<PAGE> 1
As filed with the Securities and Exchange Commission on September 29, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 2392 75-2147728
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification
organization) Number)
4111 MINT WAY
DALLAS, TEXAS 75237
(214) 333-3225
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN H. KARNES, JR., ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
(214) 333-3225
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
Copies to:
TROY B. LEWIS, ESQ. DENNIS J. BLOCK, ESQ.
JONES, DAY, REAVIS & POGUE WEIL, GOTSHAL & MANGES LLP
2300 TRAMMELL CROW CENTER 767 FIFTH AVENUE
2001 ROSS AVENUE NEW YORK, NEW YORK 10153
DALLAS, TEXAS 75201 (212) 310-8000
(214) 220-3939
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE AND
ALL OTHER CONDITIONS TO THE MERGER OF A WHOLLY OWNED SUBSIDIARY OF PILLOWTEX
CORPORATION ("PILLOWTEX") WITH AND INTO FIELDCREST CANNON, INC. ("FIELDCREST")
PURSUANT TO THE AGREEMENT AND PLAN OF MERGER FILED AS EXHIBIT 2.1 HERETO (AS
AMENDED, THE "MERGER AGREEMENT") HAVE BEEN SATISFIED OR WAIVED.
If any of 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share. 5,600,000 shares (1) $24.8125 (2) $138,950,000 (3) $42,107 (4)
=======================================================================================================================
</TABLE>
(1) The number of shares of common stock, par value $.01 per share, of
Pillowtex ("Pillowtex Common Stock") to be registered has been determined
based on the estimated maximum number of shares of Pillowtex Common Stock
to be issued in exchange for shares of common stock, par value $1.00 per
share, of Fieldcrest ("Fieldcrest Common Stock"), and shares of preferred
stock, par value $.01 per share, of Fieldcrest ("Fieldcrest Preferred
Stock") in the merger of a wholly owned subsidiary of Pillowtex with and
into Fieldcrest (the "Merger") and upon exercise or conversion of certain
options and convertible debt securities of Fieldcrest following the
Merger, all as contemplated by the Merger Agreement.
(2) Estimated pursuant to Rule 457(f) under the Securities Act of 1933 (the
"Securities Act"), based on the market value of $24.8125 for Pillowtex
Common Stock (which is the average of the high and low sales prices of
shares of Pillowtex Common Stock on the Composite Tape of the New York
Stock Exchange on September 22, 1997).
(3) Estimated pursuant to Rule 457(f) under the Securities Act based on the
product of the estimated maximum offering price per share and the
estimated number of shares of Pillowtex Common Stock to be issued in
connection with the Merger.
(4) Represents 1/33rd of one percent of the estimated maximum aggregate
offering price of the Pillowtex Common Stock registered pursuant to this
Registration Statement.
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 WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE> 2
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND
EXCHANGE COMMISSION ONLY
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
___________ __, 1997
Dear Shareholders:
You are invited to attend the Special Meeting of Shareholders of
Pillowtex Corporation ("Pillowtex") to be held on __________, ____________ __,
1997, at _____ a.m., Central Time, at ______________________, Dallas, Texas
(including any postponement or adjournment thereof, the "Pillowtex Special
Meeting").
At the Pillowtex Special Meeting, you will be asked to consider and
vote upon a proposal to approve the issuance (the "Share Issuance") of up to
5,600,000 shares of Common Stock, par value $0.01 per share, of Pillowtex
("Pillowtex Common Stock") and of 65,000 shares of Series A Redeemable
Convertible Preferred Stock, par value $0.01 per share, of Pillowtex
("Pillowtex Preferred Stock") in connection with the acquisition by Pillowtex
of Fieldcrest Cannon, Inc. ("Fieldcrest") and related financing transactions.
The acquisition by Pillowtex of Fieldcrest will be effected by means of a
merger (the "Merger") of a wholly owned subsidiary of Pillowtex with and into
Fieldcrest. The Merger will result in Fieldcrest becoming a wholly owned
subsidiary of Pillowtex.
The Merger is provided for in an Agreement and Plan of Merger dated as
of September 10, 1997 (as amended, the "Merger Agreement") by and among
Pillowtex, a wholly owned subsidiary of Pillowtex, and Fieldcrest. As a result
of the Merger, each outstanding share of Common Stock, par value $1.00 per
share, of Fieldcrest ("Fieldcrest Common Stock") will be converted into a right
to receive total consideration valued at $34.00, consisting of (i) a cash
payment in an amount equal to $27.00 and (ii) a number (the "Conversion
Number") of shares of Pillowtex Common Stock equal to the quotient obtained by
dividing $7.00 by the average of the closing sales prices per share of
Pillowtex Common Stock on the New York Stock Exchange for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the closing date for the Merger (the "Determination Price"), except that,
absent an election by Pillowtex as described below, the Conversion Number will
not be more than 0.333 or less than 0.269. If the Determination Price is less
than $21.00, Pillowtex will have the right to elect to increase the cash
portion of such consideration and/or the Conversion Number such that the
aggregate value of the cash and Pillowtex Common Stock (valued at the
Determination Price) comprising such consideration equals $34.00 and, if
Pillowtex does not so elect, Fieldcrest will have the right to terminate the
Merger Agreement.
As a result of the Merger, each outstanding share of $3.00 Series A
Convertible Preferred Stock, par value $0.01 per share, of Fieldcrest
("Fieldcrest Preferred Stock"), other than shares converted into Fieldcrest
Common Stock prior to the Merger, will be converted into a right to receive
total consideration valued at $58.12, consisting of (i) a cash payment equal to
the product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 1.7094.
Pillowtex's Board of Directors has determined that the Merger is fair
and in the best interests of Pillowtex and its shareholders and has unanimously
approved the Merger and the related financing transactions described in the
accompanying Joint Proxy Statement/Prospectus. At the request of Pillowtex, on
September 5, 1997, Bear, Stearns & Co. Inc. ("Bear Stearns"), Pillowtex's
financial advisor, delivered to the Board of Directors of Pillowtex an oral
opinion, which was subsequently confirmed in a written opinion dated as of
September 10, 1997, to the effect that, as of such date and subject to the
assumptions and qualifications set forth in its written opinion, the total
consideration to be received in respect of each outstanding share of Fieldcrest
Common Stock and each outstanding share of Fieldcrest Preferred Stock in
connection with the Merger was fair, from a financial point of view, to the
shareholders of Pillowtex.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
PILLOWTEX VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
Please read carefully the accompanying Notice of Special Meeting of
Shareholders and Joint Proxy Statement/Prospectus for additional information
regarding the Share Issuance. Whether or not you plan to
<PAGE> 3
attend the Pillowtex Special Meeting, please complete, sign, and date the
enclosed proxy card and return it promptly in the enclosed postage prepaid
envelope. If you attend the Pillowtex Special Meeting, you may vote in person
if you wish, even though you have previously returned your proxy card.
Sincerely,
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 1997
------------------
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of
Pillowtex Corporation ("Pillowtex") is to be held on ____________, __________
__, 1997, at _____ a.m., Central Time, at ___________________, Dallas, Texas
(including any postponement or adjournment thereof, the "Pillowtex Special
Meeting") for the following purpose:
To consider and vote upon the issuance of up to 5,600,000
shares of Common Stock, par value $0.01 per share, of Pillowtex and of
65,000 shares of Series A Redeemable Convertible Preferred Stock, par
value $0.01 per share, in connection with acquisition by Pillowtex of
Fieldcrest Cannon, Inc. and related financing transactions.
Please read the accompanying Joint Proxy Statement/Prospectus
carefully. The Joint Proxy Statement/Prospectus and the Appendices thereto
form a part of this Notice.
Only shareholders of record at the close of business on __________ __,
1997 are entitled to notice of and to vote at the Pillowtex Special Meeting.
By Order of the Board of Directors
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
Dallas, Texas
_____________ __, 1997
<PAGE> 5
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
FIELDCREST CANNON, INC.
ONE LAKE CIRCLE DRIVE
KANNAPOLIS, NORTH CAROLINA 28081
____________ __, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Fieldcrest Special Meeting") of Fieldcrest Cannon, Inc. ("Fieldcrest") to
be held at _____ a.m., eastern time, on __________, __________ __, 1997, at
___________________________.
As described in the accompanying Joint Proxy Statement/Prospectus, at
the Fieldcrest Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
September 10, 1997 (as amended, the "Merger Agreement"), by and among Pillowtex
Corporation ("Pillowtex"), Pegasus Merger Sub, Inc. ("Sub") and Fieldcrest
pursuant to which Sub will be merged with and into Fieldcrest (the "Merger"),
with Fieldcrest continuing as the surviving corporation and becoming a wholly
owned subsidiary of Pillowtex.
Pursuant to the Merger Agreement, each outstanding share of Common
Stock, par value $1.00 per share, of Fieldcrest ("Fieldcrest Common Stock")
will be converted into a right to receive total consideration valued at $34.00,
consisting of (i) a cash payment in an amount equal to $27.00 and (ii) a number
(the "Conversion Number") of shares of Common Stock, par value $0.01 per share,
of Pillowtex ("Pillowtex Common Stock") equal to the quotient obtained by
dividing $7.00 by the average of the closing sales prices per share of
Pillowtex Common Stock on the New York Stock Exchange for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the Merger (the "Determination Price"), except that, absent an election by
Pillowtex as described below, the Conversion Number will not be more than 0.333
or less than 0.269. If the Determination Price is less than $21.00, Pillowtex
will have the right to elect to increase the cash portion of such merger
consideration and/or the Conversion Number such that the sum of (i) the cash
portion of such merger consideration and (ii) the product of (a) the Conversion
Number and (b) the Determination Price equals $34.00 and, if Pillowtex does not
so elect, Fieldcrest will have the right to terminate the Merger Agreement.
As a result of the Merger, each outstanding share of $3.00 Series A
Convertible Preferred Stock, par value $0.01 share, of Fieldcrest ("Fieldcrest
Preferred Stock"), other than shares converted into Fieldcrest Common Stock
prior to the Merger, will be converted into a right to receive total
consideration valued at $58.12, consisting of (i) a cash payment equal to the
product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 1.7094.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement by the affirmative vote of the
holders of 662/3% or more of the outstanding shares of the Fieldcrest Common
Stock.
Your Board of Directors has carefully reviewed and considered the
terms and conditions of the Merger Agreement and has determined that the Merger
Agreement and the Merger are fair to and in the best interests of Fieldcrest
and its stockholders, and has approved and adopted the Merger Agreement. In
addition, Fieldcrest's financial advisor, Credit Suisse First Boston
Corporation, has rendered its opinion to the effect that, as of the date of
such opinion and based upon and subject to the matters set forth therein, the
consideration to be received by holders of the Fieldcrest Common Stock in the
Merger was fair to such holders from a financial point of view. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
<PAGE> 6
Detailed information concerning the proposed Merger is set forth in
the accompanying Joint Proxy Statement/Prospectus. I urge you to read the
enclosed material carefully and request that you promptly complete and return
the enclosed proxy in the enclosed return envelope, which requires no postage
if mailed in the United States. If you attend the Fieldcrest Special Meeting,
you may vote in person even if you have previously returned your proxy. Your
vote is important regardless of the number of shares you own.
Sincerely,
James M. Fitzgibbons
Chairman of the Board and
Chief Executive Officer
<PAGE> 7
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
FIELDCREST CANNON, INC.
ONE LAKE CIRCLE DRIVE
KANNAPOLIS, NORTH CAROLINA 28081
-----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________, 1997
-----------------
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of
Fieldcrest Cannon, Inc. ("Fieldcrest") will be held on _______________,
____________ __, 1997, at ____ a.m., Eastern Time, at _______________,
_______________, _______________ (including any postponement or adjournment
thereof, the "Fieldcrest Special Meeting") for the following purpose:
To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of September 10, 1997 (as
amended, the "Merger Agreement"), by and among Pillowtex Corporation,
a Texas corporation ("Pillowtex"), Pegasus Merger Sub, Inc., a
Delaware corporation and a wholly owned subsidiary of Pillowtex
("Sub"), and Fieldcrest, pursuant to which Sub will be merged with and
into Fieldcrest (the "Merger"), with Fieldcrest continuing as the
surviving corporation and becoming a wholly owned subsidiary of
Pillowtex.
The Merger Agreement and the Merger are described in detail in the
accompanying Joint Proxy Statement/Prospectus.
The Fieldcrest Board of Directors has fixed _______________, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Fieldcrest Special Meeting or any adjournments or postponements
thereof. Only holders of record of Fieldcrest Common Stock at the close of
business on that date will be entitled to notice of and to vote at the
Fieldcrest Special Meeting.
Holders of Fieldcrest Common Stock or Fieldcrest Preferred Stock who
do not vote in favor of approving and adopting the Merger Agreement and who
otherwise comply with the applicable statutory procedures of Section 262 of the
Delaware General Corporation Law (the "DGCL") will be entitled to appraisal
rights under Section 262 of the DGCL. A summary of the provisions of Section
262 of the DGCL, including a summary of the requirements that must be complied
with by holders of Fieldcrest Common Stock or Fieldcrest Preferred Stock
desiring to assert appraisal rights, is set forth in the accompanying Joint
Proxy Statement/Prospectus under the heading "The Merger --Appraisal Rights."
The entire text of Section 262 of the DGCL is attached as Appendix D to the
Joint Proxy Statement/Prospectus.
The accompanying Joint Proxy Statement/Prospectus describes the Merger
Agreement, the proposed Merger and certain actions to be taken in connection
with the Merger. Please read the Joint Proxy Statement/Prospectus carefully.
To ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend Fieldcrest Special Meeting. You
may revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it is voted at the Fieldcrest Special
Meeting. Executed proxies with no instructions indicated thereon will be voted
"FOR" approval and adoption of the Merger Agreement.
By Order Of The Board of Directors,
Mark R. Townsend
Secretary
Kannapolis, North Carolina
_______________, 1997
<PAGE> 8
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE FIELDCREST
SPECIAL MEETING.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
<PAGE> 9
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1997
JOINT PROXY STATEMENT
OF
PILLOWTEX CORPORATION
AND
FIELDCREST CANNON, INC.
------------------
PROSPECTUS OF PILLOWTEX CORPORATION
This Joint Proxy Statement/Prospectus is furnished to holders of shares of
common stock, par value $0.01 per share (the "Pillowtex Common Stock"), of
Pillowtex Corporation, a Texas corporation ("Pillowtex"), in connection with
the solicitation by and on behalf of the Board of Directors of Pillowtex (the
"Pillowtex Board") of proxies for use at a Special Meeting of Shareholders of
Pillowtex (the "Pillowtex Special Meeting") to be held at
________________________, Dallas, Texas, at _____ a.m., Central Time, on
__________ ___, 1997. This Joint Proxy Statement/Prospectus, the Notice of
Special Meeting of Shareholders, and the accompanying proxy card are first
being sent to holders of Pillowtex Common Stock on or about __________________,
1997.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of common stock, par value $1.00 per share (the "Fieldcrest Common
Stock"), of Fieldcrest Cannon, Inc., a Delaware corporation ("Fieldcrest"), in
connection with the solicitation by and on behalf of the Board of Directors of
Fieldcrest (the "Fieldcrest Board") of proxies for use at a Special Meeting of
Stockholders of Fieldcrest (the "Fieldcrest Special Meeting") to be held at
___________________________, ___________________, ____________________, at
_____ a.m., Eastern Time, on _________________, _______________ __, 1997. This
Joint Proxy Statement/Prospectus, the Notice of Special Meeting of
Stockholders, and the accompanying proxy card are first being sent to holders
of Fieldcrest Common Stock on or about ________________, 1997.
At the Pillowtex Special Meeting, holders of record of Pillowtex Common
Stock as of the close of business on ______________, 1997 (the "Pillowtex
Record Date") will consider and vote upon a proposal to approve the issuance
(the "Share Issuance") of up to 5,600,000 shares of Pillowtex Common Stock and
of 65,000 shares of Series A Redeemable Convertible Preferred Stock, par value
$0.01 per share, of Pillowtex (the "Pillowtex Preferred Stock") in connection
with the acquisition by Pillowtex of Fieldcrest and related financing
transactions. The acquisition by Pillowtex of Fieldcrest will be effected by
means of a merger (the "Merger") of a wholly owned subsidiary of Pillowtex
("Newco") with and into Fieldcrest.
At the Fieldcrest Special Meeting, holders of record of Fieldcrest Common
Stock as of the close of business on ____________, 1997 (the "Fieldcrest Record
Date") will consider and vote upon the approval and adoption of the Agreement
and Plan of Merger, dated as of September 10, 1997 (as amended, the "Merger
Agreement"), by and among Pillowtex, Newco, and Fieldcrest. See "The Merger"
for a description of the Merger Agreement and the Merger.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Pillowtex included in a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the issuance of up to 5,600,000
shares of Pillowtex Common Stock in connection with the Merger. All
information concerning Pillowtex contained in this Joint Proxy
Statement/Prospectus has been furnished by Pillowtex, and all information
concerning Fieldcrest contained in this Joint Proxy Statement/Prospectus has
been furnished by Fieldcrest.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 HEREOF FOR A DISCUSSION OF CERTAIN
RISKS OF OWNERSHIP OF PILLOWTEX COMMON STOCK AND OTHER MATTERS THAT YOU SHOULD
CONSIDER IN DETERMINING HOW TO VOTE UPON THE MATTERS DESCRIBED ABOVE.
THE SHARES OF PILLOWTEX COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Joint Proxy Statement/Prospectus is ___________ __, 1997.
<PAGE> 10
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PILLOWTEX,
FIELDCREST, OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PILLOWTEX OR FIELDCREST SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Each of Pillowtex and Fieldcrest is subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files periodic reports, proxy
statements, and other information with the Commission. Such reports, proxy
statements, and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a Website, located at
http://www.sec.gov, that contains reports, proxy statements, and other
information regarding registrants that file electronically with the Commission.
Copies of such reports, proxy statements, and other information also can be
obtained by mail from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements, and other information relating to Pillowtex and Fieldcrest may also
be inspected at the offices of the New York Stock Exchange, Inc. (the "NYSE")
at 20 Broad Street, New York, New York 10005.
As permitted under the Securities Act and the Exchange Act, this Joint
Proxy Statement/Prospectus does not contain all the information set forth in
the Registration Statement. Such additional information can be inspected and
copied or obtained from the Commission in the manner described above.
Statements contained in this Joint Proxy Stat ement/Prospectus as to the
contents of any other document referred to herein are not necessarily complete,
and each such statement is qualified in all respects by reference to the copy
of such other document filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Pillowtex with the
Commission are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended
December 28, 1996; (ii) Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 29, 1997 and June 28, 1997; (iii) Current Report on Form 8-K, dated
September 10, 1997 (as amended by an amendment on Form 8-K/A (Amendment No. 1)
dated September 10, 1997); (iv) Proxy Statement on Schedule 14A for the Annual
Meeting of Shareholders held May 8, 1997; and (v) Registration Statement on
Form 8-A, effective March 17, 1993 (Commission File No. 1-11756) (collectively,
together with all other documents and reports of Pillowtex incorporated herein
by reference, the "Pillowtex Reports").
The following documents which have been filed by Fieldcrest with the
Commission are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended
December 31, 1996; (ii) Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1997 and June 30, 1997; (iii) Current Reports on Form 8-K,
dated February 14, 1997 and September 15, 1997; (iv) Proxy Statement on
Schedule 14A for the Annual Meeting of Stockholders held April 22, 1997; and
(v) 1996 Annual Report to Stockholders (collectively, together with all other
documents and reports of Fieldcrest incorporated herein by reference, the
"Fieldcrest Reports").
All documents and reports filed by either Pillowtex or Fieldcrest pursuant
to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of
this Joint Proxy Statement/Prospectus and prior to the date of the
ii
<PAGE> 11
Pillowtex Special Meeting or the Fieldcrest Special Meeting are deemed to be
incorporated by reference in this Joint Proxy Statement/Prospectus and to be a
part hereof from the dates of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein is deemed to be modified or superseded for purposes of this
Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference documents
that are not presented herein or delivered herewith. These documents, other
than exhibits to such documents, are available, without charge, to any person
to whom this Joint Proxy Statement/Prospectus is delivered, on written or oral
request, to: in the case of documents relating to Pillowtex, Pillowtex
Corporation, 4111 Mint Way, Dallas, Texas 75237: Attention: Mark Kirkpatrick
(telephone number (214) 333-3225, ext. 618); and, in the case of documents
relating to Fieldcrest, Fieldcrest Cannon, Inc., 326 East Stadium Drive, Eden,
North Carolina 27288, Attention: Kenneth M. Allgood (telephone number (910)
627-3358). In order to ensure timely delivery of the documents, any request
should be made by ______________ __, 1997.
NOTE REGARDING FORWARD-LOOKING INFORMATION
THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH ARE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "COULD," "SHOULD,"
"EXPECT," "ANTICIPATE," "INTEND," "PLAN," "ESTIMATE," OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREOF. SUCH FORWARD-LOOKING STATEMENTS
ARE NECESSARILY BASED ON VARIOUS ASSUMPTIONS AND ESTIMATES AND ARE INHERENTLY
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING RISKS AND UNCERTAINTIES
RELATING TO THE POSSIBLE INVALIDITY OF THE UNDERLYING ASSUMPTIONS AND ESTIMATES
AND POSSIBLE CHANGES OR DEVELOPMENTS IN SOCIAL, ECONOMIC, BUSINESS, INDUSTRY,
MARKET, LEGAL, AND REGULATORY CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR
OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS
PARTNERS, AND COMPETITORS AND LEGISLATIVE, REGULATORY, JUDICIAL, AND OTHER
GOVERNMENTAL AUTHORITIES AND OFFICIALS. IN ADDITION TO ANY RISKS AND
UNCERTAINTIES SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH
FORWARD-LOOKING STATEMENTS, THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE
18 OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE REPORTS, PROXY
STATEMENTS, AND OTHER INFORMATION REFERRED TO IN "AVAILABLE INFORMATION"
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL AMOUNTS, RESULTS, EVENTS, AND CIRCUMSTANCES TO DIFFER MATERIALLY FROM
THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
iii
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TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . ii
NOTE REGARDING FORWARD-LOOKING INFORMATION . . . . . . . . . . . . . . . . iii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Pillowtex Special Meeting . . . . . . . . . . . . . . . . . . . . 1
Recommendation of the Pillowtex Board . . . . . . . . . . . . . . . . 2
Opinion of Pillowtex's Financial Advisor . . . . . . . . . . . . . . . 2
The Fieldcrest Special Meeting . . . . . . . . . . . . . . . . . . . . 2
Recommendation of the Fieldcrest Board . . . . . . . . . . . . . . . . 3
Opinion of Fieldcrest's Financial Advisor . . . . . . . . . . . . . . 3
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selected Per Share Financial Information . . . . . . . . . . . . . . . 11
Market Price Information . . . . . . . . . . . . . . . . . . . . . . . 12
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE PILLOWTEX SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Voting at the Pillowtex Special Meeting . . . . . . . . . . . . . . . 15
Proxies; Revocation . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE FIELDCREST SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 16
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Voting at the Fieldcrest Special Meeting . . . . . . . . . . . . . . . 16
Proxies; Revocation . . . . . . . . . . . . . . . . . . . . . . . . . 17
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Significant Leverage and Debt Service . . . . . . . . . . . . . . . . 18
Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . . . 18
Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Restrictions on Payment of Dividends . . . . . . . . . . . . . . . . . 19
Risks Associated with Acquisitions . . . . . . . . . . . . . . . . . . 19
Dependence on Raw Materials . . . . . . . . . . . . . . . . . . . . . 19
Dependence on Supply Sources in China . . . . . . . . . . . . . . . . 20
Adverse Retail Industry Conditions . . . . . . . . . . . . . . . . . . 20
Dependence on Key Licenses . . . . . . . . . . . . . . . . . . . . . . 20
Dependence on Brand Names . . . . . . . . . . . . . . . . . . . . . . 21
Risk of Loss of Material Customers . . . . . . . . . . . . . . . . . . 21
Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Influence by Significant Shareholders . . . . . . . . . . . . . . . . 22
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . . 22
Seasonality of Business . . . . . . . . . . . . . . . . . . . . . . . 22
Industry Competition and Competitive Factors . . . . . . . . . . . . . 22
Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Provisions of Pillowtex's Articles of Incorporation, Bylaws,
and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . 22
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TABLE OF CONTENTS (CONT'D)
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<S> <C>
THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Pillowtex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fieldcrest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Certain Prior Transactions Between Pillowtex and Fieldcrest . . . . . 23
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . 23
Pillowtex's Reasons for the Merger . . . . . . . . . . . . . . . . . . 27
Opinion of Pillowtex's Financial Advisor . . . . . . . . . . . . . . . 28
Fieldcrest's Reasons for the Merger . . . . . . . . . . . . . . . . . 31
Opinion of Fieldcrest's Financial Advisor . . . . . . . . . . . . . . 32
Certain Projected Financial Information of Fieldcrest . . . . . . . . 35
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 37
Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . 44
Delisting and Deregistration of Fieldcrest Common Stock . . . . . . . 44
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 44
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . 44
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 46
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . 46
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PRO FORMA CAPITALIZATION OF PILLOWTEX . . . . . . . . . . . . . . . . . . . 49
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX . . . . . . 51
MERGER FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
New Pillowtex Bank Facilities . . . . . . . . . . . . . . . . . . . . 59
Pillowtex Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 60
New Pillowtex Subordinated Notes . . . . . . . . . . . . . . . . . . . 60
Standby Bridge Loan Facility . . . . . . . . . . . . . . . . . . . . . 61
OTHER POST-MERGER INDEBTEDNESS OF PILLOWTEX . . . . . . . . . . . . . . . . 61
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Existing Pillowtex Subordinated Notes . . . . . . . . . . . . . . . . 61
Fieldcrest Convertible Debentures . . . . . . . . . . . . . . . . . . 62
Pillowtex Deed of Trust Note . . . . . . . . . . . . . . . . . . . . . 62
Pillowtex Industrial Revenue Bonds . . . . . . . . . . . . . . . . . . 62
Fieldcrest Industrial Revenue Bonds . . . . . . . . . . . . . . . . . 63
DESCRIPTION OF PILLOWTEX CAPITAL STOCK . . . . . . . . . . . . . . . . . . 63
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 63
Series A Redeemable Convertible Preferred Stock . . . . . . . . . . . 64
Certain Corporate Governance Matters . . . . . . . . . . . . . . . . . 65
Future Stock Issuances . . . . . . . . . . . . . . . . . . . . . . . . 67
RESTRICTIONS ON RESALES OF
PILLOWTEX COMMON STOCK BY AFFILIATES . . . . . . . . . . . . . . . . . . . 68
</TABLE>
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<PAGE> 14
TABLE OF CONTENTS (CONT'D)
<TABLE>
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<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF
FIELDCREST COMMON STOCK AND PILLOWTEX COMMON STOCK . . . . . . . . . . . . 68
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 69
Amendment of Articles or Certificate of Incorporation and Bylaws . . . 69
Approval of Mergers, Dissolution, and Asset Sales . . . . . . . . . . 69
Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Action without a Meeting . . . . . . . . . . . . . . . . . . . . . . . 70
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Limitation of Director Liability . . . . . . . . . . . . . . . . . . 71
Indemnification of Officers and Directors . . . . . . . . . . . . . . 72
Nomination of Directors; Proposal of Business . . . . . . . . . . . . 75
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . 75
Certain Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . 75
Derivative Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 76
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
PROPOSALS BY PILLOWTEX SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 77
PROPOSALS BY FIELDCREST STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 77
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
APPENDIX A -- Agreement and Plan of Merger . . . . . . . . . . . . . . . . A-1
APPENDIX B -- Opinion of Bear, Stearns & Co. Inc. . . . . . . . . . . . . . B-1
APPENDIX C -- Opinion of Credit Suisse First Boston Corporation . . . . . . C-1
APPENDIX D -- Text of Delaware General Corporation Law Section 262 . . . . D-1
</TABLE>
vi
<PAGE> 15
SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Joint Proxy Statement/Prospectus and the attached Appendices, all of
which should be reviewed carefully. As required by the context, references in
this Joint Proxy Statement/Prospectus to "Pillowtex," "Fieldcrest," or the
"Surviving Company" should be construed as references to Pillowtex, Fieldcrest,
or the Surviving Company (as hereinafter defined), as the case may be, together
with their respective predecessors and subsidiaries. References to "fiscal"
years are references to fiscal years of Pillowtex (which end on December 31 for
years prior to 1995 and on the Saturday nearest December 31 for years after
1994) or to fiscal years of Fieldcrest (which end on December 31), as the case
may be.
THE PARTIES
Pillowtex. Pillowtex, founded in 1954, is a leading North American
designer, manufacturer, and marketer of bed pillows, blankets, mattress pads,
and down comforters. Other complementary bedroom textile furnishings offered
by Pillowtex include comforter covers, featherbeds, pillow protectors,
decorative pillows, bedspreads, synthetic comforters, pillow shams, dust
ruffles, and window treatments. Pillowtex has positioned itself as a single-
source supplier to retailers for top-of-the-bed home textile furnishings (other
than sheets), offering a broad assortment of products across multiple price
points. Pillowtex markets its products primarily to department stores, mass
merchants, wholesale clubs, specialty retail stores, catalogs, and
institutional distributors. The mailing address of Pillowtex's principal
executive offices is 4111 Mint Way, Dallas, Texas 75237, and its telephone
number is (214) 333-3225.
Fieldcrest. Fieldcrest was incorporated under the laws of Delaware in 1953
and is principally involved in the manufacture and sale of home furnishing
products. Fieldcrest designs, manufactures, and markets a broad range of
household textile products consisting of towels, sheets, comforters, bath rugs,
and furniture coverings. Fieldcrest's customers consist principally of
department stores, chain stores, mass merchants, specialty home furnishing
stores, catalog warehouse clubs and other retail outlets, and institutional,
government, and contract accounts. The mailing address of Fieldcrest's
principal executive offices is One Lake Circle Drive, Kannapolis, North
Carolina 28081, and its telephone number is (704) 939-2000.
THE PILLOWTEX SPECIAL MEETING
Time, Date, and Place. The Pillowtex Special Meeting will be held on
__________, __________ __, 1997, at _____ a.m., Central Time, at
____________________, Dallas, Texas.
Purpose. The purpose of the Pillowtex Special Meeting is for Pillowtex's
shareholders to consider and vote upon a proposal to approve the issuance of up
to 5,600,000 shares of Pillowtex Common Stock and of 65,000 shares of Pillowtex
Preferred Stock in connection with the Merger and related financing
transactions (i.e., the Share Issuance). See "The Pillowtex Special Meeting."
Record Date; Shares Entitled to Vote. At the Pillowtex Special Meeting,
shareholders will be entitled to one vote for each outstanding share of
Pillowtex Common Stock held of record as of the close of business on the
Pillowtex Record Date. As of the Pillowtex Record Date, there were ___________
shares of Pillowtex Common Stock outstanding and entitled to vote at the
Pillowtex Special Meeting, and there were approximately ______ holders of
record of Pillowtex Common Stock. See "The Pillowtex Special Meeting --Voting
at the Pillowtex Special Meeting."
Required Vote. The affirmative vote of the holders of a majority of the
shares of Pillowtex Common Stock present at the Pillowtex Special Meeting and
entitled to vote is required for the approval of the Share Issuance. As of the
Pillowtex Record Date, directors and executive officers of Pillowtex and their
affiliates owned beneficially, in the aggregate, approximately ____% of the
outstanding shares of Pillowtex Common Stock. Charles M. Hansen, Jr., Chairman
of the Board and Chief Executive Officer of Pillowtex, and Mary R.
<PAGE> 16
Silverthorne, a director of Pillowtex, beneficially own, in the aggregate,
approximately 52.9% of the currently outstanding shares of Pillowtex Common
Stock. Each of Mr. Hansen and Ms. Silverthorne has separately informed
Pillowtex that he or she intends to be present at the Pillowtex Special Meeting
and to vote his or her shares of Pillowtex Common Stock for the approval of the
Share Issuance. Accordingly, the approval of the Share Issuance is expected to
occur irrespective of whether or the manner in which other holders of Pillowtex
Common Stock vote their shares.
Revocation of Proxies. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy is voted at the
Pillowtex Special Meeting. A proxy may be revoked by filing with the Secretary
of Pillowtex prior to the voting of the proxy either a written instrument
revoking the proxy or an executed proxy bearing a later date, or by voting in
person at the Pillowtex Special Meeting. Attendance at the Pillowtex Special
Meeting will not, in itself, constitute the revocation of a proxy. See "The
Pillowtex Special Meeting --Proxies; Revocation."
RECOMMENDATION OF THE PILLOWTEX BOARD
The Pillowtex Board unanimously approved the Merger Agreement at a meeting
held on September 5, 1997. The Pillowtex Board believes that the Merger is in
the best interests of Pillowtex and its shareholders and unanimously recommends
that Pillowtex shareholders vote FOR the approval of the Share Issuance.
OPINION OF PILLOWTEX'S FINANCIAL ADVISOR
Bear Stearns was retained by Pillowtex to act as its financial advisor in
connection with the Merger. At the request of Pillowtex, on September 5, 1997,
Bear Stearns delivered to the Pillowtex Board an oral opinion, which was
subsequently confirmed in a written opinion dated as of September 10, 1997, to
the effect that, as of such date and subject to the assumptions and
qualifications set forth in the written opinion, the Consideration (as defined
in the opinion of Bear Stearns) was fair, from a financial point of view, to
the shareholders of Pillowtex. The full text of the opinion of Bear Stearns is
set forth as Appendix B to this Joint Proxy Statement/Prospectus. Pillowtex
shareholders are urged to read this opinion carefully and in its entirety. See
"The Merger --Opinion of Pillowtex's Financial Advisor."
THE FIELDCREST SPECIAL MEETING
Time, Date, and Place. The Fieldcrest Special Meeting will be held on
__________, __________ __, 1997, at _____ a.m., Eastern Time, at
____________________, _________________, ________________.
Purpose. The purpose of the Fieldcrest Special Meeting is for stockholders
of Fieldcrest to consider and vote upon the approval and adoption of the Merger
Agreement, a copy of which is attached hereto as Appendix A. See "The
Fieldcrest Special Meeting."
Record Date; Shares Entitled to Vote. At the Fieldcrest Special Meeting,
stockholders will be entitled to one vote for each outstanding share of
Fieldcrest Common Stock held of record as of the close of business on the
Fieldcrest Record Date. As of the Fieldcrest Record Date, there were
___________ shares of Fieldcrest Common Stock outstanding and entitled to vote
at the Fieldcrest Special Meeting, and there were approximately ______ holders
of record of Fieldcrest Common Stock. Holders of Fieldcrest's $3.00 Series A
Convertible Preferred Stock ("Fieldcrest Preferred Stock") are not entitled to
vote at the Fieldcrest Special Meeting. See "The Fieldcrest Special Meeting
- --Voting at the Fieldcrest Special Meeting."
Required Vote. The affirmative vote of the holders of two-thirds or more
of the outstanding shares of Fieldcrest Common Stock entitled to vote thereon
is required for the approval and adoption of the Merger Agreement. As of the
Fieldcrest Record Date, directors and executive officers of Fieldcrest and
their affiliates owned beneficially, in the aggregate, approximately ___% of
the voting power of the outstanding shares of Fieldcrest Common Stock.
2
<PAGE> 17
Revocation of Proxies. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy is voted at the
Fieldcrest Special Meeting. A proxy may be revoked by filing with the
Secretary of Fieldcrest prior to the voting of the proxy either a written
instrument revoking the proxy or an executed proxy bearing a later date, or by
voting in person at the Fieldcrest Special Meeting. Attendance at the
Fieldcrest Special Meeting will not, in itself, constitute the revocation of a
proxy. See "The Fieldcrest Special Meeting --Proxies; Revocation."
RECOMMENDATION OF THE FIELDCREST BOARD
The Fieldcrest Board approved the Merger Agreement at a meeting held on
September 10, 1997. The Fieldcrest Board believes that the Merger is in the
best interests of Fieldcrest and its stockholders and recommends that
Fieldcrest stockholders vote FOR the approval and adoption of the Merger
Agreement.
OPINION OF FIELDCREST'S FINANCIAL ADVISOR
Credit Suisse First Boston Corporation ("CSFB") was retained by a special
committee of the Fieldcrest Board (the "Special Committee") to act as its
exclusive financial advisor with respect to an evaluation of a variety of
strategic and financial alternatives. At the request of the Special Committee,
on September 10, 1997, CSFB delivered to the Fieldcrest Board its written
opinion that, as of such date and based upon and subject to the matters set
forth therein, the Consideration (as defined in the opinion of CSFB) to be
received by the holders of the Fieldcrest Common Stock in the Merger was fair
to such stockholders from a financial point of view. The full text of the
opinion of CSFB is set forth as Appendix C to this Joint Proxy
Statement/Prospectus. Fieldcrest stockholders are urged to read this opinion
carefully and in its entirety. See "The Merger --Opinion of Fieldcrest's
Financial Advisor."
THE MERGER
General. On the terms and subject to the conditions set forth in the
Merger Agreement, Newco will be merged with and into Fieldcrest, with
Fieldcrest being the surviving corporation in the Merger (as such, the
"Surviving Company"). At the effective time of the Merger (the "Effective
Time"), each then-outstanding share of common stock of Newco will be converted
into one share of common stock of the Surviving Company, which will thereby
become a wholly owned subsidiary of Pillowtex.
Conversion of Fieldcrest Shares. At the Effective Time, each then-
outstanding share of Fieldcrest Common Stock (other than any shares held in the
treasury of Fieldcrest, by any of its subsidiaries, or directly or indirectly
by Pillowtex, which shares will be cancelled and shares held by stockholders,
if any, who properly exercised their appraisal rights under Delaware law) will
be converted into the right to receive total consideration valued at $34.00,
consisting of (i) a cash payment in an amount equal to $27.00 and (ii) a number
(the "Conversion Number") of shares of Pillowtex Common Stock equal to the
quotient obtained by dividing $7.00 by the average of the closing prices per
share of Pillowtex Common Stock on the NYSE for each of the 20 consecutive
trading days immediately preceding the fifth trading day prior to the Closing
Date (defined below) for the Merger (the "Determination Price"), except that,
absent an election by Pillowtex as described below, the Conversion Number will
not be more than 0.333 or less than 0.269. If the Determination Price is less
than $21.00, Pillowtex will have the right to elect to increase the cash
portion of such consideration and/or the Conversion Number such that the sum of
(i) the cash portion of such consideration and (ii) the product of (a) the
Conversion Number and (b) the Determination Price equals $34.00 and, if
Pillowtex does not so elect, Fieldcrest will have the right to terminate the
Merger Agreement. See "The Merger --The Merger Agreement --Consideration to be
Paid in the Merger."
At the Effective Time, each then-outstanding share of Fieldcrest Preferred
Stock (other than shares converted into Fieldcrest Common Stock prior to the
Closing Date and any shares held in the treasury of Fieldcrest, by any of its
subsidiaries, or directly or indirectly by Pillowtex, which shares will be
cancelled and shares held by stockholders, if any, who properly exercised their
appraisal rights under Delaware law) will be converted into a right to receive
total consideration valued at $58.12, consisting of (i) a cash payment equal to
3
<PAGE> 18
the product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 1.7094. See "The Merger --The Merger
Agreement --Consideration to be Paid in the Merger."
For a description of the principal differences between the rights of
holders of Fieldcrest Common Stock and Pillowtex Common Stock, see "Comparison
of Rights of Holders of Fieldcrest Common Stock and Pillowtex Common Stock."
Treatment of Fieldcrest Options. Each holder of an outstanding option (a
"Fieldcrest Option") to purchase shares of Fieldcrest Common Stock may, prior
to the Effective Time, elect to receive for each share of Fieldcrest Common
Stock subject to such Fieldcrest Option an amount in cash equal to the
difference between $34.00 and the per share exercise price of such Fieldcrest
Option. At the Effective Time, each outstanding Fieldcrest Option, other than
Fieldcrest Options in respect of which the above-described election was made,
will be assumed by Pillowtex and will constitute an option to purchase, in lieu
of each share of Fieldcrest Common Stock previously subject thereto, a number
of shares of Pillowtex Common Stock (increased to the nearest whole share)
equal to the product of (i) the number of shares of Fieldcrest Common Stock
subject to such Fieldcrest Option immediately prior to the Effective Time and
(ii) a conversion number (the "Option Conversion Number") equal to the quotient
obtained by dividing $34.00 by the Determination Price, at an exercise price
per share of Pillowtex Common Stock (increased to the nearest whole cent) equal
to the exercise price per share of Fieldcrest Common Stock subject to such
Fieldcrest Option immediately prior to the Effective Time divided by the Option
Conversion Number. The Option Conversion Number will not be more than 1.619 or
less than 1.308, except that, if Pillowtex elects to increase the Conversion
Number as described above, the Option Conversion Number will be increased such
that the product of (i) the Option Conversion Number and (ii) the Determination
Price equals $34.00. See "The Merger --The Merger Agreement --Treatment of
Fieldcrest Stock Options."
Treatment of Fieldcrest Convertible Debentures. Fieldcrest's 6%
Convertible Debentures due 2012 (the "Fieldcrest Convertible Debentures"),
which are convertible into shares of Fieldcrest Common Stock at a conversion
price of $44.25 per share (subject to adjustment upon the occurrence of certain
events), will remain outstanding immediately after the Effective Time. As a
result of the Merger, Fieldcrest Convertible Debentures will become convertible
into the same consideration that the holder of the number of shares of
Fieldcrest Common Stock into which such Fieldcrest Convertible Debentures might
have been converted immediately prior to the Merger would be entitled to
receive in the Merger. For example, a Fieldcrest Convertible Debenture having
an aggregate principal amount of $1,000 will become convertible into (i) a cash
payment equal to the product of (a) the amount of the cash payment to be made
on account of each share of Fieldcrest Common Stock converted in the Merger and
(b) 22.60 and (ii) a number of shares of Pillowtex Common Stock equal to the
product of (i) the Conversion Number and (ii) 22.60. See "The Merger --The
Merger Agreement --Treatment of Fieldcrest Convertible Debentures."
Fractional Shares. No fractional shares of Pillowtex Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, each
holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock who otherwise
would be entitled to receive a fractional share of Pillowtex Common Stock
pursuant to the Merger will be paid an amount in cash (without interest),
rounded to the nearest cent, equal to the product of (i) the fraction of a
share of Pillowtex Common Stock to which such holder would otherwise be
entitled and (ii) the closing sales price of Pillowtex Common Stock on the NYSE
on the date on which the Merger is consummated (the "Closing Date"). Any
fractional shares of Pillowtex Common Stock that would otherwise be issuable
upon the conversion of Fieldcrest Convertible Debentures will be eliminated and
settled in the manner provided in the indenture setting forth the terms of the
Fieldcrest Convertible Debentures.
Consequences of Failure to Approve the Share Issuance. The Merger
Agreement provides that, if the Pillowtex shareholders fail to approve the
Share Issuance, (i) the consideration to be paid to holders of Fieldcrest
Common Stock will be a cash payment in an amount equal to $34.00 per share,
(ii) the consideration to be paid to holders of Fieldcrest Preferred Stock will
be a cash payment in an amount equal to $58.12 per share, (iii) each holder of
a Fieldcrest Option will receive for each share of Fieldcrest Common Stock
subject to such Fieldcrest
4
<PAGE> 19
Option an amount in cash equal to the difference between $34.00 and the per
share exercise price of such Fieldcrest Option, and (iv) the conditions
described below in clauses (ii) and (iv) under the caption "--Conditions to the
Merger" will be inapplicable. See "The Merger --The Merger
Agreement --Consequences of Failure to Approve the Share Issuance." If the
Pillowtex shareholders were to fail to approve the Share Issuance, there can be
no assurance that Pillowtex would be able to obtain financing adequate to
enable it to pay the amounts described in the immediately preceding sentence on
terms acceptable to Pillowtex, if at all. However, for the reasons described
above under the caption "--The Pillowtex Special Meeting --Required Vote," the
approval by Pillowtex shareholders of the Share Issuance is expected to occur.
Effective Time of the Merger. The Merger will become effective at the time
that a certificate of merger (the "Certificate of Merger") is filed with the
Secretary of State of the State of Delaware. Subject to the provisions of the
Merger Agreement, the parties will file the Certificate of Merger as soon as
practicable after the requisite vote of the shareholders of Pillowtex and the
stockholders of Fieldcrest is obtained and the various other conditions set
forth in the Merger Agreement are satisfied or waived.
Conditions to the Merger. The obligations of Pillowtex and Fieldcrest to
consummate the Merger are conditioned upon, among other things, (i) approval
and adoption of the Merger Agreement by Fieldcrest's stockholders; (ii)
approval of the Share Issuance by Pillowtex's shareholders; (iii) the absence
of any order or injunction that prohibits the consummation of the Merger;
(iv) the shares of Pillowtex Common Stock to be issued in connection with the
Merger having been authorized for listing on the NYSE, subject to official
notice of issuance; (v) the Registration Statement having been declared
effective by the Commission and not being subject to any stop order or
proceeding seeking the same; and (vi) the waiting period pursuant to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
having expired or been terminated. See "The Merger --The Merger
Agreement --Conditions to the Merger."
Termination. The Merger Agreement may be terminated under certain
circumstances, including by mutual written consent of Pillowtex and Fieldcrest
and by either Pillowtex or Fieldcrest if the other party commits certain
breaches of its representations, warranties, or covenants contained in the
Merger Agreement or if the Merger is not consummated on or before December 31,
1997. If the Merger Agreement is terminated by Fieldcrest under specified
circumstances involving a determination by the Fieldcrest Board to accept a
proposal relating to an alternative transaction or is terminated by Pillowtex
following specified actions of the Fieldcrest Board relating to its approval or
recommendation of the Merger Agreement or the Merger or the endorsement or
recommendation of a proposal relating to an alternative transaction, Fieldcrest
will be required to pay to Pillowtex a termination fee in the amount of $15.0
million. See "The Merger --The Merger Agreement --Termination."
Governmental and Regulatory Matters. In connection with the transactions
contemplated by the Merger Agreement, Pillowtex and Fieldcrest have made
filings or applications with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act. Consummation of the Merger is conditioned upon, among
other things, the expiration or termination of the waiting periods under the
HSR Act. See "The Merger --The Merger Agreement --Conditions to the Merger"
and "--Regulatory Approvals."
Appraisal Rights. Under the Delaware General Corporation Law (the "DGCL"),
appraisal rights will be available to holders of Fieldcrest Common Stock and
holders of Fieldcrest Preferred Stock in connection with the Merger. Any such
holder desiring to exercise appraisal rights must follow precisely the
procedures prescribed by the DGCL, which procedures are summarized in "The
Merger --Appraisal Rights." The holders of Pillowtex Common Stock will not
have any appraisal rights in connection with the Merger or the Share Issuance.
Certain Federal Income Tax Consequences. The receipt by a Fieldcrest
stockholder of the merger consideration (including any cash amounts received by
dissenting stockholders pursuant to the exercise of appraisal rights) in
exchange for shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
will be a taxable transaction for federal income tax purposes. In general, for
federal income tax purposes, a stockholder will recognize gain (or loss) equal
to the difference between (i) the sum of the amount of cash and the fair
5
<PAGE> 20
market value of the Pillowtex Common Stock received pursuant to the Merger and
(ii) the tax basis of the shares of Fieldcrest Common Stock or Fieldcrest
Preferred Stock exchanged pursuant to the Merger. Fieldcrest stockholders
should consult their own tax advisors with respect to the tax consequences of
the Merger. See "The Merger --Certain Federal Income Tax Consequences."
Accounting Treatment. It is expected that the Merger will be accounted for
as an acquisition of Fieldcrest by Pillowtex, using the purchase method of
accounting.
MERGER FINANCING
Pillowtex intends to finance the Merger and refinance certain indebtedness
of Pillowtex and Fieldcrest through a combination of (i) borrowings under new
senior revolving credit and term loan facilities (the "New Pillowtex Bank
Facilities"), (ii) the issuance and sale of the Pillowtex Preferred Stock, and
(iii) the issuance and sale of new subordinated debt securities (the "New
Pillowtex Subordinated Notes"). In the event that less than $135.0 million
aggregate principal amount of New Pillowtex Subordinated Notes shall have been
issued and sold as of the Closing Date, Pillowtex may borrow an amount
corresponding to such shortfall under a standby bridge loan facility (the
"Standby Bridge Loan Facility").
