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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): SEPTEMBER 10, 1997
PILLOWTEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TEXAS 1-11756 75-2147728
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
4111 MINT WAY, DALLAS, TEXAS 75237
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 333-3225
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ITEM 5. OTHER EVENTS.
General. On September 10, 1997, Pillowtex Corporation (the
"Company"), a wholly owned subsidiary of the Company ("Newco"), and Fieldcrest
Cannon, Inc. ("Fieldcrest") entered into an agreement (the "Merger Agreement")
pursuant to which, on the terms and subject to the conditions set forth
therein, Newco will be merged with and into Fieldcrest (the "Merger"), and
Fieldcrest will thereby become a wholly owned subsidiary of the Company. A
copy of the Merger Agreement is filed as Exhibit 2.1 hereto and is incorporated
herein by this reference.
On September 11, 1997, the Company issued a press release announcing
the Merger. A copy of the press release is filed as Exhibit 99.1 hereto and is
incorporated herein by this reference.
The Merger. At the effective time of the Merger (the "Effective
Time"), (i) 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 (a) $27.00 in cash
and (b) a number of shares of Common Stock, par value $0.01 per share, of the
Company ("Pillowtex Common Stock") equal to the quotient (the "Conversion
Number") 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 (the "NYSE")
for each of the 20 consecutive trading days immediately preceding the fifth
trading day prior to the date (the "Closing Date") on which the Merger is
consummated (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, the Company 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 (1) the cash portion of such merger
consideration and (2) the product of (A) the Conversion Number and (B) the
Determination Price equals $34.00 and, if the Company does not so elect,
Fieldcrest will have the right to terminate the Merger Agreement, and (ii) each
outstanding share of $3.00 Series A Convertible Preferred Stock, par value
$0.01 per share, of Fieldcrest, 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 (a) a cash payment equal to
the product of (1) the cash portion of the merger consideration to be paid for
each share of Fieldcrest Common Stock and (2)1.7094 and (b) a number of shares
of Pillowtex Common Stock equal to the product of (1) the Conversion Number and
(2) 1.7094.
Pursuant to the Merger Agreement, each holder of an outstanding option
(an "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 Option an amount in cash equal to the difference between $34.00
and the per share exercise price of such Option. At the Effective Time, each
outstanding Option, other than Options in respect of which the above-described
election was made, will be assumed by the Company 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 Option immediately prior to the
Effective Time and (ii) the quotient (the "Option Conversion Number") 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 Option
immediately prior to the Effective Time divided by the Option Conversion
Number; provided that the Option Conversion Number will not be more than 1.619
or less than 1.308 and provided further that if the Company elects to increase
the Conversion Number as described above, the
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Option Conversion Number will be increased such that the product of (a) the
Option Conversion Number and (b) the Determination Price equals $34.00.
Pursuant to the Merger Agreement, each holder of an outstanding stock
appreciation right issued by Fieldcrest 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 stock appreciation right and (ii)
the number of shares subject to such stock appreciation right.
Fieldcrest's 6.0% Convertible Debentures due 2012 (the "Fieldcrest
Convertible Debentures"), which are presently convertible into shares of
Fieldcrest Common Stock at a conversion price of $44.25 per share, will remain
outstanding immediately after the Effective Time. As a result of the Merger,
Fieldcrest Convertible Debentures will become convertible into the amount of
cash and Pillowtex Common Stock receivable as a result of the Merger by 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. For example, a Fieldcrest Convertible Debenture having an
aggregate principal amount of $1,000 will become convertible into $677.97 in
cash and a number of shares of Pillowtex Common Stock equal to the product of
(i) 22.5989 and (ii) the Conversion Number.
The Merger Agreement provides that, notwithstanding anything to the
contrary set forth therein, if the Company's shareholders fail to approve the
issuance of Pillowtex Common Stock and Pillowtex Preferred Stock (as
hereinafter defined) in connection with the Merger and related financing
transactions, (i) the merger 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 merger 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 an Option will receive for each share of Fieldcrest Common Stock
subject to such Option an amount in cash equal to the difference between $34.00
and the per share exercise price at such Option, and (iv) the conditions
described in clauses (ii) and (iv) of the immediately following paragraph will
be inapplicable. However, Charles M. Hansen, Jr., Chairman of the Board and
Chief Executive Officer of the Company, and Mary R. Silverthorne, a director
of the Company, beneficially own, in the aggregate, 52.9% of the currently
outstanding shares of Pillowtex Common Stock and each of them has informed the
Company that he or she intends to vote his or her shares of Pillowtex Common
Stock for the approval of the issuance of shares of Pillowtex Common Stock and
Pillowtex Preferred Stock in connection with the Merger and related financing
transactions. Accordingly, the approval by the Company's shareholders of the
issuance of shares of Pillowtex Common Stock and Pillowtex Preferred Stock in
connection with the Merger and related financing transactions is expected to
occur.
Conditions to the Merger. The obligations of the Company 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 by the Company's shareholders of the issuance of shares of
Pillowtex Common Stock and Pillowtex Preferred Stock in connection with the
Merger and related financing transactions; (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)
a Registration Statement on Form S-4 having been declared effective by the
Securities and Exchange 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, having
expired or been terminated. There can be no assurance that such conditions
will be satisfied.
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Merger Financing. In order to finance the Merger and the repayment of
certain indebtedness of Fieldcrest, to refinance the existing senior bank
credit facility of the Company, and to provide working capital for the combined
enterprise that will result from the Merger, the Company (i) has negotiated and
entered into (a) a commitment letter with NationsBank of Texas, N.A. providing
for new senior bank revolving credit and term loan facilities (the "New
Pillowtex Bank Facilities Commitment") and (b) 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., providing for the issuance and sale
of 65,000 shares of Series A Redeemable Convertible Preferred Stock, par value
$0.01 per share ("Pillowtex Preferred Stock"), of the Company (the "Pillowtex
Preferred Stock Commitment" and, together with the New Pillowtex Bank
Facilities Commitment, the "Primary Financing Commitments"), and (ii) proposes
to issue and sell new subordinated debt securities (the "New Pillowtex
Subordinated Notes"). The terms of the financings contemplated by the Primary
Financing Commitments and anticipated terms of the New Pillowtex Subordinated
Notes are briefly summarized below. Such summaries of the Primary Financing
Commitments are qualified in their entirety by reference to the full text
thereof, copies of which are attached as Exhibits 10.1 and 10.2 hereto and are
incorporated herein by this reference.
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) and (ii) a
$250.0 million term loan facility,
consisting of a $125.0 million
tranche A term loan and a $125.0
million tranche B term loan (such
facilities being referred to
herein collectively as the "New
Pillowtex Bank Facilities"). A
copy of the New Pillowtex Bank
Facilities Commitment is filed as
Exhibit 10.1 hereto and is
incorporated herein by this
reference.
Sale of 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
Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., and
Apollo (UK) Partners III, L.P. of
65,000 shares of Pillowtex
Preferred Stock for approximately
$65.0 million. A copy of the
Pillowtex Preferred Stock
Commitment is filed as Exhibit
10.2 hereto and is incorporated
herein by this reference.
Sale of New Pillowtex
Subordinated Notes . . . . . . . . . . The Company intends to issue and
sell, on or prior to the Closing
Date, up to $150.0 million
aggregate principal amount of New
Pillowtex Subordinated Notes.
Although the specific terms of the
New Pillowtex Subordinated Notes
have not yet been established, (i)
for purposes of the pro forma
financial information presented
below, the principal thereof is
assumed to bear interest at a rate
of 10.0% per annum, payable
semi-annually in arrears,
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(ii) the New Pillowtex
Subordinated Notes are expected to
be due and payable in full in
2010, and (iii) the indenture or
other instrument under which the
New Pillowtex Subordinated Notes
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 under which the
Company's existing 10% Senior
Subordinated Notes Due 2006 (the
"Existing Pillowtex Subordinated
Notes") were issued.
In addition to the Primary Financing Commitments, the Company has
negotiated and entered into a commitment letter with NationsBridge L.L.C.
providing for a standby bridge loan facility (the "Standby Bridge Loan Facility
Commitment" and, together with the Primary Financing Commitments, the
"Financing Commitments"). The Standby Bridge Loan Facility Commitment provides
for, on the terms and subject to the conditions set forth therein, a standby
bridge loan facility (the "Standby Bridge Loan Facility") pursuant to which up
to $150.0 million will be available to the Company to finance the Merger and
complete the related refinancings to the extent that less than $150.0 million
aggregate principal amount of New Pillowtex Subordinated Notes remain unsold as
of the Closing Date. The Company 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. The terms of such bridge notes
would be less favorable to the Company than the anticipated terms of the New
Pillowtex Subordinated Notes. Interest on such 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 such 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. Interest on such rollover notes would
also be payable at a floating rate which would increase at specified intervals
(subject to certain limitations).
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 the Company's control, there can be no assurance that such
conditions will be timely satisfied.
Summary Pro Forma Financial Information. Giving effect to the Merger
and the Financing Transactions as if such transactions had been consummated on
June 28, 1997, at such date, on a pro forma combined basis, the Company would
have had total assets of $1.403 billion, total long-term debt of $805.3
million, and total shareholders' equity of $184.6 million. Giving effect to
the Merger and the Financing Transactions as if such transactions had been
consummated on December 31, 1995, (a) for the fiscal year ended December 28,
1996, on a pro forma combined basis, the Company would have had earnings before
income taxes and extraordinary items of $20.4 million, earnings before
extraordinary items of $12.4 million, and earnings before extraordinary items
per share of $0.74 and (b) for the six months ended June 28, 1997, on a pro
forma combined basis, the Company would have had earnings before income taxes
and extraordinary items of $12.8 million, earnings before extraordinary items
of $7.7 million, and earnings before extraordinary items per share of $0.46.
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
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proceeds of $131.7 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 the Company'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 only to the extent less than
$135.0 million aggregate principal amount of New Pillowtex Subordinated Notes
remains unsold as of the Closing Date, the foregoing pro forma information
assumes that no amounts will be borrowed thereunder.
If, in lieu of the issuance and sale of $135.0 million aggregate
principal amount of New Pillowtex Subordinated Notes, the Company 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, the
Company would have had interest expense of $63.1 million, earnings before
income taxes and extraordinary items of $17.0 million, earnings before
extraordinary items of $10.3 million, and earnings before extraordinary items
per share of $0.59 and (ii) for the six months ended June 28, 1997, on a pro
forma combined basis, the Company 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 $5.4 million, and earnings before
extraordinary items per share of $0.31.
The pro forma combined financial information presented above is for
illustrative purposes only and is not necessarily indicative of what the
Company'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 the Company in the future. The pro forma combined
financial information should be read in conjunction with the historical
financial statements of the Company and Fieldcrest, the related notes, and the
other information contained in the exhibits hereto. Certain historical
financial statements of the Company and Fieldcrest are filed as Exhibits 99.2
and 99.3, respectively, hereto and are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
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Exhibit
Number Exhibit
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2.1 Agreement and Plan of Merger, dated September 10, 1997, by and among Pillowtex
Corporation, Pegasus Merger Sub, Inc. and Fieldcrest Cannon, Inc.
10.1 Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas, N.A.
and Pillowtex Corporation, regarding the New Pillowtex Bank Facility
10.2 Preferred Stock Purchase Agreement, dated 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., providing for the issuance and sale of 65,000 shares
of Preferred Stock of Pillowtex Corporation
</TABLE>
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<TABLE>
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99.1 Press release, dated September 11, 1997, issued by Pillowtex Corporation
99.2 Audited Financial Statements of Pillowtex Corporation as of and for the fiscal years
ended December 30, 1995 and December 28, 1996 (incorporated by reference to pages F-1
through F-24 in Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 filed with the Securities and Exchange Commission) and
Unaudited Financial Statements of Pillowtex Corporation as of June 28, 1997 and for
the six months ended June 28, 1997 and June 29, 1996 (incorporated by reference to
pages 3 through 14 in the Pillowtex Corporation's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 28, 1997 filed with the Securities and Exchange
Commission)
99.3 Audited Financial Statements of Fieldcrest Cannon, Inc. as of and for the fiscal years
ended December 31, 1995 and December 31, 1996 (incorporated by reference to pages 18
through 34 in Fieldcrest Cannon, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 filed with the Securities and Exchange Commission) and
Unaudited Financial Statements of Fieldcrest Cannon, Inc. as of June 30, 1997 and for
the six months ended June 30, 1997 and June 30, 1996 (incorporated by reference to
pages 1 through 8 in the Fieldcrest Cannon, Inc.'s Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1997 filed with the Securities and Exchange
Commission)
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
PILLOWTEX CORPORATION
By: /s/ John H. Karnes
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John H. Karnes
Vice President and General Counsel
Dated: September 11, 1997
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER EXHIBIT
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2.1 Agreement and Plan of Merger, dated September 10, 1997, by and among Pillowtex
Corporation, Pegasus Merger Sub, Inc. and Fieldcrest Cannon, Inc.
10.1 Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas,
N.A. and Pillowtex Corporation, regarding the New Pillowtex Bank Facilities
10.2 Preferred Stock Purchase Agreement, dated 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., providing for the issuance and sale of 65,000
shares of Preferred Stock of Pillowtex Corporation
99.1 Press release, dated September 11, 1997, issued by Pillowtex Corporation
99.2 Audited Financial Statements of Pillowtex Corporation as of and for the fiscal years
ended December 30, 1995 and December 28, 1996 (incorporated by reference to pages F-1
through F-24 in Pillowtex Corporation's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996 filed with the Securities and Exchange Commission) and
Unaudited Financial Statements of Pillowtex Corporation as of June 28, 1997 and for
the six months ended June 28, 1997 and June 29, 1996 (incorporated by reference to
pages 3 through 14 in the Pillowtex Corporation's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 28, 1997 filed with the Securities and Exchange
Commission)
99.3 Audited Financial Statements of Fieldcrest Cannon, Inc. as of and for the fiscal
years ended December 31, 1995 and December 31, 1996 (incorporated by reference to
pages 18 through 34 in Fieldcrest Cannon, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Securities and Exchange
Commission) and Unaudited Financial Statements of Fieldcrest Cannon, Inc. as of June
30, 1997 and for the six months ended June 30, 1997 and June 30, 1996 (incorporated
by reference to pages 1 through 8 in the Fieldcrest Cannon, Inc.'s Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1997 filed with the Securities and
Exchange Commission)
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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
among
PILLOWTEX CORPORATION
PEGASUS MERGER SUB, INC.
and
FIELDCREST CANNON, INC.
dated as of September 10, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 The Merger. . . . . . . . . . . . . . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . 1
SECTION 1.3 Effective Time . . . . . . . . . . . . . . 2
SECTION 1.4 Effects of the Merger . . . . . . . . . . . 2
SECTION 1.5 Certificate of Incorporation;
By-laws . . . . . . . . . . . . . . . . . 2
SECTION 1.6 Directors; Officers . . . . . . . . . . . . 3
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS . . . . 3
SECTION 2.1 Effect on Capital Stock . . . . . . . . . . 3
SECTION 2.2 Stock Options . . . . . . . . . . . . . . . 5
SECTION 2.3 Share Purchase Rights . . . . . . . . . . . 7
SECTION 2.4 Failure To Approve Share Issuance . . . . . 7
SECTION 2.5 Stock Appreciation Rights . . . . . . . . . 7
ARTICLE III - PAYMENT FOR SHARES . . . . . . . . . . . . . . 8
SECTION 3.1 Payment For Shares . . . . . . . . . . . . 8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES . . . . . . . . . 12
SECTION 4.1 Representations and Warranties of
Company . . . . . . . . . . . . . . . . . 12
SECTION 4.2 Representations and Warranties of
Parent and Purchaser . . . . . . . . . . 27
ARTICLE V - COVENANTS . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.1 Conduct of Business of Company and
Parent . . . . . . . . . . . . . . . . . . 34
ARTICLE VI - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . 36
SECTION 6.1 Preparation of the Proxy Statement
and the Form S-4; Accountant's
Letters . . . . . . . . . . . . . . . . . 36
SECTION 6.2 Stockholders Meetings . . . . . . . . . . . 38
SECTION 6.3 Access to Information;
Confidentiality . . . . . . . . . . . . . 38
SECTION 6.4 Reasonable Best Efforts . . . . . . . . . . 39
</TABLE>
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SECTION 6.5 Indemnification; Directors' and
Officers Insurance . . . . . . . . . . . 39
SECTION 6.6 Public Announcements . . . . . . . . . . . 42
SECTION 6.7 No Solicitation; Acquisition
Proposals . . . . . . . . . . . . . . . 42
SECTION 6.8 Consents, Approvals and Filings . . . . . 43
SECTION 6.9 Board Action Relating to Stock Option
Plans . . . . . . . . . . . . . . . . . 45
SECTION 6.10 Employment and Employee Benefit
Matters . . . . . . . . . . . . . . . . 45
SECTION 6.11 Affiliates and Certain Stockholders . . . 46
SECTION 6.12 NYSE Listing . . . . . . . . . . . . . . . 47
SECTION 6.13 Certain Company Indebtedness . . . . . . . 47
ARTICLE VII - CONDITIONS PRECEDENT . . . . . . . . . . . . . 48
SECTION 7.1 Conditions to Each Party's
Obligation to Effect the Merger . . . . . 48
SECTION 7.2. Conditions to Obligations of Parent
and Purchaser . . . . . . . . . . . . . . 48
SECTION 7.3. Conditions to Obligation of Company . . . 49
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER . . . . . . 50
SECTION 8.1 Termination . . . . . . . . . . . . . . . 50
SECTION 8.2 Effect of Termination . . . . . . . . . . 52
SECTION 8.3 Amendment . . . . . . . . . . . . . . . . 52
SECTION 8.4 Extension; Waiver . . . . . . . . . . . . 53
SECTION 8.5 Procedure for Termination, Amendment,
Extension or Waiver . . . . . . . . . . . 53
ARTICLE IX - GENERAL PROVISIONS . . . . . . . . . . . . . . . 53
SECTION 9.1 Nonsurvival of Representations and
Warranties . . . . . . . . . . . . . . 53
SECTION 9.2 Fees and Expenses . . . . . . . . . . . . 53
SECTION 9.3 Definitions . . . . . . . . . . . . . . . 54
SECTION 9.4 Notices . . . . . . . . . . . . . . . . . 55
SECTION 9.5 Interpretation . . . . . . . . . . . . . . 56
SECTION 9.6 Counterparts . . . . . . . . . . . . . . . 56
SECTION 9.7 Entire Agreement; Third-Party
Beneficiaries . . . . . . . . . . . . . . 56
SECTION 9.8 Governing Law . . . . . . . . . . . . . . 56
SECTION 9.9 Assignment . . . . . . . . . . . . . . . . 56
SECTION 9.10 Enforcement . . . . . . . . . . . . . . . 57
SECTION 9.11 Severability . . . . . . . . . . . . . . . 57
</TABLE>
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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 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
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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.
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.
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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
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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 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.
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(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
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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,
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
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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
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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 (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
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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
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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 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.
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(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.
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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 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
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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
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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 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
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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
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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 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
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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,
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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;
(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
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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
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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 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
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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
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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.
(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
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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)
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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 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.
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(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
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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
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
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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,
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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 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,
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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
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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 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
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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
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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
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
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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
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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.
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
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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 agreements (including
collective bargaining agreements) or normal, regularly scheduled
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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:
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(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 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
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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
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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.
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
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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
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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 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.
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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
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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.
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
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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
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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 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
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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
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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 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.
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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
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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.
(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
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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
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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 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
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(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 adoption of this Agreement by the stockholders of Company, no
amendment shall be made
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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
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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;
(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
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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
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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" 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
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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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Exhibit 10.1
September 10, 1997
Pillowtex Corporation
4111 Mint Way
Dallas, TX 75237
Attn: Mr. Jeffrey D. Cordes
RE: Merger Financing
Gentlemen:
You have advised us that Pillowtex Corporation (the "Borrower") intends to
acquire all of the capital stock of Fieldcrest Cannon Inc. (the "Acquired
Company") for approximately $415 million through the merger of the Acquired
Company with or into the Borrower or a wholly owned subsidiary thereof
(hereinafter the acquisition of Acquired Company may be referred to as the
"Merger"). You have advised us that in connection with the Merger approximately
$13 million of the Acquired Company's existing industrial revenue bond
obligations will remain outstanding and that the Acquired Company's existing
$118 million 6% convertible subordinated debentures will either remain
outstanding, or be converted at the option of the holders into approximately
$72 million in cash and $19 million of Pillowtex common stock. All other
existing debt of the Acquired Company (consisting of approximately $115 million
of senior secured bank debt and approximately $85 million of senior
subordinated debentures) will be repaid or called for redemption simultaneously
with the completion of the Merger. You have also advised us that the Borrower
intends to refinance its existing bank senior debt (approximately $94 million)
simultaneously with the completion of the Merger, and keep outstanding its
existing its senior subordinated debentures (approximately $125 million) and
certain other existing senior secured debt (approximately $9 million).
In order to complete the Merger and refinancings described above, and to pay
the costs and expenses related to the Merger and related financings, you have
advised us that the Borrower intends (i) to pay not less than 20.58% of the
total consideration paid to holders of the Acquired Company's capital stock in
the form of newly issued common stock of the Borrower, (ii) to pay not less
than 20.58% of any conversion consideration requested by holders of the
Acquired Company's 6% convertible subordinated debentures in the form of newly
issued common stock of the Borrower, (iii) to privately place not less than $65
million of its newly issued preferred stock, (iv) to raise not less than $150
million from its issuance of new senior subordinated debt (the "Subordinated
Debt") either through the issuance of subordinated bridge notes under the
commitment letter with NationsBridge L.L.C. dated as the date hereof (together
with any extensions thereof being the "Bridge Notes") or through its issuance
of other Subordinated Debt, and (v) to borrow not more than $455 million (with
such amount being increased by 79.42% of any conversion consideration requested
by holders of the Acquired Company's 6% convertible subordinated debentures)
under newly arranged senior credit facilities.
<PAGE> 2
Pillowtex Corporation
September 10, 1997
Page 2
In connection with the foregoing, NationsBank of Texas, N.A. ("NationsBank" or
the "Agent") is pleased to advise you of its commitment (this letter agreement
being the "Commitment Letter") to provide the full principal amount of the
Senior Credit Facilities described in the Summary of Indicative Terms and
Conditions attached to this Commitment Letter as Exhibit A (the "Term Sheet").
NationsBanc Capital Markets, Inc. ("NCMI") is pleased to advise you of its
commitment, as Arranger and Syndication Agent for the Senior Credit Facilities,
to form a syndicate of financial institutions (the "Lenders") reasonably
acceptable to you for the Senior Credit Facilities. If NationsBank and NCMI
shall determine in their sole discretion that it will not adversely affect
syndication of the Senior Credit Facilities, the Revolving Credit Facility
described in the Term Sheet may be documented as a renewal and extension of the
Borrower's existing revolving credit agreement and the Term Loan Facility
described in the Term Sheet may be documented under a separate new credit
agreement. In such event, the separate credit agreements will contain identical
provisions as outlined in the Term Sheet and will subject to an inter-creditor
agreement providing for cross collateralization, cross approval of amendments
and waivers, and such other matters as are necessary to accomplish the intent
of the Term Sheet. All capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Term Sheet, and this letter agreement.
The commitments of NationsBank and NCMI hereunder are subject to each of the
terms and conditions set forth herein and in the Term Sheet, and to the
satisfaction of each of the following conditions precedent in a manner
acceptable to NationsBank and NCMI:
(a) execution by the Borrower, the Acquired Company and/or other appropriate
parties of the definitive merger agreement and other related
documentation relating to the Merger (the "Merger Agreement"),
substantially in the form of the September 5, 1997 draft thereof
previously provided to NationsBank and NCMI;
(b) the negotiation, execution and delivery of definitive documentation
with respect to the Senior Credit Facilities consistent with the Term
Sheet and otherwise reasonably satisfactory to NationsBank and NCMI; and
(c) there not having occurred and being continuing since the date hereof
a material adverse change in the market for syndicated bank credit
facilities or a material disruption of, or a material adverse change in,
financial, banking or capital market conditions, in each case as
determined by NationsBank and NCMI in their reasonable discretion.
NationsBank will act as Agent for the Senior Credit Facilities and NCMI will
act as Arranger and Syndication Agent for the Senior Credit Facilities. No
additional agents will be appointed without the prior approval of the Borrower,
NationsBank and NCMI.
Furthermore, the commitments of NationsBank and NCMI hereunder are based upon
the financial and other information regarding the Borrower, the Acquired
Company and their respective subsidiaries previously provided to NationsBank
and NCMI and are subject to the condition, among others, that there shall not
have occurred after the date of such information, in the reasonable opinion of
NationsBank and NCMI, any material adverse change in the business, assets,
liabilities (actual or contingent), operations, condition (financial or
otherwise) or prospects of the Borrower, the Acquired Company and their
<PAGE> 3
Pillowtex Corporation
September 10, 1997
Page 3
subsidiaries taken as a whole. If the continuing review by NationsBank and NCMI
of the Borrower and the Acquired Company discloses information relating to
conditions or events not previously disclosed to NationsBank and NCMI or
relating to new information or additional developments concerning conditions or
events previously disclosed to NationsBank and NCMI which NationsBank and NCMI
in their reasonable discretion believe may have a material adverse effect on
the condition (financial or otherwise), assets, properties, business,
operations or prospects of the Borrower, the Acquired Company, and their
subsidiaries taken as a whole, NationsBank and NCMI may, in their reasonable
discretion, suggest alternative financing amounts or structures that ensure
adequate protection for the Lenders or decline to participate in the proposed
financing.
