, or favorable
recommendation by the board of directors of a public
corporation of any provision in any articles of incorporation,
bylaw, contract or resolution, as permitted in this section,
shall not be deemed an act or corporate transaction in which a
director has a conflict of interest, and no such articles of
incorporation or bylaw provision or contract or resolution
shall be void or voidable on such grounds. The authorization,
adoption, approval, or favorable recommendation by the board
of directors of a nonpublic corporation of any provision in
any articles of incorporation, bylaw, contract or resolution,
as permitted in this section, which occurred prior to July 1,
1990, shall not be deemed an act or corporate transaction in
which a director has a conflict of interest, and no such
articles of incorporation, bylaw provision, contract or
resolution shall be void or voidable on such grounds. Except
as permitted in G.S. 55-8-31, no such bylaw, contract, or
resolution not adopted, authorized, approved or ratified by
shareholders shall be effective as to claims made or
liabilities asserted against any director prior to its
adoption, authorization, or approval by the board of
directors.
(c) A corporation may purchase and maintain insurance on behalf of
an individual who is or was a director, officer, employee, or
agent of the corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving at
the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability
asserted against or incurred by him in that capacity or
arising from his status as a director, officer, employee, or
agent, whether or not the corporation would have power to
indemnify him against the same liability under any provision
of this Chapter.
Section 55-8-58. Application of Part.
(a) If articles of incorporation limit indemnification or advance
for expenses, indemnification and advance for expenses are
valid only to the extent consistent with the articles.
(b) This Part does not limit a corporation's power to pay or
reimburse expenses incurred by a director in connection with
his appearance as a witness in a proceeding at a time when he
has not been made a named defendant or respondent to the
proceeding.
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(c) This Part shall not affect rights or liabilities arising out
of acts or omissions occurring before July 1, 1990.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits, listed in accordance with the number assigned
to each in the exhibit table of Item 601 of Regulation S-K, are included in Part
II of this Registration Statement. Exhibit numbers omitted are not applicable.
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
*2.1 Receivables Purchase and Servicing Agreement dated as of
September 1, 1999, by and among Cone Receivables II LLC, as
Seller, Redwood Receivables Corporation, as Purchaser, the
Registrant, as Servicer, and General Electric Capital
Corporation, as Operating Agent and Collateral Agent, filed
as Exhibit 2.1(h) to Registrant's report on Form 10-Q for
the quarter ended October 3, 1999.
*2.2 Receivables Transfer Agreement dated as of September 1,
1999, by and among the Registrant, any other Originator
Party thereto, and Cone Receivables II LLC, filed as Exhibit
2.1(i) to Registrant's rep ort on Form 10-Q for the quarter
ended October 3, 1999.
*2.3.1 First Amendment and Waiver to Securitization Agreements
dated as of November 16, 1999, by and between Cone
Receivables II LLC, the Registrant, Redwood Receivables
Corporation and General Electric Capital Corporation,
together with all exhibits thereto, filed as Exhibit 2.1(c)
to Registrant's report on Form 10-K for the fiscal year
ending January 2, 2000.
*2.3.2 Second Amendment to Securitization Agreements dated as of
January 28, 2000, by and between Cone Receivables II LLC,
the Registrant, Redwood Receivables Corporation, and General
Electric Capital Corporation, together with all exhibits
thereto, filed as Exhibit 2.1(d) to Registrant's report on
Form 10-K for the fiscal year ending January 2, 2000.
*2.3.3 Third Amendment to Securitization Agreements dated as of
March 31, 2000, by and between Cone Receivables II LLC, the
Registrant, Redwood Receivables Corporation, and General
Electric Capital Corporation, together with all exhibits
thereto, filed as Exhibit 2.1(e) to Registrant's report on
Form 10-Q for the quarter ended April 2, 2000.
*2.3.4 Fourth Amendment to Securitization Agreements dated as of
April 24, 2000 by and between Cone Receivables II LLC, the
Registrant, Cone Foreign Trading LLC, Redwood Receivables
Corporation, and General Electric Capital Corporation,
together with all exhibits thereto, filed as Exhibit 2.1(f)
to Registrant's report on Form 10-Q for the quarter ended
April 2, 2000.
**2.3.5 Fifth Amendment to Securitization Agreements dated as of
June 30, 2000 by and between Cone Receivables II LLC, the
Registrant, Cone Foreign Trading LLC, Redwood Receivables
Corporation, and General Electric Capital Corporation.
2.3.6 Sixth Amendment to Securitization Agreements dated as of
December 12, 2000 by and between Cone Receivables II LLC,
the Registrant, Cone Foreign Trading LLC, Redwood
Receivables Corporation and General Electric Capital
Corporation.
II-8
*2.4 Investment Agreement dated as of June 18, 1993, among
Compania Industrial de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and the Registrant, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for the quarter ended
July 4, 1993.
*2.5 Commercial Agreement dated as of July 1, 1999, among
Compania Industrial de Parras, S.A. de C.V., the Registrant
and Parras Cone de Mexico, S.A., filed as Exhibit 2.2(b) to
Registrant's report on Form 10-K for the fiscal year ending
January 2, 2000.
2.5.1 Amended and Restated Commercial Agreement, dated as of
December 12, 2000, among Compania Industrial de Parras, S.A.
de C.V., the Registrant and Parras Cone de Mexico, S.A.
*2.6 Guaranty Agreement dated as of June 25, 1993, between the
Registrant and Compania Industrial de Parras, S.A. de C.V.,
filed as Exhibit 2.2(c) to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
*2.7 Joint Venture Agreement dated as of June 25, 1993, between
Compania Industrial de Parras, S.A. de C.V., and Cone Mills
(Mexico), S.A. de C.V., filed as Exhibit 2.2(d) to
Registrant's report on Form 10-Q for the quarter ended July
4, 1993.
*2.7.1 First Amendment to Joint Venture Agreement dated as of June
14, 1995, between Compania Industrial de Parras, S.A. de
C.V., and Cone Mills (Mexico), S.A. de C.V., filed as
Exhibit 2.2(e) to the Registrant's report on Form 10-Q for
the quarter ended July 2, 1995.