Pillowtex has entered into (i) a commitment letter with NationsBank of
Texas, N.A. providing for the New Pillowtex Bank Facilities (the "New Pillowtex
Bank Facilities Commitment"), (ii) a Preferred Stock Purchase Agreement with
Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and
Apollo (UK) Partners III, L.P. (collectively, "Apollo") providing for the
issuance and sale of 65,000 shares of Pillowtex Preferred Stock (the "Pillowtex
Preferred Stock Commitment"), and (iii) a commitment letter with NationsBridge,
L.L.C. providing for the Standby Bridge Loan Facility (the "Standby Bridge Loan
Facility Commitment" and, together with the New Pillowtex Bank Facilities
Commitment and the Pillowtex Preferred Stock Commitment, the "Financing
Commitments").
The financings contemplated by the Financing Commitments and the proposed
issuance and sale of New Pillowtex Subordinated Notes are described in greater
detail in "Merger Financing." The obligations of third parties under the
Financing Commitments to extend loans or purchase Pillowtex Preferred Stock, as
the case may be, are subject to various specified conditions. Because such
conditions relate to matters beyond Pillowtex's control, there can be no
assurance that such conditions will be timely satisfied.
6
<PAGE> 21
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information of Pillowtex and
Fieldcrest has been derived from the historical consolidated financial
statements of Pillowtex and Fieldcrest incorporated by reference herein, and
should be read in conjunction with such financial statements and the notes
thereto. See "Available Information" and "Incorporation of Certain Documents
by Reference." The historical financial information at the end of and for each
fiscal year in the five-year period ended December 28, 1996 with respect to
Pillowtex and December 31, 1996 with respect to Fieldcrest have been extracted
from audited financial statements filed with the Commission. Historical
financial information at the end of and for the six-month periods ended
June 29, 1996 and June 28, 1997 with respect to Pillowtex and June 30, 1996 and
1997 with respect to Fieldcrest have been extracted from unaudited financial
statements filed with the Commission and, in the opinion of Pillowtex's and
Fieldcrest's respective managements, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation, in all
material respects, of the results of operations and financial position at the
end of and for each of the interim periods presented. Interim period results
are not necessarily indicative of results to be expected for a complete fiscal
year.
7
<PAGE> 22
SUMMARY HISTORICAL FINANCIAL INFORMATION OF PILLOWTEX
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
----------------------------------------------------------------- ---------------------
JUNE 29, JUNE 28,
1992 1993(1) 1994(2) 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ....................... $ 273,462 291,624 $ 349,520 $ 474,899 $ 490,655 $ 191,979 $ 218,657
Cost of goods sold .............. 222,611 238,155 294,714 395,922 411,048 160,796 180,250
--------- --------- --------- --------- --------- --------- ---------
Gross profit .................... 50,851 53,469 54,806 78,977 79,607 31,183 38,407
Selling, general, and
administrative expenses ....... 33,376 29,227 36,399 42,508 41,445 20,556 23,616
--------- --------- --------- --------- --------- --------- ---------
Earnings from operations ........ 17,475 24,242 18,407 36,469 38,162 10,627 14,791
Interest expense ................ 4,997 3,042 6,361 17,491 13,971 6,615 9,036
Other expense (income), net ..... 1,049 -- (379) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes
and extraordinary loss ........ 11,429 21,200 12,425 18,978 24,191 4,012 5,755
Income taxes .................... 529 8,420 4,736 7,509 9,459 1,580 2,233
--------- --------- --------- --------- --------- --------- ---------
Earnings before extraordinary
loss .......................... 10,900 12,780 7,689 11,469 14,732 2,432 3,522
Extraordinary loss, net
-- -- -- -- (609) -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings(3) ................. 10,900 12,780 7,689 11,469 14,123 2,432 3,522
Accretion to repurchase price
of common stock subject to
repurchase .................... 2,500 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings available to
common stock shareholders(3) .. $ 8,400 $ 12,780 $ 7,689 $ 11,469 $ 14,123 $ 2,432 $ 3,522
========= ========= ========= ========= ========= ========= =========
Earnings per share before
extraordinary loss(3) ......... $ 1.29 $ 1.31 $ 0.73 $ 1.08 $ 1.39 $ 0.23 $ 0.33
Extraordinary loss, net ......... -- -- -- -- (.06) -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings per share(3) ....... $ 1.29 $ 1.31 $ 0.73 $ 1.08 $ 1.33 $ 0.23 $ 0.33
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Depreciation and
amortization .................. $ 3,104 $ 3,868 $ 6,365 $ 11,994 $ 12,775 $ 6,253 $ 7,065
Capital expenditures ............ 5,869 7,135 10,538 12,448 21,040 1,368 11,347
BALANCE SHEET DATA:
Working capital ................. $ 65,567 $ 78,141 $ 122,738 $ 110,128 $ 150,506 $ 140,541 $ 169,235
Total assets .................... 131,542 180,967 319,544 324,710 375,714 339,132 388,135
Long-term debt .................. 63,599 63,735 177,149 153,472 194,851 176,207 216,118
Shareholders' equity ............ 7,072 69,329 76,478 87,990 100,004 89,424 103,094
- ---------------------------
</TABLE>
(1) Results for fiscal 1993 reflect the operations of Manetta Home Fashions,
Inc. from August 30, 1993, Tennessee Woolen Mills, Inc. from September 7,
1993 and Torfeaco Industries Limited from December 1, 1993.
(2) Results for fiscal 1994 reflect the operations of Imperial Feather Company
from August 19, 1994 and Beacon Manufacturing Company from December 1,
1994.
(3) On a pro forma basis, giving effect to the termination of Pillowtex's
status as an S corporation under subchapter S of the Internal Revenue Code
(which termination resulted from the initial public offering of Pillowtex
Common Stock), as if such termination had occurred on January 1, 1992, net
earnings, net earnings available to common stock shareholders, earnings per
share before extraordinary loss, and net earnings per share would have been
$7,692, $5,192, $.80, and $.80, respectively, for fiscal 1992 and $12,877,
$12,877, $1.32, and $1.32, respectively, for fiscal 1993.
8
<PAGE> 23
SUMMARY HISTORICAL FINANCIAL INFORMATION OF FIELDCREST
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
------------------------------------------------------------------ ------------------------
JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ...................... $ 981,773 $1,000,107 $1,063,731 $1,095,193 $1,092,496 $ 527,774 $ 533,669
Cost of sales .................. 818,729 834,701 898,437 966,642 956,522 456,914 452,555
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit ................... 163,044 165,406 165,294 128,551 135,974 70,860 81,114
Selling, general, and
administrative expenses ...... 102,189 101,843 94,756 108,194 105,405 50,153 56,168
Restructuring charges .......... -- 10,000 -- 20,469 8,130 3,630 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ........ 60,855 53,563 70,538 (112) 22,439 17,077 24,946
Interest expense ............... 34,149 27,659 23,268 27,630 26,869 14,336 12,558
Other expense (income), net .... 130 (975) 987 67 (5,604) 422 (1,674)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes ................. 26,576 26,879 46,283 (27,809) 1,174 2,319 14,062
Income taxes ................... 10,886 11,913 15,538 (12,084) 114 870 5,203
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before accounting changes .... 15,690 14,966 30,745 (15,725) 1,060 1,449 8,859
Income from discontinued
operations ................... 4,739 3,201 -- -- -- -- --
Gain from disposition of
discontinued operations ...... -- 9,207 -- -- -- -- --
Extraordinary charge - early
retirement of debt ........... (5,179) -- -- -- -- -- --
Cumulative effect of
accounting changes ........... -- (70,305) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) .............. 15,250 (42,931) 30,745 (15,725) 1,060 1,449 8,859
Preferred dividends ............ -- (463) (4,500) (4,500) (4,500) (2,250) (2,250)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) on common ...... $ 15,250 $ (43,394) $ 26,245 $ (20,225) $ (3,440) $ (801) $ 6,609
========== ========== ========== ========== ========== ========== ==========
Primary earnings (loss)
per share .................... $ 1.35 $ (3.70) $ 3.02 $ (2.28) $ (0.38) $ (0.09) $ 0.72
Fully diluted earnings
(loss) per share ............. 1.78 -- 2.51 -- -- (0.09) 0.72
Weighted average primary
shares outstanding ........... 11,256 11,733 8,696 8,875 9,024 8,982 9,169
Weighted average fully
diluted shares outstanding ... 14,083 11,733 14,086 14,265 14,414 8,983 9,169
OTHER DATA:
Depreciation and amortization .. $ 31,370 $ 31,539 $ 29,828 $ 31,746 $ 36,678 $ 17,853 $ 17,499
Capital expenditures ........... 20,687 21,594 51,929 64,153 33,386 15,362 26,635
BALANCE SHEET DATA:
Working capital ................ $ 296,580 $ 262,326 $ 282,461 $ 268,477 $ 229,010 $ 283,002 $ 237,047
Total assets ................... 863,991 740,446 782,665 812,946 768,493 845,951 780,066
Long-term debt ................. 353,419 294,611 317,744 365,262 311,496 366,175 316,657
Stockholders' equity ........... 284,478 193,330 231,202 215,431 215,755 216,679 223,923
</TABLE>
9
<PAGE> 24
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX
The following pro forma combined financial information gives effect to the
consummation of the Merger and the Financing Transactions as if such
transactions had been consummated on June 28, 1997, in the case of the
Unaudited Pro Forma Condensed Combined Balance Sheet of Pillowtex, and on
December 31, 1995, the first day of Pillowtex's 1996 fiscal year, in the case
of the Unaudited Pro Forma Condensed Combined Statements of Operations of
Pillowtex. As used herein, the term "Financing Transactions" means (i)
estimated initial borrowings under the New Pillowtex Bank Facilities of $427.2
million, (ii) the issuance and sale of $135.0 million aggregate principal
amount of New Pillowtex Subordinated Notes resulting in estimated net proceeds
of $131.4 million, (iii) the issuance and sale of 65,000 shares of Pillowtex
Preferred Stock resulting in estimated net proceeds of $63.5 million, (iv) the
repayment of all amounts outstanding under Pillowtex's and Fieldcrest's
existing bank credit facilities, and (v) the satisfaction and discharge of all
indebtedness represented by Fieldcrest's 11.25% Senior Subordinated Debentures
Due 2002 to 2004 pursuant to an irrevocable deposit of amounts sufficient to
provide for the redemption thereof. Because the Standby Bridge Loan Facility
is expected to be drawn upon, if at all, only in the event that less than
$135.0 million aggregate principal amount of New Pillowtex Subordinated Notes
shall have been issued and sold as of the Closing Date, the pro forma combined
financial information presented herein assumes that no amounts will be borrowed
thereunder.
The pro forma combined financial information is presented for illustrative
purposes only and is not necessarily indicative of what Pillowtex's actual
financial position or results of operations would have been had the above-
referenced transactions been consummated as of the above-referenced dates or of
the financial position or results of operations that may be reported by
Pillowtex in the future. The pro forma combined financial information should
be read in conjunction with the historical financial statements of Pillowtex
and Fieldcrest, the related notes, and the other information contained
elsewhere in this Joint Proxy Statement/Prospectus or incorporated by reference
herein. See "Available Information," "Incorporation of Certain Documents by
Reference," and "Unaudited Pro Forma Combined Financial Information of
Pillowtex."
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF PILLOWTEX
JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
---------
<S> <C>
Total current assets . . . . . . . . . . . . . . . . . . $ 648,355
Property, plant, and equipment, net . . . . . . . . . . 481,111
Goodwill, net . . . . . . . . . . . . . . . . . . . . . 213,572
Other assets, net . . . . . . . . . . . . . . . . . . . . 59,992
-----------
Total assets . . . . . . . . . . . . . . . . . . . . $ 1,403,030
===========
Total current liabilities . . . . . . . . . . . . . . . $ 230,955
Long-term debt . . . . . . . . . . . . . . . . . . . . . 805,244
Deferred income taxes . . . . . . . . . . . . . . . . . 65,138
Other non-current liabilities . . . . . . . . . . . . . . 53,511
Redeemable convertible preferred stock . . . . . . . . . 63,500
Shareholders' equity . . . . . . . . . . . . . . . . . . 184,682
-----------
Total liabilities and shareholders' equity . . . . . $ 1,403,030
===========
</TABLE>
10
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS OF PILLOWTEX
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
FISCAL YEAR SIX MONTHS
ENDED ENDED
DECEMBER 28, 1996 JUNE 28, 1997
----------------- ----------------
<S> <C> <C>
Net sales ............................................. 1,583,151 752,326
Cost of goods sold .................................... 1,364,368 631,203
Selling, general, and administrative expenses ......... 136,162 74,467
Restructuring charge .................................. 8,130 --
---------------- ----------------
Earnings from operations .............................. 74,491 46,656
Interest expense ...................................... 58,835 35,105
Other income, net ..................................... (5,604) (1,674)
---------------- ----------------
Earnings before income taxes and extraordinary items .. 21,260 13,225
Income taxes .......................................... 9,987 6,019
---------------- ----------------
Net earnings before extraordinary items ............... 11,273 7,206
Dividends on preferred shares ......................... (1,950) (975)
---------------- ----------------
Earnings before extraordinary items applicable to
common stock ........................................ $ 9,323 $ 6,231
================ ================
</TABLE>
SELECTED PER SHARE FINANCIAL INFORMATION
The following table sets forth selected historical per share financial
information for each of Pillowtex and Fieldcrest and unaudited pro forma per
share financial information for Pillowtex giving effect to the consummation of
the Merger and the Financing Transactions, as if such transactions had been
consummated as of June 28, 1997, in the case of book value information, and
December 31, 1995, the first day of Pillowtex's 1996 fiscal year, in the case
of earnings information. The information presented below is derived from (i)
the consolidated historical financial statements of Pillowtex and Fieldcrest,
including the related notes thereto, incorporated by reference into this Joint
Proxy Statement/Prospectus and (ii) the pro forma financial information,
including the notes thereto, appearing elsewhere herein, and should be read in
conjunction therewith. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Financial Information of
Pillowtex." The pro forma information set forth below is not necessarily
indicative of what Pillowtex's actual financial position or results of
operations would have been had the above-referenced transactions been
consummated as of the above-referenced dates or of the financial position or
results of operations that may be reported by Pillowtex in the future.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
DECEMBER 28, 1996 JUNE 28, 1997
----------------- -------------
<S> <C> <C>
PILLOWTEX--HISTORICAL
Earnings per common share before
extraordinary items ................................... $ 1.39 $ 0.33
Book value per common share ............................... 9.42 9.70
Dividends per common share ............................... 0.20 0.12
PILLOWTEX PRO FORMA
Earnings per common share before
extraordinary items ..................................... 0.63 0.41
Book value per common share ............................... 12.92 11.00
Dividends per common share ............................... 0.15 0.09
</TABLE>
11
<PAGE> 26
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
FIELDCREST--HISTORICAL
Earnings (loss) per common share before
extraordinary items ..................................... $ (0.38) $ 0.72
Book value per common share ............................... 15.41 16.14
Dividends per common share ............................... -- --
FIELDCREST PRO FORMA EQUIVALENTS
Earnings per common share before
extraordinary items ..................................... 0.18 0.12
Book value per common share ............................... 3.77 3.21
Dividends per common share ............................... 0.04 0.03
</TABLE>
Pillowtex currently intends to continue to pay quarterly dividends of $0.06
per share on the Pillowtex Common Stock. Pillowtex's dividend policy will be
reviewed by the Pillowtex Board from time to time in light of, among other
things, Pillowtex's results of operations and financial position. In addition,
Pillowtex's ability to pay dividends on the Pillowtex Common Stock in the
future will be restricted pursuant to the terms of various instruments
governing its indebtedness and the terms of the Pillowtex Preferred Stock.
Accordingly, there can be no assurance that Pillowtex will pay any dividends in
the future or, if dividends are paid, as to the amount thereof. See "Risk
Factors --Restrictions on Payment of Dividends."
MARKET PRICE INFORMATION
The Pillowtex Common Stock trades on the NYSE under the symbol "PTX." The
following table sets forth the high and low sales prices per share of Pillowtex
Common Stock as reported on the NYSE Composite Tape for each fiscal quarter in
fiscal years 1995 and 1996 and for the first two fiscal quarters of 1997.
<TABLE>
<CAPTION>
HIGH LOW
---------- -----------
<S> <C> <C>
Quarter Ended:
April 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10 1/8 $ 8
July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1/2 8 3/4
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9 5/8
December 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 11
Quarter Ended:
March 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 1/2 $ 10 1/2
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3/4 12
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3/8 10 5/8
December 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1/4 12 7/8
Quarter Ended:
March 29, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18 3/8 $ 15 7/8
June 28, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1/4 16 1/2
</TABLE>
12
<PAGE> 27
The Fieldcrest Common Stock trades on the NYSE under the symbol "FLD." The
following table sets forth the high and low sales prices per share of
Fieldcrest Common Stock as reported on the NYSE Composite Tape for each fiscal
quarter in fiscal years 1995 and 1996 and for the first two fiscal quarters of
1997.
<TABLE>
<CAPTION>
High Low
---------- -----------
<S> <C> <C>
Quarter Ended:
March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 3/8 $ 19 7/8
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1/8 19 3/4
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7/8 21 1/4
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1/4 15 3/4
Quarter Ended:
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21 1/2 $ 16 3/8
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1/4 19 1/4
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1/8 13 1/2
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 12 7/8
Quarter Ended:
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17 3/8 $ 15 1/4
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3/8 15 1/8
</TABLE>
The Fieldcrest Preferred Stock is admitted for trading on the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq").
The Fieldcrest Preferred Stock trades on The Nasdaq Small Cap Market tier of
The Nasdaq Stock Market under the symbol "FLDC.P." The following table sets
forth for the fiscal periods indicated the high and low closing bid quotations
in the over-the-counter market for the Fieldcrest Preferred Stock as reported
on Nasdaq. These quotations represent inter-dealer prices, without adjustment
for retail markups, markdowns, or commissions, and may not represent actual
transactions.
<TABLE>
<CAPTION>
High Low
---------- -----------
<S> <C> <C>
Quarter Ended:
March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52 1/2 $ 43 1/2
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 45
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 46
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 42 7/8
Quarter Ended:
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47 $ 42 1/4
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 1/4 44 1/4
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 1/4 38 3/8
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3/4 37 1/2
Quarter Ended:
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42 3/4 $ 38 3/4
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 1/2 41 1/4
</TABLE>
On September 10, 1997, the last full trading day prior to the public
announcement by Pillowtex and Fieldcrest of the execution of the Merger
Agreement, the closing price per share of Pillowtex Common Stock as reported on
the NYSE Composite Tape was $2313/16, and the closing price per share of
Fieldcrest Common Stock as so reported was $331/2. On ____________ ___, 1997,
the last full trading day prior to the date of this Joint Proxy
Statement/Prospectus, the closing price per share of Pillowtex Common Stock as
reported on the NYSE Composite Tape was $_____, and the closing price per share
of Fieldcrest Common Stock as so reported was $_____. On September 10, 1997,
the last date of a reported trade prior to the public announcement by Pillowtex
and Fieldcrest of the Merger Agreement, the closing bid quotation for the
Fieldcrest Preferred Stock as reported on Nasdaq was $59. On ____________ ___,
1997, the last date of a reported trade of Fieldcrest Preferred Stock prior to
the date of this Joint Proxy Statement/Prospectus, the closing bid quotation
for the
13
<PAGE> 28
Fieldcrest Preferred Stock was $_________. Pillowtex shareholders and
Fieldcrest stockholders are encouraged to obtain current market quotations.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks of ownership of
Pillowtex Common Stock and other matters that should be considered in
determining how to vote upon the matters described herein.
14
<PAGE> 29
THE PILLOWTEX SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by Pillowtex to
its shareholders in connection with the solicitation of proxies, by and on
behalf of the Pillowtex Board, for use at the Pillowtex Special Meeting. The
Pillowtex Special Meeting will be held on ________, _________ __, 1997 at _____
a.m., Central Time, at ________________, Dallas, Texas. The purpose of the
Pillowtex Special Meeting is for Pillowtex shareholders to consider and vote
upon a proposal to approve the issuance of up to 5,600,000 shares of Pillowtex
Common Stock and of 65,000 shares of Pillowtex Preferred Stock in connection
with the Merger and related financing transactions (i.e., the Share Issuance).
THE PILLOWTEX BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
PILLOWTEX AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
VOTING AT THE PILLOWTEX SPECIAL MEETING
The holders of record of shares of Pillowtex Common Stock as of the close
of business on ___________ __, 1997, the Pillowtex Record Date, are entitled to
notice of and to vote at the Pillowtex Special Meeting. As of the Pillowtex
Record Date, there were __________ shares of Pillowtex Common Stock
outstanding, and there were approximately ____ holders of record of Pillowtex
Common Stock. Each outstanding share of Pillowtex Common Stock is entitled to
one vote at the Pillowtex Special Meeting. Shares of Pillowtex Common Stock
held in the treasury of Pillowtex or by any of its subsidiaries are not
considered to be outstanding.
The holders of shares representing a majority of the shares of Pillowtex
Common Stock outstanding as of the Pillowtex Record Date will constitute a
quorum for the transaction of business at the Pillowtex Special Meeting. If
the persons present or represented by proxy at the Pillowtex Special Meeting
constitute holders of shares representing less than a majority of the shares of
Pillowtex Common Stock outstanding as of the Pillowtex Record Date, the
Pillowtex Special Meeting may be adjourned to a subsequent date for the purpose
of obtaining a quorum.
Pursuant to the Merger Agreement, the consummation of the Merger is
conditioned upon, among other things, the approval of the Share Issuance by the
affirmative vote of the holders of a majority of shares of Pillowtex Common
Stock present at the Pillowtex Special Meeting and entitled to vote thereon.
Abstentions (i.e., properly executed proxies marked "ABSTAIN") will be, but
shares represented by broker non-votes (i.e., shares held by brokers or
nominees which are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal) will not
be, included in determining the number of shares held by persons present or
represented by proxy at the Pillowtex Special Meeting for purposes of
determining whether a quorum exists. With respect to the vote on the proposal
described herein, abstentions will be included in vote totals and will have the
effect of negative votes, but shares represented by broker non-votes will not
be included in vote totals and will therefore have no impact on the outcome of
the vote.
As of the Pillowtex Record Date, directors and executive officers of
Pillowtex and their affiliates owned beneficially, in the aggregate,
approximately ____% of the outstanding shares of Pillowtex Common Stock.
Charles M. Hansen, Jr., Chairman of the Board and Chief Executive Officer of
Pillowtex, and Mary R. Silverthorne, a director of Pillowtex, beneficially own,
in the aggregate, approximately 52.9% of the currently outstanding shares of
Pillowtex Common Stock. Each of Mr. Hansen and Ms. Silverthorne has separately
informed Pillowtex that he or she intends to be present at the Pillowtex
Special Meeting and to vote his or her shares of Pillowtex Common Stock for the
approval of the Share Issuance. Accordingly, the approval of the Share
Issuance is expected to occur irrespective of whether or the manner in which
other holders of Pillowtex Common Stock vote their shares.
15
<PAGE> 30
PROXIES; REVOCATION
All shares of Pillowtex Common Stock represented at the Pillowtex Special
Meeting by properly executed proxies received prior to or at the Pillowtex
Special Meeting, unless such proxies shall have been revoked, will be voted at
the Pillowtex Special Meeting in accordance with the instructions on the
proxies. If no instructions are indicated, such proxies will be voted for the
approval of the Share Issuance.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Pillowtex Special
Meeting. A proxy may be revoked by filing with the Secretary of Pillowtex
prior to the voting of the proxy either a written instrument revoking the proxy
or an executed proxy bearing a later date, or by voting in person at the
Pillowtex Special Meeting. Attendance at the Pillowtex Special Meeting will
not, in itself, constitute the revocation of a proxy.
Pillowtex and Fieldcrest will share the cost of the preparation of this
Joint Proxy Statement/Prospectus and the solicitation of proxies for voting at
the Pillowtex Special Meeting and the Fieldcrest Special Meeting. Pillowtex
may solicit proxies otherwise than by the use of the mails, in that certain
officers and regular employees of Pillowtex, without additional compensation,
may use their personal efforts, by telephone or otherwise, to obtain proxies.
Pillowtex will also request persons and entities holding shares in their names,
or in the name of their nominees, that are beneficially owned by others, to
send proxy materials to and obtain proxies from such beneficial owners and will
reimburse such holders for their reasonable expenses in so doing. Pillowtex
has retained Innisfree M&A Incorporated to assist it in the solicitation of
proxies using the means referred to above, at an anticipated cost of $5,000,
plus reasonable expenses.
THE FIELDCREST SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by Fieldcrest to
its stockholders in connection with the solicitation of proxies, by and on
behalf of the Fieldcrest Board, for use at the Fieldcrest Special Meeting. The
Fieldcrest Special Meeting will be held on ________, _________ __, 1997 at
______ a.m., Eastern Time, at ________________, __________, ____________. The
purpose of the Fieldcrest Special Meeting is for Fieldcrest stockholders to
consider and vote upon the approval and adoption of the Merger Agreement.
THE FIELDCREST BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
FIELDCREST AND ITS STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
VOTING AT THE FIELDCREST SPECIAL MEETING
The holders of record of shares of Fieldcrest Common Stock as of the close
of business on ___________ __, 1997, the Fieldcrest Record Date, are entitled
to vote such shares at the Fieldcrest Special Meeting. Holders of Fieldcrest
Preferred Stock will not be entitled to vote at the Fieldcrest Special Meeting.
As of the Fieldcrest Record Date, there were outstanding __________ shares of
Fieldcrest Common Stock and there were approximately ____ holders of record of
Fieldcrest Common Stock. Each outstanding share of Fieldcrest Common Stock is
entitled to one vote at the Fieldcrest Special Meeting. Shares of Fieldcrest
Common Stock held in the treasury of Fieldcrest or by any of its subsidiaries
are not considered to be outstanding.
The holders of shares representing a majority of the shares of Fieldcrest
Common Stock outstanding as of the Fieldcrest Record Date will constitute a
quorum for the transaction of business at the Fieldcrest Special Meeting. If
the persons present or represented by proxy at the Fieldcrest Special Meeting
constitute the holders of shares representing less than a majority of shares of
Fieldcrest Common Stock outstanding as of the Fieldcrest Record Date, the
Fieldcrest Special Meeting may be adjourned to a subsequent date for the
purpose of obtaining a quorum.
16
<PAGE> 31
Pursuant to the Merger Agreement, the consummation of the Merger is
conditioned upon, among other things, the approval and adoption of the Merger
Agreement by the affirmative vote of the holders of two-thirds of shares of
Fieldcrest Common Stock entitled to vote thereon. Abstentions will be, but
broker non-votes will not be, included in determining the number of shares held
by persons present or represented by proxy at the Fieldcrest Special Meeting
for purposes of determining whether a quorum exists. Because approval of the
proposal to adopt the Merger Agreement will require the affirmative vote of
shares representing two-thirds of the outstanding shares of Fieldcrest Common
Stock and entitled to vote thereon, abstentions and broker non-votes will have
the effect of negative votes thereon.
As of the Fieldcrest Record Date, directors and executive officers of
Fieldcrest and their affiliates owned beneficially, in the aggregate,
approximately _____% of the voting power of the outstanding shares of
Fieldcrest Common Stock.
PROXIES; REVOCATION
All shares of Fieldcrest Common Stock represented at the Fieldcrest Special
Meeting by properly executed proxies received prior to or at the Fieldcrest
Special Meeting, unless such proxies shall have been revoked, will be voted at
the Fieldcrest Special Meeting in accordance with the instructions on the
proxies. If no instructions are indicated, such proxies will be voted for the
approval and adoption of the Merger Agreement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Fieldcrest Special
Meeting. A proxy may be revoked by filing with the Secretary of Fieldcrest
prior to the voting of the proxy either a written instrument revoking the proxy
or an executed proxy bearing a later date, or by voting in person at the
Fieldcrest Special Meeting. Attendance at the Fieldcrest Special Meeting will
not, in itself, constitute the revocation of a proxy.
Pillowtex and Fieldcrest will share the cost of the preparation of this
Joint Proxy Statement/Prospectus and the solicitation of proxies for voting at
the Fieldcrest Special Meeting. Fieldcrest may solicit proxies otherwise than
by the use of the mails, in that certain officers and regular employees of
Fieldcrest, without additional compensation, may use their personal efforts, by
telephone or otherwise, to obtain proxies. Fieldcrest will also request
persons and entities holding shares in their names, or in the name of their
nominees, that are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners and will reimburse such holders for
their reasonable expenses in so doing. Fieldcrest has retained Morrow &
Company, Inc. to assist it in the solicitation of proxies using the means
referred to above, at an anticipated cost of $7,500, plus a fee of $3.50 per
telephone call and reasonable expenses.
17
<PAGE> 32
RISK FACTORS
Prior to voting on the proposals described herein, Pillowtex shareholders
and Fieldcrest stockholders should carefully consider the risk factors
discussed below as well as all of the information contained elsewhere in this
Joint Proxy Statement/Prospectus, including the Appendices hereto. See also
"Note Regarding Forward-Looking Information." Any or all of the risk factors
discussed below could have a material adverse effect on the business, financial
condition, results of operations, and prospects of Pillowtex and its
subsidiaries, including, from and after the Effective Time, Fieldcrest, and/or
on the price at which shares of Pillowtex Common Stock may trade.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Pillowtex is, and following consummation of the Merger and the Financing
Transactions will continue to be, highly leveraged. At June 28, 1997, on a pro
forma basis, after giving effect to the consummation of the Merger and the
Financing Transactions, Pillowtex would have had total outstanding long-term
indebtedness (including the current portion of long-term indebtedness) of
approximately $813.8 million and total shareholders' equity of approximately
$184.7 million. See "Pro Forma Capitalization of Pillowtex." In addition,
subject to restrictions contained in instruments governing its indebtedness,
Pillowtex and its subsidiaries may incur additional indebtedness from time to
time to finance acquisitions or capital expenditures or for general corporate
purposes.
The level of Pillowtex's indebtedness could have important consequences to
the business activities of Pillowtex, including: (i) a substantial portion of
Pillowtex's cash flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) Pillowtex's ability to obtain
additional debt financing in the future for other acquisitions, working
capital, capital expenditures, or research and development may be limited; and
(iii) Pillowtex's level of indebtedness could limit its flexibility in reacting
to changes in its industry or economic conditions generally.
Pillowtex's ability to service its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of borrowing under the New
Pillowtex Bank Facilities or any other credit arrangement. Pillowtex will
require substantial amounts of cash to fund scheduled payments of principal and
interest on its outstanding indebtedness as well as future capital expenditures
and any increased working capital requirements. If Pillowtex is unable to meet
its cash requirements out of cash flow from operations and its available
borrowings, there can be no assurance that it will be able to obtain
alternative financing or that it will be permitted to do so under the terms of
the New Pillowtex Bank Facilities or its other indebtedness. In the absence of
such financing, Pillowtex's ability to respond to changing business and
economic conditions, to make future acquisitions, to absorb adverse operating
results, or to fund capital expenditures or research and development costs may
be adversely affected. If Pillowtex does not generate sufficient increases in
cash flow from operations to repay its indebtedness at maturity, it could
attempt to refinance such indebtedness; however, no assurance can be given that
such refinancing would be available on terms acceptable to Pillowtex, if at
all.
RESTRICTIVE COVENANTS
Certain instruments governing indebtedness of Pillowtex will contain a
number of restrictive covenants and events of default, including covenants
limiting capital expenditures, incurrence of debt, and sales of assets. In
addition, under certain instruments governing indebtedness of Pillowtex,
Pillowtex will be required to maintain specified financial ratios and satisfy
certain financial condition tests. Pillowtex's ability to maintain and satisfy
those ratios and tests may be affected by events beyond its control and there
can be no assurance that Pillowtex will be able to do so. As a result of these
covenants, the ability of Pillowtex to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted and Pillowtex may be prevented from engaging in
transactions that might otherwise be considered beneficial to Pillowtex. See
"Merger Financing" and "Other Post-Merger Indebtedness of Pillowtex."
18
<PAGE> 33
SECURITY INTERESTS
Upon consummation of the Merger and the Financing Transactions, all of the
capital stock of Pillowtex's domestic subsidiaries, 65% of the capital stock of
all foreign subsidiaries, and substantially all of the domestic assets of
Pillowtex and all of its subsidiaries will be subject to various liens and
security interests. If a holder of a security interest becomes entitled to
exercise its rights as a secured party, it would have the right to foreclose
upon and sell or otherwise transfer the collateral subject to its security
interest, and the collateral would be correspondingly unavailable to Pillowtex
or the subsidiary owning such collateral and to other creditors of Pillowtex or
such subsidiary, except to the extent, if any, that the value of the affected
collateral exceeds the amount of the indebtedness in respect of which such
foreclosure rights are exercised.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Pillowtex currently intends to continue to pay quarterly dividends of $0.06
per share on the Pillowtex Common Stock. Pillowtex's dividend policy will be
reviewed by the Pillowtex Board from time to time in light of, among other
things, Pillowtex's results of operations and financial position. In addition,
certain instruments governing the indebtedness of Pillowtex and the terms of
the Pillowtex Preferred Stock will restrict Pillowtex's ability to pay
dividends or make other distributions to holders of Pillowtex Common Stock.
Accordingly, there can be no assurance that Pillowtex will pay any dividends in
the future or, if dividends are paid, as to the amount thereof. See "Merger
Financing," "Other Post-Merger Indebtedness of Pillowtex," and "Description of
Pillowtex Capital Stock --Series A Redeemable Convertible Preferred Stock."
RISKS ASSOCIATED WITH ACQUISITIONS
Pillowtex expects to continue a strategy of identifying and acquiring
companies, like Fieldcrest, with complementary products or services that may be
expected to enhance the operations and profitability of Pillowtex. There can
be no assurances that Pillowtex will be able to integrate the operations of
Fieldcrest or any other acquired company successfully with the operations of
Pillowtex or that any of such acquisitions, including the acquisition of
Fieldcrest, will prove profitable.
DEPENDENCE ON RAW MATERIALS
The raw materials on which Pillowtex is primarily dependent include the raw
feather and down that Pillowtex uses to produce natural fill pillows and down
comforters. The People's Republic of China ("China") is currently the primary
source of raw feather and down for Pillowtex. See "--Dependence on Supply
Sources in China." The raw materials on which Fieldcrest is primarily
dependent include the cotton and synthetic fibers that Fieldcrest uses to
manufacture its home furnishing products.
The raw materials used by Pillowtex and Fieldcrest are generally available
from a number of sources, and no significant shortage of such materials is
currently anticipated. However, Pillowtex and Fieldcrest use significant
quantities of such raw materials, which are subject to price fluctuations, and
there can be no assurance that shortages of such materials will not occur in
the future, which could increase the cost of or delay the shipment of products.
From and after the Effective Time, cotton will be the primary raw material
used in Pillowtex's business. Cotton is an agricultural product and,
consequently, its availability is subject to weather conditions and other
factors affecting agricultural markets. There have been historical periods of
rapid and significant movement in the price of cotton, both upward and
downward. There can be no assurance that Pillowtex will be able to pass on any
increase in the price of cotton to its customers.
19
<PAGE> 34
DEPENDENCE ON SUPPLY SOURCES IN CHINA
Concentration of Supply Sources. In fiscal year 1996 and the six months
ended June 28, 1997, approximately 83% and 84%, respectively, of the raw
feather and down that Pillowtex used to produce natural fill pillows and down
comforters was imported from China.
Possible Disruption of Supply Sources. Pillowtex's relationships with its
suppliers in China could be disrupted or adversely affected due to a number of
factors, including governmental regulation, fluctuation in exchange rates, and
changes in economic and political conditions in China. If Pillowtex's supply
sources in China were disrupted for any reason, Pillowtex believes, based on
existing market conditions, that it could establish alternative supply
relationships. However, because establishing these relationships involves
numerous uncertainties relating to delivery requirements, price, payment terms,
quality control, and other matters, Pillowtex is unable to predict whether such
relationships would be on terms satisfactory to Pillowtex.
Import Regulations. Pillowtex's relationships with its suppliers in China
are also subject to risks associated with changes in United States legislation
and regulations relating to imports, including quotas, duties, and taxes, and
other charges or restrictions on imports. Products that Pillowtex imports from
China currently receive preferential tariff treatment accorded goods from
countries granted "most favored nation" status. Under the Trade Act of 1974,
the President of the United States is authorized, upon making specified
findings, to waive certain restrictions that would otherwise render China
ineligible for most favored nation treatment. The President has waived these
provisions each year since 1979. Most favored nation status was accordingly
renewed in June 1997 despite legislation pursued by Congress that demanded that
China desist from certain trade and military activities. Congress will
continue to monitor these activities and may encourage the President to
reconsider the renewal of most favored nation status for China in June 1998 and
no assurance can be given that China will continue to enjoy this status in the
future. Raw materials and finished products entering the United States from
China without the benefit of most favored nation treatment would be subject to
significantly higher duty rates.
ADVERSE RETAIL INDUSTRY CONDITIONS
Each of Pillowtex and Fieldcrest sells its products to a number of
department stores and other major retailers who have experienced financial
difficulties during the past several years. Some of these retailers have
recently emerged from the protection of federal bankruptcy laws and some
current retail customers of Pillowtex and Fieldcrest may seek protection under
the federal bankruptcy laws or state insolvency laws in the future. As a
result of these financial difficulties and bankruptcy and insolvency
proceedings, Pillowtex and Fieldcrest may be unable to collect some or all
amounts owed by these retail customers. Additionally, all or part of the
operations of a retail customer that seeks bankruptcy or other debtor
protection may be discontinued or sales of Pillowtex's or Fieldcrest's products
to such a customer may be curtailed or terminated as a result of bankruptcy or
insolvency proceedings.
DEPENDENCE ON KEY LICENSES
Pillowtex holds licenses with organizations such as Polo Ralph Lauren
Corporation, The Walt Disney Company, E.I. du Pont Nemours and Company, the
U.S. Postal Service, WestPoint Stevens, Inc., and others, using such well-known
trademarks and trade names as the Ralph Lauren Home Collection, Mickey &
Co.(R), Martex(R), and Dacron(R). Although the significance of specific
licenses varies from year to year, a substantial portion of Pillowtex's net
sales for fiscal year 1996 and the six month period ended June 28, 1997 were
attributable to products sold under licensed trademarks and trade names. These
licenses generally require the payment of royalties based on net sales,
including the payment of minimum annual royalties, and expire at various dates
through 1999. No assurance can be given that Pillowtex will be able to renew
these licenses on acceptable terms upon their expiration or will be able to
acquire new licenses to use other popular trademarks. Pillowtex's license to
market products under the Ralph Lauren Home Collection provides that if Charles
M. Hansen, Jr., Pillowtex's Chairman of the Board and Chief Executive Officer,
and Mary R. Silverthorne, a director of Pillowtex, or their immediate families,
in the aggregate, cease to beneficially own at least 25% of the
20
<PAGE> 35
outstanding Pillowtex Common Stock, such license will become subject to
termination at the option of the licensor.
Fieldcrest also holds licenses with third parties, including Waverly,
Adrienne Vittadini, and Ellen Tracy. Fieldcrest, however, primarily
manufactures and markets products bearing its own proprietary brand names. See
"Dependence on Brand Names."
DEPENDENCE ON BRAND NAMES
In fiscal year 1996, approximately 93% of Fieldcrest's net sales were from
sales of products bearing Fieldcrest's principal proprietary brand names of
"Fieldcrest," "Royal Velvet," "Charisma," "St. Mary's," "Cannon," "Monticello,"
"Royal Family," "Caldwell," and "Sure Fit." The remaining 7% of Fieldcrest's
1996 net sales were from sales of private label products. Accordingly,
Pillowtex's future success may depend in part upon the goodwill associated with
Fieldcrest's brand names.
Fieldcrest's principal brand names are registered in the United States and
certain foreign countries. However, there can be no assurance that the steps
taken by Fieldcrest to protect its proprietary rights in such brand names will
be adequate to prevent the misappropriation thereof in the United States or
abroad. In addition, the laws of some foreign countries do not protect
proprietary rights in brand names to the same extent as do the laws of the
United States.
RISK OF LOSS OF MATERIAL CUSTOMERS
In fiscal year 1996, sales to Wal-Mart Stores, Inc. ("Wal-Mart") and Dayton
Hudson Corporation ("Dayton Hudson") accounted for 14% and 13% of Pillowtex's
total sales, respectively. For the six months ended June 28, 1997, sales to
Wal-Mart, Dayton Hudson and Federated Department Stores, Inc. ("Federated")
accounted for 11%, 13%, and 12% of Pillowtex's total sales, respectively.
In fiscal year 1996, sales to Wal-Mart and its affiliates accounted for
21.2% of Fieldcrest's total sales. For the six months ended June 30, 1997,
sales to Wal-Mart and its affiliates accounted for 25.8% of Fieldcrest's total
sales. No other single customer accounted for more than 10% of Fieldcrest's
net sales during such periods.
Consistent with industry practice, neither Pillowtex nor Fieldcrest
operates under a long-term written supply contract with any of its customers.
The business, financial condition, and results of operations of Pillowtex could
be materially adversely affected by the loss of Dayton Hudson, Wal-Mart, or
Federated as continuing major customers of Pillowtex or, from and after the
Effective Time, the loss of Wal-Mart as a continuing major customer of
Fieldcrest.
LABOR RELATIONS
Pillowtex has approximately 3,900 employees, approximately 20% of which are
subject to collective bargaining agreements. Fieldcrest has approximately
11,300 employees, approximately 34% of which are subject to collective
bargaining agreements.
Since 1991, the Union of Needletrades, Industrial, and Textile Workers
("UNITE") has campaigned to organize approximately 5,500 additional hourly
workers at five Fieldcrest plants, including Fieldcrest's main manufacturing
facility in Kannapolis. Fieldcrest has opposed UNITE's organizing efforts.
Although a majority of employees at these plants recently voted not to select
UNITE as a bargaining representative, the results of such election are subject
to legal challenge. There can be no assurance as to whether or when, the
results of such election will be certified or a new election will be scheduled.
It is impossible to predict what effect, if any, a lengthy continuation of
another organizing campaign will have on the productivity of the Fieldcrest
workforce.
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INFLUENCE BY SIGNIFICANT SHAREHOLDERS
As of _____________, 1997, the Pillowtex Record Date, Charles M. Hansen,
Jr. and Mary R. Silverthorne beneficially owned, in the aggregate,
approximately 52.9% of the outstanding shares of the Pillowtex Common Stock.
Assuming 3,442,517 shares of Pillowtex Common Stock are issued in connection
with the Merger, Mr. Hansen and Ms. Silverthorne would beneficially own, in the
aggregate, approximately 40% of the then-outstanding shares of Pillowtex Common
Stock after giving effect to the Merger and related financing transactions. It
is anticipated, however, that such shareholders will continue to exert
significant influence over the management and direction of Pillowtex.
DEPENDENCE ON KEY PERSONNEL
Pillowtex's business is managed by or under the direction of Charles M.
Hansen, Jr., who serves as Chairman of the Board and Chief Executive Officer.
Pillowtex believes that its future success will be highly dependent upon its
ability to attract and retain skilled managers and other personnel, including
Mr. Hansen. The loss of Mr. Hansen's services could have a material adverse
effect on Pillowtex.
SEASONALITY OF BUSINESS
Pillowtex's business is subject to a pattern of seasonal fluctuation.
During the past three years, sales and earnings from operations generated
during the second half of the year averaged approximately 62% and 69%,
respectively, of Pillowtex's total sales and earnings from operations.
Pillowtex's needs for working capital increase in the second half of the year
and, accordingly, total debt levels tend to peak in the third and fourth
quarters, falling off again in the first quarter of the following year. The
amount of Pillowtex's sales generated during the second half of the year
generally depends upon a number of factors, including the level of retail sales
for home textile furnishings during the fall and winter, weather conditions
affecting the level of sales of down comforters and blankets (which are sold in
greater quantities in cold weather), general economic conditions, and other
factors beyond Pillowtex's control.
Fieldcrest's business is subject to a similar pattern of seasonal
fluctuation having greater sales volume in the last three quarters of the
calendar year than in the first calendar quarter. Accordingly, it is likely
that Fieldcrest's operating performance in the first quarter of a given
calendar year will be less favorable than operating performance in the last
three quarters.
INDUSTRY COMPETITION AND COMPETITIVE FACTORS
Each of Pillowtex and Fieldcrest participates in a highly competitive
industry. Each of Pillowtex and Fieldcrest competes with a number of
established manufacturers, importers, and distributors of home textile
furnishings, some of which have greater financial, distribution, manufacturing,
and marketing resources.
MARKET RISK
Pillowtex Common Stock is listed for trading on the NYSE. The prices at
which shares of Pillowtex Common Stock trade may depend upon many factors,
including prevailing interest rates, markets for similar securities, industry
conditions, and the performance of, and investor expectations for, Pillowtex.
No assurance can be given that a holder of Pillowtex Common Stock will be able
to sell such securities at any particular price.
CERTAIN PROVISIONS OF PILLOWTEX'S ARTICLES OF INCORPORATION, BYLAWS, AND OTHER
AGREEMENTS
Pillowtex's Restated Articles of Incorporation (the "Pillowtex Articles"),
Pillowtex's Amended and Restated Bylaws (the "Pillowtex Bylaws"), and certain
agreements to which Pillowtex is a party contain provisions that may have the
effect of delaying, deferring, or preventing a change in control of Pillowtex.
In addition, the Pillowtex Articles authorize the issuance of up to 30,000,000
shares of Pillowtex Common Stock and 20,000,000 shares of preferred stock of
Pillowtex. The Pillowtex Board will have the power to determine the price and
terms under which any additional capital stock may be issued and, subject to
the terms of any issued and outstanding
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preferred stock (including without limitation the Pillowtex Preferred Stock),
to fix the terms of such preferred stock, and existing Pillowtex shareholders
will not have preemptive rights with respect thereto. See "Description of
Pillowtex Capital Stock--Future Stock Issuances."
THE PARTIES
PILLOWTEX
Pillowtex, founded in 1954, is a leading North American designer,
manufacturer, and marketer of bed pillows, blankets, mattress pads, and down
comforters. Other complementary bedroom textile furnishings offered by
Pillowtex include comforter covers, featherbeds, pillow protectors, decorative
pillows, bedspreads, synthetic comforters, pillow shams, dust ruffles, and
window treatments. Pillowtex has positioned itself as a single-source supplier
to retailers for top-of-the-bed home textile furnishings (other than sheets),
offering a broad assortment of products across multiple price points.
Pillowtex markets its products primarily to department stores, mass merchants,
wholesale clubs, specialty retail stores, catalogs, and institutional
distributors.
Additional information concerning Pillowtex is included in the Pillowtex
Reports incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Available Information" and "Incorporation of Certain Documents By
Reference."
FIELDCREST
Fieldcrest was incorporated under the laws of Delaware in 1953 and is
principally involved in the manufacture and sale of home furnishing products.
Fieldcrest designs, manufactures, and markets a broad range of household
textile products consisting of towels, sheets, comforters, bath rugs, and
furniture coverings. Fieldcrest's customers consist principally of department
stores, chain stores, mass merchants, specialty home furnishing stores, catalog
warehouse clubs, and other retail outlets and institutional, government, and
contract accounts.
Additional information concerning Fieldcrest is included in the Fieldcrest
Reports incorporated by reference in the Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents By Reference."
CERTAIN PRIOR TRANSACTIONS BETWEEN PILLOWTEX AND FIELDCREST
In November 1996, Pillowtex acquired from Fieldcrest certain assets
comprising Fieldcrest's blanket operations for a purchase price of
approximately $31.5 million. In connection with such transaction, Pillowtex
and Fieldcrest entered into an exclusive 25-year license agreement pursuant to
which Pillowtex is permitted to manufacture and sell various goods, including
bed pillows, mattress pads, down comforters, and blankets, bearing Fieldcrest's
principal brand names. Prior to entering into such license agreement,
Pillowtex and Fieldcrest were parties to certain other licensing agreements
originally entered into in 1990 and 1991, pursuant to which Fieldcrest had
granted Pillowtex the right to manufacture and sell bed pillows, mattress pads,
down comforters, and certain other products (not including blankets) bearing
certain of the Fieldcrest brand names.
