<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): NOVEMBER 21, 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
<PAGE> 2
ITEM 5. OTHER EVENTS.
On November 21, 1997, Pillowtex Corporation (the "Company"), Apollo
Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK)
Partners III, L.P. entered into an amendment ("Amendment No. 1") to the
Preferred Stock Purchase Agreement, dated as of September 10, 1997, by and among
such parties, providing for the issuance and sale of 65,000 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company in connection with the Merger. A copy of Amendment No. 1 is filed as
Exhibit 10.1 hereto and is incorporated herein by this reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
--------
Exhibit
Number Exhibit
------- -------
10.1 Amendment No. 1 to the Preferred Stock
Purchase Agreement, dated as of November 21,
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.
-2-
<PAGE> 3
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
-----------------------------------
John H. Karnes
Vice President and General Counsel
Dated: November 26, 1997
-3-
<PAGE> 4
INDEX TO EXHIBITS
-----------------
EXHIBIT
NUMBER EXHIBIT
------- -------
10.1 Amendment No. 1 to the Preferred Stock Purchase
Agreement, dated as of November 21, 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.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1
TO THE
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
PILLOWTEX CORPORATION
AND
CERTAIN PURCHASERS SET FORTH THEREIN
This Amendment No. 1 dated as of this 21st day of November,
1997 to the Preferred Stock Purchase Agreement dated as of September 10, 1997
(the "Original Purchase Agreement") is by and between Pillowtex Corporation
(the "Company") and the Purchasers set forth in the Original Purchase Agreement
(the "Purchasers").
WHEREAS, the Company and the Purchasers have agreed to amend
certain provisions of the Statement of Resolution governing the terms of the
Series A Redeemable Convertible Preferred Stock of the Company;
NOW THEREFORE, the Original Purchase Agreement is hereby
amended as follows:
Exhibit B to the Original Purchase Agreement is deleted and
replaced in its entirety with the new Exhibit B attached hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1.
PILLOWTEX CORPORATION
By: /s/ John H. Karnes
----------------------------------
Name: John H. Karnes
Title: Vice President and General Counsel
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 Katz
----------------------------------
Name: Robert 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 Katz
----------------------------------
Name: Robert 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 Katz
----------------------------------
Name: Robert Katz
Title: Vice President
2
<PAGE> 3
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 of the
Company ending January 1, 2000.
"1999 Pro Forma EPS" shall mean 1999 EPS calculated on a pro forma
basis assuming (i) the dividend rate on the Preferred Stock for calendar 1997
(if applicable) and calendar 1998 was the Adjusted 1998 Dividend Rate; (ii) the
dividend rate on the Preferred Stock for calendar 1999 was (a) 10.0% of Stated
Value per annum if 1999 EPS is less than $2.35, (b) 7.0% of Stated Value per
annum if 1999 EPS is greater than, or equal to, $2.35 but less than $2.70, and
(c) 3.0% of Stated Value per annum if 1999 EPS is greater than, or equal to,
$2.70; and (iii) any incremental dividends included pursuant to clauses (i) and
(ii) which were not paid when due (in either cash or shares of Preferred Stock)
were paid in additional shares of Preferred Stock (including the effect of all
dividends earned on unpaid dividends).
<PAGE> 4
"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% of Stated Value
per annum, or (ii) if 1999 EPS is less than $2.35 (as adjusted pursuant to
Section 3), 10% of Stated Value 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
(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.
"Aggregate Dividends Owed" shall mean the aggregate amount of
dividends which would 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 on the Preferred Stock for
calendar 1997 (if applicable) and calendar 1998 was (a) 3.0% of Stated Value
per annum if 1999 Pro Forma EPS is equal to, or greater than, $2.35 (as
adjusted pursuant to Section 3), or (b) 10.0% of Stated Value per annum if 1999
Pro Forma EPS is less than $2.35 (as adjusted pursuant to Section 3); (ii) the
dividend rate on the Preferred Stock for calendar 1999 was the Applicable
Dividend Rate; and (iii) any incremental dividends included in calculating
dividends pursuant to clauses (i) and (ii) which were not paid when due (in
either cash or shares of Preferred Stock) were paid in additional shares of
Preferred Stock (including the effect of all dividends earned on unpaid
dividends).
"Aggregate Dividends Paid" shall mean the aggregate amount of
dividends actually paid (whether in cash or additional shares of Preferred
Stock) from the Issue Date through and including the last Dividend Payment Date
prior to the Final Determination Date, including amounts actually paid in cash
pursuant to Section 3(c).
2
<PAGE> 5
"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
(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(d).
3
<PAGE> 6
"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).
"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 Adjustment Amount" shall mean the difference between (i) the
Aggregate Dividends Owed and (ii) the Aggregate Dividends Paid.
"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.
4
<PAGE> 7
"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.
"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
5
<PAGE> 8
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).
"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).
6
<PAGE> 9
"Special Redemption Price" shall have the meaning assigned to it in
Section 5(a)(ii).
"Stated Value" shall be an amount equal to $1,000 per share of
Preferred Stock.
"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 provisions of this Section 3,
beginning on the Issue Date through and including December 31, 1999, at a rate
per annum of 3% of Stated Value;
(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 Pro Forma EPS as follows: (i) if 1999 Pro Forma EPS is
less than $2.35, then the dividend rate shall be 10.0% of Stated Value per
annum; (ii) if 1999 Pro Forma EPS is greater than, or equal to, $2.35 but less
than $2.70, then the dividend rate shall be 7.0% of Stated Value per annum; and
(iii) if 1999 Pro Forma EPS is greater than or equal to $2.70, then the
dividend rate shall be 3.0% of Stated Value per annum;
in each case subject to increase as set forth herein.
