<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission file number: 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2147728
(State of incorporation) (IRS Employer Identification No.)
4111 Mint Way
Dallas, Texas 75237
(Address of principal executive offices) (Zip Code)
(214) 333-3225
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at August 14, 1998
Common Stock, $0.01 par value 14,122,670
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Unaudited Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
January 3, 1998 and July 4, 1998 3
Consolidated Statements of Earnings for the three months
ended June 28, 1997 and July 4, 1998 4
Consolidated Statements of Earnings for the six months
ended June 28, 1997 and July 4, 1998 5
Consolidated Statements of Cash Flows for the six months
ended June 28, 1997 and July 4, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Index to Exhibits 20
-2-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 1998 and July 4, 1998
(Dollars in thousands, except for par value)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . .$ 4,604 $ 5,259
Receivables:
Trade, less allowance for doubtful accounts of
$14,770 and $16,954 in 1997 and 1998, respectively . 221,185 207,618
Other. . . . . . . . . . . . . . . . . . . . . . . . . 16,468 13,369
Inventories. . . . . . . . . . . . . . . . . . . . . . 359,751 407,593
Assets held for sale . . . . . . . . . . . . . . . . . 32,614 6,030
Prepaid expenses . . . . . . . . . . . . . . . . . . . 6,335 3,964
----------- -----------
Total current assets. . . . . . . . . . . . . . . . 640,957 643,833
Property, plant and equipment, less accum. depreciation
of $55,871 and $79,235 in 1997 and 1998, respectively. 488,841 516,656
Intangible assets, at cost less accumulated
amortization of $5,111 and $8,230 in 1997
and 1998, respectively . . . . . . . . . . . . . . . . 258,867 261,959
Other assets . . . . . . . . . . . . . . . . . . . . . . 21,521 26,473
----------- -----------
$1,410,186 $1,448,921
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . .$ 111,202 $ 78,639
Accrued expenses . . . . . . . . . . . . . . . . . . . 113,575 94,558
Deferred income taxes. . . . . . . . . . . . . . . . . 16,068 20,009
Current portion of long-term debt. . . . . . . . . . . 5,616 5,059
----------- -----------
Total current liabilities . . . . . . . . . . . . . 246,461 198,265
Long-term debt, net of current portion . . . . . . . . . 785,383 859,048
Deferred income taxes. . . . . . . . . . . . . . . . . . 66,340 63,137
Noncurrent liabilities . . . . . . . . . . . . . . . . . 52,413 54,691
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . 1,150,597 1,175,141
Series A redeemable convertible preferred stock, $.01
par value; 65,000 shares issued and outstanding. . . . 62,882 62,949
Shareholders' equity:
Preferred stock, $0.01 par value; authorized
20,000,000 shares; only Series A issued. . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 13,967,715 and 14,121,410 shares issued
and outstanding in 1997 and 1998, respectively . . . 140 141
Additional paid-in capital . . . . . . . . . . . . . . 151,095 155,581
Retained earnings. . . . . . . . . . . . . . . . . . . 46,328 56,287
Currency translation adjustment. . . . . . . . . . . . (856) (1,178)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . 196,707 210,831
----------- -----------
$1,410,186 $1,448,921
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 28, 1997 and July 4, 1998
(Amounts in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 104,894 $ 332,046
Cost of goods sold . . . . . . . . . . . . . . . . . . . 85,193 273,463
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 19,701 58,583
Selling, general and administrative expenses . . . . . . 11,952 30,019
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 7,749 28,564
Interest expense . . . . . . . . . . . . . . . . . . . . 4,692 17,003
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 3,057 11,561
Income taxes . . . . . . . . . . . . . . . . . . . . . . 1,186 4,469
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 1,871 7,092
Preferred dividends and accretion. . . . . . . . . . . . - 541
---------- ----------
Earnings available for common shareholders. . . . . $ 1,871 $ 6,551
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .18 $ .47
========== ==========
Weighted average common shares outstanding - basic . . . 10,646 14,083
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .17 $ .42
========== ==========
Weighted average common shares outstanding - diluted . . 10,768 17,088
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 28, 1997 and July 4, 1998
(Amounts in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 218,657 $ 698,421
Cost of goods sold . . . . . . . . . . . . . . . . . . . 180,250 575,918
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 38,407 122,503
Selling, general and administrative expenses . . . . . . 23,616 66,131
Restructuring charge . . . . . . . . . . . . . . . . . . - 1,539
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 14,791 54,833
Interest expense . . . . . . . . . . . . . . . . . . . . 9,036 33,798
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 5,755 21,035
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,233 8,308
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 3,522 12,727
Preferred dividends and accretion. . . . . . . . . . . . - 1,027
---------- ----------
Earnings available for common shareholders. . . . . $ 3,522 $ 11,700
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .33 $ .83
========== ==========
Weighted average common shares outstanding - basic . . . 10,632 14,041
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .33 $ .75
========== ==========
Weighted average common shares outstanding - diluted . . 10,732 17,021
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 28, 1997 and July 4, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . .$ 3,522 $ 12,727
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . 7,065 28,215
Restructuring charge. . . . . . . . . . . . . . . . . - 1,539
Deferred income taxes . . . . . . . . . . . . . . . . (518) 5,167
Accretion on debt instruments . . . . . . . . . . . . - 643
Provision for doubtful accounts . . . . . . . . . . . 360 826
Loss on disposal of property, plant and equipment . . 4 50
Changes in operating assets and liabilities, net
of businesses acquired:
Trade receivables. . . . . . . . . . . . . . . . . 17,806 8,400
Inventories. . . . . . . . . . . . . . . . . . . . (26,533) (49,154)
Accounts payable . . . . . . . . . . . . . . . . . (10,741) (11,951)
Accrued expenses . . . . . . . . . . . . . . . . . (5,497) (11,272)
Other assets and liabilities . . . . . . . . . . . (1,742) (406)
---------- ----------
Net cash used in operating activities . . . . . (16,274) (15,216)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment. . . 191 2,685
Proceeds from disposal of assets held for sale . . . . . - 35,595
Purchases of property, plant and equipment . . . . . . . (11,347) (53,022)
Payments for businesses purchased, net of cash acquired. - (21,569)
---------- ----------
Net cash used in investing activities . . . . . (11,156) (36,311)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in checks not yet presented for
payment . . . . . . . . . . . . . . . . . . . . . . . . 6,065 (20,612)
Borrowings on revolving credit loans . . . . . . . . . . 72,650 257,700
Repayments of revolving credit loans . . . . . . . . . . (50,600) (175,500)
Retirement of long-term debt . . . . . . . . . . . . . . (1,110) (8,415)
Payments of debt and equity issuance costs . . . . . . . - (484)
Dividends paid . . . . . . . . . . . . . . . . . . . . . (637) (2,724)
Proceeds from exercise of stock options. . . . . . . . . . 1,075 2,217
---------- ----------
Net cash provided by financing activities . . . 27,443 52,182
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . 13 655
Cash and cash equivalents at beginning of period . . . . . 20 4,604
---------- ----------
Cash and cash equivalents at end of period . . . . . . . .$ 33 $ 5,259
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . .$ 9,020 $ 33,703
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . .$ 5,120 $ (4,821)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands)
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Pillowtex
Corporation (the "Parent") and its subsidiaries (collectively, with Parent,
(the "Company")), include all adjustments, consisting only of normal,
recurring adjustments and accruals, which are, in the opinion of
management, necessary for fair presentation of the results of operations
and financial position. Results of operations for interim periods may
not be indicative of future results. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission on April 3, 1998
for the fiscal year ended January 3, 1998. The three and six month
periods ended July 4, 1998 include the results of Fieldcrest Cannon, Inc.
("Fieldcrest Cannon") which was acquired on December 19, 1997.
(2) Inventories
Inventories consisted of the following at January 3, 1998 and July 4, 1998:
<TABLE>
<CAPTION> 1997 1998
-------- --------
<S> <C> <C>
Finished goods $163,905 $199,650
Work-in-process 120,063 130,663
Raw materials 54,790 56,882
Supplies 20,993 20,398
-------- --------
$359,751 $407,593
======== ========
</TABLE>
(3) Earnings per Share
The following table reconciles the numerators and denominators of basic
and diluted earnings per share for the three and six month periods ended
July 4, 1998. There were no material reconciling items for the three and
Six month periods ended June 28, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, 1998 July 4, 1998
------------------ -----------------
Earnings Shares Earnings Shares
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Basic - earnings available for common shareholders $ 6,551 14,083 $ 11,700 14,041
Effect of dilutive securities:
Stock options - 296 - 271
Convertible preferred stock 541 2,709 1,027 2,709
-------- ------ -------- ------
Diluted - earnings available for common shareholders
Plus assumed conversions $ 7,092 17,088 $ 12,727 17,021
======== ====== ======== ======
</TABLE>
-7-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) New Accounting Standard
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME.
Adoption of this statement did not have a material impact on the
Company's reported financial position, results of operations or cash
flows since comprehensive income is essentially the same as net earnings.
(5) Supplemental Condensed Consolidating Financial Information
The following is summarized condensed consolidating financial information
for the Company, segregating the Parent and guarantor subsidiaries from
non-guarantor subsidiaries. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and the guarantees are full, unconditional
and joint and several.
<TABLE>
<CAPTION>
January 3, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
- - ----------------------------------------
Trade receivables $ - $ 216,869 $ 4,316 $ - $ 221,185
Receivable from affiliates 668,588 - - (668,588) -
Inventories - 351,720 8,031 - 359,751
Other current assets - 58,650 1,371 - 60,021
------------ ------------ ------------ ------------ ------------
Total current assets 668,588 627,239 13,718 (668,588) 640,957
Property, plant and equipment, net 657 485,975 2,209 - 488,841
Intangibles, net 24,256 232,112 2,499 - 258,867
Other assets 229,039 19,564 - (227,082) 21,521
------------ ------------ ------------ ------------ ------------
Total assets $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- - ----------------------------------------
Accounts payable and accrued liabilities $ 85 $ 218,874 $ 5,818 $ - $ 224,777
Payables to affiliates - 668,000 588 (668,588) -
Other current liabilities - 21,591 93 - 21,684
------------ ------------ ------------ ------------ ------------
Total current liabilities 85 908,465 6,499 (668,588) 246,461
Noncurrent liabilities 675,000 228,550 586 - 904,136
------------ ------------ ------------ ------------ ------------
Total liabilities 675,085 1,137,015 7,085 (668,588) 1,150,597
Redeemable convertible preferred stock 62,882 - - - 62,882
Shareholders' equity 184,573 227,875 11,341 (227,082) 196,707
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 922,540 $ 1,364,890 $ 18,426 $ (895,670) $ 1,410,186
============ ============ ============ ============ ============
</TABLE>
-8-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION>
July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
- - ----------------------------------------
Trade receivables $ - $ 203,977 $ 3,641 $ - $ 207,618
Receivable from affiliates 667,433 - 567 (668,000) -
Inventories - 401,033 6,560 - 407,593
Other current assets - 27,046 1,576 - 28,622
------------ ------------ ------------ ------------ ------------
Total current assets 667,433 632,056 12,344 (668,000) 643,833
Property, plant and equipment, net 608 514,193 1,855 - 516,656
Intangibles, net 19,511 240,070 2,378 - 261,959
Other assets 325,628 17,641 - (316,796) 26,473
------------ ------------ ------------ ------------ ------------
Total assets $ 1,013,180 $ 1,403,960 $ 16,577 $ (984,796) $ 1,448,921
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- - ----------------------------------------
Accounts payable and accrued liabilities $ 6,142 $ 161,477 $ 5,578 $ - $ 173,197
Payables to affiliates - 668,000 - (668,000) -
Other current liabilities 3,661 21,241 166 - 25,068
------------ ------------ ------------ ------------ ------------
Total current liabilities 9,803 850,718 5,744 (668,000) 198,265
Noncurrent liabilities 752,952 223,358 566 - 976,876
------------ ------------ ------------ ------------ ------------
Total liabilities 762,755 1,074,076 6,310 (668,000) 1,175,141
Redeemable convertible preferred stock 62,949 - - - 62,949
Shareholders' equity 187,476 329,884 10,267 (316,796) 210,831
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 1,013,180 $ 1,403,960 $ 16,577 $ (984,796) $ 1,448,921
============ ============ ============ ============ ============
</TABLE>
-9-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION> Three Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 99,950 $ 5,355 $ (411) $ 104,894
Cost of goods sold - 80,880 4,724 (411) 85,193
------------ ------------ ------------ ------------ ------------
Gross profit - 19,070 631 - 19,701
Selling, general and administrative (270) 11,911 311 - 11,952
------------ ------------ ------------ ------------ ------------
Earnings from operations 270 7,159 320 - 7,749
Interest expense (income) (201) 4,892 1 - 4,692
------------ ------------ ------------ ------------ ------------
Earnings before income taxes 471 2,267 319 - 3,057
Income taxes 165 987 34 - 1,186
------------ ------------ ------------ ------------ ------------
Net earnings $ 306 $ 1,280 $ 285 $ - $ 1,871
============ ============ ============ ============ ============
<CAPTION> Three Months Ended July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 327,750 $ 5,101 $ (805) $ 332,046
Cost of goods sold - 268,582 5,686 (805) 273,463
------------ ------------ ------------ ------------ ------------
Gross profit (loss) - 59,168 (585) - 58,583
Selling, general and administrative (1,671) 31,324 366 - 30,019
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,671 27,844 (951) - 28,564
Interest expense 1,184 15,818 1 - 17,003
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 487 12,026 (952) - 11,561
Income taxes 170 4,301 (2) - 4,469
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 317 7,725 (950) - 7,092
Preferred dividends and accretion 541 - - - 541
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for
common shareholders $ (224) $ 7,725 $ (950) $ - $ 6,551
============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION> Six Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 208,515 $ 11,320 $ (1,178) $ 218,657
Cost of goods sold - 171,030 10,398 (1,178) 180,250
------------ ------------ ------------ ------------ ------------
Gross profit - 37,485 922 - 38,407
Selling, general and administrative (977) 23,897 696 - 23,616
------------ ------------ ------------ ------------ ------------
Earnings from operations 977 13,588 226 - 14,791
Interest expense (income) (644) 9,683 (3) - 9,036
------------ ------------ ------------ ------------ ------------
Earnings before income taxes 1,621 3,905 229 - 5,755
Income taxes 567 1,665 1 - 2,233
------------ ------------ ------------ ------------ ------------
Net earnings $ 1,054 $ 2,240 $ 228 $ - $ 3,522
============ ============ ============ ============ ============
<CAPTION> Six Months Ended July 4, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 688,592 $ 11,285 $ (1,456) $ 698,421
Cost of goods sold - 566,106 11,268 (1,456) 575,918
------------ ------------ ------------ ------------ ------------
Gross profit - 122,486 17 - 122,503
Selling, general and administrative (1,872) 67,247 756 - 66,131
Restructuring charge - 1,539 - - 1,539
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,872 53,700 (739) - 54,833
Interest expense 52 33,746 - - 33,798
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 1,820 19,954 (739) - 21,035
Income taxes 637 7,658 13 - 8,308
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 1,183 12,296 (752) - 12,727
Preferred dividends and accretion 1,027 - - - 1,027
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for
common shareholders $ 156 $ 12,296 $ (752) $ - $ 11,700
============ ============ ============ ============ ============
</TABLE>
-11-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION>
Six Months Ended June 28, 1997
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 691 $ (20,168) $ 3,203 $ - $ (16,274)
Cash provided by (used in) investing activities (19,058) 7,957 (55) - (11,156)
Cash provided by (used in) financing activities 18,367 12,224 (3,148) - 27,443
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 13 - - 13
Cash and cash equivalents at beginning of year - 12 8 - 20
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 25 $ 8 $ - $ 33
============ ============ ============ ============ ============
<CAPTION>
Six Months Ended July 4, 1998
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated
- - ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 9,304 $ (25,775) $ 1,255 $ - $ (15,216)
Cash provided by (used in) investing activities (89,714) 53,445 (42) - (36,311)
Cash provided by (used in) financing activities 80,410 (27,009) (1,219) - 52,182
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 661 (6) - 655
Cash and cash equivalents at beginning of year - 4,590 14 - 4,604
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 5,251 $ 8 $ - $ 5,259
============ ============ ============ ============ ============
</TABLE>
-12-
<PAGE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
Fieldcrest Cannon is also a guarantor subsidiary and is not included in
the consolidated financial statements for the three and six months ended
June 28, 1997. Accordingly, the Fieldcrest Cannon consolidated financial
information for the three and six months ended June 30, 1997 is included
below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Results of Operations June 30, 1997 June 30, 1997
--------------------- ------------------ ------------------
<S> <C> <C>
Net sales $ 270,760 $ 533,669
Cost of goods sold 225,400 452,555
---------- ----------
Gross profit 45,360 81,114
Selling, general and administrative 29,657 56,168
---------- ----------
Earnings from operations 15,703 24,946
Interest expense 6,296 12,558
Other, net (1,450) (1,674)
---------- ----------
Earnings before income taxes 10,857 14,062
Income taxes 4,016 5,203
---------- ----------
Net earnings 6,841 8,859
Preferred dividends 1,125 2,250
---------- ----------
Earnings available for common shareholders $ 5,716 $ 6,609
========== ==========
<CAPTION>
Six Months Ended
Cash Flows June 30, 1997
---------- ------------------
<S> <C>
Cash provided by operating activities $ 18,299
Cash used in investing activities (23,566)
Cash provided by financing activities 5,257
----------
Net change in cash and cash equivalents (10)
Cash and cash equivalents at beginning of year 4,647
----------
Cash and cash equivalents at end of period $ 4,637
==========
</TABLE>
-13-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the attached
unaudited consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended January 3, 1998.
RESULTS OF OPERATIONS
NET SALES. Net sales were $332.0 million for the three months ended July 4,
1998, representing an increase of $227.1 million or 216.5%, as compared to
$104.9 million for the three months ended June 28, 1997. Net sales for the six
months ended July 4, 1998 increased to $698.4 million from $218.7 million in the
comparable prior year period, an increase of $479.7 million or 219.3%. These
increases were primarily due to the addition of sales from the Fieldcrest Cannon
merger (the "Merger").
GROSS PROFIT. Gross profit margins decreased to 17.6% for the three months
ended July 4, 1998 from 18.8% for the three months ended June 28, 1997. Gross
profit margins for the six months ended July 4, 1998 decreased to 17.5% from
17.6% for the six months ended June 28, 1997. The decrease for the quarter is
primarily due to lower margins in the basic bedding division.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses increased $18.0
million to $30.0 million for the three months ended July 4, 1998, compared to
$12.0 million for the three months ended June 28, 1997. For the six months
ended July 4, 1998, SG&A expenses increased $42.5 million to $66.1 million from
$23.6 million for the period ended June 28, 1997. As a percentage of sales,
SG&A expenses decreased to 9.0% and 9.5%, respectively, for the three and six
month periods ended July 4, 1998 as compared to 11.4% and 10.8%, respectively,
for the three and six month periods ended June 28, 1997. While SG&A expenses in
total have increased as a result of the Merger, SG&A expenses as a percentage of
sales have decreased due to the success of cost-saving initiatives implemented
in conjunction with the Merger.
RESTRUCTURING CHARGE. The $1.5 million restructuring charge for the six month
period ended July 4, 1998 was related to severance and other employee-related
costs associated with the consolidation of blanket production into facilities in
Swannanoa, North Carolina and Westminster, South Carolina.
INTEREST EXPENSE. Interest expense increased $12.3 million to $17.0 million for
the three months ended July 4, 1998, compared to $4.7 million for the three
months ended June 28, 1997. Interest expense for the six month period ended July
4, 1998 increased $24.8 million to $33.8 million from $9.0 million for the six
month period ended June 28, 1997. These increases were due to the additional
debt incurred as a result of the Merger.
TAXES. The effective tax rate for the three months ended July 4, 1998
decreased to 38.7% from 38.8% for the three months ended June 28, 1997 due to
the determination that certain transaction fees related to the Merger will be
deductible. The effective tax rate for the six months ended July 4, 1998
increased to 39.5% from 38.8% for the six months ended June 28, 1997 due to
nondeductible goodwill amortization connected with the Merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its principal sources of liquidity will be cash
from its operations and funds available under the revolving credit facility. As
of July 4, 1998, the outstanding principal balance under the Company's $350.0
million revolving credit facility was $197.2 million, with $36.5 million
committed to outstanding letters of credit and $116.3 million available for
-14-
<PAGE>
<PAGE>
other needs. The debt outstanding under the revolving credit facility reflects
an increase of $82.2 million since January 3, 1998, due primarily to normal
working capital increases during the first half of the year, capital
expenditures, and expenditures relating to the Merger. Based upon current and
anticipated levels of operations, the Company believes that its cash flow from
operations, together with amounts available under the revolving credit facility,
will be adequate to meet its anticipated cash requirements in the forseeable
future.
Effective July 28, 1998, the Company amended its senior revolving credit and
term loan facilities with NationsBank, N.A. to increase the Tranche B portion
of the term loan by $100.0 million. The proceeds received under this amendment
were used to fund the July 28, 1998 acquisition of The Leshner Corporation and
to pay down the Company's revolving credit facility. The amendment did not
change the December 31, 2004 maturity date of the Tranche B term loan.
The Company periodically enters into interest rate swap agreements to minimize
the risk of fluctuations in interest rates. As of January 3, 1998 and July 4,
1998, the Company had approximately $125.0 million and $250.0 million,
respectively, of notional amounts covered under fixed for floating rate swap
agreements at average interest rates of 9.54% and 5.56%, respectively.
On June 30, 1998, the Company paid a dividend of $.06 per share to its common
shareholders of record as of June 19, 1998. Additionally, the Company paid
preferred dividends in the amount of $967,000 during the second quarter of
1998.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, effective for periods beginning after
December 15, 1997. The purpose of this standard is to disclose disaggregated
information which provides information about the operating segments an
enterprise engages in, consistent with the way management reviews financial
information to make decisions about the enterprise's operating matters. The
Company will comply with the requirements of this standard for fiscal year 1998.
In February 1998, SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS, was issued, which revises employers' disclosures about
pension and other postretirement benefit plans. This statement standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures previously required under SFAS Nos. 87, 88 and 106. The provisions
of SFAS No. 132 are effective for fiscal years beginning after December 15,
1997, although early adoption is allowed. The Company's adoption of these
disclosure requirements is not expected to materially impact the consolidated
financial statements.