You agree to actively assist NationsBank and NCMI in achieving syndication of
the Senior Credit Facilities in a manner reasonably satisfactory to
NationsBank, NCMI and you. In the event that such syndication cannot be
achieved in a manner reasonably satisfactory to NationsBank, NCMI and you under
the structure outlined in the Term Sheet you agree to cooperate with
NationsBank and NCMI in developing an alternative structure that will permit
syndication of the Senior Credit Facilities in a manner reasonably satisfactory
to NationsBank, NCMI and you. Syndication of the Senior Credit Facilities will
be accomplished by a variety of means, including direct contact during the
syndication between senior management and advisors of the Borrower and the
proposed Lenders. To assist NationsBank and NCMI in the syndication efforts,
you hereby agree to (a) provide and cause your advisors to provide NationsBank
and NCMI and the other Lenders upon request with all information reasonably
deemed necessary by NationsBank and NCMI to complete syndication, including but
not limited to information and evaluations prepared by the Borrower and its
advisors, or on their behalf, relating to the Merger, (b) assist NationsBank
and NCMI upon their reasonable request in the preparation of an Information
Memorandum to be used in connection with the syndication of the Senior Credit
Facilities and (c) otherwise assist NationsBank and NCMI in their syndication
efforts, including making available officers and advisors of the Borrower and
its subsidiaries from time to time to attend and make presentations regarding
the business and prospects of the Borrower and the Acquired Company and their
subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders.
You further agree to refrain from engaging in any additional debt financings
for the Acquired Company (except as described in this letter and except for the
Subordinated Debt) during such syndication process unless otherwise agreed to
by NationsBank and NCMI.
It is understood and agreed that NationsBank and NCMI, after consultation with
you, will manage and control all aspects of the syndication, including
decisions as to the selection of proposed Lenders and any titles offered to
proposed Lenders, when commitments will be accepted and the final allocations
of the commitments among the Lenders. NationsBank agrees to use its reasonable
efforts to satisfy the Borrower's preferences with respect to the selection of
proposed Lenders and the final allocation of the commitments among the Lenders.
It is understood that no Lender participating in the Senior Credit Facilities
will receive compensation from you outside the terms contained herein and in
the Term Sheet in order to obtain its commitment. It is also understood and
agreed that the amount and distribution of the fees among the Lenders will be
at the sole discretion of NationsBank and NCMI and that any syndication prior
to execution of definitive documentation will reduce the commitment of
NationsBank.
You hereby represent, warrant and covenant that to the best of your knowledge
(a) all information, other than Projections (as defined below), which has been
or is hereafter made
<PAGE> 4
Pillowtex Corporation
September 10, 1997
Page 4
available to NationsBank and NCMI or the Lenders by you or any of your
representatives in connection with the transactions contemplated hereby
("Information") is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained
therein not misleading, and (b) all financial projections concerning the
Borrower and the Acquired Company that have been or are hereafter made
available to NationsBank and NCMI or the Lenders by you or any of your
representatives (the "Projections") have been or will be prepared in good faith
based upon reasonable assumptions. You agree to furnish us with such
Information and Projections as we may reasonably request and to supplement the
Information and the Projections from time to time until the closing date for
the Senior Credit Facilities so that the representation and warranty in the
preceding sentence is correct on the such date. In arranging and syndicating
the Senior Credit Facilities, NationsBank and NCMI will be using and relying on
the Information and the Projections without independent verification thereof.
By executing this Commitment Letter you also agree to reimburse NationsBank and
NCMI from time to time on demand for all reasonable out-of-pocket fees and
expenses (including, but not limited to, the reasonable fees, disbursements and
other charges of legal counsel to NationsBank) incurred in connection with the
Senior Credit Facilities and the preparation of the definitive documentation
for the Senior Credit Facilities and the other transactions contemplated
hereby.
IN THE EVENT THAT NATIONSBANK OR NCMI BECOMES INVOLVED IN ANY CAPACITY IN ANY
ACTION, PROCEEDING OR INVESTIGATION IN CONNECTION WITH ANY MATTER CONTEMPLATED
BY THIS LETTER, THE BORROWER WILL REIMBURSE NATIONSBANK AND NCMI FOR THEIR
REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION
AND PREPARATION) AS THEY ARE INCURRED BY NATIONSBANK OR NCMI. THE BORROWER ALSO
AGREES TO INDEMNIFY AND HOLD HARMLESS NATIONSBANK, NCMI AND THEIR AFFILIATES
AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE
"INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES AND
LIABILITIES, JOINT OR SEVERAL, RELATED TO OR ARISING OUT OF ANY MATTERS
CONTEMPLATED BY THIS LETTER (INCLUDING ANY ARISING OUT OF THE NEGLIGENCE OF ANY
INDEMNIFIED PARTY), UNLESS AND ONLY TO THE EXTENT THAT IT SHALL BE FINALLY
JUDICIALLY DETERMINED THAT SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES RESULTED
PRIMARILY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NATIONSBANK, NCMI
OR SUCH OTHER INDEMNIFIED PARTY.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitment of NationsBank and NCMI hereunder, provided,
however, that the provisions of the immediately preceding two paragraphs shall
be superseded by the provisions of the definitive financing documentation.
As described herein and in the Term Sheet, NCMI will act as Arranger and
Syndication Agent for the Senior Credit Facilities. NationsBank reserves the
right to allocate, in whole or in part, to NCMI certain fees payable to
NationsBank in such manner as NationsBank
<PAGE> 5
Pillowtex Corporation
September 10, 1997
Page 5
and NCMI agree in their sole discretion. You acknowledge and agree that
NationsBank may share with any of its affiliates (including specifically NCMI)
any information relating to the Senior Credit Facilities, the Borrower, the
Acquired Company and their subsidiaries and affiliates, subject to a
confidentiality agreement reasonably acceptable to you.
This Commitment Letter may not be assigned without the prior written consent of
NationsBank and NCMI.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than 5:00 p.m. Dallas, Texas
time on September 11, 1997. This letter agreement will become effective upon
your delivery to us of executed counterparts of this letter agreement and the
fee letter of even date herewith (the "Fee Letter") and, without limiting the
more specific terms hereof and of the Term Sheet, you agree upon acceptance of
this commitment to pay the fees set forth in the Term Sheet and in the Fee
Letter. This commitment shall terminate if not so accepted by you prior to that
time. Following acceptance by you, this commitment will terminate on December
31, 1997 , unless the Senior Credit Facilities are closed by such time.
Except as required by applicable law, this Commitment Letter, the Term Sheet,
and the Fee Letter and the contents hereof and thereof shall not be disclosed
by you to any third party without the prior consent of NationsBank and NCMI,
other than to your attorneys, financial advisors and accountants, in each case
to the extent necessary in your reasonable judgment; provided, however, it is
understood and agreed that after your acceptance of this Commitment Letter, the
Term Sheet and the Fee Letter you may disclose the terms of this letter and the
Term Sheet (but not the Fee Letter) to the Acquired Company and its attorneys
and financial advisors and accountants in connection with the Merger, in
filings with the SEC and other applicable regulatory authorities and stock
exchanges, and in proxy and other materials disseminated to stockholders and
other purchasers of securities of the Borrower. Without limiting the foregoing,
in the event that you disclose the contents of this letter or the Fee Letter in
contravention of the preceding sentence, you shall be deemed to have accepted
the terms of this Commitment Letter and Term Sheet, and the Fee Letter.
THIS COMMITMENT LETTER (INCLUDING THE TERM SHEET), THE FEE LETTER AND ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
{Remainder of page intentionally left blank}
<PAGE> 6
Pillowtex Corporation
September 10, 1997
Page 6
This letter may be executed in counterparts which, taken together, shall
constitute an original.
Very truly yours,
NATIONSBANK OF TEXAS, N.A.
By: /s/ DOUGLAS E. HUTT
------------------------------
Title: Senior Vice President
NATIONSBANC CAPITAL MARKETS, INC.
By: /s/ HAROLD R. BATTIE
------------------------------
Title: Managing Director
ACCEPTED AND AGREED TO:
PILLOWTEX CORPORATION
By: /s/ JEFFREY D. CORDES
------------------------------
Title: President and COO
Date: 9/10/97
<PAGE> 7
EXHIBIT A
PILLOWTEX CORPORATION
SUMMARY OF INDICATIVE TERMS AND CONDITIONS
SEPTEMBER 10, 1997
===============================================================================
BORROWER: Pillowtex Corporation.
GUARANTORS: The Senior Credit Facilities
shall be guaranteed by all existing
and hereafter acquired domestic
subsidiaries of the Borrower (the
"Guarantors") upon consummation of
the Merger. All guarantees shall be
guarantees of payment and not of
collection.
AGENT: NationsBank of Texas, N.A. (the
"Agent" or "NationsBank") will act as
sole and exclusive administrative and
collateral agent. As such,
NationsBank will negotiate with the
Borrower, act as the primary contact
for the Borrower and perform all
other duties associated with the role
of exclusive administrative agent. No
other agents or co-agents may be
appointed without the prior written
consent of the Borrower, NationsBank
and NCMI.
ARRANGER &
SYNDICATION AGENT: NationsBanc Capital Markets, Inc.
("NCMI").
LENDERS: A syndicate of financial institutions
(including NationsBank) arranged by
NCMI, which institutions shall be
reasonably acceptable to the Borrower
and the Agent (collectively, the
"Lenders").
SENIOR CREDIT FACILITIES: An aggregate principal amount of
up to $600 million will be available
under the conditions hereinafter set
forth:
Revolving Credit Facility: $350
million revolving credit facility,
which will include a $40 million
sublimit for the issuance of standby
and commercial letters of credit
(each a "Letter of Credit"). Letters
of Credit will be issued by
NationsBank (in such capacity, the
"Fronting Bank"), and each Lender
will purchase an irrevocable and
unconditional participation in each
Letter of Credit. Up to $15 million
of the Revolving Credit Facility will
be available for swing line advances
to be funded solely by the Agent
("Swing Line Loans"). Swing Line
Loans will constitute usage under the
Revolving Credit Facility (except for
purposes of computing the Commitment
Fee), and will reduce availability
for Revolving Credit Loans and
Letters of Credit. At any time
(including during the continuance of
an event of default) the Agent may
require that its Swing Line Loans be
refinanced with new Revolving Credit
Loans which will be made pro-rata by
all Lenders.
A-1
<PAGE> 8
Term Loan Facility: $250 million term
loan facility comprised of two
separate term loan tranches:
(i) $125 million Tranche A Term
Loan.
(ii) $125 million Tranche B Term
Loan.
PURPOSE: The proceeds of the Senior Credit
Facilities shall be used: (i) to
refinance certain existing
indebtedness of the Borrower and the
Acquired Company (ii) to purchase the
capital stock of the Acquired Company
pursuant to the Merger Agreement (as
defined below) and to pay any
conversion consideration requested by
holders of the Acquired Company's 6%
convertible subordinated debentures;
(iii) to pay fees and expenses
incurred in connection with the
Merger, and (iv) to provide for
working capital and general corporate
purposes of the Borrower.
INTEREST RATES: The Senior Credit Facilities (except
for Swing Line Loans) shall bear
interest, at the option of the
Borrower, at a rates per annum equal
to either (i) the LIBOR interbank
rate, adjusted for reserves, or (ii)
the Base Rate (defined as the higher
of (a) the NationsBank prime rate and
(b) the Federal Funds rate plus
1/2%), in each case plus the
"Applicable Margins" set forth
below.
<TABLE>
<CAPTION>
x = Ratio of Debt/EBITDA LIBOR + * Base Rate + *
------------------------ --------- -------------
<S> <C> <C>
x < or = to 5.50 225 bps 75 bps
5.00 < or = to x < 5.50 200 bps 50 bps
4.50 < or = to x < 5.00 175 bps 25 bps
4.00 < or = to x < 4.50 150 bps 0 bps
3.50 < or = to x < 4.00 125 bps 0 bps
3.00 < or = to x < 3.50 100 bps 0 bps
x < 3.00 75 bps 0 bps
</TABLE>
* The Applicable Margins shown above
are applicable only to the Revolving
Credit Loans and Tranche A Term Loan.
The Applicable Margins with respect
to the Tranche B Term Loan shall be
equal to the Applicable Margins shown
above, plus 50 bps. Nothwithstanding
the foregoing, the Applicable Margins
with respect to the Tranche B Term
Loan shall never be reduced below
Libor + 200bps and Base Rate + 50
bps.
Swing Line Loans shall bear interest
at the Base Rate plus the Applicable
Margins shown above, less the
Commitment Fee.
The Borrower's initial Applicable
Margins shall be based upon the
Borrower's ratio of Debt/EBITDA at
Closing using the most recent
combined LTM EBITDA of the Borrower
and the Acquired Company adjusted to
include those pro-forma cost savings
permitted by the Borrower's
independent accountants in accordance
with Regulation S-X. Notwithstanding
the foregoing, the Borrower's initial
Applicable Margins shall not assume a
ratio of Debt/EBITDA of less than
5.00 to 1.00. Changes in the
Borrower's Applicable Margin will be
effective two business days following
the Agent's receipt of financial
statements indicating a change,
commencing with the receipt of the
Borrower's 3-31-98 financial
statements.
A-2
<PAGE> 9
If during the 180 day period
following the Closing, any breakage
costs, charges or fees are incurred
with respect to LIBOR loans on
account of the syndication of the
Senior Credit Facilities, the
Borrower shall immediately reimburse
the Agent for any such costs, charges
or fees. Such right of reimbursement
to be in addition to and not in
limitation of customary cost and
yield protection.
The Borrower may select interest
periods of 1, 2, 3 or 6 months for
LIBOR loans, subject to availability.
A penalty rate shall apply on all
loans in the event of default at a
rate per annum of 2% above the
applicable interest rate.
The loan documentation shall include
cost and yield protection customary
for transaction and facilities of
this type, including without
limitation changes in capital
adequacy and capital requirements or
their interpretation, illegality,
unavailability, and reserves, all
without proration or offset.
LETTER OF CREDIT FEES: Letter of Credit fees are due
quarterly in arrears to be shared
proportionately by the Lenders. Fees
will be equal to (i) for standby
Letters of Credit 100%, and (ii) for
commercial Letters of Credit 50%, of
the Libor Applicable Margin for
Revolving Credit Loans in effect from
time to time on a per annum basis,
plus a fronting fee of 12.5 bps per
annum to be paid to Fronting Bank for
its own account. Fees will be
calculated on the aggregate stated
amount for each letter of credit for
the stated duration thereof.
COMMITMENT FEE A 50 basis points per annum
(calculated on the basis of actual
number of days elapsed in a year of
360 days) Commitment Fee calculated
on the unused portion of the Senior
Credit Facilities shall commence to
accrue upon the closing of a
definitive credit agreement, and
shall thereafter be payable quarterly
in arrears. The Commitment Fee shall
be reduced (i) to 37.5 basis points
per annum for any period where the
Borrower's ratio of Debt/EBITDA <
4.00, and (ii) to 25 basis points
during any period where the
Borrower's ratio of Debt/EBITDA <
3.50. For purposes of determining the
Commitment Fee, Revolving Credit
Loans and Letters of Credit, but not
Swing Line Loans, constitute usage.
MATURITY: The Revolving Credit Facility
shall terminate and all amounts
outstanding thereunder shall be due
and payable in full six years from
12/31/97.
The Term Loan Facility shall be
subject to repayment according to the
Scheduled Amortization, with the
final payment of all amounts
outstanding, plus accrued interest,
being due six years from 12/31/97 for
the Tranche A Term Loan and seven
years from 12/31/97 for the Tranche B
Term Loan.
AVAILABILITY/SCHEDULED
AMORTIZATION: Revolving Credit Facility: Loans
under the Revolving Credit Facility
("Revolving Credit Loans" and "Swing
Line Loans", and
A-3
<PAGE> 10
together with the Term Loans, the
"Loans") may be made, and Letters of
Credit may be issued subject to
availability.
Term Loan Facility: Loans under the
Term Loan Facility ("Term Loans")
will be available in a single
borrowing at Closing and be subject
to quarterly amortization of
principal, based upon the annual
amounts shown below (the "Scheduled
Amortization").
<TABLE>
<CAPTION>
Tranche A Tranche B
Year Ending Term Loan Term Loan
----------- --------- ---------
<S> <C> <C>
12/31/98 $0 $1,250,000
12/31/99 $5,000,000 $1,250,000
12/31/00 $15,000,000 $1,250,000
12/31/01 $25,000,000 $1,250,000
12/31/02 $35,000,000 $1,250,000
12/31/03 $45,000,000 $1,250,000
12/31/04 $0 $117,500,000
</TABLE>
SECURITY: Concurrently with the Merger, the
Agent (on behalf of the Lenders)
shall receive a first priority
perfected security interest in all of
the capital stock of each of the
domestic subsidiaries (direct or
indirect) of the Borrower and 65% of
the capital stock of each foreign
subsidiary (direct or indirect) of
the Borrower, which capital stock
shall not be subject to any other
lien or encumbrance. The Agent (on
behalf of the Lenders) shall also
receive a first priority perfected
security interest in all other
presently unencumbered and future
domestic assets and properties of the
Borrower and its subsidiaries
(including, without limitation,
accounts receivable, inventory,
material real property, machinery,
equipment, contracts, trademarks,
copyrights, patents, license
agreements, and general intangibles).
The foregoing security shall ratably
secure the Senior Credit Facilities
and any interest rate swap/foreign
currency swap or similar agreements
with a Lender under the Senior Credit
Facilities.
MANDATORY PREPAYMENTS
AND COMMITMENT
REDUCTIONS: Until the Borrower's ratio of
Debt/EBITDA less than 4.00, in
addition to the amortization set
forth above, the Term Loan Facility
will be prepaid by an amount equal to
(a) 100% of the net cash proceeds of
all asset sales by the Borrower or
any subsidiary of the Borrower
(including stock of subsidiaries),
subject to de minimus baskets and
reinvestment provisions to be agreed
upon and net of selling expenses and
taxes to the extent such taxes are
paid; (b) 75% of Excess Cash Flow (to
be defined) pursuant to an annual
cash sweep arrangement; (c) 100% of
the net cash proceeds from the
issuance of any debt after the
Closing by the Borrower or any
subsidiary (excluding certain
permitted debt and Subordinated Debt
issued to refinance the Bridge
Notes); and (d) 50% of the net cash
proceeds from the issuance of equity
by the Borrower or any subsidiary
after the Closing (excluding equity
proceeds that are applied to repay
the Bridge Notes). Prepayments shall
be applied pro rata to reduce
A-4
<PAGE> 11
the Tranche A Term Loan and the
Tranche B Term Loan, and within each
tranche, pro rata with respect to
each remaining installment of
principal.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the
Senior Credit Facilities in whole or
in part at any time without premium
or penalty, subject to reimbursement
of the Lenders' breakage and
re-deployment costs in the case of
prepayment of LIBOR borrowings.
Optional Prepayments of the Term
Loans shall be applied pro rata to
reduce the Tranche A Term Loan and
the Tranche B Term Loan, and within
each tranche, pro rata with respect
to each remaining installment of
principal.
CONDITIONS PRECEDENT
TO CLOSING: The initial funding of the
Senior Credit Facilities will be
subject to the satisfaction of
conditions precedent usual and
customary for leveraged financings
generally and for this transaction in
particular, including but not limited
to the following:
(i) The negotiation, execution
and delivery of definitive
documentation with respect
to the Senior Credit
Facilities reasonably
satisfactory to NCMI, the
Agent and the Lenders.
(ii) The Merger shall have been
consummated in accordance
with the terms of the Merger
Agreement and in compliance
with applicable law and
regulatory approvals. The
Merger Agreement shall not
have been altered, amended
or otherwise changed or
supplemented in any material
respect or any material
condition therein waived,
without the prior written
consent of the Agent, which
shall not be unreasonably
withheld.
(iii) The Agent shall be satisfied
that after giving affect to
transactions contemplated
hereby, at the Closing (a)
the Borrower will have not
less than $40 million of
availability under the
Revolving Credit Facility
immediately after the
initial funding of the
Senior Credit Facilities
(with such amount being
increased by 79.42% of any
conversion consideration
which may be requested by
holders of the Acquired
Company's 6% convertible
subordinated debentures
after the initial funding of
the Senior Credit
Facilities), (b) the
Borrower shall have issued
the Bridge Notes in
accordance with the
commitment letter of
NationsBridge, L.L.C. of
even date herewith, or other
Subordinated Debt on terms
satisfactory to the Agent,
in an amount of not less
than $150 million, (c) the
Borrower shall have received
net proceeds of not less
than $64 million from its
issuance of new preferred
stock of the Borrower on
substantially the terms set
forth in the September 9,
1997 draft of the Preferred
Stock Purchase Agreement of
even date herewith, and (d)
the Borrower shall have
issued its common stock as
partial consideration for
not less than
A-5
<PAGE> 12
20.58% of the aggregate
value of all capital stock
of the Acquired Company
acquired by the Borrower and
any conversion consideration
requested by holders of the
Acquired Company's 6%
convertible subordinated
debentures at the Closing.
(iv) There shall not have
occurred, in the Agent's
reasonable estimation, a
material adverse change
since December 31, 1996 in
the business, assets,
operations, condition
(financial or otherwise) or
prospects of the Borrower
and its subsidiaries and the
Acquired Company and its
subsidiaries taken as a
whole, or in the facts and
information regarding such
entities as represented to
date.
(v) The Agent shall have
received (a) satisfactory
opinions of counsel to the
Borrower (which shall cover,
among other things,
authority, legality,
validity, binding effect and
enforceability of the
documents for the Senior
Credit Facilities) and such
corporate resolutions,
certificates and other
documents as the Agent shall
reasonably require and (b)
satisfactory evidence that
the Agent (on behalf of the
Lenders) holds a perfected,
first priority lien in all
collateral for the Senior
Credit Facilities, subject
to no other liens except for
permitted liens to be
determined.
(vi) Receipt of all governmental,
shareholder and third party
consents (including
Hart-Scott Rodino clearance)
and approvals necessary, in
the reasonable opinion of
the Agent, in connection
with the purchase of the
Acquired Company and the
related financings and other
transactions contemplated
hereby and expiration of all
applicable waiting periods
without any action being
taken by any authority that
could restrain, prevent or
impose any material adverse
conditions on the Borrower
and its subsidiaries
(including the Acquired
Company and its
subsidiaries), or such other
transactions, or that could
seek or threaten any of the
foregoing, and no law or
regulation shall be
applicable which in the
judgment of the Agent
could have such effect.
(vii) The Borrower and its
subsidiaries (including the
Acquired Company and its
subsidiaries) shall be in
compliance with all existing
financial obligations (after
giving effect to the
Merger).
REPRESENTATIONS &
WARRANTIES: Usual and customary for transactions
of this type, to include without
limitation: (i) corporate status;
(ii) corporate power and
authority/enforceability; (iii) no
violation of law or contracts or
organizational documents; (iv) no
material litigation; (v) correctness
of specified financial statements and
no material adverse change; (vi) no
required governmental or third party
approvals; (vii) use of
proceeds/compliance with margin
regulations; (viii) status under
Investment Company Act; (ix) ERISA;
(x) environmental matters; (xi)
perfected liens and
A-6
<PAGE> 13
security interests; (xii) payment of
taxes, and (xiii) consummation of the
Merger.
COVENANTS: Usual and customary for transactions
of this type, to include without
limitation: (i) delivery of financial
statements and other reports; (ii)
delivery of compliance certificates:
(iii) notices of default, material
litigation and material governmental
and environmental proceedings; (iv)
compliance with laws; (v) payment of
taxes; (vi) maintenance of insurance;
(vii) limitation on liens; (viii)
limitations on mergers,
consolidations and sales of assets;
(ix) limitations on incurrence of
debt; (x) limitations on dividends
and stock redemptions and the
redemption and/or prepayment of other
debt; (xi) limitations on
investments; (xii) ERISA; (xiii)
limitation on transactions with
affiliates; and (xiv) limitation on
capital expenditures.
Financial covenants to include (but
not limited to):
o Maintenance at all times of a
Minimum Net Worth, with step-up
provisions to be agreed upon,
o Maintenance on a rolling four
quarter basis of a Maximum
Leverage Ratio (total funded
debt/EBITDA), and
o Maintenance on a rolling four
quarter basis of a Minimum
Fixed Charge Coverage Ratio
(EBITDA less capital
expenditures)/(interest expense
+ scheduled principal
repayments).
EVENTS OF DEFAULT: Usual and customary in transactions
of this nature, and to include,
without limitation, (i) nonpayment of
principal, interest, fees or other
amounts, (ii) violation of covenants,
(iii) inaccuracy of representations
and warranties, (iv) cross-default to
other material agreements and
indebtedness, (v) bankruptcy, (vi)
material judgments, (vii) ERISA,
(viii) actual or asserted invalidity
of any loan documents or security
interests, or (ix) Change in Control
of the Borrower.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to
make assignments to other financial
institutions approved by the Borrower
and the Agent, which approval shall
not be unreasonably withheld. Lenders
will be permitted to sell
participations with voting rights
limited to significant matters such
as changes in amount, rate, and
maturity date. An assignment fee of
$3,500 is payable by the Lender to
the Agent upon any such assignment
occurring (including, but not limited
to an assignment by a Lender to
another Lender).
WAIVERS & AMENDMENTS: Amendments and waivers of the
provisions of the loan agreement and
other definitive credit documentation
will require the approval of Lenders
holding loans and commitments
representing more than 50% of the
aggregate amount of loans and
commitments under the Senior Credit
Facilities, except that (a) the
consent of all the Lenders affected
thereby shall be required with
respect to (i) increases in
commitment amounts, (ii) reductions
of principal, interest, or fees,
(iii) extensions of
A-7
<PAGE> 14
scheduled maturities or times for
payment, (iv) releases of all or
substantially all collateral and (v)
releases of all or substantially all
guarantors and (b) the consent of the
Lenders holding at least 50% of the
Tranche A Term Loan Facility and at
least 50% of the Tranche B Term Loan
Facility shall be required with
respect to any amendment that changes
the allocation of any payment between
the Tranche A and Tranche B Term Loan
Facilities.
