<PAGE> 1
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-36663
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 2392 75-2147728
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
4111 MINT WAY
DALLAS, TEXAS 75237
(214) 333-3225
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN H. KARNES, JR., ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
(214) 333-3225
(Name, address, including ZIP Code, and telephone number, including
area code, of agent for service)
------------------
Copies to:
TROY B. LEWIS, ESQ. DENNIS J. BLOCK, ESQ.
JONES, DAY, REAVIS & POGUE WEIL, GOTSHAL & MANGES LLP
2300 TRAMMELL CROW CENTER 767 FIFTH AVENUE
2001 ROSS AVENUE NEW YORK, NEW YORK 10153
DALLAS, TEXAS 75201 (212) 310-8000
(214) 220-3939
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE AND
ALL OTHER CONDITIONS TO THE MERGER OF A WHOLLY OWNED SUBSIDIARY OF PILLOWTEX
CORPORATION ("PILLOWTEX") WITH AND INTO FIELDCREST CANNON, INC. ("FIELDCREST")
PURSUANT TO THE AGREEMENT AND PLAN OF MERGER FILED AS EXHIBIT 2.1 HERETO (AS
AMENDED, THE "MERGER AGREEMENT") HAVE BEEN SATISFIED OR WAIVED.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
================================================================================
<PAGE> 2
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
November __, 1997
Dear Shareholders:
You are invited to attend the Special Meeting of Shareholders of
Pillowtex Corporation ("Pillowtex") to be held on ____________, December __,
1997, at 9:00 a.m., Central Time, at Pillowtex's corporate headquarters, 4111
Mint Way, Dallas, Texas (including any postponement or adjournment thereof, the
"Pillowtex Special Meeting").
At the Pillowtex Special Meeting, you will be asked to consider and
vote upon a proposal to approve the issuance (the "Share Issuance") of up to
5,600,000 shares of Common Stock, par value $0.01 per share, of Pillowtex
("Pillowtex Common Stock") and of 65,000 shares of Series A Redeemable
Convertible Preferred Stock, par value $0.01 per share, of Pillowtex ("Pillowtex
Preferred Stock") in connection with the acquisition by Pillowtex of Fieldcrest
Cannon, Inc. ("Fieldcrest") and related financing transactions. The acquisition
by Pillowtex of Fieldcrest will be effected by means of a merger (the "Merger")
of a wholly owned subsidiary of Pillowtex with and into Fieldcrest. The Merger
will result in Fieldcrest becoming a wholly owned subsidiary of Pillowtex.
The Merger is provided for in an Agreement and Plan of Merger dated as
of September 10, 1997 (as amended, the "Merger Agreement") by and among
Pillowtex, a wholly owned subsidiary of Pillowtex, and Fieldcrest. As a result
of the Merger, each outstanding share of Common Stock, par value $1.00 per
share, of Fieldcrest ("Fieldcrest Common Stock") will be converted into a right
to receive total consideration valued at $34.00, consisting of (i) a cash
payment in an amount equal to $27.00 and (ii) a number (the "Conversion Number")
of shares of Pillowtex Common Stock equal to the quotient obtained by dividing
$7.00 by the average of the closing sales prices per share of Pillowtex Common
Stock on the New York Stock Exchange (the "NYSE") for each of the 20 consecutive
trading days immediately preceding the fifth trading day prior to the closing
date for the Merger (the "Determination Price"), except that, absent an election
by Pillowtex as described below, the Conversion Number will not be more than
0.333 or less than 0.269. If the Determination Price is less than $21.00,
Pillowtex will have the right to elect to increase the cash portion of such
consideration and/or the Conversion Number such that the aggregate value of the
cash and Pillowtex Common Stock (valued at the Determination Price) comprising
such consideration equals $34.00 and, if Pillowtex does not so elect, Fieldcrest
will have the right to terminate the Merger Agreement.
For example, assuming the Determination Price is $________ (i.e., the
closing price per share of Pillowtex Common Stock as reported in the NYSE
Composite Tape on November __, 1997, the last full trading day prior to the date
of the accompanying Joint Proxy Statement/Prospectus), the Conversion Number
would be ________. You may obtain by telephone from Innisfree M&A Incorporated
at (888) 750-5834 the average of the closing sales prices per share of the
Pillowtex Common Stock on the NYSE for the 20 consecutive trading days
immediately prior to the date of your call and the Conversion Number that would
result if the Determination Price were to equal such average. Because the actual
Determination Price and Conversion Number will not be determinable until the
fifth trading day prior to the closing date for the Merger (the "Determination
Date"), you should bear in mind that the actual Determination Price and
Conversion Number may vary from the example set forth above and from information
obtained from Innisfree M&A Incorporated prior to the Determination Date. The
prices at which shares of Pillowtex Common Stock may trade are subject to
fluctuation based on many factors, including general economic and industry
conditions and the performance of, and investor expectations for, Pillowtex. The
following table sets forth the Conversion Number resulting from each of the
Determination Prices indicated:
<TABLE>
<CAPTION>
Resulting
Determination Price Conversion Number
------------------- -----------------
<S> <C>
$26.00 0.269
$25.00 0.280
$24.00 0.292
$23.00 0.304
$22.00 0.318
$21.00 0.333
</TABLE>
<PAGE> 3
As a result of the Merger, each outstanding share of $3.00 Series A
Convertible Preferred Stock, par value $0.01 per share, of Fieldcrest
("Fieldcrest Preferred Stock"), other than shares converted into Fieldcrest
Common Stock prior to the Merger, will be converted into a right to receive
total consideration valued at $58.12, consisting of (i) a cash payment equal to
the product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and (ii)
a number of shares of Pillowtex Common Stock equal to the product of (a) the
Conversion Number and (b) 1.7094.
Pillowtex's Board of Directors has determined that the Merger is in the
best interests of Pillowtex and its shareholders and has unanimously approved
the Merger and the related financing transactions described in the accompanying
Joint Proxy Statement/Prospectus. At the request of Pillowtex, on September 5,
1997, Bear, Stearns & Co. Inc. ("Bear Stearns"), Pillowtex's financial advisor,
delivered to the Board of Directors of Pillowtex an oral opinion, which was
subsequently confirmed in a written opinion dated as of September 10, 1997, to
the effect that, as of such date and subject to the assumptions and
qualifications set forth in its written opinion, the total consideration to be
received in respect of each outstanding share of Fieldcrest Common Stock and
each outstanding share of Fieldcrest Preferred Stock in connection with the
Merger was fair, from a financial point of view, to the shareholders of
Pillowtex.
Pillowtex's shareholders must approve the issuance (i.e., the Share
Issuance) of both the shares of Pillowtex Common Stock to be issued in
connection with the Merger and the shares of Pillowtex Preferred Stock (which
will be convertible into Pillowtex Common Stock) to be issued in connection with
the financing transactions relating to the Merger in order to comply with the
requirements of the NYSE. Under the NYSE's shareholder approval policy,
shareholder approval generally is required prior to the issuance of securities
when common stock or securities convertible into common stock are to be issued
in any transaction or series of related transactions if (i) upon issuance the
common stock will have voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of such stock or convertible securities or
(ii) the number of shares of common stock to be issued will be equal to or in
excess of 20% of the number of shares of common stock outstanding before such
issuance. Pillowtex's shareholders are not otherwise being asked to approve the
cash payments to be made to Fieldcrest's stockholders in connection with the
Merger or to approve the financing transactions related to the Merger that will
enable Pillowtex to make such cash payments.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
PILLOWTEX VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
Only shareholders of record at the close of business on November 5,
1997 (the "Pillowtex Record Date") are entitled to notice of and to vote at the
Pillowtex Special Meeting. As of the Pillowtex Record Date, Charles M. Hansen,
Jr., Chairman of the Board and Chief Executive Officer of Pillowtex, Mary R.
Silverthorne, a director of Pillowtex, the John H. Silverthorne Marital Trust B,
and the John H. Silverthorne Family Trust A owned, in the aggregate,
approximately 52.4% of the outstanding shares of Pillowtex Common Stock. Each of
Mr. Hansen, Ms. Silverthorne, and such trusts has agreed to vote the shares of
Pillowtex Common Stock held by such shareholder for the approval of the Share
Issuance. Accordingly, the approval of the Share Issuance is expected to occur
irrespective of whether or the manner in which other holders of Pillowtex Common
Stock vote their shares.
The Merger Agreement provides that, if the Pillowtex shareholders fail
to approve the Share Issuance, among other things, (i) the consideration to be
paid to the holders of Fieldcrest Common Stock will be a cash payment in an
amount equal to $34.00 per share and (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. If the Pillowtex shareholders were to fail to approve the
Share Issuance, there can be no assurance that Pillowtex would be able to obtain
financing adequate to enable it to pay the amounts described in the immediately
preceding sentence on terms acceptable to Pillowtex, if at all. However, for the
reasons described in the immediately preceding paragraph, the approval by
Pillowtex shareholders of the Share Issuance is expected to occur.
The holders of Pillowtex Common Stock will not have any appraisal
rights in connection with the Merger or the Share Issuance.
Please read carefully the accompanying Notice of Special Meeting of
Shareholders and Joint Proxy Statement/Prospectus for additional information
regarding the Share Issuance. Whether or not you plan to attend the
<PAGE> 4
Pillowtex Special Meeting, please complete, sign, and date the enclosed proxy
card and return it promptly in the enclosed postage prepaid envelope. If you
attend the Pillowtex Special Meeting, you may vote in person if you wish, even
though you have previously returned your proxy card.
Sincerely,
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 5
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER __, 1997
----------------------
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of
Pillowtex Corporation ("Pillowtex") is to be held on __________, December __,
1997, at 9:00 a.m., Central Time, at Pillowtex's corporate headquarters, 4111
Mint Way, Dallas, Texas (including any postponement or adjournment thereof, the
"Pillowtex Special Meeting") for the following purpose:
To consider and vote upon the issuance (the "Share Issuance")
of up to 5,600,000 shares of Common Stock, par value $0.01 per share,
of Pillowtex (the "Pillowtex Common Stock") and of 65,000 shares of
Series A Redeemable Convertible Preferred Stock, par value $0.01 per
share, of Pillowtex (the "Pillowtex Preferred Stock") in connection
with acquisition by Pillowtex of Fieldcrest Cannon, Inc. ("Fieldcrest")
and related financing transactions. The acquisition by Pillowtex of
Fieldcrest will be effected by means of a merger (the "Merger") of a
wholly owned subsidiary of Pillowtex with and into Fieldcrest,
whereupon Fieldcrest will become a wholly owned subsidiary of
Pillowtex.
Please read the accompanying Joint Proxy Statement/Prospectus
carefully. The Joint Proxy Statement/ Prospectus and the Appendices thereto form
a part of this Notice.
Pillowtex's shareholders must approve the issuance (i.e., the Share
Issuance) of both the shares of Pillowtex Common Stock to be issued in
connection with the Merger and the shares of Pillowtex Preferred Stock (which
will be convertible into Pillowtex Common Stock) to be issued in connection with
the related financing transactions in order to comply with the requirements of
the New York Stock Exchange (the "NYSE"). Under the NYSE's shareholder approval
policy, shareholder approval generally is required prior to the issuance of
securities when common stock or securities convertible into common stock are to
be issued in any transaction or series of related transactions if (i) upon
issuance the common stock will have voting power equal to or in excess of 20% of
the voting power outstanding before the issuance of such stock or convertible
securities or (ii) the number of shares of common stock to be issued will be
equal to or in excess of 20% of the number of shares of common stock outstanding
before such issuance. Pillowtex's shareholders are not otherwise being asked to
approve the cash payments to be made to Fieldcrest's stockholders in connection
with the Merger or to approve the financing transactions related to the Merger
that will enable Pillowtex to make such cash payments.
Only shareholders of record at the close of business on November 5,
1997 (the "Pillowtex Record Date") are entitled to notice of and to vote at the
Pillowtex Special Meeting. As of the Pillowtex Record Date, Charles M. Hansen,
Jr., Chairman of the Board and Chief Executive Officer of Pillowtex, Mary R.
Silverthorne, a director of Pillowtex, the John H. Silverthorne Marital Trust B,
and the John H. Silverthorne Family Trust A owned, in the aggregate,
approximately 52.4% of the outstanding shares of Pillowtex Common Stock. Each of
Mr. Hansen, Ms. Silverthorne, and such trusts has agreed to vote the shares of
Pillowtex Common Stock held by such shareholder for the approval of the Share
Issuance. Accordingly, the approval of the Share Issuance is expected to occur
irrespective of whether or the manner in which other holders of Pillowtex Common
Stock vote their shares.
The Merger Agreement provides that, if the Pillowtex shareholders fail
to approve the Share Issuance, among other things, (i) the consideration to be
paid to the holders of Fieldcrest Common Stock will be a cash payment in an
amount equal to $34.00 per share and (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. If the Pillowtex shareholders were to fail to approve the
Share Issuance, there can be no assurance that Pillowtex would be able to obtain
financing adequate to enable it to
<PAGE> 6
pay the amounts described in the immediately preceding sentence on terms
acceptable to Pillowtex, if at all. However, for the reasons described in the
immediately preceding paragraph, the approval by Pillowtex shareholders of the
Share Issuance is expected to occur.
The holders of Pillowtex Common Stock will not have any appraisal
rights in connection with the Merger or the Share Issuance.
By Order of the Board of Directors
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
Dallas, Texas
November __, 1997
<PAGE> 7
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
FIELDCREST CANNON, INC.
ONE LAKE CIRCLE DRIVE
KANNAPOLIS, NORTH CAROLINA 28081
November __, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Fieldcrest Special Meeting") of Fieldcrest Cannon, Inc. ("Fieldcrest") to
be held at 10:00 a.m., Eastern Time, on __________, December __, 1997, at 1275
Avenue of the Americas, New York, New York.
As described in the accompanying Joint Proxy Statement/Prospectus, at
the Fieldcrest Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
September 10, 1997 (as amended, the "Merger Agreement"), by and among Pillowtex
Corporation ("Pillowtex"), Pegasus Merger Sub, Inc. ("Sub") and Fieldcrest
pursuant to which Sub will be merged with and into Fieldcrest (the "Merger"),
with Fieldcrest continuing as the surviving corporation and becoming a wholly
owned subsidiary of Pillowtex.
Pursuant to the Merger Agreement, each outstanding share of Common
Stock, par value $1.00 per share, of Fieldcrest ("Fieldcrest Common Stock") will
be converted into a right to receive total consideration valued at $34.00,
consisting of (i) a cash payment in an amount equal to $27.00 and (ii) a number
(the "Conversion Number") of shares of Common Stock, par value $0.01 per share,
of Pillowtex ("Pillowtex Common Stock") equal to the quotient obtained by
dividing $7.00 by the average of the closing sales prices per share of Pillowtex
Common Stock on the New York Stock Exchange (the "NYSE") for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the Merger (the "Determination Price"), except that, absent an election by
Pillowtex as described below, the Conversion Number will not be more than 0.333
or less than 0.269. If the Determination Price is less than $21.00, Pillowtex
will have the right to elect to increase the cash portion of such merger
consideration and/or the Conversion Number such that the sum of (i) the cash
portion of such merger consideration and (ii) the product of (a) the Conversion
Number and (b) the Determination Price equals $34.00 and, if Pillowtex does not
so elect, Fieldcrest will have the right to terminate the Merger Agreement. The
Fieldcrest directors presently expect that they would exercise their right to
terminate the Merger Agreement if the Determination Price were to be below
$21.00 and Pillowtex does not increase the merger consideration as described in
the preceding sentence. If the Fieldcrest directors were to determine, based on
the facts and circumstances existing at the time, that it would not be in the
best interests of Fieldcrest's stockholders to terminate the Merger Agreement
upon such occurrences, then notice of that determination would be given and
Fieldcrest would at that time resolicit proxies from Fieldcrest's stockholders
regarding the vote on the Merger Agreement.
For example, assuming the Determination Price is $________ (i.e., the
closing price per share of Pillowtex Common Stock as reported in the NYSE
Composite Tape on November __, 1997, the last full trading day prior to the date
of the accompanying Joint Proxy Statement/Prospectus), the Conversion Number
would be ________. You may obtain by telephone from Morrow & Company, Inc. at
(800) 662-5200 the average of the closing sales prices per share of the
Pillowtex Common Stock on the NYSE for the 20 consecutive trading days
immediately prior to the date of your call and the Conversion Number that would
result if the Determination Price were to equal such average. Because the actual
Determination Price and Conversion Number will not be determinable until the
fifth trading day prior to the closing date for the Merger (the "Determination
Date"), you should bear in mind that the actual Determination Price and
Conversion Number may vary from the example set forth above and from information
obtained from Morrow & Company, Inc. prior to the Determination Date. The prices
at which shares of Pillowtex Common Stock may trade are subject to fluctuation
based on many factors, including general economic and industry conditions and
the performance of, and investor expectations for, Pillowtex. The following
table sets forth the Conversion Number resulting from each of the Determination
Prices indicated:
<PAGE> 8
<TABLE>
<CAPTION>
Resulting
Determination Price Conversion Number
------------------- -----------------
<S> <C>
$26.00 0.269
$25.00 0.280
$24.00 0.292
$23.00 0.304
$22.00 0.318
$21.00 0.333
</TABLE>
As a result of the Merger, each outstanding share of $3.00 Series A
Convertible Preferred Stock, par value $0.01 share, of Fieldcrest ("Fieldcrest
Preferred Stock"), other than shares converted into Fieldcrest Common Stock
prior to the Merger, will be converted into a right to receive total
consideration valued at $58.12, consisting of (i) a cash payment equal to the
product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and (ii)
a number of shares of Pillowtex Common Stock equal to the product of (a) the
Conversion Number and (b) 1.7094.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement by the affirmative vote of the
holders of 662 Common Stock. Holders of Fieldcrest Preferred Stock are not
entitled to vote at the Fieldcrest Special Meeting.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger Agreement and has determined that the Merger
Agreement and the Merger are fair to and in the best interests of Fieldcrest and
its stockholders, and has approved and adopted the Merger Agreement. In
addition, Fieldcrest's financial advisor, Credit Suisse First Boston
Corporation, has rendered its opinion to the effect that, as of the date of such
opinion and based upon and subject to the matters set forth therein, the
consideration to be received by holders of the Fieldcrest Common Stock in the
Merger was fair to such holders from a financial point of view. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
Holders of Fieldcrest Common Stock who do not vote in favor of
approving and adopting the Merger Agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the Delaware General
Corporation Law (the "DGCL") will be entitled to appraisal rights under Section
262 of the DGCL. Holders of Fieldcrest Preferred Stock who comply with the
applicable statutory procedures of Section 262 of the DGCL will also be entitled
to appraisal rights under Section 262 of the DGCL. A summary of the provisions
of Section 262 of the DGCL, including a summary of the requirements that must be
complied with by holders of Fieldcrest Common Stock or Fieldcrest Preferred
Stock desiring to assert appraisal rights, is set forth in the accompanying
Joint Proxy Statement/Prospectus under the heading "The Merger--Appraisal
Rights." The entire text of Section 262 of the DGCL is attached as Appendix D to
the Joint Proxy Statement/Prospectus.
Detailed information concerning the proposed Merger is set forth in the
accompanying Joint Proxy Statement/Prospectus. I urge you to read the enclosed
material carefully and request that you promptly complete and return the
enclosed proxy in the enclosed return envelope, which requires no postage if
mailed in the United States. If you attend the Fieldcrest Special Meeting, you
may vote in person even if you have previously returned your proxy.
Your vote is important regardless of the number of shares you own.
Sincerely,
James M. Fitzgibbons
Chairman of the Board and
Chief Executive Officer
D
<PAGE> 9
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
FIELDCREST CANNON, INC.
ONE LAKE CIRCLE DRIVE
KANNAPOLIS, NORTH CAROLINA 28081
----------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER __, 1997
----------------------
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of
Fieldcrest Cannon, Inc. ("Fieldcrest") will be held on __________, December __,
1997, at 10:00 a.m., Eastern Time, at 1275 Avenue of the Americas, New York, New
York (including any postponement or adjournment thereof, the "Fieldcrest Special
Meeting") for the following purpose:
To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of September 10, 1997 (as
amended, the "Merger Agreement"), by and among Pillowtex Corporation, a
Texas corporation ("Pillowtex"), Pegasus Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Pillowtex ("Sub"), and
Fieldcrest, pursuant to which Sub will be merged with and into
Fieldcrest (the "Merger"), with Fieldcrest continuing as the surviving
corporation and becoming a wholly owned subsidiary of Pillowtex.
The Merger Agreement and the Merger are described in detail in the
accompanying Joint Proxy Statement/Prospectus.
The Fieldcrest Board of Directors has fixed November 5, 1997 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Fieldcrest Special Meeting or any adjournments or postponements
thereof. Only holders of record of Fieldcrest's Common Stock, par value $1.00
per share ("Fieldcrest Common Stock"), at the close of business on that date
will be entitled to notice of and to vote at the Fieldcrest Special Meeting.
Holders of Fieldcrest's $3.00 Series A Convertible Preferred Stock ("Fieldcrest
Preferred Stock") are not entitled to vote at the Fieldcrest Special Meeting.
Holders of Fieldcrest Common Stock who do not vote in favor of
approving and adopting the Merger Agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the Delaware General
Corporation Law (the "DGCL") will be entitled to appraisal rights under Section
262 of the DGCL. Holders of Fieldcrest Preferred Stock who comply with the
applicable statutory procedures of Section 262 of the DGCL will also be entitled
to appraisal rights under Section 262 of the DGCL. A summary of the provisions
of Section 262 of the DGCL, including a summary of the requirements that must be
complied with by holders of Fieldcrest Common Stock or Fieldcrest Preferred
Stock desiring to assert appraisal rights, is set forth in the accompanying
Joint Proxy Statement/Prospectus under the heading "The Merger--Appraisal
Rights." The entire text of Section 262 of the DGCL is attached as Appendix D to
the Joint Proxy Statement/Prospectus.
The accompanying Joint Proxy Statement/Prospectus describes the Merger
Agreement, the proposed Merger and certain actions to be taken in connection
with the Merger. Please read the Joint Proxy Statement/Prospectus carefully. To
ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend Fieldcrest Special Meeting. You may
revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it is voted at the Fieldcrest Special
Meeting. Executed proxies with no instructions indicated thereon will be voted
"2FOR" approval and adoption of the Merger Agreement.
By Order Of The Board of Directors,
Mark R. Townsend
Secretary
Kannapolis, North Carolina
November __, 1997
<PAGE> 10
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE FIELDCREST
SPECIAL MEETING.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
CERTIFICATES.
<PAGE> 11
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
JOINT PROXY STATEMENT
OF
PILLOWTEX CORPORATION
AND
FIELDCREST CANNON, INC.
----------------------
PROSPECTUS OF PILLOWTEX CORPORATION
This Joint Proxy Statement/Prospectus is furnished to holders of shares of
Common Stock, par value $0.01 per share (the "Pillowtex Common Stock"), of
Pillowtex Corporation, a Texas corporation ("Pillowtex"), in connection with the
solicitation by and on behalf of the Board of Directors of Pillowtex (the
"Pillowtex Board") of proxies for use at a Special Meeting of Shareholders of
Pillowtex (the "Pillowtex Special Meeting") to be held at Pillowtex's corporate
headquarters, 4111 Mint Way, Dallas, Texas, at 9:00 a.m., Central Time, on
__________, December __, 1997. This Joint Proxy Statement/Prospectus, the Notice
of Special Meeting of Shareholders, and the accompanying proxy card are first
being sent to holders of Pillowtex Common Stock on or about November __, 1997.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of Common Stock, par value $1.00 per share (the "Fieldcrest Common
Stock"), of Fieldcrest Cannon, Inc., a Delaware corporation ("Fieldcrest"), in
connection with the solicitation by and on behalf of the Board of Directors of
Fieldcrest (the "Fieldcrest Board") of proxies for use at a Special Meeting of
Stockholders of Fieldcrest (the "Fieldcrest Special Meeting") to be held at 1275
Avenue of the Americas, New York, New York, at 10:00 a.m., Eastern Time, on
__________, December __, 1997. This Joint Proxy Statement/Prospectus, the Notice
of Special Meeting of Stockholders, and the accompanying proxy card are first
being sent to holders of Fieldcrest Common Stock on or about November __, 1997.
At the Pillowtex Special Meeting, holders of record of Pillowtex Common
Stock as of the close of business on November 5, 1997 (the "Pillowtex Record
Date") will consider and vote upon a proposal to approve the issuance (the
"Share Issuance") of up to 5,600,000 shares of Pillowtex Common Stock and of
65,000 shares of Series A Redeemable Convertible Preferred Stock, par value
$0.01 per share, of Pillowtex (the "Pillowtex Preferred Stock") in connection
with the acquisition by Pillowtex of Fieldcrest and related financing
transactions. The acquisition by Pillowtex of Fieldcrest will be effected by
means of a merger (the "Merger") of a wholly owned subsidiary of Pillowtex
("Newco") with and into Fieldcrest.
At the Fieldcrest Special Meeting, holders of record of Fieldcrest Common
Stock as of the close of business on November 5, 1997 (the "Fieldcrest Record
Date") will consider and vote upon the approval and adoption of the Agreement
and Plan of Merger, dated as of September 10, 1997 (as amended, the "Merger
Agreement"), by and among Pillowtex, Newco, and Fieldcrest. See "The Merger" for
a description of the Merger Agreement and the Merger.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Pillowtex included in a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the issuance of up to 5,600,000
shares of Pillowtex Common Stock in connection with the Merger. All information
concerning Pillowtex contained in this Joint Proxy Statement/Prospectus has been
furnished by Pillowtex, and all information concerning Fieldcrest contained in
this Joint Proxy Statement/Prospectus has been furnished by Fieldcrest.
At the effective time of the Merger, each then-outstanding share of
Fieldcrest Common Stock (other than any shares held in the treasury of
Fieldcrest, by any of its subsidiaries, or directly or indirectly by Pillowtex,
which shares will be canceled and shares held by stockholders, if any, who
properly exercised their appraisal rights under Delaware law) will be converted
into the right to receive total consideration valued at $34.00, consisting of
(i) a cash payment in an amount equal to $27.00 and (ii) a number (the
"Conversion Number") of shares of Pillowtex Common Stock equal to the quotient
obtained by dividing $7.00 by the average of the closing prices per share of
Pillowtex Common Stock on the New York Stock Exchange ("NYSE") for each of the
20 consecutive trading days immediately preceding the fifth trading day prior to
the closing date for the Merger (the "Determination Price"), except that, absent
an election by Pillowtex as described below, the Conversion Number will not be
more than 0.333 or less than 0.269. If the Determination Price is less than
$21.00, Pillowtex will have the right to elect to increase the cash portion of
such consideration and/or the Conversion Number such that the sum of (i) the
cash portion of such consideration and (ii) the product of (a) the Conversion
Number and (b) the Determination Price equals $34.00 and, if Pillowtex does not
so elect, Fieldcrest will have the right to terminate the Merger Agreement. See
"The Merger--The Merger Agreement--Consideration to be Paid in the Merger."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREOF FOR A DISCUSSION OF CERTAIN
RISKS OF OWNERSHIP OF PILLOWTEX COMMON STOCK AND OTHER MATTERS THAT YOU SHOULD
CONSIDER IN DETERMINING HOW TO VOTE UPON THE MATTERS DESCRIBED ABOVE.
Terms used in this Joint Proxy Statement/Prospectus with initial capital
letters are defined herein at the pages indicated in the "Index of Defined
Terms."
----------------------
THE SHARES OF PILLOWTEX COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Joint Proxy Statement/Prospectus is November __, 1997.
<PAGE> 12
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PILLOWTEX,
FIELDCREST, OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PILLOWTEX
OR FIELDCREST SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Each of Pillowtex and Fieldcrest is subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files periodic reports, proxy
statements, and other information with the Commission. Such reports, proxy
statements, and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a Website, located at
http://www.sec.gov, that contains reports, proxy statements, and other
information regarding registrants that file electronically with the Commission.
Copies of such reports, proxy statements, and other information also can be
obtained by mail from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements, and other information relating to Pillowtex and Fieldcrest may also
be inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
As permitted under the Securities Act and the Exchange Act, this Joint
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information can be inspected and copied
or obtained from the Commission in the manner described above. Statements
contained in this Joint Proxy Statement/Prospectus as to the contents of any
other document referred to herein are not necessarily complete, and each such
statement is qualified in all respects by reference to the copy of such other
document filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Pillowtex with the
Commission are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended December
28, 1996; (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 29, 1997, June 28, 1997, and September 27, 1997; (iii) Current Report on
Form 8-K, dated September 10, 1997 (as amended by an amendment on Form 8-K/A);
(iv) Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders held
May 8, 1997; and (v) Registration Statement on Form 8-A, effective March 17,
1993 (Commission File No. 1-11756) (collectively, together with all other
documents and reports of Pillowtex incorporated herein by reference, the
"Pillowtex Reports").
The following documents which have been filed by Fieldcrest with the
Commission are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended December
31, 1996; (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1997, June 30, 1997, and September 30, 1997; (iii) Current Reports on
Form 8-K, dated February 14, 1997 and September 15, 1997; (iv) Proxy Statement
on Schedule 14A for the Annual Meeting of Stockholders held April 22, 1997; and
(v) 1996 Annual Report to Stockholders (collectively, together with all other
documents and reports of Fieldcrest incorporated herein by reference, the
"Fieldcrest Reports").
All documents and reports filed by either Pillowtex or Fieldcrest pursuant
to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Pillowtex Special
Meeting or the Fieldcrest Special Meeting are deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be a part hereof from
the dates of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein is deemed
to be modified or superseded for
ii
<PAGE> 13
purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference documents
that are not presented herein or delivered herewith. These documents, other than
exhibits to such documents, are available, without charge, to any person to whom
this Joint Proxy Statement/Prospectus is delivered, on written or oral request,
to: in the case of documents relating to Pillowtex, Pillowtex Corporation, 4111
Mint Way, Dallas, Texas 75237: Attention: Mark Kirkpatrick (telephone number
(214) 333-3225, ext. 618); and, in the case of documents relating to Fieldcrest,
Fieldcrest Cannon, Inc., 326 East Stadium Drive, Eden, North Carolina 27288,
Attention: Kenneth M. Allgood (telephone number (910) 627-3358). In order to
ensure timely delivery of the documents, any request should be made by December
__, 1997.
NOTE REGARDING FORWARD-LOOKING INFORMATION
THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH ARE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "COULD," "SHOULD,"
"EXPECT," "ANTICIPATE," "INTEND," "PLAN," "ESTIMATE," OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREOF. SUCH FORWARD-LOOKING STATEMENTS
ARE NECESSARILY BASED ON VARIOUS ASSUMPTIONS AND ESTIMATES AND ARE INHERENTLY
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING RISKS AND UNCERTAINTIES
RELATING TO THE POSSIBLE INVALIDITY OF THE UNDERLYING ASSUMPTIONS AND ESTIMATES
AND POSSIBLE CHANGES OR DEVELOPMENTS IN SOCIAL, ECONOMIC, BUSINESS, INDUSTRY,
MARKET, LEGAL, AND REGULATORY CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR
OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS
PARTNERS, AND COMPETITORS AND LEGISLATIVE, REGULATORY, JUDICIAL, AND OTHER
GOVERNMENTAL AUTHORITIES AND OFFICIALS. IN ADDITION TO ANY RISKS AND
UNCERTAINTIES SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH
FORWARD-LOOKING STATEMENTS, THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE
18 OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE REPORTS, PROXY STATEMENTS,
AND OTHER INFORMATION REFERRED TO IN "AVAILABLE INFORMATION" CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
AMOUNTS, RESULTS, EVENTS, AND CIRCUMSTANCES TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN SUCH FORWARD- LOOKING STATEMENTS.
iii
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
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<CAPTION>
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AVAILABLE INFORMATION............................................................................................ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................ii
NOTE REGARDING FORWARD-LOOKING INFORMATION......................................................................iii
SUMMARY...........................................................................................................1
The Parties..................................................................................................1
The Pillowtex Special Meeting................................................................................1
Recommendation of the Pillowtex Board........................................................................2
Opinion of Pillowtex's Financial Advisor.....................................................................2
The Fieldcrest Special Meeting...............................................................................2
Recommendation of the Fieldcrest Board.......................................................................3
Opinion of Fieldcrest's Financial Advisor....................................................................3
The Merger...................................................................................................3
Merger Financing.............................................................................................7
Selected Per Share Financial Information....................................................................12
Market Price Information....................................................................................13
Risk Factors................................................................................................15
RISK FACTORS.....................................................................................................16
Significant Leverage and Debt Service.......................................................................16
Restrictive Covenants.......................................................................................16
Security Interests..........................................................................................16
Restrictions on Payment of Dividends........................................................................17
Ability to Achieve Cost Savings.............................................................................17
Risks Associated with Acquisitions..........................................................................17
Dependence on Raw Materials.................................................................................17
Dependence on Supply Sources in China.......................................................................18
Adverse Retail Industry Conditions..........................................................................18
Dependence on Key Licenses..................................................................................18
Dependence on Brand Names...................................................................................19
Risk of Loss of Material Customers..........................................................................19
Labor Relations.............................................................................................19
Influence by Significant Shareholders.......................................................................20
Dependence on Key Personnel.................................................................................20
Seasonality of Business.....................................................................................20
Industry Competition and Competitive Factors................................................................20
Market Risk.................................................................................................20
Certain Provisions of Pillowtex's Articles of Incorporation, Bylaws, and Other Agreements...................21
THE PILLOWTEX SPECIAL MEETING....................................................................................22
General.....................................................................................................22
Voting at the Pillowtex Special Meeting.....................................................................22
Proxies; Revocation.........................................................................................22
THE FIELDCREST SPECIAL MEETING...................................................................................23
General.....................................................................................................23
Voting at the Fieldcrest Special Meeting....................................................................23
Proxies; Revocation.........................................................................................24
</TABLE>
iv
<PAGE> 15
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
Page
<S> <C>
THE PARTIES......................................................................................................24
Pillowtex...................................................................................................24
Fieldcrest..................................................................................................24
Certain Prior Transactions Between Pillowtex and Fieldcrest.................................................25
THE MERGER.......................................................................................................25
Background of the Merger....................................................................................25
Pillowtex's Reasons for the Merger..........................................................................29
Opinion of Pillowtex's Financial Advisor....................................................................29
Fieldcrest's Reasons for the Merger.........................................................................33
Opinion of Fieldcrest's Financial Advisor...................................................................34
Certain Projected Financial Information of Fieldcrest.......................................................37
The Merger Agreement........................................................................................38
Stock Exchange Listing......................................................................................45
Delisting and Deregistration of Fieldcrest Common Stock.....................................................45
Accounting Treatment........................................................................................45
Certain Federal Income Tax Consequences.....................................................................45
Regulatory Approvals........................................................................................46
Interests of Certain Persons in the Merger..................................................................47
Appraisal Rights............................................................................................48
PRO FORMA CAPITALIZATION OF PILLOWTEX............................................................................50
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX..................................................52
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................61
MERGER FINANCING.................................................................................................61
Introduction................................................................................................61
New Pillowtex Bank Facilities...............................................................................62
Pillowtex Preferred Stock...................................................................................63
New Pillowtex Subordinated Notes............................................................................63
Standby Bridge Loan Facility................................................................................63
OTHER POST-MERGER INDEBTEDNESS OF PILLOWTEX......................................................................64
Introduction................................................................................................64
Existing Pillowtex Subordinated Notes.......................................................................64
Fieldcrest Convertible Debentures...........................................................................64
Pillowtex Deed of Trust Note................................................................................65
Pillowtex Industrial Revenue Bonds..........................................................................65
Fieldcrest Industrial Revenue Bonds.........................................................................65
DESCRIPTION OF PILLOWTEX CAPITAL STOCK...........................................................................66
Authorized Capital Stock....................................................................................66
Series A Redeemable Convertible Preferred Stock.............................................................66
Future Stock Issuances......................................................................................68
RESTRICTIONS ON RESALES OF
PILLOWTEX COMMON STOCK BY AFFILIATES........................................................................69
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
TABLE OF CONTENTS (CONT'D)
Page
<S> <C>
CERTAIN CORPORATE GOVERNANCE MATTERS OF PILLOWTEX................................................................69
Antitakeover Provisions.....................................................................................69
Classified Board............................................................................................69
Shareholder Nominations and Proposals.......................................................................69
Amendment of Bylaws.........................................................................................70
Shareholder Action..........................................................................................70
Preferred Stock.............................................................................................70
Fair Price Provision........................................................................................70
Texas Business Combination Statute..........................................................................71
Director Liability Limitation...............................................................................71
Indemnification.............................................................................................71
COMPARISON OF RIGHTS OF HOLDERS OF
FIELDCREST COMMON STOCK AND PILLOWTEX COMMON STOCK..........................................................72
General.....................................................................................................72
Authorized Capital Stock....................................................................................72
Amendment of Articles or Certificate of Incorporation and Bylaws............................................72
Approval of Mergers, Dissolution, and Asset Sales...........................................................73
Special Meetings............................................................................................74
Action without a Meeting....................................................................................74
Directors...................................................................................................75
Limitation of Director Liability ...........................................................................75
Indemnification of Officers and Directors...................................................................75
Nomination of Directors; Proposal of Business...............................................................78
Dividends and Distributions.................................................................................79
Certain Appraisal Rights....................................................................................79
Derivative Actions..........................................................................................79
LEGAL MATTERS....................................................................................................80
EXPERTS..........................................................................................................80
PROPOSALS BY PILLOWTEX SHAREHOLDERS..............................................................................81
PROPOSALS BY FIELDCREST STOCKHOLDERS.............................................................................81
APPENDIX A -- Agreement and Plan of Merger......................................................................A-1
APPENDIX B -- Opinion of Bear, Stearns & Co. Inc................................................................B-1
APPENDIX C -- Opinion of Credit Suisse First Boston Corporation.................................................C-1
APPENDIX D -- Text of Delaware General Corporation Law Section 262..............................................D-1
</TABLE>
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Page
<S> <C>
1997 Pillowtex Management Forecast...........................................................................31, 67
1999 EPS ........................................................................................................67
Aggregate Dividends Owed.........................................................................................67
Aggregate Dividends Paid.........................................................................................67
Alabama Bonds....................................................................................................66
Antitrust Division................................................................................................6
Apollo .........................................................................................................7
Applicable Dividend Rate.........................................................................................67
Article 13.......................................................................................................71
Base Case........................................................................................................32
Base Rate........................................................................................................62
Bear Stearns......................................................................................................2
Bridge Notes.....................................................................................................63
Cash Amount......................................................................................................38
Catch Up Dividend................................................................................................67
Certificate of Merger.............................................................................................5
China ...........................................................................................................17
Closing Date......................................................................................................5
Code ............................................................................................................39
Commission........................................................................................................i
Comparable HT Companies..........................................................................................32
Conversion Number..............................................................................................i, 3
Corporate Functionaries..........................................................................................78
Court............................................................................................................49
Covered Employees................................................................................................44
CSFB .............................................................................................................3
Dayton Hudson....................................................................................................19
DCF..............................................................................................................32
Determination Date................................................................................................4
Determination Price............................................................................................i, 3
DGCL..............................................................................................................6
Disney...........................................................................................................18
Dissenting Shares................................................................................................39
Dividend Increase................................................................................................67
Dividend Payment Date............................................................................................67
EBIT.............................................................................................................36
EBITDA...........................................................................................................35
Effective Time....................................................................................................3
Enterprise Value.................................................................................................31
EPS..............................................................................................................36
Exchange Act.....................................................................................................ii
Existing Pillowtex Subordinated Notes............................................................................64
Fieldcrest........................................................................................................i
Fieldcrest Bylaws................................................................................................41
Fieldcrest Certificate...........................................................................................41
Fieldcrest Class B Common Stock..................................................................................72
Fieldcrest Common Stock...........................................................................................i
Fieldcrest Convertible Debentures.................................................................................5
Fieldcrest Management Case.......................................................................................35
Fieldcrest Option.................................................................................................4
Fieldcrest Preferred Stock........................................................................................2
</TABLE>
vii
<PAGE> 18
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS (CONT'D)
Page
<S> <C>
Fieldcrest Projections...........................................................................................37
Fieldcrest Record Date............................................................................................i
Fieldcrest Reports...............................................................................................ii
Fieldcrest SAR....................................................................................................5
Fieldcrest Sensitivity Case......................................................................................35
Fieldcrest Special Meeting........................................................................................i
Final Determination Date.........................................................................................67
Financing Commitments.............................................................................................7
Financing Transactions...................................................................................11, 50, 52
FTC...............................................................................................................6
HSR Act...........................................................................................................6
Indemnified Liabilities..........................................................................................44
Indemnified Parties..............................................................................................43
interested shareholder...........................................................................................70
Liquidation Preference...........................................................................................66
LTM..........................................................................................................31, 36
Mandatory Redemption Date........................................................................................67
MBFC Bonds.......................................................................................................65
Merger............................................................................................................i
Merger Agreement..................................................................................................i
Nasdaq...........................................................................................................14
New Pillowtex Bank Facilities.....................................................................................7
New Pillowtex Bank Facilities Commitment..........................................................................7
New Pillowtex Subordinated Notes..................................................................................7
Newco.............................................................................................................i
NYSE..............................................................................................................i
Option Consideration.............................................................................................39
Option Conversion Number..........................................................................................4
PEDFA Bonds......................................................................................................65
Phenix City Bonds................................................................................................65
Pillowtex.........................................................................................................i
Pillowtex Articles...............................................................................................21
Pillowtex Base Case..............................................................................................36
Pillowtex Board...................................................................................................i
Pillowtex Bylaws.................................................................................................21
Pillowtex Common Stock............................................................................................i
Pillowtex Downside Case..........................................................................................36
Pillowtex ERISA Plans............................................................................................44
Pillowtex Plans..................................................................................................44
Pillowtex Preferred Stock.........................................................................................i
Pillowtex Preferred Stock Commitment..............................................................................7
Pillowtex Record Date.............................................................................................i
Pillowtex Reports................................................................................................ii
Pillowtex Special Meeting.........................................................................................i
Pillowtex Trust Note.............................................................................................65
Potential Acquiror...............................................................................................25
Potential Acquisition Candidate..................................................................................25
Potential Business Combination...................................................................................25
Precedent Textile Transactions...................................................................................31
Pro Forma Cost Savings...........................................................................................31
proceeding.......................................................................................................76
Registration Statement............................................................................................i
</TABLE>
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS (CONT'D)
Page
<S> <C>
Revolver.........................................................................................................62
Rollover Notes...................................................................................................63
Rowan County Bonds...............................................................................................65
Scottsboro Bonds.................................................................................................65
Section 203......................................................................................................73
Securities Act....................................................................................................i
Selected Home Textile Companies..................................................................................36
Selected Transactions............................................................................................36
Share Issuance....................................................................................................i
Special Committee.................................................................................................3
Standby Bridge Loan Facility......................................................................................7
Standby Bridge Loan Facility Commitment...........................................................................7
Surviving Company.................................................................................................3
TBCA ............................................................................................................41
Term Loan........................................................................................................62
Termination Fee..................................................................................................43
TIN..............................................................................................................46
Transaction Fee..................................................................................................37
Transaction Value................................................................................................31
Transactions.....................................................................................................43
UNITE............................................................................................................19
Wal-Mart ........................................................................................................19
</TABLE>
ix
<PAGE> 20
SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Joint Proxy Statement/Prospectus and the attached Appendices, all of
which should be reviewed carefully. As required by the context, references in
this Joint Proxy Statement/Prospectus to "Pillowtex," "Fieldcrest," or the
"Surviving Company" should be construed as references to Pillowtex, Fieldcrest,
or the Surviving Company, as the case may be, together with their respective
predecessors and subsidiaries. References to "fiscal" years are references to
fiscal years of Pillowtex (which end on December 31 for years prior to 1995 and
on the Saturday nearest December 31 for years after 1994) or to fiscal years of
Fieldcrest (which end on December 31), as the case may be.
THE PARTIES
Pillowtex. Pillowtex, founded in 1954, is a leading North American
designer, manufacturer, and marketer of bed pillows, blankets, mattress pads,
and down comforters. Other complementary bedroom textile furnishings offered by
Pillowtex include comforter covers, featherbeds, pillow protectors, decorative
pillows, bedspreads, synthetic comforters, pillow shams, dust ruffles, and
window treatments. Pillowtex has positioned itself as a single-source supplier
to retailers for top-of-the-bed home textile furnishings (other than sheets),
offering a broad assortment of products across multiple price points. Pillowtex
markets its products primarily to department stores, mass merchants, wholesale
clubs, specialty retail stores, catalogs, and institutional distributors. The
mailing address of Pillowtex's principal executive offices is 4111 Mint Way,
Dallas, Texas 75237, and its telephone number is (214) 333-3225.
Fieldcrest. Fieldcrest was incorporated under the laws of Delaware in 1953
and is principally involved in the manufacture and sale of home furnishing
products. Fieldcrest designs, manufactures, and markets a broad range of
household textile products consisting of towels, sheets, comforters, bath rugs,
and furniture coverings. Fieldcrest's customers consist principally of
department stores, chain stores, mass merchants, specialty home furnishing
stores, catalog warehouse clubs and other retail outlets, and institutional,
government, and contract accounts. The mailing address of Fieldcrest's principal
executive offices is One Lake Circle Drive, Kannapolis, North Carolina 28081,
and its telephone number is (704) 939-2000.
THE PILLOWTEX SPECIAL MEETING
Time, Date, and Place. The Pillowtex Special Meeting will be held on
__________, December __, 1997, at 9:00 a.m., Central Time, at Pillowtex's
corporate headquarters, 4111 Mint Way, Dallas, Texas.
Purpose. The purpose of the Pillowtex Special Meeting is for Pillowtex's
shareholders to consider and vote upon a proposal to approve the issuance of up
to 5,600,000 shares of Pillowtex Common Stock and of 65,000 shares of Pillowtex
Preferred Stock in connection with the Merger and related financing transactions
(i.e., the Share Issuance).
See "The Pillowtex Special Meeting."
Pillowtex's shareholders must approve the issuance (i.e., the Share
Issuance) of both the shares of Pillowtex Common Stock to be issued in
connection with the Merger and the shares of Pillowtex Preferred Stock (which
will be convertible into Pillowtex Common Stock) to be issued in connection with
the financing transactions relating to the Merger in order to comply with the
requirements of the NYSE. Under the NYSE's shareholder approval policy,
shareholder approval generally is required prior to the issuance of securities
when common stock or securities convertible into common stock are to be issued
in any transaction or series of related transactions if (i) upon issuance the
common stock will have voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of such stock or convertible securities or
(ii) the number of shares of common stock to be issued will be equal to or in
excess of 20% of the number of shares of common stock outstanding before such
issuance. Pillowtex's shareholders are not being asked to approve the cash
payments to be made to Fieldcrest's stockholders in connection with the
acquisition by Pillowtex of Fieldcrest or to approve the financing transactions
related to the Merger that will enable Pillowtex to make such cash payments. See
"--Merger Financing" and "Merger Financing."
<PAGE> 21
Record Date; Shares Entitled to Vote. At the Pillowtex Special Meeting,
shareholders will be entitled to one vote for each outstanding share of
Pillowtex Common Stock held of record as of the close of business on the
Pillowtex Record Date. As of the Pillowtex Record Date, there were 10,786,819
shares of Pillowtex Common Stock outstanding and entitled to vote at the
Pillowtex Special Meeting, and there were 317 holders of record of Pillowtex
Common Stock. See "The Pillowtex Special Meeting--Voting at the Pillowtex
Special Meeting."
Required Vote. The affirmative vote of the holders of a majority of the
shares of Pillowtex Common Stock present at the Pillowtex Special Meeting and
entitled to vote is required for the approval of the Share Issuance. As of the
Pillowtex Record Date, directors and executive officers of Pillowtex and their
affiliates beneficially owned, in the aggregate, approximately 52.9% of the
outstanding shares of Pillowtex Common Stock. As of the Pillowtex Record Date,
Charles M. Hansen, Jr., Chairman of the Board and Chief Executive Officer of
Pillowtex, Mary R. Silverthorne, a director of Pillowtex, the John H.
Silverthorne Marital Trust B, and the John H. Silverthorne Family Trust A owned,
in the aggregate, approximately 52.4% of the outstanding shares of Pillowtex
Common Stock. Each of Mr. Hansen, Ms. Silverthorne, and such trusts has agreed
to vote the shares of Pillowtex Common Stock held by such shareholder for the
approval of the Share Issuance. Accordingly, the approval of the Share Issuance
is expected to occur irrespective of whether or the manner in which other
holders of Pillowtex Common Stock vote their shares.
Revocation of Proxies. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted at the
Pillowtex Special Meeting. A proxy may be revoked by filing with the Secretary
of Pillowtex prior to the voting of the proxy either a written instrument
revoking the proxy or an executed proxy bearing a later date, or by voting in
person at the Pillowtex Special Meeting. Attendance at the Pillowtex Special
Meeting will not, in itself, constitute the revocation of a proxy. See "The
Pillowtex Special Meeting--Proxies; Revocation."
RECOMMENDATION OF THE PILLOWTEX BOARD
The Pillowtex Board unanimously approved the Merger and the related
financing transactions at a meeting held on September 5, 1997. The Pillowtex
Board believes that the Merger is in the best interests of Pillowtex and its
shareholders and unanimously recommends that Pillowtex shareholders vote FOR the
approval of the Share Issuance.
OPINION OF PILLOWTEX'S FINANCIAL ADVISOR
Bear, Stearns & Co. Inc. ("Bear Stearns") was retained by Pillowtex to act
as its financial advisor in connection with the Merger. At the request of
Pillowtex, on September 5, 1997, Bear Stearns delivered to the Pillowtex Board
an oral opinion, which was subsequently confirmed in a written opinion dated as
of September 10, 1997, to the effect that, as of such date and subject to the
assumptions and qualifications set forth in the written opinion, the total
consideration to be received in respect of each outstanding share of Fieldcrest
Common Stock and each outstanding share of Fieldcrest Preferred Stock was fair,
from a financial point of view, to the shareholders of Pillowtex. The full text
of the written opinion of Bear Stearns is set forth as Appendix B to this Joint
Proxy Statement/Prospectus. Pillowtex shareholders are urged to read this
opinion carefully and in its entirety. See "The Merger--Opinion of Pillowtex's
Financial Advisor."
THE FIELDCREST SPECIAL MEETING
Time, Date, and Place. The Fieldcrest Special Meeting will be held on
__________, December __, 1997, at 10:00 a.m., Eastern Time, at 1275 Avenue of
the Americas, New York, New York.
Purpose. The purpose of the Fieldcrest Special Meeting is for stockholders
of Fieldcrest to consider and vote upon the approval and adoption of the Merger
Agreement, a copy of which is attached hereto as Appendix A. See "The Fieldcrest
Special Meeting."
Record Date; Shares Entitled to Vote. At the Fieldcrest Special Meeting,
stockholders will be entitled to one vote for each outstanding share of
Fieldcrest Common Stock held of record as of the close of business on the
Fieldcrest Record Date. As of the Fieldcrest Record Date, there were 9,243,602
shares of Fieldcrest Common Stock outstanding and entitled to vote at the
Fieldcrest Special Meeting, and there were 1,798 holders of record of Fieldcrest
Common Stock. Holders of Fieldcrest's $3.00 Series A Convertible Preferred Stock
("Fieldcrest Preferred Stock") are not entitled to vote at the Fieldcrest
Special Meeting. See "The Fieldcrest Special Meeting--Voting at the Fieldcrest
Special Meeting."
2
<PAGE> 22
Required Vote. The affirmative vote of the holders of two-thirds or more of
the outstanding shares of Fieldcrest Common Stock entitled to vote thereon is
required for the approval and adoption of the Merger Agreement. As of the
Fieldcrest Record Date, directors and executive officers of Fieldcrest and their
affiliates owned beneficially, in the aggregate, approximately 4.6% of the
voting power of the outstanding shares of Fieldcrest Common Stock.
Revocation of Proxies. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted at the
Fieldcrest Special Meeting. A proxy may be revoked by filing with the Secretary
of Fieldcrest prior to the voting of the proxy either a written instrument
revoking the proxy or an executed proxy bearing a later date, or by voting in
person at the Fieldcrest Special Meeting. Attendance at the Fieldcrest Special
Meeting will not, in itself, constitute the revocation of a proxy. See "The
Fieldcrest Special Meeting--Proxies; Revocation."
RECOMMENDATION OF THE FIELDCREST BOARD
The Fieldcrest Board approved the Merger Agreement at a meeting held on
September 10, 1997. The Fieldcrest Board believes that the Merger is in the best
interests of Fieldcrest and its stockholders and recommends that Fieldcrest
stockholders vote FOR the approval and adoption of the Merger Agreement.
OPINION OF FIELDCREST'S FINANCIAL ADVISOR
Credit Suisse First Boston Corporation ("CSFB") was retained by a special
committee of the Fieldcrest Board (the "Special Committee") to act as its
exclusive financial advisor with respect to an evaluation of a variety of
strategic and financial alternatives. At the request of the Special Committee,
on September 10, 1997, CSFB delivered to the Fieldcrest Board its written
opinion that, as of such date and based upon and subject to the matters set
forth therein, the consideration (which term, for purposes of such opinion,
means, for each outstanding share of Fieldcrest Common Stock, (i) $27.00 in cash
and (ii) the number of shares of Pillowtex Common Stock equal to the Conversion
Number) to be received by the holders of the Fieldcrest Common Stock in the
Merger was fair to such stockholders from a financial point of view. The full
text of the opinion of CSFB is set forth as Appendix C to this Joint Proxy
Statement/Prospectus. Fieldcrest stockholders are urged to read this opinion
carefully and in its entirety. See "The Merger--Opinion of Fieldcrest's
Financial Advisor."
THE MERGER
General. On the terms and subject to the conditions set forth in the Merger
Agreement, Newco will be merged with and into Fieldcrest, with Fieldcrest being
the surviving corporation in the Merger (as such, the "Surviving Company"). At
the effective time of the Merger (the "Effective Time"), each then-outstanding
share of common stock of Newco will be converted into one share of common stock
of the Surviving Company, which will thereby become a wholly owned subsidiary of
Pillowtex.
Conversion of Fieldcrest Shares. At the Effective Time, each
then-outstanding share of Fieldcrest Common Stock (other than any shares held in
the treasury of Fieldcrest, by any of its subsidiaries, or directly or
indirectly by Pillowtex, which shares will be cancelled and shares held by
stockholders, if any, who properly exercised their appraisal rights under
Delaware law) will be converted into the right to receive total consideration
valued at $34.00, consisting of (i) a cash payment in an amount equal to $27.00
and (ii) a number (the "Conversion Number") of shares of Pillowtex Common Stock
equal to the quotient obtained by dividing $7.00 by the average of the closing
prices per share of Pillowtex Common Stock on the NYSE for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the Closing Date for the Merger (the "Determination Price"), except that, absent
an election by Pillowtex as described below, the Conversion Number will not be
more than 0.333 or less than 0.269. If the Determination Price is less than
$21.00, Pillowtex will have the right to elect to increase the cash portion of
such consideration and/or the Conversion Number such that the sum of (i) the
cash portion of such consideration and (ii) the product of (a) the Conversion
Number and (b) the Determination Price equals $34.00 and, if Pillowtex does not
so elect, Fieldcrest will have the right to terminate the Merger Agreement. See
"The Merger--The Merger Agreement--Consideration to be Paid in the Merger." The
Fieldcrest directors presently expect that they would exercise their right to
terminate the Merger Agreement if the Determination Price were to be below
$21.00 and Pillowtex does not increase the merger consideration as described in
the preceding sentence. If the Fieldcrest directors were to determine, based on
the facts and circumstances existing at the time, that it would not be in the
best interests of Fieldcrest's stockholders to terminate the Merger Agreement
upon
3
<PAGE> 23
such occurrences, then notice of that determination would be given and
Fieldcrest would at that time resolicit proxies from Fieldcrest's stockholders
regarding the vote on the Merger Agreement. Restricted shares of Fieldcrest
Common Stock issued pursuant to Fieldcrest's Long-Term Incentive Plan will be
converted on the same basis as all other shares of Fieldcrest Common Stock in
the Merger.