In March 1998, Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, was issued. This SOP
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The SOP also requires that costs related to the
preliminary project stage and post-implementation operations stage of an
internal-use software development be expensed as incurred. The provisions of
SOP 98-1 are effective for financial statements issued for fiscal years
beginning after December 15, 1998, although early adoption is allowed. Initial
application of SOP 98-1 is not expected to have a material impact on the
Company's financial statements.
-15-
<PAGE>
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued. This statement establishes accounting and reporting
standards for derivatives instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The provisions of
SFAS No. 133 are effective for financial statements beginning after June 15,
1999, although early adoption is allowed. The Company has not determined the
financial impact of adopting this SFAS and has not determined if it will adopt
its provisions prior to its effective date.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in the
date field. These programs, if not corrected, could fail or create erroneous
results by or at the Year 2000. This "Year 2000" issue is believed to affect
virtually all companies and organizations, including the Company. Previously,
the Company developed, and is in the process of implementing, a strategy to
modernize and improve its information systems in an effort to provide management
with fully integrated systems. This transformation will deliver information to
management and the Company's employees in a more efficient and timely manner.
In conjunction with this effort, the Company is addressing its Year 2000 issues.
The Company believes its new information systems will be fully Year 2000
compliant. The Company has been, and will continue to assess its business
partners' efforts to become Year 2000 compliant. The Company does not believe
the Year 2000 issues (including the costs of the Company's compliance program)
will have a material adverse effect on the Company's financial position or
results of operations, though no assurance can be given in this regard.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements. Such statements are
based upon the beliefs and assumptions of, and on information available to, the
Company's management. Because such forward-looking statements are subject to
various risks and uncertainties, results may differ materially from those
expressed in or implied by such statements. Many of the factors that will
determine these results are beyond the Company's ability to control or predict.
Factors which could affect the Company's future results and could cause results
to differ materially from those expressed in or implied by such forward-looking
statements are discussed under the caption "Cautionary Statement Regarding
Forward-Looking Statements" in the Company's Annual Report on Form 10-K for its
fiscal year ended January 3, 1998, and under the caption "Risk Factors" in each
of the Joint Proxy Statement/Prospectus forming a part of the Company's
Registration Statement on Form S-4 (No. 333-36663) and the Prospectus forming a
part of the Company's Registration Statement on Form S-4 (No. 333-46209).
-16-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on
May 4, 1998. The following proposals were voted upon and approved at the
Annual Meeting:
(1) Election of Directors
For Three-Year Terms Expiring in 2001:
<TABLE>
<CAPTION>
Votes Votes Broker
Cast For Withheld Non-Votes
---------- -------- ---------
<S> <C> <C> <C>
Mary R. Silverthorne 12,082,230 393,946 0
Jeffrey D. Cordes 12,080,257 395,919 0
Christopher N. Baker 12,081,414 394,762 0
Kevin M. Finlay 12,078,369 397,807 0
</TABLE>
There were no abstentions with respect to the election of directors.
Charles M. Hansen, Jr., William B. Madden, M. Joseph McHugh,
Ralph W. La Rovere, Paul G. Gillease and Scott E. Shimizu continued as
directors of the Company.
(2) Approval of the amendment to the Pillowtex Corporation 1993 Stock Option
Plan to increase the number of shares of Common Stock available for
issuance thereunder from 1,500,000 shares to 2,000,000 shares:
Votes Votes Votes
Cast For Against Abstaining
---------- ---------- ----------
10,143,218 2,304,814 28,144
-17-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Second Supplemental Indenture, dated as of July 28, 1998, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and Norwest Bank Minnesota, National Association, as Trustee
10.1 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex
Corporation, Ralph Lauren Home Collection, Inc. and Polo Ralph Lauren
Corporation (confidential portions of this exhibit have been omitted
and filed separately with the Commission)
10.2 Pillowtex Corporation Executive Medical Expense Reimbursement Plan,
effective as of January 1, 1998
10.3 First Amendment to Amended and Restated Credit Agreement, dated as of
June 19, 1998, among Pillowtex Corporation, certain lenders named
therein and NationsBank, N.A., as Administrative Agent
10.4 Second Amendment to Amended and Restated Credit Agreement, dated as
of July 28, 1998, among Pillowtex Corporation, certain lenders named
therein and NationsBank, N.A., as Administrative Agent
10.5 First Amendment to Term Credit Agreement, dated as of June 19, 1998,
among Pillowtex Corporation, certain lenders named therein and
NationsBank, N.A., as Administrative Agent
10.6 Second Amendment to Term Credit Agreement, dated as of July 28, 1998,
among Pillowtex Corporation, certain lenders named therein and
NationsBank, N.A., as Administrative Agent
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter for which
this report is filed:
1. Current report on Form 8-K dated April 9, 1998 and filed on April 10,
1998 reporting under Item 5 and Item 7 of Form 8-K information concerning the
resolution of the litigation brought against the Company by Louisville
Bedding Company.
-18-
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) PILLOWTEX CORPORATION
BY (SIGNATURE) /s/ Jeffrey D. Cordes
(NAME AND TITLE) Jeffrey D. Cordes
President, Chief Operating Officer and Director
(Principal Financial and Accounting Officer)
(DATE) AUGUST 17, 1998
-19-
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- - ------- -----------------------------
<S> <C> <C>
4.1 Second Supplemental Indenture, dated as of July 28, 1998, among Pillowtex
Corporation, the guarantors listed on the signature page thereto, and
Norwest Bank Minnesota, National Association, as Trustee. . . . . . . . . . . Filed herewith electronically
10.1 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex
Corporation, Ralph Lauren Home Collection, Inc. and Polo Ralph Lauren
Corporation (confidential portions of this exhibit have been omitted and
filed separately with the Commission) . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.2 Pillowtex Corporation Executive Medical Expense Reimbursement Plan,
effective as of January 1, 1998 . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.3 First Amendment to Amended and Restated Credit Agreement, dated as of
June 19, 1998, among Pillowtex Corporation, certain lenders named therein
and NationsBank, N.A., as Administrative Agent. . . . . . . . . . . . . . . . Filed herewith electronically
10.4 Second Amendment to Amended and Restated Credit Agreement, dated as of
July 28, 1998, among Pillowtex Corporation, certain lenders named therein
and NationsBank, N.A., as Administrative Agent. . . . . . . . . . . . . . . . Filed herewith electronically
10.5 First Amendment to Term Credit Agreement, dated as of June 19, 1998,
among Pillowtex Corporation, certain lenders named therein and NationsBank,
N.A., as Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.6 Second Amendment to Term Credit Agreement, dated as of July 28, 1998,
among Pillowtex Corporation, certain lenders named therein and NationsBank,
N.A., as Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
</TABLE>
-20-
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture"),
dated as of July 28, 1998, among the Leshner Corporation, an Ohio corporation,
Opelika Industries, Inc., an Alabama corporation, Leshner of California, Inc.,
a California corporation, (each, a "Guaranteeing Subsidiary"), subsidiaries
of Pillowtex Corporation (or its permitted successor), a Texas corporation
(the "Company"), the other Guarantors (as defined in the Indenture referred
to herein) and Norwest Bank Minnesota, National Association, as trustee under
the indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company has heretofore executed and delivered to the Trustee an
indenture (the "Indenture"), dated as of December 18, 1997 providing for the
issuance of an aggregate principal amount of up to $185,000,000 of 9% Senior
Subordinated Notes due 2007 (the "Notes"); and
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
Indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture
on the terms and conditions set forth herein (the "Note Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized
to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing
Subsidiary and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees
as follows:
(a) Along with all Guarantors named in the Indenture to jointly and
severally Guarantee to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of the Indenture, the Notes or the
obligations of the Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly paid
in full when due, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal of and interest on the
Notes, if any, if lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be promptly
paid in full or performed, all in accordance with the terms hereof and
thereof; and
<PAGE>
(ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be promptly paid in
full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed
or any performance so guaranteed for whatever reason, the Guarantor
shall be jointly and severally obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same
or any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantors, or any custodian, Trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantor, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 of the Indenture for the
purposes of this Note Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Note Guarantee.
<PAGE>
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect to any
maximum amount and any other contingent and fixed liabilities that
are relevant under any applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other
Guarantor under Article 10 of the Indenture shall result in the
obligations of such Guarantor under its Note Guarantee not
constituting a fraudulent transfer of conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the
Note Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) The Guaranteeing Subsidiary may not consolidate with or merge with or
into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless:
(i) subject to Section 11.05 of the Indenture, the Person found
by or surviving any such consolidation or merger (if other than a Guarantor
or the Company) unconditionally assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory other the Trustee, under the Notes,
the Indenture and the Note Guarantee on the terms set forth herein or
therein; and
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists.
(b) In case of any consolidation, merger, sale or conveyance and upon the
assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the trustee,
of the Note Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation shall succeed to and
be substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor corporation thereon may cause to be
signed any or all of the Note Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Note Guarantees so issued
shall in all respects have the same legal rank and benefit under the Indenture
as the Note Guarantees theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such Note Guarantees had been
issued at the date of the execution hereof.
<PAGE>
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as
an entirety to the Company or another Guarantor.
5. RELEASES.
(a) In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all to the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of merger, consolidation
or otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be released and
relieved of any obligations under its Note Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture, including without limitation Section
4.10 of the Indenture. Upon delivery by the Company to the Trustee of an
Officer's Certificate and an Opinion of Counsel to the effect that such sale
or other disposition was made by the Company in accordance with the
provisions of the Indenture, including without limitation Section 4.10 of the
Indenture, the Trustee shall execute any documents reasonably required in
order to evidence the release of any Guarantor from its obligations under its
Note Guarantee.
(b) Any Guarantor not released from its obligations under its Note
Guarantee
shall remain liable for the full amount of principal of and interest on the
Notes and for the other obligations of any Guarantor under the Indenture as
provided in Article 10 of the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees,
the Indenture or this Supplemental Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that
such a waiver is against public policy.
<PAGE>
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL
INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained
herein, all of which recitals are made solely by the Guaranteeing
Subsidiary and the Company.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be executed and attested, all as of the date first above written.
DATE July 28, 1998
PILLOWTEX CORPORATION
By: Nelson A. Bangs
Title: Vice President and
General Counsel
THE LESHNER CORPORATION
By: Nelson A. Bangs
Title: Vice President
OPELIKA INDUSTRIES, INC.
By: Nelson A. Bangs
Title: Vice President
LESHNER OF CALIFORNIA, INC.
By: Nelson A. Bangs
Title: Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, AS TRUSTEE
By: Jane Y. Schweiger
Title: Corporate Trust Officer
<PAGE>
Schedule I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the Indenture as of the
Issue Date:
PTEX Holding Company
Pillowtex, Inc.
Manetta Home Fashions, Inc.
Beacon Manufacturing Company
Pillowtex Management Services Company
Tennessee Woolen Mills, Inc.
The following schedule lists each Guaranteeing Subsidiary under the
Supplemental Indenture dated as of December 19, 1997:
Fieldcrest Cannon, Inc.,
Encee, Inc.
Fieldcrest Cannon Financing, Inc.
Fieldcrest Cannon Licensing, Inc.
Fieldcrest Cannon International, Inc.
Fieldcrest Cannon Sure Fit, Inc.
Fieldcrest Cannon Transportation, Inc.
St. Marys, Inc.
Amoskeag Company
Amoskeage Management Corporation
Moore's Falls Corporation
Dwneast Securities Corporation
Crestfield Cotton Company
Bangor Investment Company
FCC Canada, Inc.
<PAGE>
(Pillowtex)
THIS AGREEMENT made as of July 1, 1998, between Ralph Lauren Home
Collection, Inc. ("RLHC"), a Delaware corporation with a place of business
at 103 Foulk Road, Suite 201, Wilmington, Delaware 19803, Polo Ralph Lauren
Corporation ("PRLC"), a Delaware corporation with a place of business at 650
Madison Avenue, New York, New York and, Pillowtex Corporation, a Texas
corporation with a principal place of business at 4111 Mint Way, Dallas
Texas 75237 ("Company").
WITNESSETH:
WHEREAS, RLHC is a subsidiary of PRL USA Holdings, Inc., a Delaware
corporation ("Polo"); and
WHEREAS, Polo owns, and RLHC is the exclusive licensee of the rights
to use, the "Licensed Mark", hereinafter defined, in connection with the
manufacture and sale in the United States of certain items of home
furnishings, including the "Licensed Products", hereinafter defined; and
WHEREAS, Company desires to obtain, and RLHC is willing to grant, an
exclusive sublicense to use the Licensed Mark in connection with the
manufacture and sale of Licensed Products in the United States; and
WHEREAS, Company desires to obtain, and PRLC is willing to provide,
design, marketing and other services as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and undertakings hereinafter set forth, the parties hereto agree
as follows:
1. Definitions. As used in this Agreement, the term:
1.1. "Licensed Products" shall mean those items listed on Schedule
A attached hereto, all bearing the Licensed Mark, hereinafter defined.
1.2. "Licensed Mark" shall mean either the trademark "Ralph Lauren
Home Collection", "Ralph (Polo Player Design) Lauren", the representation
of the Polo Player Design or the trademark "Ralph Lauren" and unless the
context indicates otherwise, all of such trademarks, and any other trademark
RLHC may, from time to time at its sole discretion, specifically authorize
for use by Company. RLHC shall have the sole right to determine which
trademark shall be used in connection with each particular Licensed Product.
From time to time RLHC may authorize Company to manufacture and distribute
products bearing the Licensed Mark not expressly listed in Schedule A
hereto. Absent an agreement with respect to such products signed by RLHC
and Company, all such products shall be deemed Licensed Products for all
purposes hereunder; provided, however, that Company's rights with respect
to such products (i) shall be non-exclusive and (ii) may be terminated by
Company upon 90 days written notice.
<PAGE>
1.3. "Territory" shall mean the United States of America and Canada;
provided, however, that Company shall have no right to sell any Licensed
Products, and RLHC shall be free to sell or authorize the sale of Licensed
Products, to hotels, motels and other lodging facilities for use in such
facilities (but not for retail sale at such facilities). From time to time
RLHC may authorize Company to sell certain Licensed Products to specific
purchasers outside the Territory. Absent an agreement with respect to such
sales signed by RLHC and Company, all such sales shall be made on all of the
terms and conditions set forth in this Agreement; provided, however, that
Company's right to make such sales shall be non-exclusive and may be
terminated by RLHC immediately upon written notice to Company. Any such
termination shall not apply to orders already taken by Company in accordance
with RLHC's prior authorization. In accordance with the foregoing, RLHC
hereby authorizes Company, on an exclusive basis, to sell Licensed Products
to Corporacion Telmar, RLHC?s distributor of various home furnishings in
Mexico.
2. Grant of License.
2.1. Subject to the terms and provisions hereof, RLHC hereby grants
Company, and Company hereby accepts, the exclusive, non-assignable right to
use the Licensed Mark for the term of this Agreement, in connection with the
manufacture and sale to the trade of Licensed Products in the Territory.
2.2. The sublicense granted herein applies solely to the use of the
Licensed Mark in connection with the manufacture and sale to the trade of
the Licensed Products. No use of any other trademark of RLHC, Polo or of
any of their affiliates, and no use of the Licensed Mark in connection with
the manufacture and sale of any other products, shall be authorized or
permitted pursuant to this sublicense.
2.3. RLHC reserves all rights granted to it under its agreement with
Polo which are not expressly and exclusively granted to Company hereunder,
and RLHC may grant sublicenses to others in the Territory in connection with
the items of home furnishings designated in such agreements, except for the
Licensed Products specifically licensed hereunder.
2.4. It is understood and agreed that all right, title and interest
in and to the Licensed Mark are reserved by Polo for its own use or for the
use of any other licensee, whether within or outside the Territory, in
connection with any and all products and services other than the rights
granted to Company herein. Without limiting the generality of the
foregoing, Company understands and agrees that RLHC or Polo may manufacture
or authorize third parties to manufacture, in the Territory, Licensed
Products for ultimate sale outside the Territory; provided, however, that
in the event that any licensee of Licensed Products outside the Territory
desires to produce Licensed Products within the Territory and does not have
any affiliates, subsidiaries or related companies within the Territory, then
Licensor shall suggest the services of Licensee for the production of
Licensed Products within the Territory for export outside the Territory.
<PAGE>
2.5. Company shall not without RLHC's prior written approval sell
any Licensed Products bearing the Mark to any third party which, directly
or indirectly, sells or proposes to sell such Licensed Products outside the
Territory. Company shall use its best efforts to prevent any such resale
outside the Territory and shall, immediately upon learning or receiving
notice from RLHC that a customer is selling Licensed Products outside the
Territory, cease all sales and deliveries to such customer.
2.6. RLHC shall not, without Company's consent, grant to others the
right and license to use a trademark which bears the words "Polo" or "Ralph
Lauren" in connection with the Licensed Products within the Territory. To
the extent that it is legally possible to do so, no license is granted
hereunder for the manufacture, sale or distribution of Licensed Products to
be used for publicity purposes, other than publicity of Licensed Products,
in combination sales, as premiums or giveaways or to be disposed of under
or in connection with similar methods of merchandising, such rights being
specifically reserved for RLHC.
2.7. Except as provided in paragraph 23.4 hereof, Company shall not
purport to grant any right, permission or sublicense hereunder to any third
party, whether at common law or otherwise. In the event of any attempted
assignment or sublicense by Company without RLHC's prior written consent,
RLHC may at its option immediately terminate such sublicense and this
Agreement by written notice to Company to such effect; any such attempted
assignment or sublicense shall otherwise be null, void and of no force or
effect.
2.8. Company shall not use, or permit another person or entity in
its control to use, the words "Polo", "Ralph Lauren" or any initials
associated therewith (e.g., "RL" or "PRL") as part of a corporate name or
tradename and Company shall not otherwise permit use of the Licensed Mark
in such a way so as to give the impression that the names "Polo" or "Ralph
Lauren", or the Licensed Mark, or any modification thereof, is the property
of Company.
2.9. Company shall not have the right to use Company's name on the
Licensed Products, except with the prior approval by RLHC of the use and
placement of Company's name, in accordance with applicable laws. Company
shall, at the option of RLHC upon reasonable notice, include on its business
materials and/or the Licensed Products an indication of the relationship of
the parties hereto in a form approved by RLHC.
<PAGE>
2.10. Notwithstanding anything to the contrary herein contained,
RLHC hereby reserves the right from time to time to authorize others to
manufacture and sell Licensed Products as part of a combination sale, or
premium or giveaway with certain products other than Licensed Products
bearing the Ralph Lauren name.
2.11. Company shall not, directly or indirectly, manufacture,
distribute, sell or advertise, during the term of this Agreement, any items
which bear or are associated with any of the following designers or brands:
[ * ], subject to the provisions of that certain letter agreement
between Company and RLHC dated October 31, 1997. Company shall not be deemed
to have violated the terms of this paragraph 2.11 by virtue of the
continuing manufacture and sale of towels bearing the Nautica trademark by
Leshner Corporation, a subsidiary of Company.
2.12. RLHC represents and warrants to Company that it has full legal
right, power and authority to grant the sublicense hereby granted by RLHC
to Company, to enter into this Agreement, to perform all of its obligations
hereunder, and to consummate all of the transactions contemplated herein.
2.13. Company represents and warrants to RLHC that it has full legal
right, power and authority to enter into this Agreement, to perform all of
its obligations hereunder and to consummate all of the transactions
contemplated herein. Company further represents and covenants that it is
now and at all times shall be adequately capitalized so as to be able to
conduct its operations contemplated hereunder and to meet the requirements
of its suppliers in connection therewith.
2.14. Company recognizes that there are many uncertainties in the
business contemplated by this Agreement. Company agrees and acknowledges
that other than those representations explicitly contained in this
Agreement, if any, no representations, warranties or guarantees of any kind
have been made to Company, either by RLHC, Polo or PRLC, or by anyone acting
on their behalf. Without limitation, no representations concerning the
value of the Licensed Products or the prospects for the level of their sales
or profits have been made and Company has made its own independent business
evaluation in deciding to manufacture and distribute the Licensed Products
on the terms set forth herein.
3. Design Standards and Prestige of Licensed Products.
3.1. PRLC shall provide services in connection with the creation and
design of Licensed Products, subject to the terms and provisions hereof, in
order to enable Company to exploit the rights granted to it under this
Sublicense Agreement and to manufacture Licensed Products in conformity with
the established prestige and good will of the Licensed Mark. All Licensed
Products manufactured or caused to be manufactured and sold by Company shall
be made in accordance with the design and other information approved under
this Agreement, and in all other respects in conformity with the terms
hereof. In addition to such design services, PRLC shall provide to Company
sales, advertising, promotional and other services as hereinafter set forth.
*Confidential portion omitted and filed separately with the Commission.
<PAGE>
3.2. Company acknowledges that the Licensed Mark has established
prestige and good will and is well recognized in the trade and the public,
and that it is of great importance to RLHC that in the manufacture and sale
of the various lines of products bearing the Licensed Mark, including the
Licensed Products, the high standards and reputation Polo and PRLC have
established be maintained. The value of the Licensed Mark is derived in
part from the design services of PRLC. Accordingly, all items of Licensed
Products manufactured by Company hereunder shall be of high quality
workmanship with adherence to all details and characteristics embodied in
the designs furnished by PRLC pursuant to the provisions of this Agreement.
Company shall, upon RLHC's request, supply RLHC with samples of Licensed
Products (including samples of labeling and packaging used in connection
therewith) prior to production and from time to time during production, and
shall, at all times during the term hereof, upon RLHC's request, make its
manufacturing facilities available to RLHC, Polo and/or PRLC, and shall use
its best efforts to make available each subcontractor's manufacturing
facilities, for inspection by representatives of RLHC, Polo and/or PRLC
during usual working hours. No sales of Licensed Products as miscuts,
damaged or defective merchandise shall contain any labels or other
identification bearing the Licensed Mark without Polo's prior written
approval.
3.3. The death or incapacity of Ralph Lauren shall not in any way
effect PRLC's obligation to provide its services hereunder, or Company?s
obligation to accept such services.