INDEMNIFICATION: The Borrower shall indemnify the
Lenders from and against all losses,
liabilities, claims, damages or
expenses relating to their loans, the
Borrower's use of loan proceeds or
the commitments, including but not
limited to reasonable attorneys' fees
and settlements costs. This
indemnification shall survive and
continue for the benefit of the
Lenders at all times after the
Borrower's acceptance of the Lenders'
commitment for the Senior Credit
Facilities, notwithstanding any
failure of the Senior Credit
Facilities to close.
CLOSING: On or before December 31, 1997.
GOVERNING LAW: Texas
EXPENSES: Borrower will pay all reasonable
out-of-pocket costs and expenses
associated with the preparation, due
diligence, administration,
syndication and enforcement of all
documents executed in connection with
the Senior Credit Facilities,
including without limitation, the
reasonable legal fees of the Agent's
counsel regardless of whether or not
the Senior Credit Facilities are
closed.
OTHER: This term sheet is intended as an
outline only and does not purport to
summarize all the conditions,
covenants, representations,
warranties and other provisions which
would be contained in definitive
legal documentation for the Senior
Credit Facilities contemplated
hereby. The Borrower shall waive its
right to a trial by jury.
A-8
<PAGE> 1
EXHIBIT 10.2
________________________________________________________________________
PREFERRED STOCK PURCHASE AGREEMENT
dated as of September 10, 1997
between
PILLOWTEX CORPORATION
and
THE PURCHASERS SET FORTH HEREIN
________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS: CERTAIN REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 CLOSING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1 Time and Place of the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Transactions at the Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1 Organization, Power, Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.2 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Validity, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.8 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.9 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10 No Existing Violation, Default, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11 Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.12 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.17 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.18 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.19 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.20 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.21 Absence of Certain Developments; No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 17
Section 3.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.23 Securities Law Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.24 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.25 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.27 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.1 Organization, Good Standing, Power, Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.2 No Conflicts; No Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.3 Acquisition for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.4 Ownership of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.5 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.6 Investor Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.7 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.8 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.9 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.10 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.2 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Pre-Closing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.4 No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.5 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.6 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.7 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.9 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.10 Licenses; Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.11 Material Changes and Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.12 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.13 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.14 Operational Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6 SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Survival Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.3 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.4 Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 7 REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1 Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.2 Piggyback Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.3 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.4 Indemnification by the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.5 Notices of Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.6 Other Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.7 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.8 Registration Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.10 Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.11 Other Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.12 Rule 144; Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.13 Limitation on Requirement to File or Amend Registration Statement . . . . . . . . . . . . . . . . . 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.1 Compliance by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.4 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.5 Lauren Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.6 Articles of Incorporation and By-laws; Ownership Structure . . . . . . . . . . . . . . . . . . . . . 40
Section 9.7 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.8 Company Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.10 Condition and Status of the Company and the Target . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.11 Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.12 No Shareholders or Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.13 Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.14 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 10 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.1 Purchaser Representation and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.2 Target Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.3 No Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 11 MISCELLAENOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.3 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.9 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.11 Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
iii
<PAGE> 5
PREFERRED STOCK PURCHASE AGREEMENT dated as of September 10, 1997,
between PILLOWTEX CORPORATION, a Texas corporation (the "Company"), and the
purchasers set forth on Exhibit A hereto (each, including their respective
successors and permitted assigns, a "Purchaser" and, collectively, the
"Purchasers").
WHEREAS, as of September 5, 1997, the Company has issued and
outstanding 10,751,497 shares of common stock, par value $0.01 per share (the
"Common Stock"), being 100% of the outstanding Common Stock of the Company as
of such date and 20,000,000 shares of authorized preferred stock, par value
$0.01 per share (the "Preferred Stock"), being 100% of the authorized Preferred
Stock of the Company (none of which has been designated or is outstanding); and
WHEREAS, subject to the terms and conditions set forth herein, the
Purchasers will pay an aggregate of $65,000,000 as the purchase price (the
"Purchase Price") for 65,000 shares of Preferred Stock to be designated Series
A Redeemable Convertible Preferred Stock having the rights and preferences set
forth in Exhibit B hereto.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the other Investment Agreements, the Company and the Purchaser
agrees as follows:
ARTICLE 1
DEFINITIONS: CERTAIN REFERENCES
Section 1.1 Definitions. The terms defined in this Article 1,
whenever used in this Agreement, shall have the following meanings for all
purposes of this Agreement:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
"Affiliate" of any specified Person means:
(a) any other Person which, directly or indirectly, is in
control of, is controlled by or is under common control with
such specified Person; or
(b) any other Person which beneficially owns or holds ten
percent or more of any class of the share capital normally
entitled to vote in the election of directors of such
specified Person; or
(c) any other Person of which ten percent or more of the
share capital normally entitled to vote in the election of
directors of such Person is
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beneficially owned or held by such specified Person or a
subsidiary of such specified Person; or
(d) any other Person who is a director or officer (i) of
such specified Person; (ii) of any Subsidiary of such
specified Person or (iii) of any Person described in paragraph
(a) above; and
for purposes of this definition, "control" of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Preferred Stock Purchase Agreement,
including all exhibits and schedules attached hereto.
"Annual Report" means the Company's Annual Report on Form 10-K
for the 1996 Fiscal Year, as filed with the SEC.
"Apollo Purchasers" shall mean each of Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P. and Apollo (UK) Partners III,
L.P.
"Approval" means each and every authorization, approval,
consent, license, filing and registration by, with or from any nation or state
or other political subdivision thereof or by or with any regulatory or
governmental authority of any nation or state or other political subdivision
thereof, self-regulatory organization or stock exchange, necessary to authorize
or permit the execution, delivery or performance of this Agreement or any other
Transaction Document or for the validity, enforceability or admissibility into
evidence hereof or thereof.
"Articles of Incorporation" shall mean the Restated Articles
of Incorporation of the Company dated January 18, 1993, as amended by articles
of amendment dated March 12, 1993, in effect as of the date hereof, and as
amended, supplemented or restated from time to time.
A "Bankruptcy Event" shall be deemed to have occurred with
respect to a Person if such Person shall:
(i) generally fail to pay, or admit in writing
its inability to pay, its debts as they become due;
(ii) apply for, consent to or acquiesce in, the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its Material Subsidiaries or any property of any
thereof, or make a general assignment for the benefit
of creditors;
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(iii) in the absence of such application, consent
or acquiescence, permit or suffer to exist the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its Material Subsidiaries or for a substantial part
of the property of any thereof and such appointment
shall not be discharged within 30 days;
(iv) commence, or permit or suffer to exist the
commencement of, any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of
such Person or any of its Material Subsidiaries, and,
if such case or proceeding is not commenced by such
Person or any such Subsidiaries, such case or
proceeding shall be consented to or acquiesced in by
such Person or any of its Material Subsidiaries or
shall result in the entry of any order for relief or
shall remain for 30 days undismissed; or
(v) take any action to authorize any of the
foregoing.
"Bankruptcy Law" means Title 11, United States Code, or any
similar federal, state or foreign law for the relief of debtors.
"Benefits Plan" shall have the meaning set forth in Section
3.20.
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"By-laws" shall mean the By-laws of the Company as in effect
on the date hereof and as amended, supplemented or restated from time to time.
A "Change of Control" shall have the meaning set forth in the
Convertible Preferred Stock Statement of Resolution.
"Closing" shall have the meaning assigned to it in Section 2.1.
"Closing Date" shall have the meaning assigned to it in
Section 2.1.
"Code" means the United States Internal Revenue Code of 1986,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of the Code also refer to any successor sections.
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<PAGE> 8
"Convertible Preferred Stock Statement of Resolution" means
the provisions setting forth the designations of the Preferred Shares as set
forth in Exhibit B hereto.
"Conversion Shares" means the shares of Common Stock issuable
or issued upon conversion of the Preferred Shares pursuant to the terms of the
Convertible Preferred Stock Statement of Resolution.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Disclosure Schedule" means, prior to the date of delivery of
the Final Disclosure Schedule as described in Section 5.13, the Disclosure
Schedule attached hereto as Schedule I and, from and after such date, the Final
Disclosure Schedule provided pursuant to Section 5.13, as it may be amended,
supplemented or otherwise modified from time to time by the Company with the
written consent of the Purchaser.
"Dollars" and the sign "$" mean lawful money of the United
States.
"Environmental Laws" shall have the meaning set forth in
Section 3.13.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Event of Noncompliance" shall have the meaning assigned to it
in the Convertible Preferred Stock Statement of Resolution.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of 12 consecutive calendar
months ending on the Saturday closest to December 31; references to a Fiscal
Year with a number corresponding to any calendar year (e.g. the "1991 Fiscal
Year") refer to the Fiscal Year ending on the Saturday closest to December 31
occurring during such calendar year (or the preceding fiscal year in the event
that the Saturday closest to December 31 of such Fiscal Year is in January).
"GAAP" means generally accepted accounting principles
consistently applied in the United States, unless any other jurisdiction is
specified, in which case it shall be the equivalent set of accounting
principles for such jurisdiction.
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"Group" means two or more persons acting in concert or as a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding, voting or disposing of securities of an issuer.
"Indebtedness" shall mean (i) any obligation of the Company or
any Subsidiary, contingent or otherwise, which under GAAP is required to be
shown on the balance sheet of the Company or such Subsidiary as a liability and
(ii) any guaranty or similar obligation by the Company or any Subsidiary of the
indebtedness of any Person. Any obligation secured by a Lien on, or payable out
of the proceeds of or production from, property of the Company or any
Subsidiary shall be deemed to be indebtedness even though such obligation is
not assumed by the Company or Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a) all
Indebtedness in respect of money borrowed including, without limitation,
Indebtedness which represents the unpaid amount of the purchase price of any
property and is incurred in lieu of borrowing money or using available funds to
pay such amounts and not constituting an account payable or expense accrual
incurred or assumed in the ordinary course of business of the Company or any
Subsidiary, (b) all Indebtedness evidenced by a promissory note, bond or
similar written obligation to pay money, and (c) all such Indebtedness
guaranteed by the Company or any Subsidiary or for which the Company or any
Subsidiary is otherwise contingently liable by contract.
"Indenture" means the Indenture dated as of November 12, 1996,
between the Company, certain guarantors described therein and Bank One,
Columbus, N.A., as trustee, relating to the Series A and Series B 10% Senior
Subordinated Notes due 2006 of the Company as in effect on the Closing Date.
"Instrument" means any contract, agreement, indenture,
mortgage, security, document or writing under which any obligation is
evidenced, assumed or undertaken, or any Security Interest is granted or
perfected.
"Intellectual Property Rights" shall have the meaning set
forth in Section 3.25.
"Investment Agreements" means this Agreement and each
Instrument to be executed or delivered pursuant hereto including, without
limitation, the Convertible Preferred Stock Statement of Resolution, and the
letter agreement dated August 19, 1997 relating to transaction expenses between
the Company and Apollo Management, L.P.
"Lauren Agreement" shall have the meaning assigned to it in
Section 3.25.
"Licenses" shall have the meaning set forth in Section 3.11.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title
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<PAGE> 10
retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"Loan Documents" means, collectively, (i) those certain letter
agreements dated September 10, 1997 between NationsBank of Texas, N.A.,
NationsBank Capital Markets, Inc. and the Company relating to the provision to
the Company of a senior revolving credit facility in the aggregate amount up to
$350,000,000 and a senior term loan facility in an aggregate principal amount
of $250,000,000 and the payment by the Company of related fees; (ii) that
certain letter agreement, dated September 10, 1997, between NationsBridge,
L.L.C. and the Company relating to the provision to the Company of standby
credit facilities in an aggregate principal amount of up to $150,000,000 and
the payment by the Company of related fees (the "Bridge Facility"); and (iii)
that certain letter agreement dated September 10, 1997 between NationsBank
Capital Markets, Inc. and the Company relating to the engagement by the Company
of NationsBank Capital Markets, Inc. to act as lead placement agent or
underwriter in connection with the proposed issuance and sale of senior
subordinated debt securities in an aggregate principal amount of approximately
$150,000,000.
"Material Adverse Effect" means a material adverse effect on
the assets, results of operations, business, prospects or condition (financial
or otherwise) of the specified entity and its Subsidiaries, if any, taken as a
whole.
"Material Subsidiaries" means those Subsidiaries of the
specified entity that are material to such entity's results of operations,
business prospects or condition (financial or otherwise).
"Merger Agreement" means the Merger Agreement dated September
10, 1997 among the Company, the Target and Merger Sub set forth in Exhibit C
hereto.
"Merger Sub" means Pegasus Merger Sub, Inc., a Delaware
corporation.
"Person" means any natural person, corporation, firm,
association, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Preferred Shares" means shares of Series A Redeemable
Convertible Preferred Stock.
"Purchase Price" means the cash amount of $65,000,000 payable
by the Purchaser to the Company at Closing for the purchase of the Preferred
Shares.
"Quarterly Reports" means the Company's Quarterly Reports for
the Fiscal Quarters ended on the Saturday closest to March 31, 1997 and June
30, 1997 each as filed with the SEC under cover of Form 10-Q, and any
amendments thereto.
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"Representatives" shall have the meaning set forth in Section
5.7.
"Sale-Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary of
the Company transfers such property to a person and leases it back from such
person in a transaction accounted for as a capital lease under GAAP.
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Documents" means all documents filed by the Company with
the SEC since January 1, 1994.
"Security Interest" means any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other) or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
retention agreement), or any financing lease involving substantially the same
economic effect as any of the foregoing.
"Subsidiary" means, as to any Person, (a) any corporation 51%
or more of the outstanding shares of capital stock of which having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person and (b) any partnership, association, joint venture or other entity
in which such Person and/or one or more Subsidiaries of such Person has 51% or
more of an equity interest at the time. The Target shall not be deemed a
Subsidiary of the Company prior to the closing of the transactions contemplated
by the Merger Agreement.
"Target" shall mean Fieldcrest Cannon Inc., a Delaware
corporation.
"Target Acquisition" means the Company's proposed acquisition
of the Target pursuant to the terms of the Merger Agreement.
"Transaction Documents" means the Investment Agreements, the
Merger Agreement and the Loan Documents.
"Transaction Expenses" means the reasonable out of pocket
expenses of the Purchasers or any of their respective Affiliates (whether or
not incurred prior to the date hereof), including without limitation, the fees,
disbursements and other reasonable expenses of lawyers, accountants, actuaries,
appraisers, consultants and any other advisors thereto, arising out of or
relating to the discussion, evaluation, negotiation, documentation and closing
or potential closing of the transactions contemplated by the Investment
Agreements, without regard to whether or not such transactions are consummated.
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"United States" or "U.S." means the United States of America,
its 50 states and the District of Columbia.
Section 1.2 Terms Generally. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP.
ARTICLE 2
CLOSING AND PAYMENT
Section 2.1 Time and Place of the Closing. The closing for the
transactions contemplated to occur herein (the "Closing") shall take place at
the office of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue,
New York, New York 10022, on the date, and simultaneously with the time of
closing, contemplated by the Merger Agreement (provided that solely for
purposes of determining the temporal order of the Closing and the closing
contemplated by the Merger Agreement the Closing shall be deemed to have
occurred immediately prior to the closing contemplated by the Merger
Agreement), or on such other date and/or at such other place as the parties
shall mutually agree (the "Closing Date").
Section 2.2 Transactions at the Closing. At the Closing, subject to
the terms and conditions of this Agreement, the Company shall issue and sell to
the Purchasers, and the Purchasers shall purchase from the Company, an
aggregate of 65,000 Preferred Shares in the amounts set forth beside their
respective names on Exhibit A hereto. The aggregate Purchase Price for all the
Preferred Shares shall be $65,000,000, payable by wire transfer of immediately
available funds to an account or accounts previously designated in writing by
the Company at least two Business Days prior to the Closing Date. At the
Closing, the Company shall deliver to the Purchasers certificates representing
an aggregate of 65,000 Preferred Shares, each registered in the name of the
respective Purchaser or its nominee against payment to the Company of the
portion of the Purchase Price with respect thereto payable by such Purchaser.
The obligations of the Apollo Purchasers contained in this Section 2.2 shall be
joint and several.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers
that:
Section 3.1 Organization, Power, Authority, Etc. The Company is a
company validly organized and existing and in good standing under the laws of
Texas; each Subsidiary of the Company is validly organized and existing and in
good standing under the laws of its jurisdiction of incorporation; each of the
Company and each Subsidiary of the Company is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction where the
nature of its business makes such qualification necessary except for such
failures to be so qualified as would not individually or in the aggregate have
a Material Adverse Effect on the Company; and the Company and each of its
Subsidiaries has full power and authority to own and hold under lease its
property and to conduct its business substantially as presently conducted by it
except for such failures to have power and authority as would not individually
or in the aggregate have a Material Adverse Effect on the Company. The Company
has full power and authority to enter into and perform its obligations under
this Agreement and each other Transaction Document executed or to be executed
by it.
Section 3.2 Due Authorization. Except as set forth in Item 3.2 of
the Disclosure Schedule, the execution and delivery by the Company of this
Agreement, each other Transaction Document and each other certificate or
document executed or to be executed by it, the performance by the Company of
its obligations hereunder and thereunder and the issuance of the Preferred
Shares, including the issuance of Common Stock upon the conversion thereof, by
the Company have been duly authorized by all necessary corporate proceedings on
the part of the Company (and no other corporate proceedings or actions on the
part of the Company or its board of directors or stockholders are necessary
therefor except for the approval in accordance with applicable law by holders
of a majority of the Company's Common Stock present at a meeting at which a
quorum is present and entitled to vote of the issuance of the Common Stock and
Preferred Shares to be issued in connection with the Target Acquisition, this
Agreement and the Convertible Preferred Stock Statement of Resolution), do not
require any Approval which has not been obtained and will not be obtained prior
to the Closing Date, do not and will not conflict with, result in any violation
of, or constitute any default under, any provision of the Articles of
Incorporation or By-laws of the Company, conflict with any provision of any
material Instrument of the Company or any Subsidiary or any present law or
governmental regulation applicable to the Company, any Subsidiary or any of its
or their assets, properties or operations or any court decree or order
applicable to the Company, any Subsidiary of the Company or its or their
assets, properties or operations and will not result in or require the creation
or imposition of any Security Interest on any of the properties of the Company
or any Subsidiary of the Company pursuant to any material Instrument or result
in the acceleration of any Indebtedness of the Company or any of its
Subsidiaries, other than pursuant to any Transaction Document.
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Section 3.3 Validity, Etc. This Agreement constitutes, and each
other Transaction Document executed by the Company will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Company enforceable in accordance with their respective terms.
Section 3.4 Capitalization of the Company. The authorized capital
stock of the Company will at the Closing consist of: (A) 30,000,000 shares of
Common Stock (subject to increase to 40,000,000 shares, subject to shareholder
approval), 10,752,492 of which shares are outstanding on the date hereof and
613,390 of which shares are reserved for issuance pursuant to outstanding
options to purchase shares of Common Stock granted under the Company's stock
option plans, and (B) 20,000,000 shares of Preferred Stock, of which 200,000
will be designated Preferred Shares, 65,000 of which Preferred Shares will be
issued and outstanding and owned by the Purchasers, at the Closing. No other
capital stock of the Company is, or at the Closing will be, authorized and no
other capital stock is, or at the Closing will be, issued. At the Closing, all
of the Preferred Shares will be duly authorized and, when issued in accordance
with this Agreement, will be validly issued, fully paid and nonassessable and
entitled to the benefits of, and have the terms and conditions set forth in,
the Articles of Incorporation. Except as set forth in Item 3.4 of the
Disclosure Schedule and except as contemplated by this Agreement, there are no
outstanding (A) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B) warrants, rights or
options to subscribe for or purchase from the Company any capital stock or any
such convertible or exchangeable securities or obligations or (C) obligations
of the Company to issue such shares, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options. No person
has preemptive or similar rights with respect to the securities of the Company.
Except as set forth in Item 3.4 of the Disclosure Schedule, the consummation of
the transactions contemplated by the Merger Agreement will not permit any
holders of Indebtedness of the Company or the Target to convert such
Indebtedness to capital stock of the Company or the Target.
Section 3.5 Financial Statements. The audited consolidated financial
statements and related schedules and notes included in the SEC Documents comply
in all material respects with the requirements of the Exchange Act and the Act,
were prepared in accordance with GAAP consistently applied throughout the
periods involved (except as may be indicated in the notes thereto) and fairly
present, in all material respects, the consolidated financial condition,
results of operations, cash flows and changes in stockholders' equity of the
Company and its consolidated Subsidiaries at the dates and for the periods
presented. The unaudited quarterly consolidated financial statements and the
related notes included in the SEC Documents fairly present, in all material
respects, the consolidated financial condition, results of operations, cash
flows and changes in stockholders' equity of the Company and its Subsidiaries
at the dates and for the periods to which they relate, subject to year-end
audit adjustments (consisting only of normal recurring accruals), have been
prepared in accordance with GAAP applied on a consistent basis except as
otherwise stated therein and have been prepared on a basis consistent with
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<PAGE> 15
that of the audited financial statements referred to above except as otherwise
stated therein.
Section 3.6 SEC Documents.
(a) The Company has delivered or made available to the
Purchasers true and complete copies of: (i) the Annual
Report, (ii) its Quarterly Reports and any other reports filed
under cover of Form 8-K filed with the SEC since December 31,
1996, and (iii) all other SEC Documents.
(b) As of its filing date, each SEC Document (including
all exhibits and schedules thereto and documents incorporated
by reference therein) referred to in (a) above, and each SEC
Document (including all exhibits and schedules thereto and
documents incorporated by reference therein) that will be
filed by the Company prior to the Closing Date, as amended or
supplemented, if applicable, pursuant to the Exchange Act (i)
complied or will comply in all material respects with the
applicable requirements of the Exchange Act and (ii) did not
or will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances
under which they were made, not misleading.
(c) Each registration statement (including all exhibits
and schedules thereto and documents incorporated by reference
therein) referred to in clause (a)(iii) filed, and any
registration statement (including all exhibits and schedules
thereto and documents incorporated by reference therein) that
will be filed by the Company prior to the Closing Date
(including, without limitation, the Joint Proxy
Statement/Prospectus contemplated by the Merger Agreement), as
amended or supplemented, if applicable, pursuant to the Act,
as of the date such statement or amendment became or will
become effective (i) complied or will comply in all material
respects with the applicable requirements of the Act and (ii)
did not or will not 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 (in the case of any prospectus, in light of the
circumstances under which they were made).
(d) The Company has delivered or made available to the
Purchasers true and complete copies of all correspondence
between the SEC and the Company or its legal counsel,
accountants or other advisors since January 1, 1996. The
Company is not aware of any issues raised by the SEC with
respect to any of the SEC Documents, other than those
disclosed to the Purchaser pursuant to this Section 3.6(d).
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Section 3.7 Subsidiaries. Exhibit 21 to the Annual Report is a true,
accurate and correct statement of all of the information required to be set
forth therein by the rules and regulations of the SEC. Except as set forth in
Item 3.7 of the Disclosure Schedule, all of the outstanding capital stock of
each Material Subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through other
Subsidiaries of the Company, free and clear of any Security Interest,
restrictions upon voting or transfer, claim or encumbrance of any kind (other
than such transfer restrictions as may exist under federal and state securities
laws or any encumbrances between or among the Company and/or any Subsidiary of
the Company), and there are no rights granted to or in favor of any third
party, other than the Company or any Subsidiary of the Company, to acquire any
such capital stock, any additional capital stock or any other securities of any
such Subsidiary. Except as set forth in Item 3.7 of the Disclosure Schedule,
there exists no restriction on the payment of cash dividends by any Subsidiary
of the Company.
Section 3.8 Contingent Liabilities. Except as set forth in Item 3.8
of the Disclosure Schedule or as fully reflected or reserved against in the
financial statements included in the Annual Report or the Company's report for
the Fiscal Year ended December 28, 1996, filed under cover of Form 10-K, or
disclosed in the footnotes contained in such financial statements, the Company
and its Subsidiaries have no liabilities (including tax liabilities), absolute
or contingent, having or which either individually or in the aggregate are
reasonably likely to have a Material Adverse Effect on the Company.
Section 3.9 Approvals. Except as set forth on Item 3.9 of the
Disclosure Schedule, no Approval is required to be obtained by the Company or
any Subsidiary of the Company for the consummation of the transactions
contemplated by this Agreement or by any of the Transaction Documents.
Section 3.10 No Existing Violation, Default, Etc. None of the
Company or any of the Company's Subsidiaries is in violation of (A) its
Articles of Incorporation, By-laws or other organization documents or (B)
except as set forth in Item 3.10 of the Disclosure Schedule, any applicable
law, ordinance, administrative, governmental or stock exchange rule or
regulation, which violation has or could reasonably be expected to have a
Material Adverse Effect on the Company, or (C) except as set forth in Item 3.10
of the Disclosure Schedule, any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any such
Subsidiary, which violation has or could reasonably be expected to have a
Material Adverse Effect on the Company. Except as disclosed in Item 3.10 of the
Disclosure Schedule, no event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default
exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement or any of the Transaction Documents, will exist
under any Instrument to which the Company or any of the Company's Subsidiaries
is a party or by which the Company or any such Subsidiary is bound or to which
any of the properties, assets or operations of the Company or any such
Subsidiary is subject, which event of default, or
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<PAGE> 17
event that, but for the giving of notice or the lapse of time or both, would
constitute an event of default, has or could reasonably be expected to have a
Material Adverse Effect on the Company. The Preferred Shares will not be
deemed Disqualified Stock as such term is defined in the Indenture.