THE MERGER
BACKGROUND OF THE MERGER
In late November 1996, the outside directors of Fieldcrest met to review
and discuss the condition of Fieldcrest and the alternatives available to the
Fieldcrest directors to increase and maximize the value of the Fieldcrest
Common Stock. The directors determined that at the next regularly scheduled
meeting of directors the Fieldcrest Board would formally designate a Special
Committee comprised of independent directors to review strategic options. The
independent directors also determined to name S. Roger Horchow as the Chairman
of
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the Special Committee, to retain Weil, Gotshal & Manges LLP as the Special
Committee's legal counsel, and to interview a number of nationally recognized
investment banking firms that had not previously performed services for
Fieldcrest. The Special Committee subsequently retained one of the firms
interviewed to act as its financial advisor on an interim basis. Following a
number of meetings in early 1997, the Special Committee determined that it
would not be in the best interests of Fieldcrest or its stockholders to attempt
any extraordinary transaction in early 1997 and to continue their consideration
of a number of alternatives, including a sale of Fieldcrest, a major
acquisition to strengthen Fieldcrest's bedding operations, or continuing as an
independent company and executing the current business plan, with a view
towards a decision later in 1997.
In March 1997, the Special Committee requested CSFB to assist the Special
Committee with its evaluation of strategic alternatives, including a possible
business combination with an industry participant identified by the Special
Committee for the primary purpose of strengthening Fieldcrest's bedding
operations (the "Potential Business Combination") or a sale of Fieldcrest.
Pursuant to an engagement letter signed in May 1996 by Fieldcrest, as
supplemented and amended by a letter signed in March 1997, CSFB had been
retained as Fieldcrest's exclusive financial advisor in connection with the
types of extraordinary transactions under consideration by the Special
Committee.
On March 17, 1997, Fieldcrest received a confidential letter from an
industry participant (the "Potential Acquiror") expressing its interest in
acquiring Fieldcrest for $21.00 per share of Fieldcrest Common Stock in cash,
subject to a normal due diligence review, execution of a definitive agreement,
and the receipt of necessary potential approvals from governmental agencies.
The Potential Acquiror also said in its letter that, following the execution of
a definitive agreement, it would be willing to allow Fieldcrest to "shop" for a
limited time the terms of the definitive agreement and would ask if Fieldcrest
were able to obtain terms more favorable, that it be allowed to meet the more
favorable prices and terms.
On March 19, 1997, the Special Committee met with its advisors to review
the Potential Acquiror's letter. The Special Committee unanimously determined
that the Potential Acquiror's expression of interest was financially inadequate
and reaffirmed the Special Committee's belief that early 1997 was not a
propitious time to attempt to sell the entire company. The Special Committee
instructed its advisors to commence discussions with the industry participant
identified by the Special Committee as a potential acquisition candidate (the
"Potential Acquisition Candidate") while at the same time remaining prepared to
discuss any reasonable proposal that the Potential Acquiror or any other third
party might be willing to make to acquire Fieldcrest.
On March 24, 1997, Fieldcrest responded to the Potential Acquiror's March
17 letter and indicated that it was not interested in proceeding with such a
transaction at that time. On March 26, 1997, the Potential Acquiror wrote to
Fieldcrest and reiterated its belief that Fieldcrest should pursue a sale to
the Potential Acquiror. The Potential Acquiror also stated that if its due
diligence review of Fieldcrest suggested greater value than $21.00 per share,
the Potential Acquiror "will consider it." On April 1, 1997, Fieldcrest wrote
to the Potential Acquiror and reiterated its lack of interest in pursuing such
a transaction at that time. On April 9, 1997, the Potential Acquiror once
again wrote to Fieldcrest and reiterated its interest in commencing discussions
with Fieldcrest.
On March 30, 1997, Fieldcrest and the Potential Acquisition Candidate
signed a confidentiality agreement for the purpose of exchanging non-public
information and commencing discussions regarding a possible transaction.
On May 19, 1997, Fieldcrest received a letter from Pillowtex in which
Pillowtex expressed an interest in a possible acquisition of Fieldcrest.
Pillowtex stated that its preliminary indication of value was in the range of
$24.00 to 28.00 per share of Fieldcrest Common Stock and that value and terms
were subject to a satisfactory due diligence review and dependent upon the
final structure and form of consideration. Pillowtex proposed that the parties
enter into a confidentiality agreement for the purpose of exchanging non-public
information and commencing discussions.
On May 23, 1997, the Special Committee had a meeting to receive an update
on the status of discussions with the Potential Acquisition Candidate and to
review the May 19 Pillowtex letter. The Special Committee authorized its legal
counsel to prepare and negotiate a confidentiality agreement for execution by
Fieldcrest and
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Pillowtex. On June 13, 1997, Fieldcrest and Pillowtex executed a
confidentiality agreement and began exchanging non- public information.
In late June 1997, the Potential Acquisition Candidate made a proposal
regarding the material terms of a business combination transaction. Pursuant
to the proposal, Fieldcrest would issue shares of Fieldcrest Common Stock to
acquire the Potential Acquisition Candidate, which would result in the
stockholders of the Potential Acquisition Candidate owning approximately 43% of
Fieldcrest following the transaction. The stockholders of the Potential
Acquisition Candidate also would receive warrants for additional shares of
Fieldcrest Common Stock. The proposal also provided that the current
Fieldcrest directors would constitute a majority of the directors following the
transaction. The senior management of the Potential Acquisition Candidate
would be elected as the senior managers of Fieldcrest following the transaction
and management would receive options to purchase shares of Fieldcrest Common
Stock.
In July 1997, the Special Committee had a meeting with its advisors to
discuss developments. Following a review of the proposal of the Potential
Acquisition Candidate, the directors directed CSFB to advise the Potential
Acquisition Candidate that its proposal provided for too many shares of
Fieldcrest Common Stock to be issued to the stockholders of the Potential
Acquisition Candidate. The directors also directed CSFB to inform the
Potential Acquisition Candidate that the numbers of shares of Fieldcrest Common
Stock proposed to be covered by warrants and options were excessive and that
the exercise prices were too low.
In June 1997, the Potential Acquiror expressed an interest in discussing
a possible transaction involving Fieldcrest and conducting a due diligence
review. At a July 1997 meeting, the Special Committee's legal counsel reported
on his discussions concerning a confidentiality agreement with the legal counsel
for the Potential Acquiror. During these discussions, the Special Committee's
legal advisor was apprised that the Potential Acquiror's preliminary interest
was in the towel portion of Fieldcrest's business, that any proposal that the
Potential Acquiror might make would contemplate a divestiture of some or all of
the bedding business to a third party, and that a group including certain
members of Fieldcrest management might be involved in such a transaction.
During the remainder of July 1997, CSFB continued its primary analysis of the
Potential Business Combination and its discussions with representatives of the
Potential Acquisition Candidate and Pillowtex. The Special Committee's legal
counsel continued its discussions with the legal counsel for the Potential
Acquiror regarding the terms of the confidentiality agreement and the procedures
for delivering information.
On August 7, 1997, the Special Committee met with its advisors to review
developments and to receive separate presentations from representatives of the
Potential Acquisition Candidate and Pillowtex. The Special Committee first
heard a presentation from members of the senior management of the Potential
Acquisition Candidate regarding their history of operating the Potential
Acquisition Candidate and their views on the benefits of the Potential Business
Combination.
Following the presentation, the Special Committee then met with the Chief
Executive Officer of Pillowtex and members of his senior management team, as
well as representatives of Bear Stearns, Pillowtex's financial advisor. During
this meeting, Pillowtex proposed for the Special Committee's consideration an
acquisition by Pillowtex of Fieldcrest for $30.00 per share of Fieldcrest Common
Stock in cash. Pursuant to the proposal, Pillowtex would acquire Fieldcrest in
a two-step process, with a tender offer for all of the outstanding shares of
Fieldcrest Common Stock followed by a second-step merger. Pillowtex's
proposal was subject to the completion of its due diligence review of Fieldcrest
and provided for a 90-day exclusivity period during which Fieldcrest would
discuss only with Pillowtex the terms of a sale of or other extraordinary
transaction involving Fieldcrest. After considering the Pillowtex Presentation,
the Special Committee advised Pillowtex that its $30.00 per share proposal was
insufficient and that Fieldcrest could not agree to any exclusivity period. The
Special Committee urged the Pillowtex representatives to complete their due
diligence review and to make an improved proposal. Certain of the Special
Committee members also expressed the view at the August 7 meeting that they
would not support a transaction that had a value to the Fieldcrest stockholders
of less than $34.00 per share of Fieldcrest Common Stock.
On August 7, 1997, the Chairman of the Special Committee also received a
letter from the Potential Acquiror enclosing a signed copy of the
confidentiality agreement that had been negotiated by the parties'
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respective legal counsel. In the letter, the Potential Acquiror reiterated its
interest in acquiring Fieldcrest and stated that its range of value was $26.00
to $29.00 per share of Fieldcrest Common Stock in cash, subject to a normal due
diligence review, execution of a definitive agreement, and the receipt of
necessary approvals from governmental agencies.
On August 13, 1997, the Special Committee held a meeting with its advisors
to receive an update regarding developments. CSFB noted that the Potential
Acquisition Candidate had modified its proposal to provide for the issuance of
a fewer number of shares of Fieldcrest Common Stock at the closing of the
transaction, the possibility for the issuance of additional shares dependent on
Fieldcrest's future share price performance and financial results, and no
warrants to purchase additional shares of Fieldcrest Common Stock. CSFB and
the Special Committee's legal counsel also reviewed their discussions with
Pillowtex's financial advisor, which indicated that subject to the satisfactory
resolution of all issues and the execution of a definitive merger agreement,
Pillowtex might be willing to pay cash and Pillowtex Common Stock with a
combined value of $34.00 per share of Fieldcrest Common Stock. Pillowtex's
preliminary indication was that $26.00 would be paid in cash and $8.00 in
Pillowtex Common Stock.
Following the presentation, the Special Committee directed CSFB to
advise the Potential Acquisition Candidate that its revised proposal still
provided for the issuance of too many shares of Fieldcrest Common Stock in the
transaction. The Special Committee also directed CSFB to urge Pillowtex to
increase the value of its proposal and the cash portion of the proposed merger
consideration. The Special Committee also directed its legal counsel to
prepare a draft merger agreement for submission to Pillowtex.
On September 2, 1997, the respective legal and financial advisors of
Fieldcrest and Pillowtex met to discuss the Pillowtex proposal, Pillowtex's
proposed financing for the transaction, and the draft merger agreement that had
been previously furnished to Pillowtex by Fieldcrest's legal counsel. During
the meeting, Pillowtex informed the Special Committee's advisors that $34.00
per share of Fieldcrest Common Stock was its best price and that the proposed
financing necessitated effecting the transaction in a one-step merger as
opposed to the previously contemplated tender offer and second-step merger.
The advisors also discussed a number of issues, including the cash and stock
composition of the proposed merger consideration, the "collar" provisions for
the stock portion of the merger consideration, the parties' respective
termination rights, the amount of the termination fee to be payable to
Pillowtex in certain circumstances, and the conditions to the transaction.
On September 3, 1997, the Special Committee's advisors reported to the
Special Committee on their meeting with Pillowtex and other developments. CSFB
also reported on its discussions with the Potential Acquisition Candidate and
the Potential Acquiror, who had been provided with all of the due diligence
information it had requested from Fieldcrest. CSFB also advised the Special
Committee that it had been informed that the acquisition group to whom the
Potential Acquiror had contemplated selling Fieldcrest's bedding business had
been unable to formulate a proposal for the Potential Acquiror's review and
consideration.
The Special Committee instructed its advisors to continue the discussions
with Pillowtex, as well as the Potential Acquisition Candidate and the
Potential Acquiror.
On September 4, 1997, the Special Committee met with its legal and
financial advisors to review a revised proposal that CSFB had received from the
Potential Acquisition Candidate following the Special Committee's meeting of
September 3. Following a full discussion, the Special Committee determined
that the revised proposal was not substantially different from the previous
proposal that had been rejected by the Special Committee.
On September 8, 1997, the Special Committee met again with its advisors
to review the Pillowtex proposal and the status of negotiations. CSFB and the
Special Committee's legal counsel reviewed the material terms of the proposed
transaction, including Pillowtex's proposal to provide consideration consisting
of $27.00 in cash and $7.00 of Pillowtex Common Stock for each share of
Fieldcrest Common Stock, the treatment of the Pillowtex Preferred Stock on an
"as converted" basis, the "collar" provisions, and Fieldcrest's right to
terminate the Merger Agreement under certain circumstances if the average per
share closing price of the Pillowtex Common Stock in the measurement period was
below $21.00. The advisors also discussed the limited conditions to closing,
Fieldcrest's right to terminate the Merger Agreement if it received a superior
proposal, and the $15 million
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termination fee that had resulted from the negotiations. CSFB also reviewed
the financing for the proposed transaction as well as its valuation analyses of
Fieldcrest based upon various methodologies. CSFB also discussed its valuation
of the Pillowtex Common Stock. The Special Committee then reviewed with its
legal counsel the limited number of open issues remaining on the draft Merger
Agreement.
The Special Committee's advisors also discussed the status of discussions
with the Potential Acquisition Candidate and Potential Acquiror. It was
reported that the Potential Acquiror had over the prior weekend requested
permission to discuss a transaction involving Fieldcrest with the Potential
Acquisition Candidate, which had been granted.
After a thorough review of all factors that it deemed relevant to its
decision, including those noted below under "--Fieldcrest's Reasons for the
Merger," the Special Committee unanimously agreed that the Merger Agreement
should be approved at a meeting of the full Board of Directors following the
resolution of all outstanding issues.
On the evening of September 10, 1997, the Fieldcrest Board met to approve
the terms of the Merger Agreement that had resulted from negotiations between
the parties. The Special Committee's legal counsel reported on the
satisfactory resolution of the issues that had been open as of the time of the
Special Committee's prior meeting. A representative of CSFB then delivered
CSFB's written opinion that, as of such date and based upon and subject to the
matters set forth therein, the Consideration (as defined in the opinion of
CSFB) to be received by the holders of the Fieldcrest Common Stock in the
Merger was fair to such stockholders from a financial point of view. All
directors present at the meeting voted in favor of the approval of the Merger
Agreement, except for Mr. Fitzgibbons, who abstained for the stated reason that
he had not been part of the Special Committee's deliberations over the past
year. One member of the Special Committee who had evidenced his approval of
the transaction at the Special Committee's prior meeting was unable to
participate in the September 10 Board meeting. The Fieldcrest Board authorized
Mr. Fitzgibbons to execute and deliver the Merger Agreement on behalf of
Fieldcrest and resolved to recommend that the stockholders of Fieldcrest
approve the Merger Agreement at a special meeting to be held with respect
thereto. Fieldcrest and Pillowtex then executed and delivered the Merger
Agreement and, the following morning, Pillowtex issued a press release
announcing the Merger.
PILLOWTEX'S REASONS FOR THE MERGER
The Pillowtex Board has determined that the Merger is in the best interests
of Pillowtex and its shareholders. ACCORDINGLY, THE PILLOWTEX BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE PILLOWTEX
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
The Merger is intended to accomplish several marketing and operational
objectives which Pillowtex management believes will enhance Pillowtex's
competitive position and profitability. From a sales and marketing standpoint,
the Merger will expand Pillowtex's product lines into the bath and fashion
bedding segments, facilitate cross-branding of Pillowtex products using
Fieldcrest's well-known brands, solidify Pillowtex's position as a one-stop
source for home textile products to the retail industry, and diversify
Pillowtex's offerings, thereby decreasing Pillowtex's reliance on any single
product line. Operationally, the Merger provides Pillowtex with
state-of-the-art towel manufacturing operations, an experienced manufacturing
management pool and labor force, and ample factory capacity to accommodate
future expansion in order to maximize economies of scale and operational
efficiencies. Moreover, the Fieldcrest facilities acquired through the Merger
are located predominantly in areas where Pillowtex has existing operations,
allowing effective allocation of the two companies' combined management
resources. The Merger is also expected to give Pillowtex the opportunity to
obtain additional benefits through volume purchasing of certain raw materials,
such as polyester and packaging materials. Pillowtex's management believes
that these benefits, in conjunction with the elimination of certain duplicative
functions and the combination of the best practices and personnel from the
Pillowtex and Fieldcrest organizations, will result in a lower cost structure
and allow Pillowtex to compete more effectively over the long term as the home
textile industry continues to consolidate and retailers increasingly
differentiate suppliers based on price, size, and stability.
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OPINION OF PILLOWTEX'S FINANCIAL ADVISOR
General. Pillowtex retained Bear Stearns in June 1997 to provide advice to
the Pillowtex Board regarding certain financial aspects of the Merger. Bear
Stearns was engaged to provide advice regarding valuation and transaction
structure, assist Pillowtex in its efforts to obtain financing and in
negotiations with Fieldcrest and its advisors, present to the Pillowtex Board a
valuation analysis and financial review of the Merger, render its opinion to
the Pillowtex Board as to the fairness of the Consideration (as defined in the
opinion of Bear Stearns), from a financial point of view, to the shareholders
of Pillowtex, and provide other investment banking and financial advisory
services as requested by Pillowtex.
On September 5, 1997, Bear Stearns delivered to the Pillowtex Board an oral
opinion, which was subsequently confirmed in a written opinion dated as of
September 10, 1997, to the effect that, as of such date and subject to the
assumptions and qualifications set forth in its written opinion, the
Consideration (as defined in the opinion of Bear Stearns) was fair, from a
financial point of view, to the shareholders of Pillowtex. The full text of
the Bear Stearns opinion is set forth as Appendix B to this Joint Proxy
Statement/Prospectus and describes the assumptions made, matters considered,
and limits on the review undertaken. Pillowtex shareholders are urged to read
this opinion carefully and in its entirety. The summary of Bear Stearns'
opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion.
The opinion of Bear Stearns is intended for the benefit and use of the
Pillowtex Board, and does not constitute a recommendation of the Merger or
related financing transactions or a recommendation to any shareholder of
Pillowtex as to how any such shareholder should vote with respect to the
approval of the Share Issuance. In rendering its opinion, Bear Stearns is not
expressing any opinion as to what the value of Pillowtex Common Stock or
Fieldcrest Common Stock actually will be at the time of the Merger or the
prices at which Pillowtex Common Stock will trade during the period following
announcement of the Merger or subsequent to the consummation of the Merger.
Finally, the Bear Stearns opinion does not address Pillowtex's underlying
business decision to effect the Merger. It should be understood that, although
subsequent developments may affect the conclusions reached in the Bear Stearns
opinion, Bear Stearns does not have any obligation to, and does not intend to,
update, revise, or reaffirm its opinion.
The form and amount of consideration to be paid by Pillowtex pursuant to
the Merger Agreement were determined by arm's-length negotiations between
Pillowtex and Fieldcrest and were not based on any recommendation by Bear
Stearns, although Bear Stearns provided advice to Pillowtex from time to time
with respect thereto. Except as otherwise noted herein, no limitations were
imposed by Pillowtex on Bear Stearns with respect to the investigations made or
the procedures followed by Bear Stearns in rendering its opinion.
In the course of performing its reviews and analyses for rendering its
opinion, Bear Stearns: (i) reviewed the Merger Agreement in substantially
final form; (ii) reviewed Pillowtex's Annual Reports on Form 10-K for the
years ended December 31, 1994 through December 28, 1996, and its Quarterly
Reports on Form 10-Q for the quarters ended March 29 and June 28, 1997; (iii)
reviewed Fieldcrest's Annual Reports on Form 10-K for the years ended December
31, 1994 through 1996, and its Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1997; (iv) reviewed certain operating and financial
information of Pillowtex and Fieldcrest, including projections and projected
cost savings and operating synergies, provided to Bear Stearns by Pillowtex's
and Fieldcrest's management relating to their respective businesses and
prospects; (v) met with certain members of Pillowtex's and Fieldcrest's senior
management to discuss their respective operations, historical financial
statements, and future prospects and their views of the business, operational,
and strategic benefits, cost savings, potential synergies, and other
implications of the Merger; (vi) reviewed the historical prices and trading
volumes of the Pillowtex Common Stock and the Fieldcrest Common Stock; (vii)
reviewed publicly available financial data and stock market performance data of
other publicly held companies which Bear Stearns deemed generally comparable to
Pillowtex and Fieldcrest; (viii) reviewed the financial terms of recent
acquisitions of companies that Bear Stearns deemed generally comparable to
Fieldcrest; and (ix) conducted such other studies, analyses, inquiries, and
investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Pillowtex and Fieldcrest.
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With respect to Pillowtex's and Fieldcrest's projected financial results
(including projected cost savings and operating synergies resulting from the
Merger), Bear Stearns assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Pillowtex and Fieldcrest as to the expected future performance
of Pillowtex and Fieldcrest, respectively. Bear Stearns also assumed that the
Merger and financing thereof would not violate, result in a default under, or
be in contravention of the terms of, any material agreement, to which any of
Pillowtex, Fieldcrest, or their respective subsidiaries is a party. Bear
Stearns did not assume any responsibility for the independent verification of
the information or the projections (including projected cost savings and
operating synergies resulting from the Merger) provided to it and Bear Stearns
further relied upon the assurances of the managements of Pillowtex and
Fieldcrest that they are unaware of any facts that would make the information
or projections (including projected cost savings and operating synergies
resulting from the Merger) provided to Bear Stearns incomplete or misleading.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities of Pillowtex or Fieldcrest.
The Bear Stearns opinion is necessarily based on economic, market, and other
conditions, and the information made available to Bear Stearns, as of the date
of the opinion.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial, and comparative analyses. The
summary of such analyses, as set forth below, does not purport to be a complete
description of the analyses underlying the Bear Stearns opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to summary description. Bear Stearns believes that its analyses
must be considered as a whole, and that selecting portions of its analyses and
the factors considered by it, without considering all such factors and
analyses, could create an incomplete view of the processes underlying its
opinion. Moreover, the estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Accordingly, such
estimates are inherently subject to substantial uncertainties.
The following is a summary of the material valuation, financial, and
comparative analyses presented by Bear Stearns to the Pillowtex Board on
September 5, 1997 in connection with the Bear Stearns opinion, which was orally
rendered to the Pillowtex Board on such date and subsequently confirmed in a
written opinion dated as of September 10, 1997.
Analysis of Selected Precedent M&A Transactions. Bear Stearns reviewed and
analyzed the publicly available financial terms of three selected recent merger
and acquisition transactions in the textiles industry (collectively, the
"Precedent Textile Transactions") and compared the financial terms of such
transactions to those of the Merger for purposes of this analysis. These three
transactions included: (i) Dyersburg Corporation's pending acquisition of AIH
Inc.; (ii) VF Corp's acquisition of Nutmeg Industries; and (iii) Fruit of the
Loom's acquisition of Salem Sportswear. Bear Stearns reviewed the prices paid
in the Precedent Textile Transactions and analyzed various operating and
financial information and imputed valuation multiples and ratios. Bear Stearns
noted that none of the Precedent Textile Transactions were identical to the
Merger and that, accordingly, any analysis of the Precedent Textile
Transactions necessarily involved complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that would necessarily affect the acquisition value of Fieldcrest
versus the acquisition values of the companies to which Fieldcrest was being
compared. Bear Stearns' analysis of the Precedent Textile Transactions
indicated that the multiples of Enterprise Value (defined as market equity
value plus debt plus preferred stock plus minority interest less cash) to
latest twelve months ("LTM") revenue, EBITDA (defined as earnings before
interest, taxes, and depreciation and amortization), and EBIT (defined as
earnings before interest and taxes) yielded harmonic means (excluding any
multiples that were greater than twice or less than half the median) of 1.0x,
9.2x, and 11.8x, respectively. Bear Stearns compared these multiples to
Fieldcrest's implied transaction multiples based on the aggregate value of the
Consideration (as defined in the opinion of Bear Stearns), the fair market
value of Fieldcrest's indebtedness, and certain expenses to be incurred to
achieve the costs savings ("Pro Forma Cost Savings") that are reflected in the
pro forma financial information presented elsewhere in the Joint Proxy
Statement/Prospectus (such aggregate value being referred to herein as the
"Transaction Value") relative to Fieldcrest's LTM operating results including
the Pro Forma Cost Savings and relative to Pillowtex management's estimate of
Fieldcrest's 1997 operating results including the Pro Forma Cost Savings (the
"1997 Pillowtex Management Forecast"). As the Merger was expected
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<PAGE> 44
to close near the end of 1997 and as Pillowtex's management did not believe
Fieldcrest's LTM operating performance was indicative of the normalized results
of the business since these results did not fully reflect the effects of
Fieldcrest's recent operational restructuring, Bear Stearns focused on the
transaction multiples implied by the 1997 Pillowtex Management Forecast in
addition to the transaction multiples implied by Fieldcrest's LTM operating
results. Bear Stearns noted that (i) the implied multiple of Transaction Value
to the 1997 Pillowtex Management Forecast revenue was lower than the harmonic
mean of the Precedent Textile Transactions' LTM revenue multiples; (ii) the
implied multiple of Transaction Value to the 1997 Pillowtex Management Forecast
EBITDA was lower than the harmonic mean of the Precedent Textile Transactions'
LTM EBITDA multiples; and (iii) the implied multiple of Transaction Value to
the 1997 Pillowtex Management Forecast EBIT was lower than the harmonic mean of
the Precedent Textile Transactions' LTM EBIT multiples.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow ("DCF") analysis of Fieldcrest based on fiscal 1998 through fiscal 2002
projections provided by Pillowtex management ("Base Case"). Bear Stearns used
discount rates of 8% to 10%, based on a textile industry weighted average cost
of capital of 8.3% (as calculated by Bear Stearns), and terminal EBITDA
multiples of 6.0x to 8.0x. Bear Stearns noted the low-end terminal multiple
represents a 10% discount to the harmonic mean EBITDA multiple of the
Comparable HT Companies (as hereinafter defined), while the high-end terminal
multiple is within the range of the Comparable HT Companies' EBITDA multiples
and is 13% below the harmonic mean of the Precedent Textile Transactions'
EBITDA multiples. The Base Case DCF analysis utilized Pillowtex's management
forecast of Fieldcrest's future operating results which assumed (i) revenue
growth, based on the 1997 Pillowtex Management Forecast, of 2% per annum from
1998 to 2002, (ii) increasing gross margin, including cost savings in excess of
the Pro Forma Cost Savings, from 16.9% to 18.5% during the period 1998 to 2002,
and (iii) increasing operating income margin, including cost savings in excess
of the Pro Forma Cost Savings, from 7.9% to 11.5% during the period 1998 to
2002. This analysis implied an entity value range of $891.6 million to
$1,218.0 million, the low-end of which was above the Transaction Value.
Analysis of Certain Publicly Traded Companies. Bear Stearns compared
certain operating and financial information for Pillowtex and Fieldcrest to
certain publicly available operating, financial, trading, and valuation
information of five selected home textile companies. These companies included
Burlington Industries, Inc., Crown Crafts, Inc., Springs Industries, Inc.,
Thomaston Mills, Inc., and Westpoint Stevens Inc. (collectively, the
"Comparable HT Companies"). Although Bear Stearns used these companies for
comparison purposes, none of such companies are identical to Fieldcrest. Bear
Stearns' analysis indicated that the Comparable HT Companies' Enterprise Value
to LTM revenue, EBITDA, and EBIT yielded harmonic means (excluding any
multiples that were greater than twice or less than half the median) of 0.6x,
6.7x, and 10.6x, respectively. Bear Stearns compared the Comparable HT
Companies' LTM multiples to Fieldcrest's implied transaction multiples based on
the Transaction Value relative to Fieldcrest's LTM operating results including
the Pro Forma Cost Savings and relative to the 1997 Pillowtex Management
Forecast. As the Merger was expected to close near the end of 1997 and as
Pillowtex's management did not believe Fieldcrest's LTM operating performance
was indicative of the normalized results of the business since these results
did not fully reflect the effects of Fieldcrest's recent operational
restructuring, Bear Stearns focused on the transaction multiples implied by the
1997 Pillowtex Management Forecast in addition to the transaction multiples
implied by Fieldcrest's LTM operating results. Bear Stearns noted that (i) the
implied multiple of Transaction Value to the 1997 Pillowtex Management Forecast
revenue was in line with the Comparable HT Companies' LTM revenue multiples;
(ii) the implied multiple of Transaction Value to the 1997 Pillowtex Management
Forecast EBITDA was lower than the harmonic mean of the Comparable HT
Companies' LTM EBITDA multiples; and (iii) the implied multiple of Transaction
Value to the 1997 Pillowtex Management Forecast EBIT was lower than the
harmonic mean of the Comparable HT Companies' LTM EBIT multiples.
In addition, Bear Stearns conducted such other analyses as it deemed necessary.
Pursuant to the terms of its engagement letter, Pillowtex has paid Bear
Stearns an initial cash retainer fee of $50,000 and a $500,000 fee upon Bear
Stearns' rendering of its opinion, and has further agreed to pay Bear Stearns a
$2.45 million fee upon consummation of the Merger. In addition, Bear Stearns
will receive a fee of $1.3 million for introducing Apollo Management, L.P. and
certain of its affiliates to Pillowtex (and acting as Pillowtex's financial
advisor with respect to the Pillowtex Preferred Stock Commitment). Pillowtex
also has
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<PAGE> 45
agreed to reimburse Bear Stearns for its reasonable out-of-pocket expenses, and
to indemnify Bear Stearns and certain related persons against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
Bear Stearns may actively trade the equity securities of Pillowtex and/or
Fieldcrest for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to Pillowtex in connection with the Merger
and asked to provide advice to Pillowtex in the Merger negotiations and render
its opinion in connection with the Merger based on Bear Stearns'
qualifications, expertise, and reputation in providing advice to companies in
merger transactions. As part of its investment banking business, Bear Stearns
is engaged regularly in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate, and other purposes.
FIELDCREST'S REASONS FOR THE MERGER
The Fieldcrest Board has determined that the terms of the Merger Agreement
and the Merger are fair to, and in the best interests of, Fieldcrest's
stockholders. ACCORDINGLY, THE FIELDCREST BOARD HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF FIELDCREST VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
In reaching its determination, the Fieldcrest Board consulted with its
legal counsel and financial advisor and gave significant consideration to a
number of factors, including without limitation the factors referred to below.
In view of the wide variety of factors bearing on its decision, the Fieldcrest
Board did not consider it practical to, and did not attempt to, quantify or
otherwise assign relative weights to the factors it considered in reaching its
decision.
The factors considered by the Fieldcrest Board included:
o The premium of the merger consideration to the historical market
prices for the Fieldcrest Common Stock, including the fact that the
merger consideration represents a premium of approximately 140% over
the market price of the Fieldcrest Common Stock at the time the
independent directors of Fieldcrest first met in late November 1996 to
consider alternatives to increase and maximize the value of the
Fieldcrest Common Stock and the treatment of Pillowtex Preferred Stock
on an "as converted" basis.
o The discussions between the Special Committee's advisors and the
Potential Acquisition Candidate and the Potential Acquiror and the
Special Committee's view that the Merger is a more attractive
transaction for Fieldcrest's stockholders than any transaction or
interest proposed or expressed by these third parties.
o The Special Committee's review of the financial performance and
condition, business, and prospects of Fieldcrest and its consideration
of historical and pro forma financial and other information relating
to Pillowtex and the Pillowtex Common Stock.
o The Special Committee's consideration of current conditions in the
textile industry and the historical cyclical nature of the industry.
o The terms of the Merger Agreement, including without limitation the
form of consideration, the price protection afforded by the "collar"
provisions of the Merger Agreement, Fieldcrest's right to terminate
the Merger Agreement in the event that the per share average market
price of the Pillowtex Common Stock in the relevant determination
period falls below $21.00 and Pillowtex does not offer to increase
the merger consideration, and Fieldcrest's ability, under certain
circumstances, to terminate the Merger
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<PAGE> 46
Agreement to accept an acquisition proposal deemed by the Fieldcrest
directors to be superior to the Merger upon payment of a termination
fee to Pillowtex.
o The provision by Pillowtex to Fieldcrest of commitment letters from
financing sources to provide funds necessary to effect the Merger, the
Fieldcrest Board's views regarding the likelihood that Pillowtex would
be able to complete the Merger on a timely basis, and the fact that
the Merger Agreement provides for limited conditions (and no financing
condition) to the obligation of Pillowtex to consummate the Merger.
o The written opinion dated September 10, 1997 of CSFB that, as of such
date and based upon and subject to the matters set forth therein, the
Consideration (as defined in the opinion of CSFB) to be received by
the holders of the Fieldcrest Common Stock in the Merger was fair to
such stockholders from a financial point of view.
o The effect of the Merger on Fieldcrest's other constituencies,
including its employees and customers, and the terms of the Merger
Agreement relating to employee matters.
OPINION OF FIELDCREST'S FINANCIAL ADVISOR
CSFB has acted as exclusive financial advisor to the Special Committee in
connection with the Merger. CSFB was selected by Fieldcrest based on CSFB's
experience, expertise, and familiarity with Fieldcrest and its business. CSFB
is an internationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and other
purposes.
At the request of the Special Committee, on September 10, 1997, the date on
which the Merger Agreement was executed, CSFB delivered to the Fieldcrest Board
its written opinion that, as of such date and based upon and subject to the
matters set forth therein, the Consideration (as defined in the opinion of
CSFB) to be received by the holders of the Fieldcrest Common Stock in the
Merger was fair to such stockholders from a financial point of view.
The full text of CSFB's written opinion to the Fieldcrest Board, which sets
forth the procedures followed, assumptions made, matters considered, and
limitations on the review undertaken, is attached as Appendix C to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. Holders of
Fieldcrest Common Stock are urged to read this opinion carefully and in its
entirety. CSFB's opinion is directed to the Fieldcrest Board and relates only
to the fairness from a financial point of view of the Consideration (as defined
in the opinion of CSFB) to be received by holders of the Fieldcrest Common
Stock in the Merger and does not address any other aspect of the proposed
Merger and does not constitute a recommendation to any stockholder as to
whether such stockholder should vote for the approval of the Merger. The
summary of the opinion of CSFB set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In arriving at its opinion, CSFB reviewed certain publicly available
business and financial information relating to Fieldcrest and Pillowtex as well
as a draft dated September 9, 1997 of the Merger Agreement. CSFB also reviewed
certain other information, including financial forecasts, provided to it by
Fieldcrest and Pillowtex, and met with Fieldcrest's and Pillowtex's managements
to discuss the business and prospects of Fieldcrest and Pillowtex.
CSFB also considered certain financial and stock market data of Fieldcrest
and Pillowtex and compared that data with similar data for other publicly held
companies in businesses similar to that of Fieldcrest and Pillowtex and
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. CSFB also considered such
other information, financial studies, analyses, and investigations and
financial, economic, and market criteria as CSFB deemed relevant.
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<PAGE> 47
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the foregoing information and relied on such
information being complete and accurate in all material respects. With respect
to the financial forecasts, CSFB assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of Fieldcrest and Pillowtex as to the future financial performance
of Fieldcrest and Pillowtex. In addition, CSFB did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Fieldcrest or Pillowtex, nor was CSFB furnished with any such evaluations or
appraisals. CSFB's opinion was necessarily based upon financial, economic,
market, and other conditions as they existed and could be evaluated on the date
of its opinion. CSFB did not express any opinion as to what the value of the
Pillowtex Common Stock actually will be when issued to Fieldcrest's
stockholders pursuant to the Merger or the prices at which such Pillowtex
Common Stock will trade subsequent to the Merger. In connection with its
engagement, CSFB approached third parties to solicit indications of interest in
a possible acquisition of Fieldcrest and held preliminary discussions with
certain of these parties prior to the date of the opinion. For purposes of its
opinion, CSFB did not consider other strategic alternatives to the sale of
Fieldcrest that might then have been available to Fieldcrest.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses, including those described below. The summary of CSFB's
analyses set forth below does not purport to be a complete description of the
analyses underlying CSFB's opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
CSFB made qualitative judgments as to the significance and relevance of each
analysis and factor considered by it. Accordingly, CSFB believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and its opinion. In its analyses, CSFB made numerous assumptions with
respect to Fieldcrest, Pillowtex, industry performance, regulatory, general
business, economic, market, and financial conditions, and other matters, many
of which are beyond the control of Fieldcrest and Pillowtex. No company,
transaction, or business used in such analyses as a comparison is identical to
Fieldcrest or Pillowtex or the proposed Merger, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading, or other values of the companies, business segments, or transactions
being analyzed. The estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not necessarily
indicative of actual or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which business and
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. CSFB's opinion and financial
analyses were only one of many factors considered by the Fieldcrest Board in
its evaluation of the Merger and should not be viewed as determinative of the
views of the Fieldcrest Board with respect to the merger consideration or the
proposed Merger.
The following is a summary of the material analyses performed by CSFB in
connection with its opinion dated September 10, 1997.
Fieldcrest Discounted Cash Flow Analysis. CSFB's discounted cash flow
analysis was based on two forecast scenarios: a scenario derived from
management's views of future operating and financial performance (the
"Fieldcrest Management Case") and a revised case derived from the Fieldcrest
Management Case (the "Fieldcrest Sensitivity Case"). The Fieldcrest Management
Case assumed management's internal projections for 1997 and 1998, and extended
the forecast to 2007 based on CSFB's discussions with Fieldcrest management.
From 1999 to 2007 the Management Case assumed a 4.0% revenue growth and an
improvement in the margin for earnings before interest, taxes, depreciation,
and amortization ("EBITDA") from 8.8% in 1997 to 12.6% in 2001 and thereafter.
The Fieldcrest Sensitivity Case assumed the same revenue growth trend as in the
Management Case and a more moderate increase in the EBITDA margin from 8.8% in
1997 to 12.3% in 2002 and thereafter. CSFB calculated an enterprise value
reference range for Fieldcrest based upon the present value of Fieldcrest's
ten-year stream of unlevered free cash flows and fiscal year 2007 terminal
value. The fiscal year 2007 terminal value of Fieldcrest was calculated by
applying to Fieldcrest's fiscal year 2007 EBITDA multiples ranging from
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<PAGE> 48
6.0x to 6.5x, based on the EBITDA multiples from the Fieldcrest Selected
Companies Analysis and the Fieldcrest Selected Transactions Analysis described
below. Unlevered free cash flows and terminal value estimates were then
discounted to the present using discount rates of 10.5% to 11.0%, based on
Fieldcrest's estimated weighted average cost of capital. This analysis
resulted in an enterprise value reference range for Fieldcrest of $720 to $787
million, or $33.97 to $39.62 per share, for the Fieldcrest Management Case and
$676 to $741 million, or $30.30 to $35.75 per share, for the Fieldcrest
Sensitivity Case.
Fieldcrest Selected Companies Analysis. CSFB compared certain financial
information of Fieldcrest to corresponding data of the following selected
publicly traded companies in the home textiles industry: Springs Industries
Inc., Westpoint Stevens Inc., Burlington Industries Inc., Cone Mills
Corporation, Pillowtex Corporation, Dyersburg Corporation, Thomaston Mills,
Inc. and Crown Crafts Inc. (collectively, the "Selected Home Textile
Companies"), all of which CSFB considered to be reasonably comparable to
Fieldcrest. CSFB compared the enterprise value (which was defined by CSFB for
purposes of this analysis as adjusted market value) of the Selected Home
Textile Companies as multiples of estimated fiscal 1997 EBITDA and compared
stock prices to 1997 and 1998 earnings per share ("EPS"). Estimated financial
data for the Selected Home Textile Companies was based on estimates of equity
research analysts. Applying a range of selected multiples for the Selected
Home Textile Companies of fiscal 1997 EBITDA and 1997 and 1998 EPS of 6.0x to
6.5x, 12.0x to 14.0x, and 10.0x to 12.0x, respectively, to corresponding
financial data of Fieldcrest resulted in a reference range of approximately
$22.50 to $26.50 per share.
Fieldcrest Selected Transactions Analysis. CSFB analyzed the purchase
prices and implied transaction multiples paid or proposed to be paid in
selected merger and acquisition transactions involving companies in the home
textile sector, consisting of the following (acquirer/target): Avondale/Triarc
Cos. (Graniteville), Springs Industries/Dundee Mills, Pillowtex/Beacon
Manufacturing, Galey & Lord/Burlington Industries, Mohawk Industries/Aladdin
Mills, Valley Fashions/West Point - Pepperell, Mohawk Industries/Karastan
Bigelow, Unifi/Pioneer Yarns Mills, Interface Inc./Bentley Mills, Springs
Industries/Fieldcrest Cannon (not completed), Unifi/Vintage Yarns,
Unifi/Macfield, Coats Viyella/Tootal Group, and RSI Corp./Delta Woodside
Industries (collectively, the "Selected Transactions"). CSFB compared
enterprise values for the surviving entities as multiples of sales, EBITDA, and
earnings before interest and taxes ("EBIT") in each case for the latest 12
months ("LTM"). All multiples were based on historical financial information
available at the time of announcement of the transaction. Applying a range of
selected multiples for the Selected Transactions of LTM sales, EBITDA, and EBIT
of 0.6x to 0.7x, 6.5x to 7.5x, and 10.0x to 11.0x, respectively, to
corresponding financial data of Fieldcrest resulted in a reference range of
approximately $29.00 to $37.00 per share.
Fieldcrest Aggregate Reference Ranges. On the basis of the valuation
methodologies described above, CSFB derived an aggregate reference range for
Fieldcrest of approximately $30.00 to $37.00 per share.
CSFB also performed the following analyses with regard to Pillowtex Common
Stock.
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma effect of
the Merger on Pillowtex's EPS for the fiscal years 1998 through 2001, based on
the Fieldcrest Sensitivity Case and the Pillowtex Base Case (as defined below).
After giving effect to synergies anticipated by Pillowtex's management in the
Merger, the analysis indicated that the Merger would be accretive to
Pillowtex's EPS on a fully diluted basis in fiscal years 1998 through 2001.
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Pillowtex Discounted Cash Flow Analysis. CSFB's discounted cash flow
analysis for Pillowtex was based on two forecast scenarios: a scenario derived
from management's views of future operating and financial performance (the
"Pillowtex Base Case") and a downside case derived from the Pillowtex Base Case
(the "Pillowtex Downside Case"). The Pillowtex Base Case assumed management
forecasts for 1997 and revenue growth and margin improvements in line with
management's expectations. The Pillowtex Base Case assumed revenue growth of
4.0% from 1998 to 2000 and 3.5% from 2001 to 2007, and EBITDA margins rising
gradually from 11.3% in 1997 to 13.0% in 2000 and remaining constant
thereafter. The Pillowtex Downside Case assumed more moderate revenue growth
and margin improvements. The Pillowtex Downside Case assumed revenue growth of
3.0% from 1998 to 2000 and 2.5% from 2001 to 2007, as well as an EBITDA margin
increase from
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<PAGE> 49
11.3% in 1997 to 12.5% in 2000, remaining constant thereafter. CSFB calculated
a reference range for Pillowtex based upon the present value of Pillowtex's
ten-year stream of unlevered free cash flows and fiscal year 2007 terminal
value. The fiscal year 2007 terminal value of Pillowtex was calculated by
applying to Pillowtex's fiscal year 2007 EBITDA multiples ranging from 6.5x to
7.0x, based on the EBITDA multiples from the Pillowtex Selected Companies
Analysis described below. Unlevered free cash flows and terminal value
estimates were then discounted to the present using discount rates of 10.0% to
10.5%, based on Pillowtex's estimated weighted average cost of capital. This
analysis resulted in a reference range for Pillowtex of $23.70 to $27.10 for
the Pillowtex Base Case and $18.40 to $21.36 for the Pillowtex Downside Case.
Pillowtex Selected Companies Analysis. CSFB compared certain financial
information of Pillowtex to corresponding data of the Selected Home Textile
Companies. The universe of comparables for Pillowtex was the same as for
Fieldcrest. CSFB compared the enterprise value of the Selected Home Textile
Companies as multiples of estimated fiscal 1997 EBITDA and 1997 and 1998 EPS.
Estimated financial data for the Selected Home Textile Companies was based on
estimates of equity research analysts. Applying a range of selected multiples
for the Selected Home Textile Companies of estimated 1997 EBITDA, and 1997 and
1998 EPS of 6.5x to 7.5x, 13.0x to 14.0x, and 11.0x to 12.0x, respectively, to
corresponding financial data of Pillowtex resulted in a reference range for
Pillowtex of approximately $22.00 to $25.00 per share.
Pursuant to the terms of CSFB's engagement, the Special Committee has
agreed, on behalf of Fieldcrest, to pay CSFB for its services in connection
with the proposed Merger (i) a financial advisory fee of $275,000 (which will
be credited against the Transaction Fee (as hereinafter defined)), upon
execution of the most recent amendment to the engagement letter and (ii) upon
consummation of the Merger, a transaction fee of $3.8 million, plus 1% of the
total fair market value (on the date of payment) of all consideration paid to
Fieldcrest or its stockholders for the equity of Fieldcrest, including common
stock, preferred stock, options, and warrants (the "Transaction Fee").
Fieldcrest has also agreed to reimburse CSFB for out-of-pocket expenses
incurred by CSFB in performing its services, including fees and expenses of
legal counsel and any other advisor retained by CSFB, and to indemnify CSFB and
certain related persons and entities against certain liabilities, including
liabilities under the federal securities laws, related to or arising out of
CSFB's engagement.
CSFB has in the past performed certain investment banking services for
Fieldcrest, for which CSFB has received customary fees. In the ordinary course
of its business, CSFB and its affiliates may actively trade the debt and equity
securities of Fieldcrest and Pillowtex for their own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
CERTAIN PROJECTED FINANCIAL INFORMATION OF FIELDCREST
In the course of the discussions described in "The Merger --Negotiations
Resulting in the Merger Agreement," Fieldcrest provided Pillowtex and its
financial advisor with certain business and financial information which was not
publicly available. Such information included, among other things, certain
financial projections for 1997 (the "Fieldcrest Projections") prepared by the
management of Fieldcrest. The Fieldcrest Projections do not take into account
any of the potential effects of the Merger. Set forth below is a summary of
the Fieldcrest Projections provided to Pillowtex.
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<PAGE> 50
SUMMARY STATEMENT OF INCOME
1997 FORECAST AS OF JULY 12, 1997
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1997
FORECAST
------------
<S> <C>
Net sales 1,151.3
Total cost of sales 970.6
------------
Gross profit 180.7
Selling, general, and administrative 118.8
------------
expenses
Operating income 61.9
Interest expense 25.8
Other income 2.0
------------
Income before income taxes 38.1
Income taxes 14.1
------------
Net income $ 24.0
============
Preferred dividends (4.5)
------------
Earnings on common $ 19.5
============
Earnings per share $ 2.13
============
</TABLE>
The Fieldcrest Projections are included in this Joint Proxy
Statement/Prospectus only because such information was provided to Pillowtex
and Bear Stearns, its financial advisor, which relied upon such projections
when performing its analysis of Merger and in formulating its opinion as to the
fairness, from a financial point of view, of the Consideration (as defined in
the opinion of Bear Stearns) to the shareholders of Pillowtex. As a matter of
course, neither Pillowtex nor Fieldcrest makes public projections or forecasts
of its anticipated financial position or results of operations. Accordingly,
neither Pillowtex nor Fieldcrest anticipates that it will, and each of them
disclaims any obligation to, furnish updated projections to any person, cause
such information to be included in documents required to be filed with the
Commission, or otherwise make such information public (irrespective in any such
case of whether the Fieldcrest Projections, in light of events or developments
occurring after the date hereof, cease to have a reasonable basis).
While presented with numerical specificity, the Fieldcrest Projections are
based upon a variety of assumptions relating to general economic conditions and
the business of Fieldcrest which may not be realized and are subject to
significant uncertainties and contingencies, many of which are beyond the
control of Pillowtex and Fieldcrest. There can be no assurance that the
Fieldcrest Projections will be realized and actual results may vary materially
from those shown. The inclusion of the Fieldcrest Projections herein should
not be regarded as an indication that any of Pillowtex, Fieldcrest, or their
respective financial advisors considers such projections to be an accurate
prediction of future events.
The Fieldcrest Projections were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public
Accountants.
The Fieldcrest Projections should be evaluated in conjunction with the
historical financial statements and other information contained in reports and
statements filed with the Commission from time to time by Pillowtex
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and Fieldcrest and the information set forth under the captions "Note Regarding
Forward-Looking Information" and "Risk Factors."