For example, assuming the Determination Price is $________ (i.e., the
closing price per share of Pillowtex Common Stock as reported in the NYSE
Composite Tape on November __, 1997, the last full trading day prior to the date
of the accompanying Joint Proxy Statement/Prospectus), the Conversion Number
would be ________. Pillowtex shareholders and Fieldcrest stockholders may obtain
by telephone from Innisfree M&A Incorporated at (888) 750-5834 or Morrow &
Company, Inc. at (800) 662-5200 the average of the closing sales prices per
share of the Pillowtex Common Stock on the NYSE for the 20 consecutive trading
days immediately prior to the date of your call and the Conversion Number that
would result if the Determination Price were to equal such average. Because the
actual Determination Price and Conversion Number will not be determinable until
the fifth trading day prior to the Closing Date for the Merger (the
"Determination Date"), Pillowtex shareholders and Fieldcrest stockholders should
bear in mind that the actual Determination Price and Conversion Number may vary
from the example set forth above and from information obtained from Innisfree
M&A Incorporated or Morrow & Company, Inc. prior to the Determination Date. The
prices at which shares of Pillowtex Common Stock may trade are subject to
fluctuation based on many factors, including general economic and industry
conditions and the performance of, and investor expectations for, Pillowtex. See
"Risk Factors--Market Risk." The following table sets forth the Conversion
Numbers resulting from each of the Determination Prices indicated:
<TABLE>
<CAPTION>
Resulting
Determination Price Conversion Number
------------------- -----------------
<S> <C>
$26.00 0.269
$25.00 0.280
$24.00 0.292
$23.00 0.304
$22.00 0.318
$21.00 0.333
</TABLE>
At the Effective Time, each then-outstanding share of Fieldcrest Preferred
Stock (other than shares converted into Fieldcrest Common Stock prior to the
Closing Date and any shares held in the treasury of Fieldcrest, by any of its
subsidiaries, or directly or indirectly by Pillowtex, which shares will be
cancelled and shares held by stockholders, if any, who properly exercised their
appraisal rights under Delaware law) will be converted into a right to receive
total consideration valued at $58.12, consisting of (i) a cash payment equal to
the product of (a) the amount of the cash payment to be made on account of each
share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and (ii)
a number of shares of Pillowtex Common Stock equal to the product of (a) the
Conversion Number and (b) 1.7094. See "The Merger--The Merger
Agreement--Consideration to be Paid in the Merger."
For a description of the principal differences between the rights of
holders of Fieldcrest Common Stock and Pillowtex Common Stock, see "Comparison
of Rights of Holders of Fieldcrest Common Stock and Pillowtex Common Stock."
Treatment of Fieldcrest Options. Each holder of an outstanding option (a
"Fieldcrest Option") to purchase shares of Fieldcrest Common Stock may, prior to
the Effective Time, elect to receive for each share of Fieldcrest Common Stock
subject to such Fieldcrest Option an amount in cash equal to the difference
between $34.00 and the per share exercise price of such Fieldcrest Option. At
the Effective Time, each outstanding Fieldcrest Option, other than Fieldcrest
Options in respect of which the above-described election was made, will be
assumed by Pillowtex and will constitute an option to purchase, in lieu of each
share of Fieldcrest Common Stock previously subject thereto, a number of shares
of Pillowtex Common Stock (increased to the nearest whole share) equal to the
product of (i) the number of shares of Fieldcrest Common Stock subject to such
Fieldcrest Option immediately prior to the Effective Time and (ii) a conversion
number (the "Option Conversion Number") equal to the quotient obtained by
dividing $34.00 by the Determination Price, at an exercise price per share of
Pillowtex Common Stock (increased to the nearest whole cent) equal to the
exercise price per share of Fieldcrest Common Stock subject to such Fieldcrest
Option immediately prior to the Effective Time divided by the Option Conversion
Number. The Option Conversion Number will not be more than 1.619 or less than
1.308, except that, if Pillowtex elects to increase the Conversion Number as
described above, the Option Conversion Number will be
4
<PAGE> 24
increased such that the product of (i) the Option Conversion Number and (ii) the
Determination Price equals $34.00. See "The Merger--The Merger
Agreement--Treatment of Fieldcrest Stock Options."
Treatment of Fieldcrest SARs. Each holder of an outstanding stock
appreciation right issued by Fieldcrest (a "Fieldcrest SAR") will be paid, at or
immediately prior to the Effective Time, a cash amount equal to the product of
(i) the difference between $34.00 and the grant price of such Fieldcrest SAR and
(ii) the number of shares subject to such Fieldcrest SAR. See "The Merger--The
Merger Agreement--Treatment of Fieldcrest SARs."
Treatment of Fieldcrest Convertible Debentures. Fieldcrest's 6% Convertible
Debentures due 2012 (the "Fieldcrest Convertible Debentures"), which are
convertible into shares of Fieldcrest Common Stock at a conversion price of
$44.25 per share (subject to adjustment upon the occurrence of certain events),
will remain outstanding immediately after the Effective Time. As a result of the
Merger, Fieldcrest Convertible Debentures will become convertible into the same
consideration that the holder of the number of shares of Fieldcrest Common Stock
into which such Fieldcrest Convertible Debentures might have been converted
immediately prior to the Merger would be entitled to receive in the Merger. For
example, a Fieldcrest Convertible Debenture having an aggregate principal amount
of $1,000 will become convertible into (i) a cash payment equal to the product
of (a) the amount of the cash payment to be made on account of each share of
Fieldcrest Common Stock converted in the Merger and (b) 22.60 and (ii) a number
of shares of Pillowtex Common Stock equal to the product of (i) the Conversion
Number and (ii) 22.60. See "The Merger--The Merger Agreement--Treatment of
Fieldcrest Convertible Debentures."
Fractional Shares. No fractional shares of Pillowtex Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, each
holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock who otherwise
would be entitled to receive a fractional share of Pillowtex Common Stock
pursuant to the Merger will be paid an amount in cash (without interest),
rounded to the nearest cent, equal to the product of (i) the fraction of a share
of Pillowtex Common Stock to which such holder would otherwise be entitled and
(ii) the closing sales price of Pillowtex Common Stock on the NYSE on the date
on which the Merger is consummated (the "Closing Date"). Any fractional shares
of Pillowtex Common Stock that would otherwise be issuable upon the conversion
of Fieldcrest Convertible Debentures will be eliminated and settled in the
manner provided in the indenture setting forth the terms of the Fieldcrest
Convertible Debentures.
Consequences of Failure to Approve the Share Issuance. The Merger Agreement
provides that, if the Pillowtex shareholders fail to approve the Share Issuance,
(i) the consideration to be paid to holders of Fieldcrest Common Stock will be a
cash payment in an amount equal to $34.00 per share, (ii) the consideration to
be paid to holders of Fieldcrest Preferred Stock will be a cash payment in an
amount equal to $58.12 per share, (iii) each holder of a Fieldcrest Option will
receive for each share of Fieldcrest Common Stock subject to such Fieldcrest
Option an amount in cash equal to the difference between $34.00 and the per
share exercise price of such Fieldcrest Option, and (iv) the conditions
described below in clauses (ii) and (iv) under the caption "--Conditions to the
Merger" will be inapplicable. See "The Merger--The Merger
Agreement--Consequences of Failure to Approve the Share Issuance." If the
Pillowtex shareholders were to fail to approve the Share Issuance, there can be
no assurance that Pillowtex would be able to obtain financing adequate to enable
it to pay the amounts described in the immediately preceding sentence on terms
acceptable to Pillowtex, if at all. However, for the reasons described above
under the caption "--The Pillowtex Special Meeting--Required Vote," the approval
by Pillowtex shareholders of the Share Issuance is expected to occur.
Effective Time of the Merger. The Merger will become effective at the time
that a certificate of merger (the "Certificate of Merger") is filed with the
Secretary of State of the State of Delaware. Subject to the provisions of the
Merger Agreement, the parties will file the Certificate of Merger on the fifth
business day following the date on which the requisite vote of the shareholders
of Pillowtex and the stockholders of Fieldcrest is obtained and the various
other conditions set forth in the Merger Agreement (other than those that by
their nature are to be satisfied at the closing) are satisfied or waived or on
such other date as the parties may agree.
Conditions to the Merger. The obligations of Pillowtex and Fieldcrest to
consummate the Merger are conditioned upon, among other things, (i) approval and
adoption of the Merger Agreement by Fieldcrest's stockholders; (ii) approval of
the Share Issuance by Pillowtex's shareholders; (iii) the absence of any order
or injunction that prohibits the consummation of the Merger; (iv) the shares of
Pillowtex Common Stock to be issued in connection with the Merger having been
authorized for listing on the NYSE, subject to official notice of issuance; (v)
the Registration Statement
5
<PAGE> 25
having been declared effective by the Commission and not being subject to any
stop order or proceeding seeking the same; and (vi) the waiting period pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), having expired or been terminated. See "The Merger--The Merger
Agreement--Conditions to the Merger."
Termination. The Merger Agreement may be terminated under certain
circumstances, including by mutual written consent of Pillowtex and Fieldcrest
and by either Pillowtex or Fieldcrest if the other party commits certain
breaches of its representations, warranties, or covenants contained in the
Merger Agreement or if the Merger is not consummated on or before December 31,
1997. If the Merger Agreement is terminated by Fieldcrest under specified
circumstances involving a determination by the Fieldcrest Board to accept a
proposal relating to an alternative transaction or is terminated by Pillowtex
following specified actions of the Fieldcrest Board relating to its approval or
recommendation of the Merger Agreement or the Merger or the endorsement or
recommendation of a proposal relating to an alternative transaction, Fieldcrest
will be required to pay to Pillowtex a termination fee in the amount of $15.0
million. See "The Merger--The Merger Agreement--Termination."
Governmental and Regulatory Matters. In connection with the transactions
contemplated by the Merger Agreement, Pillowtex and Fieldcrest have made filings
or applications with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") pursuant to the
HSR Act. Consummation of the Merger is conditioned upon, among other things, the
expiration or termination of the waiting period under the HSR Act. Such waiting
period expired at 11:59 p.m. on October 17, 1997. See "The Merger--The Merger
Agreement--Conditions to the Merger" and "--Regulatory Approvals."
Appraisal Rights. Under the Delaware General Corporation Law (the "DGCL"),
appraisal rights will be available to holders of Fieldcrest Common Stock and
holders of Fieldcrest Preferred Stock in connection with the Merger. Any such
holder desiring to exercise appraisal rights must follow precisely the
procedures prescribed by the DGCL, which procedures are summarized in "The
Merger--Appraisal Rights." The holders of Pillowtex Common Stock will not have
any appraisal rights in connection with the Merger or the Share Issuance.
Interests of Certain Persons in the Merger. As a result of the Merger,
Fieldcrest's named executive officers would be entitled to receive aggregate
cash payments of $2,850,000 in respect of their Fieldcrest Options and merger
consideration with an aggregate value of $290,666 in respect of their restricted
shares of Fieldcrest Common Stock. Fieldcrest directors (other than those
included in the amounts set forth above with respect to the named executive
officers) would be entitled to receive aggregate cash payments of $758,875 in
respect of their Fieldcrest Options and $58,625 in respect of their Fieldcrest
SARs. See "The Merger--Interests of Certain Persons in the Merger" for a
discussion of other matters with respect to which Fieldcrest management and the
Fieldcrest Board have an interest in addition to their interests as stockholders
of Fieldcrest generally.
Certain Federal Income Tax Consequences. The receipt by a Fieldcrest
stockholder of the merger including any cash amounts received by dissenting
stockholders pursuant to the exercise of appraisal rights) in exchange for
shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock will be a
taxable transaction for federal income tax purposes. In general, for federal
income tax purposes, a stockholder will recognize gain (or loss) equal to the
difference between (i) the sum of the amount of cash and the fair market value
of the Pillowtex Common Stock received pursuant to the Merger and (ii) the tax
basis of the shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
exchanged pursuant to the Merger. Fieldcrest stockholders should consult their
own tax advisors with respect to the specific tax consequences of the Merger in
their individual circumstances. See "The Merger--Certain Federal Income Tax
Consequences."
Accounting Treatment. It is expected that the Merger will be accounted for
as an acquisition of Fieldcrest by Pillowtex, using the purchase method of
accounting. Under the purchase method of accounting, the purchase price paid by
Pillowtex for Fieldcrest (including direct costs of the Merger) will be
allocated to the identifiable assets of Fieldcrest based upon estimates of the
fair market value of Fieldcrest's identifiable assets and liabilities as of the
Effective Time, with the excess of the purchase price over the fair market value
of Fieldcrest's net identifiable assets being allocated to goodwill. On a pro
forma basis, giving effect to the consummation of the Merger and the Financing
Transactions as if such transactions had been consummated on September 27, 1997,
the excess of the purchase price over the fair market value of Fieldcrest's
identifiable assets would have been approximately $170.6 million. See Note 1 of
"Notes to Unaudited Pro Forma Combined Financial Information."
6
<PAGE> 26
MERGER FINANCING
Pillowtex intends to finance the Merger and refinance certain indebtedness
of Pillowtex and Fieldcrest through a combination of (i) borrowings under new
senior revolving credit and term loan facilities (the "New Pillowtex Bank
Facilities"), (ii) the issuance and sale of the Pillowtex Preferred Stock, and
(iii) the issuance and sale of new subordinated debt securities (the "New
Pillowtex Subordinated Notes"). In the event that less than $135.0 million
aggregate principal amount of New Pillowtex Subordinated Notes shall have been
issued and sold as of the Closing Date, Pillowtex may borrow an amount
corresponding to such shortfall under a standby bridge loan facility (the
"Standby Bridge Loan Facility").
Pillowtex has entered into (i) a commitment letter with NationsBank of
Texas, N.A. providing for the New Pillowtex Bank Facilities (the "New Pillowtex
Bank Facilities Commitment"), (ii) a Preferred Stock Purchase Agreement with
Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo
(UK) Partners III, L.P. (collectively, "Apollo") providing for the issuance and
sale of 65,000 shares of Pillowtex Preferred Stock (the "Pillowtex Preferred
Stock Commitment"), and (iii) a commitment letter with NationsBridge, L.L.C.
providing for the Standby Bridge Loan Facility (the "Standby Bridge Loan
Facility Commitment" and, together with the New Pillowtex Bank Facilities
Commitment and the Pillowtex Preferred Stock Commitment, the "Financing
Commitments").
The financings contemplated by the Financing Commitments and the proposed
issuance and sale of New Pillowtex Subordinated Notes are described in greater
detail in "Merger Financing." The obligations of third parties under the
Financing Commitments to extend loans or purchase Pillowtex Preferred Stock, as
the case may be, are subject to various specified conditions. Because such
conditions relate to matters beyond Pillowtex's control, there can be no
assurance that such conditions will be timely satisfied.
7
<PAGE> 27
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information of Pillowtex and
Fieldcrest has been derived from the historical consolidated financial
statements of Pillowtex and Fieldcrest incorporated by reference herein, and
should be read in conjunction with such financial statements and the notes
thereto. See "Available Information" and "Incorporation of Certain Documents by
Reference." The historical financial information at the end of and for each
fiscal year in the five-year period ended December 28, 1996 with respect to
Pillowtex and December 31, 1996 with respect to Fieldcrest has been extracted
from audited financial statements filed with the Commission. Historical
financial information at the end of and for the nine-month periods ended
September 28, 1996 and September 27, 1997 with respect to Pillowtex and
September 30, 1996 and 1997 with respect to Fieldcrest has been extracted from
unaudited financial statements filed with the Commission and, in the opinion of
Pillowtex's and Fieldcrest's respective managements, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation, in all material respects, of the results of operations and
financial position at the end of and for each of the interim periods presented.
Interim period results are not necessarily indicative of results to be expected
for a complete fiscal year.
8
<PAGE> 28
SUMMARY HISTORICAL FINANCIAL INFORMATION OF PILLOWTEX
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEM- SEPTEM-
FISCAL YEAR BER 28, BER 27,
----------------------------------------------------------------- ----------- ----------
1992 1993(1) 1994(2) 1995 1996 1996 1997
---------------------------------------------------- ------------ ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................... $273,462 $291,624 $349,520 $474,899 $490,655 $335,770 $370,633
Cost of goods sold.......... 222,611 238,155 294,714 395,922 411,048 280,272 305,674
-------- -------- -------- -------- -------- -------- --------
Gross profit................ 50,851 53,469 54,806 78,977 79,607 55,498 64,959
Selling, general, and
administrative expenses... 33,376 29,227 36,399 42,508 41,445 31,170 33,728
-------- -------- -------- -------- -------- -------- --------
Earnings from operations.... 17,475 24,242 18,407 36,469 38,162 24,328 31,231
Interest expense............ 4,997 3,042 6,361 17,491 13,971 10,279 13,957
Other expense (income), net. 1,049 -- (379) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings before income taxes
and extraordinary loss.... 11,429 21,200 12,425 18,978 24,191 14,049 17,274
Income taxes................ 529 8,420 4,736 7,509 9,459 5,495 6,702
-------- -------- -------- -------- -------- -------- --------
Earnings before extraordinar
loss .....................y 10,900 12,780 7,689 11,469 14,732 8,554 10,572
Extraordinary loss, net .... -- -- -- -- (609) -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings(3)............. 10,900 12,780 7,689 11,469 14,123 8,554 10,572
Accretion to repurchase price
of common stock subject to
repurchase................ 2,500 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings available to
common stock shareholders(3)$ 8,400 $ 12,780 $ 7,689 $ 11,469 $ 14,123 $ 8,554 $ 10,572
======== ======== ======== ======== ======== ======== ========
Earnings per share before
extraordinary loss(3)..... $ 1.29 $ 1.31 $ 0.73 $ 1.08 $ 1.39 $ 0.81 $ 0.99
Extraordinary loss, net..... -- -- -- -- (.06) -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings per share(3)... $ 1.29 $ 1.31 $ 0.73 $ 1.08 $ 1.33 $ 0.81 $ 0.99
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization.............. $ 3,104 $ 3,868 $ 6,365 $ 11,994 $ 12,775 $ 9,440 $ 10,642
Capital expenditures........ 5,869 7,135 10,538 12,448 21,040 2,981 13,891
BALANCE SHEET DATA:
Working capital ............ $ 65,567 $ 78,141 $122,738 $110,128 $150,506 $152,787 $181,234
Total assets ............... 131,542 180,967 319,544 324,710 375,714 370,670 419,168
Long-term debt ............. 63,599 63,735 177,149 153,472 194,851 180,200 218,806
Shareholders' equity ....... 7,072 69,329 76,478 87,990 100,004 95,042 110,777
</TABLE>
- -----------------
(1) Results for fiscal 1993 reflect the operations of Manetta Home Fashions,
Inc. from August 30, 1993, Tennessee Woolen Mills, Inc. from September 7,
1993 and Torfeaco Industries Limited from December 1, 1993.
(2) Results for fiscal 1994 reflect the operations of Imperial Feather Company
from August 19, 1994 and Beacon Manufacturing Company from December 1,1994.
(3) On a pro forma basis, giving effect to the termination of Pillowtex's
status as an S corporation under subchapter S of the Internal Revenue Code
(which termination resulted from the initial public offering of Pillowtex
Common Stock), as if such termination had occurred on January 1, 1992, net
earnings, net earnings available to common stock shareholders, earnings per
share before extraordinary loss, and net earnings per share would have been
$7,692, $5,192, $.80, and $.80, respectively, for fiscal 1992 and $12,877,
$12,877, $1.32, and $1.32, respectively, for fiscal 1993.
9
<PAGE> 29
SUMMARY HISTORICAL FINANCIAL INFORMATION OF FIELDCREST
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEM- SEPTEM-
FISCAL YEAR BER 30, BER 30,
---------------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------------------------- ------------ ------------------------- ---------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................... $ 981,773 $1,000,107 $1,063,731 $1,095,193 $1,092,496 $ 812,995 $ 820,635
Cost of sales............... 818,729 834,701 898,437 966,642 956,522 706,482 695,615
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit................ 163,044 165,406 165,294 128,551 135,974 106,513 125,020
Selling, general, and
administrative expenses... 102,189 101,843 94,756 108,194 105,405 78,406 85,563
Restructuring charges....... -- 10,000 -- 20,469 8,130 8,130 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)..... 60,855 53,563 70,538 (112) 22,439 19,977 39,457
Interest expense............ 34,149 27,659 23,268 27,630 26,869 21,496 18,708
Other expense (income), net. 130 (975) 987 67 (5,604) 519 (2,021)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes.............. 26,576 26,879 46,283 (27,809) 1,174 (2,038) 22,770
Income taxes................ 10,886 11,913 15,538 (12,084) 114 (764) 8,087
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income (loss) from
continuing operations
before accounting changes. 15,690 14,966 30,745 (15,725) 1,060 (1,274) 14,683
Income from discontinued
operations................ 4,739 3,201 -- -- -- -- --
Gain from disposition of
discontinued operations... -- 9,207 -- -- -- -- --
Extraordinary charge - early
retirement of debt........ (5,179) -- -- -- -- -- --
Cumulative effect of
accounting changes........ -- (70,305) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)........... 15,250 (42,931) 30,745 (15,725) 1,060 (1,274) 14,683
Preferred dividends......... -- (463) (4,500) (4,500) (4,500) (3,375) (3,375)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) on common... $ 15,250 $ (43,394) $ 26,245 $ (20,225) $ (3,440) $ (4,649) $ 11,308
========== =========== ========== ========== ========== ========== ==========
Primary earnings (loss)
per share................. $ 1.35 $ (3.70) $ 3.02 $ (2.28) $ (0.38) $ (0.52) $ 1.23
Fully diluted earnings
(loss) per share.......... 1.78 -- 2.51 -- -- (0.52) 1.23
Weighted average primary
shares outstanding........ 11,256 11,733 8,696 8,875 9,024 9,003 9,247
Weighted average fully
diluted shares outstanding 14,083 11,733 14,086 14,265 14,414 9,003 9,247
OTHER DATA:
Depreciation and amortization$ 31,370 $ 31,539 $ 29,828 $ 31,746 $ 36,678 $ 26,979 $ 26,241
Capital expenditures........ 20,687 21,594 51,929 64,153 33,386 21,035 46,214
BALANCE SHEET DATA:
Working capital ............ $ 296,580 $ 262,326 $ 282,461 $ 268,477 $ 229,010 $ 288,103 $ 221,210
Total assets ............... 863,991 740,446 782,665 812,946 768,493 832,992 789,479
Long-term debt ............. 353,419 294,611 317,744 365,262 311,496 373,748 308,820
Stockholders' equity ....... 284,478 193,330 231,202 215,431 215,755 213,689 229,321
</TABLE>
10
<PAGE> 30
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX
The following pro forma combined financial information gives effect to the
consummation of the Merger and the Financing Transactions as if such
transactions had been consummated on September 27, 1997, in the case of the
Unaudited Pro Forma Condensed Combined Balance Sheet of Pillowtex, and on
December 31, 1995, the first day of Pillowtex's 1996 fiscal year, in the case of
the Unaudited Pro Forma Condensed Combined Statements of Operations of
Pillowtex. As used herein, the term "Financing Transactions" means (i) estimated
initial borrowings under the New Pillowtex Bank Facilities of $430.2 million,
(ii) the issuance and sale of $150.0 million aggregate principal amount of New
Pillowtex Subordinated Notes resulting in estimated net proceeds of $146.4
million, (iii) the issuance and sale of 65,000 shares of Pillowtex Preferred
Stock resulting in estimated net proceeds of $63.5 million, (iv) the repayment
of all amounts outstanding under Pillowtex's and Fieldcrest's existing bank
credit facilities, and (v) the satisfaction and discharge of all indebtedness
represented by Fieldcrest's 11.25% Senior Subordinated Debentures Due 2002 to
2004 pursuant to an irrevocable deposit of amounts sufficient to provide for the
redemption thereof. Because the Standby Bridge Loan Facility is expected to be
drawn upon, if at all, only in the event that less than $135.0 million aggregate
principal amount of New Pillowtex Subordinated Notes shall have been issued and
sold as of the Closing Date, the pro forma combined financial information
presented herein assumes that no amounts will be borrowed thereunder.
The pro forma combined financial information is presented for illustrative
purposes only and is not necessarily indicative of what Pillowtex's actual
financial position or results of operations would have been had the
above-referenced transactions been consummated as of the above-referenced dates
or of the financial position or results of operations that may be reported by
Pillowtex in the future. The pro forma combined financial information should be
read in conjunction with the historical financial statements of Pillowtex and
Fieldcrest, the related notes, and the other information contained elsewhere in
this Joint Proxy Statement/Prospectus or incorporated by reference herein. See
"Available Information," "Incorporation of Certain Documents by Reference," and
"Unaudited Pro Forma Combined Financial Information of Pillowtex."
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF PILLOWTEX
SEPTEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
<S> <C>
Total current assets .................................................. $ 679,148
Property, plant, and equipment, net ................................... 491,308
Goodwill, net ......................................................... 216,316
Other assets, net...................................................... 60,205
-----------
Total assets ...................................................... $ 1,446,977
===========
Total current liabilities ............................................. $ 251,372
Long-term debt ........................................................ 823,619
Deferred income taxes ................................................. 62,972
Other non-current liabilities.......................................... 52,962
Redeemable convertible preferred stock................................. 63,500
Shareholders' equity .................................................. 192,552
-----------
Total liabilities and shareholders' equity ........................ $ 1,446,977
===========
</TABLE>
11
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS OF PILLOWTEX
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 28, 1996 SEPTEMBER 27, 1997
<S> <C> <C>
Net sales........................................................... $ 1,583,151 $ 1,191,268
Cost of goods sold ................................................. 1,364,368 998,887
Selling, general, and administrative expenses ...................... 135,875 111,100
Restructuring charge................................................ 8,130 --
----------------- -----------------
Earnings from operations............................................ 74,778 81,281
Interest expense ................................................... 56,342 51,805
Other income, net .................................................. (5,604) (2,021)
----------------- -----------------
Earnings before income taxes and extraordinary items................ 24,040 31,497
Income taxes ....................................................... 11,181 13,705
----------------- -----------------
Net earnings before extraordinary items............................. 12,859 17,792
Dividends on preferred shares....................................... (1,950) (1,463)
----------------- -----------------
Earnings before extraordinary items applicable to
common stock...................................................... $ 10,909 $ 16,329
================= =================
</TABLE>
SELECTED PER SHARE FINANCIAL INFORMATION
The following table sets forth selected historical per share financial
information for each of Pillowtex and Fieldcrest and unaudited pro forma per
share financial information for Pillowtex giving effect to the consummation of
the Merger and the Financing Transactions, as if such transactions had been
consummated as of September 27, 1997, in the case of book value information, and
December 31, 1995, the first day of Pillowtex's 1996 fiscal year, in the case of
earnings information. The information presented below is derived from (i) the
consolidated historical financial statements of Pillowtex and Fieldcrest,
including the related notes thereto, incorporated by reference into this Joint
Proxy Statement/Prospectus and (ii) the pro forma financial information,
including the notes thereto, appearing elsewhere herein, and should be read in
conjunction therewith. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Financial Information of
Pillowtex." The pro forma per share information set forth herein assumes the
issuance of 3,447,632 shares of Pillowtex Common Stock in connection with the
Merger (computed based on an assumed Determination Price of $24.00 and an
assumed Conversion Number of 0.292). See Note 1 of "Notes to Unaudited Pro Forma
Combined Financial Information." The pro forma information set forth below is
not necessarily indicative of what Pillowtex's actual financial position or
results of operations would have been had the above-referenced transactions been
consummated as of the above-referenced dates or of the financial position or
results of operations that may be reported by Pillowtex in the future.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 28, 1996 SEPTEMBER 27, 1997
<S> <C> <C>
PILLOWTEX--HISTORICAL
Earnings per common share before
extraordinary items ........................................... $ 1.39 $ 0.99
Book value per common share...................................... 9.42 10.38
Dividends per common share....................................... 0.20 0.18
PILLOWTEX PRO FORMA
Earnings per common share before
extraordinary items............................................ 0.77 1.06
Book value per common share...................................... 12.91 13.64
Dividends per common share....................................... 0.15 0.14
</TABLE>
12
<PAGE> 32
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 27, 1997
<S> <C> <C>
FIELDCREST--HISTORICAL
Earnings (loss) per common share before
extraordinary items............................................ $ (0.38) $ 1.23
Book value per common share...................................... 23.91 24.92
Dividends per common share....................................... -- --
FIELDCREST PRO FORMA EQUIVALENTS
Earnings per common share before
extraordinary items............................................ 0.22 0.31
Book value per common share...................................... 3.77 3.98
Dividends per common share....................................... 0.04 0.04
</TABLE>
Pillowtex currently intends to continue to pay quarterly dividends of $0.06
per share on the Pillowtex Common Stock. Pillowtex's dividend policy will be
reviewed by the Pillowtex Board from time to time in light of, among other
things, Pillowtex's results of operations and financial position. In addition,
Pillowtex's ability to pay dividends on the Pillowtex Common Stock in the future
will be restricted pursuant to the terms of various instruments governing its
indebtedness and the terms of the Pillowtex Preferred Stock. Accordingly, there
can be no assurance that Pillowtex will pay any dividends in the future or, if
dividends are paid, as to the amount thereof. See "Risk Factors--Restrictions on
Payment of Dividends."
MARKET PRICE INFORMATION
The Pillowtex Common Stock trades on the NYSE under the symbol "PTX." The
following table sets forth the high and low sales prices per share of Pillowtex
Common Stock as reported on the NYSE Composite Tape for each fiscal quarter in
fiscal years 1995 and 1996 and for the other periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Quarter Ended:
April 1, 1995........................................................................ $ 10 1 $ 8
July 1, 1995......................................................................... 11 1 8 3
September 30, 1995................................................................... 13 9 5
December 30, 1995.................................................................... 13 11
Quarter Ended:
March 30, 1996....................................................................... $ 12 1 $ 10 1
June 30, 1996........................................................................ 13 3 12
September 30, 1996................................................................... 14 3 10 5
December 28, 1996.................................................................... 18 1 12 7
Quarter Ended:
March 29, 1997....................................................................... $ 18 3 $ 15 7
June 28, 1997........................................................................ 23 1 16 1
September 27, 1997................................................................... 28 13 21
December 27, 1997 (through November __)..............................................
</TABLE>
13
<PAGE> 33
The Fieldcrest Common Stock trades on the NYSE under the symbol "FLD." The
following table sets forth the high and low sales prices per share of Fieldcrest
Common Stock as reported on the NYSE Composite Tape for each fiscal quarter in
fiscal years 1995 and 1996 and for the other periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Quarter Ended:
March 31, 1995....................................................................... $ 25 3 $ 19 7
June 30, 1995........................................................................ 24 1 19 3
September 30, 1995................................................................... 24 7 21 1
December 31, 1995.................................................................... 22 1 15 3
Quarter Ended:
March 31, 1996....................................................................... $ 21 1 $ 16 3
June 30, 1996........................................................................ 22 1 19 1
September 30, 1996................................................................... 20 1 13 1
December 31, 1996.................................................................... 16 12 7
Quarter Ended:
March 31, 1997....................................................................... $ 17 3 $ 15 1
June 30, 1997........................................................................ 19 3 15 1
September 30, 1997................................................................... 34 15 17 1
December 31, 1997 (through November __)..............................................
</TABLE>
The Fieldcrest Preferred Stock is admitted for trading on the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq").
The Fieldcrest Preferred Stock trades on The Nasdaq Small Cap Market tier of The
Nasdaq Stock Market under the symbol "FLDC.P." The following table sets forth
for the high and low closing bid quotations in the over-the-counter market for
the Fieldcrest Preferred Stock as reported on Nasdaq for each fiscal quarter in
fiscal years 1995 and 1996 and for the other periods indicated. These quotations
represent inter-dealer prices, without adjustment for retail markups, markdowns,
or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Quarter Ended:
March 31, 1995....................................................................... $ 52 1 $ 43 1
June 30, 1995........................................................................ 50 45
September 30, 1995................................................................... 53 46
December 31, 1995.................................................................... 52 42 7
Quarter Ended:
March 31, 1996....................................................................... $ 47 $ 42 1
June 30, 1996........................................................................ 48 1 44 1
September 30, 1996................................................................... 45 1 38 3
December 31, 1996.................................................................... 39 3 37 1
Quarter Ended:
March 31, 1997....................................................................... $ 42 3 $ 38 3
June 30, 1997........................................................................ 46 1 41 1
September 30, 1997................................................................... 62 45 1
December 31, 1997 (through November __)..............................................
</TABLE>
On September 10, 1997, the last full trading day prior to the public
announcement by Pillowtex and Fieldcrest of the execution of the Merger
Agreement, the closing price per share of Pillowtex Common Stock as reported on
the NYSE Composite Tape was $2313 was $33 full trading day prior to the date of
this Joint Proxy Statement/Prospectus, the closing price per share of Pillowtex
Common Stock as reported on the NYSE Composite Tape was $_____, and the closing
price per share of Fieldcrest Common Stock as so reported was $_____. On
September 10, 1997, the last date of a reported trade prior to the public
announcement by Pillowtex and Fieldcrest of the Merger Agreement, the closing
bid quotation for the Fieldcrest Preferred Stock as reported on Nasdaq was $59.
On November ___, 1997, the last date of a reported
14
<PAGE> 34
trade of Fieldcrest Preferred Stock prior to the date of this Joint Proxy
Statement/Prospectus, the closing bid quotation for the Fieldcrest Preferred
Stock was $_________. Pillowtex shareholders and Fieldcrest stockholders are
encouraged to obtain current market quotations.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks of ownership of
Pillowtex Common Stock and other matters that should be considered in
determining how to vote upon the matters described herein.
15
<PAGE> 35
RISK FACTORS
Prior to voting on the proposals described herein, Pillowtex shareholders
and Fieldcrest stockholders should carefully consider the risk factors discussed
below as well as all of the information contained elsewhere in this Joint Proxy
Statement/Prospectus, including the Appendices hereto. See also "Note Regarding
Forward-Looking Information." Any or all of the risk factors discussed below
could have a material adverse effect on the business, financial condition,
results of operations, and prospects of Pillowtex and its subsidiaries,
including, from and after the Effective Time, Fieldcrest, and/or on the price at
which shares of Pillowtex Common Stock may trade.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Pillowtex is, and following consummation of the Merger and the Financing
Transactions will continue to be, highly leveraged. At September 27, 1997, on a
pro forma basis, after giving effect to the consummation of the Merger and the
Financing Transactions, Pillowtex would have had total outstanding long-term
indebtedness (including the current portion of long-term indebtedness) of
approximately $829.9 million and total shareholders' equity of approximately
$192.5 million. See "Pro Forma Capitalization of Pillowtex." In addition,
subject to restrictions contained in instruments governing its indebtedness,
Pillowtex and its subsidiaries may incur additional indebtedness from time to
time to finance acquisitions or capital expenditures or for general corporate
purposes.
The level of Pillowtex's indebtedness could have important consequences to
the business activities of Pillowtex, including: (i) a substantial portion of
Pillowtex's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) Pillowtex's ability to obtain
additional debt financing in the future for other acquisitions, working capital,
capital expenditures, or research and development may be limited; and (iii)
Pillowtex's level of indebtedness could limit its flexibility in reacting to
changes in its industry or economic conditions generally.
Pillowtex's ability to service its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of borrowings under the New
Pillowtex Bank Facilities or any other credit arrangement. Pillowtex will
require substantial amounts of cash to fund scheduled payments of principal and
interest on its outstanding indebtedness, as well as future capital expenditures
and any increased working capital requirements. If Pillowtex is unable to meet
its cash requirements out of cash flow from operations and its available
borrowings, there can be no assurance that it will be able to obtain alternative
financing or that it will be permitted to do so under the terms of the New
Pillowtex Bank Facilities or its other indebtedness. In the absence of such
financing, Pillowtex's ability to respond to changing business and economic
conditions, to make future acquisitions, to absorb adverse operating results, or
to fund capital expenditures or research and development costs may be adversely
affected. If Pillowtex does not generate sufficient increases in cash flow from
operations to repay its indebtedness at maturity, it could attempt to refinance
such indebtedness; however, no assurance can be given that such refinancing
would be available on terms acceptable to Pillowtex, if at all.
RESTRICTIVE COVENANTS
Certain instruments governing indebtedness of Pillowtex will contain a
number of restrictive covenants and events of default, including covenants
limiting capital expenditures, incurrence of debt, and sales of assets. In
addition, under certain instruments governing indebtedness of Pillowtex,
Pillowtex will be required to maintain specified financial ratios and satisfy
certain financial condition tests. Pillowtex's ability to maintain and satisfy
those ratios and tests may be affected by events beyond its control, and there
can be no assurance that Pillowtex will be able to do so. As a result of these
covenants, the ability of Pillowtex to respond to changing business and economic
conditions and to secure additional financing, if needed, may be significantly
restricted and Pillowtex may be prevented from engaging in transactions that
might otherwise be considered beneficial to Pillowtex. See "Merger Financing"
and "Other Post-Merger Indebtedness of Pillowtex."
16
<PAGE> 36
SECURITY INTERESTS
Upon consummation of the Merger and the Financing Transactions, all of the
capital stock of Pillowtex's domestic subsidiaries, 65% of the capital stock of
all foreign subsidiaries, and substantially all of the domestic assets of
Pillowtex and all of its subsidiaries will be subject to various liens and
security interests. If a holder of a security interest becomes entitled to
exercise its rights as a secured party, it would have the right to foreclose
upon and sell or otherwise transfer the collateral subject to its security
interest, and the collateral would be correspondingly unavailable to Pillowtex
or the subsidiary owning such collateral and to other creditors of Pillowtex or
such subsidiary, except to the extent, if any, that the value of the affected
collateral exceeds the amount of the indebtedness in respect of which such
foreclosure rights are exercised.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Pillowtex currently intends to continue to pay quarterly dividends of $0.06
per share on the Pillowtex Common Stock. Pillowtex's dividend policy will be
reviewed by the Pillowtex Board from time to time in light of, among other
things, Pillowtex's results of operations and financial position. In addition,
certain instruments governing the indebtedness of Pillowtex and the terms of the
Pillowtex Preferred Stock will restrict Pillowtex's ability to pay dividends or
make other distributions to holders of Pillowtex Common Stock. Pursuant to terms
of such instruments, the ability of Pillowtex to pay dividends or make other
distributions will be subject to its ability to maintain certain financial
ratios and satisfy certain financial condition tests. Accordingly, there can be
no assurance that Pillowtex will pay any dividends in the future or, if
dividends are paid, as to the amount thereof. See "Merger Financing," "Other
Post-Merger Indebtedness of Pillowtex," and "Description of Pillowtex Capital
Stock--Series A Redeemable Convertible Preferred Stock."
ABILITY TO ACHIEVE COST SAVINGS
Pillowtex has identified approximately $21.6 million of annual cost savings
that it expects to realize as a result of the Merger. These cost savings are
expected to be achieved through the elimination of certain duplicative corporate
and administrative expenses. Pillowtex additionally expects to realize
significant ongoing cost savings, including at least $8.4 million within the
first twelve months after consummation of the Merger, by: (i) eliminating other
redundant cost functions; (ii) improving procurement efficiencies by exploiting
the combined company's purchasing power (iii) reducing trade advertising; (iv)
rationalizing and streamlining operations; and (v) reducing the use of outside
consultants.
In an effort to maximize cost savings, Pillowtex intends to review
Fieldcrest's trend toward outsourcing certain manufacturing and corporate
functions on a case by case basis. For example, during 1996 Fieldcrest began
outsourcing a portion of its sheeting yarn requirements, which is expected to
result in approximately $7.1 million of cost savings for 1997. Pillowtex
initially intends to continue Fieldcrest's outsourcing practices in areas that
appear to result in reduced operating costs, such as in sheeting yarn spinning,
and may increase or curtail the use of outsourcing in spinning and other areas
based on future cost and other considerations, although the potential impact of
any future outsourcing decisions on the combined companies' operating results
cannot be determined at this time. Fieldcrest also outsourced its information
technology services and functions to Lockheed Martin Corporation beginning in
1996. Such services and functions will cost Fieldcrest approximately $25.2
million in 1997, and, although Pillowtex intends to seek opportunities for cost
savings with respect to information technology services and functions, it
intends to continue to use Lockheed Martin Corporation for such services
pursuant to the existing agreement between Fieldcrest and such company.
There can be no assurance as to the timing or amount of any cost savings
that may actually be realized, or that unforseen costs and expenses, decreases
in sales or revenues, or other factors will not offset any cost savings actually
realized.
RISKS ASSOCIATED WITH ACQUISITIONS
Pillowtex expects to continue a strategy of identifying and acquiring
companies, like Fieldcrest, with complementary products or services that may be
expected to enhance the operations and profitability of Pillowtex. There can be
no assurances that Pillowtex will be able to integrate the operations of
Fieldcrest or any other acquired company successfully with the operations of
Pillowtex or that any of such acquisitions, including the acquisition of
Fieldcrest, will prove profitable.
17
<PAGE> 37
DEPENDENCE ON RAW MATERIALS
The raw materials on which Pillowtex is primarily dependent include the raw
feather and down that Pillowtex uses to produce natural fill pillows and down
comforters. The People's Republic of China ("China") is currently the primary
source of raw feather and down for Pillowtex. See "--Dependence on Supply
Sources in China." The raw materials on which Fieldcrest is primarily dependent
include the cotton and synthetic fibers that Fieldcrest uses to manufacture its
home furnishing products.
The raw materials used by Pillowtex and Fieldcrest are generally available
from a number of sources, and no significant shortage of such materials is
currently anticipated. However, Pillowtex and Fieldcrest use significant
quantities of such raw materials, which are subject to price fluctuations, and
there can be no assurance that shortages of such materials will not occur in the
future, which could increase the cost of or delay the shipment of products.
From and after the Effective Time, cotton will be the primary raw material
used in Pillowtex's business. Cotton is an agricultural product and,
consequently, its availability is subject to weather conditions and other
factors affecting agricultural markets. There have been historical periods of
rapid and significant movement in the price of cotton, both upward and downward.
There can be no assurance that Pillowtex will be able to pass on any increase in
the price of cotton or other raw materials to its customers.
DEPENDENCE ON SUPPLY SOURCES IN CHINA
In fiscal year 1996 and the nine months ended September 27, 1997,
approximately 83% and 84%, respectively, of the raw feather and down that
Pillowtex used to produce natural fill pillows and down comforters was imported
from China.
Pillowtex's relationships with its suppliers in China could be disrupted or
adversely affected due to a number of factors, including governmental
regulation, fluctuation in exchange rates, and changes in economic and political
conditions in China. If Pillowtex's supply sources in China were disrupted for
any reason, Pillowtex believes, based on existing market conditions, that it
could establish alternative supply relationships. However, because establishing
these relationships involves numerous uncertainties relating to delivery
requirements, price, payment terms, quality control, and other matters,
Pillowtex is unable to predict whether such relationships would be on terms
satisfactory to Pillowtex.
Pillowtex's relationships with its suppliers in China are also subject to
risks associated with changes in United States legislation and regulations
relating to imports, including quotas, duties, and taxes, and other charges or
restrictions on imports. Products that Pillowtex imports from China currently
receive preferential tariff treatment accorded goods from countries granted
"most favored nation" status. Under the Trade Act of 1974, the President of the
United States is authorized, upon making specified findings, to waive certain
restrictions that would otherwise render China ineligible for most favored
nation treatment. The President has waived these provisions each year since
1979. Most favored nation status was accordingly renewed in June 1997 despite
legislation pursued by Congress demanding that China desist from certain trade
and military activities. Congress will continue to monitor these activities and
may encourage the President to reconsider the renewal of most favored nation
status for China in June 1998 and no assurance can be given that China will
continue to enjoy this status in the future. Raw materials and finished products
entering the United States from China without the benefit of most favored nation
treatment would be subject to significantly higher duty rates.
ADVERSE RETAIL INDUSTRY CONDITIONS
Each of Pillowtex and Fieldcrest sells its products to a number of
department stores and other major retailers who have experienced financial
difficulties during the past several years. Some of these retailers have
recently emerged from the protection of federal bankruptcy laws and some current
retail customers of Pillowtex and Fieldcrest may seek protection under the
federal bankruptcy laws or state insolvency laws in the future. As a result of
these financial difficulties and bankruptcy and insolvency proceedings,
Pillowtex and Fieldcrest may be unable to collect some or all amounts owed by
these retail customers. Additionally, all or part of the operations of a retail
customer that seeks bankruptcy or other debtor protection may be discontinued or
sales of Pillowtex's or Fieldcrest's products to such a customer may be
curtailed or terminated as a result of bankruptcy or insolvency proceedings.
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DEPENDENCE ON KEY LICENSES
Pillowtex holds licenses with organizations such as Polo/Ralph Lauren
Corporation, The Walt Disney Company ("Disney"), and others, using such
well-known trademarks and trade names as the Ralph Lauren and Disney's Mickey
UNLIMITED(R), Mickey's Stuff for Kids(R), and Mickey & Co.(R). Although the
significance of specific licenses varies from year to year, a substantial
portion of Pillowtex's net sales for fiscal year 1996 and the nine month period
ended September 27, 1997 were attributable to products sold under licensed
trademarks and trade names. These licenses generally require the payment of
royalties based on net sales, including the payment of minimum annual royalties,
and expire at various dates through 1999. No assurance can be given that
Pillowtex will be able to renew these licenses on acceptable terms upon their
expiration or will be able to acquire new licenses to use other popular
trademarks. Pillowtex's license with Polo/Ralph Lauren Corporation provides that
if Charles M. Hansen, Jr., Pillowtex's Chairman of the Board and Chief Executive
Officer, and Mary R. Silverthorne, a director of Pillowtex, or their immediate
families, in the aggregate, cease to beneficially own at least 25% of the
outstanding Pillowtex Common Stock, such license will become subject to
termination at the option of the licensor.
Fieldcrest also holds licenses with third parties, including Waverly(R),
Adrienne Vittadini(R), and Ellen Tracy(R). Fieldcrest, however, primarily
manufactures and markets products bearing its own proprietary brand names. See
"--Dependence on Brand Names."
DEPENDENCE ON BRAND NAMES
In fiscal year 1996, approximately 93% of Fieldcrest's net sales were from
sales of products bearing Fieldcrest's principal proprietary brand names of
Royal Velvet(R), Cannon(R), Charisma(R), Fieldcrest(R), Royal Family(R),
Caldwell(R), Monticello(R), SureFit(R), and St. Mary's(R). The remaining 7% of
Fieldcrest's 1996 net sales were from sales of private label products.
Accordingly, Pillowtex's future success may depend in part upon the goodwill
associated with Fieldcrest's brand names.
Fieldcrest's principal brand names are registered in the United States and
certain foreign countries. However, there can be no assurance that the steps
taken by Fieldcrest to protect its proprietary rights in such brand names will
be adequate to prevent the misappropriation thereof in the United States or
abroad. In addition, the laws of some foreign countries do not protect
proprietary rights in brand names to the same extent as do the laws of the
United States.
RISK OF LOSS OF MATERIAL CUSTOMERS
In fiscal year 1996, sales to Wal-Mart Stores, Inc. ("Wal-Mart") and Dayton
Hudson Corporation ("Dayton Hudson") accounted for 14% and 13% of Pillowtex's
total sales, respectively. For the nine months ended September 27, 1997, sales
to Wal-Mart and Dayton Hudson accounted for 12% and 13%, respectively, of
Pillowtex's total sales. No other single customer accounted for more than 10% of
Pillowtex's total sales during such periods.
In fiscal year 1996, sales to Wal-Mart and its affiliates accounted for 21%
of Fieldcrest's total sales. For the nine months ended September 30, 1997, sales
to Wal-Mart and its affiliates accounted for 25% of Fieldcrest's total sales. No
other single customer accounted for more than 10% of Fieldcrest's net sales
during such periods.
On a pro forma basis, after giving effect to the consummation of the Merger
as if it had been consummated December 31, 1995, sales to Wal-Mart would have
accounted for 19% of Pillowtex's total sales for fiscal 1996 and sales to the
top ten customers would have accounted for 57% of total sales for such period.
Consistent with industry practice, neither Pillowtex nor Fieldcrest
operates under a long-term written supply contract with any of its customers.
From and after the Effective Time, the business, financial condition, and
results of operations of Pillowtex could be materially adversely affected by the
loss of Dayton Hudson or Wal-Mart as a customer. Pillowtex does not anticipate a
reduction in customer orders after the Effective Time solely as a result of the
overlap of customers of both Pillowtex and Fieldcrest, though there can be no
assurance in this regard.
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LABOR RELATIONS
Pillowtex has approximately 4,000 employees, approximately 16% of which are
subject to collective bargaining agreements. Fieldcrest has approximately 11,000
employees, approximately 28% of which are subject to collective bargaining
agreements.
Since 1991, the Union of Needletrades, Industrial, and Textile Workers
("UNITE") has campaigned to organize approximately 5,500 additional hourly
workers at five Fieldcrest plants, including Fieldcrest's main manufacturing
facility in Kannapolis, North Carolina. Fieldcrest has opposed UNITE's
organizing efforts. Although a majority of employees at these plants recently
voted not to select UNITE as a bargaining representative, the results of such
election are subject to legal challenge. There can be no assurance as to whether
or when, the results of such election will be certified or a new election will
be scheduled. It is impossible to predict what effect, if any, a lengthy
continuation of another organizing campaign will have on the productivity of the
Fieldcrest workforce.
INFLUENCE BY SIGNIFICANT SHAREHOLDERS
As of November 5, 1997, the Pillowtex Record Date, Charles M. Hansen, Jr.,
Mary R. Silverthorne, and certain trusts for which Ms. Silverthorne acts as
trustee (i.e., the John H. Silverthorne Marital Trust B, the John H.
Silverthorne Family Trust A, the Bridget Russell Silverthorne Trust A, and the
John H. Silverthorne, Jr. Trust A) owned, in the aggregate, approximately 52.7%
of the outstanding shares of the Pillowtex Common Stock. Assuming 3,447,632
shares of Pillowtex Common Stock are issued in connection with the Merger, Mr.
Hansen, Ms. Silverthorne, and such trusts would own, in the aggregate,
approximately 39.9% of the then-outstanding shares of Pillowtex Common Stock
after giving effect to the Merger and related financing transactions. It is
anticipated, however, that such shareholders will continue to exert significant
influence over the management and direction of Pillowtex.
DEPENDENCE ON KEY PERSONNEL
Pillowtex's business is managed by or under the direction of Charles M.
Hansen, Jr., who serves as Chairman of the Board and Chief Executive Officer.
Pillowtex believes that its future success will be highly dependent upon its
ability to attract and retain skilled managers and other personnel, including
Mr. Hansen. The loss of Mr. Hansen's services could have a material adverse
effect on Pillowtex.
SEASONALITY OF BUSINESS
Pillowtex's business is subject to a pattern of seasonal fluctuation.
During the past three years, sales and earnings from operations generated during
the second half of the year averaged approximately 61% and 66%, respectively, of
Pillowtex's total sales and earnings from operations. Pillowtex's needs for
working capital increase in the second half of the year and, accordingly, total
debt levels tend to peak in the third and fourth quarters, falling off again in
the first quarter of the following year. The amount of Pillowtex's sales
generated during the second half of the year generally depends upon a number of
factors, including the level of retail sales for home textile furnishings during
the fall and winter, weather conditions affecting the level of sales of down
comforters and blankets (which are sold in greater quantities in cold weather),
general economic conditions, and other factors beyond Pillowtex's control.
Fieldcrest's business is subject to a similar pattern of seasonal
fluctuation, having greater sales volume in the last three quarters of the
calendar year than in the first calendar quarter. Accordingly, it is likely that
Fieldcrest's operating performance in the first quarter of a given calendar year
will be less favorable than operating performance in the last three quarters.
INDUSTRY COMPETITION AND COMPETITIVE FACTORS
Each of Pillowtex and Fieldcrest participates in a highly competitive
industry. Each of Pillowtex and Fieldcrest competes with a number of established
manufacturers, importers, and distributors of home textile furnishings, some of
which have greater financial, distribution, manufacturing, and marketing
resources.
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MARKET RISK
Pillowtex Common Stock is listed for trading on the NYSE. The prices at
which shares of Pillowtex Common Stock trade are subject to fluctuation based on
many factors, including general economic and industry conditions and the
performance of, and investor expectations for, Pillowtex. No assurance can be
given that a holder of Pillowtex Common Stock will be able to sell such
securities at any particular price.
CERTAIN PROVISIONS OF PILLOWTEX'S ARTICLES OF INCORPORATION, BYLAWS, AND OTHER
AGREEMENTS
Pillowtex's Restated Articles of Incorporation (the "Pillowtex Articles"),
Pillowtex's Amended and Restated Bylaws (the "Pillowtex Bylaws"), and certain
agreements to which Pillowtex is a party contain provisions that may have the
effect of delaying, deferring, or preventing a change in control of Pillowtex.
In addition, the Pillowtex Articles authorize the issuance of up to 30,000,000
shares of Pillowtex Common Stock and 20,000,000 shares of preferred stock of
Pillowtex. The Pillowtex Board will have the power to determine the price and
terms under which any additional capital stock may be issued and, subject to the
terms of any issued and outstanding preferred stock (including without
limitation the Pillowtex Preferred Stock), to fix the terms of such preferred
stock, and existing Pillowtex shareholders will not have preemptive rights with
respect thereto. See "Description of Pillowtex Capital Stock--Future Stock
Issuances."
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THE PILLOWTEX SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by Pillowtex to
its shareholders in connection with the solicitation of proxies, by and on
behalf of the Pillowtex Board, for use at the Pillowtex Special Meeting. The
Pillowtex Special Meeting will be held on __________, December __, 1997 at 9:00
a.m., Central Time, at Pillowtex's corporate headquarters, 4111 Mint Way,
Dallas, Texas. The purpose of the Pillowtex Special Meeting is for Pillowtex
shareholders to consider and vote upon a proposal to approve the issuance of up
to 5,600,000 shares of Pillowtex Common Stock and of 65,000 shares of Pillowtex
Preferred Stock in connection with the Merger and related financing transactions
(i.e., the Share Issuance).
THE PILLOWTEX BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
PILLOWTEX AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT PILLOWTEX
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
VOTING AT THE PILLOWTEX SPECIAL MEETING
The holders of record of shares of Pillowtex Common Stock as of the close
of business on November 5, 1997, the Pillowtex Record Date, are entitled to
notice of and to vote at the Pillowtex Special Meeting. As of the Pillowtex
Record Date, there were 10,786,819 shares of Pillowtex Common Stock outstanding,
and there were 317 holders of record of Pillowtex Common Stock. Each outstanding
share of Pillowtex Common Stock is entitled to one vote at the Pillowtex Special
Meeting. Shares of Pillowtex Common Stock held in the treasury of Pillowtex or
by any of its subsidiaries are not considered to be outstanding.
The holders of shares representing a majority of the shares of Pillowtex
Common Stock outstanding as of the Pillowtex Record Date will constitute a
quorum for the transaction of business at the Pillowtex Special Meeting. If the
persons present or represented by proxy at the Pillowtex Special Meeting
constitute holders of shares representing less than a majority of the shares of
Pillowtex Common Stock outstanding as of the Pillowtex Record Date, the
Pillowtex Special Meeting may be adjourned to a subsequent date for the purpose
of obtaining a quorum.
Pursuant to the Merger Agreement, the consummation of the Merger is
conditioned upon, among other things, the approval of the Share Issuance by the
affirmative vote of the holders of a majority of shares of Pillowtex Common
Stock present at the Pillowtex Special Meeting and entitled to vote thereon.