Section 3.11 Licenses, Etc. The Company and its Subsidiaries hold,
own or possess all such governmental, regulatory and other filings, licenses,
approvals, registrations, consents, franchises, concessions, patents, patent
licenses or rights, trademarks, trade names, service marks, permits and
copyrights (collectively, "Licenses") as are necessary for the ownership of the
property and conduct of the business of the Company and its Subsidiaries, as
now conducted without, individually or in the aggregate, any infringement upon
rights of other Persons, any violation of law or regulation or any breach of a
contractual obligation, except to the extent that the failure to hold, own or
possess such Licenses would not have a Material Adverse Effect on the Company.
To the best of the Company's knowledge, none of such Licenses has been
challenged or revoked and no statement of intention to challenge, revoke or
fail to renew any such License has been received by the Company or any
Subsidiary. To the best of the Company's knowledge, after due inquiry, the
Company and its Subsidiaries are in compliance with their respective
obligations under such Licenses, with such exceptions as individually or in the
aggregate do not have, and are not reasonably expected to have, a Material
Adverse Effect on the Company, and no event has occurred that allows, or after
notice or lapse of time would allow, revocation, suspension, limitation or
termination of such Licenses, except such events as would not have, or could
not reasonably be expected to have, a Material Adverse Effect on the Company.
Section 3.12 Title to Properties. The Company and its Subsidiaries
have good and marketable title to all material properties (real and personal)
owned by the Company and any such Subsidiary that are necessary for the conduct
of the business of the Company and such Subsidiaries as currently conducted,
free and clear of any Security Interest that may materially interfere with the
conduct of the business of the Company and such Subsidiaries, taken as a whole,
and all material properties held under lease by the Company or the Subsidiaries
are held under valid, subsisting and enforceable leases.
Section 3.13 Environmental Matters. To the best of its knowledge,
none of the Company or any of its Subsidiaries is the subject of any current
federal, state or local investigation under Environmental Laws (as defined
below). None of the Company or any of its Subsidiaries has received any notice
or claim (or is aware of any facts that would form a reasonable basis for a
claim), nor entered into any negotiations or agreements with any third party,
relating to any liability or remedial action or potential material liability or
remedial action under Environmental Laws, nor are there any pending or, to the
best knowledge of the Company, threatened actions, suits or proceedings against
or materially affecting the Company, any of its Subsidiaries or their
properties, assets or operations in connection with any such Environmental
Laws. The properties, assets and operations of the Company and its
Subsidiaries are in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations,
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<PAGE> 18
and such orders, decrees, judgments, permits and licenses to which the Company
is a party or pursuant to which the Company is bound relating to public and
worker health and safety and to the protection and clean-up of the natural
environment and the generation, handling, disposal, transportation or release
of hazardous materials (collectively, "Environmental Laws"). The term
"hazardous materials" shall mean those substances that are regulated by or form
the basis for liability under any applicable Environmental Laws. With respect
to the properties, assets and operations, including any previously owned,
leased or operated properties of the Company and its Subsidiaries, assets or
operations, except as disclosed in Item 3.13 and except as would not have a
Material Adverse Effect on the Company to the best knowledge of the Company,
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may substantially interfere with or prevent compliance or
continued compliance in all material respects with applicable Environmental
Laws. Except as set forth in Item 3.13 of the Disclosure Schedule, the
consummation of any or all of the transactions contemplated by the Transaction
Documents will not require any application for issuance, renewal, transfer or
extension of, or any other administrative action regarding, any permit or
license required under any Environmental Law. Except as disclosed in Item 3.13
and except as would not have a Material Adverse Effect on the Company (i) there
are no consent decrees, judgments, judicial or administrative orders or
agreements with, or Security Interests by, any governmental authority or
quasi-governmental entity relating to any Environmental Law which regulates,
obligates or binds the Company, any Subsidiary of the Company or any of their
respective assets and (ii) there is no present or past release or threatened
release of any hazardous substance as a result of which the Company has or
reasonably may become liable to any Person.
True, complete and correct copies of the written reports, of
all environmental audits or assessments which have been conducted at any
facility currently owned or leased by the Company or any facility owned or
leased by the Company within the past five years, have been made available to
the Purchasers and a list of all such reports, audits and assessments is
included in Item 3.13 of the Disclosure Schedule.
Section 3.14 Taxes. The Company and all of its Subsidiaries have
each timely filed all tax returns and reports required by law to have been
filed by it and paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books. Each tax return
filed by the Company or any Subsidiary of the Company correctly and accurately
reflects the amount of its liability for taxes thereunder in all material
respects and makes all material disclosures required by applicable provisions
of law. The Company has no knowledge of any material adverse change in the
rate or basis of assessment of any Tax. Neither the Company nor any Subsidiary
has received any written notification from any taxing authority asserting any
material unassessed liability for any tax. The Company and each of its
Subsidiaries has taken all reasonable and customary steps to ensure that it has
complied with all applicable tax laws and tax regulations of
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<PAGE> 19
foreign, U.S. federal, state and local governments and all agencies thereof
which affect the operation, properties, financial condition, operating results
or business prospects of the Company or such Subsidiary to which the Company or
such subsidiary may otherwise be subject.
Section 3.15 Litigation. Except as set forth in Item 3.15 of the
Disclosure Schedule, there is no pending action, suit, proceeding, arbitration
or investigation against or affecting the Company or any of its Subsidiaries or
any of their respective properties, assets or operations, or with respect to
which the Company or any such Subsidiaries is responsible by way of indemnity
or otherwise, (A) that is required under the Exchange Act to be described in
the SEC Documents and was not so described, (B) that questions the validity of
this Agreement or any of the other Transaction Documents or any action to be
taken pursuant to this Agreement or any of the other Transaction Documents, or
(C) that would individually, or in the aggregate with all such other actions,
suits, investigations or proceedings, reasonably be expected to have, a
Material Adverse Effect on the Company or a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or any
of the Transaction Documents; and, to the best knowledge of the Company, except
as set forth in Item 3.15 of the Disclosure Schedule, no such actions, suits,
proceedings or investigations are threatened or contemplated.
Section 3.16 Labor Matters. No labor organization or group of
employees of the Company 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
to be brought or filed, with the National Labor Relations Board or any other
U.S. or foreign labor relations tribunal or authority. There are no strikes,
work stoppages, slowdowns, lockouts, material arbitrations or material
grievances, or other material labor disputes or, to the knowledge of the
Company, organizing activities pending or threatened against or involving the
Company.
Section 3.17 Indebtedness. Item 3.17 of the Disclosure Schedule
contains a true and complete list, including the names of the parties thereto,
of all debt instruments, loan agreements, indentures, guaranties or other
obligations, whether written or oral, relating to (i) Indebtedness for Borrowed
Money in excess of $100,000 or (ii) money loaned to others by the Company or
its Subsidiaries in excess of $100,000. All of the aforesaid items were
entered into in the ordinary course of business, are valid and binding, in full
force and effect and are enforceable in accordance with their respective terms
and there exists no breach or default, or any event which with notice or lapse
of time or both, would constitute a breach or default by any party thereto.
All of the Company's and each Subsidiary's Indebtedness for Borrowed Money is
disclosed on the balance sheet contained in the Company's most recent Quarterly
Report.
Section 3.18 Contracts. All of the material contracts of the Company
or any of its Subsidiaries that are required to be described in the SEC
Documents or to be filed as exhibits thereto are described in the SEC Documents
or filed as exhibits thereto and are in full force and effect. True and
complete copies of all such material contracts have been
15
<PAGE> 20
made available by the Company to the Purchaser. Neither the Company nor any of
its Subsidiaries is in breach of or in default under any such contract, nor, to
the best knowledge of the Company, is any other party in material breach of or
in default under any such contract. Except as disclosed in the SEC Documents
or in Item 3.18 of the Disclosure Schedule, the Company is not a party to, nor
are any assets, properties or operations of the Company bound by, any (i)
employment, consulting or severance agreement, (ii) lease of real property, or
lease of personal property with an annual base rental obligation of more than
$100,000 or a total remaining rental obligation of more than $250,000, (iii)
joint venture or partnership agreement, (iv) agreement which is over one year
in length of obligation and not terminable without penalty or damages within
one year and involves an obligation of the Company of more than $100,000, (v)
agreement containing covenants limiting the ability of the Company or any of
its Subsidiaries to compete in any line of business with any Person in any area
or territory, (vi) contract, agreement or arrangement between the Company and
any Affiliate of the Company in excess of $60,000, or (vii) agreement relating
to any acquisition or disposition of securities or material amounts of assets
(other than in the ordinary course of business) and, in any event, containing
any indemnification obligations of the Company or any of its Subsidiaries. No
party to a material contract with the Company or any Subsidiary has terminated
or failed to renew, or demanded security or assurances of performance under, or
stated in writing its intention to terminate, to fail to renew on terms
substantially similar to those currently in effect or to demand such security
or assurances under such contract or agreement.
Section 3.19 Finder's Fees. Other than as set forth in Item 3.19 of
the Disclosure Schedule, no broker, finder or other party is entitled to
receive from the Company, any of its Subsidiaries or any other person any
brokerage or finder's fee or any other fee, commission or payment as a result
of the transactions contemplated by this Agreement for which the Purchaser
could have any liability or responsibility.
Section 3.20 Employee Benefits. Except for the plans set forth in
Item 3.20 of the Disclosure Schedule (the "Benefits Plan"), there are no
employee benefit plans or arrangements of any type (including, without
limitation, plans described in Section 3(3) of ERISA), under which the Company
or any of its Subsidiaries has or in the future could have directly, or
indirectly through a Commonly Controlled Entity (within the meaning of Sections
414(b), (c), (m) and (o) of the Code), any liability with respect to any
current or former employee of the Company, any of its Subsidiaries, or any
Commonly Controlled Entity. Except as set forth in Item 3.20 of the Disclosure
Schedule, no Benefit Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code or any corresponding provision of applicable
law. No Benefit Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multi-Employer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has the
Company or any ERISA Affiliate of the Company, at any time since January 1,
1993, contributed to or been obligated to contribute to any Multiemployer Plan
or Multiple Employer Plan. With respect to each Benefit Plan the Company has
made
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<PAGE> 21
available to the Purchaser complete and accurate copies of (A) all plan texts
and agreements, (B) all material employee communications (including summary
plan descriptions), (C) the most recent annual report, (D) the most recent
annual and periodic accounting of plan assets, (E) the most recent
determination letter received from the Internal Revenue Service and (F) the
most recent actuarial valuation. With respect to each Benefit Plan: (i) such
Benefit Plan has been maintained and administered at all times in material
compliance with its terms and applicable law and regulation; (ii) no event has
occurred and there exists no circumstance under which the Company or any of its
Subsidiaries could directly, or indirectly through a Commonly Controlled
Entity, incur any material liability under ERISA, the Code or otherwise (other
than routine claims for benefits and other liabilities arising in the ordinary
course pursuant to the normal operation of such Benefit Plan); (iii) there are
no actions, suits or claims (other than routine claims for benefits) pending
or, to the knowledge of the Company, threatened, with respect to any Benefit
Plan or against the assets of any Benefit Plan; (iv) all contributions and
premiums due and owing have been made or paid on a timely basis; and (v) all
contributions made under any Benefit Plan have met the requirements for
deductibility under the Code, and all contributions that have not been made
have been properly recorded on the books of the Company or a Commonly
Controlled Entity thereof in accordance with GAAP. The Company has no liability
for life, health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof, except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no
expense to the Company.
Section 3.21 Absence of Certain Developments; No Material Adverse
Change. Since the end of the 1996 Fiscal Year, except as contemplated by this
Agreement: (A) the Company and its Subsidiaries have not incurred any material
liability, guarantee or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not
in the ordinary course of business (other than the Transaction Documents) or
that could reasonably be expected to result in a Material Adverse Effect on the
Company; (B) the Company and its Subsidiaries have not sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had
or that could reasonably be expected to have a Material Adverse Effect on the
Company; (C) there has been no material change in the indebtedness of the
Company and its Subsidiaries (except for changes relating to intercompany
indebtedness of the Company and/or its Subsidiaries and changes contemplated by
the Loan Documents), no change in the stock of the Company, and no dividend or
distribution of any kind declared, paid or made by the Company or any of its
Subsidiaries (other than dividends or distributions declared, paid or made by a
wholly owned Subsidiary of the Company on any class of its stock); (D) neither
the Company nor any of its Subsidiaries has made (nor does it propose to make)
(i) any material change in its accounting methods or practices or (ii) any
material change in the depreciation or amortization policies or rates adopted
by it, in either case, except as may be required by law or applicable
accounting standards; and (E) there has been no event causing a Material
Adverse Effect on the Company, nor any
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<PAGE> 22
developments that could, singly or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on the Company.
Section 3.22 Insurance. All of the Company's and each Subsidiary's
currently effective policies of fire, liability, product liability, workmen's
compensation, health and other forms of insurance are valid, outstanding and
enforceable policies and provide insurance coverage for the properties, assets
and operations of the Company and each Subsidiary of the kinds, in the amounts
and against the risks required to comply with laws. No notice of cancellation
or termination has been received with respect to any such policy in the last
year. The activities and operations of the Company and each Subsidiary have
been conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies.
Section 3.23 Securities Law Matters. Neither the Company nor any
person acting on its behalf has, in connection with the sale of the Preferred
Shares, engaged in (A) any form of general solicitation or general advertising
(as those terms are used within the meaning of Rule 502(c) under the Act), (B)
(assuming the accuracy of the Purchaser's representations in Section 4.3) any
action involving a public offering within the meaning of Section 4(2) of the
Act, or (C) (assuming the accuracy of the Purchaser's representations in
Section 4.3) any action that would require the registration under the Act of
the offering and sale of the Preferred Shares pursuant to this Agreement, or
that would violate applicable state securities or "blue sky" laws. The Company
has not made and will not make, directly or indirectly, any offer or sale of
Preferred Shares or of securities of the same or a similar class as the
Preferred Shares if as a result the offer and sale of the Preferred Shares
contemplated hereby could fail to be entitled to exemption from the
registration requirements of the Act. As used herein, the terms "offer" and
"sale" have the meanings specified in Section 2(3) of the Act.
Section 3.24 Accuracy of Information. The financial projections
provided by the Company to the Purchasers were prepared in good faith using the
best information reasonably available to management of the Company and
represent said management's best estimates of the future performance of the
Company for the periods referred to therein provided that the Company does not
warrant that such projections will in fact be met.
Section 3.25 Intellectual Property Rights. Item 3.25 of the
Disclosure Schedule lists all material patents, patent registrations and
applications therefor, all material trademarks, trademark registrations and
applications therefor and all trade names and service marks owned or licensed
by the Company or any Subsidiary (the "Intellectual Property Rights"). All of
the Intellectual Property Rights are vested in or validly granted to the
Company or a Subsidiary and are not restricted in any material way. No act has
been done by the Company or any Subsidiary or omission permitted by the Company
or a Subsidiary whereby any of the Intellectual Property Rights has ceased, or
could reasonably be expected to cease, to be valid and enforceable. Neither
the Company nor any Subsidiary has granted nor is obligated to grant any
license, sub-license or
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<PAGE> 23
assignment in respect of any of the Intellectual Property Rights (other than
intercompany licenses). Neither the Company nor any Subsidiary is in breach of
any license, sub-license or assignment granted to it in respect of any
Intellectual Property Rights. To the best of the Company's knowledge, the
operation of the Company's and each Subsidiary's business does not infringe
upon the intellectual property rights of any other person. The consummation of
the Target Acquisition will not result in the termination of, or give rise to a
right of termination on the part of any party to, any of the Company's or any
of its Subsidiaries' material licenses or Intellectual Property Rights
(including the Sublicense Agreement (the "Lauren Agreement") made as of July 1,
1995 between The Ralph Lauren Home Collection and the Company).
Section 3.26 Disclosure. No representation or warranty contained in
this Agreement or information appearing in any writing furnished by the Company
to the Purchasers or their representatives pursuant hereto or in connection
herewith (including, without limitation, information with respect to the
Target) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading. To the best of the Company's knowledge, there is no fact which the
Company has not disclosed to the Purchasers in writing which is reasonably
likely to have a Material Adverse Effect or is reasonably likely to materially
and adversely affect the ability of the Company to perform this Agreement or
observe the terms of the Convertible Preferred Stock Statement of Resolution.
Section 3.27 Certain Agreements. The Company has, prior to the date
of this Agreement, provided the Purchasers with true and correct copies of all
written agreements and understandings (or a written summary of all unwritten
agreements and understandings) with any lenders, advisors, or financing sources
relating to the transactions contemplated by the Transaction Documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company that:
Section 4.1 Organization, Good Standing, Power, Authority, Etc. Each
Purchaser is validly organized and existing and in good standing under the laws
of its jurisdiction of organization and has the full power and authority to
execute and deliver this Agreement and each of the other Transaction Documents
and to perform its obligations under this Agreement. Each Purchaser has taken
all action required by law, its organizational documents or otherwise required
to be taken by it to authorize the execution and delivery of this Agreement and
the other Investment Agreements to which it is a party and the consummation of
the transactions contemplated to be performed by it hereby and thereby. This
Agreement is a valid and binding agreement of each Purchaser, enforceable
against each Purchaser in accordance with its terms.
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<PAGE> 24
Section 4.2 No Conflicts; No Consents. Neither the execution and
delivery of this Agreement nor the consummation by each Purchaser of the
purchase contemplated hereby will (A) conflict with, or result in any violation
of, or constitute any default under, any provision of its organizational
documents, (B) violate any statute or law or any judgment, order, writ,
injunction, decree, rule or regulation applicable to such Purchaser or (C)
violate, conflict with, or result in a breach of any material Instrument of
such Purchaser.
Section 4.3 Acquisition for Own Account. The Preferred Shares are
being acquired by each Purchaser for its own account and not with a view to or
for sale or other disposition in connection with, any distribution of all of
the Preferred Shares, or any part thereof in any transaction that would be in
violation of the Act or the securities laws of any state, without prejudice,
however, to the rights of each Purchaser at all times to sell or otherwise
dispose of all or any part of the Preferred Shares under an effective
registration statement under the Act or under an exemption from such
registration available under the Act, or to pledge all or any part of the
Preferred Shares to secure any obligation of such Purchaser.
Section 4.4 Ownership of Securities. As of the date hereof, no
Purchaser owns any debt or equity securities issued by the Company or the
Target.
Section 4.5 Approvals. Except as set forth on Item 4.5 of the
Disclosure Schedule, no Approval is required to be obtained by any Purchaser or
any Subsidiary of any Purchaser as a result of the identity or nature of such
Purchaser for the consummation of the transactions contemplated by this
Agreement or by any of the Transaction Documents.
Section 4.6 Investor Suitability. Each Purchaser is an "accredited
investor" as such term is defined in Rule 501 under the Act.
Section 4.7 Disclosure of Information. Each Purchaser acknowledges
that it or its representatives have been furnished with all information
regarding the Company and its business, assets, results of operations and
financial condition that such Purchaser has requested. Each Purchaser further
represents that it has had an opportunity to ask questions of and receive
answers from the Company regarding the Company and its business, assets,
results of operations, and financial condition and the terms and conditions of
the issuance of the Preferred Shares; however, no representations or warranties
have been made by the Company except as are set forth in this Agreement.
Nothing contained in this Section 4.7 and no investigation by Purchasers shall
in any way affect the Purchasers' right to rely upon the Company's
representations and covenants contained in this Agreement.
Section 4.8 Investment Experience. Purchasers each represent that
they have such knowledge, experience and skill in evaluating and investing in
common and
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<PAGE> 25
preferred stocks and other securities, based on actual participation in
financial, investment and business matters, so that they are each capable of
evaluating the merits and risks of an investment in the Preferred Shares and
have such knowledge, experience and skill in financial and business matters
that they are each capable of evaluating the merits and risks of the investment
in the Company and the suitability of the Preferred Shares as an investment and
can bear the economic risk of an investment in the Preferred Shares. No
guarantees have been made or can be made with respect to the future value, if
any, of the Preferred Shares, or the profitability or success of the business
of the Company.
Section 4.9 Restricted Securities. Purchasers understand that the
Preferred Shares will not have been registered pursuant to the Act or any
applicable state securities laws, that the Preferred Shares will be
characterized as "restricted securities" under federal securities laws, and
that under such laws and applicable regulations the Preferred Shares cannot be
sold or otherwise disposed of without registration under the Act or an
exemption therefrom. In this connection, Purchasers each represent that they
are familiar with Rules 144 and 144A promulgated under the Act, as currently in
effect, and understand the resale limitations imposed thereby and by the Act.
Stop transfer instructions may be issued to the transfer agent for securities
of the Company (or a notation may be made in the appropriate records of the
Company) in connection with the Preferred Shares, but only to the extent
customary for securities which are "restricted securities." The Company shall
also be entitled to request an opinion of counsel to the Purchaser, reasonably
acceptable in form and substance to the Company, that a transfer of Preferred
Shares other than pursuant to an effective registration statement does not
require registration under the Act.
Section 4.10 Finder's Fees. No broker, finder or other party is
entitled to receive from any Purchaser, any brokerage or finder's fee or any
other fee, commission or payment as a result of the transactions contemplated
by this Agreement for which the Company could have any liability or
responsibility.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 Legends. (a) So long as the Conversion Shares are
Registrable Securities and unless they shall have been previously issued
pursuant to an effective registration statement under the Act, the certificates
for the Preferred Shares shall bear the following legend by which each holder
thereof shall be bound:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND
ANY SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF
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<PAGE> 26
1933, AS AMENDED, AND UNDER ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS
OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER.
THE COMPANY WILL FURNISH THE HOLDER OF THIS
CERTIFICATE INFORMATION CONCERNING THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES INCLUDING THE
LIQUIDATION AND DIVIDEND PREFERENCES AND THE VOTING AND CONVERSION RIGHTS OF
THE REDEEMABLE CONVERTIBLE PREFERRED STOCK, ON REQUEST IN WRITING AND WITHOUT
CHARGE.
(b) After termination of the requirement that a legend be
placed upon a certificate representing Preferred Shares, the Company shall,
upon receipt by the Company of evidence reasonably satisfactory to it that such
requirement has terminated and upon the written request of any holder of
Preferred Shares, issue certificates for such Preferred Shares that do not bear
such legend.
Section 5.2 Use of Proceeds. The Purchase Price will be used by the
Company to pay a portion of the cost of the Target Acquisition.
Section 5.3 Pre-Closing Activities. From and after the date of this
Agreement until the Closing, each of the Company and each Purchaser shall act
with good faith towards, and shall use its reasonable efforts to consummate,
the transactions contemplated by this Agreement, and neither the Company nor
any Purchaser will take any action (other than as permitted under Section 8.1)
that would prohibit or impair its ability to consummate the transactions
contemplated by this Agreement. From the date hereof until the Closing, the
Company shall conduct the business of its and its Subsidiaries, in the ordinary
course consistent with past practice and shall use all reasonable efforts to
preserve intact their respective business organizations and relationships with
third parties and, except as otherwise provided herein, to keep available the
services of the present directors, officers and key employees. Furthermore,
the Company agrees to perform its obligations, and enforce the obligations of
the Target and its Affiliates, under the Merger Agreement. Without limiting
the generality of the foregoing, from the date hereof until the Closing, except
as contemplated by this Agreement and except in the ordinary course of business
and consistent with past practice, without Purchasers' prior written consent
granted pursuant to Section 11.3 the Company shall not, and shall ensure that
each of its Subsidiaries does not:
(1) adopt or propose (or agree to commit to) any
change in its articles of incorporation or by-laws,
except as contemplated hereby or by the Merger
Agreement or as required to effect the transactions
hereunder or to increase the authorized Common Stock
to 40,000,000 shares;
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<PAGE> 27
(2) take any action that would make any
representation or warranty of the Company hereunder
required to be true at and as of the Closing as a
condition to the Purchasers' obligations to
consummate the transactions contemplated hereby
inaccurate at the Closing;
(3) issue any additional capital stock or other
securities, except pursuant to options outstanding on
the date hereof, which are described in Item 3.4 of
the Disclosure Schedule;
(4) make any material change in its accounting
methods, principles or practices except as may be
required by law or applicable accounting standards;
(5) (i) grant to any employee any material
increase in salary or other remuneration or any
increase in severance or termination pay; (ii) grant
or approve any general increase in salaries of all or
any class of, or a substantial portion of, its
employees; (iii) pay or award any material bonus,
incentive, compensation, service award or other like
benefit for or to the credit of any employee except
in accordance with written policy; (iv) enter into
any material employment contract or severance
arrangement with any employee or adopt or amend in
any material respect any of its employee benefit
plans; or (v) change in any material respect the
compensation (whether in respect of terms or method)
of its agents;
(6) except for the Target Acquisition, make,
incur or assume any investment in any other Person;
(7) declare, pay or make any dividend or
distribution (in cash, property or obligations) on
any shares of any class of its capital stock (now or
hereafter outstanding) other than regularly scheduled
cash dividends, or apply any of its funds, property
or assets to the purchase, redemption, sinking fund
or other retirement of any shares of any class of its
capital stock (now or hereafter outstanding);
(8) except for the Target Acquisition, liquidate
or dissolve, consolidate with or merge into or with
any other corporation, purchase or otherwise acquire
all or substantially all of the assets of any Person
(or of any division thereof);
(9) enter into, or cause, suffer or permit to
exist any transaction, arrangement or contract with
any of its Affiliates
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(other than a wholly-owned Subsidiary of the
Company), involving an amount in excess of $100,000;
(10) materially change or alter the nature of its
business as conducted as of the date of this
Agreement;
(11) agree or commit to do any of the foregoing.