*2.8 Joint Venture Registration Rights Agreement dated as of June
25, 1993, among Parras Cone de Mexico, S.A., Compania
Industrial de Parras, S.A. de C.V. and Cone Mills (Mexico),
S.A. de C.V., filed as Exhibit 2.2(e) to Registrant's report
on Form 10-Q for the quarter ended July 4, 1993.
*2.9 Parras Registration Rights Agreement dated as of June 25,
1993, between Compania Industrial de Parras, S.A. de C.V.
and the Registrant, filed as Exhibit 2.2(f) to the
Registrant's report on Form 10-Q for the quarter ended July
4, 1993.
*2.10 Support Agreement dated as of June 25, 1993, among the
Registrant, Sr. Rodolfo L. Garcia, Sr. Rodolfo Garcia Muriel
and certain other persons listed therein ("private
stockholders"), filed as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter ended July 4, 1993.
*3.1 Restated Articles of Incorporation of the Registrant
effective August 25, 1993, filed as Exhibit 4.1 to
Registrant's report on Form 10-Q for the quarter ended
October 3, 1993.
*3.1.1 Articles of Amendment of the Articles of Incorporation of
the Registrant effective October 22, 1999, to fix the
designation, preferences, limitations, and relative rights
of a series of its Class B Preferred Stock, filed as Exhibit
4.1(a) to Registrant's report on Form 10-Q for the quarter
ended October 3, 1999.
*3.2 Amended and Restated Bylaws of Registrant, effective June
18, 1992, filed as Exhibit 3.5 to the Registrant's
Registration Statement on Form S-1 (File No. 33-46907).
*4.1 Rights Agreement dated as of October 14, 1999, between the
Registrant and First Union National Bank, as Rights Agent,
with Form of Articles of Amendment with respect to the Class
B Preferred Stock (Series A), the Form of Rights
Certificate, and Summary of Rights attached, filed as
Exhibit 1 to the Registrant's report on Form 8-A dated
October 29, 1999.
*4.2 Note Agreement dated as of August 13, 1992, between the
Registrant and The Prudential Insurance Company of America,
with form of 8% promissory note
II-9
attached, filed as Exhibit 4.01 to the Registrant's report
on Form 8-K dated August 13, 1992.
*4.2.1 Letter Agreement dated September 11, 1992, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.2 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.2 Letter Agreement dated July 19, 1993, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.3 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.3 Letter Agreement dated June 30, 1994, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.4 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.4 Letter Agreement dated November 14, 1994, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.5 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.5 Letter Agreement dated as of June 30, 1995, amending the
Note Agreement dated August 13, 1992, between the Registrant
and The Prudential Insurance Company of America, filed as
Exhibit 4.3(e) to the Registrant's report on Form 10-Q for
the quarter ended July 2, 1995.
*4.2.6 Letter Agreement dated as of June 30, 1995, between the
Registrant and The Prudential Insurance Company of America
superseding Letter Agreement, filed as Exhibit 4.3(e) to the
Registrant's report on Form 10-Q for the quarter ended July
2, 1995.
*4.2.7 Letter Agreement dated as of March 30, 1996, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(g) to the Registrant's report on Form
10-Q for the quarter ended March 31, 1996.
*4.2.8 Letter Agreement dated as of January 31, 1997, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(h) to the Registrant's report on Form
10-K for the year ended December 29, 1996.
*4.2.9 Letter Agreement dated as of July 31, 1997, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(i) to the Registrant's report on Form
10-Q for the quarter ended September 28, 1997.
*4.2.10 Modification to Note Agreement dated as of February 14,
1998, between the Registrant and The Prudential Insurance
Company of America, filed as Exhibit 4.3(j) to Registrant's
report on Form 10-Q for the quarter ended March 29, 1998.
*4.2.11 Letter Agreement dated as of September 1, 1999, amending the
Note Agreement dated August 13, 1992, between the Registrant
and The Prudential Insurance Company of America, filed as
Exhibit 4.3(i) on Form 10-Q for the quarter ended October 3,
1999.
*4.2.12 Amendment of 1992 Note Agreement dated as of January 28,
2000, by and among the Registrant and The Prudential
Insurance Company of America, together with all exhibits
thereto, filed as Exhibit 9 to the Registrant's report on
Form 8-K dated February 11, 2000.
**4.2.13 Waiver under Note Agreement dated as of July 3, 2000, by and
among the Registrant and The Prudential Insurance Company of
America.
II-10
**4.2.14 Amendment of 1992 Note Agreement dated as of July 14, 2000,
by and among the Registrant and The Prudential Insurance
Company of America.
4.2.15 Amendment of 1992 Note Agreement dated as of December 12,
2000, by and among the Registrant and The Prudential
Insurance Company of America.
*4.3 Credit Agreement dated as of January 28, 2000, by and among
the Registrant, as Borrower, Bank of America, N.A., as Agent
and as Lender and the Lenders party thereto from time to
time, together with all exhibits thereto, filed as Exhibit 1
to the Registrant's report on Form 8-K dated February 11,
2000.
**4.3.1 Amendment No. 1 to Credit Agreement dated as of July 14,
2000, by and among the Registrant, as Borrower, Cone Global
Finance Corp., CIPCO S.C. Inc. and Cone Foreign Trading LLC,
as Guarantors, Bank of America, N.A., as Agent and as
Lender, and the Lenders party thereto from time to time.
4.3.2 Amendment No. 2 to Credit Agreement dated as of December 12,
2000, by and among the Registrant, as Borrower, Cone Global
Finance Corp., CIPCO S.C. Inc. and Cone Foreign Trading LLC,
as Guarantors, Bank of America, N.A., as Agent and as
Lender, and the Lenders party thereto from time to time.