4. Marketing; Advertising.
4.1. RLHC requires that Company accept the services of and obtain
certain approvals from PRLC, in the manner hereinafter set forth, in
connection with the marketing, advertising and sale of Licensed Products.
Certain Licensed Products, to be designated by RLHC, shall be marketed and
sold only by PRLC sales group to accounts approved by PRLC. Company shall
have no marketing or selling responsibility for such Licensed Products, but
shall be the manufacturer of all Licensed Products sold in the Territory.
Company hereby approves PRLC?s authorization of returns of Licensed
Products during each year up to a cap equal to two percent (2%) of the
aggregate net sales price of Licensed Products sold in such year, other than
sales made pursuant to paragraph 10.7 hereof or through approved off-price
distribution. At Company's request, PRLC will provide Company with a list
of all approved accounts to which it has sold Licensed Products for that
season. PRLC will notify Company of any additions or deletions to the list.
Company shall reserve the right to refuse to ship any customer if they do
not meet Company's normal credit criteria; provided however that Company
shall first notify PRLC of its decision and Company shall give PRLC the
opportunity to assist in rectifying the credit situation. Certain Licensed
Products, to be designated by RLHC, shall be marketed and sold by Company
to accounts other than free-standing Polo/Ralph Lauren retail stores in a
manner consistent with the quality and prestige of the Licensed Mark and
only to those customers expressly approved by PRLC. Prior to the opening
of each selling season, Company shall submit a written list of its customers
to PRLC for PRLC's approval. It is understood that such approval shall not
be unreasonably withheld, and shall be based on considerations of quality
and prestige of the Licensed Mark. If Company shall decide during the
season to sell to customers not previously approved by PRLC, Company shall
so advise PRLC and shall not sell to such additional customers without the
approval of PRLC as aforesaid. Company shall not offer for sale or promote
the sale of Licensed Products through direct mail, the "Internet", or other
similar vehicles without PRLC's prior written approval.
<PAGE>
4.2. Company shall maintain the high standards of the Licensed Mark
as applied to Licensed Products, in all packaging and promotion of the
Licensed Products. Company shall not employ or otherwise release any of
such packaging or other business materials relating to any Licensed Products
and bearing the Licensed Mark unless and until Company shall have made a
request to PRLC in writing for approval. Approval or disapproval of any
such proposed use shall be given by PRLC as promptly as reasonably
practicable after receipt of Company's request in connection therewith, but
in all cases within twenty-one (21) business days after receipt by PRLC of
Company's request; if neither approval nor disapproval has been given within
such time, approval shall be deemed to have been given. Any such approval
shall be effective until revoked by PRLC; provided, however, to the extent
PRLC's approval relates only to a seasonal collection of Licensed Products,
Company shall not thereafter use said packaging or business materials
without PRLC's further approval.
4.3. Provided approval to use the Licensed Mark as part of a
specific piece of packaging or business material remains effective, it shall
not be necessary to obtain prior approval for each separate, substantially
similar use of the Licensed Mark containing immaterial changes from the use
of the Licensed Mark so approved. Notwithstanding the foregoing, Company
shall, as soon as is reasonably possible, either prior to publication,
release or other public showing or immediately thereafter, deliver to PRLC
a tear sheet, proof or "mock-up" of any such changed use of the Licensed
Mark, which shall be subject to disapproval by PRLC; if such disapproval
shall be expressed, the same shall not be used at any later time unless
approval thereof shall be later obtained.
4.4. Anything in this Agreement to the contrary notwithstanding, as
between RLHC, PRLC and Company, PRLC shall prepare and place any and all
advertising of any nature with respect to the Licensed Products. Any and
all cooperative advertising campaigns supported or approved by Company shall
be subject to the prior approval of PRLC. In the event PRLC during the term
hereof authorizes Company to prepare and place any advertising with respect
to the Licensed Products, Company shall not place any such advertising
unless and until Company shall have made a request in writing to PRLC for
approval of such advertising detailing the use to be made of the advertising
material (e.g. TV, print, radio), and PRLC shall have approved the same in
writing. Any approval granted hereunder shall be limited to use during the
seasonal collection of Licensed Products to which such advertising relates
and shall be further limited to the use (e.g. TV, print, radio) for which
approval by PRLC was granted.
<PAGE>
4.5. Company shall maintain the highest quality and standards of the
Licensed Products and shall exercise its best efforts to safeguard the
established prestige and good will of the name Ralph Lauren and the Lauren
image at least at the same level of prestige and good will as heretofore
maintained. "Image", as used herein, refers primarily to quality and style
of packaging, shipping, customer service, promotion, selling tools, creation
and introduction of new products and types of outlets (with reference to
quality of service provided by retail outlets and quality of presentation
of Lauren merchandise in retail outlets). Company shall take all necessary
steps, and all steps reasonably requested by RLHC, to prevent or avoid any
misuse of the Licensed Mark by any of its customers, contractors or other
resources.
4.6. To the extent permitted by applicable law, RLHC may from time
to time, and in writing, promulgate uniform rules and regulations to Company
relating to the manner of use of the Licensed Mark. Company shall comply
with such rules and regulations.
4.7. Company agrees to make available for purchase, and to sell on
its customary price, credit and payment terms, all lines and styles of
Licensed Products to retail stores in the Territory bearing any trademark
of Polo or its affiliates pursuant to a license from Polo or any of its
affiliates and to any stores or facilities operated or owned by Polo and/or
its affiliates, which are authorized to sell Licensed Products within such
retail stores. Notwithstanding anything to the contrary contained herein,
in the event that any such Licensed Products are not so made available by
Company to such stores or facilities, and in addition to any other remedy
available to RLHC hereunder, such Licensed Products may be made available
to such stores by RLHC (or its affiliates or other licensees). RLHC will
not make available to any retail stores, affiliates or facilities as
described above, any Licensed Products under this Agreement from any other
licensee other than Company where the sole reason for Company's refusal to
ship was based on overdue payments or outstanding bad debts of that party
due to Company for Licensed Products, other than those based upon good faith
disputes.
4.8. At Company's request, PRLC will provide Company with projected
sales in order to assist Company with production planning. PRLC will work
diligently with Company to sell Licensed Products; provided however that
PRLC will bear no responsibility for any loss nor will PRLC guarantee to
Company the sale of the Licensed Products.
<PAGE>
4.9. Company shall offer Licensed Products for sale to employees of
Polo and its licensees for the personal use of such employees at Company's
regular invoice price to unaffiliated retail accounts.
4.10. Company shall make a non-refundable contribution toward PRLC's
advertising expenses on the first day of each year during the term hereof,
as follows:
[ * ]
[ * ]
[ * ]
Except as otherwise agreed, Company?s contributions shall be used for
consumer advertising which features Licensed Products, although such
advertising may also include products of other RLHC licensees in order to
reflect RLHC design concepts and lifestyles.
5. Trademark and Copyright Protection.
5.1. All uses of the Licensed Mark by Company, including, without
limitation, use in any business documents, invoices, stationery,
advertising, promotions, labels, packaging and otherwise, shall be subject
to paragraph 4 hereof and shall require PRLC's prior written consent, and
all uses of the Licensed Mark by Company in advertising, promotions, labels
and packaging shall bear the notation, "Ralph (Polo Player design) Lauren",
the representation of the Polo Player Design, or "Ralph Lauren". Company
acknowledges and agrees that its use of the Licensed Mark shall at all times
be as sublicensee of RLHC for the account and benefit of RLHC, Polo and
PRLC. All uses of the Licensed Mark pursuant to this Agreement shall be for
the sole benefit of Polo and shall not vest in Company any title to or right
or presumptive right to continue such use. For the purposes of trademark
registrations, sales by Company or RLHC shall be deemed to have been made
by Polo.
*Confidential portion omitted and filed separately with the Commission.
<PAGE>
5.2. Company will cooperate fully, at RLHC's, Polo's or PRLC's
expense, as the case may be, (provided that RLHC, Polo and/or PRLC shall not
be responsible for the cost of the time and effort expended by Company's
officers and employees, provided it is not excessive, in connection with
furnishing such assistance), and in good faith with RLHC for the purpose of
securing and preserving RLHC's and Polo's rights in and to the Licensed
Mark. Nothing contained in this Agreement shall be construed as an
assignment or grant to Company of any right, title or interest in or to the
Licensed Mark or any of RLHC's or Polo's other trademarks, and all rights
relating thereto are reserved by RLHC and Polo, relative to their respective
interests therein, except for the sublicense hereunder to Company of the
right to use the Licensed Mark only as specifically and expressly provided
herein. Company acknowledges that only Polo may file and prosecute a
trademark application or applications to register the Licensed Mark for
Licensed Products.
5.3. Company will not, during the term of this Agreement or
thereafter, (a) attack Polo's title or rights, or RLHC's rights, in and to
the Licensed Mark in any jurisdiction, or attack the validity of this
Sublicense or of the Licensed Mark, or (b) contest the fact that Company's
rights under this Agreement (i) are solely those of a manufacturer or
distributor, and (ii) subject to the provisions of paragraph 14 hereof,
terminate upon termination of this Agreement. The provisions of this
paragraph 5.3 shall survive the termination or expiration of this Agreement.
5.4. Except as set forth in paragraph 7.1 hereof, all right, title
and interest in and to all samples, sketches, designs, art work, logos and
other materials furnished by or to Polo, PRLC or RLHC, whether created by
Polo, PRLC, RLHC or Company, are hereby assigned in perpetuity to, and shall
be the sole property of, Polo, RLHC and/or PRLC, as the case may be.
Company will assist RLHC, Polo and PRLC, at RLHC's, Polo's or PRLC's
expense, as the case may be, (provided that RLHC, Polo and/or PRLC shall not
be responsible for the cost of the time and effort expended by Company's
officers and employees in connection with furnishing such assistance) to the
extent necessary in the protection of or the procurement of any protection
of the rights of Polo or PRLC, as the case may be, to the Licensed Mark or
the designs, design patents or copyrights furnished hereunder, as well as
to the rights of RLHC to the same. RLHC, Polo and PRLC, as their interests
may appear, may commence or prosecute any claims or suits in their own names
and may join Company as a party thereto at RLHC's, Polo's or PRLC's expense,
as the case may be, (provided that RLHC, Polo and/or PRLC shall not be
responsible for the cost of the time and effort expended by Company's
officers and employees in connection with any such claim or suit). Company
shall promptly notify RLHC and Polo in writing of any uses which may be
infringements or imitations by others of the Licensed Mark on articles
similar to those covered by this Agreement, and of any uses which may be
infringements or imitations by others of the designs, design patents and
copyrights furnished hereunder, which may come to the attention of Company.
As between Company and RLHC, RLHC shall have the sole right with respect
to the Licensed Mark, designs, design patents and copyrights furnished
hereunder, to determine whether or not any action shall be taken on account
of such infringements or imitations. Company shall not institute any suit
or take any action without first obtaining RLHC's written consent to do so.
6. Designs.
6.1. At any time or from time to time Company shall provide PRLC
with a list or lists setting forth those Licensed Products for which Company
shall require designing by PRLC.
6.2. At any time or from time to time within a reasonable period
following receipt by PRLC of the aforesaid lists or lists, PRLC shall
provide Company, with its program of suggested, broad design themes and
concepts with respect to the design of the Licensed Products ("Design
Concepts") which shall be embodied in verbal and/or written descriptions of
design themes and concepts and such other detailed designs and sketches
therefor, as PRLC deems appropriate. PRLC shall have full discretion with
respect to the manner in which the Design Concepts shall be formulated and
presented to Company. PRLC shall be available for consultation with Company
on Design Concepts for the purpose of making such modifications to the
Design Concepts as are required to meet PRLC's approval.
<PAGE>
6.3. PRLC may engage such employees, agents, and consultants
operating under PRLC's supervision and control as it may deem necessary and
appropriate.
6.4. From time to time while this Agreement is in effect, PRLC may
(a) develop or modify and implement designs from PRLC, or (b) develop and
implement new designs.
6.5. If Company wishes to prepare a design for each of its lines of
Licensed Products, it shall submit to PRLC its proposed design therefor.
PRLC may, in its sole discretion, by written notice, approve any of the
designs so furnished, with such modifications as it shall deem appropriate,
or it may disapprove any or all of the designs.
6.6. All patents and copyrights on designs, and all art work,
sketches, logos and other materials depicting the designs or Design Concepts
shall only be applied for by PRLC, at its discretion and expense, and shall
designate PRLC as the patent or copyright owner, as the case may be,
thereof.
6.7. Company shall include within its collection of Licensed
Products each design designated by PRLC for inclusion therein. The
foregoing notwithstanding, in the event Company is unable, in good faith and
due only to physical impossibility or economic impracticability, to include
within a collection of Licensed Products a particular Licensed Product which
PRLC has designed or designated for inclusion in such collection, RLHC shall
be entitled to authorize third parties to manufacture and sell such Licensed
Products within the Territory and Company shall display and present such
Licensed Products in its showroom for Licensed Products.
7. Design Legends: Copyright Notice and Grant.
7.1. All designs, and all art work, sketches, logos and other
materials depicting the designs or Design Concepts created by PRLC, or
created by or for Company and reviewed and approved by PRLC or developed by
or for Company from Design Concepts or subsequent design concepts furnished
or approved by PRLC, shall be subject to the provisions of this paragraph
7 and shall be owned exclusively by PRLC; provided, however that all rights
(including copyrights) in designs, and all sketches, artwork and other
materials embodying such designs, first proposed by Company to PRLC which
are rejected by PRLC and which are not substantially similar to designs (i)
first proposed by PRLC or (ii) proposed by Company and accepted by PRLC in
whole or in part for use in connection with Licensed Products, shall be
owned exclusively by Company.
<PAGE>
7.2. Company shall cause to be placed on all Licensed Products, when
necessary, appropriate notices designating PRLC as the copyright or design
patent owner thereof, as the case may be. Prior to use thereof by Company,
the manner of presentation of said notices must be reviewed and approved in
writing by PRLC.
7.3. PRLC hereby grants to Company the exclusive right, sublicense
and privilege in connection with Licensed Products in the Territory to use
the designs furnished hereunder and all copyrights, if any, therein, and
hereby sublicenses to Company the right to use all patents on such designs,
and shall execute and deliver to Company all documents and instruments
necessary to perfect or evidence such sublicense; provided, however, that
all such right, title and interest therein shall revert to PRLC upon
termination of this Agreement for any reason whatsoever, and Company shall
thereupon execute and deliver to PRLC all documents and instruments
necessary to perfect or evidence such reversions and, provided, further,
that such sublicense is limited to use in connection with Licensed Products
authorized to be manufactured and sold from time to time pursuant to this
Sublicense Agreement. Such sublicense shall continue only during the term
of this Agreement.
8. Licensed Products.
8.1. RLHC requires that Company shall obtain the written approval of
PRLC of all Licensed Products, by submitting a Prototype, as hereinafter
defined, of each different design or model of a Licensed Product, including,
but not limited to, the type and quality of materials, colors and
workmanship to be used in connection therewith, prior to any commercial
production thereof. In the event that PRLC rejects a particular Prototype
or Prototypes, Company shall be notified of the reasons for rejection and
Company may be provided with suggestions for modifying the particular
Prototype or Prototypes which PRLC is rejecting. Company shall promptly
correct said Prototype or Prototypes and resubmit said Prototype or
Prototypes for PRLC's approval under the same terms and conditions as set
forth herein with respect to the first submission of Prototypes. As used
herein, the term "Prototype" shall mean any and all models, or actual
samples, of Licensed Products; and the term "Final Prototype" shall mean the
actual final sample of a Licensed Product from which the first commercial
production thereof will be made and which has been approved by PRLC prior
to the first commercial production thereof pursuant to paragraphs 8 and 9
hereof.
<PAGE>
8.2. The written approval of PRLC of the Prototypes for each
seasonal collection shall be evidenced by a written list, signed on behalf
of PRLC, setting forth those Prototypes that have been approved for
inclusion in such collection. Prototypes so approved shall be deemed Final
Prototypes in respect of such collection. Approval of any and all
Prototypes as Final Prototypes shall be in the sole discretion of PRLC.
Company shall present for sale, through the showing of each seasonal
collection to the trade, all Final Prototypes so approved in respect of such
collection.
8.3. The Licensed Products thereafter manufactured and sold by
Company shall strictly adhere, in all respects, including without
limitation, with respect to materials, colors, workmanship dimensions,
styling, detail and quality, to the Prototypes approved by PRLC.
8.4. Company shall comply with all laws, rules, regulations and
requirements of any governmental body which may be applicable to the
manufacture, distribution, sale or promotion of Licensed Products. Company
shall advise RLHC to the extent any Final Prototype does not comply with any
such law, rule, regulation or requirement.
8.5. Company shall make its personnel, and shall use its best
efforts to make the personnel of any of its contractors, suppliers and other
resources, available by appointment during normal business hours for
consultation with PRLC. Company shall make available to RLHC, upon
reasonable notice, marketing plans, reports and information which Company
may have with respect to Licensed Products. In addition, when requested by
PRLC, Company shall arrange meetings between PRLC and senior executive
personnel of Company to discuss and pursue in good faith the resolution of
problems encountered by PRLC in connection with this Agreement during the
term hereof.
9. Quality of Licensed Products.
9.1. RLHC requires that Company obtain from PRLC its approval of the
styles, designs, colors, materials, workmanship and quality of all Licensed
Products to insure that all Licensed Products manufactured, sold or
distributed are of the highest quality and are consistent with the highest
standards and reputation and established prestige and good will connected
with the name "Ralph Lauren". In connection with the production of each
item of Licensed Products, Company shall use only such materials as PRLC
shall have previously approved pursuant to the Final Prototype with respect
to such item of Licensed Products.
<PAGE>
9.2. In the event that any Licensed Product is, in the judgment of
PRLC, not being manufactured or sold in adherence to the materials, colors,
workmanship, design, dimensions, styling, detail and quality embodied in the
Final Prototypes, or is otherwise not in accordance with the Final
Prototypes, PRLC shall notify Company thereof in writing and Company shall
promptly repair or change such Licensed Product to conform strictly thereto.
If an item of Licensed Product as repaired or changed does not strictly
conform to the Final Prototypes and such strict conformity cannot be
obtained after at least one (1) resubmission, the Licensed Mark shall be
promptly removed from the item, at the option of PRLC, in which event the
item may be sold by Company, subject to the royalty provisions of Paragraph
10 hereof, provided it is in no way identified as a Licensed Product.
9.3. RLHC and PRLC and their duly authorized representatives shall
have the right, upon reasonable notice during normal business hours, to
inspect all facilities utilized by Company (and its contractors and
suppliers) in connection with the preparation of Prototypes and the
manufacture, sale, storage or distribution of Licensed Products pursuant
hereto and to examine Licensed Products in the process of manufacture and
when offered for sale within Company's operations. Company hereby consents
to examination by RLHC and PRLC of Licensed Products held by Company's
customers for resale provided Company has such right of examination.
Company shall take all necessary steps, and all steps reasonably requested
by RLHC and PRLC, to prevent or avoid any misuse of the licensed designs by
any of its customers, contractors or other resources.
10. Royalties.
10.1. Company shall pay to RLHC minimum royalties each year during
the term of this Sublicense Agreement. The minimum royalty
a. for the first year (as hereinafter defined) shall be [ * ];
and
b. for the second year shall be [ * ]; and
c. for the third year shall be [ * ].
Minimum royalties for each year shall be paid in four equal quarterly
installments, on the last day of each quarter during the term hereof
commencing with the payment to be made on September 30, 1998. With respect
to any quarterly period ended the last day of September, December, March and
June of any year of this Agreement, any excess of the aggregate minimum
royalties over earned royalties, as described in paragraph 10.2 hereof, for
any quarterly period, shall be set off against earned royalties in the
subsequent quarterly periods of the same year; provided, however, that no
credit shall be permitted against minimum royalties payable in any year on
account of earned or minimum royalties paid in any other year and minimum
royalties shall not be returnable. For the purposes of this Agreement, a
"year" shall mean a period of twelve (12) months commencing on each July 1
during the term hereof.
* Confidential portion omitted and filed separately with the Commission.
<PAGE>
10.2. In consideration of all rights granted and services rendered by
RLCH and PRLC hereunder, Company shall pay to RLHC and PRLC earned royalties
based on the Net Sales Price, as hereinafter defined, of all Licensed
Products sold hereunder. Except as may otherwise be agreed upon in writing,
earned royalties shall equal the following percentages of the Net Sales
Price of all Licensed Products sold pursuant to this Agreement, including
without limitation any sales made pursuant to the terms of paragraphs 3.3,
9.2 and 14 hereof: (i) [ * ] with respect to all sales by PRLC's
sales force; (ii) [ * ] with respect to all sales by Company's sales
force and with respect to all bed pillows and mattress pads (irrespective
of the sales force), and (iii) [ * ] with repsect toa ll down comforters
(irrespective of the sales force). Statements of operations shall be
prepared and furnished by Company to RLHC in accordance with the provisions
of paragraph 11 hereof, with respect to each quarterly period ended the
last day of September, December, March and June in each year hereof, and
shall be furnished to RLHC within thirty (30) days of the end of each such
period. Any excess of earned royalties over the minimum royalities
provided in paragraph 10.1 hereof, shall be remitted to RLHC within (30)
days after the end of each quarterly period. The term "Net Sales Price"
shall mean the gross sales price to retailers or, with respect to
Licensed Products that are not sold directly or indirectly to retailers,
other ultimate consumers (as in the case of accommodation sales
by Company to its employees), of all sales of Licensed Products sold under
this Agreement, less trade discounts actually taken, merchandise returns and
bad debts; provided, however, that bad debts may only be deducted in the
event that Company's debtor has commenced judicial proceedings seeking
relief under the Bankruptcy Code, and Company shall be liable for earned
royalties on all amounts, if any, it may eventually recover in such
proceedings, whether such recovery takes place during or after the term of
this Agreement. The Net Sales Price of any Licensed Products sold by
Company to affiliates of Company shall, for purposes of this Agreement, be
deemed to be the higher of (a) the actual gross sales price, or (b)
Company's regular selling price for such Licensed Products sold to
unaffiliated parties for sale at retail. Merchandise returns shall be
credited in the quarterly period in which the returns are actually made.
*Confidential portion omitted and filed separately with the Commission.
<PAGE>
10.3. Company shall reimburse PRLC for all travel expenses incurred
by RLHC or PRLC with respect to design development and approval pursuant to
this Agreement, and for any additional trips made at Company's request;
provided, however, that all such travel shall be pre-approved by Company.