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, which is incorporated by reference and a copy of which
is attached as Appendix A to this Joint Proxy Statement/Prospectus.
Capitalized terms not otherwise defined herein or in the following summary
shall have the meanings set forth in the Merger Agreement.
The Merger. On the terms and subject to the conditions of the Merger
Agreement, at the Effective Time Newco will be merged with and into Fieldcrest
in accordance with the applicable provisions of the DGCL and the separate
corporate existence of Newco will thereupon cease (with the Surviving Company
being a subsidiary of Pillowtex).
On the fifth business day following the date on which the last of the
conditions set forth in the Merger Agreement is satisfied or waived, Newco and
Fieldcrest will cause a certificate of merger to be filed with the Secretary of
State of the State of Delaware as provided in the DGCL. Upon completion of
such filing, the Merger will become effective in accordance with the DGCL. The
Merger will have the effects specified in the DGCL.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, on the terms and subject to the conditions of the Merger Agreement and in
accordance with the DGCL, at the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof: (i) each share of
Fieldcrest Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares of Fieldcrest Common Stock owned by
Fieldcrest, Pillowtex, any subsidiary of Pillowtex or Fieldcrest, and
Dissenting Shares (as hereinafter defined)), will be converted into the right
to receive (a) a cash payment in an amount equal to $27.00 (the "Cash Amount")
and (b) a number of fully paid and nonassessable shares of Pillowtex Common
Stock equal to the Conversion Number, i.e., the quotient, rounded to the third
decimal place, obtained by dividing $7.00 by the Determination Price (i.e., the
average of the closing sales prices of Pillowtex Common Stock as reported on
the NYSE Composite Transactions List for each of the 20 consecutive trading
days immediately preceding the fifth trading day prior to the Closing Date),
provided that if the actual quotient obtained thereby is less than 0.269, the
Conversion Number will be 0.269, and if the actual quotient obtained thereby is
more than 0.333, the Conversion Number will be 0.333, and provided further
that, if the Determination Price is less than $21.00, Pillowtex will have the
right to elect to increase the Cash Amount and/or the Conversion Number such
that the sum of (1) the Cash Amount and (2) the product of (A) the Conversion
Number and (B) the Determination Price equals $34.00 and, if Pillowtex does not
so elect, Fieldcrest will have the right to terminate the Merger Agreement;
(ii) each share of Fieldcrest Preferred Stock issued and outstanding
immediately prior to the Effective Time (excluding shares of Fieldcrest
Preferred Stock owned by Fieldcrest, Pillowtex, any subsidiary of Fieldcrest or
Pillowtex, and Dissenting Shares) will be converted into the right to receive
(a) a cash payment equal to the product of (1) the Cash Amount and (2) 1.7094
and (b) a number of fully paid and nonassessable shares of Pillowtex Common
Stock equal to the product of (1) the Conversion Number and (2) 1.7094; and
(iii) each share of common stock of Newco issued and outstanding immediately
prior to the Effective Time will be converted into and become one validly
issued, fully paid, and nonassessable share of common stock, par value $0.01
per share, of the Surviving Company. Each share of Fieldcrest Common Stock or
Fieldcrest Preferred Stock issued and outstanding immediately prior to the
Effective Time that is owned by Fieldcrest, Pillowtex, or any subsidiary of
Pillowtex or Fieldcrest, will automatically be cancelled and retired without
payment of any consideration therefor and will cease to exist.
Dissenting Shares. In the event the Merger is effected and Fieldcrest
stockholders are entitled to receive the applicable consideration described
above, shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock issued
and outstanding immediately prior to the Effective Time held by a holder (if
any) who has the right to demand, and who has properly demanded an appraisal of
such shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock, as
applicable, in accordance with Section 262 of the DGCL (or any successor
provision)
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("Dissenting Shares") will not be converted into the right to receive the
applicable consideration, unless such holder fails to perfect or otherwise
loses such holder's right to such appraisal, if any. If, after the Effective
Time, such holder fails to perfect or loses any such right to appraisal, each
Dissenting Share of such holder shall be treated as a share of Fieldcrest
Common Stock or Fieldcrest Preferred Stock, as applicable, that has been
converted as of the Effective Time into the right to receive the applicable
consideration, in accordance with the terms of the Merger Agreement.
Treatment of Fieldcrest Stock Options. The Merger Agreement provides that
each holder of a then-outstanding Fieldcrest Option, whether or not then
exercisable or fully vested, may elect, prior to the Effective Time, in
settlement thereof, to receive from Fieldcrest immediately prior to the
Effective Time for each share of Fieldcrest Common Stock subject to such
Fieldcrest Option an amount in cash equal to the difference between $34.00 and
the per share exercise price of such Fieldcrest Option, to the extent $34.00 is
greater than the per share exercise price of such Fieldcrest Option (such
excess amount, the "Option Consideration"). The Merger Agreement further
provides that, at the Effective Time, each outstanding Fieldcrest Option, other
than Fieldcrest Options for which an election to receive cash in settlement
thereof has been made pursuant to the Merger Agreement, shall be assumed by
Pillowtex and shall constitute an option to acquire, on substantially the same
terms and subject to substantially the same conditions as were applicable under
such Fieldcrest Option, including without limitation term, exercisability,
status as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and termination provisions, a number of
shares of Pillowtex Common Stock (increased to the nearest whole share) equal
to the product of (i) the number of shares of Fieldcrest Common Stock subject
to such Fieldcrest Option immediately prior to the Effective Time and (ii) the
Option Conversion Number, (i.e., the quotient, rounded to the third decimal
place, obtained by dividing $34.00 by the Determination Price) at an exercise
price per share of Pillowtex Common Stock (increased to the nearest whole cent)
equal to the exercise price per share of Fieldcrest Common Stock subject to
such Fieldcrest Option immediately prior to the Effective Time divided by the
Option Conversion Number; provided that if the actual quotient obtained thereby
is less than 1.308, the Option Conversion Number will be 1.308, and if the
actual quotient obtained thereby is more than 1.619, the Option Conversion
Number will be 1.619, and provided further that, if Pillowtex elects to
increase the Conversion Number as described above, the Option Conversion Number
will be increased such that the product of (A) the Option Conversion Number and
(B) the Determination Price equals $34.00.
Fieldcrest has agreed to use its best efforts to obtain all necessary
waivers, consents, or releases from holders of Fieldcrest Options under the
Stock Option Plans and take any such other action as may be reasonably
necessary to give effect to the transactions described above and, with respect
to the Fieldcrest Options for which an election to receive cash in settlement
thereof has been made, to cause each such Fieldcrest Option to be surrendered
to Fieldcrest and cancelled, whether or not any Option Consideration is payable
with respect thereto, at the Effective Time. The surrender of a Fieldcrest
Option to Pillowtex will be deemed a release of any and all rights the holder
had or may have had in such Fieldcrest Option, other than the right to receive
the Option Consideration in respect thereof. Pillowtex has also agreed to take
all corporate action necessary to reserve for issuance a sufficient number of
shares of Pillowtex Common Stock for delivery upon exercise of substitute
Fieldcrest Options, to register such shares with the Commission on an
appropriate registration statement, to maintain the effectiveness of such
registration statement as long as the substitute options remain outstanding,
and to use all reasonable efforts to cause the shares of Pillowtex Common Stock
subject to the Fieldcrest Options to be listed on the NYSE and such other
exchanges as Pillowtex may determine.
Treatment of Fieldcrest SARs. Each holder of an outstanding stock
appreciation right issued by Fieldcrest (a "Fieldcrest SAR") will be paid, at
or immediately prior to the Effective Time, a cash amount equal to the product
of (i) the difference between $34.00 and the grant price of such Fieldcrest SAR
and (ii) the number of shares subject to such Fieldcrest SAR.
Treatment of Fieldcrest Convertible Debentures. The Merger Agreement
provides that at the Closing, (i) Fieldcrest will execute and deliver to the
trustee under the Indenture pursuant to which the Fieldcrest Convertible
Debentures were issued a supplemental indenture to become effective at the
Effective Time, providing that the holder of each Fieldcrest Convertible
Debenture outstanding immediately following the Effective Time shall have the
right thereafter, during the period such Fieldcrest Convertible Debenture shall
be
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convertible as specified in such Indenture, to convert such Fieldcrest
Convertible Debenture only into the amount of cash and Pillowtex Common Stock
receivable by reason of the Merger by a holder of the number of shares of
Fieldcrest Common Stock into which such Fieldcrest Convertible Debenture might
have been converted immediately prior to the Effective Time (subject to
subsequent adjustment as provided in such Indenture) and (ii) Pillowtex will
execute and deliver to such trustee, as part of such supplemental indenture, an
undertaking to reserve and keep available out of its authorized but unissued
capital stock, a number of shares of Pillowtex Common Stock sufficient to
permit the conversion of all outstanding Fieldcrest Convertible Debentures and
to cause to be issued and delivered to Fieldcrest for subsequent delivery by
Fieldcrest in accordance with such supplemental indenture and Indenture shares
of Pillowtex Common Stock upon the conversion of any Fieldcrest Convertible
Debenture.
Fractional Shares. No fractional shares of Pillowtex Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, each
holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock who otherwise
would be entitled to receive a fractional share of Pillowtex Common Stock
pursuant to the Merger will be paid an amount in cash (without interest),
rounded to the nearest cent, equal to the product of (i) the fraction of a
share of Pillowtex Common Stock to which such holder would otherwise be
entitled and (ii) the closing sales price of Pillowtex Common Stock on the NYSE
on the Closing Date. Any fractional shares of Pillowtex Common Stock that
would otherwise be issuable upon the conversion of Fieldcrest Convertible
Debentures will be eliminated and settled in the manner provided in the
Indenture setting forth the terms of the Fieldcrest Convertible Debentures.
Consequences of Failure to Approve the Share Issuance. The Merger
Agreement provides that, notwithstanding anything to the contrary set forth
therein, if Pillowtex's shareholders fail to approve the Share Issuance at the
Pillowtex Special Meeting: (i) the consideration to be paid to holders of
Fieldcrest Common Stock will be a cash payment in an amount equal to $34.00 per
share; (ii) the consideration to be paid to holders of Fieldcrest Preferred
Stock will be a cash payment in an amount equal to $58.12 per share; (iii) each
holder of a Fieldcrest Option will receive for each share of Fieldcrest Common
Stock subject to such Fieldcrest Option an amount in cash equal to the
difference between $34.00 and the per share exercise price of such Fieldcrest
Option; and (iv) the conditions described below in clauses (ii) and (iv) of the
first paragraph under the caption "--Conditions to the Merger" below will be
inapplicable. If the Pillowtex shareholders were to fail to approve the Share
Issuance, there can be no assurance that Pillowtex would be able to obtain
financing adequate to enable it to pay the amounts described in the immediately
preceding sentence on terms acceptable to Pillowtex, if at all. However, as of
the Pillowtex Record Date, Charles M. Hansen, Jr., Chairman of the Board and
Chief Executive Officer of Pillowtex, and Mary R. Silverthorne, a director of
Pillowtex, beneficially owned, in the aggregate, 52.9% of the outstanding
shares of Pillowtex Common Stock and each of them has separately informed
Pillowtex that he or she intends to be present at the Pillowtex Special Meeting
and to vote his or her shares of Pillowtex Common Stock for the approval of the
Share Issuance. Accordingly, the approval by Pillowtex's shareholders of the
Share Issuance is expected to occur irrespective of whether or the manner in
which other Pillowtex shareholders vote their shares.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations by Fieldcrest with respect to: (i) organization, standing, and
corporate power; (ii) capitalization; (iii) authority and noncontravention;
(iv) Commission reports; (v) absence of certain changes or events; (vi) benefit
plans; (vii) taxes; (viii) voting requirements; (ix) compliance with laws; (x)
opinion of financial advisor; (xi) investment banking fees and commissions;
(xii) litigation; (xiii) environmental laws; (xiv) material contracts; (xv)
labor matters; (xvi) rights plan matters; and (xvii) real property and other
assets.
Pillowtex and Newco have also made certain representations and warranties
with respect to: (i) organization, standing, and corporate power; (ii)
capitalization; (iii) authority and noncontravention; (iv) Commission reports;
(v) absence of certain changes or events; (vi) certain matters with respect to
Newco and financing arrangements; (vii) investment banking fees and
commissions; (viii) compliance with laws; (ix) environmental laws; and (x)
litigation.
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No representations and warranties made by Fieldcrest, Pillowtex, or Newco
will survive beyond the Effective Time.
No Solicitation. The Merger Agreement provides that, from and after the
date of the Merger Agreement until the termination of the Merger Agreement,
Fieldcrest will not, and will not authorize or permit any of its subsidiaries,
or any of its or their affiliates, officers, directors, employees, agents, or
representatives (including without limitation any investment banker, financial
advisor, attorney, or accountant retained by Fieldcrest or any of its
subsidiaries), to, directly or indirectly, initiate, solicit, or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries, any expression of interest, or the making
of any proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as hereinafter defined), or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal; except that nothing in the Merger Agreement will prohibit
the Fieldcrest Board from furnishing information to, or entering into,
maintaining or continuing discussions or negotiations with, any person that
makes an unsolicited Acquisition Proposal after the date of the Merger
Agreement, if, and to the extent that, the Fieldcrest Board, after consultation
with and based upon the advice of independent legal counsel, determines in good
faith that (i) such Acquisition Proposal would be more favorable to the
Fieldcrest stockholders than the Merger and (ii) the failure to take such
action would result in a breach by the Fieldcrest Board of its fiduciary duties
to the Fieldcrest stockholders under applicable law, and, prior to furnishing
any non-public information to such person, receives from such person an
executed confidentiality agreement with provisions no less favorable to
Fieldcrest than the confidentiality agreement entered into by Pillowtex and
Fieldcrest in connection with the Merger. The Merger Agreement further
provides that Fieldcrest will promptly notify Pillowtex if it is prepared to
provide access to the properties, books, or records of Fieldcrest or any of its
subsidiaries to any person who has made an Acquisition Proposal, and Fieldcrest
will at such time inform Pillowtex of the material terms of any such
Acquisition Proposal. For purposes of the Merger Agreement, "Acquisition
Proposal" means an inquiry, offer, or proposal regarding any of the following
(other than the transactions contemplated by the Merger Agreement with
Pillowtex or Newco) involving Fieldcrest: (i) any merger, consolidation, share
exchange, recapitalization, business combination, or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition of all or substantially all of the assets of Fieldcrest and its
subsidiaries, taken as a whole, in a single transaction or series of related
transactions; (iii) any tender offer or exchange offer for 33% or more of the
outstanding shares of capital stock of Fieldcrest or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan, or intention to do any of the
foregoing, or any agreement to engage in any of the foregoing.
Conditions to the Merger. Pursuant to the Merger Agreement, the obligation
of each party to effect the Merger is subject to the satisfaction or written
waiver on or prior to the Closing Date of the following conditions: (i) the
Merger Agreement shall have been approved and adopted by the affirmative vote
of the requisite number of Fieldcrest stockholders in the manner required
pursuant to Fieldcrest's Restated Certificate of Incorporation, as amended (the
"Fieldcrest Certificate"), Fieldcrest's Amended and Restated Bylaws (the
"Fieldcrest Bylaws"), the DGCL and other applicable law, and the rules of the
NYSE; (ii) the Share Issuance shall have been approved by the affirmative vote
of the requisite number of shareholders of Pillowtex in the manner required
pursuant to the Pillowtex Articles and the Pillowtex Bylaws, the Texas Business
Corporation Act (the "TBCA") and other applicable law, and the rules of the
NYSE, (iii) no temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect; (iv) the shares of Pillowtex Common Stock issuable to the
Fieldcrest stockholders pursuant to the Merger Agreement shall have been
approved for listing on the NYSE, subject to official notice of issuance; (v)
the Registration Statement shall have been declared effective under the
Securities Act and not be the subject of any stop order or proceedings seeking
a stop order; and (vi) all necessary waiting periods under the HSR Act
applicable to the Merger shall have expired or been terminated.
The obligation of Pillowtex and Newco to effect the Merger is further
subject to satisfaction or written waiver on or prior to the Closing Date of
the following conditions: (i) the representations and warranties of Fieldcrest
contained in the Merger Agreement, which representations and warranties shall
be deemed for purposes of this condition not to include any qualification or
limitation with respect to materiality (whether by reference to
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"Material Adverse Effect" or otherwise), shall be true and correct as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, have not had or
would not have a Material Adverse Effect on Fieldcrest, with the same effect as
though such representations and warranties were made as of the Closing Date,
and Pillowtex and Newco shall have received a certificate signed on behalf of
Fieldcrest by an authorized officer of Fieldcrest to such effect; (ii)
Fieldcrest shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Pillowtex and Newco shall have received a certificate signed
on behalf of Fieldcrest by an authorized officer of Fieldcrest to such effect;
and (iii) since the date of the Merger Agreement, Fieldcrest and its
subsidiaries, taken as a whole, shall not have experienced any change, event,
or occurrence particular to them (excluding industry, economic, financial, and
other matters generally affecting businesses other than and in addition to
Fieldcrest and its subsidiaries) that has had or would have a Material Adverse
Effect on Fieldcrest, other than resulting from any matter disclosed in any
Filed SEC Document or in a disclosure schedule to the Merger Agreement.
The obligation of Fieldcrest to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions: (i) the representations and warranties of each of Pillowtex and
Newco contained in the Merger Agreement, which representations and warranties
shall be deemed for purposes of this condition not to include any qualification
or limitation with respect to materiality (whether by reference to "Material
Adverse Effect" or otherwise), shall be true and correct as of the Closing
Date, except where the matters in respect of which such representations and
warranties are not true and correct, in the aggregate, has not had or would not
have a Material Adverse Effect on Newco, with the same effect as though such
representations and warranties were made as of the Closing Date, and Fieldcrest
shall have received a certificate signed on behalf of Pillowtex and Newco by an
authorized officer of Pillowtex to such effect; (ii) each of Pillowtex and
Newco shall have performed in all material respects all obligations required to
be performed by it under the Merger Agreement at or prior to the Closing Date,
and Fieldcrest shall have received a certificate signed on behalf of Pillowtex
by an authorized officer of Pillowtex to such effect; and (iii) since the date
of the Merger Agreement, Pillowtex and its subsidiaries, taken as a whole,
shall not have experienced any change or occurrence particular to them
(excluding industry, economic, financial, and other matters generally affecting
businesses and other than and in addition to Pillowtex and its subsidiaries),
that has had or would have a Material Adverse Effect on Pillowtex, other than
resulting from any matter disclosed in any Parent SEC Document or in a
disclosure schedule to the Merger Agreement.
Termination. The Merger Agreement may be terminated and the transactions
contemplated thereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval and adoption thereof by the Fieldcrest stockholders,
in any one of the following circumstances: (i) by mutual written consent duly
authorized by the Pillowtex Board and the Fieldcrest Board; (ii) by Pillowtex
or Fieldcrest, if, without any material breach by such terminating party of its
obligations under the Merger Agreement, the Effective Time shall not have
occurred on or before December 31, 1997; (iii) by Pillowtex or Fieldcrest, if
any federal or state court of competent jurisdiction or other Governmental
Authority shall have issued an order, decree, or ruling, or taken any other
action permanently restraining, enjoining, or otherwise prohibiting the Merger
and such order, decree, ruling, or other action shall have become final and
non- appealable; (iv) by Pillowtex or Fieldcrest, if the Fieldcrest
Stockholders Meeting shall have been held and the Merger Agreement shall not
have been approved and adopted by the affirmative vote of the requisite number
of Fieldcrest stockholders; (v) by Fieldcrest, if it shall have received an
Acquisition Proposal and shall have advised Pillowtex in writing that the
Fieldcrest Board, after consultation with and based upon the advice of
independent legal counsel, determined in good faith that failure to accept such
Acquisition Proposal would result in a breach by the Fieldcrest Board of its
fiduciary duties to Fieldcrest's stockholders under applicable law, except that
the Merger Agreement may not be so terminated unless simultaneously with the
termination Fieldcrest shall have made the payment to Pillowtex of the
Termination Fee (as hereinafter defined); (vi) by Pillowtex, if the Fieldcrest
Board shall have (a) withdrawn, modified, or amended in any adverse respect its
approval or recommendation of the Merger Agreement, the Merger, or the other
transactions contemplated by the Merger Agreement, (b) approved, endorsed, or
recommended to its stockholders an Acquisition Proposal, or (c) resolved to do
any of the foregoing; or (vii) by Pillowtex or Fieldcrest if (a) the other
party shall have failed to comply in any material respect with any of the
material covenants and agreements contained in the Merger Agreement to be
complied with or performed by such party at or prior to such date of
termination, and such failure continues for 20 business days after the actual
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receipt by such party of a written notice from the other party setting forth in
detail the nature of such failure, or (b) a representation or warranty of the
other party contained in the Merger Agreement shall have been untrue in any
respect on the date when made (or in the case of any representations and
warranties that are made as of a different date, as of such different date) and
the matters in respect of which such representation and warranty shall have
been untrue has had or would have a Material Adverse Effect on such other
party. In the event the Merger Agreement is terminated based upon an event
described in clause (v) or (vi) above, Fieldcrest will be required to pay a
termination fee in the amount of $15.0 million (the "Termination Fee") to
Pillowtex.
Fieldcrest Stockholders Meeting. The Merger Agreement provides that
Fieldcrest will take all action necessary, in accordance with the DGCL, the
Exchange Act and other applicable law, the rules of the NYSE, and the
Fieldcrest Certificate and the Fieldcrest Bylaws, to convene a special meeting
of Fieldcrest stockholders as promptly as practicable after the effectiveness
of the Registration Statement for the purpose of considering and voting upon
the Merger Agreement. The Merger Agreement provides that, subject to
Fieldcrest's right to terminate the Merger Agreement described in clause (v) of
the paragraph under the caption "--Termination" above, the Fieldcrest Board
will recommend that the holders of the shares of Fieldcrest Common Stock vote
in favor of the approval and adoption of the Merger Agreement at the Fieldcrest
Special Meeting and such recommendation will be included in this Joint Proxy
Statement/Prospectus.
Pillowtex Shareholders Meeting. The Merger Agreement provides that
Pillowtex will take all action necessary in accordance with Exchange Act and
other applicable law, the rules of the NYSE, and the Pillowtex Articles and the
Pillowtex Bylaws, to convene a special meeting of the Pillowtex shareholders as
promptly as practicable after the effectiveness of the Registration Statement
for the purpose of considering and voting upon the Share Issuance. The Merger
Agreement provides that the Pillowtex Board will recommend that the holders of
the Pillowtex Common Stock vote in favor of and approve the Share Issuance.
Consents, Approvals, and Filings. The Merger Agreement provides that each
of the parties to the Merger Agreement will (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act,
the Securities Act, and the Exchange Act with respect to the Merger and the
other transactions contemplated thereby (together, the "Transactions") and (ii)
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make
effective the Transactions, including without limitation using its reasonable
best efforts to obtain all licenses, permits (including without limitation
environmental permits), consents, approvals, authorizations, qualifications,
and orders of Governmental Authorities, and parties to contracts with
Fieldcrest and its subsidiaries as are necessary for the consummation of the
Transactions and to fulfill the conditions to the Merger. In addition,
Pillowtex has agreed, among other things, to use its best efforts to obtain any
government clearances required for completion of the Merger (including through
compliance with the HSR Act) and to take any and all of the following actions
to the extent necessary to obtain the approval of any governmental entity with
jurisdiction over the enforcement of any applicable laws regarding the Merger:
enter into negotiations; provide information; substantially comply with any
second request for information pursuant to the HSR Act; enter into and perform
agreements or submit to judicial or administrative orders and sell or otherwise
dispose of, or hold separate (through the establishment of a trust or
otherwise) particular assets or categories of assets or businesses of
Pillowtex, Fieldcrest, or any of their affiliates; except that Pillowtex will
not be required to take any such action that would have a Material Adverse
Effect on Pillowtex and its subsidiaries (including the Surviving Company)
taken as a whole following the Effective Time. See "The Merger --Regulatory
Approvals."
Indemnification. The Merger Agreement provides that the certificate of
incorporation and by-laws of the Surviving Company will contain the provisions
with respect to indemnification set forth in the Fieldcrest Certificate and the
Fieldcrest Bylaws on the date of the Merger Agreement, which provisions will
not be amended, repealed, or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Effective Time were
directors or officers of Fieldcrest in respect of actions or omissions
occurring at or prior to the Effective Time (including without limitation the
transactions contemplated by the Merger Agreement), unless such modification is
required by law. The Merger Agreement further provides that Fieldcrest will,
and from and after the Effective Time, Pillowtex will, or will cause the
Surviving Company to, indemnify, defend, and hold harmless each person
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who is now, or has previously been at any time or who becomes prior to the
Effective Time, an officer or director of Fieldcrest (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
reasonable attorneys' fees and expenses), liabilities, or judgments or amounts
that are paid in settlement, with the approval of the indemnifying party (which
approval is not to be unreasonably withheld), of or in connection with any
threatened or actual claim, action, suit, proceeding, or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of Fieldcrest whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger
Agreement or the transactions contemplated thereby, in each case, to the full
extent a corporation is permitted under the DGCL to indemnify its own directors
or officers as the case may be (and Pillowtex and the Surviving Company, as the
case may be, will pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law). Fieldcrest, Pillowtex, and Newco have agreed that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, will survive the
Merger and will continue in full force and effect for a period of not less than
six years from the Effective Time.
The Merger Agreement further provides that for a period of four years after
the Effective Time, Pillowtex will cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by
Fieldcrest (except that Pillowtex may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties), with respect
to matters arising before the Effective Time, except that Pillowtex will not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by Fieldcrest prior to the date of the Merger
Agreement, but in such case will purchase as much coverage as possible for such
amount.
Employee Benefit Matters. Pillowtex, Newco, and Fieldcrest have agreed in
the Merger Agreement to certain matters with respect to the compensation and
benefit programs of the Surviving Company and its subsidiaries. The Merger
Agreement provides that Pillowtex will, and will cause its subsidiaries
following the Effective Time (including the Surviving Company) to: (i) honor
and provide for payment of all obligations and benefits under all Company Plans
in accordance with their terms; (ii) provide employee benefits which are
substantially comparable in the aggregate to the level of employee benefits
provided by Fieldcrest and its subsidiaries under the Company ERISA Plans in
effect as of the Closing Date for the benefit of employees or former employees
who are or had been employees of Fieldcrest or any of its subsidiaries on or
before the Closing Date ("Covered Employees"), until the earlier of December
31, 1999 or the second anniversary of the Closing Date; (iii) honor and provide
for the payment of all obligations and benefits under all employment or
severance agreements between Fieldcrest and any Covered Employee in accordance
with their terms; and (iv) provide until the first anniversary of the Closing
Date for the benefit of Covered Employees who remain in the employ of the
Surviving Company or Pillowtex or any of its affiliates employee compensation
that is in the aggregate at a level substantially comparable to the
compensation (including base pay and incentive-type compensation) provided by
Fieldcrest and its subsidiaries under the compensation arrangements in effect
as of the Closing Date.
The Merger Agreement also provides that Pillowtex will cause the Surviving
Company (i) to maintain Fieldcrest's Short-Term Incentive Compensation Plan
without adverse change until the end of the 1997 calendar year and (ii) to
continue without adverse change the severance plan maintained by Fieldcrest and
its subsidiaries as of the date hereof until the first anniversary of the
Closing Date.
The Merger Agreement further provides that, if Covered Employees are
included in any benefit plan (including without limitation provision for
vacation) of Pillowtex or its subsidiaries, Covered Employees will receive
credit as employees of Fieldcrest and its subsidiaries to the same extent such
service was counted under similar Company Plans for purposes of eligibility,
vesting, eligibility for retirement, and, with respect to vacation, disability,
and severance, benefit accrual and that, if Covered Employees are included in
any medical, dental, or health plan other than the plan or plans they
participated in on the Closing Date, any such plans will not include
pre-existing condition exclusions, except to the extent such exclusions were
applicable under the similar Company
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<PAGE> 58
Plan on the Closing Date, and will provide credit for any deductibles and
co-payments applied or made with respect to each Covered Employee in the
calendar year of the change.
In the Merger Agreement, the parties thereto acknowledged that nothing
therein will be deemed to be a commitment on the part of Pillowtex or the
Surviving Company to provide employment to any person for any period of time
and, except as otherwise provided in the Merger Agreement, nothing will be
deemed to prevent Pillowtex or the Surviving Company from amending or
terminating any Company Plan in accordance with its terms.
Fees and Expenses. The Merger Agreement provides that, except as described
above, all costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated by the Merger Agreement will be paid by the
party incurring the expenses, except that the costs incurred in connection with
printing and mailing proxy materials to Fieldcrest stockholders and Pillowtex
shareholders will be shared equally by Pillowtex and Fieldcrest.
Amendment. Subject to the applicable provisions of the DGCL, the Merger
Agreement may be modified or amended at any time prior to the Effective Time,
by Pillowtex, Newco, and Fieldcrest by written agreement executed and delivered
by duly authorized officers of the respective parties, except that after
approval and adoption of the Merger Agreement by the Fieldcrest stockholders,
no amendment will be made which would reduce the amount or change the type of
consideration into which each share of Fieldcrest Common Stock or Fieldcrest
Preferred Stock will be converted upon consummation of the Merger. The Merger
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
STOCK EXCHANGE LISTING
Prior to the Effective Time, Pillowtex will file an application to list the
shares of Pillowtex Common Stock to be issued in connection with the Merger on
the NYSE, subject to official notice of issuance. It is a condition to the
parties' obligations to consummate the Merger that such shares will have been
approved for listing, subject to official notice of issuance. See "--The
Merger Agreement --Conditions to the Merger." The shares of Pillowtex Common
Stock are traded on the NYSE under the symbol "PTX."
DELISTING AND DEREGISTRATION OF FIELDCREST COMMON STOCK
If the Merger is consummated, the Fieldcrest Common Stock will be delisted
from the NYSE, the Fieldcrest Preferred Stock will be removed from quotation by
the Nasdaq, and both the Fieldcrest Common Stock and the Fieldcrest Preferred
Stock will be deregistered under the Exchange Act.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting,
in accordance with generally accepted accounting principles. Under the
purchase method of accounting, the purchase price paid by Pillowtex for
Fieldcrest (including direct costs of the Merger) will be allocated to the
identifiable assets of Fieldcrest based upon estimates of the fair value of
Fieldcrest's identifiable assets and liabilities as of the Effective Time, with
the excess of the purchase price over the fair value of Fieldcrest's net
identifiable assets being allocated to goodwill. After the Merger, the
financial condition and results of operations of Fieldcrest will be included in
the consolidated financial condition and results of operations of Pillowtex.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the principal federal income
tax considerations of the Merger that are generally applicable to holders of
Fieldcrest Common Stock and Fieldcrest Preferred Stock. This discussion does
not deal with all income tax considerations that may be relevant to particular
Fieldcrest stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, foreign persons, stockholders who
acquired their shares in connection with previous mergers involving Fieldcrest
or an affiliate, or stockholders who acquired their shares in connection with
stock option or stock purchase plans or
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<PAGE> 59
in other compensatory transactions. In addition, the following discussion does
not address the tax consequences of transactions effectuated prior to or after
the Merger (whether or not such transactions are in connection with the
Merger), including without limitation transactions in which shares of
Fieldcrest Common Stock or Fieldcrest Preferred Stock were or are acquired or
shares of Pillowtex Common Stock were or are disposed of. Furthermore, no
foreign, state, or local tax considerations are addressed herein. ACCORDINGLY,
FIELDCREST STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES, OF THE MERGER IN THEIR INDIVIDUAL CIRCUMSTANCES.
Receipt of the Merger Consideration. The receipt by a Fieldcrest
stockholder of the merger consideration (including any cash amounts received by
dissenting stockholders pursuant to the exercise of appraisal rights) in
exchange for shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
will be a taxable transaction for federal income tax purposes. In general, for
federal income tax purposes, a stockholder will recognize gain (or loss) equal
to the difference between (i) the sum of the amount of cash and the fair market
value of the Pillowtex Common Stock received pursuant to the Merger and (ii)
the tax basis of the shares of Fieldcrest Common Stock or Fieldcrest Preferred
Stock exchanged pursuant to the Merger. Gain (or loss) must be determined
separately for each block of shares of Fieldcrest Common Stock or Fieldcrest
Preferred Stock (i.e., shares acquired at the same cost in a single
transaction) converted to shares of Pillowtex Common Stock and cash in the
Merger. Assuming that such shares of Fieldcrest Common Stock or Fieldcrest
Preferred Stock constitute capital assets in the stockholder's hands, such gain
(or loss) will be long-term gain (or loss) if, at the Effective Time, the
shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock were held for
more than one year. The recently enacted Taxpayer Relief Act of 1997 could
affect the tax treatment of such stockholder in that, among other things, it
reduces the rate of federal income tax imposed on capital gains with respect to
capital assets held more than 18 months by noncorporate taxpayers. The basis
of the Pillowtex Common Stock received pursuant to the Merger will be its fair
market value at the time of the Merger, and the holding period thereof will
begin on the day following the day on which such Pillowtex Common Stock is
received pursuant to the Merger.
Backup Withholding. Payments in connection with the Merger may be subject
to "backup withholding" at a 31% rate. Backup withholding generally applies if
the stockholder (a) fails to furnish his social security number or other
taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c)
fails properly to report interest or dividends, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties
of perjury, that the TIN provided is his correct number and that he is not
subject to backup withholding. Backup withholding is not an additional tax but
merely an advance payment, which may be refunded to the extent it results in an
overpayment of tax. Any amounts withheld from a payment to a stockholder under
the backup withholding rules will be allowed as a credit against such
stockholder's federal income tax liability, provided that the required
information is provided to the Internal Revenue Service. Certain persons
generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income. Each
stockholder should consult with his own tax advisor as to his qualification for
exemption from withholding and the procedure for obtaining such exemption.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
FIELDCREST STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER IN THEIR INDIVIDUAL CIRCUMSTANCES,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS, AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
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<PAGE> 60
REGULATORY APPROVALS
Pillowtex and Fieldcrest must observe the notification and waiting period
requirements of the HSR Act before the Merger may be consummated. The HSR Act
provides for an initial 30-calendar day waiting period following the filing
with the Antitrust Division and the FTC of certain Notification and Report
Forms by Pillowtex and Fieldcrest. The HSR Act further provides that if,
within the initial 30-calendar day waiting period, the FTC or the Antitrust
Division issues a request for additional information or documents, the waiting
period will be extended until 11:59 p.m. on the twentieth day after the date of
substantial compliance by the filing parties with such request. Only one such
extension of the initial waiting period is permitted under the HSR Act;
however, the filing parties may voluntarily extend the waiting period.
Pillowtex and Fieldcrest have made the requisite initial filings under the
HSR Act in connection with the Merger. The initial waiting period with respect
to such filings is presently scheduled to expire at 11:59 p.m. on October 17,
1997.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the FTC or the Antitrust Division could, among other
things, seek under the antitrust laws to enjoin the Merger or to cause
Pillowtex to divest itself, in whole or in part, of Fieldcrest or of other
businesses conducted by Pillowtex. Under certain circumstances, private
parties and state governmental authorities may also bring legal action under
the antitrust laws challenging the Merger. See "-- The Merger Agreement
- -- Conditions to the Merger" and "-- Consents, Approvals, and Filings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of Fieldcrest's management and the Fieldcrest
Board may be deemed to have certain interests in the Merger that are in
addition to their interests as stockholders of Fieldcrest generally. Such
interests relate to, among other things, provisions in the Merger Agreement
regarding the treatment of outstanding Fieldcrest Options and Fieldcrest SARs,
the performance and provision of obligations and benefits under existing
severance agreements, and compensation and benefit plans, and the
indemnification of and provision of insurance coverage for the directors and
officers of Fieldcrest. The Fieldcrest Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "The Merger Agreement -- Treatment of
Fieldcrest Stock Options," "-- Treatment of Fieldcrest SARs," "-- Employee
Benefit Matters," and "- -Indemnification."
Fieldcrest Stock Options. Under Fieldcrest's 1995 Employee Stock Option
Plan, as of September 5, 1997, there were outstanding Fieldcrest Options to
purchase an aggregate of 354,300 shares of Fieldcrest Common Stock at exercise
prices between $16.25 and $22.375 per share. Under Fieldcrest's Director Stock
Option Plan, as of September 5, 1997, there were outstanding Fieldcrest Options
to purchase an aggregate of 61,000 shares of Fieldcrest Common Stock at
exercise prices between $13.000 and $25.625 per share. Under a stock option
agreement between Fieldcrest and James M. Fitzgibbons, as of September 5,
1997, there were outstanding Fieldcrest Options to purchase an aggregate of
20,000 shares of Fieldcrest Common Stock at an exercise price of $14.875 per
share.
Fieldcrest SARs. Under Fieldcrest's 1994 Employee and Director Stock
Appreciation Rights Plan, as of September 5, 1997, there were outstanding
213,686 Fieldcrest SARs which were granted to employees having a grant price of
$28.50, and 6,000 Fieldcrest SARs which were granted to non-employee directors
having a grant price of $25.625.
Fieldcrest Restricted Stock. As of September 5, 1997, there were 51,719
outstanding shares of Fieldcrest Common Stock granted under the Fieldcrest
Long-Term Incentive Plan that remained subject to risk of forfeiture. Each of
such shares will be converted in the Merger into the right to receive cash and
shares of Pillowtex Common Stock as described in "The Merger -- The Merger
Agreement -- Consideration to Be Paid in the Merger."
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<PAGE> 61
Fieldcrest Retention Agreements. Approximately 60 executives of Fieldcrest
are parties to agreements under which they are entitled to a lump-sum payment
of an amount based on their base salary in the event of a change in control of
Fieldcrest (which will occur as a result of the Merger). Under the agreements,
upon a change in control of Fieldcrest, the following executive officers will
be entitled to receive a lump-sum payment of their base salary otherwise
payable over the number of years specified: J. M. Fitzgibbons, 3 years; J. M.
Nevin, 2 years; R. E. Dellinger, 2 years; and T. R. Staab, 2 years.
Other Compensation and Benefit Plans. In addition to the equity-based
compensation arrangements referred to above, Fieldcrest's executives receive
base salaries and annual cash bonuses (subject to the satisfaction of specified
performance criteria) and participate in Fieldcrest's Executive Capital
Appreciation Plan, Excess Benefit Plan, and certain broad-based benefit plans
and arrangements.
APPRAISAL RIGHTS
Under Delaware law, holders of Fieldcrest Common Stock and holders of
Fieldcrest Preferred Stock are entitled to appraisal rights in connection with
the Merger. Any holder of record of Fieldcrest Common Stock or Fieldcrest
Preferred Stock who objects to the Merger may elect to have his shares
appraised under the procedures of the DGCL and to be paid the appraised value
of his shares, which, pursuant to Section 262 of the DGCL, will be the shares'
fair value exclusive of any element of value arising from the accomplishment or
expectation of the Merger. An appraisal proceeding may result in a
determination of fair value less than or greater than the value of the
consideration payable in respect of such shares.
Any holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock
contemplating the exercise of appraisal rights is urged to review carefully the
provisions of Section 262 of the DGCL (a copy of which is attached as Appendix
D hereto), particularly with respect to the procedural steps required to
perfect the right of appraisal. The right of appraisal may be lost if the
procedural requirements of Section 262 of the DGCL are not followed exactly.
Set forth below, to be read in conjunction with the full text of Section 262 of
the DGCL attached as Appendix D hereto, is a summary of the procedures relating
to exercise of the right of appraisal.
Under Section 262 of the DGCL, a corporation, not less than 20 calendar
days prior to the meeting at which a proposed merger is to be voted on, must
notify each of its stockholders entitled to appraisal rights as of the record
date of the meeting that such appraisal rights are available and include in
such notice a copy of Section 262 of the DGCL. THIS JOINT PROXY
STATEMENT/PROSPECTUS CONSTITUTES SUCH NOTICE TO THE HOLDERS OF FIELDCREST
COMMON STOCK AND FIELDCREST PREFERRED STOCK.
A stockholder electing to exercise his, her, or its rights under Section
262 of the DGCL must deliver to Fieldcrest, before the taking of a vote with
respect to the adoption of the Merger Agreement, a written demand for appraisal
which reasonably informs Fieldcrest of the identity of the stockholder and that
the stockholder intends thereby to demand appraisal of his, her, or its shares.
A proxy or vote against the adoption of the Merger Agreement, or an abstention
or broker non-vote, will not constitute such a demand; a stockholder electing
to take such action must do so by a separate written demand. Such demands
should be mailed or delivered to Mark R. Townsend, Secretary, Fieldcrest
Cannon, Inc., One Lake Circle Drive, Kannapolis, North Carolina 28081. Within
10 calendar days after the Effective Time, the Surviving Company will notify
each stockholder who has made a proper written demand and who has not voted in
favor of adoption of the Merger Agreement of the Effective Time. A vote in
favor of adoption of the Merger Agreement will have the effect of waiving all
appraisal rights.
Within 120 calendar days after the Effective Time, Fieldcrest or any
stockholder who has complied with the foregoing notice requirement and any
other applicable requirements may file a petition in the Delaware Court of
Chancery (the "Court") demanding a determination of the value of the shares of
all stockholders who have complied with such provisions. However, because
Fieldcrest has no obligation to file such a petition and does not currently
intend to do so if any stockholders exercise appraisal rights, any stockholder
that desires that such a petition be filed is advised to do so on a timely
basis. If neither Fieldcrest nor any dissenting stockholder files a petition
for appraisal within 120 calendar days, all appraisal rights will terminate.
Any holder of shares may withdraw a demand for appraisal at any time within 60
calendar days after the Effective Time (or thereafter with
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<PAGE> 62
the written consent of Fieldcrest) and receive, pursuant to the terms of the
Merger, the applicable consideration for his, her, or its shares of Fieldcrest
Common Stock or Fieldcrest Preferred Stock. Notwithstanding the foregoing, no
appraisal proceeding in the Court will be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
Within 120 calendar days after the Effective Time, any stockholder who has
complied with the above-described notice requirements and any other applicable
requirements may also deliver to Fieldcrest a written request for a statement
listing the aggregate number of shares of Fieldcrest Common Stock or Fieldcrest
Preferred Stock with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such a statement will be
mailed to the stockholder within 10 calendar days after his written request for
it is received by Fieldcrest or within 10 calendar days after the Effective
Time, whichever is later.
Upon the filing of any petition by a stockholder demanding appraisal,
service of a copy thereof will be made upon Fieldcrest, which will, within 20
calendar days after such service, file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by Fieldcrest. If a petition is filed by Fieldcrest, the petition will
be accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, will give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to Fieldcrest and to
the stockholders shown on the list at the addresses therein stated, and such
notice will also be given by publishing a notice at least one week from the day
of the hearing in a newspaper of general circulation published in Wilmington,
Delaware, or such publication as the Court deems advisable. The forms of the
notices by mail and by publication will be approved by the Court, and the costs
thereof will be borne by Fieldcrest.
After determining the stockholders entitled to an appraisal under Section
262 of the DGCL, the Court will appraise the shares, determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the Merger together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court will take into account all relevant factors. The Court will
direct the payment of the appraised value of the shares, together with
interest, if any, by Fieldcrest to the stockholders entitled thereto upon
surrender to Fieldcrest of the certificates representing such shares. The
costs of the appraisal proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including without limitation reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
After the Effective Time, no stockholder who has demanded his appraisal
rights as set forth above will be entitled to vote his shares for any purpose
or to receive payment of dividends or other distributions on his shares (except
dividends or other distributions payable to stockholders of record at a date
prior to the Effective Time).
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PRO FORMA CAPITALIZATION OF PILLOWTEX
The following table sets forth the historical capitalization of each of
Pillowtex and Fieldcrest as of June 28, 1997 and June 30, 1997, respectively,
and the pro forma capitalization of Pillowtex as of June 28, 1997, adjusted to
give effect to the consummation of the Merger and the Financing Transactions,
as if such transactions had been consummated on June 28, 1997. As used herein,
the term "Financing Transactions" means (i) estimated initial borrowings under
the New Pillowtex Bank Facilities of $427.2 million, (ii) the issuance and sale
of $135.0 million aggregate principal amount of New Pillowtex Subordinated
Notes resulting in estimated net proceeds of $131.4 million, (iii) the issuance
and sale of 65,000 shares of Pillowtex Preferred Stock resulting in estimated
net proceeds of $63.5 million, (iv) the repayment of all amounts outstanding
under Pillowtex's and Fieldcrest's existing bank credit facilities, and (v) the
satisfaction and discharge of all indebtedness represented by Fieldcrest's
11.25% Senior Subordinated Debentures Due 2002 to 2004 pursuant to an
irrevocable deposit of amounts sufficient to provide for the redemption
thereof. Because the Standby Bridge Loan Facility is expected to be drawn
upon, if at all, only in the event that less than $135.0 million aggregate
principal amount of New Pillowtex Subordinated Notes shall have been issued and
sold as of the Closing Date, the pro forma information presented herein assumes
that no amounts will be borrowed thereunder.
The pro forma information set forth below is presented for illustrative
purposes only and is not necessarily indicative of what Pillowtex's actual
consolidated capitalization would have been had the foregoing transactions been
consummated on June 28, 1997, nor does it give effect to (i) any transactions
other than the foregoing transactions and those discussed in the Notes to
Unaudited Pro Forma Information of Pillowtex included elsewhere in this Joint
Proxy Statement/Prospectus or (ii) Pillowtex's or Fieldcrest's respective
results of operations since June 28, 1997 and June 30, 1997, respectively.
Accordingly, the pro forma information set forth below does not purport to be
indicative of Pillowtex's consolidated capitalization as of the date hereof,
the Effective Time, or any other future date.
The following table should be read in conjunction with the historical
financial statements of Pillowtex and Fieldcrest, the unaudited pro forma
combined financial information, the related notes, and the other information
contained elsewhere in this Joint Proxy Statement/Prospectus or incorporated by
reference herein. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Financial Information of
Pillowtex and Fieldcrest."
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<PAGE> 64
CAPITALIZATION
JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PILLOWTEX FIELDCREST COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt $ 1,541 $ 6,970 $ 8,511
----------- ----------- -----------
Total short-term debt 1,541 6,970 8,511
Long-term debt:
Revolving credit borrowings 83,050 107,472 177,211(a)
Senior bank term A -- -- 125,000
Senior bank term B -- -- 125,000
New Pillowtex Subordinated Notes -- -- 135,000
Existing Pillowtex Subordinated Notes 125,000 -- 125,000
Fieldcrest Convertible Subordinated Debentures -- 112,500 98,280(b)
Fieldcrest Senior Subordinated Debentures -- 85,000 --
Deed of Trust Note 2,288 -- 2,288
PEDFA Industrial Revenue Bonds 2,310 -- 2,310
MBFC Industrial Revenue Bonds 3,220 -- 3,220
Industrial Development Bonds due 2021 -- 10,000 10,000
Industrial Revenue Installment Bonds due 2002 -- 1,685 1,685
Other long-term debt 250 -- 250
----------- ----------- -----------
Total long-term debt 216,118 316,657 805,244
----------- ----------- -----------
Total debt 217,659 323,627 813,755
Pillowtex Redeemable Convertible Preferred Stock, -- -- 63,500
$0.01 par value, 200,000 shares authorized,
65,000 shares issued and outstanding (as adjusted)
Shareholders' equity:
Preferred Stock, $0.01 par value, 20,000,000 shares -- 15 --
authorized, none issued and outstanding (Pillowtex
historical); $0.01 par value, 10,000,000 shares
authorized, 1,500,000 shares issued and outstanding
(Fieldcrest historical); $0.01 par value, 20,000,000
shares authorized, none issued and outstanding (as adjusted)
Common Stock, $0.01 par value, 30,000,000 shares authorized, 107 12,832 141
10,631,959 shares issued and outstanding (Pillowtex
historical); $0.01 par value, 25,000,000 shares authorized,
12,832,484 shares issued and outstanding (Fieldcrest
historical); $0.01 par value, 30,000,000 shares authorized,
14,074,476 shares issued and outstanding (as adjusted)
Additional paid-in capital 59,501 226,077 142,087
Retained earnings 43,912 102,224 42,880(c)
Treasury stock, 3,606,400 shares (Fieldcrest historical); -- (117,225) --
0 shares (as adjusted)
Currency translation adjustment (426) -- (426)
----------- ----------- -----------
Total shareholders' equity 103,094 223,923 184,682
----------- ----------- -----------
Total capitalization $ 320,753 $ 547,550 $ 1,061,937
=========== =========== ===========
Ratio of total debt to total capitalization 67.86% 59.10% 76.63%(d)
=========== =========== ===========
</TABLE>
(a) Reflects a net reduction in revolving credit borrowings of $13,311,000.