*4.4 Guaranty Agreement dated as of January 28, 2000, made by
Cone Global Finance Corporation, CIPCO S.C., Inc. and Cone
Foreign Trading LLC in favor of Bank of America, N.A. as
Revolving Credit Agent for the Lenders, The Prudential
Insurance Company of America, SunTrust Bank, Morgan Guaranty
Trust Company of New York, Wilmington Trust Company, as
General Collateral Agent, Bank of America, N.A., as Priority
Collateral Agent, and Atlantic Financial Group, Ltd.,
together with all exhibits thereto, filed as Exhibit 2 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.5 Priority Security Agreement dated as of January 28, 2000, by
the Registrant and certain of its subsidiaries, as Grantors,
and Bank of America, N.A., as Priority Collateral Agent,
together with all exhibits thereto, filed as Exhibit 3 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.6 General Security Agreement dated as of January 28,2000, by
the Registrant and certain of its subsidiaries, as Grantors,
and Wilmington Trust Company, as General Collateral Agent,
together with all exhibits thereto, filed as Exhibit 4 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.7 Securities Pledge Agreement dated as of January 28, 2000, by
the Registrant in favor of Wilmington Trust Company, as
General Collateral Agent, together with all exhibits
thereto, filed as Exhibit 5 to the Registrant's report on
Form 8-K dated February 11, 2000.
*4.8 CMM Pledge Agreement dated as of January 28, 2000, by the
Registrant in favor of Wilmington Trust Company, as General
Collateral Agent, together with all exhibits thereto, filed
as Exhibit 6 to the Registrant's report on Form 8-K dated
February 11, 2000.
*4.9 Deed of Trust, Security Agreement, Fixture Filing,
Assignment of Leases and Rents and Financing Statement dated
as of January 28, 2000, between the Registrant, as Grantor,
TIM, Inc., as Trustee, Wilmington Trust Company, as General
Collateral Agent, and Bank of America, N.A., as Designated
Collateral Subagent, together with all exhibits thereto,
filed as Exhibit 7 to the Registrant's report on Form 8-K
dated February 11, 2000.
II-11
*4.10 Deed of Trust, Security Agreement, Fixture Filing,
Assignment of Leases and Rents and Financing Statement dated
as of January 28, 2000, between the Registrant, as Grantor,
TIM, Inc., as Trustee, and Bank of America, N.A., as
Priority Collateral Agent, together with all exhibits
thereto, filed as Exhibit 8 to the Registrant's report on
Form 8-K dated February 11, 2000.
*4.11 Termination Agreement dated as of January 28, 2000, between
the Registrant and Morgan Guaranty Trust Company of New
York, as Agent for various banks terminating the Credit
Agent dated August 7, 1997, filed as Exhibit 4.4(h) to
Registrant's report on Form 10-K for the fiscal year ending
January 2, 2000.
*4.12 Specimen Class A Preferred Stock Certificate, filed as
Exhibit 4.5 to the Registrant's Registration Statement on
Form S-1(File No. 33-46907).
*4.13 Specimen Common Stock Certificate, effective June 18, 1992,
filed as Exhibit 4.7 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
*4.14 Cone Mills Corporation 1983 ESOP as amended and restated
effective December 1, 1994, filed as Exhibit 4.9 to the
Registrant's report on Form 10-K for year ended January 1,
1995.
*4.14.1 First Amendment to the Cone Mills Corporation 1983 ESOP
dated May 9, 1995, filed as Exhibit 4.9(a) to the
Registrant's report on Form 10-K for year ended December 31,
1995.
*4.14.2 Second Amendment to the Cone Mills Corporation 1983 ESOP
dated December 5, 1995, filed as Exhibit 4.9(b) to the
Registrant's report on Form 10-K for year ended December
31,1995.
*4.14.3 Third Amendment to the Cone Mills Corporation 1983 ESOP
dated August 7, 1997, filed as Exhibit 4.8(c) to the
Registrant's report on Form 10-Q for the quarter ended
September 28,1997.
*4.14.4 Fourth Amendment to the Cone Mills Corporation 1983 ESOP
dated December 4, 1997, filed as Exhibit 4.8(d) to the
Registrant's report on Form 10-K for the year ended December
28,1997.
*4.15 Indenture dated as of February 14, 1995, between the
Registrant and Wachovia Bank of North Carolina, N.A. as
Trustee (The Bank of New York is successor Trustee), filed
as Exhibit 4.1 to Registrant's Registration Statement on
Form S-3 (File No. 33-57713).
4.15.1 Form of First Supplemental Indenture to the Indenture dated
as of February 14, 1995, between the Registrant and Wachovia
Bank of North Carolina, N.A. as Trustee (The Bank of New
York is successor Trustee), with respect to the 8-1/8%
Debentures Due March 15, 2005.
4.16 Form of Indenture between the Registrant and The Bank of New
York, as Trustee, with respect to the 11% Secured
Subordinated Debentures Due March 15, 2005 being registered.
+5.1 Opinion of Neil W. Koonce, Esq. re legality.
+8.1 Opinion of Ivins, Phillips & Barker Chartered re tax
matters.
*10.1 Employees' Retirement Plan of Cone Mills Corporation as
amended and restated effective December 1, 1994, filed as
Exhibit 10.1 to the Registrant's report on Form 10-K for the
year ended January 1, 1995.
II-12
*10.1.1 First Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated May 9,1995, filed as Exhibit 10.1(a)
to the Registrant's report on Form 10-K for the year ended
December 31, 1995.
*10.1.2 Second Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated December 5, 1995, filed as Exhibit
10.1(b) to the Registrant's report on Form 10-K for the year
ended December 31, 1995.
*10.1.3 Third Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated August 16, 1996, filed as Exhibit
10.1(c) to the Registrant's report on Form 10-K for the year
ended December 29, 1996
*10.1.4 Fourth Amendment to the Employees' Retirement Plan of Cone
Mills Corporation, filed as Exhibit 10 to the Registrant's
report on Form 10-Q for the quarter ended September 28,
1997.
*10.1.5 Fifth Amendment to Employees' Retirement Plan of Cone Mills
Corporation dated December 4, 1997, filed as Exhibit 10.1(e)
to the Registrant's report on Form 10-K or the year ended
December 28, 1997.
*10.7 Cone Mills Corporation SERP as amended and restated as of
December 5, 1995, filed as Exhibit 10.2 to the Registrant's
report on Form 10-K for the year ended December 31, 1995.
