<PAGE> 1
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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 3, 1999
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 9, 1999
Common Stock, $0.01 par value 14,183,981
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<PAGE> 2
PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Unaudited Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
January 2, 1999 and July 3, 1999 3
Consolidated Statements of Earnings for the three months
ended July 4, 1998 and July 3, 1999 4
Consolidated Statements of Earnings for the six months
ended July 4, 1998 and July 3, 1999 5
Consolidated Statements of Cash Flows for the six months
ended July 4, 1998 and July 3, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Index to Exhibits 22
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<PAGE> 3
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 2, 1999 and July 3, 1999
(Dollars in thousands, except for par value)
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . .$ 5,561 $ 9,032
Receivables:
Trade, less allowances of $21,117 and $22,387 in
1998 and 1999, respectively. . . . . . . . . . . . . 246,348 264,082
Other. . . . . . . . . . . . . . . . . . . . . . . . . 13,124 10,945
Inventories. . . . . . . . . . . . . . . . . . . . . . 434,281 509,246
Assets held for sale . . . . . . . . . . . . . . . . . 4,058 4,678
Prepaid expenses . . . . . . . . . . . . . . . . . . . 3,785 6,903
----------- -----------
Total current assets. . . . . . . . . . . . . . . . 707,157 804,886
Property, plant and equipment, less accum. depreciation
of $98,737 and $121,847 in 1998 and 1999, respectively 629,205 640,402
Intangible assets, at cost less accumulated
amortization of $11,866 and $15,697 in 1998
and 1999, respectively . . . . . . . . . . . . . . . . 289,829 293,828
Other assets . . . . . . . . . . . . . . . . . . . . . . 27,963 27,028
----------- -----------
$1,654,154 $1,766,144
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . .$ 127,575 $ 173,588
Accrued expenses . . . . . . . . . . . . . . . . . . . 96,250 78,563
Deferred income taxes. . . . . . . . . . . . . . . . . 22,978 25,320
Current portion of long-term debt. . . . . . . . . . . 12,421 16,926
Income taxes payable . . . . . . . . . . . . . . . . . - 924
----------- -----------
Total current liabilities . . . . . . . . . . . . . 259,224 295,321
Long-term debt, net of current portion . . . . . . . . . 944,493 1,019,396
Deferred income taxes. . . . . . . . . . . . . . . . . . 96,013 90,133
Noncurrent liabilities . . . . . . . . . . . . . . . . . 53,434 50,523
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . 1,353,164 1,455,373
Series A redeemable convertible preferred stock, $.01
par value; 65,000 shares issued and outstanding. . . . 63,057 63,165
Shareholders' equity:
Preferred stock, $0.01 par value; authorized
20,000,000 shares; only Series A issued. . . . . . . - -
Common stock, $0.01 par value; authorized 55,000,000
shares; 14,126,595 and 14,184,630 shares issued
and outstanding in 1998 and 1999, respectively . . . 141 142
Additional paid-in capital . . . . . . . . . . . . . . 155,811 157,067
Retained earnings. . . . . . . . . . . . . . . . . . . 83,650 92,899
Currency translation adjustment. . . . . . . . . . . . (1,669) (1,547)
Deferred compensation. . . . . . . . . . . . . . . . . - (955)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . 237,933 247,606
----------- -----------
$1,654,154 $1,766,144
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended July 4, 1998 and July 3, 1999
(Amounts in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 332,046 $ 362,468
Cost of goods sold . . . . . . . . . . . . . . . . . . . 275,329 300,908
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 56,717 61,560
Selling, general and administrative expenses . . . . . . 28,153 31,103
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 28,564 30,457
Interest expense . . . . . . . . . . . . . . . . . . . . 17,003 19,735
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 11,561 10,722
Income taxes . . . . . . . . . . . . . . . . . . . . . . 4,469 3,949
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 7,092 6,773
Preferred dividends and accretion. . . . . . . . . . . . 541 540
---------- ----------
Earnings available for common shareholders. . . . . $ 6,551 $ 6,233
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .47 $ .44
========== ==========
Weighted average common shares outstanding - basic . . . 14,083 14,186
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .42 $ .40
========== ==========
Weighted average common shares outstanding - diluted . . 17,088 16,914
========== ==========
Dividends declared per common share. . . . . . . . . . . $ .06 $ .06
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended July 4, 1998 and July 3, 1999
(Amounts in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 698,421 $ 730,975
Cost of goods sold . . . . . . . . . . . . . . . . . . . 580,165 613,201
---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . 118,256 117,774
Selling, general and administrative expenses . . . . . . 61,884 59,239
Restructuring charge . . . . . . . . . . . . . . . . . . 1,539 -
---------- ----------
Earnings from operations. . . . . . . . . . . . . . 54,833 58,535
Interest expense . . . . . . . . . . . . . . . . . . . . 33,798 39,200
---------- ----------
Earnings before income taxes. . . . . . . . . . . . 21,035 19,335
Income taxes . . . . . . . . . . . . . . . . . . . . . . 8,308 7,309
---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . 12,727 12,026
Preferred dividends and accretion. . . . . . . . . . . . 1,027 1,075
---------- ----------
Earnings available for common shareholders. . . . . $ 11,700 $ 10,951
========== ==========
Basic earnings per common share. . . . . . . . . . . . . $ .83 $ .77
========== ==========
Weighted average common shares outstanding - basic . . . 14,041 14,167
========== ==========
Diluted earnings per common share. . . . . . . . . . . . $ .75 $ .71
========== ==========
Weighted average common shares outstanding - diluted . . 17,021 16,925
========== ==========
Dividends declared per common share. . . . . . . . . . . $ .12 $ .12
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended July 4, 1998 and July 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . .$ 12,727 $ 12,026
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . 28,215 27,902
Deferred income taxes . . . . . . . . . . . . . . . . 5,167 1,991
Accretion on debt instruments . . . . . . . . . . . . 643 530
Provision for doubtful accounts . . . . . . . . . . . 826 529
Amortization of deferred compensation . . . . . . . . - 237
Loss on disposal of property, plant and equipment . . 50 65
Changes in operating assets and liabilities:
Trade receivables. . . . . . . . . . . . . . . . . 8,400 (18,285)
Inventories. . . . . . . . . . . . . . . . . . . . (49,154) (74,436)
Accounts payable . . . . . . . . . . . . . . . . . (11,951) 61,771
Accrued expenses . . . . . . . . . . . . . . . . . (9,733) (18,312)
Other assets and liabilities . . . . . . . . . . . (406) 576
---------- ----------
Net cash used in operating activities . . . . . (15,216) (5,406)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment. . . 12,085 458
Purchases of property, plant and equipment . . . . . . . (53,022) (51,081)
Proceeds from disposal of assets held for sale . . . . . 26,195 -
Payments for businesses purchased. . . . . . . . . . . . (21,569) -
---------- ----------
Net cash used in investing activities . . . . . (36,311) (50,623)
---------- ----------
Cash flows from financing activities:
Decrease in checks not yet presented for payment . . . . (20,612) (15,833)
Borrowings on revolving credit loans . . . . . . . . . . 257,700 242,253
Repayments of revolving credit loans . . . . . . . . . . (175,500) (153,293)
Retirement of long-term debt . . . . . . . . . . . . . . (8,415) (10,945)
Payments of debt issuance costs. . . . . . . . . . . . . (484) (56)
Dividends paid . . . . . . . . . . . . . . . . . . . . . (2,724) (2,669)
Proceeds from exercise of stock options. . . . . . . . . 2,217 43
---------- ----------
Net cash provided by financing activities . . . 52,182 59,500
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . 655 3,471
Cash and cash equivalents at beginning of period . . . . . 4,604 5,561
---------- ----------
Cash and cash equivalents at end of period . . . . . . . .$ 5,259 $ 9,032
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . .$ 33,703 $ 39,943
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . .$ (4,821) $ (815)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
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, which is referred to in this report as "Parent," and its
subsidiaries, which are collectively with Parent, referred to in this
report as 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, as filed with the Securities and Exchange Commission on
March 30, 1999 for the fiscal year ended January 2, 1999.
The three and six month periods ended July 3, 1999 include the results of
The Leshner Corporation ("Leshner") which was acquired on July 28, 1998.
Certain reclassifications have been made to conform prior year financial
statements to the current period classifications.
The Company is organized by functional responsibilities and operates as
a single segment.
(2) Comprehensive Income
Comprehensive income consists of net earnings and foreign currency
translation adjustments and aggregates $6.8 million and $12.4 million for
the three and six month periods ended July 4, 1998. For the three and six
month periods ended July 3, 1999 comprehensive income aggregates $6.3
million and $12.1 million, respectively.
(3) Inventories
Inventories consisted of the following at January 2, 1999
and July 3, 1999:
<TABLE>
<CAPTION> 1998 1999
-------- --------
<S> <C> <C>
Finished goods $218,439 $259,928
Work-in-process 134,428 161,064
Raw materials 58,306 61,889
Supplies 23,108 26,365
-------- --------
$434,281 $509,246
======== ========
</TABLE>
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<PAGE> 8
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands)
(Unaudited)
(4) 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 and July 3, 1999. Options to purchase 747,000 shares of
common stock at prices ranging from $16.00 to $44.38 per share were
outstanding during the three month period ended July 3, 1999, but were
not included in the computation of diluted earnings per share because
inclusion would have been antidilutive for the period. All outstanding
options for the three month period ended July 4, 1998 were included in
the computation of diluted earnings per share. Additionally, 681,000
and 633,000 potentially dilutive shares relating to the 6% convertible
debentures for the three and six months ended July 4, 1998 and
July 3, 1999, respectively, were also not included because inclusion
would have been antidilutive for each period.
<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 $ 7,092 17,088 $ 12,727 17,021
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, 1999 July 3, 1999
------------------ ------------------
Earnings Shares Earnings Shares
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Basic - earnings available for common shareholders $ 6,233 14,186 $ 10,951 14,167
Effect of dilutive securities:
Stock options - 20 - 50
Convertible preferred stock 540 2,708 1,075 2,708
-------- ------ -------- ------
Diluted - earnings available for common shareholders $ 6,773 16,914 $ 12,026 16,925
======== ====== ======== ======
</TABLE>
-8-
<PAGE> 9
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information
The following table presents 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 Parent and the guarantees are full, unconditional and
joint and several. Separate financial statements of the guarantor
subsidiaries are not presented because management believes that these
financial statements would not provide relevant material additional
information.
<TABLE>
<CAPTION>
January 2, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Trade receivables $ - $ 240,909 $ 5,439 $ - $ 246,348
Receivable from affiliates 746,839 - - (746,839) -
Inventories - 424,563 9,718 - 434,281
Other current assets - 25,946 582 - 26,528
------------ ------------ ------------ ------------ ------------
Total current assets 746,839 691,418 15,739 (746,839) 707,157
Property, plant and equipment, net 565 627,114 1,526 - 629,205
Intangibles, net 19,102 268,478 2,249 - 289,829
Other assets 382,558 17,898 - (372,493) 27,963
------------ ------------ ------------ ------------ ------------
Total assets $ 1,149,064 $ 1,604,908 $ 19,514 $(1,119,332) $ 1,654,154
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- -------------------------------------
Accounts payable and accrued liabilities $ 6,425 $ 212,823 $ 4,577 $ - $ 223,825
Payables to affiliates - 744,000 2,839 (746,839) -
Other current liabilities 8,318 27,002 79 - 35,399
------------ ------------ ------------ ------------ ------------
Total current liabilities 14,743 983,825 7,495 (746,839) 259,224
Noncurrent liabilities 833,331 260,082 527 - 1,093,940
------------ ------------ ------------ ------------ ------------
Total liabilities 848,074 1,243,907 8,022 (746,839) 1,353,164
Redeemable convertible preferred stock 63,057 - - - 63,057
Shareholders' equity 237,933 361,001 11,492 (372,493) 237,933
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 1,149,064 $ 1,604,908 $ 19,514 $(1,119,332) $ 1,654,154
============ ============ ============ ============ ============
</TABLE>
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<PAGE> 10
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION>
July 3, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Financial Position Parent Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
- -------
Trade receivables $ - $ 259,485 $ 4,597 $ - $ 264,082
Receivable from affiliates 750,932 - - (750,932) -
Inventories - 494,199 15,047 - 509,246
Other current assets - 31,283 275 - 31,558
------------ ------------ ------------ ------------ ------------
Total current assets 750,932 784,967 19,919 (750,932) 804,886
Property, plant and equipment, net 521 638,419 1,462 - 640,402
Intangibles, net 17,651 273,859 2,318 - 293,828
Other assets 474,705 17,444 - (465,121) 27,028
------------ ------------ ------------ ------------ ------------
Total assets $ 1,243,809 $ 1,714,689 $ 23,699 $(1,216,053) $ 1,766,144
============ ============ ============ ============ ============
Liabilities and Shareholders' Equity:
- -------------------------------------
Accounts payable and accrued liabilities $ 6,005 $ 242,137 $ 4,009 $ - $ 252,151
Payables to affiliates - 744,000 6,932 (750,932) -
Other current liabilities 13,628 29,459 83 - 43,170
------------ ------------ ------------ ------------ ------------
Total current liabilities 19,633 1,015,596 11,024 (750,932) 295,321
Noncurrent liabilities 913,405 246,107 540 - 1,160,052
------------ ------------ ------------ ------------ ------------
Total liabilities 933,038 1,261,703 11,564 (750,932) 1,455,373
Redeemable convertible preferred stock 63,165 - - - 63,165
Shareholders' equity 247,606 452,986 12,135 (465,121) 247,606
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 1,243,809 $ 1,714,689 $ 23,699 $(1,216,053) $ 1,766,144
============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE> 11
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<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 - 270,448 5,686 (805) 275,329
------------ ------------ ------------ ------------ ------------
Gross profit (loss) - 57,302 (585) - 56,717
Selling, general and administrative (1,671) 29,458 366 - 28,153
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,671 27,844 (951) - 28,564
Equity in earnings of subsidiaries 6,775 - - (6,775) -
Interest expense 1,184 15,818 1 - 17,003
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 7,262 12,026 (952) (6,775) 11,561
Income taxes 170 4,301 (2) - 4,469
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 7,092 7,725 (950) (6,775) 7,092
Preferred dividends 541 - - - 541
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for common
shareholders $ 6,551 $ 7,725 $ (950) $ (6,775) $ 6,551
============ ============ ============ ============ ============
<CAPTION> Three Months Ended July 3, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 356,723 $ 6,886 $ (1,141) $ 362,468
Cost of goods sold - 295,340 6,709 (1,141) 300,908
------------ ------------ ------------ ------------ ------------
Gross profit - 61,383 177 - 61,560
Selling, general and administrative (1,045) 31,946 202 - 31,103
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,045 29,437 (25) - 30,457
Equity in earnings of subsidiaries 6,163 - - (6,163) -
Interest expense (income) 107 19,634 (6) - 19,735
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 7,101 9,803 (19) (6,163) 10,722
Income taxes 328 3,638 (17) - 3,949
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 6,773 6,165 (2) (6,163) 6,773
Preferred dividends 540 - - - 540
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for common
shareholders $ 6,233 $ 6,165 $ (2) $ (6,163) $ 6,233
============ ============ ============ ============ ============
</TABLE>
-11-
<PAGE> 12
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<CAPTION>
Six Months Ended July 4, 1998
------------------------------------------------------------------------
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 - 570,353 11,268 (1,456) 580,165
------------ ------------ ------------ ------------ ------------
Gross profit - 118,239 17 - 118,256
Selling, general and administrative (1,872) 63,000 756 - 61,884
Restructure charges - 1,539 - - 1,539
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations 1,872 53,700 (739) - 54,833
Equity in earnings of subsidiaries 11,544 - - (11,544) -
Interest expense 52 33,746 - - 33,798
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 13,364 19,954 (739) (11,544) 21,035
Income taxes 637 7,658 13 - 8,308
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 12,727 12,296 (752) (11,544) 12,727
Preferred dividends 1,027 - - - 1,027
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for common
shareholders $ 11,700 $ 12,296 $ (752) $ (11,544) $ 11,700
============ ============ ============ ============ ============
<CAPTION> Six Months Ended July 3, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Results of Operations Parent Subsidiaries Subsidiaries Eliminations Consolidated
- --------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 719,386 $ 13,711 $ (2,122) $ 730,975
Cost of goods sold - 602,567 12,756 (2,122) 613,201
------------ ------------ ------------ ------------ ------------
Gross profit - 116,819 955 - 117,774
Selling, general and administrative (2,087) 60,926 400 - 59,239
------------ ------------ ------------ ------------ ------------
Earnings from operations 2,087 55,893 555 - 58,535
Equity in earnings of subsidiaries 10,202 - - (10,202) -
Interest expense (income) (719) 39,936 (17) - 39,200
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 13,008 15,957 572 (10,202) 19,335
Income taxes 982 6,276 51 - 7,309
------------ ------------ ------------ ------------ ------------
Net earnings (loss) 12,026 9,681 521 (10,202) 12,026
Preferred dividends 1,075 - - - 1,075
------------ ------------ ------------ ------------ ------------
Earnings (loss) available for common
shareholders $ 10,951 $ 9,681 $ 521 $ (10,202) $ 10,951
============ ============ ============ ============ ============
</TABLE>
-12-
<PAGE> 13
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Condensed Consolidating Financial Information (Continued)
<TABLE>
<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 52 (36,321) (42) - (36,311)
Cash provided by (used in) financing activities (9,356) 62,757 (1,219) - 52,182
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 661 (6) - 655
Cash and cash equivalents at beginning of period - 4,590 14 - 4,604
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 5,251 $ 8 $ - $ 5,259
============ ============ ============ ============ ============
<CAPTION>
Six Months Ended July 3, 1999
------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash Flows Parent Subsidiaries Subsidiaries Eliminations Consolidated
- ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 17,874 $ (19,399) $ (3,881) $ - $ (5,406)
Cash provided by (used in) investing activities 44 (50,595) (72) - (50,623)
Cash provided by (used in) financing activities (17,918) 73,605 3,813 - 59,500
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents - 3,611 (140) - 3,471
Cash and cash equivalents at beginning of period - 5,554 7 - 5,561
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ - $ 9,165 $ (133) $ - $ 9,032
============ ============ ============ ============ ============
</TABLE>
-13-
<PAGE> 14
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 2, 1999.
RESULTS OF OPERATIONS
NET SALES. Net sales were $362.5 million for the three months ended July 3,
1999, representing an increase of $30.5 million or 9.2%, as compared to $332.0
million for the three months ended July 4, 1998. Net sales for the six months
ended July 3, 1999 increased by $32.6 million or 4.7%, to $731.0 million from
$698.4 million for the same period of the prior year. The majority of the
increase for the second quarter and first half of 1999 is due to the
acquisition of Leshner in July of 1998. Net sales for bath products increased
both for the second quarter and first half of 1999 when compared to the same
periods for 1998. Bedding products also show increases for these two periods
except net sales of blankets which were down year over year, which is primarily
attributable to exiting the Disney licensed business and the inability to ship
products in the first quarter during computer systems conversions in the
plants.
GROSS PROFIT. Gross profit margins decreased slightly to 17.0% for the three
months ended July 3, 1999 from 17.1% for the three months ended July 4, 1998.
Gross profit margin for the six months ended July 3, 1999 decreased to 16.1%
from 16.9% for the same period in the prior year. The declines in gross profit
margin are primarily due to higher costs and unabsorbed overhead expenses
associated with the system installations.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses increased $2.9
million to $31.1 million for the three months ended July 3, 1999, compared to
$28.2 million for the three months ended July 4, 1998. As a percentage of net
sales, SG&A expenses remained nearly flat with a slight increase to 8.6% for
the three months ended July 3, 1999 from 8.5% for the three months ended
July 4, 1998. The increase in SG&A expenses for the quarter is attributable to
increased advertising, travel, and increased expenses of operating the new
computer systems in parallel with existing legacy systems. SG&A expenses
decreased by $2.6 million from $61.9 million or 8.9% of net sales for the six
months ended July 4, 1998 to $59.2 million or 8.1% of net sales for the
same period this year. The most significant reason for the decrease is due
to lower professional fees and other costs associated with the settlement of
a lawsuit in the first half of 1998.
INTEREST EXPENSE. Interest expense increased $2.7 million to $19.7 million for
the three months ended July 3, 1999, compared to $17.0 million for the three
months ended July 4, 1998. Interest expense for the six month period ended
July 3, 1999 increased $5.4 million to $39.2 million from $33.8 million for the
six month period ended July 4, 1998. The increase is primarily due to the
additional debt incurred as a result of the Leshner acquisition and higher
working capital requirements. Average interest rates for the three month
period ended July 3, 1999 declined to 7.8% from 8.4% for the period ended
July 4, 1998. Average interest rates for the six month period ended July 3,
1999 also declined to 7.9% from 8.5% for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its principal sources of liquidity will be funds
from its operations and funds available under its revolving credit facilities.
As of July 3, 1999, the outstanding principal balance under the Company's
$350.0 million secured revolving credit facility was $271.8 million, with $36.7
million committed to outstanding letters of credit and $30.5 million committed
for future potential payments on the 6% convertible debentures (which amount
is equal to 50% of the cash that would have been payable if all of those
debentures were converted on that date). As of July 3, 1999, the Company had
$11.0 million of availability under its revolving credit facility. The debt
outstanding under the revolving credit facility as of July 3, 1999 was $89.0
million higher than at January 2, 1999. This increase was due to seasonal
buildups in blanket inventory, to assure product supply during the production
and warehousing system implementations at several plants, to ensure adequate
stock for new product roll-outs scheduled for the second and third quarters, and
to accelerate certain capital projects. As of July 3, 1999 the Company's total
debt had increased approximately $172.0 million from the period ending July 4,
1998 due primarily to the acquisition of Leshner, to assure product supply
during the production and warehousing system implementations, to ensure
adequate stock for new product roll-outs and to accelerate certain capital
projects. The Company expects to reduce borrowings for working capital for the
rest of 1999 primarily by reducing inventory and accounts receivable; however,
the Company can give no assurance that it will be able to reduce inventory as
planned. The Company expects a reduction in the manufacturing inefficiencies
-14-
<PAGE> 15
and shipping problems experienced with the system installations; however, no
assurance can be given that the Company will not experience additional
difficulties in connection with the installation of these computer systems.
As permitted under the terms of the Company's secured revolving credit
facility, in May 1999, the Company entered into a $20.0 million senior
unsecured revolving credit facility in order to assure adequate working capital
availability and continue the current capital expenditure initiatives. On July
27, 1999, the Company amended the senior unsecured facility to increase the
amount of funds available to $35.0 million and to extend the original maturity
date. The senior unsecured facility is guaranteed on a senior basis by the
Company's domestic subsidiaries. The Company is required to pay interest on
any amounts borrowed under the senior unsecured facility at a rate which is
based upon the London Interbank Offered Rate plus 4.0% or the prime rate plus
2.5% at the Company's option. The senior unsecured facility matures upon
termination by the Company at any time or otherwise at the earliest of: a) any
increase in the commitment under the secured facility or the Company's existing
term loans, the issuance of any capital stock by the Company or its domestic
subsidiaries, or other specified events; or b) December 1, 1999.
Based upon current and anticipated levels of operations, the Company expects
that its cash flow from operations, together with amounts available under the
revolving credit facilities, which totaled $31.0 million as of July 3, 1999,
will be adequate to meet its anticipated cash requirements in the foreseeable
future. In the event that such amounts are not sufficient for future cash
requirements, the Company may be required to reduce planned capital
expenditures or obtain additional financing. The Company can provide no
assurances that financing would be available or, if available, offered on terms
acceptable to the Company.
