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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 8-K/A
(Amendment No. 1)
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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On September 11, 1997, Pillowtex Corporation, a Texas corporation,
filed a Current Report on Form 8-K dated September 10, 1997 (the "Form 8-K")
with the Securities and Exchange Commission. This Amendment No. 1 to the Form
8-K hereby amends and restates in their entirety Items 5 and 7 of the Form 8-K.
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
Conversion of Fieldcrest Shares. At the effective time of the Merger
(the "Effective Time"), each outstanding share of Common Stock, par value $1.00
per share, of Fieldcrest ("Fieldcrest Common Stock") will be converted into a
right to receive total consideration valued at $34.00, consisting of (i) $27.00
in cash and (ii) a number (the "Conversion Number") of shares of Common Stock,
par value $0.01 per share, of the Company ("Pillowtex Common Stock") equal to
the quotient obtained by dividing $7.00 by the average of the closing sales
prices per share of Pillowtex Common Stock on the New York Stock Exchange (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"), except that, absent an election by the
Company as described below, the Conversion Number will not be more than 0.333
or less than 0.269. If the Determination Price is less than $21.00, the
Company will have the right to elect to increase the cash portion of such
consideration and/or the Conversion Number such that the sum of (i) the cash
portion of such consideration and (ii) the product of (a) the Conversion Number
and (b) the Determination Price equals $34.00 and, if the Company does not so
elect, Fieldcrest will have the right to terminate the Merger Agreement.
At the Effective Time, 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 (i) a cash payment equal to the
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product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 1.7094.
Treatment of Fieldcrest Options. Each holder of an outstanding option
(a "Fieldcrest Option") to purchase shares of Fieldcrest Common Stock may,
prior to the Effective Time, elect to receive for each share of Fieldcrest
Common Stock subject to such Fieldcrest Option an amount in cash equal to the
difference between $34.00 and the per share exercise price of such Fieldcrest
Option. At the Effective Time, each outstanding Fieldcrest Option, other than
Fieldcrest Options in respect of which the above-described election was made,
will be assumed by 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 Fieldcrest Option immediately prior to the Effective Time
and (ii) a conversion number (the "Option Conversion Number") equal to the
quotient obtained by dividing $34.00 by the Determination Price, at an exercise
price per share of Pillowtex Common Stock (increased to the nearest whole cent)
equal to the exercise price per share of Fieldcrest Common Stock subject to
such Fieldcrest Option immediately prior to the Effective Time divided by the
Option Conversion Number. The Option Conversion Number will not be more than
1.619 or less than 1.308, except that, if the Company elects to increase the
Conversion Number as described above, the Option Conversion Number will be
increased such that the product of (a) the Option Conversion Number and (b) the
Determination Price equals $34.00.
Treatment of Fieldcrest SARs. Pursuant to the Merger Agreement, each
holder of an outstanding stock appreciation right issued by Fieldcrest (a
"Fieldcrest SAR") will be paid, at or immediately prior to the Effective Time,
a cash amount equal to the product of (i) the difference between $34.00 and the
grant price of such Fieldcrest SAR and (ii) the number of shares subject to
such Fieldcrest SAR.
Treatment of Fieldcrest Convertible Debentures. Fieldcrest's 6.0%
Convertible Debentures due 2012 (the "Fieldcrest Convertible Debentures"),
which are convertible into shares of Fieldcrest Common Stock at a conversion
price of $44.25 per share, will remain outstanding immediately after the
Effective Time. As a result of the Merger, Fieldcrest Convertible Debentures
will become convertible into the same consideration that the holder of the
number of shares of Fieldcrest Common Stock into which such Fieldcrest
Convertible Debentures might have been converted immediately prior to the
Merger would be entitled to receive in the Merger. For example, a Fieldcrest
Convertible Debenture having an aggregate principal amount of $1,000 will
become convertible into (i) a cash payment equal to the product of (a) the
amount of the cash payment to be made on account of each share of Fieldcrest
Common Stock converted in the merger and (b) 22.60 and (ii) number of shares of
Pillowtex Common Stock equal to the product of (a) the Conversion Number and
(b) 22.60.
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Consequences of Failure to Obtain Approval of Issuance of Pillowtex
Shares. The Merger Agreement provides that, 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 consideration to be paid to holders of Fieldcrest Common
Stock will be a cash payment in an amount equal to $34.00 per share, (ii) the
consideration to be paid to holders of Fieldcrest Preferred Stock will be a
cash payment in an amount equal to $58.12 per share, (iii) each holder of 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 separately 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.