*10.8 Excess Benefit Plan of Cone Mills Corporation as amended and
restated as of December 5, 1995, filed as Exhibit 10.3 to
the Registrant's report on Form 10-K for the year ended
December 31, 1995.
*10.9 1984 Stock Option Plan of Registrant filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1 (File
No. 33-28040).
*10.10 Form of Nonqualified Stock Option Agreement under 1984 Stock
Option Plan of Registrant, filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1 (File No.
33-28040).
*10.11 Form of Incentive Stock Option Agreement under 1984 Stock
Option Plan of Registrant, filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (File No.
33-28040).
*10.12 1992 Stock Option Plan of Registrant, filed as Exhibit 10.9
to the Registrant's report on Form 10-K for the year ended
December 29, 1991.
*10.12.1 Amended and Restated 1992 Stock Plan, filed as Exhibit 10.1
to Registrant's report on Form 10-Q for the quarter ended
March 31, 1996.
*10.13 Form of Incentive Stock Option Agreement under 1992 Stock
Option Plan, filed as Exhibit 10.10 to the Registrant's
report on Form 10-K for the year ended January 3, 1993.
*10.14 Form of Nonqualified Stock Option Agreement under 1992 Stock
Option Plan, filed as Exhibit 10.8(a) to the Registrant's
report on Form 10-K for the year ended December 29,1996.
*10.14.1 Form of Nonqualified Stock Option Agreement under 1992
Amended and Restated Stock Plan, filed as Exhibit 10.8(b) to
the Registrant's report on Form 10-K for the year ended
December 29, 1996.
II-13
*10.15 Form of Restricted Stock Award Agreement under 1992 Amended
and Restated Stock Plan, filed as Exhibit 10.8(c) to the
Registrant's report on Form 10-K for the year ended December
28, 1997.
*10.16 1994 Stock Option Plan for Non-Employee Directors of
Registrant, filed as Exhibit 10.9 to Registrant's report on
Form 10-K for the year ended January 2,1994.
*10.17 Form of Non-Qualified Stock Option Agreement under 1994
Stock Option Plan for Non-Employee Directors of Registrant,
filed as Exhibit 10.10 to Registrant's report on Form 10-K
for the year ended January 2, 1994.
*10.18 Management Incentive Plan of the Registrant, filed as
Exhibit 10.11(b) to Registrant's report on Form 10-K for the
year ended January 3, 1993.
*10.19 1997 Senior Management Incentive Compensation Plan, filed as
Exhibit 10.2 to Registrant's report on Form 10-Q for the
quarter ended March 31, 1996.
*10.20 1997 Senior Management Discretionary Bonus Plan, filed as
Exhibit 10.13 to the Registrant's report on Form 10-K for
the year ended December 29, 1996.
*10.21 2000 Stock Compensation Plan for Non-Employee Directors of
Registrant dated as of May 9, 2000, filed as Exhibit 10.18
to Registrant's report on Form 10-Q for the quarter ended
April 7, 2000.
*10.22 Form of Agreement between the Registrant and Levi Strauss
dated as of March 30, 1992, filed as Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File No.
33-46907).
*10.23 First Amendment to Supply Agreement dated as of April 15,
1992, between the Registrant and Levi Strauss dated as of
March 30, 1992, filed as Exhibit 10.15 to Registrant's
Registration Statement on Form S-1 (No. 33-469007).
*10.24 Agreement dated January 1, 1999, between the Registrant and
Parkdale Mills, Inc., filed as Exhibit 10.17 to Registrant's
report on Form 10-K for the year ended January 2, 2000.
*10.25 Tenth Amendment to Master Lease dated as of January 28,
2000, between Atlantic Financial Group, Ltd. and the
Registrant, together with all exhibits thereto, filed as
Exhibit 10 to Registrant's report on Form 8-K dated February
11, 2000.
**10.25.1 Eleventh Amendment to Master Lease dated as of July 14, 2000
between Atlantic Financial Group, Ltd. and the Registrant.
**10.26 Agreement by and between the Registrant and Dougherty &
Company LLC.
12.1 Computation of Ratio of Earnings to Fixed Charges (assumes
exchange of 8-1/8% debentures for $85 million in 11%
debentures and 3.35 million shares of common stock).
*21 Subsidiaries of the Registrant, filed as Exhibit 21 to
Registrant's report on Form 10-K for the year ended January
2, 2000.
23.1 Consent of McGladrey & Pullen, LLP.
+23.2 Consent of Neil W. Koonce, Esq. is contained in his opinion
filed as Exhibit 5.1.
II-14
+23.3 Consent of Ivins, Phillips & Barker Chartered is contained
in its opinion filed as Exhibit 8.1.
**24.1 Power of Attorney.
**24.2 Power of Attorney relating to Cone Foreign Trading, LLC.
+25.1 Form T-1, Statement of Eligibility of Trustee, relating to
the 11% Secured Subordinated Debentures Due March 15, 2005.
+25.2 Form T-1, Statement of Eligibility of Trustee, relating to
the 8-1/8% Debentures Due March 15, 2005.
*27 Financial Data Schedule, filed as Exhibit 27 to Registrant's
report on Form 10-K for the year ended January 2, 2000.
**99.1 Form of Consent and Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
**99.4 Form of Letter to Clients.
**99.5 Form of Exchange Agent Agreement.
* Incorporated by reference to the statement or report indicated.
** Previously filed.
+ To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules have been omitted because they are
not applicable, not required or the required information is included in the
financial statements and notes thereto.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
II-15
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment no. 2 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Greensboro, North Carolina on December 28, 2000.