(b) Reflects an adjustment to record the Fieldcrest Convertible Debentures at
fair market value.
(c) Reflects a charge of $1,032,000, net of income tax benefit, for the write
off of Pillowtex unamortized debt issuance costs.
(d) Including the Pillowtex Preferred Stock together with total debt, the ratio
would be 82.61%.
See accompanying Notes to Unaudited Pro Forma Financial Information.
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<PAGE> 65
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX
The following unaudited pro forma combined financial statements of
Pillowtex give effect to the consummation of the Merger and the Financing
Transactions, as if such transactions had been consummated: (i) on June 28,
1997, in the case of the Unaudited Pro Forma Combined Balance Sheet at June 28,
1997 and (ii) on December 31, 1995, the first day of Pillowtex's 1996 fiscal
year, in the case of the Unaudited Pro Forma Combined Statement of Operations
for the fiscal year ended December 28, 1996 and the six months ended June 28,
1997. As used herein, the term "Financing Transactions" means (i) estimated
initial borrowings under the New Pillowtex Bank Facilities of $427.2 million,
(ii) the issuance and sale of $135.0 million aggregate principal amount of New
Pillowtex Subordinated Notes resulting in estimated net proceeds of $131.4
million, (iii) the issuance and sale of 65,000 shares of Pillowtex Preferred
Stock resulting in estimated net proceeds of $63.5 million, (iv) the repayment
of all amounts outstanding under Pillowtex's and Fieldcrest's existing bank
credit facilities, and (v) the satisfaction and discharge of all indebtedness
represented by Fieldcrest's 11.25% Senior Subordinated Debentures Due 2002 to
2004 pursuant to an irrevocable deposit of amounts sufficient to provide for
the redemption thereof. Because the Standby Bridge Loan Facility is expected
to be drawn upon, if at all, only in the event that less than $135.0 million
aggregate principal amount of New Pillowtex Subordinated Notes shall have been
issued and sold as of the Closing Date, the pro forma combined financial
information presented herein assumes that no amounts will be borrowed
thereunder.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
what Pillowtex's actual financial position or results of operations would have
been had the foregoing transactions been consummated on such dates, nor does it
give effect to (i) any transactions other than the foregoing transactions and
those described in the accompanying Notes to Unaudited Pro Forma Combined
Financial Information of Pillowtex, (ii) Pillowtex's or Fieldcrest's results of
operations since June 28, 1997 and June 30, 1997, respectively, or (iii)
one-time charges expected to result from the Merger. Although the following
unaudited pro forma combined financial information gives effect to assumed
annual cost savings of $21.6 million, it does not give effect to an additional
$8.4 million of annual cost savings expected to result from the Merger. The
pro forma combined financial information does not purport to be indicative of
Pillowtex's financial position or results of operations as of the date hereof
or for any period ended on the date hereof, as of the Closing Date, or for any
period ending at the Closing Date, or as of or for any other future date or
period.
The following unaudited pro forma combined financial information is based
upon the historical financial statements of Pillowtex and Fieldcrest and should
be read in conjunction with such historical financial statements, the related
notes, and the other information contained elsewhere in this Joint Proxy
Statement/Prospectus or incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference." In the
preparation of the following unaudited pro forma combined financial
information, it has been generally assumed that the historical value of
Fieldcrest's assets and liabilities approximates the fair value thereof (except
as described in the accompanying Notes to Unaudited Pro Forma Combined
Financial Information of Pillowtex), as an independent valuation has not been
completed. Pillowtex will be required to determine the fair value of the
assets and liabilities of Fieldcrest (including intangible assets) as of the
Effective Time. Although such determination of fair value is not presently
expected to result in values that are materially greater or less than the
values assumed in the preparation of the following unaudited pro forma combined
financial information, there can be no assurance with respect thereto.
The Unaudited Pro Forma Combined Balance Sheet at June 28, 1997 is based
upon Pillowtex's financial position at June 28, 1997 and upon Fieldcrest's
financial position at June 30, 1997. The Unaudited Pro Forma Combined
Statement of Operations for the fiscal year ended December 28, 1996 is based
upon Pillowtex's results of operations for its fiscal year ended December 28,
1996 and upon Fieldcrest's results of operations for its fiscal year ended
December 31, 1996. The Unaudited Pro Forma Combined Statement of Operations
for the six months ended June 28, 1997 is based upon Pillowtex's results of
operations for the six months ended June 28, 1997 and upon Fieldcrest's results
of operations for the six months ended June 30, 1997.
The home textiles and furnishings industry is seasonal in nature, with a
higher proportion of sales and earnings usually being generated in the third
and fourth quarters of the fiscal year than in other periods. Because of this
seasonality and other factors, results of operations for interim periods are
not necessarily indicative of results of operations for an entire fiscal year.
51
<PAGE> 66
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- -----------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable $ 62,763 $ 158,322 $ -- $ 221,085
Inventories 159,961 215,850 38,000 (1) 413,811
Prepaid expenses and other current assets 6,130 7,329 -- 13,459
----------- ----------- ----------- -----------
Total current assets 228,854 381,501 38,000 648,355
Property, plant, and equipment, net 99,908 331,203 50,000 (1) 481,111
Goodwill, net 46,010 6,628 160,934 (1) 213,572
Other assets, net 13,363 60,734 (27,212)(1) 59,992
(1,706)(2)
14,813 (3)
----------- ----------- ----------- -----------
Total assets $ 388,135 $ 780,066 $ 234,829 $ 1,403,030
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,795 $ 55,047 $ -- $ 95,842
Accrued expenses 17,283 62,178 21,932 (1) 100,719
(674) (2)
Current portion of long-term debt 1,541 6,970 -- 8,511
Deferred income taxes -- 20,259 5,624 (1) 25,883
----------- ----------- ----------- -----------
Total current liabilities 59,619 144,454 26,882 230,955
Long-term debt 216,118 316,657 272,469 (3) 805,244
Deferred income taxes 9,304 41,521 14,313 (1) 65,138
Other non-current liabilities -- 53,511 -- 53,511
----------- ----------- ----------- -----------
Total liabilities 285,041 556,143 313,664 1,154,848
Redeemable convertible preferred stock -- -- 63,500 (4) 63,500
Shareholders' equity:
Preferred stock -- 15 (15) (5) --
Common stock 107 12,832 (12,798) (5) 141
Additional paid-in capital 59,501 226,077 (143,491) (5) 142,087
Retained earnings 43,912 102,224 (102,224) (5) 42,880
(1,032) (2)
Treasury stock -- (117,225) 117,225 (5) --
Currency translation adjustment (426) -- -- (426)
----------- ----------- ----------- -----------
Total shareholders' equity 103,094 223,923 (142,335) 184,682
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 388,135 $ 780,066 $ 234,829 $ 1,403,030
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
52
<PAGE> 67
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 490,655 $ 1,092,496 $ -- $ 1,583,151
Cost of goods sold 411,048 956,522 3,713 (6) 1,364,368
(6,915)(7)
----------- ----------- ----------- -----------
Gross profit 79,607 135,974 (3,202) 218,783
Selling, general, and administrative expenses 41,445 105,405 412 (6) 136,162
(14,644)(7)
4,023 (6)
(479)(8)
Restructuring charges -- 8,130 -- 8,130
----------- ----------- ----------- -----------
Earnings from operations 38,162 22,439 (13,890) 74,491
Nonoperating (income) expense:
Interest expense 13,971 26,869 17,995 (9) 58,835
Other income, net -- (5,604) -- (5,604)
----------- ----------- ----------- -----------
Total nonoperating expense 13,971 21,265 17,995 53,231
----------- ----------- ----------- -----------
Earnings before income taxes and extraordinary items 24,191 1,174 4,105 21,260
Income taxes 9,459 114 414 (10) 9,987
----------- ----------- ----------- -----------
Earnings before extraordinary items 14,732 1,060 4,519 11,273
Preferred dividends -- (4,500) 2,550 (11) (1,950)
----------- ----------- ----------- -----------
Earnings (loss) before extraordinary
items applicable to common stock $ 14,732 $ (3,440) $ 1,969 $ 9,323
=========== =========== =========== ===========
OTHER OPERATING DATA:
Depreciation and amortization $ 12,775 $ 36,678 $ 57,122
EBITDA $ 50,937 $ 59,117 $ 131,613
Primary earnings per share:
Earnings (loss) before extraordinary items $ 1.39 $ (0.38) $ 0.66
=========== =========== ===========
Weighted average common shares outstanding 10,617,722 9,023,958 14,060,239 (12)
=========== =========== ===========
Fully diluted earnings per share:
Earnings (loss) before extraordinary items $ -- $ 0.66
=========== ===========
Weighted average common shares outstanding 14,413,901 14,060,239 (12)
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
53
<PAGE> 68
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 218,657 $ 533,669 $ -- $ 752,326
Cost of goods sold 180,250 452,555 1,856 (6) 631,203
(3,458)(7)
----------- ----------- ----------- -----------
Gross profit 38,407 81,114 (1,602) 121,123
Selling, general, and administrative expenses 23,616 56,168 206 (6) 74,467
(7,322)(7)
2,012 (6)
(213)(8)
----------- ----------- ----------- -----------
Earnings from operations 14,791 24,946 (6,919) 46,656
Nonoperating (income) expense:
Interest expense 9,036 12,558 13,511 (9) 35,105
Other income, net -- (1,674) -- (1,674)
----------- ----------- ----------- -----------
Total nonoperating expense 9,036 10,884 13,511 33,431
----------- ----------- ----------- -----------
Earnings before income taxes and extraordinary items 5,755 14,062 6,592 13,225
Income taxes 2,233 5,203 (1,417)(10) 6,019
----------- ----------- ----------- -----------
Earnings before extraordinary items 3,522 8,859 5,175 7,206
Preferred dividends -- (2,250) 1,275 (11) (975)
----------- ----------- ----------- -----------
Earnings before extraordinary items applicable
to common stock $ 3,522 $ 6,609 $ 3,900 $ 6,231
=========== =========== =========== ===========
OTHER OPERATING DATA:
Depreciation and amortization $ 7,065 $ 17,499 $ 28,425
EBITDA $ 21,856 $ 42,445 $ 75,081
Primary earnings per share:
Earnings before extraordinary items $ 0.33 $ 0.72 $ 0.43
=========== =========== ===========
Weighted average common shares outstanding 10,631,959 9,168,698 16,782,809(12)
=========== =========== ===========
Fully diluted earnings per share:
Earnings before extraordinary items $ 0.72 $ 0.43
=========== ===========
Weighted average common shares outstanding 9,169,449 16,782,809(12)
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
54
<PAGE> 69
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) In connection with the Merger, each outstanding share of Fieldcrest Common
Stock will be converted into the right to receive total consideration
valued at $34.00, assumed to consist of $27.00 in cash and 0.292 shares of
Pillowtex Common Stock, and each outstanding share of Fieldcrest Preferred
Stock will be converted into a right to receive total consideration valued
at $58.12, assumed to consist of $46.15 in cash and 0.499 shares of
Pillowtex Common Stock. For purposes of the unaudited pro forma condensed
combined financial statements, the fair market value of Pillowtex Common
Stock is assumed to be $24.00 per share, which approximates the market
price of the Pillowtex Common Stock on September 10, 1997, the trading day
immediately preceding the date of the first public announcement of the
Merger. The aggregate purchase price assumed to be paid by Pillowtex in
connection with the acquisition of Fieldcrest pursuant to the Merger is
summarized below.
<TABLE>
<S> <C>
ISSUANCE OF PILLOWTEX COMMON STOCK:
Number of shares of Fieldcrest Common Stock assumed to be outstanding at the
Effective Time 9,226,084
Assumed conversion ratio 0.292
------------
Number of shares of Pillowtex Common Stock assumed to be issued to holders of
Fieldcrest Common Stock in connection with the Merger 2,694,017
------------
Number of shares of Fieldcrest Preferred Stock assumed to be outstanding at the
Effective Time 1,500,000
Assumed conversion ratio 0.499
------------
Number of shares of Pillowtex Common Stock assumed to be issued to holders of
Fieldcrest Preferred Stock in connection with the Merger 748,500
------------
Total shares of Pillowtex Common Stock assumed to be issued in connection with the
Merger 3,442,517
============
AGGREGATE PURCHASE PRICE:
Cash assumed to be paid to holders of Fieldcrest Common Stock (9,226,084 shares at
$27.00 per share) $249,104,000
Cash assumed to be paid to holders of Fieldcrest Preferred Stock (1,500,000 shares at
$46.15 per share) 69,225,000
Assumed fair value of Pillowtex Common Stock assumed to be issued in connection
with the Merger (3,442,517 shares at $24.00 per share) 82,620,000
Early call premium on Fieldcrest 11.25% Senior Subordinated Debentures 4,250,000
Financial advisors, legal, accounting, and other professional fees 12,797,000
------------
Aggregate purchase price $417,996,000
============
</TABLE>
55
<PAGE> 70
<TABLE>
<S> <C> <C> <C>
Aggregate Purchase Price $417,996,000
Less net book value of assets acquired 223,923,000
------------
Excess of cost over net book value of assets acquired 194,073,000
Less adjustments to record assets and liabilities acquired
at fair market value:
Inventory 38,000,000 (a)
Property, plant, and equipment 50,000,000 (b)
Other assets (27,212,000) (c)
Accrued expenses (21,932,000) (d)
Deferred income taxes - current (5,624,000) (e)
Long-term debt 14,220,000 (f)
Deferred income taxes - noncurrent (14,313,000) (e) 33,139,000
------------- ------------
Excess of cost over fair market value of net assets $160,934,000
============
acquired
</TABLE>
(a) Reflects principally the elimination of Fieldcrest's last-in,
first-out reserve, together with certain offsetting
adjustments necessary to state inventory at fair market value.
(b) Reflects a preliminary adjustment to fair value of
Fieldcrest's property, plant, and equipment. The preliminary
adjustment is based upon internal estimates and is allocated
as follows:
<TABLE>
<S> <C>
Land $ 5,000,000
Buildings 20,000,000
Machinery and Equipment 25,000,000
------------
$ 50,000,000
============
</TABLE>
(c) Reflects an adjustment to record the (i) preliminary fair
value remeasurement of Fieldcrest's pension asset resulting in
a reduction of $17,049,000, (ii) elimination of the asset
related to the Fieldcrest licensing agreement with Pillowtex
of $6,276,000, and (iii) write-off of the unamortized balance
of debt issuance costs related to Fieldcrest's bank credit
facility and 11.25% Senior Subordinated Debentures of
$3,887,000.
(d) Reflects the adjustment to record the (i) settlement of
Fieldcrest Options and Fieldcrest SARs of $6,932,000 and (ii)
accrual of severance costs to be incurred in connection with
the Merger of $15,000,000.
(e) To record a $19,937,000 deferred tax liability related to the
temporary difference between the financial statement carrying
amount and the tax basis of the Fieldcrest acquired assets as
adjusted at an assumed income tax rate of 35.0% for the years
in which those differences are expected to be recovered or
settled.
(f) Reflects the adjustment to record the Fieldcrest Convertible
Debentures at an amount that approximates the market value of
the Fieldcrest Convertible Debentures on September 10, 1997,
the trading day immediately preceding the date of the first
public announcement of the Merger. The discount of
$14,220,000 will be amortized to interest expense using the
interest method over the remaining life of the Fieldcrest
Convertible Debentures.
If it were assumed that all of the outstanding Fieldcrest
Convertible Debentures were converted into shares of
Fieldcrest Common Stock immediately prior to the Effective
Time (rather than remaining outstanding), then (i) at June 28,
1997, on a pro forma combined basis, Pillowtex would have had
total assets of $1,412.3 million, total long-term debt of
$806.9 million, and total shareholders' equity of $203.5
million, (ii) for the fiscal year ended December 28, 1996, on
a pro forma combined basis, Pillowtex would have had interest
expense of $57.8 million, earnings
56
<PAGE> 71
before income taxes and extraordinary items of $22.1 million,
earnings before extraordinary items of $11.7 million, and
earnings before extraordinary items per share of $0.66, and
(iii) for the six months ended June 28, 1997, on a pro forma
combined basis, Pillowtex would have had interest expense of
$34.7 million, earnings before income taxes and extraordinary
items of $13.5 million, earnings before extraordinary items of
$7.3 million, and earnings before extraordinary items per
share of $0.42.
(2) Reflects the adjustment to (a) write off the unamortized balance of
debt issuance costs related to the existing Pillowtex bank credit
facility of $1,706,000, (b) record the related tax benefit of $674,000
and (c) record a net reduction in retained earnings of $1,032,000.
(3) Reflects the adjustment to record the following:
<TABLE>
<S> <C>
Additional bank borrowings required to finance the Merger $ 344,161,000
Issuance and sale of New Pillowtex Subordinated Debentures 135,000,000
Repayment of Fieldcrest's revolving credit facility (107,472,000)
Satisfaction and discharge of Fieldcrest's 11.25% Senior
Subordinated Debentures (85,000,000)
Discount of the Fieldcrest Convertible Debentures at
fair market value (see note 1(f)) (14,220,000)
---------------
$ 272,469,000
===============
</TABLE>
Additionally, debt issuance costs of $14,813,000 were incurred in
connection with the Merger.
(4) Reflects the issuance and sale of 65,000 shares of Pillowtex Preferred
Stock at an offering price of $1,000 per share, net of estimated
offering costs of $1,500,000.
(5) Reflects the (i) elimination of Fieldcrest's equity which will be
cancelled upon consummation of the Merger, (ii) issuance of 3,442,517
shares of Pillowtex Common Stock at a par value of $0.01 in connection
with the Merger, and (iii) the related additional paid-in capital of
$82,586,000.
(6) Reflects incremental depreciation and amortization expense as a result
of the preliminary adjustment to fair value of Fieldcrest's property,
plant, and equipment and the excess of cost over fair market value of
the net assets acquired (see note 1) as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
ESTIMATED DECEMBER 28, ENDED JUNE 28,
USEFUL LIFE 1996 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Additional depreciation of Fieldcrest Merger
property, plant, and equipment 8 to 20 years $4,125,000 $2,062,000
========== ==========
Amortization of excess of cost over fair value
of net assets acquired 40 years $4,023,000 $2,012,000
========== ==========
</TABLE>
(7) Reflects the elimination of duplicate corporate expenses of
$21,559,000 for the year ended December 28, 1996 and $10,780,000 for
the six months ended June 28, 1997.
(8) Reflects the reversal of the amortization related to Pillowtex's debt
issuance costs which have been written off in connection with the
Merger (see note 2) of $479,000 for the year ended December 28, 1996
and $213,000 for the six months ended June 28, 1997.
(9) Reflects an adjustment to record additional interest expense,
amortization of debt issuance costs, and the amortization of the
discount on the Fieldcrest Convertible Debentures incurred in
connection with the Merger. For each 1/8% change in the assumed
effective interest rate on Pillowtex's floating-rate debt, interest
expense would change by $553,000 and $345,000 for the year ended
December 28, 1996 and the six months ended June 28, 1997,
respectively.
57
<PAGE> 72
If, in lieu of the issuance and sale of $135.0 million aggregate
principal amount of New Pillowtex Subordinated Notes, Pillowtex were
assumed to have borrowed $135.0 million under the Standby Bridge Bank
Facility, then (i) for the year ended December 28, 1996, on a pro
forma combined basis, Pillowtex would have had interest expense of
$61.8 million, earnings before income taxes and extraordinary items of
$18.3 million, earnings before extraordinary items of $9.5 million,
and earnings before extraordinary items per share of $0.54 and (ii)
for the six months ended June 28, 1997, on a pro forma combined basis,
Pillowtex would have had interest expense of $39.4 million, earnings
before income taxes and extraordinary items of $8.9 million, earnings
before extraordinary items of $4.6 million, and earnings before
extraordinary items per share of $0.26.
(10) Reflects the income tax benefit related to the effects of the pro
forma adjustments based upon an assumed composite income tax rate of
39.5%.
(11) Reflects an adjustment to (i) reverse Fieldcrest's historical
preferred stock dividends and (ii) record the dividends on the
Pillowtex Preferred Stock assuming a 3% dividend rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 28, ENDED JUNE 28,
1996 1997
--------------- ---------------
<S> <C> <C>
Reversal of historical Fieldcrest Preferred Stock dividends $(4,500,000) $(2,250,000)
Addition of Pillowtex Preferred Stock dividends 1,950,000 975,000
----------- -----------
$(2,550,000) $(1,275,000)
============ ============
</TABLE>
If Pillowtex were to fail to attain specified earnings per share
targets in 1999, dividends for fiscal years after 1999 would increase
from the initial 3.0% rate to 7.0% or 10.0% and Pillowtex would be
required to pay an additional dividend consisting of shares of
Pillowtex Preferred Stock, in each case as described below in
"Description of Pillowtex Capital Stock -- Series A Redeemable
Convertible Preferred Stock -- Dividends."
(12) The assumed conversion of the Fieldcrest Convertible Debentures and
the Pillowtex Preferred Stock would have an anti-dilutive effect on
earnings per share for the year ended December 28, 1996, and therefore
has been excluded from the computation thereof.
The assumed conversion of the Fieldcrest Convertible Debentures would
have an anti-dilutive effect on earnings per share for the six months
ended June 28, 1997, and therefore has been excluded from the
computation thereof.
58
<PAGE> 73
MERGER FINANCING
INTRODUCTION
In order to finance the Merger and the repayment of certain indebtedness of
Fieldcrest, refinance the existing senior bank credit facility of Pillowtex,
and provide working capital for the combined enterprise that will result from
the Merger, Pillowtex has negotiated and entered into (i) the New Pillowtex
Bank Facilities Commitment with NationsBank of Texas, N.A., which provides for
new senior revolving credit and term loan facilities and (ii) the Pillowtex
Preferred Stock Commitment with Apollo, which provides for the issuance and sale
of 65,000 shares of Pillowtex Preferred Stock. In addition, Pillowtex has
negotiated and entered into the Standby Bridge Loan Facility Commitment with
NationsBridge, L.L.C., which provides for a standby bridge loan facility.
Pillowtex intends to finance the Merger and the repayment of certain
indebtedness of Fieldcrest and to refinance the existing senior bank credit
facility of Pillowtex through a combination of (i) borrowings under the New
Pillowtex Bank Facilities, (ii) the issuance and sale of Pillowtex Preferred
Stock, and (iii) the issuance and sale of New Pillowtex Subordinated Notes. In
the event that less than $135.0 million aggregate principal amount of New
Pillowtex Subordinated Notes shall have been issued and sold as of the Closing
Date, Pillowtex may borrow an amount corresponding to such shortfall under the
Standby Bridge Loan Facility.
The financings contemplated by the Financing Commitments, together with the
proposed sale by Pillowtex of the New Pillowtex Subordinated Notes, are briefly
summarized below.
The obligations of third parties under the Financing Commitments to extend
loans or purchase Pillowtex Preferred Stock, as the case may be, are subject to
various specified conditions. Because such conditions relate to matters beyond
Pillowtex's control, there can be no assurance that such conditions will be
timely satisfied.
NEW PILLOWTEX BANK FACILITIES
The New Pillowtex Bank Facilities Commitment provides for, on the terms and
subject to the conditions set forth therein, (i) a $350.0 million revolving
credit facility (including $40.0 million for standby and commercial letters of
credit and up to $15.0 million for swing line loans) (the "Revolver") and (ii)
a $250.0 million term loan facility (the "Term Loan"). The Term Loan will
consist of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B
Term Loan. The Revolver will terminate on December 31, 2003. The Tranche A
Term Loan and the Tranche B Term Loan will begin scheduled amortization of
principal quarterly in arrears commencing in 1999 and 1998, respectively, with
final maturities on December 31, 2003 and December 31, 2004, respectively.
Pillowtex expects to draw fully on the Term Loan at the closing of the New
Pillowtex Bank Facilities and to draw a portion of the Revolver
contemporaneously with the closing of the Merger. Pillowtex will initially pay
quarterly a commitment fee of 50 basis points per annum calculated on the
unused portion of the Revolver. The commitment fee could, however, be reduced
during future periods depending upon the ratio of Pillowtex's consolidated
indebtedness to EBITDA (as defined).
The Revolver and the Tranche A Term Loan will bear interest, at the option
of Pillowtex, at a rate per annum equal to either (i) the LIBOR interbank rate,
adjusted for reserves, plus a margin of up to 225 basis points, or (ii) the
"Base Rate" (which is the higher of (a) the prime rate then in effect and
published by NationsBank of Texas, N.A. and (b) the Federal Funds rate plus
0.5%), plus a margin of up to 75 basis points, subject to adjustments in
accordance with the terms of the New Pillowtex Bank Facilities Commitment. The
specific margin in any particular case will depend upon the ratio of
Pillowtex's consolidated indebtedness to EBITDA, as calculated based upon
Pillowtex's quarterly financial statements. The Tranche B Term Loan will bear
interest on a similar basis, plus an additional margin of 50 basis points, but
will not bear interest at a rate less than LIBOR plus 200 basis points or the
Base Rate plus 50 basis points. The initial interest rates will not be less
than (i) the LIBOR interbank rate plus 200 basis points or the Base Rate plus
50 basis points for the Revolver and the Tranche A Term Loan and (ii) the LIBOR
interbank rate plus 250 basis points or the Base Rate plus 100 basis points for
the Tranche B Term Loan, and will not be subject to any change until the
receipt of Pillowtex's March 31, 1998 financial statements.
The Revolver and the Term Loan will be guaranteed by each of the domestic
subsidiaries of Pillowtex, including the Surviving Company and its domestic
subsidiaries, and will be secured by first priority liens on all of the capital
stock of each domestic subsidiary of Pillowtex, including the Surviving Company
and its domestic subsidiaries, and by 65% of the capital stock of each foreign
subsidiary of Pillowtex and Fieldcrest. Pillowtex
59
<PAGE> 74
will also grant a first priority security interest in all of its presently
unencumbered and future domestic assets and properties and all presently
unencumbered and future domestic assets and properties of each of its
subsidiaries, including the Surviving Company and its subsidiaries. The Term
Loan will be subject to mandatory prepayment from all net cash proceeds of
asset sales and debt issuances by Pillowtex or any of its subsidiaries after
the Merger (except for refinancing or redemption of the Standby Bridge Loan
Facility, if utilized), 50% of the net cash proceeds of equity issuances by
Pillowtex or any of its subsidiaries after the Merger (excluding equity
proceeds that are applied to repay or redeem the Standby Bridge Loan Facility,
if utilized), and 75% of Excess Cash Flow (as defined). All mandatory
prepayments will be applied pro rata between the Tranche A Term Loan and the
Tranche B Term Loan (and within each tranche pro rata) to reduce the remaining
installments of principal.
The initial funding of the New Pillowtex Bank Facilities will be subject to
various conditions precedent, including, among others: (i) Pillowtex having not
less than $40.0 million of availability under the Revolver immediately after
the initial funding of the New Pillowtex Bank Facilities; (ii) Pillowtex having
issued not less than $135.0 million of New Pillowtex Subordinated Notes and/or
Bridge Notes (as hereinafter defined); (iii) Pillowtex having issued not less
than $65.0 million of Pillowtex Preferred Stock; and (iv) Pillowtex having
issued new common stock in connection with the Merger for not less than 20.58%
of the aggregate value of the Fieldcrest Common Stock and Fieldcrest Preferred
Stock outstanding. The New Pillowtex Bank Facilities Commitment provides that
the definitive documentation will include representations, warranties, and
covenants (including financial covenants) usual and customary for credit
facilities such as the New Pillowtex Bank Facilities, and that the New
Pillowtex Bank Facilities will be subject to usual and customary events of
default, including without limitation nonpayment of principal, interest, or
fees, violation of any covenant, inaccurate representations and warranties,
bankruptcy, actual or asserted invalidity of any loan documents or security
interests, change of control, and cross-default with other material agreements
and indebtedness of Pillowtex.
PILLOWTEX PREFERRED STOCK
The Pillowtex Preferred Stock Commitment provides for, on the terms and
subject to the conditions set forth therein, the issuance and sale to Apollo of
65,000 shares of Pillowtex Preferred Stock as of the Closing Date. The
issuance and sale of such shares are expected to result in net proceeds to
Pillowtex of approximately $63.5 million. For a description of the terms of
the Pillowtex Preferred Stock, see "Description of Pillowtex Capital Stock
- -- Series A Redeemable Convertible Preferred Stock."
The purchase by Apollo of Pillowtex Preferred Stock pursuant to the
Pillowtex Preferred Stock Commitment will be subject to various conditions
precedent including, among others: (i) Pillowtex having not less than $40.0
million of availability under the Revolver immediately after the funding of the
New Pillowtex Bank Facilities; (ii) Pillowtex having entered into definitive
documentation for the New Pillowtex Bank Facilities as contemplated by the New
Pillowtex Bank Facilities Commitment and all conditions to the initial funding
thereunder having been satisfied; (iii) Pillowtex having issued not less than
$135.0 million of New Pillowtex Subordinated Notes and/or Bridge Notes; and
(iv) Pillowtex and Fieldcrest having no outstanding indebtedness for borrowed
money or preferred stock other than (a) the existing industrial revenue bonds
of Pillowtex and Fieldcrest, (b) the Existing Pillowtex Subordinated Notes, (c)
the Fieldcrest Convertible Debentures, and (d) other indebtedness for borrowed
money not exceeding $1.0 million.
Pursuant to the Pillowtex Preferred Stock Commitment, holders of 20% or
more of the outstanding Pillowtex Preferred Stock will be provided with
reasonable access to management of Pillowtex and with detailed financial and
operating data.
Pursuant to the Pillowtex Preferred Stock Commitment, upon the occurrence
of certain conditions, holders of Pillowtex Preferred Stock will have the right
to require Pillowtex to file a registration statement with the Commission to
register shares of Pillowtex Common Stock receivable by such holders upon
conversion of Pillowtex Preferred Stock. Holders will also have so-called
"piggyback" registration rights with respect to shares of Pillowtex Common
Stock receivable upon conversion of Pillowtex Preferred Stock.
NEW PILLOWTEX SUBORDINATED NOTES
Pillowtex intends to issue and sell up to $150.0 million aggregate
principal amount of its New Pillowtex Subordinated Notes on or prior to the
Closing Date. Although the specific terms of the New Pillowtex
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Subordinated Notes have not yet been established, (i) for purposes of the pro
forma combined financial information presented in this Joint Proxy
Statement/Prospectus, the principal thereof is assumed to bear interest at a
rate of 93/8% per annum, payable semi-annually in arrears, (ii) the New
Pillowtex Subordinated Notes are expected to be due and payable in full in
2007, and (iii) the indenture or other instrument under which they are to be
issued is expected to contain affirmative, restrictive, and financial covenants
and to specify events of default generally comparable to the covenants and
events of default contained and specified in the indenture pursuant to which
the Existing Pillowtex Subordinated Notes (as hereinafter defined) were issued.
See "Other Post-Merger Indebtedness of Pillowtex -- Existing Pillowtex
Subordinated Notes." For purposes of the pro forma combined financial
information presented in the Joint Proxy Statement/Prospectus, it has been
assumed that the New Pillowtex Subordinated Notes will be issued and sold as of
the Closing Date, resulting in net proceeds to Pillowtex of approximately
$131.4 million.
STANDBY BRIDGE LOAN FACILITY
The Standby Bridge Loan Facility Commitment provides for, on the terms and
subject to the conditions set forth therein, a standby bridge loan facility
pursuant to which up to $150.0 million will be available to Pillowtex to
finance the Merger and complete the related refinancings in the event that less
than $135.0 million aggregate principal amount of New Pillowtex Subordinated
Notes shall have been issued and sold as of the Closing Date. Pillowtex
presently does not intend to utilize the Standby Bridge Loan Facility. In the
event it becomes necessary to utilize the Standby Bridge Loan Facility,
borrowings thereunder would initially be evidenced by senior subordinated
bridge notes ("Bridge Notes"). The terms of the Bridge Notes would be less
favorable to Pillowtex than the anticipated terms of the New Pillowtex
Subordinated Notes. Interest on the Bridge Notes would be payable at a
floating rate higher than the fixed rate of interest expected to be borne by
the New Pillowtex Subordinated Notes, which floating rate would increase at
specified intervals as long as the Bridge Notes were outstanding (subject to
certain limitations). The Bridge Notes would mature one year from the date of
issuance and, if not repaid in full, could, subject to certain conditions, be
satisfied at that time through the issuance and delivery of senior subordinated
rollover notes with a maturity of nine years (the "Rollover Notes"). Interest
on the Rollover Notes would also be payable at a floating rate which would
increase at specified intervals (subject to certain limitations).
OTHER POST-MERGER INDEBTEDNESS OF PILLOWTEX
INTRODUCTION
The principal long-term indebtedness of Pillowtex expected to be
outstanding following the Merger, in addition to the indebtedness described
under "Merger Financing" above, is described briefly below.
EXISTING PILLOWTEX SUBORDINATED NOTES
Pillowtex presently has outstanding $125.0 million aggregate principal
amount of its 10% Senior Subordinated Notes due 2006 (the "Existing Pillowtex
Subordinated Notes"). The Existing Pillowtex Subordinated Notes bear interest
at a rate of 10% per annum, payable semiannually in arrears on May 15 and
November 15 of each year. The Existing Pillowtex Subordinated Notes are
scheduled to mature in their entirety on November 15, 2006. Pillowtex has the
option to redeem the Existing Pillowtex Subordinated Notes, in whole or in
part, at any time on or after November 15, 2001, at redemption prices starting
at 105% of stated principal on November 15, 2001 and decreasing at a rate of
1.667% per year to 100% on and after November 15, 2004, plus all accrued and
unpaid interest to the redemption date. There is no mandatory redemption of
the Existing Pillowtex Subordinated Notes except upon a Change in Control (as
defined). Upon the occurrence of a Change of Control, each holder of Existing
Pillowtex Subordinated Notes will have the right to require Pillowtex to
repurchase all or any part of such holder's Existing Pillowtex Subordinated
Notes pursuant to a Change of Control Offer (as defined) at a price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages (as defined) thereon to the date of purchase.
The Existing Pillowtex Subordinated Notes are subject to certain covenants
which restrict, among other things, Pillowtex's ability to incur additional
indebtedness and issue preferred stock, incur liens to secure subordinated
indebtedness, pay dividends or make certain other restricted payments, apply
net proceeds from
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certain asset sales, enter into certain transactions with affiliates, incur
indebtedness that is subordinate in right of payment to any senior indebtedness
and senior in right of payment to the Existing Pillowtex Subordinated Notes,
merge or consolidate with any other person, sell stock of subsidiaries, or
sell, assign, transfer, lease, convey, or otherwise dispose of substantially
all of the assets of Pillowtex.
FIELDCREST CONVERTIBLE DEBENTURES
Fieldcrest presently has outstanding $118.8 million aggregate principal
amount of its 6.0% Convertible Subordinated Debentures due 2012. After the
Effective Time, the Fieldcrest Convertible Debentures will remain outstanding
as debt obligations of the Surviving Company. The Fieldcrest Convertible
Debentures bear interest at the rate of 6.0% per annum payable on March 15 and
September 15 of each year. The Fieldcrest Convertible Debentures are presently
convertible into shares of Fieldcrest Common Stock at a conversion price of
$44.25 per share, subject to adjustment upon the occurrence of certain events.
As a result of the Merger, Fieldcrest Convertible Debentures will become
convertible into the same consideration that a holder of the number of shares
of Fieldcrest Common Stock into which such Fieldcrest Convertible Debentures
might have been converted immediately prior to the Merger would be entitled to
receive in the Merger. For example, a Fieldcrest Convertible Debenture having
an aggregate principal amount of $1,000 will become convertible into (i) a cash
payment equal to the product of (a) the amount of the cash payment to be made
on account of each share of Fieldcrest Common Stock converted in the Merger and
(b) 22.60 and (ii) a number of shares of Pillowtex Common Stock equal to the
product of (a) the Conversion Number and (b) 22.60.
The Fieldcrest Convertible Debentures are presently redeemable at their
stated principal amount, in whole or in part, at the option of Fieldcrest, plus
any accrued and unpaid interest to the date of redemption. The Fieldcrest
Convertible Debentures are subject to mandatory redemption at their stated
principal amount plus any accrued and unpaid interest pursuant to a sinking
fund provision whereby Fieldcrest is required on March 15 of the years 1997 to
2011 inclusive, to deposit with the indenture trustee an amount equal to 5.0%
of the original $125.0 million aggregate principal amount of Fieldcrest
Convertible Debentures. The sinking fund provision is designed to cause the
redemption of 75% of the Fieldcrest Convertible Debentures as of their maturity
date.
PILLOWTEX DEED OF TRUST NOTE
Pillowtex presently has outstanding a $2.6 million deed of trust note
collateralized by land and buildings (the "Pillowtex Trust Note"). The
Pillowtex Trust Note bears interest at 10.5% per annum, payable monthly in
arrears, and matures on July 1, 1998.
PILLOWTEX INDUSTRIAL REVENUE BONDS
Pillowtex has certain obligations in respect of certain industrial revenue
bonds issued by the Pennsylvania Economic Development Financing Authority (the
"PEDFA Bonds"). The PEDFA Bonds are collateralized by certain funds
established and agreements executed in connection with the issuance of the
PEDFA Bonds, including an irrevocable direct pay letter of credit issued by
NationsBank, N.A. (formerly NCNB National Bank of North Carolina), for the
account of Pillowtex, in the initial face amount of $5,684,361 in support of
the PEDFA Bonds. Such letter of credit provides assurance that payments on the
PEDFA Bonds will be made as scheduled. The PEDFA Bonds bear interest, payable
semiannually, at a variable rate (7.00% to 7.85% per annum), and mature
serially in annual amounts ranging from $285,000 to $640,000 through April 1,
2002. Approximately $2,310,000 aggregate principal amount of PEDFA Bonds is
presently outstanding.
Pillowtex also has certain obligations in respect of certain industrial
revenue bonds issued by the Mississippi Business Finance Corporation (the "MBFC
Bonds"). The MBFC Bonds are collateralized by buildings, equipment, and
certain agreements executed in connection with the issuance of the MBFC Bonds,
including (i) a security interest in the lease agreement between Pillowtex (as
lessee) and Tunica County, Mississippi, covering the real property on which
Pillowtex constructed facilities with the proceeds of the issuance of the MBFC
Bonds, and (ii) an irrevocable direct pay letter of credit issued by
NationsBank of Texas, N.A., for the account of Pillowtex, in the initial face
amount of $4,657,343 in support of the MBFC Bonds. The letter of credit
provides assurance that payments on the MBFC Bonds will be made as scheduled.
The MBFC Bonds bear interest,
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payable monthly (or, in certain circumstances, quarterly), at a variable rate
(2.75% to 4.5% per annum), provide for annual principal payments of $460,000
beginning July 1, 1995, and mature on July 1, 2004. Approximately $3,220,000
aggregate principal amount of MBFC Bonds is presently outstanding.
FIELDCREST INDUSTRIAL REVENUE BONDS
Fieldcrest has certain obligations in respect of industrial revenue bonds
issued by various state and municipal industrial authorities. First,
Fieldcrest has certain obligations in respect of certain industrial revenue
bonds issued by the Industrial Development Board of the City of Phenix City,
Alabama (the "Phenix City Bonds"). The Phenix City Bonds are collateralized by
land, equipment, buildings, and a security interest in the lease agreement
between Fieldcrest (as lessee) and such Board covering the property and
facilities that were acquired with the proceeds of the issuance of the Phenix
City Bonds. The Phenix City Bonds bear interest, payable semiannually, at a
rate equal to 5.63% per annum, and mature serially in annual amounts ranging
from $165,000 to $335,000 through February 1, 1998. Approximately $335,000
aggregate principal amount of the Phenix City Bonds is presently outstanding.
Fieldcrest also has certain obligations in respect of certain industrial
revenue bonds issued by the Rowan County Industrial Facilities and Pollution
Control Financing Authority of the State of North Carolina (the "Rowan County
Bonds"). The Rowan County Bonds are collateralized by, among other things, a
security interest in the lease agreement between Fieldcrest (as lessee) and
such Authority covering the property and facilities that were acquired with the
proceeds of the issuance of the Rowan County Bonds. The Rowan County Bonds
bear interest, payable semiannually, at a rate equal to 7.25% per annum, and
mature serially in annual amounts ranging from $165,000 to $190,000 through
October 1, 2001. Approximately $850,000 aggregate principal amount of the
Rowan County Bonds is presently outstanding.
Fieldcrest has additional obligations in respect of certain industrial
revenue bonds issued by the Industrial Development Board of the City of
Scottsboro, Alabama (the "Scottsboro Bonds"). The Scottsboro Bonds are
collateralized by land, equipment, buildings, and a security interest in the
lease agreement between Fieldcrest (as lessee) and the Board covering the
property that was acquired with the proceeds of the issuance of the Scottsboro
Bonds. The Scottsboro Bonds bear interest, payable semiannually, at a rate
equal to 6.75% per annum, provide for annual principal payments of $200,000
beginning September 1, 1998, and mature on September 1, 2002. Approximately
$1,200,000 aggregate principal amount of the Scottsboro Bonds is presently
outstanding.
Fieldcrest has further obligations in respect of certain industrial revenue
bonds issued by the State Industrial Development Authority of the State of
Alabama (the "Alabama Bonds"). The Alabama Bonds are collateralized by certain
funds established and agreements executed in connection with the issuance of
the Alabama Bonds, including an irrevocable direct pay letter of credit issued
by CoreStates Bank, N.A., for the account of Fieldcrest, in the initial face
amount of $10,208,334. Such letter of credit provides assurance that the
payments on the Alabama Bonds will be made as scheduled. The Alabama Bonds
bear interest at a variable rate (approximating LIBOR), and mature on July 1,
2021. Approximately $10,000,000 aggregate principal amount of the Alabama
Bonds is presently outstanding.
DESCRIPTION OF PILLOWTEX CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
General. The Pillowtex Articles provide that the authorized capital stock
of Pillowtex consists of 30,000,000 shares of Pillowtex Common Stock, and
20,000,000 shares of preferred stock, per value $0.01 per share.
Common Stock. The holders of Pillowtex Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferential rights of any issued and outstanding
preferred stock, including the Pillowtex Preferred Stock, holders of Pillowtex
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Pillowtex Board out of funds legally
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available therefor. In the event of a liquidation, dissolution, or winding-up
of Pillowtex, holders of Pillowtex Common Stock are entitled to share ratably
in all assets of Pillowtex, if any, remaining after payment of liabilities and
the liquidation preferences of any issued and outstanding preferred stock,
including the Pillowtex Preferred Stock. Holders of Pillowtex Common Stock
have no preemptive rights, no cumulative voting rights, and no rights to
convert their shares of Pillowtex Common Stock into any other securities of
Pillowtex or any other entity. The Pillowtex Common Stock is not subject to
redemption or sinking fund redemption.
The Pillowtex Common Stock is listed on the New York Stock Exchange under
the symbol "PTX." Chase Mellon Shareholder Services, L.L.C. is the transfer
agent and registrar for the Pillowtex Common Stock.
Preferred Stock. The Pillowtex Board has the authority to issue up to
20,000,000 shares of preferred stock in one or more series and, subject to the
terms of any issued and outstanding preferred stock (including without
limitation the Pillowtex Preferred Stock), to fix the designations,
preferences, limitations, and relative rights of all shares of each such
series, including without limitation dividend rates, conversion rights, voting
rights, redemption and sinking fund provisions, liquidation preferences, and
the number of shares constituting each such series, without any further vote or
action by the holders of Pillowtex Common Stock. The issuance of one or more
series of preferred stock will likely decrease the amount of earnings and
assets available for distribution to holders of Pillowtex Common Stock as
dividends or upon liquidation, respectively, and may adversely affect the
rights and powers, including voting rights, of the holders of Pillowtex Common
Stock. The issuance of preferred stock also could have the effect of delaying,
deterring, or preventing a change in control of Pillowtex.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
General. The Pillowtex Preferred Stock Commitment provides for, on the
terms and subject to the conditions set forth therein, the issuance and sale to
Apollo of 65,000 shares of Pillowtex Preferred Stock at an offering price of
$1,000 per share, which is expected to result in net proceeds to Pillowtex of
approximately $63.5 million. See "Merger Financing -- Pillowtex Preferred
Stock."
Liquidation Preference; Ranking. Each share of Pillowtex Preferred Stock
will have a liquidation preference of $1,000, plus accrued and unpaid dividends
(the "Liquidation Preference"). The Pillowtex Preferred Stock will rank senior
in right of payment to all common equity stock and all other classes of
preferred stock of Pillowtex (other than Parity Securities (as defined)), but
will rank junior in right of payment to all indebtedness of Pillowtex. The
terms of the Pillowtex Preferred Stock will restrict, among other things,
Pillowtex's ability to pay dividends or make certain other restricted payments
on the Pillowtex Common Stock.
Dividends. Subject to the provisions described below, the Pillowtex
Preferred Stock will accrue dividends from the issue date through and including
December 31, 1999 at a rate per annum equal to 3.0%. Beginning on January 1,
2000 through and including the date ten and one-half years after the initial
issuance of the Pillowtex Preferred Stock (the "Mandatory Redemption Date"),
the Pillowtex Preferred Stock will accrue dividends, based upon Pillowtex's
earnings per share for the 1999 fiscal year ("1999 EPS"), at a rate per annum
equal to (i) 3.0%, if 1999 EPS is greater than or equal to $2.70, (ii) 7.0%, if
1999 EPS is greater than or equal to $2.35 but less than $2.70, or (iii) 10.0%,
if 1999 EPS is less than $2.35. If 1999 EPS is less than $2.70, Pillowtex will
be required to pay the holders of Pillowtex Preferred Stock a dividend in
additional shares of Pillowtex Preferred Stock in respect of periods prior to
January 1, 2000 (the "Catch Up Dividend") such that, following the issuance of
such additional shares, the holders of the Pillowtex Preferred Stock will have
received the aggregate amount of dividends that would have been paid assuming
(i) the dividend rate for calendar 1997 and calendar 1998 had been (a) 3.0% per
annum, if 1999 EPS is equal to or greater than $2.35, or (b) 10% per annum, if
1999 EPS is less than $2.35, and (ii) the dividend rate for calendar year 1999
was the applicable rate described in the immediately preceding sentence. If
the Determination Price is less than $23.00, each of the $2.35 and $2.70
targets for 1999 EPS will be reduced by an amount equal to the product of (x)
0.065 and (y)(i) $23.00 minus (ii) the Determination Price. At the option of
Pillowtex, dividends will other than the Catch Up Dividend be payable either in
cash or in kind (through the issuance of additional shares of Pillowtex
Preferred Stock) for the first five years after issuance and will be payable
only in cash thereafter.
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Conversion. At the option of the holders thereof, at any time or from time
to time, each share of the Pillowtex Preferred Stock will be convertible into
the number of shares of Pillowtex Common Stock as is determined by dividing (i)
the sum of (a) $1,000 and (b) any unpaid dividends on such share by (ii) an
initial conversion price equal to $24.00 per share, except that if the
Determination Price is less than $23.00, then the conversion price will be
equal to the Determination Price plus $1.00, subject to subsequent adjustment
in certain circumstances to prevent dilution.
Optional Redemption. Pillowtex will have the right to, at any time and
from time to time after the fourth anniversary of the initial issuance of the
Pillowtex Preferred Stock, call all or any portion of the Pillowtex Preferred
Stock for redemption at a redemption price equal to (i) the Liquidation
Preference plus (ii) the product of (a) a premium, which declines ratably from
the percentage equal to the applicable dividend rate on such fourth anniversary
to zero on the Mandatory Redemption Date, and (b) the Liquidation Preference
(minus any accrued and unpaid dividends from the Dividend Payment Date prior to
the Optional Redemption Date).
Mandatory Redemption. Each share of Pillowtex Preferred Stock will be
subject to mandatory redemption on the Mandatory Redemption Date at a
redemption price equal to $1,000, plus accrued and unpaid dividends.