Each of the $2.35 and $2.70 targets for 1999 Pro Forma EPS set forth
above shall be (A) appropriately adjusted for (x) subdivisions and combinations
of shares of Common Stock, (y) Reclassifications and (z) dividends on Common
Stock payable in shares of
7
<PAGE> 10
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.
(b) Determination of 1999 EPS and 1999 Pro Forma EPS. The Company
will promptly (and in any event within 5 Business Days) after determination of
1999 EPS (which date of determination shall be no later than March 31, 2000),
determine 1999 Pro Forma EPS and send to each record holder of Preferred Stock
at its record address a written statement of its calculation of 1999 EPS and
1999 Pro Forma 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 Pro Forma 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 and 1999 Pro Forma EPS
calculations and that nothing has come to the auditors' attention that would
cause them to believe that 1999 EPS and 1999 Pro Forma EPS were 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
and/or 1999 Pro Forma 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
and 1999 Pro Forma EPS figures have 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 and 1999 Pro Forma EPS figures 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 and 1999
Pro Forma EPS figures during reasonable business hours, as well as the auditors
that reviewed such calculations and the work papers relating to the audit of
the Company's financial statements and the review of the 1999 EPS and 1999 Pro
Forma EPS calculations. If, within 30 days of the Company's receipt of such
notice of disagreement, agreement as to the proper 1999 EPS and 1999 Pro Forma
EPS calculations cannot be reached, the calculation of such 1999 EPS and 1999
Pro Forma EPS figures 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 and 1999 Pro
Forma EPS figures within 30 days after its appointment and produce such
calculation in writing. The scope of such accounting firm's review of (i) the
1999 EPS calculation shall be limited to the items described in clauses (a)
through (c) of the definition of EPS in Section 2 hereof and (ii) the 1999 Pro
Forma EPS calculation shall be limited to any adjustments pursuant to the
definition of 1999 Pro Forma EPS in Section 2 hereof. Absent fraud, such
accounting firm's calculation of the 1999 EPS and 1999 Pro Forma EPS figures
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 either
8
<PAGE> 11
of the 1999 EPS figure or the 1999 Pro Forma 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 both of the 1999 EPS
figure and 1999 Pro Forma 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.
(c) Estimated Dividend Payments. Notwithstanding anything herein
to the contrary, the Company may at its option pay dividends in cash during
each quarterly period during calendar years 1998 and 1999 at a rate in excess
of 3% of Stated Value per annum.
(d) Dividend Adjustment. Following the date on which the final
determination of 1999 EPS and 1999 Pro Forma EPS is made ("Final Determination
Date"), as contemplated by Section 3(b), the Company will promptly (and in any
event within five Business Days) determine the Aggregate Dividends Paid and the
Aggregate Dividends Owed. If the Aggregate Dividends Paid is less than the
Aggregate Dividends Owed, the Company will, prior to the expiration of such
five-Business-Day period, pay to the holders of Preferred Stock a number of
additional shares of Preferred Stock (the "Catch Up Dividend") with a Stated
Value equal to the Dividend Adjustment Amount. In determining dividends
payable on the next succeeding Dividend Payment Date following the Final
Determination Date, the Company shall assume that the shares of Preferred Stock
outstanding at the prior Dividend Payment Date included all additional shares
issued in the Catch Up Dividend. If the Aggregate Dividends Paid is more than
the Aggregate Dividends Owed, then the Dividend Adjustment Amount shall be
offset against dividends payable on the next succeeding Dividend Payment Date
or Dividend Payment Dates, as the case shall be.
(e) Dividends Cumulative; Compounding. 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_.(1) 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).
(f) Payment in Kind; Fractional Shares. 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
- ----------------------------------------
(1) The first Dividend Payment Date after the Issue Date.
9
<PAGE> 12
cash. The number of shares of Preferred Stock to be issued in circumstances
when dividends are paid in the form of additional shares of Preferred Stock
shall equal (x) the cash amount of the dividend that would have been payable
had the dividend in question been paid in cash, divided by (y) the Stated
Value, rounded to the nearest hundredth of a full share.
(g) Increase in Rate. 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% of Stated Value 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% of Stated Value 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 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.
10
<PAGE> 13
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").
(b) Mandatory Redemption. On ________, 200_(2) (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").
- ----------------------------------------
(2) Date is 10 1/2 years after the Issue Date.
11
<PAGE> 14
(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.
(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
12
<PAGE> 15
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 (including any adjustment to the Stated Value) 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 (including any adjustment to the Stated Value), 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.
13
<PAGE> 16
(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 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
14
<PAGE> 17
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
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.
(iv) 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.
(v) 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:
15
<PAGE> 18
(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 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:
16
<PAGE> 19
(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 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
17
<PAGE> 20
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 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
18
<PAGE> 21
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.
(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
19
<PAGE> 22
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:
20
<PAGE> 23
(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
21
<PAGE> 24
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.
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.
22
<PAGE> 25
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) $175.0(3) million and (y) the sum of
(A) 80%(3) 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 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;
- ----------------------------------------
(3) 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).
23
<PAGE> 26
(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(4) million.
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.
- ----------------------------------------
(4) 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).
24
<PAGE> 27
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 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
25
<PAGE> 28
(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 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.
26
<PAGE> 29
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.
27
<PAGE> 30
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:
----------------------------------
-----------------------
-----------------------
28