CONE MILLS CORPORATION
By: /s/ Gary L. Smith
-------------------------
Gary L. Smith
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. to registration statement has been signed by the following persons
in the following capacities:
Signature Title Date
- --------- ----- ----
* Chairman of the Board December 28, 2000
- ---------------------------
(Dewey L. Trogdon)
* Director, President and December 28, 2000
- --------------------------- Chief Executive Officer
(John L. Bakane) (Principal Executive Officer)
* Executive Vice President December 28, 2000
- --------------------------- and Chief Financial Officer
(Gary L. Smith) (Principal Financial Officer)
* Director December 28, 2000
- ---------------------------
(Doris R. Bray)
* Director December 28, 2000
- ---------------------------
(Haynes G. Griffin)
* Director December 28, 2000
- ---------------------------
(Bruce H. Hendry)
* Director December 28, 2000
- ---------------------------
(Jeanette C. Kimmel)
II-17
* Director December 28, 2000
- ---------------------------
(David T. Kollat)
* Director December 28, 2000
- ---------------------------
(Marc H. Kozberg)
* Director December 28, 2000
- ---------------------------
(Charles M. Reid)
* Director December 28, 2000
- ---------------------------
(John W. Rosenblum)
* Director December 28, 2000
- ---------------------------
(Cyrus C. Wilson)
* Controller (Principal December 28, 2000
- --------------------------- Accounting Officer)
(Christopher F. Conlon)
* Neil W. Koonce, by signing his name hereto, does sign this document on behalf
of the person indicated above pursuant to a power of attorney duly executed by
such person and filed with the Securities and Exchange Commission.
By /s/ Neil W. Koonce
---------------------------------
Neil W. Koonce
Attorney-in-Fact
II-18
Pursuant to the requirements of the Securities Act, the Co-Registrant
has duly caused this amendment no. 2 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Greensboro, North Carolina on December 28, 2000.
CONE FOREIGN TRADING LLC
By: /s/ Gary L. Smith
---------------------------------
Gary L. Smith
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 2 to registration statement has been signed by the following
persons in the following capacities:
Signature Title Date
- --------- ----- ----
* President December 28, 2000
- --------------------------- (Principal Executive Officer)
(John L. Bakane)
* Chief Financial Officer December 28, 2000
- --------------------------- (Principal Financial Officer)
(Gary L. Smith)
* Controller December 28, 2000
- --------------------------- (Principal Accounting Officer)
(Christopher F. Conlon)
Cone Mills Corporation Sole Member December 28, 2000
By: *
------------------------
Gary L. Smith
II-19
Executive Vice President
*Neil W. Koonce, by signing his name hereto, does sign this document on behalf
of the person indicated above pursuant to a power of attorney duly executed by
such person and filed with the Securities and Exchange Commission.
By /s/ Neil W. Koonce
---------------------------------
Neil W. Koonce
Attorney-in-Fact
II-20
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
*2.1 Receivables Purchase and Servicing Agreement dated as of
September 1, 1999, by and among Cone Receivables II LLC, as
Seller, Redwood Receivables Corporation, as Purchaser, the
Registrant, as Servicer, and General Electric Capital
Corporation, as Operating Agent and Collateral Agent, filed
as Exhibit 2.1(h) to Registrant's report on Form 10-Q for
the quarter ended October 3, 1999.
*2.2 Receivables Transfer Agreement dated as of September 1,
1999, by and among the Registrant, any other Originator
Party thereto, and Cone Receivables II LLC, filed as Exhibit
2.1(i) to Registrant's rep ort on Form 10-Q for the quarter
ended October 3, 1999.
*2.3.1 First Amendment and Waiver to Securitization Agreements
dated as of November 16, 1999, by and between Cone
Receivables II LLC, the Registrant, Redwood Receivables
Corporation and General Electric Capital Corporation,
together with all exhibits thereto, filed as Exhibit 2.1(c)
to Registrant's report on Form 10-K for the fiscal year
ending January 2, 2000.
*2.3.2 Second Amendment to Securitization Agreements dated as of
January 28, 2000, by and between Cone Receivables II LLC,
the Registrant, Redwood Receivables Corporation, and General
Electric Capital Corporation, together with all exhibits
thereto, filed as Exhibit 2.1(d) to Registrant's report on
Form 10-K for the fiscal year ending January 2, 2000.
*2.3.3 Third Amendment to Securitization Agreements dated as of
March 31, 2000, by and between Cone Receivables II LLC, the
Registrant, Redwood Receivables Corporation, and General
Electric Capital Corporation, together with all exhibits
thereto, filed as Exhibit 2.1(e) to Registrant's report on
Form 10-Q for the quarter ended April 2, 2000.
*2.3.4 Fourth Amendment to Securitization Agreements dated as of
April 24, 2000 by and between Cone Receivables II LLC, the
Registrant, Cone Foreign Trading LLC, Redwood Receivables
Corporation, and General Electric Capital Corporation,
together with all exhibits thereto, filed as Exhibit 2.1(f)
to Registrant's report on Form 10-Q for the quarter ended
April 2, 2000.
**2.3.5 Fifth Amendment to Securitization Agreements dated as of
June 30, 2000 by and between Cone Receivables II LLC, the
Registrant, Cone Foreign Trading LLC, Redwood Receivables
Corporation, and General Electric Capital Corporation.
2.3.6 Sixth Amendment to Securitization Agreements dated as of
December 12, 2000 by and between Cone Receivables II LLC,
the Registrant, Cone Foreign Trading LLC, Redwood
Receivables Corporation and General Electric Capital
Corporation.
II-8
*2.4 Investment Agreement dated as of June 18, 1993, among
Compania Industrial de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and the Registrant, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for the quarter ended
July 4, 1993.
*2.5 Commercial Agreement dated as of July 1, 1999, among
Compania Industrial de Parras, S.A. de C.V., the Registrant
and Parras Cone de Mexico, S.A., filed as Exhibit 2.2(b) to
Registrant's report on Form 10-K for the fiscal year ending
January 2, 2000.
2.5.1 Amended and Restated Commercial Agreement, dated as of
December 12, 2000, among Compania Industrial de Parras, S.A.
de C.V., the Registrant and Parras Cone de Mexico, S.A.
*2.6 Guaranty Agreement dated as of June 25, 1993, between the
Registrant and Compania Industrial de Parras, S.A. de C.V.,
filed as Exhibit 2.2(c) to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
*2.7 Joint Venture Agreement dated as of June 25, 1993, between
Compania Industrial de Parras, S.A. de C.V., and Cone Mills
(Mexico), S.A. de C.V., filed as Exhibit 2.2(d) to
Registrant's report on Form 10-Q for the quarter ended July
4, 1993.