Abstentions (i.e., properly executed proxies marked "ABSTAIN") will be, but
shares represented by broker non-votes (i.e., shares held by brokers or nominees
which are represented at a meeting but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) will not be, included
in determining the number of shares held by persons present or represented by
proxy at the Pillowtex Special Meeting for purposes of determining whether a
quorum exists. With respect to the vote on the proposal described herein,
abstentions will be included in vote totals and will have the effect of negative
votes, but shares represented by broker non-votes will not be included in vote
totals and will therefore have no impact on the outcome of the vote.
As of the Pillowtex Record Date, directors and executive officers of
Pillowtex and their affiliates owned beneficially, in the aggregate,
approximately 52.9% of the outstanding shares of Pillowtex Common Stock. As of
the Pillowtex Record Date, Charles M. Hansen, Jr., Chairman of the Board and
Chief Executive Officer of Pillowtex, Mary R. Silverthorne, a director of
Pillowtex, the John H. Silverthorne Marital Trust B, and the John H.
Silverthorne Family Trust A owned, in the aggregate, approximately 52.4% of the
currently outstanding shares of Pillowtex Common Stock. Each of Mr. Hansen, Ms.
Silverthorne, and such trusts has agreed to vote the shares of Pillowtex Common
Stock held by such shareholder for the approval of the Share Issuance.
Accordingly, the approval of the Share Issuance is expected to occur
irrespective of whether or the manner in which other holders of Pillowtex Common
Stock vote their shares.
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PROXIES; REVOCATION
All shares of Pillowtex Common Stock represented at the Pillowtex Special
Meeting by properly executed proxies received prior to or at the Pillowtex
Special Meeting, unless such proxies shall have been revoked, will be voted at
the Pillowtex Special Meeting in accordance with the instructions on the
proxies. If no instructions are indicated, such proxies will be voted for the
approval of the Share Issuance.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Pillowtex Special
Meeting. A proxy may be revoked by filing with the Secretary of Pillowtex prior
to the voting of the proxy either a written instrument revoking the proxy or an
executed proxy bearing a later date, or by voting in person at the Pillowtex
Special Meeting. Attendance at the Pillowtex Special Meeting will not, in
itself, constitute the revocation of a proxy.
Pillowtex and Fieldcrest will share the cost of the preparation of this
Joint Proxy Statement/Prospectus and the solicitation of proxies for voting at
the Pillowtex Special Meeting and the Fieldcrest Special Meeting. Pillowtex may
solicit proxies otherwise than by the use of the mails, in that certain officers
and regular employees of Pillowtex, without additional compensation, may use
their personal efforts, by telephone or otherwise, to obtain proxies. Pillowtex
will also request persons and entities holding shares in their names, or in the
name of their nominees, that are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners and will reimburse
such holders for their reasonable expenses in so doing. Pillowtex has retained
Innisfree M&A Incorporated to assist it in the solicitation of proxies using the
means referred to above, at an anticipated cost of $5,000, plus reasonable
expenses.
THE FIELDCREST SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by Fieldcrest to
its stockholders in connection with the solicitation of proxies, by and on
behalf of the Fieldcrest Board, for use at the Fieldcrest Special Meeting. The
Fieldcrest Special Meeting will be held on __________, December __, 1997 at
10:00 a.m., Eastern Time, at 1275 Avenue of the Americas, New York, New York.
The purpose of the Fieldcrest Special Meeting is for Fieldcrest stockholders to
consider and vote upon the approval and adoption of the Merger Agreement.
THE FIELDCREST BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
FIELDCREST AND ITS STOCKHOLDERS AND RECOMMENDS THAT FIELDCREST STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
VOTING AT THE FIELDCREST SPECIAL MEETING
The holders of record of shares of Fieldcrest Common Stock as of the close
of business on November 5, 1997, the Fieldcrest Record Date, are entitled to
vote such shares at the Fieldcrest Special Meeting. Holders of Fieldcrest
Preferred Stock will not be entitled to vote at the Fieldcrest Special Meeting.
As of the Fieldcrest Record Date, there were outstanding 9,243,602 shares of
Fieldcrest Common Stock and there were 1,798 holders of record of Fieldcrest
Common Stock. Each outstanding share of Fieldcrest Common Stock is entitled to
one vote at the Fieldcrest Special Meeting. Shares of Fieldcrest Common Stock
held in the treasury of Fieldcrest or by any of its subsidiaries are not
considered to be outstanding.
The holders of shares representing a majority of the shares of Fieldcrest
Common Stock outstanding as of the Fieldcrest Record Date will constitute a
quorum for the transaction of business at the Fieldcrest Special Meeting. If the
persons present or represented by proxy at the Fieldcrest Special Meeting
constitute the holders of shares representing less than a majority of shares of
Fieldcrest Common Stock outstanding as of the Fieldcrest Record Date, the
Fieldcrest Special Meeting may be adjourned to a subsequent date for the purpose
of obtaining a quorum.
Pursuant to the Merger Agreement, the consummation of the Merger is
conditioned upon, among other things, the approval and adoption of the Merger
Agreement by the affirmative vote of the holders of two-thirds of shares of
Fieldcrest Common Stock entitled to vote thereon. Abstentions will be, but
broker non-votes will not be, included in
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determining the number of shares held by persons present or represented by proxy
at the Fieldcrest Special Meeting for purposes of determining whether a quorum
exists. Because approval of the proposal to adopt the Merger Agreement will
require the affirmative vote of shares representing two-thirds of the
outstanding shares of Fieldcrest Common Stock and entitled to vote thereon,
abstentions and broker non-votes will have the effect of negative votes thereon.
As of the Fieldcrest Record Date, directors and executive officers of
Fieldcrest and their affiliates owned beneficially, in the aggregate,
approximately 4.6% of the voting power of the outstanding shares of Fieldcrest
Common Stock.
PROXIES; REVOCATION
All shares of Fieldcrest Common Stock represented at the Fieldcrest Special
Meeting by properly executed proxies received prior to or at the Fieldcrest
Special Meeting, unless such proxies shall have been revoked, will be voted at
the Fieldcrest Special Meeting in accordance with the instructions on the
proxies. If no instructions are indicated, such proxies will be voted for the
approval and adoption of the Merger Agreement and otherwise in the discretion of
the proxy holders as to any other matter which may properly come before the
Fieldcrest Special Meeting, including a motion to adjourn or postpone the
Fieldcrest Special Meeting for the purpose of soliciting additional proxies or
otherwise; except that no proxy which is voted against the proposal to approve
and adopt the Merger Agreement will be voted in favor of any such adjournment or
postponement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Fieldcrest Special
Meeting. A proxy may be revoked by filing with the Secretary of Fieldcrest prior
to the voting of the proxy either a written instrument revoking the proxy or an
executed proxy bearing a later date, or by voting in person at the Fieldcrest
Special Meeting. Attendance at the Fieldcrest Special Meeting will not, in
itself, constitute the revocation of a proxy.
Pillowtex and Fieldcrest will share the cost of the preparation of this
Joint Proxy Statement/Prospectus and the solicitation of proxies for voting at
the Fieldcrest Special Meeting. Fieldcrest may solicit proxies otherwise than by
the use of the mails, in that certain officers and regular employees of
Fieldcrest, without additional compensation, may use their personal efforts, by
telephone or otherwise, to obtain proxies. Fieldcrest will also request persons
and entities holding shares in their names, or in the name of their nominees,
that are beneficially owned by others, to send proxy materials to and obtain
proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses in so doing. Fieldcrest has retained Morrow & Company, Inc.
to assist it in the solicitation of proxies using the means referred to above,
at an anticipated cost of $7,500, plus a fee of $3.50 per telephone call and
reasonable expenses.
THE PARTIES
PILLOWTEX
Pillowtex, founded in 1954, is a leading North American designer,
manufacturer, and marketer of bed pillows, blankets, mattress pads, and down
comforters. Other complementary bedroom textile furnishings offered by Pillowtex
include comforter covers, featherbeds, pillow protectors, decorative pillows,
bedspreads, synthetic comforters, pillow shams, dust ruffles, and window
treatments. Pillowtex has positioned itself as a single-source supplier to
retailers for top-of-the-bed home textile furnishings (other than sheets),
offering a broad assortment of products across multiple price points. Pillowtex
markets its products primarily to department stores, mass merchants, wholesale
clubs, specialty retail stores, catalogs, and institutional distributors.
Additional information concerning Pillowtex is included in the Pillowtex
Reports incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents By Reference."
FIELDCREST
Fieldcrest was incorporated under the laws of Delaware in 1953 and is
principally involved in the manufacture and sale of home furnishing products.
Fieldcrest designs, manufactures, and markets a broad range of household textile
products consisting of towels, sheets, comforters, bath rugs, and furniture
coverings. Fieldcrest's customers consist
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principally of department stores, chain stores, mass merchants, specialty home
furnishing stores, catalog warehouse clubs, and other retail outlets and
institutional, government, and contract accounts.
Additional information concerning Fieldcrest is included in the Fieldcrest
Reports incorporated by reference in the Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents By Reference."
CERTAIN PRIOR TRANSACTIONS BETWEEN PILLOWTEX AND FIELDCREST
In November 1996, Pillowtex acquired from Fieldcrest certain assets
comprising Fieldcrest's blanket operations for a purchase price of approximately
$28.3 million. In connection with such transaction, Pillowtex and Fieldcrest
entered into an exclusive 25-year license agreement (the "Pillowtex/Fieldcrest
License Agreement") pursuant to which Pillowtex is permitted to manufacture and
sell various goods, including bed pillows, mattress pads, down comforters, and
blankets, bearing Fieldcrest's principal brand names. The Pillowtex/Fieldcrest
License Agreement provides for annual royalties ranging from 1% to 3% of net
sales of licensed products over the term of the agreement. The
Pillowtex/Fieldcrest License Agreement replaced certain other licensing
agreements originally entered into between Pillowtex and Fieldcrest in 1990 and
1991, pursuant to which Fieldcrest had granted Pillowtex the right to
manufacture and sell bed pillows, mattress pads, down comforters, and certain
other products (not including blankets) bearing certain of the Fieldcrest brand
names. Such licensing agreements also provided for annual royalties computed as
a percentage of the net sales of all licensed products.
As a result of the Merger, Pillowtex, on a consolidated basis, will cease
to incur royalty expenses in connection with the use of the Fieldcrest brands on
the goods contemplated by the Pillowtex/Fieldcrest License Agreement.
THE MERGER
BACKGROUND OF THE MERGER
In late November 1996, as a result of Fieldcrest's recent disappointing
financial results, the outside directors of Fieldcrest met to review and discuss
the condition of Fieldcrest and the alternatives available to the Fieldcrest
directors to increase and maximize the value of the Fieldcrest Common Stock. The
directors determined that at the next regularly scheduled meeting of directors
the Fieldcrest Board would formally designate a Special Committee comprised of
all of Fieldcrest's independent directors to review strategic options. The
independent directors also determined to name S. Roger Horchow as the Chairman
of the Special Committee, to retain Weil, Gotshal & Manges LLP as the Special
Committee's legal counsel, and to interview a number of nationally recognized
investment banking firms that had not previously performed services for
Fieldcrest. The Special Committee subsequently retained one of the firms
interviewed to act as its financial advisor on an interim basis. Following a
number of meetings in early 1997, the Special Committee determined that it would
not be in the best interests of Fieldcrest or its stockholders to attempt any
extraordinary transaction in early 1997 and to continue their consideration of a
number of alternatives, including a sale of Fieldcrest, a major acquisition to
strengthen Fieldcrest's bedding operations, or continuing as an independent
company and executing the current business plan, with a view towards a decision
later in 1997.
In March 1997, the Special Committee requested CSFB to assist the Special
Committee with its evaluation of strategic alternatives, including a possible
business combination with an industry participant identified by the Special
Committee for the primary purpose of strengthening Fieldcrest's bedding
operations (the "Potential Business Combination") or a sale of Fieldcrest.
Pursuant to an engagement letter signed in May 1996 by Fieldcrest, as
supplemented and amended by a letter signed in March 1997, CSFB had been
retained as Fieldcrest's exclusive financial advisor in connection with the
types of extraordinary transactions under consideration by the Special
Committee.
On March 17, 1997, Fieldcrest received a confidential letter from an
industry participant (the "Potential Acquiror") expressing its interest in
acquiring Fieldcrest for $21.00 per share of Fieldcrest Common Stock in cash,
subject to a normal due diligence review, execution of a definitive agreement,
and the receipt of necessary approvals from governmental agencies. The Potential
Acquiror also said in its letter that, following the execution of a definitive
agreement, it would be willing to allow Fieldcrest to "shop" for a limited time
the terms of the definitive agreement and would ask if Fieldcrest were able to
obtain terms more favorable, that it be allowed to meet the more favorable
prices and terms.
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On March 19, 1997, the Special Committee met with its advisors to review
the Potential Acquiror's letter. The Special Committee unanimously determined
that the Potential Acquiror's expression of interest was financially inadequate
and reaffirmed the Special Committee's belief that early 1997 was not a
propitious time to attempt to sell the entire company. The Special Committee
instructed its advisors to commence discussions with the industry participant
identified by the Special Committee as a potential acquisition candidate (the
"Potential Acquisition Candidate") while at the same time remaining prepared to
discuss any reasonable proposal that the Potential Acquiror or any other third
party might be willing to make to acquire Fieldcrest.
On March 24, 1997, Fieldcrest responded to the Potential Acquiror's March
17 letter and indicated that it was not interested in proceeding with such a
transaction at that time. On March 26, 1997, the Potential Acquiror wrote to
Fieldcrest and reiterated its belief that Fieldcrest should pursue a sale to the
Potential Acquiror. The Potential Acquiror also stated that if its due diligence
review of Fieldcrest suggested greater value than $21.00 per share, the
Potential Acquiror "will consider it." On April 1, 1997, Fieldcrest wrote to the
Potential Acquiror and reiterated its lack of interest in pursuing such a
transaction at that time. On April 9, 1997, the Potential Acquiror once again
wrote to Fieldcrest and reiterated its interest in commencing discussions with
Fieldcrest.
As part of its business strategy, Pillowtex from time to time pursues
acquisitions of companies that offer products it believes will complement its
existing lines and will provide product, marketing, channel of distribution, or
operational synergies. On May 8, 1997, the Pillowtex Board authorized
Pillowtex's management to explore the merits of a possible transaction involving
Fieldcrest and to negotiate with Fieldcrest regarding the possible terms and
conditions of such a transaction.
On March 30, 1997, Fieldcrest and the Potential Acquisition Candidate
signed a confidentiality agreement for the purpose of exchanging non-public
information and commencing discussions regarding a possible transaction.
On May 19, 1997, Fieldcrest received a letter from Pillowtex in which
Pillowtex expressed an interest in a possible acquisition of Fieldcrest.
Pillowtex stated that its preliminary indication of value was in the range of
$24.00 to 28.00 per share of Fieldcrest Common Stock and that value and terms
were subject to a satisfactory due diligence review and dependent upon the final
structure and form of consideration. Pillowtex proposed that the parties enter
into a confidentiality agreement for the purpose of exchanging non-public
information and commencing discussions.
On May 23, 1997, the Special Committee had a meeting to receive an update
on the status of discussions with the Potential Acquisition Candidate and to
review the May 19 Pillowtex letter. The Special Committee authorized its legal
counsel to prepare and negotiate a confidentiality agreement for execution by
Fieldcrest and Pillowtex. On June 13, 1997, Fieldcrest and Pillowtex executed a
confidentiality agreement and began exchanging non-public information.
In late June 1997, the Potential Acquisition Candidate made a proposal
regarding the material terms of a business combination transaction. Pursuant to
the proposal, Fieldcrest would issue 7,000,000 shares of Fieldcrest Common Stock
to acquire the Potential Acquisition Candidate, which would result in the
stockholders of the Potential Acquisition Candidate owning approximately 43% of
Fieldcrest following the transaction. The stockholders of the Potential
Acquisition Candidate also would receive warrants for 600,000 shares of
Fieldcrest Common Stock exercisable at $20.00 per share and warrants for an
additional 600,000 shares of Fieldcrest Common Stock exercisable at $25.00 per
share. The proposal also provided that the current Fieldcrest directors would
constitute a majority of the directors following the transaction. The senior
management of the Potential Acquisition Candidate would be elected as the senior
managers of Fieldcrest following the transaction and management would receive
options to purchase 750,000 shares of Fieldcrest Common Stock at $20.00 per
share and an additional 750,000 shares of Fieldcrest Common Stock at $25.00 per
share, which options would immediately vest at closing.
In July 1997, the Special Committee had a meeting with its advisors to
discuss developments. Following a review of the proposal of the Potential
Acquisition Candidate, the directors directed CSFB to advise the Potential
Acquisition Candidate that its proposal provided for too many shares of
Fieldcrest Common Stock to be issued to the stockholders of the Potential
Acquisition Candidate. The directors also directed CSFB to inform the Potential
Acquisition Candidate that the numbers of shares of Fieldcrest Common Stock
proposed to be covered by warrants and options were excessive and that the
exercise prices were too low.
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In June 1997, the Potential Acquiror expressed an interest in discussing a
possible transaction involving Fieldcrest and conducting a due diligence review.
At a July 1997 meeting, the Special Committee's legal counsel reported on his
discussions concerning a confidentiality agreement with the legal counsel for
the Potential Acquiror. During these discussions, the Special Committee's legal
advisor was apprised that the Potential Acquiror's primary interest was in the
towel portion of Fieldcrest's business, that any proposal that the Potential
Acquiror might make would contemplate a divestiture of some or all of the
bedding business to a third party, and that a group including certain members of
Fieldcrest management might be involved in such a transaction. During the
remainder of July 1997, CSFB continued its preliminary analysis of the Potential
Business Combination and its discussions with representatives of the Potential
Acquisition Candidate and Pillowtex. The Special Committee's legal counsel
continued its discussions with the legal counsel for the Potential Acquiror
regarding the terms of the confidentiality agreement and the procedures for
delivering information.
On August 7, 1997, the Special Committee met with its advisors to review
developments and to receive separate presentations from representatives of the
Potential Acquisition Candidate and Pillowtex. The Special Committee first heard
a presentation from members of the senior management of the Potential
Acquisition Candidate regarding their history of operating the Potential
Acquisition Candidate and their views on the benefits of the Potential Business
Combination.
Following the presentation, the Special Committee then met with the Chief
Executive Officer of Pillowtex and members of his senior management team, as
well as representatives of Bear Stearns, Pillowtex's financial advisor. During
this meeting, Pillowtex proposed for the Special Committee's consideration an
acquisition by Pillowtex of Fieldcrest for $30.00 per share of Fieldcrest Common
Stock in cash. Pursuant to the proposal, Pillowtex would acquire Fieldcrest in a
two-step process, with a tender offer for all of the outstanding shares of
Fieldcrest Common Stock followed by a second-step merger. Pillowtex's proposal
was subject to the completion of its due diligence review of Fieldcrest and
provided for a 90-day exclusivity period during which Fieldcrest would discuss
only with Pillowtex the terms of a sale of or other extraordinary transaction
involving Fieldcrest. After considering the Pillowtex presentation, the Special
Committee discussed the Pillowtex presentation and advised Pillowtex that its
$30.00 per share proposal was insufficient and that Fieldcrest could not agree
to any exclusivity period. The Special Committee urged the Pillowtex
representatives to complete their due diligence review and to make an improved
proposal. Certain of the Special Committee members also expressed the view at
the August 7 meeting that they would not support a transaction that had a value
to the Fieldcrest stockholders of less than $34.00 per share of Fieldcrest
Common Stock.
On August 7, 1997, the Chairman of the Special Committee also received a
letter from the Potential Acquiror enclosing a signed copy of the
confidentiality agreement that had been negotiated by the parties' respective
legal counsel. In the letter, the Potential Acquiror reiterated its interest in
acquiring Fieldcrest and stated that its range of value was $26.00 to $29.00 per
share of Fieldcrest Common Stock in cash, subject to a normal due diligence
review, execution of a definitive agreement, and the receipt of necessary
approvals from governmental agencies.
At a meeting of the Pillowtex Board held on August 11, 1997, Pillowtex's
management reported to the Pillowtex Board on the August 7 meeting with the
Special Committee and the status of its due diligence review of Fieldcrest.
Following such report, the Pillowtex Board authorized Pillowtex's management to
continue to explore the merits of a possible transaction involving Fieldcrest
and to continue to negotiate with Fieldcrest regarding the possible terms and
conditions of such a transaction.
On August 13, 1997, the Special Committee held a meeting with its advisors
to receive an update regarding developments. CSFB noted that the Potential
Acquisition Candidate had modified its proposal to provide for the issuance of
4,500,000 shares of Fieldcrest Common Stock at the closing of the transaction,
the possibility for the issuance of an additional 3,000,000 shares dependent on
Fieldcrest's future share price performance and financial results, and no
warrants to purchase additional shares of Fieldcrest Common Stock. CSFB and the
Special Committee's legal counsel also reviewed their discussions with
Pillowtex's financial advisor, which indicated that subject to the satisfactory
resolution of all issues and the execution of a definitive merger agreement,
Pillowtex might be willing to pay cash and Pillowtex Common Stock with a
combined value of $34.00 per share of Fieldcrest Common Stock. Pillowtex's
preliminary indication was that $26.00 would be paid in cash and $8.00 in
Pillowtex Common Stock.
Following the presentation, the Special Committee directed CSFB to advise
the Potential Acquisition Candidate that its revised proposal still provided for
the issuance of too many shares of Fieldcrest Common Stock in the transaction.
The Special Committee also directed CSFB to urge Pillowtex to increase the value
of its proposal and the cash portion
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of the proposed merger consideration. TheSpecial Committee also directed its
legal counsel to prepare a draft merger agreement for submission to Pillowtex.
On September 2, 1997, the respective legal and financial advisors of
Fieldcrest and Pillowtex met to discuss the Pillowtex proposal, Pillowtex's
proposed financing for the transaction, and the draft merger agreement that had
been previously furnished to Pillowtex by Fieldcrest's legal counsel. During the
meeting, Pillowtex informed the Special Committee's advisors that $34.00 per
share of Fieldcrest Common Stock was its best price and that the proposed
financing necessitated effecting the transaction in a one-step merger as opposed
to the previously contemplated tender offer and second-step merger. The advisors
also discussed a number of issues, including the cash and stock composition of
the proposed merger consideration, the "collar" provisions for the stock portion
of the merger consideration, the parties' respective termination rights, the
amount of the termination fee to be payable to Pillowtex in certain
circumstances, and the conditions to the transaction.
On September 3, 1997, the Special Committee's advisors reported to the
Special Committee on their meeting with Pillowtex and other developments. CSFB
also reported on its discussions with the Potential Acquisition Candidate and
the Potential Acquiror, who had been provided with all of the due diligence
information it had requested from Fieldcrest. CSFB also advised the Special
Committee that it had been informed that the acquisition group to whom the
Potential Acquiror had contemplated selling Fieldcrest's bedding business had
been unable to formulate a proposal for the Potential Acquiror's review and
consideration.
The Special Committee instructed its advisors to continue the discussions
with Pillowtex, as well as the Potential Acquisition Candidate and the Potential
Acquiror.
On September 4, 1997, the Special Committee met with its legal and
financial advisors to review a revised proposal that CSFB had received from the
Potential Acquisition Candidate following the Special Committee's meeting of
September 3. Following a full discussion, the Special Committee determined that
the revised proposal was not substantially different from the previous proposal
that had been rejected by the Special Committee.
At a meeting held on September 5, 1997, the Pillowtex Board met with its
legal and financial advisors and reviewed in detail the terms of the proposed
acquisition of Fieldcrest by Pillowtex and the related financing transactions.
Following such review, the Pillowtex Board unanimously approved the Merger and
the related financing transactions and authorized the execution and delivery of
the Merger Agreement and the Financing Commitments.
On September 8, 1997, the Special Committee met again with its advisors to
review the Pillowtex proposal and the status of negotiations. CSFB and the
Special Committee's legal counsel reviewed the material terms of the proposed
transaction, including Pillowtex's proposal to provide consideration consisting
of $27.00 in cash and $7.00 of Pillowtex Common Stock for each share of
Fieldcrest Common Stock, the treatment of the Pillowtex Preferred Stock on an
"as converted" basis, the "collar" provisions, and Fieldcrest's right to
terminate the Merger Agreement under certain circumstances if the average per
share closing price of the Pillowtex Common Stock in the measurement period was
below $21.00. The advisors also discussed the limited conditions to closing,
Fieldcrest's right to terminate the merger agreement if it received a superior
proposal, and the $15.0 million termination fee that had resulted from the
negotiations. CSFB also reviewed the financing for the proposed transaction as
well as its valuation analyses of Fieldcrest based upon various methodologies.
CSFB also discussed its valuation of the Pillowtex Common Stock. The Special
Committee then reviewed with its legal counsel the limited number of open issues
remaining on the draft Merger Agreement.
The Special Committee's advisors also discussed the status of discussions
with the Potential Acquisition Candidate and Potential Acquiror. It was reported
that the Potential Acquiror had over the prior weekend requested permission to
discuss a transaction involving Fieldcrest with the Potential Acquisition
Candidate, which had been granted. Following the grant of permission, no further
revised proposal was received from the Potential Acquisition Candidate or the
Potential Acquiror.
After a thorough review of all factors that it deemed relevant to its
decision, including those noted below under "--Fieldcrest's Reasons for the
Merger," the Special Committee unanimously agreed that the Merger Agreement
should be approved at a meeting of the full Board of Directors following the
resolution of all outstanding issues.
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On the evening of September 10, 1997, the Fieldcrest Board met to approve
the terms of the Merger Agreement that had resulted from negotiations between
the parties. The Special Committee's legal counsel reported on the satisfactory
resolution of the issues that had been open as of the time of the Special
Committee's prior meeting. A representative of CSFB then delivered CSFB's
written opinion to the effect that, as of such date and based upon and subject
to the matters set forth therein, the consideration (which term, for purposes of
such opinion, means, for each outstanding share of Fieldcrest Common Stock, (i)
$27.00 in cash and (ii) the number of shares of Pillowtex Common Stock equal to
the Conversion Number) to be received by the holders of the Fieldcrest Common
Stock in the Merger was fair to such stockholders from a financial point of
view. All directors present at the meeting voted in favor of the approval of the
Merger Agreement, except for Mr. Fitzgibbons, who abstained for the stated
reason that he had not been part of the Special Committee's deliberations over
the past year. One member of the Special Committee who had evidenced his
approval of the transaction at the Special Committee's prior meeting was unable
to participate in the September 10 Board meeting. The Fieldcrest Board
authorized Mr. Fitzgibbons to execute and deliver the Merger Agreement on behalf
of Fieldcrest and resolved to recommend that the stockholders of Fieldcrest
approve the Merger Agreement at a special meeting to be held with respect
thereto. Fieldcrest and Pillowtex then executed and delivered the Merger
Agreement and, the following morning, Pillowtex issued a press release
announcing the Merger.
PILLOWTEX'S REASONS FOR THE MERGER
The Pillowtex Board has determined that the Merger is in the best interests
of Pillowtex and its shareholders. ACCORDINGLY, THE PILLOWTEX BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AND THE RELATED FINANCING TRANSACTIONS AND
RECOMMENDS THAT THE PILLOWTEX SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE SHARE
ISSUANCE.
The Merger is intended to accomplish several marketing and operational
objectives which Pillowtex management believes will enhance Pillowtex's
competitive position and profitability. Pillowtex's principal reasons for the
Merger are as follows:
o From a sales and marketing standpoint, the Merger will expand
Pillowtex's product lines into the bath and fashion bedding segments,
facilitate cross-branding of Pillowtex products using Fieldcrest's
well-known brands, solidify Pillowtex's position as a one-stop source
for home textile products to the retail industry, and diversify
Pillowtex's offerings, thereby decreasing Pillowtex's reliance on any
single product line.
o Operationally, the Merger will provide Pillowtex with state-of-the-art
towel manufacturing operations, an experienced manufacturing management
pool and labor force, and ample factory capacity to accommodate future
expansion in order to maximize economies of scale and operational
efficiencies.
o In addition, the Fieldcrest facilities to be acquired through the
Merger are located predominantly in areas where Pillowtex has existing
operations, allowing effective allocation of the two companies'
combined management resources.
o The Merger is also expected to give Pillowtex the opportunity to obtain
additional benefits through volume purchasing of certain raw materials,
such as polyester and packaging materials.
o Pillowtex's management believes that the Merger will result in a lower
cost structure and allow Pillowtex to compete more effectively over
the long term as the home textile industry continues to consolidate
and retailers increasingly differentiate suppliers based on price,
size, and stability. In this regard, Pillowtex has identified
approximately $21.6 million of annual cost savings that it expects to
realize as a result of the Merger. These cost savings are expected to
be achieved through the elimination of certain duplicative corporate
and administrative expenses. Pillowtex additionally expects to realize
significant ongoing cost savings, including at least $8.4 million
within the first twelve months after consummation of the Merger, by:
(i) eliminating other redundant cost functions; (ii) improving
procurement efficiencies by exploiting the combined company's
purchasing power (iii) reducing trade advertising; (iv) rationalizing
and streamlining operations; and (v) reducing the use of outside
consultants. See "Risk Factors--Ability to Achieve Cost Savings."
In reaching its determination with respect to the Merger and its
recommendation with respect to the Share Issuance, the Pillowtex Board
considered a number of factors, including without limitation the reasons for the
Merger described
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above. In view of the numerous factors taken into consideration, the Pillowtex
Board did not consider it practical to, and did not attempt to, quantify or
otherwise assign relative weights to the factors considered by it in reaching
its decision.
OPINION OF PILLOWTEX'S FINANCIAL ADVISOR
General. Pillowtex retained Bear Stearns in June 1997 to provide advice to
the Pillowtex Board regarding certain financial aspects of the Merger. Bear
Stearns was engaged to provide advice regarding valuation and transaction
structure, assist Pillowtex in its efforts to obtain financing and in
negotiations with Fieldcrest and its advisors, present to the Pillowtex Board a
valuation analysis and financial review of the Merger, render its opinion to the
Pillowtex Board as to the fairness of the total consideration to be received in
respect of each outstanding share of Fieldcrest Common Stock and each
outstanding share of Fieldcrest Preferred Stock, from a financial point of view,
to the shareholders of Pillowtex, and provide other investment banking and
financial advisory services as requested by Pillowtex.
On September 5, 1997, Bear Stearns delivered to the Pillowtex Board an oral
opinion, which was subsequently confirmed in a written opinion dated as of
September 10, 1997, to the effect that, as of such date and subject to the
assumptions and qualifications set forth in its written opinion, the total
consideration to be received in respect of each outstanding share of Fieldcrest
Common Stock and each outstanding share of Fieldcrest Preferred Stock was fair,
from a financial point of view, to the shareholders of Pillowtex. The full text
of Bear Stearns' written opinion is set forth as Appendix B to this Joint Proxy
Statement/Prospectus and describes the assumptions made, matters considered, and
limits on the review undertaken. Pillowtex shareholders are urged to read this
opinion carefully and in its entirety. The summary of Bear Stearns' opinion set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion. Bear Stearns has consented to the
inclusion of its written opinion as Appendix B to this Joint Proxy
Statement/Prospectus and to the references to such opinion herein.
The opinion of Bear Stearns is intended for the benefit and use of the
Pillowtex Board, and does not constitute a recommendation of the Merger or
related financing transactions or a recommendation to any shareholder of
Pillowtex as to how any such shareholder should vote with respect to the
approval of the Share Issuance. In rendering its opinion, Bear Stearns is not
expressing any opinion as to what the value of Pillowtex Common Stock or
Fieldcrest Common Stock actually will be at the time of the Merger or the prices
at which Pillowtex Common Stock will trade during the period following
announcement of the Merger or subsequent to the consummation of the Merger.
Finally, the Bear Stearns opinion does not address Pillowtex's underlying
business decision to effect the Merger. It should be understood that, although
subsequent developments may affect the conclusions reached in the Bear Stearns
opinion, Bear Stearns does not have any obligation to, and does not intend to,
update, revise, or reaffirm its opinion.
The form and amount of consideration to be paid by Pillowtex pursuant to
the Merger Agreement were determined by arm's-length negotiations between
Pillowtex and Fieldcrest and were not based on any recommendation by Bear
Stearns, although Bear Stearns provided advice to Pillowtex from time to time
with respect thereto. Except as otherwise noted herein, no limitations were
imposed by Pillowtex on Bear Stearns with respect to the investigations made or
the procedures followed by Bear Stearns in rendering its opinion.
In the course of performing its reviews and analyses for rendering its
opinion, Bear Stearns: (i) reviewed the Merger Agreement in substantially final
form; (ii) reviewed Pillowtex's Annual Reports on Form 10-K for the years ended
December 31, 1994 through December 28, 1996, and its Quarterly Reports on Form
10-Q for the quarters ended March 29 and June 28, 1997; (iii) reviewed
Fieldcrest's Annual Reports on Form 10-K for the years ended December 31, 1994
through 1996, and its Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1997; (iv) reviewed certain operating and financial
information of Pillowtex and Fieldcrest, including projections and projected
cost savings and operating synergies, provided to Bear Stearns by Pillowtex's
and Fieldcrest's management relating to their respective businesses and
prospects; (v) met with certain members of Pillowtex's and Fieldcrest's senior
management to discuss their respective operations, historical financial
statements, and future prospects and their views of the business, operational,
and strategic benefits, cost savings, potential synergies, and other
implications of the Merger; (vi) reviewed the historical prices and trading
volumes of the Pillowtex Common Stock and the Fieldcrest Common Stock; (vii)
reviewed publicly available financial data and stock market performance data of
other publicly held companies which Bear Stearns deemed generally comparable to
Pillowtex and Fieldcrest; (viii) reviewed the financial terms of recent
acquisitions of companies that Bear Stearns deemed generally comparable to
Fieldcrest; and (ix) conducted such other studies, analyses, inquiries, and
investigations as Bear Stearns deemed appropriate.
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In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Pillowtex and Fieldcrest. With respect to
Pillowtex's and Fieldcrest's projected financial results (including projected
cost savings and operating synergies resulting from the Merger), Bear Stearns
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Pillowtex and
Fieldcrest as to the expected future performance of Pillowtex and Fieldcrest,
respectively. Bear Stearns also assumed that the Merger and financing thereof
would not violate, result in a default under, or be in contravention of the
terms of, any material agreement, to which any of Pillowtex, Fieldcrest, or
their respective subsidiaries is a party. Bear Stearns did not assume any
responsibility for the independent verification of the information or the
projections (including projected cost savings and operating synergies resulting
from the Merger) provided to it and Bear Stearns further relied upon the
assurances of the managements of Pillowtex and Fieldcrest that they are unaware
of any facts that would make the information or projections (including projected
cost savings and operating synergies resulting from the Merger) provided to Bear
Stearns incomplete or misleading. In arriving at its opinion, Bear Stearns did
not perform or obtain any independent appraisal of the assets or liabilities of
Pillowtex or Fieldcrest. The Bear Stearns opinion is necessarily based on
economic, market, and other conditions, and the information made available to
Bear Stearns, as of the date of the opinion.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial, and comparative analyses. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to summary description. Bear Stearns believes that its analyses must
be considered as a whole, and that selecting portions of its analyses and the
factors considered by it, without considering all such factors and analyses,
could create an incomplete view of the processes underlying its opinion.
Moreover, the estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Accordingly, such estimates are inherently
subject to substantial uncertainties.
The following is a summary of the material valuation, financial, and
comparative analyses presented by Bear Stearns to the Pillowtex Board on
September 5, 1997 in connection with the Bear Stearns opinion, which was orally
rendered to the Pillowtex Board on such date and subsequently confirmed in a
written opinion dated as of September 10, 1997.
Analysis of Selected Precedent M&A Transactions. Bear Stearns reviewed and
analyzed the publicly available financial terms of three selected recent merger
and acquisition transactions in the textiles industry (collectively, the
"Precedent Textile Transactions") and compared the financial terms of such
transactions to those of the Merger for purposes of this analysis. These three
transactions included: (i) Dyersburg Corporation's pending acquisition of AIH
Inc.; (ii) VF Corp's acquisition of Nutmeg Industries; and (iii) Fruit of the
Loom's acquisition of Salem Sportswear. Bear Stearns reviewed the prices paid in
the Precedent Textile Transactions and analyzed various operating and financial
information and imputed valuation multiples and ratios. Bear Stearns noted that
none of the Precedent Textile Transactions were identical to the Merger and
that, accordingly, any analysis of the Precedent Textile Transactions
necessarily involved complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that would
necessarily affect the acquisition value of Fieldcrest versus the acquisition
values of the companies to which Fieldcrest was being compared. Bear Stearns'
analysis of the Precedent Textile Transactions indicated that the range of
multiples of Enterprise Value (defined as market equity value plus debt plus
preferred stock plus minority interest less cash) to latest twelve months
("LTM") revenue, EBITDA (defined as earnings before interest, taxes, and
depreciation and amortization), and EBIT (defined as earnings before interest
and taxes) were 0.7x to 2.0x, 7.8x to 12.9x, and 9.1x to 15.6x, respectively,
yielding harmonic means (excluding any multiples that were greater than twice or
less than half the median) of 1.0x, 9.2x, and 11.8x, respectively. Bear Stearns
compared these multiples to Fieldcrest's implied transaction multiples based on
the aggregate value of the total consideration to be received in respect of each
outstanding share of Fieldcrest Common Stock and each outstanding share of
Fieldcrest Preferred Stock, the fair market value of Fieldcrest's indebtedness,
and certain expenses to be incurred to achieve the costs savings ("Pro Forma
Cost Savings") that are reflected in the pro forma financial information
presented elsewhere in the Joint Proxy Statement/Prospectus (such aggregate
value being referred to herein as the "Transaction Value") relative to
Fieldcrest's LTM operating results including the Pro Forma Cost Savings and
relative to Pillowtex management's estimate of Fieldcrest's 1997 operating
results including the Pro Forma Cost Savings (the "1997 Pillowtex Management
Forecast"). As the Merger was expected to close near the end of 1997 and as
Pillowtex's management did not believe Fieldcrest's LTM operating performance
was indicative of the normalized results of the business since these results did
not fully reflect the effects of Fieldcrest's recent operational restructuring,
Bear Stearns focused on the
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transaction multiples implied by the 1997 Pillowtex Management Forecast in
addition to the transaction multiples implied by Fieldcrest's LTM operating
results. Bear Stearns noted that (i) the implied multiple of Transaction Value
to the 1997 Pillowtex Management Forecast revenue was lower than the harmonic
mean and the range of the Precedent Textile Transactions' LTM revenue multiples;
(ii) the implied multiple of Transaction Value to the 1997 Pillowtex Management
Forecast EBITDA was lower than the harmonic mean and the range of the Precedent
Textile Transactions' LTM EBITDA multiples; and (iii) the implied multiple of
Transaction Value to the 1997 Pillowtex Management Forecast EBIT was lower than
the harmonic mean and within the range of the Precedent Textile Transactions'
LTM EBIT multiples. Applying the harmonic mean multiples for the Precedent
Textile Transactions of LTM revenue, EBITDA and EBIT of 1.0x, 9.2x, and 11.8x,
respectively, to the 1997 Pillowtex Management Forecast revenue, EBITDA and EBIT
resulted in an implied entity value range of $920.4 million to $1,092.5 million,
the low-end of which was above the Transaction Value.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow ("DCF") analysis of Fieldcrest based on fiscal 1998 through fiscal 2002
projections provided by Pillowtex management ("Base Case"). Bear Stearns used
discount rates of 8% to 10%, based on a textile industry weighted average cost
of capital of 8.3% (as calculated by Bear Stearns), and terminal EBITDA
multiples of 6.0x to 8.0x. Bear Stearns noted the low-end terminal multiple
represents a 10% discount to the harmonic mean EBITDA multiple of the Comparable
HT Companies, while the high-end terminal multiple is within the range of the
Comparable HT Companies' EBITDA multiples and is 13% below the harmonic mean of
the Precedent Textile Transactions' EBITDA multiples. The Base Case DCF analysis
utilized Pillowtex's management forecast of Fieldcrest's future operating
results which assumed (i) revenue growth, based on the 1997 Pillowtex Management
Forecast, of 2% per annum from 1998 to 2002, (ii) increasing gross margin,
including cost savings in excess of the Pro Forma Cost Savings, from 16.9% to
18.5% during the period 1998 to 2002, and (iii) increasing operating income
margin, including cost savings in excess of the Pro Forma Cost Savings, from
7.9% to 11.5% during the period 1998 to 2002. This analysis implied an entity
value range of $891.6 million to $1,218.0 million, the low-end of which was
above the Transaction Value.
Analysis of Certain Publicly Traded Companies. Bear Stearns compared
certain operating and financial information for Pillowtex and Fieldcrest to
certain publicly available operating, financial, trading, and valuation
information of five selected home textile companies. These companies included
Burlington Industries, Inc., Crown Crafts, Inc., Springs Industries, Inc.,
Thomaston Mills, Inc., and Westpoint Stevens Inc. (collectively, the "Comparable
HT Companies"). Although Bear Stearns used these companies for comparison
purposes, none of such companies are identical to Fieldcrest. Bear Stearns'
analysis indicated that the Comparable HT Companies were trading in a range of
Enterprise Value to LTM revenue, EBITDA, and EBIT of 0.4x to 1.6x, 5.9x to 9.3x,
and 9.8x to 18.1x, respectively, yielding harmonic means (excluding any
multiples that were greater than twice or less than half the median) of 0.6x,
6.7x, and 10.6x, respectively. Bear Stearns compared the Comparable HT
Companies' LTM multiples to Fieldcrest's implied transaction multiples based on
the Transaction Value relative to Fieldcrest's LTM operating results including
the Pro Forma Cost Savings and relative to the 1997 Pillowtex Management
Forecast. As the Merger was expected to close near the end of 1997 and as
Pillowtex's management did not believe Fieldcrest's LTM operating performance
was indicative of the normalized results of the business since these results did
not fully reflect the effects of Fieldcrest's recent operational restructuring,
Bear Stearns focused on the transaction multiples implied by the 1997 Pillowtex
Management Forecast in addition to the transaction multiples implied by
Fieldcrest's LTM operating results. Bear Stearns noted that (i) the implied
multiple of Transaction Value to the 1997 Pillowtex Management Forecast revenue
was within the range of the Comparable HT Companies' LTM revenue multiples; (ii)
the implied multiple of Transaction Value to the 1997 Pillowtex Management
Forecast EBITDA was lower than the harmonic mean and within the range of the
Comparable HT Companies' LTM EBITDA multiples; and (iii) the implied multiple of
Transaction Value to the 1997 Pillowtex Management Forecast EBIT was lower than
the harmonic mean and the range of the Comparable HT Companies' LTM EBIT
multiples. Applying the harmonic mean multiples for the Comparable HT Companies
of LTM revenue, EBITDA and EBIT of 0.6x, 6.7x, and 10.6x, respectively, to the
1997 Pillowtex Management Forecast revenue, EBITDA, and EBIT resulted in an
implied entity value range of $655.5 million to $826.8 million. Bear Stearns
noted that the Transaction Value was within the lower half of this range.
In addition, Bear Stearns conducted such other analyses and reviews as it
deemed necessary, including analyzing the potential pro forma effect of the
Merger on Pillowtex's earnings per share and reviewing historical and projected
financial and operating data for both Pillowtex and Fieldcrest, selected
investment research reports on each of Pillowtex and Fieldcrest, and available
information regarding the individual and institutional holdings of Pillowtex
Common Stock and Fieldcrest Common Stock.
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Pursuant to the terms of its engagement letter, Pillowtex has paid Bear
Stearns an initial cash retainer fee of $50,000 and a $500,000 fee upon Bear
Stearns' rendering of its opinion, and has further agreed to pay Bear Stearns a
$2.45 million fee contingent upon consummation of the Merger. In addition, Bear
Stearns will receive a fee of $1.3 million for introducing Apollo Management,
L.P. and certain of its affiliates to Pillowtex (and acting as Pillowtex's
financial advisor with respect to the Pillowtex Preferred Stock Commitment).
Pillowtex also has agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses, and to indemnify Bear Stearns and certain related
persons against certain liabilities, including liabilities under the federal
securities laws, relating to or arising out of its engagement.
Bear Stearns may actively trade the equity securities of Pillowtex and/or
Fieldcrest for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to Pillowtex in connection with the Merger and
asked to provide advice to Pillowtex in the Merger negotiations and render its
opinion in connection with the Merger based on Bear Stearns' qualifications,
expertise, and reputation in providing advice to companies in merger
transactions. As part of its investment banking business, Bear Stearns is
engaged regularly in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate, and other purposes.
FIELDCREST'S REASONS FOR THE MERGER
The Fieldcrest Board has determined that the terms of the Merger Agreement
and the Merger are fair to, and in the best interests of, Fieldcrest's
stockholders. ACCORDINGLY, THE FIELDCREST BOARD HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF FIELDCREST VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
In reaching its determination, the Fieldcrest Board consulted with its
legal counsel and financial advisor and gave significant consideration to a
number of factors, including without limitation the factors referred to below.
In view of the wide variety of factors bearing on its decision, the Fieldcrest
Board did not consider it practical to, and did not attempt to, quantify or
otherwise assign relative weights to the factors it considered in reaching its
decision.
The material factors considered by the Fieldcrest Board were:
o The premium of the merger consideration to the historical market
prices for the Fieldcrest Common Stock, including the fact that the
merger consideration represents a premium of approximately 140% over
the market price of the Fieldcrest Common Stock at the time the
independent directors of Fieldcrest first met in late November 1996 to
consider alternatives to increase and maximize the value of the
Fieldcrest Common Stock and the treatment of Pillowtex Preferred Stock
on an "as converted" basis, which the Fieldcrest Board viewed as
equitable. The Merger consideration per share of Fieldcrest Common
Stock (valued at $34.00 per share) represented a premium of
approximately 1.5% over the closing price per share of Fieldcrest
Common Stock as reported on the NYSE Composite Tape on September 10,
1997, the last full trading day prior to the public announcement by
Pillowtex and Fieldcrest of the execution of the Merger Agreement.
o The discussions between the Special Committee's advisors and the
Potential Acquisition Candidate and the Potential Acquiror and the
Special Committee's view that the Merger is a more attractive
transaction for Fieldcrest's stockholders than any transaction or
interest proposed or expressed by these third parties.
o The Special Committee's review of the financial performance and
condition, business, and prospects of Fieldcrest and its consideration
of historical and pro forma financial and other information relating to
Pillowtex and the Pillowtex Common Stock.
o The Special Committee's consideration of current conditions in the
textile industry and the historical cyclical nature of the industry,
which the Fieldcrest Board felt made a sale more attractive.
o The terms of the Merger Agreement, including without limitation the
form of consideration, the price protection afforded by the "collar"
provisions of the Merger Agreement, Fieldcrest's right to terminate the
Merger Agreement in the event that the per share average market price
of the Pillowtex Common Stock in the relevant
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<PAGE> 53
determination period falls below $21.00 and Pillowtex does not
offer to increase the merger consideration, and Fieldcrest's
ability, under certain circumstances, to terminate the Merger
Agreement to accept an acquisition proposal deemed by the
Fieldcrest directors to be superior to the Merger upon payment
of a termination fee to Pillowtex.
o The provision by Pillowtex to Fieldcrest of commitment letters
from financing sources to provide funds necessary to effect
the Merger, the Fieldcrest Board's views regarding the
likelihood that Pillowtex would be able to complete the Merger
on a timely basis, and the fact that the Merger Agreement
provides for limited conditions (and no financing condition)
to the obligation of Pillowtex to consummate the Merger.
o The written opinion dated September 10, 1997 of CSFB that, as
of such date and based upon and subject to the matters set
forth therein, the consideration (which term, for purposes of
such opinion, means, for each outstanding share of Fieldcrest
Common Stock, (i) $27.00 in cash and (ii) the number of shares
of Pillowtex Common Stock equal to the Conversion Number) to
be received by the holders of the Fieldcrest Common Stock in
the Merger was fair to such stockholders from a financial
point of view.
o The effect of the Merger on Fieldcrest's other constituencies,
including its employees and customers, and the terms of the
Merger Agreement relating to employee matters.
OPINION OF FIELDCREST'S FINANCIAL ADVISOR
CSFB has acted as exclusive financial advisor to the Special Committee
in connection with the Merger. CSFB was selected by Fieldcrest based on CSFB's
experience, expertise, and familiarity with Fieldcrest and its business. CSFB is
an internationally recognized investment banking firm and is regularly engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for corporate and other purposes.
At the request of the Special Committee, on September 10, 1997, the
date on which the Merger Agreement was executed, CSFB delivered to the
Fieldcrest Board its written opinion that, as of such date and based upon and
subject to the matters set forth therein, the consideration (which term, for
purposes of such opinion, means, for each outstanding share of Fieldcrest Common
Stock, (i) $27.00 in cash and (ii) the number of shares of Pillowtex Common
Stock equal to the Conversion Number) to be received by the holders of the
Fieldcrest Common Stock in the Merger was fair to such stockholders from a
financial point of view.
The full text of CSFB's written opinion to the Fieldcrest Board, which
sets forth the procedures followed, assumptions made, matters considered, and
limitations on the review undertaken, is attached as Appendix C to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. Holders of
Fieldcrest Common Stock are urged to read this opinion carefully and in its
entirety. CSFB's opinion is directed to the Fieldcrest Board and relates only to
the fairness from a financial point of view of the consideration (which term,
for purposes of such opinion, means, for each outstanding share of Fieldcrest
Common Stock, (i) $27.00 in cash and (ii) the number of shares of Pillowtex
Common Stock equal to the Conversion Number) to be received by holders of the
Fieldcrest Common Stock in the Merger and does not address any other aspect of
the proposed Merger and does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the Merger Agreement. The summary of
the opinion of CSFB set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion. CSFB
has consented to the inclusion of its written opinion as Appendix C to this
Joint Proxy Statement/Prospectus and to the references to such opinion herein.
In arriving at its opinion, CSFB reviewed certain publicly available
business and financial information relating to Fieldcrest and Pillowtex, as well
as a draft dated September 9, 1997 of the Merger Agreement. CSFB also reviewed
certain other information, including financial forecasts, provided to it by
Fieldcrest and Pillowtex, and met with Fieldcrest's and Pillowtex's managements
to discuss the business and prospects of Fieldcrest and Pillowtex.
CSFB also considered certain financial and stock market data of
Fieldcrest and Pillowtex and compared that data with similar data for other
publicly held companies in businesses similar to that of Fieldcrest and
Pillowtex and considered the financial terms of certain other business
combinations and other transactions which have recently been effected. CSFB
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<PAGE> 54
also considered such other information, financial studies, analyses, and
investigations and financial, economic, and market criteria as CSFB deemed
relevant.
In connection with its review, CSFB did not assume any responsibility
for independent verification of any of the foregoing information and relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts, CSFB assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Fieldcrest and Pillowtex as to the future
financial performance of Fieldcrest and Pillowtex. In addition, CSFB did not
make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Fieldcrest or Pillowtex, nor was CSFB furnished
with any such evaluations or appraisals. CSFB's opinion was necessarily based
upon financial, economic, market, and other conditions as they existed and could
be evaluated on the date of its opinion. CSFB did not express any opinion as to
what the value of the Pillowtex Common Stock actually will be when issued to
Fieldcrest's stockholders pursuant to the Merger or the prices at which such
Pillowtex Common Stock will trade subsequent to the Merger. In connection with
its engagement, CSFB approached third parties to solicit indications of interest
in a possible acquisition of Fieldcrest and held preliminary discussions with
certain of these parties prior to the date of the opinion. For purposes of its
opinion, CSFB did not consider other strategic alternatives to the sale of
Fieldcrest that might then have been available to Fieldcrest.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses, including those described below. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. In arriving at its opinion, CSFB made qualitative judgments as to
the significance and relevance of each analysis and factor considered by it.
Accordingly, CSFB believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion. In its analyses, CSFB made
numerous assumptions with respect to Fieldcrest, Pillowtex, industry
performance, regulatory, general business, economic, market, and financial
conditions, and other matters, many of which are beyond the control of
Fieldcrest and Pillowtex. No company, transaction, or business used in such
analyses as a comparison is identical to Fieldcrest or Pillowtex or the proposed
Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading, or other values of the companies,
business segments, or transactions being analyzed. The estimates contained in
such analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which business and securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. CSFB's
opinion and financial analyses were only one of many factors considered by the
Fieldcrest Board in its evaluation of the Merger and should not be viewed as
determinative of the views of the Fieldcrest Board with respect to the merger
consideration or the proposed Merger.
The following is a summary of the material analyses performed by CSFB
in connection with its opinion dated September 10, 1997.
Fieldcrest Discounted Cash Flow Analysis. CSFB's discounted cash flow
analysis was based on two forecast scenarios: a scenario derived from
management's views of future operating and financial performance (the
"Fieldcrest Management Case") and a revised case derived from the Fieldcrest
Management Case (the "Fieldcrest Sensitivity Case"). The Fieldcrest Management
Case assumed management's internal projections for 1997 and 1998, and extended
the forecast to 2007 based on CSFB's discussions with Fieldcrest management.
From 1999 to 2007 the Management Case assumed a 4.0% revenue growth and an
improvement in the margin for earnings before interest, taxes, depreciation, and
amortization ("EBITDA") from 8.8% in 1997 to 12.6% in 2001 and thereafter. The
Fieldcrest Sensitivity Case assumed the same revenue growth trend as in the
Management Case and a more moderate increase in the EBITDA margin from 8.8% in
1997 to 12.3% in 2002 and thereafter. CSFB calculated an enterprise value
reference range for Fieldcrest based upon the present value of Fieldcrest's
ten-year stream of unlevered free cash flows and fiscal year 2007 terminal
value. The fiscal year 2007 terminal value of Fieldcrest was calculated by
applying to Fieldcrest's fiscal year 2007 EBITDA multiples ranging from 6.0x to
6.5x, based on the EBITDA multiples from the Fieldcrest Selected Companies
Analysis and the Fieldcrest Selected Transactions Analysis described below.
Unlevered free cash flows and terminal value estimates were then discounted to
the present using discount rates of 10.5% to 11.0%, based on Fieldcrest's
estimated
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<PAGE> 55
weighted average cost of capital. This analysis resulted in an enterprise value
reference range for Fieldcrest of $720 to $787 million, or $33.97 to $39.62 per
share of Fieldcrest Common Stock, for the Fieldcrest Management Case and $676 to
$741 million, or $30.30 to $35.75 per share of Fieldcrest Common Stock, for the
Fieldcrest Sensitivity Case.
Fieldcrest Selected Companies Analysis. CSFB compared certain financial
information of Fieldcrest to corresponding data of the following selected
publicly traded companies in the home textiles industry: Springs Industries
Inc., Westpoint Stevens Inc., Burlington Industries Inc., Cone Mills
Corporation, Pillowtex Corporation, Dyersburg Corporation, Thomaston Mills, Inc.
and Crown Crafts Inc. (collectively, the "Selected Home Textile Companies"), all
of which CSFB considered to be reasonably comparable to Fieldcrest. CSFB
compared the enterprise value (which was defined by CSFB for purposes of this
analysis as adjusted market value) of the Selected Home Textile Companies as
multiples of estimated fiscal 1997 EBITDA and compared stock prices to 1997 and
1998 earnings per share ("EPS"). Estimated financial data for the Selected Home
Textile Companies was based on estimates of equity research analysts. Applying a
range of selected multiples for the Selected Home Textile Companies of fiscal
1997 EBITDA and 1997 and 1998 EPS of 6.0x to 6.5x, 12.0x to 14.0x, and 10.0x to
12.0x, respectively, to corresponding financial data of Fieldcrest resulted in a
reference range of approximately $22.50 to $26.50 per share of Fieldcrest Common
Stock.
Fieldcrest Selected Transactions Analysis. CSFB analyzed the purchase
prices and implied transaction multiples paid or proposed to be paid in selected
merger and acquisition transactions involving companies in the home textile
sector, consisting of the following (acquirer/target): Avondale/Triarc Cos.