As of August 13, 1999, the Company's total long-term debt (including the
current portion) was $1,058.3 million. As of that date, $11.0 million of
borrowings were outstanding under the senior unsecured revolving credit
facility.
Instruments governing the Company's debt, including its secured revolving
credit facility, require it to maintain specified financial ratios and satisfy
financial condition tests. Among other things, the senior secured credit
facilities establish a maximum leverage ratio the ratio of total debt to
EBITDA (as defined) for four consecutive fiscal quarters that the Company may
have as of the end of any fiscal quarter. The maximum leverage ratio
(calculated at the end of each fiscal quarter) under this facility is currently
5.25-to-one and declines first to 4.75-to-one commencing with the last fiscal
quarter of the 1999 fiscal year and thereafter to 4.25-to-one commencing with
the last fiscal quarter of fiscal year 2000. At July 3, 1999, the Company's
leverage ratio was 5.17-to-one, based on total debt of $1,036.3 million and
EBITDA for the four consecutive fiscal quarters ending July 3, 1999 of $200.4
million (which amount includes $0.4 million of Leshner's pre-acquisition EBITDA
as permitted under the secured revolving credit facility). As of July 3, 1999,
the Company was in compliance with the specified financial ratios and financial
condition tests, including the maximum leverage ratio, imposed on it under its
debt instruments; however, the Company can make no assurance that it will be
able to maintain that compliance.
The Company periodically enters into interest rate swap agreements to minimize
the risk of fluctuations in interest rates. As of January 2, 1999 and July 3,
1999, the Company had swap agreements covering approximately $345.0 million of
notional amounts exchanging floating rates for fixed rates. The weighted
average fixed and floating rates were 4.7% and 5.3%, respectively, at
January 2, 1999 and 4.7% and 5.0%, respectively, at July 3, 1999. The fair
value of the swaps at January 2, 1999 and July 3, 1999 was $2.1 million and
$3.7 million, respectively. The fair values were in favor of the Company.
On June 30, 1999, the Company paid a cash dividend of $.06 per share to its
common shareholders of record as of June 18, 1999. Additionally, the Company
paid preferred dividends in cash in the amount of $481,000 during the second
quarter of 1999.
-15-
<PAGE> 16
Dividends currently accrue on the preferred stock at a rate of 3% per annum and
are currently payable in cash or in-kind at the Company's option. To date, the
Company has elected to pay such dividends in cash on a quarterly basis.
Beginning January 1, 2000, the preferred stock dividend rate may increase
depending on the Company's diluted earnings per share, calculated on a
pro forma basis as provided in the preferred stock terms, for the 1999 fiscal
year which ends January 1, 2000. The following table indicates the dividend
rate that will result at January 1, 2000 based on 1999 pro forma earnings per
share:
<TABLE>
<CAPTION>
Applicable Dividend
Rate at
1999 Pro Forma Earnings Per Share January 1, 2000
--------------------------------- -------------------
<S> <C>
$2.70 or greater 3.0% per annum
$2.35 to$2.69 7.0% per annum
$2.34 or less 10.0% per annum
</TABLE>
In addition, if the Company's 1999 pro forma earnings per share are below
$2.70, the Company will be obligated to pay a one-time cumulative dividend in
shares of the preferred stock in an amount equal to approximately 2,669 shares
(or $2.7 million) which is convertible into 111,208 common shares. If the
Company's 1999 pro forma earnings per share are below $2.35, this one-time
dividend increases to approximately 10,135 shares (or $10.1 million) which is
convertible into 422,291 common shares. The Company's diluted earnings per
share were $0.71 for the first half of 1999. The Company cannot assure you
that the 1999 pro forma earnings per share will be $2.35 or greater.
NEW ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As amended by SFAS
No. 137, the provisions of SFAS No. 133 are effective for financial statements
for fiscal years beginning after June 15, 2000, 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
GENERAL
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 incorrect
results by or at the Year 2000. This could disrupt the Company's operations
and those of its suppliers and customers. This "Year 2000" issue is believed
to affect virtually all companies and organizations, including the Company.
PILLOWTEX'S READINESS
SYSTEMS REPLACEMENT PROJECT. In 1995, the Company began a project to improve
its access to business information through common integrated computing and
reporting systems. In 1996, before the Company acquired Fieldcrest Cannon,
Fieldcrest Cannon had begun a similar project. Each of the Company and
Fieldcrest Cannon had decided to use systems using software applications
primarily developed by Oracle Corporation. These applications replace many of
the accounting, reporting, and manufacturing systems that are, or previously
had been, used at the Company and Fieldcrest Cannon. Also, the Company and
Fieldcrest Cannon have identified certain other payroll, manufacturing and
warehousing systems to be replaced with software applications from other
vendors. The Company believes that the software applications purchased for
these projects are Year 2000 compliant.
The Company's system replacement project is expected to be completed toward the
end of 1999. Over 95% of the Oracle software development is complete. The
financial application was substantially completed in October 1998. The
Company's payroll conversion was completed during early 1999. The development
-16-
<PAGE> 17
and implementation of the manufacturing and warehousing applications requires
unique customization to meet the specific needs of each plant and is continuing
into the third quarter of 1999.
YEAR 2000 PLAN. The Company has developed a specific plan to help ensure that
the Company is not negatively affected by Year 2000 problems. The plan is
divided into the following components:
(1) Information Technology Systems;
(2) Information Technology Infrastructure;
(3) Process Control and Instrumentation; and
(4) third party suppliers and customers.
Each component includes the following six general phases:
(1) inventory Year 2000 items;
(2) assign priorities to identified items;
(3) assess the impact of items determined not to be Year 2000 compliant;
(4) convert or replace material items that are determined not to be Year
2000 compliant;
(5) test material items; and
(6) design and implement contingency and business continuation plans for
each location.
The Company hired a consultant in 1999 to review the Company's Year 2000 plan
and suggest improvements. The Company identified the most important issues as
the safety of individuals, safety of property and the environment, and the
Company's ability to manufacture and ship its products. The Company received
feedback from the consultant during the second quarter of 1999 and, where
appropriate, has acted upon the consultant's suggestions.
The inventory and priority assessment phases were completed with respect to
each component of the Year 2000 plan in May 1998. The remainder of the Year
2000 plan is ongoing, the majority of which will be completed during the third
quarter of 1999. However, the Company will continue to monitor, review, and
perform testing in each phase through the end of 1999.
INFORMATION TECHNOLOGY SYSTEMS. Information Technology Systems include mostly
applications software. The Company is remediating its applications software
mostly through its systems replacement project. Other non-compliant
applications software is being converted internally through custom programming
or will be replaced by the software supplier. The conversion phase of
Information Technology Systems will be completed during the third quarter
of 1999. The testing of converted software is ongoing and will continue
through the end of 1999. Vendor software replacements and upgrades were
completed during the second quarter of 1999 for the majority of the plant
conversions. However, certain vendor software upgrades will not be complete
until the third quarter of 1999. The testing of converted software will be
conducted as the software is replaced and will continue through the end of the
year. Contingency planning with respect to Information Technology Systems is
ongoing, but the high level planning was completed during the second quarter of
1999. Detailed refinement of these plans will continue into the third and
fourth quarters, as other system conversions are completed.
INFORMATION TECHNOLOGY INFRASTRUCTURE. Information Technology Infrastructure
includes hardware and systems software other than applications software. The
Year 2000 plan for Information Technology Infrastructure is on schedule.
Substantially all of the changes to Information Technology Infrastructure are
complete, and the Company is now in the testing phase which will continue
through the end of the year. Contingency planning with respect to Information
Technology Infrastructure is ongoing. Development and enhancement will
continue through the end of the year.
PROCESS CONTROL AND INSTRUMENTATION. The Process Control and Instrumentation
component involves the hardware, software, and associated embedded computer
-17-
<PAGE> 18
chips that are used in the operation of the Company's facilities. The Year
2000 plan with respect to this component is in place. A significant portion
of the Process Control and Instrumentation vendors have responded to
questionnaires indicating their equipment is Year 2000 compliant. Less than 5%
of those vendors, who have responded, have reported non-compliance. The
non-compliant systems are prioritized and have been or will be remediated. The
Company is following up with those vendors who have not responded to the
questionnaires. The Company is still assessing the needs of its newly
acquired facilities and expects to complete this assessment during the third
quarter of 1999. Contingency planning with respect to this component
is ongoing and will be based on the results of tests expected to be completed
by the end of the third quarter of 1999.
THIRD PARTY SUPPLIERS AND CUSTOMERS. The third party component of the Year
2000 plan involves identifying and prioritizing critical business partners at
the direct interface level and communicating with them about their plans and
progress in addressing the Year 2000 issue. Detailed evaluations of the most
important third parties have been started. The Company is developing
contingency plans based upon these evaluations. Contingency planning will
continue with the Company's business partners throughout 1999. The Company
believes the development and implementation of this component of the Year 2000
plan is on schedule as of July 3, 1999.
COSTS TO ADDRESS THE BUSINESS SYSTEM REPLACEMENTS AND YEAR 2000
As of July 3, 1999, the Company had spent approximately $77.0 million on the
systems replacement project. A portion of these costs relate to expenditures
made prior to the acquisition of Fieldcrest Cannon. The Company estimates
that it will spend $26.0 million in 1999 to complete the systems replacement
project, of which $22.0 million has been incurred as of July 3, 1999. Expenses
to complete remediation are not expected to significantly impact the Company's
results of operations or financial position. The Company believes that it will
have sufficient operating cash flows for any remaining costs related to the
systems replacement project and the Year 2000 plan. The Company does not
expect that these costs will affect its liquidity or financial condition;
however, the Company can make no assurance that the actual costs will not
exceed those estimated above or that it will have available liquidity to fund
any such additional costs.
RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES
The Company's failure to resolve Year 2000 issues on or before
December 31, 1999 could result in system failures or miscalculations causing
disruption in operations, including, among other things, a temporary inability
to process transactions, send invoices, send and/or receive e-mail and voice
mail, or engage in similar normal business activities. Additionally, failure
of third parties, upon whom the Company's business relies, to timely remediate
their Year 2000 issues could result in disruption of the Company's supply of
materials and parts, late, missed or unapplied payments, temporary disruptions
in order processing and other general problems related to the Company's daily
operations. While the Company believes the Year 2000 Plan will adequately
address the Company's internal Year 2000 issues, until the Company receives
responses from all significant business partners, the overall risks associated
with the Year 2000 issue remain difficult to accurately assess and quantify.
Therefore, the Company cannot assure you that the Year 2000 issue will not have
a material adverse effect on the Company and its operations.
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 2, 1999.
-18-
<PAGE> 19
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 5, 1999.
The following proposals were voted upon and approved at the Annual meeting:
(1) Election of Directors
For Three-Year Terms Expiring in 2002:
<TABLE>
<CAPTION>
Votes Votes Broker
Cast For Withheld Non-Votes
---------- -------- ---------
<S> <C> <C> <C>
Paul G. Gillease 12,790,811 85,038 0
Ralph W. La Rovere 12,794,232 81,617 0
Scott E. Shimizu 12,791,367 84,482 0
Mark A. Petricoff 12,784,981 90,868 0
</TABLE>
There were no abstentions with respect to the election of directors
Charles M. Hansen, Jr., William B. Madden, M. Joseph McHugh,
Kevin M. Finlay, Mary R. Silverthorne and Jeffrey D. Cordes continued as
directors of the Company.
(2) Approval of the amendment to the Restated Articles of
Incorporation to increase the number of shares of authorized Common Stock
from 30,000,000 shares to 55,000,000 shares:
Votes Votes Votes
Cast For Against Abstaining
---------- ---------- ----------
12,077,693 785,527 10,827
-19-
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of Pillowtex Corporation, as
amended
10.1 Promissory Note dated May 4, 1999 by and between Nationsbank, N.A.,
as Lender, and Pillowtex Corporation, as Borrower, in the amount of
$20,000,000
10.2 First Amendment, dated July 27, 1999, to the Promissory Note, dated
May 4, 1999, by and between Bank of America N.A. (formerly
Nationsbank, N.A.), as Lender, and Pillowtex Corporation, as Borrower
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-20-
<PAGE> 21
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 Officer)
(DATE) AUGUST 16, 1999
-21-
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- -----------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Pillowtex Corporation, as amended . . . Filed herewith electronically
10.1 Promissory Note dated May 4, 1999 by and between Nationsbank, N.A.,
as Lender, and Pillowtex Corporation, as Borrower, in the amount of
$20,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
10.2 First Amendment, dated July 27, 1999, to the Promissory Note, dated
May 4, 1999, by and between Bank of America N.A. (formerly
Nationsbank, N.A.), as Lender, and Pillowtex Corporation, as Borrower . . . . Filed herewith electronically
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith electronically
</TABLE>
-22-
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PILLOWTEX CORPORATION
Pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act (the "Act"), Pillowtex Corporation (the "Corporation") hereby
adopts Restated Articles of Incorporation, which accurately copy the Articles
of Incorporation and all amendments thereto that are in effect to date, as
further amended by these Restated Articles of Incorporation, and which contain
no other change in any provision thereof.
ARTICLE ONE. The name of the Corporation is Pillowtex Corporation.
ARTICLE TWO. The following amendments to the Articles of
Incorporation were adopted by the unanimous written consent of the shareholders
of the Corporation as of January 18, 1993:
Article V of the Articles of Incorporation is hereby amended to read
in its entirety as follows:
"ARTICLE V
The aggregate number of shares which the corporation
is authorized to issue is 50,000,000 shares consisting of
30,000,000 shares of Common Stock, having a par value of $0.01
per share and 20,000,000 shares of Preferred Stock, having a
par value of $0.01 per share.
The following is a statement of the relative rights,
preferences and limitations with respect to the shares of each
class of capital stock of the corporation, insofar as the same
are fixed in these Articles of Incorporation, and of the
authority expressly vested in the Board of Directors of the
corporation to divide the Preferred Stock into series and to
fix and determine the variations in the relative rights and
preferences as between series:
A. Preferred Stock
1. The Preferred Stock may, from time
to time, be divided into and issued in one or more
series. The shares of each series may have such
designations, preferences, limitations and relative
rights, including voting rights, as are stated herein
and in one or more resolutions providing for the
issue of such series adopted by the Board of
Directors as hereinafter provided.
1
<PAGE> 2
2. To the extent that these Articles of
Incorporation do not fix and determine the variations
in the relative rights and preferences of the
Preferred Stock, both in relation to the Common Stock
and as between series of Preferred Stock, the Board
of Directors of the corporation is expressly vested
with the authority to divide the Preferred Stock into
one or more series and, within the limitations set
forth in these Articles of Incorporation, to fix and
determine the designation, preferences, limitations
and relative rights of the shares of any series so
established, and, with respect to each such series,
to fix by one or more resolutions providing for the
issue of such series, the following:
(a) The maximum number of shares to
constitute such series and the distinctive
designation thereof;
(b) The annual dividend rate, if
any, on the shares of such series and the
date or dates from which dividends shall
commence to accrue or accumulate as herein
provided, and whether dividends shall be
cumulative;
(c) The price at and the terms and
conditions on which the shares of such series
may be redeemed, including, without
limitation, the time during which shares of
the series may be redeemed, the premium, if
any, over and above the par value thereof and
any accumulated dividends thereon that the
holders of shares of such series shall be
entitled to receive upon the redemption
thereof, which premium may vary at different
dates and may also be different with respect
to shares redeemed through the operation of
any retirement or sinking fund;
(d) The liquidation preference, if
any, over and above the par value thereof,
and any accumulated dividends thereon, that
the holders of shares of such series shall be
entitled to receive upon the voluntary or
involuntary liquidation, dissolution or
winding up of the affairs of the corporation;
(e) Whether or not the shares of
such series shall be subject to the operation
of a retirement or sinking fund, and, if so,
the extent and manner in which any such
retirement
2
<PAGE> 3
or sinking fund shall be applied to the
purchase or redemption of the shares of such
series for retirement or for other corporate
purposes, and the terms and provisions
relative to the operations of such retirement
or sinking fund;
(f) The terms and conditions, if
any, on which the shares of such series shall
be convertible into, or exchangeable for,
shares of any other class or classes of
capital stock of the corporation or any
series of any other class or classes, or of
any other series of the same class, including
the price or prices or the rate or rates of
conversion or exchange and the method, if
any, of adjusting the same, provided that
shares of such series may not be convertible
into shares of a series or class that has
prior or superior rights and preferences as
to dividends or distribution of assets of the
corporation upon voluntary or involuntary
liquidation, dissolution or winding up of the
affairs of the corporation;
(g) The voting rights, if any, on
the shares of such series; and
(h) Any or all other preferences
and relative, participating, optional or
other special rights, or qualifications,
limitations or restrictions thereof, as shall
not be inconsistent with the law or with this
Article V.
3. All shares of any one series of
Preferred Stock shall be identical with each other in
all respects, except that shares of any one series
issued at different times may differ as to the dates
from which dividends thereon, if any, shall be
cumulative; and all series shall rank equally and be
identical in all respects, except as provided in
Paragraph 1 of this Section A and except as permitted
by the provisions of Paragraph 2 of this Section A.
4. Except to the extent restricted or
otherwise provided in the resolution or resolutions
adopted by the Board of Directors providing for the
issue of any series of Preferred Stock, no dividends
(other than dividends payable in Common Stock) on any
class or classes of capital stock of the corporation
ranking, with respect to dividends,
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<PAGE> 4
junior to the Preferred Stock, or any series thereof,
shall be declared, paid or set apart for payment,
until and unless the holders of shares of Preferred
Stock of each senior series shall have been paid, or
there shall have been set apart for payment, cash
dividends, when and as declared by the Board of
Directors out of funds of the corporation legally
available therefor, at the annual rate, and no more,
fixed in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such
series.
5. To the extent provided in the
resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of
Preferred Stock, upon the voluntary or involuntary
liquidation, dissolution or winding up of the affairs
of the corporation, before any payment or
distribution of the assets of the corporation
(whether capital or surplus) shall be made to or set
apart for the holders of any class or classes of
capital stock of the corporation ranking junior, as
to liquidation rights, to the Preferred Stock, or any
series thereof, the holders of the shares of the
Preferred Stock shall be entitled to receive payment
at the rate fixed in the resolution or resolutions
adopted by the Board of Directors providing for the
issue of the respective series. Unless otherwise
provided in the resolution or resolutions adopted by
the Board of Directors providing for the issue of any
series of Preferred Stock, for the purposes of this
Paragraph 5 and Paragraph 2(d) of this Section A,
neither the consolidation nor merger of the
corporation with one or more other corporations shall
be deemed to be a liquidation, dissolution or winding
up.
6. The corporation, at the option of
the Board of Directors, may redeem, unless otherwise
provided in the resolution establishing a series of
Preferred Stock, at such time as is fixed (and if not
so fixed, at any time) in the resolution or
resolutions adopted by the Board of Directors
providing for the issue of a series, the whole or,
from time to time, any part of the Preferred Stock of
any series then outstanding, at the par value
thereof, plus in every case an amount equal to all
accumulated dividends, if any (whether or not earned
or declared), with respect to each share so redeemed
and, in addition thereto, the amount of the premium,
if any, payable upon such redemption fixed in the
resolution or resolutions adopted by
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<PAGE> 5
the Board of Directors providing for the issue of
such series. The Board of Directors shall have full
power and authority, subject to the limitations and
provisions contained herein and in the Texas Business
Corporation Act, to prescribe the terms and
conditions upon which the Preferred Stock shall be
redeemed from time to time.
7. Shares of Preferred Stock that have
been redeemed, purchased or otherwise acquired by the
corporation or that, if convertible or exchangeable,
have been converted into or exchanged for shares of
capital stock of any other class or classes or any
series of any other class or classes or of any other
series of the same class, shall be cancelled and such
shares may not under any circumstances thereafter be
reissued as Preferred Stock, and the corporation
shall from time to time cause all such acquired
shares of Preferred Stock to be cancelled in the
manner provided by law.
8. Nothing herein contained shall limit
any legal right of the corporation to purchase any
shares of the Preferred Stock.
B. Common Stock
1. Shares of Common Stock may be issued
by the corporation from time to time for such
consideration as may lawfully be fixed by the Board
of Directors.
2. The Common Stock shall be entitled
to one vote per share on all matters. Cumulative
voting for directors shall not be permitted and is
hereby expressly denied.
3. Subject to the prior rights and
preferences of the Preferred Stock set forth in this
Article V, or in any resolution or resolutions
providing for the issuance of a series of Preferred
Stock, and to the extent permitted by the laws of the
State of Texas, the holders of Common Stock shall be
entitled to receive such cash dividends as may be
declared and made payable by the Board of Directors.
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<PAGE> 6
4. After payment shall have been made
in full to the holders of any series of Preferred
Stock having preferred liquidation rights, upon any
voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the corporation, the
remaining assets and funds of the corporation shall
be distributed among the holders of the Common Stock
according to their respective shares."
Article VIII of the Articles of Incorporation is hereby amended to read in its
entirety as follows:
"ARTICLE VIII
The number of directors shall be fixed in the manner
provided in the Bylaws of the corporation. The current Board
of Directors consists of four directors, and the names and
addresses of the persons who are serving as directors until
their successors are elected and qualified are:
Name Address
---- -------
Mary R. Silverthorne 10640 Lennox Lane
Dallas, Texas 75229
Charles M. Hansen, Jr. 4111 Mint Way
Dallas, Texas 75237
Scott E. Shimizu 4111 Mint Way
Dallas, Texas 75237
Philip J. Souza 4111 Mint Way
Dallas, Texas 75237"
Article IX of the Articles of Incorporation is hereby amended to read in its
entirety as follows:
"ARTICLE IX
The corporation may purchase, directly or indirectly,
its own shares to the extent of the surplus of the
corporation."
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Article X of the Articles of Incorporation is hereby amended to read in its
entirety as follows:
"ARTICLE X
A. Approval of Certain Business Combinations. A Business
Combination (as hereinafter defined) shall require (I) only such
affirmative vote as is required by law and any other provision of
these Articles of Incorporation, if all of the conditions specified in
either of Paragraph 1 or Paragraph 2 of this Section A are met or (ii)
in addition to any affirmative vote required by law or these Articles
of Incorporation, the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding shares of capital stock of
the corporation entitled to vote generally in the election of
directors (referred to in this Article X as the "Voting Stock"),
voting together as a single class (it being understood that for the
purposes of this Article X, each share of the Voting Stock shall have
the number of votes granted to it pursuant to Article V of these
Articles of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law.
1. Approval by Disinterested Directors.
The Business Combination shall have been approved by a
majority of the Disinterested Directors (as
hereinafter defined).