Section 5.4 No Inconsistent Agreements. Except for agreements to be
entered into as contemplated by the Loan Documents, which shall not contain
restrictions on the Company's activities that are more restrictive than the
corresponding Instruments to which the Company currently is a party, neither
the Company nor any of its Subsidiaries shall enter into any Instrument, or
enter into any amendment or other modification to any currently existing
Instrument, (i) that by its terms restricts or prohibits the ability of the
Company to issue Conversion Shares upon the conversion of the Preferred Shares
or pursuant to which the Company's ability to make any distributions with
respect to, or to redeem or repurchase any of, the Preferred Shares is
prohibited or (ii) restricting the Company's ability to perform any of its
obligations under this Agreement or any of the Investment Agreements, including
its obligations relating to registration rights.
Section 5.5 Information.
(a) So long as any of the Preferred Shares are
outstanding, the Company shall file with the SEC and with any U.S. or foreign
stock exchange on which any securities of the Company are listed the annual
reports and quarterly reports and the information, documents and other reports
that are required to be filed with the SEC pursuant to Sections 13 and 15 of
the Exchange Act, whether or not the Company has or is required to have a class
of securities registered under the Exchange Act and whether or not the Company
is then subject to the reporting requirements of the Exchange Act, at the time
the Company is or would be required to file the same with the SEC and, promptly
after the Company is or would be required to file such reports, information or
documents with the SEC, to mail copies of such reports, information and
documents (including any registration statements filed with the SEC (without
exhibits)) to the holders of the Preferred Shares at their addresses set froth
in the register maintained by the transfer agent of the Company therefor.
(b) Upon request of any holder of at least 20% of the
then outstanding Preferred Shares (or an equivalent amount of Conversion
Shares) (a "20% Holder"), the Company shall furnish to such 20% Holder, as soon
as practicable and in any event within 30 days after the end of each calendar
month, a monthly report of the Company consisting of an unaudited balance sheet
as of the end of such month and the related unaudited statements of operations
and cash flows for such month and for the Fiscal Year to date, setting forth in
each case in comparative form the corresponding figures for the budget for the
current Fiscal Year. All such reports shall be certified by the chief
financial officer of the Company to fairly present, in all material respects,
the financial
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condition of the Company as of the dates shown and the results of its
operations for the periods then ended and to have been prepared in conformity
with GAAP except for normal, recurring, year-end audit adjustments and the
absence of footnotes.
(c) The Company shall furnish to each 20% Holder, as soon
as practicable and in any event not less than 20 Business Days prior to the
commencement of each Fiscal Year of the Company, (i) an annual operating budget
for the Company, approved by the Board of Directors of the Company, for the
succeeding Fiscal Year, containing projections of profit and loss, cash flow
and ending balance sheets for each month of such Fiscal Year and (ii) a
business plan for the Company relating to the succeeding Fiscal Year setting
forth in reasonable detail a development plan, financial plan and marketing
plan, budgeted and projected figures and other detailed information. Promptly
upon preparation thereof, the Company shall furnish to such 20% Holder any
other operating budgets or business plans that the Company may prepare and any
revisions of such previously furnished budgets or business plans.
(d) The Company shall furnish promptly to each 20% Holder copies
of any financial statements or financial or other material reports prepared by
the Company for or otherwise furnished to or filed with its shareholders or any
lender to the Company subject to restrictions imposed by the attorney-client
privilege and the attorney work product privilege. Without limiting the
generality of the foregoing, the Company will furnish to each 20% Holder copies
of any material filings to be made with governmental authorities in connection
with transactions contemplated by the Transaction Documents and shall give
Representatives (defined below) of Apollo Capital Management II, Inc. a
reasonable opportunity to comment on such filings prior to the time that such
filings are made. For purposes of this Section 5.5, the Purchasers shall be
deemed a 20% Holder prior to Closing.
Section 5.6 Hart-Scott-Rodino. To the extent that, before or after
the Closing, any Purchaser is required to make a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the acquisition, disposition or conversion of the
Preferred Shares, the Company agrees to cooperate with such Purchaser in
connection with such filing and to provide all information and to make any
filings that are reasonably required in connection therewith and shall use
reasonable efforts to obtain the early termination of the waiting period under
the HSR Act.
Section 5.7 Access. Upon reasonable notice both prior to the Closing
and after the Closing, the Company shall (and shall cause each of its
Subsidiaries to) afford the officers, employees, counsel, accountants and other
authorized representatives (collectively, "Representatives") of each 20% Holder
or any of their Affiliates reasonable access during normal business hours to
its properties, books, contracts and records and personnel and advisors (who
will be instructed by the Company to cooperate) and the Company shall (and
shall cause each of the Subsidiaries to) furnish promptly to any 20% Holder all
information concerning its business, properties, tax matters and personnel as
such 20% Holder may reasonably request, provided that (i) any review will be
conducted
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in a way that will not interfere unreasonably with the conduct of the Company's
business, (ii) no review pursuant to this Section 5.7 shall affect or be deemed
to modify, any representation or warranty made by the Company and (iii) after
the Closing, in-person visits by Representatives of the 20% Holder will be
limited to four per year in the aggregate, such in-person visits must be
requested by holders of at least a majority of the then outstanding Preferred
Shares (and/or an equivalent number of Conversion Shares), only Representatives
of 20% Holder may participate in such in-person visits and the Purchasers will
use reasonable efforts to coordinate such visits so as to minimize interference
with the Company's business. Each Purchaser will keep, and will cause their
respective Representatives to keep, all information and documents obtained
pursuant to Section 5.5(b) and (c) and this Section 5.7 confidential except to
the extent otherwise publicly disclosed by the Company. Each Purchaser will
promptly inform the Company in the event, in the course of its due diligence
investigation of the Company or the Target, it learns of any representation or
warranty or covenant of the Company under this Agreement that is incorrect in
any material respect; provided that the failure by a Purchaser to comply with
such obligation shall not affect any rights or obligations of any party hereto.
Prior to consummation of the Target Acquisition, the Purchasers will be
entitled to the benefits of the access rights of the Company to the personnel
and properties of the Target and its Subsidiaries contained in the Merger
Agreement and the Company agrees to assist any Purchaser that wishes to
exercise such access rights. For purposes of this Section 5.7, the Purchasers
shall be deemed a 20% Holder prior to Closing.
Section 5.8 Publicity. Prior to Closing, each Purchaser, on the one
hand, and the 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 or other public statements with respect to the transactions
contemplated by the Transaction Documents and the Target Acquisition 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.
Section 5.9 Reservation of Shares. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares of Common Stock as shall be sufficient
to effect the conversion of all of the Preferred Shares.
Section 5.10 Licenses; Other Property. The Company shall, through
the Closing Date, preserve, renew and keep in full force and effect all rights,
licenses, permits, patents, copyrights, trademarks, service marks, trade names
and other authorizations, from governmental authorities or any other person,
utilized by the Company or any of its Subsidiaries, which shall be necessary in
any material respect to the conduct of its business. The Company shall,
through the Closing Date, maintain and preserve all property material to the
conduct of its business and the businesses of its Subsidiaries consistent with
past practice and keep such property in good repair, working order and
condition consistent with past practice and from time to time make, and cause
to be made,
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all needful and proper repairs, renewals, additions, improvements and
replacements thereto consistent with past practice and necessary in order that
the business carried on in connection therewith may be properly conducted at
all times.
Section 5.11 Material Changes and Other Notices. The Company shall,
through the Closing Date, promptly notify the Purchaser of (a) any Material
Adverse Effect on the Company or the Target and (b) any lawsuit, claims,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened, or any judgment, order or decree involving the Company or any other
development, which could reasonably be expected to have a Material Adverse
Effect on the Company or Target.
Section 5.12 Compliance with Applicable Laws. The Company shall, and
the Company shall cause its Subsidiaries to, through the Closing Date, comply
in all material respects with all applicable statutes, laws, ordinances, rules
and regulations of any governmental authority (whether now in effect or
hereinafter enacted) and any filing requirements relating thereto. The Company
shall do, and shall cause its Subsidiaries to do, all things necessary to
preserve, renew and keep in full force and effect and in good standing its
corporate existence and authority necessary to continue its business.
Section 5.13 Disclosure Schedule. No less that five nor more than
ten days prior to the Closing Date the Company shall provide to the Purchasers
the final Disclosure Schedule (the "Final Disclosure Schedule"). All matters
disclosed in the Final Disclosure Schedule shall be appropriately responsive to
the representation or warranty corresponding thereto in this Agreement. The
representations and warranties made herein shall be true and correct on the
date hereof and shall be true and correct in all material respects (without
duplication of any materiality standard contained therein) as of the Closing
Date and the information contained in the Final Disclosure Schedule shall not
cure any inaccuracies in such representations and warranties.
Section 5.14 Operational Changes. No later than 30 days after the
Closing Date, the Company will put into effect the operational and other
changes upon which the Company based its assumptions in the pro forma
financials prepared in connection with the Target Acquisition indicating that
cost savings of approximately $21,600,000 could be realized by the Company
after Closing; provided, however, that nothing contained in this Section shall
require the Company to violate any law or breach any contractual obligation.
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ARTICLE 6
SURVIVAL AND INDEMNIFICATION
Section 6.1 Survival Periods. All representations and warranties
contained in this Agreement shall survive until the third anniversary of the
Closing Date. The covenants and agreements contained in this Agreement, other
than those which by their terms only apply until the Closing Date, shall
survive the Closing Date without limit, except the obligations set forth in
Sections 5.5 and 5.7 and the second sentence of Section 11.12 shall survive the
Closing Date until both (x) no more than 50% of the initially issued Preferred
Stock shall remain outstanding and (y) the Company's registration obligations
terminate pursuant to Section 7.8(f). The representations and warranties and
the survival periods set forth above shall apply regardless of any
investigation made by or on behalf of any Person.
Section 6.2 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless each Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
controlling persons (each, an "indemnified party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees and disbursements of counsel) or other liabilities
("Liabilities") resulting from any breach of any covenant, agreement,
representation or warranty of the Company in this Agreement or any legal,
administrative or other actions brought by any person or entity, proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of such Purchaser entering into this Agreement
or any Transaction Document; provided, however, that the Company shall not be
liable under this Section 6.2; (i) for any amount paid in settlement of claims
without its consent (which consent shall not be unreasonably withheld), or (ii)
to the extent that it is finally judicially determined that such Liabilities
resulted primarily from a breach by such Purchaser of any representation,
warranty, covenant or agreement of such Purchaser contained in this Agreement
or the gross negligence or willful misconduct of such Purchaser; provided,
further, that, if and to the extent that such indemnification is unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such indemnified liability that shall be permissible under
applicable laws. In connection with the obligations of the Company to indemnify
for Liabilities as set forth above, the Company further agrees to reimburse
each indemnified party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
indemnified party.
Section 6.3 Notification. Each indemnified party under this Article
6 will, promptly after the receipt of notice of the commencement of any action
or other proceeding against such indemnified party in respect of which
indemnity may be sought from the Company under this Article 6, notify the
Company in writing of the
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commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability
that it may have to such indemnified party except to the extent that the
Company is actually and materially prejudiced by such failure to give notice.
In case any such action or other proceeding shall be brought against any
indemnified party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate therein and, to the extent that
either may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that any indemnified
party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action or proceeding in which
the Company and an indemnified party are, or are reasonably likely to become, a
party, such indemnified party shall have the right to employ separate counsel
at the expense of the Company and to control its own defense of such action or
proceeding if, in the reasonable opinion of counsel to such indemnified party,
(i) there are or may be legal defenses available to such indemnified party or
to other indemnified parties that are different from or additional to those
available to the Company or (ii) any conflict or potential conflict of interest
exists between the Company and such indemnified party that would make such
separate representation advisable in the view of the indemnified party;
provided, however, that (1) any such separate counsel employed by the
indemnified party at the expense of the Company shall be reasonably
satisfactory to the Company, (2) the indemnified party will not, without the
prior written consent of the Company settle, compromise or consent to the entry
of any judgment in such action or proceeding unless such settlement, compromise
or consent includes an unconditional release of the Company from all liability
arising or that may arise out of such action or proceeding relating to any
matter subject to indemnification hereunder and (3) in no event shall the
Company be required to pay fees and expenses under this Article 6 for more than
one firm of attorneys representing the indemnified parties in any jurisdiction
in any one legal action or group of related legal actions. The Company agrees
that it will not, without the prior written consent of the Purchasers, and the
Purchasers agree that they will not, without the prior written consent of the
Company, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to any matter
subject to indemnification hereunder unless such settlement, compromise or
consent includes an unconditional release of the Purchasers or the Company, as
the case may be, and each other indemnified party from all liability arising or
that may arise out of such claims, action or proceeding. The rights accorded to
indemnified parties hereunder shall be in addition to any rights that any
indemnified party may have at common law, by separate agreement or otherwise.
Section 6.4 Registration Statements. Notwithstanding anything to the
contrary in this Article 6, the indemnification and contribution provisions of
Article 7 shall govern any claim made with respect to registration statements
filed pursuant thereto or sales made thereunder.
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ARTICLE 7
REGISTRATION RIGHTS
Section 7.1 Demand Registrations. (a) At any time and from time to
time after the expiration of 270 days from the Closing, the Company shall upon
the written demand (the "Registration Demand") of the Purchasers (and persons
or entities to whom rights under this Article 7 have been transferred as
contemplated by Section 7.10) holding directly or beneficially an aggregate of
at least 20% of the Preferred Shares (or an equivalent amount of Conversion
Shares), use its reasonable best efforts to effect the registration (a "Demand
Registration") under the Act (by means of a "shelf" registration statement
pursuant to Rule 415 under the Act, if so requested by the Purchasers and if
the Company is eligible therefor at such time) of such number of Registrable
Securities (as defined below) as shall be indicated in the Registration Demand
(which Registrable Securities may include distributions to be made in the
future on Preferred Shares and Conversion Shares thereon). Such Registration
Demand shall specify the intended method or methods of disposition of such
Registrable Securities (subject to modification as otherwise contemplated by
this Article 7). Upon receipt of a Registration Demand, the Company will
promptly, but in any event within 5 Business Days of receipt, provide notice of
the Registration Demand to each Purchaser of which it has knowledge at such
Purchaser's record address or other address on file with the Company, and such
Purchaser shall, upon giving written notice to the Company within 15 business
days of receipt of such notice, be permitted to participate as a selling holder
in the Demand Registration.
(b) If a Demand Registration is initiated, and the
Company then wishes to offer any of its securities in connection with the
registration, no such securities may be offered by the Company without the
consent of Purchasers participating in the Demand Registration holding a
majority of the securities of the Purchasers to be covered by such Demand
Registration (a "Majority of Participating Purchasers") (such consent not to be
unreasonably withheld).
(c) Upon receipt of the Registration Demand, the Company
shall expeditiously effect the registration under the Act of the Registrable
Securities and use its reasonable best efforts to have such registration become
and remain effective as provided in Section 7.8.
(d) A Majority of Participating Purchasers shall have the
right to select the underwriters for any underwritten offering pursuant to this
Section 7.1 as long as such underwriters are reasonably acceptable to the
Company and any demand registration pursuant to this Section 7.1 may, at the
election of a Majority of Participating Purchasers, be in the form of a "firm
commitment" underwritten offering; provided, however, that no such offering may
be in the form of "best efforts" or similar type offering. In this regard, if
the Company has established a "shelf" registration statement pursuant to
Section 7.1(a), upon the request of a Majority of Participating Purchasers, the
Company shall amend the shelf registration to provide for an underwritten
offering otherwise consistent with the
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provisions of Article 7, the provisions of such underwritten offering to be in
effect for at least 120 days (or such lesser time as such Majority of
Participating Purchasers shall request) whereupon, at the request of such
Majority of Participating Purchasers or the election of the Company, such
"shelf" registration shall be amended to no longer reference an underwritten
offering; provided, that the Purchasers shall not be entitled to request such
an underwritten "shelf" offering (or any other underwritten offering) more than
once every 365 days.
(e) As used in this Agreement, "Registrable Securities"
shall mean (i) any Preferred Shares, (ii) any Conversion Shares, (iii) any
securities issued or issuable with respect to any Preferred Shares or
Conversion Shares by way of stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise (including distributions on Preferred Shares), and
(iv) any other Preferred Shares or shares of Common Stock acquired by the
Purchasers.
Section 7.2 Piggyback Registration. (a) If the Company proposes to
register any of its securities under the Act for sale pursuant to an
underwritten public offering for cash (otherwise than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Act and other than
the Company's first proposed registration after the Closing, but only to the
extent prepared and filed with the SEC within 270 days thereafter), the Company
shall give each Purchaser notice of such proposed registration at least 30 days
prior to the filing of a registration statement. At the written request of any
of the Purchasers within 15 Business Days after the receipt of the notice from
the Company, any such request stating the number of Registrable Securities that
the Purchasers wish to sell or distribute publicly under the registration
statement proposed to be filed by the Company, the Company shall use its
reasonable best efforts to register under the Securities Act the sale of such
Registrable Securities, and to cause such registration (a "Piggyback
Registration") to become and remain effective as provided in Section 7.8. The
Company may at any time withdraw or cease proceeding with the Piggyback
Registration if it shall at the same time withdraw or cease proceeding with the
registration of all the securities originally proposed to be registered.
Notwithstanding anything to the contrary set forth in this Agreement, no
Purchaser may participate in a Piggyback Registration under this Section 7.2
unless, at the time thereof, such Purchaser owns at least 5% of the then-
outstanding Preferred Shares (or an equivalent number of Conversion Shares).
(b) If a Piggyback Registration is an underwritten
primary registration on behalf of the Company, and the managing underwriters
thereof advise the Company and the Purchasers in writing that in their opinion
the number of securities requested to be included in the registration exceeds
the number which can be sold in the offering without adversely affecting the
offering, the Company shall include in the registration (i) first, the
securities that the Company proposes to sell for its own account and (ii)
second, the
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Registrable Securities that the Purchasers propose to sell in proportion to the
number of shares each proposes to sell pursuant to this clause (ii).
Section 7.3 Indemnification by the Company. In the event of any
registration of any Registrable Securities under the Act, the Company shall and
hereby does, indemnify and hold harmless each Purchaser, each of its directors,
officers, each other Person who participates as an underwriter in the offering
or sale of such Registrable Securities and each other Person, if any, who
controls such Purchaser or any such underwriter within the meaning of Section
15 and Section 20 of the Act against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser or any such director or
officer or underwriter or controlling Person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which the
Registrable Securities were registered under the Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company shall reimburse such Purchaser, and each such
director, officer, underwriter and controlling Person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by or on behalf of such Purchaser, as the case may be, specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of a Purchaser or any such director, officer or controlling Person and
shall survive the transfer of the Registrable Securities by a Purchaser.
Section 7.4 Indemnification by the Purchasers. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 7.1 or 7.2, that the Company
shall have received an undertaking satisfactory to it from a Purchaser to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 7.3) the Company, each director of the Company, each officer
of the Company signing such registration statement, each other Person who
participates as an underwriter in the offering or sale of such Registrable
Securities and each other Person, if any, who controls the Company within the
meaning of Section 15 and Section 20 of the Act with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein or any
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amendment or supplement thereto, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Purchaser, specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer by the seller of the securities of the Company
being registered.
Section 7.5 Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 7.3 or 7.4, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying
party, give notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under
Section 7.3 or 7.4, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist that would make such separate representation
advisable or the indemnified party may have defenses not available to the
indemnifying party in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnification required by this Article 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred.
Section 7.6 Other Indemnification. Indemnification similar to that
specified in this Article 7 (with appropriate modifications) shall be given by
the Company and the Purchasers with respect to any required registration or
other qualification of Registrable Securities under any federal or state law or
regulation of any governmental authority other than the Act.
Section 7.7 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Article 7 is for
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any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms in respect of any losses, claims,
damages or liabilities suffered by an indemnified party referred to therein,
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities, in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the liable selling shareholders on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the liable selling
shareholders (including, in each case, that of their respective officers,
directors, employees, agents and controlling Persons) on the other shall he
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Company, on the one hand, or by or on behalf of the selling shareholders, on
the other, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
Section 7.8 Registration Covenants of the Company. In the event that
any Registrable Securities of a Purchaser are to be registered pursuant to
Section 7.1 or 7.2, the Company covenants and agrees that it shall use its
reasonable best efforts to effect the registration and cooperate in the sale of
the Registrable Securities to be registered and shall as expeditiously as
possible:
(a) (i) prepare and file with the SEC a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto) (a "Registration Statement") and (ii) use
its reasonable best efforts to cause the Registration Statement to become
effective as promptly as practicable and in any event within 90 days of receipt
of the Registration Demand (subject, however, to the provisions of Section
7.13);
(b) prior to the filing described above in Section
7.8(a), furnish to such Purchaser copies of the Registration Statement and any
amendments or supplements thereto and any prospectus forming a part thereof
with respect to which (i) the Purchasers shall be afforded a reasonable
opportunity to review and comment thereon prior to filing and (ii) the Company
will not unreasonably decline to make such changes thereto required by the Act;
(c) notify such Purchaser, promptly after the Company
shall receive notice thereof, of the time when the Registration Statement
becomes effective or when any amendment or supplement or any prospectus forming
a part of the Registration Statement has been filed;
(d) notify such Purchaser promptly of any request by the
SEC for the amending or supplementing of the Registration Statement or
prospectus or for additional
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information and promptly deliver to the Purchaser copies of any comments
received from the SEC;
(e) (i) advise such Purchaser after the Company shall
receive notice or otherwise obtain knowledge of the issuance of any order by
the SEC suspending the effectiveness of the Registration Statement or any
amendment thereto or of the initiation or threatening of any proceeding for
that purpose and (ii) promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal promptly if a stop order should be
issued;
(f) (i) subject to Section 7.13 prepare and file with the
SEC such amendments and supplements to the Registration Statement and each
prospectus forming a part thereof as may be necessary to keep the Registration
Statement continuously effective for the period of time necessary to permit the
Purchaser to dispose of all its Registrable Securities; provided, however, that
the Company shall not be required to keep the Registration Statement effective
if all of the Registrable Securities held by the Purchasers could be sold
without restriction pursuant to the provision of Rule 144(k) under the Act and
(ii) comply with the provisions of the Act with respect to the disposition of
all Registrable Securities covered by the Registration Statement during such
period in accordance with the intended methods of disposition by such Purchaser
set forth in the Registration Statement;
(g) furnish to such Purchaser such number of copies of
the Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including each preliminary
prospectus) and such other documents as such Purchaser may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such Purchaser;
(h) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as determined by the underwriters after consultation
with the Company and such Purchaser and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Purchaser to
consummate the disposition in such jurisdictions of the Registrable Securities
(provided that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction in which it would not otherwise be required to
qualify but for this Section 7.8 (h), (ii) subject itself to taxation in any
such jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(i) notify such Purchaser, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the Registration Statement would contain an
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;
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(j) if the Common Stock is not then listed on a
securities exchange, use its reasonable best efforts, consistent with the
then-current corporate structure of the Company, to facilitate the listing of
the Common Stock on the New York Stock Exchange;
(k) provide a transfer agent and registrar, which may be
a single entity, for all the Registrable Securities not later than the
effective date of the Registration Statement; it being hereby agreed that the
Purchasers shall furnish to the Company such information regarding the
Purchasers and the plan and method of distribution of Registrable Securities
intended by the Purchasers as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
therewith;
(l) with respect to a firm commitment underwritten
offering, enter into such customary agreements (including, as appropriate, an
underwriting agreement in customary form) and take all such other action, if
any, as the Purchaser or the underwriters shall reasonably request in order to
expedite or facilitate the disposition of the Registrable Securities pursuant
to this Article 7;
(m) (i) make available for inspection by such Purchaser,
any underwriter participating in any disposition pursuant to the Registration
Statement and any attorney, accountant or other agent retained by such
Purchaser or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by such Purchaser or any such underwriter, attorney,
accountant or agent in connection with the Registration Statement;
(n) use its reasonable best efforts to cause the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental authorities as may be necessary to
enable such Purchaser to consummate the disposition of such Registrable
Securities;
(o) cause the Company's independent public accountants to
provide to the underwriters, if any, and the selling holders, if permissible, a
comfort letter in customary form and covering such matters of the type
customarily covered by comfort letters;
(p) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation by
any underwriter in an underwritten offering; and
(q) use all reasonable efforts to facilitate the
distribution and sale of any Registrable Securities to be offered pursuant to
this Agreement, including without limitation by making road show presentations,
holding meetings with potential investors
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and taking such other actions as shall be appropriate or as shall be requested
by the lead managing underwriter of an underwritten offering; provided, that
the Company shall not be required to make a road show presentation unless
requested by a Majority of Participating Purchasers, which request may only be
made once every 365 days.
Section 7.9 Expenses. In connection with any Demand Registration
pursuant to Section 7.1 or any Piggyback Registration pursuant to Section 7.2,
the Company shall pay all registration, filing and NASD fees, all fees and
expenses of complying with securities or "blue sky" laws and any commissions,
fees and disbursements of underwriters customarily paid by sellers of
securities (based upon offering proceeds to be received by it). In any Demand
Registration or Piggyback Registration, the Company shall be responsible for
the fees and disbursements of counsel for the Company and of its independent
public accountants and premiums and other costs of policies of insurance, if
any, against liabilities arising out of the public offering of the Registrable
Securities; provided, that the Company shall not be required to obtain such
insurance. The Purchasers shall pay for underwriting discounts and commissions
customarily paid by sellers of securities (based upon offering proceeds to be
received by each such Purchaser).