10.4. If the payment of any installment of royalties is delayed for
any reason, interest shall accrue on the unpaid principal amount of such
installment from and after the date on which the same became due
pursuant to paragraphs 10.1 and 10.2 hereof at the lower of the highest rate
permitted by law in New York and 2% per annum above the rate of interest
published from time to time by Chemical Bank, New York, New York (or any
successor bank) as its reference rate, or, if such rate is not published,
then the nearest equivalent rate thereto then published by Chemical Bank.
10.5. The obligation of Company to pay royalties hereunder shall be
absolute notwithstanding any claim Company may assert against RLHC, Polo,
Lauren or PRLC. Company shall not have the right to set off, compensate or
make any deduction from such royalty payments for any reason whatsoever.
10.6. All payments of royalties due to RLHC and PRLC shall, unless
RLHC shall otherwise direct by written notice to Company, be made by wire
transfer on the date due, which wire transfer shall be directed to RLHC, on
its own behalf and as agent for PRLC, as follows:
Chase Manhattan Bank Delaware
1201 Market Street, Wilmington, Delaware, 19801-1167,
ABA#031100267
Account Name and Number: Ralph Lauren Home Collection, Inc.: 6301-225193-500
10.7. In consideration of the rights granted herein, Company shall sell
and timely ship to "New Stores" (as hereinafter defined) such Licensed Products
as they may wish to purchase, at a discount not less than the following
percentages off the regular wholesale price: (i) [ * ] with
respect to Licensed Products on which the earned royalty rate pursuant to
paragraph 10.2 hereof is [ * ] or less, (ii) [ * ] with respect to
Licensed Products on which the earned royalty rate pursuant to paragraph
10.2 hereof is more than [ * ] but not more than [ * ], and
(iii) [ * ] with respect to Licensed Products on which the earned
royalty rate pursuant to paragraph 10.2 hereof is more than [ * ].
As used herein, the term "New Stores", including the one in Oakbrook,
Illinois, shall mean all full price free-standing stores operating under
any service mark or tradename associated with Ralph Lauren which opened or
is relocated on or after January 1, 1998, regardless of the product mix,
size, location or configuration of such stores and "free-standing stores"
shall mean stores which are operating as separate units not a department
or sub-unit of a larger store. No royalty shall be due pursuant to
paragraph 10.2 hereof with respect to any sales by Company to New Stores
pursuant to this paragraph 10.6, but Company shall as soon as reasonably
practical separately report all such sales in the accounting statements
required hereunder. Also in consideration of the rights granted herein,
Company shall sell and timely ship Licensed Products to "Polo Outlet Stores"
(as each such term is hereinafter defined), to the extent of their
* Confidential portion omitted and filed separately with the Commission
<PAGE>
requirements on a priority basis in relation to any other secondary
distribution of Licensed Products, at a discount which shall
be negotiated on a case-by-case basis consistent with the prior dealings
between the parties in respect of excess and irregular inventory taking into
account the age, condition and quantity of merchandise to be disposed of.
All such sales shall as soon as reasonably practical be separately reported
by Company in its accounting statements pursuant to paragraph 10.2 hereof,
and such sales shall be subject to the royalty obligations set forth herein
unless otherwise agreed by RLHC and Company. "Polo Outlet Stores", as used
herein, shall mean all "outlet" or "factory" stores doing business under any
Polo/Ralph Lauren service mark or tradename.
11. Accounting; Records.
11.1. Company shall at all times keep an accurate account of all
operations within the scope of this Agreement and shall prepare and furnish
to RLHC full statements of operations with respect to each quarter in each
year during the term of this Agreement within thirty (30) days of the end
of such period. Such statements shall include, on a country-by-country basis,
all aggregate gross sales, trade discounts, merchandise returns and the Net
Sales Price of all sales of License Products for the previous quarterly
period. Such statements shall be in sufficient detail to be audited from
the books of Company and shall be certified by a financial officer of
Company. Once each year, which may be in connection with the regular annual
audit of Company's books, Company shall furnish an annual statement of the
aggregate gross sales, trade discounts, merchandise returns and Net Sales
Price of all sales of Licensed Products made by Company certified by the
independent public accountant of Company.
11.2 RLHC and its duly authorized representatives, on reasonable
notice, shall have the right, no more than once in each year during regular
business hours, for the duration of the term of this Agreement and for three
(3) years thereafter, to examine the books of account and records and all
other documents, materials and inventory in the possession or under the
control of Company and its successors with respect to the subject matter of
this Agreement. All such books of account, records and documents shall be
maintained and kept available by Company for at least the duration of this
Agreement and for three (3) years thereafter. RLHC shall have free and full
access thereto in the manner set forth above and shall have the right to
make copies and/or extracts therefrom. If as a result of any examination
of Company's books and records it is shown that Company's payments to RLHC
hereunder with respect to any twelve (12) month period were less than or
greater than the amount which should have been paid to RLHC by an amount
equal to two percent (2%) of the amount which should have been paid during
such twelve (12) month period, Company will, in addition to reimbursement
of any underpayment, with interest from the date on which each payment was
due at the rate set forth in paragraph 6.3 hereof, promptly reimburse RLHC
for the cost of such examination.
<PAGE>
11.3. Company shall provide to RLHC in the form requested such
information as RLHC may reasonably request with respect to the manufacture,
distribution and sale of Licensed Products.
12. Term.
The initial term of this Agreement shall commence on the date hereof and
shall terminate on June 30, 2001, unless earlier terminated in accordance
with the terms hereof. It is expressly understood that only the company
(which may be Company) whose licensed term covers the period subsequent to
the expiration of this Agreement shall be entitled to receive designs for
Licensed Products intended to be sold after the expiration of this
Agreement, and to make presentations of such Licensed Products during the
market presentation weeks that relate to such subsequent period, even if
such market presentation occurs prior to the termination of this Agreement.
Without limiting the generality of the foregoing, in the event the term
hereof is not renewed or extended, the last season for which the Company
shall be entitled to receive designs and, during the term hereof, to
manufacture and sell Licensed Products shall be the Spring 2001 season, and
RLHC shall be entitled to undertake, directly or through a successor
licensee, all activities associated with the design, manufacture and sale
Licensed Products commencing with the Fall 2001 season.
13. Default; Change of Business.
13.1. Each of the following shall constitute an event of default
("Event of Default") hereunder:
(i) Royalty payments are not paid when due and such default
continues for more than ten (10) days after notice thereof;
(ii) Company shall fail to timely present for sale to the trade a
broadly representative and fair collection of each seasonal collection of
Licensed Products designed by the Design artnership or Company shall fail to
timely ship to its customers a material portion of the orders of Licensed
Products it has accepted;
(iii) Company fails within ten (10) days after written notice
from RLHC that payment is overdue to pay for any Licensed Products or
materials, trim, fabrics, packaging or services relating to Licensed Products
purchased by Company from RLHC or Polo or any agent or licensee of RLHC or Polo
or any other supplier of such items unless Company is in good faith contesting
the amount or liability for such payment;
<PAGE>
(iv) If Company shall, after achieving distribution and sale of the
Licensed Products throughout the Territory, thereafter fail for a consecutive
period in excess of two (2) months to continue the bona fide manufacture,
distribution and sale of the Licensed Product; or
(v) If a deliberate deficiency in reported Net Sales occurs or if
any other deliberate misstatements are made in reports required or requested
hereunder; or
(vi) If the quality of the Licensed Products should become lower
than that in the approved Prototypes referred to in paragraph 8 hereof, and
such decline in quality is not cured within thirty (30) days after notice
thereof; or
(vii) If Company shall use the Licensed Marks in an unauthorized
or
improper manner and/or if Company shall make an unauthorized disclosure of
confidential information or materials given or loaned to Company by Polo,
the Design Partnership and or RLHC; or
(viii) Company defaults in performing any of the terms of this
Agreement and continue in default for a period of thirty (30) days after
notice thereof (unless the default cannot be totally cured within the initial
thirty (30) day period after notice and Company diligently and continuously
proceeds to cure and does in fact cure such default, but within no later than
ninety (90) days following such initial period);
(ix) Company institutes proceedings seeking relief under the
Bankruptcy Code or any similar law, or consents to entry of an order for
relief against it in any bankruptcy or insolvency proceeding or similar
proceeding, or files a petition or answer or consents for reorganization or
other relief under any bankruptcy act or other similar law, or consents to
the filing against it of any petition for the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of it or of any substantial part of its property, or makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its
debts as they become due, or takes any action in furtherance of the
foregoing;
(x) Company transfers or agrees to transfer a substantial part of
its property (except as provided in paragraph 13.3 below);
<PAGE>
(xi) The calling of a meeting of creditors, appointment of a
committee of creditors or liquidating agents, or offering of a
composition or extension to creditors by, for, or of Company.
(xii) There shall be a change in control of Company such that
Charles Hansen is no longer in all material respects responsible with
individual authority as officer of Company, to unconditionally
bind Company in connection with the operations contemplated by
this Agreement, including, without limitation, the performance
of Company's duties and obligations under this Agreement;
provided, however, that no event of default under this
paragraph 13.1(xii) shall be deemed to have occurred if such
change of control occurs as a result of any assignment of this
Agreement made in accordance with all the terms and conditions
contained in paragraph 23.4 hereof.
13.2. If any Event of Default shall occur, RLHC, Polo or PRLC, or
any of them, shall have the right, exercisable in its discretion,
immediately to terminate this Agreement and the sublicense upon ten (10)
days written notice to Company of its intention to do so, and upon the
expiration of such ten (10) day period, this Agreement and the sublicense,
including, without limitation, all rights of Company in and to the Licensed
Mark, and in and to the designs furnished or used hereunder and all
copyrights therein and design patents thereon, shall terminate and come to
an end without prejudice to any remedy of RLHC for the recovery of any
monies (including attorneys' fees for collection) then due it under this
Agreement or in respect of any antecedent breach of this Agreement, and
without prejudice to any other right of RLHC, including without limitation,
damages for breach to the extent that the same may be recoverable. No
assignee for the benefit of creditors, receiver, liquidator, sequestrator,
trustee in bankruptcy, sheriff or any other officer of the court or official
charged with taking over custody of Company's assets or business shall have
any right to continue the performance of this Agreement.
13.3. During the term of this Agreement, Company shall not dissolve,
liquidate or wind-up its business. In addition, Company shall not, without
prior written notice to RLHC, (i) merge or consolidate with or into any
other corporation, or (ii) directly or indirectly sell or otherwise dispose
of all or a substantial portion of its business or assets. RLHC shall have
the option, upon receipt of such notice, to terminate this Agreement unless
the same persons who shall have been working for Company with respect to
RLHC and the Licensed Products shall continue to perform such services after
either event (i) or (ii).
14. Disposal of Stock upon Termination or Expiration.
14.1. Within ten (10) days following the termination of this
Agreement for any reason whatsoever including the expiration of the term
hereof, and on the last day of each month during the disposal period set
forth in paragraph 14.2 hereof, Company shall furnish to RLHC a certificate
of Company listing its inventories of Licensed Products (which defined term
for purposes of this paragraph 14.1 shall include all materials, trim and
packaging which are used in the manufacture and marketing of Licensed
Products) on hand or in process wherever situated. RLHC shall have the
right to conduct a physical inventory of Licensed Products in Company's
possession or under Company's control. RLHC or RLHC's designee shall have
the option (but not the obligation) to purchase from Company all or any part
of Company's then existing inventory of Licensed Products upon the following
terms and conditions:
<PAGE>
(i) RLHC shall notify Company of its or its designee's
intention to exercise the foregoing option within thirty
(30) days of delivery of the certificate referred to
above and shall specify the items of Licensed Products to
be purchased.
(ii) The price for Licensed Products manufactured by Company
or its affiliates on hand or in process shall be Company's standard
cost (the actual manufacturing cost) for each such Licensed Product.
The price for all other Licensed Products which are not manufactured
by Company or its affiliates shall be Company's landed costs therefor.
Landed costs for the purposes hereof means the F.O.B. price of the Licensed
Products together with customs, duties, brokerage, freight and insurance costs.
(iii) Company shall deliver the Licensed Products purchased
within fifteen (15) days of receipt of the notice referred to in clause
(i) above. Payment of the purchase price for the Licensed Products so
purchased by RLHC or its designee shall be payable upon delivery thereof,
provided, that RLHC shall be entitled to deduct from such purchase price
any amounts owed it by Company (and/or to direct payment of any part of
such merchandise to any supplier of Licensed Products in order to reduce an
outstanding balance due to such supplier from Company).
14.2. In the event RLHC chooses not to exercise the option referred
to in paragraph 14.1 hereof with respect to all or any portion of Licensed
Products, for a period of one hundred and twenty (120) days after
termination of this Agreement for any reason whatsoever, except on account
of breach of the provisions of paragraphs 3, 4 or 10 hereof, Company may
dispose of Licensed Products which are on hand or in the process of being
manufactured at the time of termination of this Agreement, provided Company
fully complies with the provisions of this Agreement, including specifically
those contained in paragraphs 3, 4 or 10 hereof in connection with such
disposal. Such sales shall be subject to the payment of earned royalties
pursuant to paragraph 10.2. Failure by Company to timely submit the
certificates of inventory as set forth in paragraph 14.1 hereof shall
deprive Company of its right of disposal of stock pursuant to this paragraph
14.
<PAGE>
14.3. Notwithstanding anything to the contrary contained herein, in
the event that upon the expiration or termination of the term hereof for any
reason Company has not rendered to RLHC all accounting statements then due,
and paid (i) all royalties and other amounts then due to RLHC and (ii) all
amounts then due to any affiliate of or supplier to RLHC or its affiliates
(collectively, "Payments"), Company shall have no right whatsoever to
dispose of any inventory of Licensed Products in any manner. In addition,
if during any disposal period Company fails timely to render any accounting
statements or to make all Payments when due, Company's disposal rights
hereunder shall immediately terminate without notice, unless all accounting
statements are rendered and Payments made within three (3) days after
written notice.
14.4. In the event no Event of Default has occurred and not been
cured pursuant to paragraph 13.1 and RLHC elects not to renew the term of
this Agreement upon its expiration, RLHC shall endeavor to give Company
notice of such election not less than one hundred and eighty (180) days
prior to the expiration of the term. Company's sole remedy in the event
RLHC gives such notice of election less than one hundred and eighty (180)
days prior to the expiration of the term shall be to extend the disposal
period provided for in paragraph 14.2 by the number of days by which such
notice of election was late, up to a maximum extension of one hundred and
eighty (180) days.
15. Effect of Termination.
15.1. Except for the sublicense to use the Licensed Mark and the
designs furnished hereunder only as specifically provided in this Agreement,
Company shall have no right, title or interest in or to the Licensed Mark,
the designs furnished hereunder and design patents thereon, and all
copyrights licensed hereby. Upon and after the termination of this
sublicense, all rights granted to Company hereunder, including without
limitation all right, title and interest in or with respect to all designs,
art works, sketches and other materials depicting or relating to the
Licensed Products, together with any interest in and to the Licensed Mark
Company may acquire, shall forthwith automatically and without further
action or instrument be assigned to and revert to Polo, PRLC and RLHC, as
their interests may appear. Company will execute any instruments requested
by RLHC to accomplish or confirm the foregoing. Any such assignment,
transfer or conveyance shall be without consideration other than the mutual
agreements contained herein. RLHC shall thereafter be free to license to
others the use of the Licensed Mark in connection with the manufacture and
sale of the Licensed Products covered hereby, and Company will, except as
specifically provided in paragraph 14 hereof, (i) refrain from any further
use of the Licensed Mark or any reference to it, direct or indirect, or
anything deemed by RLHC or Polo to be similar to the Licensed Mark, (ii)
refrain from further use of any of the Design Concepts, and (iii) refrain
from manufacturing, selling or distributing any products (whether or not
they bear the Licensed Mark) which are confusingly similar to, or derived
from, the Licensed Products or Design Concepts, in connection with the
manufacture, sale or distribution of Company's products. Upon termination
of this Agreement, Company shall forthwith cease the use of the words "Ralph
Lauren" and/or the Polo Player Design in any and all respects. It is
expressly understood that under no circumstances shall Company be entitled,
directly or indirectly, to any form of compensation or indemnity from RLHC,
Ralph Lauren, Polo, PRLC or their affiliates, as a consequence to the
termination of this Agreement, whether as a result of the passage of time,
or as the result of any other cause of termination referred to in this
Agreement. Without limiting the generality of the foregoing, by its
execution of the present Agreement, Company hereby waives any claim which
it has or which it may have in the future against RLHC, Polo, PRLC, Ralph
Lauren or their affiliates, arising from any alleged goodwill created by
Company for the benefit of any or all of the said parties or from the
alleged creation or increase of a market for Licensed Products.
<PAGE>
15.2. Notwithstanding any termination or expiration of this
Agreement (whether by reason of the expiration of the stated term of this
Agreement, by earlier termination of this Agreement pursuant to paragraph
13 hereof, or otherwise) (a) RLHC shall have and hereby reserves all rights
and remedies which it may have, at law or in equity, with respect to the
collection of royalties or other funds payable by Company pursuant to this
Agreement and the enforcement of all rights relating to the establishment,
maintenance or protection of the Licensed Mark and the designs furnished
hereunder, and (b) Company and RLHC shall continue to have rights and
remedies with respect to damages for breach of this Agreement on the part
of the other.
16. Remedies.
Company acknowledges and admits that there would be no adequate
remedy at law for its failure (except as otherwise provided in paragraph 14
hereof) to cease the use of the Licensed Mark, or the designs, or the
manufacture and sale of the Licensed Products covered by this Agreement at
the termination or expiration hereof, and Company agrees that in the event
of such failure RLHC, Polo and PRLC, or any of them, shall be entitled to
equitable relief by way of temporary and permanent injunction and such other
and further relief as any court with jurisdiction may deem just and proper.
Such relief shall be in addition to and not in substitution of any other
remedies available to RLHC, Polo and PRLC, or any of them, pursuant to this
Agreement or otherwise.
17. Key Personnel.
Company shall at all times during the term hereof employ a vice
president reasonably satisfactory to RLHC whose sole material responsibility
shall be to oversee the entire business contemplated by this Agreement.
Company shall also employ at all times during the term hereof a business
manager for the bedding business contemplated herein reasonably satisfactory
to RLHC. In addition, Company shall consult in good faith with RLHC
regarding the establishment and filling of key positions with respect to all
aspects of the business contemplated herein.
<PAGE>
18. Indemnity.
18.1. RLHC shall indemnify and hold harmless Company from and
against any and all liability, claims, causes of action, suits, damages and
expenses (including reasonable attorneys' fees and expenses in actions
involving third parties or between the parties hereto) which Company is or
becomes liable for, or may incur solely by reason of its use within the
Territory, in strict accordance with the terms and conditions of this
Agreement, of the Licensed Mark or the designs furnished to Company by RLHC
or PRLC, to the extent that such liability arises through infringement of
another's design patent, trademark, copyright or other proprietary rights;
provided that Company gives RLHC prompt notice of, and full cooperation in
the defense against, such claim. If any action or proceeding shall be
brought or asserted against Company in respect of which indemnity may be
sought from RLHC under this paragraph 18.1, Company shall promptly notify
RLHC thereof in writing, and RLHC shall assume and direct the defense
thereof. Company may thereafter, at its own expense, be represented by its
own counsel in such action or proceeding.
18.2. To the extent not inconsistent with paragraph 18.1 hereof,
Company shall indemnify and save and hold RLHC, Polo, PRLC and Ralph Lauren,
individually, (together, the ?Indemnified Parties?) harmless from and
against any and all liability, claims, causes of action, suits, damages and
expenses (including reasonable attorneys' fees and expenses in actions
involving third parties or between the parties hereto), which they, or any
of them, are or become liable for, or may incur, or be compelled to pay by
reason of any acts, whether of omission or commission, that may be committed
or suffered by Company or any of its servants, agents or employees in
connection with Company's performance of this Agreement, including Company's
use of Company's own designs, in connection with Licensed Products
manufactured by or on behalf of Company or otherwise in connection with
Company's business.
18.3. Company shall carry product liability insurance with limits of
liability in the minimum amount, in addition to defense costs, of $3,000,000
per occurrence and $3,000,000 per person and each of the Indemnified Parties
shall be named therein as insureds, as their interests may appear. The
maximum deductible with respect to such insurance shall be $150,000.
Company shall, promptly after the signing of this Agreement, deliver to RLHC
a certificate of such insurance from the insurance carrier, setting forth
the scope of coverage and the limits of liability and providing that the
policy may not be canceled or amended without at least thirty (30) days
prior written notice to the Indemnified Parties.
<PAGE>
19. Disclosure.
RLHC and Company, and their affiliates, employees, attorneys and
accountants, shall hold in confidence and not use or disclose, except as
permitted by this Agreement, (i) confidential information of the other, or
(ii) the terms of this Agreement, except upon consent of the other or
pursuant to or as may be required by law, or in connection with regulatory
or administrative proceedings and only then with reasonable advance notice
of such disclosure to the other. Company shall take all reasonable
precautions to protect the secrecy of the designs, art work, sketches and
other materials used pursuant to this Agreement prior to the commercial
distribution or the showing of samples for sale, and shall not sell any
merchandise employing, or adapted from or resulting from the use of any such
designs, art work, sketches or other material, except under the Licensed
Marks. All press releases and other public announcements shall be subject
to the prior approval of RLHC. Every request for a statement, release or
other inquiry shall be sent in writing whenever practicable to the
advertising/publicity director of RLHC for handling.
20. Brokers.
Each of RLHC and Company hereby represents and warrants to the other
that it has not employed or dealt with any broker or finder in connection
with this Agreement or the transactions contemplated hereby, and agrees to
indemnify the other and hold it harmless from any and all liabilities
(including, without limitation, reasonable attorneys' fees and disbursements
paid or incurred in connection with any such liabilities) for any brokerage
commissions or finders' fees in connection with this Agreement or the
transactions contemplated hereby, insofar as such liabilities shall be based
on the arrangements or agreements made by it or on its behalf.