2. Price and Procedure Requirements.
All of the following conditions shall have been met:
(a) The aggregate amount of the
cash and the Fair Market Value (as
hereinafter defined) as of the date of the
consummation of the Business Combination of
consideration other than cash to be received
per share by holders of shares of Common
Stock in such Business Combination shall be
at least equal to the higher of the
following:
(I) (if applicable) the
highest price per share (including any
brokerage commissions, transfer
taxes and soliciting dealers' fees)
paid by the Interested Shareholder
(as hereinafter defined) for any
shares of Common Stock or the common
stock of any Predecessor Corporation
(as hereinafter defined) acquired by
it (1) within the two-year
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<PAGE> 8
period immediately prior to the first
public announcement of the terms of the
proposed Business Combination (the
"Announcement Date") or (2) in the
transaction in which it became an
Interested Shareholder, whichever is
higher; and
(ii) the Fair Market Value
per share of Common Stock on the
Announcement Date or on the date on
which the Interested Shareholder
became an Interested Shareholder
(such later date is referred to in
this Article X as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the
cash and the Fair Market Value as of the date
of the consummation of the Business
Combination of consideration other than cash
to be received per share by holders of shares
of any class of outstanding Voting Stock
other than Common Stock shall be at least
equal to the highest of the following (it
being intended that the requirements of this
Paragraph 2(b) shall be required to be met
with respect to every class of outstanding
Voting Stock, whether or not the Interested
Shareholder has previously acquired any
shares of a particular class of Voting
Stock);
(I) (if applicable) the
highest price per share (including any
brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by
the Interested Shareholder for any
shares of such class of Voting Stock or
a substantially identical class of
stock of any Predecessor Corporation
acquired by it (1) within the two-year
period immediately prior to the
Announcement Date or (2) in the
transaction in which it became an
Interested Shareholder, whichever is
higher;
(ii) (if applicable) the
highest preferential amount per share
to which the holders of shares of such
class of Voting Stock are entitled in
the event of any voluntary or
involuntary liquidation,
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<PAGE> 9
dissolution or winding up of the
corporation; and
(iii) the Fair Market Value
per share of such class of Voting Stock
on the Announcement Date or on the
Determination Date, whichever is
higher.
The consideration to be
received by holders of a particular class of
outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form
as the Interested Shareholder has previously
paid for shares of such class of Voting Stock
or stock of a Predecessor Corporation. If the
Interested Shareholder has paid for shares of
any class of Voting Stock or stock of a
Predecessor Corporation with varying forms of
consideration, the form of consideration for
such class of Voting Stock shall be either
cash or the form used to acquire the largest
number of shares of such class of Voting
Stock or stock of a Predecessor Corporation
previously acquired by it. The price
determined in accordance with Paragraphs 2(a)
and 2(b) of this Section A shall be subject
to appropriate adjustment in the event of any
special dividend or other disposition of
material assets other than in the ordinary
course of business, stock dividend, stock
split, combination of shares or similar
event. Whether specific consideration
satisfies this subsection shall be determined
by vote of a majority of the Disinterested
Directors.
(d) After such Interested
Shareholder has become an Interested
Shareholder and prior to the consummation of
such Business Combination: (I) except as
approved by a majority of the Disinterested
Directors, there shall have been no failure
to declare and pay at the regular date
therefor any full quarterly dividends
(whether or not cumulative) on any
outstanding stock having preference over the
Common Stock as to dividends or upon
liquidation; (ii) there shall have been (1)
no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary
to reflect any subdivision of the Common
Stock), except as approved by a majority of
the Disinterested Directors, and (2) an
increase in such annual
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<PAGE> 10
rate of dividends as necessary to reflect any
reclassification (including any reverse stock
split), recapitalization, reorganization or
any similar transaction that has the effect
of reducing the number of outstanding shares
of the Common Stock, unless the failure so to
increase such annual rate is approved by a
majority of the Disinterested Directors; and
such Interested Shareholder shall not
have become the beneficial owner of any
additional shares of Voting Stock except as
part of the transaction that results in such
Interested Shareholder becoming an Interested
Shareholder.
(e) After such Interested
Shareholder has become an Interested
Shareholder, such Interested Shareholder
shall not have received the benefit, directly
or indirectly (except proportionately as a
shareholder), of any loans, advances,
guaranties, pledges or other financial
assistance or any tax credits or other tax
advantages provided to or by the corporation,
whether in anticipation of or in connection
with such Business Combination or otherwise.
(f) A proxy or information
statement describing the proposed Business
Combination and complying with the
requirements of the Securities Exchange Act
of 1934 and the rules and regulations
thereunder (or any subsequent provisions
replacing such Act, rules or regulations)
shall have been mailed to public shareholders
of the corporation at least 30 days prior to
the consummation of such Business Combination
(whether or not such proxy or information
statement is required to be mailed pursuant
to such Act or subsequent provisions).
B. Certain Definitions. For purposes of this
Article X:
1. "Business Combination" shall mean
any transaction that is referred to in any
one or more of the following clauses (a)
through (e):
(a) any merger or consolidation of
the corporation or any Subsidiary (as
hereinafter defined) with (I) any Interested
Shareholder or (ii) any other corporation
(whether or not
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<PAGE> 11
itself an Interested Shareholder) that is, or
after such merger or consolidation would be,
an Affiliate (as hereinafter defined) of an
Interested Shareholder; or
(b) any sale, lease, exchange,
mortgage, pledge, transfer or other
disposition (in one transaction or a series
of transactions) to or with any Interested
Shareholder or any Affiliate of any
Interested Shareholder of any assets of the
corporation or any Subsidiary having an
aggregate Fair Market Value of $5,000,000 or
more; or
the issuance or transfer by the
corporation or any Subsidiary (in one
transaction or series of transactions) of any
securities of the corporation or any
Subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder
in exchange for cash, securities or other
property (or a combination thereof) having an
aggregate Fair Market Value of $5,000,000 or
more; or
(d) the adoption of any plan or
proposal for the liquidation or dissolution
of the corporation proposed by or on behalf
of any Interested Shareholder or any
Affiliate of any Interested Shareholder; or
(e) any reclassification of
securities (including any reverse stock
split) or recapitalization of the
corporation, or any merger or consolidation
of the corporation with any of its
Subsidiaries or any other transaction
(whether or not with or into or otherwise
involving an Interested Shareholder) that has
the effect, directly or indirectly, of
increasing the proportionate share of the
outstanding shares of any class of Equity
Security (as hereinafter defined) of the
corporation or any Subsidiary that is
directly or indirectly owned by any
Interested Shareholder or any Affiliate of
any Interested Shareholder.
2. "Person" shall mean any individual,
firm, corporation or other entity.
3. "Interested Shareholder" shall mean
any Person (other than the corporation or any
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<PAGE> 12
Subsidiary or employee benefit plan of the
corporation or any Subsidiary) that:
(a) is the beneficial owner,
directly or indirectly, of 10% or more of the
voting power of the outstanding Voting Stock;
or
(b) at any time within the two-year
period immediately prior to the date in
question was the beneficial owner, directly
or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock;
or
is an assignee of or has
otherwise succeeded to any shares of Voting
Stock or of capital stock of any Predecessor
Corporation that were at any time within the
two-year period immediately prior to the date
in question beneficially owned by any
Interested Shareholder, if such assignment or
succession shall have occurred in the course
of a transaction or series of transactions
not involving a public offering within the
meaning of the Securities Act of 1933.
4. A person shall be a "beneficial
owner" of any stock that:
(a) such Person or any of its
Affiliates or Associates (as hereinafter
defined) beneficially owns directly or
indirectly; or
(b) such Person or any of its
Affiliates or Associates has (I) the right to
acquire (whether such right is exercisable
immediately or only after the passage of
time), pursuant to any agreement, arrangement
or understanding or upon the exercise of
conversion rights, exchange rights, warrants
or options, or otherwise, or (ii) the right
to vote pursuant to any agreement,
arrangement or understanding; or
is beneficially owned, directly
or indirectly, by any other Person with which
such Person or any of its Affiliates or
Associates has any agreement, arrangement or
understanding for the purpose of acquiring,
holding, voting or disposing of any shares of
such stock.
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<PAGE> 13
5. For the purpose of determining
whether a Person is an Interested Shareholder
pursuant to Paragraph 3 of this Section B, the number
of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application
of Paragraph 4 of this Section B but shall not
include any other shares of Voting Stock that may be
issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
6. "Affiliate" and "Associate" shall
have the meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on
January 1, 1993.
7. "Subsidiary" means any corporation
of which a majority of any class of Equity security
is owned, directly or indirectly, by the corporation,
provided, however, that for purposes of the
definition of Interested Shareholder set forth-in
Paragraph 3 of this Section B, the term "Subsidiary"
shall mean only a corporation of which a majority of
each class of Equity Security is owned, directly or
indirectly, by the corporation.
8. "Disinterested Director" means any
member of the Board of Directors who is unaffiliated
with the Interested Shareholder and was a member of
the Board of Directors immediately before the time
that the Interested Shareholder became an Interested
Shareholder, and any successor of a Disinterested
Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested
Directors then on the Board of Directors.
9. "Fair Market Value" means: (a) in
the case of stock, (I) the highest closing sale price
of a share of stock during the 30-day period
immediately preceding the date in question on the
principal United States securities exchange
registered under the Securities Exchange Act of 1934
on which such stock is listed, or (ii) if such stock
is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such
stock during the 30-day period immediately preceding
the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System
or any similar system
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<PAGE> 14
then in use, or (iii) if no such quotations are
available, the fair market value on the date in
question of a share of such stock as determined by a
majority of the Disinterested Directors in good
faith; or (b) in the case of property other than cash
or stock, the fair market value of such property on
the date in question as determined by a majority of
the Disinterested Directors in good faith.
10. In the event of any Business
combination in which the corporation survives, the
phrase "consideration other than cash to be received"
as used in Paragraphs 2 (a) and 2 (b) of Section A of
this Article X shall include the shares of Common
Stock and the shares of any other class of
outstanding Voting Stock retained by the holders of
such shares.
11. "Equity Security" shall have the
meaning ascribed to such term in Section 3(a)(11) of
the Securities Exchange Act of 1934, as in effect on
January 1, 1993.
12. A "Predecessor Corporation" includes
any corporation of which the corporation was at one
time a wholly-owned subsidiary, or of which the
corporation would be deemed to be a legal successor
in interest (by contract or by merger or other
operation of law).
C. Powers of the Board of Directors. A majority
of the Disinterested Directors shall have the power and duty
to determine for the purposes of this Article X, on the basis
of information known to them after reasonable inquiry, (1)
whether a Person is an Interested Shareholder, (2) the number
of shares of Voting Stock beneficially owned by any Person,
(3) whether a Person is an Affiliate or Associate of another,
(4) whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the
issuance or transfer of securities by the corporation or any
subsidiary in any Business Combination has, an aggregate Fair
Market Value of $5,000,000 or more. A majority of the
Disinterested Directors shall have the further power to
interpret all of the terms and provisions of this Article X.
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<PAGE> 15
D. No Effect on Fiduciary Obligations of
Interested Shareholders. Nothing contained in this Article X
shall be construed to relieve any Interested Shareholder from
any fiduciary obligation imposed by law.
E. Amendment of Article X. Notwithstanding any
other provisions of these Articles of Incorporation or the
Bylaws of the corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the corporation), the
affirmative vote of the holders of 80% or more of the
outstanding Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article X or any provision hereof."
A new Article XI is hereby added to the Articles of Incorporation to read in
its entirety as follows:
"ARTICLE XI
All actions of the shareholders must be taken at an annual or
special meeting of shareholders and may not be taken by a consent or
consents in writing."
A new Article XII is hereby added to the Articles of Incorporation to read in
its entirety as follows:
"ARTICLE XII
Special meetings of shareholders of the corporation may be
called only by the Chief Executive Officer or the Board of Directors
of the corporation or by the holders of at least 50% of all shares
entitled to vote at the proposed meeting."
A new Article XIII is hereby added to the Articles of Incorporation to read in
its entirety as follows:
"ARTICLE XIII
The Board of Directors of the corporation only shall have the
power to make, alter or repeal the Bylaws of the corporation."
A new Article XIV is hereby added to the Articles of Incorporation to read in
its entirety as follows:
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<PAGE> 16
"ARTICLE XIV
To the fullest extent permitted by Texas statutory or
decisional law, as the same exists or may hereafter be amended or
interpreted, a director of the corporation shall not be liable to the
corporation or its shareholders for any act or omission in such
director's capacity as a director. Any repeal or amendment of this
Article XIV, or adoption of any other provision of these Articles of
Incorporation inconsistent with this Article XIV by the shareholders
of the corporation shall be prospective only and shall not adversely
affect any limitation on the liability to the corporation or its
shareholders of a director of the corporation existing at the time of
such repeal, amendment or adoption of an inconsistent provision."
A new Article XV is hereby added to the Articles of Incorporation to read in
its entirety as follows:
"ARTICLE XV
No contract or other transactions between the corporation and
any other corporation, firm or individual shall be affected or
invalidated by the fact that any one or more of the directors or
officers of the corporation is or are interested in or is a director
or officer of such other corporation, or a member of such firm, and
any director or officer, individually or jointly, may be a party to or
may be interested in any contract or transaction with the corporation,
or in which the corporation is interested, and no contract, act or
transaction of the corporation with any person or persons, firms or
corporations, shall be affected or invalidated by the fact that any
director or officer of the corporation is a party to or interested in
such contract, act or transaction, or is in any way connected with
such person or persons, firms or corporations, and each and every
person who may become a director or officer of the corporation is
hereby relieved from any liability that might otherwise exist from
contracting with the corporation for the benefit of himself or any
firm or corporation in which he may be in any way interested."
ARTICLE THREE. Each amendment to the Articles of Incorporation made
by these Restated Articles of Incorporation has been effected in conformity
with the provisions of the Act.
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<PAGE> 17
ARTICLE FOUR. The number of shares of Common Stock of the Corporation
outstanding and entitled to vote was 6,611 at the time of adoption of these
Restated Articles of Incorporation.
ARTICLE FIVE. The holders of all of the shares of Common Stock
outstanding and entitled to vote have signed a written consent to the adoption
of these Restated Articles of Incorporation.
ARTICLE SIX. The Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following Restated Articles of
Incorporation:
ARTICLE I
The name of the corporation is Pillowtex Corporation.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any
and all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE IV
The address of the initial registered office of the corporation is
4111 Mint Way, Dallas, Texas 75237, and the name of the initial registered
agent of the corporation at such address is Jeffrey D. Cordes.
ARTICLE V
The aggregate number of shares which the corporation is authorized to
issue is 50,000,000 shares consisting of 30,000,000 shares of Common Stock,
having a par value of $0.01 per share and 20,000,000 shares of Preferred Stock,
having a par value of $0.01 per share.
The following is a statement of the relative rights, preferences and
limitations with respect to the shares of each class of capital stock of the
corporation, insofar as the same are fixed in these Articles of Incorporation,
and of the authority expressly vested in the Board of Directors of the
corporation to
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<PAGE> 18
divide the Preferred Stock into series and to fix and determine the variations
in the relative rights and preferences as between series:
A. Preferred Stock
1. The Preferred Stock may, from time to time, be
divided into and issued in one or more series. The shares of each
series may have such designations, preferences, limitations and
relative rights, including voting rights, as are stated herein and in
one or more resolutions providing for the issue of such series adopted
by the Board of Directors as hereinafter provided.
2. To the extent that these Articles of Incorporation do
not fix and determine the variations in the relative rights and
preferences of the Preferred Stock, both in relation to the Common
Stock and as between series of Preferred Stock, the Board of Directors
of the corporation is expressly vested with the authority to divide
the Preferred Stock into one or more series and, within the
limitations set forth in these Articles of Incorporation, to fix and
determine the designation, preferences, limitations and relative
rights of the shares of any series so established, and, with respect
to each such series, to fix by one or more resolutions providing for
the issue of such series, the following:
(a) The maximum number of shares to constitute
such series and the distinctive designation thereof;
(b) The annual dividend rate, if any, on the
shares of such series and the date or dates from which
dividends shall commence to accrue or accumulate as herein
provided, and whether dividends shall be cumulative;
The price at and the terms and conditions on
which the shares of such series may be redeemed, including,
without limitation, the time during which shares of the series
may be redeemed, the premium, if any, over and above the par
value thereof and any accumulated dividends thereon that the
holders of shares of such series shall be entitled to receive
upon the redemption thereof, which premium may vary at
different dates and may also be different with respect to
shares redeemed through the operation of any retirement or
sinking fund;
(d) The liquidation preference, if any, over and
above the par value thereof, and any accumulated dividends
thereon, that the holders of shares of such series shall be
entitled to receive upon the voluntary or
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<PAGE> 19
involuntary liquidation, dissolution or winding up of the
affairs of the corporation;
(e) Whether or not the shares of such series
shall be subject to the operation of a retirement or sinking
fund, and, if so, the extent and manner in which any such
retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or for
other corporate purposes, and the terms and provisions
relative to the operations of such retirement or sinking fund;
(f) The terms and conditions, if any, on which
the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of
capital stock of the corporation or any series of any other
class or classes, or of any other series of the same class,
including the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting
the same, provided that shares of such series may not be
convertible into shares of a series or class that has prior or
superior rights and preferences as to dividends or
distribution of assets of the corporation upon voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the corporation;
(g) The voting rights, if any, on the shares of
such series; and
(h) Any or all other preferences and relative,
participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall
not be inconsistent with the law or with this Article V.
3. All shares of any one series of Preferred Stock shall
be identical with each other in all respects, except that shares of
any one series issued at different times may differ as to the dates
from which dividends thereon, if any, shall be cumulative; and all
series shall rank equally and be identical in all respects, except as
provided in Paragraph 1 of this Section A and except as permitted by
the foregoing provisions of Paragraph 2.
4. Except to the extent restricted or otherwise provided
in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock, no dividends
(other than dividends payable in Common Stock) on any class or classes
of capital stock of the corporation ranking, with respect to
dividends, junior to the Preferred Stock, or any series thereof, shall
be declared,
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paid or set apart for payment, until and unless the holders of shares
of Preferred Stock of each senior series shall have been paid, or
there shall have been set apart for payment, cash dividends, when and
as declared by the Board of Directors out of funds of the corporation
legally available therefor, at the annual rate, and no more, fixed in
the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series.
5. To the extent provided in the resolution or
resolutions adopted by the Board of Directors providing for the issue
of any series of Preferred Stock, upon the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
corporation before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart
for the holders of any class or classes of capital stock of the
corporation ranking junior, as to liquidation rights, to the Preferred
Stock, or any series thereof, the holders of the shares of the
Preferred Stock shall be entitled to receive payment at the rate fixed
in the resolution or resolutions adopted by the Board of Directors
providing for the issue of the respective series. Unless otherwise
provided in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock,
for the purposes of this Paragraph 5 and Paragraph 2(d) of this
Section A, neither the consolidation nor merger of the corporation
with one or more other corporations shall be deemed to be a
liquidation, dissolution or winding up.
6. The corporation, at the option of the Board of
Directors, may redeem, unless otherwise provided in the resolution
establishing a series of Preferred Stock, at such time as is fixed
(and if not so fixed, at any time) in the resolution or resolutions
adopted by the Board of Directors providing for the issue of a series,
the whole or, from time to time, any part of the Preferred Stock of
any series then outstanding, at the par value thereof, plus in every
case an amount equal to all accumulated dividends, if any (whether or
not earned or declared), with respect to each share so redeemed and,
in addition thereto, the amount of the premium, if any, payable upon
such redemption fixed in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such series. The Board
of Directors shall have full power and authority, subject to the
limitations and provisions contained herein and in the Texas Business
Corporation Act, to prescribe the terms and conditions upon which the
Preferred Stock shall be redeemed from time to time.
7. Shares of Preferred Stock that have been redeemed,
purchased or otherwise acquired by the corporation or that, if
convertible or exchangeable, have been converted into or
20
<PAGE> 21
exchanged for shares of capital stock of any other class or classes or
any series of any other class or classes or of any other series of the
same class, shall be cancelled and such shares may not under any
circumstances thereafter be reissued as Preferred Stock, and the
corporation shall from time to time cause all such acquired shares of
Preferred Stock to be cancelled in the manner provided by law.
8. Nothing herein contained shall limit any legal right
of the corporation to purchase any shares of the Preferred Stock.
B. Common Stock
1. Shares of Common Stock may be issued by the
corporation from time to time for such consideration as may lawfully
be fixed by the Board of Directors.
2. The Common Stock shall be entitled to one vote per
share on all matters. Cumulative voting for directors shall not be
permitted and is hereby expressly denied.
3. Subject to the prior rights and preferences of the
Preferred Stock set forth in this Article V, or in any resolution or
resolutions providing for the issuance of a series of Preferred Stock,
and to the extent permitted by the laws of the State of Texas, the
holders of Common Stock shall be entitled to receive such cash
dividends as may be declared and made payable by the Board of
Directors.
4. After payment shall have been made in full to the
holders of any series of Preferred Stock having preferred liquidation
rights, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the corporation, the remaining assets and
funds of the corporation shall be distributed among the holders of the
Common Stock according to their respective shares.
ARTICLE VI
No shareholder of the corporation will by reason of his holding shares
of stock of the corporation have any preemptive or preferential rights to
purchase or subscribe to any shares of any class of stock of the corporation,
or any notes, debentures, bonds, warrants, options or other securities of the
corporation, now or hereafter to be authorized.
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<PAGE> 22
ARTICLE VII
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of one Thousand Dollars
($1,000.00), consisting of money paid, labor done or property actually received.
ARTICLE VIII
The number of directors shall be fixed in the manner provided in the
Bylaws of the corporation. The current Board of Directors consists of four
directors, and the names and addresses of the persons who are serving as
directors until their successors are elected and qualified are:
Name Address
---- -------
[S] [C]
Mary R. Silverthorne 10640 Lennox Lane
Dallas, Texas 75229
Charles M. Hansen, Jr. 4111 Mint Way
Dallas, Texas 75237
Scott E. Shimizu 4111 Mint Way
Dallas, Texas 75237
Philip J. Souza 4111 Mint Way
Dallas, Texas 75237
ARTICLE IX
The corporation may purchase, directly or indirectly, its own shares
to the extent of the surplus of the corporation.
ARTICLE X
A. Approval of Certain Business Combinations. A Business
Combination (as hereinafter defined) shall require (I) only such affirmative
vote as is required by law and any other provision of these Articles of
Incorporation, if all of the conditions specified in either of Paragraph 1 or
Paragraph 2 of this Section A are met or (ii) in addition to any affirmative
vote required by law or these Articles of Incorporation, the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
shares of capital stock of the corporation entitled to vote generally in the
election of directors (referred to in this Article X as the "Voting Stock"),
voting together as a single class (it being understood that for the purposes of
this Article X, each share of the Voting Stock shall have the number of votes
granted to
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<PAGE> 23
it pursuant to Article V of these Articles of Incorporation). Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law.
1. Approval by Disinterested Directors. The Business
Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
2. Price and Procedure Requirements. All of the
following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares
of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(I) (if applicable) the highest price
per share (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the Interested Shareholder (as hereinafter defined)
for any shares of Common Stock or the common stock of
any Predecessor Corporation (as hereinafter defined)
acquired by it (1) within the two-year period
immediately prior to the first public announcement of
the terms of the proposed Business Combination (the
"Announcement Date") or (2) in the transaction in
which it became an Interested Shareholder, whichever
is higher; and
(ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Shareholder became an
Interested Shareholder (such later date is referred
to in this Article X as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended
that the requirements of this Paragraph 2(b) shall be required
to be met with respect to every class of outstanding Voting
Stock, whether or not the Interested Shareholder has
previously acquired any shares of a particular class of Voting
Stock);
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<PAGE> 24
(I) (if applicable) the highest price per share (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of such
class of Voting Stock or a substantially identical class of stock
of any Predecessor Corporation acquired by it (1) within the
two-year period immediately prior to the Announcement Date or (2)
in the transaction in which it became an Interested Shareholder,
whichever is higher;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation; and
(iii) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested Shareholder has
previously paid for shares of such class of Voting Stock or stock of a
Predecessor Corporation. If the Interested Shareholder has paid for
shares of any class of Voting Stock or stock of a Predecessor
Corporation with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class of
Voting Stock or stock of a Predecessor Corporation previously acquired
by it. The price determined in accordance with Paragraphs 2(a) and
2(b) of this Section A shall be subject to appropriate adjustment in
the event of any special dividend or other disposition of material
assets other than in the ordinary course of business, stock dividend,
stock split, combination of shares or similar event. Whether specific
consideration satisfies this subsection shall be determined by vote of
a majority of the Disinterested Directors.