(Graniteville), Springs Industries/Dundee Mills, Pillowtex/Beacon Manufacturing,
Galey & Lord/Burlington Industries, Mohawk Industries/Aladdin Mills, Valley
Fashions/West Point - Pepperell, Mohawk Industries/Karastan Bigelow,
Unifi/Pioneer Yarns Mills, Interface Inc./Bentley Mills, Springs Industries/
Fieldcrest Cannon (not completed), Unifi/Vintage Yarns, Unifi/Macfield, Coats
Viyella/Tootal Group, and RSI Corp./Delta Woodside Industries (collectively, the
"Selected Transactions"). CSFB compared enterprise values for the surviving
entities as multiples of sales, EBITDA, and earnings before interest and taxes
("EBIT") in each case for the latest 12 months ("LTM"). All multiples were based
on historical financial information available at the time of announcement of the
transaction. Applying a range of selected multiples for the Selected
Transactions of LTM sales, EBITDA, and EBIT of 0.6x to 0.7x, 6.5x to 7.5x, and
10.0x to 11.0x, respectively, to corresponding financial data of Fieldcrest
resulted in a reference range of approximately $29.00 to $37.00 per share of
Fieldcrest Common Stock.
Fieldcrest Aggregate Reference Ranges. On the basis of the valuation
methodologies described above, CSFB derived an aggregate reference range for
Fieldcrest of approximately $30.00 to $37.00 per share of Fieldcrest Common
Stock.
CSFB also performed the following analyses with regard to Pillowtex
Common Stock.
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma effect
of the Merger on Pillowtex's EPS for the fiscal years 1998 through 2001, based
on the Fieldcrest Sensitivity Case and the Pillowtex Base Case. After giving
effect to synergies anticipated by Pillowtex's management in the Merger, the
analysis indicated that the Merger would be accretive to Pillowtex's EPS on a
fully diluted basis by 1.6% in fiscal year 1998, 12.2% in fiscal year 1999,
26.2% in fiscal year 2000 and 37.6% in fiscal year 2001. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
Pillowtex Discounted Cash Flow Analysis. CSFB's discounted cash flow
analysis for Pillowtex was based on two forecast scenarios: a scenario derived
from management's views of future operating and financial performance (the
"Pillowtex Base Case") and a downside case derived from the Pillowtex Base Case
(the "Pillowtex Downside Case"). The Pillowtex Base Case assumed management
forecasts for 1997 and revenue growth and margin improvements in line with
management's expectations. The Pillowtex Base Case assumed revenue growth of
4.0% from 1998 to 2000 and 3.5% from 2001 to 2007, and EBITDA margins rising
gradually from 11.3% in 1997 to 13.0% in 2000 and remaining constant thereafter.
The Pillowtex Downside Case assumed more moderate revenue growth and margin
improvements. The Pillowtex Downside Case assumed revenue growth of 3.0% from
1998 to 2000 and 2.5% from 2001 to 2007, as well as an EBITDA margin increase
from 11.3% in 1997 to 12.5% in 2000, remaining constant thereafter. CSFB
calculated a reference range for Pillowtex based upon the present value of
Pillowtex's ten-year stream of unlevered free cash flows and fiscal year 2007
terminal value. The fiscal year 2007 terminal value of Pillowtex was calculated
by applying to Pillowtex's fiscal year 2007 EBITDA multiples ranging from 6.5x
to 7.0x, based on the EBITDA multiples from the Pillowtex Selected Companies
Analysis described below. Unlevered free cash flows and terminal value estimates
were then discounted to the present using discount rates of 10.0% to 10.5%,
based on Pillowtex's estimated weighted average
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<PAGE> 56
cost of capital. This analysis resulted in a reference range for Pillowtex
Common Stock of $23.70 to $27.10 per share for the Pillowtex Base Case and
$18.40 to $21.36 per share for the Pillowtex Downside Case.
Pillowtex Selected Companies Analysis. CSFB compared certain financial
information of Pillowtex to corresponding data of the Selected Home Textile
Companies. The universe of comparables for Pillowtex was the same as for
Fieldcrest. CSFB compared the enterprise value of the Selected Home Textile
Companies as multiples of estimated fiscal 1997 EBITDA and 1997 and 1998 EPS.
Estimated financial data for the Selected Home Textile Companies was based on
estimates of equity research analysts. Applying a range of selected multiples
for the Selected Home Textile Companies of estimated 1997 EBITDA, and 1997 and
1998 EPS of 6.5x to 7.5x, 13.0x to 14.0x, and 11.0x to 12.0x, respectively, to
corresponding financial data of Pillowtex resulted in a reference range for
Pillowtex Common Stock of approximately $22.00 to $25.00 per share.
Pursuant to the terms of CSFB's engagement, the Special Committee has
agreed, on behalf of Fieldcrest, to pay CSFB for its services in connection with
the proposed Merger (i) a financial advisory fee of $275,000 (which will be
credited against the Transaction Fee), upon execution of the most recent
amendment to the engagement letter and (ii) upon consummation of the Merger, a
transaction fee of $3.8 million, plus 1% of the total fair market value (on the
date of payment) of all consideration paid to Fieldcrest or its stockholders for
the equity of Fieldcrest, including common stock, preferred stock, options, and
warrants (the "Transaction Fee"). Fieldcrest has also agreed to reimburse CSFB
for out-of-pocket expenses incurred by CSFB in performing its services,
including fees and expenses of legal counsel and any other advisor retained by
CSFB, and to indemnify CSFB and certain related persons and entities against
certain liabilities, including liabilities under the federal securities laws,
related to or arising out of CSFB's engagement.
CSFB has in the past performed certain investment banking services for
Fieldcrest, for which CSFB has received customary fees. In the ordinary course
of its business, CSFB and its affiliates may actively trade the debt and equity
securities of Fieldcrest and Pillowtex for their own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
CERTAIN PROJECTED FINANCIAL INFORMATION OF FIELDCREST
In the course of the discussions described in "The Merger--Negotiations
Resulting in the Merger Agreement," Fieldcrest provided Pillowtex and its
financial advisor with certain business and financial information which was not
publicly available. Such information included, among other things, certain
financial projections for 1997 (the "Fieldcrest Projections") prepared by the
management of Fieldcrest. The Fieldcrest Projections do not take into account
any of the potential effects of the Merger.
Set forth below is a summary of the Fieldcrest Projections provided to
Pillowtex.
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SUMMARY STATEMENT OF INCOME
1997 FORECAST AS OF JULY 12, 1997
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1997
FORECAST
---------
<S> <C>
Net sales $ 1,151.3
Total cost of sales 970.6
Gross profit 180.7
Selling, general, and administrative expenses 118.8
Operating income 61.9
Interest expense 25.8
Other income 2.0
Income before income taxes 38.1
Income taxes 14.1
Net income $ 24.0
==========
Preferred dividends (4.5)
Earnings on common $ 19.5
==========
Earnings per share $ 2.13
==========
</TABLE>
The Fieldcrest Projections are included in this Joint Proxy
Statement/Prospectus only because such information was provided to Pillowtex and
Bear Stearns, its financial advisor, which relied upon such projections when
performing its analysis of Merger and in formulating its opinion as to the
fairness, from a financial point of view, of the total consideration to be
received in respect of each outstanding share of Fieldcrest Common Stock and
each outstanding share of Fieldcrest Preferred Stock to the shareholders of
Pillowtex. As a matter of course, neither Pillowtex nor Fieldcrest makes public
projections or forecasts of its anticipated financial position or results of
operations. Accordingly, neither Pillowtex nor Fieldcrest anticipates that it
will, and each of them disclaims any obligation to, furnish updated projections
to any person, cause such information to be included in documents required to be
filed with the Commission, or otherwise make such information public
(irrespective in any such case of whether the Fieldcrest Projections, in light
of events or developments occurring after the date hereof, cease to have a
reasonable basis).
While presented with numerical specificity, the Fieldcrest Projections are
based upon a variety of assumptions relating to general economic conditions and
the business of Fieldcrest which may not be realized and are subject to
significant uncertainties and contingencies, many of which are beyond the
control of Pillowtex and Fieldcrest. There can be no assurance that the
Fieldcrest Projections will be realized and actual results may vary materially
from those shown. The inclusion of the Fieldcrest Projections herein should not
be regarded as an indication that any of Pillowtex, Fieldcrest, or their
respective financial advisors considers such projections to be an accurate
prediction of future events.
The Fieldcrest Projections were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public
Accountants.
The Fieldcrest Projections should be evaluated in conjunction with the
historical financial statements and other information contained in reports and
statements filed with the Commission from time to time by Pillowtex and
Fieldcrest and the information set forth under the captions "Note Regarding
Forward-Looking Information" and "Risk Factors."
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, which is incorporated by reference and a copy of which
is attached as Appendix A to this Joint Proxy Statement/Prospectus.
The Merger. On the terms and subject to the conditions of the Merger
Agreement, at the Effective Time Newco will be merged with and into Fieldcrest
in accordance with the applicable provisions of the DGCL and the separate
corporate existence of Newco will thereupon cease (with the Surviving Company
being a subsidiary of Pillowtex).
On the fifth business day following the date on which the last of the
conditions set forth in the Merger Agreement (other than those that by their
nature are to be satisfied at the closing) is satisfied or waived, Newco and
Fieldcrest will cause a certificate of merger to be filed with the Secretary of
State of the State of Delaware as provided in the DGCL. Upon completion of such
filing, the Merger will become effective in accordance with the DGCL. The Merger
will have the effects specified in the DGCL.
Consideration to be Paid in the Merger. The Merger Agreement provides that,
on the terms and subject to the conditions of the Merger Agreement and in
accordance with the DGCL, at the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof: (i) each share of
Fieldcrest Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares of Fieldcrest Common Stock owned by Fieldcrest,
Pillowtex, or any subsidiary of Pillowtex or Fieldcrest and Dissenting Shares)
will be converted into the right to receive (a) a cash payment in an amount
equal to $27.00 (the "Cash Amount") and (b) a number of fully paid and
nonassessable shares of Pillowtex Common Stock equal to the Conversion Number,
i.e., the quotient, rounded to the third decimal place, obtained by dividing
$7.00 by the Determination Price (i.e., the average of the closing sales prices
of Pillowtex Common Stock as reported on the NYSE Composite Transactions List
for each of the 20 consecutive trading days immediately preceding the fifth
trading day prior to the Closing Date), provided that if the actual quotient
obtained thereby is less than 0.269, the Conversion Number will be 0.269, and if
the actual quotient obtained thereby is more than 0.333, the Conversion Number
will be 0.333, and provided further that, if the Determination Price is less
than $21.00, Pillowtex will have the right to elect to increase the Cash Amount
and/or the Conversion Number such that the sum of (1) the Cash Amount and (2)
the product of (A) the Conversion Number and (B) the Determination Price equals
$34.00 and, if Pillowtex does not so elect, Fieldcrest will have the right to
terminate the Merger Agreement; (ii) each share of Fieldcrest Preferred Stock
issued and outstanding immediately prior to the Effective Time (excluding shares
of Fieldcrest Preferred Stock owned by Fieldcrest, Pillowtex, or any subsidiary
of Fieldcrest or Pillowtex and Dissenting Shares) will be converted into the
right to receive (a) a cash payment equal to the product of (1) the Cash Amount
and (2) 1.7094 and (b) a number of fully paid and nonassessable shares of
Pillowtex Common Stock equal to the product of (1) the Conversion Number and (2)
1.7094; and (iii) each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time will be converted into and become one
validly issued, fully paid, and nonassessable share of common stock, par value
$0.01 per share, of the Surviving Company. Each share of Fieldcrest Common Stock
or Fieldcrest Preferred Stock issued and outstanding immediately prior to the
Effective Time that is owned by Fieldcrest, Pillowtex, or any subsidiary of
Pillowtex or Fieldcrest will automatically be cancelled and retired without
payment of any consideration therefor and will cease to exist. The Fieldcrest
Board presently expects that it would exercise Fieldcrest's right to terminate
the Merger Agreement if the Determination Price were to be below $21.00 and
Pillowtex does not increase the merger consideration as described above. If the
Fieldcrest Board were to determine, based on the facts and circumstances
existing at the time, that it would not be in the best interests of Fieldcrest's
stockholders to terminate the Merger Agreement upon such occurrences, then
notice of that determination would be given and Fieldcrest would at that time
resolicit proxies from Fieldcrest's stockholders regarding the vote on the
Merger Agreement.
Dissenting Shares. In the event the Merger is effected and Fieldcrest
stockholders are entitled to receive the applicable consideration described
above, any shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
issued and outstanding immediately prior to the Effective Time held by a holder
who has the right to demand and who has properly demanded an appraisal of such
shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock, as applicable,
in accordance with Section 262 of the DGCL (or any successor provision)
("Dissenting Shares") will not be converted into the right to receive the
applicable consideration, unless such holder fails to perfect or otherwise loses
such holder's right to such appraisal. If, after the Effective Time, such holder
fails to perfect or loses any such right to appraisal, each Dissenting Share of
such holder shall be treated as a share of Fieldcrest Common Stock or Fieldcrest
Preferred Stock,
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as applicable, that has been converted as of the Effective Time into the right
to receive the applicable consideration, in accordance with the terms of the
Merger Agreement.
Treatment of Fieldcrest Stock Options. The Merger Agreement provides that
each holder of a then-outstanding Fieldcrest Option, whether or not then
exercisable or fully vested, may elect, prior to the Effective Time, in
settlement thereof, to receive from Fieldcrest immediately prior to the
Effective Time for each share of Fieldcrest Common Stock subject to such
Fieldcrest Option an amount in cash equal to the difference between $34.00 and
the per share exercise price of such Fieldcrest Option, to the extent $34.00 is
greater than the per share exercise price of such Fieldcrest Option (such excess
amount, the "Option Consideration"). The Merger Agreement further provides that,
at the Effective Time, each outstanding Fieldcrest Option, other than Fieldcrest
Options for which an election to receive cash in settlement thereof has been
made pursuant to the Merger Agreement, shall be assumed by Pillowtex and shall
constitute an option to acquire, on substantially the same terms and subject to
substantially the same conditions as were applicable under such Fieldcrest
Option, including without limitation term, exercisability, status as an
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and termination provisions, a number of shares of
Pillowtex Common Stock (increased to the nearest whole share) equal to the
product of (i) the number of shares of Fieldcrest Common Stock subject to such
Fieldcrest Option immediately prior to the Effective Time and (ii) the Option
Conversion Number, (i.e., the quotient, rounded to the third decimal place,
obtained by dividing $34.00 by the Determination Price) at an exercise price per
share of Pillowtex Common Stock (increased to the nearest whole cent) equal to
the exercise price per share of Fieldcrest Common Stock subject to such
Fieldcrest Option immediately prior to the Effective Time divided by the Option
Conversion Number; provided that if the actual quotient obtained thereby is less
than 1.308, the Option Conversion Number will be 1.308, and if the actual
quotient obtained thereby is more than 1.619, the Option Conversion Number will
be 1.619, and provided further that, if Pillowtex elects to increase the
Conversion Number as described above, the Option Conversion Number will be
increased such that the product of (A) the Option Conversion Number and (B) the
Determination Price equals $34.00.
Fieldcrest has agreed to use its best efforts to obtain all necessary
waivers, consents, or releases from holders of Fieldcrest Options under the
Stock Option Plans and take any such other action as may be reasonably necessary
to give effect to the transactions described above and, with respect to the
Fieldcrest Options for which an election to receive cash in settlement thereof
has been made, to cause each such Fieldcrest Option to be surrendered to
Fieldcrest and cancelled, whether or not any Option Consideration is payable
with respect thereto, at the Effective Time. The surrender of a Fieldcrest
Option to Pillowtex will be deemed a release of any and all rights the holder
had or may have had in such Fieldcrest Option, other than the right to receive
the Option Consideration in respect thereof. Pillowtex has also agreed to take
all corporate action necessary to reserve for issuance a sufficient number of
shares of Pillowtex Common Stock for delivery upon exercise of substitute
Fieldcrest Options, to register such shares with the Commission on an
appropriate registration statement, to maintain the effectiveness of such
registration statement as long as the substitute options remain outstanding, and
to use all reasonable efforts to cause the shares of Pillowtex Common Stock
subject to the Fieldcrest Options to be listed on the NYSE and such other
exchanges as Pillowtex may determine.
Treatment of Fieldcrest SARs. Each holder of an outstanding Fieldcrest SAR
will be paid, at or immediately prior to the Effective Time, a cash amount equal
to the product of (i) the difference between $34.00 and the grant price of such
Fieldcrest SAR and (ii) the number of shares subject to such Fieldcrest SAR.
Treatment of Fieldcrest Convertible Debentures. The Merger Agreement
provides that at the closing, (i) Fieldcrest will execute and deliver to the
trustee under the Indenture pursuant to which the Fieldcrest Convertible
Debentures were issued a supplemental indenture to become effective at the
Effective Time, providing that the holder of each Fieldcrest Convertible
Debenture outstanding immediately following the Effective Time shall have the
right thereafter, during the period such Fieldcrest Convertible Debenture shall
be convertible as specified in such Indenture, to convert such Fieldcrest
Convertible Debenture only into the amount of cash and Pillowtex Common Stock
receivable by reason of the Merger by a holder of the number of shares of
Fieldcrest Common Stock into which such Fieldcrest Convertible Debenture might
have been converted immediately prior to the Effective Time (subject to
subsequent adjustment as provided in such Indenture) and (ii) Pillowtex will
execute and deliver to such trustee, as part of such supplemental indenture, an
undertaking to reserve and keep available out of its authorized but unissued
capital stock, a number of shares of Pillowtex Common Stock sufficient to permit
the conversion of all outstanding Fieldcrest Convertible Debentures and to cause
to be issued and delivered to Fieldcrest for subsequent delivery by Fieldcrest
in accordance with such supplemental indenture and Indenture shares of Pillowtex
Common Stock upon the conversion of any Fieldcrest Convertible Debenture. As a
result of the Merger, for example, a Fieldcrest Convertible Debenture having an
aggregate
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principal amount of $1,000 will become convertible into (i) a cash payment equal
to the product of (a) the amount of the cash payment to be made on account of
each share of Fieldcrest Common Stock converted in the Merger and (b) 22.60 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 22.60.
Fractional Shares. No fractional shares of Pillowtex Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, each
holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock who otherwise
would be entitled to receive a fractional share of Pillowtex Common Stock
pursuant to the Merger will be paid an amount in cash (without interest),
rounded to the nearest cent, equal to the product of (i) the fraction of a share
of Pillowtex Common Stock to which such holder would otherwise be entitled and
(ii) the closing sales price of Pillowtex Common Stock on the NYSE on the
Closing Date. Any fractional shares of Pillowtex Common Stock that would
otherwise be issuable upon the conversion of Fieldcrest Convertible Debentures
will be eliminated and settled in the manner provided in the Indenture setting
forth the terms of the Fieldcrest Convertible Debentures.
Consequences of Failure to Approve the Share Issuance. The Merger Agreement
provides that, notwithstanding anything to the contrary set forth therein, if
Pillowtex's shareholders fail to approve the Share Issuance at the Pillowtex
Special Meeting: (i) the consideration to be paid to holders of Fieldcrest
Common Stock will be a cash payment in an amount equal to $34.00 per share; (ii)
the consideration to be paid to holders of Fieldcrest Preferred Stock will be a
cash payment in an amount equal to $58.12 per share; (iii) each holder of a
Fieldcrest Option will receive for each share of Fieldcrest Common Stock subject
to such Fieldcrest Option an amount in cash equal to the difference between
$34.00 and the per share exercise price of such Fieldcrest Option; and (iv) the
conditions described below in clauses (ii) and (iv) of the first paragraph under
the caption "--Conditions to the Merger" below will be inapplicable. If the
Pillowtex shareholders were to fail to approve the Share Issuance, there can be
no assurance that Pillowtex would be able to obtain financing adequate to enable
it to pay the amounts described in the immediately preceding sentence on terms
acceptable to Pillowtex, if at all. However, as of the Pillowtex Record Date,
Charles M. Hansen, Jr., Chairman of the Board and Chief Executive Officer of
Pillowtex, Mary R. Silverthorne, a director of Pillowtex, the John H.
Silverthorne Marital Trust B, and the John H. Silverthorne Family Trust A owned,
in the aggregate, approximately 52.4% of the outstanding shares of Pillowtex
Common Stock and each of Mr. Hansen and Ms. Silverthorne has separately agreed
to vote such shares of Pillowtex Common Stock for the approval of the Share
Issuance. Accordingly, the approval by Pillowtex's shareholders of the Share
Issuance is expected to occur irrespective of whether or the manner in which
other Pillowtex shareholders vote their shares.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations by Fieldcrest with respect to: (i) organization, standing, and
corporate power; (ii) capitalization; (iii) authority and noncontravention; (iv)
Commission reports; (v) absence of certain changes or events; (vi) benefit
plans; (vii) taxes; (viii) voting requirements; (ix) compliance with laws; (x)
opinion of financial advisor; (xi) investment banking fees and commissions;
(xii) litigation; (xiii) environmental laws; (xiv) material contracts; (xv)
labor matters; (xvi) rights plan matters; and (xvii) real property and other
assets.
Pillowtex and Newco have also made certain representations and warranties
with respect to: (i) organization, standing, and corporate power; (ii)
capitalization; (iii) authority and noncontravention; (iv) Commission reports;
(v) absence of certain changes or events; (vi) certain matters with respect to
Newco and financing arrangements; (vii) investment banking fees and commissions;
(viii) compliance with laws; (ix) environmental laws; and (x) litigation.
No representations and warranties made by Fieldcrest, Pillowtex, or Newco
will survive beyond the Effective Time.
No Solicitation. The Merger Agreement provides that, from and after the
date of the Merger Agreement until the termination of the Merger Agreement,
Fieldcrest will not, and will not authorize or permit any of its subsidiaries,
or any of its or their affiliates, officers, directors, employees, agents, or
representatives (including without limitation any investment banker, financial
advisor, attorney, or accountant retained by Fieldcrest or any of its
subsidiaries), to, directly or indirectly, initiate, solicit, or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries, any expression of interest, or the making
of any proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal, or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal; except
that nothing in the Merger Agreement will prohibit the Fieldcrest Board from
furnishing information to, or entering into, maintaining, or continuing
discussions or negotiations with, any person that makes an unsolicited
Acquisition Proposal after the date of the Merger Agreement, if, and to the
extent that, the Fieldcrest Board,
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after consultation with and based upon the advice of independent legal counsel,
determines in good faith that (i) such Acquisition Proposal would be more
favorable to the Fieldcrest stockholders than the Merger and (ii) the failure to
take such action would result in a breach by the Fieldcrest Board of its
fiduciary duties to the Fieldcrest stockholders under applicable law, and, prior
to furnishing any non-public information to such person, receives from such
person an executed confidentiality agreement with provisions no less favorable
to Fieldcrest than the confidentiality agreement entered into by Pillowtex and
Fieldcrest in connection with the Merger. The Merger Agreement further provides
that Fieldcrest will promptly notify Pillowtex if it is prepared to provide
access to the properties, books, or records of Fieldcrest or any of its
subsidiaries to any person who has made an Acquisition Proposal, and Fieldcrest
will at such time inform Pillowtex of the material terms of any such Acquisition
Proposal. For purposes of the Merger Agreement, "Acquisition Proposal" means an
inquiry, offer, or proposal regarding any of the following (other than the
transactions contemplated by the Merger Agreement with Pillowtex or Newco)
involving Fieldcrest: (i) any merger, consolidation, share exchange,
recapitalization, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition of all
or substantially all of the assets of Fieldcrest and its subsidiaries, taken as
a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 33% or more of the outstanding shares of
capital stock of Fieldcrest or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan, or intention to do any of the foregoing, or any agreement to
engage in any of the foregoing.
Conditions to the Merger. Pursuant to the Merger Agreement, the obligation
of each party to effect the Merger is subject to the satisfaction or written
waiver on or prior to the Closing Date of the following conditions: (i) the
Merger Agreement shall have been approved and adopted by the affirmative vote of
the requisite number of Fieldcrest stockholders in the manner required pursuant
to Fieldcrest's Restated Certificate of Incorporation, as amended (the
"Fieldcrest Certificate"), Fieldcrest's Amended and Restated Bylaws (the
"Fieldcrest Bylaws"), the DGCL and other applicable law, and the rules of the
NYSE; (ii) the Share Issuance shall have been approved by the affirmative vote
of the requisite number of shareholders of Pillowtex in the manner required
pursuant to the Pillowtex Articles and the Pillowtex Bylaws, the Texas Business
Corporation Act (the "TBCA") and other applicable law, and the rules of the
NYSE, (iii) no temporary restraining order, preliminary or permanent injunction,
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect; (iv) the shares of Pillowtex Common Stock issuable to the Fieldcrest
stockholders pursuant to the Merger Agreement shall have been approved for
listing on the NYSE, subject to official notice of issuance; (v) the
Registration Statement shall have been declared effective under the Securities
Act and not be the subject of any stop order or proceedings seeking a stop
order; and (vi) all necessary waiting periods under the HSR Act applicable to
the Merger shall have expired or been terminated.
The obligation of Pillowtex and Newco to effect the Merger is further
subject to satisfaction or written waiver on or prior to the Closing Date of the
following conditions: (i) the representations and warranties of Fieldcrest
contained in the Merger Agreement, which representations and warranties shall be
deemed for purposes of this condition not to include any qualification or
limitation with respect to materiality (whether by reference to "Material
Adverse Effect" or otherwise), shall be true and correct as of the Closing Date,
except where the matters in respect of which such representations and warranties
are not true and correct, in the aggregate, have not had or would not have a
Material Adverse Effect on Fieldcrest, with the same effect as though such
representations and warranties were made as of the Closing Date, and Pillowtex
and Newco shall have received a certificate signed on behalf of Fieldcrest by an
authorized officer of Fieldcrest to such effect; (ii) Fieldcrest shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, and Pillowtex and
Newco shall have received a certificate signed on behalf of Fieldcrest by an
authorized officer of Fieldcrest to such effect; and (iii) since the date of the
Merger Agreement, Fieldcrest and its subsidiaries, taken as a whole, shall not
have experienced any change, event, or occurrence particular to them (excluding
industry, economic, financial, and other matters generally affecting businesses
other than and in addition to Fieldcrest and its subsidiaries) that has had or
would have a Material Adverse Effect on Fieldcrest, other than resulting from
any matter disclosed in any documents filed with the Commission by Fieldcrest or
in a disclosure schedule to the Merger Agreement.
The obligation of Fieldcrest to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions: (i) the representations and warranties of each of Pillowtex and
Newco contained in the Merger Agreement, which representations and warranties
shall be deemed for purposes of this condition not to include any qualification
or limitation with respect to materiality (whether by reference to "Material
Adverse Effect" or otherwise), shall be true and correct as of the Closing Date,
except where the matters in respect of which such
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representations and warranties are not true and correct, in the aggregate, has
not had or would not have a Material Adverse Effect on Newco, with the same
effect as though such representations and warranties were made as of the Closing
Date, and Fieldcrest shall have received a certificate signed on behalf of
Pillowtex and Newco by an authorized officer of Pillowtex to such effect; (ii)
each of Pillowtex and Newco shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date, and Fieldcrest shall have received a certificate
signed on behalf of Pillowtex by an authorized officer of Pillowtex to such
effect; and (iii) since the date of the Merger Agreement, Pillowtex and its
subsidiaries, taken as a whole, shall not have experienced any change or
occurrence particular to them (excluding industry, economic, financial, and
other matters generally affecting businesses other than and in addition to
Pillowtex and its subsidiaries) that has had or would have a Material Adverse
Effect on Pillowtex, other than resulting from any matter disclosed in any
document filed with the Commission by Pillowtex or in a disclosure schedule to
the Merger Agreement.
Termination. The Merger Agreement may be terminated and the transactions
contemplated thereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval and adoption thereof by the Fieldcrest stockholders, in
any one of the following circumstances: (i) by mutual written consent duly
authorized by the Pillowtex Board and the Fieldcrest Board; (ii) by Pillowtex or
Fieldcrest, if, without any material breach by such terminating party of its
obligations under the Merger Agreement, the Effective Time shall not have
occurred on or before December 31, 1997; (iii) by Pillowtex or Fieldcrest, if
any federal or state court of competent jurisdiction or other governmental
authority shall have issued an order, decree, or ruling, or taken any other
action permanently restraining, enjoining, or otherwise prohibiting the Merger
and such order, decree, ruling, or other action shall have become final and
non-appealable; (iv) by Pillowtex or Fieldcrest, if the Fieldcrest Stockholders
Meeting shall have been held and the Merger Agreement shall not have been
approved and adopted by the affirmative vote of the requisite number of
Fieldcrest stockholders; (v) by Fieldcrest, if it shall have received an
Acquisition Proposal and shall have advised Pillowtex in writing that the
Fieldcrest Board, after consultation with and based upon the advice of
independent legal counsel, determined in good faith that failure to accept such
Acquisition Proposal would result in a breach by the Fieldcrest Board of its
fiduciary duties to Fieldcrest's stockholders under applicable law, except that
the Merger Agreement may not be so terminated unless simultaneously with the
termination Fieldcrest shall have made the payment to Pillowtex of the
Termination Fee; (vi) by Pillowtex, if the Fieldcrest Board shall have (a)
withdrawn, modified, or amended in any adverse respect its approval or
recommendation of the Merger Agreement, the Merger, or the other transactions
contemplated by the Merger Agreement, (b) approved, endorsed, or recommended to
its stockholders an Acquisition Proposal, or (c) resolved to do any of the
foregoing; or (vii) by Pillowtex or Fieldcrest if (a) the other party shall have
failed to comply in any material respect with any of the material covenants and
agreements contained in the Merger Agreement to be complied with or performed by
such party at or prior to such date of termination, and such failure continues
for 20 business days after the actual receipt by such party of a written notice
from the other party setting forth in detail the nature of such failure, or (b)
a representation or warranty of the other party contained in the Merger
Agreement shall have been untrue in any respect on the date when made (or in the
case of any representations and warranties that are made as of a different date,
as of such different date) and the matters in respect of which such
representation and warranty shall have been untrue has had or would have a
Material Adverse Effect on such other party. In the event the Merger Agreement
is terminated based upon an event described in clause (v) or (vi) above,
Fieldcrest will be required to pay a termination fee in the amount of $15.0
million (the "Termination Fee") to Pillowtex.
Fieldcrest Stockholders Meeting. The Merger Agreement provides that
Fieldcrest will take all action necessary, in accordance with the DGCL, the
Exchange Act and other applicable law, the rules of the NYSE, and the Fieldcrest
Certificate and the Fieldcrest Bylaws, to convene a special meeting of
Fieldcrest stockholders as promptly as practicable after the effectiveness of
the Registration Statement for the purpose of considering and voting upon the
Merger Agreement. The Merger Agreement provides that, subject to Fieldcrest's
right to terminate the Merger Agreement described in clause (v) of the paragraph
under the caption "--Termination" above, the Fieldcrest Board will recommend
that the holders of the shares of Fieldcrest Common Stock vote in favor of the
approval and adoption of the Merger Agreement at the Fieldcrest Special Meeting
and such recommendation will be included in this Joint Proxy
Statement/Prospectus.
Pillowtex Shareholders Meeting. The Merger Agreement provides that
Pillowtex will take all action necessary in accordance with Exchange Act and
other applicable law, the rules of the NYSE, and the Pillowtex Articles and the
Pillowtex Bylaws, to convene a special meeting of the Pillowtex shareholders as
promptly as practicable after the effectiveness of the Registration Statement
for the purpose of considering and voting upon the Share Issuance. The
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Merger Agreement provides that the Pillowtex Board will recommend that the
holders of the Pillowtex Common Stock vote in favor of and approve the Share
Issuance.
Consents, Approvals, and Filings. The Merger Agreement provides that each
of the parties to the Merger Agreement will (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act,
the Securities Act, and the Exchange Act with respect to the Merger and the
other transactions contemplated thereby (together, the "Transactions") and (ii)
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make effective
the Transactions, including without limitation using its reasonable best efforts
to obtain all licenses, permits (including without limitation environmental
permits), consents, approvals, authorizations, qualifications, and orders of
governmental authorities, and parties to contracts with Fieldcrest and its
subsidiaries as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Merger. In addition, Pillowtex has agreed, among
other things, to use its best efforts to obtain any government clearances
required for completion of the Merger (including through compliance with the HSR
Act) and to take any and all of the following actions to the extent necessary to
obtain the approval of any governmental authority with jurisdiction over the
enforcement of any applicable laws regarding the Merger: enter into
negotiations; provide information; substantially comply with any second request
for information pursuant to the HSR Act; enter into and perform agreements or
submit to judicial or administrative orders and sell or otherwise dispose of, or
hold separate (through the establishment of a trust or otherwise) particular
assets or categories of assets or businesses of Pillowtex, Fieldcrest, or any of
their affiliates; except that Pillowtex will not be required to take any such
action that would have a Material Adverse Effect on Pillowtex and its
subsidiaries (including the Surviving Company) taken as a whole following the
Effective Time. See "The Merger--Regulatory Approvals."
Indemnification. The Merger Agreement provides that the certificate of
incorporation and by-laws of the Surviving Company will contain the provisions
with respect to indemnification set forth in the Fieldcrest Certificate and the
Fieldcrest Bylaws on the date of the Merger Agreement, which provisions will not
be amended, repealed, or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors or
officers of Fieldcrest in respect of actions or omissions occurring at or prior
to the Effective Time (including without limitation the transactions
contemplated by the Merger Agreement), unless such modification is required by
law. The Merger Agreement further provides that Fieldcrest will, and from and
after the Effective Time, Pillowtex will, or will cause the Surviving Company
to, indemnify, defend, and hold harmless each person who is now, or has
previously been at any time or becomes prior to the Effective Time, an officer
or director of Fieldcrest (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees and
expenses), liabilities, or judgments or amounts that are paid in settlement,
with the approval of the indemnifying party (which approval is not to be
unreasonably withheld), of or in connection with any threatened or actual claim,
action, suit, proceeding, or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director or officer of Fieldcrest whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified Liabilities"),
including all Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to the Merger Agreement or the
transactions contemplated thereby, in each case, to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers as the case may be (and Pillowtex and the Surviving Company, as the
case may be, will pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law). Fieldcrest, Pillowtex, and Newco have agreed that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, will survive the
Merger and will continue in full force and effect for a period of not less than
six years from the Effective Time.
The Merger Agreement further provides that for a period of four years after
the Effective Time, Pillowtex will cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by
Fieldcrest (except that Pillowtex may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties), with respect
to matters arising before the Effective Time, except that Pillowtex will not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by Fieldcrest prior to the date of the Merger
Agreement, but in such case will purchase as much coverage as possible for such
amount.
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Employee Benefit Matters. Pillowtex, Newco, and Fieldcrest have agreed in
the Merger Agreement to certain matters with respect to the compensation and
benefit programs of the Surviving Company and its subsidiaries. The Merger
Agreement provides that Pillowtex will, and will cause its subsidiaries
following the Effective Time (including the Surviving Company) to: (i) honor and
provide for payment of all obligations and benefits under all of Pillowtex's
employee benefit plans (the "Pillowtex Plans") in accordance with their terms;
(ii) provide employee benefits which are substantially comparable in the
aggregate to the level of employee benefits provided by Fieldcrest and its
subsidiaries under Pillowtex's employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended) (the
"Pillowtex ERISA Plans") in effect as of the Closing Date for the benefit of
employees or former employees who are or had been employees of Fieldcrest or any
of its subsidiaries on or before the Closing Date ("Covered Employees"), until
the earlier of December 31, 1999 or the second anniversary of the Closing Date;
(iii) honor and provide for the payment of all obligations and benefits under
all employment or severance agreements between Fieldcrest and any Covered
Employee in accordance with their terms; and (iv) provide until the first
anniversary of the Closing Date for the benefit of Covered Employees who remain
in the employ of the Surviving Company or Pillowtex or any of its affiliates
employee compensation that is in the aggregate at a level substantially
comparable to the compensation (including base pay and incentive-type
compensation) provided by Fieldcrest and its subsidiaries under the compensation
arrangements in effect as of the Closing Date.
The Merger Agreement also provides that Pillowtex will cause the Surviving
Company (i) to maintain Fieldcrest's Short- Term Incentive Compensation Plan
without adverse change until the end of the 1997 calendar year and (ii) to
continue without adverse change the severance plan maintained by Fieldcrest and
its subsidiaries as of the date hereof until the first anniversary of the
Closing Date.
The Merger Agreement further provides that, if Covered Employees are
included in any benefit plan (including without limitation provision for
vacation) of Pillowtex or its subsidiaries, Covered Employees will receive
credit as employees of Fieldcrest and its subsidiaries to the same extent such
service was counted under similar Pillowtex Plans for purposes of eligibility,
vesting, eligibility for retirement, and, with respect to vacation, disability,
and severance, benefit accrual and that, if Covered Employees are included in
any medical, dental, or health plan other than the plan or plans they
participated in on the Closing Date, any such plans will not include
pre-existing condition exclusions, except to the extent such exclusions were
applicable under the similar Pillowtex Plan on the Closing Date, and will
provide credit for any deductibles and co-payments applied or made with respect
to each Covered Employee in the calendar year of the change.
In the Merger Agreement, the parties thereto acknowledged that nothing
therein will be deemed to be a commitment on the part of Pillowtex or the
Surviving Company to provide employment to any person for any period of time
and, except as otherwise provided in the Merger Agreement, nothing will be
deemed to prevent Pillowtex or the Surviving Company from amending or
terminating any Pillowtex Plan in accordance with its terms.
Fees and Expenses. The Merger Agreement provides that, except as described
above, all costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated by the Merger Agreement will be paid by the
party incurring the expenses, except that the costs incurred in connection with
printing and mailing proxy materials to Fieldcrest stockholders and Pillowtex
shareholders will be shared equally by Pillowtex and Fieldcrest.
Amendment. Subject to the applicable provisions of the DGCL, the Merger
Agreement may be modified or amended at any time prior to the Effective Time, by
Pillowtex, Newco, and Fieldcrest by written agreement executed and delivered by
duly authorized officers of the respective parties, except that after approval
and adoption of the Merger Agreement by the Fieldcrest stockholders, no
amendment will be made which would reduce the amount or change the type of
consideration into which each share of Fieldcrest Common Stock or Fieldcrest
Preferred Stock will be converted upon consummation of the Merger. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
STOCK EXCHANGE LISTING
Prior to the Effective Time, Pillowtex will file an application to list the
shares of Pillowtex Common Stock to be issued in connection with the Merger on
the NYSE, subject to official notice of issuance. It is a condition to the
parties' obligations to consummate the Merger that such shares will have been
approved for listing, subject to official notice of
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issuance. See "--The Merger Agreement--Conditions to the Merger." The shares of
Pillowtex Common Stock are traded on the NYSE under the symbol "PTX."
DELISTING AND DEREGISTRATION OF FIELDCREST COMMON STOCK
If the Merger is consummated, the Fieldcrest Common Stock will be delisted
from the NYSE, the Fieldcrest Preferred Stock will be removed from quotation by
the Nasdaq, and both the Fieldcrest Common Stock and the Fieldcrest Preferred
Stock will be deregistered under the Exchange Act.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting,
in accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price paid by Pillowtex for Fieldcrest
(including direct costs of the Merger) will be allocated to the identifiable
assets of Fieldcrest based upon estimates of the fair value of Fieldcrest's
identifiable assets and liabilities as of the Effective Time, with the excess of
the purchase price over the fair value of Fieldcrest's net identifiable assets
being allocated to goodwill. After the Merger, the financial condition and
results of operations of Fieldcrest will be included in the consolidated
financial condition and results of operations of Pillowtex.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the opinion of Jones, Day, Reavis &
Pogue delivered to Pillowtex and the opinion of Weil, Gotshal & Manges LLP
delivered to Fieldcrest, copies of which are filed as Exhibits 8.1 and 8.2,
respectively, to the Registration Statement summarizes, and certain of the
principal federal income tax considerations of the Merger that are generally
applicable to holders of Fieldcrest Common Stock and Fieldcrest Preferred Stock.
This discussion does not deal with all income tax considerations that may be
relevant to particular Fieldcrest stockholders in light of their particular
circumstances, such as stockholders who are dealers in securities, foreign
persons, or stockholders who acquired their shares in connection with stock
option or stock purchase plans or in other compensatory transactions. No
foreign, state, or local tax considerations are addressed herein. ACCORDINGLY,
FIELDCREST STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES, OF THE MERGER IN THEIR INDIVIDUAL CIRCUMSTANCES.
Receipt of the Merger Consideration. The receipt by a Fieldcrest
stockholder of the merger consideration (including any cash amounts received by
dissenting stockholders pursuant to the exercise of appraisal rights) in
exchange for shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
will be a taxable transaction for federal income tax purposes. In general, for
federal income tax purposes, a stockholder will recognize gain (or loss) equal
to the difference between (i) the sum of the amount of cash and the fair market
value of the Pillowtex Common Stock received pursuant to the Merger and (ii) the
tax basis of the shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock
exchanged pursuant to the Merger. Gain (or loss) must be determined separately
for each block of shares of Fieldcrest Common Stock or Fieldcrest Preferred
Stock (i.e., shares acquired at the same cost in a single transaction) converted
to shares of Pillowtex Common Stock and cash in the Merger. Assuming that such
shares of Fieldcrest Common Stock or Fieldcrest Preferred Stock constitute
capital assets in the stockholder's hands, such gain (or loss) will be long-term
gain (or loss) if, at the Effective Time, the shares of Fieldcrest Common Stock
or Fieldcrest Preferred Stock were held for more than one year. The recently
enacted Taxpayer Relief Act of 1997 reduces the rate of federal income tax
imposed on capital gains with respect to capital assets held more than 18 months
by noncorporate taxpayers. The basis of the Pillowtex Common Stock received
pursuant to the Merger will be its fair market value at the time of the Merger,
and the holding period thereof will begin on the day following the day on which
the Effective Time occurs.
Backup Withholding. Payments in connection with the Merger may be subject
to "backup withholding" at a 31% rate. Backup withholding generally applies if
the stockholder (a) fails to furnish his social security number or other
taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c)
fails properly to report interest or dividends, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Any amounts withheld from a payment to a stockholder under
the backup withholding rules will be allowed as a credit against such
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<PAGE> 66
stockholder's federal income tax liability, provided that the required
information is provided to the Internal Revenue Service. Certain persons
generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income. Each
stockholder should consult with his own tax advisor as to his qualification for
exemption from withholding and the procedure for obtaining such exemption.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
FIELDCREST STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER IN THEIR INDIVIDUAL CIRCUMSTANCES,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS, AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY APPROVALS
Pillowtex and Fieldcrest must observe the notification and waiting period
requirements of the HSR Act before the Merger may be consummated. The HSR Act
provides for an initial 30-calendar day waiting period following the filing with
the Antitrust Division and the FTC of certain Notification and Report Forms by
Pillowtex and Fieldcrest. The HSR Act further provides that if, within the
initial 30-calendar day waiting period, the FTC or the Antitrust Division issues
a request for additional information or documents, the waiting period will be
extended until 11:59 p.m. on the twentieth day after the date of substantial
compliance by the filing parties with such request. Only one such extension of
the initial waiting period is permitted under the HSR Act; however, the filing
parties may voluntarily extend the waiting period.
Pillowtex and Fieldcrest have made the requisite initial filings under the
HSR Act in connection with the Merger. The initial waiting period with respect
to such filings expired at 11:59 p.m. on October 17, 1997.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the FTC or the Antitrust Division could, among other
things, seek under the antitrust laws to enjoin the Merger or to cause Pillowtex
to divest itself, in whole or in part, of Fieldcrest or of other businesses
conducted by Pillowtex. Under certain circumstances, private parties and state
governmental authorities may also bring legal action under the antitrust laws
challenging the Merger. See "--The Merger Agreement--Conditions to the Merger"
and "--Consents, Approvals, and Filings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of Fieldcrest's management and the Fieldcrest
Board may be deemed to have certain interests in the Merger that are in addition
to their interests as stockholders of Fieldcrest generally. Such interests
relate to, among other things, provisions in the Merger Agreement regarding the
treatment of outstanding Fieldcrest Options and Fieldcrest SARs, the performance
and provision of obligations and benefits under existing severance agreements
and compensation and benefit plans, and the indemnification of and provision of
insurance coverage for the directors and officers of Fieldcrest. The Fieldcrest
Board was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. See
"The Merger Agreement--Treatment of Fieldcrest Stock Options," "--Treatment of
Fieldcrest SARs," "--Employee Benefit Matters," and "--Indemnification."
Fieldcrest Stock Options. Under Fieldcrest's 1995 Employee Stock Option
Plan, as of September 30, 1997, Fieldcrest's "named executive officers" (i.e.,
the executive officers of Fieldcrest listed in the summary compensation table
included in Fieldcrest's proxy statement relating to its 1997 Annual Meeting of
Stockholders other than one such executive officer who retired from Fieldcrest
effective as of May 1, 1997) held Fieldcrest Options to purchase an aggregate of
195,000 shares of Fieldcrest Common Stock at exercise prices between $20.625 and
$22.375 per share. Under Fieldcrest's Director Stock Option Plan, as of November
5, 1997, the Fieldcrest directors held Fieldcrest Options to purchase an
aggregate of 61,000 shares of Fieldcrest Common Stock at exercise prices between
$13.00 and $25.625 per share. Under a stock option agreement between Fieldcrest
and James M. Fitzgibbons, as of November 5, 1997, there were outstanding
Fieldcrest Options to purchase an aggregate of 20,000 shares of Fieldcrest
Common Stock at an exercise price of $14.875 per share. Assuming the foregoing
persons elected to receive cash consideration in settlement
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<PAGE> 67
of their Fieldcrest Options as a result of the Merger, the named executive
officers would be entitled to aggregate payments of $2,850,000 and the
Fieldcrest directors would be entitled to receive aggregate payments of $758,875
in respect of their Fieldcrest Options.
Fieldcrest SARs. Under Fieldcrest's 1994 Employee and Director Stock
Appreciation Rights Plan, as of November 5, 1997, there were outstanding 7,000
Fieldcrest SARs held by the non-employee directors having a grant price of
$25.625. The Fieldcrest directors would be entitled to receive aggregate cash
payments of $58,625 in respect of such Fieldcrest SARs as a result of the
Merger.
Fieldcrest Restricted Stock. As of November 5, 1997, there were 8,549
outstanding shares of Fieldcrest Common Stock granted under the Fieldcrest
Long-Term Incentive Plan held by the named executive officers that remained
subject to risk of forfeiture. Each of such shares will vest as a result of the
Merger and will be converted in the Merger into the right to receive cash and
shares of Pillowtex Common Stock as described in "The Merger--The Merger
Agreement--Consideration to Be Paid in the Merger." Assuming the merger
consideration has a value of $34.00 per share of Fieldcrest Common Stock, the
named executive officers would receive value in the aggregate amount of $290,666
in respect of their restricted shares as a result of the Merger.
Fieldcrest Retention Agreements. Approximately 60 executives of Fieldcrest
are parties to agreements under which they are entitled to a lump-sum payment of
an amount based on their base salary in the event of a change in control of
Fieldcrest (which will occur as a result of the Merger) and a subsequent
not-for-cause termination or constructive termination. Under the agreements,
upon a change in control of Fieldcrest and a subsequent not-for-cause
termination or constructive termination, the following executive officers would
be entitled to receive a lump-sum payment of their base salary otherwise payable
over the number of years specified: J. M. Fitzgibbons, 3 years; J. M. Nevin, 2
years; R. E. Dellinger, 2 years; and T. R. Staab, 2 years.
Other Matters. Pillowtex, Newco, and Fieldcrest have agreed in the Merger
Agreement to certain matters with respect to the compensation and benefit
programs of the Surviving Company and its subsidiaries. The Merger Agreement
provides that Pillowtex will, and will cause its subsidiaries following the
Effective Time (including the Surviving Company) to: (i) honor and provide for
payment of all obligations and benefits under all Pillowtex Plans in accordance
with their terms; (ii) provide employee benefits which are substantially
comparable in the aggregate to the level of employee benefits provided by
Fieldcrest and its subsidiaries under the Pillowtex ERISA Plans in effect as of
the Closing Date for the benefit of employees or former employees who are or had
been employees of Fieldcrest or any of its subsidiaries on or before the Closing
Date (i.e., Covered Employees), until the earlier of December 31, 1999 or the
second anniversary of the Closing Date; (iii) honor and provide for the payment
of all obligations and benefits under all employment or severance agreements
between Fieldcrest and any Covered Employee in accordance with their terms; and
(iv) provide until the first anniversary of the Closing Date for the benefit of
Covered Employees who remain in the employ of the Surviving Company or Pillowtex
or any of its affiliates employee compensation that is in the aggregate at a
level substantially comparable to the compensation (including base pay and
incentive-type compensation) provided by Fieldcrest and its subsidiaries under
the compensation arrangements in effect as of the Closing Date.
The Merger Agreement also provides that Pillowtex will cause the Surviving
Company (i) to maintain Fieldcrest's Short-Term Incentive Compensation Plan
without adverse change until the end of the 1997 calendar year and (ii) to
continue without adverse change the severance plan maintained by Fieldcrest and
its subsidiaries as of the date hereof until the first anniversary of the
Closing Date.
The Merger Agreement further provides that, if Covered Employees are
included in any benefit plan (including without limitation provision for
vacation) of Pillowtex or its subsidiaries, Covered Employees will receive
credit as employees of Fieldcrest and its subsidiaries to the same extent such
service was counted under similar Pillowtex Plans for purposes of eligibility,
vesting, eligibility for retirement, and, with respect to vacation, disability,
and severance, benefit accrual and that, if Covered Employees are included in
any medical, dental, or health plan other than the plan or plans they
participated in on the Closing Date, any such plans will not include
pre-existing condition exclusions, except to the extent such exclusions were
applicable under the similar Pillowtex Plan on the Closing Date, and will
provide credit for any deductibles and co-payments applied or made with respect
to each Covered Employee in the calendar year of the change.
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<PAGE> 68
APPRAISAL RIGHTS
Under Delaware law, holders of Fieldcrest Common Stock and holders of
Fieldcrest Preferred Stock are entitled to appraisal rights in connection with
the Merger. Any holder of record of Fieldcrest Common Stock or Fieldcrest
Preferred Stock who objects to the Merger may elect to have his shares appraised
under the procedures of the DGCL and to be paid the appraised value of his
shares, which, pursuant to Section 262 of the DGCL, will be the shares' fair
value exclusive of any element of value arising from the accomplishment or
expectation of the Merger. An appraisal proceeding may result in a determination
of fair value less than or greater than the value of the consideration payable
in respect of such shares.
Any holder of Fieldcrest Common Stock or Fieldcrest Preferred Stock
contemplating the exercise of appraisal rights is urged to review carefully the
provisions of Section 262 of the DGCL (a copy of which is attached as Appendix D
hereto), particularly with respect to the procedural steps required to perfect
the right of appraisal. The right of appraisal may be lost if the procedural
requirements of Section 262 of the DGCL are not followed exactly. Set forth
below, to be read in conjunction with the full text of Section 262 of the DGCL
attached as Appendix D hereto, is a summary of the procedures relating to
exercise of the right of appraisal.
Under Section 262 of the DGCL, a corporation, not less than 20 calendar
days prior to the meeting at which a proposed merger is to be voted on, must
notify each of its stockholders entitled to appraisal rights as of the record
date of the meeting that such appraisal rights are available and include in such
notice a copy of Section 262 of the DGCL. THIS JOINT PROXY STATEMENT/PROSPECTUS
CONSTITUTES SUCH NOTICE TO THE HOLDERS OF FIELDCREST COMMON STOCK AND FIELDCREST
PREFERRED STOCK.
A stockholder electing to exercise his, her, or its rights under Section
262 of the DGCL must deliver to Fieldcrest, before the taking of a vote with
respect to the adoption of the Merger Agreement, a written demand for appraisal
which reasonably informs Fieldcrest of the identity of the stockholder and that
the stockholder intends thereby to demand appraisal of his, her, or its shares.
A proxy or vote against the adoption of the Merger Agreement, or an abstention
or broker non-vote, will not constitute such a demand; a stockholder electing to
take such action must do so by a separate written demand. Such demands should be
mailed or delivered to Mark R. Townsend, Secretary, Fieldcrest Cannon, Inc., One
Lake Circle Drive, Kannapolis, North Carolina 28081. Within 10 calendar days
after the Effective Time, the Surviving Company will notify each stockholder who
has made a proper written demand and who has not voted in favor of adoption of
the Merger Agreement of the Effective Time. A vote in favor of the approval and
adoption of the Merger Agreement will have the effect of waiving all appraisal
rights.
Within 120 calendar days after the Effective Time, Fieldcrest or any
stockholder who has complied with the foregoing notice requirement and any other
applicable requirements may file a petition in the Delaware Court of Chancery
(the "Court") demanding a determination of the value of the shares of all
stockholders who have complied with such provisions. However, because Fieldcrest
has no obligation to file such a petition and does not currently intend to do so
if any stockholders exercise appraisal rights, any stockholder that desires that
such a petition be filed is advised to do so on a timely basis. If neither
Fieldcrest nor any dissenting stockholder files a petition for appraisal within
120 calendar days, all appraisal rights will terminate. Any holder of shares may
withdraw a demand for appraisal at any time within 60 calendar days after the
Effective Time (or thereafter with the written consent of Fieldcrest) and
receive, pursuant to the terms of the Merger, the applicable consideration for
his, her, or its shares of Fieldcrest Common Stock or Fieldcrest Preferred
Stock. Notwithstanding the foregoing, no appraisal proceeding in the Court will
be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
Within 120 calendar days after the Effective Time, any stockholder who has
complied with the above-described notice requirements and any other applicable
requirements may also deliver to Fieldcrest a written request for a statement
listing the aggregate number of shares of Fieldcrest Common Stock or Fieldcrest
Preferred Stock with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such a statement will be
mailed to the stockholder within 10 calendar days after his written request for
it is received by Fieldcrest or within 10 calendar days after the Effective
Time, whichever is later.
Upon the filing of any petition by a stockholder demanding appraisal,
service of a copy thereof will be made upon Fieldcrest, which will, within 20
calendar days after such service, file in the office of the Register in Chancery
in which
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the petition was filed a duly verified list containing the names and addresses
of all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by Fieldcrest.
If a petition is filed by Fieldcrest, the petition will be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, will
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to Fieldcrest and to the stockholders shown on the
list at the addresses therein stated, and such notice will also be given by
publishing a notice at least one week from the day of the hearing in a newspaper
of general circulation published in Wilmington, Delaware, or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
will be approved by the Court, and the costs thereof will be borne by
Fieldcrest.
After determining the stockholders entitled to an appraisal under Section
262 of the DGCL, the Court will appraise the shares, determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the Merger together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court will take into account all relevant factors. The Court will
direct the payment of the appraised value of the shares, together with interest,
if any, by Fieldcrest to the stockholders entitled thereto upon surrender to
Fieldcrest of the certificates representing such shares. The costs of the
appraisal proceeding may be determined by the Court and taxed upon the parties
as the Court deems equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the expenses incurred by
any stockholder in connection with the appraisal proceeding, including without
limitation reasonable attorneys' fees and the fees and expenses of experts, to
be charged pro rata against the value of all of the shares entitled to an
appraisal.
After the Effective Time, no stockholder who has demanded his appraisal
rights as set forth above will be entitled to vote his shares for any purpose or
to receive payment of dividends or other distributions on his shares (except
dividends or other distributions payable to stockholders of record at a date
prior to the Effective Time).