MERGER FINANCING
In order to finance the Merger and the repayment of certain
indebtedness of Fieldcrest, refinance the existing senior bank credit facility
of the Company, and 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 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
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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
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thereof is assumed to bear
interest at a rate of 9 3/8% per
annum, payable semi-annually in
arrears, (ii) the New Pillowtex
Subordinated Notes are expected to
be due and payable in full in
2007, and (iii) the indenture or
other instrument under which 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 $135.0 million
aggregate principal amount of New Pillowtex Subordinated Notes shall have been
issued and sold 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.
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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 $1,403.0
million, total long-term debt of $805.2 million, and total shareholders' equity
of $184.7 million. Giving effect to the Merger and the Financing Transactions
as if such transactions had been consummated on December 31, 1995, the first
day of the Company's 1996 fiscal year, (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 $21.3 million, earnings before
extraordinary items of $11.3 million, and earnings before extraordinary items
per share of $0.66 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 $13.2 million, earnings before extraordinary items
of $7.2 million, and earnings before extraordinary items per share of $0.43.
As used herein, the term "Financing Transactions" means (i) estimated initial
borrowings under the New Pillowtex Bank Facilities of $427.2 million, (ii) the
issuance and sale of $135.0 million aggregate principal amount of New Pillowtex
Subordinated Notes resulting in estimated net proceeds of $131.4 million, (iii)
the issuance and sale of 65,000 shares of Pillowtex Preferred Stock resulting
in estimated net proceeds of $63.5 million, (iv) the repayment of all amounts
outstanding under 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, if at all, only in the event that less than $135.0 million
aggregate principal amount of New Pillowtex Subordinated Notes shall have been
issued and sold as of the Closing Date, the 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 $61.8 million, earnings before
income taxes and extraordinary items of $18.3 million, earnings before
extraordinary items of $9.5 million, and earnings before extraordinary items
per share of $0.54 and (ii) for the six months ended June 28, 1997, on a pro
forma combined basis, 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 $4.6 million, and earnings before
extraordinary items per share of $0.26.
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
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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
this reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
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<S> <C>
2.1* Agreement and Plan of Merger, dated as of
September 10, 1997, by and among Pillowtex
Corporation, Pegasus Merger Sub, Inc., and
Fieldcrest Cannon, Inc.
10.1** Commitment Letter, dated September 10, 1997,
by and between NationsBank of Texas, N.A.
and Pillowtex Corporation
10.2* Preferred Stock Purchase Agreement, dated as
of September 10, 1997, by and among Pillowtex
Corporation, Apollo Investment Fund III,
L.P., Apollo Overseas Partners III, L.P., and
Apollo (UK) Partners III, L.P.
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 Pillowtex Corporation's
Quarterly Report
</TABLE>
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* Previously filed.
** Filed herewith.
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<TABLE>
<S> <C>
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 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
-------------------------------
John H. Karnes
Vice President and General Counsel
Date: September 29, 1997
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
2.1* Agreement and Plan of Merger, dated as of September
10, 1997, by and among Pillowtex Corporation,
Pegasus Merger Sub, Inc. and Fieldcrest Cannon,
Inc.
10.1** Commitment Letter, dated September 10, 1997, by and
between NationsBank of Texas, N.A. and Pillowtex
Corporation
10.2* Preferred Stock Purchase Agreement, dated as of
September 10, 1997, by and among Pillowtex
Corporation, Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P., and Apollo (UK)
Partners III, L.P.
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 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 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>
__________________________________
* Previously filed.
** Filed herewith
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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 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 $135
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.
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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 executed on September 10, 1997 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
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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. BEATTIE
------------------------------
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 and/or redeem 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
A-2
<PAGE> 9
statements indicating a change,
commencing with the receipt of the
Borrower's 3-31-98 financial
statements.
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
A-3
<PAGE> 10
AMORTIZATION: Revolving Credit Facility: Loans
under the Revolving Credit Facility
("Revolving Credit Loans" and "Swing
Line Loans", and 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
A-4
<PAGE> 11
Closing (excluding equity proceeds
that are applied to repay the Bridge
Notes). Prepayments 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.
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 $135 million, (c) the
Borrower shall have issued
$65 million in new preferred
stock of the Borrower on
substantially the terms set
forth in the Preferred Stock
Purchase Agreement of even
date herewith, a copy of
which has been provided to
Agent, and (d) the Borrower
A-5
<PAGE> 12
shall have issued its
common stock as partial
consideration for not less
than 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
A-6
<PAGE> 13
regulations; (viii) status under
Investment Company Act; (ix) ERISA;
(x) environmental matters; (xi)
perfected liens and 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
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required with respect to (i)
increases in commitment amounts, (ii)
reductions of principal, interest, or
fees, (iii) extensions of 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.
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