(d) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
Combination: (I) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over the Common
Stock as to dividends or upon liquidation; (ii) there shall have been
(1) no reduction
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<PAGE> 25
in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and (2) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Disinterested Directors; and such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Voting Stock except as part of the transaction
that results in such Interested Shareholder's becoming an Interested
Shareholder.
(e) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guaranties, pledges or other
financial assistance or any tax credits or other tax advantages
provided to or by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall have been mailed to public stockholders of the
corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
B. Certain Definitions. For purposes of this Article X:
1. "Business Combination" shall mean any transaction that is
referred to in any one or more of the following clauses (a) through (e):
(a) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (I) any Interested
Shareholder or (ii) any other corporation (whether or not itself an
Interested Shareholder) that is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Shareholder; or
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<PAGE> 26
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate of any Interested
Shareholder of any assets of the corporation or any Subsidiary having
an aggregate Fair Market Value of $5,000,000 or more; or
the issuance or transfer by the corporation or any
Subsidiary (in one transaction or series of transactions) of any
securities of the corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $5,000,000 or more; or
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(e) any reclassification of securities (including any reverse
stock split) or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Shareholder) that has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of Equity Security (as hereinafter defined) of the
corporation or any Subsidiary that is directly or indirectly owned by
any Interested Shareholder or any Affiliate of any Interested
Shareholder.
2. "Person" shall mean any individual, firm, corporation or other entity.
3. "Interested Shareholder" shall mean any Person (other than the
corporation or any Subsidiary or employee benefit plan of the corporation or
any Subsidiary) that:
(a) is the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the outstanding Voting Stock; or
(b) at any time within the two-year period immediately prior
to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then outstanding
Voting Stock; or
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<PAGE> 27
is an assignee of or has otherwise succeeded to any shares
of Voting Stock or of capital stock of any Predecessor Corporation
that were at any time within the two-year period immediately prior to
the date in question beneficially owned by any Interested Shareholder,
if such assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
4. A person shall be a "beneficial owner" of any stock that:
(a) such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns directly or indirectly; or
(b) such Person or any of its Affiliates or Associates has
(I) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding; or
is beneficially owned, directly or indirectly, by any
other Person with which such Person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
such stock.
5. For the purpose of determining whether a Person is an Interested
Shareholder pursuant to Paragraph 3 of this Section B, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of Paragraph 4 of this Section B but shall not include
any other shares of Voting Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
6. "Affiliate" and "Associate" shall have the meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1993.
7. "Subsidiary" means any corporation of which a majority of any
class of Equity Security is owned, directly or indirectly, by the
corporation, provided, however, that for purposes of the definition of
Interested Shareholder set forth in Paragraph 3 of this Section B, the term
"Subsidiary" shall
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<PAGE> 28
mean only a corporation of which a majority of each class of Equity
Security is owned, directly or indirectly, by the corporation.
8. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Shareholder and was a
member of the Board of Directors immediately before the time that the
Interested Shareholder became an Interested Shareholder, and any successor
of a Disinterested Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Disinterested Director by a
majority of Disinterested Directors then on the Board of Directors.
9. "Fair Market Value" means: (a) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of stock (I) on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or (ii) if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or (iii) if no such quotations
are available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Disinterested Directors in
good faith; or (b) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by
a majority of the Disinterested Directors in good faith.
10. In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2(a) and 2(b) of Section A of this Article X shall include
the shares of Common Stock and the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
11. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
January 1, 1993.
12. A "Predecessor Corporation" includes any corporation of which the
corporation was at one time a wholly-owned subsidiary, or of which the
corporation would be deemed to be a legal successor in interest (by
contract or by merger or other operation of law).
C. Powers of the Board of Directors. A majority of the Disinterested
Directors shall have the power and duty to determine for the purposes of this
Article X, on the basis of information
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<PAGE> 29
known to them after reasonable inquiry, (1) whether a Person is an Interested
Shareholder, (2) the number of shares of Voting Stock beneficially owned by any
Person, (3) whether a Person is an Affiliate or Associate of another, (4)
whether the assets that are the subject of any Business combination have, or
the consideration to be received for the issuance or transfer of securities by
the corporation or any Subsidiary in any Business Combination has, an aggregate
Fair Market Value of $5,000,000 or more. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms and
provisions of this Article X.
D. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article X shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
E. Amendment of Article X. Notwithstanding any other provisions of these
Articles of Incorporation or the Bylaws of the corporation (and notwithstanding
the fact that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the corporation), the affirmative vote of the
holders of 80% or more of the outstanding Voting Stock, voting together as a
single class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article X or any provision hereof.
ARTICLE XI
All actions of the shareholders must be taken at an annual or special
meeting of shareholders and may not be taken by a consent or consents in
writing.
ARTICLE XII
Special meetings of shareholders of the corporation may be called only by
the Chief Executive Officer or the Board of Directors of the corporation or by
the holders of at least 50% of all shares entitled to vote at the proposed
meeting.
ARTICLE XIII
The Board of Directors of the corporation only shall have the power to make,
alter or repeal the Bylaws of the corporation.
ARTICLE XIV
To the fullest extent permitted by Texas statutory or decisional law, as the
same exists or may hereafter be amended or
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<PAGE> 30
interpreted, a director of the corporation shall not be liable to the
corporation or its shareholders for any act or omission in such director's
capacity as a director. Any repeal or amendment of this Article XIV, or adoption
of any other provision of these Articles of Incorporation inconsistent with
this Article XIV, by the shareholders of the corporation shall be prospective
only and shall not adversely affect any limitation on the liability to the
corporation or its shareholders of a director of the corporation existing at
the time of such repeal, amendment or adoption of an inconsistent provision.
ARTICLE XV
No contract or other transactions between the corporation and any other
corporation, firm or individual shall be affected or invalidated by the fact
that any one or more of the directors or officers of the corporation is or are
interested in or is a director or officer of such other corporation, or a
member of such firm, and any director or officer, individually or jointly, may
be a party to or may be interested in any contract or transaction with the
corporation, or in which the corporation is interested, and no contract, act or
transaction of the corporation with any person or persons, firms or
corporations, shall be affected or invalidated by the fact that any director or
officer of the corporation is a party to or interested in such contract, act or
transaction, or is in any way connected with such person or persons, firms or
corporations, and each and every person who may become a director or officer of
the corporation is hereby relieved from any liability that might otherwise
exist from contracting with the corporation for the benefit of himself or any
firm or corporation in which he may be in any way interested.
IN WITNESS WHEREOF, the undersigned Corporation has caused these Restated
Articles of Incorporation to be executed as of January 18, 1993.
PILLOWTEX CORPORATION
By: /s/ CHARLES M. HANSEN, JR.
-----------------------------
Charles M. Hansen, Jr.
President
30
<PAGE> 31
STATEMENT OF
CANCELLATION OF TREASURY SHARES
To the Secretary of State of the State of Texas:
Pursuant to the provisions of Article 4.11 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement of
cancellation by resolution of its board of directors of shares of the
corporation reacquired by it, other than redeemable shares redeemed or
purchased:
1. The name of the corporation is Pillowtex Corporation.
2. A resolution was duly adopted by all necessary action on the
part of the corporation on February 10, 1993, authorizing the cancellation of
12,545 shares of Common Stock, $0.01 par value per share, held as Treasury
Stock of the corporation.
The amount of stated capital represented by the shares to be cancelled is
One Hundred Twenty-Five and Forty-Five Hundredths Dollars ($125.45).
3. The aggregate number of issued shares, itemized by classes and series
and par value, if any, after giving effect to such cancellation is 19,155
itemized as follows:
<TABLE>
<CAPTION>
Class Par Value Number of Shares
----- --------- ----------------
<S> <C> <C>
Common Stock $0.01 19,155
</TABLE>
4. The amount of the stated capital of the corporation, after giving
effect to such cancellation, is $191.55.
Dated: February 10, 1993
PILLOWTEX CORPORATION
By: /s/ CHARLES M. HANSEN, JR.
--------------------------------
Charles M. Hansen, Jr.
President
<PAGE> 32
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PILLOWTEX CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, Pillowtex Corporation (the "Company"), hereby adopts the following
Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE. The name of the corporation is Pillowtex Corporation.
ARTICLE TWO. The following amendments to the Amended and Restated Articles
of Incorporation was adopted by the shareholders of the Company as of February
15, 1993:
(a) Article X of the Amended and Restated Articles of
Incorporation be amended to read in its entirety as follows:
"ARTICLE X
A. Approval of Certain Business Combinations. A Business
Combination (as hereinafter defined) during the three-year period
immediately following the date that a shareholder became an Interested
Shareholder (as hereinafter defined) shall require (I) only such
affirmative vote as is required by law and any other provision of
these Articles of Incorporation, if all of the conditions specified in
Paragraph 1, 2, 3 or 4 of this Section A are met, or (ii) in addition
to any affirmative vote required by law or these Articles of
Incorporation, the affirmative vote of the holders of at least 66-2/3%
of the voting power of the then outstanding shares of capital stock of
the corporation that are entitled to vote generally in the election of
directors (referred to in this Article X as the "Voting Stock") and
that are not owned by the Interested Shareholder, voting together as a
single class (it being understood that for the purposes of this
Article X, each share of the Voting Stock shall have the number of
votes granted to it pursuant to Article V of these Articles of
Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law.
1. Approval by Disinterested Directors. The Business
Combination or the transaction that resulted in the
shareholder becoming an Interested Shareholder shall
<PAGE> 33
have been approved by a majority of the Disinterested Directors
(as hereinafter defined).
2. Price and Procedure Requirements. All of the following
conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of shares of Common Stock in such Business
Combination shall be at least equal to the higher of the following:
(I) (if applicable) the highest price per share
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Shareholder
(as hereinafter defined) for any shares of Common Stock
acquired by it (1) within the three-year period immediately
prior to the first public announcement of the terms of the
proposed Business Combination (the "Announcement Date") or
(2) in the transaction in which it became an Interested
Shareholder, whichever is higher; and
(ii) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (such later date
is referred to in this Article X as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this Paragraph 2(b) shall be
required to be met with respect to every class of outstanding Voting
Stock, whether or not the Interested Shareholder has previously
acquired any shares of a particular class of Voting Stock);
(I) (if applicable) the highest price per share (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested
2
<PAGE> 34
Shareholder for any shares of such class of Voting stock
acquired by it (1) within the three-year period immediately prior
to the Announcement Date or (2) in the transaction in which it
became an Interested Shareholder, whichever is higher;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation; and
(iii) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested Shareholder has
previously paid for shares of such class of Voting Stock. If the
Interested Shareholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance with
Paragraphs 2(a) and 2(b) of this Section A shall be subject to
appropriate adjustment in the event of any special dividend or other
disposition of material assets other than in the ordinary course of
business, stock dividend, stock split, combination of shares or
similar event. Whether specific consideration satisfies this
subsection shall be determined by vote of a majority of the
Disinterested Directors.
(d) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
combination: (I) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over the Common
Stock as to dividends or upon liquidation; (ii) there shall have been
(1) no
3
<PAGE> 35
reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common Stock) ,
except as approved by a majority of the Disinterested Directors, and
(2) an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Disinterested Directors; and such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Voting Stock except as part of the transaction
that results in such Interested Shareholder's becoming an Interested
Shareholder.
(e) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guaranties, pledges or other
financial assistance or any tax credits or other tax advantages
provided to or by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall have been mailed to public stockholders of the
corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
3. Acquisition of 85% of Voting Stock. Upon consummation of the
transaction that resulted in the shareholder becoming an Interested
Shareholder, the Interested Shareholder owned at least 85% of the Voting
Stock outstanding at the time such transaction commenced.
4. Previously Proposed Business Combinations. The Business
Combination is proposed prior to the consummation or abandonment of and
subsequent to the earlier of the public announcement or the notice required
4
<PAGE> 36
hereunder of a proposed transaction that (I) constitutes one of the
transactions described in the second sentence of this Paragraph; (ii) is
with or by a person who either was not an Interested Shareholder during the
previous three years or who became an Interested Shareholder with the
approval of the corporation's Board of Directors; and (iii) is approved or
not opposed by a majority of the Disinterested Directors then in office
(but not less than one) . The proposed transactions referred to in the
preceding sentence are limited to (x) a merger or consolidation of the
corporation; (y) a sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions), whether
as part of a dissolution or otherwise, of assets of the corporation or of
any Subsidiary (as hereinafter defined) (other than to any wholly-owned
Subsidiary or to the corporation) having an aggregate Fair Market Value
equal to 50% or more of either the aggregate Fair Market Value of all of
the assets of the corporation determined on a consolidated basis or the
aggregate Fair Market Value of all the outstanding stock of the
corporation; or (z) a proposed tender or exchange offer for 50% or more of
the outstanding Voting Stock. The corporation shall give not less than 20
days notice to all Interested Shareholders prior to the consummation of any
of the transactions described in clauses (x) or (y) of the second sentence
of this Paragraph.
B. Certain Definitions. For purposes of this Article X:
1. "Business Combination" shall mean any transaction that is referred to
in any one or more of the following clauses (a) through (e):
(a) any merger or consolidation of the corporation or any
Subsidiary with (I) any Interested Shareholder or (ii) any other
corporation (whether or not itself an Interested Shareholder) that is,
or after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Shareholder or any Affiliate of any Interested
Shareholder of any assets of the corporation or any Subsidiary having
an aggregate Fair Market Value equal to 10% or more of either the Fair
Market Value of all the assets of the corporation determined on a
consolidated basis or
5
<PAGE> 37
the aggregate Fair Market Value of all the outstanding stock of the
corporation; or
the issuance or transfer by the corporation or any
Subsidiary (in one transaction or series of transactions) of any
securities of the corporation or any Subsidiary to any interested
Shareholder or any Affiliate of any Interested Shareholder in
exchange for cash, securities or other property (or a combination
thereof), except (I) pursuant to the exercise, exchange or conversion
of securities exercisable for, exchangeable for or convertible into
stock of the corporation or any Subsidiary, which securities were
outstanding prior to the time that the Interested Shareholder became
such, (ii) pursuant to a dividend or distribution paid or made, or the
exercise, exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of the corporation or any
Subsidiary, which security is distributed, pro rata, to all holders of
a class or series of stock of the corporation subsequent to the time
the Interested Shareholder became such, (iii) pursuant to an exchange
offer by the corporation to purchase stock made on the same terms to
all holders of such stock, or (iv) any issuance or transfer of stock
by the corporation, provided however, that in no case under (I)
through (iv) shall there be an increase in the Interested
Shareholder's proportionate share of the stock of any class or series
of the corporation or of the Voting Stock; or
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(e) any reclassification of securities (including any reverse
stock split) or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Shareholder) that has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of Equity Security (as hereinafter
6
<PAGE> 38
defined) of the corporation or any Subsidiary that is directly or
indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder.
2. "Person" shall mean any individual, firm, corporation or other entity.
3. "Interested Shareholder" shall mean any Person (other than the
corporation or any Subsidiary or employee benefit plan of the corporation or
any Subsidiary) that:
(a) is the beneficial owner, directly or indirectly, of 15% or
more of the outstanding Voting Stock; or
(b) is an assignee of or has otherwise succeeded to any shares
of Voting Stock that were at any time within the three-year period
immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
4. A person shall be a "beneficial owner" of any stock that:
(a) such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns directly or indirectly; or
(b) such Person or any of its Affiliates or Associates has (I)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding; or
is beneficially owned, directly or indirectly, by any
other Person with which such Person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
such stock.
7
<PAGE> 39
5. For the purpose of determining whether a Person is an Interested
Shareholder pursuant to Paragraph 3 of this Section B, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of Paragraph 4 of this Section B but shall not include
any other shares of Voting Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
6. "Affiliate" and "Associate" shall have the meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1993.
7. "Subsidiary" means any corporation of which a majority of any
class of Equity Security is owned, directly or indirectly, by the
corporation, provided, however, that for purposes of the definition of
Interested Shareholder set forth in Paragraph 3 of this Section B, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of Equity Security is owned, directly or indirectly, by the
corporation.
8. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Shareholder and was a
member of the Board of Directors immediately before the time that the
Interested Shareholder became an Interested Shareholder, and any successor
of a Disinterested Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Disinterested Director by a
majority of Disinterested Directors then on the Board of Directors.
9. "Fair Market Value" means: (a) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of stock (I) on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or (ii) if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or (iii) if no such quotations
are available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Disinterested Directors in
good faith; or (b) in the
8
<PAGE> 40
case of property other than cash or stock, the fair market value of such
property on the date in question as determined by a majority of the
Disinterested Directors in good faith.
10. In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2(a) and 2(b) of Section A of this Article X shall include
the shares of Common Stock and the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
11. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
January 1, 1993.
12. "Announcement Date" shall have the meaning set forth in Section
A(2)(a)(I) of this Article X.
13. "Determination Date" shall have the meaning set forth in Section
A(2)(a)(ii) of this Article X.
14. "Voting Stock" shall have the meaning set forth in the first
paragraph of Section A of this Article X.
C. Powers of the Board of Directors. A majority of the Disinterested
Directors shall have the power and duty to determine for the purposes of this
Article X, on the basis of information known to them after reasonable inquiry,
(1) whether a Person is an Interested Shareholder, (2) the number of shares of
Voting Stock beneficially owned by any Person, (3) whether a Person is an
Affiliate or Associate of another, (4) whether the assets that are the subject
of any Business Combination have an aggregate Fair Market Value equal to 10% or
more of either the Fair Market Value of all the assets of the corporation
determined on a consolidated basis or the aggregate Fair Market Value of all
the outstanding stock of the corporation. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms and
provisions of this Article X.
D. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article X shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
E. Amendment of Article X. Notwithstanding any other provisions of these
Articles of Incorporation or the Bylaws of
9
<PAGE> 41
the corporation (and notwithstanding the fact that a lesser percentage
may be specified by law, these Articles of Incorporation or the Bylaws
of the corporation), the affirmative vote of the holders of 80% or more of
the outstanding Voting Stock, voting together as a single class, shall be
required to amend or repeal, or adopt any provision inconsistent with, this
Article X or any provision hereof."
(b) Article XIII of the Amended and Restated Articles of Incorporation
be amended to read in its entirety as follows:
"ARTICLE XIII
The Bylaws of the corporation may be amended or repealed or new Bylaws may
be adopted by the affirmative vote of either (a) the holders of at least
80% of the voting power of the then outstanding shares of capital stock of
the corporation entitled to vote generally in the election of directors, or
(b) the majority of the directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
Notwithstanding any other provisions of these Articles of Incorporation or
the Bylaws of the corporation (and notwithstanding that a lesser percentage
may be specified by law, these Articles of Incorporation or the Bylaws of
the corporation), the affirmative vote of the holders of at least 80% of
the outstanding capital stock of the corporation, voting together as a
single class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article XIII or any provision hereof."
ARTICLE THREE. The number of shares of Common Stock of the Company
outstanding and entitled to vote was 6,505,224 at the time of the adoption of
this amendment.
ARTICLE FOUR. The holders of all of the shares of Common Stock
outstanding and entitled to vote have signed a written consent to the adoption
of this amendment.
10
<PAGE> 42
DATED as of the 15th day of February, 1993.
PILLOWTEX CORPORATION
By: /s/ CHARLES M. HANSEN, JR.
-------------------------------
Charles M. Hansen, Jr.,
President
11
<PAGE> 43
ARTICLES OF CORRECTION
TO THE
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PILLOWTEX CORPORATION
Pursuant to Article 1302-7.01 et seq of the Texas Miscellaneous
Corporation Laws Act, these Articles of Correction are adopted to correct a
document which is an inaccurate record of corporate action, contains an
inaccurate or erroneous statement, or was defectively or erroneously executed,
sealed, acknowledged, or verified.
ARTICLE ONE
The name of the corporation is Pillowtex Corporation.
ARTICLE TWO
The document to be corrected is the Articles of Amendment to the Amended and
Restated Articles of Incorporation of Pillowtex Corporation filed in the Office
of the Secretary of State of Texas on February 17, 1993.
ARTICLE THREE
The Articles are erroneous, inaccurate, or incomplete because they
erroneously state in Article Four that holders of all of the shares of Common
Stock outstanding and entitled to vote have signed a written consent to the
adoption of the Articles of Amendment.
ARTICLE FOUR
These Articles of Correction correct the Articles of Amendment by
substituting the following for Article Four in its entirety:
"ARTICLE FOUR. At a special meeting of shareholders called for the
purpose of voting on adoption of this amendment, the holders of
6,284,808 shares of Common Stock outstanding and entitled to vote
voted for this amendment and the holders of -0- shares of Common Stock
outstanding and entitled to vote voted against this amendment."
<PAGE> 44
IN WITNESS WHEREOF, these Articles of Correction are dated as of March 12, 1993.
PILLOWTEX CORPORATION
By: /s/ STEPHEN P. RICHMAN
-------------------------------
Stephen P. Richman,
Vice President
2
<PAGE> 45
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PILLOWTEX CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, Pillowtex Corporation (the "Company"), hereby adopts the following
Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE. The name of the corporation is Pillowtex corporation.
ARTICLE TWO. The following amendments to the Amended and Restated Articles
of Incorporation were adopted by the shareholders of the Company as of March
12, 1993:
(a) Article XI of the Amended and Restated Articles of
Incorporation be amended to read in its entirety as follows:
"ARTICLE XI
[INTENTIONALLY LEFT BLANK]"
(b) Article XII of the Amended and Restated Articles of
Incorporation be amended to read in its entirety as follows:
"ARTICLE XII
Special meetings of shareholders of the corporation may be called
only by the Chief Executive Officer, the President or the Board of
Directors of the corporation or by the holders of at least 50% of all
shares entitled to vote at the proposed meeting."
ARTICLE THREE. The number of shares of Common Stock of the Company
outstanding and entitled to vote was 6,505,224 at the time of the adoption of
this amendment.
ARTICLE FOUR. At a special meeting of shareholders called for the
purpose of voting on adoption of this amendment, the holders of 6,284,808
shares of Common Stock outstanding and entitled to vote voted for this
amendment and the holders of -0- shares of Common Stock outstanding and entitled
to vote voted against this amendment.
<PAGE> 46
IN WITNESS WHEREOF, these Articles of Amendment are dated as of March 12, 1993.
PILLOWTEX CORPORATION
By: /s/ STEPHEN P. RICHMAN
------------------------------------
Stephen P. Richman,
Vice President
2
<PAGE> 47
STATEMENT 0F
CANCELLATION OF TREASURY SHARES
To the Secretary of State of the State of Texas:
Pursuant to the provisions of Article 4.11 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement of
cancellation by resolution of its board of directors of shares of the
corporation reacquired by it, other than redeemable shares redeemed or
purchased:
1. The name of the corporation is Pillowtex Corporation.
2. A resolution was duly adopted by all necessary action on
the part of the corporation on March 25, 1993, authorizing the cancellation of
12,343,296 shares of Common Stock, $0.01 par value per share, held as Treasury
Stock of the corporation.
The amount of stated capital represented by the shares to be cancelled is
One Hundred Twenty-Three Thousand Four Hundred Thirty-Two and Ninety-Six
Hundredths Dollars ($123,432.96).
3. The aggregate number of issued shares, itemized by classes and
series and par value, if any, after giving effect to such cancellation is
10,590,224 itemized as follows:
<TABLE>
<CAPTION>
Class Par Value Number of Shares
----- --------- ----------------
<S> <C> <C>
Common Stock $0.01 10,590,224
</TABLE>
4. The amount of the stated capital of the corporation, after
giving effect to such cancellation, is $105,902.24
Dated: March 25, 1993
PILLOWTEX CORPORATION
By: /s/ CHARLES M. HANSEN, JR.