21. Manufacture; Distribution; Sale.
Consistent with the high quality and prestige of the Licensed Marks
and products manufactured by, or under license from, Polo and its
affiliates, Company undertakes, during the term hereof, diligently to
manufacture and sell each and every Licensed Product listed in Schedule A,
to use its commercially reasonable best efforts to create a demand therefor,
supply such demand, and maintain adequate arrangements and facilities for
the distribution of Licensed Products throughout the Territory. As an
essential part of its distribution program, Company agrees to maintain
adequate inventories (consistent with good industry practice) of all such
Licensed Products at a single distribution point to satisfy the requirements
of its customers for a full line of such Licensed Products and to expedite
the delivery thereof. Company represents, warrants and covenants that it
is or shall be, on or before December 31, 2000, "Y2K" compliant, and
acknowledges that any failure of its computer systems as a result of
Company's failure to be Y2K compliant would, if such failure results in a
material interruption or adverse impact on its ordinary business operations
relating to Licensed Products, constitute a violation of Company's
obligations hereunder.
<PAGE>
22. Showroom; Samples.
22.1. Company shall maintain its showroom at 1271 Avenue of the
Americas to present Licensed Products. The showroom shall be updated by
Company at its expense each season during the term hereof for market week,
in accordance with plans approved by RLHC.
<PAGE>
22.2. Company shall provide, at no charge, samples for the RLHC New
York showroom (as well as Company's showroom) and for advertising and
editorials relating to Licensed Products. All normal expenses with respect
to shipping shall be the responsibility of Company. All items will be
inventoried by RLHC (although RLHC shall not be responsible for ordinary
damage or loss of such samples) and, at RLHC's discretion, (i) held in
storage for future use, (ii) sold at sample sales (in which case no royalty
shall be payable by Company), or (iii) returned to Company at Company's
expense. In the event of sale at a sample sale, RLHC shall deduct from
total revenues from the sale of Licensed Products the costs of such sale,
and shall remit to Company, within forty-five (45) days thereof, fifty
percent (50%) of the remaining balance. In addition, Company shall supply
at its own expense, such samples as may be reasonably necessary for RLHC
salesmen.
23. Miscellaneous.
23.1. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been properly
given or sent (i) on the date when such notice, request, consent or
communication is personally delivered and acknowledged, or (ii) five (5)
days after the same was sent, if sent by certified or registered mail, or
(iii) one (1) day after the same was sent, if sent by overnight courier
delivery or confirmed telecopier as follows:
(a) If to RLHC addressed as follows:
Ralph Lauren Home Collection, Inc.
103 Foulk Road
Suite 201
Wilmington, Delaware 19803
Attention: President
Telecopier: 302.778.1008
<PAGE>
(b) With a copy to Polo and PRLC, addressed as follows:
Victor Cohen, Esq.
650 Madison Avenue
New York, New York 10022
Attention: Victor Cohen, Esq.
Telecopier: 212.318.7183
(c) If to Company, addressed as follows:
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Attention: Mr. Kevin Finlay
Telecopier: 214.330.8901
with a copy to:
Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
Attention: General Counsel
Telecopier: 214.467.0823
Anyone entitled to notice hereunder may change the address to which notices
or other communications are to be sent to it by notice given in the manner
contemplated hereby.
23.2. Nothing herein contained shall be construed to place Company,
RLHC, Polo and/or PRLC in the relationship of partners or joint venturers,
and neither Company, RLHC, Polo nor PRLC shall have the power to obligate
or bind any other party in any manner whatsoever, except as expressly
provided herein.
23.3. None of the terms hereof can be waived or modified except by
an express agreement in writing signed by the party to be charged. The
failure of either party hereto to enforce, or the delay by either party in
enforcing, any of its rights hereunder shall not be deemed a continuing
waiver, modification hereof, or a waiver of any other right or remedy
hereunder, and either party may, within the time provided by applicable law,
commence appropriate legal proceedings to enforce any and all such rights.
All rights and remedies provided for herein shall be cumulative and in
addition to any other rights or remedies such parties may have at law or in
equity. Either party hereto may employ any of the remedies available to it
with respect to any of its rights hereunder without prejudice to the use by
it in the future of any other remedy with respect to any such rights.
Except as provided herein, no person, firm or corporation, other than the
parties hereto, shall be deemed to have acquired any rights by reason of
anything contained in this Agreement.
<PAGE>
23.4. Each of RLHC and PRLC may assign all or any portion of the
respective royalties payable to it hereunder, and may assign all of its
rights, duties and obligations hereunder to any entity to which the
Trademarks, or the right to use the Trademarks, has been transferred, or to
an affiliate of any such entity. The rights granted to Company are personal
in nature, and neither this Agreement nor the sublicense may be assigned by
Company without the prior written consent of RLHC, Polo and PRLC. Company
may employ subcontractors for the manufacture of the Licensed Products with
the prior approval of RLHC, provided, however, that (i) Company shall not
employ any subcontractor for the manufacture of Licensed Products until such
subcontractor has executed a Trademark and Design Protection Agreement
substantially in the form annexed hereto as Schedule B, (ii) Company shall
maintain appropriate quality controls and comply with the quality
requirements set forth herein, (iii) such subcontractors shall comply with
the Operating Guidelines annexed hereto as Schedule C and made a part
hereof, as such Operating Guidelines may be amended from time-to-time, (iv)
Company shall not itself sell or otherwise dispose of, and shall be
responsible for preventing all subcontractors from selling or otherwise
disposing of, any seconds, irregulars or rejected merchandise except with
RLHC's prior written consent, (v) Company shall, in seeking RLHC's approval,
give RLHC prior written notice of the full name and address of each
subcontractor it proposes to use in connection with the manufacture of
Licensed Products, together with a complete list of Licensed Products
(and/or components thereof) to be manufactured by such subcontractor, and
Company shall, upon RLHC's request no more than once annually (and in any
event upon the expiration or termination of the term hereof), provide RLHC
with a complete list of all such subcontractors containing all such
information); (vi) Company, upon request from RLHC, shall cease placing
orders with any such subcontractor; and (vii) Company shall give RLHC notice
as required herein, but RLHC?s prior approval shall not be required, with
respect to any subcontractor which, directly or indirectly, is wholly-owned
by Company.
23.5. This Agreement shall be binding upon and inure to the benefit
of the successors and permitted assigns of the parties hereto.
23.6. Company shall comply with all laws, rules, regulations and
requirements of any governmental body which may be applicable to the
operations of Company contemplated hereby, including, without limitation,
as they relate to the manufacture, distribution, sale or promotion of
Licensed Products, notwithstanding the fact that RLHC may have approved such
item or conduct.
23.7. This Agreement shall be construed in accordance with the laws
of the State of New York applicable to contracts made and performed therein
without regard to principles of conflict of laws.
<PAGE>
23.8 The parties hereby consent to the jurisdiction of the United
States District Court for the Southern District of New York and of any of
the courts of the Southern District of New York and of any of the courts of
the State of New York located within the Southern District in any dispute
arising under this Agreement and agree further that service of process or
notice in any such action, suit or proceeding shall be effective if in
writing and delivered as provided in paragraph 23.1 hereof. Notwithstanding
anything to the contrary set forth herein, neither Polo Ralph Lauren
Corporation nor any other general or limited partner of Polo or PRLC shall
be liable for any claim based on, arising out of, or otherwise in respect
of, this Agreement, and Company shall not have nor claim to have any
recourse for any such claim against any general or limited partner of Polo
or PRLC.
23.9. This Agreement contains the entire and only agreement between
the parties hereto concerning the subject matter hereof, and any oral
statements or representations or prior written matter with respect thereto
not contained herein shall have no force and effect, with the express
exception of that certain letter agreement dated October 31, 1997 between
Company and RLHC, the provisions of which shall, as set forth in paragraph
2.11 hereof, continue to apply throughout the term. The provisions of this
Agreement are severable, and if any provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect only such provision, or part thereof, in
such jurisdiction and shall not in any manner affect such provision in this
Agreement in any other jurisdiction.
23.10. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
23.11. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused the same to be executed by a duly authorized officer on the day
and year first set forth above.
RALPH LAUREN HOME COLLECTION, INC. PILLOWTEX CORPORATION
By: [Signature Illegible] By: Kevin M. Finlay
POLO RALPH LAUREN CORPORATION
By: [Signature Illegible]
<PAGE>
SCHEDULE A
"LICENSED PRODUCTS"
(pursuant to paragraph 1.1)
The following decorative accessories (excluding those matched to sheets
made under license from RLHC, Polo or Ralph Lauren, and excluding
children?s bedding):
(a) bed covers
(b) bed and throw blankets of jacquard and other materials
(c) duvet and comforter covers
(d) shams and bedskirts, European squares
(e) dust ruffles
(f) bed spreads
(g) comforters and blanket covers
(h) down comforters
(i) decorative and bed pillows
(j) quilts;
(k) night spreads
(l) curtains, valances and draperies that coordinate with other
Licensed Products manufactured by Company
(m) shower curtains that coordinate with other Licensed Products
manufactured by Company
(n) bed pillows
(o) mattress pads
(p) bath rugs up to 30" X 60" in size and small accent rugs;
provided, however, that Company?s rights with respect to
small accent rugs shall be non-exclusive and may be
terminated by RLHC upon ninety (90) days notice, it being
understood that any such termination shall not prohibit
Company from fulfilling orders for approved Licensed Products
Company had taken, in accordance with the terms of this
Agreement, prior to receiving notice of termination.
<PAGE>
Schedule B
TRADEMARK AND DESIGN PROTECTION AGREEMENT
Re: Orders for Polo/Ralph Lauren Merchandise
TO _____________________:
Our company may be entering into Purchase Order Contracts for
samples and various products with you in the near future and would like
to take this opportunity to call to your attention the basis upon which
we will enter such agreements.
Pursuant to our agreements we may be providing you with certain
designs and art work and requisitions for finished products (including
samples), packaging, and business materials, among other things. By
accepting our orders or contracts, your company will have agreed that it
has only a limited, non-transferable right to use any trademarks and/or
designs and/or art work (including specifically, colors, shapes, and
textures) of Ralph Lauren Home Collection, Inc. and its affiliates
("Polo") as necessary for merchandise shipped or services rendered under
our orders or contracts. You agree that such trademarks, designs, logos
and art work shall not be used by your firm at any time, whether or not
they are used in conjunction with the Ralph Lauren name or trademarks,
for any purpose other than that for which they were placed in your trust,
i.e. in fulfillment of specific purchase orders, and you shall exercise
due diligence so that they are not made available to third parties. No
rights shall remain in your firm or its employees or agents as to such
trademarks, logos, art work, or designs of Polo and its affiliates and
you agree that to the extent your firm may acquire any rights to said
marks, logos, art work or designs, such rights shall revert to Polo or
its affiliates, as the case may be, without any further act of the
parties hereunder. By accepting our orders, you hereby agree to
indemnify Polo and its affiliates for any losses, costs or expenses (of
any kind whatsoever) which may arise as a result, directly or indirectly,
of a breach of this Agreement.
Please place the acknowledgment signature of two (2) of your
executive officers in the space provided below and return one signed copy
of this letter to the undersigned as soon as possible.
Thank you for your cooperation.
Sincerely yours,
Ralph Lauren Home Collection, Inc.
By: ___________________________
We have read and accept and agree to the above in consideration of orders
from Ralph Lauren Home Collection, Inc.
CONTRACTOR NAME: __________________________
By: (1) ____________________ and (2) ________________________
Name: Name:
Date: ________________
<PAGE>
Schedule C
OPERATING GUIDELINES
Polo Ralph Lauren (the "Company") is dedicated to conducting its
operations throughout the world on principles of ethical business
practice and recognition of the dignity of workers. We expect our
business partners to respect and adhere to the same standards in the
operation of their business, and we will utilize these criteria to
evaluate our relationships with customers and suppliers.
WAGES / BENEFITS / WORKING HOURS. Our business partners must comply with
all laws regulating local wages, work hours and benefits. Wage and
benefit policies must be consistent with prevailing national standards,
and also be acceptable under a broader international understanding as to
the basic needs of workers and their families. We will not work with
companies whose wage structure violates local law or prevailing industry
practice.
CHILD LABOR. Our business partners must not use child labor, defined as
school age children. Our business partners will not employ workers under
the age of 14. This provision extends to all partner facilities.
HEALTH & SAFETY. Our business partners must ensure that their workers
are provided a safe and healthy work environment, and are not subject to
unsanitary or hazardous conditions.
FREEDOM OF ASSOCIATION. Our business partners should respect the legal
rights of employees to freely and without harassment participate in
worker organizations of their choice.
PRISON OR FORCED LABOR. Our business partners will not work with or
arrange for purchase of any materials from business partners who utilize
prison or forced labor in any stage of the manufacture of our products.
DISCIPLINARY PRACTICES. Our business partners will not employ or conduct
any business activity with partners who employ any form of physical or
mental coercion or punishment against workers.
DISCRIMINATION. Our business partners will not practice nor do business
with business partners who practice any form of improper discrimination
in hiring and employment, including on the basis of age, race, color,
gender, or religion.
ENVIRONMENT. Our business partners must embrace a fundamental concern
for environmental protection and conduct their operations consistent with
both local and internationally recognized environmental practices.
LEGAL REQUIREMENTS. Our business relationship must be built on a mutual
respect for and adherence to legal requirements. Our business partners
will observe both local and applicable international standards.
ETHICAL STANDARDS. We intend to conduct all our business in a manner
consistent with the highest ethical standards, and we will seek and
utilize partners who will do likewise, as this contributes directly to
our corporate reputation and the collective success of our organization
and selected business partners.
SUBCONTRACTING. Our business partners may not subcontract all or any
part of the work on our products without our express written consent,
which will not be given unless each subcontractor meets all of the
criteria set forth herein.
CONFLICTS OF INTEREST. Our business partners may not give Company
employees a gift of value in excess of US$25.00, and may not bribe
foreign officials to benefit the Company or its business.
IMPLEMENTATION. We will apply these criteria in all business partner
determinations, and will continue to implement these policies in the
conduct of all activities. This will include our business partners
sharing information on production facilities and procedures, with the
objective of improving our collective service to customers in a
responsible manner. Failure by a business partner to meet these
standards, will result in our taking appropriate actions, up to and
including cancellation of existing orders.
PILLOWTEX CORPORATION
EXECUTIVE MEDICAL EXPENSE REIMBURSEMENT PLAN
ARTICLE I
PURPOSE
1.01 The purpose of this Plan is to encourage and help to provide a full
and complete medical care for each participating employee and his or her spouse
and dependants. It is the intention of Pillowtex Corporation (the "Company")
that this Plan meet the requirements of a welfare benefit plan primarily for the
purpose of providing benefits for a select group of management employees under
the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II
EFFECTIVE DATE AND PLAN YEAR
2.01 The effective date of this Plan shall be January 1, 1998. The
records of the Plan shall be kept on a calendar year basis. The Plan Year shall
be the calendar year.
ARTICLE III
ELIGIBILITY
3.01 Only those officers of the Company who have the title of Chief
Executive Officer, President, Executive Vice President of Sales, Senior Vice
President and General Counsel, Vice President and Controller, or Vice President
of Human Resources (and any other officer who is designated to participate in
writing by the Company's Chief Executive Officer) shall be eligible to
participate in the Plan.
ARTICLE IV
PARTICIPATION
4.01 Each employee who is eligible to participate in the Plan under
Article III (an "Eligible Employee") shall become a participant in the Plan (a
"Participant") on the effective date of the Plan or on the first day he or she
is an Eligible Employee, whichever is earlier. Upon termination of a
Participant's employment with the Company, all rights of such Participant
(and/or a family member of the Participant) to receive benefits for claims
incurred after the termination date shall cease. Such participant (and his or
her family) shall, however, retain the right to be reimbursed hereunder for
claims incurred prior to the termination of employment. For this purpose, a
claim will be considered to be incurred when the medical services are rendered.
1
<PAGE>
ARTICLE V
BENEFITS
5.01 Subject to the limitations and exclusions set forth in this plan, the
Company shall reimburse each Participant such amounts as he or she has expended
while a Participant for himself or herself and his or her dependents for medical
care which is medically necessary and which is not covered under the Company's
other health benefit plan in which the Participant is enrolled. In addition,
the Company shall pay to each Participant its best estimate of the amount of any
federal, state, or local tax payable by the Participant due to the receipt of
benefits under this Plan. The term "dependent" means a dependent as defined
under the terms of the Company's other health benefit plan in which the
Participant is enrolled. The term "medically necessary" refers to expenses
which are provided in accordance with and are consistent with generally accepted
standards of medical practice in the United States and not primarily for the
convenience of the patient, his physician or another service provider or to
improve the appearance of the patient. Notwithstanding any other provision in
this plan to the contrary, the following expenses are excluded from coverage
hereunder: dietary and nutritional aids, services and supplies, custodial care,
counseling and therapy, treatment of adolescent behavior disorders, weight
reduction services, sterilization reversal, transsexual surgery, treatment of
sexual dysfunction, in vitro fertilization and any similar fertility treatments.
5.02 Notwithstanding any other provision in this plan to the contrary,
each Participant's lifetime, aggregate benefits under this plan shall be limited
to one million dollars ($1,000,000).
ARTICLE VI
BENEFITS FROM ANOTHER SOURCE
6.01 Reimbursement under this Plan shall be made only in the event, and to
the extent, that reimbursement for amounts expended, or payment, for medical
care is not provided for under any insurance policy or under any other plan of
the Company or other employer or under any federal or state law. If there is
such a policy, plan or law in effect providing for such reimbursement or payment
in whole or in part, then, to the extent of the coverage under such policy, plan
or law, the Company shall be relieved of any and all liability hereunder.
ARTICLE VII
CLAIMS AND CLAIMS REVIEW PROCEDURE
7.01 Benefits under this Plan ordinarily will be paid automatically based
on the explanation of benefit form ("EOB") provided by the insurer or
administrator of the Company's other health benefit plan in which the
Participant is enrolled. However, in the event that payment is not made within
60 days after an EOB is received by the Participant, a claim under this plan
should be made in writing, addressed to the Company's Vice President of Human
Resources.
7.02 If any claim for benefits under this Plan is denied in whole or in
part, the Plan Administrator shall furnish the claimant promptly with a written
notice:
(a) setting forth the reason for the denial;
(b) citing the Plan provisions upon which such denial is based;
(c) describing any additional material or information from the
claimant which is necessary in order for the claimant to perfect his or her
claim and why; and
2
<PAGE>
(d) explaining the claim review procedure set forth herein.
7.03 Failure by the Company to respond to a claim within a reasonable time
shall be deemed a denial. Within 60 days after denial of any claim for benefits
under this Plan, the claimant may request in writing a review of the denial by
the Plan Administrator.
7.04 Any claimant seeking review hereunder is entitled to examine all
pertinent documents, and to submit issues and comments in writing. The Plan
Administrator shall render a decision on review of a claim not later than 60
days after receipt of a request for review hereunder. The decision of the Plan
Administrator on review shall be in writing and shall state the reason for the
decision, referring to the Plan provisions upon which it is based.
7.05 The 90-day and 60-day periods described in this Article may be
extended by the Plan Administrator, if necessary or advisable, for additional
periods of the same length by written notice to the Participant.
ARTICLE VIII
ADMINISTRATION
8.01 The Plan Administrator shall be the Company. The Company shall have
authority and responsibility to control and manage the operation and
administration of this Plan. The Plan Administrator shall have discretion to
resolve any disputed issues and to interpret the terms of the Plan, and such
resolution or interpretation shall be binding on all parties.
8.02 This Plan at all times be entirely unfunded and no provision shall be
made with respect to segregating any assets of the Company for payment of any
amounts due hereunder.
8.03 The Company reserves the right to amend this Plan at any time to take
effect retroactively or otherwise, in any manner which it deems desirable. The
Company further reserves the right to terminate this Plan at any time. Any such
amendment or termination shall be made by the Board of Directors of the Company
or an officer duly authorized by the Board, and shall be evidenced by an
instrument in writing.
ARTICLE IX
MISCELLANEOUS
9.01 To the extent not pre-empted by the Employment Retirement Income
Security Act of 1974 (ERISA), as amended, questions concerning the proper
interpretation of the terms of this agreement shall be determined in accordance
with the laws of the State of Texas, where the Company's principal business
office is located.
9.02 This document contains all of the operative provisions of this Plan.
Any conflict between the provisions of this document and any other Company
document purporting to explain the rights, benefits, or obligations of the
parties hereunder shall be resolved in favor of this Plan document. In the
event that a tribunal of competent jurisdiction shall determine in a final
judgment or decree that one or more of the provisions of this Plan is invalid
due to the provisions of applicable law, this Plan shall be interpreted as if
the offending language had been stricken form its provisions and the remainder
of the Plan document shall continue in full force and effect.
3
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First
Amendment"), dated as of June 19, 1998, is entered into among PILLOWTEX
CORPORATION, a Texas corporation (the "Borrower"), the banks listed on the
signature pages hereof (collectively, the "Lenders"), and NATIONSBANK, N.A.
(successor by merger to NationsBank of Texas, N.A.), as Administrative Agent (in
said capacity, the "Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Amended and Restated Credit Agreement, dated as of December 19,
1997 (the "Credit Agreement"; the terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit
Agreement).
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 7.14 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.14 Sale or Discount of Receivables. The Borrower shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
sell, with or without recourse, for discount or otherwise, notes or accounts
receivable during the term of this Agreement in an aggregate principal amount in
excess of $5,000,000."
(b) The Compliance Certificate is hereby amended to be in the form of
Exhibit D attached to this First Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
<PAGE>
(a) the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date hereof
as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
First Amendment, and this First Amendment constitutes the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable Debtor
Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this First
Amendment nor the consummation of any transactions contemplated herein will
conflict with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture, agreement
or other instrument to which the Borrower or any of its Subsidiaries or any of
their respective property is subject; and
(e) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person (including the Board of
Directors of the Borrower or any Guarantor), is required for the execution,
delivery or performance by the Borrower of this First Amendment or the
acknowledgment of this First Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of June 19, 1998, subject to the following:
(a) the Administrative Agent shall receive counterparts of this First
Amendment executed by the Required Lenders (as defined in the Intercreditor
Agreement);
(b) the Administrative Agent shall receive counterparts of this First
Amendment executed by the Borrower and acknowledged by each Guarantor; and
(c) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
First Amendment, (ii) acknowledges and agrees that its obligations in respect of
its Subsidiary Guaranty are not released, diminished, waived, modified, impaired
or affected in any manner by this First Amendment or any of the provisions
contemplated herein, (iii) ratifies and confirms its obligations under its
Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or
offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a
result of this First Amendment.