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PRO FORMA CAPITALIZATION OF PILLOWTEX
The following table sets forth the historical capitalization of each of
Pillowtex and Fieldcrest as of September 27, 1997 and September 30, 1997,
respectively, and the pro forma capitalization of Pillowtex as of September 27,
1997, adjusted to give effect to the consummation of the Merger and the
Financing Transactions, as if such transactions had been consummated on
September 27, 1997. As used herein, the term "Financing Transactions" means (i)
estimated initial borrowings under the New Pillowtex Bank Facilities of $430.2
million, (ii) the issuance and sale of $150.0 million aggregate principal amount
of New Pillowtex Subordinated Notes resulting in estimated net proceeds of
$146.4 million, (iii) the issuance and sale of 65,000 shares of Pillowtex
Preferred Stock resulting in estimated net proceeds of $63.5 million, (iv) the
repayment of all amounts outstanding under Pillowtex's and Fieldcrest's existing
bank credit facilities, and (v) the satisfaction and discharge of all
indebtedness represented by Fieldcrest's 11.25% Senior Subordinated Debentures
Due 2002 to 2004 pursuant to an irrevocable deposit of amounts sufficient to
provide for the redemption thereof. Because the Standby Bridge Loan Facility is
expected to be drawn upon, if at all, only in the event that less than $135.0
million aggregate principal amount of New Pillowtex Subordinated Notes shall
have been issued and sold as of the Closing Date, the pro forma information
presented herein assumes that no amounts will be borrowed thereunder.
The pro forma information set forth below is presented for illustrative
purposes only and is not necessarily indicative of what Pillowtex's actual
consolidated capitalization would have been had the foregoing transactions been
consummated on September 27, 1997, nor does it give effect to (i) any
transactions other than the foregoing transactions and those discussed in the
Notes to Unaudited Pro Forma Combined Financial Information of Pillowtex
included elsewhere in this Joint Proxy Statement/Prospectus or (ii) Pillowtex's
or Fieldcrest's respective results of operations since September 27, 1997 and
September 30, 1997, respectively. Accordingly, the pro forma information set
forth below does not purport to be indicative of Pillowtex's consolidated
capitalization as of the date hereof, the Effective Time, or any other future
date.
The following table should be read in conjunction with the historical
financial statements of Pillowtex and Fieldcrest, the unaudited pro forma
combined financial information, the related notes, and the other information
contained elsewhere in this Joint Proxy Statement/Prospectus or incorporated by
reference herein. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Combined Financial Information
of Pillowtex."
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<PAGE> 71
CAPITALIZATION
SEPTEMBER 27, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
PILLOWTEX FIELDCREST COMBINED
---------- ---------- ----------
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt........................ $ 1,553 $ 4,697 $ 6,250
---------- ---------- ----------
Total short-term debt.................................. 1,553 4,697 6,250
Long-term debt:
Revolving credit borrowings.............................. 86,350 100,000 180,155 (a)
Senior bank term A....................................... -- -- 125,000
Senior bank term B....................................... -- -- 125,000
New Pillowtex Subordinated Notes......................... -- -- 150,000
Existing Pillowtex Subordinated Notes.................... 125,000 -- 125,000
Fieldcrest Convertible Subordinated Debentures........... -- 112,500 99,688 (b)
Fieldcrest Senior Subordinated Debentures................ -- 85,000 --
Deed of Trust Note....................................... 2,199 -- 2,199
PEDFA Industrial Revenue Bonds........................... 2,310 -- 2,310
MBFC Industrial Revenue Bonds............................ 2,760 -- 2,760
Industrial Development Bonds due 2021.................... -- 10,000 10,000
Industrial Revenue Installment Bonds due 2002............ -- 1,320 1,320
Other long-term debt..................................... 187 -- 187
---------- ---------- ----------
Total long-term debt................................... 218,806 308,820 823,619
---------- ---------- ----------
Total debt........................................... 220,359 313,517 829,869
Pillowtex Series A Redeemable Convertible Preferred Stock,
$0.01 par value, 200,000 shares authorized,
65,000 shares issued and outstanding (as adjusted)....... -- -- 63,500
Shareholders' equity:
Preferred Stock, $0.01 par value, 20,000,000 shares
authorized, none issued and outstanding (Pillowtex
historical); $0.01 par value, 10,000,000 shares
authorized, 1,500,000 shares issued and outstanding
(Fieldcrest historical); $0.01 par value, 20,000,000
shares authorized, none issued and outstanding (as adjusted) -- 15 --
Common Stock, $0.01 par value, 30,000,000 shares authorized,
10,786,819 shares issued and outstanding (Pillowtex
historical); $0.01 par value, 25,000,000 shares authorized,
12,850,002 shares issued and outstanding (Fieldcrest
historical); $0.01 par value, 30,000,000 shares authorized,
14,234,451 shares issued and outstanding (as adjusted)... 108 12,850 142
Additional paid-in capital................................. 60,825 226,758 143,534
Retained earnings.......................................... 50,316 106,923 49,348 (c)
Treasury stock, 3,606,400 shares (Fieldcrest historical);
0 shares (as adjusted)................................... -- (117,225) --
Currency translation adjustment............................ (472) -- (472)
---------- ---------- ----------
Total shareholders' equity............................... 110,777 229,321 192,552
---------- ---------- ----------
Total capitalization................................. $ 331,136 $ 542,838 $1,085,921
========== ========== ==========
Ratio of total debt to total capitalization.......... 66.55% 57.76% 76.42% (d)
========== ========== ==========
</TABLE>
- ------------------------------------
(a) Reflects a net reduction in revolving credit borrowings of $6,195.
(b) Reflects an adjustment to record the Fieldcrest Convertible Debentures at
fair market value.
(c) Reflects a charge of $968, net of income tax benefit, for the write off of
Pillowtex unamortized debt issuance costs.
(d) Including the Pillowtex Preferred Stock together with total debt, the ratio
would be 82.27%.
See Notes to Unaudited Pro Forma Combined Financial Information.
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<PAGE> 72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF PILLOWTEX
The following unaudited pro forma combined financial statements of
Pillowtex give effect to the consummation of the Merger and the Financing
Transactions, as if such transactions had been consummated: (i) on September 27,
1997, in the case of the Unaudited Pro Forma Combined Balance Sheet at September
27, 1997 and (ii) on December 31, 1995, the first day of Pillowtex's 1996 fiscal
year, in the case of the Unaudited Pro Forma Combined Statement of Operations
for the fiscal year ended December 28, 1996 and the nine months ended September
27, 1997. As used herein, the term "Financing Transactions" means (i) estimated
initial borrowings under the New Pillowtex Bank Facilities of $430.2 million,
(ii) the issuance and sale of $150.0 million aggregate principal amount of New
Pillowtex Subordinated Notes resulting in estimated net proceeds of $146.4
million, (iii) the issuance and sale of 65,000 shares of Pillowtex Preferred
Stock resulting in estimated net proceeds of $63.5 million, (iv) the repayment
of all amounts outstanding under Pillowtex's and Fieldcrest's existing bank
credit facilities, and (v) the satisfaction and discharge of all indebtedness
represented by Fieldcrest's 11.25% Senior Subordinated Debentures Due 2002 to
2004 pursuant to an irrevocable deposit of amounts sufficient to provide for the
redemption thereof. Because the Standby Bridge Loan Facility is expected to be
drawn upon, if at all, only in the event that less than $135.0 million aggregate
principal amount of New Pillowtex Subordinated Notes shall have been issued and
sold as of the Closing Date, the pro forma combined financial information
presented herein assumes that no amounts will be borrowed thereunder.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
what Pillowtex's actual financial position or results of operations would have
been had the foregoing transactions been consummated on such dates, nor does it
give effect to (i) any transactions other than the foregoing transactions and
those described in the accompanying Notes to Unaudited Pro Forma Combined
Financial Information of Pillowtex, (ii) Pillowtex's or Fieldcrest's results of
operations since September 27, 1997 and September 30, 1997, respectively, or
(iii) one-time charges of approximately $5.5 million, $1.9 million of which will
be cash charges, expected to result from the Merger and the integration of the
operations of Pillowtex and Fieldcrest. Although the following unaudited pro
forma combined financial information gives effect to assumed annual cost savings
of $21.6 million, it does not give effect to an additional $8.4 million of
annual cost savings expected to be achieved following consummation of the
Merger. See "Risk Factors--Ability to Achieve Cost Savings." The pro forma
combined financial information does not purport to be indicative of Pillowtex's
financial position or results of operations as of the date hereof or for any
period ended on the date hereof, as of the Closing Date, or for any period
ending at the Closing Date, or as of or for any other future date or period.
The following unaudited pro forma combined financial information is based
upon the historical financial statements of Pillowtex and Fieldcrest and should
be read in conjunction with such historical financial statements, the related
notes, and the other information contained elsewhere in this Joint Proxy
Statement/Prospectus or incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference." In the
preparation of the following unaudited pro forma combined financial information,
it has been generally assumed that the historical value of Fieldcrest's assets
and liabilities approximates the fair value thereof (except as described in the
accompanying Notes to Unaudited Pro Forma Combined Financial Information of
Pillowtex), as an independent valuation has not been completed. Pillowtex will
be required to determine the fair value of the assets and liabilities of
Fieldcrest (including intangible assets) as of the Effective Time. Although such
determination of fair value is not presently expected to result in values that
are materially greater or less than the values assumed in the preparation of the
following unaudited pro forma combined financial information, there can be no
assurance with respect thereto.
The Unaudited Pro Forma Combined Balance Sheet at September 27, 1997 is
based upon Pillowtex's financial position at September 27, 1997 and upon
Fieldcrest's financial position at September 30, 1997. The Unaudited Pro Forma
Combined Statement of Operations for the fiscal year ended December 28, 1996 is
based upon Pillowtex's results of operations for its fiscal year ended December
28, 1996 and upon Fieldcrest's results of operations for its fiscal year ended
December 31, 1996. The Unaudited Pro Forma Combined Statement of Operations for
the nine months ended September 27, 1997 is based upon Pillowtex's results of
operations for the nine months ended September 27, 1997 and upon Fieldcrest's
results of operations for the nine months ended September 30, 1997.
The home textiles and furnishings industry is seasonal in nature, with a
higher proportion of sales and earnings usually being generated in the third and
fourth quarters of the fiscal year than in other periods. Because of this
seasonality and other factors, results of operations for interim periods are not
necessarily indicative of results of operations for an entire fiscal year. See
"Risk Factors--Seasonality of Business."
53
<PAGE> 73
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
SEPTEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- -----------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ......................................... $ 34 $ 5,475 $ -- (2) $ 5,509
Accounts receivable .......................... 104,353 170,071 -- 274,424
Inventories .................................. 150,084 202,064 38,000 (1) 390,148
Prepaid expenses and other current assets .... 6,849 2,218 -- 9,067
----------- ----------- ----------- -----------
Total current assets ....................... 261,320 379,828 38,000 679,148
Property, plant, and equipment, net ............ 98,916 342,392 50,000 (1) 491,308
Goodwill, net .................................. 45,683 6,465 164,168 (1) 216,316
Other assets, net .............................. 13,249 60,794 (27,051)(1) 60,205
(1,600)(3)
14,813 (4)
Total assets ............................. $ 419,168 $ 789,479 $ 238,330 $ 1,446,977
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 50,699 $ 63,893 $ -- $ 114,592
Accrued expenses ........................... 25,253 69,435 (632)(3) 94,056
Current portion of long-term debt .......... 1,553 4,697 -- 6,250
Deferred income taxes ...................... 2,581 20,593 13,300 (1) 36,474
----------- ----------- ----------- -----------
Total current liabilities ................ 80,086 158,618 12,668 251,372
Long-term debt ................................. 218,806 308,820 295,993 (4) 823,619
Deferred income taxes .......................... 9,499 39,758 13,715 (1) 62,972
Other non-current liabilities .................. -- 52,962 -- 52,962
----------- ----------- ----------- -----------
Total liabilities ........................ 308,391 560,158 322,376 1,190,925
Redeemable convertible preferred stock ......... -- -- 63,500 (5) 63,500
Shareholders' equity:
Preferred stock .............................. -- 15 (15)(6) --
Common stock ................................. 108 12,850 (12,816)(6) 142
Additional paid-in capital ................... 60,825 226,758 (144,049)(6) 143,534
Retained earnings ............................ 50,316 106,923 (106,923)(6) 49,348
(968)(3)
Treasury stock ............................... -- (117,225) 117,225 (6) --
Currency translation adjustment .............. (472) -- -- (472)
----------- ----------- ----------- -----------
Total shareholders' equity ............... 110,777 229,321 (147,546) 192,552
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 419,168 $ 789,479 $ 238,330 $ 1,446,977
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
54
<PAGE> 74
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- --------------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................................ $ 490,655 $ 1,092,496 $ -- $1,583,151
Cost of goods sold................................... 411,048 956,522 3,713 (7) 1,364,368
(6,915) (8)
Gross profit....................................... 79,607 135,974 3,202 218,783
Selling, general, and administrative expenses........ 41,445 105,405 (530) (1c) 135,875
412 (7)
(14,644) (8)
4,266 (7)
(479) (9)
Restructuring charges................................ -- 8,130 -- 8,130
----------- ----------- ---------- ----------
Earnings from operations........................... 38,162 22,439 14,177 74,778
Nonoperating (income) expense:
Interest expense................................... 13,971 26,869 15,502 (10) 56,342
Other income, net.................................. -- (5,604) -- (5,604)
----------- ----------- ---------- ----------
Total nonoperating expense..................... 13,971 21,265 15,502 50,738
----------- ----------- ---------- ----------
Earnings before income taxes and extraordinary items 24,191 1,174 (1,325) 24,040
Income taxes......................................... 9,459 114 1,608 (11) 11,181
----------- ----------- ---------- ----------
Earnings before extraordinary items................ 14,732 1,060 (2,933) 12,859
Preferred dividends.................................. -- (4,500) 2,550 (12) (1,950)
----------- ----------- ---------- ----------
Earnings (loss) before extraordinary
items applicable to common stock................. $ 14,732 $ (3,440) $ (383) $ 10,909
=========== =========== ========== ==========
OTHER OPERATING DATA:
Depreciation and amortization...................... $ 12,775 $ 36,678 $ 56,835
EBITDA(14)......................................... 50,937 59,117 131,613
Primary earnings per share:
Earnings (loss) before extraordinary items......... $ 1.39 $ (0.38) $ 0.77
=========== =========== ==========
Weighted average common shares outstanding......... 10,617,722 9,023,958 16,773,687 (13)
=========== =========== ==========
Fully diluted earnings per share:
Earnings (loss) before extraordinary items ........ $ -- $ 0.77
=========== ==========
Weighted average common shares outstanding......... 14,413,901 16,773,687 (13)
=========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
55
<PAGE> 75
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 27, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- --------------------------------
PILLOWTEX FIELDCREST ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................................ $ 370,633 $ 820,635 $ -- $ 1,191,268
Cost of goods sold................................... 305,674 695,615 2,784 (7) 998,887
(5,186) (8)
Gross profit....................................... 64,959 125,020 2,402 192,381
Selling, general, and administrative expenses........ 33,728 85,563 (398) (1c) 111,100
310 (7)
(10,983) (8)
3,199 (7)
(319) (9)
Earnings from operations........................... 31,231 39,457 10,593 81,281
Nonoperating (income) expense:
Interest expense................................... 13,957 18,708 19,140 (10) 51,805
Other income, net.................................. -- (2,021) -- (2,021)
----------- ----------- ---------- -----------
Total nonoperating expense..................... 13,957 16,687 19,140 49,784
----------- ----------- ---------- -----------
Earnings before income taxes and extraordinary
items............................................. 17,274 22,770 (8,547) 31,497
Income taxes......................................... 6,702 8,087 (1,084) (11) 13,705
----------- ----------- ---------- -----------
Earnings before extraordinary items................ 10,572 14,683 (7,463) 17,792
Preferred dividends.................................. -- (3,375) 1,912 (12) (1,463)
----------- ----------- ---------- -----------
Earnings before extraordinary items applicable
to common stock.................................. $ 10,572 $ 11,308 $ (5,551) $ 16,329
=========== =========== ========== ===========
OTHER OPERATING DATA:
Depreciation and amortization...................... $ 10,642 $ 26,241 $ 42,459
EBITDA(14)......................................... 41,873 65,698 123,740
Primary earnings per share:
Earnings before extraordinary items................ $ 0.99 $ 1.23 $ 1.06 (13)
=========== =========== ===========
Weighted average common shares outstanding......... 10,669,225 9,204,171 16,825,190
=========== =========== ===========
Fully diluted earnings per share:
Earnings before extraordinary items................ $ 1.23 $ 1.06 (13)
=========== ===========
Weighted average common shares outstanding......... 9,247,477 16,825,190
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
56
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) In connection with the Merger, each outstanding share of Fieldcrest Common
Stock will be converted into the right to receive total consideration
valued at $34.00, assumed to consist of $27.00 in cash and 0.292 shares of
Pillowtex Common Stock, and each outstanding share of Fieldcrest Preferred
Stock will be converted into a right to receive total consideration valued
at $58.12, assumed to consist of $46.15 in cash and 0.499 shares of
Pillowtex Common Stock. For purposes of the unaudited pro forma combined
financial information contained herein, the fair market value of Pillowtex
Common Stock is assumed to be $24.00 per share, which approximates the
market price of the Pillowtex Common Stock on September 10, 1997, the
trading day immediately preceding the date of the first public announcement
of the Merger. The aggregate purchase price assumed to be paid by Pillowtex
in connection with the acquisition of Fieldcrest pursuant to the Merger is
summarized below.
<TABLE>
<S> <C>
ISSUANCE OF PILLOWTEX COMMON STOCK:
Number of shares of Fieldcrest Common Stock assumed to be outstanding at the
Effective Time 9,243,602
Assumed conversion ratio 0.292
--------------
Number of shares of Pillowtex Common Stock assumed to be issued to holders of
Fieldcrest Common Stock in connection with the Merger 2,699,132
--------------
Number of shares of Fieldcrest Preferred Stock assumed to be outstanding at the
Effective Time 1,500,000
Assumed conversion ratio 0.499
--------------
Number of shares of Pillowtex Common Stock assumed to be issued to holders of
Fieldcrest Preferred Stock in connection with the Merger 748,500
--------------
Total shares of Pillowtex Common Stock assumed to be issued in connection with the
Merger 3,447,632
AGGREGATE PURCHASE PRICE:
Cash assumed to be paid to holders of Fieldcrest Common Stock (9,243,602 shares at
$27.00 per share) $ 249,577,000
Cash assumed to be paid to holders of Fieldcrest Preferred Stock (1,500,000 shares at
$46.15 per share) 69,225,000
Assumed fair value of Pillowtex Common Stock assumed to be issued in connection
with the Merger (3,447,632 shares at $24.00 per share) 82,743,000
Severance costs assumed to be incurred in connection with the Merger 15,000,000 (i)
Assumed settlement of Fieldcrest Options and Fieldcrest SARs 6,641,000 (a)
Early call premium on Fieldcrest 11.25% Senior Subordinated Debentures 4,250,000
Financial advisors, legal, accounting, and other professional fees 12,799,000
--------------
Aggregate purchase price $ 440,235,000
==============
</TABLE>
57
<PAGE> 77
<TABLE>
<S> <C> <C>
Aggregate purchase price $ 440,235,000
Less net book value of assets acquired 229,321,000
--------------
Excess of cost over net book value of assets acquired 210,914,000
Less adjustments to record assets and liabilities acquired
at fair market value:
Inventory 38,000,000 (b)
Property, plant, and equipment 50,000,000 (c)
Goodwill (6,465,000) (d)
Other assets (27,051,000) (e)
Deferred income taxes - current (13,300,000) (f)
Long-term debt 12,812,000 (g)
Deferred income taxes - noncurrent (13,715,000) (f) 40,281,000
-------------- --------------
Excess of cost over fair market value of net assets $ 170,633,000
==============
acquired (h)
</TABLE>
(a) Reflects the settlement of the Fieldcrest Options and
Fieldcrest SARs assuming (i) that the holder of each
Fieldcrest Option outstanding as of September 30, 1997 elects
to receive an amount in cash equal to the difference between
$34.00 and the per share exercise price of such Fieldcrest
Option and (ii) that the holder of each Fieldcrest SAR
outstanding as of September 30, 1997 is paid cash in an 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, in each case as
provided in the Merger Agreement.
(b) Reflects principally the elimination of Fieldcrest's last-in,
first-out reserve, together with certain offsetting
adjustments necessary to state inventory at fair market value.
(c) Reflects a preliminary adjustment to fair value of
Fieldcrest's property, plant, and equipment. The preliminary
adjustment is based upon internal estimates and is allocated
as follows:
<TABLE>
<S> <C>
Land $ 5,000,000
Buildings 20,000,000
Machinery and Equipment 25,000,000
------------
$ 50,000,000
============
</TABLE>
(d) Reflects the elimination of Fieldcrest's existing goodwill of
$6,465,000. The reversal of the related amortization was
$530,000 for the year ended December 28, 1996 and $398,000 for
the nine months ended September 27, 1997.
(e) Reflects an adjustment to record the (i) preliminary fair
value remeasurement of Fieldcrest's pension asset resulting in
a reduction of $17,049,000, (ii) elimination of the asset
related to the Fieldcrest licensing agreement with Pillowtex
of $6,576,000, and (iii) write-off of the unamortized balance
of debt issuance costs related to Fieldcrest's bank credit
facility and 11.25% Senior Subordinated Debentures of
$3,426,000.
(f) To record a $27,015,000 deferred tax liability related to the
temporary difference between the financial statement carrying
amount and the tax basis of the Fieldcrest acquired assets as
adjusted at an assumed income tax rate of 35.0% for the years
in which those differences are expected to be recovered or
settled.
(g) Reflects the adjustment to record the Fieldcrest Convertible
Debentures at an amount that approximates the market value of
the Fieldcrest Convertible Debentures on September 10, 1997,
the trading day immediately preceding the date of the first
public announcement of the Merger. The discount of
58
<PAGE> 78
$12,812,000 will be amortized to interest expense using the
interest method over the remaining life of the Fieldcrest
Convertible Debentures.
If it were assumed that all of the outstanding Fieldcrest
Convertible Debentures were converted into shares of
Fieldcrest Common Stock immediately prior to the Effective
Time (rather than remaining outstanding), then (i) at
September 27, 1997, on a pro forma combined basis, Pillowtex
would have had total assets of $1,428,346,000, total long-term
debt of $795,003,000, and total shareholders' equity of
$210,999,000, (ii) for the fiscal year ended December 28,
1996, on a pro forma combined basis, Pillowtex would have had
interest expense of $53,475,000, earnings before income taxes
and extraordinary items of $27,373,000, earnings before
extraordinary items of $15,060,000, and earnings before
extraordinary items per share of $0.86, and (iii) for the nine
months ended September 27, 1997, on a pro forma combined
basis, Pillowtex would have had interest expense of
$49,801,000, earnings before income taxes and extraordinary
items of $33,850,000, earnings before extraordinary items of
$19,353,000, and earnings before extraordinary items per share
of $1.10.
(h) Upon completion of its determination of fair values, Pillowtex
may identify intangible assets (such as trade names) to which
a portion of the purchase price should be allocated. Pillowtex
believes that the amortization period for such identifiable
intangible assets will also be 40 years.
(i) Reflects severance costs to be incurred in connection with the
Merger in accordance with EITF 95-3.
(2) Reflects the adjustment to record the following:
<TABLE>
<S> <C>
Initial borrowings under the New Pillowtex Bank Facilities $ 430,155,000
Gross proceeds from the issuance and sale of New Pillowtex 150,000,000
Subordinated Debentures
Gross proceeds from the issuance and sale of Pillowtex
Preferred Stock 65,000,000
Cash assumed to be paid to holders of Fieldcrest Common Stock
(9,243,602 shares at $27.00 per share) (249,577,000)
Cash assumed to be paid to holders of Fieldcrest Preferred Stock
(1,500,000 shares at $46.15 per share) (69,225,000)
Repayment of Pillowtex's revolving credit facility (86,350,000)
Repayment of Fieldcrest's revolving credit facility (100,00,000)
Satisfaction and discharge of Fieldcrest's 11.25% Senior
Subordinated Debentures (85,000,000)
Severance costs assumed to be incurred in connection with the
Merger (see note (1)(i)) (15,000,000)
Assumed settlement of Fieldcrest Options and Fieldcrest SARs
(see note 1(a)) (6,641,000)
Early call premium on Fieldcrest 11.25% Senior Subordinated
Debentures (4,250,000)
Financial advisors, legal, accounting, and other professional fees (29,112,000)
$ --
==============
</TABLE>
(3) Reflects the adjustment to (a) write off the unamortized balance of
debt issuance costs related to the existing Pillowtex bank credit
facility of $1,600,000, (b) record the related tax benefit of $632,000
and (c) record a net reduction in retained earnings of $968,000.
59
<PAGE> 79
(4) Reflects the adjustment to record the following:
<TABLE>
<S> <C>
Additional bank borrowings required to finance the Merger $ 430,155,000
Issuance and sale of New Pillowtex Subordinated Debentures 150,000,000
Repayment of Pillowtex's revolving credit facility (86,350,000)
Repayment of Fieldcrest's revolving credit facility (100,000,000)
Satisfaction and discharge of Fieldcrest's 11.25% Senior
Subordinated Debentures (85,000,000)
Discount of the Fieldcrest Convertible Debentures at
fair market value (see note 1(g)) (12,812,000)
---------------
$ 295,993,000
</TABLE>
Additionally, debt issuance costs of $14,813,000 were incurred in
connection with the Merger.
(5) Reflects the issuance and sale of 65,000 shares of Pillowtex Preferred
Stock at an offering price of $1,000 per share, net of estimated
offering costs of $1,500,000.
(6) Reflects the (i) elimination of Fieldcrest's equity which will be
cancelled upon consummation of the Merger, (ii) issuance of 3,447,632
shares of Pillowtex Common Stock at a par value of $0.01 in connection
with the Merger, and (iii) the related additional paid-in capital of
$82,709,000.
(7) Reflects incremental depreciation and amortization expense as a result
of the preliminary adjustment to fair value of Fieldcrest's property,
plant, and equipment and the excess of cost over fair market value of
the net assets acquired (see note 1) as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
ESTIMATED DECEMBER 28, ENDED
USEFUL LIFE 1996 SEPTEMBER 27, 1997
------------------ ----------------------- --------------------
<S> <C> <C> <C>
Additional depreciation of Fieldcrest
Merger property, plant, and
equipment 8 to 20 years $ 4,125,000 $ 3,094,000
============ ============
Amortization of excess of cost over 40 years $ 4,266,000 $ 3,199,000
============ ============
fair value of net assets acquired
</TABLE>
(8) Reflects the elimination of duplicate corporate expenses of $21,559,000
for the year ended December 28, 1996 and $16,169,000 for the nine
months ended September 27, 1997.
(9) Reflects the reversal of the amortization related to Pillowtex's debt
issuance costs which have been written off in connection with the
Merger (see note 3) of $479,000 for the year ended December 28, 1996
and $319,000 for the nine months ended September 27, 1997.
(10) Reflects an adjustment to record additional interest expense,
amortization of debt issuance costs, and the amortization of the
discount on the Fieldcrest Convertible Debentures incurred in
connection with the Merger. For each 1 expense would change by $556,000
and $511,000 for the year ended December 28, 1996 and the nine months
ended September 27, 1997, respectively.
If, in lieu of the issuance and sale of $135,000,000 aggregate
principal amount of New Pillowtex Subordinated Notes, Pillowtex were
assumed to have borrowed $135,000,000 under the Standby Bridge Bank
Facility, then (i) for the year ended December 28, 1996, on a pro forma
combined basis, Pillowtex would have had interest expense of
$58,078,000, earnings before income taxes and extraordinary items of
$22,304,000, earnings before extraordinary items of $11,809,000, and
earnings before extraordinary items per share of $0.70 and (ii) for the
nine months ended September 27, 1997, on a pro forma combined basis,
Pillowtex would have had interest expense of $58,194,000, earnings
before income taxes and extraordinary items of $25,108,000, earnings
before extraordinary items of $13,927,000, and earnings before
extraordinary items per share of $0.80.
60
<PAGE> 80
(11) Reflects the income tax benefit related to the effects of the pro forma
adjustments based upon an assumed composite income tax rate of 39.5%.
(12) Reflects an adjustment to (i) reverse Fieldcrest's historical preferred
stock dividends and (ii) record the dividends on the Pillowtex
Preferred Stock assuming a 3% dividend rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 28, ENDED
1996 SEPTEMBER 27, 1997
----------------- -------------------
<S> <C> <C>
Reversal of historical Fieldcrest Preferred Stock dividends $ (4,500,000) $ (3,375,000)
Addition of Pillowtex Preferred Stock dividends 1,950,000 1,463,000
------------ ------------
$ (2,550,000) $ (1,912,000)
============= =============
</TABLE>
If Pillowtex were to fail to attain specified earnings per share
targets in 1999, dividends for fiscal years after 1999 would increase
from the initial 3.0% rate to 7.0% or 10.0% and Pillowtex would be
required to pay an additional dividend consisting of shares of
Pillowtex Preferred Stock, in each case as described below in
"Description of Pillowtex Capital Stock--Series A Redeemable
Convertible Preferred Stock--Dividends."
(13) The assumed conversion of the Fieldcrest Convertible Debentures would
have an anti-dilutive effect on earnings per share for the year ended
December 28, 1996, and for the nine months ended September 27, 1997,
and therefore has been excluded from the computation thereof.
(14) EBITDA is income before income taxes plus depreciation and amortization
expense and interest expense net. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service
and/or incur indebtedness; however, EBITDA should not be considered as
an alternative to net income (as a measure of operating results) or to
cash flows (as a measure of liquidity) computed in accordance with
generally accepted accounting principles. In addition, EBITDA as
presented herein may not be directly comparable to EBITDA as reported
by other companies.
61
<PAGE> 81
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of the consummation of the Merger and the Financing
Transactions, Pillowtex will operate the existing businesses of Pillowtex and
Fieldcrest on a combined basis under a new capital structure. See "Pro Forma
Capitalization of Pillowtex" and "Unaudited Pro Forma Combined Financial
Information of Pillowtex." Accordingly, the financial condition and results of
operations of Pillowtex after the Closing Date will not be directly comparable
to the historical financial conditions or results of operations of Pillowtex and
Fieldcrest, either individually or on a combined basis. See Pillowtex's and
Fieldcrest's managements' discussions and analyses of the historical financial
conditions and results of operations of Pillowtex and Fieldcrest, respectively,
included in the Pillowtex Reports and the Fieldcrest Reports incorporated by
reference in this Joint Proxy Statement/Prospectus. See "Available Information"
and "Incorporation of Certain Documents in Reference."
Pillowtex will have three principal sources of liquidity during the period
immediately following the Closing Date: (i) cash on hand, (ii) borrowing
capacity under the New Pillowtex Bank Facilities, and (iii) cash generated by
operations. See "Unaudited Pro Forma Combined Financial Information of
Pillowtex" and "Merger Financing--New Pillowtex Bank Facilities." Immediately
following the Closing Date, Pillowtex expects to have at least $143.5 million of
borrowing capacity under the New Pillowtex Bank Facilities.
As a result of the Merger, each Fieldcrest Convertible Debenture will
become convertible, at the option of the holder, into cash and shares of
Pillowtex Common Stock as contemplated by the Merger Agreement. See "The Merger
- -- The Merger Agreement -- Treatment of the Fieldcrest Convertible Debentures."
Pillowtex expects to utilize funds available under the New Pillowtex Bank
Facilities to pay any cash due upon conversion of Fieldcrest Convertible
Debentures. If all of the outstanding Fieldcrest Convertible Debentures were so
converted following the consummation of the Merger, cash in the amount of
approximately $71.1 million would be due and payable to the holders thereof.
Pillowtex anticipates that it will incur certain restructuring charges
related to the integration of the operations of Pillowtex and Fieldcrest during
the fourth quarter of 1997 or the first quarter of 1998. The charges are
estimated to total approximately $5.5 million, of which approximately $1.9
million relate to cash items. Such unusual charges include costs related to
consolidation of manufacturing and distribution facilities, severance
obligations, and integration of management information systems.
MERGER FINANCING
INTRODUCTION
In order to finance the Merger and the repayment of certain indebtedness of
Fieldcrest, refinance the existing senior bank credit facility of Pillowtex, and
provide working capital for the combined enterprise that will result from the
Merger, Pillowtex has negotiated and entered into (i) the New Pillowtex Bank
Facilities Commitment with NationsBank of Texas, N.A., which provides for new
senior revolving credit and term loan facilities and (ii) the Pillowtex
Preferred Stock Commitment with Apollo, which provides for the issuance and sale
of 65,000 shares of Pillowtex Preferred Stock. In addition, Pillowtex has
negotiated and entered into the Standby Bridge Loan Facility Commitment with
NationsBridge, L.L.C., which provides for a standby bridge loan facility.
Pillowtex intends to finance the Merger and the repayment of certain
indebtedness of Fieldcrest and to refinance the existing senior bank credit
facility of Pillowtex through a combination of (i) borrowings under the New
Pillowtex Bank Facilities, (ii) the issuance and sale of Pillowtex Preferred
Stock, and (iii) the issuance and sale of New Pillowtex Subordinated Notes. In
the event that less than $135.0 million aggregate principal amount of New
Pillowtex Subordinated Notes shall have been issued and sold as of the Closing
Date, Pillowtex may borrow an amount corresponding to such shortfall under the
Standby Bridge Loan Facility.
The financings contemplated by the Financing Commitments, together with the
proposed sale by Pillowtex of the New Pillowtex Subordinated Notes, are briefly
summarized below.
The obligations of third parties under the Financing Commitments to extend
loans or purchase Pillowtex Preferred Stock, as the case may be, are subject to
various specified conditions. Because such conditions relate to matters beyond
Pillowtex's control, there can be no assurance that such conditions will be
timely satisfied.
62
<PAGE> 82
NEW PILLOWTEX BANK FACILITIES
The New Pillowtex Bank Facilities Commitment provides for, on the terms and
subject to the conditions set forth therein, (i) a $350.0 million revolving
credit facility (including $40.0 million for standby and commercial letters of
credit and up to $15.0 million for swing line loans) (the "Revolver") and (ii) a
$250.0 million term loan facility (the "Term Loan"). The Term Loan will consist
of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B Term
Loan. The Revolver will terminate on December 31, 2003. The Tranche A Term Loan
and the Tranche B Term Loan will begin scheduled amortization of principal
quarterly in arrears commencing in 1999 and 1998, respectively, with final
maturities on December 31, 2003 and December 31, 2004, respectively. Pillowtex
expects to draw fully on the Term Loan at the closing of the New Pillowtex Bank
Facilities and to draw a portion of the Revolver contemporaneously with the
closing of the Merger. Pillowtex will initially pay quarterly a commitment fee
of 50 basis points per annum calculated on the unused portion of the Revolver.
The commitment fee could, however, be reduced during future periods depending
upon the ratio of Pillowtex's consolidated indebtedness to EBITDA.
The Revolver and the Tranche A Term Loan will bear interest, at the option
of Pillowtex, at a rate per annum equal to either (i) the LIBOR interbank rate,
adjusted for reserves, plus a margin of up to 225 basis points, or (ii) the
"Base Rate" (which is the higher of (a) the prime rate then in effect and
published by NationsBank of Texas, N.A. and (b) the Federal Funds rate plus
0.5%), plus a margin of up to 75 basis points, subject to adjustments in
accordance with the terms of the New Pillowtex Bank Facilities Commitment. The
specific margin in any particular case will depend upon the ratio of Pillowtex's
consolidated indebtedness to EBITDA, as calculated based upon Pillowtex's
quarterly financial statements. The Tranche B Term Loan will bear interest on a
similar basis, plus an additional margin of 50 basis points, but will not bear
interest at a rate less than the LIBOR interbank rate plus 200 basis points or
the Base Rate plus 50 basis points. The initial interest rates will not be less
than (i) the LIBOR interbank rate plus 200 basis points or the Base Rate plus 50
basis points for the Revolver and the Tranche A Term Loan and (ii) the LIBOR
interbank rate plus 250 basis points or the Base Rate plus 100 basis points for
the Tranche B Term Loan, and will not be subject to any change until the receipt
of Pillowtex's March 31, 1998 financial statements.
The Revolver and the Term Loan will be guaranteed by each of the domestic
subsidiaries of Pillowtex, including the Surviving Company and its domestic
subsidiaries, and will be secured by first priority liens on all of the capital
stock of each domestic subsidiary of Pillowtex, including the Surviving Company
and its domestic subsidiaries, and by 65% of the capital stock of each foreign
subsidiary of Pillowtex and Fieldcrest. Pillowtex will also grant a first
priority security interest in all of its presently unencumbered and future
domestic assets and properties and all presently unencumbered and future
domestic assets and properties of each of its subsidiaries, including the
Surviving Company and its subsidiaries. The Term Loan will be subject to
mandatory prepayment from all net cash proceeds of asset sales and debt
issuances by Pillowtex or any of its subsidiaries after the Merger (except for
refinancing or redemption of the Standby Bridge Loan Facility, if utilized), 50%
of the net cash proceeds of equity issuances by Pillowtex or any of its
subsidiaries after the Merger (excluding equity proceeds that are applied to
repay or redeem the Standby Bridge Loan Facility, if utilized), and 75% of
excess cash flow. All mandatory prepayments will be applied pro rata between the
Tranche A Term Loan and the Tranche B Term Loan (and within each tranche pro
rata) to reduce the remaining installments of principal.
The initial funding of the New Pillowtex Bank Facilities will be subject to
various conditions precedent, including, among others: (i) Pillowtex having not
less than $40.0 million of availability under the Revolver immediately after the
initial funding of the New Pillowtex Bank Facilities; (ii) Pillowtex having
issued not less than $135.0 million aggregate principal amount of New Pillowtex
Subordinated Notes and/or Bridge Notes; (iii) Pillowtex having issued not less
than $65.0 million aggregate liquidation preference of Pillowtex Preferred
Stock; and (iv) Pillowtex having issued new common stock in connection with the
Merger for not less than 20.58% of the aggregate value of the Fieldcrest Common
Stock and Fieldcrest Preferred Stock outstanding. The New Pillowtex Bank
Facilities Commitment provides that the definitive documentation will include
representations, warranties, and covenants (including financial covenants) usual
and customary for credit facilities such as the New Pillowtex Bank Facilities,
and that the New Pillowtex Bank Facilities will be subject to usual and
customary events of default, including without limitation nonpayment of
principal, interest, or fees, violation of any covenant, inaccurate
representations and warranties, bankruptcy, actual or asserted invalidity of any
loan documents or security interests, change of control, and cross-default with
other material agreements and indebtedness of Pillowtex.
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PILLOWTEX PREFERRED STOCK
The Pillowtex Preferred Stock Commitment provides for, on the terms and
subject to the conditions set forth therein, the issuance and sale to Apollo of
65,000 shares of Pillowtex Preferred Stock as of the Closing Date. The issuance
and sale of such shares are expected to result in net proceeds to Pillowtex of
approximately $63.5 million. For a description of the terms of the Pillowtex
Preferred Stock, see "Description of Pillowtex Capital Stock--Series A
Redeemable Convertible Preferred Stock."
The purchase by Apollo of Pillowtex Preferred Stock pursuant to the
Pillowtex Preferred Stock Commitment will be subject to various conditions
precedent including, among others: (i) Pillowtex having not less than $40.0
million of availability under the Revolver immediately after the funding of the
New Pillowtex Bank Facilities; (ii) Pillowtex having entered into definitive
documentation for the New Pillowtex Bank Facilities as contemplated by the New
Pillowtex Bank Facilities Commitment and all conditions to the initial funding
thereunder having been satisfied; (iii) Pillowtex having issued not less than
$135.0 million aggregate principal amount of New Pillowtex Subordinated Notes
and/or Bridge Notes; and (iv) Pillowtex and Fieldcrest having no outstanding
indebtedness for borrowed money or preferred stock other than (a) the existing
industrial revenue bonds of Pillowtex and Fieldcrest, (b) the Existing Pillowtex
Subordinated Notes, (c) the Fieldcrest Convertible Debentures, and (d) other
indebtedness for borrowed money not exceeding $1.0 million.
Pursuant to the Pillowtex Preferred Stock Commitment, holders of 20% or
more of the outstanding Pillowtex Preferred Stock will be provided with
reasonable access to management of Pillowtex and with detailed financial and
operating data.
Pursuant to the Pillowtex Preferred Stock Commitment, upon the occurrence
of certain conditions, holders of Pillowtex Preferred Stock will have the right
to require Pillowtex to file a registration statement with the Commission to
register shares of Pillowtex Common Stock receivable by such holders upon
conversion of Pillowtex Preferred Stock. Holders will also have so-called
"piggyback" registration rights with respect to shares of Pillowtex Common Stock
receivable upon conversion of Pillowtex Preferred Stock.
NEW PILLOWTEX SUBORDINATED NOTES
Pillowtex intends to issue and sell up to $150.0 million aggregate
principal amount of its New Pillowtex Subordinated Notes on or prior to the
Closing Date. Although the specific terms of the New Pillowtex Subordinated
Notes have not yet been established, (i) for purposes of the pro forma combined
financial information presented in this Joint Proxy Statement/Prospectus, the
principal thereof is assumed to bear interest at a rate of 93 payable
semi-annually in arrears, (ii) the New Pillowtex Subordinated Notes are expected
to be due and payable in full in 2007, and (iii) the indenture or other
instrument under which they are to be issued is expected to contain affirmative,
restrictive, and financial covenants and to specify events of default generally
comparable to the covenants and events of default contained and specified in the
indenture pursuant to which the Existing Pillowtex Subordinated Notes were
issued. See "Other Post-Merger Indebtedness of Pillowtex--Existing Pillowtex
Subordinated Notes." For purposes of the pro forma combined financial
information presented in the Joint Proxy Statement/Prospectus, it has been
assumed that the New Pillowtex Subordinated Notes will be issued and sold as of
the Closing Date, resulting in net proceeds to Pillowtex of approximately $146.4
million.
STANDBY BRIDGE LOAN FACILITY
The Standby Bridge Loan Facility Commitment provides for, on the terms and
subject to the conditions set forth therein, a standby bridge loan facility
pursuant to which up to $150.0 million will be available to Pillowtex to finance
the Merger and complete the related refinancings in the event that less than
$135.0 million aggregate principal amount of New Pillowtex Subordinated Notes
shall have been issued and sold as of the Closing Date. Pillowtex presently does
not intend to utilize the Standby Bridge Loan Facility. In the event it becomes
necessary to utilize the Standby Bridge Loan Facility, borrowings thereunder
would initially be evidenced by senior subordinated bridge notes ("Bridge
Notes"). The terms of the Bridge Notes would be less favorable to Pillowtex than
the anticipated terms of the New Pillowtex Subordinated Notes. Interest on the
Bridge Notes would be payable at a floating rate higher than the fixed rate of
interest expected to be borne by the New Pillowtex Subordinated Notes, which
floating rate would increase at specified intervals as long as the Bridge Notes
were outstanding (subject to certain limitations). The Bridge Notes would mature
one year from the date of issuance and, if not repaid in full, could, subject to
certain conditions, be satisfied at that time through the issuance and delivery
of senior subordinated rollover notes with a maturity of nine years (the
"Rollover Notes"). Interest on the Rollover Notes would also be payable at a
floating rate which would increase at specified intervals (subject to certain
limitations).
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OTHER POST-MERGER INDEBTEDNESS OF PILLOWTEX
INTRODUCTION
The principal long-term indebtedness of Pillowtex expected to be
outstanding following the Merger, in addition to the indebtedness described
under "Merger Financing" above, is described briefly below.
EXISTING PILLOWTEX SUBORDINATED NOTES
Pillowtex presently has outstanding $125.0 million aggregate principal
amount of its 10% Senior Subordinated Notes due 2006 (the "Existing Pillowtex
Subordinated Notes"). The Existing Pillowtex Subordinated Notes bear interest at
a rate of 10% per annum, payable semiannually in arrears on May 15 and November
15 of each year. The Existing Pillowtex Subordinated Notes are scheduled to
mature in their entirety on November 15, 2006. Pillowtex has the option to
redeem the Existing Pillowtex Subordinated Notes, in whole or in part, at any
time on or after November 15, 2001, at redemption prices starting at 105% of
stated principal on November 15, 2001 and decreasing at a rate of 1.667% per
year to 100% on and after November 15, 2004, plus all accrued and unpaid
interest to the redemption date. There is no mandatory redemption of the
Existing Pillowtex Subordinated Notes except upon a change in control. Upon the
occurrence of a change in control, each holder of Existing Pillowtex
Subordinated Notes will have the right to require Pillowtex to repurchase all or
any part of such holder's Existing Pillowtex Subordinated Notes pursuant to a
change of control offer at a price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and liquidated damages thereon
to the date of purchase. The Merger will not constitute a change in control for
purposes of the Existing Pillowtex Subordinated Notes.
The Existing Pillowtex Subordinated Notes are subject to certain covenants
which restrict, among other things, Pillowtex's ability to incur additional
indebtedness and issue preferred stock, incur liens to secure subordinated
indebtedness, pay dividends or make certain other restricted payments, apply net
proceeds from certain asset sales, enter into certain transactions with
affiliates, incur indebtedness that is subordinate in right of payment to any
senior indebtedness and senior in right of payment to the Existing Pillowtex
Subordinated Notes, merge or consolidate with any other person, sell stock of
subsidiaries, or sell, assign, transfer, lease, convey, or otherwise dispose of
substantially all of the assets of Pillowtex.
FIELDCREST CONVERTIBLE DEBENTURES
Fieldcrest presently has outstanding $116.5 million aggregate principal
amount of its 6.0% Convertible Subordinated Debentures due 2012. After the
Effective Time, the Fieldcrest Convertible Debentures will remain outstanding as
debt obligations of the Surviving Company. The Fieldcrest Convertible Debentures
bear interest at the rate of 6.0% per annum payable on March 15 and September 15
of each year. The Fieldcrest Convertible Debentures are presently convertible
into shares of Fieldcrest Common Stock at a conversion price of $44.25 per
share, subject to adjustment upon the occurrence of certain events. As a result
of the Merger, Fieldcrest Convertible Debentures will become convertible into
the same consideration that a holder of the number of shares of Fieldcrest
Common Stock into which such Fieldcrest Convertible Debentures might have been
converted immediately prior to the Merger would be entitled to receive in the
Merger. For example, a Fieldcrest Convertible Debenture having an aggregate
principal amount of $1,000 will become convertible into (i) a cash payment equal
to the product of (a) the amount of the cash payment to be made on account of
each share of Fieldcrest Common Stock converted in the Merger and (b) 22.60 and
(ii) a number of shares of Pillowtex Common Stock equal to the product of (a)
the Conversion Number and (b) 22.60.
The Fieldcrest Convertible Debentures are presently redeemable at their
stated principal amount, in whole or in part, at the option of Fieldcrest, plus
any accrued and unpaid interest to the date of redemption. The Fieldcrest
Convertible Debentures are subject to mandatory redemption at their stated
principal amount plus any accrued and unpaid interest pursuant to a sinking fund
provision whereby Fieldcrest is required on March 15 of the years 1997 to 2011
inclusive, to deposit with the indenture trustee an amount equal to 5.0% of the
original $125.0 million aggregate principal amount of Fieldcrest Convertible
Debentures. The sinking fund provision is designed to cause the redemption of
75% of the Fieldcrest Convertible Debentures as of their maturity date.
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PILLOWTEX DEED OF TRUST NOTE
Pillowtex presently has outstanding a $2.5 million deed of trust note
collateralized by land and buildings (the "Pillowtex Trust Note"). The Pillowtex
Trust Note bears interest at 10.5% per annum, payable monthly in arrears, and
matures on July 1, 1998.
PILLOWTEX INDUSTRIAL REVENUE BONDS
Pillowtex has certain obligations in respect of certain industrial revenue
bonds issued by the Pennsylvania Economic Development Financing Authority (the
"PEDFA Bonds"). The PEDFA Bonds are collateralized by certain funds established
and agreements executed in connection with the issuance of the PEDFA Bonds,
including an irrevocable direct pay letter of credit issued by NationsBank, N.A.
(formerly NCNB National Bank of North Carolina), for the account of Pillowtex,
in the initial face amount of $5.7 million in support of the PEDFA Bonds. Such
letter of credit provides assurance that payments on the PEDFA Bonds will be
made as scheduled. The PEDFA Bonds bear interest, payable semiannually, at a
variable rate (7.00% to 7.85% per annum), and mature serially in annual amounts
ranging from $285,000 to $640,000 through April 1, 2002. Approximately $2.8
million aggregate principal amount of PEDFA Bonds is presently outstanding.
Pillowtex also has certain obligations in respect of certain industrial
revenue bonds issued by the Mississippi Business Finance Corporation (the "MBFC
Bonds"). The MBFC Bonds are collateralized by buildings, equipment, and certain
agreements executed in connection with the issuance of the MBFC Bonds, including
(i) a security interest in the lease agreement between Pillowtex (as lessee) and
Tunica County, Mississippi, covering the real property on which Pillowtex
constructed facilities with the proceeds of the issuance of the MBFC Bonds, and
(ii) an irrevocable direct pay letter of credit issued by NationsBank of Texas,
N.A., for the account of Pillowtex, in the initial face amount of $4.7 million
in support of the MBFC Bonds. The letter of credit provides assurance that
payments on the MBFC Bonds will be made as scheduled. The MBFC Bonds bear
interest, payable monthly (or, in certain circumstances, quarterly), at a
variable rate (2.75% to 4.5% per annum), provide for annual principal payments
of $460,000 beginning July 1, 1995, and mature on July 1, 2004. Approximately
$3.2 million aggregate principal amount of MBFC Bonds is presently outstanding.
FIELDCREST INDUSTRIAL REVENUE BONDS
Fieldcrest has certain obligations in respect of industrial revenue bonds
issued by various state and municipal industrial authorities. First, Fieldcrest
has certain obligations in respect of certain industrial revenue bonds issued by
the Industrial Development Board of the City of Phenix City, Alabama (the
"Phenix City Bonds"). The Phenix City Bonds are collateralized by land,
equipment, buildings, and a security interest in the lease agreement between
Fieldcrest (as lessee) and such Board covering the property and facilities that
were acquired with the proceeds of the issuance of the Phenix City Bonds. The
Phenix City Bonds bear interest, payable semiannually, at a rate equal to 5.63%
per annum, and mature serially in annual amounts ranging from $165,000 to
$335,000 through February 1, 1998. Approximately $355,000 aggregate principal
amount of the Phenix City Bonds is presently outstanding.
Fieldcrest also has certain obligations in respect of certain industrial
revenue bonds issued by the Rowan County Industrial Facilities and Pollution
Control Financing Authority of the State of North Carolina (the "Rowan County
Bonds"). The Rowan County Bonds are collateralized by, among other things, a
security interest in the lease agreement between Fieldcrest (as lessee) and such
Authority covering the property and facilities that were acquired with the
proceeds of the issuance of the Rowan County Bonds. The Rowan County Bonds bear
interest, payable semiannually, at a rate equal to 7.25% per annum, and mature
serially in annual amounts ranging from $165,000 to $190,000 through October 1,
2001. Approximately $685,000 aggregate principal amount of the Rowan County
Bonds is presently outstanding.
Fieldcrest has additional obligations in respect of certain industrial
revenue bonds issued by the Industrial Development Board of the City of
Scottsboro, Alabama (the "Scottsboro Bonds"). The Scottsboro Bonds are
collateralized by land, equipment, buildings, and a security interest in the
lease agreement between Fieldcrest (as lessee) and the Board covering the
property that was acquired with the proceeds of the issuance of the Scottsboro
Bonds. The Scottsboro Bonds bear interest, payable semiannually, at a rate equal
to 6.75% per annum, provide for annual principal payments of $200,000 beginning
September 1, 1998, and mature on September 1, 2002. Approximately $1.0 million
aggregate principal amount of the Scottsboro Bonds is presently outstanding.
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Fieldcrest has further obligations in respect of certain industrial revenue
bonds issued by the State Industrial Development Authority of the State of
Alabama (the "Alabama Bonds"). The Alabama Bonds are collateralized by certain
funds established and agreements executed in connection with the issuance of the
Alabama Bonds, including an irrevocable direct pay letter of credit issued by
CoreStates Bank, N.A., for the account of Fieldcrest, in the initial face amount
of $10.2 million. Such letter of credit provides assurance that the payments on
the Alabama Bonds will be made as scheduled. The Alabama Bonds bear interest at
a variable rate (approximating the LIBOR interbank rate), and mature on July 1,
2021. Approximately $10.0 million aggregate principal amount of the Alabama
Bonds is presently outstanding.
DESCRIPTION OF PILLOWTEX CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
General. The Pillowtex Articles provide that the authorized capital stock
of Pillowtex consists of 30,000,000 shares of Pillowtex Common Stock, and
20,000,000 shares of preferred stock, per value $0.01 per share.
Common Stock. The holders of Pillowtex Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferential rights of any issued and outstanding
preferred stock, including the Pillowtex Preferred Stock, holders of Pillowtex
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Pillowtex Board out of funds legally available therefor. In the
event of a liquidation, dissolution, or winding-up of Pillowtex, holders of
Pillowtex Common Stock are entitled to share ratably in all assets of Pillowtex,
if any, remaining after payment of liabilities and the liquidation preferences
of any issued and outstanding preferred stock, including the Pillowtex Preferred
Stock. Holders of Pillowtex Common Stock have no preemptive rights, no
cumulative voting rights, and no rights to convert their shares of Pillowtex
Common Stock into any other securities of Pillowtex or any other entity. The
Pillowtex Common Stock is not subject to redemption or sinking fund redemption.
The Pillowtex Common Stock is listed on the New York Stock Exchange under
the symbol "PTX." Chase Mellon Shareholder Services, L.L.C. is the transfer
agent and registrar for the Pillowtex Common Stock.
Preferred Stock. The Pillowtex Board has the authority to issue up to
20,000,000 shares of preferred stock in one or more series and, subject to the
terms of any issued and outstanding preferred stock (including without
limitation the Pillowtex Preferred Stock), to fix the designations, preferences,
limitations, and relative rights of all shares of each such series, including
without limitation dividend rates, conversion rights, voting rights, redemption
and sinking fund provisions, liquidation preferences, and the number of shares
constituting each such series, without any further vote or action by the holders
of Pillowtex Common Stock. The issuance of one or more series of preferred stock
will likely decrease the amount of earnings and assets available for
distribution to holders of Pillowtex Common Stock as dividends or upon
liquidation, respectively, and may adversely affect the rights and powers,
including voting rights, of the holders of Pillowtex Common Stock. The issuance
of preferred stock also could have the effect of delaying, deterring, or
preventing a change in control of Pillowtex.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
General. The Pillowtex Preferred Stock Commitment provides for, on the
terms and subject to the conditions set forth therein, the issuance and sale to
Apollo of 65,000 shares of Pillowtex Preferred Stock at an offering price of
$1,000 per share, which is expected to result in net proceeds to Pillowtex of
approximately $63.5 million. See "Merger Financing--Pillowtex Preferred Stock."
Liquidation Preference; Ranking. Each share of Pillowtex Preferred Stock
will have a liquidation preference of $1,000, plus accrued and unpaid dividends
(the "Liquidation Preference"). The Pillowtex Preferred Stock will rank senior
in right of payment to all common equity stock and all other classes of
preferred stock of Pillowtex (other than parity securities), but will rank
junior in right of payment to all indebtedness of Pillowtex. The terms of the
Pillowtex Preferred Stock will restrict, among other things, Pillowtex's ability
to pay dividends or make certain other restricted payments on the Pillowtex
Common Stock.