----------------------------------
Charles M. Hansen, Jr.
President
<PAGE> 48
STATEMENT OF RESOLUTION
FOR
SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK
OF
PILLOWTEX CORPORATION
PURSUANT TO ARTICLE 2.13 OF THE TEXAS
BUSINESS CORPORATION ACT
I, Jeffrey D. Cordes, President of Pillowtex Corporation, a
corporation organized and existing under the Texas Business Corporation Act
(the "Company"), DO HEREBY CERTIFY that at a meeting of the Board of Directors
on December 15, 1997, at which meeting a quorum was present, the following
resolution was adopted:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of Article V of the
Company's Restated Articles of Incorporation, as amended, a series of Preferred
Stock, par value $0.01 per share, of the Company be, and hereby is, created,
and the designations, preferences, and relative rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, be, and
hereby are, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Redeemable Convertible Preferred Stock" (the
"Preferred Stock") and the number of shares constituting such series initially
shall be 200,000.
Section 2. Definitions. For purposes of this Statement of
Resolution, the following definitions shall apply:
"1999 EPS" shall mean EPS for the twelve month fiscal year of the
Company ending January 1, 2000.
"1999 Pro Forma EPS" shall mean 1999 EPS calculated on a pro forma
basis assuming (I) the dividend rate on the Preferred Stock for calendar 1997
(if applicable) and calendar 1998 was the Adjusted 1998 Dividend Rate; (ii) the
dividend rate on the Preferred Stock for calendar 1999 was (a) 10.0% of Stated
Value per annum if 1999 EPS is less than $2.35, (b) 7.0% of Stated Value per
annum if 1999 EPS is greater than, or equal to, $2.35 but less than $2.70, and
3.0% of Stated Value per annum if 1999 EPS is greater than, or equal to,
$2.70; and (iii) any incremental dividends included pursuant to clauses (I) and
(ii) which were not paid when due (in either cash or shares of Preferred Stock)
were paid in additional shares of Preferred Stock (including the effect of all
dividends earned on unpaid dividends).
"Adjusted 1998 Dividend Rate" shall mean (I) if 1999 EPS is equal to,
or greater than, $2.35 (as adjusted pursuant to Section 3), 3% of Stated Value
per annum, or (ii) if 1999 EPS is less than $2.35 (as adjusted pursuant to
Section 3), 10% of Stated Value per annum.
<PAGE> 49
"Affiliate" of any specified Person shall mean:
(a) any other Person which, directly or indirectly, is in
control of, is controlled by or is under common control with such
specified Person; or
(b) any other Person which beneficially owns or holds ten
percent or more of any class of the share capital normally entitled to
vote in the election of directors of such specified Person; or
any other Person of which ten percent or more of the
share capital normally entitled to vote in the election of directors
of such Person is beneficially owned or held by such specified Person
or a subsidiary of such specified Person; or
(d) any other Person who is a director or officer (I) of
such specified Person; (ii) of any Subsidiary of such specified Person
or (iii) of any Person described in paragraph (a) above; and
for purposes of this definition, "control" of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Dividends Owed" shall mean the aggregate amount of
dividends which would have been paid on the Preferred Stock from the Issue Date
through and including the last Dividend Payment Date prior to the Final
Determination Date assuming (I) the dividend rate on the Preferred Stock for
calendar 1997 (if applicable) and calendar 1998 was (a) 3.0% of Stated Value
per annum if 1999 Pro Forma EPS is equal to, or greater than, $2.35 (as
adjusted pursuant to Section 3), or (b) 10.0% of Stated Value per annum if 1999
Pro Forma EPS is less than $2.35 (as adjusted pursuant to Section 3); (ii) the
dividend rate on the Preferred Stock for calendar 1999 was the Applicable
Dividend Rate; and (iii) any incremental dividends included in calculating
dividends pursuant to clauses (I) and (ii) which were not paid when due (in
either cash or shares of Preferred Stock) were paid in additional shares of
Preferred Stock (including the effect of all dividends earned on unpaid
dividends).
"Aggregate Dividends Paid" shall mean the aggregate amount of
dividends actually paid (whether in cash or additional shares of Preferred
Stock) from the Issue Date through and including the last Dividend Payment Date
prior to the Final Determination Date, including amounts actually paid in cash
pursuant to Section 3(c).
"Applicable Dividend Rate" shall have the meaning assigned to it in
Section 3.
"Asset Sales" shall mean the sale or conveyance of assets in one or a
series of related transactions (other than inventory sold in the ordinary
course of business) having a fair market value in excess of $1,000,000.
A "Bankruptcy Event" shall be deemed to have occurred with respect to
a Person if such Person shall:
2
<PAGE> 50
(I) generally fail to pay, or admit in writing its
inability to pay, its debts as they become due;
(ii) apply for, consent to or acquiesce in, the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or any property of any
thereof, or make a general assignment for the benefit
of creditors;
(iii) in the absence of such application, consent or
acquiescence, permit or suffer to exist the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or for a substantial part
of the property of any thereof and such appointment
shall not be discharged within 30 days;
(iv) commence, or permit or suffer to exist the
commencement of, any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of
such Person or any of its material Subsidiaries, and,
if such case or proceeding is not commenced by such
Person or any such Subsidiaries, such case or
proceeding shall be consented to or acquiesced in by
such Person or any of its material Subsidiaries or
shall result in the entry of any order for relief or
shall remain for 30 days undismissed; or
(v) take any action to authorize any of the foregoing.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required
to be closed in New York, New York.
"Capital Stock" shall mean any class or series of capital
stock of the Company.
"Catch Up Dividend" shall have the meaning set forth in
Section 3(d).
"Change of Control" shall have the meaning assigned to it in
the Indenture except that any transaction or series of transactions in
which the Apollo Purchasers (as defined in the Purchase Agreement) or
their Affiliates or any transferees of any of the foregoing (either
individually or as part of a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) acquire 50% or more
of the Company's capital stock shall not be deemed a Change of
Control.
"Company" shall mean Pillowtex Corporation, a Texas
corporation.
"Common Stock" shall mean the Common Stock, par value $0.01,
of the Company.
3
<PAGE> 51
"Common Stock's Fair Market Value" shall mean (I) if the
Common Stock is listed on a national securities exchange, the closing
sale price per share on the principal exchange on which the Common
Stock is listed as reported by such exchange, (ii) if the Common Stock
is quoted in the National Market System, the closing sale price per
share as reported by NASDAQ or (iii) if the Common Stock is traded in
the over-the- counter market but not quoted in the National Market
System, the average of the closing bid and asked quotations per share
as reported by NASDAQ, or any other nationally accepted reporting
medium if NASDAQ quotations shall be unavailable.
"Control Notice" shall have the meaning assigned to it in
Section 6(c)(ii).
"Conversion Date" shall have the meaning assigned to it in
Section 7(c).
"Conversion Price" shall mean $24.00 per share; provided that
if the Determination Price is less than $23.00 then the Conversion
Price shall equal the Determination Price plus $1.00; provided
further, that the Conversion Price shall, in any event, be subject to
adjustment from time to time as provided in Section 7.
"Determination Price" shall mean the average of the closing
sales prices of the Company's Common Stock as reported on the New York
Stock Exchange Composite Transactions List for each of the 20
consecutive trading days immediately preceding the fifth trading day
prior to the Closing Date (as defined in the Agreement and Plan of
Merger dated September 10, 1997 among the Company, a Company
Subsidiary and the Target).
"Dividend Adjustment Amount" shall mean the difference between
(I) the Aggregate Dividends Owed and (ii) the Aggregate Dividends
Paid.
"Dividend Increase" shall have the meaning assigned to it in
Section 3.
"Dividend Payment Date" means each of March 31, June 30,
September 30 and December 31 upon which quarterly dividend payments
are due.
"EPS" for any fiscal year shall mean the Company's diluted
earnings per share (as calculated based on Financial Accounting
Standard Board Statement No. 128) as included in the Company's audited
financial statements for such fiscal year, as adjusted to exclude the
following items set forth, included or reflected in such audited
statements (a) the after-tax effect of any changes in GAAP from
September 5, 1997, other than the effects of Financial Accounting
Standards Board Statement No. 128, (b) the after-tax effect of any
extraordinary gains or losses, and the after-tax effect of gains
on Asset Sales.
"Event of Noncompliance" shall have the meaning assigned to it
in Section 10.
"Final Determination Date" shall have the meaning assigned to
it in Section 3.
4
<PAGE> 52
"GAAP" shall mean generally acceptable accounting principles
consistently applied in the United States, unless any other
jurisdiction is specified, in which case it shall be the equivalent
set of accounting principles for such jurisdiction.
"Indenture" means the Indenture dated as of November 12, 1996,
between the Company, certain guarantors described therein and Bank
One, Columbus, N.A., as trustee, relating to the Series A and Series B
10% Senior Subordinated Notes of the Company.
"Issue Date" shall mean the date of original issuance of the
Preferred Stock.
"Junior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon
the liquidation, winding up or dissolution of the Company, rank junior
to the Preferred Stock.
"Liquidation Preference" shall have the meaning assigned to it
in Section 4.
"Majority of the Preferred Stock" shall mean more than 50% of
the outstanding shares of Preferred Stock.
"Mandatory Redemption Date" shall have the meaning assigned to
it in Section 5(b).
"Mandatory Redemption Price" shall have the meaning assigned
to it in Section 5(b).
"Optional Redemption Date" shall have the meaning assigned to
it in Section 5(a)(I).
"Optional Redemption Price" shall have the meaning assigned to
it in Section 5(a)(I).
"Parity Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon
the liquidation, winding-up or dissolution of the Company, ranks on a
parity with the Preferred Stock and has a mandatory redemption date on
or after the Mandatory Redemption Date.
"Participating Holder" shall have the meaning assigned to it
in Section 6(c)(ii).
"Permitted Indebtedness" shall mean (I) term loans issued
pursuant to the Company's senior credit facilities contemplated in
Section 9.8(b) of the Purchase Agreement, (ii) the subordinated debt
contemplated in Section 9.8 of the Purchase Agreement, (iii) $22
million of the Company's and the Target's industrial revenue bonds,
(iv) approximately $125 million of the Company's 10% Senior
Subordinated Notes due 2006 under the Indenture and (v) approximately
$117.8 million principal amount of the Target's 6% Convertible
Subordinated Debentures due 2012 ("6% Notes") (reduced to the extent
such 6% Notes have theretofore been converted in accordance with their
terms).
"Person" shall include all natural persons, corporations,
business trusts, associations, companies, partnerships, joint ventures
and other entities and governments and agencies and political
subdivisions.
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"Preferred Stock" shall mean the Series A Redeemable
Convertible Preferred Stock of the Company.
"Purchase Agreement" shall mean the Purchase Agreement dated
as of September 10, 1997 among the Company and the purchasers named
therein pursuant to which 65,000 shares of Preferred Stock are to be
issued, including all schedules and exhibits thereto, as such Purchase
Agreement may be from time to time amended, modified or supplemented.
"Reclassification" shall mean any capital reorganization of
the Company, any reclassification of the Common Stock, the
consolidation of the Company with or the merger of the Company with or
into any other Person, a statutory share exchange having an effect
similar to a merger or consolidation, the sale, lease or other
transfer of all or substantially all of the assets of the Company to
any other Person or any similar transaction. The subdivision or
combination of shares of Common Stock issuable upon conversion of
shares of Preferred Stock at any time outstanding into a greater or
lesser number of shares of Common Stock (whether with or without par
value) shall not be deemed to be a "Reclassification" of the Common
Stock for the purposes of Section 7(d)(iv).
"Senior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon
the liquidation, winding-up or dissolution of the Company, ranks
senior to the Preferred Stock or Capital Stock that, with respect to
dividend distributions and distributions upon the liquidation,
winding-up or dissolution of the Company ranks on a parity with the
Preferred Stock and has a mandatory redemption date prior to the
Mandatory Redemption Date.
"Special Redemption Date" shall have the meaning assigned to
it in Section 5(a)(ii).
"Special Redemption Price" shall have the meaning assigned to
it in Section 5(a)(ii).
"Stated Value" shall be an amount equal to $1,000 per share of
Preferred Stock.
"Subsidiary" means, as to any Person, (a) any corporation 51%
or more of the outstanding shares of capital stock of which having
ordinary voting power for the election of directors is owned directly
or indirectly by such Person and (b) any partnership, association,
joint venture or other entity in which such Person and/or one or more
Subsidiaries of such Person has 51% or more of an equity interest at
the time.
"Target" shall mean Fieldcrest Cannon, Inc., a Delaware
corporation.
"Target Acquisition" shall have the meaning assigned to it in
the Purchase Agreement.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms.
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Section 3. Dividends. The holders of the outstanding shares of
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of funds legally available therefor, distributions in the form of
dividends on each share of Preferred Stock as set forth below:
(a) Right to Dividends.
(I) Subject to the provisions of this Section 3,
beginning on the Issue Date through and including December 31, 1999, at a rate
per annum of 3% of Stated Value;
(ii) Beginning on January 1, 2000 through and including
the Mandatory Redemption Date, at a rate (the "Applicable Dividend Rate") per
annum based upon 1999 Pro Forma EPS as follows: (A) if 1999 Pro Forma EPS is
less than $2.35, then the dividend rate shall be 10.0% of Stated Value per
annum; (B) if 1999 Pro Forma EPS is greater than, or equal to, $2.35 but less
than $2.70, then the dividend rate shall be 7.0% of Stated Value per annum; and
if 1999 Pro Forma EPS is greater than or equal to $2.70, then the dividend
rate shall be 3.0% of Stated Value per annum;
in each case subject to increase as set forth herein.
Each of the $2.35 and $2.70 targets for 1999 Pro Forma EPS set forth
above shall be (A) appropriately adjusted for (x) subdivisions and combinations
of shares of Common Stock, (y) Reclassifications and (z) dividends on Common
Stock payable in shares of Common Stock subsequent to the Issue Date and (B)
reduced by an amount equal to (rounded to the nearest hundredth) (x) 0.065
multiplied by (y)(I) $23.00 minus (ii) the Determination Price, but the
provisions of this clause (B) shall only be applicable if the Determination
Price is less than $23.00.
(b) Determination of 1999 EPS and 1999 Pro Forma EPS. The Company
will promptly (and in any event within 5 Business Days) after determination of
1999 EPS (which date of determination shall be no later than March 31, 2000),
determine 1999 Pro Forma EPS and send to each record holder of Preferred Stock
at its record address a written statement of its calculation of 1999 EPS and
1999 Pro Forma EPS (including each adjustment thereto for the items described
in clauses (a) through of the definition of EPS in Section 2 hereof and any
adjustments pursuant to the definition of 1999 Pro Forma EPS in Section 2
hereof), and a negative assurance letter from the Company's auditors to the
effect that they have reviewed such 1999 EPS and 1999 Pro Forma EPS
calculations and that nothing has come to the auditors' attention that would
cause them to believe that 1999 EPS and 1999 Pro Forma EPS were not calculated
as required by this Statement of Resolution. In the event that the holders of
a Majority of the Preferred Stock disagree with the calculation of 1999 EPS
and/or 1999 Pro Forma EPS ("Disagreeing Holders"), such Disagreeing Holders (or
their duly appointed representative) shall notify the Company in writing of
such disagreement within 30 days after the applicable notice of such 1999 EPS
and 1999 Pro Forma EPS figures have been sent by the Company. Failure to send
such notice of disagreement within such time period shall be deemed acceptance
of the Company's 1999 EPS and 1999 Pro Forma EPS figures absent fraud. Upon
receipt of such notice of disagreement, the Company shall provide to the
Disagreeing Holders and their representatives (including accountants) access to
the books and records of the Company used to calculate such 1999 EPS and 1999
Pro Forma EPS figures during reasonable business hours, as well as the auditors
that reviewed such calculations and the work papers relating to the audit of
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<PAGE> 55
the Company's financial statements and the review of the 1999 EPS and 1999 Pro
Forma EPS calculations. If, within 30 days of the Company's receipt of such
notice of disagreement, agreement as to the proper 1999 EPS and 1999 Pro Forma
EPS calculations cannot be reached, the calculation of such 1999 EPS and 1999
Pro Forma EPS figures shall be promptly determined by a "big-six" accounting
firm, which does not audit the Company and which is mutually acceptable to
holders of a majority of the shares held by the Disagreeing Holders and the
Company. The Company and such Disagreeing Holders shall promptly (and in any
event within 30 days after the expiration of the 30-day period described in the
preceding sentence) appoint such accounting firm, and such accounting firm
shall use its reasonable best efforts to calculate such 1999 EPS and 1999 Pro
Forma EPS figures within 30 days after its appointment and produce such
calculation in writing. The scope of such accounting firm's review of (I) the
1999 EPS calculation shall be limited to the items described in clauses (a)
through of the definition of EPS in Section 2 hereof and (ii) the 1999 Pro
Forma EPS calculation shall be limited to any adjustments pursuant to the
definition of 1999 Pro Forma EPS in Section 2 hereof. Absent fraud, such
accounting firm's calculation of the 1999 EPS and 1999 Pro Forma EPS figures
shall be binding on the Company and all holders of Preferred Stock for all
purposes of this Statement of Resolution. If such accounting firm's
calculation of either of the 1999 EPS figure or the 1999 Pro Forma EPS figure
is lower than that calculated by the Company, the Company shall bear the fees
and expenses of such accounting firm. If such accounting firm's calculation of
both of the 1999 EPS figure and 1999 Pro Forma EPS figure is equal to or higher
than that calculated by the Company, the Disagreeing Holders shall bear the
fees and expenses of such accounting firm.
Estimated Dividend Payments. Notwithstanding anything herein
to the contrary, the Company may at its option pay dividends in cash during
each quarterly period during calendar years 1998 and 1999 at a rate in excess
of 3% of Stated Value per annum.
(d) Dividend Adjustment. Following the date on which the final
determination of 1999 EPS and 1999 Pro Forma EPS is made ("Final Determination
Date"), as contemplated by Section 3(b), the Company will promptly (and in any
event within five Business Days) determine the Aggregate Dividends Paid and the
Aggregate Dividends Owed. If the Aggregate Dividends Paid is less than the
Aggregate Dividends Owed, the Company will, prior to the expiration of such
five-Business-Day period, pay to the holders of Preferred Stock a number of
additional shares of Preferred Stock (the "Catch Up Dividend") with a Stated
Value equal to the Dividend Adjustment Amount. In determining dividends
payable on the next succeeding Dividend Payment Date following the Final
Determination Date, the Company shall assume that the shares of Preferred Stock
outstanding at the prior Dividend Payment Date included all additional shares
issued in the Catch Up Dividend. If the Aggregate Dividends Paid is more than
the Aggregate Dividends Owed, then the Dividend Adjustment Amount shall be
offset against dividends payable on the next succeeding Dividend Payment Date
or Dividend Payment Dates, as the case shall be.
(e) Dividends Cumulative; Compounding. All dividends shall be
cumulative, whether or not declared, on a daily basis from the Issue Date and
shall be payable quarterly, in arrears, on each Dividend Payment Date
commencing December 31, 1997. Dividends (in the form of additional dividends
due) will compound quarterly on all unpaid dividends from the Dividend Payment
Date with respect thereto until the date of payment at the Applicable Dividend
Rate (as adjusted in accordance with this Section 3).
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(f) Payment in Kind; Fractional Shares. From the Issue Date
through the fifth anniversary of the Issue Date, dividends declared may be
paid, at the Company's option, either in cash or in additional shares of
Preferred Stock (other than the Catch Up Dividend, which shall be paid in
additional shares of Preferred Stock). Fractional shares of Preferred Stock
shall not be issued in certificated form, but shall be deemed outstanding on
the books of the Company and held of record by the appropriate stockholder for
all purposes, including the payment of dividends. Uncertificated fractional
shares held of record by a stockholder, when aggregating a whole share, shall
be issued in whole share increments. After the fifth anniversary of the Issue
Date, dividends are payable only in cash. The number of shares of Preferred
Stock to be issued in circumstances when dividends are paid in the form of
additional shares of Preferred Stock shall equal (x) the cash amount of the
dividend that would have been payable had the dividend in question been paid in
cash, divided by (y) the Stated Value, rounded to the nearest hundredth of a
full share.
(g) Increase in Rate. In the event that after the fifth
anniversary of the Issue Date, the Company shall fail to pay dividends in cash
on the Dividend Payment Date when due, the Applicable Dividend Rate applicable
to any period in which any such dividends remain unpaid shall be increased by
0.5% of Stated Value per quarter for each quarter in which any such dividends
remain unpaid (such rate increase, the "Dividend Increase"). The Applicable
Dividend Rate plus the Dividend Increase applicable to any period shall not
exceed the lesser of (I) 18.0% of Stated Value per annum and (ii) the maximum
rate permitted by applicable law. After a Dividend Increase, when the Company
pays all accrued and unpaid dividends, and upon the payment of dividends on the
next Dividend Payment Date at the rate in effect prior to giving effect to any
Dividend Increase, the annual dividend rate shall be decreased to the otherwise
Applicable Dividend Rate.
All dividends shall be paid pro rata to the holders entitled thereto.
Section 4. Liquidation Rights of Preferred. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any other class of Capital Stock of the Company
(other than Parity Securities) whether currently authorized or hereafter
created, an amount equal to $1,000 per share plus an amount equal to all
accrued and unpaid dividends thereon, whether or not earnings are available in
respect of such dividends or such dividends have been declared, to and
including the date full payment shall be tendered to the holders of the
Preferred Stock with respect to such liquidation, dissolution or winding-up,
and no more (the "Liquidation Preference"). If upon any liquidation,
dissolution, or winding-up of the Company, whether voluntary or involuntary,
the assets to be distributed to the holders of the Preferred Stock, along with
the holders of Parity Securities, if any, shall be insufficient to permit the
payment to such shareholders of the full preferential amounts aforesaid, then
all of the assets of the Company shall be distributed ratably to the holders of
the Preferred Stock and such Parity Securities on the basis of the amount due
on such liquidation if there were sufficient assets held by each such
shareholder. Neither a consolidation or merger of the Company with or into any
other company nor a merger of any other company with or into the Company, nor a
sale or transfer of all or any part of the Company's assets for cash,
securities or other property, will be considered a liquidation, dissolution or
winding-up of the Company.
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Section 5. Redemptions.
(a) Optional Redemption.
(I) The Company may, at the option of the Board of
Directors, redeem, to the extent of funds legally available therefor, at any
time on or after the fourth anniversary of the Issue Date, in whole or in part,
in the manner provided for in Section 5 hereof, any or all of the shares of
the Preferred Stock, at a redemption price per share equal to (x) the
Liquidation Preference plus (y) (A) the Redemption Premium (as defined below)
multiplied by (B) the Liquidation Preference (minus any accrued and unpaid
dividends from the Dividend Payment Date prior to the Optional Redemption
Date). The "Redemption Premium" shall equal the Applicable Dividend Rate on
the Preferred Stock on the fourth anniversary of the Issue Date and shall
decline ratably (pursuant to the table attached hereto as Annex I) from the
fourth anniversary of the Issue Date to the Mandatory Redemption Date so that
at the Mandatory Redemption Date the Redemption Premium of the Preferred Stock
under this Section 5(a)(I) (y) shall be equal to zero. The redemption price
per share determined under this Section 5(a)(I) is referred to herein as the
"Optional Redemption Price" and the date fixed for redemption in accordance
with Section 5 below is the "Optional Redemption Date." In the event of a
redemption pursuant to this Section 5(a)(I) of only a portion of the then
outstanding shares of the Preferred Stock, the Company shall effect such
redemption on a pro rata basis according to the number of shares held by each
record holder of the Preferred Stock, except that the Company may redeem such
shares held by holders of fewer than 10 shares (or shares held by holders who
would hold less than 10 shares as a result of such pro rata redemption),
without regard to the pro rata requirements of this sentence.