2
<PAGE>
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this First
Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto and with respect to advising the Administrative Agent
as to its rights and responsibilities under the Credit Agreement, as amended by
this First Amendment).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as the date first above written.
PILLOWTEX CORPORATION
By:
-------------------------
Name:
Title:
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender, Swing Line Bank and Issuing
Bank
By:
-------------------------
Suzanne B. Smith
Vice President
BANK OF AMERICA NT&SA
By:
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------
Jenny Gilpin
Vice President
COMERICA BANK
By:
-------------------------
Name:
Title:
4
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:
-------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
-------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By:
-------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
-------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
-------------------------
Name:
Title:
5
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
6
<PAGE>
CREDITANSTALT CORPORATE FINANCE, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
FLEET BANK, N.A.
By:
-------------------------
David R. Dubinsky
Senior Vice President
THE FUJI BANK, LTD. - HOUSTON AGENCY
By:
-------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
-------------------------
Don R. Pullen
Vice President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
-------------------------
Name:
Title:
7
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SURE FIT, INC.
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
By:
-------------------------
Name:
Title:
8
<PAGE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
To: NationsBank, N.A., as Administrative Agent
From: Pillowtex Corporation
Date:
-------- --, ----
Re: Amended and Restated Credit Agreement, dated as of December 19, 1997 (as
amended or modified, "Credit Agreement"), among Pillowtex Corporation
(the "Borrower"), certain Lenders, and NationsBank, N.A., (successor by
merger to NationsBank of Texas, N.A.) as Administrative Agent.
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. Leverage Ratio
A. Total Debt, determined for the Borrower and its Subsidiaries on a
consolidated basis
1. Indebtedness for borrowed money $
-------
2. Obligations evidenced by bonds, debentures,
notes or other similar instruments $
-------
3. Non-contingent obligations to pay the deferred
purchase price of property or services other than
trade payables incurred in the ordinary course of
business $
-------
4. Capitalized Lease Obligations $
-------
5. Total Debt [(1) + (2) + (3) + (4)] $
-------
B. EBITDA, calculated for the four consecutive Fiscal
Quarters ending on the date of calculation (adjusted
on a pro forma basis to exclude from any period under
consideration personnel costs that have been eliminated
concurrent with, or during the twelve-month period
subsequent to, the Agreement Date)
1. Earnings from operations $
-------
2. Depreciation $
-------
3. Amortization $
-------
<PAGE>
4. Other non-cash charges (to the extent included in
determining Earnings from operations) $
-------
5. EBITDA [(1) + (2) + (3) + (4)] $
-------
C. Leverage Ratio [(A) to (B)] to 1
---
II. COVENANT CALCULATIONS. [To be completed quarterly] Demonstration of
compliance with certain covenants contained in Article 7 of the Credit
Agreement for the period ended .
-----------------
A. Section 7.1(c) Indebtedness of the Borrower and its Domestic
Subsidiaries, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which
constitute property, plant and equipment $
----------
1. Maximum in aggregate principal amount outstanding, when
aggregated with Section 7.1(o) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
B. Section 7.1(h) Indebtedness assumed in connection with
Acquisitions permitted under Section 7.6 (excluding the
Fieldcrest Cannon Transaction)
1. Maximum in aggregate principal amount outstanding $20,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
C. Section 7.1(o) Other Indebtedness of the Borrower and its
Domestic Subsidiaries
1. Maximum in aggregate principal amount outstanding,
when aggregated with Section 7.1(c) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
D. Section 7.3(g) Investments consisting of non-cash
consideration received in connection with a sale of
assets permitted by Section 7.5
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
2
<PAGE>
E. Section 7.3(i) Loans or advances to directors, officers
and employees of the Borrower or any of its Subsidiaries
1. Maximum in aggregate amount outstanding at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
F. Section 7.3(j) Other Investments
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
G. Section 7.5(c) Net Cash Proceeds from the disposition of
assets (to the extent not applied pursuant to Section 2.5(b))
outstanding and pending reinvestment pursuant to Section 7.5(c)
1. Maximum at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
H. Section 7.7 Capital Expenditures
1. Maximum after the Agreement Date in aggregate
amount
a. 3.25% of cumulative net revenues of the
Borrower and its Subsidiaries from and
after the Agreement Date $
----------
b. Maximum [$175,000,000 + (a)] $
----------
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
I. Section 7.8(b) Dividends payable by the Borrower
1. Maximum in aggregate amount during any Fiscal Year $10,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
3
<PAGE>
J. Section 7.11 Maximum Leverage Ratio
1. Maximum
a. From and including the last Fiscal Quarter
of Fiscal Year 1997 to but not including
the last Fiscal Quarter of Fiscal Year 1998 5.75 to 1
b. From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including
the last Fiscal Quarter of Fiscal Year 1999 5.25 to 1
c. From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including
the last Fiscal Quarter of Fiscal Year 2000 4.75 to 1
d. From and including the last Fiscal Quarter
of Fiscal Year 2000 and thereafter 4.25 to 1
2. Actual (see I.C. above) to 1
-----
K. Section 7.12 Minimum Fixed Charge Coverage Ratio
1. Minimum at the end of each Fiscal Quarter
commencing with the first Fiscal Quarter of
Fiscal Year 1998 1.10 to 1
2. Actual
a. Pretax Cash Flow, for the four consecutive
Fiscal Quarters ending on the date of
calculation
1. EBITDA (see I.B.5. above) $
----------
2. Capital Expenditures $
----------
3. Cash proceeds received from the sale
of assets pursuant to Section 7.5(d) $
----------
4. Pretax Cash Flow [(1) - (2) + (3)] $
----------
b. Fixed Charges, calculated for the Borrower
and its Subsidiaries on a consolidated
basis; for the first three Fiscal Quarters
of Fiscal Year 1998, on an annualized
basis, and for each Fiscal Quarter
thereafter, for the four consecutive
Fiscal Quarters ending on the date of
calculation
(1) Scheduled principal payments
in respect of Indebtedness $
----------
4
<PAGE>
(2) Cash interest expense
(including interest expense
pursuant to Capitalized Lease
Obligations) $
----------
(3) Cash Dividends paid $
----------
(4) Fixed Charges [(1) + (2) + (3)] $
----------
c. Fixed Charge Coverage Ratio
[(a) to (b)] to 1
-----
L. Section 7.13 Minimum Net Worth
1. Minimum
a. Fixed amount $
-----------
(1) From the Agreement Date to but not including
the last Fiscal Quarter of Fiscal Year 1998 $250,000,000
(2) From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including the
last Fiscal Quarter of Fiscal Year 1999 $260,000,000
(3) From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including the
last Fiscal Quarter of Fiscal Year 2000 $280,000,000
(4) From and including the last Fiscal Quarter
of Fiscal Year 2000 to but not including the
last Fiscal Quarter of Fiscal Year 2001 $300,000,000
(5) From and including the last Fiscal Quarter
of Fiscal Year 2001 to but not including the
last Fiscal Quarter of Fiscal Year 2002 $320,000,000
(6) From and including the last Fiscal Quarter
of Fiscal Year 2002 and thereafter $340,000,000
5
<PAGE>
b. An amount equal to the net worth of any
Person that, on or after the Agreement
Date becomes a Subsidiary of the Borrower
or any of its Subsidiaries or is merged
into or consolidated with the Borrower or
any of its Subsidiaries or substantially
all of the assets of which are acquired
by the Borrower or any of its Subsidiaries
to the extent that the purchase price
therefor is paid in Capital Stock of the
Borrower or any of its Subsidiaries $
-----------
c. An amount equal to 100% of any increase in
Net Worth pursuant to offerings of Capital
Stock of the Borrower or any of its
Subsidiaries or pursuant to the conversion
or exchange of any convertible subordinated
debt or redeemable preferred stock into
Capital Stock of the Borrower or any of its
Subsidiaries
(excluding any such increase in b. and c. above
as a result of the Fieldcrest Cannon Transaction)
d. Minimum Net Worth [(a) + (b) + (c)] $
--------
2. Actual $
--------
3. Difference [(2) - (1)] $
--------
M. Section 7.14 Sale or Discount of Receivables
1. Maximum in aggregate amount during the Credit Agreement $
--------
2. Actual $
--------
3. Difference [(1) - (2)] $
--------
III. COMPLIANCE CERTIFICATE. [To be completed quarterly] The undersigned
hereby certifies to you as follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from , to , (the "Reporting Period") has been made
under my supervision with a view toward determining whether, during
the Reporting Period, Borrower has kept, observed, performed and
6
<PAGE>
fulfilled all its obligations under the Credit Agreement and such
other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing or is imminent.
This Compliance Certificate is executed and delivered on the day
of , .
PILLOWTEX CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
7
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Second Amendment"), dated as of July 28, 1998, is entered into among PILLOWTEX
CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on
the signature pages hereof that are parties to the Credit Agreement defined
below (collectively, the "Lenders"), and NATIONSBANK, N.A. (successor by merger
to NationsBank of Texas, N.A.), as Administrative Agent (in said capacity, the
"Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Amended and Restated Credit Agreement, dated as of December 19,
1997, amended by a First Amendment to Amended and Restated Credit Agreement,
dated as of June 19, 1998 (the "Credit Agreement"; the terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
the Borrower, the Lenders and the Administrative Agent covenant and agree as
follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Applicable Base Rate Margin in its entirety and substituting the
following in lieu thereof:
"'APPLICABLE BASE RATE MARGIN' means the following per annum
percentages, applicable in the following situations:
Applicability Percentage
------------- ----------
(a) Initial Pricing Period 0.500%
<PAGE>
(b) Subsequent Pricing Period
(1) The Leverage Ratio is greater
than or equal to 5.50 to 1 0.750%
(2) The Leverage Ratio is less
than 5.50 to 1 but greater
than or equal to 5.00 to 1 0.500%
(3) The Leverage Ratio is less
than 5.00 to 1 but greater
than or equal to 4.50 to 1 0.250%
(4) The Leverage Ratio is less
than 4.50 to 1 0.000%
During the Subsequent Pricing Period, the Applicable Base Rate Margin
payable by the Borrower on the Base Rate Advances outstanding hereunder
shall be subject to reduction or increase, as applicable and as set forth
in the table above, according to the performance of the Borrower as tested
by using the Leverage Ratio calculated (i) if not in respect of an
Acquisition, as of the end of each fiscal quarter or (ii) if in respect of
an Acquisition, upon receipt of a Compliance Certificate as required under
Section 7.6 (iii) hereof; provided, that each adjustment in the Base Rate
Basis as a result of a change in the Applicable Base Rate Margin shall
be effective (A) if not in respect of an Acquisition, on the date which is
two Business Days following receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section 6.1 or
6.2 hereof, as applicable, and the corresponding Compliance Certificate
required pursuant to Section 6.3 hereof, and (B) if in respect of an
Acquisition, on the closing date of such Acquisition. If such financial
statements and Compliance Certificate are not received by the
Administrative Agent by the date required, the Applicable Base Rate Margin
shall be increased to the Applicable Base Rate Margin next higher than the
Applicable Base Rate Margin currently in effect until such time as such
financial statements and Compliance Certificate are received."
(b) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Applicable LIBOR Rate Margin in its entirety and substituting the
following in lieu thereof:
"'Applicable LIBOR Rate Margin' means the following per annum
percentages, applicable in the following situations:
Applicability Percentage
------------- ----------
(a) Initial Pricing Period 2.000%
(b) Subsequent Pricing Period
(1) The Leverage Ratio is greater than or
equal to 5.50 to 1 2.250%
2
<PAGE>
(2) The Leverage Ratio is less than 5.50 to 1
but greater than or equal to 5.00 to 1 2.000%
(3) The Leverage Ratio is less than 5.00 to 1
but greater than or equal to 4.50 to 1 1.750%
(4) The Leverage Ratio is less than 4.50 to 1
but greater than or equal to 4.00 to 1 1.500%
(5) The Leverage Ratio is less than 4.00 to 1
but greater than or equal to 3.50 to 1 1.250%
(6) The Leverage Ratio is less than 3.50 to 1
but greater than or equal to 3.00 to 1 1.000%
(7) The Leverage Ratio is less than 3.00 to 1 0.750%
During the Subsequent Pricing Period, the Applicable LIBOR Rate Margin
payable by the Borrower on the LIBOR Advances outstanding hereunder shall
be subject to reduction or increase, as applicable and as set forth in the
table above, according to the performance of the Borrower as tested by
using the Leverage Ratio calculated (i) if not in respect of an
Acquisition, as of the end of each fiscal quarter or (ii) if in respect of
an Acquisition, upon receipt of a Compliance Certificate as required under
section 7.6(iii) hereof; provided, that each adjustment in the LIBOR Basis
as a result of a change in the Applicable LIBOR Rate Margin shall be
effective (A) if not in respect of an Acquisition, on the date which is
two Business Days following receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section 6.1 or
6.2 hereof, as applicable, and the corresponding Compliance Certificate
required pursuant to Section 6.3 hereof, and (B) if in respect of an
Acquisition, on the closing date of such Acquisition. If such financial
statements and Compliance Certificate are not received by the
Administrative Agent by the date required, the Applicable LIBOR Rate
Margin shall be increased to the Applicable LIBOR Rate Margin next higher
than the Applicable LIBOR Rate Margin currently in effect until such
time as such financial statements and Compliance Certificate are received."
(c) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Pretax Cash Flow in its entirety and substituting the following
in lieu thereof:
"'PRETAX CASH FLOW' means, for any date of calculation, calculated for
the Borrower and its Subsidiaries on a consolidated basis (including
Fieldcrest Cannon and its Subsidiaries on a pro forma basis with respect to
any period prior to the Agreement Date), an amount equal to the result of
(a) EBITDA, minus (b) the lesser of (i) Capital Expenditures and (ii)
depreciation."
3
<PAGE>
(d) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Revolver Availability in its entirety and substituting the
following in lieu thereof:
"'REVOLVER AVAILABILITY' means an amount equal to the result of (a)
the Commitment minus (b) the sum of (i) the outstanding Revolving Credit
Advances, plus (ii) the outstanding Reimbursement Obligations, plus (iii)
the outstanding Swing Line Advances, plus (iv) the Fieldcrest Cannon
Subordinated Debenture Reserve."
(e) Section 1.1 of the Credit Agreement is hereby amended by adding the
following definition in proper alphabetical order:
"'FIELDCREST CANNON SUBORDINATED DEBENTURE RESERVE' means the
aggregate amount of cash consideration that may be requested, at any time
of determination, by the holders of Fieldcrest Cannon Subordinated
Debentures in respect of a conversion thereof."
(f) Section 2.1(a) of the Credit Agreement is hereby amended by deleting
the last sentence thereof in its entirety and substituting the following in
lieu thereof:
"Notwithstanding any provision in any Loan Document to the contrary,
in no event shall (a) the sum of the principal amount of all outstanding
(i) Revolving Credit Advances, (ii) Reimbursement Obligations, (iii) Swing
Line Advances and (iv) Fieldcrest Cannon Subordinated Debenture Reserve
exceed the Commitment."
(g) Section 2.1(b) of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting the following
in lieu thereof:
"(b) Swing Line Advances. The Borrower may request the Swing Line
Bank to make, and the Swing Line Bank shall make, on the terms and
conditions hereinafter set forth, advances ("Swing Line Advances") to the
Borrower from time to time on any Business Day during the period from the
Agreement Date to the Maturity Date in an aggregate principal amount not
to exceed at any time outstanding the lesser of (a) $25,000,000 and (b) an
amount equal to the Commitment minus (i) the aggregate principal amount of
Revolving Credit Advances then outstanding, (ii) the aggregate amount of
all Reimbursement Obligations then outstanding and (iii) the Fieldcrest
Cannon Subordinated Debenture Reserve (the "Swing Line Facility")."
(h) Section 2.5(b) of the Credit Agreement is hereby amended by deleting
it in its entirety and substituting the following in lieu thereof:
"(b) MANDATORY PREPAYMENT. On or before the date of any reduction of
the Commitment, the Borrower shall first, prepay applicable outstanding
Revolving Credit Advances and second, prepay Swing Line Advances in an
amount necessary to reduce the sum of outstanding Revolving Credit
Advances, Swing Line Advances and Reimbursement Obligations plus the
4
<PAGE>
Fieldcrest Cannon Subordinated Debenture Reserve to an amount less than or
equal to the Commitment as so reduced. To the extent required by the
immediately preceding sentence, the Borrower shall first prepay all Base
Rate Advances and shall thereafter prepay LIBOR Advances. To the extent
that any prepayment requires that a LIBOR Advance be repaid on a date
other than the last day of its Interest Period, the Borrower shall
reimburse each Lender in accordance with Section 2.9 hereof. To the
extent that outstanding Revolving Credit Advances, Swing Line Advances,
and Reimbursement Obligations plus the Fieldcrest Cannon Subordinated
Debenture Reserve exceeds the Commitment after any reduction thereof, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Revolving Credit Advances and Swing Line
Advances on the date of such reduction."
(i) Section 2.15(a) of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting the following in
lieu thereof:
"(a) THE LETTER OF CREDIT FACILITY. The Borrower may request the
Issuing Bank, on the terms and conditions hereinafter set forth, to issue,
and the Issuing Bank shall, if so requested, issue, one or more Letters of
Credit for the account of the Borrower and/or any of its Subsidiaries
(provided that, if any Letter of Credit is issued for the account of any
Subsidiary, the Borrower shall be jointly and severally liable with respect
to such Letter of Credit pursuant to the terms of the Letter of Credit
Agreement (as defined below) governing such Letter of Credit) from time to
time on any Business Day from the date of the initial Advance until the
Maturity Date in an aggregate maximum amount (assuming compliance with all
conditions to drawing) not to exceed, at any time outstanding, the lesser
of (i) $55,000,000 (the "Letter of Credit Facility") and (ii) an amount
equal to the Commitment minus the aggregate principal amount of Revolving
Credit Advances and Swing Line Advances then outstanding and the
Fieldcrest Cannon Subordinated Debenture Reserve."
(j) Section 7.6 of the Credit Agreement is hereby amended by deleting it
in its entirety and substituting the following in lieu thereof:
" Section 7.6 Acquisitions. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make any Acquisitions; provided,
however, if (a) immediately prior to and after giving effect to the
proposed Acquisition there shall not exist a Default or Event of Default
and (b) immediately after giving effect to the proposed transaction the
Revolver Availability shall be no less than (i) $40,000,000 if the
Acquisition occurs in a fiscal quarter ending March 31, (ii) $25,000,000
if the Acquisition occurs in a fiscal quarter ending June 30, (iii)
$15,000,000 if the Acquisition occurs in a fiscal quarter ending September
30, or (iv) $20,000,000 if the Acquisition occurs in a fiscal quarter
ending December 31, the Borrower or any of its Subsidiaries may make
Acquisitions so long as (i) such Acquisition shall not be opposed by the
board of the directors of the Person being acquired, (ii) the Lenders
shall have received written notice thereof at least 15 Business Days prior
5
<PAGE>
to the date of such Acquisition, (iii) the Administrative Agent shall have
received at least 10 Business Days prior to the date of such Acquisition a
Compliance Certificate setting forth the covenant calculations both
immediately prior to and after giving effect to the proposed Acquisition,
(iv) the assets, property or business acquired shall be in the business
described in Section 4.1(d) hereof and the Administrative Agent for the
benefit of the Lenders shall have a first priority Lien (subject to the
Intercreditor Agreement) in substantially all of such assets (or, if less
than substantially all of such assets, such assets required by the
Determining Lenders to be pledged), except for Permitted Liens, (v) if
such Acquisition results in a Domestic Subsidiary, (A) such Subsidiary
shall execute a Subsidiary Guaranty of the Obligations and Collateral
Documents granting a first priority Lien (subject to the Intercreditor
Agreement) in substantially all of such assets (or, if less than
substantially all of such assets, all assets required by the Determining
Lenders to be pledged), except for Permitted Liens to secure the
Obligations, (B) 100% of such Subsidiary's Capital Stock shall be pledged
to secure the Obligations and (C) the Administrative Agent on behalf of
the Lenders shall have received such board resolutions, officer's
certificates and opinions of counsel as the Administrative Agent shall
reasonably request in connection with the actions described in clauses (A)
and (B) above, and (vi) if such Acquisition results in a direct Foreign
Subsidiary, (A) 65% of such Subsidiary's Capital Stock shall be pledged to
secure the Obligations and (B) the Administrative Agent on behalf of the
Lenders shall have received such board resolutions, officer's certificates
and opinions of counsel as the Administrative Agent shall reasonably
request in connection with clause (A) immediately preceding."
(k) The Compliance Certificate is hereby amended to be in the form of
Exhibit D attached to this Second Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date hereof
as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
Second Amendment, and this Second Amendment constitutes the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable Debtor
Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
6
<PAGE>
(d) neither the execution, delivery and performance of this Second
Amendment nor the consummation of any transactions contemplated herein will
conflict with any Law, the articles of incorporation, bylaws or other
governance document of the Borrower or any of its Subsidiaries, or any
indenture, agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice to, or
filing with, any governmental authority or other Person (including the Board of
Directors of the Borrower or any Guarantor), is required for the execution,
delivery or performance by the Borrower of this Second Amendment or the
acknowledgment of this Second Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective
as of July 28, 1998, subject to the following:
(a) the Administrative Agent shall receive counterparts of this Second
Amendment executed and/or consented to by the Required Lenders (as defined in
the Intercreditor Agreement);
(b) the Administrative Agent shall receive counterparts of this Second
Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) the Administrative Agent shall have received a certificate of
incumbency setting forth the name, title and signature of the officers of the
Borrower authorized to execute and deliver the Loan Documents; and
(d) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
Second Amendment, (ii) acknowledges and agrees that its obligations in respect
of its Subsidiary Guaranty are not released, diminished, waived, modified,
impaired or affected in any manner by this Second Amendment or any of the
provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no
claims or offsets against, or defenses or counterclaims to, its Subsidiary
Guaranty as a result of this Second Amendment.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this Second
Amendment.
7
<PAGE>
(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with
the preparation, reproduction, execution and delivery of this Second Amendment
and the other instruments and documents to be delivered hereunder (including
the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under the Credit
Agreement, as amended by this Second Amendment).