Voting Rights. Except as described below and as otherwise required by law,
holders of Pillowtex Preferred Stock are not entitled to any vote on matters
presented to shareholders of Pillowtex.
So long as any shares of the Pillowtex Preferred Stock are outstanding,
Pillowtex may not (i) amend the Pillowtex Articles so as to (a) affect
adversely the specified rights, preferences, privileges, or voting rights of
holders of shares of Pillowtex Preferred Stock or (b) authorize the issuance of
additional shares of any class of Senior Securities (as defined) or (ii) merge,
consolidate, or enter into any other reclassification that would (a) materially
affect adversely the special or relative rights, preferences, privileges, or
voting rights of the Pillowtex Preferred Stock or (b) result in a breach of the
terms of the Pillowtex Preferred Stock without, in any such case, the
affirmative vote or consent of holders of more than 50% of the outstanding
shares of the Pillowtex Preferred Stock. In addition, any amendment to the
Pillowtex Articles that would alter in any material respect the dividend rates,
liquidation preference, redemption rights, or conversion rights of the
Pillowtex Preferred Stock will require the affirmative vote or consent of each
holder of Pillowtex Preferred Stock.
In the event of Pillowtex's failure to pay dividends or the occurrence of
certain breaches that shall have continued for a period of 60 days after notice
thereof from any holder of Pillowtex Preferred Stock, the number of members on
the Pillowtex Board would be automatically increased by 25% and the holders of
the Pillowtex Preferred Stock would be entitled to elect directors to fill the
new positions created by such expansion, so long as such nonpayment of
dividends and breaches were not cured after notice thereof, except that if the
event of default related to (i) the failure to redeem the Pillowtex Preferred
Stock, (ii) a breach of certain restrictions on Pillowtex's activities, or
(iii) a Bankruptcy Event (as defined) with respect to Pillowtex or any of its
subsidiaries, there would be no right to cure and the holders' right to so
elect directors would continue for as long as the Pillowtex Preferred Stock
were outstanding.
CERTAIN CORPORATE GOVERNANCE MATTERS
Antitakeover Provisions. The Pillowtex Articles and Pillowtex Bylaws
contain certain provisions described below that may reduce the likelihood of a
change in management or voting control of Pillowtex without the consent of the
Pillowtex Board. These provisions could have the effect of delaying,
deterring, or preventing tender offers or takeover attempts that some or a
majority of Pillowtex's shareholders might consider to be in their best
interests, including offers or attempts that might result in a premium over the
market price for Pillowtex Common Stock. See "Risk Factors -- Certain
Provisions of Pillowtex's Articles of Incorporation, Bylaws, and other
Agreements."
Classified Board. Beginning with the 1994 annual meeting of shareholders,
the Pillowtex Board has been divided into three classes, the initial terms of
which expired at the 1995, 1996, and 1997 annual meetings of shareholders,
respectively. Beginning in 1995, one class of directors is elected on a
rotating basis at each annual meeting of shareholders for a three-year term.
Directors of Pillowtex are elected by the affirmative vote of a
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plurality of the shares cast at a meeting at which a quorum is present.
Shareholders may remove a director only with cause and upon the affirmative
vote of the holders of not less than 80% of the outstanding voting stock. The
Pillowtex Board has the right to appoint up to two persons to fill vacancies on
the Pillowtex Board during any period between two successive annual meetings of
shareholders. The classification of the Pillowtex Board may have the effect of
deterring or delaying a takeover of Pillowtex because it may take at least two
years to gain control of the Pillowtex Board. See "Comparison of Rights of
Holders of Fieldcrest Common Stock and Pillowtex Common Stock -- Directors
- -- Pillowtex."
Shareholder Nominations and Proposals. The Pillowtex Bylaws establish
advance notice procedures with regard to the nomination, other than by or at
the direction of the Pillowtex Board or a committee thereof, of candidates for
election as directors and with regard to certain matters to be brought before
an annual meeting of shareholders of Pillowtex. These procedures provide that
the notice of proposed shareholder nominations for the election of directors
must be received at the principal executive offices of Pillowtex not less than
50 days nor more than 60 days prior to the meeting at which directors are to be
elected (or, if fewer than 50 days' notice of prior public disclosure of the
meeting date is given or made by Pillowtex, not later than 10 days after the
day on which the notice was mailed or such public disclosure was made). These
procedures also provide that, at an annual meeting, and subject to any other
applicable requirements, only such business may be conducted as has been
brought before the meeting by, or at the direction of, the Pillowtex Board or
by a shareholder who has given timely prior written notice to Pillowtex of such
shareholder's intention to bring such business before the meeting. For the
shareholder's notice to be timely, it must be delivered to or mailed and
received at the principal executive offices of Pillowtex not later than the
date that corresponds to 120 days prior to the date Pillowtex's proxy statement
was released to shareholders in connection with the previous year's annual
meeting of shareholders. Such notice must contain certain information
specified in the Pillowtex Bylaws. See "Comparison of Rights of Holders of
Fieldcrest Common Stock and Pillowtex Common Stock -- Proposal of Business;
Nomination of Directors -- Pillowtex."
Amendment of Bylaws. The Pillowtex Bylaws can be amended only by the
Pillowtex Board or by the affirmative vote of the holders of at least 80% of
the shares entitled to vote generally in the election of directors. See
"Comparison of Rights of Holders of Fieldcrest Common Stock and Pillowtex
Common Stock -- Amendment of Articles or Certificate of Incorporation and Bylaws
- -- Pillowtex."
Shareholder Action. The Pillowtex Articles provide that special meetings
of the shareholders may be called only by the Chief Executive Officer, the
President, the Board of Directors, or the holders of at least 50% of all shares
entitled to vote at the proposed meeting. See "Comparison of Rights of Holders
of Fieldcrest Common Stock and Pillowtex Common Stock -- Special Meetings
- -- Pillowtex."
Preferred Stock. The Pillowtex Articles permit the Pillowtex Board to
issue preferred stock at any time without shareholder approval. Preferred
stock is sometimes used to discourage or make more difficult attempts to take
control of a company by means of a merger, tender offer, proxy contest, or
otherwise, through the issuance without shareholder approval of shares with
supervoting rights or other features that would thwart a takeover by reducing
the ability of the suitor to acquire the necessary voting shares to obtain
control.
Fair Price Provision. The Pillowtex Articles include a so-called "fair
price" provision that requires the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of Pillowtex (excluding shares owned by
an interested shareholder) to approve certain business combinations effected
within three years after the date on which the person became an interested
shareholder. These "business combinations" include a merger with an interested
shareholder, or disposition of assets having a fair market value of at least
10% of the fair market value of all of Pillowtex's assets or outstanding stock
to an interested shareholder, a liquidation proposed by an interested
shareholder, the issuance of securities to an interested shareholder, or the
reclassification of Pillowtex securities or a similar transaction that
increases the interested shareholder's proportionate ownership in Pillowtex.
An "interested shareholder" is anyone who owns or controls, directly or
indirectly, or together with others, 15% or more of Pillowtex's voting stock.
However, a transaction with an interested shareholder will not require
shareholder approval if (i) a majority of disinterested directors (as defined
in the Pillowtex Articles) approves the transaction or the transaction in which
the interested shareholder becomes such, (ii) the transaction involves the
distribution to the shareholders of cash or other consideration that satisfies
the "fair price" criteria
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set forth in the Pillowtex Articles, which generally require that all
shareholders receive equal treatment, an adequate price, and adequate
disclosure, (iii) upon consummation of the transaction the interested
shareholder owns at least 85% of the voting capital stock of Pillowtex, or (iv)
the transaction is proposed after the public announcement or notice of a
transaction meeting specified criteria and before consummation or abandonment
of such transaction. The fair price provision of the Pillowtex Articles may
not be amended without the affirmative vote of at least 80% of all shares
entitled to vote. See "Comparison of Rights of Holders of Fieldcrest Common
Stock and Pillowtex Common Stock -- Approval of Merger, Dissolution, and Asset
Sales -- Pillowtex."
Director Liability Limitation. As authorized by the Texas Miscellaneous
Corporation Laws Act, the Pillowtex Articles provide that Pillowtex's directors
will have no personal liability to Pillowtex or its shareholders for monetary
damages for breach or alleged breach of the directors' duty of care. This
provision has no effect on director liability for (i) a breach of the
directors' duty of loyalty, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, (iii) an act or
omission for which the liability of a director is expressly provided by an
applicable statute, or (iv) any transaction from which a director derives an
improper personal benefit. In addition, the Pillowtex Articles provide that
any additional liabilities permitted to be eliminated by subsequent legislation
will automatically be eliminated without further shareholder vote, unless
additional shareholder approval is required by such legislation. See
"Comparison of Rights of Holders of Fieldcrest Common Stock and Pillowtex
Common Stock -- Limitation of Director Liability -- Pillowtex."
The principal effect of the limitation of liability provision is that a
shareholder is unable to prosecute an action for monetary damages against a
director of Pillowtex unless the shareholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Pillowtex Articles do not eliminate its directors' duty of care.
However, the inclusion of this provision in the Pillowtex Articles may
discourage or deter shareholders or management from bringing a lawsuit against
directors for breach of their fiduciary duties, even though such an action, if
successful, might otherwise benefit Pillowtex and its shareholders. This
provision should not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of the duty of care.
Indemnification. The Pillowtex Bylaws also provide that Pillowtex will
indemnify its directors, officers, employees, and agents to the fullest extent
permitted by Texas law. Pillowtex is generally required to indemnify its
directors, officers, employees, and agents against all judgments, fines,
settlements, legal fees, and other expenses incurred in connection with pending
or threatened legal proceedings because of the person's position with Pillowtex
or another entity that the person serves at Pillowtex's request, subject to
certain conditions, and to advance funds to enable them to defend against such
proceedings. To receive indemnification, the director, officer, employee, or
agent must have been successful in the legal proceeding or acted in good faith
and in what was reasonably believed to be a lawful manner and Pillowtex's best
interest. See "Comparison of Rights of Holders of Fieldcrest Common Stock and
Pillowtex Common Stock -- Indemnification of Officers and Directors
- -- Pillowtex."
Pillowtex has entered into Indemnification Agreements with each of its
directors pursuant to which Pillowtex has agreed to indemnify the directors to
the full extent authorized or permitted by the TBCA.
FUTURE STOCK ISSUANCES
In addition to the Pillowtex Common Stock to be issued or to become
issuable to holders of Fieldcrest Common Stock, holders of Fieldcrest Preferred
Stock, holders of Fieldcrest Options, and holders of Fieldcrest Convertible
Debentures in connection with the Merger, the Pillowtex Preferred Stock to be
issued to Apollo pursuant to the Pillowtex Preferred Stock Commitment, and the
Pillowtex Common Stock and any additional Pillowtex Preferred Stock to be
issuable pursuant to the terms of the Pillowtex Preferred Stock, Pillowtex may
become obligated to issue shares of Pillowtex Common Stock pursuant to awards
granted under equity-based compensation plans, including its 1993 Stock Option
Plan.
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Pillowtex is also authorized to issue additional shares of capital stock
from time to time. Under Texas law, in the absence of actual fraud in the
transaction, the judgment of the directors as to the value of consideration
received upon the issuance of a corporation's capital stock is conclusive. In
addition, as permitted by Texas law, under the Pillowtex Articles, Pillowtex's
shareholders will not have preemptive rights to purchase additional shares of
Pillowtex capital stock upon any issuance of such shares authorized by the
Pillowtex Board. See "Risk Factors -- Certain Provisions of Pillowtex's
Articles of Incorporation, Bylaws, and other Agreements."
RESTRICTIONS ON RESALES OF
PILLOWTEX COMMON STOCK BY AFFILIATES
The shares of Pillowtex Common Stock to be issued to the stockholders of
Fieldcrest in the Merger are being registered under the Securities Act pursuant
to the Registration Statement. However, because some stockholders of
Fieldcrest are or may be "affiliates" of Fieldcrest at the time of the
Fieldcrest Special Meeting, such persons will not be able to resell the
Pillowtex Common Stock received by them in the Merger unless such Pillowtex
Common Stock is registered for resale under the Securities Act, is sold in
compliance with an applicable exemption from the registration requirements of
the Securities Act, or is sold in compliance with Rules 144 and 145 under the
Securities Act.
Rules 144 and 145 under the Securities Act provide certain exemptions from
registration under the Securities Act for certain limited public resales of
restricted securities of affiliates of the issuer of such securities. Rule 145
permits holders of securities received in a merger or other exchange to sell
such securities without registration under the Securities Act provided such
sale is made in compliance with Rule 144. Rule 144 allows a holder of
unrestricted securities that is an affiliate of the issuer of such securities
to sell, without registration, within any three month period a number of shares
of such restricted securities that does not exceed the greater of 1% of the
number of outstanding securities in question or the average weekly trading
volume in the securities in question during the four calendar weeks preceding
the date on which notice of such sale was filed pursuant to Rule 144, subject
to the satisfaction of certain other requirements of Rule 144 regarding the
manner of sale, notice requirements, and the availability of current public
information regarding the issuer.
COMPARISON OF RIGHTS OF HOLDERS OF
FIELDCREST COMMON STOCK AND PILLOWTEX COMMON STOCK
GENERAL
Fieldcrest is incorporated under the laws of the state of Delaware.
Pillowtex is incorporated under the laws of the state of Texas. The rights of
Fieldcrest's stockholders are currently governed by the DGCL and the Fieldcrest
Certificate and the Fieldcrest Bylaws. If Fieldcrest's stockholders approve
and adopt the Merger Agreement, Pillowtex's shareholders approve the Share
Issuance, and the Merger becomes effective, stockholders of Fieldcrest will
become shareholders of Pillowtex. For that reason, after the Effective Time of
the Merger, their rights will be governed by the TBCA and the Pillowtex
Articles and Pillowtex Bylaws.
Shares of Fieldcrest Preferred Stock entitle the holders thereof to
specified preferences, and relative rights, including preferences as to payment
of dividends and upon liquidation and rights relating to the conversion,
redemption, and voting of such shares. As a result of the Merger, holders of
shares of Fieldcrest Preferred Stock will no longer have such specified rights,
but, subject to their right under Delaware law to seek appraisal of such
shares, will instead have the right to receive cash and shares of Pillowtex
Common Stock as described above under the caption "The Merger -- The Merger
Agreement -- Consideration to be Paid in the Merger."
THE FOLLOWING IS A COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIELDCREST
COMMON STOCK WITH THE RIGHTS OF HOLDERS OF PILLOWTEX COMMON STOCK. IT IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
RELEVANT PROVISIONS OF THE LAWS AND DOCUMENTS DISCUSSED BELOW.
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AUTHORIZED CAPITAL STOCK
Fieldcrest. The total number of authorized shares of capital stock of
Fieldcrest is 50,000,000 shares, of which 25,000,000 shares are Fieldcrest
Common Stock, 15,000,000 shares are Class B Common Stock, par value $1.00 per
share, of Fieldcrest ("Fieldcrest Class B Common Stock"), and 10,000,000 shares
are preferred stock, par value $0.01 per share. There are no shares of
Fieldcrest Class B Common Stock outstanding.
Pillowtex. The total number of authorized shares of capital stock of
Pillowtex is 50,000,000 shares, of which 30,000,000 shares are Pillowtex Common
Stock and 20,000,000 shares are preferred stock, par value $0.01 per share.
See "Description of Pillowtex Capital Stock -- Authorized Capital Stock."
AMENDMENT OF ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
Fieldcrest. Under the DGCL, an amendment to a corporation's certificate of
incorporation requires the approval of the board of directors and the approval
of holders of a majority of the outstanding stock entitled to vote thereon. The
holders of the outstanding shares of a class are entitled to vote as a separate
class on a proposed amendment that would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value
of the shares of such class, or alter or change the powers, preferences, or
special rights of the shares of such class so as to affect them adversely.
The Fieldcrest Bylaws may be amended by a majority of the Fieldcrest Board
or by holders of a majority of the outstanding stock entitled to vote thereon.
Pillowtex. Under the TBCA, an amendment to a corporation's articles of
incorporation requires approval of the board of directors and the approval of
holders of at least two-thirds of the outstanding shares entitled to vote
thereon. The holders of outstanding shares of a class are entitled to vote as
a separate class on a proposed amendment that would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, effect an exchange, reclassification, or
cancellation of all or part of the shares of such class, effect an exchange, or
create a right of exchange, of all or any part of the shares of another class
into the shares of such class, change the designations, preferences,
limitations, or relative rights of the shares of such class, or have certain
other specified effects. The Pillowtex Articles provide that the so-called
"fair price" provision and the provisions relating to amendments to the
Pillowtex Bylaws contained therein may be amended only by the affirmative vote
of holders of at least 80% of the outstanding shares entitled to vote thereon.
The Pillowtex Bylaws may be amended by a majority of the Pillowtex Board or
by holders of at least 80% of the outstanding stock entitled to vote thereon.
See "Description of Pillowtex Capital Stock -- Certain Corporate Governance
Matters -- Amendment of Bylaws."
APPROVAL OF MERGERS, DISSOLUTION, AND ASSET SALES
Fieldcrest. Under the DGCL, a merger, consolidation, dissolution, or sale
or other disposition of substantially all of a corporation's assets generally
requires the approval of the board of directors and holders of a majority of
the outstanding stock entitled to vote thereon. However, the DGCL provides
that no vote of the stockholders of the surviving corporation is required,
unless the certificate of incorporation provides otherwise, to approve a merger
if: (i) the agreement of merger does not amend in any respect the corporation's
certificate of incorporation; (ii) each share of the corporation's stock
outstanding immediately prior to the merger is to be an identical outstanding
or treasury share of the surviving corporation after the merger; and (iii)
either (a) no shares of common stock of the surviving corporation and no
shares, securities, or obligations convertible into such stock are to be
issuable as a result of the merger or (b) the increase in the outstanding
shares as a result of the merger does not exceed 20% of the shares of common
stock of the surviving corporation outstanding immediately prior to the
effective date of the merger.
The Fieldcrest Certificate provides that, in the case of a merger or
consolidation of Fieldcrest with, or the sale of substantially all of the
assets of Fieldcrest to, another person (other than a corporation a majority of
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whose voting stock is held by Fieldcrest), two-thirds of the votes entitled to
be cast must be cast in favor of such matter.
Pillowtex. Under the TBCA, a merger or dissolution generally requires the
approval of the board of directors and holders of at least two-thirds of the
outstanding shares entitled to vote thereon. However, the TBCA provides that
approval by the shareholders of a corporation on a plan of merger is not
required if: (i) the corporation is the sole surviving corporation in the
merger; (ii) the articles of incorporation of the corporation will not differ
from its articles of incorporation before the merger; (iii) each shareholder of
the corporation whose shares were outstanding immediately before the effective
date of the merger will hold the same number of shares, with identical
designations, preferences, limitations, and relative rights, immediately after
the effective date of the merger; (iv) the voting power of the number of voting
shares outstanding immediately after the merger, plus the voting power of the
number of voting shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of
rights to purchase securities issued pursuant to the merger), will not exceed
by more than 20% the voting power of the total number of voting shares of the
corporation outstanding immediately before the merger; (v) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of
rights to purchase securities issued pursuant to the merger), will not exceed
by more than 20% the total number of participating shares of the corporation
outstanding immediately before the merger; and (vi) the board of directors of
the corporation adopts a resolution approving the plan of merger. Under the
TBCA, a disposition of all, or substantially all, of the property and assets of
a corporation may be made upon such terms and conditions and for such
consideration as may be authorized by the board of directors, without
authorization or consent of the shareholders, if the corporation will either
continue to engage in one or more businesses or apply a portion of the
consideration received in connection with the transaction to the conduct of a
business in which it engages following the transaction.
The Pillowtex Articles include a so-called "fair price" provision that
requires the affirmative vote of holders of at least 66 2/3% of the outstanding
voting stock (excluding shares owned by an interested shareholder) to approve
certain business combinations effected within three years after the date on
which the person became an interested shareholder. For description of such
provision, see "Description of Pillowtex Capital Stock -- Certain Corporate
Governance Matters -- Fair Price Provision."
SPECIAL MEETINGS
Fieldcrest. Under the DGCL, a special meeting of stockholders may be
called by the board of directors or by such persons as may be authorized by the
certificate of incorporation or by the bylaws. The Fieldcrest Bylaws provide
that a special meeting of stockholders may be called only by the Chief
Executive Officer, Secretary, or a majority of the Fieldcrest Board.
Consequently, holders of Fieldcrest Common Stock do not have the ability to
call a special meeting of stockholders.
Pillowtex. Under the TBCA, a special meeting of shareholders may be called
by either (i) the president, the board of directors, or such other person or
persons as may be authorized by the articles of incorporation or by the bylaws
or (ii) the holders of shares entitled to cast not less than 10% of all shares
entitled to vote at the special meeting, unless a different percentage, not to
exceed 50%, is provided for in the articles of incorporation. The Pillowtex
Articles and the Pillowtex Bylaws provide that a special meeting of
shareholders may be called only by the Chief Executive Officer or the Board of
Directors or by the holders of at least 50% of all the shares entitled to vote
at the proposed special meeting. See "Description of Pillowtex Capital Stock
- -- Certain Corporate Governance Matters -- Shareholder Action."
ACTION WITHOUT A MEETING
Fieldcrest. Under the DGCL, unless otherwise provided in the certificate
of incorporation, any action required or permitted to be taken at a
stockholders' meeting may be taken without a meeting pursuant to the written
consent of the holders of the number of shares that would have been required to
effect the action at an
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actual meeting of stockholders. The Fieldcrest Certificate does not address
action without a stockholders' meeting.
Pillowtex. Under the TBCA, any action required or permitted to be taken at
a shareholders' meeting may be taken without a meeting pursuant to the written
consent of the holders of all of the shares entitled to vote with respect to
the action that is the subject of the consent, except that the articles of
incorporation may provide that such action may be taken pursuant to the written
consent of the holders of shares having not less than the minimum number of
votes that would have been necessary to take such action at a meeting at which
the holders of all shares entitled to vote on the action were present and
voted. The Pillowtex Articles do not address action without a shareholders'
meeting.
DIRECTORS
Fieldcrest. The Fieldcrest Bylaws provide that the number of directors
shall be determined by resolution of the Fieldcrest Board. The number of
directors of Fieldcrest is currently fixed at eight. Each director serves for
a term of one year or until his or her earlier death, resignation, or removal.
Directors of Fieldcrest may be removed with or without cause by the affirmative
vote of the holders of a majority of the outstanding shares of Fieldcrest
capital stock entitled to vote thereon, except that the directors elected by
the holders of a particular class or series of capital stock may be removed
without cause only by vote of the holders of a majority of the outstanding
shares of such class or series. Vacancies on the Fieldcrest Board may be
filled by a majority of the remaining directors, although less than a quorum,
or by a sole remaining director. Directors of Fieldcrest are elected by
plurality of the votes of shares of Fieldcrest capital stock entitled to vote
thereon present in person or by proxy at the meeting at which directors are
elected. There is no cumulative voting in the election of Fieldcrest
directors.
Pillowtex. The Pillowtex Bylaws provide that the number of directors shall
be determined by resolution of the Pillowtex Board. The number of directors of
Pillowtex is currently fixed at ten. The directors are divided into three
classes, with directors in each class serving a staggered term of three years
or until his or her earlier death, resignation, or removal. Directors of
Pillowtex may be removed with cause by the affirmative vote of the holders of
not less than 80% of the shares of Pillowtex capital stock entitled to vote
thereon. Vacancies on the Pillowtex Board may be filled by a majority of the
remaining directors, although less than a quorum, or by a sole remaining
director, except that the directors may not fill more than two such
directorships during any period between two successive annual meetings of
shareholders. Directors of Pillowtex are elected by plurality of the votes of
shares of Pillowtex capital stock entitled to vote thereon present in person or
by proxy at the meeting at which directors are elected. There is no cumulative
voting in the election of Pillowtex directors. See "Description of Pillowtex
Capital Stock -- Certain Corporate Governance Matters -- Classified Board."
LIMITATION OF DIRECTOR LIABILITY
Fieldcrest. Under the DGCL, a certificate of incorporation may contain a
provision eliminating or limiting the personal liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision cannot eliminate or limit the
liability of a director: (i) for any breach of a director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) statutory liability for unlawful payment of dividends or unlawful stock
purchase or redemption; or (iv) for any transaction from which the director
derived an improper personal benefit. The Fieldcrest Certificate provides that
a director will under no circumstances have any personal liability to
Fieldcrest or its stockholders for monetary damages for breach of fiduciary
duty, except for those specific breaches and acts or omissions with respect to
which the DGCL expressly provides such personal liability cannot be eliminated
or limited.
Pillowtex. Under the Texas Miscellaneous Corporation Laws Act, articles of
incorporation may provide that a director of the corporation will not be
liable, or will be liable only to the extent provided in the articles of
incorporation, to the corporation or its shareholders for monetary damages for
an act or omission in the director's capacity as a director, except that
articles of incorporation cannot eliminate or limit the liability of a director
to the extent the director is found liable for: (i) a breach of the director's
duty of loyalty to the
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corporation or its shareholders; (ii) an act or omission not in good faith that
constitutes a breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the
law; (iii) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of
the director's office; or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. The Pillowtex
Articles provides that, to the fullest extent permitted by Texas statutory and
decisional law, a director of Pillowtex will not be liable to Pillowtex or its
shareholders for any act or omission in such director's capacity as a director.
In addition, the Pillowtex Articles provide that any additional liabilities
permitted to be eliminated by subsequent legislation will automatically be
eliminated without further shareholder vote, unless additional shareholder
approval is required by such legislation. See "Description of Pillowtex
Capital Stock -- Certain Corporate Governance Matters -- Director Liability
Limitation."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Fieldcrest. Under the DGCL, (i) a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee, or agent of the corporation, or 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 expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by the person in connection
with such action, suit, or proceeding if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful and (ii) a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was a director, officer,
employee, or agent of the corporation, or 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
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no indemnification may be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought determines upon applicable that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court deems proper.
Under the DGCL, to the extent that a present or former director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in the immediately preceding
sentence, or in defense of any claim, issue, or matter referred to therein,
such person must be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
The DGCL provides that any indemnification under the provisions described
in the second preceding paragraph (unless ordered by a court) will be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee, or
agent is proper in the circumstances because the person has met the applicable
standard of conduct, which determination will be made, with respect to a person
who is a director or officer at the time of such determination, (i) by a
majority vote of the directors who are not parties to such action, suit, or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by majority vote of such directors, even though less than
a quorum, or (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (iv) by the
stockholders. Under the DGCL, expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be
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determined that such person is not entitled to be indemnified by the
corporation. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Under the DGCL, a corporation has 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 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 such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
DGCL.
The Fieldcrest Certificate provides that Fieldcrest will indemnify every
officer and director of Fieldcrest to the fullest extent allowed by law, except
as otherwise provided in the Fieldcrest Bylaws. The Fieldcrest Bylaws provide
for the indemnification to the full extent permitted under the DGCL. The
Fieldcrest Bylaws also provide that Fieldcrest has the power to purchase and
maintain insurance as permitted by the DGCL.
Pillowtex. Under the TBCA, a corporation may indemnify a person who was,
is, or is threatened to be made a named defendant or respondent in any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative, any appeal in such an
action, suit, or proceeding, or any inquiry or investigation that could lead to
such an action, suit, or proceeding (a "proceeding"), because the person is or
was a director of the corporation or, while a director of the corporation, is
or was serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, but only if
it is determined in the manner described below that the person: (i) conducted
himself in good faith; (ii) reasonably believed (a) in the case of conduct in
his official capacity as a director of the corporation, that his conduct was in
the corporation's best interests, and (b) in all other cases, that his conduct
was at least not opposed to the corporation's best interests; and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. Except to the extent described in the next following sentence, a
director may not be indemnified under the TBCA in respect of a proceeding in
which the person is found liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity, or in which the person is found liable
to the corporation. A person may be indemnified as described in the second
preceding sentence against judgments, penalties (including excise and similar
taxes), fines, settlements, and reasonable expenses (including court costs and
attorneys' fees) actually incurred by the person in connection with a
proceeding, except that if the person is found liable to the corporation or is
found liable on the basis that personal benefit was improperly received by the
person, the indemnification (i) is limited to reasonable expenses (including
court costs and attorneys' fees) actually incurred by the person in connection
with the proceeding and (ii) will not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the corporation.
Under the TBCA, a corporation must indemnify a director against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a proceeding in which he is a named defendant or respondent
because he is or was a director of the corporation or, while a director of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, if he has been wholly successful, on the merits or otherwise, in
the defense of the proceeding. Under the TBCA, if, in a suit for the
indemnification required as described in the immediately preceding sentence, a
court of competent jurisdiction determines that the director is entitled to
such indemnification, the court will order indemnification and will award to
the director the expenses (including court costs and attorneys' fees) incurred
in securing the indemnification. Under the TBCA, if, upon application of a
director, a court of competent jurisdiction determines, after giving any notice
the court considers necessary, that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not he has met the requirements for indemnification described in the first
sentence of the immediately preceding paragraph or has been found liable in the
circumstances described in the second sentence of such paragraph, the court may
order the indemnification that the court determines is proper
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and equitable, except that if the person is found liable to the corporation or
is found liable on the basis that personal benefit was improperly received by
the person, the indemnification will be limited to reasonable expenses
(including court costs and attorneys' fees) actually incurred by the person in
connection with the proceeding.
A determination that indemnification as described in the first sentence of
the second preceding paragraph is permissible must be made: (i) by a majority
vote of a quorum consisting of directors who at the time of the vote are not
named defendants or respondents in the proceeding; (ii) if such a quorum cannot
be obtained, by a majority vote of a committee of the board of directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; (iii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
described in clauses (i) and (ii) above, or, if such a quorum cannot be
obtained and such a committee cannot be established, by a majority vote of all
directors; or (iv) by the shareholders in a vote that excludes the shares held
by directors who are named defendants or respondents in the proceeding. Under
the TBCA, authorization of indemnification and determination as to
reasonableness of expenses must be made in the same manner as the determination
that indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses must be
made in the manner described in clause (iii) of the immediately preceding
sentence for the selection of special legal counsel; a provision contained in
the articles of incorporation, the bylaws, a resolution of shareholders or
directors, or an agreement that makes mandatory the indemnification permitted
under the TBCA will be deemed to constitute authorization of indemnification in
the manner required by the TBCA even though such provision may not have been
adopted or authorized in the same manner as the determination that
indemnification is permissible. The TBCA provides that reasonable expenses
(including court costs and attorneys' fees) incurred by a director who was, is,
or is threatened to be made a named defendant or respondent in a proceeding may
be paid or reimbursed by the corporation, in advance of the final disposition
of the proceeding and without the determination, authorization, or
determination described above, after the corporation receives a written
affirmation by the director of his good faith belief that he has met the
standard of conduct necessary for indemnification and a written undertaking by
or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met the standard or if it is ultimately
determined that indemnification of the director against expenses incurred by
him in connection with that proceeding is prohibited by the TBCA; a provision
contained in the articles of incorporation, the bylaws, a resolution of
shareholders or directors, or an agreement that makes mandatory the payment or
reimbursement permitted under the TBCA will be deemed to constitute
authorization of that payment or reimbursement.
Under the TBCA, an officer of the corporation must be indemnified as, and
to the same extent described in the second preceding paragraph, for a director.
A corporation may indemnify and advance expenses to an officer, employee, or
agent of the corporation to the same extent that it may indemnify and advance
expenses to directors as described above. In addition, under the TBCA, a
corporation may indemnify and advance expenses to persons who are not or were
not officers, employees, or agents of the corporation but who are or were
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise to the same
extent that it may indemnify and advance expenses to directors.
Under the TBCA, a corporation may purchase and maintain insurance or
another arrangement 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, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, whether or not the corporation would have the power to indemnify him
against that liability under the TBCA.
The Pillowtex Articles do not address indemnification of directors,
officers, or other persons. However, the Pillowtex Bylaws provide that: (i)
Pillowtex will indemnify persons who are or were directors or officers (both
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in their capacities as directors and officers and, if serving at the request of
Pillowtex as a director, officer, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan, or other enterprise,
in each of those capacities) to the full extent permitted by the TBCA; (ii)
Pillowtex will pay or reimburse, in advance of the final disposition of any
proceeding, to all persons who are or were directors or officers of Pillowtex
all reasonable expenses incurred by such persons to the full extent permitted
by the TBCA; and (iii) Pillowtex will indemnify persons who are or were
employees or agents (other than directors or officers), or persons who are not
or were not employees or agents but who are or were serving at the request of
Pillowtex as directors, officers, trustees, employees, agents, or similar
functionaries of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise
(collectively, together with the directors and officers, "Corporate
Functionaries"), to the full extent permitted by the TBCA. The Pillowtex
Bylaws also provide that Pillowtex may purchase or maintain insurance on behalf
of any Corporate Functionary against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as a Corporate
Functionary, whether or not Pillowtex would have the power to indemnify him
against the liability under the TBCA or the Pillowtex Bylaws.
See "Description of Pillowtex Capital Stock -- Certain Corporate Governance
Matters -- Indemnification."
NOMINATION OF DIRECTORS; PROPOSAL OF BUSINESS
Fieldcrest. The Fieldcrest Bylaws contain detailed advance notice and
informational procedures which must be complied with in order for a stockholder
to nominate a person to serve as a director. The Fieldcrest Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders meeting at which directors will be elected. In addition, the
Fieldcrest Bylaws contain detailed advance notice and informational procedures
which must be followed in order for a Fieldcrest stockholder to propose an item
of business for consideration at a meeting of Fieldcrest stockholders.
Pillowtex. The Pillowtex Bylaws also contain detailed advance notice and
informational procedures which must be complied with in order for a stockholder
to nominate a person to serve as a director. The Pillowtex Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders meeting at which directors will be elected. In addition, the
Pillowtex Bylaws contain detailed advance notice and informational procedures
which must be followed in order for a Pillowtex shareholder to propose an item
of business for consideration at a meeting of Pillowtex shareholders. For a
description of such provisions, see "Description of Pillowtex Capital Stock
- -- Certain Corporate Governance Matters -- Shareholder Nominations and
Proposals."
DIVIDENDS AND DISTRIBUTIONS
Fieldcrest. Under the DGCL, a corporation may pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which
declared and for the preceding fiscal year. The DGCL also provides that
dividends may not be paid out of net profits if, after the payment of the
dividend, the corporation's capital would be less than the capital represented
by the outstanding stock of all classes having a preference upon the
distribution of assets.
Pillowtex. Under the TBCA, a corporation may make distributions if the
distribution does not exceed the corporation's surplus and the corporation
would not become insolvent after giving effect to the distribution.
CERTAIN APPRAISAL RIGHTS
Fieldcrest. The DGCL generally entitles a stockholder to exercise
appraisal rights upon a merger or consolidation of the corporation effected
pursuant to the DGCL if the holder complies with the requirements of Section
262 thereof. However, the DGCL does not provide appraisal rights for
stockholders of a corporation upon such a merger or consolidation if the stock
of the corporation is listed on a national securities exchange or designated as
a national market system security on the Nasdaq or held by more than 2,000
holders and stockholders are not required by the terms of the merger or
consolidation to accept for their stock anything
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except: (i) shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipt in respect thereof; (ii)
shares of stock of any other corporation, or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on the Nasdaq or held of record by more than 2,000 holders; (iii) cash in lieu
of fractional shares or fractional depository receipts; or (iv) any combination
of the shares of stock, depository receipts, and cash in lieu of fractional
shares or fractional depository receipts.
Pillowtex. The TBCA generally entitles a shareholder to exercise its
appraisal rights upon a merger of the corporation effected pursuant to the TBCA
if the holder complies with the requirements of Articles 5.12 and 5.13 thereof,
provided shareholder approval of the merger is required in the TBCA and the
shareholder holds shares of a class that was entitled to vote thereon.
However, the TBCA does not provide appraisal rights for shareholders with
respect to any plan of merger in which there is a single surviving or new
domestic or foreign corporation or from any plan of exchange, if (i) the shares
held by the shareholder are part of a class of shares which are listed on a
national securities exchange or held by not less than 2,000 shareholders and
(ii) the shareholder is not required by the terms of the plan of merger or
exchange to accept for his shares any consideration other than (a) shares of a
corporation that, immediately after the merger or exchange, will be part of a
class or series of shares which are listed, or authorized for listing, on a
national securities exchange or held of record by not less than 2,000 holders
and (b) cash in lieu of fractional shares otherwise entitled to be received.
DERIVATIVE ACTIONS
Fieldcrest. Derivative actions may be brought under the DGCL by a
stockholder on behalf of, and for the benefit of, the corporation. The DGCL
provides that a stockholder must aver in the complaint that he or she was a
stockholder of the corporation at the time of the transaction of which he
complains. However, no action may be brought by a stockholder unless he first
seeks remedial action on his claim from the corporation's board of directors,
unless such a demand for redress is excused. The board of directors of a
Delaware corporation can appoint an independent litigation committee to review
a stockholder's request for a derivative action and the litigation committee,
acting reasonably and in good faith, can terminate the stockholder's action
subject to a court's review of such committee's independence, good faith, and
reasonable investigation. Under the DGCL, the court in a derivative action may
apply a variety of legal and equitable remedies on behalf of the corporation
which vary depending on the facts and circumstances of the case and the nature
of the claim brought.
Pillowtex. Derivation actions may be brought under the TBCA by a
shareholder in the right of the corporation. The TBCA provides that a
shareholder must plead in the complaint that (i) he was a record or beneficial
owner of shares, or of an interest in a voting trust for shares, at the time of
the transaction of which he complains, and (ii) with particularity, the efforts
made by such shareholder to have suit brought for the corporation by the board
of directors, or the reasons for not making such efforts. The shareholder may
be required to give security for the expenses incurred or expected to be
incurred by one or more defendants if ordered by the court and taking into
account the Texas Rules of Civil Procedure regarding inability to give
security. If the shareholder fails to give such security so ordered within a
reasonable time, the court must dismiss the suit without prejudice. Further,
the court may, upon final judgment for one or more defendants and a finding
that the suit against such defendants was brought without reasonable cause,
require the shareholder to pay expenses to such defendants, whether or not
security had been required.
LEGAL MATTERS
The validity of the Pillowtex Common Stock to be issued in connection with
the Merger will be passed upon for Pillowtex by Jones, Day, Reavis & Pogue,
Dallas, Texas.
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EXPERTS
The consolidated financial statements of Pillowtex as of December 30, 1995
and December 28, 1996, and for each of the years in the three-year period ended
December 28, 1996 have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Fieldcrest incorporated by
reference in and included in an exhibit to Fieldcrest's Annual Report (Form
10-K) for the year ended December 31, 1996 and incorporated herein by
reference, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report incorporated by reference therein and included in an
exhibit thereto and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
PROPOSALS BY PILLOWTEX SHAREHOLDERS
Any proposal of a shareholder of Pillowtex intended to be presented at the
1998 Annual Meeting of Shareholders of Pillowtex must be received in writing by
the Secretary of Pillowtex by November 29, 1997 for inclusion, if appropriate,
in the proxy, notice of meeting, and proxy statement relating to such annual
meeting.
PROPOSALS BY FIELDCREST STOCKHOLDERS
Any proposal of a stockholder of Fieldcrest intended to be presented at the
1998 Annual Meeting of Stockholders of Fieldcrest must be received in writing
by the Secretary of Fieldcrest by November 29, 1997 for inclusion, if
appropriate, in the proxy, notice of meeting, and proxy statement relating to
such annual meeting. If the Merger is consummated, it is anticipated that no
such annual meeting will be held.
OTHER MATTERS
The Pillowtex Board knows of no business that will be presented for
consideration at the Pillowtex Special Meeting other than that discussed
herein. However, if any business incidental to the conduct of the Pillowtex
Special Meeting properly comes before the Pillowtex Special Meeting, the
persons named in the enclosed form of proxy or their substitutes will vote said
proxy in respect of any such business in accordance with their best judgment
pursuant to the discretionary authority conferred thereby.
The Fieldcrest Board knows of no business that will be presented for
consideration at the Fieldcrest Special Meeting other than that discussed
herein. However, if any business incidental to the conduct of the Fieldcrest
Special Meeting properly comes before the Fieldcrest Special Meeting, the
persons named in the enclosed form of proxy or their substitutes will vote said
proxy in respect of any such business in accordance with their best judgment
pursuant to the discretionary authority conferred thereby.
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Appendix A
===============================================================================
AGREEMENT AND PLAN OF MERGER
among
PILLOWTEX CORPORATION
PEGASUS MERGER SUB, INC.
and
FIELDCREST CANNON, INC.
dated as of September 10, 1997
===============================================================================
A-1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . A-4
SECTION 1.1 The Merger. . . . . . . . . . . . . . . . . . . A-4
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . A-4
SECTION 1.3 Effective Time . . . . . . . . . . . . . . . . . A-4
SECTION 1.4 Effects of the Merger . . . . . . . . . . . . . A-4
SECTION 1.5 Certificate of Incorporation; By-laws . . . . . A-5
SECTION 1.6 Directors; Officers . . . . . . . . . . . . . . A-5
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS . . . . . . . . . A-5
SECTION 2.1 Effect on Capital Stock . . . . . . . . . . . . A-5
SECTION 2.2 Stock Options . . . . . . . . . . . . . . . . . A-6
SECTION 2.3 Share Purchase Rights . . . . . . . . . . . . . A-7
SECTION 2.4 Failure To Approve Share Issuance . . . . . . . A-7
SECTION 2.5 Stock Appreciation Rights . . . . . . . . . . . A-7
ARTICLE III - PAYMENT FOR SHARES . . . . . . . . . . . . . . . . . . . . A-7
SECTION 3.1 Payment For Shares . . . . . . . . . . . . . . . A-7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . A-9
SECTION 4.1 Representations and Warranties of Company . . . A-9
SECTION 4.2 Representations and Warranties of Parent and
Purchaser . . . . . . . . . . . . . . . . . . . A-17
ARTICLE V - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 5.1 Conduct of Business of Company and Parent . . . A-21
ARTICLE VI - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . A-22
SECTION 6.1 Preparation of the Proxy Statement and the
Form S-4;
Accountant's Letters . . . . . . . . . . . . . . A-22
SECTION 6.2 Stockholders Meetings . . . . . . . . . . . . . A-23
SECTION 6.3 Access to Information; Confidentiality . . . . . A-23
SECTION 6.4 Reasonable Best Efforts . . . . . . . . . . . . A-23
SECTION 6.5 Indemnification; Directors' and Officers
Insurance . . . . . . . . . . . . . . . . . . . A-24
SECTION 6.6 Public Announcements . . . . . . . . . . . . . . A-25
SECTION 6.7 No Solicitation; Acquisition Proposals . . . . . A-25
SECTION 6.8 Consents, Approvals and Filings . . . . . . . . A-26
SECTION 6.9 Board Action Relating to Stock Option Plans . . A-26
SECTION 6.10 Employment and Employee Benefit Matters . . . . A-26
SECTION 6.11 Affiliates and Certain Stockholders . . . . . . A-27
SECTION 6.12 NYSE Listing . . . . . . . . . . . . . . . . . . A-27
SECTION 6.13 Certain Company Indebtedness . . . . . . . . . . A-27
ARTICLE VII - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . A-28
SECTION 7.1 Conditions to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . . . . A-28
</TABLE>
A-2
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<TABLE>
<S> <C> <C>
SECTION 7.2. Conditions to Obligations of Parent and
Purchaser . . . . . . . . . . . . . . . . . . . A-28
SECTION 7.3. Conditions to Obligation of Company . . . . . . A-29
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . A-29
SECTION 8.1 Termination . . . . . . . . . . . . . . . . . . A-29
SECTION 8.2 Effect of Termination . . . . . . . . . . . . . A-30
SECTION 8.3 Amendment . . . . . . . . . . . . . . . . . . . A-30
SECTION 8.4 Extension; Waiver . . . . . . . . . . . . . . . A-31
SECTION 8.5 Procedure for Termination, Amendment,
Extension or Waiver . . . . . . . . . . . . . . A-31
ARTICLE IX - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . A-31
SECTION 9.1 Nonsurvival of Representations and Warranties . A-31
SECTION 9.2 Fees and Expenses . . . . . . . . . . . . . . . A-31
SECTION 9.3 Definitions . . . . . . . . . . . . . . . . . . A-31
SECTION 9.4 Notices . . . . . . . . . . . . . . . . . . . . A-32
SECTION 9.5 Interpretation . . . . . . . . . . . . . . . . . A-32
SECTION 9.6 Counterparts . . . . . . . . . . . . . . . . . . A-33
SECTION 9.7 Entire Agreement; Third-Party Beneficiaries . . A-33
SECTION 9.8 Governing Law . . . . . . . . . . . . . . . . . A-33
SECTION 9.9 Assignment . . . . . . . . . . . . . . . . . . . A-33
SECTION 9.10 Enforcement . . . . . . . . . . . . . . . . . . A-33
SECTION 9.11 Severability . . . . . . . . . . . . . . . . . . A-33
</TABLE>
A-3
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AGREEMENT AND PLAN OF MERGER, dated as of September 10, 1997, among
PILLOWTEX CORPORATION, a Texas corporation ("Parent"), PEGASUS MERGER SUB,
INC., a Delaware corporation and wholly-owned subsidiary of Parent
("Purchaser"), and FIELDCREST CANNON, INC., a Delaware corporation ("Company").
W I T N E S E T H :
WHEREAS, the respective Boards of Directors of Parent, Purchaser and
Company have determined that it would be advisable and in the best interests of
their respective stockholders for Parent to acquire Company, by means of a
merger of Purchaser with and into Company (the "Merger"), pursuant and subject
to the terms and conditions set forth in this Agreement; and
WHEREAS, Parent, Purchaser and Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), the Merger shall be effected and Purchaser
shall be merged with and into Company at the Effective Time (as hereinafter
defined in Section 1.3). At the Effective Time, the separate existence of
Purchaser shall cease and Company shall continue as the surviving corporation
(sometimes herein referred to as the "Surviving Corporation").
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver (to the extent
permissible) of all of the conditions set forth in Article VII, the closing of
the Merger (the "Closing") will take place at 10:00 a.m. on the fifth business
day following satisfaction or waiver (to the extent permissible) of all of the
conditions set forth in Article VII, other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions (the "Closing Date"), at the offices of Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York, unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. The parties hereto will file with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
on the date of the Closing (or on such other date as Parent and Company may
agree) a certificate of merger or other appropriate documents, executed in
accordance with the relevant provisions of the DGCL, and make all other filings
or recordings required under the DGCL in connection with the Merger. The
Merger shall become effective upon the filing of the certificate of merger with
the Delaware Secretary of State, or at such later time as is specified in the
certificate of merger (the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of Company and
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of Company and Purchaser shall become the debts, liabilities and
duties of the Surviving Corporation.
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SECTION 1.5 Certificate of Incorporation; By-laws. At the Effective Time,
the certificate of incorporation of Purchaser as in effect at the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable law. At the Effective
Time, the by-laws of Purchaser as in effect at the Effective Time shall, from
and after the Effective Time, be the by-laws of the Surviving Corporation until
thereafter changed or amended in accordance with the provisions thereof and
applicable law.
SECTION 1.6 Directors; Officers. From and after the Effective Time, (a)
the directors of Purchaser shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and (b) the
officers of Company shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of shares of
Company's common stock, $1.00 par value per share (the "Shares"), or any other
capital stock of Company or any shares of capital stock of Purchaser:
(a) Common Stock of Purchaser. Each share of common stock, par value
$0.01 per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully
paid and nonassessable share of common stock, $0.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each
Share and each share of Company's $3.00 Series A Convertible Preferred Stock
(individually, a "Preferred Share" and collectively the "Preferred Shares")
issued and outstanding immediately prior to the Effective Time that is owned by
Company or any Subsidiary of Company or by Parent, Purchaser or any other
Subsidiary of Parent (other than shares in trust accounts, managed accounts,
custodial accounts and the like that are beneficially owned by third parties)
shall automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Shares. Each Share issued and outstanding
immediately prior to the Effective Time (other than Shares to be cancelled in
accordance with Section 2.1(b) and any Dissenting Shares (as hereinafter
defined)) shall be converted into the right to receive the Merger Consideration
(as defined below) upon surrender of the certificate formerly representing such
Share in accordance with this Agreement.