(ii) To the extent a Change of Control has occurred and
the Company has received a Control Notice from Participating Holders, the
Company may, at the option of the Board, redeem, to the extent of funds legally
available therefor all, but not less than all, of the Preferred Stock held by
such Participating Holders on a date fixed by the Company, which date shall be
no less than 20 days nor more than 90 days after receipt of the Control Notice
or if the Control Notice is received more than 20 days prior to the date of the
Change of Control no later than the date of the Change of Control (the "Special
Redemption Date") in the manner provided for in Section 5 below at a
redemption price per share equal to 101% of the Liquidation Preference
(including, without limitation, an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Special
Redemption Date to the Special Redemption Date) (the "Special Redemption
Price").
(b) Mandatory Redemption. On June 30, 2008 (the "Mandatory
Redemption Date") the Company shall redeem, to the extent of funds legally
available therefor, in the manner provided for in Section 5 hereof, all of
the shares of the Preferred Stock then outstanding at a redemption price per
share equal to the Liquidation Preference (including, without limitation, an
amount equal to a prorated dividend for the period from the dividend payment
date immediately prior to the Mandatory Redemption Date to the Mandatory
Redemption Date) (the "Mandatory Redemption Price").
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Procedures for Redemption.
(I) At least thirty (30) days and not more than sixty
(60) days prior to the date fixed for any redemption of the Preferred Stock in
accordance with Section 5(a)(I) or Section 5(b) and at least five days prior to
the Special Redemption Date for any redemption of the Preferred Stock in
accordance with Section 5(a)(ii), written notice (the "Redemption Notice")
shall be given by first class mail, postage prepaid, to each holder of record
on the mailing date of such notice at such holder's address as it appears on
the stock books of the Company (and by facsimile, if a record holder has
provided a facsimile contact); provided that no failure to give such notice nor
any deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Preferred Stock to be redeemed except as to the
holder or holders to whom the Company has failed to give said notice or to whom
such notice was defective. Any holder of Preferred Stock may exercise its
conversion rights under Section 7(a) at any time up until 5:00 p.m. New York
City time on the Business Day prior to the date fixed for redemption in
accordance with this Section 5 (the "Redemption Date") and if not exercised
prior to such time, such redemption right shall expire unless the Company
defaults in making the payment due on redemption. The Redemption Notice shall
state:
(A) whether the redemption is pursuant to Section
5(a)(I), 5(a)(ii) or 5(b) hereof;
(B) the Optional Redemption Price, the Special
Redemption Price or Mandatory Redemption Price, as the case may be;
whether all or less than all the outstanding
shares of the Preferred Stock are to be redeemed and the total number of shares
of the Preferred Stock being redeemed;
(D) the Redemption Date;
(E) that the holder is to surrender to the
Company or its transfer agent, in the manner, at the place or places and at the
price designated, his certificate or certificates representing the shares of
Preferred Stock to be redeemed; and
(F) that dividends on the shares of the Preferred
Stock to be redeemed shall cease to accumulate on such Redemption Date unless
the Company defaults in the payment of the Optional Redemption Price, the
Special Redemption Price or the Mandatory Redemption Price, as the case may be.
(ii) Each holder of Preferred Stock shall surrender the
certificate or certificates representing such shares of Preferred Stock to the
Company, duly endorsed (or otherwise in proper form for transfer, as determined
by the Company), in the manner and at the place designated in the Redemption
Notice, and on the Redemption Date the full Optional Redemption Price, Special
Redemption Price or Mandatory Redemption Price, as the case may be, for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
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(iii) On and after the Redemption Date, unless the Company
defaults in the payment of the applicable redemption price, dividends on the
Preferred Stock called for redemption shall cease to accumulate on the
Redemption Date, and all rights of the holders of redeemed shares shall
terminate with respect thereto on the Redemption Date, other than the right to
receive the Optional Redemption Price, Special Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest.
Section 6. Voting Rights.
(a) General. The holders of Preferred Stock, except as otherwise
required under Texas law or as set forth in Sections 6(b) and 6 below, shall
not be entitled or permitted to vote on any matter required or permitted to be
voted upon by the shareholders of the Company.
(b) Amendments to Articles of Incorporation; Mergers and Similar
Transactions. So long as any shares of the Preferred Stock are outstanding,
the Company shall not (I) amend its Restated Articles of Incorporation
(including this Statement of Resolution) so as to: (A) affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of Preferred Stock (including any adjustment to the Stated Value) or (B)
authorize the issuance of additional shares of any class of Senior Securities
(or amend the provisions of any existing class of Capital Stock to make such
class of Capital Stock Senior Securities) or (ii) merge, consolidate or enter
into any other Reclassification that would (A) materially affect adversely the
special or relative rights, preferences, privileges or voting rights of the
Preferred Stock (including any adjustment to the Stated Value), or (B) result
in a breach of any of the Company's obligations under this Statement of
Resolution, without, in any such case, the affirmative vote or consent of
holders of at least a Majority of the Preferred Stock, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in writing
(to the extent permitted under the Company's Restated Articles of
Incorporation) or by resolution adopted at an annual or special meeting of
shareholders. Notwithstanding the foregoing, any amendment to the Restated
Articles of Incorporation (including this Statement of Resolution) that would
alter in any material respect the dividend rates, liquidation preference,
redemption rights or conversion rights of the Preferred Stock shall require the
affirmative vote or consent of each holder of Preferred Stock.
Election of Directors.
(I) The foregoing notwithstanding, in the event of the
Company's failure to pay dividends in accordance with Section 3, or the
occurrence of one or more Events of Noncompliance, within 10 Business Days of
such failure or such event, as the case may be, the Company shall notify each
holder of Preferred Stock thereof in writing, and the number of directors
constituting the Board shall thereupon be automatically increased so that the
number of new directorships of the Board so created will constitute at least
25.0% (rounded up to the nearest whole number) of the entire Board, after
giving effect to such increase, and the holders of the Preferred Stock shall
have, in addition to the other voting rights provided herein, the exclusive and
special right, voting separately as a class, to elect directors to fill such
newly created directorships (and to fill any vacancy in such directorships
until such time as the special voting rights provided by this Section 6(c)(I)
shall terminate as set forth below). If the event giving rise to the special
voting rights was a failure to pay dividends or an Event of Noncompliance
described in Section 10(a)(iii), the special voting rights will continue until
all
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accrued and unpaid dividends have been paid in full or all Events of
Noncompliance have been cured, as the case may be, subject to revesting in the
event of any future failure to pay dividends in accordance with the terms
hereof or a subsequent Event of Noncompliance. Except as provided in the prior
sentence, the special voting rights provided by this Section 6(c)(I) shall
continue as long as any Preferred Stock is outstanding. If the special voting
rights provided by this Section 6(c)(I) terminate, the terms of the additional
directors elected by the holders of Preferred Stock pursuant to this Section
6(c)(I) shall terminate and the number of directors constituting the Board
shall then be decreased to such number as constituted the whole Board
immediately prior to the occurrence of the event giving rise to such special
voting rights. The special voting rights provided in this Section 6(c)(I)
shall not preclude or affect the exercise of any other rights or remedies
provided hereby or by agreement, by law or otherwise upon the occurrence of any
event giving rise to such special rights.
(ii) The foregoing notwithstanding, the Company will give
notice to each holder of Preferred Stock within five days after the Company
becomes aware of any Change of Control that has occurred or is reasonably
likely to occur and, if a Change of Control occurs, the holders of a Majority
of the Preferred Stock shall, by written notice to the Company and the other
holders of Preferred Stock delivered before or 15 days after the Change of
Control (a "Control Notice") have the right to elect a majority of the Board in
accordance with this Section 6(c)(ii), unless the Company has theretofore
redeemed shares of any holder of Preferred Stock participating in a Control
Notice (each, a "Participating Holder") in accordance with Section 5(a)(ii).
Any holder of Preferred Stock may, at any time within ten days after receipt of
the Control Notice, elect to become a Participating Holder by delivery of
written notice of such election to the Company and the other Participating
Holders. If a Control Notice is received by the Company and the Company has
not redeemed the shares of Preferred Stock held by all Participating Holders,
upon the later to occur of (I) the occurrence of such Change of Control and
(ii) the date that the Company's redemption rights under Section 5(a)(ii) shall
have expired, the number of directors constituting the Board shall thereupon be
automatically increased by such number as will be necessary to constitute a
majority of the total number of the members, after giving effect to such
increase, of such Board, and the holders of the Preferred Stock shall have, in
addition to the other voting rights provided herein, the exclusive, special and
continuing right, voting separately as a class, to elect directors to fill such
newly created directorships (and to fill any vacancy in such directorships) and
to continually elect at least a majority of the Board as long as any Preferred
Stock is outstanding.
(iii) The directors to be elected (or if such directors
have been previously elected and any vacancy shall exist, such vacancy to be
filled) by the holders of Preferred Stock (voting as a class) shall be elected
(or filled) at (I) annual meetings of the shareholders of the Company, or (ii)
a special meeting of the holders of Preferred Stock for the purpose of electing
such directors (or filling any such vacancy), to be called by the Secretary of
the Company upon the written request of the holders of record of 10% or more of
the number of shares of Preferred Stock then outstanding; provided, however,
that if the Secretary of the Company shall fail to call any such meeting within
10 days after any such request, such meeting may be called by any holder of
Preferred Stock designated for that purpose by the holders of record of 10% or
more of the number of shares of Preferred Stock then outstanding. At any
meeting or at any adjournment thereof held for the purpose of electing
directors at which the holders of shares of Preferred Stock shall have the
special voting right provided by this Section 6(c), the presence, in person or
by proxy, of the holders of the equivalent of a Majority of the Preferred Stock
shall be required to constitute a quorum for the election of any
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director by the holders of the Preferred Stock exercising such special right.
The special right of holders of shares of Preferred Stock under this Section
6 may be exercised by the written consent of the holders of shares of
Preferred Stock then outstanding in accordance with the law of the Company's
jurisdiction of incorporation at such time to the extent permitted by the
Company's Restated Articles of Incorporation.
(iv) The foregoing notwithstanding, in the case of any
vacancy in the office of a director occurring among the directors elected by
the holders of the Preferred Stock pursuant to Section 6(c), the remaining
director or directors so elected by the holders of the Preferred Stock may, by
affirmative vote of a majority thereof (or the remaining director so elected if
there is only one such director), elect a successor or successors to hold the
office for the unexpired term of the director or directors whose place or
places shall be vacant. Any director who shall have been elected by the
holders of the Preferred Stock, or any director so elected as provided in the
next preceding sentence hereof, shall be removed during the aforesaid term of
office, whether with or without cause, only by the affirmative vote of the
holders of a Majority of the Preferred Stock.
(v) The Company shall promptly take all necessary action
to facilitate the implementation of the rights of the holders of Preferred
Stock to appoint directors that are provided for under this Section 6.
Section 7. Conversion Rights.
The Preferred Stock shall be convertible into Common Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this Section 7, the holder of any shares of Preferred Stock shall
have the right at such holder's option, at any time or from time to time, to
convert any shares of Preferred Stock into the number of fully paid and
nonassessable shares of Common Stock set forth in Section 7(b).
(b) Conversion Price. Each share of Preferred Stock converted
pursuant to Section 7(a) shall be converted into such number of shares of
Common Stock as is determined by dividing (I) the sum of (A) $1,000 plus (B)
any dividends on such share of Preferred Stock which such holder is entitled to
receive, but has not yet received (including, without limitation, an amount
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the Conversion Date to the Conversion Date), by (ii) the
Conversion Price in effect on the Conversion Date. The Conversion Price shall
be subject to adjustment as set forth in Section 7(d).
Mechanics of Conversion. The holder of any shares of
Preferred Stock may exercise the conversion right specified in Section 7(a) as
to any part thereof by surrendering to the Company or any transfer agent of the
Company the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all or
a specified portion of the shares represented thereby. Conversion shall be
considered to have been effected on the date when a holder of Preferred Stock
delivers notice of an election to convert shares of Preferred Stock to the
Company accompanied by certificates representing such shares, and such date is
referred to herein as the "Conversion Date." Subject to the provisions of
Section 7(d), as promptly as practicable thereafter (and after surrender of the
certificate or certificates evidencing the shares of Preferred
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Stock or delivery to the Company of an affidavit and indemnity with respect to
such certificates), the Company shall issue and deliver to or upon the written
order of such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as provided
in Section 7(h) hereof. Subject to the provisions of Section 7(d), the Person
in whose name the certificate or certificates for Common Stock are to be issued
shall be considered to have become a holder of record of such Common Stock on
the Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate evidencing shares of Preferred Stock surrendered for
conversion, the Company shall issue and deliver to or upon the written order of
the holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered. The
Company will use its best efforts to deliver all stock certificates required by
this Section 7 within three business days after the Conversion Date.
(d) Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment from time to time as follows:
(I) Stock Dividends. If the number of shares of Common
Stock outstanding at any time after the date of issuance of Preferred
Stock is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then
immediately after the record date fixed for the determination of
holders of Common Stock entitled to receive such stock dividend or the
effective date of such subdivision or split-up, as the case may be,
the Conversion Price shall be appropriately reduced so that the holder
of any shares of Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock of the
Company which he would have received immediately following such action
had such shares of Preferred Stock been converted immediately prior
thereto.
(ii) Combination of Stock. If the number of shares of
Common Stock outstanding at any time after the date of issuance of
Preferred Stock is decreased by a combination of the outstanding
shares of Common Stock, then immediately after the effective date of
such combination, the Conversion Price shall be appropriately
increased so that the holder of any shares of Preferred Stock
thereafter converted shall be entitled to receive the number of shares
of Common Stock which he would have received immediately following
such action had such shares of Preferred Stock been converted
immediately prior thereto.
(iii) Adjustments for Other Dividends and Distributions.
In the event the Company at any time or from time to time after the
Issue Date makes or issues, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities or other rights
of the Company other than a dividend or other distribution payable
solely in shares of Common Stock, then and in each such event
provision shall be made so that the holders of Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities or
other rights of the Company which they would have received had their
Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the Conversion Date, retained
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<PAGE> 63
such securities or other rights receivable by them as aforesaid during
such period, subject to all other adjustments called for during such
period under this Section 7 with respect to the rights of the holders
of the Preferred Stock.
(iv) Reclassification, etc. In case of any
Reclassification, each share of Preferred Stock shall, after such
Reclassification, be convertible into the number of shares of stock or
other securities or property to which the holder of the Common Stock
issuable (at the time of such Reclassification) upon conversion of
such share of Preferred Stock would have been entitled upon such
Reclassification; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter
of the holders of the shares of Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as possible, to any shares
of stock or other securities or property thereafter deliverable on the
conversion of the shares of Preferred Stock. If the holders of Common
Stock have an election with respect to the stock, securities or other
property to be received upon a Reclassification, the same election
shall be afforded to the holders of Preferred Stock.
(v) Rounding of Calculations. All calculations under
this Section 7(d) shall be made to the nearest cent or to the nearest
one hundredth (1/100th) of a share, as the case may be.
(vi) Timing of Issuance of Additional Common Stock Upon
Certain Adjustments. In any case in which the provisions of this
Section 7(d) shall require that an adjustment shall become effective
immediately after a record date for an event, the Company may defer
until the occurrence of such event by (A) issuing to the holder of any
shares of Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment, and (B)
paying to such holder any amount of cash in lieu of a fractional share
of Common Stock pursuant to Section 7(h) hereof; provided, however,
that the Company upon request shall deliver to such holder a due bill
or other appropriate instrument evidencing such holder's right to
receive such additional shares and such cash upon the occurrence of
the event requiring such adjustment.
(e) Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 7(d), the Company shall
forthwith file, at the office of any transfer agent for such Preferred Stock
and at the principal office of the Company, a statement showing in detail the
facts requiring such adjustment and the Conversion Price that shall be in
effect after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each holder of
shares of Preferred Stock at the address appearing on the Company's records.
Each such statement shall be signed by the Company's independent public
accountants. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section 7(f).
(f) Notice to Holders. In the event the Company shall propose to
take any action of the type described in Section 7(d)(I), (ii), (iii), or (iv)
the Company shall give notice to each holder of shares of Preferred Stock
affected by such action in the manner set forth in this Section 7(f), which
16
<PAGE> 64
notice shall specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
ten days prior to the date so fixed, and in the case of any other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
(g) Costs. The Company shall pay all documentary, stamp, transfer
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock of the Company upon conversion of any shares of Preferred
Stock; provided, however, that the Company shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such shares in a name other than that of the
holder of the shares of Preferred Stock in respect of which such shares are
being issued.
(h) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. If more than one share of
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. In lieu of any fractional share to which the
holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the Common Stock's Fair Market Value on
the date of conversion.
(I) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(j) Notices. All notices and other communications required by the
provisions of this Section 7 shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to each holder of record at the address of such
holder appearing on the books of the Company. Notice so given shall, in the
case of notice so given by mail, be deemed to be given and received on the
fourth calendar day after posting, in the case of overnight delivery service,
on the date of actual delivery and, in the case of notice so given by cable,
telegram, facsimile transmission, telex or personal delivery, on the date of
actual transmission or, as the case may be, personal delivery.
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<PAGE> 65
(k) No Dilution or Impairment. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
Section 8. Restrictions and Limitations.
(a) So long as any shares of Preferred Stock remain outstanding
and except as set forth below, the Company shall not, and shall not permit any
Subsidiary to, without the vote or written consent by the holders of a Majority
of the Preferred Stock:
(I) (A) Declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of the Company
(other than in respect of the Preferred Stock) or any of its Subsidiaries
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Subsidiaries) or to the
direct or indirect holders of the Equity Interests of the Company or any of its
Subsidiaries in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Senior Securities or Parity Securities
(except that dividends payable on Parity Securities issued in accordance with
the provisions hereof solely in Parity Securities of the same class or series,
as the case may be, shall be permitted) of the Company, dividends or
distributions payable to the Company or any Subsidiary of the Company or
dividends or distributions made by a Subsidiary of the Company to all holders
of its Common Stock on a pro rata basis)); and
(B) Make any payment on or in respect of, or
purchase, redeem, defease or otherwise acquire or retire for value any Equity
Interests (other than the Preferred Stock in accordance with Section 5 or any
Equity Interests owned by the Company or any Subsidiary of the Company) except
at Stated Maturity.
All such payments and other actions set forth in clauses (A)
and (B) above shall be collectively referred to as "Restricted Payments".
Notwithstanding the foregoing, the Company shall be permitted
to make Restricted Payments if, at the time of and after giving effect to such
Restricted Payment:
(I) No Event of Noncompliance shall have occurred and be
continuing or would occur as a consequence thereof; and
(II) The Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 8 (a)(v); and
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<PAGE> 66
(III) Such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (v) and (w) of the next succeeding paragraph), is
less than the sum of (I) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) commencing on
the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the Issue Date of Equity Interests of the
Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company or
conversion of the 6% Notes) subject to the provisions of Section
8(a)(vii), plus (iii) $7.5 million.
The foregoing provisions will not prohibit (u) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Section 8(a)(I); (v) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any Parity
Securities); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (ii) of paragraph (III) above; (w) the
defeasance, redemption or repurchase of Junior Securities or Parity Securities
with the net cash proceeds from the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other than
Parity Securities); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (ii) of paragraph (III) above; (x)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Subsidiaries') management pursuant to
any management equity subscription agreement or stock option agreement in
effect as of the Issue Date; provided that (A) the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any 12-month period plus the aggregate cash proceeds
received by the Company during such 12-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries, and (B) no Event of Noncompliance shall have occurred and be
continuing immediately after such transaction; and (y) so long as no Event of
Noncompliance shall have occurred and be continuing, ordinary dividends paid by
the Company in respect of its Common Stock in an aggregate amount not to exceed
$2.5 million since the Issue Date.
The amount of all Restricted Payments (other than cash) shall
be the fair market value (evidenced by a resolution of the Board of Directors
or a committee of the Board of Directors having at least one Independent
director set forth in an Officers' Certificate delivered to each holder of
Preferred Stock) on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or such Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to each holder of Preferred Stock
an Officers' Certificate stating that such Restricted Payment is permitted and
setting
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<PAGE> 67
forth the basis upon which the calculations required by this Section 8(a)(I)
were computed, which calculations may be based upon the Company's latest
available financial statements.
For purposes of this Section 8(a)(I), capitalized terms used
and not defined herein shall have the meanings assigned to them in the
Indenture as in effect on the Issue Date.
(ii) Authorize or issue, or obligate itself to issue, any
Senior Securities;
(iii) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock;
(iv) Enter any agreement, contract or understanding or
otherwise incur any obligation which by its terms would violate, be in conflict
with, restrict or burden the rights of the holders of Preferred Stock, or the
Company's ability to perform its obligations hereunder;
(v) Directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) or issue any Parity Securities (other than as
contemplated by Section 3) unless the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Parity Securities are issued would
have been at least 1.75 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Parity Securities had been issued, as
the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(A) the incurrence by the Company of Indebtedness
under the Credit Agreement (and guarantees thereof by the Guarantors)
in an aggregate principal amount at any time outstanding (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries thereunder)
not to exceed the greater of (x) $600.0 million and (y) the sum of (A)
80% of the Eligible Receivables and (B) 65% of Eligible Inventory,
less, in the case of each of clause (x) and clause (y), the aggregate
amount of all Net Proceeds of Asset Sales applied to permanently
reduce the commitments with respect to such Indebtedness pursuant to
Section 4.10 of the Indenture as in effect on the Issue Date;
(B) the incurrence by the Company of Permitted
Indebtedness;
the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations
(whether or not incurred pursuant to sale and leaseback transactions),
mortgage financing or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in
an aggregate principal amount not to exceed $15.0 million at any time
outstanding;
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<PAGE> 68
(D) the incurrence by the Company or any of its
Subsidiaries of Indebtedness ("Refinancing Indebtedness") in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, Permitted Indebtedness or
Indebtedness that was permitted to be incurred hereunder, provided
that the principal amount (or accreted value, if applicable) of such
Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended,
refinanced, renewed, replaced, defeased or refunded;
(E) the incurrence by the Company or any of its
Wholly Owned Subsidiaries of intercompany Indebtedness between or
among the Company and any of its Wholly Owned Subsidiaries;
(F) the incurrence by the Company of Hedging
Obligations that are incurred in the ordinary course of business for
the purpose of fixing or hedging interest rate risk;
(G) the incurrence by the Company of Hedging
Obligation under commodity hedging and currency exchange agreements;
provided that, such agreements were entered into in the ordinary
course of business for the purpose of limiting risks that arise in the
ordinary course of business;
(H) the incurrence of Indebtedness of a guarantor
represented by guarantees of Indebtedness of the Company that has been
incurred in accordance with the terms hereof; and
(I) the incurrence by the Company of Indebtedness
or the issuance by the Company of Junior Securities or Parity
Securities (in addition to Indebtedness, Junior Securities or Parity
Securities permitted by any other clause of this Section 8(a)(v)) in
an aggregate principal amount (or accreted value, as applicable) at
any time outstanding not to exceed $20.0 million.
For purposes of this Section 8(a)(v), capitalized terms used
and not defined herein shall have the meanings assigned to them in the
Indenture as in effect on the Issue Date.