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as the date first above written.
PILLOWTEX CORPORATION
By:
-------------------------
Name:
Title:
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender, Swing Line Bank and Issuing
Bank
By:
-------------------------
Suzanne B. Smith
Vice President
BANK OF AMERICA NT&SA
By:
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------
Jenny Gilpin
Vice President
COMERICA BANK
By:
-------------------------
Name:
Title:
9
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:
-------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
-------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By:
-------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
10
<PAGE>
FIRST UNION NATIONAL BANK
By:
-------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
11
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
CREDITANSTALT CORPORATE FINANCE, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
FLEET BANK, N.A.
By:
-------------------------
David R. Dubinsky
Senior Vice President
THE FUJI BANK, LTD. - HOUSTON AGENCY
By:
-------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
12
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:
-------------------------
Don R. Pullen
Vice President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
-------------------------
Name:
Title:
13
<PAGE>
CONSENTED TO BY:
BANKERS TRUST COMPANY
By:
-------------------------
Name:
Title:
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By:
-------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
-------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By:
-------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
-------------------------
Name:
Title:
AERIES FINANCE LTD.
By:
-------------------------
Name:
Title:
CRESCENT/MACH I PARTNERS, L.P.
By:
-------------------------
Name:
Title:
14
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management L.P.,
as Collateral Manager
By:
-------------------------
Name:
Title:
DEEP ROCK & COMPANY
By:
-------------------------
Name:
Title:
KZH-CRESCENT CORPORATION
By:
-------------------------
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company, Inc.,
As Portfolio Manager
By:
-------------------------
Name:
Title:
KZH HOLDING CORPORATION III
By:
-------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT, INC.,
as Collateral Manager
By:
-------------------------
Name:
Title:
15
<PAGE>
BALANCED HIGH-YIELD FUND I LTD.
By: BHF-BANK AKTIENGESELLSCHAFT,
acting through its New York Branch as
attorney-in-fact
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: INDOSUEZ CAPITAL LUXEMBOURG,
as Collateral Manager
By:
-------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL SENIOR
INCOME TRUST
By:
-------------------------
Name:
Title:
16
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SURE FIT, INC.
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
By:
-------------------------
Name:
Title:
17
<PAGE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
To: NationsBank, N.A., as Administrative Agent
From: Pillowtex Corporation
Date:
-------- --, ----
Re: Amended and Restated Credit Agreement, dated as of December 19, 1997 (as
amended or modified, "Credit Agreement"), among Pillowtex Corporation
(the "Borrower"), certain Lenders, and NationsBank, N.A., (successor by
merger to NationsBank of Texas, N.A.) as Administrative Agent.
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. Leverage Ratio
A. Total Debt, determined for the Borrower and its Subsidiaries on a
consolidated basis
1. Indebtedness for borrowed money $
-------
2. Obligations evidenced by bonds, debentures,
notes or other similar instruments $
-------
3. Non-contingent obligations to pay the deferred
purchase price of property or services other than
trade payables incurred in the ordinary course of
business $
-------
4. Capitalized Lease Obligations $
-------
5. Total Debt [(1) + (2) + (3) + (4)] $
-------
B. EBITDA, calculated for the four consecutive Fiscal
Quarters ending on the date of calculation (adjusted
on a pro forma basis to exclude from any period under
consideration personnel costs that have been eliminated
concurrent with, or during the twelve-month period
subsequent to, the Agreement Date)
1. Earnings from operations $
-------
2. Depreciation $
-------
3. Amortization $
-------
<PAGE>
4. Other non-cash charges (to the extent included in
determining Earnings from operations) $
-------
5. EBITDA [(1) + (2) + (3) + (4)] $
-------
C. Leverage Ratio [(A) to (B)] to 1
---
II. COVENANT CALCULATIONS. [To be completed quarterly] Demonstration of
compliance with certain covenants contained in Article 7 of the Credit
Agreement for the period ended .
-----------------
A. Section 7.1(c) Indebtedness of the Borrower and its Domestic
Subsidiaries, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which
constitute property, plant and equipment $
----------
1. Maximum in aggregate principal amount outstanding, when
aggregated with Section 7.1(o) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
B. Section 7.1(h) Indebtedness assumed in connection with
Acquisitions permitted under Section 7.6 (excluding the
Fieldcrest Cannon Transaction)
1. Maximum in aggregate principal amount outstanding $20,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
C. Section 7.1(o) Other Indebtedness of the Borrower and its
Domestic Subsidiaries
1. Maximum in aggregate principal amount outstanding,
when aggregated with Section 7.1(c) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
D. Section 7.3(g) Investments consisting of non-cash
consideration received in connection with a sale of
assets permitted by Section 7.5
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
2
<PAGE>
E. Section 7.3(i) Loans or advances to directors, officers
and employees of the Borrower or any of its Subsidiaries
1. Maximum in aggregate amount outstanding at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
F. Section 7.3(j) Other Investments
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
G. Section 7.5(c) Net Cash Proceeds from the disposition of
assets (to the extent not applied pursuant to Section 2.5(b))
outstanding and pending reinvestment pursuant to Section 7.5(c)
1. Maximum at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
H. Section 7.7 Capital Expenditures
1. Maximum after the Agreement Date in aggregate
amount
a. 3.25% of cumulative net revenues of the
Borrower and its Subsidiaries from and
after the Agreement Date $
----------
b. Maximum [$175,000,000 + (a)] $
----------
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
I. Section 7.8(b) Dividends payable by the Borrower
1. Maximum in aggregate amount during any Fiscal Year $10,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
3
<PAGE>
J. Section 7.11 Maximum Leverage Ratio
1. Maximum
a. From and including the last Fiscal Quarter
of Fiscal Year 1997 to but not including
the last Fiscal Quarter of Fiscal Year 1998 5.75 to 1
b. From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including
the last Fiscal Quarter of Fiscal Year 1999 5.25 to 1
c. From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including
the last Fiscal Quarter of Fiscal Year 2000 4.75 to 1
d. From and including the last Fiscal Quarter
of Fiscal Year 2000 and thereafter 4.25 to 1
2. Actual (see I.C. above) to 1
-----
K. Section 7.12 Minimum Fixed Charge Coverage Ratio
1. Minimum at the end of each Fiscal Quarter
commencing with the first Fiscal Quarter of
Fiscal Year 1998 1.10 to 1
2. Actual
a. Pretax Cash Flow, for the four consecutive
Fiscal Quarters ending on the date of
calculation
1. EBITDA (see I.B.5. above) $
----------
2. Lesser of (i) Capital Expenditures
And (ii) depreciation $
----------
3. Pretax Cash Flow [(1) - (2)] $
----------
b. Fixed Charges, calculated for the Borrower
and its Subsidiaries on a consolidated
basis; for the first three Fiscal Quarters
of Fiscal Year 1998, on an annualized
basis, and for each Fiscal Quarter
thereafter, for the four consecutive
Fiscal Quarters ending on the date of
calculation
(1) Scheduled principal payments
in respect of Indebtedness $
----------
4
<PAGE>
(2) Cash interest expense
(including interest expense
pursuant to Capitalized Lease
Obligations) $
----------
(3) Cash Dividends paid $
----------
(4) Fixed Charges [(1) + (2) + (3)] $
----------
c. Fixed Charge Coverage Ratio
[(a) to (b)] to 1
-----
L. Section 7.13 Minimum Net Worth
1. Minimum
a. Fixed amount $
-----------
(1) From the Agreement Date to but not including
the last Fiscal Quarter of Fiscal Year 1998 $250,000,000
(2) From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including the
last Fiscal Quarter of Fiscal Year 1999 $260,000,000
(3) From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including the
last Fiscal Quarter of Fiscal Year 2000 $280,000,000
(4) From and including the last Fiscal Quarter
of Fiscal Year 2000 to but not including the
last Fiscal Quarter of Fiscal Year 2001 $300,000,000
(5) From and including the last Fiscal Quarter
of Fiscal Year 2001 to but not including the
last Fiscal Quarter of Fiscal Year 2002 $320,000,000
(6) From and including the last Fiscal Quarter
of Fiscal Year 2002 and thereafter $340,000,000
5
<PAGE>
b. An amount equal to the net worth of any
Person that, on or after the Agreement
Date becomes a Subsidiary of the Borrower
or any of its Subsidiaries or is merged
into or consolidated with the Borrower or
any of its Subsidiaries or substantially
all of the assets of which are acquired
by the Borrower or any of its Subsidiaries
to the extent that the purchase price
therefor is paid in Capital Stock of the
Borrower or any of its Subsidiaries $
-----------
c. An amount equal to 100% of any increase in
Net Worth pursuant to offerings of Capital
Stock of the Borrower or any of its
Subsidiaries or pursuant to the conversion
or exchange of any convertible subordinated
debt or redeemable preferred stock into
Capital Stock of the Borrower or any of its
Subsidiaries $
-----------
(excluding any such increase in b. and c. above
as a result of the Fieldcrest Cannon Transaction)
d. Minimum Net Worth [(a) + (b) + (c)] $
--------
2. Actual $
--------
3. Difference [(2) - (1)] $
--------
M. Section 7.14 Sale or Discount of Receivables
1. Maximum in aggregate amount during the Credit Agreement $
--------
2. Actual $
--------
3. Difference [(1) - (2)] $
--------
III. COMPLIANCE CERTIFICATE. [To be completed quarterly] The undersigned
hereby certifies to you as follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from , to , (the "Reporting Period") has been made
under my supervision with a view toward determining whether, during
the Reporting Period, Borrower has kept, observed, performed and
6
<PAGE>
fulfilled all its obligations under the Credit Agreement and such
other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing or is imminent.
This Compliance Certificate is executed and delivered on the day
of , .
PILLOWTEX CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
7
FIRST AMENDMENT TO
TERM CREDIT AGREEMENT
THIS FIRST AMENDMENT TO TERM CREDIT AGREEMENT (this "First Amendment"),
dated as of June 19, 1998, is entered into among PILLOWTEX CORPORATION, a Texas
corporation (the "Borrower"), the banks listed on the signature pages hereof
(collectively, the "Lenders"), and NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative Agent (in said capacity, the
"Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Term Credit Agreement, dated as of December 19, 1997 (the "Credit
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
herein shall be used herein as defined in the Credit Agreement).
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 7.14 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.14 Sale or Discount of Receivables. The Borrower shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
sell, with or without recourse, for discount or otherwise, notes or accounts
receivable during the term of this Agreement in an aggregate principal amount in
excess of $5,000,000."
(b) The Compliance Certificate is hereby amended to be in the form of
Exhibit D attached to this First Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
<PAGE>
<PAGE>
(a) the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date hereof
as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
First Amendment, and this First Amendment constitutes the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable Debtor
Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this First
Amendment nor the consummation of any transactions contemplated herein will
conflict with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture, agreement
or other instrument to which the Borrower or any of its Subsidiaries or any of
their respective property is subject; and
(e) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person (including the Board of
Directors of the Borrower or any Guarantor), is required for the execution,
delivery or performance by the Borrower of this First Amendment or the
acknowledgment of this First Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of June 19, 1998, subject to the following:
(a) the Administrative Agent shall receive counterparts of this First
Amendment executed by the Required Lenders (as defined in the Intercreditor
Agreement);
(b) the Administrative Agent shall receive counterparts of this First
Amendment executed by the Borrower and acknowledged by each Guarantor; and
(c) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
First Amendment, (ii) acknowledges and agrees that its obligations in respect of
its Subsidiary Guaranty are not released, diminished, waived, modified, impaired
or affected in any manner by this First Amendment or any of the provisions
contemplated herein, (iii) ratifies and confirms its obligations under its
Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or
offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a
result of this First Amendment.
2
<PAGE>
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this First
Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto and with respect to advising the Administrative Agent
as to its rights and responsibilities under the Credit Agreement, as amended by
this First Amendment).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as the date first above written.
PILLOWTEX CORPORATION
By:
-------------------------
Name:
Title:
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender, Swing Line Bank and Issuing
Bank
By:
-------------------------
Suzanne B. Smith
Vice President
BANK OF AMERICA NT&SA
By:
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------
Jenny Gilpin
Vice President
COMERICA BANK
By:
-------------------------
Name:
Title:
4
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:
-------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
-------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By:
-------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
-------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
-------------------------
Name:
Title:
5
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
6
<PAGE>
CREDITANSTALT CORPORATE FINANCE, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
FLEET BANK, N.A.
By:
-------------------------
David R. Dubinsky
Senior Vice President
THE FUJI BANK, LTD. - HOUSTON AGENCY
By:
-------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
-------------------------
Don R. Pullen
Vice President
KZH HOLDING CORPORATION II
By:
-------------------------
Name:
Title:
7
<PAGE>
PRIME INCOME TRUST
By:
-------------------------
Name:
Title:
DEEP ROCK & COMPANY
By:
-------------------------
Name:
Title:
8
<PAGE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
To: NationsBank, N.A., as Administrative Agent
From: Pillowtex Corporation
Date:
-------- --, ----
Re: Term Credit Agreement, dated as of December 19, 1997 (as amended or
modified, "Credit Agreement"), among Pillowtex Corporation (the
"Borrower"), certain Lenders, and NationsBank, N.A., (successor by
merger to NationsBank of Texas, N.A.) as Administrative Agent.
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. Leverage Ratio
A. Total Debt, determined for the Borrower and its Subsidiaries on a
consolidated basis
1. Indebtedness for borrowed money $
-------
2. Obligations evidenced by bonds, debentures,
notes or other similar instruments $
-------
3. Non-contingent obligations to pay the deferred
purchase price of property or services other than
trade payables incurred in the ordinary course of
business $
-------
4. Capitalized Lease Obligations $
-------
5. Total Debt [(1) + (2) + (3) + (4)] $
-------
B. EBITDA, calculated for the four consecutive Fiscal
Quarters ending on the date of calculation (adjusted
on a pro forma basis to exclude from any period under
consideration personnel costs that have been eliminated
concurrent with, or during the twelve-month period
subsequent to, the Agreement Date)
1. Earnings from operations $
-------
2. Depreciation $
-------
3. Amortization $
-------
<PAGE>
4. Other non-cash charges (to the extent included in
determining Earnings from operations) $
-------
5. EBITDA [(1) + (2) + (3) + (4)] $
-------
C. Leverage Ratio [(A) to (B)] to 1
---
II. COVENANT CALCULATIONS. [To be completed quarterly] Demonstration of
compliance with certain covenants contained in Article 7 of the Credit
Agreement for the period ended .
-----------------
A. Section 7.1(c) Indebtedness of the Borrower and its Domestic
Subsidiaries, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which
constitute property, plant and equipment $
----------
1. Maximum in aggregate principal amount outstanding, when
aggregated with Section 7.1(o) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
B. Section 7.1(h) Indebtedness assumed in connection with
Acquisitions permitted under Section 7.6 (excluding the
Fieldcrest Cannon Transaction)
1. Maximum in aggregate principal amount outstanding $20,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
C. Section 7.1(o) Other Indebtedness of the Borrower and its
Domestic Subsidiaries
1. Maximum in aggregate principal amount outstanding,
when aggregated with Section 7.1(c) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
D. Section 7.3(g) Investments consisting of non-cash
consideration received in connection with a sale of
assets permitted by Section 7.5
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
2
<PAGE>
E. Section 7.3(i) Loans or advances to directors, officers
and employees of the Borrower or any of its Subsidiaries
1. Maximum in aggregate amount outstanding at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
F. Section 7.3(j) Other Investments
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
G. Section 7.5(c) Net Cash Proceeds from the disposition of
assets (to the extent not applied pursuant to Section 2.5(b))
outstanding and pending reinvestment pursuant to Section 7.5(c)
1. Maximum at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
H. Section 7.7 Capital Expenditures
1. Maximum after the Agreement Date in aggregate
amount
a. 3.25% of cumulative net revenues of the
Borrower and its Subsidiaries from and
after the Agreement Date $
----------
b. Maximum [$175,000,000 + (a)] $
----------
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
I. Section 7.8(b) Dividends payable by the Borrower
1. Maximum in aggregate amount during any Fiscal Year $10,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
3
<PAGE>
J. Section 7.11 Maximum Leverage Ratio
1. Maximum
a. From and including the last Fiscal Quarter
of Fiscal Year 1997 to but not including
the last Fiscal Quarter of Fiscal Year 1998 5.75 to 1
b. From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including
the last Fiscal Quarter of Fiscal Year 1999 5.25 to 1
c. From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including
the last Fiscal Quarter of Fiscal Year 2000 4.75 to 1
d. From and including the last Fiscal Quarter
of Fiscal Year 2000 and thereafter 4.25 to 1
2. Actual (see I.C. above) to 1
-----
K. Section 7.12 Minimum Fixed Charge Coverage Ratio
1. Minimum at the end of each Fiscal Quarter
commencing with the first Fiscal Quarter of
Fiscal Year 1998 1.10 to 1
2. Actual
a. Pretax Cash Flow, for the four consecutive
Fiscal Quarters ending on the date of
calculation
1. EBITDA (see I.B.5. above) $
----------
2. Capital Expenditures $
----------
3. Cash proceeds received from the sale
of assets pursuant to Section 7.5(d) $
----------
4. Pretax Cash Flow [(1) - (2) + (3)] $
----------
b. Fixed Charges, calculated for the Borrower
and its Subsidiaries on a consolidated
basis; for the first three Fiscal Quarters
of Fiscal Year 1998, on an annualized
basis, and for each Fiscal Quarter
thereafter, for the four consecutive
Fiscal Quarters ending on the date of
calculation
(1) Scheduled principal payments
in respect of Indebtedness $
----------
4
<PAGE>
(2) Cash interest expense
(including interest expense
pursuant to Capitalized Lease
Obligations) $
----------
(3) Cash Dividends paid $
----------
(4) Fixed Charges [(1) + (2) + (3)] $
----------
c. Fixed Charge Coverage Ratio
[(a) to (b)] to 1
-----
L. Section 7.13 Minimum Net Worth
1. Minimum
a. Fixed amount $
-----------
(1) From the Agreement Date to but not including
the last Fiscal Quarter of Fiscal Year 1998 $250,000,000
(2) From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including the
last Fiscal Quarter of Fiscal Year 1999 $260,000,000
(3) From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including the
last Fiscal Quarter of Fiscal Year 2000 $280,000,000
(4) From and including the last Fiscal Quarter
of Fiscal Year 2000 to but not including the
last Fiscal Quarter of Fiscal Year 2001 $300,000,000
(5) From and including the last Fiscal Quarter
of Fiscal Year 2001 to but not including the
last Fiscal Quarter of Fiscal Year 2002 $320,000,000
(6) From and including the last Fiscal Quarter
of Fiscal Year 2002 and thereafter $340,000,000
5
<PAGE>
b. An amount equal to the net worth of any
Person that, on or after the Agreement
Date becomes a Subsidiary of the Borrower
or any of its Subsidiaries or is merged
into or consolidated with the Borrower or
any of its Subsidiaries or substantially
all of the assets of which are acquired
by the Borrower or any of its Subsidiaries
to the extent that the purchase price
therefor is paid in Capital Stock of the
Borrower or any of its Subsidiaries $
-----------
c. An amount equal to 100% of any increase in
Net Worth pursuant to offerings of Capital
Stock of the Borrower or any of its
Subsidiaries or pursuant to the conversion
or exchange of any convertible subordinated
debt or redeemable preferred stock into
Capital Stock of the Borrower or any of its
Subsidiaries $
-----------
(excluding any such increase in b. and c. above
as a result of the Fieldcrest Cannon Transaction)
d. Minimum Net Worth [(a) + (b) + (c)] $
--------
2. Actual $
--------
3. Difference [(2) - (1)] $
--------
M. Section 7.14 Sale or Discount of Receivables
1. Maximum in aggregate amount during the Credit Agreement $
--------
2. Actual $
--------
3. Difference [(1) - (2)] $
--------
III. COMPLIANCE CERTIFICATE. [To be completed quarterly] The undersigned
hereby certifies to you as follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from , to , (the "Reporting Period") has been made
under my supervision with a view toward determining whether, during
the Reporting Period, Borrower has kept, observed, performed and
6<PAGE>
<PAGE>
fulfilled all its obligations under the Credit Agreement and such
other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing or is imminent.
This Compliance Certificate is executed and delivered on the day
of , .
PILLOWTEX CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
7
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:
-------------------------
Name:
Title:
CRESCENT/MACH I PARTNERS, L.P.
By:
-------------------------
Name:
Title:
KZH-CRESCENT CORPORATION
By:
-------------------------
Name:
Title:
BANKERS TRUST COMPANY
By:
-------------------------
Name:
Title:
PAMCO CAYMAN LTD.
By:
-------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By:
-------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By:
-------------------------
Name:
Title:
8
<PAGE>
BALANCED HIGH-YIELD FUND I LTD.
By:
-------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
-------------------------
Name:
Title:
AERIES FINANCE LTD.
By:
-------------------------
Name:
Title:
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
By:
-------------------------
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
-------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: INDOSUEZ CAPITAL LUXEMBOURG,
as Collateral Manager
By:
-------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
By:
-------------------------
Name:
Title:
9
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SURE FIT, INC.
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
By:
-------------------------
Name:
Title:
10
SECOND AMENDMENT TO
TERM CREDIT AGREEMENT
THIS SECOND AMENDMENT TO TERM CREDIT AGREEMENT (this "Second Amendment"),
dated as of July 28, 1998, is entered into among PILLOWTEX CORPORATION, a Texas
corporation (the "Borrower"), the institutions listed on the signature pages
hereof (collectively, the "Lenders"), and NATIONSBANK, N.A. (successor by
merger to NationsBank of Texas, N.A.), as Administrative Agent (in said
capacity, the "Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Term Credit Agreement, dated as of December 19, 1997, amended by a
First Amendment to Term Credit Agreement, dated as of June 19, 1998 (the
"Credit Agreement"; the terms defined in the Credit Agreement and not otherwise
defined herein shall be used herein as defined in the Credit Agreement).