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Dividends. Subject to the provisions described below, the Pillowtex
Preferred Stock will accrue dividends from the issue date through and including
December 31, 1999 at a rate per annum equal to 3.0%. Beginning on January 1,
2000 through and including the date ten and one-half years after the initial
issuance of the Pillowtex Preferred Stock (the "Mandatory Redemption Date"), the
Pillowtex Preferred Stock will accrue dividends, based upon Pillowtex's earnings
per share for the 1999 fiscal year ("1999 EPS"), at a rate per annum
("Applicable Dividend Rate") equal to (i) 3.0%, if 1999 EPS is greater than or
equal to $2.70, (ii) 7.0%, if 1999 EPS is greater than or equal to $2.35 but
less than $2.70, or (iii) 10.0%, if 1999 EPS is less than $2.35. Pillowtex may
at its option pay dividends in cash during each quarterly period during calendar
years 1998 and 1999 at a rate in excess of 3.0%. Following the date on which the
final determination of 1999 EPS is made ("Final Determination Date"), Pillowtex
will promptly determine the aggregate amount of dividends actually paid (whether
in cash or additional shares of Pillowtex Preferred Stock) (the "Aggregate
Dividends Paid") and the aggregate amount of dividends that would have been paid
on the Pillowtex Preferred Stock from the issue date of the Pillowtex Preferred
Stock through and including the last Dividend Payment Date prior to the Final
Determination Date ("Aggregate Dividends Owed"), assuming (i) the dividend rate
for calendar 1997 (if applicable) and calendar 1998 was (a) 3.0% per annum if
1999 EPS is equal to or greater than $2.35 or (b) 10.0% per annum if 1999 EPS is
less than $2.35, (ii) the dividend rate for calendar 1999 was the Applicable
Dividend Rate, and (iii) any incremental dividends included in calculating
dividends described in clauses (i) and (ii) which were not paid after giving
effect to dividends paid (whether in cash or in shares of Pillowtex Preferred
Stock) as of the Dividend Payment Date with respect to which they were paid,
were paid in additional shares of Pillowtex Preferred Stock (including the
effect of all dividends earned on unpaid dividends). If the Aggregate Dividends
Paid is less than the Aggregate Dividends Owed, Pillowtex will pay to the
holders of Pillowtex Preferred Stock a number of additional shares of Pillowtex
Preferred Stock equal to the difference between the Aggregate Dividends Owed and
the Aggregate Dividends Paid (the "Catch Up Dividend"). If the Aggregate
Dividends Paid is more than the Aggregate Dividends Owed, then an amount equal
to the difference will be offset against dividends payable on the next
succeeding Dividend Payment Date or Dividend Payment Dates, as the case may be.
The following table sets forth for each of the three categories of 1999 EPS
indicated the applicable dividend rate from and after January 1, 2000 and the
number of shares to be issued as a Catch Up Dividend (assuming that the
Pillowtex Preferred Stock were to be initially issued on December 31, 1997, that
dividends due prior to January 1, 2000 are paid in cash when due at a rate per
annum of 3.0%, and that the Determination Price is $24.00 per share):
<TABLE>
<CAPTION>
APPLICABLE DIVIDEND
ACCRUAL RATE AT APPLICABLE CATCH UP
1999 EPS JANUARY 1, 2000 DIVIDEND
- ------------------------ --------------------------- ------------------------
<S> <C> <C>
$2.70 or greater 3.0% per annum N/A
$2.35 to $2.69 7.0% per annum 2,669.05 shares
$2.34 or less 10.0% per annum 9,952.15 shares
</TABLE>
If the Determination Price is less than $23.00, each of the $2.35 and $2.70
targets for 1999 EPS will be reduced by an amount equal to the product of (x)
0.065 and (y)(i) $23.00 minus (ii) the Determination Price. All dividends will
be cumulative, whether or not declared, on a daily basis from the date of
issuance and will be payable quarterly, in arrears, on March 31, June 30,
September 30, and December 31 (each a "Dividend Payment Date"). 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 option of Pillowtex, dividends other than the Catch Up Dividend
will be payable either in cash or in kind (through the issuance of additional
shares of Pillowtex Preferred Stock) for the first five years after issuance and
will be payable only in cash thereafter.
In the event that after the fifth anniversary of the initial issuance of
the Pillowtex Preferred Stock, Pillowtex fails to pay dividends in cash on the
Dividend Payment Date when due, the dividend rate applicable to any period in
which any such dividends remain unpaid will be increased by 0.5% per quarter for
each quarter in which any such dividends remain unpaid (such rate increase, the
"Dividend Increase"). The applicable dividend rate plus the Dividend Increase
applicable to any period will not exceed the lesser of (i) 18.0% per annum and
(ii) the maximum rate permitted by applicable law. After a Dividend Increase,
when Pillowtex 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 will be
decreased to the otherwise applicable dividend rate.
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Conversion. At the option of the holders thereof, at any time or from time
to time, each share of the Pillowtex Preferred Stock will be convertible into
the number of shares of Pillowtex Common Stock as is determined by dividing (i)
the sum of (a) $1,000 and (b) any unpaid dividends on such share by (ii) an
initial conversion price equal to $24.00 per share, except that if the
Determination Price is less than $23.00, then the conversion price will be equal
to the Determination Price plus $1.00, subject to subsequent adjustment in
certain circumstances to prevent dilution.
Optional Redemption. Pillowtex will have the right to, at any time and from
time to time after the fourth anniversary of the initial issuance of the
Pillowtex Preferred Stock, call all or any portion of the Pillowtex Preferred
Stock for redemption at a redemption price equal to (i) the Liquidation
Preference plus (ii) the product of (a) a premium, which declines ratably from
the percentage equal to the applicable dividend rate on such fourth anniversary
to zero on the Mandatory Redemption Date, and (b) the Liquidation Preference
(minus any accrued and unpaid dividends from the Dividend Payment Date prior to
the date fixed for redemption).
Mandatory Redemption. Each share of Pillowtex Preferred Stock will be
subject to mandatory redemption on the Mandatory Redemption Date at a redemption
price equal to $1,000, plus accrued and unpaid dividends.
Voting Rights. Except as described below and as otherwise required by law,
holders of Pillowtex Preferred Stock are not entitled to any vote on matters
presented to shareholders of Pillowtex.
So long as any shares of the Pillowtex Preferred Stock are outstanding,
Pillowtex may not (i) amend the Pillowtex Articles so as to (a) affect adversely
the specified rights, preferences, privileges, or voting rights of holders of
shares of Pillowtex Preferred Stock or (b) authorize the issuance of additional
shares of any class of senior securities or (ii) merge, consolidate, or enter
into any other reclassification that would (a) materially affect adversely the
special or relative rights, preferences, privileges, or voting rights of the
Pillowtex Preferred Stock or (b) result in a breach of the terms of the
Pillowtex Preferred Stock without, in any such case, the affirmative vote or
consent of holders of more than 50% of the outstanding shares of the Pillowtex
Preferred Stock. In addition, any amendment to the Pillowtex Articles that would
alter in any material respect the dividend rates, liquidation preference,
redemption rights, or conversion rights of the Pillowtex Preferred Stock will
require the affirmative vote or consent of each holder of Pillowtex Preferred
Stock.
In the event of Pillowtex's failure to pay dividends or the occurrence of
certain breaches that shall have continued for a period of 60 days after notice
thereof from any holder of Pillowtex Preferred Stock, within 10 business days of
such events, the number of members on the Pillowtex Board would be automatically
increased by 25% and the holders of the Pillowtex Preferred Stock would be
entitled to elect directors to fill the new positions created by such expansion,
so long as such nonpayment of dividends and breaches were not cured after notice
thereof, except that if the event of default related to (i) the failure to
redeem the Pillowtex Preferred Stock, (ii) a breach of certain restrictions on
Pillowtex's activities, or (iii) a bankruptcy event with respect to Pillowtex or
any of its subsidiaries, there would be no 60-day grace period or right to cure
and the holders' right to so elect directors would continue for as long as the
Pillowtex Preferred Stock were outstanding.
FUTURE STOCK ISSUANCES
In addition to the Pillowtex Common Stock to be issued or to become
issuable to holders of Fieldcrest Common Stock, holders of Fieldcrest Preferred
Stock, holders of Fieldcrest Options, and holders of Fieldcrest Convertible
Debentures in connection with the Merger, the Pillowtex Preferred Stock to be
issued to Apollo pursuant to the Pillowtex Preferred Stock Commitment, and the
Pillowtex Common Stock and any additional Pillowtex Preferred Stock to be
issuable pursuant to the terms of the Pillowtex Preferred Stock, Pillowtex is
and may become obligated to issue additional shares of Pillowtex Common Stock
pursuant to awards granted under equity-based compensation plans, including its
1993 Stock Option Plan.
Pillowtex is also authorized to issue additional shares of capital stock
from time to time. Under Texas law, in the absence of actual fraud in the
transaction, the judgment of the directors as to the value of consideration
received upon the issuance of a corporation's capital stock is conclusive. In
addition, as permitted by Texas law, under the Pillowtex Articles Pillowtex's
shareholders will not have preemptive rights to purchase additional shares of
Pillowtex capital stock
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upon any issuance of such shares authorized by the Pillowtex Board. See "Risk
Factors--Certain Provisions of Pillowtex's Articles of Incorporation, Bylaws,
and other Agreements."
RESTRICTIONS ON RESALES OF
PILLOWTEX COMMON STOCK BY AFFILIATES
The shares of Pillowtex Common Stock to be issued to the stockholders of
Fieldcrest in the Merger are being registered under the Securities Act pursuant
to the Registration Statement. However, because some stockholders of Fieldcrest
are or may be "affiliates" of Fieldcrest at the time of the Fieldcrest Special
Meeting, such persons will not be able to resell the Pillowtex Common Stock
received by them in the Merger unless such Pillowtex Common Stock is registered
for resale under the Securities Act, is sold in compliance with an applicable
exemption from the registration requirements of the Securities Act, or is sold
in compliance with Rule 145 under the Securities Act.
Rule 145 permits holders of securities received in a merger or other
exchange to sell such securities without registration under the Securities Act
provided such sale is made in compliance with certain provisions of Rule 144 or
certain holding period requirements have been satisfied. The applicable
provisions of Rule 144 allow a holder of such securities to sell, without
registration, within any three month period a number of shares of such
securities that does not exceed the greater of 1% of the number of outstanding
securities in question or the average weekly trading volume in the securities in
question during the four calendar weeks preceding a specified date subject to
the satisfaction of certain other requirements regarding the manner of sale and
the availability of current public information regarding the issuer. Rule 145
also permits a holder of such securities to sell such securities without
registration if: (i) such holder is not an affiliate of the issuer and a period
of at least one year has elapsed since the date such securities were acquired
from the issuer in the transaction, and the issuer meets the requirements of
Rule 144 regarding the availability of current public information or (ii) such
holder is not, and has not been for at least three months, an affiliate of the
issuer and a period of at least two years has elapsed since the date such
securities were acquired from the issuer in the transaction.
CERTAIN CORPORATE GOVERNANCE MATTERS OF PILLOWTEX
ANTITAKEOVER PROVISIONS
The Pillowtex Articles and Pillowtex Bylaws contain certain provisions
described below that may reduce the likelihood of a change in management or
voting control of Pillowtex without the consent of the Pillowtex Board. These
provisions could have the effect of delaying, deterring, or preventing tender
offers or takeover attempts that some or a majority of Pillowtex's shareholders
might consider to be in their best interests, including offers or attempts that
might result in a premium over the market price for Pillowtex Common Stock. See
"Risk Factors--Certain Provisions of Pillowtex's Articles of Incorporation,
Bylaws, and other Agreements."
CLASSIFIED BOARD
Beginning with the 1994 annual meeting of shareholders, the Pillowtex Board
has been divided into three classes, the initial terms of which expired at the
1995, 1996, and 1997 annual meetings of shareholders, respectively. Beginning in
1995, one class of directors is elected on a rotating basis at each annual
meeting of shareholders for a three-year term. Directors of Pillowtex are
elected by the affirmative vote of a plurality of the shares cast at a meeting
at which a quorum is present. Shareholders may remove a director only with cause
and upon the affirmative vote of the holders of not less than 80% of the
outstanding voting stock. The Pillowtex Board has the right to appoint up to two
persons to fill vacancies on the Pillowtex Board during any period between two
successive annual meetings of shareholders. The classification of the Pillowtex
Board may have the effect of deterring or delaying a takeover of Pillowtex
because it may take at least two years to gain control of the Pillowtex Board.
See "Comparison of Rights of Holders of Fieldcrest Common Stock and Pillowtex
Common Stock--Directors--Pillowtex."
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SHAREHOLDER NOMINATIONS AND PROPOSALS
The Pillowtex Bylaws establish advance notice procedures with regard to the
nomination, other than by or at the direction of the Pillowtex Board or a
committee thereof, of candidates for election as directors and with regard to
certain matters to be brought before an annual meeting of shareholders of
Pillowtex. These procedures provide that the notice of proposed shareholder
nominations for the election of directors must be received at the principal
executive offices of Pillowtex not less than 50 days nor more than 60 days prior
to the meeting at which directors are to be elected (or, if fewer than 50 days'
notice of prior public disclosure of the meeting date is given or made by
Pillowtex, not later than 10 days after the day on which the notice was mailed
or such public disclosure was made). These procedures also provide that, at an
annual meeting, and subject to any other applicable requirements, only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Pillowtex Board or by a shareholder who has given timely prior
written notice to Pillowtex of such shareholder's intention to bring such
business before the meeting. For the shareholder's notice to be timely, it must
be delivered to or mailed and received at the principal executive offices of
Pillowtex not later than the date that corresponds to 120 days prior to the date
Pillowtex's proxy statement was released to shareholders in connection with the
previous year's annual meeting of shareholders. Such notice must contain certain
information specified in the Pillowtex Bylaws. See "Comparison of Rights of
Holders of Fieldcrest Common Stock and Pillowtex Common Stock--Proposal of
Business; Nomination of Directors--Pillowtex."
AMENDMENT OF BYLAWS
The Pillowtex Bylaws can be amended only by the Pillowtex Board or by the
affirmative vote of the holders of at least 80% of the shares entitled to vote
generally in the election of directors. See "Comparison of Rights of Holders of
Fieldcrest Common Stock and Pillowtex Common Stock--Amendment of Articles or
Certificate of Incorporation and Bylaws--Pillowtex."
SHAREHOLDER ACTION
The Pillowtex Articles provide that special meetings of the shareholders
may be called only by the Chief Executive Officer, the President, the Board of
Directors, or the holders of at least 50% of all shares entitled to vote at the
proposed meeting. See "Comparison of Rights of Holders of Fieldcrest Common
Stock and Pillowtex Common Stock--Special Meetings--Pillowtex."
PREFERRED STOCK
The Pillowtex Articles permit the Pillowtex Board to issue preferred stock
at any time without shareholder approval. Preferred stock is sometimes used to
discourage or make more difficult attempts to take control of a company by means
of a merger, tender offer, proxy contest, or otherwise, through the issuance
without shareholder approval of shares with supervoting rights or other features
that would thwart a takeover by reducing the ability of the suitor to acquire
the necessary voting shares to obtain control.
FAIR PRICE PROVISION
The Pillowtex Articles include a so-called "fair price" provision that
requires the affirmative vote of the holders of at least 662 to approve certain
business combinations effected within three years after the date on which the
person became an interested shareholder. These "business combinations" include a
merger with an interested shareholder, or disposition of assets having a fair
market value of at least 10% of the fair market value of all of Pillowtex's
assets or outstanding stock to an interested shareholder, a liquidation proposed
by an interested shareholder, the issuance of securities to an interested
shareholder, or the reclassification of Pillowtex securities or a similar
transaction that increases the interested shareholder's proportionate ownership
in Pillowtex. An "interested shareholder" is anyone who owns or controls,
directly or indirectly, or together with others, 15% or more of Pillowtex's
voting stock. However, a business combination with an interested shareholder
will not require shareholder approval if (i) a majority of disinterested
directors approves the business combination or the transaction in which the
interested shareholder becomes such, (ii) the business combination involves the
distribution to the shareholders of cash or other consideration that satisfies
the "fair price" criteria set forth in the Pillowtex Articles, which generally
require that all shareholders receive equal treatment, an adequate price, and
adequate disclosure, (iii) upon consummation of the transaction that resulted in
the shareholder
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becoming an interested shareholder, the interested shareholder owns at least 85%
of the voting stock of Pillowtex outstanding at the time the transaction
commenced, or (iv) the business combination is proposed after the public
announcement or notice of a transaction meeting specified criteria and before
consummation or abandonment of such transaction. The fair price provision of the
Pillowtex Articles may not be amended without the affirmative vote of holders of
at least 80% of all shares entitled to vote. See "Comparison of Rights of
Holders of Fieldcrest Common Stock and Pillowtex Common Stock--Approval of
Merger, Dissolution, and Asset Sales--Pillowtex."
TEXAS BUSINESS COMBINATION STATUTE
Article 13 of the TBCA ("Article 13"), in general, prohibits a Texas
corporation from engaging in certain business combinations with an affiliated
shareholder for three years following the date the shareholder first became an
affiliated shareholder, unless: (i) the business combination or the transaction
resulting in the shareholder becoming an affiliated shareholder is approved by
the board before such date or (ii) the business combination is approved by
holders of at least two-thirds of the voting shares (excluding the affiliated
shareholder's shares) not less than six months after such date. For purposes of
Article 13, "business combinations" include, among others, the following types
of transactions: mergers, share exchanges, and conversions with certain other
entities; sales, leases, and other dispositions of assets greater than 10% of
the total market value of the corporation's assets, outstanding common stock, or
earning power or net income; issuances of stock and securities not issued to
other shareholders on a similar basis; and liquidations, dissolutions, and other
transactions involving benefits not received by other shareholders. For purposes
of Article 13, an "affiliated shareholder" generally is a person or group that
owns or controls at least 20% of the voting shares of the corporation. Article
13, which became effective as of September 1, 1997, will not apply to business
combinations of any corporation that adopts an amendment to its articles of
incorporation or bylaws before December 31, 1997 expressly electing not to be
governed by Article 13. Pillowtex has not adopted, and does not intend to adopt,
any such amendment. See "Comparison of Right of Holders of Fieldcrest Common
Stock and Pillowtex Common Stock--Approval of Merger, Dissolution, and Asset
Sales--Pillowtex."
DIRECTOR LIABILITY LIMITATION
As authorized by the Texas Miscellaneous Corporation Laws Act, the
Pillowtex Articles provide that Pillowtex's directors will have no personal
liability to Pillowtex or its shareholders for monetary damages for breach or
alleged breach of the directors' duty of care. This provision has no effect on
director liability for (i) a breach of the directors' duty of loyalty, (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, (iii) an act or omission for which the liability of a
director is expressly provided by an applicable statute, or (iv) any transaction
from which a director derives an improper personal benefit. In addition, under
the Pillowtex Articles, any additional liabilities permitted to be eliminated by
subsequent legislation will automatically be eliminated without further
shareholder vote, unless additional shareholder approval is required by such
legislation. See "Comparison of Rights of Holders of Fieldcrest Common Stock and
Pillowtex Common Stock--Limitation of Director Liability--Pillowtex."
The principal effect of the limitation of liability provision is that a
shareholder is unable to prosecute an action for monetary damages against a
director of Pillowtex unless the shareholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Pillowtex Articles do not eliminate its directors' duty of care.
However, the inclusion of this provision in the Pillowtex Articles may
discourage or deter shareholders or management from bringing a lawsuit against
directors for breach of their fiduciary duties, even though such an action, if
successful, might otherwise benefit Pillowtex and its shareholders. This
provision should not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of the duty of care.
INDEMNIFICATION
The Pillowtex Bylaws also provide that Pillowtex will indemnify its
directors, officers, employees, and agents to the fullest extent permitted by
Texas law. Pillowtex is generally required to indemnify its directors, officers,
employees, and agents against all judgments, fines, settlements, legal fees, and
other expenses incurred in connection with pending or threatened legal
proceedings because of the person's position with Pillowtex or another entity
that the person
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serves at Pillowtex's request, subject to certain conditions, and to advance
funds to enable them to defend against such proceedings. To receive
indemnification, the director, officer, employee, or agent must have been
successful in the legal proceeding or acted in good faith and in what was
reasonably believed to be a lawful manner and Pillowtex's best interest. See
"Comparison of Rights of Holders of Fieldcrest Common Stock and Pillowtex Common
Stock--Indemnification of Officers and Directors--Pillowtex."
Pillowtex has entered into Indemnification Agreements with each of its
directors pursuant to which Pillowtex has agreed to indemnify the directors to
the full extent authorized or permitted by the TBCA.
COMPARISON OF RIGHTS OF HOLDERS OF
FIELDCREST COMMON STOCK AND PILLOWTEX COMMON STOCK
GENERAL
Fieldcrest is incorporated under the laws of the state of Delaware.
Pillowtex is incorporated under the laws of the state of Texas. The rights of
Fieldcrest's stockholders are currently governed by the DGCL, the Fieldcrest
Certificate, and the Fieldcrest Bylaws. If Fieldcrest's stockholders approve and
adopt the Merger Agreement, Pillowtex's shareholders approve the Share Issuance,
and the Merger becomes effective, stockholders of Fieldcrest will become
shareholders of Pillowtex. For that reason, after the Effective Time of the
Merger, their rights will be governed by the TBCA, the Pillowtex Articles, and
the Pillowtex Bylaws.
Shares of Fieldcrest Preferred Stock entitle the holders thereof to
specified preferences and relative rights, including preferences as to payment
of dividends and upon liquidation and rights relating to the conversion,
redemption, and voting of such shares. As a result of the Merger, holders of
shares of Fieldcrest Preferred Stock will no longer have such specified rights,
but, subject to their right under Delaware law to seek appraisal of such shares,
will instead have the right to receive cash and shares of Pillowtex Common Stock
as described above under the caption "The Merger--The Merger
Agreement--Consideration to be Paid in the Merger."
THE FOLLOWING IS A COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIELDCREST
COMMON STOCK WITH THE RIGHTS OF HOLDERS OF PILLOWTEX COMMON STOCK. IT IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
RELEVANT PROVISIONS OF THE LAWS AND DOCUMENTS DISCUSSED BELOW.
AUTHORIZED CAPITAL STOCK
Fieldcrest. The total number of authorized shares of capital stock of
Fieldcrest is 50,000,000 shares, of which 25,000,000 shares are Fieldcrest
Common Stock, 15,000,000 shares are Class B Common Stock, par value $1.00 per
share, of Fieldcrest ("Fieldcrest Class B Common Stock"), and 10,000,000 shares
are preferred stock, par value $0.01 per share. There are no shares of
Fieldcrest Class B Common Stock outstanding.
Pillowtex. The total number of authorized shares of capital stock of
Pillowtex is 50,000,000 shares, of which 30,000,000 shares are Pillowtex Common
Stock and 20,000,000 shares are preferred stock, par value $0.01 per share.
See "Description of Pillowtex Capital Stock--Authorized Capital Stock."
AMENDMENT OF ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
Fieldcrest. Under the DGCL, an amendment to a corporation's certificate of
incorporation requires the approval of the board of directors and the approval
of holders of a majority of the outstanding stock entitled to vote thereon. The
holders of the outstanding shares of a class are entitled to vote as a separate
class on a proposed amendment that would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
the shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.
The Fieldcrest Bylaws may be amended by a majority of the Fieldcrest Board
or by holders of a majority of the outstanding stock entitled to vote thereon.
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Pillowtex. Under the TBCA, an amendment to a corporation's articles of
incorporation requires approval of the board of directors and the approval of
holders of at least two-thirds of the outstanding shares entitled to vote
thereon. The holders of outstanding shares of a class are entitled to vote as a
separate class on a proposed amendment that would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, effect an exchange, reclassification, or
cancellation of all or part of the shares of such class, effect an exchange, or
create a right of exchange, of all or any part of the shares of another class
into the shares of such class, change the designations, preferences,
limitations, or relative rights of the shares of such class, or have certain
other specified effects. The Pillowtex Articles provide that the so-called "fair
price" provision and the provisions relating to amendments to the Pillowtex
Bylaws contained therein may be amended only by the affirmative vote of holders
of at least 80% of the outstanding shares entitled to vote thereon.
The Pillowtex Bylaws may be amended by a majority of the Pillowtex Board or
by holders of at least 80% of the outstanding stock entitled to vote thereon.
See "Certain Corporate Governance Matters of Pillowtex--Amendment of Bylaws."
APPROVAL OF MERGERS, DISSOLUTION, AND ASSET SALES
Fieldcrest. Under the DGCL, a merger, consolidation, dissolution, or sale
or other disposition of substantially all of a corporation's assets generally
requires the approval of the board of directors and holders of a majority of the
outstanding stock entitled to vote thereon. However, the DGCL provides that no
vote of the stockholders of the surviving corporation is required, unless the
certificate of incorporation provides otherwise, to approve a merger if: (i) the
agreement of merger does not amend in any respect the corporation's certificate
of incorporation; (ii) each share of the corporation's stock outstanding
immediately prior to the merger is to be an identical outstanding or treasury
share of the surviving corporation after the merger; and (iii) either (a) no
shares of common stock of the surviving corporation and no shares, securities,
or obligations convertible into such stock are to be issuable as a result of the
merger or (b) the increase in the outstanding shares as a result of the merger
does not exceed 20% of the shares of common stock of the surviving corporation
outstanding immediately prior to the effective date of the merger.
The Fieldcrest Certificate provides that, in the case of a merger or
consolidation of Fieldcrest with, or the sale of substantially all of the assets
of Fieldcrest to, another person (other than a corporation a majority of whose
voting stock is held by Fieldcrest), two-thirds of the votes entitled to be cast
must be cast in favor of such matter.
In addition to the foregoing, Section 203 of the DGCL ("Section 203"), in
general, prohibits certain business combinations between a Delaware corporation
and an interested stockholder within three years of the time such stockholder
became an interested stockholder unless (i) prior to such time the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans, or (iii) after such time, the
business combination is approved by the board of directors and authorized by the
affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. In
addition, the restrictions of Section 203 do not apply to business combinations
proposed after the public announcement or notice of a transaction meeting
specified criteria and before consummation or abandonment of such transaction.
For purposes of Section 203, "business combinations" include, among others, the
following types of transactions between the interested stockholder and the
corporation: mergers and consolidations; sales, pledges, transfers and other
dispositions (including as part of a dissolution) of assets having an aggregate
market value equal to 10% or more of either the aggregate market value of all
assets of the corporation on a consolidated basis or the aggregate market value
of all the outstanding stock of the corporation; certain transactions that would
increase the interested stockholder's proportionate share ownership of the stock
of any class or series of the corporation or such subsidiary; and transactions
involving the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation. For purposes of Section 203, an "interested
stockholder" generally is any person who is the beneficial owner of 15% or more
of the outstanding voting stock of the corporation, and the affiliates and
associates of such person.
Pillowtex. Under the TBCA, a merger or dissolution generally requires the
approval of the board of directors and holders of at least two-thirds of the
outstanding shares entitled to vote thereon. However, the TBCA provides that
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approval by the shareholders of a corporation on a plan of merger is not
required if: (i) the corporation is the sole surviving corporation in the
merger; (ii) the articles of incorporation of the corporation will not differ
from its articles of incorporation before the merger; (iii) each shareholder of
the corporation whose shares were outstanding immediately before the effective
date of the merger will hold the same number of shares, with identical
designations, preferences, limitations, and relative rights, immediately after
the effective date of the merger; (iv) the voting power of the number of voting
shares outstanding immediately after the merger, plus the voting power of the
number of voting shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of rights
to purchase securities issued pursuant to the merger), will not exceed by more
than 20% the voting power of the total number of voting shares of the
corporation outstanding immediately before the merger; (v) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of rights
to purchase securities issued pursuant to the merger), will not exceed by more
than 20% the total number of participating shares of the corporation outstanding
immediately before the merger; and (vi) the board of directors of the
corporation adopts a resolution approving the plan of merger. Under the TBCA, a
disposition of all, or substantially all, of the property and assets of a
corporation may be made upon such terms and conditions and for such
consideration as may be authorized by the board of directors, without
authorization or consent of the shareholders, if the corporation will either
continue to engage in one or more businesses or apply a portion of the
consideration received in connection with the transaction to the conduct of a
business in which it engages following the transaction.
The Pillowtex Articles include a so-called "fair price" provision that
requires the affirmative vote of holders of at least 662 business combinations
effected within three years after the date on which the person became an
interested shareholder. For description of such provision, see "Certain
Corporate Governance Matters of Pillowtex--Fair Price Provision."
Pillowtex is also subject to Article 13 of the TBCA, which, in general,
prohibits a Texas corporation from engaging in certain business combinations
with any affiliated shareholder for three years following the date the
shareholder first became an affiliated shareholder, unless: (i) the business
combination or the transaction resulting in the shareholder becoming an
affiliated shareholder is approved by the board before such date or (ii) the
business combination is approved by holders of at least two-thirds of the voting
shares (excluding the affiliated shareholder's shares) not less than six months
after such date. For a description of Article 13, see "Certain Corporate
Governance Matters of Pillowtex--Texas Business Combination Statute."
SPECIAL MEETINGS
Fieldcrest. Under the DGCL, a special meeting of stockholders may be called
by the board of directors or by such persons as may be authorized by the
certificate of incorporation or by the bylaws. The Fieldcrest Bylaws provide
that a special meeting of stockholders may be called only by the Chief Executive
Officer, Secretary, or a majority of the Fieldcrest Board. Consequently, holders
of Fieldcrest Common Stock do not have the ability to call a special meeting of
stockholders.
Pillowtex. Under the TBCA, a special meeting of shareholders may be called
by either (i) the president, the board of directors, or such other person or
persons as may be authorized by the articles of incorporation or by the bylaws
or (ii) the holders of shares entitled to cast not less than 10% of all shares
entitled to vote at the special meeting, unless a different percentage, not to
exceed 50%, is provided for in the articles of incorporation. The Pillowtex
Articles and the Pillowtex Bylaws provide that a special meeting of shareholders
may be called only by the Chief Executive Officer, the President, or the Board
of Directors or by the holders of at least 50% of all the shares entitled to
vote at the proposed special meeting. See "Certain Corporate Governance
Matters--Shareholder Action."
ACTION WITHOUT A MEETING
Fieldcrest. Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting pursuant to the written consent of the
holders of the number of shares that would have been required to effect the
action at an actual meeting of stockholders. The Fieldcrest Certificate does not
address action without a stockholders' meeting.
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Pillowtex. Under the TBCA, any action required or permitted to be taken at
a shareholders' meeting may be taken without a meeting pursuant to the written
consent of the holders of all of the shares entitled to vote with respect to the
action that is the subject of the consent, except that the articles of
incorporation may provide that such action may be taken pursuant to the written
consent of the holders of shares having not less than the minimum number of
votes that would have been necessary to take such action at a meeting at which
the holders of all shares entitled to vote on the action were present and voted.
The Pillowtex Articles do not address action without a shareholders' meeting.
DIRECTORS
Fieldcrest. The Fieldcrest Bylaws provide that the number of directors
shall be determined by resolution of the Fieldcrest Board. The number of
directors of Fieldcrest is currently fixed at eight. Each director serves for a
term of one year or until his or her earlier death, resignation, or removal.
Directors of Fieldcrest may be removed with or without cause by the affirmative
vote of the holders of a majority of the outstanding shares of Fieldcrest
capital stock entitled to vote thereon, except that the directors elected by the
holders of a particular class or series of capital stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series. Vacancies on the Fieldcrest Board may be filled by a
majority of the remaining directors, although less than a quorum, or by a sole
remaining director. Directors of Fieldcrest are elected by plurality of the
votes of shares of Fieldcrest capital stock entitled to vote thereon present in
person or by proxy at the meeting at which directors are elected. There is no
cumulative voting in the election of Fieldcrest directors.
Pillowtex. The Pillowtex Bylaws provide that the number of directors shall
be determined by resolution of the Pillowtex Board. The number of directors of
Pillowtex is currently fixed at ten. The directors are divided into three
classes, with directors in each class serving a staggered term of three years or
until his or her earlier death, resignation, or removal. Directors of Pillowtex
may be removed with cause by the affirmative vote of the holders of not less
than 80% of the shares of Pillowtex capital stock entitled to vote thereon.
Vacancies on the Pillowtex Board may be filled by a majority of the remaining
directors, although less than a quorum, or by a sole remaining director, except
that the directors may not fill more than two such directorships during any
period between two successive annual meetings of shareholders. Directors of
Pillowtex are elected by plurality of the votes of shares of Pillowtex capital
stock entitled to vote thereon present in person or by proxy at the meeting at
which directors are elected. There is no cumulative voting in the election of
Pillowtex directors. See "Certain Corporate Governance Matters of
Pillowtex--Classified Board."
LIMITATION OF DIRECTOR LIABILITY
Fieldcrest. Under the DGCL, a certificate of incorporation may contain a
provision eliminating or limiting the personal liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision cannot eliminate or limit the
liability of a director: (i) for any breach of a director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) statutory liability for unlawful payment of dividends or unlawful stock
purchase or redemption; or (iv) for any transaction from which the director
derived an improper personal benefit. The Fieldcrest Certificate provides that a
director will under no circumstances have any personal liability to Fieldcrest
or its stockholders for monetary damages for breach of fiduciary duty, except
for those specific breaches and acts or omissions with respect to which the DGCL
expressly provides such personal liability cannot be eliminated or limited.
Pillowtex. Under the Texas Miscellaneous Corporation Laws Act, articles of
incorporation may provide that a director of the corporation will not be liable,
or will be liable only to the extent provided in the articles of incorporation,
to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that articles of
incorporation cannot eliminate or limit the liability of a director to the
extent the director is found liable for: (i) a breach of the director's duty of
loyalty to the corporation or its shareholders; (ii) an act or omission not in
good faith that constitutes a breach of duty of the director to the corporation
or an act or omission that involves intentional misconduct or a knowing
violation of the law; (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (iv) an act or omission for which
the liability of a director is expressly provided by an applicable statute. The
Pillowtex Articles provide that, to the fullest extent permitted by Texas
statutory and decisional law, a director of Pillowtex will not be liable to
Pillowtex or its shareholders for any act or omission in such director's
capacity as a director. In addition, under the Pillowtex Articles, any
additional liabilities permitted to be eliminated by subsequent legislation will
automatically be
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eliminated without further shareholder vote, unless additional shareholder
approval is required by such legislation. See "Certain Corporate Governance
Matters of Pillowtex--Director Liability Limitation."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Fieldcrest. Under the DGCL, (i) a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit, or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was unlawful
and (ii) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought determines upon applicable that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court deems proper.
Under the DGCL, to the extent that a present or former director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in the immediately preceding
sentence, or in defense of any claim, issue, or matter referred to therein, such
person must be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
The DGCL provides that any indemnification under the provisions described
in the second preceding paragraph (unless ordered by a court) will be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee, or
agent is proper in the circumstances because the person has met the applicable
standard of conduct, which determination will be made, with respect to a person
who is a director or officer at the time of such determination, (i) by a
majority vote of the directors who are not parties to such action, suit, or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (iii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iv) by the stockholders.
Under the DGCL, expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit, or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents may be
so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
Under the DGCL, a corporation has power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the DGCL.
The Fieldcrest Certificate provides that Fieldcrest will indemnify every
officer and director of Fieldcrest to the fullest extent allowed by law, except
as otherwise provided in the Fieldcrest Bylaws. The Fieldcrest Bylaws provide
for the
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indemnification to the full extent permitted under the DGCL. The Fieldcrest
Bylaws also provide that Fieldcrest has the power to purchase and maintain
insurance as permitted by the DGCL.
Pillowtex. Under the TBCA, a corporation may indemnify a person who was,
is, or is threatened to be made a named defendant or respondent in any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative, any appeal in such an
action, suit, or proceeding, or any inquiry or investigation that could lead to
such an action, suit, or proceeding (a "proceeding"), because the person is or
was a director of the corporation or, while a director of the corporation, is or
was serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, employee benefit plan, other
enterprise, or other entity, but only if it is determined in the manner
described below that the person: (i) conducted himself in good faith; (ii)
reasonably believed (a) in the case of conduct in his official capacity as a
director of the corporation, that his conduct was in the corporation's best
interests, and (b) in all other cases, that his conduct was at least not opposed
to the corporation's best interests; and (iii) in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. Except
to the extent described in the next following sentence, a director may not be
indemnified under the TBCA in respect of a proceeding in which the person is
found liable on the basis that personal benefit was improperly received by him,
whether or not the benefit resulted from an action taken in the person's
official capacity, or in which the person is found liable to the corporation. A
person may be indemnified as described in the second preceding sentence against
judgments, penalties (including excise and similar taxes), fines, settlements,
and reasonable expenses (including court costs and attorneys' fees) actually
incurred by the person in connection with a proceeding, except that if the
person is found liable to the corporation or is found liable on the basis that
personal benefit was improperly received by the person, the indemnification (i)
is limited to reasonable expenses (including court costs and attorneys' fees)
actually incurred by the person in connection with the proceeding and (ii) will
not be made in respect of any proceeding in which the person shall have been
found liable for willful or intentional misconduct in the performance of his
duty to the corporation.
Under the TBCA, a corporation must indemnify a director against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a proceeding in which he is a named defendant or respondent
because he is or was a director of the corporation or, while a director of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, employee benefit plan,
other enterprise, or other entity, if he has been wholly successful, on the
merits or otherwise, in the defense of the proceeding. Under the TBCA, if, in a
suit for the indemnification required as described in the immediately preceding
sentence, a court of competent jurisdiction determines that the director is
entitled to such indemnification, the court will order indemnification and will
award to the director the expenses (including court costs and attorneys' fees)
incurred in securing the indemnification. Under the TBCA, if, upon application
of a director, a court of competent jurisdiction determines, after giving any
notice the court considers necessary, that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not he has met the requirements for indemnification described in the first
sentence of the immediately preceding paragraph or has been found liable in the
circumstances described in the second sentence of such paragraph, the court may
order the indemnification that the court determines is proper and equitable,
except that if the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification will be limited to reasonable expenses (including court costs
and attorneys' fees) actually incurred by the person in connection with the
proceeding.
A determination that indemnification as described in the first sentence of
the second preceding paragraph is permissible must be made: (i) by a majority
vote of a quorum consisting of directors who at the time of the vote are not
named defendants or respondents in the proceeding; (ii) if such a quorum cannot
be obtained, by a majority vote of a committee of the board of directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; (iii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
described in clauses (i) and (ii) above, or, if such a quorum cannot be obtained
and such a committee cannot be established, by a majority vote of all directors;
or (iv) by the shareholders in a vote that excludes the shares held by directors
who are named defendants or respondents in the proceeding. Under the TBCA,
authorization of indemnification and determination as to reasonableness of
expenses must be made in the same manner as the determination that
indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses must be
made in the manner described in clause (iii) of the immediately preceding
sentence for the selection of special legal counsel; a provision contained in
the articles of incorporation, the
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bylaws, a resolution of shareholders or directors, or an agreement that makes
mandatory the indemnification permitted under the TBCA will be deemed to
constitute authorization of indemnification in the manner required by the TBCA
even though such provision may not have been adopted or authorized in the same
manner as the determination that indemnification is permissible. The TBCA
provides that reasonable expenses (including court costs and attorneys' fees)
incurred by a director who was, is, or is threatened to be made a named
defendant or respondent in a proceeding may be paid or reimbursed by the
corporation, in advance of the final disposition of the proceeding and without
the determination, authorization, or determination described above, after the
corporation receives a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director to repay the amount paid
or reimbursed if it is ultimately determined that he has not met the standard or
if it is ultimately determined that indemnification of the director against
expenses incurred by him in connection with that proceeding is prohibited by the
TBCA; a provision contained in the articles of incorporation, the bylaws, a
resolution of shareholders or directors, or an agreement that makes mandatory
the payment or reimbursement of expenses permitted under the TBCA will be deemed
to constitute authorization of that payment or reimbursement.
Under the TBCA, an officer of the corporation must be indemnified as, and
to the same extent described in the second preceding paragraph, for a director.
A corporation may indemnify and advance expenses to an officer, employee, or
agent of the corporation to the same extent that it may indemnify and advance
expenses to directors as described above. In addition, under the TBCA, a
corporation may indemnify and advance expenses to persons who are not or were
not officers, employees, or agents of the corporation but who are or were
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, employee benefit plan, other
enterprise, or other entity, to the same extent that it may indemnify and
advance expenses to directors.
Under the TBCA, a corporation may purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director, officer,
employee, or agent of the corporation or who is or was serving at the request of
the corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, employee benefit plan, other enterprise, or other entity, against
any liability asserted against him and incurred by him in such a capacity or
arising out of his status as such a person, whether or not the corporation would
have the power to indemnify him against that liability under the TBCA.
The Pillowtex Articles do not address indemnification of directors,
officers, or other persons. However, the Pillowtex Bylaws provide that: (i)
Pillowtex will indemnify persons who are or were directors or officers (both in
their capacities as directors and officers and, if serving at the request of
Pillowtex as a director, officer, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan, or other enterprise,
in each of those capacities) to the full extent permitted by the TBCA; (ii)
Pillowtex will pay or reimburse, in advance of the final disposition of any
proceeding, to all persons who are or were directors or officers of Pillowtex
all reasonable expenses incurred by such persons to the full extent permitted by
the TBCA; and (iii) Pillowtex will indemnify persons who are or were employees
or agents (other than directors or officers), or persons who are not or were not
employees or agents but who are or were serving at the request of Pillowtex as
directors, officers, trustees, employees, agents, or similar functionaries of
another foreign or domestic corporation, trust, partnership, joint venture, sole
proprietorship, employee benefit plan or other enterprise (collectively,
together with the directors and officers, "Corporate Functionaries"), to the
full extent permitted by the TBCA. The Pillowtex Bylaws also provide that
Pillowtex may purchase or maintain insurance on behalf of any Corporate
Functionary against any liability asserted against him and incurred by him in
such a capacity or arising out of his status as a Corporate Functionary, whether
or not Pillowtex would have the power to indemnify him against the liability
under the TBCA or the Pillowtex Bylaws.
See "Certain Corporate Governance Matters of Pillowtex--Indemnification."
NOMINATION OF DIRECTORS; PROPOSAL OF BUSINESS
Fieldcrest. The Fieldcrest Bylaws contain detailed advance notice and
informational procedures which must be complied with in order for a stockholder
to nominate a person to serve as a director. The Fieldcrest Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders meeting at which directors will be elected. In addition, the
Fieldcrest Bylaws contain detailed advance notice and informational procedures
which must
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be followed in order for a Fieldcrest stockholder to propose an item of business
for consideration at a meeting of Fieldcrest stockholders.
Pillowtex. The Pillowtex Bylaws also contain detailed advance notice and
informational procedures which must be complied with in order for a stockholder
to nominate a person to serve as a director. The Pillowtex Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders meeting at which directors will be elected. In addition, the
Pillowtex Bylaws contain detailed advance notice and informational procedures
which must be followed in order for a Pillowtex shareholder to propose an item
of business for consideration at a meeting of Pillowtex shareholders. For a
description of such provisions, see "Certain Corporate Governance Matters of
Pillowtex--Shareholder Nominations and Proposals."
DIVIDENDS AND DISTRIBUTIONS
Fieldcrest. Under the DGCL, a corporation may pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which
declared and for the preceding fiscal year. The DGCL also provides that
dividends may not be paid out of net profits if, after the payment of the
dividend, the corporation's capital would be less than the capital represented
by the outstanding stock of all classes having a preference upon the
distribution of assets.
Pillowtex. Under the TBCA, a corporation may make distributions if the
distribution does not exceed the corporation's surplus and the corporation would
not become insolvent after giving effect to the distribution.
CERTAIN APPRAISAL RIGHTS
Fieldcrest. The DGCL generally entitles a stockholder to exercise appraisal
rights upon a merger or consolidation of the corporation effected pursuant to
the DGCL if the holder complies with the requirements of Section 262 thereof.
However, the DGCL does not provide appraisal rights for stockholders of a
corporation upon such a merger or consolidation if the stock of the corporation
is listed on a national securities exchange or designated as a national market
system security on the Nasdaq or held by more than 2,000 holders and
stockholders are not required by the terms of the merger or consolidation to
accept for their stock anything except: (i) shares of stock of the corporation
surviving or resulting from such merger or consolidation, or depository receipt
in respect thereof; (ii) shares of stock of any other corporation, or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on the Nasdaq or held of record by more than 2,000 holders;
(iii) cash in lieu of fractional shares or fractional depository receipts; or
(iv) any combination of the shares of stock, depository receipts, and cash in
lieu of fractional shares or fractional depository receipts.
Pillowtex. The TBCA generally entitles a shareholder to exercise its
appraisal rights upon a merger of the corporation effected pursuant to the TBCA
if the holder complies with the requirements of Articles 5.12 and 5.13 thereof,
provided shareholder approval of the merger is required in the TBCA and the
shareholder holds shares of a class that was entitled to vote thereon. However,
the TBCA does not provide appraisal rights for shareholders with respect to any
plan of merger in which there is a single surviving or new domestic or foreign
corporation or from any plan of exchange, if (i) the shares held by the
shareholder are part of a class or series, shares of which are (a) listed on a
national securities exchange, (b) listed on the Nasdaq Stock Market (or
successor quotation system) or designated as a national market security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or successor entity, or (c) held of record by not less than 2,000 holders,
(ii) the shareholder is not required by the terms of the plan of merger or
exchange to accept for the shareholder's shares any consideration that is
different than the consideration (other than cash in lieu of fractional shares
that the shareholder would otherwise be entitled to receive) to be provided to
any other holder of shares of the same class or series of shares held by such
shareholder, and (iii) the shareholder is not required by the terms of the plan
of merger or exchange to accept for the shareholder's shares any consideration
other than (a) shares of a corporation that, immediately after the merger or
exchange, will be part of a class or series, shares of which are listed, or
authorized for listing, on a national securities exchange or approved for
quotation as a national market security on an interdealer quotation system by
the National Association of Securities Dealers, Inc., or successor entity, or
held of record by not less than 2,000 holders, (b) cash in lieu of fractional
shares otherwise entitled to be received, or (c) a combination of such shares
and cash in lieu of fractional shares.
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DERIVATIVE ACTIONS
Fieldcrest. Derivative actions may be brought under the DGCL by a
stockholder on behalf of, and for the benefit of, the corporation. The DGCL
provides that a stockholder must aver in the complaint that he or she was a
stockholder of the corporation at the time of the transaction of which he
complains. However, no action may be brought by a stockholder unless he first
seeks remedial action on his claim from the corporation's board of directors,
unless such a demand for redress is excused. The board of directors of a
Delaware corporation can appoint an independent litigation committee to review a
stockholder's request for a derivative action and the litigation committee,
acting reasonably and in good faith, can terminate the stockholder's action
subject to a court's review of such committee's independence, good faith, and
reasonable investigation. Under the DGCL, the court in a derivative action may
apply a variety of legal and equitable remedies on behalf of the corporation
which vary depending on the facts and circumstances of the case and the nature
of the claim brought.
Pillowtex. Derivation actions may be brought under the TBCA by a
shareholder in the right of the corporation. The TBCA provides that a
shareholder (including a beneficial owner whose shares are held in a voting
trust or by a nominee on the beneficial owner's behalf) may not commence or
maintain a derivative proceeding unless the shareholder (i) was a shareholder of
the corporation at the time of the act or omission complained of or became a
shareholder by operation of law from a person that was a shareholder at that
time and (ii) fairly and adequately represents the interests of the corporation
in enforcing the right of the corporation. The TBCA further provides that no
shareholder may commence or maintain a derivative action until (i) a written
demand is filed with the corporation setting forth with particularity the act,
omission, or other matter that is the subject of the claim or challenge and
requesting that the corporation take suitable action and (ii) 90 days have
expired since the date the demand was made (unless irreparable injury to the
corporation is being suffered or would result by waiting for 90 day period to
expire) or the corporation has rejected the demand. A court is required to
dismiss a derivative proceeding if (i) a majority vote of independent and
disinterested directors, (ii) a majority vote of a committee of two or more
independent and interested directors, or (iii) a panel of one or more
independent and disinterested persons appointed by the court determines in good
faith, after conducting a reasonable inquiry and based on the factors that the
person or group deems appropriate under the circumstances, that the continuation
of the derivative proceeding is not in the best interests of the corporation. If
a derivative proceeding is commenced after a demand is rejected, the petition
must allege with particularity facts that establish that the rejection was not
made in accordance with the procedure and criteria described above. The TBCA
also provides that, upon termination of a derivative proceeding, the court may
order (i) a corporation to pay the expenses of the plaintiff incurred in the
proceeding if it finds that the proceeding has resulted in a substantial benefit
to the corporation, (ii) the plaintiff to pay the expenses of the corporation or
any defendant incurred in investigating and defending the proceeding if it finds
that the proceeding was commenced or maintained without reasonable cause or for
an improper purpose, or (iii) a party to pay the expenses incurred by another
party (including the corporation) because of the filing of a pleading, motion,
or other paper, if it finds that the pleading, motion, or other paper (a) was
not well grounded in fact after reasonable inquiry, (b) was not warranted by
existing law or a good faith argument for the extension, modification, or
reversal of existing law, or (c) was interposed for an improper purpose, such as
to harass or to cause unnecessary delay or needless increase in the cost of
litigation.
LEGAL MATTERS
The validity of the Pillowtex Common Stock to be issued in connection with
the Merger will be passed upon for Pillowtex by Jones, Day, Reavis & Pogue,
Dallas, Texas.
EXPERTS
The consolidated financial statements of Pillowtex as of December 30, 1995
and December 28, 1996, and for each of the years in the three-year period ended
December 28, 1996 have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Fieldcrest incorporated by
reference in and included in an exhibit to Fieldcrest's Annual Report (Form
10-K) for the year ended December 31, 1996 and incorporated herein by reference,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report incorporated by reference
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therein and included in an exhibit thereto and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
PROPOSALS BY PILLOWTEX SHAREHOLDERS
Any proposal of a shareholder of Pillowtex intended to be presented at the
1998 Annual Meeting of Shareholders of Pillowtex must be received in writing by
the Secretary of Pillowtex by November 29, 1997 for inclusion, if appropriate,
in the proxy, notice of meeting, and proxy statement relating to such annual
meeting.
PROPOSALS BY FIELDCREST STOCKHOLDERS
Any proposal of a stockholder of Fieldcrest intended to be presented at the
1998 Annual Meeting of Stockholders of Fieldcrest must be received in writing by
the Secretary of Fieldcrest by November 29, 1997 for inclusion, if appropriate,
in the proxy, notice of meeting, and proxy statement relating to such annual
meeting. If the Merger is consummated, it is anticipated that no such annual
meeting will be held.
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Appendix A
================================================================================
AGREEMENT AND PLAN OF MERGER
among
PILLOWTEX CORPORATION
PEGASUS MERGER SUB, INC.
and
FIELDCREST CANNON, INC.
dated as of September 10, 1997
================================================================================
A-1
<PAGE> 103
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - THE MERGER..................................................................... A-4
SECTION 1.1 The Merger....................................................... A-4
SECTION 1.2 Closing.......................................................... A-4
SECTION 1.3 Effective Time................................................... A-4
SECTION 1.4 Effects of the Merger............................................ A-4
SECTION 1.5 Certificate of Incorporation; By-laws............................ A-4
SECTION 1.6 Directors; Officers.............................................. A-5
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS.................................... A-5
SECTION 2.1 Effect on Capital Stock.......................................... A-5
SECTION 2.2 Stock Options.................................................... A-6
SECTION 2.3 Share Purchase Rights............................................ A-7
SECTION 2.4 Failure To Approve Share Issuance................................ A-7
SECTION 2.5 Stock Appreciation Rights........................................ A-7
ARTICLE III - PAYMENT FOR SHARES........................................................... A-7
SECTION 3.1 Payment For Shares............................................... A-7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES................................................ A-9
SECTION 4.1 Representations and Warranties of Company........................ A-9
SECTION 4.2 Representations and Warranties of Parent and Purchaser........... A-16
ARTICLE V - COVENANTS...................................................................... A-19
SECTION 5.1 Conduct of Business of Company and Parent........................ A-19
ARTICLE VI - ADDITIONAL AGREEMENTS......................................................... A-20
SECTION 6.1 Preparation of the Proxy Statement and the Form S-4;
Accountant's Letters............................................. A-20
SECTION 6.2 Stockholders Meetings............................................ A-21
SECTION 6.3 Access to Information; Confidentiality........................... A-21
SECTION 6.4 Reasonable Best Efforts.......................................... A-21
SECTION 6.5 Indemnification; Directors' and Officers Insurance............... A-21
SECTION 6.6 Public Announcements............................................. A-22
SECTION 6.7 No Solicitation; Acquisition Proposals........................... A-22
SECTION 6.8 Consents, Approvals and Filings.................................. A-23
SECTION 6.9 Board Action Relating to Stock Option Plans...................... A-24
SECTION 6.10 Employment and Employee Benefit Matters.......................... A-24
SECTION 6.11 Affiliates and Certain Stockholders.............................. A-25
SECTION 6.12 NYSE Listing..................................................... A-25
SECTION 6.13 Certain Company Indebtedness..................................... A-25
</TABLE>
A-2
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<TABLE>
<S> <C>
ARTICLE VII - CONDITIONS PRECEDENT.......................................................... A-25
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger........ A-25
SECTION 7.2. Conditions to Obligations of Parent and Purchaser................. A-26
SECTION 7.3. Conditions to Obligation of Company............................... A-26
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER............................................ A-27
SECTION 8.1 Termination....................................................... A-27
SECTION 8.2 Effect of Termination............................................. A-28
SECTION 8.3 Amendment......................................................... A-28
SECTION 8.4 Extension; Waiver................................................. A-28
SECTION 8.5 Procedure for Termination, Amendment, Extension or Waiver......... A-28
ARTICLE IX - GENERAL PROVISIONS............................................................. A-28
SECTION 9.1 Nonsurvival of Representations and Warranties..................... A-28
SECTION 9.2 Fees and Expenses................................................. A-28
SECTION 9.3 Definitions....................................................... A-28
SECTION 9.4 Notices........................................................... A-29
SECTION 9.5 Interpretation.................................................... A-30
SECTION 9.6 Counterparts...................................................... A-30
SECTION 9.7 Entire Agreement; Third-Party Beneficiaries....................... A-30
SECTION 9.8 Governing Law..................................................... A-30
SECTION 9.9 Assignment........................................................ A-30
SECTION 9.10 Enforcement....................................................... A-30
SECTION 9.11 Severability...................................................... A-30
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of September 10, 1997, among
PILLOWTEX CORPORATION, a Texas corporation ("Parent"), PEGASUS MERGER SUB, INC.,
a Delaware corporation and wholly-owned subsidiary of Parent ("Purchaser"), and
FIELDCREST CANNON, INC., a Delaware corporation ("Company").
W I T N E S E T H:
WHEREAS, the respective Boards of Directors of Parent, Purchaser and
Company have determined that it would be advisable and in the best interests of
their respective stockholders for Parent to acquire Company, by means of a
merger of Purchaser with and into Company (the "Merger"), pursuant and subject
to the terms and conditions set forth in this Agreement; and
WHEREAS, Parent, Purchaser and Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), the Merger shall be effected and Purchaser
shall be merged with and into Company at the Effective Time (as hereinafter
defined in Section 1.3). At the Effective Time, the separate existence of
Purchaser shall cease and Company shall continue as the surviving corporation
(sometimes herein referred to as the "Surviving Corporation").
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver (to the extent
permissible) of all of the conditions set forth in Article VII, the closing of
the Merger (the "Closing") will take place at 10:00 a.m. on the fifth business
day following satisfaction or waiver (to the extent permissible) of all of the
conditions set forth in Article VII, other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions (the "Closing Date"), at the offices of Weil, Gotshal
& Manges LLP, 767 Fifth Avenue, New York, New York, unless another date, time or
place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. The parties hereto will file with the Secretary
of State of the State of Delaware (the "Delaware Secretary of State") on the
date of the Closing (or on such other date as Parent and Company may agree) a
certificate of merger or other appropriate documents, executed in accordance
with the relevant provisions of the DGCL, and make all other filings or
recordings required under the DGCL in connection with the Merger. The Merger
shall become effective upon the filing of the certificate of merger with the
Delaware Secretary of State, or at such later time as is specified in the
certificate of merger (the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of Company and Purchaser
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Company and Purchaser shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 Certificate of Incorporation; By-laws. At the Effective Time,
the certificate of incorporation of Purchaser as in effect at the Effective Time
shall, from and after the Effective Time, be the certificate of incorporation of
the Surviving Corporation until thereafter changed or amended in accordance with
the provisions thereof and applicable law. At the Effective Time, the by-laws of
Purchaser as in effect at the Effective Time shall, from and after the Effective
Time, be the by-laws of the Surviving Corporation until thereafter changed or
amended in accordance with the provisions thereof and applicable law.