(vi) Make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(A) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (B) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving the aggregate consideration in excess of $2.0
million, the Company delivers to each holder of Preferred Stock a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (A) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors and with respect to an Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
21
<PAGE> 69
consideration in excess of $5.0 million, the Company delivers to each holder of
Preferred Stock an opinion as to the fairness to the holders of Preferred Stock
of such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing; provided
that (w) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors or the payment of fees and indemnities to directors of the Company
and its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practices of the Company or such Subsidiary, (x) loans
or advances to employees in the ordinary course of business, (y) transactions
between or among the Company and/or its Wholly Owned Subsidiaries and (z)
Restricted Payments that are permitted by the provisions of Section 8(a)(I), in
each case, shall not be deemed Affiliate Transactions.
For purposes of this Section 8(a)(vi), capitalized terms used
and not defined herein shall have the meanings assigned to them in the
Indenture as in effect on the Issue Date.
(vii) Make any Restricted Investment (as such term is
defined in the Indenture as in effect on the Issue Date) unless the Company
could borrow an additional $1.00 of Indebtedness under the Fixed Charge
Coverage Ratio in Section 8(a)(v) above; except that, notwithstanding the
foregoing, the Company shall be permitted to make a Restricted Investment if
(x) such Restricted Investment is made after the Issue Date and is sold for
cash or otherwise liquidated or repaid for cash, in an amount equal to the
lesser of (a) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition) and (b) the initial amount of such
Restricted Investment or (y) such Restricted Investment is in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than any
Senior Securities and Parity Securities); provided that the amount of any such
net cash proceeds that are utilized for any such Restricted Investment made
under (x) and (y) above shall be excluded from Section 8(a)(I)(III)(ii).
Section 9. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Company shall be authorized to issue.
Section 10. Events of Noncompliance.
(a) Definition. An Event of Noncompliance will be deemed to have
occurred if:
(I) the Company fails to make any redemption payment with
respect to the Preferred Stock which it is obligated to make hereunder, whether
or not such payment is legally permissible;
(ii) the Company breaches or otherwise fails to perform or
observe the provisions of Section 8;
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<PAGE> 70
(iii) the Company breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or any covenant or
agreement set forth in the Purchase Agreement (other than a covenant or
agreement set forth in Section 5.14 (the breach of which Section 5.14 shall not
be considered an Event of Noncompliance under this Section 10(a)(iii)) or in
Article 7 of the Purchase Agreement) and such breach or failure to perform or
observe continues for a period of 60 days after notice thereof from any holder
of Preferred Stock; or the Company breaches or otherwise fails to perform or
observe any covenant or agreement set forth in Article 7 of the Purchase
Agreement and such breach or failure to perform or observe continues for a
period of 30 days after notice thereof from any holder of Preferred Stock; or
(iv) a Bankruptcy Event occurs with respect to the Company
or any Subsidiary.
The Company shall promptly (and in any event within five days)
after learning of (x) any failure by the Company to observe any covenant or
agreement contained herein or in the Purchase Agreement or (y) any Event of
Noncompliance, give notice thereof to each holder of Preferred Stock.
(b) Consequences of Certain Events of Noncompliance.
(I) If an Event of Noncompliance (other than the failure
to pay timely dividends, which affects the dividend rate of the Preferred Stock
as provided in Section 3) has occurred, the dividend rate on the Preferred
Stock shall increase immediately to the lesser of (A) 18% per annum and (B) the
maximum rate permitted by applicable law, and shall remain at such rate as long
as any Preferred Stock is outstanding; provided, however, that if the Event of
Noncompliance is one under Section 10(a)(iii), upon the cure of such Event of
Noncompliance, the dividend rate shall be that which would otherwise be
applicable but for the application of this Section 10(b)(I).
(ii) If any Event of Noncompliance has occurred, each
holder of Preferred Stock will also have (A) rights pursuant to Section
6(c)(I), (B) any other rights which such holder may have been afforded under
any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
Section 11. Waivers.
With the written consent of holders of a Majority of the
Preferred Stock (or each holder of Preferred Stock to the extent required
pursuant to the last sentence of Section 6(b)), the obligations of the Company
and the rights of the holders of the Preferred Stock under this Statement of
Resolution may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely). Upon the effectuation of each such waiver, the Company shall
promptly give written notice thereof to the holders of Preferred Stock who have
not previously consented thereto in writing.
23
<PAGE> 71
ANNEX 1
<TABLE>
<CAPTION>
APPLICABLE DIVIDEND RATE
--------------------------------------------------------
REDEMPTION PREMIUM APPLICABLE DURING THE 3% 7% 10%
FOLLOWING YEARS AFTER THE ISSUE DATE: -- -- ---
<S> <C> <C> <C>
1 Non-Call Non-Call Non-Call
2 Non-Call Non-Call Non-Call
3 Non-Call Non-Call Non-Call
4 Non-Call Non-Call Non-Call
5 3.000% 7.000% 10.000%
6 2.400% 5.600% 8.000%
7 1.800% 4.200% 6.000%
8 1.200% 2.800% 4.000%
9 0.600% 1.400% 2.000%
10 0.000% 0.000% 0.000%
</TABLE>
To the extent a different Applicable Dividend Rate applies, a similar ratable
decline shall apply.
24
<PAGE> 72
I, THE UNDERSIGNED, being the President of Pillowtex Corporation, do
hereby execute this Statement of Resolution, declaring and certifying under
penalties of perjury that the facts herein stated are true, and accordingly
have hereunto set my hand this 18th day of December, 1997.
/s/ JEFFREY D. CORDES
----------------------------------------
Jeffrey D. Cordes
President
ATTEST:
/s/ BRENDA SANDERS
----------------------------------------
Brenda Sanders
Assistant Secretary
25
<PAGE> 73
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PILLOWTEX CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, Pillowtex Corporation (the "Company") hereby adopts the
following Articles of Amendment to the Articles of Incorporation.
ARTICLE ONE. The name of the corporation is Pillowtex Corporation.
ARTICLE TWO. The following amendment to the Amended and Restated
Articles of Incorporation was adopted by shareholders of the Company
as of May 5, 1999:
(a) The first paragraph of Article V of the Amended and Restated
Articles of Incorporation be amended to read as follows:
ARTICLE V
The aggregate number of shares which the corporation is authorized to
issue is 75,000,000 shares consisting of 55,000,000 shares of Common Stock,
having a par value of $0.01 per share, and 20,000,000 shares of Preferred
Stock, having a par value of $0.01 per share."
[The remainder of Article V is not being amended.]
ARTICLE THREE. The number of shares of Common Stock of the Company
outstanding and entitled to vote was 14,183,852 at the time of the adoption
of this amendment.
ARTICLE FOUR. At the 1999 Annual Meeting of Shareholders, the holders
of 12,077,693 shares of Common Stock outstanding and entitled to vote voted
for this amendment and the holders of 785,527 shares of Common Stock
outstanding and entitled to vote voted against this amendment.
IN WITNESS WHEREOF, these Articles of Amendment are dated as of
June 3, 1999.
PILLOWTEX CORPORATION
/s/ Brenda Sanders
----------------------------------
Brenda Sanders
Corporate Secretary
<PAGE> 1
PROMISSORY NOTE
Dallas, Texas May 4, 1999
Borrower: PILLOWTEX CORPORATION, a Texas corporation
Commitment: $20,000,000.00
Borrower, for value received, promises to pay to the order of NATIONSBANK,
N.A. ("Lender"), at its principal office in Dallas, Texas, or at any other
place designated to Borrower in writing by Lender an amount, in lawful money of
the United States of America in immediately available funds, up to the
Commitment (or such lesser amount as provided in Section 1.2 hereof) on the
Maturity Date (except as otherwise required to be paid earlier pursuant to this
Note), together with interest on the unpaid principal balance of each Advance
evidenced by this Note at the applicable rates herein set forth.
This Note is issued upon the following terms and conditions:
ARTICLE I
THE ADVANCES
1.1 Definitions. Defined terms used herein shall have the meaning given
to them above and in Article III hereof.
1.2 The Advances. Lender agrees, upon the terms and subject to the
conditions of this Note and provided that (a) no Default or Event of Default
has occurred and is continuing, and (b) the Unused Portion (as defined in the
Credit Agreement) is zero, to make Advances to Borrower for the purposes set
forth in Section 5.8 of the Credit Agreement from time to time in an aggregate
amount not to exceed the Commitment. Subject to Section 1.9 hereof, Advances
may be repaid and then reborrowed. Any Advance shall, at the option of
Borrower as provided in Section 1.3 hereof (and, in the case of Eurodollar
Advances, subject to availability and to the provisions of Section 1.14
hereof), be made as a Base Rate Advance or a Eurodollar Advance; provided that
there shall not be more than five Eurodollar Advances outstanding at any one
time. On the Maturity Date unless sooner paid as provided herein, the
outstanding Advances shall be repaid in full.
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1.3 Manner of Borrowing and Disbursement.
(1) Each Borrowing shall be made on notice, given not later than 1:00
p.m. (Dallas time) (I) in the case of such a Borrowing comprised of Base Rate
Advances, on the date of the proposed Borrowing, and (ii) in the case of such a
Borrowing comprises of Eurodollar Advances on the second Business Day prior to
the date of the proposed Borrowing, in each case by Borrower to Lender. Each
such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone
(confirmed by sending a Notice of Borrowing by one of the following means)
telex, telecopier or cable, in substantially the form of Exhibit "A" attached
hereto, specifying therein the requested (A) date of such Borrowing, (B) Type
of Advances comprising such Borrowing, aggregate amount of such Borrowing,
and (D) in the case of such a Borrowing consisting of Eurodollar Advances,
the Interest Period for each such Advance. Provided (a) no Default or Event of
Default has occurred and is continuing, and (b) the Unused Portion (as defined
in the Credit Agreement) is zero, Lender will make such funds available to
Borrower by depositing such funds received in the general deposit account of
Borrower with Lender.
(2) Borrower may on any Business Day, subject to the notice provisions
of Section 1.3(a) hereof and the provisions of Section 1.14 hereof, Convert all
or any portion of the Advances of one Type; provided, however, that (I) any
Conversion of any Eurodollar Advances into Base Rate Advances shall be made on,
and only on, the last day of the Interest Period for such Eurodollar Advance,
and any Conversion of one Advance into another Advance shall be in an amount
not less than the minimum amount specified in Section 1.3(d) hereof and (ii)
no Conversion into Eurodollar Advances shall be permitted at any time that a
Default or Event of Default has occurred and is continuing. Each such notice
of Conversion shall, within the restrictions specified above, specify (I) the
date of such Conversion, (ii) the Advance to be Converted and (iii) if such
Conversion is into Eurodollar Advances, the duration of the initial Interest
Period for such Advances. Each notice of Conversion shall be irrevocable and
binding on Borrower.
(3) If prior to the end of any Interest Period for any Eurodollar
Advance Borrower shall fail to give timely notice of the continuance or
Conversion thereof, each such Eurodollar Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base
Rate Advance. If any notice given by Borrower pursuant to Section 1.3(a)
hereof for a Eurodollar Advance or any notice given by Borrower pursuant to
Section 1.3(b) hereof shall fail to designate an Interest Period, such notice
shall be deemed to have designated an Interest Period of one (1) month for
Eurodollar Advances.
(4) The aggregate amount of Base Rate Advances to be made by Lender on
any day shall be in a principal amount which is at least $100,000 and which is
an integral multiple of $50,000. The aggregate amount of Eurodollar Advances
having the same Interest Period and to be made by Lender on any day shall be in
a principal amount which is at least $1,000,000 any which is an integral
multiple of $100,000.
(5) Each Notice of Borrowing shall be irrevocable and binding on
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Advances, Borrower shall indemnify
Lender against any loss, cost or expense incurred by Lender as a result of any
failure of Borrower to borrow any Eurodollar Advances after a Notice of
Borrowing has been given in accordance with Section 1.3(a) hereof, including,
without limitation, any loss (excluding loss of anticipated profits), cost or
expense incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by Lender to fund the Advances to be made by Lender as
part of such Borrowing when such Advances, as a result of such failure, are
not made on such date. The obligations of Borrower under this Section 1.3(e)
shall survive termination of this Note.
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1.4 Interest.
(1) Borrower shall pay interest on the outstanding principal amount of
Base Rate Advances at a rate per annum equal to the Base Rate; provided,
however, if the amount of interest payable for the account of Lender on any
interest payment date in respect of the immediately preceding interest
computation period would exceed the Maximum Amount, the amount of interest
payable on such interest payment date shall be automatically reduced to the
Maximum Amount. If the amount of interest payable for the account of Lender
in respect of any interest computation period is reduced pursuant to the
immediately preceding sentence and the amount of interest payable for its
account in respect of any subsequent interest computation period would be
less than the Maximum Amount, then the amount of interest payable for its
account in respect of such subsequent interest computation period shall be
automatically increased to such Maximum Amount; provided that at no time
shall the aggregate amount by which interest paid for the account of Lender
has been increased pursuant to this sentence exceed the aggregate amount by
which interest paid for its account has theretofore been reduced pursuant to
the immediately preceding sentence. Interest on Base Rate Advances shall be
paid quarterly in arrears on each Quarterly Date and on the Maturity Date.
(2) Borrower shall pay interest on each Eurodollar Advance at a rate
per annum equal to the Eurodollar Rate for such Eurodollar Advance. Interest
on each Eurodollar Advance shall be payable on the last day of the Interest
Period for such Eurodollar Advance and on the Maturity Date.
(3) During the continuance of any Event of Default, Borrower shall pay,
on demand, interest on the principal amount of all Advances outstanding and on
all other Obligations due and unpaid hereunder at a rate per annum equal to the
Base Rate plus 2%; provided, however, if the amount of interest payment for the
account of Lender on any interest payment date in respect of the immediately
preceding interest computation period would exceed the Maximum Amount, the
amount of interest payable on such interest payment date shall be automatically
reduced to the Maximum Amount. If the amount of interest payable for the
account of Lender in respect of any interest computation period is reduced
pursuant to the immediately preceding sentence and the amount of interest
payable for its account in respect of any subsequent interest computation
period would be less than the Maximum Amount, then the amount of interest
payable for its account in respect of such subsequent interest computation
period shall be automatically increased to the Maximum Amount; provided that
at no time shall the aggregate amount by which interest paid for the account
of Lender has been increased pursuant to this sentence exceed the aggregate
amount by which interest paid for its account has theretofore been reduced
pursuant to the immediately preceding sentence.
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1.5 Commitment Fee. Subject to Section 2.4 hereof, Borrower agrees
to pay to Lender a per annum Commitment Fee (which shall be payable in arrears
on each Quarterly Date and on the Maturity Date), in an amount equal to the
product of 0.50% multiplied by the daily average unused portion of the
Commitment commencing on the date of this Note. The Commitment Fee shall be
payable monthly in arrears on the last day of each month during the term of
this Note, commencing on the first such date occurring after the date of this
Note and on the Maturity Date.
1.6 Prepayment.
(1) Borrower may, from time to time, prepay the outstanding principal
amount of the Advances in whole or in part without penalty or premium,
provided, however, that (I) each partial prepayment shall be in an aggregate
principal amount not less than $100,000 or an integral multiple of $50,000 in
excess thereof, (ii) no such prepayment of a Eurodollar Advance shall be made
other than on the last day of the Interest Period therefor unless Borrower,
simultaneously with such prepayment, pays the compensation required pursuant to
Section 1.9 hereof and (iii) each prepayment of the principal amount of a
Eurodollar Advance shall also include accrued interest to the date of such
prepayment on the principal amount prepaid. Borrower shall notify Lender
(which notice may be telephonic promptly followed by written notice) by
1:00 p.m. (Dallas time) on the date of the proposed payment (or two Business
Days prior the date of the proposed prepayment of a Eurodollar Advance).
Any notice of prepayment shall be irrevocable.
(2) On or before the date of any reduction of the Commitment, Borrower
shall prepay applicable outstanding Advances in an amount necessary to reduce
the sum of outstanding Advances to an amount less than or equal to the lesser
of the Commitment as so reduced. Borrower shall first prepay all Base Rate
Advances and shall thereafter prepay Eurodollar Advances. To the extent that
any prepayment requires that a Eurodollar Advance be repaid on a date other
than the last day of its Interest Period, Borrower shall reimburse Lender
in accordance with Section 1.9 hereof.
1.7 Reduction of Commitment.
(1) Borrower shall have the right, without payment of any premium or
penalty, at any time upon not less than three (3) Business Days' notice to
Lender (if telephonic, to be confirmed by telecopy or in writing on or before
the date of reduction or termination) to terminate or reduce the Commitment,
in whole or in part, provided that (I) each partial termination shall be in an
aggregate amount which is an integral multiple of $2,000,000, and (ii) no such
reduction in the Commitment shall cause any Eurodollar Advance to be repaid
prior to the last day of its Interest Period. Once reduced or terminated,
the Commitment may not be increased.
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(2) On the Maturity Date, the Commitment shall automatically reduce
to zero.
1.8 Payment of Principal of Advances. Borrower agrees to pay the
principal amount of the Advances to Lender as follows:
(1) The principal amount of each Eurodollar Advance shall be due and
payable on its Payment Date, which principal payment may be made by means of a
Refinancing Advance.
(2) On the date of reduction of the Commitment pursuant to Section 1.7
hereof, including the Maturity Date, the aggregate amount of the Advances
outstanding on such date of reduction in excess of the Commitment as reduced
shall be due and payable, which principal payment may not be made by means of
Refinancing Advances.
(3) The principal amount of all Advances, all accrued interest and fees
thereon, and all other Obligations related thereto, shall be due and payable in
full, or to the extent not otherwise required to be paid earlier herein, on the
Maturity Date.
1.9 Reimbursement. If (a) any payment of principal of, or Conversion
of, any Eurodollar Advance is made by Borrower to or for the account of Lender
other than on the last day of the Interest Period for such Advance, or
(b) Borrower shall fail to Convert into or continue a Eurodollar Advance on the
date specified in the notice thereof (other than as a result of any wrongful
act or omission of Lender), Borrower shall, upon demand by Lender, pay to
Lender any and all amounts required to compensate Lender for any and all
additional losses, costs and expenses that it may reasonably incur as a result
of such payment, Conversion or failure to borrow, Convert or continue,
including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by Lender to fund or
maintain such Advance. Lender shall deliver to Borrower a certificate
setting forth calculation of the additional amounts or amounts to be paid to
it hereunder which shall be conclusive in the absence of manifest error.
In determining such amount, Lender may use any reasonable averaging and
attribution methods.
(1) The obligations of Borrower under this Section 1.9 shall survive
any termination of this Note.
1.10 Payments and Computations.
(1) Borrower shall make each payment hereunder not later than 12:00
noon (Dallas time) on the day when due in Dollars to Lender at Lender's
principal office in same day funds.
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(2) Interest on Base Rate Advances and the Commitment Fee shall be
calculated on the basis of a 365 or 366 day year, as appropriate. Subject to
Section 2.4 hereof, interest on Eurodollar Advances shall be calculated on the
basis of actual days elapsed but computed as if each year consisted of 360
days. Such computations shall be made including the first day but excluding
the last day occurring in the period for which such interest or Commitment Fee
is payable. Each determination by Lender of an interest rate, fee or
commission hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(3) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation or payment of interest, as the case may be; provided, however, if
such extension would cause payment of interest on or principal of Eurodollar
Advances to be made in the next following calendar month, such payment shall be
made on the next preceding Business Day.
(4) Borrower agrees to pay principal, interest, fees and all other
amounts due under this Note without deduction for set-off or counterclaim or
any deduction whatsoever.
(5) If some but less than all amounts due from Borrower are received
by Lender, Lender shall apply such amounts in the following order of priority:
(I) to the payment of all fees then due and payable; (ii) to the payment of
interest then due and payable on the Advances; and (iii) to the payment of
principal then due and payable on the Advances.
1.11 Calculation of Rates. The provisions of this Note relating to
calculation of the Eurodollar Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that Lender shall be entitled to fund
and maintain its funding of all or any part of a Eurodollar Advance as it sees
fit.
1.12 Booking Advances. Lender shall make, carry or transfer Advances at,
to or for the account of any of its branch offices or the office of any
affiliate.
1.13 Taxes.
(1) Any and all payments by Borrower hereunder shall be made, in
accordance with Section 1.10 hereof, free and clear of and without deduction
for any and all present or future taxes, levies, imposts, deductions, charges
and withholdings, and all liabilities with respect thereto, excluding, in the
case of Lender, taxes imposed on, based upon or measured by its overall net
income, net worth or capital, and franchise taxes, doing business taxes or
minimum taxes imposed on it, (I) by the jurisdiction under the laws of which
Lender is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any
political subdivision thereof, other than those imposed by reason of (A) an
asserted relation of such jurisdiction to the transactions contemplated by this
<PAGE> 7
Note, (B) the activities of Borrower in such jurisdiction, or the
activities in connection with the transactions contemplated by this Note of
Lender; and (iii) in the case of Lender, any Taxes in the nature of transfer,
stamp, recording or documentary taxes resulting from a transfer (other than
as a result of foreclosure) by Lender of all or any portion of its interest
in this Note (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to Lender, (x) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.13) Lender receives an amount equal to the sum it would have
received had no such deductions been made, (y) Borrower shall make such
deductions and (z) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(2) In addition, Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than Taxes described in clause (iii) of the first
sentence of Section 1.13(a) hereof) that arise from any payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect
to, this Note (hereinafter referred to as "Other Taxes").
(3) Borrower will indemnify Lender for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 1.13) paid by Lender and
all liabilities (including penalties, additions to tax, interest and reasonable
expenses) arising therefrom or with respect thereto whether or not such Taxes
or Other Taxes were correctly or legally asserted, other than penalties,
additions to tax, interest and expenses arising as a result of gross negligence
or wilful misconduct on the part of Lender, provided, however, that Borrower
shall have no obligation to indemnify Lender unless and until Lender shall
have delivered to Borrower a certificate setting forth in reasonable detail
the basis of Borrower's obligation to indemnify Lender pursuant to this
Section 1.13. This indemnification shall be made within 30 days from the date
Lender makes written demand therefor.
(4) Within 30 days after the date of any payment of Taxes, Borrower
will furnish to Lender the original or a certified copy of a receipt evidencing
payment thereof. If no Taxes are payable in respect of any payment hereunder,
Borrower will furnish to Lender a certificate from each appropriate taxing
authority, or an opinion of counsel acceptable to Lender, in either case
stating that such payment is exempt from or not subject to Taxes, provided,
however, that such certificate or opinion need only be given if: (I) Borrower
makes any payment from any account located outside the United States, or
(ii) the payment is made by a payor that is not a United States Person.
For purposes of this Section 1.13 the terms "United States" and "United States
Person" shall have the meanings set forth in Section 7701 of the Code.
<PAGE> 8
(5) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 1.13 shall survive the payment in full of principal and interest
hereunder.
(6) If Lender claims any additional amounts payable pursuant to this
Section 1.13, it shall use its reasonable best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of Lender in good
faith, be materially disadvantageous to Lender.
(7) Lender agrees that (I) it will take all reasonable actions by all
usual means to maintain all exemptions, if any, available to it from United
States withholding taxes (whether available by treaty, existing administrative
waiver, by virtue of the location of Lender's lending office) and
(ii) otherwise cooperate with Borrower to minimize amounts payable by
Borrower under this Section 1.13; provided, however, Lender shall not be
obligated by reason of this Section 1.13(g) to contest the payment of any
Taxes or Other Taxes or to disclose any information regarding its tax affairs
or tax computations or reorder its tax or other affairs or tax or other
planning. Subject to the foregoing, to the extent Borrower pays sums
pursuant to this Section 1.13 and Lender receives a refund of any or all of
such sums, such refund shall be applied to reduce any amounts then due and
owing under this Note or, to the extent that no amounts are due and owing
under this Note at the time such refunds are received, Lender shall promptly
pay over all such refunded sums to Borrower, provided that no Default
or Event of Default is in existence at such time.