(d) Conversion of Preferred Shares. Each Preferred Share issued and
outstanding immediately prior to the Effective Time (other than Preferred
Shares to be cancelled in accordance with Section 2.1(b) and any Dissenting
Shares) shall be converted into the right to receive the Preferred Merger
Consideration (as defined below) upon surrender of the certificate formerly
representing such Preferred Share in accordance with this Agreement.
(e) Merger Consideration; Preferred Merger Consideration. (i)
"Merger Consideration" shall mean, subject to Section 2.4 below, (A) a cash
payment in an amount equal to $27.00 and (B) a number of fully paid and
nonassessable shares of Parent's common stock, $0.01 par value per share
("Parent Common Stock"), equal to the Conversion Number, meaning the quotient,
rounded to the third decimal place, obtained by dividing $7.00 by the average
of the closing sales prices of Parent Common Stock as reported on the NYSE (as
hereinafter defined in Section 9.3) Composite Transactions List for each of the
20 consecutive trading days immediately preceding the fifth trading day prior
to the Closing Date (the "Determination Price"); provided, that if the actual
quotient obtained thereby is less than 0.269, the Conversion Number shall
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be 0.269 and if the actual quotient obtained thereby is more than 0.333, the
Conversion Number shall be 0.333; provided, further that if the Determination
Price is less than $21.00, Parent shall have the right to give written notice
to Company (a "Top-Up Intent Notice") that Parent elects to increase the cash
portion of the Merger Consideration and/or the Conversion Number such that the
sum of (i) the cash portion of the Merger Consideration and (ii) the product of
the Conversion Number and the Determination Price shall equal $34.00. Any Top-
Up Intent Notice shall be delivered to Company no later than 2:00 p.m. New York
City time on the third business day prior to the Closing Date. If, in such
case, Parent does not deliver a Top-Up Intent Notice, Company shall have the
right to give written notice to Parent (a "Termination Notice") that Company
elects to terminate this Agreement. Any Termination Notice shall be delivered
to Parent no later than 2:00 p.m. New York City time on the business day prior
to the Closing Date.
(ii) "Preferred Merger Consideration" shall mean, subject to Section
2.4 below, (A) a cash payment equal to the product of (1) the cash portion of
the Merger Consideration and (2) 1.7094 and (B) a number of fully paid and
nonassessable shares of Parent Common Stock equal to the product of (1) the
Conversion Number and (2) 1.7094.
(f) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares or Preferred Shares issued and outstanding
immediately prior to the Effective Time held by a holder (if any) who has the
right to demand, and who properly demands, an appraisal of such Shares or
Preferred Shares in accordance with Section 262 of the DGCL (or any successor
provision) ("Dissenting Shares") shall not be converted into a right to receive
the Merger Consideration or the Preferred Merger Consideration, as applicable,
unless such holder fails to perfect or otherwise loses such holder's right to
such appraisal, if any. If, after the Effective Time, such holder fails to
perfect or loses any such right to appraisal, each such Share or Preferred
Share of such holder shall be treated as a Share or Preferred Share that had
been converted as of the Effective Time into the right to receive the Merger
Consideration or the Preferred Merger Consideration, as applicable, in
accordance with this Section 2.1. At the Effective Time, any holder of
Dissenting Shares shall cease to have any rights with respect thereto, except
the rights provided in Section 262 of the DGCL (or any successor provision) and
as provided in the immediately preceding sentence. Company shall give prompt
notice to Parent of any demands received by Company for appraisal of Shares or
Preferred Shares, and Parent shall have the right to participate in and direct
all negotiations and proceedings with respect to such demands. Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 2.2 Stock Options. (a) Each holder of a then outstanding option
to purchase Shares (collectively, "Options") under Company's Director Stock
Option Plan, 1995 Employee Stock Option Plan or Stock Option Agreement, dated
as of September 11, 1991, with James M. Fitzgibbons (collectively, the "Stock
Option Plans"), whether or not then exercisable or fully vested, may elect,
prior to the Effective Time, in settlement thereof, to receive from Company
immediately prior to the Effective Time for each Share subject to such Option
an amount in cash equal to the difference between $34.00 and the per share
exercise price of such Option, to the extent $34.00 is greater than the per
share exercise price of such Option (such excess amount, the "Option
Consideration").
(b) At the Effective Time, each outstanding Option other than Options
for which an election to receive cash in settlement thereof has been made
pursuant to Section 2.2(a), shall be assumed by Parent and shall constitute an
option to acquire, on substantially the same terms and subject to substantially
the same conditions as were applicable under such Option, including, without
limitation, term, exercisability, status as an "incentive stock option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
termination provisions, the number of shares of Parent Common Stock, rounded up
to the nearest whole share, determined by multiplying the number of Shares
subject to such Option immediately prior to the Effective Time by the Option
Conversion Number at an exercise price per share of Parent Common Stock
(increased to the nearest whole cent) equal to the exercise price per share of
Shares subject to such Option divided by the Option Conversion Number;
provided, however, that in the case of any Option to which Section 421 of the
Code applies by reason of its qualification as an incentive stock option under
Section 422 of the Code, the conversion formula shall be adjusted if necessary
to comply with Section 424(a) of the Code. "Option Conversion Number" shall
mean the quotient, rounded to the third decimal place,
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obtained by dividing $34.00 by the Determination Price; provided, that if the
actual quotient obtained thereby is less than 1.308, the Option Conversion
Number shall be 1.308, and if the actual quotient obtained thereby is more than
1.619, the Option Conversion Number shall be 1.619; provided, further, that if
a Top-Up Intent Notice has been delivered to Company pursuant to Section
2.1(e), the Option Conversion Number shall be increased such that the product
of the Option Conversion Notice and the Determination Price shall equal $34.00.
(c) Not later than 30 days prior to the Effective Time, Company shall
provide each holder of an Option an election form pursuant to which each such
holder may make the election specified in Section 2.2(a). Company also shall
use its best efforts to obtain all necessary waivers, consents or releases from
holders of Options under the Stock Option Plans and take any such other action
as may be reasonably necessary to give effect to the transactions contemplated
by this Section 2.2 and, with respect to the Options for which an election to
receive cash in settlement thereof has been made, to cause each such Option to
be surrendered to Company and cancelled, whether or not any Option
Consideration is payable with respect thereto, at the Effective Time. The
surrender of an Option to Company shall be deemed a release of any and all
rights the holder had or may have had in such Option, other than the right to
receive the Option Consideration in respect thereof.
(d) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of substitute Options pursuant to the terms set forth in Section
2.2(b). As soon as practicable after the Effective Time, the shares of Parent
Common Stock subject to Options will be covered by an effective registration
statement on Form S-8 (or any successor form) or another appropriate form and
Parent shall use its reasonable best efforts to maintain the effectiveness of
such registration statements for so long as the substitute Options remain
outstanding. In addition, Parent shall use all reasonable efforts to cause the
shares of Parent Common stock subject to Options to be listed on the NYSE and
such other exchanges as Parent shall determine.
SECTION 2.3 Share Purchase Rights. Each reference in this Article II and
in Article III to a "Share" is a reference to such Share together with the
Right (as hereinafter defined in Section 4.1(b)), if any, associated with such
Share.
SECTION 2.4 Failure To Approve Share Issuance. If Parent's stockholders
fail to approve the Share Issuance (as hereinafter defined in Section 4.2(c))
at the Parent Stockholders Meeting (as hereinafter defined in Section 6.2(b)),
then, notwithstanding anything set forth herein to the contrary, (i) the Merger
Consideration shall be a cash payment in an amount equal to $34.00, (ii) the
Preferred Merger Consideration shall be a cash payment in an amount equal to
$58.12, (iii) the provisions of Section 2.2(a) shall apply to all Options
outstanding immediately prior to the Effective Time and the provisions of
Section 2.2(b) shall have no further force or effect, and (iv) Sections
7.1(a)(ii) and 7.1(c) hereof shall be deemed to be deleted.
SECTION 2.5 Stock Appreciation Rights. At or immediately prior to the
Effective Time, Company shall pay to each holder of a stock appreciation right
issued by Company pursuant to the Director Stock Option Plan or its salary
reduction plan a cash amount equal to the product of (i) the difference between
$34.00 and the grant price of such stock appreciation right and (ii) the number
of shares subject to such stock appreciation right.
ARTICLE III
PAYMENT FOR SHARES
SECTION 3.1 Payment For Shares. (a) Payment Fund. Concurrently with the
Effective Time, Parent shall deposit, or shall cause to be deposited, with or
for the account of a bank or trust company designated by Parent, which shall be
reasonably satisfactory to Company (the "Paying Agent"), for the benefit of the
holders of Shares and Preferred Shares, (i) certificates for the shares of
Parent Common Stock representing the aggregate stock portion of the Merger
Consideration and the Preferred Merger Consideration and
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(ii) cash in an aggregate amount sufficient to pay the aggregate cash portion
of the Merger Consideration and the Preferred Merger Consideration (hereinafter
collectively referred to as the "Payment Fund").
(b) Letters of Transmittal; Surrender of Certificates. As soon as
reasonably practicable after the Effective Time, Parent shall instruct the
Paying Agent to mail to each holder of record (other than Company or any of its
Subsidiaries or Parent, Purchaser or any of their Subsidiaries) of a
certificate or certificates which, immediately prior to the Effective Time,
evidenced outstanding Shares or Preferred Shares (the "Certificates"), (i) a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent, and shall be in such
form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment therefor. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in respect thereof (A) a certificate representing that number of whole shares
of Parent Common Stock (and cash in lieu of fractional shares of Parent Common
Stock as contemplated by this Section 3.1) which the aggregate number of Shares
or Preferred Shares, as applicable, previously represented by such certificate
or certificates surrendered shall have been converted into the right to receive
pursuant to Section 3.1 of this Agreement and (B) cash in an amount equal to
the product of (1) the number of Shares or Preferred Shares, as applicable,
theretofore represented by such Certificate and (2) the cash portion of the
Merger Consideration or the Preferred Merger Consideration, as applicable, and,
in either case, the Certificate so surrendered shall forthwith be canceled. No
interest shall be paid or accrued on the Merger Consideration or the Preferred
Merger Consideration payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be promptly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the surrendered Certificate or established to the
satisfaction of Parent and the Surviving Corporation that such tax has been
paid or is not applicable.
(c) Cancellation and Retirement of Shares; No Further Rights. As of
the Effective Time, all Shares and Preferred Shares (other than Shares and
Preferred Shares to be cancelled in accordance with Section 2.1(b) and any
Dissenting Shares if applicable) issued and outstanding immediately prior to
the Effective Time, shall cease to be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
Certificate theretofore representing any such Shares or Preferred Shares shall
cease to have any rights with respect thereto (including, without limitation,
the right to vote), except the right to receive the Merger Consideration or the
Preferred Merger Consideration, as applicable, without interest, upon surrender
of such Certificate in accordance with this Article III, and until so
surrendered, each such Certificate shall represent for all purposes only the
right, subject to Section 2.1(f), if applicable, to receive the Merger
Consideration or the Preferred Merger Consideration, as applicable, without
interest. The Merger Consideration or the Preferred Merger Consideration, as
applicable, paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article III shall be deemed to have been issued and paid
in full satisfaction of all rights pertaining to the Shares or Preferred Shares
theretofore represented by such Certificates.
(d) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Shares or Preferred Shares which have been converted pursuant to
Section 2.1, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) In lieu of any such fractional shares, each holder of Shares or
Preferred Shares who would otherwise have been entitled to a fraction of a
Parent Common Stock upon surrender of Certificates for exchange pursuant to
this Section 3.1 will be paid an amount in cash (without interest), rounded to
the nearest cent, determined by multiplying (A) the per share closing price on
the NYSE of Parent Common Stock (as reported on the NYSE Composite Transactions
List) on the date on which the Effective Time
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occurs (or, if Parent Common Stock does not trade on the NYSE on such date, the
first date of trading of Parent Common Stock on the NYSE after the Effective
Time) by (B) the fractional interest to which such holder otherwise would be
entitled. Promptly upon request from the Paying Agent, Parent will make
available to the Paying Agent the cash necessary for this purpose.
(e) Investment of Payment Fund. The Paying Agent shall invest the
cash portion of the Payment Fund, as directed by Parent, in (i) direct
obligations of the United States of America, (ii) obligations for which the
full faith and credit of the United States of America is pledged to provide for
the payment of principal and interest, (iii) commercial paper rated the highest
quality by either Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or (iv) certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital exceeding $500 million.
Any net earnings with respect to the Payment Fund shall be the property of and
paid over to Parent as and when requested by Parent; provided, however, that
any such investment or any such payment of earnings shall not delay the receipt
by holders of Certificates of the Merger Consideration or the Preferred Merger
Consideration, as applicable, or otherwise impair such holders' respective
rights hereunder.
(f) Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the holders of Certificates for 180 days after
the Effective Time shall be delivered to Parent, upon demand, and any holders
of Certificates that have not theretofore complied with this Article III shall
thereafter look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration or Preferred Merger
Consideration, as applicable.
(g) No Liability. None of Parent, Purchaser, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
payments or distributions payable from the Payment Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to five years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration or Preferred Merger Consideration, as applicable, in
respect of such Certificate would otherwise escheat to or become the property
of any Governmental Entity (as hereinafter defined), any amounts payable in
respect of such certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Withholding Rights. Parent shall be entitled to deduct and
withhold, or cause to be deducted or withheld, from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares, Preferred Shares,
Options or Certificates such amounts as are required to be deducted and
withheld with respect to the making of such payment under the Code, or any
provision of applicable state, local or foreign tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to such holders in respect of
which such deduction and withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of Company. Company represents
and warrants to Parent and Purchaser as follows:
(a) Organization, Standing and Corporate Power. Each of Company and
each Subsidiary of Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on
its business as now being conducted. Each of Company and each Subsidiary of
Company is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed would not, individually or in the aggregate, have
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a Material Adverse Effect (as hereinafter defined in Section 9.3) on Company.
Company has delivered to Parent complete and correct copies of the certificate
of incorporation and by-laws or comparable governing documents of Company and
each of its Subsidiaries, in each case as amended to the date of this
Agreement.
(b) Capital Structure. The authorized capital stock of Company
consists of (i) 25,000,000 shares of common stock, $1.00 par value per share
(the "Common Stock"), (ii) 15,000,000 shares of class B common stock, $1.00 par
value per share, and (iii) 10,000,000 shares of preferred stock, $.01 par value
per share. At the close of business on September 5, 1997: (i) 9,224,258
shares of Common Stock were issued and outstanding, (ii) 435,300 shares of
Common Stock were reserved for issuance pursuant to outstanding Options under
the Stock Option Plans, (iii) 2,564,100 shares of Common Stock were reserved
for issuance pursuant to conversion of Preferred Shares, (iv) 2,632,248 shares
of Common Stock were reserved for issuance pursuant to conversion of Company's
6% Convertible Subordinated Debentures due 2012 (the "Convertible Debentures"),
(v) 1,500,000 Preferred Shares were issued and outstanding and (vi) 500,000
shares of Company's Series B Junior Participating Preferred Stock were
authorized for issuance solely pursuant to the exercise of the preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated
as of November 24, 1993, between Company and The First National Bank of Boston,
as rights agent (the "Company Rights Agreement"). Except as set forth in the
immediately preceding sentence, at the close of business on September 5, 1997,
no shares of capital stock (including, without limitation, class B common stock
or preferred stock) or other equity securities of Company were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
Company are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as referred to above, no bonds,
debentures, notes or other indebtedness of Company or any Subsidiary of Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the stockholders of Company
or any Subsidiary of Company may vote are issued or outstanding. No adjustment
to the conversion price at which Preferred Shares are convertible into Shares
or the conversion price at which Convertible Debentures are convertible into
Shares has been made since the respective date of the first issuance of such
securities, and there are no accrued and unpaid dividends, whether or not
declared, on the Preferred Shares. Except as disclosed in Section 4.1(b) of
the disclosure schedule delivered by each party to the other simultaneously
with the execution of this Agreement (the "Disclosure Schedule"), all the
outstanding shares of capital stock of each Subsidiary of Company have been
validly issued and are fully paid and nonassessable and are owned by Company,
by one or more Subsidiaries of Company or by Company and one or more such
Subsidiaries, free and clear of Liens (as hereinafter defined in Section 9.3).
Except as set forth above or in Section 4.1(b) of the Disclosure Schedule,
neither Company nor any Subsidiary of Company has or, at or after the Effective
Time will have, any outstanding option, warrant, call, subscription or other
right, agreement or commitment which (i) obligates Company or any Subsidiary of
Company to issue, sell or transfer, repurchase, redeem or otherwise acquire any
shares, of the capital stock of Company or any Subsidiary of Company, (ii)
restricts the transfer of any shares of capital stock of Company or any of its
Subsidiaries or (iii) relates to the voting of any shares of Company or any of
its Subsidiaries.
(c) Authority; Noncontravention. Company has the requisite corporate
power and authority to enter into this Agreement. The execution and delivery
of this Agreement by Company and the consummation by Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company, subject, in the case of the Merger, to
the approval of this Agreement by its stockholders as set forth in Section
6.2(a). This Agreement has been duly executed and delivered by Company and,
assuming this Agreement constitutes the valid and binding agreement of Parent
and Purchaser, constitutes a valid and binding obligation of Company,
enforceable against Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity. Except as disclosed in Section 4.1(c) of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the restated certificate of incorporation (including the provisions of any
certificate of designations which constitute a part of such restated
certificate of incorporation) or by-laws of Company or the comparable documents
of any Subsidiary of Company, (ii) subject to the governmental filings and
other matters referred to in the following sentence, conflict with, result in a
breach of or default (with or without notice or lapse of
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time, or both) under, or give rise to a material obligation, a right of
termination, cancellation or acceleration of any obligation or a loss of a
material benefit under, or require the consent of any person under, any
indenture or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which Company or any of its Subsidiaries is a
party or by which Company or any of its Subsidiaries or any of their assets is
bound or affected, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, contravene any domestic or
foreign law, rule or regulation or any order, writ, judgment, injunction,
decree, determination or award currently in effect, which, in the case of
clauses (ii) and (iii) above, singly or in the aggregate, would have a Material
Adverse Effect on Company. No consent, approval or authorization of, or
declaration or filing with, or notice to, any domestic or foreign governmental
agency or regulatory authority (a "Governmental Entity") which has not been
received or made is required by or with respect to Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Company or the consummation by Company of the transactions contemplated hereby,
except for (i) the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger, (ii) the filing with the SEC of (A) a joint
proxy statement relating to the approval and adoption by the stockholders of
Company of this Agreement and approval by the stockholders of Parent of the
Share Issuance (as hereinafter defined in Section 4.2(c)) (such joint proxy
statement, as amended or supplemented from time to time, the "Proxy Statement")
and (B) such reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Company is
qualified to do business, (iv) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 4.1(c) of the Disclosure
Schedule and (v) any other filings, authorizations, consents or approvals the
failure to make or obtain which, individually or in the aggregate, would not
have a Material Adverse Effect on Company.
(d) SEC Documents. (i) Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (the "SEC") since January 1, 1994 (such reports, schedules,
forms, statements and other documents are hereinafter referred to as the "SEC
Documents"); (ii) as of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
SEC Documents, and none of the SEC Documents as of such dates contained any
untrue statements of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) the consolidated financial statements of Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may otherwise be indicated in the notes
thereto) and fairly present the consolidated financial position of Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end audit
adjustments).
(e) Information Supplied. None of the information supplied or to be
supplied by Company specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance by Parent of shares of Parent Common Stock in
the Merger (the "Form S-4") will, at the time the Form S-4 is filed with the
SEC, at any time that it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time it is filed with the SEC, at any time that it is
amended or supplemented, at the time it is mailed to the stockholders of
Company and Parent and at the time of the Company Stockholders Meeting referred
to in Section 6.2(a) and the Parent Stockholders Meeting referred to in Section
6.2(b), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy
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Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Company with respect to statements made
or incorporated by reference therein based on information supplied by Parent or
Purchaser specifically for inclusion or incorporation by reference in such
documents.
(f) Absence of Certain Changes or Events; No Undisclosed Material
Liabilities.
(i) Except as disclosed in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "Filed SEC Documents") or in
Section 4.1(f) of the Disclosure Schedule, since the date of the most recent
audited financial statements included in the Filed SEC Documents, Company and
its Subsidiaries have conducted their business only in the ordinary course, and
there has not been (A) any change, event or occurrence particular to Company
and its Subsidiaries (excluding industry, economic, financial and other matters
generally affecting businesses other than and in addition to Company and its
Subsidiaries) which has had or would have, individually or in the aggregate, a
Material Adverse Effect on Company; (B) any declaration, setting aside or
payment of any dividend or other distribution in respect of shares of Company's
capital stock, other than dividends on the Preferred Shares in accordance with
their terms, or any redemption or other acquisition by Company of any shares of
its capital stock; (C) any increase in the rate or terms of compensation
payable or to become payable by Company or its Subsidiaries to their directors,
officers or key employees, except increases occurring in the ordinary course of
business consistent with past practices; (D) any entry into, or increase in the
rate or terms of, any bonus, insurance, severance, pension or other employee or
retiree benefit plan, payment or arrangement made to, for or with any such
directors, officers or employees, except increases occurring in the ordinary
course of business consistent with past practices or as required by applicable
law; (E) any entry into any agreement, commitment or transaction by Company or
any of its Subsidiaries which is material to Company and its Subsidiaries taken
as a whole, except for agreements, commitments or transactions entered into in
the ordinary course of business; (F) any change by Company in accounting
methods, principles or practices except as required or permitted by generally
accepted accounting principles; (G) any write-off or write-down of, or any
determination to write-off or write-down, any asset of Company or any of its
Subsidiaries or any portion thereof which write-off, write-down, or
determination exceeds $5 million individually or $15 million in the aggregate;
or (H) any agreements by Company or any of its Subsidiaries to do any of the
things described in the preceding clauses (A) through (G) other than as
expressly contemplated or provided for herein.
(ii) Except as set forth in or disclosed in the Filed SEC Documents
or Section 4.1(f) of the Disclosure Schedule and liabilities incurred in the
ordinary course of business since the date of the most recent financial
statements included in the Filed SEC Documents, as of the date hereof, there
are no liabilities of Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable or
otherwise, having or which would have, individually or in the aggregate, a
Material Adverse Effect on Company.
(g) Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents or in Section 4.1(g) of the Disclosure Schedule, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or amended
or agreed to adopt or amend in any material respect any collective bargaining
agreement or any Benefit Plan (as defined in Section 4.1(h)).
(h) Benefit Plans. With respect to all the employee benefit plans
(as that phrase is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained for the benefit of any
current or former employee, officer or director of the Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation
plan, program or arrangement maintained for the benefit of any current or
former employee, officer or director of the Company or any of its Subsidiaries
(the Company ERISA Plans and such plans being referred to as the "Company
Plans"), except as set forth in Section 4.1(h) of the Disclosure Schedule:
(i) none of the Company ERISA Plans is a "multiemployer plan"
within the meaning of ERISA;
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(ii) none of the Company Plans promises or provides retiree life
insurance benefits to any person;
(iii) none of the Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit, or the
acceleration of the payment or vesting of a benefit by reason of the execution
of this Agreement or the consummation of the transactions contemplated by this
Agreement;
(iv) neither the Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new Company Plan
or, except as required by law, the amendment of an existing Company Plan;
(v) each Company ERISA Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS
that it is so qualified and, to the knowledge of the Company, nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such Company ERISA Plan;
(vi) each Company Plan has been operated in accordance with its
terms and the requirements of all applicable law;
(vii) neither the Company nor any of its Subsidiaries or members of
their "controlled group" has incurred any direct or indirect liability under,
arising out of or by operation of Title IV of ERISA in connection with the
termination of, or withdrawal from, any Company ERISA Plan or other retirement
plan or arrangement, and, to the knowledge of the Company, no fact or event
exists that could reasonably be expected to give rise to any such liability;
(viii) the aggregate accumulated benefit obligations of each Company
ERISA Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such Company ERISA Plan and based on a
discount rate of 7.75%, the rate used in such valuation) do not exceed the fair
market value of the assets of such Company ERISA Plan (as of the date of such
valuation); and
(ix) the Company is not aware of any claims relating to the Company
Plans;
provided, however, that the failure of the representations set forth in clauses
(v), (vi), (vii) and (ix) to be true and correct shall not be deemed to be a
breach of any such representation unless such failures, individually or in the
aggregate, would have a Material Adverse Effect on Company.
(i) Taxes. Except as set forth in Section 4.1(i) of the Disclosure
Schedule:
(A) Except where the failure to do so would not have a Material
Adverse Effect on Company, each of Company and each Subsidiary of Company (and
any affiliated or unitary group of which any such person was a member) has
(1) timely filed all federal, state, local and foreign returns, declarations,
reports, estimates, information returns and statements ("Returns") required to
be filed by or for it in respect of any Taxes (as defined below) and has caused
such Returns as so filed to be true, complete and correct, (2) established
reserves that are reflected in Company's most recent financial statements
included in the Filed SEC Documents and that as so reflected are adequate for
the payment of all Taxes not yet due and payable with respect to the results of
operations of Company and its Subsidiaries through the date hereof, and
(3) timely withheld and paid over to the proper governmental authorities all
Taxes and other amounts required to be so withheld and paid over. Each of
Company and each Subsidiary of Company (and any affiliated or unitary group of
which any such person was a member) has timely paid all Taxes that are shown as
being due on the Returns referred to in the immediately preceding sentence.
(B) (1) There has been no taxable period since 1991 for which a
Return of Company or any of its Subsidiaries has been examined by the Internal
Revenue Service ("IRS"), (2) all examinations described in clause (1) have been
completed without the assertion of material deficiencies, and (3) except for
alleged
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deficiencies which have been finally and irrevocably resolved, Company has not
received formal or informal notification that any deficiency for any Taxes, the
amount of which, individually or in the aggregate, could have a Material
Adverse Effect on Company, has been or will be proposed, asserted or assessed
against Company or any of its Subsidiaries by any federal, state, local or
foreign taxing authority or court with respect to any period.
(C) Neither Company nor any of its Subsidiaries has executed or
entered into with the IRS or any other taxing authority (1) any agreement or
other document that continues in force and effect beyond the Effective Time and
that extends or has the effect of extending the period for assessments or
collection of any federal, state, local or foreign Taxes, (2) any closing
agreement or other similar agreement (nor has Company or any of its
Subsidiaries received any ruling, technical advice memorandum or similar
determination) affecting the determination of Taxes required to be shown on any
Return not yet filed, or (3) requested any extension of time to be granted to
file after the Effective Date any return required by applicable law to be filed
by it.
(D) Neither Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Company or any of its
Subsidiaries. None of the assets of Company or any of its Subsidiaries is
required to be treated as being owned by any other person pursuant to the "safe
harbor" leasing provisions of section 168(f)(8) of the Internal Revenue Code of
1954 as formerly in effect.
(E) Neither Company nor any of its Subsidiaries is a party to, is
bound by or has any obligation under any tax sharing agreement or similar
agreement or arrangement.
(F) Company has not agreed to make, nor is it required to make,
any material adjustment under Section 481(a) of the Code by reason of a change
in accounting method or otherwise.
(G) Neither Company nor any of its Subsidiaries is, or has been,
a United States Real Property Holding Corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
For purposes of this Agreement, "Taxes" shall mean all Federal, state,
local, foreign income, property, sales, excise, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies, imposts, duties,
licenses or other assessments of every kind and description, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority.
(j) Voting Requirements. Assuming Parent is not an "interested
stockholder" for purposes of Section 203 of the DGCL, the affirmative vote of
two-thirds of the votes entitled to be cast by the holders of Shares entitled
to vote thereon at the Company Stockholders Meeting described in Section 6.2(a)
with respect to the approval and adoption of this Agreement is the only vote of
the holders of any class or series of Company's capital stock or other
securities required in connection with the consummation by Company of the
Merger and the other transactions contemplated hereby to be consummated by
Company.
(k) Compliance with Applicable Laws. All federal, state, local and
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits," including,
without limitation, Permits required under Environmental Laws) necessary for
each of Company and its Subsidiaries to own, lease or operate its properties
and assets and to carry on its business as now conducted have been obtained or
made, and there has occurred no default under any such Permit, except for the
lack of Permits and for defaults under Permits which lack or default
individually or in the aggregate would not have a Material Adverse Effect on
Company. Except as disclosed in the Filed SEC Documents or in Section 4.1(k)
of the Disclosure Schedule, Company and its Subsidiaries are in compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for non-compliance which individually or in the
aggregate would not have a Material Adverse Effect on Company.
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(l) Written Opinion of Financial Advisor. Company has received
the written opinion of Credit Suisse First Boston Corporation ("CSFB"), dated
September 10, 1997 (a true and complete copy of which has been delivered to
Parent by Company), to the effect that, based upon and subject to the matters
set forth therein and as of the date hereof, the consideration to be received
by the holders of Shares in the Merger was fair to such stockholders from a
financial point of view, and such opinion has not been withdrawn or modified.
(m) Brokers. No broker, investment banker, financial advisor or
other person, other than CSFB, the fees and expenses of which will be paid by
Company, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Company.
(n) Litigation, etc. As of the date hereof, except as disclosed in
Section 4.1(n) of the Disclosure Schedule, (i) there is no suit, claim, action
or proceeding (at law or in equity) or investigation pending or, to the
knowledge of Company, threatened against Company or any of its Subsidiaries
(including, without limitation, any product liability claims) before any court
or governmental or regulatory authority or body, and (ii) neither Company nor
any of its Subsidiaries is subject to any outstanding order, writ, judgement,
injunction, decree or arbitration order or award that, in any such case
described in clauses (i) and (ii), has had or would have, individually or in
the aggregate, a Material Adverse Effect on Company. As of the date hereof,
there are no suits, actions, claims, proceedings or investigations pending or,
to the knowledge of Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(o) Environmental Laws. (i) For purposes of this Agreement, the
following terms shall have the following meanings: (A) "Hazardous Substances"
means (1) those substances defined in or regulated under the following federal
statutes and their state counterparts, as each may be amended from time to
time, and all regulations thereunder: the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act,
the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act; (2) petroleum and
petroleum products including crude oil and any fractions thereof; (3) natural
gas, synthetic gas, and any mixtures thereof; (4) radon; (5) any other
contaminant; and (6) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation; and (B) "Environmental Laws" means any federal, state or local law
relating to (1) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (2) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (3) otherwise relating to
pollution of the environment or the protection of human health.
(ii) To the knowledge of Company, except as disclosed in Section
4.1(o) of the Disclosure Schedule and except as would not, individually or in
the aggregate, have a Material Adverse Effect on Company: (A) neither Company
nor any of its Subsidiaries has violated or is in violation of any
Environmental Law; (B) none of the properties owned or leased by Company or any
of its Subsidiaries (including, without limitation, soils and surface and
ground waters) are contaminated with any Hazardous Substance in quantities
which require investigation or remediation under Environmental Laws;
(C) neither Company nor any of its Subsidiaries is liable for any off-site
contamination; (D) neither Company nor any of its Subsidiaries has any
liability or remediation obligation under any Environmental Law; (E) no assets
of Company or any of its Subsidiaries are subject to pending or threatened
Liens under any Environmental Law; (F) Company and its Subsidiaries have all
permits, licenses and other authorizations required under any Environmental Law
("Environmental Permits"); and (G) Company and its Subsidiaries are in
compliance with their respective Environmental Permits.
(p) Material Contracts. There have been made available to Parent,
its affiliates and their representatives true and complete copies of all of the
following contracts to which Company or any of its Subsidiaries is a party or
by which any of them is bound (collectively, the "Material Contracts"): (i)
contracts with any current officer or director of Company or any of its
Subsidiaries; (ii) contracts for the sale of any of the assets of Company or
any of its Subsidiaries other than contracts relating to non-operating property
or
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entered into in the ordinary course of business or for the grant to any person
of any preferential rights to purchase any of its assets other than inventory
in the ordinary course of business; (iii) contracts containing covenants of
Company or any of its Subsidiaries not to compete in any line of business or
with any person in any geographical area or covenants of any other person not
to compete with Company or any of its Subsidiaries in any line of business or
in any geographical area; (iv) material indentures, credit agreements,
mortgages, promissory notes, and all contracts relating to the borrowing of
money; and (v) all other agreements, contracts or instruments entered into
outside of the ordinary course of business and which, in the reasonable opinion
of Company, are material to Company. The Company has discussed with Parent the
Company's purchase orders for raw materials (including cotton and polyester),
supplies, expense items, and equipment, and the purchase orders from the
Company's customers as well as the Company's acknowledgments of those orders,
but the Company has not provided copies of all of these documents to Parent.
Except as set forth on Schedule 4.1(p), all of the Material Contracts are in
full force and effect and are the legal, valid and binding obligation of
Company and/or its Subsidiaries, enforceable against them in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or
in equity). Except as set forth on Section 4.1(p) of the Disclosure Schedule,
neither Company nor any Subsidiary is in default in any material respect under
any Material Contract nor, to the knowledge of Company, is any other party to
any Material Contract in default thereunder in any material respect.
(q) Labor Matters. (i) Except as set forth on Section 4.1(q)(i) of
the Disclosure Schedule, neither Company nor any of its Subsidiaries is a party
to any employment, labor or collective bargaining agreement (excluding
consulting agreements with independent contractors entered into in the ordinary
course of business), and there are no employment, labor or collective
bargaining agreements which pertain to employees of Company or any of its
Subsidiaries. Company has heretofore made available to Parent true, complete
and correct copies of the (A) employment agreements listed on Section 4.1(q)(i)
of the Disclosure Schedule and (B) labor or collective bargaining agreements
listed on such Schedule, together with all amendments, modifications,
supplements or side letters affecting the duties, rights and obligations of any
party thereunder.
(ii) Except as set forth in Section 4.1(q)(ii) of the Disclosure
Schedule, no employees of Company or any of its Subsidiaries are represented by
any labor organization; to the knowledge of Company, no labor organization or
group of employees of Company or any of its Subsidiaries has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority and to the knowledge of Company, there are no organizing activities
involving Company or any of its Subsidiaries pending with any labor
organization or group of employees of Company or any of its Subsidiaries.
(iii) Except as set forth on Section 4.1(q)(iii) of the Disclosure
Schedule, there are no (A) unfair labor practice charges, grievances or
complaints pending or threatened in writing by or on behalf of any employee or
group of employees of Company or any of its Subsidiaries which, if resolved
against Company or any of its Subsidiaries, as the case may be, would,
individually or in the aggregate, have a Material Adverse Effect on Company, or
(B) complaints, charges or claims against Company or any of its Subsidiaries
pending, or threatened in writing to be brought or filed, with any Governmental
Entity or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any individual by
Company or any of its Subsidiaries which, if resolved against Company or any of
its Subsidiaries, as the case may be, would, individually or in the aggregate,
have a Material Adverse Effect on Company.
(r) Rights Plan Matters. The Company's Board of Directors has
approved and Company will enter into an amendment to the Company Rights
Agreement so that (i) the execution and delivery of this Agreement, the public
announcement or consummation of the transactions contemplated hereby and the
other matters provided for herein will not result in (A) Parent or Purchaser or
any of their respective Affiliates or Associates being an Acquiring Person, (B)
the occurrence of a Distribution Date, a Stock
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Acquisition Date or a Triggering Event or (C) the Rights becoming exercisable
(the terms "Acquiring Person," "Affiliate," "Associate," "Distribution Date,"
"Stock Acquisition Date," and "Triggering Event" having the respective meanings
ascribed thereto in the Company Rights Agreement) and (ii) the common stock,
$0.01 par value per share, of the Surviving Corporation will not constitute
"Common Stock" within the meaning of Section 1(g) of the Company Rights
Agreement. A true, correct and complete copy of the Company Rights Agreement
(including all amendments thereto) is included in the Filed SEC Documents.
(s) Real Property; Other Assets. (i) Section 4.1(s)(i) of the
Disclosure Schedule sets forth all of the real property owned in fee by Company
and its Subsidiaries (the "Owned Real Property"). Each of Company and its
Subsidiaries has good and marketable title to each parcel of Owned Real
Property free and clear of all Liens except (A) those reflected or reserved
against in the latest balance sheet of Company included in the Filed SEC
Documents, (B) taxes and general and special assessments not in default and
payable without penalty and interest, and (C) Liens of record and other Liens
which individually or in the aggregate would not have a Material Adverse Effect
on Company (collectively "Permitted Liens").
(ii) Company has heretofore made available to Parent true, correct
and complete lists of all leases, subleases and other agreements (the "Real
Property Leases") under which Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property or facility (the "Leased Real Property") (including all modifications,
amendments and supplements thereto). Except in each case where the failure
individually or in the aggregate would not have a Material Adverse Effect on
Company (A) each Real Property Lease is valid and binding on Company and in
full force and effect, (B) all rent and other sums and charges payable by
Company and its Subsidiaries as tenants thereunder are current in all material
respects, and (C) no termination event or condition or uncured default of a
material nature on the part of Company or any such Subsidiary or, to Company's
knowledge, the landlord, exists under any Real Property Lease. Except as would
not individually or in the aggregate have a Material Adverse Effect on Company,
each of Company and its Subsidiaries has a good and valid leasehold interest in
each parcel of Leased Real Property free and clear of all Liens, except for
Permitted Liens.
SECTION 4.2 Representations and Warranties of Parent and Purchaser.
Parent and Purchaser represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Purchaser and each other Subsidiary of Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of Parent and Purchaser and
each other Subsidiary of Parent is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Parent has delivered to Company true and
complete copies of the restated articles of incorporation and by-laws of Parent
and certificate of incorporation and by-laws of Purchaser, as amended to the
date of this Agreement.
(b) Capital Structure. The authorized capital stock of Parent
consists of (i) 30,000,000 shares of Parent Common Stock, and (ii) 20,000,000
shares of preferred stock, par value $.01 per share. At the close of business
on September 5, 1997, (i) 10,751,497 shares of Parent Common Stock were issued
and outstanding and (ii) 613,390 shares of Parent Common Stock were reserved
for issuance pursuant to outstanding options to purchase shares of Parent
Common Stock granted under Parent's stock option plans. Except as set forth in
the immediately preceding sentence, at the close of business on September 5,
1997, no shares of capital stock or other equity securities of Parent were
issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of Parent are, and all shares of Parent Common Stock which may be
issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. The authorized capital stock of Purchaser consists of 100 shares of
common stock, $0.01 par value per share, 100 of which have been validly issued,
are fully paid and nonassessable and are owned by Parent. No bonds,
debentures, notes or other indebtedness of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any
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matters on which the stockholders of Parent may vote are issued or outstanding.
Except as set forth above, Parent does not have any outstanding option,
warrant, subscription or other right, agreement or commitment which (i)
obligates Parent to issue, sell or transfer, repurchase, redeem or otherwise
acquire any shares of the capital stock of Parent, (ii) restricts the transfer
of Parent Common Stock or (iii) relates to the voting of Parent Common Stock.
(c) Authority; Noncontravention. Parent and Purchaser have the
requisite corporate power and authority to enter into this Agreement. The
execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the transactions contemplated hereby
have been duly authorized by the boards of directors of Parent and Purchaser
and have been duly approved by Parent as sole stockholder of Purchaser, and no
other corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
other than, with respect to the issuance of Parent Common Stock as required by
the terms of this Agreement or upon conversion of the Company's 6% Convertible
Subordinated Debentures after the Effective Time and the issuances of equity
securities of Parent contemplated by Section 4.2(g) (collectively, the "Share
Issuance"), the approval and adoption of the Share Issuance by the affirmative
vote of the holders of a majority of the shares of Parent Common Stock entitled
to vote on the matter, present in person or represented by proxy at the meeting
of Parent's stockholders called for such purpose. This Agreement has been duly
executed and delivered by each of Parent and Purchaser and, assuming this
Agreement constitutes the valid and binding agreement of Company, constitutes a
valid and binding obligation of each of Parent and Purchaser, enforceable
against each such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principals of equity. Except as disclosed in Section 4.2(c) of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not (i) conflict with any of the
provisions of the restated articles of incorporation or by-laws of Parent or
certificate of incorporation or by-laws of Purchaser, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or
lapse of time, or both) under, or give rise to a material obligation, a right
of termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which Parent or Purchaser is a party or by
which Parent or Purchaser or any of their assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation, or any order, writ,
judgment, injunction, decree, determination or award currently in effect,
which, in the case of clauses (ii) and (iii) above, singly or in the aggregate,
would have a Material Adverse Effect on Parent. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made is required by or with respect to
Parent or Purchaser in connection with the execution and delivery of this
Agreement by Parent or Purchaser or the consummation by Parent or Purchaser, as
the case may be, of any of the transactions contemplated by this Agreement,
except for (i) the filing of premerger notification and report forms under the
HSR Act with respect to the Merger, (ii) the filing with the SEC of (A) the
Form S-4 and (B) such other reports under the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated by this
Agreement, (iii) the filing of the certificate of merger with the Delaware
Secretary of State, and appropriate documents with the relevant authorities of
other states in which Company is qualified to do business, (iv) state "blue-
sky" filings, (v) NYSE approvals, (vi) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 4.2(c) of the
Disclosure Schedule and (vii) any other applicable filings, authorizations,
consents or approvals the failure to make or obtain which, in the aggregate,
would not have a Material Adverse Effect on Parent.
(d) SEC Documents. Parent has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1994 (the
"Parent SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Parent SEC Documents, and none of
the Parent SEC Documents as of such dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
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therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Parent
and its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
(e) Information Supplied. None of the information supplied or to be
supplied by Parent or Purchaser specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time it is filed with the SEC, at any time that it is
amended or supplemented, mailed to the stockholders of Company and Parent and
at the time of the Company Stockholders Meeting referred to in Section 6.2(a)
and the Parent Stockholders Meeting referred to in Section 6.2(b), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Form
S-4 and the Proxy Statement will comply as to form in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation or
warranty is made by Parent or Purchaser with respect to statements made or
incorporated by reference in such documents based on information supplied by or
on behalf of Company specifically for inclusion or incorporation by reference
therein.
(f) Absence of Certain Changes of Events; No Undisclosed Material
Liabilities. (i) Except as disclosed in the Parent SEC Documents filed and
publicly available prior to the date of this Agreement (the "Filed Parent SEC
Documents") or in Section 4.2(f) of the Disclosure Schedule, since the date of
the most recent audited financial statements included in the Filed Parent SEC
Documents, Parent and its Subsidiaries have conducted their business only in
the ordinary course, and there has not been (A) any change, event or occurrence
particular to Parent and its Subsidiaries (excluding industry, economic,
financial and other matters generally affecting businesses other than and in
addition to Parent and its Subsidiaries) which has had or would have,
individually or in the aggregate, a Material Adverse Effect on Parent, (B) any
declaration, setting aside or payment of any dividend or distribution in
respect of any of Parent's outstanding capital stock (other than regular
quarterly cash dividends of $.05 per share on Parent Common Stock in accordance
with usual record and payment dates and in accordance with the Parent's present
dividend policy) or any redemption or other acquisition by Parent of any shares
of its capital stock, (C) any entry into any agreement, commitment or
transaction by Parent or any of its Subsidiaries which is material to Parent
and its Subsidiaries taken as a whole, except for agreements, commitments or
transactions entered into in the ordinary course of business, (D) any change by
Parent in accounting methods, principles or practices except as required or
permitted by generally accepted accounting principles or (E) any agreements by
Parent or any of its Subsidiaries to do any of the things described in the
preceding clauses (A) through (D) other than as expressly contemplated or
provided for herein.
(ii) Except as set forth in or disclosed in the Filed Parent SEC
Documents or Section 4.2(f) of the Disclosure Schedule and liabilities incurred
in the ordinary course of business since the date of the most recent financial
statements included in the Filed Parent SEC Documents, as of the date hereof,
there are no liabilities of Parent or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, due, to become due, determined,
determinable or otherwise, having or which would, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(g) Purchaser; Financing. (i) Parent owns all of the outstanding
capital stock of Purchaser. At all times prior to the Effective Time, no
person other than Parent has owned, or will own, any of the
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outstanding capital stock of Purchaser. Purchaser was formed by Parent solely
for the purpose of engaging in the transactions contemplated by this Agreement.
Except as contemplated by this Agreement, Purchaser has not incurred, and will
not incur, directly or through any Subsidiary, any liabilities or obligations
for borrowed money or otherwise, except incidental liabilities or obligations
not for borrowed money incurred in connection with its organization and except
in connection with obtaining financing in connection with the Merger. Except
as contemplated by this Agreement, Purchaser has not engaged, directly or
through any Subsidiary, in any business activities of any type or kind
whatsoever.
(ii) Parent has received written commitments (collectively, the
"Financing Commitments") (copies of which are attached as Section 4.2(g) of the
Disclosure Schedule) from financial institutions and investors to provide,
subject to the terms and conditions of such commitments, debt and equity
financing sufficient, together with other funds available to Parent, to effect
the Merger and the other transactions contemplated hereby and to pay all
related fees and expenses.
(h) Brokers. No broker, investment banker, financial advisor or
other person, other than those identified in Section 4.2(h) of the Disclosure
Schedule, the fees and expenses of which will be paid by Parent, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
(i) Compliance with Applicable Laws. Each of Parent and its
Subsidiaries has in effect all Permits including, without limitation, Permits
required under Environmental Laws necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Permit, except for the lack of Permits
and for defaults under Permits which lack or default individually or in the
aggregate would not have a Material Adverse Effect on Parent. Except as
disclosed in the Filed Parent SEC Documents or in Section 4.2(i) of the
Disclosure Schedule, Parent and its Subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for non-compliance which individually or in the
aggregate would not have a Material Adverse Effect on Parent.
(j) Environmental Laws. To the knowledge of Parent, except as
disclosed in Section 4.2(j) of the Disclosure Schedule and except as would not
have a Material Adverse Effect on Parent: (i) neither Parent nor its
Subsidiaries has violated or is in violation of any Environmental Law; (ii)
none of the properties owned or leased by Parent or any of its Subsidiaries
(including, without limitation, soils and surface and ground waters) are
contaminated with any Hazardous Substance in quantities which require
investigation or remediation under Environmental Laws; (iii) neither Parent nor
its Subsidiaries is liable for any off-site contamination; (iv) neither Parent
nor its Subsidiaries has any liability or remedial obligation under any
Environmental Law; (v) no assets of Parent or its Subsidiaries are subject to
pending or threatened Liens; (vi) Parent and its Subsidiaries have all
Environmental Permits; and (vii) Parent and its Subsidiaries are in compliance
with their respective Environmental Permits.