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SECTION 1.6 Directors; Officers. From and after the Effective Time, (a) the
directors of Purchaser shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and (b) the
officers of Company shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of shares of
Company's common stock, $1.00 par value per share (the "Shares"), or any other
capital stock of Company or any shares of capital stock of Purchaser:
(a) Common Stock of Purchaser. Each share of common stock, par value
$0.01 per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock, $0.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each Share
and each share of Company's $3.00 Series A Convertible Preferred Stock
(individually, a "Preferred Share" and collectively the "Preferred Shares")
issued and outstanding immediately prior to the Effective Time that is owned by
Company or any Subsidiary of Company or by Parent, Purchaser or any other
Subsidiary of Parent (other than shares in trust accounts, managed accounts,
custodial accounts and the like that are beneficially owned by third parties)
shall automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Shares. Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares to be cancelled in accordance
with Section 2.1(b) and any Dissenting Shares (as hereinafter defined)) shall be
converted into the right to receive the Merger Consideration (as defined below)
upon surrender of the certificate formerly representing such Share in accordance
with this Agreement.
(d) Conversion of Preferred Shares. Each Preferred Share issued and
outstanding immediately prior to the Effective Time (other than Preferred Shares
to be cancelled in accordance with Section 2.1(b) and any Dissenting Shares)
shall be converted into the right to receive the Preferred Merger Consideration
(as defined below) upon surrender of the certificate formerly representing such
Preferred Share in accordance with this Agreement.
(e) Merger Consideration; Preferred Merger Consideration. (i) "Merger
Consideration" shall mean, subject to Section 2.4 below, (A) a cash payment in
an amount equal to $27.00 and (B) a number of fully paid and nonassessable
shares of Parent's common stock, $0.01 par value per share ("Parent Common
Stock"), equal to the Conversion Number, meaning the quotient, rounded to the
third decimal place, obtained by dividing $7.00 by the average of the closing
sales prices of Parent Common Stock as reported on the NYSE (as hereinafter
defined in Section 9.3) Composite Transactions List for each of the 20
consecutive trading days immediately preceding the fifth trading day prior to
the Closing Date (the "Determination Price"); provided, that if the actual
quotient obtained thereby is less than 0.269, the Conversion Number shall be
0.269 and if the actual quotient obtained thereby is more than 0.333, the
Conversion Number shall be 0.333; provided, further that if the Determination
Price is less than $21.00, Parent shall have the right to give written notice to
Company (a "Top-Up Intent Notice") that Parent elects to increase the cash
portion of the Merger Consideration and/or the Conversion Number such that the
sum of (i) the cash portion of the Merger Consideration and (ii) the product of
the Conversion Number and the Determination Price shall equal $34.00. Any Top-Up
Intent Notice shall be delivered to Company no later than 2:00 p.m. New York
City time on the third business day prior to the Closing Date. If, in such case,
Parent does not deliver a Top-Up Intent Notice, Company shall have the right to
give written notice to Parent (a "Termination Notice") that Company elects to
terminate this Agreement. Any Termination Notice shall be delivered to Parent no
later than 2:00 p.m. New York City time on the business day prior to the Closing
Date.
(ii) "Preferred Merger Consideration" shall mean, subject to Section
2.4 below, (A) a cash payment equal to the product of (1) the cash portion of
the Merger Consideration and (2) 1.7094 and (B) a number of fully paid and
nonassessable shares of Parent Common Stock equal to the product of (1) the
Conversion Number and (2) 1.7094.
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(f) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Shares or Preferred Shares issued and outstanding immediately prior to
the Effective Time held by a holder (if any) who has the right to demand, and
who properly demands, an appraisal of such Shares or Preferred Shares in
accordance with Section 262 of the DGCL (or any successor provision)
("Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration or the Preferred Merger Consideration, as applicable, unless such
holder fails to perfect or otherwise loses such holder's right to such
appraisal, if any. If, after the Effective Time, such holder fails to perfect or
loses any such right to appraisal, each such Share or Preferred Share of such
holder shall be treated as a Share or Preferred Share that had been converted as
of the Effective Time into the right to receive the Merger Consideration or the
Preferred Merger Consideration, as applicable, in accordance with this Section
2.1. At the Effective Time, any holder of Dissenting Shares shall cease to have
any rights with respect thereto, except the rights provided in Section 262 of
the DGCL (or any successor provision) and as provided in the immediately
preceding sentence. Company shall give prompt notice to Parent of any demands
received by Company for appraisal of Shares or Preferred Shares, and Parent
shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. Company shall not, except with the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands.
SECTION 2.2 Stock Options. (a) Each holder of a then outstanding option to
purchase Shares (collectively, "Options") under Company's Director Stock Option
Plan, 1995 Employee Stock Option Plan or Stock Option Agreement, dated as of
September 11, 1991, with James M. Fitzgibbons (collectively, the "Stock Option
Plans"), whether or not then exercisable or fully vested, may elect, prior to
the Effective Time, in settlement thereof, to receive from Company immediately
prior to the Effective Time for each Share subject to such Option an amount in
cash equal to the difference between $34.00 and the per share exercise price of
such Option, to the extent $34.00 is greater than the per share exercise price
of such Option (such excess amount, the "Option Consideration").
(b) At the Effective Time, each outstanding Option other than Options
for which an election to receive cash in settlement thereof has been made
pursuant to Section 2.2(a), shall be assumed by Parent and shall constitute an
option to acquire, on substantially the same terms and subject to substantially
the same conditions as were applicable under such Option, including, without
limitation, term, exercisability, status as an "incentive stock option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
termination provisions, the number of shares of Parent Common Stock, rounded up
to the nearest whole share, determined by multiplying the number of Shares
subject to such Option immediately prior to the Effective Time by the Option
Conversion Number at an exercise price per share of Parent Common Stock
(increased to the nearest whole cent) equal to the exercise price per share of
Shares subject to such Option divided by the Option Conversion Number; provided,
however, that in the case of any Option to which Section 421 of the Code applies
by reason of its qualification as an incentive stock option under Section 422 of
the Code, the conversion formula shall be adjusted if necessary to comply with
Section 424(a) of the Code. "Option Conversion Number" shall mean the quotient,
rounded to the third decimal place, obtained by dividing $34.00 by the
Determination Price; provided, that if the actual quotient obtained thereby is
less than 1.308, the Option Conversion Number shall be 1.308, and if the actual
quotient obtained thereby is more than 1.619, the Option Conversion Number shall
be 1.619; provided, further, that if a Top-Up Intent Notice has been delivered
to Company pursuant to Section 2.1(e), the Option Conversion Number shall be
increased such that the product of the Option Conversion Notice and the
Determination Price shall equal $34.00.
(c) Not later than 30 days prior to the Effective Time, Company shall
provide each holder of an Option an election form pursuant to which each such
holder may make the election specified in Section 2.2(a). Company also shall use
its best efforts to obtain all necessary waivers, consents or releases from
holders of Options under the Stock Option Plans and take any such other action
as may be reasonably necessary to give effect to the transactions contemplated
by this Section 2.2 and, with respect to the Options for which an election to
receive cash in settlement thereof has been made, to cause each such Option to
be surrendered to Company and cancelled, whether or not any Option Consideration
is payable with respect thereto, at the Effective Time. The surrender of an
Option to Company shall be deemed a release of any and all rights the holder had
or may have had in such Option, other than the right to receive the Option
Consideration in respect thereof.
(d) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of substitute Options pursuant to the terms set forth in Section
2.2(b). As soon as practicable after the Effective Time, the shares of Parent
Common Stock subject to Options will be covered by an effective registration
statement on Form S-8 (or any successor form) or another appropriate form and
Parent shall use its reasonable best efforts to maintain the effectiveness of
such registration statements for so long as the substitute
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Options remain outstanding. In addition, Parent shall use all reasonable efforts
to cause the shares of Parent Common stock subject to Options to be listed on
the NYSE and such other exchanges as Parent shall determine.
SECTION 2.3 Share Purchase Rights. Each reference in this Article II and in
Article III to a "Share" is a reference to such Share together with the Right
(as hereinafter defined in Section 4.1(b)), if any, associated with such Share.
SECTION 2.4 Failure To Approve Share Issuance. If Parent's stockholders
fail to approve the Share Issuance (as hereinafter defined in Section 4.2(c)) at
the Parent Stockholders Meeting (as hereinafter defined in Section 6.2(b)),
then, notwithstanding anything set forth herein to the contrary, (i) the Merger
Consideration shall be a cash payment in an amount equal to $34.00, (ii) the
Preferred Merger Consideration shall be a cash payment in an amount equal to
$58.12, (iii) the provisions of Section 2.2(a) shall apply to all Options
outstanding immediately prior to the Effective Time and the provisions of
Section 2.2(b) shall have no further force or effect, and (iv) Sections
7.1(a)(ii) and 7.1(c) hereof shall be deemed to be deleted.
SECTION 2.5 Stock Appreciation Rights. At or immediately prior to the
Effective Time, Company shall pay to each holder of a stock appreciation right
issued by Company pursuant to the Director Stock Option Plan or its salary
reduction plan a cash amount equal to the product of (i) the difference between
$34.00 and the grant price of such stock appreciation right and (ii) the number
of shares subject to such stock appreciation right.
ARTICLE III
PAYMENT FOR SHARES
SECTION 3.1 Payment For Shares. (a) Payment Fund. Concurrently with the
Effective Time, Parent shall deposit, or shall cause to be deposited, with or
for the account of a bank or trust company designated by Parent, which shall be
reasonably satisfactory to Company (the "Paying Agent"), for the benefit of the
holders of Shares and Preferred Shares, (i) certificates for the shares of
Parent Common Stock representing the aggregate stock portion of the Merger
Consideration and the Preferred Merger Consideration and (ii) cash in an
aggregate amount sufficient to pay the aggregate cash portion of the Merger
Consideration and the Preferred Merger Consideration (hereinafter collectively
referred to as the "Payment Fund").
(b) Letters of Transmittal; Surrender of Certificates. As soon as
reasonably practicable after the Effective Time, Parent shall instruct the
Paying Agent to mail to each holder of record (other than Company or any of its
Subsidiaries or Parent, Purchaser or any of their Subsidiaries) of a certificate
or certificates which, immediately prior to the Effective Time, evidenced
outstanding Shares or Preferred Shares (the "Certificates"), (i) a form of
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent, and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for payment therefor.
Upon surrender of a Certificate for cancellation to the Paying Agent together
with such letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in respect thereof (A) a certificate
representing that number of whole shares of Parent Common Stock (and cash in
lieu of fractional shares of Parent Common Stock as contemplated by this Section
3.1) which the aggregate number of Shares or Preferred Shares, as applicable,
previously represented by such certificate or certificates surrendered shall
have been converted into the right to receive pursuant to Section 3.1 of this
Agreement and (B) cash in an amount equal to the product of (1) the number of
Shares or Preferred Shares, as applicable, theretofore represented by such
Certificate and (2) the cash portion of the Merger Consideration or the
Preferred Merger Consideration, as applicable, and, in either case, the
Certificate so surrendered shall forthwith be canceled. No interest shall be
paid or accrued on the Merger Consideration or the Preferred Merger
Consideration payable upon the surrender of any Certificate. If payment is to be
made to a person other than the person in whose name the surrendered Certificate
is registered, it shall be a condition of payment that the Certificate so
surrendered shall be promptly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the surrendered Certificate or established to the satisfaction of
Parent and the Surviving Corporation that such tax has been paid or is not
applicable.
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(c) Cancellation and Retirement of Shares; No Further Rights. As of the
Effective Time, all Shares and Preferred Shares (other than Shares and Preferred
Shares to be cancelled in accordance with Section 2.1(b) and any Dissenting
Shares if applicable) issued and outstanding immediately prior to the Effective
Time, shall cease to be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a Certificate theretofore
representing any such Shares or Preferred Shares shall cease to have any rights
with respect thereto (including, without limitation, the right to vote), except
the right to receive the Merger Consideration or the Preferred Merger
Consideration, as applicable, without interest, upon surrender of such
Certificate in accordance with this Article III, and until so surrendered, each
such Certificate shall represent for all purposes only the right, subject to
Section 2.1(f), if applicable, to receive the Merger Consideration or the
Preferred Merger Consideration, as applicable, without interest. The Merger
Consideration or the Preferred Merger Consideration, as applicable, paid upon
the surrender for exchange of Certificates in accordance with the terms of this
Article III shall be deemed to have been issued and paid in full satisfaction of
all rights pertaining to the Shares or Preferred Shares theretofore represented
by such Certificates.
(d) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Shares or Preferred Shares which have been converted pursuant to
Section 2.1, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) In lieu of any such fractional shares, each holder of Shares or
Preferred Shares who would otherwise have been entitled to a fraction of a
Parent Common Stock upon surrender of Certificates for exchange pursuant to this
Section 3.1 will be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (A) the per share closing price on the
NYSE of Parent Common Stock (as reported on the NYSE Composite Transactions
List) on the date on which the Effective Time occurs (or, if Parent Common Stock
does not trade on the NYSE on such date, the first date of trading of Parent
Common Stock on the NYSE after the Effective Time) by (B) the fractional
interest to which such holder otherwise would be entitled. Promptly upon request
from the Paying Agent, Parent will make available to the Paying Agent the cash
necessary for this purpose.
(e) Investment of Payment Fund. The Paying Agent shall invest the cash
portion of the Payment Fund, as directed by Parent, in (i) direct obligations of
the United States of America, (ii) obligations for which the full faith and
credit of the United States of America is pledged to provide for the payment of
principal and interest, (iii) commercial paper rated the highest quality by
either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
(iv) certificates of deposit, bank repurchase agreements or bankers' acceptances
of commercial banks with capital exceeding $500 million. Any net earnings with
respect to the Payment Fund shall be the property of and paid over to Parent as
and when requested by Parent; provided, however, that any such investment or any
such payment of earnings shall not delay the receipt by holders of Certificates
of the Merger Consideration or the Preferred Merger Consideration, as
applicable, or otherwise impair such holders' respective rights hereunder.
(f) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of Certificates for 180 days after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore complied with this Article III shall
thereafter look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration or Preferred Merger
Consideration, as applicable.
(g) No Liability. None of Parent, Purchaser, the Surviving Corporation
or the Paying Agent shall be liable to any person in respect of any payments or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on which any Merger
Consideration or Preferred Merger Consideration, as applicable, in respect of
such Certificate would otherwise escheat to or become the property of any
Governmental Entity (as hereinafter defined), any amounts payable in respect of
such certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(h) Withholding Rights. Parent shall be entitled to deduct and withhold, or
cause to be deducted or withheld, from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares, Preferred Shares, Options or
Certificates such amounts as are required to be deducted and withheld with
respect to the making of such payment
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under the Code, or any provision of applicable state, local or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to such holders
in respect of which such deduction and withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of Company. Company represents
and warrants to Parent and Purchaser as follows:
(a) Organization, Standing and Corporate Power. Each of Company and each
Subsidiary of Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted. Each of Company and each Subsidiary of Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed would not,
individually or in the aggregate, have a Material Adverse Effect (as hereinafter
defined in Section 9.3) on Company. Company has delivered to Parent complete and
correct copies of the certificate of incorporation and by-laws or comparable
governing documents of Company and each of its Subsidiaries, in each case as
amended to the date of this Agreement.
(b) Capital Structure. The authorized capital stock of Company consists
of (i) 25,000,000 shares of common stock, $1.00 par value per share (the "Common
Stock"), (ii) 15,000,000 shares of class B common stock, $1.00 par value per
share, and (iii) 10,000,000 shares of preferred stock, $.01 par value per share.
At the close of business on September 5, 1997: (i) 9,224,258 shares of Common
Stock were issued and outstanding, (ii) 435,300 shares of Common Stock were
reserved for issuance pursuant to outstanding Options under the Stock Option
Plans, (iii) 2,564,100 shares of Common Stock were reserved for issuance
pursuant to conversion of Preferred Shares, (iv) 2,632,248 shares of Common
Stock were reserved for issuance pursuant to conversion of Company's 6%
Convertible Subordinated Debentures due 2012 (the "Convertible Debentures"), (v)
1,500,000 Preferred Shares were issued and outstanding and (vi) 500,000 shares
of Company's Series B Junior Participating Preferred Stock were authorized for
issuance solely pursuant to the exercise of the preferred stock purchase rights
(the "Rights") issued pursuant to the Rights Agreement, dated as of November 24,
1993, between Company and The First National Bank of Boston, as rights agent
(the "Company Rights Agreement"). Except as set forth in the immediately
preceding sentence, at the close of business on September 5, 1997, no shares of
capital stock (including, without limitation, class B common stock or preferred
stock) or other equity securities of Company were issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of Company are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as referred to above, no bonds, debentures, notes or
other indebtedness of Company or any Subsidiary of Company having the right to
vote (or convertible into, or exchangeable for, secu rities having the right
to vote) on any matters on which the stockholders of Company or any Subsidiary
of Company may vote are issued or outstanding. No adjustment to the conversion
price at which Preferred Shares are convertible into Shares or the conversion
price at which Convertible Debentures are convertible into Shares has been made
since the respective date of the first issuance of such securities, and there
are no accrued and unpaid dividends, whether or not declared, on the Preferred
Shares. Except as disclosed in Section 4.1(b) of the disclosure schedule
delivered by each party to the other simultaneously with the execution of this
Agreement (the "Disclosure Schedule"), all the outstanding shares of capital
stock of each Subsidiary of Company have been validly issued and are fully paid
and nonassessable and are owned by Company, by one or more Subsidiaries of
Company or by Company and one or more such Subsidiaries, free and clear of
Liens (as hereinafter defined in Section 9.3). Except as set forth above or in
Section 4.1(b) of the Disclosure Schedule, neither Company nor any Subsidiary
of Company has or, at or after the Effective Time will have, any outstanding
option, warrant, call, subscription or other right, agreement or commitment
which (i) obligates Company or any Subsidiary of Company to issue, sell or
transfer, repurchase, redeem or otherwise acquire any shares, of the capital
stock of Company or any Subsidiary of Company, (ii) restricts the transfer of
any shares of capital stock of Company or any of its Subsidiaries or (iii)
relates to the voting of any shares of Company or any of its Subsidiaries.
(c) Authority; Noncontravention. Company has the requisite corporate
power and authority to enter into this Agreement. The execution and delivery of
this Agreement by Company and the consummation by Company of the
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transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company, subject, in the case of the Merger, to
the approval of this Agreement by its stockholders as set forth in Section
6.2(a). This Agreement has been duly executed and delivered by Company and,
assuming this Agreement constitutes the valid and binding agreement of Parent
and Purchaser, constitutes a valid and binding obligation of Company,
enforceable against Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity. Except as disclosed in Section 4.1(c) of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the restated certificate of incorporation (including the provisions of any
certificate of designations which constitute a part of such restated certificate
of incorporation) or by-laws of Company or the comparable documents of any
Subsidiary of Company, (ii) subject to the governmental filings and other
matters referred to in the following sentence, conflict with, result in a breach
of or default (with or without notice or lapse of time, or both) under, or give
rise to a material obligation, a right of termination, cancellation or
acceleration of any obligation or a loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Company or any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or any of their assets is bound or affected, or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, contravene any domestic or foreign law, rule or regulation or any
order, writ, judgment, injunction, decree, determination or award currently in
effect, which, in the case of clauses (ii) and (iii) above, singly or in the
aggregate, would have a Material Adverse Effect on Company. No consent, approval
or authorization of, or declaration or filing with, or notice to, any domestic
or foreign governmental agency or regulatory authority (a "Governmental Entity")
which has not been received or made is required by or with respect to Company or
any of its Subsidiaries in connection with the execution and delivery of this
Agreement by Company or the consummation by Company of the transactions
contemplated hereby, except for (i) the filing of premerger notification and
report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with respect to the Merger, (ii) the filing with the
SEC of (A) a joint proxy statement relating to the approval and adoption by the
stockholders of Company of this Agreement and approval by the stockholders of
Parent of the Share Issuance (as hereinafter defined in Section 4.2(c)) (such
joint proxy statement, as amended or supplemented from time to time, the "Proxy
Statement") and (B) such reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the filing
of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
Company is qualified to do business, (iv) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 4.1(c) of the
Disclosure Schedule and (v) any other filings, authorizations, consents or
approvals the failure to make or obtain which, individually or in the aggregate,
would not have a Material Adverse Effect on Company.
(d) SEC Documents. (i) Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (the "SEC") since January 1, 1994 (such reports, schedules,
forms, statements and other documents are hereinafter referred to as the "SEC
Documents"); (ii) as of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents as of such dates contained any untrue
statements of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; and (iii) the
consolidated financial statements of Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited consolidated quarterly statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may otherwise be indicated in the notes thereto) and
fairly present the consolidated financial position of Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited quarterly statements, to normal year-end audit adjustments).
(e) Information Supplied. None of the information supplied or to be
supplied by Company specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance by Parent of shares of Parent Common Stock in the
Merger (the "Form S-4") will, at the time the Form S-4 is filed with the SEC, at
any time that it is amended or supplemented and at the time it becomes
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effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time it is filed with the SEC, at any time that it is
amended or supplemented, at the time it is mailed to the stockholders of Company
and Parent and at the time of the Company Stockholders Meeting referred to in
Section 6.2(a) and the Parent Stockholders Meeting referred to in Section
6.2(b), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent or Purchaser specifically for inclusion or
incorporation by reference in such documents.
(f) Absence of Certain Changes or Events; No Undisclosed Material
Liabilities.
(i) Except as disclosed in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "Filed SEC Documents") or in
Section 4.1(f) of the Disclosure Schedule, since the date of the most recent
audited financial statements included in the Filed SEC Documents, Company and
its Subsidiaries have conducted their business only in the ordinary course, and
there has not been (A) any change, event or occurrence particular to Company and
its Subsidiaries (excluding industry, economic, financial and other matters
generally affecting businesses other than and in addition to Company and its
Subsidiaries) which has had or would have, individually or in the aggregate, a
Material Adverse Effect on Company; (B) any declaration, setting aside or
payment of any dividend or other distribution in respect of shares of Company's
capital stock, other than dividends on the Preferred Shares in accordance with
their terms, or any redemption or other acquisition by Company of any shares of
its capital stock; (C) any increase in the rate or terms of compensation payable
or to become payable by Company or its Subsidiaries to their directors, officers
or key employees, except increases occurring in the ordinary course of business
consistent with past practices; (D) any entry into, or increase in the rate or
terms of, any bonus, insurance, severance, pension or other employee or retiree
benefit plan, payment or arrangement made to, for or with any such directors,
officers or employees, except increases occurring in the ordinary course of
business consistent with past practices or as required by applicable law; (E)
any entry into any agreement, commitment or transaction by Company or any of its
Subsidiaries which is material to Company and its Subsidiaries taken as a whole,
except for agreements, commitments or transactions entered into in the ordinary
course of business; (F) any change by Company in accounting methods, principles
or practices except as required or permitted by generally accepted accounting
principles; (G) any write-off or write-down of, or any determination to
write-off or write-down, any asset of Company or any of its Subsidiaries or any
portion thereof which write-off, write-down, or determination exceeds $5 million
individually or $15 million in the aggregate; or (H) any agreements by Company
or any of its Subsidiaries to do any of the things described in the preceding
clauses (A) through (G) other than as expressly contemplated or provided for
herein.
(ii) Except as set forth in or disclosed in the Filed SEC Documents
or Section 4.1(f) of the Disclosure Schedule and liabilities incurred in the
ordinary course of business since the date of the most recent financial
statements included in the Filed SEC Documents, as of the date hereof, there are
no liabilities of Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable or
otherwise, having or which would have, individually or in the aggregate, a
Material Adverse Effect on Company.
(g) Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents or in Section 4.1(g) of the Disclosure Schedule, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or amended or
agreed to adopt or amend in any material respect any collective bargaining
agreement or any Benefit Plan (as defined in Section 4.1(h)).
(h) Benefit Plans. With respect to all the employee benefit plans (as
that phrase is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained for the benefit of any
current or former employee, officer or director of the Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation plan,
program or arrangement maintained for the benefit of any current or former
employee, officer or director of the Company or any of its Subsidiaries (the
Company ERISA Plans and such plans being referred to as the "Company Plans"),
except as set forth in Section 4.1(h) of the Disclosure Schedule:
(i) none of the Company ERISA Plans is a "multiemployer plan"
within the meaning of ERISA;
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(ii) none of the Company Plans promises or provides retiree life
insurance benefits to any person;
(iii) none of the Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit, or the
acceleration of the payment or vesting of a benefit by reason of the execution
of this Agreement or the consummation of the transactions contemplated by this
Agreement;
(iv) neither the Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new Company Plan or,
except as required by law, the amendment of an existing Company Plan;
(v) each Company ERISA Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS
that it is so qualified and, to the knowledge of the Company, nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such Company ERISA Plan;
(vi) each Company Plan has been operated in accordance with its
terms and the requirements of all applicable law;
(vii) neither the Company nor any of its Subsidiaries or members of
their "controlled group" has incurred any direct or indirect liability under,
arising out of or by operation of Title IV of ERISA in connection with the
termination of, or withdrawal from, any Company ERISA Plan or other retirement
plan or arrangement, and, to the knowledge of the Company, no fact or event
exists that could reasonably be expected to give rise to any such liability;
(viii) the aggregate accumulated benefit obligations of each Company
ERISA Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such Company ERISA Plan and based on a discount
rate of 7.75%, the rate used in such valuation) do not exceed the fair market
value of the assets of such Company ERISA Plan (as of the date of such
valuation); and
(ix) the Company is not aware of any claims relating to the Company
Plans;
provided, however, that the failure of the representations set forth in clauses
(v), (vi), (vii) and (ix) to be true and correct shall not be deemed to be a
breach of any such representation unless such failures, individually or in the
aggregate, would have a Material Adverse Effect on Company.
(i) Taxes. Except as set forth in Section 4.1(i) of the Disclosure
Schedule:
(A) Except where the failure to do so would not have a Material Adverse
Effect on Company, each of Company and each Subsidiary of Company (and any
affiliated or unitary group of which any such person was a member) has (1)
timely filed all federal, state, local and foreign returns, declarations,
reports, estimates, information returns and statements ("Returns") required to
be filed by or for it in respect of any Taxes (as defined below) and has caused
such Returns as so filed to be true, complete and correct, (2) established
reserves that are reflected in Company's most recent financial statements
included in the Filed SEC Documents and that as so reflected are adequate for
the payment of all Taxes not yet due and payable with respect to the results of
operations of Company and its Subsidiaries through the date hereof, and (3)
timely withheld and paid over to the proper governmental authorities all Taxes
and other amounts required to be so withheld and paid over. Each of Company and
each Subsidiary of Company (and any affiliated or unitary group of which any
such person was a member) has timely paid all Taxes that are shown as being due
on the Returns referred to in the immediately preceding sentence.
(B) (1) There has been no taxable period since 1991 for which a Return
of Company or any of its Subsidiaries has been examined by the Internal Revenue
Service ("IRS"), (2) all examinations described in clause (1) have been
completed without the assertion of material deficiencies, and (3) except for
alleged deficiencies which have been finally and irrevocably resolved, Company
has not received formal or informal notification that any deficiency for any
Taxes, the amount of which, individually or in the aggregate, could have a
Material Adverse Effect on Company, has been or will be proposed, asserted or
assessed against Company or any of its Subsidiaries by any federal, state, local
or foreign taxing authority or court with respect to any period.
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(C) Neither Company nor any of its Subsidiaries has executed or entered
into with the IRS or any other taxing authority (1) any agreement or other
document that continues in force and effect beyond the Effective Time and that
extends or has the effect of extending the period for assessments or collection
of any federal, state, local or foreign Taxes, (2) any closing agreement or
other similar agreement (nor has Company or any of its Subsidiaries received any
ruling, technical advice memorandum or similar determination) affecting the
determination of Taxes required to be shown on any Return not yet filed, or (3)
requested any extension of time to be granted to file after the Effective Date
any return required by applicable law to be filed by it.
(D) Neither Company nor any of its Subsidiaries has made an election
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by Company or any of its Subsidiaries. None
of the assets of Company or any of its Subsidiaries is required to be treated as
being owned by any other person pursuant to the "safe harbor" leasing provisions
of section 168(f)(8) of the Internal Revenue Code of 1954 as formerly in effect.
(E) Neither Company nor any of its Subsidiaries is a party to, is bound
by or has any obligation under any tax sharing agreement or similar agreement or
arrangement.
(F) Company has not agreed to make, nor is it required to make, any
material adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(G) Neither Company nor any of its Subsidiaries is, or has been, a
United States Real Property Holding Corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
For purposes of this Agreement, "Taxes" shall mean all Federal, state,
local, foreign income, property, sales, excise, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies, imposts, duties,
licenses or other assessments of every kind and description, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority.
(j) Voting Requirements. Assuming Parent is not an interested
stockholder for purposes of Section 203 of the DGCL, the affirmative vote of
two-thirds of the votes entitled to be cast by the holders of Shares entitled to
vote thereon at the Company Stockholders Meeting described in Section 6.2(a)
with respect to the approval and adoption of this Agreement is the only vote of
the holders of any class or series of Company's capital stock or other
securities required in connection with the consummation by Company of the Merger
and the other transactions contemplated hereby to be consummated by Company.
(k) Compliance with Applicable Laws. All federal, state, local and
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits," including, without
limitation, Permits required under Environmental Laws) necessary for each of
Company and its Subsidiaries to own, lease or operate its properties and assets
and to carry on its business as now conducted have been obtained or made, and
there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which lack or default individually or in
the aggregate would not have a Material Adverse Effect on Company. Except as
disclosed in the Filed SEC Documents or in Section 4.1(k) of the Disclosure
Schedule, Company and its Subsidiaries are in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Entity, except for non-compliance which individually or in the aggregate would
not have a Material Adverse Effect on Company.
(l) Written Opinion of Financial Advisor. Company has received the
written opinion of Credit Suisse First Boston Corporation ("CSFB"), dated
September 10, 1997 (a true and complete copy of which has been delivered to
Parent by Company), to the effect that, based upon and subject to the matters
set forth therein and as of the date hereof, the consideration to be received by
the holders of Shares in the Merger was fair to such stockholders from a
financial point of view, and such opinion has not been withdrawn or modified.
(m) Brokers. No broker, investment banker, financial advisor or other
person, other than CSFB, the fees and expenses of which will be paid by Company,
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Company.
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(n) Litigation, etc. As of the date hereof, except as disclosed in
Section 4.1(n) of the Disclosure Schedule, (i) there is no suit, claim, action
or proceeding (at law or in equity) or investigation pending or, to the
knowledge of Company, threatened against Company or any of its Subsidiaries
(including, without limitation, any product liability claims) before any court
or governmental or regulatory authority or body, and (ii) neither Company nor
any of its Subsidiaries is subject to any outstanding order, writ, judgement,
injunction, decree or arbitration order or award that, in any such case
described in clauses (i) and (ii), has had or would have, individually or in the
aggregate, a Material Adverse Effect on Company. As of the date hereof, there
are no suits, actions, claims, proceedings or investigations pending or, to the
knowledge of Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(o) Environmental Laws. (i) For purposes of this Agreement, the
following terms shall have the following meanings: (A) "Hazardous Substances"
means (1) those substances defined in or regulated under the following federal
statutes and their state counterparts, as each may be amended from time to time,
and all regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and
Rodenticide Act and the Clean Air Act; (2) petroleum and petroleum products
including crude oil and any fractions thereof; (3) natural gas, synthetic gas,
and any mixtures thereof; (4) radon; (5) any other contaminant; and (6) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (B)
"Environmental Laws" means any federal, state or local law relating to (1)
releases or threatened releases of Hazardous Substances or materials containing
Hazardous Substances; (2) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances or materials containing Hazardous
Substances; or (3) otherwise relating to pollution of the environment or the
protection of human health.
(ii) To the knowledge of Company, except as disclosed in Section
4.1(o) of the Disclosure Schedule and except as would not, individually or in
the aggregate, have a Material Adverse Effect on Company: (A) neither
Company nor any of its Subsidiaries has violated or is in violation of any
Environmental Law; (B) none of the properties owned or leased by Company or any
of its Subsidiaries (including, without limitation, soils and surface and ground
waters) are contaminated with any Hazardous Substance in quantities which
require investigation or remediation under Environmental Laws; (C) neither
Company nor any of its Subsidiaries is liable for any off-site contamination;
(D) neither Company nor any of its Subsidiaries has any liability or remediation
obligation under any Environmental Law; (E) no assets of Company or any of its
Subsidiaries are subject to pending or threatened Liens under any Environmental
Law; (F) Company and its Subsidiaries have all permits, licenses and other
authorizations required under any Environmental Law ("Environmental Permits");
and (G) Company and its Subsidiaries are in compliance with their respective
Environmental Permits.
(p) Material Contracts. There have been made available to Parent, its
affiliates and their representatives true and complete copies of all of the
following contracts to which Company or any of its Subsidiaries is a party or by
which any of them is bound (collectively, the "Material Contracts"): (i)
contracts with any current officer or director of Company or any of its
Subsidiaries; (ii) contracts for the sale of any of the assets of Company or any
of its Subsidiaries other than contracts relating to non-operating property or
entered into in the ordinary course of business or for the grant to any person
of any preferential rights to purchase any of its assets other than inventory in
the ordinary course of business; (iii) contracts containing covenants of Company
or any of its Subsidiaries not to compete in any line of business or with any
person in any geographical area or covenants of any other person not to compete
with Company or any of its Subsidiaries in any line of business or in any
geographical area; (iv) material indentures, credit agreements, mortgages,
promissory notes, and all contracts relating to the borrowing of money; and (v)
all other agreements, contracts or instruments entered into outside of the
ordinary course of business and which, in the reasonable opinion of Company, are
material to Company. The Company has discussed with Parent the Company's
purchase orders for raw materials (including cotton and polyester), supplies,
expense items, and equipment, and the purchase orders from the Company's
customers as well as the Company's acknowledgments of those orders, but the
Company has not provided copies of all of these documents to Parent. Except as
set forth on Schedule 4.1(p), all of the Material Contracts are in full force
and effect and are the legal, valid and binding obligation of Company and/or its
Subsidiaries, enforceable against them in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
on Section 4.1(p) of the Disclosure Schedule, neither Company nor any Subsidiary
is in default in any material respect under any
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Material Contract nor, to the knowledge of Company, is any other party to any
Material Contract in default thereunder in any material respect.
(q) Labor Matters. (i) Except as set forth on Section 4.1(q)(i) of the
Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to
any employment, labor or collective bargaining agreement (excluding consulting
agreements with independent contractors entered into in the ordinary course of
business), and there are no employment, labor or collective bargaining
agreements which pertain to employees of Company or any of its Subsidiaries.
Company has heretofore made available to Parent true, complete and correct
copies of the (A) employ ment agreements listed on Section 4.1(q)(i) of the
Disclosure Schedule and (B) labor or collective bargaining agreements listed on
such Schedule, together with all amendments, modifications, supplements or side
letters affecting the duties, rights and obligations of any party thereunder.
(ii) Except as set forth in Section 4.1(q)(ii) of the Disclosure
Schedule, no employees of Company or any of its Subsidiaries are represented by
any labor organization; to the knowledge of Company, no labor organization or
group of employees of Company or any of its Subsidiaries has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority and to the knowledge of Company, there are no organizing activities
involving Company or any of its Subsidiaries pending with any labor organization
or group of employees of Company or any of its Subsidiaries.
(iii) Except as set forth on Section 4.1(q)(iii) of the Disclosure
Schedule, there are no (A) unfair labor practice charges, grievances or
complaints pending or threatened in writing by or on behalf of any employee or
group of employees of Company or any of its Subsidiaries which, if resolved
against Company or any of its Subsidiaries, as the case may be, would,
individually or in the aggregate, have a Material Adverse Effect on Company, or
(B) complaints, charges or claims against Company or any of its Subsidiaries
pending, or threatened in writing to be brought or filed, with any Governmental
Entity or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any individual by
Company or any of its Subsidiaries which, if resolved against Company or any of
its Subsidiaries, as the case may be, would, individually or in the aggregate,
have a Material Adverse Effect on Company.
(r) Rights Plan Matters. The Company's Board of Directors has approved
and Company will enter into an amendment to the Company Rights Agreement so that
(i) the execution and delivery of this Agreement, the public announcement or
consummation of the transactions contemplated hereby and the other matters
provided for herein will not result in (A) Parent or Purchaser or any of their
respective Affiliates or Associates being an Acquiring Person, (B) the
occurrence of a Distribution Date, a Stock Acquisition Date or a Triggering
Event or (C) the Rights becoming exercisable (the terms "Acquiring Person,"
"Affiliate," "Associate," "Distribution Date," "Stock Acquisition Date," and
"Triggering Event" having the respective meanings ascribed thereto in the
Company Rights Agreement) and (ii) the common stock, $0.01 par value per share,
of the Surviving Corporation will not constitute "Common Stock" within the
meaning of Section 1(g) of the Company Rights Agreement. A true, correct and
complete copy of the Company Rights Agreement (including all amendments thereto)
is included in the Filed SEC Documents.
(s) Real Property; Other Assets. (i) Section 4.1(s)(i) of the Disclosure
Schedule sets forth all of the real property owned in fee by Company and its
Subsidiaries (the "Owned Real Property"). Each of Company and its Subsidiaries
has good and marketable title to each parcel of Owned Real Property free and
clear of all Liens except (A) those reflected or reserved against in the latest
balance sheet of Company included in the Filed SEC Documents, (B) taxes and
general and special assessments not in default and payable without penalty and
interest, and (C) Liens of record and other Liens which individually or in the
aggregate would not have a Material Adverse Effect on Company (collectively
"Permitted Liens").
(ii) Company has heretofore made available to Parent true, correct
and complete lists of all leases, subleases and other agreements (the "Real
Property Leases") under which Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property or facility (the "Leased Real Property") (including all modifications,
amendments and supplements thereto). Except in each case where the failure
individually or in the aggregate would not have a Material Adverse Effect on
Company (A) each Real Property Lease is valid and binding on Company and in full
force and effect, (B) all rent and other sums and charges payable by Company and
its Subsidiaries
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as tenants thereunder are current in all material respects, and (C) no
termination event or condition or uncured default of a material nature on the
part of Company or any such Subsidiary or, to Company's knowledge, the landlord,
exists under any Real Property Lease. Except as would not individually or in the
aggregate have a Material Adverse Effect on Company, each of Company and its
Subsidiaries has a good and valid leasehold interest in each parcel of Leased
Real Property free and clear of all Liens, except for Permitted Liens.
SECTION 4.2 Representations and Warranties of Parent and Purchaser. Parent
and Purchaser represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Purchaser and each other Subsidiary of Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of Parent and Purchaser and
each other Subsidiary of Parent is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. Parent has delivered to Company true and complete copies of
the restated articles of incorporation and by-laws of Parent and certificate of
incorporation and by-laws of Purchaser, as amended to the date of this
Agreement.
(b) Capital Structure. The authorized capital stock of Parent consists
of (i) 30,000,000 shares of Parent Common Stock, and (ii) 20,000,000 shares of
preferred stock, par value $.01 per share. At the close of business on September
5, 1997, (i) 10,751,497 shares of Parent Common Stock were issued and
outstanding and (ii) 613,390 shares of Parent Common Stock were reserved for
issuance pursuant to outstanding options to purchase shares of Parent Common
Stock granted under Parent's stock option plans. Except as set forth in the
immediately preceding sentence, at the close of business on September 5, 1997,
no shares of capital stock or other equity securities of Parent were issued,
reserved for issuance or outstanding. All outstanding shares of capital stock of
Parent are, and all shares of Parent Common Stock which may be issued pursuant
to this Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. The authorized
capital stock of Purchaser consists of 100 shares of common stock, $0.01 par
value per share, 100 of which have been validly issued, are fully paid and
nonassessable and are owned by Parent. No bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Parent may vote are issued or outstanding. Except as set
forth above, Parent does not have any outstanding option, warrant, subscription
or other right, agreement or commitment which (i) obligates Parent to issue,
sell or transfer, repurchase, redeem or otherwise acquire any shares of the
capital stock of Parent, (ii) restricts the transfer of Parent Common Stock or
(iii) relates to the voting of Parent Common Stock.
(c) Authority; Noncontravention. Parent and Purchaser have the requisite
corporate power and authority to enter into this Agreement. The execution and
delivery of this Agreement by Parent and Purchaser and the consummation by
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by the boards of directors of Parent and Purchaser and have been duly
approved by Parent as sole stockholder of Purchaser, and no other corporate
proceedings on the part of Parent or Purchaser are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby, other than,
with respect to the issuance of Parent Common Stock as required by the terms of
this Agreement or upon conversion of the Company's 6% Convertible Subordinated
Debentures after the Effective Time and the issuances of equity securities of
Parent contemplated by Section 4.2(g) (collectively, the "Share Issuance"), the
approval and adoption of the Share Issuance by the affirmative vote of the
holders of a majority of the shares of Parent Common Stock entitled to vote on
the matter, present in person or represented by proxy at the meeting of Parent's
stockholders called for such purpose. This Agreement has been duly executed and
delivered by each of Parent and Purchaser and, assuming this Agreement
constitutes the valid and binding agreement of Company, constitutes a valid and
binding obligation of each of Parent and Purchaser, enforceable against each
such party in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principals of
equity. Except as disclosed in Section 4.2(c) of the Disclosure Schedule, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not (i) conflict with any of the provisions of the
restated articles of incorporation or by-laws of Parent or certificate of
incorporation or by-laws of Purchaser, (ii) subject to the governmental filings
and other matters referred to in the following sentence, conflict with, result
in a breach of or default (with or without notice or lapse of time, or both)
under, or give rise to a material
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obligation, a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or require the consent of any
person under, any indenture, or other agreement, permit, concession, franchise,
license or similar instrument or undertaking to which Parent or Purchaser is a
party or by which Parent or Purchaser or any of their assets is bound or
affected, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation,
or any order, writ, judgment, injunction, decree, determination or award
currently in effect, which, in the case of clauses (ii) and (iii) above, singly
or in the aggregate, would have a Material Adverse Effect on Parent. No consent,
approval or authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is required by or with
respect to Parent or Purchaser in connection with the execution and delivery of
this Agreement by Parent or Purchaser or the consummation by Parent or
Purchaser, as the case may be, of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger, (ii) the filing with the SEC of
(A) the Form S-4 and (B) such other reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (iii) the filing of the certificate of merger with the Delaware
Secretary of State, and appropriate documents with the relevant authorities of
other states in which Company is qualified to do business, (iv) state "blue-sky"
filings, (v) NYSE approvals, (vi) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 4.2(c) of the
Disclosure Schedule and (vii) any other applicable filings, authorizations,
consents or approvals the failure to make or obtain which, in the aggregate,
would not have a Material Adverse Effect on Parent.
(d) SEC Documents. Parent has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1994 (the
"Parent SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Docu ments, and none of the
Parent SEC Documents as of such dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Parent
and its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
(e) Information Supplied. None of the information supplied or to be
supplied by Parent or Purchaser specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the time it is filed with the SEC, at any time that it is
amended or supplemented, mailed to the stockholders of Company and Parent and at
the time of the Company Stockholders Meeting referred to in Section 6.2(a) and
the Parent Stockholders Meeting referred to in Section 6.2(b), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Form
S-4 and the Proxy Statement will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation or warranty is
made by Parent or Purchaser with respect to statements made or incorporated by
reference in such documents based on information supplied by or on behalf of
Company specifically for inclusion or incorporation by reference therein.
(f) Absence of Certain Changes of Events; No Undisclosed Material
Liabilities. (i) Except as disclosed in the Parent SEC Documents filed and
publicly available prior to the date of this Agreement (the "Filed Parent SEC
Documents") or in Section 4.2(f) of the Disclosure Schedule, since the date of
the most recent audited financial statements included in the Filed Parent SEC
Documents, Parent and its Subsidiaries have conducted their business only in the
ordinary course, and there has not been (A) any change, event or occurrence
particular to Parent and its Subsidiaries (excluding industry, economic,
financial and other matters generally affecting businesses other than and in
addition to Parent and its Subsidiaries) which has had or would have,
individually or in the aggregate, a Material Adverse Effect on Parent, (B) any
declaration, setting aside or payment of any dividend or distribution in respect
of any of Parent's
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outstanding capital stock (other than regular quarterly cash dividends of $.05
per share on Parent Common Stock in accordance with usual record and payment
dates and in accordance with the Parent's present dividend policy) or any
redemption or other acquisition by Parent of any shares of its capital stock,
(C) any entry into any agreement, commitment or transaction by Parent or any of
its Subsidiaries which is material to Parent and its Subsidiaries taken as a
whole, except for agreements, commitments or transactions entered into in the
ordinary course of business, (D) any change by Parent in accounting methods,
principles or practices except as required or permitted by generally accepted
accounting principles or (E) any agreements by Parent or any of its Subsidiaries
to do any of the things described in the preceding clauses (A) through (D) other
than as expressly contemplated or provided for herein.
(ii) Except as set forth in or disclosed in the Filed Parent SEC
Documents or Section 4.2(f) of the Disclosure Schedule and liabilities incurred
in the ordinary course of business since the date of the most recent financial
statements included in the Filed Parent SEC Documents, as of the date hereof,
there are no liabilities of Parent or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, due, to become due, determined,
determinable or otherwise, having or which would, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(g) Purchaser; Financing. (i) Parent owns all of the outstanding capital
stock of Purchaser. At all times prior to the Effective Time, no person other
than Parent has owned, or will own, any of the outstanding capital stock of
Purchaser. Purchaser was formed by Parent solely for the purpose of engaging in
the transactions contemplatedby this Agreement. Except as contemplated by this
Agreement, Purchaser has not incurred, and will not incur, directly or through
any Subsidiary, any liabilities or obligations for borrowed money or otherwise,
except incidental liabilities or obligations not for borrowed money incurred in
connection with its organization and except in connection with obtaining
financing in connection with the Merger. Except as contemplated by this
Agreement, Purchaser has not engaged, directly or through any Subsidiary, in any
business activities of any type or kind whatsoever.
(ii) Parent has received written commitments (collectively, the
"Financing Commitments") (copies of which are attached as Section 4.2(g) of the
Disclosure Schedule) from financial institutions and investors to provide,
subject to the terms and conditions of such commitments, debt and equity
financing sufficient, together with other funds available to Parent, to effect
the Merger and the other transactions contemplated hereby and to pay all related
fees and expenses.
(h) Brokers. No broker, investment banker, financial advisor or other
person, other than those identified in Section 4.2(h) of the Disclosure
Schedule, the fees and expenses of which will be paid by Parent, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
(i) Compliance with Applicable Laws. Each of Parent and its Subsidiaries
has in effect all Permits including, without limitation, Permits required under
Environmental Laws necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has occurred no
default under any such Permit, except for the lack of Permits and for defaults
under Permits which lack or default individually or in the aggregate would not
have a Material Adverse Effect on Parent. Except as disclosed in the Filed
Parent SEC Documents or in Section 4.2(i) of the Disclosure Schedule, Parent and
its Subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity, except for
non-compliance which individually or in the aggregate would not have a Material
Adverse Effect on Parent.
(j) Environmental Laws. To the knowledge of Parent, except as disclosed
in Section 4.2(j) of the Disclosure Schedule and except as would not have a
Material Adverse Effect on Parent: (i) neither Parent nor its Subsidiaries has
violated or is in violation of any Environmental Law; (ii) none of the
properties owned or leased by Parent or any of its Subsidiaries (including,
without limitation, soils and surface and ground waters) are contaminated with
any Hazardous Substance in quantities which require investigation or remediation
under Environmental Laws; (iii) neither Parent nor its Subsidiaries is liable
for any off-site contamination; (iv) neither Parent nor its Subsidiaries has any
liability or remedial obligation under any Environmental Law; (v) no assets of
Parent or its Subsidiaries are subject to pending or threatened Liens; (vi)
Parent and its Subsidiaries have all Environmental Permits; and (vii) Parent and
its Subsidiaries are in compliance with their respective Environmental Permits.
(k) Litigation, etc. As of the date hereof, except as disclosed in
Section 4.2(k) of the Disclosure Schedule, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the knowledge
of Parent, threatened against Parent or any of its Subsidiaries (including,
without limitation, any product liability claims) before any
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court or governmental or regulatory authority or body, and (ii) neither Parent
nor any of its Subsidiaries is subject to any outstanding order, writ,
judgement, injunction, order, decree or arbitration award or order that, in any
such case described in clauses (i) and (ii), has had or would have, individually
or in the aggregate, a Material Adverse Effect on Parent. As of the date hereof,
there are no suits, actions, claims, proceedings or investigations pending or,
to the knowledge of Parent, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company and Parent. Except as
contemplated by this Agreement (or, in the case of Parent and its Subsidiaries,
as contemplated by the Financing Commitments), during the period from the date
of this Agreement to the Effective Time, Company and Parent shall, and shall
cause their respective Subsidiaries to, act and carry on their respective
businesses only in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations, keep available the services of their current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with them, and to that end, without limiting the generality of the
foregoing, Parent and Company shall not, and shall not permit their respective
Subsidiaries to, without the prior consent of the other:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its outstanding capital stock (other than as provided in Section 4.1(f)(i)(B)
and 4.2(f)(i)(B) above and, with respect to a Subsidiary, to its corporate
parent), (B) split, combine or reclassify any of its outstanding capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its outstanding capital stock, or (C)
with respect to Company and its Subsidiaries only, purchase, redeem or otherwise
acquire any shares of outstanding capital stock or any rights, warrants or
options to acquire any such shares except, in the case of clause (C), for the
acquisition of shares from holders of options in full or partial payment of the
exercise price payable by such holder upon exercise of options;
(ii) with respect to Company and its Subsidiaries only, issue, sell,
grant, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities other than upon the exercise of options
issued pursuant to employee benefit plans or pursuant to Company's "matching
obligations" under and in accordance with its 401(k) savings plan or, in respect
of Company, conversion of Preferred Shares and Convertible Debentures;
(iii) amend its articles or restated certificate of incorporation,
by-laws or other comparable charter or organizational documents;
(iv) with respect to Company and its Subsidiaries only, directly or
indirectly acquire, make any investment in, or make any capital contributions
to, any person (other than any direct or indirect wholly-owned Subsidiary) other
than in the ordinary course of business;
(v) with respect to the Company and its Subsidiaries only, directly
or indirectly sell or otherwise dispose of any of its properties or assets that
are material to its business, except for sales or dispositions in the ordinary
course of business;
(vi) with respect to Company and its Subsidiaries only, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, other than indebtedness owing to or guarantees of indebtedness
owing to Company or any direct or indirect wholly-owned Subsidiary of Company or
(B) make any loans or advances to any other person, other than to Company or to
any direct or indirect wholly-owned Subsidiary of Company and other than routine
advances to employees, except, in the case of clause (A) for borrowings under
existing credit facilities described in the Filed SEC Documents in the ordinary
course of business;
(vii) with respect to Company and its Subsidiaries only, grant or
agree to grant to any employee any increase in wages or bonus, severance, profit
sharing, retirement, deferred compensation, insurance or other compensation or
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benefits, or establish any new compensation or benefit plans or arrangements, or
amend or agree to amend any existing Employee Benefit Plans, except as may be
required under existing agreements (including collective bargaining agreements)
or normal, regularly scheduled increases in nonofficer employees consistent with
past practices or as required by law;
(viii) with respect to Company and its Subsidiaries only, enter into
or amend any employment, consulting, severance or similar agreement with any
individual except with respect to new hires in the ordinary course of business
consistent with past practice;
(ix) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization or any agreement relating to an Acquisition Proposal (other than
as expressly permitted pursuant to this Agreement);
(x) with respect to Company and its Subsidiaries only, make any tax
election or settle or compromise any income tax liability of Company or of any
of its Subsidiaries involving on an individual basis more than $1 million;
(xi) with respect to Company and its Subsidiaries only, make any
change in any method of accounting or accounting practice or policy except as
required by any changes in generally accepted accounting principles;
(xii) with respect to Company and its Subsidiaries only, enter into
any agreement, understanding or commitment that restrains, limits or impedes
Company's ability to compete with or conduct any business or line of business,
except for any such agreement, understanding or commitment entered into in the
ordinary course of business consistent with past practice; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 5.1.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of the Proxy Statement and the Form S-4;
Accountant's Letters. (a) As soon as practicable following the date hereof:
(i) Company and Parent shall jointly prepare for inclusion in the
Form S-4, as soon as practicable after the date hereof, a proxy statement (the
"Proxy Statement") relating to the Merger and the Share Issuance in accordance
with the Exchange Act and the rules and regulations under the Exchange Act, with
respect to the transactions contemplated by this Agreement. Company, Parent and
Purchaser shall cooperate with each other in the preparation of the Proxy
Statement. Company and Parent shall use all reasonable efforts to respond
promptly to any comments made by the SEC with respect to the Proxy Statement,
and to cause the Proxy Statement to be mailed to the stockholders of Company and
Parent at the earliest practicable date after the Form S-4 is declared effective
by the SEC.
(ii) Parent shall prepare and file with the SEC, as soon as
practicable after the date hereof, the Form S-4. Each of Company and Parent
shall use all reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Parent also
shall take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock in
the Merger, and Company shall furnish all information concerning Company and the
holders of the Shares as may be reasonably requested in connection with any such
action.
(b) Company shall use its best efforts to cause to be delivered to
Parent a letter of Ernst & Young LLP, Company's independent public accountants,
dated a date within two business days before the date on which the Form S-4
shall become effective, and a letter of Ernst & Young LLP, dated a date within
two business days before the Closing Date, each addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and substance
for letters delivered by independent accountants in connection with registration
statements similar to the Form S-4.
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(c) Parent shall use its best efforts to cause to be delivered to
Company a letter of KPMG Peat Marwick LLP, Parent's independent public
accountants, dated a date within two business days before the date on which the
Form S-4 shall become effective and a letter of KPMG Peat Marwick LLP, dated a
date within two business days before the Closing Date, each addressed to
Company, in form and substance reasonably satisfactory to Company and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form S-4.
SECTION 6.2 Stockholders Meetings. (a) Subject to Company's right to
terminate this Agreement pursuant to Section 8.1(a)(v), Company shall take all
action necessary, in accordance with the DGCL, the Exchange Act and other
applicable law, the rules of the NYSE, and its certificate of incorporation and
by-laws, to convene a special meeting of the stockholders of Company (the
"Company Stockholders Meeting") as promptly as practicable after the
effectiveness of the Form S-4 for the purpose of considering and voting upon
this Agreement. Subject to Company's right to terminate this Agreement pursuant
to Section 8.1(a)(v), the Board of Directors of Company shall recommend that the
holders of the Shares vote in favor of the approval and adoption of this
Agreement at the Company Stockholders Meeting and such recommendation shall be
included in the Proxy Statement. At the Company Stockholders Meeting, Parent and
Purchaser shall vote all Shares beneficially owned by them in favor of the
adoption and approval of this Agreement.
(b) Parent shall take all action necessary in accordance with Exchange
Act and other applicable law, the rules of the NYSE, and its restated articles
of incorporation and by-laws, to convene a special meeting of the stockholders
of Parent (the "Parent Stockholders Meeting") as promptly as practicable after
the effectiveness of the Form S-4 for the purpose of considering and voting upon
the Share Issuance. The Board of Directors of Parent shall recommend that the
holders of the Parent Common Stock vote in favor of and approve the Share
Issuance at the Parent Stockholders Meeting.