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
the Borrower, the Lenders and the Administrative Agent covenant and agree as
follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Applicable Base Rate Margin in its entirety and substituting the
following in lieu thereof:
" Applicable Base Rate Margin' means the following per annum
percentages, applicable in the following situations:
Applicability Facility A Facility B
------------- Term Term
Loan Loan
Advances Advances
---------- ----------
(a) Initial Pricing Period 0.500% 1.000%
<PAGE>
(b) Subsequent Pricing Period
-------------------------
(1) The Leverage Ratio is greater
than or equal to 5.50 to 1 0.750% 1.250%
(2) The Leverage Ratio is less
than 5.50 to 1 but greater
than or equal to 5.00 to 1 0.500% 1.000%
(3) The Leverage Ratio is less
than 5.00 to 1 but greater
than or equal to 4.50 to 1 0.250% 0.750%
(4) The Leverage Ratio is less
than 4.50 to 1 0.000% 0.500%
During the Subsequent Pricing Period, the Applicable Base Rate Margin
payable by the Borrower on the Base Rate Advances outstanding hereunder
shall be subject to reduction or increase, as applicable and as set forth
in the table above, according to the performance of the Borrower as tested
by using the Leverage Ratio calculated (i) if not in respect of an
Acquisition, as of the end of each fiscal quarter or (ii) if in respect of
an Acquisition, upon receipt of a Compliance Certificate as required under
Section 7.6 (iii) hereof; provided, that each adjustment in the Base Rate
Basis as a result of a change in the Applicable Base Rate Margin shall be
effective (A) if not in respect of an Acquisition, on the date which is
two Business Days following receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section6.1 or
6.2 hereof, as applicable, and the corresponding Compliance Certificate
required pursuant to Section6.3 hereof, and (B) if in respect of an
Acquisition, on the closing date of such Acquisition. If such financial
statements and Compliance Certificate are not received by the
Administrative Agent by the date required, the Applicable Base Rate Margin
shall be increased to the Applicable Base Rate Margin next higher than the
Applicable Base Rate Margin currently in effect until such time as such
financial statements and Compliance Certificate are received."
(b) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Applicable LIBOR Rate Margin in its entirety and substituting the
following in lieu thereof:
" APPLICABLE LIBOR RATE MARGIN' means the following per annum
percentages, applicable in the following situations:
Applicability Facility A Facility B
------------- Term Loan Term Loan
Advances Advances
---------- ----------
(a) Initial Pricing Period 2.000% 2.500%
2
<PAGE>
(b) Subsequent Pricing Period
(1) The Leverage Ratio is greater than
or equal to 5.50 to 1 2.250% 2.750%
(2) The Leverage Ratio is less than
5.50 to 1 but greater than or
equal to 5.00 to 1 2.000% 2.500%
(3) The Leverage Ratio is less than
5.00 to 1 but greater than or
equal to 4.50 to 1 1.750% 2.250%
(4) The Leverage Ratio is less than
4.50 to 1 but greater than or
equal to 4.00 to 1 1.500% 2.000%
(5) The Leverage Ratio is less than
4.00 to 1 but greater than or
equal to 3.50 to 1 1.250% 2.000%
(6) The Leverage Ratio is less than
3.50 to 1 but greater than or
equal to 3.00 to 1 1.000% 2.000%
(7) The Leverage Ratio is less
than 3.00 to 1 0.750% 2.000%
During the Subsequent Pricing Period, the Applicable LIBOR Rate Margin
payable by the Borrower on the LIBOR Advances outstanding hereunder shall
be subject to reduction or increase, as applicable and as set forth in the
table above, according to the performance of the Borrower as tested by
using the Leverage Ratio calculated (i) if not in respect of an
Acquisition, as of the end of each fiscal quarter or (ii) if in respect of
an Acquisition, upon receipt of a Compliance Certificate as required under
section 7.6(iii) hereof; provided, that each adjustment in the LIBOR Basis
as a result of a change in the Applicable LIBOR Rate Margin shall be
effective (A) if not in respect of an Acquisition, on the date which is
two Business Days following receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section6.1 or
6.2 hereof, as applicable, and the corresponding Compliance Certificate
required pursuant to Section6.3 hereof, and (B) if in respect of an
Acquisition, on the closing date of such Acquisition. If such financial
statements and Compliance Certificate are not received by the
Administrative Agent by the date required, the Applicable LIBOR Rate
Margin shall be increased to the Applicable LIBOR Rate Margin next higher
than the Applicable LIBOR Rate Margin currently in effect until such time
as such financial statements and Compliance Certificate are received."
(c) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Facility B Term Loan Commitment in its entirety and substituting
the following in lieu thereof:
" FACILITY B TERM LOAN COMMITMENT' means commitment of the Lenders,
subject to the terms and conditions hereof, to make Facility B Term Loan
Advances up to an aggregate principal amount of $225,000,000, as
terminated pursuant to Section 2.1(b) hereof."
3
<PAGE>
(d) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of Pretax Cash Flow in its entirety and substituting the following in
lieu thereof:
" PRETAX CASH FLOW' means, for any date of calculation, calculated
for the Borrower and its Subsidiaries on a consolidated basis (including
Fieldcrest Cannon and its Subsidiaries on a pro forma basis with respect
to any period prior to the Agreement Date), an amount equal to the result
of (a) EBITDA, minus (b) the lesser of (i) Capital Expenditures and (ii)
depreciation."
(e) Section 2.7(b) of the Credit Agreement is hereby amended by deleting
it in its entirety and substituting the following in lieu thereof:
"(b) FACILITY B TERM LOAN ADVANCES. To the extent not otherwise
required to be paid earlier as provided herein, the principal amount of
the Facility B Term Loan Advances shall be repaid on each Quarterly Date
and on the Facility B Term Loan Maturity Date in such amounts as set forth
next to each such date below:
Quarterly Date Amount of Reduction of Facility B
-------------- Term Loan Advances as of each Date
----------------------------------
March 31, 1998 $312,500
June 30, 1998 $312,500
September 30, 1998 $312,500
December 31, 1998 $312,500
March31, 1999 $562,500
June 30, 1999 $562,500
September 30, 1999 $562,500
December 31, 1999 $562,500
March 31, 2000 $562,500
June 30, 2000 $562,500
September 30, 2000 $562,500
December 31, 2000 $562,500
March 31, 2001 $562,500
June 30, 2001 $562,500
September 30, 2001 $562,500
4
<PAGE>
December 31, 2001 $562,500
March 31, 2002 $562,500
June 30, 2002 $562,500
September 30, 2002 $562,500
December 31, 2002 $562,500
March 31, 2003 $562,500
June 30, 2003 $562,500
September 30, 2003 $562,500
December 31, 2003 $562,500
March 31, 2004 $53,125,000
June 30, 2004 $53,125,000
September 30, 2004 $53,125,000
December 31, 2004 $53,125,000
or such other amount of Facility B
Term Loan Advances then
outstanding"
(f) Section 7.6 of the Credit Agreement is hereby amended by deleting it
in its entirety and substituting the following in lieu thereof:
" Section 7.6 Acquisitions. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make any Acquisitions; provided,
however, if (a)immediately prior to and after giving effect to the
proposed Acquisition there shall not exist a Default or Event of Default
and (b)immediately after giving effect to the proposed transaction the
Revolver Availability shall be no less than (i) $40,000,000 if the
Acquisition occurs in a fiscal quarter ending March 31, (ii) $25,000,000
if the Acquisition occurs in a fiscal quarter ending June 30, (iii)
$15,000,000 if the Acquisition occurs in a fiscal quarter ending September
30, or (iv) $20,000,000 if the Acquisition occurs in a fiscal quarter
ending December 31, the Borrower or any of its Subsidiaries may make
Acquisitions so long as (i) such Acquisition shall not be opposed by the
board of the directors of the Person being acquired, (ii)the Lenders shall
have received written notice thereof at least 15 Business Days prior to
the date of such Acquisition, (iii)the Administrative Agent shall have
received at least 10 Business Days prior to the date of such Acquisition a
Compliance Certificate setting forth the covenant calculations both
5
<PAGE>
immediately prior to and after giving effect to the proposed Acquisition,
(iv)the assets, property or business acquired shall be in the business
described in Section4.1(d) hereof and the Administrative Agent for the
benefit of the Lenders shall have a first priority Lien (subject to the
Intercreditor Agreement) in substantially all of such assets (or, if less
than substantially all of such assets, such assets required by the
Determining Lenders to be pledged), except for Permitted Liens, (v)if such
Acquisition results in a Domestic Subsidiary, (A)such Subsidiary shall
execute a Subsidiary Guaranty of the Obligations and Collateral Documents
granting a first priority Lien (subject to the Intercreditor Agreement) in
substantially all of such assets (or, if less than substantially all of
such assets, all assets required by the Determining Lenders to be
pledged), except for Permitted Liens to secure the Obligations, (B)100% of
such Subsidiary's Capital Stock shall be pledged to secure the Obligations
and (C)the Administrative Agent on behalf of the Lenders shall have
received such board resolutions, officer's certificates and opinions of
counsel as the Administrative Agent shall reasonably request in connection
with the actions described in clauses(A) and (B) above, and (vi)if such
Acquisition results in a direct Foreign Subsidiary, (A)65% of such
Subsidiary's Capital Stock shall be pledged to secure the Obligations and
(B)the Administrative Agent on behalf of the Lenders shall have received
such board resolutions, officer's certificates and opinions of counsel as
the Administrative Agent shall reasonably request in connection with
clause(A) immediately preceding.".
(g) The Compliance Certificate is hereby amended to be in the form of
Exhibit E attached to this Second Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section1:
(a) the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date hereof
as made on and as of such date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
Second Amendment and the $107,960,000 Facility B Term Loan Note payable to
NationsBank, N.A. (the "NationsBank Note"), and this Second Amendment and the
NationsBank Note constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable Debtor Relief Laws and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Second
Amendment or the NationsBank Note nor the consummation of any transactions
6
<PAGE>
contemplated herein will conflict with any Law, the articles of incorporation,
bylaws or other governance document of the Borrower or any of its Subsidiaries,
or any indenture, agreement or other instrument to which the Borrower or any of
its Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the
Board of Directors of the Borrower), is required for the execution, delivery or
performance by the Borrower of this Second Amendment or the acknowledgment of
this Second Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be
effective as of July28, 1998, subject to the following:
(a) the Administrative Agent shall receive counterparts of this Second
Amendment executed by all of the Lenders;
(b) the Administrative Agent shall receive counterparts of this Second
Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) the Administrative Agent shall have received the NationsBank Note,
duly executed;
(d) the Administrative Agent shall have received (i) certified
resolutions of the board of directors of the Borrower authorizing the
execution, delivery and performance of this Second Amendment and the
NationsBank Note and (ii) a certificate of incumbency setting forth the names,
titles and signatures of the officers of the Borrower authorized to execute and
deliver the Loan Documents; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
(a)acknowledges, consents and agrees to the execution and delivery of this
Second Amendment, (b)acknowledges and agrees that its obligations in respect of
its Subsidiary Guaranty (i) are not released, diminished, waived, modified,
impaired or affected in any manner by this Second Amendment or any of the
provisions contemplated herein and (ii) cover the Commitments, including the
Facility B Term Loan Commitment, as increased hereby, (c)ratifies and confirms
its obligations under its Subsidiary Guaranty, and (d)acknowledges and agrees
that it has no claims or offsets against, or defenses or counterclaims to, its
Subsidiary Guaranty as a result of this Second Amendment.
7
<PAGE>
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like import
shall mean and be a reference to the Credit Agreement, as amended by this
Second Amendment.
(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with
the preparation, reproduction, execution and delivery of this Second Amendment
and the other instruments and documents to be delivered hereunder (including
the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under the Credit
Agreement, as amended by this Second Amendment).
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as the date first above written.
PILLOWTEX CORPORATION
By:
-------------------------
Name:
Title:
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender
By:
-------------------------
Suzanne B. Smith
Vice President
BANK OF AMERICA NT&SA
By:
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------
Jenny Gilpin
Vice President
COMERICA BANK
By:
-------------------------
Name:
Title:
9
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:
-------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
-------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By:
-------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-------------------------
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
-------------------------
Name:
Title:
10<PAGE>
<PAGE>
FIRST UNION NATIONAL BANK
By:
-------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
11
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
CREDITANSTALT CORPORATE FINANCE, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
FLEET BANK, N.A.
By:
-------------------------
David R. Dubinsky
Senior Vice President
THE FUJI BANK, LTD. - HOUSTON AGENCY
By:
-------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
12
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:
-------------------------
Don R. Pullen
Vice President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
-------------------------
Name:
Title:
BANKERS TRUST COMPANY
By:
-------------------------
Name:
Title:
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By:
-------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
-------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By:
-------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
-------------------------
Name:
Title:
13
<PAGE>
AERIES FINANCE LTD.
By:
-------------------------
Name:
Title:
CRESCENT/MACH I PARTNERS, L.P.
By:
-------------------------
Name:
Title:
PAMCO CAYMAN LTD.
By: Highland Capital Management L.P.,
as Collateral Manager
By:
-------------------------
Name:
Title:
DEEP ROCK & COMPANY
By:
-------------------------
Name:
Title:
KZH-CRESCENT CORPORATION
By:
-------------------------
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company,
Inc., As Portfolio Manager
By:
-------------------------
Name:
Title:
KZH HOLDING CORPORATION III
By:
-------------------------
Name:
Title:
14
<PAGE>
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT, INC.,
as Collateral Manager
By:
-------------------------
Name:
Title:
BALANCED HIGH-YIELD FUND I LTD.
By: BHF-BANK AKTIENGESELLSCHAFT,
acting through its New York Branch as
attorney-in-fact
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: INDOSUEZ CAPITAL LUXEMBOURG,
as Collateral Manager
By:
-------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL SENIOR
INCOME TRUST
By:
-------------------------
Name:
Title:
15
<PAGE>
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SURE FIT, INC.
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
By:
-------------------------
Name:
Title:
16
<PAGE>
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
To: NationsBank, N.A., as Administrative Agent
From: Pillowtex Corporation
Date:
-------- --, ----
Re: Term Credit Agreement, dated as of December 19, 1997 (as amended or
modified, "Credit Agreement"), among Pillowtex Corporation (the
"Borrower"), certain Lenders, and NationsBank, N.A., (successor by
merger to NationsBank of Texas, N.A.) as Administrative Agent.
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. Leverage Ratio
A. Total Debt, determined for the Borrower and its Subsidiaries on a
consolidated basis
1. Indebtedness for borrowed money $
-------
2. Obligations evidenced by bonds, debentures,
notes or other similar instruments $
-------
3. Non-contingent obligations to pay the deferred
purchase price of property or services other than
trade payables incurred in the ordinary course of
business $
-------
4. Capitalized Lease Obligations $
-------
5. Total Debt [(1) + (2) + (3) + (4)] $
-------
B. EBITDA, calculated for the four consecutive Fiscal
Quarters ending on the date of calculation (adjusted
on a pro forma basis to exclude from any period under
consideration personnel costs that have been eliminated
concurrent with, or during the twelve-month period
subsequent to, the Agreement Date)
1. Earnings from operations $
-------
2. Depreciation $
-------
3. Amortization $
-------
<PAGE>
4. Other non-cash charges (to the extent included in
determining Earnings from operations) $
-------
5. EBITDA [(1) + (2) + (3) + (4)] $
-------
C. Leverage Ratio [(A) to (B)] to 1
---
II. COVENANT CALCULATIONS. [To be completed quarterly] Demonstration of
compliance with certain covenants contained in Article 7 of the Credit
Agreement for the period ended .
-----------------
A. Section 7.1(c) Indebtedness of the Borrower and its Domestic
Subsidiaries, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which
constitute property, plant and equipment $
----------
1. Maximum in aggregate principal amount outstanding, when
aggregated with Section 7.1(o) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
B. Section 7.1(h) Indebtedness assumed in connection with
Acquisitions permitted under Section 7.6 (excluding the
Fieldcrest Cannon Transaction)
1. Maximum in aggregate principal amount outstanding $20,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
C. Section 7.1(o) Other Indebtedness of the Borrower and its
Domestic Subsidiaries
1. Maximum in aggregate principal amount outstanding,
when aggregated with Section 7.1(c) $35,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
D. Section 7.3(g) Investments consisting of non-cash
consideration received in connection with a sale of
assets permitted by Section 7.5
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
2
<PAGE>
E. Section 7.3(i) Loans or advances to directors, officers
and employees of the Borrower or any of its Subsidiaries
1. Maximum in aggregate amount outstanding at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
F. Section 7.3(j) Other Investments
1. Maximum in aggregate amount outstanding at any time $25,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
G. Section 7.5(c) Net Cash Proceeds from the disposition of
assets (to the extent not applied pursuant to Section 2.5(b))
outstanding and pending reinvestment pursuant to Section 7.5(c)
1. Maximum at any time $ 5,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
H. Section 7.7 Capital Expenditures
1. Maximum after the Agreement Date in aggregate
amount
a. 3.25% of cumulative net revenues of the
Borrower and its Subsidiaries from and
after the Agreement Date $
----------
b. Maximum [$175,000,000 + (a)] $
----------
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
I. Section 7.8(b) Dividends payable by the Borrower
1. Maximum in aggregate amount during any Fiscal Year $10,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
3
<PAGE>
J. Section 7.11 Maximum Leverage Ratio
1. Maximum
a. From and including the last Fiscal Quarter
of Fiscal Year 1997 to but not including
the last Fiscal Quarter of Fiscal Year 1998 5.75 to 1
b. From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including
the last Fiscal Quarter of Fiscal Year 1999 5.25 to 1
c. From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including
the last Fiscal Quarter of Fiscal Year 2000 4.75 to 1
d. From and including the last Fiscal Quarter
of Fiscal Year 2000 and thereafter 4.25 to 1
2. Actual (see I.C. above) to 1
-----
K. Section 7.12 Minimum Fixed Charge Coverage Ratio
1. Minimum at the end of each Fiscal Quarter
commencing with the first Fiscal Quarter of
Fiscal Year 1998 1.10 to 1
2. Actual
a. Pretax Cash Flow, for the four consecutive
Fiscal Quarters ending on the date of
calculation
1. EBITDA (see I.B.5. above) $
----------
2. Lesser of (i) Capital Expenditures
And (ii) depreciation $
----------
3. Pretax Cash Flow [(1) - (2)] $
----------
b. Fixed Charges, calculated for the Borrower
and its Subsidiaries on a consolidated
basis; for the first three Fiscal Quarters
of Fiscal Year 1998, on an annualized
basis, and for each Fiscal Quarter
thereafter, for the four consecutive
Fiscal Quarters ending on the date of
calculation
(1) Scheduled principal payments
in respect of Indebtedness $
----------
4<PAGE>
<PAGE>
(2) Cash interest expense
(including interest expense
pursuant to Capitalized Lease
Obligations) $
----------
(3) Cash Dividends paid $
----------
(4) Fixed Charges [(1) + (2) + (3)] $
----------
c. Fixed Charge Coverage Ratio
[(a) to (b)] to 1
-----
L. Section 7.13 Minimum Net Worth
1. Minimum
a. Fixed amount $
-----------
(1) From the Agreement Date to but not including
the last Fiscal Quarter of Fiscal Year 1998 $250,000,000
(2) From and including the last Fiscal Quarter
of Fiscal Year 1998 to but not including the
last Fiscal Quarter of Fiscal Year 1999 $260,000,000
(3) From and including the last Fiscal Quarter
of Fiscal Year 1999 to but not including the
last Fiscal Quarter of Fiscal Year 2000 $280,000,000
(4) From and including the last Fiscal Quarter
of Fiscal Year 2000 to but not including the
last Fiscal Quarter of Fiscal Year 2001 $300,000,000
(5) From and including the last Fiscal Quarter
of Fiscal Year 2001 to but not including the
last Fiscal Quarter of Fiscal Year 2002 $320,000,000
(6) From and including the last Fiscal Quarter
of Fiscal Year 2002 and thereafter $340,000,000
5
<PAGE>
b. An amount equal to the net worth of any
Person that, on or after the Agreement
Date becomes a Subsidiary of the Borrower
or any of its Subsidiaries or is merged
into or consolidated with the Borrower or
any of its Subsidiaries or substantially
all of the assets of which are acquired
by the Borrower or any of its Subsidiaries
to the extent that the purchase price
therefor is paid in Capital Stock of the
Borrower or any of its Subsidiaries $
-----------
c. An amount equal to 100% of any increase in
Net Worth pursuant to offerings of Capital
Stock of the Borrower or any of its
Subsidiaries or pursuant to the conversion
or exchange of any convertible subordinated
debt or redeemable preferred stock into
Capital Stock of the Borrower or any of its
Subsidiaries $
-----------
(excluding any such increase in b. and c. above
as a result of the Fieldcrest Cannon Transaction)
d. Minimum Net Worth [(a) + (b) + (c)] $
--------
2. Actual $
--------
3. Difference [(2) - (1)] $
--------
M. Section 7.14 Sale or Discount of Receivables
1. Maximum in aggregate amount during the Credit Agreement $
--------
2. Actual $
--------
3. Difference [(1) - (2)] $
--------
III. COMPLIANCE CERTIFICATE. [To be completed quarterly] The undersigned
hereby certifies to you as follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from , to , (the "Reporting Period") has been made
under my supervision with a view toward determining whether, during
the Reporting Period, Borrower has kept, observed, performed and
6<PAGE>
<PAGE>
fulfilled all its obligations under the Credit Agreement and such
other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing or is imminent.
This Compliance Certificate is executed and delivered on the day
of , .
PILLOWTEX CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS FOUND ON PAGES 3, 4, 5 AND 6 OF THE
COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED JULY 4, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 5,259
<SECURITIES> 0
<RECEIVABLES> 224,572
<ALLOWANCES> 16,954
<INVENTORY> 407,593
<CURRENT-ASSETS> 643,833
<PP&E> 595,891
<DEPRECIATION> 79,235
<TOTAL-ASSETS> 1,448,921
<CURRENT-LIABILITIES> 198,265
<BONDS> 864,107
0
0
<COMMON> 141
<OTHER-SE> 210,690
<TOTAL-LIABILITY-AND-EQUITY> 1,448,921
<SALES> 698,421
<TOTAL-REVENUES> 698,421
<CGS> 575,918
<TOTAL-COSTS> 575,918
<OTHER-EXPENSES> 67,670
<LOSS-PROVISION> 826
<INTEREST-EXPENSE> 33,798
<INCOME-PRETAX> 21,035
<INCOME-TAX> 8,308
<INCOME-CONTINUING> 12,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,727
<EPS-PRIMARY> .83
<EPS-DILUTED> .75
</TABLE>