*2.7.1 First Amendment to Joint Venture Agreement dated as of June
14, 1995, between Compania Industrial de Parras, S.A. de
C.V., and Cone Mills (Mexico), S.A. de C.V., filed as
Exhibit 2.2(e) to the Registrant's report on Form 10-Q for
the quarter ended July 2, 1995.
*2.8 Joint Venture Registration Rights Agreement dated as of June
25, 1993, among Parras Cone de Mexico, S.A., Compania
Industrial de Parras, S.A. de C.V. and Cone Mills (Mexico),
S.A. de C.V., filed as Exhibit 2.2(e) to Registrant's report
on Form 10-Q for the quarter ended July 4, 1993.
*2.9 Parras Registration Rights Agreement dated as of June 25,
1993, between Compania Industrial de Parras, S.A. de C.V.
and the Registrant, filed as Exhibit 2.2(f) to the
Registrant's report on Form 10-Q for the quarter ended July
4, 1993.
*2.10 Support Agreement dated as of June 25, 1993, among the
Registrant, Sr. Rodolfo L. Garcia, Sr. Rodolfo Garcia Muriel
and certain other persons listed therein ("private
stockholders"), filed as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter ended July 4, 1993.
*3.1 Restated Articles of Incorporation of the Registrant
effective August 25, 1993, filed as Exhibit 4.1 to
Registrant's report on Form 10-Q for the quarter ended
October 3, 1993.
*3.1.1 Articles of Amendment of the Articles of Incorporation of
the Registrant effective October 22, 1999, to fix the
designation, preferences, limitations, and relative rights
of a series of its Class B Preferred Stock, filed as Exhibit
4.1(a) to Registrant's report on Form 10-Q for the quarter
ended October 3, 1999.
*3.2 Amended and Restated Bylaws of Registrant, effective June
18, 1992, filed as Exhibit 3.5 to the Registrant's
Registration Statement on Form S-1 (File No. 33-46907).
*4.1 Rights Agreement dated as of October 14, 1999, between the
Registrant and First Union National Bank, as Rights Agent,
with Form of Articles of Amendment with respect to the Class
B Preferred Stock (Series A), the Form of Rights
Certificate, and Summary of Rights attached, filed as
Exhibit 1 to the Registrant's report on Form 8-A dated
October 29, 1999.
*4.2 Note Agreement dated as of August 13, 1992, between the
Registrant and The Prudential Insurance Company of America,
with form of 8% promissory note
II-9
attached, filed as Exhibit 4.01 to the Registrant's report
on Form 8-K dated August 13, 1992.
*4.2.1 Letter Agreement dated September 11, 1992, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.2 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.2 Letter Agreement dated July 19, 1993, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.3 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.3 Letter Agreement dated June 30, 1994, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.4 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.4 Letter Agreement dated November 14, 1994, amending the Note
Agreement dated August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, filed as
Exhibit 4.5 to the Registrant's report on Form 8-K dated
March 1, 1995.
*4.2.5 Letter Agreement dated as of June 30, 1995, amending the
Note Agreement dated August 13, 1992, between the Registrant
and The Prudential Insurance Company of America, filed as
Exhibit 4.3(e) to the Registrant's report on Form 10-Q for
the quarter ended July 2, 1995.
*4.2.6 Letter Agreement dated as of June 30, 1995, between the
Registrant and The Prudential Insurance Company of America
superseding Letter Agreement, filed as Exhibit 4.3(e) to the
Registrant's report on Form 10-Q for the quarter ended July
2, 1995.
*4.2.7 Letter Agreement dated as of March 30, 1996, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(g) to the Registrant's report on Form
10-Q for the quarter ended March 31, 1996.
*4.2.8 Letter Agreement dated as of January 31, 1997, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(h) to the Registrant's report on Form
10-K for the year ended December 29, 1996.
*4.2.9 Letter Agreement dated as of July 31, 1997, between the
Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.3(i) to the Registrant's report on Form
10-Q for the quarter ended September 28, 1997.
*4.2.10 Modification to Note Agreement dated as of February 14,
1998, between the Registrant and The Prudential Insurance
Company of America, filed as Exhibit 4.3(j) to Registrant's
report on Form 10-Q for the quarter ended March 29, 1998.
*4.2.11 Letter Agreement dated as of September 1, 1999, amending the
Note Agreement dated August 13, 1992, between the Registrant
and The Prudential Insurance Company of America, filed as
Exhibit 4.3(i) on Form 10-Q for the quarter ended October 3,
1999.
*4.2.12 Amendment of 1992 Note Agreement dated as of January 28,
2000, by and among the Registrant and The Prudential
Insurance Company of America, together with all exhibits
thereto, filed as Exhibit 9 to the Registrant's report on
Form 8-K dated February 11, 2000.
**4.2.13 Waiver under Note Agreement dated as of July 3, 2000, by and
among the Registrant and The Prudential Insurance Company of
America.
II-10
**4.2.14 Amendment of 1992 Note Agreement dated as of July 14, 2000,
by and among the Registrant and The Prudential Insurance
Company of America.
4.2.15 Amendment of 1992 Note Agreement dated as of December 12,
2000, by and among the Registrant and The Prudential
Insurance Company of America.
*4.3 Credit Agreement dated as of January 28, 2000, by and among
the Registrant, as Borrower, Bank of America, N.A., as Agent
and as Lender and the Lenders party thereto from time to
time, together with all exhibits thereto, filed as Exhibit 1
to the Registrant's report on Form 8-K dated February 11,
2000.
**4.3.1 Amendment No. 1 to Credit Agreement dated as of July 14,
2000, by and among the Registrant, as Borrower, Cone Global
Finance Corp., CIPCO S.C. Inc. and Cone Foreign Trading LLC,
as Guarantors, Bank of America, N.A., as Agent and as
Lender, and the Lenders party thereto from time to time.