Section 7.10 Assignment of Registration Rights. A Purchaser or any
Subsequent Purchaser (as defined) may assign its rights under this Article 7 to
anyone (a "Subsequent Purchaser") to whom the Purchaser or any Subsequent
Purchaser sells, transfers or assigns any of the Registrable Securities (other
than in sales pursuant to Rule 144 under the Act, a Demand Registration or a
Piggyback Registration effected pursuant to this Article 7), in which case such
Person shall, for purposes of this Article 7, be considered a Purchaser;
provided that such Person shall not be considered a Purchaser under this
Article 7 until such time as written notice is provided by the assigning
Purchaser or Subsequent Purchaser to the Company of such assignment.
Notwithstanding the above, only Subsequent Purchasers holding at least 10% of
the Preferred Shares (or an equivalent amount of Conversion Shares) shall be
entitled to the rights of a Purchaser under Section 7.8 (m) and (o).
Section 7.11 Other Registration Rights. Notwithstanding any other
provision of this Agreement, if the Company at any time grants registration
rights to any other Person on terms which any Purchaser considers preferential
to the terms in this Article 7, then the Purchasers shall be entitled to
registration rights with such preferential terms; provided that such provision
shall not apply with respect to any registration rights granted to register the
debt securities to be issued by the company under the Bridge Facility or any
debt securities issued in lieu thereof or for the refinancing thereof. The
Company shall not grant any right of registration under the Act relating to any
of its securities to any Person other than the Purchasers unless the Purchasers
shall be entitled to have included in any Piggyback Registration effected a
number of Registrable Securities requested by the Purchaser to be so included
representing at least 25% of such offering prior to the inclusion of any
securities requested to be registered by the Persons entitled to any such other
registration rights.
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Section 7.12 Rule 144; Rule 144A. So long as the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall take all actions reasonably necessary to enable the Purchasers to
sell the Registrable Securities without registration under the Act within the
limitation of the exemptions provided by Rule 144 and Rule 144A under the Act,
as such Rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC, including filing on a timely basis all
reports required to be filed by the Exchange Act.
Section 7.13 Limitation on Requirement to File or Amend Registration
Statement. Anything in this Agreement to the contrary notwithstanding, it is
understood and agreed that the Company shall not be required to file a
Registration Statement, amendment or post-effective amendment thereto or
prospectus supplement or to supplement or amend any Registration Statement if
the Company is then involved in discussions concerning, or otherwise engaged
in, an acquisition, disposition, financing or other material transaction and
the Company determines in good faith that the making of such a filing,
supplement or amendment at such time would materially adversely affect or
interfere with such transaction so long as the Company shall, as soon as
practicable thereafter, make such filing, supplement or amendment, to the
extent then practicable; provided, however, that in no event shall any delay in
filing pursuant to this Section 7.13 be for a period in excess of 60 days or be
exercised by the Company more than twice during any 365 day period (and, at
least 70 days must pass after the end of any such delay period prior to the
date the Company may exercise its second delay period in any 365 day period)
without a waiver as permitted by Section 11.3. The Company shall promptly give
each Purchaser written notice of any such postponement, containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay; provided, however, that nothing herein shall require the
Company to disclose any terms of any such transaction or the identity of any
party thereto. Upon receipt by a Purchaser of notice of an event of the kind
described in this Section 7.13, such Purchaser shall forthwith discontinue any
disposition of Registrable Securities until receipt of notice from the Company
that such disposition may continue and of any supplemented or amended
prospectus indicated in such notice.
ARTICLE 8
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of the Company and the
Purchasers;
(b) by the Purchasers, if the Closing shall not have
occurred on or before December 31, 1997; provided, however, that the right to
terminate this Agreement
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under this clause (b) shall not be available to any Purchaser whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date and the Apollo
Purchasers shall be deemed to be one Purchaser for purposes of this proviso;
(c) by the Purchasers or the Company, if any judgment,
injunction, order or decree enjoining the Purchasers, or the Company from
consummating this Agreement is entered and such judgment, injunction, order or
decree shall become final and non-appealable; provided, however, that the
Purchasers and the Company shall have used all reasonable efforts to remove
such judgment, injunction, order or decree; or
(d) by the Company, in the event the Merger Agreement has
been terminated in accordance with its terms and a period of at least six
months has elapsed since such termination of the Merger Agreement, and at least
six months has elapsed since the Purchaser and the Target engaged in
substantive discussions regarding a merger, consolidation, business
combination, stock or asset acquisition, joint venture or other similar
investment by the Company in the Target.
Section 8.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 8.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except (A) to the extent such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement and (B) that the representation contained in Sections 3.18 (Finder's
Fee), 4.7 (Finder's Fee) and the covenants and agreements contained in Section
5.8 (Publicity), Article 6 (Survival and Indemnification), Section 11.1
(Notices), Section 11.2 (Fees and Expenses) and Section 11.11 (Submission to
Jurisdiction; Waiver of Jury Trial) shall survive the termination hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE PURCHASERS
The obligations of the Purchasers to be discharged under this
Agreement at the Closing are subject to satisfaction of the following
conditions at or prior to the Closing (unless expressly waived in writing by
the Purchasers at or prior to the Closing):
Section 9.1 Compliance by the Company. Each of the terms, covenants
and conditions of this Agreement to be complied with and performed by the
Company at or prior to the Closing shall have been complied with and performed
by it in all material respects, and the representations and warranties made by
the Company in this Agreement shall be true and correct (i) as of the date
hereof and (ii) as of the Closing except to the extent that the circumstances
or events resulting in the failure of such representations and warranties to be
true and correct as of the Closing would not have a Material Adverse
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Effect (without duplication of any materiality standard contained therein) on
the Company after giving effect to the Target Acquisition.
Section 9.2 No Injunction. At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
government authority of competent jurisdiction that is in effect that restrains
or prohibits the consummation of the transactions contemplated hereby or the
Target Acquisition.
Section 9.3 Regulatory Matters. There shall have been received, and
shall be in full force and effect, all requisite Approvals with respect to the
purchase and holding by the Purchasers of the Preferred Shares. The purchase
of and payment for the Preferred Shares on the Closing Date on the terms and
conditions herein provided shall not violate any applicable law or governmental
regulation and shall not subject the Purchasers to any material tax, penalty or
liability, or require the Purchasers to register or qualify under or pursuant
to any applicable law or governmental regulation. In the reasonable opinion of
the Purchasers, there shall not have occurred, and there shall not be pending
or threatened, any change in law or regulation that has or could reasonably be
expected to have a Material Adverse Effect on the Company after giving effect
to the Target Acquisition.
Section 9.4 Legal Opinions. The Company shall have furnished to the
Purchasers on the Closing Date the opinion of Jones, Day, Reavis & Pogue,
counsel to the Company, dated the Closing Date, in customary form and substance
for transactions of this nature and in form and substance reasonably
satisfactory to the Purchasers and the Company.
Section 9.5 Lauren Agreement. The change of control provisions
contained in the Lauren Agreement shall have been modified in a manner
reasonably acceptable to the Purchasers.
Section 9.6 Articles of Incorporation and By-laws; Ownership
Structure. The Articles of Incorporation and By- laws shall not have been
amended, modified or supplemented in any respect, and no material change shall
have occurred in the ownership structure of the Company, except as contemplated
hereby or by the Merger Agreement.
Section 9.7 Closing Documents. The Company shall have delivered to
the Purchasers the following:
(a) a certificate of the chief executive officer and the
chief financial officer of the Company, dated the Closing Date, to the effect
that the conditions specified in Section 9.1 have been satisfied and that the
Target Acquisition has been consummated;
(b) incumbency certificates dated the Closing Date for
the officers of the Company executing this Agreement or any of the other
Transaction Documents and
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any certificates or documents delivered in connection with this Agreement, the
other Transaction Documents or the Closing;
(c) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date, certifying attached copies of
the By-laws of the Company and the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery by the Company
of this Agreement and the other Transaction Documents and the consummation by
the Company of the transactions contemplated hereby and thereby;
(d) a copy of the Articles of Incorporation as filed with
and certified by the Secretary of the Sate of Texas;
(e) a certificate of the Secretary of the State of Texas,
dated a recent date, certifying that the Company is in good standing in Texas
and that all reports, if any, have been filed as required and that all fees in
connection therewith and all franchise taxes have been paid; and
(f) such other certificates or documents as the Purchaser
or its counsel may reasonably request relating to the transactions contemplated
hereby.
Section 9.8 Company Indebtedness. The Purchasers shall be satisfied
that, after giving effect to the transactions contemplated hereby and by the
other Transaction Documents, at the Closing (a) the Company will have not less
than $40 million of availability under its revolving credit facility (based
upon the pro forma consolidated 9/30/97 balance sheet) immediately after the
initial funding of the Company's senior credit facilities (such amount to be
increased by 61.02% of the principal amount of any 6% Convertible Subordinated
Debentures due 2012 ("6% Notes") of the Target outstanding immediately prior to
the merger contemplated by the Merger Agreement, (b) the Company shall have
entered into the senior credit facilities on the explicit terms set forth in
the commitment letter attached hereto, with such additional terms (including
but not limited to detailed provisions contemplated by such explicit terms)
satisfactory to the Purchasers with not less than $600 million of availability
and all conditions to the initial funding thereunder shall have been satisfied;
(c) the Company shall have issued subordinated debt on the explicit terms set
forth in the commitment letter attached hereto, with such additional terms
(including but not limited to detailed provisions contemplated by such explicit
terms) satisfactory to the Purchasers in an amount not less than $135 million;
and (d) the Company and the Target shall have no other outstanding (i)
Indebtedness for Borrowed Money or preferred stock other than (w) approximately
$22 million of Company's and the Target's industrial revenue bonds, (x)
approximately $125 million of the Company's 10% Senior Subordinated Notes due
2006 under the Indenture, (y) approximately $117.8 million principal amount of
the Target's 6% Notes (to the extent such 6% Notes have not theretofore been
converted in accordance with their terms) and (z) other Indebtedness for
Borrowed Money not exceeding $1 million. The terms of
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any of the above outstanding Indebtedness shall not have been amended without
the Purchasers' consent.
Section 9.9 Expenses. The Company shall have paid or reimbursed all
Transaction Expenses theretofore incurred by the Purchasers in connection with
the Transaction Documents (or made provision satisfactory to the Purchasers for
payment or reimbursement of such expenses in the case of expenses incurred but
not yet billed to Purchasers) in accordance with the letter agreement dated
August 19, 1997 between the Company and Apollo Management, L.P.
Section 9.10 Condition and Status of the Company and the Target.
Since December 31, 1996 and after giving effect to the transactions
contemplated by the Transaction Documents, there shall have been no Bankruptcy
Event, no Change of Control, no default or event of default under any material
Instrument to which the Company or any Subsidiary of the Company is a party and
no event or events causing a Material Adverse Effect on the Company after
giving effect to the Target Acquisition, nor any developments that could,
individually or in the aggregate, in the reasonable opinion of the Purchasers,
be expected to result in a Material Adverse Effect on the Company after giving
effect to the Target Acquisition. No information relating to (i) events or
conditions not disclosed to the Purchasers prior to the date hereof or (ii) new
information or additional developments concerning conditions or events
previously disclosed to the Purchasers, shall have come to the attention of the
Purchasers as a result of their continuing review of the Company and the Target
that the Purchasers reasonably believe is likely to have a Material Adverse
Effect on the Company after giving effect to the Target Acquisition.
Section 9.11 Merger Agreement. The Merger Agreement in the form
attached hereto shall not have been altered, amended or otherwise changed or
supplemented or any condition therein waived, without the prior written consent
of the Purchasers. The transactions contemplated by the Merger Agreement
(including the issuance of shares of Company Common Stock as contemplated by
Section 2.1(e)(i)(B) thereof, without the application of Section 2.4 thereof)
shall be closed simultaneously with the Closing, and the Company's shareholders
shall have approved, by the required vote, the issuance of Common Stock and
Preferred Stock as contemplated hereby and by the Merger Agreement.
Section 9.12 No Shareholders or Voting Agreements. No shareholders
or voting agreements relating to the Company shall be in effect except as may
be approved in writing by the Purchasers.
Section 9.13 Financial Markets. There shall not have occurred after
the date hereof a material adverse change in the market for equity financings
or a material disruption of, or a material adverse change in, financial,
banking or capital market conditions, in each case as determined by the
Purchasers in their reasonable discretion.
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Section 9.14 Certain Agreements. The Company shall have provided to
the Purchasers true and correct copies of all written agreements and
understandings (or a written summary of all unwritten agreements and
understandings) with any lenders, advisors, or financing sources relating to
the transactions contemplated by the Transaction Documents.
ARTICLE 10
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY
The obligations of the Company to be discharged under this Agreement
at the Closing are subject to satisfaction of the following conditions at or
prior to the Closing (unless waived by the Company at or prior to the Closing):
Section 10.1 Purchaser Representation and Warranties. The
representations and warranties made by the Purchasers in this Agreement shall
be true and correct as of the Closing except to the extent that the
circumstances or events resulting in the failure of such representations and
warranties to be true and correct as of the Closing would not have a Material
Adverse Effect on the Company, the Target and their respective Subsidiaries,
taken as a whole, after giving effect to the Target Acquisition.
Section 10.2 Target Investment. Simultaneously with the Closing
either (i) the Target Acquisition, (ii) a merger, consolidation or other
business combination between the Company and the Target or an investment in, or
acquisition of the stock or assets of, the Target by the Company, shall have
been consummated.
Section 10.3 No Legal Action. At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
government authority of competent jurisdiction that is in effect that restrains
or prohibits the consummation of the transactions contemplated hereby.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Notices. All notices or other communications given or
made hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
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If to the Company:
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Attention: John H. Karnes, Esquire, Vice President and
General Counsel
with copies to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Telecopy: (214) 969-5100
Attention: Henry L. Gompf, Esquire
If to the Purchasers:
At their respective addresses set forth
on Exhibit A hereto
with a copy to:
Apollo Management, L.P.
1999 Avenue of the Stars
19th Floor
Los Angeles, CA 90067
Telecopy: (310) 201-4166
Attention: Michael Weiner, Esquire
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022-4616
Telecopy: (212) 872-1002
Attention: Patrick J. Dooley, Esquire and Eliot Raffkind,
Esquire
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
Section 11.2 Fees and Expenses. The Company agrees to pay to the
Purchasers the Transaction Expenses in accordance with the letter agreement
dated August 19, 1997 between the Company and Apollo Management L.P.
Furthermore, upon termination of this Agreement, the Company shall promptly pay
to the Purchasers or an Affiliate of the Purchasers any unpaid Transaction
Expenses up to and including the date of such termination. The Company further
agrees that if the Target Acquisition is not completed for any reason
whatsoever and the Company or any Affiliates, directly or indirectly, receives
any advisory, topping, break-up, commitment, funding or similar fee (the "Fee")
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as a result thereof, the Company hereby covenants to pay the Purchasers,
promptly following receipt thereof by the Company or such Affiliates, in the
aggregate, the lesser of (i) $2.4 million and (ii) 20% of the amount of the net
Fee remaining after payment by the Company of actual out-of-pocket expenses,
provided that such expenses shall not include any Fees payable to any advisers
or financing sources (but shall include amounts paid by the Company in respect
of any expense reimbursement obligations for out-of-pocket expenses payable to
any of such parties). The Company hereby warrants that it does not, as of the
date hereof, directly or indirectly own any stock or other security of the
Target.
Section 11.3 Amendment; Waiver. The provisions of this Agreement may
be modified or amended, and waivers and consents to the performance and
observance of the terms hereof may be given, only by written instrument
executed and delivered by the Company and holders of a majority of the
Preferred Shares. The failure at any time to require performance of any
provision hereof shall in no way affect the full right to require such
performance at any time thereafter. The waiver by any party to this Agreement
of a breach of any provision hereof shall not be taken or held to be a waiver
of any succeeding breach of such provision or any other provision or as a
waiver of the provision itself.
Section 11.4 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the
provision held to be invalid, illegal or unenforceable.
Section 11.5 Headings. The index and article and section headings
herein are for convenience only and shall not affect the construction hereof.
Section 11.6 Entire Agreement. This Agreement and the other
Investment Agreements embody the entire agreement between the parties relating
to the subject matter hereof and any and all prior oral or written agreements,
representations or warranties, contracts, understandings, correspondence,
conversations, and memoranda, whether written or oral, between the Company and
the Purchasers, or between or among any of their agents, representatives,
parents, Subsidiaries, Affiliates, predecessors in interest or successors in
interest, with respect to the subject matter hereof are of no further force and
effect.
Section 11.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.
Section 11.8 Assignment. All covenants and agreements contained in
this Agreement by or on behalf of the parties hereto shall bind, and inure to
the benefit of, the
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respective successors and assigns of the parties hereto. Subject to Section
7.10, the rights and obligations of either party hereto may not be assigned
without the prior written consent of the other parties; provided, however that
prior to the Closing, each Purchaser may assign all or any portion of its
rights hereunder (along with the corresponding obligations), provided that such
Purchaser shall continue to be bound hereby.
Section 11.9 Third-Party Beneficiaries. Except for Article 6 and
Sections 7.3, 7.4, 7.6 and 7.7, 11.2 and 11.11, this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.
Section 11.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11.11 Submission to Jurisdiction; Waiver of Jury Trial. Each
of the Company and the Purchasers hereby submits to the exclusive jurisdiction
of the United States District Court for the Southern District of New York and
of any New York State Court sitting in the City of New York for purposes of all
legal proceedings which may arise hereunder or under any other Transaction
Documents. The Company irrevocably waives, to the fullest extent permitted by
law, any objection which it may have or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby consents to process being served in any such
proceeding by the mailing of a copy thereof by registered certified mail,
postage prepaid, to its address specified in Section 11.1 or in any other
manner permitted by law. THE COMPANY AND THE PURCHASERS (AND ANY PERSON
CLAIMING THROUGH THEM OR PURSUANT TO THIS AGREEMENT) HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OF THE
PURCHASER OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PURCHASER'S ENTERING INTO THIS AGREEMENT. The Company hereby irrevocably
designates CT Corporation, 1633 Broadway, New York, NY 10019, as the designee,
appointee and agent of the Company to receive, for and on behalf of the
Company, service of process in such jurisdiction in any legal action or
proceeding with respect to this Agreement or any other Investment Agreement. It
is expected that a copy of such process served on such agent will be promptly
forwarded by mail to the Company at its address set forth in Section 11.1, but
the failure of the Company to receive such copy shall not affect in any way the
service of such process. The Company further irrevocably consents to the
service of process of any
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of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered certified mail, postage prepaid, to the Company at
such address. Nothing herein shall affect the right of the Purchasers to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against the Company in any other jurisdiction.
Section 11.12 Further Assurances. The parties agree to use their reasonable
efforts to take, or cause to be taken, all further actions as shall be
necessary to make effective and consummate the transactions contemplated by
this Agreement and the Transaction Documents. The Company shall, on the last
day of each month prior to the Closing Date, and on the last day of each Fiscal
Quarter after the Closing Date furnish to the Purchasers a certificate signed
by an authorized executive officer as to the compliance with its obligations
under this Agreement and the other Investment Agreements. At any time that any
party hereto is in breach of any representation, warranty, covenant or
agreement in this Agreement or any of the other Transaction Documents, such
party shall inform the other parties of such breach, and shall take all actions
necessary to mitigate the adverse effects of such breach; provided that in no
event will disclosure of a breach relieve the breaching party from any of its
obligations or affect the rights of any other party hereto.
47
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PILLOWTEX CORPORATION
By: /s/ JEFFREY D. CORDES
--------------------------------------
Name: Jeffrey D. Cordes
Title: President & COO
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P.,
Its General Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ROBERT A. KATZ
--------------------------------------
Name: Robert A. Katz
Title: Vice President
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P.,
Its Managing Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ROBERT A. KATZ
--------------------------------------
Name: Robert A. Katz
Title: Vice President
APOLLO (UK) PARTNERS III, L.P.
By: Apollo Advisors II, L.P.,
Its Managing Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ROBERT A. KATZ
--------------------------------------
Name: Robert A. Katz
Title: Vice President
48
<PAGE> 53
EXHIBIT A
PURCHASERS
<TABLE>
<CAPTION>
Name and address Shares of Preferred Purchase Price for
of Purchaser Stock to be Acquired Preferred Stock Acquired
------------ -------------------- ------------------------
<S> <C> <C>
Apollo Investment Fund III, L.P. 59,268 $59,268,000
c/o Apollo Capital Management II, Inc.
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert Katz
Facsimile: (212) 261-4102
Apollo Overseas Partners III, L.P. 3,542 $3,542,000
c/o Apollo Capital Management II, Inc.
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert Katz
Facsimile: (212) 261-4102
Apollo (UK) Partners III, L.P. 2,190 $2,190,000
c/o Apollo Capital Management II, Inc.
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert Katz
Facsimile: (212) 261-4102
</TABLE>
49
<PAGE> 54
EXHIBIT B
STATEMENT OF RESOLUTION
FOR
SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK
OF
PILLOWTEX CORPORATION
PURSUANT TO ARTICLE 2.13 OF THE TEXAS
BUSINESS CORPORATION ACT
I, _______________, ___________ of Pillowtex Corporation, a
corporation organized and existing under the Texas Business Corporation Act
(the "Company"), DO HEREBY CERTIFY that at a meeting of the Board of Directors
on ___________, 1997, at which meeting a quorum was present, the following
resolution was adopted:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of Article V of the
Company's Restated Articles of Incorporation, as amended, a series of Preferred
Stock, par value $0.01 per share, of the Company be, and hereby is, created,
and the designations, preferences, and relative rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, be, and
hereby are, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Redeemable Convertible Preferred Stock" (the
"Preferred Stock") and the number of shares constituting such series initially
shall be 200,000.
Section 2. Definitions. For purposes of this Statement of
Resolution, the following definitions shall apply:
"1999 EPS" shall mean EPS for the twelve month fiscal year
ending December 25, 1999 and shall be calculated on a pro forma basis, assuming
the dividend rate on the Preferred Stock for calendar 1997 (if applicable) and
calendar 1998 was the Adjusted 1998 Dividend Rate (as defined below) and the
dividend rate on the Preferred Stock for calendar 1999 was the Applicable
Dividend Rate, and assuming any additional dividends included in such pro forma
calculation were paid in additional shares of Preferred Stock (including the
effect of all dividends earned on unpaid dividends).
"Adjusted 1998 Dividend Rate" shall mean (i) if 1999 EPS is
equal to, or greater than, $2.35 (as adjusted pursuant to Section 3), 3% per
annum, or (ii) if 1999 EPS is less than $2.35 (as adjusted pursuant to Section
3), 10% per annum.
"Affiliate" of any specified Person shall mean:
(a) any other Person which, directly or
indirectly, is in control of, is controlled by or is under
common control with such specified Person; or
<PAGE> 55
(b) any other Person which beneficially owns or
holds ten percent or more of any class of the share capital
normally entitled to vote in the election of directors of such
specified Person; or
(c) any other Person of which ten percent or more
of the share capital normally entitled to vote in the election
of directors of such Person is beneficially owned or held by
such specified Person or a subsidiary of such specified
Person; or
(d) any other Person who is a director or officer
(i) of such specified Person; (ii) of any Subsidiary of such
specified Person or (iii) of any Person described in paragraph
(a) above; and
for purposes of this definition, "control" of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Dividend Rate" shall have the meaning assigned to
it in Section 3.
"Asset Sales" shall mean the sale or conveyance of assets in
one or a series of related transactions (other than inventory sold in the
ordinary course of business) having a fair market value in excess of
$1,000,000.
A "Bankruptcy Event" shall be deemed to have occurred with
respect to a Person if such Person shall:
(i) generally fail to pay, or admit in writing its
inability to pay, its debts as they become due;
(ii) apply for, consent to or acquiesce in, the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or any property of any
thereof, or make a general assignment for the benefit
of creditors;
(iii) in the absence of such application, consent or
acquiescence, permit or suffer to exist the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or for a substantial part
of the property of any thereof and such appointment
shall not be discharged within 30 days;
(iv) commence, or permit or suffer to exist the
commencement of, any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of
such Person or any of its material Subsidiaries, and,
if such case or proceeding is not commenced by such
Person or any such Subsidiaries, such case or
proceeding shall be consented to or acquiesced in by
such Person or any of its material Subsidiaries or
shall result in the entry of any order for relief or
shall remain for 30 days undismissed; or
2
<PAGE> 56
(v) take any action to authorize any of the foregoing.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"Capital Stock" shall mean any class or series of capital
stock of the Company.
"Catch Up Dividend" shall have the meaning set forth in
Section 3.
"Catch Up Dividend Amount" shall mean an amount of additional
shares of Preferred Stock, such that, following the Catch Up Dividend, the
holders of the Preferred Stock will have received the aggregate amount of
dividends which should have been paid on the Preferred Stock from the Issue
Date through and including the last Dividend Payment Date prior to the Final
Determination Date, assuming (i) the dividend rate for calendar 1997 (if
applicable) and calendar 1998 was the Adjusted 1998 Dividend Rate, (ii) the
dividend rate for calendar 1999 was the Applicable Dividend Rate, and (iii) all
such additional dividends were paid in additional shares of Preferred Stock
when due (including the effect of all dividends earned on unpaid dividends).
"Change of Control" shall have the meaning assigned to it in
the Indenture except that any transaction or series of transactions in which
the Apollo Purchasers (as defined in the Purchase Agreement) or their
Affiliates or any transferees of any of the foregoing (either individually or
as part of a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquire 50% or more of the Company's capital stock
shall not be deemed a Change of Control.
"Company" shall mean Pillowtex Corporation, a Texas
corporation.
"Common Stock" shall mean the Common Stock, par value $0.01,
of the Company.