1.14 Increased Costs, Etc.
(1) If, due to either (I) the introduction of or any change (other than
any change which is taken into account in the calculation of the Eurodollar
Rate) in or in the interpretation or administration of any Law or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority, in any case introduced, changed, interpreted or
requested after the date hereof (whether or not having the force of Law),
there shall be any increase in the cost to Lender of agreeing to make or
making, funding or maintaining Eurodollar Advances to Borrower or there shall
be any reduction in the amount received or receivable by Lender hereunder
(whether of principal, interest or otherwise), then Borrower shall from time
to time, upon demand by Lender pay to Lender additional amounts sufficient
to compensate Lender for such increased cost. A certificate as to the amount
of such increased costs or reductions, submitted to Borrower by Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(2) If Lender determines that compliance with any Law or any guideline
of request from any central bank or Tribunal (other than as set forth in the
Risked-Based Capital Guidelines issued by the Board of Governors of the Federal
Reserve System, in the form in effect on the date of this Agreement, in
<PAGE> 9
Appendix A to Part 208 of the Federal Reserve Board's Regulation H, 12 CFR
Part 208, and in Appendix B to Part 225 of the Federal Reserve Board's
Regulation Y, 12 CFR Part 225 (collectively, "Capital Adequacy Guidelines"),
but not excluding from this Section 1.14(b) any increase in cost as a result of
any amendment, modification or change in interpretation or administration of
the Capital Adequacy Guidelines subsequent to the date of this Note) (whether
or not having the force of Law) affects or would affect the amount of capital
required or expected to be maintained by Lender or any corporation controlling
Lender or has or would have the effect of reducing the rate of return on
Lender's capital or on the capital of the corporation controlling Lender and
that the amount of such capital is increased, or the return on such capital is
decreased, by or based upon the existence of Lender's commitment to lend
hereunder and other commitments of this type, then, upon demand by Lender,
Borrower shall pay to Lender, from time to time as specified by Lender,
additional amounts sufficient to compensate Lender or such controlling
corporation in the light of such circumstances, to the extent that Lender
or such controlling corporation reasonably determines such increase in
capital, or reduction in the return on capital, to be allocable to the
existence of Lender's commitment to lend hereunder. A certificate as to
such amounts submitted to Borrower by Lender shall be conclusive and binding
for all purposes, absent manifest error.
(3) If Lender notifies Borrower that the Eurodollar Rate for any
Interest Period for any Eurodollar Advances will not adequately reflect the
cost to such Lender of making, funding or maintaining its Eurodollar Advances
for such Interest Period, (I) each such Eurodollar Advance will automatically,
on the last day of the then existing Interest Period therefor, Convert into a
Base Rate Advance and (ii) the obligation of Lender to make or continue, or
to Convert Advances into, Eurodollar Advances shall be suspended until Lender
notifies Borrower that it has determined that the circumstances causing such
suspension no longer exist.
(4) Notwithstanding any other provision of this Note, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for Lender to perform its
obligations hereunder to make Eurodollar Advances or to continue to fund or
maintain Eurodollar Advances hereunder, then, on notice thereof and demand
therefor by Lender to Borrower, (I) each Eurodollar Advance will automatically,
upon such demand, Convert into a Base Rate Advance and (ii) the obligation of
Lender to make or continue, or to Convert Advances into, Eurodollar Advances
shall be suspended until Lender notifies Borrower that it has determined that
the circumstances causing such suspension no longer exist.
(5) Upon the occurrence and during the continuance of any Default or
Event of Default, (I) each Eurodollar Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Base Rate
Advance and (ii) the obligation of Lender to make or continue, or to Convert
Advances into, Eurodollar Advances shall be suspended.
(6) The obligations of Borrower under this Section 1.14 shall survive
any termination of this Agreement.
<PAGE> 10
(7) Any certificate delivered to Borrower by Lender pursuant to this
Section 1.14 shall include in reasonable detail the basis for Lender's demand
for additional compensation. Lender shall use reasonable efforts (consistent
with legal and regulatory restrictions) to reduce or eliminate any such
additional compensation which may thereafter accrue and which efforts would
not, in the sole determination of Lender, be otherwise disadvantageous to
Lender.
1.15 Senior Indebtedness. The obligations of Borrower evidenced by this
Note constitute senior indebtedness of Borrower in right of payment and is not
subordinated in right of payment to any other indebtedness of Borrower.
ARTICLE II
MISCELLANEOUS
1.16 Waivers and Consents. Borrower and all endorsers, sureties and
guarantors of this Note hereby severally waive demand and notice of demand,
presentment for payment, protest, notice of protest, notice of acceleration of
and notice of intention to accelerate the maturity of this Note, diligence in
collecting, the bringing of any suit against any Person, and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any holder hereof, whether before or after maturity.
1.17 Expenses. If this Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness evidenced
hereby is proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally
agree to pay reasonable attorneys' fees and collection costs to the holder
hereof in addition to the principal and interest payable hereunder. In
addition, Borrower agrees to pay Lender all reasonable costs and expenses,
including reasonable attorneys' fees, incurred by Lender in connection with
the preparation of this Note, making the Advances hereunder, and in connection
with all amendments, consents and waivers related to the Advances and
requests therefor by Borrower.
1.18 Governing Law. This Note is payable and performable in Dallas
County, Texas, and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas and the federal laws of the United
States of America. Without excluding any other jurisdiction, Borrower agrees
that the courts of the State of Texas sitting in Dallas, Texas and the federal
courts sitting in Dallas, Texas will have jurisdiction over proceedings in
connection herewith.
<PAGE> 11
1.19 Interest and Charges. Interest paid or agreed to in this Note or in
any other documents executed in connection herewith shall not exceed the
Maximum Amount, and, in any contingency whatsoever, if Lender shall receive
anything of value deemed interest under Applicable Law which would exceed the
Maximum Amount, the excessive interest shall be applied to the reduction of
unpaid principal or refunded to Borrower, if it exceeds unpaid principal.
1.20 Binding Effect. This Note shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower shall not have the right to assign its rights or
obligations hereunder or any interest herein without the prior written consent
of Lender. Lender may assign to one or more banks, all or any part of, or
may grant participations to one or more banks in or to all or part of, any
Advance or Advances and this Note, and to the extent of any such assignment or
participation (unless where otherwise stated) the assignee or participant of
such assignment or participation shall have the rights and benefits with
respect to each Advance or Advances and this Note, as it would have if it was
Lender hereunder.
1.21 Titles. The titles to Sections in this Note are inserted for
convenience only and do not constitute a part of the text hereof.
1.22 Remedies. If an Event of Default shall have occurred and be
continuing:
(1) With the exception of an Event of Default specified in
Section 8.1(f) or (g) of the Credit Agreement, Lender may at its election,
terminate the Commitment and/or by written notice to Borrower declare the
principal of and interest on the Advances and all other amounts owed under this
Note to be forthwith due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived.
(2) Upon the occurrence of an Event of Default specified in
Section 8.1(f) or (g) of the Credit Agreement, such principal, interest and
other amounts shall thereupon and concurrently therewith become due and
payable and the Commitment shall forthwith terminate, all without any action
by Lender and without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Note to the contrary
notwithstanding.
(3) Lender may exercise all of the rights granted to it under this
Note and under Applicable Law.
(4) The rights of Lender hereunder shall be cumulative, and not
exclusive.
<PAGE> 12
ARTICLE III
DEFINITIONS
1.23 As used in and for all purposes of this Note, the terms defined in
this Article III shall have the following meanings, and the singular shall
include the plural, and vice versa, unless otherwise specifically required by
the context:
"Advance" means any amount advanced by Lender to Borrower pursuant to
Section 1.2 hereof on the occasion of any borrowing, including without
limitation any Refinancing Advance.
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and final orders of governmental
bodies or regulatory agencies applicable to such Person and its properties,
including, without limiting the foregoing, all orders and decrees of all
tribunals in proceedings or actions to which the Person in question is a party,
and (b) in respect of contracts relating to interest or finance charges that
are made or performed in the State of Texas, "Applicable Law" shall mean the
laws of the United States of America, including without limitation 12 USC ''
85 and 86, as amended from time to time, and any other statute of the United
States of America now or at any time hereafter prescribing the maximum rates
of interest on loans and extensions of credit, and the laws of the State of
Texas, including, without limitation, Art. 1H, if applicable, and if Art. 1H
is not applicable, Art. 1D, and any other statute of the State of Texas
prescribing maximum rates of interest and extensions of credit; provided that
the parties hereto agree pursuant to Texas Finance Code Section 346.004 that
the provisions of Chapter 346 of the Texas Finance Code shall not apply to
this Note or any other Note Documents.
"Art. 1D" means Article 5069-1D, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Art. 1H" means Article 5069-1H, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Base Rate" means an interest rate per annum for each day equal to the
sum of (a) 2.50% plus (b) higher of (I) the Prime Rate in effect on such day
or (ii) the Federal Funds Rate in effect on such day plus 1/2%, each without
notice to Borrower.
"Base Rate Advance" means any Advance bearing interest at the Base Rate.
"Borrowing" means any borrowing hereunder of a Base Rate Advance or a
Eurodollar Advance.
"Business Day" means a day on which banks are open for the transaction of
business in Dallas, Texas and, with respect to any Eurodollar Advance, also
a day on which commercial banks are open for international business (including
dealings in Dollar deposits) in London, England.
"Commitment" means $20,000,000, as reduced from time to time pursuant to
Section 1.7 hereof.
<PAGE> 13
"Commitment Fee" means the fee described in Section 1.5 hereof.
"Conversion", "Convert" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 1.3(b)
hereof.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of December 19, 1997, among Borrower, the lenders party
thereto and NationsBank, N.A. (successor by merger to NationsBank of Texas,
N.A.), as Administrative Lender, as amended, modified, supplemented or restated
from time to time.
"Debtor Relief Laws" has the meaning given to such term in the Credit
Agreement.
"Default" has the meaning given to such term in the Credit Agreement.
"Eurodollar Advances" means Advances which bear interest at the Eurodollar
Rate.
"Eurodollar Rate" means an interest rate per annum equal to the sum of
(I) 4.00% plus (ii) a rate per annum determined pursuant to the following
formula:
London Interbank Rate
------------------------------------
100% - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means the reserve requirement including
any supplemental and emergency reserves (expressed as a percentage) applicable
to member banks of the Federal Reserve System in respect of "Eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal
Reserve System, or such substituted or amended reserve requirement as may be
hereafter applicable to member banks of the Federal Reserve System.
"Event of Default" means (I) the occurrence of an "Event of Default" as
defined in the Credit Agreement (whether or not the Credit Agreement is still
in effect), (ii) the failure of Borrower to pay any interest under this Note
or any fees payable hereunder or any other costs, expenses or other amounts
payable hereunder when due, and such failure is not cured within one Business
Day from the date such payment is due, (iii) the failure of Borrower to pay
any principal under this Note when due, (iv) the failure or refusal of
Borrower or any Guarantor to comply with any of the covenants contained in
this Note or any Guaranty, or (v) any representation or warranty made under
this Note or any Guaranty shall prove to have been incorrect or misleading in
any material respect when made.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to
Lender on such day on such transactions as determined by Lender.
<PAGE> 14
"Guarantor" has the meaning set forth in the Credit Agreement.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, Lender is then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to
Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be
(a) the weekly rate ceiling described in and computed in accordance with the
provisions of Art. 1H, or (b) either the quarterly ceiling or the annualized
ceiling computed pursuant to Art. 5069-1D.008, Title 79, Revised Civil Statutes
of Texas, as amended; provided, however, that at any time the weekly rate
ceiling, the quarterly ceiling or the annualized ceiling shall be less than
18% per annum or more than 24% per annum, the provisions of Art. 5069-1D.009(a)
and (b), Title 79, Revised Civil Statutes of Texas, as amended, shall control
for purposes of such determination, as applicable.
"Interest Period" means, with respect to any Eurodollar Advance, the
period beginning on the date an Advance is made or continued as or Converted
into a Eurodollar Advance and ending one or two months thereafter (as Borrower
shall select):
(1) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided, however, that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(2) whenever the first day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in
such Interest Period, such Interest Period shall end on the last Business
Day of such succeeding calendar month.
"Law" has the meaning given to such term in the Credit Agreement.
"London Interbank Rate" means, for any Eurodollar Advance for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any
reason such rate is not available, the term "London Interbank Rate" shall
mean, for any Eurodollar Advance for any Interest Period therefor, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates.
<PAGE> 15
"Maturity Date" means the earliest of (a) the occurrence of a Prepayment
Event, (b) the date which is 90 days from the date of this Note or the date
of termination in whole of the Commitment hereunder.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, Lender is permitted to charge on the Obligations.
"Necessary Authorization" has the meaning given to such term in the
Credit Agreement.
"Obligations" means all obligations of any nature (whether matured or
unmatured, fixed or contingent) of Borrower to Lender under this Note.
"Payment Date" means the last day of any Interest Period for any
Eurodollar Advance.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prepayment Event" means any increase in the commitment under the Credit
Agreement after the date of this Note or the issuance of any Capital Stock (as
defined in the Credit Agreement) of the Borrower or any of its Subsidiaries
after the date of this Note.
"Prime Rate" means, at any time, the prime interest rate announced or
published by Lender from time to time as its reference rate for the
determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by Lender as its "prime rate;"
it being understood that such rate may not be the lowest rate of interest
charged by Lender.
"Quarterly Date" means the last day of each March, June, September and
December commencing with the first such day after the date of this Note.
"Refinancing Advance" means any Advance which is used to pay the principal
amount (or any portion thereof) of an Advance at the end of its Interest Period
and which, after giving effect to such application, does not result in an
increase in the aggregate amount of outstanding Advances.
<PAGE> 16
"Term Credit Agreement" means that certain Term Credit Agreement, dated as
of December 19, 1997, among Borrower, the Lenders party thereto and
NationsBank, N.A. (successors by merger to NationsBank of Texas, N.A.), an
Administrator Lender, as amended, modified, supplemented or restated from
time to time.
"Tribunal" has the meaning given to such term in the Credit Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants as follows:
1.24 Corporate Authority and No Violation. The execution, delivery and
performance by Borrower of this Note (a) is within its corporate powers,
(b) has been duly authorized by all necessary corporate action, and does
not and will not (I) contravene its certificate of incorporation or bylaws,
(ii) violate any other applicable requirement of law, or any order or decree
of any governmental authority or arbitrator, (iii) conflict with or result in
the breach of, or constitute a default under, or result in or permit the
termination or acceleration of, any of its agreements, (iv) result in the
creation or imposition of any Lien upon any of its property or (v) require the
consent of, authorization by, approval of, notice to, or filing or
registration with, any Person not already obtained.
1.25 Binding Obligation. This Note has been duly executed and delivered
by Borrower and is the legal, binding and valid obligation of Borrower
enforceable against it in accordance with its terms, subject to the following
qualifications: (I) equitable principles generally (whether considered in a
proceeding at law or in equity), and (ii) Debtor Relief Laws (insofar as any
such law relates to the bankruptcy, insolvency or similar event of Borrower).
1.26 Credit Agreement Representations and Warranties. For purposes
hereof, all of the representations and warranties of Borrower set forth in
Article 4 of the Credit Agreement (the "Credit Agreement Representations and
Warranties") are hereby reaffirmed by Borrower and are incorporated herein as
written, mutatis mutandis. The Borrower hereby represents and warrants that
the Credit Agreement Representations and Warranties are true and correct in
all material respects as though made on and as of the date of this Note.
<PAGE> 17
ARTICLE V
COVENANTS
Until the termination of the Commitment and payment of all outstanding
Obligations in full, Borrower will comply with all of the covenants and
agreements set forth in Articles 5, 6 and 7 of the Credit Agreement as in
effect on the date of this Note. For purposes of this Note, all of the
covenants and agreements of Borrower set forth in Articles 5 (except for
Section 5.8), 6 and 7 of the Credit Agreement and all definitions relating
thereto are hereby reaffirmed and adopted by Borrower and are incorporated
herein as written and agreed upon as of the date of this Note, mutatis
mutandis, which phrase for purposes hereof means (a) the phrase "Prior to the
Release Date" appearing in the first paragraph of each of said Articles shall
be deemed to read "Until the termination of the Commitment and payment of all
outstanding Obligations in full", and (b) each reference in such Article to
"Lenders", "each Lender" and "Administrative Lender" shall be deemed to be a
reference to Lender. In the event of termination of the Credit Agreement
prior to the payment in full of all Obligations under this Note and termination
of the Commitment, Borrower covenants and agrees that the covenants and
agreements of Borrower contained in Articles 5, 6 and 7 of the Credit
Agreement shall nevertheless remain in full force and effect and be binding
upon Borrower, and Borrower shall continue to perform, observe and comply
with all of the covenants and agreements of Borrower set forth in Articles 5,
6 and 7 of the Credit Agreement. Except for amendments, modifications and
waivers provided up to the date hereof, no amendment, modification or waiver
with respect to Articles 5, 6 and 7 of the Credit Agreement shall be
effective with respect to such Articles as they are incorporated herein
without the written consent of Lender.
ARTICLE VI
FINAL AGREEMENT
THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
PILLOWTEX CORPORATION
/s/ Jeffrey D. Cordes
-------------------------
President and COO
NATIONSBANK, N.A.
/s/ Suzanne B. Smith
--------------------------
Vice President
<PAGE> 18
EXHIBIT "A"
NOTICE OF BORROWING
NationsBank, N.A. [Date]
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Suzanne B. Smith
Ladies and Gentlemen:
The undersigned refers to the Promissory Note in the maximum principal
amount of $20,000,000, dated as of May 4, 1999 (said Note, as it may be amended
or otherwise modified from time to time, being the "Note"; the terms defined
therein being used herein as therein defined), payable by Pillowtex Corporation
to the order of NationsBank, N.A. and hereby gives you notice pursuant to
Section 1.3 of the Note that the undersigned hereby requests _____ Borrowing[s]
under the Note, and in that connection sets forth below the information
relating to [each] such Borrowing (a "Proposed Borrowing") as required by
Section 1.3 of the Note:
Proposed Borrowing:
(1) The Business Day of such Proposed Borrowing is _______________,
19___.
(2) The Type of Advances comprising such Proposed Borrowing is [Base
Rate Advances [to the extent of an aggregate amount of
$___________]] [Eurodollar Advances [to the extent of an aggregate
amount of $___________]].
(3) The aggregate amount of such Proposed Borrowing is $____________.
(4) [The initial Interest Period for each [Eurodollar Advance] made as
part of such Proposed Borrowing is _____ [months]].
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing, before
and after giving effect thereto and to the application of the proceeds
therefrom:
(A) the representations and warranties specified in Article 4 of
the Note are true and correct in all material respects as though made on
and as of such date; and
(B) no event has occurred and is continuing or would result from
such Proposed Borrowing, which constitutes a Default or Event of Default.
Very truly yours,
PILLOWTEX CORPORATION
By:
Name:
Title:
<PAGE> 1
FIRST AMENDMENT TO PROMISSORY NOTE
THIS FIRST AMENDMENT TO PROMISSORY NOTE (this "First Amendment"),
dated as of July 27, 1999, is entered into between PILLOWTEX
CORPORATION, a Texas corporation ("Borrower"), and BANK OF AMERICA,
N.A. (formerly known as NationsBank N.A.) ("Lender").
A. Borrower executed that certain Promissory Note, dated May 4,
1999, in the maximum principal amount of $20,000,000, payable to the
order of Lender (the "Promissory Note"; the terms defined in the
Promissory Note and not otherwise defined herein shall be used herein
as defined in the Promissory Note).
B. Borrower and Lender desire to amend the Promissory Note.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby
acknowledged, Borrower and Lender covenant and agree as follows;
I. AMENDMENTS TO PROMISSORY NOTE.
(a) The amount of the Commitment set forth in the beginning of the
Promissory Note is hereby increased from $20,000,000 to $35,000,000.
(b) The definition of "Commitment" set forth in Article III of the
Promissory Note is hereby amended to read as follows;
"Commitment" means $35,000,000, as reduced from time to time
pursuant to Section 1.7 hereof.
The definition of "Maturity Date" set forth in Article III of
the Promissory Note is hereby amended to read as follows:
"Maturity Date" means the earliest of (a) the occurrence of
a Prepayment Event, (b) December 1, 1999, or the date of
termination in whole of the Commitment hereunder."
2. REPRESENTATIONS AND WARRANTIES TRUE: NO EVENT OF DEFAULT. By
its execution and delivery hereof, Borrower represents and warrants
that, as of the date hereof and after giving effect to the amendment
provided in the foregoing Section 1:
(a) the representations and warranties contained in the Promissory
Note are true and correct on and as of the date hereof as if made on
and as of such date;
<PAGE> 2
(b) no event has occurred and is continuing which constitutes a
Default or an Event of Default;
Borrower has full power and authority to execute and deliver
this First Amendment, and this First Amendment and the Promissory Note,
as amended hereby, 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; and
(d) no authorization, approval, consent or other action by, notice
to, or filing with, any governmental authority or other Person, is
required for the execution, delivery or performance by Borrower of this
First Amendment or the acknowledgment of this First Amendment by any
Person that executed a Guaranty Agreement (each such Person being a
"Guarantor").
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be
effective as of July 27,1999, subject to the following:
(a) Lender shall have received counterparts of this First
Amendment executed by Borrower and acknowledged by each Guarantor; and
(b) Lender shall have received an amendment fee from Borrower in
consideration for this First Amendment in the amount of $262,500 (which
fee shall be fully-earned when paid, and non-refundable for any
reason).
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (I)
acknowledges, consents and agrees to the execution, delivery and
performance by Borrower of this First Amendment, (ii) acknowledges and
agrees that its obligations in respect of its Guaranty Agreement 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 Guaranty
Agreement (including, without limitation, with respect to the
Commitment as increased hereby), and (iv) acknowledges and agrees that
it has no claim or offsets against, or defenses or counterclaims to,
its obligations under its Guaranty Agreement.
5. REFERENCE TO THE PROMISSORY NOTE
(a) Upon the effectiveness of this First Amendment, each reference
in the Promissory Note to "this Note", "hereunder", or words of like
import shall mean and be a reference to the Promissory Note, as
affected and amended by this First Amendment.
(b) The Promissory Note, as amended by this First Amendment, shall
remain in full force and effect and are hereby ratified and confirmed.
2
<PAGE> 3
6. COSTS EXPENSES AND TAXES. Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation,
reproduction, execution and delivery of the First Amendment and the
other instruments and documents to be delivered hereunder (including
the reasonable fees and out-of-pocket expenses of counsel for Lender).
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 when 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 Borrower and 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 PROMISSORY NOTE, AS AMENDED BY THIS
FIRST AMENDMENT, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AS
TO THE SUBJECT MATTER HEREIN 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> 4
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
PILLOWTEX CORPORATION
/s/ Jeffrey D. Cordes
-----------------------------------
By Jeffrey D. Cordes
President and COO
BANK OF AMERICA, N.A.
/s/ Dirdre B. Doyle
-----------------------------------
By: Dierdre B. Doyle
Principal
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 SF, INC. (formerly
known as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
-4-
<PAGE> 5
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC
/s/ Jeffrey D. Cordes
- -------------------------------
By: Jeffrey D. Cordes
President and COO
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63,165
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