4.3.2 Amendment No. 2 to Credit Agreement dated as of December 12,
2000, by and among the Registrant, as Borrower, Cone Global
Finance Corp., CIPCO S.C. Inc. and Cone Foreign Trading LLC,
as Guarantors, Bank of America, N.A., as Agent and as
Lender, and the Lenders party thereto from time to time.
*4.4 Guaranty Agreement dated as of January 28, 2000, made by
Cone Global Finance Corporation, CIPCO S.C., Inc. and Cone
Foreign Trading LLC in favor of Bank of America, N.A. as
Revolving Credit Agent for the Lenders, The Prudential
Insurance Company of America, SunTrust Bank, Morgan Guaranty
Trust Company of New York, Wilmington Trust Company, as
General Collateral Agent, Bank of America, N.A., as Priority
Collateral Agent, and Atlantic Financial Group, Ltd.,
together with all exhibits thereto, filed as Exhibit 2 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.5 Priority Security Agreement dated as of January 28, 2000, by
the Registrant and certain of its subsidiaries, as Grantors,
and Bank of America, N.A., as Priority Collateral Agent,
together with all exhibits thereto, filed as Exhibit 3 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.6 General Security Agreement dated as of January 28,2000, by
the Registrant and certain of its subsidiaries, as Grantors,
and Wilmington Trust Company, as General Collateral Agent,
together with all exhibits thereto, filed as Exhibit 4 to
the Registrant's report on Form 8-K dated February 11, 2000.
*4.7 Securities Pledge Agreement dated as of January 28, 2000, by
the Registrant in favor of Wilmington Trust Company, as
General Collateral Agent, together with all exhibits
thereto, filed as Exhibit 5 to the Registrant's report on
Form 8-K dated February 11, 2000.
*4.8 CMM Pledge Agreement dated as of January 28, 2000, by the
Registrant in favor of Wilmington Trust Company, as General
Collateral Agent, together with all exhibits thereto, filed
as Exhibit 6 to the Registrant's report on Form 8-K dated
February 11, 2000.
*4.9 Deed of Trust, Security Agreement, Fixture Filing,
Assignment of Leases and Rents and Financing Statement dated
as of January 28, 2000, between the Registrant, as Grantor,
TIM, Inc., as Trustee, Wilmington Trust Company, as General
Collateral Agent, and Bank of America, N.A., as Designated
Collateral Subagent, together with all exhibits thereto,
filed as Exhibit 7 to the Registrant's report on Form 8-K
dated February 11, 2000.
II-11
*4.10 Deed of Trust, Security Agreement, Fixture Filing,
Assignment of Leases and Rents and Financing Statement dated
as of January 28, 2000, between the Registrant, as Grantor,
TIM, Inc., as Trustee, and Bank of America, N.A., as
Priority Collateral Agent, together with all exhibits
thereto, filed as Exhibit 8 to the Registrant's report on
Form 8-K dated February 11, 2000.
*4.11 Termination Agreement dated as of January 28, 2000, between
the Registrant and Morgan Guaranty Trust Company of New
York, as Agent for various banks terminating the Credit
Agent dated August 7, 1997, filed as Exhibit 4.4(h) to
Registrant's report on Form 10-K for the fiscal year ending
January 2, 2000.
*4.12 Specimen Class A Preferred Stock Certificate, filed as
Exhibit 4.5 to the Registrant's Registration Statement on
Form S-1(File No. 33-46907).
*4.13 Specimen Common Stock Certificate, effective June 18, 1992,
filed as Exhibit 4.7 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
*4.14 Cone Mills Corporation 1983 ESOP as amended and restated
effective December 1, 1994, filed as Exhibit 4.9 to the
Registrant's report on Form 10-K for year ended January 1,
1995.
*4.14.1 First Amendment to the Cone Mills Corporation 1983 ESOP
dated May 9, 1995, filed as Exhibit 4.9(a) to the
Registrant's report on Form 10-K for year ended December 31,
1995.
*4.14.2 Second Amendment to the Cone Mills Corporation 1983 ESOP
dated December 5, 1995, filed as Exhibit 4.9(b) to the
Registrant's report on Form 10-K for year ended December
31,1995.
*4.14.3 Third Amendment to the Cone Mills Corporation 1983 ESOP
dated August 7, 1997, filed as Exhibit 4.8(c) to the
Registrant's report on Form 10-Q for the quarter ended
September 28,1997.
*4.14.4 Fourth Amendment to the Cone Mills Corporation 1983 ESOP
dated December 4, 1997, filed as Exhibit 4.8(d) to the
Registrant's report on Form 10-K for the year ended December
28,1997.
*4.15 Indenture dated as of February 14, 1995, between the
Registrant and Wachovia Bank of North Carolina, N.A. as
Trustee (The Bank of New York is successor Trustee), filed
as Exhibit 4.1 to Registrant's Registration Statement on
Form S-3 (File No. 33-57713).
4.15.1 Form of First Supplemental Indenture to the Indenture dated
as of February 14, 1995, between the Registrant and Wachovia
Bank of North Carolina, N.A. as Trustee (The Bank of New
York is successor Trustee), with respect to the 8-1/8%
Debentures Due March 15, 2005.
4.16 Form of Indenture between the Registrant and The Bank of New
York, as Trustee, with respect to the 11% Secured
Subordinated Debentures Due March 15, 2005 being registered.
+5.1 Opinion of Neil W. Koonce, Esq. re legality.
+8.1 Opinion of Ivins, Phillips & Barker Chartered re tax
matters.
*10.1 Employees' Retirement Plan of Cone Mills Corporation as
amended and restated effective December 1, 1994, filed as
Exhibit 10.1 to the Registrant's report on Form 10-K for the
year ended January 1, 1995.
II-12
*10.1.1 First Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated May 9,1995, filed as Exhibit 10.1(a)
to the Registrant's report on Form 10-K for the year ended
December 31, 1995.
*10.1.2 Second Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated December 5, 1995, filed as Exhibit
10.1(b) to the Registrant's report on Form 10-K for the year
ended December 31, 1995.