SECTION 6.3 Access to Information; Confidentiality. Company shall, and
shall cause each of its Subsidiaries to, afford to Parent and to Parent's
officers, employees, counsel, financial advisors, financing providers (including
counsel of such financing providers) and other representatives reasonable access
during normal business hours during the period prior to the Effective Time to
all its owned and leased properties, books, contracts, commitments, tax returns,
personnel and records and, during such period, Company shall, and shall cause
each of its Subsidiaries to, furnish as promptly as practicable to Parent such
information concerning its business, properties, financial condition, operations
and personnel as Parent may from time to time reasonably request. Parent shall,
and shall cause each of its Subsidiaries to, afford to Company and to Company's
officers, employees, counsel, financial advisors and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all its books, contracts, commitments, tax returns, personnel
and records and during such period, parent shall, and shall cause each of its
Subsidiaries to, furnish as promptly as practicable to Company such information
concerning its business, properties, financial condition, operations and
personnel as Company may from time to time reasonably request. Any such
investigation by Parent or Company shall not affect the representations or
warranties contained in this Agreement. Except as required by law, Parent and
Company will hold, and will cause their respective directors, officers,
partners, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any non-public information obtained from
the other party in confidence to the extent required by, and in accordance with
the provisions of the letter agreements between Parent and Company with respect
to confidentiality and other matters.
SECTION 6.4 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including the
satisfaction of the respective conditions set forth in Article VII.
SECTION 6.5 Indemnification; Directors' and Officers Insurance. (a) The
certificate of incorporation and by-laws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in the restated
certificate of incorporation and by-laws of Company on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of Company in respect of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law.
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(b) Company shall, and from and after the Effective Time, Parent shall,
or shall cause the Surviving Corporation to, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof or who
becomes prior to the Effective Time, an officer or director of Company (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees and expenses), liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of Company whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case, to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers, as the case may be, and Parent or the Surviving Corporation, as the
case may be, will pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law).
(c) Without limiting the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time), (i) the Indemnified
Parties may retain counsel reasonably satisfactory to Company (or to Parent and
the Surviving Corporation after the Effective Time) and Company (or after the
Effective Time, Parent and the Surviving Corporation) shall pay all fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; and (ii) Company (or after the Effective Time, Parent and
the Surviving Corporation) shall use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that neither Company, Parent nor
the Surviving Corporation shall be liable for any settlement effected without
its prior written consent, which shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 6.5, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify Company (or after the Effective Time, Parent and the Surviving
Corporation) (but the failure so to notify shall not relieve a party from any
liability which it may have under this Section 6.5 except to the extent such
failure prejudices such party), and shall deliver to Company (or after the
Effective Time, Parent and the Surviving Corporation) the undertaking
contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties. Company, Parent and Purchaser agree that all rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the Indemnified Parties with respect to
matters occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
(d) For a period of four years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Company (provided that Parent may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are no less advantageous in any material
respect to the Indemnified Parties) with respect to matters arising before the
Effective Time, provided that Parent shall not be required to pay an annual
premium for such insurance in excess of 200% of the last annual premium paid by
Company prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount.
(e) The provisions of this Section 6.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Parent, Purchaser, Company and the Surviving
Corporation.
SECTION 6.6 Public Announcements. Parent and Purchaser, on the one hand,
and Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
release, SEC filing or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange.
SECTION 6.7 No Solicitation; Acquisition Proposals. (a) Until the
termination of this Agreement in accordance with Section 8.1, Company shall not,
and shall not authorize or permit any of its Subsidiaries, or any of its or
their
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affiliates, officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, financial advisor,
attorney or accountant retained by Company or any of its Subsidiaries), to,
directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries, any expression of interest, or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal; provided,
however, that nothing in this Agreement shall prohibit the Board of Directors of
Company from furnishing information to, or entering into, maintaining or
continuing discussions or negotiations with, any person that makes an
unsolicited Acquisition Proposal after the date hereof, if, and to the extent
that, the Board of Directors of Company, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that (a) such
Acquisition Proposal would be more favorable to Company's stockholders than the
Merger and (b) the failure to take such action would result in a breach by the
Board of Directors of Company of its fiduciary duties to Company's stockholders
under applicable law, and, prior to furnishing any non-public information to
such person, Company receives from such person an executed confidentiality
agreement with provisions no less favorable to Company than the letter agreement
relating to the furnishing of confidential information of Company to Parent
referred to in the last sentence of Section 6.3. Company shall promptly notify
Parent if it is prepared to provide access to the properties, books or records
of Company or any of its Subsidiaries to any person who has made an Acquisition
Proposal, and Company shall at such time inform Parent of the material terms of
any such Acquisition Proposal.
(b) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement with Parent or Purchaser) involving
Company: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of Company and its Subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any tender
offer or exchange offer for 33-1/3 percent or more of the outstanding shares of
capital stock of Company or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
(c) Nothing contained in this Section 6.7 shall prohibit Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Company's stockholders which, in the good faith judgment of the Board of
Directors of Company based on the advice of outside counsel, is required under
applicable law.
SECTION 6.8 Consents, Approvals and Filings.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall (i) make promptly its respective filings, and thereafter
make any other required submissions, under the HSR Act, the Securities Act and
the Exchange Act, with respect to the Merger and the other transactions
contemplated herein (together, the "Transactions") and (b) use its reasonable
best efforts to take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits (including, without limitation, Environmental Permits),
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Company and its Subsidiaries as are
necessary for the consummation of the Transactions and to fulfill the conditions
to the Merger. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.
(b) Parent hereby agrees to use its best efforts to obtain any
government clearances required for completion of the Merger (including through
compliance with the HSR Act), to respond to any government requests for
information, and to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "Order") that restricts, prevents or prohibits the
consummation of the Merger, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Parent also hereby agrees to take any and all of
the following actions to the extent necessary to obtain the approval of any
governmental entity with jurisdiction over the enforcement of any applicable
laws regarding the Merger: entering into negotiations; providing information;
substantially complying with any second request for information pursuant to the
HSR
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Act; entering into and performing agreements or submitting to judicial or
administrative orders and selling or otherwise disposing of, or holding separate
(through the establishment of a trust or otherwise) particular assets or
categories of assets, or businesses of Parent, Company or any of their
affiliates; provided, however, that notwithstanding the foregoing, Parent would
not be required hereby to take any such action that would have a Material
Adverse Effect on Parent and its Subsidiaries (including the Surviving
Corporation) taken as a whole following the Effective Time. The parties hereto
will consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or in behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other federal, state or foreign
antitrust or fair trade law.
SECTION 6.9 Board Action Relating to Stock Option Plans. As soon as
practicable following the date of this Agreement, the Board of Directors of
Company (or, if appropriate, any committee administering a Stock Option Plan)
shall adopt such resolutions or take such actions as may be required to adjust
the terms of all outstanding Options in accordance with Section 2.2 and shall
make such other changes to Stock Option Plans as it deems appropriate to give
effect to the Merger (subject to the approval of Parent, which shall not be
unreasonably withheld).
SECTION 6.10 Employment and Employee Benefit Matters.
(a) Parent shall, and shall cause its Subsidiaries following the
Effective Time (including the Surviving Corporation) to:
(i) honor and provide for payment of all obligations and benefits
under all Company Plans in accordance with their terms;
(ii) provide employee benefits which are substantially comparable in
the aggregate to the level of employee benefits provided by the Company and its
Subsidiaries under the Company ERISA Plans in effect as of the Closing Date for
the benefit of employees or former employees who are or had been employees of
the Company or any of its Subsidiaries on or before the Closing Date ("Covered
Employees"), until the earlier of December 31, 1999 or the second anniversary of
the Closing Date (the "Benefits Maintenance Period");
(iii) honor and provide for the payment of all obligations and
benefits under all employment or severance agreements between the Company and
any Covered Employee in accordance with their terms; and
(iv) provide until the first anniversary of the Closing Date for the
benefit of Covered Employees who remain in the employ of the Surviving
Corporation or Parent or any of its affiliates employee compensation that is in
the aggregate at a level substantially comparable to the compensation (including
base pay and incentive-type compensation) provided by the Company and its
Subsidiaries under the compensation arrangements in effect as of the Closing
Date.
(b) Parent hereby agrees that the Surviving Corporation shall maintain
the Company's Short-Term Incentive Compensation Plan without adverse change
until the end of the 1997 calendar year.
(c) Parent hereby agrees that the Surviving Corporation shall continue
without adverse change the severance plan maintained by the Company and its
Subsidiaries as of the date hereof until the first anniversary of the Closing
Date.
(d) If Covered Employees are included in any benefit plan (including
without limitation, provision for vacation) of Parent or its Subsidiaries,
Parent agrees that the Covered Employees shall receive credit as employees of
the Company and its Subsidiaries for service prior to the Closing Date with the
Company and its Subsidiaries to the same extent such service was counted under
similar Company Plans for purposes of eligibility, vesting, eligibility for
retirement and, with respect to vacation, disability and severance, benefit
accrual. If Covered Employees are included in any medical, dental or health plan
other than the plan or plans they participated in on the Closing Date, Parent
agrees that any such plans shall not include pre-existing condition exclusions,
except to the extent such exclusions were applicable under the similar Company
Plan on the Closing Date, and shall provide credit for any deductibles and
co-payments applied or made with respect to each Covered Employee in the
calendar year of the change.
(e) The parties acknowledge that nothing herein shall be deemed to be a
commitment on the part of Parent or the Surviving Corporation to provide
employment to any person for any period of time and, except as otherwise
provided
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in this Section 6.10, nothing herein shall be deemed to prevent Parent
or the Surviving Corporation from amending or terminating any Company Plan in
accordance with its terms.
SECTION 6.11 Affiliates and Certain Stockholders. Prior to the Closing
Date, Company shall deliver to Parent a letter identifying all persons who are,
at the time the Merger is submitted for approval to the stockholders of Company,
"affiliates" of Company for purposes of Rule 145 under the Securities Act.
Company shall use its best efforts to cause each such person to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit A hereto. Parent shall not be required to maintain the
effectiveness of the Form S-4 or any other registration statement under the
Securities Act for the purposes of resale of Parent Common Stock by such
affiliates, and the certificates representing Parent Common Stock received by
such affiliates in the Merger shall bear a customary legend regarding applicable
Securities Act restrictions.
SECTION 6.12 NYSE Listing. Parent shall use its reasonable best efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 6.13 Certain Company Indebtedness. At the Closing, (i) Company
shall execute and deliver to the trustee under the Indenture pursuant to which
the Convertible Debentures were issued a supplemental indenture, to become
effective at the Effective Time, providing that the holder of each Convertible
Debenture outstanding immediately following the Effective Time shall have the
right thereafter, during the period such Convertible Debenture shall be
convertible as specified in such Indenture, to convert such Convertible
Debenture only into the amount of cash and Parent Common Stock receivable by
reason of the Merger by a holder of the number of Shares into which such
Convertible Debenture might have been converted immediately prior to the
Effective Time (subject to subsequent adjustment as provided in such Indenture)
and (ii) Parent shall execute and deliver to such trustee, as part of such
supplemental indenture, an undertaking (A) to reserve and keep available out of
its authorized but unissued capital stock, a number of shares of Parent Common
Stock sufficient to permit the conversion of all outstanding Convertible
Debentures and (B) to cause to be issued and delivered to Company for subsequent
delivery by Company in accordance with such supplemental indenture and Indenture
shares of Parent Common Stock upon the conversion of any Convertible Debenture.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the follow ing
conditions:
(a) Stockholder Approvals. (i) This Agreement shall have been approved
and adopted by the affirmative vote of the requisite number of stockholders of
Company in the manner required pursuant to Company's restated certificate of
incorporation and by-laws, the DGCL and other applicable law, and the rules of
the NYSE.
(ii) The Share Issuance shall have been approved by the affirmative
vote of the requisite number of stockholders of Parent in the manner required
pursuant to Parent's restated articles of incorporation and by-laws, the Texas
Business Corporation Act and other applicable law and the rules of the NYSE.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
invoking this condition shall have complied with its obligations under Section
6.8.
(c) NYSE Listing. The shares of Parent Common Stock issuable to
Company's stockholders pursuant to the Merger shall have been approved for
listing on the NYSE, subject to official notice of issuance.
(d) Form S-4. The Form S-4 shall have been declared effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
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(e) HSR Act. All necessary waiting periods under the HSR Act applicable
to the Merger shall have expired or been terminated.
SECTION 7.2. Conditions to Obligations of Parent and Purchaser. The
obligation of Parent and Purchaser to effect the Merger is further subject to
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Company contained in this Agreement, which representations and warranties
shall be deemed for purposes of this Section 7.2 not to include any
qualification or limitation with respect to materiality (whether by reference to
"Material Adverse Effect" or otherwise), shall be true and correct as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, has not had or would
not have a Material Adverse Effect on Company, with the same effect as though
such representations and warranties were made as of the Closing Date, and Parent
and Purchaser shall have received a certificate signed on behalf of Company by
an authorized officer of Company to such effect.
(b) Performance of Obligations of Company. Company shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Parent and Purchaser shall
have received a certificate signed on behalf of Company by an authorized officer
of Company to such effect.
(c) No Material Adverse Change. Since the date of this Agreement,
Company and its Subsidiaries, taken as a whole, shall not have experienced any
change, event or occurrence particular to them (excluding industry, economic,
financial and other matters generally affecting businesses other than and in
addition to Company and its Subsidiaries) that has had or would have a Material
Adverse Effect on Company, other than resulting from any matter disclosed in any
Filed SEC Document or in Section 7.2(c) of the Disclosure Schedule.
SECTION 7.3. Conditions to Obligation of Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of each of Parent and Purchaser contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section 7.3
not to include any qualification or limitation with respect to materiality
(whether by reference to "Material Adverse Effect" or otherwise), shall be true
and correct as of the Closing Date (except where the matters in respect of which
such representations and warranties are not true and correct, in the aggregate,
has not had a Material Adverse Effect on Purchaser), with the same effect as
though such representations and warranties were made as of the Closing Date, and
Company shall have received a certificate signed on behalf of Parent and
Purchaser by an authorized officer of Parent to such effect.
(b) Performance of Obligations of Parent and Purchaser. Each of Parent
and Purchaser shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent by an authorized officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, Parent
and its Subsidiaries, taken as a whole, shall not have experienced any change or
occurrence particular to them (excluding industry, economic, financial and other
matters generally affecting businesses other than and in addition to Parent and
its Subsidiaries), that has had or would have a Material Adverse Effect on
Parent, other than resulting from any matter disclosed in any Parent SEC
Document or in Section 7.3(c) of the Disclosure Schedule.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. (a) This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval and adoption thereof by the
stockholders of Company, in any one of the following circumstances:
(i) By mutual written consent duly authorized by the Boards of
Directors of Parent and Company.
(ii) By Parent or Company, if, without any material breach by such
terminating party of its obligations under this Agreement, the Effective Time
shall not have occurred on or before December 31, 1997.
(iii) By Parent or Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling, or taken any other action permanently restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable, provided that neither party
may terminate this Agreement pursuant to this clause (iii) if it has not
complied with its obligations under Section 6.8.
(iv) By Parent or Company, if the Company Stockholders Meeting shall
have been held and this Agreement shall not have been approved and adopted by
the affirmative vote of the requisite number of stockholders of Company.
(v) By Company, if it shall have received an Acquisition Proposal
and shall have advised Parent in writing that Company's Board of Directors,
after consultation with and based upon the advice of independent legal counsel,
determined in good faith that failure to accept such Acquisition Proposal would
result in a breach by the Board of Directors of Company of its fiduciary duties
to Company's stockholders under applicable law; provided, however, that this
Agreement shall not be terminated pursuant to this Section 8.1(a)(v) unless
simultaneously with the termination Company shall have made the payment to
Parent of the Fee required to be paid pursuant to Section 8.1(b).
(vi) By Parent, if the Board of Directors of Company shall have (1)
withdrawn, modified or amended in any adverse respect its approval or
recommendation of this Agreement, the Merger or the other transactions
contemplated hereby, (2) approved, endorsed or recommended to its stockholders
an Acquisition Proposal or (3) resolved to do any of the foregoing.
(vii) By Parent or Company, if (A) the other party shall have failed
to comply in any material respect with any of the material covenants and
agreements contained in this Agreement to be complied with or performed by such
party at or prior to such date of termination, and such failure continues for 20
business days after the actual receipt by such party of a written notice from
the other party setting forth in detail the nature of such failure, or (B) a
representation or warranty of the other party contained in this Agreement shall
have been untrue in any respect on the date when made (or in the case of any
representations and warranties that are made as of a different date, as of such
different date) and the matters in respect of which such representation or
warranty shall have been untrue has had or would have a Material Adverse Effect
on such other party.
(viii) By Company pursuant to Section 2.1(e) hereof.
(b) If this Agreement is terminated pursuant to:
(i) Section 8.1(a)(v), or
(ii) Section 8.1(a)(vi);
then, in such event, Company shall pay to Parent prior to such termination, if
such termination is pursuant to Section 8.1(a)(v), or promptly (but in no event
later than three business days after the first of such events shall have
occurred), if such termination is pursuant to Section 8.1(a)(vi), a fee of
Fifteen Million Dollars ($15,000,000) (the "Fee"), which amount shall be payable
in immediately available funds and upon payment of such Fee Company shall be
fully released and discharged from any liability or obligation resulting from or
under this Agreement.
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SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of the last sentence of Section 6.3, and Sections
4.1(m), 4.2(h), 6.6, this Section 8.2, Article IX and paragraph (b) of Section
8.1) shall forthwith become void and have no effect, without any liability on
the part of any party hereto or its directors, officers or stockholders;
provided, however, that nothing in this Section 8.2 shall relieve any party to
this Agreement of liability for any willful or intentional breach of this
Agreement.
SECTION 8.3 Amendment. Subject to the applicable provisions of the DGCL, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval and
adoption of this Agreement by the stockholders of Company, no amendment shall be
made which would reduce the amount or change the type of consideration into
which each Share or Preferred Share shall be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the repre
sentations and warranties of the other parties contained in this Agreement or in
any document delivered pursuant to this Agreement or (c) subject to Section 8.3,
waive compliance with any of the agreements or conditions of the other parties
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
SECTION 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of Parent, Purchaser or
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Fees and Expenses. Except as provided otherwise in Section
8.1(b), whether or not the Merger shall be consummated, each party hereto shall
pay its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby,
other than the expenses incurred in connection with printing and mailing proxy
materials to stockholders, which shall be shared equally by Parent and Company.
The Surviving Corporation shall pay any and all property or transfer taxes
imposed on the Surviving Corporation or the stockholders of the Company by
reason of the Merger.
SECTION 9.3 Definitions. For purposes of this Agreement: (a) an "affiliate"
of any person means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks in the City of New York are required or permitted to
close;
(c) "knowledge" means the actual knowledge of any executive officer of
Company or Parent, as the case may be;
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(d) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever;
(e) a "Material Adverse Effect" with respect to any person means a
material adverse effect on (i) the ability of such person to perform its
obligations hereunder or consummate the transactions contemplated hereby or (ii)
the condition (financial or otherwise), assets, business, liabilities (actual or
contingent) or operations of such person and its Subsidiaries taken as a whole;
(f) the "NYSE" means the New York Stock Exchange;
(g) a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity; and
(h) a "Subsidiary" of any person means any other person of which (i) the
first mentioned person or any Subsidiary thereof is a general partner, (ii)
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such other person is held by the first
mentioned person and/or by any one or more of its Subsidiaries, or (iii) at
least 50% of the equity interests of such other person is, directly or
indirectly, owned or controlled by such first mentioned person and/or by any one
or more of its Subsidiaries.
SECTION 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent, to
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Attention: John H. Karnes, Jr., Esq.
Telecopy: (214) 467-0823
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen, Esq.
Telecopy: (214) 969-5100
(ii) if to Company, to
Fieldcrest Cannon, Inc.
One Lake Circle Drive
Kannapolis, North Carolina 28081
Attention: Mark R. Townsend, Esq.
Telecopy: (704) 939-4623
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
Telecopy: (212) 310-8007
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SECTION 9.5 Interpretation. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of, or a Schedule to,
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
SECTION 9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.7 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the letter agreements referenced in
the last sentence of Section 6.3). This Agreement is not intended to confer upon
any person (including, without limitation, any employees of Company), other than
the parties hereto and the third party beneficiaries referred to in the
following sentence, any rights or remedies. The parties hereto expressly intend
the provisions of Sections 6.5 and 6.10 to confer a benefit upon and be
enforceable by, as third party beneficiaries of this Agreement, the third
persons referred to in, or intended to be benefitted by, such provisions.
SECTION 9.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void, except that Parent and/or Purchaser may
assign this Agreement to any direct wholly-owned Subsidiary of Parent without
the prior consent of Company; provided that Parent shall remain liable for all
of its obligations and all obligations of any of its Subsidiaries or any of its
assignees under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware, this being in addition to any other remedy to
which they are entitled at law or in equity.
SECTION 9.11 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
[signature page follows]
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IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PILLOWTEX CORPORATION
By: /s/ Charles M. Hansen, Jr.
--------------------------------------
Name: Charles M. Hansen, Jr.
Title: Chairman of the Board and
Chief Executive Officer
PEGASUS MERGER SUB, INC.
By: /s/ Charles M. Hansen, Jr.
-------------------------------------
Name: Charles M. Hansen, Jr.
Title: Chairman of the Board and
Chief Executive Officer
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
-------------------------------------
Name: James M. Fitzgibbons
Title: Chairman of the Board and
Chief Executive Officer
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AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT, dated as of September 23, 1997 (this "Amendment"), to the
Agreement and Plan of Merger, dated September 10, 1997 (the "Agreement"), among
PILLOWTEX CORPORATION, a Texas corporation ("Parent"), PEGASUS MERGER SUB, INC.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Purchaser"),
and FIELDCREST CANNON, INC., a Delaware corporation (the "Company"). Capitalized
terms used herein but not defined herein shall have the meanings assigned such
terms in the Agreement.
WHEREAS, Parent, Purchaser and the Company have entered into the Agreement;
and
WHEREAS, Parent, Purchaser and the Company desire to amend the Agreement as
set forth herein;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in the Agreement and this Amendment and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SECTION 4.2(F). The reference to $.05 contained
in Section 4.2(f) of the Agreement is hereby amended, retroactive to the time of
the execution and delivery of the Agreement, to be a reference to $.06.
SECTION 2. CONTINUED EFFECTIVENESS. Except as specifically amended
hereby, the Agreement shall continue in full force and effect and is hereby
ratified and confirmed in all respects.
SECTION 3. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
* * *
IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PILLOWTEX CORPORATION
By: /s/ John H. Karnes
---------------------------------
Name: John H. Karnes
Title: Vice President
PEGASUS MERGER SUB, INC.
By: /s/ John H. Karnes
---------------------------------
Name: John H. Karnes
Title: Vice President
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
---------------------------------
Name: James M. Fitzgibbons
Title: Chairman and CEO
A-32
<PAGE> 134
Appendix B
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
September 10, 1997
Board of Directors
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Dear Sirs:
We understand Pillowtex Corporation ("Pillowtex") and Fieldcrest Cannon,
Inc. ("Fieldcrest") intend to enter into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which a newly formed subsidiary of Pillowtex
will be merged with and into Fieldcrest (the "Merger"). You have provided us a
copy of the Merger Agreement together with the exhibits and schedules thereto in
substantially final form. As a result of the Merger, each outstanding share of
Common Stock, par value $1.00 per share, of Fieldcrest ("Fieldcrest Common
Stock") will be converted into a right to receive total consideration valued at
$34.00, consisting of (i) a cash payment in an amount equal to $27.00 and (ii) a
number (the "Conversion Number") of shares of Common Stock , par value $.01 per
share, of Pillowtex ("Pillowtex Common Stock") equal to the quotient obtained by
dividing $7.00 by the average of the closing sales prices per share of Pillowtex
Common Stock on the New York Stock Exchange for each of the 20 consecutive
trading days immediately preceding the fifth trading day prior to the closing
date for the Merger (the "Determination Price"), provided that the Conversion
Number will not be more than 0.333 or less than 0.269, and provided further
that, if the Determination Price is less than $21.00, Pillowtex will have the
right to elect to increase the cash portion of such consideration and/or the
Conversion Number such that the aggregate value of cash and Pillowtex Common
Stock (valued at the Determination Price) comprising such consideration equals
$34.00 and, if Pillowtex does not so elect, Fieldcrest will have the right to
terminate the Merger Agreement. Additionally, as a result of the Merger, each
outstanding share of $3.00 Series A Convertible Preferred Stock, par value $0.01
per share, of Fieldcrest ("Fieldcrest Preferred Stock"), other than shares
converted into Fieldcrest Common Stock prior to the Merger, will be converted
into a right to receive total consideration valued at $58.12, consisting of (i)
a cash payment equal to the product of (a) the amount of the cash payment to be
made on account of each share of Fieldcrest Common Stock converted in the Merger
and (b) 1.7094 and (ii) a number of shares of Pillowtex Common Stock equal to
the product of (a) the Conversion Number and (b) 1.7094. Total consideration to
be received by each outstanding share of Fieldcrest Common Stock and each
outstanding share of Fieldcrest Preferred Stock is herein defined as the
"Consideration".
You have asked us to render our opinion as to whether the Consideration is
fair, from a financial point of view, to the shareholders of Pillowtex.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement in substantially final form;
2. reviewed Pillowtex's Annual Reports on Form 10-K for the years ended
December 31, 1994 through December 28, 1996, and its Quarterly Reports on Form
10-Q for the quarters ended March 29 and June 28, 1997;
3. reviewed Fieldcrest's Annual Reports on Form 10-K for the years ended
December 31, 1994 through 1996, and its Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 1997;
B-1
<PAGE> 135
4. reviewed certain operating and financial information of Pillowtex and
Fieldcrest, including projections and projected cost savings and operating
synergies, provided to us by Pillowtex's and Fieldcrest's management relating to
their respective businesses and prospects;
5. met with certain members of Pillowtex's and Fieldcrest's senior
management to discuss their respective operations, historical financial
statements and future prospects and their views of the business, operational and
strategic benefits, cost savings, potential synergies and other implications of
the Merger;
6. reviewed the historical prices and trading volumes of the Pillowtex
Common Stock and the Fieldcrest Common Stock;
7. reviewed publicly available financial data and stock market performance
data of other publicly held companies that we deemed generally comparable to
Pillowtex and Fieldcrest;
8. reviewed the financial terms of recent acquisitions of companies that we
deemed generally comparable to Fieldcrest; and
9. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Pillowtex and Fieldcrest. With respect to
Pillowtex's and Fieldcrest's projected financial results (including projected
cost savings and operating synergies resulting from the Merger), we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Pillowtex and Fieldcrest
as to the expected future performance of Pillowtex and Fieldcrest, respectively.
We have also assumed that the Merger and financing thereof will not violate,
result in a default under, or be in contravention of the terms of any material
agreement, including without limitation any agreements evidencing indebtedness
of Pillowtex to which any of Pillowtex, Fieldcrest, or their respective
subsidiaries is a party. We have not assumed any responsibility for the
independent verification of the information or the projections (including
projected cost savings and operating synergies resulting from the Merger)
provided to us and we have further relied upon the assurances of the managements
of Pillowtex and Fieldcrest that they are unaware of any facts that would make
the information or projections (including projected cost savings and operating
synergies resulting from the Merger) provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities of Pillowtex or Fieldcrest. Our opinion
is necessarily based on economic, market and other conditions, and the
information made available to us, as of the date hereof.
Our opinion does not constitute a recommendation of the Merger or the
related financing transaction or a recommendation to any shareholder of
Pillowtex as to how any such shareholder should vote with respect to the
approval of the issuance of the Pillowtex Common Stock and the Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of Pillowtex
in connection with the Merger. Further, we are not expressing any opinion as to
what the value of Pillowtex or Fieldcrest common stock actually will be at the
time of the Merger or the prices at which the Pillowtex common stock will trade
during the period following announcement of the Merger or subsequent to the
consummation of the Merger. Finally, our opinion does not address Pillowtex's
underlying business decision to effect the Merger. We have not reviewed any
proxy statement or similar document that may be distributed in connection with
the Merger as such materials have not yet been completed.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
shareholders of Pillowtex.
B-2
<PAGE> 136
We have acted as financial advisor to Pillowtex in connection with the
Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the Merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
B-3
<PAGE> 137
Appendix C
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
The Board of Directors
Fieldcrest Cannon, Inc.
One Lake Circle Drive
Kannapolis, North Carolina 28081
September 10, 1997
To The Board of Directors:
You have asked us to advise you with respect to the fairness to the
holders of the common stock, par value $1.00 per share (the "Common Stock") of
Fieldcrest Cannon, Inc. (the "Company") from a financial point of view of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger (the "Merger Agreement") among the Company,
Pillowtex Corporation (the "Acquiror") and a wholly owned subsidiary of the
Acquiror (the "Sub"). The Merger Agreement provides for the merger (the
"Merger") of the Sub with and into the Company pursuant to which the Company
will become a wholly owned subsidiary of the Acquiror and each outstanding
share of Common Stock will be converted into the right to receive (i) $27.00 in
cash (the "Cash Consideration") and (ii) a number of fully paid and
nonassessable shares of Acquiror's common stock, par value $0.01 per share
("Acquiror Common Stock"), equal to the Conversion Number, meaning the
quotient, rounded to the third decimal place, obtained by dividing $7.00 by the
average closing sales price of Acquiror Common Stock as reported on the New
York Stock Exchange Composite Transactions List for each of the 20 consecutive
trading days immediately preceding the fifth trading day prior to the Effective
Time (as defined in the Merger Agreement); provided that, if the actual
quotient obtained thereby is less than 0.269, the Conversion Number will be
0.269, and if the actual quotient obtained thereby is more than 0.333, the
Conversion Number will be 0.333 (together with the Cash Consideration, the
"Consideration").
In arriving at our opinion, we have reviewed certain publicly
available business and financial information relating to the Company and the
Acquiror, as well as a draft dated September 9, 1997 of the Merger Agreement.
We have also reviewed certain other information, including financial forecasts,
provided to us by the Company and the Acquiror, and have met with the Company's
and the Acquiror's managements to discuss the business and prospects of the
Company and the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company and
the Acquiror and we have considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility
for independent verification of any of the foregoing information and have
relied on its being complete and accurate in all material respects. With
respect to the financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and the Acquiror as to the
future financial performance of the Company and the Acquiror. In addition, we
have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Acquiror, nor have
we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. We are not expressing any
opinion as to what the value of the Acquiror Common Stock actually will be when
issued to the Company's stockholders pursuant to the Merger or
<PAGE> 138
the prices at which such Acquiror Common Stock will trade subsequent to the
Merger. In connection with our engagement, we approached third parties to
solicit indications of interest in a possible acquisition of the Company and
held preliminary discussions with certain of these parties prior to the date
hereof. For purposes of this opinion, we have not considered other strategic
alternatives to the sale of the Company that may be currently available to the
Company.
We have acted as financial advisor to the Special Committee in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services. In the ordinary
course of our business, we and our affiliates may actively trade the debt and
equity securities of both the Company and the Acquiror for our and their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board
of Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the proposed Merger and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without our
prior written consent, except that we hereby consent to the inclusion of this
letter in its entirety as an appendix in the joint proxy statement/prospectus
to be furnished to the holders of the Common Stock in connection with their
consideration of the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be received by the holders of the Common
Stock of the Company in the Merger is fair to such stockholders from a
financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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<PAGE> 139
Appendix D
DELAWARE GENERAL CORPORATION LAW SECTION 262
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
throughout the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
Section 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
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<PAGE> 140
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of any amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follow:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger of consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of his shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consent to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228, Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a
copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding
the date on which the notice is given.
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<PAGE> 141
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each stockholder, in the case of
holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including without limitation reasonable
D-3
<PAGE> 142
attorney's fees and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 143
[FORM OF PROXY]
PILLOWTEX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PILLOWTEX
CORPORATION FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
DECEMBER __, 1997
The undersigned holder of shares of common stock of Pillowtex Corporation
("Pillowtex") hereby appoints Charles M. Hansen, Jr., Jeffrey D. Cordes, and
John H. Karnes, Jr., and each of them, as proxies of the undersigned, with full
power of substitution and resubstitution, to represent and vote as set forth
herein all of the shares of common stock of Pillowtex held of record by the
undersigned on November 5, 1997 at the Pillowtex Special Meeting of
Shareholders to be held on __________, December __, 1997, at 9:00 a.m., Central
Time, at Pillowtex's corporate headquarters, 4111 Mint Way, Dallas, Texas, and
at any and all postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 5,600,000 SHARES OF COMMON
STOCK OF PILLOWTEX AND OF 65,000 SHARES OF SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK OF PILLOWTEX, IN CONNECTION WITH THE ACQUISITION BY PILLOWTEX
OF FIELDCREST CANNON, INC. AND RELATED FINANCING TRANSACTIONS.
(Continued, and to be dated and signed, on the other side)
<PAGE> 144
[X] Please mark your vote as in this example.
THE DIRECTORS OF PILLOWTEX RECOMMEND A VOTE FOR THE APPROVAL OF THE ISSUANCE OF
UP TO 5,600,000 SHARES OF COMMON STOCK OF PILLOWTEX AND OF 65,000 SHARES OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK OF PILLOWTEX, IN CONNECTION
WITH THE ACQUISITION BY PILLOWTEX OF FIELDCREST CANNON, INC. AND RELATED
FINANCING TRANSACTIONS.
Proposal to approve the issuance of up to 5,600,000 shares of Common
Stock of Pillowtex and of 65,000 shares of Series A Redeemable Convertible
Preferred Stock of Pillowtex, in connection with the acquisition by Pillowtex
of Fieldcrest Cannon, Inc. and related financing transactions.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This proxy should be dated, signed by the shareholder as his or
her name appears below, and returned promptly in the enclosed
envelope. Joint owners should each sign personally, and trustees
and others signing in a representative capacity should indicate
the capacity in which they sign.
Dated:
-----------------------------------------------------------
-----------------------------------------------------------------
Signature of Shareholder
-----------------------------------------------------------------
Signature of Shareholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
<PAGE> 145
[FORM OF PROXY]
FIELDCREST CANNON, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIELDCREST
CANNON, INC. FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
DECEMBER __, 1997
The undersigned holder of shares of common stock of Fieldcrest Cannon, Inc.
("Fieldcrest"), hereby appoints James M. Fitzgibbons and Mark R. Townsend, and
each of them, as proxies of the undersigned, with full power of substitution
and resubstitution, to represent and vote as set forth herein all of the shares
of common stock of Fieldcrest held of record by the undersigned on November 5,
1997 at the Fieldcrest Special Meeting of Stockholders to be held on
__________, December __, 1997, at 10:00 a.m., Eastern Time, at 1275 Avenue of
the Americas, New York, New York, and at any and all postponements and
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND OTHERWISE IN
THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER WHICH MAY PROPERLY
COME BEFORE THE FIELDCREST SPECIAL MEETING, INCLUDING A MOTION TO ADJOURN OR
POSTPONE THE FIELDCREST SPECIAL MEETING FOR THE PURPOSE OF SOLICITING
ADDITIONAL PROXIES OR OTHERWISE; EXCEPT THAT NO PROXY WHICH IS VOTED AGAINST
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT WILL BE VOTED IN FAVOR
OF ANY SUCH ADJOURNMENT OR POSTPONEMENT.
(Continued, and to be dated and signed, on the other side)
<PAGE> 146
[X] Please mark your vote as in this example.
THE DIRECTORS OF FIELDCREST CANNON, INC. RECOMMEND A VOTE FOR THE
APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
- --------------------------------------------------------------------------------
Approval and adoption of an Agreement and Plan of Merger, dated as of
September 10, 1997, by and among Pillowtex Corporation, a Texas corporation
("Pillowtex"), Pegasus Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of Pillowtex ("Sub"), and Fieldcrest Cannon, Inc., a Delaware
corporation ("Fieldcrest"), pursuant to which Sub will be merged with and into
Fieldcrest, with Fieldcrest continuing as the surviving corporation and
becoming a wholly owned subsidiary of Pillowtex.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This proxy should be dated, signed by the shareholder as his or
her name appears below, and returned promptly in the enclosed
envelope. Joint owners should each sign personally, and trustees
and others signing in a representative capacity should indicate
the capacity in which they sign.
Dated:
-----------------------------------------------------------
-----------------------------------------------------------------
Signature of Shareholder
-----------------------------------------------------------------
Signature of Shareholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information set forth under the captions "Certain Corporate Governance
Matters of Pillowtex--Indemnification" and "Comparison of Rights of Holders of
Fieldcrest Common Stock and Pillowtex Common Stock--Indemnification of Officers
and Directors--Pillowtex" in the Joint Proxy Statement/Prospectus forming a
part of this Registration Statement is incorporated herein by this reference.
<TABLE>
<CAPTION>
ITEM 21. EXHIBITS
<S> <C>
2.1 -- Agreement and Plan of Merger, dated as of September 10, 1997, by and among Pillowtex Corporation,
Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (included as Appendix A to the
Joint Proxy Statement/Prospectus forming a part of this Registration Statement)
2.2 -- Amendment to Agreement and Plan of Merger, dated as of September 23, 1997, by and among
Pillowtex Corporation, Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (included as
Appendix A to the Joint Proxy Statement/Prospectus forming a part of this Registration
Statement)
5.1 -- Opinion of Jones, Day, Reavis & Pogue regarding the legality of securities to be issued
8.1 -- Opinion of Jones, Day, Reavis & Pogue as to tax matters
8.2 -- Opinion of Weil, Gotshal & Manges L.L.P. as to tax matters
9.1 -- Voting Agreement, dated as of October 2, 1997, by and between Pillowtex Corporation and
Charles M. Hansen, Jr.
9.2 -- Voting Agreement, dated as of October 2, 1997, by and between Pillowtex Corporation,
on the one hand, and Mary R. Silverthorne, the John H. Silverthorne Marital Trust B,
and the John H. Silverthorne Family Trust A, on the other hand
10.1 -- Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas, N.A.
and Pillowtex Corporation (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated September 10, 1997)
10.2 -- Preferred Stock Purchase Agreement, dated as of September 10, 1997, by and among Pillowtex
Corporation, Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo
(UK) Partners III, L.P. (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated September 10, 1997)
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of Ernst & Young LLP*
23.4 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 8.1)
23.5 -- Consent of Weil, Gotshal & Manges L.L.P. (included in Exhibit 8.2)
24.1 -- Powers of Attorney*
99.1 -- Consent of Credit Suisse First Boston Corporation*
99.2 -- Consent of Bear, Stearns & Co. Inc.*
</TABLE>
- --------------
* Previously filed.
II-1
<PAGE> 148
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment will be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant undertakes that, for purposes of determining
any liability under the Securities Act, each filing of Pillowtex's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement will be deemed to be a new
Registration Statement relating to the securities offered herein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to this Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in
II-2
<PAGE> 149
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement No. 333-36663 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dallas, State of Texas on November 12, 1997.
PILLOWTEX CORPORATION
By /s/ CHARLES M. HANSEN, JR.
---------------------------------------
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-36663 has been signed below by the
following persons in the capacities indicated on November 12, 1997.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ CHARLES M. HANSEN, JR. Chairman of the Board and Chief Executive Officer; Director
- ------------------------------------- (Principal Executive Officer)
Charles M. Hansen, Jr.
JEFFREY D. CORDES* President and Chief Operating Officer; Director
- ------------------------------------- (Principal Financial and Accounting Officer)
Jeffrey D. Cordes
CHRISTOPHER N. BAKER* Director
- -------------------------------------
Christopher N. Baker
KEVIN M. FINLAY* Director
- -------------------------------------
Kevin M. Finlay
SCOTT E. SHIMIZU* Director
- -------------------------------------
Scott E. Shimizu
MARY R. SILVERTHORNE* Director
- -------------------------------------
Mary R. Silverthorne
WILLIAM B. MADDEN* Director
- -------------------------------------
William B. Madden
M. JOSEPH MCHUGH* Director
- -------------------------------------
M. Joseph McHugh
PAUL G. GILLEASE* Director
- -------------------------------------
Paul G. Gillease
RALPH LA ROVERE* Director
- -------------------------------------
Ralph La Rovere
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement No. 333-36663 pursuant to the Powers
of Attorney executed on behalf of the above-named officers and directors and
filed herewith.
/s/ JOHN H. KARNES, JR.
-----------------------------
John H. Karnes, Jr.
Attorney-in-Fact
II-4
<PAGE> 151
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger, dated as of September 10, 1997, by and among Pillowtex Corporation,
Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (included as Appendix A to the
Joint Proxy Statement/Prospectus forming a part of this Registration Statement)
2.2 -- Amendment to Agreement and Plan of Merger, dated as of September 23, 1997, by and among
Pillowtex Corporation, Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (included as
Appendix A to the Joint Proxy Statement/Prospectus forming a part of this Registration
Statement)
5.1 -- Opinion of Jones, Day, Reavis & Pogue regarding the legality of securities to be issued
8.1 -- Opinion of Jones, Day, Reavis & Pogue as to tax matters
8.2 -- Opinion of Weil, Gotshal & Manges L.L.P. as to tax matters
9.1 -- Voting Agreement, dated as of October 2, 1997, by and between Pillowtex Corporation and
Charles M. Hansen, Jr.
9.2 -- Voting Agreement, dated as of October 2, 1997, by and between Pillowtex Corporation,
on the one hand, and Mary R. Silverthorne, the John H. Silverthorne Marital Trust B,
and the John H. Silverthorne Family Trust A, on the other hand
10.1 -- Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas, N.A.
and Pillowtex Corporation (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated September 10, 1997)
10.2 -- Preferred Stock Purchase Agreement, dated as of September 10, 1997, by and among Pillowtex
Corporation, Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo
(UK) Partners III, L.P. (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as amended by a Form 8-K/A
(Amendment No. 1) dated September 10, 1997)
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP*
23.3 -- Consent of Ernst & Young LLP*
23.4 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 8.1)
23.5 -- Consent of Weil, Gotshal & Manges L.L.P. (included in Exhibit 8.2)
24.1 -- Powers of Attorney*
99.1 -- Consent of Credit Suisse First Boston Corporation*
99.2 -- Consent of Bear, Stearns & Co. Inc.*
</TABLE>
- --------------
* Previously filed.
<PAGE> 1
Exhibit 5.1
[Letterhead of Jones, Day, Reavis & Pogue]
November 12, 1997
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Re: Registration of up to 5,600,000 Shares of Common Stock, par
value $.01 per share, of Pillowtex Corporation
Ladies and Gentlemen:
We have acted as special counsel to Pillowtex Corporation, a Texas
corporation ("Pillowtex"), in connection with the issuance of up to 5,600,000
shares (the "Shares") of common stock, par value $.01 per share, of Pillowtex
in connection with the transactions contemplated by the Agreement and Plan of
Merger, dated as of September 10, 1997 (the "Merger Agreement"), by and among
Pillowtex, Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc.
We have examined such documents, records, and matters of law as we
have deemed necessary for purposes of this opinion. Based on such examination
and on the assumptions set forth below, we are of the opinion that, when the
Registration Statement on Form S-4 (Registration Statement No. 333-36663) (the
"Registration Statement") filed by Pillowtex to effect registration of the
Shares under the Securities Act of 1933, as amended, has been declared
effective by the Securities and Exchange Commission and the Shares have been
issued and delivered in accordance with the terms and provisions of the
Agreements (as defined below) as contemplated by the Registration Statement,
the Shares will be duly authorized, validly issued, fully paid, and
nonassessable.
In rendering this opinion, we have (i) assumed and have not
independently verified (a) that each agreement, document, or instrument
(collectively, the "Agreements") pursuant to which any of the Shares are to be
issued will at the time of such issuance have been duly authorized, executed,
and delivered by the parties thereto and will constitute a valid, binding, and
enforceable obligation of such parties, (b) that all signatures on all
certificates and other documents examined by us are genuine, and that, where
any such signature purports to have been made in a corporate, governmental or
other capacity, the person who affixed such signature to such certificate or
other document had authority to do so, and (c) the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as copies, (ii) as to certain factual matters,
relied upon certificates of public officials and of Pillowtex and its officers
and upon the representations and warranties set forth in the Agreements and
have not independently checked or verified the accuracy of the factual
statements contained therein, and (iii) assumed that the parties to the
Agreements will comply with the provisions thereof. In addition, our
examination of matters of law has been limited to the Texas Business
Corporation Act and the federal laws of the United States of America, in each
case as in effect on the date hereof.
<PAGE> 2
Pillowtex Corporation
November 12, 1997
Page 2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE> 1
Exhibit 8.1
[Letterhead of Jones, Day, Reavis & Pogue]
November 12, 1997
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Re: Registration Statement on Form S-4 of Pillowtex Corporation
Gentlemen:
We have acted as counsel to Pillowtex Corporation (the
"Pillowtex") in connection with the Registration Statement on Form S-4 (the
"Registration Statement") to which this opinion appears as Exhibit 8.1 which
includes a Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") relating to the merger (the "Merger") of a wholly owned
subsidiary of Pillowtex with and into Fieldcrest Cannon, Inc. ("Fieldcrest").
Unless otherwise indicated, any defined terms used herein have the same meaning
as in the Joint Proxy Statement/Prospectus. We are of the opinion that the
section of the Joint Proxy Statement/Prospectus entitled "The Merger--Certain
Federal Income Tax Consequences" accurately summarizes the material federal
income tax consequences of the Merger to holders of Fieldcrest Common Stock and
Fieldcrest Preferred Stock. In connection with the foregoing opinion, we have
relied, without independent investigation, upon the completeness and accuracy
of the statements and representations of facts set forth in the Merger
Agreement and the Joint Proxy Statement/Prospectus.
We hereby consent to the filing with the Securities and
Exchange Commission of this opinion as an exhibit to the Registration Statement
and to the reference to us under the caption "The Merger--Certain Federal
Income Tax Consequences" in the Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE> 1
Exhibit 8.2
[Letterhead of Weil, Gotshal & Manges LLP]
November 12, 1997
Fieldcrest Cannon, Inc.
One Lake Circle Drive
Kannapolis, NC 28081
Ladies and Gentlemen:
In connection with the registration by Pillowtex Corporation,
a Texas corporation ("Pillowtex"), of shares of Pillowtex Common Stock, par
value $.01 per share, under the Securities Act of 1933, as amended (the
"Securities Act"), on a Registration Statement on Form S-4, originally filed
with the Securities and Exchange Commission (the "Commission") on September 29,
1997 (with all amendments thereto, including, without limitation, Amendment No.
1 filed with the Commission on November 12, 1997, the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.
In formulating our opinion, we examined such documents as we
deemed appropriate, including the Agreement and Plan of Merger, dated as of
September 10, 1997 (the "Merger Agreement"), among Pillowtex, Pegasus Merger
Sub, Inc., a Delaware corporation, and Fieldcrest Cannon, Inc., a Delaware
corporation, and the Registration Statement.
Our opinion set forth below assumes (1) the accuracy of the
statements and facts concerning the Merger (as such term is defined in the
Merger Agreement) set forth in the Merger Agreement and the Registration
Statement and (2) that the Merger is consummated in the manner contemplated by,
and in accordance with the terms set forth in, the Merger Agreement and the
Registration Statement.
Based upon the facts and statements set forth above, our
examination and review of the documents referred to above and subject to the
assumptions set forth above, we are of the opinion that the legal conclusions
set forth under the heading "The Merger--Certain Federal Income Tax
Consequences" in the Registration Statement are correct in all material
respects. We express no opinion as to any matter other than those specifically
set forth herein.
Our opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service and case
law, any of which may be changed at any time with retroactive effect. Any
change in applicable laws or the facts and circumstances surrounding the
Merger, or any change or inaccuracy in the statements, facts, assumptions and
representations on which we have relied, may affect the continuing validity of
the opinion set forth herein. We assume no responsibility to inform you of any
such change or inaccuracy that may occur or come to our attention.
The opinion expressed herein is rendered solely for your
benefit in connection with the transactions described herein. This opinion may
not be used or relied upon by any other person, nor may this letter or any
copies thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our prior written consent.
<PAGE> 2
Fieldcrest Cannon, Inc.
November 12, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
heading "The Merger--Certain Federal Income Tax Consequences" in the
Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE> 1
Exhibit 9.1
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 2, 1997 (the "Agreement"), by
and between Pillowtex Corporation, a Texas corporation (the "Company"), and
Charles M. Hansen, Jr. (the "Shareholder").
RECITALS
A. The Company has entered into an agreement, dated as of September
10, 1997 (as amended, the "Merger Agreement"), providing for the acquisition by
the Company of Fieldcrest Cannon, Inc. ("Fieldcrest"), such acquisition to be
effected by means of a merger (the "Merger") of a wholly owned subsidiary of
the Company with and into Fieldcrest.
B. In order to comply with the shareholder approval policies of the
New York Stock Exchange, the issuance of shares of Common Stock, par value
$0.01 per share, of the Company ("Common Stock") and shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company in connection with the Merger and related financing transactions (the
"Share Issuance") will be submitted to the shareholders of the Company for
their consideration and approval at a special meeting thereof (the "Special
Meeting").
C. As of the date hereof, the Shareholder holds of record and has the
right to vote 2,653,104 shares of Common Stock (the "Shares").
D. By entering into this Agreement in accordance with Article 2.30.B
of the Texas Business Corporation Act (the "TBCA"), the Shareholder desires to
ensure that substantially all of the Shares will be voted for the approval of
the Share Issuance at the Special Meeting (and any and all postponements and
adjournments thereof).
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Voting Agreement. At the Special Meeting (and any and all
postponements and adjournments thereof), the Shares held by the Shareholder as
of the record date fixed for the Special Meeting (the "Subject Shares") will be
voted for the approval of the Share Issuance.
2. Irrevocable Proxy. In order to implement the provisions of Section
1 hereof, the Shareholder hereby irrevocably appoints the Company as attorney
and proxy of the Shareholder pursuant to the provisions of Articles 2.29.C and
2.30.B of the TBCA, with full power of substitution, to vote the Subject
Shares, at the Special Meeting (and any and all postponements and adjournments
thereof), as set forth in Section 1 hereof. This power of attorney and proxy is
irrevocable and coupled with an interest.
3. Certain Representations and Warranties. The Shareholder represents
and warrants to the Company that: (i) the Shareholder is the record owner of
the Shares and has full and unrestricted power to vote the Shares; (ii) the
execution, delivery and performance by the Shareholder have been duly
authorized by all necessary actions, if any; (iii) the Shareholder has full
power and authority to sign this Agreement; and (iv) the execution, delivery
and performance of this Agreement do not and will not contravene or constitute
a default under, or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Shareholder under, any provision
of applicable law or regulation or of any agreement, judgment, order, decree or
other instrument binding on the Shareholder. The Shareholder acknowledges
receipt of a copy of the Company's Registration Statement on Form S-4
(including the Joint Proxy Statement/Prospectus contained therein) as filed
with the Securities and Exchange Commission on September 29, 1997.
4. Miscellaneous.
(a) Successors and Assigns. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
<PAGE> 2
(b) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof.
(c) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(d) Termination. This Agreement will terminate 11 months from
the date hereof.
(e) Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
(f) Availability of Agreement. A counterpart of this
Agreement will be deposited with the Company at its principal place of business
and will be subject to the same right of examination by a shareholder of the
Company, in person or by agent or attorney, as are the books and records of the
Company.
(g) Sales of Shares. Nothing herein contained will prohibit
the Shareholder from selling or otherwise disposing of up to 300,000 Shares
during the term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
THE COMPANY:
PILLOWTEX CORPORATION
By: /s/ Jeffrey D. Cordes
Jeffrey D. Cordes, President
THE SHAREHOLDER:
/s/ Charles M. Hansen, Jr.
Charles M. Hansen, Jr.
2
<PAGE> 1
Exhibit 9.2
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 2, 1997 (the "Agreement"), by
and between Pillowtex Corporation, a Texas corporation (the "Company"), on the
one hand, and Mary R. Silverthorne, the John H. Silverthorne Marital Trust B
and the John H. Silverthorne Family Trust A (collectively, the "Shareholders"),
on the other hand.
RECITALS
A. The Company has entered into an agreement, dated as of September
10, 1997 (as amended, the "Merger Agreement"), providing for the acquisition by
the Company of Fieldcrest Cannon, Inc. ("Fieldcrest"), such acquisition to be
effected by means of a merger (the "Merger") of a wholly owned subsidiary of
the Company with and into Fieldcrest.
B. In order to comply with the shareholder approval policies of the
New York Stock Exchange, the issuance of shares of Common Stock, par value
$0.01 per share, of the Company ("Common Stock") and shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company in connection with the Merger and related financing transactions (the
"Share Issuance") will be submitted to the shareholders of the Company for
their consideration and approval at a special meeting thereof (the "Special
Meeting").
C. As of the date hereof, the Shareholders hold of record and have the
right to vote 3,003,134 shares of Common Stock, in the aggregate, as set forth
in Schedule I hereof (collectively, the "Shares").
D. By entering into this Agreement in accordance with Article 2.30.B
of the Texas Business Corporation Act (the "TBCA"), the Shareholders desire to
ensure that the Shares will be voted for the approval of the Share Issuance at
the Special Meeting (and any and all postponements and adjournments thereof).
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Voting Agreement. At the Special Meeting (and any and all
postponements and adjournments thereof), the Shares held by the Shareholders as
set forth on Schedule I hereof will be voted for the approval of the Share
Issuance.
2. Irrevocable Proxy. In order to implement the provisions of Section
1 hereof, each Shareholder hereby irrevocably appoints the Company as attorney
and proxy of such Shareholder pursuant to the provisions of Articles 2.29.C and
2.30.B of the TBCA, with full power of substitution, to vote the Shares, at the
Special Meeting (and any and all postponements and adjournments thereof), as
set forth in Section 1 hereof. This power of attorney and proxy is irrevocable
and coupled with an interest.
3. Certain Representations and Warranties. Each Shareholder, as to
itself only, represents and warrants to the Company that: (i) such Shareholder
is the record owner of the Shares set forth on Schedule I hereof opposite its
name and has full and unrestricted power to vote such Shares; (ii) the
execution, delivery and performance by such Shareholder have been duly
authorized by all necessary actions, if any; (iii) the person signing this
Agreement on behalf of such Shareholder has full power and authority to do so;
and (iv) the execution, delivery and performance of this Agreement do not and
will not contravene or constitute a default under, or give rise to a right of
termination, cancellation or acceleration of any right or obligation of such
Shareholder under, any provision of applicable law or regulation or of any
agreement, judgment, order, decree or other instrument binding on such
Shareholder. Each Shareholder acknowledges receipt of a copy of the Company's
Registration Statement on Form S-4 (including the Joint Proxy
Statement/Prospectus contained therein) as filed with the Securities and
Exchange Commission on September 29, 1997.
4. Miscellaneous.
(a) Successors and Assigns. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
<PAGE> 2
(b) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof.
(c) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(d) Termination. This Agreement will terminate 11 months from
the date hereof.
(e) Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
(f) Availability of Agreement. A counterpart of this
Agreement will be deposited with the Company at its principal place of business
and will be subject to the same right of examination by a shareholder of the
Company, in person or by agent or attorney, as are the books and records of the
Company.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
THE COMPANY:
PILLOWTEX CORPORATION
By: /s/ Jeffrey D. Cordes
Jeffrey D. Cordes, President
THE SHAREHOLDERS:
/s/ Mary R. Silverthorne
Mary R. Silverthorne
JOHN H. SILVERTHORNE MARITAL TRUST B
By: /s/ Mary R. Silverthorne
Mary R. Silverthorne, Trustee
JOHN H. SILVERTHORNE FAMILY TRUST A
By: /s/ Mary R. Silverthorne
Mary R. Silverthorne, Trustee
3
<PAGE> 4
Schedule I
<TABLE>
<CAPTION>
Shareholder of Record Number of Shares Held
- --------------------- ---------------------
<S> <C>
Mary R. Silverthorne 591,384
John H. Silverthorne Marital Trust B 2,368,893
John H. Silverthorne Family Trust A 42,857
</TABLE>