(k) Litigation, etc. As of the date hereof, except as disclosed in
Section 4.2(k) of the Disclosure Schedule, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the knowledge
of Parent, threatened against Parent or any of its Subsidiaries (including,
without limitation, any product liability claims) before any court or
governmental or regulatory authority or body, and (ii) neither Parent nor any
of its Subsidiaries is subject to any outstanding order, writ, judgement,
injunction, order, decree or arbitration award or order that, in any such case
described in clauses (i) and (ii), has had or would have, individually or in
the aggregate, a Material Adverse Effect on Parent. As of the date hereof,
there are no suits, actions, claims, proceedings or investigations pending or,
to the knowledge of Parent, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
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ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company and Parent. Except as
contemplated by this Agreement (or, in the case of Parent and its Subsidiaries,
as contemplated by the Financing Commitments), during the period from the date
of this Agreement to the Effective Time, Company and Parent shall, and shall
cause their respective Subsidiaries to, act and carry on their respective
businesses only in the ordinary course of business and, to the extent
consistent therewith, use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them, and to that end, without limiting the
generality of the foregoing, Parent and Company shall not, and shall not permit
their respective Subsidiaries to, without the prior consent of the other:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its outstanding capital stock (other than as provided in Section 4.1(f)(i)(B)
and 4.2(f)(i)(B) above and, with respect to a Subsidiary, to its corporate
parent), (B) split, combine or reclassify any of its outstanding capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its outstanding capital stock, or (C)
with respect to Company and its Subsidiaries only, purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any rights,
warrants or options to acquire any such shares except, in the case of clause
(C), for the acquisition of shares from holders of options in full or partial
payment of the exercise price payable by such holder upon exercise of options;
(ii) with respect to Company and its Subsidiaries only, issue, sell,
grant, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible or exchangeable securities other than upon the exercise of
options issued pursuant to employee benefit plans or pursuant to Company's
"matching obligations" under and in accordance with its 401(k) savings plan or,
in respect of Company, conversion of Preferred Shares and Convertible
Debentures;
(iii) amend its articles or restated certificate of incorporation,
by- laws or other comparable charter or organizational documents;
(iv) with respect to Company and its Subsidiaries only, directly or
indirectly acquire, make any investment in, or make any capital contributions
to, any person (other than any direct or indirect wholly-owned Subsidiary)
other than in the ordinary course of business;
(v) with respect to the Company and its Subsidiaries only, directly
or indirectly sell or otherwise dispose of any of its properties or assets that
are material to its business, except for sales or dispositions in the ordinary
course of business;
(vi) with respect to Company and its Subsidiaries only, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, other than indebtedness owing to or guarantees of indebtedness
owing to Company or any direct or indirect wholly-owned Subsidiary of Company
or (B) make any loans or advances to any other person, other than to Company or
to any direct or indirect wholly-owned Subsidiary of Company and other than
routine advances to employees, except, in the case of clause (A) for borrowings
under existing credit facilities described in the Filed SEC Documents in the
ordinary course of business;
(vii) with respect to Company and its Subsidiaries only, grant or
agree to grant to any employee any increase in wages or bonus, severance,
profit sharing, retirement, deferred compensation, insurance or other
compensation or benefits, or establish any new compensation or benefit plans or
arrangements, or amend or agree to amend any existing Employee Benefit Plans,
except as may be required under existing
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agreements (including collective bargaining agreements) or normal, regularly
scheduled increases in nonofficer employees consistent with past practices or
as required by law;
(viii) with respect to Company and its Subsidiaries only, enter into
or amend any employment, consulting, severance or similar agreement with any
individual except with respect to new hires in the ordinary course of business
consistent with past practice;
(ix) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization or any agreement relating to an Acquisition Proposal (other than
as expressly permitted pursuant to this Agreement);
(x) with respect to Company and its Subsidiaries only, make any tax
election or settle or compromise any income tax liability of Company or of any
of its Subsidiaries involving on an individual basis more than $1 million;
(xi) with respect to Company and its Subsidiaries only, make any
change in any method of accounting or accounting practice or policy except as
required by any changes in generally accepted accounting principles;
(xii) with respect to Company and its Subsidiaries only, enter into
any agreement, understanding or commitment that restrains, limits or impedes
Company's ability to compete with or conduct any business or line of business,
except for any such agreement, understanding or commitment entered into in the
ordinary course of business consistent with past practice; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of
this Section 5.1.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of the Proxy Statement and the Form S-4;
Accountant's Letters. (a) As soon as practicable following the date hereof:
(i) Company and Parent shall jointly prepare for inclusion in the
Form S-4, as soon as practicable after the date hereof, a proxy statement (the
"Proxy Statement") relating to the Merger and the Share Issuance in accordance
with the Exchange Act and the rules and regulations under the Exchange Act,
with respect to the transactions contemplated by this Agreement. Company,
Parent and Purchaser shall cooperate with each other in the preparation of the
Proxy Statement. Company and Parent shall use all reasonable efforts to
respond promptly to any comments made by the SEC with respect to the Proxy
Statement, and to cause the Proxy Statement to be mailed to the stockholders of
Company and Parent at the earliest practicable date after the Form S-4 is
declared effective by the SEC.
(ii) Parent shall prepare and file with the SEC, as soon as
practicable after the date hereof, the Form S-4. Each of Company and Parent
shall use all reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Parent also
shall take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock in
the Merger, and Company shall furnish all information concerning Company and
the holders of the Shares as may be reasonably requested in connection with any
such action.
(b) Company shall use its best efforts to cause to be delivered to
Parent a letter of Ernst & Young LLP, Company's independent public accountants,
dated a date within two business days before the date on which the Form S-4
shall become effective, and a letter of Ernst & Young LLP, dated a date within
two
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business days before the Closing Date, each addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent accountants in connection with
registration statements similar to the Form S-4.
(c) Parent shall use its best efforts to cause to be delivered to
Company a letter of KPMG Peat Marwick LLP, Parent's independent public
accountants, dated a date within two business days before the date on which the
Form S-4 shall become effective and a letter of KPMG Peat Marwick LLP, dated a
date within two business days before the Closing Date, each addressed to
Company, in form and substance reasonably satisfactory to Company and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form S-4.
SECTION 6.2 Stockholders Meetings. (a) Subject to Company's right to
terminate this Agreement pursuant to Section 8.1(a)(v), Company shall take all
action necessary, in accordance with the DGCL, the Exchange Act and other
applicable law, the rules of the NYSE, and its certificate of incorporation and
by-laws, to convene a special meeting of the stockholders of Company (the
"Company Stockholders Meeting") as promptly as practicable after the
effectiveness of the Form S-4 for the purpose of considering and voting upon
this Agreement. Subject to Company's right to terminate this Agreement
pursuant to Section 8.1(a)(v), the Board of Directors of Company shall
recommend that the holders of the Shares vote in favor of the approval and
adoption of this Agreement at the Company Stockholders Meeting and such
recommendation shall be included in the Proxy Statement. At the Company
Stockholders Meeting, Parent and Purchaser shall vote all Shares beneficially
owned by them in favor of the adoption and approval of this Agreement.
(b) Parent shall take all action necessary in accordance with
Exchange Act and other applicable law, the rules of the NYSE, and its restated
articles of incorporation and by-laws, to convene a special meeting of the
stockholders of Parent (the "Parent Stockholders Meeting") as promptly as
practicable after the effectiveness of the Form S-4 for the purpose of
considering and voting upon the Share Issuance. The Board of Directors of
Parent shall recommend that the holders of the Parent Common Stock vote in
favor of and approve the Share Issuance at the Parent Stockholders Meeting.
SECTION 6.3 Access to Information; Confidentiality. Company shall, and
shall cause each of its Subsidiaries to, afford to Parent and to Parent's
officers, employees, counsel, financial advisors, financing providers
(including counsel of such financing providers) and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all its owned and leased properties, books, contracts,
commitments, tax returns, personnel and records and, during such period,
Company shall, and shall cause each of its Subsidiaries to, furnish as promptly
as practicable to Parent such information concerning its business, properties,
financial condition, operations and personnel as Parent may from time to time
reasonably request. Parent shall, and shall cause each of its Subsidiaries to,
afford to Company and to Company's officers, employees, counsel, financial
advisors and other representatives reasonable access during normal business
hours during the period prior to the Effective Time to all its books,
contracts, commitments, tax returns, personnel and records and during such
period, parent shall, and shall cause each of its Subsidiaries to, furnish as
promptly as practicable to Company such information concerning its business,
properties, financial condition, operations and personnel as Company may from
time to time reasonably request. Any such investigation by Parent or Company
shall not affect the representations or warranties contained in this Agreement.
Except as required by law, Parent and Company will hold, and will cause their
respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any non-
public information obtained from the other party in confidence to the extent
required by, and in accordance with the provisions of the letter agreements
between Parent and Company with respect to confidentiality and other matters.
SECTION 6.4 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including the
satisfaction of the respective conditions set forth in Article VII.
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SECTION 6.5 Indemnification; Directors' and Officers Insurance. (a) The
certificate of incorporation and by-laws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in the
restated certificate of incorporation and by-laws of Company on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by law.
(b) Company shall, and from and after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of
Company (the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out
of the fact that such person is or was a director or officer of Company whether
pertaining to any matter existing or occurring at or prior to the Effective
Time and whether asserted or claimed prior to, or at or after, the Effective
Time ("Indemnified Liabilities"), including all Indemnified Liabilities based
in whole or in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated hereby, in each case, to the
full extent a corporation is permitted under the DGCL to indemnify its own
directors or officers, as the case may be, and Parent or the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law).
(c) Without limiting the foregoing, in the event any such claim,
action, suit, proceeding or investigation is brought against any Indemnified
Parties (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel reasonably satisfactory to Company (or
to Parent and the Surviving Corporation after the Effective Time) and Company
(or after the Effective Time, Parent and the Surviving Corporation) shall pay
all fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; and (ii) Company (or after the Effective
Time, Parent and the Surviving Corporation) shall use all reasonable efforts to
assist in the vigorous defense of any such matter, provided that neither
Company, Parent nor the Surviving Corporation shall be liable for any
settlement effected without its prior written consent, which shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 6.5, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify Company (or after the Effective
Time, Parent and the Surviving Corporation) (but the failure so to notify shall
not relieve a party from any liability which it may have under this Section 6.5
except to the extent such failure prejudices such party), and shall deliver to
Company (or after the Effective Time, Parent and the Surviving Corporation) the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two
or more Indemnified Parties. Company, Parent and Purchaser agree that all
rights to indemnification, including provisions relating to advances of
expenses incurred in defense of any action or suit, existing in favor of the
Indemnified Parties with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect for
a period of not less than six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Indemnified Liabilities
asserted or made within such period shall continue until the disposition of
such Indemnified Liabilities.
(d) For a period of four years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Company (provided that Parent may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are no less advantageous in any material
respect to the Indemnified Parties) with respect to matters arising before the
Effective Time, provided that Parent shall not be required to pay an annual
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premium for such insurance in excess of 200% of the last annual premium paid by
Company prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount.
(e) The provisions of this Section 6.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Parent, Purchaser, Company and the Surviving
Corporation.
SECTION 6.6 Public Announcements. Parent and Purchaser, on the one hand,
and Company, on the other hand, will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release, SEC filing or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 6.7 No Solicitation; Acquisition Proposals. (a) Until the
termination of this Agreement in accordance with Section 8.1, Company shall
not, and shall not authorize or permit any of its Subsidiaries, or any of its
or their affiliates, officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, financial advisor,
attorney or accountant retained by Company or any of its Subsidiaries), to,
directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries, any expression of interest, or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal; provided,
however, that nothing in this Agreement shall prohibit the Board of Directors
of Company from furnishing information to, or entering into, maintaining or
continuing discussions or negotiations with, any person that makes an
unsolicited Acquisition Proposal after the date hereof, if, and to the extent
that, the Board of Directors of Company, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that (a) such
Acquisition Proposal would be more favorable to Company's stockholders than the
Merger and (b) the failure to take such action would result in a breach by the
Board of Directors of Company of its fiduciary duties to Company's stockholders
under applicable law, and, prior to furnishing any non-public information to
such person, Company receives from such person an executed confidentiality
agreement with provisions no less favorable to Company than the letter
agreement relating to the furnishing of confidential information of Company to
Parent referred to in the last sentence of Section 6.3. Company shall promptly
notify Parent if it is prepared to provide access to the properties, books or
records of Company or any of its Subsidiaries to any person who has made an
Acquisition Proposal, and Company shall at such time inform Parent of the
material terms of any such Acquisition Proposal.
(b) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement with Parent or Purchaser) involving
Company: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of Company and its Subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any tender
offer or exchange offer for 33-1/3 percent or more of the outstanding shares of
capital stock of Company or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
(c) Nothing contained in this Section 6.7 shall prohibit Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Company's stockholders which, in the good faith judgment of the Board of
Directors of Company based on the advice of outside counsel, is required under
applicable law.
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SECTION 6.8 Consents, Approvals and Filings.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall (i) make promptly its respective filings, and thereafter
make any other required submissions, under the HSR Act, the Securities Act and
the Exchange Act, with respect to the Merger and the other transactions
contemplated herein (together, the "Transactions") and (b) use its reasonable
best efforts to take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits (including, without limitation, Environmental Permits),
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Company and its Subsidiaries as are
necessary for the consummation of the Transactions and to fulfill the
conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such action.
(b) Parent hereby agrees to use its best efforts to obtain any
government clearances required for completion of the Merger (including through
compliance with the HSR Act), to respond to any government requests for
information, and to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "Order") that restricts, prevents or prohibits
the consummation of the Merger, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Parent also hereby agrees to take any and all of
the following actions to the extent necessary to obtain the approval of any
governmental entity with jurisdiction over the enforcement of any applicable
laws regarding the Merger: entering into negotiations; providing information;
substantially complying with any second request for information pursuant to the
HSR Act; entering into and performing agreements or submitting to judicial or
administrative orders and selling or otherwise disposing of, or holding
separate (through the establishment of a trust or otherwise) particular assets
or categories of assets, or businesses of Parent, Company or any of their
affiliates; provided, however, that notwithstanding the foregoing, Parent would
not be required hereby to take any such action that would have a Material
Adverse Effect on Parent and its Subsidiaries (including the Surviving
Corporation) taken as a whole following the Effective Time. The parties hereto
will consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or in behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other federal, state or foreign
antitrust or fair trade law.
SECTION 6.9 Board Action Relating to Stock Option Plans. As soon as
practicable following the date of this Agreement, the Board of Directors of
Company (or, if appropriate, any committee administering a Stock Option Plan)
shall adopt such resolutions or take such actions as may be required to adjust
the terms of all outstanding Options in accordance with Section 2.2 and shall
make such other changes to Stock Option Plans as it deems appropriate to give
effect to the Merger (subject to the approval of Parent, which shall not be
unreasonably withheld).
SECTION 6.10 Employment and Employee Benefit Matters.
(a) Parent shall, and shall cause its Subsidiaries following the
Effective Time (including the Surviving Corporation) to:
(i) honor and provide for payment of all obligations and benefits
under all Company Plans in accordance with their terms;
(ii) provide employee benefits which are substantially comparable in
the aggregate to the level of employee benefits provided by the Company and its
Subsidiaries under the Company ERISA Plans in effect as of the Closing Date for
the benefit of employees or former employees who are or had been employees of
the Company or any of its Subsidiaries on or before the Closing Date ("Covered
Employees"), until the
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earlier of December 31, 1999 or the second anniversary of the Closing Date (the
"Benefits Maintenance Period");
(iii) honor and provide for the payment of all obligations and
benefits under all employment or severance agreements between the Company and
any Covered Employee in accordance with their terms; and
(iv) provide until the first anniversary of the Closing Date for the
benefit of Covered Employees who remain in the employ of the Surviving
Corporation or Parent or any of its affiliates employee compensation that is in
the aggregate at a level substantially comparable to the compensation
(including base pay and incentive-type compensation) provided by the Company
and its Subsidiaries under the compensation arrangements in effect as of the
Closing Date.
(b) Parent hereby agrees that the Surviving Corporation shall
maintain the Company's Short-Term Incentive Compensation Plan without adverse
change until the end of the 1997 calendar year.
(c) Parent hereby agrees that the Surviving Corporation shall
continue without adverse change the severance plan maintained by the Company
and its Subsidiaries as of the date hereof until the first anniversary of the
Closing Date.
(d) If Covered Employees are included in any benefit plan (including
without limitation, provision for vacation) of Parent or its Subsidiaries,
Parent agrees that the Covered Employees shall receive credit as employees of
the Company and its Subsidiaries for service prior to the Closing Date with the
Company and its Subsidiaries to the same extent such service was counted under
similar Company Plans for purposes of eligibility, vesting, eligibility for
retirement and, with respect to vacation, disability and severance, benefit
accrual. If Covered Employees are included in any medical, dental or health
plan other than the plan or plans they participated in on the Closing Date,
Parent agrees that any such plans shall not include pre-existing condition
exclusions, except to the extent such exclusions were applicable under the
similar Company Plan on the Closing Date, and shall provide credit for any
deductibles and co-payments applied or made with respect to each Covered
Employee in the calendar year of the change.
(e) The parties acknowledge that nothing herein shall be deemed to be
a commitment on the part of Parent or the Surviving Corporation to provide
employment to any person for any period of time and, except as otherwise
provided in this Section 6.10, nothing herein shall be deemed to prevent Parent
or the Surviving Corporation from amending or terminating any Company Plan in
accordance with its terms.
SECTION 6.11 Affiliates and Certain Stockholders. Prior to the Closing
Date, Company shall deliver to Parent a letter identifying all persons who are,
at the time the Merger is submitted for approval to the stockholders of
Company, "affiliates" of Company for purposes of Rule 145 under the Securities
Act. Company shall use its best efforts to cause each such person to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit A hereto. Parent shall not be required to maintain
the effectiveness of the Form S-4 or any other registration statement under the
Securities Act for the purposes of resale of Parent Common Stock by such
affiliates, and the certificates representing Parent Common Stock received by
such affiliates in the Merger shall bear a customary legend regarding
applicable Securities Act restrictions.
SECTION 6.12 NYSE Listing. Parent shall use its reasonable best efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 6.13 Certain Company Indebtedness. At the Closing, (i) Company
shall execute and deliver to the trustee under the Indenture pursuant to which
the Convertible Debentures were issued a supplemental indenture, to become
effective at the Effective Time, providing that the holder of each Convertible
Debenture outstanding immediately following the Effective Time shall have the
right thereafter, during the period such Convertible Debenture shall be
convertible as specified in such Indenture, to convert such Convertible
Debenture only into the amount of cash and Parent Common Stock receivable by
reason of the
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Merger by a holder of the number of Shares into which such Convertible
Debenture might have been converted immediately prior to the Effective Time
(subject to subsequent adjustment as provided in such Indenture) and (ii)
Parent shall execute and deliver to such trustee, as part of such supplemental
indenture, an undertaking (A) to reserve and keep available out of its
authorized but unissued capital stock, a number of shares of Parent Common
Stock sufficient to permit the conversion of all outstanding Convertible
Debentures and (B) to cause to be issued and delivered to Company for
subsequent delivery by Company in accordance with such supplemental indenture
and Indenture shares of Parent Common Stock upon the conversion of any
Convertible Debenture.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. (i) This Agreement shall have been
approved and adopted by the affirmative vote of the requisite number of
stockholders of Company in the manner required pursuant to Company's restated
certificate of incorporation and by-laws, the DGCL and other applicable law,
and the rules of the NYSE.
(ii) The Share Issuance shall have been approved by the affirmative
vote of the requisite number of stockholders of Parent in the manner required
pursuant to Parent's restated articles of incorporation and by-laws, the Texas
Business Corporation Act and other applicable law and the rules of the NYSE.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
party invoking this condition shall have complied with its obligations under
Section 6.8.
(c) NYSE Listing. The shares of Parent Common Stock issuable to
Company's stockholders pursuant to the Merger shall have been approved for
listing on the NYSE, subject to official notice of issuance.
(d) Form S-4. The Form S-4 shall have been declared effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) HSR Act. All necessary waiting periods under the HSR Act
applicable to the Merger shall have expired or been terminated.
SECTION 7.2. Conditions to Obligations of Parent and Purchaser. The
obligation of Parent and Purchaser to effect the Merger is further subject to
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Company contained in this Agreement, which representations and
warranties shall be deemed for purposes of this Section 7.2 not to include any
qualification or limitation with respect to materiality (whether by reference
to "Material Adverse Effect" or otherwise), shall be true and correct as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, has not had or would
not have a Material Adverse Effect on Company, with the same effect as though
such representations and warranties were made as of the Closing Date, and
Parent and Purchaser shall have received a certificate signed on behalf of
Company by an authorized officer of Company to such effect.
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(b) Performance of Obligations of Company. Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent and
Purchaser shall have received a certificate signed on behalf of Company by an
authorized officer of Company to such effect.
(c) No Material Adverse Change. Since the date of this Agreement,
Company and its Subsidiaries, taken as a whole, shall not have experienced any
change, event or occurrence particular to them (excluding industry, economic,
financial and other matters generally affecting businesses other than and in
addition to Company and its Subsidiaries) that has had or would have a Material
Adverse Effect on Company, other than resulting from any matter disclosed in
any Filed SEC Document or in Section 7.2(c) of the Disclosure Schedule.
SECTION 7.3. Conditions to Obligation of Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of each of Parent and Purchaser contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section 7.3
not to include any qualification or limitation with respect to materiality
(whether by reference to "Material Adverse Effect" or otherwise), shall be true
and correct as of the Closing Date (except where the matters in respect of
which such representations and warranties are not true and correct, in the
aggregate, has not had a Material Adverse Effect on Purchaser), with the same
effect as though such representations and warranties were made as of the
Closing Date, and Company shall have received a certificate signed on behalf of
Parent and Purchaser by an authorized officer of Parent to such effect.
(b) Performance of Obligations of Parent and Purchaser. Each of
Parent and Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an authorized officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this Agreement,
Parent and its Subsidiaries, taken as a whole, shall not have experienced any
change or occurrence particular to them (excluding industry, economic,
financial and other matters generally affecting businesses other than and in
addition to Parent and its Subsidiaries), that has had or would have a Material
Adverse Effect on Parent, other than resulting from any matter disclosed in any
Parent SEC Document or in Section 7.3(c) of the Disclosure Schedule.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. (a) This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval and adoption thereof by the
stockholders of Company, in any one of the following circumstances:
(i) By mutual written consent duly authorized by the Boards of
Directors of Parent and Company.
(ii) By Parent or Company, if, without any material breach by such
terminating party of its obligations under this Agreement, the Effective Time
shall not have occurred on or before December 31, 1997.
(iii) By Parent or Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling, or taken any other action permanently restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action shall
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have become final and non-appealable, provided that neither party may terminate
this Agreement pursuant to this clause (iii) if it has not complied with its
obligations under Section 6.8.
(iv) By Parent or Company, if the Company Stockholders Meeting shall
have been held and this Agreement shall not have been approved and adopted by
the affirmative vote of the requisite number of stockholders of Company.
(v) By Company, if it shall have received an Acquisition Proposal
and shall have advised Parent in writing that Company's Board of Directors,
after consultation with and based upon the advice of independent legal counsel,
determined in good faith that failure to accept such Acquisition Proposal would
result in a breach by the Board of Directors of Company of its fiduciary duties
to Company's stockholders under applicable law; provided, however, that this
Agreement shall not be terminated pursuant to this Section 8.1(a)(v) unless
simultaneously with the termination Company shall have made the payment to
Parent of the Fee required to be paid pursuant to Section 8.1(b).
(vi) By Parent, if the Board of Directors of Company shall have
(1) withdrawn, modified or amended in any adverse respect its approval or
recommendation of this Agreement, the Merger or the other transactions
contemplated hereby, (2) approved, endorsed or recommended to its stockholders
an Acquisition Proposal or (3) resolved to do any of the foregoing.
(vii) By Parent or Company, if (A) the other party shall have failed
to comply in any material respect with any of the material covenants and
agreements contained in this Agreement to be complied with or performed by such
party at or prior to such date of termination, and such failure continues for
20 business days after the actual receipt by such party of a written notice
from the other party setting forth in detail the nature of such failure, or
(B) a representation or warranty of the other party contained in this Agreement
shall have been untrue in any respect on the date when made (or in the case of
any representations and warranties that are made as of a different date, as of
such different date) and the matters in respect of which such representation or
warranty shall have been untrue has had or would have a Material Adverse Effect
on such other party.
(viii) By Company pursuant to Section 2.1(e) hereof.
(b) If this Agreement is terminated pursuant to:
(i) Section 8.1(a)(v), or
(ii) Section 8.1(a)(vi);
then, in such event, Company shall pay to Parent prior to such termination, if
such termination is pursuant to Section 8.1(a)(v), or promptly (but in no event
later than three business days after the first of such events shall have
occurred), if such termination is pursuant to Section 8.1(a)(vi), a fee of
Fifteen Million Dollars ($15,000,000) (the "Fee"), which amount shall be
payable in immediately available funds and upon payment of such Fee Company
shall be fully released and discharged from any liability or obligation
resulting from or under this Agreement.
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of the last sentence of Section 6.3, and Sections
4.1(m), 4.2(h), 6.6, this Section 8.2, Article IX and paragraph (b) of Section
8.1) shall forthwith become void and have no effect, without any liability on
the part of any party hereto or its directors, officers or stockholders;
provided, however, that nothing in this Section 8.2 shall relieve any party to
this Agreement of liability for any willful or intentional breach of this
Agreement.
SECTION 8.3 Amendment. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval and
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adoption of this Agreement by the stockholders of Company, no amendment shall
be made which would reduce the amount or change the type of consideration into
which each Share or Preferred Share shall be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
SECTION 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of Parent, Purchaser
or Company, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Fees and Expenses. Except as provided otherwise in Section
8.1(b), whether or not the Merger shall be consummated, each party hereto shall
pay its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby,
other than the expenses incurred in connection with printing and mailing proxy
materials to stockholders, which shall be shared equally by Parent and Company.
The Surviving Corporation shall pay any and all property or transfer taxes
imposed on the Surviving Corporation or the stockholders of the Company by
reason of the Merger.
SECTION 9.3 Definitions. For purposes of this Agreement: (a) an
"affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks in the City of New York are required or permitted to
close;
(c) "knowledge" means the actual knowledge of any executive officer
of Company or Parent, as the case may be;
(d) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever;
(e) a "Material Adverse Effect" with respect to any person means a
material adverse effect on (i) the ability of such person to perform its
obligations hereunder or consummate the transactions contemplated hereby or
(ii) the condition (financial or otherwise), assets, business, liabilities
(actual or contingent) or operations of such person and its Subsidiaries taken
as a whole;
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(f) the "NYSE" means the New York Stock Exchange;
(g) a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity; and
(h) a "Subsidiary" of any person means any other person of which
(i) the first mentioned person or any Subsidiary thereof is a general partner,
(ii) voting power to elect a majority of the board of directors or others
performing similar functions with respect to such other person is held by the
first mentioned person and/or by any one or more of its Subsidiaries, or
(iii) at least 50% of the equity interests of such other person is, directly or
indirectly, owned or controlled by such first mentioned person and/or by any
one or more of its Subsidiaries.
SECTION 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent, to
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Attention: John H. Karnes, Jr., Esq.
Telecopy: (214) 467-0823
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen, Esq.
Telecopy: (214) 969-5100
(ii) if to Company, to
Fieldcrest Cannon, Inc.
One Lake Circle Drive
Kannapolis, North Carolina 28081
Attention: Mark R. Townsend, Esq.
Telecopy: (704) 939-4623
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
Telecopy: (212) 310-8007
SECTION 9.5 Interpretation. When a reference is made in this Agreement to
a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes"
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or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation".
SECTION 9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.7 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the letter agreements referenced
in the last sentence of Section 6.3). This Agreement is not intended to confer
upon any person (including, without limitation, any employees of Company),
other than the parties hereto and the third party beneficiaries referred to in
the following sentence, any rights or remedies. The parties hereto expressly
intend the provisions of Sections 6.5 and 6.10 to confer a benefit upon and be
enforceable by, as third party beneficiaries of this Agreement, the third
persons referred to in, or intended to be benefitted by, such provisions.
SECTION 9.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void, except that Parent and/or Purchaser may
assign this Agreement to any direct wholly-owned Subsidiary of Parent without
the prior consent of Company; provided that Parent shall remain liable for all
of its obligations and all obligations of any of its Subsidiaries or any of its
assignees under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware, this being in addition to any other remedy to
which they are entitled at law or in equity.
SECTION 9.11 Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
[signature page follows]
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IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PILLOWTEX CORPORATION
By: /s/ Charles M. Hansen, Jr.
---------------------------------------
Name: Charles M. Hansen, Jr.
Title: Chairman of the Board and
Chief Executive Officer
PEGASUS MERGER SUB, INC.
By: /s/ Charles M. Hansen, Jr.
---------------------------------------
Name: Charles M. Hansen, Jr.
Title: Chairman of the Board and
Chief Executive Officer
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
---------------------------------------
Name: James M. Fitzgibbons
Title: Chairman of the Board and
Chief Executive Officer
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Appendix B
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
September 10, 1997
Board of Directors
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Dear Sirs:
We understand Pillowtex Corporation ("Pillowtex") and Fieldcrest Cannon,
Inc. ("Fieldcrest") intend to enter into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which a newly formed subsidiary of Pillowtex
will be merged with and into Fieldcrest (the "Merger"). You have provided us a
copy of the Merger Agreement together with the exhibits and schedules thereto
in substantially final form. As a result of the Merger, each outstanding share
of Common Stock, par value $1.00 per share, of Fieldcrest ("Fieldcrest Common
Stock") will be converted into a right to receive total consideration valued at
$34.00, consisting of (i) a cash payment in an amount equal to $27.00 and (ii)
a number (the "Conversion Number") of shares of Common Stock , par value $.01
per share, of Pillowtex ("Pillowtex Common Stock") equal to the quotient
obtained by dividing $7.00 by the average of the closing sales prices per share
of Pillowtex Common Stock on the New York Stock Exchange for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the closing date for the Merger (the "Determination Price"), provided that the
Conversion Number will not be more than 0.333 or less than 0.269, and provided
further that, if the Determination Price is less than $21.00, Pillowtex will
have the right to elect to increase the cash portion of such consideration
and/or the Conversion Number such that the aggregate value of cash and
Pillowtex Common Stock (valued at the Determination Price) comprising such
consideration equals $34.00 and, if Pillowtex does not so elect, Fieldcrest
will have the right to terminate the Merger Agreement. Additionally, as a
result of the Merger, each outstanding share of $3.00 Series A Convertible
Preferred Stock, par value $0.01 per share, of Fieldcrest ("Fieldcrest
Preferred Stock"), other than shares converted into Fieldcrest Common Stock
prior to the Merger, will be converted into a right to receive total
consideration valued at $58.12, consisting of (i) a cash payment equal to the
product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 1.7094. Total consideration to be received by
each outstanding share of Fieldcrest Common Stock and each outstanding share of
Fieldcrest Preferred Stock is herein defined as the "Consideration".
You have asked us to render our opinion as to whether the Consideration is
fair, from a financial point of view, to the shareholders of Pillowtex.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement in substantially final form;
2. reviewed Pillowtex's Annual Reports on Form 10-K for the years ended
December 31, 1994 through December 28, 1996, and its Quarterly Reports on Form
10-Q for the quarters ended March 29 and June 28, 1997;
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3. reviewed Fieldcrest's Annual Reports on Form 10-K for the years ended
December 31, 1994 through 1996, and its Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 1997;
4. reviewed certain operating and financial information of Pillowtex and
Fieldcrest, including projections and projected cost savings and operating
synergies, provided to us by Pillowtex's and Fieldcrest's management relating
to their respective businesses and prospects;
5. met with certain members of Pillowtex's and Fieldcrest's senior
management to discuss their respective operations, historical financial
statements and future prospects and their views of the business, operational
and strategic benefits, cost savings, potential synergies and other
implications of the Merger;
6. reviewed the historical prices and trading volumes of the Pillowtex
Common Stock and the Fieldcrest Common Stock;
7. reviewed publicly available financial data and stock market performance
data of other publicly held companies that we deemed generally comparable to
Pillowtex and Fieldcrest;
8. reviewed the financial terms of recent acquisitions of companies that
we deemed generally comparable to Fieldcrest; and
9. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Pillowtex and Fieldcrest. With respect to
Pillowtex's and Fieldcrest's projected financial results (including projected
cost savings and operating synergies resulting from the Merger), we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Pillowtex and
Fieldcrest as to the expected future performance of Pillowtex and Fieldcrest,
respectively. We have also assumed that the Merger and financing thereof will
not violate, result in a default under, or be in contravention of the terms of
any material agreement, including without limitation any agreements evidencing
indebtedness of Pillowtex to which any of Pillowtex, Fieldcrest, or their
respective subsidiaries is a party. We have not assumed any responsibility for
the independent verification of the information or the projections (including
projected cost savings and operating synergies resulting from the Merger)
provided to us and we have further relied upon the assurances of the
managements of Pillowtex and Fieldcrest that they are unaware of any facts that
would make the information or projections (including projected cost savings and
operating synergies resulting from the Merger) provided to us incomplete or
misleading. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Pillowtex or Fieldcrest.
Our opinion is necessarily based on economic, market and other conditions, and
the information made available to us, as of the date hereof.
Our opinion does not constitute a recommendation of the Merger or the
related financing transaction or a recommendation to any shareholder of
Pillowtex as to how any such shareholder should vote with respect to the
approval of the issuance of the Pillowtex Common Stock and the Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of Pillowtex
in connection with the Merger. Further, we are not expressing any opinion as
to what the value of Pillowtex or Fieldcrest common stock actually will be at
the time of the Merger or the prices at which the Pillowtex common stock will
trade during the period following announcement of the Merger or subsequent to
the consummation of the Merger. Finally, our opinion does not address
Pillowtex's underlying business decision to effect the Merger. We have not
reviewed any proxy statement or similar document that may be distributed in
connection with the Merger as such materials have not yet been completed.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
shareholders of Pillowtex.
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We have acted as financial advisor to Pillowtex in connection with the
Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the Merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
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Appendix C
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
The Board of Directors
Fieldcrest Cannon, Inc.
One Lake Circle Drive
Kannapolis, North Carolina 28081
September 10, 1997
To The Board of Directors:
You have asked us to advise you with respect to the fairness to the holders
of the common stock, par value $1.00 per share (the "Common Stock") of
Fieldcrest Cannon, Inc. (the "Company") from a financial point of view of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger (the "Merger Agreement") among the Company,
Pillowtex Corporation (the "Acquiror") and a wholly owned subsidiary of the
Acquiror (the "Sub"). The Merger Agreement provides for the merger (the
"Merger") of the Sub with and into the Company pursuant to which the Company
will become a wholly owned subsidiary of the Acquiror and each outstanding
share of Common Stock will be converted into the right to receive (i) $27.00 in
cash (the "Cash Consideration") and (ii) a number of fully paid and
nonassessable shares of Acquiror's common stock, par value $0.01 per share
("Acquiror Common Stock"), equal to the Conversion Number, meaning the
quotient, rounded to the third decimal place, obtained by dividing $7.00 by the
average closing sales price of Acquiror Common Stock as reported on the New
York Stock Exchange Composite Transactions List for each of the 20 consecutive
trading days immediately preceding the fifth trading day prior to the Effective
Time (as defined in the Merger Agreement); provided that, if the actual
quotient obtained thereby is less than 0.269, the Conversion Number will be
0.269, and if the actual quotient obtained thereby is more than 0.333, the
Conversion Number will be 0.333 (together with the Cash Consideration, the
"Consideration").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as a draft dated September 9, 1997 of the Merger Agreement. We have also
reviewed certain other information, including financial forecasts, provided to
us by the Company and the Acquiror, and have met with the Company's and the
Acquiror's managements to discuss the business and prospects of the Company and
the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company and
the Acquiror and we have considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of the Company and the Acquiror as to the future financial
performance of the Company and the Acquiror. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company or the
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Acquiror, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are not
expressing any opinion as to what the value of the Acquiror Common Stock
actually will be when issued to the Company's stockholders pursuant to the
Merger or the prices at which such Acquiror Common Stock will trade subsequent
to the Merger. In connection with our engagement, we approached third parties
to solicit indications of interest in a possible acquisition of the Company and
held preliminary discussions with certain of these parties prior to the date
hereof. For purposes of this opinion, we have not considered other strategic
alternatives to the sale of the Company that may be currently available to the
Company.
We have acted as financial advisor to the Special Committee in connection
with the Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger. In the past, we
have performed certain investment banking services for the Company and have
received customary fees for such services. In the ordinary course of our
business, we and our affiliates may actively trade the debt and equity
securities of both the Company and the Acquiror for our and their own accounts
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the proposed Merger and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without our
prior written consent, except that we hereby consent to the inclusion of this
letter in its entirety as an appendix in the joint proxy statement/prospectus
to be furnished to the holders of the Common Stock in connection with their
consideration of the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the holders of the Common
Stock of the Company in the Merger is fair to such stockholders from a
financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
C-2
<PAGE> 131
Appendix D
DELAWARE GENERAL CORPORATION LAW SECTION 262
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares throughout the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger
effected pursuant to Section 251(g) of this title), Section 252, Section
254, Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were either (i) listed
on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
D-1
<PAGE> 132
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of any amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follow:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted
for approval at a meeting of stockholders, the corporation, not less
than 20 days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger of
consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has
not voted in favor of or consent to the merger or consolidation of the
date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228, Section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given or after
the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record
D-2
<PAGE> 133
date that shall be not more than 10 days prior to the date the notice
is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close
of business on the day next preceding the date on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery,
if so ordered by the Court, shall give notice of the time and place fixed for
the hearing of such petition by registered or certified mail to the surviving
or resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
D-3
<PAGE> 134
compound, as the Court may direct. Payment shall be so made to each
stockholder, in the case of holders of uncertified stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including without limitation reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 135
[FORM OF PROXY]
PILLOWTEX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF PILLOWTEX CORPORATION FOR USE AT THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
___________ ___, 1997
The undersigned holder of shares of common stock of Pillowtex Corporation
("Pillowtex") hereby appoints Charles M. Hansen, Jr., Jeffrey D. Cordes, and
John H. Karnes, Jr., and each of them, as proxies of the undersigned, with
full power of substitution and resubstitution, to represent and vote as set
forth herein all of the shares of common stock of Pillowtex held of record by
the undersigned on __________ ___, 1997 at the Pillowtex Special Meeting of
Shareholders to be held on _____________, ___________ __, 1997, at _____ a.m.,
Central Time, at ______________, Dallas, Texas, and at any and all
postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL TO APPROVE THE SHARE ISSUANCE DESCRIBED IN THE JOINT
PROXY STATEMENT/PROSPECTUS DATED __________, 1997 OF PILLOWTEX AND FIELDCREST
CANNON, INC.
(Continued, and to be dated and signed, on the other side)
<PAGE> 136
[x] Please mark your
vote as in this example.
THE DIRECTORS OF PILLOWTEX RECOMMEND A VOTE FOR THE APPROVAL OF THE SHARE
ISSUANCE DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS DATED _________,
1997 OF PILLOWTEX CORPORATION AND FIELDCREST CANNON, INC.
Proposal to approve the Share Issuance described in the Joint Proxy
Statement/Prospectus dated _________, 1997 of Pillowtex Corporation and
Fieldcrest Cannon, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This proxy should be dated, signed by
the shareholder as his or her name
appears below, and returned promptly in
the enclosed envelope. Joint owners
should each sign personally, and trustees
and others signing in a representative
capacity should indicate the capacity
in which they sign.
Dated:
----------------------------------
----------------------------------
Signature of Shareholder
----------------------------------
Signature of Shareholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN THIS PROXY CARD
IN THE ENVELOPE PROVIDED
<PAGE> 137
[FORM OF PROXY]
FIELDCREST CANNON, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF FIELDCREST CANNON, INC. FOR USE AT THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
___________ ___, 1997
The undersigned holder of shares of common stock of Fieldcrest Cannon, Inc.
("Fieldcrest"), hereby appoints _____________ ___ _______________, and
_______________, and each of them, as proxies of the undersigned, with full
power of substitution and resubstitution, to represent and vote as set forth
herein all of the shares of common stock of Fieldcrest held of record by the
undersigned on __________ ___, 1997 at the Fieldcrest Special Meeting of
Stockholders to be held on ____________, ____________ ___, 1997, at _____
a.m., Eastern Time, at ______________, ____________, ___________, and at any
and all postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
(Continued, and to be dated and signed, on the other side)
<PAGE> 138
[x] Please mark your
vote as in this example.
- --------------------------------------------------------------------------------
THE DIRECTORS OF FIELDCREST CANNON, INC. RECOMMEND A VOTE FOR THE
APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
- --------------------------------------------------------------------------------
Approval and adoption of an Agreement and Plan of Merger, dated as of
September 10, 1997, by and among Pillowtex Corporation, a Texas corporation
("Pillowtex"), Pegasus Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of Pillowtex ("Sub"), and Fieldcrest Cannon, Inc., a
Delaware corporation ("Fieldcrest"), pursuant to which Sub will be merged
with and into Fieldcrest, with Fieldcrest continuing as the surviving
corporation and becoming a wholly owned subsidiary of Pillowtex.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
This proxy should be dated, signed by
the stockholder as his or her name
appears below, and returned promptly in
the enclosed envelope. Joint owners
should each sign personally, and
trustees and others signing in a
representative capacity should indicate
the capacity in which they sign.
Dated:
----------------------------------
----------------------------------
Signature of Stockholder
----------------------------------
Signature of Stockholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information set forth under the captions "Description of Pillowtex
Capital Stock -- Certain Corporate Governance Matters -- Indemnification" and
"Comparison of Rights of Holders of Fieldcrest Common Stock and Pillowtex
Common Stock -- Indemnification of Officers and Directors -- Pillowtex" in the
Joint Proxy Statement/Prospectus forming a part of this Registration Statement
is incorporated herein by this reference.
ITEM 21. EXHIBITS
2.1 -- Agreement and Plan of Merger, dated as of September 10,
1997, by and among Pillowtex Corporation, Pegasus Merger
Sub, Inc., and Fieldcrest Cannon, Inc. (included as
Appendix A to the Joint Proxy Statement/Prospectus forming
a part of this Registration Statement)
5.1 -- Opinion of Jones, Day, Reavis & Pogue*
10.1 -- Commitment Letter, dated September 10, 1997, by and
between NationsBank of Texas, N.A. and Pillowtex
Corporation (incorporated by reference to Exhibit 10.1 to
Pillowtex Corporation's Current Report on Form 8-K dated
September 10, 1997, as amended by a Form 8-K/A (Amendment
No. 1) dated September 10, 1997)
10.2 -- Preferred Stock Purchase Agreement, dated as of September
10, 1997, by and among Pillowtex Corporation, Apollo
Investment Fund III, L.P., Apollo Overseas Partners III,
L.P., and Apollo (UK) Partners III, L.P. (incorporated by
reference to Exhibit 10.2 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as
amended by a Form 8-K/A (Amendment No. 1) dated September
10, 1997)
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consent of Ernst & Young LLP
24.1 -- Powers of Attorney
99.1 -- Consent of Credit Suisse First Boston Corporation
99.2 -- Consent of Bear, Stearns & Co. Inc.
- -------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
II-1
<PAGE> 140
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this 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 this Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment will be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
(3) 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.
(4) To file a post-effective amendment to the Registration Statement
to include any financial statements required by Rule 3.19 of Regulation S-X
at the start of any delayed offering or throughout a continuous offering.
(b) The undersigned registrant undertakes that, for purposes of
determining any liability under the Securities Act, each filing of Pillowtex's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement will be deemed to be a new
Registration Statement relating to the securities offered herein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(c) (1) 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.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities 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 this Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, 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.
(d) Insofar as indemnification for liabilities arising under the
Securities 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 Commission such
indemnification is against public policy as expressed in the Securities 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 Securities Act and will be
governed by the final adjudication of such issue.
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<PAGE> 141
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Joint Proxy
Statement/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
this Registration Statement through the date of responding to the request.
(f) 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 this Registration Statement when it became effective.
II-3
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas
on September 29, 1997.
PILLOWTEX CORPORATION
By /s/ CHARLES M. HANSEN, JR.
----------------------------------------
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 29, 1997.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ CHARLES M. HANSEN, JR. Chairman of the Board and Chief Executive Officer; Director
--------------------------------- (Principal Executive Officer)
Charles M. Hansen, Jr.
JEFFREY D. CORDES* President and Chief Operating Officer; Director
--------------------------------- (Principal Financial and Accounting Officer)
Jeffrey D. Cordes
CHRISTOPHER N. BAKER* Director
---------------------------------
Christopher N. Baker
KEVIN M. FINLAY* Director
---------------------------------
Kevin M. Finlay
SCOTT E. SHIMIZU* Director
---------------------------------
Scott E. Shimizu
MARY R. SILVERTHORNE* Director
---------------------------------
Mary R. Silverthorne
WILLIAM B. MADDEN* Director
---------------------------------
William B. Madden
M. JOSEPH MCHUGH* Director
---------------------------------
M. Joseph McHugh
PAUL G. GILLEASE* Director
---------------------------------
Paul G. Gillease
RALPH LA ROVERE* Director
---------------------------------
Ralph La Rovere
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed on behalf of
the above-named officers and directors and filed herewith.
/s/ JOHN H. KARNES, JR.
-------------------------
John H. Karnes, Jr.
Attorney-in-Fact
II-4
<PAGE> 143
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September
10, 1997, by and among Pillowtex Corporation, Pegasus
Merger Sub, Inc., and Fieldcrest Cannon, Inc.
(included as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of this
Registration Statement)
5.1 Opinion of Jones, Day, Reavis & Pogue*
10.1 Commitment Letter, dated September 10, 1997, by and
between NationsBank of Texas, N.A. and Pillowtex
Corporation (incorporated by reference to Exhibit
10.1 to Pillowtex Corporation's Current Report on
Form 8-K dated September 10, 1997, as amended by a
Form 8-K/A (Amendment No. 1) dated September 10,
1997)
10.2 Preferred Stock Purchase Agreement, dated as of
September 10, 1997, by and among Pillowtex
Corporation, Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., and Apollo (UK) Partners
III, L.P. (incorporated by reference to Exhibit 10.2
to Pillowtex Corporation's Current Report on Form 8-K
dated September 10, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated September 10, 1997)
23.1 Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Ernst & Young LLP
24.1 Powers of Attorney
99.1 Consent of Credit Suisse First Boston Corporation
99.2 Consent of Bear, Stearns & Co. Inc.
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pillowtex Corporation:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
September 26, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 31, 1997, with respect to the financial
statements of Fieldcrest Cannon, Inc. incorporated by reference in the
Registration Statement (Form S-4) and related Prospectus of Pillowtex
Corporation for the registration of 5,600,000 shares of its common stock.
/s/ Ernst & Young LLP
Greensboro, North Carolina
September 26, 1997
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned, each a director and/or officer of Pillowtex Corporation, a
Texas corporation (the "Company"), hereby constitute and appoint Charles M.
Hansen, Jr., Jeffrey D. Cordes, John H. Karnes, Jr. and John F. Sterling, or
any of them, our true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, to do any and all acts and things in
our name and behalf in our capacities as director and/or officer of the Company
and to execute any and all instruments for us and in our name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with a Registration Statement
on Form S-4 relating to the offering of Common Stock, par value $0.01 per
share, of the Company pursuant to that certain Agreement and Plan of Merger
among the Company, Pegasus Merger Sub, Inc. and Fieldcrest Cannon, Inc.,
including, without limitation, power and authority to sign for us, in our name
in the capacities indicated above, such Registration Statement and any all
amendments (including post-effective amendments) thereto, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any substitute of substitutes
thereof, shall do or cause to be done by virtue hereof.
Dated: September 25, 1997
/s/ Charles M. Hansen, Jr. /s/ Mary R. Silverthorne
- -------------------------------------- ----------------------------------
Charles M. Hansen, Jr. Mary R. Silverthorne
/s/ Jeffrey D. Cordes /s/ William B. Madden
- -------------------------------------- ----------------------------------
Jeffrey D. Cordes William B. Madden
/s/ Christopher N. Baker /s/ M. Joseph McHugh
- -------------------------------------- ----------------------------------
Christopher N. Baker M. Joseph McHugh
/s/ Kevin M. Finlay /s/ Paul G. Gillease
- -------------------------------------- ----------------------------------
Kevin M. Finlay Paul G. Gillease
/s/ Scott E. Shimizu /s/ Ralph La Rovere
- -------------------------------------- ----------------------------------
Scott E. Shimizu Ralph La Rovere
<PAGE> 1
Exhibit 99.1
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
Board of Directors
Fieldcrest Cannon, Inc.
One Lake Drive
Kannapolis, NC 28081
Members of the Board:
We hereby consent to the inclusion of our opinion letter, dated September 10,
1997, to the Board of Directors of Fieldcrest Cannon, Inc. (the "Company") as
Exhibit 99.1 to the Registration Statement of the Company on Form S-4 (the
"Registration Statement") relating to the proposed merger involving the Company
and Pillowtex Corporation and references made to such opinion under the
headings "SUMMARY -- Opinion of Fieldcrest's Financial Advisor", "THE MERGER
- -- Background of the Merger", "THE MERGER -- Fieldcrest's Reasons for the
Merger" and "THE MERGER -- Opinion of Fieldcrest's Financial Advisor" in the
Registration Statement. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, nor do we admit
that we are "experts" for purposes of, the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
September 29, 1997
<PAGE> 1
Exhibit 99.2
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
September 26, 1997
We hereby consent to the inclusion in the Prospectus and Joint Proxy Statement
forming part of this Registration Statement on Form S-4 of Pillowtex
Corporation of our opinion attached as Appendix B thereto and to the reference
to such opinion and to our firm therein. In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 and the rules and regulations of
the Securities and Exchange Commission issued thereunder.
Bear, Stearns & Co. Inc.
By: /s/ Rick A. Lacher
-----------------------------
Rick A. Lacher
Managing Director