*10.1.3 Third Amendment to the Employees' Retirement Plan of Cone
Mills Corporation dated August 16, 1996, filed as Exhibit
10.1(c) to the Registrant's report on Form 10-K for the year
ended December 29, 1996
*10.1.4 Fourth Amendment to the Employees' Retirement Plan of Cone
Mills Corporation, filed as Exhibit 10 to the Registrant's
report on Form 10-Q for the quarter ended September 28,
1997.
*10.1.5 Fifth Amendment to Employees' Retirement Plan of Cone Mills
Corporation dated December 4, 1997, filed as Exhibit 10.1(e)
to the Registrant's report on Form 10-K or the year ended
December 28, 1997.
*10.7 Cone Mills Corporation SERP as amended and restated as of
December 5, 1995, filed as Exhibit 10.2 to the Registrant's
report on Form 10-K for the year ended December 31, 1995.
*10.8 Excess Benefit Plan of Cone Mills Corporation as amended and
restated as of December 5, 1995, filed as Exhibit 10.3 to
the Registrant's report on Form 10-K for the year ended
December 31, 1995.
*10.9 1984 Stock Option Plan of Registrant filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1 (File
No. 33-28040).
*10.10 Form of Nonqualified Stock Option Agreement under 1984 Stock
Option Plan of Registrant, filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1 (File No.
33-28040).
*10.11 Form of Incentive Stock Option Agreement under 1984 Stock
Option Plan of Registrant, filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (File No.
33-28040).
*10.12 1992 Stock Option Plan of Registrant, filed as Exhibit 10.9
to the Registrant's report on Form 10-K for the year ended
December 29, 1991.
*10.12.1 Amended and Restated 1992 Stock Plan, filed as Exhibit 10.1
to Registrant's report on Form 10-Q for the quarter ended
March 31, 1996.
*10.13 Form of Incentive Stock Option Agreement under 1992 Stock
Option Plan, filed as Exhibit 10.10 to the Registrant's
report on Form 10-K for the year ended January 3, 1993.
*10.14 Form of Nonqualified Stock Option Agreement under 1992 Stock
Option Plan, filed as Exhibit 10.8(a) to the Registrant's
report on Form 10-K for the year ended December 29,1996.
*10.14.1 Form of Nonqualified Stock Option Agreement under 1992
Amended and Restated Stock Plan, filed as Exhibit 10.8(b) to
the Registrant's report on Form 10-K for the year ended
December 29, 1996.
II-13
*10.15 Form of Restricted Stock Award Agreement under 1992 Amended
and Restated Stock Plan, filed as Exhibit 10.8(c) to the
Registrant's report on Form 10-K for the year ended December
28, 1997.
*10.16 1994 Stock Option Plan for Non-Employee Directors of
Registrant, filed as Exhibit 10.9 to Registrant's report on
Form 10-K for the year ended January 2,1994.
*10.17 Form of Non-Qualified Stock Option Agreement under 1994
Stock Option Plan for Non-Employee Directors of Registrant,
filed as Exhibit 10.10 to Registrant's report on Form 10-K
for the year ended January 2, 1994.
*10.18 Management Incentive Plan of the Registrant, filed as
Exhibit 10.11(b) to Registrant's report on Form 10-K for the
year ended January 3, 1993.
*10.19 1997 Senior Management Incentive Compensation Plan, filed as
Exhibit 10.2 to Registrant's report on Form 10-Q for the
quarter ended March 31, 1996.
*10.20 1997 Senior Management Discretionary Bonus Plan, filed as
Exhibit 10.13 to the Registrant's report on Form 10-K for
the year ended December 29, 1996.
*10.21 2000 Stock Compensation Plan for Non-Employee Directors of
Registrant dated as of May 9, 2000, filed as Exhibit 10.18
to Registrant's report on Form 10-Q for the quarter ended
April 7, 2000.
*10.22 Form of Agreement between the Registrant and Levi Strauss
dated as of March 30, 1992, filed as Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File No.
33-46907).
*10.23 First Amendment to Supply Agreement dated as of April 15,
1992, between the Registrant and Levi Strauss dated as of
March 30, 1992, filed as Exhibit 10.15 to Registrant's
Registration Statement on Form S-1 (No. 33-469007).
*10.24 Agreement dated January 1, 1999, between the Registrant and
Parkdale Mills, Inc., filed as Exhibit 10.17 to Registrant's
report on Form 10-K for the year ended January 2, 2000.
*10.25 Tenth Amendment to Master Lease dated as of January 28,
2000, between Atlantic Financial Group, Ltd. and the
Registrant, together with all exhibits thereto, filed as
Exhibit 10 to Registrant's report on Form 8-K dated February
11, 2000.
**10.25.1 Eleventh Amendment to Master Lease dated as of July 14, 2000
between Atlantic Financial Group, Ltd. and the Registrant.
**10.26 Agreement by and between the Registrant and Dougherty &
Company LLC.
12.1 Computation of Ratio of Earnings to Fixed Charges (assumes
exchange of 8-1/8% debentures for $85 million in 11%
debentures and 3.35 million shares of common stock).
*21 Subsidiaries of the Registrant, filed as Exhibit 21 to
Registrant's report on Form 10-K for the year ended January
2, 2000.
23.1 Consent of McGladrey & Pullen, LLP.
+23.2 Consent of Neil W. Koonce, Esq. is contained in his opinion
filed as Exhibit 5.1.
II-14
+23.3 Consent of Ivins, Phillips & Barker Chartered is contained
in its opinion filed as Exhibit 8.1.
**24.1 Power of Attorney.
**24.2 Power of Attorney relating to Cone Foreign Trading, LLC.
+25.1 Form T-1, Statement of Eligibility of Trustee, relating to
the 11% Secured Subordinated Debentures Due March 15, 2005.
+25.2 Form T-1, Statement of Eligibility of Trustee, relating to
the 8-1/8% Debentures Due March 15, 2005.
*27 Financial Data Schedule, filed as Exhibit 27 to Registrant's
report on Form 10-K for the year ended January 2, 2000.
**99.1 Form of Consent and Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
**99.4 Form of Letter to Clients.
**99.5 Form of Exchange Agent Agreement.
* Incorporated by reference to the statement or report indicated.
** Previously filed.
+ To be filed by amendment.