"Common Stock's Fair Market Value" shall mean (i) if the
Common Stock is listed on a national securities exchange, the closing sale
price per share on the principal exchange on which the Common Stock is listed
as reported by such exchange, (ii) if the Common Stock is quoted in the
National Market System, the closing sale price per share as reported by NASDAQ
or (iii) if the Common Stock is traded in the over-the-counter market but not
quoted in the National Market System, the average of the closing bid and asked
quotations per share as reported by NASDAQ, or any other nationally accepted
reporting medium if NASDAQ quotations shall be unavailable.
"Control Notice" shall have the meaning assigned to it in
Section 6(c)(ii).
"Conversion Date" shall have the meaning assigned to it in
Section 7(c).
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<PAGE> 57
"Conversion Price" shall mean $24.00 per share; provided that
if the Determination Price is less than $23.00 then the Conversion Price shall
equal the Determination Price plus $1.00; provided further, that the Conversion
Price shall, in any event, be subject to adjustment from time to time as
provided in Section 7.
"Determination Price" shall mean the average of the closing
sales prices of the Company's 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 Closing Date (as
defined in the Agreement and Plan of Merger dated September 10, 1997 among the
Company, a Company Subsidiary and the Target).
"Dividend Increase" shall have the meaning assigned to it in
Section 3.
"Dividend Payment Date" means each of March 31, June 30,
September 30 and December 31 upon which quarterly dividend payments are due.
"EPS" for any fiscal year shall mean the Company's diluted
earnings per share (as calculated based on Financial Accounting Standard Board
Statement No. 128) as included in the Company's audited financial statements
for such fiscal year, as adjusted to exclude the following items set forth,
included or reflected in such audited statements (a) the after-tax effect of
any changes in GAAP from September 5, 1997, other than the effects of Financial
Accounting Standards Board Statement No. 128, (b) the after-tax effect of any
extraordinary gains or losses, and (c) the after-tax effect of gains on Asset
Sales.
"Event of Noncompliance" shall have the meaning assigned to it
in Section 10.
"Final Determination Date" shall have the meaning assigned to
it in Section 3.
"GAAP" shall mean generally acceptable accounting principles
consistently applied in the United States, unless any other jurisdiction is
specified, in which case it shall be the equivalent set of accounting
principles for such jurisdiction.
"Indenture" means the Indenture dated as of November 12, 1996,
between the Company, certain guarantors described therein and Bank One,
Columbus, N.A., as trustee, relating to the Series A and Series B 10% Senior
Subordinated Notes of the Company.
"Issue Date" shall mean the date of original issuance of the
Preferred Stock.
"Junior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Company, rank junior to the
Preferred Stock.
"Liquidation Preference" shall have the meaning assigned to it
in Section 4.
"Majority of the Preferred Stock" shall mean more than 50% of
the outstanding shares of Preferred Stock.
4
<PAGE> 58
"Mandatory Redemption Date" shall have the meaning assigned to
it in Section 5(b).
"Mandatory Redemption Price" shall have the meaning assigned
to it in Section 5(b).
"Optional Redemption Date" shall have the meaning assigned to
it in Section 5(a)(i).
"Optional Redemption Price" shall have the meaning assigned to
it in Section 5(a)(i).
"Parity Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company, ranks on a parity with
the Preferred Stock and has a mandatory redemption date on or after the
Mandatory Redemption Date.
"Participating Holder" shall have the meaning assigned to it
in Section 6(c)(ii).
"Permitted Indebtedness" shall mean (i) term loans issued
pursuant to the Company's senior credit facilities contemplated in Section
9.8(b) of the Purchase Agreement, (ii) the subordinated debt contemplated in
Section 9.8(c) of the Purchase Agreement, (iii) $22 million of the Company's
and the Target's industrial revenue bonds, (iv) approximately $125 of the
Company's 10% Senior Subordinated Notes due 2006 under the Indenture and (v)
approximately $117.8 million principal amount of the Target's 6% Convertible
Subordinated Debentures due 2012 ("6% Notes") (reduced to the extent such 6%
Notes have theretofore been converted in accordance with their terms).
"Person" shall include all natural persons, corporations,
business trusts, associations, companies, partnerships, joint ventures and
other entities and governments and agencies and political subdivisions.
"Preferred Stock" shall mean the Series A Redeemable
Convertible Preferred Stock of the Company.
"Purchase Agreement" shall mean the Purchase Agreement dated
as of September 10, 1997 among the Company and the purchasers named therein
pursuant to which 65,000 shares of Preferred Stock are to be issued, including
all schedules and exhibits thereto, as such Purchase Agreement may be from time
to time amended, modified or supplemented.
"Reclassification" shall mean any capital reorganization of
the Company, any reclassification of the Common Stock, the consolidation of the
Company with or the merger of the Company with or into any other Person, a
statutory share exchange having an effect similar to a merger or consolidation,
the sale, lease or other transfer of all or substantially all of the assets of
the Company to any other Person or any similar transaction. The subdivision or
combination of shares of Common Stock issuable upon conversion of shares of
Preferred Stock at any time outstanding into a greater or lesser number of
shares of Common Stock (whether with or without par value) shall not be deemed
to be a "Reclassification" of the Common Stock for the purposes of Section
7(d)(iv).
5
<PAGE> 59
"Senior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Company, ranks senior to the
Preferred Stock or Capital Stock that, with respect to dividend distributions
and distributions upon the liquidation, winding-up or dissolution of the
Company ranks on a parity with the Preferred Stock and has a mandatory
redemption date prior to the Mandatory Redemption Date.
"Special Redemption Date" shall have the meaning assigned to
it in Section 5(a)(ii).
"Special Redemption Price" shall have the meaning assigned to
it in Section 5(a)(ii).
"Subsidiary" means, as to any Person, (a) any corporation 51%
or more of the outstanding shares of capital stock of which having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person and (b) any partnership, association, joint venture or other entity
in which such Person and/or one or more Subsidiaries of such Person has 51% or
more of an equity interest at the time.
"Target" shall mean Fieldcrest Cannon, Inc., a Delaware
corporation.
"Target Acquisition" shall have the meaning assigned to it in
the Purchase Agreement.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
Section 3. Dividends. The holders of the outstanding shares of
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of funds legally available therefor, distributions in the form of
dividends on each share of Preferred Stock as set forth below:
(a) Right to Dividends.
(i) Subject to the following provisions, beginning on the
Issue Date through and including December 31, 1999, at a rate per annum of 3%;
(ii) Beginning on January 1, 2000 through and including
the Mandatory Redemption Date, at a rate (the "Applicable Dividend Rate") per
annum based upon 1999 EPS as follows: (i) if 1999 EPS is less than $2.35, then
the dividend rate shall be 10.0% per annum; (ii) if 1999 EPS is greater than,
or equal to, $2.35 but less than $2.70, then the dividend rate shall be 7.0%
per annum; and (iii) if 1999 EPS is greater than or equal to $2.70, then the
dividend rate shall be 3.0% per annum;
in each case subject to increase as set forth herein.
Each of the $2.35 and $2.70 targets for 1999 EPS set forth
above shall be (A) appropriately adjusted for (x) subdivisions and combinations
of shares of Common Stock, (y)
6
<PAGE> 60
Reclassifications and (z) dividends on Common Stock payable in shares of Common
Stock subsequent to the Issue Date and (B) reduced by an amount equal to
(rounded to the nearest hundredth) (x) 0.065 multiplied by (y)(i) $23.00 minus
(ii) the Determination Price, but the provisions of this clause (B) shall only
be applicable if the Determination Price is less than $23.00.
The Company will promptly (and in any event within 5 Business Days)
after determination of the 1999 EPS (which date of determination shall be no
later than March 31, 2000), send to each record holder of Preferred Stock at its
record address a written statement of its calculation of 1999 EPS (including
each adjustment thereto for the items described in clauses (a) through (c) of
the definition of EPS in Section 2 hereof and any adjustments pursuant to the
definition of 1999 EPS in Section 2 hereof), and a negative assurance letter
from the Company's auditors to the effect that they have reviewed such 1999 EPS
calculation and that nothing has come to the auditors' attention that would
cause them to believe that 1999 EPS was not calculated as required by this
Statement of Resolution. In the event that the holders of a Majority of the
Preferred Stock disagree with the calculation of 1999 EPS ("Disagreeing
Holders"), such Disagreeing Holders (or their duly appointed representative)
shall notify the Company in writing of such disagreement within 30 days after
the applicable notice of such 1999 EPS figure has been sent by the Company.
Failure to send such notice of disagreement within such time period shall be
deemed acceptance of the Company's 1999 EPS figure absent fraud. Upon receipt
of such notice of disagreement, the Company shall provide to the Disagreeing
Holders and their representatives (including accountants) access to the books
and records of the Company used to calculate such 1999 EPS figure during
reasonable business hours, as well as the auditors that reviewed such
calculation and the work papers relating to the audit of the Company's financial
statements and the review of the 1999 EPS calculation. If, within 30 days of
the Company's receipt of such notice of disagreement, agreement as to the proper
1999 EPS calculation cannot be reached, the calculation of such 1999 EPS figure
shall be promptly determined by a "big-six" accounting firm, which does not
audit the Company and which is mutually acceptable to holders of a majority of
the shares held by the Disagreeing Holders and the Company. The Company and such
Disagreeing Holders shall promptly (and in any event within 30 days after the
expiration of the 30-day period described in the preceding sentence) appoint
such accounting firm, and such accounting firm shall use its reasonable best
efforts to calculate such 1999 EPS figure within 30 days after its appointment
and produce such calculation in writing. The scope of such accounting firm's
review of the 1999 EPS calculation shall be limited to the items included in
clauses (a) through (c) of the definition of EPS in Section 2 hereof and any
adjustments pursuant to the definition of 1999 EPS in Section 2 hereof. Absent
fraud, such accounting firm's calculation of the 1999 EPS figure shall be
binding on the Company and all holders of Preferred Stock for all purposes of
this Statement of Resolution. If such accounting firm's calculation of the 1999
EPS figure is lower than that calculated by the Company, the Company shall bear
the fees and expenses of such accounting firm. If such accounting firm's
calculation of the 1999 EPS figure is equal to or higher than that calculated by
the Company, the Disagreeing Holders shall bear the fees and expenses of such
accounting firm.
If 1999 EPS is less than $2.70 (as adjusted pursuant to this Section
3), then following the date on which the final determination of the 1999 EPS is
made ("Final Determination Date"), as contemplated by the preceding paragraph,
the Company will, no later than 5 days thereafter, pay to the holders of
Preferred Stock the number of additional shares of Preferred Stock (the "Catch
Up Dividend") equal to the Catch Up Dividend Amount. In determining dividends
payable on
7
<PAGE> 61
the next succeeding Dividend Payment Date following the Final Determination
Date, the Company shall assume that the shares of Preferred Stock outstanding
on the prior Dividend Payment Date included all additional shares issued in the
Catch Up Dividend.
All dividends shall be cumulative, whether or not declared, on a daily
basis from the Issue Date and shall be payable quarterly, in arrears, on each
Dividend Payment Date commencing ____________, 199_.* Dividends (in the form
of additional dividends due) will compound quarterly on all unpaid dividends
from the Dividend Payment Date with respect thereto until the date of payment
at the applicable Annual Dividend Rate (as adjusted in accordance with this
Section 3).
From the Issue Date through the fifth anniversary of the Issue Date,
dividends declared may be paid, at the Company's option, either in cash or in
additional shares of Preferred Stock (other than the Catch Up Dividend, which
shall be paid in additional shares of Preferred Stock). Fractional shares of
Preferred Stock shall not be issued in certificated form, but shall be deemed
outstanding on the books of the Company and held of record by the appropriate
stockholder for all purposes, including the payment of dividends.
Uncertificated fractional shares held of record by a stockholder, when
aggregating a whole share, shall be issued in whole share increments. After
the fifth anniversary of the Issue Date, dividends are payable only in cash.
In the event that after the fifth anniversary of the Issue Date, the
Company shall fail to pay dividends in cash on the Dividend Payment Date when
due, the Applicable Dividend Rate applicable to any period in which any such
dividends remain unpaid shall be increased by 0.5% per quarter for each quarter
in which any such dividends remain unpaid (such rate increase, the "Dividend
Increase"). The Applicable Dividend Rate plus the Dividend Increase applicable
to any period shall not exceed the lesser of (i) 18.0% per annum and (ii) the
maximum rate permitted by applicable law. After a Dividend Increase, when the
Company pays all accrued and unpaid dividends, and upon the payment of
dividends on the next Dividend Payment Date at the rate in effect prior to
giving effect to any Dividend Increase, the annual dividend rate shall be
decreased to the otherwise Applicable Dividend Rate.
All dividends shall be paid pro rata to the holders entitled thereto.
Section 4. Liquidation Rights of Preferred. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any other class of Capital Stock of the Company
(other than Parity Securities) whether currently authorized or hereafter
created, an amount equal to $1,000 per share plus an amount equal to all
accrued and unpaid dividends thereon, whether or not earnings are available in
respect of such dividends or such dividends have been declared, to and
including the date full payment shall be tendered to the holders of the
Preferred Stock with respect to such liquidation, dissolution or winding up,
and no more (the "Liquidation Preference"). If upon any liquidation,
dissolution, or winding up of the Company, whether voluntary or involuntary,
the assets to be distributed to the holders of the Preferred Stock, along with
the holders of Parity Securities, if any, shall be
__________________________________
* The first Dividend Payment Date after the Issue Date.
8
<PAGE> 62
insufficient to permit the payment to such shareholders of the full
preferential amounts aforesaid, then all of the assets of the Company shall be
distributed ratably to the holders of the Preferred Stock and such Parity
Securities on the basis of the amount due on such liquidation if there were
sufficient assets held by each such shareholder. Neither a consolidation or
merger of the Company with or into any other company nor a merger of any other
company with or into the Company, nor a sale or transfer of all or any part of
the Company's assets for cash, securities or other property, will be considered
a liquidation, dissolution or winding up of the Company.
Section 5. Redemptions.
(a) Optional Redemption.
(i) The Company may, at the option of the Board of
Directors, redeem, to the extent of funds legally available therefor,
at any time on or after the fourth anniversary of the Issue Date, in whole or in
part, in the manner provided for in Section 5(c) hereof, any or all of the
shares of the Preferred Stock, at a redemption price per share equal to (x) the
Liquidation Preference plus (y) (A) the Redemption Premium (as defined below)
multiplied by (B) the Liquidation Preference (minus any accrued and unpaid
dividends from the Dividend Payment Date prior to the Optional Redemption Date).
The "Redemption Premium" shall equal the Applicable Dividend Rate on the
Preferred Stock on the fourth anniversary of the Issue Date and shall decline
ratably (pursuant to the table attached hereto as Annex I) from the fourth
anniversary of the Issue Date to the Mandatory Redemption Date so that at the
Mandatory Redemption Date the Redemption Premium of the Preferred Stock under
this Section 5(a)(i) (y) shall be equal to zero. The redemption price per share
determined under this Section 5(a)(i) is referred to herein as the "Optional
Redemption Price" and the date fixed for redemption in accordance with Section
5(c) below is the "Optional Redemption Date." In the event of a redemption
pursuant to this Section 5(a)(i) of only a portion of the then outstanding
shares of the Preferred Stock, the Company shall effect such redemption on a pro
rata basis according to the number of shares held by each record holder of the
Preferred Stock, except that the Company may redeem such shares held by holders
of fewer than 10 shares (or shares held by holders who would hold less than 10
shares as a result of such pro rata redemption), without regard to the pro rata
requirements of this sentence.
(ii) To the extent a Change of Control has occurred and
the Company has received a Control Notice from Participating Holders, the
Company may, at the option of the Board, redeem, to the extent of funds legally
available therefor all, but not less than all, of the Preferred Stock held by
such Participating Holders on a date fixed by the Company, which date shall be
no less than 20 days nor more than 90 days after receipt of the Control Notice
or if the Control Notice is received more than 20 days prior to the date of the
Change of Control no later than the date of the Change of Control (the "Special
Redemption Date") in the manner provided for in Section 5(c) below at a
redemption price per share equal to 101% of the Liquidation Preference
(including, without limitation, an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Special
Redemption Date to the Special Redemption Date) (the "Special Redemption
Price").
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<PAGE> 63
(b) Mandatory Redemption. On ________, 200_* (the "Mandatory
Redemption Date") the Company shall redeem, to the extent of funds legally
available therefor, in the manner provided for in Section 5(c) hereof, all of
the shares of the Preferred Stock then outstanding at a redemption price per
share equal to the Liquidation Preference (including, without limitation, an
amount equal to a prorated dividend for the period from the dividend payment
date immediately prior to the Mandatory Redemption Date to the Mandatory
Redemption Date) (the "Mandatory Redemption Price").
(c) Procedures for Redemption.
(i) At least thirty (30) days and not more than sixty
(60) days prior to the date fixed for any redemption of the Preferred Stock in
accordance with Section 5(a)(i) or Section 5(b) and at least five days prior to
the Special Redemption Date for any redemption of the Preferred Stock in
accordance with Section 5(a)(ii), written notice (the "Redemption Notice")
shall be given by first class mail, postage prepaid, to each holder of record
on the mailing date of such notice at such holder's address as it appears on
the stock books of the Company (and by facsimile, if a record holder has
provided a facsimile contact); provided that no failure to give such notice nor
any deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Preferred Stock to be redeemed except as to the
holder or holders to whom the Company has failed to give said notice or to whom
such notice was defective. Any holder of Preferred Stock may exercise its
conversion rights under Section 7(a) at any time up until 5:00 p.m. New York
City time on the Business Day prior to the date fixed for redemption in
accordance with this Section 5 (the "Redemption Date") and if not exercised
prior to such time, such redemption right shall expire unless the Company
defaults in making the payment due on redemption. The Redemption Notice shall
state:
(A) whether the redemption is pursuant to Section
5(a)(i), 5(a)(ii) or 5(b) hereof;
(B) the Optional Redemption Price, the Special
Redemption Price or Mandatory Redemption Price, as the case may be;
(C) whether all or less than all the outstanding
shares of the Preferred Stock are to be redeemed and the total number of shares
of the Preferred Stock being redeemed;
(D) the Redemption Date;
(E) that the holder is to surrender to the
Company or its transfer agent, in the manner, at the place or places and at the
price designated, his certificate or certificates representing the shares of
Preferred Stock to be redeemed; and
(F) that dividends on the shares of the Preferred
Stock to be redeemed shall cease to accumulate on such Redemption Date unless
the Company defaults in the payment of the Optional Redemption Price, the
Special Redemption Price or the Mandatory Redemption Price, as the case may be.
__________________________________
* Date is 10# years after the Issue Date.
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(ii) Each holder of Preferred Stock shall surrender the
certificate or certificates representing such shares of Preferred Stock to the
Company, duly endorsed (or otherwise in proper form for transfer, as determined
by the Company), in the manner and at the place designated in the Redemption
Notice, and on the Redemption Date the full Optional Redemption Price, Special
Redemption Price or Mandatory Redemption Price, as the case may be, for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(iii) On and after the Redemption Date, unless the Company
defaults in the payment of the applicable redemption price, dividends on the
Preferred Stock called for redemption shall cease to accumulate on the
Redemption Date, and all rights of the holders of redeemed shares shall
terminate with respect thereto on the Redemption Date, other than the right to
receive the Optional Redemption Price, Special Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest.
Section 6. Voting Rights.
(a) General. The holders of Preferred Stock, except as otherwise
required under Texas law or as set forth in Sections 6(b) and 6(c) below, shall
not be entitled or permitted to vote on any matter required or permitted to be
voted upon by the shareholders of the Company.
(b) Amendments to Articles of Incorporation; Mergers and Similar
Transactions. So long as any shares of the Preferred Stock are outstanding,
the Company shall not (i) amend its Restated Articles of Incorporation
(including this Statement of Resolution) so as to: (A) affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of Preferred Stock or (B) authorize the issuance of additional shares of any
class of Senior Securities (or amend the provisions of any existing class of
Capital Stock to make such class of Capital Stock Senior Securities) 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 Preferred Stock, or (B) result in a breach
of any of the Company's obligations under this Statement of Resolution,
without, in any such case, the affirmative vote or consent of holders of at
least a Majority of the Preferred Stock, voting or consenting, as the case may
be, as one class, given in person or by proxy, either in writing (to the extent
permitted under the Company's Restated Articles of Incorporation) or by
resolution adopted at an annual or special meeting of shareholders.
Notwithstanding the foregoing, any amendment to the Restated Articles of
Incorporation (including this Statement of Resolution) that would alter in any
material respect the dividend rates, liquidation preference, redemption rights
or conversion rights of the Preferred Stock shall require the affirmative vote
or consent of each holder of Preferred Stock.
(c) Election of Directors.
(i) The foregoing notwithstanding, in the event of the
Company's failure to pay dividends in accordance with Section 3, or the
occurrence of one or more Events of Noncompliance, within 10 Business Days of
such failure or such event, as the case may be, the Company shall notify each
holder of Preferred Stock thereof in writing, and the number of directors
constituting the Board shall thereupon be automatically increased so that the
number of new
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directorships of the Board so created will constitute at least 25.0% (rounded
up to the nearest whole number) of the entire Board, after giving effect to
such increase, and the holders of the Preferred Stock shall have, in addition
to the other voting rights provided herein, the exclusive and special right,
voting separately as a class, to elect directors to fill such newly created
directorships (and to fill any vacancy in such directorships until such time as
the special voting rights provided by this Section 6(c)(i) shall terminate as
set forth below). If the event giving rise to the special voting rights was a
failure to pay dividends or an Event of Noncompliance described in Section
10(a)(iii), the special voting rights will continue until all accrued and
unpaid dividends have been paid in full or all Events of Noncompliance have
been cured, as the case may be, subject to revesting in the event of any future
failure to pay dividends in accordance with the terms hereof or a subsequent
Event of Noncompliance. Except as provided in the prior sentence, the special
voting rights provided by this Section 6(c)(i) shall continue as long as any
Preferred Stock is outstanding. If the special voting rights provided by this
Section 6(c)(i) terminate, the terms of the additional directors elected by the
holders of Preferred Stock pursuant to this Section 6(c)(i) shall terminate and
the number of directors constituting the Board shall then be decreased to such
number as constituted the whole Board immediately prior to the occurrence of
the event giving rise to such special voting rights. The special voting rights
provided in this Section 6(c)(i) shall not preclude or affect the exercise of
any other rights or remedies provided hereby or by agreement, by law or
otherwise upon the occurrence of any event giving rise to such special rights.
(ii) The foregoing notwithstanding, the Company will give
notice to each holder of Preferred Stock within five days after the Company
becomes aware of any Change of Control that has occurred or is reasonably
likely to occur and, if a Change of Control occurs, the holders of a Majority
of the Preferred Stock shall, by written notice to the Company and the other
holders of Preferred Stock delivered before or 15 days after the Change of
Control (a "Control Notice") have the right to elect a majority of the Board in
accordance with this Section 6(c)(ii), unless the Company has theretofore
redeemed shares of any holder of Preferred Stock participating in a Control
Notice (each, a "Participating Holder") in accordance with Section 5(a)(ii).
Any holder of Preferred Stock may, at any time within ten days after receipt of
the Control Notice, elect to become a Participating Holder by delivery of
written notice of such election to the Company and the other Participating
Holders. If a Control Notice is received by the Company and the Company has
not redeemed the shares of Preferred Stock held by all Participating Holders,
upon the later to occur of (i) the occurrence of such Change of Control and
(ii) the date that the Company's redemption rights under Section 5(a)(ii) shall
have expired, the number of directors constituting the Board shall thereupon be
automatically increased by such number as will be necessary to constitute a
majority of the total number of the members, after giving effect to such
increase, of such Board, and the holders of the Preferred Stock shall have, in
addition to the other voting rights provided herein, the exclusive, special and
continuing right, voting separately as a class, to elect directors to fill such
newly created directorships (and to fill any vacancy in such directorships) and
to continually elect at least a majority of the Board as long as any Preferred
Stock is outstanding.
(iii) The directors to be elected (or if such directors
have been previously elected and any vacancy shall exist, such vacancy to be
filled) by the holders of Preferred Stock (voting as a class) shall be elected
(or filled) at (i) annual meetings of the shareholders of the Company, or (ii)
a special meeting of the holders of Preferred Stock for the purpose of electing
such directors (or filling any such vacancy), to be called by the Secretary of
the Company upon the written request of the holders of record of 10% or more of
the number of shares of Preferred Stock then outstanding; provided, however,
that if the Secretary of the Company shall fail to call any such meeting within
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<PAGE> 66
10 days after any such request, such meeting may be called by any holder of
Preferred Stock designated for that purpose by the holders of record of 10% or
more of the number of shares of Preferred Stock then outstanding. At any
meeting or at any adjournment thereof held for the purpose of electing
directors at which the holders of shares of Preferred Stock shall have the
special voting right provided by this Section 6(c), the presence, in person or
by proxy, of the holders of the equivalent of a Majority of the Preferred Stock
shall be required to constitute a quorum for the election of any director by
the holders of the Preferred Stock exercising such special right. The special
right of holders of shares of Preferred Stock under this Section 6(c) may be
exercised by the written consent of the holders of shares of Preferred Stock
then outstanding in accordance with the law of the Company's jurisdiction of
incorporation at such time to the extent permitted by the Company's Restated
Articles of Incorporation.
(i) The foregoing notwithstanding, in the case of any
vacancy in the office of a director occurring among the directors elected by the
holders of the Preferred Stock pursuant to Section 6(c), the remaining director
or directors so elected by the holders of the Preferred Stock may, by
affirmative vote of a majority thereof (or the remaining director so elected if
there is only one such director), elect a successor or successors to hold the
office for the unexpired term of the director or directors whose place or places
shall be vacant. Any director who shall have been elected by the holders of the
Preferred Stock, or any director so elected as provided in the next preceding
sentence hereof, shall be removed during the aforesaid term of office, whether
with or without cause, only by the affirmative vote of the holders of a Majority
of the Preferred Stock.
(ii) The Company shall promptly take all necessary action
to facilitate the implementation of the rights of the holders of Preferred Stock
to appoint directors that are provided for under this Section 6.
Section 7. Conversion Rights.
The Preferred Stock shall be convertible into Common Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this Section 7, the holder of any shares of Preferred Stock shall
have the right at such holder's option, at any time or from time to time, to
convert any shares of Preferred Stock into the number of fully paid and
nonassessable shares of Common Stock set forth in Section 7(b).
(b) Conversion Price. Each share of Preferred Stock converted
pursuant to Section 7(a) shall be converted into such number of shares of
Common Stock as is determined by dividing (i) the sum of (A) $1,000 plus (B)
any dividends on such share of Preferred Stock which such holder is entitled to
receive, but has not yet received (including, without limitation, an amount
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the Conversion Date to the Conversion Date), by (ii) the
Conversion Price in effect on the Conversion Date. The Conversion Price shall
be subject to adjustment as set forth in Section 7(d).
(c) Mechanics of Conversion. The holder of any shares of Preferred
Stock may exercise the conversion right specified in Section 7(a) as to any
part thereof by surrendering to the Company or any transfer agent of the
Company the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all or
a
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<PAGE> 67
specified portion of the shares represented thereby. Conversion shall be
considered to have been effected on the date when a holder of Preferred Stock
delivers notice of an election to convert shares of Preferred Stock to the
Company accompanied by certificates representing such shares, and such date is
referred to herein as the "Conversion Date." Subject to the provisions of
Section 7(d), as promptly as practicable thereafter (and after surrender of the
certificate or certificates evidencing the shares of Preferred Stock or
delivery to the Company of an affidavit and indemnity with respect to such
certificates), the Company shall issue and deliver to or upon the written order
of such holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash with respect
to any fractional interest in a share of Common Stock as provided in Section
7(h) hereof. Subject to the provisions of Section 7(d), the Person in whose
name the certificate or certificates for Common Stock are to be issued shall be
considered to have become a holder of record of such Common Stock on the
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate evidencing shares of Preferred Stock surrendered for
conversion, the Company shall issue and deliver to or upon the written order of
the holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered. The
Company will use its best efforts to deliver all stock certificates required by
this Section 7(c) within three business days after the Conversion Date.
(d) Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of
Common Stock outstanding at any time after the date of
issuance of Preferred Stock is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then immediately after
the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend or the
effective date of such subdivision or split-up, as the case
may be, the Conversion Price shall be appropriately reduced
so that the holder of any shares of Preferred Stock thereafter
converted shall be entitled to receive the number of shares
of Common Stock of the Company which he would have received
immediately following such action had such shares of Preferred
Stock been converted immediately prior thereto.
(ii) Combination of Stock. If the number of
shares of Common Stock outstanding at any time after the date
of issuance of Preferred Stock is decreased by a combination
of the outstanding shares of Common Stock, then immediately
after the effective date of such combination, the Conversion
Price shall be appropriately increased so that the holder of
any shares of Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock which
he would have received immediately following such action had
such shares of Preferred Stock been converted immediately
prior thereto.
(iii) Adjustments for Other Dividends and
Distributions. In the event the Company at any time or from
time to time after the Issue Date makes or issues, or fixes a
record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable
in securities or other
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rights of the Company other than a dividend or other
distribution payable solely in shares of Common Stock, then
and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities or other rights
of the Company which they would have received had their
Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date,
retained such securities or other rights receivable by them as
aforesaid during such period, subject to all other adjustments
called for during such period under this Section 7 with
respect to the rights of the holders of the Preferred Stock.
(iv) Reclassification, etc. In case of any
Reclassification, each share of Preferred Stock shall, after
such Reclassification, be convertible into the number of
shares of stock or other securities or property to which the
holder of the Common Stock issuable (at the time of such
Reclassification) upon conversion of such share of Preferred
Stock would have been entitled upon such Reclassification; and
in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of
the holders of the shares of Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as
possible, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the
shares of Preferred Stock. If the holders of Common Stock
have an election with respect to the stock, securities or
other property to be received upon a Reclassification, the
same election shall be afforded to the holders of Preferred
Stock.
(v) Rounding of Calculations. All calculations
under this Section 7(d) shall be made to the nearest cent or
to the nearest one hundredth (1/100th) of a share, as the case
may be.
(vi) Timing of Issuance of Additional Common Stock
Upon Certain Adjustments. In any case in which the provisions
of this Section 7(d) shall require that an adjustment shall
become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event by
(A) issuing to the holder of any shares of Preferred Stock
converted after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such
event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment, and
(B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to Section 7(h)
hereof; provided, however, that the Company upon request shall
deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares and such cash upon the occurrence of the
event requiring such adjustment.
(e) Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 7(d), the Company shall
forthwith file, at the office of any transfer agent for such Preferred Stock
and at the principal office of the Company, a statement
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showing in detail the facts requiring such adjustment and the Conversion Price
that shall be in effect after such adjustment, and the Company shall also cause
a copy of such statement to be sent by mail, first class postage prepaid, to
each holder of shares of Preferred Stock at the address appearing on the
Company's records. Each such statement shall be signed by the Company's
independent public accountants. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of Section 7(f).
(f) Notice to Holders. In the event the Company shall propose to
take any action of the type described in Section 7(d)(i), (ii), (iii), or (iv)
the Company shall give notice to each holder of shares of Preferred Stock
affected by such action in the manner set forth in this Section 7(f), which
notice shall specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
ten days prior to the date so fixed, and in the case of any other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
(g) Costs. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock of the Company upon conversion of any shares of
Preferred Stock; provided, however, that the Company shall not be required to
pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Preferred Stock in respect of which such
shares are being issued.
(h) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. If more than one share of
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. In lieu of any fractional share to which the
holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the Common Stock's Fair Market Value on
the date of conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
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(j) Notices. All notices and other communications required by the
provisions of this Section 7 shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to each holder of record at the address of such
holder appearing on the books of the Company. Notice so given shall, in the
case of notice so given by mail, be deemed to be given and received on the
fourth calendar day after posting, in the case of overnight delivery service,
on the date of actual delivery and, in the case of notice so given by cable,
telegram, facsimile transmission, telex or personal delivery, on the date of
actual transmission or, as the case may be, personal delivery.
(k) No Dilution or Impairment. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
Section 8. Restrictions and Limitations.
(a) So long as any shares of Preferred Stock remain outstanding
and except as set forth below, the Company shall not, and shall not permit any
Subsidiary to, without the vote or written consent by the holders of a Majority
of the Preferred Stock:
(i) (A) Declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of the Company
(other than in respect of the Preferred Stock) or any of its Subsidiaries
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Subsidiaries) or to the
direct or indirect holders of the Equity Interests of the Company or any of its
Subsidiaries in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Senior Securities or Parity Securities
(except that dividends payable on Parity Securities issued in accordance with
the provisions hereof solely in Parity Securities of the same class or series,
as the case may be, shall be permitted) of the Company, dividends or
distributions payable to the Company or any Subsidiary of the Company or
dividends or distributions made by a Subsidiary of the Company to all holders
of its Common Stock on a pro rata basis)); and
(B) Make any payment on or in respect of, or
purchase, redeem, defease or otherwise acquire or retire for value any Equity
Interests (other than the Preferred Stock in accordance with Section 5 or any
Equity Interests owned by the Company or any Subsidiary of the Company) except
at Stated Maturity.
All such payments and other actions set forth in clauses (A)
and (B) above shall be collectively referred to as "Restricted Payments".
Notwithstanding the foregoing, the Company shall be permitted
to make Restricted Payments if, at the time of and after giving effect to such
Restricted Payment:
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(I) No Event of Noncompliance shall have occurred and be
continuing or would occur as a consequence thereof; and
(II) The Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to occur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 8 (a)(v); and
(III) Such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (v) and (w) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) commencing on
the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the Issue Date of Equity Interests of the
Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company or
conversion of the 6% Notes) subject to the provisions of Section
8(a)(vii), plus (iii) $7.5 million.
The foregoing provisions will not prohibit (u) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Section 8(a)(i); (v) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any Parity
Securities); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (ii) of paragraph (III) above; (w) the
defeasance, redemption or repurchase of Junior Securities or Parity Securities
with the net cash proceeds from the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other than
Parity Securities); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (ii) of paragraph (III) above; (x)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Subsidiaries') management pursuant to
any management equity subscription agreement or stock option agreement in
effect as of the Issue Date ; provided that (A) the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any 12-month period plus the aggregate cash proceeds
received by the Company during such 12-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries, and (B) no Event of Noncompliance shall have occurred and be
continuing immediately after such transaction; and (y) so long as no Event of
Noncompliance shall have occurred and be continuing, ordinary dividends paid by
the Company in respect of its Common Stock in an aggregate amount not to exceed
$2.5 million since the Issue Date.
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The amount of all Restricted Payments (other than cash) shall
be the fair market value (evidenced by a resolution of the Board of Directors
or a committee of the Board of Directors having at least one Independent
director set forth in an Officers' Certificate delivered to each holder of
Preferred Stock) on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or such Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to each holder of Preferred Stock
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
8(a)(i) were computed, which calculations may be based upon the Company's
latest available financial statements.
For purposes of this Section 8(a)(i), capitalized terms used
and not defined herein shall have the meanings assigned to them in the
Indenture as in effect on the Issue Date.
(ii) Authorize or issue, or obligate itself to issue, any
Senior Securities;
(iii) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock;
(iv) Enter any agreement, contract or understanding or
otherwise incur any obligation which by its terms would violate, be in conflict
with, restrict or burden the rights of the holders of Preferred Stock, or the
Company's ability to perform its obligations hereunder;
(v) Directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) or issue any Parity Securities (other than as
contemplated by Section 3) unless the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Parity Securities are issued would
have been at least 1.75 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Parity Securities had been issued, as
the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(A) the incurrence by the Company of Indebtedness
under the Credit Agreement (and guarantees thereof by the Guarantors)
in an aggregate principal amount at any time outstanding (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries thereunder)
not to exceed the greater of(x) $175.01 million and (y) the sum of (A)
80%* of the Eligible Accounts Receivable and (B) 65%* of Eligible
Inventory, less, in the case of each of clause (x) and clause (y), the
aggregate amount of all Net Proceeds of Asset
__________________________________
* These figures shall be adjusted at the Issue Date to the extent any less
restrictive amounts or percentages are contained in the comparable provisions
of each of the applicable Loan Documents (as defined in the Purchase
Agreement).
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Sales applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to Section 4.10 of the Indenture as in
effect on the Issue Date;
(B) the incurrence by the Company of Permitted
Indebtedness;
(C) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations
(whether or not incurred pursuant to sale and leaseback transactions),
mortgage financing or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in
an aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(D) the incurrence by the Company or any of its
Subsidiaries of Indebtedness ("Refinancing Indebtedness") in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, Permitted Indebtedness or
Indebtedness that was permitted to be incurred hereunder, provided
that the principal amount (or accreted value, if applicable) of such
Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended,
refinanced, renewed, replaced, defeased or refunded;
(E) the incurrence by the Company or any of its
Wholly Owned Subsidiaries of intercompany Indebtedness between or
among the Company and any of its Wholly Owned Subsidiaries;
(F) the incurrence by the Company of Hedging
Obligations that are incurred in the ordinary course of business for
the purpose of fixing or hedging interest rate risk;
(G) the incurrence by the Company of Hedging
Obligation under commodity hedging and currency exchange agreements;
provided that, such agreements were entered into in the ordinary
course of business for the purpose of limiting risks that arise in the
ordinary course of business;
(H) the incurrence of Indebtedness of a guarantor
represented by guarantees of Indebtedness of the Company that has been
incurred in accordance with the terms hereof; and
(I) the incurrence by the Company of Indebtedness
or the issuance by the Company of Junior Securities or Parity
Securities (in addition to Indebtedness, Junior Securities or Parity
Securities permitted by any other clause of this Section 8(a)(v) in an
aggregate principal amount (or accreted value, as applicable) at any
time outstanding not to exceed $10.0* million.
__________________________________
* These figures shall be adjusted at the Issue Date to the extent any less
restrictive amounts or percentages are contained in the comparable provisions
of each of the applicable Loan Documents (as defined in the Purchase
Agreement).
20
<PAGE> 74
For purposes of this Section 8(a)(v), capitalized terms used
and not defined herein shall the meanings assigned to them in the Indenture as
in effect on the Issue Date.
(vi) Make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(A) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (B) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving the aggregate consideration in excess of $2.0
million, the Company delivers to each holder of Preferred Stock a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (A) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors and (C) with respect to an Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, the Company delivers to each holder of
Preferred Stock an opinion as to the fairness to the holders of Preferred Stock
of such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing; provided
that (w) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors or the payment of fees and indemnities to directors of the Company
and its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practices of the Company or such Subsidiary, (x) loans
or advances to employees in the ordinary course of business, (y) transactions
between or among the Company and/or its Wholly Owned Subsidiaries and (z)
Restricted Payments that are permitted by the provisions of Section 8(a)(i), in
each case, shall not be deemed Affiliate Transactions.
For purposes of this Section 8(a)(vi), capitalized terms used and not
defined herein shall have the meanings assigned to them in the Indenture as in
effect on the Issue Date.
(vii) Make any Restricted Investment (as such term is
defined in the Indenture as in effect on the Issue Date) unless the Company
could borrow an additional $1.00 of Indebtedness under the Fixed Charge
Coverage Ratio in Section 8(a)(v) above; except that, notwithstanding the
foregoing, the Company shall be permitted to make a Restricted Investment if
(x) such Restricted Investment is made after the Issue Date and is sold for
cash or otherwise liquidated or repaid for cash, in an amount equal to the
lesser of (a) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition) and (b) the initial amount of such
Restricted Investment or (y) such Restricted Investment is in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of
21
<PAGE> 75
the Company) of Equity Interests of the Company (other than any Senior
Securities and Parity Securities); provided that the amount of any such net
cash proceeds that are utilized for any such Restricted Investment made under
(x) and (y) above shall be excluded from Section 8(a)(i)(III)(ii).
Section 9. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Company shall be authorized to issue.
Section 10. Events of Noncompliance.
(a) Definition. An Event of Noncompliance will be deemed to have
occurred if:
(i) the Company fails to make any redemption payment with
respect to the Preferred Stock which it is obligated to make hereunder, whether
or not such payment is legally permissible;
(ii) the Company breaches or otherwise fails to perform or
observe the provisions of Section 8;
(iii) the Company breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or any covenant or
agreement set forth in the Purchase Agreement (other than a covenant or
agreement set forth in Section 5.14 (the breach of which Section 5.14 shall not
be considered an Event of Noncompliance under this Section 10(a)(iii)) or in
Article 7 of the Purchase Agreement) and such breach or failure to perform or
observe continues for a period of 60 days after notice thereof from any holder
of Preferred Stock; or the Company breaches or otherwise fails to perform or
observe any covenant or agreement set forth in Article 7 of the Purchase
Agreement and such breach or failure to perform or observe continues for a
period of 30 days after notice thereof from any holder of Preferred Stock; or
(iv) a Bankruptcy Event occurs with respect to the
Company or any Subsidiary.
The Company shall promptly (and in any event within five days)
after learning of (x) any failure by the Company to observe any covenant or
agreement contained herein or in the Purchase Agreement or (y) any Event of
Noncompliance, give notice thereof to each holder of Preferred Stock.
(b) Consequences of Certain Events of Noncompliance.
(i) If an Event of Noncompliance (other than the failure
to pay timely dividends, which affects the dividend rate of the Preferred Stock
as provided in Section 3) has occurred, the dividend rate on the Preferred
Stock shall increase immediately to the lesser of (A) 18% per annum and (B) the
maximum rate permitted by applicable law, and shall remain at such rate as long
as any Preferred Stock is outstanding; provided, however, that if the Event of
Noncompliance is one under Section 10(a)(iii), upon the cure of such Event of
Noncompliance, the
22
<PAGE> 76
dividend rate shall be that which would otherwise be applicable but for the
application of this Section 10(b)(i).
(ii) If any Event of Noncompliance has occurred, each
holder of Preferred Stock will also have (A) rights pursuant to Section
6(c)(i), (B) any other rights which such holder may have been afforded under
any contract or agreement at any time and (C) any other rights which such
holder may have pursuant to applicable law.
Section 11. Waivers. With the written consent of holders of a
Majority of the Preferred Stock (or each holder of Preferred Stock to the
extent required pursuant to the last sentence of Section 6(b)), the obligations
of the Company and the rights of the holders of the Preferred Stock under this
Statement of Resolution may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely). Upon the effectuation of each such waiver,
the Company shall promptly give written notice thereof to the holders of
Preferred Stock who have not previously consented thereto in writing.
23
<PAGE> 77
ANNEX I
<TABLE>
<CAPTION>
APPLICABLE DIVIDEND RATE
--------------------------------------------------------
REDEMPTION PREMIUM APPLICABLE DURING THE 3% 7% 10%
FOLLOWING YEARS AFTER THE ISSUE DATE: -- -- ---
<S> <C> <C> <C>
1 Non-Call Non-Call Non-Call
2 Non-Call Non-Call Non-Call
3 Non-Call Non-Call Non-Call
4 Non-Call Non-Call Non-Call
5 3.000% 7.000% 10.000%
6 2.400% 5.600% 8.000%
7 1.800% 4.200% 6.000%
8 1.200% 2.800% 4.000%
9 0.600% 1.400% 2.000%
10 0.000% 0.000% 0.000%
</TABLE>
To the extent a different Applicable Dividend Rate applies, a similar ratable
decline shall apply.
24
<PAGE> 78
I, THE UNDERSIGNED, being the _______________ of Pillowtex
Corporation, do hereby execute this Statement of Resolution, declaring and
certifying under penalties of perjury that the facts herein stated are true,
and accordingly have hereunto set my hand this _____ day of __________, 1997.
__________________________________
__________________________________
__________________________________
ATTEST:
__________________________________
__________________________________
__________________________________
25
<PAGE> 1
EXHIBIT 99.1
[PILLOWTEX CORPORATION LETTERHEAD]
<TABLE>
<S> <C>
FOR PILLOWTEX CORPORATION FOR FIELDCREST CANNON, INC.
Investor Contact: T. R. Staab
Mark Kirkpatrick Vice President and
Treasurer Chief Financial Officer
(214) 333-3225 Ext. 618 (704) 939-4600
Media Contact: R. E. Reece
Joele Frank / Dan Katcher Vice President Human Resources
Abernathy/MacGregor Group (704) 939-2290
(212) 371-5999
</TABLE>
PILLOWTEX TO ACQUIRE FIELDCREST CANNON IN TRANSACTION
VALUED IN EXCESS OF $700 MILLION
COMBINATION CREATES ONE OF INDUSTRY'S LARGEST HOME TEXTILE MANUFACTURERS
Dallas, Texas, and Kannapolis, North Carolina, September 11, 1997 -- Pillowtex
Corporation (NYSE: PTX) and Fieldcrest Cannon, Inc. (NYSE: FLD) announced today
that they have entered into a merger agreement under which Pillowtex will
acquire Fieldcrest Cannon for a combination of cash and Pillowtex stock. The
total transaction value is in excess of $700 million, including the refinancing
of approximately $200 million of Fieldcrest Cannon debt. This combination
creates one of the industry's largest home textile manufacturers with annual
sales in excess of $1.5 billion and a portfolio of many of the best recognized
brands in the industry.
Under the agreement, each common share of Fieldcrest Cannon would be exchanged
for $27.00 in cash and $7.00 in Pillowtex common stock and each preferred share
of Fieldcrest Cannon would be exchanged for $46.15 in cash and $11.97 in
Pillowtex common stock, for a total equity value of about $400 million. This
represents a premium of 55% over the $21.89 average closing price of Fieldcrest
Cannon common stock for the 90-trading days through September 9, 1997. The
acquisition will be accounted for as a purchase and is anticipated to be
accretive to Pillowtex's earnings per share in 1998.
Charles M. Hansen, Jr., Chairman and Chief Executive Officer of Pillowtex,
said, "The combination of Pillowtex and Fieldcrest Cannon creates a true
one-stop shop for home textiles that will bring together Fieldcrest Cannon's
pre- eminent bed and bath product lines with Pillowtex's premiere
'top-of-the-bed' products. United, we will be able to use our extensive
distribution networks to offer retailers a broad array of products available at
all price points. By combining Fieldcrest Cannon's industry-leading brands
such as Royal Velvet(R), Cannon(R), Touch of Class(R), and Charisma(R) with
Pillowtex's Ralph Lauren, Disney and Martha Stewart products, we will
strengthen our ability to cross merchandise all bed and bath product offerings.
We believe the market opportunities of this combination are significant, as are
the benefits to shareholders of both companies."
- more -
<PAGE> 2
- 2 -
Jeffrey D. Cordes, President and Chief Operating Officer of Pillowtex, said,
"Pillowtex has consistently delivered results to its shareholders. The
combination with Fieldcrest Cannon produces the opportunity for significant
market, operating and financial synergies which should result in enhanced cash
flows and net income. This will allow us to service our debt while continuing
to make capital investments designed to improve our operating efficiencies and
add to our profitability. Moreover, the additional shares issued in connection
with the transaction will increase our market capitalization and improve
liquidity for our shareholders. The combination is expected to result in
substantial annual cost savings which would be realized from the elimination of
duplicate corporate and administrative programs, greater efficiencies in
operations and business processes, and lower material costs through combined
purchasing programs.
"Pillowtex and Fieldcrest Cannon have established practices of reinvestment in
plant and equipment to modernize their operations," Mr. Cordes commented.
"Fieldcrest Cannon has several outstanding facilities including a brand-new,
state- of-the-art towel production facility which will complement Pillowtex's
modern pillow operations and newly upgraded blanket weaving facilities. We
plan on continuing Fieldcrest Cannon's capital investment plan which we believe
should significantly increase profitability in our industry-leading position."
"Pillowtex is no stranger to the Carolinas where we operate seven facilities
and have almost 2,000 employees. Pillowtex has historically had among the
highest rates of sales per employee in the industry. Fieldcrest Cannon
employees have a solid reputation in our industry and we welcome them to the
Pillowtex family," said Mr. Hansen. "This combination will allow us to review
both companies' operations and institute the best practices of each company
across the combined entity. All union contracts will be honored. Fieldcrest
Cannon will become a subsidiary of Pillowtex. Pillowtex's headquarters will
remain in Dallas with a significant operating presence in Kannapolis."
James M. Fitzgibbons, Chairman and Chief Executive Officer of Fieldcrest
Cannon, said, "The efforts of our management and employees to enhance the
performance of Fieldcrest Cannon has created exceptional value for our
shareholders. By joining with Pillowtex, our shareholders will receive a
premium price for their shares and will also be able to participate in the
upside potential of a newly created industry leader. The breadth and quality
of our combined product lines, backed by the expertise of both companies'
talented managers will serve our customers, employees and shareholders well."
Pillowtex intends to finance the acquisition, in part, with borrowings under a
new senior bank facility to be provided by NationsBank of Texas N.A., the
incurrence of additional debt, as well as a $65 million convertible preferred
stock investment provided by certain affiliates of Apollo Management L.P.
Leon D. Black, founding partner of Apollo Management L.P., stated, "The
Pillowtex/Fieldcrest Cannon transaction creates a unique franchise in home
textiles. The merger combines the best management teams in the industry with
the best brand names in the home fashion textile market. We are very pleased
with our investment in Pillowtex."
- more -
<PAGE> 3
- 3 -
Under the agreement, for each Fieldcrest Cannon common share, the number of
Pillowtex common shares will not be more than 0.333 or less than 0.269 and, for
each Fieldcrest Cannon preferred share, the number of Pillowtex common shares
will not be more than 0.569 or less than 0.460, unless the average closing
price of Pillowtex common stock is less than $21.00, in which case Pillowtex
may elect to increase the amount of cash and/or Pillowtex common shares, such
that the value of the consideration to be paid for each Fieldcrest Cannon
common share is $34.00 and the value of the consideration to be paid for each
Fieldcrest Cannon preferred share is $58.12. If an election is not made,
Fieldcrest Cannon may terminate the agreement. The actual number of Pillowtex
common shares to be paid as merger consideration will be determined by the
average closing price of Pillowtex common stock for the 20 consecutive trading
days immediately preceding the 5th day prior to the close of the merger.
The merger is conditioned upon, among other things, the approval of each
company's shareholders and customary regulatory clearances, and is expected to
be completed by the end of 1997.
Bear, Stearns & Co. Inc. acted as financial advisor and provided a fairness
opinion to Pillowtex. Credit Suisse First Boston Corporation acted as
financial advisor and provided a fairness opinion to Fieldcrest Cannon.
Pillowtex Corporation, with annual sales in excess of $500 million, markets and
manufactures top-of-the-bed home textile furnishings. The Company operates a
network of manufacturing, purchasing and distribution facilities in the U.S.
and Canada, with approximately 4,000 employees.
Fieldcrest Cannon, Inc., with annual sales in excess of $1 billion, is
headquartered in Kannapolis, North Carolina, markets and manufacturers bath and
bedding home textile products. Fieldcrest Cannon operates a network of
manufacturing, purchasing and distribution facilities, with approximately
11,000 employees.
Apollo is a private investment partnership which has invested in excess of $7
billion since 1990 in a variety of real estate and corporate transactions.
# # #
Information contained in this release with respect to the expected financial
impact of the proposed merger is forward- looking. These statements represent
the companies' reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially. Such factors include, but are not limited to, material adverse
changes in economic and competitive conditions in the markets served by the
companies, material adverse changes in the business and financial condition of
either or both companies and their respective customers, uncertainties
concerning technological changes and future product performance, and
substantial delay in the expected closing of the merger.
